The Makings of a Buyer’s Market

Buyers are pulling back. Home prices have been rising too much relative to income for many would-be buyers to keep pace. Since 2011, the U.S. median home price has risen 55 percent while wages are up only 18 percent. Now, the Federal Reserve has become more aggressive against inflation; with several short-term interest rate increases over the past year. A monthly mortgage payment on a typical home today is $1,136, up from $639 in 2011.

And confidence is down. Only 38 percent of consumers today strongly believe it’s a good time to buy, down from 43 percent last year, and the numbers are lower for renters who don’t have equity to tap for a down payment.

With buyers stepping back a bit, inventory is no longer falling. New-home construction is increasing and more homeowners are considering listing. A recent survey NAR conducted shows 50 percent of consumers strongly indicate it is a good time to sell, compared to only 28 percent just two years ago. Most home sellers will also be buyers. With inventory expected to grow, prices will stop rising so fast. That’s a healthy adjustment. Buyers can soon resume their search for the American dream.

Source: magazine.realtor/news-and-commentary/economy/article/2018/10/the-makings-of-a-buyer-s-market?

Mortgage Rates Are on the Rise

Borrowers were faced with rising mortgage rates again this week, after a slight pause from increases the week before. “We expect rates to continue to rise, which will put downward pressure on home buying activity. While higher borrowing costs will keep some people out of the market, buyers with more flexibility could take advantage of the decreased competition,”  says Sam Khater, Freddie Mac’s chief economist.

Freddie Mac reports these rates for the week ending Oct. 25, 2018:

  • 30-year fixed-rate mortgages: averaged 4.86 percent, with an average 0.5 point, rising slightly from last week’s 4.85 percent average. Last year at this time, 30-year rates averaged 3.94 percent.
  • 15-year fixed-rate mortgages: averaged 4.29 percent, with an average 0.4 point, rising from last week’s 4.26 percent average. A year ago, 15-year rates averaged 3.25 percent.
Source: Freddie Mac

Some Relief With Mortgage Rates

Following weeks of gradual increases, the 30-year fixed-rate mortgage dipped slightly this week, offering a slight window of opportunity at lower borrowing costs to some would-be buyers.

“While the housing market has clearly softened in reaction to the rise in mortgage rates, the economy and consumer sentiment remains very robust and that will sustain purchase demand, particularly in affordable markets and neighborhoods,” says Sam Khater, Freddie Mac’s chief economist.

Freddie Mac reports these rates for the week ending Oct. 18:

  • 30-year fixed-rate mortgages: averaged 4.85 percent, with an average 0.5 point, dropping from last week’s 4.90 percent average. Last year at this time, 30-year rates averaged 3.88 percent.
  • 15-year fixed-rate mortgages: averaged 4.26 percent, with an average 0.4 point, falling from last week’s 4.29 percent average. A year ago, averaged 3.19 percent.
Source: Freddie Mac

Market Shifting to Home Buyers’ Favor

A housing market defined by rapidly rising home prices, bidding wars, a lack of inventory, and sellers with the upper hand in negotiations may be changing. “The signs are pointing to a market that’s shifting toward buyers,” says Danielle Hale, realtor.com®’s chief economist. “But in most places, we’re still a long way from a full reversal.”

After all, home sales aren’t exactly tanking. Prices for existing homes were up 4.6 percent from a year ago in the National Association of REALTORS®’ latest housing report. The median home list price in August was up 7 percent from last year.

While these numbers are still higher than last year, economists point to a slowing growth in the percentage jumps. Last year, median home list prices increased by 10 percent from the previous year and by 9 percent the year before that.

Down Payments Jump to Record Highs

Home buyers are putting more money down on a home purchase than ever before. The size of down payments during the second quarter climbed to a median of $19,900, a record high, according to ATTOM Data Solutions’ research, which dates back to the first quarter of 2000. What’s more, this marks a 19 percent jump from $16,750 in this year’s first quarter.

The median down payment was 7.6 percent of the median sales price of homes purchased with finances during the second quarter, according to the report. That percentage is at a nearly 15-year high. California buyers tend to bring the highest down payments.
Source: “U.S. Refinance Originations Drop to Four-Year Low in Q2 2018,” ATTOM Data Solutions (Sept. 11, 2018

Labor Shortages Push Up Construction Costs

Builders are being forced to raise home prices and are having a more difficult time meeting project deadlines because of the ongoing labor shortage in the construction industry, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index. Eighty-four percent of builders say they have had to pay higher wages to subcontractor bids, 83 percent say they have had to raise home prices, and 73 percent say they can’t complete projects on time without more manpower. The number of builders reporting labor and subcontractor shortages reached a record high in July.

