Luxury home prices outpace the rest of the market

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Published Date 8/7/2017

Realtor Report

Luxury home prices outpace the rest of the market

High-end homes—the top 5% of the most expensive homes in each city—are increasing in value at a higher rate than the rest of the market. In the second quarter of 2017, they increased in price by 7.5% from the previous year, the first time they have outpaced the rest of the market since 2014.

The reason for the resurgence in prices may seem ironic: sellers have begun asking less for their high-end homes, and this has created more action in this market segment. Sellers are asking prices more closely aligned with actual market conditions, which tends to cause more competitive bidding on these properties. As the sales of these luxury properties increase more quickly than the rest of the market, the supply diminishes. This adds to the upward pressure on prices.

The National Association of Realtors has noted that the supply of luxury homes—those properties valued at $1 million or more—fell 9.4% compared to the same time last year. The inventory of homes some might call ultra-luxury properties— those priced at $5 million or more—have pulled back by about the same amount. The inventory for these pricey residences increased in each of the previous five quarters, according to the Association. This shortage of swanky homes is exacerbated by the pronounced uptick in sales; 19% more homes of $1 million or more sold in June of this year compared with last year’s statistics.

While not every home seller is likely to be overly concerned with the plight of the very wealthy, there is one lesson to take away from these statistics: sellers who ask realistic, market-based prices for their homes are more likely to get better prices than those who list their homes over the market, hoping to snag some unsophisticated buyer who might be willing to pay too high a price.

Source: CNBC.com

This Week's Mortgage Rate Summary

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up.

Rates Currently Trending: Neutral

Mortgage rates are trending sideways this morning. Last week the MBS market improved by -+22. This was may've been enough to improve mortgage rates or fees. Mortgage rates were volatile toward the end of the week.

This Week's Rate Forecast: Neutral

Three Things: These are the three items that have the greatest ability to impact mortgage rates this week: 1 ) Fed, 2) Inflation and 3) Across the Pond.

1) Fed: We will hear from several key voting members this week. We will be paying close attention to the overall theme of the timing of starting their MBS taper this year.

08/07 James Bullard and Neel Kashkari
08/09 Charles Evans
08/10 William Dudley
08/11 Robert Kaplan

2) Inflation: We get both PPI and CPI this week. The market is expecting PPI YOY to get back above 2.0%. However, that is not expected to flow through to Friday's CPI which is expected to hit 1.8%. The closer Friday's CPI data is to 2.0%, the worse it is for mortgage rates. The closer that reading is to 1.5%, the better it is for mortgage rates.

3) Across the Pond: We get some important economic data out of the world's second largest economy as we get China's Import and Export data as well as their PPI and CPI. We also get key data from Japan (number 3 economy), Germany (number 4) and Great Brittan (number 5).

Treasury Auctions This Week: (The 10 and 30 are not new auctions but reauctions of current debt).

08/08 3 year note
08/09 10 year note
08/10 30 year bond (most important)

Rounding Third: The bond market will also be paying close attention to Tuesday's OPEC meeting as well as geopolitical events. The United Nations voted 15-0 on Saturday to impose new and harsher sanctions on North Korea which will cripple its exports (and therefore the cash flow into the nation that would be presumably used for nuclear research). This has put concerns over a trade war between China and the U.S. at ease for the time being.

This Week's Potential Volatility: Average

Mortgage rates are likely to be fairly stable through the first part of the week. However, we could see some volatility when we start getting inflation numbers on Wednesday and through the rest of the week.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Source: TBWS

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