The Real Estate Market Isn’t in a Bubble
The soaring housing market is prompting more “bubble” fears in some corners, but economists say the housing market isn’t getting overinflated: it’s just too much demand and too little supply.
“We have strong conviction that we are not experiencing a bubble in U.S. housing,” Vishwanath Tirupattur, a Morgan Stanley strategist, wrote in a note to clients this week.
Lawrence Yun, chief economist of the National Association of Realtors®, agrees. He told Axios last month: “This is not a bubble. It is simply lack of supply.”
Morgan Stanley points out that this isn’t 2006. (more…)
Will the Housing Market Frenzy Die Down? That Depends on Sellers
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 inventory slowly increases. About 10% of current homeowners plan to put their homes on the market this year—and more than half are more affordably priced, according to an exclusive survey conducted by realtor.com®. An additional 16% expect to list their properties within the next two to three years.
Typically, only about 8% of homeowners put their homes up for sale a year. This is about a 25% anticipated increase, which translates into about 1.5 million more homes. The increase may be due to folks holding off on selling their homes during the worst of the coronavirus pandemic.
“There is a brighter light at the end of the tunnel for many weary buyers,” says Realtor.com Senior Economist George Ratiu.“In a market that right now only has close to half a million listings, a big boost in inventory can mean more choices for buyers and potentially a slowdown in price growth,” says Ratiu. He was quick to add that prices won’t drop, but the double-digit growth may taper off. “It’s signaling a return to normal for the economy and the housing market.”
Read the full article: Housing Market frenzy could cool for this reason (more…)
The US is 3.8 Million Homes Short
The U.S. housing market needs nearly 4 million single-family homes to meet the nation’s demand, according to a new analysis from Freddie Mac. The 3.8 million shortfall marks a 52% increase in the housing shortage since 2018.
“This is what you get when you underbuild for 10 years,” says Sam Khater, Freddie Mac’s chief economist. “We should have almost four million more housing units if we had kept up with demand the last few years.”
Lawrence Yun, chief economist of the National Association of REALTORS®, has been among real estate economists leading the calls over the last few years for greater inventory and more homebuilding to meet demand. “We need to build more homes,” Yun told NPR, adding that since the housing crisis more than a decade ago, homebuilders have been building too few homes.
The housing shortage mixed with strong buyer demand since the pandemic is prompting home prices to rise rapidly. The median existing-home price for all housing types in February was $313,000, up 15.8% compared to a year earlier, according to the National Association of REALTORS®.
‘When is the housing market going to crash?’
The housing market has been white hot for the past year, thanks to the stay at home and work from anywhere culture of the coronavirus pandemic.
But there is increasing concern among consumers that housing is experiencing a price bubble – and that the bubble may be ready to burst.
Google reported last week that the search question “When is the housing market going to crash?” had spiked 2,450% in the past month. “Why is the market so hot?” searches had doubled in just a week. (more…)
Buyers are overpaying, but are there signs of a bubble?
As prices continue to soar, Housing Wire asks the question: Are there signs of a bubble?
“The national average of home prices rose 14.4% year-over-year to $336,200 in February – the largest increase since July 2013, according to the latest report from Redfin. As proof of the impact of the country’s low inventory and high cost of building materials, new listings fell 16% – the second-largest decline on record since Redfin’s data began in 2012, only passed by the drop in April 2020.
Mortgage rates have also jumped to north of 3%; at its current pace, the Mortgage Bankers Association is forecasting rates will reach nearly 3.5% by the end of 2021. New home applications are down as well, as builders are still struggling with smaller-than-normal crews and expensive materials that are hard to procure. And even with March well underway, mortgage applications are still in decline.”
Redfin’s chief economist makes the profound comment that : “It seems like the only move-up buyers who are confident enough to list their homes are those who are relocating to a more affordable area where they’ll have an edge on the local competition.”
I can confirm that as I was talking just yesterday to an agent whose client with a $2 million house won’t list it because “she cannot find anything to buy.”
