Existing housing inventory has declined year over year each month for two straight years, but new consumer findings from the National Association of Realtors (NAR) offer hope that the growing number of homeowners who think now is a good time to sell will eventually lead to more listings, according to NAR’s second-quarter 2017 Housing Opportunities and Market Experience (HOME) survey.
In addition, the survey found that fewer renters believed it was a good time to buy a home, and respondents were less confident about the economy and their financial situations than earlier this year despite continuous job gains.
The HOME survey showed an increased share of homeowners who believed it was a good time to sell their homes. During the second quarter, 71% of homeowners thought it was a good time to sell – up from the first quarter (69%) and considerably more than a year earlier (61%). Respondents in the Midwest (76%) surpassed the West (72%) for the first time to be the most likely to think it was a good time to sell.
Lawrence Yun, chief economist for NAR, says there’s a mismatch between homeowners’ confidence in selling and actually following through and listing their homes for sale: “There are just not enough homeowners deciding to sell because they’re either content where they are, holding off until they build more equity, or hesitant, seeing as it will be difficult to find an affordable home to buy,” he says.
“As a result, inventory conditions have worsened and are restricting sales from breaking out while contributing to price appreciation that remains far above income growth.
“Perhaps this notable uptick in seller confidence will translate to more added inventory later this year. Low housing turnover is one of the roots of the ongoing supply and affordability problems plaguing many markets,” Yun adds.
However, confidence among renters that it is a good time to buy a home continues to retreat. Fifty-two percent of renters thought it was a good time to buy – down from both the first quarter (56%) and a year earlier (62%). Conversely, 80% of homeowners (unchanged from the previous quarter and a year ago) thought it was a good time to make a home purchase. Younger households and those living in urban areas and in the costlier West region were the least optimistic.
The surge in economic optimism seen in the first quarter of the year appears to be short-lived. The share of households believing the economy was improving fell to 54% in the second quarter after soaring to a survey high of 62% in the first quarter. Homeowners, and those living in the Midwest and in rural and suburban areas, were the most optimistic about the economy. Only 42% of urban respondents believed the economy was improving, which is a drastic decrease from the 58% a year ago.
Dimming confidence about the economy’s direction is also leading to households not having strong feelings about their financial situations. The HOME survey’s monthly Personal Financial Outlook Index showed respondents’ confidence that their financial situations will be better in six months fell to 57.2 in June after jumping in March to its highest reading in the survey. A year ago, the index was at 57.7.
“It should come as little surprise that the confidence reading among renters has fallen every month since January (64.8) and currently sits at its lowest level (53.8) since tracking began in March 2015 (65.7),” Yun says. “Paying more in rent each year and seeing home prices outpace their incomes is discouraging, and it’s unfortunately pushing homeownership further away, especially for those living in expensive metro areas on the East and West Coast.”
In the survey, respondents were also asked about the affordability of homes in their communities. Overall, only 42% of respondents believed they were affordable for almost all buyers, with those living in the Midwest being the most likely to believe homes were affordable (55%) and, not surprisingly, West respondents (29 percent) being the least likely to think homes were affordable.
Additionally, 20% of respondents would consider moving to another more affordable community. Those earning under $50,000 annually (27%) and those age 34 and under (29%) were the most likely to indicate they would consider moving.
“Areas with strong job markets but high home prices risk a migration of middle-class households to other parts of the country if rising housing costs in those areas are not contained through a significant ramp-up in new home construction,” Yun adds.
Home Prices Continue Upward Trajectory
Home prices continued trending upward across the country, according to the S&P/CoreLogic Case-Shiller Indices, which reported a 5.5% annual gain in April – down from 5.6% the month prior.
The 10-city composite annual increase came in at 4.9%, down from 5.2% the previous month. The 20-city composite posted a 5.7% year-over-year gain, which is down from 5.9% in March.
Seattle; Portland, Ore.; and Dallas reported the highest year-over-year gains among the 20 cities. In April, Seattle led the way with a 12.9% year-over-year price increase, followed by Portland, with 9.3%, and Dallas, with 8.4%. Seven cities reported greater price increases for the year ending April 2017 versus year-over-year ending March 2017.
Before seasonal adjustment, the National Index posted a month-over-month gain of 0.9% in April. The 10-city composite posted a 0.8% increase, and the 20-city composite reported a 0.9% increase in April.
After seasonal adjustment, the National Index recorded a 0.2% month-over-month increase. The 10-city composite posted a 0.2% month-over-month increase and the 20-city composite a 0.3% increase. Eighteen of the 20 cities reported increases in April before seasonal adjustment; after seasonal adjustment, 13 cities saw prices rise.
David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, says questions are arising due to home prices rising faster than inflation.
