Increasing mortgage rates have yet to offset demand enough to deter the price gains, says expert.
Double-digit home price growth will slow over the next year, likely decelerating to a 5% pace, CoreLogic said in its May Home Price Index (HPI) forecast. Despite a surge in interest rates and low housing supply, US home prices in May climbed 1.8% from April and were up 20.2% from a year ago. However, CoreLogic predicts that elevated prices will decline to 5% by May 2023 as rising rates continue to dampen demand. “With monthly mortgage expenses up about 50% from only a few months ago, fewer buyers are now competing for continually limited inventory. And while annual home price growth still exceeds 20%, we expect to see a rapid deceleration in the rate of growth over the coming year,” said Selma Hepp, deputy chief economist at CoreLogic. “Nevertheless, the normalization of overheated buying conditions should bring about more of a balance between buyers and sellers and a healthier overall housing market.” Will Doerner, supervisory economist in FHFA’s division of research and statistics, pointed out that the low inventory of homes on the market continued to keep upward pressure on sales prices. “Increasing mortgage rates have yet to offset demand enough to deter the strong price gains happening across the country,” Doerner said. All states and Washington, DC saw annual appreciation, with Florida posting the highest year-over-year gain at 33.2%, followed by Tennessee at 27.4%. Arizona ranked third with a 27.3% annual increase, while Washington, DC ranked last at 4.3%.
0 Comments
"The month's data illustrates just how interest rate-dependent the originations market has become"
The US mortgage market continued to experience production problems as its total lock volumes slumped to a three-month low in June, data from Black Knight’s Originations Market Monitor report revealed. “This continues to be a challenging environment for mortgage originators,” said Scott Happ, president of Optimal Blue, a division of Black Knight. “Rate lock activity was down for the third consecutive month in June, with declines seen across all loan purpose types.” According to the report, total lock volumes fell 11% month over month. Purchase mortgages, which accounted for 82% of all lock activity, plunged 10.8% by volume from the previous month and are now down almost 15.6% from a year ago. Both rate/term and cash-out refinances were also down by 9.1% and 13%, respectively. “However, when we look at purchase lock counts to exclude the impact of soaring home values on volume, we see the number of purchase mortgages is off some 21% from last year’s levels,” Happ noted. Government-backed loans gained market share in June as FHA and VA lock activity continued to increase at the expense of agency volumes. This trend was likely reflected in the further drop in the average loan amount – down from $359,000 to $351,000. The average borrower credit score in June was 723, with scores on cash-out refis nosediving to 693, the lowest point Optimal Blue has recorded since it started tracking the metric in 2013. “The month’s data illustrates just how interest rate-dependent the originations market has become,” Happ said. “With 30-year rates hovering below 6% – still historically low – we’ve seen the rate/term refi market dwindle to next to nothing, with increasing downward pressure on cash-out activity. Purchase volumes are driving 82% of all origination activity, and those volumes are on the decline as well – in the heart of the traditional home buying season. “Eventually, equilibrium will return; but, as of June, the market seems to be having trouble adjusting to a rate environment anywhere above the historically low levels reached during the pandemic,” he added. New sellers are pouring in at a faster rate than before the pandemic.
Housing supply has not only recovered from 2021 declines but accelerated at record speed in June, according to the Realtor.com Monthly Housing Trends report. The number of homes available to buyers has climbed at its fastest yearly pace of 18.7%, with new sellers and moderating demand among the key factors driving the jump in active listings. New sellers, in particular, are entering the market at a higher rate than in 2017 to 2019 before the pandemic. New listings went up 4.5% year-over-year, and southern markets such as Raleigh, Nashville, Charlotte, and Las Vegas saw new listings gains of at least 30%. This is the second straight month of active listings growth in nearly three years, Realtor.com chief economist Danielle Hale said. Realtor.com has newly updated its 2022 forecast and predicted that inventory recovery acceleration will continue. “While we anticipate that more inventory will eventually cool the feverish pace of competition, the typical buyer has yet to see meaningful relief from quickly selling homes and record-high asking prices,” Hale said. The median listing price hit its latest record of $450,000, up 16.9% from last year, though the gain is slightly smaller than last month’s (17.6%). Hale said that the increasing proportion of larger, more expensive homes in new listings is one reason overall asking prices continue to soar despite cooling demand. In June, homes with at least 1,750 square feet accounted for 54% of new listings. Home movement data likewise suggested a shift in the mix of home shoppers and potential increase in move-up buyers. The typical US home spent 32 days on the market in June – a full month faster than usual pre-pandemic June timing, but slightly slower than last May’s record low. Among June’s active inventory, those with 3,000 to 6,000 square feet sold faster by more than a week year-over-year. “[A] deeper dive into June's inventory gains by square footage reveals potential opportunities for move-up buyers, as newly listed homes skewed larger. In other words, this first wave of supply improvements may be particularly opportune for summer sellers looking to upgrade from their starter homes, which could mean more equity to put towards purchasing a bigger property,” Hale said. With no easy fix, economist suggests adjustable-rate mortgage and upping one's income.
