The latest news on home prices from CoreLogic & Clear Capital, the Fed tapering Quantitative Easing again. Plus a little about lending standards and cash sales…
Several things to cover today with the biggest being the latest news about home prices from CoreLogic and more about the Fed cutting back on Quantitative Easing. Going to be another long post so let’s dive in!
CoreLogic Home Price Index December 2013
We just got another report on US home prices improving. This time it is CoreLogic giving us the good news:
- December 2013 US Home Prices Up 11% YOY (Including distressed sales)
- December 2013 US Home Prices Decreased 0.1% From November 2013
- This is the 22nd consecutive YOY Increase in US Home Prices
- US Home Prices Still 18% Below the April 2006 Peak
CoreLogic says they expect US home price in January 2014 will decrease 0.8% from the December 2013 level. However, they expect January 2014 US Home Price to increase 10.2% YOY.
Mark Fleming, chief economist for CoreLogic said:
Last year, home prices rose 11 percent, the highest rate of annual increase since 2005. We expect the rising prices to attract more sellers, unlocking this pent-up supply, which will have a moderating effect on prices in 2014.
In other words, they are like many that are suggesting the way that home prices have been increasing will slow down in 2014.
Notice I said slow down and not stop…
In South Carolina, they are reporting home prices are up 7.2% YOY but are still 5% below the peak for SC back in April 2007. This is of course for the entire state. You must always rely upon local expertise to determine what is possible in your local market or for a specific house.
Speaking of Home Prices
Yesterday, Clear Capital released their Home Data Index™ (HDI) Market Report with data through January 2014. Despite some people talking about yet another bubble in home prices, Clear Capital says we have nothing to worry about.
They say that US home prices are right in line (within 2%) with inflation adjusted long-run average levels, indicating prices have normalized post-bubble and future rates of growth will look more like historical rates of growth. The bad news for anyone that bought at the peak is that Clear Capital says home prices won’t return to the peak levels until 2021.
If there was ever a time to remind you that real estate is a long term investment, now would probably be an appropriate time…
Federal Reserve Cuts Quantitative Easing Again
Yesterday, we found out that the Federal Open Market Committee of the Federal Reserve has approved another reduction of Quantitative Easing. Starting in February, they will cut their monthly purchases of mortgage backed securities from $35 billion to $30 billion and monthly purchases of Treasury securities from $40 billion to $35 billion.
This is the 2nd time the Fed has cut back or “tapered” Quantitative Easing. The Fed started tapering QE in January, when they cut their monthly purchases of mortgage-backed securities and Treasury securities from $85 billion per month to $75 billion.
The Federal Reserve must be smoking something because the say they have seen consistent improvement in the economy. They do mention the lower, but still elevated unemployment rate but they are expecting that to improve.
What This Means for Mortgage Rates
Quantitative Easing or QE was started by the Fed in an effort to control rising long-term interest rates, which include mortgage rates. Which should mean that cutting back on Quantitative Easing could mean higher mortgage rates. But the FOMC statement said that the Federal Reserve thinks its purchases of longer-term assets will continue to control long-term interest rates and mortgage rates while supporting mortgage markets.
The FOMC members say they will be keeping an eye on various economic indicators and may change their current QE measures or the Federal Funds Rate if needed.
Indicators Mentioned In The FOMC Statement Include:
- Additional indicators of labor market conditions
- Inflationary pressures and expectations
- Readings on financial developments
So far the FOMC hasn’t said exactly what will translate into changing either the current level of QE asset purchases or the Federal Funds Rate.
If you haven’t noticed, there are many financial markets in an uproar and many are pointing to the Fed tapering QE as the cause. It is quite possible that if the turmoil in the emerging markets continues, it could mean higher rates in the near future. The turmoil in the emerging markets is also making Wall Street nervous as we have seen over the past few days.
Turmoil in financial markets around the world and a nervous Wall Street isn’t usually a good thing for the economy…
Lending Standards and Cash Buyers
Recently the Office of the Comptroller of the Currency released the results of their national annual survey. They said that roughly 86% of banks that originate residential mortgages have either not changed or tightened their lending standards. The survey concluded on June 30, 2013 and covered the previous 18 months. It did NOT reflect changes in standards over in the past seven months.
The OCC said banks were relaxing underwriting for both commercial and other retail products at a faster pace than residential mortgages. 76% of the banks surveyed said their residential lending standards were unchanged. 11% said their standards had eased, while 13% said they had tightened requirements compared to 25 percent in the previous survey and 40 percent in 2011.
Which Helps to Explain
That a recent survey by NAR shows that 32% of REALTORs reported their last sale in December 2013 was a cash sale. Maybe you have noticed I will mention in my weekly Market Snapshots if a sale was for cash. Sadly, this is just the reality of the market that buyers face today. Tight lending standards and cash buyers can make buying a home frustrating for those without the experience to contend with these situations.
Yet another compelling reason why having someone experienced in your corner is a must when buying real estate…