Discussing how housing has done so far in 2017 with several experts’ opinions, how limited inventory hurts real estate, mortgage rates, home prices, first time home buyers increase and more…
Housing Gets Off to a Good Start
Freddie Mac just released their latest Housing Outlook:
Despite weak economic growth, housing got off to a good start in 2017. This is in part because interest rates have been a bit of a surprise, drifting down since March. Lower interest rates and strong job growth have bolstered housing demand. The U.S. housing market is now on track to eclipse last year as the best in over a decade.
Since March, mortgage rates have declined about a quarter of a percentage point to about four percent with little change. Expect rates to head only slightly higher by the end of the year.
Existing home sales in March were the highest since 2007 and new home sales beat expectations as well. Total home sales for the first quarter were the highest since 2007. Based on recent data and our revised outlook for mortgage rates, expect a slight increase in home sales in 2017 to just above 6 million home sales.
Recent data indicate first quarter mortgage originations were about $60 billion higher than expected primarily due to resilience in refinances. Expect 2017 mortgage originations to increase over $200 billion.
Sean Becketti, Chief Economist, Freddie Mac said:
Despite weak economic growth, housing got off to a good start in 2017 because low mortgage rates have given the spring homebuying season a pleasant surprise. Mortgage rates started March just above four percent and have mostly drifted lower since then, even falling below 4 percent. With home sales, housing starts and home values up, 2017 is shaping up to be the best year for housing in over a decade.
Certainly a positive report about the US housing market. Let’s look at what experts are saying about the housing market in 2017!
Positive demographic factors should continue to reshape the housing market, as rising employment and incomes appear to be positively influencing millennial homeownership rates.
Even as more homes come on the market for this traditionally popular sales season, they’re flying off fast, with bidding wars par for the course. Home prices have now surpassed their last peak, and at the entry level, where demand is highest, sellers are firmly in the driver’s seat.
I am guessing we will see it get even better… If you are considering moving, it could be a really good time to sell.
Lawrence Yun, NAR Chief Economist
The early returns so far this spring buying season look very promising as a rising number of households dipped their toes into the market and were successfully able to close on a home last month. Although finding available properties to buy continues to be a strenuous task for many buyers, there was enough of a monthly increase in listings…for sales to muster a strong gain. Sales will go up as long as inventory does.
Despite higher mortgage rates, the potential for home sales increased on an annual basis driven by steady income and job growth, along with a surge in building permits. While it may be a little late for this spring, the increase in building permits is a welcome sign that some relief may be in sight for the inventory shortages that are holding back many markets from realizing their full potential this spring.
Very interesting and overall very positive. Too soon to say if 2017 will be the best year in a decade and we are still fighting the tight inventory problem. I see inventory being the biggest problem that could hurt the housing market.
Check out some of the issues with limited inventory of homes:
U.S. house prices rose 1.4 percent in the first quarter of 2017 according to the Federal Housing Finance Agency (FHFA) House Price Index (HPI). House prices rose 6.0 percent from the first quarter of 2016 to the first quarter of 2017. FHFA’s seasonally adjusted monthly index for March was up 0.6 percent from February.
FHFA Deputy Chief Economist Andrew Leventis said:
The steep, multi-year rise in U.S. home prices continued in the first quarter. Mortgage rates during the quarter remained slightly elevated relative to most of last year, but demand for homes remained very strong. With housing inventories still languishing at extremely low levels, the strong demand led to another exceptionally large quarterly price increase.
The labor market strengthened further in March but that growth of real gross domestic product (GDP) slowed in the first quarter, with the slowing likely reflecting transitory factors.
The unemployment rate decreased to 4.5 percent in March, and the labor force participation rate was unchanged.
Real personal consumption expenditures (PCE) rose only modestly in the first quarter, although monthly data indicated some improvement late in the quarter.
Residential investment increased at a brisk pace in the first quarter. Starts for both new single-family homes and multifamily units moved up, and issuance of building permits for new single-family homes–which tends to be a reliable indicator of the underlying trend in residential construction–also rose. Sales of both new and existing homes in the first quarter were above their levels in the previous quarter.
