For the fourth straight month, information compiled by Freddie Mac shows that mortgage rates continued to fall in March 2019. The 30-year FRM – Commitment rate, fell by ten basis points to 4.27 percent from 4.37 percent in February. The cycle peak was 4.87 percent in November.
The Federal Housing Finance Agency reported that the contract rate for newly-built homes, also declined by five basis points to 4.53 percent in March. Mortgage rates on purchases of newly built homes (MIRS) declined by ten basis points over the month of March to 4.36 percent from 4.46 percent in February.
According to the May 2019 Federal Open Market Committee meeting statement, the Fed is likely to continue a “patient approach” stance to rate setting for the next several months. As expected, it kept the target for the federal funds rate at its setting of 2.25-2.50 percent. The post-meeting statement characterized growth as solid, but noted that broad inflation measures had declined and were running below the FOMC’s 2% inflation target. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the two percent objective as the most likely outcomes. Considering global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.
As of the end of March, the 10-year Treasury rate, is slightly up to 2.52%. The increased rate has contributed to an increase in the mortgage interest rates in the last few weeks. The average 30-Year Fixed market rate, according to Freddie Mac, was at 4.20% at the end of April compared to 4.06% at the end of March. At the end of 2018, the average 30-Year Fixed market rate was 4.64%.
Pending home sales rose in March, reversing course from a month prior, according to the National Association of Realtors®. Three of the four major regions saw growth last month, as the Northeast reported a minor slip in contract activity.
The Pending Home Sales Index,* www.nar.realtor/pending-home-sales, a forward-looking indicator based on contract signings, increased 3.8% to 105.8 in March, up from 101.9 in February. Year-over-year contract signings declined 1.2%, making this the 15th straight month of annual decreases.
Lawrence Yun, NAR chief economist, noted that pending home sales data has been exceptionally fluid over the past several months but predicted that numbers will begin to climb more consistently. “We are seeing a positive sentiment from consumers about home buying, as mortgage applications have been steadily increasing and mortgage rates are extremely favorable.”
Yun noted that sales activity in the West had increased at a relatively stable rate for five consecutive months before the region saw a significant spike in activity in March. “Despite some affordability issues in the West, the numbers indicate that there is a reason for optimism. Inventory has increased, too. These are great conditions for the region.”
Pointing to active listings from data at realtor.com®, Yun says the year-over-year increases indicate a potential rise in inventory. Denver-Aurora-Lakewood, Colo., Seattle-Tacoma-Bellevue, Wash., San Francisco-Oakland-Hayward, Calif., Portland-Vancouver-Hillsboro, Ore.-Wash., and Nashville-Davidson-Murfreesboro-Franklin, Tenn., saw the largest increase in active listings in March compared to a year ago.
Although pending contracts appear to be on an overall upswing, Yun says current sales activity is underperforming. “In the year 2000, we had 5 million home sales. Today, we are close to that same number, but there are 50 million more people in the country,” he said. “There is a pent-up demand in the market, and we should see a better performing market in the coming quarters and years.”
March Pending Home Sales Regional Breakdown
The PHSI in the Northeast declined 1.7% to 90.5 in March and is now 0.4% below a year ago. In the Midwest, the index grew 2.3% to 95.3 in March, 5.0% lower than March 2018.
Pending home sales in the South jumped up 4.4% to an index of 127.2 in March, which is 0.7% higher than last March. The index in the West ascended 8.7% in March to 95.1 and fell only 1.6% below a year ago.
In February, annual home price gains slowed across the country, according to the latest Case-Shiller Home Price Index from S&P Down Jones Indices and CoreLogic.
The report’s results showed that February 2019 saw an annual increase of 4% for home prices nationwide, falling from the previous month’s report.
The graph below highlights the average home prices within the 10-City and 20-City Composites.
(Click to enlarge)
Before seasonal adjustment, the National Index decreased 0.2% month over month in February. The 10-City Composite and the 20-City Composite both posted a 0.2% month over month decrease.
After seasonal adjustment, the National Index recorded a month-over-month gain of 0.3% in February. Additionally, the 10-City Composite and the 20-City Composite posted also posted a 0.2% month-over-month increase.
The 10-City and 20-City composites reported a 2.6% and 3.1% year-over-year increase for the month, respectively. Before seasonal adjustment, 14 of 20 cities reported increases, while 17 of 20 cities reported increases after the seasonal adjustment.
S&P Dow Jones Indices Managing Director and Chairman of the Index Committee David Blitzer said the pace of increases for home prices continues to slow.
