Morning Report: Home Price Appreciation is on fire

Vital Statistics:

S&P futures4,20713.8
Oil (WTI)66.64-0.37
10 year government bond yield 1.60%
30 year fixed rate mortgage 3.15%

Stocks are higher this morning after dovish comments from Fed officials yesterday. Bonds and MBS are up small.

New Home sales fell 5.9% MOM, but are up 48% on a YOY basis according to Census. The seasonally-adjusted annual rate came in at 863,000. At the end of April, there were 316,000 houses for sale, which represents a 4.4 month supply at the current pace. The median home price rose just under 5% to 336,900. This number is a surprise given the rising price of lumber and the increases in existing home prices.

Loans in forbearance fell 3 basis points to 4.19% last week, according to the MBA. “The decline was smaller than the prior week due to a slower pace of forbearance exits,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “Although the overall share is declining, there was another increase in forbearance re-entries. Currently, 5.3 percent of loans in forbearance are homeowners who had canceled forbearance but needed assistance again.”

House prices rose 12.6% in the first quarter on a year-over-year basis according to the FHFA House Price Index. “House price growth over the prior year clocked in at more than twice the rate of growth observed in the first quarter of 2020, just before the effects of the pandemic were felt in housing markets,” said Dr. Lynn Fisher, Deputy Director of FHFA’s Division of Research and Statistics. “In March, rates of appreciation continued to climb, exceeding 15 percent over the year in the Pacific, Mountain and New England census divisions.”

These growth rates are staggering, although I would be careful putting too much stock into them as lockdowns from a year ago are probably introducing some noise into the data.

The Case-Shiller Home Price Index reported that prices rose 13.2% in March. Phoenix home prices were up 20%, while San Diego was 19% and Seattle was 18%.

With such rapid price appreciation, buyers are competing with each other for property. Non-contingent bids (especially cash offers) are one way to do that. According to the NAR, cash bids are now 25% of purchases. The difficulty of getting FHA and VA loans means that these buyers are at a disadvantage.

Consumer confidence was essentially unchanged in May, according to the Conference Board. “After rebounding sharply in recent months, U.S. consumer confidence was essentially unchanged in May,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Consumers’ assessment of present-day conditions improved, suggesting economic growth remains robust in Q2. However, consumers’ short-term optimism retreated, prompted by expectations of decelerating growth and softening labor market conditions in the months ahead. Consumers were also less upbeat this month about their income prospects—a reflection, perhaps, of both rising inflation expectations and a waning of further government support until expanded Child Tax Credit payments begin reaching parents in July. Overall, consumers remain optimistic, and confidence should remain resilient in the short term, as vaccination rates climb, COVID-19 cases decline further, and the economy fully reopens.”

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