Category Archives: Housing Market

Pending Home Sales Drop In March – Stagnant For 2 Years

(ZeroHedge), contracts to buy previously owned U.S. homes declined in March after rising a month earlier by the most since 2010, as perhaps the seasonal exuberance gives way to affordability constraints. Despite NAR’s comments that “home shoppers are coming out in droves this spring,” it is evident from the chart below that pending home sales have been stagnant for almost two years.

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Regionally, only The South saw a sales increase:

  • The PHSI in the Northeast decreased 2.9 percent to 99.1 in March, but is still 1.8 percent above a year ago.
  • In the Midwest the index declined 1.2 percent to 109.6 in March, and is now 2.4 percent lower than March 2016.
  • Pending home sales in the South rose 1.2 percent to an index of 129.4 in March and are now 3.9 percent above last March.
  • The index in the West fell 2.9 percent in March to 94.5, and is now 2.7 percent below a year ago.

Lawrence Yun, NAR chief economist, says sparse inventory levels caused a pullback in pending sales in March, but activity was still strong enough to be the third best in the past year.

“Home shoppers are coming out in droves this spring and competing with each other for the meager amount of listings in the affordable price range,” he said.

“In most areas, the lower the price of a home for sale, the more competition there is for it. That’s the reason why first-time buyers have yet to make up a larger share of the market this year, despite there being more sales overall.

Yun worries that the painfully low supply levels this spring could heighten price growth — at 6.8 percent last month — even more in the months ahead. Homes in March came off the market at a near-record pace 1, and indicating an increase in the likelihood of listings receiving multiple offers, 42 percent of homes sold at or above list price (the second highest amount since NAR began tracking in December 2012).

“Take my money!!”

Who Will Live in the Suburbs if Millennials Favor Cities?

Longtime readers know I follow the work of urbanist Richard Florida, whose recent book was the topic of Are Cities the Incubators of Decentralized Solutions? (March 14, 2017).

Florida’s thesis–that urban zones are the primary incubators of technological and economic growth–is well-supported by data that shows that the large urban regions (NYC, L.A., S.F. Bay Area, Seattle, Minneapolis,etc.) generate the majority of GDP and wage gains.

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Cities have always attracted capital, talent and people rich and poor alike. Indeed, “city” is the root of our word “civilization.” So in this sense, Florida is simply confirming the central role cities have played for millennia.

More recently, Florida has addressed the rising wealth/income inequality that is making desirable urban areas un-affordable to all but the top 10% or even 5% wage earners. This is a critical concern, because vitality is a function of diversity: a city of wealthy elites paying low wages to masses of service workers is not an economic powerhouse.

What happens as buying a home in a desirable city becomes out of reach of all but the most highly paid tranche of workers?

The larger question is: what happens to home ownership as housing prices continue higher while the next generation’s wages remain significantly lower than previous generations’ incomes?

Millennials are typically earning less than Baby Boomers and Gen-X did in their 20s and 30s, and if this continues–and history suggests it will–then how many Millennials will be able to buy a pricey house?

One consequence of stagnating wages and rising home valuations is a “nation of homeowners” morphs into a “nation of renters.”

The other big question is: if Millennials aren’t earning enough to buy pricey homes, who is going to buy the tens of millions of houses Baby Boomers will be selling as they downsize/move to assisted living? As for inheriting Mom and Dad’s house–that’s not likely if Mom or Dad need the cash to fund their retirement/assisted living.

This question is especially relevant to suburban homes, especially those far from employment centers. Though data on this trend is sketchy, it seems Millennials strongly favor city living over exurban/suburban living.

Anecdotally, I can’t think of a single individual in their 20s or 30s that I know personally who has bought a house in a distant suburb. Everyone in this age group has bought a house in an urban zone. Not a highrise condo in the city center, but a house in a ring city near public transport.

Though data on this is hard to find (if it exists at all), Millennials seem more willing to make the sacrifices necessary to live in the urban core, either by renting rather than buying a cheaper suburban home, or by purchasing a modest bungalow on a small lot rather than an expansive suburban home on a big lot.

(This could change if Millennials start having lots of children, but to date small bungalows in urban regions appear big enough for families with two children.)

In a turn-around from the postwar era, which saw a mass exodus of the middle class from city centers to suburbia, the upper middle class is moving back to urban centers and the lower-income populace–once the urban poor–are being pushed out to the suburbs. We can now speak of the suburban poor.

To some degree, the suburbs have become victims of their own success. Long commutes in heavy traffic are the inevitable result of the vast expansion of suburban subdivisions, shopping malls and business parks. These killer commutes detract from the desirability of suburbs, especially to auto-agnostics of the Millennial generation, who exhibit low enthusiasm for auto ownership.

