Housing Market Index

29May

Home Prices Rise in March

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HJust when you thought home prices couldn’t go any higher they are still pushing limits.  The S&P/Case-Shiller composite index recorded a 0.9% rise in March on a seasonally adjusted basis.  Economists had expected the index to report a 0.7% increase.

Although the index reported a year-over-year home price increase of 12.4% (well above Wall Street’s appraisal) this was down slightly from February’s year-over-year data of 12.9%.  As mortgage rates drop again, the housing market could see more growth and higher prices still.

March’s slight drop in year-over-year data reveals that home prices could be moderating.  Markets like Las Vegas, San Francisco, and Los Angeles have reported significant slowdowns.  Chairman of the index committee at S&P, David Blitzer, said, “Annual price increases for the two composites have slowed in the last four months and 13 cities saw annual price changes moderate in March.  The National Index also showed decelerating gains in the last quarter.”  It will be interesting to see over the next few months how much higher prices can go and even if they will or not.

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13May

Home Prices are Hot

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Home prices continue to rise in what is undoubtedly a seller’s market.  According to Zillow, prices have increased so quickly that about 1,000 local housing markets have reached records in new home prices.

Real estate brokerage firm, Redfin, noted that 40% of the sellers it surveyed plan to price their homes above market value when they list during the second quarter this year.  This is a 33% increase from the start of the year.  Fannie Mae reported in April that 42%, an all-time high, of their 1,000 surveyed homeowners and renters believe that it is a good time to sell.

Home sellers are more likely to receive the asking price from the buyer that pays in all cash.  In markets with fewer cash buyers, home sellers have indicated they are willing to hold out if it doesn’t sell quickly.  For some homeowners they need to get their full asking list price in order to pay off a current mortgage.

home prices are hot

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6May

Homeownership Hits a 19 Year Low

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Couple looking at a houseThe American dream used to entail owning a home but has this traditional dream shifted?  The U.S. Census Bureau reported that homeownership rates have dropped to 64.8% in the first quarter of 2014, which is the lowest rate since 1995.  Home prices have soared and home sales have not been keeping pace as first-time homebuyers, in many cases, have been priced out of the market and are still finding it hard to gain access to credit.  Investors are still playing a large role in the single-family real estate market.

Robert Shiller of the S&P/Case-Shiller Home Price Indices commented on this topic, “This institutional investor dynamic is a whole new era I think.  As institutional investors start to play in the single-family market, that just changes it fundamentally.”  Those who aren’t buying are renting instead which isn’t necessarily a worse scenario.  Some prefer not having a large mortgage to worry about and not being saddled with repair costs when something in the home breaks down.

Trulia’s chief economist, Jed Kolko, pointed out, “Ironically, adding renter households could cause the homeownership rate to fall, even though these new rental households are a sign of recovery and will spur more construction starts.”

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25April

U.S. Home Builder Focuses on Entry-Level Homes

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The current housing market’s supply of homes continues to be tight with the majority of homes available for sale being higher-end properties.  This leaves those who would be first-time homebuyers with fewer choices.  But the nation’s largest home builder (by market value), DR Horton, is shifting its attention from high-end homes to building entry-level residences.

The company’s new line of homes, Express Homes, will start at $120,000-$150,000 and will be be rolled out in Texas, Georgia and Florida.  Executives of the company see a strong demand for this market segment that is lacking in supply.  D.R. Horton CEO Donald Tomnitz said, “We wouldn’t be getting into Express Homes if we didn’t think it was the next segment of the market to recover… As we move into this recovery we’ll see some encouragement from the government in terms of trying to get more people into entry-level homes.” Pictured above is an Express Home in Dallas, TX and below is another located in Houston, TX.

101611500-ExpressHouston_530x298Outside analysts also see this shift in the market place.  Stephen East from research firm ISI Group commented, “We view it as the right move. Horton’s cost structure and operational experience at the entry level makes them one of the few builders that can do this profitably. Also, we are firmly convinced the first-time-buyer segment is getting access to more credit, which will lead to more demand for this low-entry level product.”

