We are often reminded that the fed rate is a short-term one, and doesn’t necessarily affect long-term rates like mortgages. Sure didn’t this time. The day after the last rate hike Freddie Mac’s 30-year rate averaged 4.30%. Since then it has dropped 16 basis points, nine of them this week alone.
This is good news for first-time homebuyers who have often found themselves at a disadvantage when competing with investors and their all-cash offers.
With the “unwintery” weather enjoyed by most of the country–up until this week of course–the home sales reports, both new and existing homes–for February could give us a first look at the spring market. Hopefully they will provide the good news headlines next week.
As if you didn’t know, lack of housing inventory has been cited over and over (and over) as hampering homebuying. To a lesser extent, consumer confidence has been a drag both on homebuying and the economy. This week there were green shoots of hope for both.
A National Association of Realtors (NAR), survey broke down homebuying trends by generation. Gen X, currently aged 37 to 51, (NAR appears to have “disappeared” the quite small Gen Y into this cohort), never gets much attention, but they presented some of the survey’s more interesting findings. They appear to have delayed homebuying (usually of a “move-up” house) longer than Millennials and are the generation to have most often lost a distressed home or been locked out of the market by debt or being underwater in their existing home. They also carry the most student debt, $35K against $25K for Millennials.
NAR says that generation has now recovered enough equity to sell and buy another home. Xers accounted for 28% of sales last year, up 2 points from the previous year. Millennials had a 35% share, but there are a lot more of them.
NAR chief economist Lawrence Yun says that Gen Xers who bought last year had been in their existing homes a median of 10 years; many of them buying when “home values were on the precipice of declining.” He said more of the generation are expected to sell this year and that should help ease the inventory shortages in much of the country. That these are likely to be mostly starter homes is even better news.
Fannie Mae’s National Housing Survey has tracked homeowner and renter attitudes toward homeownership and the economy since 2011. The survey has 100 questions, six of which are distilled into a single number, the Home Purchase Sentiment Index (HPSI).
The February survey blew the roof off. The HPSI jumped 5.6 points to 88.3, an all-time high. Five of the six components were higher than the previous month, and three set records of their own.
Asked if it was a good time to buy a house, 66% said yes, 26% said no, a net of 40%, 11 points higher than in January. A net of 22% think it is a good time to sell, a survey high.
Financial confidence is also on the rise. The net of those unconcerned about losing their job jumped 9 points to 78% while a net of 19% reported their household income higher over the last 12 months. Both were survey highs.
Doug Duncan, Fannie Mae’s chief economist said, “Millennials showed especially strong increases in job confidence and income gains, a necessary precursor for increased housing demand from first-time homebuyers.”
Lots of housing news next week–including a resumption of the Fed Watch–will they or won’t they raise rates?
Tune-in next week to find out.
Sales of new homes in January were every bit as good as those released last week for existing homes. There were an estimated 41,000 newly built homes sold during the month compared to 38,000 in December. On a seasonally adjusted annual basis that works out to a pace of 555,000 units, up 3.7% from December and 5.5% higher than in January 2016. Sales of existing homes had risen by 3.2% for the month and 3.8% year over year so the two reports together bode well for a strong spring market.
If we could, we would just leave it there. Our sense of duty, however, compels us to also mention pending home sales. They sort of took the bloom off the rose. The National Association of Realtors’ (NARs’) Pending Home Sales Index, a leading indicator of existing home sales for the upcoming two months, slipped 2.8% to the lowest level since last January and the December number was revised down to half its previously announced 1.6% gain. Because? Inventories of course.
The West is also looking a little weak and worrisome. Existing sales were up a strong 6.6% for the month although they had fallen in both November and December, but new home sales, strong in the other three regions, were down more than 4% and pending sales plunged by nearly 10% and were fractionally lower than a year earlier. Hopefully, it is just a blip.
That home prices are continuing to escalate was confirmed by the last two of the December reports. Case Shiller’s National Index was up 5.8% year-over-year compared to a 5.6% annual gain in November. Black Knight Financial Services said the annual increase of 5.7% in December tied with November for the largest of the year. Again, no question about what is behind this appreciation.
Inventories are now news beyond the real estate industry. This week the Washington Post headlined the difficulties millennials are having with competition and shortages now that they have finally decided to enter the housing market. Among the stories about failed offers and multiple bids, the Post does offer some encouraging words from the director of Harvard’s Joint Center for Housing. Christopher E. Herbert reminds us that Baby Boomers entered the market in the early 1980s, faced with a double-digit recession and double-digit interest rates. “But then homeownership rates and housing prices boomed in the 1990s. That group started out on a slower trajectory, then caught up. When you’re young you have some time to make up for a slower start.”
Please call or email if you have any questions.
McManus says buyers may soon have some fresh options in communities “designed specifically for rental refugees, downsizing discretionary buyers, and those on a modest budget looking to retire to a modest modicum of entitled living.” He quotes one homebuilder who has coined the phrase “entry-level plus” for new developments coming on line in some areas and says they will bring lower price tags along with a smaller footprint.
No surprise in these findings. Pet parents always knew who was in charge.
In the words of several media reports, the January Employment Situation Report “crushed it.” There were 227,000 new jobs created during the month, up from a revised 157,000 in December and the best report since last September. The number was way above expectations; analysts had been looking for a number in the range of 155,000 to 195,000.
But into every bright economic report, a little rain must fall; in this case the data on wages. The estimated increase of 0.4% reported for December was revised down to 0.2% and January’s gain was a meager 0.1%. But another set of employment stats offers hope. The Job Openings and Labor Turnover report or JOLTs (rumored to be one of Janet Yellen’s favorite indicators) shows a tightening labor market, with 5.50 million job openings at the end of December and 5.252M hires. Econoday calls the 249,000 job gap an indication that “employers are having a hard time finding people with the right job skills.” That’s usually a precursor to higher salaries.
Back on the “home” front. One of the possible reasons behind the tight inventories of homes for sale is the number of homes that were converted from owner-occupied to rentals during the Great Recession; some analysts put the figure at 3 million. A new study this week from the Research Institute for Housing American (RIHA) points out both that this is nothing new and that it may be exacerbating new home shortages as well.
The report, written by Stuart S. Rosenthal, calls the shift from owned homes to rentals both cyclical and a two-way street. There are both short term and long term transitions from owned to rented and back again. Short-term shifts are often prompted by changes in home prices–falling prices tend to push owned homes into rentals only to see them shift back when prices rise. Over time a net of about 2% of the housing stock becomes rentals. Longer term shifts tend to be related to age. Older homes are more likely to become rentals and to stay that way than are younger properties.
Rosenthal says rising home prices may be shifting rentals back to owner homes and this has the potential to undercut the demand for new construction. In addition, the current low homeownership rate suggests that a large buffer stock of potential owner-occupied homes may now sit in the rental segment of the market.
After some pretty wild swings in November, December, and January, interest rates have gone a little squishy. Per Freddie Mac, average rates moved within a two basis point range for the third straight week.