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Hot or not? After the Election, the housing market has people holding their breath.

23 Nov 2016 · by betsyheller

20130608_wop000U.S. home sales were slowing even before Donald Trump emerged as the next president of the United States. Now in the wake of Trump’s surprise victory, mortgage rates are rising fast. Lenders are concerned that Trump will aggressively cut taxes and boost infrastructure spending, which would drive up the cost of managing the U.S. debt, increase inflation and give the Federal Reserve cause to raise the key rate that underpins all consumer borrowing.

The questions on many investors’ minds right now are whether the days of historically low mortgage rates are over, and what will happen to the housing market if rates rise faster than expected under President Trump.

The 10-year U.S. Treasury yield — the bellwether for mortgage rates — had its biggest three-day jump in more than seven years after Election Day, according to Bloomberg data. Meanwhile, the average 30-year fixed mortgage rate rocketed from 3.62 percent to just more than 4 percent in the week after the election, marking its steepest jump since June 2013 when the lending market had its “taper tantrum” over the Fed winding down its quantitative easing program.

While mortgage rates are still less than half of the historical average (for 45 years), according to data from Freddie Mac, the concern among some mortgage industry analysts is whether the historically low borrowing costs have created a housing bubble. If lending rates rise too fast it could disrupt demand, drive down prices and put some homeowners underwater — that is, owing more than their homes are worth. If these sound like the very factors that fed the Great Recession, that’s because they are.

So anxious industry observers are understandably hunting for signs of what comes next. For now, however, two big U.S. retailers — Home Depot and Lowe’s — whose businesses depend on the housing market seem confident the housing market will continue to fuel their business growth.

“The outlook for the home improvement industry remains positive, supported by a solid consumer backdrop, lagging benefits from existing home sales, and rising home prices that encourage the customers to engage in discretionary remodels and upgrades on top of routine maintenance,” Lowe’s announced in its third-quarter earnings presentation on Wednesday.

For the three months ended Oct. 28, the Mooresville, North Carolina, company said it earned $379 million compared with the $736 million in the same period last year. Excluding the costs largely pertaining to its ending of a joint venture with Woolworths in Australia, the company’s net profit in the third quarter increased compared with last year, to $841 million. Revenue, too, rose to $15.73 billion from $14.36 billion. Though it was lower than Wall Street forecasts, this performance shows continued strength in the home-improvement market.

Lowe’s larger rival, Home Depot, seems to be even more bullish.

“We believe home-price appreciation, housing turnover, household formation and an aging housing stock in the U.S. continue to support growth in our business,” said Home Depot Chairman and CEO Craig Menear on a Tuesday conference call announcing its third-quarter results. The world’s largest home-improvement retailer announced $1.97 billion in net profit in the three months ended Oct. 30, a rise from the $1.73 billion in the year-ago period. Revenue grew to $23.15 billion from $21.82 billion.

The stock prices of both Home Depot and Lowe’s are down for the year after a drop in demand over the past three months. Existing-home sales hit a post-Great Recession peak in June and the national median single-family home price rose more than 5 percent in the third quarter, to $240,900, according to the National Association of Realtors. But since then, U.S. home sales have slowed, especially in red-hot urban markets.

The question of whether this is just a temporary downturn has been made more relevant since Trump’s victory. The president-elect has avoided any housing-related policy statements, but it would not be out of the ordinary for a real estate developer and a Republican-controlled Congress to seek deregulation of the property lending market.

Now for the analysis of our local market: We are hot in overall sales in San Diego county. With the same rate of sales as last year. The average sale price, however, has decreased. Overall, the luxury buyers took the year off. If you bought or already owned a home since 2013, it has gone up an average of 19%.

So what IS happening? It is a great market for normal buyers and sellers and investors. We have had an incredibly NORMAL year with approximately ¼ of the transactions are government backed loans and 1/5 of transactions are all cash. The buyers who were watching the pre-election television shows started coming back into the marketplace the 3rd week of October and have not slowed. Looking to sell? Don’t wait until after Christmas to start (your buyers aren’t). Looking to buy? Rates will probably not drastically rise even though we have seen a slight increase.

Let’s look at the numbers for San Diego county…

Current active homes on the market are still below 6000 (showing 5655 as of Nov. 23rd) for all homes not including manufactured, modular or mobile homes.  Despite the rhetoric on the news of the “slowdown” of home sales, it just has not translated into real numbers for the average San Diegan.

 The big change is the lack of sales of the luxury market.  This is shown in the lower sales price/sf. Several factors caused this: first and foremost is the changing demographics of the luxury buyers, then the aging luxury home products, and finally the ongoing trend of multi-generational homes.

 The biggest win for the last two years has been for the veterans!  Ten years ago, the VA loan was used by less than 2% of home buyers in San Diego County.  This year and last year, VA loans will comprise over 13 of the new home loans.

Finally, for the naysayers and dooms-dayers (I know you are out there! J), the cash buyers are still purchasing in our marketplace.  They comprised ¼ of the market in 2013 and are still 1/5 of the market sales this year.  Worried that the market will tank dramatically?  Not likely.  Sellers with a lot of equity will just wait out the market until it improves.

 More questions? Comments?  Email me, I would love to hear them!

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  • Achievers Realty, Inc.
  • Downtown Office:
  • 932 C Street
  • San Diego, CA 92101
  • P: 858-756-2328
  • F: 858-926-3533
  • E: bheller@achieversrealty.com
  • DRE: # 01074985