Buying

Apache is functioning normally

July mortgage interest rates forecast: down slightly

Mortgage rates are poised to edge lower in July as inflation cools.

We’re not talking about a steep rate decline. Picture a gentle slope, like the uneven floor of a 150-year-old house, where a dropped marble rolls, but slowly.

It appears that mortgage rates peaked for the year in May. We won’t know for sure until the end of December, but the trend has been downward. The 30-year fixed-rate mortgage averaged 7.22% in the first week of May, according to Freddie Mac’s weekly survey. It fell to 6.86% in the last week of June.

The gradual rate decrease was accompanied by declining inflation. From March through May, the core consumer price index fell from 3.8% to 3.4%. Mortgage rates tend to drop when the inflation rate falls. So if inflation continues to diminish, mortgage rates might keep falling.

Listening to the Fed

The Federal Reserve wants to push the inflation rate down to 2%. To that end, the central bank raised short-term interest rates by 5.25 percentage points in 2022 and 2023. The rate hikes delivered results, as inflation fell through 2023. But progress stalled in the first months of 2024, leading the Fed to postpone rate cuts.

The president of the Federal Reserve Bank of Atlanta, Raphael Bostic, said in late June that he finds “a few promising signals” in recent inflation data, and that prices are moving in the right direction.

“I have long maintained that the path to 2% would take considerable time; it just might take a little longer than one might have expected given how fast inflation was falling as we exited 2023,” Bostic wrote in a quarterly economic commentary. He added that he believes inflation might fall enough to warrant a rate cut in the final three months of 2024. But no promises.

Rate cuts might be nothing to celebrate

Even if mortgage rates fall, it doesn’t necessarily mean that homes will become affordable for everyone you know. The median home resale price hit an all-time high of $419,300 in May (the latest data available), according to the National Association of Realtors. Meanwhile, the average mortgage rate in May was around 7%.

After a 20% down payment (admittedly more than a typical first-time buyer can save), and at a mortgage rate of 7%, the principal-and-interest payment on a median-price home was $2,232. With costs that high, home sales dropped in May — down 2.8% from 12 months before.

As buying has slowed down, the inventory of existing homes for sale has been going up, according to Mike Simonsen, president of real estate analytics firm Altos Research. And that means prices could be softening, he said in his June 25 weekly market commentary on YouTube.

“Slightly more inventory, weaker demand, you’d expect price reductions to be climbing — and in fact, price reductions are, indeed, climbing,” he said, explaining that 36.9% of the homes currently on the market have cut their asking prices.

Home prices rise and fall seasonally, and they usually peak in June. If mortgage rates go down this autumn, as expected, the combination of lower home prices and interest rates could make homes a bit more affordable.

What other forecasters predict

Fannie Mae and the Mortgage Bankers Association predict that mortgage rates will fall in the quarter that begins in July. They both predict that the 30-year mortgage rate will average 6.8% from July through September, after averaging 7% from April through June in Freddie Mac’s survey.

What happened in June

The average 30-year mortgage rate averaged 6.82% in June, down from 7.01% in May, according to NerdWallet’s daily mortgage rate survey. Among factors affecting rates, the most influential was the May consumer price index, which came in below what the market expected.

Source: nerdwallet.com

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You want to learn how to be frugal but not cheap… then, you are in the right place.

Simply put… frugal living is saving money at it finest.

To be honest, though, learning how to be frugal can come with spending more money than you planned in the name of frugality. The truth can hurt. But, in order to be frugal, you must save what you would normally spend.

That means you are economical with money.

The list of 175+ frugal living tips seems like a great place to start when you are learning how to be frugal, right?

Wrong!

You need to focus on a few basic habits first. Set yourself up for success. And then, slowly incorporate more frugal ways to save money.

In this post, that is exactly what you will learn.

The frugal habits you need to be successful along with the best frugal life hacks to guarantee success.

Let’s dig in…

Can being Frugal make you Rich?

Absolutely yes!

The key is to save money from your frugal hacks.

Remember the age-old saying, “A penny saved is a penny earned.”

Every penny will slowly add up to the next money milestone.

If you don’t believe me, then check out this millionaire’s story of being frugal.

How Being Frugal can Cost You?

It can IF you are not careful.

