2019-08-01
July, 2019 National Real Estate Monthly Market Report
Hi ladies and gentlemen this is Brandon Schuppe, with the July 2019 Monthly Market Report for, Keeping
Current Matters. Let’s jump right into the news.

As usual in July, we give you a pricing update that’s our quarterly pricing update. And we want to start
with the FHFA Actual Year-Over-Year price change in regard to individual markets, okay.
So, what we can see here, individual regions. What we can see on this chart is that in each region we
had a very nice uptick in prices. So if we go all the way across the board, we’re still seeing very strong
appreciation. We’re not seeing that 7, 8, 9% that we saw on the West Coast I should say. But we’re still
seeing strong appreciation.
Remember, normal historic appreciation is 3.6%. And every one of the regions bettered that in the last
year.

Now when we break it down by state, the FHFA Report, we can also see that in every state that there’s
no red states. There’s no state losing value. 

Now there is some concern that there might be some individual metros losing some value. San Jose is
one that pops up into my head. And we’re taking a close look at that. But across the board we don’t
have a challenge whatsoever, at all. And there’s no state with a challenge.
That doesn’t mean that appreciation isn’t slowing. The new Case-Schiller Report shows exactly that.
We’re no longer at that 6-1/2% national appreciation we saw just a year ago. We’re back down to
normal numbers.

But it had fallen as low as 3% and now we’re back up to again, the historic numbers of 3.5 to 4%, all
right. And that’s where we’re bouncing right now. It’s going to be interesting the way this moves
forward. And I want to talk about that right now.
We’re going to jump over to the CoreLogic Report, because we also want to give you the information
from them.

Here’s the actual year-over-year percent change in price by state. So you can look at the states
individually and see exactly where there are challenges and where there are not challenges, over the
last year.

But probably more important is that CoreLogic forecasted what’s going to happen over the next 12
months. And as we can see, the entire country is very strong. As a matter of fact, they’ve upticked
what they thought the national average appreciation increase would be, to 5.6%.
And we can see that the entire country is strong, state-by-state. And their national number is 5.6%. As
a matter of fact, they upticked that number from last month.

And we can even go further than that. If we take a look at their May, June, and July reports, each of
those three months they upticked where they thought the next 12 month’s appreciation would be.

So, what does that mean? What they’re saying is, where they thought appreciation was going to be 90
days ago, they’re starting to be more optimistic about it. And the following month they went from 3.6
to 4.7. And then the last 30 days they said, wait a second. It looks like houses are going to appreciate at
a higher level than we originally thought. And they upticked that to 5.6%.
So, what we’re seeing now is apparently, at least according to CoreLogic, we’ve hit bottom, and we’re
making a turn back up.

I don’t think we’re going to return to that 7, 8, in some regions 12% appreciation. I think we’re going to
bounce around between that 3-1/2 to maybe 5-1/2% home appreciation. And the reason they’re
seeing that turn is, demand ticked up because interest rates have gone down. Which we’ll talk about in
a second.

The Home Price Expectation Survey came out the day before this recording. And we wanted to get you
that information. This is remember, a nationwide panel of over 100 economists, real estate experts,
and investment and market strategists.

Now if we put all of their numbers together, we can see that the - all the projections together - they
think that between now and 2023, nationally, prices will be up 16.8%. So we’re going to see nice
appreciation over the next five years. At least average appreciation, all right. Meaning we’re not going
to see any depreciation.

The bulls, the top 25% of those over 100 people surveyed, think it’s going to be much higher than that
over the next five years. So we’re going to see an over 5% appreciation annually, for a total of 27.7%.
But probably the most important number on that graph is the bears. The most negative. The people
that always see the glass half empty. Even they think that over the next five years we’re going to see
appreciation limited, 6.7%. But again, the bar is in red. Even the bears are not considering depreciation.

And when we take a look at it over the next five years, all projections, this year we think - they think
it’s going to level out at 4.1%. Then the pendulum is going to swing a little bit too far the other way.
Remember, we’ve talked about you know, we’re on the longest stretch of an economic recovery ever.
There’s going to be some slowdown in the economy probably. And they think that those values will
below that 3%, until they go back up to normal appreciation in 2022 and 2023.
Now the Home Price Expectation Survey, because it surveys over 100 experts, we like to give that to
you. But we also like to give you the projected home price, percentage appreciation going forward
from six major entities. The Home Price Expectation Survey, which we just gave you; Mortgage Bankers
JULY 2019

And in each one of these categories - each one of these institutions I should say - are projecting again,
that we’re going to continue to see appreciation. Limited appreciation. But again, there are no
numbers on there that are red. So the fear that we might be looking at depreciation is just - the experts
aren’t saying that.

