Tuesday, March 29, 2016

Home prices are rising much faster than incomes

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The pace of home prices continue to rise driven in large part due to a lack of inventory. This keeps driving up prices as competition is fierce. With an improving labor market and low mortgage rates it's all about supply and demand. 

Home prices are rising much faster than incomes
Associated Press: Josh Boak  3/29/16

U.S. home prices climbed at more than double the rate of incomes in January, a trend that could ultimately create affordability challenges for buyers.

The Standard & Poor's/Case-Shiller 20-city home price index rose 5.7 percent from a year earlier, a slight increase from the 5.6 percent annual increase in December, according to a report Tuesday.

"The pace of U.S. home value growth has been picking up bit-by-bit over the past few months, driven in large part by stubbornly low inventory in most markets that creates competition and drives up prices for those homes that are available," said Svenja Gudell, chief economist at the real estate firm Zillow.

Home values have risen 2.6 times faster than average hourly wages, which have improved just 2.2 percent, according to a government report earlier this month. Tight supplies of homes on the market have fueled much of the price growth, as low mortgage rates and steady hiring have sparked demand.

Denver, Portland, San Francisco and Seattle each registered double-digit annual price increases. Home values rose in all 20 metro areas markets, which account for roughly half of the U.S. housing stock.

The index remains more than 11 percent below its mid-2006 peak, when subprime mortgages pushed the market to heights that triggered the Great Recession in late 2007.

Source: http://www.msn.com/en-us/money/realestate/home-prices-are-rising-much-faster-than-incomes/ar-BBr4Ac0?li=BBnbfcN

Monday, March 21, 2016

3 Reasons We're Not in a Housing Bubble

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The limited supply of homes not meeting demand is behind the latest home price increases. Even with home prices rising faster than wages the low mortgage rates have been the icing. We are facing an "above-normal home-price growth trend" and not a bubble but more a housing shortage.

3 Reasons We're Not in a Housing Bubble

Home prices are rising three to four times faster than wages while credit conditions are loosening, Lawrence Yun, chief economist for the National Association of REALTORS®, notes in his latest column at Forbes.com. These kinds of conditions usually prompt housing analysts to start uttering the words "housing bubble," but Yun discounts those warnings.

"Even though the credit conditions appear to be easing somewhat, the move is from overly stringent conditions to not-so-overly-stringent conditions," Yun writes. "It is a far-fetched view to imply the current mortgage approval process in any way resembles the loosey-goosey, easy subprime mortgage access conditions of a decade ago."

Indeed, mortgage credit scores are nowhere near where they were during the housing bubble. Today, scores are at about 740 to 750 compared to 710 to 720 during the housing crisis, according to Fannie Mae data. Also, the no-doc requirements for subprime mortgages of yesteryear are nearly gone today.
Yun also notes that while home prices are rising above wages, low mortgage rates have been a silver lining.

"For someone making a 20 percent down payment, the monthly mortgage payment at today's mortgage rates would take up 15 percent of a person's gross income," Yun writes. "During the bubble years, it was reaching 25 percent of income."

Finally, Yun says you can squash those bubble fears by just looking at the housing supply. Inventories are at about four to five months today, which is similar to the bubble years. However, sales aren't moving at the same pace. Existing-home sales and new-home sales combined were at 8.4 million back then. In 2015, combined home sales were 5.76 million — about one-third lower, Yun notes.
The limited supply of homes for sale is what mostly is behind the latest home-price increases, he says.

"We are not in a housing market bubble in terms of an inevitable impending home-price crash," Yun says. "Rather, we are facing an above-normal home-price growth trend, which admittedly is unhealthy on several levels because of the simple economic law of insufficient supply. We need more homebuilding."

Source: http://realtormag.realtor.org/daily-news/2016/03/16/3-reasons-were-not-in-housing-bubble#sf22673570