Yajnesh Rai

Home Prices Outpace Wage Growth in 64% of Markets | Realtor Magazine

Home prices are increasing at a faster rate than wages in 64 percent of U.S. markets, according to a new analysis released this week by real estate data firm ATTOM Data Solutions.
 

Median home prices nationwide have risen 75 percent since the first quarter of 2012, while average weekly wages have risen just 13 percent over the same time period, according to the analysis. The counties where median home prices require the highest share of average wages are:

• Marin County, Calif. (Bay Area): 133.2 percent
• Kings County, N.Y. (Brooklyn): 123.1 percent
• Santa Cruz County, Calif.: 121.5 percent
• Monterey County, Calif. (Salinas): 100.3 percent
• San Francisco County, Calif.: 97.2 percent
   

In the second quarter of this year, the average earner nationally would need to spend 31.2 percent of their income to buy a median priced home, which is above the historic average of 29.6 percent, according to the study. The mismatch between wages and housing appreciation also put home prices in the second quarter at the least affordable levels since the third quarter of 2008, ATTOM reports. Researchers culled data on the percentage of income needed to purchase a median-priced home relative to historic averages.

Home appreciation, mixed with an 11 percent year-over-year increase in mortgage rates, is contributing to the worst housing affordability in nearly 10 years, says Daren Blomquist, senior vice president at ATTOM. “Home price appreciation continued to outpace wage growth, speeding up the affordability treadmill for prospective home buyers, even without the rise in mortgage rates,” Blomquist says.

View the interactive chart below to see housing affordability in your area.

Mortgage Rates Drop Again This Week | Realtor Magazine

 

 

Borrowers found lower mortgage rates again this week, marking the third decrease in rates in the past four weeks.

“After a sharp run-up in the early part of 2018, rates have stabilized over the last three months, with only a modest uptick since March,” says Sam Khater, Freddie Mac’s chief economist. “However, existing-home sales have hit a wall, declining in six of the last nine months on a year-over-year basis.”

The National Association of REALTORS® reported earlier this week that existing-home sales—completed transactions for single-family homes, townhomes, condos, and co-ops—dropped 0.4 percent to a seasonally adjusted annual rate of 5.43 million in May. Sales are now 3 percent lower than a year ago. Home prices also reached a new all-time high last month—a median of $264,800.

“Persistently low supply levels, and not this year’s climb in mortgage rates, are handcuffing sales—especially at the lower end of the market,” Khater says. “Home shoppers can’t buy inventory that doesn’t exist.”

Freddie Mac reports the following national averages with mortgage rates for the week ending June 21:

• 30-year fixed-rate mortgages: averaged 4.57 percent, with an average 0.5 point, falling from last week’s 4.62 percent average. Last year at this time, 30-year rates averaged 3.90 percent.
• 15-year fixed-rate mortgages: averaged 4.04 percent, with an average 0.4 point, falling from last week’s 4.07 percent average. A year ago, 15-year rates averaged 3.17 percent.
• 5-year hybrid adjustable-rate mortgages: averaged 3.83 percent, with an average 0.3 point, unchanged from a week ago. A year ago, 5-year ARMs averaged 3.14 percent.

New-Home Construction Surges to Highest Level in Decade | Realtor Magazine

More new homes entered the pipeline in May than any other month since the end of the Great Recession. Total housing starts increased 5 percent in May to a seasonally adjusted annual rate pace of 1.35 million units, the Commerce Department reported Tuesday. That marks the highest housing starts since July 2007.

Broken out, single-family starts rose 3.9 percent to 939,000 units in May—the second-highest reading since the Great Recession. The multifamily sector increased 7.5 percent to 414,000 units. Single-family and multifamily production are now 9.8 percent and 13.6 percent higher, respectively, than a year ago.

“New-home construction activity soared to its highest level in over a decade, which is fantastic news as more housing inventory will be available as the year proceeds,” says Lawrence Yun, chief economist of the National Association of REALTORS®. “Moreover, construction and real estate industry jobs are being created and boosting the economy. [As a result,] GDP growth of 4 percent to 5 percent is possible in the second quarter.”

The Midwest saw the biggest jump in housing production last month, with combined single-family and multifamily housing starts rising 62.2 percent. Meanwhile, starts fell 0.9 percent in the South, by 4.1 percent in the West, and by 15 percent in the Northeast.

