Existing Home Sales YoY Flat in August, Inventory Still Missing (Median Prices Up 5.6% YoY)

According to the National Association of Realtors, existing home sales YoY were flat at +0.2% growth (while down 1.7% MoM from July to August). Hurricane season isn’t helping existing home sales.

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The median price of existing home sales YoY grew at 5.6%.

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Existing home sales inventory is still missing as in 1999-2001 levels.

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Let’s see what The Fed announces at 2pm regarding interest rates.

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Atlanta Fed Increases Q3 Real GDP Forecast To 3.0% As Catastrophe Bonds Plunge (Fed Not Likely To Raise Rates Again Until September 2017 Meeting)

The Atlanta Fed’s GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2017 is 3.0 percent on September 8, up from 2.9 percent on September 6. The forecast of the contribution of inventory investment to third-quarter real GDP growth increased from 0.87 percentage points to 0.94 percentage points after this morning’s wholesale trade report from the U.S. Census Bureau.

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Of course, these GDP numbers do not yet include the horrific damages caused by Harvey or Irma (while Jose is pushing out into the Atlantic Ocean). The damage to housing, commercial real estate and automobiles from Harvey and Irma will be quite extensive.

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Catastrophe (Cat) bonds took a big plunge on Irma.

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The extensive hurricane damage is likely to reduce the chance of a Fed rate hike. As of today, the implied probability of a Fed rate hike does not exceed 50% until the September 26, 2018 meeting. And then it is only 55.3%.

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The most likely path of Fed rate hikes is beginning to look like the train from the movie “Snowpiercer.”

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Be safe Texans and Floridians.

 

Toronto’s Housing Sales Bubble Bursts as Bank of Canada Raises Rates

Canada’s Central Bank, the Bank of Canada, recently raised its lending rate to 1.25%, matching the US Federal Reserve rate.

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And Toronto just experienced a sales burst (downwards) of epic proportions.

TORONTO, September 6, 2017 — Toronto Real Estate Board President Tim Syrianos announced that Greater Toronto Area REALTORS® reported 6,357 home sales through TREB’s MLS® System in August 2017. This result was down by 34.8 per cent compared to August 2016.

The number of new listings entered into TREB’s MLS® System, at 11,523, was down by 6.7 per cent year-over-year and was at the lowest level for August since 2010.

“Recent reports suggest that economic conditions remain strong in the GTA. Positive economic news coupled with the slower pace of price growth we are now experiencing could prompt an improvement in the demand for ownership housing, over and above the regular seasonal bump, as we move through the fall,” continued Mr. Syrianos.

The average selling price for all home types combined was $732,292 – up by three per cent compared to August 2016. This growth was driven by the semi-detached, townhouse and condominium apartment market segments that continued to experience high single-digit or double digit year-over-year average price increases.

Detached home sales were the worst hit at around 42% decline in sales, even though average sales price rose slightly (0.3%).

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To cool a similar housing bubble in Vancouver, the government of British Columbia had passed a year ago similar legislation with a 15% nonresident foreign speculator tax.  But worried about an outright implosion of the bubble, it has since been subsidizing with taxpayer money down-payments aimed at first-time buyers and condos, which has inflated the condo bubble and condo speculation to new heights.

Bank of Canada’s Governor, Stephen Poloz, has definitely gone bold with BoC’s latest rate increase.

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US Existing Home Sales Decline 1.3% In July To Lowest Level in 11 Months (High Prices And Low Inventory)

According to the National Association of Realtors,  existing home sales fell 1.3% in July. This is the lowest sales figure in 11 months.

But what is noticeable is the rise in median existing home prices (zooming upwards) relative to inventory (low). Sprinkle in The Fed’s zero interest rate policy and we have a party!

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Here is the change in sales price broken down by price range. Homes under $250,000 actually declined in price while homes over $1 million rose by 19.8%.

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Low inventory and excess liquidity sloshing around the economy is creating a home price squeeze.

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Will Yellen show this chart at Jackson Hole?

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US New Home Sales For July Decline 9.4% MoM, 8.9% YoY (Biggest Decline Since 2014 As Household Formations Decline To Lowest Level Since 2010)

July wasn’t a very good month for US New Home Sales.  New home sales fell 9.37% MoM.

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On a YoY basis, new home sales fell 9%, the worst since 2014 as The Fed has been raising their target rate.

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One of the culprits? The lowest Household formations since 2010.

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America’s Vanishing Middle Class, Housing and Mortgage Markets (In One Chart)

The problem of America’s vanishing middle class is well-known: fallling income growth, changing demographics, etc. America’s mortgage lenders are scratching their heads about what to do.

Well, mortgage purchase applications (courtesy of the Mortgage Bankers Association) rose rapidly from 1995 to 2005, slowed and then crashed only to finally start recovering again in 2015-2017. This peaking of the mortgage purchase applications roughly coincided with a local peak in home prices and homeownership (the housing bubble). Then the wheels came off (home prices crashed and homeownership fell). Home prices are rising again while homeownership is at early 1990s levels.

The question is … how can the US get its homeownership rate increasing again (assuming that this is what is the appropriate housing policy goal). The usual remedy is “lower credit standards.”  Hmm. We tried that before and nearly crashed the banking system. See the pink line in the following chart.

True, credit standards are tighter today than they were in the 2000s, but also the mortgage products have changed. Gone are the NINJA (no income, no job) loans as well as adjustable-rate mortgages with “teaser” rates (leading to a spike in interest rates for the borrower). We are now back in a one-size-fits-all mortgage economy with the 30-year fixed-rate mortgage with over 90% market share.

Can lenders as well as Fannie Mae and Freddie Mac lower credit standards to increase homeownership? And do it in a fiscally safe manner? A little bit. This reminds me of the following scene from “There’s Something About Mary.”

The real problem is the decline in income growth for the majority of the population, particularly since the last recession, the major cultprit in the decline of the middle class.

But also confounding matters are local zoning laws prohibiting construction of new supply, lack of inventory and a hyperactive Federal Reserve.  Now we have tons of money chasing after relatively few properties causing home prices to rise.

Lowering credit standards a little may be fine, but returning to credit standards from the mid 2000s is a fool’s errand despite what data manipulation can show.

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Why Fannie Mae’s 50% DTI For Mortgages Won’t Get To 100,000 Loans

The mortgage giant Fannie Mae reecently raised their Debt-to-income (DTI) ratio from 45% to 50%. The Urban Institute, a left-wing think tank, claimed in a study by Ed Golding and Laurie Goodman that this increase in DTI will increase mortgage lending by 100,000 (mostly to minorities). fannie_mae_raises_dti_limit_0

While Golding and Goodman are very intelligent people, they have forgotten one economic rule: lower credit standards can’t compensate for lack of savings and lack of earnings.

Wage growth (average hourly earnings) and personal savings rate are lower today than they were pre-1980. And wage growth never quite recovered from The Great Recession, although the personal savings rate is higher.

Unfortunately, while homeownership has correlated with home prices from 1995 through 2005, home prices have been rising since 2012 while homeownership has declined.

According to the US Census, black alone homeownership in Q1 2017 is estimated to be 42.7% while white alone is 71.8%. Hispanic homeownership rate is 46.6%. A clear gap between races in homeownership.

With low wage growth and low personal savings rates, it will be hard to raise homeownership rates among minorities unless there is a corresponding increase in loan-to-value (LTV) ratios and/or a decline in required credit (FICO) scores.

The Abduction of the Sabine Women

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