Regional trends reveal that states in the Northeast and West have generally outpaced those in the South. Since July 2023, blue states have shown slightly stronger home price growth than red states, with New York, Las Vegas, and Chicago reaching all-time highs. “Regionally, all markets continue to remain positive, barely,” Luke said in the report. … [Read more…]
Both Fannie Mae and Freddie Mac announced newly expanded appraisal waivers to reduce costs and help more first-time home buyers purchase a property.
The pair already offer appraisal waivers on some of the loans they guarantee, but the loan-to-value ratio (LTV) is currently capped at 80%.
This means you must come in with a least a 20% down payment to avoid the cost and potential hassle of a traditional appraisal.
To further streamline this process and ease the burden on lower-income borrowers, this number will increase to 90% LTV beginning in the first quarter of 2025.
And it will be expanded to the program limits (e.g. 97% LTV) for their more robust inspection-based appraisal waivers.
While appraisal waivers aren’t all that new; they were introduced by Fannie Mae in 2016 for refinance transactions and later expanded to home purchases in 2017, they’re limited in reach.
In other words, many home buyers still need to pay for an appraisal when they apply for a mortgage.
This results in an added cost, which can range from say $400 to $1,000 or more. And a longer home loan process as the appraisal is ordered, conducted, and submitted.
It can also lead to uncertainty regarding the collateral value, possibly jeopardizing the loan late in the game if the human appraiser returns with a value below the purchase price.
For these reasons, receiving an appraisal waiver can be a blessing. What’s not to like? A faster, lower-stress loan approval and reduced borrowing costs.
But as mentioned, these only applied to loans where borrowers were able to come in with a 20% down payment.
This clearly didn’t help those most in need, namely first-time home buyers and/or lower-income borrowers who could only muster 3-5% down.
Well, beginning in the first quarter of 2025, these money-saving waivers will be expanded from an 80% maximum LTV to 90% LTV/TLTV.
So if you come in with just 10% down on your home purchase, you might soon be able to skip the appraisal too.
And the maximum LTV ratio for purchase loans eligible for inspection-based appraisal waivers will jump from 80% all the way to 97%.
This means borrowers will be able to get a 3% down Home Possible loan from Freddie Mac, or a Fannie Mae HomeReady mortgage without the appraisal.
First off, I should note that these appraisal waivers apply to conventional loans, not government loans such as FHA loans or VA loans.
So only conforming loans backed by Fannie Mae and Freddie Mac qualify for an appraisal waiver.
Secondly, there are two different types of appraisal waivers. Let’s talk about the straight up waivers that rely solely on data and technology to accept the lender-provided value.
These typically require that a prior appraisal that was conducted on the subject property be found in the database.
They are also limited to one-unit properties (including condos) for primary residences and second homes.
In addition, there is a $1 million maximum estimated value (or sales price) for properties to receive the waiver.
The good news is there is no fee to the borrower for these options, which could save them several hundred dollars or more.
There are also so-called inspection-based appraisal waivers, which will see their maximum LTV increase from 80% to 97%.
These more robust appraisal alternatives require property information to be physically collected on-site by trained data collectors.
Similar to an appraisal, the originating lender arranges for property data collection, but the result should be decreased costs and faster turn-times.
The cost of an inspection-based appraisal might be half the cost of a traditional appraisal, so perhaps $200 or so vs. $400 or more.
While these changes will likely be welcomed with open arms by mortgage lenders (and not so much by appraisers), there is the question of risk.
The collateral value of the property is a huge part of the equation when underwriting and approving a loan.
If home appraisals are waived, one could argue that the loan is inherently riskier.
However, this is actually why Fannie Mae stopped using the phrase “appraisal waiver” and replaced it with Value Acceptance.
That change was implemented to better reflect the actual process, which relies upon data collection and technology to accept the lender-provided value.
This isn’t dissimilar from a human appraiser, who also uses data collection to come up with an appropriate value that supports the entered price.
But my guess is there will be some scrutiny, especially as the changes are being introduced at a time when housing affordability has rarely been worse.
Allowing a home buyer to forgo an appraisal when putting just 3% down sounds a little scary when home prices are at/near all-time highs and have increased ~50% in just the past few years.
It also widens the gap between conventional loans and government-backed loans, the latter of which are already known to be more difficult to get approved for due to inspection/appraisal requirements.
(photo: m kasahara)
Source: thetruthaboutmortgage.com
What a difference a year makes.
While the mortgage industry has been purchase loan-heavy for several years now, it could finally be starting to shift.
A new report from Optimal Blue revealed that rate and term refinance volume increased nearly 110% in August from a month earlier, and 310% from the year before.
Driving the emerging trend is cheaper mortgage rates, which have finally begun to accelerate lower in recent months.
Assuming they continue on their newfound trajectory, there’s a good chance refis will be back en vogue in 2025 and beyond.
It has been a rough few years for loan officers and mortgage brokers, but it’s possible the worst is over.
As mortgage rates nearly tripled from sub-3% levels in early 2022 to over 8% last year, originators came up with the saying, “Survive ‘til 25.”
The idea was that if you could hang on and ride out the storm (of low lending volume) in 2024, you’d be rewarded in 2025.
And while that sometimes felt far-fetched, it looks like it could actually come to fruition, and perhaps even ahead of schedule.
The latest Market Advantage report from Optimal Blue found that mortgage refinances accounted for 26% of total home loan production, the highest share since March 2022.
