We haven’t looked at Leading Indicators for real estate since the end of 2012. Since it is spring (at least on the calendar) it’s a good time to see where we are starting the buying season for residential housing in 2013.
Case-Shiller Home Price Indices:
All three composites (10 city, 20 city and the National) all showed strong gains in 2012. In addition, 19 of the 20 MSA’s posted positive year-over-year growth, New York was the only market that fell.
David Blitzer, Chairman of the Index Committee at S&P said that, “Housing and residential construction led the economy in 2012 fourth quarter.” He also said that, “These movements, combined with other housing data, suggest that while housing is on the upswing, some of the strongest numbers may have already been seen.”
Zillow Home Price Expectations Survey (ZHPES)HH
Zillow asks a panel of more than 100 professional forecasters to provide input on what they see for the next 5 years in the real estate market. The recently published ZHPES forecast predicts a 4.1 percent annual home value appreciation rate. The pre-bubble (1987-1999) appreciate rate was 3.6. This is the first time that a forecast shows an appreciation rate higher than the Pre-bubble rate.
Zillow’s Chief Economist Dr. Stan Humphries says “… expectations are a bit shy of the home value gains of 5.5 percent that we saw in 2012, implying some moderation in the pace of gains. The panel’s expectations are consistent with continued strong home value growth this year fueled by tighter-than-normal inventory of for-sale homes and robust demand attributable to high affordability and a stronger general economy.”
Housing Permits and Starts
If we look at housing permits and starts it would indicate there is still growth happening. March 19th the Department of Housing and Urban Development released data on Building Permits and Housing Starts.
Permits were at a seasonally adjusted annual rate of 946,000 which was an increase of 4.6% above January and 33.8% above February 2012.
Starts were at a seasonally adjusted annual rate of 917,000 which was an increase of .8% above January and 37.75% above February 2012.
Homeownership for Q4 2012 of 65.4% is down as compared to Q4 2011 of 66.0%. In fact, you can see by the chart below this is the lowest homeownership has been since 1997.
When we look at homeowership regionally, you’ll see that it’s the highest in the midwest at 69.7% and lowest in the west at 59.5%.
The National Association of Realtors (NAR) calculates the Housing Afforbability Index and in Q4 the index was the second strongest its been since 2010. What that means is that an individual (or family) whos median income is $61,778 can afford to purchase a home (somewhere). Nearly 75 percent of homes sold between October 2012 and December 2012 were affordable to this demographic. The median price in Q4 of 2012 was $188,000.
Rick Judson, Chairman of The National Association of Home Builders (NAHB) said that, “The most recent housing affordability data should be encouraging to many prospective home buyers, because it shows that homeownership remains within reach of median-income consumers even as most local markets appear to be on a recovery path.”
It is important to note that most of this affordability is due to very favorable mortgage rates, even as home prices are on the rise.
But the kicker is that inventory of existing homes for sale is at the lowest level since December of 1999, which is over 13 years ago. There are currently over 25 percent fewer homes on the market than just a year ago. As we have talked about before, inventory is measured by number of months on the market. Six months of inventory indicates a balanced market, any less indicates a sellers’ market; we are currently at four months of inventory.
Lawrence Yun, Chief Economist of the NAR said, “Buyer traffic is continuing to pick up, while seller traffic is holding steady. In fact, buyer traffic is 40% above a year ago, so there is plenty of demand but insufficient inventory to improve sales more strongly. We’ve transitioned into a seller’s market in much of the country.”
Diana D. Hill