Mortgage Rates Higher in April

2024-05-24T08:21:54-05:00

Mortgage rates have increased on a monthly basis, according to data from Freddie Mac. As of end of April 2024, the 30-year FRM – Commitment rate, increased by 17 basis points (bps) to 6.99 percent from 6.82 percent in March. This was a 35 bps increase from the beginning of the year (6.64 percent), and 65 bps from last year (6.34 percent). However, rates remain lower than the cycle peak of 7.62 percent last October. The latest weekly data from Freddie Mac shows that a trend of elevated rates is likely to continue, as the average weekly 30-year mortgage rate for this month is reported to be above 7 percent. The 30-year mortgage rate is influenced by the 10-year Treasury rate, which rose by 33 basis points to 4.54 percent between the end of March and the end of April. This increase reflects investor reactions to persistent inflation and the Federal Reserve maintaining the federal funds rate at 5.5 percent while retracting some indications of late 2024 monetary policy easing. Per the NAHB forecast, we expect mortgage rates to stay elevated at around 6.66% at the end of 2024 and eventually to decline to under 6% by the end of 2025. The NAHB outlook is for the federal funds rate to be cut at the December meeting and six rate cuts in 2025. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Mortgage Rates Higher in April2024-05-24T08:21:54-05:00

Existing Home Sales Recede in April

2024-05-22T11:15:35-05:00

Existing home sales fell for the second straight month in April, after a big monthly drop in March, according to the National Association of Realtors (NAR). Meanwhile, low resale inventory and strong demand continued to drive up existing home prices, marking the tenth consecutive month of year-over-year median sales price gains. Due to elevated interest rates, homeowners with lower mortgage rates stayed put and have not wanted to trade in for higher rates. This is driving home prices higher and resale inventory lower. Eventually, mortgage rates are expected to decrease gradually, leading to increased demand (and unlocking lock-in inventory) in the coming quarters. However, that decline is dependent on future inflation reports. Total existing home sales—including single-family homes, townhomes, condominiums, and co-ops— declined 1.9% to a seasonally adjusted annual rate of 4.14 million in April. On a year-over-year basis, sales were 1.9% lower than a year ago. The first-time buyer share rose to 33% in April, up from 32% in March and 29% a year ago. Total housing inventory registered at the end of April was 1.21 million units, up 9% from last month and up 16.3% from a year ago. At the current sales rate, April’s unsold inventory sits at a 3.5-month supply, up from 3.2 months last month and 3.0 months a year ago. This inventory level remains very low compared to balanced market conditions (4.5 to 6 months’ supply) and illustrates the long-run need for more home construction. Homes stayed on the market for an average of 26 days in April, down from 33 days in March, but up from 22 days in April 2023. The April all-cash sales share was 28% of transactions, the same share as last month and a year ago. All-cash buyers are less affected by changes in interest rates. The April median sales price of all existing homes was $407,600, up 5.7% from last year. This marked the highest recorded prices for the month of April. Compared to a year ago, the median single-family prices rose 5.6% to $412,100, and the median condominium/co-op prices increased 5.4% to $365,300. Compared to last month, all four regions saw a decline in existing home sales in April. Sales in the Northeast, Midwest, South, and West decreased 4.0%, 1.0%, 1.6% and 2.6%, respectively. On a year-over-year basis, sales in the Northeast, Midwest, and South decreased 4.0%, 1.0%, and 3.1% in April, while sales in the West rose 1.3%. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Existing Home Sales Recede in April2024-05-22T11:15:35-05:00

