HOUSING IN RECOVERY--PART II

 The Mortgage Corner

Existing-home sales rose 2.2% in December to a seasonally adjusted annual rate of 4.24 million, the strongest pace since February 2024 (4.38 million).

FREDexistinghomesales

The huge jump in existing-home sales on still very high mortgage rates illustrates the enormous pent-up demand for rental or owner-occupied housing, I said last month. Demand is now exceeding the existing home inventory, just a 3.8 months’ supply vs. the 8-month supply of new homes for sale that is only partially filling the housing supply shortage. Realtors believe the strong demand will continue, in spite of the high rates.

"Home sales momentum is building," said NAR Chief Economist Lawrence Yun. "More buyers have entered the market as the economy continues to add jobs, housing inventory grows compared to a year ago, and consumers get used to a new normal of mortgage rates between 6% and 7%."

It remains to be seen how long consumers will tolerate such high mortgage rates. The 2001 Dot-com recession was the last time conforming 30-year fixed rate mortgages were above 7 percent, when existing-home sales then began the climb to a 7 million annual rate, before the long decline in interest rates. It all led to the 2007 housing bubble and Great Recession. If such demand continues, could we see another era of irrational exuberance as happened then? That’s grist for another column!

Existing-home inventory registered at the end of November was 1.33 million units, down 2.9% from October but up 17.7% from one year ago (1.13 million). Unsold inventory sits at a 3.8-month supply at the current sales pace, down from 4.2 months in October but up from 3.5 months in November 2023.

This is why building more new homes is so important. It is why builders have built up an 8-month inventory. And it is why sales of newly single-family houses in December 2024 were also so high, at a seasonally adjusted annual rate of 698,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development, above the December 2023 estimate of 654,000.

Even pending home sales jumped, another sign of an incipient housing recovery, Pending sales help to predict closings 30 to 60 days out. Pending home sales gained 2.2% in November – the fourth consecutive month of increases and the highest level since February 2023 – according to the National Association of REALTORS®.

“Consumers appeared to have recalibrated expectations regarding mortgage rates and are taking advantage of more available inventory,” said NAR Chief Economist Lawrence Yun. “Mortgage rates have averaged above 6% for the past 24 months. Buyers are no longer waiting for or expecting mortgage rates to fall substantially. Furthermore, buyers are in a better position to negotiate as the market shifts away from a seller’s market.”

Builders blame “unnecessary regulations” for much of the housing shortage. However, most of the ‘unnecessary regulations’ are at the state and local levels, such as restrictive zoning, state environmental laws, and even banking regulations.

It’s difficult to see how the outcome of national elections can affect such local changes. California is one such state that has taken on the NIMBYs (Not in my backyard) crowd as well as putting aside loan subsidies for affordable housing. That’s where the changes need to be to make up for the current housing shortage.

It’s hard for me to see that we will have another 7-million-unit sales year as happened during the housing bubble, however, no matter the mortgage rates. It was a different era, for those that can remember, since we have an ongoing labor shortage and higher construction costs (tariffs?) today.

Harlan Green © 2025

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

Will Job Market Recover?

 The Mortgage Corner

The number of job openings was little changed at 7.7 million on the last business day of October, the U.S. Bureau of Labor Statistics reported today. Over the month, hires changed little at 5.3 million. The number of total separations was little changed at 5.3 million. Within separations, quits (3.3 million) increased, but layoffs and discharges (1.6 million) changed little.

Calculated Risk

The above graph of job openings (black line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS report show normal job growth, according to the Bureau of Labor Statistics. But will it recover from the Boeing and east coast strikes that laid off so many workers?

The JOLTS report doesn’t give much encouragement to Friday’s unemployment report for November, as the number of hires equaled the number of separations. The difference usually tells us the total number of job creations.

It’s hard to know what this means for the Trump administration’s next four years. Chairman Powell is still sounding dovish about another -0.25 percent rate cut in December, which will be helpful. But credit card rates are still as high as 30 percent, which is an insane borrowing rate for those using credit cards.

“The Fed’s goal all along has been to bring down inflation without a “painful rise in unemployment,” Powell said in remarks at the annual meeting of the National Association for Business Economics in Nashville,” per MarketWatch. “While the task is not complete, we have made a good deal of progress toward that outcome,” he said.

The Institute for Supply Management (ISM) surveys of both the service and manufacturing sectors were also static, with manufacturing not expanding at all and the service sector barely above its 50-point breakeven level.

“Demand remains weak, said Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®), “as companies prepare plans for 2025 with the benefit of the election cycle ending. Production execution eased in November, consistent with demand sluggishness and weak backlogs. Suppliers continue to have capacity, with lead times improving but some product shortages reappearing. Sixty-six percent of manufacturing gross domestic product (GDP) contracted in November, up from 63 percent in October.”

