CALCULATEDRISK
By Bill McBride
On Wednesday, in Part 1: Current State of the Housing Market; Overview for mid-April 2024 I reviewed home inventory, housing starts and sales.
In Part 2, I will look at house prices, mortgage rates, rents and more.
House Prices
The Case-Shiller National Index increased 6.0% year-over-year in January and will likely be about the same YoY in February (based on other data).
The MoM increase in the seasonally adjusted (SA) Case-Shiller National Index was at 0.36%. This was the twelfth consecutive MoM increase, and a larger MoM increase than the previous two months.
In Question #9 for 2024: What will happen with house prices in 2024? I discussed my outlook for house prices in 2024. A review …
In question #9 I wrote:
“I don’t expect inventory to reach 2019 levels but based on the recent increase in inventory maybe more than half the gap between 2019 and 2023 levels will close in 2024. If existing home sales remain sluggish, we could see months-of-supply back to 2017 – 2019 levels.
That would likely put price increases in the 3% to 4% range in 2024. I don’t expect either a crash in prices or a surge in prices. And as usual, we will have to watch inventory and adjust the outlook.”
I discussed the possibility of getting back to 2019 levels of months-of-supply earlier this week: An Update on the House Price Battle Royale: Low Inventory vs Affordability
As I noted in Part 1, inventory is increasing year-over-year, but is still well below 2019 levels. This outlook for prices still seems reasonable and depends on changes in inventory. I don’t expect either a crash in prices or a surge in prices.
Other measures of house prices suggest prices will be up about the same YoY in the February Case-Shiller index. The NAR reported median prices were up 5.7% YoY in February, up from 4.9% YoY in January. ICE reported prices were up 5.7% YoY in February, down from 5.8% YoY in January, and Freddie Mac reported house prices were up 5.9% YoY in February, down from 6.2% YoY in January.
Here is a comparison of year-over-year change in the FMHPI, median house prices from the NAR, and the Case-Shiller National index.
The FMHPI and the NAR median prices appear to be leading indicators for Case-Shiller. Based on recent monthly data, and the FMHPI, the YoY change in the Case-Shiller index will likely be about the same YoY in February as in January.
Price increases have slowed! Over the last 3 months, this FMHPI has only increased at a 1.7% annual rate.
In real terms, the Case-Shiller National index is down 2.4% from the peak, seasonally adjusted. Historically it takes a number of years for real prices to return to the previous peak.
30-Year Mortgage Rates are back over 7%
The following graph from MortgageNewsDaily.com shows mortgage rates since January 1, 2010. 30-year mortgage rates were at 7.37% on April 11th, down from just over 8% on October 19th – the highest 30-year fixed rate in 23 years – but up from 6.6% in December 2023.
A year ago, 30-year mortgage rates were at 6.52%, two years ago rates were at 5.25%, and three years ago rates were at 3.28%.
A year ago, the payment on a $500,000 house, with a 20% down payment and 6.52% 30-year mortgage rates, would be around $2,533 for principal and interest. The monthly payment for the same house, with house prices up 6.0% YoY and mortgage rates at 7.37%, would be $2,929 – an increase of 15%.
However, if we compare to three years ago, there is huge difference in monthly payments. In April 2021, the payment on a $500,000 house, with a 20% down payment and 3.28% 30-year mortgage rates, would be around $1,747 for principal and interest. The monthly payment for the same house, with house prices up 32% over three years and mortgage rates at 7.37%, would be $3,634 – an increase of 108%! Monthly payments more than doubled!
Mortgage Applications Remain Low
Here is a graph showing the MBA mortgage purchase index released this week. Purchase application activity is up from the lows in late October and early November, and still below the lowest levels during the housing bust.
And the next graph shows the refinance index since 1990. Refinance activity has increased recently, but you have to squint to see the increase!
Asking Rents Mostly Unchanged Year-over-year
Here is a graph of the year-over-year (YoY) change for these measures since January 2015. Most of these measures are through February 2024, except CoreLogic is through January and Apartment List is through March 2024.
Asking rents are mostly unchanged YoY, and with new supply coming on the market, we will likely see further softness in asking rents.
However, the official measures are still catching up to the private data. On Wednesday, the BLS noted in the CPI report: “The index for shelter rose in March, as did the index for gasoline. Combined, these two indexes contributed over half of the monthly increase in the index for all items.”
This is important for housing and also for monetary policy.
Low Levels of Delinquencies, Foreclosures and Real Estate Owned
Last month, I wrote Q4 Update: Delinquencies, Foreclosures and REO.
In that article I noted that with substantial equity, and low mortgage rates (mostly at a fixed rates), few homeowners will have financial difficulties during this cycle. This is important for prices, since house prices tend to be sticky downwards in the absence of significant distressed sales. Here is a graph based on data from the FHFA’s National Mortgage Database
This shows the surge in the percent of loans under 3%, and also under 4%, starting in early 2020 as mortgage rates declined sharply during the pandemic. The percent of outstanding loans under 4% peaked in Q1 2022 at 65.3% (now at 58.1%), and the percent under 5% peaked at 85.6% (now at 77.0%). These low existing mortgage rates makes it difficult for homeowners to sell their homes and buy a new home since their monthly payments would increase sharply. This is a key reason existing home inventory levels are so low.