Being frugal is about saving money. However, it is possible to spend more money in the name of frugality.

The first example would be being more than you need just because it is a good sale, deal, or clearance price that you don’t want to miss out on.

Next, in your search to find the cheapest option, you actually spend more over time replacing it because the quality isn’t quite the same.

There is a fine line between frugality, being cheap, and simply overspending on deals.

Just be weary of overspending money in the hunt of saving money.

How to be Frugal with Money

These are the habits you want to embrace to become a frugal person.

Personally, I like to think being frugal is being picky with my money.

I loathe my investment accounts going down, so why would I want to buy things that we don’t need or don’t matter in the long wrong. That is why I choose to be frugal with money.

Specifically, I choose to be economical with how we spend money.

Now, let’s dig in to understand how to be frugal with money.

1. Know Your Goals

First, you must know your goals. If you don’t have a goal, then you aren’t going to make any progress. Period.

In today’s society, it is SO easy to spend money without even realizing it. That is the point of business – they are out to market for your money (and they are good at it, too).

You must prioritize you first.

This is something we hear over and over. Prioritize your self-care before taking care of others. The same holds true for your money.

Action Step #1 – Sit down and write out your financial goals.

If this is something you haven’t done before, then check out our helpful guide to rocking your financial goals.

2. Understand your Spending Habits & Triggers

This one is HUGE!!

If you don’t know how and where you spend money without thinking, then you will never be able to stop the spending. You can’t slow the bleed.

First of all, I will admit that uncovering your spending habits is hard. It is introspective. It can be painful. Maybe even demoralizing.

But, until you let go of your previous financial failures, you won’t be able to move on.

This is an important step to make serious progress in your life. You may be amazed how this seemingly simple things will hold you back.

Action Step #2 – Review bank statements or credit card transactions. Look for things you bought without planning for them.

This will highlight your spending habits.

As for your triggers, watch your emotions and think what you automatically do when you are happy, sad, mad, and celebrating.

3. Save First

Oh my, pay yourself first.

This is something I focus on a lot at Money Bliss and for good reason. Saving money is the backbone to financial success.

If you don’t save money, then you are left scrambling when you need cash or stuck going into debt. This is a vicious hamster wheel that debt will overtake you.

Start by saving $10 a day. Many times you can find that money by uncovering your spending habits.

From there, look at increasing your saving percentage each month.

Action Step #3 – Figure out how much you save each week, each month, and your saving percentage. Brainstorm ways to increase how much you save.

To help our readers, you will find many spreadsheets and printables to help you figure out how much you save and track your savings progress. Once signed up on our email list, you will receive the password.

4. Spend Less Than You Make

Your expenses must be lower than your income. Period.

If you are currently spending more than you make, then you must look at ways to drastically cut expenses. Stop hoping that your situation will change and actually do something about it.

This seems like a very easy math concept. Yet, most people struggle with basic money management.

If you don’t believe that saving an extra $5 day, then think about having $1825 in your pocket.

Now, let’s flip it the other way, if you are overspending by $75 a week, then by the end of the year, you are in the hole $3900 plus interest if you took out debt.

Action Step #4 – Figure out your bare bones budget. Then, decide what fun spending items to keep to make sure you spend less than you make.

Here is a guide to help you figure out your bare bones budget. Also, you will find bare bones budget printable in our free library area.

5. Patience

Lastly, you must have patience.

Changing your money management won’t happen overnight. While you can have quick wins and successes, this is the race won by the turtle.

Patience comes with planning and that is one thrifty habit you should pick up.

When you become frugal with money, you plan how you spend your money and save your money. Many times, that means waiting for a sale to buy an item you need or accumulating money for another date.

Action Step #5 – Show self-restraint and try a no spend week or month.

By holding a no spend challenge, it will help you reshape your finances as well as help you prioritize what is important. As a reader, you have access to our no spend printables, too!

Frugal Life Hacks

These are the specific frugal hacks to save money.

These are the key areas you need to focus your energy on. Over time, they will become habits.

1. Pay Yourself First

Yep, this one again.

If you are frugal, then you pay yourself first.

You are focused on two things – how to save more money and how to make more money.

This pay yourself first concept will have you winning at money management – guaranteed!