“The Midwest region experienced the biggest gain and hence the region will remain more affordable,” Yun notes. “The more unaffordable West region will continue to experience an intense housing shortage, as both housing permits and housing starts fell in that region. For the country as a whole, an additional 20 percent to 25 percent gain in home construction is needed to make the market more balanced.”

Housing starts will likely hit a snag in the coming weeks. Permits—a gauge of future activity—fell 4.6 percent in May to 1.3 million units. The biggest drop in permits was in the multifamily sector, which saw permits tumble 8.7 percent to 457,000. Single-family permits dropped 2.2 percent to 844,000.

“Ongoing job creation, positive demographics, and tight existing home inventory should spur more single-family production in the months ahead,” says Robert Dietz, the National Association of Home Builders’ chief economist. “However, the softening of single-family permits is consistent with our reports showing that builders are concerned over mounting construction costs, including the highly elevated prices of softwood lumber.”

San Jose Approves New Rules on ‘Granny Units’ – NBC Bay Area

San Jose leaders Tuesday night approved new rules to allow for more so-called granny units to help ease the housing crunch.

For some homeowners, that means their backyard just became a gold mine.

Mayor Sam Liccardo is hoping the less restrictive rules will result in 3,500 new housing units per year built in the backyards of existing homes. For homeowners, it means far more possibilities for their property.

Resident Brian Thorn, who owns a home in the Naglee Park neighborhood of San Jose, said “it feels in a way like winning the lottery.”

“I think we’re going to have a one bedroom and have a kitchen and a bath and a washer and dryer,” he said.

The City Council’s decision could open up a whole new rental market that would represent a windfall for property owners who would be allowed to rent out converted garages and backyard spaces.

And for San Jose, it means a bit of a dent in the housing crisis.

“If we can just get out of the way with the red tape and regulations; we’re waving a lot of requirements around setbacks and parking and height requirements,” Liccardo said.

With the new rules, lot sizes can be smaller, and backyard homes can be larger. The city’s hoping for several hundred new units each year.

The mayor said the little homes can be built pretty quickly, and most homeowners are likely to be a little less demanding on rent.

Why 5% Mortgage Rates Aren’t a Threat | Realtor Magazine

Mortgage rates are on the rise. Could that derail sales? According to First American’s Potential Home Sales model, even if the 30-year fixed-rate mortgage rose to 5 percent, the impact on the housing market would be modest.

 

Many economists are predicting that the 30-year fixed-rate mortgage will average 5 percent by the end of 2018 or early 2019.

 

First American’s Potential Home Sales model estimates the potential for existing-home sales based on market fundamentals. The market potential for existing-home sales based on current fundamentals is 6.11 million at a seasonally adjusted annualized rate. If the 30-year fixed-rate mortgage rose to 5 percent, the impact would be a slight decline to 6.1 million existing-home sales, according to the model.

 

“The reason mortgage rates are rising—positive economic conditions—is also causing household income to rise, which helps offset the increase in borrowing costs from higher rates,” Mark Fleming, First American’s chief economist, writes in a column at the company’s Economic Center Blog.

 

Also, home buyers can adjust to higher mortgage rates by taking a lower rate available through an adjustable-rate mortgage than a fixed-rate mortgage or by purchasing a less expensive home, Fleming notes.

 

“The housing market is flexible and can adjust to moderately higher mortgage rates without significant impact,” Fleming writes. “The likely rise in mortgage rates is not the worry for first-time home buyers, but whether they can find something to buy in today’s supply-constrained market.”

May Real Estate Market the Fastest on Record; Prices Up 6.3% – @Redfin

Across the 174 markets that Redfin tracks, the typical home sold in May went under contract in 34 days, breaking April’s record of 36 days, which was the fastest month Redfin had recorded going back to 2010. Amid the speed, the national median home sale price rose to $305,600, a 6.3 percent increase from May 2017.

The number of newly listed homes for sale increased 4.3 percent compared to May of last year, driving a 3.6 percent increase in the number of homes sold. However, the overall supply of homes declined 5.4 percent during the same time period. Just 2.5 months of supply remained at the end of the month, compared to the six months that generally signals a balanced market.

Among homes that sold in May, 27.6 percent sold above their list price, the highest percentage Redfin has recorded, indicating strong competition for the few homes available. At the same time, nearly a quarter of homes for sale had a price drop in May, the highest percentage of price drops since September of 2017.

