CoreLogic’s current HPI report for July 2014, released earlier this month, represents the 29th consecutive month that the Housing Price Index has shown positive year-over-year changes. The year-over-year increases have only recently dropped in to the single digits. Previously the year-over-year increases were consistently in the double-digits. Price increases like that cannot go on unabated before another bubble is reached. CoreLogic’s May 2014 HPI report showed a YoY increase of 8.8% and in June it fell to a 7.5% increase. The latest report for July stayed steady at 7.4%.
The Market is Responding to Consumer Buying Power
This is a good sign as far as I’m concerned. Double-digit price increases are nice but they can’t go on forever. What seems reasonable is a leveling off at an eventual 3 to 5% in annual increases. A number low enough that it doesn’t attract investors looking to make a quick buck but sturdy enough to reward the homebuyer that is willing to put some time and effort in to their investment. When homes are invested in, in this manner, it helps make our streets, communities, cities, and world a better place by rewarding someone for taking care of their piece of the world. This is the type of housing market that we should be striving for, otherwise we are just on our way to another bubble.
Indeed CoreLogic’s July HPI report predicts the YoY change from July 2014 to July 2015 will be 5.7%. With increases slowing like this it will hopefully give consumers a chance to catch up to the recent jumps in prices, which is exactly what the market should be responding to; consumers, not speculation. Let’s hope that is the case.
The 30-year fixed interest rate has been hovering around 4.3% for over a year and is only one percentage point higher than its all-time low of 3.3%. It does seem likely that eventual increases in the APR will become more of a detriment to buying power than any other factors. A quick look at the Buyer’s Purchasing Power chart and you’ll see how drastic the impact can be. A 1% increase in the mortgage rate drops the purchasing power of the same monthly payment by 10%. In the example below a $400k home would cost nearly $250 more per month if the lending rate increased by only 1%.
As of this publication the Federal Reserve interest rate for 30-year Fixed Mortgages is at 4.2%. A great rate that is less than 1% above the record low.
California Real Estate Remains Strong
The CoreLogic report shows that California real estate is still poised for growth. With a year-over-year increase of 10.5%, housing prices are not about to grind to a halt in the state. Even with the increases homes for sale in California have been experiencing over the last 2 years the market still remains 14.5% below the peak it reached in 2006.
If you are in a position to buy, you shouldn’t wait any longer. You may have missed the huge increases after the market rebounded but the predictions show that buying a home in California is still a good bet and if the economy continues to improve it is likely that interest increases will not be far off.
A whole slew of good indicators in two CoreLogic reports this past month as well as another key economic indicator. Whether the numbers were up or down the reports represent a return to a previous state of prosperity without all the speculation (hopefully).
The Numbers are In
The March 2014 CoreLogic Foreclosure Report indicates that 48,000 foreclosures were completed in March, this number is down 10% from a year before and has been slowly falling for several years. From 2000-2006 the average number of completed foreclosures was 21,000 per month.
Additionally, CoreLogic’s March 2014 Housing Price Index Report shows that home prices continue to climb with a 11.1% year-over-year increase from last March. This number has been dropping slowly over the past two years and the report predicts it will continue to drop. So let’s see what these ups and downs actually mean for the housing market.
Foreclosures and The Economy
Foreclosures are a reality of the housing market, they occur during times of prosperity and they occur more frequently during times of economic depression. Foreclosures happen for a variety of reasons. Divorce, loss of work, disability, or a medical burden can all lead to a family or individual no longer being able to pay their mortgage. However, the increase in foreclosures that we saw due to the housing market crash of 2008 was by no means typical.
In the early 2000’s home values were increasing at a frenzied pace and everyone wanted a piece of the action. Many lenders and loan officers were approving borrowers for loans they couldn’t actually afford, often with Adjustable Rate Mortgages. When these borrowers began to default on their mortgages en masse in 2006, the financial institutions that owned the mortgages began to lose money at a cataclysmic rate. Thus began the snowball effect that knocked the economy in to state of recession and depression that we’ve been living in for the past six years. Consumers were losing their jobs left and right and the number of foreclosures began to skyrocket while the housing market lost value at an alarming rate.