“Since demand is exceeding supply and financing is available, there is nothing right now to keep prices from going up,” he says. “The increase in real, or inflation-adjusted, home prices in the last three years shows that demand is rising. At the same time, the supply of homes for sale has barely kept pace with demand, and the inventory of new or existing homes for sale shrunk down to only a four-month supply. Adding to price pressures, mortgage rates remain close to four percent, and affordability is not a significant issue.”
The current national index level is 2.1% above its peak of 184.62 set in July 2006, now standing at 188.50 after seeing a dip to 134.00 in February 2012. The 20-city composite is down 4.5% from its July 2006 peak of 206.52, now at 197.19 after hitting 134.07 in March 2012, and the 10-city composite peak of 226.29 in June 2006 is now down to 210.64 after reaching 146.45 in March 2012.
The 20-city composite, which saw all 20 cities post year-over-year gains, includes the following: Atlanta (5.8%); Boston (6.7%); Charlotte, N.C. (6.1%); Chicago (4.0%); Cleveland (3.4%); Dallas (8.4%); Denver (8.2%); Detroit (7.4%); Las Vegas (6.8%); Los Angeles (5.3%); Miami (5.4%); Minneapolis (6.3%); New York (3.8%); Phoenix (5.7%); Portland (9.3%); San Diego (6.6%); San Francisco (5.0%); Seattle (12.9%); Tampa, Fla. (5.0%); and Washington, D.C. (3.6%).
HPI Indicates Rising Home Prices, Up Year Over Year
Black Knight Financial Services’ Home Price Index (HPI) was at its highest-ever level in April 2017, at $275,000, representing a 3.6% increase in the average national home price since the beginning of this year.
Washington continues to outperform the nation, leading all states in monthly appreciation for the third consecutive month and with the Seattle metro area seeing an 8.4% gain in home prices since the start of 2017.
Seattle and Bellingham, Wash. – along with Carson City, Nev. – led all metropolitan areas, with 2.3% monthly appreciation; Washington state accounted for five of the nation’s top 10 best-performing metros, the HPI finds. Tuscaloosa, Ala., was the only metro area to see a decline, with prices falling another 5.1% in its fifth consecutive month, marking the country’s worst-performing metropolitan area.
All of the nation’s 20 largest states and 40 largest metros saw home prices increase in April, while each of the top 10 best-performing metros saw home prices increase by 2.0% or more. Home prices in nine of the nation’s 20 largest states and 18 of the 40 largest metros hit new peaks in April, the report shows.
The largest states’ (by population) HPI changes from March include California at 1.0%; Texas at 1.3%; Florida at 0.8%; New York at 1.5%; Illinois at 0.9%; Pennsylvania at 1.1%; Ohio at 1.6%; Georgia at 1.5%; North Carolina at 0.8%; and Michigan at 1.8%.
The largest metros’ HPI changes from March include New York at 1.8%; Los Angeles at 1.0%; Chicago at 0.9%; Dallas at 1.6%; Houston at 0.8%; Philadelphia at 1.3%; Washington, D.C., at 1.0%; Miami at 0.4%; Atlanta at 1.7%; and Boston at 1.5%.
The top 10 states with the largest changes in the HPI are as follows: Washington (2.1%), Oregon (1.9%), New Jersey (1.8%), Nevada (1.8%), Montana (1.8%), Michigan (1.8%), Alaska (1.6%), Idaho (1.6%), Ohio (1.6%), and Utah (1.6%).
The top 10 metro areas with the largest changes in the HPI are as follows: Seattle (2.3%); Bellingham (2.3%); Carson City (2.3%); Walla Walla, Wash. (2.1%); Mount Vernon, Wash. (2.1%); Spokane, Wash. (2.0%); Reno, Nev. (2.0%); Salem, Ore. (2.0%); Grants Pass, Ore. (2.0%); and Detroit (2.0%).
The U.S. HPI stands at $275,000, representing a 1.2% change from March, a 6.0% change from last year and a 0.0% change from its peak.
Real House Prices Decrease Despite ‘Monetary Tightening Policies’
According to the April 2017 First American Real House Price Index (RHPI), real house prices decreased 1.6% between March and April and increased by 11% year over year.
The RHPI also indicates that real house prices are 33.6% below their housing-boom peak in July 2006 and 10.8% below the level of prices in January 2000. Unadjusted house prices increased by 5.7% in April on a year-over-year basis and are 2.6% above the housing-boom peak in 2007.
April 2017 real house price state highlights are as follows:
- The five states with the greatest year-over-year increases in the RHPI include Vermont (+15.9%), New York (+14.9%), Wisconsin (+14.6%), Michigan (+14.5%) and Alabama (+14.3%).
- The five states with the smallest year-over-year increases in the RHPI include Wyoming (+2.7%), Massachusetts (+3.8%), Oklahoma (+5.4%), Montana (+5.6%) and Tennessee (+5.9%).
