Category Archives: Housing Analysis

Home Affordability Sinks For The First Time In 12 Months

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Home Affordability Index 2012 Q2Rising home prices are taking a toll on today’s home buyers. For the first time in 4 quarters — and despite falling mortgage rates — home affordability is sinking. 

Earlier this week, the National Association of Home Builders reported the Home Opportunity Index, a measure of home affordability, down to 73.8 for the second quarter of the year. This marks the metric’s first “down” quarter since the second quarter of 2011, and is its lowest reading since December 2010.

A home is considered “affordable” when its payments meet standard mortgage underwriting criteria for families earning the local median income. This definition is used for homes across all U.S. markets — including for homes in Phoenixville.

73.8% of homes sold last quarter were affordable to households earning the national median income of $65,000. This is the 13th straight quarter dating back to 2009 that the index surpassed 70. Prior to 2009, the Home Opportunity Index had not crossed 70 even one time.

Like all real estate data, home affordability varied by locale.

In the Midwest, for example, affordability was highest. 7 of the top 10 most affordable markets nationwide were spread throughout the nation’s heartland. An Alaskan city took the top spot.

The top 5 most affordable cities for home buyers in Q2 2012 were:

  1. Fairbanks, AK (98.7%)
  2. Mansfield, OH (98.1%)
  3. Springfield, OH (95.9%)
  4. Carson City, NV (95.4%)
  5. Kokomo, IN (95.4%)

At #23, Ocala, Florida (91.7%) was the top-ranked South Region city last quarter.

By contrast, the Northeast Region and Southern California remained among the least affordable housing markets nationwide. Led by the New York-White Plains, NY-Wayne, NJ area, 9 of the 10 least affordable areas were in the Mid-Atlantic and California, and for the 17th consecutive quarter the New York metro area was ranked “Least Affordable”.

Just 29.4 percent of homes were affordable to households earning the area’s median income there, down from 31.5 percent three months ago.

The rankings for all 225 metro areas are available for download on the NAHB website.

5 States Home To 50% Of Foreclosure Activity Nationwide

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Foreclosure stats July 2012Foreclosure pipelines are re-filling nationwide.

According to data from RealtyTrac, a national foreclosure-tracking firm, the number of foreclosure filings dipped below 192,000 in July 2012, a 3 percent decrease from the month prior.

RealtyTrac defines a “foreclosure filing” as any foreclosure-related action, including a Notice of Default, a Scheduled Auction, or a Bank Repossession.

July marks the 22nd straight month during which foreclosure filings fell on a year-over-year basis. At some point soon, however, that streak may end. This is because, for the third straight month, on an annual basis, foreclosures starts are on the rise.

More than 98,000 homes started the foreclosure process in July, a 6 percent increase from July of last year. Connecticut, New Jersey and Pennsylvania experienced the biggest increases, rising 201%, 164% and 139%, respectively.

Each is a judicial foreclosure state, which means that foreclosures must go through the state court system prior to auction.

Nationwide, just a few states accounted for the majority of July’s total foreclosure activity. 5 states were home to more than half of all tracked activity, according to RealtyTrac.

  • California : 21.9 percent
  • Florida : 13.3 percent
  • Illinois : 7.2 percent
  • Georgia : 5.7 percent
  • Texas : 5.2 percent

Collectively, these 5 states represent just 33 percent of the nation’s population.

In contrast to the five states above, the bottom 14 states accounted for just 1 percent of the nation’s foreclosure activity, led by North Dakota. In North Dakota, just 3 foreclosure filings were made in July. Other “fewest foreclosure” states in July included District of Columbia (7 filings), Vermont (31 filings), and South Dakota (63 filings).   

For home buyers in King of Prussia , with more foreclosed properties expected to go for sale this year and next, there will be some excellent “deals” and discounts — foreclosed homes typically sell at discounts of 20% or more as compared to comparable, non-distressed homes. However, foreclosed homes are often sold as-is, which means they may have defects.

Before placing a bid on a foreclosed home, therefore, make sure to have an experienced real estate agent on your side. Buying a foreclosed home may save you money at your closing, but may cost you money longer-term.

Improving Market Index Spans 32 States, District Of Columbia

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Improving Market Index

80 U.S. metropolitan markets are showing “measurable and sustained growth” this month, according to the National Association of Homebuilders’ Improving Market Index.

It’s good news for the economy and good news for housing. 