At that time, you could still get a 30-year fixed in the 3% range. But rates ascended rapidly from there, basically wiping out all refinance activity in a matter of months.
So it’s pretty telling that refinance market share is now back to those levels and likely rising in coming months and years.
The 30-year fixed has fallen fairly dramatically after peaking at around 7.25% this May. It now stands at around 6% and looks poised to hit the 5s sooner rather than later.
Rates have a pretty strong tailwind right now with weakening economic data, higher unemployment, and a bunch of Fed rate cuts in the pipeline.
That could unleash millions of additional refinance candidates, including many of four million who took out a 6.5%+ rate mortgage since 2022.
While this is great news for the mortgage industry, and for recent home buyers, loan volume is still small potatoes relative to recent years.
If you look at the chart above, you’ll see the context of that 109% monthly increase and 310% annual surge.
The dark blue vertical line (rate and term refinance share) has gotten a lot wider, but is still just a tiny sliver of overall mortgage market volume.
But when you compare it to levels seen in 2021 and early 2022, it doesn’t take much to register big percentage gains.
When we include cash out refinances (orange line), which increased 8% on a monthly basis and over 20% annually, you get a respectable refinance share again.
And chances are this will only go up as more mortgages fall into the money for a refinance.
Lately, it’s mostly been VA loans that have benefited from a refinance because mortgage rates on such loans are the lowest.
But if rates continue on their merry may lower, you’ll start seeing more conforming loans benefit, which make up the lion’s share of the market.
It has been harder to make the math pencil on loans backed by Fannie Mae and Freddie Mac because of LLPAs (pricing adjustments). That could soon change.
While refis are finally having a moment, the same can’t be said of home purchase lending (light blue vertical line above).
Sure, it still holds a majority share of the mortgage market and likely will next year too, but it’s beginning to cede some of it back to refis.
And that’s troubling given the big drop in mortgage rates, which was supposed to get home buyers off the fence.
So far, the effect of lower mortgage rates has been muted, with purchase locks actually down 16% year-over-year and a staggering 45% since August 2019.
Optimal Blue blamed it on “continued affordability and inventory challenges,” with home prices out of reach for many despite the improvement.
Many expected home prices to surge when rates fell, but I’ve been arguing for a while that there’s no inverse relationship.
And in fact, home prices and mortgage rates can fall together if economic conditions warrant it.
Remember, there’s a reason the Fed is looking to cut its own fed funds rate more than 200 basis points (bps) over the next 12 months.
A slowing economy might be good news for mortgage rates, but not necessarily the housing market.
With home prices still at all-time highs nationally and affordability near all-time lows, it’s just not a great time to buy for many folks.
Sprinkle in uncertainty regarding the economy, the election, and even how they’ll pay real estate agent commission and it’s not so rosy anymore.
In other words, significantly lower mortgage rates might not amount to higher home prices, or a greater number of home sales just yet.
But given the timing of these lower rates (post peak home buying season), we won’t really know for sure until next spring.
That’s where the rubber meets the road.
Source: thetruthaboutmortgage.com
In case you missed it, the Federal Housing Finance Agency (FHFA) granted conditional approval to Freddie Mac to purchase single-family closed-end second mortgages.
What this means is lenders will now be able to originate second mortgages and sell them off to one of the two government-sponsored enterprises (GSEs).
Arguably, this should improve access to such lending products, and potentially result in cost savings if increased competition drives down interest rates and fees.
At the same time, some have argued that this is inflationary (since it makes it easier for homeowners to take on more debt), while others have said it’s not part of the GSEs core mission to boost homeownership.
I’m here to argue that this new pilot program is very limited and likely won’t change much, at least anytime soon.
In a nutshell, Freddie Mac is now permitted to purchase second mortgages that meet certain criteria.
As a result, there will be added liquidity in the lending markets for home equity loans, which are closed-end loans.
At the moment, most second liens, whether open-end HELOCs or closed-end home equity loans, are originated by large depository banks that typically keep them on their books.
The nonbanks often don’t have this luxury because it’s capital intensive, so the end result is that fewer mortgage companies offer such loans.
Notice the lack of home equity lending in the chart above provided by ICE, which has since been exacerbated by mortgage rate lock-in.
This can lead to negative outcomes for homeowners who might need access to their home equity to pay off other debt or fund purchases.
In fact, the pilot was approved by the FHFA to determine if the offering will advance Freddie Mac’s “statutory purposes” and benefits homeowners, especially those who reside in rural and underserved communities.
One of the arguments for the program is that HELOC providers often overlook lower-income homeowners in search of more affluent borrowers who open bigger lines of credit.
These happen to be more lucrative for those lenders since the larger the loan, the higher the commission generally.
Anyway, without getting too convoluted, the new program simply makes home equity loans easier to come by.
It’s not much different than the liquidity Freddie Mac (and sister Fannie Mae) provide for first mortgages, which makes them easier to obtain and cheaper too.
While I myself was critical of this new program, mostly because you can already get a home equity loan from many different providers, there are several guardrails in place to keep this from becoming an unintended monster.
For one, it is limited to $2.5 billion in total loan volume over an 18-month pilot period.
This means once that money is exhausted, the program is closed and will be evaluated to determine if it should continue and/or be expanded.
In addition, the first mortgage must already be owned by Freddie Mac and the loan requires a minimum seasoning period of 24 months.
As such, a homeowner can’t get a Freddie Mac home equity loan unless they’ve had their existing first mortgage for at least two years.