2. Budget

A frugal person always has a plan on how they plan to spend their hard-earned money.

This makes sure that spending is always below income.

While many people hate the term “budget,” it doesn’t have to be constricting. We like to call it a “Cents Plan.” You make a plan for your money.

Just like you make a plan for your time on the weekend. Same concept.

The more you save now, the greater freedom you will have later.

3. Cook Meals at Home

Cooking food at home costs at least 25% of eating out. While the convenience of eating out is nice, it comes at a monetary and wellness cost.

You can make healthy meals under $10 for six servings. And not be a slave in the kitchen.

Shop the outer area of the grocery store. The expensive stuff is in the middle.

Hint: Try to incorporate a meatless meal 1-2 times per week. Plant based meals are cheaper to make.

4. Shop Less Often

This goes for general shopping, buying groceries, and adding items to your Amazon cart. The more often you go, the more likely you are to spend more money.

Decide ahead of time when you plan to shop (remember that patience concept from earlier).

For example, to get groceries for our house. I plan two pickups per month at the local grocery store and then have organic produce delivered on odd weeks with Misfits Market. Then, Costco run every month to 6 weeks. (Mind you… I have two children that are hitting the pre-teen phase.)

For me, I have shaved 30% off my grocery budget by implementing the strategy to shop less often.

5. Use Cash for Key Categories

If you are tempted to spend more than you should in certain areas, then you need to look at using cash.

When cash has been spent, you must wait until you full up that envelope again.

This helps so much with overspending.

You can do this with the cashless envelope system as well.

6. Own Less Stuff

The more items you have, the more it cost to buy and maintain.

So, by owning less stuff, you are accomplishing one of the most frugal life hacks to save money.

You don’t even need to become a minimalist. You just need to own what you need and that is it.

If you don’t believe me, look around and pack up anything you haven’t touched in the past 30 days.

7. Don’t Buy New

Buying new can be expensive. The best example of buying new is cars, trucks, and SUVs. The price instantly goes down the second you leave the dealership.

If at all possible, always look for used items that you can get at a discount or even for free.

With online forums and groups, it is much easier to find used items.

Of course, there is a caveat to this life hack; there are some things that are worth the investment and should be bought new. Just watch for sales or discounts.

8. Check your Receipts

It absolutely amazes me how many times I can be charged inccorectly. You would think with technology that this wouldn’t happen, but it does.

It takes a quick thirty seconds to scan your receipts and check for errors.

Sometimes, it may be the warranty you declined or double charged for apples. Other times, the sales price not have been rung up correctly.

Don’t hesitate to ask for the correct price!

9. Review Insurance and Ongoing Subscriptions

This may seem like a mundane task to do, but you could save yourself money.

This past summer, our homeowner’s and auto insurance went up again. We shopped around and ended up saving $1800. The same is true for cell phone and cable service.

You have to call and ask for discounts.

More often than not, these companies want you to continue as a customer and will lower your rate.

Insurance Options:

Automated Options to Save Money:

10. Switch to Reusable Products

When you throw something out, you have to buy new again.

This can fall into many categories. However, here are the main things you can reuse and ditch the waste.

This is what you want to look for:

11. Drink Water

Nothing is more frugal than drinking water.

The costs of various drinks can be a drain to any budget.

If you don’t like your tap water, then you can invest in a cheap filtration pitcher or even an under-mount filtration system. This is the one we installed and have been very happy with!

12. Watch Out for Fees

There are so many little pesky fees that can add up. Some examples include shipping, account maintenance, service fees, banking fees, etc.

While $2-8 may not seem like much, they will balloon over time. Look for promo codes or alternative ways to skip the fees.

13. Cut Cable or Unused Subscriptions

If you don’t use, then don’t spend money on it.

You can’t save money if you spend on things that don’t matter to you.

This is hard for many of us to do because we like conveniences and we don’t want to be seen as different.

Ways to Cut Cable:

The key when cutting cable is not to replace it with more subscriptions that end up costing more.

14. Collect Your Pennies

A true life hack to get you ahead financially is to know your money.

You know where you money goes. You know when you spend it. When you save it.

Also, you will never leave money on the table. If you see a penny, you pick it up and save spare change. If you lose a dollar, you want to get it back.

