Monday, August 8, 2022

Housing market slower but no major price drops yet


Rising home prices and mortgage rates have made it next to impossible for many Americans to afford a home. And, even though the market is starting to show signs of cooling, many prospective buyers will remain on the sidelines for now.

Although they have fallen slightly from the 5.81% peak reached earlier this year, mortgage rates have nearly doubled since the start of the year. Combined with rising home prices, the mortgage payment for the nation's typical home is up by roughly 60% from a year ago, dragging housing affordability down to a 15-year low in June.

That means an increasing number of people are being priced out of the market, especially in some of the nation's most expensive areas. Sales of existing homes fell 14.2% in June from a year before and have fallen on an annual basis in each of the last 12 months, according to Zillow data, indicating a drop in both supply and demand.

For now, there are enough people who are still able to afford a home that prices continue to rise, but there are clear signs the market is starting to rebalance. Home value growth, for instance, is slowing. And while homes that have recently gone under contract have done so very quickly compared to historic norms, the time that the typical home spends on the market is starting to rise from record lows, according to Zillow data. More sellers are also cutting prices.

Many potential buyers who have been stuck on the sidelines are likely cheering this slowdown and hoping prices might fall enough for them to jump back in. But that is unlikely, at least on a grand scale.

While rising mortgage and interest rates chill demand, they also chill supply. Residential construction, which tends to be highly responsive to changes in interest rates, has pulled back in recent months — limiting supply and pushing home prices up. Housing starts fell 6.3% in June from a year ago, and while total home construction permits are up slightly from last year's levels, permits associated with single-family homebuilding fell 11.4% in June from last year's levels.

Declining new construction has long been a leading indicator of economic malaise. And while we can't fully see the future, one thing remains crystal clear: A persistent housing deficit does not bode well for housing affordability in the United States. A key reason homes are so expensive in the first place is that the country is 3.8 million homes short of meeting housing needs.

It's not just new construction that's being slowed by higher mortgage rates. Potential sellers are pulling back from listing — 8% fewer new listings came on the market in June compared to the same month in 2021, according to Zillow data. If a potential seller expects housing demand to fall and their house to sit on the market longer, they become less likely to list in the first place. Nearly a fifth of homeowners surveyed by Zillow earlier this year with no plans to sell cited financial uncertainty as a reason. And with 71% of sellers buying at the same time, and likely facing a much higher mortgage rate than the one they currently have, the idea of trading up — or even downsizing — is much less appealing.

For those trying to get on the housing ladder, all of this means buying won't get notably less expensive for the foreseeable future. Instead, this market transition only suggests that those who can still afford to buy a home are getting a little breathing room.

To truly ease America's affordability crisis, we need to build more housing at all price points — especially entry-level.

Zillow research has shown there is broad support for duplexes, triplexes and accessory dwelling units throughout residential neighborhoods — even among homeowners. Adding units generally helps keep prices down, and these types of homes especially tend to be more affordable than single-family homes.

In addition, loosening single-family zoning restrictions — which prevent homes from being built — could yield millions of additional homes. At the federal level, expanding and passing new tax incentives to build or rehabilitate affordable housing — like the Low-Income Housing Tax Credit and the Neighborhood Homes Investment Act — can also help.

Struggling Americans shouldn't be left cheering for a crash that ultimately won't get them any closer to homeownership. There's no better time for policymakers to help homes of all types be built faster

Monday, August 1, 2022

Markets with up prices & down price


If you wet your beak in the real estate biz, there’s a good chance this already feels like a personal recession. Spiked mortgage rates—which saw the average 30-year fixed rate jump from 3.1% to 5.3% this year—have pushed the U.S. housing market into its swiftest plunge in activity since 2006. Home sales and home construction are both falling—fast. And layoffs have already hit big-name real estate firms like Redfin and Compass, as well as mortgage departments at financial firms like JPMorgan and Wells Fargo.

Housing economists have a name for what we’re seeing now: a “turned-over” housing cycle. That means the housing expansion, which started back in 2011, has been replaced by a downward slide. That said, just because housing activity is falling doesn’t guarantee that house prices will also fall. On paper, the housing crash of 2008 is an anomaly. Historically speaking, house prices are incredibly sticky. Home sellers cling to the price they have in their head for as long as possible. Even during most recessions, house prices go higher—not lower.

As the housing cycle “turns over,” it’s only logical to ask if the housing market is headed for another historical anomaly, i.e. falling house prices, or the historical norm, i.e. rising house prices.

To find out, Fortune reached out to Moody’s Analytics to get access to its latest proprietary housing analysis. Researchers at the financial intelligence firm calculated how house prices are likely to shift in 414 regional housing markets between the fourth quarter of 2022 and the fourth quarter of 2024.

