Morning Report: High end home prices soar

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S&P futures4,2078.8
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10 year government bond yield 1.60%
30 year fixed rate mortgage 3.15%

Stocks are flattish this morning on no real news. Bonds and MBS are up small.

Mortgage applications fell 4% last week as purchases fell 3% and refis fell 5%. “Tight housing inventory, obstacles to a faster rate of new construction and rapidly rising home prices continue to hold back purchase activity,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “ The government purchase index declined to its lowest level in over a year and has now decreased year-over-year for five straight weeks. Purchase applications were down almost 2 percent from a year ago, but that was compared to the week of Memorial Day 2020.”

Loans in forbearance fell 1% last week to 4.18%, according to the MBA. “The share of loans in forbearance slightly declined, dropping by only 1 basis point, due to a slower pace of forbearance exits,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “Forbearance re-entries increased to almost 5.6 percent, as more homeowners who had canceled forbearance needed assistance again. There was also an increase in the share of PLS and portfolio loans in forbearance, while the share for Fannie Mae, Freddie Mac and Ginnie Mae loans decreased.”

In a bit of a post-bubble reversal, the highest-priced homes are seeing the biggest price appreciation. Up until very recently, high priced homes languished on the market, as there was little demand for anything over $1.5 million except for a few metros on the West Coast. Now, luxury properties in places like Austin, San Diego, and Phoenix are are seeing price appreciation approaching 20%.

“In the high-end market, we’re not only seeing multiple offers—we’re seeing buyers waiving appraisal and inspection contingencies, which doesn’t normally happen,” said Vincent Shook, a Redfin real estate agent in Phoenix. “The biggest driver is the influx of people from California. Still, competition remains toughest for buyers of affordable and mid-priced homes.”

Shook continued: “Some buyers with more modest budgets are coming to me and saying, ‘I want a four-bedroom home and here’s my maximum price.’ I’ve had conversations where I’ve had to be brutally honest and tell them that home literally does not exist anymore. It existed eight months ago when they started looking, but they wanted to wait in hopes that prices would come down. Prices didn’t come down, and now they’re priced out of the market.”

The Biden Administration has unveiled a home rehab tax credit, which is targeted towards low-and-median income borrowers. The idea is to encourage rehabbing of older homes. The buyer must make no more than 140% of the area median income, and will apply to only 1 in 4 census tracts, and the final sale price of the home cannot exceed four times the area median income.

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