First Quarter is Over, How Are Things Looking?

There are four really important times of the year for everybody who is anybody in the financial, mortgage or related industries — they happen around the middle of April, July, October and January. These are the times when we get all sorts of quarterly reports in, and those numbers can tell us a lot about the health of the economy and real estate market. Is it a good time to buy or sell? Check the numbers!

I’ve compiled what I think are the most important statistics for homeowners to keep in mind, and I’ll walk through each so you can understand what they are, what they mean to you and how much to panic. Generally speaking, that amount is very little — so try not to panic, it’s probably OK, no matter what others may tell you.

Bureau of Labor Statistics – The Employment Situation

The Employment Situation is actually released once a month, but it’s one of those things you want to consider along with the bigger picture. This report is issued by the Bureau of Labor Statistics, which is a part of the US Bureau of Labor. It typically runs a month behind, allowing all those clever number crunchers to get us some really accurate data.

The Employment Situation matters to you as a homeowner because your home is like anything else, it’s only worth what someone is going to give for it. If lots of people are out of work, the labor market is shrinking and average hourly earnings are down, your potential pool of buyers is going to be limited and possibly cash poor. This is bad news for you as a seller, but good news as a buyer (provided you don’t mind to stay put until the situation improves).

March 2014 wasn’t a remarkable month, one way or the other, which is OK. Too much movement in any direction can hurt a lot worse than a stable market. The nice news is that not only are more jobs being added at a trickle (192,000 new jobs in March), those jobs are paying more on average than they did a year ago. This is a great setup for the continued recovery for the real estate market.

March 2014February 2014March 2013
Average Hourly Earnings$24.30$24.31$23.81
New Jobs Created192,000197,000141,000

The Employment Situation Report Highlights

Bureau of Labor Statistics – Consumer Price Index

We’ve briefly discussed the Consumer Price Index before, but if you missed that mention, here it is again. Along with tracking employment trends in the US, the Bureau of Labor Statistics also compiles data on the prices of the things you need to get through your day. They track stuff like the cost of energy, food, rents and new cars, as well as services like medical care. Once all this information is together, the BLS compares it to prior months and gives us some perspective on current pricing.

When the prices of necessities are going up, that spells bad news for home sellers — your potential home buyers are likely worried about stretching their dollars to cover everything they have to pay for in a week. Stable prices, or those that are slowly dropping are great news for everybody, though — things are cheaper, money doesn’t feel quite so tight, and the general economic atmosphere tends to allow us to unclench our wallets a little bit. Buyers buy, sellers sell, and nobody’s really worried about squeezing every last nickel out of their side of the transaction. That’s a spot where real estate harmony happens.

We’re seeing a little bit of creep on overall pricing, but a 1.5 percent gain between March 2013 and March 2014 isn’t probably enough that anybody’s noticing. Rents are increasing faster than the average, though, with a 2.9 percent gain between March 2013 and March 2014. Still, it’s probably too insignificant of a figure to raise any eyebrows.

Federal Housing Finance Agency – Housing Price Index

The Federal Housing Finance Agency’s Housing Price Index is one of the most accurate assessments of single family home value movement in the nation. The data is pulled from homes that have been purchased with a mortgage backed by Freddie Mac or Fannie Mae since 1975 and sold or refinanced since then. Using this information, the smart folks at the FHFA can make very accurate national and regional predictions about real estate values.

This isn’t the only housing price index to pay attention to, but it’s one you definitely want to check from time to time. They offer both monthly and quarterly reports for your information. It should go without saying that you want to always see these things growing, but not to much. Fast price growth in the housing market, as we’ve seen, is a recipe for disaster. Keep it around 3 to 5 percent a year and we’re on the right track, but lower is OK, especially in today’s economy. A slow recovery is better than a partial recovery and brand new housing bubble.

The good news is that our housing prices are recovering, but I worry they’re recovering too quickly. As long as we don’t keep up this crazy pace, things should even out and get us back to where we should have been all along. Between January 2014 and February 2014, we saw a national price increase of 0.6 percent, which works out to 7.2 percent on an annual scale. It’s similar to the same rate we saw in June 2005 — and those were mad, mad times. When compared to the growth from Fourth Quarter 2012 to Fourth Quarter 2013, which had a 7.69 percent change to the positive, February showed some slowing, which is OK by me.

There’s nothing wrong with values bouncing back, don’t get me wrong — I’m glad to see these numbers for my property and yours. The fear is that these rates of growth will continue and housing will blow up again. Most people will be happy to see they’ve got some equity and may get back into the market, but those of us who got burned the last time will be keeping a nervous eye on this figure in hopes that some slowing takes place soon.

National Association of Home Builders – Construction Statistics

The National Association of Home Builders keeps lots of cool statistics about the construction industry, but none are so telling as housing starts. This value is all about the number of homes started in any given month. A started house reflects hope for the long-term, as opposed to building permits, which are simply an OK from the municipality that a builder can construct something eventually.