The finding? Among the nation’s 414 largest housing markets, the Moody’s Analytics forecast model predicts that 210 markets are poised to see house prices decline over the coming two years; 204 markets are poised to see house prices rise over the coming two years.

Moody's Analytics forecast model predicts that The Villages in Florida is poised to see the biggest drop in house prices. Between the fourth quarter of 2022 and the fourth quarter of 2024, Moody's Analytics predicts, home prices in The Villages will fall 12.8%. Not too far behind, are Punta Gorda, Fla (-11.4% forecasted home price decline); Spokane, Wash. (-9.4%); Cape Coral, Fla.(-9.4%); Ocala, Fla. (-9.3%); Lake Havasu City, Ariz. (-9%); Fort Lauderdale (-8.6%); Reno (-8.2%); Missoula, Mont. (-7.7%), and Palm Bay, Fla. (-7.6%).

Most of these markets at risk of falling house prices are also the very places that saw the most home price appreciation over the past two years. Now they're simply more vulnerable to a homebuyer revolt. Meanwhile, markets in Florida, where homebuilding soared during the pandemic, are now at an elevated risk of oversupply. If Florida homebuilders can't offload their unsold homes, it could lead to a temporary oversupply.

Among the 414 markets analyzed by Moody's Analytics, Albany, Ga., is predicted to see the biggest jump in house prices over the next two years. Between the fourth quarter of 2022 and the fourth quarter of 2024, Moody's Analytics predicts, home prices in Albany will rise 9.8%. Just behind Albany are Casper, Wyo. (8.0% forecasted house price growth); New Bern, N.C. (7.6%); Rocky Mount, N.C. (7.3%); Augusta, Ga. (7.2%); Hartford (7.1%); Columbus, Ga. (6.6%); Farmington, N.M (6.5%); Valdosta, Ga. (6.4%), and Danville, Ill. (6.3%).

The pandemic housing boom saw the U.S. housing market go from, historically speaking, an affordable housing market to a historically unaffordable market in just 24 months. At the end of the day, that's the main reason 210 markets are vulnerable to falling home prices.

Every quarter, Moody’s Analytics does an analysis to determine if home prices in regional housing markets can be supported by underlying economic fundamentals like local income levels. The last reading wasn't pretty. Through the first quarter of 2022, Moody's Analytics estimates, national house prices are “overvalued” by 24.7%. That means U.S. house prices are now the most detached they've been from fundamentals since the housing bubble.

The pandemic housing boom saw the U.S. housing market go from, historically speaking, an affordable housing market to a historically unaffordable market in just 24 months. At the end of the day, that's the main reason 210 markets are vulnerable to falling home prices.

Every quarter, Moody’s Analytics does an analysis to determine if home prices in regional housing markets can be supported by underlying economic fundamentals like local income levels. The last reading wasn't pretty. Through the first quarter of 2022, Moody's Analytics estimates, national house prices are “overvalued” by 24.7%. That means U.S. house prices are now the most detached they've been from fundamentals since the housing bubble.

Moody's Analytics isn't the only firm predicting that some regional housing markets could see falling house prices. Among the nation's 392 largest markets, CoreLogic estimates that 98 markets have a "high" or "very high" chance of seeing falling house prices over the coming year.

But even if some regional housing markets see falling home prices, it doesn't mean we're headed for a nationwide bust. Neither Moody's Analytics nor CoreLogic predicts a national home price decline. Unlike 2008, this time around homeowners are in better financial shape. Not to mention, the shady subprime mortgages that nearly brought the financial system to its brink in 2008 have been outlawed.

Bill McBride, author of the blog Calculated Risk, tells Fortune he believes that pandemic boomtown markets like Phoenix and Boise—where home prices soared around 60% during the pandemic—might see home values decline by around 5% to 10% over the coming year. But that wouldn't be the end of the world, McBride says.

"So what? You’re still up 50%," McBride says.

Want to stay updated on the U.S. housing market? Follow me on Twitter at @NewsLambert.

Wednesday, July 27, 2022

Fed rate hike 0.75%


Bloomberg) -- Federal Reserve officials raised interest rates by 75 basis points for the second straight month and Chair Jerome Powell left the same move again on the table for the next meeting in September, depending on how the data comes in.

Policy makers, facing the hottest cost pressures in 40 years, lifted the target for the federal funds rate on Wednesday to a range of 2.25% to 2.5%. That takes the cumulative June-July increase to 150 basis points -- the steepest since the price-fighting era of Paul Volcker in the early 1980s.

