Pending Home Sales Drop for the First Time in 2015

May level down 1.8% on low inventory, escalating prices

Home price decline

After five consecutive months of increases, pending home sales in June dropped 1.8% — expectations were for a 0.9% gain — the biggest drop since December 2013, according to the National Association of Realtors.

Modest gains in the Northeast and West were offset by larger declines in the Midwest and South.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, fell 1.8% to 110.3 in June but is still 8.2% above June 2014 (101.9).

“This is a tricky time of year to assess housing trends as the housing market is very seasonal,” said Jonathan Smoke, chief economist for realtor.com. “The seasonal trend varies by market so a general interpretation of these numbers should be treated with skepticism.

“The underlying data was a mixed bag: the Northeast and West had slight increases on the seasonally adjusted index while the South and Midwest experienced declines. Even more confusing is the fact that the non-seasonally adjusted rate actually increased 2.6% in June over May, and only the Northeast and West had declines in the nonseasonal index,” he said.

Smoke remained positive. He said that regardless of what reading you prefer, the level of sales remains high.

“You have to go back to 2006 to see better readings on both indices,” Smoke said.

Despite last month’s decline, the index is the third highest reading of 2015 and has now increased year-over-year for ten consecutive months.

“Affordability is going to be the decisive factor in the housing market’s continued recovery,” says Selma Hepp, chief economist for Trulia. “Since pending sales are homes that are in escrow (e.g., have a signed contract) and will likely close in 1 to 2 months, it suggests that existing home sales through the summer will post solid year-over-year gains.

“However, we starting to see a slowdown which may be because home prices are pushing up against the affordability ceiling especially in faster moving markets where inventory is tight,” she said.

Lawrence Yun, NAR chief economist, says although pending sales decreased in June, the overall trend in recent months supports a solid pace of home sales this summer.

“Competition for existing houses on the market remained stiff last month, as low inventories in many markets reduced choices and pushed prices above some buyers’ comfort level,” he said. “The demand is there for more sales, but the determining factor will be whether or not some of these buyers decide to hold off even longer until supply improves and price growth slows.”

According to Yun, existing-home sales are up considerably compared to a year ago despite the share of first-time buyers only modestly improving1. The reason is that the boost in sales is mostly coming from pent-up sellers realizing their equity gains from recent years.

“Strong price appreciation and an improving economy is finally giving some homeowners the incentive and financial capability to sell and trade up or down,” Yun said. “Unfortunately, because nearly all of these sellers are likely buying another home, there isn’t a net increase in inventory. A combination of homebuilders ramping up construction and even more homeowners listing their properties on the market is needed to tame price growth and give all buyers more options.”

The PHSI in the Northeast inched 0.4% to 94.3 in June, and is now 12.0% above a year ago. In the Midwest the index declined 3.0% to 108.1 in June, but is still 5.0% above June 2014.

Pending home sales in the South also decreased 3.0% to an index of 123.5 in June but are still 7.8% above last June. The index in the West increased 0.5% in June to 104.4, and is now 10.4% above a year ago.

The national median existing-home price for all housing types in 2015 is expected to increase around 6.5% to $221,900, which would match the record high set in 2006. Total existing-home sales this year are forecast to increase 6.6% to around 5.27 million, about 25% below the prior peak set in 2005 (7.08 million).

 

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5 Reasons you should Sell Now!!!!!

Posted: 27 Jul 2015 KCM Crew5 Reasons to Sell You House Now! | Keeping Current MattersAs the temperature continues to rise, buyers are coming out ready to purchase their dream home. Here are five reasons that you should list your house for sale now.

1. Strong Buyer Demand

Foot traffic refers to the number of people out actually physically looking at homes right now. The latest foot traffic numbers show that there are significantly more prospective purchasers currently looking at homes than at any point in the last two years! These buyers are ready, willing and able to purchase… and are in the market right now! Take advantage of the buyer activity currently in the market.

2. There Is Less Competition Now

The National Association of Realtors reported last week that housing supply as slipped to a 5.0-month supply. This is still under the 6-month supply that is needed for a normal housing market. This means, in most areas, there are not enough homes for sale to satisfy the number of buyers in that market. This is good news for home prices. There is a pent-up desire for many homeowners to move as they were unable to sell over the last few years because of a negative equity situation. Homeowners are now seeing a return to positive equity as real estate values have increased over the last two years. Many of these homes will be coming to the market in the near future. The choices buyers have will continue to increase. Don’t wait until all this other inventory of homes comes to market before you sell.

3. Home Prices Are Skyrocketing

Daren Blomquist, President of RealtyTrac, recently shared insights into why “2015 is a Great Year to Sell” by saying:

“So far in 2015, [sellers] are realizing the biggest gains in home price appreciation since 2007. In June, sellers sold for above estimated market value on average for the first time in nearly two years.”

One major factor driving prices up is the lack of inventory available for the amount of buyers in the market. Often buyers, who find a home that they would like to make an offer on, are met with the reality that they aren’t the only ones interested.

