• A monthly index measuring signed contracts to buy existing homes fell 2.6 percent in August compared to July.
• That is the fifth drop in the past six months and below expectations.
• A drop in supply and spike in home prices are largely to blame for the change, but two devastating hurricanes only added to the weakness.
Contracts to buy previously owned homes fell more than expected in August to their lowest level in about 1-1/2 years as the housing market continues to be sapped by a shortage of inventory that is also pushing up home prices. The National Association of Realtors’ index measuring signed contracts to buy existing homes fell 2.6 percent in August compared to July. Pending home contracts are viewed as a forward-looking indicator for the state of the housing market because they become sales one or two months later. Lawrence Yun, chief economist for the Realtors said in a release. “Demand continues to overwhelm supply in most of the country, and as a result, many would-be buyers from earlier in the year are still in the market for a home, while others have perhaps decided to temporarily postpone their search.” He also stated, “August was another month of declining contract activity because of the one-two punch of limited listings and home prices rising far above incomes.” In the Western Region, sales declined 1.0 percent monthly and 2.4 percent annually.“The good news is that nearly all of the missed closings for the remainder of the year will likely show up in 2018, with existing sales forecast to rise 6.9 percent.” said Yun.
• Pending home sales fell 0.8 percent compared with June, according to the National Association of Realtors.
• The index is now 1.3 percent below a year ago and has fallen on an annual basis in three of the past four months.
• “The reality, therefore, is that sales in coming months will not break out unless supply miraculously improves,” said Lawrence Yun, chief economist for the Realtors.
An index of so-called pending home sales, which represent closings one to two months from now, fell 0.8 percent compared with June, according to the National Association of Realtors. That is the fourth monthly drop in the past five months. June’s reading was also revised lower. The index is now 1.3 percent below a year ago and has fallen on an annual basis in three of the past four months.
“Buyer traffic continues to be higher than a year ago, the typical listing has gone under contract within a month since April,” said Lawrence Yun, chief economist for the Realtors. “The reality, therefore, is that sales in coming months will not break out unless supply miraculously improves. This seems unlikely given the inadequate pace of housing starts in recent months and the lack of interest from real estate investors looking to sell.”
The supply of homes for sale at the end of July came in at 2.11 million, 9 percent lower than a year ago. That has fallen year over year for 26 consecutive months.
“The housing market remains stuck in a holding pattern with little signs of breaking through. The pace of new listings is not catching up with what’s being sold at an astonishingly fast pace,” Yun added.
Closed sales to buy existing homes fell more than expected in July, with Realtors citing the lack of supply as the primary reason. Prices are also a factor though. California, which boasts the priciest and tightest housing market in the nation, saw sales slip across the board in July. The number of homes for sale fell yet again and prices hit decade highs.
The California Association of Realtors June Housing Report states the median number of days on the market fell to 22.4 days in June, the fastest rate since May 2004, when it took 21.9 days to sell a home.
~ Los Angeles metro area registers a year-to-year sales increase of 8.3% .
~ New statewide active listing have declined for a full 2 years straight in June, falling 13.5% from a year ago.
Leslie Appleton-Young, C.A.R. Sr. President & Chief Economist said “While June home sales improved at a healthy pace, the growth in sales was prmarily in the mid-to higher-end price ranges.
~ Mortgage rates continued to dip since the beginning of the year. A 30 yr. fixed mortgage in June averaged 3.9%, down from 4.01% in May. The 5 year adjustable-rate mortgage edged up in June to an average of 3.14% from 3.12% in May.
For 62 straight months, Southern California home prices have increased. Five years ago, a median-priced condo in Orange County was around $280,000, about 76% less than today’s prices.
A report from Jim Doti and economists at Chapman University think Orange Country housing is in bubble territory, but is not in immediate danger of bursting. A report from Mark Schniepp of the California Forecast also sees no bubble yet. The critical lack of supply still ensures a quick sale of existing inventory.
There is still record low unemployment, which in turn fuels wage increases. The current housing market is not overheated, with speculative real estate purchases and easy mortgage credit, as was prevalent a decade ago.
