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Let’s kick off this month discussing some of the biggest topics in real estate today.

is the market going to crash? what about home prices? affordability?

Are we in a housing bubble?

This shows home values going all the way back to World War II. And if you think about that, the reason we go back to World War II is that was the start of the modern day housing boom here in this country. If you think about GIs coming back from the war and the GI Bill provided for education, provided for them to go out and buy a home. And ever since then, up until today, there’s been one time in this country where homes lost significant value and that was back in 2008. So back in 2008 we saw homes lose value really for two reasons. First reason, loose lending standards. You think back then, no income, no job, no verification and we know how that ended up. The second reason was cash out refinances. People took the equity they had, cashed it out, bought jet skis and went on vacation, the financed lifestyle. Did things thinking this will never end and it ended poorly. So let’s recap there. Apply for a loan that you don’t have to qualify for and then you take your equity and you cash it out and that’s what ended up in 2008 when homes lost value.   http://www.econ.yale.edu/~shiller/data.htm

Let’s take a look at home values going all the way back to World War II – the start of the modern day housing boom in the United States. Notice that 2008 was the only time homes lost significant value, and this is really for two reasons. First, loose lending standards – lack of income verification, lack of job verification, etc. Second, cash out refinances – people took the equity they had, cashed it out, and bought depreciating assets. In these times people were able to apply for a loan they didn’t qualify for, and then borrow against the equity.

First, the forbearance numbers continue to edge downward. As of the most recent numbers in April, 690,000 loans still in forbearance, well below where we started out of May of 2020.  https://www.blackknightinc.com/blog-posts/forbearance-plans-edge-higher/?

All that said, this market is different. First, the forbearance numbers continue to edge downward. As of last month, there are 690,000 loans still in forbearance – well below where we started out in May of 2020. According to Black Knight, 92% of the people that entered forbearance have come out of it.

One of the latest statistics that’s come out is 92% of the people that entered forbearance have come out of it, according to Black Knight. And those that have come out, as of March 31st, here’s the clearest picture. Thirty-seven percent in the green area were paid in full. Those are the ones that took forbearance maybe as an insurance policy and said I don’t know what’s going to happen and they didn’t need it. Forty-four point six, the blue shaded area, went through some kind of work out with their bank, either a modification, a rate and term refinance or a deferral. They tacked it on the back. Four out of five people either went through a modification or paid it off in full and there were no issues. That’s a very, very positive sign. Now, there are 18% that are still in some sort of trouble. We don’t know. They have no loss mitigation plans or they’re already into the loss mitigation plan.  https://www.mba.org/news-research-and-resources/newsroom

Thirty-seven percent were paid in full – those that likely took forbearance as an insurance policy and didn’t need it. Forty-four percent went through some kind of modification, refinance, or deferral – tacking it on the back end. So, 4 out of 5 people exited forbearance – a very positive sign. However, there are 18% that are still in jeopardy – they have no loss mitigation plan or are already into the loss mitigation plan. But let’s not forget that people have options today – you can sell your home with the appreciation we’ve seen over the last couple of years.

We have learned from history that prices can fall. The more important question is if it’s going to happen right now. And that’s hard to say.   Danielle Hale, Chief Economist, realtor.com
Lending standards are nothing like they were in the early 2000s. We talked about the things that people had done that caused the crisis. Well, there’s two components that this report by the urban institute outlined. First, is produce risk in the mortgage business and second is borrower risk. product risk. Think about that as the types of loans that are available to people. And that’s been virtually eliminated. If you start back in1999, we’re talking about all the way to 2021. product risk is not there. The loans that were available back then are not available today. borrower risk. Think about that as asset profile, credit score, all the thing that it takes to qualify for a loan and those have been severely curtailed. It’s gotten harder to qualify for a loan after the housing crisis. That’s when the qualified mortgage came out and demonstrate the ability to repay, all the things that we know about the mortgage business about how hard it’s gotten to qualify. This graphic tells the story of the differences today between back then.   https://www.urban.org/policy-centers/housing-finance-policy-center/projects/housing-credit-availability-index

Second, the lending default risk is lower. The Urban Institute looked at Default Risk in the Mortgage Market and that helps us see how lending standards are nothing like they were in the early 2000s. There is product risk and borrower risk. The loans that were available back then are not available today. When looking at the borrower risk, think about asset profiles, credit scores – all of those things needed to qualify for a loan – have been curtailed. It’s gotten harder to qualify for a loan. Now we have to demonstrate the ability to repay.

the foreclosure market is an all-time low. Now, the last couple of years certainly there’s been a moratorium in place and the federal government has stepped in and said, look, we’re not going to process these foreclosures during the pandemic. [00:07:03) And those are coming back and we’ve talked about that on the monthly market report. But back during the housing crisis, over nine million people went through foreclosure.   https://www.attomdata.com/news/market-trends/foreclosures/attom-q1-2022-u-s-foreclosure-market-report/ https://www.attomdata.com/news/market-trends/foreclosures/attom-year-end-2021-u-s-foreclosure-market-report/

Third, the foreclosure market is an all-time low – from a high of about 3 million homes in foreclosure to 78,000 last quarter.

