Current real estate Market Conditions impacting home values

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Market Conditions Comments - Greater Spokane Area

Updated 02/18/2019


365 closed sales of single family homes on less than one acre, including condominiums were reported for January

2019. This number is down 21.7% from January 2018. However, in January 2018 a record number of closed sales

were reported for a January. The average sales price for this January was $255,850 up 14% from last January when

the average price was $224,463. The median closed sales price was $235,000, up 12.7% from the median price in

January last year, which was $208,500. These numbers reflect year to date totals.


Inventory remains very low and is having a significant impact on the number of sales and the average and median

prices. As of this report 841 properties are on the market. This is down 11.1% from last year when 946 properties

were on the market. New construction closed sales totaled 50 for January, down four sales from January 2018.


Source: Spokane Association of Realtors

Market Conditions Comments - National Level

Updated 02/18/2019


The National Association of Realtors reported existing homes sales plunged in December 2018 with a 6.4 percent decline.  Lawrence Yun, chief economist of the National Association of Realtors was quick to remind home buyers that economic conditions in December of 2018 have changed significantly for January of 2019.  "The latest decline is harder to explain. Perhaps it is the decline in consumer confidence that's been occurring in the latter half of 2018," said Yun, "The latest numbers do not reflect the lower, current mortgage rates compared to the November figures, so it's really harder to explain."  Mr. Yun also pointed out the near 20 percent drop in stock prices could be negatively impacting potential homebuyer sentiment.  Since January experienced a rebound in stock prices and lower interest rates, housing affordability concerns and stock market volatility could subside in the coming months.  Fannie Mae's January National Housing Survey showed a similar outlook with favorable responses in personal financial situations.  As a result, the Home Purchase Sentiment Index (HPSI) increased 1.2 point to 84.7, taking back some of the 2.3 points it shed in December.  The improvement was driven by an 8-point increase in the net share of respondents reporting higher income than 12 months earlier. This was partially offset by a 6-point decline in the net percentage of those who said they were not concerned about losing their job.


Consumer confidence continued to decline to its lowest reading in a year and a half, tested by the partial government shutdown and roiling financial markets.  "Consumer Confidence declined in January, following a decrease in December," said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. "The Present Situation Index was virtually unchanged, suggesting economic conditions remain favorable. Expectations, however, declined sharply as financial market volatility and the government shutdown appear to have impacted consumers. Shock events such as government shutdowns tend to have sharp, but temporary, impacts on consumer confidence. Thus, it appears that this month’s decline is more the result of a temporary shock than a precursor to a significant slowdown in the coming months."


Homebuilder confidence in the market of new single-family homes stabilized in the month of January, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index.  “The gradual decline in mortgage rates in recent weeks helped to sustain builder sentiment,” NAHB Chairman Randy Noel said. “Low unemployment, solid job growth and favorable demographics should support housing demand in the coming months.”


Personal consumer debt continued to be a concern as the United States national debt reached $22 Trillion dollars in February of 2019. Reuters reported the following:


“Some red flags emerged for the U.S. economy late last year as credit card inquiries fell, student-loan delinquencies remained high and riskier borrowers drove home automobiles, according to a report that could signal a downturn is on the horizon.  The U.S. household debt and credit report, published by the Federal Reserve Bank of New York, showed that the overall debt shouldered by Americans edged up to a record $13.5 trillion in the fourth quarter of 2018. It has risen consistently since 2013, when debt bottomed out after the last recession.


While mortgage debt, by far the largest slice, slipped for the first time in two years, other forms of borrowing rose including that of credit cards, which at $870 billion matched its pre-crisis peak in 2008.  Serious-delinquency flows, a warning bell for economists because they can prelude defaults, spiked in the third quarter for student debt and remained there in the fourth quarter, with 9.1 percent of the $1.5-trillion total debt seriously delinquent. 


These flows have also been rising since 2012 for auto loans, which rose slightly to total $1.3 trillion by the end of 2018, a year that had the highest number of auto loan originations since at least 1999.


