Housing Analysis Category
Builder confidence in markets for new homes fell three points in February to a reading of 58. January’s reading was revised upward to 61. Builders have repeatedly expressed concerns shortages of labor and lots for development, but continue to express confidence in future sales conditions.
David Crowe, National Association of Home Builder’s (NAHB) chief economist, said that builders are watching slowing economic trends, but also cited low mortgage rates, improving labor markets and pent-up demand for homes as factors for strong U.S. housing markets. The NAHB notes that any reading over 50 indicates that more builders were confident than those who were not.
HMI Components Readings
The three readings used to calculate the NAHB Housing Market Index (HMI) were also lower. The reading for current sales conditions fell by three points to 65; the reading for sales conditions over the next six months fell by one point to 65. Home builders were less confident in buyer traffic in new home developments; the February reading dropped by five points to 39. Although the buyer traffic gauge was its lowest in nine months, it hasn’t topped the benchmark of 50 since the peak of the housing bubble ten years ago.
Three month rolling averages for the four regions charted by NAHB also dropped. The Northeastern region was 2 points lower at 47; the Southern region also lost two points for a reading of 59. The Midwestern region lost one point for a reading of 57 and the Western region dropped three points for a reading of 72.
Building New Homes Seen as Solution to Pent Up Demand for Homes
Analysts responded to February’s HMI with mixed views. Some analysts said that buyer demand for homes would override concerns over building costs. This view makes sense in view of pent-up demand driving up home prices. At some point, affordability and buyers ability to qualify for mortgage loans are likely slow the rate of increasing home prices.
Less pent-up demand could also help first-time and moderate income buyers compete for homes as buyer demand eases. First-time and moderate income buyers are essential in driving home sales, as their purchases of pre-owned homes allow homeowners to buy larger homes or relocate.
Reports on Housing Starts and Building Permits scheduled this week will shed additional light on home builder activity.
Both seasoned homeowners and first-time buyers know making the decision to purchase a new home is not one that is taken lightly. There are so many things to consider, from choosing a home with growth potential to finding a community to support a family’s interests and lifestyle.
While the decisions may seem endless, don’t be discouraged. Develop a strategic approach to buying a home with our definitive guide to selecting a home and property that will suit a growing family’s needs. Use this guide, along with advice from a trusted real estate professional in your area, to get started on the path to home ownership.
Look For Neighborhoods With Growth Potential
Choosing the right location is one of the most grappled with decisions when it comes to buying a home. While some home-buyers aspire to “keep up with the Joneses,” purchasing a home in the “trendy” neighborhood of the moment, savvy home-buyers know the best bargains can be found in “up-and-coming” locales.
Skip the higher property values and congestion and search for a home in an unincorporated area with growth potential. This might require driving a few extra blocks for that morning Starbucks coffee, but this will easily be overlooked once the community grows (and your home value with it).
Unfinished Basements Are Your Friend
Sure, most home-buyers cringe when they enter the sometimes scary, always dark and lonely, unfinished basement. But the savvy home-buyer knows unfinished basements are their friend.
A basic renovation can take the space from ghastly to awesome. Unfinished basements provide a number of options for growing families and are a great way to add bathrooms, bedrooms and common areas for kids and teens.
Choose A Home With Income Potential
While the average buyer is interested in a single-family home, don’t discount homes with basement apartments or mother-in-law suites. These types of home configurations can lead to significant income potential and can help to offset the cost of a monthly mortgage payment.
Income potential doesn’t just include garage apartments and mother-in-law suites; it encompasses open space as well. Build a duplex or a guesthouse on extra land for a significant return on investment. Or, take advantage of special land grants to grow crops or house bees on unused acreage.
Think Long-Term When Choosing Schools
When choosing schools, think macro not micro. Remember to evaluate school districts at all levels: elementary, middle and high schools. Don’t choose a community based on the elementary school, if the middle and high schools are not as impressive.
A young child might be an elementary school student upon purchasing the home, but will matriculate through the school district during the course of a 30-year mortgage. Be sure to select a home in a community with a school district that can support youngsters at every level.
For more information about finding a home for a growing family, contact a real estate agent in your area.