Starts overall are down, from 1.005 million units in March 2013 to 946,000 in March 2014, but that number includes fewer starts of multi-family homes like apartment buildings, duplexes and so forth. Single family home starts, on the other hand, are slowly starting to grow again, up from 623,000 in March 2013 to 635,000 in March 2014, despite what was one of the coldest winters on record for much of the country.

More new homes is both good and bad — new homes generally pull existing home values up with them, especially those existing homes built in nice, well-kept areas, but they also compete for buyers. Some buyers would prefer a house that wasn’t going to need any care or maintenance for years, as opposed to existing homes that will probably need repairs sooner rather than later as parts with some wear finish out their lives. Still, housing starts mean that the construction industry is coming back, which is good for us all.

Fannie Mae – Housing Survey

Fannie Mae surveys consumers each and every month to get their views on the housing market — unlike the other indicators we’ve looked at so far, the Fannie Mae Housing Survey is mostly about the beliefs of the American homeowner and homebuyer. It’s not useless data, though — the real estate market is one of those things that’s driven in part on emotion, and when the world thinks it’s about to crash it probably will, even if things are going well on paper.

It’s helpful to know how people feel about housing in order to predict their buying behavior for the near future. Fannie Mae surveys are based on questions focusing on perceptions of the mortgage industry and wider market, including thoughts on the economy, renting versus buying and whether it’s a good time to buy or sell. If I had to pick the ones that were the most important, these last three would be the ones I’d give the most attention.

In March 2014, only 33 percent surveyed believed the economy was on the right track; 58 percent believe it’s on the wrong track. That’s not much different than a year ago in March 2013, when 35 thought it was on the right track and 58 percent thought it was on the wrong track.

The most recent survey revealed that 69 percent believe it’s a good time to buy and 38 percent think it’s a good time to sell. Compared to March 2013, when 71 percent thought it was a good time to buy and only 26 percent thought it was a good time to sell, fewer people think it’s a good time to buy, but more people think it’s a good time to sell. These attitudes could lead us to a balanced market, which would be super.

Our Consumer Price Index already showed us that rents are up slightly, but despite that, 28 percent surveyed would rather rent than buy if they were going to move now. 68 percent would prefer to buy a home in March 2014. Compared to March 2013’s 64 percent of buyers and 32 percent of renters, it looks like people are still a little leery to jump into the housing market, but fewer are considering renting as an option.

RealtyTrac – US Home Equity and Underwater Report

HousingViews, a website produced by S&P Dow Jones Indices keeps us in the loop on reports that are harder for the Average Joe to access. They recently recapped RealtyTrac’s US Home Equity and Underwater Report, a quarterly that’s chock-full of valuable data about housing equity across the country.

For First Quarter of 2014, 9.1 million homes were underwater (they consider a property underwater when the mortgage is at least 25 percent greater than the home’s value), which is about 17 percent of all US properties secured by a mortgage. I know this sounds awful, but it’s the lowest level we’ve seen since First Quarter 2012. To compare, a year ago in First Quarter 2013, 10.9 million homes were underwater, which was 26 percent of all properties.

On the flip side, properties with at least 50 percent equity grew to 9.9 million in First Quarter 2014, roughly 19 percent of all homes with mortgages. Another report by RealtyTrac, the US Real Estate Statistics and Foreclosure Trends shows that foreclosure filings are down 23 percent from March 2013 to March 2014. If you’re just getting into the market, you may wonder why all of this matters to you — after all, you don’t even own a home yet!

The real estate market, like the global economy or the food web or anything else that’s made up of a million little bits and pieces can’t function well if parts of it are unhealthy. We saw that during the bubble’s burst, and it remains as true today as it was then. Houses that are underwater force their owners to stay put, preventing both the buyers and the homes from circulating in the housing market. At the same time, those houses rich in equity allow their owners to do whatever they please.

If too many homes are tied up with underwater mortgages, the supply dwindles, forcing prices upwards because a handful of buyers are competing for the few homes that are available to them. That means artificially high prices, few choices and uncertainty in the short run. When you’re buying, you definitely want fewer homes tied to underwater mortgages so you have lots of options, but when you’re selling, you want that, too, because you’re eventually going to buy. Sure, your house may sell for more, but you’re going to pay more for the next one, too — unless, of course, there are a ton of foreclosures that drive your neighborhood’s value down…

National Association of Realtors – Housing Statistics and US Economic Outlook Reports

The National Association of Realtors (NAR) has a whole department that just analyses numbers to help Realtors better understand their markets. Some of these figures are released to the general public in the form of a series of reports, including the NAR Housing Statistics Report and the NAR US Economic Outlook. As the names would imply, the Housing Statistics Report is all about sharing housing data, and the Economic Outlook tries to predict the market and wider economy’s future behavior.