Are we in a bubble? Economic analysts and real estate professionals are trying to determine the answer to this question.
Some economists and industry analysts were asked about future home prices in the region. Among their answers:
– Southern California home prices are not about to drop. They believe that prices will continue to rise for 2 more years, and possibly longer.
– The market is not in a bubble yet – though speculation is increasing on the subject.
– If you are thinking of buying a home, now is still the time to act, provided you are not overextended and plan to own for a while. Interest rates are still low. Though it is more expensive to buy today then a few years ago, home prices are still projected to go up, and possible increases in interest rates will increase the cost of owning later. “You ‘re most likely seeing an increase of 10% or 12% in your mortgage payment” if you wait, stated Oscar Wei, a senior economist for C.A.R.
Factors that Determine Your Property’s Value
~ Condition of Home
~ Market Condition
The National Association of Realtors reported a 1.3% drop in pending sales of condos, co-ops, and single-family homes in April. “Prospective buyers are feeling the double whammy this spring of inventory that’s down 9.0% from a year ago and price appreciation that’s much faster than any rise they’ve ilkely seen in their income,” said Lawrence Yun, the NAR’s chief economist.
There is significant interest in homebuying, but housing supply, especially in the more affordable lower-to-mid price range, is not keeping up with the level of demand. Yun said that investors who bought single-family homes after the financial crisis to rent out are showing no intentions of selling.This also creates pressure on inventory supply.
Rising mortgage rates are also a constraint if existing homeowners do not want to trade the lower rate they’ve locked in for a higher one. In a market with tight inventory, the decision to sell depends on whether homeowners want to risk selling and then not be able to find a new home. This hesitation contributes to the shortage of inventory and creates the current strong Seller’s market. Buyers must continue to face the reality of tight inventory, high demand and rising prices, straining affordability.
Many student loan borrowers – 71 percent, in a recent survey – say student loans are one reason they’ve delayed buying a home. But that could soon be changing. Recently, Fannie Mae, one of the biggest secondary markets for home loans in the U.S., announced three significant changes to its underwriting requirements pertaining to consumers with student loans. Two of these changes can help borrowers obtain a mortgage, while a third change can help those with home equity reduce student loan debt.
Income-Driven Repayment Plans
Before, if a borrower was on an income-driven repayment plan, the lender was instructed to use 1% of the balance in place of the borrower’s actual payment. But now lenders using Fannie Mae underwriting standards can use the existing payment, unless it is zero. The difference between the actual payment and the 1% balance formula can make a several hundred dollar per month difference in the debt load for qualification. Most mortgage lenders require a monthly debt-to-income ratio of no higher than 43-50 percent.
There are a few caveats to this new rule. First, the payment amount must show up on the borrower’s credit report and must be more than zero. If the payment fails those criteria, the lender must use the 1% value. Or, the borrower can then apply for a new income-driven plan plan that pays off the loan in full during the term.
More and more employers are recognizing the value of offering student loan repayment as a benefit to their employees. The new Fannie Mae rules allow the mortgage lender to exclude those payments from the mortgage calculation as long as the borrower can supply documentation that a third party, such as an employer or parent, has satisfactorily made the payments for at least the last 12 months.
Paying Student Loans with Home Equity
New rules will allow borrowers with enough equity in their home to refinance their mortgage to include funds to repay some or all of their student loans.
While a cash-out option has always been available, under the new rules, borrowers will receive the same rate on the amounts used to pay off student loans as for the new mortgage, instead of being charged fees and sometimes higher interest rates for the student loan portions.
At least one loan must be paid in full as part of the transaction. Funds are sent directly to the student loan holder, and you can only use this program to pay loans that you, the mortgage borrower, are personally, legally responsible for.
This last change is probably better news for private student loan borrowers than most federal student loan borrowers. Paying off federal loans in general means losing the lower payment, deferment and discharge options those loans maintain. Do your homework before refinancing.
When qualifying for a mortgage, many Buyers were constricted by the old rules regarding student loans. Now, they have an increased chance to obtain a loan for their dream home!
