Tag Archives: DeptofNumbers

DofN: Real Home Prices and Real Borrowing Costs Since the Bottom

Real Home Prices and Real Borrowing Costs Since the Bottom

POSTED TUESDAY, FEBRUARY 04 2014

previously showed that continuously declining interest rates since 1980 have been a boon to the buying power of homeowners despite stagnant incomes. After the bursting of the housing bubble last decade and subsequent fall in home prices, the historically low interest rates that followed led to remarkably low payments for borrowers who could still qualify for mortgages these past few years. But we’ve long since put in a bottom for home prices. According to Case-Shiller’s 20 city aggregate that bottom came in February of 2012.

The chart above shows the change in real home prices (blue line) since the bottom. After February 2012 home prices began to rise while mortgage rates continued to fall. They fell enough in fact that their declines offset the rise in real home prices for another 8 months. That is, a borrower could obtain a lower mortgage payment via falling borrowing costs despite rising home prices. The bottom in terms of a monthly mortage payment didn’t come till October of 2012. The red line shows how mortgage payments have changed since then.

In short, real home prices have risen about 17% since the February 2012 bottom, but the real price in terms of borrowing costs have risen just over 26%. I don’t expect rates to leap in the near future, but if rates continue to rise with Fed tapering (they’re up about one percentage point from the bottom) it could have a notable impact on affordability for first-time buyers. On the other hand, low existing home inventory suggests there hasn’t been a significant falloff in demand yet and mortgage rates have been trending down again recently as well.

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DeptofNumbers: Growth in Mortgage Purchasing Power

Growth in Mortgage Purchasing Power

POSTED WEDNESDAY, APRIL 03 2013

Above is a chart of real median household income and the real purchasing power of the same median household income when utilizing a 30-year mortgage. Said another way, if you kept the fraction of real median household income going towards a mortgage payment the same (say 30%), the red line shows the growth in what you could buy with your payment.

The chart highlights the dramatic rise in purchasing power of the median income household despitethe lack of growth of the median household’s real income. Growth in the capacity to borrow has replaced income growth over the last 30 years. Of course this is possible because interest rates have been falling continuously since the early 1980s making it feasible to borrow more and more with less income.

If we wanted to increase purchasing power in an environment where interest rates were not in decline, we’d need to see a substantial increase in real median income. For instance, say 30-year mortgage rates were at 6.5% instead of their recent level of roughly 3.5%. All else being equal, to get the same purchasing power as a 3.5% mortgage rate with a mortgage rate of 6.5% would require a 41% increase in real income! 1 Clearly (and by design in recent years), record low mortgage rates are a huge stimulus for home prices.

What happens when the 30+ year secular decline in interest rates ends? Even if rates stay low, the stimulus of declining rates on asset prices (homes in particular) will disappear. While incomes will likely increase over the next few years, we’ve already seen how much they would need to increase to match the purchasing power effects of falling interest rates. And if interest rates rise even modestly, purchasing power will be significantly curtailed. How home prices, under the additional influences of inertia and psychology, actually respond is another matter.

1. Assuming again that a borrower would want to spend the same fraction of their income on a mortgage payment regardless of the interest rate environment. 

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CR: Existing Home Inventory up 3.6% year-to-date in late February

Existing Home Inventory up 3.6% year-to-date in late February

by Bill McBride on 2/25/2013  

Weekly Update: One of key questions for 2013 is Will Housing inventory bottom this year?. Since this is a very important question, I’ll be tracking inventory weekly for the next few months.

If inventory does bottom, we probably will not know for sure until late in the year. In normal times, there is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then peaking in mid-to-late summer.

The NAR data is monthly and released with a lag.  However Ben at Housing Tracker (Department of Numbers) kindly sent me some weekly inventory data for the last several years. This is displayed on the graph below as a percentage change from the first week of the year.

In 2010 (blue), inventory followed the normal seasonal pattern, however in 2011 and 2012, there was only a small increase in inventory early in the year, followed by a sharp decline for the rest of the year.

So far – through late February – it appears inventory is increasing at a sluggish rate.

Exsiting Home Sales Weekly dataClick on graph for larger image.

Note: the data is a little weird for early 2011 (spikes down briefly).

The key will be to see how much inventory increases over the next few months. In 2010, inventory was up 8% by early March, and up 15% by the end of March.

For 2011 and 2012, inventory only increased about 5% at the peak.

So far in 2013, inventory is up 3.6%.   If inventory doesn’t increase more soon, then the bottom for inventory might not be until 2014.

Read more at http://www.calculatedriskblog.com/2013/02/existing-home-inventory-up-36-year-to.html#sY2JS9L3XSYtKg8I.99

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Calculated Risk: Housing: Inventory down 24% year-over-year in early January

Housing: Inventory down 24% year-over-year in early January

by Bill McBride on 1/07/2013 

Inventory declines every year in December and January as potential sellers take their homes off the market for the holidays. That is why it helps to look at the year-over-year change in inventory.

According to the deptofnumbers.com for (54 metro areas), overall inventory is down 23.9% year-over-year in early January, and probably at the lowest level since the early ’00s.

This graph shows the NAR estimate of existing home inventory through November (left axis) and the HousingTracker data for the 54 metro areas through early January.

