by tyler | Jun 27, 2023 | CNN, homes
New home sales surged in May, as buyers looked to new construction as an alternative to the low inventory of existing homes for sale.
Sales of newly constructed homes were up 12.2% in May from April, and up 20% from a year ago, according to a joint report from the US Department of Housing and Urban Development and the US Census Bureau.
May’s month-over-month gain is further evidence that the new construction market is being boosted by the exceptionally low inventory of existing homes for sale. Homeowners with ultra-low mortgage rates are reluctant to sell and buy another home at a much higher rate. Sales of existing homes have been down for the past few months, while new home sales have been rising.
Sales of new single‐family houses were at a seasonally adjusted annual rate of 763,000, up from a revised 680,000 in April. Sales were higher than last year’s estimated rate of 636,000.
Mortgage rates reached as high as 6.79% at the end of May as uncertainty moved through the financial industry due to the debt ceiling standoff. This increase in mortgage rates cooled mortgage applications.
In some good news for buyers, prices of new homes dropped from April, the report showed. The median price for a new home dropped to $416,300 in May, down from a revised $487,300 the previous month.
New home sales rose in every region of the country, with some of the largest monthly gains seen in the Northeast, South and West.
New home sales have been bolstered by a favorable mix of low inventory, builder incentives and resilient demand; however, that environment may not be that long-lasting, Oxford Economics’ US economists wrote in a note Tuesday.
“We don’t think the pace of sales can be sustained… and we expect new home sales to lose some momentum as the economy enters a recession and the labor market softens,” wrote economists Nancy Vanden Houten and Ryan Sweet.
However, if the housing market continues to accelerate, it could force the Federal Reserve to return to its interest-hiking ways, said Eugenio Aleman, chief economist for Raymond James.
After a string of 10 consecutive rate hikes, the Fed earlier this month opted to not raise rates and instead take a pause to review the economic landscape.
“The May new home sales report also shows that the Federal Reserve may want to increase interest rates higher because current mortgage rates don’t seem to be high enough to slow down the sector and could pose a threat to the current disinflationary process going forward,” Aleman said.
by tyler | Jun 27, 2023 | CNN, homes
Home prices rose in April for a third consecutive month, according to the latest S&P CoreLogic Case-Shiller US National Home Price Index released Tuesday.
After seasonal adjustment, the national index rose 0.5% in April from March. Both the 10-City and 20-City composites saw increases, too, rising 1% and 0.9%, respectively. Before seasonal adjustments, the national index rose 1.3% from March. April’s increase comes after an uptick in February that snapped a seven-month streak of month-over-month declines.
“The US housing market continued to strengthen in April 2023,” said Craig Lazzara, managing director at S&P DJI. “If I were trying to make a case that the decline in home prices that began in June 2022 had definitively ended in January 2023, April’s data would bolster my argument.”
The recovery, Lazzara said, is broad-based: On a non-seasonally adjusted basis, prices rose in all 20 of the major cities tracked by the index, and when looking at seasonally adjusted data, all rose except for the Phoenix market, which as slightly down.
He added: “Whether we see further support for that view in coming months will depend on how well the market navigates the challenges posed by current mortgage rates and the continuing possibility of economic weakness.”
The 30-year fixed-rate mortgage averaged 6.67% for the week ending June 22, according to data released last week by Freddie Mac.
On an annual basis, however, home prices fell 0.2% — the first yearly drop since 2012, according to the S&P report.
This time last year, home prices were continuing a hot streak of three consecutive months of more than 20% annual gains, a surge that would eventually peak in June 2022.
However, it was a flashpoint of a housing market in transition. In March 2022, the Federal Reserve enacted the first of what would be a string of 10 consecutive interest rate hikes, throwing ice cold water over the housing market and other rate-sensitive industries in an attempt to combat decades-high inflation.
Although mortgage rates have risen since last year, prices remain strong in part because there are fewer options available for those who can still afford to buy.
Low housing inventory creates competition and pushes prices up.
