Affordability Better, But Still a Homebuying Hindrance
According to the California Association of Realtors 2014 Housing Affordability Report, a total of 19 regions had marked improvement, nine were unchanged, and three saw a decline in affordability.
Santa Barbara, Contra Costa, Napa, and Los Angeles counties experienced the greatest improvement quarter to quarter thanks to price declines from the previous quarter
San Francisco, Madera, and Merced counties were the only ones which saw a decrease in affordability due to price increases in the previous quarter
Five of the most affordable counties in California during Q4 were: Kings, San Bernardino, Tulare, Madera, Merced, and Fresno
Overall, the percentage of homebuyers that could afford to buy a median-priced single-family home in California during Q4 rose slightly from 30% to 31%. Back in Q4 2012—when the home affordability index was at its peak— metros like Los Angeles and Inland Empire sat at 64% and 56% affordability levels, respectively. That’s a far cry from the 39% and 34% levels posted in Q4 2014.
California Dominates List of High-Priced Luxury Homes in U.S.
Four California metros made the top 10 list for the priciest luxury housing in the U.S. during Q4:
4.) Huntington Beach—average sale price was $2.42 million. This is a 17% YoY increase
3.) Irvine—average sale price was $3.18 million. This is a 25% YoY increase
2.) San Francisco—average sale price was $4.66 million. A 10% YoY increase
1.) Los Angeles—average sale price was $4.80 million. A 12% YoY increase
Even though this jump from January 2013 seems high, the luxury housing market actually cooled off quite a bit in Q4…with only an average gain of 3%. In fact, this was the lowest level of growth since 2012 and was a vast contrast to the 16% surge in luxury homes sales witnessed during the first three months of 2014.
Is the Housing Market Revving Up?
After the housing market posted dismal numbers in Q4 and January, many started thinking that this year will be a repeat of the last. However, here are a few signs that could prove differently:
1.) In January, the average hourly pay for American workers rose 0.5%. The annual average salary increase is only 2%. So a half-percentage in one month is significant. This can be a great indicator of housing’s future because when people get raises, they tend to spend them on improving their lifestyle.
2.) Most folks realize the near-zero interest environment is drawing to a close. Homebuyers who’ve been waiting to buy know that they might miss out on a good interest rate if they wait too much longer. So more prospective homeowners will be looking to get into their dream home sooner than later.
3.) According to a survey of senior loan officers at the Federal Reserve, credit standards are easing. When more homebuyers believe they can attain credit easier, they’re more inclined to house shop.
These three factors combined could prove to be a reliable gauge for housing’s success over the next few months.
Is Refinancing Still a Smart Option?
With 30-year fixed mortgage rates jumping up to 3.85% following a strong employment report and a surge in 10-yr Treasuries, many are wondering if refinancing is still a smart option.
With interest rates at their highest level for 2015 so far you might be wondering if you should just throw in the towel for refinancing. But while a 30-basis point increase is nothing to sneeze, 3.85% is still far from high. In fact, mortgage rates still remain near the lows we saw back in May 2013.
Furthermore, FHA has recently calculated that based on conservative estimates, 1.7 million out of roughly 4.4 million existing eligible FHA loan holders could save money by refinancing. Based on their assessment—the combination of low interest rates and the recent reduction in the FHA mortgage insurance premiums (from 1.35% to .85%), could give buyers a 1% mortgage cost savings that would make refinancing a practical option.
Less conservative evaluations showed that as many as 2.4 million FHA borrowers would save by refinancing if the lower mortgage rate combined with the new FHA premiums resulted in at least a 0.75% reduction in annual mortgage costs.
Of course, if mortgage rates swing upward, this would impact calculations. However, if you’ve been on the refinancing fence, you can contact your loan officer to run numbers and determine what makes sense for your situation. Because, even at conservative estimates and current mortgage rates, 1 out of every 3 FHA borrowers could save money by refinancing.
Will January’s Lows Dampen Housing in February?
Despite sales in Los Orange County skyrocketing 12.9% month-over-month in December, January put the brakes on home sales with a whopping -30.6% drop from December’s highs.
These numbers shouldn’t come as a surprise since the forecast for the overall U.S. economic growth was revised down from the previous month. Construction starts, consumer confidence, mortgage applications were all low.
