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

What Interest Rates Are Declining?

 The Mortgage Corner

FRED30yr

The average 30-year fixed rate conforming mortgage has declined almost one percent since November 2022 to the current 6.12 percent as of February 2023, per the St. Louis Fed.

The housing sector has been a leading edge of economic recoveries historically, and declining interest rates have led housing recoveries, so we can make an educated guess that a recovering housing and the real estate sector in general is indicating an economic recovery this year.

A leading indicator of home sales is the NAR’s Pending Home Sales survey that measures contracts signed with closings occurring usually in 30 to 60 days.

Pending home sales increased in December for the first time since May 2022 — following six consecutive months of declines — according to the National Association of Realtors press release.

The Pending Home Sales Index (PHSI)* — a forward-looking indicator of home sales based on contract signings — improved 2.5% to 76.9 in December. Year-over-year, pending transactions dropped by 33.8%. An index of 100 is equal to the level of contract activity in 2001.

“This recent low point in home sales activity is likely over,” said NAR Chief Economist Lawrence Yun. “Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market.”

Why is this a contra-indicator to rising interest rates engineered by the Fed? Because mortgage loans are longer-term products controlled by bond traders looking at longer-term inflation, which has been declining precipitously.

Retail CPI inflation, for instance, declined from 9 percent to 6.4 percent just since last June. Housing sales will take a bit longer to recover from the December lows, since housing prices are also part of the recovery formula.

And said price increases are returning to a more historical level of +5 percent per annum as well.

Calculated Risk

Per Calculated Risk, Freddie Mac recently reported that its “National” Home Price Index (FMHPI) declined for the seventh consecutive month on a seasonally adjusted basis in December, putting the National FNHPI down 2.5% from its May 2022 peak, and down 5.0% Not Seasonally Adjusted (NSA) from the peak.

Mortgage applications have therefore increased as well. Mortgage applications increased 7.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 3, 2023.

“Applications rose last week as the 30-year fixed mortgage rate inched lower to 6.18 percent, its fifth consecutive weekly decline. The 30-year fixed rate is almost a percentage point below its recent high of 7.16 percent in October 2022,” said Joel Kan, MBA’s Vice President, and Deputy Chief Economist. “

Both purchase and refinance applications increased last week and have shown gains in three of the past four weeks because of lower rates.

So, it looks like head winds created by the Fed’s rate hikes that brought home sales to their lows in December are slowly turning into tail winds pushing housing sales higher as inflation and longer-term, fixed interest rates continue to decline.

Harlan Green © 2023

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

Home Sales Returning to Normal Levels

 Financial FAQs

FREDcalculatedrisk

The home sales frenzy that has prevailed since COVID and rock bottom interest rates is finally subsiding.

Existing-home sales retreated for the fourth consecutive month in May, according to the National Association of Realtors®. Month-over-month sales declined in three out of four major U.S. regions, while year-over-year sales slipped in all four regions.

This is slowing rising prices, though the national median price just topped $400,00 for single-family homes, up 15 percent in a year. But it also means annual sales are returning to the range that prevailed since the Great Recession in 2007, as can be seen in Calculated Risk’s above graph.

Calculated Risk’s Bill McBride predicts that housing supplies will increase this year because a record number of homes will be completed due to a record number of housing units under construction—some 1.7 million residential units.

“Supply constraints have lengthened the time from start to completion. We can see the impact of supply constraints by looking at the gap between single family starts and completions. It usually only takes about 6 months between starting a single-family home and completion, but it has taken longer during the pandemic,” said McBride.

Total existing-home sales,1 https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 3.4 percent from April to a seasonally adjusted annual rate of 5.41 million in May. Year-over-year, sales receded 8.6 percent (5.92 million in May 2021).

"Home sales have essentially returned to the levels seen in 2019 – prior to the pandemic – after two years of gangbuster performance," said NAR Chief Economist Lawrence Yun. "Also, the market movements of single-family and condominium sales are nearly equal, possibly implying that the preference towards suburban living over city life that had been present over the past two years is fading with a return to pre-pandemic conditions."

Total housing inventory registered at the end of May was 1,160,000 units, an increase of 12.6% from April and a 4.1% decline from the previous year (1.21 million). Unsold inventory sits at a 2.6-month supply at the current sales pace, up from 2.2 months in April and 2.5 months in May 2021.

The problem is that first-time buyers have an even more difficult time in purchasing a residence, hence the surge in apartment construction.

First-time buyers were responsible for 27 percent of sales in May, down from 28 percent in April and down from 31 percent in May 2021. NAR's 2021 Profile of Home Buyers and Sellers – released in late 2021 – reported that the annual share of first-time buyers was 34 percent.

In fact, first-timers have made up to 40 percent of purchases when interest rates were lower, so will either now have to wait for either changes in zoning laws that allow a greater housing density near transportation hubs, something that communities should encourage that want to attract more working folk to their towns, or the next time interest rates come down.

