Recovery in Slowdown Mode?
On the surface most of the news coming from the real estate market indicates a
continued healthy recovery, but other indicators may give cause for concern.
According to the National Association of Realtors®, the national median existing-
home price rose in July by 13.7% over the same period one year ago, marking
17 consecutive months of year-over-year price increases.
Overall existing-home sales went up 6.5% in July, and were up 17.2% from the
same period in 2012. Existing-home sales have remained above year-ago levels
for 25 straight months.
Record low mortgage interest rates along with a limited home purchase inventory
caused a surge in home purchases and price increases.
However, in May when the Federal Reserve began talking about slowing an $85
billion per month asset purchase program interest rates went from 3.4% to 4.5%
within a month. According to the Mortgage Bankers Association current rates on
a 30-year fixed loan are 4.68%*. That jump has a huge impact on the
affordability of homes.
A $200,000 loan at 3.5% has a $898.09 monthly payment. At 4.5% it rises to
$1,013.37, and at 5.5% it is $1,135.58. The difference is considerable for
buyers. A 30-year mortgage at a 4.5% interest rate is 12.8% more expensive
than at 3.5%, and a jump to a 5.5% interest rate is an increase of 26.4%.
The result of the rising rates? The Mortgage Bankers Association says mortgage
applications have fallen week-over-week for 9 out of the last 10 weeks. The
association’s Refinancing Index is also down 62.1% from its peak during the
week of May 3. Also data from the U.S. Census Bureau shows that month-over-
month new single-family home sales for July dropped 13.4%. Both buyers and
refinaners are leaving the market.
The National Association of Home Builders Housing Opportunity Index shows
that “69.3 percent of new and existing homes sold between the beginning of April
and end of June were affordable to families earning the U.S. median income of
$64,400.” This is down from a 73.7% affordability rate in the first quarter, and the
first time that the measure has fallen below 70% since late 2008.
In the months to come look at these other economic indicators to see where the
market is headed; new home permits and housing starts, and pending home
*Rates change daily from state-to-state and lender-to-lender.