American Confidence in Housing at an All-Time High
Fannie Mae just released the July edition of their Home Purchase Sentiment Index (HPSI). The HPSI takes information regarding consumers’ confidence in the real estate market from Fannie Mae’s National Housing Survey and condenses it into a single number. Therefore, the HPSI reflects consumers’ current views and forward-looking expectations of housing market conditions.
Great News! The index reached its highest level since Fannie Mae began their survey. Breaking it down, the report revealed:
- The share of Americans who say it is a good time to buy a home increased from the same time last year.
- The share of those who say it is a good time to sell a home increased from the same time last year.
- The share of Americans who say they are not concerned about losing their job over the next 12 months increased dramatically (16 percentage points) from the same time last year.
- The share of Americans who say mortgage rates will go down over the next 12 months increased dramatically (24 percentage points) from the same time last year.
The day after the index was released, Freddie Mac also announced the 30-year fixed-rate mortgage rate fell to its lowest level in three years.
Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae explained the uptick in the index:
“Consumer job confidence and favorable mortgage rate expectations lifted the HPSI to a new survey high in July, despite ongoing housing supply and affordability challenges. Consumers appear to have shaken off a winter slump in sentiment amid strong income gains. Therefore, sentiment is positioned to take advantage of any supply that comes to market, particularly in the affordable category.”
Consumers are feeling good about the real estate market. Since Americans are not worried about their jobs, see mortgage rates near an all-time low, and believe it is a good time to buy, the housing market will remain strong for the rest of the year.
Why All the Chicken Littles Should Calm Down
The U.S. Census Bureau recently released their 2019 Q2 Homeownership Report. Some began to see the sky falling, believing the report showed Americans may be stepping back from their belief in homeownership.
The national homeownership rate (Americans who owned vs. rented their primary residence) increased significantly during the housing boom, reaching its peak of 69.2% in 2004. The Census Bureau reported that the second quarter of 2019 ended with a homeownership rate of 64.1%, which is down from the 64.8% rate for the fourth quarter of 2018. Based on this news, some started to question the consumer’s belief in the idea of homeownership as a major part of the American Dream.
Everyone Calm Down…
It is true the homeownership rate did fall. However, if you look at the national rate over the last 35 years (1984-2019), you can see that the current homeownership rate has returned to historical norms. The 64.1% rate is equivalent to the rates in 1984 and 1994.
What Will the Future Bring?
Part of the reason the homeownership rate slipped is a lack of inventory available for purchase for first-time home buyers. The demand is there, but currently, the supply is not. It seems, however, that is about to change.
In a recent report, Ivy Zelman explained that builders have finally started to increase the number of homes they’re constructing at the lower-end price points:
“Robust growth in the entry-level price point of late should translate to a reacceleration in homeownership rates moving forward.”
Today, the homeownership rate sits at historic norms. In all probability, it will increase as more inventory becomes available. There is no reason for concern.
Existing Home Sales Point Toward a Good Time to Sell [INFOGRAPHIC]
- Existing Home Sales dropped 1.7% from May to a seasonally adjusted annual rate of 5.27 million in June.
- Low inventory levels are still a factor in the market. The current supply of homes for sale is at 4.4 months, which is less than the optimal 6-month supply.
- Median home prices were up 4.3% from June 2018, hitting $285,700. This marked the 88th consecutive month with year-over-year price gains.
How to Judge the Impact of the Next Economic Slowdown on Housing
We’ve experienced economic growth for almost a decade, which is the longest recovery in the nation’s history. Experts know a recession can’t be too far off, but when will this economic slowdown actually occur?
Pulsenomics just released a special report revealing that nearly 6 out of 10 of the 90 economists, investment strategists, and market analysts surveyed believe the next recession will occur by the end of next year. Here’s the breakdown:
- 9% believe a recession will occur this year
- 50% believe it will occur in 2020
- 35% believe it will occur in 2021
- 6% believe it will occur after 2021
When asked what would trigger the next recession, the three most common responses by those surveyed were:
- Trade Policy
- Stock Market Correction
- Geopolitical Crisis
How might the recession impact real estate?
Challenges in the housing and mortgage markets were major triggers of the last recession. However, a housing slowdown ranked #9 on the list of potential triggers for the next recession, behind such possibilities as fiscal policy and political gridlock.
As far as the impact the recession may have on home values, the experts surveyed indicated home prices would continue to appreciate over the next few years. They called for a 4.1% appreciation rate this year, 2.8% in 2020, and 2.5% in 2021.
