Doctors: Magazine Home price gains slowed in June, but low mortgage rates may heat them up again

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September 2, 2019


MARKET RECAP

Doctors: Magazine Home price gains slowed in June, but low mortgage rates may heat them up again

Home prices are still gaining nationally, but not nearly as much as they have been over the past few years.

Prices in June rose 3.1% annually, according to the S&P CoreLogic Case-Shiller national home price index. That’s down from 3.3% annual gain in May.

The 10-City Composite annual increase came in at 1.8%, down from 2.2% in May. The 20-City Composite rose 2.1% annually, down from 2.4% in the previous month.

“Home price gains continue to trend down, but may be leveling off to a sustainable level,” S&P Dow Jones Indices’ Philip Murphy said in a release. “Fewer cities (12) experienced lower YOY price gains than in May (13).

Phoenix, Las Vegas and Tampa reported the highest annual gains among the 20 cities. In June, Phoenix saw a 5.8% annual price increase, followed by Las Vegas with a 5.5% increase and Tampa with a 4.7% increase. Six of the 20 cities reported greater price increases in the year that ended in June versus the year that ended in May. Seattle was the only city to show prices down (1.3%) from June 2018.

Home prices will likely get a boost from the significant, continuing drop in mortgage rates that began in the spring. The average rate on the 30-year fixed mortgage is now a full percentage point lower than it was a year ago. Lower mortgage rates give consumers more buying power and tend to push home prices higher.

“The U.S. National Home Price NSA Index YOY price change in June 2019 of 3.1% is exactly half of what it was in June 2018,” said Murphy, managing director and global head of Index Governance at S&P Dow Jones Indices. “While housing has clearly cooled off from 2018, home price gains in most cities remain positive in low single digits. Therefore, it is likely that current rates of change will generally be sustained barring an economic downturn.”

Another read showed home prices in the second quarter of this year up 5% from a year earlier. The measure, from the Federal Housing Finance Agency, looks at prices on homes with loans backed by Fannie Mae and Freddie Mac, which are conforming loans. It therefore does not capture the high end of the market. It shows home price gains decelerating for the fifth straight quarter, but also notes that may be about to change.

“We expect some positive effect of the mortgage interest rate decline on housing demand as well as home price appreciation given that rates have fallen a full percentage point since the end of 2018 to below 4% in August,” Lynn Fisher, FHFA’s senior advisor for economics, said in the release. “This should lead to a longer summer buying season and potentially a higher rate of appreciation on a seasonally adjusted basis than would have previously been expected in the third quarter.”

Source: CNBC | Diana Olick

Looking Ahead: Upcoming Key Market Dates

Tuesday, September 3, 2019 Markit Manufacturing PMI
Tuesday, September 3, 2019 Construction Spending
Thursday, September 5, 2019 Markit Services PMI
Friday, September 6, 2019 Unemployment rate

Recession Fears Grow, But Economists Say Housing Is OK

Recession fears are growing, and that may prompt some Americans—who are still haunted by the last one—to get skittish about the housing market. Don’t expect another “real estate fire sale” if the economy heads into another recession, economists say.

“This is going to be a much shorter recession than the last one,” George Ratiu, senior economist with realtor.com®, notes in a recent article at the site. “I don’t think the next recession will be a repeat of 2008. … The housing market is in a better position.”

Just 2% of economists, strategists, academics, and policymakers surveyed believe a recession will occur this year, based on a survey of more than 200 members of the National Association for Business Economics. Thirty-eight percent believe a recession will begin in 2020, while 25% say by 2021. Fourteen percent don’t expect a recession until after 2021.

The market still has plenty of good signs for home shoppers. The Federal Reserve has strongly hinted that another interest rate cut is looming in September, which could help bring mortgage rates down even lower. Unemployment continues to hover around the lowest it’s been in the past 50 years. Wages are also growing, and the country continues to be within its longest economic expansion in U.S. history.

If the country does enter into a recession, will home prices plunge like they did during the Great Recession? Many economists don’t believe so.

Ratiu believes home prices could flatten in a recession, but they likely wouldn’t drop. A shortage of homes for sale and a low amount being built should cushion any slowdown in the economy up against buyer demand, economists note. Also, lending laws have tightened since the housing crisis and borrowers are more qualified in securing a mortgage, notes Lawrence Yun, chief economist at the National Association of REALTORS®. Also, homeowners nowadays have a record amount of equity in their homes, so even if they lose their job they likely would be less inclined to head right into foreclosure and more likely to list their home for sale.

Still, the American psyche may play a bigger role if the country hits another recession. “With people having PTSD from the last time, they’re still afraid of buying at the wrong time,” Ali Wolf, director of economic research at Meyers Research, told realtor.com®. “But prices aren’t likely to fall 50% like they did last time.”