new construction Archives - Page 11 of 47

Apache is functioning normally

September 14, 2023 by Brett Tams

The Realtor survey was sent out in late July to 55,751 randomly-selected residential Realtors. NAR received 1,919 responses by the mid-August close date of the survey. The homebuyer survey was conducted by Morning Consult in June 2023. Of the 2,201 respondents, 587 were white, 560 were Hispanic/Latino(a), 533 identified as African-American/Black and 521 identified at Asian American or Pacific Islander (AAPI).

In the realtor survey, Millennials were the largest home buyer generation represented. Forty-two percent of agents reported that they were working with Millennials, followed by Gen X at 22%, Baby Boomers at 12%, Gen Z at 8% and Civics (those aged 78 and older) at 1%.

White homebuyers were the largest racial group represented at 58%, followed by Hispanic/Latino(a) at 11%, African-American/Black at 10% and Asian-American at 3%.

Over half of the Realtors (51%) reported they their buyers were first-time buyers. In the buyer survey, 71% of white respondents reported they currently own a home, while 67% of African-American/Black responses said they do not currently own a home. In addition, 89% of Hispanic/Latino(a) buyers, as well as African-American/Black buyers said they will be first-time buyers, compared to just 65% of white respondents.

When broken up by race or ethnicity, white buyers are more likely than other races to report not yet having a purchased a home mainly due to lack of availability in their budget, while Hispanic/Latino(a) buyers are more likely to be hampered mainly by the inability to save a sufficient down payment. AAPI buyers are most likely to be waiting for prices to drop and African-American/Black buyers are most likely to report trouble getting approved for a loan due to credit issues as the main reason they have not bought yet.

Generationally, Gen X (12%) and Baby Boomer (11%) buyers are more likely than other generations to be waiting for prices to drop (only 9% of Gen Z buyers and 6% of Millennial buyers are waiting for prices to drop). However, Baby Boomers are the least likely to be concerned about competing with all-cash buyers, with just 24% listing this as a concern compared to 34%-42% for the other generations.

Exploring finance options

According to the Realtor survey, 77% of their prospective buyers who have applied for a loan, have been approved, while 6% have applied but been denied. Of those who have been denied, 12% report it is due to low credit score and 9% report it was due to insufficient down payments.

Black/African-American buyers who have not been approved for a loan are more likely than other racial or ethnic groups to have been denied due to low credit scores, at 32% versus 17% or less for the other racial and ethnic groups.

Realtors reported that 68% of their buyers were considering a conventional loan, 38% were considering an FHA loan, 8% were considering a VA loan and 7% said their buyers did not need home loan financing. FHA loans more likely to be considered by African-American/Black and Hispanic/Latino(a) buyers than white and AAPI buyers, and white and AAPI buyers were most likely to not need financing, at 8% and 9% respectively, compared to 4% or less for other racial and ethnic groups. Broken down on generational lines, 25% of Baby Boomers report not needing financing, compared with just 8% or less for younger generations.

First time buyers (54%) are more than twice as likely as repeat buyers (22%) to consider an FHA loan. Divided among racial and ethnic groups, African-American/Black buyers (62%) and Hispanic/Latino(a) buyers (57%) are more likely to consider FHA loans than other groups (34% or less). Generationally, younger buyers are more likely to consider FHA loans with 57% of Gen Z buyers reporting they have considered an FHA loan, compared to 11% of Baby Boomers.

Among buyers who were eligible for FHA or VA loans, 20% of realtors said their buyer clients have not considered VA or FHA because they do not want to pay private mortgage insurance (PMI) (21%) or they are worried their offers will be less competitive with these options (19%).

According to the survey, 53% of realtors say that at least one issues is holding their latest buyer back from saving a competitive down payment, with 23% reporting current rent or mortgage payments holding buyers back, 17% reporting credit card balances or payments, 12% reporting student loan debt and 11% citing car loans.

First-time buyers are significantly more likely to struggle with these challenges than repeat buyers, with twice as many first-time buyers reporting that they are struggling with credit card payments (22% vs. 11%), and student loan debt (17% vs 7%). When broken down via race and ethnicity, AAPI (52%) and white buyers (52%) were more likely than African-American/Black buyers (31%) and Hispanic/Latino(a) buyers (36%) to report that nothing was holding them back from saving for a down payment. Along generational lines, younger buyers are more likely to be held back by student loan debt (20% of Gen Z, 15% of Millennials, and 8% or less for older generations), car loans (16% of Gen Z vs. 3% of Baby Boomers) and childcare expenses (12% of Gen Z, compared to 2% of Baby Boomers). Overall, the older the buyer the more likely that none of the above issues are holding them back from saving for a down payment, with 70% of Baby Boomers reporting that none of these issues are holding them back compared to 40% of Gen Z buyers.

Despite their challenges, only 23% of Realtors reported that their buyers dealing with these challenges have applied for down payment assistance programs, while 12% of consumers reported that they were unaware of these programs.

The number one reason, at 30%, Realtors cited as to why their buyers who were aware of down payment assistance programs did not apply was that their income was too high. This was followed by 19% who said their buyers didn’t know enough about the programs and 17% who were worried about the competitiveness of their offers in a multiple bid situation.

First time buyers were three times more likely to have applied for down payment assistance programs than repeat buyers at 30% compared to 10%. Similarly, the younger the buyer, the more likely they are to have applied for a program, with 36% of Gen Z buyers reporting they had applied versus 11% of Baby Boomers.

Among racial groups, AAPI buyers were the least likely to have applied to a down payment assistance program at 13% versus 22%-31% for other groups. In addition, they were the most likely to say they were unaware of the programs at 26% compared to 8%-13% for other racial groups.

