Housing Market In Recovery

 The Mortgage Corner

The National Association of Realtor’s Chief Economist, Lawrence Yun, commented on the latest and possibly best unemployment report of 2024. We are at the beginning of the next housing recovery. It’s no secret why; interest rates are returning to somewhere near pre-pandemic levels, which will take time.

“There is no national economic recession on the horizon”, said Dr. Yun. “The net payroll job addition in September strengthened to 254,000 after adding much lighter job gains in the previous months. The annual wage gains also accelerated to 4.0% after softening to 3.6% just two months earlier. More jobs mean more real estate demand, from retail spaces to apartment leases. Home buying will also increase, provided the conditions are right, and more inventory choices and lower mortgage rates will help.”

Calculated Risk

The red line in Calculated Risk’s graph of this year’s single-family for-sale inventory, which is the best indicator of better choices. It is up 34 percent in just one year and 48.3 from the February seasonal bottom, says Calculated Risk.

Inventories were lower in 2021-23 (yellow, purple, blue lines) because of the Fed’s rate hikes but this year’s red line is approaching the 2020 black line, which was the huge sales surge before the Fed began to raise interest rates.

So, what are prospective homebuyers or renters to do who looking for better interest rates? It should not depend on the election outcome, for starters. No party wants to rock the boat on interest rate reductions that the Fed has penciled in for the rest of this and next year.

FRED30yearfixed

That could be at least another 2.0 percent rate drop—from the current 8.0 percent to 6.0 percent Bank Loan Prime Rate. Bankrate.com is predicting the 10-year Benchmark Treasury yield that determines fixed mortgage rates will dip to 3.5 percent in a year. It would bring the 30-year fixed conforming mortgage rate to around 5.5 percent from its current 6.3 percent.

That is being conservative. Fixed 30-year mortgage rates averaged between 4-5 percent after the Great Recession (2008-09) when the Fed succeeded in keeping the inflation rate close to 2 percent for almost two decades. This is what buyers have tolerated in the past and kept existing home sales close to the 5-6-million-unit longer-term average it reached before the Great Recession and briefly after the COVID-19 pandemic.

At least one million new housing units built annually are needed as well, just to house the one million new households being formed each year.

One reason why so many homeowners have been reluctant to sell is the record low interest rates in 2020 because the Fed wanted to counter the effects of the pandemic.

That has resulted in the vast majority of outstanding mortgages carrying an interest rate below the current average of 6%, making those mortgage holders reluctant to sell. “In fact, one in five homeowners with a mortgage has a rate of under 3%, according to an analysis by Realtor.com” that was cited by MarketWatch.

How long can home buyers afford to be patient? If this decade will turn out to have record job and wage growth, as I believe, which so much government spending has stimulated, and housing prices are still rising at least 5 percent annually, if not more in coastal enclaves, it doesn’t pay to wait too long.

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

When Will Housing Recover?

 The Mortgage Corner

With the Federal Reserve saying it's about to cut rates, will the housing sector finally come out of its own recession? All the indicators of housing health—existing-home sales, new-home sales, construction, and for sale inventories—are at multiyear lows, mainly because the Fed believes its only inflation fighting tool is restricting credit via higher interest rates.

FREDexistinghomesales

For-sale inventories have edged up some 40 percent this year, as existing homeowners now see a chance to either move to a smaller unit, or into a retirement home now that mortgage rates are plunging. But existing-home sales are currently just 3.89 million units, per the FRED graph, far from its longer-term 4-5 million unit average—as much as 7 million during the 2005 housing bubble.

We now have a housing shortage of between 1-3 million residential dwellings, including owner-occupied and rental units, without considering housing for the homeless.

But what happens if the Fed waits too long to ease up on the brakes, job losses continue to climb and the overall economy goes into recession? That seems to be happening with last week’s bummer of an unemployment report, and financial market interest rates are reacting after more than two years of sky-high mortgage rates, for starters.

Mortgage rates decreased across the board last week and mortgage application volume reached its highest level since January of this year, according to the Mortgage Bankers Association (MBA).

“The 30-year fixed rate fell to 6.55 percent, reaching its lowest level since May 2023, following doveish communication from the Federal Reserve and a weak jobs report, which added to increased concerns of an economy slowing more rapidly than expected,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.

FRED30yrfixed

The average rate for a 30-year mortgage backed by the Federal Housing Administration for entry-level and first-time homebuyers was 6.49% (that are backed by government-insured bonds), down from 6.69% the previous week, the 15-year was down to 6.03% from 6.27% the week before, and the rate for adjustable-rate mortgages was down to 5.91% from 6.22%, according to FNMA.

Most of the mortgage activity was in refinance, up 60 percent in a year, says the MBA. Homeowners have waited this long for the opportunity of a lower interest rate. Home purchases have barely budged; the MBA’s purchase index is down 11 percent in a year, mainly because home prices are still increasing 4-5 percent per year, and only the highest credit scores—upwards of 760—get the best rates.

Credit standards have barely eased, in a word. A score of 680 was acceptable to Fannie and Freddie for their best conventional mortgage rates prior to the Great Recession. The Fed’s inaction has only made matters worse for homebuyers (and therefore renters) due to the housing shortage.

What do I see for the rest of this year? It depends on the Fed’s actions. If it drops rates, then more homes become affordable, and more homes can be built because construction costs are controlled by the Fed’s short-term rates.

Fixed conventional 30-year mortgage rates set by Fannie Mae and Freddie Mac that guarantee most conventional loans (i.e., not government insured or privately held by banks) had been at or below 5 percent since the Great Recession of 2008-09 (gray bar in 30yrfixed graph is pandemic recession), before they began their upward spike in 2022.

It’s a long way back down that interest rate mountain for housing to become affordable again and many more homes built to ease the housing shortage. A Fed-engineered recession will bring down interest rates and housing prices sooner, but that also means fewer working folk can afford them, so who will it benefit?

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

More New Homes Needed

 The Mortgage Corner

Higher new home sales and rising homebuilders’ optimism foretells a strong summer sales season if builders and existing-home inventories don’t run out of housing stock. More new homes could also soften what is being termed a rolling recession with some sectors (such as manufacturing) faltering and other sectors (e.g, services ) still growing.

Builders must pick up the pace for that to happen, however.

Sales of new single‐family houses in March 2023 were at a seasonally adjusted annual rate of 683,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.

“This is 9.6 percent (±15.2 percent) * above the revised February rate of 623,000, but is 3.4 percent (±12.7 percent)* below the March 2022 estimate of 707,000. The seasonally‐adjusted estimate of new houses for sale at the end of March was 432,000. This represents a supply of 7.6 months at the current sales rate.”

