Bulls & Blogs

Texas housing market outperforming

Real Estate Market Comments Off

Jan 132020

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

A survey of 110 economists and real estate experts conducted by Pulsenomics and Zillow forecasts that Austin has the best chance of all major metros to see above-average home price growth this year. Dallas and San Antonio also ranked in the top 10. According to the survey, home prices will grow an average 2.8% this year, but markets in the South are expected to outperform others.

Austin received a likely-to-outperform score of 76 (out of 100). The next closest metro was Charlotte with a score of 59. 83% of respondents said Austin will outperform the average with only 7% saying it will under-perform. (I think those 7% live in a cave somewhere.)

Dallas placed 5th on the list with a score of 34, and San Antonio placed 8th with a score of 32. A positive score means more respondents think the metro will outpeform than under-perform.

So, what does this mean if you’re planning to shop for a home this year? It most likely means higher home prices. Austin’s current inventory of homes for sale is less than 2 months. (Experts say 6 months is a balanced market.) Dallas is under 3 months, and San Antonio is less than 6 months. As the homebuying season ramps up, you can expect a lot of competition for the home of your dreams.

Get rid of the 30-year mortgage

Residential Mortgage Comments Off

Sep 252019

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Get rid of the 30-year mortgage? So says Ed Pinto, a resident fellow and the co-director of the Center on Housing Markets and Finance at the American Enterprise Institute (AEI). In a recently posted article, Mr. Pinto argues that a 30-year term greatly increases the risk of foreclosure and has led to higher home prices for entry-level homes.

He cites statistics showing that foreclosure rates were almost zero during the 1950’s (prior to the advent of the 30-year mortgage) and that a 30-year loan is about twice as risky as a 20-year loan. He also notes that in the 50’s the median price of a home was roughly two-times median income. Today, the ratio is over 3.5.

Mr. Pinto’s arguments are thought-provoking, but I’m not sure the proposal, elimination of the 30-year mortgage, is reasonable. A 30-year term results in a lower monthly payment, making it possible for someone to purchase a higher-priced home than if she used a 20-year mortgage.

The issue of risk in my mind comes down to a question of public policy.

If 30-year loan rates reflect the higher associated risk of foreclosure, should that be acceptable?
If as a society we’re not willing to accept any risk of foreclosure, then are we willing to accept a higher interest rate (or government subsidy) to internalize the costs associated with supporting those who lose their homes?

Finally, Mr. Pinto argues that the 30-year mortgage has made entry-level homes less affordable. I’m not buying his correlation. While it makes economic sense that a lower monthly payment would lead to more demand for homes pushing prices up, the market would correct for that by creating supply to meet the demand. Moreover, there are too many other factors that could explain the fact that entry-level home prices have increased more quickly than move-up home prices, such as mortgage programs that target and subsidize first-time homebuyers.

Or maybe home prices are falling

Real Estate Market Comments Off

Aug 122019

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Is the housing market heating up or cooling down? Well, it depends on whom you ask. It also probably depends on where you look.

Last week, we reviewed at a Corelogic report that said home price appreciation is rising again. Today, we’ll look at a Redfin report that says the market is slowing.

According to Redfin, the national housing market has cooled dramatically. The brokerage company says home sellers are four-times less likely to receive multiple offers than a year ago. Only 12% of the offers written by its agents faced competition in Jun.

Redfin says home sales started slipping late last year when mortgage rates rose dramatically. Since then, rates have fallen back, but sales have been slow to recover. The report says properties are staying on the market longer, and more of its seller are having to drop prices than in the last two years.

Redfin reported the most dramatic slowdowns in West Coast markets.

The Case-Shiller price index seems to agree as the national index showed home price appreciation fell again in May. The reading of 3.4% was down a tick from Apr and down about 3 points from a recent peak last year.

While the index shows the pace of appreciation slowing, it’s important to remember that prices still are moving higher. In Case-Shiller’s 20-city composite index, only Seattle home prices were lower than a year ago, and prices there have been rising since Jan. For Dallas, the only TX city in the index, home prices have been rising consistently since the trough of the Great Recession.

Housing index says prices rising again

Real Estate Market, Residential Mortgage Comments Off

Aug 062019

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Home price increases are accelerating again, so says Corelogic, a leading real estate data provider. It reported that its Home Price Index is increasing again on a month-over-month basis. In fact, the index rose 0.9% from May to Jun alone. Corelogic reported the annual increase was 3.6%.

Analyzing the reasons for the increase, Corelogic suggests lower mortgage rates may be the culprit. Rates for fixed-rate mortgages have fallen by nearly one percent since last fall.

Another reason may be homeowners’ reluctance to sell. As home prices rise, homeowners are questioning their ability to afford a replacement home, especially one in the same area. In a survey in higher-priced markets, Corelogic found three times as many people planning to buy as sell. Simple economics says that situation will put pressure on home prices.

While the current home price index remains near its recent low, Corelogic forecasts that it will rise above 5% again in the next few months. Even with continued low interest rates, that is likely to exacerbate the housing affordability problem, especially for moderate income homebuyers.

3 reasons the next recession won’t lead to a housing collapse

Real Estate Market Comments Off

May 132019

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Some pundits have suggested we’re staring at the beginnings of a new recession fueled by the housing market. Not so, says Ralph DeFranco, Global Chief Economist for Arch Capital Services. He says current housing trends bare no resemblance to conditions that existed prior to the Great Recession.

A recession is inevitable at some point in the future, but DeFranco says it should be less severe for the housing market than the 2008 recession due to three factors:

He estimates the current market is underbuilt by 1 million homes;
Homebuyers are more cautious; and
The quality of loans originated since the Great Recession is much higher.

Conditions were exactly opposite before the Great Recession.