For us, the most important data on these reports is related to existing home prices, existing home sales figures, new home sales numbers, housing starts and the median prices for both new and existing homes. There’s a lot of data here, so I’m going to break it down into tables to make it a little easier to grasp, along with some commentary for each.

Under $100K$100K – $250K$250K – $500K
February 201420.8%43.3%25.3%
Percent Change Since February 2013-18%-7.2%+1.9%

Sales Distributions by Price, Existing Single Family Homes (February 2014)

Let’s start with the easy stuff — sales distributions! The Housing Statistics Report found that most homes purchased were in one of three pricing groups: Under $100K, $100K-$250K and $250K-$500K. That makes sense, the bulk of homes land in one of these categories, depending on where you live. However, the trend is leaning toward the higher priced group, and it was the only one to gain sales since February 2013. That’s great — people aren’t as afraid to commit to higher priced homes!

February 2014February 2013Percent Change
Number of Homes Sold243,000262,000-7.3%
Home Supply (Months)5.1 months4.6 months+10.87
Median Sales Price$189,200$172,500+9.7%
Average Sales Price$236,900$221,100+7.1%

Existing Single Family Homes Sales Data Changes

The next table, the one above, shows changes to existing single family home sale data. There’s a lot of good and a little not as good, but we’ll talk about it. Inventory has increased since February 2013 by 4.8 percent, giving buyers more homes to choose from, but it’s only 5.1 months, so there aren’t so many houses that selling a reasonably priced home should be difficult. Sales are down a little, hopefully that’s not indicative of problems to come. February tends to be a difficult month in real estate, and is heavily influenced by the weather, so I don’t worry unless I see this in the spring months.

The really good news is that median sales prices (the price that’s exactly in between the highest and lowest priced home sold) have increased to $189,200 — a 9.7 percent gain! The average sales price only went up 7.1 percent, though. That disparity isn’t large, but it does point to more lower priced homes selling than higher priced ones. This might be good or bad: if people are discounting their homes to move them, that can lower prices, but if it’s just that more lower priced homes are available, that’s going to be great for first time homebuyers or anybody looking to downgrade.

Q4 2013Q1 2014Q4 2014
Median Existing Home Prices$196,900$190,900$206,000
Median New House Prices$266,500$263,900$279,000
Existing Home Sales Changes Compared to Previous Year+1.1%-7.1%+5.2%
New Home Sales Changes Compared to Previous Year+14.2%+1.9%+37.8%
Housing Starts Changes Compared to Previous Year+12.5%-1.9%+24%

NAR Economic Predictions Data (2013 is actual data)

The big table is from the recently released NAR US Economic Outlook Report. There’s a lot of stuff in there, but I broke out the part we’re really interested in. The way these work is that the NAR takes existing data and uses it to make predictions for the next year. Sometimes they’re wrong, but they tend to be closer to right because real estate runs in tidy cycles. The post-bubble market has been something of an anomaly, but their data runs back into the 1970s, so they’re generally pretty spot on even during strange times.

As you can see, NAR has nothing but positive things to say about the future — prices are up for both existing and new homes, along with lots of housing starts. In short, the NAR predicts the market will be booming in no time. Unfortunately, what we’re experiencing is still unusual, so whether or not they’ll prove to be right is hard to say, we’ll have to wait until April 2015 to know for sure. If they are right, rates will be going up again, but it’ll be easier to find the right home right away.

Putting it All Together: The Big Picture

There they are, all the numbers and statistics that are fit to wrap your brain around. If you’re a top economist, you’ll undoubtedly find others that are just as useful for you, but I picked out the ones I think are most important for those of us non-economists. I explained each one to you, but these aren’t numbers you can take one at a time — they affect one another and must be considered as a whole package.

In my opinion (and the opinion of plenty of others), things are looking up. Recovery is progressing nicely, prices are rising, construction is beginning again and the machine is coming back to life. I’m very happy to see it, but I’m also a little worried that we’ve not learned anything from our mistakes. If inventory remains short, we’re going to drive prices sky-high quickly. Then again, all those predicted housing starts may be able to make up the difference in the long run, which will keep prices reasonable.

If you pay attention to the numbers, now is the time to get into a low rate mortgage and get a deal on a house. There are always houses that are deals and there are always loan products that make owning one affordable, but this season may be the last time both are easily in reach for some time. Buy the house you want, but don’t forget to think with the future in mind. We’re not far enough out of recovery to be confident that we’re not going to make the same mistakes again.

Lenders are opening up sub-prime lending, but so far the super exotic loan products haven’t shown their ugly heads. As long as borrowers have to be able to prove their income and that they can afford their new homes, things should be OK, but too much activity could still destabilize the real estate market’s recovery. I’ll be watching the numbers this year with great interest to see if we can be reasonable enough to gently grow our market or if we’ll go nuts with McMansions and forget the lessons of just a decade ago.

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