Discussing pending home sales, interesting data on mortgages and credit scores, the effect of rising rates on the housing market plus much more!
Pending Home Sales Decreased in January
After seeing a modest three-month rise in activity, pending home sales cooled considerably in January to their lowest level in over three years, according to the National Association of Realtors®. All major regions experienced monthly and annual declines in contract signings last month.
The Pending Home Sales Index fell 4.7 percent to 104.6 in January from a downwardly revised 109.8 in December 2017. After last month’s retreat, the index is now 3.8 percent below a year ago and at its lowest level since October 2014 (104.1).
This is a national report and while the decrease is bad, I must point out that you must always look locally and not let national reports confuse you.
The economy is doing pretty good so this decrease may be due to the limited supply of affordable or starter homes in many areas. Buyers are out looking but are faced with a limited supply of homes as NAR said the number of available listings was at an all-time low for the month of January.
With mortgage rates rising, we could see a dramatic decrease in the number of homes being sold. More on that later…
The limited supply of homes affects home prices. It is the law of supply and demand that when there is less of something, the prices increase.
With the limited number of homes for sale in many areas, we are seeing bidding wars. If a home is priced correctly, we can expect home buyers to be interested and make offers.
CoreLogic’s latest MarketPulse Report showed that a third of US homes sold for at least list price. As we enter the busy Spring selling season, we should see even more multiple offers or bidding wars.
This does NOT mean you can overprice a home. Today’s buyers almost always have the professional representation of a Realtor and this means they will NOT over pay!
If you are thinking about selling a home, waiting until Spring means you will be facing more competition. It is possible that listing your home NOW could be a good strategy for many home sellers.
Highlights from Ellie Mae’s January 2018 Origination Insight Report:
- Average closing time for all mortgages was 44 days
- Average closing time for refinances was 40 days
- Average closing time for purchase mortgages was 47 days
- The average 30-year rate for all loans was 4.33% in January
- Closing rates for all mortgages decreased to 70.9% in January
- The closing rate on purchases decreased to 75.7% in January
- 69% of all closed mortgages had FICO scores over 700
- 70% of purchase loans had FICO scores over 700
- The average FICO score on all closed mortgages was 721
- The average FHA purchase FICO score was 680
I know that the fact that 69% of all closed mortgages had FICO scores over 700 may discourage some people. Check out the chart showing FICO scores for ALL mortgages:
But check out the average FICO scores of home buyers using FHA financing:
Big difference isn’t it? You need to have good credit to buy a home and the better your credit, the better the rate you can get on your mortgage.
Realtor Confidence Index Survey January 2018
- The median days on market was 42 days
- 33% of properties sold at or over full price
- 29% of home sales were first time home buyers
- 22% of home sales were cash sales
- 51% of buyers using a mortgage a down payment below 20%
- 20% of sellers offered incentives to entice buyers
- 75% of contracts closed on time
- Only 3% of contracts failed to close
- 89% of Realtors surveyed said home prices were the same or higher than one year ago
Interesting stuff but this is a national survey so it does not tell you what is happening on a local level. For that, you should contact your favorite local Realtor!
With that being said, this report shows that home buyer demand is still stronger than supply. Check out this map showing home buyer demand by state:
Demand is strong but supply is very limited as the latest NAR Existing Home Sales report indicates:
Unsold inventory is 9.5% lower than a year ago, marking the 32nd consecutive month with year-over-year declines. This represents a 3.4-month supply at the current sales pace.
Wow! If there is less than a 6 month supply of homes for sale, it means we are in a seller’s market. If homes are priced correctly and marketed properly, they are selling quickly.
If you are thinking about selling your home, the strong demand and limited supply makes now the time to take action. I suggest you contact a local Realtor to discuss what you need to do to get your home sold!
Mortgage Rates: Nowhere To Go But Up?
In Freddie Mac’s latest Economic and Housing Insight, they look at what happens when mortgage rates have increased in the past.
They found that the number of mortgages originated, home sales and home starts all decreased. But home prices did NOT decrease during the time that mortgage rates were increasing.
Check out the chart showing how home prices, sales, originations and starts reacted during recent periods of increasing mortgage rates:
This does not include the time period of 1977 to 1981 when mortgage rates increased from 8% to 18%. Think about how many people are freaking out that rates have increased lately…
I started today’s post talking about how the number of pending home sales has decreased. If we see the same decrease in home sales due to increasing mortgage rates that we have seen in the past, things could get interesting!
Coffee Shops and Home Prices
According to a Harvard Business School paper, the entry of a new coffee shop in a zip code is associated with a 0.5% increase in housing prices.
Do new coffee shops cause home prices to increase or do new coffee shops open up in areas where home prices are increasing?
Either way, looking at the local businesses opening up in the area around a home does give you a pretty good indicator of where home values are headed.
More About Racial Disparities in Mortgage Lending
You may remember I posted about a report that African Americans and Latinos are being denied conventional mortgages at a higher rate than whites. Well, David Stevens, President and CEO of the MBA has posted a reply on his blog:
Make no mistake, discrimination is unacceptable in any way, at any time. Period. End of Story. And yes, members of minority communities are being denied mortgage loans at a greater rate than white borrowers. But it is flat-out incorrect, defamatory and disgraceful to accuse the mortgage lending industry of denying loans to borrowers simply based on the color of their skin.
What this group is doing – not just relying on a study that fails to consider many of the key data-based variables that lenders rely on to make an individual loan decision, but also cherry-picking among loan types – is actually counterproductive to the important discussion we are having regarding access to credit challenges in our nation’s communities.
Again, I really doubt that mortgage lenders are denying anyone UNLESS they have to. After all, they are in the business of making loans, not turning people down.
As I said before, I think that IF credit scores were included in this report, it would show us exactly what is happening and why. Which would either exonerate or incriminate the lenders of these discrimination accusations…
Fifth District Service Sector Firms Reported Strong Growth in February
From Richmond Fed:
Fifth District service sector firms saw strong growth in February, according to the results from the latest survey by the Federal Reserve Bank of Richmond. Most indicators increased, with the revenues index rising notably from 20 in January to 27 in February.
Most employment indicators held fairly steady from last month, although the index for the average work week decreased from 18 to 14, indicating continued, albeit softer growth. Service firms were mostly expecting conditions to continue improving in coming months, but they anticipate a drop in availability of skills.
Despite increases in all categories of expenditures, service sector firms saw a drop in the growth rate of prices paid in February, while growth of prices received continued to accelerate. Looking forward, firms expect to see faster growth in both prices paid and prices received in the coming months.
A good sign for the economy, especially in the Carolinas!
Interest Rate Increases Top Concern Among CRE Execs
Rising interest rates remain the top concern for commercial real estate executives this year, with 80% of respondents in a sentiment survey by law firm Seyfarth Shaw expecting multiple rate increases amid clear expectations that the anticipated increases would begin to weigh on commercial property markets in 2018.
For the second straight year, an overwhelming 98% of executives surveyed by the Chicago-based firm predicted at least one increase this year, with 37% projecting three rate hikes by the Federal Reserve over the next 12 months, up from just 14% a year ago.
They said that about 63% of those surveyed think the commercial market can handle a 0.5 to 1.5% increase in rates. With many predicting the Fed making 3 or 4 rate increases this year, we will have to keep an eye on what they do and how it affect the economy and commercial real estate.
Well that is all I have time for today but check back tomorrow as I will be sharing this week’s reports on mortgage rates plus much more!
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