And last but not least, it’s only available on primary residences and loan amounts are capped at $78,277.
This corresponds to subordinate-lien loan thresholds for Qualified Mortgages (QMs).
If you meet ALL these criteria, it may be possible to get a home equity loan behind your existing first mortgage that is backed by Freddie Mac.
Ideally, it will be easier to obtain and cheaper than other alternatives from private banks. But we don’t really know for sure.
As you can see from the program guidelines above, this isn’t going to be a massive program, at least not initially.
We know they won’t lend more than $2.5 billion, which broken down nationally isn’t a very large number.
For perspective, the nation’s largest second mortgage lender, PNC Bank, originated nearly 80,000 loans in 2022.
Assuming the typical loan is at the max loan amount of $78,277, it would result in less than 32,000 second mortgages being purchased by Freddie Mac.
Arguably it’ll be a lower average loan amount, but that still puts the loan count below that of just one provider.
In other words, it’s likely not going to make a big impact if the pilot doesn’t even generate as much activity as one other lender.
Especially when there are hundreds of other second mortgage providers out there.
But I’m sure everyone will be watching to see how it shakes out, and especially how the underwriting guidelines and mortgage rates compare.
Some also argue that this is just the beginning, and could usher in a full-blown second mortgage program backed by the likes of Freddie Mac AND Fannie Mae.
At which point everyone will be tapping equity left and right, potentially setting off another debt crisis (and eventual housing crisis).
But such worries are a long way away and not even founded at this juncture.
As for why a program like this is necessary, the argument is to provide options for the underserved and an alternative to a cash out refinance.
The FHFA recognizes that with mortgage rates significantly higher today, refinancing the first mortgage in order to tap equity doesn’t make much sense.
And they know homeowners will do what they have to do if and when they need access to cash.
This could provide a lower-cost option versus a traditional refinance and also broaden participation of such lending to smaller, local shops instead of just big banks.
If you look at the latest stats, you’ll see that home equity withdrawals are rock bottom at a time when home equity has never been higher.
Per ICE, mortgage holders had a collective $16.9 trillion in equity entering the second quarter of 2024, of which $11 trillion could be tapped while maintaining an LTV of 80% or less. Those are both record highs.
Meanwhile, home equity withdrawals in the first quarter were equivalent to just 0.36% of tappable equity available, with both the fourth quarter of 2023 and Q1 2024 withdrawal rates the lowest on record (since 2005).
And about half of home equity withdrawal is happening via cash out refinancing, which likely isn’t ideal for borrowers with low fixed-rate first mortgages they lose in the process.
So we have an environment where home equity lending is already super low and a pilot that greatly limits how much can be generated via the program.
Of course, it is possible that the pilot pushes private lenders to up the ante and that leads to more home equity withdrawals, whether in the best interest of homeowners or not.
Source: thetruthaboutmortgage.com
Higher interest rates are increasing pressure on homebuyers who are already facing a challenging housing market. Many would-be buyers are understandably putting purchasing plans on hold, but there are no signs mortgage rates will drop significantly in the near future, and there are some sensible steps to take if you want to become a homeowner soon.
Mortgage rates surged past 7% for the first time this year on April 18 and continued to climb last week. According to Freddie Mac’s benchmark survey, the rate on a 30-year, fixed-rate loan is averaging 7.17% — more than half a percentage point higher than at the start of the year. And the upward trend may not be over.
Len Kiefer, Freddie Mac’s deputy chief economist, says it’s hard to predict just how much higher rates could rise, given the volatility in the market. A lot depends on data regarding inflation, which is proving to be stickier than everyone hoped for, and market expectations as to when the Federal Reserve will start cutting short-term interest rates.
“Given the current [economic] trajectory we’re on, it’s looking like there’s still some upward momentum,” Kiefer says. “In the very near term, we’ll probably see these rates be at the current level or a little bit higher.”
Most early-year forecasts predicted that mortgage rates would start moving in a slow downward trend throughout the year. While those outlooks seemed to be on the money during the first two months of the year, the opposite has been true in recent months.
According to Bob Smith, head of real estate for Advisor Credit Exchange, for at least the remainder of the year, “Rates are going to be bounded in a range . . . probably in the 6%s, low 7%s.”
It’s unclear when inflation will finally be under control, meaning mortgage rates will probably remain volatile for a while before settling down.
In the long term, Kiefer and Smith see inflationary pressures easing later this year. That should help nudge mortgage rates lower — just “not as much as we had thought,” Kiefer says.
High mortgage rates are hitting buyers right in the middle of the spring buying season. According to Freddie Mac, about 36% of all home sales take place between March and June, making these months the busiest time in the housing market.
Elevated mortgage rates, combined with high home prices and a lack of enough inventory to meet buyer demand, have led to record-high monthly payments. Homeowners insurance costs are at all-time highs as well, up 20% in the past year. These factors are pushing many would-be buyers to put their plans on hold. According to a report by BMO Financial Group, 71% of would-be homebuyers are waiting for rates to drop before buying a house.
Potential home sellers are also feeling the crunch, especially those who bought when rates were much lower. The cost of obtaining a new mortgage at a higher rate is keeping owners locked into their homes.
Despite the challenges, buyers shouldn’t panic. “Rates are, for a large part, temporary. At some point, [they] will go down,” says Scott Bridges, chief CDL production officer at lender Pennymac.
