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Keeping you updated on the market! For the week of
April 1, 2013
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MARKET RECAP
Still More of the Same
For the past year, we've been reporting on home prices generally moving in one direction – up. This is certainly preferable to the years leading up to early 2012, when we were reporting on prices generally moving in one direction – down.
As for the current price trend, the S&P/Case-Shiller Home Price Index shows prices continued to move higher in January. What's more, prices moved higher at an accelerating rate. All 20 cities the index covers posted price gains for the second-straight month. Year over year, prices were up nearly 10% – the largest annual increase in seven years.
Data from Lender Processing Services also support a sustained price trend. Its data, which focuses on non-distressed transactions in 15,500 zip codes, show the average home price increased 0.3% to $208,000 in January. Year over year, the average price is up 6.7%.
New homes are leading the price charge. Data from the U.S. Census Bureau show the median sales price of a new home soared to $246,800 in February, a 9% increase over the median price of $226,400 in January.
We're not surprised new home prices are surging. Demand is improving, thanks in part to more homeowners moving into a positive equity position. At the same time, there's a dearth of new homes on the market. The downside is that lack of inventory is hurting sales growth. The annualized sales rate of 411,000 new homes in February is 4.6% lower than the 431,000-home sales rate in January.
Inventory has improved, but not by much. New homes for sale increased to 152,000 units in February from 150,000 units in January. The combination of a dip in sales and a rise in supply put inventory at 4.4 months in February compared to 4.2 months in January. We expect low inventory will continue to restrict sales growth over the next couple months.
Sales of existing homes are also likely to remain restricted. Limited buyer choices have constrained contract signings. The NAR's Pending Home Sales Index dipped 0.4% in February. The index points to low-to-flat sales growth as we head into the spring selling season.
The upside to stagnating sales and increased demand is continued price gains. Rising prices will lift more homeowners into positive equity, which in turn, will motive more homeowners interested in moving to list their properties.
Rising prices will lead to more supply. We mentioned many times during the grips of the hard sell-off of 2008 and 2009 that prices would fall only so far before buyers would rush in to soak up the excess supply. Rising prices will have a similar salutary effect, only in reverse – rising prices, rising supply.
As for mortgage rates, we expect the trend to remain flat at the new lower level. The banking crisis in Cyprus sent money to U.S. Treasury notes and mortgage-backed securities, which helped reverse the rising-rate trend. We expect rates to hold these levels for at least a couple weeks. We say that because the influential 10-year Treasury note is again yielding below 1.9% (two weeks ago, it was yielding over 2%). The low yield should hold, because once the crisis in Cyprus passes, it's looking more likely a developing banking crisis in Spain will take its place. |
Economic
Indicator
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Release
Date and Time
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Consensus
Estimate
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Analysis
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Factory Orders
(February)
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Tues., April 2,
10:00 am, ET
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2.5%
(Increase)
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Moderately Important. A pick up in capital goods and big-ticket consumer items points to strengthening first-quarter economic growth.
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Mortgage Applications
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Wed., April 3,
7:00 am, ET
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None
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Important. Lower rates, instigated by events in Cyprus, will spur purchase and refinance activity.
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Employment Situation
(March)
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Fri., April 5,
8:30 am, ET
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Unemployment Rate: 7.8%
Payrolls: 190,000 (Increase)
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Very Important. An unexpectedly strong gain in job growth will pressure interest rates to move higher.
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Consumer Credit
(February)
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Fri., April 5,
3:00 pm, ET
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$10 Billion (Increase)
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Important. Gains in non-revolving credit suggest consumers are more confident in the economic outlook.
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Too Much of a Good Thing?
Robert Shiller, co-founder of the S&P/Case-Shiller Home Price Index, has been issuing a warning the past couple months: Don't get snookered by rising home prices. In short, Shiller is skeptical that the price trend will last.
Shiller's doubts center on the Federal Reserve, which continues to purchase U.S. Treasury notes and bonds and mortgage-backed securities at the unprecedented rate of $85 billion a month. The Fed's purchases, which are financed with newly minted money, have kept mortgage rates low and liquidity (money supply) high.
This has obviously been good for housing, but Shiller's concern is that the Fed could be creating another bubble. We've wondered the same thing too. A lot of money is flowing into housing. Is that money distorting the market?
We think there are a couple extenuating factors. For one, the housing market is still operating at a sub-optimal level (sales and construction) compared to historical norms. And though mortgage rates are at multi-decade lows, many people are still unable to take advantage of them, thus keeping demand constrained (though we don't necessarily view this as a positive).
This is an unusual, even unprecedented, market, to state the obvious, but it's not a bubble market, and we don't expect it will become one any time soon. |
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EQUAL HOUSING LENDER
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This Newsletter is for informational purposes only. The information contained herein may not be applicable to every situation or jurisdiction and we urge you to consult your professional advisor prior to acting on information contained herein. The content, accuracy and opinions expressed herein are not verified or endorsed by the sponsor hereo
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