Homebuying Season Continues

 The Mortgage Corner

We know the spring buying season barely got off the ground because of elevated mortgage rates. But there are enough homes for sale to continue purchases into the summer.

Analysis by Redfin, the national real estate and housing finance entity, showed active listings still high in June, but down -8.1 percent YOY from 2021 and 2022 per the Redfin graph of active listings below.

There is enough supply (2.5 months) that median housing prices fell $50,000 last year in June, from $397,000 to less than $350k in December 2022. But prices rose again this June 2023 to $382,861, so the question is what happens next?

This always depends on supply, and builders have been playing catchup, as I’ve been saying. There are now as many new homes as existing homes for sale.

So, will supply improve enough and interest rates hold steady enough to allow prices a downward trajectory for the rest of this year, as well?

Redfin.com

“There are two things that would jumpstart the housing market: A big drop in mortgage rates and/or a big surge of new listings,” said Redfin Deputy Chief Economist Taylor Marr. “Neither of those things happened this spring; instead, rates rose and new listings dropped to record lows. And with one or two more interest-rate hikes expected this year, mortgage rates are likely to remain elevated at least through the summer, continuing to limit both demand and supply.”

Supplies should increase because groundbreaking on U.S. single-family homebuilding projects surged in May by the most in more than three decades and permits for future construction also climbed, suggesting the housing market may be turning a corner after getting clobbered by Federal Reserve interest rate hikes.

“The May housing starts data and our latest builder confidence survey both point to a bottom forming for single-family residential construction earlier this year,” said NAHB Chief Economist Robert Dietz. “However, due to weakness at the start of the year, single-family housing starts are still down 24% on a year-to-date basis.”

What gives us hope the Fed will slow its rate hikes is consumer inflation continues to decline. U.S. consumer prices rose a modest 0.2% in June. The CPI rate of inflation slowed to the lowest level since 2021. The last time inflation was this low was in March 2021.

The overall Consumer Price Index inflation rate plunged from 4 to 3 percent in 12 months, its core rate without food and energy prices fell to 4.8 percent.

But even though there wasn’t much of a spring homebuying season this year, there was a spring building season,” Redfin’s Marr said. “That means there’s hope for more listings somewhat soon, with homebuilders working to fill the inventory bucket.”

NAR chief economist Lawrence Yun said in reaction to the good inflation report that falling gasoline prices and healthcare service costs were helpful. Rents are still climbing at a brisk pace, rising by 8.3 percent, but have turned the corner for sure. Rents were rising at 8.8 percent in the early part of the year, so this is the slowest gain in 7 months.

Rents comprise 40 percent of the Consumer Price Index, and with so many apartment units under construction, rents should continue to decline, thus improving the inflation rate and prospect for lower mortgage rates.

Harlan Green © 2023

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

Housing Market Is Recovering

The Mortgage Corner

FRED

The just-released single-family sales graph highlights a very important fact. New-home sales—especially for single-family residences—are back to historical levels last seen in 2000. The Great Recession and oversupply during the housing bubble caused so much damage to home building that it has taken housing 10 years to recover.

This augers well for economic growth this year with a fully-employed economy and more younger homebuyers entering he housing market. So the question being asked is, has the home-ownership rate finally bottomed, so that it is now again on an upward trend?

Sales of new single-family homes in December were at an annual rate of 694,000, which is 23 percent above the December 2018 rate, reports HUD and the U.S. Census Bureau. Builders are finally catching up to the demand for more homes, in other words.

There are many reasons the housing recovery has taken so long—there are too few homes in the affordable range, for starters. Entry-level homebuyers (usually from the millennial generation) have been slow to form new households and pay down their college debts, so they are currently buying just 30-31 percent of existing homes, when their percentage has been closer to 40 percent in the past.

Builder confidence in the market for newly-built single-family homes has also increased five points to 76 in December off an upwardly revised November reading, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is the highest reading since June of 1999.

“Builders are continuing to see the housing rebound that began in the spring,” said the NAHB, “supported by a low supply of existing homes, low mortgage rates and a strong labor market. While we are seeing near-term positive market conditions with a 50-year low for the unemployment rate and increased wage growth, we are still underbuilding due to supply-side constraints like labor and land availability. Higher development costs are hurting affordability and dampening more robust construction growth.”

The average rate of new home sales in 2019 was 681,000, which was 10.3 percent higher than 2018’s pace. The median sales price for new homes was $331,400 in December, which was up from the previous month. The government estimated there was a 5.7-month supply of new homes available for sale, up slightly from November as well, and is now back to the average supply of new homes on the market before the housing bubble.

Calculated Risk

Calculated Risk’s Bill McBride has commented on the homeownership rate since the Great Recession, and believes it is also returning to historical levels, per his graph. It is back to 64.1 percent of households, about the average that has prevailed since the 1970s.

There is still a housing shortage, however, with more than 500,000 homeless living on the streets, according to the latest data. This is a sign that not enough affordable, entry-level homes are being built; which means that many of the younger generations will still not be able to afford to buy.

Harlan Green © 2019

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