And when we take a look, ladies and gentlemen, you know, because people like to talk about 2005 and
going back, 2006, if we look at the increase in home values from 2005 to 2018, it’s pretty interesting.
Because, ladies and gentlemen, if the people stayed in their homes, and I know some people were
unable to. You know, the economy bit at them. There were foreclosures and short sales. Some families
were devastated.

But for the people that were able to stay in their homes, pretty much across the board, they would
have had really nice appreciation. And nobody would have experienced that their house was worth
less. At least not from the state level, all right. And that’s important that we get that. [00:07:07]
Real estate is a great investment. And even those who bought at the height of the market, back at the
boom, before the bust, even they, if they were able to stay in their home, saw appreciation coming at
them. Now there are individual communities, that might not be the case. But we’re talking about
across every state in the nation, that is the case.

And the probability of home prices being lower in two years, Arch Mortgage Insurance does a report
on that. And as you can see here, they think North Dakota - because they tied into the energy - they
think there’s a moderate probability that home prices could be lower in two years.
The whole rest of the country is either a low probability of it happening, or even a minimal possibility
that’s going to happen.

So, again, for the people that are thinking that well, you know, if the economy slows up, then we’re
going to see some sort of return to you know, devastating numbers. That’s just not the case. And that’s
what this particular month’s report is showing us.

Now the only exception I’ll say to this, and this is the way I’m going to give it to you is, in the upper end
of the market there is way too much inventory. And how that inventory gets, you know, pushed out
and sold out, I think we will see - I’m not calling for depreciation. But I think we have to be really, really
tight with those prices.

And here is a graph from the ‘Z’ Report. And what it does is it surveys the bottom one-third of the
income group in the country, the middle third of the income group, and the upper third. And that will
represent starter homes, you know, lower priced homes, the mid-priced homes, and the upper priced
homes. And what we can see, the gray is historically how much optimism do they have for future price
appreciation? 

So, in the bottom third, historically 62% think that prices are going to continue to appreciate. Right
now, 65%, above the average. The middle third income, the average across years is 70% believe the
prices are going to be - going to continue to appreciate nicely.

That number is up to 74%. But the interesting thing, on the upper end, the higher income group, their
average is 74%. But right now only 69% believe that there’s going to be nice appreciation going
forward.

So, I think in the upper end we do have a little bit of a challenge because a tremendous overabundance in inventory. And the consumer themselves - that’s who’s being surveyed here - the
consumer themselves believe yeah, in the upper end, if we’re in the upper end, we’re going to see
some price pull back.

So, it’s important that we know that whenever we’re talking to anyone, if we’re in the upper end of our
market, that’s not going to appreciate like the lower end and the middle tier of homes. [00:10:06]
Shifting gears entirely, I want to talk about what I believe is a tremendous opportunity. Here’s the
percentage of your investor purchases, a new report put out by CoreLogic.

Of all the homes sold in this country, 11.3% were purchased by investors. Of the starter homes in this
country, over 20%, one out of five starter homes are purchased by an investor. The move up homes
dropped to 7.8%. And the high end homes are at 6.3%.

Now when I looked at that chart and I originally read it I said, oh my, God. You know, the institutional,
the professional investors, they’re getting more involved. And then as I got deeper into the report I
said, wait a second. That’s not necessarily the case.

As a matter of fact, Ralph McLaughlin at the National Association of Real Estate Editors, a conference
that was done late in June, we had our representation there from our organization. This is what he said
at that conference.

“Investor buying activity in the U.S. is at record highs. And our records go back confidently, about 20
years.” So for the last 20 years, investor buying activity, compared to the last 20 years, is at record
highs.

What’s going on and why? Well it turns out it’s not the big institutional guys that are leading the
increase in home buying. It’s actually the smaller guys. It’s those that have bought between one and
ten properties over this 20 year period. They’re the ones that are really leading the increase in investor
home buying. Let’s take a closer look at that from their report.

What we can see is what I consider the mom-and-pop investors. Someone who bought one to ten
houses over the last 20 years. That number is increasing dramatically. But that the professional
investor - people who buy houses and you know, that’s kind of their living - that number has ped.

And the institutional investors, the people purchasing homes, the single family rentals and that sort,
that number has ped significantly.

So, where there’s a feeling I think, amongst agents, that the institutional, they’re taking a lot of
properties out of the market. No, it’s actually the mom-and-pop.

Now there’s two opportunities there. Number one is, some of that mom-and-pop, they’re not buying
them just for single family rentals. They’re going to fix them up and turn them over. So what they’re
doing is many of them are purchasing properties in our markets that a first-time home buyer might not
even be interested in because it needs too much repair.

