Can House Prices Rise as Sales Slow?
Here is an interesting picture. The S&P/Case-Shiller House Price index showed prices in the 20 largest cities increased 13.3 percent annually in September, the highest year-over-year increase since February 2006. Yet, existing home sales have slowed a bit and pending home sales have been lower for several months, according to the National Association of Realtors. How can home prices be rising at a time in which home sales are slowing down? The answer is found in two important numbers. For one, the percentage of distressed sales is falling as the foreclosure inventory shrinks. LPS reports that the foreclosure inventory is down 30% over the past year. Since distressed homes sell at a significant discount over non-distressed sales, it makes sense that the average sale price is rising. During the height of the housing crisis, the flood of foreclosed homes exaggerated the drop in home prices and on the way out of the crisis, the rise in home prices is now exaggerated by the lower numbers of these sales.
Secondly, we still have a lack of inventory in many markets, especially at the lower end of the market. Housing sales are being held back because of this lack of inventory but at the same time we are not seeing slower housing sales cause downward pressure on prices. If there is more demand than supply, prices will be stable or rise regardless of the number of total sales. What does this mean for the future? If demand continues to rise, housing prices will continue rising or at least stabilize. The first factor -- distressed sales --- will become less of a factor in the future as we approach normalized levels of distressed sales.
The key is demand. If the economy continues to produce jobs at a decent rate, then we will have a greater demand for the real estate market. That is what makes November's employment report interesting. Heading into December we had a series of numbers which pointed to a stronger jobs market, including the lowest number of first time claims for unemployment benefits since before the recession started and a strong October employment report. This made the markets optimistic before the numbers were released. And the numbers did not disappoint as the economy once again created more than 200,000 jobs and the unemployment rate dropped to 7.0%.
It is official. FHA’s Office of Single Family Housing published Mortgagee Letter 2013-43 on Friday, December 6. This letter announced that on January 1, 2014, FHA will implement new Single Family loan limits for mortgages as detailed in the Housing and Economic Recovery Act of 2008 (HERA). As a result, the calculation of FHA’s maximum loan limits in high cost metropolitan areas of the country will be reduced and the current high “ceiling” of $729,750 will be reduced to $625,500. The revisions will be effective for all applications submitted after the end of December. The letter also announces the limits for areas between the base and high-cost limits which are also lower in many areas as well as the limits for reverse mortgages. Note that VA has not made their announcement regarding possible changes for next year as of December 6. Source: FHA Note: To be assured of obtaining the higher loan limits a prospective home buyer will need to ratify a contract and submit an application to a lender several days before the end of the year. FHA has lower down payment requirements as compared to conventional mortgages.
The Mortgage Bankers Association’s (MBA) Research Institute for Housing America (RIHA) released a new report entitled A Profile of Housing and Health among Older Americans authored by Professors Michael D. Eriksen of Texas Tech University, Gary V. Engelhardt of Syracuse University, and Nadia Greenhalgh-Stanley of Kent State University. “The study found older Americans who own their homes are more financially secure and generally experience fewer impediments to good health than their peers who rent,” said Professor Eriksen. “Owning a home provides the single largest asset in most Americans’ retirement portfolios, while renters have far more difficulty modifying their living space to adapt to any of the myriad physical ailments that tend to affect older people. Our report serves as a useful reference for all parties interested in the implications of housing on an aging society, a situation America now faces with large numbers of the Baby Boomer generation rapidly heading into retirement age.” This latest study provides a profile of the housing, functional status and health status of the near old (individuals aged 55 through 64) and older Americans (aged 65 and older) using the most recent data available from the Health and Retirement Study, a joint product spearheaded by the National Institute on Aging and the University of Michigan. “Housing demand over the next decade will be significantly impacted by the aging of the U.S. population. Real estate finance must also evolve to meet these changing needs, whether older Americans age in place and continue to own their homes, or whether they rent,” said Mike Fratantoni, executive director of RIHA, and vice president, Research and Policy Development for MBA. The study found that there were more than 47 million near old and older American households in 2010, of which 80 percent were homeowners. In addition, housing is still the dominant asset in the portfolios of older Americans. Median housing equity for older American homeowners was $125,000; the median housing-equity-to-income ratio was 2.4:1; and 50 percent of the typical older homeowner’s portfolio was composed of housing wealth. Source: NMP Daily
More home buyers are saying that living near family members is not an important consideration for them when home-shopping. They’d rather concentrate on property size, crime rates, school district, and length of commute when shopping for a new home rather than focusing on the distance to their in-laws, according to a new survey by Trulia and research firm Harris Interactive. The No. 1 driver in their home search? Home size, according to 70 percent of adults surveyed with children. The other top concerns for home-shopping that followed were crime rate, school district, and length of commute. On the other hand, 33 percent of adults with children and 29 percent of adults without children cited proximity to family members as important criteria when looking for a home to purchase. “Family members want intimacy at a distance,” says Deborah Carr, professor of sociology at Rutgers University. “They want love and support from their kin, but they also want to maintain their independence and autonomy.” That said, when times get tough, more Americans say they want to be near families. A survey during the recession by Relocation.com showed that Americans wanted to move near family or move-in with family to help curb costs. Multigenerational households have been rising. In fact, in 2008, 16 percent of Americans lived in a household with at least two adult generations — a record percentage, according to Pew Research Center research. Source: The
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