Improving Markets Index

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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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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26March

Key Indicators Point to Possible Pickup in Housing

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some growthThe U.S. housing sector has faced some challenges over the past several months with a colder than normal winter taking center stage in the minds of many.  It seems as though spring couldn’t come soon enough.  Inventories have remained tight, home affordability is still low, and home sales haven’t ticked up as quickly as most had hoped for.  But with warmer temperatures ahead and the economy slowly improving, some key indicators show housing could start to see some growth in the coming months.

Homebuilder confidence rose slightly in March, signaling a pickup in housing.  The National Association of Home Builders/Wells Fargo Index of builder confidence climbed to 47 from 46 in February.  The Index gauges builder perceptions  as “good,” “fair” or “poor” as it relates to current single-family home sales and sales expectations for the next six months.  Although this number rose less than anticipated by economists, it’s a positive sign when taking into account that February’s reading was the biggest drop on record thanks to snowstorms, fewer prospective buyers shopping, and market and labor shortages.  Readings below 50 indicate survey respondents reported more poor market conditions than good.  The index’s components were mixed in March. The component gauging current sales conditions increased one point to 52 and the component measuring buyer traffic increased two points to 33. The component gauging sales expectations in the next six months dropped one point to 53.

U.S. weekly job claims for unemployment benefits increased by 5,000 two weeks ago but this number was lower than expected.  The four-week moving average of new job claims which help to smooth out volatility, fell by 3,500, the lowest level since last November.  Reported claims dropped 14,000 from February to March, pointing to further proof of job growth improvement.  If this trend continues, housing should reap the positive benefits from increased hiring. People who have a steady income are more likely to consider purchasing a home.  On Wednesday, Janet Yellen, the new Federal Reserve Chair, said harsh weather played an important role in the economy’s weakness during the first quarter and added that labor market conditions continue to improve.

Manufacturing also had some positive news to report citing faster than expected growth in February.  ISM’s (Institute for Supply Management) U.S. manufacturing index rose to 53.2 from 51.3 in January. Readings for this index above 50 are a sign of expansion.  Russell Price, senior economist at Ameriprise Financial Inc. in Detroit and, according to Bloomberg data the best ISM index forecaster over the past two years,  commented, “Manufacturing remains a bright spot for the economy.  There’s still a sizable amount of pent-up demand in the consumer and corporate sectors.”  This bodes well for the housing industry which has been facing pent-up demand.  As manufacturing for housing supplies picks up, more homes should be constructed.

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10January

Home Prices Reach for the Stars

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Temperatures across the U.S. are plunging and have left many cities frozen in ice and snow.  One thing not plunging is home prices.  The housing market has continued to experience rising prices along with rising mortgage rates leading to a decline in purchasing power.  Rising home prices and rates deal a double blow to affordability.

According to the S&P Case-Shiller Home Price Index, which follows 20 large cities in the U.S., home prices rose 13.61 percent year-over-year and increased .18 percent from the month of October to November.  Las Vegas had the largest year-over-year gain of 27.05 percent while New York and Cleveland tied for the smallest gain of 4.9 percent.

HomePriceReachUpCoreLogic’s most recent home price report for November 2013, reported home prices (including distressed sales) rose 11.8 percent year-over year.   November’s increase in home prices is the 21st straight month of year-over-year growth.  CoreLogic reports home prices gained 0.3 percent (excluding distressed sales) in November versus October.  CoreLogic economist Mark Fleming said in the release, “The housing market paused as expected in November for the holiday season with very low month-over-month appreciation.”

 According to CoreLogic data, 2013 was the best year for rising home prices in the past 8 years.  It is projected that  2013 year-end results will  show an overall  jump of 11.5 percent.  “It’s too early to tell if the marginal dip in the annual pace of house price inflation in November marks the start of the slowdown in price gains that we are expecting.  But we are confident that annual price gains will not remain in double-digit territory for much longer,” Capital Economics’ Paul Diggle commented.

