Market shift underway as housing shortage issue becomes demand issue
LOS ANGELES – A combination of high home prices and eroding affordability is expected to cut into housing demand and contribute to a weaker housing market in 2019, and 2018 home sales will register lower for the first time in four years, according to a housing and economic forecast released today by the CALIFORNIA ASSOCIATION OF REALTORS®’ (C.A.R.).
C.A.R.’s “2019 California Housing Market Forecast” sees a modest decline in existing single-family home sales of 3.3 percent next year to reach 396,800 units, down from the projected 2018 sales figure of 410,460. The 2018 figure is 3.2 percent lower compared with the 424,100 pace of homes sold in 2017.
“While home prices are predicted to temper next year, interest rates will likely rise and compound housing affordability issues,” said C.A.R. President Steve White. “Would-be buyers who are concerned that home prices may have peaked will wait on the sidelines until they have more clarity on where the housing market is headed. This could hold back housing demand and hamper home sales in 2019.”
C.A.R.’s forecast projects growth in the U.S. Gross Domestic Product of 2.4 percent in 2019, after a projected gain of 3.0 percent in 2018. With California’s nonfarm job growth at 1.4 percent, down from a projected 2.0 percent in 2018, the state’s unemployment rate will remain at 4.3 percent in 2019, unchanged from 2018’s figure but down from and 4.8 percent in 2017.
The average for 30-year, fixed mortgage interest rates will rise to 5.2 percent in 2019, up from 4.7 percent in 2018 and 4.0 percent in 2017, but will still remain low by historical standards.
The California median home price is forecast to increase 3.1 percent to $593,450 in 2019, following a projected 7.0 percent increase in 2018 to $575,800.
“The surge in home prices over the past few years due to the housing supply shortage has finally taken a toll on the market,” said C.A.R. Senior Vice President and Chief Economist Leslie Appleton-Young. “Despite an improvement in supply conditions, there is a high level of uncertainty about the direction of the market that is affecting homebuying decisions. This psychological effect is creating a mismatch in price expectations between buyers and sellers and will limit price growth in the upcoming year.”
Outmigration, which is a result of the state’s housing affordability issue, will also be a primary concern for the California housing market in 2019 as interest rates are expected to rise further next year. The high housing cost is driving Californians to leave their current county or even the state. According to C.A.R.’s 2018 State of the Housing Market/Study of Housing: Insight, Forecast, Trends (SHIFT) report, 28 percent of homebuyers moved out of the county in which they previously resided, up from 21 percent in 2017. The outmigration trend was even worse in the Bay Area, where housing was the least affordable, with 35 percent of homebuyers moving out because of affordability constraints. Southern California did not fare any better as 35 percent of homebuyers moved out of their county for the same reason, a significant jump from 21 percent in 2017. The substantial surge in homebuyers fleeing the state is reflected by the home sales decline in Southern California, which was down on a year-over-year basis for the first eight months of 2018. Outmigration will not abate as long as home prices are out of reach and interest rates rise in the upcoming year.
SOURCE: CAR dot org
Wed, 6 June 2018
Affordable home shortage to continue through 2018, new Reuters poll says.
An acute shortage of affordable homes in the United States will continue over the coming year, according to a majority of property market analysts polled by Reuters, driving prices up faster than inflation and wage growth.
After losing over a third of their value a decade ago, which led to the financial crisis and a deep recession, U.S. house prices have regained those losses — led by a robust labor market that has fueled a pickup in economic activity and housing demand.
But supply has not been able to keep up with rising demand, making home ownership less affordable. Annual average earnings growth has remained below 3 percent even as house price rises have averaged more than 5 percent over the last few years.
The latest poll of nearly 45 analysts taken May 16-June 5 showed the S&P/Case Shiller composite index of home prices in 20 cities is expected to gain a further 5.7 percent this year.
That compared to predictions for average earnings growth of 2.8 percent and inflation of 2.5 percent 2018, according to a separate Reuters poll of economists.
U.S. house prices are then forecast to rise 4.3 percent next year and 3.6 percent in 2020.
“We are not seeing a temporary phenomenon. House prices have been outrunning family incomes for several years in the U.S. and while demand has cooled off a bit, the supply side is still very tight,” said Sal Guatieri, senior economist at BMO Financial Group.
“I think house prices will continue to outrun family incomes for at least another year and it will take some time for demand to slow and to some extent supply to increase.”
The latest poll comes after weak existing and new home sales data for April.
