How Strong is 2019 Housing Market—Part II?

The Mortgage Corner

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FRED

We asked just how strong is the housing market last month with rates beginning to fall again. Lawrence Yun, NAR’s chief economist, said he is not overly concerned about the trending drop in existing-home sales reported in May.

“First, we are seeing historically low mortgage rates combined with a pent-up demand to buy, so buyers will look to take advantage of these conditions,” he said. “Also, job creation is improving, causing wage growth to align with home price growth, which helps affordability and will help spur more home sales.”

And so-called ‘house-flipping’ (homes sold that are owned less than 2 years) is up, meaning housing prices have risen enough that homebuyers are beginning to buy homes they intend to sell in less than 2 years; which also happened in early 2000s when the housing bubble took off. Speculators are hoping to make a quick buck, in other words, as there is a rather severe lack of available inventory in the affordable and mid-price ranges.

That has left a big market for rehab specialists who can get their hands on physically distressed or out-of-date properties for peanuts. The median sales price of flipped homes during the first quarter was $215,000, according to Attom Data Solutions, a real-estate information firm.

ATTOM Data Solutions just released its Q1 2019 Home Flipping report and found that 7.2 percent of all home sales during the first quarter reached a new high flipping rate, the highest since Q1 2010. The 7.2 percent flipping rate is up from 5.9 percent in the previous quarter and up from 6.7 percent a year ago. However, while flippers are flipping, gross profits are stumbling.

“Homes flipped in Q1 2019 sold at an average gross profit of $60,000, down from an average gross flipping profit of $62,000 in the previous quarter and down from $68,000 in Q1 2018 to the lowest average gross flipping profit since Q1 2016’” said the report.

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attomdata.com

This is further evidence of the lack of affordable housing inventory, even though sales of previously-owned homes have fallen in three out of four months this year. However new-home sales are running about 7 percent higher than last year’s pace, says MarketWatch’s Andrea Riquier. This is while home prices accelerated in April for the first time in a year.

Mortgage applications increased 26.8 percent from one week earlier. Refinance applications are up 48 percent and purchase applications up 20 percent without seasonal adjustments, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 7, 2019.

Mortgage rates for all loan types fell by a sizeable margin for the second straight week, pulled down by trade tensions with China and Mexico, the financial markets reacting to more bearish communication from several Fed officials, and weaker than expected hiring in May,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Despite the less positive outlook, both purchase and refinance applications surged, driven mainly by these lower rates. The refinance index jumped 47 percent to its highest level since 2016.”

No wonder, as the 30-year conforming fixed rate is holding at 3.50 percent for less than a 1 pt. origination fee, as interest rates are back to historic lows last seen during the Fed’s QE programs, as I said. The super-conforming fixed rate with loan amounts to $625,500 also now available at 3.50 percent.

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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