Current State of the Housing Market; Overview for mid-August
On Friday, in Part 1: Current State of the Housing Market; Overview for mid-August I reviewed home inventory and sales.
Reported YoY house price growth remained negative in May, with the Case-Shiller National Index down 0.5%.
The MoM increase in the seasonally adjusted Case-Shiller National Index was at 0.74%. This was the fourth consecutive MoM increase following seven straight MoM decreases.
Most measures of house prices have shown an increase in prices over the last several months, and a key question is Will house prices decline further later this year?
Other measures of house prices suggest prices will be up YoY soon in the Case-Shiller index. The NAR reported median prices were down 0.9% YoY in June, smaller than the 3.0% YoY decline in May. Black Knight reported prices were up 0.8% YoY in June to new all-time highs, and Freddie Mac reported house prices were up 1.7% YoY in June, up from 0.8% in May.
Here is a comparison of year-over-year change in the FMHPI, median house prices from the NAR, and the Case-Shiller National index.
Asking rents are down YoY, and with new supply coming on the market, we will likely see further declines in asking rents.
Last week, the BLS noted in the CPI report: “The index for shelter was by far the largest contributor to the monthly all items increase, accounting for over 90 percent of the increase, with the index for motor vehicle insurance also contributing.”.
This is important for housing and also for monetary policy. Fed Chair Powell mentioned he was watching services less rent of shelter earlier this year when this measure was up 7.6% year-over-year. This has fallen sharply and is now up 3.3% YoY.
Mortgage Delinquencies Lowest on Record
Last week, the Mortgage Bankers Association (MBA) reported that mortgage delinquencies were at the lowest level on record.
“The seasonally-adjusted mortgage delinquency rate fell to its lowest level since MBA’s survey began in 1979, reaching 3.37 percent in the second quarter of 2023,” said Marina Walsh, CMB, MBA’s Vice President of Industry Analysis.
This graph shows the percent of loans delinquent by days past due. Overall delinquencies decreased in Q2.
I’ve argued that there would not be a huge wave of single-family foreclosures this cycle since lending standards have been solid and most homeowners have substantial equity. That means we will not see cascading price declines like following the housing bubble. This is a high confidence prediction and is supported by the following data.
The next graph shows Mortgage Originations by Credit Score from the NY Fed Q2 Quarterly Report on Household Debt and Credit since 2003. Unlike during the housing bubble, most recent borrowers had solid credit scores.
We have seen a significant year-over-year decline in new and existing home sales, although it is likely that new home sales activity has bottomed. With the recent increase in mortgage rates, we might see further declines in existing home sales.
House prices are under pressure due to higher mortgage rates, but prices are being supported by low levels of inventory. See: House Price Battle Royale: Low Inventory vs Affordability.
Existing home sales will likely be down less year-over-year NSA in July compared to June, however early local market data suggests sales seasonally adjusted will be close to the 4.16 million SAAR in June.