They’re going in, they’re repairing it, and putting it back on the market in many cases. They’re flipping
it. Only they’re taking a property that is not saleable to that first-time home buyer, and making it
saleable to the first-time home buyer.

So, they’re not taking inventory off the market. They’re actually adding more inventory to the market.
And we need to be in touch with those mom-and-pop investors. We need to know who they are in our
community. We need to know how to talk to them.

Because I think that there are more and more, you know, sellers now putting their house on the
market for a slew of different reasons. And I’m not the only one that thinks that.

Mark Fleming, the Chief Economist at First American, First American did a survey. Here’s a quote from
him. “Title agents and real estate professionals indicate home buyers encouraged by unexpectedly
lower mortgage rates in 2019 - a tailwind helping to boost demand and inspire existing home owners to
sell their homes.”

All right, so now because interest rates are lower - we’ll get to where they are in a second - it’s
increased seller traffic. The number of people.

Here’s the Realtor Confidence Survey. There are more - that used to be totally, you know, gray and
orange. Either weak or very weak, the seller traffic. The number of people talking to agents about
selling their home.

But what we’re starting to see is, across the country, the very weak has disappeared. They’re still some
weak states. But more and more of the country is turning medium blue or darker blue, meaning more
and more sellers are coming out, putting their house on the market. And I think that some of that is
our mom-and-pop investor.

But remember, if we take a look at interest rates, they shot up at the end of last year. And that slowed
everything up. And they started going up in the third quarter. In the fourth quarter it really slowed
things up.

But since then, since December, interest rates have ped. As a matter of fact, as of this recording,
their lowest rate in three years. That does two things. It spurs buyer demand, not just from the firsttime buyer, but also that second and third-time buyer who currently owns a house and has to put it on
the market. 

And the second thing it does is, people who had low interest rates on their home, and maybe were
saying, well I’m not going to sell right now. I don’t want to lose my lower interest rate, well now that
rate lock as they called it, all right, doesn’t exist. Because they still can buy their next house at a very
low below 4% interest rate.

But that window of opportunity is going to disappear. And we have to make sure we take advantage of
it when it’s there. And I think that time is right now.

Let’s start with Danielle Hale, the realtor.com’s Chief Economist. “Lower mortgage rates, higher wages,
and more homes for sale have helped counteract rising home prices, and ultimately, made it so that
buyers are able to afford more than last year.”

Buyers are able to afford more than last year. Affordability is actually increasing, the affordability index
is actually increasing meaning, it’s more affordable to purchase a home, and they’re out there buying.
But probably more important, we’re not just talking about first-time home buyers. There are people
who currently own a home that are saying, it’s time for us to move up. 

Ralph McLaughlin again, the Deputy Chief Economist at CoreLogic - “With mortgage rates flat and
inventory picking up, we expect more buyers to take advantage of easing housing market headwinds.”
Ladies and gentlemen, we’re going to do a very good job the second half of this year. And the people
who take advantage of that, will dominate going into 2020.

Sam Khater, the Chief Economist at Freddie Mac agrees. “The in mortgage rates over the last two
months is already being felt in the housing market. In the near term, we expect the housing market to
continue to improve from both a sales and price perspective.” The number of sales and price
perspective.

So, we gave you the Chief Economist of realtor.com, the Chief Economist at CoreLogic, the Chief
Economist at Freddie Mac are all saying the same thing. We’re heading into a time when sales are
going to ratchet up in a big way.

And the last quote I want to give you on that is from Ivy Zelman and the ‘Z’ Report. “Key metrics
tracking existing home sales demand have been on an upward trajectory so far in 2019. This portends
positively for our forecast for existing home closings to increase by 1% in 2019, despite a 3% decline
through the first five months of the year.” 

That’s important. This year was the exact opposite of 2018. In 2018 we started strong, and then
petered out at the end as interest rates went up. This year we started out slower. We had no
momentum going into the year. But the second half of the year is going to uptick in a big way.
Our outlook implied 4% growth for the remaining months of the year, predicated on more supply than
last year, the decline in mortgage rates, moderating home price appreciation, and improving
affordability.

Ladies and gentlemen, we had a slower, maybe not as good as we wanted to, first six months of the
year. The second half of the year is going to be very, very powerful. Let’s make sure we realize that and
let’s make sure we’re working hard to take advantage of that. I think that’s crucially important as we
go through the rest of the year.

And again, finishing 2019 in a very strong manner will guarantee that you kick-off 2020 exactly the way
you want to.
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