Monthly Archives: May 2016

Existing home sales

Existing home sales increased in September driven mainly by the drastic increase in first-time homebuyers, which reached the highest share of homebuyers in four years, according to a new report from the National Association of Realtors.

Total existing home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 3.2% to a seasonally adjusted rate of 5.47 million in September. This is up from a downwardly-revised 5.3 million in August. Sales are actually at their highest pace since June, and 0.6% above last year’s 5.44 million

“The home search over the past several months for a lot of prospective buyers, and especially for first-time buyers, took longer than usual because of the competition for the minimal amount of homes for sale,” NAR Chief Economist Lawrence Yun said.

“Most families and move-up buyers look to close before the new school year starts,” Yun said. “Their diminishing presence from the market towards the end of summer created more opportunities for aspiring first-time homeowners to buy last month.”

First-time homebuyers increased to 34% of the market share, the highest share since July 2012. It is up from 31% in August and 29% last year.

A new survey from Zillow shows the importance of Millennials in the housing market. This new generation may not only be fueling the housing market, but also changing it, according to the survey.

“There’s hope the leap in sales to first-time buyers can stick through the rest of the year and into next spring,” Yun said. “The market fundamentals – primarily consistent job gains and affordable mortgage rates – are there for the steady rise in first-timers needed to finally reverse the decline in the homeownership rate.”

All major regions saw an increase in closings in September, according to the report. Furthermore, distressed sales fell to a new low of 4% of market sales.

The median existing home price also increased 5.6% annually for all housing types in September to $234,200, up from $221,700 last year. This is the 55th consecutive month with year-over-year gains.

“The result of increasing housing demand coupled with limited supply is that house prices are rising, as indicated by all measures of house price appreciation,” NationwideChief Economist David Berson said. “While house prices are highly seasonal, compared with prices from a year ago, median existing home prices are up solidly.”

“The downside of above-average house price gains is that affordability suffers, although the other elements of housing demand are offsetting this,” Berson said. “The upside of above-average house price gains is that current homeowners, about 63% of all households, are wealthier. This is a big reason why the Federal Reserve noted that household assets and net worth have risen to all-time highs.”

Housing inventory actually increased monthly in September by 1.5% to 2.04 million homes for sale. This is still down 6.8% from last year’s 2.19 million. This marks the 16th consecutive annual decrease in inventory. Unsold inventory is at a 4.5-month supply at the current sales pace, which is down from 4.6 months in August.

“Existing inventory in September rebounded from record lows in August, when controlling for seasonality and household formation, Trulia Chief Economist Ralph McLaughlin said. “That said, September was the second lowest on record.”

Yun expects that inventory will only continue to decline this year.

“Inventory has been extremely tight all year and is unlikely to improve now that the seasonal decline in listings is about to kick in,” he said. “Unfortunately, there won’t be much relief from new home construction, which continues to be grossly inadequate in relation to demand.”

Economic growth to slow down

Fannie Mae expects economic growth to average 2.4% in the second half of 2016. While this is up from the 1.1% for the first half of the year, it is a slower pace than what Fannie Mae previously forecasted, according to the company’s October 2016 Economic and Housing Outlook.

“Recent economic data have been a mixed bag, the good, the bad, and the steady,” said Fannie Mae Chief Economist Doug Duncan. “On the upside, the third print of second quarter GDP showed that the economy grew three-tenths higher than in the second estimate, with an encouraging upward revision in nonresidential fixed investment.”

“The steady news comes from the labor market, with relatively decent conditions overall,” Duncan said. “The biggest doses of bad news come from consumer spending, the linchpin of economic growth, and residential investment, which appears to have posted a second consecutive sizable drop in the third quarter.”

The economy is project to grow in the third quarter due to improvements in inventory investment and trade. However, it will be dampened by a decrease in domestic demand, the report stated.

Consumer spending decreased in August for the first time since January and the personal saving rate ticked up, suggesting consumers are feeling increasingly cautious, according to the report.

Furthermore, consumer spending is expected to only continue decreasing in the fourth quarter this year.

“Emerging signs of improving homeownership demand among young adults have been encouraging,” Duncan said. “However, housing activity has lost momentum in recent months.”

“Existing home sales, new home sales, single-family housing starts, and single-family construction spending declined in August,” he said. “In addition, pending home sales and purchase mortgage applications weakened during the month, suggesting continued weakness in existing home sales in the near term amid very lean supply.”

But while Fannie Mae is predicting a slower growth rate than what it previously said,Freddie Mac points out that housing is in fact a bright spot in the economy.

It’s an unlikely statement given rising home prices and dwindling inventory, but it’s exactly what Freddie Mac stated in its monthly Outlook for October.

Home cheaper than renting

Home prices are rising across the nation to levels not seen since before the download-36housing crisis and yet, it’s still cheaper to buy than rent, according to a new study by online real estate listing service Trulia.

Buying a home is 37.7% cheaper than renting on a national basis for those who move every seven years and place 20% down. This is even more affordable than last year’s 37.2%.

Buying is becoming more affordable than renting even while the median home prices continues to rise. The median existing home price increased 5.6% annually for all housing types in September to $234,200, according to the National Association of Realtors.

Buying is actually cheaper than renting in all 100 of the largest metropolitan areas in the U.S.

How much cheaper ranges from 20% in Honolulu and San Francisco to 50% in Miami and Ft. Lauderdale, Florida.

While the Fed may raise interest rates this year, rising home prices actually pose a larger threat to affordability. In order to wipe out the financial advantage of buying, mortgage rates would need to more than double, according to the report. On the other hand, prices would need to increase 67%.

In areas like San Jose, California, prices would only need to increase 24%, and rates would have to increase by 45% for buying to cost the same as renting.

Mortgage rates increased this week to pre-Brexit levels, however they still remain historically low.

Some members of the Federal Open Market Committee expressed concern over the prolonged low interest rates, and pointed towards a possible rate hike in December.

This chart shows how much interest rates would need to increase for renting to become more affordable: