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Category Archive: ‘Forecasts’

Effect of Higher Mortgage Rates

From Fannie Mae:

http://www.fanniemae.com/portal/about-us/media/commentary/062314-palim.html

In July 2013, we wrote an FM Commentary about the impact of rising mortgage rates on the housing recovery.  At that point, rates had risen to 4.51 percent.

We examined the impact of rising rates on home prices and home sales during the two periods since 1990 when the market had experienced a sharp rise in mortgage rates.

The first instance was a 14-month period from October 1993 to December 1994, when mortgage rates increased by 237 basis points (from 6.83 percent to 9.20 percent).

The second instance of a meaningful rise in rates was longer and the rate rise was smaller – a 19-month period from October 1998 to May 2000, when mortgage rates increased by 180 basis points (from 6.71 percent to 8.51 percent).

Based on these past experiences, we suggested that rising rates were more likely to lead to a slowdown in home purchases rather than a decline in prices.

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Posted by on Jun 23, 2014 in Forecasts, Interest Rates/Loan Limits, Market Conditions | 4 comments

SD Appreciation Predictions

With more homes not selling – otherwise known as growing inventory - buyers can finally exert some influence on pricing (they’ve had virtually none over the last 18 months).  This should cause the pricing trend to stay fairly flat, with sellers being reluctant to lower their price enough, causing only the better deals to sell.  During the frenzy it was different – everything was getting gobbled up, right price or not.

The San Diego ZHVI in April was up 12.6% YoY:

SD snapshot

They predict it will increase 4.1% between February 2014 and February 2015, which is a logical guess in a cooling market - though the statistical comparison to post-frenzy numbers will just confirm that pricing has been flat for a while.

But because the month-over-month San Diego ZHVI makes an unusual correction in their prediction below, rates are unlikely to drop further, and sellers’ pricing reluctance, I’m taking the under on their 4.1% appreciation by February, 2015:

ZHV

Posted by on May 22, 2014 in Forecasts, Jim's Take on the Market | 11 comments

No Joke

Happy April 1st – Trulia got in the April Fools’ spirit with this today:

http://www.truluvia.com/

But let’s keep it real here.  C-L expects price increases to continue.

From MND:

http://www.mortgagenewsdaily.com/04012014_corelogic_hpi.asp

Home prices continue to increase by double-digit percentages on a year-over-year basis CoreLogic said today.  The company’s Home Price Index (HPI) for February, an index that includes distressed sales, was up 12.2 percent compared to February 2013.  Thus February becomes the 24thconsecutive month in which there have been annual price increases.

HPI

Including distressed sales, the five states with the highest home price appreciation were California (+19.8 percent), Nevada (+18.5 percent), Georgia (+14.2 percent), Oregon (+13.8 percent) and Michigan (+13.5 percent).  There were no states with negative annual appreciation.

“February marks two straight years of year-over-year gains in national prices across the United States,” said Anand Nallathambi, president and CEO of CoreLogic. “The consistent upward movement in home prices should ultimately prove to be an important stimulant for higher levels of sustained market activity and growth in the housing economy.”

CoreLogic said today’s report introduces a new forecast metric that provides advanced indication of home price trends.  The current forecast is that home prices are projected to increase 0.5 percent month over month from February 2014 to March 2014 and that home prices, including distressed sales, are expected to rise 10.5 percent year over year from March 2013 to March 2014.

“As the spring home-buying season kicks off, house price appreciation continues to be strong,” said Dr. Mark Fleming, chief economist for CoreLogic. “Although prices should remain strong in the near term due to a short supply of homes on the market, price increases should moderate over the next year as home equity releases pent-up supply.”

Posted by on Apr 1, 2014 in Forecasts, Sales and Price Check | 0 comments

Whopper

rocketing pricesI’ve wanted to log the expert guesses so we can look back a year from now and see who was close, but most of them say they expect moderate growth in pricing – in the 3% to 5% range.  But then the president of the local association of realtors launched this rocket:

While it’s difficult for any expert to predict market prices, I believe the median price will be higher at the end of 2014 than it currently is now. San Diego will always be a desirable destination because of its warm weather, and with the job market steadying, demand for housing increasing and low vacancy rates in the rental market, home prices will continue to stabilize and move up. I also believe San Diego will see increased demand from international buyers. Given these factors, I estimate the median home price in San Diego County will be approximately 21 percent higher at the end of 2014.

It is possible - if inventory really dries up and trading is so thin that sellers get whatever price they want.  Her year-long presidency concludes next week – maybe she just wants to make sure we don’t forget her!

Dataquick’s median price for all property types in San Diego was $415,000 in November, and the Realist 2013 detached-home median is $430,000 currently (was $372,000 in 2012, which is a +16% difference).

http://www.utsandiego.com/news/2013/Dec/28/realestate-median-home-price-predictions/

Posted by on Jan 3, 2014 in Forecasts | 2 comments

2014 Predictions

Back on October 22nd, I said that I thought we’d be seeing zero appreciation in 2014, mostly due to overly optimistic sellers rushing to market with their over-priced turkeys. The resulting glut, combined with rising rates, would cause buyers to cool off, and regain some negotiating power.

