No Housing Recession Over the Horizon
Media reports are increasingly focused on whether a major home sale slowdown, or maybe even a crash, is in the making, in part because many hot housing markets are seeing slackening buyer demand, and nationally 2018 is expected to end with fewer home sales than 2017. But the possibility of a crash is unlikely, says Lawrence Yun, chief economist for the National Association of REALTORS®.
In a piece he contributed to Forbes, Yun says hot markets are seeing a slowdown not because of weak buyer demand, which could be an indicator of a true slowdown, but insufficient supply. When homes come on the market, especially in areas like Seattle and Denver that have strong job growth and little unemployment, they are typically snapped up.
In other positive signs, home price growth remains strong in markets across the country—about 5 percent on a nationwide basis so far this year—and there are no signs of the credit excesses that characterized the housing crisis 10 years ago. “Lending standards today are still stringent, as evidenced by the higher-than-normal credit scores of those who are able to obtain a mortgage,” Yun says. “That is why mortgage default and foreclosure rates are at historic lows.”
In short, Yun says, today’s housing problem stems from insufficient inventory. The supply problem is driving up home prices and worsening affordability and keeping sales from matching demand. That is a serious problem and the answer is to encourage builders to increase supply, Yun says, but it is not a prelude to a crash.
Existing-home sales on track for best year since 2006
by Ryan Smith16 May 2016
Despite supply constraints and home price growth outpacing wages, existing-home sales are on track to come in at their highest pace in a decade this year, according to new data from the National Association of Realtors.
Lawrence Yun, chief economist for the NAR, presented his midyear economic forecast at the 2016 Realtors Legislative Meetings & Trade Expo last week. According to Yun, despite being slightly uneven in the first quarter, existing-home sales came in at a seasonally adjusted rate of 5.29 million, higher than last year’s overall pace of 5.26 million. Despite rising home prices, demand is strong, bolstered by mortgage rates near three-year lows and the 14 million jobs added since 2010, Yun said.
“The housing market continues to expand at a moderate pace in spite of the fact that home prices are rising too fast in some areas because of insufficient supply fueled by the grossly inadequate number of new single-family homes being constructed,” he said. “The good news is that pending sales in recent months have remained stable and should support a modest gain in home sales heading into the summer.”
Yun said he projects existing-home sales to finish 2016 at a pace of around 5.40 million. If he’s correct, that would make 2016 the best year for existing-home sales since 2006.
THE NATIONAL ECONOMIC FORECAST
1. THE U.S. WILL CONTINUE TO EXPAND WITH REAL GDP GROWTH OF 2.3% IN 2016. Although a positive number, the forecasted rate of growth suggests that we will be modestly underperforming in 2016. On a positive note, oil prices are likely to remain well below long-term averages, which puts more money into consumers’ pockets in terms of disposable incomes. However, I believe that consumers are likely to continue to save rather than spend which will constrain growth. That said, there is certainly no recession on the horizon—at least not yet—and a strong dollar will act as a bit of an anchor.
2. EMPLOYMENT WILL CONTINUE TO EXPAND BUT THE RATE OF GROWTH WILL SLOW. LOOK FOR AN INCREASE OF 1.6% IN 2016. We are rapidly approaching full employment (generally considered to be when the unemployment rate drops below 5 percent). As such, growth in employment has to be driven more by population growth rather than a return to employment. 2015 saw an average of around 210,000 jobs created per month and I believe that this is likely to slow to an average monthly gain of 190,000 new jobs.
3. THE U.S. UNEMPLOYMENT RATE WILL CONTINUE TO DROP AND END 2016 AT 4.8%. As mentioned above, we are heading toward full employment and, as such, the national unemployment rate cannot trend much lower. That said, the less acknowledged U-6 rate (which includes those working part-time and those marginally attached to the workforce) will remain elevated at around 8%, signifying that there is still some slack in the economy and room for the rate to drop a little further.
4. INFLATION WILL REMAIN IN CHECK WITH THE CONSUMER PRICE INDEX AT 1.9%. The Federal Reserve has begun the long-awaited tightening of monetary policy and we will likely see the Fed Funds Rate continue to move higher over the next two years. Inflation has yet to respond to the low unemployment rate, but it will. The core rate of inflation should remain in check and the overall rate could stay below long-term averages as a function of stubbornly low energy costs. Should we see a shift in OPEC’s position relative to oil supply, the overall rate of inflation could rise more rapidly. Oil prices, therefore, will remain in focus during 2016.
THE NATIONAL HOUSING MARKET FORECAST
5. MORTGAGE RATES WILL RISE, BUT WE WILL STILL END 2016 WITH THE AVERAGE 30-YEAR FIXED RATE BELOW 5%. I am taking the Fed at its word when it says that monetary tightening in 2016 will be gradual and heavily data dependent. Accordingly, I expect only a modest uptick in long-term rates in 2016. Furthermore, as long as the Federal Reserve continues to reinvest the dividends that it is receiving from their bond holdings—which is highly likely—the yield on the key 10-year treasury will remain low and hold mortgage rates in check. This is only likely to change after the general election, therefore suggesting that rates will remain very attractive relative to their long-term averages.
