market conditions Archives - Real Estate News and Commentary

December 6, 2022December 6, 2022

What’s driving the housing market?

The November 30^th National Association of Realtors press release indicated that the Pending Home Sale Index receded 4.6 percent in October from the previous month. This is the fifth straight month of declines for the forward looking indicator. The index has declined about 37 percent from the same time last year. What is currently driving the housing market?

Many are blaming mortgage interest rates for the sharp declines. NAR Chief Economist Lawrence Yun stated, “October was a difficult month for home buyers as they faced 20-year-high mortgage rates…The upcoming months should see a return of buyers, as mortgage rates appear to have already peaked and have been coming down since mid-November.”

Declining Existing home sales

As for existing home sale stats, the NAR’s November 18^th press release indicated that existing home sales declined for the ninth straight month. Sales slipped 5.9 percent from the previous month, and dropped 28.4 percent from the same time last year.

Increasing home prices

Despite, the slipping sales, median home prices continue to increase. The median existing home sale price increased 6.6% from the same time last year. Although the hedge funds and main stream media talk about huge home price declines in 2023, the reality is that most experts expect home prices to maintain if not increase. If the housing market were really in trouble, existing home sale prices would have already started to recede, but home sale prices actually increased! This is probably why the FHFA announced in a November 29^th press release that conforming loan limits are increasing in high price areas from $647,200 to $726,200.

Inflation and the economy are on everyone’s mind. Zillow chief economist Skylar Olsen stated in a December 1^st press release that the economy and affordability will drive the housing market in 2023. “Affordability is going to be the biggest factor in housing for 2023, but there’s room for optimism on that front if mortgage rates recede.”

Lack of home sale inventory is currently driving the housing market

The reason for declining home sales and increasing home prices, that no one is really talking about, is the existing home sale inventory. The NAR reported that home sale inventory continues to decline. The current level of inventory is equivalent to 3.3. month’s supply, which is indicative of a sellers’ market.

On the surface, home sale stats may seem disastrous. However, keeping perspective, remember that the current housing market is being compared to the previous year of record setting home prices and sales. Also keep in mind that although home sales have slipped, home prices continue to increase. Mortgage rates seemed to have plateaued. However, unless existing home sale inventory increases significantly, expect subdued existing home sales and higher home sale prices.

By Dan Krell
Copyright © 2022

Protected by Copyscape Web Plagiarism Detector

Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

August 29, 2022August 29, 2022

Reading the housing stats

There has been lots of speculation about the economy and the housing market. Reading the housing stats, there are a few similarities in today’s housing market compared to that of 2006-2007. However, there are also many differences.

Of course, many of you reading the housing stats and bring up that this is as an indication of impending implosion. For example, the National Association of Realtors August 24^th press release report on pending home sales indicated that pending home sales “…dropped slightly by 1.0% from June. It was the second straight monthly decline and the eighth in the last nine months.” There are however, regional differences, “Pending sales fell in three of four major regions, with the West posting a small increase. Compared to the prior year, contract signings declined by double digits in each region, with pending sales in the West down 30%.” Pending home sales is a measure of how many homes went under contract during a specified period of time.

Existing-home sales (resale homes) also declined according to the National Association of Realtors. The NAR August 18th press release reported that existing-home sales “…fell for the sixth consecutive month to a seasonally adjusted annual rate of 4.81 million. Sales were down 5.9% from June and 20.2% from one year ago.”

Although the contracts and sales are evening out, home prices continue to climb. As reported by the NAR, the median home sale price increased 10.8 percent from the same time last year. According to National Association of Realtors Chief Economist, Lawrence Yun, “Home prices are still rising by double-digit percentages year-over-year, but annual price appreciation should moderate to the typical rate of 5% by the end of this year and into 2023. With mortgage rates expected to stabilize near 6% alongside steady job creation, home sales should start to rise by early next year…The ongoing sales decline reflects the impact of the mortgage rate peak of 6% in early June. Home sales may soon stabilize since mortgage rates have fallen to near 5%, thereby giving an additional boost of purchasing power to home buyers.”

And for those of you who are interested in distressed sales, distressed sales (foreclosures and short sales) have been essentially unchanged over the last year. July sales comprised about 1% of distressed sales.

By Dan Krell
Copyright © 2022

August 14, 2022August 14, 2022

The changing housing market is still viable

There are a number of ways to determine a changing housing market. An obvious indicator of a changing housing market is a swelling home sale inventory. According to the National Association of Realtors July 20^th press release, “inventory of unsold existing homes rose to 1.26 million by the end of June, or the equivalent of 3.0 months at the current monthly sales pace.” As a matter of comparison, home sale inventory rose 9.6 percent from the previous month, and 2.4 percent from the same time last year.

Another indicator of a changing housing market is remodeling activity. Believe it or not, there is an index for this. The Leading Indicator of Remodeling Activity (LIRA) is a product of the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. The LIRA projects that investments in home remodeling will “decelerate” from 2022’s 17.4 percent to 10.1 percent by the second quarter of 2023.

In a July 19^th press release, Project Director of the Remodeling Futures Program at the Center, Carlos Martín, stated: “Slowing sales of existing homes, rising mortgage interest rates, and moderating house price appreciation are expected to dampen owners’ investments in home improvements and maintenance over the coming year. Steep slowdowns in homebuilding, retail sales of building materials, and renovation permits all also point to a cooling environment for residential remodeling”

Although a changing market sounds ominous, it’s still a viable market. Abbe Will, Associate Project Director of the Remodeling Futures Program, stated: “While beginning to soften, growth in spending for home improvements and repairs is expected to remain well above the market’s historical average of 5 percent. In the first half of 2023, annual remodeling expenditures are still set to expand to nearly $450 billion.”

