Blog

High Rents Boost Home Sales Despite Low Affordability

It is projected that the economy will continue to grow throughout the rest of 2016, bringing increased household income and only small increases in mortgage rates. Unfortunately, this may not be enough to combat the declining affordability of homes. Low inventory continues to plague the market, driving up prices and inciting bidding wars on desirable units throughout the country.

Meanwhile, though the Millennial generation has thus far been slow to embrace homeownership, increasing home values have been inspiring young professionals to make the transition. As rents go up faster than income, it is getting more and more viable to take on a mortgage as an alternative. However, with over 60% of millennials working full-time earning less than the national median income of $46,480, this remains a dream that will remain frustrated for many would-be homeowners for a while yet.

The sustained demand for apartments has brought about an influx of apartment inventory. An increased number of units are added every year, more than sixty percent of which are rented within three months of completion.

Home Sales Still on the Rise, but Year-Over-Year Gains Slowing Down

According to the National Association of Realtors, its Pending Home Sales Index went up by 3.5% in February. This soundly reverses the disappointing decline reported last month and puts current rates of home sales up to its highest levels in seven months. These figures are based only on signed home purchase contracts, but such contracts generally result in transactions closing within about two months and are a fairly reliable wan to predict upcoming home sales.

The bad news is that the gains in home sales seem to be shrinking. Compared to February of 2015, it would appear that sales are up by only 0.7%. Though year-over-year sales have been up for over the last eighteen months, these most recent figures represent the smallest annual gain.

A silver lining in these weakening sales is that we are looking at a similar slow down in price appreciation. Home prices were up by 4.4% last month. Though this is still outpacing wage growth and doing little to counteract rising mortgage rates, it is far more favorable than the 8.1% increase experienced in January.

Mortgage Rates See Strongest Friday in Over a Year

Last Friday didn’t see much in the way of improvement in terms of mortgage rates. In fact, some lenders were quoting higher rates over Thursday. All the same, the average rate remained fairly low, representing the lowest rate that many lenders have been quoting for the end of the week in almost three years.

With rates as strong as they are, it’s not a bad idea to lock in. However, it would definitely seem that we are experiencing a downward trend, and it’s not overly optimistic to expect to see even better rates in the future. Trends can change at any moment, but as long as you are prepared to lock in at the first sign of a reversal, you should be in pretty good shape.

As far as this week goes, you can likely not expect much movement early on. Wednesday is the day to look forward to, with the Retail Sales and Producer Prices data released in the morning and the 10-Year Treasury auction in the afternoon. After that, Thursday will bring us the 30-Year bond auction and the CPI release.

The Construction Season Gets Off to a Weak Start

March is the beginning of the construction season for builders in much of the country. Unfortunately, as we look back at this last month, we’re not getting a very positive outlook on this year’s residential construction.

According to the data recently released by the U.S. Census Bureau and the Department of Housing and Urban Development, permits and housing starts fell from February levels, far below what analysts were anticipating. Permits for the month came out to a seasonally adjusted annual rate of 1,086,000, which comes in 7.7% shy of the February estimate. This also represents the fourth consecutive month of declines in permits. Here in the West, there was a decline in permitting of 15.4% over the previous month, and 6.1% over March of 2015.

There was, however, an improvement in housing completions last month. This figure came in at a seasonally adjusted annual rate of 1,061,000, representing a 3.5% improvement over February and a 31.6% increase over March of 2015.

Favorable Rates Bring About Lows in Delinquency

Black Knight Financial Services has good news for the US economy. According to their assessment of distressed properties, the national delinquency rate has dropped down to a level that the nation hasn’t seen in fifteen years. Meanwhile, the serious delinquency rate, representing the number of mortgages that are ninety days or more past due, is lower than it has been since March of 2007. Even loans that are only thirty days or more past due dropped to 4.08% of total mortgage loans in March, representing a decrease of 8.37% from the month before and 12.42% from March of 2015.

It would seem that the recent decline in interest rates is the driving force behind much of this activity. The company reports that low rates have brought about a significant surge in prepayments. The Single Monthly Mortality, or SMM rate, was 1.3% in March, representing an increase of 46% over February. This rate, which gives us the percentage of the principal number of mortgages that were prepaid in the month, is generally a reliable indicator of refinance activity.

Rates Remain Low, but Washington Home Prices Continue to Rise

As we entered May, mortgage rates inched slightly lower. This is happening in spite of activity in the bond markets that generally drive mortgage rates. In part, this is probably due to the fact that lenders hadn’t fully adjusted their rate sheets to reflect last Friday’s gains. We may therefore expect to see slightly higher rates as the week continues. It would seem that the market is fairly stable, though, and we can likely look forward to another month of low interest rates.