This is what happens between election cycles. Will the Trump administration carry out on its threats of giant tariffs, or deporting millions of undocumented immigrants who are employed in the service sector that includes professional services and construction? Construction is booming as the CHIPS and Infrastructure Acts pour $Trillions into mostly red state projects such as new computer chip manufacturing factories.

The service sector that also includes leisure activities such as dining and travel will wind down after the holidays. But the financial markets are still rallying on the hopes that further tax cuts will boost both bond and stock prices.

It’s a difficult time to predict what comes next. Further Fed rate cuts are desperately needed to revive the housing market, for instance.

Pending home sales ascended in October – the third consecutive month of increases – according to the National Association of REALTORS®. All four major U.S. regions experienced month-over-month gains in transactions, with the Northeast leading the way. Year-over-year, contract signings increased in all four U.S. regions, led by the West.

"Homebuying momentum is building after nearly two years of suppressed home sales." said NAR Chief Economist Lawrence Yun. "Even with mortgage rates modestly rising despite the Federal Reserve's decision to cut the short-term interbank lending rate in September, continuous job additions and more housing inventory are bringing more consumers to the market."

That gives homebuyers a ray of hope that interest rates will continue to decline, as well as for credit card users.

Harlan Green © 2024

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

Fourth Quarter Growth Even Better

 The Mortgage Corner

Economic growth is picking up and the housing market is following suit, which means the post-pandemic recovery is looking even better this year.

The final reading of Q4 2023 U.S. Gross Domestic Product growth adjusted for inflation (real GDP) was raised slightly to a 3.4% annual pace, reflecting strong consumer spending and a surprisingly resilient economy. The government’s second estimate of GDP had forecast a 3.2% rate in the final three months of last year.

This will no doubt call for a slowdown in the Fed’s rate cuts by those worried about inflation, but will that matter when housing in particular needs to recover? Everyone should be happy, in other words.

Adjusted pretax corporate profits surged in the fourth quarter at an annual 4.1% rate, indicating that businesses are in good shape. Consumer spending, the main engine of the economy, was revised up to a 3.3% increase in the fourth quarter instead of 3%.

And inflation using the personal-consumption expenditure — or PCE — rose at a mild 1.8% annual rate in the fourth quarter, unchanged from the prior estimate. The more closely followed core rate was lowered a tick to a 2.0% annual rate — matching the Fed’s 2% inflation goal.

BEA.gov

Inflation expectations measured by the University of Michigan sentiment survey also showed inflation expectations continue to decline.

“Year-ahead inflation inched down from 3.0% last month to 2.9% this month,” said survey Director Joanne Hsu. “For the third straight month, short-run inflation expectations have fallen within the 2.3-3.0% range seen in 2018 and 2019. Long-run inflation expectations also inched down, from 2.9% to 2.8%, and remain modestly elevated relative to the 2.2-2.6% range seen in the two years pre-pandemic.”

Even better news was that the number of Americans who applied for unemployment benefits last week fell slightly to 210,000 and continued to hover at very low levels in a sign of strength for the economy. There were 212,000 unemployment filings, according to government figures.

Jobless claims tend to rise steadily when the economy gets worse. They’ve held fast this year in a narrow range of 194,000 to 225,000 — an extremely low level historically.

Claudia Sahm a former Federal Reserve economist noted for creating a formula for predicting upcoming recessions, is bucking the trend of economists worried about inflation by calling for the Fed to cut rates sooner.

In a series of conversations with MarketWatch over the past month, Sahm said she wants the Fed to ease rates — which are currently in the range of 5.25% to 5.5% — ASAP, according to MarketWatch’s Greg Robb. She’s not advocating for a dramatic cut but says the Fed needs to get the ball rolling on easing the tight monetary policy it has implemented over the past two years to help cool the economy and quash out-of-control inflation.

“But recessions are like snowballs, Sahm said: They start very small but can grow big enough to trigger avalanches, which can then sweep down on the economy — wiping away jobs, economic growth and income for millions of people.”

There’s another reason to begin to cut interest rates ASAP. The housing market needs a boost. Existing-home sales jumped in February and a survey of future home sales is also increasing.

Pending home sales in February grew 1.6%, according to the National Association of Realtors^®. The Midwest and South posted monthly gains in transactions while the Northeast and West recorded losses. All four U.S. regions registered year-over-year decreases.

The Pending Home Sales Index (PHSI)^* – a forward-looking indicator of home sales based on contract signings – increased to 75.6 in February. Year over year, pending transactions were down 7.0%. An index of 100 is equal to the level of contract activity in 2001.