 

Census.gov

Builders remained cautiously optimistic in April, as limited resale inventory helped to increase demand in the new home market. Single-family builder confidence in April rose one point to 45, according to the NAHB/Wells Fargo Housing Market Index.

Currently, one-third of housing inventory is new construction, compared to historical norms of around 10%. More buyers looking at new homes, along with the use of sales incentives, have supported new home sales since the start of 2023. Builders note that additional declines in mortgage rates (to below 6%) will further boost demand.

“A lack of resale inventory combined with many builders offering price incentives helped to push new home sales higher in March,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB). “However, sales are down 3.4% compared to a year ago because of the shortage of electrical transformer equipment and building material price volatility.”

Whereas pending home sales of homes under contract but not closed edged down. The Pending Home Sales Index (PHSI)^* – a forward-looking indicator of home sales based on contract signings – waned by 5.2% to 78.9 in March. Year over year, pending transactions dropped by 23.2%. An index of 100 is equal to the level of contract activity in 2001.

“The lack of housing inventory is a major constraint to rising sales,” said NAR Chief Economist Lawrence Yun. “Multiple offers are still occurring on about a third of all listings, and 28% of homes are selling above list price. Limited housing supply is simply not meeting demand nationally.”

Chief economist Yun believes mortgage rates will improve the sales outlook by continuing to decline below 6 percent into next year. The 30-year conforming fixed rate is even obtainable at 5.75 percent for one origination point in California.

This is while the initial estimate of first quarter 2023 GDP growth was 1.1 percent, close to the consensus by economists. The problem is demand has far exceeded supplies, keeping housing prices and inflation too high and the Fed unhappy.

The lack of existing supply is a problem in all economics sectors, which may mean the Fed will continue to boost interest rates until markets catch up, though they’ve said they will pause for the rest of the year after another May 0.25 percent increase.

So a rolling recession could mean a bumpy ride for consumers who now must choose whether to buy now or wait until interest rates and inflation continue to moderate.

Harlan Green © 2023

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Most Homes Under Construction in 49 Years!

 The Mortgage Corner

Calculated Risk

Builders are trying to catch up to demand. Calculated Risk’s Bill McBride per the US Census Bureau reports the largest number of homes under construction since 1973.

Privately‐owned housing starts in December were at a seasonally adjusted annual rate of 1,702,000. This is 1.4 percent above the revised November estimate of 1,678,000 and is 2.5 percent (±13.8 percent) above the December 2020 rate of 1,661,000. Single‐family housing starts in December were at a rate of 1,172,000; this is 2.3 percent below the revised November figure of 1,199,000. The December rate for units in buildings with five units or more was 524,000.

The Census Bureau also said that currently there are 750 thousand multi-family units under construction.  This is the highest level since July 1974! For multi-family, construction delays are probably also a factor. The completion of these units should help with rent pressure, with rents rising more than 7 percent annually.

Why so much residential construction? Existing-home sales continued to use up available inventory, surging to 6.5 million annualized units in January. Since we are in mid-winter when sales are usually at a low point, why the surge?

"Buyers were likely anticipating further rate increases and locking-in at the low rates, and investors added to overall demand with all-cash offers," said Lawrence Yun, NAR's chief economist. "Consequently, housing prices continue to move solidly higher."

Calculated Risk

Total existing-home sales,¹ https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, climbed 6.7% from December to a seasonally adjusted annual rate of 6.50 million in January. Year-over-year, sales fell 2.3% (6.65 million in January 2021), said the Realtors.

The inventory of homes for sale has dropped to just 1.6 months at the current torrid sales rate. This is squeezing out homebuyers that can afford homes below $500,000, said Yun.

"There are more listings at the upper end – homes priced above $500,000 – compared to a year ago, which should lead to less hurried decisions by some buyers," Yun added. "Clearly, more supply is needed at the lower-end of the market in order to achieve more equitable distribution of housing wealth."

This has pushed housing prices even higher. The S&P CoreLogic Case-Shiller 20-city price index posted a 18.6 percent year-over-year gain in December, up slightly from 18.3 percent the previous month.

It tells us in spite of labor and building material shortages, builders are finding ways to start new construction in the face of red hot demand. There are plenty of potential home buyers out there with the record surge in job creation over the past year.

Harlan Green © 2021

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Here's To a Lasting Housing Recovery!

The Mortgage Corner

Since it is the holidays, I want to propose a New Year’s toast to a lasting housing recovery.

Firstly, home builders are beginning to play catch up with the housing shortage that has plagued those wanting a place to live since the end of the Great Recession and busted housing bubble. That’s when construction ground to a halt because one million more homes were built than were needed at the time.

Does this mean the housing market could begin a decade-long recovery as has happened in the past? It’s possible. Consumers are flush with cash from the pandemic aid and the personal savings rate is still at a post-recession high (6.9 percent).

More than 1,800,000 housing units per year were constructed during the height of the housing bubble in 2006 (see below graph), which fell to just 400,000 units annually during the Great Recession in 2008 (gray bar), which is part of the reason for the current housing shortage.

The last two recoveries lasted approximately 10 years. So why not toast the possibility that this may be a housing recovery that might last, if the other roadblocks to a housing recovery, labor material shortages should ease next year?

CalculatedRisk

Construction is booming, which should begin to fill the very low inventory of homes for sale, despite the labor and material shortages.

“Single‐family housing starts in November were at a rate of 1,173,000; this is 11.3 percent above the revised October figure of 1,054,000. The November rate for units in buildings with five units or more was 491,000,” according to the Census Bureau.

Calculated Risk

Rising existing-home sales are helping to fill the housing need. Existing-home sales rose 1.9 percent to a seasonally adjusted annual rate of 6.46 million in November, the National Association of Realtors said Wednesday. That is the third straight monthly gain. And there is room to grow more sales.

More than 7 million existing homes were sold in 2005 at the height of the housing bubble, per the above existing-home sales graph but sales declined to 4 million in 2008 during the Great Recession (gray bar in graph).

Unsold inventory is at a 2.1-month supply in November, the lowest since January. That’s down from 2.3 in the same month last year, and a 4 to 6 month supply of homes for sale during more normal times.

“Supply-chain disruptions for building new homes and labor shortages have hindered bringing more inventory to the market,” said NAR chief economist Lawrence Yun. “Therefore, housing prices continue to march higher due to the near record-low supply levels.”

There’s better economic news as well that may help to cure the housing crunch. Third quarter GDP growth was revised up slightly to 2.3 percent, and Q4 growth is projected to be even higher.

Consumer confidence is also on the rise again with the holidays. The index of consumer confidence rose to 115.8 in December from a revised 111.9 in the prior month, The Conference Board said Wednesday.