Harlan Green © 2022

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

It’s the Third Largest Housing Boom Ever!

The Mortgage Corner

fred.stlouisfed.org

The 10-year Treasury bond yield has fallen back to 2.86 percent, which is usually recession territory. And the 30-year conforming fixed rate is 4.125 percent again with a 1-point origination fee. This is unheard of in a fully employed economy currently growing at 3 percent. Longer term rates should be rising at such a time, not falling, as I said last week.

Then are we approaching recession territory? Nobel laureate Robert Shiller, perhaps the most informed behavioral economist following the housing market, has just opined that we are in the third largest housing boom, ever. He won last year’s Nobel Prize in the Economic Sciences because he has taken the trouble to understand Americans’ financial behavior in the housing market.

Only two other housing booms—the housing bubble preceding the Great Recession and that in post WWII 1940’s—lasted longer. Existing-home prices have risen 53 percent since 2012, 40 percent after inflation is factored in, said Professor Shiller.

“Since February 2012, when the price declines associated with the last financial crisis ended, prices for existing homes in the United States have been rising steadily and enormously. According to the S&P/CoreLogic/Case-Shiller National Home Price Index (which I helped to create) as of September, the prices were 53 percent higher than they were at the bottom of the market in 2012.”

It’s possible we are at the top of this housing boom, which means at the top of this business cycle, as well, since the financial markets usually follow where housing goes. Housing prices and housing demand are forward-looking indicators, in other words, because home buyers are sensitive to inflation and interest rate trends.

Actually, Professor Shiller maintains most investors are fairly lazy in their research of investments, including housing purchases, which is why we have housing bubbles. That’s because investors tend to listen to good stories or word-of-mouth opinions by others they may or may not trust, rather than do their own research that might tell them the innate value of an investment in greater depth.

Such ‘irrational exuberance’ caused the last housing bubble because homebuyers believed the conventional story that home prices would never decline; and they hadn’t since World War Two.

That’s why homebuyers pushed up housing prices as much as 20 percent per year before the bubble burst in 2018, and housing prices declined for the first time since World War Two!

Dr.Shiller goes through all the possibilities for the current housing boom, including good economic times and the low jobless rate, but I vote for the simplest explanation— low interest rates.

It’s true 30-year conforming fixed mortgage rates were even lower last year at this time; as low as 3.50 percent; but the Fed is no longer buying mortgage-backed securities with their QE program.
They are now selling a portion of their $4 trillion portfolio. This should boost mortgages and other longer term fixed yields; but that isn’t happening as investors prefer to snap up more secure sovereign debt insured by the ‘faith and credit’ of the U.S. government.

Then do we have a housing bubble today? Not yet, as there are far too few homes being built at present. Builders are playing catchup to the lingering results of the Great Recession—too many low-paying jobs, too strict qualification standards by conforming lenders that sell to Fannie Mae and Freddie Mac (those entities still owned by the federal government), and cities that don’t want more homes built in their own backyard.

Harlan Green © 2018

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

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

Government Is the Solution, Part II--Housing For the Homeless

Popular Economic Weekly

thelundreport.org

I said in an earlier column “that part of the solution to the housing and homeless crisis has to be the responsibility of governments.”

A recent Project Syndicate article by UC Berkeley economist Laura Tyson, and Lenny Mendonca, Chairman of New America, highlighted just how much government support will be needed to take some of the half million homeless off the streets, a number that has grown sharply just since 2017 as housing rents and prices have soared with the economic recovery.

According to the U.S. Department of Housing and Urban Development (HUD), there were roughly 554,000 homeless people living somewhere in the United States on a given night last year. “A total of 193,000 of those people were "unsheltered," meaning that they were living on the streets and had no access to emergency shelters, transitional housing, or Safe Havens. Despite a booming stock market and strong economic growth, a large swathe of America is still struggling to make ends meet.”

And affordability is the real problem. “Of 3,007 counties in the US, a worker earning the federal minimum wage of $7.25 per hour can afford a one-bedroom rental in only 12,” said Project Syndicate. “In San Francisco, where the median house price is over $1.5 million, a single mother earning the minimum wage would have to work 120 hours per week to meet her basic needs. And even outside of high-cost regions, nearly two-thirds of US households lack the savings to cover a $500 shock such as a car repair or health-care expense. For these families, one bad turn can result in homelessness.”

The most common-sense solution would be to build more homes for all socio-economic strata, but surveys have shown that a majority of the home owning public thinks in NIMBY (Not-in-My-Backyard) terms; which means the most affordable housing is being built on least-desirable land usually far from population centers.

StrongTowns.org is one such advocate and clearing house for the building of affordable housing under its Mission Statement: “For the United States to be a prosperous country, it must have strong cities, towns and neighborhoods. Enduring prosperity for our communities cannot be artificially created from the outside but must be built from within, incrementally over time.”