“While modest sales growth might not stir excitement, it shows slow and steady progress from the lows of late last year,” said NAR Chief Economist Lawrence Yun. “Ongoing job gains are clearly increasing demand along with more inventory.”

Could economic growth be firing on all cylinders this year if the housing market recovers? It would be for the first time in years and a sign that we are finally over the COVID pandemic.

Harlan Green © 2024

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

Housing Starts Up, Recession Worries Over?

 Financial FAQs

The best indicator of a looming recession is to watch how consumers behave. And this will be a record year for travel on the ground and in the air. So, would consumers continue travelling if they saw financial trouble ahead? Of course not.

Gas Buddy, for one, says gas prices are down. For the ninth consecutive week, the nation’s average price of gasoline has declined, falling 6.2 cents from a week ago to $3.27 per gallon according to GasBuddy data compiled from more than 12 million individual price reports covering over 150,000 gas stations across the country.

And AAA is predicting a record number of cars on the road. the third highest since 2000. AAA projects 55.4 million travelers will head 50 miles or more from home over the Thanksgiving holiday travel period.

Housing construction and Pending Home sales numbers were also up in October. This may be an indication that the housing market slowdown may have bottomed, another sign of a resurgence.

That’s in part because mortgage rates have dropped suddenly to the low 7 percent range, 15-year fixed to mid-6 percent, and homebuyers will know this. The bond market has been rallying of late, in line with optimism that the Fed may be done with its rate hikes and even begin to ease rates early next year.

The National Association of Realtors Pending Home Sales Index (PHSI)* – a forward-looking indicator of home sales based on contract signings – rose 1.1 percent to 72.6 in September. Pending transactions had declined 11% in a year.

The NAR forecasts that the 30-year fixed mortgage rate will average 6.9 percent for 2023 and decrease to an average of 6.3 percent in 2024, as markets unwind from the Fed’s rate hikes.

I can see blue skies ahead for housing as interest rates continue to decline. More existing homes for sale are needed, which are at historic lows because of the interest rate disparities from the COVID pandemic (see red line in below Calculated Risk graph).

Calculated Risk

Overall housing starts (new construction) increased 1.9 percent in October as well to a seasonally adjusted annual rate of 1.37 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The October reading of 1.37 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts increased 0.2 percent to a 970,000 seasonally adjusted annual rate.

However, single-family starts are down 10.6 percent year-to-date. The multifamily sector, where demand is greatest and includes apartment buildings and condos, increased 6.3 percent to an annualized 402,000 pace.

“The construction data in October continue to reflect that despite multidecade lows for housing affordability, the market continues to lack attainable inventory that only the home building industry can provide,” said NAHB Chief Economist Robert Dietz. “And with the 10-year Treasury rate now back in the 4.5% range, we are forecasting gains for single-family home building in the months ahead and an outright gain for construction in 2024.”

What are consumers thinking at the moment? Many have been discouraged from even looking for homes because of such high interest rates.

Overall, lower-income consumers and younger consumers exhibited the strongest declines in sentiment, said Joanne Hsu, Director of the University of Michigan sentiment survey. In contrast, sentiment of the top tercile of property owners improved 10 percent, reflecting the recent strengthening in equity markets.

It’s a reflection of the 37 percent increase in wealth of mostly homeowners from 2019 to 2022, according to a new survey from the Federal Reserve. The average family's net worth jumped 37 percent between 2019 and 2022. That's the largest three-year increase since the Fed began conducting the survey more than three decades ago.

The bottom line is with so much pent up demand brought on by the Fed’s inflation fight, consumers still want to spend, especially with interest rates on the decline.

Harlan Green © 2023

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

"The Housing Recession Is Over!"

 The Mortgage Corner

One should maybe forgive National Association of Realtor’s chief economist Lawrence Yun’s enthusiasm when he exclaimed “the housing recession is over,” because the NAR’s Pending Home Sales rose for the first time in four months. And this at a time when the Fed’s hit to interest rates had so depressed the housing market, contributing to the severe housing shortage.

"The recovery has not taken place, but the housing recession is over," said NAR Chief Economist Lawrence Yun, "The presence of multiple offers implies that housing demand is not being satisfied due to lack of supply. Homebuilders are ramping up production and hiring workers."

The Pending Home Sales Index (PHSI)* – a forward-looking indicator of home sales based on contract signings – rose 0.3% to 76.8 in June. Year over year, pending transactions fell by 15.6%. An index of 100 is equal to the level of contract activity in 2001, said the NAR press release.

