Home prices continued to increase across the U.S., but the pace declined slightly in September.
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, which covers all nine U.S. Census divisions, reported a 19.5% annual gain in September, down from 19.8% in the previous month.
The 10-City Composite annual increase came in at 17.8%, down from 18.6% in the previous month, while the 20-City Composite posted a 19.1% year-over-year gain, down from 19.6% in the previous month.
“If I had to choose only one word to describe September 2021’s housing price data, the word would be ‘deceleration,’” says Craig J. Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices. “Housing prices continued to show remarkable strength in September, though the pace of price increases declined slightly.”
Out of the 20 cities included in the report, Phoenix, Tampa, Florida, and Miami reported the highest year-over-year gains in September. Phoenix led the way with a 33.1% year-over-year price increase, followed by Tampa with a 27.7% increase and Miami with a 25.2% increase.
“Phoenix’s 33.1% increase led all cities for the 28th consecutive month,” continues Lazzara. “Tampa rose to second place in September, and Miami edged out Dallas, San Diego, and Las Vegas for the bronze medal. Prices were strongest in the South and the Sun Belt, but every region logged double-digit gains.”
Before seasonal adjustment, the U.S. National Index posted a 1% month-over-month increase in September, while the 10-City and 20-City Composites both posted increases of 0.7% and 0.8%, respectively. After seasonal adjustment, the index posted a month-over-month increase of 1.2%, and the 10-City and 20-City Composites both posted increases of 0.8% and 1%, respectively.
U.S. producer prices increased solidly in October, driven by surging costs for gasoline and motor vehicle retailing, suggesting that high inflation could persist for a while amid tight global supply chains related to the pandemic.
The Federal Reserve last week restated its belief that current high inflation is “expected to be transitory.” A tightening labor market as millions remain at home is adding to price pressures, which together with shortages of goods sharply restrained economic growth in the third quarter.
The Fed this month started reducing the amount of money it is injecting into the economy through monthly bond purchases.
“The acceleration in inflation may not fade as quickly as previously thought, particularly for businesses because of the global supply-chain issues,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “Elevated inflation is turning up the heat on the Fed but they haven’t shown signs of buckling as they will stomach higher inflation to get the labor market back to full employment quickly.”
The producer price index for final demand rose 0.6% last month after climbing 0.5% in September, the Labor Department said on Tuesday. That reversed the slowing trend in the monthly PPI since spring. In the 12 months through October, the PPI increased 8.6% after a similar gain in September.
Economists polled by Reuters had forecast the PPI advancing 0.6% on a monthly basis and rising 8.7% year-on-year.
More than 60% of the increase in the PPI last month was due to a 1.2% rise in the prices of goods, which followed a 1.3% jump in September. A 6.7% surge in gasoline prices accounted for a third of the rise in goods prices. There were increases in the prices of diesel, gas and jet fuel as well as plastic resins.
Wholesale food prices dipped 0.1% as the cost of beef and veal tumbled 10.3%. Prices for light motor trucks fell as the government introduced new-model-year passenger cars and light motor trucks into the PPI.
Exorbitant motor vehicle prices have accounted for much of the surge in inflation as a global semiconductor shortage linked to the nearly two-year long COVID-19 pandemic has forced manufactures to cut production, leaving virtually no inventory.
Services gained 0.2% last month after a similar rise in September. An 8.9% jump in margins for automobiles and parts retailing accounted for more than 80% of the increase in services. The cost of transportation and warehousing services jumped 1.7%, also reflecting snarled supply chains.
Surveys from the Institute for Supply Management this month showed measures of prices paid by manufacturers and services industries accelerating in October. Manufacturers complained about “record-long raw materials lead times, continued shortages of critical materials, rising commodities prices and difficulties in transporting products.”
Data on Wednesday is expected to showed strong gains in consumer prices in October, according to a Reuters survey of economists. Stocks on Wall Street retreated from record highs. The dollar was steady against a basket of currencies. U.S. Treasury prices rose.
There is congestion at ports and widespread shortages of workers at docks and warehouses. There were 10.4 million job openings as of the end of August. The workforce is down 3 million from its pre-pandemic level.
Worker shortages were underscored by a report from the NFIB on Tuesday showing almost 50% of small businesses reported job openings they could not fill in October.
Also on Tuesday, Fed Chair Jerome Powell emphasized the U.S. central bank’s commitment to maximum employment, telling a virtual conference on diversity and inclusion in economics, finance and central banking that “an economy is healthier and stronger when as many people as possible are able to work.” read more
Wholesale prices of apparel, footwear and truck transportation of freight also rose last month as did the costs of food and alcohol retailing, hospital outpatient care as well as machinery, equipment parts and supplies.
Excluding the volatile food, energy and trade services components, producer prices shot up 0.4%. The so-called core PPI gained 0.1% in September. In the 12 months through October, the core PPI rose 6.2%. That followed a 5.9% advance in September.
Construction prices surged 6.6%, the largest gain since the series was incorporated into the PPI data in 2009.
“As companies feel the squeeze from higher energy and labor costs, as well as persistent logistics issues, producer price increases should be robust in the coming months,” said Will Compernolle, a senior economist at FHN Financial in New York.
Details of the PPI components, which feed into the personal consumption expenditures (PCE) price index, excluding the volatile food and energy component, were mixed. The core PCE price index is the Fed’s preferred measure for its flexible 2% target. Healthcare costs increased 0.4%. Airline tickets rebounded 0.3%, but portfolio management fees dropped 2.2%.
Though the October CPI data is still pending, economists believed that the core PCE price index moved higher last month after increasing 3.6% year-on-year in September.
“For now, we think the core PCE price index will be up 3.8% year-on-year in October,” said Daniel Silver, an economist at JPMorgan in New York.
Contracts to buy U.S. previously owned homes rebounded to a seven-month high in August, but higher prices as supply remains tight are slowing the housing market momentum.
Other data on Wednesday showed applications for loans to buy a house fell last week as mortgage rates increased after the Federal Reserve signaled it would likely begin reducing its monthly bond purchases as soon as November. There are indications that supply could improve in the fall.
“Supply constraints that are boosting prices are impacting affordability and have been a headwind for buyers,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York. “Gradually easing supply constraints should be a positive, although affordability concerns could temper sales in the very near term.”
The National Association of Realtors (NAR) said its Pending Home Sales Index, based on signed contracts, jumped 8.1% last month to 119.5. That was the highest reading since January and followed two straight monthly declines.
Economists polled by Reuters had forecast contracts, which become sales after a month or two, increasing 1.4%. Compared with a year ago, pending home sales fell 8.3% in August.
The housing market boomed early in the COVID-19 pandemic amid an exodus from cities as people worked from home and took classes online. But the pandemic tailwind is fading as vaccines allow workers to return to offices.
Expensive homes are also sidelining some first-time buyers from the market. The NAR reported last week that the share of first-time buyers was the smallest in more than 2-1/2 years in August. Existing home sales dropped last month.
Data on Tuesday showed consumer sentiment towards buying a home weakening for a third straight month in September and house prices posting record gains in July from a year-ago.
Lumber prices have plummeted from record highs scaled in May, which economists and realtors hope will encourage builders to ramp-up construction of single-family homes. The resumption of foreclosures after a pandemic moratorium is also expected to ease the inventory crunch.
But house prices are likely to remain elevated, which together with rising mortgage rates could further erode affordability. In a separate report on Wednesday, the Mortgage Bankers Association said applications for loans to buy a home fell 1.2% last week from the prior week.
Loan purchase applications were down 12% from a year ago. According to the MBA, mortgage rates across all loan types increased since last Wednesday’s announcement by the Fed, with the benchmark 30-year fixed rate reaching its highest level since early July.
The U.S. central bank’s massive monthly bond buying program to aid the economy’s recovery from the pandemic has helped to keep mortgage rates low. With U.S. Treasury yields rising in recent days, mortgage rates could creep higher, which could draw some buyers into the market in anticipation of further rises.