For instance, California would need to build around 180,000 more new housing units each year – about 100,000 more than are currently being built – just to keep up with population growth. Since 2010, eight times as many jobs as housing units have been added in San Francisco, where the average cost of building “affordable apartments” has jumped to $425,000. King County, Washington, which includes Seattle, estimates that it would need 14,000 more units to house its homeless population.

Not providing lodgings and services for the homeless can be even more expensive. There are many studies that show how costly it can be to leave the homeless on America’s.

Many local and state governments have developed what have been called ‘Housing First’ programs to help subsidize the 30 percent of homeless with mental illnesses in particular. Chronically homeless people are regular visitors to emergency rooms, and each visit results in a hefty bill. They also frequently use mental health and addiction treatment services and tend to rack up arrests, leading to costly jail terms.

“Housing First is a homeless assistance approach that prioritizes providing permanent housing to people experiencing homelessness, thus ending their homelessness and serving as a platform from which they can pursue personal goals and improve their quality of life,” said its program statement. “This approach is guided by the belief that people need basic necessities like food and a place to live before attending to anything less critical, such as getting a job, budgeting properly, or attending to substance use issues.”

Philip Mangano, the former homeless policy czar under President George W. Bush was an early government official that had the foresight to expand housing-first programs -- with federal dollars behind them -- into cities around the country.

Using data from the 65 cities -- of all different sizes and demographics -- the cost of keeping people on the street added up to between $35,000 and $150,000 per person per year, said Mangano.
Conversely, after the housing-first programs had been established, Mangano said he looked at the cost of keeping formerly homeless people housed. That range: $13,000 to $25,000 per person per year.

We must find a way to care for the homeless and those rendered hopeless by the Great Recession, loss of good-paying jobs and record income inequality that has now lasted decades. Or, the richest country on earth risks becoming the poorest provider of care for our citizens, the hallmark of a healthy democracy.

Harlan Green © 2018

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

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

Existing-Home Inventory Lowest in 18 years

The Mortgage Corner

There aren’t enough home to sell. Sales of previously-owned homes tumbled in December as an ongoing inventory crunch became more worrisome with few homes to sell in parts of the country. Existing-home sales were down 3.6 percent for the month, though they were up 1.1 percent from a year ago, according to the National Association of Realtors. The NAR said November’s selling pace was revised down to 5.78 million.

The housing market performed remarkably well for the U.S. economy in 2017, said Lawrence Yun, NAR chief economist.

“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

There are two major reasons for the lack of inventory. Homebuyers are rushing to close deals before interest rates rise further. The 30-year conforming fixed rate is now 3.75 percent for a one point origination fee and climbing, with its maximum single-unit amount raised to $453,100 this January.
And there is a labor shortage with many workers having left the construction industry during the Great Recession, which is slowing the construction of new homes. The lack of inventory has also been driving up home prices, putting many first-time homebuyers out of the market.

“The lack of supply over the past year has been eye-opening and is why, even with strong job creation pushing wages higher, home price gains – at 5.8 percent nationally in 2017 – doubled the pace of income growth and were even swifter in several markets,” said Yun.

Those high-end markets include California, where the median home price now tops $500,000, vs. the new national median price for all housing types at $246,800. So who can afford to live in California these days?

That’s the reason Facebook unveiled plans for the massive new construction project at its Menlo Park, California corporate campus, which is part of Facebook's plans to expand its home base. The 56-acre site, which Facebook bought in 2015 for about $400 million, is located directly across the street from Facebook's headquarters. It will offer 1.6 million square feet of housing, or 1,500 units.

"Facebook is a strong supporter of its local community and consistently recognized as one of the best places in the world to work," said a Facebook spokeswoman. "This project advances both goals, by providing our employees an excellent new housing option within walking distance to campus while investing in new housing opportunities in our local community."

Must any new affordable housing in California and other high cost regions now depend on private corporations? California’s state legislators just passed a bill that would ask voters in November 2018 to approve $4 billion in general obligation bonds to build rental housing for low-income families and fund other existing housing programs. The bond would set aside $1 billion for the state’s veteran home-loan program, which would otherwise run out of money in 2018, according to SF Gate.

But that’s a drop in the bucket for what’s needed to keep up with the state’s population growth. The nonprofit California Housing Partnership estimates that California still needs about 1.5 million more subsidized housing units to meet current demand.

Harlan Green © 2018

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

New-Home Sales at 10-yr High

The Mortgage Corner

Sales of new single-family houses in October 2017 were at a seasonally adjusted annual rate of 685,000, according to estimates released jointly today by the U.S. Census Bureau and HUD. This is 6.2 percent (±18.0 percent) above the revised September rate of 645,000 and is 18.7 percent (±23.5 percent) above the October 2016 estimate of 577,000.

