CALCULATEDRISK

By Bill McBride

In Part 1: Current State of the Housing Market; Overview for mid-May 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 6.4% year-over-year in February and will likely be about the same YoY in March (based on other data).

The MoM increase in the seasonally adjusted (SA) Case-Shiller National Index was at 0.41%. This was the thirteen consecutive MoM increase, and a larger MoM increase than the previous three 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. This outlook for prices still seems reasonable – I expect the YoY increase to slow later this year – 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 March Case-Shiller index. The NAR reported median prices were up 4.8% YoY in March, up from 5.6% YoY in February. ICE reported prices were up 5.6% YoY in March, down from 6.0% YoY in February, and Freddie Mac reported house prices were up 6.6% YoY in March, up from 6.5% YoY in February.

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 March as in February.

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 over 7%

The following graph from MortgageNewsDaily.com shows mortgage rates since January 1, 2010. 30-year mortgage rates were at 7.12% on May 12th, 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 6.55%, two years ago rates were at 5.35%, and three years ago rates were at 3.16%.

A year ago, the payment on a $500,000 house, with a 20% down payment and 6.55% 30-year mortgage rates, would be around $2,541 for principal and interest. The monthly payment for the same house, with house prices up 6.4% YoY and mortgage rates at 7.12%, would be $2,866 – an increase of 12%.

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 3.16% 30-year mortgage rates, would be around $1,721 for principal and interest. The monthly payment for the same house, with house prices up 31% over three years and mortgage rates at 7.12%, would be $3,518 – an increase of 104%! 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 March 2024, except CoreLogic is through February and Apartment List is through April 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 7,791 at the end of Q1 2024, down 5% from 8,403 at the end of the previous quarter, and down 9% year-over-year from Q1 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 this morning:

Most borrowers have excellent credit scores.