Yajnesh Rai

It’s a Better Time to Buy Than 10 Years Ago | Realtor Magazine

A strong economy, low unemployment, low mortgage rates, and alluring mortgage rates are making it a great time to buy a home, according to a newly released report from LendingTree, an online financial services marketplace. The amount of income that buyers spent on their mortgage payments also dropped from 2010 through 2019, despite higher home prices.

“If you are in a point in your life where you’re considering buying a home today, it’s a better time to buy than 10 years ago,” Tendayi Kapfidze, LendingTree’s chief economist, told realtor.com®. “If you can get a mortgage, you’re getting much lower interest rates, and it enables you to afford more. But that also means that you’re competing with more buyers, who are bidding up the prices.”

Indeed, median sales prices jumped 53.5% between early 2012 and summer 2019, according to realtor.com®. But a decrease in average mortgage rates—by more than a percentage point from the start of the decade—is helping to offset some of that uptick. Mortgage rates have dropped from 5.09% to 3.74% during that time period. That drop could save borrowers hundreds of dollars a year to tens of thousands over the life of the loan, realtor.com® reports.

Since the Great Recession, borrowers are being more responsible too, Kapfidze says. They’re “much healthier financially than they were 10 years ago,” Kapfidze says. “One reason is because of low mortgage rates. If you refinance, [you can] reduce your monthly mortgage payments.”

Homeowners are also sitting on more equity. In 2012, nationwide equity reached a low of $8.2 trillion. In 2019, it grew to about $18.7 trillion.

Housing Likely to Withstand Future Recessions | Realtor Magazine

The economy has been going at such a robust pace that economists worry some consumers may be waiting for the next recession to hit and drive prices down, just as the Great Recession did.

But a newly released report from First American Financial Services, a title insurance company, predicts that even when the next recession comes—and the predictions are that this will not happen anytime soon—the U.S. housing market is unlikely to take much of a hit.

“While the housing crisis is still fresh on the minds of many, and was the catalyst of the Great Recession, the U.S. housing market has weathered all other recessions since 1980,” writes the report’s author Odeta Kushi, deputy chief economist at First American.

The report culls data from the National Association of REALTORS® and Freddie Mac to show how the housing market has fared during most economic downturn cycles. In many cases, home price appreciation continued at an even pace, Kushi notes. Existing-home sales growth does often experience a slight decrease.

Certainly, the Great Recession was different. But the circumstances were different, the analysis notes. Researchers say that was largely driven by a rapid increase in home building and the expansion of mortgage credit. Buyers were able to obtain mortgages with no documentation of their income and virtually no down payment. “The housing crisis in the Great Recession was fueled heavily by the fact that job loss was paired with a significant share of homeowners who didn’t have much equity in their homes,” Kushi wrote.

However, home price increases lately have been driven by a lack of inventory and high buyer demand. Homebuilding has been sluggish and has been blamed for exacerbating housing shortages across the country. More homeowners are seeing substantial increases in home equity because of the housing shortages and high demand.

“On the whole, homeowners have very high levels of tappable home equity today, providing a cushion to withstand potential price declines,” Kushi writes. “In fact, the housing market may actually aid the economy in recovering from the next recession—a role it has traditionally played in previous economic recoveries.”

Breaking Down the Costs of Building a New Home | Realtor Magazine

A lot of factors go into setting the price for a new home. Buyers may be wondering why costs are so high. The median new home price was $331,400 in December, which is much higher than the median price of $274,500 for an existing home.

Builders are up against labor and lot shortages and the rising costs of materials. Indeed, 87% of builders recently surveyed by the National Association of Home Builders say that cost and availability of labor is a “significant problem” they face. Sixty-six percent called building material prices a “significant problem,” and 63% identified the cost and availability of developed lots as another pressing issue. Builders expect these problems to continue into 2020.

Sixty-one percent of the average home sales price for a new home was comprised of construction costs in 2019, up from 55.6% in 2017, according to a new analysis from the NAHB. Finished lot costs comprised the second largest cost at 18.5% of the sales price.

While costs have risen, the profit margin for builders has decreased slightly, falling from 10.7% of the sales price in 2017 to 9.1% in 2019.

The following is a chart from the National Association of Home Builders that breaks down the costs of constructing a new home.

© National Association of Home Builders

Mortgage Lending Sees Biggest Quarter Since 2005 | Realtor Magazine

Near-record low mortgage rates are boosting mortgage activity, prompting buyers and refinancers to jump into the market. The number of new mortgages originated in the last three months of 2019 topped all quarters since the fourth quarter of 2005, according to new data from the Federal Reserve Bank of New York.