Instead of worrying about things that are out of your control, it’s best to focus on the fundamentals of homebuying to see if purchasing a home right now is the right move (regardless of the rate). Here’s what you can do:
Check your credit score and try to improve it while you’re shopping for a home. Buyers with better credit generally have access to lower mortgage rates. On the other hand, taking on extra debt during this time will reduce your score as well as your debt-to-income ratio, which will cause lenders to offer a higher interest rate on a mortgage. “When rates are higher, every bit of debt counts,” says Bridges.
Higher mortgage rates could move some buyers out of the market, which means more opportunities and less competition for those who can afford to buy. Don’t be afraid to lowball a little bit. With fewer buyers, you may be able to negotiate a lower price or concessions with a motivated seller.
Ideally, you’ll find a move-in ready home that fits your budget. The reality is that homes requiring little to no work attract a lot of attention and you may find yourself in a bidding war. Don’t be afraid to look for homes that may need some TLC. The asking price is likely more negotiable, and you may find you can use the money you save to fix up the home to your taste.
Set a budget you’re comfortable with. Use a housing affordability calculator to get an estimate of how much you can pay towards a home purchase. You can also get loan estimates from several different lenders to find the best rates and loan terms. And remember, the maximum amount a lender is willing to lend isn’t necessarily what you should spend on a home. Set a lower budget if it makes better financial sense or if you want to have some wiggle room if you have to compete against other buyers.
A house is likely the most amount of money you’ll ever spend. Bridges says that homebuyers typically make mistakes when they rush the process. Take the time to inspect the property and ask to see a home appraisal. Make sure it’s the right fit for your needs at the right price for you.
“Try to do things patiently,” says Bridges. “Don’t overpay, and don’t panic.”
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Source: money.com
Frankly, however, the biggest surprise at the moment might be that sales volumes have held up pretty well over the past few weeks even as mortgage rates have climbed into the mid-7s. We’ve been talking about sales growth over the past year. More home sales are happening, but we can also see — once adjusted for seasonal patterns — that sales should be much higher now if a real market recovery were underway.
It feels like the latest macro trends will keep mortgage rates in the mid-7% range for the near term. And we’d expect that to slow home sales further. That’s why Altos Research tracks every home for sale in the country each week. The data so often defies expectations or changes very quickly. Let’s dig further into the details of the U.S. housing market for the week of April 22.
When we look at the active inventory of unsold homes on the market, we can definitely see the impact of higher mortgage rates in the past month. There are 543,000 single-family homes on the market now. That’s a 3% jump from last week and 31% above year-ago levels.
The available inventory of unsold homes on the market is building quickly due to the most recent mortgage rate jumps. There are 130,000 more homes on the market now than last year at this time.
Normally, inventory is climbing at this point in the second quarter. We’re rapidly approaching the peak of the market in terms of seller listings, and as inventory builds, the sales rate will peak by the end of June. So, it’s normal that inventory is growing now.
But when you add a spike in mortgage rates that makes homebuying less affordable, that leads to fewer buyers and inventory grows. Altos data currently shows an inflection point in April. With the most recent mortgage rate jump, inventory growth has also accelerated.
This is what is meant when we say that higher rates leads to higher inventory. We are on the path back to the formerly normal levels of unsold homes on the market. A couple more years with elevated rates will get us there.
But it’s also noteworthy to point out that falling rates reverse this trend. Lower rates mean that people snap up the existing inventory.
Growing inventory is not just about slowing demand. We are also consistently measuring more sellers coming back into the market. At 69,000 new listings unsold today, that’s 3% more than a week ago and 14% more than this time last year.
In fact, there are more new sellers this week than in any week of 2023. This selling season still has two more months of growth potential. Industry professionals would love to see 70,000 or 80,000 new listings per week in May. More sellers means more sales can happen. There’s a limit, of course, as we could eventually reach an imbalance if too many sellers flood the market and too few buyers follow suit. But we’re not close to that yet.
In the years before the COVID-19 pandemic, the latter half of April would normally see 80,000 to 100,000 new listings in a week. Now we’re at 69,000. Obviously, elevated mortgage rates slows both buyer and seller activity. There are a lot of people who will never sell their house with a 3% mortgage.
There’s unlikely to be a flood of sellers in the next few years, but we can see steady growth. Each year with higher rates will create more inventory growth and have fewer people locked into low rates. That growth is good for the market.
The available inventory of homes to buy and the new ones being listed for sale each week are what consumers care about. If I’m buying a house, do I have any houses to buy? For homebuyers, the selection they have now is the most they’ve had in years.
Real estate professionals, on the other hand, have to care about transaction volume. How many home sales are happening? Because there were so few sellers last year, the number of sales was quite constricted. That’s starting to change. The 14% increase in new listings over the past year is a really good sign that sales can grow.
When we look at the sales rate, we can indeed see that home sales are growing. There were 71,000 new contracts started for single-family homes this week. That’s 3% more than last week and 7% more than a year ago.
There are still 8% fewer sales happening each week than in 2022. At that time two years ago, there were frantic last-minute deals getting done as mortgage rates were rising quickly. So, even though rates were up back then, sales were still strong.
But the hectic pandemic-era pace of sales had slowed, so inventory was building quickly. In 2022, the new sales rates really cratered after the Fourth of July holiday.
There are now 385,000 single-family homes under contract. That’s 5% growth compared to this time last year but is still 14% less than two years ago. New sales started this week saw 7% growth while the total number of homes under contract saw 5% growth.
