Housing Still Hot Amid Fall Chill – Real Estate Market Update

The weather is starting to get a little chill and I see leaves on the ground outside the window of my bedroom office. Fall has arrived in Michigan.

Don’t tell the housing market, though. COVID-19 likely shifted some of the buying into later months, but in many ways, the market is still performing like it’s the height of summer home buying season.

The Big Story

The real story in real estate is just how strong the housing market has been and continues to be. We’ll get into this a little more below, but existing home sales were up to a 6 million level, and on the new home sales side, they’ve crossed the 1 million mark. There’s nothing left to be said except “wow.”

Supply continues to be persistently low, so that may keep numbers from reaching mind-boggling heights, but there are couple of things driving this. Firstly, mortgage rates continue to hover at or near record lows, despite the fact that they seem to have hit a bit of a floor recently.

Secondly, this is something we’ve talked about before but it’s worth repeating: There’s a certain amount of increased demand purely because people have realized that their current living spaces don’t work for them now that most of us were forced to spend nearly all of our time in the house for several months.

As a real estate agent, you should be focused on taking advantage of the unique opportunity this market presents. While other areas of the economy have suffered, the housing market seems as strong as ever.

News You Can Use

This was put together with the help of analysis from Econoday.¹ Let’s get into what we saw!

Existing Home Sales

Existing home sales have been extremely hot, and August was just another indicator of that. The annual rate hit 6 million on a seasonally adjusted basis. This is up 2.4% on the month and 10.5% since last August. This is 4.7% above where the number was in February, indicating full recovery and improvement in the existing home market.

What’s more, sellers aren’t giving their homes away. The median sales price was up 1.7% on the month and 11.4% for the year at $310,600. The possible problem here is the supply numbers. Supply is down to 3 months at the current pace of sales and only 2.8 months when looking at single-family homes.

For context, the market is considered in balance when there’s about 6 months’ worth of supply available in the market. A supply shortage heavily favors sellers. The one thing that’s concerning and could keep existing home sales down is continued upward price pressure driven by a lack of supply. It’s something to keep an eye on.

FHFA House Price Index

Home prices were up 1% in July according to the Federal Housing Finance Agency (FHFA). These numbers are based on sales backed by conventional loans from Fannie Mae and Freddie Mac. For the year, these home prices are up 6.5%.

These numbers were released in September, so the data runs 2 months behind, but it paints the picture of creating a competitive market. The FHFA says mortgage rates that were at record lows, stronger housing demand after the lockdown and low inventory have all contributed to the price increases.

The Mountain and East South Central regions were called out in particular for price strength while the West North Central region shows the weakest growth.

New Home Sales

New homes sales crossed a big threshold in August, hitting 1.011 million on a seasonally adjusted annual basis. This is up 43.2% from August of last year and 41.2% from February before COVID-19 hit.

On the supply and pricing side, things are a bit curious. On one hand, supply is at 3.3 months at the current rate of sales, which is fairly low. On the other hand, prices were down 4.6% for the month to $312,800. Normally, new homes cost a fair amount more than preowned inventory, and the gap seems to be closing.

Prices are down 5.7% from February and have fallen 4.3% from a year ago. It’ll be really interesting to look at those seemingly hard to explain market dynamics. One nice thing that adds to the good news in this report is that upward revisions in the previous 3 months totaled 125,000.

Case-Shiller House Price Index

There are two big differences between the FHFA numbers and the ones from Case-Shiller. The first is that Case-Shiller looks at all transactions rather than only those based on conventional mortgages. The latter is also a rolling 3-month average. The numbers here are also based on survey results for 20 major cities.

Home prices were up 0.6% on both an adjusted and unadjusted basis. On the year, they’ve risen 3.9% overall. Although it’s much lower than the yearly price appreciation for FHFA, this could be put down to differences in the sample because the pace of appreciation is up 0.4% since February.

Consumer Confidence

Consumer confidence was up 15.5 points in September to come in at 101.8, which was well above any consensus estimates. The real source of this strength is improvements in perception of both the current and future labor market as well as higher income expectations.

Of most interest to this audience though is the fact that buying plans for homes were up as a result of this optimism. This report definitely shows consumer enthusiasm.

Gross Domestic Product (GDP)

The final reading of second-quarter GDP can’t be considered good on balance as it showed the economy shrunk 31.4% quarter to quarter. At the same time, personal consumption expenditures were down 33.2%, pointing to consumer pull back.

As everyone reading this knows, housing makes up a large proportion of overall GDP. Here, there was some good news. While still showing deep contraction of 35.6% in the second quarter, this number improved in the final reading.

Pending Home Sales Index

Pending home sales were up 8.8% in August to come in at an index level of 132.8. This was up 24.2% on the year. Ultimately, this is a great sign for September’s existing home sales numbers.

The number of homes under contract for sale showed the most growth in the West, up 13.1% since last August.

Consumer Price Index (CPI)

Overall inflation was up 0.2% for the month of September, a number that was matched when food and energy were taken out. These categories are up 1.4% and 1.7% respectively for the year.

For real estate agents, the most interesting number here is that shelter prices were only up 0.1%, matching the small gain in August.

MBA Mortgage Applications

Mortgage applications were down slightly in the week, but purchase applications are still up 24% on the year. Meanwhile, applications to refinance are up 44% from the same time a year ago.

In this survey, the average conforming 30-year fixed mortgage with 0.32 points paid had rates drop a single basis point to 3%. Meanwhile, looking at jumbo balances, the rate was also down one basis point to settle at 3.3%, but the points paid went from 0.3 to 0.35. Both metrics assume 20% down payments.

Mortgage Rates

Mortgage rates haven’t moved much in either direction over the past month according to Freddie Mac. The good news is that mortgage rates are really low in general, so whether your clients are looking to refinance or purchase, it remains a good time if they’re ready. Like the MBA numbers, the following is based on 20% down payments.

The average interest rate on a 30-year fixed mortgage with 0.8 points paid in fees was down a single basis point from the week prior to 2.87%. This has fallen from 3.57% last October at this time.

Meanwhile, the average rate on a 15-year fixed was up 1 basis point for the week with 0.7 points paid to 2.37%, which has still dropped from 3.05% last year.

Finally, the average interest rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage (ARM) fell by one basis point to 2.89% with 0.2 points paid. This is a dip from 3.35% a year ago.

We hope this has given you some insights that you can share with your clients. For even more, check out our real estate page.

¹ Important Legal Notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of such information may change without notice. Econoday does not provide investment advice, and does not represent or warrant that any of the information is accurate or complete at any time. Copyright 2020 Econoday, Inc. All rights reserved.

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