U.S. Home Seller Profits At 12-Year High

 

U.S. Home Seller Profits At 12-Year High

As reported by ATTOM Data Solutions This Week in Real Estate the average homeowner who sold their home in 2018 realized an average home price gain since purchase of $61,000, a 12-year high. Below are a few highlights from the last week of January that influence our business:

Strong Job Growth Continues in January. The U.S. economy entered 2019 with a strong gain in payroll employment. Total employment increased by 304,000 in January, while the unemployment rate edged up to 4.0%, reflecting the impact of the partial government shutdown. Residential construction employment increased by 23,900 at the beginning of 2019, the largest gain since February 2018. The total construction industry (both residential and nonresidential) added 52,000 jobs in January. Residential construction employment now stands at 2.9 million in January, broken down as 835,000 builders and 2.1 million residential specialty trade contractors. The 6-month moving average of job gains for residential construction is 11,133 a month. Over the last 12 months, home builders and remodelers added 130,700 jobs on a net basis. Since the low point following the Great Recession, residential construction has gained 916,600 positions. In January, the unemployment rate for construction workers rose to 4.7% on a seasonally adjusted basis, from 4.6% in December. The unemployment rate for the construction sector has been trending downwards since February 2010 and remains historically low.

Average U.S. Home Seller Profits at 12-Year High. According to ATTOM Data Solutions 2018 U.S. Home Sales Report, home sellers in 2018 realized an average home price gain since purchase of $61,000, up from $50,000 last year and up from $39,500 two years ago in 2016 to the highest level since 2006 – a 12-year high. That $61,000 average home seller profit represented an average 32.6 percent return on investment compared to the original purchase price, up from 27.0 percent last year and up from 21.9 percent in 2016 to the highest average home seller ROI since 2006. “While 2018 was the most profitable time to sell a home in more than 12 years, those along the coasts, reaped the most gains.” Among 217 metropolitan statistical areas with a population greater than 200,000 and sufficient historical data, the highest returns on investment were almost exclusively in western states, with concentrations along areas of the west coast. Those with the highest average home seller ROI were San Jose, California (108.8 percent); San Francisco, California (78.6 percent); Seattle, Washington (70.7 percent); Merced, California (66.4 percent); and Santa Rosa, California (66.1 percent). Homeowners who sold in the fourth quarter of 2018 had owned their homes an average of 8.30 years, up from 8.13 years in the previous quarter and up from 7.95 years in Q4 2017 to the longest average home seller tenure as far back as data is available, Q1 2000.

Fed Pursues Patience. As expected, the Federal Reserve’s monetary policy body, the Federal Open Market Committee, unanimously agreed to hold steady the federal funds top rate at 2.5%. The Fed’s January statement was consistent with recent policymakers comments suggesting a more flexible stance toward monetary policy at the end of last year and the start of 2019. In particular, the statement indicated that the Fed will “be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.” This is a decidedly more dovish stance for the Fed relative to commentary from the Fall of 2018, reflecting anchored inflation expectations and economic softness in some sectors, including housing. These changes to the Fed’s monetary policy stance are more favorable for housing market conditions in 2019, which are currently challenged by growing concerns over housing affordability and sluggish growth for home building.


 Baby Boomers Aging in Place and the Need for More Homes

 Baby Boomers Aging in Place and the Need for More Homes

According to a report from ATTOM Data Solutions This Week in Real Estate, the average homeowner who sold their home in Q4 2018 realized a 30.2 percent return on their original purchase price. Below are a few highlights from the fourth week of January that influence our business:

Q4 2018 Home Seller Gains
Nationally, homeowners who sold in Q4 2018 sold for an average of $54,500 more than their original purchase price, a slight decline from last quarter, a jump from last year. The $54,500 average home seller price gain in Q4 2018 represented an average 30.2 percent return on the original purchase price, down slightly from an average 30.4 percent return in the previous quarter but up from an average 25.6 percent return in Q4 2017. Among those 20 markets, San Francisco saw the greatest seller gains in Q4 2018, selling for an average of $361,125 more than their original purchase price. Seattle, Tacoma, Bellevue sold for an average of $171,969 more than their original purchase price while Portland, Vancouver sold for $132,500 more than their original purchase price.