It takes 30 to 40 days for the typical sale to close. The homes under contract now will mostly close in April and May. The 5% annualized growth rate is less than we’d hoped for at the start of the year, but it’s creeping up even with higher mortgage rates.
Altos Research uses direct measurement rather than seasonally adjusting its numbers. There are 385,000 single-family homes in escrow to complete a sale as of today. If you were to approximate a seasonal adjustment on this number, you would see a yearly sales pace of about 4.4 million units for April 2024. That pace is up from April 2023, but it is still running slower than the typical April. The seasonal pace is where one can observe the slowdown due higher mortgage rates.
The takeaway from the weekly new pending sales data is that even though sales continue to outpace last year, that growth has definitely slowed.
The median price of single-family homes under contract is now $398,000. That jumped by 2.4% jump this week and is, in fact, a new all-time-high, surpassing the sale prices of two years ago.
These spring weeks are indeed the time when home prices climb, so it’s not too surprising that this trend is occurring now. But we’ve also been keeping a close eye on home prices in the face of these rising mortgage rates.
The prices of the homes going under contract are 6% more expensive than one year ago. Last year at this time, home prices were lower than in April 2022. But we’re now back at all-time highs. The previous peak was $395,000 two years ago.
One thing of interest in the price data is how slow this climb has been. Compared to Jan. 1, 2024, prices are up 6.6%. In most years, the increase is closer to 10% by this time in April. So, as a leading indicator for how the year ends up, this price signal is much softer than usual.
We can also see this in asking prices. The median price for all homes currently on the market is $449,000. That’s up a fraction from last week and only 1% above last year at this time.
Asking prices can be thought of as a leading indicator for future sales prices. Homes that are on the market now will get offers in May, close in June and will be reported on in July. So, the future signals for home prices aren’t falling because of higher mortgage rates, but it certainly looks like price appreciation has slowed.
Another strong leading indicator for future home sale prices is the share of homes on the market with price reductions. If more sellers have to cut their prices now, that’s a real signal for sales that will happen in the future.
Surprisingly, given the mortgage rate changes, there is no jump yet in the share of price reductions. We’ve been watching this stat closely.
This week, 32% of the homes on the market have taken a price cut. That’s actually down a fraction from last week, given a relatively strong set of new listings that hit the market and the fact that home sales are at their highest point of the year. Fresh inventory doesn’t take a price cut until after it sits for a while without an offer.
There are 3% more homes with price reductions today than a year ago. Last year at this time, price cuts were still decreasing with very tight volumes of new listings. There are more homes on the market now with price cuts than in any April on record. That shows weakness in prices, but it’s not a super high number and it’s not skyrocketing, so that implies we won’t see prices tanking anytime soon.
The takeaway here is that with the 30-year fixed mortgage at 7.4%, there is still just enough sales volume to keep home prices from dropping like they did in late 2022. The current market is not changing nearly that quickly. We’ll continue to watch data on price cuts. As mortgage rates make homes less affordable, fewer offers will be made and some sellers will cut their prices. That could accelerate in the next few weeks.
Source: housingwire.com
In addition, we can see the price reductions ticking up each week. They aren’t at a scary level, people are buying homes, but it’s notably softer on pricing than last year at this time.
Mortgage rates seem to have finally settled down. The Fed met last week and we escaped dramatic changes in the markets. I was worried that we might come out of that meeting with a spike in mortgage rates but that didn’t materialize so we got lucky.
I like to point out that consumers are more sensitive to changes in mortgage rates than to the absolute levels, and since rates are now basically unchanged for the month, just easing down from the early March peak of 7.2%, sellers and buyers are tip-toeing back into the market.
As a result, we continue to see the signals that home sales volume will grow this year and prices will be mostly flat. The price appreciation signals last year were stronger than they are now.
The available inventory of unsold homes continued to climb last week.
Inventory will cross over 2020 levels by July. We’ll finish the year with over 600,000 homes on the market unless rates reverse and fall quickly.
Three takeaways from the inventory data now:
1. Growing inventory this year means more sales can happen. More sellers means more sales will happen.
2. Year-over-year inventory growth points to weaker demand and is one of the signals that home prices won’t climb this year. We currently have 24% more homes on the market than a year ago.
3. The longer mortgage rates stay higher, the more inventory will grow closer to the old levels. If you’re a homebuyer and you’re waiting for mortgage rates to fall before you swoop in for a deal, recognize that even slightly lower rates will spur demand more than supply so inventory will start falling and selection and competition will be worse.
Each week this spring we’ve been tracking the new listings volume. Last week we saw just over 60,000 new listings added to the inventory with another 17,000 new listings / immediate sales. In total, new listings data is 14% more than last year. April is looking good for home sales growth.
A year with 5.5 to 6 million home sales would need probably 80,000 new listings of single family homes right now. And we have 60,000, so there simply aren’t enough homes for sale to hit the big sales numbers, but the lid is being lifted. We can see obvious growth.
As supply increases, the rate of sales is starting to pick up compared to a year ago. We can measure home sales in real time by tracking all the homes that moved to contract pending status this week. These “pendings” aren’t yet sold. They’ll spend 30 or 40 days in contract and the sales will mostly close in April or May.
There were 67,000 new contracts for single family homes this week compared to only 62,000 in the same week last year. There were another 15,000 condos into contract. This annualizes to only 4.3 million home sales, without any seasonal adjustment. So obviously the rate of sales is still pretty slow, which makes sense given the high mortgage rates. But the sales rate is climbing. The rate of new contracts is 8% more than last year but still 15% fewer than March of 2022, when buyers were desperately trying to get their deals done as rates were rising.
