Property Management – West Hills – Housing Market
Will the Home Sales Spree Soon Leave Owners Holding the Bag?
Has the housing market begun to plummet due to rising interest rates? Are rental housing values about to crash?
Those who read my articles know I’m frequently asking the questions that rental property owners and managers should also be asking. The answers are vitally important during these uncertain economic times. As of November 27, 2013 the yield on the 10 year Treasury bond sits at 2.74%. This is the benchmark interest rate impacting home mortgage rates, and it’s been stuck around this level for months.
This begs the question, “Will the Federal Reserve’s Zero Interest Rate Policy (ZIRP) prevent this important benchmark interest rate to move much higher?” Experts are divided on the answers. Only in hindsight do we really have a more accurate view of the numbers of houses that have been selling, whether ZIRP has contained longer-term interest rates, and whether rising mortgage rates have tamped down on new and existing home sales.
According to the National Association of Realtors’ (NAR) most recent update and taking into account variations in all regions of the U.S housing market, pending home sales continued to move lower in October, marking the fifth consecutive monthly decline. The “Pending Home Sales Index, a forward-looking indicator based on contract signings, slipped 0.6 percent to 102.1 in October from an upwardly revised 102.7 in September, and is 1.6 percent below October 2012 when it was 103.8.
“The index is at the lowest level since December 2012 when it was 101.3; the data reflect contracts but not closings” according to the NAR. So the bottom line here is that housing prices continue to cool down after the big spike that began in the autumn of 2012 when Treasury bond yields and mortgage rates were at historic lows.
The NAR’s chief economist Lawrence Yun explained the situation this way, “…weaker activity was expected. The government shutdown in the first half of last month sidelined some potential buyers. In a survey, 17 percent of Realtors® reported delays in October, mostly from waiting for IRS income verification for mortgage approval,” he said.
“We could rebound a bit from this level, but [the markets] still face the headwinds of limited inventory and falling affordability conditions. Job creation and a slight dialing down from current stringent mortgage underwriting standards going into 2014 can help offset the headwind factors,” Yun said.
A survey of real estate professionals validated the slowdown in market activity, but some surveyed view the slowdown as a “welcome brake” on the rapid home price growth that’s occurred when there’s been only modest growth in consumer incomes and jobs. Then there’s the all-important Housing Affordability Index. Housing affordability decreased in the third quarter as home prices and mortgage rates were on the rise.
This left housing prices out of reach for more families, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index. The NAR also reported that housing affordability has fallen further to a five-year low because home price increases have risen more than the average person’s income growth.
So if you’re a property manager and you have clients who have used leverage to finance their purchases of rental properties show your concern by asking if their financing interest rates will change soon. If interest rates on refinancing are much higher than when they originated their loans, it may be a good time to consider selling some rental properties to lock in gains and reduce their financing exposure.
Once again the housing sales numbers and the affordability index tell us all that fewer Americans can buy their housing and more will need to rent. That should be a big plus for the property management industry and their owner clients in the year ahead.
from propertymanager.com by Marc Courtenay
Carnahan Property Management services Woodland Hills,West Hills, Calabasas, Canoga Park, Tarzana, Reseda, Topanga, Encino, Northridge, Van Nuys,North Hills,Chatsworth, Sherman Oaks, Studio City, North Hollywood, West Hollywood, San Fernando Valley, Granada Hills, Mission Hills, Simi Valley, West Lake Village, Agoura,Toluca Lake, Valley Village, Burbank. Call us at (818) 884-1500 and check if we can service your area.