Two major indicators of home price trends showed a slowing momentum for home prices in December. The S&P Case Shiller 10 and 20 city indices reported that of 20 cities tracked, home prices were lower in December than for November.
Case-Shiller’s seasonally adjusted month-to month reading showed that home prices rose by 0.8 percent as compared to 0.90 percent in November.
David Blitzer, chairman of the index committee at S&P Dow Jones Indices, said that “Gains are slowing from month-to-month and the strongest part of home price recovery may be over.” He also noted that seasonally adjusted data was showing a loss of momentum for home prices.
December home prices posted a year-over-year gain of 13.40 percent, down from November’s year-over-year reading of 13.70 percent. December’s reading reflected the highest year-over-year increase in home prices since 2005.
Analysts note that a slower pace of increasing home prices may allow more buyers to enter the market, and may also encourage more buyers to list their properties for sale.
This would increase inventories of available homes and relieve pent-up demand for homes. Although home price growth is cooling off, average home prices remain 20 percent below their pre-recession peak in 2006.
Home Prices Face Challenges In 2014
Another factor in slower growth of home prices is regional differences in the rate of economic recovery. Cities including Dallas, Texas and Denver, Colorado recently set records for escalating home prices.
Five states including Florida and Michigan accounted for almost half of foreclosures completed during 2013. Slow job growth and poor winter weather were also blamed for slower gains in home prices.
New mortgage rules and relatively strict mortgage lending standards may continue to dampen housing markets, but there is some good news as some lenders are easing credit standards.
FHFA: Home Prices Higher For 10th Consecutive Quarter
The Federal Housing Finance Administration reported similar trends in December home price data for properties either financed or owned by Fannie Mae or Freddie Mac. Home prices rose by a seasonally adjusted rate of 0.80 percent in December as compared to November’s reading.
Home prices were 7.70 percent higher for the fourth quarter of 2013 than for the same period in 2012. Adjusted for inflation, this reading indicates an approximate year-over-year increase of 7 percent.
FHFA reported higher readings for 38 states in its fourth quarter 2013 Home Price Index, as compared with 48 states in in the third quarter of 2013. In order of home price appreciation, the top five states with highest growth in home prices were Nevada, California, Arizona, Oregon and Florida.
These calculations were seasonally adjusted and based on home purchases only.
According to the S&P/Case-Shiller 10 and 20-City Home Price Indices released Tuesday, the U.S. Housing Market is on a roll based on year-over-year increases in average home values, but month-to-month results were mixed.
The 10 and 20-City Home Price Indices showed year-over-year growth of 13.80 and 13.70 percent respectively.
- Dallas, Texas posted its highest rate of annual growth since 2000.
- Chicago’s average home price rose by 11.00 percent, its highest annual gain since December 1988.
- The 10 and 20-City Indices posted their best November home prices since 2005.
Top year-over-year gains in home prices included Las Vegas, Nevada at 27.30 percent, San Francisco, California at 23.20 percent, Los Angeles, California at 21.60 percent and San Diego, California at 18.70 percent. Atlanta, Georgia rounds out the top five cities with a year-over-year increase in home prices of 18.50 percent.
The annual readings for the S&P/Case-Shiller 10 and 20-City Housing Market Indices in November suggests that U.S. markets are strong enough to sustain momentum in spite of rising mortgage rates. The month-to-month results show that both indices decreased by an incremental 0.10 percent in November, 2013.
Keeping in mind the traditional slump in home sales during the winter and holiday season, lower month-to-month readings were neither unexpected nor disappointing.
Eight of the nine top cities posting the highest month-to-month growth in home prices were located in the Sun Belt. San Diego, California and Minneapolis, Minnesota home prices remained nearly flat after decreasing in October.
Nine of the 20 cities surveyed posted positive month-to-month growth in home prices. Of the nine cities, only Boston, Massachusetts and Cleveland, Ohio were not located in the Sun Belt.
S&P/ Dow Jones Index Committee Chairman Expects Slower Growth In 2014
David Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices, noted that November’s month-to-month readings for the 10 and 20-city home price indices indicated that Phoenix, Arizona, Los Angeles California and Las Vegas, Nevada had each posted 20 or more consecutive months of rising home prices.
While positive in his remarks about increasing home prices, Mr. Blitzer also noted that indicators suggested a slower rate of growth during 2014.