This means you are actively looking for ways to make more money. You want more pennies to collect that will add to your net worth over time.

15. Free Things to Do

The last frugal life hack is to always look for free things to do.

Here is a little secret… having fun doesn’t need to cost money!! We have been trained that having fun costs money. But, it is so not true!

Some of the best things in life are free.

For all of you, here is a guide of over 101 things to do without money.

Which Frugal Life Hack Will Save Money for You?

Being frugal is a lifelong habit. Yes, there are quick wins you can have here and there. But, in the long run, these frugal life hacks will have the biggest bank for your time.

Learning how to live frugally and be happy is about understanding your priorities and how you want to spend your money.

If you are serious about learning how to be frugal with money, then plan a time to examine your finances. In less than 30 minutes, you will uncover things to change the trajectory of your spending and saving habits.

Just remember… pennies do add up. So, watch your pennies and watch your net worth grow.

Know someone else that needs this, too? Then, please share!!

Did the post resonate with you?

More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!

Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.

Source: moneybliss.org

Apache is functioning normally

They say to never say never. But why?

Because if you say it, whatever you said would never happen typically happens. Go figure.

Well, speaking of, Fannie Mae chief economist Doug Duncan recently said barring a “catastrophic economic event,” not to expect mortgage rates to return to 3% in our lifetimes.

I wrote about it on Twitter and it garnered a big reaction, with most saying he’s right. And others asking how old he was…

My take was that when I hear things like “not in our lifetime,” I naturally expect them to occur sooner rather than later.

How Did We Get 3% Mortgage Rates to Begin With?

Before we talk about the possibility of mortgage rates being 3% again, let’s discuss how they got there in the first place.

After the early 2000s mortgage crisis led to the Great Recession between 2007 and 2009, the Fed took action to lower its own lending rate (the federal funds rate) to nearly zero.

This was done to increase economic output by encouraging banks to lend money and for consumers and businesses to take out loans.

Despite the Fed’s best efforts, the economy continued to contract, leading to the advent of an unconventional monetary policy called Quantitative Easing, or QE.

Without getting too wordy here, the Fed began buying long-dated treasuries and mortgage-backed securities (MBS) to stimulate lending and turn the economy around.

Thanks to a very large, new buyer in the market, bond prices went up and their yields (aka interest rates) plummeted, as did consumer mortgage rates.

By the end of 2011, the 30-year fixed fell just below 4%, per Freddie Mac, as seen in the FRED chart above. And in 2012, it was in the low-3% range.

The Fed’s QE program was launched in 2008 and ran all the way until 2020, thanks to COVID-19 requiring an additional round.

Effectively, it was the perfect storm of a zero-interest rate policy (ZIRP) coupled with enormous buying of agency mortgage-backed securities. They currently hold over $2.5 trillion in MBS!

This led to the lowest priced 30-year fixed mortgage on record, and many lucky American homeowners got their hands on one.

Could the Same Thing Happen Again?

Anything is possible, which is why I say never say never. But as Duncan noted, it might take a bit of a catastrophe. Or possibly a major geopolitical event. Or both.

Some wrongly claimed we needed a pandemic to see 3% mortgage rates, but if you study the mortgage rate timeline, that’s simply not true.

As noted, the 30-year fixed was sub-4% all the way back in 2011, nearly a decade before COVID-19 reared its ugly head.

Yes, the pandemic led to even lower mortgage rates, with the 30-year fixed falling to a record low 2.65% during the week ending January 7th, 2021, per Freddie Mac.

But all it took was a Global Financial Crisis (GFC) to get us to 3% mortgage rates. Easy-peasy (kidding).

This isn’t to say it’s right around the corner, but it’s clearly possible. Of course, these might be generational events.

So lifetime might be the wrong word choice here, but generation could be right. As in, not in this generation. But perhaps the next one.

If a generation is around ~30 years, this means many people could see this same thing play out again, though maybe not very soon.

However, things tend to move a lot quicker these days and some argue that we live in a low interest rate world now where a return to double-digit interest rates is unimaginable.

And even long-term average rates could be unthinkable to some given how high home prices are these days.

If you consider the average 30-year fixed mortgage rate over the past 50 years, it’s around current levels of just over 7%.