Tighter lending standards have led to less foreclosures in the market. Now, that makes a lot of sense, right? If you have a highly qualified or a better qualified borrower, you’re going to see less defaults and we’re seeing exactly that. That certainly is not going to play into a crash. If you needed a further example of that, this is a look at the loans that have been given to people with a credit score less than 620. So, again, go back to the housing crisis. So many loans – this is in volume in billons of loans with a credit score less than 620. And where do we stand as the third quarter of 2021, the most recent information from the Federal Reserve, a fraction of where we were back then. So we can clearly say lending standards are different. That story is different. One of the major contributors back in 2008 is not around.   https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/xls/HHD_C_Report_2021Q3.xlsx

Fourth, lending standards are tighter which can be attributed to less foreclosures in the market. Qualified buyers mean less defaults. During the crisis we saw about 4 times the amount of loans approved for individuals with a credit score less than 620.

The other question though a lot of people bring up is well, as homes get expensive, as homes have risen, people aren’t going to be able to support that debt and that’s a challenge. Well, mortgage debt is not a challenge. Again, this is from the Federal Reserve. This is the household debt service ratio for mortgages and that’s as a percentage of disposal personal income.  https://fred.stlouisfed.org/series/MDSP

Fifth, mortgage debt is not a challenge. According to the Federal Reserve, the household debt ratio is the lowest it has been since the 1970s. Why? Because of rising wages. Today, we are much better positioned than we were back in the financial crisis.

Finally, cash out refinances are extremely low. The difference in annual mortgage payments for cash out refinances was over $3,000 and $4,000 back during the housing crisis, while we hover around the $34 mark right now. There is very little change in the mortgage payment as somebody goes through a cash out refinance.

We learned a lot of lessons during the housing crash, and can see how the market dynamics are very different today. So, what is to come in the remainder of 2022? The Fed started off the month by raising the Fed funds rate. How will this affect home prices?

MBA: https://www.mba.org/docs/default-source/research-and-forecasts/forecasts/mortgage-finance-forecast-apr-2022.pdf NAR: https://cdn.nar.realtor/sites/default/files/documents/forecast-q2-2022-us-economic-outlook-04-27-2022.pdf Fannie Mae: https://www.fanniemae.com/media/43346/display Freddie Mac: https://www.freddiemac.com/research/forecast/20220418-quarterly-forecast-purchase-market-will-remain-solid-even-mortgage-rates-rise HPES: https://pulsenomics.com/surveys/#home-price-expectations CoreLogic: https://www.corelogic.com/intelligence/u-s-home-price-insights/            Zelman: https://www.zelmanassociates.com/

Looking at the most recent updated home price forecast from the top seven forecasters, we see 9% appreciation for 2022.

The most recent updated home price forecast from the seven forecasters that we watch, these are for 2022 prices, average of these forecasters is 9% appreciation. Many people are saying are homes going to lose value later in the year? Certainly not what experts are saying for this year. If you see these experts, they start to fall between 8 and 10%. We started off the year at about 5% appreciation and we’ve risen slowly each month since then. We said these forecasters had a bias to the upside, meaning they were raising their forecast and we’re certainly seeing that today.   https://pulsenomics.com/surveys/#home-price-expectations

Beyond 2022, we will see a much more normal rate of appreciation like the pre-pandemic rate of 3.8%.

What the home price expectation survey does as well is they look at cumulative house of price appreciation by 2026. If we look at these, they sort of rank them by the optimist, the pessimist, and then the average of all panelists in the middle. Optimists say 46.5% appreciation. Pessimists, 10% appreciation. All the panelists, 26% appreciation by 2026. So, depending on where you sit, I think even if you’re a pessimist in this market, they’re calling for appreciation here between now and 2026.   https://pulsenomics.com/surveys/#home-price-expectations

The home price expectation survey forecasts 26% cumulative home price appreciation by 2026.

... the 30-year fixed mortgage will likely peak at between 5.0% and 5.7%. There is some variability in the relationship, so we might see rates as high as the low 6% range.  Bill McBride, Author, Calculated Risk

As buyers search for homes, we’ve seen interest rates in the first four months of this year rise dramatically. We started the year about 3.1%, and now we’re just over 5.25% on the average 30 year fixed.

New data from the Harris Poll show 84% of Americans plan to cut back spending as a result of price spikes… More than 70% of respondents said they’re feeling the effects of inflation the most in gas prices and groceries.   Bloomberg

Prices are rising all around us, and that is affecting affordability.

Looking at the change in mortgage payment going back to January of 2021. This is based on a loan amount of $300,000 principle and interest only. But if you look at January of 2021, mortgage rates were at historic lows. A typical mortgage payment was about $1,200, a little north of that. Fast-forward to where we are today in this rising mortgage rate environment, and things are different. If we think about where mortgage rates are projected to go and let’s say mortgage rates later this year are around 5.5% as we look at what the experts are saying and what’s projected to happen, that mortgage payment jumps up to over $1,700. if you’re talking about $1,200 to $1,700, that’s roughly a $500 difference.   https://www.freddiemac.com/pmms https://www.mortgagecalculator.net/

Consider a loan amount of $300,000 (principle and interest only). In January 2021, your monthly payment would have been about $1,200. Fast forward to today’s rates, and you are looking at about $1,650 a month for the same home. Projections have this payment increasing by about $500 within the next few months.

