Real estate, housing and the economy for the week of 2-24-2014 plus what we need to watch this week…
Plenty of real estate news to cover today so let’s dive right in!
Home Builder Confidence Falls
We got another signal that the housing market is cooling last week from the National Association of Home Builders/Wells Fargo Home Builders Index (HBI). It dropped by 10 points to a reading of 46 for February. This is the lowest level in 9 months and any readings below 50 indicate that more builders are pessimistic than optimistic.
Look at how builders around the country are feeling:
Northeast: Builder confidence fell from 41 to 33 points. This suggests that weather is a major concern as this area has experienced a series of nasty winter storms.
South: The HBI reading fell from 50 in January to 46 in February and was the smallest decline among the four regions. Fewer index points lost in the South appears to support builder’s concerns about bad weather in other regions.
Midwest: Builder confidence dropped from 59 points to a reading of 50.
West: Builder confidence fell by 14 points to February’s reading of 57. Desirable areas in the West had been leading the nation in home price appreciation. February’s reading may signal an easing of buyer enthusiasm as rapidly rising home prices have reduced affordable options for first-time and moderate income buyers.
Home builders also cited concerns over labor and supplies as reasons for lower confidence readings. Notice that the decline in the West was the largest of the 4 regions. Which somewhat blows a hole in the theory that the weather is to blame for the slowdown in housing.
Housing Starts Lower
In case you missed my post last week, the Census Bureau & HUD reported that Housing Starts for January 2013 fell to the lowest level in 4 months. Although analysts predicted a figure of 945,000 housing starts, only 880,000 housing starts were reported for January.
The Department of Commerce also said the weather was the cause for the drop in housing starts. Which is believable when you are talking about construction.
I kept the tradition of posting the average mortgage rates alive on Friday. The bad news is that even more mortgage rates rose. The good news is that despite the recent increases, mortgage rates are still at historically low levels. My advice to buyers is to get your butt in gear before rates rise any more.
If you are serious about buying a home, you really need to talk to a mortgage professional today. Discuss your options and find a mortgage that best suits your unique needs and budget. Then get that super important Pre-Approval Letter.
Did Waiting Cost You 21%?
If the news that mortgage rates doesn’t motivate home buyers, then maybe the fact that if you bought now instead of 1 year ago, your monthly payment would be 21% HIGHER. At least that is what RealtyTrac is saying:
The estimated monthly house payment for a median-priced three-bedroom home purchased in the fourth quarter of 2013 — including mortgage, insurance, taxes, maintenance, and subtracting the estimated income tax benefit — increased an average of 21 percent from a year ago
21% is a serious difference. And for those that think it is better to rent, Trulia is reporting that buying a home is 44% cheaper than renting.
Sadly, last week we found out that weekly jobless claims had not improved much. The Bureau of Labor Statistics reported that weekly jobless claims came in at 336,000. But that is better than the previous week. And once again we heard the weather as the cause. Since construction jobs ARE impacted by the weather this is possible.
I just hope this was a blip and that job growth is not slowing down after last year’s growth. A healthy housing market MUST have a healthy economy and employment levels. Maybe we can finally get the politicians to realize what 1 in 4 Americans think: Unemployment is the Number 1 Problem
Existing Home Sales Drop
More bad news for real estate came from NAR on Friday. The National Association of REALTORS reported that Existing home sales fell by 5.10% in January 2014 from the December 2013 level. January 2014 homes sales were also 5.1% lower than the level back in January 2013. This is the lowest level in 18 months for Existing Home Sales and sales have fallen in 4 of the last 5 months.
And we of course heard the weather as being the cause of the drop in home sales. However, I must point out that home sales dropped the most in the West ( -7.3%) than any of the other regions. Home sales in the North East fell only 3.13% and this is during some pretty bad wintry weather. The West probably had the best weather of all 4 regions so the weather excuse is once again lame.
I think there are several factors that are to blame for the drop in home sales. Number 1 is the economy. This includes both the high unemployment levels and the lack of growth in median income. There is also a lack of inventory in some price ranges/areas. And then we have rising home prices and mortgage rates. The weather probably does contribute some but I would put it LAST on the list.
The first silver lining is that US average home price rose to $188,900, which was 10.70% higher YOY.
The second silver lining is that the number the number of distressed sales (foreclosures and short sales) continues to fall!
An interesting tidbit in the NAR report is that 33% of sales in January 2014 were all cash. This is higher than the 28% reported back in January 2013. Still it shows that plenty of people see that putting their money into real estate is a good idea at this time.
Sadly, first time home buyers only accounted for 27% of the sales in January. Normally, first time home buyers are about 40% of sales. I fear this shows a disturbing trend for home ownership.
While this is not a strong report, it is also not the end of the world.
Consumer Price Index
Last week the Labor department released the latest Consumer Price Index. The consumer price index of all goods and services increased 1.6% YOY. The core CPI, which excludes volatile energy and food prices, was also up just 1.6%.
I must point out that Shelter category rose 2.6% YOY. The shelter index rose 0.3% from the previous month and the indexes for rent and owners’ equivalent rent both rose 0.2% from the December 2013 level.
Check out the chart showing the Consumer Price Index Less Food & Energy:
Fewer Delinquent Mortgages & Foreclosures
We did get some good news for real estate last week from the MBA. According to their National Delinquency Survey, the percentage of loans in the foreclosure process at the end of the fourth quarter was 2.86% which is the lowest level since 2008. The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to the lowest level since the first quarter of 2008.
Michael Fratantoni, MBA’s Chief Economist and Senior Vice President of Research and Industry Technology said:
We continue to see substantial improvement in both delinquency and foreclosure rates, with most measures now back to pre-crisis levels.
This is some of the best news I have heard lately. Fewer foreclosures and mortgage delinquencies means fewer people losing their homes.
And that is always good news!
Weak and Getting Weaker?
The latest release of the Chicago Federal Reserve National Activity Index (CFNAI) indicated that the national economic activity worsened in January. The CFNAI is a weighted average of 85 indicators of national economic activity collected into four overall categories of “production and income”, “employment, unemployment and income”, “personal consumption and housing” and “sales, orders and inventories”.
The Chicago Fed National Activity Index (CFNAI) decreased to –0.39 in January from –0.03 in December. Two of the four broad categories of indicators that make up the index decreased from December, and two of the four categories made negative contributions to the index in January.
A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth. Negative values indicate below-average growth; and positive values indicate above-average growth.
Stuff to keep an eye on this week include:
- Case Shiller Home Price Indices
- FHFA Home Price Index
- University of Michigan’s Consumer Sentiment
- New Home Sales for January
- Pending Home Sales Index for January
I am sure there is something else that has slipped my mind after being up since 3AM. As always, hit that subscribe button so you never miss another article!