5/24/2021 Housing and Economic Update from Matthew Gardner

This video is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. In this month’s special episode, Matthew takes a deep dive into the data that helped him shape his Op-Ed piece for Inman News. 

 

Hello there! I’m Windermere Real Estate’s Chief Economist, Matthew Gardner, and welcome to a rather special episode of Mondays with Matthew.

Why special? Well, regular viewers of my videos will know that I generally take this opportunity to give you an update on the housing related numbers that came out in the month, but this time we are going to go in a different direction.

A few weeks ago, I was asked by the real estate publication, Inman, to pen an op-ed that would offer a counterpoint to this one which they had just published.

Well, I think that many of you will agree that it’s a pretty direct position and – judging by the comments I read following its publication – was certainly one where readers were very firmly on one side of the fence or the other!

Those of you that know me at all will probably have already figured out my position on this. I went ahead and crafted my response and I do take a different view on the matter!

As I am sure that some of you don’t have access to Inman’s website, I thought it might be interesting to share with you the reasoning behind my belief that we are not about to enter a period of declining home values; but even if you are an Inman subscriber and did read the piece, I hope that you will still find this video worth watching as I will also be sharing some of the background data with you that was not included in the article, as well as to give some more context on the subject.

 

Home Prices Out-Pace Wages

But to start with, I must acknowledge the fact that home prices have been rising at a significantly faster pace than wages for several years now and that may well be part of the reason why some people in the industry – and some perspective home buyers – are getting concerned.

 

As you can see here, since 2012, average weekly wages have risen by a little more than 30%, with the average annual gain of around 2.3% which is actually not that bad. Wages also rose by over 6% last year, which sounds great, but in reality, it was because of the pandemic.  You see, most of the job losses were in low-wage sectors which skewed the data upward – but I digress.

Anyway, during the same time period, you will see that even as wages rose, home prices have taken off and wage growth has simply not kept pace.

I often think about a quote from the Spanish philosopher and novelist, George Santayana, “Those who cannot remember the past are condemned to repeat it” which I think just about says it all!

 

Timeline

So, what we are going to do today is to take a look back and run through a brief timeline of events that led to the 2007 crash, and then look at where we are today and how it is totally different which leads me to speculate that there is no real reason why we should expect to see a widespread, systematic decline in home prices in the foreseeable future.

 

Line graph titled “The Case Shiller National Index” the line steadily increases a little bit between January 1991 and January 1999, but starts to increase more in the 2000’s, peaking in January 2006 and is starting to decline in January 2007 and 2008.The Source is the S&P Case Shiller.

 

This first chart shows the Case Shiller National Home Price Index level over time and we’ll be using it as a base for this part of the discussion.

If you are not familiar with Case Shiller, its what’s known as a repeat sales index – which means that it looks at the change in sale prices between when a home was purchased and when it was sold and is a great way to look at changes in home prices.

GIF of Case Shiller Index Timeline of the Housing Market from 1990 to 2008

 

Let’s start all the way back to the early 1990’s.

1992

In ’92, Congress enacted Title 13 of the Housing and Community Development Act and they did this to give low- and moderate-income borrowers better access to mortgage credit via loans supported by Fannie Mae and Freddie Mac.

1995

And in ‘95, President Clinton introduced a National Homeownership Strategy which had a very aggressive goal of raising homeownership levels from 65.1% to 67.5% by the year 2000 – that would be a rate of ownership in America that had never been seen before.

But this could only realistically happen if Fannie & Freddie significantly increased the share of mortgage funds going to lower income households. The Housing and Community Development Act required them to dedicate 30% of their portfolio to lower income borrowers – but the Clinton plan meant that they had to raise that share to 42%.

And it started out rather well with almost 2.8 million new homeowners created between 1993 and 1995 – and that was double that seen during the prior two years.

And because of the increase in demand that would come from greater loan volume, Fannie and Freddie moved to an automated underwriting process to speed up loan approvals. Interestingly, this then became an industry norm – but in going to an automated model, all they really did was to significantly relax the underwriting approval process.

1999

Now moving on to the very end of the decade, in November of 1999, Congress passed, and President Clinton signed, the Gramm-Leach-Bliley Act which, amongst other things, lifted most of the restrictions that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company that were prohibited by way of the Banking Act of 1933 – otherwise known as the Glass-Steagall Act.

Now this is important as – in essence – banks could now underwrite and sell banking, securities, and insurance products and services which included, guess what, mortgage products.

2000

In 2000, the dot-com bubble burst. Something those of us here in Seattle remember all too well – and one of the major consequences of this was that investors moved away from the equity markets and, instead, turned their attention to the real estate market.

2001

By the start of 2001, the country was heading into a recession, and even though unemployment remained close to a 30-year low, the Federal Reserve wanted to stimulate borrowing and spending, so they started to lower short-term interest rates very aggressively.

2003

As you can see, over the next 3-years the market jumped with home prices rising by 7% in 2002 and 7.5% in 2003 as more would be home buyers found easier access to mortgage credit not just from Fannie or Freddie – but all of the other institutions that could now get into the game following the passing of the Gramm Leach Bliley Act.

And because of its success, the push to expand homeownership that had started under President Clinton continued under President Bush, and he introduced a “Zero Down Payment Initiative” that allowed – under certain circumstances – removal of the 3% down payment rule for first-time home buyers using FHA-insured mortgages.

2004

Well, the Bush and Clinton administrations saw their housing goals achieved with the homeownership rate increased steadily, peaking at 69.2% of households in 2004.

Ownership rates and rapidly rising home prices were driven by one thing.

Home buyers were consuming – with relish I might add – rare mortgage products with strange-sounding names such as Alt-A, sub-prime, I-O – as in interest-only -, low-doc, no-doc, or the classic NINJA loans, NINJA being an anacronym for “no income, no job, no assets”. There were also 2–28 and 3–27 loans; liar loans; piggyback second mortgages; payment-option and even “pick-a-pay date” adjustable-rate mortgages.

What could possibly go wrong!

2005

And by 2005, sub-prime mortgages had risen from 8% of total loans made in 2003 to 20%, with about 70% of sub-prime borrowers using the hybrid 2/28 and 3/27 ARMs I just mentioned, and these were mortgages with low “teaser” rates for the first two or three years, and then they adjusted periodically.

And when you add in Alt-A mortgages, the total share of just these two mortgage products rose from 10.4% in 2003 to 39.4% in 2005.

Many people chose their financing poorly. Some clearly wanted to live beyond their means and, by mid-2005, nearly 25% of all borrowers across the country were taking out interest only home loans which gave them a lower  monthly payment, as they weren’t worried about paying down the principal because home prices were going to continue to skyrocket forever – right!!?

2006

By the end of 2006, a full 90% of all sub-prime mortgages were ARM’s and with a doubling of the sub-prime share, about $2.4 trillion of new sub-prime and non-prime mortgages were used to buy homes.

2007

Well, in 2007 over $1 trillion worth of ARM’s were about to reset, and this is what really took the market down.

Why? Well, back in July of 2004, the Fed started to raise interest rates, and with all the ARM’s starting to reset, a massive number of homeowners just couldn’t afford their new payments and they started to default in droves.

2010

The ultimate outcome was that in 2010 over 2.2% of all homes in America were foreclosed on – that almost 2.9 million homes – in just one year.

 

So what makes it different this time around?

That’s the history lesson, so let’s compare and contrast where we are today with what happened back then.