DeFranco also noted that big price drops during recessions are the exception rather than the norm. In the five recessions since 1975, home values have declined only once. Moreover, the current housing inventory shortage likely would soften the effects of a recession on the housing market.

No need to fear another recession

Real Estate Market Comments Off

Mar 252019

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

What I call the “recession whisperers” have been active of late, which may be making you nervous about the housing market. Whether you’re a homeowner now or want to be one in the future, the pain associated with falling home prices probably is fresh in your mind given what happened during the Great Recession ten years ago.

According to Ralph Mclaughlin at Corelogic, that worry may be for naught. The housing market generally does pretty well during a recession. Of the last five recessions, three saw home prices continue to rise. Of the other two, prices dipped only 1.9% in 1991, but they fell almost 20% in the Great Recession, and that’s a very recent memory.

However, Mclaughlin cites two other statistics that suggest the housing market is well-positioned to weather any downturn. First, housing inventory is close to a record low. Based on US Census data, the nation has only 15.7 housing units per 1000 households. This compares to almost 35 units per 1000 just before the Great Recession. Thus, even in the event of another recession, it’s unlikely we’d have a glut of unsold homes as we did ten years ago.

Second, demographic factors are favorable for continued home price growth. Currently, 46% of the US population is under age 35, and the Harvard Joint Center for Housing Studies estimates Millennial households will increase by 32 million in the next twenty years. That points to a lot of demand for housing.

Housing index focused on home prices

Real Estate Market, Residential Mortgage Comments Off

Mar 192019

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Fannie Mae’s housing index was down slightly last month, continuing a slow deterioration of the index that began last year. It’s down 1.5 points since last Feb. While consumers still express strong confidence about their personal finances, their confidence in the housing market is slipping.

The overwhelming majority of respondents still expect their personal financial situation to stay the same or improve in the next year, and a 14-point majority thinks the economy is on the right track. Those percentages have changed little over the last year.

What has changed is the share of respondents who think it’s a good time to buy or sell a home. The “good-time-to-sell” component is down 6 points from last year and down 17 points from its peak last Jun. This may be a reflection of consumer’s softening expectations about home price growth. While a net 33% still expect prices to rise in the next 12 months, that’s down 19 points from the peak last year.

The “good-time-buy” component is down 7 points from last Feb, and has been declining steadily since summer of 2013. Interestingly, this also may be due to rising home prices as it’s the most frequently cited concern of potential homebuyers.

The positive takeaway is that as declining expectations for higher home prices sink in, potential homebuyers may begin to view buying a home as an affordable option again. Consumers still expect rents to rise almost twice as fast as home prices over the coming year.

Link to the full report.

The best day to buy a home

Real Estate Market, Residential Mortgage Comments Off

Feb 192019

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Do know which day is the best day to buy a home? Well, according to ATTOM Data Solutions, a national property data warehouse, it’s the day after Christmas. ATTOM studied closings for the last 5 years and determined that buyers who closed on Dec 26th realized the greatest discount from market value.

The purchase price for buyers on that day averaged 1.3% below what ATTOM considered the market value. To determine market value, it used a computer-based valuation model, which can have laughably inaccurate results. However, ATTOM analyzed more than 18 million transactions, so you’d expect the laughable outliers would average out.

But why that day? It might be because in order to close on Dec 26, a buyer would be submitting an offer around Thanksgiving. Those sellers who wanted to sell before the end of the year probably were getting a little more motivated to cut a deal.

Interestingly, ATTOM’s analysis showed only 10 days during the year when buyers had the upper hand getting a below market price. That’s probably a testament to the strength of the recent seller’s market. Seven of those days occurred in Dec with one day in each of Feb, Oct, and Nov.

The main reason homeowners won’t sell their homes

Real Estate Market, Residential Mortgage Comments Off

May 012018

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Survey after survey recently has shown that homeowners think it’s a good time to sell their homes. Recently, we reported an all-time high, 65% of respondents, ascribed to that sentiment in a Fannie Mae survey. A recent ValuedInsured survey said the percentage is 79%. So, if it’s such a good time to sell, why aren’t more homes for sale?

Pundits have speculated about many reasons, but one of the top suggestions has been the interest rate effect. Most homeowners have been able to finance or refinance their homes at very low interest rates. Now that rates are higher, they don’t want to trade in that low mortgage payment for a higher one.

This may be a valid concern for some folks, but in the ValueInsured survey, only 18% of respondents cited it. The overwhelming majority, 79%, said they weren’t selling because of the price they’d end up paying for a new home. In the same survey, 61% of respondents said they’re waiting for home prices to become more “reasonable” before moving.

I can see why homeowners would be nervous given reports of bidding wars and nearly double-digit yearly price increases in some markets. Unfortunately, when everyone feels nervous at the same time, it exacerbates the home inventory shortage, which leads to more price increases and more bidding wars.

This “time the market” argument seems like a serious hurdle to seeing more homes for sale. However, I suspect just a moderation of home price increases could calm nerves a bit. If homeowners could predict the price of their replacement homes, we could see an easing of the shortage.

Are we heading for another housing crash?

Real Estate Market Comments Off

Jun 252015

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The recent run-up in home prices has led some to speculate that another bubble is forming. And bubbles tend to end spectacularly, like the 2008 housing crash. What are the chances of another crash?

The biggest difference between today’s housing market and the pre-crisis market is the level of leverage. Before the crash, mortgage debt amounted to 63% of real estate value. Today, that leverage rate is down to 44%. Thus, the market today should be more insulated from a rapid decline in prices.

Much of the decline in mortgage debt is the result of the elimination of delinquent debt through foreclosures, short sales, and other mechanisms. It also appears to be the result of the elimination of most of the no-money down payment loan programs that ruled in the pre-crisis era.

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