May’s home price index “reinforced the idea that home prices are responsive to interest rate adjustments, as home shoppers continue to push budget boundaries in today’s pricey housing market,” said Danielle Hale, Realtor.com’s chief economist.
“Home price trends are caught in a tug of war between stretched buyer budgets and limited inventory forcing competition despite reduced affordability. With high mortgage rates keeping 1 in 7 homeowners from selling, new listings have lagged far behind what we’ve seen in prior years, pushing buyers to continue to bring their best offers even as home sales are 20% lower than at this time last year.”
Hale said she expects modest price cooling to continue, as affordability will slowly win out, according to a revised forecast for the rest of 2023 from Realtor.com.
“But as we’ve seen in the data, price trends will vary from market to market,” she added.
The largest year-over-year increases were in Miami, up 5.2%; Chicago, up 4.1%, and Atlanta, up 3.5%, according to the S&P report. The largest year-over-year declines were in Seattle, down 12.4%; San Francisco, down 11.1%; and Las Vegas, down 6.6%.
by tyler | Jun 20, 2023 | CNN, homes
US home building surged in May, climbing 21.7% from April, as low inventory in the existing home market continued to boost interest in new homes.
Housing starts, a measure of new home construction, came in far beyond expectations that they would decline by 0.1%, according to data released Tuesday by the Census Bureau.
The number of single‐family units rose in May to 1.631 million, above expectations for 1.40 million and above the revised April estimate of 1.34 million.
Building permits, which track the number of new housing units granted permits, also rose in May, after dropping in March and April. Permits were up 5.2% from the revised April rate of -1.5%.
A separate survey released on Monday from the National Association of Home Builders revealed that the lack of inventory in the existing home market — as current homeowners hunker down with their ultra-low interest rates — continues to boost home builder sentiment.
The National Association of Home Builders/Wells Fargo Housing Market Index gauges market conditions and looks at current sales, buyer traffic and the outlook for sales of new construction homes over the next six months.
The index rose again in June, marking the sixth-straight month that builder confidence has increased and the first time that sentiment levels have surpassed the midpoint of 50 since July 2022.
“A bottom is forming for single-family home building as builder sentiment continues to gradually rise from the beginning of the year,” said Robert Dietz, chief economist at the NAHB. “The Federal Reserve nearing the end of its tightening cycle is also good news for future market conditions in terms of mortgage rates and the cost of financing for builder and developer loans.”
Dietz added that the Federal Reserve and Washington policymakers must take into consideration how the state of home building is critical for the inflation outlook and the future of monetary policy.
“Shelter cost growth is now the leading source of inflation, and such costs can only be tamed by building more affordable, attainable housing — for-sale, for-rent, multifamily and single-family,” he said. “By addressing supply chain issues, the skilled labor shortage, and reducing or eliminating inefficient regulatory policies such as exclusionary zoning, policymakers can play an important and much-needed role in the fight against inflation.”
It is good news for home buyers that builders feel more optimistic, given low levels of existing home inventory and ongoing gradual improvements for supply chains, said Alicia Huey, NAHB’s Chairman.
“However, access for builder and developer loans has become more difficult to obtain over the last year, which will ultimately result in lower lot supplies as the industry tries to expand off cycle lows.”
Another sign that builders are optimistic that purchase demand is strong is that overall, builders are gradually pulling back on sales incentives.
The share of builders cutting prices to boost sale dropped to 25% in June, down from 27% in May and 30% in April. It has declined steadily since peaking at 36% in November 2022.
In addition, the average price reduction for a new home was 7% in June, below the 8% rate in December 2022. A little over half of builders offered incentives to buyers in June, less than in December 2022, when the share was 62%.
by tyler | Jun 8, 2023 | CNN, homes
Mortgage rates dropped this week after a three-week climb, as rates remain volatile amid conflicting economic indicators.
The 30-year fixed-rate mortgage averaged 6.71% in the week ending June 8, down from 6.79% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed rate was 5.23%.
