Rising Home Prices, A Mixed Blessing

By Taff Weinstein at

Rising Home Prices, A Mixed Blessing

Median home prices have been steadily rising since the end of the housing crises.  In fact, median home prices are up 35% since 2009 which is representative of a very healthy and vibrant housing market.  As home prices continue their slow and steady march upward, investing in real estate has never made more sense.  But it also means that the ability to participate in the housing market is becoming more difficult for one key segment - First Time Home Buyers.

Point2Homes analyzed data from the National Association of Realtors and the US Census and found some compelling facts:
    • The share of first-time buyers has been on a downward trend – entry-level buyers represented 50% of the total sales numbers in 2010, whereas in 2018 this share dropped to 33%;
    • The price difference between a home bought by a first-timer and a home purchased by a move-up buyer is also decreasing, going from 31% in 2009 to 27% in 2018;
    • The median age of a first-time buyer increased from 30 years old in 2009 to 32 years old in 2018, but the median age of repeat buyers has really gone up: from 48 years old in 2009 to 55 in 2018;
    • The average size of a new home increased from 1,580 sq.ft. in 2008 to 1,670 sq.ft. in 2013, only to start dropping again, settling at 1,600 sq.ft. in 2018.

MEDIAN HOME PRICE CHANGES: These rapidly increasing prices put a lot of pressure on prospective homebuyers from both segments, but demand is bound to increase for more affordable homes, which are, of course, starter homes and condos. As a response to the growing demand, between 2009 and 2018, the median price of an entry-level home has risen faster than home prices in the move-up buyer segment. Currently, a first-time homebuyer needs to pay 31% more for a home, compared to a repeat buyer, who is looking at a smaller increase of 25%.

PRICE GAP: The price gap between starter homes and homes bought by repeat buyers is slowly closing. According to their analysis of NAR and US Census numbers, in 2009 there was a 31% difference between the median price of a starter home and the median price of a home from the repeat buyer segment. By 2018, that difference fell to 27%, pointing to a slow but insidious trend.

SHARE OF FIRST-TIME BUYERS: As a consequence, since 2009, when the share of first-time buyers reached 47% of total sales, and especially since 2010 when this share hit 50%, the percentage of first-timers has been in free fall. In the total number of sales, first-time buyers represented only 32% in 2015, and that share only crawled back to a meager 33% in 2018.
Source: Point2Homes

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 3.500 MBS) gained +22 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move slightly lower from the prior week and remained near their lowest levels of the year.

Overview:  Overall, the economic data was very solid with better than expected readings in key Retail Sales and Manufacturing that continue to point solid growth.  The Fed's Beige book also showed an aggregate economy that is growing at a moderate pace in most districts.  Usually, strong economic data like we had last week would be negative for MBS (higher mortgage rates) but the rising tension in Iran, a sputtering China-U.S. trade negotiation and a looming showdown on the debt ceiling provided plenty of support for long bonds and kept rates low for the week.

Retail Sales:  The June Headline came in at 4 X the market expectations (0.4% vs est of 0.1%).  Retail Ex-Autos had the same reading.  The Control Group for Retail Sales increased by 0.7% vs est of 0.3%.

Manufacturing:  We got a couple of regional reports that were significantly stronger than expected.  The Philly Fed came in at 21.8 vs est of 5.0. The July regional Empire Manufacturing Index was much stronger than expected, coming in at 4.3 vs expectations of only 0.8 and quite a large swing from June's contraction of -8.6


The Talking Fed:  The Fed's Beige Book was released Wednesday. You can read it here.
Here are a few highlights:

Among the various indicators suggesting a solid, stable, expanding economy, the Beige Book notes that:

  • In most Districts, sales of retail goods increased slightly overall,
  • Activity in the non-financial services sector rose further
  • Tourism activity was broadly solid, with Atlanta and Richmond recording robust growth in this sector,
  • Some Districts continued to report healthy expansion in the transportation sector.
  • Home sales picked up somewhat, but residential construction activity was flat.
  • Nonresidential construction activity increased or remained strong in most re-porting Districts, and commercial rents rose
  • A modest pickup in manufacturing activity since the last reporting period was observed in a few Districts
  • Increased demand for loans was broad-based, with all but two Districts noting some growth in financing activity
  • Employment grew at a modest pace, as labor markets remained tight; contacts across the country experiencing difficulties filling open positions.
    • The reports noted continued worker shortages across most sectors, especially in construction, information technology, and health care.
  • Compensation grew at a modest-to-moderate pace, similar to the last reporting period, although some contacts emphasized significant increases in entry-level wages.
  • Rate of price inflation was stable to down slightly from the prior reporting period. Districts generally saw some increases in input costs, stemming from higher tariffs and rising labor costs.
  • Reduced supply boosted prices for some agricultural goods; some Districts noted increased upward transportation pricing pressures, while others highlighted price declines due to reduced demand for shipping services.


What to Watch Out For This Week:

The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets.  Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.


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