The Real Estate Market in General Has Been One Huge Roller Coaster Ride for the Past Three Years

What a difference a month makes. In September, homebuilder mood was in the doldrums, where it has been for most of the year. In October, that mood turned noticeably positive, with the homebuilder index jumping four points to 18 – the highest posting in nearly 18 months.
There is still a long way to go before homebuilders approach the heady days of a few years ago, but at least the market is progressing. Builders began work on an annual rate of 658,000 houses in September, a 15-percent increase over August’s starts and the most since April 2010. Much of the increased activity was centered on multifamily homes, which surged 51.3 percent. However, work on single-family homes also increased, 1.7 percent, to an annual rate of 425,000 units.
The National Association of Home Builders, which compiles data for the homebuilder index, warns that builders face pricing pressure from foreclosed properties. The good news is that foreclosures appear less onerous than they did a year ago. At the same time, homebuilders are adding to supply at a record low rate. In other words, the economics of home building are much more encouraging than they were earlier in the year.
The economics of the existing-home market continue to adhere to the recent past. Total inventory declined 2 percent to 3.48 million homes at the end of September, with the sales rate declining 3 percent to 4.91 million units. This came as no surprise; August’s sales were exceptionally strong and a slight drop off in the sales pace was expected.
Homes that were purchased over the past two months have been financed with mortgage rates that were prevalent during the youth of the purchaser’s parents. In the past couple weeks, Is A Ceiling Fan Personal Property though, rates have been trending higher and are up around a quarter percentage point from where they were a fortnight ago. That said, mortgage financing is still a very good deal.
But will mortgage financing become a better deal? Many in the industry think so. We are less sure, especially when factoring in growing price inflation. Overall producer prices are up nearly 7 percent this year, while the core rate, which excludes energy and food, is up 2.5 percent. On the consumer side, overall prices are up 3.9 percent, while core prices are up 2 percent.
The Federal Reserve is trying to hold mortgage rates low by buying longer-term Treasury and mortgage-agency debt. Problem is, the market has been pushing back in recent weeks, as evinced by the spike in 10-year U.S. Treasury note yields. Bottom line, the falling mortgage-rate trend is much less a sure thing than it was a month ago.
One of our recurring themes over the past year has been that the laws of supply and demand are infallible: lower prices drive demand, which, in turn, lower supply and help prices recover.
The process is working before our eyes. REMAX reports that home sales prices are down 3.3 percent from a year ago (though prices have risen in recent months), and at the same time national home sales and median prices are up.
You can most clearly see this law of supply and demand at work in the hardest hit home markets. REMAX data show that Florida has seen significant reductions in inventories as well as rising median list prices. In fact, Miami had the largest inventory reduction year-over-year at 49.3 percent, while the median list price in Fort Myers-Cape Coral, Fla., was up 34.4 percent – the highest increase in the nation.
Some other hard hit areas, Las Vegas most noticeably, are still searching for a bottom. We suspect, though, that these areas are close to finding one (housing will not be depressed forever). Our chief complaint is that this bottom-and-recover process would likely occur at a faster pace if we could get more mortgage funds to more creditworthy customers.
Other area’s such as Howard County Maryland have been at the bottom and holding strong for the past year. Some pockets of Writing An Offer For A House Ellicott City, MD in Howard County have even seen small price increases as well as increases in the number of sales.

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