This is the letter I sent out to my clients last week, with a summary of conditions to expect this summer in our housing market.
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Here is my spring Housing Market Snapshot. The quick takeaway is that we have a basically normal housing market, robust enough to grow on its own strength regardless of any slowdown in the larger national economy.
Here’s the picture of the housing market we can expect through this summer.
Mortgage Rates
The big news of course is the Fed’s decision to reverse interest rate hikes. No one expects them to rise during this year, and mortgage rates are very close to 4 percent now. This has removed a lot of uncertainty, and obviously encouraged buyers to the market. Let’s remember that sellers are usually buyers also, so everyone’s in this together. There’s a measurable boost to the housing market from this good news.
In terms of buyer fundamentals, the desire for home ownership remains paramount in America. In 2016, renter households slowed their rapid growth and owner households started to ascend once more, reversing a decline in home ownership of close to a decade. In my mind this was the beginning of the return of a normal housing market.
I think that rents and home values will now both rise at a more gradual rate. They’ll appreciate to keep pace with annual inflation, but dramatic hikes seem to be over, and in my view that’s a very good thing. Housing works best in a situation of long-term stability.
Sellers have seen buyers reach their limit on bidding prices up, and while we saw a seller’s market look like turning into a buyer’s market, in fact now it seems to me they’re about equal. Buyers and sellers both have choices as to when or if they’ll buy or sell.
Inventory
Some owners are still holding out for greater appreciation on their homes, while the baby boomers holding the largest volume of homes are often choosing to age in place, or finding no available inventory for downsizing. The retirees are often a good target for new construction rather than resale homes, but construction is still facing headwinds, and the shortage of workers is definitely the top reason.
Inventory is still tight, but it is measurably increasing. Affordability for new buyers is a large issue, and while lenders have maintained strict discipline on credit-worthiness, they have also created many programs to ease or even eliminate the down-payment hurdle. But housing starts are strong and new home sales jumped by almost 5 percent in February.
Home values continue to appreciate, but at a slower rate. CoreLogic’s Case-Shiller index shows the slowest pace of gain in six years, but still at 3.6% increase, which is pretty normal in my book.
The lower priced homes under $200,000 are in shortest supply, and of course this is the price point where many new buyers are seeking to enter the market. These homes were the hardest hit in the recession as lower-income workers took the brunt of the job layoff, and this price point has rebounded in value the most dramatically since then. The median home price just recently crossed the $300,000 price threshold for the first time ever.
In general the housing market seems buoyant, and analysts are enthusiastic for this year. The fundamentals of the housing market have been restored.
National Economy
The national economy as a whole is turning sluggish. A survey by Toluna Research shows that, while an astonishing majority of home buyers – seventy percent – believe a new recession in the national economy is coming sometime within the next four years, buyers in general don’t think this will impact home values or the housing market. Analysts agree with them, and so do I.
A correction in the national economy does seem possible, but homeowners are confident in their equity position and workers are confident in their job security. The position of the housing market is the opposite of how it looked in 2006.
Dr. Ralph G. DeFranco, global chief economist for Arch Capital Services, summed it up well just this week in a story by Florida Realtors:
“A recession is inevitable at some point, but it’s likely to be far less severe for the housing market than the Great Recession,” DeFranco says. “We estimate that the current market is underbuilt by 1 million or more homes, buyers are more cautious and loan quality is far higher. In 2007, conditions were completely flipped: housing was hugely overbuilt, speculative demand was off the charts and the market was awash with high-risk loan products.”
DeFranco says that recessions rarely affect the housing market or home values in any way, and this jibes with my own experience over 25 years.
In conclusion, we should have a steady and active summer of buying and selling, with neither boom nor bust. Florida remains a top destination – in fact Lending tree just ranked it #1 for all home mortgage applications. One in ten of Americans in the national housing market are buying in Florida, and Builder magazine called Florida’s growth “explosive.”
© Stephanie Passman