New York Fed economists said that while creditworthy borrowers are mostly driving the growth in originations, the performance of auto debt is worsening.”


Concerns with auto loan delinquencies were also highlighted in a recent article from CNBC.   The article states, “More than 7 million Americans are 90 days or more behind on their vehicle loans as of the end of 2018, according to data released Tuesday by the New York Federal Reserve. That's more than 1 million higher than the peak in 2010 as the country was recovering from its worst downturn since the Great Depression.  "The substantial and growing number of distressed borrowers suggests that not all Americans have benefited from the strong labor market and warrants continued monitoring and analysis of this sector.”


The surge in delinquencies came along with a $584 billion jump in total auto loan debt, the highest increase since the New York Fed began keeping track 19 years ago.


Source: Crawford Report February 2018

Homeownership Rate

Vacancy rates have a direct impact on gross rent multipliers (GRMs) as well as the development of capitalization rates.  Effective gross income and net operating income of real property are also impacted by vacancy rates and are considered in risk assessment analysis by income producing property investors.


Homeownership Rate: (The following information is from the 3rd Quarter 2018.)


The United States Census Bureau reported the following information for the third quarter:

Homeownership Rate 64.4% Up from 64.3% during the 2nd Quarter

Homeowner Vacancy Rate 1.6% Up from 1.5% during the 2nd Quarter

Rental Vacancy Rate 7.1% Up from 6.8% during the 2nd Quarter


Source: United States Census Bureau

National Unemployment Numbers

The Bureau of Labor Statistics reported the national unemployment rate in October was 3.7 percent.


Labor Force Statistics from the Current Population Survey

Age: 16 years and over


Years: 2014 to 2018

             Jan...                           June...                                   Dec...

2014      6.6    6.7    6.7    6.2    6.2    6.1    6.2    6.2    6.0    5.7    5.8    5.6

2015      5.7    5.5    5.5    5.4    5.5    5.3    5.3    5.1    5.1    5.0    5.0    5.0

2016      4.9    4.9    5.0    5.0    4.7    4.9    4.9    4.9    5.0    4.9    4.6    4.7

2017      4.8    4.7    4.5    4.4    4.3    4.4    4.3    4.4    4.2    4.1    4.1    4.1

2018      4.1    4.1    4.1    3.9    3.8    4.0    3.9    3.9    3.7    3.7    3.7    3.9

2019      4.0


Source: Bureau of Labor Statistics (www.bls.gov)

Interest Rates

Over the past year, increasing interest rates were the topic and concern of many of the nation’s economists and housing experts.  The Federal Reserve implemented an “unwinding” policy that would have significant effects on worldwide markets and draw sharp criticism from market participants including the National Association of Realtors and the President of the United States.  The Fed raised interest rates four times in 2018 with the latest rate increase taking place in December.  With so many concerns over increasing borrowing costs, housing affordability and inverting yield curves, the Federal Reserve appeared to have “applied the brakes” for 2019.


Fed chairman Jerome Powell stated the central bank can be more patient when it comes to future rate hikes and they are willing to take a “wait and see” approach to the economy as low inflation reports and increasing job numbers show a stable outlook.  Powell also stated that the Fed would continue allowing it’s nearly $4 trillion portfolio of bonds to shrink each month, to a level substantially smaller than it is now. These automatic monthly reductions have been criticized by some as a steady tightening of financial conditions which could lead to liquidity issues.  When asked about rate increases for 2019, Chairman Powell said, “There is no pre-set path for rates …particularly now.” If global growth slows more, “I can assure you ... we can flexibly and quickly move policy, and we can do so significantly if that’s appropriate,” he added.


The 10- year treasury yield continued to decline in January and ended the month at 2.64 percent which gave potential home buyers lower and more favorable mortgage rates.   


Interest rates were still considered to be near historically low levels.  Strict loan qualifications were found to be required for most conventional loans. FHA guidelines were found to be positioned to allow more leniency.


Sources:

Crawford Report February 2019

Today's Interest Rates

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