The rest of the US economy has been recovering with second quarter 2023 GDP advance estimate growing 2.4 percent. Interest sensitive real estate sales had been hit hardest with the 5.25 percent in Fed rate hikes, and pending sales gives an picture of sales under contract but not yet closed.

FREDnewhomes

I believe Yun’s remarks may be a sign of something more. A housing market recovery has traditionally been the first indication of an general economic recovery, as indicated by the FRED graph of new-home sales. Existing-home sales follow a similar trajectory. New-home sales have ticked up after every recession (gray bars) since 1960, as viewed in the FRED graph. They are up 23.8 percent annually, to 697,000 units over July 2022, and sales were even higher in June when pro-rated annually.

Many other economic indicators are showing recovery in addition to higher Q2 GDP growth, especially consumer spending, which is slowing but gave a boost to second quarter growth.

Even the Federal Reserve has become more optimistic. Federal Reserve Chair Jerome Powell disclosed at Wednesday’s post-FOMC press conference that his staff is no longer forecasting a recession.

“The staff now has a noticeable slowdown in growth starting later this year in the forecast…but, given the resilience of the economy recently, they are no longer forecasting a recession,” Powell told reporters.

Let us hope Yun is right in prognosticating an end to the housing recession, and maybe any recession.

Harlan Green © 2023

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

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

 

Have Home Sales Reached Bottom?

The Mortgage Corner

Reuters/ICAP

Why is it important to report on the housing market? Because there is a housing shortage (Forbes says up to 3.8 million unit shortfall to date), and the NY Times, among others, is predicting a record wave of bankruptcies of large and small companies that could put even more than the 20 million unemployed already out of work.

Existing-home sales fell in May, marking a three-month decline in sales as a result of the coronavirus outbreak, according to the National Association of Realtors. Each of the four major regions witnessed dips in month-over-month and year-over-year sales, with the Northeast experiencing the greatest month-over-month drop.

Total existing-home sales, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, slumped 9.7 percent from April to a seasonally-adjusted annual rate of 3.91 million in May, according to the NAR. Overall, sales fell year-over-year, down 26.6 percent from a year ago (5.33 million in May 2019), which shows how deep is this recession.

And the pandemic is reaching “forest fire” proportions according to some experts with no end in sight, so it’s important to ask if existing-home sales have bottomed out their decline in sales in May.

NYTimes.com

Other indicators, including pending-home future sales, already down 22 percent in April, will be the first indicator that tells us whether sales will drop further and inventories increase from their current lows. It largely depends on how many workers are able to return to work, as I’ve said earlier.

The latest pending-home sales numbers reveal the greatest decline since NAR begin tracking such transactions in January 2001. However, chief economist LawrenceYun expects that April will be the lowest point for pending contracts. We will know next Monday, June 29, when May pending-home sales are released.

“Sales completed in May reflect contract signings in March and April – during the strictest times of the pandemic lockdown and hence the cyclical low point,” said Yun. “Home sales will surely rise in the upcoming months with the economy reopening, and could even surpass one-year-ago figures in the second half of the year.”

 Yun is surprisingly sunny about the rest of this year. “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 percent,” Yun said. “In the prior forecast, sales were expected to fall by 15 percent and there was no increase in home price.”

 I am not so optimistic after seeing the many ups and downs of housing in recent years. We are really in another Great Recession, at least, and the NY Times says more than 6,800 companies filed for Chapter 11 bankruptcy protection last year.  This year will almost certainly have more, according to NY Times reporter Mary Williams Walsh. The flood of petitions from the worst economic downturn since the Great Depression could swamp the system, making it harder to save the companies that can be rescued, bankruptcy experts said per Walsh.

But rather than be the total pessimist, I can hope that we contain this ‘forest fire’ sooner rather than later, as well as the bankruptcy problem by continued government support that boosts spending in such as infrastructure, spending that has been too long postponed.

It might even now have the attention of congress, as the NY Times pandemic graph above isn't lying.






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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

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Weaker Q3 GDP = Slowing Economy

Popular Economics Weekly

BEA.gov

Real gross domestic product (GDP) increased at an annual rate of 1.9 percent in the third quarter of 2019, according to the "advance" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.0 percent.

U.S. economic growth is gradually slowing; how much is still uncertain, since consumers are still optimistic about job prospects and flush with earnings from the very low unemployment rate.

“The mismatched trends in personal finances and buying conditions have resulted in the lackluster pace of consumer spending throughout the expansion, said U of Michigan’s chief economist, Richard Curtin. “Earlier in the expansion, dismal growth in household incomes and jobs were matched with record favorable references to prices and interest rates on home and vehicles, while in the later part of the expansion very favorable incomes and job prospects were matched with the fewest favorable references to prices and interest rates in decades-with those lows becoming the expected norm.”