Total U.S. consumer prices, as measured by the PCE price index, increased 1-3/4 percent over the 12 months ending in March. Core PCE price inflation, which excludes changes in food and energy prices, was about 1-1/2 percent over those same 12 months. Over the 12 months ending in March, total consumer prices as measured by the consumer price index (CPI) rose 2-1/2 percent, while core CPI inflation was 2 percent.
Financing conditions in the residential mortgage market were little changed over the intermeeting period. Credit availability continued to be relatively tight for households with low credit scores or harder-to-document incomes but relatively accommodative for other households.
Mortgage rates declined in line with yields on longer-term Treasury securities and mortgage-backed securities, but they remained elevated compared with the very low levels of the third quarter of 2016.
Real GDP growth was projected to bounce back in the second quarter from its weak first-quarter reading.
Information received over the intermeeting period indicated that the labor market had continued to strengthen even as growth in economic activity slowed in the first quarter.
Participants generally indicated that their assessments of the medium-term economic outlook had changed little since the March meeting
Participants judged that it was appropriate to leave the target range for the federal funds rate unchanged at this meeting.
Overall, mostly positive and they still decided to keep their benchmark rate the same. This should keep mortgage rates attractive but I think we will see home prices to continue to rise.
Just a very interesting portion of the latest Urban Institute’s Housing Finance at a Glance report:
The first-time homebuyer share has been creeping up slowly since 2012. In February 2017, the first-time homebuyer share of GSE purchase loans stood at 47.1 percent, up from 38 percent in 2012. The FHA’s first-time homebuyer share has always hovered around 80 percent but is also up from 78 percent in 2012 to 82 percent in February 2017. The combined FHA and GSE first-time homebuyer share is up from 57 to 60 percent over the same period although it is still below the 63 percent peak in 2009 when the temporary first-time homebuyer tax credit was available.
Increases in the first-time homebuyer share are to be expected in the face of an improving economy, falling unemployment, and rising household formation and incomes. According to the Census Bureau, a total of 854,000 new-owner households were formed in Q1 2017, more than double the 365,000 renter households created in the same period. Although this was first time in over a decade that the number of new-owner households surpassed new-renter households, household formation data have been quite volatile in recent years, suggesting that the latest numbers should be taken with caution.
The increase in the first-time homebuyer share has occurred alongside an increase in new home construction and a decrease in the size of the average home. Per the Census Bureau, cumulative single-family housing starts totaled 260,000 in the first four months of 2017, in comparison to 243,000 and 209,000 during the first four months of 2016 and 2015 respectively. But more importantly, the median square footage of newly built homes continued its downward trend and declined to 2,628 in Q1 of 2017 from 2,658 in Q1 2016 and 2,736 in Q1 2015. These data suggest that homebuilders are not only building more homes, but are also more inclined to build smaller, less expensive homes –which are more likely than larger homes to meet the limited budgets of first-time homebuyers.
Interestingly increased first-time homebuying share has persisted even as house prices have risen and affordability has worsened –constraints which can create financial burdens for first-time homebuyers. First-time homebuyers typically are also less creditworthy than repeat buyers and therefore much more likely to be adversely affected by the overly tight credit environment we are witnessing currently. However, with the end of the refinance boom lenders can be expected to marginally open the credit box to maintain volumes and profitability.
First-time homebuyers depend overwhelmingly on low down payment financing through the FHA. However, for a variety of reasons, credit availability through the FHA channel has worsened in recent years, thus keeping many prospective homebuyers from being able to obtain a mortgage. Recent trends in household formation and construction activity are no doubt very positive developments, especially if sustained into the future. But if we are to bring more first-time homebuyers into the market, credit availability will need to do its part as well.
Very good to see the share of first time home buyers increasing. I like the decrease in the size of the average home. I always think buying something financially sensible and easily affordable is always best, no matter what your budget may be.
The decrease in FHA credit availability disturbs me, especially since we are hearing talk about reforming the GSEs. I fear any changes may benefit the banks and Wall Street and hurt consumers. I am really scared we could see taxpayers on the hook for another disaster such as the one that caused the Great Recession.