The Housing Affordability Index. It goes all the way back to 1990. And if you follow along with us, you’ve definitely seen this before, but really had to break this down and look at it. Is that the higher the bar, the more affordable homes are. If you look at where we are over on the right today at 135.4, that’s the index that NAR is measuring here. Homes are not as affordable as they were over the past 10 or 12 years, and certainly not as affordable as they were in those orange bars, which was the housing crisis. That’s when distressed properties dominated the market. Homes are being sold at a massive discount. We’re certainly not there but as we’ve seen prices rise, mortgage rates rise, homes are not as affordable as they were even over the past couple of years. It’s important to remember that affordability is really a measure of three key things. We mentioned prices and mortgage rates, but it’s also wages. Right now, all three of those things are ticking up but historically, over the past couple of years, mortgage rates have kind of offset some of the rising prices. Well, we’re not sitting in that seat anymore so people are feeling affordability challenges.   https://www.nar.realtor/blogs/economists-outlook/ https://www.nar.realtor/blogs/economists-outlook/housing-affordability-declines-in-february

The Housing Affordability Index shows that homes are more affordable than any time leading up to the housing crisis. So, when people say homes aren’t affordable anymore, we have to ask, “As compared to when?”

If you’re planning to sell your home this season, rising prices are great news for you. But it’s important to understand why prices are rising to begin with. One major factor is supply and demand.

In any industry, when there are more buyers for an item than there are of that item available, prices naturally rise. In those situations, buyers are willing to pay more to get the product or service they’re looking for when options are scarce. And that’s exactly what’s happening in the current real estate market.

Selma Hepp, Executive, Research & Insights and Deputy Chief Economist at CoreLogic, puts it like this:

With so few homes, buyers are once again left with fierce competition that’s driving the share of homes that sold over the listing price up to 66% . . . With the continued imbalance between supply and demand, home prices are likely to have another year of strong gains and are expected to average about 10% growth for the year.”

Because it will take some time for housing supply to increase, experts believe prices will continue rising. The latest Home Price Expectations Survey forecasts what will happen with home prices over the next 5 years. As the graph below shows, while the rate of appreciation will moderate over the next few years, prices will continue rising through 2026:

Today’s Home Price Appreciation Is Great News for Existing Homeowners | MyKCM

What This Means When You Sell Your House

If you’re a homeowner, the projection for continued price appreciation this year opens up an opportunity to move. That’s because it may give your equity a major boost. Equity is the difference between what you owe on your house and its market value. The amount of equity you have increases as you make your monthly payments and as rising home prices drive up the market value for your home.

Growing equity is a powerful tool for homeowners. When you sell your house, the equity you’ve built comes back to you in the sale. That money could be enough to cover some (if not all) of your down payment on your next home.

Of course, if you want to know how much equity you have in your current house, it’s crucial to work with a real estate professional. They follow current market trends and can help you understand your home’s value when you’re ready to sell.

What This Means for Your Next Purchase

But today’s rising home values aren’t just good news if you’re ready to sell. Because price appreciation is forecast to continue in the years ahead, you can rest assured your next home will be an investment that should grow in value with time. That’s one of several reasons why real estate has been rated the best investment in a recent Gallup poll.

Bottom Line

If you’re weighing whether or not you should sell your house this season, know rising home values may be opening up an opportunity to use equity to fuel your move.

If you’re thinking of selling your house, it may be because you’ve heard prices are rising, listings are going fast, and sellers are getting multiple offers on their homes. But why are conditions so good for sellers today? And what can you expect when you move? To help answer both of those questions, let’s turn to the data.

Today, there are far more buyers looking for homes than sellers listing their houses. Here are the maps of the latest buyer and seller traffic from the National Association of Realtors (NAR) to help paint the picture of what this looks like:

On the Fence of Whether or Not To Move This Spring? Consider This. | MyKCM

Notice how much darker the blues are on the left. This shows buyer traffic is strong today. In contrast, the much lighter blues on the right indicate weak or very weak seller traffic. In a nutshell, the demand for homes is significantly greater than what’s available to purchase.

What That Means for You

You have an incredible advantage when you sell your house under these conditions. Since buyer demand is so high at a time when seller traffic is so low, there’s a good chance buyers will be competing for your house.

According to NAR, in February, the average home sold got 4.8 offersWhen buyers have to compete with one another like this, they’ll do everything they can to make their offer stand out. This could play to your favor and mean you’ll see things like waived contingencies, offers over asking price, earnest money deposits, and more. Selling when demand is high and supply is low sets you up for a big win.

If you’re also looking to buy a house, you may be tempted to focus more on just the seller traffic map and wonder if it means you’ll have trouble finding your next home. But remember this: perspective is key. As Danielle Hale, Chief Economist at realtor.comsays:

The limited number of homes for sale is a lesson in perspective. This same stat that frustrates would-be homebuyers also means that today’s home sellers enjoy more limited competition than last year’s home sellers.”

If you look at the big picture, the opportunity you have as a seller today is unprecedented. Last year was a hot sellers’ market. This year, inventory is even lower, and that means an even bigger opportunity for you. Even though finding your next home in a market with low inventory can be challenging, is that concern worth passing on some of the best conditions sellers have ever seen?

As added peace of mind, remember real estate professionals have been juggling this imbalance of supply and demand for nearly two years, and they know how to help both buyers and sellers find success when they move. A skilled agent can help you capitalize on the great opportunity you have as a seller today and guide you through the buying process until you find the perfect place to call your next home.

