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

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

Are we in a housing bubble?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

With a limited number of homes for sale today and so many buyers looking to make a purchase before mortgage rates rise further, bidding wars are common. According to the latest report from the National Association of Realtors (NAR), nationwide, homes are getting an average of 4.8 offers per sale. Here’s a look at how that breaks down state-by-state (see map below):

Things That Could Help You Win a Bidding War on a Home | MyKCM

The same report from NAR shows the average buyer made two offers before getting their third offer accepted. In this type of competitive housing market, it’s important to know what levers you can pull to help you beat the competition. While a real estate professional is your ultimate guide to presenting a strong offer, here are a few things you could consider.

Offering over Asking Price

When you think of sweetening the deal for sellers, the first thought you likely have is around the price of the home. In today’s housing market, it’s true more homes are selling for over asking price because there are more buyers than there are homes for sale. You just want to make sure your offer is still within your budget and realistic for the market value in your area – that’s where a local real estate professional can help you through the process. Bankrate says:

Simply put, being willing to pay more money than other buyers is one of the best ways to get your offer accepted. You may not have to increase it by a lot — it’ll depend on the area and other factors — so look to your real estate agent for guidance.”

Putting Down a Bigger Earnest Money Deposit

You could also consider putting down a larger deposit up front. An earnest money deposit is a check you write to go along with your offer. If your offer is accepted, this deposit is credited toward your home purchase. NerdWallet explains how it works:

A typical earnest money deposit is 1% to 2% of the home’s purchase price, but the amount varies by location. A higher earnest money deposit may catch a seller’s attention in a hot housing market.”

That’s because it shows the seller you’re seriously interested in their house and have already set aside money that you’re ready to put toward the purchase. Talk to a professional to see if this is something you can do in your area. 

Making a Higher Down Payment 

Another option is increasing how much of a down payment you’re going to make. The benefit of a higher down payment is you won’t have to finance as much. This helps the seller feel like there’s less risk of the deal or the financing falling through. And if other buyers put less down, it could be what helps your offer stand out from the crowd.

Non-Financial Options To Make a Strong Offer

Realtor.com points out that while increasing these financial portions of the deal can help, they’re not your only options:

. . . Price is not the only factor sellers weigh when they look at offers. The buyer’s terms and contingencies are also taken into account, as well as pre-approval letters, appraisal requirements, and the closing time the buyer is asking for.”

When it’s time to make an offer, partner with a trusted professional. They have insight into what sellers are looking for in your local market and can give you expert advice on what levers you may or may not want to pull when it’s time to write an offer.

From a non-financial perspective, this can include things like flexible move-in dates or minimal contingencies (conditions you set that the seller must meet for the purchase to be finalized). For example, you could make an offer that’s not contingent on the sale of your current home. Just remember, there are certain contingencies you don’t want to forego, like your home inspection. Ultimately, the options you have can vary state-to-state, so it’s best to lean on an expert real estate professional for guidance.

Bottom Line

In today’s hot housing market, you need a partner who can serve as your guide, especially when it comes to making a strong offer.

Even if you haven’t been following real estate news, you’ve likely heard about the current sellers’ market. That’s because there’s a lot of talk about how strong market conditions are for people who want to sell their houses. But if you’re thinking about listing your house, you probably want to know: what does being in a sellers’ market really mean?

What Is a Sellers’ Market?

The latest Existing Home Sales Report from the National Association of Realtors (NAR) shows housing supply is still very low. There’s a 2-month supply of homes at the current sales pace.

Historically, a 6-month supply is necessary for a normal or neutral market where there are enough homes available for active buyers. That puts today deep in sellers’ market territory (see graph below):

What You Need To Know About Selling in a Sellers' Market | MyKCM

What Does This Mean for You When You Sell?

When the supply of houses for sale is as low as it is right now, it’s much harder for buyers to find homes to purchase. That creates increased competition among purchasers which can lead to more bidding wars. And if buyers know they may be entering a bidding war, they’re going to do their best to submit a very attractive offer upfront. This could drive the final price of your house up.

