Discussing this week’s reports on mortgage rates, home prices and inflation, more on affordability, consumer expectations increase again, household formation and home building…
Saturday means it is time to check the latest reports on mortgage rates!
Freddie Mac reported:
- 30-year fixed-rate mortgages averaged 4.57% with an average 0.5 point
- This is down from last week when it averaged 4.62%
- Last year at this time, 30-year fixed-rate mortgages averaged 3.90%
- 15-year fixed-rate mortgages averaged 4.04% with an average 0.4 point
- This is down from last week when 15-year fixed-rate mortgages averaged 4.07%
- Last year at this time, 15-year fixed-rate mortgages averaged 3.17%
Sam Khater, Freddie Mac’s chief economist, said:
After a sharp run-up in the early part of 2018, rates have stabilized over the last three months, with only a modest uptick since March. However, existing-home sales have hit a wall, declining in six of the last nine months on a year-over-year basis.
This indicates that persistently low supply levels, and not this year’s climb in mortgage rates, are handcuffing sales – especially at the lower end of the market. Home shoppers can’t buy inventory that doesn’t exist.
Very true words from Khater! I mentioned how low inventory and rising mortgage rates is hurting home sales earlier this week.
But the good news is that Freddie did report a tiny decrease in mortgage rates this week! Moving on…
The Mortgage Bankers Association reported:
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) remained unchanged at 4.83%, with points decreasing to 0.48 from 0.53 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $453,100) increased to 4.79% from 4.74%, with points decreasing to 0.36 from 0.37 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
The average contract interest rate for 15-year fixed-rate mortgages increased to 4.27% from 4.23%, with points increasing to 0.53 from 0.51 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
Not quite as good as the report from Freddie. Still I have to point out that rates are STILL historically low.
Besides, the biggest problem for many buyers is the low number of homes for sale and not the current mortgage rates. I am not saying that rising rates do not matter but that the lack of inventory is hurting home buyers more.
Inflation Adjusted Home Prices Still Below the Bubble
Interesting tidbit from NAR:
The median sales price of all existing homes sold rose to its highest level in May 2018, to $264,800. This peak price exceeds the housing bubble peak of $230,400 in July 2006. The median sales price of existing homes sold has been trending up (on a year-on-year basis) in the past 75 months since March 2012. This also represents a 71 percent nominal increase from its lowest level in January 2012 of $154,600. However, netting out the effect of inflation, the May 2018 inflation-adjusted median home sales price is at $172,928. This is still 11 percent lower than the inflation-adjusted peak price of $193,781 in June 2005. On an inflation-adjusted basis, home prices have increased 58 percent since February 2012.
NAR is talking about the entire country. You may think that homes in your area are getting too high but it really depends on how you look at things.
Like yesterday’s post about 2 conflicting reports on affordability, how we look at things can make things appear very differently. Remember the saying that there are 3 kinds of lies: lies, damned lies and statistics.
Statistically speaking, homes can be adjusted for inflation and appear to be less expensive than they were in the past. Heck, statistically speaking, my waist line is just as trim as it was when I was 20 years old…
Yet Another Report on Decreasing Affordability
A combination of rising mortgage rates and strong home value appreciation led to one of the largest quarter-over-quarter increases in the mortgage burden for homebuyers since the Great Recession.
In the first quarter 2018, the share of income needed for monthly mortgage payments on the median U.S. home increased to 17.1 percent, up 1.2 percentage points from 15.9 percent in the fourth quarter 2017. Still, the share of income needed to afford the typical U.S. home remains well below the historic (1985-2000) average of 21.1 percent.
Mortgage payments haven’t required such a large share of median income since the second quarter 2009, when monthly costs for the typical U.S. home required 17.5 percent of median income. Back then, the trend was different: Mortgages were becoming more affordable as home prices and interest rates fell in tandem during the early years of the recession, well after the share of income needed to afford the typical home peaked at 25.4 percent in 2006 during the height of the bubble.
This is the 2nd recent report about affordability decreasing. Anyone looking to buy a home needs to be aware that how much home they can safely afford is decreasing…
Zillow Senior Economist Aaron Terrazas said:
For the past few years, historically low mortgage rates provided the silver lining for buyers as prices rose higher and higher. If you were able to come up with a down payment, the low rates kept monthly housing costs relatively affordable in most parts of the country.
Now, though, as rates are on the rise and home values are climbing at their fastest pace in 12 years, that affordability edge is getting thinner. In markets that have seen some of the biggest increases in home values, housing costs already take up a larger share of income than they did historically, making it all the more difficult for buyers.
Something to think about if you are dragging your feet about buying a home! It is only going to get worse if mortgage rates and prices continue to increase!
Consumers’ Economic Expectations Increase Again
Americans’ expectations for the economy advanced for a second month in June to match the highest level since 2002, the Bloomberg Consumer Comfort Index showed Thursday.
Americans remain optimistic about the state of the economy as job opportunities remain plentiful and lower taxes cushion consumers’ wallets. Some 38 percent of respondents said the economy is getting better. The share has held at or above 36 percent for the last five months, the longest such stretch in monthly data back to 1986.
Some might say that only 38% saying the economy is getting better does not sound that good. It is impressive if you consider how good it is compared to the past and how the consistent it has been for 5 consecutive months.
Household Formation and Home Building
From First American:
Today’s Census Bureau report sends an optimistic message about the housing market. Building permits increased 8.0 percent since this time last year, while housing starts rose 20.3 percent. The year-over-year increase in housing starts tells us that an increase in new housing supply is on the way. The pace of housing completions, at a 1.29 million seasonally adjusted annualized rate (SAAR), is particularly important as it brings new supply that can offset current housing shortages.
Housing demand has significantly outstripped supply since 2007, but that gap seems to be closing. We estimate that nearly a million households were created from April 2017 to April 2018, adding to the demand for housing. Helping meet that demand were the 873,000 new housing units completed – the net number of units completed when accounting for single-family dwellings, apartments, manufactured homes and obsolescence. This leaves a shortage of just over 150,000 units today, representing an almost three-year low in the gap between housing supply and demand.
In case you missed it, in yesterday’s post I shared how the supply of homes for sale has shifted to more new homes than existing homes. Seeing the gap between household formation and the number of homes being built shrink is very good news.
We are not out of the woods but this is very encouraging. Hopefully nothing will screw up the economy like a trade war…