Discussing the latest Case-Shiller home price report, construction spending, why we are not seeing more homes being built and the lack of homes for sale, owning is cheaper than renting, why it’s hard to get a small mortgage and more!
US Home Prices Increase 6.4%
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 May, remaining the same as in the previous month. The 10-City Composite annual increase came in at 6.1%, down from 6.4% in the previous month. The 20-City Composite posted a 6.5% year-over-year gain, down from 6.7% in the previous month.
Check out the chart showing their non-seasonally adjusted national home price index:
David M. Blitzer, at tghe S&P Dow Jones Indices said (emphasis is mine) :
Home prices continue to rack up gains two to three times greater than the inflation rate. The year-over-year increases in the S&P CoreLogic Case-Shiller National Index have topped 5% every month since August 2016. Unlike the boom-bust period surrounding the financial crisis, price gains are consistent across the 20 cities tracked in the release; currently, the range of the largest to smallest price change is 10 percentage points compared to a 20 percentage point range since 2001, and a 25 percentage point range between 2006 and 2009. Not only are prices rising consistently, they are doing so across the country.
Continuing price increases appear to be affecting other housing statistics. Sales of existing single family homes – the market covered by the S&P CoreLogic Case-Shiller Indices – peaked last November and have declined for three months in a row. The number of pending home sales is drifting lower as is the number of existing homes for sale. Sales of new homes are also down and housing starts are flattening. Affordability – a measure based on income, mortgage rates and home prices – has gotten consistently worse over the last 18 months. All these indicators suggest that the combination of rising home prices and rising mortgage rates are beginning to affect the housing market.
Now you can see why several of my recent News posts included discussions about the housing market slowing. As Blitzer points out, home prices are increasing much faster than inflation. And home prices are growing at a much faster pace than incomes.
Both of these are unsustainable. Throw rising mortgage rates and the low inventory of homes for sale into the mix and you can see why we could see a slowdown in home sales.
While affordability is worse than it has been, homes in many areas are still affordable. Mortgage rates have risen BUT they are still low if we look at how high they have been in the past.
Something else to consider is that this report about US home prices and NOT what is happening in every local real estate market. Just the other day I shared how the average sold home prices for the month of May 2018 in Anderson County SC increased 9.14% YoY.
And the median sold home price during May 2018 increased 3.8% YoY according to WUAR MLS data. But both of these are not going to tell you how much a specific home’s value has changed in the past year since they are talking about ALL of the homes sold during one month in Anderson County.
Construction Spending June 2018
From the Census Bureau:
Construction spending during June 2018 was estimated at a seasonally adjusted annual rate of $1,317.2 billion, 1.1 percent (±1.0 percent) below the revised May estimate of $1,332.2 billion. The June figure is 6.1 percent (±1.6 percent) above the June 2017 estimate of $1,241.3 billion. During the first six months of this year, construction spending amounted to $619.9 billion, 5.1 percent (±1.2 percent) above the $589.6 billion for the same period in 2017.
Spending on private construction was at a seasonally adjusted annual rate of $1,019.8 billion, 0.4 percent (±0.8 percent) below the revised May estimate of $1,023.9 billion. Residential construction was at a seasonally adjusted annual rate of $568.3 billion in June, 0.5 percent (±1.3 percent) below the revised May estimate of $570.9 billion.
Great news BUT we still are not seeing enough new homes being built to meet demand/population growth…
Why Aren’t More Homes Being Built?
Home construction in the U.S. has been recovering from the housing bust since the early 2010s, but the recovery has been sluggish and there are still fewer homes being built each year than was the historical norm. Homebuilders and economists explain the sluggish recovery in terms of “Labor, Lots and Lumber,” referring to the shortage of construction labor, the difficulty of obtaining land for development in sought-after areas, and the rising cost of building materials. Although labor, lots and lumber are all important, labor tends to draw the most attention.
Although construction employment rates have recovered to pre-bust levels circa 2005, the size of the construction workforce has diminished since then, both nationally and in most states.
This article is a MUST read because it goes into great depth about the shortage of skilled labor. There are many different reasons for the lower level of homes being built but this article helps to explain one of the biggest reasons.