Local market highlights from the RHPI are as follows:
- Among the core based statistical areas (CBSAs) tracked by First American, the five markets with the greatest year-over-year increases in the RHPI are Milwaukee (+17.9%); Charlotte, N.C. (+17.4%); Seattle (+15.9%); Denver (+15.6%); and San Jose, Calif. (+15.6%).
- Among the CBSAs tracked by the company, the markets with the smallest year-over-year increases in the RHPI are Hartford, Conn. (+3.7%); Pittsburgh (+4.0%); Virginia Beach, Va. (+4.8%); Cincinnati (+6.0%); and San Francisco (+6.2%).
RHPI data also suggest that consumer house-buying power – how much one can buy based on changes in income and the interest rate – increased 0.4% between March and April and fell 4.5% year over year.
“Despite the monetary tightening policies of the Federal Reserve, a dip in the average rate for a 30-year, fixed-rate mortgage and wage gains increased consumer house-buying power sufficiently to offset the gain in unadjusted house prices,” says Mark Fleming, chief economist at First American. “The decline in real, purchasing-power adjusted house prices between March and April was the largest month-over-month decline since July 2016.
“While this is welcome news for home buyers, the number of homes listed for sale is not meeting consumer demand, and markets are getting tighter,” Fleming continues. “As a result, affordability declined 11 percent on a year-over-year basis. That’s a bigger drop in affordability than the 5.7 percent caused by unadjusted house-price appreciation alone and reflects the impact of rising interest rates and tightening supply.”
Most Mortgage Shoppers in Q1’17 Were Renters
A recent TransUnion analysis finds that 55% of those who shopped for a mortgage in Q1’17 were non-homeowners, most of which were renters. This is a significant rise from Q1’16 (50%) and Q1’15 (45%), demonstrating that consumers may be shifting preferences from renting to homeownership.
TransUnion’s report found that millennials’ interest in homeownership is growing steadily over time. In 2017, three in 10 (29%) non-homeowners who shopped for mortgages were millennials – up slightly from 28% in 2016 and 27% in 2015.
In addition, 34 million renters between the ages of 25 and 44 – typically a prime age range for homeownership – were credit-eligible for a mortgage. Just 34% of renters under 44 years old had a VantageScore 3.0 credit score: a common benchmark used by some institutions to determine whether a borrower qualifies for a low-down-payment loan, below 580.
“The rental market has seen sustained growth for the last several years, but occupancy rates have flattened from their peak in the second quarter of 2016,” says Mike Doherty, senior vice president of TransUnion’s rental screening solutions group.
“This new uptick in mortgage shopping could be a precursor to further declines in occupancy, which would impact rent growth – and, ultimately, revenue – for multifamily property owners.”
Number of For-Sale Homes Falling at Fastest Pace in Four Years
An increase in the number of single-family home rentals has taken away a chunk of sellable inventory, according to the May Zillow Real Estate Market Reports. The typical home stayed on the market for just 77 days, the fewest days on Zillow ever reported.
The number of for-sale homes hitting the market is dropping at its fastest pace in almost four years, and across the country, home shoppers will have 9% fewer homes to choose from than a year ago, which is the greatest drop in inventory since August 2013, when inventory was down more than 10%, Zillow reports.
Columbus, Ohio; San Jose, Calif.; and Minneapolis reported the greatest annual declines in the number of homes for sale, with about 30% fewer homes for sale in each market. In San Diego, there are 26% fewer homes on the market than a year ago and 22% fewer in Seattle. Both San Diego and Seattle have high buyer demand and home value growth of over 6%.
The median home value across the country is $199,200, up 7.4% since this time last year. Seattle; Dallas; and Tampa, Fla., reported the highest year-over-year home value appreciation among the 35 largest U.S. metros. In Seattle, home values rose almost 13% to a median value of $440,100. Home values in Dallas and Tampa are up about 11% since this time last year.
Median rent across the nation rose 0.7% since last May to a median payment of $1,416 per month. Seattle; Sacramento, Calif.; and Los Angeles reported the greatest year-over-year rent appreciation among the 35 largest U.S. metros. Rents in Seattle are up almost 6% to a Zillow Rent Index of $2,127. Median rent in Sacramento is up 4.5%, while Los Angeles’ median rent is up 4%.
“Inventory has been falling for years, with supply no longer meeting demand, and there are multiple reasons for the worsening situation,” says Zillow Chief Economist Dr. Svenja Gudell.
Changes in demographics – such as the large number of millennials reaching their home-buying years – are ushering in big changes on the demand side, while issues from the supply side, such as low levels of new-home construction, are complicating the housing market.
“There is no silver bullet that will clear the market of all of these issues, and buyers frustrated by the status quo will likely have to remain patient and be ready to pounce once that perfect home does become available,” Gudell adds.