“While another unusually large increase could be appropriate at our next meeting,” that will depend on the data between now and then, Powell said during a press conference following a two-day policy gathering in Washington.

The Fed will also slow the pace of increases at some point, Powell said. In addition, he said officials would set policy on a meeting-by-meeting basis rather than offer explicit guidance on the size of their next rate move, as he has done recently.

Those comments sparked a rally in US stocks as Powell spoke, with Treasury yields tumbling along with the dollar.

Click here for Bloomberg’s TOPLive blog on the Fed decision and press conference

The Federal Open Market Committee “is strongly committed to returning inflation to its 2% objective,” it said in a statement, repeating previous language that it’s “highly attentive to inflation risks.” The FOMC reiterated it “anticipates that ongoing increases in the target range will be appropriate,” and that it would adjust policy if risks emerge that could impede attaining its goals.

What Bloomberg Economics Says...

While many are worried that the economy is verging on recession, Fed officials see the glass as half full, with the strong labor market allowing the economy to withstand rapid monetary tightening. Bloomberg Economics thinks there’s little chance that the Fed will pause its rate hikes later this year, as markets currently expect.

-- Anna Wong, Yelena Shulyatyeva, Andrew Husby and Eliza Winger

Click here for the full note

The FOMC vote, which included two new members -- Vice Chair for Supervision Michael Barr and Boston Fed President Susan Collins -- was unanimous. Barr’s addition to the board earlier this month ghereave it a full complement of seven governors for the first time since 2013.

Forceful Hikes

Criticized for misjudging inflation and being slow to respond, officials are now forcefully raising interest rates to cool the economy, even if that risks tipping it into recession.

Higher rates are already having an impact on the US economy. The effects are particularly evident in the housing market, where sales have slowed.

While Fed officials maintain that they can manage a so-called soft landing for the economy and avoid a steep downturn, a number of analysts say it will take a recession with mounting unemployment to significantly slow price gains.

The FOMC noted Wednesday that “recent indicators of spending and production have softened,” but also pointed out that job gains “have been robust in recent months, and the unemployment rate has remained low.”

Powell said that he did not believe the economy was in recession, citing a “very strong labor market” as evidence.

Read more: A Bloomberg survey of economists put the probability of a downturn over the next 12 months at 47.5%.

The latest increase puts rates near Fed policy makers’ estimates of neutral -- the level that neither speeds up nor slows down the economy. Forecasts in mid-June showed officials expected to raise rates to about 3.4% this year and 3.8% in 2023.

Investors are now watching to see if the Fed slows the pace of rate increases at its next meeting in September, or if strong price gains pressure the central bank to continue with super-sized hikes.

Futures Pricing

Traders saw a half-point hike at the Sept. 20-21 FOMC meeting as the most likely outcome, according to pricing earlier on Wednesday in interest-rate futures contracts. They see rates peaking around 3.4% by year-end, followed by cuts in the second quarter of 2023.

The US consumer price index rose by 9.1% in June from a year earlier, topping forecasts and hitting a fresh four-decade high. The price gains are eroding earnings and sowing discontent with the economy, creating challenges for President Joe Biden and congressional Democrats ahead of the midterm elections.

High inflation had briefly fueled speculation that the Fed would lift rates by a full percentage point this month. But those bets got dialed back after Fed officials voiced wariness and key readings on consumer expectations for future inflation were better than expected.

Central banks across the globe are engaged in a battle against surging prices. Earlier this month the Bank of Canada hiked rates by a full percentage point and the European Central Bank surprised with a larger-than-expected half-point move, its first increase in more than a decade.

(Updates with Powell comments at start of press conference)

Friday, July 22, 2022

Lack of inventory in half US

America's big coastal cities are known for their pricey real estate, driven by zoning restrictions and inadequate supply of homes. Now those problems are increasingly bedeviling once-affordable towns and cities across the U.S., a new study finds.

More than half of the nation's metropolitan regions had an undersupply of homes in 2019, a sharp increase from one-third of cities in the 2012, according to a recent analysis from housing policy group Up For Growth. The nation is short 3.8 million homes to meet its housing needs — double the number from 2012 — Up for Growth found.

But the lack of housing is spreading beyond large coastal metropolises like San Francisco and New York and into communities across the U.S. As a result, home prices have surged even in smaller cities while exacerbating inequality, with high housing costs shutting out many people of color, young adults and low-income workers from the dream of homeownership

That could have long-term implications if many Americans are locked out of home buying, which is considered one of the primary avenues for building wealth over time.

