Discussing the big home price report from Case-Shiller, how the high demand for rentals is hurting the supply of homes for sale, what will happen to home sales if mortgage rates continue to rise, if home buying power is still strong and consumer confidence…
US Home Prices Increase 6.4% YoY
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 6.4% annual gain in April, down from 6.5% in the previous month. The 10-City Composite annual increase came in at 6.2%, down from 6.4% in the previous month. The 20-City Composite posted a 6.6% year-over-year gain, down from 6.7% in the previous month.
The good news is that the rate that home prices are increasing slowed down. This could help give buyers some relief from decreasing affordability levels.
Check out the chart showing the non-seasonally adjusted national index:
Check out what NAR’s Chief economist Lawrence Yun said:
The ongoing housing shortage has been pushing up home prices well above income growth. Prices were generally rising more strongly in the lower price brackets, while the prices of expensive homes are beginning to level off; there are, however, unambiguous signs of home prices softening across the board. The month-to-month price appreciation in April was one of the softest in the past 18 months, with only 0.33 percent gain, which translates into only 4.1 percent annualized growth rate. Rising mortgage rates have also tampered some buying enthusiasm. Given the hit to affordability from the double whammy of rising prices and rising interest rates, it is more critical than ever to bring additional homes to the market to relieve affordability pressures.
You will see that prices are rising faster in the lower price brackets in our area just as Yun mentioned. Which is all due to high demand and low supply!
Please do NOT let this report confuse as it is talking about national prices or prices in groups of large cities. It will not tell you what is happening in your local real estate market!
For those interested in what is happening in our area, you can check out the Anderson County SC Market Reports
Rental Demand Hurting Supply of Homes for Sale
Several consecutive years of rental market strength appear to have contributed to the current housing shortage.
Over roughly the past decade, there has been a dramatic shift away from homeownership in favor of renting. According to the U.S. Census Bureau American Community Survey (ACS), in 2016 there were over 7 million additional renter-occupied housing units (including both single-family and multifamily structures) relative to 2006—an increase of 20 percent. Over the same 10-year period, the number of owner-occupied housing units remained unchanged and the national homeownership rate fell to 63 percent, the lowest annual level recorded by the U.S. Census Bureau since 1965.
One way the strengthening of rental demand has potentially decreased the supply of lower- and middle-tier homes is through an increase in renter occupancy of single-family properties. This trend may have reduced housing inventories because rental homes tend to be bought and sold less frequently than owner-occupied homes since landlords can hold on to properties as households move in and out.
Not exactly ground breaking research as most Realtors know that the increased demand for rental properties has made renting a home instead of selling it attractive. But not everyone is ready for the headaches of owning rentals…
The key to having a profitable and enjoyable experience as a landlord is finding quality tenants. Which is much easier said than done…
It is possible that many current rental property owners could find that selling is a very attractive option today. It could also be that the profit from selling a rental(s) could be used to buy another property to flip.
Will Home Sales Fall Because of Rising Mortgage Rates?
We surveyed 8,537 current homeowners and asked them how rising mortgage rates will impact their future decision to move. We learned that if rates were 1.0% higher than their current mortgage:
- 40% would still move
- 36% may not move
- 24% would definitely not move
With 56% of all transactions reportedly purchased by people who previously owned a home and 24% of those homeowners saying they would definitely not move if they had to get a mortgage with a 1% higher rate, we calculated a sales volume decline of 13.3%.
With the limited inventory issue, this is not good news. Especially since we could see mortgage rates climb as the Federal Reserve keep increasing their benchmark rate.
Home Buying Power Still High
From First American:
House-buying power, how much one can buy based on changes in income and interest rates, has benefited in recent years from a decline in mortgage rates and the more recent slow, but steady, growth of household income. Between the peak of unadjusted house prices in 2007 and this April, the 30-year, fixed-rate mortgage has fallen from 6.29 percent to 4.47 percent. Over the same period, household income has increased 23.7 percent. Lower mortgage rates and higher income levels mean consumers have significantly higher house-buying power today than they did in 2007.
First American Chief Economist Mark Fleming said:
Though unadjusted house prices have risen to record highs, consumer house-buying power stands at near-historic levels, as well, signaling that real house prices aren’t even close to their historical peak.
While I do not want to argue the logic behind this, it is up to each individual to determine if home buying is affordable for them. It is very true that mortgage rates are still at historically low levels and that incomes have increased.
Throw rising home prices and the limited inventory of affordable homes int o the mix and you see that finding an affordable home hard in some areas. Hard but not impossible in the Anderson SC area for now…
The key now, as it always has been, is working with a good local Realtor and a good mortgage professional. Buying a home is not the time to develop a DIY attitude!
Looking at Household Debt
From Lending Tree’s Consumer Debt Outlook June 2018:
In the first quarter of this year, household net worth, as measured by the Federal Reserve Financial Accounts, reached $100 trillion for the first time. Assets — primarily financial instruments and real estate — gained more than $1.07 trillion in the first quarter, handily outpacing the additional debt Americans accumulated.
Nonetheless, liabilities have been steadily increasing in recent years. But unlike a decade ago, mortgages aren’t the culprit. It is non-mortgage-related debt, such as student loans, credit card debt and auto loans, that have been growing. By the end of the second quarter 2018, we’ll have $1 trillion more in household debt than we did in 2008 — and none of it is attributable to housing.
Mortgages weigh less on American households than they have in recent years, even though they comprise the largest amount of debt. As measured by a percentage of disposable income, outstanding mortgages comprise less of a liability.
Most important, mortgage balances as a percentage of disposable personal income has fallen from a high of 98% in 2008 to 68% as of the latest quarter. In other words, homeowners today, on average, have significant equity in their homes. Ten years ago, equity was virtually nonexistent.
It is great news that people are not spending as much on their mortgages BUT the increases for credit card debt is alarming to me. Charge it and owe it is not a good financial strategy!
I can understand student loans and car loans. I cannot imagine living without a car unless you are living in a large city with great public transportation.
If you are wanting to buy a home, lenders will look at how much debt you have. Too much debt and the lenders may not give you a mortgage!
Consumer Confidence Decreased in June
From The Conference Board:
The Conference Board Consumer Confidence Index® decreased in June, following an increase in May. The Index now stands at 126.4 (1985=100), down from 128.8 in May. The Present Situation Index was relatively flat, 161.1 versus 161.2 last month, while the Expectations Index declined from 107.2 last month to 103.2 this month.
Lynn Franco, Director of Economic Indicators at The Conference Board said:
Consumer confidence declined in June after improving in May. Consumers’ assessment of present-day conditions was relatively unchanged, suggesting that the level of economic growth remains strong. While expectations remain high by historical standards, the modest curtailment in optimism suggests that consumers do not foresee the economy gaining much momentum in the months ahead.
Remain calm as this was a small decrease AND expectations are still historically high according to Franco. We need strong consumer confidence if we are going to see people buying homes at a healthy level.
Well that is all I have time for today! Be sure to share on Facebook, Googe or Twitter if you enjoyed this post! And as always, if you have questions about real estate in the Anderson SC area, Contact Me!