Spring is here, and with it comes home buying season. If you’re in real estate, it’s about to get really interesting. There are also some unique challenges you and your buyers might be confronting in the market now. Let’s get to what you need to know.
The Big Story
The housing market has been red-hot for quite a while now. Sales for both new and existing homes have been on an absolute tear. But last month, both of these metrics took a step back.
One likely reason for this is no doubt a moderate increase in mortgage rates. However, it seems to me we talk about that enough. Today, we would like to spotlight another factor causing issues in the housing market and possibly even delaying the construction of homes in some areas.
There’s a real shortage of the necessary materials for constructing and renovating homes at this point. According to a December report from the U.S. Chamber of Commerce, 71% of builders were facing a shortage of at least one material.
That means the houses that were being built in December that may just be getting ready to come on the market now may either be delayed or come with higher prices. The material most in demand was lumber, with 31% of contractors experiencing a shortage.
Additionally, most contractors are saying that increased cost fluctuation is having a moderate to high impact on their business, with 74% agreeing with that statement.
This environment, when combined with mortgage rates that are starting to rise, could cause your buyers to have a more difficult time finding a house at the moment. Your roles as a finder, negotiator and amateur psychologist for your clients are really going to come in handy right now. Be the support they need.
This portion of the report was aided by analysis from our friends at Econoday.1
Consumer Price Index (CPI)
Inflation was up 0.4% overall in February for consumers and 1.7% over the last 12 months. Once food and energy were removed, prices were only up 0.1% and 1.3% annually.
Of particular interest to this audience was the fact that the cost of shelter was up 0.2% for the month. Additionally, gas prices were up 6.4%. As the outlook improves with the virus and people return to the office at least part of the time, some may be looking for places with a shorter commute. Of course, this will be heavily dependent on the client and their work situation.
Housing Market Index
The U.S. housing market is still extremely strong, according to builders. In this survey of home builders, the composite score is an unusually high 82. Present sales were down 3 points, coming in at 87. However, this is partially offset by a 3-point increase in the number of homes expected to be sold over the next 6 months.
Finally, traffic of prospective buyers walking through homes was flat at 72. While this is lower than some of the other component scores, it’s still very high in comparison to where this metric has been over the past several years.
New Residential Construction
Let’s start with completions because it’s the number that has the most immediate impact and it’s the one good item in this report if you’re a real estate agent. Housing construction completions were up 2.9% to 1.362 million on a seasonally adjusted annual basis. Single-family completions were up 2.8% to 1.042 million and there were 314,000 multifamily completions.
Housing starts came in at an annual rate of 1.421 million, which is down 10.3% from January. It’s also 9.3% below last February. Single-family housing starts were down 8.5% to 1.040 million. Meanwhile, multifamily starts were 372,000.
Finally, permits for new construction fell 10.8% to a seasonally adjusted annual rate of 1.682 million. However, this is 17% higher than last February. Single-family permits were down 10% at 1.143 million. Finally, there were 495,000 multifamily permits.
Existing Home Sales
The good news in this report is that supply has increased, if only marginally. At the current pace of sales, existing homes would sell out in 2 months as compared to 1.9 months in January.
The bad news is that sales of existing homes were down 6.6% to come in at 6.22 million. The median home price also rose 3.1% to $313,000, up 15.8% on the year.
Single-family sales were down 6.6% at 5.52 million annually, while condos came in down 6.7% at 700,000.
New Home Sales
New home sales were down nearly 20% in February, coming in at an annual rate of 775,000. Sales are still up 8.2% compared to last year, but this is quite a drop off in yearly appreciation compared to the 50% levels that we saw earlier this year.
The median price of a new home came in at 349,000, which is down 1.1% in February. Supply also increased from 4.2 months to 4.8 months at the current pace of sales. However, sales were down across all regions, most notably in the Midwest.
Gross Domestic Product (GDP)
In the final revision of the fourth quarter data, the U.S. economy grew at a rate of 4.3%. Personal consumption expenditures were up 2.3%. Of most interest to real estate agents should be the fact that residential investment increased by 36.6%.
Case-Shiller Home Price Index
This particular home price index is based on a 3-month average of all purchase transactions culminating in the month being reported for a survey of 20 cities.
In January, the Case-Shiller index was up 1.2% on a seasonally adjusted basis. Prices were up 0.9% overall and have risen 11.1% on the year before adjustment. This is the fastest pace of annual appreciation in 8 years.
FHFA House Price Index
The FHFA House Price Index is based on conventional loans from Fannie Mae and Freddie Mac alone. It’s also not a 3-month average.
Despite the different data sets, the two indexes show remarkably similar numbers. In January, prices were up 1% and these have risen 12% on the year. That’s a record going back to 1991.
Rocket Companies’ Home Value Index
According to data from Rocket Companies, home values based on appraisals were up 1.17% for the month and 9.04% annually. In February, the West was the only region that lost ground, but it’s been the hottest market all year up 10.81% over the last 12 months. For all other regions, they saw monthly gains and nearly appreciation is in the 7% – 8% range.
Pending Home Sales Index
The number of homes under contract for sale in February was down 10.6% to an index level of 110.3. This isn’t a good sign for March existing home sales numbers.
This points to the effect of higher mortgage rates, but also remaining COVID-19 restrictions and a bad spate of winter weather. It’ll be interesting to see where this number goes as home buying season heats up (literally).
Mortgage rates barely budged last week, but there’s little doubt that they’ve been on the rise slightly. If you have a client who’s been waiting for their moment to strike, but they’re otherwise ready, now isn’t a bad time.
The average rate on a 30-year fixed mortgage with 0.7 points paid in fees was up a single basis point to 3.18% last week. This has fallen from 3.33% at this time a year ago.
Meanwhile, looking at shorter terms, the average rate on a 15-year fixed with 0.6 points paid in fees was flat at 2.45%. This has fallen from 2.92% last year.
Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable-rate mortgage was unchanged at 2.84% with 0.3 points paid. This has fallen from 3.4% last year at the same time.
We hope this will help you share some valuable insights for your clients. For even more tips, tricks and resources, check out Rocket ProSM Insight.
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