CALCULATEDRISK
By Bill McBride
Earlier this week, in Part 1: Current State of the Housing Market; Overview for mid-December 2024 I reviewed home inventory, housing starts and sales.
In Part 2, I will look at house prices, mortgage rates, rents and more.
“If you do not know where you come from, then you don’t know where you are, and if you don’t know where you are, then you don’t know where you’re going. And if you don’t know where you’re going, you’re probably going wrong.” Terry Pratchett
These “Current State” summaries show us where we came from, where we are, and hopefully give us clues as to where we are going!
House Prices
The Case-Shiller National Index increased 3.9% year-over-year (YoY) in September and will be about the same YoY in the October report (based on other data).
The MoM increase in the seasonally adjusted (SA) Case-Shiller National Index was at 0.33% (a 4.1% annual rate), This was the 20th consecutive MoM increase in the seasonally adjusted index.
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 below pre-pandemic levels, however months-of-supply is higher than the last 5 years (2019 – 2023) and 2017, and close to 2018 levels. This outlook for prices still seems reasonable – I expect the YoY increase to continue to slow heading into 2025, 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 about the same YoY in the October Case-Shiller index as in the September report. The NAR reported median prices were up 4.0% YoY in October, up from 3.6% YoY in September.
ICE reported prices were up 3.0% YoY in October, up from 2.9% YoY in September, and Freddie Mac reported house prices were up 3.7% YoY in October, down from 3.8% YoY in September.
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 October as in September.
In real terms, the Case-Shiller National index is down 1.4% 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 Close to 7%
The following graph from MortgageNewsDaily.com shows mortgage rates since January 1, 2010. 30-year mortgage rates were at 6.87% on December 12th.
A year ago, 30-year mortgage rates were at 7.09%, two years ago rates were at 6.39%, and three years ago rates were at 3.20%, and four years ago at 2.79%.
A year ago, the payment on a $500,000 house, with a 20% down payment and 7.09% 30-year mortgage rates, would be around $2,685 for principal and interest. The monthly payment for the same house, with house prices up 3.9% YoY and mortgage rates at 6.87%, would be $2,728 – an increase 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 3.20% 30-year mortgage rates, would be around $1,730 for principal and interest. The monthly payment for the same house, with house prices up 20% over three years and mortgage rates at 6.87%, would be $3,143 – an increase of 82%!
Mortgage Purchase Applications Have Increased Slightly
Here is a graph showing the MBA mortgage purchase index released Wednesday. Purchase application activity is up about 24% from the lows in late October 2023 and is now above the lowest levels during the housing bust.
And the next graph shows the refinance index since 1990. Refinance activity increased when mortgage rates declined in September as anyone with a mortgage rate in the high 6% range or above considered refinancing their mortgage. However, as rates have increased recently, refinance activity has slowed again.
Asking Rents Mostly Unchanged Year-over-year
Here is a graph of the year-over-year (YoY) change for several rent measures since January 2015. Most of these measures are through October 2024, except CoreLogic is through September and Apartment List through November.
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
Earlier today, I wrote Q3 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. We are seeing some price declines in areas with sharp increases in inventory (like most of Florida), but I don’t expect large price declines like during the housing bust.