Lynn Franco, Senior Director of Economic Indicators at The Conference Board said, “The Present Situation Index dipped slightly but remains very high, suggesting the economy has maintained its momentum in the final month of 2021. Expectations about short-term growth prospects improved, setting the stage for continued growth in early 2022. The proportion of consumers planning to purchase homes, automobiles, major appliances, and vacations over the next six months all increased.”

So this is the best time to raise a toast to a continued housing recovery—and a Happier New Year!

Harlan Green © 2021

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

 

January Home Sales Exceed Expectations

 The Mortgage Corner

Calculated Risk

The Calculated Risk/FRED graph shows that new-home sales are approaching the 2000 level at the start of the last housing bubble that ultimately resulted in the Great Recession (blue bars are recessions). But that doesn’t mean we are at the beginning of another housing bubble.

New home sales for January were reported at 923,000 on a seasonally adjusted annual rate basis (SAAR), said US Census Bureau, resulting in the decline to just 4.0 months of supply remaining for sale. That and still record low interest rates are boosting prices. But there is no bubble forming because there is not enough supply to satisfy current demand. Sales for the previous three months were revised up, also.

Existing-home sales are soaring this early in the year as well because last year’s selling season had a delayed fall start due to the pandemic, according to the National Association of Realtors (NAR). We can expect this surge to also continue because of ongoing demand.

Total existing-home sales, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 0.6 percent from December to a seasonally-adjusted annual rate of 6.69 million in January. Sales in total climbed year-over-year, up 23.7 percent from a year ago (5.41 million in January 2020).

Demand is so hot that the median existing-home sales price rose to $303,900, 14.1 percent higher from one year ago. And as of the end of January, existing-home inventory fell to a record-low of 1.04 million units, down by 25.7 percent year-over-year – a record decline.

"Home sales continue to ascend in the first month of the year, as buyers quickly snatched up virtually every new listing coming on the market," said NAR chief economist Lawrence Yun. "Sales easily could have been even 20% higher if there had been more inventory and more choices."

Residential construction is pushing hard to catch up to demand, as I said last week. Privately-owned housing starts in December were at a huge seasonally adjusted annual rate of 1,669,000, said the Census Bureau. This is 5.8 percent above the revised November estimate of 1,578,000 and is 5.2 percent above the December 2019 rate of 1,587,000.

Home sales are repeating their traditional role as a leading indicator with economic growth predicted to surge this year. Economists are now predicting a ‘V’ shaped recovery with Deutsche Bank increasing its GDP growth forecasts for 2021 and 2022, assuming the final fiscal aid package will be worth $1.6 trillion to $1.7 trillion, reports Reuters. “Their inflation numbers pushed a bit higher too with risks on the upside,” wrote Jim Reid, a strategist at the bank.

Reuters also reports Pimco, one of the world’s largest fixed income managers, said in a research note that the additional stimulus could “contribute to 2021 real GDP growth of over 7%,” a level not seen since “the great inflationary episode of the 1970s-1980s.”

Chief economist Yun expects more jobs to return in his press release, which will spur home buying in the coming months. He predicts existing-home sales will reach at least 6.5 million in 2021, even as he says mortgage rates are likely to inch higher due to the rising budget deficit and higher inflation.

But interest rates are still at recession lows, with the 30-year conforming fixed interest rate currently 2.75 percent with one origination point for the best credit holders.

With housing inventory at the end of January down 25.7 percent from one year ago, the unsold existing-home inventory sits at a record 1.9-month supply at the current sales pace, down from the 3.1-month amount recorded in January 2020.

All this news means the housing revival will continue.  What better sign is there of a consumer spending revival this year?

Harlan Green © 2021

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

The Housing Boom Continues

 The Mortgage Corner

Calculated Risk

Total existing-home sales, https://www.nar.realtor/existing-home-sales, including single-family homes, townhomes, condominiums and co-ops, rose 9.4 percent from August to a seasonally-adjusted annual rate of 6.54 million in September.

The housing boom continues in the middle of the coronavirus pandemic. Overall home sales are up 20.9 percent from a year ago (5.41 million in September 2019).

"Home sales traditionally taper off toward the end of the year, but in September they surged beyond what we normally see during this season," said Lawrence Yun, NAR's chief economist. "I would attribute this jump to record-low interest rates and an abundance of buyers in the marketplace, including buyers of vacation homes given the greater flexibility to work from home."

That is one of the reasons for the surge—more well-healed, white collar buyers are working from home as the pandemic has accelerated the digital revolution, and a central work location is no longer needed.

Couple this with the upcoming 5G networks that will power more of everything—manufacturing, services, and online education, for starters. The World Economic Forum described what is possible with the wider band widths and faster speeds that 5G will bring to economic growth.

“Think about a world in which not just people but all things are connected: cars to the roads they are on; doctors to the personal medical devices of their patients; augmented reality available to help people shop and learn and explore wherever they are. This requires a massive increase in the level of connectivity.”

And it is exacerbating the existing housing shortage. Builders are playing catch up to this speeding up of the surge in demand.

Total housing inventory at the end of September totaled just 1.47 million units, down 1.3 percent from August and down 19.2 percent from one year ago (1.82 million). Unsold inventory sits at a 2.7-month supply at the current sales pace, down from 3.0 months in August and down from the more normal 4.0-month figure recorded in September 2019.

Builders are responding. U.S. single-family homebuilding raced to a more than 13-year high in September. The report from the Commerce Department showed single-family homebuilding jumped 8.5 percent to a seasonally adjusted annual rate of 1.108 million units last month. That offset a 16.3 percent decline in starts for the volatile multi-family segment to a pace of 307,000 units, said the National Association of Homebuilders (NAHB). Overall, housing starts increased 1.9 percent to a rate of 1.415 million units last month.

Homebuilding has advanced 11.1 percent year-on-year, with single-family starts surging 22.3 percent. Further gains in single-family home construction are likely, said Reuters, with building permits shooting up 7.8 percent to a rate of 1.119 million units last month, the highest level since March 2007. 

"Home sales continue to amaze, and there are plenty of buyers in the pipeline ready to enter the market," said Lawrence Yun, NAR’s chief economist. "Further gains in sales are likely for the remainder of the year, with mortgage rates hovering around 3% and with continued job recovery."

 

Forbes

Scarce inventory has been problematic for the past few years, according to Yun, an issue he says has worsened in the past month due to the dramatic surge in lumber prices and the dearth of lumber resulting from California wildfires.

Mortgage rates are helping to offset some of those high home prices, however. A 30-year conforming fixed-rate mortgage dropped to 3 percent in August and has averaged below 3 percent in the past few weeks, the lowest on record.