The mismatch has kept consumer indebtedness (aside from education loans) at manageable levels, said Curtin, and positive finances have recently buoyed spending so as to ensure the continuation of the expansion.

The BEA report said the increase in real GDP in the third quarter reflected positive contributions from personal consumption expenditures (PCE), federal government spending, residential fixed investment, state and local government spending, and exports that were partly offset by negative contributions from nonresidential fixed investment and private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased.

There is more to this story, of course; in this case the almost total lack of any inflation. The Fed’s preferred measure of inflation, the PCE implicit price deflator, fell to 1.5 percent, down from 2.4 percent last quarter, which is not a healthy sign of demand, but sliding into disinflationary territory. Steadily declining inflation is usually a precursor to deflation, the most visible sign of shrinking GDP growth—and a possible recession.

FRED

The housing industry also contributed to the economy’s growth for the first time in nearly two years. Residential investment climbed 5.1 percent. And ultra-low mortgage rates have drummed up more demand and spurred builders to boost construction.

The NRA’s just-released pending home sales report also showed higher home sales ahead.
Pending home sales grew in September, marking two consecutive months of increases, according to the National Association of Realtors. The Pending Home Sales Index (PHSI), www.nar.realtor/pending-home-sales, a forward-looking indicator based on contract signings, rose 1.5 percent to 108.7 in September. Year-over-year contract signings jumped 3.9 percent. An index of 100 is equal to the level of contract activity in 2001.

Historically low mortgage rates played a significant role in the two straight months of gains, according to Lawrence Yun, NAR’s chief economist. “Even though home prices are rising faster than income, national buying power has increased by 6% because of better interest rates,” he said. “Furthermore, we’ve seen increased foot traffic as more buyers are evidently eager searching to become homeowners.”

Consumers could remain optimistic through the holidays, but I doubt much beyond that. There is too much uncertainty from businesses, where capital investments have plunged. Although consumer spending didn’t match the second quarter’s 4.6 percent increase, outlays still rose 2.9 percent. Consumer spending accounts for about 70 percent of all U.S. economic activity.

Harlan Green © 2019

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

What Happens When % Rates Go Even Lower?

The Mortgage Corner

FRED

The NAR’s pending home sales index was softer than expected in July, thereby reversing nearly all of its June increase.  That left the index with a slight YOY decline of 0.3 percent.  Those results probably mean at least part of the July rebound in existing home sales will be reversed in August, though any drop in August resales may be milder than the July decline in the pending index, says market observer ICAP, a Reuters subsidiary.

Interest rates are down and they may go even lower, if no recession looms due to other factors (trade war?). Harvard economics Professor Kenneth Rogoff said recently that it isn’t out of realm of possibility that more Central Banks might introduce negative interest rate yields to prevent another recession as is already the case in the EU and Japan.

But lower interest rates also boost the value of housing, increasing the demand for housing because more borrowers become eligible to buy; unless builders are able to increase production. But that isn’t certain with the 25 percent increase in the Canadian lumber tariff, which has increased construction costs $8,000, according to estimates, and the severe construction labor shortage.

The Guardian reports Jyske Bank, Denmark’s third largest, has begun offering borrowers a 10-year deal at -0.5 percent, while another Danish bank, Nordea, says it will begin offering 20-year fixed-rate deals at 0 percent and a 30-year mortgage at 0.5 percent.

There’s also another effect of lower rates. Barron’s economist Matthew Klein states the precipitous drop in interest rates “should have a big impact on refinancing activity. U.S. households owe roughly $9.4 trillion in mortgage debt, and a bit more than half of that takes the form of conventional home loans that conform to standards set by Fannie Mae and Freddie Mac. More than 90 percent of those 30-year mortgages have an interest rate above the current market rate.”

Not all will choose to refinance, of course. Black Knight, a mortgage research firm, calculates about 10 million mortgages would be candidates for refinancing, based on today’s market rate (3.6 percent), interest rates on existing mortgages (at least 4.25 percent), credit score (above 720), and loan-to-value ratios (below 80 percent).

Should market rates drop to 3.4 percent, Klein quotes Black Knight estimates that the number of potential refinancing candidates would jump to 13 million. Mortgage rates of 3 percent, which would represent a sharp decline from current levels, would translate into 20 million refi candidates.

This is now looking like a real possibility. We know what happened the last time there was a precipitous drop in interest rates; the housing bubble. Rates had dropped sharply after the 2001 recession, and then Fed Chair Alan Greenspan labored to keep interest rates too far below existing inflation rates to finance the War on Terror that frittered away 4 years of budget surpluses inherited by GW Bush.