And because mortgage rates and home prices are climbing, serious buyers are motivated to make their purchase soon, before those two things rise further. That means, if you put your house on the market while supply is still low, it will likely get a lot of attention from competitive buyers.

Bottom Line

The current real estate market has incredible opportunities for homeowners looking to make a move. Listing your house this season means you’ll be in front of serious buyers who are ready to buy.

In the last few weeks, the average 30-year fixed mortgage rate from Freddie Mac inched up to 5%. While that news may have you questioning the timing of your home search, the truth is, timing has never been more important. Even though you may be tempted to put your plans on hold in hopes that rates will fall, waiting will only cost you more. Mortgage rates are forecast to continue rising in the year ahead.

If you’re thinking of buying a home, here are a few things to keep in mind so you can succeed even as mortgage rates rise.

How Rising Mortgage Rates Impact You

Mortgage rates play a significant role in your home search. As rates go up, they impact how much you’ll pay in your monthly mortgage payment, which directly affects how much you can comfortably afford. Here’s an example of how even a quarter-point increase can have a big impact on your monthly payment (see chart below):

How To Approach Rising Mortgage Rates as a Buyer | MyKCM

With mortgage rates on the rise, you’ve likely seen your purchasing power impacted already. Instead of delaying your plans, today’s rates should motivate you to purchase now before rates increase more. Use that motivation to energize your search and plan your next steps accordingly.

The best way to prepare is to work with a trusted real estate advisor now. An agent can connect you with a trusted lender, help you adjust your search based on your budget, and make sure you’re ready to act quickly when it’s time to make an offer.

Bottom Line

Serious buyers should approach rising rates as a motivating factor to buy sooner, not a reason to wait. Waiting will cost you more in the long run.

Being intentional and competitive are musts when buying a home this season. That’s why pre-approval is so important today. Pre-approval from a lender is the only way to know your true price range and how much money you can borrow for your loan. Peter Warden, Editor of The Mortgage Reportsexplains:

“The lender will check out your personal finances and issue you a letter confirming the amount you’re eligible to borrow. This not only gives you a firm budget for house hunting, but also lets sellers know you’re qualified to make an offer.”

Why does that matter so much today? There are many more buyers looking for homes today than there are homes available for sale, and that’s creating some serious competition. According to the National Association of Realtors (NAR), the average home is getting 4.8 offers per sale. As a result, bidding wars are still common.

Your pre-approval gives you a leg up in these situations. That’s because you know exactly what you’re approved to borrow before you write your offer, and it lets the seller know you’re qualified to buy their home. This helps both you and the seller feel confident in what you’re bringing to the table. And that puts you in a better position to potentially win a bidding war.

As Warden puts it:

“There’s another important reason to get preapproved, too. And that’s because there are way more buyers than homes in today’s market — which means you need to be ultra-prepared if you want to win a bidding war. Most sellers are getting multiple offers right now. And most won’t even entertain an offer without a preapproval letter included.”

Every advantage you can gain as a buyer is crucial in a market that’s constantly changing. Mortgage rates are rising, home prices are going up, and lending institutions are regularly updating their standards. You’re going to need guidance to navigate these waters, so it’s important to have a team of professionals, such as a loan officer and a trusted real estate advisor, on your side. They’ll help make sure you’re ready to put your best foot forward.

Bottom Line

Getting pre-approved for a mortgage helps you better understand what you can afford and signals to sellers you’re serious about purchasing their home.

There’s never been a truer statement regarding forecasting mortgage rates than the one offered last year by Mark Fleming, Chief Economist at First American:

“You know, the fallacy of economic forecasting is: Don’t ever try and forecast interest rates and or, more specifically, if you’re a real estate economist mortgage rates, because you will always invariably be wrong.”

Coming into this year, most experts projected mortgage rates would gradually increase and end 2022 in the high three-percent range. It’s only April, and rates have already blown past those numbers. Freddie Mac announced last week that the 30-year fixed-rate mortgage is already at 4.72%.