I said last week that the NAR also reports pending home sales for contracts closing in approximately two months are also surging, which will boost sales through the end of the year. Pending home sales in August continued to move upward, marking four uninterrupted months of positive contract activity. Each of the four major regions have experienced growth in month-over-month and year-over-year pending home sales transactions.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Booming Home Sales Create Housing Shortage

The Mortgage Corner

Booming Realtors’ existing-home sales are showing there is a very severe housing shortage with record sales and a record low housing inventory. Santa Barbara Realtor Jim Witmer said the demand for Santa Barbara homes is huge and inventory is being held back by seller’s concerns about the virus.  Buyers are making decisions based on spending more time at home, with work space and more amenities. 

“This trend continues as more people relocate to the safety and lifestyle offered by Santa Barbara.  This should continue to drive our values up.  The supply is limited and it is a good time to be a seller,” said Witmer.

Inventory levels are at record lows, with just 228 homes listed for sale in the MLS in September, down 22 percent from January.

The NAR reports that housing affordability declined in August compared to a year ago, despite median incomes rising. However, the jump in home prices—up 11.7 percent—was way above family income increases of 2.2 percent. August 2019).

"Home sales continue to amaze, and there are plenty of buyers in the pipeline ready to enter the market," said Lawrence Yun, NAR’s chief economist. "Further gains in sales are likely for the remainder of the year, with mortgage rates hovering around 3% and with continued job recovery."

Forbes

Total housing inventory at the end of August totaled 1.49 million units, down 0.7 percent from July and down 18.6 percent from one year ago (1.83 million). Unsold inventory sits at a 3.0-month supply at the current sales pace, down from 3.1 months in July and down from the 4.0-month figure recorded in August 2019.

Scarce inventory has been problematic for the past few years, according to Yun, an issue he says has worsened in the past month due to the dramatic surge in lumber prices and the dearth of lumber resulting from California wildfires.

Mortgage rates are helping to offset some of those high home prices, however. A 30-year fixed-rate mortgage dropped to 3 percent in August and has averaged below 3% in the past few weeks, the lowest on record.

The NAR also reports pending home sales for contracts closing in two months are also surging, which will boost sales through the end of the year. Pending home sales in August continued to move upward, marking four uninterrupted months of positive contract activity. Each of the four major regions experienced growth in month-over-month and year-over-year pending home sales transactions.

The Pending Home Sales Index (PHSI),* www.nar.realtor/pending-home-sales, a forward-looking indicator of home sales based on contract signings, rose 8.8 percent to 132.8 – a record high – in August. Year-over-year, contract signings rose 24.2 percent.

The sale pendings reported by Santa Barbara MLS are again much higher than the previous year (50 percent), so we can expect October to also be a big month for sales, said Witmer.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

 

Why the Housing Shortage?

The Mortgage Corner

Wrightson.com

We are now beginning to feel the recession in housing caused by the Coronavirus pandemic. What can we say with so many living on the edge because of the loss, or temporary hiatus, of their jobs? There’s still a housing shortage, for starters.

Some homeowners are falling behind on their mortgage payments.The majority are protected from default proceedings for at least one year, if their mortgages were guaranteed by any of the government-guaranteed GSEs like Fannie, Freddie, FHA, and VA. So no one is expecting defaults to raise the number of homes available for sale.

Forbes Magazine reported on a January NAR survey that America’s housing shortage is long lasting. According to their analysis, the market needs a whopping 3.8 million additional new homes to fully meet consumer demand.

“Since 2012, nearly 10 million new households were formed in the U.S. Only 5.92 million single-family homes were built in that same period, leaving what Javier Vivas, Realtor.com’s director of economic research, calls “a nearly insatiable appetite from potential buyers, especially in the lower end of the market.”

Why? Builders were so badly burned by the housing bubble and Great Recession and lack of entry-level homebuyers that suffered most from the Great Recession that they haven’t really begun to catch up to demand.

The recovery in home sales and construction is now largely dependent on how many jobs remain after the pandemic, which in part depends on whether the Senate agrees to more financial aid to state and local governments that employ most of the “essential” workers taking care of our health and safety.

NAR’s chief economist Lawrence Yun is surprisingly optimistic about the housing market. “Given the surprising resiliency of the housing market in the midst of the pandemic, the outlook for the remainder of the year has been upgraded for both home sales and prices, with home sales to decline by only 11 percent in 2020 with the median home price projected to increase by 4%,” Yun said. “In the prior forecast, sales were expected to fall by 15 percent and there was no increase in home price.”

Why does he know this? Mortgage application volumes have been picking up in spite of the stay-in-home orders. Home owners and buyers have been been taking advantage of the still record-low interest rates to improve their overhead costs.

The Mortgage Bankers Association (MBA) Market Composite Index, a measure of mortgage loan application volume, increased 2.7 percent on a seasonally adjusted basis from one week earlier.

"The housing market is continuing its path to recovery as various states reopen, leading to more buyers resuming their home search. Purchase applications increased 9 percent last week - the sixth consecutive weekly increase and a jump of 54 percent since early April. Additionally, the purchase loan amount has increased steadily in recent weeks and is now at its highest level since mid-March," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting.

Both pending home sales and existing-home sales are falling during the pandemic, but maybe not for long given the need for more housing..

The Pending Home Sales Index (PHSI),* www.nar.realtor/pending-home-sales, a forward-looking indicator of home sales based on contract signings, fell 21.8 percent to 69.0 in April. Year-over-year, contract signings shrank 33.8 percent. An index of 100 is equal to the level of contract activity in 2001, according to the National Association of Realtors (NAR).

Total existing-home sales, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, dropped 17.8 percent from March to a seasonally-adjusted annual rate of 4.33 million in April, said the NAR, also not a surprise, and are down 17.2 percent from a year ago (5.23 million in April 2019).

More surprising was that housing prices are still rising, signaling there is still a strong demand because we still have that housing shortage in many markets. The median existing-home price for all housing types in April was $286,800, up 7.4 percent from April 2019 ($267,000), as prices increased in every region. April’s national price increase marks 98 straight months of year-over-year gains.

We also know that existing-home inventories are historically low. Total homes for sale at the end of April totaled 1.47 million units, down 1.3 percent from March, and down 19.7 percent from one year ago (1.83 million). Unsold inventory sits at a 4.1-month supply at the current sales pace, up from 3.4-months in March and down from the 4.2-month figure recorded in April 2019, when 6 months is the historical norm.

How many will lose their homes before this recession ends? That is the $64 question. Housing is being remarkably resilient with so many uncertainties. The majority of home owners or whannabe owners are in the top 10-20 percent income brackets not as affected by the pandemic.