Other signs the market is still viable, is that first time home buyers are still a large part of the market, and all-cash transactions continue to be a factor as well. As indicated in NAR’s press release, first-time home buyers accounted for 30 percent of the home sales in June, which is an increase from May, but slightly down from the 31 percent the same time last year. Additionally, buyers paying all cash accounted for 25 percent of home sales, which is an increase from 23 percent the same time last year.

A final note on the health of the housing market, NAR reported that distressed, foreclosure and short sales accounted for less than 1 percent of home sales during June, which is basically unchanged from the previous year.

By Dan Krell
Copyright © 2022

July 1, 2022July 1, 2022

Local housing market changing

Lately, the housing market is definitely making noise and grabbing everyone’s attention, and not in a good way. However, we won’t actually know how it plays out until it’s over. As the idiom says “hindsight is 20/20.” Nevertheless, if you’re currently in the market to sell or buy a home, pay attention to current local housing market conditions as they are critical to your decision making.

Here we go…

The S&P CoreLogic Case-Shiller Home Price Index (spglobal.com) reported in a June 28 press release that average April 2022 home prices increased 20.4 percent from April 2021. Tampa, Miami, and Phoenix led metro areas with 35.8 percent, 33.3 percent and 31.3 percent gains respectively.

We won’t really know if rising interest rates have any effect on home prices for several months. Home pricing and sales data is reported in hindsight (data is reported three to four months behind). The Case-Shiller release points out that mortgage rates just began to increase when these stats were being compiled (April). However, the recent S&P CoreLogic Case-Shiller Home Price Index is already showing home price moderation (even before rising mortgage rates). The Year-to Date S&P CoreLogic Case-Shiller Home Price Index for the US only shows an increase of 7.95 percent, while the 3-month index increased 6.66 percent and 1-month only increased 2.08 percent.

Rising mortgage interest rates is only part of the economic story that is developing. It was likely that home prices were already moderating as a reaction to the year and a half of sharp increases. As I wrote last week, we are in the beginning of the shifting housing cycle. Mixing in other economic factors, such as mortgage rates etc., can either make the housing market more sever or temperate. And as I mentioned, we won’t know for sure until it has happened.

Bottom line

If you’re currently in the market to buy and/or sell a home, focus on the short-term local trends. Speculation of future national home prices and home sales may be interesting, however is meaningless in the here and now. You should hire a seasoned professional to help understand your neighborhood’s trend, as well as being informed about your potential competition and the local housing market inventory.

If you’re buying a home, work with a seasoned real estate agent who can provide valid comps and analysis before you make an offer. Also, consider having a thorough home inspection. In the last year and half, home buyers felt forced to forgo the inspection to make their offer competitive. However, in the changing market, home inspections will return.

If you’re selling a home, be aware that home pricing strategies that were lucrative last year won’t work to your advantage this year. It’s nice to think that your home could sell for a peak price much like other neighborhood homes that sold twelve to twenty-four months ago. However, in a changing market, overpricing your home sale could be counterproductive, driving potential home buyers to competing homes.

By Dan Krell
Copyright © 2022

June 24, 2022June 24, 2022

Housing Market Pause, Slowdown, or Collapse?

Is the housing market in a pause, going into a slowdown, or worse – headed for a collapse? Looking back to an article I wrote an article in the summer of 2018 asking the same question, we were at a similar point then and asking the same questions. Just like today, the summer of 2018 saw decreasing home sales after a sellers’ and sharply rising home sale prices. Instead of being in full swing, the housing market of the summer of 2018 was cooling down.

During that time, it was common place to hear about the impending doom and gloom in a housing collapse from the media. In hindsight, what occurred that summer was a normal reaction to an overheated market where stressed home buyers basically took a break. Even with the short pause, the housing remained an active and viable aspect of the US economy.

Housing, like other facets of the economy, go through cycles of boom and bust. Most are familiar with the extreme boom and bust cycles, such as what occurred during 2005-2007. However, many are unfamiliar with the concept of the mini-cycle. The mini cycle is a period of short-term growth and slowdown, modulating to maintain a relative balance. Instead going through a protracted cycle of expansion, hyper-supply, and recession, the housing market could be correcting itself via mini cycles.

Prior to the lockdowns of 2020, the housing market was in the process of correcting itself from sharp home price increases during a hot 2017-2018 market. At that time, home sale inventory was already at historic lows (which began in 2013). As you can understand, the lockdowns further exacerbated the home sale inventory shortage and pushing the housing market and home buyers into an unprecedented situation. The double-digit multiple offers and six-figure escalations pushed home buyers to the edge, exhausting and discouraging many.

After a year and a half of sensational activity and home price gains, it’s not unthinkable that home sales would correct itself. As reported in the June 21^st National Association of Realtors press release (https://www.nar.realtor/newsroom/existing-home-sales-fell-3-4-in-may-median-sales-price-surpasses-400000-for-the-first-time), May 2022 home sales decreased 3.4 percent from April, and decreased 8.6 percent from May 2021. Home sale inventory continues to increase, and was reported to be about 2.6 months of supply, which gives home buyers more opportunities.

Home prices, on the other hand, continue to increase. As reported in the NAR press release, median home prices are 14.8 percent higher than a year ago! The $407,600 median home sale price is the first time the median sale price exceeded $400,000.

Of course, housing is also affected by outside economic factors, which are concerning to everyone. If you are in the market to buy or sell a home, look at the facts and make decisions that make sense for your situation. Finally, work with a seasoned professional to assist you to understand and navigate your local market.

By Dan Krell
Copyright © 2022