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The top three concerns in the housing market right now are mortgage rates, home prices, and affordability.

This is a look at the Freddie Mac 30-year fixed rate going all the way back to January of 2022. It shows is how much mortgage rates really rose from the beginning of the year all the way into mid- to late-Junish, and then since then, you can see that there’s been a lot of volatility or fluctuation in mortgage rates over the past few months. So, why is that? Inflation is the enemy of long-term interest rates. We know that the Federal Reserve doesn’t call mortgage rates, but they’re certainly making moves right now to ease inflation, and when that happens, mortgage rates tend to response. So, we’re watching all of the different economic factors that impact mortgage rates and how that’s playing out over time.  https://freddiemac.gcs-web.com/node/25841/pdf http://www.freddiemac.com/pmms/

This year the housing market has truly been defined by rising mortgage rates. Taking a look at the Freddie Mac 30-year fixed rate, we can clearly see the jump earlier this year from 3.22% to over 5%. There has been a tremendous amount of volatility in mortgage rates over the past few months. This is because inflation is the enemy of long-term interest rates. The Federal Reserve is making moves to ease inflation, and when that happens mortgage rates respond.

“What are the projections for going forward?” Everyone wants to know: where are mortgage rates headed? Well, if we look at these projections, from Freddie Mac, Fannie Mae, MBA and NAR, these are the latest data we have as of August of this year, and if we average all of their projections together over the next four quarters, what we can see mortgage rates are projected to essentially stabilize over the next year.  https://www.freddiemac.com/research/forecast/20220720-quarterly-forecast-market-slowdown-will-continue-high-rates-and-prices-exacerbate https://www.fanniemae.com/media/44466/displayhttps://www.mba.org/docs/default-source/research-and-forecasts/forecasts/mortgage-finance-forecast-aug-2022.pdf https://cdn.nar.realtor/sites/default/files/documents/forecast-q3-2022-us-economic-outlook-07-27-2022.pdf

The general consensus is that the Federal Reserve is going to get inflation under control. If that’s the case, then mortgage rates will stabilize to about 5.3%, and then dipping below 5% in the third quarter of next year.

After the end-of-summer lull, and as mortgage rates stabilize, we may see a return of buyers and a relatively strong fall housing market.  Lisa Sturtevant, Housing Economist

Home prices are appreciating, but at a slower, more moderate rate than we have seen recently.

I don’t think national housing prices will decline in a meaningful way... but there will be some price declines across the country.  Mark Zandi, Chief Economist, Moody’s Analytics

Nationally, home prices will continue to rise due to buyer demand and low inventory.

On average, nationally, we project that home prices will continue to rise. We’re seeing that in expert projections, but at the same time, we also know that there are some overheated markets throughout the country, especially out on the West Coast where there will likely be price declines, and you’re probably seeing this in some of your markets right now. And so, I want to bring context to this to show how home-price appreciation is still expected going forward based on today’s buyer demand and low inventory, but what does that mean in the grand scheme of things? Depreciation is slowing not depreciating, and that’s where deceleration comes into play. This is percent year-over-year of home price increases for 2022 so far, and this is data from CoreLogic. Latest data was just released, and so, what you can see here is that year-over-year, January, February, and March, home prices were still accelerating at a pretty rapid pace, record-breaking home-price appreciation at the beginning of this year, but what has happened since then? We’ve come off that high of 20 percent year over-year home-price appreciation, and it’s starting to cool. And that’s what you can see in May, June, July. That’s the deceleration in prices. So, what this means is year-over year, July, let’s say July of this year compared to July of last year, home prices were still 15.8 percent higher on the national average compared to last year, but that’s a slower pace than that high of over 20 percent that we saw at the beginning of the year, end of last year. So, the pace of appreciation is slowing. That’s deceleration. It’s not depreciation where we would have negative price growth.  https://www.corelogic.com/intelligence/u-s-home-price-insights-september-2022/

Home prices are slowing – not depreciating, and that’s where deceleration comes into play. We saw record-breaking home-price appreciation at the beginning of this year, and we have recently seen (and will continue to see) a deceleration of home prices. The pace of appreciation is slowing. That’s deceleration. It’s not depreciation – where we would have negative price growth. We will see continued appreciation at a slower pace. This gives buyers a little bit more negotiating power.

Annual home price growth slowed for the third consecutive month in July but remained elevated at 15.8%. As 30-year, fixed-rate mortgages neared 6% this summer, some prospective homebuyers pulled back, helping ease overheated and unsustainable price growth... Looking ahead, CoreLogic expects to see a more balanced housing market, with year-over-year appreciation slowing to 3.8% by July 2023. CoreLogic, Latest Home Price Insights Report

The past two years have been an anomaly. The price growth over the past year was unsustainable.

Looking ahead, CoreLogic expects to see a more balanced housing market with year-over-year appreciation slowing to 3.8 percent by July of 2023. So, by July of next year, CoreLogic is projecting that homes will still be appreciating in value, but at a much slower pace. That’s that deceleration continuing, and this is much more in line with what we’re seeing from the home price expectations survey and what they are saying for continued price growth, higher this year and a little bit more towards a normal range next year and beyond.   https://www.fanniemae.com/research-and-insights/forecast/forecast-monthly-archive  https://www.freddiemac.com/research/forecast?page=0  https://www.nar.realtor/research-and-statistics  https://zelmanandassociates.com (subscription necessary) https://pulsenomics.com/surveys/#home-price-expectations https://www.mba.org/news-and-research/forecasts-and-commentary/mortgage-finance-forecast-archives

Many experts raised their home price forecast this year. Most likely because of the continued low inventory levels and the increasing mortgage rates.

We bring this graph to you often to show you the latest home-price projections for the year, and the average of all seven forecasts that we follow is showing 11.3 percent annual appreciation for 2022. Now, what we have to remember is that the majority of that home-price appreciation happened earlier this year. It happened at the beginning of the year, and we’re seeing that softening, but experts still projecting by the end of the year, 11.3 percent home-price appreciation for 2022. So, why is that? Well, that’s because inventory is still historically low.   https://www.fanniemae.com/media/44461/displayhttps://www.freddiemac.com/research/forecast/20220720-quarterly-forecast-market-slowdown-will-continue-high-rates-and-prices-exacerbate https://cdn.nar.realtor/sites/default/files/documents/forecast-q3-2022-us-economic-outlook-07-27-2022.pdf https://www.corelogic.com/intelligence/find-stories/corelogic-hpi-posted-record-year-over-year-growth-in-2021/ https://pulsenomics.com/surveys/#home-price-expectations https://www.zelmanassociates.com/ (subscription required) https://www.mba.org/docs/default-source/research-and-forecasts/forecasts/mortgage-finance-forecast-aug-2022.pdf

We are looking at 11.3% annual home price appreciation for 2022, keeping in mind a lot of that already happened at the beginning of this year.

This data from Calculated Risk, this helps us compare where we are today versus where we were over the past few years. Inventory is 26.3 percent higher than it was the week ending September 2nd of last year, so year-over-year, comparison for the last week of August and into the first couple days of September, 26.3 percent more inventory. So, that is creating more opportunities for buyers. It has helped with the softening of home prices, for sure, but compared to the same week in 2020, inventory is still down 5.4 percent, and compared to 2019, prior to the pandemic, inventory is still historically low, down 42.2 percent from where we were that same week in 2019. So, that’s what’s continuing to drive upward pressure on home prices. Inventory is still low. We still have buyers in the market. Yes, we’ve seen a softening, a cooling, a slowing. But home prices are projected to continue rising primarily based on this inventory data as well.   https://www.calculatedriskblog.com/2022/09/housing-september-5th-update-inventory.html

Inventory is 26.3% higher than it was last year, which creates more opportunities for buyers. However, compared to the same week in 2020, inventory is down 5.4%, and down 42.2% from the same week in 2019. Historically, inventory is still low, and that’s what’s continuing to drive an upward pressure on home prices.