Alas, it has be be because lower-income households that have suffered the most from this pandemic are mostly renters not in any position to own a home. That’s a problem politicians are not yet willing to face, but beware what the “I cannot breathe...” rioters are telling them.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Housing Supply Improves

The Mortgage Corner

Our housing supply is finally improving. New-home sales ran at a seasonally adjusted annual rate of 692,000, the Commerce Department said Tuesday. That was 4.5 percent above February’s total and beat the consensus forecast of a 645,000 rate.

It has taken this long for the housing market to recover from the housing bubble, when one million more homes were built than were needed. It was part of the too easy credit conditions that brought in home buyers that wouldn’t have qualified under more normal circumstances.

NAHB.org

For some context on how severe the current spell of under-building has been, take a look at new-home sales in 2000 or 2001. During those two years, well before the housing bubble started to inflate, Americans purchased 877,000 and 900,000 newly-constructed homes. In 2018, Americans purchased just 622,000, said MarketWatch’s Andrea Riquier.

“Sales of newly-constructed homes finally gained momentum after months in the doldrums. March’s selling pace was the strongest since November 2017, the month before the recent tax law changes took effect,” continued Riquier.

Meanwhile, existing-home sales retreated in March, following February’s surge of sales, according to the National Association of Realtors®. Each of the four major U.S. regions saw a drop-off in sales, with the Midwest enduring the largest sales decline last month. 

Total existing-home sales, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 4.9 percent from February to a seasonally adjusted annual rate of 5.21 million in March. Sales as a whole are down 5.4 percent from a year ago (5.51 million in March 2018), said the NAR.

Lawrence Yun, NAR’s chief economist, anticipated waning in the numbers for March. “It is not surprising to see a retreat after a powerful surge in sales in the prior month. Still, current sales activity is underperforming in relation to the strength in the jobs markets. The impact of lower mortgage rates has not yet been fully realized.”

Rob Dietz, chief economist for the National Association of Home Builders, acknowledges that comparing the current housing economy to the one from two decades ago has some downsides. For one, the population isn’t growing nearly as fast now as back then. Still, the gulf between then and now is stark – and 2018’s anemic pace of construction follows several years of similar underbuilding.

“We think that based on demographic demand, we should probably be building 1.1 million single family homes this year,” Dietz told MarketWatch. “Our forecast is for less than 880,000 starts.” The NAHB prefers to look at starts, or groundbreakings, rather than sales data, to gauge market activity.”

For the first quarter of 2019, new home sales are running 1.7 percent higher than the first quarter of 2018, said Dietz. However, while sales were up 9.6 percent for the quarter in the South (the largest region), sales were down 5.9 percent in the West, 8.1 percent in the Midwest and 17.6 percent in the Northeast.

The March data reveal the challenge of housing affordability however, per Dietz and the NAHB. March sales grew at lower price points. For example, 50 percent of March 2019 new home sales were priced under $300,000. In March of 2018, only 39 percent of sales were priced under $300,000.

Harlan Green © 2019

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Near-Record Home Sales Combine with Record Low Interest Rates

The Mortgage Corner

Graph: Econoday

Existing-home sales rebounded strongly in February, experiencing the largest month-over-month gain since December 2015, according to the National Association of Realtors. Three of the four major U.S. regions saw sales gains, while the Northeast remained unchanged from last month.

Total existing-home sales, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, shot up 11.8 percent from January to a seasonally adjusted annual rate of 5.51 million in February. However, sales are still down 1.8 percent from a year ago (5.61 million in February 2018).

This tells us several things. Firstly, record-low interest rates are bringing more home buyers into the housing market. Many are first-time millennial generation buyers now in their 30’s, as I said last week. But it’s also a sign of optimism--that consumers see decent job and economic growth ahead.

Single-family resales, up 13.3 percent to a 4.940 million rate, were especially strong in the month which is good news for the housing sector in general. Condo sales were flat at a rate of 570,000.

“And supply is coming into the market which is more good news, up 2.5 percent in the month to 1.630 million. Yet given the surge in sales, supply relative to sales actually fell sharply to a very low 3.5 months from January's 3.9 months. Hopefully the pickup in sales will drive new resales into the market,” said the NAR.

But more importantly, it should drive more new-home construction, which surged 14 percent in January, reversing a 28 percent drop in December because of rising interest rates.

Lawrence Yun, NAR's chief economist, credited a number of aspects to the jump in February sales. "A powerful combination of lower mortgage rates, more inventory, rising income and higher consumer confidence is driving the sales rebound."

And interest rates in general are even lower at this writing. The 10-year Benchmark Treasury yield has dropped below 2.50 percent—its post-WWII low in the 1950s. The 30-year conforming fixed rate for loans guaranteed by the GSEs Fannie, Freddie, FHA and VA, are now back to 3.50-3.625 percent, last seen at the end of the Great Recession.

It will continue to boost home sales and refinances for the foreseeable future, as even former Fed Chair Janet Yellen sees no more Fed rates hikes this year, even the possibility of a rate cut, if economic growth doesn’t pick up this year, when speaking at the Credit Suisse Asian Investment conference in Hong Kong.

Present growth forecasts for Q1 are between 0.8 to 1.5 percent at the highest. Yellen was attempting to dispel the likelihood of a looming recession this year that some pundits are forecasting. But not responsible economists, as businesses are still looking for more the one million new workers, the highest total in decades, according to the Commerce Department’s latest JOLTS report. Job vacancies and quits (voluntary leaves because workers are finding better jobs) are already up 15 percent this year.

Bottom line is this does not translate to a looming recession, but the same steady growth that prevailed before the Republicans’ December 2017 tax cuts, and should now return to the post-recession, 2 percent average GDP growth.

Harlan Green © 2019

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Homeownership Expands Again

The Mortgage Corner

Washington Post

“New data indicate that in 2016, in defiance of myriad prognostications, the decade-long decline in the homeownership rate abruptly reversed. Once-rapid growth in renter households stalled, and the long-stagnant number of owner-led households began rising,” says the Washington Post’s Andrew Van Dam.

The homeownership of American households peaked at the height of the housing bubble at 69 percent, and only now has returned to post-recession levels. This is confirmed by several other indicators, including the big jump in household formation by the millennial generation, children of the baby boomers, in particular, who are now 22 to 38 years of age. It took them this long to buy because of the Great Recession that depressed incomes and huge amount of college debt.

And builders are beginning to realize that fact, as housing starts jumped back to historical levels in January to a 1.230 million annual rate. After falling 28 percent in December, starts in the West jumped 29 percent in January, as California began to recover from the record number of wildfires. The biggest region for home builders is the South where January starts rose 14 percent to more than reverse December's nearly 8 percent decline, which were also weather-related.