Half of Boomer Homeowners Plan to Age in Place
More than half of Baby Boomers plan to age in place, electing to renovate in order to meet their changing needs, according to a new survey released by Chase and Pulsenomics. Among this group, 52% said they will never move from their current home, and 88% said they plan to make improvements to their home, with bathroom renovations topping the project list. Nearly two-thirds of respondents said they think home values are rising in their area, which provides an incentive for homeowners to tap their equity in order to age in place – and enhance their investment. Amy Bonitatibus, chief marketing officer for Chase Home Lending, said Boomers are likely to explore loans that grant access to equity in order to fund home improvements. “With home prices generally healthy across the country, two-thirds of these homeowners are turning to financing options like home equity lines of credit or cash-out refinances to complete their upgrades,” Bonitatibus said. “On average, homeowners are financing about $18,000 per household with more than half saying they intend to start remodeling within a year.”

More Homes Needed to Replace Older Stock
Over the 40-year span from 1961 through 2000, housing starts averaged a little over 1.5 million a year, but they have been nowhere near that high since 2006. As a recent NAHB study explains, one outcome of this shortfall has been a tendency for older homes to remain in service longer. Attempts to improve the stock of housing in the U.S. (for example, through new development standards or building codes) therefore make relatively little sense without a concomitant strategy to increase overall production. The NAHB study showed that the number of homes completed has been running below even the number of net new household formations. It should therefore not be surprising that data from the Census Bureau’s American Community Survey show that the number of homes built before 1970 has been declining at quite a slow pace. There were 52.83 million of them in 2014, and by 2016 the number had fallen only to 52.17 million. This implies that only a little over 6 out of every 1,000 homes built before 1970 are removed from the stock each year. Some of the loss rates the Census Bureau uses to estimate the number of housing units in the U.S. are even smaller, showing less than 1 housing unit per 1,000 being removed from the stock per year in the Northeast and West regions.

For the 2019 Cost vs. Value report of home improvement projects with the highest return on investment click here: https://www.remodeling.hw.net/cost-vs-value/2019/pacific/.


Mortgage Applications Increase Exponentially as Interest Rates Decline

 

Mortgage Applications Increase Exponentially as Interest Rates Decline

Lower interest rates to start the new year results in improved builder confidence for newly-built single-family homes and according to the Mortgage Bankers Association, This Week in Real Estate the Market Composite Index reached its highest level in 8 years to end the first full business week. Below are a few highlights from the third week of January that influence our business:

Purchase Mortgage Applications Reach 8 Year High
January 11 ended the first full business week in a while and mortgage activity responded accordingly. The Mortgage Bankers Association (MBA) reported a strong rebound. Purchase mortgage applications moved higher for the sixth time in the last eight weeks, resuming the upward trajectory that was interrupted by the Christmas holidays. That index was up 9 percent on a seasonally adjusted basis to its highest level since April 2010. The unadjusted Purchase Index rose 43 percent compared with the previous week and was 11 percent higher than the same week one year ago. In commenting on the improved activity, Mike Fratantoni, MBA Senior Vice President and Chief Economist said, “Uncertainty regarding the government shutdown, slowing global growth, Brexit, a more patient Fed, and a volatile stock market continued to keep rates from increasing. The spring home buying season is almost upon us, and if rates stay lower, inventory continues to grow, and the job market maintains its strength, we do expect to see a solid spring market.”

Lower Interest Rates Stabilize Builder Confidence
Buoyed by falling mortgage rates, builder confidence in the market for newly-built single-family homes rose two points to 58 in January on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). The gradual decline in mortgage rates in recent weeks helped to sustain builder sentiment. Low unemployment, solid job growth and favorable demographics should support housing demand in the coming months. Lower interest rates that peaked around 5 percent in mid-November and have since fallen to just below 4.5 percent will help the housing market continue to grow at a modest clip as we enter the new year. All the Housing Market Indices posted gains in January. The index measuring current sales conditions rose two points to 63, the component gauging expectations in the next six months increased three points to 64, and the metric charting buyer traffic edged up one point to 44.