The housing affordability index released by NAR every month. Housing affordability right now is lower than it’s been going all the way back to the early ‘90s. This is a look at the — going back to 1990 and housing affordability. The high of that market, the housing affordability index read 197. Right now, we’re at 98.5. 100 reading of the housing affordability index is an even reading. That means the average individual, the average household, in this country can afford 100 percent of the average mortgage payment. You make enough money to afford an average home, and that is even affordability, and we’ve gotten a lot of cover from interest rates over the last several years and seen great affordability. And right now, the average household can afford 98.5 percent of the average mortgage payment, so less affordable. You could maybe even say unaffordable. You may see that some places, and that’s where that comes from, but certainly not an apocalyptic scenario by any means in housing affordability. Now, that’s based upon three things. It’s based on the prices of homes. It’s based on interest rates, and it’s based on wages. That’s how they come up with the housing affordability index.  https://www.nar.realtor/blogs/economists-outlook/housing-affordability-conditions-fade-as-mortgage-rates-push-monthly-payments-higher-in-june-2022

Housing affordability is lower than it’s been since the early 1990s. The National Association of Realtors® Housing Affordability Index, is based on 3 things: home prices, interest rates, and wages – where the higher the bar, the more affordable a home. A reading of 100 is an even reading – where the average household can afford 100% of the average mortgage payment. As right now, the average household can afford 98.5% of the average mortgage payment – so, unaffordable.

Compared to one year ago, the monthly mortgage payment rose from $1,265 to $1,944 - an increase of 53.7%. There is no doubt that homes are less affordable right now.    https://www.nar.realtor/blogs/economists-outlook/housing-affordability-conditions-fade-as-mortgage-rates-push-monthly-payments-higher-in-june-2022 https://cdn.nar.realtor/sites/default/files/documents/hai-06-2022-housing-affordability-index-2022-08-11.pdf

Compared to one year ago, the monthly mortgage payment rose from $1,265 to $1,944 – an increase of 53.7%. There is no doubt that homes are less affordable right now.

Another thing that we want to look at when we start to break down affordability and understand that is we want to look at what is the average mortgage payment or income committed to a mortgage payment, and right now, that sits at 25.4 percent. That assumes a 30-year fixed mortgage rate with a 20 percent down payment on a median-priced home with median income. So, go back to the affordability equation. The median income, the median-priced home, somebody is dedicating 25.4 percent of their income to a housing payment. Why is that important? Well, if you look at this, 25 percent is typically what is recommended. We’re slightly above that. Again, I’m going to go back to not an apocalyptic scenario, but above that, and so, if you hear that word “affordability” coming out, you can give context to that and what that means.  Purchased data from NAR https://www.nar.realtor/blogs/economists-outlook/housing-affordability-conditions-fade-as-mortgage-rates-push-monthly-payments-higher-in-june-2022

Another thing that we want to look at when we start to break down affordability is the average mortgage payment, or income committed to a mortgage payment, which sits at 25.4%. This assumes a 30-year fixed mortgage rate with a 20% down payment on a median-priced home with median income. 25.4% of income is dedicated to a housing payment, where 25% is typically what is recommended.

If we further break this down, if you look at median household income versus qualifying income, here’s what becomes very, very clear is this is not the same across the country. If you go look to the West, the qualifying income, what you need to make to buy a home, is in the West, certainly, significantly higher than what the median income is. If you read this, in the West are less affordable. In the South, they’re neck and neck. In the Midwest, median income is higher than the qualifying income.   https://www.nar.realtor/blogs/economists-outlook/housing-affordability-conditions-fade-as-mortgage-rates-push-monthly-payments-higher-in-june-2022

Taking a look at median household income versus qualifying income – what you need to make to buy a home, is pretty even for the South which is following the national trend.

3 things buyers can do today:  Expand search area and criteria  Explore alternative financing options  Look for grants, gift funds, etc. @ downpaymentresource.com

To combat the current housing affordability right now, buyers can expand their search area and criteria – maybe consider looking a little bit further out of their desired area. Or explore alternative financing options with several different lenders. Finally, buyers can look for grants at sources like DownPaymentResource.com.

Housing is traditionally one of the first sectors to slow as the economy shifts but is also one of the first to rebound.  Ali Wolf, Chief Economist, Zonda

As we take a look at the interest rates since January, we can see that is what is really defining the current real estate market right now and the volatility is a result of the moves the Federal Reserve is making to ease inflation – the enemy of long-term interest rates.

this year is really defined by the rising mortgage rates, and what you’re looking at here is the Freddie Mac 30-year fixed rate from January all the way through to the latest data we have today, and what we can see over time is that mortgage rates really ticked up week after week after week. And you know they started to potentially peak right around the mid-June end-of-June time, and now we’re seeing a lot of volatility. So when I say that they’ve peaked, definitely not out of the woods yet, Signs yes, but mortgage rates are showing a lot of volatility right now. Where we are today, a little bit lower than where we were about a month ago, but we’re still watching them.   http://www.freddiemac.com/pmms/ https://freddiemac.gcs-web.com/node/25666/pdf

The National Bureau of Economic Research defines what a recession is and when it is. A recession is a significant decline in economic activity, spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale retail sales. Technically, a recession is 2 consecutive quarters of negative growth.

going all the way back to the 1940s, the late forties, every time we’ve seen two consecutive quarters of negative growth, a recession has been called.   https://twitter.com/charliebilello/status/1552699775618895873

Looking all the way back to the 1940s, every time we’ve seen two consecutive quarters of negative growth, a recession has been called.

The percentage of economists who said yes a year ago was only about 12%, but look at how that has ticked up over time, and in a year’s time, half of economists say that we’re headed for a recession in the next 12 months.   https://www.wsj.com/articles/economic-forecasting-survey-archive-11617814998 (subscription required)

According to a survey from the Wall Street Journal that asked economists if they believe a recession will happen in the next 12 months, we can see more and more of the experts are predicting a recession. A recession is an economic slowdown where, historically, we have seen homes appreciate in value and mortgage rates fall.

In 4 of the last 6 recessions, home prices actually appreciated in value. Now we all remember 2008 when home values lost nearly 20% value, but that’s really a very fundamentally different place than where we are today. The market was drastically different.  https://www.corelogic.com/blog/2019/03/housing-recessions-and-recoveries.aspx https://www.thebalance.com/the-history-of-recessions-in-the-united-states-3306011 https://www.corelogic.com/intelligence/find-stories/corelogic-hpi-posted-record-year-over-year-growth-in-2021/

In 4 of the last 6 recessions, home prices actually appreciated in value, except for 2008, which we have covered in previous monthly market updates was a fundamentally different place than where we are today.

this is a combination of data from Freddie Mac and mortgage specialists, it shows how from the peak of the recession to the trough, each of those yellow boxes that you can see across this graph, how mortgage rates have fallen in recessionary times.   http://www.freddiemac.com/pmms/ https://mtg-specialists.com/2022/05/11/recession-interest-rates-and-real-estate/

In all 6 of the last 6 recessions, interest rates have declined.

Over the past five recessions, mortgage rates have fallen an average of 1.8 percentage points from the peak seen during the recession to the trough. And in many cases, they continued to fall after the fact as it takes some time to turn things around even when the recession is technically over. Fortune

One of the biggest reasons a housing crash is not predicted is inventory. In 2008, we had an oversupply of homes on the market – which causes home prices to fall. Today, we have an under supply – which causes home prices to rise.

