Tag Archives: Construction/Real Estate

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Mortgage bankers expect rates to drop to 5.4% in 2023. What will home prices do?

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NASHVILLE, Tenn. — High mortgage rates and recession fears are hurting home prices, so expect growth to be flat this year, one expert says.

“Our forecast is for home-price growth moderation to continue,” Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association, said Sunday during the organization’s annual conference in Nashville, Tenn.

Home prices have already begun moderating. According to Case-Shiller, home prices fell month-over-month from June to July for the first time in 20 years. The latest numbers, which will be for August, will be reported on Tuesday morning.

With a recession likely in the cards, on top of mortgage rates near or above 7%, “we’ve already seen a pretty dramatic pullback in housing demand,” Kan said.

Also see: Mortgage industry group predicts recession next year, expects mortgage rates to come back down from 7%

The 30-year fixed rate averaged 6.94% last week as compared to 3.85% a year ago. The MBA is also expecting rates to come down to 5.4% by the end of next year.

So expect national home-price growth to “flatten out” in 2023 and 2024, he said. This might be a “silver lining” for some, Kan added, as it brings home prices back to more “reasonable levels.”

A flattening of home-price growth should allow households to catch up, in terms of wages and savings, to afford homes that are presently too expensive.

But he also warned that some markets may actually see home prices drop. We’re already seeing home values fall in some markets, from pandemic boomtowns like Austin and Phoenix to well-known expensive ones the San Francisco Bay Area.

Still, even with price drops, don’t expect a surge of inventory as people sit on their ultra-low mortgage rates that they will likely not enjoy again in the near future.

According to June data from the Federal Housing Finance Agency, nearly a quarter of homeowners have mortgage rates of less than or equal to 3%. And the vast majority of owners — 93% — have rates less than 6%.

On top of that, supply is likely to be tight too.

Sellers are said to be “striking” and not selling their homes as they see others forced to cut list prices to woo buyers. Builders are also getting spooked, signaling intent to slow new construction.

Nonetheless, demand for housing should recover eventually, given that there are a lot of people who will soon be in need of a home that they own.

MBA’s Kan estimated that there are 50 million people in the 28-to-38 age demographic, of which some — or many — are likely to become potential homeowners in the future.

For those under 35, the homeownership rate is only 39%, Kan said, while that share increases for people aged 35 to 44, to 61%.

So as people age, “we’re fairly confident if we stick to these trends, you will see a very supportive demographic driver of housing demand for a good number of years,” Kan said.

Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com

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‘We’re seeing buyers backing out’: This dramatic chart reveals U-turn in the housing market as sellers slash home prices

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Here’s a chart that speaks a thousand words about the state of the real-estate market right now.

The chart above, part of a new report by real-estate brokerage Redfin
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on the property market, reveals how home sellers are adjusting to the new normal of 7% mortgage rates.

The chart says that 7.9% of homes for sale on the market each week had their prices slashed — and that’s a record high.

That’s compared to just 4% of homes having their prices reduced each week over the same period a year ago.

Redfin’s data goes back to 2015. The company averaged out the share of listings which saw a price cut over four weeks, to smoothen out any outliers.

Taylor Marr, deputy chief economist at Redfin, added that looking over a bigger time period, i.e. a month, the company’s data shows that a quarter of homes right now are dropping prices.

“We have never been this high,” Marr told MarketWatch in an interview.

Unlike buyers, who are much more sensitive to rising mortgage rates, “sellers are just slow to react to the changes in demand… they set prices based on where they think the market is [and] are often reluctant to set their prices too low,” Marr said.

So for sellers, prices are a little stickier, he added, and slower to come down.

But even if it took a while, it’s finally happening.

After all, mortgage rates are at multi-decade highs, with the 30-year trending steadily above 7% as of Friday afternoon, according to Mortgage News Daily. And that’s likely to go up even more, as the 10-year Treasury note
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is trending above 4%.

Meanwhile, Redfin said that the median home on the market was listed at over $367,000, up 7% over last year.

The monthly mortgage for that home at the current interest rate of 6.92%, according to Freddie Mac, is $2,559.

A year ago, when rates were at 3.05%, that monthly payment would’ve been just $1,698.

Two tips for home buyers struggling with high mortgage rates

Sellers are dropping their prices by 4 to 5% on average, Marr said.

“You would almost expect it to be a lot worse,” he added, given how quickly rates rose and eroded buying power.

But buyers and sellers are also using two different tactics to get some relief on mortgage rates, Marr said.

One, sellers are reaching out to buyers and offering concessions to buy mortgage rates down.

In other words, sellers are asking buyers to pay the full asking price, but proposing to use part of that as a concession to get buyers a lower interest rate on their mortgage.

“Which is essentially a price drop,” Marr said, “it’s the same thing … but it doesn’t necessarily show up in the data.” And it’s hard to get a sense of the magnitude of how this is playing out, he added.

How it works is as such, Marr explained: If a buyer is putting down $100,000 for a 20% downpayment on their home at a 6.5% interest rate, they can instead allocate 10% for the downpayment, and spend the rest of the $50,000 buying down the mortgage rate to 5%.

“5% isn’t very bad, and it might seem like a lot of money, but … chances are you’re going to be incentivized to refinance [in the future] and you’ll have to pay the closing cost on that loan to refinance, which could be upwards of 15 grand,” Marr added.

Buyers are also switching to adjustable-rate mortgages, which offer lower interest rates at the start of the term. ARMs are nearly 12% of overall mortgage applications, the Mortgage Bankers Association noted on Wednesday, which is high.

Where prices are falling

As to where prices are falling, a couple of places stood out to Redfin.

They said that home prices fell 3% year-over-year in Oakland, Calif., and 2% in San Francisco. New Orleans also saw a 2% drop.

“Even in Atlanta, or Orlando, we’re seeing buyers backing out,” Marr observed.

So with the backdrop of sellers finally dropping listing prices, if you’re a buyer right now, don’t be spooked by rising rates and stop looking, he advised.

“There have been opportunities when rates really came down and gave buyers the moment to jump back in and get some good deals on homes that did drop their prices,” he said.

Plus, “it doesn’t hurt to make a low ball offer,” Marr added. “Some sellers are desperate, and that can be a good strategy … we’ve heard from some of our own agents that some buyers are getting incredible deals right now.”

But if you need to rent for a year and wait for things to calm down, then do that, Marr said, and bulk up those savings for that dream home.

Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com

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I’m the director of forecasting for the National Association of Realtors. Here are 6 things you should know about the housing market now

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As part of our series where we ask prominent economists and real estate pros their take on the housing market now, we talked to Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors.


National Association of Realtors

The housing affordability crunch is here — with mortgage rates continuing to rise (see the lowest rates you can qualify for here) at the same time that housing prices do. So – as part of our series where we ask prominent economists and real estate pros their take on the housing market now – we talked to Nadia Evangelou. She’s the senior economist and director of forecasting at the National Association of Realtors (NAR), and focuses on regional and local market trends, including the effects of changing demographic and migration patterns. She also specializes in research and analysis on local housing affordability conditions and solutions to increase housing inventory. Here are her thoughts on the housing market now.

The outlook is for mortgage rates to rise even further

Mortgage rates for 30-year fixed loans hit roughly 6% in June, up from a little over 3% a year ago, according to Bankrate data. The upward climb will continue, says Evangelou, just not at that same rapid pace: “I don’t expect to see the same sharp increases that the market experienced in March and April. It seems that mortgage rates have already priced in some of the effects of the upcoming Fed’s rate hikes,” says Evangelou.

Some buyers may want to consider an ARM

Given the current market, Evangelou says some buyers should consider taking an adjustable-rate mortgage instead of a fixed-rate mortgage. “If they plan to sell or refinance in the next 5 years, a 5/1-year ARM may make more sense because the rate on these is still below 4.5%. Thus, for a median-priced home, the monthly mortgage payment is about $300 lower than the payment for a 30-year mortgage,” says Evangelou. You can see the lowest mortgage rates you can qualify for here.

There are signs that the market is cooling

Both rising mortgage rates and home prices hurt affordability for many buyers. “As a result, existing home sales have dropped for the last four months. I expect a larger reduction of the home sales activity in the following months, especially after summer months,” says Evangelou.

And buyers are getting priced out of the market. Still, not all home buyers can afford to buy these additional homes. According to Evangelou, buyers earning $75,000 can afford about 25,000 fewer listings now compared to January.

Institutional buyers may increase competition for first-time buyers

With rising mortgage rates hurting affordability, more people are renting and due to low inventory, rents are rising sharply. “For institutional buyers, this translates to larger profits. However, a larger market presence of institutional buyers increases market competition for first-time home buyers. Research has shown that institutional investors may be taking a significant portion of homes that would otherwise be sold to first-time and lower-income buyers,” says Evanagelou. 

Home prices will continue to rise but at a slower pace

“Due to a housing shortage, home prices won’t drop in 2022. Remember that when there is a housing shortage, home prices don’t fall, in fact, home prices rose about 15% in May, although mortgage rates were about two percentage points higher than a year earlier,” says Evangelou.

Inventory is rising

There are about 20,000 more homes available for sale for buyers earning $200,000. “While it’s promising to see more homes available in the market, more entry-level homes are needed,” says Evangelou.

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‘It’s nuts’: Real estate agents describe chaos in New York City’s hot rental market

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Renting an apartment in New York City this summer? Say hello to sky-high prices and a fight to the finish.

Amid the heat and the occasional rain, there’s a mad scramble to rent affordable apartments in Gotham, which has been undersupplied for many years. Real estate agents describe the mayhem when it comes to prices.

“It’s nuts,” Jessica Peters, a real estate agent with Douglas Elliman, told MarketWatch. “We can’t even keep up anymore. We’re, like, let’s just put up this crazy number, and we’re getting it.”

Offices in the city are trying to woo more employees back: The city is not near full capacity yet — foot traffic to office buildings in NYC is still down 40.6% compared to pre-pandemic levels. But some workers are coming back, restaurants, movie theaters and Broadway are back, and college students are preparing to start school. 

Consequently, the median monthly rent is up $725 in June on the year and $59 on the previous month, according to Zillow. The median monthly rent in NYC is $3,300, 53% higher than the national median of $2,155. 

“‘A lot of renters will be in for a rude awakening.’”


— Jessica Peters, a real estate agent with Douglas Elliman

Peters said that the reality was far worse on the ground. “I just rented something … in Williamsburg. It’s a great two-bedroom ground floor unit, with a big backyard,” she said. “We were asking $6,500. We got $7,000.”

Peters, who specializes in the Brooklyn area, said that while rental prices may be fluctuating a little, the reality is clear for someone looking to be in the city.

“If you’re coming back after not renting in either Brooklyn or Manhattan in the last ten years, a lot of renters will be in for a rude awakening,” Peters added.

(Reminder: Realtors and real estate agent make money on a commission basis, meaning the hotter the market, the higher their earnings.)

That said, the rental market in New York is reflecting a broader intensification of the inventory pressures, which is leading to bidding wars among renters across the country.

But in New York, one of the most expensive cities in the U.S., even some tenants in rent-stabilized apartments cannot catch a break. The city’s Rent Guidelines Board has signed off on hikes as high as 3.25% for new one-year leases, and 5% for two-year leases.

One of Gartenberg’s open housing listings in the Two Bridges area of Lower Manhattan.


Screenshot from Streeteasy.com

Mihal Gartenberg, a real estate agent with Coldwell Banker Warburg, said the market’s wrath was normal; it was just operating on a demand-and-supply basis.

There are people who are simply willing to pay more, he said. “It’s getting to the point where we’re not the ones deciding what these are going for,” Gartenberg added. “This is a true market enterprise.”

Technology was aiding some renters in their search for a home.

A two-bedroom luxury apartment she put on the market for rent two months ago in the Lincoln Square area attracted people streaming in during a two-hour open house in ten-minute increments, on top of prospective renters who joined on FaceTime
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“We priced it in my opinion… quite high,” Gartenberg said, at $7,800, “but we ended up taking even more. The person who ended up taking the apartment offered $400 more… we had an offer of $8,200, and they also offered to pay the broker fee, which is an additional month.” 

“‘I feel very uncomfortable with this idea that the first person to see a listing is the first one to get it.’”

Over this past weekend, she had open houses for two apartments in the Two Bridges area in lower Manhattan.

“I’m only going to be showing it at the open house. I like to have a level playing field,” Gartenberg said ahead of the event. “I feel very uncomfortable with this idea that the first person to see a listing is the first one to get it.”

Buying a home was worth considering, the real estate agents said, given how intense the rental market has become.

Peters said many renters are attempting to become homeowners because rents have risen so dramatically. “People are starting to reevaluate whether or not they should just purchase at this point,” she said.

“Why would I want to spend $10,000 a month on a rental if I qualify for a purchase? It might not be exactly what they wanted, it might be slightly smaller, but it’s still going to be better than spending $120,000 a year in rent,” she added.

“Do not go see things at your price point,” Gartenberg said. “Because where the market is today, is going above your price point.”


(PHOTO: Getty Images)

But be prepared for bidding wars when buying for a home, Gartenberg warned. She put a newly renovated apartment in Hudson Heights on the market, which is selling “well above ask,” she said, so much that “it made me scared.” The sale on the apartment is not closed yet so she said she was not able to discuss how far above asking the bidder went.

Gartenberg priced her Two Bridges apartments at $3,550 for a two-bedroom unit on the top floor, and at $3,050 for a one-bedroom unit.

On Saturday, her open houses were full. Everything went above the ask. “We had so much interest, we were able to divert offers to a not-yet-listed apartment and rent that, too,” Gartenberg said in a follow-up email. 

Half of the offers that came in were from people who had seen the apartment via FaceTime, or from a video she had sent them.

Gartenberg offered rental tips for the summer.

Get your paperwork in order, such as your proof of income, photo ID, 1040 tax form, bank statements, and other financial documents. Also, get your job to write a letter to say you’re in good standing, Gartenberg said.

Given the number of rentals going for above asking, be prepared to look below your price point, she added. If you know which building you want to live in, get in touch with the landlord’s agent, she said, and find out what’s coming to market. 

Hunting for a rental in New York and want to share your thoughts? Write to:  aarthi@marketwatch.com

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‘Prices will not come back down’: Americans dip into their savings to cope with record-high inflation

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Americans accumulated extra savings during the pandemic, but that money is fast dwindling because of inflation.

Some 70% of Americans are using their savings to cover rising prices, a recent Forbes Advisor survey of 2,000 U.S. adults concluded. Among those polled, older adults were more likely to say they have left their savings intact.

In fact, the personal savings rate for April 2022 hit 4.4% — the lowest level since September 2008 — down from 6% at the beginning of the year, according to the Bureau of Economic Analysis, a department of the U.S. Department of Commerce.

Another concern: More respondents told a New York Federal Reserve “Survey of Consumer Expectations” that their finances are worse now than they were a year ago. In fact, the average perceived chance of missing a minimum debt payment in the next three months increased by 0.4 percentage point to 11.1%, according to the results of the survey released Monday.

“Median household nominal spending growth expectations increased sharply to 9% from 8% in April,” the NY Fed said. “This is the fifth consecutive increase and a new series high. The increase was most pronounced for respondents between the age of 40 and 60 and respondents without a college education.”

That slump in savings and rise in spending comes at a time when the drum beat of recession grows louder. Case in point: Nearly 70% of 49 respondents expect the National Bureau of Economic Research to declare a recession next year, according to the FT survey published Sunday; the survey was conducted with the Initiative on Global Markets at the University of Chicago Booth’s School of Business.

Though some Americans have built up savings during the pandemic, helped by COVID-related government benefits, those savings appear to be running low as people cope with rising prices.

Laura Veldkamp, a finance and economic professor at Columbia University, suggested people try renegotiating salaries with their employers. “Prices will not come back down,” she said. “They never do.” Dipping into savings to cope with rising prices is not a sustainable long-term solution, she added.

The increase in the cost of living is making Americans nervous. Inflation rose 8.6% on the year through May, the highest since 1981. A survey of U.S. consumer confidence fell in May to a three-month low of 106.4. That’s one of many surveys pointing to a pessimistic outlook by people both for their own finances and the U.S. economy.

For the week ending May 29, grocery inflation reached a record high of 14.6% compared to a year ago, according to the latest survey from data company Numerator. The survey shows that middle-income consumers — those who earn $40,000 to $80,000 a year — are paying the greatest price increases among all income levels.

“‘Cutting down on your budget doesn’t need to be painful.’”


— Thomas Scanlon, a financial adviser with Raymond James Financial

In April, consumer spending increased by $152.3 billion, separate Bureau of Economic Analysis data found, with people spending the most money on motor vehicles and auto parts, in addition to food and housing. Compared to the month before, the consumption of gas and other energy decreased by $26.9 billion.

On Sunday, AAA pegged the national average at $5.01 for a gallon of gasoline. That’s 20 cents higher than it was a week ago, 60 cents higher than a month ago, and almost $2 more than the $3.07 average a year ago, according to AAA data.

Thomas Scanlon, a financial adviser with Raymond James Financial in Manchester, Conn., said it’s a good time to adopt thrifty habits, such as borrowing from the public library instead of buying a book, and looking to free leisure activities such as visits to some museums and beaches.

“Cutting down on your budget doesn’t need to be painful,” Scanlon said, “it can be an opportunity to spend a good time with friends and families.”

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Prepare yourself: ‘The U.S. housing market is at the beginning stages of the most significant contraction in activity since 2006’

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“‘I don’t think that home sales are going to grind to a complete halt. They’ll just slow. People will still be able to sell homes, but it may take you just a little bit longer than what it’s been.’”


— Len Keifer, deputy chief economist at Freddie Mac

The U.S. housing sector is in the midst of the biggest slowdown in over a decade, one economist says. But don’t expect prices to fall back down to earth just yet.

“The U.S. housing market is at the beginning stages of the most significant contraction in activity since 2006,’” Len Keifer, deputy chief economist at Freddie Mac
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tweeted.

“It hasn’t shown up in many data series yet, but mortgage applications are pointing to a large decline over summer,” he explained.” He said home-purchase mortgage applications are down 40% from their most recent peak in 2021.

Purchases and refinance applications are in fact down to the lowest level in 22 years.

Mortgage applications as a data point “gives you a sense of where the market might be headed,” Keifer said in an interview with MarketWatch, “because that’s the early stages of when people are looking to buy a home. And if the volume of applications falls, that tends to indicate that in a month, month and a half, mortgage originations of home closings will also decline.”

Keifer expects home sales to henceforth “slow quite a bit over the summer.”

Meanwhile, Freddie Mac data released on Thursday morning revealed that mortgage rates have risen, on the back of rising interest rates and inflation.

To be clear, “I don’t think that home sales are going to grind to a complete halt,” Keifer stressed. “They’ll just slow. People will still be able to sell homes, but it may take you just a little bit longer than what it’s been.”

Would prices fall as a result of a ‘contraction’?

While some may jump to the conclusion that weaker data represents a possible fall in home prices, experts caution otherwise.

“Does this mean that house prices are going to crash? I don’t think so,” Keifer said.

Freddie Mac’s research shows that when interest rates go up, while home sales and mortgage originations go up, house prices won’t necessarily fall or rise. “They tend to be stickier,” Keifer said.

“And while the rate of growth tends to slow, they don’t tend to fall,” he added.

Write to: aarthi@marketwatch.com



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‘It’s unlikely home prices will plummet.’ 5 pros predict home prices in 2022

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Will home prices fall?


Getty Images

Gone are the uber-low mortgage rates of 2021. Indeed, average 30-year-fixed mortgage rates have risen from roughly 3.5% to about 5.6% this year, and pros say they expect them to climb further (see the lowest mortgage interest rates you can get now here). One might think that these rising rates would help temper home price growth, as families become less likely to be able to afford a mortgage, but is that true? And what else is happening with home prices? We asked five pros to weigh in.

Prediction 1: Inventory shortages mean home prices may keep rising

The supply of homes available for sale is so low that even a big dent in demand as a result of higher rates will not transform this into a buyer’s market, pros say.  “Home prices will keep going up because there aren’t enough houses available to meet demand, but the combination of rising home prices and elevated mortgage rates means fewer people will be able to afford to buy,” says Holden Lewis, home and mortgage expert at Nerdwallet, who predicts that mortgage rates will keep rising but at a slower pace than they did over the last few months (see the lowest mortgage interest rates you can get now here). This means demand will likely drop off in the fall and winter, though home prices will continue to rise, albeit more slowly, Lewis says.

Prediction 2: Cash buyers are still playing a big role in this housing market — and that means rates don’t have as big an impact as you might think

“Nearly 30% of transactions are taking place in cash, so there’s a sizable contingent of buyers that are not interest-rate sensitive,” says Greg McBride, chief financial analyst at Bankrate. That means that rising rates won’t have as big of an impact on this housing market as one might think.

Prediction 3: Demand will remain high(ish), and so will home prices 

Rapidly rising mortgage rates have had a negative impact on demand for mortgages since the start of the year, but there’s no indication that demand has plummeted, says Jacob Channel, LendingTree’s senior economic analyst. As of April, the Mortgage Bankers Association predicts that total mortgage originations will total $2.58 trillion in 2022, a 35.5% decrease from 2021. While that is a large drop, it’s important to note that if originations were to total $2.58 trillion they’d still be higher than in 2019. Meanwhile, data from the Census Bureau and HUD indicates that the median home price for new residential homes in March 2022 was higher than it was in March 2021, despite rising rates. “This suggests that people are still willing to pay top dollar for houses even in a rising rate environment,” says Lewis.

The cost of financing the typical home listed for sale has increased significantly in the last year, which has caused many shoppers to rethink budgets and likely knocked some households out of the home purchase market for now, says Realtor.com  economist Danielle Hale. But at the same time, a large number of young households still desire home ownership and feel urgency to find a home and lock in a rate before mortgage rates and home prices climb again (see the lowest mortgage interest rates you can get now here). “Combine these adjustments to shifting financial conditions with the still-large share of households at key home buying ages and the decades-long under-building in the housing market that has left the market undersupplied, and it’s a recipe for prices to remain high,” says Hale.

At the end of the day, home-buying demand has thus far remained resilient in the face of rapidly rising prices and recent interest rate gains, both of which limit what home buyers can afford. “There will be a point when costs become too high for too many and price growth begins to slow, but we’re a long way from anything resembling a normal market by pre-pandemic standards. There are far fewer homes for sale than what the market would normally expect this time of year and homes continue to sell remarkably quickly. Zillow economists expect home values to grow another 14.9% over the next year,” says Zillow senior economist Matthew Speakman.

See the lowest mortgage interest rates you can get now here.

Prediction 4: It would take a big event to send home prices plummeting

Ultimately, for rising rates to torpedo home prices, we’d have to see considerably less demand and considerably more housing supply than what we’re currently seeing, pros say. “Even if price growth does cool this year, all current data indicates that it’s highly unlikely that home prices will plummet. Barring some sort of large-scale mortgage defaulting that triggers massive home selloffs like what we saw prior to the 2008 financial collapse, or mortgage rates suddenly climbing to the double-digit levels they were at in the early 1980s, it seems like high home prices are here to stay,” says Lewis.

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The U.S. city where property taxes rose the most last year will likely surprise you

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Today’s home buyers could be in for a shock when the tax man comes calling.

In 2021, around $328 billion in property taxes were imposed on single-family homes across the country, according to a new report from real-estate analytics company Attom Data Solutions. Growth in property taxes decelerated last year, despite the run-up in property values, suggesting that bigger tax bills could be coming down the pike.

Between 2020 and 2021, the amount levied in property taxes only grew by 1.8% on average, representing the second smallest annual increase over the past five years.

“It’s hardly a surprise that property taxes increased in 2021, a year when home prices across the country rose by 16%,” Rick Sharga, Attom’s executive vice president of market intelligence, said in the report. “In fact, the real surprise is that the tax increases weren’t higher, which suggests that tax assessments are lagging behind rising property values, and will likely continue to go up in 2022.”

The rise in home values, which far outpaced the increase in taxes, means that the effective tax rate last year actually decreased to 0.9% from 1.1% the year before.

But in most markets, property taxes increased faster than the national average. The largest increase occurred in Nashville, where property taxes surged 27% on average. Milwaukee was next with an 18.6% uptick in property taxes, followed by Baltimore and Grand Rapids, Mich.

Cities where property taxes declined in 2021 include Pittsburgh (down 35.1%) and New Orleans (down 20.1%). Multiple cities in Texas — Houston, Dallas and Austin — also saw marked decreases in the average property tax bill.

At the state level, Illinois had the highest effective tax rate in the country at 1.86%, followed by New Jersey at 1.73%. Notably, New Jersey had the highest average property tax bill for single-family homes in the country at $9,476. Generally, metro areas in the Northeast and Midwest saw higher property-tax rates than the rest of the country.

The potential for taxes to rise significantly in the future could come to represent a major concern for home buyers at a time when mortgage rates have soared to 5%.

“Prospective homeowners often fail to include property taxes when considering the cost of homeownership,” Sharga said in the report. “But, especially in some of the higher-priced markets across the country, property taxes can add thousands of dollars to annual ownership costs, and possibly be the difference between someone being able to afford a home or not.”

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Fed official doesn’t think housing market is headed for a crash: ‘I am trying to buy a house here in Washington and the market is crazy’

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Federal Reserve Governor Christopher Waller has no doubt about how competitive today’s housing market is.

“Trust me, I know it is red hot because I am trying to buy a house here in Washington and the market is crazy,” Waller said in a speech at a housing conference.

But even as home and rental prices have soared over the past couple years, he is not concerned that the housing market is poised for a repeat of the crash that occurred in the mid-2000s and ultimately triggered the Great Recession.

His reasoning has to do with the forces that are contributing to the run-up in housing costs. “My short answer is that unlike the housing bubble and crash of mid 2000s, the recent increase seems to be sustained by the substantive supply and demand issues,” he said, and “not by excessive leverage, looser underwriting standards or financial speculation.”

Waller also noted that mortgage borrowers’ balance sheets were stronger heading into the COVID-19 pandemic, meaning they were more resilient. And banks have proved capable of withstanding downturns in recent stress tests from regulators.

In his speech, Waller outlined the many forces he believes are contributing to the rising cost of housing across the country. On the demand side of the equation, many households sought out larger homes to accommodate remote work and school. There has also been an increase in household formations over the course of the pandemic, reducing vacancy rates across the country for both renter- and owner-occupied homes.

“‘Unlike the housing bubble and crash of mid 2000s, the recent increase seems to be sustained by the substantive supply and demand issues.’”


— Federal Reserve Governor Christopher Waller

Those pandemic-era changes further magnified the demand-related issues that were pushing housing costs higher before the pandemic. Prior to COVID-19, there was a shift toward urban living, as people sought high-paying jobs in major cities. While the pandemic may have prompted some of these people to flock to the suburbs and exurbs, it’s too soon to tell whether people will return to their offices and reinvigorate demand for city living.

“The supply side has been pushing in the same direction — towards tighter housing markets and more expensive shelter, Waller said. Home builders face multiple challenges, including the rising cost of materials such as lumber, a tight labor market and strenuous land-use regulations. These have slowed the pace of home building, worsening the supply-demand imbalance.

Though Waller may not be concerned about the potential for a burst housing bubble, he did signal that the cost of housing is becoming a bigger concern for monetary policy.

“With housing costs gaining an ever-larger weight in the inflation Americans experience, I will be looking even more closely at real estate to judge the appropriate stance of monetary policy,” Waller said. At the same time, he echoed recent research that has suggested that measures such as the consumer price index likely underestimate the true scale of housing inflation.

Economists have suggested that housing inflation will only continue to grow in the coming months, given that there is typically a lag between when housing and rental costs rise and when those increases are recorded in the surveys that are used to produce inflation measures.

The recent run-up in interest rates could change the equation, though. February data on new and existing home sales showed some weakness, and many economists believe that higher mortgage rates will begin to constrain home-buying demand as affordability challenges mount.

On that front, Waller said that he was “hopeful that at least some of the pandemic-specific factors pushing up home prices and rents could begin to ease in the next year or so.”

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‘The housing market is in the early stages of a substantial downshift’: Home sales may drop 25% by the end of summer, according to this analyst. Here’s why.

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The popular spring home-buying season is just ramping up. But one analyst is warning that it could be a bust.

Ian Shepherdson, chief economist and founder of research consulting firm Pantheon Macroeconomics, is predicting a dramatic fall in the pace of home sales this year. In a research note, he projected that existing-home sales will drop roughly 25% from the annual pace of 6.02 million set in February to a rate of 4.5 million by the end of summer.

“The housing market is in the early stages of a substantial downshift in activity, which will trigger a steep decline in the rate of increase of home prices, starting perhaps as soon as the spring,” Shepherdson wrote in a research note distributed Sunday.

As evidence of this expected slowdown in home sales, Shepherdson pointed to mortgage demand. The most recent data on mortgage applications from the Mortgage Bankers Association shows that the number of applications for loans used to purchase homes is down more than 8% compared to a year ago. Comparatively, demand for refinancing has dropped nearly 50% versus last year.

A drop in mortgage demand could predict a downturn in home sales, since most buyers rely on financing to make sure a large purchase. Issues around affordability are likely to blame for the decline. As of Thursday, the average interest rate on the 30-year fixed-rate mortgage surpassed 4% for the first time since May 2019, according to Freddie Mac
FMCC,
+3.49%.

Per Shepherdson’s calculations, the rise in mortgage rates since September has increased the cost of a monthly mortgage payment for a median-priced home by more than $400, or 27%.

“That’s a huge increase, even for households sitting on savings accumulated during the pandemic—a one-time increase in savings can’t finance an increase in mortgage payments for the next 30 years—and it will push demand down a good deal further,” he wrote.

Indeed, affordability is top of mind for today’s home buyers. A recent survey conducted by U.S. News & World Report found that nearly half of buyers say affordability is their biggest concern, though a majority of those surveyed indicated that they were still optimistic they would be able to purchase a home in the next year.

“‘A one-time increase in savings can’t finance an increase in mortgage payments for the next 30 years.’”


— Ian Shepherdson, chief economist and founder of Pantheon Macroeconomics

The ripple effects of a shift in existing-home sales would be far-reaching, Shepherdson said, arguing that the pace of rent increases would eventually slow and perhaps even reverse. It also would spread to new-home sales, which he expects will likewise fall. A decrease in new-home sales would represent a downward drag on GDP, since that would implicate less demand for services tied to home-building and less spending on items like building materials and appliances.

The bad news for any Americans who persist in trying to buy a home under these conditions is that it’s less clear how this situation will ultimately impact the availability of homes for sale. Part of why home prices have surged is that there is a significant lack of inventory in the housing market, which has fueled competition for what few homes are listed for sale.

A drop in demand would seemingly lead to a boost in the inventory of homes for sale. But Shepherdson cautioned that many sellers may pull listings or decline to put their home on the markets because “no one […] wants to be the last person trying to sell into a falling market.”

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