Buying a home has become less affordable over the past year. Home prices have surged as buyer demand outpaced the inventory of homes for sale. But while homeownership has gotten less affordable, it’s still within the average Americans’ financial means, according to a new report from ATTOM Data Solutions. Their fourth-quarter 2021 U.S. Home Affordability Report found that the cost of owning a median-priced home now consumes about 25 percent of the average national wage of $65,546. That’s within the 28-percent standard lenders use to determine whether or not borrowers can afford a monthly mortgage payment, insurance, and taxes. In other words, homeownership may have gotten less affordable but it hasn’t become unaffordable. “The average wage earner can still afford the typical home across the United States, but the financial comfort zone continues shrinking as home prices keep soaring and mortgage rates tick upward,” Todd Teta, ATTOM’s chief product officer, said. Teta says rising wages and still-low mortgage rates are helping to balance home-price increases, which has kept the cost of homeownership manageable. (source)
The National Association of Realtors’ Pending Home Sales Index tracks the number of contracts to buy homes that are signed each month. Because it tracks contract signings, not closings, it can be a good indicator of future home sales. In November, the index found pending sales down 2.2 percent from the month before. Lawrence Yun, NAR’s chief economist, says home buying conditions are challenging right now but relief may be on the way. “There was less pending home sales action this time around, which I would ascribe to low housing supply, but also to buyers being hesitant about home prices,” Yun said. “While I expect neither a price reduction, nor another year of record-pace price gains, the market will see more inventory in 2022 and that will help some consumers with affordability.” Regionally, contract signings were mostly flat except for in the Midwest, where they fell 6.3 percent. The West also saw a decline, with contract activity down 2.2 percent month over month.
These days, housing market conditions are fairly easy to understand. There are fewer homes for sale and, because of that, home prices continue to rise. It’s simple supply and demand. When there are fewer homes for buyers to choose from, the ones that are available go for a higher price. But while that’s been the case for a while now, the most recent S&P Case-Shiller Indices – considered the leading measure of U.S. home prices – offers some encouraging news. The index found that, while prices are still climbing, they’re now increasing at a slower pace. Craig J. Lazzara, managing director at S&P, says, in many of the cities the index tracks, price increases have slowed. “We continue to see very strong growth at the city level,” Lazzara said. “As was the case last month, however, in 14 of 20 cities, prices decelerated – i.e., increased by less in October than they had done in September.” But while the rate of increases has slowed, prices are still rising at a double-digit pace. In fact, October’s gain was the fourth-highest reading in the 34 years S&P has been tracking price data. (source)
New-home sales surged in November, rising 12.4 percent from the month before, according to new numbers from the U.S. Census Bureau and the Department of Housing and Urban Development. The increase pushed sales to their highest level since April. Combined with the recently reported increase in existing-home sales, the improvement is further evidence that buyer demand remains high, even at a time of year when home sales typically slow due to winter weather, fewer listings, and the holidays. But while winter usually sees buyers putting their home search on hold until spring, this year, buyers remain active. One possible explanation is the expectation that mortgage rates will move higher next year. And while the expected rate increases should be modest, buyers may still be looking to lock in a low rate before they go any higher. Regionally, the report found the biggest improvement in the West, where sales rose 53.2 percent. The Northeast saw a 15.6 percent increase, while the South gained 2.6 percent. Only the Midwest saw a decline, with sales dropping 25.4 percent month over month. (source)
According to the Mortgage Bankers Association’s Weekly Applications Survey, average mortgage rates fell to a four-week low last week. Rates were down for loans backed by the Federal Housing Administration and 30-year fixed-rate mortgages with both conforming and jumbo balances. The decline helped push refinance activity up 2 percent from the week before. But while refinancing homeowners were more active, home buyers weren’t. In fact, demand for loans to buy homes fell 3 percent from one week earlier. Joel Kan, MBA’s associate vice president of economic and industry forecasting, says the high end of the market is seeing more activity these days. “The average purchase loan increased for the second straight week to $416,200 – the second highest amount ever,” Kan said. “The elevated loan size is an indication that activity is more on the higher end of the market.” The MBA’s weekly survey has been conducted since 1990 and covers 75 percent of all retail residential mortgage applications.