NAR vs. HousingTracker.net Existing Home InventoryClick on graph for larger image.

Since the NAR released their revisions for sales and inventory in 2011, the NAR and HousingTracker inventory numbers have tracked pretty well.

On a seasonal basis, housing inventory usually bottoms during the holidays and then starts increasing in February – and peaks in mid-summer.  So inventory is probably near the seasonal bottom right now and should start increasing again soon.

The second graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker.net YoY Home InventoryHousingTracker reported that the early January listings, for the 54 metro areas, declined 23.9% from the same period last year.

The year-over-year declines will probably start to get smaller since inventory is already very low. It seems very unlikely we will see 20%+ year-over-year declines this summer, and I think overall inventory might be bottoming right now.

Read more at http://www.calculatedriskblog.com/2013/01/housing-inventory-down-24-year-over.html#7GwlQxiXCGgUO2TY.99

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Read of the Day: A Thousand Bucks Buys You a Lot of House Right Now

A Thousand Bucks Buys You a Lot of House Right Now

by Ben Engebreth — Department of Numbers

POSTED SUNDAY, NOVEMBER 25 2012

The chart below shows the increasing amounts of money you’re able to borrow on a 30-year fixed rate mortgage with a $1,000 payment since 1971. I’ve been meaning to create this chart since I saw Matt Yglesias’ post last month on the buying power of $1,000 over the last few years. As you can see, the trend isn’t new. The amount that $1,000 buys you (in 2012 dollars) with a 30-year fixed rate mortgage has grown from roughly $64,000 in 1981 to $226,000 last month!

Of course the high rates of the early 1980s were as much of an anomaly as low rates are today. But even compared to the 6-8% 30-year mortgage rate range that prevailed in the 1990s, $1,000 still buys you about $75,000 more now.

But there’s a limit to how far left we can move on the chart below. The 30-year fixed was 3.38% last month. I wouldn’t have imagined it could ever get that low, but certainly we won’t ever see 1% or even 2% rates. There really can’t be much more oomph left in the price stimulus provided by falling mortgage rates.

Which brings me back to this chart of Case-Shiller real home prices and the financing cost of Case-Shiller real home prices that I showed a couple of months ago.

We’ve seen a huge drop in real home prices since 2005 and have only recently found a floor and stabilization. But when you look at the payments on homes purchased with borrowed money (the blue real borrowing cost line), the cost in terms of a monthly mortgage payment continues to decline because mortgage rates continue to hit new lows. In terms of the monthly mortgage payment, homes cost less than they ever have for the history of the Case-Shiller series. Truly, $1,000 buys you more home than it has in quite a while. You know, assuming you can get a mortgage.

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Housing: Inventory down 21% year-over-year in early October

Housing: Inventory down 21% year-over-year in early October

by Bill McBride on 10/02/2012 

Here is another update using inventory numbers from HousingTracker / DeptofNumbers to track changes in listed inventory. Tom Lawler mentioned this last year.

According to the deptofnumbers.com for (54 metro areas), inventory is off 21.4% compared to the same week last year. Unfortunately the deptofnumbers only started tracking inventory in April 2006.

This graph shows the NAR estimate of existing home inventory through August (left axis) and the HousingTracker data for the 54 metro areas through early October.

NAR vs. HousingTracker.net Existing Home InventoryClick on graph for larger image.

Since the NAR released their revisions for sales and inventory last year, the NAR and HousingTracker inventory numbers have tracked pretty well.

On a seasonal basis, housing inventory usually bottoms in December and January and then increases through the summer. Inventory only increased a little this spring and has been declining for the last five months by this measure. It looks like inventory peaked early this year.

The second graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker.net YoY Home InventoryHousingTracker reported that the early October listings, for the 54 metro areas, declined 21.4% from the same period last year.

The year-over-year declines will probably start to get smaller since inventory is already pretty low. I doubt we will see 20% year-over-year declines next summer!

Read more at http://www.calculatedriskblog.com/2012/10/housing-inventory-down-21-year-over.html

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Real House Prices and Real Borrowing Costs

Real House Prices and Real Borrowing Costs

by Ben Engebreth — Department of Numbers

POSTED TUESDAY, SEPTEMBER 18 2012

Real home prices and real borrowing costs

The chart above shows real house prices (in orange) defined as the national Case-Shiller index adjusted for inflation via the CPI less shelter series. I’ve normalized the series to equal 1000 at its most recent value in April 2012. Real house prices peaked at the beginning of 2006 and are now back to early 1999 (and before that mid 1990) levels.

If you look at historic mortgage rates over that time you can also calculate the real cost of borrowing on a value that changes with the real home price series. That new series is blue in the chart. Here I’ve simply calculated the borrowing cost for the indexed value of the Case-Shiller series at each point in time. For instance, in April of this year, the real Case-Shiller series was 1000. Taking a 30-year mortgage on $1,000 yields a monthly payment of roughly $4.72 (at April’s 3.91% prevailing mortgage rate). Run that calculation for the whole real house price series and you get the blue line.

For me, the interesting observations here are that home prices, when looked at in terms of payments in real dollars, are cheaper now than they have been since the Case-Shiller index came into being. Also, the late 80s / early 90s regional housing mini-bubble shows up more prominently when you look at it in terms of real borrowing costs instead of real house prices.

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