While the housing market continues to underperform its potential by 7.2 percent, the gap between actual existing home sales and the market potential for home sales narrowed by 1 percent in September compared with August, according to our Potential Homes Sales model. However, even though the performance gap narrowed a bit, the housing market still has the potential to support more than 440,000 additional home sales at a seasonally adjusted annualized rate (SAAR).
Adjustable-rate mortgages (ARMs), a symbol of the housing market crash, are making a comeback, but their resurgence is not an indicator of a potential negative turn in the housing market. An ARM is a mortgage that typically has a 30-year repayment term, but the interest rate is fixed for the first few years of the loan. Once the fixed period ends, the interest rate adjusts based on market changes.
First American Chief Economist Mark Fleming was interviewed on CNBC yesterday and discussed the impact of rising interest rates on affordability and home-buying demand.
Following seven straight months of declining defect risk, the Loan Application Defect Index for purchase transactions remained the same in August compared with the month before. Year over year, the Defect Index for purchase transactions decreased 13.2 percent as compared to August 2017. The Defect Index for refinance transactions is the same as the previous month and is 1.4 percent lower than a year ago.
The Federal Open Market Committee (FOMC) meeting is just around the corner and a rate hike is almost certain, according to experts, which will trigger conversations about rising mortgage rates across the housing industry. While changes to the federal funds rate won’t necessarily spur further increases in mortgage rates, mortgage rates are expected to rise nonetheless.
First American Chief Economist Mark Fleming was interviewed on CNBC earlier this week and discussed the housing market’s potential shift toward a buyer’s market and the challenges facing the market: affordability and interest rates.
Yesterday’s Census Bureau report for August is an indication of strength for the housing market. While the number of permits issued, which can signal how much construction is in the pipeline, decreased by 5.5 percent, home building rose in August as housing starts increased 9.4 percent compared with a year ago. The growth in housing starts is welcomed news after two consecutive monthly declines.
In August, the housing market continued to underperform its potential. Actual existing-home sales are 6.5 percent below the market’s potential, according to our Potential Home Sales model. That means the market has the potential to support more than 400,000 more home sales at a seasonally adjusted annualized rate (SAAR). Severe supply shortages have been the primary culprit for this performance gap – you can’t buy what’s not for sale. The supply shortage, combined with first-time home buyer demand, has created a strong seller’s market, where many potential buyers are bidding on the same few homes, which accelerates price appreciation.
Last month, we noted in our latest Real House Price Index (RHPI) report that house price appreciation may be slowing. According to our RHPI, 21 cities experienced a monthly decline in their real, consumer house-buying power-adjusted price level. One reason for the price appreciation slowdown is that 21 of the 50 largest cities in the U.S. experienced an increase in the number of houses on the market in July compared with a year ago, according to realtor.com data.
Whether students are beginning middle school or their last year of college, back-to-school season is here. Although many students may grimace when they hear “back to school,” they won’t regret pursuing a higher education as adults as they compete for well-paying jobs and one day, hopefully, buy a home.