But to come back to the question in this article: are we in a bubble? (more…)
Where have all the sellers gone?
As I read this New York Times article: Where have all the houses gone? my mind went to Yogi Berra’s line of “it’s deja vu all over again” as I checked my files and discovered that this will be my 5th article with this title – and the first was written in 2013.
Let’s look at the what and the why.
First, the what. This chart shows that inventory has plummeted across the country:
9 Private Islands for less than $400,000
If $240 million for a London megamansion ( What can you buy for $240 million in London?) ” is not your thing (and, frankly, it’s a bit ostentatious for my taste), then maybe a private island escape is more your style.
In Private Islands less than $400,000 Realotr.com has identified 9 islands that fit the bill.
As always in real estate, it comes down to personal preferences. These are my top 3 – what about you?
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
“If you’re interested in Marblehead, you have to visit the blog of Mr. Andrew Oliver, author and curator of OliverReports.com. He’s assembled the most comprehensive analysis of Essex County we know of with market data and trends going back decades. It’s a great starting point for those looking in the towns of Marblehead, Salem, Beverly, Lynn and Swampscott.”
Sotheby’s to auction ultimate Porsche to benefit COVID-19 Fund
This spectacular Speedster is set to be auctioned in a special one-week, online-only auction to benefit United Way Worldwide’s COVID-19 Community Response and Recovery Fund. The auction’s consigner is none other than Porsche Cars North America, supported by RM Sotheby’s
Built in a run of 1,948 to reflect the year that the first Porsche 356 “No. 1” roadster was registered in Carinthia, Austria, this 2019 Porsche 911 Speedster “Heritage Design” is the last 991-series 911 chassis ever built, and it represents seven decades of continuous refinement and dedication on the part of Porsche’s engineers.
Not simply an auction for a unique Speedster, Porsche has included several one-of-a-kind accessories to increase interest in the sale. The winning bidder will also be invited behind-the-scenes at the Porsche AG development facilities in Weissach, and have an opportunity to spend time lapping the test track outside the Development Center
Read the full details by clicking Auction
Andrew Oliver
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Why are Mortgage Rates Jumping?
Regular readers of this column are aware of the link between the 10-year Treasury (10T) and the 30-year Fixed rate Mortgage(FRM). Over the last several years the spread – the difference between FRM and the yield on 10T has averaged around 1.75% (see table below). So with the 10T yielding 1.15% the FRM should be say 2.9%. Right?
Wrong. Today’s Freddie Mac weekly survey, taken on Monday-Wednesday this week, showed an average rate of 3.65%, up from 3.36% last week and the all-time low of 3.29% recorded two weeks ago.
Why is that? The simple answer is Supply and Demand, a basic economic equation I have been applying to the housing market in recent years. While simple, this is a fundamental of understanding markets – whether for housing, mortgage rates – or toilet paper.
In recent years there have been more buyers – Demand – than sellers – Supply- in the housing market, and this has led to bidding wars and rising prices. In my Recession and Recovery piece I wrote that the imbalance between Sellers and Buyers was quite likely to change in the coming weeks, as some buyers hold off and more sellers come forward.
My hope is that this will lead to a more balanced market when conditions stabilise.
Coming back to mortgage rates, in my Mortgage rates Stabilise post last Saturday I wrote: “Lenders are overwhelmed by refinancing requests and are keeping rates up to slow demand.”
In other words, Demand is exceeding Supply and prices are rising.
I under-estimated the degree to which the quoted mortgage rate would rise in the short-term. This was Freddie Mac’s comment today: “Mortgage rates rose again this week as lenders increased prices to help manage skyrocketing refinance demand. This is expected to be a short-term phenomenon as lenders work through their backlog.”
And here is a very short video from Bankrate explaining what has been going on this week: Why aren’t mortgage rates lower?”.
The table below shows the spread over the last 15 years. Noe that in a previous time of stress – 2008/09 (although for a very different reason) the spread widened before reverting to the mean when conditions stabilised.
