EQUITY RICH HEAT MAP Q2 2017 SHARE OF TOTAL PROPERTIES WITH A MORTGAGE WITH 50% OR MORE EQUITY 9.3% 52.0%
“There is no direct or indirect sign of any kind of bubble,” said Christopher Thornberg, founding partner at Los Angeles-based Beacon Economics, in an interview with Housing News Report in February. “Steady as she goes. Prices continue to rise. Sales roughly flat. … ‘Overall this market is in an almost boring place.” Median home prices in Los Angeles County have moderated recently, rising 6.1 percent on a year-over-year basis in the second quarter of 2017, down from a 7.5 percent annual increase in the first
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Risk #2: Income Contraction The sensitivity to rising interest rates is very strong today because incomes are in a rut. “Median household income,” says the latest Census Bureau income report, “was $56,516 in 2015, a 5.2 percent increase from the 2014 median in real terms, but 1.6 percent lower than the median in 2007, the year before the most recent recession, and 2.4 percent lower than the median household income peak that occurred in 1999.” The Bubble Danger: Homes prices are rising while incomes are stalled if not falling. A study by economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman estimates that half of all workers saw incomes flatline in real terms between 1980 and 2014. If incomes can’t keep up, and if mortgage rates increase, then at some point prices and sales will stall.
Risk #1: Rising Mortgage Rates Rising finance costs have traditionally been a barrier to entry for the obvious reason: higher mortgage rates mean steeper monthly payments and less ability to qualify for financing. In today’s market rates are around 4 percent and few people realize that the annual rate for 2016 – just 3.65 percent – was the lowest on record according to Freddie Mac. The Bubble Danger: In February, Lawrence Yun, Chief Economist with the National Association of Realtors (NAR), noted that “every 10 basis point rise in mortgage rates can shave off approximately 35,000 in home sales annually.” If we apply the Yun equation generally, then going from mortgage rates of roughly 4 percent to 5 percent means we might lose 350,000 transactions nationwide. Go from 4 percent to 6 percent and we’re talking about 700,000 fewer sales. With mortgage rates at the long-time average of 8.6 percent more
10 Housing Risks to Watch
If the housing market is so solid at the macro level amongst national analysts then why is there an unsettled, um, nervousness, a sense that despite rising home prices and strong sales all is not quite right at the micro level among frontline foot soldiers? Is there reason to believe that the real estate market might once again be subject to a sudden and terrible reversal? It’s worth asking not because inherent demand for real estate is slowing — people still want to live indoors — but because the wider economy is in flux. A lot of the “givens” upon which the marketplace depends are no longer so certain. The real estate market is now prosperous and growing, but can real estate avoid a sharp slowdown or even a crash when its basic foundations are shifting? Here are 10 real-world trends to watch.
than 2 million sales might be lost, enough to shut down much of the housing market.
JULY 2017 | ATTOM DATA SOLUTIONS
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