The Rise and Fall of Home Sales in the 21st Century: Trends in Mortgage Rates and Real Estate Activity in the U.S.
Even with an improving interest rate environment and job gains, Yun still expects annual existing-home sales to drop about 11% this year from last year, before jumping up about 18% in 2024. NAR projects new-home sales will fall about 4% this year compared with last year before surging nearly 20% in 2024.
In November, as mortgage rates started a six-week tumble, the median monthly mortgage payment fell by 1.8% to $1,977 from $2,012 in October, according to the Mortgage Bankers Association.
Wells Fargo’s economists estimate that the median price for an existing single family home to be $385,000 this year, up 7.8% from last year, but the growth will be a lot less than the 19% year-over-year increase seen in 2021.
The price of a home in Boise, Idaho is falling, with prices falling 3.9% in September.
In November, prices in San Francisco had fallen on a year-over-year basis and the city’s decline worsened in December, with prices down 4.2% year-over-year. Seattle prices were down from last year.
The Mortgage Market in the Boom of the 20th Century: The Effects of Inflation on Real Estate Applications, Homebuying and Mortgage Closure
Editor’s Note: Erik Lundh is a principal economist at The Conference Board. The opinions he gave in this commentary are his own. Read more opinion at CNN.
Additionally, in the years that followed the 2008 financial crisis, new regulations were introduced. Banks are now required to be better capitalized; lending standards are much more rigorous, leading to higher-quality loans; most mortgages are fixed-rate; and financial derivatives, such as asset-backed securities, are better regulated. The financial system is dependent on the housing downturn.
Additionally, years of rampant demand spurred builders to overbuild in the early 2000s, flooding the country with a home surplus. It took years for demand to work through the housing stock amassed after the Great Recession. This, in turn, crushed the homebuilding industry, causing chronic underbuilding over the subsequent years.
Sam Halper, Freddie Mac’s chief economist said that mortgage application activity sunk to a quarter-century low this week as high mortgage rates weaken the housing market. The mortgage market activity has shrunk, but inflationary pressures are easing, and should lead to lower mortgage rates in the future.
Houses were “flying out the door,” said Grant Sykes, a manager at real estate agency Barfoot & Thompson. “There were chin-dropping moments when agents stand around the room and are gobsmacked at the prices being achieved,” he told CNN Business.
In one example, a property sold for 1 million New Zealand dollars ($610,000) above the asking price in an auction that lasted all of eight minutes. Most homes in New Zealand are sold at auction.
That was in May 2021, when sales attracted thousands of bidders who drove prices ever higher. Barfoot & Thompson’s clearance rate at auction has fallen since then, prolonging sales times and sending prices lower.
The increased rates have shocked existing homeowners accustomed to more than a decade of ultra-low borrowing costs.
After climbing for a period of time, mortgage rates have fallen due to data showing that inflation may have peaked.
One key factor determining how low prices go? Unemployment. A sharp increase in joblessness could lead to forced sales and foreclosures, “where steep discounts are common,” according to Slater.
Housing is not making the economy worse. The housing market has been impacted in some way. But mortgage delinquencies are still low,” said Gene Goldman, chief investment officer at Cetera Investment Management.
“Data lags probably mean that most markets are now seeing falling prices,” said Slater. “We’re in the early period in quite a clear downturn now and the only real question is how steep and how long it’s going to be.”
Chinese Real Estate Markets Compared to the Pre-Period Pandemic: Implications for the UK, Europe, and the United States
China’s property market accounts for about 28-30% of GDP because of these linkages. In the United States, housing’s broader contribution to GDP generally averages 15-18%, according to the National Association of Home Builders.
Sales are sliding elsewhere too, as banks take a more cautious approach to lending and aspiring homebuyers delay purchases in the face of much higher borrowing costs.
The market is frozen, in which there has been a decline in home sales activity for 10 months in a row. It’s the longest decline since the group started keeping records.