Two graphs side by side, titled together “Rate would have to rise significantly” the graph on the left is a line graph showing the 30-yearmortgage rates from 1990 to 2007. From 2000 to 2004, there’s a red arrow that highlight the decline in the number of mortgages. On the right is a bar graph that shows the annual change in U.S. Home sale prices changed in median existing home sale price from 1997-2005. There’s a steady increase from 1999 to 2004, and in 2005 there’s a share increase to 12.2% from 8.3% in 2004. The sources are Freddie Mac and NAR.

 

As we discussed earlier, the Fed started to lower interest rates following the dot-com bust and that flowed down to the mortgage market and rates also started to drop but it wasn’t just the Fed – investors did what they usually do during periods of economic uncertainty – they moved a lot of money into bonds, and this has a far more direct effect on mortgage rates.

By 2004, mortgage rates had dropped to a record low.

And as rates dropped, look what happened to prices – they started rising as buyer purchasing power rose, but that’s far from the only reason why home prices rose so significantly, but we will get to that later.

 

Two graphs side by side with the title at the bottom Rates would have to rise significantly. On the left is a line graph that shows the 30-year fixed mortgage rates from 2008 to now. There are two red arrows highlighting decreases, one from 2008 to 2021 that drops from above 6% to between 3%and 3.5%. The other red arrow highlights July 2018 to November 2020 that falls from 5% to just above 2.5%. On the right is a bar graph showing the annual change in U.S. home sale prices change in median existing home sale price from 2012-2020. Most of the graph sits below 8% except 2013 which is at 11.2% and 2020 is at 9.1%.

 

So, moving forward in time, you can see that rates dropped again as the financial crisis was taking hold and the country was entering a recession and rates dropped even more staring in 2019 as the Fed became concerned about inflation, slowing global growth, and trade wars.

And they offered further supported to the housing market at the onset of the pandemic by aggressively buy bonds which effectively lowered mortgage rates even further.

So far, you may be thinking, “well, its clearly the same as last time”, but I’m afraid that you’d be wrong.

You see, although sale prices surged in 2013 – realistically because home prices over corrected on the downside following the bubble – average annual price growth since 2013 has been slower we saw pre-bubble.

The median sale price rose by an average annual rate of 7.6% between 2000 and 2005, but between 2014 and 2020, the pace of appreciation was a full 1.5 percentage points lower.

 

Two area graphs side by side with the title underneath that says inventory of homes for sale. On the left the chart shows the inventory of homes for sale in the U.S in millions; single-family & multifamily units; seasonally adjusted. There’s a sharp increase from 2005 to 2007, then a decrease after that but the graph never goes back down to pre-2005 numbers. On the right the area graph shows the inventory of homes for sale in the US in millions from 2012 to 2021. The graph shows a slow decrease over time, with sharp changes between 2012 and 2013 and again from 20119 to 2021.

 

I am going to talk more about mortgages shortly, but it’s important to touch on another significant difference between the 2000’s and now and that’s housing supply.

As you can see here, starting in 2001, inventory levels rose and peaked just as the bubble was about to burst. Why? Well, do you remember me telling you about the surge in unique mortgage products – specifically ARM’s?

1 in 10 borrowers in ‘05 and ‘06 took out “option ARM” loans and one-third of ARMs originated between 2004 and 2006 had “teaser” rates below 4%. Therefore, we started to see people try to sell before the rate reset and this led to the growth in listings. But how does that compare to what we’ve seen over the past several years?

The number of homes for sale has been sliding since the spring of 2011 and is currently at the lowest levels since data on total US listings started to be gathered back in 1999. Ultimately, the basic economic laws of supply and demand are working today. Prices rise on scarcity of product and lower cost of financing. Both of which we see here.

 

Two bar graphs next to each other with the title of the slide reading at the bottom inventory of homes for sale. On the left is the inventory of existing homes for sale quarter average comparing Q1 2005 and Q1 2021. The bar for Q1 2005 rises to between 2 and 2.5 million. The bar for Q1 2021 sits just above 1 million. On the right is a bar graph that shows the supply of new housing in millions for US housing permit issuances. The blue bars represent single-family permit and orang represents multi-family. In 2005 the blue bar for single-family homes sits at just above 1.6 million and the orang bar for multi-family sits between .4 and .6 million. In 2020, blue bar is almost half the blue bar in 2005, sitting at just under 1 million, and the orange bar sits around the same between .4 and .6 million.

 

This shows the average number of existing homes that were for sale in the spring of 2005 – a date I chose as it was before the mortgage ARMS’s started to reset – and this spring.

Clearly a significant disparity. Now some of you may say that its lower because of the pandemic, but even if I were to use the spring of 2020 as a comparison – before the pandemic took hold – listings would still be 36% lower than in 2005.

But new demand can be met by building more new homes. Almost 1.7 million single family permits were issued in 2005 when the market was booming, but fewer than 1 million single family permits were issued last year.

The multifamily side is a little more complex as we cannot distinguish between condominiums and apartments, but I would suggest that although the number is pretty close to identical, the difference is that new multifamily permits last year were focused on the apartment world, whereas they were mainly condominiums back in 2005.

With low levels of existing and new homes for sale today, prices have risen significantly, but the difference I see is that during the pre-bubble years prices were climbing more as a function of speculation rather than real demand as there were significantly more homes available back then.

 

Line graph that shows the average home ownership tenure in the united states. A sharp increase between 2009 and 2014 shows that people are living in their homes almost double as long as they were in the early 2000’s. The source of the data is Attom Data Solutions.

 

And another reason why housing supply has been so weak is that we simply aren’t moving as often as we used to.

Speculation drove home buyers to move on average every 4 or so years in the early to mid 2000’s; but look at more recent years. Mobility has dropped and we now live in our homes for twice as long as we used to and this limits housing turnover which, with the relatively low levels of new construction we just discussed, also puts upward pricing pressure on housing as supply levels stay low.

 

Two bar graphs next to each other, the slide title is household formations. On the left is a bar graph titled Total Households in the United States in thousands. The graph shows data from 2000 to 2006 and has a red trend line showing the increase of the bars. The line has text that says 3.9 million new households formed. On the right is another bar graph showing the total households in the united stats from 2014 to 2020. The red trend lines shows that 10.5 million new households were formed in that period. Data source is the Census Bureau.

 

On the demand side of the equation, Census data shows that 3.8 million new households were formed in the United States between 2000 2006 which is a decent enough number.

But between 2014 and 2020, we added 10.5 million new households.

Now of course not all newly formed households become home buyers. I totally understand that. But we know that the long-term average homeownership rates in America is around 65% so it’s easy to extrapolate the numbers and conclude that demand for ownership housing continues to far exceed supply.

 

Two bar graphs next to each other, the title of the slide is household formations. On the left is a bar graph that shows the U.S. homeownership rate in 1995, and 2000 to 2006. 1995 is highlighted in light blue, and the bar graph represents 64.8% whereas the other bars are all above 67%, with a top number in 2014 at 69%. On the right is a bar graph that shows the US homeownership rate in 2010 and from 2014 to 2020. 2010 is highlighted with a light blue bar that shows 66.9% whereas the rest of the bars trend under 65% expect for 2020 which has a sharp increase from 2019 at 66.6%. Data source is the Census Bureau.

 

And talking about the ownership rate, some think that it is rising too fast – and that is proof that a speculative bubble is in place but look at this.