“Prices are still increasing, but not at the same rate we saw earlier in the spring,” said Redfin senior economist Taylor Marr. “The record percentage of homes sold above list price is at odds with the higher percentage of price drops in May. This tells us that while it’s still very much a seller’s market, price growth and rising mortgage rates may be pushing buyers to the limit of what they’re able to pay.”

Market Summary	May 2018	Month-Over-Month	Year-Over-Year
Median sale price	$305,600	1.5%	6.3%
Homes sold	292,900	18.4%	3.6%
New listings	373,500	7.6%	4.3%
All Homes for sale	728,300	5.6%	-5.4%
Median days on market	34	-3	-4
Months of supply	2.5	-0.3	-0.2
Sold above list	27.6%	1.3%	1.2%
Median Off-Market Redfin Estimate	$289,600	0.8%	7.4%
Average Sale-to-list	98.6%	0.3%	-0.1%

For the seventh month in a row, San Jose topped the nation with price growth over 25 percent. The supply of San Jose homes fell 13.8 percent compared to last year. That drop is actually the smallest decline in a 16-month stretch of inventory declines, an indication of the intensity of San Jose’s inventory shortage. A bit of good news for San Jose buyers: the number of homes newly listed in May ticked up 11.2 percent compared to last year.

After a prolonged period of inventory declines, some metro areas are finally seeing more homes hit the market. Washington, D.C. and Portland, OR have now had four months in a row of year-over-year increases in inventory. Seattle inventory increased for the second month in a row, up 17.4 percent in May compared to last year.

“Two months of growing inventory is a positive sign for Seattle buyers, but the previous 43 consecutive months of inventory declines won’t be reversed overnight,” said Jessie Culbert, a Redfin agent in Seattle. “Even so, we can already feel a slight easing in the market. Homes are still selling quickly and often over-asking, but where last May a seller may have gotten 15 to 20 offers, this May it was two to five.”

Other May Highlights

Competition

• Denver was the fastest market, with the typical home going under contract in just six days. Seattle and Tacoma, WA were the next fastest markets at seven median days on market, followed by Boston and Grand Rapids, MI at eight median days on market.
• The most competitive market in May was San Jose where 83.8% of homes sold above list price, followed by 79.6% in San Francisco, 76.2% in Oakland, 63.1% in Tacoma, WA, and 61.9% in Seattle.

Prices

• San Jose had the nation’s highest price growth, rising 27.6% since last year to $1,250,000. Tacoma, WA had the second highest price growth at 19.6% year-over-year, followed by Memphis, TN (16.9%), Las Vegas, (15.9%), and Rochester, NY (15.4%).
• No metros saw price declines in May.

Sales

• Thirteen out of 73 metros saw sales surge by double digits from last year. Warren, MI led the nation in year-over-year sales growth, up 38.5%, followed by Baltimore, up 31.8%. Camden, NJ rounded out the top three with sales up 24.7% from a year ago.
• Buffalo, NY saw the largest decline in sales since last year, falling 17.2%. Home sales in Rochester, NY and Baton Rouge, LA declined by 16.6% and 12.8%, respectively.

Inventory

• Indianapolis had the largest decrease in overall inventory, falling 37.7% since May of last year. Rochester, NY (-37.1%), Buffalo, NY (-32.8%), and Milwaukee (-22.9%) also saw far fewer homes available on the market than a year ago.
• Portland, OR had the highest increase in the number of homes for sale, up 35.3% year over year, followed by Detroit (28.4%) and Allentown, PA (24.4%).

Pricing Strategy

• To see trends in sellers’ pricing strategies, we compare the list price to the Redfin Estimate, Redfin’s automated home-value estimate. When sellers consistently price their homes below the Redfin Estimate in a market, this can indicate a common strategy to deliberately underprice to create a bidding war.
• The median list price-to-Redfin Estimate ratio was 93.2% in San Francisco, the lowest of any market. This indicates the typical home for sale in May was listed at 94.1% of its estimated value. Only 5.9% of homes in San Francisco were listed for more than their Redfin Estimate.
• Conversely, the median list price-to-Redfin Estimate ratio was 102.4% in Miami and 102.1% in West Palm Beach, FL, which means sellers are listing their homes for more than the estimated value in those metro areas. In Miami, 84.7% of homes were listed above their Redfin Estimate, the highest percentage of any metro.