U.S. Foreclosure Activity Drops to 13-Year Low in 2018
ATTOM Data Solutions on Thursday released its Year-End 2018 U.S. Foreclosure Market Report, which shows foreclosure filings – default notices, scheduled auctions and bank repossessions – were reported on 624,753 U.S. properties in 2018, down 8 percent from 2017 and down 78 percent from a peak of nearly 2.9 million in 2010 to the lowest level since 2005. Those 624,753 properties with foreclosure filings in 2018 represented 0.47 percent of all U.S. housing units, down from 0.51 percent in 2017 and down from a peak of 2.23 percent in 2010 to the lowest level since 2005. The report also includes new data for December 2018, when there were 52,069 U.S. properties with foreclosure filings, down 2 percent from the previous month and down 19 percent from a year ago – the 6th consecutive month with a year-over-year decrease in foreclosure activity. Lenders started the foreclosure process on 369,170 U.S. properties in 2018, down 6 percent from 2017 and down 83 percent from a peak of 2,139,005 in 2009 to a new all-time low going back as far as foreclosure start data is available – 2006. States that saw the biggest decline in foreclosure starts from last year included Rhode Island (down 39 percent); Hawaii (down 26 percent); North Carolina (down 24 percent); Washington (down 24 percent); and Connecticut (down 23 percent). Those metropolitan statistical areas that all saw a large decline in foreclosure starts from last year included Salinas, California (down 49 percent; San Luis Obispo (down 44 percent); Tyler, Texas (down 42 percent); Durham, North Carolina (down 40 percent); and Portland, Oregon (down 32 percent).

If you’re interested in taking advantage of low interest rates, learning how much you could borrow, or are thinking about refinancing, contact a trusted HomeServices Loan Officer in Oregon or Washington today.


The Rise In American Homeownership Tenure

 

The Rise In American Homeownership Tenure

Homeowners are remaining in their homes longer than ever before according to a report from First American This Week in Real Estate and mortgage applications to purchase a home jumped 17% to start the new year. Below are a few highlights from the second week of January that influence our business:

Plunge in Rates Sparks 23.5% Spike in Mortgage After Unusually Weak Holidays
The combination of lower mortgage rates and an unusually slow end to 2018 caused mortgage applications to surge to start this year. Overall volume jumped 23.5 percent last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. A sharp drop in interest rates to the lowest level since April sparked a mini-boom in refinancing. Those applications surged 35 percent week-to-week to their highest level since July. Volume was still lower by nearly 22 percent than a year ago, when the average rate on the 30-year fixed mortgage was 51 basis points lower. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) decreased to 4.74 percent, from 4.84 percent, with points increasing to 0.47 from 0.42 (including the origination fee) for loans with a 20 percent down payment. The rate is 22 basis points lower than four weeks ago. Mortgage applications to purchase a home also jumped 17 percent last week but were just 4 percent higher than a year ago.

Home Price Growth Slows in Most States
Home prices have appreciated consistently since the housing market began its recovery, but now they appear to be slowing down after a six-year run. The latest data from Black Knight reveals that home price growth has slowed in 33 states and in 71 of the nation’s 100 largest markets. Annual gains decelerated by 1.3% from February to October, according to Black Knight’s latest Mortgage Monitor report. October saw growth flatten to just 5.4%, down from February’s four-year high of 6.7%. The report notes that home price appreciation from July through October was the most tepid four-month stretch in nearly four years. And, while the slowdown is apparent across much of the nation, the west saw the most deceleration, with California the standout as price growth fell below the national average for the first time since early 2012.

American Homeownership Tenure is Climbing
Americans are remaining in their homes longer than ever before, consequently tightening the lid on housing supply. First American data indicates that homeownership tenure has risen 10% just from 2017 and has significantly climbed since the market crashed in 2008. “Tenure jumped to seven years during the aftermath of the crash between 2008 and 2016, and the most recent data from December 2018 shows that the median length of time someone lives in their home has increased 10% compared with a year ago,” First American Chief Economist Mark Fleming said.


Mortgage Rates Plummet

 

 

Mortgage Rates Plummet

The market value of U.S. housing increased $1.9 trillion last year according to a report released by Zillow This Week in Real Estate resulting in a total value of $33.3 trillion. Below are a few highlights from the first week of January that influence our business:

U.S. Housing Market Value Climbs to $33.3 Trillion in 2018

In 2018, the total value of the U.S. housing market increased $1.9 trillion, propelling its value to a whopping $33.3 trillion, according to new data from Zillow. This 6.2% increase is up $10.9 billion from 2012, when the housing market crashed. Zillow Senior Economist Aaron Terrazas said seen from the rearview mirror, 2018 was a year of unusually strong, stable home value growth across the country. “During the second half of the year, appreciation slowed sharply in the priciest corners of the country while it picked up in affordable hotspots,” Terrazas said. “Housing wealth may have touched new highs this year, but home value gains don’t translate into dollars in the bank account unless homeowners opt to sell or borrow against their home and, in contrast to previous housing booms, many Americans have been more reluctant in recent years to spend against their home’s worth,” Terrazas said.