The pre-bubble period saw the ownership rate start to skyrocket, ultimately hitting an all-time high in 2004.

The rate was still elevated in 2010 and did not reach a bottom until 2016, but even though it has risen since, it remains well below the level seen in ’04.

Oh! If you are wondering about the 2020 spike, well I would take that with a pinch of salt. I say this as the Census Bureau survey in the first two quarters of last year were significantly affected by COVID-19 and I believe that the ownership rate was overestimated.

In fact, data for the first quarter of this year shows the ownership rate at 65.6% which is more realistic.

So, I think this clearly shows that although we continue to add households, we have not seen a speculatively driven spike in the ownership rate similar to the one we saw as the bubble was forming.

Well so far, we’ve looked at the supply of homes and how that has impacted the increase in housing prices; how demand continues to rise as more new households are formed; and we also covered the impact mortgage rates has had on home prices.

 

The Financing Side of the Equation

I promised you earlier that we would be returning to the financing side of the equation, because it is clear to me that it was the chief culprit behind the housing bubble.

Two graphs next to each other, the slide is titled Existing Home Prices. On the left is a line graph titled Media FICO Score for Home Buyer. There’s a significant drop in credit quality in the early to mid 2000’s. On the right is a column graph titled Mortgage Origination Volume by Risk Score. Red shows less than 620, green shows between 620 and 659, green is between 660-719, purple is between 720 and 759, and navy is 760+. Those with less than 620 were borrowing 15% of all funds used to buy homes, while prime borrowers were just below 24%. Today is a much different picture with those with less than 620 scores only make up 1.4% while those with more than 760 make up 73%.

 

This chart shows the median credit – or FICO score – for home buyers approved for a loan and you can see the significant drop in credit quality that occurred in the early to mid-200’s.

But look at where we are today. The median credit score is now 788, and when we look at the numbers in a little more detail it’s even more remarkable as by early 2007 the riskiest borrowers – those with credit ratings below 620 – were borrowing 15% of all funds used to buy homes while prime borrowers we’re just below 24%.

But, again, look where we are today. The sub-prime share of mortgage borrowing has shrunk to just 1.4% while prime borrowers are now at a very solid 73%.

The bottom line is that credit quality is remarkably high, and not at all like the pre-bubble period.

 

Two graphs next to each other, the slide is titled Months of Inventory & Offers Per Sale. On the left is a bar graph titled ARM Share of Residential Mortgage Originations. The graph shows a jump of 12% to 35% between the years 2001 and 2004, while since 2012 up until April 2021 the numbers have hovered between 3% and 7%, most recently hitting 3.1% in April 2021. On the right is a line graph titled ARM Share of Residential Mortgage Originations, showing an overall downward trend from January 2018 through March 2021, the percentage peaking in November 2018 at just above 9%. Both graphs use data for FHA, VA, and Conventional Purchase Loans.

 

Earlier we discussed that between 2001 and 2007, mortgage debt doubled and much of this growth came via risky mortgage products – many of which were adjustable-rate mortgages that offered the buyer significantly lower monthly payments.

ARM’s accounted for 35% of all mortgage borrowing in 2004 but the current share is far lower, which should quell any concerns that there might be a wave of ARM’s resetting that could impact the market.

And as you can see here, the share has dropped precipitously, but has levelled off over the past few months before rising modestly in March.

 

Two graphs next to each other, the slide is titled Credit Is Tight Even As Owners Are Not Over Leveraged. On the left is a line graph titled Housing Credit Availability Index. It shows an overall downward trend from Q1 2000 to Q1 2020, with a spike between Q1 2004 and Q1 2007. One the right is a line graph titled Loan-to-Value Ratio, which is the ratio of total debt to value. It shows data from Q1 2000 to Q2 2020. The percentage began at roughly 40% in Q1 2020, peaking at around 55% between Q4 2009 and Q4 2012 before declining steadily, coming in at just below 35% in Q2 2020.

 

This is data from the Urban Institute that I use regularly. It’s their Housing Credit Availability Index (HCAI) and it calculates the percentage of owner-occupied home purchase loans that are likely to default—that is, go unpaid for more than 90 days past their due date, and I like this as their methodology also weights for the likelihood of economic downturns as well.

A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, therefore making it harder to get a loan while a higher percentage suggests that lenders are willing to tolerate defaults and are taking more risks by making it easier to get a loan.

Lenders were all good taking risks in the bubble days but are certainly looking at things very differently now.

The bottom line is that even if the current default risk doubled, it would still be well within the pre-crisis standard of 12.5% that was seen between 2001 and 2003.

And this chart shows loan to value ratios – as the bubble was forming the ratio went up as buyers were getting over leveraged but look where it is now.  Well below pre-bubble levels.

Again, tight credit and significant equity puts us in a very different place than we were in the 2000’s.

 

My Forbearance Forecast

Two graphs next to each other, the slide is titled Mortgage Forbearance. On the left is a bar graph titled Mortgages in Forbearance, representing the total residential homes in forbearance. The numbers between April 23 of 2020 and May 4 of 2021 show a peak of over 4.5 million homes in May 2020, settling to just above 2 million in May 2021. On the right is a line graph titled Share of Home Loans in Forbearance, showing data for the same time period as the graph on the left. It shows a peak of around 9% in May/early June 2020, settling to around 4% in May 2021.

 

I am sharing forbearance data for one reason and it’s because some brokers have told me that they have clients who are thinking about waiting to buy as they believe that homes in forbearance will end up in foreclosure and the growth in supply could lead home prices to drop across the board, or at the very least allow them to pick up a home on the cheap.

But as you can see, the number of homes currently in the program is down by over half from its May 2020 peak – and that equates to 2.6 million homes.

In fact, even if all the homes still in the program did actually end up in foreclosure, it would still only represent a fraction of the nearly 10 million homes that were foreclosed on due to the housing bubble bursting.

And when we look at the share of total homes in forbearance, it peaked at just over 9% but is now knocking in the door of 4% and with over 250,000 more homes about to hit the end of their forbearance period, I anticipate that the numbers will drop further later month.

So why am I not worried that a large share of these homes will be foreclosed on? This is why.

 

Two graphs next to each other, the slide is titled Single-Family Home Prices. On the left is a line graph titled Homeowner Equity, showing the dollar amount in trillions, not seasonally adjusted. Between Q1 2000 and Q1 2020, the amount rose from just over $5 trillion in Q1 2000 to $21.1 trillion in Q1 2020. One the right is a line graph titled Share of Equity Rich Properties, showing the percentage of homeowners with more than 50% equity. Between Q1 2014 and Q1 2021, the percentage rose from just below 20% in Q1 2014 to 31.9% in Q1 2021.

 

In the first quarter of this year homeowners were sat on over $21 trillion in equity – a truly massive figure.

You can see the buildup of equity as the housing bubble was forming and then it contracted through the housing crisis; however, since 2012 home equity levels have more than doubled.

My friends over at Attom Data Solutions estimate that, in the first quarter of this year, almost one in three homeowners in America had more than 50% equity in their homes – that’s almost 18 million homeowners.

And this tells me that a lot of owners in forbearance who just cannot get back on the right path still have the option to sell their homes in order to keep the equity that they have – after the bank is made whole, of course – rather than go through the foreclosure process.