This is a look at existing inventory and today the total housing inventory registered at the end of June, the latest data that we have, was 1.26 million units. Now if we look at that from a month’s supply, that’s what you’re seeing right here, unsold inventory today is at a three month supply. That’s that little green bar that you can see over on the right. Now compare that to the red bars, that’s the oversupply that we had during the housing bubble when the market crashed. That’s because we had more homes on the market than we had buyers to buy them. We have the exact opposite today, and if you look at this comparatively, where we are today is nowhere near the oversupply we had last time. Now you would have to build a case that a flood of homeowners are getting ready to sell their houses. They’re going to jump into the market, they’re going to make a move and all of this inventory is coming to the market that would actually tip the scales into that oversupply zone. We’re just not even close to being there. The typical neutral market is six to seven months of supply of inventory. We don’t even have half that at this point. So although we know this number is growing and we are keeping an eye on that because more inventory is coming to the market. That’s the tick up we’re seeing this year. We certainly aren’t anywhere near where we could potentially see the market crash, because of so many homes coming onto the market.   https://www.nar.realtor/research-and-statistics/housing-statistics/existing-home-sales

We are seeing about a 3-month supply of homes (inventory).  We are far, far away from the 10-month supply of homes we saw leading up to and in 2008. The typical neutral market is 6 to 7 months of supply of inventory.

Now the other place where inventory comes from is new construction. This is a look at monthly new residential construction, and we’ve broken it down into the four stages of construction. Building permits and housing starts, those are our leading indicators that tell us where the market is headed. And then on the bottom under construction and housing units completed, those are the lagging indicators, what’s happened so far. And what we can see in terms of the leading indicators, the two at the top, permits and starts, those are slowing down from May to June. You can see that happening and that’s because builders are saying, hold on, we’re seeing mortgage rates rise. We’re seeing that softening buyer demand. We’re not going to overbuild. We’re not going to get started on more homes than we know we can complete. They’re really being cautious right now, and so while we’ve had 14 years of under supply of newly constructed homes built in this country, they’re not going to overbuild at that time. That’s the little tick down that you can see, so slowing there. And if you look at the bottom, especially down at housing units completed, you can see that we’re headed to build a seasonally adjusted annual rate of about 1.3 million homes this year. Now that’s wonderful. That will add more inventory to the market. It will help really create some options for home majun buyers. But we’re not on pace to have an oversupply. You can see that May to June ticked down on units completed. So we are definitely seeing more new construction. We are on pace to build 1.3 million homes in this country. We haven’t seen that in over 14 years. That’s huge. That’s a wonderful addition to the inventory, but not anything that would take us to an oversupply like we had when the housing market crashed.   https://www.census.gov/construction/nrc/pdf/newresconst.pdf

Inventory can also come from new construction. Building permits and housing starts are the leading indicators (what is to come), while under construction and housing units completed are the lagging indicators (what has happened). The leading indicators are slowing down from May to June as builders are seeing mortgage rates rise. This shows further confirmation that we’re not on pace to have an oversupply.

Now the third place where inventory comes from, we’ve talked about this quite a bit over the past couple of years, is foreclosures or short sales or distressed properties. The reason we’re not going to be seeing a flood of foreclosures, a big part of that is because lending standards are under control. Now back when the housing bubble burst, we had much looser lending standards. They’ve tightened up significantly and that’s what this graph shows. This is the mortgage credit availability index, and it shows the higher that green line is, the easier it was to get a loan. what you can see in 2006, 2007, it really peaked where we used to joke that it was harder to not get a loan than to get a loan. It was much easier for someone to secure a home loan and that created inflated demand and many millions of people were foreclosed on their homes because they weren’t coming to the table as a qualified buyer and they weren’t able to repay their loan over time. Now you can see that that green line really drops off 2008, 2009. That’s when lending standards really tightened, that’s when we were required to have a more qualified buyer. So those who are securing home loans today, you can see that green line really hovering along at the bottom, are much more qualified buyers, more likely to repay their loans and not go into foreclosure. So that’s a huge difference that we have today  https://www.mba.org/news-research-and-resources/newsroom https://www.mba.org/news-and-research/newsroom/news/2022/07/12/mortgage-credit-availability-decreased-in-june

Finally, inventory could come from distressed properties like foreclosures and short sales. The mortgage credit availability index shows how much harder it has become for someone to secure a home loan as lending standards have tightened.  More qualified buyers means less distressed properties.

this is US properties with foreclosure filings. and it shows foreclosure activity by year. You can see those red bars are when we had over a million foreclosures per year, a million foreclosure filings per year in the housing market, and the lending standard tightening that I showed you, did this, made it drop right down consistently, starting especially in about 2011, fewer and fewer foreclosures every year in this country. Now you can take 2020 and 2021 out for a second, because we know we had a moratorium on foreclosures in that time period, but overall tightening lending standards really changed the game with a more qualified buyer.  https://www.attomdata.com/news/market-trends/foreclosures/attom-year-end-2021-u-s-foreclosure-market-report/

There are fewer and fewer foreclosures every year in this country, and especially in the past year or two due to the moratorium on foreclosures.

 foreclosure activity by year. Now this is for January through June of every year going back to 2008, so the first half of the year. That’s the latest data we have right now, so it’s the best comparison for you to see where are we today in 2022, knowing that there are more foreclosures coming back to the market. Now it’s not a flood of foreclosures because what you can see is 2022 over on the right has just under 165,000 foreclosure filings this year so far. We can compare that back to 2020, pretty much on par with 2020, not even as much as we had in 2018 or 2019. So moving back in the direction of a pre pandemic year, but not a flood like we had in those red bars where millions of homes were coming to the market as foreclosures. I think we could really look at this and say lending standards have changed the game. We know that there are more foreclosures coming to the market this year, but it’s nowhere near anything that could cause the market to crash with a wave of foreclosures. So our hearts go out to anyone who’s in this situation. We never want to see anyone go through this process, but we’re certainly not looking at a crisis or a crash that would cause prices to decline significantly because of inventory coming from distressed properties.   https://www.attomdata.com/news/market-trends/foreclosures/attom-midyear-2022-u-s-foreclosure-market-report/

Looking at foreclosure activity by year, going back to 2008, we are seeing about half of the foreclosures compared to pre-pandemic numbers and less than 10% of post-2008 numbers. Lending standards have changed the game.

This is now a monthly report and it’s the loans upon exiting the forbearance program. So this is current as of the very end of June, and what it shows is that 36% of mortgages coming out of forbearance were actually paid off, brought current, all set, people staying in their homes, no issues whatsoever, just walking away from forbearance, staying in their homes. That’s huge, but what’s even more important is if you look at this blue section, 45% were workouts or repayment plans. So people who were able to do modifications, loan deferrals, they went back to their banks and they changed their situation, and that’s huge. This is the opportunity that homeowners didn’t have in 2008, that they have today, is to work out a plan so they don’t have to lose their homes. Banks were up and down that they didn’t want that to happen ever again and the forbearance program changed the game. So what this really shows is if you put the green and the blue together, that four out of every five homeowners coming out of forbearance are just fine. They’re staying in their homes. They’ve worked out of plan. They’ve paid off their loans. Now there is that orange section of those who are still in trouble, 17% have no loss mitigation plan coming out of forbearance, and so that’s created some concerns, but truly, those homeowners with today’s growing equity and appreciating home values, have enough equity to be able to sell their homes, make a move and avoid the foreclosure process. So people today have different options that they didn’t have before and that is huge. That is changing the landscape and one of the biggest reasons why we won’t see a wave of foreclosures coming to the market. Right now we only have about 400,000 homes that are actually in forbearance, and of course we don’t want any of those to go to foreclosure, but even if they did, even if all of those homes or even if those homeowners all sold those homes, we have such an under supply of homes on the market today that they’d be scooped up instantly, and it wouldn’t cause a crash for the market.   https://www.mba.org/news-and-research/newsroom/news/2022/07/18/share-of-mortgage-loans-in-forbearance-decreases-to-081-in-june

36% of mortgages coming out of forbearance were paid off. 45% worked out repayment plans (modifications, loan deferrals, etc) – an opportunity that homeowners didn’t have in 2008. The forbearance program changed the game. 4 out of 5 homeowners are coming out of forbearance. However, 17% have no loss mitigation plan, but mostly have enough equity to be able to sell their homes and avoid the foreclosure process. Today, there are different options, and why we won’t see a wave of foreclosures coming to the market. If all 400,000 homes in forbearance came to market, it would still be under supplied.