I’ve been looking for supporting evidence since – but can’t find any!

Instead, there is mounting evidence pointing to the contrary – that the local real estate market in 2014 will be set ablaze again in the coming weeks.

Here are the reasons:

1. Rose Bowl Parade – There will be 70 million people watching the Rose Parade on Wednesday, so let’s consider the predicted high temperatures around the country for January 1, 2014:

DesMoines, Iowa: 14 degrees

Chicago, Illinois: 25 degrees

New York City: 33 degrees

San Diego, CA: 68 degrees

Pasadena, CA: 76 degrees

Usually it is cold for the parade, but this year’s heat wave should cause millions to jump in their car and move to California – and pay whatever it takes to stay.

sdchargers2.  The Chargers pulled off one of the all-time miracles in NFL history, which must mean fate is on their side.  Traveling to Cincinnati, Denver, and New England is nothing we can’t handle, and then boom, we’re in the Super Bowl, where it will probably be snowing.  But with Dennis Gibson cheering from the sidelines, the Bolts come through again – all while TV cameras are showing bikinis on the beaches back home – boosting homebuyer demand from more snowbirds.

3.  Higher prices aren’t bringing more sellers to market….yet.  The feared glut of inventory has yet to materialize, and what’s worse is the count of new listings for November-December is 19% lower this year than in 2012.  Even if the first two points above don’t matter much, the inventory count will determine our fate, and so far it looks like our low inventory is continuing.

4.  Higher rates aren’t mattering much.  The buyer pool has been too rich with cash to let mortgage rates get in the way.  Yellen has said that she will keep rates low, so if we top out around 5%, buyers should keep buying.

5.  Thin trading skews the numbers.  With the banks sticking with their no-foreclosure policy, there is no pressure on over-encumbered sellers to keep waiting it out. Even those who have positive-but-thin equity will be more tempted to let it ride another year, hoping to doube or triple their winnings.  Inventory, and sales, could drop further.

6.  Prices can keep going up as sales fall.  NSDCC detached-home sales should be about 7% fewer this year than in 2012, which reminds me of the 2003-2004 change.  Sales in 2004 dropped 8% from 2003, and plunged another 13% in 2005 Y-O-Y, even though prices kept going up through 2005.

7.  Buyers appear more fearful of rising prices than anything.  The last few months has seen buyers scrambling to lock up anything they can get their hands on, and it appears to trump all concerns.  For a house not to be selling, it has to have soemthing really wrong with it – looks at Richard’s La Costa listing. He has five offers, and it’s going to sell for at least full price.

Someone told me last week that any buyer who listened to me about being cautious in 2013 is now 20% behind in pricing, and is still fighting heavy competition.  With relatively-low rates virtually guaranteed for 2-3 years, it appears to be a solid bull market locally.

Push back my zero-appreciation to 2015, because I think we’re going to see another +10% in NSDCC prices in 2014.

Posted by on Dec 30, 2013 in Forecasts | 12 comments

Low Rates To Stay

santa hits brakes

The Fed’s taper announcment didn’t rile the markets, and so far it seems to be well received. How will impact home sales?

Here’s what Bill McBride said,

“Rates will be low for a long long time …”  As far as the “Appropriate  timing of policy firming”, the participants moved out a little with three  participants now seeing the first increase in 2016.

Buyers should be rejoicing at the thought of rates staying low for the next couple of years, and be very deliberate about what home they buy, and for how much.  Conditions are ideal for the wait-and-seers!!

But can buyers keep a hold of themselves?

In spite of every reason to stay patient, buyers will be tempted to jump at every decent deal they see.  The definition of ‘decent deal’ will likely be a moving target in 2014!

Posted by on Dec 18, 2013 in Forecasts, Frenzy, Interest Rates/Loan Limits, Jim's Take on the Market | 9 comments

Investor Activity in 2014

investors2014The Trulia predictions earlier this week included several references to less investor activity in 2014, due to higher prices.  In particular was his #2 point:

2) The Home-Buying Process Gets Less Frenzied. Home buyers who can afford to buy won’t be as frantic as buyers in 2013. That’s because there will be more inventory to choose from, less competition from investors, and somewhat looser mortgage credit in 2014.

Investor activity is less than what the media will have you believe – at least in San Diego. According to this article by the Fed, investors made up less than 4% of total sales in San Diego in 2012.  Flippers came on strong this year, so the 2013 investor count is likely to be higher than last year’s, but probably still under 10% of the overall market.

I don’t think investors are done.

They will only quit when they’ve been burned – and it will probably take a few big losses to run them out of the business.

Instead, I think we will see increased competition for the deals – the standard listings that are priced at the comps or under.  There should be a solid floor to the market.

But investors/flippers will be under increased pressure to pay more than they are comfortable paying – everyone is!