“A skilled service sector worker can afford roughly one-third less housing space than before the pandemic,” according to the UBS Global Real Estate Bubble Index.
In Britain, more than 4 million mortgages have been issued to first-time buyers since 2009, when rates were near zero. “There’s a lot of people out there who don’t appreciate what it’s like when their monthly outgoings rise,” said Tom Bill, head of UK residential research at broker Knight Frank.
In countries with a larger share of variable rate mortgages, such as Sweden and Australia, the shock will be immediate and could increase the risk of forced sales that drive prices down faster.
But even in places where a large proportion of mortgages are fixed, such as New Zealand and the United Kingdom, the average maturity of these mortgages is quite short.
“This means much more debt will be subject to (often significantly) higher rates over the next year or so than might first appear to be the case,” Slater wrote in a report last month.
The chances of a more benign correction are higher if labor markets are strong, according to Innes McFee.
Employment levels in many advanced economies have recovered since falling at the start of the pandemic. Weak economic growth is hitting demand for workers so there are early signs of labor markets cooling.
After recovering strongly at the beginning of the year, the number of hours worked was 1.5% below pre-pandemic levels in the third quarter, amounting to a deficit of 40 million full-time jobs, according to estimates by the International Labour Organization.
In an October report, the ILO said that the outlook for global labour markets has worsened recently and that vacancies will decline and employment will diminish in the last three months of the year.
The unemployment rate in the United States ticked upwards in October to 3.7%. In the United Kingdom, job vacancies have fallen to the lowest level in a year. Unemployment is expected to rise by 505,000 to a peak of 1.7 million, an unemployment rate of 4.9%, according to the UK Office for Budget Responsibility.
In a worst-case scenario, Oxford Economics expects world GDP to grow by just 1% in 23 years, rather than the 3% it currently expects.
“An additional negative factor, compared to the [global financial crisis], is that the Chinese housing market is also in a downturn,” according to Slater. The impact on world output of the housing downturn was mitigated after the GFC by the Chinese housing sector, but now it is contributing to the slump.
Mortgage Rates are Down Compared to Last Year, according to Tucker, the Mortgage Bankers Association, and an Analysis of the 30-Year Consumer Price Index
Freddie Mac says the 30-year fixed-rate mortgage averaged 6.11% in the week ending December 15. A year ago, the 30-year fixed rate was 3.12%.
Inflation is measured by the Consumer Price Index, which fell in November to its lowest level in a year.
“Inflation expectations themselves play into mortgage rates and it impacts the monetary policy,” said Tucker. “The Fed wants to wait and see inflation coming down before they take their foot off the brake on raising rates. There is growing consensus to expect another step down in the pace of tightening.
Even with rates trending down since November, they are nearly double what they were a year ago and mortgage applications are down 58% since then, according to the Mortgage Bankers Association.
Freddie Mac processes mortgage applications from thousands of lenders across the country and calculates the average mortgage rate. The survey includes only borrowers who put 20% down and have excellent credit. When buying, it’s important to put down less money upfront in order to pay less than the average rate.
The Fed’s actions have an effect on interest rates borrowers pay on their loans. Mortgage rates tend to track the yield on 10-year US Treasury bonds. When that rate goes up, the 30-year fixed-rate mortgage typically goes up, too. Mortgage rates go up when the Treasury rate goes down.
“For investors, the Fed’s tightening still presents the risk of pushing the economy into a recession in 2023,” he said. “However, most economic indicators continue to show signs of resilience. The Consumer Price Index data shows moderation in the price growth trajectory.
Ratiu said that this means that the cooling in inflation measures should ease the upward pressure on mortgage rates.
The recent downward trend in mortgage rates is expected to continue, according to the president and CEO of the MBA. He believes that these lower rates, along with the moderating home prices, will lead more people to return to the market in the early 20th century.
Mortgage applications increased last week as buyers looked to take advantage of a few weeks of slightly lower rates, according to the Mortgage Bankers Association.