Mortgage Rates Lowest in Nearly a Year

Mortgage rates have been plummeting, depending on your definition of the word. To be sure, the past 2 months have no competition in nearly 3 years. The past few days have been special in their own right. Whereas there was cause for concern about the new year bringing a bounce for stock prices and mortgage rates, stocks haven’t done much of anything in the context of their late-2018 volatility, and mortgage rates have dropped another eighth of a percentage point (or more, depending on the lender). There are now lenders quoting 30 year fixed rates as low as 4.375% on top tier scenarios with the average lender back to 4.5%. That’s quite a jump from the 5.125% average at the recent highs (just 2 months ago).

Job Growth Surged in December

At the end of 2018, job growth surged. Total employment increased by 312,000 in December and the unemployment rate rose to 3.9%; however, this increase was good news because it was generated by growth in the labor force. Residential construction employment increased by 1,700 in December. The total construction industry (residential and nonresidential) added 280,000 jobs in 2018, more than the gain of 250,000 jobs in 2017. According to the Employment Situation for December released by the Bureau of Labor Statistics (BLS), total non-farm payroll employment rose by 312,000, faster than the upwardly revised increase of 176,000 jobs in November. It was the biggest monthly gain since February 2018. In 2018, job gains have averaged 220,000 per month, about 20% higher than the average monthly growth of 182,000 over all of 2017. Over the past twelve months, total non-farm payroll employment rose by 2.6 million, compared with the increase of 2.2 million in 2017. Residential construction employment now stands at 2.85 million in December, broken down as 816,000 builders and 2.0 million residential specialty trade contractors. The 6-month moving average of job gains for residential construction is 6,567 a month. Over the last 12 months, home builders and remodelers added 99,800 jobs on a net basis. Since the low point following the Great Recession, residential construction has gained 871,400 positions.


Renters Paid More in 2018 Than Ever Before

RENTERS PAID MORE IN 2018 THAN EVER BEFORE

While home prices continue to appreciate, albeit at a slower pace, according to a report released by HotPads This Week in Real Estate U.S. renters paid a record $504.4 billion in rent in 2018. Below are a few highlights from the last week of the year that influence our business:

Pending Home Sales See 0.7% Drop in November
Pending home sales overall slipped in November, but saw minor increases in the Northeast and the West, according to the National Association of Realtors. The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 0.7 percent to 101.4 in November, down from 102.1 in October. However, year-over-year contract signings dropped 7.7 percent, making this the eleventh straight month of annual decreases. The Pending Home Sales Index in the West increased 2.8 percent in November to 87.2 and fell 12.2 percent below a year ago.

Case-Shiller: Home Price Gains Slowing, Still up 5.5%
Home prices continued to ratchet down their advances in October. The Case-Shiller National Home Price Index which covers all nine U.S. census divisions, reported a 5.5 percent annual gain in October, unchanged from the year-over-year reading in September. That index had not been below 6.0 percent for a year until it dropped to 5.7 percent in August. Before seasonal adjustment the National Index managed a 0.1 percent gain for the month and 05 percent after adjustment. “Home prices in most parts of the U.S. rose in October from September and from a year earlier,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The combination of higher mortgage rates and higher home prices rising faster than incomes and wages means fewer people can afford to buy a house. Fixed rate 30-year mortgages are currently 4.75 percent, up from 4 percent one year earlier. Home prices are up 54 percent or 40 percent excluding inflation, since they bottomed in 2012.

Renters Paid More For Housing in 2018 Than They Ever Have Before
Thanks to higher rents throughout much of the year, U.S. renters paid out more in rent than they ever have before, with a total rent payout equal to the gross domestic product of Belgium. According to a new report from HotPads, U.S. renters paid a record $504.4 billion in rent in 2018, topping 2017’s total by $12.6 billion. There were approximately 43.2 million renter households in the U.S. this year, nearly 100,000 less than there were in 2017. The current median rent is $1,475, up 3% from a year ago. HotPads data showed that rents rose about 3% year-over-year throughout the year, continuing a gradual slowdown in rent appreciation that began in mid-2016. And with rents forecasted to continue growing in 2019, driven by higher mortgage interest rates likely keeping some renters from becoming buyers, that total will likely increase next year.