Most Don’t Expect Inventory of Homes for Sale to Improve
When prospective home buyers (adults planning to buy a home within 12 months) were asked if they thought finding the ‘right’ home would get easier, harder, or stay about the same in the months ahead, only 20% said it’d get easier, slightly ahead of the 15% who thought so a quarter earlier but still lower than in the last quarter of 2017 (27%).
On the other hand, 69% said they expect their house search to get harder or stay about the same. In the three quarters of data available so far, this share hast stayed at or above 65%.
Finding the right home has never been easy. But with the limited inventory in some areas/price ranges, it can get tough for home buyers.
But it is NOT impossible IF buyers are working with an experienced local Realtor. There will be frustrations, headaches and maybe even some heartache since competition is stiff.
Do not let it discourage you! If it makes sense for you to buy a home, you need to be focused and on the ball.
I don’t want to downplay the lack of inventory. Let’s look at what some housing experts have said recently about the lack of homes for sale:
Lawrence Yun, NAR Chief Economist, said:
Inventory coming onto the market during this year’s spring buying season…was not even close to being enough to satisfy demand, that is why home prices keep outpacing incomes and listings are going under contract in less than a month – and much faster – in many parts of the country.
Sam Khater, Freddie Mac Chief Economist, said:
While this spring’s sudden rise in mortgage rates [took] up a good chunk of the conversation, it’s the stubbornly low inventory levels in much of the country that are preventing sales from really taking off like they should… Most markets simply need a lot more new and existing supply to cool price growth and give buyers enough choices.
Alexandra Lee, Trulia’s Housing Data Analyst, said:
This seasonal inventory jump wasn’t enough to offset the historical year-over-year downward trend that has continued over 14 consecutive quarters…Despite the second-quarter gain, inventory was down 5.3% from a year ago. Still, this represents an easing of the double-digit drops we’ve been seeing since the second quarter of 2017.
As you can see, home buyers are facing stiff competition and a lack of inventory. Home sellers should understand that the lack of inventory makes NOW a great time to sell a home.
Despite the lack of inventory…
Buying a Home Still Beats Renting!
You may have missed my earlier post about how buying is cheaper than renting according to Trulia’s latest Rent Vs Buy Report. Check out this map showing the differences across the US:
Trulia is assuming that buyers put down 20%, use a 30-year mortgage and live in the home for 7 years. While most buyers can put down less than 20%, at least Trulia did include all the costs of renting to keep things more realistic.
You can see that in our area, Trulia is saying it is 30% cheaper to own than rent! Which certainly makes buying a home very attractive!
Why Is It Hard to Get a Small Mortgage?
From Urban Institute:
Almost 80 percent of homes valued between $70,000 and $150,000 were bought with a mortgage in 2015, but only a quarter of homes sold for $70,000 or less were financed with a mortgage. One reason for the shortage of small-dollar mortgages is that applicants for these mortgages face higher mortgage denial rates. Our most recent research shows that these higher denial rates have nothing to do with applicants’ creditworthiness.
Overall, we find that small loans are denied at higher rates than larger loans in both the conventional and government channels and that the characteristics of small loans contribute to their overrepresentation in the conventional channel, which generally has higher denial rates.
The high fixed costs of originating and servicing a loan makes smaller loans less attractive to lenders. We need further research on creative solutions to better serve this sector.
There is no doubt that the lack of mortgage options for lower priced homes hurts many potential home buyers. If we want to help more people become home owners, we need to find a way to increase the number of mortgage options for lower priced properties.
Private Sector Employment Increased in July
ADP just reported that Private-sector employment increased by 219,000 from June to July, on a seasonally adjusted basis.
Ahu Yildirmaz, vice president and co-head of the ADP Research Institute said:
The labor market is on a roll with no signs of a slowdown in sight. Nearly every industry posted strong gains and small business hiring picked up.
Mark Zandi, chief economist of Moody’s Analytics, said:
The job market is booming, impacted by the deficit-financed tax cuts and increases in government spending. Tariffs have yet to materially impact jobs, but the multinational companies shed jobs last month, signaling the threat.
Good news and hopefully this will lead to more income growth for the average American.
Well that is all I have time for today! Be sure to hit those share buttons if you enjoyed this article!