Rather than symbolizing freedom, auto ownership is viewed as a burdensome necessity at best.

If we overlay these trends (assuming they continue into the future), we discern the possibility that marginal suburban housing could crash in price and morph into suburban ghettos of isolated low-income residents.

The Pareto Distribution may play a role in this transformation. Should 20% of the suburban housing stock fall into disrepair, that could trigger the collapse of valuation in the remaining 80%.

Not all suburbs are equal. Those with diverse job growth may well act as magnets much like small cities. Those with few jobs and long commutes are less desirable and have smaller tax bases to support services.

The asymmetry between modest/stagnant Millennial wages and the soaring cost of housing cannot be bridged. If these trends continue, only the top tranche of highly paid young workers will be able to afford housing in desirable areas. Given a choice between affordable ownership in a small city or in a distant suburb, Millennials may well choose the affordable small city rather than the distant exurb or low-services suburb.

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Note that most incomes have gone nowhere since about 1998. Even the top 5% has made modest gains in real (inflation-adjusted) income.

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Meanwhile, home prices are back in bubble territory. “Hot” urban areas such as Seattle, Portland, the San Francisco Bay Area, Los Angeles, Brooklyn NYC, etc. have logged double-digit gains in recent years.

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So who’s going to pay bubble-valuation prices for the millions of suburban homes Baby Boomers will be off-loading in the coming decade as they retire/ downsize? We know one part of the answer: it won’t be Millennials, as they don’t have the income or savings to afford homes at these prices.

These trends promise to remake the financial geography of cities (large and small) and suburbia–and in the process, radically shift the financial assets of households, renters and owners alike.

By Max Keiser | Financial War Reports

Premium Homes Dominate Inventory For Sale

Don’t Call It A Comeback: How Rising Home Values May Be Stifling Inventory

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By Ralph McLaughin | Chief Economist For Trulia

U.S. home inventory tumbled to a new low in the first quarter of 2017, falling for eight consecutive quarters. Homebuyers have now been stifled by low inventory for the last two years despite prices rising to pre-recession highs in many markets.

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In this edition of Trulia’s Inventory and Price Watch, we examine how home value recovery may be limiting supply in markets that have recovered most. We find that homebuyers in markets with the biggest gains are facing the tightest supply.

The Trulia Inventory and Price Watch is an analysis of the supply and affordability of starter homes, trade-up homes, and premium homes currently on the market. Segmentation is important because home seekers need information not just about total inventory, but also about inventory in the price range they are interested in buying. For example, changes in total inventory or median affordability don’t provide first-time buyers useful information about what’s happening with the types of homes they’re likely to buy, which are predominantly starter homes.

Looking at the housing stock nationally and in the 100 largest U.S. metros from Q1 2012 to Q1 2017, we found:

  • Nationally, the number of starter and trade-up homes continues drop, falling 8.7% and 7.9% respectively, during the past year, while inventory of premium homes has fallen by just 1.7%;
  • The persistent and disproportional drop in starter and trade-up home inventory is pushing affordability further out of reach of homebuyers. Starter and trade-up homebuyers need to spend 2.9% and 1.6% more of their income than this time last year, whereas premium homebuyers only need to shell out 0.9% more of their income;
  • A strong recovery may be partly to blame for the large drop in inventory some markets have experienced over the past five years. On average, the more valuable a market’s housing is compared to pre-recession levels, the larger drop in inventory it is has seen.

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2017 Ushers in a Dramatic Shortage of Homes

Nationally, housing inventory dropped to its lowest level on record in 2017 Q1. The number of homes on the market dropped for the eighth consecutive quarter, falling 5.1% over the past year. In addition:

  • The number of starter homes on the market dropped by 8.7%, while the share of starter homes dropped from 26.1% to 25.9%. Starter homebuyers today will need to shell out 2.9% more of their income towards a home purchase than last year;
  • The number of trade-up homes on the market decreased by 7.9%, while the share of trade-up homes dropped from 23.9% to 23%. Trade-up homebuyers today will need to pay 1.6% more of their income for a home than last year;
  • The number of premium homes on the market decreased by 1.7%, while the share of premium homes increased from 50% to 51%. Premium homebuyers today will need to spend 0.6% more of their income for a home than last year.

