Discussing the latest Pending Home Sales report from the NAR and if we are seeing a slowdown in the housing market, a prediction on the housing market in South Carolina, home prices across the nation and right here in Anderson County, and the problems with manufactured home mortgages, and how buying still beats renting!
Pending Home Sales Decrease for 6th Consecutive Month
The Pending Home Sales Index rose 0.9% in June from the May. Despite last month’s increase, contract signings are still down 2.5% on an annual basis.
You will read plenty of headlines that pending home sales increased. These same articles may also downplay that pending home sales have decreased YoY for 6 consecutive months.
But news like this must make us ask…
Is Real Estate Headed for a Slowdown?
The U.S. housing market — particularly in cutthroat areas like Seattle, Silicon Valley and Austin, Texas — appears to be headed for the broadest slowdown in years. Buyers are getting squeezed by rising mortgage rates and by prices climbing about twice as fast as incomes, and there’s only so far they can stretch.
“This could be the very beginning of a turning point,” said Robert Shiller, a Nobel Prize-winning economist who is famed for warning of the dot-com and housing bubbles, in an interview. He stressed that he isn’t ready to make that call yet.
Considering that Shiller saw the last 2 big bubbles before they burst and isn’t ready to say we are seeing a slowdown, it should make us feel better. It should but it doesn’t…
Especially after looking a little deeper at the latest GDP numbers according to Business Insider:
Friday’s report on US economic growth spurred a presidential victory lap after it showed that gross domestic product rose at a 4.1% annual rate, the fastest in nearly four years.
But it had an ugly detail about the housing market that added to evidence of a slump: Residential investment, which includes construction and brokers’ fees, shrank in the second quarter for a third quarter out of four.
Add this to the worst housing affordability in nearly a decade and rising mortgage rates, and you have a recipe for a slowdown.
Not good at all. Are we really going to see a slowdown in the housing market?
I think we may see a slowdown in the number of homes sold BUT at this point I do not see home prices falling.
Prediction for the South Carolina Real Estate Market
From Housing Predictor:
Last year, the South Carolina housing market rose by over six percent. Over the next year, it’s expected to continue to rise by almost five percent more.
A little overly optimistic and Housing Predictor is talking about ALL of South Carolina. In Anderson County, it really depends on the price range, location and type of home.
But that is true for every market and not just the Anderson SC area. My advice is to consult with a local experienced Realtor to determine exactly what is happening in your area!
US Home Prices Increase 6.4%
U.S. house prices rose in May, up 0.2% from the previous month, according to the Federal Housing Finance Agency (FHFA) seasonally adjusted monthly House Price Index (HPI). From May 2017 to May 2018, house prices were up 6.4%.
The FHFA monthly HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac.
Check out the chart:
Remember that the FHFA is tracking home prices for the entire US and this does NOT tell you what is happening in every local market. For example, let’s look at the data from the WUAR MLS for MAY 2018 compared to April 2018 and May 2017:
As you can see, home prices are still increasing both YoY and MoM in Anderson County. But this is talking about ALL of the homes sold in Anderson County and will not tell you what you can expect for a specific home.
For more info on what is happening locally, you can check out the Weekly Market Reports!
The Problems with Manufactured Home Mortgages
From Urban Institute:
Manufactured homes could help ease the affordable housing crisis, but borrowers’ financing options can be confusing.
But current production of manufactured housing is low, and restrictive zoning and expensive financing might be to blame. We can increase demand for these homes (and, in turn, supply) by helping more people understand their financing options for MH. For instance, many borrowers might qualify for a low-cost mortgage rather than for a personal property loan.
There is no doubt that you can find what appear to be great prices on manufactured homes. But financing or getting a mortgage can be difficult for many buyers for 4 reasons according to the article by Urban Institute:
- The market is served by a small group of specialized lenders
- The average loan size is small
- Refinancing is rare and is usually done by general lenders
- Cash is king, particularly for used units
Many people think that because mobile home dealers can finance a new manufactured home that means they will be able to refinance later. But the truth is refinancing an existing mortgage on a mobile home can be difficult.
And getting a mortgage when buying a used mobile home also has difficulties. This is why cash is king when it comes to selling UNLESS certain things are done.
This is mainly about the foundation and the age of the home. Plus many lenders shy away simply because the purchase price is too low.
The lender simply will not make enough money or the loan will fall into a high risk category because of the low amount. With the extreme need for affordable homes, maybe it is finally time for more mortgage options for manufactured home buyers!
Is Renting Becoming More Attractive?
To be sure, in most places, buying is still a significantly better financial proposition. But, looking nationwide, the steady upward march of home prices has shrunk the savings from buying in every one of the country’s 100 largest markets.
Nationally, in July, the financial benefit of buying over renting reached its lowest level since Trulia began tracking renting versus buying five years ago, dipping to 26.3% from 35.7% a year ago. Over this same period, rents registered their first annual decline—down 1.1%—while home prices continued their rise—up 8.1%. The divergence of home values and rents drove the 9.4 percentage point drop in savings from buying—the largest annual change in five years.
So buying is STILL better than renting. BUT that does not mean that owning or buying a home is the right decision for every individual.
Home ownership goes far beyond the financial aspect. There is no doubt that owning a home is a great way to build wealth.
The positives include much more than the wealth building aspect BUT owning a home is a very serious financial commitment. I strongly suggest speaking to you financial advisor, tax person and take a long hard look at your finances and goals.
IF buying a home makes sense for you, then I suggest talking several mortgage lenders to explore what is possible for you. Then speak with a local Realtor to discuss what homes will fit your home buying budget.
That is all I have time for today. I must explain the lack of posts last week was due to taking a vacation and going out of town. It certainly was nice taking some time to relax and eat too much!
Rest assured, I will be ramping up the Ugly But Honest Real Estate blog to keep you informed about everything about the economy and the housing market!