Credit for Builders Tightens Slightly, Remains Costly

2024-05-10T15:15:43-05:00

During the first quarter of 2024, credit for residential Land Acquisition, Development & Construction (AD&C) tightened slightly and remained costly, according to NAHB’s survey on AD&C Financing. The net easing index derived from the survey posted a reading of -22.0 (the negative number indicating that credit availability tightened in the first quarter compared to the fourth quarter of 2023). A comparable net easing index based on the Federal Reserve’s survey of senior loan officers showed a similar result, with a reading of -24.6. Accordingly, borrowers and lenders were in close agreement about the tightening taking place in the first quarter. The net tightening reported by the NAHB and Fed indices in 2024 Q1 is not as poor as it was from mid-2022 through the third quarter of 2023 when both indices were consistently below -35.0. The NAHB index was as low as -49.3 in 2023 Q3, and the Fed index hit a trough of -73.8 in the first quarter of that year. However, both indices have been negative every quarter since 2022 Q1. After nine consecutive quarters of tightening, credit has now unquestionably become difficult for most builders and developers to obtain, irrespective of how much additional tightening lenders applied in 2024 Q1. According to the NAHB survey, the most common ways in which lenders tightened in the first quarter were by reducing the amount they are willing to lend, reported by 62% of builders and developers; and requiring personal guarantees/other collateral unrelated to the project and increasing interest rates, reported by 48% each. As these results suggest, when builders and developers were able to obtain credit in the first quarter of 2024, that credit remained costly. The average effective interest rate (taking both the contract rate and initial points into account) on land acquisition loans increased from 10.58% to 11.09% in 2024 Q1—as high as the rate on acquisition loans has been since NAHB began tracking it in 2018. Meanwhile, the effective rate on the other three categories of AD&C loans in the first quarter stood near 13%. The average effective rate increased on loans for land development (from 11.25% in 2023 Q4 to 13.10%) and speculative single-family construction (from 12.96% to 13.35%), while declining from 15.65% to 12.95% on loans for pre-sold single-family construction. Quarter-over-quarter changes in the effective rates were driven largely by initial points on the loans. On loans for pre-sold single-family construction, average initial points declined from an atypically high 1.08% in 2023 Q4 to 0.57%. On the other three categories of AD&C loans, the average initial points increased: from 0.71% to 0.88% on loans for land acquisition, from 0.60% to 0.85% on loans for land development, and from 0.73% to 0.76% on loans for speculative single-family construction. Quarter-over-quarter changes in the underlying contract interest rate on the loans were relatively modest. The average contract rate declined from 8.12% in 2023 Q4 to 8.07% on loans for land development, and from 8.41% to 8.24% on loans for speculative single-family construction. The average contract rate increased from 8.31% to 8.40% on loans for land acquisition, and from 8.38% to 8.40% on loans for pre-sold single-family construction. Recent increases in mortgage rates and their adverse effect on housing affordability have received considerable attention lately, and justifiably so. That is not the only way interest rates impact affordability, however.  Builders and developers will struggle to increase the supply of affordable housing unless they can access all the necessary inputs at a reasonable cost, including AD&C credit. More detail on credit conditions for builders and developers is available on NAHB’s AD&C Financing Survey web page. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Credit for Builders Tightens Slightly, Remains Costly2024-05-10T15:15:43-05:00