The NAHB’s Improving Market Index is meant to identify U.S. markets in expansion. It’s a composite of the three distinct data sets which, as a group, present a more holistic view of a given city’s growth :

  1. From the Bureau of Labor Statistics, the IMI tracks employment figures
  2. From Freddie Mac, the IMI tracks home price data
  3. From the Census Bureau, the IMI tracks single-family building permits

The home builder trade group compiles this data and, in order for a given metropolitan area to earn the label “improving”, the area must meet two specific growth conditions.

First, in a given city, each of the above data sets must show growth or expansion in the current calendar month. If one of the three do not show growth, the city cannot qualify.

Second, in a given city, at least six months must have passed since the most recent trough of all of the above metrics.  It’s this second clause that can make the Improving Market Index meaningful.

By focusing on long-term growth trends within a city, the IMI ignores “blips” and seasonal irregularities. 

The August IMI shows 80 improving markets nationwide, a 4-city decrease from July 2012. 5 new cities were added to the index including Miami, Florida; Terre Haute, Indiana; and Lubbock, Texas. Nine cities fell off the list.

Overall, 32 states are represented in the IMI, and the District of Columbia, too.

For today’s Phoenixville home buyers, the IMI doesn’t provide much actionable information. It doesn’t show home prices, for example, nor the current demand for homes. What it shows is the strength of local economies, though, and in many cases, as the economy heats up, so do home prices.

The complete Improving Markets Index is available for download at the NAHB website.

Case-Shiller Index Shows Home Values Rising Nationwide

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Case-Shiller Index May 2012

According to the S&P/Case-Shiller Index, home values rose 2.2% nationwide, with all 20 tracked markets making month-to-month improvement. On an annual basis, 17 of the 20 Case-Shiller Index markets improved.

Despite the positive report, however, our enthusiasm for the May Case-Shiller Index should be tempered. This is because the index’s methodology is less-than-ideal for today’s King of Prussia home buyer.

There are three main reasons why :

  1. The Case-Shiller Index tracks values for single-family homes only
  2. The Case-Shiller Index is distorted by distressed, discounted home sales 
  3. The Case-Shiller Index publishes on a 2-month lag

Perhaps even more important, though, is that the Case-Shiller Index ignores a basic tenet of the housing market — all real estate is local. It’s not possible for 20 cities to represent the U.S. housing market as a whole. Even more egregious is that the 20 markets tracked by the Case-Shiller Index don’t represent the country’s twenty most populated cities.

The Case-Shiller Index specifically excludes home sale data from Houston, Philadelphia, San Antonio and San Jose — four of the nation’s 10 most populated cities. Yet, the index does include data from cities such as Minneapolis, Minnesota and Tampa, Florida.

These two cities rank #48 and #55, respectively.

Furthermore, in its 20 tracked cities, the Case-Shiller Index still manages to fail as a reliable housing market barometer. This is because home values vary by zip code, by neighborhood, and by street, even. All 20 Case-Shiller Index cities showed gains in May, but there remains areas within each metropolitan area in which values outpaced the Case-Shiller Index findings, and areas in which values fell short.

The Case-Shiller Index provides broad, generalized housing market data and that works for an economist. For an active home buyer or seller, though, making smart real estate decisions requires having timely, relevant real estate data at-hand when it’s needed. 

For data like that, talk with a real estate agent.

Pending Home Sales Index Falls Just Short Of 100

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Pending Home Sales Index June 2012

Home sales appear headed for a mid-summer breather. 

One month after posting a multi-year high, the Pending Home Sales Index retreated to 99.3 in June — a strong reading in its own right.

A “pending home sale” is a home that is under contract to sell, but not yet sold. June’s value of 99.3 marks the 14th consecutive month during which the index showed year-to-year gains.

Last year in June, the index read 90.7.

For home buyers in King of Prussia and nationwide, the 14-month winning streak is one worth noting — specifically because the Pending Home Sales Index is different from the other housing market data that tends to make headlines.

Unlike the FHFA’s Home Price Index, for example; or the monthly New Home Sales data which both report on how housing performed in the past, the National Association of REALTORS®’ Pending Home Sales Index looks at how housing will perform in the future.

With high correlation, the Pending Home Sales Index predicts how Existing Home Sales will perform two months hence. This is because 80% of homes under contract convert to “closed sales” within 60 days of going into contract, and many of the rest convert within Months 3 and 4.

In addition, June’s near-100 reading is significant.

The Pending Home Sales Index is normalized to 100, a value which corresponds to the average home contract activity in 2001, the index’s first year of existence. 2001 was an historically-strong year for the housing market which means that June’s market action was also strong.