Graph: Calculated Risk

It is the highest sales rate in 10 years, when it reached its 1.4 million unit peak in 2007 at the height of the housing bubble. Such soaring sales tell us home buyers are hurrying to buy before prices and interest rates rise any higher. But it’s still a meager supply, as there is just a 4.9-month supply of new homes on the market at the current sales rate, which is below the more normal 6-month total.

Graph: Econoday

So there just are not enough homes to satisfy the surging demand for housing in a fully employed economy with wages and household incomes rising substantially for the first time since the Great Recession, as I’ve been saying for weeks. Part of the reason for higher demand—the Gen Y-er, millennial generation want their own living space. They now comprise 42 percent of homebuyers. And first-time buyer total is 32 percent, up from 30 percent last month.

There aren’t enough existing homes to meet demand, either. 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 2.0 percent to a seasonally adjusted annual rate of 5.48 million in October from a downwardly revised 5.37 million in September. After last month's increase, sales are at their strongest pace since June (5.51 million), but remain 0.9 percent below a year ago.

“There is solid growth in the number of sales contracts signed before construction has begun, a strong indicator that new single-family home production should continue to grow as we look ahead to 2018," said NAHB Chief Economist Robert Dietz.

New home sales increased in all four regions. Sales rose 30.2 percent in the Northeast, 17.9 percent in the Midwest, 6.4 percent in the West and 1.3 percent in the South. Some of it may be replacement homes damaged or lost from the Hurricanes, there is clearly still a housing shortage.

And mortgage rates remain at historical lows. The 30-year fixed conforming rate is 3.50 percent, at one origination point. The Hi-balance conforming 30-year fixed is 3.625 percent for the same one origination point.

Harlan Green © 2017

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

New Home Sales-Ownership Rate Rising

The Mortgage Corner

New home sales shot up 19 percent in September to a consensus crushing annualized rate of 667,000. This is the largest percentage gain in 28 years and the highest level of the cycle, since October 2007. In stark contrast, existing home sales, the green line, haven't shown any kind of bounce.

Graph: Econoday

Homeownership is also rising. The Census Bureau last week reported that ownership increased to 63.9 percent in the third quarter, the highest level since 2014. The rate was up from 63.7 percent in the second quarter and 63.5 percent a year earlier. It is creeping up to the 65 percent historical ownership rate, but it remains below the 69 percent clocked at the peak of the housing bubble a decade ago.

What does this mean? Firstly, the housing supply is catching up with demand, and it will take some pressure over rising rents. The rise in homeownership comes as other forces weaken the rental market, including a surge in supply from developers hoping to cash in on rising rents. In September, the seasonally adjusted rate of apartments under construction was 596,000, nearly twice the long-term average of 300,000 units, according to U.S. Census data.

The new housing supply boosted the national vacancy rate to 4.5 percent in the third quarter of this year, compared with 3.5 percent a year earlier, according to John Chang, head of research for real-estate services firm Marcus & Millichap. Nationally, rents were up 3.5 percent between the third quarters of 2016 and ’17, compared with 4.5 percent the previous years, he said.

And it is the millennial generation, children of the baby boomers and the largest generation ever, that are boosting homeownership rates as they begin to marry and raise families. Their marriage rate over the next five years will likely play an important role in demand for apartments and houses, according to Dr. Chang.

The market is not so good for existing-home sales. Econoday reports the red line of pending sales shows the pending index flat at 106.0 and existing homes likely to hold near 5.400 million. Resale prices ($245,100 median) are far lower than new homes ($319,700), but it's not helping sales. It peaked in January and has been trending down ever since.

But if construction and new-home sales continue to pick up, it will move more millennials out of their rentals. They are taking their time to nest, and the oldest of those born from approximately 1980 to 1996 will soon be approaching 40 years of age.

Sales haven’t declined more because mortgage rates are holding @ 3.50 percent for a 30-year fixed conforming loan with 1 origination point, and 3.625 percent for the so-called Hi-balance 30-year conforming rate in high-expense states and regions.

This is actually an incredible number, as interest rates this low in the eighth year of the recovery from the Great Recession attests to the severity of the recession, and fact that household incomes are only beginning to recover.

Harlan Green © 2017

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

Rising Existing-Home Sales Not Enough

WASHINGTON (October 20, 2017) — After three straight monthly declines, existing-home sales slightly reversed course in September, but ongoing supply shortages and recent hurricanes muted overall activity and caused sales to fall back on an annual basis, reports the National Association of Realtors.

There aren’t enough homes for sale, in other words, at a time when many more homes are needed.  The inventory for sale is down to 4.2 months’ supply at the current sales rate. How will all the homes lost in the hurricanes and California wild fires be replaced with such low inventories?

It will take massive help from governments and disaster relief agencies, for starters. The U.S. House has voted $51.8 billion in relief aid to date that the Senate will also have to approve; much of it for replacement housing. But that means mobile homes providing immediate shelter from the approaching winter, as happened in New Orleans with Hurricane Katrina.

