July housing market update: prices creeping up again
Unexpectedly low mortgage interest rates allow buyers to raise their bids and push house prices higher on stagnant incomes.
In my opinion, the housing market has been boring lately, as prices have been flat, and sales volumes are low. The market is in a new “normal” pattern of low inventory, low demand, and low sales volume. The lack of volatility makes for a wonderfully boring housing market.
We all dance around one big question: is it a good time to buy?
By Heather Long @byHeatherLong July 7, 2014: 1:55 PM ET
The housing market is a “crapshoot” now, according to one of America’s leading real estate experts.
Karl “Chip” Case is an economist whose name is synonymous with home prices. He is co-creator of the much watched S&P/Case-Shiller home price indexes with Bob Shiller, who won the Nobel Prize in economics last year.
“You’ve got much more negative vibrations in the housing surveys about homeownership than we ever had before,” Case told CNNMoney. “I think it’s because people got hosed. They thought that housing prices will never go down. That’s just bull — you know what.“
He calls the real estate market “segmented” these days. It’s no longer a guarantee that housing prices will go up across the country. That only happens in some places at some times.
The market has been segmented with move-up property sales moving more briskly than first-time homebuyer sales; however, the lack of first-time homebuyers starting to weaken the move-up market. Further, the change in the supply-demand balance indicates it is no longer a seller’s market.
The demand side of the equation will also be key. Will millennials actually purchase homes? Will foreign buyers keep coming?
“The Chinese are coming over here with millions and billions of dollars, and they want to spend it on assets that tend to hold their value. And at least the theory is that housing does. But it is far from what it was in 2004,” Case notes.
The advice Case gives to first-time homebuyers is familiar to most. Be sure you can afford the house and don’t expect a quick profit.
“If you’re not buying it for the long haul, don’t buy because there’s a good chance you’ll have to sit through some down cycles. But when it goes, it’s very nice,” he says.
There are good reasons to be cautious, but the timing still favors buying over renting for long-term holds.
July Housing Market Update
Low mortgage interest rates may have saved the spring selling season. Sales volumes are low due to a combination of high prices and weak job growth, but unexpectedly low interest rates have allowed buyers to raise their bids and price prices up slightly, breaking the months of flat pricing.
The YoY numbers still show substantial gains, but I use a six-month moving average to smooth out the volatility, so the percentage change numbers are comparing Jan-June 2013 to Jan-June 2014. Prices were still rising rapidly in early 2013. I expect to see the YoY numbers consistently drop down to about 3% to 5% for the year come December of 2014.
The cost of ownership and the cost of renting is largely unchanged, creeping up slightly over the last year.
I postulated the new mortgage rules would prevent future housing bubbles by banning affordability products. The best evidence of this phenomenon is the decline in sales volumes and recent flattening of prices at the limit of affordability. Will this limit be durable? Will lenders find a way to circumvent the protections built into the system and inflate another housing bubble?
Higher prices have priced out marginal buyers, which is why sales volumes are lower this year; however, the market was previously undervalued, so higher prices have merely restored the pricing balance in the market. Despite concerns we may be in a new bubble — we are certainly working to reflate the old one — we are not yet in a housing bubble, and affordability is reasonable based on historic norms.
LA County shows a similar pattern to Orange County. The YoY appreciation in LA County based on the $/SF measure is amazing.
Despite the dramatic rally in prices, the market is still not overvalued.
Since the market is not overvalued, it is highly rated.
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