At 2022 Rates, 10 Million More Households Could Afford a New Home

2024-05-08T10:18:23-05:00

According to the latest press release from Freddie Mac, the average rate on a 30-year fixed-rate mortgage has now risen to approximately 7.25%. As the data posted on NAHB’s priced-out web page shows, at this rate only about 27.5 million (out of a total of 134.7 million) U.S. households could afford to buy a median-priced new home, based on their incomes and standard underwriting criteria. For context, consider that the last time the average mortgage rate was under 6.25% was in mid-February of 2023. If that interest rate prevailed now, 4.5 million more households (for a total of 32.0 million) could afford the median new home. A year further back, prior to mid-February of 2022, the average mortgage rate was consistently under 5.00%. At a rate of 5.00%, 37.7 million households could afford the median new home. In short,10.2 million U.S. households are currently being priced out of the market by the average mortgage rate sitting 225 basis points higher than it was in February 2022. A recent post, How Rising Costs Affect Home Affordability,  showed how many households are priced out of the market by a $1,000 increase in the price of the median new home. The analysis is based on the standard underwriting criterion that the sum of mortgage payments (principal and interest), property taxes, homeowners and private mortgage insurance premiums (PITI) during the first year should be no more than 28 percent of the home buyer’s income. The advantage of this methodology is that it requires only a starting house price, household income distribution, and characteristics of the typical mortgage. A household income distribution is available for virtually any part of the country from the Census Bureau’s American Community Survey. Typical mortgage characteristics and other details are discussed both in NAHB’s April 1 Special Study and on the priced-out web page. This same methodology can be used to determine the number of U.S. household priced out of the market by a change in interest rates, rather than house prices. Results of these calculations are reproduced from the special study and web page in the table below: Finding the impact of a change in the mortgage rate (in either direction) from this table is relatively straightforward. For example, the 7.25%-mortgage-rate row shows approximately 27.5 million households able to afford the median-priced new home. If the rate fell back to 6.25%, the table shows an additional 4.5 million (for a total of approximately 32.0 million) households would be priced into the market. This change is particularly relevant, as NAHB is currently projecting that the average mortgage rate will be near 6.25% by the end of 2024—although there is considerable uncertainty around this number, due largely to uncertainty about what monetary policy the Federal Reserve will find necessary to contain inflation. Readers can refer back to the above table to track the impact actual changes in mortgage rates are having on affordability of new homes over the rest of the year. As many analysts have noted, interest rates and house prices interact with each other to determine new home affordability. For example, if the costs of producing homes and the resulting prices to buyers were reduced (for instance, by adopting some of the measures in NAHB’s 10-point plan to lower shelter inflation), more than 4.5 million households would be priced into the market by reducing interest rates from 7.25% to 6.25%. Similarly, if interest rates were lower, a larger number of households would be priced into the market by a given reduction in house prices. This occurs because at lower prices or interest rates, the starting point is in a denser part of the U.S. income distribution, where there are more households to be priced into (or out of) the market. This point will be illustrated graphically in a forthcoming post on NAHB’s 2024 housing affordability pyramid.  Discover more from Eye On Housing Subscribe to get the latest posts to your email.

At 2022 Rates, 10 Million More Households Could Afford a New Home2024-05-08T10:18:23-05:00

All-Cash Sales Dropped to Lowest in 3 Years

2024-04-24T13:40:18-05:00

NAHB analysis of the most recent Quarterly Sales by Price and Financing report reveals that the share of new home sales backed by VA loans climbed substantially in the first quarter of 2024, while all-cash sales share fell by nearly 30%. However, the median purchase price of homes bought with cash continued to increase in the first quarter of 2024. Since the Federal Reserve began raising interest rates in early 2022, the share of all-cash new home sales has increased significantly, with an average of 8.8% amid this tightening cycle. The interest rate hikes have caused the average mortgage rate to more than double since Q4 2021, as the average rate surged from 3.08% to 6.8% over the three years ending Q1 2024. The chart below illustrates how much more sensitive the all-cash share has become to changes in the federal funds rate since 2017. However, after peaking at 10.7% in the fourth quarter of 2024, the all-cash share has trended downward. Although cash sales make up a small portion of new home sales, they constitute a larger share of existing home sales. According to estimates from the National Association of Realtors, 28% of existing home transactions were all-cash sales in March 2024, down from 33% in February, but up from 27% in March 2023. The share of FHA-backed sales rose from 13.5% to 13.8% in the first quarter of 2024. Despite the substantial increase, the share remains below the post-Great Recession average of 17.0%. Meanwhile, the share of HA-backed sales also increased, climbing from 4.3% to 6.1%, the highest level since the second quarter of 2022. In contrast, conventional loans financed sales fell slightly from 73.8% to 73.5%. Price by Type of Financing Different sources of financing also serve distinct market segments, which is revealed in part by the median new home price associated with each. In the first quarter, the national median sales price of a new home was $420,800. Split by types of financing, the median prices of new homes financed with conventional loans, FHA loans, VA loans, and cash were $472,300, $350,800, $359,200, and $432,800, respectively. The purchase price of new homes financed with conventional and VA loans declined over the past year, while the price of homes financed with VA loans and cash increased. The largest gain occurred in cash sales prices, which rose 14.5% over the year. This is in stark contrast to year-over-year price changes in the first quarter of 2022 and 2023 (see below). Discover more from Eye On Housing Subscribe to get the latest posts to your email.

