The first two months of 2018 saw some rather negative news about the housing market–concern about Trump’s tax cut and how it would impact home ownership, lack of housing inventory, increasing interest rates and declining home sales seemed to dominate news about the housing market. Over the last week, however, the headlines have changed and we are seeing a mixed bag of positive and negative news.
First, the good news is that it appears home sales are increasing after several months of declining sales:
Contract closings increased 3% month-over-month to a 5.54 million annual rate (the estimate was 5.4 million) from an unrevised 5.38 million. The median sales price rose 5.9% year-over-year to $241,700. The inventory of available properties declined 8.1% year-over-year to 1.59 million, the lowest for February in data going back to 1999.
Tucked away in the last paragraph of the same article, however, we see some fairly negative news about condo sales. And what is the old saying? Condos are the first to go up and the first to go down? Are they leading the way down this time?
Purchases of condominium and co-op units declined 6.5% to a 580,000 pace. First-time buyers made up 29% of all sales in February, unchanged from prior month. Homes sold in 37 days, compared with 41 days in January and 45 days in February 2017.
Inventory continues to remain tight, and realtors are wondering out loud if sellers don’t want to sell because they’d rather keep their current low interest rate than buy a new home with a higher interest rate:
“The one concerning trend is the interest rate lock effect,” said Lawrence Yun, chief economist at the NAR. Sellers are telling agents increasingly that they do not want to move because they will lose the record-low mortgage rate they have locked in.
Meanwhile, people are pulling back on refinancing their homes and also cutting back on their spending. Are people getting nervous about something called “interest rates?“
Affordability is weakening across the nation due to the combination of short supply, high demand and rising interest rates. And the respite for interest rates was short lived. They began rising again this week in advance of the Federal Reserve’s expected rate hike Wednesday.
Or are other factors bothering homeowners?
“Treasury rates declined slightly on average last week, as a mixed bag of economic news and geopolitical concerns made investors more cautious overall,” said Joel Kan, an MBA economist. “A significant driver of the decline was retail sales data showing less than expected spending by U.S. households for the third month.”
Whatever is spooking investors and homeowners, we know for a fact that builders are getting very concerned about increasing interest rates and overhead:
Like 2017, 2018 isn’t setting up to be particularly favorable for builders — construction materials and permitting costs are high and rising, labor is tight, and desirable, buildable land is scarce and expensive,” wrote Aaron Terrazas, senior economist at Zillow. “It seems clear that we shouldn’t expect a big breakthrough in new home sales any time soon, and should instead look for incremental progress at best. At this point, we’ll take whatever we can get.“
The quote above is from an article that is a few weeks old and written before the slight bump in sales that is being reported today. Nonetheless, we are seeing the concerns expressed by builders being played out. As a result…
“This one-two punch has created a situation in which existing sales appear to be plateauing at around 5.5 million sales per year, well below the 6 million or more we might otherwise expect to see,” said Aaron Terrazas, senior economist at Zillow.
Reverse mortgages–where the bank pays you a monthly payment until you die then takes the house, are booming (according to a company’s press release)…
Reverse Mortgage Lending, Inc., a San Diego–based HECM provider, announced today it ended 2017 with record growth and received top honors from partner Liberty Home Equity Solutions. Reverse Mortgage Lending CEO Collin Knock attributed the growth to his team and credits them for earning Liberty’s Top TPO Sales Producer award for the final quarter of 2017.
Meanwhile, Fox News has taken to calling the lack of affordable housing being built a “crisis.” Naturally, as Fox does, it blames Obama and democratic policies for the problem. At the end of the article Fox begrudgingly admits that the problem is actually a labor shortage:
The construction industry is suffering from a shortage of workers, potentially facing a 1.5 million shortfall in personnel by 2020. That is restricting the number and type of jobs that companies are willing to take on.