Tag Archives: Home Prices

Run Up In Home Prices Is ‘not sustainable’ Says NAR Chief Economist

  • Home values have been rising for six straight years, and the gains have been accelerating for the past two years.
  • The average rate on the 30-year fixed mortgage is nearly a full percentage point higher today than it was in September 2017, its latest low.
  • Homebuyer demand may be weakening. A monthly survey from Redfin found fewer potential buyers requesting home tours or making offers.

Home values have been rising for six straight years, and the gains have been accelerating for the past two years. Unlike the last housing boom, the gains are not driven by fast and easy mortgage money, but instead by solid buyer demand and very low supply. Still, like the last housing boom, some are starting to warn these price gains cannot continue.

“The continuing run-up in home prices above the pace of income growth is simply not sustainable,” wrote Lawrence Yun, chief economist for the National Association of Realtors, in response to the latest price reading from the much-watched S&P CoreLogic Case Shiller Home Price Indices. “From the cyclical low point in home prices six years ago, a typical home price has increased by 48 percent while the average wage rate has grown by only 14 percent.”

Yun also pointed to rising mortgage interest rates as a factor that would weaken affordability. The average rate on the 30-year fixed mortgage is nearly a full percentage point higher today than it was at its most recent low in September 2017.

Some argue that despite weakened affordability, demand is just so strong that it can support higher home prices. Improving economic factors are seeing to that.

“A generally strong economy and favorable demographic tailwinds driven by the huge millennial generation aging into their home buying prime will help ensure that demand stays high, even as prices rise,” wrote Aaron Terrazas, senior economist at Zillow. “Getting a mortgage remains incredibly affordable compared to paying rent each month.”

But he admits that the “advantage is starting to erode, as mortgage interest rates rise alongside prices and income growth lags behind.”

Weakening Demand

And demand may in fact be weakening. A monthly survey from Redfin found fewer potential buyers requesting home tours or making offers.

“April was the first time in 27 months that we saw a year-over-year decline in the number of customers touring homes,” said Redfin’s chief economist, Nela Richardson. “We believe this was driven by the low levels of new listings in March.”

Richardson points to an increase in new listings in April is a positive turn for home buyers, which could bode well for futures sales. Prices, however, still stand in the way, and the increased inventory was more pronounced in higher-priced tiers.

Meanwhile the home price gains are widest on the low end of the market, where supply is leanest. That is why home sales have been dropping most on the low end. Evidence is now mounting that a growing number of first-time buyers are giving up and dropping out of the market altogether. Sales to first-time buyers dropped 2 percent in the first quarter of this year compared with the first quarter of 2017, according to Genworth Mortgage Insurance.

“This quarter’s decline in first-time home buyer sales reflects a slowdown in cyclical momentum as the first-time home buyer market approached its historical norms. It also reflects a shortage of available homes priced at or below the median first-time home buyer market price of $250,000,” wrote Tian Liu, Genworth’s chief economist. “Supply pressures will continue to drive price appreciation and freeze out a large percentage of the 2.7 million first-time home buyers who are still missing from the market.”

Competition from all-cash investors continues to thwart first-time buyers, most of whom are reliant on mortgage financing. With so little supply available, bidding wars are the rule, rather than the exception.

“When you’re competing against 10 other offers, you have to stand out, so sometimes a letter to the sellers can pull on the emotional heartstrings, but really it’s all about the dollars,” said Karen Kelly, a real estate agent with Compass in the Washington, D.C., area.

Measuring Affordability

Half of the homes on the market in D.C. in April sold in eight days or less, according to the Greater Capital Area Association of Realtors. Home prices in D.C. were over 13 percent higher in April of this year compared with a year ago. The number of listings was down more than 3 percent.

Affordability continues to be a tricky metric to monitor. Some economists argue that housing is no less affordable than it was in the early part of this century, when adjusting for inflation. No question, though, even if home prices are still lower than they were during the last housing boom, adjusting for inflation, the mortgage market today is nothing like it was then.