If we throw out the extreme 1980s mortgage rates, the long-run average is closer to 5.5%. But that includes the crazy low-rate years over the past decade…

How About 4% Mortgage Rates?

While I do agree with Duncan’s general sentiment that a return to a 3% 30-year fixed is unlikely, at least anytime soon, we could get somewhat close.

It wouldn’t shock me to see a 30-year fixed start with a ‘4.’ As in 4.99%, or something to that effect.

Heck, the home builders are still offering special mortgage rate buydowns that low at this very moment.

And if you’re willing to pay discount points at closing, if/when rates moderate as inflation falls, a 4.99% rate could be within reach.

Even without points, rates could get close to those levels if the economy cools rapidly and the Fed begins cutting its own rate again.

Remember, bad economic news is a friend to mortgage rates, so if unemployment spikes, and production/spending declines, rates could come down pretty quick.

At this juncture, many expect the Fed to begin cutting rates as their inflation fight wanes, which if the 10-year bond yield cooperates, could lead to a 30-year fixed closer to 6% by 2025.

And maybe even lower if mortgage rate spreads normalize. This alone could get some borrowers back into the high-5% range without paying a ton at closing.

Of course, that’s all speculation and nobody really knows for certain which way mortgage rates might go.

What Are Your Options If 3% Mortgage Rates Don’t Return?

Even if the 3% mortgage doesn’t return, there are various options to lessen your mortgage interest expense.

For one, there’s always buying down your rate, which involves paying discount points upfront for a lower rate the entire loan term.

This is a form of prepaid interest where you pay more today, but potentially save a lot more over the loan term. You just have to keep the loan long enough for it to make sense.

There’s also paying extra on your mortgage, which depending on how much more you pay each month, could lower your effective mortgage rate to something closer to 4-5%, or even 3%.

The more you pay toward principal, the less interest you pay, which makes your mortgage operate more like a low-rate home loan.

We’ve also seen a resurgence in assumable mortgages, which allow a home buyer to take on the seller’s loan as well.

Many millions of existing homeowners have mortgage rates in the 2-3% range, so it might be possible to buy their house AND snag their low-rate mortgage.

One new service trying to make this process easier is called Roam. And there are others like it out there too.

Finally, if you’re buying a new home, look out for special rate buydowns from the home builder’s lender that offer a below-market rate.

Or if you’re buying a used home, ask for seller concessions, which can be used to buy down the interest rate.

And remember, you’re not necessarily stuck with your rate forever. If rates go down, look into a rate and term refinance to take advantage.

Source: thetruthaboutmortgage.com

Apache is functioning normally

They say to never say never. But why?

Because if you say it, whatever you said would never happen typically happens. Go figure.

Well, speaking of, Fannie Mae chief economist Doug Duncan recently said barring a “catastrophic economic event,” not to expect mortgage rates to return to 3% in our lifetimes.

I wrote about it on Twitter and it garnered a big reaction, with most saying he’s right. And others asking how old he was…

My take was that when I hear things like “not in our lifetime,” I naturally expect them to occur sooner rather than later.

How Did We Get 3% Mortgage Rates to Begin With?

Before we talk about the possibility of mortgage rates being 3% again, let’s discuss how they got there in the first place.

After the early 2000s mortgage crisis led to the Great Recession between 2007 and 2009, the Fed took action to lower its own lending rate (the federal funds rate) to nearly zero.

This was done to increase economic output by encouraging banks to lend money and for consumers and businesses to take out loans.

Despite the Fed’s best efforts, the economy continued to contract, leading to the advent of an unconventional monetary policy called Quantitative Easing, or QE.

Without getting too wordy here, the Fed began buying long-dated treasuries and mortgage-backed securities (MBS) to stimulate lending and turn the economy around.

Thanks to a very large, new buyer in the market, bond prices went up and their yields (aka interest rates) plummeted, as did consumer mortgage rates.

By the end of 2011, the 30-year fixed fell just below 4%, per Freddie Mac, as seen in the FRED chart above. And in 2012, it was in the low-3% range.

The Fed’s QE program was launched in 2008 and ran all the way until 2020, thanks to COVID-19 requiring an additional round.

