CALCULATEDRISK
By Bill McBride
In Part 1: Current State of the Housing Market; Overview for mid-April 2025 I reviewed home inventory, housing starts and sales.
In Part 2, I will look at house prices, mortgage rates, rents and more.
These “Current State” summaries show us where we came from, where we are, and hopefully give us clues as to where we are going!
Note: Yesterday, I expressed concern about policy impacting housing and the economy. Then, at 12:57 PM ET, Goldman Sachs economists put out a note titled: Moving to a Recession Baseline. They argued – based on announced tariffs – that they were forecasting a recession and for the unemployment rate to rise to 5.7% in Q4.
Minutes later, a 90-day pause for most tariffs was announced (reducing tariffs to 10%, except China). An hour later Goldman Sachs put out a second note: Reverting to Our Previous Non-Recession Baseline. However, they still maintained a 45% change of recession in the next 12 months.
Forecasting is especially difficult with rapidly changing policy!
House Prices
The Case-Shiller National Index increased 4.1% year-over-year (YoY) in January and will be about the same YoY – or slightly lower – in the February report (based on other data).
The MoM increase in the seasonally adjusted (SA) Case-Shiller National Index was at 0.57% (a 7.0% annual rate), This was the 24th consecutive MoM increase in the seasonally adjusted index.
In Question #9 for 2025: What will happen with house prices in 2025? I discussed my outlook for house prices in 2025. A review …
In question #9 I wrote:
I don’t expect national inventory to reach 2019 levels but much of the remaining gap between 2019 and 2024 levels will likely close in 2025. If existing home sales remain fairly sluggish, we might see national months-of-supply above 5 months in mid-2025.
That would likely lead to mostly flat prices nationally in 2025. However, I expect some areas – with higher months-of-supply – will see price decline in 2025.
As I noted in Part 1, inventory is increasing year-over-year, but is still below pre-pandemic levels, however months-of-supply is higher than 6 of the last 8 years. And I now expect inventory to be close to 2019 levels by the end of 2025. I also expect mostly flat prices for the year. 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 – or maybe a little less – YoY in the February Case-Shiller index as in the January report. The NAR reported median prices were up 3.8% YoY in February, down from 3.9% YoY in January (median prices are impacted by the mix).
ICE reported prices were up 2.7% YoY in February, down from 3.4% YoY in January, and Freddie Mac reported house prices were up 3.4% YoY in February, down from 3.6% 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 – or slightly lower – in February as in January.
In real terms, the Case-Shiller National index is down 0.8% from the peak, seasonally adjusted. It has now been 31 months since the real peak in house prices. Typically, after a sharp increase in prices, it takes a number of years for real prices to reach new highs.
30-Year Mortgage Rates just under 7%
The following graph from MortgageNewsDaily.com shows mortgage rates since January 1, 2010. 30-year mortgage rates were at 6.95% on April 9th. Mortgage rates will likely decrease today.
30-year mortgage rates in the 6% to 7% range are the new normal.
A year ago, 30-year mortgage rates were at 7.06%, two years ago rates were at 6.50%, three years ago rates were at 5.06%, and four years ago at 3.29%.
It is financially very difficult for homeowners to move and give up their 3% mortgage rates, however time and life changes are slowing leading to more listings.
Mortgage Purchase Applications Have Increased Recently
Here is a graph showing the MBA mortgage purchase index released today. Purchase application activity is up about 38% from the lows in late October 2023 and is 14% above the lowest levels during the housing bust. I expect this to turn down again.
And the next graph shows the refinance index since 1990. Refinance activity increased when mortgage rates declined in September 2024 as anyone with a mortgage rate in the high 6% range or above considered refinancing their mortgage. Rates decreased last week, and refinance activity picked up again – but is still very low.
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 January 2025, except Apartment List through February 2025.
Asking rents are mostly unchanged YoY for multi-family and with new supply coming on the market, we will likely see continued pressure on asking rents.
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.
Here is a graph from the MBA’s National Delinquency Survey through Q4 2024.
The percent of loans in the foreclosure process decreased year-over-year from 0.47 percent in Q4 2023 to 0.45 percent in Q4 2024 (red) and remains historically low.
Current Outstanding Mortgage Rates
Here is some data showing the distribution of interest rates on closed-end, fixed-rate 1-4 family mortgages outstanding at the end of each quarter since Q1 2013 through Q4 2024.
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 65.1% (now at 54.1%), and the percent under 5% peaked at 85.6% (now at 72.1%). These low existing mortgage rates have made it financially difficult for homeowners to sell their homes and buy a new home since their monthly payments would increase sharply. This was a key reason existing home inventory levels were so low.
Time is slowly eroding this lock-in effect.