“We anticipate home sales will trend sideways over the remainder of 2021,” said Mahir Rasheed, a U.S. economist at Oxford Economics in New York.
The surge in pending home sales last month was led by the South and Midwest regions, where the NAR said house price increases have been generally moderate relative to the rest of the country. Contracts soared 10.4% in the Midwest and vaulted 8.6% in the densely populated South. They rose 4.6% in the Northeast and advanced 7.2% in the West.
Existing home sales in the US unexpectedly sank 2.7 percent to 5.858 million in April of 2021, compared to forecasts of a 2 percent rise. It marks three consecutive months of declines as housing supply continues to fall short of demand. “We’ll see more inventory come to the market later this year as further COVID-19 vaccinations are administered and potential home sellers become more comfortable listing and showing their homes. The falling number of homeowners in mortgage forbearance will also bring about more inventory”, said Lawrence Yun, NAR’s chief economist. All but one of the four major US regions witnessed month-over-month drops. On the year however, sales surged 33.9 percent. The median existing-home price for all housing types in April was at a record of $341,600, up 19.1 percent from April 2020. Total housing inventory amounted to 1.16 million units, up 10.5 percent from March’s inventory and down 20.5 percent from one year ago. source: National Association of Realtors
“As Treasury yields have risen, it is putting pressure on mortgage rates to move up,” said Sam Khater, Freddie Mac’s Chief Economist. “While mortgage rates are expected to increase modestly in 2021, they will remain inarguably low, supporting homebuyer demand and leading to continued refinance activity. Borrowers are smart to take advantage of these low rates now and will certainly benefit as a result.”
30-year fixed-rate mortgage averaged 2.79 percent with an average 0.7 point for the week ending January 14, 2021, up from last week when it averaged 2.65 percent. A year ago at this time, the 30-year FRM averaged 3.65 percent.
15-year fixed-rate mortgage averaged 2.23 percent with an average 0.7 point, up from last week when it averaged 2.16 percent. A year ago at this time, the 15-year FRM averaged 3.09 percent.
The PMMS® is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20 percent down and have excellent credit. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following link for the Definitions. Borrowers may still pay closing costs which are not included in the survey.
Sales of new single-family houses dipped slightly in October but is still 41.5% above October 2019’s estimate of 706,000, according to the U.S. Census Bureau and the Department of Housing and Urban Development. New-home sales last month were at a seasonally adjusted rate of 999,000, 0.3% lower than the revised September rate of 1,002,000.
The continued elevated new-home sales follows other strong residential market indicators for the month of October. Zonda reported this week that pending new-home sales were tracking higher year over year in nearly every top U.S. market. And existing home sales were up 26.6% from a year ago, according to the National Association of Realtors.
According to the data, the median sales price of new houses sold in October was $330,600, while the average sales price was $386,200.
The seasonally adjusted estimate for new homes for sale was 278,000 at the end of October, representing a 3.3-month supply at the current sales rate.
“Today’s report from the Census Bureau suggested that demand for new homes in October continued to be strong, but supply constraints will likely limit the growth of new-home sales going forward,” noted Fannie Mae chief economist Doug Duncan. “The monthly sales pace is now reported to have been essentially flat for the three months at an elevated level of about 1 million annualized units, a rate not seen since 2006. However, sales are increasingly being driven from homes not yet under construction. The share of homes sold but not yet started rose for the third straight month and now represents the highest share of total sales since 2005, while the number of fully completed homes sold hit the lowest level since the COVID-19-related shutdowns this past April.”
Duncan added that the sales pace continued to exceed its typical relationship with the rate of construction. “At the comparatively low level of started homes available for sale, we believe the current sales pace to be unsustainable. We continue to project a convergence in coming months via a softening of sales while housing starts show comparative strength,” he said. “However, due to the revisions to past months’ numbers and third quarter sales coming in stronger than previously thought, our fourth quarter forecasts for both new sales and new housing starts will likely be revised upward.”
With the recent increases in the price of many residential construction materials, and in particular softwood lumber, NAHB wanted to get a better understanding of how these price increases are impacting remodelers. In the Q3 2020 Remodeling Market Index (RMI), remodelers were asked to report on material shortages, if any, as well as material price changes over the last six months.
Results show that a significant share of remodelers (77 percent) report a framing lumber shortage, with 25 percent reporting a serious shortage and 52 percent reporting some shortage (Figure 1). In recent months the cost of softwood lumber has jumped to extraordinary levels. In fact, the Producer Price Index (PPI) for softwood lumber has nearly doubled over the last five months (90.9 percent increase), the largest increase since 1975 for the seasonally adjusted series. This price increase has undoubtedly impacted lumber’s availability for remodeling projects and for home construction, in general.
Behind framing lumber, at least 60 percent of remodelers report shortages for three other materials: windows and doors (65 percent), plywood (63 percent), and oriented strand board (OSB) (61 percent) – all construction products commonly derived from softwood lumber. At least 17 percent of remodelers report having a serious shortage for all three of these materials.
At least 40 percent of remodelers report shortages for four other materials: millwork (45 percent), plumbing fixtures & fittings (44 percent), trusses (43 percent), and cabinets (41 percent) – three of which involve lumber. Very small shares of remodelers report shortages on clay brick (10 percent), concrete brick and block (11 percent), steel (lightweight for framing) (12 percent), and structural insulated panels (SIP) (another 12 percent). It is important to also note that 34 percent of remodelers report that they are experiencing shortages for ‘other’ materials not listed. Many reported appliances as the ‘other’ material.
Remodelers were also asked to specify how much total material costs have changed over the last six months for a typical project. Results show that 25 percent of remodelers report cost increases of 20 percent or more (Figure 2).
Freddie Mac (OTCQB: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), showing that the 30-year fixed-rate mortgage (FRM) averaged 2.80 percent, the lowest rate in our survey’s history which dates back to 1971.
“Mortgage rates remain very low, providing homeowners who have not already taken advantage of this environment ample opportunity to do so,” said Sam Khater, Freddie Mac’s Chief Economist. “Mortgage rates today are on average more than a full percentage point lower than rates over the last five years. This means that most low- and moderate-income borrowers who purchased during the last few years stand to benefit by exploring refinancing to lower their monthly payment.”
30-year fixed-rate mortgage averaged 2.80 percent with an average 0.6 point for the week ending October 22, 2020, down from last week when it averaged 2.81 percent. A year ago at this time, the 30-year FRM averaged 3.75 percent.
15-year fixed-rate mortgage averaged 2.33 percent with an average 0.6 point, down from last week when it averaged 2.35 percent. A year ago at this time, the 15-year FRM averaged 3.18 percent.
The PMMS is focused on conventional, conforming, fully-amortizing home purchase loans for borrowers who put 20 percent down and have excellent credit. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following link for the Definitions. Borrowers may still pay closing costs which are not included in the survey.
Despite an economic downturn this summer, a homebuying frenzy boosted home prices by almost 9% and drove available housing inventory down 30% in August compared to the same time last year, according to Zillow.
A foreclosure moratorium on federally-backed mortgages (now extended through December 31), which was designed to keep people in their homes during the coronavirus pandemic, has inflated the housing market, according to economists.
“That is a whole bunch of inventory [homes in forbearance], which would normally actually be selling at fire sale prices. Where instead — and I mean this is great news for those folks, that they can hunker down [and] they can stay put — but it is actually kind of locking up a lot of home inventory,” Jeff Tucker, economist at Zillow, told Yahoo Finance’s The Final Round.
In the Great Recession of 2008, banks foreclosed on almost 2% of houses in the U.S., unleashing a glut of houses onto the market and causing home prices to plummet. But today the Coronavirus Aid, Relief, and Economic Security (CARES) Act instituted protections to keep people in their homes during the coronavirus pandemic, offering foreclosure moratoriums and mortgage forbearance options for homes with federally-backed mortgages.
“I think that’s probably one of the biggest things stopping home sales right now,” said Tucker.
As the economy recovers, some 7% of mortgages are still in forbearance, according to the Mortgage Bankers Association, a Washington, D.C.-based professional organization. But forbearance and foreclosure protections won’t last forever, and for many homeowners, mortgage payments are stacking up — which could spell uncertainty for the housing market next year.
