TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/1285919
56 | M REPORT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST DATA Shrinking Home Inventories, Rising Values How long can the market sustain the rapid pace of home-value acceleration? New data suggests things could be cooling off soon. J uly 2020 continued to be a sellers' market thanks to an evaporating inventory and a surplus number of buy- ers, according to the latest Zil- low Real Estate Market Report. Last month, Zillow found the average home value was $253,527 in July, a 4.5% increase from one year earlier and the fastest year-over-year spike since May 2019. From June to July, home value growth inched up from 0.4% to 0.48%, which Zillow declared to be greatest one-month acceleration since May 2012. Annual home value growth increased from June to July 42 of the nation's 50 largest metro areas, most notably in San Jose (up by 2.1%) and the Connecticut capital of Hartford (up 0.8%). On a monthly measurement, home val- ues were up in all 50 metro areas. Homes sold in July typically went under contract after only 16 days, two days faster than the previ- ous monthly speed record set in January 2018. Low inventory levels were the primary cause for the rising home prices. Zillow determined housing inventory down 28.4% from last year for the week ending Aug. 15, with 409,029 fewer homes listed on the market versus one year ago. The year-over-year inven- tory shrinkage impacted all of the 50 largest metros, and down the most in Riverside (-46.5%), Baltimore (-43.8%) and Hartford (-43.1%). Looking forward, Zillow is forecasting that home value ap- preciation will slow to 3.6% over the next 12 months, although the short-term growth is expected to be more positive than the long-term picture. In the short term, the updated forecast is now more optimistic toward continued home value growth than previous releases. "This spring's housing soft patch is receding in the rear-view mirror as we get a clear picture of robust demand meeting remarkably low supply," Zillow economist Jeff Tucker said. "Record-low mortgage rates and a record-high number of people in their early 30s are combining to fuel first-time buyer demand. Builders, acting on un- precedented confidence, are racing to meet demand, but supply re- mains well behind what's needed. This lack of inventory, along with forbearance terms keeping unemployed homeowners in their homes, stands in stark contrast to the Great Recession, when excess supply and distressed sales brought down home values." Zillow predicted home value appreciation will slow to 3.6% over the next 12 months, although the short-term picture will be more optimistic than the long-term forecast. "While the housing market has so far sailed through the head- wind of high unemployment, risks remain," Tucker said. "A slow economic recovery that keeps millions of Americans looking for work could dampen home buying demand and may even lead to a wave of foreclosures when forbear- ance expires. This pessimistic pos- sible outcome for 2021 has caused Zillow's price forecast to shade down a bit." On the rental side of housing, Zillow noted year-over-year rent growth continued to slow, with the typical rent up 1.2% to $1,749. Rents were down in nine of top 50 markets from one year ago, most notably in New York City (-2.6%), San Francisco (-2.5%), and San Jose (-2.2%). New-Construction Sales Reach Pre-Pandemic Level Sales of new homes seem to be outpacing those of existing homes. A ccording to a recent Redfin report, the housing market is on the mend. The report revealed that the sales of new- construction homes rose 10% (year over year) during this past month of July, bringing sales levels right up to rival those of pre-coronavirus sales levels. Experts attribute this uptick in the increase in American home- building that occurred before the pandemic, which they say is now the catalyst driving the rise in new-home sales. Also, key factors in the uptick, according to experts? Housing migration patterns that find more and more people mov- ing to the suburbs and rural areas, as well as historically low mort- gage rates in the market today. As for existing homes, those numbers rose far less (5.3%). Also highlighted in the report includes news regarding the sup- ply of new-construction homes for sale, which was revealed to have decreased 28.4%. This drop is the greatest dip experienced on the market in more than 7 years (since 2013 at least). But even more of a drastic drop was that of the inventory in existing homes in July, which hit a record decline of 37%. Thanks to this pretty severe shortage, newly built homes now represent 1 out of every 5 houses for sale in America. This is the first time in history that newly built homes have enjoyed such a large portion of the for-sale market. Redfin Senior Economist Sheharyar Bokhari commented on this tightening of supply: "The shortage of both new and exist- ing homes is intensifying across America right now as record-low mortgage rates drive more demand, but the shortage of new homes is less severe due to a surge in con- struction right before the pandemic." Bokhari added: "As a result, sales of new homes are growing faster than sales of existing homes. Sales of new homes are also on the rise because the coronavirus pandemic is fueling interest in the suburbs—where there tends to be more space to build new homes."