Mortgage Rates Drop to Lowest of 2017
- 30-year fixed-rate mortgages averaged 3.95% with an average 0.5 point
- This is down from last week when it averaged 4.02%
- Last at this time, 30-year fixed-rate mortgages averaged 3.64%
- 15-year fixed-rate mortgages averaged 3.19% with an average 0.5 point
- This is down from last week when it averaged 3.27%
- Last at this time, 15-year fixed-rate mortgages averaged 2.89%
Sean Becketti, chief economist, Freddie Mac said:
As we predicted, the 30-year mortgage rate fell 7 basis points this week in a delayed reaction to last week’s sharp drop in Treasury yields. The survey rate stands at 3.95 percent today, a new low for the year.
Excellent news for buyers and sellers alike. Buyers can enjoy historically low mortgage rates and sellers can enjoy knowing buyers are not being priced out of the market due to increasing rates.
Homeowners may not be putting their homes on the market because they’re wary of the risk of selling when others don’t – the inability to find another home to purchase at the right price.
Real, purchasing-power adjusted house prices are rising even faster than unadjusted home prices alone, primarily due to declining consumer purchasing power. Strong Millennial demand, a limited supply of homes for sale, and higher mortgage rates have all combined to impact the affordability of homes compared to a year ago.
This drives home why mortgage rates remaining low is so important. If we see mortgage rates increase dramatically, it will have a negative effect on the housing market.
I really wish we would see more homes being built to help with the supply problem and more income growth.
Zillow is offering a $1 million award to the “person or team who can most improve the Zestimate algorithm,” the real estate website said Wednesday. The announcement of the contest comes one week after Zillow was slapped with a class-action lawsuit over its proprietary home-price tool.
The algorithm in question is meant to serve as a starting point in helping people estimate the value of a property, according to Zillow. But the class-action complaint, filed by suburban Chicago home builders, argues that home buyers view a Zestimate as if it were a formal appraisal.
Interesting but is this a legal ploy or a publicity stunt? Zillow has known for years how inaccurate their Zestimates are but they decide to do something after they were hit with a lawsuit?
Business conditions moderated in North Carolina and South Carolina but firms remained upbeat, according to the latest survey by the Federal Reserve Bank of Richmond. The general business conditions index fell from 40 to 27 in May, but remained well above 0, as did the sales index that fell from 44 to 13. Both indexes returned to approximately where they were in March after notable highs in April. In fact, other than the two indexes that were flat from April to May — the employment index and the index for the availability of necessary skills — all other indexes fell but remained positive in May. There were still more firms in the Carolinas who reported an increase in business services expenditures, capital expenditures, and spending on equipment and software than reported a decline.
Looking ahead six months, most indexes for expected conditions remained strong. The only negative index value for expected conditions was for the expected availability of necessary skills.
Very good news! Seeing the majority of indexes for expected conditions remain strong is especially encouraging!
U.S. home prices look poised to rise at a robust pace over the next few years, mainly because of a chronic shortage of houses and steady demand, a Reuters poll showed on Friday.
Still, a slim majority of analysts in the poll taken May 16-25 said the Trump administration should pursue some form of housing market deregulation, although 60 percent were not convinced that Congress would pass such policies.
Not surprising about the prediction for increasing home prices. But the article includes a warning that any deregulation should be done carefully so we do not repeat the mistakes of the past.
Those that forget the past are doomed to repeat it!
The US Department of Agriculture (USDA) has provided a report to Congress proposing their reorganization. The new plan creates an Under Secretary for Trade and Foreign Agriculture Affairs. However, it also eliminates the Under Secretary of Rural Development, a department which includes rural housing programs. Instead, rural development agencies will report directly to the USDA Secretary.
While the USDA report calls this move an “elevation” of the program, NAR is concerned that it will undermine the importance of these programs, which provide valuable access to housing financing in rural communities. USDA is not required to eliminate an Under Secretary to create a new position, so elimination of this area is unnecessary. NAR sent a letter to Congressional members with jurisdiction over USDA, asking them to retain the Rural Development Under Secretary, and keep these critical programs fully functioning.
Despite being a REALTOR, I do not always mindlessly agree with everything NAR says or does. That being said, I do agree with this. USDA financing is extremely important for the real estate market in our area.
If we did see USDA financing go away, it would hurt both buyers and sellers in our area.
Well that is it for today! Be sure to share!