More than $750 billion in new mortgages originated in the fourth quarter of 2019. That marks a pivotal reversal from the first quarter of 2019, when there were $344 billion in mortgage originations.

“Mortgage originations, including refinances, increased significantly in the final quarter of 2019,” says Wilbert Van Der Klaauw, senior vice president at the New York Fed. Indeed, a lot of the uptick in originations was fueled by a high number of mortgage refinancers taking advantage of lower mortgage rates.

In total, mortgage origination volume topped about $2.1 trillion in 2019.

Despite the increase in originations, credit standards did tighten slightly in the fourth quarter, according to the Fed’s report. The median credit score of borrowers applying for a mortgage rose to 770 in the fourth quarter, a five-point increase over the previous quarter. The Fed suggested the increase was due to the increase in the number of refinancers.

Mortgage Rates Continue to Offer Sweet Treat to Buyers | Realtor Magazine

© REALTOR® MAGAZINE

The 30-year fixed-rate mortgage averaged 3.47% this week, remaining an alluring incentive for buyers who want to lock in some of the lowest borrowing rates in years.

“With mortgage rates hovering near a five-decade low, refinance application activity is once again surging, rising to the highest level in seven years,” says Sam Khater, Freddie Mac’s chief economist. “This surge, coupled with strong purchase activity, means that total mortgage demand remains robust, reflective of a solid economic backdrop, and a very low mortgage rate environment.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Feb. 13:

• 30-year fixed-rate mortgages: averaged 3.47%, with an average 0.7 point, rising slightly from last week’s 3.45% average. Last year at this time, 30-year rates averaged 4.37%.
• 15-year fixed-rate mortgages: averaged 2.97%, with an average 0.8 point, unchanged from last week. A year ago, 15-year rates averaged 3.81%.
• 5-year hybrid adjustable-rate mortgages:averaged 3.28%, with an average 0.3 point, falling slightly from last week’s 3.32% average. A year ago, 5-year ARMs averaged 3.88%.

Home Price Hikes Widen Sellers’ Advantage | Realtor Magazine

The majority of metro areas saw home prices rise in the final quarter of 2019 as housing inventories remained constrained and buyer demand stayed high, according to the National Association of REALTORS®’ latest quarterly report.

Median single-family home prices rose annually in 94% of the markets NAR tracked in the fourth quarter, or 170 of 180 metro areas. The national median existing single-family home price was $274,900, a 6.6% increase from the fourth quarter of 2018, NAR reported.

“It is challenging—especially for those potential buyers—where we have a good economy, low interest rates, and a soaring stock market, yet are finding very few homes available for sale,” says Lawrence Yun, NAR’s chief economist. “We saw prices increase during every quarter of 2019 above wage growth.”

Median home prices were highest in the Western region of the U.S., at $413,500. They were the least expensive in the Midwest, with a median of $210,200.

Eighteen metro areas posted double-digit price increases in the fourth quarter, led by Trenton, N.J. (18.2%); Boise City-Nampa, Idaho (13.7%); Gulfport-Biloxi, Miss. (11.8%); Kingston, N.Y. (11.2%); and Albuquerque, N.M. (11.1%).

“Rising home values typically create wealth gains for existing homeowners … however, areas that are deemed ‘too expensive’ will obviously have trouble attracting residents and companies looking to do business there,” Yun says. “We need a good balance that benefits both current and future homeowners, but right now, the balance is still in favor of home sellers.”

Still, buyers are finding falling mortgage rates are helping somewhat in easing housing affordability woes lately. The 30-year fixed-rate mortgage averaged 3.76% in the fourth quarter, down from 4.95% a year ago. “Because of the lower mortgage payment, the income needed for a family to afford a mortgage decreased to $48,960 from $52,896 one year ago,” NAR noted in its study.

But housing shortages abound, which means buyers are having fewer choices of homes for sale. At the end of the fourth quarter of 2019, 1.4 million existing homes were available for sale. That is 8.5% less than a year prior, NAR reports.

Self-made millionaire: Buy a home

While opponents of homeownership claim it’s ”the American nightmare,” self-made millionaire David Bach is doubling down on his faith in real estate.

He thinks that not prioritizing homeownership is “the single biggest mistake millennials are making.”

Buying a home is “an escalator to wealth,” he tells CNBC.

Young adults in particular aren’t hopping on this escalator, and it’s a costly mistake, Bach warns: “If millennials don’t buy a home, their chances of actually having any wealth in this country are little to none. The average homeowner to this day is 38 times wealthier than a renter.”

The self-made millionaire is quick to say that the smartest investments he’s ever made have been the three homes he’s purchased. He tells CNBC: “I first bought a home in San Francisco. It skyrocketed in price. I moved to New York and bought another home. It skyrocketed in price. My net worth has gone up millions and millions of dollars, simply because I’ve lived.”