This aligns with previously released economic news citing uncertainty about mortgage rates that may continue to rise as the Federal Reserve continues tapering its monthly asset purchases under its quantitative easing program.
The Fed’s FOMC meeting is scheduled to end Wednesday, January 29, at which time the committee’s customary statement will indicate whether or not the Fed’s monthly asset purchases will be reduced from their current level of $75 billion.
On the positive side, Chairman Blitzer said that the low inflation rate (1.50 percent in 2013) and rising home prices are helping homeowners accumulate home equity at a faster pace.
The NAR provided great year-end news as existing home sales in December pushed 2013 sales of existing homes to a 7 year high. December’s reading of 4.86 sales of pre-owned homes came in at 4.87 million on a seasonally adjusted annual basis.
Although projections had been for 4.89 million sales, the December reading topped November’s revised sales of 4.82 million pre-owned homes.
December’s reading showed the first gain in existing home sales in three months. NAR reported that existing home sales for 2013 reached 5.09 million, which represented a 9.10 percent increase over 2012.
More Good News: Median Price Of Existing Homes Rises
NAR reported that the national median price for pre-owned homes increased to $198,000, a year-over-year increase of 9.90 percent. The average price of an existing home for all of 2013 was $197,100. This was the strongest growth in existing home prices since 2005 and represented an increase of 11.50 percent.
There were 1.86 million pre-owned homes for sale in December. At current sales rates, this represents a 4.60 month inventory. Real estate pros like to see a minimum of a six-month supply of available homes, so existing homes remain in short supply.
Analysts attributed rising home prices to improving economic conditions and a persistent shortage of homes for sale.
FHFA: Slower Gain for Home Prices In November
FHFA, the agency that oversees Fannie Mae and Freddie Mac, reported that November prices of homes financed with mortgages owned or guaranteed by the two agencies rose by a seasonally adjusted 0.10 percent as compared to October’s increase of 0.50 percent and an expected growth rate of 0.40 percent.
November’s reading brought year-over-year home sales to an increase of 7.60 percent, but is still 8.90 percent below their April 2007 peak.
Analysts noted that recent reports of increasing new home construction and rising new home sales as reasons why prices of existing homes are seeing slower growth.
The Case-Shiller 10 and 20-City Home Price Indices for October were released on December 31. Although home prices in most cities continued to show year-over-year gains, the pace of home price appreciation is expected to slow in 2014.
Year-over-year increases have been in double digit territory since March 2013, but month-to-month readings suggest that the rate of increasing home prices is slowing.
According to David Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices, “…the monthly numbers show that we are living on borrowed time and the boom is fading.”
The 10 and 20 city indices are showing that home prices some cities that were showing little or no growth in 2013 are posting higher rates of appreciation, while growth in cities that have shown very high increases in home prices are beginning to lose momentum.
Year-over-Year Growth In Double Digits
The 10-and 20-city indices each posted year-over year gains of 13.60 percent between October 2012and October 2013. These were the highest year-over-year gains since February of 2006.
Home prices recovered to mid-2004 levels in October, but remained 20 percent lower than peak home prices seen in June and July of 2006.
Here are figures for 10 cities showing the highest increases in home prices year-over-year in October 2013:
City Y-O-Y Growth Rate
Las Vegas, NV 27.10 %
San Francisco, CA 24.60%
Los Angeles, CA 22.10%
San Diego, CA 19.70%
Atlanta, GA 19.00%
Phoenix, AZ 18.10%
Detroit, MI 17.30%
Miami, FL 15.80%
Tampa, FL 15.20%
Seattle, WA 13.10 %
Home prices in the 10 and 20-city indices have gained 23.10 percent and 23.70 percent since home prices reached their lowest points in March 2012.
Month-To-Month Readings Indicate Slower Growth
Month-to-month readings show a slowing trend in home price growth. 18 of 20 cities included in the S&P Case-Shiller Home Price Indices showed slower growth in October as compared to September’s readings.
The Federal Reserve will begin tapering its asset purchases this month and will continue doing so unless economic conditions slow to a point where the Fed considers tapering counter-productive to economic growth.
Concerns over the tapering of “quantitative easing” and higher mortgage rates are seen as contributing to slower gains in home prices.