For today’s home buyers, the Pending Home Sales Index implies that the current market is somewhat “soft” as compared to May, a scenario which lends itself to buyer-friendly negotiations. Plus, with mortgage rates at all-time lows, home affordability has never been higher.

It’s an opportune time to buy a home. By next month, the market may look different.

New Home Sales Slow After Fast Start To 2012

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New Home Supply 2010-2012

The number of newly-built homes sold slipped 8 percent in June from the month prior, says the U.S. Census Bureau in its latest New Home Sales report. The June data shows 350,000 homes sold nationwide on a seasonally-adjusted, annualized basis.

The home sale tally fell short of Wall Street expectations but the Census Bureau revised higher its previously-released results for March, April and May by a collective 33,000 units. This left the June New Home Sales report as the weakest of the last five months, yet still stronger than the 21 months preceding February.

In other words, despite retreating from May, the June New Home Sales data was still quite strong. As compared to June of last year, sales of newly-built homes are higher by 15% and the national inventory of new homes for sale is down to 144,000 units.

This marks a 13 percent inventory reduction in just twelve months.

At the current sales pace nationwide, the complete stock of new homes would “sell out” in 4.9 months, a noteworthy data point because analysts believe that a 6.0-month supply of homes marks a market in balance. Home supplies of below 6.0 months suggest a “seller’s market” where sellers have pricing power and excess leverage in negotiations. 

Home supplies have been south of 6.0 months since October 2011. This is the same month that marked a shift with other housing data points, too, including Existing Home Sales and the Home Price Index.

Since October 2011, the average new home sale price is higher by 6% nationwide, a trend that should continue in King of Prussia through the end of 2012 and into 2013 — especially with mortgage rates at new all-time lows and home affordability at all-time highs. As more buyers enter the market amid limited supply, prices are expected to rise.

If you’re a home buyer in search of new construction, therefore, the best new home “deals” you may find may be the ones you find today.

Home Values Rise 0.8% In May 2012

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Home Price Index from peakThe housing market’s bottom is 9 months behind us. Home values continue to climb nationwide.

According to the Federal Home Finance Agency’s Home Price Index, home values rose 0.8% in May on a monthly, seasonally-adjusted basis. May’s reading marks the sixth time in seven months that home values rose.

Values are now higher by 4 percent since the market’s October 2011 bottom.

As a Collegeville home buyer or seller, though, it’s important to understand what the Home Price Index measures. Or, more specifically, what the Home Price Index doesn’t measure.

Although widely-cited, the HPI remains widely-flawed, too. It should not be your sole source for real estate data.

As one example of how the Home Price Index is flawed, consider that the HPI only tracks the values of homes with an associated Fannie Mae- or Freddie Mac-backed mortgages. Homes with mortgages insured by the FHA are excluded, as are homes paid for with cash.

5 years ago, this wasn’t a big deal; the FHA insured just 4 percent of the housing market and cash sales were relatively small. Today, though, the FHA is estimated to insure more than 30% of new purchases and cash sales topped 17 percent in May 2012.

That’s a sizable subset of the U.S. housing market.

A second flaw in the Home Price Index is that it tracks home resales only and ignores new home sales. New home sales represent roughly 10% of the today’s housing market, so that’s a second sizable subset excluded from the HPI.

And, lastly, we can’t forget that the Home Price Index is on a 60-day publishing delay.

It’s nearly August, yet we’re only now receiving home valuation data from May. A lot can change in the housing market in 60 days, and it often does. The HPI is not reporting on today’s market conditions, in other words — it’s reporting on conditions as they existed two months ago. Information like that is of little use to today’s buyers and sellers.

For local, up-to-the-minute housing market data, skip the national data. Talk with a local real estate agent instead.

Since peaking in April 2007, the FHFA’s Home Price Index is off 16.0 percent.

Existing Home Supply Ticks Higher To 6.6 Months Nationwide

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Existing Home Supply

Home resales slipped more than 5 percent last month, putting a damper recent housing market enthusiasm.

According to the National Association of REALTORS®, Existing Home Sales fell to 4.37 million units in June 2012 on a seasonally-adjusted, annualized basis. This is 250,000 fewer home sales per year as compared May’s figures which NAR has revised 2 percentage points higher.

The pace at which homes are selling has slowed, too. As compared to May, the Existing Home Supply rose 0.2 months. At the current pace of sales nationwide, the national home supply would now be exhausted in 6.6 months.

