Freddie Mac’s Market Indicators Point Toward Continued Housing Improvement

By Ryan Dosen

 

Freddie Mac’s second quarter Multi-Indicator Market Index (MiMi) was released in late August. The report showed that the nation’s housing markets “continued to plod along in the second quarter of 2014, while most U.S. housing markets remain generally weak….” However, there were several signs that Pennsylvania’s real estate market is set to continue its climb from the early year doldrums.

 

About Freddie Mac and the MiMi

According to Wikipedia, the Federal Home Loan Mortgage Corporation, commonly known as “Freddie Mac”, was created in 1970 “to expand the secondary market for mortgages in the U.S. Along with other (government-sponsored enterprises), Freddie Mac buys mortgages on the secondary market, pools them, and sells them as a mortgage-backed security to investors on the open market.” As one of the most important cogs turning the wheels of our real estate market, Freddie Mac has to keep close tabs on housing. That’s where MiMi comes in.

Freddie Mac states that its monthly MiMi “measures the stability of the nation’s housing market, as well as the housing markets of all 50 states … and the top 50 metro markets. MiMi combines proprietary  Freddie Mac data with current local market data to assess where each single-family housing market is relative to its own long-term stable range by looking at home purchase applications, payment-to-income ratios (changes in home purchasing power based on house prices, mortgage rates and household income), proportion of on-time mortgage payments in each market, and the local employment picture.”

MiMi composite scores can range from 0 to 200. Scores of 0 to 80 are said to represent a “weak” market. Scores of 120 to 200 represent an “overheating” and “unsustainable” market. Scores between 80 and 120 represent a market that is “in range” and “stable”.

 

National Real Estate and Economic Trends

Freddie Mac’s latest MiMi reports that “economic growth picked up in the second quarter following a weak first quarter” that was hampered by a “severe winter, higher mortgage rates, and weak economic growth.” The current national real estate market is characterized as “generally weak but slowly improving.”

 

MiMi Indicator: Home Purchase Applications

MiMi’s first indicator, home purchase applications, has seen some improvement since the rough first quarter, but remains “weak” at a rating of 65.6. Nationally, and in most areas, we are seeing less purchase activity than we were seeing in 2013.

 

MiMi Indicator: Payment-to-Income

MiMi’s second indicator focuses on would-be buyers’ payment-to-income ratios for purchasing homes. This number is also in the “weak” zone at 69.2; however, “weak” in this case indicates that homes are highly affordable. The report states that the “low interest rate environment has pushed mortgage payment to income ratios down significantly and has supported the housing markets. Even with expected near term increases in mortgage rates and continued house price appreciation, most markets across the country will remain near historically high affordability.”

Freddie Mac states that home price gains are expected to moderate, with the 2013 gains of 9 percent dropping this year to around 5 percent.

 

MiMi Indicator: Current on Mortgage

Freddie Mac’s “Current on Mortgage” indicator examines the number of active loans in a local market that are not seriously delinquent (90 or more days past due or in foreclosure).

This indicator is also “weak” at a rating of 66.2, but Freddie Mac reports that it has been improving rapidly over the past year. These numbers have been consistently improving since about 2012.

 

MiMi Indicator: National Employment

The best news from the MiMi comes from the employment indicator, which registers “in range” at 94.0 and nearly back to the benchmark level of 100. These employment numbers were down around 60 in 2010 and have been trending upward ever since.

 

Pennsylvania’s MiMi Numbers

Pennsylvania’s MiMi comes in just out of “range” at 78.8, up 0.51 percent in the last 3 months and up 6.78 percent annually. Pennsylvania’s MiMi ranks as the 16^th strongest in the country. Fracking capital North Dakota tops the rankings with a score of 96.2 and Nevada comes in last at 52.0.

Pennsylvania’s Employment index registers at 100.3, which has improved 4.15 percent over the past three months. Pennsylvania’s Purchase Applications index is almost 10 points higher than the nation’s, coming in at a nearly-in-range score of 75.4.

 

Generally Improving Numbers

Pennsylvania is seeing continued improvement in its housing market. The local market has pretty much returned to normalcy in terms of employment and home purchases are almost “in range”. Homes are also extremely affordable from an historical perspective.  It should be noted, however, that employment is one of the key things the Fed is watching for determining when to raise rates. As the employment picture continues to improve, the time table for our historically low interest rates and high affordability shortens.

We may not yet be firing on all cylinders, but the market indicators point to continued, steady improvement in our local housing market.

 

— Ryan Dosen manages The Wayne Megill Real Estate Team of Keller Williams Brandywine Valley in West Chester. Contact Ryan for buyer or seller representation or for more perspective on the local and national real estate market by emailing rdosen@megillhomes.com or calling 610-399-0338. Please also visit The Wayne Megill Team blog at www.PAHomesAndRealEstate.com.