Weekly Mortgage Matters for Doctors: The Sale Also Rises

Keeping you updated on the market!

For the week of

January 2, 2017

MARKET RECAP

­­The Sale Also Rises

Since mortgage rates moved sharply higher, we’ve counseled on the need to retain equanimity: Stay level and focus on the big picture, which includes an improving economic outlook and steady employment prospects. Mortgage rates are an important variable, to be sure, but they’re not the be-all and end-all of everything housing related.

Recent sales data support our contention. Home sales — new and existing — improved in November, a month when mortgage rates surged.

Existing-home sales surprised most market watchers by rising 0.7% to a 5.61 annualized rate last month. This is the high in the recovery cycle and exceeds the previous high set in October by over 100,000. Looking at the particulars, single-family sales were “flattish,” declining 0.4%. Condo sales, on the other hand, surged ahead 10%. The median price of an existing home rose to $234,900, which puts the year-over-year gain at 6.8%.

As for new-home sales, they didn’t miss a beat. Sales jumped 5.2% to a 592,000 annualized rate. New-homes sales are up 16.5% compared to November 2015. Some discounting has helped keep sales on an upward trajectory. The median price — at $305,400 — is 3.7% lower than the median price a year ago.  If you want to move more inventory, lower the price, as the trend in new-home sales and new-home median price proves.

Looking to the future, the pending home sales index points to sales growth taking a breather over the next month or two. The index fell 2.5% in November. Because the index focuses on existing home sales, we wouldn’t be surprised if existing-home sales are flat in December.

Flat purchase-application activity since early November also points to a flat  month or two for existing-home sales. That said, the Mortgage Banker Association’s latest survey showed that purchase applications were up 3% the week before Christmas. This suggests that the market is adjusting to the new normal of 4%-plus on the 30-year fixed-rate mortgage.

As for the new normal, it has held steady over the past two weeks  We’ve seen the yield on the 10-year U.S. Treasury  note actually decline a few basis points since Christmas.  We’ve seen a similar decline in mortgage rates. Quotes had been as high as 4.5% on a top-tier 30-year loan. A quote closer to 4.375% is a regular occurrence, with quotes of 4.25% happening more often.

We won’t be surprised to see a range of 4.125%-to-4.25% develop and hold on the 30-year loan until the Jan. 20 presidential inauguration, if not beyond. All the perceived positives and negatives associated with a new incoming president are baked into the market. Barring an outlier event, things should hold steady over the next few weeks.

Is the Housing Market About to “Flip” Out? 

The Wall Street Journal ran a provocative article last week on house flipping. The article described how more lenders are willing to extend credit to house flippers. The article also mentioned that high-flipping activity was a precursor to the financial crises and the housing-market crash.

We’ve mentioned at least a couple times in recent months to tread more cautiously into the investment side of housing. With the majority of markets continually rising across the country, and with many markets having recovered to pre-market-crash prices (and beyond), profitable deals become more difficult to uncover. (The popularity of house-flipping cable shows like “Flip or Flop” and the rehab show “Fixer Upper” can provide clues to the popularity of flipping. The more popular a strategy, the less profitable it tends to be.)

That said, 2016 is no 2006. Much of the flipping that occurred in the last decade was predicated on the “Greater Fool Theory.” Many investors were simply buying homes — Miami condos were particularly popular — and waiting to sell them a few months later to someone (the greater fool) who would pay more for the very same property.

Flipping today, in contrast, mostly involves improving properties. Flippers create price appreciation by creating higher value produced by physical activity. A decade ago, many flippers wanted the market to create price appreciation while they did nothing but wait.

To be sure, flipping is more popular today than it was a few years ago, but we don’t see the activity as being bubble-inducing.  We see few markets that offer the luxury where a rising market alone ensures a flipping profit. If you want to flip a home, you have no choice but to work at it, and that’s a good thing.

www.doctormortgagealliance.com