It led to double-digit home price increases for several years, hence the housing bubble; which in turn led to immense overbuilding and the liar-loans pushed by lenders to sell as many homes as possible.

Today the biggest difference is that we don’t have inflation rates of 3-5 percent that existed in the early 2000s, therefore not as much fuel to boost housing prices. Values are currently on the down trend and in the 3 percent range, per the Case-Shiller Index as we speak.

“The economic impact would be noticeable under any of these scenarios,” says Klein. “According to Freddie Mac, households that refinanced in April through June, when mortgage rates averaged 4%, already have saved about $140 each month, or roughly $1,700 a year. For perspective, the typical U.S. homeowner with a mortgage spends $5,000 per year on groceries. Evercore estimates that the average borrower could save about $4,560 annually by refinancing into a new mortgage at 3.5%.”

Lower interest rates could give a big boost to the longest economic recovery on record, putting more money in consumers’ pockets, should the downward interest rate spiral that Professor Rogoff predicts become a reality. It could also create another housing bubble; take your pick!

Harlan Green © 2019

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Housing Sales Higher, Interest Rates Plunging

The Mortgage Corner

Calculatedriskblog

Total July existing-home sales, https://www.nar.realtor/existing-home-sales that include single-family homes, townhomes, condominiums and co-ops, rose 2.5 percent from June to a seasonally adjusted annual rate of 5.42 million in July, according to the National Association of Realtors (NAR). Overall sales are up 0.6 percent from a year ago (5.39 million in July 2018).

FRED

It might be that sharply lower interest rates are reviving the housing market. The 30-year conforming fixed rate is now just 3.25 percent for a one point origination fee, the lowest since the Great Recession. This is bringing back more housing in the affordable range for middle-income buyers, but not yet for first-time, entry-level buyers. And there are predictions that interest rates could go lower.

“Falling mortgage rates are improving housing affordability and nudging buyers into the market,” said Lawrence Yun, NAR’s chief economist. However, he added that the supply of affordable housing is severely low. “The shortage of lower-priced homes have markedly pushed up home prices.”

The Pending Home Sales released earlier, www.nar.realtor/pending-home-sales, is a more important indicator of sales’ trend. It is a forward-looking indicator based on contract signings that moved up 2.8 percent to 108.3 in June in the NAR’s pending sales index, from 105.4 in May. Year-over-year contract signings jumped 1.6 percent, snapping a 17-month streak of annual decreases.

Lawrence Yun said the 2.8 percent increase in pending sales can be attributed to the current favorable conditions and predicted the rise is likely the start of a positive trend for home sales.

“Job growth is doing well, the stock market is near an all-time high and home values are consistently increasing. When you combine that with the incredibly low mortgage rates, it is not surprising to now see two straight months of increases,” he said.

Home price appreciation has been much stronger in the lower-price tier compared to homes sold in the upper-price tier, says the NAR, based on the analysis of proprietary deed records data from Black Knight, Inc. and Realtors Property Resource®.

“Homes are selling at a breakneck pace, in less than a month, on average, for existing homes and three months for newly constructed homes,” Yung continued. “Furthermore, homeowners’ equity in real estate has doubled over the past six years to now nearly $16 trillion. But the number of potential buyers exceeds the number of homes available. We need to see sizable growth in inventory, particularly of entry-level homes, to assure wider access to homeownership.”

There is speculation that interest rates might even trend lower, which could continue to boost housing sales, if no recession looms. Harvard economics Professor Kenneth Rogoff said recently that it isn’t out of realm of possibility that more Central Banks might introduce negative interest rate yields, as is already the case in the EU and Japan, to prevent another recession

The Guardian reports that Jyske Bank, Denmark’s third largest, has now begun offering borrowers a 10-year deal at -0.5 percent, while another Danish bank, Nordea, says it will begin offering 20-year fixed-rate deals at 0 percent and a 30-year mortgage at 0.5 percent.

We have come a long way from 1981 when the inflation rate reached 14 percent, and 30-year mortgage rate soared to 18 percent, believe it or not. It is very good news for the U.S. housing market—if our economy continues to perform, that is.

Harlan Green © 2019

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

Housing Market Slows

The Mortgage Corner

Existing-home sales decreased for the third straight month in June, as declines in the South and West exceeded sales gains in the Northeast and Midwest, reports the National Association of Realtors. The ongoing supply and demand imbalance helped push June’s median sales price to an existing-home new all-time high.

“Total existing-home sales, https://www.nar.realtor/existing-home-sales, said the NAR, “which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, decreased 0.6 percent to a seasonally adjusted annual rate of 5.38 million in June from a downwardly revised 5.41 million in May. With last month’s decline, sales are now 2.2 percent below a year ago.”