A further breakdown of the April data showed the inventory of existing homes had declined for 35 straight months on an annual basis while the median house price was up for a 74th consecutive month.
About 80 percent of nearly 40 analysts who answered an extra question said the already tight supply of affordable homes in the United States will either stay the same or fall from here over the next 12 months.
Existing home sales, which account for about 90 percent of U.S. turnover, are now forecast to rise slightly and average 5.60 million units in each quarter this year from about 5.46 million units in April.
That is well below the peak of 7 million units averaged during the previous housing market boom, which will keep prices elevated and make housing less affordable.
When asked to rate the affordability on a scale of 1-10 where 1 is extremely cheap and 10 is extremely expensive, the median answer was 7.
“U.S. house prices are slightly over-valued when looking at fundamental valuation metrics such as the median-home-price-to-income ratio,” noted Brent Campbell, economist at Moody’s Analytics.
A pricier market is likely to push many people to rent rather than buy.
But even renting a home in major U.S. cities will become more expensive relative to average income, according to about 60 percent of nearly 40 analysts who answered an additional question.
Another potential hurdle for home buyers are rising mortgage rates. According to the poll the average 30-year mortgage rate will rise to 4.60 percent by year-end and then touch 5.0 percent by end-2019.
Those figures are a slight upgrade from the previous poll in February but seem to be in line with economists’ expectations for the Federal Reserve to tighten policy more than what the central bank’s most recent forecasts suggest.
“With mortgage rates continuing to rise, affordability is getting steadily worse,” noted Jonas Goltermann, developed market economist at ING.
A big move up follows several weeks of grinding higher, yet the 30-year fixed rate still held below 4%
Rates for home loans jumped in the latest week following a smaller rise in U.S. Treasury yields, mortgage provider Freddie Mac said Thursday, yet they remain pinned below the closely watched 4% threshold.
The 30-year fixed-rate mortgage averaged 3.91% in the Oct. 12 week, while the 15-year fixed-rate mortgage averaged 3.21%. Both products rose six basis points during the week. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.16%, versus 3.18% during the prior week.
Mortgage rates fell below the key 4% line in early July and have remained there even as the current week’s move marked the fifth-straight week of increases or flat readings. Most housing experts expected mortgage rates to move above post-crisis lows during 2017, but so far the benchmark 30-year fixed has averaged just 4.01% this year.
Unsettled geopolitics are keeping demand for safe assets like government paper high, which pushes yields down. The 10-year Treasury TMUBMUSD10Y, +1.10% , which mortgage rates track, may resume its slide in the coming week in the wake of a more dovish tone from the Federal Reserve than investors had anticipated.
Published: Oct 13, 2017 by Andrea Riquier
While low mortgage rates boost consumer buying power, the reason for the low rates could hold home buyers back.
Economic forecasters and analysts have frequently missed the mark recently when forecasting interest rates. In general, forecasters and experts have expected faster economic growth and policy normalization (i.e. higher interest rates) than has come to pass. Instead, interest rates, including mortgage rates, have remained low and moved lower. Today’s mortgage rate data from Freddie Mac show that the rate on a 30-year fixed-rate mortgage was 3.41—the lowest since May 2, 2013 when rates were 3.35 percent.
While lower mortgage rates are a good thing for U.S. home buyers, 86 percent of whom financed their recent purchase transaction, the reason for lower mortgage rates might offset some of the positive effects. Uncertainty over Brexit is highlighted as a reason, and while it has certainly had an impact, the cause of low rates is concern that global economies are not growing. Note, for example, that much of the decline in mortgage rates occurred during the first quarter of 2016—before the Brexit vote in June, which only added more uncertainty about growth prospects and took rates on another leg down. A look at the pros and cons of this recent drop in mortgage rates shows that they may not be as unambiguously beneficial to the housing market as previous low rates have been.
Lower mortgage rates—which have declined by more than 50 basis points since the start of the year—boost the home purchasing power of would-be buyers.
Here are some calculations:
- A 50 basis point reduction in mortgage rates reduces monthly payments by nearly $50 per $100,000 in home price ($80,000 financed).
- The reduction in monthly payments reduces income needed to qualify by roughly $1,000.
- At the current US median home price, this amounts to a roughly $2,500 reduction in the income required to finance a home purchase with a 20 percent down payment ($200,000 mortgage).
Coupled with incomes that are maintaining a steady pace of increase between 2 and 3 percent over the last two years, the reduction in mortgage rates will help sustain housing market demand in the face of rising home prices.
