KEY MARKET INDICATORS as of May 29, 2019
April Housing Starts, Home Sales, Home Prices
Interest rate on mortgages have fallen significantly since peaking in November at 4.87%. The 30-year conventional mortgage rate averaged 4.14% in April. The impact on home affordability is very large for homebuyers. A homebuyer who could afford the monthly payment for a $240,000 mortgage under the higher rate can now afford the monthly payment for a $260,000 mortgage. That should bring more buyers into the market. That is also the assessment of investors. The homebuilding sector of the S&P 500 Index has risen 28% since the end of 2018, out-performing the broader market, which has risen by 11%. But lower rates haven’t had a very large impact on home prices and home sales as of April. In fact, home price growth continued to slow in March, rising 5% y/y compared to 5.8% in December. Existing home sales were basically unchanged in April compared to November. In today’s Wall Street Journal, Laura Kusisto writes, “Home-price growth sputtered in March, the latest sign that lower mortgage rates and a booming economy are doing little to boost prices during the critical spring selling season.”
Why is there such a disconnect between the investor’s view and housing data?
That difference may be due to timing. While homebuyers who applied for a new loan in April may get 4.14% on a 30-year conventional mortgage, homebuyers who closed on a home that month did not. The average interest rate on 30-year conventional mortgages was 4.7% in April, and the average interest rate on a 30-year FHA loan was close to 4.8%. That implies the impact of a lower interest rate may arrive with a lag, and leading indicators will rebound sooner. For example, new home sales, which measures the number of contracts signed instead of closed sales, has seen a much stronger performance in the past four months. April housing starts, especially the single-family segment, are also showing signs of a rebound.
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Disclaimer: Opinions, estimates and projections in this report constitute the current judgment of the author as of the date of this report. They do not necessarily reflect the opinions of Genworth Mortgage Insurance and are subject to change without notice. Genworth Mortgage Insurance has no obligation to provide revised assessments and assumes no duty to update information in the event of changed circumstances. While we have gathered this information from sources believed to be reliable, Genworth Mortgage Insurance cannot guarantee the accuracy of the information provided. Certain data discussed in this report is publicly available only on a time delayed basis. Genworth Mortgage Insurance strives to analyze data as it becomes available, but makes no representation that all data is reviewed immediately upon release.