Existing-home sales showed improvement in July, a welcome sign for what has been a mostly sluggish summer real estate market. Reversing course last month, sales climbed 2.5% over June, the National Association of REALTORS® reported Wednesday. The Northeast was the only major region of the U.S. to see sales decline in July. The bulk of sales growth was attributed to the West.
“Falling mortgage rates are improving housing affordability and nudging buyers into the market,” says Lawrence Yun, NAR’s chief economist. But a shortage of supply in the lower price brackets continues to limit sales growth, he adds. “The shortage of lower-priced homes have markedly pushed up home prices.”
Home price appreciation has been stronger in the lower price brackets compared with the upper price ranges. Comparing the same homes that were sold in 2018 and in 2012 in 13 large metro areas, the lower half of the market jumped by more than 100% in 2018 in metro areas such as Atlanta-Sandy-Springs-Roswell, Ga. (165%); Denver-Aurora-Lakewood, Colo. (103%); Miami-Fort-Lauderdale, Fla. (119%); and Tampa-St. Petersburg-Clearwater, Fla. (125%). On the other hand, the median home price for homes purchased in the upper half of the market in these same metro areas in 2012 increased at a much slower pace, according to an analysis of proprietary deed records data from Black Knight Inc. and Realtors Property Resource®.
“Clearly, the inventory of moderately priced homes is inadequate and more home building is needed,” Yun says. “Some new apartments could be converted into condominiums thereby helping with the supply, especially in light of new federal rules permitting a wider use of Federal Housing Administration mortgages to buy condo properties.”
A closer look at key indicators from NAR’s July housing report:
Home prices: The median existing-home price for all housing types in July was $280,800, up 4.3% from a year ago ($269,300).
Housing inventories:Total housing inventory at the end of July decreased to 1.89 million, a 1.6% drop from 1.92 million one year ago. Unsold inventory is at a 4.2-month supply at the current sales pace.
Days on the market:Fifty-one percent of homes sold in July were on the market for less than a month. On average, properties stayed on the market for 29 days in July, up from 27 days a year ago.
All-cash transactions: All-cash sales accounted for 19% of transactions in July, down from 20% a year ago. Individual investors and second-home buyers make up the bulk of cash sales. They purchased 11% of homes in July, down from 12% a year ago.
Distressed sales:Foreclosures and short sales continue to shrink, comprising 2% of sales in July and down from 3% a year ago. Less than 1% of sales from a year ago were short sales.
Regional Breakdown
Here’s a closer look at how existing-home sales fared in July across the country:
Northeast: Existing-home sales dropped 2.9% to an annual rate rate of 660,000, a 4.3% decline from a year ago. Median price: $305,800, down 1.0% from a year ago.
Midwest: Existing-home sales rose 1.6% to an annual rate of 1.27 million, which is a 0.8% increase from July 2018. Median price: $226,300, an 8.1% increase from a year ago.
South: Existing-home sales rose 1.8% to an annual rate of 2.31 million in July, up 2.7% from a year ago. Median price: $245,100, up 5.2% from one year ago.
West: Existing-home sales increased 8.3% to an annual rate of 1.18 million in July, about 0.8% below a year ago. Median price: $408,000, up 3.7% from one year ago.
The 30-year fixed-rate mortgage averaged 3.55% this week, the lowest average since November 2016, Freddie Mac reports. The lower mortgage rates are boding well for the housing market.
“The drop in mortgage rates continues to stimulate the real estate market and the economy,” says Sam Khater, Freddie Mac’s chief economist. “Home purchase demand is up five percent from a year ago and has noticeably strengthened since the early summer months, while refinances surged to their highest share in three and a half years.”
Households that refinanced in the second quarter of 2019 will save an average of $1,700 a year, or about $140 each month, Khater says.
“The benefit of lower mortgage rates is not only shoring up home sales, but also providing support to homeowner balance sheets via higher monthly cash flow and steadily rising home equity,” Khater says.
Freddie Mac reports the following national averages with mortgage rates for the week ending Aug. 22:
30-year fixed-rate mortgages: averaged 3.55%, with an average 0.5 point, dropping from last week’s 3.60% average. Last year at this time, 30-year rates averaged 4.51%.
15-year fixed-rate mortgages: averaged 3.03%, with an average 0.5 point, falling from last week’s 3.07% average. A year ago, 15-year rates averaged 3.98%.
5-year hybrid adjustable-rate mortgages: averaged 3.32%, with an average 0.3 point, falling from last week’s 3.35% average. A year ago, 5-year ARMs averaged 3.82%.