Bottom Line

If you’re ready to move, you have an incredible opportunity in front of you today. Trust the experts.

mortgage rates? home prices? home sales? spring predictions? To help predict what is to come, let’s look at what has happened historically in rising mortgage rate environments.
Mortgage Rates rising this year from 3.11% in January to 4.67% in March. https://freddiemac.gcs-web.com/node/24976/pdf (3.89% previous week)  http://www.freddiemac.com/pmms/

Mortgage rates started out at 3.11% for the average 30-year,fixed at the beginning of the year, and they have just steadily climbed since then – up to 4.67%.

Mortgage rates are likely to continue to move higher throughout the balance of 2022, although the pace of rate increases is likely to moderate.. Much of the increase in rates in early 2022 is in anticipation of what will happen later this year, especially with Federal Reserve interest rate policy. Len Kiefer, Deputy Chief Economist, Freddie Mac

Rates are projected to continue rising, but at a more moderate pace, because the Fed has risen their rate and mortgage rates tend to follow.

So how does this affect home prices? Let’s take a look at the historical impact of rising rates on home prices when mortgage rates rose by more than a percentage point.

So this goes all the way back to October of 1993, so almost 30 years. And it shows you that there was you know, an average of about 8% home price appreciation as mortgage rates are rising by more than a percentage point. So you know, overall what we can see is that you know, rising rates have not had a negative impact on home prices. http://www.freddiemac.com/research/insight/20180223_increasing_mortgage_rates.page

Looking back to October of 1993 (about 30 years), we can see an average of about 8% home price appreciation as mortgage rates are rising by more than a percentage point. So, rising rates have not had a negative impact on home prices.

So how do rising mortgage rates affect home sales?

So let’s take a look at this addition to the same data, and to add some home sales for this same period of time, going all the way back to 1993. Now what we can see here is there was an average of a decrease of 11% in home sales as prices were rising. We know as rates rise that that tends to sometimes reduce buyer activity. It prices some people out of the market.. http://www.freddiemac.com/research/insight/20180223_increasing_mortgage_rates.page

Looking at the same data for the same period of time, we can see an average decrease of 11% in home sales as prices were rising. As rates rise, it can tend to reduce buyer activity – pricing some people out of the market.

October ‘93 to December of ‘94. Mortgage rates increase by 2.38% to a final rate of 9.2%. So let’s be super clear that we’re not looking at a two and a half percent increase in mortgage rates right now. We’re not projected to. And we’re certainly not projected, according to the experts, to get up to 9.2% increase, or 9.2% mortgage rate. So very, very different environment than what we’re talking about. . http://www.freddiemac.com/research/insight/20180223_increasing_mortgage_rates.page

It is important to note that first line (October 1993 to December 1994) where mortgage rates rose 2.38% to a final rate of 9.2%. We are NOT looking at a 2.5% increase in mortgage rates right now. That kind of increase is not in the projections. We are in a very, very different environment than we were back then. We are most likely looking at a 1.5% increase.

So let’s look at the same data and what you can see overall. There’s a little bit of orange. There’s a little bit of black, meaning home sales as mortgage rates are rising in these environments, really negligible impact. So maybe down by 2%, maybe up by 2%. Roughly that 2% impact on home sales as mortgage rates are rising in a similar environment. And of course the outlier is 2005, 2006 which was the lead up to the housing crisis and home sales dropped by 14%. So what we can see here is that when you factor this data out, we start to see that rising mortgage rates don’t have a huge impact on home sales. So you know, why is that? I think one of the big things we have to look at is what is available for sale. We have to look at the inventory component. Because today, what we are seeing is drastically low inventory. . http://www.freddiemac.com/research/insight/20180223_increasing_mortgage_rates.page

In rising mortgage rate environments, there is an overall 2% impact on home sales – a negligible impact – where 2005 & 2006 are the outliers leading up to the housing crisis.

Overall, rising mortgage rates don’t have a huge impact on home sales. Why? Because you have to consider the inventory component. Today, we are seeing drastically low inventory – lower than it was in January of 2021, which was a historical low. Home prices are projected to continue rising, because there just aren’t enough homes for sale. Supply and demand are what drives home price appreciation. So, when you see those headlines saying home sales are softening, it’s not because of rising mortgage rates. It’s because there aren’t enough homes to buy.

When we look at months inventory, and we only have it going back to 2003, 2004 for this series of data. But we have five months of inventory, four and a half months, 4.8 months, you know, we had a very, very different inventory level than what we have today. So when we think about you know, those environments where it looks like oh, 506, you know, 2012, 2013, where there was a little bit of a negative impact on sales. Inventory was very different. . http://www.freddiemac.com/research/insight/20180223_increasing_mortgage_rates.page

When we look at months inventory, historically we had between 4.5 and 5 months inventory on hand – a very, very different inventory level than what we have today.

While higher short-term interest rates will push up mortgage rates, I expect some of this impact to be mitigated eventually through lower inflation... Thus, I expect the 30-year fixed mortgage rate to continue to rise, although we aren’t likely to see the big jumps that occurred over the past few weeks. Nadia Evangelou, Director of Forecasting, NAR

Inflation is driving this increase in mortgage rates, and we can expect it to continue to rise, but it won’t be at as quite a rapid pace as what we’ve seen over the past few weeks.

History suggests that when rates rise, there is an initial bump in home prices as many move quickly to buy a home before rates increase further. But after that period, home prices slow... analysis shows that a 1% increase in mortgage rates results in home price appreciation that is 4 percentage points lower. For instance, a 1% increase in mortgage rates would change home price growth from 11% to 7%. Freddie Mac

Home price appreciation will slow, and mortgage rates will slow some of the frenzy. But, we’re not talking about depreciation. We’re talking about deceleration – appreciation at a more moderate rate.