Self-made millionaire and bestselling author David Bach

Courtesy of David Bach

Bach argues that you have to live somewhere for the rest of your life, so you might as well invest in a home that you could own permanently.

As he writes in “The Automatic Millionaire,” “As a renter, you can easily spend half a million dollars or more on rent over the years ($1,500 a month for 30 years comes to $540,000), and in the end wind up just where you started — owning nothing. Or you can buy a house and spend the same amount paying down a mortgage, and in the end wind up owning your own home free and clear!”

If you want to get in the game of homeownership, start by crunching the numbers, Bach says: “Actually do the math. Look and see what things costs, starting with the smallest options. This way, you’re really clear on your goals and you won’t just say to yourself, ‘I’ll never afford this.’”

A good rule of thumb is to make sure your total monthly housing payment doesn’t consume more than 30 percent of your take-home pay. He also recommends having a down payment of at least 10 percent, though more is always better. Finally, recognize that “oftentimes, buying your first home means you’re not buying your dream home,” Bach tells CNBC. “You’re just getting into the market.”

A lucrative market, that is. ”The fact is, you aren’t really in the game of building wealth until you own some real estate,” Bach writes.

Housing Inventory Falls to Record Low | Realtor Magazine

Housing shortages abound in markets across the country and that could set home shoppers up for a challenging spring. The nation’s housing supply saw the steepest year-over-year decrease in January in more than four years, dropping 13.6% annually, realtor.com® reports. The supply for homes for sale is now at its lowest level since realtor.com® began tracking such data in 2012.

The housing shortage shows no signs of easing in the coming months either, realtor.com® says. The volume of newly listed properties is down by 10.6% since last year.

“Homebuyers took advantage of low mortgage rates and stable listing prices to drive sales higher at the end of 2019, further depleting the already limited inventory of homes for sale,” says Danielle Hale, realtor.com®’s chief economist. “With fewer homes coming up for sale, we’ve hit another new low of for sale-listings in January. This is a challenging sign for the large numbers of Millennial and Gen Z buyers coming into the housing market this homebuying season as it implies the potential for rising prices and fast-selling homes—a competitive market. In fact, markets such as San Jose in Northern California, which saw inventory down nearly 40 percent last month, are also seeing prices grow by 10 percent while homes are selling at a blistering pace of 51 days.”

The housing shortage is present across price points too. It is most evident in the entry-level market, realtor.com® says. In January, homes priced below $200,000 saw a 19% drop in inventory. Among the mid-tier of properties—those priced between $200,000 to $750,000—inventories fell 12% year-over-year. In the upper-tier of properties—priced at more than $750,000—inventories dropped by 5.9% annually.

As inventories fall, home prices are rising. The median U.S. listing price increased by 3.4 percent year-over-year, reaching $299,995 in January, according to realtor.com®.

© realtor.com

How Differing Interest Rates Can Price Some Buyers In, Out | Realtor Magazine

Low mortgage rates can be a cost-savings boon to home buyers. But even the slightest difference in rates can price some out.

The National Association of Home Builders, on its Eye on Housing blog, offers various scenarios of the price differences in affordability with interest rates. For example, take the median new-home price in 2020 of $345,908. The buyer gets a standard mortgage interest rate of 3.75%. If the interest rate moves up just a quarter of a percentage point, it would price about 1.3 million U.S. households out of the market, according to the NAHB’s analysis. The NAHB factored in a 10% down payment as well as an annual premium for private mortgage insurance, property taxes, and homeowner’s insurance into its calculations.

On the other hand, “a reduction in interest rates will price households into the market,” the NAHB says. Recent drops in mortgage rates that started at the end of last year have equated to about 44 million households that can now afford a median-priced new home. The drop in rates has also brought the median-priced new home within range to about 5.2 million additional households in 2020, the NAHB notes.

View this chart from the NAHB to view the difference that interest rate fluctuations can make on affordability.

 

© National Association of Home Builders

 

 

Markets That Have Recovered Most, Least Since Last Recession | Realtor Magazine

Home prices plunged during the Great Recession, with some areas seeing prices drop by 33% between April 2006 and March 2011. But most markets have seen major recoveries since.

Western housing markets have seen the strongest recoveries, according to a new analysis from SmartAsset, a personal finance site. All five of these market metro areas have seen their home prices more than double since they bottomed out during the recession. The markets with the strongest recoveries have been Boise, Idaho; San Francisco-San Mateo-Redwood City, Calif.; San Jose-Sunnyvale-Santa Clara, Calif.; Seattle-Bellevue-Kent, Wash.; and Denver-Aurora-Lakewood, Colo.

 

© SmartAsset