“While elevated rates and other affordability challenges remain, inventory continues to be the biggest obstacle for prospective homebuyers,” said Sam Khater, Freddie Mac’s chief economist.
With rates much higher now than the fixed rate that many current homeowners bought or refinanced into, they are reluctant to put their homes on the market and trade their ultra-low interest rate for something much higher. This is leading to low inventory of homes to buy.
Mortgage rates topped 5% for the first time since 2011 a little more than a year ago and have remained over 5% for all but one week during the past year. Since then they have gone as high as 7.08%, last reached in November. Since mid-March, rates have gone up and down but stayed under 6.5% until last week.
The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit.
Mortgage rates are experiencing daily fluctuations driven by volatility and uncertainty in the economy, said Jiayi Xu, an economist at Realtor.com, and climbed following the trend of 10-year Treasury yields, as investors evaluate the possible direction of Federal Reserve interest rate policy at its meeting next week.
In speeches last week Federal Reserve officials mentioned skipping a rate hike in June, enabling the Fed to gather more data before making any decisions, said Xu. While the comments are not official policy, she said, “by framing the discussion in terms of “skipping” rather than “pausing,” policymakers are indicating that the current interest rate may not have reached its peak for this particular economic cycle.”
The Fed does not set the interest rates that borrowers pay on mortgages directly, but its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.
More hikes may be necessary to cool inflation and the hot job market.
“May’s jobs report reflected another month of stronger employment activity with higher-than-expected net new jobs added to the market,” said Xu. “However, the simultaneous rise in the unemployment rate in May showed mixed signals in the labor market, indicating the complexities involved in interpreting economic data and introducing uncertainties in the upcoming Federal Reserve policy decisions.”
Xu added: “While the potential for another rate hike raises the prospect of increased mortgage rates, the objective of curbing inflation will ultimately lead to a decline in mortgage rates, bringing much-desired stability to the market.”
Home buyers remain sensitive to mortgage rate spikes, with mortgage applications dropping last week, according to the Mortgage Bankers Association.
“The housing market has gotten off to a slow start this summer due to higher mortgage rates, low inventory, and economic uncertainty,” said Bob Broeksmit, MBA president and CEO. “The labor market continues to be exceptionally strong, which could bring more buyers back into the market once rates move away from their recent highs.”
But they’ll have to come down significantly before some home buyers get in the market.
The most common mortgage rate that is cited as comfortable for potential buyers constrained by finances was between 3% and 3.25% — less than half of today’s level — according to a new survey by Realtor.com and Censuswide.
“Even for individuals with plans to purchase within the next year, almost 80% of them expressed concerns about being priced out of the market if housing prices and mortgage rates continue to rise,” said Xu. “Consequently, affordability will play a crucial role in helping them achieve their goal of purchasing a home.”
by tyler | Jun 8, 2023 | CNN, homes
Manhattan rents hit another record high in May and are not expected to ease up any time soon, according to a monthly report released Thursday from Douglas Elliman, a brokerage, and Miller Samuel, an appraisal and consultant firm.
While rents are cooling in some parts of the United States, the cost to rent a Manhattan apartment hit a record high in May for the third month in a row.
The median cost of renting an apartment in Manhattan was $4,395 in May. That’s up 10% from a year ago and up 3.6% from April, when rents were at a record high of $4,241. The average rent for all apartments in May was $5,379.
Over the past 18 months, rents have been consistently near or breaking record highs in Manhattan, said Jonathan Miller, president and CEO of Miller Samuel.
“From the beginning of 2022 when we were just beginning to think about whether the Federal Reserve was going to do something with rates and the purchase market slowing down, there has been upward pressure put on rents in Manhattan,” Miller said.
A one-bedroom apartment had a median rent of $4,275 in May, up 7% from last year, while a two-bedroom apartment had a median rent of $5,400, up 8% from a year ago. A studio apartment rents for a median price of $3,200, up 7.6% from last year.
