Homebuyers cautious despite strong economy

 Real Estate Market  Comments Off on Homebuyers cautious despite strong economy
May 232019
 

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By G. Steven Bray

Homebuyers remain somewhat cautious about the housing market according the most recent Fannie Mae National Housing Survey. After last month’s blip higher, the share of respondents saying it’s a good time to buy a home resumed the downward trend that started over 5 years ago. Even so, a 14% majority of respondents still thinks it’s a good-time-to-buy.

That decline in buying sentiment largely was responsible for the 1.5 point decline in the overall survey index. It now stands almost 3 and a half points lower than at the same time last year.

The decline was a little surprising given the positive change to two of the other survey components. The net share of respondents who thinks home prices will continue rising fell 2 points, and while a 36% majority still thinks prices will rise, this share is 13 points lower than last year. A large majority, 40%, still thinks mortgage rates will rise in the next year, but that share has fallen 12 points in the last two months.

Among the other survey components, those related to personal finances remain bullish. Consumers overwhelming are unconcerned about job security and by a 22% margin say their income this year is significantly higher than it was 12 months ago.

In addition, a strong majority of respondents, 43%, still thinks it’s a good time to sell a home. That share hasn’t changed much since peaking a year ago.

Here is a link to the full report.

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

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May 132019
 

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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.

Rate update: Stuck in the middle again

 Interest Rates, Real Estate Market  Comments Off on Rate update: Stuck in the middle again
Apr 122019
 

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By G. Steven Bray

After a quick move lower following last month’s Federal Reserve meeting, mortgage rates have moderated a bit. Concerns of a global recession prompted the move lower, and the Fed seemed to add fuel to that concern with the changes to its policy stance, announcing what is in a sense version 5 of quantitative easing, which has helped keep rates low for years.

Rates rebounded a bit when investors realized the US economy certainly isn’t circling the drain. We’ve had two strong jobs reports, and retail sales rebounded after the government shutdown. The data isn’t as strong as it was last year, but it certainly doesn’t seem to indicate an imminent recession.

Overseas is another story. At its meeting this week, the head of the European Central Bank all but predicted a recession in Europe, and European economic data continues to weaken. Britain still hasn’t figured out how it’s going to leave the European Union, which breeds uncertainty, a close friend of low interest rates. And China’s economy also is slowing, and analysts worry that a resolution to the trade dispute may not be enough to stop the slide.

So, that’s the bad news – the news that’s pressuring rates lower. But investors see a US economy that seems to be chugging along. Thus, rates are stuck in the middle – not sure which force is going to be stronger. And they’re liable to stay that way until new headlines tip the scales.

Among the predictable headlines I’m watching right now are the Chinese trade talks and inflation data. I still believe a good trade deal penned in the next couple months will put some upward pressure on rates. However, it has to happen before the Chinese economy slips too far. On the inflation front, recent reports show inflation sliding lower again, which makes the Fed nervous. Receding inflation should put downward pressure on rates.

No need to fear another recession

 Real Estate Market  Comments Off on No need to fear another recession
Mar 252019
 

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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 on Housing index focused on home prices
Mar 192019
 

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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.

Fewer home flips could be temporary blip

 Real Estate Market, Residential Mortgage  Comments Off on Fewer home flips could be temporary blip
Mar 052019
 

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By G. Steven Bray

Recent data from ATTOM Data Solutions, a national property data warehouse, shows that the total number of homes and condos flipped last fall reached a 3.5-year low. The total of almost 46,000 was a 12% decrease from a year earlier.

ATTOM’s senior vice-president Daren Bloomquist suggested this could indicate a cooliing housing market as home flips are quick transactions and provide almost real-time data on the state of the market. Last fall was the third consecutive quarter of year-over-year decreases for flips. Bloomquist said the last time that happened was in 2014 after mortgage rates jumped.

For some context, flips decreased for eleven consecutive quarters preceding the housing crash, so it’s unlikely this trend is indicative of an echo crash. Like 2014, the recent swoon may be a reaction to rising interest rates, and it will be interesting to see whether flipping activity picked up this winter when rates retreated.

The report contained a wealth of interesting data on home flipping. The average gain-on-sale for home flips was $63,000, a slight decrease from a year ago when it was $65,000. This represented a 42.6% return on investment, which was a 6.5 year low and was lower than the 48.1% ROI a year earlier.

