Tag Archives: local housing market

Business

Mortgage rates fall for the second week in a row

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Mortgage rates dropped again this week, after plunging nearly half a percentage point last week.

The 30-year fixed-rate mortgage averaged 6.58% in the week ending November 23, down from 6.61% the week before, according to Freddie Mac. A year ago, the 30-year fixed rate was 3.10%.

Mortgage rates have risen throughout most of 2022, spurred by the Federal Reserve’s unprecedented campaign of hiking interest rates in order to tame soaring inflation. But last week, rates tumbled amid reports that indicated inflation may have finally reached its peak.

“This volatility is making it difficult for potential homebuyers to know when to get into the market, and that is reflected in the latest data which shows existing home sales slowing across all price points,” said Sam Khater, Freddie Mac’s chief economist.

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey only includes borrowers who put 20% down and have excellent credit. But many buyers who put down less money upfront or have less than perfect credit will pay more than the average rate.

The average weekly rates, typically released by Freddie Mac on Thursday, are being released a day early due to the Thanksgiving holiday.

Mortgage rates tend to track the yield on 10-year US Treasury bonds. As investors see or anticipate rate hikes, they make moves which send yields higher and mortgage rates rise.

The 10-year Treasury has been hovering in a lower range of 3.7% to 3.85% since a pair of inflation reports indicating prices rose at a slower pace than expected in October were released almost two weeks ago. That has led to a big reset in investors’ expectations about future interest rate hikes, said Danielle Hale, Realtor.com’s chief economist. Prior to that, the 10-year Treasury had risen above 4.2%.

However, the market may be a bit too quick to celebrate the improvement in inflation, she said.

At the Fed’s November meeting, chairman Jerome Powell pointed to the need for ongoing rate hikes to tame inflation.

“This could mean that mortgage rates may climb again, and that risk goes up if next month’s inflation reading comes in on the higher side,” Hale said.

While it’s difficult to time the market in order to get a low mortgage rate, plenty of would-be homebuyers are seeing a window of opportunity.

“Following generally higher mortgage rates throughout the course of 2022, the recent swing in buyers’ favor is welcome and could save the buyer of a median-priced home more than $100 per month relative to what they would have paid when rates were above 7% just two weeks ago,” said Hale.

As a result of the drop in mortgage rates, both purchase and refinance applications picked up slightly last week. But refinance activity is still more than 80% below last year’s pace when rates were around 3%, according to the Mortgage Bankers Association weekly report.

However, with week-to-week swings in mortgage rates averaging nearly three times those seen in a typical year and home prices still historically high, many potential shoppers have pulled back, said Hale.

“A long-term housing shortage is keeping home prices high, even as the number of homes on the market for sale has increased, and buyers and sellers may find it more challenging to align expectations on price,” she said.

In a separate report released Wednesday, the US Department of Housing and Urban Development and the US Census Bureau reported that new home sales jumped in October, rising 7.5% from September, but were down 5.8% from a year ago.

While that was higher than predicted and bucked a trend of recently falling sales, it’s still below a year ago. Home building has been historically low for a decade and builders have been pulling back as the housing market shows signs of slowing.

“New home sales beat expectations, but a reversal of the general downward trend is doubtful for now given high mortgage rates and builder pessimism,” said Robert Frick, corporate economist at Navy Federal Credit Union.

Despite a general trend of falling sales, prices of new homes remain at record highs.

The median price for a newly constructed home was $493,000 up 15%, from a year ago – the highest price on record.

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Business

Home sales drop for 9th month

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Home sales in the United States declined for the ninth month in a row in October as surging mortgage rates and high prices pushed buyers out of the market.

Sales of existing homes — which include single-family homes, townhomes, condominiums and co-ops — were down 28.4% in October from a year ago and down 5.9% from September, according to a National Association of Realtors report released Friday. All regions of the United States saw month-over-month and year-over-year declines.

That continues a slowing trend that began in February and marks the longest streak of declining sales on record, going back to 1999.

Sales in October were at their weakest level since May 2020, when the real estate market was at a standstill during the pandemic lockdowns. Beyond that, sales last month were the weakest they have been since December 2011.

Still, home prices continued to climb last month. The median home price was $379,100 in October, up 6.6% from one year ago, according to the report. But that’s down from the record high of $413,800 in June. The price increase marks more than a decade of year-over-year monthly gains.

“More potential homebuyers were squeezed out from qualifying for a mortgage in October as mortgage rates climbed higher,” said Lawrence Yun, NAR’s chief economist. “The impact is greater in expensive areas of the country and in markets that witnessed significant home price gains in recent years.”

Many homeowners who recently bought or refinanced into ultra-low mortgage rates are reluctant to sell. That has kept inventory painfully low.

At the end of October there were 1.22 million units for sale, down less than 1% from both last month and last year, according to the report. At the current sales pace, it would take 3.3 months to get through the existing inventory, up from 3.1 months in September and 2.4 months last year. But that’s still historically low: A balanced market is a 4 to 6 month supply.

“Inventory levels are still tight, which is why some homes for sale are still receiving multiple offers,” Yun added.

While nearly a quarter of homes in October sold over the asking price, homes sitting on the market for more than 120 days saw prices reduced by about 16%.

With fewer buyers shopping for homes, the average time a home stays on the market is getting longer.

Properties were typically on the market for 21 days in October, up from 19 days in September. Pre-pandemic, homes typically sat on the market closer to 30 days. Over half the homes sold in October were on the market for less than a month.

While prices are still climbing year over year nationally, the increase is smaller than it has been over the past couple years with annual home price appreciation peaking at 24% in May 2021.

And some markets are even seeing prices drop, especially areas that saw a huge increase in home price appreciation during the pandemic, Yun said.

Half the country can expect to see prices decline year over year in the months ahead, Yun said, most will be by a modest amount, while other areas will see bigger drops. But the other half will likely see a modest increase.

“Affordable areas will hold on, places like Indianapolis, where there is job growth,” he said.

Still, Yun said, nationally, home prices are 40% higher than in October 2019, prior to the pandemic.

“Household incomes have not risen by 40%,” he said.

Those struggling to buy their first home continued to be shut out, making up only 28% of transactions last month.

“First-time buyers are really struggling with high prices, the high bar to get into the market and high mortgage rates.”

Once the hurdle to homeownership improves a bit for buyers — either with falling prices or lower mortgage rates — we could again face a housing shortage, Yun said, because the number of fresh listings coming to market is lower now than a year ago.

Current homeowners aren’t selling and homebuilders are slowing home construction, too.

October housing starts, a measure of new home construction, dropped 4.2% from September, and were down 8.8% from a year ago, according to the US Census Bureau and the US Department of Housing and Urban Development.

“This is why more new home construction is needed, as well as more rehabilitation of disused buildings into residential units,” said Yun, noting that while construction of apartment buildings remains robust, single-family starts are below one year ago and well below historical averages.

“In the meantime, mortgage rates are falling from the peak levels of last month and the gate is opening for more homebuyers to qualify for a mortgage.”

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Business

Home prices are finally falling. But how low will they go?

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The US housing market is in the midst of a major shift. After two years of stratospheric price appreciation, home prices have peaked and are on their way back down.

But what homebuyers and homeowners alike want to know is: How much lower will prices go?

The short answer: Prices are likely to drop further, but not by as much as they did during the housing bust. From the 2006 peak to the 2012 trough, national home prices fell by 27%, according to S&P CoreLogic Case-Shiller Indices, which measures US home prices.

“It was different in 2008, 2009 because that drop in prices was because of a push from sellers,” said Jeff Tucker, senior economist at Zillow. “Because of foreclosures and short sales there were a lot of extremely motivated sellers who were willing to take a loss on their homes.”

Plus, that housing crash came at a time when the inventory of homes for sale was four times higher than it is now. Current inventory is still substantially lower than pre-pandemic levels, which has increased competition for homes. And that is keeping prices relatively strong.

“I would be surprised to see prices anywhere drop below where they were in 2019,” said Tucker. “There was some overheating in the housing market in 2021 through this spring that pushed prices higher than what the fundamentals would support. Now they are coming down.”

With mortgage rates more than doubling since the start of this year, the calculations for a homebuyer have changed considerably. The monthly principal and interest mortgage payment on the median priced home is up $930 from a year ago, a 73% increase, according to Black Knight, a mortgage data company.

When you factor in soaring mortgage rates, along with elevated home prices and wages that aren’t increasing as fast, buying a home is less affordable now than it has been in decades, according to Black Knight.

But there may be some relief in sight for buyers.

Economists at Goldman Sachs expect home prices to decline by around 5% to 10% from the peak hit in June.

Wells Fargo has recently forecasted that national median single-family home prices will drop by 5.5% year-over-year by the end of 2023.

Wells Fargo’s economists estimate that the median price for an existing single family home to be $385,000 this year, up 7.8% from last year, but the growth will be a lot less than the 19% year-over-year increase seen in 2021.

The economists anticipate the median home price will fall to $364,000, a decline of 5.5% from this year. They predict prices will rebound and rise again in 2024, with the median price ticking up 3.3% to 376,000 by the end of 2024.

“The primary driver behind the housing market correction thus far has been sharply higher mortgage rates,” the Wells Fargo researchers wrote. “If our forecast for Fed rate cuts is realized, mortgage rates are likely to fall slightly just as cooling inflation pressures boost real income growth. A modest improvement in sales activity should then follow, which will reignite home price appreciation heading into 2024.”

Ultimately, how much prices fall will depend on where you live.

Unlike the run-up in prices during the pandemic that caused home values in markets across the country to surge, the cooling off will be more regional, said Tucker. The drops will be more deeply felt in places where there were larger gains during the pandemic, many of them in the West and Sunbelt, including cities like Austin, Phoenix and Boise, he said.

“Nationally, we might see a 5% decline from the peak,” Tucker said. “But prices will decline by more in the West and there will be a smaller decline in the Southeast.”

In September, month-over-month home prices dropped in several pandemic hotspots, including Phoenix, down 2.3%; Las Vegas, down 1.9% and Austin, down nearly 1%, according to Zillow.

And Boise, Idaho, where prices surged nearly 60% during the pandemic, is already seeing annual declines, with prices falling 3.9% year over year in September, according to Zillow.

“A number of metro areas, especially in the West, will see some year-over-year price declines this spring,” said Tucker. “That will be the worst comparison time because that’s when many markets reached their peak.”

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