It looks like April will see decent home sales growth over 2023 but won’t overtake 2022 sales volumes until after July of this year. July of 2022 was when supply and demand fell precipitously. If mortgage rates stay stabilized in the upper 6s, these trends look durable to me.
Last week, all the current price measures actually had pretty healthy gains. When we look at all the homes on the market, the median price is now $439,000. That is up a fraction this week and just a little bit higher than last year. Home prices climb this time of year before peaking in June as the best inventory, the most new listings, and the best demand is in the market. This week’s price increase is right in the normal range for the end of March.
The price of new listings took a healthy jump this week, up 1% to $424,900. That’s nearly 4% higher than a year ago. It’s also to be expected that the price of new listings each week in the spring lurch higher. There is no signal of big home price changes in this leading indicator, but it’s nice that this move is up.
Four years ago in March 2022, we were at the start of the pandemic lockdown and we could see the price of the new listings drop very quickly. That price decline only last for three weeks though. And the price of the new listings was one of the important factors that showed us very quickly how there would be no housing crash as a result of the crisis.
The price of the homes going into contract across the country are holding up but also not accelerating. The median price of the new contracts this week was $389,900 — that’s up a fraction from last week and 4% more than a year ago. Home prices peaked in May of 2022 and didn’t surpass that during last year’s spring season. I expect we’ll hit new all-time highs for home prices in the next month or so, assuming these current trends hold.
Most of the signals in the data last week were pretty optimistic. If there is one factor to temper than optimism, it’s the price reductions. The percent of homes on the market with price cuts from their original list price ticked up to 31.4% this week. There are more homes on the market now that have felt the need to reduce asking price than there were a year ago. Last year’s market strength in Q1 and Q2 led to 5% home-price growth for the full year of 2023. We have less strength in pricing now than we did last year.
While price reductions are in the “normal” range, they are higher now than any March in many years. There are more sellers now who have reduced the asking prices on their homes than in any March in over a decade. This last decade was a very strong one for homebuyer demand, so we haven’t seen a “normal” market in a very long time.
This is a signal to pay attention to. It’s hard to see how home prices will grow nationally this year under these circumstances. We can see buyers in the market, but there is no signal of them pushing home prices higher. Sellers who over-price are being forced to reduce.
In March 2022, there were still very few overall homes with price reductions, but that was changing rapidly. The slope started to climb very quickly, especially in April and May of that year. The number peaked in November 2022 with 43% of the homes on the market needing price cuts. That November peak corresponded to home sales price declines four to six months later. That’s why this data is worth watching so closely: These price cuts tell us about demand now, which turns into sales several months down the road.
We can see homebuyers are very sensitive to mortgage rate moves. We can see the price reductions data adjust exactly in the moments that mortgage rates jump higher.
Source: housingwire.com
The stock market is hitting new highs. What should we make of this?
This week, the S&P 500 reached yet another record high — marking its fourth consecutive day reaching a new all-time high.
Last Friday (the first of these four consecutive trading days) marked the first time in two years that the S&P 500 finished at an all-time high.
Here’s an 11-minute video recapping what happened:
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After two years of not achieving any new highs, the S&P 500 is now breaking records daily.
How do we interpret this? Here are a few things to keep in mind:
(1) The high is comprehensive.
The S&P 500 — which tracks 503 stocks — represents about 80 percent of the overall market.
It’s a more comprehensive indicator of the overall market than the Dow Jones, which tracks only 30 large companies. The Dow took a slight dip today, but both the Dow and the NASDAQ hit new highs in December.
The Dow is an excellent indicator of how large companies are faring. But the S&P 500, by virtue of tracking a much bigger basket, is a better reflection of how the overall market, including small and medium sized companies, are also performing.
(2) The tech sector dominates the all-time highs.
Tech companies make up the largest chunk of the S&P 500. Here’s a chart of the top ten companies by weight for SPY, an exchange-traded fund that tracks the S&P 500:
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Source: slickcharts
The top ten companies in SPY are nearly all in the tech sector. This stands in contrast to the wider, more expansive range of sectors that comprise the top ten Dow Jones companies by weight:
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Translation: while the overall market (including small and mid size companies) is doing well, the bulk of the gains are still being driven by tech.
The same small group of megacap companies — the “Magnificent Seven” (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) — that drove much of last year’s growth continues to lead the way, fueled by hopes of an artificial intelligence boom.
But what’s interesting is that the equal-weighted S&P 500, in which every company within the index gets the same weighting, is only slightly lagging the standard S&P 500. Yes, equal-weighted is behind, but not by much. Translation: even without the oversized influence of the Magnificent Seven, the index is running strong.
The market has also priced in the expectation that the Federal Reserve will lower interest rates this year, which leads to the next point …
(3) The Fed will send new signals at the end of January.
The next Fed meeting is Jan 30-31, at which point we’ll know whether the Fed is ready to start cutting interest rates yet.
The Fed held rates steady during their last two meetings, held in September and November 2023.
They’re widely expected to cut rates in 2024, but the debate that economists and market-watchers are holding is when? — could it be as early as next week? (Unlikely, but possible.) Or will it happen during one of their following meetings on March 19-20 and April 30-May 1st?
Many analysts expect that the Fed will hold rates steady this winter and begin cutting in the spring or summer, but the substantial improvement in inflation data has some people feeling optimistic that these cuts might come sooner than later.