Foreclosure activity... continued its slow, steady climb back to pre-pandemic levels in the first half of 2022... While overall foreclosure activity is still running significantly below historic averages, the dramatic increase in foreclosure starts suggests that we may be back to normal levels by sometime in early 2023. Rick Sharga, Executive VP of Market Intelligence, ATTOM

The increased amount of foreclosures this year could be due to the lack of foreclosures the past two years.

So I think if look at this perspective, the three places where inventory comes from today, if you look at months inventory of homes for sale, even if we have homes coming from all three of those places, we’re still in a seller’s market. That’s that green line down on the bottom. You can see where it says today right in the center, that inventory line is rising. It is climbing and that is great news for the housing market, but nowhere near those 2008 to 2010 regions, where we truly had an oversupply of homes on the market that caused the housing market to crash. So as we think about that, three places where inventory comes from, existing homes, new homes and distressed properties, nothing that would cause the market to crash  nar.realtor https://www.nar.realtor/topics/existing-home-sales

Today, we are in a seller’s market, but what does the rest of the year hold?

This chart is a look at mortgage rate projections that were just released in July from Freddie Mac, Fannie Mae, MBA, and NAR. Now, if we look at these across the board, we can average them all out over each quarter, and that right column shows the average of all four. So what is it telling us? It’s really saying that mortgage rates are projected to kind of hang in this steady space right about where we are right now. So mortgage rates being a little more stabilized next year. So that’s great news for buyers who you know might have been priced out of the market or you know have pressed pause on their plans because mortgage rates have been rising so rapidly.   https://www.freddiemac.com/research/forecast/20220720-quarterly-forecast-market-slowdown-will-continue-high-rates-and-prices-exacerbate https://www.fanniemae.com/media/44131/display https://www.mba.org/docs/default-source/research-and-forecasts/forecasts/mortgage-finance-forecast-july-2022.pdf https://cdn.nar.realtor/sites/default/files/documents/forecast-q2-2022-us-economic-outlook-04-27-2022.pdf

Freddie Mac, Fannie Mae, the Mortgage Bankers Association, and the National Association of Realtors® are predicting mortgage rates to waiver around the current rate with a more stabilized rate next year.

There could be “a potential silver lining” for the market, he added, as stabilizing mortgage rates and rising inventory “may bring some buyers back to the market during the second half of the year.”  CNBC, Quoting Joel Kan, Economist, MBA
surveyed almost 400 agents and asked what’s the biggest question that your clients are asking you right now – it’s about a crash and it’s about pricing. They want to know where are prices headed? Well, if you look at what the experts are saying, this is the home price forecast for 2022. We follow seven key industry leaders on home pricing. These get updated, some monthly, some quarterly, and if you look at them and average them all together, the average of all seven is showing 10.3% home price appreciation through the end of this year. So as we look at this year, we are certainly seeing a slowing, a decelerating price appreciation. Last year we saw an average of 15% according to CoreLogic, homes appreciated by 15%. We’re not necessarily looking at that much appreciation, but nationwide in most markets, experts are saying an average of 10.3% appreciation going forward.   https://www.fanniemae.com/media/44131/display https://www.freddiemac.com/research/forecast/20220720-quarterly-forecast-market-slowdown-will-continue-high-rates-and-prices-exacerbate https://cdn.nar.realtor/sites/default/files/documents/forecast-q3-2022-us-economic-outlook-07-27-2022.pdf https://www.corelogic.com/intelligence/find-stories/corelogic-hpi-posted-record-year-over-year-growth-in-2021/ https://pulsenomics.com/surveys/#home-price-expectations https://www.zelmanassociates.com/ (subscription required) https://www.mba.org/docs/default-source/research-and-forecasts/forecasts/mortgage-finance-forecast-july-2022.pdf

Looking at what the 7 key industry leaders are saying about home pricing, we are seeing about 10.3% home price appreciation through the end of this year. A more moderate growth than the 15% we saw last year, but still extremely healthy appreciation in most markets.

I don’t think national housing prices will decline in a meaningful way, . . . but there will be some price declines across the country.  Mark Zandi, Chief Economist, Moody’s Analytics
There is also a decrease in home sales due to the softening of buyer demand in light of the rising mortgage rates. The National Association of Realtors® is saying that, at the current pace of sale today, we are projected to sell 5.1 million homes in this country this year.    Now look at that compared to 2020 and 2021, it’s a drop off, right? Those were exceptional years. They were out of the ordinary. Existing home sales through the roof due to all of the record low mortgage rates, the changing needs of the pandemic, all the things. And what this probably feels like right now is this analogy you’ve heard us use so many times, last year you were driving down the road at 80 miles an hour, you were cruising and you came around a corner and you saw the flashing lights and you slammed on your brakes and suddenly you’re going 60, 65, and it feels like you’re crawling. That may be what you’re feeling right now when it comes to home sales, however, you’re still going the speed limit, because if you look at the green bar compared to the pre pandemic years, 2018, 2019, much more in line with pre pandemic years, and let’s not forget, those were great years in real estate. So home sales softening a bit, but still projected to sell 5.1 million homes in this country.   https://www.nar.realtor/research-and-statistics/housing-statistics/existing-home-sales https://cdn.nar.realtor/sites/default/files/documents/ehs-05-2022-overview-2022-06-21.pdf

There is also a decrease in home sales due to the softening of buyer demand in light of the rising mortgage rates. The National Association of Realtors® is saying that, at the current pace of sale today, we are projected to sell 5.1 million homes in this country this year. Of course, that is a decrease considering the sales the past 2 years, which were extraordinary years in the real estate market. The 5.1 million projection puts us back in line with the pre-pandemic years of 2017-2019.

And if we look at that from a total home sales forecast, this is from Freddie, Fannie, and MBA, we can see that those blue bars were what the experts forecast in January, that was before mortgage rates took their climb, and the re-forecast in the green bars is the latest from July of 2022. So latest data we have right now, a little bit of a softening in total home sales. We sold about 7 million homes last year. We’re looking more like anywhere between 5.8, 6.4 million homes for this year at the current pace. Now again, still very strong years in real estate, and what I want you to think about too is that this is pretty typical for the experts to re-forecast coming in high at the beginning of the year, we see how the year has kind of shaken out and they re-forecast. 2020 was a great example, forecaster down and then we exceeded expectations and sold a record number of homes that year. So the re-forecasting is very typical in the industry. So mortgage rates projected to hold fairly steady. Home sales softening just a little bit and prices projected to continue rising at a little bit more of a moderate rate in most markets.   https://www.freddiemac.com/research/forecast?page=0 https://www.fanniemae.com/research-and-insights/forecast/forecast-monthly-archive https://www.mba.org/news-and-research/forecasts-and-commentary/mortgage-finance-forecast-archives

In lieu of the rising mortgage rates, Freddie Mac, Fannie Mae, and the Mortgage Bankers Association re-forecasted their home sales predictions for 2022 from 7 million to 6 million. Still a very strong number, which should hold steady as the interest rates begin to balance out.

