MReport April 2017

TheMReport — News and strategies for the evolving mortgage marketplace.

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54 | TH E M R EP O RT 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 Homebuying Interest Highest Since Great Recession Despite strong homebuying interest, pending home sales slipped early this year as homebuyers face supply shortages in much of the country. P ending home sales in January dipped to their lowest level in a year, the National Association of Realtors (NAR) reported at the end of February. This is deemed to be the result of limited inventory. In January, prospective home - owners faced numerous obstacles in their quest to buy a home, Lawrence Yun, NAR Chief Economist, said. "The significant shortage of listings last month along with deteriorating affordability as the result of higher home prices and mortgage rates kept many would-be buyers at bay," he said. In February, available homes sold at a much faster rate than a year ago, he said. "Buyer traffic is easily outpacing seller traffic in several metro areas, In the West, it's not uncommon to see a home come off the market within a month." Yun's comments are based on the Pending Home Sales Index (PSHI), a forward-looking indica - tor based on contract signings. A sale is listed as pending when the contract has been signed, but the transaction has not closed, though the sale usually is finalized within one or two months of signing. This index showed that signings decreased 2.8 percent to 106.4 in January from an upwardly revised 109.5 in December 2016. Although January's index reading is 0.4 per - cent above the previous January, it is the lowest since then. Although interest in buying a home is the highest it has been since the Great Recession and home shoppers are feeling more confident about their financial situations, they are dealing with challenging supply shortages in many areas, resulting in higher prices. However, Yun pointed out that since job growth is strong in most of the country and the stock market has seen record gains in recent months, he thinks that these factors bode favorably for increased sales in coming months, "January's accelerated price appreciation is concerning because it's more than double the pace of income growth, and mortgage rates are up considerably from six months ago," Yun said. "Especially in the most expensive markets, prospective buyers will feel this squeeze to their budget and will likely have to come up with ad - ditional savings or compromise on home size or location." "Sales got off to a fantastic start in January, but last month's retreat in contract signings indicates that activity will likely be choppy in coming months as buyers compete for the meager number of listings in their price range," Yun added. The PHSI in the Northeast rose 2.3 percent to 98.7 in January and is now 3.6 percent above a year ago. In the Midwest, the index fell 5.0 percent to 99.5 in January and is now 3.8 percent lower than in January 2016. Pending home sales in the South inched 0.4 percent higher to an index of 122.5 in January and are now 2.0 percent above last January. The index in the West dropped 9.8 percent in January to 94.6 and is now 0.4 percent lower than a year ago. Rising Rates Detrimental to Affordability Declining affordability and rising interest rates will eventually take a toll on home price appreciation. A ccording to the Q 4 2016 Housing Afford- ability report from Zillow released in mid-February, mortgage rates and home values are show- ing substantial growth, causing homeowners to put more of their monthly income toward their mortgage payments and affordability to decline. Dr. Svenja Gudell, Chief Economist at Zillow, stated that homebuyers could expect monthly mortgage costs of $758, or 15.8 percent of the median household's monthly income at the end of 2016, which is a 14.7 percent increase from Q 4 2015. "The share of income needed to afford a typical home is still low relative to both the housing bubble years and more normal times when the typical house - hold would need to spend 20 to 25 percent of their income on a mortgage, but it's quickly wors- ening," she said. Unfortunately, rising interest rates coupled with home value growth are bound to make hous- ing less affordable. And while mortgages remain cost efficient as growth in housing cost con- tinues to increase wages, afford- ability continues to deteriorate. The growth in mortgage pay- ments are driven by two factors: the Federal Reserve rate hike in Q 4 and fast home price appreci- ation. The report stated that the average home appreciated 1.9 per- cent during Q 4 of 2016, which is considered the fastest quarterly growth on record since the start of the housing recovery in 2012. Just how long this upward trend might last is still a topic of discussion, but in the future, rising mortgage rates will start impacting home value as afford - ability continues to decrease.

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