Location, Location, Location

When determining the location of their future home, 71% of realtors reported that their buyers were determining the location of their next home base on the location of their job or the job of someone in their household. Of the remaining roughly 30%, 16% said their buyer work fully remote and 14% reported that they buyers are retired. They are typically looking for 30 minutes or less of driving time (consumers reported 25 minutes or less).

Baby Boomer were the most likely to be retired at 61% compared to 2%-9% of other generations, while Gen X buyers were the most likely to work fully remotely at 24% versus 9% to 14% for other generations. Millennials (84%) and Gen Z buyers (86%) are the most likely to determine the future location of their home based on the location of their job (28% to 67% for older generations), and similarly, first-time buyers (83%) are more likely than repeat buyers (57%) to determine location based on the location of their job.

Compared to other racial or ethnic group, Hispanic/Latino(a) buyers were most likely to determine the location of their future home based on the location of their jobs, at 82%, compared to 69% to 74% for other groups. White (16%) and African-American/Black buyers (12%) were the most likely to be retired or not workings (other groups ranged from 7% to 8%).

Nearly half (49%) of Realtors said their buyers have no preference between existing and new construction, however white buyers were significantly more likely than other racial groups to prefer existing homes at 46% compared to 27% to 35% for other groups.

The vast majority of Realtors (89%) said their buyer clients were buying a primary residence, while 6% reported they were buying an investment property and 5% said they were buying a vacation or rental home.

Discrimination remains under reported

Of the Realtors surveyed, 1% of Realtors reported that their buyer experienced discrimination during buying process, while 13% were unsure. Among the 14 Realtors who reported that their buyer experienced discrimination, the most common form of discrimination came in the form of loan products offered by the lender (43%) or that the buyer did not receive a call back from the lender (29%). Realtors who reported that their clients experience discrimination, said the most common reason was race (57%), followed by age (29%), and familial status (21%).

Other common sources of discrimination reported were color, religion and national origin (all at 14% each), as well as sex, disability and sexual orientation (all at 7% each).

Despite experiencing discrimination only 7% of the agents said their clients reported the discrimination to a government agency or legal aid organization.

In the consumer study, roughly one in six prospective buyers reported experiencing discrimination during their home buying process, with more than half of Black, Asian, and Hispanic buyers reporting that this was due to their race or ethnicity. White buyers are equally likely to report discrimination but are more likely than others to say this was based on factors other than race or ethnicity. NAR reported that based on both studies is believes that most of this discrimination goes unreported.

Consumers who experience discrimination reported that this most often manifested in their being steered towards or away from specific neighborhoods and in stricter requirements. Among successful buyers 50% of Hispanic/Latino(a) buyers experienced steering, compared to 29% of white buyers and 12% of African American/Black buyers, while 17% of AAPI buyers, 24% of White buyers and 12% of African American/Black buyers reported stricter requirements.

Source: housingwire.com

Apache is functioning normally

September 12, 2023 by Brett Tams

I read a Wall Street Journal editorial piece that cited a stat to say home prices are 13% below last year. That’s blatantly wrong. Home prices remain just fractionally above where they were a year ago. The point of the editorial seemed to be to scaremonger over government programs to help home buyers and student loan borrowers. If home prices are tanking, that means more borrowers are under water. So, the author tried to use new construction prices from back in April to describe the whole U.S. housing market now.

The fact is that while people who bought homes in May of last year in say, Austin, Texas, are probably underwater a bit, in general home prices across the country are roughly unchanged from last year at this time. That’s frankly surprising given how cold the housing market froze last fall. We have significantly fewer home sales happening. Supply of homes for sale is very low, and most of the year we’ve had more buyers than sellers. There are no signs of any surge in listings, and as a result we’ve seen a floor on home prices.

This week continues that trend. New contracts dipped as affordability is out of reach for so many. Inventory is very low and just inching up now week over week late in the summer. There are no signs in the data of home prices tanking. We stay vigilant watching for either of these trends to materialize.

And the evidence shows that the trends can change quickly. That’s why at Altos Research we track every home for sale in the country every week. Let’s look at the signals for the week of September 11, 2023.

Inventory up slightly

There are now just over 509,000 single-family homes active unsold on the market. That’s up just a hair from last week and 7% fewer than last year at this time. Last year inventory was about to start climbing again with that autumn spike in mortgage rates. Inventory grew in 2022 for the seven weeks from mid-September through the end of October. I don’t anticipate that happening again this year. Last year’s late summer inventory growth was a reaction to a big change in mortgage rates. This year, while mortgage rates are high, they aren’t climbing now. Over the next few weeks, inventory levels will fluctuate a bit down a little, up a little in a given week then start declining reliably for the fall.

In this chart above, each line is a year. You can see last year the light red line did that unusual jump in mid-September with that 150 basis point spike in mortgage rates. Before that change, it looked as though inventory had peaked for the year. The lesson is that consumers are most sensitive to changes in rates. This market is fragile, even though it’s not deteriorating, it could. For example if mortgage rates hit 8%, we’ll definitely see it in the data.

Mortgage rates slow purchase demand

As inventory reaches peak supply for the year, we can see how this year’s high mortgage rates have slowed purchase demand. There are 348,000 single-family homes in contract right now, with only 54,000 new contracts pending in the last week. That’s down from 64,000 in the week prior. It was a holiday week, so it’s always slower, but this year was 14% fewer new sales than Labor Day week last year. In September 2021, when the pandemic frenzy was still underway, there were 80,000 to 90,000 new contracts each week for single-family homes. And we’re at 54,000 now.

There’s no getting around it. Supply is limited, demand is limited. There’s just no sign of sales volume increasing. I keep hoping for it, but it isn’t here yet.