Meanwhile, though mortgage rates remain attractively low across the country, some areas are experiencing such great increases in home prices that homebuyers are actually paying more each month than they were back in the end of 2015. The problem has been most pronounced here in Washington, where the monthly principal and interest payments are averaging almost $15 higher for median-range homes, compared to December. Oregon and Colorado have been experiencing similar problems, while the rest of the country has been enjoying an average monthly payment decrease of about $20.

New Home Construction Up in April

A lack of inventory has been plaguing the housing market for some time now. Fortunately, builders are rising to the challenge of supplying demand for new homes. After a weak start to the construction season, new construction experienced a healthy rise through April. Last month, according to the Commerce Department, housing starts jumped up by 6.6%. This puts them at a seasonally adjusted annual rate of about 1.17 million houses. Applications for permits to construct new homes went up by 3.6%.

Unfortunately, the news is not as good as it could be. There is still a ways to go before the market fully compensates for the 9.4% drop in March. Meanwhile, through groundbreakings are beating last year’s rate, not much of this is going on here in the Lynnwood area. Starts were up by 22.2% in the Midwest and 14.1% in the South, but they actually declined by 10% in the West and 7.6% in the Northeast.

National builder sentiment for May has held at 58 for the fourth month in a row, telling us that we can likely expect further strong construction activity in the future.

Seattle Home Values Rise at Nation’s 2nd Fastest Rate

Looking back at March of 2015, we find that single-family homes in the Seattle area jumped up by 10.8%, according to the most recent data from S&P/Case-Shiller. The jumps in prices have been particularly strong in recent months, with a 2.4% increase from February to March. At present, the average price for a single-family home in April was $637,250 in Seattle. Such prodigious price gains can be attributed to increases in employment, low mortgage rates, and continued low inventory.

These figures place Seattle above any major American city outside of the Pacific Northwest in terms of fast-rising home prices. Within the Pacific Northwest, only Portland-area homes are beating the Seattle rate. It is here that home prices have experienced an increase of 12.3% over the past year. Nationally, the average price increase has only been 5.2%.

On top of this, March was the first time the value of Seattle-area homes rose above the peak we experienced back in the summer of 2007. This is after a 50% increase following the low point in early 2012.

Mortgage Availability Continues to Decline

According to the Mortgage Bankers Association, mortgage credit access has continued to decline in May. Their latest Mortgage Credit Availability Index (MCAI) came in at 121.4, representing a decrease of 0.8% from April’s figure. The MCAI reached a peak of 128.5 back in October of 2015 and has been moving fairly steadily downward ever since. May represents the third consecutive month of decreases in this index.

When the MCAI goes down, it means that mortgage lending standards are tightening. An increase in the MCAI indicates a loosening of credit. Though mortgage giants Fannie Mae and Freddie Mac have been rolling out their low-down payment programs to increase the availability of credit, these improvements have been offset by tightening in government loan programs designed to serve borrowers in the nation’s high-cost regions.

The Jumbo MCAI experienced the greatest decrease, at 1.3%. This is followed by the Government MCAI, which was down 1%, the Conventional MCAI, which was down 0.8%, and the Conforming MCAI, which was down 0.3%.

The Rise of Consumer House-buying Power

Good News for House-buying Consumers

The First American Real House Price Index (RHPI) measures price changes of single-family homes across the nation down to the metropolitan level. Changes are adjusted for the impact of income and interest rate changes on the house-buying power of Americans. It serves as a measure also of housing affordability. First American reported that more people now seem to better afford their dream homes.

While house prices are expected to increase by 5% in July, they’re still below what they were before the housing boom. First American noted that 86% of the metropolitan areas tracked, the real house prices declined as household incomes went up and mortgage rates decreased. This only means that majority of these metro areas are experiencing growth in house-buying power. So, when you are in the market for a house, your increased buying power will impact on the amount you are to borrow.

American home buyers are going to take advantage of this development and many will be scouring the market for new homes. This is a positive for both markets – the buyers and the sellers.

Mortgage Loans within Your Power in Lynnwood

If you’re now house-hunting in Lynnwood, consider dropping by David Haley, your mortgage company in Lynnwood. We’ve had a long and expansive experience in the intricacies of home loans, having helped many Washingtonians in their quest for new beginnings. We will familiarize you with available loan options best suited to your needs and lifestyle and breakdown everything that intimidates you about the real estate market. Be guided and be informed by one of the best in the mortgage business in Lynnwood.