All-Cash Sales Dropped to Lowest in 3 Years2024-04-24T13:40:18-05:00

Existing Home Sales Decline in March

2024-04-18T12:21:06-05:00

After reaching the 12-month high last month, existing home sales retreated in March due to lingering high mortgage rates, according to the National Association of Realtors (NAR). Meanwhile, low resale inventory and strong demand continued to drive up existing home prices, marking the ninth consecutive month of year-over-year median sales price increases. Eventually, mortgage rates are expected to decrease gradually, leading to increased demand in the coming quarters. However, that decline is dependent on future inflation reports. Total existing home sales, including single-family homes, townhomes, condominiums, and co-ops, declined 4.3% to a seasonally adjusted annual rate of 4.19 million in March (as shown below). On a year-over-year basis, sales were 3.7% lower than a year ago. The first-time buyer share rose to 32% in March, up from 26% in February 2023 and from 28% in March 2023. The inventory level rose from 1.06 million in February to 1.11 million units in March and is up 14.4% from a year ago. At the current sales rate, March unsold inventory sits at a 3.2-months supply, up from 2.9-months last month and 2.7-months a year ago. This inventory level remains very low compared to balanced market conditions (4.5 to 6 months’ supply) and illustrates the long-run need for more home construction. Homes stayed on the market for an average of 33 days in March, down from 38 days in February but up from 29 days in March 2023. The March all-cash sales share was 28% of transactions, down from 33% in February but up from 27% a year ago. All-cash buyers are less affected by changes in interest rates. The March median sales price of all existing homes was $393,500, up 4.8% from last year. This marked the highest recorded price for the month of March. The median condominium/co-op price in March was up 5.8% from a year ago at $357,400. Existing home sales in March were mixed across the four major regions (as shown below). Sales in the Midwest, South, and West decreased 1.9%, 5.9%, and 8.2% in March, while sales in the Northeast rose 4.2%. On a year-over-year basis, all four regions saw a decline in sales, ranging from -1.0% in the Midwest to -5.0% in the South. The Pending Home Sales Index (PHSI) is a forward-looking indicator based on signed contracts. The PHSI fell from 75.6 to 74.4 in February. On a year-over-year basis, pending sales were 7.0% lower than a year ago per the NAR data. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Existing Home Sales Decline in March2024-04-18T12:21:06-05:00

Moderating Interest Rates, Pent-up Demand Push Single-Family Starts Higher

2024-03-19T09:20:28-05:00

Pent-up demand, moderating interest rates, and a lack of existing inventory helped push single-family starts in February to their highest level since April 2022. Overall housing starts increased 10.7% in February to a seasonally adjusted annual rate of 1.52 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The February reading of 1.52 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts increased 11.6% to a 1.13 million seasonally adjusted annual rate. Single-family starts are also up 35.2% compared to a year ago. The three-month moving average (a useful gauge given recent volatility) is up to over 1.0 million starts, as charted below. The multifamily sector, which includes apartment buildings and condos, increased 8.3% to an annualized 392,000 pace for 2+ unit construction in February. The three-month moving average for multifamily construction has been trending up to a 419,000-unit annual rate. On a year-over-year basis, multifamily construction is down 34.8%. On a regional basis compared to the previous month, combined single-family and multifamily starts are 10.3% lower in the Northeast, 50.7% higher in the Midwest, 15.7% higher in the South and 7.9% lower in the West. As an indicator of the economic impact of housing, there are now 683,000 single-family homes under construction; this is 6.1% lower than a year ago. Meanwhile, there are currently 983,000 apartment units under construction. This is up 2.5% compared to a year ago (959,000). Total housing units now under construction (single-family and multifamily combined) are 1.2% lower than a year ago. Overall permits increased 1.9% to a 1.52 million unit annualized rate in February and are up 2.4% compared to February 2023. Single-family permits increased 1.0% to a 1.03 million unit rate and are up 29.5% compared to the previous year. Multifamily permits increased 4.1% to an annualized 487,000 pace but multifamily permits are down 29.0% compared to February 2023, which is a sign of future apartment construction slowing. Looking at regional permit data compared to the previous month, permits are 36.2% higher in the Northeast, 3.8% higher in the Midwest, 1.3% lower in the South and 6.8% lower in the West.