Graph: Econoday

Pending home sales that measure future sales also decreased modestly in May and have fallen on an annualized basis for the fifth straight month, according to the NAR. This seems to show a slowing of demand for housing, though the Realtors' economist Yun believes it’s more due to lack of supply, and fewer entry-level homes available.

Lawrence Yun, NAR chief economist, said closings inched backwards in June and fell on an annual basis for the fourth straight month. “There continues to be a mismatch since the spring between the growing levels of homebuyer demand in most of the country in relation to the actual pace of home sales, which are declining,” he said.

“The root cause is without a doubt the severe housing shortage that is not releasing its grip on the nation’s housing market. What is for sale in most areas is going under contract very fast and in many cases, has multiple offers. This dynamic is keeping home price growth elevated, pricing out would-be buyers and ultimately slowing sales.”

Why do we still have a housing shortage 9 years after the Great Recession? For the first half of 2018, a steady job market and a shortage of existing homes for sale has bolstered housing starts, said the Commerce Department. New home construction has climbed 7.8 per cent year-to-date.

And homebuilders are also relatively confident that the expansion will continue. The National Association of Home Builders/Wells Fargo builder sentiment index declined slightly to a reading of 68 in June, but any reading above 50 signals growth.

So another ‘root cause’ has to be affordability, as prices continue to climb. The report was mixed good news, as prices continue to rise, up 4.5 percent for the median to $276,900, while buyers saw a 4.3 percent rise in the number of homes on the market, at 1.950 million relative to sales, a gain to 4.3 months from 4.1 months.

Graph: Calculated Risk

It was thought new-home sales would give a boost to housing, but even new- homes sales are slower in June. The Calculated Risk graph shows new-home sales lagging historically from other recoveries, when sales reached 800,000 units annually.

“Sales of new single-family houses in June 2018 were at a seasonally adjusted annual rate of 631,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 5.3 percent below the revised May rate of 666,000, but is 2.4 percent above the June 2017 estimate of 616,000."

The sales slowdown has to be from after-effects of the Great Recession, what was also the Great Housing Bust when so many homeowners lost their home and life-savings. It’s a combination of lenders being much more cautious and consumers earning much less these days. For instance, first-time buyers totaled just 31 percent of existing homebuyers, vs. the 40 percent long term average.

Household incomes have been stagnant since the 1980s after inflation, and both incomes and net worth have actually declined since the Great Recession, so we are seeing the results in the housing market, as the costs of home-building continue to climb with inflation.

For example, the just enacted Canadian lumber tariffs are adding $9,000 on average to building costs, according to the National Association of Home Builders. "Not only are consumers and builders concerned about the current lumber tariffs, but also the next round of proposed tariffs on a number of goods and services," said NAHB Chair Randy Noel.

In fact, there has not been a concerted effort to boost consumers’ incomes at all since the Great Recession. Rather, the effort has been to suppress wages, with more states restricting collective bargaining rights of both union and non-union employees. There are now 28 right-to-work states that restrict the amount of dues unions can collect, and even the Supreme Court has just rescinded a 40-year old precedent that allowed public employee unions to collect dues from non-union members that enjoy the same benefits.

Do we need any more reasons to understand the slowdown in home buying?

Harlan Green © 2018

Follow Harlan Green on Twitter: ttps://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

New Home Sales Surge, Existing Sales Not So Much

The Mortgage Corner

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

And existing home sales were down 3.7 percent in February to a 5.480 million annualized rate, below January’s 5.55 million rate. Details are mostly weak including a 3.0 percent decline for single-family sales to a 4.890 million rate and a sharp 9.2 percent drop for condos to a 590,000 rate. But that could be the end-of-winter blahs, as year-on-year, single-family sales are up 5.8 percent with condos up just 1.7 percent.

Graph: Econoday

Strength in new-home sales was centered in the Midwest where the sales rate surged 21,000 to 89,000 and easily surpassing 11,000 gains for the both the West, at 157,000, and the South at 313,000. Sales in the Northeast fell sharply in last week's existing home sales report and are down 9,000 to a very low 33,000 annualized rate in today's new-home report.  But that could also be due to the month’s severe storms, including at least one Nor’easter that brought up to 2 feet of snow to some parts of New England.

What is happening with some conforming prices from FHFA financed homes not rising at all in February? In a note by Econoday, the Federal Housing Finance Authority’s house price index came in unchanged in January with year-on-year appreciation falling a steep 5 tenths to 5.7 percent. This is the weakest month-to-month result in more than 4 years and the weakest year-on-year rate since August 2015, and at a time when supply is pointing to very strong conditions, at only 3.8 months for resales which is down 6 weeks from this time last year.