A home supply of 6.0 months is believed to mark a market in balance. There are currently 2.39 million homes for sale nationwide — the lowest total in 3 months and more than 24% below than the listed inventory at this point last year.

Other noteworthy statistics from the Existing Home Sales report include :

  • First-time buyers accounted for 32% of all purchasers in June, down from 34% in May
  • Real estate investors accounted for 19% of all purchasersin June, up from 17% in May
  • Cash buyers accounted for 29% of all purchasers in June, up from 28% in May

In addition, distressed sales as a percentage of all sales was unchanged in June as foreclosures sold for an average discount of 18 percent below market value. Short sales nationwide sold at an average 15 percent discount.

More on “distressed sales” : In June, distressed homes accounted for 25% of all home resales, the smallest percentage of homes sold with such status since the real estate trade group began tracking the data in 2008.

Despite falling home sales and rising home supplies, however, home resales are expected to return to growth in July. Last month’s Pending Home Sales Index spiked to a 2-year high, and 80% of homes under contract close within 60 days. This portends well for July’s Existing Home Sales data, due in 4 weeks.

Low mortgage rates and rising rents in Collegeville and in many U.S. cities continue to fuel the U.S. housing market. Home buyers should expect higher home prices ahead.

Singe-Family Housing Starts Rise For 4th Straight Month

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Housing StartsNew construction housing is in a post-recession rally.

As reported by the Census Bureau, on a seasonally-adjusted, annualized basis, last month’s Single-Family Housing Starts rose 5 percent to 539,000 units nationwide. This is the highest reading since April 2010, the last month of that year’s federal home buyer tax credit.

A “housing start” is a new home on which construction has started.

June’s strong numbers also mark the fourth consecutive month during which Single-Family Housing Starts have climbed. This, too, has not occurred since April 2010.

The data is yet one more signal to Collegeville home buyers that today’s new construction market has its worst days behind it.

Home builders think so, too.

Earlier this week, the National Association of Homebuilders released its monthly Housing Market Index, a metric which tracks homebuilder confidence. Home builders report higher sales levels and massive foot traffic as compared to just 12 months ago. They also expect second-half sales in 2012 to climb sharply.

It’s no wonder that home builder confidence rose to a 5-year high. Builders are building homes and buyers are buying them.

Today’s market for new homes has been spurred forward by low mortgage rates, but rising rents have played a part, too. In many parts of the country, a comparable home is less expensive to own than to rent, which creates an incentive for renters to buy homes instead.

The availability of low downpayment mortgage programs via the FHA and other government agencies helps as well.

It’s a good time to be home buyer. Mortgage rates are at all-time records, home prices remain low nationwide, and the real estate market is believed to be entering the beginning of a sustained, multi-year recovery.  

If you’re undecided about whether now is a good time to buy a new home, speak with your real estate agent. The cost of home ownership may never be as low as it is today.

Homebuilder Confidence Doubles In 12 Months

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NAHB Housing Market IndexHomebuilder confidence is soaring.

For the second time in three months, the National Association of Homebuilders reports that the Housing Market Index made sizable gains. 

The Housing Market Index measures homebuilder confidence in the new construction market and is scored between 1-100. Readings above 50 indicate favorable conditions in the single-family new home market. Readings below 50 indicate poor conditions.

The Housing Market Index leaped to 35 in July, a 6-point improvement and the index’s biggest one-month gain since September 2002.

The HMI is now up 14 points this year and is more than double its value of one year ago.

The Housing Market Index itself is a composite of three separate survey questions sent to NAHB members monthly. The questions are basic :

  1. How are market conditions for the sale of new homes today?
  2. How are market conditions for the sale of new homes in 6 months?
  3. How is prospective buyer foot traffic?

For July 2012, home builders reported huge gains. Current home sales are up 6 points; sales expectations for the next six months are up 11 points; and buyer foot traffic is up 6 points.

All three survey answers made 5-year highs. Not since 2007 has sales volume and foot traffic been as strong, and over the next 6 months, builders expect a blow-out finish to the year.

It’s no surprise, either.

Low mortgage rates throughout Pennsylvania have lowered monthly housing payments to levels below monthly rent for a comparable home. Plus, programs such as the FHA 3.5% downpayment program continue to help first-time buyers get in homes.

There is a downside to rising homebuilder confidence, however. When builders feel more comfortable about their business and the prospects for the future, they’re less likely to make sales concessions to to offer free upgrades. If you’re shopping for new construction, therefore, consider moving up your time frame.

Home affordability remains historically high today. It may not be so tomorrow.