Weekend Talking Points - 'Pending'

With mortgage rates down sharply in the last 5 months, the volume of refinancing is already up big. But we have yet to see those lower rates translate to increased homebuyer demand.

Case-Shiller: Price growth decelerates. In July, Case-Shiller’s national home price index rose 0.18% month-over-month (the same as in June) to a new record, but year-over-year growth slowed to +4.9% (from +5.4% YoY in June). Over the last 3 months, the national index has risen just 0.6%, which annualizes to 2.5%. [S&P Global DJI]

TP: Price growth was always going to decelerate after 47% cumulative growth in the Case-Shiller index during 2020–2023. This isn’t something ominous. What I find most interesting is the huge divergence in price action between places like Los Angeles & Seattle (recovering quickly) and Portland & Phoenix (two years later, still “stuck” below their 2022 peaks). [More on this later.]

FHFA: Yeah, I see the same thing. FHFA’s national home price index rose 0.1% MoM in June (+4.5% YoY). Technically, that’s an acceleration from FLAT prices in June. But practically, the FHFA index has plateaued for the last 5 months. [FHFA]

New home sales were actually pretty solid. Which should you focus on, the 4% MoM drop in new home sales in August, or the 10% YoY gain? The answer is actually pretty simple: since the July figure was very very strong, a MoM drop was to be expected. The annualized sales of 716K units in August were solid. Nowhere near enough to address the housing shortage, but still solid. [Census Bureau]

TP: The median new home sales price of $420,000 in August was down 5% YoY. So are prices really falling that quickly? No. This is a “mix” issue, with 64% of the new home sales happening in the lower-priced South region, and 69% of all sales being priced below $500K (that figure was 58% in August 2023).

Pending sales disappointed. The NAR’s Pending Home Sales Index (which measures signed contracts for existing homes) rose 0.6% MoM in August to 70.6. While it’s nice to see some growth, I expected a much stronger number. Mortgage rates have fallen 130 bps (1.3%) in the last 5 months, but the PHSI hasn’t budged. [NAR]

TP: Consider this: the PHS index is 4% BELOW where it was in October 2023 — when 30-yr mortgage rates peaked above 8%! Typically, when mortgage rates jump, the PHSI falls and vice versa. But not lately. Are buyers holding off in the hopes of even lower rates or post-election goodies? Are buyers balking at paying buy-side commissions after the NAR Settlement? Too soon to tell.

Mortgage rates edged higher. That’s right, average 30-yr mortgage rates are 11 bps higher than they were BEFORE the Fed cut rates 50 basis points. If you find this confusing, you’re not alone. But I promise you that this happens fairly often, with the market having already priced in rate cuts long before the Fed makes it official.

I like my listings “extra stale.” According to analysis from Redfin, 48% of US listings have been on the market for 60 days or more, the highest percentage of “extra stale” listings since 2019. [Redfin]

TP: Did you know that ListReports has a ListPack for “extra stale” listings? It automatically pulls in properties in your area that have been on the market longer than 60 days, and organizes them in an attractive “pack” you can share with your clients.

On the Case (Shiller) Again

We pay close to attention to the Case-Shiller and FHFA home price indexes because they use the ‘repeat sales’ method. This apples-to-apples approach delivers a more accurate measure of true home price appreciation/depreciation, whereas other price indexes can be dramatically skewed by the “mix” of homes that sold during the period.

National Price Index

• The national index climbed 0.18% MoM in July, very similar to the increase in June.
• While these are respectable numbers, the index is only up 0.63% in the last three months. Annualized, that’s just 2.5%. (As a reminder, the national index rose ~6% in each of 2022 and 2023.)
• On a YoY basis, the national index was +4.9% YoY, down from 5.4% YoY in June.
• Both the 10 Big Cities index (+6.7% YoY) and the 20 Big Cities index (+5.9% YoY) outperformed the national index. In other words, the biggest cities are seeing their prices grow faster than the nation as a whole.

Big City Indexes

• By far the strongest price growth came from Seattle, whose index rose an incredible 1.1% MoM in July after +0.9% growth in June and +0.5% growth in May. The Seattle index is now only 2.9% below its mid-2022 peak.
• Other cities posting strong index growth were New York City (+0.5% MoM), Las Vegas (+0.5%) and Detroit (+0.4%). The Las Vegas index has now fully recovered from its July ’22 — Mar ’23 drop and should set a new record next month.
• Only 2 cities saw their indexes fall MoM in August. San Francisco dropped 0.4% after several months of solid gains, while Tampa may be rolling over, falling 0.2% after three months of flat prices.
• Three city indexes are DOWN slightly year-to-date: Phoenix (-0.9%), Denver (-0.3%) and Tampa (-0.3%)

Mortgage Market

Here are the current odds on Fed rate cuts at upcoming FOMC meetings. Note that the current Fed Funds Rate policy range (AFTER the 50 bps cut) is 4.75–5.00%.

• Nov 5: US presidential election.
• Nov 7 FOMC Meeting: 39% probability of a 25 bps cut; 61% probability of a 50 bps cut.
• Dec 18 FOMC Meeting: 50% probability that rates will be 75 bps below current levels; 31% probability that rates will be 100 bps below current levels (i.e., two 50 bps cuts before year-end)

They Said It

“Over five years, markets such as New York and Atlanta saw low-price-tiered indices outperforming their market by as much as 20% and 18%, respectively. The relative outperformance of low-price-tiered indices has both benefited first-time homebuyers as well as made it more difficult for those looking for a starter home.

The opposite is happening in California, which has the most expensive high-price tiers in the nation, all well over $1 million. The rich are getting richer in San Diego, Los Angeles, and San Francisco where their high-price-tiered indices outperformed on a one- and three-year basis.

Regionally, the Northeast remains the best performing market, with New York the top performer for three months running, followed by the Midwest region. All markets in the Northeast and Midwest recorded an all-time high. The South reported the slowest gains regionally but includes five of the seven best performing markets since 2020.” — Brian D. Luke, S&P Global DJI’s Head of Real Estate Assets

“A slight upward turn [in pending sales] reflects a modest improvement in housing affordability, primarily because mortgage rates descended to 6.5% in August. However, contract signings remain near cyclical lows even as home prices keep marching to new record highs.” — Lawrence Yun, NAR’s Chief Economist