Discussing why home prices are still increasing, mortgage delinquencies and foreclosure inventory, Small Business Optimism, tough times for some home buyers, housing sentiment, homeowners more realistic about home values and more!
Why Are Home Prices Still Increasing?
The reason that home prices are increasing is the simple economic theory of supply and demand. When the demand for anything is greater than the supply, the prices will increase.
This is why we have been seeing home prices increasing at such a dramatic pace. Let’s look at supply and demand as compared to last year for the last quarter:
The chart above shows that demand has increased compared to the previous year but the supply of homes has decreased. If this problem continues, house prices will keep increasing!
If you are thinking about buying, waiting will cost you more money. If you are thinking about selling, the strong demand and limited supply makes now a great time to list your home.
The Weakening of the US Dollar
From St. Louis Fed:
The U.S. dollar weakened against other major currencies last year, and the weakening accelerated at the start of this year.
During 2017, the value of the U.S. dollar fell relative to other main currencies. This weakening of the U.S. dollar has been the subject of recent debate. The debate has highlighted the positives and negatives of a weaker dollar:
On the positive side, a weaker dollar would benefit the competitiveness of American exports and of American products that face foreign competition in the internal market.
On the other hand, a weaker dollar would translate to higher prices for consumers of foreign-produced goods.
We could be entering a very interesting period for the economy with a trade war and the Fed trying to raise their benchmark rate.
Inflation Expectations Unchanged; Labor Market Expectations Retreat Slightly
Highlights from the NY Fed’s March 2018 Survey of Consumer Expectations:
Median inflation expectations at both the one-year and three-year horizons remained unchanged in March at 2.8% and 2.9%, respectively.
Median home price change expectations increased 0.2 percentage points to 3.5% in March, remaining above its 2017 average of 3.2%.
Median one-year ahead earnings growth expectations declined slightly, from 2.7% in February to 2.6% in March. The decline was driven by respondents with annual income below $50,000.
Median expected household income growth decreased 0.1 percentage points to 2.9% in March. The decrease was most pronounced among younger (less than 40 years old) and lower income (annual income below $50,000) respondents.
Households’ perceptions about their financial situations improved slightly in March, with the proportion of respondents feeling they are better off than a year ago increasing 0.2 percentage points to 40.4%.
Interesting that people making less than $50,000 a year are feeling less optimistic. Is this a sign that things have not actually improved for all Americans?
Mortgage Delinquencies Decrease
Nationally, 4.9 percent of mortgages were in some stage of delinquency (30 days or more past due, including those in foreclosure) in January 2018. This represents a 0.2 percentage point decline in the overall delinquency rate, compared with January 2017 when it was 5.1 percent.
As of January 2018, the foreclosure inventory rate – which measures the share of mortgages in some stage of the foreclosure process – was 0.6 percent, down 0.2 percentage points from 0.8 percent in January 2017. Since August 2017, the foreclosure inventory rate has been steady at 0.6 percent, the lowest level since June 2007, when it was also 0.6 percent. The January 2018 foreclosure inventory rate was the lowest for the month of January in 11 years; it was also 0.6 percent in January 2007.
Frank Martell, president and CEO of CoreLogic, said:
Except for the metropolitan areas affected by natural disasters, most of the country has seen delinquency and foreclosure rates move lower over the past year. Declines in the unemployment rate have supported a rise in income, and home-price growth has built home equity. These two economic forces coupled with high-quality underwriting have lowered overall delinquency rates.
Excellent news and hopefully the increases in income will help more people to take advantage of the benefits of owning a home.
Small Business Optimism Strong
The small business optimism index reached its 16th consecutive month in the top five percent of 45 years of survey readings. The Index of Small Business Optimism slipped in March to 104.7, 2.9 points below the February reading of 107.6, the second highest level in its history. The Index has been higher only 20 times of the last 432 surveys.
• Taxes received the fewest votes as the #1 business problem since 1982, falling from 22 percent reporting it as their #1 business problem in November to 13 percent in March.