With rates rising and expected to rise through 2023, it makes sense to obtain a purchase or refinance mortgage if you are in good standing. Len Kiefer, Deputy Chief Economist, Freddie Mac

We hope that all helps explain how the rising mortgage rate environment will affect the other factors in the market, so let’s move on to the forecasts for the spring housing market.

We keep watching for it... but there are absolutely no signs of a market slowdown anywhere in the data. If anything, we're seeing the market continue to heat up. Altos Research

We are in a very, very busy market.

https://www.nar.realtor/research-and-statistics/research-reports/realtors-confidence-index

Here is the NAR (National Association of Realtors®) Buyer Traffic Map – strong activity overall.

https://www.nar.realtor/research-and-statistics/research-reports/realtors-confidence-index

Then, we see very, weak seller traffic overall. So, strong buyer demand combined with the lack of sellers keeps that upward pressure on prices.

, active listings increased in this country for the first time in six months. If you go back to the fall of last year, around September we started to kind of fall down in active listings, all those being consumed by the buyers in the market. And we’re starting to see a tick up. Very little, but, but nonetheless a tick up. [0:13:47] And the interesting thing is if you look at where we’re at March, 382,000 active listings in the country according to realtor.com. Remember, they factor out all the pending listings and things like that. These are just actives. And go back to March of last year, about 471 active listings, just shy of 100,000 active listings short this March as compared to last year. So we need more listings. We know that across the country. But all of this leading to sort of a bias towards the upside, meaning forecasters that are looking at the market are saying you know what? We thought it was going to be this amount of activity. But we see it being a little bit more. https://www.realtor.com/research/data/

However, we did see increased active listings in March.

Now, more industry insiders are throwing out their previous forecasts and replacing them with more bullish short-term outlooks. Indeed, some experts say the 2022 spring housing market might go down as one of the most competitive on record. Lance Lambert, Editorial Director, Fortune
a good synopsis of pending home sales over the last, several months. Pending home sales have dropped. And I’m going to make the argument that pending home sales are down not because there’s a lack of demand in the market. https://www.nar.realtor/newsroom/pending-home-sales-dwindle-4-1-in-February https://www.nar.realtor/blogs/economists-outlook/pending-home-sales-weaken-4-1-in-february-2022

Pending home sales have dropped, overall – not because there’s a lack of demand in the market, but because we can’t sell what we don’t have. Nonetheless, we seem to be in a healthy market.

We’re ahead in showings and activity, those scheduling appointments to see homes, and we were well ahead before the pandemic and well ahead during the pandemic. So the lack of existing home sales is not because there’s not demand in the market. There’s very much a strong, strong demand in the market. It’s because of the lack of available homes. All of this, keeping that upward pressure on prices.. https://www.showingtime.com/blog/february-2022-showing-index-results/

We’re ahead in showings and activity, indicating, again, strong demand.

This is the latest look from CoreLogic on price acceleration. You know, as we came through last year we said okay, prices seem to have peaked if not, you know, plateaued. And what we’re seeing through November, December, now January numbers ratcheting up slightly in the amount of appreciation year over year. So a very, very competitive market.https://www.corelogic.com/intelligence/u-s-home-price-insights/

Price acceleration is also holding steady, indicating a very competitive market.

Last fall we observed that home prices, although continuing to rise quite sharply, had begun to decelerate. Even that modest deceleration was on pause in January. The 19.2% year-over-year change for January was the fourth-largest reading in 35 years of history. Craig J. Lazzara, Managing Director, S&P DJI

And we are still ahead of historical appreciation. Overall, these figures look to a strong spring market.

With all the uncertainty out there, let’s take a quick glance at 5 graphs that break down the most common concerns.

First one, active listings. Our new listings are greater than active listings. This does a great job. This graphic here shows active listings as compared to new listings going back to August of 2021. So let me break this down for you. The blue are active listings each month, and the green are new listings that are taken during the month. Well, you see, all through the fall and coming into the new year, active listings outpace the new listings until March, where new listings actually outpace the active listings. What does that do? That shows a great sort of picture of what’s happening in real estate today. As soon as something comes on the market, it sells. It sells right away. And you can see that here in the March look at new listings outpacing the active listings in the market. https://www.realtor.com/research/data/

First, active listings as compared to new listings going back to August of 2021. The light blue bars represent active listings each month, and the dark blue bars represent new listings that are taken during the month. Active listings outpace new listings until March, where new listings actually outpace the active listings. This means as soon as something comes on the market, it sells.

the single-family housing units completed. And this tells the story of why it’s so hard to find a home right now. Why prices have risen the way they’ve risen. And the simple answer is right there. For 14 straight years, we’ve been below the 50-year average in builds in this country, going all the way back to the 70s. And what I always tell people is literally back in the 70s and 80s, there were more homes completed in this country than there have been in the last 14 years. The last decade, really. All of that coming out of fallout of the housing crisis in 2008. Builders being hit extremely hard, and having to build back slowly their capacity, their ability to bring new builds to market. But that no doubt, the lack of available homes coming to market, has constricted supply. A lot of people want to buy, driving the price up, making it hard to find a home. www.census.gov/construction/nrc/xls/co_cust.xls

Second, the single-family housing units completed tells the story of why it’s so hard to find a home right now – why prices have risen the way they’ve risen. And the simple answer is that for 14 straight years, we’ve been below the 50-year average in new construction, due to the fallout of the housing crisis in 2008. Builders were hit extremely hard, and are building back their capacity – their ability to bring new builds to market. This has constricted supply.