This is positive news for potential home buyers  still waiting to get into the game.  Mortgage rates dipped to around 4.5 percent last week and many economists doubt this will hinder home sales in the short term (as noted in several  recent blogs).  Rates are still historically low.  Due to the recent pull back in mortgage rates, refinances ticked up 5 percent last week.  Overall refi activity is down 69 percent from a year ago when rates were more than a percentage point lower.

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17December

The New Year Brings New Changes in FHA Loans

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House prices continued to grow during 2013 and it appears the housing market is on the road to recovery.  While more than one-third of the housing market is still being supported by cash investors, home sales and mortgage numbers increased during the first half of the year.  Foreclosures are also down due to fewer homes being foreclosed on by the banks.   As homebuyers gain more confidence in the market by a show in rising home prices, interest rates have also accelerated (30-year fixed rate was 4.48% last week) making home affordability harder to find.  With all these changes, the Federal Housing Administration (FHA) is rolling out some new plans of their own.

The newspaper LATEST NEWS with the headline CHANGE WILL COMEStarting January 1, 2014,  FHA is lowering its lending limits across the board.  FHA Commissioner, Carol Galante, said in a release, “As the housing market continues its recovery, it is important for FHA to evaluate the role we need to play.  Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market and enables FHA to concentrate on those borrowers that are still underserved.”  The new limit on less expensive loans is being lowered by over $75,000 to $271,050.  More expensive loans are being reduced by more than $100,000 to $625,000.  This is expected to affect approximately 650 counties in the U.S.

 FHA also announced it would further increase the fees they charge to lenders starting in March of the coming year.  Earlier this year FHA raised premiums and fees.  Unfortunately, the increased costs will end up being passed along to the borrowers in the form of higher interest rates.  “The new pricing continues the gradual progression towards more market-based prices, closer to the pricing one might expect to see if mortgage credit risk was borne solely by private capital.  These changes should encourage further return of private capital to the mortgage market,” noted the FHFA’s acting director, Ed DeMarco, in a release.

The economy and job market are still struggling to really make big leaps and the new FHA regulations could make it harder for first time homebuyers to purchase.   FHA has had financial struggles of its own, and increasing fees and lowering their risk is the prudent thing for them to do.  As home prices continue to rise and mortgage rates increase, purchasing power will lessen and those looking for an FHA loan might have to consider private financial resources.

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30September

Federal Reserve Decision Benefits Homebuyers

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After the much anticipated announcement of the Federal Reserve’s decision and lots of market speculation that tapering would finally begin, Bernanke announced the continuation of its easy money policies (QE).  The markets had already baked in the expectation of tapering along with several traders making bets on the Fed’s play, only they found out the punch bowl was still flowing and wouldn’t be taken away in the near term.  Bernanke hasn’t yet seen the recovery in the economic data that he has been watching for.

Existing home sales reported a 6-1/2 year high in August showing strength in the housing market and strong demand.  According to The National Association of Realtors (NAR), existing home sales increased 1.7 percent last month which was more than economists expected.  This increase puts sales at an annual rate of 5.48 million units.  Much of this recent rush to buy can be attributed to the expectation of rising mortgage rates and the increases in home prices.  Homebuyers want in on the action before interest rates and home prices over heat.  Bernanke’s latest announcement, however, should help to ease the 30-year fixed mortgage rate until the next Fed meeting.

TDemand for houses on property market, business metaphorhe median home sales price last month rose to $212,100; a 14.7 percent year-over-year jump.  Although inventories are still tight and as a result, prices continue to inch upward, homebuyers can still lock in a historically low mortgage rate giving them more purchasing power.  While this scenario seems great for prospective homebuyers, at some point the punch will run out and the party will end.  “Clearly the Fed has been spooked by the extent of the surge in long-term interest rates over the past couple of months and the impact that now appears to be having on the housing market.  But there is a dangerous circularity here because the initial rise in long-term rates was largely a response to the Fed hinting that it would begin to reduce its asset purchases sometime in the second half of the year,” Paul Ashworth at Capital Economics commented.

