Recapping last week’s big news for real estate and what it means. The key phrase is Do Not Panic…
Going to try to pump out today’s post as quickly as possible because I am worried I screwed up my DNS just now when changing the search over to the new service. It is pretty awesome and I think you will appreciate the improvements. There was lots of real estate news last week but remember the phrase DO NOT PANIC!
Federal Reserve Beige Book
We got the latest Federal Reserve Beige Book report last week and they repeated the same tired excuse of the weather being the cause of the weak economy. The Beige Book report is based on anecdotal information provided by business contacts and industry leaders throughout the 12 regions of the U.S. Federal Reserve System.
Reports from most of the twelve Federal Reserve Districts indicated that economic conditions continued to expand from January to early February. Eight Districts reported improved levels of activity, but in most cases the increases were characterized as modest to moderate.
Residential real estate markets continued to improve in several areas, albeit modestly. Commercial real estate leasing expanded, according to most reports, while reports on construction activity were mixed.
Employment levels improved gradually for most Districts, and shortages of specialized skilled labor continued to be reported. Price pressures remained subdued, with the exception of upward cost pressures for some energy and construction products. Wage pressures remained stable for most Districts.
Reports on residential housing markets were somewhat mixed. Many Districts continued to report improving conditions but noted that growth had slowed. Most of the Districts indicating otherwise attributed the slowing pace of improvement to unusually severe winter weather conditions.
Janet Yellen, chairwoman of the Fed, noted that winter weather was not expected to alter the Fed’s plan to continue reducing its asset purchases under its quantitative easing program. She also said that it may be months before accurate economic readings can be obtained in the aftermath of winter weather conditions.
We are in the Fifth District-Richmond in South Carolina so let’s look at what they said about our region:
Economic activity in the Fifth District increased modestly on balance, despite snow, ice, and unusually cold temperatures that caused many business closings.
Residential real estate strengthened, with Realtors reporting faster absorption in some submarkets. In addition, construction of single family homes has been slowly improving, while multi-family housing remained strong.
While not a spectacular report, it is not bad news. It isn’t as good as the last report but I am sure they will blame this on the weather. It appears that Yellen is going to continue to taper QE for the time being.
Consumer spending increased 0.40% for January. The expected reading was 0.20%and the reading for December was flat.
The Commerce Department reported that increased spending was less an indicator of consumer discretionary spending than an indicator of high utility costs caused by severe winter weather.
Construction spending ticked upward in January with gain of 0.10% as compared to expectations of -0.40% and the prior month’s reading of 0.10 percent.
January’s reading translates to a seasonally adjusted annual figure of $943.1 billion.
As usual I posted my Friday update on mortgage rates. The good news is that many rates fell slightly. The bad news is that rates may start to increase after the positive February Non-Farm Payrolls report.
Mortgage Origination Volume Drops
Bad news from Black Knight (formerly LPS) in their latest Mortgage Monitor Report:
Origination volume is the lowest since 2008
This means that far fewer people are buying homes with a mortgage. Not good at all. Despite the historically low mortgage rates, it appears that some people are either scared or unable to take advantage of this opportunity.
Not all the news from Black Knight was bad. They also reported that both mortgage delinquencies and the number of homes in foreclosure fell. While it appears that fewer people are buying or refinancing, it appears that fewer people are falling behind or losing their homes.
Good News for Employment
We got 2 reports last week showing some improvements in the employment / unemployment numbers.
ADP Payroll Report
The ADP payroll report showed a reading of 139,000 jobs added in February as compared to the prior month’s 127,000 jobs. ADP tracks private sector jobs.
BLS February 2014 Non-Farm Payrolls Report
The BLS released its Non-Farm Payrolls report for February was also better than expectations. 175,000 jobs were added against expectations of 140,000 jobs added and January’s reading of 129,000 jobs added. The national unemployment rate rose to 6.70% against an expected drop to 6.50% from January’s reading of 6.60%. Once again, the wintry weather was blamed.
CoreLogic on Home Prices
I covered the latest news from CoreLogic in an earlier post but to recap:
- US home prices, including distressed sales, increased by 12% in January 2014 compared to December 2013
- US house prices, excluding distressed sales, increased by 9.8% year over year in January 2014 compared to December 2013
Clear Capital on Home Prices
We also heard from Clear Capital last week on US home prices. They reported that home price growth had slowed down to the lowest point since 2010. I would point out that US home prices are STILL increasing, just not as fast as they were.
Dr. Alex Villacorta, vice president of research and analytics at Clear Capital said:
Our early data shows national quarterly price gains are falling at a rapid pace and suggest overall prices could dip into negative territory soon if current conditions continue. In light of expected waning investor demand, higher rates of distressed sale activity signal that the housing market still must withstand distressed sales, which account for nearly one in four transactions. Since the market fallout in 2006, home prices have dramatically declined during sustained periods of rising distressed sale activity. Over the last two years, however, rising distressed sales have been offset by investor demand, which is not guaranteed to be present in 2014.
Though it is not unusual to see rising distressed activity over the winter months, the current housing picture gives reason to be concerned. If we don’t see a correction come spring, the housing market may be in for a long year.
Something to consider but at this point it may be a bit negative. Like I said, home prices are still increasing, It is just the rate that home prices are increasing that has slowed down.
Don’t panic until I say it is time to panic…
DataQuick recently reported that foreclosures have decreased in 31 of the 42 markets they track. While this does not mean that foreclosures have decreased everywhere, it is still good news for the US housing market. Remember to always look locally while still being aware of national trends that will shape consumer behavior or opinion.
DataQuick’s vice president of analytics, Gordon Crawford said:
While indicators such as home price growth have fluctuated somewhat with each report, decreased foreclosure numbers have become a constant occurrence as the market slowly recovers.
They also said that home price growth had leveled off. Despite this being eerily similar to what Clear Capital said, I wouldn’t panic yet!
Asking Prices Down
Starting to see a pattern here as Trulia is reporting that the increase in Asking Prices has slowed down. From Trulia:
Nationally, asking home prices rose 10.4% year-over-year in February 2014, down slightly after peaking in November 2013. But the year-over-year change is an average of the past twelve months and therefore obscures the most recent trends in prices. Looking at quarter-over-quarter changes instead, it’s clear that price gains have been slowing for most of the last year
Again, do NOT panic.
Not only is this NOT talking about sold prices, it is talking about the entire US. Even Trulia pointed out that home prices have been increasing at a faster pace than the historical norm. It may be that we are going to see home prices start to increase at a pace that is more in line with the historical norm.
Fewer Home Owners Under Water
CoreLogic reported last week that 4 million homes regained equity in 2013. This means 4 million home owners no longer owe more for the home than it is worth. Sadly, CoreLogic says that 13.3% of homes with a mortgage are still underwater.
Anand Nallathambi, president and CEO of CoreLogic said:
We still have a long way to go to eliminate the negative equity overhang but significant progress is being made every day across most of the country.
See why I said not to panic. If we can see continued improvements in the economy, then home prices should continue to increase. It may be a while before we see that 13.3% that is still underwater able to breath freely.
Not many big reports coming out this week off the top of my head. But we will need to watch:
- Mortgage Rate Reports by Freddie Mac and the MBA
- Weekly Jobless Claims
- Retail Sales
- University of Michigan Consumer Sentiment Index
I am sure I missed something but now I need to figure out this DNS issue.