4. There Will Never Be a Better Time to Move-Up

If you are moving up to a larger, more expensive home, consider doing it now. Prices are projected to appreciate by over 19.4% from now to 2019. If you are moving to a higher priced home, it will wind-up costing you more in raw dollars (both in down payment and mortgage payment) if you wait. You can also lock-in your 30-year housing expense with an interest rate near 4% right now. Rates are projected to increase by a full percentage point over the next year according to Freddie Mac.

5. It’s Time to Move On with Your Life

Look at the reason you decided to sell in the first place and determine whether it is worth waiting. Is money more important than being with family? Is money more important than your health? Is money more important than having the freedom to go on with your life the way you think you should? Only you know the answers to the questions above. You have the power to take back control of the situation by putting your home on the market. Perhaps, the time has come for you and your family to move on and start living the life you desire.

That is what is truly important.

 

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This MBA Chart Shows the Real Rise of Home Prices

FHFA house price index on par with April 2006

In May, the Federal Housing Finance Agency’s U.S. Purchase-only House Price Index rose to a level on par with that observed in April 2006 on a seasonally adjusted basis, the latest chart in the Mortgage Bankers Association’s chart series showed.

Click to enlarge

CHART

Source: MBA

The national index of house prices is now only 1.8% below the peak level of May 2007.

Broken up by the FHFA’s purchase-only regional indices, “The recovery has varied around the country,” the MBA said.

Relative to the peak, the regional prices indices range from 11% higher in the West South Central region, to 12.7% lower in the Pacific region.

“Continued increases in prices should reduce the number of households with negative equity, and increase mobility as it improves homeowner’s confidence and ability to ‘move up,’” the MBA stated.

“While affordability is a concern, in many places house prices have not yet recovered to their 2007 levels, while wages and salaries are now 16% higher according to the Employment Cost Index,” the report continued.

 

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Cost Across Time

 

Posted: 24 Jul 2015 KCM CrewCost Across Time [INFOGRAPHIC] | Keeping Current MattersSome Highlights:

  • With interest rates still around 4% now is a great time to look back at where rates have been over the last 40 years.
  • Rates are projected to go up a full percentage point by this time next year according to Freddie Mac.
  • The impact your interest rate makes on your monthly mortgage cost is significant!
  • Lock in a low rate now while you can!

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Existing Home Sales Rise

 

With a bailout deal in place, the situation in Greece had little influence on mortgage rates over the past week, and the level of daily volatility declined significantly. The economic data released over the past week also did not have much impact and mortgage rates ended a little lower.

The housing data released this week was encouraging. June existing home sales increased 3% from May to the highest level since Feb 2007 and they were 10% higher than a year ago. Strong demand and limited inventory continued to push prices higher and the median existing home price reached an all-time high. Total housing inventory did increase slightly in June, but it remains low by historical standards. Existing home sales account for roughly 90% of all single-family home purchases.

The most recent reading for the Consumer Price Index (CPI) showed that core inflation continued to hold steady. June Core CPI, which excludes the volatile food and energy components, was 1.8% higher than a year ago. Core CPI has remained close to this level for more than two years. The Fed’s target for core inflation is 2.0%. Since mortgage rates are heavily influenced by inflation rates, these tame readings have helped keep mortgage rates low.

Looking ahead, the next Fed meeting will take place on July 29. Investors will be looking for information about the timing of the first federal funds rate hike. Before that, New Home Sales will be released on July 24. Durable Orders, an important indicator of economic activity, will come out on July 27. Pending Home Sales will be released on July 29.

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Ann Schwartz
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Freddie Mac: Equity Matters (a Lot!)

Posted: 23 Jul 2015 KCM Crew

Freddie Mac: Equity Matters (a Lot!) | Keeping Current MattersAccording to a Merrill Lynch survey, over 80% of the people in this country believe that homeownership is still “an important part of the American Dream”. There are many financial and non-financial reasons people feel this way. One of the biggest reasons is because it helps build family wealth. Last week, Freddie Mac posted about the power of home equity. They explained:

“In the simplest terms, equity is the difference between how much your home is worth and how much you owe on your mortgage. You build equity by paying down your mortgage over time and through your home’s appreciation. In a nutshell, your money is working for you and contributing toward your financial future.”

They went on to show an example where a person bought a home for $150,000 with a down payment of 10%, resulting in a loan amount of $135,000. The buyer secured a 30-year fixed-rate mortgage at 4.5% with a monthly mortgage payment of $684.03 (not including taxes and insurance). They then illustrated what would happen after seven years of making a mortgage payment, assuming 3% per year home appreciation (the historic national average):Home Equity Calculation | Keeping Current MattersAnd that number continues to build as you continue to own the home. Merrill Lynchpublished a report earlier this year that showed the average equity homeowners have acquired at certain ages.Average Home Equity by Age | Keeping Current Matters

Bottom Line

Home equity is important to building wealth as a family. Referring to the first scenario above, Freddie Mac explained:

“Now, if you continued to rent, and made the same payment of $684.03 per month, you’d have zero equity and no means to build it. Building equity is a critical part of homeownership and can help you create financial stability.”

