• 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.
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
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.
Rates have inched back down this week. Janet Yellen, the Chairman of the Federal Reserve Board, in a speech on Monday, hinted that the economy is improving but the timing is unclear for a rate hike, playing down the possibility that the next increase will be this month.
These remarks along with the disappointing May jobs report and concerns over the possibility that Britain will exit the European Union helped rates to ease.
Buyers eager to take advantage of the continued low interest rates are actively seeking to purchase.
Home sales continue to outstrip supply and the Market Action Index has been moving higher for several weeks. This is a Seller’s market so watch for upward pricing pressure in the near future if the trend continues
You have 3 options while the interest rates remain below 4%, depending on whether you are considering a purchase, a move, or just staying put.
1. Now is still the time to purchase before another buying season erupts, with increasing prices and added competition heating the market. Rates remain low, and inventory, though still scarce, is on the market long enough to make thoughtful decisions.
2. Now is the time to consider refinancing your mortgage to secure a low, fixed rate or to even further lower your mortgage rate, if you can achieve an approximate 1% difference to make it worth your while.
3. Now is the time for a current homeowner to consider a move either up or down, depending on their stage in life. There are various ways to take advantage of this market. If one is willing to take advantage of the differential between coastal property and property more inland, where larger and newer homes might be achieved for the same price, it might be time make a move. It might be time to downsize, and take advantage of the equity built over a lifetime of ownership. Some cash can be released from a sale, allow you to still be mortgage free, and still keep property taxes reasonable by transferring the tax base. Lastly, for a growing family, it might simply be time to upsize to another property in the same area. It will be less disruptive, with same schools, shops, and social activities. Prices are not appreciating as quickly as before and will not cause stressful and hurried decision making that typified an earlier market.
Whatever your stage in life, there are always choices!
Call Nancy at 714-496-5950 to find out yours!
Whether you’re looking to buy a home this year or already own one, there are important factors that will affect your investment. Here are the six important things you need to know about the housing market in 2016.
1. Mortgage Rates Are Staying Low (For Now!)
The Fed’s December 2015 interest rate hike had many consumers worried that rock-bottom mortgage rates would finally come to an end. However, the economic events of the first two weeks of 2016 show that low mortgage rates will stick around for a bit longer.
Given the lackluster performance of the stock market, many investors are buying bonds and driving down the yields of these investment vehicles. This is great news for those looking for a home loan, because the interest rates on 30-year mortgage loans are highly correlated with the yield of the U.S. Treasury 10-year bond.
2. HARP Refinance Deadline Receives Extension
Many experts expect mortgage interest rates to increase further down the road. Those mortgage holders that haven’t been able to refinance to a lower rate yet should think about doing so this year — especially homeowners that are underwater on their mortgages.
As of January 2015, about 700,000 borrowers who owed more than their homes were worth were still eligible to refinance their loans through the HARP program from the Federal Housing Finance Agency (FHFA). HARP was originally set to expire at the end of 2015, but it was extended for an additional year, until the end of 2016.
Nearly 3.3 million Americans have benefited from a HARP refinance to lower their monthly payments on their mortgages. The five basic requirements to qualify for a HARP refinance are:
- Loan was originated on or before May 31, 2009.
- Property is a primary residence, one-unit second home, or one- to four-unit investment property.
- Loan is owned by Freddie Mac or Fannie Mae.
- Current loan-to-value ratio must be greater than 80%.
- Borrower is current on the mortgage, with no over-30-day late payments in the last six months and no more than one in the past 12 months.
There are still close to 430,000 HARP-eligible loans out there.
3. Home Prices Are Rising Less Than in Previous Years
One of the necessities that will be cheaper in 2016 is the single-family home. In 2016, the national average price for a single-family home is expected to be 3% higher than last year, a much slower rate of growth than 2015’s 5% increase.
4. Rent Prices Are Increasing Faster
On the other hand, rent prices are expected to increase sharply. In the third quarter of 2015, U.S. home buyers were spending 15% of their monthly income on the mortgage payment of a typical home, while U.S. renters were spending 30% of their monthly income on the rent payment of a median-valued property.
Higher rent prices will continue to be norm in 2016. According to a survey of more than 500 large U.S. property managers, rental inventory is at the lowest level in over 20 years.