“Homes began their climb in 2012 and accelerated until late 2013 when annual increases reached double digits,” Blitzer said. “Subsequently, increases slowed until now when the National Index is up 4% in the last 12 months.”
And although sales of existing single-family homes have recovered since 2010 and reached their peak one year ago in February 2018, home sales have drifted down over the last year except for a one-month pop in February 2019, according to Blitzer.
“Sales of new homes, housing starts, and residential investment had similar weak trajectories over the last year,” Blitzer said. “Mortgage rates are down one-half to three-quarters of a percentage point since late 2018.”
Additionally, Blitzer notes that regional housing trends are changing, especially as previously thriving housing markets continue to lose appreciation.
According to the report, Las Vegas, Phoenix and Tampa reported the highest year-over-year gains among all of the 20 cities.
In February, Las Vegas led with a 9.7% year-over-year price increase, followed by Phoenix with a 6.7% increase and Tampa with a 5.4% increase. Notably, only one of the 20 cities reported larger price increases in the year ending February 2019 versus the year ending January 2019.
“The largest year-over-year price increase is 9.7% in Las Vegas; last year, the largest gain was 12.7% in Seattle. Regional patterns are shifting. The three California cities of Los Angeles, San Francisco and San Diego have the three slowest price increases over the last year. Chicago, New York and Cleveland saw only slightly larger prices increases than California,” Blitzer said. “Prices generally rose faster in inland cities than on either the coasts or the Great Lakes. Aside from Las Vegas, Phoenix, and Tampa, which saw the fastest gains, Atlanta, Denver, and Minneapolis all saw prices rise more than 4% — twice the rate of inflation.”
California’s progressive approach may be difficult to implement nationwide – here are the hurdles to consider.
According to the Net Zero Energy Coalition, growth of ZE (Zero Energy) home construction was 75% higher in 2017 than in 2016. While California represents approximately half of all net zero energy homes built in the US, growth is occurring across the country, including Massachusetts, which has a similar top-down approach to the construction process, putting this state in second place in the inventory of zero ready (ZR), near zero (NZ), and ZE inventory.
A ZE home (also referred to as a Zero Energy Building, ZEB) is a home that consumes no more energy than it produces in a year. To achieve this, ZE homes are extremely efficient, leveraging cutting-edge building materials and construction methods, smart thermostats, and energy-efficient appliances to keep the home’s energy consumption as low as possible without seriously inconveniencing the homeowner. ZE homes produce on-site energy from renewable sources. In the residential segment, the most common renewable installed is solar photo voltaic (PV) panels. ZR homes have all of the energy-efficient elements with the exception of on-site energy generation.
For many communities, ZE is an important building block for their climate and sustainability action plans, driving several states and cities to introduce ZE legislation:
Oregon has set a 2023 target for all new home construction to meet ZE.
Austin, TX, has required all new homes to be ZE-ready since 2015.
Cambridge, MA, has a multiyear plan to move towards a zero net energy community, requiring all new residential home construction to be ZE by 2022.
Cambridge, MA, has a multiyear plan to move towards a zero net energy community, requiring all new residential home construction to be ZE by 2022.
The city of Fort Collins, CO, created FortZED nearly a decade ago to partner public, private, and academic resources to experiment with new technology that saves money and energy and helps create jobs locally.
The drive to implement ZE policies on a citywide or statewide level could help make these benefits a standard amenity, but these efforts require buy-in among builders. Most builders are now aware of ZE and have a basic understanding of the various elements. The National Association of Home Builders (NAHB) surveys its members regularly, and its 2017 Green Practices Study and Green Multifamily and Single Family Homes Report confirms that the housing industry is gradually changing. NAHB reports that three out of ten builders have constructed at least one near zero, zero energy ready, or ZE home.
However, the decision to construct a ZE home often relies with the consumer/home buyer, and many barriers can inhibit that decision. California is unique in that it has goals and codes driving changes, higher energy costs, favorable solar energy policies, and engaged utility providers. In other parts of the country, low energy costs are a barrier. Getting consumers excited about spending more upfront to see lower energy bills is a difficult proposition. Parks Associates survey data reveals that one-third of home owners in U.S. broadband households have a monthly electricity bill of less than $100.
As a result, ZE builders focus on the attributes of a higher quality home, which provides the homeowner with a healthier, quieter, more comfortable, and more energy-efficient home. A key message is the ZE home provides peace of mind, as well as a hedge against future utility bills, as the home is built with better components and with higher construction quality. Overall, customers indicate a willingness to pay more for high-performing homes. A Parks Associates survey of US broadband households in 4Q 2017 found 80% of homeowners believe that having an energy-efficient home is important or very important, and at the end of 2018, 89% reported energy-saving actions. Parks Associates interviews with builders confirm that most customers will pay approximately 5% more for higher quality, high-efficiency ZE homes.
