Discussing home prices, affordability and income growth, buying versus renting, the home ownership rate increases, consumer confidence and much more!
US Home Prices Increased 6.2% Year Over Year
According to the latest S&P CoreLogic Case-Shiller Index release, US home prices continued their rise across the country over the last 12 months.
They said that US home prices increased 6.2% YoY in November. The 10-City Composite annual increase came in at 6.1% and the 20-City Composite posted a 6.4% year-over-year gain, up from 6.3% the previous month.
David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices said:
Home prices continue to rise three times faster than the rate of inflation. The S&P CoreLogic Case-Shiller National Index year-over-year increases have been 5% or more for 16 months; the 20-City index has climbed at this pace for 28 months.
Given slow population and income growth since the financial crisis, demand is not the primary factor in rising home prices. Construction costs, as measured by National Income and Product Accounts, recovered after the financial crisis, increasing between 2% and 4% annually, but do not explain all of the home price gains.
From 2010 to the latest month of data, the construction of single family homes slowed, with single family home starts averaging 632,000 annually. This is less than the annual rate during the 2007-2009 financial crisis of 698,000, which is far less than the long-term average of slightly more than one million annually from 1959 to 2000 and 1.5 million during the 2001-2006 boom years.
Without more supply, home prices may continue to substantially outpace inflation.
Read that last sentence again before moving on…
US Home Prices Increase 6.44% Year Over Year
It isn’t just Case-Shiller reporting increasing home prices. Black Knight also reported that US home prices in November 2017 increased 6.44% YoY. This is the 67th consecutive month of year over year gains in home prices nationally.
The median home price reported by Black Knight was $283,000, which ties the new high that was set last month. Remember that both of these reports are talking about the entire US. You can find out more about what is happening locally by reading the Market Reports.
The Affordability Crisis That IS
From First American:
That nominal house prices are growing faster than household incomes is often used as the basis for arguing that we are facing an affordability crisis. It is true that unadjusted house prices grew faster than income between November 2016 and November 2017. Our Real House Price Index (RHPI) showed that unadjusted house prices increased by 6.0 percent in November on a year-over-year basis and are 6.3 percent above the housing boom peak in 2007. Over the same 12-month period, household incomes have increased by significantly less, 2.8 percent.
Yet, overlooked in the comparison of income growth and unadjusted house price growth is that a change in household income is not the only factor that influences how much home one can afford to buy. A consumer’s house-buying power, how much one can afford to buy, is also based on changes in mortgage interest rates. Even if one’s income doesn’t change, but interest rates go down, house-buying power increases. Consumer house-buying power, based on changes in income and interest rates, was unchanged between October and November and actually improved by 1 percent, compared with a year ago.
Fleming is right that how much home someone can afford does change because of lots of things besides just their income. However, home prices ARE rising faster than inflation and incomes. Plus mortgage rates have been increasing lately.
That being said, according to the BLS, average hourly wages rose only 2.5% YoY. Compare that to the numbers above reported by Case-Shiller and Black Knight…
Yes there is more to consider than just incomes but we CANNOT ignore slow income growth compared to the rapid increases in home prices. The good news is that as of today, homes are STILL very affordable in most of the country…
Buying Beats Renting in 54% of the US
Buying a median-priced home is more affordable than renting a three-bedroom property in 240 of 447 [or 54% of] U.S. counties analyzed for the report.
Attom also reported that rents increased faster than incomes in 60% of the counties analyzed in the report.
Rising rents, mortgage rates, home prices…
Decisions, decisions, decisions!
Manufactured Homes Are Affordable. So Why Are So Few Being Made?
From the Urban Institute:
Manufactured housing is the least expensive type of housing. So, considering the severe shortage of affordable housing in the US, why is the annual production of new manufactured housing so low?
Manufactured housing is 35 to 47 percent cheaper per square foot than new or existing site-built housing, yet the number of manufactured homes shipped each year has gone from averaging 242,000 per year between 1977 and 1993 to just 92,500 units in 2017.
I know that some will turn their noses up at manufactured homes. This is due to the stereotypes about living in a manufactured home or because of the very issues that the Urban Institute say are to blame for the lack of new ones being built.
You may remember that I just wrote about HUD looking at the rules and regulations regarding manufactured homes. Again, I feel that the problems with refinancing or getting a mortgage when buying a previously owned mobile home MUST be fixed.
The Conference Board Consumer Confidence Index Improved
From the Conference Board:
The Conference Board Consumer Confidence Index® increased in January, following a decline in December. The Index now stands at 125.4 (1985=100), up from 123.1 in December. The Present Situation Index decreased slightly, from 156.5 to 155.3, while the Expectations Index increased from 100.8 last month to 105.5 this month.
Lynn Franco, Director of Economic Indicators at The Conference Board said:
Consumer confidence improved in January after declining in December. Consumers’ assessment of current conditions decreased slightly, but remains at historically strong levels. Expectations improved, though consumers were somewhat ambivalent about their income prospects over the coming months, perhaps the result of some uncertainty regarding the impact of the tax plan. Overall, however, consumers remain quite confident that the solid pace of growth seen in late 2017 will continue into 2018.
Good news, especially after last month’s decrease.
Home Ownership Increases Slightly
The Census Bureau just reported that the home ownership rate was 64.2% in Q4 2017. This is up from the 63.7% reported for Q4 2016 and the 63.9% reported for Q3 2017.
Check out the long range chart:
It is good to see the home ownership rate increase to a level that is closer to the historically normal level. I just hope we are not going to see any government interference that increases the home ownership rate to a level that simply is NOT sustainable…
U.S. Consumer Spending Rises BUT Savings Drop to 10 Year Low
U.S. consumer spending rose solidly in December as demand for goods and services increased, but the gain came at the expense of savings, which dropped to a 10-year low in a troubling sign for future consumption and economic growth.
Rising household wealth due to record gains on the U.S. stock market as well as higher home prices likely made Americans more confident to dip into their savings to fund purchases, economists said. Savings are now at levels last seen in December 2007, when the economy slipped into recession.
Not good to see savings drop. Remember, hope for the best but plan for the worst. And saving for unexpected expenses is always a good idea!
Well that is all I have time for today! If you enjoyed this post please hit the share buttons and consider subscribing so you never miss another post!