Although some analysts have identified indicators of economic growth, most seem to agree that home prices are likely to increase by single-digit percentages in 2014.
The holiday season and winter weather slowed home sales in November. Last week, the NAR reported that sales of existing homes had slumped to their lowest level in nearly a year, but this was not unexpected.
Short supplies of available homes and rising mortgage rates have increased pent-up demand for homes have kept some buyers on the sidelines.
Improvement In The Labor Market
4.90 existing homes were sold in November; this was lower than the 5.13 million existing homes sold in October, as well as lower than expectations of 5.00 million existing home sales in November.
Existing home sales for November 2013 were also 1.20 percent lower than for November 2012; this is the first time in 29 months that existing home sales were lower year-over-year.
Lawrence Yun, chief economist for NAR, described the slow-down in sales as a “clear loss of momentum.” The outlook for 2014 is better, as analysts expect continued improvement in the labor market.
The pent-up demand for homes will ease as homeowners begin to list their homes for sale as home prices increase. Mr. Yun also noted that prices for existing homes are increasing at their highest rate in eight years.
The national median home price of existing homes rose to $196,000 in November, which represents a year-over-year increase of 9.40 percent. There was a 5.1 month supply of previously homes available at the current sales rate.
Housing Market Continues To Progress Over Long Term
The Census Bureau and HUD report that 464,000 new homes were sold in November. This was 2.10 percent lower than October’s rate of 474,000 new homes sold. This represents an increase of 16.60 percent as compared to the 398,000 new homes sold in November 2012.
The national median home price for new homes in November was $270,900; with an average new home price of $340,300. The seasonally-adjusted estimate of new homes for sale in November was 167,000; this reading represents a 4.30 month supply of new homes for sale.
While home builder confidence is up and recent labor reports indicate improving job markets, the Fed’s decision to taper its quantitative easing program in January is generating some uncertainty as mortgage rates will likely rise as the Fed winds down the QE program.
According to the National Association of Homebuilders/Wells Fargo Homebuilders Market Index for December, builder confidence recovered in with a reading of 58. This surpassed both expectations of 56 and last month’s reading of 54.
Analysts noted that builder confidence has steadied after the government shutdown. December’s reading was the highest in four months. Dave Crowe, NAHB chief economist, said that his organization was expecting a “gradual improvement in the housing recovery” in 2014.
Any reading above 50 indicates that more builders are confident about overall housing market conditions than not.
Builder Confidence – Highest Reading Since 2005
Pent-up demand for housing is driving housing markets in spite of higher mortgage rates. Three components of builder confidence used to calculate the overall reading also rose in December. Builder confidence in current home sales rose to 64 from a reading of 58 in November; this is the highest reading since 2005.
Confidence levels in housing markets over the next six months rose to 62 from last month’s reading of 60. Builder confidence also grew in the area of buyer foot traffic in new developments and gained three points to a reading of 44.
All of this is good news, but the NAHB said that a gap remains between higher home builder confidence and the rate of new home construction. A seasonal lull in home construction is not unusual especially in areas experiencing harsh weather.
More Jobs, Low Refinance Numbers Could Mean More Mortgages Available
MarketWatch analysts suggest that if the economy continues to add jobs “at a brisk pace” and mortgage lenders ease lending requirements next year, the demand for homes could further strengthen the U.S. housing market next year.
Low numbers of refinance mortgages in 2013 may cause some lenders to loosen mortgage credit requirements, which were tightened after the housing bubble burst.
Economic News scheduled for today may provide a broader picture of economic health and likely trends for 2015. The Federal Reserve’s Federal Open Market Committee will provide its expected statement after its meeting, and Fed Chairman Ben Bernanke will give his last press conference as Fed chair as well.
Any indication of plans to reduce the Fed’s current quantitative easing program could upset financial and mortgage markets, but most economic analysts don’t expect an announcement of tapering the Fed’s asset purchases before next year.
Data on November Housing Starts and Building Permits will also offer clues as to how housing markets and the general economy are doing.
According to the S&P Case-Shiller 10-and 20-City Housing Market Indices for September, home prices grew at an average of 13.30 percent year-over-year and achieved the highest growth rate for home prices since February 2006.