It will take much longer to replace those homes destroyed. The ongoing California wildfires have destroyed more than 6,000 homes in Northern California, which is more than half the average total of new homes built in California during ordinary years. And 185,149 homes are estimated to be damaged or destroyed just by Harvey, according to recent data from the Texas Division of Emergency Management.

This will certainly boost the construction industry. But construction also is suffering from a shortage of workers. And affordability is now a problem slowing sales, as housing prices have risen faster than incomes due to the current housing shortage.

Graph: Econoday

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 0.7 percent to a seasonally adjusted annual rate of 5.39 million in September from 5.35 million in August. Last month's sales pace is 1.5 percent below a year ago but is the second slowest over the past year (behind August).

Lawrence Yun, NAR chief economist, says closings mustered a meager gain in September, but declined on an annual basis for the first time in over a year (July 2016; 2.2 percent). “Home sales in recent months remain at their lowest level of the year and are unable to break through, despite considerable buyer interest in most parts of the country,” he said. “Realtors® this fall continue to say the primary impediments stifling sales growth are the same as they have been all year: not enough listings – especially at the lower end of the market – and fast-rising prices that are straining the budgets of prospective buyers.”

Bottom line is that U.S. and state economies will be given a massive boost by the recent disasters. We can really call it a new, New Deal, since governments will have to approve massive spending bills to rebuild as if it were wartime. Much of that spending has to be for modernizing our infrastructure—which includes all the roads, bridges, water systems, and electrical grids destroyed.

And don’t forget the replacement housing needed. We see such spending can and will prolong this recovery another one or two years. Since such massive spending will require bipartisan support, maybe politics can be thrown out the window this time.

Harlan Green © 2017

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

Republicans Are Killing Housing

The Mortgage Corner

The Trump administration and Republicans’ anti-immigration policies will kill the housing market. Why? Trump wants to cut immigration quotas by 50 percent when there aren’t enough qualified workers to fill current job openings. And congress can’t agree on anything that gives easier access to citizenship for the foreign-born; which is why there is a housing shortage.

The housing market can’t provide enough housing even for current population growth. Both new and existing-home sales have declined this year because of the lack of housing. Builders and real-estate agents have complained for years about more red tape, tighter lending standards and a scarcity of inexpensive lots to build on.

And builders are now facing an extreme labor shortage. They can’t find enough carpenters, bricklayers and other workers with the needed skills. “Labor and material shortages are holding construction back, and will continue to do so for some time yet,” says Marketwatch, citing economists at Capital Economics.

Graph: FRED

The number of existing-homes listed for sale in 2017 to date is the lowest since 1999, according to the NAR. That’s in part because distressed sales volumes have fallen from more than 100,000 a month at the peak of the post crisis period, 2009-2012, to about 25,000 today, which means there aren’t many cheaply-priced homes left over from the housing crash. 

I said last week the Labor Department reported there were 6.1 million job openings in August in its JOLTS report, or Job Openings and Labor Turnover Survey, which was “little changed” from July, while hirings remained far behind at 5.430 million. The very large gap has been little changed for more than a few months. At 652,000, the current spread between openings and hirings is one of the very widest on record, and two months ago it was even higher—the spread was 1 million.

Why? There aren’t enough workers to fill current job openings; as I said—and the Trump administration wants to restrict the supply even further in its single-minded pursuit of minority white-nationalist voters?

Economists know that to advance economic growth to say, 3 percent for any length of time, 2.8 million new workers are needed each year, when our domestic population is capable of just 600,000 new adult workers, according to the U.S. Census Bureau. So where are the additional workers to come from if Trump and the Republican congress continue to block a more enlightened immigration policy?

Housing affordability will suffer the most, when household incomes are rising at half the rate of both housing prices and rental rates. It’s a sad fact that the average production and non-supervisory worker earned $37,600 annually in 2016. “When adjusted for inflation, the average wage has remained stagnant for 50 years,” said Executive Pay Watch, in a report conducted by the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO).

So we are at a crossroads, if we want to provide the necessary housing for our growing population. A more enlightened immigration policy is the first step. And then Republicans should drop their obsession with unnecessary tax cuts and instead focus on that $1 trillion infrastructure bill they’ve talked so much about.  It’s even more necessary because of the horrific hurricanes.

Harlan Green © 2017

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

A Decent Employment Report

Financial FAQs

The Bureau of Labor Statistics reported that 156,000 additional nonfarm payroll jobs were created in August, which was less than expected, but will be enough to keep markets happy. And the unemployment rate edged up to 4.4 percent from July’s 4.3 percent as more workers began looking for work (77,000), but weren’t yet absorbed into the workforce. Almost all the job gains occurred in manufacturing, construction, professional and technical services, health care, and mining.

Graph: Marketwatch

A major positive in the report is a 36,000 surge in manufacturing payrolls that includes a 10,000 upward revision to July to a 26,000 increase and a 9,000 upgrade to June to a gain of 21,000. It’s a positive sign because manufacturing jobs pay higher wages.

