Rising Home Prices, A Mixed Blessing
|Median home prices have been steadily rising since the end of the housing crises. In fact, median home prices are up 35% since 2009 which is representative of a very healthy and vibrant housing market. As home prices continue their slow and steady march upward, investing in real estate has never made more sense. But it also means that the ability to participate in the housing market is becoming more difficult for one key segment – First Time Home Buyers.|
Point2Homes analyzed data from the National Association of Realtors and the US Census and found some compelling facts:
MEDIAN HOME PRICE CHANGES: These rapidly increasing prices put a lot of pressure on prospective homebuyers from both segments, but demand is bound to increase for more affordable homes, which are, of course, starter homes and condos. As a response to the growing demand, between 2009 and 2018, the median price of an entry-level home has risen faster than home prices in the move-up buyer segment. Currently, a first-time homebuyer needs to pay 31% more for a home, compared to a repeat buyer, who is looking at a smaller increase of 25%.
PRICE GAP: The price gap between starter homes and homes bought by repeat buyers is slowly closing. According to their analysis of NAR and US Census numbers, in 2009 there was a 31% difference between the median price of a starter home and the median price of a home from the repeat buyer segment. By 2018, that difference fell to 27%, pointing to a slow but insidious trend.
SHARE OF FIRST-TIME BUYERS: As a consequence, since 2009, when the share of first-time buyers reached 47% of total sales, and especially since 2010 when this share hit 50%, the percentage of first-timers has been in free fall. In the total number of sales, first-time buyers represented only 32% in 2015, and that share only crawled back to a meager 33% in 2018.
What Happened to Rates Last Week?
|Mortgage backed securities (FNMA 3.500 MBS) gained +22 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly lower from the prior week and remained near their lowest levels of the year.|
Overview: Overall, the economic data was very solid with better than expected readings in key Retail Sales and Manufacturing that continue to point solid growth. The Fed’s Beige book also showed an aggregate economy that is growing at a moderate pace in most districts. Usually, strong economic data like we had last week would be negative for MBS (higher mortgage rates) but the rising tension in Iran, a sputtering China-U.S. trade negotiation and a looming showdown on the debt ceiling provided plenty of support for long bonds and kept rates low for the week.
Retail Sales: The June Headline came in at 4 X the market expectations (0.4% vs est of 0.1%). Retail Ex-Autos had the same reading. The Control Group for Retail Sales increased by 0.7% vs est of 0.3%.
Manufacturing: We got a couple of regional reports that were significantly stronger than expected. The Philly Fed came in at 21.8 vs est of 5.0. The July regional Empire Manufacturing Index was much stronger than expected, coming in at 4.3 vs expectations of only 0.8 and quite a large swing from June’s contraction of -8.6
The Talking Fed: The Fed’s Beige Book was released Wednesday. You can read it here.
Among the various indicators suggesting a solid, stable, expanding economy, the Beige Book notes that:
What to Watch Out For This Week:
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.