three reasons to buy a home today. If you think about the forecast where home prices are, buying before prices rise higher, mortgage rates holding kind of steady. Inventory is starting to tick up and come back to the market. There are three things that are happening right now that are creating a great scenario. April the average home sold had 5.5 offers. If you look over on the left, it ticked down to 4.2 in May, 3.4 in June. That is a trend that we are seeing going forward. Fewer homes selling above asking price, you can see that percentage has ticked down from 61% to 51%, but don’t get me wrong, still a very competitive market if 51% or half of homes are selling over asking, this is definitely still a competitive market, but a better time for buyers to jump in if they’re ready to find a home and supply of homes for sale is growing. You can see that inventory, that month’s supply ticking up as the pace of home sales and more homes came back to the market. So certainly not easy to find a home, but right now there’s no doubt it’s still very competitive, but definitely not as impossible as it may have felt for those who probably stepped out of the process last year or the beginning of this year.   https://cdn.nar.realtor/sites/default/files/documents/2022-05-realtors-confidence-index-06-21-2022.pdf https://cdn.nar.realtor/sites/default/files/documents/2022-06-realtors-confidence-index-report-07-20-2022.pdf https://www.nar.realtor/topics/existing-home-sales https://www.nar.realtor/newsroom/existing-home-sales-slid-5-4-in-June https://www.globenewswire.com/news-release/2022/05/19/2447085/0/en/Existing-Home-Sales-Retract-2-4-in-April.html

Today there are fewer multiple offer scenarios, fewer homes selling above asking price, and the supply of homes for sale is growing – all providing a great scenario for buyers right now. We have dropped from 5.5 offers on a home in April to 3.4 in June. We’ve gone from 61% of homes selling above asking price to 51% – still competitive, but decreasing. Finally, inventory has creeped from 2.2 months supply on hand to 3.0. All three trends that should continue moving forward.

Let’s begin this month with the topic of economic slowdown. According to The Wall Street Journal, recession fear surged among CEOs. Three-quarters of global CEOs say that we are in a recession or will be in the next 12 to 18 months. A recession is typically two consecutive quarters of negative GDP. We saw negative GDP in the first quarter of this year, and forecasts coming out of the Atlanta Fed predict an extremely low negative GDP in the second quarter.

Throughout history, during a recessionary period, interest rates go up at the beginning of the recession. But in order to come out of a recession, interest rates are lowered to stimulate the economy moving forward. Historically, we have seen a repeated uptick in interest rates followed by lowered interest rates.  Mortgage Specialist
Let’s look at prior recessionary periods, going all the way back to the early seventies. And this outlines in blue there, the graph mark, there the 30-year fixed interest rate. And then the boxes there that are highlighted in yellow are recessionary periods. This is what typically interest rates have looked like in a recessionary period. I’m going to give you another look at it here in just a minute, but I think it starts to bring this perspective and certainly here on the other end, the rise in interest rates that we’ve seen more recently here in the first six months of this year. But if we break this down and sort of convert it to a table versus this visual chart, so I’m going to use the visual chart, but then I want to break it down by this table right here and say, okay, in each recession that we’ve had in this country going back to the early 80s, what has happened to the mortgage interest rate? And so this gives you that from when it actually happened, how long it happened, and what was the starting interest rate and what did it fall to. And there’s one thing that every one of these recessions has in common and it’s that in each instance, mortgage rates fell.   http://www.freddiemac.com/pmms/ https://mtg-specialists.com/2022/05/11/recession-interest-rates-and-real-estate/

Looking at the mortgage rates in prior recessionary periods going all the way back to the early seventies, we can see that in every recession mortgage rates fell.

Over the past five recession, mortgage rates have fallen an average of 1.8 percentage points from the peak seen during the recession to the trough. And in many cases they continue to fall after the fact, as it takes some time to turn things around, even when the recession is technically over.   https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States https://mtg-specialists.com/2022/05/11/recession-interest-rates-and-real-estate/

Over the past five recessions, mortgage rates have fallen an average of 1.8 percentage points from the peak to the trough. Right now, the Fed is raising the funds rate to tame inflation, and in order to do that they have to slow down the economy. You may have heard of the Fed trying to engineer a “soft landing” in which growth is positive and moderate. If a soft landing is not engineered, then you end in recession – a likely outcome at this point.

 that recession doesn’t equal a housing crisis. And this is the survey that goes back to the early eighties and says what happened to housing prices? We just looked at interest rates. What happened to housing prices? Four out of the six times we were in a recession, homes appreciated. Two times they fell. Once, marginally in the early nineties and the other time was in 2008. The thing I would say here is ever since 2008, the word recession has taken on a new meaning for people and for very good reason. There are a lot of people that were hurt, a lot of people who were impacted, a lot of people who saw family members that were hurt. During the 2008 recession our business was at the epicenter and any of us that were in the business certainly remember that and certainly remember the times that we went through during that.  https://www.corelogic.com/blog/2019/03/housing-recessions-and-recoveries.aspx https://www.thebalance.com/the-history-of-recessions-in-the-united-states-3306011 https://www.corelogic.com/intelligence/find-stories/corelogic-hpi-posted-record-year-over-year-growth-in-2021/

Here is where it is important to remember that a recession does not equal a housing crisis. Four out of the last six times we were in a recession, homes appreciated in value. The two times they fell – marginally (1.9%) in the early nineties and in 2008 (an outlier due to lax lending standards).

There has been a pickup in the inventory that we've seen recently, but it's not from a big increase in new listings... but rather a slowdown in the pace of sales. And remember that months’ supply measures the inventory of sale relative to the pace of sales. Same inventory, fewer sales, means more months’ supply.  Mark Fleming, Chief Economist, First American

Delving into an update on housing inventory, we are seeing the average number of offers received on a home for sale decline. We saw 5.5 offers in April, which decreased to 5, and then 4.2 in June. The rising mortgage rate environment is starting to soften demand. But, keep in mind, at an average of 4.2 offers on homes for sale, we are still well above the pre-pandemic norm, suggesting the market is still very competitive.

Over asking price offers are also declining, from 61% of offers over the asking price last month to now 55%. Not a huge decline, but certainly a softening or a moderation. All of this leading to a slower pace of sales and rising inventory levels – same inventory with fewer sales means more month supply.

So we know that the month supply of inventory of homes is increasing. It was record low in January of this year at 1.6 months and we’ve ticked up the latest data showing us 2.6 months of inventory. Now, that’s not a huge increase, but it certainly means more options for buyers when there’s more inventory on the market. Now remember, a balanced market, however, is six months of inventory and we haven’t seen that since 2012. So we’re nowhere out of the woods on where we need to be with inventory to meet that balance market but we’re certainly moving in the right direction.   https://www.nar.realtor/topics/existing-home-sales https://www.nar.realtor/newsroom/existing-home-sales-fell-3-4-in-may-median-sales-price-surpasses-400000-for-the-first-time

The months supply of inventory was at a record low in January at 1.6 months, and the latest data is showing us at 2.6 months of inventory, so there are more options for buyers. Remember that a balanced market is six months of inventory – a number we haven’t seen since 2012.

new monthly listing counts are increasing. That’s what you can see here from Realtor.com. So more new inventory, more new listings coming to the market this year, and they’re ticking up at a faster pace. So April to May, that’s increasing at a faster pace than we did last year at that time. So that’s huge. That means that there are more new listings coming to the market for buyers and there are more options available. But what’s happening at the same time, and this is what you heard in that quote from Mark Fleming, is that the pace of sales is slowing.  https://www.realtor.com/research/data/

New monthly listing counts are also increasing. More new listings are coming to market than last year and they are increasing at a faster pace.

So this is the existing home sales, seasonally adjusted annual rate from NAR. we are projected to end the year at 5.4 million home sales by the end of 2022 if we continue at the pace we’re selling homes today. Now, we know that that pace has softened because of rising rates, economic pressures, inflationary pressures, all the things that are impacting the housing market right now. So the pace of sales is slowing. And when you compare that to last year and the year before, we have to remember that it’s slower than then because those are absolutely incredible years. They were an anomaly in the housing market. But where we are today in that green bar is returning more towards the direction of those pre-pandemic years, the 2018, 2019, and we have to remember that those were great years in real estate. So when we think about this contextually, yes, the pace of sales is slowing, but we’re slowing back to the pre-pandemic years, which were fantastic years for the housing market.   https://www.nar.realtor/research-and-statistics/housing-statistics/existing-home-sales https://www.nar.realtor/newsroom/existing-home-sales-retract-2-4-in-april

We are projected to end the year at 5.4 million home sales by the end of 2022 if we continue at the pace we’re selling homes today, but we know that the pace of sales in slowing due to rising rates, economic pressures, and inflationary pressures. Definitely slower than the past two years, which were incredible years for real estate and an anomaly in the housing market. So we see the return to those pre-pandemic years, which were great years in real estate.