In the chart above, each bar is the total number of single-family homes in contract for a given week. The light portion of the bar are the new contracts that week. At the far right end of the chart, the bars are getting shorter and the light portion is getting shorter. Maybe in October we’ll have year-over-year growth in the new contracts, because last year in the fourth quarter, it was frozen solid. You can see in the middle of this chart how quickly the bars got shorter each week in Q4 last year. Hopefully, this year has a slightly stronger pattern. I keep hoping. If rates tick down, we’ll see an uptick in the offers being made.

Price reductions dip

Price reductions dipped this week to 36.1% of homes on the market from 36.2% last week. That surprised me because price reductions don’t usually peak until October. I suspect what we’re seeing is an increase in withdrawn listings. These are homes that had been on the market, not had offers, had taken a price reduction, still no offers, so now they’re done trying to sell for the year. Where we had 54,000 new contracts, we could see another 20,000 or so be withdrawn from listing.

In this chart each line is a year, with the most homes taking price cuts late in the year, when sellers are trying to get a deal done before the holidays. I expect more price cuts before the month ends. It’s mildly encouraging that price cuts didn’t accelerate this week.

The takeaway here is that, in a market that is deteriorating, price reductions will be climbing. And that’s not happening right now. Last year,this happened twice, first starting in March after rates started climbing, price cuts started climbing very notably. It happened again in September after the last spike from under 6% to 7.5% on the 30-year mortgage. That 150 basis point change in mortgage rates surprised everyone. Offers stopped and sellers cut their prices. You can see the extra jump in September of the light red curve here. It wasn’t until November when the withdrawals started accelerating last year and price cuts as a proportion of the active listings started to reset for the new year.

The takeaway here is that as price reductions are flat right now, over 36% of the homes on the market shows us a slow market, but not a deteriorating market. Like every week for the past couple years, we’re all on the lookout for signals that the market might tank. Can consumers handle mortgages over 7%? Price reductions have been accelerating over the last few weeks when mortgage rates inched up to the multi-decade highs. Rates have inched lower since then and we can see that the slow housing market isn’t deteriorating further. It’s not a repeat of last year. Unless mortgage rates spike to like 8%. Then, we will see that price cuts pattern again.

I’ve been pointing out lately that it is more the change in mortgage rates rather than the absolute levels that consumers are responding to. We can see that in the pattern of home list price reductions across the country.

Median home price is down

The median home price in the US is now $444,990. That’s down about 0.7% from last week. And still up about 1% from last year at this time. The median price of the newly listed cohort is $390,000 now, that’s down from last week and essentially unchanged vs last year. In this chart the dark red line is the market’s price, the light red line is the price of the new listings each week. Prices trend down in the second half of the year and these changes look like totally normal seasonal action.

I mentioned that The Wall Street Journal editorial that is so misinformed. The writer was trying to use New Home Sales prices from April to paint a dire picture of the whole U.S. housing market now.

Here’s what we know about home prices now around the U.S. We’re in a supply-constrained market, and there have been sufficient buyers to support prices all year long. When mortgage rates moved from 7% to 7.5% this summer we can see the damper on buyers. That capped any year-over-year price gains. Affordability matters and consumers adjust quickly. Home prices will end 2023 roughly flat from 2022.

Since inventory isn’t falling and is down just a little from last year, that’s an indication that home prices for 2024 will be roughly flat compared to now. Some firms have been forecasting 5% or more home price gains in 2024. There is nothing in the current data that shows me that much home price strength in the next year. That forecast would be dependent on mortgage rates falling substantially before Q2 2024. At Altos, we don’t forecast mortgage rates, so your guess is as good as mine. But there is nothing in the home price data now that shows me significant gains in 2024. That’s why we expect another year of flat home price changes.

And when we look specifically at the price of the homes heading into contract each week, we see the median price at $379,900. That’s also 1% above last year.

This chart shows contract prices last year versus this year. Early in the year, prices were coming in below 2022, now they’re just a fraction above. Last October, home sales prices took a notable dive with that spike in mortgage rates. We’ll see a seasonal price decline in the next few months but the annual comparison only gets easier from here.

We can see that transaction volume does not show any signs of strength. But because this is such a supply constrained market the limited number of buyers have kept a floor on prices all year. That pattern is still intact.

Mike Simonsen is president of Altos Research.

Source: housingwire.com

Apache is functioning normally

September 7, 2023 by Brett Tams

Though some would call St. Louis, which has a population of over 308,000, a small city, St. Louisans will do their best to convince you that this is definitely not a small city. They’ll even convince you that this is the best city in the nation because that’s what they genuinely believe.

And it’s no wonder, too, since there are so many perks of living in St. Louis — from getting to enjoy four distinct seasons to having a cost of living that’s more than 12 percent lower than the national average. And much, much more!

If living in a city with great architecture, fun activities and low cost of living appeals to you, consider moving to St. Louis. Keep reading to find out where to live in St. Louis, MO. We’ll help you find great apartments to rent in St. Louis, as well as find the best neighborhood for your needs.

Where to live in St. Louis

Figuring out where to live in St. Louis doesn’t have to feel overwhelming or like a chore. By answering a few simple questions in our best neighborhoods quiz, you’ll find a neighborhood that just might be the best one for you. At the very least, it will give you a place to start looking for apartments to rent in St. Louis.

Who’s coming with you?

My roomie

My spouse and kids

My furry friends

Me, myself and I

My significant other

Which one neighborhood characteristic can you not live without?

Safety

Walkability

Nightlife

Green spaces

Great food

Good school

What’s your idea of quality downtime?

Outdoor recreation

Hitting the bar scene

Dinner and a movie

Live entertainment

Shopping

Which of these best describes your current life stage?

Your personal style could be best described as:

Hipster

Cool parent

Trendy

Quirky

Laid back

All business

Which of the following is most important to you in choosing an apartment?

Low price

New building

Stylish space

Access to culture

Close to work

Where to Live in St. Louis

Midtown

Image Source: 3124 Olive St

The urban neighborhood of Midtown is home to over 12,200 residents, many of whom are young professionals. The Midtown community is ideal for single people and couples who are focusing on their careers and the fun experiences to have in an urban environment. Residents love the abundance of fantastic restaurants (from American steakhouses and Creole/Cajun cuisine to international eateries), cafés and bars/pubs. They also appreciate the plethora of shops and boutiques where they can shop for their needs, plus do a bit of window shopping with friends. As a resident, you’ll also be in close proximity to art galleries, museums, the farmers’ market and live entertainment. You won’t get bored in Midtown.

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Tower Grove East

Image Source: 3436 Utah St

About three miles southwest of Downtown St. Louis is Tower Grove East, considered one of the best neighborhoods in the city. The vibe is urban-suburban and residents love that everything seems within arm’s reach. You have close access to restaurants, bars, live entertainment and many other activities. If you’ve been wondering where to live in St. Louis and want a neighborhood with a low crime rate, you should definitely consider this community. The safety of the community is a major draw for many residents. Nearby Tower Grove Park — a dog-friendly park — is stunning. The Victorian public park and arboretum have lush grassy meadows and over 7,000 trees. It’s a sanctuary from the hustle of city living for sure!

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Lafayette Square

About a mile and a half from Downtown St. Louis is Lafayette Square, a beautiful neighborhood full of cozy townhouses and majestic Victorians. Though it’s not far from the center of the city, this neighborhood moves at a much slower pace. In the center of the neighborhood is Lafayette Park, a green space of 30-acres that, like Tower Grove Park, is absolutely gorgeous. Dedicated in 1851, Lafayette Park is one of the first parks in St. Louis. It’s perfect for walking your dog or taking a romantic stroll with your significant other. Lafayette Square is a safe neighborhood that’s big on community spirit. In fact, Lafayette Park hosts movie nights, summer concerts and a variety of festivals throughout the year.

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Soulard Historic District

If nightlife activities and venues are high on your priority list, this is the neighborhood for you. The Soulard Historic District, one of the most diverse neighborhoods in St. Louis, is home to several bars and pubs. The community loves a party, like their annual Soulard Mardi Gras celebration. The celebration starts in January with a winter carnival and Cajun cookoff and ends at the end of February with the Mardi Gras ball and parade. There are tons of fun things to do in this neighborhood, including taking your pick of laid-back Southern restaurants and high-end eateries. You can even go out for karaoke!

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Prairie des Noyes

Image Source: 3970 Cleveland Ave

The Prairie des Noyes community is part of the Shaw neighborhood. The Missouri Botanical Gardens, Compton Hill Reservoir Park and Tower Grove Park border this neighborhood on the west, northeast and south, respectively. This is one of the safest neighborhoods in St. Louis and it’s ideal for anyone who loves the great outdoors. The parks are great for exercising, relaxing with a good book or picnicking with friends. If you’re an art lover, you’ll want to add the Historic Shaw Art Fair to your calendar. You’ll get to enjoy excellent local fare, live music and the artwork of artists from around the country. Homes in this neighborhood range from brick townhouses and apartment complexes to Colonials and Victorians.

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Botanical Heights

Image Source: 3822 Folsam Ave

If you’re looking for something with an artsy, hipster vibe, look no further than Botanical Heights. In the past decade, new construction in the area has helped turn this neighborhood into one of the top communities in St. Louis. Beautiful, modern houses line the streets. Botanical Heights is a foodie’s paradise. Even Martha Stewart herself is a fan of the local gourmet pastry shop, Cravings, which is also an award-winning restaurant and catering company. In fact, the “Washington Post” calls the intersection of Tower Grove and McRee the “best dining corridor in St. Louis.”

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DeBaliviere Place

Image Source: 5656 Waterman Blvd

DeBaliviere Place is an urban neighborhood a little over five and a half miles northwest of Downtown St. Louis. The diverse neighborhood of nearly 3,800 residents consists mainly of young professionals. Residents say they enjoy living in this area because it feels safe and there are plenty of people walking their dogs day and night. The close proximity between DeBaliviere Place and other neighborhoods contributes to a dense, urban vibe, which many residents like because it adds to the fun and excitement.

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Forest Park

If you’ve been wondering where to live in St. Louis and green spaces and culture are high priorities for you, you’ll like this neighborhood. The Forest Park neighborhood is home to Forest Park, one of the most beautiful urban parks in the world. If you’re a flower lover, you’ll want to visit the Jewel Box often, which is a 17-acre site on Forest Park that has a display greenhouse with hundreds of flowers. This neighborhood is also home to the St. Louis Art Museum, a world-renowned museum of fine art, as well as the St. Louis Zoo and the John F. Kennedy Memorial Forest.

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Rebecca Green is a content editor and writer for RentPath. She enjoys interior design, dogs and can tell you where to find the best pizza in Brooklyn. You can see some of her other published work on Apartment Guide.

Source: rent.com

Apache is functioning normally

September 5, 2023 by Brett Tams

Whoa, have you seen what just happened to interest rates!?

Suddenly, after at least fourteen years of our financial world being mostly the same, somebody flipped over the table and now things are quite different.

Interest rates, which have been gliding along at close to zero since before the Dawn of Mustachianism in 2011, have suddenly shot back up to 20-year highs.

–

Which brings up a few questions about whether we need to worry, or do anything about this new development.

Is the stock market (index funds, of course) still the right place for my money?
What if I want to buy a house?
What about my current house – should I hang onto it forever because of the solid-gold 3% mortgage I have locked in for the next 30 years?
Will interest rates keep going up?
And will they ever go back down?

These questions are on everybody’s mind these days, and I’ve been ruminating on them myself. But while I’ve seen a lot of play-by-play stories about each little interest rate increase in the financial newspapers, none of them seem to get into the important part, which is,

“Yeah, interest rates are way up, but what should I do about it?”

So let’s talk about strategy.

Why Is This Happening, and What Got Us Here?

*

Interest rates are like a giant gas pedal that revs the engine of our economy, with the polished black dress shoe of Federal Reserve Chairman Jerome Powell pressed upon it.

For most of the past two decades, Jerome’s team and their predecessors have kept the pedal to the metal, firing a highly combustible stream of easy money into the system in the form of near-zero rates. This made mortgages more affordable, so everyone stretched to buy houses, which drove demand for new construction.

It also had a similar effect on business investment: borrowed money and venture capital was cheap, so lots of entrepreneurs borrowed lots of money and started new companies. These companies then rented offices and built factories and hired employees – who circled back to buy more houses, cars, fridges, iPhones, and all the other luxurious amenities of modern life.

This was a great party and it led to lots of good things, because we had two decades of prosperity, growth, raising our children, inventing new things and all the other good things that happen in a successful rich country economy.

Until it went too far and we ended up with too much money chasing too few goods – especially houses. That led to a trend of unacceptably fast Inflation, which we already covered in a recent article.

–

So eventually, Jay-P noticed this and eased his foot back off of the Easy Money Gas Pedal. And of course when interest rates get jacked up, almost everything else in the economy slows down.

And that’s what is happening right now: mortgages are suddenly way more expensive, so people are putting off their plans to buy houses. Companies find that borrowing money is costly, so they are scaling back their plans to build new factories, and cutting back on their hiring. Facebook laid off 10,000 people and Amazon shed 27,000.

We even had a miniature banking crisis where some significant mid-sized banks folded and gave the financial world fears that a much bigger set of dominoes would fall.

All of these things sound kinda bad, and if you make the mistake of checking the news, you’ll see there is a big dumb battle raging as usual on every media outlet. Leftists, Right-wingers, and anarchists all have a different take on it:

It’s the President’s fault for printing all that money and running up the debt! We should have Fiscal Discipline!
No, it’s the opposite! The Fed is ruining the economy with all these rate rises, we need to drop them back down because our poor middle class is suffering!
What are you two sheeple talking about? The whole system is a bunch of corrupt cronies and we shouldn’t even have a central bank. All hail the true world currency of Bitcoin!!!

The one thing all sides seem to agree on is that we are “experiencing hard economic times” and that “the country is headed in the wrong way”.

Which, ironically, is completely wrong as well – our unemployment rate has dropped to 50-year lows and the economy is at the absolute best it has ever been, a surprise to even the most grounded economists.

The reality? We’re just putting the lid back onto the ice cream carton until the economy can digest all the sugar it just wolfed down. This is normal, it happens every decade or two and it’s no big deal.

Okay, but should I take my money out of the stock market because it’s going to crash?

This answer never changes, so you’ll see it every time we talk about stock investing: Holy Shit NO!!!

The stock market always goes up in the long run, although with plenty of unpredictable bumps along the way. Since you can’t predict those bumps until after they happen, there is no point in trying to dance in and out of it.

But since we do have the benefit of hindsight, there are a few things that have changed slightly: From its peak at the beginning of 2022 until right now (August 2023 as I write this), the overall US market is down about 10%. Or to view it another way, it is roughly flat since June 2021, so we’ve seen two years with no gains aside from total dividends of about 3%.

Since the future is always the same, unknowable thing, this means I am about 10% more excited about buying my monthly slice of index funds today than it was at the peak.

Should I start putting money into savings accounts instead because they are paying 4.5%?

This is a slightly trickier question, because in theory we should invest in a logical, unbiased way into the thing with the highest expected return over time.

When interest rates were under 1%, this was an easy decision: stocks will always return far more than 1% over time – consider the fact that the annual dividend payments alone are 1.5%!

But there has to be some interest rate at which you’d be willing to stop buying stocks and prefer to just stash it into the stable, rewarding environment of a money market fund or long-term bonds or something else similar. Right now, if a reputable bank offered me, say, 12% I would probably just start loading up.

But remember that the stock market is also currently running a 10% off sale. When the market eventually reawakens and starts setting new highs (which it will someday), any shares I buy right now will be worth 10% more. And then will continue going up from there. Which quickly becomes an even bigger number than 12%.

In other words, the cheaper the stocks get, the more excited we should be about buying them rather than chasing high interest rates.

As you can see, there is no easy answer here, but I have taken a middle ground:

I’m holding onto all the stocks I already own, of course
BUT since I currently have an outstanding margin loan balance for a house I helped to buy with several friends (yes this is #3 in the last few years!), I am paying over 6% on that balance. So I am directing all new income towards paying down that balance for now, just for peace of mind and because 6% is a reasonable guaranteed return.
Technically, I know I would probably make a bit more if I let the balance just stay outstanding, kept putting more money into index funds, and paid the interest forever, but this feels like a nice compromise to me

What if I want to Buy a House?

–

For most of us, the biggest thing that interest rates affect is our decisions around buying and selling houses. Financing a home with a mortgage is suddenly way more expensive, any potential rental house investments are suddenly far less profitable, and keeping our old house with a locked-in 3% mortgage is suddenly far more tempting.

Consider these shocking changes just over the past two years as typical rates have gone from about 3% to 7.5%.

Assuming a buyer comes up with the average 10% down payment:

The monthly mortgage payment on a $400k house has gone from about $1500 at the beginning of 2022 last year to roughly $2500 today. Even scarier, the interest portion of that monthly bill has more than doubled, from $900 to $2250!

For a home buyer with a monthly mortgage budget of $2000, their old maximum house price was about $500,000. With today’s interest rates however, that figure has dropped to about $325,000

Similarly, as a landlord in 2022 you might have been willing to pay $500k for a duplex which brought in $4000 per month of gross rent. Today, you’d need to get that same property for $325,000 to have a similar net cash flow (or try to rent each unit for a $500 more per month) because the interest cost is so much higher.

And finally, if you’re already living in a $400k house with a 3% mortgage locked in, you are effectively being subsidized to the tune of $1000 per month by that good fortune. In other words, you now have a $12,000 per year disincentive to ever sell that house if you’ll need to borrow money to buy a new one. And you have a potential goldmine rental property, because your carrying costs remain low while rents keep going up.

This all sounds kind of bleak, but unfortunately it’s the way things are supposed to work – the tough medicine of higher interest rates is supposed to make the following things happen:

House buyers will end up placing lower bids which fit within their budgets.

Landlords will have to be more discerning about which properties to buy up as rentals, lowering their own bids as well.

Meanwhile, the current still-sky-high prices of housing should continue to entice more builders to create new homes and redevelop and upgrade old buildings and underused land, because high prices mean good profits. Then they’ll have to compete for a thinner supply of home buyers.

The net effect of all this is that prices should stop going up, and ideally fall back down in many areas.

When Will House Prices Go Back Down?

This is a tricky one because the real “value” of a house depends entirely on supply and demand. The right price is whatever you can sell it for. However, there are a few fundamentals which influence this price over the long run because they determine the supply of housing.

The actual cost of building a house (materials plus labor), which tends to just stay pretty flat – it might not even keep up with inflation.
The value of the underlying land, which should also follow inflation on average, although with hot and cold spots depending on which cities are popular at the time.
The amount of bullshit which residents and their city councils impose upon house builders, preventing them from producing the new housing that people want to buy.

NIMBYS in my own area, damaging the housing market.

The first item (construction cost) is pretty interesting because it is subject to the magic of technological progress. Just as TVs and computers get cheaper over time, house components get cheaper too as things like computerized manufacturing and global trade make us more efficient. I remember paying $600 for a fancy-at-the-time undermount sink and $400 for a faucet for my first kitchen remodel in the year 2001. Today, you can get a nicer sink on Amazon for about $250 and the faucet is a flat hundred. Similarly, nailguns and cordless tools and easy-to-install PEX plumbing make the process of building faster and easier than ever.

On the other hand, the last item (bullshit restrictions) has been very inflationary in recent times. I’ve noticed that every year another layer of red tape and complicated codes and onerous zoning and approval processes gets layered into the local book of rules, and as a result I just gave up on building new houses because it wasn’t worth the hassle. Other builders with more patience will continue to plow through the murk, but they will have less competition, fewer permits will be granted, and thus the shortage of housing will continue to grow, which raises prices on average.

Thankfully, every city is different and some have chosen to make it easier to build new houses rather than more difficult. Even better, places like Tempe Arizona are allowing good housing to be built around people rather than cars, which is even more affordable to construct.

But overall, since overall US house prices adjusted for inflation are just about at an all-time high, I think there’s a chance that they might ease back down another 25% (to 2020 levels). But who knows: my guess could prove totally wrong, or the “fall” could just come in the form of flat prices for a decade that don’t keep up with inflation, meaning that they just feel 25% cheaper relative to our higher future salaries.

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When Will Interest Rates Go Back Down?

The funny part about our current “high” interest rates is that they are not actually high at all. They’re right around average.So they might not go down at all for a long time.

Remember that graph at the beginning of this article? I deliberately cropped it to show only the years since 2009 – the long recent period of low interest rates. But if you zoom out to cover the last seventy years instead, you can see that we’re still in a very normal range.

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But a better answer is this one: Interest rates will go down whenever Jerome Powell or one of his successors determines that our economy is slowing down too much and needs another hit from the gas pedal. In other words, whenever we start to slip into a genuine recession.

In order to do that however, we need to see low inflation, growing unemployment, and other signs of an economy that’s not too hot. And right now, those things keep not showing up in the weekly economic data.

You can get one reasonable prediction of the future of interest rates by looking at something called the US Treasury Yield Curve. It typically looks like this:

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What the graph is telling you is that as a lender you get a bigger reward in exchange for locking up your money for a longer time period. And way back in 2018, the people who make these loans expected that interest rates would average about 3.0 percent over the next 30 years.

Today, we have a very strange opposite yield curve:

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If you want to lend money for a year or less, you’ll be rewarded with a juicy 5.4 percent interest rate. But for two years, the rate drops to 4.92%. And then ten-year bond pays only 4.05 percent.

This situation is weird, and it’s called an inverted yield curve. And what it means is that the buyers of bonds currently believe that interest rates will almost certainly drop in the future – starting a little over a year from now.

And if you recall our earlier discussion about why interest rates drop, this means that investors are forecasting an economic slowdown in the fairly near future. And their intuition in this department has been pretty good: an inverted yield curve like this has only happened 11 times in the past 75 years, and in ten of those cases it accurately predicted a recession.

So the short answer is: nobody really knows, but we’ll probably see interest rates start to drop within 18-24 months, and the event may be accompanied by some sort of recession as well.

The Ultimate Interest Rate Strategy Hack

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I like to read and write about all this stuff because I’m still a finance nerd at heart. But when it comes down to it, interest rates don’t really affect long-retired people like many of us MMM readers, because we are mostly done with borrowing. I like the simplicity of owning just one house and one car, mortgage-free.

With the current overheated housing market here in Colorado, I’m not tempted to even look at other properties, but someday that may change. And the great thing about having actual savings rather than just a high income that lets you qualify for a loan, is that you can be ready to pounce on a good deal on short notice.

Maybe the entire housing market will go on sale as we saw in the early 2010s, or perhaps just one perfect property in the mountains will come up at the right time. The point is that when you have enough cash to buy the thing you want, the interest rates that other people are charging don’t matter. It’s a nice position of strength instead of stress. And you can still decide to take out a mortgage if you do find the rates are worthwhile for your own goals.

So to tie a bow on this whole lesson: keep your lifestyle lean and happy and don’t lose too much sweat over today’s interest rates or house prices. They will probably both come down over time, but those things aren’t in your control. Much more important are your own choices about earning, saving, healthy living and where you choose to live.

With these big sails of your life properly in place and pulling you ahead, the smaller issues of interest rates and whatever else they write about in the financial news will gradually shrink down to become just ripples on the surface of the lake.

In the comments: what have you been thinking about interest rates recently? Have they changed your decisions, increased, or perhaps even decreased your stress levels around money and housing?

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* Photo credit: Mr. Money Mustache, and Rustoleum Ultra Cover semi gloss black spraypaint. I originally polled some local friends to see if anyone owned dress shoes and a suit so I could get this picture, with no luck. So I painted up my old semi-dressy shoes and found some clean-ish black socks and pants and vacuumed out my car a bit before taking this picture. I’m kinda proud of the results and it saved me from hiring Jerome Powell himself for the shoot.

Source: mrmoneymustache.com

Apache is functioning normally

September 4, 2023 by Brett Tams

With record-low inventory nationwide, real estate agents seem to be hearing the same thing day in and day out: “I’d list my home, but where would I move?” For most agents, that’s the end of the conversation, ending the possibility of taking a new listing as well as facilitating the buyer side. Nationwide, inventory is at all-time lows. According to Altos Research, this week there are only 465,000 active listings. We are still at least a million listings shy of being a balanced market, so this excuse is not going to subside anytime soon.

Stop answering clients’ concerns by saying, “Yeah, there’s really nothing on the market, I mean everything in the MLS is already pending. I’ll put you into my search widget and we’ll watch for something to pop up together.”

While that’s one method of finding a home for your would-be sellers to buy, you can’t end the conversation there and expect to do any business this year. The key is to set up the ‘drip system,’ then move the conversation forward by being a problem solver. How does someone list and buy at the same time successfully in a market like this?

Here are 10 solutions for sellers who what to buy that go beyond waiting and watching for magic inventory to appear.

Build a home instead of chasing after the scarce resale inventory

30% of available homes are new construction, so there are several advantages to this option. First, many builders are buying down interest rates using their in-house financing. Builders are closing loans in the 4.5 to 5.5% range currently! Next, the house is new. No rehab for them and no inspection woes for you. Your client can get their home on the market a few months before construction is complete and not have to move twice. Finally, when your client builds, they don’t have to compete in a bidding war.

Buy first, close and then list the previous home

Don’t assume your clients won’t or can’t utilize this option. They may have a downpayment saved that isn’t their home equity. They might use a bridge loan to borrow their equity, close on the next home and then sell the old one. You don’t know if you don’t ask. The advantage here is that your client can make a non-contingent offer, secure their next home and deal with their old house later. Make sure you know lenders who offer bridge loans and understand how to explain this option.

Sell first, rent for a while and take the time to look for the right home

The advantage here is the seller has cashed out their equity and is ready to pounce on the right home, but without the pressure of scheduling closing and possession dates. Who are your go-to leasing agents? Maybe you are a leasing agent. Consider both traditional rentals, short-term vacation rentals, as well as apartment complexes. Many have some great amenities which could work for a short to longer-term lease while you help your client find the right home to buy.

Offer acceptance contingent on seller finding suitable housing

The buyer will probably want a specific time frame, but you can usually get 90 to 120 days to secure the next home. Many buyers in today’s market are simply anxious to find the right home, so they will be flexible with the seller’s situation. It’s still a seller’s market. The advantage to your client is they won’t have to move twice and you’ve built in enough time to look for the next place.

Convert the previous home into a rental

You can handle the lease yourself or refer it to your favorite leasing agent. The home stays an asset for your client and they can keep their low-interest rate mortgage. Don’t assume that this isn’t an option. You have to ask! Remember that Americans currently have record-high credit scores. They may be more comfortable taking this option than you think. In some markets, keeping the home and turning it into a short-term rental can be very profitable. It might be the best option for your client. You can always run the numbers and see if it makes sense, at least in the short term.

Leasing back the home

In this scenario, the buyer is happy because they secured the house, and your seller is happy because they have both time and money coming in to facilitate their move to the next place. Once the home has been purchased by the new owners, your clients would essentially pay rent to stay while they house hunt.

Buying an RV, a houseboat or a sailboat

There are endless examples of sellers who cashed out their homes, bought a recreational home and traveled for a while. You might be surprised that it’s not just baby boomers or retirees who are doing this! Another version of this option involves sellers cashing out and renting a series of short-term rentals in different areas of the country or the world, trying out new possibilities before they decide where to land.

Find your would-be seller an off-market home to purchase where that seller has flexibility

In this scenario, you are in complete control of both sides of the transaction, and you may pick up yet another client when the off-market seller also needs to buy. Refer to our podcast series and HousingWire articles about how to find inventory that’s not in the MLS.

Moving into an assisted living care facility

Many of the homes that are coming onto the market right now are in 55 and over communities. There is also inventory from families downsizing, new empty-nesters moving and the like. Are you prospecting in those neighborhoods?

Moving in with relatives

Whether that’s moving in with parents, kids or cousins somewhere else, it can be a short-term solution for sellers who don’t have another property in mind yet.

Bottom line? You can’t just wait around for listings to appear for your sellers! Stop relying on your ‘drip system.’ Be proactive with different solutions that could work for them. You’ll have more transactions and they’ll value your expertise, netting you both current business as well as future repeat and referrals.

Tim and Julie Harris host the nation’s #1 podcast for real estate professionals. https://timandjulieharris.com/category/podcast has new podcasts every day. Tim and Julie have been real estate coaches for more than two decades, coaching the top agents in the country through different types of markets. https://PremierCoaching.com to get started for FREE today.

Source: housingwire.com

Apache is functioning normally

September 2, 2023 by Brett Tams

Mortgage rates eased back down this week, but remain above 7%, which is prohibitively high for many homebuyers.

The average rate on the 30-year fixed mortgage declined to 7.18% this week from 7.23% the week before, according to Freddie Mac. This marks the third straight week rates have been above 7%, the first time that’s happened since April 2002.

Elevated rates are colliding with the end of the traditional homebuying season, but the environment remains a major headwind for those buyers left in the market and further cements many homeowners’ decisions to not sell now.

“The impact of mortgage rates on activity right now might not be all that big because activity is expected to slow down,” Zillow senior economist Orphe Divounguy told Yahoo Finance. “The housing market is very seasonal so it’s expected to slow down right now and pick back up in the spring.”

Buyer demand still low

Buyers still in the market took advantage of the somewhat softer rate.

Mortgage application volume for purchases picked up 2% last week on a seasonally adjusted basis, compared with the previous week, the Mortgage Bankers Association (MBA) survey for the week ending Aug. 25 found.

“Treasury yields peaked early in the week and did move lower by the end, which may have spurred some activity,” MBA deputy chief economist Joel Kan said in a statement. Fixed mortgage rates tend to follow the direction of the 10-year Treasury yield.

Still, demand remains low, Kan said, with volumes off 27% from the same time last year.

Adding to the affordability concerns are home prices, which have been pushed up by solid demand and sparse inventory.

In June, home prices rose for the fifth consecutive month, according to the S&P Case-Shiller US National Composite home price index, which is off just 0.02% from its all-time peak a year ago.

(AP Photo/Steven Senne, File)

Reluctant homeowners

Mortgage rates are also to blame for the shortage in homes for sale.

Most homeowners have a mortgage rate far below the prevailing rate. According to the Bureau of Economic Analysis, the average rate on all outstanding mortgage debt was 3.59% in the second quarter, nearly half the 7.18% rate recorded this week.

“For the bulk of those who already have a mortgage, a new mortgage at current rates would incur significantly higher costs,” Jake Gordon, research analyst at Bespoke Investment Group, wrote in a note following the BEA’s revised data release on Wednesday.

“That gives them little reason to enter the housing market, and thus, is part of the reason for the dearth in housing inventories,” the analyst added.

New homes to the rescue

With little on the resale market, some buyers have turned to new homes.

New construction now made up nearly 31% of the for-sale inventory pie in July, up from around 20% in the years from 2000 until the pandemic, according to analysis from Odeta Kushi, First American’s deputy chief economist.

As a result, builders have ramped up construction and incentives. A prevalent perk is paying for mortgage rate buydowns for prospective buyers.

For instance, some new buyers are getting mortgage rates below 6% as builders allocate 4%-6% of the home sale proceeds toward buying down the mortgage rate, data from John Burns Research & Consulting shows.

“As mortgage rates swing between the low- and mid-7% range, we could see this uncertainty around rates have more of a cooling effect on sales,” Eric Finnigan, vice president of research and demographics at John Burns Research and Consulting, told Yahoo Finance.

Mortgage rate forecast

Federal Reserve Chair Jerome Powell speaks during a news conference to discuss an announcement from the Federal Open Market Committee in Washington, D.C., on March 3, 2020. (AP Photo/Jacquelyn Martin, File)

Where mortgage rates go from here remains to be seen.

“Recent volatility makes it difficult to forecast where rates will go next, but we should have a better gauge in September as the Federal Reserve determines their next steps regarding interest rate hikes,” Sam Khater, Freddie Mac’s chief economist, said in a statement.

The increase in rates is largely because the yield on the 10-year Treasury has skyrocketed over the past 18 months as the Federal Reserve tries to tamp down inflation to its 2% goal.

Read more: What the latest Fed rate hike plan means for mortgage rates and loans

The Fed’s preferred inflation reading slightly ticked up on annual basis in July, according to a government release on Thursday, overturning some of the prior month’s drop as the battle to bring down inflation could be slower.

Last week, Federal Reserve Chairman Jerome Powell warned in his Jackson Hole speech that inflation still remains too high, suggesting that the central bank isn’t done.

“Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy,” Powell said, also noting that home prices are still going up, even after 11 rate hikes.

“In addition, after decelerating sharply over the past 18 months, the housing sector is showing signs of picking back up.”

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Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv.

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Source: finance.yahoo.com

Apache is functioning normally

September 2, 2023 by Brett Tams

An emergency housing proclamation in the state of Hawaii declared by Gov. Josh Green (D) in July is conflicting with the desires of Maui residents as the island rebuilds after a devastating wildfire that destroyed the town of Lahaina.

The proclamation suspends several housing provisions, including historic preservation, environmental review, sunshine and collective bargaining laws. It replaces them with rules that permit rapid development and construction of new housing units, a move to address ballooning costs.

In a Thursday meeting of the Maui County Council, dozens of local residents said the proclamation could thwart forthcoming reconstruction efforts in Lahaina, Honolulu Civil Beat reported.

Chief Housing Officer Nani Medeiros said the town isn’t going to make any decisions under the declaration until the community is prepared.

A working group and other government officials are carrying out an assessment to identify available government and private land where new homes could be built to house Lahaina fire survivors.

“Infrastructure is the biggest challenge,” Medeiros said. “The meetings with the community members — the folks who have actually experienced the displacement — are key to any decisions,” on new construction.

Meanwhile, residents are encouraging tourists to return in order to encourage economic activity.

“Another way you can support Maui, come here,” local disc jockey Forest said on Mana’o Radio, NPR reported. “The Maui economy relies on tourism, to stay away now will just make the problem worse.”

Despite the destruction of Lahaina, 730 square miles of Maui — roughly 75% of the island — was untouched by the recent wildfire. Tourism accounts for the vast majority of the Maui economy.