Effectively, it was the perfect storm of a zero-interest rate policy (ZIRP) coupled with enormous buying of agency mortgage-backed securities. They currently hold over $2.5 trillion in MBS!

This led to the lowest priced 30-year fixed mortgage on record, and many lucky American homeowners got their hands on one.

Could the Same Thing Happen Again?

Anything is possible, which is why I say never say never. But as Duncan noted, it might take a bit of a catastrophe. Or possibly a major geopolitical event. Or both.

Some wrongly claimed we needed a pandemic to see 3% mortgage rates, but if you study the mortgage rate timeline, that’s simply not true.

As noted, the 30-year fixed was sub-4% all the way back in 2011, nearly a decade before COVID-19 reared its ugly head.

Yes, the pandemic led to even lower mortgage rates, with the 30-year fixed falling to a record low 2.65% during the week ending January 7th, 2021, per Freddie Mac.

But all it took was a Global Financial Crisis (GFC) to get us to 3% mortgage rates. Easy-peasy (kidding).

This isn’t to say it’s right around the corner, but it’s clearly possible. Of course, these might be generational events.

So lifetime might be the wrong word choice here, but generation could be right. As in, not in this generation. But perhaps the next one.

If a generation is around ~30 years, this means many people could see this same thing play out again, though maybe not very soon.

However, things tend to move a lot quicker these days and some argue that we live in a low interest rate world now where a return to double-digit interest rates is unimaginable.

And even long-term average rates could be unthinkable to some given how high home prices are these days.

If you consider the average 30-year fixed mortgage rate over the past 50 years, it’s around current levels of just over 7%.

If we throw out the extreme 1980s mortgage rates, the long-run average is closer to 5.5%. But that includes the crazy low-rate years over the past decade…

How About 4% Mortgage Rates?

While I do agree with Duncan’s general sentiment that a return to a 3% 30-year fixed is unlikely, at least anytime soon, we could get somewhat close.

It wouldn’t shock me to see a 30-year fixed start with a ‘4.’ As in 4.99%, or something to that effect.

Heck, the home builders are still offering special mortgage rate buydowns that low at this very moment.

And if you’re willing to pay discount points at closing, if/when rates moderate as inflation falls, a 4.99% rate could be within reach.

Even without points, rates could get close to those levels if the economy cools rapidly and the Fed begins cutting its own rate again.

Remember, bad economic news is a friend to mortgage rates, so if unemployment spikes, and production/spending declines, rates could come down pretty quick.

At this juncture, many expect the Fed to begin cutting rates as their inflation fight wanes, which if the 10-year bond yield cooperates, could lead to a 30-year fixed closer to 6% by 2025.

And maybe even lower if mortgage rate spreads normalize. This alone could get some borrowers back into the high-5% range without paying a ton at closing.

Of course, that’s all speculation and nobody really knows for certain which way mortgage rates might go.

What Are Your Options If 3% Mortgage Rates Don’t Return?

Even if the 3% mortgage doesn’t return, there are various options to lessen your mortgage interest expense.

For one, there’s always buying down your rate, which involves paying discount points upfront for a lower rate the entire loan term.

This is a form of prepaid interest where you pay more today, but potentially save a lot more over the loan term. You just have to keep the loan long enough for it to make sense.

There’s also paying extra on your mortgage, which depending on how much more you pay each month, could lower your effective mortgage rate to something closer to 4-5%, or even 3%.

The more you pay toward principal, the less interest you pay, which makes your mortgage operate more like a low-rate home loan.

We’ve also seen a resurgence in assumable mortgages, which allow a home buyer to take on the seller’s loan as well.

Many millions of existing homeowners have mortgage rates in the 2-3% range, so it might be possible to buy their house AND snag their low-rate mortgage.

One new service trying to make this process easier is called Roam. And there are others like it out there too.

Finally, if you’re buying a new home, look out for special rate buydowns from the home builder’s lender that offer a below-market rate.

Or if you’re buying a used home, ask for seller concessions, which can be used to buy down the interest rate.

And remember, you’re not necessarily stuck with your rate forever. If rates go down, look into a rate and term refinance to take advantage.

Source: thetruthaboutmortgage.com

Apache is functioning normally

If you rent a house when you would rather own, pin some of the blame on corporate landlords.

The 10 biggest institutional investors owned more than 430,000 single-family rental homes at the end of 2023, and they continue to acquire houses to rent out to middle-class families. Corporate landlords seek to dominate the neighborhoods they target, simultaneously reducing the inventory of houses to buy while expanding the stock of houses to rent.

Members of Congress have introduced bills to force the largest institutional investors to dramatically cut their holdings.

Renting costs less than buying

The United States suffers from a housing shortage of between 1.5 million and 5.5 million units, depending on whom you ask. Institutional investors benefit from the shortage because it pushes prices higher, making homeownership unaffordable for many. The median home resale price rose to a record $419,300 in May, according to the National Association of Realtors. Mortgage rates have remained above 6.5% since May 2023.

Consequently, it costs more to buy a starter home than to rent in the 50 largest metro areas, according to a Realtor.com report in March. According to Zillow, the median rent for a three-bedroom house was $2,200 in June. That’s $32 less than the principal-and-interest payment on a median-price house at the average mortgage rate in May — after making a 20% down payment. But who has $83,860 for a 20% down payment on a $419,300 house? The combination of high prices and interest rates forces many would-be homeowners to rent.

‘Significant market power’

Renters occupy about 15.9 million single-family homes, according to the Census Bureau. Corporate landlords own about 3% of them. That doesn’t seem like much, but corporate-owned rental houses are concentrated in a few metro areas, mostly in Florida, Georgia, the Carolinas, Texas, Arizona and California. In metro Atlanta, just three companies owned 19,000 houses at the beginning of 2022, for an 11% market share, according to research by Georgia State University geographer Taylor Shelton.

“These companies own tens of thousands of properties in a relatively select set of neighborhoods, which allows them to exercise really significant market power over tenants and renters because they have such a large concentration of holdings in those neighborhoods,” Shelton said in a news release.

Shelton says the corporate landlords’ market share has increased since then. “The reality is that the corporate stranglehold on the single family rental market in places like Atlanta has only gotten worse,” he said in an email.

Raising rents, charging fees

Invitation Homes owned 12,726 rental houses in metro Atlanta at the end of 2023. The company exercised its market power by raising the average rent there 7.1% last year, according to the company’s annual reports, while the area’s median home price went up 1.3%, according to the National Association of Realtors. Invitation also stacks up to $145 in mandatory monthly fees on top of rent: up to $40 for smart home technology, $9.95 for quarterly air filter delivery, $9.95 to manage utility billing and up to $85 for internet.

Corporate landlords raise rent and charge ancillary fees because they can. “These institutions have outsized power in our housing market, and that influence is growing,” said U.S. Sen. Jeff Merkley, D-Oregon, in an email. “By 2030, Wall Street could control 40 percent of U.S. single-family rental homes.”

How corporate landlords get so many houses

Big corporations have two main methods of accumulating rental houses: buying homes when the owners list them for sale and build-to-rent. In recent years, build-to-rent has dominated.

In the build-to-rent model, a company constructs houses that are intended for the rental market from the time the company buys the land. According to an Urban Institute analysis, construction was started on 120,000 build-to-rent houses in 2022 — 12% of all single-family starts.

The other way these companies collect houses is by buying them on the resale market. When they do, corporations have the resources to outcompete folks who browse for houses online.

Progress Residential is the largest corporate landlord, with 85,000 houses. It bought most of them on the resale market, competing with ordinary people. But Progress has an edge over people, a company executive explained in a 2021 episode of the Leading Voice in Real Estate podcast.

“We have an incredibly effective system for acquiring homes one at a time,” Progress’s then-CEO, Chaz Mueller, said. Every 15 minutes, the company got an update of newly listed homes in its markets. When an algorithm identified a house that met its criteria, the company’s acquisition team made an offer “within a couple of hours of the home going on the market. So we’re able to analyze it very quickly, make an offer. Our offers are all cash, very flexible closing, basically whenever the seller wants to move out,” Mueller said.

A bill to make them sell

Merkley, the Oregon senator, has introduced a bill that would force corporate landlords to sell their houses. The End Hedge Fund Control of American Homes Act “is intended to give all families a fair chance to buy a decent home in a decent community at a price they can afford, because houses should be homes for families, not a profit center for Wall Street,” Merkley said in an email.

