Looking at 2 important factors for a healthy housing market, if it is getting harder to get a mortgage, construction jobs, home price growth and more!
2 Important Factors for a Healthy Housing Market
There are 2 important things to keep an eye on when you are buying or selling: inventory and mortgage rates.
Mortgage rates have been drifting higher and are predicted to keep rising. If you missed Saturday’s post, mortgage rates are getting close to 5%.
For buyers, the interest rate affects their monthly payment and how much home they can safely afford. For sellers, rising mortgage rates can mean there will be fewer qualified buyers that can purchase your property!
Check out this chart showing the effect that rising mortgage rates have on your monthly payment:
While this chart is using a $400,000 home as an example, the result of rising mortgage rates is the same no matter how much a home costs. Each quarter of a percent increase in mortgage rates will decreases how much home you can buy by 2.5%!
A balanced real estate market has a 6-month supply of homes for sale. Less than 6 months of supply means it is a seller’s market and more than 6 months of supply shifts things into a buyer’s market.
If the supply of homes is limited, then we will see upward pressure on home prices. NAR recently reported that there is only a 4.3 month supply of homes for sale in the US and in the latest Anderson County Market Report, I shared that we have about 5.4 months of supply.
NAR said that US home prices have increased YoY for 78 consecutive months due to the limited inventory. You will see the same thing in many local markets, including the Anderson area!
But recently, we have started to see a shift in the number of homes for sale according to the NAR. This chart shows the change in inventory compared to the same time period one year ago:
This chart is showing the difference for the whole country so if may not reflect what is happening in your local market. You have to consider many other factors to understand exactly what is happening in your area and this is why the expertise of a local Realtor is a must!
Is It Harder to Get a Mortgage?
From the MBA:
Mortgage credit availability decreased in September according to the Mortgage Credit Availability Index (MCAI), a report from the Mortgage Bankers Association (MBA) which analyzes data from Ellie Mae’s AllRegs® Market Clarity® business information tool.
Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting, said:
Credit availability moved lower in September, as tightening in the government index offset an increase in conventional credit availability. The decline in government credit was driven by fewer streamline offerings as well as a decline in loan programs with lower credit requirements. The government index is at its lowest level since July 2015. The jumbo subindex increased for the fifth time in six months and reached its highest level since we started tracking jumbo credit.
Much of this decline is due to a decrease in the types of mortgages that have more lenient credit requirements. Which is especially bad since rising home prices and mortgage rates are hurting lower income buyers.
Statistics like this track the overall availability of mortgage credit and could mislead some people. The best thing to do is to sit down with the mortgage lender of your choice to discuss your options.
More Construction Jobs
Good news from the ABC:
The U.S. construction industry added 23,000 net new positions in September, according to an Associated Builders and Contractors analysis of data released by the U.S. Bureau of Labor Statistics.
During the last 12 months, the industry has added 315,000 net new jobs, an increase of 4.5 percent. Nonresidential construction employment expanded by 18,600 net jobs on a monthly basis, while the residential sector added just 4,400 net positions.
Though construction unemployment rose to 4.1 percent in September, it remains low by historical standards.
While this is good news, it could be better. With the limited number of homes for sale in some areas of the US, we really need to see construction employment to be HIGHER than historical standards.
A Warning About Home Price Growth
Growth in our U.S. Leading Home Price Index, which nailed the 2006 housing bust in real-time, is now at its worst reading since 2009, when we were about to pull out of the 2007-09 recession
In other words, home price growth is set to fall in a sustained cyclical downturn. This is important because of the wealth effect and consumer confidence. People feel better when the stock market and their home values rise. And it’s been years since there’s been serious downside risk to both, which amounts to a more generalized risk to asset prices.
The ECRI is tracking US home prices and not what is happening in your local real estate market. This may NOT indicate how things are in your local housing market.
My advice is to consult with your favorite local Realtor to determine what is happening in your area! You can find out more about what is happening in our area by reading the Anderson County SC Market Reports
Is the Financial System Better Now?
Check out a few quotes from Amit Seru at the Stanford Graduate School of Business:
The housing market where the crisis started is still a mess. We were worried before that Fannie Mae and Freddie Mac [so-called “government-sponsored enterprises,” or GSEs, that buy and resell mortgages made by private lenders] were too big in the market. But the GSEs’ market share is now 95%, where it was only 75% at the peak of the housing bubble. So instead of lowering their influence, we have increased it. What we do not realize is that the risk is still very much in our system, being funded by taxpayer-funded ‘too big to fail’ entities.
Shadow banks (non-bank lenders that aren’t supervised by the traditional bank regulators) are even more important in the mortgage market now than they were before the crisis. Quicken Loans is now the nation’s biggest mortgage lender. No one knows what their balance sheet looks like, but they are selling all their mortgages to Fannie Mae and Freddie Mac. It is worth remembering that two of the largest and most notorious non-bank lenders, New Century and AmeriQuest, went belly up first and helped trigger the last crisis.
Between this increased opacity and the increase in government support for the housing market, I think we are in a similar state or even worse than a decade ago.
It appears that we are not as safe as we could be according to this must read article. Those that forget the past are doomed to repeat it…
Call for Investigation of Money Laundering in Real Estate
From The Real Deal:
The risk of money laundering in residential real estate is high. That’s according to two U.S. senators who are calling for an investigation to probe the potential vulnerabilities of existing U.S. money-laundering provisions, according to the Wall Street Journal.
Chris Van Hollen of Maryland and Sheldon Whitehouse of Rhode Island, both Democrats, sent a letter to the Government Accountability Office, saying the real estate sector has less far oversight when it comes to money laundering than the lending sector.
Some people want to deny that real estate can be used by criminals to launder money. And some may ignore this since it comes from 2 Democrats…
But the truth is we need to ensure that our industry is not used by criminals to launder their ill gotten gains.
Challenges in Housing Market to Persist?
Quote from LegalShield’s Senior Vice President and Chief Digital Officer Dave Coffey in their latest LegalShield LawIndex:
Without question, consumers are feeling good about the economy and their finances right now. For the last two years, the LegalShield Law Index has pointed toward this robust economy, and we continue to have a bullish outlook for consumers. Low consumer financial stress should translate into solid retail spending, and we suspect that will drive hiring rates and wages higher to keep up with demand.
Although the housing market varies from region to region, overall we’re not seeing a big rebound occurring any time soon. The Federal Reserve is on track to raise rates for the fourth time this year in December, which will put even more upward pressure on mortgage rates and make home buying even less affordable. Normally we’d expect to see home builders respond by ramping up construction, but it just hasn’t materialized.
This does not sound good. LegalShield thinks that existing US home sales will not improve, residential construction has stalled and that home prices will continue to increase.
At this point, I think home prices will continue to increase and home sales will be slightly down due to the lack of inventory in our area. Of course, there will be variations in different price ranges, areas and types of homes.