Discussing the number of new home purchase mortgage applications, affordability decreases and what it means for buyers and sellers, home prices and much more
New Home Purchase Mortgage Applications Increased 18.4%
The Mortgage Bankers Association just reported that in January 2018, mortgage applications for new home purchases increased 18.4% compared to January 2017. Compared to December 2017, applications increased by 34%.
Lynn Fisher, MBA Vice President of Research and Economics, said:
Mortgage applications for new homes surged in January and were up 18 percent on a year over year basis. This complements other positive news on US job growth suggesting that economic fundamentals are strong. Based on applications, we estimate that new home sales were running at a pace of 700,000 on a seasonally adjusted annual basis – the highest such estimate in our survey which began in 2013.
This is great news and does show the strength of the economy. How will the recent increases in mortgage rates impact new home sales in the coming months?
Affordability Is Down From a Year Ago
At the national level, housing affordability is practically flat from last month and down from a year ago. Mortgage rates increased to 4.22 percent this December, up 1.7 percent compared to 4.15 percent a year ago.
The combination of rising mortgage rates and home prices is combining to decrease affordability. Waiting to buy a home means you will have a higher monthly payment or you will have to buy a cheaper home.
According to CoreLogic, US home prices increased by 6.9% year-over-year from December 2016 to December 2017. This is the fifth month in a row with at least a 6.9% increase!
While this is talking about the entire US, it shows that home price growth is seriously hurting affordability! But what is causing home prices to increase?
Well according to CoreLogic’s Chief Economist, Dr. Frank Nothaft, it is the low number of homes for sale:
The number of homes for sale has remained very low. Job growth lowered the unemployment rate to 4.1 percent by year’s end, the lowest level in 17 years. Rising income and consumer confidence has increased the number of prospective homebuyers. The net result of rising demand and limited for-sale inventory is a continued appreciation in home prices.
Nearly Two-Thirds of Housing Markets at All-Time High
An uptick in existing-home sales in the final three months of 2017 pulled down housing inventory to an all-time low and kept home-price growth at its recent robust pace.
Single-family home prices last quarter increased in 92% of measured markets, with 162 out of 177 metropolitan statistical areas (MSAs) showing sales price gains in the fourth quarter compared to a year ago. Twenty-six metro areas (15 percent) experienced double-digit increases (11 percent in the third quarter), and 18 metros eclipsed their previous peak sales price. Overall, home prices are now at their all-time high in 114 markets (64 percent).
While this is a national report, it does drive home something that ALL home buyers must be aware of: Prices are increasing and the number of homes for sale is tight!
Home Values Increased 7.03% Year Over Year
From Quicken Loans:
The gap between an appraisal value and homeowner expectations widened in January – reversing course for the first time in eight months. The National Quicken Loans Home Price Perception Index (HPPI) showed appraisers valued homes an average of 0.6 percent lower than what owners estimated.
Home values rose 0.46% nationally in January, with a 7.03% year-over-year increase, according to the Quicken Loans HVI.
You may remember that I just shared how close home owner and appraiser opinions are about the value of a home. It is good to see home owners being realistic about the value of their home.
Being off by just a little can cause a home to not sell or to not appraise!
This is why it is so very important to work with a Realtor that understands the importance of correctly pricing your home!
Rising Interest Rates to Hit Home Buyers Hard
A perfect storm for rising interest rates is on the horizon in the U.S. Unemployment is at a historic low of 4.1%, and with baby boomers retiring and immigration policies tightening, there’s no slack in the economy. U.S. tax cuts and a substantial reduction in quantitative easing (QE) domestically and abroad will push interest rates up. As a result, inflation is expected to grow, even though wages have failed to keep pace with economic expansion. Wage growth in core segments of the economy has only increased at a rate of 2.4% annually since 2006.
The weak wage growth has been a concern for me for a long long time. We really need strong wage growth for ALL Americans if we want a truly healthy economy.
44 Million Empty Bedrooms Await
Home sharing will gradually take a sizeable dent out of housing demand. Just like Uber matches car owners with passengers and Airbnb matches homeowners with short-term renters, new technology companies match homeowners with long-term renters. These sharing economy technologies will keep household formation and new home construction lower than most have projected.
Homeowners in need of additional income, either for retirement or to make the mortgage payment, can now match with renters in need of more affordable rent. Together, they will make life less expensive for each other. 44 million owned homes in the United States have empty bedrooms (and probably more, since we assumed every household member sleeps in a separate room). Retirees own 18 million of these homes.
Interesting indeed. Not everyone will want or need to rent out a spare bedroom but we could see a shift towards more multi-generational households.
Which could actually be a good thing for society. And based on the tragic event in Florida this week, we really need to improve some aspects of society…
The Disturbing Decrease in Black Home Ownership
A snippet from a MUST READ by the Urban Institute:
Since 2001, the black homeownership rate has seen the most dramatic drop of any racial or ethnic group, declining 5 percent compared with a 1 percent decline for white families and increases for Hispanic and “other” families, which primarily include Asian Americans and Pacific Islanders (AAPIs).
This is a serious issue that needs to be addressed. If you and I and everyone else that cares about America and home ownership were to think about this when we vote, positive changes can happen!
Well that is all I have time for today!