His bill would make corporate landlords sell at least 10% of their inventories of single-family rental homes every year for 10 years or face steep tax penalties. A similar bill was introduced into the House, sponsored by U.S. Rep. Adam Smith, D-Washington.

Are corporate landlords giving people what they want?

Corporate landlords point out that they build houses in a country that needs millions more dwellings. “We continue to do our part in solving the housing shortage by providing new premium housing options in desirable family-friendly locations across the country,” said David Singelyn, CEO of AMH, the third-largest corporate landlord with about 60,000 houses, in a recent earnings call.

Sean Dobson, CEO of The Amherst Group (fourth-biggest, 50,000 houses), made a similar point when he was interviewed for Barry Ritholtz’s Masters in Business podcast in March. He described a family that outgrows an apartment, but can’t afford to buy a house. Then the family rents from Amherst: “These are homes that [the] resident would have a very difficult time getting into without us,” he said.

Source: nerdwallet.com

Apache is functioning normally

The 30-year fixed rate loan continued to move downward, falling another 1 basis point this week, to its lowest level since the beginning of April, Freddie Mac said.

It averaged 6.86% as of June 27, compared with 6.87% one week prior but up from 6.71% for the same period one year ago, the Primary Mortgage Market Survey found. The last time this rate was lower was in the April 4 survey.

It diverged from the week-to-week movement in the 15-year FRM. The average for these loans rose to 6.16%, compared with last week when it was 6.13%. A year ago at this time, this product averaged 6.06%.

“The 30-year fixed-rate mortgage continues to trend down, hitting the lowest level in almost three months,” said Sam Khater, Freddie Mac’s chief economist, in a press release. “By historical standards, the economy is in good shape, and we expect rates to continue to come down over the summer months, bringing additional homebuyers back into the market.”

Rate movements as tracked by Freddie Mac reflected those of the 10-year Treasury yield at least for most of the past week.

While the 10-year Treasury remained in a narrow range for most of the past seven days, on June 26, it rose 8 basis points from its prior close to 4.32%, its highest close since June 11.

But in early morning trading on Thursday, it was back down to 4.29%.

That has yet to translate to mortgage pricing. Zillow’s rate tracker as of 11:45 a.m. was up 3 basis points from the previous day and 12 basis points from the previous week’s average to 6.66%.

Rates for the 30-year FRM from the Lender Price product and pricing engine posted on the National Mortgage News website at 10:20 a.m. on Thursday morning was back over 7%, to 7.021%, by 11:45 a.m. it was at 6.995%. But this was still nearly 14 basis points higher than the 6.86% it was at one week ago.

Even with rates rising, they have been relatively flat throughout June, and much lower than they were this past Spring, said Orphe Divounguy, senior economist at Zillow Home Loans.

“The recent economic data suggest economic growth will slow and inflation could return to the Fed’s 2% target sooner than previously anticipated,” Divounguy said in a Wednesday night statement. “Moderating consumer spending, falling home sales and rising home vacancy rates point to lower aggregate demand and easing price pressures in the months ahead.”

Pending home sales fell 2.1% month-to-month in May, a Thursday morning announcement said, but the outlook is somewhat better because of how rates moved in June, said Odeta Kushi, deputy chief economist at First American Financial.

“If mortgage rates continue their descent alongside rising inventory levels, some buyers may be enticed off the sidelines and boost the summer home-buying season,” Kushi said in a statement. “Nevertheless, a robust summer recovery is unlikely given ongoing affordability constraints.”

The Mortgage Bankers Association’s Weekly Application Survey released yesterday put the 30-year conforming FRM at 6.93%, down 1 basis point.

“Housing inventory is rising, albeit from very low levels, and mortgage rates are now below 7%,” said Bob Broeksmit, the MBA’s president and CEO, in a Thursday morning statement. “This is good news for prospective buyers — especially those with children — looking to move before the school year begins.”

The June 28 Personal Consumption Expenditures index release is the next milestone that could affect rate movements as investors use the data to adjust their inflation forecasts.

“Core inflation is expected to have moderated further over the past month,” Divounguy said. However, a higher-than-expected inflation print could undo progress and push rates higher.”

Source: nationalmortgagenews.com