CALCULATEDRISK
By Bill McBride
Yesterday, in Part 1: Current State of the Housing Market; Overview for mid-March 2024 I reviewed home inventory, housing starts and sales.
In Part 2, I will look at house prices, mortgage rates, rents and more – and review the house price outlook for 2024.
House Prices
The Case-Shiller National Index increased 5.5% year-over-year in December and will likely be slightly more positive YoY in January (based on other data).
The MoM increase in the seasonally adjusted (SA) Case-Shiller National Index was at 0.19%. This was the eleventh consecutive MoM increase, but the smallest increase since prices declined (SA) in January 2023.
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. 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 a little further YoY in the January Case-Shiller index. The NAR reported median prices were up 5.1% YoY in January, up from 4.1% YoY in December. ICE reported prices were up 5.6% YoY in January, and Freddie Mac reported house prices were up 6.2% YoY in January, down from 6.3% YoY in December.
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 increase a little further in the report for January.
But price increases have slowed!
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 Close to 7%
The following graph from MortgageNewsDaily.com shows mortgage rates since January 1, 2010. 30-year mortgage rates were at 6.94% on March 13th, down from just over 8% on October 19th – the highest 30-year fixed rate in 23 years – but up from 6.6% in late December.
A year ago, 30-year mortgage rates were at 6.57%, two years ago rates were at 4.41%, and three years ago rates were at 3.32%.
A year ago, the payment on a $500,000 house, with a 20% down payment and 6.57% 30-year mortgage rates, would be around $2,547 for principal and interest. The monthly payment for the same house, with house prices up 5.5% YoY and mortgage rates at 6.94%, would be $2,793 – an increase of 10%.
However, if we compare to three years ago, there is huge difference in monthly payments. In March 2021, the payment on a $500,000 house, with a 20% down payment and 3.32% 30-year mortgage rates, would be around $1,756 for principal and interest. The monthly payment for the same house, with house prices up 33% over three years and mortgage rates at 6.94%, would be $3,514 – an increase of 100%! Monthly payments doubled!
Mortgage Applications Remain Low
Here is a graph showing the MBA mortgage purchase index released yesterday. Purchase application activity is up from the lows in late October and early November, but still at 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! We might see some pickup in refinance activity when the homeowners that obtained 8% mortgages last October are eligible to refinance.
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 2024, except CoreLogic is through December and Apartment List is through February 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 Tuesday, the BLS noted in the CPI report: “The index for shelter rose in February, as did the index for gasoline. Combined, these two indexes contributed over sixty percent 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
Earlier this week, 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.