They will try to pass it on to the retail buyer, and bump their list prices even higher.  Because of their confidence from recent successes, they will main contributors to the OPT pool (over-priced turkeys).

It’s already happening - there are flippers sitting on OPTs everywhere, confident that once the holidays are done, the buyers will be back.

However, the market has been extremely active the last couple of months – there hasn’t been much of a holiday dip in buyer interest, there just aren’t many quality homes for sale at decent prices.

Coming off a boisterious 4Q12 and fueled by mortgage rates in the low-to-mid 3% range, the spring selling season went gangbusters this year.

But now that the hyper-frenzy is done, buyers aren’t jumping at everything any more.

The current environment is much more cautious, which is ideal for a standoff.  With (over) confident flippers continuing to push their list prices, and regular sellers tacking on an extra 5% to 10% just to make sure they get all their money, we are ripe for the Big Stall in spring.

P.S. Trulia’s other comment about ‘somewhat looser mortgage credit in 2014′ is suspect too.  We haven’t covered the QM yet, but back-end ratios will be limited to 43% starting January 1st - and they have been as high as 50% this year.

fed investor share

Posted by on Dec 13, 2013 in Forecasts, Interest Rates/Loan Limits, Jim's Take on the Market, Mortgage Qualifying | 8 comments

More Move-Up Buyers in 2014?

trulia logoTrulia has issued their 2014 predictions:

http://www.marketwatch.com/story/as-consumer-optimism-rises-trulia-predicts-2014-will-be-the-year-of-the-repeat-buyer-and-urban-renter-2013-12-11

Jed the Economist predicted some changes in the market – here is his #3:

Repeat Buyers Take Center Stage.

2013 was the year of the investor, but 2014 will be the year of the repeat home buyer. As prices rise, buying homes will become less attractive to investors as well as first-time homebuyers, but repeat buyers will be able to offset the higher price of the home they buy with the higher price from the home they sell.

This idea probably looks sexy from his perch in the ivory tower, but on the street it is much harder to accomplish.

Yes, there will be people who won’t mind paying more for the next one if they can get more for theirs.  The difficulty is with the logistics.

If you are thinking of moving up or down, here are the choices:

1.  Offer to purchase a home, contingent upon selling yours.  While this provides great convenience to you, there’s not much chance any seller will go for it.  If it is a decent house and priced correctly, there will be enough non-contingent buyers that you’ll get kicked to the curb by the listing agent who won’t give you the time of day – even if you are the highest bidder.

2.  Sell yours first, and rent.  This is the best solution if you want to use the equity in your home to buy the next, but nobody likes the double-move.  Plus, if the prices keeps moving and/or your criteria is so tight that few homes are a match, you could be left waiting for a while.

3.  Buy first, then sell.  If you can use other money for your down payment, and qualify for the payments on both homes, you got it made.  My rule-of-thumb is that you need to pay 50% more for your next house to make it worth it - spending 10% to 20% more only gets you another bedroom or bigger yard.  How many people can qualify for their current house, AND the new house that is 50% higher-priced?

4.  Leave town.  You still have to juggle one of these three options, but if you move to a cheaper area then the qualifying for both loans is a little easier.

5.  Take an ARM.  There are lenders now who will allow you to rent your old house, and apply the new rent amount towards your income for qualifying purposes.  But you will get a portfolio product, which means a 7-year, or 10-year ARM, not a 30-year fixed rate.

None of these options look very appealing to most homeowners, and it’s one of the main reasons the inventory has been as low as it has – staying put is usually the best alternative.

To accomplish a move-up, you have to be really motivated – either the old house is killing you, or you have money burning a hole in your pocket.

If the market will be depending on the move-up buyer as a primary source of sales, it’s going to be a slow year.

http://www.marketwatch.com/story/as-consumer-optimism-rises-trulia-predicts-2014-will-be-the-year-of-the-repeat-buyer-and-urban-renter-2013-12-11

Posted by on Dec 11, 2013 in Forecasts | 6 comments

Price Increases Are Moderating

prices slowingAs more inventory hits the housing market and buyers rebel against rising home prices, the real estate market is likely to shift from seller dominance to one that is more counterbalanced by buyer reluctance to acquire homes deemed too expensive.

The tighter inventory conditions of this recent spring and summer are going away as the spring months of next year start to approach, analysts say. Right now, builders are trying to make up for a lack of inventory with new homes,  Lawrence Yun, chief economist for the National Association of Realtors, claimed.

According to the latest Home Price Index report from CoreLogic, home prices, including distressed sales, increased by only 0.2% in October when compared to September.

“In October, the year-over-year appreciation rate remained strong, but the month-over-month appreciation rate was barely positive, indicating that house price appreciation has slowed as expected for the winter,” said Mark Fleming, chief economist for CoreLogic.

“Based on our pending HPI, the monthly growth rate is expected to moderate even further in November and December. The slowdown in price appreciation is positive for the housing market as almost half the states are now within 10% of their respective historical price peaks,” Fleming said.

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Posted by on Dec 3, 2013 in Forecasts | 1 comment