Construction payrolls are also solid, up 28,000 in August following a 3,000 decline in July, which mirrors the surging housing market. The new-home construction rate is now above 1 million annual units, which helps replenish depleted housing stocks (and helps to slow price growth).

But retail hiring has declined for six straight months as retail stores continue to close. This is while Amazon has announced plans to hire an additional 50,000 employees to work in its distribution centers.

This was a good jobs report, in other words, and suggests the ongoing recovery, now in its eighth year, shows no signs of weakening. Wages aren’t rising any faster than 2.5 percent; which is a mystery because manufacturing and construction jobs pay higher wages. Is that because there are still 5.6 million part time workers that would rather work fulltime? They earn less, so that may be what is holding down wage growth.

But real (inflation adjusted) Disposable Income is rising again after going negative in 2016.  Disposable income measures income from rents and the self-employed, as well as wages, which may give a boost to employees’ wages. It is the major reason consumer spending rose 3.3 percent in second quarter’s GDP report, and probably will boost third quarter growth as well. Wages and salaries have now risen 0.5 percent for two consecutive months.

The combination of good unemployment and rising incomes are boosting consumer confidence. The Conference Board reported on Tuesday that its consumer confidence index is now at 122.9, which is its highest value since December 2000.

“Consumer confidence increased in August following a moderate improvement in July,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ more buoyant assessment of present-day conditions was the primary driver of the boost in confidence, with the Present Situation Index continuing to hover at a 16-year high (July 2001, 151.3). Consumers’ short-term expectations were relatively flat, though still optimistic, suggesting that they do not anticipate an acceleration in the pace of economic activity in the months ahead.”

Manufacturing payrolls are surging in part because factory orders are rising again. Factory orders fell in July 3.3 percent because of a drop in aircraft orders, but there was a 6 tenths upward revision to core capital goods orders (nondefense ex-air) to a 1.0 percent gain and a 2 tenths upward revision to core shipments, now at 1.2 percent. These numbers point to accelerating strength for third-quarter business investment, which along with consumer spending are the main drivers of GDP growth.

Another boost to Q3 growth will be the recovery efforts for Hurricane Harvey. Damage estimates range up to $100 billion, and governments (as well as insurance) companies will be spending most of that money.  This is what governments need to do, even if the U.S. congress can’t pass a substantial infrastructure bill this year.

And what about the estimated 6 million damaged autos that will be replaced? That give’s another boost to the manufacturing sector, and Q3 economic growth!

Harlan Green © 2017

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

Home Sales Disappoint

The Mortgage Corner

Existing-home sales were at a 5.52 million seasonally adjusted annual rate in June, the National Association of Realtors said Monday. That was 0.7 percent above the year-ago rate, but 1.8 percent lower than in May and marked the second-lowest monthly total of 2017.

Graph: Econoday

Why? There’s a severe housing shortage with inventories down to a 4.3-month supply at the current sales rate. It is so bad that Zillow Chief Economist Svenja Gudell in a Marketwatch interview said, “There are about as many homes for sale now as there were in 1994 (1.96m), except there are about 63 million more people in this country now than there were then.”

The supply imbalance continues to push prices higher. The median sales price was $263,800 nationally, a 6.5 percent increase compared with the year-earlier period. The median price in California is now $500,000. That sets a fresh record and marks the 64th consecutive month of yearly price gains, with housing prices growing at roughly double the rate of wage gains.

It’s hard to understand why builders aren’t answering the call with demand so high and interest rates still at record lows. Part of the problem is that there are so few entry-level homes being built.

“Closings were down in most of the country last month because interested buyers are being tripped up by supply that remains stuck at a meager level and price growth that's straining their budget," said NAR economist Lawrence Yun. "The demand for buying a home is as strong as it has been since before the Great Recession. Listings in the affordable price range continue to be scooped up rapidly, but the severe housing shortages inflicting many markets are keeping a large segment of would-be buyers on the sidelines."

First-time buyers were 32 percent of sales in June, which is down from 33 percent both in May and a year ago. The longer-term average is 40 percent for first-timers as a percentage of all buyers, which are mainly younger buyers.

Graph: Apartment List

CNBC reports new data from Apartment List  that shows, although 80 percent of millennials would like to purchase real estate, very few are in a good position to buy, largely because they have nothing saved. According to the report, "68 percent of millennials said they have saved less than $1,000 for a down payment. Almost half, or 44 percent, of millennials said they have not saved anything for a down payment."

That is probably why mortgage lenders are now offering more exotic products, such as a 1 percent down payment for the conforming 30-year fixed rate with the lender chipping in another 2 percent, so that it satisfies the minimum 3 percent minimum down payment requirement for conforming loans.

Lenders are also offering high end buyers a 40-year fixed rate program for super jumbo loan amounts with the first 10 years at interest only payments. Payments then become standard 30 year principal and interest payments for the rest of the 30-year term.

