The Case-Shiller 10 and 20-City Home Price Indices for June reported year-over-year gains of 8.10 percent while the Case-Shiller National Home Price Index covers all nine census regions and reported a year-over-year gain of 6.20 percent.
Readings for all three indices worsened as compared to May readings, and all cities tracked showed slower growth in home prices. The National Home Price Index, which is now published monthly, rose by 0.90 percent from May’s reading, and both the 10 and 20-City Index posted month-to-month gains of one percent.
Five cities including Detroit, Las Vegas, New York, Phoenix and San Diego posted larger gains in June than for May.
Regional Home Price Growth: NYC Leads Cities in June
According to the Case-Shiller 20-City Index, New York City led home price growth in June with a reading of +1.60 percent. Chicago, Detroit and Las Vegas posted gains of 1.40 percent with Las Vegas posting its largest home price gain since last summer.
Year-over-year, Las Vegas posted the highest growth rate at 15.20 percent. San Francisco’s home price gains slowed to a year-over-year rate of 12.90 percent. Phoenix posted its slowest home price growth since March of 2012 with its June reading of 6.90 percent.
Home Prices Rise, But Modestly
While home prices in all cities tracked by Case-Shiller rose for the third consecutive month, analysts said that the Federal Reserve may increase its target federal funds rate as soon as the first quarter of 2015. This would lead to higher mortgage rates, which could further flatten home price growth.
Home affordability became an issue for many would-be buyers after the rapid rate of home price growth seen in 2013. Lower demand for homes could also impact the rate of home price appreciation as inventories of available homes rise. With these factors and no one knowing exactly when the Fed will act to raise rates, it’s unlikely that home prices will rapidly escalate in the coming months.
FHFA Reports Slower Home Price Growth in June
FHFA, the agency that oversees Fannie Mae and Freddie Mac, reported that June home prices slowed from May’s reading of 5.40 percent year-over-year to 5.20 percent year-over-year in June. FHFA reports on properties connected with mortgages owned or guaranteed by Fannie Mae and Freddie Mac. FHFA shared some positive trends for seasonally adjusted purchase-only home prices in its June report:
June’s home prices rose in 40 states.
Home prices rose for the seventh consecutive month
Home prices rose for 23 of the last 24 months with the November 2013 as the exception.
Home prices rose in the second quarter of 2014 in 74 of 100 metropolitan statistical areas (MSAs) tracked by the federal government.
Home prices in the Pacific and Mountain census districts continued to slow in the second quarter. After rapid growth in home prices in 2013, this appears to indicate and expected adjustment rather than an unexpected crash in home prices for these regions.
While slower growth in home prices is of concern to homeowners, more affordable prices will likely encourage more would-be buyers to become actual buyers.
When the sale of real estate takes place, a certain amount of time might be allotted after a contract is created but before the transaction is finalized. During this time the buyer may decide not to follow through with the deal set forth in the contract. This ‘option period’ allows buyers to have a property inspected and its value ascertained without the risk of losing the property to another buyer.
What Happens When The Option Period Takes Place
Typically, a buyer must pay an option fee in order to be able to enjoy the luxury of an option period. During the option period, property inspections are typically carried out on the property in question so that the buyer can be sure that the proposed offer is appropriate.
The nonrefundable option fee that the buyer pays the seller (so that the seller agrees not to follow through on a transaction with another prospective buyer) compensates the seller for the time during which the property is off of the market.
Differences Between Various States
It is not always possible for a buyer to have an option period during which he or she can finalize plans to make a purchase on a property. Regulations and procedures between different states vary significantly.
It is worth noting that the state of Texas has a real estate market that is particularly well known for granting option periods. In Texas, the option period usually lasts between seven and 14 days and serves as a period of time during which inspections are carried out; however, other states have different ways of dealing with option periods and scheduling inspections.
The particular laws applicable where a sale takes place will often dictate how much a buyer needs to pay to the seller in option fee charges. In the state of Texas, for example, the option fee is usually no greater than 1 percent of the sale price of the home. The option fee is normally applied to the transaction at escrow closing in the event that the buyer decides to proceed with the sale.
Buyers who decide not to purchase a property after the option period has already begun will usually be responsible for paying the option fee to compensate the buyer for lost time. However, the buyer will be under no further contractual obligations.
If you have questions on the processes and regulations involved in a real estate transaction, contact an experienced real estate agent to learn more.