Econoday.com

Another reason for the rise in homeownership has to be steadily rising rents since they hit bottom in 2008, and mortgages rates still at almost record lows. “In the middle of 2015, rents nationally rose more than 6 percent from a year earlier — easily their fastest growth since the real estate data experts at Zillow began keeping track. It is one of the few times on record that rents rose faster than home prices,” said Van Dam.

The last piece of the housing puzzle is the moderation of housing prices that no longer rise at 5 percent per year. The Case-Shiller same-home index year-on-year prices were up only 4.2 percent in the month which missed expectations by a very sharp 6 tenths. This is the lowest growth rate since November 2014 and compares with FHFA's 5.6 percent rate for December which was a 3-year low.

The surge in new households, as well as record low mortgage rates, have helped new-home sales as well. New home sales jumped 3.7 percent in December to a 621,000 annual rate that is on the high end of expectations, though December's year-on-year rate is still minus 2.4 percent.

We therefore see a steady improvement for home sales in 2019, since I predict interest rates could stay this low for the foreseeable future. Why? Economic growth is slowing, while consumer incomes are rising above inflation rate, and there is still a housing shortage.

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Why Declining Home Sales?

The Mortgage Corner

Econoday.com

Total existing-home sales, https://www.nar.realtor/existing-home-completed transactions that include single-family homes, townhomes, condominiums and co-ops, decreased 6.4 percent from November to a seasonally adjusted rate of 4.99 million in December. Sales are now down 10.3 percent from a year ago (5.56 million in December 2017), said the National Association of Realtors.

Why is this happening, at a time when interest rates are plunging almost back to recession levels? The anti-regulation crowd says it’s due to the 2015 TRID regulations that gave borrowers three extra days to go over their loan documents before closing—thanks to Dodd-Franks, and the Consumer Finance Protection Bureau legislation enacted during the Obama administration.

Banks never liked the new regulations since it cost money to make the changes to borrower and closing documents. It protected borrowers who were sometimes confronted with changed loan terms at the closing, and had to either accept or possibly lose their new purchase.

But there’s a much more convincing reason for the sales drop off. Not enough housing inventory.

New homes are not built fast enough to satisfy new adults of the millennial generation now forming families. These children of the baby boomers are the largest population segment ever, born approximately between 1980 and 1996. And most of the new homes are not being built in the affordable range.

Lawrence Yun, NAR’s chief economist, says current housing numbers are also partly a result of higher interest rates during much of 2018. “The housing market is obviously very sensitive to mortgage rates. Softer sales in December reflected consumer search processes and contract signing activity in previous months when mortgage rates were higher than today. Now, with mortgage rates lower, some revival in home sales is expected going into spring.”

In fact, interest rates have declined substantially since last fall, and are almost back to recession lows. The 30-year conforming fixed rate has dropped to 4.0 percent with one origination point, for the most credit-worthy borrowers.

And what about inventories? “Several consecutive months of rising inventory is a positive development for consumers and could lead to slower home price appreciation,” says Yun. “But there is still a lack of adequate inventory on the lower-priced points and too many in upper-priced points.”

And total housing inventory is much lower. It decreased at the end of December to 1.55 million, down from 1.74 million existing homes available for sale in November, but represents an increase from 1.46 million a year ago. Unsold inventory is at a 3.7-month supply at the current sales pace, down from 3.9 last month and up from 3.2 months a year ago.

Not enough new homes are being constructed, as I said. This is an incredibly low inventory level and a major reason for the lower sales’ numbers.

The median existing-home price for all housing types in December was $253,600, up 2.9 percent from December 2017 ($246,500). December’s price increase marks the 82^nd straight month of year-over-year gains.

There are several reasons for the lower construction totals, but it can’t be higher interest rates, which have really only risen on the short term end—i.e., on the Prime Rate that controls installment loans, which is up more than 1.5 points to 5.50 percent.

So this should affect credit card and auto loan debt, but that debt hasn’t fallen, as consumers are flush with cash due to the low unemployment rate.

It’s really because many communities don’t want to build more affordable housing—the Not In My Backyard (NIMBY) crowd. The housing situation has deteriorated so badly at the lower and middle earner price range in states like California that new Governor Gavin Newsom is pledging to somehow finance—or create legislation that encourages the building of—3.5 million new units by 2025.

Harlan Green © 2019

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Home Sales Rise for the Holidays

The Mortgage Corner

Econoday.com

Existing-home sales increased in October after six straight months of decreases, according to the National Association of Realtors. Three of four major U.S. regions saw gains in sales activity last month.

Lawrence Yun, NAR’s chief economist, says increasing housing inventory has brought more buyers to the market. “After six consecutive months of decline, buyers are finally stepping back into the housing market,” he said. “Gains in the Northeast, South and West – a reversal from last month’s steep decline or plateau in all regions – helped overall sales activity rise for the first time since March 2018.”

It’s really been almost a year (November 2017) since sales last peaked. And that was when interest rates had dipped to 4.0 percent for 30-year conforming fixed rates. So it is further evidence that sales are interest-rate sensitive, and homebuyers will wait for a dip in mortgage rates.

Today’s benchmark 10-year T Bond has fallen back to 3.06 percent, for instance, and the 30-year conforming fixed rate to 4.375 percent for those with the best credit scores.

It’s another manifestation of the flight to quality from a very unstable stock market worried about trade wars and outright wars, as the Trump administration stirs up the domestic and geopolitical temperatures again. Unilateral withdrawals from trade and Intermediate Nuclear Missile treaties do not hearten confidence this administration is interested in keeping the peace.

“Total existing-home sales, https://www.nar.realtor/existing-home-sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 1.4 percent from September to a seasonally adjusted rate of 5.22 million in October. Sales are now down 5.1 percent from a year ago (5.5 million in October 2017), said the NAR.

This may be due to increased inventories of homes for sale, as Yun said. Buying has slowed, but new-home building has increased. Total housing inventory at the end of October decreased from 1.88 million in September to 1.85 million existing homes available for sale, but that represents an increase from 1.80 million a year ago. Unsold inventory is at a 4.3-month supply at the current sales pace, down from 4.4 last month and up from 3.9 months a year ago.

Econoday.com

Meanwhile nationwide housing starts rose 13.7 percent in October to a seasonally adjusted annual rate of 1.29 million units after a slight upward revision to the September reading, according to newly released data from the U.S. Department of Housing and Urban Development and the Commerce Department. This is the highest housing production reading since October 2016, when total starts hit a post-recession high of 1.33 million.

“We are seeing solid, steady production growth that is consistent with the National Association of Homebuilders forecast for continued strengthening of the single-family sector,” said NAHB Chief Economist Robert Dietz. “As the job market and overall economy continue to firm, we should see demand for housing increase as we head into 2018.”