And further support comes from the folks over at Core Logics who recently put out a paper suggesting that about 42% of all owners in the forbearance program bought their home before 2012 and they have, unsurprisingly, built up a sizeable chunk of equity in their homes, with median equity – even after they cover any missed payments – of almost $100,000.

Of course, it’s reasonable to say that this may all sound good, but what about owners who didn’t buy a long time ago and therefore have less equity.

Well, their data shows that 43% of owners in forbearance bought between 2013 and 2018 and they too have benefitted from prices rising and have an average of more than $87,000 in equity – again after accounting for missed payments.

And even the newest owners – those who purchased their home in 2019 or later – and they represent 15% of all homes in forbearance – well they still have an average of over $65,000 in equity.

The bottom line is that, in broad terms, a typical homeowner in forbearance could – with relative ease – cover the costs of selling a home and still have some equity left over.

Will foreclosures rise this year – yes, they will – but given all the facts I have just shared with you, I see it as being more of a trickle than a flood.

Well, there you have it.

 

In Conclusion

As far as I can see, all the data shows that we are in a very different place today than we were in the 2000’s and I find it highly unlikely that we will see a repeat of the events we saw back then.

Down payments are higher; credit quality is higher; and demographic demand for ownership housing remains robust and – quite likely will only grow as the nation’s Millennials continue to reach prime home buying. Remember that 9.6 million of them will be turning 30 over the next 2 years alone.

But, as I said in my opening comments, the pace of price growth that we’ve seen over the last year or so is clearly unsustainable and must, at some point start to slow, if only to allow incomes to catch up.

In fact, I am already seeing some tentative signs of this with the percentage growth in list prices starting to soften in several markets across the country which should start to ease the pace of sale price appreciation.

But I am afraid that I just don’t see a national downturn in home values occurring – unless banks decide to significantly loosen their underwriting criteria, but I find that very hard to believe.

Thank you for sticking with me during this rather long video. I do hope that you found it of some interest.

As always, if you have any questions or comments about today’s topic, please feel free to reach out. I would love to hear from you.

In the meantime, thank you again for watching, stay safe out there, and I look forward to visiting with you again, next month.

Bye now.

 

The post 5/24/2021 Housing and Economic Update from Matthew Gardner appeared first on Windermere Real Estate.

4/29/2021 Housing and Economic Update from Matthew Gardner

This video is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. Each month, he analyzes the most up-to-date U.S. housing data to keep you well-informed about what’s going on in the real estate market.  

 

Hello there and welcome to the April edition of Mondays with Matthew. I’m Windermere Real Estate’s Chief Economist, Matthew Gardner

There were a lot of rich, housing-related datasets released this month so let’s get going.

And first up, I want to look at mortgage applications.

Source: MBA

You may remember last month we discussed what was going on with mortgage rates as they had started to trend higher beginning in the New Year. Well, as rates rose, you can see here that mortgage applications slowed before picking back up in at the end of February, which was interesting as rates were still rising at that time.

And for those who find it curious that applications picked up even as rates were rising, well it was partly because buyers started to believe that rates would not be headed back down, and they wanted to get locked in for fear that they would continue trending higher.

Now, this pattern did reverse at the end of March as rising rates started to take a toll on would be buyers and affordability issues started to come more into play, but as mortgage rates pulled back in April, applications picked up again – albeit modestly.

Next to the Mortgage purchase graph, on the right we see the weekly mortgage purchase index which looks at the year over year data. Here we see that since this time last year, there are 58.2 percent more mortgage applications.

Source: MBA

But when we take a look at the data on a year-over-year basis.  Well, WOW!

Applications were up by over 58%! But remember what happened in March of last year? Who can forget….?

And its therefore really not surprising to see this kind of spike, but, I would caution you all that almost any dataset that compares current numbers to those seen a year ago – well, they are likely to paint far too rosy a picture, and one that is removed from reality.

Something to be aware of.

 

Next up, we got several datasets regarding the new home market March and we will start off with permits and starts.

Two line graphs next to each other. The one on the left shows the single family building permits from January 2019 to March 2021. Overall the trend is upward, with a large dip from March to May 2021, but they soon recover as if that dip never happened. From January to March 2021 there was another small dip, but there’s already proof of improvement back from that. On the right, the graph shows the single family home starts, again overall starts have increased since January 2019 to March 2021, with a few peaks and valleys in between, included a recent dip from November 2020 to February 2021, but they’re back on the rise since then.

Source: Census Bureau

Following the pullback in permit applications that was seen in February, builders were more optimistic in March with single family permits up by 4.6% on the month and 35.6% higher than a year ago – but don’t forget what we just said about year over year data!

Looking at housing starts – well they pulled back in January and February, but also saw a solid 15% monthly increase in March.

Interestingly, there was a massive spike in starts in the mid-west where they were up by 109% month-over-month, but they were actually down by over 12% out here in the west.

I would also let you know that the number of homes under construction rose by 1.6% versus February and this was particularly pleasing given that construction costs remain very elevated.

And it hasn’t just been material costs that have been hitting home builders, they have also seen significant pressures with labor costs and here’s why…

One line graph to the left, with space to the right for another. Data shows total employment in construction from January 2010 to February 2021. Overall trend shows constant growth since 2012, with a sharp dip in 2020 from the pandemic.

Source: BLS

This chart shows how many people are employed in the construction of single-family homes and, at face value, it looks pretty good with constant growth seen since 2012 – of course, ignoring the impact of the pandemic but….

On the same slide as the total employment in construction, to the right of that graph there’s total employment in Construction from January 2000 to January 2021, which shows an overall trend of decrease in jobs. A peak in 2006 soon falls to a very low valley in 2012.

Source: BLS

Looking at a longer timeline, it doesn’t paint as good a picture. At its peak in 2006, there were almost 650,000 people employed building homes, but the number today is just 60% of that.

Of course, there are fewer homes being started today than there were back in those halcyon days but starts today aren’t 40% lower, so the job market remains tight. In fact, there are over 260,000 job openings in the construction sector. Of course, not all of them are for the single-family construction market, but we do know that builder’s cost of labor is rising and that, in concert with higher land and material costs continue to impact builder’s ability to bring homes to market that are relatively affordable as the increase in costs is transferred directly into the price that a home must sell for and that brings me to data on new home listings, sales and prices in March.

Two graphs side by side, on the left is a line graph showing the Single Family New Homes for Sale in the US. This graph shows an overall trend of decrease in new homes for sale from 2019, but increased since the lowest point in the fall of 2020. On the right is a bar graph showing the houses for sale by stage of construction. The grey line represents “not started,” light blue represents “Under construction,” and navy represents “completed.” The light blue lines showing under construction are constantly the highest bars hovering between 150,000 and 200,000.

Source: Census Bureau

Even with new housing permits and starts rising significantly the seasonally adjusted estimate of new houses for sale at the end of March was 307,000. This represents a supply of 3.6 months at the current sales rate.

The number of new homes for sale was down by 7% from a year ago, but I do expect that the increase in permits and starts bodes well for this arena, and I do expect to see more listings come online over time.

If you look at the chart to the right, you will notice that the number of homes for sale that have yet to be started continues to rise. This is because builders want some certainty that the home will be sold, and it’s, therefore, easier to sell before you build it.

Source: Census Bureau

And when we look at sales, well they rise by 20.7% in March to an annual rate of over 1 million units and clearly rebounded from the previous month when we saw a massive drop as severe winter storms wreaked havoc across much of the country.