• Labor quality remained the #1 problem for the third straight month.
• Reports of improved earnings trends were the second best since 1987.
• Reports of compensation increases held at the highest level since 2000.
• Reported job creation posted another solid gain, best since 2006.
• The net percent of owners reporting higher selling prices continued to rise, reaching the highest level since 2008.
Overall, the small business sector has responded very positively to the new management team and its economic policies, leading the economy to what appears to become 12 months of 3 percent GDP growth, much better than the eight years under the previous administration.
Excellent news but the problem of labor quality will only become worse as good employees become harder to recruit. Businesses can only afford to pay so much to recruit or retain quality employees.
This could force more small businesses to shift towards using robots OR face a very bleak future.
First-time Buyers Sidelined by Lack of Supply and Rising Prices
Lack of homes available for sale and the concomitant rise in prices appears to be sidelining many first-time potential homebuyers in 2018. In the first two months of 2018, first-time buyers made up only 29 percent of home buyers compared to 32 percent in the same period one year ago, according to the February 2018 REALTORS® Confidence Index Survey.
There is no doubt that the competition for homes is fierce in many areas. That being said, nothing good comes without a little work and effort…
There may be stress and disappointments during the home buying process because of the tight inventory. The reward of becoming a home owner outweighs the hassles of the journey to get there!
Housing Sentiment Increases
From Fannie Mae:
The Fannie Mae Home Purchase Sentiment Index® (HPSI) rose 2.5 points in March to 88.3, reversing last month’s decrease. The HPSI is up 3.8 points compared with the same time last year.
The net share of Americans who say it is a good time to buy a home increased 10 percentage points to 32%.
The net share of those who say it is a good time to sell rose 3 percentage points to 39%.
The net share of Americans who say home prices will go up fell 3 percentage points to 42% in March.
The net share of those who say mortgage rates will go down over the next 12 months rose 5 percentage points.
The net share of Americans who say they are not concerned about losing their job remained at 71% in March.
The net share of those who say their household income is significantly higher than it was 12 months ago remained at 17%.
Good to see the increases but I am somewhat surprised that the percentage that think it is a good time to buy a home isn’t higher. Maybe it is the stories about the low level of homes for sale scaring potential buyers?
Homeowners More Realistic About Home Values
From Quicken Loans:
American homeowners are nearly seeing eye-to-eye with appraisers who are assigning a value to their home. In March, appraisal values were an average of 0.36 percent lower than what homeowners expected, according the Quicken Loans National Home Price Perception Index (HPPI).
Along with improving home value perceptions, appraisals also had positive movement in March. Quicken Loans National Home Value Index (HVI) reported that the average home value rose 1.84 percent since February and jumped 7.64 percent year-over-year.
It is great that home owners are being more realistic about the value of their home. Remember that overpricing your home usually leads to a lower sale price and a home lingering on the market for longer than it should.
Despite their being a shortage of homes for sale in many areas/price ranges, it does NOT mean you can overprice your home!
Economists Stunned That Rising Home Prices Hurt Buyers
From Zero Hedge:
Once again, when the government intervenes – this time in housing – the left hand is starting a fire that the right hand is trying to put out. Rising prices for homes are once again pricing out prime borrowers and nobody can “figure out” why this is happening.
There is nothing funnier (or sadder) than “economists” struggling to understand how housing prices got so high and why people are taking on more debt in order to purchase them. However, that is the great mystery that the Wall Street Journal reported on Tuesday morning, making note of the fact that people are “stretching“ in order to purchase homes. What’s the solution to this problem? How about just easing lending standards again? After all, what could go wrong?
Those that forget the past are doomed to repeat it. In other words, we do NOT need to ease lending standards like before the housing market crashed.
What we really need is more affordable homes for sale and more wage growth for ALL Americans. Easier said than done but that is a better idea than repeating the mistakes of the past.
As far as people “stretching” to buy a home, all I can say is don’t do it! Buy a home that is affordable and don’t let your ego set your home buying budget.
Well that is all I have time for today!