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How and Where a Strong Housing Market May Be Hurting Inventory

In the first edition of our report, we provided a few reasons why inventory is low: (1) investors bought up much of the foreclosure home inventory during the financial crisis and turned them into rental units, (2) price spread – that is, when prices of homes in different segments of the housing market diverge from each other – makes it difficult for existing homeowners to tradeup to the next the segment, and (3) slow home value recovery was making it difficult for some homeowners to break even on their homes. While there is evidence that investors indeed converted owner-occupied homes into rentals as well as evidence from our first report that increasing price spread is correlated with decreases in inventory, little work has examined how home value recovery affects inventory. This is perhaps due to the tricky conceptual relationship between home values and inventory: too little recovery might make it difficult for homeowners to sell their home but cheap to buy one, while too much recovery might make it easy for them to sell but difficult to buy.

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In fact, we find a negative correlation between how much a housing market has recovered and how much inventory has changed over the past five years. Using the current value of the housing market relative to the peak value as our measure of recovery, we find markets with greater home value recovery have experienced larger decreases in inventory over the past five years. The linear correlation was moderate (-0.36) and statistically significant. We also found that markets with the strongest recovery, on average, have experienced the largest decreases in inventory.

For example, the five-year average change in inventory of housing markets currently valued below their pre-recession peak (< 95% of peak value) isn’t that different from ones that have recovered to 95% – 105% of their peak. (-27.6% vs. -30.1%). However, the average change in inventory in well-recovered markets (> 105%) is 0more drastic at -45.4%.

The disparity also persists when looking at changes in inventory within each segment, although the difference is largest for starter homes. On average, markets with less than 95% recovery or 95% to 105% recovery had a 34.2% and 31.7% decrease in starter inventory, while markets with more than 105% home value recovery had a whopping 58.2% drop. These findings suggest that a moderate home value recovery doesn’t affect inventory much, but a strong recovery does and impacts inventory of starter homes the most.

Fed Announced They’re Ready To Start Shrinking Their 4.5T Balance Sheet ― Prepare For Higher Mortgage Rates

Federal Reserve Shocker! What It Means For Housing

The Federal Reserve has announced it will be shrinking its balance sheet. During the last housing meltdown in 2008, it bought the underwater assets of big banks.  It has more than two trillion dollars in mortgage-backed securities that are now worth something because of the latest housing boom.  Gregory Mannarino of TradersChoice.net says the Fed is signaling a market top in housing.  It pumped up the mortgage-backed securities it bought by inflating another housing bubble.  Now, the Fed is going to dump the securities on the market.  Mannarino predicts housing prices will fall and interest rates will rise.

Wild Swings in New Home Sales: Median Price Down, Average Price Up

New home sales shot up 6.1% in February aided by 39% jump in the mid-west but a 21.4% decline in the Northeast.

Sales came in just a bit below the top Econoday estimate.

New home sales shot 6.1 percent higher in February to a 592,000 annualized rate that easily beats the Econoday consensus for 565,000 and is near the top estimate of 600,000. Sales appeared to have gotten a boost from builder concessions as the median price fell a monthly 3.9 percent to $296,200 for a year-on-year rate that’s suddenly in the negative column at minus 4.9 percent.

Strength is centered in the Midwest where the sales rate surged 21,000 to 89,000 and easily surpassing 11,000 gains for the both the West, at 157,000, and the South at 313,000. Sales in the Northeast fell sharply in yesterday’s existing home sales report and are down 9,000 to a very low 33,000 annualized rate in today’s report.

Supply of new homes did rise slightly in the month, up 4,000 to 266,000 currently on the market, but relative to sales supply fell to 5.4 months from 5.6 months. Supply has been thin all cycle for new homes and was at 5.5 months in February last year.

Most of the news is good in this report underscored by the average price which, reflecting high-end properties, jumped 9.9 percent in the month for a yearly 11.7 percent gain at $390,400 and a new record. Today’s report helps offset weakness in existing home sales and keeps the housing sector on a moderately climbing slope.

New Home Sales Jump Second Month

Mortgage News Daily reports New Home Sales Build on January Strength.

New home sales posted a much better February than did existing home sales and, in fact, better than most analysts had expected.

It was the second consecutive month of strength for the indicator which had see-sawed between positive and negative results in the waning months of 2016.

On a non-seasonally adjusted basis, there were 49,000 new homes sold in February compared to 41,000 in January. Thirty-six-thousand of the homes sold were in the $200,000 to 299,000 price tier.

The median price of a new home sold in February was 296,200 compared to $311,300 a year earlier. The average price was $390,400 compared to $349,400.

There were strong geographic differences in the rate of sales. In the Northeast, sales were down 21.4 percent for the month while remaining 13.8 percent higher than the previous February. In contrast, the Midwest posted a 30.9 percent month-over-month improvement and the annual change was 50.8 percent.