Fannie Mae economists are forecasting two more quarter-point interest rate cuts by the Federal Reserve this year, expecting that the Fed will move to cut rates in September and again in December. That could bode well for lowering mortgage rates for the remainder of the year. Even though the Fed’s short-term interest rate does not have a direct effect on mortgage rates, it does tend to influence them.
Consumer demand for housing remains strong, Fannie Mae’s Economic and Strategic Research Group notes in a recent report. However, limited inventory—notably at the affordable end—is inhibiting growth in the single-family housing market, the report notes.
Fannie Mae’s Home Purchase Sentiment Index surged to a record high in July as home buyers showed stronger interest in the real estate market. But even as mortgage rates near record lows, the limited availability of homes for sale is constraining growth, researchers note.
“Though the current expansion recently became the longest on record, reverberating trade tensions and general economic uncertainty continue to weigh on growth,” says Doug Duncan, Fannie Mae’s senior vice president and chief economist. “The persistent trade tensions between the U.S. and China threaten to further reduce business investment, disrupt equity markets, degrade household wealth, and diminish consumer spending, the country’s primary economic engine of late. To help shield financial markets, buoy consumers, and perhaps nudge inflation slightly higher, we now expect the Fed will cut interest rates by 25 basis points two more times in 2019, up from our previous prediction of one.”
Mortgage rates will likely respond if the Fed acts. Mortgage rates are currently near the lowest level in recent decades, Duncan notes. The 30-year fixed-rate mortgage averaged 3.60% last week, according to Freddie Mac. More homeowners are finding incentive to refinance.
“We estimate that 35 percent of outstanding mortgages are now ‘in the money,’ meaning borrowers may realize significant cost savings by refinancing; as such, we expect the share of refinance originations to grow through the remainder of the year,” Duncan says. “However, while existing homeowners may be able to enjoy the benefits of lower interest rates, many would-be homeowners, and the purchase mortgage market generally, remain unable to capitalize on the favorable rate environment due to the chronically limited supply of homes available for sale.”
How cool should you keep a home? The magic number for your thermostat is 78° F, according to Energy Star. The thermostat setting is ideal for optimal cooling and energy efficiency, the federal program concludes.
Energy Star also offer the following setting suggestions for your thermostat, as reported by Consumer Reports:
• 78° F when you’re at home • 85° F when you’re away from home • 82° F when you’re sleeping
“If you aren’t comfortable at 78° F, lower the temperature a degree at a time and let your system reach the new setting before ratcheting it down further,” Consumer Reports suggests.
Homeowners can save about 3% on their utility bills for every degree they raise the set temperature of their central air, according to the Department of Energy.
Debt can be stressful, and stress can be bad for your health. But some debt may actually be good for your health and even prolong your life, a new study from LendingTree suggests.
Researchers evaluated 797 U.S. counties on how various forms of debt—from mortgages to student loans—can possibly influence a person’s health and even life expectancy.
Notably, researchers found that a higher mortgage debt relative to income is linked with a higher life expectancy.
“That trend reaffirms the idea that homeownership is ultimately a good thing. This is despite the fact that a mortgage is one of the biggest financial decisions and burdens a person will take on in their lifetime,” researchers note.
Other forms of debt—like auto debt and personal loan debt—did not have the same link and actually generally corresponded with lower life expectancies, according to the study.
Counties with the highest life expectancy and their financial characteristics
Generation Z is growing up. Those born in 1995 or after are taking out more credit and increasingly eyeing homeownership. About 14 million of Gen Z consumers who are 18 or older are taking out credit, and that includes those who are taking on mortgages, according to the latest Q2 2019 Industry Insights Report from TransUnion.
“Both the newest and oldest members of the credit-eligible Gen Z generation are beginning to enter the credit market for the very first time,” says Matt Komos, vice president of research and consulting at TransUnion. “The rapid growth in Gen Z credit activity is occurring despite many of these individuals having grown up during the Great Recession. Though the recession itself landed less than two years, its impact was felt for several years afterward. As we see more members of this group come of age, we naturally expect continued growth in credit activity by Gen Z.”
While credit cards are the most popular forms of credit among Gen Z consumers, they are increasingly taking out mortgages. Mortgages had the largest year-over-year growth rate spike with Gen Z consumers, up 112%, according to TransUnion’s data. However, researchers confirm that was from a previous low base. Mortgages are still the credit product Gen Z consumers are least likely to have, with only 0.5% of mortgages held by this age group.