Home sales have essentially returned to the levels seen in 2019 – prior to the pandemic – after two years of gangbuster performance.  Lawrence Yun, Chief Economist, NAR
Active inventory continued to grow, rising 21% above one year ago... In other words, we’re starting to add more options, but the market needs even more before home shoppers have a selection that’s roughly equivalent to the pre-pandemic housing market. Danielle Hale, Chief Economist, Realtor.com

We still have far more buyers than we have sellers, which is continuing to put upward pressure on prices.

And what it shows us is that at the beginning of the year, realtor.com projected that we would have a 0.3% increase in inventory, so very small. They have re-forecasted for the rest of the year a 15% increase in inventory. A lot of that largely has to do with the softening or the slowing in the pace of sales and that uptick in new listings. So more inventory coming to the market. They’re seeing more in the projections. That’s going to create options for buyers.  https://news.move.com/2022-06-13-Realtor-com-R-2022-Forecast-Update-Real-Estate-Gets-a-Refresh-from-the-Frenzy

realtor.com’s originally projection for this year was a 0.3% increase in inventory. They have re-forecasted for the rest of the year a 15% increase in inventory – an increase likely representative of the slowing in the pace of sales and an uptick in new listings. Typically, a one month increase in supply translates to a 3% decline in annualized house price growth – something we are already seeing. Keep in mind that prices are still projected to increase, just at a more moderate rate. Decelerating home prices do not mean depreciating home prices. A decelerating environment means there’s appreciation, just at a more moderate rate – single digit growth as opposed to the double digit growth we have recently seen.

The average of those forecasters 8.5%. Now, I think of this as an important point that we need to focus in on. Forecasters are calling for appreciation, but we have to really understand why they’re calling for appreciation. But when you look across from Fannie, Freddie, CoreLogic, all of these forecasters, the average of 8.5% appreciation, not what we saw last year, tremendous appreciation, we said, gosh, this feels too hot, and coming in this year with something a little bit more normal. Now, these forecasts started the year at about 5% and they’ve ratcheted up. They’ve kind of settled in here right about 8%. If you remember on the monthly market, we’ve called for between 8 and 10% appreciation. But you’re seeing that moderation through rising interest rates. Price will always be determined by supply and demand.  https://www.fanniemae.com/media/43571/display https://www.freddiemac.com/research/forecast/20220418-quarterly-forecast-purchase-market-will-remain-solid-even-mortgage-rates-rise https://www.corelogic.com/intelligence/find-stories/corelogic-hpi-posted-record-year-over-year-growth-in-2021/ https://pulsenomics.com/surveys/#home-price-expectations https://cdn.nar.realtor/sites/default/files/documents/forecast-q2-2022-us-economic-outlook-04-27-2022.pdf https://www.zelmanassociates.com/ (with subscription) https://www.mba.org/docs/default-source/research-and-forecasts/forecasts/mortgage-finance-forecast-june-2022.pdf?sfvrsn=e3eb1d80_1

The average of the home price forecaster is 8.5% for 2022. Price will always be determined by supply and demand, so we will want to look at Home Price Expectation Survey.

This is 100 economists, housing market experts, those that are in the know with housing across this country. But they survey every quarter and they say, what do you see for appreciation this year and the four years ahead that make kind of a five-year window. And you can see it right here, from the Home Price Expectations Survey, 9.3% appreciation, sort of in line with what we saw in the other forecasters, 8.5%, 9.3%, that 8-9% range and then 4, 3, 4%, as you see in the years going forward. So my message right now, based on what experts are saying is you’re likely to see a good appreciation in housing this year. The average going back 3.8% in residential homes across this country and appreciation and in ‘23, ‘24, ‘25, looking at more normal appreciation.   https://pulsenomics.com/surveys/#home-price-expectations

The Home Price Expectation Survey is comprised of 100 economists and housing market experts across the country. The survey occurs each quarter and forecasts appreciation for the current year and the four years ahead – to make a five-year window. Again, we see that 8-9% range and then about 4% going forward.

The root issue of what drives house prices almost always is supply and demand...  now interest rates affect that. When interest rates go up, guess what, fewer buyers. The demand goes down thus prices are going to soften or not be as cray-cray as they have been. And that’s what we’re seeing right now.  David Ramsey, Personal Finance Personality

With prices being determined by supply and demand, let’s take a look at supply first.

single family housing units completed, going all the way back to the seventies. Everything in the blue there, every year the number of single family housing units brought to market is pre-2008, everything before the housing crisis. In the bar there, the average annual units completed reference the 50-year average in the number of homes brought to market. \So for the last 14 years, we have been below the 50 year average in the number of builds brought to market.  www.census.gov/construction/nrc/xls/co_cust.xls

For the last 14 years, we have been below the 50 year average in the number of builds brought to market. Builders were affected greatly in 2008, and maybe may moved on to other vocations, but it looks like we will surpass the 50 year average soon.

the millennial generation, largest generation behind the baby boomers, just a little bit behind in sheer size of the generation. But they’re moving through the peak home buying years. According to NAR, in their recent Home Buyer survey, 81% of first time home buyers fall in this category, in this age range; 43% of all buyers fit in this category. So tremendous, tremendous demand, tremendous, tremendous volume coming from those that want to buy, driven by the millennial generation.   https://data.census.gov/cedsci/table?q=United%20States&t=Populations%20and%20People&g=0100000US&tid=ACSST5Y2020.S0101 https://www.nar.realtor/newsroom/nar-report-shows-share-of-millennial-home-buyers-continues-to-rise

The demand side is driven by millennials that are moving through the market. The millennial generation is the largest generation behind the baby boomers, and they’re moving through their peak home buying years. According to the National Association of Realtors® (NAR) Home Buyer survey, 81% of first-time home buyers fall in this category, and 43% in this age range.

Bottom Line

Experts don’t believe the market is in a bubble or a crash is in the cards like during the Great Recession.

It’s true that record levels of home price appreciation have spurred significant equity gains for homeowners over the past few years. As Diana Olick, Real Estate Correspondent at CNBC, says:

“The stunning jump in home values over the course of the Covid-19 pandemic has given U.S. homeowners record amounts of housing wealth.”

That’s great for your home’s value over the last couple of years, but what if you’ve lived in your home for longer than that? You may be wondering how much equity you truly have.

The National Association of Realtors (NAR) has done a study to calculate the typical equity gains over longer spans of time. The data they compiled could be enough to motivate you to move. Just remember, to find out how much equity you have in your specific home, you’ll want to get a professional equity assessment from a trusted real estate advisor.

How Your Equity Grows

Let’s start by establishing how you build equity in your home. While price appreciation is clearly a factor that can help boost your equity, you also build equity over time as you pay down your home loan. NAR explains:

Home equity gains are built up through price appreciation and by paying off the mortgage through principal payments.

Average Equity Growth over Time

The study from NAR breaks down the typical equity gain over time (see graph below). It calculates the equity a homeowner potentially gained if they purchased the median-priced home 5, 10, or 30 years ago and still own it today.

How Your Equity Can Grow over Time | MyKCM

These six-figure numbers are impressive and certainly enough to help you fuel a move into your next home, but they’re not a promised amount. Remember, your own equity gain will be different. It depends on how long you’ve been in the house, your home’s condition, any upgrades you’ve made, your area, and much more.

If you want to find out how much equity you have, partner with a trusted real estate professional for an equity assessment on your home. They can provide an expert opinion on what your house is worth today and how the equity you’ve gained over time can help you when you purchase your next home. It may be some (if not all) of what you need for your next down payment.

Bottom Line

If you’re thinking about selling your house and making a move, home equity can be a real game-changer, especially if you’ve been in your current home for a while. If you’re ready to find out how much equity you have, visit HomeSweetHomeBot.com.

In this first week of June, we have seen asking prices take a slight downturn as sellers become more cautious when determining their asking price. Nationally, the median asking price for homes new to the market dropped 1.5%, according to Redfin. This comes after a 4-week period in which asking prices were at an all time high in the U.S.

“Data on home-tours, offers and mortgage purchase applications suggest that homebuyers have noticed the shift in power and are no longer leaving the market in droves… Buyers coming back will provide support to the housing market, but between now and the end of year I think the power will continue to shift towards buyers, resulting in mild price declines from month to month.”

Daryl Fairweather, Redfin Chief Economist

According to Showingtime, June showings were down 3% since the beginning of 2022 – perhaps due to the recent mortgage rate and home price increases. During the same period last year only 1 in 30 sellers had to lower their asking price, and today we are seeing homes with price reductions more than double with a longer time spent on market.

If you own a home, your net worth likely just got a big boost thanks to rising home equity. Equity is the current value of your home minus what you owe on the loan. And today, based on recent home price appreciation, you’re building that equity far faster than you may expect – here’s how it works.

Because there’s an ongoing imbalance between the number of homes available for sale and the number of buyers looking to make a purchase, home prices are on the rise. That means your home is worth more in today’s market because it’s in high demand. As Patrick Dodd, President and CEO of CoreLogicexplains:

“Price growth is the key ingredient for the creation of home equity wealth. . . . This has led to the largest one-year gain in average home equity wealth for owners. . . .”

Basically, because your home value has likely climbed so much, your equity has increased too. According to the latest Homeowner Equity Insights from CoreLogicthe average homeowner’s equity has grown by $64,000 over the last 12 months.

While that’s the nationwide number, if you want to know what’s happening in your area, look at the map below. It breaks down the average year-over-year equity growth for each state using the data from CoreLogic.

The Average Homeowner Gained $64K in Equity over the Past Year | MyKCM

The Opportunity Your Rising Home Equity Provides

In addition to building your overall net worth, equity can also help you achieve other goals like buying your next home. When you sell your current house, the equity you built up comes back to you in the sale. In a market where homeowners are gaining so much equity, it may be just what you need to cover a large portion – if not all – of the down payment on your next home.

So, if you’ve been holding off on selling or you’re worried about being priced out of your next home because of today’s ongoing home price appreciation, rest assured your equity can help fuel your move.

Bottom Line

If you’re planning to make a move, the equity you’ve gained can make a big impact. To find out just how much equity you have in your current home and how you can use it to fuel your next purchase, visit HomeSweetHomeBot.com to get a no-obligation, professional equity assessment report on your house.

We’re about halfway through the year, and starting to see a little bit of a shift in the market. As of late, the market has been defined by rising mortgage rates.

when rates rise they take the elevator when rates fall they take the stairs

To break down what is happening with mortgage rates, we look to the weekly monitor from Freddie Mac where the average 30 year fixed is over 5%.

Mortgage rates continued to inch downward this week but are still significantly higher than last year, affecting affordability and purchase demand. Heading into the summer, the potential homebuyer pool has shrunk, supply is on the rise and the housing market is normalizing.  Sam Khater, Chief Economist, Freddie Mac

There’s a lot of economic uncertainty – inflation, instability in the world, what the Fed is doing – which is causing mortgage rate volatility.

let’s look at the rate environment, going all the way back to the beginning of the year. This is this - going back to December 30th in 2021. We wrapped up the year with 3.1 percent in the average 30 year fixed. And we’ve sort of seen this quick and dramatic rise in interest rates over the first several months where we started to clearly plateau sometime around the third week in April. In the last several weeks since then, we’ve kind of moved horizontally versus up. That’s a good thing. We don’t want to see mortgage rates going higher as it eats into affordability, eats into the purchasing power that consumers have when they come to buy a home. But, we can clearly see this plateauing trend.   https://freddiemac.gcs-web.com/node/25371/pdf  http://www.freddiemac.com/pmms/

Looking at the rate environment this year, where we wrapped up 2021 with 3.1% on the average 30-year fixed, we have seen a quick and dramatic rise in interest rates over the first several months with a plateau around the third week of April.

Average 30 year fixed, 5.09 percent, higher than where we’ve been for the last decade, but below where we’ve been in previous decades before this, going all the way back to the seventies. And I think this is important because sometimes in our business we may say, “Hey, well, the interest rate is five percent right now. But, be thankful because back in the seventies, it used to be 1000 percent. And you should like what you have.” Well, we need to acknowledge, there are a lot of people that have gotten into the business, have just become homeowners, that this interest rate environment is higher than they’ve ever seen before. We need to listen to that. We need to understand that, but also to bring them perspective. Certainly five percent on a 30 year fixed, for anybody that’s been around in this business for some time, is still a very, very good rate. It’s all about perspective. But, certainly seeing the shock of that in the first few months of this year, first half of this year, like I said before, first half of this year, will be defined, in the real estate business, by rising interest rates.   http://www.freddiemac.com/pmms/pmms_archives.html https://freddiemac.gcs-web.com/node/25371/pdf

However, let’s bring some perspective to this. The average 30-year fixed is higher than where we’ve been for the last decade, but below where we’ve been in previous decades – going all the way back to the seventies. Certainly, 5% is still a very, very good rate when we consider the historical rates over the past several decades. 

the 30 year fixed mortgage has followed the 10-Year Treasury. So, the expert response to that is, “I’m following the 10-Year Treasury, and I’m watching that.” And what have we seen this year? We’ve seen the 10-Year Treasury rise. And I’ll show you this. This looks at the 10-Year Treasury yield as compared to the 30 year fixed mortgage, and we’ve seen the 10-Year Treasury yield rise since January and starting to flatten out like we see in interest rates. But, we’re going to continue to watch that for you because, if you go back in time - let me go back to this slide - the average spread has been 1.7. So, think about that. Think about where the 10-Year Treasury is at 1.7 to it, and that’s a 30 year fixed.   https://www.freddiemac.com/pmms/pmms_archives https://www.macrotrends.net/2016/10-year-treasury-bond-rate-yield-chart

The 30-year fixed mortgage has followed the 10-Year Treasury. We’ve seen the 10-Year Treasury rise since January and start to flatten out, like we see in interest rates.

The headlines tend to terrify more than clarify, so what’s the short answer to, “Are we in a housing market correction?” No! A correction of any sort is a decline of 10% or greater in the price of a security asset or financial market. Experts are forecasting almost 9% appreciation in residential real estate this year – where, historically, we’ve seen about 3.8%. We are still seeing very healthy appreciation this year.

The housing market is at a turning point . . . We’re starting to see signs of a  new direction, but the ball is still  in sellers’ courts in most housing  markets.   Danielle Hale, Chief Economist, realtor.com

However, we are at a turning point right now, coming out of two anomaly years in the real estate business, and it is still a seller’s market.

This is a look at showing time going all the way back to the beginning of 2019 - that’s the gray area, 2019 - and the first couple of months of 2020. I’m going to call the pre-pandemic. And the blue section is everything since the pandemic hit, up until the most recent information, April here, of showing activity. Now, I know we’re here in June. You’re going to say, “Well, April doesn’t matter, and it’s going to come down from there.” And I would agree. I would agree. But, that’s the most recent information we have. Here would be my case and my point in this graphic and why I believe it makes sense to use it right now. We’re clearly heading back somewhere that’s going to be pre pandemic level demand. So, not going back to prepandemic prices. Nobody’s saying that. But, if you look at demand, pre pandemic, certainly we’re going to come off of the highs of 2020 and 2021 back to pre-pandemic level demand, which, oh, by the way, 2017, 2018, 2019, great, great years in residential real estate in this country. But, that just gives a visual image to demand and where we’ve been - again, two anomalous years in real estate in 2020 and 2021 where interest rates drop. The meaning of home changed across this country. And we saw demand and we saw price increases because of the lack of supply that we’ve never seen before in real estate.   https://showingindex.stats.showingtime.com/docs/lmu/x/UnitedStates?src=page

According to the latest released numbers, showings are still high, though we will begin to trend back to the pre-pandemic level demand.