Mortgage rates fell after the Fed made its announcement.  They are still above the low of 3.35 percent seen in May but with the Fed continuing to print money, mortgage interest rates could stay around this range for a while longer, giving those who haven’t purchased yet, the opportunity to get in the game.  If interest rates withdrawal to the lower rates seen earlier in the year, it’s quite possible that more mortgage refinancing would occur.

It will be interesting to see what the next few months of housing data bring from this recent news announcement.  The housing market should experience some more positive gains if all plays out like the Fed has planned.  Growth and demand can remain strong with low interest rates and this gives homebuyers time to still purchase as rates rescind, but the underlying cost of artificially inflating the housing market remains to be determined.

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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

14April

Improving Markets Index Shows Housing Gains in 75% of Nation’s Markets

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The Improving Markets Index Summary was released by the NAHB in early April and once again, all 50 states have at least one area represented among the 273 metros listed. Kurt Pfotenhauer, vice chairman of First American Title Insurance Company, points out,” Seventy-five percent of the country is seeing measurable improvement in market conditions.” Although this most recent Improving Markets Index includes one fewer metro area since the March report was released, this is due largely to lack of available housing inventory. Industry experts agree that small, solid gains are expected to continue into 2014. Improving Markets Index

While the Improving Markets Index didn’t add to the total number of metros considered improving, it is notable that this report is backed by seven consecutive months of gains and some new metros were added. New metros on the Improving Markets Index in April were Macon, Ga.; Portland, Maine; Rocky Mount, N.C.; Eugene, Ore,; and Jackson, Tenn. Echoing statements from past Improving Markets Index press releases, NAHB chairman Rick Judson referenced the need builders have for available credit in order to purchase more land for homes as well as compensate for the rising cost of materials. With more available credit to the builders, more employees that were laid off during the crash could be reinstated and companies could ramp up their production. Consumer demand is limited as many Realtors® and homebuyers report shortages in their markets.

The Improving Markets Index measures three areas to consider a metro or market to be improving. To be selected for inclusion a metro must have increases in building permits for single-family homes, appreciation in home values, and gains in employment from the Bureau of Labor Statistics. With most of the country experiencing gains in these areas, the outlook for housing continues to be hopeful.

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19March

Latest Improving Markets Index Figures Show Strength for Housing Recovery

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The Improving Markets Index released by the NAHB for the month of February gives homeowners across the nation reason to rejoice. Packed with positive numbers and more metros being added for the sixth consecutive month, it is hard to deny the housing recovery. The Improving Markets Index highlights metro areas that have shown growth for six consecutive months in three distinct categories. If a market is listed in the Improving Markets Index, it means it has seen an increase in permits, growth in employment stats as provided by the Bureau of Labor statistics, and home values have appreciated as reported by Freddie Mac.

In fact, every state—and the District of Columbia—now have at least one metro listed in the Improving Markets Index. The total Improving-Market-Index-First-Prestonnumber of improving markets increased from 242 in January to 259 in February, with some of the newest additions being Fort Wayne, Ind., and Albuquerque, N.M. The complete list of metros can be viewed in the report here. NAHB Chief Economist David Crowe said, “Just over 70 percent of the 361 metros covered by the Improving Markets Index are listed as improving this month.” This report was created to spotlight areas showing growth and consistent   progress  overall, often spotlighting metros  that were not covered  in most national news stories at the time. When the NAHB began quantifying and measuring the data and identifying the markets that were improving in September  2011, the first report included only 12 metros.

One positive side effect of growth in a particular market is that potentially fewer homeowners will be upside down in terms of their home’s value. Increased consumer confidence also occurs when the three areas measured in the Improving Markets Index—employment growth, house appreciation and permit growth—show momentum. While the housing market is not projected to see huge gains overnight, as it experienced in its most recent boom, this recovery is expected to be more steady and solid.

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Sources:

1)      http://www.nahb.org/reference_list.aspx?sectionID=2223

2)      http://www.nahb.org/news_details.aspx?sectionID=2223&newsID=15783