Danielle Hale, Chief Economist at realtor.comtweeted on March 31:

“Continuing on the recent trajectory, would have mortgage rates hitting 5% within a matter of weeks. . . .”

Just five days later, on April 5, the Mortgage News Daily quoted a rate of 5.02%.

No one knows how swiftly mortgage rates will rise moving forward. However, at least to this point, they haven’t significantly impacted purchaser demand. Ali Wolf, Chief Economist at Zondaexplains:

Mortgage rates jumped much quicker and much higher than even the most aggressive forecasts called for at the end of last year, and yet housing demand appears to be holding steady.”

Through February, home prices, the number of showings, and the number of homes receiving multiple offers all saw a substantial increase. However, much of the spike in mortgage rates occurred in March. We will not know the true impact of the increase in mortgage rates until the March housing numbers become available in early May.

Rick Sharga, EVP of Market Intelligence at ATTOM Datarecently put rising rates into context:

“Historically low mortgage rates and higher wages helped offset rising home prices over the past few years, but as home prices continue to soar and interest rates approach five percent on a 30-year fixed rate loan, more consumers are going to struggle to find a property they can comfortably afford.”

While no one knows exactly where rates are headed, experts do think they’ll continue to rise in the months ahead. In the meantime, if you’re looking to buy a home, know that rising rates do have an impact. As rates rise, it’ll cost you more when you purchase a house. If you’re ready to buy, it may make sense to do so sooner rather than later.

Bottom Line

Mark Fleming got it right. Forecasting mortgage rates is an impossible task. However, it’s probably safe to assume the days of attaining a 3% mortgage rate are over. The question is whether that will soon be true for 4% rates as well.

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

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

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

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

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

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

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

So how do rising mortgage rates affect home sales?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We are in a very, very busy market.

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

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

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

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

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

However, we did see increased active listings in March.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Where Are Mortgage Rates Going from Here?

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

Greg McBride, Chief Financial Analyst, Bankrate:

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

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

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

Len Kiefer, Deputy Chief Economist, Freddie Mac:

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

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

Danielle Hale, Chief Economist, realtor.com:

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

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

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

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

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

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

Bottom Line

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

Are you thinking about selling your house? If so, you may want to make it a priority to start the process soon. According to realtor.com, the sweet spot for sellers is just around the corner. In a recent study, experts analyzed housing market trends by looking at data from the past several years (excluding 2020, since it was an atypical year). When applied to the current market, experts determined the ideal week to list a house this year. The research says:

“Home sellers on the fence waiting for that perfect moment to sell should start preparations, because the best time to list a home in 2022 is approaching quickly. The week of April 10-16 is expected to have the ideal balance of housing market conditions that favor home sellers, more so than any other week in the year.”

If you’ve been putting your move on the back burner waiting for the ideal time to sell, you should know your golden window of opportunity is coming up. If you’re able to get your house ready quickly, here’s what you can expect from that week.

You Should See More Buyer Activity

The article expects higher buyer demand based on what’s happened in previous years. This could result in increased competition among buyers and ultimately a bidding war over your house. And since mortgage rates recently ticked up over 4%, chances are good that analysis is right. When rates rise, experts say buyers often hurry to make their purchase before rates climb higher. As Nadia Evangelou, Senior Economist and Director of Forecasting at the National Association of Realtors (NAR), says:

“. . . Buyers are rushing to lock in lower rates as the outlook is for even higher mortgage rates in the following months.”

Your House Is Expected To Sell Quickly

Additionally, the realtor.com analysis shows houses sell even faster during this week of the year, likely due to the heightened buyer demand. If you work with a trusted real estate professional to price your house right, it should sell quickly. And when homes are already selling in just 18 days according to NAR, that could set you up for a big win.

Your House Will Be in the Spotlight

Since the beginning of the year, the number of homes available for sale has been at or near record lows. According to the realtor.com study, the typical trend for this week of the year is that there will be even fewer sellers on the market. If you list when inventory is low, your house will be the center of attention for eager buyers craving options.