On the same day, in the same survey, the same experts who forecasted a recession happening within the next 18 months also claimed housing will not be the trigger, and home values will still continue to appreciate.
How to Increase Your Equity Over the Next 5 Years
Many of the questions currently surrounding the real estate industry focus on home prices and where they are heading. The most recent Home Price Expectation Survey (HPES) helps target these projected answers.
Here are the results from the Q2 2019 Survey:
- Home values will appreciate by 4.1% in 2019
- The average annual appreciation will be 3.2% over the next 5 years
- The cumulative appreciation will be 16.8% by 2023
- Even experts representing the most “bearish” quartile of the survey project a cumulative appreciation of over 6.7% by 2023
What does this mean for you?
A substantial portion of family wealth comes from home equity. As the value of a family’s home (an asset) increases, so does their equity.
Using the projections from the HPES, here is a look at the potential equity a family could earn over the next five years if they purchased a $250,000 home in January of 2019:Based on gains in home equity, their family wealth could increase by $42,000 over that five-year period.
If you don’t yet own a home, now may be the time to purchase. Owning or moving up to your dream home could allow you to ride the increase in equity of a growing asset.
Home Price Expectation survey – Every quarter, Pulsenomics surveys a distinguished panel of over 100 economists, investment strategists, and housing market analysts regarding their 5-year expectations for future home prices in the United States.
3 Expert Insights On Inventory In The Current Market
The current housing landscape presents greater home values, low interest rates, and high buyer demand. All of these factors point to the strong market forecasted to continue throughout the rest of the year.
There is, however, one thing that may cause the industry to tap the brakes: an overall lack of housing inventory. Buyer demand naturally increases during the summer months, but the current supply is not keeping up.
Here is a look at what a few industry experts have to say:
“Imbalance persists for mid-to-lower priced homes with solid demand and insufficient supply, which is consequently pushing up home prices.”
“Market conditions are ripe for increasing home sales with one glaring exception. The supply of homes for sale remains tight, keeping existing home sales below potential.”
“We’re not seeing as many new listings come up on the market…It was only 18 months ago that the number of homes for sale hit its lowest level in recorded history and sparked the fiercest competition among buyers we’ve ever seen.”
If you’re thinking of selling, now may be the time. Demand for your house will be strong during a period when there is very little competition, ideally leading to a quick sale and a great return on your investment.
Home Prices Up 5.05% Across the Country [INFOGRAPHIC]
- The Federal Housing Finance Agency (FHFA) recently released their latest Quarterly Home Price Index report.
- In the report, home prices are compared both regionally and by state.
- Based on the latest numbers, if you plan on relocating to another state, waiting to move may end up costing you more!
Mid-Year Housing Market Update: Three Things to Know Today
Shifting trends and industry-leading research are pointing toward some valuable projections about the status of the housing market for the rest of the year.
If you’re thinking of buying or selling, or if you just want to know what experts are saying is on the horizon, here are the top three things to put on your radar as we head into the coming months:
- Home prices are appreciating at a more normal rate: Home prices have been appreciating for about ten years now. Experts at the Home Price Expectation Survey, Mortgage Bankers Association, Freddie Mac, and Fannie Mae are forecasting continued growth throughout the next year, although it should be leveling-off to normal appreciation (3.6%), as we move into 2020.
- Interest rates are low: Over the past 30 years, the average mortgage rate in the United States has been 8.27%, and rates even peaked as high as 18% in the 1980s. Today, at 3.81%, the rate is considerably lower than the historical 30-year average. Although experts predict it may climb into the low 4% range in the near future, that’s still remarkably lower than our running average, suggesting a great time to get more for your money over the life of your loan.
- An impending recession does not mean there will be a housing crash: Although expert research studies such as those found in the Duke Survey of American CFOs and the National Association of Business Economics, are pointing toward a recession beginning within the next 18 months, a potential recession isn’t expected to be driven by the housing industry. That means we likely won’t experience a devastating housing crash like the country felt in 2008. Expert financial analyst Morgan Housel tweeted:
“An interesting thing is the widespread assumption that the next recession will be as bad as 2008. Natural to think that way, but, statistically, highly unlikely. Could be over before you realized it began.”
With prices appreciating and low interest rates available, it’s a perfect time to buy or sell a home. Let’s get together to discuss how you can take the next step in the exciting journey of homeownership.