That said, this generation overall is showing an eagerness to get into homeownership, higher than their predecessors at that age. More than half of Gen Zers aged between 18 to 23 say they are already saving for a home, and 59% say they plan to buy a home within the next five years—before they reach the age of 30, according to a separate study by Bank of America released earlier this year. Seventy-one percent of the nearly 2,000 people surveyed also said they already know exactly what they want in their future home.
“It’s exciting to see Gen Z wanting to own a home for reasons like building their personal wealth over time,” says Steve Boland, head of consumer lending at Bank of America. “Despite their young age, this group is pragmatic and actively planning for their future. They recognize buying a home isn’t easy and have a clear vision not only about where they plan to get help but also how they are willing to help themselves in order to make it happen.”
Housing shortages likely will worsen over the next year as a shift in the housing market occurs, according to a report from realtor.com®. That shift could make it tougher for home buyers to find a home to purchase, despite low mortgage rates that are making it increasingly attractive to do so.
Housing inventories could likely get near record lows by early 2020, says Danielle Hale, realtor.com®’s chief economist. In June, the number of newly listed homes fell by 2.3% compared to a year ago.
At the beginning of the year, the housing market looked poised for a long-awaited turnaround for inventory levels. The number of listings increased 6.4% in January compared to the year prior. However, since that time, the rate of the increase has slowed significantly each month of this year, realtor.com® notes.
Hale attributes the lower inventory of homes for sale to a multitude of reasons, including the preference of baby boomers to age in place rather than move; reduced consumer confidence in the economy; and “rate lock,” in which homeowners purchased a home or refinanced with a mortgage rate below today’s low rates. However, the “rate lock” may become less common as mortgage rates continue to fall. The latest average for the 30-year fixed-rate mortgage was 3.60% last Thursday, the lowest average since November 2016, according to Freddie Mac.
The 30-year fixed-rate mortgage continued to hover near historical lows this week, lowering borrowing costs for home buyers and refinancing homeowners. Freddie Mac reported that the 30-year fixed-rate mortgage averaged 3.60% this week, unchanged from last week’s average.
“The sound and fury of the financial markets continue to warn of an impending recession; however, the silver lining is mortgage demand reached a three-year high this week,” says Sam Khater, Freddie Mac’s chief economist. “The decline in mortgage rates over the last month is causing a spike in refinancing activity—as homeowners currently have $2 trillion in conventional mortgage loans that are in the money—which will help support consumer balance sheets and increase household cash flow. On top of that, purchase demand is up 7% from a year ago.”
Freddie Mac reports the following national averages with mortgage rates for the week ending Aug. 15:
30-year fixed-rate mortgages: averaged 3.60%, with an average 0.5 point, unchanged from last week’s average. Last year at this time, 30-year rates averaged 4.53%.
15-year fixed-rate mortgages: averaged 3.07%, with an average 0.5 point, rising from last week’s 3.05% average. A year ago, 15-year rates averaged 4.01%.
5-year hybrid adjustable-rate mortgages: averaged 3.35%, with an average 0.3 point, falling from last week’s 3.36% average. A year ago, 5-year ARMs averaged 3.87%.
Real estate has surpassed stocks as Americans’ favorite long-term investment, according to a nationwide Bankrate survey of about 1,000 respondents. Thirty-one percent of survey respondents named real estate as their favorite investment for building wealth that they don’t need access to for a decade or more. That is the best that real estate has performed on Bankrate’s annual survey in the last seven years. In 2018, stocks were the most popular investment.
Millennials, at 36%, were the most likely age group to call real estate their top long-term investment choice, according to the survey. Other generations also favored real estate, including generation X (31%), baby boomers (30%), and the silent generation (23%). “Millennials are higher on real estate than any other age group, have cooled a bit on cash, and still aren’t keen on the stock market when investing for more than ten years,” says Greg McBride, Bankrate’s chief financial analyst.
Mortgage rates are hovering near three-year lows, and more homeowners may want to start taking advantage. Up to 20 million homeowners could “theoretically” see a 75-point drop in mortgage rates by refinancing, according to a recent analysis from Black Knight.
For homeowners with a credit score of at least 720 and with 20% of equity in their property, they could see savings of nearly $270 per month from lower rates.
“Millions of homeowners could save money by refinancing,” Holden Lewis, home expert for NerdWallet, told Forbes.com. “That includes most people who bought homes in 2018. Seriously, even if you bought your home last year, you could save money by refinancing right now.”
Homeowners are starting to respond to lower rates. Refinances are at the highest point since mid-2016 and have doubled since late July. Refinances are up 37% over the past week alone, according to the Mortgage Bankers Association.
The 30-year fixed-rate mortgage averaged 3.6% last week, according to Freddie Mac.
