CALCULATEDRISK

By Bill McBride

Yesterday, in Part 1: Current State of the Housing Market; Overview for mid-August 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 5.9% year-over-year in June and will likely slow further in the June report (based on other data).

The MoM increase in the seasonally adjusted (SA) Case-Shiller National Index was at 0.25%. This was the sixteenth consecutive MoM increase, but this tied December as the smallest MoM increase in the last 15 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.”

As I noted in Part 1, inventory is increasing year-over-year, but is still well below 2019 levels, but months-of-supply is almost back to 2017 – 2019 levels. This outlook for prices still seems reasonable – I expect the YoY increase to continue to slow, although that 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 less YoY in the June Case-Shiller index than in the May report. The NAR reported median prices were up 4.1% YoY in June, down from 5.2% YoY in May.

ICE reported prices were up 4.1% YoY in June, down from 4.7% YoY in May, and Freddie Mac reported house prices were up 5.2% YoY in June, down from 5.7% YoY in May.

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 lower YoY in June compared to May.

In real terms, the Case-Shiller National index is down 1.9% 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 Have Fallen to 6.5%

The following graph from MortgageNewsDaily.com shows mortgage rates since January 1, 2010. 30-year mortgage rates were at 6.52% on August 13th, down due to the better-than-expected inflation reports – and the expectation of Fed rate cuts.

A year ago, 30-year mortgage rates were at 7.24%, two years ago rates were at 5.33%, and three years ago rates were at 2.96%.

A year ago, the payment on a $500,000 house, with a 20% down payment and 7.24% 30-year mortgage rates, would be around $2,726 for principal and interest. The monthly payment for the same house, with house prices up 5.9% YoY and mortgage rates at 6.52%, would be $2,682 – a decrease of 1.6%.

However, if we compare to three years ago, there is huge difference in monthly payments. In 2021, the payment on a $500,000 house, with a 20% down payment and 2.96% 30-year mortgage rates, would be around $1,678 for principal and interest. The monthly payment for the same house, with house prices up 26% over three years and mortgage rates at 6.52%, would be $3,201 – an increase of 91%! Monthly payments almost doubled!

Mortgage Applications Remain Low

Here is a graph showing the MBA mortgage purchase index released this morning. 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 as mortgage rates have declined. Historically, refinance activity is still very low.

Asking Rents Mostly Unchanged Year-over-year

Here is a graph of the year-over-year (YoY) change for several measures of rent since January 2015. Most of these measures are through June 2024, except CoreLogic is through May and Apartment List is through July 2024.

Asking rents are mostly unchanged YoY for multi-family (single family rents are up), 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.

Low Levels of Real Estate Owned

Here is a graph showing Fannie Mae Real Estate Owned (REO). Fannie Mae reported the number of REOs decreased to 7,179 at the end of Q2 2024, down 10% from 7,971 at the end of the previous quarter, and down 17% year-over-year from Q2 2023.

This is well below the normal level of REOs for Fannie, and there will not be a huge wave of foreclosures.

And some data Mortgage Originations by Credit Score from the NY Fed last week:

“The median credit score for newly originated mortgages rose slightly to 772”

Most borrowers have excellent credit scores.