However, a home is an infrequent purchase, and once it comes down to spending actual dollars, consumer actions often diverge from original intentions. Budget drives the decisions regarding efficiency upgrades or adding renewables, which can often push home buyers to decide between ZE options and other amenities. In interviews with Parks Associates, entry to mid-level builders report about one-third of buyers respond positively to energy-efficiency attributes and the associated benefits, while the remaining two-thirds are either more interested in other aesthetic enhancements or skeptic of the benefits overall.
Loss of incentives can drive decisions away from high-efficiency equipment. For example, the current residential federal tax credits for solar, wind, fuel cells, and geothermal heat pumps are 30% of the total installed costs. The amount is being stepped down yearly and will be phased out after 2021. As federal incentives go away, local municipalities and utilities will need to step up to replace them, or installation of these systems may decline.
Scarcity of resources can also be a barrier, and in general, local policies, codes, and incentives drive where support resources are located. Simply put, it can be difficult to find the materials and trained subcontractors necessary for a ZE project in an area that does not promote or incentivize this type of construction.
Policies can attract resources and also drive greater consumer awareness for ZE solutions. Just take a look at California, with the highest number of residential solar PV installations, to confirm that policies, codes, and coordinated efforts across players can drive adoption. In other areas, the federal tax credit has helped grow consumer awareness and adoption of solar. Today, most consumers also have a basic awareness of renewables and higher efficiency products, so market opportunities exist for high-efficiency appliances, equipment, and smart home energy products and service providers as part of the ZE equation. Smart-home products, renewable generation, battery storage, and electric vehicles are all transformative technologies individually, but all are currently in the early stages of adoption in US households.
Near zero and zero ready homes create more choice for consumers and are becoming affordable as ZE homes become cost competitive to standard dwellings. Rocky Mountain Institute’s recent 2018 study on construction costs of ZE and ZR single-family homes report that on average, a ZE home now costs 6.7%-8.1% more than a standard home and a ZR home is only 0.9%-2.5% higher. Prices are continuing to decline for renewables and battery storage, making these energy efficient homes truly affordable.
Production builders can see a clear competitive advantage as they reduce their construction costs and expand their ZE and ZR home offerings across the US. As more builders embrace this trend, expect to see more creative offers such as Lennar’s SunStreet program that offers solar PV at no upfront costs to the home buyer.
Historically, the push for ZE home requires alignment, awareness, and education across all parties in the housing industry. Stakeholders include architects, construction trades, local code compliance organizations, utility partners, real estate professionals, and the financial industry, in addition to the product manufacturers, trade associations, and local suppliers who work with builders to implement these solutions.
It is a complex undertaking, but as more communities look for ways to preserve resources, and promote energy independence, ZE solutions will continue to emerge as viable options in US households. The single-family home building industry at a point where declining costs, competitive solutions, and consumer awareness of benefits could potentially drive adoption of ZE and ZR homes without incentives and policies.
This story appears as it was originally published on our sister site, www.hiveforhousing.com.
In March, the nation’s home-sale prices remained virtually stagnant, inching backward only 0.1% from 2018 levels, according to new data from Redfin.
This means U.S. home-sale prices reached a median of $295,000 in March, marking the first year-over-year price decrease on record since February 2012.
Despite this decline, Redfin’s data determined that only nine of the 85 largest metros saw a year-over-year decline in their median price.
This was especially so for San Jose, California, which saw its home prices fall 13% in March. That being said, other California cities like San Francisco experienced declines as little as 1%.
When it comes to home sales, the report revealed that expensive West Coast markets like Los Angeles, Orange County and Seattle posted double-digit year-over-year sale declines.
However, large markets on the East Coast saw big annual sales gains, as market affordability worked in their favor.
“Homebuyers have backed off in West Coast metros where home prices have risen far out of their budgets,” Redfin Chief Economist Daryl Fairweather said. “The opposite is happening in more affordable metros where buyers are eager to buy now to take advantage of low mortgage rates. In California, where the tax burden is high, some people are finding they have to move out of state to afford to buy a home. As a result, home sales are down in metros throughout the state.”
In fact, Redfin’s analysis indicated March’s home sales fell in 37 of the 85 largest housing markets. Whereas, only 24 of these markets saw double-digit year-over-year increases in home sales.
Interestingly, the housing markets that did experience the biggest declines features homes that were 2.5 times more expensive than homes belonging in areas where sales surged, according to Redfin.
The image below highlights March’s home-price growth:
