As we get into the home buying season, it’s time to look at some of the trends that began last year and are still defining 2018. The National Housing Market Index (NHMI) for the fourth quarter of 2017, which was released by the AEI Center on Housing Markets and Finance does just that.
The quarterly index combines the AEI Center on Housing Markets and Finance’s data on the federal agency market with data provided by First American via DataTree.com for the private side of the market and for cash and non-institutionalized lender sales.
The latest data released for NHMI showed that in the fourth quarter of 2017, the national home purchase market continued its rally, ending 2017 with 6.34 million sales with sales transactions increasing 5.4 percent in the fourth quarter marking the 13th consecutive quarter of rising home sales, the data indicated.
Home prices have been steadily increasing and by the end of the fourth quarter of 2017, national house prices had jumped 6.7 percent. However, the report said that the growth enjoyed by home sales in 2017 was likely to decelerate in 2018 with the volume remaining flat to slightly increasing.
In the last quarter of 2017, the report noted, demand for housing was up 5.4 percent compared to the same period in 2016 and compared to the last quarter of 2012, sales transactions by count had grown by 33.4 percent by the end of 2017.
Attributing the growth in home purchase transactions in the fourth quarter of 2017 to looser lending, lower mortgage rates, and a decline in international home buyers, the report said that these factors had tilted the home buying market over the last three years from cash sales towards institutionally financed ones—with institutionally financed transactions accounting for 64 percent of home purchase transactions against 32 percent cash sales during the same period.
The data also included the National Mortgage Risk Index (NMRI) for the quarter. The report said that the NMRI continued to trend higher in the fourth quarter of 2017 compared to a year ago and set a series high for December 2017. The report expected credit easing to continue in 2018, led mostly by FHA loans. The index, which is now rising at 2 percent year-over-year for FHA loans, was slightly higher for first-time home buyers as well as repeat buyers, the report indicated.
“For 2018 we expect continued easing for first-time buyers and FHA, helping fuel accelerating house price growth for entry-level homes. Entry-level homes will be less affordable and first-time buyers will be faced with a higher risk of default,” the report said.
The report found that the FHA and the VA loans reflected above-average increases in average loan amounts, due to a higher leverage fueling more rapid price appreciation. Fannie Mae and Freddie Mac experienced a minimal increase of 1.3 percent, due to the growth of the smaller balance 97 percent LTV business.