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4April

Housing Market Thawing Slowly as Supply Increases

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The Federal Reserve’s recent two-day policy meeting painted a picture of sluggish growth in the economy for the first quarter of the year, mostly attributed to colder than normal weather which hindered economic activity.  Federal Reserve Chair, Janet Yellen, commented on labor conditions being tougher in some ways now than in any other recession and stressed the Fed’s “extraordinary commitment” to aid recovery in the form of massive bond-buying and super-low interest rates for some time to come.  The economic data has not been improving as quickly as many would have hoped for but there have been some positive reports that still point to a rebound.  This should have a positive impact on the housing market.  It’s time to put the first quarter behind us now and look for signs of growth during the second quarter in jobs, home supply, and home prices.

The U.S job’s report released Friday helped paint a brighter picture for the coming months.  The economy added 192,000 new jobs during March and the unemployment rate held at 6.7 percent according the Bureau of Labor Statistics.  These numbers came in around consensus but still do not point to a robust rebound.  Kathy Bostjancic, director of macroeconomic analysis at The Conference Board, said, “Undoubtedly, there was some catch up in hiring following the inclement weather this winter.  Still, the underlying hiring trend is encouraging, with more good news expected this spring and summer.”  As the employment picture brightens up, this will help strengthen the housing market as more people will look to purchase homes.

Housing supply has been on the rise since January, an important factor in getting the housing market to thaw out and eventually start booming.  The noted monthly supply in February was up slightly from January’s five month supply, citing 5.2 months of supply.  Six months of supply is considered a healthy housing market.  As more homes are built to increase inventory numbers, analysts believe this will help spur growth in the housing market.  Homeowners looking to sell their property will have an easier time looking for a new residence, which should encourage sales and purchases.

Case-Shiller Price IndexAs discussed in previous blog posts, the continued increase in home prices have made this a seller’s market, but have priced some potential buyers out of the market.  While prices have continued to grow, they are increasing at a decreasing rate (January noted a slight drop of 0.08% in the Case-Shiller 20 City Home Price Index). This points to a possible retreat in gains, reflecting a more normal range in prices over the next few months.  This will open the door to more market participants and will help get some momentum behind the housing market.

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4March

New Home Sales Reach 2008 Highs

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render of rising arrowGood news surrounding the housing market was released this week.  It looks like the effects from abnormally cold weather hasn’t kept the housing market down as formerly suspected.  January sales of new single-family homes was reported at a seasonally adjusted annual rate of 468,000 units.  This number showed a huge jump in sales, surging to a 5 ½-year high since July 2008.

Previously reported, December home sales were down 7 percent from the month prior.  This number was revised upwards from 414,000 to 427,000 sighting just above a 3 percent increase.  This revision equates to only a 4 percent drop in new home sales in December showing that the housing market might not have been hit as hard by the cold temperatures as mentioned last week.

The 9.6 percent jump in new home sales in January exceeded what economists had forecast; 400,000 units.  The Northeast, which has been bearing the brunt of the cold weather, actually recorded a 73.7 percent increase, hitting a seven month high.  The South reported a five-year high sighting a 10.4 percent rise in sales.  Sales in the Midwest dropped 17.2 percent and the West recorded an 11 percent increase.

New home sales numbers reported from the Commerce Department are based on signed contracts with the house being in any stage of construction.  Existing home sales data is provided by the National Association of Realtors (NAR) and they report once the sales contract has closed.  Given this difference, new home sales usually lead existing home sales by a month or two as it can take 30-60 days for a closing on a house to occur.  Pending home sales, which are also reported on from time-to-time in this blog, overcome the lagging effect of existing home sales and center around existing home sales where the contract has been signed but not currently closed.

Housing prices still continue to ramp up.  The Case-Shiller composite index reported a 0.8 percent increase in prices in December from the prior month, which was higher than economists predicted.  Year-over-year, the index reported a 13.4 percent rise.  Higher costs of labor and construction materials have been attributed to the increase in home prices.

As we move closer to the spring season it will be interesting what the trend in new home sales along with existing and pending home sales will be.

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25February

Home Affordability Harder to Find

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Today’s housing market is witnessing tight inventories, high prices and tighter credit requirements, making homes less affordable for Americans.  The proof can be found in the pudding, or more specifically, in the U.S. mortgage applications report from The Mortgage Bankers Association (MBA) and in the home price report from the National Association of Realtors (NAR).