I expect the same phenomenon to occur again in due course.
I’ll end with the same Wall Street Journal quote I used to end one of my earlier posts:
“For all the foreboding about the novel coronavirus—foreboding that is justified—it is heartening to see the American people responding in ways reminiscent of the frontier spirit. Most people are doing what they have to do to survive a clear and immediate threat to their lives and communities.”
And I ended: “And that spirit will also determine that the recovery will come.”
As it shall.
Andrew Oliver
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
This is NOT Like the Last Time
Below is an article from Keeping Current Matters, highlighting the substantial differences between 2008 and today.
And here is a link to my recent post: Recession and Recovery
5 Simple Graphs Proving This Is NOT Like the Last Time
With all of the volatility in the stock market and uncertainty about the Coronavirus (COVID-19), some are concerned we may be headed for another housing crash like the one we experienced from 2006-2008. The feeling is understandable. Ali Wolf, Director of Economic Research at the real estate consulting firm Meyers Research, addressed this point in a recent interview:
“With people having PTSD from the last time, they’re still afraid of buying at the wrong time.”
There are many reasons, however, indicating this real estate market is nothing like 2008. Here are five visuals to show the dramatic differences.
1. Mortgage standards are nothing like they were back then.
During the housing bubble, it was difficult NOT to get a mortgage. Today, it is tough to qualify. The Mortgage Bankers’ Association releases a Mortgage Credit Availability Index which is “a summary measure which indicates the availability of mortgage credit at a point in time.” The higher the index, the easier it is to get a mortgage. As shown below, during the housing bubble, the index skyrocketed. Currently, the index shows how getting a mortgage is even more difficult than it was before the bubble.
2. Prices are not soaring out of control.
Below is a graph showing annual house appreciation over the past six years, compared to the six years leading up to the height of the housing bubble. Though price appreciation has been quite strong recently, it is nowhere near the rise in prices that preceded the crash.
There’s a stark difference between these two periods of time. Normal appreciation is 3.6%, so while current appreciation is higher than the historic norm, it’s certainly not accelerating beyond control as it did in the early 2000s.
3. We don’t have a surplus of homes on the market. We have a shortage.
The months’ supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued appreciation. As the next graph shows, there were too many homes for sale in 2007, and that caused prices to tumble. Today, there’s a shortage of inventory which is causing an acceleration in home values.
4. Houses became too expensive to buy.
The affordability formula has three components: the price of the home, the wages earned by the purchaser, and the mortgage rate available at the time. Fourteen years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high. Wages, however, have increased and the mortgage rate is about 3.5%. That means the average family pays less of their monthly income toward their mortgage payment than they did back then. Here’s a graph showing that difference:
5. People are equity rich, not tapped out.
In the run-up to the housing bubble, homeowners were using their homes as a personal ATM machine. Many immediately withdrew their equity once it built up, and they learned their lesson in the process. Prices have risen nicely over the last few years, leading to over fifty percent of homes in the country having greater than 50% equity. But owners have not been tapping into it like the last time. Here is a table comparing the equity withdrawal over the last three years compared to 2005, 2006, and 2007. Homeowners have cashed out over $500 billion dollars less than before:
During the crash, home values began to fall, and sellers found themselves in a negative equity situation (where the amount of the mortgage they owned was greater than the value of their home). Some decided to walk away from their homes, and that led to a rash of distressed property listings (foreclosures and short sales), which sold at huge discounts, thus lowering the value of other homes in the area. That can’t happen today.
Bottom Line
If you’re concerned we’re making the same mistakes that led to the housing crash, take a look at the charts and graphs above to help alleviate your fears.
Mortgage rates after the collapse of bond yields
Andrew Oliver
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Coronavirus and the Housing Market: Part 2
Three weeks ago I published Coronavirus and the housing market concluding with this comment: While it is too early to forecast the impact of the coronavirus, world stock markets this week suggest that investors believe it will be limited beyond the short term. And meanwhile, ultra low mortgage rates only exacerbate the impact of the extreme low level of supply in the housing market.