"Clearly, affordability is at a crisis point for millions of Americans across the country," said Mike Kingsella, CEO of Up For Growth, which focuses on addressing the housing shortage. "Where we are seeing underproduction, we're seeing homeownership fall further and further out of reach."

As part of that growing shortage, 83 cities that had enough housing as of 2012 by 2019 had an undersupply of homes, Up for Growth found in its analysis of Census data. These now housing-starved cities include large metro areas such as the Phoenix-Mesa-Chandler region as well as smaller cities such as Merced, California, and Bend, Oregon.

To be sure, the report covers a period predating the pandemic's outsized impact on the real estate market, when work-from-home policies allowed people in big cities to relocate to less expensive regions. That housing demand, combined with a worsening shortage of homes and low interest rates, pushed prices to new heights, with the median home sales price reaching a record $416,000 in June.

At the same time, the Federal Reserve's recent interest-rate hikes are making it more expensive not only to buy homes, but also to build them, which could aggravate the undersupply problems, Kingsella said. "It's hard to imagine that we would see this get better."

However, he noted, policy changes such as zoning reform bills that allow accessory dwelling units and denser housing could help alleviate some of the issues.

Where housing is in short supply
The 83 metropolitan regions that shifted from having a sufficient housing supply to a shortfall are scattered across the U.S. Many of them are less affluent cities that lack the booming tech, finance and other major industries found in America's biggest urban hubs.

Take Merced, California, a small city in central California that's known for agriculture as well as serving as a base for visiting Yosemite National Park. The town's home prices was decimated by the 2008 housing bust, losing 31% of their value in a single year and making it the second worst-performing real estate market that year after Stockton, California, according to Zillow

But since 2012, Merced's housing market has faced another crisis: not enough homes available for those who want them. In 2019, the city had a shortage of homes that represented 8.7% of its total housing stock. That's even greater than Los Angeles' housing undersupply, which stood at 8.4% the same year, according to the analysis.

With a scarcity of homes, competition among house-hunters in Merced has pushed prices higher. The median home value in Merced stood at $282,900 in 2019, more than double its level in 2012, Up For Growth found. By comparison, the median home value across the nation's 310 metropolitan regions rose about 40% in the same period.

Other cities that shifted from enough homes to a housing shortage include Rust Belt cities like Wisconsin's Appleton, Racine and Green Bay. All three metros have an undersupply of about 5%, the analysis found. Some cities in the Southeast have also been hit by the trend, including the Atlanta area; Richmond, Virginia; and Hilton Head Island-Bluffton, South Carolina.

"California doesn't have a monopoly on exclusionary housing," Kingsella noted. "We're seeing the Southeast particularly falling deeper and deeper into a housing deficit, and at a rate that's much more rapid than places like California."

"We have a problem"
The current housing market is particularly tough on low-income Americans, said Peggy Bailey, vice president for housing policy at the research group Center on Budget and Policy Priorities, who testified on Thursday at a Senate hearing on the state of housing in America.

When new properties are developed, they are now often aimed at middle- and higher-income households, partly due to the pressures on developers from rising prices for land, supplies and labor — all costs that have sharply increased during the pandemic. As a result, low-income and affordable housing projects are becoming unaffordable for developers, according to Pew Stateline.

"We have partly been in a development boom over the last 18 months," but the typical rents for those properties are about $1,700 to $1,800 a month, Bailey said at the hearing. "The median renter can only afford about $1,000 month."

Housing shortages and affordability issues are hurting the economy, said Senator Jon Tester, a Democrat from Montana.

We have a problem," he said. "It is having some major impacts on economic growth in small towns because there's no place for the workforce to live, no place for entrepreneurs to live."

Widening wealth inequality
Changing zoning laws and supporting funding for more affordable housing are among the strategies that could help alleviate the housing shortage crisis, Kingsella said. For instance, areas that have job opportunities and strong infrastructure, but lack sufficient housing, could support up to 40% greater housing density, the Up For Growth report noted.

"It means supporting more homes and [Accessory Dwelling Units] and duplexes and triplexes and showing up at city council meetings and saying yes to more housing," he said.

Without expanding the nation's housing supply, in short, the market's dynamics aren't likely to change. A continued shortage will benefit existing homeowners, without helping those with lower rates of homeownership, such as Black Americans, experts say.

"If we are raising demand but not increasing supply, most of the benefits would go to current owners, who tend to be White Americans," noted Lawrence Yun, chief economist at the National Association of Realtors, at the Senate hearing.

It might feel good for current homeowners to see their Zillow "Zestimate" rising each year, but surging home prices divorced from a similar surge in household incomes are contributing to widening wealth inequality, Kingsella noted.