While lower mortgage rates could boost demand, global economic growth concerns could shake U.S. consumer psyche, especially if U.S. workers expect slowing global growth to impact labor markets. On top of this concern, potential home buyers are experiencing difficulty finding a property amid inventory shortages and saving for a down payment, particularly if they are potential first-time home buyers managing student loan debt and increasing rental prices. In fact, 71 percent of student loan borrowers who are non-homeowners indicate that student debt is impacting their ability to purchase a home.This could mean that the benefits of lower mortgage rates go largely to current homeowners who can refinance, reinforcing the already sizable gap in wealth outcomes for those who own their homes compared to those who do not.
Thus far, the U.S. economy has proven resilient to the weaker global economic environment. A stronger U.S. consumer, who benefits from lower financing costs, may help ensure that trend continues.
“Mortgage rates this week registered the delayed impact of last week’s sharp drop in Treasury yields, as the 30-year mortgage rate fell 12 basis points to 3.59 percent,” says Freddie Mac chief economist Sean Becketti. “This rate marks a new low for 2016. Low mortgage rates and a positive employment outlook should support a strong housing market in the second quarter of 2016.”
Freddie Mac reports the following national averages with mortgage rates for the week ending April 7:
- 30-year fixed-rate mortgages: averaged 3.59 percent, with an average 0.5 point, dropping from last week’s 3.71 percent average. Last year at this time, 30-year rates averaged 3.66 percent.
- 15-year fixed-rate mortgages: averaged 2.88 percent, with an average 0.4 point, falling from last week’s 2.98 percent average. A year ago, 15-year rates averaged 2.93 percent.
- 5-year hybrid adjustable-rate mortgages: averaged 2.82 percent, with an average 0.5 point, dropping from last week’s 2.90 percent average. A year ago, 5-year ARMs averaged 2.83 percent.
Source: Freddie Mac
Spread the good news: The nation increased its number of financially secure households by a significant amount in 2015. By the end of the fourth quarter, about 46.3 million – or 91.5 percent – of all properties with a mortgage had equity, according to CoreLogic’s most recent analysis, released this week.
“The number of home owners with more than 20 percent equity is rising rapidly,” says Anand Nallathambi, president and CEO of CoreLogic. “Higher prices driven largely by tight supply are certainly a big reason for the rise, but continued population growth, household formation, and ultra-low interest rates are also factors. Looking ahead in 2016, we expect home equity levels to continue to build, which is a good thing for the long-term health of the U.S. economy.”
The majority of residential properties with positive equity tend to be at the higher end of the housing market, according to CoreLogic. Ninety-five percent of homes valued at $200,000 or higher have equity, compared to 87 percent of homes below the $200,000 mark.
Despite recent gains, many home owners are still “under-equitied,” according to CoreLogic’s report. More than 50 million residential properties with a mortgage – or 18.9 percent – have less than 20 percent equity in their properties, and 1.2 million home owners – or 2.3 percent – have less than 5 percent equity.
Some home owners still don’t have any equity. About 4.3 million home owners with a mortgage, around 8.5 percent, owe more on their home than it is currently worth as of the fourth quarter of 2015. That marks a slight increase from 8.3 percent in the prior quarter, but a 19 percent year-over-year decrease from 2014.
Source: CoreLogic via Realtor.org
“The 30-year mortgage rate dropped another 7 basis points this week to 3.65 percent,” says Sean Becketti, Freddie Mac’s chief economist. “This week’s drop leaves the mortgage rate just 6 basis points above last year’s low of 3.59 percent. In a falling rate environment, mortgage rates often adjust more slowly than capital market rates, and the early-2016 flight-to-quality has run true to form. The 30-year mortgage rate has dropped 36 basis points since the start of the year, while the yield on the 10-year Treasury has dropped 59 basis points over the same period. If Treasury yields were to hold at current levels, mortgage rates might well sink a little further before stabilizing.”
Freddie Mac reports the following national averages with mortgage rates for the week ending Feb. 11:
- 30-year fixed-rate mortgages: averaged 3.65 percent, with an average 0.5 point, dropping from last week’s 3.72 percent average. Last year at this time, 30-year rates averaged 3.69 percent.
- 15-year fixed-rate mortgages: averaged 2.95 percent, with an average 0.5 point, falling from 3.01 percent last week. A year ago, 15-year rates averaged 2.99 percent.
- 5-year hybrid adjustable-rate mortgages: averaged 2.83 percent, with an average 0.4 point, dropping from last week’s 2.85 percent average. A year ago, 5-year ARMs averaged 2.97 percent.