Rising Inventory & Increase of Existing Home Sales

 

The first two months of the fourth quarter has seen consecutive months of increased existing home sales as reported by the National Association of Realtors This Week in Real Estate and rising inventory beginning to tame home price appreciation. Below are a few highlights from the third week of December that influence our business:

Existing Home Sales Increase for Second Consecutive Month

Existing-home sales increased in November, according to the National Association of Realtors, marking two consecutive months of increases. Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 1.9 percent from October to a seasonally adjusted rate of 5.32 million in November. Sales are now down 7.0 percent from a year ago (5.72 million in November 2017). Single-family home sales sit at a seasonally adjusted annual rate of 4.71 million in November. That is up from 4.62 million in October, but 6.7 percent below the 5.05 million sales pace from a year ago. Lawrence Yun, NAR’s chief economist, says two consecutive months of increases is a welcomed sign for the market. “The market conditions in November were mixed, with good signs of stabilizing home sales compared to recent months, though down significantly from one year ago. Rising inventory is clearly taming home price appreciation.” Existing-home sales in the West declined 6.3 percent to an annual rate of 1.04 million in November, 15.4 percent below a year ago.

Single-Family Starts Weak, Especially in the West

The pace of single-family starts declined for the third consecutive month as housing affordability concerns continue to weigh on the home construction market. Total starts posted a 3.2% increase due to gains for multifamily development. Total single-family and apartment construction starts are up 5.1% on a year-to-date basis, according to the joint data release from the Census Bureau and HUD. The November rate of single-family starts decreased 4.6% to a seasonally adjusted annual rate of 824,000. The steady decline for the pace of single-family construction mirrors recent weakness for the NAHB/Wells Fargo Housing Market Index (HMI), now registering a score of 56. Builders are concerned about housing affordability conditions due to the rise in mortgage rates and increasing construction and regulatory costs. However, rate declines over recent weeks should provide some support for the market in the coming months. On a year-to-date basis, single-family starts are 3.9% higher relative to the first eleven months of 2017. Single-family permits, a useful indicator of future construction activity, were flat in November and have registered a 5.2% gain thus far in 2018 compared to last year. Single-family construction is down 4% for the year in the Midwest. Single-family starts are up in the larger building regions of the South (3%) and the West (12%). Single-family construction is 4% higher in the Northeast (despite new home sales declines) due to relative strength in the not-for-sale, custom market in that region.

Builder Confidence Drops Four Points Amid Concerns Over Housing Affordability 

Builder confidence in the market for newly-built single-family homes fell four points to 56 in December on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) as concerns over housing affordability persist. The NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” Although this is the lowest HMI reading since May 2015, builder sentiment remains in positive territory. Builders report that consumer demand exists, but customers are hesitating to make a purchase because of rising home costs. However, recent declines in mortgage interest rates should help move the market forward in early 2019. Looking at the three-month moving averages for regional HMI scores, the Midwest dropped two points to 55; the West and South both fell three points to 68 and 65, respectively; and the Northeast registered an eight-point drop to 50.


HOME SALES TO STABILIZE IN 2019

 

According to a report released by the Federal Reserve This Week in Real Estate the market value of all owner-occupied residential real estate rose to $25.6 trillion in the third quarter. Below are a few highlights from the second week of December that influence our business:

Fannie Mae: Home Sales to Stabilize in 2019
Although economic growth is expected to slow in the new year, new data suggests the housing market will stabilize come 2019, according to Fannie Mae. “We expect full-year 2018 economic growth to come in at 3.1% – an expansion high – before slowing markedly to 2.3% in 2019 and 1.6% in 2020,” Fannie Mae Chief Economist Doug Duncan said. The report indicates that consumer spending will continue being the largest positive contributor for growth. Nevertheless, the GSE believes higher tariffs, trade uncertainty and rising interest rates and input costs will further constrain business fixed investment growth. With the exception of accelerating inflation, both mortgage rates and home sales could stabilize in 2019, according to the ESR Group. In fact, Fannie predicts purchase mortgage originations will climb, but origination volumes will slow as refinances decline.

