Economical Updates June 2, 2017

Flowers & Weeds

Even though the spring market should be in full flower as it were, this hasn’t been the best month for home sale news. Earlier we reported downturns in April’s new and existing sales; this week pending sales followed suit.
The National Association of Realtors (NAR) said its Pending Home Sales Index (PHSI), a leading indicator based on home purchase contract signings, slumped for the second month in a row, falling 1.3% from its March reading of 111.3 to 109.8. This meant it was also down by 3.3% from the April 2016 pace.
Econoday noted that, thus far in 2017, the Index has done what it was supposed to do, accurately telegraph the month-to-month performance of upcoming sales. The PHSI fell 0.8% in March and this was followed by an even more sizable decline (2.3%) in existing home sales the next month.
Lawrence Yun, NAR chief economist, said “weak supply levels” are behind the fading spring contract activity. Inventory issues are, in turn, spurring deteriorating affordability conditions. “Realtors are indicating that foot traffic is higher than a year ago,” Yun said, “but it’s obviously not translating to more sales.”
Yun isn’t expecting relief any time soon. He notes that homebuilding activity is still below what might be hoped and too few homeowners are listing their home for sale.

Home Price Appreciation Up Significantly
Home prices continue to rise; the last two indices for March, those from S&P Case-Shiller and Black Knight Financial Services verified that this week–and they are showing no sign of slowing down. Both indices put the annual increase at 5.8% and for both that was an 0.1% uptick from February’s reported gain. On a month-over-month basis, Case-Shiller put the March appreciation at 0.8%, while Black Knight said it was 1.3%; both were significantly larger gains than their February counterparts.
This last item takes us into the weeds, but since it will be good news for some readers, we will go there. Fannie Mae announced a new version of its automatic underwriting system will go into effect at the end of July. Among the changes is a loosening of the acceptable debt-to-income ratios. They were previously capped at 45% but, with compensating factors–for example, a low LTV (loan to value ratio) or a high FICO score–lenders could go as high as 50%. There are also some positive changes to the documents needed for self-employed borrowers. Freddie Mac is expected to follow suit.
With easing credit and interest rates down for the third straight week, it’s a good time to give me a call.
Economical Updates May 5, 2017

Prices Continue to Rise

The first March home price data shows month-over-month appreciation at the fastest pace in 11 months. The CoreLogic Home Price Index (HPI) rose 1.6% compared to February, the largest gain since last April.
After more than a decade of decline, the homeownership rate set a record low of 62.9% in the second quarter of 2016. It ticked up the next two quarters, but was down again in the first quarter of this year. It was only a 0.1% dip, but still, a disappointing break in the flow. There were, however, some pluses in the U.S. Census Bureau report.
First, the homeownership rate is still higher than a year ago. Second, the large and persistent gap in homeownership between white and minority households narrowed slightly. Both black and Hispanic homeownership rates were up by more than a percentage point year-over-year.
The Census Bureau report, which also tracks vacancies and rents, noted that Q1 marked the first time since 2006 that owner households grew faster than renter households. The former grew by 850,000 units while renter households rose by 365,000.
Rates Stay Low
The Federal Reserve Open Market Committee (FOMC) left rates alone at its May meeting. Officials signaled their belief that recent indications of decelerating growth (the 1st quarter GDP grew by a paltry 0.7%) were temporary and that they would stay with their plan for two more rate hikes this year.
The FOMC decision is always interesting, but it has little to do with mortgage rates. Over the next few years they are more likely to be impacted by a potential reversal of QE, quantitative easing. To refresh your memory, in 2009, the Fed launched QE, buying huge numbers of mortgage-backed securities (MBS), an effort to keep rates low and mortgage money flowing. The MBS issued by Fannie Mae and Freddie Mac (the GSEs) are collateralized by pools of conforming mortgages and those from Ginnie Mae by FHA/VA backed loans.
The Fed stopped investing new money several years ago, but continues to reinvest as mortgage balances are paid down or securities mature. It now holds $1.75 trillion in MBS, 30% of the total market.
Per the Urban Institute, it is a given the Fed will divest, probably soon and the path they chose is critical. Gradually cutting back on reinvestment would be the least disruptive option, or they could abruptly stop reinvesting, letting their portfolio run off through mortgage paydowns. Finally, they could sell the whole portfolio on the open market. Any of these options will reduce demand for the securities, and will probably raise rates, but the Fed’s management of the process will make a big difference. We’ll keep our eye on this.
Economical Updates March 24, 2017