Interestingly, you will see that as many homes sold that hadn’t yet started as were under construction. Clearly, demand is robust to the degree that buyers willing to commit to buying a home that hasn’t yet been built.

The median new home sale price came in at $330,800 – that’s down by 4.4% on the month but 0.8% higher than a year ago.

Source: NAR

OK – now we have covered the new home market, let’s take a look at how the resale market fared in March.

The number of homes for sale remains at almost historically low levels with marginally more than 1 million units on the market. Now there maybe some of you out there who say that is inaccurate as NAR is reporting 1.07 million homes for sale, and you’d be absolutely correct.  But I have adjusted the data to account for seasonality, so it is slightly different.

Anyway, with such limited choice across the country, it wasn’t a surprise to see sales pulling back, with the total number of closings running at an annual rate of 6 million units – that’s down by 3.7% month over month, and down by 12.3% when compared to March of 2020.

Am I worried about this? No, I am not. Why? Well, as I just mentioned, just look at the inventory numbers.  With little choice, it’s not at all surprising to see sales pull back but I would add that the market still hit 6 million transactions and that was in the face of the increase in mortgage rates that we saw last month so, to tell you the truth, I was actually a little surprised to see that the number held above that 6 million level.

Source: NAR

But even as sales pulled back a little, prices didn’t, and more records were broken with the median sale price hitting an all-time high, and year-over-year price growth above 17% was another record shattered.

Source: NAR

And if you need further proof that there is little to be concerned about when it comes to sales pulling back, you only need to look at these charts.  Low supply, but still very robust demand has months of supply at levels that indicate a highly unbalanced market. Nationally, I like to see somewhere between 4 and 6 months of supply, not 2.1…

But look at the right. For every offer accepted in March, there were 3.8 additional offers, and I would also tell you that the average length of time it took to sell a home in March was just 18 days and that’s down by one day from February but down by eleven days when compared to a year ago.

Surely if demand was waning, wouldn’t the number of offers be going down, and days on market going up?

Source: NAR with Windermere Economics seasonal adjustments

And when we separate out the single-family market, you can see that listings notched very slightly higher – up by 1.2%, but the level is still close to an all-time low with listings down by over 31% year over year.

As far as sales are concerned, well they also pulled back a little and were down by 1.3% versus February but were 14% higher year over year.

Source: NAR

And as we discussed earlier, even with lower sales activity, sale prices are still rising at a very rapid pace and are now over 18% higher than seen a year ago and a remarkable 6.2% higher than seen in February.

The median price also broke above $330,000 for the first time.

Source: NAR with Windermere Economics Seasonal Adjustments

Moving on to the condominium market, we saw listings rise as the pandemic took hold, and there were concerns back then that we were at the start of a systemic increase in listings with people fleeing cities over fears of COVID-19, as well as the ability to work remotely, but the increase soon wore off, even if it rise by 9% in March when compared to February, but there were 5.1% fewer listings than seen a year ago.

But on the sales front – and with listings rising – we saw demand for those homes with sales up by 5% versus February and 36.4% higher than seen in March of 2020.

Source: NAR

In a similar fashion to single-family prices, sale prices for condominium units saw a spike in price in March and were up by 4.9% versus February and almost 10% higher than seen a year ago.

Although you will see that annual sale price growth did turn negative last May – due to COVID – it is actually rare to see this. We did see a tiny drop back in 2018 but you will likely remember that mortgage rates were rising then and knocking on the door of 5%.

Anyway, since last May, sale prices have picked back up very nicely and worries of any significant drop in condo prices appears to be overblown.

As far as the ownership market is concerned, I am far less worried that mortgage rates have been ticking higher than I am that there are just not enough homes for sale to meet demand.

We had seen some growth in the new construction arena – and that took just a tiny bit of heat off the resale arena – but demand continues to exceed supply, and that is pushing prices higher and affordability issues have already started to appear in several markets across the country.

At some point, we will see price growth slow, but I think that it will be far more to do with affordability limitations than it will rising mortgage rates.

So, there you have it. My thoughts on the housing market in March.

As always, if you have any questions or comments about the numbers, we have looked at today, feel free to reach out. I would love to hear from you.

In the meantime, thank you for watching, stay safe out there, and I look forward to visiting with you again, next month.

Bye now.

The post 4/29/2021 Housing and Economic Update from Matthew Gardner appeared first on Windermere Real Estate.

3/29/2021 Housing and Economic Update from Matthew Gardner

This video is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. Each month, he analyzes the most up-to-date U.S. housing data to keep you well-informed about what’s going on in the real estate market. 

 

Hello there. I am Windermere Real Estates Chief Economist, Matthew Gardner, and welcome to the March episode of Mondays with Matthew.

Well, we have lots to talk about this month so let’s get straight to it and, first off, let’s take a look at the February existing home sales numbers.

Listings and Sales. Source: NAR with Windermere Economics Seasonal Adjustments

As you can see in the top chart, the number of homes for sale was measured at just over 1 million units.  This is a woefully low number and one that we haven’t seen since NAR started to gather data on listing inventory.

And the bottom chart shows home sales and they fell by 6.6% month-over-month in February to a seasonally adjusted annual rate of 6.22 million units but they were still 9.1% higher than a year ago.

Why the drop? Well, I am putting the blame squarely on the shoulders of home sellers who – quite frankly – simply aren’t selling!

Line chart showing the Media Sale Price of U.S. Existing Homes showing January 2021 at a peak of $313,000, the same as the last peak in October 2021 which was record breaking at the time.

Home Prices are at an All-Time High

And looking at sale prices, they ticked higher in February to a median of $313,000, and that matches the all-time high seen last October and is 15.8% higher than we saw a year ago. This is the fastest annual pace of price growth seen since August of 2005, but I have to add that the number is a little deceiving as it was skewed higher by significant growth at the upper end of the market with sales above $750,000 accounting for close to 10% of all sales in February and sales above $1M up by a whopping 81% when compared to a year ago.

 

The numbers also showed that homes took an average of just 20 days to turn pending, another record, and 74% of homes sold in less than one month.

Individual investors or second-home buyers purchased 17% of all homes sold in February, and that’s up from 15% in January and matches the share seen a year ago

Now, as we move through the year, there are a couple of things worth noting.

We all know that the market is tight, but I still expect total sales this year to come in at around 6.3 million units – this is lower than my forecast from the start of the year but would still represent an 11.6% increase over 2020.

Heat map of the United States of America showing the Equity Rich Homeowner rates in the 4th quarter 2020. The colors represent households with more than 50% equity in the state, with red showing 17.1%, salmon shows 32.5% and green represents 47.8% of the population.

Owner Equity.

Although these are not numbers from NAR, I did want to share with you some different data that does relate directly to the increase in sale prices that we have just discussed.

With the significant upswing in sale prices that we have seen over the past 8 or so years, over 30% of all homeowners in America currently have more than 50% equity in their homes and this is a massive figure.

But across the country, there are significant variances as you can see here.

The largest share of homeowners who are equity rich live in Vermont and California but many west coast markets are not far behind with significant owner equity seen in WA, OR, ID, UT, & CO.

These really are very impressive numbers.

Two lines on the same graph show the weekly rate for Mortgage Rates of Variation Durations. The top line, a navy blue, shows the 30 year fixed, and light blue line below is the 15 year fixed mortgage. Each line follows a similar pattern peaking in March 2020, with a slow dip until January 2021, which the most recent date hitting 3.17% for 30-year fixed rated, and 15 year fixed rates hitting 2.45%.