But what’s astonishing is that sales plummeted in spite of home prices easing -1.3% in Orange County during the same timeframe.
While experts are predicting similarly slow outcomes for February, with mortgage credit conditions loosening, a hot jobs market, household formation strengthening, and housing’s notoriously fiery spring homebuying season right around the corner, March should give way to solid gains. In fact, FHA’s expectations of 5.6 million home sales for 2015 remain unrevised, even after a less-than-stellar January. So housing’s outlook still remains positive.
Are Repos and Foreclosures on the Rise?
While California is ranked 2nd in the nation for the greatest improvement in foreclosure rates, foreclosures across the U.S. are actually starting to climb slightly once again:
Foreclosure filings (i.e. bank repos, scheduled auctions, defaults) rose 5% on a monthly basis
December marked the first nationwide increase following 25 consecutive months of declining foreclosure rates
The rise in foreclosures is attributed in part to a 55% jump in bank repossessions during January
Don’t fret, though. Nationally, foreclosures are still down an average of 13.7% year over year. And levels are still well below the peaks witnessed during the foreclosure crisis in 2009 and 2010.
The Market Is Gearing Up for Spring Buying Season
Consumers are getting excited about prime home shopping time getting ready to heat up. In fact, 67% of respondents to Fannie Mae’s National Housing Survey in January said they feel that now is a good time to buy a house.
44% said now is a good time to sell—an all-time survey high! So aside from consumer sentiment, here are a few things that could help spring buying season take off like a rocket:
New home purchase jumped 29% in January—meaning that housing is starting into its busy season on the right foot
Inventory of existing homes is up 5% compared to a year ago
New housing inventory is up over 90% in one year—with 793 new homes constructed, but not yet sold just in Orange County
So as you can see, there are plenty of things buyers and sellers should be excited about as the housing market heads into spring.
Mortgage Rates Shrink, Credit Expands
Mortgage interest rates dropped yet again after rising slightly the previous week. In fact, they’ve reached a low not seen since May 2013. This came on the heels of weaker than anticipated U.S. pending home sales which fell nearly 4% in December and real GDP growth for Q4 was lower than projected.
And mortgage rates aren’t the only good news. Both homebuyers and homeowners were able to leverage the fact that mortgage credit is expanding.
According to the Mortgage Banking Association’s Chief Economist, “Several new initiatives aimed at making mortgage credit more available and affordable to consumers were recently announced and resulted in a net loosening of credit.” In January, the Mortgage Credit Availability Index (MCAI) showed a 1.8% increase—clearly marking a loosening of credit.
Both the low interest rates and an increasing MCAI are giving prospective homebuyers even more incentive to house shop. And, not surprisingly, refinancing applications rose significantly in January.
Expectation-beating Reports Help Advance Housing
The Bureau of Labor Statistics just released a report that blew job expectations out of the water. This is great news for homebuyers and owners alike, because a strong job market serves as a propellant for the housing market. And this is an excellent position to be in with spring’s prime house shopping season right around the corner.
The housing and economic markets are so solid that they’re actually operating at 90% of normal range. This stability is increasing consumer confidence which will help grow the release of pent-up demand this year.
With the market performing close to as it should, the release of the January jobs report only serves to reinforce the strength and stability of housing. Non-farm payroll employment rose an amazing 257,000—beating all the Street’s expectations.
While all this positive news is great for the economy, the downside is that the Federal Reserve could seek to raise interest rates sooner than anticipated. They’ve been using the unemployment as a key indicator of stability to gauge how soon they begin to transition from a near-zero interest rate environment.
Housing Demand at Stratospheric Levels
During the first 3 weeks of 2015, housing has shot off like a rocket. According to Redfin, home-tour demand reached an all-time high and the number of signed offers increased 58% year-over-year. This insatiable response is due in part to:
A slight loosening in lending standards which is making it easier for some to obtain a mortgage
Increased interest among prospective buyers and sellers alike thanks to a stable economy, interest rates, and home values
Improved amount of available inventory throughout most metros
However, in some SoCal metros such as San Jose, available inventory in December dropped a whopping 35% from November. The increased demand, coupled by a limited supply in certain areas, is causing sellers to get a slew of offers.