No Virginia, this it NOT a housing bubble
There is a saying in the stock market, wherein I spent some 35 years of my earlier life, that the market climbs a wall of worry, meaning that the market climbs even as many commentators express concern about various economic or political risks.
This week S&P published a report entitled: US Home Prices Suddenly Surge, But Talk Of A Bubble May Be Premature read report .
Wikipedia defines an economic bubble as: “trade in high volumes at prices that are considerably at variance with intrinsic values. It could also be described as a situation in which asset prices appear to be based on implausible or inconsistent views about the future.”
OK so before we get carried away here, let’s remind ourselves that nationally housing prices remain 28% below their peak (which WAS a bubble) and that affordability is close to all-time highs. As I have pointed out before, a market that goes down 40% and then “surges” 15% is still down 31%. Not exactly a bubble. (more…)
Mortgage rates jump to highest level in a year
According to Freddie Mac the average 30-year rate rose for the fourth consecutive week to 3.81 percent, up from 3.59 percent last week, and nearly 1/2% higher than the 3.35% at the beginning of May. A year ago the rates was 3.75%.
The 15-year rate also increased to 2.98 percent from 2.77 percent.
With much discussion about when and how the Federal Reserve will move to reduce or end the Quantitative Easing policy which has kept interest rates low for an extended time, does the action of the last month indicate that mortgage rates have finally bottomed?
And will home buyers react, as they often do to rising mortgage rates, by rushing to buy now and lock in what is still an historically low rate?
Read Freddie Mac report
A round-up of the week’s national housing news
The National Association of Realtors (NAR) reported that its national Pending Home Sales Index in April rose 10.3% from a year ago, with the Northeast region jumping 17.7%.
Read press release
Meanwhile, existing home sales reported by the NAR,increased slightly in April to an annual rate of just under 5 million, up nearly 10% from a year ago.
Read press release (more…)
New home prices jump 15% to all-time record high
Figures from the Commerce Department this week show that the median price of a new home in the US in April rose 15% Year on Year to reach a new all-time record of $271,600.
During the recent recession, new home sales collapsed from an annual rate of 1.4 million in July 2005 all the way to just 273,000 in February 2011.
As homebuilders are once again starting to crank up production, that rate has recovered to 454,000 in April, at which time there was 4.1 months of supply.
New home sales represent 7% of the US housing market, so are less significant than existing home sales, but are important because only by building new homes can we meet the demand from new household creation.
The good news is that new home construction (both single and multi family) was running at an annual rate of 850,000 in April, while new permits topped 1 million.
The impact of strong demand and low supply can be clearly seen in this chart from Haver Analytics:
Home prices down nearly 30% !!!!
What, you missed the news which was reported this week? Perhaps you were too focused on watching the stock market reach record highs.
This week’s Case-Shiller report included the following: “Measured from their June/July 2006 peaks, the peak-to-current decline for both Composites is approximately 29-30%. The recovery from the early 2012 lows is 8.7% and 9.3%, respectively.”
In simple terms, while prices nationally are up nearly 10% from their lows, they are still DOWN almost 30% from their 2006 highs.
To put that in stock market terms in a week when the Dow Jones Industrial Average broke 15,000, the equivalent for housing would be 10,500. That doesn’t sound so good. (more…)
The Flaws of the Case-Shiller Index
When the Case-Shiller index, the most widely quoted index of housing prices, reported this week Read report that home prices rose 8.6% for its 10-City index and 9.3% for the 20-City index for the year to February, the news was greeted with headlines such as CBS’s “Us Home Prices Surging”.
Well, as the Beach Boys sang a long while ago, “You Know I hate to be a Downer”, but this is a good time to remind everybody that, as I have mentioned regularly in my year end reviews, the Case-Shiller Index has serious flaws.
Dan Green in his The Mortgage Reports (www.TheMortgageReports.com) takes up the argument this week, pointing out that:
“1.The Case-Shiller Index tracks values of detached, single-family homes only
2.The Case-Shiller Index includes sales of discounted, distressed homes
3.The Case-Shiller Index publishes on a 2-month time delay
In this way, the Case-Shiller Index ignores multi-unit homes and condos; and allows its findings to be dragged down by foreclosures and short sale which sell at discounts of 20%; while applying price data from contracts written as many as 5 months ago.
Furthermore, the home index falls apart when we consider its limited scope. All real estate is local, yet the Case-Shiller Index tracks 20 U.S. cities and calls itself a “national” index. There are 3,100 municipalities in the United States. The Case-Shiller Index accounts for fewer than 1 percent of them.” (more…)
Boston Strong
As some of you know, I have been close to bombs in the past, while living in London during the IRA’s campaign and also with the World Trade Center.
I am a firm believer in not allowing terrorists to prevent us from living our lives, although necessarily certain changes have to be made. As the British war-time motto, now popular again, said: “Keep Calm and Carry On.” We will NEVER let terrorists win, however long the fight.
I also look forward to the day when Marathon runners who were stopped are invited back to complete their run.
In honor of the victims, and in prayerful thanks to our law enforcement officials – and the residents of Boston – for their steadfast efforts, I shall pause in my real estate writings and today post only the link to Boston Strong t-shirts ($15 of the $20 purchase price is donated to the One Fund) and to the Fund itself.