Moderating Interest Rates, Pent-up Demand Push Single-Family Starts Higher2024-03-19T09:20:28-05:00

Seven Percent of Builders Now Build Barndominiums

2024-03-01T11:15:15-06:00

By Paul Emrath on March 1, 2024 • Over the past decade, use of the term “barndominium” (indicating a structure that is, in some sense, a combination barn and condominium) has become increasingly widespread in real estate media outlets. In fact, the term has become popular enough for NAHB to include a question about it in its survey for the February 2024 NAHB/Wells Fargo Housing Market Index. In response to that survey, a total of 7% of single-family builders reported that they did, indeed, build barndominiums sometime during the past 12 months. That result, however, leaves open the question of what a builder means by a barndominium. Unlike a term with a consistent definition maintained by, say, an academic organization or government agency, “barndominium” has meant different things to different reporters over the years. When the term was first gaining popularity, reporters were usually using it to describe a metal frame structure that was used as a primary residence. But that usage has been far from consistent. When NAHB’s builders were asked about the type of barndominiums they built, the vast majority (70%) indicated that their barndos were a combination of residential space and a large shop area—a criterion that doesn’t even consider the structure’s framing. The percentages referring to framing-based criteria were smaller but still significant: 30% of builders reported that their barndos were a combination of traditional residential and post-frame construction, and 26% said they were post-framed residential structures with sheet metal siding (26%). Only 9% said their barndos were created by actually converting a barn into a primary residence. Whichever of these techniques a builder uses, the result of creating a barndominium is a new housing unit which, in the typical jurisdiction, requires a residential building permit. ‹ Young Adults Living with Parents: State DifferencesTags: barndo; barndominium, economics, home building, housing

Seven Percent of Builders Now Build Barndominiums2024-03-01T11:15:15-06:00

Home Price Gains Continued in December

2024-02-27T12:16:32-06:00

National home prices continued to increase, hitting a new all-time high in December. Despite high mortgage rates, limited inventory and strong demand continued to push up home prices. Locally, six of 20 metro areas, experienced negative home price appreciation in December. The S&P CoreLogic Case-Shiller U.S. National Home Price Index (HPI), reported by S&P Dow Jones Indices, rose at a seasonally adjusted annual growth rate of 2.4% in December, slower than a 3.0% increase in November. It marks the fourth straight month of deceleration since September. Nonetheless, national home prices are now 70% higher than their last peak during the housing boom in March 2006. On a year-over-year basis (YOY), the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index posted a 5.5% annual gain in December, up from a 5.0% increase in November. It was the highest year-over-year gain over the past twelve months. Home price appreciation slowed greatly over the past year; the average YOY home price gain for 2023 was 2.4%, after the double-digit gains seen in the previous two years. Home prices are stabilizing as more buyers and sellers enter the market. Meanwhile, the Home Price Index, released by the Federal Housing Finance Agency (FHFA), rose at a seasonally adjusted annual rate of 1.2% in December, following a 4.3% increase in November. On a year-over-year basis, the FHFA Home Price NSA Index rose 6.5% in December, down from 6.6% in the previous month. In addition to tracking national home price changes, S&P Dow Jones Indices also reported home price indexes across 20 metro areas in December on a seasonally adjusted basis. While six out of 20 metro areas reported negative home price appreciation, 13 metro areas had positive home price appreciation. Home prices for Cleveland (OH) were unchanged from the previous month. Their annual growth rates ranged from -2.7% to 10.1%. Among all 20 metro areas, 10 metro areas exceeded the national average of 2.4%. Las Vegas led the way with a 10.1% increase, followed by Los Angeles with an 8.6% increase and Miami with an 8.0% increase. The six metro areas that experienced price declines are Portland (-2.7%), Minneapolis (-1.6%), San Francisco (-1.4%), San Diego (-1.3%), Detroit (-0.6%) and Dallas (-0.6%). The scatter plot below lists the 20 major U.S. metropolitan areas’ annual growth rates in November and in December 2023. The X-axis presents the annual growth rates in November; the Y-axis presents the annual growth rates in December. Seven out of the 20 metro areas, the dots above the blue line, had an acceleration in home price growth, while the remaining 13 metro areas, located below the blue line, experienced deceleration. ‹ New Home Sales Up at the Start of 2024Tags: FHFA Home Price Index, home prices, S&P CoreLogic Case-Shiller Home Price Index

