- In the wake of the housing recession, the sharp decline in median home prices and record low mortgage rates combined to boost affordability to record levels in nearly all markets.
- Affordability varies greatly across markets, though, even when compared to local median household income.
- Markets in the West, particularly California, require the highest share of income to be devoted to the monthly principle and income payment, while markets in the Midwest and Upstate New York are among the most affordable.
- The recent increases in home prices will erode some of the gains, but record low mortgage rates will help to ameliorate this impact, while prices and rates are likely to remain below levels seen during the peak of the housing market for several quarters.
- For more information about affordability conditions in other markets, see the Local Market Reports for the 1st quarter of 2013.
- Foot traffic can provide great insight into the direction of future home sales. SentriLock, LLC. provides NAR Research with monthly data on the number of showings.
- Foot traffic in the area covered by the Pearl River County Board of REALTORS® (Picayune, MS) rose 2% in April compared to the same time a year earlier reversing three months of decline.
- Foot traffic trended upward throughout last summer in this area. Record mortgage rates and steady employment growth should help to maintain interest in housing demand.
Every month SentriLock, LLC. provides NAR Research with data on the number of properties shown by a REALTOR®. Foot traffic has a strong correlation with future contracts and home sales, so it can be viewed as a peek ahead at sales trends two to three months into the future. In the latest reading, the diffusion index for foot traffic surged more than 30 points to 71.4 in April.
The sharp increase this month is a reflection of last year’s strong early season, the “pop” in traffic last March and the subsequent decline. This month’s reading comes in above the important “50” mark. The 50 mark indicates that more than half of the markets in this panel had stronger foot traffic in April of 2013 than the same month a year earlier. This reading does not suggest how much of a decline in traffic there was, just that the majority of markets experienced more foot traffic in April of 2013 compared to a year earlier. Traffic rose significantly in parts of the Midwest and New York state, a reversal of last month’s year-over-year trend.
Record low mortgage rates continue to attract potential homeowners and investors, while rising prices and steady job creation have combined to boost buyer confidence and home sales. Rising prices may unlock many underwater homeowners to be able to sell, but builders are unlikely to be able to contribute significant supplies. As a result, foot traffic and sales are likely to outpace inventory replenishment resulting in steady price growth. Traffic should remain strong through the summer as mortgage rates are expected to remain low.
When it was announced that the Federal Housing Administration would extend its mandatory monthly mortgage insurance premiums to a minimum of 10 years up to as long as the life of its 30-year loans depending on the size of the down payment, many market observers were incredulous. Others felt that it was a political move to shore up the FHA’s books in the short term only to be reversed in the long term as the financial pressures on the agency abated. However, given long-term prospects for the mortgage market, this change due June 3rd is wiser than first blush, likely to stay and it may benefit some consumers and the market. On the other hand, others will be hurt and more should be done to limit the impact on borrowers who would hold these loans to term.
The Federal Reserve released its quarterly Beige Book on Wednesday. The Beige Book is a summary of conditions for a number of industries in each of the 12 districts covered by a distinct Federal Reserve Bank. Here are a few of the highlights:
- “Home sales continued to rise in most Districts.”
- “Although homebuyer demand was high in the Boston District, low home inventories were restraining sales, keeping growth modest. Home sales were reportedly strong in both the Atlanta and Dallas Districts.”
- “The Richmond District noted low inventories were pushing up contracts to well above listing prices, and the Boston and New York Districts said multiple bids on properties have become more common.”
- “Tight inventories and strong sales led to rising home prices in many Districts, including Atlanta, Minneapolis, Kansas City, Dallas, and San Francisco.”
- “New home construction continued to pick up in most Districts, although the Richmond District said that a low supply of residential building materials had stalled construction.”
Banking and Finance
- “The Cleveland and Kansas City Districts noted a shift from mortgage refinancing to new purchases, and the New York, Richmond, Dallas, and San Francisco Districts reported an uptick in residential mortgage loans.”
While the tight regional inventories and price appreciation observed by Fed staff were not a surprise, the tight supply of building materials was. Inventories of both new and existing homes are near decade lows due to several years of low construction and a sharp decline in delinquencies and foreclosures in recent quarters. Rising prices may result in more inventories coming to the market (previously underwater owners or otherwise), but unless those sellers downsize or rent, they’ll purchase another single-family home leaving the supply a wash. This pattern coupled with rising household formation suggests a long-term need for additional home construction, construction that will be limited in the near-term.
The shift to purchase mortgage originations should benefit home buyers if it implies a burnout of refinance activity. A decline in refinancing would provide more capacity at banks on the purchase side. This excess capacity and dwindling profits from refinances could push lenders to take on more risk and open up credit from its current historic heights.