Meanwhile the standard 30-year conforming fixed rate is 3.50 percent for 1 origination point in California, as it has been for months. There are still many buyers out there, in other words, but the most important population segment is the millennials, who marry later and have those student debt problems.

Harlan Green © 2017

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

Why Home Sales Rising Fast, Construction Lagging?

The Mortgage Corner

We are once again in a housing conundrum. May Existing-home sales just surged 1.1 percent to 5.62 million units, after falling for several months. And housing starts fell for the third straight month an unexpected 5.5 percent in May to a far lower-than-expected annualized rate of 1.092 million with permits for future construction likewise very weak, down 4.9 percent to a 1.168 million rate.

So where is housing to come from with soaring prices, historically low unemployment, and interest rates? At the current sales rate, it would take 4.2 months to clear inventory, down from 4.7 months one year ago. That means a severe shortage of available housing.

The median number of days homes were on the market in May was 27, the shortest time frame since NAR began tracking data in 2011. Housing inventory has dropped for 24 straight months on a year-on-year basis, reports the National Association of Realtors.

Graph: Econoday

"Home prices keep chugging along at a pace that is not sustainable in the long run," said NAR chief economist Lawrence Yun. "Current demand levels indicate sales should be stronger, but it's clear some would-be buyers have to delay or postpone their home search because low supply is leading to worsening affordability conditions."

There is declining affordability because incomes are not keeping up with rising home prices. The median existing-home price has risen 6 percent April-to-April, says the NAR, while median household income rose just 2.4 percent over that time.

The hottest housing markets with the shortest sales’ times in May were Seattle-Tacoma-Bellevue, Wash., 20 days; San Francisco-Oakland-Hayward, Calif., 24 days; San Jose-Sunnyvale-Santa Clara, Calif., 25 days; and Salt Lake City, Utah and Ogden-Clearfield, Utah, both at 26 days, said the NAR.

"With new and existing supply failing to catch up with demand, several markets this summer will continue to see homes going under contract at this remarkably fast pace of under a month," said Yun.

Affordability is becoming an acute problem, in other words. The majority of Americans and Canadians say their nations are not doing enough to address and solve affordable housing needs, according to just published Habitat for Humanity’s Affordable Housing Survey. Escalating costs remain a top barrier preventing families from accessing decent homes with affordable mortgages, the survey says.

One major barrier to homeownership cited among survey respondents: the high costs of rent. Eighty-four percent of survey respondents said the high cost of rent was preventing them from buying, followed by 75 percent who said obtaining a mortgage was proving to be a big barrier.

We know why obtaining a mortgage is still a high barrier, even with historically low interest rates. Fannie Mae and Freddie Mac, the major guarantors of residential mortgages are still in government conservatorship, which really means the U.S. Treasury Department is in charge, though the Federal Housing Finance Authority is supposed to be the supervisor. And because Treasury maintains taxpayer monies are still ‘at risk’, it won’t relax credit standards to allow more borrowers to qualify.

The median FICO credit score is still 750 for approved loans, whereas it was closer to 680 during the last decade. It was a much lower bar since most fully-employed Americans have some kind of late charge in their past. And easing the qualification standard could bring 1 million more homebuyers into the housing market, said the Urban Institute in a recent study.

We believe such strict qualification standards are because the U.S. Treasury Department doesn’t want to part with the cash flow from raking in all of their profits—some $5 billion in Q2—so that no capital will be left to cushion any downturn.

Why? Because Treasury Secretary Mnuchin says they are working on a plan to dissolve Fannie and Freddie and come up with something better. But Treasury has been promising the same thing since 2008, and then Obama’s Treasury in 2012 when it decided to put all their profits into the general fund. That amount paid to Treasure has now climbed to more than $271 billion, vs. the $187.5 billion it cost to take over Fannie ane Freddie, making them cash cows at the expense of prospective homebuyers.

We have still not seen an outline of what a future Fannie and Freddie organization might look like. Nor has Congress been able to agree on whether they should be returned to the private sector as stockholding corporations or in a form that more resembles highly regulated VA and FHA loan programs.

So Habitat For Humanity is right in calling for more government action to increase affordability options for home owners and prospective homebuyers.

Harlan Green © 2017

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

Real Estate In 2017—Good Time To Buy?

 The Mortgage Corner

Surging mortgage rates, dwindling inventory, and soaring home prices are taking a toll on Americans’ attitudes toward ownership, according to a home purchase sentiment survey released Monday. But that may be misleading, as mortgage rates have barely budged from post-WWII lows. And the construction industry and homebuilders’ sentiments are soaring, which means many more new homes will be coming into the housing market.