In fact, affordability was largely meaningless back then, since buyers could put no money down for a home and pay incredibly low monthly payments, using mortgage products that adjusted higher over time and tacked huge costs onto later payments. Those so-called negative amortization loans caused the housing crash and are not offered today.

Source: By Diana Olick | CNBC

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“The Home Price Surge Continues” – Case-Shiller Jumps Most In 4 Years, All Cities Up

US housing data has been disappointing so far in 2018 as affordability plummets on the heels of rising rates, but that didn’t stop Case-Shiller Home Prices from surging at a faster-than-expected 6.4% YoY in January.

Home sales, permits, and starts have been underwhelming so far this year…

https://www.zerohedge.com/sites/default/files/inline-images/2018-03-27_6-00-51.jpg?itok=hJEA_BQD

But according to Case-Shiller, home prices are accelerating at their fastest rate since July 2014 (up 6.4% YoY vs 6.15% YoY exp)…

https://www.zerohedge.com/sites/default/files/inline-images/2018-03-27_6-04-01.jpg?itok=CwNDTnyw

All 20 cities in the index showed year-over-year gains, led by a 12.9 percent increase in Seattle and an 11.1 percent gain in Las Vegas.

After seasonal adjustment, Seattle, San Francisco and Atlanta had the biggest month-over-month gains.

Washington has the smallest month-over-month advance at 0.2 percent.

“The home price surge continues,” David Blitzer, chairman of the S&P index committee, said in a statement.

“Two factors supporting price increases are the low inventory of homes for sale and the low vacancy rate among owner-occupied housing.”

The 20-City Home price index is less than 1% away from the record highs of 2006…

https://www.zerohedge.com/sites/default/files/inline-images/2018-03-27_6-08-12.jpg?itok=OdI_L1eX

But the National home price index is over 6% above 2006 highs…

https://www.zerohedge.com/sites/default/files/inline-images/2018-03-27_6-11-29.jpg?itok=EKZRcnk1

Source: ZeroHedge

Home Prices Set To Soar In 2018

 

https://martinhladyniuk.files.wordpress.com/2014/07/0acf0-lereahd.png?w=287&h=432The temperature may be frigid across much of the nation, yet home prices are sizzling and sellers are in the hot seat.

Sales prices jumped 7 percent annually in November, according to a new report from CoreLogic. That is the third straight month at that pace, far higher than the price gains in the first half of 2017. Low supply and high demand are fueling the spurt and neither of those is expected to ease up anytime soon. Supply is actually falling even more now, and a strengthening economy is pushing demand. This will have potential buyers out early this year, trying to get a jump on the spring market. “Rising home prices are good news for home sellers, but add to the challenges that home buyers face,” said Frank Nothaft, chief economist at CoreLogic, in the report. Nothaft said the limited supply is the worst at the lower end, and will hit the growing number of first-time buyers hardest.

The largest metropolitan areas are seeing the biggest gains.

In the nation’s top 50 markets, half of the housing stock is now considered overvalued, based on market fundamentals, like income and employment. CoreLogic defines an overvalued housing market as one in which home prices are at least 10 percent higher than the long-term, sustainable level. Las Vegas led the November report as not only being overvalued, but showing a double-digit annual price gain of 11 percent. San Francisco was not far behind at 9 percent, and Denver came in third at 8 percent. Las Vegas and Denver are both considered overvalued, but San Francisco is not, as incomes in the tech capital far exceed the national level. Of the nation’s 10 major markets with the biggest price gains, seven are overvalued. These include Washington, D.C., Houston and Miami. Boston and Chicago are still seeing price gains but are considered at value. Without a significant jump in home construction, prices will remain high and likely move higher. Mortgage rates could also move slightly higher, and new tax policy limiting mortgage and property tax deductions, is hitting homeowners in some states hard.

All will combine to make housing less and less affordable in the new year.

By Diana Olick | CNBC

New Home Sales Smash Expectations: Spike To 10 Year Highs As Average Price Tops $400k For First Time

Following the bounce in exisitng home sales (albeit lower YoY), new home sales ripped back higher in October (up 6.2% vs expectations of a 6.1% drop) following a big downward revision of last month’s manic spike. This is the highest print for new home sales since Nov 2007.