If you’re ready to move fast, you may want to shoot for April 10th-16th as your target goal. Just remember, even if you’re not ready to list within the next couple of weeks, rest assured this is still a hot sellers’ market. If you list later in April, you’ll still be in the driver’s seat.

Bottom Line

Ready to get the ball rolling? Let’s connect and schedule a time to go over your next steps. In the meantime, make a checklist of things you need to tackle to get your house ready.

As the spring housing market kicks off, you likely want to know what you can expect this season when it comes to buying or selling a house. While there are multiple factors causing some uncertainty, including the conflict overseas, rising inflation, and the first rate increase from the Federal Reserve in over three years — the housing market seems to be relatively immune.

Here’s a look at what experts say you can expect this spring.

1. Mortgage Rates Will Climb

Freddie Mac reports the 30-year fixed mortgage rate has increased by more than a full point in the past six months. And despite some mild fluctuation in recent weeks, experts believe rates will continue to edge up over the next 90 days. As Freddie Mac says:

“The Federal Reserve raising short-term rates and signaling further increases means mortgage rates should continue to rise over the course of the year.”

If you’re a first-time buyer or a seller thinking of moving to a home that better fits your needs, realize that waiting will likely mean you’ll pay a higher mortgage rate on your purchase. And that higher rate drives up your monthly payment and can really add up over the life of your loan.

2. Housing Inventory Will Increase

There may be some relief coming for buyers searching for a home to purchase. Realtor.com recently reported that the number of newly listed homes has grown for each of the last two months. Also, the National Association of Realtors (NAR) just announced the months’ supply of inventory increased for the first time in eight months. The inventory of existing homes usually grows every spring, and it seems, based on recent activity, the next 90 days could bring more listings to the market.

If you’re a buyer who has been frustrated with the limited supply of homes available for sale, it looks like you could find some relief this spring. However, be prepared to act quickly if you find the right home.

If you’re a seller, listing now instead of waiting for this additional competition to hit the market makes sense. Your leverage in any negotiation during the sale will be impacted as additional homes come to market.

3. Home Prices Will Rise

Prices are always determined by supply and demand. Though the number of homes entering the market is increasing, buyer demand remains very strong. As realtor.com explains in their most recent Housing Report:

“During the final two weeks of the month, more new sellers entered the market than during the same time last year. . . . However, with 5.8 million new homes missing from the market and millions of millennials at first-time buying ages, housing supply faces a long road to catching up with demand.”

What does that mean for you? With the demand for housing still outpacing supply, home prices will continue to appreciate. Many experts believe the level of appreciation will decelerate from the high double-digit levels we’ve seen over the last two years. That means prices will continue to climb, just at a more moderate pace. Most experts are predicting home prices will not depreciate.

Won’t Increasing Mortgage Rates Cause Home Prices To Fall?

While some people may believe a 1% increase in mortgage rates will impact demand so dramatically that home prices will have to fall, experts say otherwise. Doug Duncan, Senior Vice President and Chief Economist at Fannie Maesays:

“What I will caution against is making the inference that interest rates have a direct impact on house prices. That is not true.”

Freddie Mac studied the impact that mortgage rates increasing by at least 1% has had on home prices in the past. Here are the results of that study:

What You Can Expect from the Spring Housing Market | MyKCM

As the chart shows, mortgage rates jumped by at least 1% six times in the last thirty years. In each case, home values increased.

So again, if you’re a first-time buyer or a repeat buyer, waiting to buy likely means you’ll pay more for a home later in the year (as compared to its current value).

Bottom Line

There are three things that seem certain going into the spring housing market:

  1. Mortgage rates will continue to rise
  2. The selection of homes available for sale will modestly improve
  3. Home prices will continue to appreciate, just at a slightly slower pace

If you’re thinking of buying, act now before mortgage rates and home prices increase further. If you’re thinking of selling, your best bet may be to sell soon so you can beat the increase in competition that’s about to come to market.

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