Despite weak real estate transaction activity, purchase cost goes up for 11th straight quarter, reports Team IFM
Washington, May 29: US house prices beat projections and market reports to chalk gains in the first three months of the year, separate reports from official and industry quarters say, giving rise to the hope that despite recent indications to the contrary, the American real estate sector is set to beat the odds.
US house prices rose 1.3 percent in the first quarter of 2014 compared to the October-December 2013 period, according to the Federal Housing Finance Agency (FHFA), the watchdog for American housing finance sector.
This is the 11th consecutive quarterly price increase in its purchase-only, seasonally adjusted house price index, the regulator said on Tuesday.
“Although the first quarter saw relatively weak real estate transaction activity, in part due to seasonal factors, home prices continued to push higher in the first quarter,” said FHFA Principal Economist Andrew Leventis in a statement.
Alongside, the latest S&P/Case-Shiller Home Price Index for 20 US cities, also released on Tuesday, showed house prices notching a seasonally-adjusted increase of 1.2 percent in March across the country as compared to that of the preceding month.
In comparison, economists surveyed in a Bloomberg poll had forecast an average monthly increase of just 0.78 percent. In fact, a slew of recent reports on the US housing sector has paint a grim picture despite the onset of spring that traditionally leads to a spike in sale of dwelling units.
Residential construction saw the sharpest upswing in five years in April in the US, official data released on May 16 showed, but analysts said this did not reflect growing purchasing power.
Alongside, a separate report by construction firms pointed to dented builder confidence, while recent research by the Federal Reserve Bank of San Francisco said rise in mortgage rates had made borrowing more expensive and deterred potential home buyers since the second half of 2013.
Economists say despite this, the price movement was upwards on account of a shortage in housing supply.
“We continue to see house prices increasing rapidly lately despite the recent weakening in housing demand,” said JP Morgan economist Daniel Silver in a report on Tuesday.
This, Silver said, “suggests that prices are continuing to benefit from limited available inventory and a declining share of distressed sales available in the market.”
This was also the view of FHFA principal economist Leventis. “Modest inventories of homes available for sale likely played a significant role in driving the price increase, which was similar to appreciation in the preceding quarter,” he said in his statement.
PRICES UP
As a result, FHFA’s seasonally adjusted monthly home price index or HPI for March was up 0.7 percent from February, while compared with last year, house prices rose 6.6 percent from the first quarter of 2013 to the first quarter this year.
Prices of other goods and services rose only 0.8 percent, FHFA said, adding that the inflation-adjusted price of homes rose approximately 5.7 percent over the latest year.
The HPI is calculated using home sales price information from mortgages sold to, or guaranteed by US mortgage giants Fannie Mae and Freddie Mac, and is a gauge of price movements in repeat sales or refinancing on the same single-family homes by the two mortgage firms. The S&P/Case-Shiller Index monitors independent transactions for single-family homes.
Both indices, seasonally adjusted, increased substantially in the first quarter year over year: the national Case-Shiller rose 10.5 percent and the FHFA’s quarterly purchase-only index rose 6.6 percent.
“The quarterly indexes associated with these two house price measures also showed rapid paces of house price appreciation continuing through the first quarter,” Silver said.
One major impediment to buyer confidence returning, according to new research from the Federal Reserve Bank of San Francisco, is the spike in mortgage rates since the middle of last year that has made borrowing more expensive.
The average interest rate on a 30-year fixed-rate mortgage rose from 3.45 percent in April 2013 to 4.37 percent three months later; according to Freddie Mac, it was 4.2 percent in mid-May.
Data with the National Association of Realtors show existing homes, accounting for the bulk of home sales, hit a seasonally adjusted annual rate of 5.38 million last July. Sales of such previously owned homes have slumped since then, and in March were down 7.5 percent from a year-ago period.
In a research paper released recently, San Francisco Fed Senior Economist John Krainer said it was higher mortgage rates that had dampened home sales, with buyers facing constraints on the size of loans they can secure and on loan payment amounts.
“Since individual incomes likely did not rise over this short period, and house prices continued to grow in most regions, the rise in mortgage rates was expected to have an unambiguous negative impact on sales,” Krainer said.
BUILDERS STABLE
Meanwhile, the Housing Market Index or HMI – designed for the National Association of Home Builders by financial services provider Wells Fargo to feel the pulse of builders of single-family homes – was more or less stable in May.
The figures released on May 15 showed builder confidence in the market for newly built, single-family homes in May fell one point to 45 from a downwardly revised April reading of 46, thereby reflecting real estate players in this segment had come to terms with market conditions.
“After four months in which the HMI has shown little signs of fluctuation, it is clear that builder sentiment is becoming more in line with the market reality of a continuing but modest recovery,” said NAHB Chairman Kevin Kelly.
“However, builders expressed some optimism that sales will pick up in the coming months,” said Kelly, a home builder and developer from Wilmington, Delaware.
Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB-Wells Fargo index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.”
The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
NAHB economist Crowe said builders were waiting for buyers to feel confident about their financial security once more. “Once job growth becomes more consistent, consumers will return to the market in larger numbers and that will boost builder confidence.”