6 ways to build home equity and stay withing your budget

Home equity is the percentage of your home’s value that you own, and it’s key to building wealth through homeownership. Let’s take a closer look at how to build home equity without blowing your budget — and how to access it when you need it.

How much equity do you have?

Equity is easy to calculate when you first buy a home because it’s basically your down payment. For example, if you put $11,250 down on a $225,000 home, your down payment is 5 percent and so is your equity.

From 2016 to the first quarter of 2018, most first-time home buyers in the U.S. started with about 7-percent equity, according to Inside Mortgage Finance. This is encouraging because it shows you don’t need to spend years saving for 20 percent down or more before you buy. Repeat home buyers started with more equity, at about 17 percent.

How to build your equity

Here are six ways your home can create wealth for you. Some require time, money — or both. A lender can help you decide what works best for you.

1. Let your home appreciate

Building equity through appreciation can take little time or a lot, depending on the market. With home prices going up like they have in recent years, appreciation has been a boon for many home owners.

Zillow research indicates that the median home value grew from $185,000 in April 2016 to $216,000 in April 2018. If you bought a home for $185,000 in April 2016 with a down payment of $12,950, your beginning 7-percent equity would have grown to 23 percent by April 2018.

We calculate this by subtracting your current loan balance ($165,600) from your home’s current value ($216,000). Then we divide the difference by your home’s current value. One-eighth of this additional 16 percent equity is from paying down your mortgage, and the rest is market appreciation.

If you waited two years and bought the same home in April 2018 with a 20-percent down payment of $43,200, you started off with 20-percent equity. You also used 3.3 times more cash to make the purchase. And here’s the kicker: Your total monthly housing cost would be the same — about $1,050 in both cases.

This example illustrates two things:

First, the power of home appreciation. It’s a lot like buying stock and benefitting as its value goes up. But there’s also a difference: While you’ll pay capital gains on rising stock value, you’re exempt from paying taxes on primary-home capital gains up to $250,000, or $500,000 for married couples.

Second, waiting to “save enough” isn’t the primary factor in determining if you can afford to buy a home. When it comes to qualifying for a loan, lenders do indeed look at your down payment. They’ll also want to know how much you’ll have in cash reserves after closing. But there are lots of options for low down payments that require minimal reserves.

Your monthly budget is the primary factor lenders consider when deciding whether you can afford a home. Lenders will allow you to spend between 43 percent and 49 percent of your income on monthly bills, which is actually on the high side and could strain your budget.

Since 2016, most first-time buyers have spent about 38 percent of their income on housing and other debt, which is a pretty safe cap for budgeting.

2. Make a larger down payment

You can do this but, as we’ve seen, waiting to save extra cash can go against your broader financial interests if you lose the chance to build equity through appreciation. Therefore, you must strike a balance among down payment, monthly budget and savings for other priorities. A good lender can provide rate and market insight to help you do this.

3. Use financial windfalls

Take advantage of work bonuses, family gifts and inheritances to pay down your mortgage. If you do pay down in lump sums, see if your lender will recalculate (or “recast”) your payment based on the new, lower balance.

4. Double up on payments

Make mortgage payments every two weeks instead of once a month. Over the course of a year, this will add up to 13 monthly payments instead of 12. You’ll build equity faster and shave five to six years off a 30-year mortgage. Just make sure your lender isn’t charging extra for processing bimonthly payments.

5. Cut your loan term in half

Take out a 15-year mortgage instead of a 30-year mortgage, and you’ll build equity twice as fast. Two caveats here: You’ll have a significantly higher monthly payment and, because of that, you may have a tougher time qualifying.

6. Make home improvements

New appliances or cosmetic features like paint are unlikely to increase value. Only big improvements like new kitchens, or additional bathrooms or other rooms will add meaningful value. Make sure the cost of such improvements will create the added value you’re looking for.

How to use your equity

You must borrow or sell your home to use your equity. The three most well-known ways to get to your equity through borrowing are a home equity line of credit (HELOC), home equity loan or cash-out refinance. Compare the pros and cons of each.

Report: Co-Buyers Bring Big Down Payments | Realtor Magazine

Co-buyers—multiple unmarried buyers listed on the sales deed—are bringing some of the highest down payments to settlement, according to ATTOM Data Solutions’ First Quarter 2018 U.S. Residential Property Loan Origination Report.