 

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Homes are Officially being Sold at the Highest Prices, Ever

Existing-home sales also reach highest pace in 8 years

neighborhood-homes2.png

Thanks to rising demand and shrinking supply, the median existing-home price for all housing types reached an all-time high in June.

According to the latest data from the National Association of Realtors, the median existing-homes sales price rose to $236,400, which exceeds the previous peak median sales price set in July 2006 of $230,400.

June’s total also rose 6.5% above June 2014.

In May, the median existing-home price for all housing types was $228,700, which was 7.9% above May 2014.

That marked the 39th consecutive month of year-over-year price gains, making June the 40th straight month of year-over-year price gains.

Despite record prices, existing-home sales also reached their highest pace in more than eight years.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 3.2% to a seasonally adjusted annual rate of 5.49 million in June from a downwardly revised 5.32 million in May.

Sales are now at their highest pace since February 2007 (5.79 million), have increased year-over-year for nine consecutive months and are 9.6% above a year ago (5.01 million).

Lawrence Yun, NAR chief economist, said that buoyed by June’s solid gain in closings, this year’s spring buying season has been the strongest since the crisis began.

“Buyers have come back in force, leading to the strongest past two months in sales since early 2007,” Yun said. “This wave of demand is being fueled by a year-plus of steady job growth and an improving economy that’s giving more households the financial wherewithal and incentive to buy.”

According to NAR’s report, total housing inventory at the end of June rose slightly by 0.9% to 2.30 million existing homes available for sale, which is is 0.4% higher than the same time period a year ago (2.29 million).

Unsold inventory is at a 5.0-month supply at the current sales pace, down from 5.1 months in May.

“Limited inventory amidst strong demand continues to push home prices higher, leading to declining affordability for prospective buyers,” said Yun. “Local officials in recent years have rightly authorized permits for new apartment construction, but more needs to be done for condominiums and single-family homes.”

According to NAR’s report, the percent share of first-time buyers fell to 30% in June from 32% in May, but remained at or above 30% for the fourth consecutive month.

One year ago, first-time buyers represented 28% of all buyers.

NAR President Chris Polychron said that Realtors are reporting “drastic imbalances” of supply in relation to demand in many metro areas — especially in the West.

“The demand for buying has really heated up this summer, leading to multiple bidders and homes selling at or above asking price,” Polychron said. “Furthermore, tight inventory conditions are being exacerbated by the fact that some homeowners are hesitant to sell because they’re not optimistic they’ll have adequate time to find an affordable property to move into.”

All-cash sales dropped to the lowest share since December 2009, reaching just 22% of transactions in June, down from 24% in May and 32% a year ago.

Individual investors, who account for many cash sales, purchased 12% of homes in June (14% in May) — the lowest since August 2014 (also 12%) and down from 16% in June 2014.

Distressed sales, which are foreclosures and short sales, fell to 8% in June (matching an August 2014 low) from 10% in May, and are below the 11% share a year ago.

According to NAR’s data, 6% of June sales were foreclosures and 2% were short sales. Foreclosures sold for an average discount of 15% below market value in June (unchanged from May), while short sales were discounted 18% (16% in May).

NAR’s report also showed that single-family home sales increased 2.8% to a seasonally adjusted annual rate of 4.84 million in June from 4.71 million in May, and are now 9.8% above the 4.41 million pace a year ago.

The median existing single-family home price was $237,700 in June, up 6.6% from June 2014 and also surpassing the peak median sales price set in July 2006 ($230,900).

Existing condominium and co-op sales rose 6.6% to a seasonally adjusted annual rate of 650,000 units in June from 610,000 units in May, up 8.3% from June 2014 (600,000 units) and the highest pace since May 2007 (680,000 units).

The median existing condo price was $226,500 in June, which is 5.5% above a year ago and the highest since August 2007 ($229,200).

“June sales were also likely propelled by the spring’s initial phase of rising mortgage rates, which usually prods some prospective buyers to buy now rather than wait until later when borrowing costs could be higher,” Yun concluded.

Jonathan Smoke, the chief economist for Realtor.com, said that June’s data shows that 2015 is turning into the best housing market since 2006.

“This is the biggest and healthiest year for existing home sales since 2006 when speculation was rampant,” Smoke said.

“The increase in sales we’re seeing is consistent with the strong and growing demand we’ve been monitoring all year and we anticipate sales will increase as the summer progresses particularly with our expectations of growing millennial participation in the housing market,” Smoke added.

“While the market remains tight and favors sellers, the higher prices should encourage more would-be sellers and more new construction in the months ahead, lending further momentum to the market’s positive trend,” Smoke concluded.

In a note responding to the NAR report, Capital Economics said that the rise in existing-home sales to their highest level since before the financial crisis provides further evidence that the housing recovery has shifted into a higher gear.

“The market has clearly taken the recent upturn in mortgage interest rates in its stride and demand is strengthening markedly,” Capital Economics said.

“That said, relative to the population, existing sales are now above their long-run average, and we suspect they won’t rise too much further from here,” the Capital Economics report continued. “However, the improving labor market, high levels of consumer confidence and a gradual loosening in credit conditions should ensure that sales continue at a high level in the months ahead.”

 

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