December 2016 Index	Change since last month	Change since last year
Good time to buy	32	+2	-3
Good time to sell	13	0	+5
Home prices will go up	35	0	-5
Mortgage rates will go down	-55	-4	-3
Confidence about not losing job	68	+4	-4
Household income is significantly higher	10	-5	-5
Overall index	80.7	-0.5	-2.5

Graph: Marketwatch

The home purchase sentiment index compiled by mortgage finance provider Fannie Mae fell in December, its fifth straight monthly decline. Fannie’s index has six components. In December, two were lower compared to November, two were unchanged, and two increased. The increases were because respondents were more confident about not losing their jobs, and thought it a better time to buy. The biggest negative was their belief interest rates would rise this year. But it may be a small rise due to market uncertainties. Stocks are already oversold and interest rates still at historic lows, as I’ve said.

Graph: Econoday

Construction had been lagging through most of 2016 but, like the factory sector (i.e, auto sales ended 2016 at record high of 18.5 million sold vehicles), appears to have picked up steam going into year-end, says Econoday. Spending rose 0.9 percent in November and is now up 4.1 percent annually. And non-residential construction’s boost is particularly heartening with its emphasis on infrastructure projects, up 0.9 percent with most categories showing gains led by office construction and transportation construction. Public spending was also solid including a 3.1 percent monthly jump in Federal spending (which boosts public infrastructure spending).

Residential spending rose 1.0 percent in the month on top of October's 1.6 percent gain. The gain here is concentrated in single-family homes which offset a monthly dip for multi-family units which otherwise have been leading the residential sector. Home improvements added to the spending in November.

The 30-year fixed conforming mortgage rate quoted by Fannie Mae is back down to 3.75 percent for one origination point. And what with the future uncertainty of the stock market (with indexes already at historic highs), much of the excess savings will remain in bonds, the major determinate of mortgage rates.

That is, unless worldwide growth picks up. But that won’t happen if Trump carries out his promise of trade wars to promote American workers first. That promise may be difficult to carry out, however, since his Republican colleagues have historically been free-traders.

Harlan Green © 2016

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

Case-Shiller Home Prices At New Highs

Financial FAQs

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.6 percent annual gain in October, up from 5.4 percent last month. The 10-City Composite posted a 4.3 percent annual increase, up from 4.2 percent the previous month.

Graph: Calculated Risk

Prices have now returned to 2003-4 levels, according to CoreLogic. That is when housing prices began double-digit increases for several years. The 20-City Composite reported a year-over-year gain of 5.1 percent in October, up from 5.0 percent in September. These are same-home price rises averaged over 3 months to make them less volatile.

But the price rises have leveled off at 5.1 percent on average over the past 2 years, a sign that rising housing inventories are beginning to have an effect on prices after prices soared during the housing bubble years. Portland and Seattle housing prices are still rising at 10 percent per year, with Dallas and Denver close behind.

Rising interest rates may also affect next year’s market, though the 30-year fixed conforming rate is still available @3.875 percent for one origination point in California. But Pending Home sales are the lowest in a year, which are contract signings scheduled to close in approximately 60 days, according to the National Association of Realtors chief economist Lawrence Yun.

“The budget of many prospective buyers last month was dealt an abrupt hit by the quick ascension of rates immediately after the election,” Yun said in NAR’s latest report. “Already faced with climbing home prices and minimal listings in the affordable price range, fewer home shoppers in most of the country were successfully able to sign a contract.”

What about housing’s contribution to economic growth? It is still below trend, at close to 4 percent, whereas it has averaged 5 percent historically. So that’s an additional $18 billion that can be added to GDP growth over the next years if housing sales and construction return to more normal times—but only if interest rates continue to rise gradually.

Graph: Calculated Risk

Trump supporters and Republicans believe the housing market will return to more normal times once they reduce the regulatory burden on housing, which they continue to blame on Dodd-Frank and the Consumer Finance Protection Bureau, for some reason. But these entities have been mostly responsible for the massive settlements with banks that sold falsely advertised AAA rated mortgage securities that created those negatively amortized liar loans, the main cause of the housing bubble.

These settlements should deter lenders from making such risky bets in the future, but what if those Dodd-Frank regulations are abolished by a Republican controlled Congress? Who will then stand in the way of future lending abuses that could once more put tax payers at risk?

Incoming Treasury Secretary Steve Mnuchin has been making noises about resuscitating Fannie Mae and Freddie Mac, the main guarantor of conforming mortgages as private entities, albeit with some revisions to pass part of the lending risk onto banks and other lenders. This may be a good thing in that it could ease the strict qualification standards that have hampered some mortgage lending.

But will that confidence in the Trump administration’s efforts to cut red tape translate into a better (and more affordable) housing market? “NAHB expects an increase in single-family home construction next year, fueled by a growing economy and solid job growth,” said NAHB Chief Economist Robert Dietz. “Moreover, builder confidence has risen on anticipation of reductions in regulatory costs, which is good news for home buyers and renters. However, the pace of construction will continue to be restricted by shortages of lots and labor in some markets.”

So though hopes have risen for more housing, all this remains to be seen, in other words.

Harlan Green © 2016

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