The Fed rate cuts are expected to unleash pent-up demand for everything from cars to houses and make capital more accessible for companies.
Homebuying, in particular, is expected to rise as interest rates drop, leading to a projected minor climb in home prices this year. (Mortgage interest rates are at their lowest point since last May.)
Summary: Big Tech is fueling record-high market growth, inflation is under control, and the overall economy looks resilient.
The average person is starting to feel better about their wealth.
The U.S. Consumer Sentiment Index is at its highest point since July 2021. As the name implies, this index measures how confident and optimistic people feel about their finances.
This survey, conducted by the University of Michigan, shows huge gains in households feeling more confident that inflation is behind us, jobs are strong, and income can keep up with expenses.
The index climbed a cumulative 29 percent over the last two months. That’s the biggest two-month leap since 1991.
That said, we’re still no where close to our 2018-2019 confidence levels.
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What’s the takeaway from all of this?
Economic data is strong. Markets are on a tear. Consumer sentiment is improving. The year ahead has plenty of cause for optimism.
Blackstone CEO Steve Schwarzman, at the World Economic Forum in Davos, mentioned that he thinks “animal spirits” — the role emotions play in the markets — will be strong this year.
Given how much is riding on consumer confidence in this (almost) post-inflationary world, that’s particularly apt.
For more detail, watch the latest YouTube breakdown.
And I’ll see you in the next newsletter!
— Paula
Source: affordanything.com
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Rising prices and steep borrowing costs in the US housing market kept homebuyers in a year-long limbo, with a national property shortage adding to headwinds in the sector.
While home prices dropped sharply through 2022, they rallied for nine-straight months beginning in January, recently hitting fresh all-time highs. Meanwhile, as the Federal Reserve raised borrowing costs, mortgage rates jumped to levels not seen sine the mid-2000s.
Finally though, conditions appear poised to shift, especially given mounting bets that the Fed will loosen monetary policy in 2024.
From supply to price growth, here are top experts’ outlooks for 2024 housing market.
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Realtor.com: A “bit of a break”
As the Fed turns dovish, the 30-year fixed mortgage rate will average 6.8% next year, Realtor.com predicted in early December. In the last week of the month, the rate slid to 6.61%.
This could have the effect of slowing demand as homebuyers feel less pressure to race against higher borrowing costs. The listing agency expects prices to dip by 1.7%, having risen 3% in 2023.
“It will be a bit of a break after what have been pretty relentless home price increases,” Chief Economist Danielle Hale said, adding: “Some of the pressure and sense of urgency will start to let up.”
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However, the volume of existing homes for sale will tumble 14%, as the mortgage rates at the level the firm predicts will still be more expensive than what 85% of current borrowers are paying.
Goldman Sachs: Inventory picks up
Goldman Sachs estimates existing sales will only dip slightly in 2024, before rebounding to 4.24 million the year after. Meanwhile, new home sales will climb from this year’s 680,000 to 723,000 in 2024.
That’s as housing starts will inch higher, climbing from 1.39 million to 1.335 million in 2024. New home construction has substantially increased this year, as homebuilders jumped on the lack of housing.
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The bank expects muted price growth next year.
Redfin: Prices will fall 1%
The 30-year mortgage rate will average 6.6% by the end of 2024, leading to a 1% drop in home prices, the real estate firm expects.
“Home prices will still be out of reach for many Americans, but any break in the affordability crisis is a welcome development nonetheless,” Chief Economist Daryl Fairweather said.
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Meanwhile, home sales will jump 5%, reaching 4.3 million. Still, Redfin says high costs will push rent demand higher, while there could be an uptick in priced-out Americans moving in with their parents.
Zillow: Prices will flatten
Buyers shouldn’t expect home prices to fall much, but the rate of growth will level off and allow Americans’ incomes to catch up, the real estate platform predicted in a late-November note.
Mortgage rates will probably hold at current levels in the coming months, as the persistent slowdown in inflation makes an uptick in rates unlikely.
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“Taken together, the cost of buying a home looks to be on track to level off next year, with the possibility of costs falling if mortgage rates do,” Zillow researchers said.
Fannie Mae: Price growth will lose steam
Mortgage rates will average 6.7% in 2024, not far off levels seen this summer, the government-sponsored mortgage finance agency predicted.
Total home sales will jump to 4.8 million, fueled by a gradual recovery in existing home sales, Fannie Mae said. A modest economic downturn will cause a shallow decline in new home sales, though the contraction won’t diminish construction volumes in the long run.
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The agency expects prices to continue appreciating, albeit at a slower pace. Citing an October survey, it forecasts 2.4% price growth next year.
Source: businessinsider.com
The 2023 housing market faced one of the same roadblocks we saw in 2022: mortgage rates were too high for home sales growth. Now that we’re in 2024, the Federal Reserve‘s rate hike cycle is over, so let’s look at what that means for housing demand and home prices. However, a yearly forecast has limitations and in this crazy housing and economic cycle, if people give you a yearly forecast without guidance as variables change, you’ll be dealing with stale data. Every Saturday I publish a weekly housing market tracker with forward-looking data and insights so you can adjust quickly to market conditions.
Here’s my forecast for 2024:
For 2024, the 10-year yield range will be similar to 2023, but with a few different variables to watch.
A key level to watch for the 10-year yield is 3.37%. To go below this level last year, labor would need to break, so I borrowed Gandalf the Grey’s catchphrase: “You shall not pass.” And the 10-year yield did not pass that level in 2023!
