Interest Rates and The Housing Recovery – Are We There Yet?

iStock_000010654155SmallHere are the stats for April 2014.  It appears things have slowed slightly from this time last year.  Prices have gone up, but that’s a function of the incredibly low inventory; 2.8 Months! For the details, connect to this link: RMLS Market Action April 2014

Executive Summary. The RMLS™ Market Action Report for April shows the following:

  • Closed sales, at 2,143, rose 15.4% from March’s 1,857 and represented a 0.8% increase over the 2,125 sales closed in April 2013.  [Per the RMLS, it was the “Best April for closed sales in the Portland metro area since 2007, when there were 2,594.”] ;
  • New listings (3,629) were up 0.2% compared to April, 2013 when there were 3,623; 
  • New listings were up 17.4% compared to last month; 
  • Pending sales (2,825) were up 11.5% from March (2,534), but down 4.0% from April 2013 (2,942); 
  • Total market time was down to 77 days in April; 
  • Inventory decreased to 2.8 months! 

Year to Date.  2014 has been lackluster compared to the first four months of 2013. Per the RMLS™:

  • Closed sales (7,141) are up 1.4% 
  • New listings (11,806) are up 1.1% compared to the first four months of 2013. 
  • However, pending sales (8,971) are down 3.7% for the same period. 

Average and Median Sale Prices Jan. –April 2014. Prices continue to increase:

  • The average price Jan. April 2014: $325,100 – up 10.7% from the same period in 2013, which was $293,600; 
  • The median price increased 10.0% from $250,000 to $275,000 in the same period of 2014; 

Here is what Bloomberg reported today (Friday, May 30, 2014) in a post titled “Borrowers Show No Rush to Catch Lower U.S. Rate Break: Mortgages”: 

“Interest rates unexpectedly fell this year after the Federal Reserve began scaling back the stimulus that held borrowing costs near record lows since 2011. After five weeks of declines, rates for 30-year fixed loans are at 4.12 percent, the lowest in seven months, Freddie Mac said yesterday.

The housing market, in the season that’s traditionally its busiest, can use the help, even if it’s short-lived. Soaring home prices and a one percentage point spike in rates from May to August last year cut into affordability and slowed the real estate recovery. While the falling borrowing costs have forced economists at the National Association of Realtors and Moody’s Analytics Inc. to lower forecasts, they still expect 30-year rates to lurch closer to 5 percent by the end of the year.

“It’s a temporary window of opportunity for buyers in that a year from now rates will be higher,” said Mark Zandi, chief economist for Moody’s Analytics in West Chester, Pennsylvania. “The housing market could use it given how it’s gone sideways. But I wouldn’t count on these low rates for very long.”

The decline in borrowing costs has so far done little to spur sales, which have been weighed down by tight credit and lower-than-normal inventory levels. Contracts to buy previously owned houses in the U.S. increased 0.4 percent in April, less than economists estimated. They are down 9.2 percent from a year earlier, the National Association of Realtors said yesterday.”

The Take-Away.  By the middle of June, we’ll have the May numbers. If we are still seeing this slow-motion improvement through May, it won’t bode well for a wholesale recovery in housing this year.  However, based on 2009 – 2012, some improvement is better than none at all. My take is that employment and consumer confidence are simply not where they need to be for housing to fully recover.  We still have a way to go in those departments.  ~PCQ