Here’s how it could play out, according to Silvercrest’s Chovanec.
“When property developers can’t get more credit, they have to slash prices to unload their unsold inventories (and pay back their debts), which gives investors second thoughts about whether to continue plowing their money into property,” he said.
“Sales dry up, prices fall, new [housing] starts dry up, construction dries up, sales of construction equipment, concrete, and steel dry up, land sales dry up, local government revenues disappear and they can’t pay their debts … in other words, falling asset prices undercut the basis for both past and future lending, and you’ve got a real system-wide problem,” Chovanec added.
S&P Case-Shiller Home Prices increased in June, with the 10-City composite and 20-city composite indices both ticking up 1.0% (not seasonally adjusted).
Year over year, the 20-City Composite is up 8.1%. This is a rapid growth rate, but is considerably lower than the 9.4% Y/Y rate in May and the 13.6% Y/Y rate in October 2013.
The national house price level is now roughly equal to where it stood in October 2004.
Of the 20 cities tracked in the index, Los Angeles has had the greatest increase in home prices since 2000, while Detroit has been the only city where prices have declined over the past 14 years.
From a year ago, house prices have increased the most in Las Vegas, where they rose 15.2%. Cleveland has had the slowest rate of annual increase, rising only 0.8%.
Dallas and Denver are the only cities whose prices have increased beyond their pre-recession peak. Las Vegas remains the furthest below its peak.
The U.S.Federal Housing Finance Agency also released its June House Price Index figures today. They saw national house prices increasing 0.4% in June (not seasonally adjusted), and increasing 5.1% from a year ago.
The FHFA HPI is calculated using home sales price information from mortgages either sold to or guaranteed by Fannie Mae and Freddie Mac.
The U.S. index is 6.4% below its April 2007 peak and is roughly the same as its July 2005 index level.
The FHFA tracks 9 different geographic census divisions.
In both the Case-Shiller index and the FHFA index house prices continue to increase, but the pace is slowing.
The Chicago Fed’s National Activity Index (CFNAI) was a reading of +0.39 in July, up from June’s revised reading of +0.21. The positive figure indicates that the index is above its historical trend. The index’s 3-month moving average is at +0.25.
53 of the 85 individual indicators made positive contributions to the CFNAI in July, while 32 made negative contributions.
48 indicators improved from June to July, while 36 indicators deteriorated and 1 was unchanged. Of the indicators that improved, 9 made negative contributions.
The CFNAI is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories. Each of these data series measures some aspect of overall macroeconomic activity.
It is constructed to have an average value of zero and a standard deviation of one. Since economic activity tends toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend.
Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 2.4% in July to a seasonally adjusted annual rate of 5.15 million. This annual rate is 4.3% lower than the 5.38 million-unit level in July 2013.
Lawrence Yun, NAR chief economist, says sales momentum is slowly building behind stronger job growth and improving inventory conditions. “The number of houses for sale is higher than a year ago and tamer price increases are giving prospective buyers less hesitation about entering the market,” he said. “More people are buying homes compared to earlier in the year and this trend should continue with interest rates remaining low and apartment rents on the rise.”
Yun does warn that affordability is likely to decline in upcoming years. “Although interest rates have fallen in recent months, median family incomes are still lagging behind price gains, and mortgage rates will inevitably rise with the upcoming changes in monetary policy,” he said.
The existing home sales rate in each of the 4 U.S. regions in July:
Northeast: 0.64 million from 0.64 million month prior.
Midwest: 1.22 million from 1.20 million month prior.
South: 2.12 million from 2.05 million month prior.
West: 1.17 million from 1.14 million month prior.
Total housing inventory at the end of July increased 3.5% to 2.37 million existing homes available for sale. That represents a 5.5 month supply at the current sales pace. Unsold inventory is 5.8% above a year ago, when there were 2.24 million existing homes available for sale.
The median time on market for all homes was 48 days in July. That is up from 44 days in June. Short sales were on the market for a median of 93 days, while foreclosures typically sold in 58 days, and non-distressed homes took 45 days. 40% of homes sold in June were on the market for less than a month.
The national median existing home price for all housing types was $222,900 up 4.9% from a year ago.
Privately-owned housing starts in June were at a seasonally adjusted annual rate of 893k million, the U.S. Census Bureau reports. This is 9.3% below the revised May estimate of 985k million, but is 7.5% above the June 2013 rate of 831k.
Single-family starts were decreased in June to an annual rate of 575k from 632k,, and multi-unit starts decreased to 318k from 353k.