Single-family production rose 5.3 percent in October to a seasonally adjusted annual rate of 877,000. Year-to-date, single-family starts are 8.4 percent above their level over the same period last year. Multifamily starts jumped 36.8 percent to 413,000 units after a weak September report.

Hurricane Michael hit Florida and Georgia in October though existing-home sales in the South nevertheless managed a 1.9 percent monthly rise. Sales in the West were strongest at plus 2.8 percent with the Northeast at plus 1.5 percent but the Midwest at minus 0.8 percent.

“(Existing-home) Sales may have gotten a boost from discounting as the median price fell 0.6 percent to $255,400, said Econoday. “Year-on-year, the median is up 3.8 percent which is sizably above the decline in sales which points to further discounting ahead.”

More price discounting and lower (not higher) interest rates and inflation may lie ahead, as real estate becomes the more dependable asset in such times of uncertainty.

Harlan Green © 2018

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Housing Supply Still Lacking

The Mortgage Corner

Graph: Econoday

Most of the construction activity is in the commercial sector, at the moment, though sales of newly-constructed homes rose 3.5 percent compared to July. The pace of new-home sales in August was 12.7 percent higher than a year ago. But large revisions to prior months were all downward, a reminder that the housing recovery still can’t satisfy the demand for single-family housing, in particular.

Economists at Freddie Mac that analyzed the pace of new housing construction found that years of underbuilding has left the U.S. with a cumulative shortfall — that is, supply compared to historical averages — of 4.6 million housing units in the years since 2000. That number is especially stark considering that builders constructed a 1 million unit surplus of homes in the bubble years of the last decade.

The median selling price in August was $320,200, 1.9 percent higher than year-ago prices. Year to date, sales were 6.9 percent higher than the same period last year. The year-to-date comparison has declined over the course of the year, a sign of flagging momentum, as higher mortgage rates and home prices are discouraging some buyers and pushing up the supply of available homes to 6.1 months at the current sales rate.

Commercial construction held most of the action. “In August, the estimated seasonally adjusted annual rate of public construction spending was $316.7 billion,” said the Census Bureau, “2.0 percent (±2.8 percent) above the revised July estimate of $310.5 billion, with much of it in education, a good sign that states are spending on their public infrastructure.”

Strongest in the report was highways & streets, up 1.7 percent in the month. Educational spending was also strong with a 1.0 percent gain. Government spending was also very active in August, up 5.9 percent at the Federal level and up 1.7 percent for state & local, reported the Census Bureau.

The Fed made good on its promise to raise their overnight rate one-quarter percent to 2.25 percent, boosting the Prime Rate used in most revolving credit to 5.25 percent. This hasn’t dampened consumer enthusiasm yet, as consumer spending is rising at 3.8 percent in the latest revision to Q2 GDP growth, which held at 4.2 percent. Maybe it’s one last holiday fling before reality and higher inflation set in from the tariff wars?

Fed Chair Powell said in his announcement after the latest FOMC meeting: “I see the current path of gradually raising interest rates as the FOMC's approach to taking seriously both of these risks. While the unemployment rate is below the Committee's estimate of the longer-run natural rate, estimates of this rate are quite uncertain. The same is true of estimates of the neutral interest rate. We therefore refer to many indicators (my bold) when judging the degree of slack in the economy or the degree of accommodation in the current policy stance. We are also aware that, over time, inflation has become much less responsive to changes in resource utilization.”

It’s good to see commercial construction making a comeback, even with congress seemingly unable to pay its fair share of infrastructure spending that will be needed just to upgrade the federal highway system, as well as our energy grid that is being seriously threatened by Russian cyber attacks, according to our spy agencies.

Housing starts are attempting to catch up, as starts ran at a 1.282 million seasonally adjusted annual rate in August, the Commerce Department said Wednesday. That was 9.2 percent higher than July’s pace, and 9.4 percent higher than a year ago. But that still won’t be enough to satisfy demand.

Stephen Stanley, chief economist at Amherst Pierpont, Securities interviewed by MarketWatch’s Andria Riquier, was more blunt: “To be clear, there is fundamental softness in housing. Industry sources suggest that the relentless torrid home price appreciation in recent years has finally reached a point that numerous prospective buyers are balking. In addition, high-end homes in high-tax states are starting to see some effect from tax law changes implemented in December. On top of that, new home construction has been impacted by a run-up in materials costs this year, squeezing builders in a vice between rising costs and a diminishing appetite of prospective buyers to pay up.”

Add to that we will be soon entering the tenth year of this boom cycle, which would put it on a par with the 1991 to 2001 boom years that paid down our national debt. If only that were the case today, instead of the surging federal deficit and debt that is squeezing future public sector investments and growth.

Harlan Green © 2018

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

April Housing Sales Slow

The Mortgage Corner

Graph: Econoday

The above graph says it all. With rising interest rates, housing sales are slowing a bit. Total existing-home sales, https://www.nar.realtor/existing-home-sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, decreased 2.5 percent to a seasonally adjusted annual rate of 5.46 million in April from 5.60 million in March. With last month’s decline, sales are now 1.4 percent below a year ago and have fallen year-over-year for two straight months. This is in spite of inventories climbing, and more young adults in their 30’s buying homes.

Total housing inventory at the end of April increased 9.8 percent to 1.80 million existing homes available for sale, but is still 6.3 percent lower than a year ago (1.92 million) and has fallen year-over-year for 35 consecutive months. Unsold inventory is at a 4.0-month supply at the current sales pace (4.2 months a year ago).

Interest rates aren’t rising that much. The 30-year conforming fixed rate actually dropped 1/8^th percent to 4.125 percent this week from 4.25 percent for a 1 origination point fee. And so-called Jumbo or High-Balance fixed conforming rates were just 1/8^th percent higher than conventional conforming fixed rates for the same fee.

This is while housing costs are still rising. The median existing-home price for all housing types in April was $257,900, up 5.3 percent from April 2017 ($245,000). March’s price increase marks the 74th straight month of year-over-year gains, according to the NAR.

This tends to cause buyers to hesitate. Lawrence Yun, NAR chief economist, says this spring’s staggeringly low inventory levels caused existing sales to slump in April. “The root cause of the underperforming sales activity in much of the country so far this year continues to be the utter lack of available listings on the market to meet the strong demand for buying a home,” he said. “Realtors® say the healthy economy and job market are keeping buyers in the market for now even as they face rising mortgage rates. However, inventory shortages are even worse than in recent years, and home prices keep climbing above what many home shoppers are able to afford.”

