Personal Economics 101

By Stephen Culp , Reuters The mood amongst U.S. homebuilders took an unexpected dour turn this month. The National Association of Home Builders' (NAHB) Housing Market index (USNAHB=ECI) slid five points to land at 45 - the lowest since April - defying analyst expectations that it would hold firm at a neutral 50, which is the dividing line between optimism and pessimism. Coming on the heels of a 7-point drop in August, the residential construction sector is feeling the stress of rising mortgage rates; the average 30-year fixed contract rate has been above the 7% level since early August, and applications for loans to purchase homes are down 27.5% from a year ago, according to the Mortgage Bankers Association. "High mortgage rates are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-term rates move lower," writes Robert Dietz, NAHB's chief economist. Home construction initiall...

 

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On a national scale, housing affordability weakened in May as monthly mortgage payments jumped to 5.31% versus the same time last year at 3.01%. The housing affordability index illustrates a decline, although the real estate market remains robust. Although there’s been some flattening due to higher rates and fears of a recession, these headwinds could bring the supply and demand back in alignment following months of frenzied home-buying post-pandemic and a seller's market riddled with bidding wars.

A normal supply and demand curve indicates that as prices increase, demand will moderate or decline, until the curve reaches a new equilibrium. That is what is happening this year in housing.  Sales of new single-family homes plunged in April, declining 16.6 percent to 591,000 at a seasonally-adjusted annual rate from a 709,000 pace in March and just slightly ahead of the 582,000 pace at the bottom of the lockdown recession.  The April drop follows a 10.5 percent decline in March, a 4.7 percent fall in February, and a 1.0 percent drop in January. The four-month run of decreases leaves sales down 26.9 percent from the year-ago level (see chart). Meanwhile, 30-year fixed rate mortgages were 5.3 percent in late May, up sharply from a low of 2.65 percent in January 2021. The median sales price of a new single-family home was $450,600, up from $435,000 in April (not seasonally adjusted). The gain from a year ago is 19.6 percent versus a 21.0 percent 12-month gain in April. On a 12-...

Is there a housing bubble? U.S. housing affordability fell last month to near the lowest level ever as home prices surge. Mortgage interest rates now exceed 5.2% – up from 3.6% two years ago. And the Fed is raising rates again – as it should – but this too will likely raise mortgage rates. The average mortgage payment is now $1,800 a month. That’s 70% higher than the pre-Covid high. The only other time home payments were this high was in 2007 on the eve of the Great Financial Crisis. As the chart below from Black Knight’s mortgage monitor shows, home prices are up 19.9% over this time a year ago. Yes, that’s very good news for homeowners as their home equity surges, but a killer for home buyers – especially first-time buyers. Loan to income levels are also rising, which makes defaults more likely. Is any of this sounding familiar? All of this has been artificially inflated by years of artificially low rates, Fed policies of purchasing hundreds of billions of dollars of mortgage-backed...

Has the housing market reached its limits? When you imagine a $2 million house, it’s probably big and fancy. Well, here’s what that kind of money gets you in a “middle class” suburb in the San Francisco Bay Area: The house is just what it looks like: An ordinary 3-bedroom home. And it sold for $2.23 million in December 2021. This is the sort of astronomical price that has investors wondering if housing prices will crash like they did in 2007/2008. We are certainly hearing echoes of the housing bubble. In the five years before the housing crash, US homes prices soared 60%, according to the S&P/Case-Schiller Home Price Index. In the past five years, housing prices have soared 51%. The key difference is: This time there is no concrete catalyst to push housing prices lower. The MBA Mortgage Application Index declined 8.1% last week, following the prior week's decrease of 1.2%. The downward move came as a 14.4% drop in the Refinance Index was accompanied by a 1.5% fall for the Purch...

Below are some interesting charts that show how hot the housing market has been. While I'm reading lots of articles about this abating, the market hasn't slowed yet.  Housing starts for August rose 3.9% month-over-month (m/m) to an annual pace of 1,615,000 units, above the Bloomberg consensus forecast of 1,550,000 units, and compared to July's upwardly-revised pace of 1,554,000 units. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, gained 6.0% m/m at an annual rate of 1,728,000, north of expectations calling for 1,600,000 units, and compared to the downwardly-revised 1,630,000 unit pace in July. These numbers may help with the supply shortage, but that affect is several months away. 

Update on Aug 5: The moratorium was extended by the CDC, against a ruling by the U.S. Supreme Court.  Landlord Group Sues CDC Over Eviction Ban Extension  The eviction moratorium expired on Saturday, July 31. There has been plenty of speculation about what will happen now, but I don't think anyone is absolutely sure. It could spark an economic nightmare, but is getting little to no coverage in the mainstream media.  In March of 2020, Congress passed the Coronavirus Aid, Relief and Economic Security Act (the so-called “CARES” Act) which included an eviction moratorium preventing landlords from evicting tenants who were delinquent in paying their rent. The national moratorium has been challenged in several courts and its expiration date has been extended four times. It currently expired last Saturday, July 31, and federal officials (including President Biden) have indicated there are no plans to extend it again, though there are those in Congress who wished to have it exten...

As you may know, the housing market seems to be booming with record-low mortgage rates even post-pandemic. But could this surge be faced with a bust in the near future? That’s what I’m going to be discussing in this video. - Phil Town

The following was written by Kelly Evans, CNBC . We've been talking about the reversal in liquidity that's popped some bubbles in stocks and crypto over the past few months (growth in M2 has dropped from 27% in February to 18% year-on-year as of April), but one place that's still rip-roaring is the housing market. In fact, home prices are accelerating, as the Case-Shiller release showed yesterday. Year-on-year gains rose to 13.3% in March, from 12% in February. Still, that's a composite of 20 big cities. You might expect the broader FHFA national index to show more modest gains, but nope. That index showed prices up nearly 14% in March! I asked the CEO of Realogy about this the other day--are we back to the bad old days of the early '00s housing bubble? No, he said. This one isn't driven by psychology (hey, buy a house, make a ton of money! Home prices never go down!) so much as real, consumer demand. All the millennials are buying houses all at once. Now that ...

I live on the outskirts of Austin, TX, and just received my notice of property value, and coupled with market statistics I get every month, I see my home has increased in value 25.9% in the last year. Astounding, to say the least! The Austin housing market is hot, as a many markets are around the U.S. My neighborhood was built four years ago, and the same model as mine across the street sold for more than 30% of original prices.  Mortgage rates are low, and inventory is tight. It's a sellers market. The supply-and-demand curve is working as predicted. The coronavirus pandemic raised the temperature considerably on the nation’s housing market. The past year has been marked by soaring prices, logic-defying offers over asking price, and steep competition as sellers have been hesitant to put their homes up for sale. But the heart-pumping, bank account–depleting housing market frenzy could die down—at least a little—in the coming months as more sellers list their properties and inventor...