The other issue I think is going to be a big concern for a lot of consumers this spring is inflation. This is a graphic you’ve probably seen before. This is home ownership as a hedge against inflation, and that’s what we want to be able to show people literally, when you’re in an inflationary economy, you want to be invested in hard assets that outperform inflation. And this is going back all the way to the 70s. The blue bar there being the inflation rate. The green bar being home price appreciation. And you see most decades, home price appreciation has outperformed inflation. https://cdn.nar.realtor/sites/default/files/documents/2021-11-12-residential-economic-issues-and-trends-lawrence-yun-presentation-slides-11-12-2021.pdf https://www.bls.gov/news.release/archives/cpi_01132021.pdf https://www.corelogic.com/intelligence/find-stories/home-prices-topple-expectations-surging-at-the-end-of-2020/

Third, we look at home ownership as a hedge against inflation. When you’re in an inflationary economy, you want to be invested in hard assets that outperform inflation. The light blue represents the inflation rate, and the dark blue represents home price appreciation. Historically, home price appreciation has outperformed inflation (with the exception of the housing crisis).

https://pulsenomics.com/surveys/#home-price-expectations

Fourth, we look at the home price expectation survey – a survey of 100 economists, real estate professionals, and market investor professionals determining what is going to happen with home prices. $96,000 in potential growth in household wealth over the next five years based solely on increased home equity if you purchased an average priced home (about $360,000).

So, bringing that to people that are wondering, is this the top of the market? Will homes lose value? Will help them see what experts are saying about home price appreciation. You know, all the folks that are waiting on the sideline right now for home prices to go down, this is a look at experts. The experts that we follow. There are seven experts here, on the average home price appreciation being 6.7%. There’s nobody literally right now forecasting prices to go down. You know, one side, Zelman saying 3%. CoreLogic saying 9.6%. And you see everywhere in between there. But no doubt this competitive spring market, this competitive year, we will see home price appreciation. I think they’ll raise this appreciation number as we go throughout the year. But no doubt we’re going to see appreciation in homes this year well above what we’ve seen in historical years. https://www.mba.org/news-research-and-resources/research-and-economics/forecasts-and-commentary https://cdn.nar.realtor/sites/default/files/documents/forecast-Q1-2022-us-economic-outlook-01-27-2022.pdf https://www.fanniemae.com/research-and-insights/forecast http://www.freddiemac.com/research/forecast/20220121_quarterly_economic_forecast.page https://pulsenomics.com/surveys/#home-price-expectations https://www.corelogic.com/intelligence/find-stories/corelogic-hpi-posted-record-year-over-year-growth-in-2021/

Finally, a look at home price appreciation. Among the seven experts, the average home price appreciation is 6.7%. Not one is forecasting prices to go down.

Based on the Primary Mortgage Market Survey from Freddie Mac, the average 30-year fixed-rate mortgage has increased by 1.2% (3.22% to 4.42%) since January of this year. The rate jumped by more than a quarter of a point from just a week ago. Here’s a visual to show how mortgage rate movement throughout 2021 was steady compared to the rapid increase in mortgage rates this year:

What’s Happening with Mortgage Rates, and Where Will They Go from Here? | MyKCM

Just a few months ago, Freddie Mac projected mortgage rates would average 3.6% in 2022. Earlier this month, Fannie Mae forecast mortgage rates would average 3.8% in 2022. As the chart above shows, rates have already surpassed those projections.

Sam Khater, Chief Economist at Freddie Mac, explained in a press release last week:

“This week, the 30-year fixed-rate mortgage increased by more than a quarter of a percent as mortgage rates across all loan types continued to move up. Rising inflation, escalating geopolitical uncertainty and the Federal Reserve’s actions are driving rates higher and weakening consumers’ purchasing power.”

Where Are Mortgage Rates Going from Here?

In a recent article by Bankrate, several industry experts weighed in on where rates might be headed going forward. Here are some of their forecasts:

Greg McBride, Chief Financial Analyst, Bankrate:

“With inflation figures continuing to surprise to the upside, mortgage rates will remain above 4.0% on the 30-year fixed.”

Nadia Evangelou, Senior Economist and Director of Forecasting, National Association of Realtors (NAR):

“While higher short-term interest rates will push up mortgage rates, I expect some of this impact to be mitigated eventually through lower inflation. Thus, I expect the 30-year fixed mortgage rate to continue to rise, although we aren’t likely to see the big jumps that occurred over the past few weeks.”

Len Kiefer, Deputy Chief Economist, Freddie Mac:

“Mortgage rates are likely to continue to move higher throughout the balance of 2022, although the pace of rate increases is likely to moderate.”

In a recent realtor.com article, another expert adds to the conversation:

Danielle Hale, Chief Economist, realtor.com:

“. . . As markets digest the Fed’s updated economic projections, I anticipate a continued increase in mortgage rates over the next several months. . . .”

What Does This Mean for You if You’re Looking To Buy a Home?