The rapid decline in home affordability took another hit this week, falling to the lowest level in more than a decade. By one measure, affordability has eroded faster than any other point in one key measure – the Real House Price Index issued by First American. Mark Fleming, the chief economist at First American, broke down the statistics leading to the fast decline, including the US cities where affordability declined the most and the least. “In April 2022, the RHPI jumped up by 45.6% compared with a year ago, accelerating faster than any other point in the 30-year history of the series,” Fleming said. “This rapid annual decline in affordability was driven by two factors: a 21.2% annual increase in nominal house prices and a 1.9 percentage point increase in the average 30-year, fixed mortgage rate compared with one year ago.” Yet amid the grim stats, a glimmer of hope in the form of an envisioned rebalancing. “Housing affordability is rapidly declining, and our preliminary nominal house price index estimates for May and June indicate that house price growth is already moderating as potential buyers are pulling back from the market,” Fleming said. “The pandemic-driven supply and demand imbalance that fueled historically strong house price appreciation is coming to an end as the housing market rebalances to a new normal. Yet, the rebalancing will differ from city to city based on localized shifts in supply and demand and income levels.” Still, available options for homebuyers are increasingly scarce for the foreseeable future. The only way forward for many would-be homebuyers is an increase in income, the economist noted. “For home buyers, there are few options to mitigate the loss of affordability caused by the increase in mortgage rates and home prices,” Fleming noted. “One way to offset the decline in affordability is with an equivalent, if not greater, increase in household income. Household income increased 5.0% since April 2021 and boosted consumer house-buying power, but even the strong year-over-year income growth was not enough to offset the affordability loss from higher rates and fast-rising nominal prices” Short of that is the option of an adjustable-rate mortgage, Fleming suggested. “Alternatively, another option for home buyers to mitigate the loss of affordability is to switch to an adjustable-rate mortgage with a lower rate than the fixed-rate benchmark,” he said. “In fact, the share of adjustable-rate mortgages relative to fixed-rate mortgages has grown as mortgage rates have increased in recent months.” Fleming stressed each market is different, and an exploration into market conditions in various cities may provide a pathway to homeownership. “In April, affordability on both a year-over-year and month-over-month basis declined at its fastest pace in the series’ history,” he said. “However, real estate is local and house-buying power and nominal house prices vary by city, so it’s helpful to know where affordability is declining the most and the least.” Still, exploring other cities in which to buy properties yields no panacea: “Affordability declined year over year in all of the 50 markets we track in April,” Fleming noted. “Mortgage rates increased 1.9 percentage points relative to one year ago, which reduces affordability, all else held equal. Higher mortgage rates decrease affordability equally in each market as mortgage rates are generally similar across the country. However, household income growth and nominal house prices vary by market, creating the geographic variance in affordability. Faster nominal house price appreciation can erode, or even eliminate, the boost in affordability from higher household income.” Nevertheless, the economist produced a list of the top five markets at both extremes of affordability. The top five cities where affordability declined the most year-over-year, in descending order, are:
Conversely, the top five cities where affordability declined the least are:
Fleming also provided some states’ highlights from April:
Sellers are adjusting to this new reality
A record-high share of homes sellers dropped their asking prices in June to adjust to a market slowed by surging mortgage rates and affordability concerns, according to a new report by online brokerage Redfin. During the four-week period ending June 26, the median asking price of newly listed homes was $405,547, down 1.5% from the all-time high recorded in the previous month. Pending home sales also slid down 13% year over year, posting the largest decline since May 2020. Additionally, new listings of homes for sale were down 7% compared to the previous year, while active listings saw their smallest decline since March 2020, falling 8% year over year. “Data on home-tours, offers and mortgage purchase applications suggest that homebuyers have noticed the shift in power and are no longer leaving the market in droves,” said Redfin chief economist Daryl Fairweather. “Buyers coming back will provide support to the housing market, but between now and the end of year I think the power will continue to shift towards buyers, resulting in mild price declines from month to month.” According to Redfin’s seasonally adjusted Homebuyer Demand Index, requests for home tours and other home-buying services went down 15% year over year during the week ending June 26, but were up seven points from the week prior. “Homebuyers are worried about interest rates, having to go back to the office, getting laid off, and wondering if they can get a better deal by waiting out the market,” said Caroline Loudenback, a Redfin real estate agent in the Seattle area. “On the other side, sellers are adjusting to this new reality and learning that sometimes there’s not much they can do to increase buyer interest. Sometimes price isn’t even the reason a home is sitting on the market without selling—some more remote areas that were super popular during the pandemic are now being overlooked as buyers reconsider long commutes with high gas prices. It’s a tricky market and you have to pay close attention to your local sales and listings to understand what’s happening.” |
|