A quick glance at the Case-Schiller Housing Price Index historical data shows how drastic the increase and ensuing descent in home values was compared to the previous 80 years. In a word, it was unprecedented.
Returning to the norm
We’ve been living in a period of Economic Extremes for so long now that it’s hard to tell what a healthy or “normal” housing market looks like any more. Indeed, over the past decade the housing market has been anything but “normal.” However, these reports as well as another key economic indicator (I’ll get to that shortly) are hopeful signs that we are returning to a period of healthy growth in the housing market. Like the market that existed before this recent period of unbridled price increases and outlandish speculation.
You can see how far we’ve come in returning to a healthy housing market, a housing market that isn’t played like the stock market and that represents home prices that buyers can actually afford.
The fact that the growth in home prices is beginning to slow shows that progress. The past 24 months have seen consecutive increases in the HPI at a national rate of around 13% per year. By no means a sustainable rate. But the rapid increase in prices over the past two years had more to do with how far the market had fallen in value due to the Crash. Now that prices have rebounded significantly from the losses, the market is likely to slow the increase in home prices to a more sustainable rate.
CoreLogic’s prediction of a 6.7% HPI increase in the coming year is a good indicator of this. A market where the value of homes has more to do with median incomes than with speculation that previously strong increases in home prices will allow homebuyers to “get rich quick.”
Finally, the U.S. Bureau of Labor Statistics reports the Unemployment Rate fell to 6.3% in April 2014, the lowest it has been since September 2008. Just before the Crash this number was down to 4.7%, a historic low. So taken together, more Americans are employed, making their mortgage payments, and watching the equity in their homes increase their net worth. That sounds like good news to me.
The value of homes in our economy, society, and our daily lives transcends mere monetary value. The act of taking care of a part of the world for an indefinite period of time has the power to enrich our lives, our communities, and our nation. The value of putting time and effort in to a worthwhile and empowering task as opposed to the expectation that simply holding on to a home for a year will net a significant profit when sold in a booming market. A “normal” housing market is one that favors long-term care over short-sighted profit motivations. We’ll be keeping an eye on the numbers in the hopes that this is what we are truly seeing happen.
The national housing market continues to show signs of improvement but there’s plenty more progress to be made. Due to progressive foreclosure laws in our state, the California real estate market is way ahead of the curve, the foreclosure report shows. The state has made great headway in recovering from the crash with foreclosure numbers that are among the lowest in the nation.
The January 2014 CoreLogic National Foreclosure Report shows promise for continued improvement in the housing market in 2014.
The report states that 48,000 foreclosures were completed in January, a number that is down 19% from the previous 12 months and down a whopping 11.8% from December. That month-to-month drop is indeed significant and is an excellent forecast of the progress that still needs to be made. Before the housing market crash the number of monthly foreclosures was around 21,000. So even with these strong decreases we still have a ways to go before we return to an equilibrium. So January’s numbers still need to see a 50% drop before we begin to reach the stats from the pre-bubble days but the month-over-month change is a good indicator of the nation’s continued momentum toward that goal.
Judicial Foreclosure States are Slowing the Nation’s Recovery
The numbers also show that states requiring Judicial Foreclosure are seriously lagging behind the states that offer non-Judicial Foreclosure. The simple difference here is that Judicial Foreclosure requires the lender to sue the borrower in state court before proceeding with the auction of the property. This process costs the lenders more money than in Non-Judicial states and takes significantly longer. This has caused a foreclosure backlog in the Judicial Foreclosure states and is seriously hindering the recovery process in those states. The CoreLogic Foreclosure Report shows that, on average, the Judicial Foreclosure states have higher Foreclosure Inventory Rates and Serious Delinquency Rates than the Non-Judicial states mainly because they are so back logged that they are two to three years behind the Non-Judicial states.
As a Non-Judicial Foreclosure state, California is bucking the national trend with a Foreclosure Inventory Rate and Seriously Delinquent Rate that are among the lowest in the nation.
California seems poised for solid housing price growth in 2014 with one of the lowest foreclosure inventories in the nation and one of the strongest housing price indexes as well.