Not only are median rental prices going up, but the share of new leases with concessions — or incentives offered by landlords — is dropping. Only 11.7% of new leases came with concessions, compared with 12.9% last month and 15.3% a year ago.
Inventory is up 21% from last year, but it is still below the average inventory levels over the past decade.
“Rents are rising, but inventory is still lower than average in the long term,” Miller said. The upside of increasing inventory, he said, is that once the seasonal peak passes and demand begins to cool, that extra inventory may help keep prices from rising more in the fall.
But rents falling? Not likely, said Miller.
“The only thing I can see that would take the pressure off rents and create a meaningful decline is a recession,” said Miller. “They’ve been forecasting a recession for the past two years. But until an adverse economic event occurs, it is hard to imagine a meaningful drop in rents.”
Rents were also at or near record highs in the boroughs of Brooklyn and Queens last month, according to the report.
Brooklyn hit a record high median rent for the second straight month, with the median price for all apartments at $3,550, up 1.4% from April and up 9.2% from a year ago.
In Queens, May’s median rent of $3,402 was the second highest on record, up 15.3% from a year ago.
For those looking for an apartment in New York City, expect more record high rents ahead.
Typically, rental activity builds from the spring to a peak in late summer, and prices are expected to reach more highs before September, Miller said.
“May is the middle of peak rental season,” he said. “With heavy new leasing activity, it seems reasonable to expect a few more months of records.”
by tyler | Jun 2, 2023 | CNN, homes
Commercial and multifamily mortgage delinquencies increased in the first quarter of 2023, according to a new report from the Mortgage Bankers Association.
“Ongoing stress caused by higher interest rates, uncertainty around property values, and questions about fundamentals in some property markets are beginning to show up in commercial mortgage delinquency rates,” said Jamie Woodwell, MBA’s head of commercial real estate research.
Commercial real estate was hit hard by the pandemic, with fewer people returning to offices and spending money — eating lunch, getting their nails done, using dry cleaners — in those corridors. Over the past 14 months the Federal Reserve has hiked rates 10 times, pushing the cost of borrowing ever higher. Together with tightening credit, as a result of bank failures this spring, commercial and multifamily companies are facing headwinds.
“Delinquency rates increased for every major capital source during the first quarter, foreshadowing additional strains that are likely to work their way through the system,” Woodwell said.
The quarterly analysis looks at delinquency rates for five of the largest investor groups: FDIC-insured banks and thrifts, commercial mortgage-backed securities, life insurance companies, and Fannie Mae and Freddie Mac. Together, these groups hold more than 80% of commercial and multifamily mortgage debt.
MBA’s analysis incorporates the measures used by each individual investor group to track the performance of their loans. Because each investor group tracks delinquencies in its own way — some include loans with payments 30-days late, some 60-days, some 90-days — delinquency rates are not comparable from one group to another.
For example, Fannie Mae reports loans that are in a forbearance agreement as delinquent, while Freddie Mac excludes those loans if the borrower is in compliance with the forbearance agreement.
Although the groups’ definitions of delinquency vary, delinquency rates for each group at the end of the first quarter of 2023 were higher than at the end of 2022.
Banks and thrifts had a delinquency rate of 0.58%, an increase of 0.13 percentage points from the fourth quarter of 2022. Life company portfolios had a rate of 0.21%, up 0.10 percentage points from the end of last year.
Fannie Mae had a rate of 0.35%, an increase of 0.11 percentage points from the fourth quarter of 2022. Freddie Mac had a delinquency rate of 0.13%, an increase of 0.01 percentage points from the fourth quarter of 2022.
Commercial mortgage-backed securities had a delinquency rate of 3%, an increase of 0.10 percentage points from the end of 2022.
Construction and development loans are generally not included in the numbers presented in the MBA’s report but are included in many regulatory definitions of ‘commercial real estate’ despite the fact they are often backed by single-family residential development projects rather than by other income-producing properties.
The FDIC delinquency rates for bank and thrift held mortgages reported here do include loans backed by owner-occupied commercial properties.
