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Two reports illustrate the supply-and-demand imbalance in the housing market.
Two reports Thursday illustrated the supply-and-demand imbalance in the housing market.
On the same day mortgage buyer Freddie Mac said the average 30-year mortgage rate hit its lowest mark so far in 2017, the National Association of Realtors reported that July’s sales pace was the lowest of the year.
While low mortgage rates help make houses affordable for more consumers, the housing market is being constrained by a key element: a lack of residential properties for sale.
No one really knows when that out-of-whack situation will become more proportional. And at the same time, prices are creeping upward with the lower inventory.
“We’re only firing on five cylinders because the missing cylinder is (home) listings,” said Mike Ruzicka, president of the Greater Milwaukee Association of Realtors. “There aren’t enough listings.”
Brian Wickert, owner of Accunet Mortgage in Butler, said fallout from the Great Recession, when many tradespeople left the homebuilding industry, is a factor holding down the inventory of homes.
“I don’t see any immediate solution to the housing shortage,” Wickert said. “On a national basis, we went from building around 1 million new residential homes per year to less than 400,000. Builders and tradespeople got out of the business, and now there’s a shortage of skilled construction workers.”
The National Association of Realtors said Thursday that U.S. sales of existing homes slipped 1.3% last month to a seasonally adjusted annual rate of 5.44 million. Sales are 2.1% higher than a year ago, but purchases are starting to slow as fewer properties are coming onto the market.
The scarcity of for-sale homes is pushing up prices. The Wisconsin Realtors Association reported this week that July sales of existing homes were down 5% from a year ago, and that the median price was up 5.9%. Through the first seven months of 2017, sales in the state were off 0.1% from a year earlier, while the median price was up 6.1%.
“For existing homes, it seems like there’s a lack of inventory in good locations and lower price point,” said economist Brian Jacobsen, who is chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls and an associate professor at Wis-
consin Lutheran College. “Baby boomers that are downsizing are tending to downsize out of bigger and more expensive homes than what new buyers can afford.”
In addition, homeowners are staying in their houses longer. They’re choosing to build up their equity by staying in place and repaying their mortgages, reflecting a lesson learned during the 2007 housing bust when people without sufficient equity lost their homes to foreclosure, according to Daren Blomquist, senior vice president at ATTOM Data Solutions. The supply shortage has made it more difficult for buyers to either move up or downsize to another home, he said.
Ruzicka said in the Milwaukee metro area, houses that are in move-in condition and priced under $350,000 “are just flying off the market.”
The dearth of homes for sale was reflected in July home sales in the four-county Milwaukee region. The number of sales that closed on existing homes decreased 5.2% from July of last year, a report from the Greater Milwaukee Association of Realtors shows.
Sales fell in all four counties: Milwaukee County sales were down 5.2%; Ozaukee, 6.3%; Washington, 14.8%; and Waukesha, 1.6%.
Industry professionals don’t see much change coming for mortgage
“I don’t see any immediate solution to the housing shortage. On a national basis, we went from building around 1 million new residential homes per year to less than 400,000. Builders and tradespeople got out of the business, and now there’s a shortage of skilled construction workers.”
BRIAN WICKERT, OWNER OF ACCUNET MORTGAGE IN BUTLER
rates in the near term. Freddie Mac reported Thursday that the average interest rate on a 30year mortgage dropped to 3.86% with 0.5 points in its latest weekly survey.
Wickert said the fact inflation remains below the Federal Reserve’s target despite low unemployment is helping to keep rates down. In addition, he said, worry about stock market values being too high gives investors motivation to park their money in safer investments with fixed-rate returns like mortgage securities. Concern the Trump administration and Congress won’t be able to advance their economic agenda also comes into play, Wickert said.
Jacobsen said mortgage rates have stayed low for a number of reasons.
“The biggest factor is the recent change in the outlook for Federal Reserve monetary policy,” Jacobsen said. “At the end of last year, it looked like the Fed was going to keep hiking its target for the federal funds rate, but then the inflation data started to dip and it looks more and more like the Fed will take it low and slow with raising rates.”
Jacobsen added: “Mortgage rates can move to the beat of a different drummer as they tend to dance with Treasury yields. Treasury yields have fallen as geopolitical issues have popped up. Mortgage rates move in sympathy with Treasury yields.”
Wickert said his company has seen an uptick in refinancing as mortgage rates have slipped. People are combining home equity loan balances, which typically have adjustable rates, with their first mortgage to put all their residential borrowing on a fixed rate. Growing equity as prices rise also gives some homeowners an opportunity to refinance and get rid of private mortgage insurance or FHA mortgage insurance, he said.
Said Wickert, “There are still thousands of people who could benefit by lowering their current rate just half a percent and shortening their remaining loan length by a couple years.”