Looking at why home sales are down, why some people need to work on improving their credit before buying a home, home buying and finding the right location, serious mortgage delinquencies, several economic reports, and why the lack of risky mortgages is a good thing!
Why Are Home Sales Down?
The July 2018 NAR Existing Home Sales report showed us that US home sales have decreased for 4 consecutive months. If demand is strong, you have to ask yourself why aren’t more homes being sold?
There are several reasons why home sales have decreased such as increasing prices and limited number of homes for sale. This chart helps to show how a lack of new homes being sold is affecting all home sales:
As you can see, new home sales is far below what it was back during 1995 to 2002. We simply have not seen enough new homes being built according to a recent Zillow report:
If construction over the past decade matched historic norms, accounting for population change, the country would have had 2.3 million more single-family home permits.
While this is talking about new homes, lots of home owners are not selling because they cannot find another home. This limits the number of existing homes for sale and the lack of supply is seriously hurting home sales.
We are seeing more homes being built compared to the beak years after the housing market crashed. We may not be where we need to be BUT things are getting better!
The number of building permits issued for single-family homes tells us of how many new homes will be built in the next few months. According to the latest U.S. Census Bureau and U.S. Department of Housing & Urban Development Residential Sales Report, the number of building permits issued in June increased 0.8% from the level in May.
More homes is good news for buyers as Mark Fleming, First American’s chief economist explained:
The continued year-over-year growth in completions means more homes on the market in the short-term, offering some immediate relief in alleviating housing supply shortages.
More homes is good news for buyers BUT it means more competition for anyone selling a home! If you are thinking about selling your home, waiting may mean you will face more competition!
Millennials Need to Improve Credit Before Home Buying
Low credit scores and high delinquency rates are key themes among millennials without a mortgage. Only 39 percent of millennials without a mortgage have a prime or better score and the majority are facing higher delinquency rates.
Michele Raneri, vice president analytics and business development at Experian, said:
This data presents good news for younger, thin file millennials interested in buying a home. We’re seeing that small changes in financial behaviors such as building a history of on time payments and improved credit practices can help lenders shift from viewing millennials as high-risk to low-risk relatively quickly. Knowing where you stand from a credit perspective is critical to improving or maintaining your financial well-being.
Read that last sentence again! Having good credit is a MUST when buying a home!
Improving your credit score can save you thousands of dollars when you buy a home. If your credit is not that good, it would be wise to work on improving your credit and finances BEFORE you bite off more than you can chew.
30% Would Pick a Different Location If They Could
Trulia recently did a survey that found that 36% of those who recently relocated would have moved to a different neighborhood than their current one. 46% of people living in a city would choose a different location compared to only 31% of rural residents.
Freddie’s Serious Delinquency Rate Decreased
From Freddie Mac:
Our single-family seriously delinquent rate decreased from 82 basis points in June 2018 to 78 basis points in July 2018. Our multifamily delinquency rate remained flat at 1 basis point in July 2018.
Great news! Their single-family seriously delinquent rate was 85 basis points in July 2017 so this was also a YoY decrease.
Chemical Activity Barometer Weak
The Chemical Activity Barometer (CAB) was flat in August remaining at 122.14 on a three-month moving average (3MMA) basis. This continued a general softening trend since the first quarter. The barometer is up 3.8 percent year-over-year (Y/Y/), a slower pace than of that earlier in the year and similar to that seen in the second half of 2017. The unadjusted CAB also was flat, and follows a 0.3 percent decline in July. August readings indicate gains in U.S. commercial and industrial activity well into the first quarter 2019, but at a slower pace as growth has turned over.
The Chemical Activity Barometer (CAB) is a leading economic indicator derived from a composite index of chemical industry activity. The chemical industry has been found to consistently lead the U.S. economy’s business cycle given its early position in the supply chain, and this barometer can be used to determine turning points and likely trends in the wider economy.
A general softening is not reason to freak out but it could give us a glimpse of things to come…
Jobless Claims Increase
In the week ending August 25, the advance figure for seasonally adjusted initial claims was 213,000, an increase of 3,000 from the previous week’s unrevised level of 210,000. The 4-week moving average was 212,250, a decrease of 1,500 from the previous week’s unrevised average of 213,750. This is the lowest level for this average since December 13, 1969 when it was 210,750.
An increase is not good but the 4-week moving average is the less number to watch. Since it decreased to the lowest level since 1969, it appears the labor market is still pretty healthy.
10 Years Later
The economy is booming. The stock market regularly hits new all-time highs. Unemployment is at record lows. Aside from a small recent downturn, the housing market is as hot as ever.
In many ways, the world has moved on from the cataclysmic 2008 financial crisis, triggered when sloppy mortgage lending popped the massive U.S. housing bubble. But the scars of the crisis are still visible in the American housing market, which has undergone a pendulum swing in the last decade.
In the run-up to the crisis, a housing surplus prompted mortgage lenders to issue loans to anyone who could fog a mirror just to fill the excess inventory. But lending today is stricter. It is so strict, in fact, that some in the real estate industry believe it’s contributing to a housing shortage that has pushed home prices in most markets well above their pre-crisis peaks, turning younger millennials, who came of age during the crisis, into a generation of renters.
People with good credit can still buy a home. I would say that the lack of mortgages that helped to cause the financial crisis does not mean it is harder to get a mortgage.
I would say it is a better time to get a mortgage since the riskiest types of mortgages are hard to find!
Do not let the changes in mortgage lending to prevent repeating mistakes of the past discourage you. To me, it is an improvement…
Is the Economy Slowing in the Carolinas?
From the Richmond Fed:
Firms in the Carolinas saw slowing growth in August, according to the results of the most recent survey from the Federal Reserve Bank of Richmond. Indicators of both general business conditions and sales fell, and firms reported a slowing of employment growth, which they expect to persist in the coming months.
Despite rising wages, Carolinas firms continued to struggle to find workers with the skills they needed, as this indicator fell from −11 in July to a record low of −18 in August. Respondents reported growth in expenditures and expect this trend to continue in the next six months.
While growth of prices paid among Carolinas firms accelerated, growth of prices received slowed, widening the persistent gap between the two. However, firms expect the gap to narrow in coming months.
I would not panic as this may be just a blip. We will need to keep an eye on the next several reports to see if a trend is developing.