Are we in a market correction? And existing home sales are down. So, let’s look at existing home sales. This is as of April, the seasonally adjusted rate, 5.6 million homes. Well, again, here, let’s look at 2017, 2018, 2019, pre pandemic years, and then, 2020 and 2021 that I’m going to go ahead and say, again, are anomaly years. Where are we heading with existing home sales? Back somewhere in the neighborhood of where we were pre pandemic. Pre-pandemic sales were 5.5, 5.3 million. Most recently here in April, seasonally adjusted, 5.6 million units in existing home sales. That’s not total home sales, just existing home sales. So, if we look at that from a demand perspective, from an existing home perspective, really what we’re looking at is a situation heading back to where we were prior to the pandemic. And certainly the pandemic spurred the real estate market.  https://www.nar.realtor/research-and-statistics/housing-statistics/existing-home-sales https://www.nar.realtor/newsroom/existing-home-sales-retract-2-4-in-april

And looking at the latest released numbers for existing home sales, we can see again that trend to the pre-pandemic level of sales. However, we are still seeing national averages of 17 days on market with over 5 offers on homes for sale. As we head back towards those pre-pandemic levels, let’s not forget that 2017-2019 were great years for the real estate market.

Mortgage rates are likely to plateau near current levels... The financial markets have attempted to price in the impact of Fed actions over this cycle, and they are likely also pricing in the economic slowdown that will result. Once we are past this rate spike and associated volatility, MBA expects that potential homebuyers may be more willing to re-enter the market. Mike Fratantoni, Chief Economist, MBA
Are we in a market correction? And existing home sales are down. So, let’s look at existing home sales. This is as of April, the seasonally adjusted rate, 5.6 million homes. Well, again, here, let’s look at 2017, 2018, 2019, pre pandemic years, and then, 2020 and 2021 that I’m going to go ahead and say, again, are anomaly years. Where are we heading with existing home sales? Back somewhere in the neighborhood of where we were pre pandemic. Pre-pandemic sales were 5.5, 5.3 million. Most recently here in April, seasonally adjusted, 5.6 million units in existing home sales. That’s not total home sales, just existing home sales. So, if we look at that from a demand perspective, from an existing home perspective, really what we’re looking at is a situation heading back to where we were prior to the pandemic. And certainly the pandemic spurred the real estate market.  https://www.nar.realtor/research-and-statistics/housing-statistics/existing-home-sales https://www.nar.realtor/newsroom/existing-home-sales-retract-2-4-in-april

Let’s take a look at the top expert forecasts for 2022. We see anywhere from 6.9 million homes sold this year to 6.1 million. In 2021 we sold 6.9 million homes. Most are saying that the interest rate environment we’re in will likely impact the market to the tune of about 10%. At 6.9 million homes, that is a reduction of about 700,000 homes less we would sell this year. – right around that 6.2 million mark.

There have been six recessions in this country. And what happened here? You can see it just in the graphic, four out of the six times home prices actually appreciated. Two times they depreciated. Early nineties, less than two percent, I call it marginal depreciation. But, what everybody remembers is 2008 when homes lost almost 20 percent value. A lot of people were hurt then, a lot of family members, a lot of people that maybe we know and maybe ourselves had to make decisions on housing or do something, a short sale, deed in lieu, foreclosure, whatever it was, a lot of people affected back then. And when they hear recession - when consumers hear recession, they think that.  Many people think every time we hit a recession homes lose value. Simply not true.   https://www.corelogic.com/blog/2019/03/housing-recessions-and-recoveries.aspx https://www.thebalance.com/the-history-of-recessions-in-the-united-states-3306011 https://www.corelogic.com/intelligence/find-stories/corelogic-hpi-posted-record-year-over-year-growth-in-2021/

A recession does not mean there will be a housing crisis. We have seen 6 recessions in this country, and during 4 of those recessions homes appreciated in value. Keep in mind, one of the recessions (1990s) homes only depreciated in value by less than 2%.

If you are looking to buy a home, I would still recommend you do so even at the higher interest rates because we have no reason to believe that home prices will stop appreciating. Home values going up is only a problem when you’re trying to buy. When you own, it’s a gift. Shivani Peterson, Mortgage Expert

A recession does not equal a housing crisis. That’s the one thing that every homeowner today needs to know. Everywhere you look, experts are warning we could be heading toward a recession, and if true, an economic slowdown doesn’t mean homes will lose value.

The National Bureau of Economic Research (NBER) defines a recession this way:

“A recession is a significant decline in economic activity spread across the economy, normally visible in production, employment, and other indicators. A recession begins when the economy reaches a peak of economic activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.”

To help show that home prices don’t fall every time there’s a recession, take a look at the historical data. There have been six recessions in this country over the past four decades. As the graph below shows, looking at the recessions going all the way back to the 1980s, home prices appreciated four times and depreciated only two times. So, historically, there’s proof that when the economy slows down, it doesn’t mean home values will fall or depreciate.

The One Thing Every Homeowner Needs To Know About a Recession | MyKCM

The first occasion on the graph when home values depreciated was in the early 1990s when home prices dropped by less than 2%. It happened again during the housing crisis in 2008 when home values declined by almost 20%. Most people vividly remember the housing crisis in 2008 and think if we were to fall into a recession that we’d repeat what happened then. But this housing market isn’t a bubble that’s about to burst. The fundamentals are very different today than they were in 2008. So, we shouldn’t assume we’re heading down the same path.

Bottom Line

We’re not in a recession in this country, but if one is coming, it doesn’t mean homes will lose value. History proves a recession doesn’t equal a housing crisis.

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 buy a home this season, you’re probably thinking about what you’ll need to do to get your offer accepted. In previous years, it was common for buyers to try and determine how much less than the asking price they could offer to still get the home. The buyer and seller would then negotiate and typically agree on a revised price that was somewhere between the buyer’s bid and the home’s initial asking price.

In today’s real estate market, buyers shouldn’t shop for a home with the same expectations.

Things Are Different Today

Today’s housing market is anything but normal. According to the National Association of Realtors (NAR), the average home that’s sold today:

Homes selling quickly and receiving multiple offers shows how competitive the housing market is for buyers right now. This is because there are more buyers on the market than homes for sale. When the number of homes available can’t keep up with demand, homes often sell for more than the asking price.

How Does This Impact You When It’s Time To Submit an Offer?

Market conditions should help guide your decisions throughout the process. Today, the asking price of a home is often the floor of the negotiation rather than the ceiling. Knowing this is important when it’s time to submit an offer, but you should also use that information as you’re searching for homes too. After all, you don’t want to fall in love with a home that ultimately sells for a price higher than what you’ve budgeted for.

The Mortgage Reports has advice if you’re looking to purchase a home in a competitive market. The article encourages you to be realistic with your housing search, saying:

The best thing to do is set your budget and expectations ahead of time so you know how much you can afford to offer — and when to walk away. This will make negotiations a lot easier.”

Of course, when you’ve found your dream home, you’ll want to do everything you can to submit your best offer up front and win a potential bidding war. Knowing the current market is key to crafting a winning offer. That’s where working with an expert real estate advisor becomes critical.

A real estate professional will draw from their experience and expert-level knowledge of today’s housing market throughout the process. They’ll also balance conditions in your area to make sure your offer stands out above the rest.

Bottom Line

Understanding how to approach the asking price of a home and what’s happening in today’s real estate market are critical for buyers.

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