The average down payment for homes purchased by co-buyers in the first quarter was $56,911—46 percent higher than the average down payment of $38,915 for homes purchased by other buyers. The average co-buyer brought 15.3 percent of the average sales price to settlement; the average home buyer brought 11.4 percent in the first quarter, according to the analysis. 

“Given that median down payments rose more than four times as fast as median home prices over the past year, it’s not surprising that home buyers are increasingly getting help from co-buyers—often in exchange for a share of their home’s future equity,” says Daren Blomquist, senior vice president at ATTOM Data Solutions. 

Out of 184 metro areas tracked, the markets with the highest percentage of co-buyers in the first quarter were San Jose, Calif. (48.3%); San Francisco (37.9%); Seattle (27.7%); Honolulu (27.7%); and Miami (27.6%).

“Homeownership rates are still hovering around historic lows—even though lenders continue to offer more low down payment options,” says Michael Micheletti, director of corporate communications at Unison, a firm that provides down payment assistance to buyers in exchange for a share of any future increase in the home’s value. “Letting people borrow more doesn’t make buying a home more accessible or affordable. It’s not surprising that places like Seattle, the Bay Area, and other challenging markets buyers are looking at ways to increase their purchasing power, and reduce the amount of debt they are taking on. The sharing, co-buying and co-owning of a home movement will only grow as more millennials and Gen Z enter the marketplace.” 

Fed Hints at More Rate Hikes Ahead | Realtor Magazine

The Federal Reserve voted Wednesday to raise interest rates for the second time this year and indicated that it will step up the pace of interest rate hikes if economic growth continues to boom. It changed its outlook to a total of four likely increases this year. Eight Fed policy makers said they expected four or more quarter-point rate increases for the full year.

“The committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the committee’s symmetric 2 percent objective over the medium term,” according to a Fed statement released after Wednesday’s meeting. 

The Fed’s decision to increase its benchmark rate on Wednesday was the sixth quarter-point increase in 18 months. In a unanimous vote, its members raised the federal funds target rate to a range of 1.75 percent to 2 percent. 

The Fed’s rate is not directly tied to mortgage rates but does tend to have an impact. Lawrence Yun, chief economist of the National Association of REALTORS®, said in a statement that the raise in the Fed’s short-term interest rates will likely have an impact on what borrowers will be paying for mortgages. 

“We are still in the middle innings of rising interest rates … mortgage rates will consequently continue to nudge higher,” Yun says. “Fortunately, the economy is strong and wages are rising. If housing supply can be increased through more building, then the negative impact of rising interest rates can be mitigated.” 

The course of interest rate hikes will still likely remain gradual, but the Fed is showing a more aggressive stance at tightening its policy. Unemployment fell in May to the level the Fed had originally forecast for the end of the year. U.S. growth is also getting a boost from $1.5 trillion in tax cuts and a $300 billion in federal spending. 

“Economic activity has been rising at a solid rate,” the Federal Open Market Committee said in a statement. “Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly.” 

Mortgage Delinquencies Fall to 11-Year Low | Realtor Magazine

Fewer homeowners are falling behind on their mortgage payments. Only 4.3 percent of mortgages in March were in some stage of delinquency (30 days or more past due, including those in foreclosure), according to the Loan Performance Insights Report, released Tuesday by CoreLogic. The March foreclosure inventory rate—which reflects the share of mortgages in some stage of the foreclosure process—was 0.6 percent, which is the lowest rate of that month in 11 years. 

“Unemployment and lack of home equity are two factors that can lead to borrowers defaulting on their mortgages,” says Frank Nothaft, CoreLogic’s chief economist. “Unemployment is at the lowest level in 18 years, and for the first quarter, the CoreLogic Equity Report revealed record levels of home equity growth with equity per owner up to $16,300 on average for the year ending March 2018.” 

But economists warn that delinquencies could rise in the coming months. 

“As we enter the summer, the risk of hurricane and wildfire damage to homes increases as does the risk of damage-related loan default,” says Frank Martell, president and CEO of CoreLogic. “Last year’s hurricanes and wildfires continue to affect today’s default rates. Serious delinquency rates are more than double what they were before last autumn’s hurricanes in Houston, Texas, and Naples, Florida. The serious delinquency rates have also quadrupled in Puerto Rico.”