Talking about the latest news on home prices, more help for home buyers competing against investors and an interesting study about taxes and home ownership…
The temps may be super low but there is no doubt that there is one thing heating up:
Let’s look at some of the most recent reports on US home prices. First up…
FHFA Home Price Index
Almost like a special present from Santa, back on December 24th, the FHFA gave us some good news about US house prices.
FHFA said that US house price increased in October 2013 0.5% on a seasonally adjusted basis from the previous month. This is the 21st consecutive monthly increase in home prices according to FHFA’s purchase-only, seasonally adjusted index. YOY, US home prices were up 8.2%.
Sadly, US home prices still have a long way to go before they get back to where they where just a few years ago. US home prices are still 8.8% below the April 2007 peak and are roughly about the same as way back in April 2005 according to FHFA’s data.
Check out the chart:
FHFA’s HPI is calculated using home sales price information from mortgages either sold to or guaranteed by Fannie Mae and Freddie Mac.
Case-Shiller Home Price Index
I have touched upon the latest numbers from Case-Shiller last week. But to recap for those that missed it, Case-Shiller said both their 10 and 20-City Home Price Indices for October 2013 were up 13.6% YOY. This is the highest year-over-year gains since February of 2006. Again, Case-Shiller is expecting the pace of home price appreciation to slow in 2014.
Home prices have been increasing at an impressive rate since March 2013, but their month-to-month readings suggest that the rate of increasing home prices is slowing. US home prices are still 20% below the peak of June and July of 2006 according to Case-Shiller’s data. US house prices in the 10 and 20-city indices have gained 23.10% and 23.70% since prices reached their lowest points back in March 2012.
David Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices said:
…the monthly numbers show that we are living on borrowed time and the boom is fading.
Case-Shiller is expecting a 6% increase in the S&P Case-Shiller 20-City Home Price Index (December to December % change) in 2014. I expect home prices in our area will keep increasing just not at the same pace (it really depends on the home/location,etc,etc).
You can keep an eye on market conditions in Upstate South Carolina by reading the Weekly Market Snapshots or the Monthly Market Reports. While both are interesting, they won’t tell you everything you need to know about the value of one specific home.
CoreLogic Home Price Index
Today, CoreLogic released their data for US home prices for November 2013. They said that US home prices increased 11.8% YOY in November 2013. This is the 21st consecutive month of YOY increases in CoreLogic’s home price index (HPI). If we leave out distressed sales (foreclosure & short sales), US home prices increased 10.4% from November 2012.
And just like Case-Shiller, CoreLogic is seeing signs that the increases in home prices are starting to slow down. Nobody, myself included, is saying that home prices are going to stop increasing. Just that the rate that home prices are increasing is going to slow down in 2014.
It appears that home prices are going to increase by single-digit percentages in 2014. We do need to be concerned about what effect the Fed starting to taper Quantitative Easing will have on mortgage rates. It is possible that the Fed’s tapering of QE will lead to higher mortgage rates in 2014. And this could mean slower gains in home prices. The Federal Reserve will begin tapering Quantitative Easing this month.
Step Right Up No Waiting!
I am sure you have either heard or experienced the frustration that comes from home buyers competing against investors. In an effort to give home buyers some help with this, Fannie and Freddie are extending their First Look program to 20 days from the current 15 days.
… First Look period will be extended to twenty days, providing additional time for owner-occupants and public entities to submit an offer on a HomePath property without competition from investors. The change is effective for properties listed on or after January 2, 2014.
First Look is designed to promote owner occupancy and allows both families and public sector entities to submit offers on Fannie Mae-owned properties without competition from investors. Fannie Mae believes that selling move-in ready properties to owner-occupant buyers contributes to neighborhood stabilization and reduces taxpayer losses.
And Freddie said:
…homebuyers looking to buy a primary residence or second home now have 20 days under the HomeSteps First Look Initiative to submit offers on new HomeSteps’ listings free from investor competition. Previously, the First Look period ended after 15 days. The longer 20-day First Look period took effect for new listings on December 17th, 2013. HomeSteps is the real estate sales unit of Freddie Mac and markets a nationwide selection of Freddie Mac-owned homes.
I understand how frustrating it can be for home buyers to compete against investors. But I do NOT think most experienced investors are going to pay as much as most home buyers. Even if the home is move-in ready…
A New Year and 2 New Faces
We have 2 new names to keep on our radar: Yellen and Watt. Yellen is taking over for Bernanke at the Fed and Watt is taking over for DeMarco at FHFA. We will have to wait and see what changes these 2 put into place and how it is going to affect housing and the economy. Watt already delayed changes to the guaranty fees for GSE mortgages that would have made loans more costly to consumers.
We already have signs they both will be very different than their predecessors. Only time will tell and I strongly urge you to ignore any political BS regarding either one until we see what they are REALLY going to do. Then we can start giving them hell or accolades, whichever one is appropriate.
Interesting Proposal for Tax Reform
Just read an interesting study entitled New Perspectives on Homeownership Tax Incentives from the Urban Institute and the Brooking Institute. They are suggesting three tax reforms designed to promote home ownership that are fundamentally different from earlier proposals or what exists today.
They say that the current tax benefits for homeowners fail to directly subsidize the costs of owning a home and do little to encourage home ownership. Instead they suggest several changes:
First-Time Home Buyer Tax Credit
Provide home buyers with a refundable credit upon the purchase of a home. Most purchasers would be eligible for a maximum credit equal to $12,000 for single taxpayers and $18,000 for married taxpayers. To prevent subsidies disproportionate to the amount of housing purchased, the initial credit value would be set at 21.4% of the home price; homes purchased for less than $56,000 for single taxpayers and $84,000 for married taxpayers would receive a reduced subsidy.
Property Tax Credit
Give homeowners a refundable 35.8% credit for property taxes paid up to a maximum benefit of $1,400 for single filers and $2,100 for married taxpayers filing jointly; the caps would not be binding for most taxpayers. The credit would not phase out at higher income levels — all homeowners could claim the full tax preference. This approach would refocus tax subsidies away from mortgage interest and property tax deductions toward a credit for property taxes paid, which would lower the cost of home ownership for many taxpayers.
Homeowner Tax Credit
Give all homeowners an annual fixed dollar credit — $870 per year for single taxpayers and $1,300 per year for married taxpayers. The credit would phase out at the same income limits as the deductibility of IRA contributions between $59,000 and $69,000 for single taxpayers and $95,000 and $115,000 for married taxpayers filing jointly in 2013.
They are saying this would lead to increased home prices (about 1% according to their research). They do point out some drawbacks to their plan, such as the cost of tracking the First Time Home Buyer Tax Credit.
While this is NOT what is possible today, it is interesting and food for thought. I would love to hear your opinions about these ideas in the comments!
More Consumer Confidence
Good news from Gallup. They just reported that the Gallup Economic Confidence Index improved in December 2013 from the November 2013 level. Also it is much higher than the level back in October during the federal government shutdown. This is the 2nd month of improving consumer confidence.