The price of any item (including residential real estate) is determined by ‘supply and demand.’ If many people are looking to buy an item and the supply of that item is limited, the price of that item increases.
According to the National Association of Realtors (NAR), the supply of homes for sale dramatically increases every spring. As an example, here is what happened to housing inventory at the beginning of 2017:
Putting your home on the market now instead of waiting for increased competition in the spring might make a lot of sense.
Buyers in the market during the winter months are truly motivated purchasers. They want to buy now. With limited inventory currently available in most markets, sellers are in a great position to negotiate.
Source: Keeping Current Matters, 2-12-18
Talk of a US housing affordability crisis misses a key element of household budgets according to a real estate industry economist.
Mark Fleming, chief economist at title insurer First American says that while unadjusted house prices have risen more than household income (6% vs. 2.8% in the 12 months to November 2017), the proclamations of a crisis are only using a single metric of household buying power.
“A consumer’s house-buying power, how much one can afford to buy, is also based on changes in mortgage interest rates,” said Fleming. “Even if one’s income doesn’t change, but interest rates go down, house-buying power increases.”
He added that consumer house-buying power, based on changes in income and interest rates, was unchanged between October and November 2017 and actually improved by 1%, compared with a year earlier.
“In fact, consumer house-buying power is 2.3 times higher than it was in 2000, almost two decades ago. It’s also only 2.9% below the peak in July 2016,” said Fleming, noting that mortgage interest rates have been trending lower from their peak of 18% in 1981.
Prices keep climbing
First American’s Real House Price Index for November 2017, the latest month of data available, was up 0.5% month-over-month and 5% year-over-year. Real buying power was up 0.9% year-over-year but unchanged from the previous month.
Delaware (12.4%), Nevada (10.7%) and Missouri (10.6%) saw the largest year-over-year increases while Pittsburgh was the only market analyzed which decreased (by 2.5%).
Source: Steve Randall, Mortgage Professional America, 1-30-18
Urban Institute recently released a report entitled, “Barriers to Accessing Homeownership,” which revealed that “eighty percent of consumers either are unaware of how much lenders require for a down payment or believe all lenders require a down payment above 5 percent.”
Myth #1: “I Need a 20% Down Payment”
Buyers often overestimate the down payment funds needed to qualify for a home loan. According to the same report:
“Consumers are often unaware of the option to take out low-down-payment mortgages. Only 19% of consumers believe lenders would make loans with a down payment of 5% or less… While 15% believe lenders require a 20% down payment, and 30% believe lenders expect a 20% down payment.”
These numbers do not differ much between non-owners and homeowners; 39% of non-owners believe they need more than 20% for a down payment and 30% of homeowners believe they need more than 20% for a down payment.
While many believe that they need at least 20% down to buy their dream home, they do not realize that programs are available that allow them to put down as little as 3%. Many renters may actually be able to enter the housing market sooner than they ever imagined with programs that have emerged allowing less cash out of pocket.
Myth #2: “I Need a 780 FICO® Score or Higher to Buy”
Similar to the down payment, many either don’t know or are misinformed about what FICO® score is necessary to qualify.
Many Americans believe a ‘good’ credit score is 780 or higher.
To help debunk this myth, let’s take a look at Ellie Mae’s latest Origination Insight Report, which focuses on recently closed (approved) loans.
As you can see in the chart above, 53.5% of approved mortgages had a credit score of 600-749.
Whether buying your first home or moving up to your dream home, knowing your options will make the mortgage process easier. Your dream home may already be within your reach.
Source: Keeping Current Matters, 1-30-18
The continued inventory shortage is causing troubles for buyers, but 2017 still ended up being the best year for existing-home sales in 11 years, according to the National Association of Realtors.
Existing-home sales dropped 3.6% month over month on a seasonally adjusted basis in December as inventory woes continued. But even with that decline, sales for all of 2017 were up 1.1% over the prior year, hitting a sales pace of 5.51 million – the highest since 2006.
However, continued inventory and affordability issues kept sales from going even higher, according to Lawrence Yun, NAR’s chief economist.
“Existing sales concluded the year on a softer note, but they were guided higher these last 12 months by a multi-year streak of exceptional job growth, which ignited buyer demand,” Yun said. “At the same time, market conditions were far from perfect. New listings struggled to keep up with what was sold very quickly, and buying became less affordable in a large swath of the country. These two factors ultimately muted what should have been a stronger sales pace. … Affordability pressures persisted, and the pool of interested buyers at the end of the year significantly outweighed what was available for sale.”
The median existing-home price in the US last month was $246,800, a 5.8% spike from December 2016. December of 2017 also marked the 70th consecutive month of year-over-year price gains.
Inventory, meanwhile, was tighter than ever. Total US inventory at the end of December was 1.48 million existing homes available for sale – an 11.4% drop from the year before. Unsold inventory is at a 3.2-month supply at the current sales pace – the lowest level since NAR began tracking nearly two decades ago.
“The lack of supply over the past year has been eye-opening and is why, even with strong job creation pushing wages higher, home-price gains – at 5.8% nationally in 2017 – doubled the pace of income growth and were even swifter in several markets,” Yun said.
Source: Ryan Smith, Mortgage Professional America, 1-25-18
Homeowners should find their homes adding value through the rest of this decade; but that means more pressure on affordability for buyers.
A new report from independent mortgage insurer Arch MI calls for prices to rise 2-6% in each of the next two years.
“With interest rates and home prices both on the rise, first-time homebuyers – largely Millennials – may want to consider making the jump from renting to owning sooner rather than later,” said Dr. Ralph G. DeFranco, Global Chief Economist, Mortgage Services, Arch Capital Services Inc.
The firm’s Housing and Mortgage Market Review says that those markets in energy-extraction regions remain at risk from lower prices despite some improvement in recent months.
Alaska, North Dakota and Wyoming are all at moderate risk of price decline.
Tax bill set to impact these markets hardest
Changes to the tax code are also set to make a difference with high-cost high-tax markets hit hardest relative to previous tax rules while lower-cost areas will benefit.
New York, New Jersey, Connecticut, California and Maryland will be most affected the report says.
Despite the affordability challenges and the impact of the tax changes, Dr DeFranco is not forecasting a bubble.
“Our research shows few signs of a housing bubble because the typical warning signs aren’t present. Overall, the shortage of housing paired with a robust job market should keep the housing market strong and growing, short of an unexpected event and despite the contrary pressures that may be created by the tax bill,” he concluded.
Source: Steve Randall, Mortgage Professional America, 1-24-18
Before the passage of the tax bill, experts were anticipating more of the same from the housing market in 2018. The limited supply of homes for sale was the biggest issue facing the market last year and it will continue to be a problem, particularly in the entry-level market. Although some are predicting those constraints to ease, the persistent low supply is expected to keep driving prices higher. Mortgage rates were fairly static last year but most experts see them rising in the coming year.
Because the tax bill was passed after the real estate entities put out their 2018 forecasts, their projections below don’t include what impact, if any, several provisions in the bill — such as the caps on the mortgage interest and property tax deductions — will have on the market. Some experts are anticipating prices won’t rise nearly as fast because of the new law. Others say it will help first-time home buyers enter the market.
Here is a roundup of their forecasts and what they expect the major trends to be in the coming year:
National Association of Realtors
NAR predicts home prices will rise about 5.5 percent in 2018. “Low supply is pushing prices higher and making homebuying less affordable in several parts of the country,” said Lawrence Yun, NAR chief economist.
Yun said the biggest impediment to sales is the massive shortage of supply in relation to overall demand. The lagging pace of new-home construction in recent years is further creating a logjam in housing turnover. “The lack of inventory has pushed up home prices by 48 percent from the low point in 2011, while wage growth over the same period has been only 15 percent,” he said.
Yun anticipates mortgage rates will gradually climb with the 30-year fixed-rate average reaching 4.5 percent by the end of 2018.
Javier Vivas, director of economic research at Realtor.com, anticipates a more modest increase in home prices. He predicts a 3.2 percent increase, but most of the slowdown will be felt in the higher-priced segments. Entry-level homes will continue to see price gains because of the large number of buyers and limited number of homes for sale.
Vivas is more optimistic about the inventory shortage. He projects nationally year-over-year inventory will return to positive territory by the fall. The first cities expected to see inventory recover are Boston, Detroit, Kansas City, Nashville and Philadelphia. But the majority of the growth will come in the mid-to-upper-tier prices.
Southern markets such as Tulsa, Little Rock, Dallas and Charlotte will show the most sales growth in the coming year.
Vivas anticipates the 30-year fixed mortgage rate will average 4.6 percent, rising to 5 percent by the end of the year.
Nela Richardson, chief economist at Redfin, says inventory will be the major factor shaping the 2018 housing market. “For the third year in a row, the nationwide inventory shortage is likely to continue to hinder sales and increase prices,” she wrote.
Starter home inventory has not increased meaningfully since 2011.
With few houses on the market, homes will sell faster than ever. Richardson anticipates more than 30 percent of homes on the market selling within two weeks.
Richardson also predicts home buyers will leave high SALT (state and local tax) states. Homeowners will flee California, New York, New Jersey, Maryland, Massachusetts and Illinois “for places where they can get more home for less money,” she wrote.
Meanwhile, wealthier millennials will drive the formation of a new type of suburb, which she dubs “urban suburban.” It’s a place with the walkability and amenities of an urban lifestyle as well as highly rated schools.
And technology will encourage more people to have roommates. The number of households with roommates has increased significantly within the past decade. Apps like Nesterly, which pairs millennials with baby boomers, and CoBuy, which supports group home buying, are fostering nontraditional homebuying and cohabitation.
Richardson expects the 30-year fixed mortgage rate to inch up between 4.3 percent and 4.5 percent in 2018.
Like Richardson, Zillow chief economist Svenja Gudell says inventory will remain a major concern this year. As of September, there were 12 percent fewer homes on the market nationwide than there were a year ago. And those for sale tend to be out of reach for a first-time home buyer. More than half of the homes for sale were priced in the top third of home values.
Many observers blame home builders for not building more to increase the housing stock. The number of new homes built each year remains well below historical norms. But Gudell predicts that builders will at long last turn their focus to entry-level homes this year.
“Builders cannot and will not ignore a hungry market,” she wrote.
Home prices will continue to rise but at a more modest pace. Zillow surveyed 100 economists and housing experts who projected prices to increase 4.1 percent in 2018.
Gudell expects millennials to flock to the suburbs, where they will find more affordable homes, and many homeowners will continue to remodel rather than sell. She predicts boomers and millennials will drive home design.
Mortgage Bankers Association
MBA predicts mortgage rates will become more volatile in the coming year now that the Federal Reserve is winding down its balance sheet.
“As far as rates are concerned, 10-year Treasury yields are forecast to increase in 2018, increasing to 2.7 percent from a 2.3 percent average in 2017, and then climbing to 3.0 percent and 3.4 percent in 2019 and 2020,” wrote MBA economists Lynn Fisher, Mike Fratantoni and Joel Kan. “Mortgage rates will follow a similar path, increasing to 4.5 percent in 2018 from 4.0 percent in 2017. We estimate that mortgage rates will reach the 5.0 percent level by the middle of 2018, but rising only slightly beyond that to average 5.3 percent in 2020.”
Mortgage applications will be fueled by purchases rather than refinances in the coming years.
“Our forecast for 2018 is that we will see continued growth in purchase originations, as we expect around 7 percent growth for the year, followed by 5 percent in each of 2019 and 2020, as purchase originations continue to exceed the [$1 trillion] mark in each of these years,” according to Fisher, Fratantoni and Kan. “Sustained strength in the economy, a tight job market, and a high likelihood of growth in household formation continue to support this forecast. Refinance activity will continue to decrease as rates increase, decreasing 29 percent in 2018 and another 7 percent in 2019.”
Source: Kathy Orton, The Washington Post, 1-8-18
According to the National Association of Realtors’ latest Realtors Confidence Index, 61% of first-time homebuyers purchased their homes with down payments below 6% from October 2016 through November 2017.
Many potential homebuyers believe that a 20% down payment is necessary to buy a home and have disqualified themselves without even trying. The median down payment for all buyers in 2017 was just 10% and that percentage drops to 6% for first-time buyers.
Zillow Senior Economist Aaron Terrazas’ recent comments shed light on why buyer demand has remained strong,
“Looking into 2018, rent is expected to continue gaining. More widespread rent growth could mean home buying demands stay high, as renters who can afford it move away from the unpredictability of rising rents toward the relative stability of a monthly mortgage payment instead.”
It’s no surprise that with rents rising, more and more first-time buyers are taking advantage of low-down-payment mortgage options to secure their monthly housing costs and finally attain their dream homes.
If you are one of the many first-time buyers who is not sure if you would qualify for a low-down payment mortgage, consult a local real estate professional who can set you on your path to homeownership!
Source: Keeping Current Matters, 1-17-18
There are many people sitting on the sidelines trying to decide if they should purchase a home or sign a rental lease. Some might wonder if it makes sense to purchase a house before they are married and have a family, others might think they are too young, and still, others might think their current income would never enable them to qualify for a mortgage.
We want to share what the typical first-time homebuyer actually looks like based on the National Association of REALTORS most recent Profile of Home Buyers & Sellers. Here are some interesting revelations on the first-time buyer:
You may not be much different than many people who have already purchased their first homes. Meet with a local real estate professional today who can help determine if your dream home is within your grasp.
Source: Keeping Current Matters, 1-16-18
Two major van lines said they moved far more people into Oregon than out of the state last year, putting Oregon on their 2017 list of top moving destinations.
Oregon ranked second in the nation — behind Vermont — on United Van Lines’ 2017 list of top moving destinations and eighth on a similar list produced by Atlas Van Lines.
United, based in St. Louis, calls itself the “nation’s largest household goods mover.” Competitor Atlas is based in Evansville, Ind.
United said 65 percent of its Oregon customers last year were moving into the state, instead of away. Atlas said 58 percent of its Oregon customers were moving into the state.
Of United’s moves to Oregon, about half were for a new job or company transfer, and nearly a fourth were to be closer to family, United said.
The companies produce annual reports showing which states their customers are moving to and from. The reports support trends identified by the U.S. Census Bureau and other population tabulators.
Oregon’s population surged to 4.1 million last year, outpacing growth in most of the country, recent census data show.
Oregon added nearly 57,000 residents between July 2016 and July 2017, and more than 80 percent of that growth was from people moving in, rather than from births outpacing deaths, the census report found.
The census estimates don’t include city and county information, but recent estimates by Portland State University’s Population Research Center show Lane County’s population inching up with the state’s population. The county added 4,660 residents between July 2016 and 2017, for total population of 370,600, the population research center found.
“Net migration has been driving population growth in Lane County for a long time,” said Brian Rooney, a Eugene-based labor economist with the state Employment Department.
In general, newcomers were drawn to the West and South, while residents were fleeing the Midwest and Northeast, the United report found.
“This year’s data reflects longer-term trends of movement to the western and southern states, especially to those where housing costs are relatively lower, climates are more temperate, and job growth has been at or above the national average, among other factors,” Michael Stoll, an economist and public policy professor at the University of California, Los Angeles, said in the United press release. “We’re also seeing continued migration to the Pacific Northwest and Mountain West as young professionals and retirees leave California.”
Source: Sherri Buri McDonald, The Register Guard, 1-7-18
It is common knowledge that a great number of homes sell during the spring-buying season. For that reason, many homeowners hold off on putting their homes on the market until then. The question is whether or not that will be a good strategy this year.
The other listings that do come out in the spring will represent increased competition to any seller. Do a greater number of homes actually come to the market in the spring as compared to the rest of the year? The National Association of Realtors (NAR) recently revealed the months in which most people listed their homes for sale in 2017. Here is a graphic showing the results:
The three months in the second quarter of the year (represented in red) are consistently the most popular months for sellers to list their homes on the market. Last year, the number of homes available for sale in January was 1,680,000.
That number spiked to 1,970,000 by May!
What does this mean to you?
With the national job situation improving, and mortgage interest rates projected to rise later in the year, buyers are not waiting until the spring; they are out looking for homes right now. If you are looking to sell this year, waiting until the spring to list your home means you will have the greatest competition amongst buyers.
It may make sense to beat the rush of housing inventory that will enter the market in the spring and list your home today.
Source: Keeping Current Matters, 1-15-18