“The steepest upward trend has been in the share of builders saying the labor/subcontractor shortages are causing higher home prices, which increased by 22 percentage points between 2015 and 2018—to the point where it is now nearly tied with higher wages/sub bids as the most widespread effect of the shortages,” NAHB reports on its Eye on Housing blog. The survey also shows other effects of the labor shortage, such as builders saying that, in some cases, they’ve been forced to turn down projects.

Source: “Housing Market Index (HMI),” National Association of Home Builders/Eye on Housing (September 2018)

Mortgage Interest Rates Jump to 6-Week High

A strong job market and consumer credit are driving up mortgage rates for the third consecutive week and now to their highest level in six weeks. Mortgage rates are 0.82 percent higher than a year ago—the largest year-over-year increase since May 2014, Freddie Mac reports.

Despite the higher rates, Sam Khater, Freddie Mac’s chief economist, expects buyer demand to remain high. “This spectacular stretch of solid job gains and low unemployment should help keep home buyer interest elevated,” Khater says. “However, mortgage rates will likely also move up, as the Federal Reserve considers short-term rate hikes this month and at future meetings.”

Freddie Mac reports the following national averages for the week ending Sept. 13:

  • 30-year fixed-rate mortgages: averaged 4.60 percent, with an average 0.5 point, up from last week’s 4.54 percent average. Last year at this time, 30-year rates averaged 3.78 percent.
  • 15-year fixed-rate mortgages: averaged 4.06 percent, with an average 0.5 point, climbing from last week’s 3.99 percent average. A year ago, 15-year rates averaged 3.08 percent.
Source: Freddie Mac

Home Loan Interest Rates Inch Up

Mortgage rates rose slightly for the second consecutive week, and economists warn that more rises are likely to come. Mortgage rates are now up three-quarters of a percentage point from last year.

“Borrowing costs may be slowly on the rise again in coming weeks, as investors remain optimistic about the underlying strength of the economy,” says Sam Khater, Freddie Mac’s chief economist. Home prices have been rising too—although at a slower pace recently—but are still “outrunning rising inflation and incomes,” Khater notes. “The weakening in affordability is hindering many interested buyers this fall, even as the robust economy brings them into the market.”

Freddie Mac reports the following averages for the week ending Sept. 6:

  • 30-year fixed-rate mortgages: averaged 4.54 percent, with an average 0.5 point for the week, increasing from last week’s 4.52 percent average. Last year at this time, 30-year rates averaged 3.78 percent.
  • 15-year fixed-rate mortgages: averaged 3.99 percent, with an average 0.4 point, increasing from last week’s 3.97 percent average. A year ago, 15-year rates averaged 3.08 percent.
Source: Freddie Mac

Dip in Rates Provides ‘Stability’ for Home Sales

Borrowers saw a little relief from recent increases. Mortgage rates dropped slightly this week, with the 30-year fixed-rate mortgage averaging 4.59 percent, Freddie Mac reports. “This stability is much needed for home sales, which have crested because of the multiyear run up in prices, tight affordable inventory, and this year’s higher rates,” says Sam Khater, Freddie Mac’s chief economist.

Home prices are still climbing and rates are up from 3.90 percent a year ago. “Some prospective buyers are definitely feeling an affordability crunch,” Khater says.

Freddie Mac reports the following national averages for the week ending Aug. 9:

  • 30-year fixed-rate mortgages: averaged 4.59 percent, with an average 0.5 point, dropping from last week’s 4.60 percent average. Last year at this time, 30-year rates averaged 3.90 percent.
  • 15-year fixed-rate mortgages: averaged 4.05 percent, with an average 0.5 point, falling from last week’s 4.08 percent average. A year ago, 15-year rates averaged 3.18 percent.
Source: “Mortgage Rates Inch Backward,” Freddie Mac (Aug. 9, 2018)

New Program Aims to Cap Rent Hikes

Similar to the concept of rent control, Freddie Mac announced a new program to incentivize rental property owners to ease their continuous rent hikes. The mortgage giant is offering discounted financing to owners who agree to cap rent increases for the life of their loans. Owners who take part in the program must limit rent increases on 80 percent of their units. Owners also must agree to make at least 50 percent of their units affordable to those earning the local median income or less.

The program, now available across the country, is voluntary. Freddie Mac officials say they will check rents on an annual basis to make sure participating property owners are complying with the program’s rules. Those who are in violation will be assessed a penalty fee until they return rents to a level that Freddie deems compliant.

Source: “Freddie Mac to Lower Financing Costs for Landlords who Cap Rent Rises,” The Wall Street Journal (Aug. 7, 2018)