On a month-to month basis, home prices are slowing in most areas with 19 cities included in the S&P 20-City Housing Market Index showing lower rates of growth in home prices. September’s average month-to-month growth rate was 1.0 percent for the 20-City HMI as compared to 0.90 percent in August, and 1.90 percent posted earlier in 2013.
Home prices increased by 0.70 percent in September for the combined 20-City and 10-City Housing Market Indices tracked by Case-Shiller.
Rapidly Rising Home Prices In The West: Another Housing Bubble On Tap?
Home prices continued rising in the West, with Las Vegas leading the pack with a 29.10 percent gain year-over-year although average home price in Las Vegas, Nevada remains 46 percent than its peak in February of 2006.
California also showed double-digit year-over-year growth for home prices with San Francisco at 25.70 percent, Los Angeles at 21.80 percent and San Diego posting 20.90 percent growth in home prices year-over-year.
Rapidly increasing home prices in the West are largely due to demand exceeding supply, but buyers may be sitting on the sidelines due to concerns over another housing bubble in the making.
Buyers in this scenario are aware of increasing home prices, but aren’t buying now to avoid higher prices later. Instead they are waiting to see what happens with current home prices and housing market conditions in the longer term.
Chicago, Illinois posted its highest year-over-year growth rate since 2005 while Cleveland, Ohio posted a growth rate of 5.00 percent for September as compared to a month-to-month growth rate of 3.70 percent.
This was the second lowest month-to-month growth rate for home prices, with New York City posting a month-to-month home price growth rate of 4.00 percent from August to September.
FHFA Reports Slight Gain In Home Prices
The Federal Housing Finance Agency reported stronger gains in home prices for properties financed with mortgages owned or guaranteed by Fannie Mae or Freddie Mac. In September, home prices reported by FHFA rose by 0.30 percent as compared to August’s growth rate of 0.40 percent.
On a year-over-year basis, FHFA reported a gain of 8.40 percent between the third quarter of 2012 and the third quarter of 2013. Adjusted for inflation, home prices as reported by FHFA have risen approximately 7.20 percent. FHFA noted that home prices are growing at a rate far above the rate of 1.20 percent reported for other “goods and services.”
Lower numbers of foreclosed homes are seen as a boost for home prices in general; as mortgage lenders tend to offer foreclosed homes for sale at low prices in order to reduce inventories of real estate owned.
The National Association of REALTORS reported Monday that pending home sales dropped by -0.60 percent in October after falling at a revised rate of -4.60 percent in September. According to Lawrence Yun, chief economist for NAR, 17 percent of real estate agents reported delays in loan closings due to the government shutdown in early October.
Lenders were unable to verify borrower income through the IRS, which was closed during the shutdown. October was the fifth consecutive month with fewer pending home sales reported.
Homeowners who owe more on their mortgages than their homes are waiting to sell, and recent spikes in mortgage rates were cited as factors contributing to fewer pending sales.
Pending home sales are defined as homes for which signed purchase offers have been received and are considered an indicator of future home sales. The NAR notes that most pending sales close within 30 to 60 days of an offer being signed.
High Demand And Low Supply Of Homes Thwarts Buyers
Would-be homebuyers may be including their dream homes on their wish lists for the holidays as many areas continue to experience a short supply of homes against high demand. In desirable areas this can lead to bidding wars and homes being sold before they are listed for sale.
Cash buyers are benefitting from these situations, while first-time and moderate income buyers may be sidelined due to affordability issues and the inability to compete with cash buyers.
Mortgage rates fell last week and the previous week. While a recovering housing market has been causing home prices to rise, economists described current readings for pending sales as a “pause” in the housing market recovery and said that a significant decline in home sales could adversely impact overall economic recovery.
Regional Pending Sales Mixed
Pending sales for the Northeast and Midwestern regions increased slightly and declined in the South and West. This suggested to some economists and analysts that the formerly hot housing market is cooling off along with the weather. Some decline in home sales is expected during fall and winter months.
Sales Of Existing Homes Better Than Expected
October sales of existing homes surpassed expectations of 5.10 million sales with a reading of 5.12 million existing homes sold. Again, the government shutdown and related concerns of consumers and home builders were cited as reasons for sales falling shy of September’s reading of 5.29 million existing homes sold.