A smaller inventory of available units for rent enables landlords to demand higher prices from renters. Of the surveyed property managers, 55% reported to be “less likely to offer concessions or lower rents to fill vacancies” and 68% of them expected to continue raising their rental rates in 2016 by an average of 8%.
5. New FHA Loan Limits Take Effect
On December 9, 2015, the Federal Housing Administration (FHA) announced its new schedule of loan limits for 2016. FHA home loans allow homebuyers to access financing with a minimum 3.5% down payment of the market value of the property, among other requirements.
Given the changes to median house prices in certain metropolitan areas, in 2016 the maximum FHA loan limit is higher in 188 counties. However, the maximum nationwide FHA loan limit remains at $625,500
6. Fannie Mae Loosens Some Requirements
The Federal National Mortgage Association (FNMA), better known as Fannie Mae, is giving Americans a break in 2016. Through its new HomeReady mortgage program, Fannie Mae aims to broaden access to home financing to credit-worthy low-to-moderate income borrowers.
Some of the loosened requirements from Fannie Mae include:
- Borrower isn’t required to be a first-time homebuyer;
- Down payment can be as low as 3% of property’s market value;
- Gifts, grants, and cash-on-hand are acceptable funds to cover downpayment and closing costs;
- Nontraditional credit is allowed;
- Income from non-borrower household members can be counted as part of the debt-to-income ratio of the borrower; and
- Underwriting process includes additional flexibilities.
Home values and rental prices are steadily rising, fueled by strong demand and a tight supply of available properties, a pair of reports recently showed. The solid demand drove sales growth early this year and spurred additional construction.
The Standard & Poor’s/Case-Shiller 20-city home price index climbed 5.1 percent in the 12 months that ended in August — a level many economists view as more sustainable than the sharp double-digit gains at the start of 2014.
And in September, median rents nationwide rose a seasonally adjusted 3.7 percent from a year ago, according to real estate data firm Zillow. That reflects a greater preference for renting rather than home-buying since the Great Recession, which has reduced the percentage of Americans who own homes to nearly a 48-year low of 63.7 percent.
Increases in home values continue to exceed average annual earnings, which have risen just 2.2 percent from a year ago.
“Prices are rising the fastest in markets where job growth and net migration are the strongest and inventories are the tightest,” said Mark Vitner, an economist at Wells Fargo Securities. Those same metro areas were among the leaders in the rental increases tracked by Zillow.
The housing market’s overall gains are defying the impact of a sluggish global economy. Falling commodity prices, weakened growth in China, a struggling Europe and tumult in emerging economies such as Brazil have hampered a world that is still battling its way out of the 2008 financial crisis.
Home values are rising largely because few properties are being listed for sale. The number of existing homes for sale has fallen 3.1 percent in the past 12 months. Low mortgage rates are helping would-be buyers. The average rate on a 30-year fixed mortgage fell to 3.79 percent last week, its 13th straight week below 4 percent.
Though Federal Reserve policymakers, worried that global financial market volatility could dampen the U.S. economy, did not raise the interest rates last week, they have begun laying the groundwork for a possible interest rate increase in October.
Two voting members of the Federal Open Market Committee, which sets monetary policy, said they were close to approving a rate hike on Thursday but wanted to take more time to assess the effects of the market turmoil and China’s slowing economy. Both said they expected a hike this year.
“It’s too early to know whether this episode amounts to a bona fide shock to the economy or just a nervous spasm in the markets,” Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said Monday.
Lockhart, a centrist, is one of the 10 voting members of the policy-setting Federal Open Market Committee. It voted 9-1 on Thursday to hold the central bank’s benchmark short-term rate at near zero percent after a much-anticipated two-day meeting last week.
Lockhart said Monday that he was confident the Fed would do so by the end of the year. The rate has been near zero since late 2008 in an attempt to stimulate the economy. The Fed meets again Oct. 27-28, then Dec. 15-16.
The labor market has healed enough for an interest rate hike, he said, but he remains concerned about inflation continuing to run well below the Fed’s 2% annual target.
“As things settle down, I will be ready for the first policy move on the path to a more normal interest-rate environment,” Lockhart said.