With the proliferation of content channels and the public’s appetite for instant news, there is no shortage of headlines, including in regards to housing. This week, we take a look at the latest news that could impact the housing market, and try to make sense of them.
1. Low mortgage rates
The most dominating housing news in recent weeks concerns low mortgage rates. Even after two Fed announced interest rate hikes this year (and one in December 2016), 30-year mortgage rates this week are among the lowest levels in 2017. In fact there is this latest report released just yesterday that the Fed could delay the next rate hike for another year, well into 2018. This is obviously good for maximizing homebuyers’ power, and is also good news for builders and developers who could take advantage of low-cost financing. On the flip side, some ponder whether these historic lows artificially raise prices and what the long-term impact is to the market?
2. Low mortgage delinquency
Another piece of positive housing news is that the mortgage delinquency rate is now lower than before the 2008 housing crisis. This is an overlooked headline that points to purchasing power of existing homeowners. However, even with 83% believing today is a good time to sell, 58% expect a price correction and with stories of double-digit home price gains, many existing homeowners are not motivated to move right now.
3. Buyer-empowerment programs
Favorable economic and interest rate news aside, there is also a string of news on lending policy changes that could give homebuyers – and hence the housing market – a leg up. Recently, Fannie Mae announced a new loan-underwriting rule change that makes it easier for homebuyers with student loans to qualify for a mortgage. Last week, both Fannie Mae and Freddie Mac announced appraisal-free purchase on some home loans to go into effect starting on September 1st. These new programs on top of recent low-down payment mortgages help create a new climate of affordability particularly for first-time homebuyers. So, credit is becoming available but…
4. Low inventory, rising prices
Some of the latest round of good news has a flip side. The historically-low levels of mortgage rates have been largely blamed for homeowners’ reluctance to sell and give up their low-rate refinanced mortgage, bringing housing stock supply to an atypically low level that inflates home prices and tampers housing growth. Homebuyers now have access to more affordable mortgages and homebuyer-empowerment programs previously unavailable to them, but now have no home to buy. In fact, in ValueInsured’s latest Modern Homebuyer Survey conducted in July, homebuyers report their number 1 housing fear is not being able to buy a home within their budget.
5. Stagnant wage growth
While recent employment reports have been largely positive, news of stagnant wage growth has been a blemish that should not be ignored, and should warrant concerns as, logically, one might ask, who can afford 10-15% home price increases when wages are rising by a national annual average of 2.5%? Recently, ValueInsured reported the lowest confidence level in 18 months among Millennials in believing they can afford to buy a home.
6. Slowing markets
Out-of-reach home prices are projected to slow housing growth in some of the nation’s top real estate markets; in some cases, the slowdown has already begun, including in California, Chicago, and South Florida. In Central Valley, CA, brokerages are reporting fewer floor calls, listing appointments and lighter open house traffic.
7. Flippers and non-homeowner purchases
Even in hot – or what some experts consider “overheated” – markets, housing stocks do not always go to buyers who plan to live in the homes. In Dallas, nearly 40% of all home sales were reported to have gone to flippers and non-homeowner investors last year. In Miami, New York City and San Francisco, nearly 1/3 of all luxury home cash sales are suspected to be tied to “illicit activities” and money laundering. Potential homebuyers looking for primary residences are now having to compete with these investor-types in addition to other typical homebuyers.
8. Lower-than-expected home sales
With such low inventory, it may seem to present a perfect market for homebuilders. However, new home build activities are still slow. Anecdotally, builders say their confidence levels remain restrained from scars from the last housing crisis; many are concerned about overbuilding, or are reluctant to build lower-priced entry-level homes.
In the latest reports from last week, new-home sales have fallen to a 7-month low (-9.4%) while existing-home sales reached an 11-month low (-1.3%), with both declines called unexpected or far exceeding expectations. That probably topped our recent roundup of not-so-good news. At the same time, both drops were largely attributed to low inventory to meet housing demand, so is that good news?
Conclusion: Good news or bad?
In many ways, we are in the golden age of headline overload. On any given day there could be good housing news, not-so-good news, and sometimes, conflicting news. We have no idea what will come out of the news, but one thing is for certain: uncertainty persists in the housing market. So, what do the 8 out of 10 Americans who want to be homeowners do about it? Simply, they need to be educated and take care of what they can control. Instead of walking around in fear or reading tea leaves from the latest headlines. Homebuyers could gain control by having a safety net and exit plan in place. Understand that life happens and the future is fluid, but be ready as they relax and enjoy the rewards of homeownership.