Applications for U.S. home mortgages dropped 2 percent to 397.2 as purchase and refinancing application decreased the week of February 7th.   The index recorded its lowest level since December 2000 at the end of last year.  The MBA’s refinancing index reported a .2 percent drop while loan requests for home purchases dropped 5 percent.  Some analysts attribute the drop in applications to the extreme winter weather much of the country has experienced but the data points to the theory of home affordability dropping.

Real estate market NAR recently released its data showing home prices increase 10.1 percent year-over-year in the fourth quarter of 2013.  The third quarter of 2013 reported 12.5 percent year-over year gains.  NAR chief economist Lawrence Yun in a release stated, “The vast majority of homeowners have seen significant gains in equity over the past two years, which is helping the economy through increased consumer spending.  At the same time, home prices have been rising faster than incomes, while mortgage interest rates are above the record lows of a year ago. This is beginning to hamper housing affordability.”  Although home prices have pulled back some, affordability is still waning.

Interest rates might also be playing a hand in this situation.  Income levels have remained flat while interest rates have crept upward.  The expensive home prices, caused in part to lack of supply and higher rates, have knocked out several potential buyers from the market.  As rates increase, the amount of house one can afford drops, leading to issues of affordability.  “Pricing is still reacting to demand outstripping supply, and until we see an increase in inventory, you’re going to continue to see price increases that will be higher than what has been anticipated,” said Richard Smith, CEO of Realogy.

Housing supply has been impacted by the harsh winter weather touching most of the country in the past several weeks.  Builders can’t build new homes in these harsh conditions which keep the supply tight and buyers don’t want to venture out in these conditions to shop.  Once the weather warms up, the market could experience pent-up sellers looking to buy which would be reassuring of the housing market recovery.

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3December

Home Prices Soar Due To Investors

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Real estate marketThe housing market looks to have picked up some traction recently with new data report numbers released this past week showing growth in permits and home prices, which helps boosts the U.S. outlook. But Robert Shiller, Case Shiller Index co-founder and Yale University professor of economics, cautions this recent pickup might not be fundamentally sustainable and notes “we can’t trust the momentum in the housing market anymore.”  Is the housing market in a solid recovery state or does it appear to be a bubble lacking fundamental support?

Permits for construction on future homes hit a new 5-1/2 year high in October.  Building permits increased 6.2 percent to a seasonally adjusted annual rate of 1.03 million units, the highest rate since June 2008.  Multi-family permits surged 15.3 percent while single-family home permits increased .8 percent after dropping 1.9 percent in September.  The lack of supply has still not caught up with the strong demand of housing.  This has contributed partially to the rise in home prices and should continue to aid in increasing numbers for construction, rent and prices.

The price of single-family homes recorded big gains in the month of September.  The Case Shiller composite index reported solid increases in several regions across the U.S.  The index jumped 13.3 percent in September from a year ago.  This is the strongest gain recorded since February 2006.  Home prices were up 0.7 percent in August from the prior month; the tenth monthly increase in a row.  But this continued increase in home prices may not be maintainable.  Investors, specifically institutional investors, have helped push home prices to new highs and these investors are starting to pull back on their acquisitions.  These all-cash investors pushed home prices up more than 13 percent over the last 12 months which has priced out regular homebuyers.

Of all home sales in October, 6.8 percent were institutional investors according to RealtyTrac.  This was a significant drop from the month before which boasted 12.1 percent of all sales.  Anika Khan, senior economist at Wells Fargo Securities, told “Street Signs,” “In a lot of those hard-hit markets, we continue to see the greatest price increases. … A lot of this increase is exaggerated.  However, the underlying fundamentals are still very positive, especially in those markets that have strong household formations, strong population growth and strong job prospects. … We are seeing a recovery in the housing market.”  As investors exit their investments and slow their acquisitions, home prices will drop back to levels centered on supply and demand of non-investor homebuyers.  This could result in a pricing “bubble” pop.