A Jump In Bond Yields Has Led to Rates to Spike

It’s time to take a look at mortgage rates as a lot has been going on in that space too since we last talked.

This chart shows the average weekly rate for 15 and 30-year conforming mortgages and, as you can see, rates started to jump in early February and I find it very unlikely that they will drop back down at any time soon.

I am sorry, folks, but the days of 30-year rates starting with a 2 handle well they are now firmly in the rearview mirror.

 

So what has caused this spike?

Well, it’s very simple. COVID-19 case counts are dropping; the distribution of a vaccine is going remarkably well. As I speak, over 130 million doses have been given and over 46.4 million people are now fully vaccinated against COVID-19.

But there is a fear that that – with the country starting to reopen – we will see a significant boost in economic activity which, in concert with the latest round of stimulus payments, has generated rumblings from some economists who are now looking to see inflation to take off.

And as much as its great news that we are seeing a better than expected rollout of the vaccine, which will lead to faster economic growth in the second half of the year, the potential for inflation to rise is now elevated and this has caused a move out of bonds – specifically 10-year treasuries,  which means that the interest rate for these bonds has to rise and the interest rate on 10-year paper directly impacts mortgage rates – specifically the rate on the ever-popular 30-year mortgage.

But before everyone starts getting panicked about this, look at it this way.

Shadow line graph showing the weekly average 30-year fixed mortgage rate trends. The graph shows a peak in January 2019, a fall off until the summer 2019, then another increase in the winter 2020, and a steady decrease since then until January 2021 where there's a sharp increase again.

But Let’s Keep Some Perspective!

Even at 3.17%, rates remain remarkably low. Yes, the current rate was last seen in June of 2020, but it is still well below the long-term average.

But, that said, and given the upward move in Treasury yields, I have had to rerun my forecast models for mortgage rates, and here is where I see rates trending this year.

Bar graph of the average 30-year fixed rate mortgage rate history and Matthew Gardner's forecast. The Navy blue bars from Quarter 1 2018 to quarter 4 2020 show an increase, peaking in q4 2018, and decreasing until the low in q4 2020 at 2.7%. Matthew's forecast for the next 4 quarters in light blue predicts 2.99% in q1 2021, 3.2% in q2 2021, 3.48% in q3 2021, and 3.63% in q4 2021.

Although rising, rates will remain very reasonable

I expect that we will see rates rise to an average of 3.6% by the 4th quarter of 2021 and, looking farther out, we will likely break back above 4% in early to mid-2022.

Now, I could actually be a little optimistic if – and it’s a big if – 10-year bond yields rise faster than I am forecasting but, for now, I don’t see that happening unless, of course, inflation really does take off but, again, I don’t see that.

That said, I am looking for a spike in inflation in the next few months as we feel more comfortable going out again and we start to spend our money in a more normal manner, but I believe that inflation will level off and not get out of control. However, if it does, then more bond buyers will head further out along the yield curve and buy longer duration treasuries to counter inflation, which will mean that the interest rates on 10-year treasuries will have to rise to attract buyers and this, of course, will lead mortgage rates higher.

Bar graph showing the forecasts for conventional 30-year fixed mortgage rates in 2021 from other sources with Windermere Economic's forecast in the upper end at 3.53%. Mortgage Banker's Association forecasts 3.6%, Wells Fargo predict 3.46% and Freddie Mac is the lowest with 2.8%.

And my colleagues agree!

And just in case you don’t believe me, here is my forecast for the average rate in 2021 rates alongside some of my fellow economists, and, as you can see, other than Freddie Mac, we are in a fairly tight range.

I would add that the NAR and Freddie forecasts are a month or so old, so I would not be surprised to see them revise their forecast upward at some point.

Two line graphs side by side showing Housing Permits and Starts. On the left, the line graph show the single-family building permits in the thousands, with a v-shaped recovery with a low below 700 in April 2020 and a peak in February 2021, with a small dip for the current number at 1,143. On the right, the single-family home starts char shows a similar pattern, with the current number at 1,040 after a spike in the fall 2020 above 1,300.

Housing Permits & Starts

Moving on to the new home market – both permits and starts pulled back in February with starts down by 8.5% on the month and single-family permits down by 10%.

So, what was going on? Well, despite strength in buyer traffic and lack of existing inventory, builders are slowing some production of single-family homes as lumber and other material costs continue to rise.

And shortages of lumber and other building materials, including appliances, are also putting future construction at risk.

While single-family starts for the first two months of the year are 6.4% higher than the first two months of 2020, there has been a 36% year-over-year increase in single-family homes permitted but not yet started as some projects have been put on pause because of the cost and availability of materials to build homes.

Double line graph showing data about the current prices and costs of building a houe. The blue line represents the random lengths framing lumber composite price and the red line show the CME futures price. These two lines follow a similar pattern with a peak in September 2020 to a dip in November 2020, and back on the rise again, reaching a peak in March 2021.

Current prices have added $24,000 to the cost of building a home in the U.S.

And to give you some perspective about the direction of lumber prices, they have skyrocketed more than 180% since last spring and this price spike has caused the price of an average new single-family home to increase by more than $24,000 since April of last year.

This chart provides an overview of the U.S. framing lumber pricing market and it’s not pretty.

But you can also see that the futures price has been dropping which may mean that we are getting closer to the end of the massive increases in lumber prices that builders have been facing.  Time will tell.

Line chart showing the single-family ne home sales from December 2018 to February 2021. There is a low point in April 2020 which steadily increased quickly plateauing just under 1,000 in July 2020 until it varies in December ad through the winter.

U.S. Single-Family New Home Sales in thousands, seasonally adjusted annual rate.

And on the sales side of the equation, after a slight rebound in December and January, the slowing of the pace of new home sales continued in February as a combination of affordability challenges, more costly materials, and storm effects which, in concert with each other led purchases of new homes to drop by 18% to a seasonally adjusted annual rate of 775,000 units.

But I would add that the February sales rate was 8% higher than we saw a year ago, and there is still demand which is being supported by still relatively low-interest rates, but more from solid demand in lower-density markets like the suburbs and exurbs.

Inventory levels did rise slightly with 312,000 new homes for sale, but that was 4.6% lower than a year ago.

The median sales price came in at $349,400, up 5.3% from a year ago.

 

And finally, I recently read a fascinating analysis that the NAHB put out which in essence, suggested that the recent rise in mortgage interest rates over the past two months has priced more than 1.3 million households out of the market for a median-priced new home.

In fact, the study found that just a $1,000 increase in the U.S. median new home price would push 153,967 households out of the market.

Pyramid bar char shows the U.S. households in millions by the highest price home they can afford based on income in 2021. The lowest house price, between 0 and 100k has 21.1 million households who can afford that, while only 3 million households can afford a home that's more than $1.55 million. The largest dips between groups are between 500-600k and 600-700k going from 8.1 million to 5.5 million households. Another big jump comes from 700-850k homes at 5.3 million households being able to afford that to 850k-1.05 million at 3.7 million households being able to afford that.

If the Pace of Home Price Growth Continues, Many Households Will Start to Be Priced Out

So, looking at it this way, the NAHB created the affordability pyramid you see here which shows that as the price of a new home increases, the number of households in each tier that are able to afford it decreases. All very logical.

