Home Prices Continue To Rise BUT, Is That All Good?

According to the latest report from Corelogic, home prices rose year over year for the 26th consecutive month in April. Furthermore, the Federal Reserve reported that due to rising home prices, household equity increased by $758 billion in the first quarter alone. While that is great for so many homeowners who lost a tremendous amount of equity in their homes during the Great Recession, what is it doing to home affordability now and moving forward?

According to a report just provided by Hart Research Associates, over half of Americans (52%) have had to make at least one major sacrifice in order to cover their rent or mortgage over the last three years. These sacrifices include getting a second job, deferring saving for retirement, cutting back on health care, running up credit card debt, or even moving to a less safe neighborhood or one with worse schools.What’s more, the report also showed that at least 15% of American homeowners are living in housing markets where the monthly mortgage payment on a median-priced home requires more than 30% of the monthly median household income. The 30% figure has always been considered  the maximum for rent/mortgage repayments.

Although mortgage rates are still very low, the three most common hurdles for buying a home (which are down payment, credit and tighter underwriting guidelines), especially among young people, still exist. The attached article indicates that ~84% of young people are delaying major life decisions due to the poor economy – and that the slow jobs recovery for them has made saving money difficult. That is likely to be a continued drain on home buying moving forward as first time home buyers represent around 40% of all buyers right now. Increased prices have also caused many investors to jump back on the sidelines as the great deals are no longer available, adding another drain to future home purchases.

So while rising values have certainly helped millions gain back lost value from the recession, it has created other challenges for new homebuyers moving forward.  The good news is that our market continues to be very resilient, still providing quality opportunities for progress.  But we are going to have to be on our A game going forward and continue to add value to our clients in the service we provide.  When we do that, we will continue to see personal success regardless of the market conditions.

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The Week Ahead
This week, the biggest report will be Retail Sales, which will be released on Thursday. Retail Sales account for about 70% of economic activity. Before that, the JOLTS report, measuring job openings and labor turnover rates, will come out on Tueday. The Producer Price Index (PPI) focuses on the increase in prices of "intermediate" goods used by companies to produce finished products and will come out on Friday. Consumer Sentiment and Import Prices will round out the schedule. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

The Week That Was
Ahead of two major economic events, mortgage rates moved higher early in the week. When there were few surprises in either the Employment report or the ECB announcement, though, mortgage rates recovered some of their losses and ended the week just a little higher. This was the first weekly increase in rates in six weeks.

After slowing over the winter due to unusually severe weather, the economy has seen job gains above 200K over the last several months. This was the first time in 14 years that job gains exceeded 200K for four straight months. Against a consensus forecast of 210K, the economy added 217K jobs in May. The Unemployment Rate was flat at 6.3%. Average Hourly Earnings, a proxy for wage growth, were a moderate 2.1% higher than one year ago. The May Employment data was right on target with the forecasts in nearly every area.

The European Central Bank (ECB) took a middle of the road approach in easing its monetary policy. After weeks of hinting that further monetary stimulus is needed to boost economic growth, ECB officials announced a rate cut on Thursday. They also will implement measures to encourage bank lending. Investors were most interested in hearing about a bond purchase program, but ECB President Draghi essentially just suggested that they were holding this key option in reserve to use in the future if necessary. The ECB stimulus did cause bond yields around the world to move a little lower.