Real Estate News in Brief
News in the property sector continues to be ‘infectious’, with a positive MoM reading for December pending sales the latest sign that housing activity is bottoming.
The ISM Manufacturing PMI dropped by 1% to 47.4% in January, the third consecutive month of contraction (<50%), and the lowest figure since the 43.5% posted in May 2020 (COVID).
Core PCE inflation (ex-food & fuel) eased further to +4.4% YoY in December (was 4.7% YoY in November). The headline figure dropped to +5.0% YoY, the smallest increase in 15 months. In June 2022, the headline CPE was +7.0% YoY [see graph below].
Despite clear signs that price pressure is ebbing, the Fed lifted its policy rate by +25 bps (a further downshift from +50 bps in December 2022) and signaled further hikes ahead. But Fed Chair Powell didn’t “talk tough” on inflation as much as he had in previous press conferences.
And that was all the bond market needed for a mini-rally. As a result, the average 30-yr fixed-rate mortgage moved lower — now tantalizingly close to 6%.
After falling for six months, pending home sales rebounded in December, rising +2.5% MoM. While that’s another sign that housing activity may be bottoming, keep in mind that contract signings were still down 34% YoY!
The Case-Shiller home price index saw the prices of comparable SFHs nationwide decline by 0.3% MoM (but still up 7.7% YoY). That’s the fifth straight month of MoM decreases, but national prices are down only 2.5% from their peak.
Similarly, the FHFA home price index crept lower by 0.1% MoM, but remains up 8.2% YoY. Prices were down 1.1% MoM in the Pacific division (CA/OR/WA) but up 0.5% MoM in the West North Central division (ND/NE/MI/MO etc).
NAR’s Pending Sales for December
Pending sales had been falling — you could even say plunging — since late 2021. Over the course of 2022, NAR’s Pending Home Sales Index dropped 34%! Only once, in May 2022, did pending sales move up MoM — and that was an insignificant +0.4%.
The December 2022 increase was different for two reasons:
1) It was a significant +2.5% MoM
2) It coincided with a fall in mortgage rates and a rise in buyer and builder sentiment
Things are feeling more and more ‘infectious’ as spring approaches.
Here’s what NAR Chief Economist Lawrence Yun had to say: “This recent low point in home sales activity is likely over. Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market.”
Case-Shiller Indices for December
The headlines talked about 5 months of falling prices — which is true — but let’s put that in perspective:
- The Case-Shiller National price index fell 0.3% MoM, but is still up 7.7% YoY.
- The National price index is down only 2.5% from its peak in June 2022.
- The Composite-20 [big city] index is down only 4.1% from its peak in June 2022.
- Seattle (-13.5%) and San Francisco (-11.9%) peaked in May and are down the most among the big cities. San Francisco is the only index that is now down (slightly) YoY.
- Even with these declines in 2022, the individual city indices are up between 26.7% (Washington D.C.) to 64.4% (Tampa Bay) since end-2019!
This is far from a crash. These are amazing 3-year returns. And with mortgage rates and prices trending down, affordability is improving quickly (while inventories remain low).
NOTE: The Case-Shiller indices are very accurate measures of home price appreciation because they track the sales prices of very similar homes. (In other words, the results aren’t skewed by the ‘mix’ of high-end and low-end homes sold.) But that accuracy comes at a cost…the data is 2 months old by the time we get it.
Since the previous Fed rate hike (+50 bps in December 2022), the data has consistently pointed to:
- Easing inflation (CPI, PCE)
- Rising recession risks (ISM, Leading Indicators, Inverted Yield Curve)
- Modestly falling home prices (NAR, Case-Shiller, FHFA), and
- A nascent recovery in buyer activity levels (Pending Sales) and confidence (NAHB, Fannie Mae)
The average 30-yr mortgage rate had a big move downward to start January 2023. But up until yesterday, it had been stuck in a range of 6.10–6.20%. That changed after the Fed press conference. The bond market was heartened by: 1) Fed acknowledgement that inflation was easing, and 2) the absence of “tough talk” from Fed Chair Jerome Powell regarding the scale of future rate hikes.
The bond market rallied (prices went up). And when prices go up, yields go down (inverse relationship). As a result, average 30-yr fixed-rate mortgages are now very close to 6%.
They Said It
“We’ve never had a period where home prices have declined and there has not been a recession.” — Robert Dietz, NAHB Chief Economist
“While demand is coming back in some pockets of the country, it’s selective: homes that are eliciting bidding wars tend to be affordable, suburban, single-family, move-in ready and most importantly, priced competitively. Most everything else is sitting.” — Redfin article (Jan 25, 2023)
“U.S. house prices were largely unchanged in the last four months and remained near the peak levels reached over the summer of 2022. While higher mortgage rates have suppressed demand, low inventories of homes for sale have helped maintain relatively flat house prices.” — Nataliya Polkovnichenko, FHFA Economist
If you want to get started in the process contact The Wagner Team, we can answer any of your questions. We will be happy to. “A Higher Standard of Real Estate”