However, if the labor or economic data gets weaker, we can break through that Gandalf line, which means 2.72% on the 10-year yield is in play for 2024. This could mean sub-5% mortgage rates if the spreads get better — a win for the housing market.. If the spreads are still bad, mortgage rates will be between 5%-6%. If the 10-year yield gets above 4.25%, the U.S. economy has outperformed again, as it did in Q3 when it grew at 5% and jobless claims fell.
Here is a chart of the 10-year yield with the inflation growth rate data tied to it for 2023:
Now let’s talk about mortgage rates!
The spread between the 10-year yield and mortgage rates can get better in 2024, which means mortgage rates could be 0.625% to 1% lower next year. For example, mortgage rates would be under 6% today if the spreads were normal. Instead, they closed 2023 at 6.67%. If the spreads get anywhere back to normal and the 10-year yield gets to the lower end of the range in 2024, we can have sub-5 % mortgage rates in 2024.
With the Fed no longer in hiking mode, any economic weakness on the labor side is a better backdrop to send mortgage rates lower. Unlike 2023, this year there are more positive variables that could send mortgage rates lower rather than higher.
If everything stays constant, 2024 home-price growth levels will repeat what happened in 2023: low single-digit national home-price gains.
What could make home prices grow faster than low single digits? If I am wrong and mortgage rates go lower for longer and we don’t get more new listings in 2024, then home prices can grow faster in 2024 because we will have the same issue as before: too many people chasing too few homes.
What could make home prices decline? This would happen if we saw a surge of stressed inventory and mortgage rates didn’t go low enough to handle that much new supply into the market. We had mortgage rates in a solid range between 3.75% and 4.75% for most of the previous decade, but that hasn’t been the case recently. So, this is something to consider only if we see an increase in stressed inventory.
To give an example of what I am talking about, from 2008 to 2011, new listings data ran between 250,000 and 400,000 each week, with the peak seasonal data at 370,000 and 400,000. We haven’t had new listings data break over 90,000 in the peak seasons of 2021, 2022 or 2023. So if we do see a push in stressed new listings we have to be on it right away and see how the supply and demand equilibrium works.
However, we won’t have this conversation until we see it in the weekly data. In this episode of the HousingWire Daily podcast I explain how fast the housing dynamics shifted after Nov. 9, 2022, with prices returning to all-time highs in months. This is why weekly data is important!
When we saw mortgage rates fall from 7.375% to 5.99% early in 2023, we got one of the most significant existing home sales prints ever, going from 4 million to 4.55 million. We need lower rates to get more consistent sales growth and to have one or two monthly existing home sales prints of 4.72 million or more, it’s going to take sub-6% mortgage rates with duration.
We will track the purchase application data weekly, however, I am only focused on that 4.72 million monthly print number for 2024 because the lack of affordability with rates still this high is impacting sales.
As long as mortgage rates go lower, the builders can sell homes because they can lower mortgage rates even more than the existing home sales market and they have a pipeline of homes to sell. They have 106,000 homes that they haven’t even started construction on yet, and only 78,000 new homes have been completed and are ready to sell. They will manage their supply slowly.
Looking at the economic cycle and the housing economy, we have a similar playbook going into 2024 as we did in 2023. Let’s look at that dynamic.
I raised the final flag in my six recession red flag model on Aug. 5, 2022. However, by Nov. 9, 2022, I saw that housing market dynamics had shifted and if I was right, the builders were about to get more positive about their business. Sure enough, the builders confidence survey started to grow again going into 2023.
As mortgage rates started rising toward 8%, the builders survey started to go lower, mostly due to smaller builders feeling the pinch. Now that rates have fallen again, this is a positive for the single-family housing market. The new home sales market means more to the economy because of construction jobs and big-ticket item purchases. In contrast, the existing home sales market is more about the transfer of commission and moving trucks.
People correctly keep an eye on the builder’s survey. However, the builder survey and new home sales rebounded to growth in 2023, and now, with rates almost down 1.5% for 2024, lower rates will help the builder survey again.
This is only for the single-family housing market, not the apartment market, which is heading into a decline in activity. This is something to watch on labor, as certain builders will not need as many people to build apartments. When rates stay too high for too long, you eventually impact future production.
We will only start talking about a recession when jobless claims break over 323,000 on the four-week moving average. We won’t talk about a recession today, or next year or even this decade until that happens. The history of economics has shown us that we need the labor market to break to have a job-loss recession. If you followed my work during COVID-19, you know my critical two takes about the labor market and how household balance sheets are much better now than ever. When jobless claims break that critical level, we will have a good discussion about the economy and the housing market, just not yet.
If the economy doesn’t have a credit event where lending gets tighter, the consumer should hold up in 2024, especially with lower mortgage rates. This means the homebuilders can sell more homes and keep construction workers employed longer. Falling construction employment is a staple of all job-loss recessions, and we have avoided that so far.
For 2024, I want to stress that the economic data can turn on a dime — both positive and negative — in ways that weren’t the case in the previous decade. Following the weekly tracker will be essential for the housing market and the economy. I track this stuff daily so you don’t have to!
The existing home sales market has spent the last 18 months with sales near great recession levels. Now it’s time for the Fed to give up on its covid-era housing economic policy and be pro-housing once again. It’s time to get U.S. housing off the COVID-19 policy and get sales growing.
Source: housingwire.com