Sales in the South rose 3.6 percent from January and 7.9 percent from February 2016 and sales in the West were up 7.5 percent and 6.8 percent from the two earlier periods.

At the end of February, there were an estimated 261,000 homes available for sale on a non-seasonally adjusted basis. This is an estimated 5.4-month supply at the current rate of sale. Sixty-three-thousand of the available homes are completed, construction had not started on 51,000.

Median vs Average Sale

It’s interesting to see the median price dropping with the average price soaring. It’s a tale of two economies and who is and isn’t gaining.

That said, these swings are so wild, I smell revisions.

For now, this should boost GDP estimates.

By Mike Shedlock | mishtalk.com

Used Home Sales Fall From 10-Year Yigh

U.S. home resales fell more than expected in February amid a persistent shortage of houses on the market that is pushing up prices and sidelining potential buyers.

The National Association of Realtors said on Wednesday existing home sales declined 3.7 percent to a seasonally adjusted annual rate of 5.48 million units last month.

January’s sales pace was un-revised at 5.69 million units, which was the highest level since February 2007. Economists polled by Reuters had forecast sales decreasing 2.0 percent to a pace of 5.57 million units last month.

“Realtors are reporting stronger foot traffic from a year ago, but low supply in the affordable price range continues to be the pest that’s pushing up price growth and pressuring the budgets of prospective buyers,” said Lawrence Yun, the NAR’s chief economist.

Sales were up 5.4 percent from February 2016, underscoring the sustainability of the housing market recovery despite rising mortgage rates. In February, houses typically stayed on the market for 45 days, down from 50 days in January.

U.S. financial markets were little moved by the data as investors increasingly worried whether President Donald Trump would be able to push ahead with his pro-growth policies. The dollar fell against a basket of currencies and U.S. stocks were trading mostly lower. Prices for U.S. government bonds fell.

The 30-year fixed mortgage rate is hovering at 4.30 percent.

Home loans could cost more after the Federal Reserve last week raised its benchmark overnight interest rate by 25 basis points to a range of 0.75 percent to 1.00 percent. The U.S. central bank has forecast two more rate hikes for 2017.

BUOYANT LABOR MARKET

Demand for housing is being buoyed by a labor market that is near full employment. But home sales remain constrained by the dearth of properties available for sale, which is keeping prices elevated.

While the number of homes on the market increased 4.2 percent to 1.75 million units last month, housing inventory remained close to the all-time low of 1.65 million units hit in December. Supply was down 6.4 percent from a year ago.

Housing inventory has dropped for 21 straight months on a year-on-year basis. With supply remaining tight, the median house price surged 7.7 percent from a year ago to $228,400 in February. That marked the 60th consecutive month of year-on-year price gains.

Builders have been unable to fill the housing inventory gap, citing rising prices for materials, higher borrowing costs, and shortages of lots and labor.

Lennar Corp, the second-largest U.S. homebuilder, reported on Tuesday a drop in quarterly gross margin as the company struggled with higher land and construction costs.

The Florida-based builder, however, sold 5,453 homes in the first quarter ended Feb. 28, up from 4,832 homes in the year-earlier period, and reported a 12 percent jump in orders.

The NAR estimates housing starts and completions should be in a range of 1.5 million to 1.6 million units to alleviate the chronic shortage. Housing starts are running above a rate of 1.2 million units and completions around a pace of 1 million units.

At February’s sales pace, it would take 3.8 months to clear the stock of houses on the market, up from 3.5 months in January. A six-month supply is viewed as a healthy balance between supply and demand. Though higher prices are increasing equity for homeowners and might encourage some to put their homes on the market, they could be sidelining first-time buyers from the market. First-time buyers accounted for 32 percent of transactionslast month, well below the 40 percent share that economists and realtors say is needed for a robust housing market.

That was down from 33 percent in January but up from 30 percent a year ago.

Source: Crusader Journal

Janet Yellen Explains Why She Hiked In A 0.9% GDP Quarter

It appears, the worse the economy was doing, the higher the odds of a rate hike.

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Putting the Federal Reserve’s third rate hike in 11 years into context, if the Atlanta Fed’s forecast is accurate, 0.9% GDP would mark the weakest quarter since 1980 in which rates were raised (according to Bloomberg data).

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We look forward to Ms. Yellen explaining her reasoning – Inflation no longer “transitory”? Asset prices in a bubble? Because we want to crush Trump’s economic policies? Because the banks told us to?

For now it appears what matters to The Fed is not ‘hard’ real economic data but ‘soft’ survey and confidence data…

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Source: ZeroHedge