The Department of Commerce reported July sales of new homes dropped by 2.40 percent over June to a four month low. Analysts noted that although July’s reading of 412,000 new homes sold fell short of expectations and June’s reading, the new homes sector is volatile and subject to change.
June’s reading of 406,000 new homes sold was revised to 422,000 new homes sold; expectations were based on the original reading. Three of four regions posted a slower rate of growth for home prices with only the South posting a gain.
The average price of a new home in the U.S. rose to $269,800, which is 2.90 percent higher than June’s average home price. Inventories of new homes increased to a six-month level based on current sales pace.
This was the highest inventory of new homes available since 2011. Strict mortgage credit requirements and an elevated national unemployment rate contributed to the lower rate of home value appreciation and higher inventories of new homes.
The good news: New home sales increased by 12.90 percent year-over-year in July.
Existing Home Sales Rise: Steady Mortgage Rates, Rising Rents Cited
The National Association of REALTORS® reported that July sales of previously-owned homes rose from June’s revised figure of 5.03 million sales to 5.15 million sales and achieved the highest reading for 2014.
The existing home sales readings are calculated on a seasonally adjusted annual basis. Existing home sales were 4.30 percent lower than for July 2013, which had the highest reading for existing home sales in 2013.
Lawrence Yun, chief economist for the NAR, said that a growing inventory of available pre-owned homes for sale and strengthening labor markets contributed to sales growth. Mr. Yun said that July’s pace of sales was expected to continue based on mortgage rates holding steady and rising rents for apartments.
The inevitable rise of mortgage rates and increasing home prices were cited as factors that could cool existing home sales in coming months. With the Fed scheduled to complete its asset purchase program in October and changes to the Fed’s target federal funds rate expected within months, mortgage rates are expected to rise. Affordability looms as an obstacle to sales; home prices continue to rise as wages grow at a slower pace than home prices.
The national median price for existing homes was $222,900, which was a year-over-year increase of 4.90 percent. This was the 29th consecutive month for year-over-year price gains for existing homes. The inventory of existing homes for sale increased by 3.50 percent to 2.37 million available homes and represents a 5.50 month supply. Unsold inventory of existing homes is 5.80 percent higher year-over-year. As compared to July 2013′s reading of 2.24 million available pre-owned homes.
Homes sold through foreclosure or short sales have steeply declined from 36 percent of existing home sales in 2009 to approximately 9 percent in July and were down from 15 percent of existing home sales in June.
Last week’s economic news brought several reports related to housing. The National Association of Home Builders (NAHB) Wells Fargo Housing Market Index for August rose by two points to 55, which was its highest reading in seven months.
Components of the NAHB HMI include builder surveys on conditions related to upcoming sales of new homes, which rose by two points for a reading of 65. Builder sentiment concerning present sales conditions also rose by two points to 58.
Builder views on prospective buyer traffic rose from 39 to 42. Readings above 50 indicate that more builders viewed housing market conditions as positive as negative.
NAHB cited job growth and low mortgage rates as conditions driving higher builder confidence in market conditions.
Housing Starts, Building Permits Up in July
According to the Commerce Department, housing starts and building permits rose in July. Housing starts increased to 1.09 million from June’s reading of 945,000 and exceeded expectations of 975,000. This reading reflects higher builder confidence and could contribute to easing demand for housing as new homes expand the inventory of available homes.
Construction of single family homes accounts for about 75 percent of new home construction. July’s reading was 656,000 single family housing starts on an annual basis. Regionally, housing starts declined by 25 percent in the Midwest, but rose by 44 percent in the Northeast, 29 percent in the South and 18.60 percent in the West.
Building permits issued in July rose to an annual rate of 1.05 million, which was an increase of 8.10 percent over June’s reading of 973,000 permits issued. Permits for single family homes increased by 0.90 percent to a reading of 640,000 permits annually.
July’s readings for housing starts and building permits are in line with overall economic growth and suggest that housing markets may improve in coming months as the supply of new homes increases.
Let’s add more icing to the cake. The National Association of REALTORS® reported that existing home sales rose to 5.15 million on a seasonally adjusted annual basis against predictions of 5.00 million existing homes sold and June’s reading of 5.05 million sales of previously owned homes.
Freddie Mac’s weekly survey of mortgage rates reported that average rates fell across the board: The average rate for a 30-year fixed rate mortgage dropped by two basis points to 4.10 percent with discount point lower at 0.50 percent.
The rate for a 15-year mortgage dropped by one basis point to 3.24 percent with discount points unchanged at 0.60 percent. The average rate for a 5/1 adjustable rate mortgage dropped by two basis points to 2.95 percent with discount points unchanged at 0.50 percent.