Mortgage forbearance is “going to expire for a lot — millions — of homeowners in March, April, May of next year. It’s a really big open question. How many of those folks are back in work by then? How many of them are able to get back on track with their mortgage payments?” said Tucker.
But these protections aren’t the only reason housing supply is so low. The U.S. has had an affordable housing shortage for more than a decade, and now 5 million millennials (age 26 to 35) are reaching the age where they want to buy, fueling demand.
Plus, demand skyrocketed this summer beyond what was predicted: pending sales in the last week of August were up 19% from the same time last year. Shutdowns this spring created pent-up demand that pushed peak homebuying season into late summer and early fall. And lifestyle changes during the pandemic have prompted many city dwellers to move to the suburbs.
“A lot of the sales that would have happened in March and April are getting pushed back later into summer. And especially since a lot of people have kids just at home doing remote school, they’re more willing to continue shopping and make that big move in September or October at this point,” said Tucker.
Remember all the excitement when 30-year mortgage rates started dipping below 3% for the very first time a few weeks ago? Just as those low-cost loans are almost starting to become ho-hum, one of the nation’s largest home lenders is out with a shorter-term mortgage that takes rates into a whole new universe.
United Wholesale Mortgage — a company that earlier this year announced 30-year fixed mortgage rates as low as 2.5% and VA loans for veterans and service members at just 2.25% — has just introduced a 15-year loan with rates under 2%.
Rates that are way below average
Mortgage rates have been plummeting to record lows in 2020 as the coronavirus crisis has shaken up financial markets and caused the Federal Reserve to slash interest rates to the bone.
UWM’s new 15-year fixed-rate mortgages come with rates as low as 1.875%. That’s unprecedented — and way down from the national average for those loans, currently 2.54% according to mortgage company Freddie Mac.
A 15-year home mortgage “is a great vehicle for refinancing. A lot of people look at it as a way to cut years off their mortgage,” says Mat Ishbia, president and CEO of United Wholesale Mortgage.
A homeowner who’s had a 30-year mortgage for a number of years can refi into a 15-year loan and avoid stretching out interest costs for additional decades.
Mortgage rates with shorter terms tend to have lower rates but much stiffer monthly payments. The rate on the UWM 15-year loan is so low that some refinancers may not find a major difference in their mortgage payments when switching out from a 30-year loan.
The math on a low-cost mortgage
Here’s how that works: Let’s say you took out a 30-year, $250,000 mortgage five years ago at 5%. (Clearly you didn’t do enough comparison shopping, because rates were averaging about 4% in the summer of 2015.)
You’ve been paying $1,342 in principal and interest each month and have close to $230,000 left on your loan.
Refinancing that balance into a 15-year mortgage at 1.875% would give you a monthly payment of $1,466, just $124 more than you’re currently paying. And your interest savings would be huge.
The 15-year loan comes with lifetime interest costs of about $34,000. If you refinanced into a new $230,000, 30-year loan at, say, 3% and stayed with the mortgage through the end of its term, you’d pay total interest costs of $119,000. The difference is massive.
Are all the numbers starting to make your head spin? Think of it this way: The sharply lower interest costs make the 15-year loan a good refinance choice if you plan to stay in the house for the long haul. A 30-year refi loan, with its lower monthly payment, is better if you might be moving on in a few years.
How to get a dirt-cheap 15-year mortgage
The new low-rate 15-year mortgages are part of UWM’s Conquest program, same as the lender’s ultra-cheap 30-year conventional and VA loans.
“Over 90% of our loans are in the 1% or 2% percent range and we’ve had a massive response for both purchases and refinances since we launched the Conquest program back in May,” says Ishbia.
Like the name says, United Wholesale Mortgage is a wholesaler, so you can’t get a mortgage directly from UWM. The loans are offered only through independent mortgage brokers, to both homebuyers and refinancers.
The program has a stipulation that a borrower cannot have taken out a UWM loan within the last 18 months.