U.S. Household Balance Sheet Continues to Recover in Q3 2018
The third quarter Federal Reserve Flow of Funds report showed continued improvement in the financial position of U.S. households with real estate, as the market value of all owner-occupied residential real estate (household owned) rose to $25.6 trillion. According to NAHB tabulations of the quarterly series, the asset or market value of owner-occupied real estate held by U.S. households increased $298 billion dollars while the liabilities (home mortgages) increased by about $90 billion from the second quarter reading. The housing market’s value of owners’ equity in real estate as a percentage of household real estate reached 59.9% in the third quarter of 2018, a level had not been seen since 2002. On the other hand, the greatest quarter-to-quarter percent increase in households’ equity position, that is, the difference between assets and liabilities, occurred not in 2018 but in 2017. The 2018 third quarter’s increase in equity position was 1.4%, which was substantially lower than the quarter-to-quarter increases of over 2.0% in the previous year’s quarters.

HUD Announces New FHA Loan Limits for 2019
The Federal Housing Administration (FHA) announced its loan limits for 2019 on Friday. The nationwide rise in median home prices indicates most buyers across the country – including those in more than 3,000 counties – will see increases. The FHA floor will increase from $294,515 to $314,827. This base limit applies to areas where 115% of the area median home price is less than $314,827. The FHA high-cost ceiling will increase from $679,650 to $726,525.  High-cost areas are those where 115% of the median home price is greater than the floor ($314,827). In these areas, the limit equals 115% of the median home price up to the FHA ceiling ($726,525). FHA also increased the loan limits for its Home Equity Conversion Mortgage (HECM), or reverse mortgage program, from $679,650 to $726,525.


Residential Construction Loans Grow as Equity Climbs and Housing Appreciation Slows

 

Residential Construction Loans Grow As Equity Climbs and Housing Appreciation Slows

While home equity is still climbing, led by the Western region, appreciation is slowing down according to the CoreLogic Home Equity Report released This Week in Real Estate. Below are a few highlights from the first week of December that influence our business:

Active Home Buyers are Spending Significant Amounts of Time Looking for the Right Home

In the third quarter of 2018, 13% of adults in NAHB’s Housing Trends Report poll report planning to purchase a home in the next 12 months.  Of that group, 46 percent are not merely planning it, they are already actively engaged in the search for the right home to buy.  And they are spending significant amounts of time looking. In fact, 54% of those actively engaged in the process have been trying to find the right home for three months or longer. Why is it taking this long? The number one reason active home buyers gave in the third quarter of 2018 is they can’t find a home at a price they can afford (49%), followed by not being able to find a home with the desired set of features (40%). Not far behind, 38% can’t find a home in the right neighborhood. And finally, a critical question: what are these veteran house hunters, who have already actively looked for at least three months, going to do if their dream house remains elusive in the months ahead: 61% will continue looking for the ‘right’ home in the same preferred location, 37% will expand the search area, 23% is willing to accept a smaller/older home, and 16% might buy a more expensive home. One option that is not in the cards for most of them: giving up. Only 18% will stop trying to find a home.

Home Price Appreciation is Slowing Down: Equity is Still Climbing, Just Not as Fast as Before

The average homeowner gained $12,400 in equity in one year’s time, according to CoreLogic’s Home Equity Report for the third quarter of 2018. And while that’s not exactly nothing, it’s the smallest annual increase in two years. Last quarter’s report revealed an increase of $16,000 in home equity. CoreLogic analyzed data on more than 50 million U.S. properties with a mortgage. Its report revealed that homeowners with mortgages (which account for 63% of all properties) saw their home equity increase 9.4% from last year. While the rate of growth may be slowing, almost every state experienced some growth, with the Western region posting the most notable uptick. California homeowners gained an average of $36,500 in home equity, while Nevada, Washington and Oregon homeowners saw their equity increase by approximately $32,600, $27,000 and $9,000, respectively. The number of homes with negative equity also fell in the third quarter. The data shows that, year over year, negative-equity homes – or homes that have liens that exceed their value – fell 16% to 2.6 million homes. “On average, homeowners saw their home equity increase again this quarter, but not nearly as much as in previous quarters,” said CoreLogic Chief Economist Frank Nothaft. “During the third quarter, homeowners gained an average of $12,400 compared to the second quarter when the average home equity wealth increase was more than $16,000.”