And days on the market are very tight, at 45 vs 59 days a year ago. A highlight of the coming week will be Case-Shiller's report which tracks resale prices and which, in another housing puzzle, now appears to be violently converging with FHFA.

Another indicator of housing sales, the Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 2.8 percent to 106.4 in January from an upwardly revised 109.5 in December 2016. Although last month's index reading is 0.4 percent above last January, it is the lowest since then.

It was insufficient supply levels that led to a lull in contract activity in the Midwest and West, which dragged down pending home sales in January to their lowest level in a year, according to the National Association of Realtors.

Lawrence Yun, NAR chief economist, says home shoppers in January faced numerous obstacles in their quest to buy a home. "The significant shortage of listings last month along with deteriorating affordability as the result of higher home prices and mortgage rates kept many would-be buyers at bay," he said. "Buyer traffic is easily outpacing seller traffic in several metro areas and is why homes are selling at a much faster rate than a year ago. Most notably in the West, it's not uncommon to see a home come off the market within a month."

All this means that rather than a housing bubble, we are still in a housing shortage with affordable housing the main victim. And any improvement in supply largely depends on mortgage rates remaining low, despite further Federal Reserve rate hikes and a Trump administration spending spree. So I predict we have no more than a one year window for such low rates to remain.

Harlan Green © 2017

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

Pending Home Sales—Case-Shiller Prices Higher

The Mortgage Corner

Pending home sales picked up in December as solid increases in the South and West offset weakening activity in the Northeast and Midwest, according to the National Association of Realtors®. And the S&P Case-Shiller Home Price Index of same existing-home prices continued to rise more than inflation, signaling a housing shortage still exists.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 1.6 percent to 109.0 in December from 107.3 in November. With last month's uptick in activity, the index is now 0.3 percent above last December (108.7). Pending sales have been this active since 2015, really, which in turn has stimulated housing construction, mostly on the high end.

Graph: NAR

Lawrence Yun, NAR chief economist, says contract activity was mixed throughout the country in December but ultimately ended on a high note to close out 2016. "Pending sales rebounded last month as enough buyers fended off rising mortgage rates and alarmingly low inventory levels to sign a contract," he said. "The main storyline in the early months of 2017 will be if supply can meaningfully increase to keep price growth at a moderate enough level for households to absorb higher borrowing costs. Sales will struggle to build on last year's strong pace if inventory conditions don't improve."

And national home price gains maintained momentum in November, two months after retaking the high last seen at the height of the housing bubble, according to Case-Shiller.

The S&P/CoreLogic Case-Shiller 20-city index rose 5.3 percent compared to a year ago for the three month period ending in November, an acceleration from the 5.1 percent increase notched in October. The national price index rose 5.6 percent for the year, up from 5.5 percent in October, and a yuge seasonally adjusted 0.8 percent for the month. Among the 20 cities, Seattle, Portland and Denver continued to see the strongest price gains.

According to Yun, a large portion of overall supply right now is at the upper end of the market, as we said. This is evident by looking at December data on the year-over-year change in single-family sales by price range. Last month, sales were up around 10 percent compared to December 2015 for homes sold at or above $250,000, while homes sold between $100,000 and $250,000 only increased 2.3 percent. Meanwhile, sales of homes under $100,000 were down 11.6 percent compared to a year ago.

Graph: NAR

This could be because mortgage rates have risen, though a 30-year fixed conforming rate is still 4.0 percent for one origination point in California. This is approximately 0.75 percent higher that the record lows of last yar.

"The dismal number of listings in the affordable price range is squeezing prospective first-time buyers the most," said Yun. "As a result, young households are missing out on the wealth gains most homeowners have accrued from the 41 percent cumulative rise in existing home prices since 2011."

Metro	Monthly Case-Shiller	12-Month Change
Atlanta	0.0%	6.1%
Boston	0.4%	5.5%
Charlotte	0.3%	5.9%
Chicago	-0.8%	4.0%
Cleveland	0.0%	3.8%
Dallas	0.2%	8.1%
Denver	0.6%	8.7%
Detroit	-0.1%	6.6%
Las Vegas	0.3%	6.0%
Los Angeles	0.2%	5.5%
Miami	0.5%	6.1%
Minneapolis	0.1%	5.5%
New York	0.4%	2.4%
Phoenix	0.3%	5.2%
Portland	0.2%	10.1%
San Diego	0.3%	5.8%
San Francisco	-0.1%	5.3%
Seattle	0.2%	10.4%
Tampa	0.8%	8.1%
Washington	0.2%	3.7%

Harlan Green © 2017

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