In November, the typical home for sale was on the market just 18 days, according to new numbers from the National Association of Realtors. That’s down from 21 days in November 2020 but unchanged from the month before. Overall, 83 percent of homes sold in less than a month. The numbers are evidence that the lack of available inventory means home buyers continue to face a challenging, fast-paced market. In fact, the NAR found there was only a 2.1-month supply of existing homes available for sale in November. A 6-month supply is generally considered healthy. Lawrence Yun, NAR’s chief economist, says buyers remain motivated, though, due to the expectation that mortgage rates will rise in 2022. “Locking in a constant and firm mortgage payment motivated many consumers who grew weary of escalating rents over the last year,” Yun said. “Mortgage rates are projected to jump in 2022, however, I don’t expect the imminent increase to be overly dramatic.” Motivated buyers pushed sales of previously owned homes up 1.9 percent month over month. It was the third consecutive month sales increased.
Home buyers faced a lot of competition this year. Elevated demand and fewer homes available for sale meant interested buyers had to be ready for a bidding war or risk losing a good house to a better prepared buyer. This was certainly true during the spring and summer markets. In fact, according to one measure, 74.6 percent of offers faced competition in April. Fortunately, though, that was the peak. And, as the summer market turned to fall, buyer competition began to slow. By October, the number of offers that saw competition from other buyers had fallen to 61.8 percent. From there, it fell even further. The most recent numbers available show the competition rate was 59.5 percent in November – the first time since December 2020 that it dropped below 60 percent. But while that’s a good indication that winter buyers will face less competition than earlier in the year, the rate in November was still up 2 percent from the year before. In other words, though the market isn’t as hot, buyers still need to be prepared, since competition remains high and most homes continue to draw multiple buyers. (source)
Fannie Mae’s Economic and Strategic Research Group releases a forecast each month covering their predictions for the economy and housing market. According to their most recent release, their outlook for full-year economic growth has been revised upward from last month’s projection. Their home-sales growth projection was also revised upward based on an expected end-of-year sales surge. But while the year-end forecasts were increasingly positive, the group sees challenges ahead in 2022. For one, they expect fewer home sales next year due to limited for-sale listings and growing affordability constraints. “According to the ESR Group, the impact of monetary policy tightening to combat inflation will combine with ongoing supply issues and still appreciating home prices to slow sales activity,” the release says. “While the economy picked up steam late in the year, unfortunately, so did inflation, and the market expects the Fed to recalibrate its monetary policy as a result.” Part of that is an expected mortgage rate increase. But while the Fed is likely to raise rates in 2022, they will still remain low by historical standards. (source)
When thinking about buying a house, most of us look at home prices and mortgage rates. Together, they can provide a rough idea of how much home we can afford. They aren’t, however, the only factors that determine whether or not we’re ready and able to buy. One metric that isn’t as commonly checked but has a significant impact is mortgage credit availability. Put simply, the standards lenders use to determine whether or not a borrower is qualified aren’t fixed. That means, there are times when it’s easier to qualify for a mortgage and times when it’s more difficult. The Mortgage Bankers Association tracks credit availability each month to gauge whether standards are loosening or tightening. Any increase indicates lending standards are loosening, while a decrease means they’ve tightened. In November, the index was relatively flat, falling less than 1 percent from the month before. Joel Kan, MBA’s associate vice president of economic and industry forecasting, says government credit tightened while other loan types loosened. “The picture was different depending on the market segment,” Kan said. “An increase in conventional credit availability was offset by a decrease in government credit, as lenders reduced their offerings of government loan programs with lower credit scores, as well as those for investment homes.”
The National Association of Home Builders’ Housing Market Index measures builder confidence in the market for newly built single-family homes. It is an important indicator of housing market health because, when builders are optimistic and building more homes, it helps balance supply and demand, gives buyers more options to choose from, and helps moderate price increases. This is especially true when the inventory of homes available for sale is low, as it has been this year. In December, the NAHB’s survey – which is scored on a scale where any number above 50 indicates more builders view conditions as good than poor – hit 84, matching this year’s highest reading. Robert Dietz, NAHB’s chief economist, says lack of inventory continues to be the market’s biggest challenge. “The most pressing issue for the housing sector remains lack of inventory,” Dietz said. “Building has increased but the industry faces constraints, namely cost/availability of materials, labor, and lots.” Despite those challenges, all three of the indexes components scored well above 50 in December, including the gauge of current sales conditions which rose to 90. (source)