The 6.2% surge is a six standard deviation beat of expectations…

https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/11/25/20171127_home2.jpg

September’s 18.9% spike was revised notably lwoer to a 14.2% jump to 685k SAAR…

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/11/25/20171127_home.jpg

This is the highest new home sales SAAR print since Nov 2007… but still has a long way to go back to ‘normal’…

https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/11/25/20171127_home1.jpg

And finally, we note that the average new home sales price hit a new record high, above $400K for the first time ever – $400,200.

Source: ZeroHedge

Mortgage Rates Will Rise When The Fed Backs Away From Buying Mortgage Bonds

The Federal Reserve’s oft-forgotten policy of buying mortgage-backed securities helped keep mortgage rates low over the last several years.

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The monthly housing market reports I publish each month became bullish in late 2011 due to the relative undervaluation of properties at the time. I was still cautious due to weak demand, excessive shadow inventory, the uncertainty of the duration of the interest rate stimulus, and an overall skepticism of the lending cartel’s ability to manage their liquidations.

In 2012, the lending cartel managed to completely shut off the flow of foreclosures on the market, and with ever-declining interest rates, a small uptick in demand coupled with a dramatic reduction in supply caused the housing market to bottom.

Even with the bottom in the rear-view mirror, I remained skeptical of the so-called housing recovery because the market headwinds remained, and the low-interest rate stimulus could change at any moment. Without the stimulus, the housing market would again turn down.

It wasn’t until Ben Bernanke, chairman of the federal reserve, took out his housing bazooka and fired it in September 2012 that I became convinced the bottom was really in for housing. Back in September, Bernanke pledged to buy $40 billion in mortgage-backed securities each month for as long as it takes for housing to fully recover. With an unlimited pledge to provide stimulus, any concerns about a decline in prices was washed away.

In addtion to buying new securities, the federal reserve also embarked on a policy of reinvesting principal payments from agency debt and mortgage-backed securities back into mortgages — a policy they continue to this day.

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Everyone Is Suddenly Worried About This U.S. Mortgage-Bond Whale

by Liz McCormick and Matt Scully, February 5, 2017

Almost a decade after it all began, the Federal Reserve is finally talking about unwinding its grand experiment in monetary policy.

And when it happens, the knock-on effects in the bond market could pose a threat to the U.S. housing recovery.

Just how big is hard to quantify. But over the past month, a number of Fed officials have openly discussed the need for the central bank to reduce its bond holdings, which it amassed as part of its unprecedented quantitative easing during and after the financial crisis. The talk has prompted some on Wall Street to suggest the Fed will start its drawdown as soon as this year, which has refocused attention on its $1.75 trillion stash of mortgage-backed securities.

While the Fed also owns Treasuries as part of its $4.45 trillion of assets, its MBS holdings have long been a contentious issue, with some lawmakers criticizing the investments as beyond what’s needed to achieve the central bank’s mandate. Yet because the Fed is now the biggest source of demand for U.S. government-backed mortgage debt and owns a third of the market, any move is likely to boost costs for home buyers. …

In the past year alone, the Fed bought $387 billion of mortgage bonds just to maintain its holdings. Getting out of the bond-buying business as the economy strengthens could help lift 30-year mortgage rates past 6 percent within three years, according to Moody’s Analytics Inc.

It’s difficult to imagine that losing a buyer of that magnitude wouldn’t cause prices to fall, thereby raising yields and mortgage interest rates.

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The surge in mortgage rates is already putting a dent in housing demand. Sales of previously owned homes declined more than forecast in December, …, according to data from the National Association of Realtors.

People are starting to ask the question, “Gee, did I miss my opportunity here to get a low-rate mortgage?”  …

While this may close the door on the opportunity to get a low rate, it opens the door on the opportunity to get a low price.

People can only afford what they can afford. If their payment stretches to finance huge sums like they do today, then prices get bid up to that equilibrium price level. If their payment finances a smaller sum, like they will if mortgage rates rise, then prices will need to “adjust” downward to this new equilibrium price level.

