The National Real Estate Market showed positive signs of recovery in the third quarter, but some negative indicators are creating a mixed future outlook. While pending home sales lost steam in September, existing-home sales captured momentum during the same month, and home prices sustained steady growth in most metro areas during the third quarter. Everything seems to point towards a seller’s market, but home sellers, home buyers, and homeowners can expect a mixed bag of things to come.
Positive Existing-Home Sales
After a decline in existing-home sales in August, all four major real estate markets had sales gains in September, and according to the National Association of Realtors, existing-home sales have increased “year-over-year for 12 consecutive months.”
The NAR chief economist, Lawrence Yun stated that the positive swing in September is because of a subtle adjustment in home prices in some markets and mortgage rates remaining below 4 percent gave more home buyers and home sellers the confidence to close on a home at the end of the third quarter.
The median existing-home price for all types of homes increased from $209,100 in September 2014 to $221,900 in September 2015. However, the inventory of homes decreased 2.6 percent and the existing homes for sale is now 3.1 percent lower than this time last year.
This inventory shortage is a positive for home sellers because they’ll realize increased equity in their home from rising home prices. As a result, they can use “it towards trading up or moving into a smaller home,” Yun said. The downside is that first-time home buyers are hesitant to make a purchase. In fact according to NAR, first-time home buyers fell to 29 percent of sales in September.
Home Prices in Most Metro Areas See Stable Growth
Despite the existing inventory shortage and decrease in the number of first-time home buyers in the market, the median existing single-family home price rose in 154 of 178 metro areas. That’s an increase of 87 percent from the third quarter in 2014. Only 24 metro areas reported lower median prices. Yun attributed the home price gains with more homes entering the market because of favorable mortgage rates and improving local economies.
Because of the favorable mortgage rates and improved local economies total existing-home sales rose 3.4 percent to a seasonally adjusted annual rate of 5.48 million in the third quarter from 5.30 million in the second quarter, and are 8.3 percent higher than the 5.06 million pace during the third quarter of last year. Existing-home sales in metro areas had the potential to go even higher than they did, but the inventory shortage forced prices so high some first-time home buyers were pushed out of the market.
According to the NAR, the five most expensive metro real estate markets in the third quarter were San Jose, Calif., median existing single-family home price was $965,000; San Francisco, $809,400; Anaheim-Santa Ana, Calif., $715,300; Honolulu, Hawaii, $714,000; and San Diego, Calif., $554,400.
The NAR reported that five lowest-cost metro areas in the third quarter were Cumberland, Md., median single-family home price was $82,400; Youngstown-Warren-Boardman, Ohio, $90,700; Decatur, Ill., $101,400; Rockford, Ill., $102,800; and Elmira, N.Y., $108,800.
The inventory shortage is also hindering homeowners to list their property. “Realtors are still reporting that many homes are going under contract more quickly than what’s typical this time of year,” NAR President Chris Polychron said. While this benefits homeowners wanting to sell, Polychron went on to say “some are still reluctant to list out of concerns they’ll have limited time and choices during their own home search.”
Pending Home Sales Falter
Despite the positive gains made in existing-home sales and home prices in metro areas, pending home sales continued to lose momentum in September. The NAR reported that all four major real estate markets had a downturn in pending home sales in September. Yun at the NAR attributes this downturn to scarcity of first-time home buyers, strong competition because of the inventory shortage, the unstable financial markets at the end of summer, and a dragging U.S. economy.
Pending home sales fell 4 percent in the Northwest, but that’s still 3.9 percent higher than last year. The Midwest saw a 2.5 percent decline, however is 4.3 percent ahead of last year. Pending home sales in the West dipped only .2 percent, but still remains 6.6 percent above last year. The only real downer is the South. Pending home sales in the South dipped 2.6 percent which is a .1 percent fall from last year.
The Up Shot and Outlook
The silver lining to all of this are interest rates at 4 percent, rents at an 8 year high, and steady job growth. All of this lends to a real estate market outlook that is a mixture of rosy and bleak; perhaps mauve. Because of strong existing-home sales and the majority of the existing-home sales in metro areas are doing well, the national real estate market is in a delicate shade of a home seller’s market mixed with a touch of home buyer where-are-you. Homeowners, home sellers, and home buyers should look at everything as the glass half full.
Freddie Mac concurs with the NAR and sees that housing will continue to benefit from the weak economic environment. It’s reporting that Treasury rates have kept the 30-year mortgage below 4 percent since the end of July. The low mortgage rate supports affordable prices despite robust home prices in metro areas. One thing that temporarily slowed mortgage originations was the implementation of the Consumer Financial Protection Bureau’s (CFPB) “Know Before You Owe” rule on October 1, 2015. At the end of September, the Mortgage Bankers’ Association index of mortgage applications increased 26 percent because borrowers wanted to beat the CFPB deadline. After October 1, 2015, the index took a nose dive over 27 percent.
Fannie Mae is also looking at the real estate market as a glass half full. It saw private residential construction spending grow faster than previously assumed in the run up estimate of the third quarter gross domestic product. It plans to revise the real residential investment growth in the third quarter from 6.1 percent to 7.3 percent. The reason for a half glass full approach is because while home prices ended strong, banks reported weaker demand across all types of mortgages, except those backed by the government.
To encourage more types of mortgages backed by the government, congress passed bill H.R. 3700. The bill will help grow home purchases and increase rental housing opportunities at all levels and will directly affect changes to Federal Housing Administration policies that limit the flexible and affordable financing for condo buyers; especially first-time buyers.
So with this new bill, more first-time home buyers should be able to enter the real estate market. As a result, perhaps it will ease the apprehension of home sellers listing their homes.
The Mortgage Bankers Association is showing optimism for a growing real estate market in the near term as well. They report that the housing turnover rate, as measured by the ratio of total home sales to the total housing inventory, has shown an upward trend. As a result, this could mean prospective home buyers and home sellers are gradually returning to the market as home sales increase.
Refinancing Blues
Despite the potential increase in home equity, homeowners continue not to refinance because according to Mortgage Bankers Association there are few households who can benefit from interest rate reductions and as rates will gradually begin to rise. Despite the current low interest rates the MBA says that refinance applications have yet to surpass one-half the applications filed in 2013 when rates first went below 4 percent.
Concluding Thoughts
So the national real estate market looked good in the third quarter but an inventory shortage, a decrease in mortgage applications, and rising home prices give the market a mixed picture for the future. Because of the rising home prices, it’s definitely a home seller’s market. Although the national family median income increased to $67,723, affordable prices has lagged wages and the affordability of a home has decreased compared to last year at this time.
To accommodate the lag between wages and rising home prices, a home buyer making a 5 percent down payment will require an income of $50,324, a 10 percent down payment will require an income of $47,675, and a 20 percent down payment will require an income of $42,378.
Whether you’re a home buyer or home seller, we can help you navigate the mixed up real estate market so that you reach your true destination. For assistance buying or selling your home, contact us today at GoodLife Realty.
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