Home Price Gains Continued in December2024-02-27T12:16:32-06:00

Labor Shortages Ease, But Remain Worse Than in the Last Boom

2024-02-23T13:18:30-06:00

With home building volumes lower, labor shortages have eased considerably since record levels set in 2021 but remain relatively widespread in a historic context, according to results from the latest NAHB/Well Fargo Housing Market Index (HMI) survey. The February 2024 HMI survey asked builders about shortages in 16 specific trades. The percentage of builders reporting a shortage (either some or serious) of labor they employ directly ranged from a low of 33% for landscape workers to a high of 65%  for those performing finished carpentry. The finished carpentry shortage was down from 72% in 2023 and an all-time high of 85% in 2021 but remains higher than it was at any time during the 2004-2006 housing boom (when it reached a temporary peak of 58% in July 2005). Most of the labor shortage percentages in the above figure follow a similar historic pattern. In the typical case, most of the physical work required to build a home is performed not by laborers employed directly by the builders, but by subcontractors. As a 2020 NAHB study  showed, builders on average use two dozen different subcontractors and subcontract out 84% of their total construction costs to build a single-family home. The February 2024 HMI survey also collected information about shortages of subcontractors.  The percentage of builders reporting a shortage of subcontractors ranged from 35% for building maintenance managers to 63%  for finished carpenters. For all 16 trades, the shortage percentages for subcontractors and labor directly employed were fairly similar. Averaged over the nine trades that NAHB has covered in a consistent way since the 1990s (carpenter-rough, carpenter-finished, electricians, excavators, framing crews, roofers, plumbers, bricklayers/masons, and painters), the share of builders reporting shortages in February 2024 was 52% for labor directly employed and 51% for subcontractors. The two numbers have not always been this close. After 2012, as housing markets started to recover from the Great Recession, a 5- to 7-point gap opened up between the 9-trade average shortage of subcontractors and labor directly employed by builders, with the subcontractor shortages being consistently more widespread. NAHB’s analysis at the time indicated that workers who were laid off and started their own trade contracting businesses during the Great Recession started returning to work for larger companies—improving the availability of workers directly employed by builders while shrinking the pool of available subcontractors. After persisting for a decade, the subcontractor-direct labor gap finally narrowed in 2023 and disappeared entirely in 2024. The current 9-trade average shortage of 52% for labor directly employed is down from 58% in 2023 and a record-high 77% in 2021 but remains elevated in historical perspective—especially when considered relative to housing starts. During the boom period of 2004-2006, total housing starts were consistently over 1.8 million annually—as high as 2.0 million in 2005. Despite this high rate of construction, the 9-trade shortage percentage never exceeded 45% during the boom. In comparison, the current shortage percentage of 52% occurred against a backdrop of 1.4 million starts in 2023 and an annual rate of 1.3 million recorded so far in January of 2024. ‹ Existing Home Sales Jump in JanuaryTags: carpenters, economics, hmi, home building, housing, Housing Market Index, labor, labor market, labor shortage, subcontractors

Labor Shortages Ease, But Remain Worse Than in the Last Boom2024-02-23T13:18:30-06:00

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