I wouldn’t count on a big drop. Prices are sticky on the way down, particularly without a flood of foreclosures to push them down. Today’s owners with low-rate mortgages won’t sell unless they really need to, and lenders would rather can-kick than cause another foreclosure crisis, so any downward movement would be slow.

As prices creep downward, rents and incomes will rise offsetting some of the pain, and those buyers that are active will substitute downward in quality to something they can afford. It’s a prescription for low sales volumes and unhappy buyers and sellers. The buyers pay too much, and the sellers get too little.

https://i2.wp.com/ochousingnews.com/wp-content/uploads/2016/03/fed_taper_stimulus.pngNevertheless, the consequences for the U.S. housing market can’t be ignored.

The “Fed has already hiked twice and the market is expecting” more, said Munish Gupta, a manager at Nara Capital, a new hedge fund being started by star mortgage trader Charles Smart. “Tapering is the next logical step.”

As the federal reserve tapers its purchases of mortgage bonds, it opens up this market to private investment. Perhaps money will flow out of 10-year treasuries into mortgage-backed securities for a little more yield. It’s also possible that Congress will reform mortgage finance and remove the government guarantee from these securities, making them less desirable.

It’s entirely possible that the yield on the 10-year treasury will drop this year. Higher short term rates and a strengthening economy means the US dollar should appreciate relative to other currencies, attracting foreign capital. Once converted to US dollars, that capital must find someplace to invest, and US Treasuries are the safest investment providing some yield. If a great deal of foreign capital enters the country and buys treasuries, yields will drop, and mortgage rates may drop with them. Rising mortgage rates are not a certainty.

For now, the federal reserve will keep buying mortgage-backed securities, but the messy taper is on the horizon. Apparently, when it comes to boosting housing, Yellen plans to stay the course.

Source: OC Housing News

Home Prices Rise, Inventory Falls

Following a flurry of home sales in November, the total number of homes for sale in December declined to a three-year low, according to data provided by Redfin.

“Prospective sellers were hesitant to list last month,” said Redfin Chief Economist Nela Richardson. “Many of them are also buyers, and two transactions are much harder to pull off in a fast-paced, low-inventory environment than one. We expect sellers to list early in 2017, not only to make top dollar from eager buyers, but also to be in a position to act quickly when it comes time to make their next home purchase.”

Redfin receives current and local data from its agents positioned throughout the country. This allows the firm to have a comprehensive view of general real-estate trends unfolding within the markets it covers.

When compared to November, the number of new listings for December decreased by 26.8 percent. December’s median home price was about 276,000, which represents a 4.7 percent increase over the previous year. Furthermore, the median amount of days for which a home was listed on the market before going under contract was 54, which is the fastest rate for any December since Redfin began tracking the data in 2010.

“We’ve never before seen homes turn over so quickly at a national level,” Richardson said. She also noted that December’s data was rather surprising given existing conditions such as a new president-elect, higher mortgage rates, and low home inventory.

The low inventory should continue to cause an upward movement in the prices of homes in2017, with some regions experiencing higher growth than others.

Seattle was the quickest region for home sales, as half of all homes listed on the market were pending a sale within 19 days. Seattle also had the highest home price growth, increasing by a rate 14.8 percent since 2015.

By Tim McNally | DS News

Case-Shiller Reports Home Prices Rise At Slowest Pace In 8 Months, As San Francisco Sales Volume Slump

April was not a good month for home prices – despite hopeful signs from seasonally adjusted sales data. S&P Case-Shiller 20-City index rose just 0.45% MoM (well below expectations and March’s 0.85% gain) – the weakest rise since Aug 2015. The broader Home Price Index hovered near unchanged for the 2nd month – the weakest since January 2012. Most worrisome, perhaps, is the 18.16% YoY plunge in San Francisco home sales… as perhaps the bubble is finally bursting.

20-City (Seasonally Adjusted) Index…

Broad (Seasonally-Adjusted) Home Price Index…

Source: Zero Hedge

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