With both mortgage rates and home values expected to increase throughout the year, it would be better to buy sooner rather than later if you’re able. That’s because it’ll cost you more the longer you wait. But, there is a possible silver lining to buying a home right now. While you’ll be paying a higher price and a higher mortgage rate than you would have last year, rising prices do have a long-term benefit once you buy.

If you purchase a home today valued at $400,000 and put 10% down, you would be taking out a $360,000 mortgage. According to mortgagecalculator.net, at a 4.42% fixed mortgage rate, your mortgage payment would be $1,807 a month (this does not include insurance, taxes, and other fees because those vary by location).

Now, let’s put that mortgage payment into a new perspective based on the substantial growth in equity that comes with the escalation in home prices. Every quarter, Pulsenomics surveys a panel of over 100 economists, investment strategists, and housing market analysts about their expectations for future home prices in the United States. Last week, Pulsenomics released their latest Home Price Expectation Survey. The survey reveals that the average of the experts’ forecasts calls for a 9% increase in home values in 2022.

Based on those projections, a $400,000 house you buy today could be valued at $436,000 by this time next year. If you break that down, that means the equity in your home would increase by $3,000 a month over that period. That’s greater than the estimated monthly payment above. Granted, the increase in your net worth is tied to the home, but it is one way to put the home price appreciation to use in a way that benefits you.

Bottom Line

Paying a higher price for a home and a higher mortgage rate can be a difficult pill to swallow. However, waiting will just cost you more. If you’re ready, willing, and able to buy a home, now will be a better time than a year, or even six months from now.

recent survey revealed that many consumers believe there’s a housing bubble beginning to form. That feeling is understandable, as year-over-year home price appreciation is still in the double digits. However, this market is very different than it was during the housing crash 15 years ago. Here are four key reasons why today is nothing like the last time.

1. Houses Are Not Unaffordable Like They Were During the Housing Boom

The affordability formula has three components: the price of the home, wages earned by the purchaser, and the mortgage rate available at the time. Conventional lending standards say a purchaser should not spend more than 28% of their gross income on their mortgage payment.

Fifteen years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high. Wages, however, have increased, and the mortgage rate, even after the recent spike, is still well below 6%. That means the average purchaser today pays less of their monthly income toward their mortgage payment than they did back then.

In the latest Affordability Report by ATTOM Data, Chief Product Officer Todd Teta addresses that exact point:

“The average wage earner can still afford the typical home across the U.S., but the financial comfort zone continues shrinking as home prices keep soaring and mortgage rates tick upward.”

Affordability isn’t as strong as it was last year, but it’s much better than it was during the boom. Here’s a chart showing that difference:

4 Simple Graphs Showing Why This Is Not a Housing Bubble | MyKCM

If costs were so prohibitive, how did so many homes sell during the housing boom?

2. Mortgage Standards Were Much More Relaxed During the Boom

During the housing bubble, it was much easier to get a mortgage than it is today. As an example, let’s review the number of mortgages granted to purchasers with credit scores under 620. According to credit.org, a credit score between 550-619 is considered poor. In defining those with a score below 620, they explain:

“Credit agencies consider consumers with credit delinquencies, account rejections, and little credit history as subprime borrowers due to their high credit risk.”

Buyers can still qualify for a mortgage with a credit score that low, but they’re considered riskier borrowers. Here’s a graph showing the mortgage volume issued to purchasers with a credit score less than 620 during the housing boom, and the subsequent volume in the 14 years since.

4 Simple Graphs Showing Why This Is Not a Housing Bubble | MyKCM

Mortgage standards are nothing like they were the last time. Purchasers that acquired a mortgage over the last decade are much more qualified. Let’s take a look at what that means going forward.

3. The Foreclosure Situation Is Nothing Like It Was During the Crash

The most obvious difference is the number of homeowners that were facing foreclosure after the housing bubble burst. The Federal Reserve issues a report showing the number of consumers with a new foreclosure notice. Here are the numbers during the crash compared to today:

4 Simple Graphs Showing Why This Is Not a Housing Bubble | MyKCM

There’s no doubt the 2020 and 2021 numbers are impacted by the forbearance program, which was created to help homeowners facing uncertainty during the pandemic. However, there are fewer than 800,000 homeowners left in the program today, and most of those will be able to work out a repayment plan with their banks.

Rick Sharga, Executive Vice President of RealtyTracexplains:

“The fact that foreclosure starts declined despite hundreds of thousands of borrowers exiting the CARES Act mortgage forbearance program over the last few months is very encouraging. It suggests that the ‘forbearance equals foreclosure’ narrative was incorrect.”

Why are there so few foreclosures now? Today, homeowners are equity rich, not tapped out.

In the run-up to the housing bubble, some homeowners were using their homes as personal ATM machines. Many immediately withdrew their equity once it built up. When home values began to fall, some homeowners found themselves in a negative equity situation where the amount they owed on their mortgage was greater than the value of their home. Some of those households decided to walk away from their homes, and that led to a rash of distressed property listings (foreclosures and short sales), which sold at huge discounts, thus lowering the value of other homes in the area.

Homeowners, however, have learned their lessons. Prices have risen nicely over the last few years, leading to over 40% of homes in the country having more than 50% equity. But owners have not been tapping into it like the last time, as evidenced by the fact that national tappable equity has increased to a record $9.9 trillion. With the average home equity now standing at $300,000, what happened last time won’t happen today.

As the latest Homeowner Equity Insights report from CoreLogic explains:

“Not only have equity gains helped homeowners more seamlessly transition out of forbearance and avoid a distressed sale, but they’ve also enabled many to continue building their wealth.”