Continued Residential Construction Loan Growth 

The volume of residential construction loans increased by 2.8% during the third quarter of 2018, marking 22 consecutive quarters of growth. Furthermore, recent stabilization of year-over-year growth rates is an indicator of continued, modest growth for single-family construction. Tight availability of acquisition, development and construction (AD&C) loans has been a limiting or cost factor for home building growth, but easing credit conditions and a growing loan base have helped expand residential construction activity. According to data from the FDIC and NAHB analysis, the outstanding stock of 1-4 unit residential construction loans made by FDIC-insured institutions rose by $2.2 billion during the third quarter of 2018, raising the total stock of outstanding loans to $79 billion. On a year-over-year basis, the stock of residential construction loans is up 8%, which has been a useful indicator of the additional volume builders intend to add to construction activity. Since the first quarter of 2013, the stock of outstanding home building construction loans has grown by 95%, an increase of $38 billion.

 


November’s Influence on the Housing Market

 

In response to the ongoing run-up in home prices over the last year the Federal Housing Finance Agency announced This Week in Real Estate that the conforming loan limits will increase by 6.9 percent to $484,350 effective January 1, 2019. Below are a few highlights from the last week of November that influence our business:

Pending Home Sales Slip 2.6% in October
Pending home sales declined slightly in October in all regions but the Northeast, according to the National Association of Realtors®. The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 2.6 percent to 102.1 in October, down from 104.8 in September. However, year-over-year contract signings dropped 6.7 percent, making this the tenth straight month of annual decreases. While the short-term outlook is uncertain, Yun stressed that he is very optimistic about the long-term outlook. The current home sales level matches sales in 2000. “However, mortgage rates are much lower today compared to earlier this century, when mortgage rates averaged 8 percent. Additionally, there are more jobs today than there were two decades ago,” said Yun. “So, while the long-term prospects look solid, we just have to get through this short-term period of uncertainty.” All four major regions saw a decline when compared to a year ago, with the West seeing the most pronounced drop. Yun said that decline is not at all surprising. “The West region experienced the fastest run-up in home prices in a short time and therefore, has essentially priced out many consumers,” Yun said. Yun pointed to year-over-year increases in active listings from data at realtor.com to illustrate a potential rise in inventory. Denver-Aurora-Lakewood, Colo., Seattle-Tacoma-Bellevue, Wash., Columbus, Ohio, San Francisco-Oakland-Hayward, Calif. and San Diego-Carlsbad, Calif. saw the largest increase in active listings in October compared to a year ago. Yun expects existing-home sales this year to decrease 3.1 percent to 5.34 million, and the national median existing-home price to increase 4.7 percent. Looking ahead to next year, existing sales are forecast to decline 0.4 percent and home prices to drop roughly 2.5 percent.

Entry Level Home Inventory Yields Declining New Home Size
Continuing a multiyear trend, new single-family home size decreased during the third quarter of 2018. New home size has been falling over the last three years due to an incremental move to additional entry-level home construction. According to third quarter 2018 data from the Census Quarterly Starts and Completions by Purpose and Design and NAHB analysis, median single-family square floor area decreased to 2,320 square feet. Average (mean) square footage for new single-family homes declined to 2,495 square feet. Since cycle lows (and on a one-year moving average basis), the average size of new single-family homes is 8% higher at 2,565 square feet, while the median size is 13% higher at 2,369 square feet.

The post-recession increase in single-family home size is consistent with the historical pattern coming out of recessions. Typical new home size falls prior to and during a recession as home buyers tighten budgets, and then sizes rise as high-end homebuyers, who face fewer credit constraints, return to the housing market in relatively greater proportions. This pattern was exacerbated during the current business cycle due to market weakness among first-time homebuyers and supply-side constraints in the building market. But current declines in size indicate that this part of the cycle has ended, and size will trend lower as builders add more entry-level homes into inventory and the custom market cools.

Loan Limits Increase to $484,350 
Given the rapid run-up in home prices over the last year, it’s no surprise that loan limits will also be going up in 2019. The Federal Housing Finance Agency (FHFA) announced that the maximum conforming loan limits for mortgages eligible for acquisition or guarantee by the two government sponsored enterprises (GSEs) Freddie Mac and Fannie Mae will be $484,350. The conforming loan limit as established by the Housing and Economic Recovery Act (HERA) is reviewed each year and adjusted as necessary to reflect the change in the average U.S. home price. The new limit represents a 6.9 percent increase over the $453,100 limit for 2018, the percentage by which FHFA’s Housing Price Index (HPI) for the third quarter of 2018 increased on an annual basis. The new limits are effective as of January 1, 2019. The Federal Housing Administration (FHA) and the VA are expected to adopt the same loan limits for 2019.

 


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