If you follow the housing market closely, you might be realizing the market is ripe for a bit of a course correction. You can see the evidence in the data we’ll go over later on. But for a high-level overview, let’s jump into The Big Story.

The Big Story

To understand why home prices might be leveling off or coming down slightly in the near future, one only needs to look at recent new and existing home sales data. Let’s start with where prices are currently.

The median price of an existing home according to the National Association of REALTORS^® was $350,300 in May. It’s a new record high and 23.6% above where prices were in May 2020. When looking at new home sales, the median sale price was up 18.1% on the year at $374,400.

These numbers aren’t totally out of whack with other indexes, either. The Case-Shiller House Price Index is now up 14.9% on the year. Meanwhile, a separate index for home sales backed by conventional loans from the Federal Housing Finance Agency (FHFA) shows that prices are up a record 15.7% since last April.

So why do I think this is poised to moderate? Simple economics. Sales are falling. Sales of existing homes were down 0.9% last month. On the new home side, sales are down 5.9%. It’s true that part of this is a supply issue. Given a lack of available options, people might be waiting to find the right home.

But that’s slowly becoming less of an issue in the new home market, where supply is 4.8 months relative to current sales levels. This is outpacing supply for existing homes at 2.5 months. Starts of construction on new homes are up 50.3% over the same time last year.

Second, although still quite attractive, mortgage rates have started to creep up a bit. The more upward pressure there is on rates, the more downward pressure you’ll see on people’s home buying budgets. Prices can’t go up forever.

More News You Can Use

As always, analysis from Econoday¹ is used to compile this portion of the report.

Consumer Price Index (CPI)

Prices for consumers were up 0.6% for the month of May and 5% since May of last year. However, of most interest to this audience will be the fact that the shelter index was up 0.3%, with increases of 0.2% for both rent and owners’ equivalent rent, how much it would cost a homeowner to rent out a comparable space.

Retail Sales

Retail sales fell 1.3% in May, largely as a result of stimulus not being distributed this month and lower pandemic relief unemployment checks. However, of particular interest may be the fact that sales of building materials fell 5.9% in May. This may point to a slowdown in remodeling or construction of homes.

Housing Market Index

In June, the builder confidence in the housing market cooled just slightly, falling 2 points to 81. Each of the components was also down 2 points with present sales coming in at 86, sales over the next 6 months settling at 79 and traffic of potential buyers going through homes at 71. Overall, the report still points to a hot market.

New Residential Construction

Moving from an immediate impact on supply to the furthest out, we’ll start with completions. These were down 4.1% to 1.368 million. Still, it’s 16.1% higher than a year ago. Single-family completions were down 2.6% at 1.004 million, while completions in units of buildings with five units or more stood at 387,000.

Starts were up 3.6% on the month at 1.572 million, 15.3% above the year ago number. On the single-family side, starts were at 1.098 million with 465,000 multifamily starts.

Finally, building permits were down in May at a rate of 3% to 1.681 million, and 34.9% higher than last year. Single-family permits were at 1.13 million, down 1.6% in May. Finally, there were 494,000 multifamily permits authorized.

Existing Home Sales

Existing home sales came in at a seasonally adjusted annual rate of 5.8 million, down 0.9% on the month, but up 44.6% on the year. To be fair, there wasn’t much home buying going on last May.

As noted earlier, supply is extremely tight at 2.5 months relative to the current business and sales. Meanwhile, selling prices remain elevated. You’ll want to be patient with your clients.

New Home Sales

New home sales were down 5.9% at an annual rate of 769,000 in May. As mentioned earlier, prices are pretty sky high at this point at $374,400 – and that’s the median. This is up 18.1% on the year. The good news is supply was up 14,000 at 330,000 and overall, it’s in much better shape than existing home sales at 4.8 months relative to the current pace.

Gross Domestic Product (GDP)

Overall GDP was up 6.4% in the final reading of the first quarter. Contributing to the economic growth was an 11.4% increase in consumer spending.

One interesting stat in the housing business is that in terms of real GDP, residential investment grew 12.9% from a year ago.

Case-Shiller Home Price Index

On a seasonally adjusted basis, home prices were up 1.6% across this 20-city index which is a 3-month average. Prices were up 2.1% overall and 14.9% since last April.

FHFA House Price Index

Prices for this index were up 1.8% overall in April. Unlike Case-Shiller, these prices are based on any kind of average and it’s also only looking at conventional loans. The gain since last April is 15.7%.

Consumer Confidence

Consumer confidence for the month of June was up 7.3 points to settle at a new pandemic high of 127.3. For those of us in real estate, you’ll also be happy to know that home buying plans were up.

Pending Home Sales Index

Pending home sales were up 8% at 114.7. This is a great sign for June and July existing home sales numbers because it represents the number of homes under contract for sale, most of which will become closings in the future.

Mortgage Rates

Although they’ve gone up a little bit recently, mortgage rates still remain very well and as of last week were still under 3% for a 30-year fixed mortgage according to Freddie Mac. However, they can’t stay low forever. If your clients are ready, encourage them to take advantage.

With 0.6 points paid in fees and 20% down, the average rate on a 30-year fixed mortgage was 2.98%, down 4 basis points on the week and having fallen from 3.07% a year ago.

The average rate on a 15-year fixed mortgage with 0.7 points paid and the same down payment was 2.26%, having dropped 8 basis points on the week and dipping from 2.56% last year.

Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable-rate mortgage (ARM) with 0.3 points paid and a 20% down payment was up a basis point to 2.54%. It’s down from 3% last year.

Now that you have the knowledge you need, go out and wow your clients. Do you want the increased assurance that comes from visibility into your clients’ loan process? Sign up for Rocket Pro^SM Insight today!

¹ Important Legal Notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of such information may change without notice. Econoday does not provide investment advice, and does not represent or warrant that any of the information is accurate or complete at any time. Copyright 2021 Econoday, Inc. All rights reserved.