Because home prices are rising much faster than incomes, current homeowners are growing their wealth at a faster pace than people who can't get a foothold into the housing market, Kingsella said. "We're seeing housing costs in particular driving income and wealth inequality," he added.

— With reporting from Irina Ivanova

Thursday, July 21, 2022

Why now is the best time to buy?

Here’s why Americans think now is the best time to buy a home

Despite the crush of inflation, rising mortgage rates to battle and the ongoing woes of rising rent, a new study shows that, hey, maybe there’s some reason for optimism?

Some six in 10 Americans, or 56%, believe that “right now” is the time to buy a house, according to the study, conducted by OnePoll on behalf of the fintech mortgage lender Lower. The survey compiled responses from 1,000 homeowners and 1,000 renters, finding that 55% of respondents claim ongoing record-high inflation has made them want to buy a home even more.

Specifically, 47% of that group said they aim to get one in the next year. The bulk of that individual sample, 74%, add that it would be their first time buying a house. Just 26% are existing homeowners who want to get something else.

Just more than half of the participants — 51% — said they see homeownership as an investment opportunity toward financial freedom, while 50% said they want to get their foot in the door of homeownership before appreciation rises more. Others with their eyes on their golden years — 42% to be exact — said they want to live comfortably in retirement. (Of the total pool, 41% admitted to feeling bored in their current residences, and 41% aim to get a home for their growing family.)

“Homeowners have gained tens of thousands in equity over the past few years. This is money renters have left on the table,” Lower co-founder and CEO Dan Snyder said in the report. “A lot of people are waiting until prices cool off, but the reality is, they’ll just slow down from their record-breaking pace. Now is the time to buy before appreciation continues to climb.”

Of the study’s pool, 30% felt optimistic that the housing market will cool off in the next year — while 43% saw the “very” concerning status quo continuing, while 25% believed things will take a turn for the worst.

And though headlines of the housing market cooling off are making their way through the media, 45% of the poll’s participants said the boom — and the high demand that came with it — is actually getting even hotter. (Just 10%, meanwhile, thought the boom has slowed down.)

For the 1,000 renters, 56% of them said they want to move but can’t afford to. Among them, 27% pay $2,001 to $3,000 per month, 20% pay between $1,001 and $2,000 — while 16% owe $3,001 to $4,000 per month. Still, 57% of those 1,000 polled hoped to own their own homes one day. Their reasoning included financial stability — 40% — and the chance to gain financial freedom, for 35%.

“It may seem daunting, but it doesn’t have to be,” Snyder added. “Find a real estate agent and a lender who value the customer experience by creating a certain, simple process. They’ll help you along the way and your biggest worry will be finding the perfect home.”

Freeze in housing market?


The US housing market is on the cusp of a “deep freeze” as rising mortgage rates and steep home prices conspire to limit buying and selling activity, a prominent economist warned this week.

Mark Zandi, the chief economist of Moody’s Analytics, pointed to a slowdown in demand among prospective home buyers. Sales of previously owned homes slumped by 14.2% in June compared to the same month one year earlier, even as the median sale price jumped to 13.4% to $416,000 over the same period, according to the National Association of Realtors.

“It makes sense, with the higher mortgages conflating with higher house prices, first-time homebuyers just can’t afford to buy in. They’re locked out,” Zandi told CNBC. “And trade-up buyers, they’re kind of locked in because if they sell and buy, they’ve got to get another mortgage at a higher rate and their monthly payments are going to rise.”

Zandi added that real estate investors are “going to the sidelines” until market conditions become more favorable

Demand is really weakening very rapidly and you’re right, I think housing is going into a deep freeze,” Zandi said.

All forms of borrowing are becoming more expensive as the Federal Reserve hikes interest rates to combat inflation. The volume of mortgage loan applications recently hit a 22-year low as the higher rates and steep home prices shut real estate shoppers out of the market.

Earlier this week, the National Association of Home Builders/Wells Fargo Housing Market Index showed home builder confidence fell 12 points to 55 in July, hitting its lowest level since May 2020 as builders react to the deteriorating conditions.

Zandi noted his view that “house prices have peaked,” with declines likely to follow later this year or early next year as sellers acknowledge the reality that their asking prices have become unaffordable.

“I’m not arguing we’re going to crash; I’m just arguing there’s a major comeuppance coming in regard to house prices. I think the market is under a lot of stress,” he added.

Earlier this week,  Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the housing market was on the verge of a “meltdown” due to sagging demand and confidence.

As The Post reported in June, Zandi and other economists warned that a housing correction was inevitable due to rising interest rates – though experts say the slowdown won’t reach the depths that occurred during the subprime mortgage crisis of 2008.