About 21.1 million households are estimated to have the income needed to buy homes priced below $100,000 and they are shown on the bottom step of the pyramid.

And of the remaining 101.8 million households who can afford a home priced at $100,000, 19 million can only afford to pay a top price of somewhere between $100,000 and $175,000 and they are shown on the next step and, naturally, this trend continues up the pyramid of house prices with each step representing a maximum affordable price range and the number of households who qualify.

Although it’s certainly possible to find households at the high end of the market, there are a lot more households at the low end where affordability is a very major concern – 71.1 million households in America could not afford to buy a median-priced new home. That’s almost 58% of all households in the country.

 

The bottom line is that increased development costs can, and likely will, price these households out of the market for a new home, and with the cost of existing homes also rising rapidly, for more and more households, reaching the American dream of homeownership is getting harder and harder.

I am sorry – I really didn’t mean to end on a low note – but the facts are the facts. We need more housing supply and we need home price growth to slow. Of course, price growth will slow if my mortgage rate forecasts are accurate but it might already be too late of many who would like to buy a home.

So, there you have it. My take on the January housing-related data releases.

As always, if you have any questions or comments about the numbers we have looked at today, feel free to reach out. I would love to hear from you.

In the meantime, thank you for watching, stay safe out there, and I look forward to visiting with you again, next month.

Bye now.

The post 3/29/2021 Housing and Economic Update from Matthew Gardner appeared first on Windermere Real Estate.

Matthew Gardner Housing & Economic Update: 02/22/2021

 

Hello there and welcome to February’s edition of Mondays with Matthew.

Well, there were a lot of housing-related data releases in the month that are worthy of discussion so let’s get straight to it. I am going to start out with the latest homeownership data that was just released by the Census Bureau.

 

 

Those of you who regularly watch my videos may remember that last year I suggested that the data may have been a little bit suspect – specifically when it came to the second and third quarter ownership rates.

Anyway, for those that didn’t see me address this, or if you have forgotten, I had a concern about the significant spike in the ownership rate that you can see here, and I suggested that it might be suspect because of the way the data was gathered during the early days of COVID. You see, the survey was done via telephone and not in person – as it usually is – because of COVID-19 restrictions and I believe that this actually led to an overreporting of the real ownership rate.

Following the massive spike we saw in the second quarter, it appears that they have found a way to more accurately gather the data and the rate has now pulled back to a level that, at least for me, passes my “sniff test”! However, even though the share of US households who own their homes did drop, it still remains above the long-term average and stands at a level we haven’t seen since 2012.

 

Line graph showing the U.S. Homeownership rate where the homeowner is under the age of 35 between 2006 and 2020.

Younger Households Continue to Buy

 

And when we drill down into the data and look at the ownership rate for Millennials – I know, I harp on about them a lot – but you can clearly see that they really are becoming homeowners in increasing numbers and the current rate of 38.5% is a share not seen since 2011 and I expect to see this number grow over the next several years.

Demographics are driving them into homeownership as they are all getting older, many now starting families and they want to own a home. I would also add that I would not be surprised to see them shift toward ownership at even faster rates if they are allowed to work from home which may lead more of them to leave expensive cities and move to markets where it’s more affordable to buy.

 

Bar graph showing age cohorts and their share of borrowing per quarter from quarter 2 2019 to quarter 4 2020. Ages 30-39 and 40-49 are consistently the tallest bars in each quarter sitting between 25 and 30 pecrent.

 

And to give you a different perspective on these younger buyers, last week the New York Fed released their report on household debt that included numbers regarding the share of mortgage borrowing by age. Well, you can see in the above graph, that younger buyers continue to account for a major share of total mortgage borrowing and are borrowing pretty substantial amounts too.

In fact, in 2020 Millennial and Gen Z households borrowed over $1.3 trillion to buy homes and that’s over 35% of total new mortgage debt on a dollar basis. Although I think it’s great to see younger households grow as homeowners and the overall homeownership rate rising, all is not as I would like to see it – especially when we break down the homeownership rate by ethnicity.

 

Bar graph showing homeownership rates for each year from 2016 to 2020 organized by ethnicity. White and non-Hispanic groups are consistently the tallest bars hitting about 70% each year. Black populations range from 41.6% in 2016 to 45.4% in 2020. Asian populations own at rates around 55-60 percent. Hispanic populations homeownership rates slowly raise from 45.9% in 2016 to 50.1% in 2020.

 

And the above report, again from the Census Bureau, showed that although the share of white households who own their homes ticked up it also showed some significant disparities with the ownership rate for black households – although up a little – still well below the levels seen with other ethnicities.

This is a long-term, and systemic issue, that needs to be addressed.

The bottom line is that the ownership rate for Black families was 25 percentage points lower than that for white families in 2020 and was even higher in the 4th quarter of the year when it almost hit 30%.

I am pleased that the Biden administration does have plans to try to address this inequality by looking to expand the ability of the Federal Housing Authority to provide mortgages and this might, if it gets approved, start to address this very significant issue. Of course, nothing will be fixed immediately, but it is a major concern and sincerely hope that, over time, this discrepancy will be addressed.

 

Table showing the population growth in 12 metro areas, ranked by absolute change. At the top is Dallas-Fort Worth-Arilington, TX at 18.5% change, Seattle-Tacoma-Bellevue, WA is ranked 7th with a 15.4% change. Denver-Aurora-Lakewood, CO is ranked 10 at 16.2% change.

 

We had a very significant data drop – again from the Census Bureau – who provided their population estimates for 2019.  The data may be old, but it is interesting all the same. This table shows the markets with the greatest increase in population between 2010 and 2019.

I will be honest with you that I was not surprised to see Texas lead the way, but it was interesting to see the greater Seattle region, Denver, and Riverside, California all make it close to the top of the list.

 

Table showing the population growth in 16 Metro areas between 2010 and 2019, ranked by percentage change. Bend, Oregon is ranked #1 with 25.3% change, Boise Idaho is ranked 2nd with 21.3% change. Fort Collins Colorado and Denver-Auroroa-Lakewood Colorado are ranked 3rd and 4th with 18.8% and 16.2% change respectively. Las Vegas-Paradise Nevada is ranked 5th with 16.1% change. Seattle-Bellevue-Kent, Washington is ranked 6th at 15.9% change and Olympia-Lacey-Tumwater Washington is ranked 6th with 14.8% change. Colorado Springs Colorado increased their population by 14.6% ranking them 7th in this table. Ogden-Clearfeild, Utah is next with a 14% change and Tacoma Washington is 10th at 12.9% change.

 

And because a couple of markets that were close to the top of the list are of interest to Windermere (as we have offices in these areas) I thought that it would be interesting to look at how some of the other markets where we have a presence are doing and the numbers are equally as impressive.

Of course, markets are of different sizes, so to balance this out, the data here shows growth in percentage terms and the numbers are again very impressive.

 

Table showing the top 16 metro areas in the Western U.S. with the most population growth between 2017 nd 2019. Greeley Colorado is the top metro area with 6.1% population growth. Bend, Oregon is 2nd at 5.9%, Boise Idaho is 3rd with 5.6%, Coeur d'Alene Idaho i 4th with 5.3% and Idaho Falls is 5th at 5.3%.

 

And when I focused on 2-year growth, well it’s again very impressive with significant increases seen in Colorado, several Idaho markets, Las Vegas, Western Washington, and Utah.

