Housing Finance at a Glance: Monthly Chartbooks
The February 2020 edition of At A Glance, the Housing Finance Policy Center’s reference guide for mortgage and housing market data, includes includes updated figures describing first lien mortgage originations, the shares of loans in serious delinquency and foreclosure, and mortgage insurance activity.
The Inventory of Most Affordable Homes Falls to A New Low
Mortgage rates appear to be boosting the housing market. In January 2020, Fannie Mae’s Home Purchase Sentiment Index, which measures consumers’ housing related attitudes, intentions and perceptions, rose 1.3 points 93.0. The improvement was helped by a growing share of consumers saying they expect mortgage rates to remain steady.
However, the already low supply of homes for sale continues to fall. According to our calculations from Zillow data, the months’ supply of homes available for sale declined to 3.4 months in November 2019 down from an average of 5.5 between 2013 and 2014, a period when the for-sale inventory was largely steady (figure 1). This means that, at the current sales pace, the available inventory would be exhausted in about three-and-a-half months.
The decline in the months’ supply reflects a drop in the for-sale inventory, particularly the inventory of the most affordable homes. Data compiled by Zillow indicates that the total number of home sales in November 2019 - 438,257 -- was 22 percent greater than the average monthly sale between 2013 and 2014 of 358,453. In contrast, the total for-sale inventory in November 2019 of 1.35 million was 24 percent less than its average between 2013 and 2014 of 1.80 million.
Comparing the inventory of for-sale homes in November 2019 to the average between 2013 and 2014, we see differences in the rate of decrease over three price tiers. The inventory of homes in the top third tier fell by 20 percent in November 2019 compared to the 2013-14 average, the middle tier fell by 26 percent but the bottom tier fell the most by 31 percent. At 299,496 as of November 2019, the for-sale inventory of bottom-tier homes was below 300,000 for the first time since at least 2013.
In a strong housing market with limited supply, one would expect very few listings to receive price cuts. In fact, the share of price cuts has been fairly steady, albeit slightly above its 2013 level. It ticked up in 2018, due to affordability concerns stemming largely from higher mortgage rates, and declined slightly in 2019.
However, the percentage price cut has consistently shrunk as home prices have risen and months’ supply has contracted. In January 2013, the median price cut for homes with a price cut was 4.2 percent on a 12-month moving average basis. By December 2019, it was 2.7 percent.
Lower rates amidst a strong housing market helps both buyers and sellers. For potential buyers, today’s reduced rates support housing demand, but the resulting improvement in affordability from reduced rates can be offset by the lack of inventory. For sellers, the pressure to cut the list price is contained and a home’s final sale price may not be too far below its list price.
July 2019 (watch the July 29 chartbook call with guest Richard Green)
April 2019 (watch the April 29 chartbook call with guest Dave Stevens)
January 2019 (watch the January 30 chartbook call with guest Dave Stevens)