Source: Freddie Mac and Realtor.org
Praise-worthy jobs numbers
The U.S. economy added 211,000 jobs in November, after gaining an upwardly revised 298,000 jobs in October, according to the Bureau of Labor Statistics. The unemployment rate remained at 5%.
Was this latest jobs report enough to persuade the Fed to increase the federal funds rate on Dec. 16? Consensus points to “yes.”
“I think that they probably will raise rates a quarter-point next week,” says Jeff DerGurahian, executive vice president of capital markets at loanDepot in Foothill Ranch, California.
Having seen decreases in mortgage rates recently, it’s possible we won’t see a dramatic increase in rates once the Fed makes its move, says Brett Sinnott, vice president of capital markets at CMG Financial in San Ramon, California.
A look at this week’s rates
- The benchmark 30-year fixed-rate mortgage rose to 4.06% from 4.01%, according to Bankrate’s Dec. 9 survey of large lenders. A year ago, it was 4.03%. Four weeks ago, the rate was 4.11%. The mortgages in this week’s survey had an average total of 0.23 discount and origination points. Over the past 52 weeks, the 30-year fixed has averaged 3.98%. This week’s rate is 0.08 percentage points higher than the 52-week average.
- The benchmark 15-year fixed-rate mortgage rose to 3.27% from 3.25%.
- The benchmark 30-year fixed-rate jumbo mortgage rose to 4.01% from 3.89%.
- The benchmark 5/1 adjustable-rate mortgage rose to 3.4% from 3.33%.
Weekly national mortgage survey
Results of Bankrate.com’s Dec. 9, 2015, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
|30-year fixed||15-year fixed||5-year ARM|
|This week’s rate:||4.06%||3.27%||3.4%|
|Change from last week:||+0.05||+0.02||+0.07|
|Change from last week:||+$4.76||+$1.61||+$6.39|
Mortgage apps rise, credit availability tightens
Consumer attitudes about the housing market fell for the 2nd consecutive month, Fannie Mae announced Monday. The mortgage securitizer’s Home Purchase Sentiment Index found that the share of consumers who think it’s a good time to sell and those who say their household income has increased over last year both declined.
Mortgage applications increased by 1.2% last week compared with the previous week, according to the Mortgage Bankers Association’s weekly survey. The unadjusted purchase index rose 36% and was 29% above the same week in 2014.
The MBA released separate data this week showing that mortgage credit availability decreased last month, indicating that lenders have implemented tighter credit standards for potential borrowers.
Homeowners looking to save on their monthly mortgage payments should consider refinancing.
“Right now I think it’s still a great time to refinance because 30-year rates haven’t moved significantly higher,” DerGurahian says.
On the other hand, there’s no need for would-be buyers to rush into the market.
“If you happen to miss the train for whatever reason, I don’t think it’d be the end of the world,” Sinnott says. “Rates are still historically low.”
By Crissinda Ponder • Bankrate.com
Amid a newly released weaker than expected jobs report, mortgage rates were back on a downward spiral this week. For the 11th consecutive week, the average on 30-year mortgage rates has stayed below 4 percent. Also, the 15-year fixed-rate mortgage dropped below 3 percent this week, the first time since April this year, Freddie Mac reports.
“Calling the September jobs report disappointing is an understatement,” says Sean Becketti, Freddie Mac’s chief economist. “The sputtering U.S. economy added only 142,000 jobs. To make matters worse, there were downward revisions to the prior two months. Hourly wages were flat, and the labor force participation rate fell to 62.4 percent, the lowest rate since 1977. In response, Treasury yields dipped below 2 percent triggering a 9 basis point tumble in the 30-year mortgage rate to 3.76 percent.”
Freddie Mac reports the following national averages with mortgage rates for the week ending Oct. 8:
- 30-year fixed-rate mortgages: averaged 3.76 percent, with an average 0.6 point, dropping from last week’s 3.85 percent average. Last year at this time, 30-year rates averaged 4.19 percent.
- 15-year fixed-rate mortgages: averaged 2.99 percent, with an average 0.6 point, dropping from last week’s 3.07 percent average. A year ago, 15-year rates averaged 3.36 percent.
- 5-year hybrid adjustable-rate mortgages: averaged 2.88 percent, with an average 0.4 point, falling from 2.91 percent last week. A year ago, 5-year ARMs averaged 3.06 percent.
- 1-year ARMs: averaged 2.55 percent, with an average 0.2, rising from 2.53 percent last week. A year ago, 1-year ARMs averaged 2.42 percent.
Source: Freddie Mac