Welcome Stats

We reported earlier that positive responses to the “good time to sell” question in Fannie Mae’s National Housing Survey hit an all-time high; NAR’s existing home report added an exclamation point. In some West Coast metro areas, notably the areas around San Jose, San Francisco, and Vallejo, selling appears to be a matter of putting up a sign and getting out of the way. Median marketing times in those areas in February were 27, 33, and 35, days respectively. Seattle and Boulder were also hot markets with marketing times of 36 and 37 days.
Existing home sales started out 2017 with a bang, increasing by 3.2% from December to January, but that rally was short-lived. The National Association of Realtors (NAR) again blamed the lack of available homes for February numbers that completely wiped out the earlier gain, falling 3.7%. NAR Chief Economist Lawrence Yun said affordability issues also took a toll.
The bang got louder for new homes however. Those sales built on a strong January–up 3.7%–with another 6.1% gain. Sales are now running at a seasonally adjusted annual rate of 592,000 units, a whopping 12.8% increase from last year.
Affordability Relief
There were signs of potential relief this week for the affordability issues cited by Yun. The Federal Housing Finance Agency said that, in January, for only the second time since early 2013, its House Price Index did not increase on a month-over-month basis. The annual price increase also flattened to 5.7% after gaining more than 6% every month since last June.
Affordability got another tiny boost as mortgage rates eased back slightly. Freddie Mac said the 7 basis point drop in its 30-year rate “Signals continued uncertainty.”
During the housing crisis, a lot of companies that report housing statistics began to track data to which they had paid little attention in the past. In addition to info on mortgage defaults, loan modifications, and foreclosures, several started following cash home sales. This was considered a secondary measure of the number of homes sold to investors.
Even in “normal” times about 25% of homes are bought without using a mortgage, but at the peak, in January 2011, that share almost doubled. This week CoreLogic reported that while the number is still higher than before the crash, cash sales throughout 2016 were at the lowest level, 32.1%, since 2007.

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.

Economical Updates February 3, 2017

Pending Home Sales Up

As reported last week, home sales finished out the year on a down note with both new home and existing home sales retreating from November’s levels. Rising interest rates along with an inventory of existing homes that was the smallest in the National Association of Realtors’ (NAR’s) record books got the blame.
Sales numbers, of course, reflect buying decisions made weeks earlier, perhaps even before the recent rate increases. This week’s pending home sales figures for December could indicate the pullback was only temporary and buyers are back on track. NAR reports that its Pending Home Sales Index (PHSI) based on home purchase contracts, rose 1.6% in December and is running slightly ahead of last year’s numbers.
Lawrence Yun, NAR chief economist, said the pending sales were encouraging but warned, “Sales will struggle to build on last year’s strong pace if inventory conditions don’t improve.”
The tight inventory, a 3.6 -month supply at the end of the year, is even more discouraging according to Yun who points out a large portion of available homes are at the upper end of the market. In December, sales of homes priced above $250,000 increased by 10% from the previous December while home sales in the $100,000 to $250,000 tier grew 2.3% and those in the under $100,000 category fell 11.6%.
Construction spending numbers for December were down overall but there was an encouraging little nugget relating to new home inventories. The end-of-year estimate of single-family construction spending was only 4.3% higher than in 2015 but that number may be masking a recent change. Cumulative month-over-month changes in the fourth quarter alone added up to 3.1%.
The Case-Shiller price indices for November joined the other major indexes to again demonstrate the long-expected slowdown in price increases just isn’t happening. With a 5.6% annual rate of appreciation, Case-Shiller’s national number was well below the 7.1% estimate for CoreLogic, but all four home price indices showed larger annual price gains in November than in October.
The Federal Reserve Open Market Committee (FOMC) finished up their January two-day meeting on Wednesday and, no surprise voted to continue a policy of no sudden moves. Their public statement gave a nod to a strengthening labor market and moderate economic expansion but cited low inflation and soft fixed business investment as among reasons they will hold the line at a half to three-quarter percent for the fed funds rate. The announcement added nothing to the indication last month that rates might be raised twice more this year, just that “economic conditions will evolve in a manner that will warrant only gradual increases in the fed funds rate.”
Economical UpdatesReal Estate News January 13, 2017

More Than Half-Full

Two pieces of news dominated an otherwise slow week. Taking them in order of appearance, last Friday brought a very encouraging Employment Situation Report. Job creation in December was good, if not spectacular at 156,000 new non-farm jobs. There were also revisions to the October and November reports that added a total of 19,000 jobs over the two months bringing those months to 204,000 and 135,000 new jobs respectively. What made people sit up and take notice however was an 0.4% uptick in average hourly earnings–the second healthy gain in the last three months and pushing the year-over-year increase to 2.9%.
Glass half-empty types will instantly understand that every such gain makes the Federal Reserve’s projection of three rate increases in 2017 more likely. Half-full observers know it means more people can buy houses.
We think the glass was filled by the second bit of news. The cost of buying came down a notch.
Department of Housing and Urban Development (HUD) Secretary, Julian Castro, announced a reduction in the FHA annual insurance premium, effective for loans closing or being funded on or after the 27th of this month. FHA’s insurance fund neared insolvency during the housing crisis and to rebuild it both the upfront and annual premiums were raised several times. The annual premium ratcheted up 150 percent. The announced reduction for most loans will be 25 basis points (bps).
Castro says the reduction will save the average FHA borrower $500 this year, and returns the annual premium almost back to pre-crash levels. The annual premium was reduced by 50 bps almost two years to the date of this newest cut.

That wasn’t the only notch taken out of housing costs this week, but the second might only apply to those who act fast. Freddie Mac announced a second consecutive decline in interest rates. As we said last week, one drop in rates does not a trend make, and neither does a second one. Still, rates that ended the year at 4.32% are now down 20 basis points. It is interesting that so far rates are following the same pattern they did last year, peaking at the year’s high in the last weeks of 2015 and starting what that time turned into a long-term decline the first week of 2016. We aren’t predicting or even optimistic about a repeat, but wouldn’t it be nice.