Many homebuyers are finding themselves in a bind – they have enough money and are pre-approved for a mortgage, but can they secure a house? The more prepared buyers are for the search, the more comfortable it will be — and be able to secure a home they’ll enjoy,
1. Work with a trusted agent. Using an agent can give buyers an edge because the agent has access to information from the multiple listing service that buyers won’t find online. An agent can also help prospective buyers prepare their strongest offer. Line up your agent at the beginning of your search.
2. Get as far along in the mortgage process as you can and prepare a draft cover letter to the seller so a purchase offer can be prepared quickly. With those issues out of the way, they can focus on choosing the right home.
3. Do significant research before you view homes. Decide what features you want, what they can reasonably expect to get for their budget and what neighborhoods are acceptable.
The market is moving quickly, which requires quick decisions from buyers and often submission of an offer as soon as they see a house they want. The best houses are selling in three to five days, with multiple offers and even bidding wars.
If the buyer has studied the market ahead of time … they will be more confident when they do see something that matches their parameters. Is it the right neighborhood? Is it the right size? Does the layout work for them? Buyers are less likely to make a mistake and to move quickly when they find the right home.
Exerpts from California Association Of Realtors® (C.A.R.) release dated January 24, 2017:
“Led by the Southern California region, California pending home sales registered gains on a month-to-month and year-to-year basis in December, portending a moderate increase in sales in the near term.
The modest sales growth is unlikely to be sustained, however, given the severe shortage of homes for sale and affordability concerns.
Pending home sales data:
• Based on signed contracts, statewide pending home sales increased in December on a seasonally adjusted basis, even with new mortgage rules that pushed sales higher December a year ago.
• Southern California saw the largest increase in pending sales last month, rising 7.8 percent on an annual basis and decreasing 16.1 percent on a monthly basis. Orange County was the only area within Southern California that saw pending sales lower on an annual basis by 11.5 percent.
• On the flip side, in the San Francisco Bay Area as a whole, tight housing supplies and low affordability contributed to a fall in pending sales of 14.2 percent compared to December 2015 and 32.5 percent from November. The significant year-over-year sales decline in the Bay Area can be attributed to the prevalence of higher-priced properties in the region that were affected by new mortgage lending rules implemented in fall 2015.
• Overall pending sales in the Central Valley improved 0.9 percent from December 2015 and were down 18.4 percent from November.
• While rents in most large metro areas will continue to increase next year, they’ll grow at just 1.7 percent next year, according to Zillow’s rent forecast.”
Here’s what the experts expect to see in 2017:
1. Rising prices will keep pushing up homeowners’ net worth. Home prices are poised to rise another 5.2 percent through September 2017, according to a recent report from CoreLogic.
2. But mortgage rates are going up.
The Fed is expected to continue raising rates on a strong economy. The Mortgage Bankers Association was predicting that rates would reach 4.8 percent by the end of 2017.
3. It’s getting easier to get a mortgage.
It’s easier to get a mortgage now than at any time in the past eight years, according to the Mortgage Credit Availability Index. That reflects an increased availability of both jumbo loans and low down-payment loans.
4. It’s getting easier for first-time buyers.
After years of shutting them out, the market has become slightly more welcoming to first-time buyers. Millennials are more secure in their jobs, so they’re better qualified for mortgages, particularly the low down payment options.
5. New homes are getting smaller.
The median square footage for new homes this year fell for the first time since the recession. The shift also reflects a renewed focus by builders on the neglected market of entry-level buyers.
6. Inventory will remain tight.
Total housing inventory at the end of September increased 1.5 percent to 2.04 million existing homes for sale, but that’s still 7 percent lower than last year. That continued lack of inventory is one of the main factors behind rising prices.
7. The share of cash buyers will move closer to normal.
All-cash buyers fell below 30 percent of home sales this year for the first time since 2007, closer to their historical average of about 25 percent, according to CoreLogic.
8. Foreign buyers will play a smaller role.
9. Rents will continue to level off.
While rents in most large metro areas will continue to increase next year, they’ll grow at just 1.7 percent next year, according to Zillow’s rent forecast.