And I would also add that Greeley was number one here, but also ranked 4th nationally. Bend came in 7th, Boise 9th, and Coeur d’Alene 10th. Yes, I know that this data is old – it’s an issue I fight with every day – but I still see it as being meaningful.

Of course, I will be very interested to see the 2020 numbers as they will give us an indication as to how COVID-19 really is impacting where we choose to live, but we will have to wait for that!

 

I did read a very interesting report that was recently published by North American Moving Services where they looked at where households who moved between states moved to last year. Of course, it is not a perfect analysis, but it does give us an idea as to not just where people moved to, but where they moved from, in 2020.

 

Map of the U.S with states highlights red for states with significant outbound population and blue for inbound population. White marks states with balanced population in and out. In the West, California is highlighted red for outbound population. Idaho, Colorado and Arizona are blue for inbound population.

 

Unsurprisingly, the largest out-migration states included California – where people were mainly moving to Texas and Idaho – but there was also significant out-migration from Illinois, New York, and New Jersey.

As far as where most people migrated to, in addition to Idaho, movers were also attracted to Arizona, Colorado, Tennessee, and North and South Carolina.

Interestingly, Northeastern states make up four out of the seven states with the most outbound moves, and none of them make the top eight for inbound moves. Number one was New York which saw significant out-migration. Number 2 was New Jersey and Maryland was just beaten into 4th place by California.

But as far as the western US is concerned, – other than California – people are consistently moving in, and not out.

Also supported by the census numbers we just discussed, the number of households relocating to Idaho has been significant for the past five years and I would add that Colorado has also been in the top-10, or very close to it for the past five years.

 

Two line graphs, on the left shows the V-shaped recover of Building Permits 2019-2021. On the right shows the v-shaped recovery of Home Starts Jun 2019-Jan 2021.

 

Last week we saw the latest data on building permits and starts and although there was a softening in the number of starts in January, permit activity continues to grow significantly with single-family permits up by a massive 3.8% month over month, and 30% higher than seen a year ago. This is good news!

As far as the weakness of starts is concerned, this was primarily due to some builders who remain worried about increasing lumber and other construction material costs, as well as concerns over delays in obtaining building materials because of COVID-19 supply chain issues.

I would add that although single-family starts did drop, the number of homes under construction continued to trend higher.  And for those of you who might be wondering how new starts can drop but the number of homes being built can increase, it’s purely terminology. You see, a housing “start” is where a foundation has been poured, but it doesn’t mean that vertical construction has started.

In fact, the number of homes under construction in January was up by 1.1% on the month and is over 16% higher than seen a year ago.

 

Two line graphs showing the National Association of Home Builders Market Index. On the left shows the NAHB U.S. Houing Market Index showing a v-shaped recover between Dec 2019 and Feb 2021. On the right shows the Housing MArekt Index for Single Family Sales, Expectations, and Traffic. They all follow the same V-shaped trend with traffic lower than Single Family Sales and Expectations.

 

Last week we also got the February take on builder confidence and it was interesting to see it ticking back up as strong buyer demand helped to offset the supply chain challenges and surging lumber prices.

On the right, you will see the three components of the index which showed the gauge of current sales conditions holding steady at 90, while the component measuring sales expectations in the next six months fell three points to 80 but the gauge charting traffic of prospective buyers rising by four points to 72.

Although all are off their peak that was seen last fall, all are above 50 meaning that more builders find the market favorable than not.

So, this was a pretty mixed bag, but the Market Index numbers are more current than the permit and starts report so I will be interested to see what the February housing starts looks like – it wouldn’t surprise me to see a slight uptick in the number.

And finally, the January US housing sales numbers were released by the National Association of Realtors and, well, they were – again – record breaking!

 

line graph showing the inventory of homes for sale in the U.S. showing a downward trend from January 2021 at the height of above 2.5, and January 21 at the low very close to 1.0.

Inventory levels are still woefully low.

 

On the supply side, any hopes that we might have seen the number of listings rise in January were dashed with total inventory coming in at a measly 1.04 million homes for sale – that’s down 25.7% year-over-year and a new record low in absolute terms, but also a record percentage drop between January of 2020 and January of 2021.

Breaking it down, the number of single-family homes on the market remained static at 880,000 units, but the number of condominium listings dropped a little to 164,000 listings – that’s down from 179,000 in December.

Given the very low number of listings – and sales still very robust – there was just 1.9-months of supply – matching the all-time low we saw in December.

 

Bar graph showing the average offers for homes sold in the U.S. January 2019 is highlighted at 2.1 average, January 2020 is highlighted at 2.3, and January 2021 is highlighted at 3.7.

 

I always find this data set fascinating – and another record has been broken. For every sale that was agreed in January there were an average of 3.7 offers! That’s a massive increase from the old record of 3.5 set just the month before.

But even with record-low inventory, the number of sales remains very impressive.

 

Line graph showing the v-shaped recover of existing home sales in the U.S. with the low of the V at May 2020.

Sales would have been even higher if there were just more homes to buy!

 

Total sales of single-family and multifamily units came in at an annual rate of 6.69 million units in January. That is 0.6% higher than seen in December, and up by a massive 23.7% from a year ago. Sales of single-family homes rose by 23% to an annual rate of 5.93 million units while sales of condos rose by 28.8% to an annual rate of 760,000 units.

Now, some of you may be wondering how this can be? How can sales rise when there are so few homes for sale? And that is a very reasonable question.

You see, the number of homes for sale is the total available on the last day of the month, but sales can still increase because if a home is listed for sale and goes under contract in the same month, well it isn’t included in the inventory numbers for that month.

And in January, properties averaged just 21 days on the market with 71% of them selling within the month.

 

Bar graph of First Time Buyers at 32 and 33% in January 2020 and January 2021. Sales to Investors are at 17 adn 15 percent, All-Cash sales are at 21 and 19 percent, and distressed sales are 2 and 1 percent.

Still significant demand from first-time buyers and second home buyers.

 

And when we look at the details it was pleasing to see the share of homes that sold to first-time buyers up a little. Sales to investors – and these numbers include many second-home buyers – pulled back a little, but again, not a concern.

And finally, no surprises here – with many homes in forbearance, the share of distressed sales was just 1 percent.

 

2 graphs side by side. On the left is a line graph for the Media Sale Price of Existing Homes with the line growing from January 20 to May 20, a dip from May to June 2020, and then rising into a curve to a downward trend from October 2020 to January 2021.

 

The median sale price in January was $303,900 and that’s up by 14.1% year-over-year. Now, before you get worried about the fact that it appears that prices have plateaued, it’s actually not surprising as it’s mainly a function of seasonality, as well as the limited choice of homes to buy.

Sales of homes in the US priced below $100,000 were down 28% year over year, while sales of homes priced between $500,000 and $750,000 were up 53% year over year, and sales of million-dollar-plus homes were up by 76.7% from a year ago. Geographically, price growth was most robust in the west where they were up by 16.1% year over year. Also, $1 million-plus sales accounted for over 11% of all sales in the western US too.

As I worked through the January numbers, it remains very clear to me that housing remains a shining light as we move through this pandemic period, and I expect this to continue with 2021 being another very good year for the housing market, and home sales rising even more as a vaccine gets more broadly distributed and we reopen more of the country.

So, there you have it. My take on the January housing-related data releases.

 

The post Matthew Gardner Housing & Economic Update: 02/22/2021 appeared first on Windermere Real Estate.