Please give generously.
http://inktothepeople.com/marketplace/ink-detail/3731
Can We Afford Another Housing Boom?
As I read this editorial Can We Afford Another Housing Boom? in yesterday’s Wall Street Journal, the refrain of “Oh when will they ever learn, oh when will they ever learn?” from “Where have all the flowers gone?” by Pete Seeger (although I was hearing the Peter, Paul and Mary version), came into my head.
Some people may be surprised that the WSJ should be a critic of policies aimed at driving home prices higher, but I think what the Journal is trying to point out is that government-sponsored social engineering of the housing market is exactly what played such a large role in the last boom and bust cycle.
There are several variations of the following quote but as an Englishman I will use Winston Churchill’s: “Those who fail to learn from history are doomed to repeat it.”
“Oh when will they ever learn, oh when will they ever learn?”
A trillion here, a trillion there…..pretty soon you’re talking real money
I’m old enough that a trillion is still a big number. In fact I’m old enough that I remember wondering what came after a billion. And in England a billion was a million million, not just a thousand million. A bit like pints, which are 20 ounces in England against 16 here. Well actually nothing like, but I still miss pints of bitter.
Back to real estate.
The value of homeowners’ equity in real estate peaked at $13.5 trillion in 2006, before falling to $6.6 trillion in 2011. That’s a loss of almost $7 trillion. Ouch! In the last year there has been an increase of $1.6 trillion to $8.2 trillion, according to the Federal Reserve.
Is there a wealth effect in real estate? I don’t think anybody would argue that as homeowners see the value of their equity increasing – and for most of us that is the main “wealth” item we possess – they feel more inclined to buy the new car to replace the ageing clunker, to take the first proper vacation in years, etc.
This is the consumer spending effect. Before the Great Recession conventional economic wisdom (an oxymoron?) was that rising prices had a wealth effect, but falling prices did not. (more…)
Foreclosure rate hits 5-year low
With foreclosure rates dropping sharply, and the likelihood that rising home prices nationally and other measures will prevent many of those entering the process actually going into foreclosure, this Evansville Courier
article is a good summary of a recent report from Realty Trac.
Here is the RealtyTrac article Foreclosure market report
“Buyers face a dilemma: pay more today, compared with a year ago, or pay even more tomorrow”
Is the Federal Reserve’s success in driving down interest rates giving the housing market a sugar high?
This is the question posed by Nick Timiraos today in the Wall Street Journal online.
Reasons for the strength in home prices include:
– Inventories have fallen to 20 year lows
– Many homeowners aren’t willing – or able – to sell at prices that are, nationally, still down sharply from 2006 highs
– Demand has revved up
– Improving home-price expectations have unleashed pent up demand, as household formation in the last five years was lower than at any period since the 1960s
Result? Prices are rising as buyers say “If I’m going to get in I better get in now”.
Is this the beginning of another bubble? Not according to the experts quoted in Timiraos’ article, as prices are still below long-run averages relative to income.
I covered several of these points in my post on March 17:
How Much Will Home Prices Increase this Year
Here’s Nick’s article in full.
Jump in Housing Prices Stirs New Worry
Real estate market remains red hot
Perhaps more important than the actual numbers – which show a continuing recovery in home prices and sales – is the tone of commentary on the announcements.
The headline above was the Associated Press’s headline of a story about this week’s data for existing home sales.
Read Article to see the data
The New York Times, referring to single family housing starts, used “Housing, ailing for years, start to recuperate”
Read article
The Wharton Public Policy Initiative pointed out that “Housing starts to Give Promising News for Economic Recovery”
Read article
(more…)
How much will home prices increase in the next decade?
According to a Bloomberg report, JPMorgan Chase & Co. (JPM) more than doubled its forecast for U.S. home price gains in 2013 to 7 percent this week, and predicts a more than 14 percent increase through 2015. Bank of America Corp. (BAC) said last week property values will jump 8 percent this year, up from a prior estimate of 4.7 percent in a report titled “Someone say house party?”
I have previously written that I expect any surprise in 2013 to be on the upside. I also reported a recent open house in Marblehead on a snowy and blustery day when 30 people showed up and multiple offers were received. Then last week before a new property came on the open market it received several offers above the asking price.
(more…)
What every oceanfront property buyer should do NOW
Some oceanfront houses get battered by storms time and time again, while others remain unscathed.
What is the difference?
Largely, it is a question of the direction the house faces and the protection – or lack of it – from the elements, mainly water and wind.
If you are looking for an oceanfront property, what you should do this weekend is get in your car and drive around the areas in which you are interested. And take a compass with you (I find the compass on my iPhone unreliable).
(more…)
FHA announcements raise costs, lower defaults
In a letter to Sen. Corker, FHA Commissioner Carol Galante committed to “aggressive action”, including raising minimum credit score requirements, raising downpayment requirements on jumbo-sized loans, and restricting access to FHA mortgages after a foreclosure.
The FHA changes may impede your ability to get a loan beginning April 1, 2013.
TheMortgageReports.com March 10, 2013
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