Graph: Econoday

New-home sales also slowed, with April sales 15,000 short of the consensus, at a 662,000 annualized rate with revisions pulling down the prior two months by a total of 30,000. Yet compared to the prior report, when sales beat expectations by 64,000 and when upward revisions added 81,000, today's report doesn't reverse what is still an upward sales’ slope for new homes.

"With job growth, rising incomes and overall economic strengthening, we can expect housing demand to continue to grow, particularly among millennials (i.e., in their 30’s) and other newcomers to the market," said NAHB Senior Economist Michael Neal. "However, builders need to manage rising construction costs as well as regulatory hurdles to keep their homes competitively priced."

The details are mixed for new-home sales. Price discounting may be underway as the median fell a very steep 6.9 percent in the month to $312,400 for a year-on-year gain of only 0.4 percent. Relative to sales, which are up 11.6 percent year-on-year, prices look like they have room to climb, says the National Association of Homebuilders. Supply data are also a concern. New homes on the market rose only 2,000 to 300,000 with supply relative to sales also moving only marginally higher, to 5.4 months from 5.3 months.

Harlan Green © 2018

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Lower Inventory = Fewer Home Sales

The Mortgage Corner

WASHINGTON (February 21, 2018) — Existing-home sales slumped for the second consecutive month in January and experienced their largest decline on an annual basis in over three years, according to the National Association of Realtors. All major regions saw monthly and annual sales declines last month.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, sank 3.2 percent in January to a seasonally adjusted annual rate of 5.38 million from a downwardly revised 5.56 million in December 2017. After last month’s decline, sales are 4.8 percent below a year ago (largest annual decline since August 2014 at 5.5 percent) and at their slowest pace since last September (5.37 million).

Graph: Econoday

Lawrence Yun, NAR chief economist, says January’s retreat in closings highlights the housing market’s glaring inventory shortage to start 2018. “The utter lack of sufficient housing supply and its influence on higher home prices muted overall sales activity in much of the U.S. last month,” he said. “While the good news is that Realtors in most areas are saying buyer traffic is even stronger than the beginning of last year, sales failed to follow course and far lagged last January’s pace. It’s very clear that too many markets right now are becoming less affordable and desperately need more new listings to calm the speedy price growth.”

Total housing inventory at the end of January rose 4.1 percent to 1.52 million existing homes available for sale, but is still 9.5 percent lower than a year ago (1.68 million) and has fallen year-over-year for 32 consecutive months. Unsold inventory is at a 3.4-month supply at the current sales pace (3.6 months a year ago).

Graph: Calculated Risk

“Another month of solid price gains underlines this ongoing trend of strong demand and weak supply. The underproduction of single-family homes over the last decade has played a predominant role in the current inventory crisis that is weighing on affordability,” said Yun. “However, there’s hope that the tide is finally turning. There was a nice jump in new home construction in January and homebuilder confidence is high. These two factors will hopefully lay the foundation for the building industry to meaningfully ramp up production as this year progresses.”

First-time homebuyers are being squeezed because of the housing shortage, as just 29 percent were buyers, down from 32 percent last month.

The median existing-home price for all housing types in January was $240,500, up 5.8 percent from January 2017 ($227,300). January’s price increase marks the 71^st straight month of year-over-year gains, according to the NAR.

New-home sales and construction are beginning to catch up with demand, but interest rates have to remain at their historic lows for this to continue. The 30-year fixed conforming rate is still 4.0 percent for 1 origination point, just 0.50 percent above its historic low. And several Federal Reserve Governors have said the Fed may not hike short term rates anytime soon, if inflation rates don’t move above the current 2 percent target rate.

Harlan Green © 2018

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

2018 Housing Market To Stay Strong

The Mortgage Corner

Total existing-home sales, https://www.nar.realtor/existing-home-sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 1.1 percent in 2017 to a 5.51 million sales pace and surpassed 2016 (5.45 million) as the highest since 2006 (6.48 million).

This is a sign that 2018 could be a record year for housing sales, in spite of the housing shortage that slowed sales in the fourth quarter, and builders hard put to find enough construction workers to ramp up housing construction.

The home ownership rate is back up to historical levels, for starters. Marketwatch’s Andrea Riquier reports the home ownership rate jumped in the fourth quarter of 2017 to 64.2 percent, the Census Bureau said Tuesday to a 3-month high, and in line with 1980 and 1990 averages, before rising into bubble territory in the 2000s.

There were 1.52 million more owner households compared to a year earlier, and 76,000 fewer renter households, according to Riquier. It hit an all-time high of 69.1 percent in 2004 as the housing bubble inflated. In the aftermath of the crisis, it skidded lower and lower, finally bottoming out at 62.9 Percent in 2016.

Graph: Marketwatch

Lawrence Yun, NAR chief economist, says the housing market performed remarkably well for the U.S. economy in 2017, with substantial wealth gains for homeowners and historically low distressed property sales.

“Existing sales concluded the year on a softer note, but they were guided higher these last 12 months by a multi-year streak of exceptional job growth, which ignited buyer demand,” said Yun. “At the same time, market conditions were far from perfect. New listings struggled to keep up with what was sold very quickly, and buying became less affordable in a large swath of the country. These two factors ultimately muted what should have been a stronger sales pace.”

Graph: Econoday

That’s in part because total housing inventory³ at the end of December dropped 11.4 percent to 1.48 million existing homes available for sale, and is now 10.3 percent lower than a year ago (1.65 million) and has fallen year-over-year for 31 consecutive months. Unsold inventory is at a 3.2-month supply at the current sales pace, which is down from 3.6 months a year ago and is the lowest level since NAR began tracking in 1999.

What about new-home construction? A surprising but perhaps one-time drop in single-family starts masks what is otherwise a very solid housing starts and permits report for December. Starts fell 8.2 percent to a 1.192 million annualized rate and reflect an 11.8 percent plunge in single-family starts to an 836,000 rate that far offsets a 1.4 percent gain in multi-family starts to 356,000. But it’s probably the cold weather and snows that reach all the down to Florida in January. Starts are affected by the winter weather which along with related adjustments are always factors for this reading.

But the backlog behind future starts continues to build as permits came in very strong, virtually steady at a 1.302 million rate and showing a noticeable 1.8 percent gain for single-family permits to 881,000. Lack of homes has been holding down new home sales though new supply did move into December's market, as completions for single-family homes jumped 4.3 percent to an 818,000 rate.

We mustn’t forget interest rates either, which are still low in spite of the stock market panic over the possibility of higher rates. Guess what? That’s not happening, especially with the Fed’s preferred PCE core index still at 1.5 percent, and mortgage rates for the 30-year fixed conforming rate still @ 4.0 percent, just 0.50 percent above its low.

Harlan Green © 2018

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen