The housing market’s breakneck pace this spring may’ve caused, at least, some prospective home buyers to hesitate. Competition, bidding wars, and double-digit price increases will do that. After all, choosing a house to buy is already a big decision without the added pressure of a hot market. But if you’re a buyer who’s been waiting for the market to cool off, Fannie Mae’s Economic and Strategic Research Group may have some encouraging news. The group – which releases a monthly outlook for the housing market and economy – says they expect things to start cooling down. In fact, Mark Palim, Fannie Mae’s vice president and deputy chief economist, says the group sees moderating price increases and improved inventory on the horizon. “While recent home price growth has been historically high, we’re forecasting further home price appreciation to moderate through the remainder of the year and into 2022,” Palim said. “On the supply side, we think home builders will be able to increase production as supply chain disruptions and labor shortages alleviate, which should add to the inventory of new and existing homes available for sale.” (source)
According to the Mortgage Bankers Association’s Weekly Applications Survey, average mortgage rates fell last week from one week earlier. Rates were down across all loan categories, including 30-year fixed-rate loans with both conforming and jumbo balances, loans backed by the Federal Housing Administration, and 15-year fixed-rate loans. Joel Kan, MBA’s associate vice president of economic and industry forecasting, says the drop brought rates to their lowest level in months, and in some cases decades. “The 10-year Treasury yield fell last week, as investors grew concerned about increasing COVID-19 case counts and the downside risks to the current economic recovery,” Kan said. “Refinance applications jumped, as the 30-year fixed mortgage rate declined to its lowest level since February 2021, and the 15-year rate fell to another record low dating back to 1990.” Despite the declines, however, purchase application demand slowed week-over-week, dropping 2 percent from the week before. The MBA’s weekly survey has been conducted since 1990 and covers 75 percent of all retail residential mortgage applications.
Home prices are rising. That’s no surprise to anyone who’s been looking to buy or sell a home. In this market, there are more buyers than homes for sale and the imbalance has been pushing prices higher for months. In fact, according to the S&P Case-Shiller Home Price Indices – considered among the leading measures of U.S. home values – price growth broke records again in May. In other words, this year’s housing market has been hot. But, according to Craig J. Lazzara, managing director and global head of index investment strategy at S&P, home-price data also says something about buyers’ priorities. “We have previously suggested that the strength in the U.S. housing market is being driven in part by reaction to the COVID pandemic, as potential buyers move from urban apartments to suburban homes,” Lazzara said. “May’s data continues to be consistent with this hypothesis. This demand surge may simply represent an acceleration of purchases that would have occurred anyway over the next several years. Alternatively, there may have been a secular change in locational preferences, leading to a permanent shift in the demand curve for housing.” (source)
New numbers from the U.S. Census Bureau and the Department of Housing and Urban Development show sales of newly built single-family homes fell 6.6 percent in June from the month before. The decline was unexpected. In fact, economists polled before the report’s release forecast a 3 percent increase from May’s number. So what happened? Well, high home prices and the rising cost of building materials may have something to do with it. The median sales price of new homes sold during the month was $361,800. The average price was $428,700. But while high home prices may have made buyers more hesitant in June, there were some encouraging signs in the monthly report. For example, the number of new homes for sale is higher than it’s been in more than a year. That means, home builders have been adding for-sale inventory, which should help moderate future price increases. And it may have already started. The median and average sales price both fell last month, with the median price almost $20,000 lower than it was in May. (source)
There’s a reason living near a major metropolis has traditionally been more expensive than living further away. Put simply, it’s where the jobs are. And, if you work in the city, you likely aren’t going to want to live so far away that you have a two-hour commute there and back. Naturally, though, the pandemic has changed things. With more Americans able to work remotely, home buyers have a different set of priorities than they did even a few years ago. For example, a recent analysis of commute times and home prices found that homes within 10 minutes of city centers are seeing slower price growth than those further out. In 2017, homes within a 10-minute commute had the fastest-growing home values in half of the 18 most expensive metros. Now, only three of the 18 are still experiencing the fastest growth. In fact, these days, more than half of them are experiencing slower growth or even seeing prices beginning to fall. That’s pretty strong evidence that remote work has changed our priorities and moved affordability higher than living near the city on many buyers’ wish lists. (source)
Sales of previously owned homes increased 1.4 percent in June, according to new numbers from the National Association of Realtors. The month-over-month improvement pushed home sales 22.9 percent higher than they were last year at the same time. Lawrence Yun, NAR’s chief economist, says the number of available listings has improved and it’s helping home sales. “Supply has modestly improved in recent months due to more housing starts and existing homeowners listing their homes, all of which has resulted in an uptick in sales,” Yun said. “Home sales continue to run at a pace above the rate seen before the pandemic.” But while the number of listings has increased, inventory is still tighter than historically normal. In fact, at the current sales pace, there was a 2.6-month supply of homes available for sale in June. That’s improved from May but still well below the 6-month supply considered healthy for the market. That means buyers still need to be prepared to act fast, since nine of 10 homes sold in June were on the market for less than a month.
According to the Mortgage Bankers Association’s Weekly Applications Survey, average mortgage rates were mostly down last week, with decreases seen for 30-year fixed-rate mortgages with jumbo balances, loans backed by the Federal Housing Administration, and 15-year fixed-rate loans. Rates for 30-year mortgages with conforming loan balances rose slightly from the week before. Joel Kan, MBA’s associate vice president of economic and industry forecasting, says mortgage rates are being affected by coronavirus concerns. “The 10-year treasury yield dropped sharply last week, in part due to investors becoming more concerned about the spread of COVID variants and their impact on global economic growth,” Kan said. “There were mixed changes in mortgage rates as a result, with the 30-year fixed rate increasing slightly … after two weeks of declines.” Demand for mortgage applications was down week-over-week. Refinance activity fell 3 percent and the Purchase Index was down 6 percent. The MBA’s weekly survey has been conducted since 1990 and covers 75 percent of all retail residential mortgage applications.
Today’s housing market is short of available homes but not interested buyers. That’s why home prices and competition have been rising. It’s also why industry experts have been focused on the number of new homes being built. The best way to solve a supply shortage, after all, is to add supply. So new numbers from the U.S. Census Bureau and the Department of Housing and Urban Development are good news for home shoppers. The data shows that the number of new homes that began construction in June was 6.3 percent higher than the month before. It was also well above economists’ expectations. In fact, if building continued at June’s pace, there’d be an additional 1.643 million new homes built annually. That’s better than the annual rate of 1.590 million homes economists forecasted. However, it’s also well short of March’s annual rate of 1.725 million homes – which was the highest level since June 2006. Still, the improvement is encouraging, as it’s another step toward a better balanced market and more options for prospective buyers. (source)
The National Association of Home Builders surveys builders each month to gauge their confidence in the market for newly built single-family homes. Their responses are scored on a scale where any number above 50 indicates more builders view conditions as good than poor. In July, the index fell one point to 80. The decline was due to the continuing supply challenges facing home builders. Robert Dietz, NAHB’s chief economist, says conditions are putting upward pressure on prices. “Builders are contending with shortages of building materials, buildable lots, and skilled labor as well as a challenging regulatory environment,” Dietz said. “This is putting upward pressure on home prices and sidelining many prospective home buyers even as demand remains strong in a low-inventory environment.” But despite the challenges, elevated demand from buyers has kept builder confidence higher than normal. In fact, before last fall, the index had only been over 80 twice in its 35-year history. Its all-time high, reached in November 2020, is 90. (source)
Many surveys have shown an all-cash offer is the surest way to win a bidding war. The problem, of course, is most buyers – and especially first-time and entry-level buyers – don’t have the savings necessary to make an all-cash offer. Despite this, they’re becoming more common in today’s market. In fact, according to one recent analysis, all-cash purchases have accounted for 30 percent of homes sold so far this year. That’s the highest number since 2014. So what’s behind the trend? Well, a few things. Recent stock market gains are one. Another factor is the number of people leaving cities and moving to more affordable areas in the suburbs and exurbs. These buyers can sell a highly priced home and then use their equity to purchase a more affordable home in another area. Real-estate investors are also known for all-cash offers and they’re increasingly returning to the market these days. Ultimately, wherever they come from, cash offers in a competitive market can present a challenge for buyers. The good news is there are indications that the number of available listings are increasing, which should help reduce competition and the frequency of bidding wars. (source)