The Federal Open Market Committee (FOMC) of the Federal Reserve released minutes from its July meeting. Highlights included the committee’s 9-1 vote in favor of continuing the slow pace of reducing economic stimulus.
The minutes indicated that the committee intends to keep the federal funds rate below normal levels for “some time.” Previous FOMC statements have consistently indicated the Fed’s intention to maintain very low short-term interest rates after asset purchases under QE3 end in October, but FOMC has not released a specific time frame or details of its intentions concerning the federal funds rate.
The Fed acknowledged economic improvements, but cited lingering concerns over unemployment, which remains higher than average.
More Good News: Jobless Claims Lower, Economic Indicators Up
Weekly jobless claims fell to 298,000, lower than expectations of 300,000 new jobless claims and the prior week’s reading of 312,000 new claims. Leading economic indicators (LEI) rose by 0.89 percent in July after increases in May and June. Analysts interpreted this reading as a further indication of stronger economic conditions.
This week’s scheduled economic reports include New Home Sales, the Case-Shiller Home Price Index and FHFA House Price Index. General economic reports include the Consumer Confidence Index and the University of Michigan Consumer Sentiment Index. It will be interesting to see whether consumer views of the economy are consistent with recent economic improvements.
You’ve got house insurance, and assume your property is covered for any type of detrimental occurrence that can possibly take place.
However, not all homeowners are aware that home insurance policies don’t necessarily cover damage related to a flood, as the risks are too great. As a result, homeowners must purchase flood insurance through a private company.
Floods are one of the most common hazards in the US, costing billions of dollars in damage to properties every year.
Since this is a common issue lately, the federal government updating these policies currently so please talk with your real estate professional or local insurance company for the most up to date information.
What Is Flood Insurance?
Flood insurance policies are typically made available to homeowners in flood-prone areas. The majority of insurance policies cover some form of water damage, from things like leaking faucets to bursting plumbing pipes.
However, such policies don’t cover water damage as a result of flooding of rivers or sewers that cause water to ruin a home.
Specific flood protection is provided by the National Flood Insurance Program (NFIP), which is run by the Federal Emergency Management Agency (FEMA). Standard flood insurance policies cover “direct physical damage” to a property resulting from floods.
A separate policy must be purchased to protect the belongings inside the home or building. Homeowners can buy up to $250,000 in coverage for the home, and up to $100,000 in coverage for possessions. Even renters are permitted to purchase flood insurance to cover their possessions.
How Does Flood Insurance Work?
Flood insurance isn’t sold by FEMA directly, but rather is sold to customers through private insurance agencies. Premium rates are determined by the government, and they remain consistent from one insurer to the next.
How much a homeowner pays for their own specific flood insurance depends on a number of factors, including how prone the neighborhood is to floods and how much coverage a homeowner wants. The average annual premium is approximately $520 for $100,000 worth of coverage for a property with no basement, and approximately $615 annually for a property with a basement.
Filing A Flood Insurance Claim
The claims process is like any other insurance claim. Once the claim is filed, the damage will be analyzed by an adjustor assigned by the insurance company. A “proof of loss” form will need to filled out and submitted to the insurer within 60 days of the flood occurrence.
Do You Need Flood Insurance?
It’s necessary to find out if you are eligible for flood insurance before buying it. For residents of a community to be eligible, the community needs to enforce floodplain statutes to lessen the chances of flood damage, after which FEMA ensures that such regulations are followed.
Only those who reside in a community that participates in NFIP can buy insurance – today, about 20,000 communities across the country participate in this program.
FEMA offers maps that outline what areas are at high risk for floods, and those that are at moderate-to-low risk. The law requires homeowners to have flood insurance if the properties are located in a high-risk zone and have a federally-backed mortgage. This is because properties located in these high-risk areas have a 26 percent chance of suffering flood damage during the 30 years that it would take to pay off a mortgage.
Homeowners are not required to buy flood insurance if they reside in a moderate-to-low-risk zone, though it may be a good idea to purchase it anyway. Properties outside the high-risk areas make up over 20 percent of NFIP claims. Homeowners in these areas can purchase up to $200,000 in flood insurance.
The bottom line is, even if you don’t necessarily live in a high-risk zone, this doesn’t mean your home won’t ever get flooded. Many conditions can result in flood damage, including clogged drain systems, flash rainstorms, and damaged levees.