Almost half of all flips in the quarter sold for less than $200k, with most of those flips having a gross ROI of 50% or better. However, the highest ROI occurered for flips with a sales price north of $5 million.

The highest rate of home flipping occurred in AZ, TN, and NV, and the highest gross returns were in PA, OH, and KY.

ATTOM’s summary of the report

Big rebound in housing sentiment

 Real Estate Market, Residential Mortgage  Comments Off on Big rebound in housing sentiment
Feb 252019
 

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By G. Steven Bray

Fannie Mae’s housing index rebounded in Jan after Dec’s big drop in sentiment. Most of the gain was the result of consumers’ confidence about their personal finances. Thirty-four percent of respondents reported their income is higher this year while only seven percent said their income has fallen. This is an 11 point improvement from the index a year ago.

The overall index, which measures how consumers feel about the housing market, rose 1.2 points in Jan. However, the index is down almost 5 points from the same time last year, a negative trend that started last summer.

Three other components of the index stood out. The net share of respondents who thinks home prices will rise fell one percent, declining for the fourth consecutive month. This component is down 22 points from the same time last year.

The net share of respondents saying mortgage rates will fall increased three points. However, this component hasn’t changed much in the last year, and the overwhelming majority of consumers still think rates will rise.

Finally, the net share who thinks now is a good time to buy a home rose four points last month to 15%. It was this component that caused the Dec index to sink.

Taken together, the positive improvements in the index may signal that consumers are sensing improving home affordability, and that could portend an active spring homebuying season.

The best day to buy a home

 Real Estate Market, Residential Mortgage  Comments Off on The best day to buy a home
Feb 192019
 

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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.

Is this another housing bubble?

 Real Estate Market  Comments Off on Is this another housing bubble?
Nov 082018
 

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By G. Steven Bray

Rapidly rising home prices preceded the housing crash 10 years ago during which some homes lost more than 50% of their value. Prices bottomed out a couple years later and have been rising steadily ever since. The strength of the recovery has some folks asking if we’re entering another housing bubble. Let’s look at the data.

Home prices nationally have risen 57% since the 2011 trough and are at record highs in some markets. However, the recovery hasn’t been uniform, and some markets still haven’t fully recovered. In addition, in order to assess market frothiness, it’s important to look at not only what homes cost, but also what homebuyers can afford.

Corelogic did that through its Market Conditions Indicator, which considers both home prices and average incomes. When rising home prices outpace incomes for a metropolitan area, the index labels the area overvalued. According to this index, about one-third of US metros currently are overvalued. This includes most Texas metros, including Austin, San Antonio, DFW, and Houston.

So, what does this mean? According to Corelogic, it probably doesn’t indicate a bubble yet. Before the last crash, two-thirds of metros nationally were overvalued. Market forces could be equilibrate metros if home prices stabilize. However, if for the next couple of years we experience additional price growth, we could enter bubble territory again.

Fannie housing index says it’s a good time to buy

 Real Estate Market  Comments Off on Fannie housing index says it’s a good time to buy
Oct 312018
 

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

By G. Steven Bray

Fannie Mae’s housing index fell slightly last month, but it remains on trend, suggesting the housing market continues to strengthen slowly. The good-time-to-buy component of the index rebounded strongly last month, gaining 5 points. Apparently, the strong economy has buoyed homebuyer sentiment enough to overcome rising interest rates. However, the component still is significantly lower than earlier in the year and is down year-over-year.

The good-time-to-sell component remained flat last month; however, it’s still trending higher and is well within reach of its recent all-time high.

Surprisingly, the components that measure personal finances both fell last month. The net share of respondents who said their income is significantly higher than last year fell by 4 points, and the net share who feel confident about job security fell 1 point. However, this last component is strongly positive (+79%), so the decrease probably isn’t meaningful. The right track/wrong track component widened to 21 points in favor of the economy being on the right track, and that could explain the strength of the good-time-to-buy component.

Neither the home price nor mortgage rate component of the index showed any surprises. Respondents still overwhelming expect home prices and mortgage rates to rise in the next year, and the net share expecting a rise increased for both components last month.