There will be nowhere near the same number of foreclosures as we saw during the crash. So, what does that mean for the housing market?

4. We Don’t Have a Surplus of Homes on the Market – We Have a Shortage

The supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued price appreciation. As the next graph shows, there were too many homes for sale from 2007 to 2010 (many of which were short sales and foreclosures), and that caused prices to tumble. Today, there’s a shortage of inventory, which is causing the acceleration in home values to continue.

4 Simple Graphs Showing Why This Is Not a Housing Bubble | MyKCM

Inventory is nothing like the last time. Prices are rising because there’s a healthy demand for homeownership at the same time there’s a shortage of homes for sale.

If you’re worried that we’re making the same mistakes that led to the housing crash, the graphs above show data and insights to help alleviate your concerns.

An increased supply and slowing of demand, likely due to rising interest rates, may causse the real estate market to be less competitive and see prices normalize.

2021 was an incredible year for real estate in the U.S. due to low mortgage rates, lots of demand, low inventory, and a rebounding job market. Supply and demand is still unbalanced headed into this spring, allowing sellers the upper hand. In an interview with the Associated Press, Lawrence Yun, Chief Economist at the National Association of Realtors® answers some burning questions about this year in real estate.

Question: How do you see the housing market’s trajectory shaping up this year?

Answer: The mortgage rates will definitely be higher, which means that people who were barely able to qualify last year will not be able to do so this year. Combine that with some increase in supply. Builders have the profit motive. Lumber prices and other materials costs are rising, but they’re simply tacking on those additional costs to consumers, who are willing to buy. So, increased supply, some chopping off of demand from rising interest rates, should lead to less intense competitive market conditions. Price growth will be something around 5% in 2022, which will be a very normal rate of increase.

Question: Fair to say homeowners who are selling will still have an edge on buyers nationally?

Answer: We’re in a housing shortage of roughly 3 or 4 million. And given that homebuilders can probably at the maximum put up maybe 2 million homes, more likely 1.7 or 1.8 million homes (a year), this housing shortage will persist this year and probably linger on somewhat next year. Hence, the market in 2022 will still favor sellers.

Question: How high do you see mortgage rates going this year?

Answer: My best guess at the moment is about 3.7%. It could be a little lower or a little higher, but it’s going to certainly be higher than the 3% people enjoyed last year.

Question: To what degree will higher rates dampen home sales?

Answer: Rising home prices have hindered affordability, but now rising interest rates are another thing that will begin to shave off some of the demand potential from first-time buyers. My official forecast for home sales this year is they will come down about 2% from last year.

Question: Has the pandemic led to any enduring changes to the way Americans buy and sell homes?

Answer: The pandemic will come to an end. Hopefully, the sooner the better. But the work-from-home situation, that development is here to stay. That will be the key factor driving the housing market preference and demand.

Question: What’s the biggest worry you have about the housing market now?

Answer: The housing market is on a solid foundation, in the sense that we don’t have those loose lending conditions. Housing equity, minus the mortgage balance, is substantial.

We need to ensure that the housing supply continues to increase, and look at converting office and other spaces to affordable housing.

After almost two years of double-digit increases, many experts thought home price appreciation would decelerate or happen at a slower pace in the last quarter of 2021. However, the latest Home Price Insights Report from CoreLogic indicates while prices may have plateaued, appreciation has definitely not slowed. The following graph shows year-over-year appreciation throughout 2021. December data has not yet been released.

What’s Going To Happen with Home Prices This Year? | MyKCM

As the graph shows, appreciation has remained steady at around 18% over the last five months.

In addition, the latest S&P Case-Shiller Price Index and the FHFA Price Index show a slight deceleration from the same time last year – it’s just not at the level that was expected. However, they also both indicate there’s continued strong price growth throughout the country. FHFA reports all nine regions of the country still experienced double-digit appreciation. The Case-Shiller 20-City Index reveals all 20 metros had double-digit appreciation.

Why Haven’t We Seen the Deeper Deceleration Many Expected?

Experts had projected the supply of housing inventory would increase in the last half of 2021 and buyer demand would decrease, as it historically does later in the year. Since all pricing is subject to supply and demand, it seemed that appreciation would wane under those conditions.

Buyer demand, however, did not slow as much as expected, and the number of listings available for sale dropped instead of improved. The graph below uses data from realtor.com to show the number of available listings for sale each month, including the decline in listings at the end of the year.

What’s Going To Happen with Home Prices This Year? | MyKCM

Here are three reasons why the number of active listings didn’t increase as expected:

1. There hasn’t been a surge of foreclosures as the forbearance program comes to an end.

2. New construction slowed considerably because of supply chain challenges.

3. Many believed more sellers would put their houses on the market once the concerns about the pandemic began to ease. However, those concerns have not yet disappeared. A recent article published by com explains:

“Before the omicron variant of COVID-19 appeared on the scene, the 2021 housing market was rebounding healthily from previous waves of the pandemic and turned downright bullish as the end of the year approached. . . . And then the new omicron strain hit in November, followed by a December dip in new listings. Was this sudden drop due to omicron, or just the typical holiday season lull?”

No one knows for sure, but it does seem possible.

Home price appreciation might slow (or decelerate) in 2022. However, based on supply and demand, you shouldn’t expect the deceleration to be swift or deep.

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