6. CREDIT QUALITY—WHICH HAD BEEN REMARKABLY STRINGENT—WILL RELAX A LITTLE. Access to credit, specifically mortgage instruments, has not been easy for many would-be homebuyers but that is set to change. I believe that we will see some improvement, specifically for borrowers with “near-prime” credit. This will be of some assistance to first-time buyers; however, credit quality will still be higher than it needs to be.
7. EXISTING HOME SALES WILL RISE MODESTLY TO AN ANNUAL RATE OF 5.53 MILLION UNITS WITH EXISTING HOME PRICES UP BY 4.7%. I anticipate that we will see some improvement in overall transactional velocities in 2016, but unfortunately, demand will still exceed supply. Prices will continue to rise, but at a more constrained pace than seen over the past few years. This will be a function of modestly rising interest rates as well as slightly improving levels of inventory. I anticipate that we will see more listings come online as more households return to positions of positive equity in their homes.
8. NEW HOME SALES WILL JUMP AND BE ONE OF THE BIGGEST STORIES FOR 2016. LOOK FOR A 23% INCREASE IN SALES AND PRICES RISING BY 3.4%. I believe that builders will start to build to the entry-level buyer, filling a huge void. Additionally, I see the total number of new home starts increase quite dramatically in 2016 as banks start to ease lending and builders start to believe that the downward trend in homeownership has come to an end. This will help to absorb some of the pent-up demand currently in the market.
9. FORECLOSURES WILL CONTINUE TO TREND DOWN TO “PRE-BUBBLE” AVERAGES. Any story regarding foreclosures will be a non-story as the rate will continue to trend down toward historic averages. However, we will see the occasional uptick as banks work their way through their existing inventory of foreclosed homes. Move along. There’s nothing to see here.
10. THE MILLENNIALS WILL START TO ENTER THE MARKET. There are several substantial reasons to expect an increase in Millennial buyers. Firstly, early Millennials are getting older and starting to settle down, and even with modestly higher mortgage rates, rents are likely to continue to trend upward, and this will pull many into homeownership. Secondly, more favorable mortgage insurance premiums, additional supply from downsizing boomers, and growing confidence in the housing market will lead to palpable growth in demand from this important—and substantial—demographic. To conclude, it appears to me that 2016 will be a year of few surprises—at least until the general election! Because it is an election year, I do not expect to see any significant governmental moves that would have major impacts on the U.S. economy or housing markets.
MATTHEW GARDNER is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has over 25 years of professional experience both in the U.S. and U.K.
DAILY REAL ESTATE NEWS | MONDAY, APRIL 18, 2016
Warmer weather across the country is drawing more people to look at open houses and available homes this month, says Jonathan Smoke, realtor.com®’s chief economist.
Read more: The 20 Hottest Housing Markets This Spring
Here are four current housing market factors that will likely translate into greater sales this April:
1. Low mortgage rates: Mortgage rates have moved lower this month and are hovering near the lowest averages in the past three years. Lower mortgage rates help boost home buyers’ purchasing power as well as buyers’ ability to qualify for a mortgage.
2. More urgency: Many buyers were frustrated last year with their inability to buy. This spring, they’re heading to the housing market more determined. Mortgage applications for home purchases are up 20 percent compared to last year.
3. More searching: Realtor.com® reports a record number of people searching and looking at its website for homes. Nevertheless, there are 2 percent fewer homes for sale that they’ll find when compared to last year.
4. Faster sales: The time that listings spend on the market has dropped dramatically. Nationwide, the median days on the market dropped 14 days in the first two weeks of April compared to the first two weeks of March.
Some of the places seeing the fastest sales are in Colorado, including Aurora, Arvada, Littleton, and areas of Denver, where the median age of a listing is less than 7 days. Gladstone, Ore., and areas of Seattle are also seeing the median age of listings at less than 7 days.
Other areas seeing median listing ages of less than two weeks are: Cambridge, Mass.; Pacifica, Berkeley, Los Altos, and Sunnyvale, Calif.; Centreville, Burke, and Henrico, Va.; Berkley, Mich.; Colorado Springs, Colo.; Boise, Idaho; Clifton, N.J.; Salt Lake City and Sandy, Utah; Fort Worth, Texas; Louisville, Ky.; and Buffalo, N.Y.
Source: “Mid-April Forecast: Warm Weather Will Bring Out Home Buyers,” realtor.com® (April 15, 2016)
5 Ways to Raise the Value of Your Listing DAILY REAL ESTATE NEWS | THURSDAY, JANUARY 29, 2015
A seller may be able to boost the value of their home by an additional 12 percent, with just a few smart pre-listing repairs, according to a new survey of 300 residential real estate professionals by the Consumer Reports National Research Center. On a median, single-family home priced at $205,000, that could be a potential gain of $24,600.