Well that changed this week!
It is worth remembering that for some time commentators have been observing that the stock market was at extended valuations but that nobody wanted to sell, so maybe coronavirus was the excuse for the “overdue” stock market correction to occur.
Which is not to underestimate the significance of the crisis as it seems likely to impact everything from air travel and tourism to concert attendance; from manufacturing supply lines to decisions about future supply markets. At this stage, we simply do not know.
The most important factor for both the economy and the housing market is consumer confidence. The University of Michigan survey of Consumer Sentiment for February edged up 1.2 points to 101.0, the highest level since March 2018. The accompanying commentary said:”The coronavirus was mentioned by 8% of all consumers in February when describing the reasons for their economic expectations. However, on Monday and Tuesday of this week—the last days of the February survey—20% mentioned the coronavirus due to the steep drop in equity prices as well as the CDC warnings about the potential threat of the virus.”
What we do know is that mortgage rates have dropped even further. The Freddie Mac weekly survey published on Thursday showed the national average 30-year Fired Rate Mortgage at 3.45% and that rate seems likely to drop further next week.
The US economy continues to show steady, if unspectacular grow. Provided coronavirus just delays economic activity, that will continue to be the story. A longer slowdown may well lead the world into a recession but it really is too early to tell.
Meanwhile the story of recent years continues to apply: Record low inventory + record low mortgage rates + strong demand = rising home prices.
Will house prices continue to rise in 2020?
Are You Thinking of Selling in 2020?
Swampscott: now is a GREAT time to sell
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Will house prices continue to rise in 2020?
Many years ago, during my investment banking career, I hired a young analyst to write a report on a very successful company, which had grown earnings for 12 years in a row. This analyst wanted to downgrade the shares because: “they have been growing for 12 years and cannot continue to grow.”
Needless to say (I hope) I changed the conclusion on the report.
Why is that relevant to the housing market outlook for 2020? The market has seen annual increases since 2010, so it has risen for the last 9 years. So it can’t continue, right?
Well, why not?
I have often written about the law of supply and demand.
According to the National Association of realtors (NAR): “Total housing inventory at the end of December totaled 1.40 million units, down 14.6% from November and 8.5% from one year ago (1.53 million). Unsold inventory sits at a 3.0-month supply at the current sales pace, down from the 3.7-month figure recorded in both November and December 2018. Unsold inventory totals have dropped for seven consecutive months from year-ago levels, taking a toll on home sales.”
Meanwhile: the median existing-home price for all housing types in December was up 7.8% from December 2018, as prices rose in every region. November’s price increase marks 94 straight months of year-over-year gains. “Price appreciation has rapidly accelerated, and areas that are relatively unaffordable or declining in affordability are starting to experience slower job growth,” Yun said. “The hope is for price appreciation to slow in line with wage growth, which is about 3%.”
In Essex County, the inventory of Single Family Homes (SFH) for sale, after declining for several years, increased Year-on-Year from August 2018 to June 2019. But since then inventory has declined and that declined has accelerated:
And the supply makes availability nationally seem like an abundance:
Recently, one of my sons was badly injured in a fall while hiking in Nepal. My younger son flew out to be with him. Each day we got medical updates which were full of information. My younger son would ask what his condition was and was told still critical. “That’s all that matters,” he said, “the rest is just noise.”
At the end of 2018 in an article entitled Is a recession coming soon? I concluded by saying this:
“At the moment it (consumer confidence) is intact. As long as that remains so the likelihood for 2019 is a slowing, but still growing, economy and a stable housing market.”
And earlier: “While the increase in the Fed Funds rate has been getting a lot of publicity very recently, the Fed has actually been raising rates – and indicating that it planned to continue to do so – for 3 years, with the first increase coming in December 2015.It could be argued that the more rapid increase in rates this year has been in response to the major stimulus from the tax cuts earlier in the year. It could further be argued that, on the evidence so far, the Fed has been successful in helping to slow growth to a sustainable level, thereby curbing inflationary pressures which would necessitate even higher interest rates.”