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9September

Mortgage Applications and Home Prices Look Up

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As the markets continue to ride the proverbial roller coaster, housing data has managed to avoid such large swings and appears to be steadily chugging onward and upward; showing a clearer picture than the last few weeks.  The Mortgage Bankers Association’s mortgage application activity index reflects refinancing and home purchase demand.  It reported a 1.3% increase during the last week of August which comes off the heels of a 2.5% drop the week prior.  Last week’s refinance index increased 2% from the week before.

render of rising arrowThis increase in mortgage applications could be due in part to the 30-year mortgage rate which dropped to 4.73% from its high earlier this year of 4.80%.  The slight drop in interest rates has also encouraged current homeowners to refinance before rates go any higher, even though they are still very low.  Some economists expect that as the fed begins to taper bond purchases, the housing recovery may in the long term slow and lose its momentum, meaning mortgage applications and home prices could top out.  For now, it could encourage potential home buyers to get off the sidelines and get in the game before rates rise even more and before home prices tick even higher.

The monthly CoreLogic report indicates that home prices, including distressed homes, jumped 12.4% higher in July from a year ago (1.8% up from a month ago).  This is the 17th month in a row for home prices to increase.  “Looking ahead to the second half of the year, price growth is expected to slow as seasonal demand wanes and higher mortgage rates have a marginal impact on home purchase demand,” said Mark Fleming, chief economist for CoreLogic.  This high number is also in part due to fewer distressed homes for sale.  Home prices were up 11.4% excluding distressed home sales over the last year.

The current supply of properties for sale is tight, which is also helping to push home prices higher.  Recently, home builders have slowed their pace of construction, not keeping pace with the demand for new homes, leading to lower inventory numbers.  Demand for housing is supported by the recently reported mortgage application numbers.  Some believe this situation won’t change much over the course of this next year.  Recalling from Econ 101, tight supply and strong demand will push home prices up whether they are new builds or existing homes.  The biggest threat to this bullish story in housing continues to be interest rates and how quickly they move up.

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Souces: http://www.corelogic.com/about-us/researchtrends/home-price-index-report.aspx

http://www.mbaa.org/NewsandMedia/PressCenter/85594.htm

29August

Mixed Signals in the Housing Market?

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Growing home sales graphic designThe economy and the housing market seem to be at a cross roads right now with some economic indicators showing signs of growth and others showing signs of stalling or a slight retraction.  It seems as though everyone is holding their breath to see if the Fed will decide to begin tapering this next month or continue its rounds of bond buying.

For the month of June, U.S. single-family home prices rose at a slightly slower pace than in previous months.  The S&P/Case Shiller composite index which is comprised of 20 metro areas around the U.S. rose .9% on a seasonally adjusted basis.  May’s number was a 1% increase.  If you compare home prices year-over-year in June they jumped 12.1%.  This is down slightly from May’s year over year jump of 12.2%.  Could this be a signal the housing market is cooling?

On CNBC’s “Squawk on the Street”, Robert Shiller, Case-Shiller Index co-founder & Yale University professor of economics said on Tuesday, “Obviously we’re in a housing recovery, at least for the short term…Housing is a market with momentum and right now, the momentum is up…In the single family realm, I think that there is a chance that there is a weakening and there is all this fear about the tapering… The housing market has gotten very speculative and it goes through big cycles…It’s a roller-coaster, that’s what these markets have become.”

Home prices are still up double digits from a year ago but home sales show a more mixed picture of the housing market.  Last week the new homes sales figure dropped 13.4% in July to its lowest level in 9 months.  This was well below economists’ expectations and could be attributed to the increase in mortgage rates over the last few months.  However, existing home sales for July were strong and jumped 6.5% from June according to Mortgage News Daily.  Pending home sales index showed signs of weakness; it fell 1.3% from June to July.  This could be a foreshadowing of weaker home sale closures in the next few months.

Chief economist of the National Association of Realtors (NAR), Lawrence Yun, commented on these recent housing market figures. “The modest decline in sales is not yet concerning, and contract activity remains elevated, with the South and Midwest showing no measurable slowdown.  However, higher mortgage interest rates and rising home prices are impacting monthly contract activity in the high-cost regions of the Northeast and the West.”

The month of September should give a clearer understanding of the direction of this current housing market.  Until these next figures are released, it seems that the housing market will try to decide whether it’s still in a bull market.

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Sources: http://www.mortgagenewsdaily.com/data/home-sales-existing.aspx

http://www.cnbc.com/id/100993579

http://www.cnbc.com/id/100988918