Are We Headed For a Bubble?

As I mentioned briefly yesterday Pending Home Sales by the National Association of Realtors shows a decrease of 6% from the same time last year.  The  Pending Home Sales Index (PHSI) is a forward looking index that measures homes in contract that have not yet closed.  The NAR assumes that 80% of those loans will close in the next two months.  The closed sales will be tallied in the Existing Homes Sales Index.

The PHSI co-insides heavily with NAR's Existing Home Sales Index, the agency's monthly report of actual closings.  It is important to note that most homes under contract have a successful settlement within 60 days.  So we can predict the existing sales figures to rise, or fall depending on how the pending figures stand up. 

With interest rates low and inventories lower this summer we saw sellers benefiting greatly with high demand and multiple bidding situations.  Now with winter cooling off, the buyers might benefit from slowing sales.  However this should not be news to anyone.  The peak time for real estate is February through August, then in September through January the market slows.  Mainly cause it's cold outside, and two the Holiday Season is upon us and Hot Wheels and Barbie Dolls for the ankle biters is more important than making that big home purchase.  Don't get me wrong though, when I was a Realtor those homeowners who still had their houses on the market in the off season were desperate for a sale.   So with falling prices and decreasing interest rates this might be an opportune time to negotiate a great deal on a home. 

With that said the September 2013 Pending Home Sales Index is a reminder of two things -- the strength of the U.S. housing market, and the growing possibility of a late-year slowdown.
Home sales are expected to remain strong relative to recent years, and home values are still expected to climb in 2014.

Now back to the title, Are we headed for a Bubble?  Lawrence Yun the Chief Economist for NAR said a decline is expected.  "Affordability has fallen to a five year low as home price increases easily outpaced income growth."  Mr. Yun also expects interest to continue to rise which will further hinder affordability.  We'll find out more tomorrow after the FED Meeting to see where interest rates are headed.  Next month we could possibly see more delays associated with the "government shutdown" 

According to Freddie Mac the average conventional 30YR FX rate rose to 4.49% from 4.46% from last month.  That is the highest jump since July 2011.  Please remember interest rates were at 3.47% in September 2012.

The national average price for existing homes now is $199,200.00, up 11.7% from this time last year.  The is the 10th consecutive month of double digit year over year gains.  We must be nervous, because I don't know anyone who is seeing double digit incomes, unless you work for Tesla, Yahoo, or LinkedIn.  I guess one aspect to look at is the possibility that home values went down farther than they should have in 2008-2011, so now people are jumping in paying what should be looked at as normal prices.  Right now the pricing is really close to where  levels were in 2004.  Which does not say much considering 2004 was such a crappy year for a lot of people.

Properties in distressed situations such as those in foreclosure, or are short sales accounted for 14% of total sales in September.  That's a 2% increase from August, big deal.  What is a big deal is that this is the biggest slowdown since tracking began in October 2008.  In September of 2012 distressed sales accounted for 24% of total transactions.  The decrease in distressed sales might be a good reason for some of the growth in the median price.  I am still a believer that the banks are sitting on a boat load of foreclosures that are in good condition, and they will not put those houses on the market until the market improves and they can scalp out for big gains.  Also the banks do not want to saturate the market with more distressed properties, because that will whack the market again.

The data from realtor.com shows (and this should be no big surprise) Detroit had a 44% gain in price, Las Vegas was up 31% and Sacramento up 30%.  Those three cities were the hardest hit in the whole country back in 2009.  All that means in Detroit the median price for a home went from $15,000.00 to $21,600.00.  Still lower than the average price of a new car.

As of September 2013 there are 2.1 million homes are listed nationwide, that is a 5 month supply, whish is a little short, 6 months is considered normal.  Unsold inventory is up 2% from this time last year. 

The average time a house stayed on the market was 50 days in September, up from 43 days in August.  However homes stayed on the market almost 70 days back in September 2012. 

For my target audience First Time Home Buyers, FTHB's accounted for 28% of the transactions last month, down from 32% in Sept 2012. 

Now for the ones that crush me, The all Cash Transactions are 33% of all sales in September.  19% of all the transactions were investors looking to fix and flip, of those 74% were paying cash.

Now that I truly bored you with the numbers do you still think we are in bubble?  I hope not, I feel better when my clients make money on their purchases, not lose money. 

Mike Brown
Clear Lending
NMLS 333411
mibrown@clrloans.com
415-962-1521