There has been a lot of noise over the last year. A lot. But the economy remains strong: not super strong but chugging along quite nicely. With low unemployment, low mortgage rates and low inventory, the law of supply and demand will continue to apply and suggest that house prices, which grew faster than I had expected in the second half of 2019 as supply dwindled again, will continue on the upward path of the last 9 years.
Read Are You Thinking of Selling in 2020?
Andrew Oliver
Realtor, Sagan Harborside
Sotheby’s International Realty
www.OliverReports.com
www.andrewJoliver.com
Tel: 617.834.8205
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Buyer Demand is Growing
Foot traffic – the number of home showings – is increasing in all areas of the country, with back to back monthly gains for the first time in almost two years, according to this Buyer Demand Growing in Every Region report in Keeping Me Current. (more…)
FHA eases rules for condo mortgages
As of October 15, the Federal Housing Administration (FHA) will insure mortgages for selected condominium units in projects that are not currently approved. An individual unit may be eligible for Single-Unit Approval under the following conditions:
- The individual condominium unit is located in a completed project that is not approved;
- For condominium projects with 10 or more units, no more than 10 percent of individual condo units can be FHA-insured; and projects with fewer than 10 units may have no more than two FHA-insured units.
- FHA will require that approved condominium projects have a minimum of 50 percent of the units occupied by owners for most projects
- FHA will require that the commercial/non-residential space within an approved condominium project not exceed 35 percent of the project’s total floor area
According to the FHA: “The vast majority (84 percent) of FHA-insured condo buyers have never owned a home before. While there are more than 150,000 condominium projects in the U.S., only 6.5 percent are approved to participate in FHA’s mortgage insurance programs. As a result of FHA’s new policy, it is estimated that 20,000 to 60,000 condominium units could become eligible for FHA-insured financing annually.”
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
www.TeamHarborside.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
The week’s housing market news
Mortgage Rates
The national 30 year Fixed Rate Mortgage (FRM), as reported by Freddie Mac, was 4.06%, down a fraction from 4.07% the previous week. We are in contact with a lender who is offering 30 year FRMs with zero points at just under 4%, with 15 year mortgages at 3.5%. These rates are valid for loans up to $2 million.
The chart below shows the FRM since the beginning of 2018 and demonstrates that mortgage rates have declined from almost 5% in late 2018 to the same level as at the start of 2018.
Existing home sales
Total existing-home sales – completed transactions that include single-family homes, townhomes, condominiums and co-ops – fell 0.4% from March to a seasonally adjusted annual rate (SAAR) of 5.19 million in April. Total sales are down 4.4% from a year ago (5.43 million in April 2018). The SAAR has been mostly in the range of 5 – 5.5 million for the last few years.
The median existing single-family home price was $269,300 in April, up 3.7% from April 2018.
Total housing inventory at the end of April increased to 1.83 million, up from 1.67 million existing homes available for sale in March and a 1.7% increase from 1.80 million a year ago. Unsold inventory is at a 4.2-month supply at the current sales pace, up from 3.8 months in March and up from 4.0 months in April 2018.
Here is a set of 8 slides with highlights from this month’s report: Existing home sales in April.
New Home Sales
New home sales for April were reported at 673,000 on a seasonally adjusted annual rate basis (SAAR). Sales for March were revised up to 723,000, a new high for this cycle. Sales in January and February were also revised up.
Sales of new homes are notoriously volatile and subject to significant revisions but according to Bill McBride of Calculated Risk “New Home Sales appears to be an excellent leading indicator, and currently new home sales (and housing starts) are up solidly year-over-year, and this suggests there is no recession in sight.”
The supply of new homes was 5.9 months, close to the 6 months which is regarded as being a market in equilibrium between buyers and sellers.
Here is the full New residential Sales April 2019 report.
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
www.TeamHarborside.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
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