Best time to sell: The best single month to sell a home is from April through June, with the best selling month identified as April, according to the Consumer Reports survey of real estate professionals. “You don’t have to spend a ton of money to increase the value of your home," says Dan DiClerico, senior editor for Consumer Reports. “Some simple, inexpensive fixes throughout the house can make it more appealing to potential buyers.
” Here are some of the fixes that the Consumer Reports survey of real estate professionals uncovered as being the most important:
1. Declutter Cost range: $0 (do-it-yourself) to $2,500 (pro) Potential return: 3% to 5% Clear away any clutter and depersonalize the space as much as possible.
2. Makeover the kitchen Cost range: $300 to $5,000 Potential return: 3% to 7% The kitchen was rated as the most important room to have in top shape before selling, according to the survey. Real estate professionals recommend focusing on minor repairs that center on the function of the kitchen first, such as repairing leaky faucets, loose light fixtures, or blemishes on the countertop. Then, they recommend small enhancements, such as painting the walls, updating the cabinet hardware, adding new curtains, or light fixtures.
3. Freshen up the bathroom Cost range: $300 to $1,000 Potential return: 2% to 3% Make simple improvements, such as caulking the tub or re-grouting the floor or adding new bathroom fixtures to brighten up the space. Updating the mirror and lighting also can have a big impact, the real estate professionals surveyed said.
4. Paint Cost range: $100 (do-it-yourself) to $1,000 (pro) Potential return: 1% to 3% Sixteen percent of the real estate professionals surveyed said that interior painting is an important part in bringing about a sale of a home. But the seller likely doesn’t need the entire house repainted, but maybe just a redo of one or two rooms to curb costs. The two prime candidates for being repainted: Kitchens and bathrooms. Paint in whites and off-whites and a neutral palette – such as grays and beiges — help buyers focus on the home’s features more than be distracted by bright colors, agents note.
5. Exterior touch ups Cost range: $150 to $7,500 Potential return: 2% to 5%.
Agents recommend that their clients concentrate on basic maintenance first, such as to mowing the lawn, trimming overgrown shrubs, and applying a fresh layer of mulch to the garden beds. They also recommend making any minor repairs, such as replacing cracked siding boards or repointing brick walls. The real estate professionals also recommended taking careful note of any repairs needed with the roof: 31 percent of agents surveyed said the roof is one of the most important parts of the home to have in good shape.
The latest Cost vs. Value Report, produced by Remodeling Magazine in conjunction with REALTOR® Magazine, uncovered some of the top home remodeling projects that offer some of the largest returns at resale. Many of the biggest payback projects had to do with enhancing the exterior of the home.
The following are the top five projects nationally in terms of cost recouped, according to the Cost vs. Value report:
1. Entry door replacement (101.8%)
2. Manufactured stone veneer (92.2%)
3. Garage door replacement (88.5%)
4. Siding replacement, fiber cement (84.3%)
5. Garage door replacement (82.5%)
Pricing is one thing but the mere fact that paying attention to the above mentioned suggestions will increase the value propostion for buyers and can decrease the marketing time for your property. Please feel free to contact me for assistance I am ready to help. Take care, Bob
~DAILY REAL ESTATE NEWS | WEDNESDAY, JANUARY 14, 2015
Last week, the Federal Housing Administration announced it will cut its annual mortgage insurance premiums, likely resulting in about $900 in savings for borrowers and potentially opening the door to thousands of new buyers. But there are no further FHA fee reductions under consideration, Julian Castro, secretary of the U.S. Department of Housing & Urban Development, told a crowd at the National Press Club on Tuesday.
Read more: FHA Lowers its Harangued Mortgage Costs and Obama Seeks to Jump-Start Housing
The FHA decided to reduce its annual mortgage insurance premium fees from 1.35 percent to 0.85 percent because its Mutual Mortgage Insurance Fund for single-family programs was “back in the black.” In his speech, Castro cited National Association of REALTORS® research that estimated that nearly 400,000 creditworthy borrowers were being priced out of the housing market in 2013 due to the high premiums.
“We expect our premium reduction to help more than 2 million borrowers save an average of $900 annually over the next three years,” Castro told the crowd. “It will also encourage nearly a quarter-million new borrowers to purchase their first home.”
Castro discounted criticism that the reduction in rates will lead to fueling loans to irresponsible borrowers and mark a return of the housing crisis. The lending environment is still too tight and a “sensible balance” is needed between overly relaxed standards and those that are too stringent, Castro said.
“Our nation is smart enough to heed the lessons of the past without forsaking our future. … The answer isn’t to deny responsible Americans home ownership — it’s to do it right,” Castro told the crowd.
Despite the rate reduction, FHA premiums will remain 50 percent higher than precrisis levels.
“This premium change only makes an FHA loan more affordable for qualified families,” Castro said. “All other FHA requirements will remain the same, including verification of a person’s ability to pay. Families still have to qualify for an FHA loan, but when they do, they will find a more affordable path to home ownership waiting for them.”
Source: “Castro: No Further FHA Fee Reductions Under Consideration,” HousingWire (Jan. 13, 2015)