The vice president and deputy chief economist of the mba said that applications increased due to increases in purchase and refinance activity. “However, with rates more than three percentage points higher than a year ago, both purchase and refinance applications are still well behind last year’s pace.”
There are a lot of housing data that is on the table. On Tuesday the US Census Bureau will report housing starts and building permits, followed by the release of new home sales data on Friday. In between that will be the November existing home sales numbers from the National Association of Realtors on Wednesday, as well as weekly data on mortgage rates and applications on Thursday.
There are some indications that the worst could soon be over. After reporting earnings last week, shares of the homebuilders rallied. Revenue topped forecasts and the company’s guidance for the number of homes it expected to deliver next year was a little higher than analysts’ estimates as well.
Kenneth Leon of CFRA Research thinks investors might be looking ahead to a possible recovery in the next few years.
Wages are growing and the job market is still strong. What’s more, many consumers still have decent levels of excess savings thanks to pandemic era government stimulus.
People argue that the good news is that most people who own homes are making their mortgage payments on time.
Again, that’s a stark contrast from 2008 when many people with subprime loans or borrowers with poor credit histories were unable to keep up with their mortgage payments.
What Are the Odds of a Super-Recession? Explaining Why Earnings are Good for Consumers and for Corporate Spending
There are not many companies reporting their latest earnings this week. But the few that are could give more clues about the financial health of consumers and the state of corporate spending.
General Mills will release its earnings on Tuesday. Analysts are expecting a slight increase in both sales and profit. Consumers may be growing increasingly wary about inflation and the broader economy, but they’re still eating their Wheaties. General Mills’ shares have soared this year.
Analysts are less optimistic about outlooks for Nike, CarMax, and Micron as they use their chips in everything from cell phones to cars.
FactSet says that fourth-quarter earnings for the S&P 500 companies are expected to decline from a year ago. Analysts are cutting their forecasts as well. As recently as September 30, John Butters noted that fourth-quarter profits were expected to rise 4.7%.
“Odds of a recession are pretty high,” said Vincent Reinhart, chief economist and macro strategist at Dreyfus & Mellon. “That will have a knock-on effect for corporate earnings. Higher rates and less earnings suggest more pain for the stock market.
Tuesday: US housing starts and building permits; China sets loan prime rate; Bank of Japan interest rate decision; earnings from General Mills, Nike, FedEx
(FDX) and Blackberry
The Paul Years: How Housing Prices and Real Estate Prices Decracted in 2022 During the Second Quarter of the 2021 Equilibrium
“We just kind of got to that place in our lives where we were financially very stable, we wanted to start having kids and we wanted to just kind of settle down,” says Paul, 34.
Then came the Fed’s persistent interest rates hikes. After a few months, with mortgage rates climbing, the Pauls could no longer afford the homes they’d been looking at.
“There’d be, you know, two dozen other offers and they’d all be $100,000 over asking,” says Paul. “Any any time we tried to wait until the weekend for an open house, it was gone before we could even look at it.”
“The cooling in home prices that began in June 2022 continued through year end, as December marked the sixth consecutive month of declines for our National Composite Index,” says Craig J. Lazzara, Managing Director at S&P DJI.
At an open house for a charming starter home in Hollywood one recent weekend, agent Elijah Shin didn’t see many people swing through like he did a year ago.
“The Manhattan sales market is exiting the euphoric market of 2021 and moving to something closer to normal,” said Jonathan Miller, president and CEO of Miller Samuel.
Real Estate Market Analysis of Condos in the Mid-Surface During the First Three Months of 2018: a Report from Zillow
The one-bedroom condos had a median price of over $1 million. The median price for a two-bedroom condo was $2,150,000. Median prices of co-ops were lower, at $710,000 for a one-bedroom, and $1,325,000 for a two-bedroom.
There were more than 6,000 listings in Manhattan at the end of the fourth quarter. The fourth quarter was 2% higher than the fourth quarter of 2021, but less than the third quarter.
The market metrics of prices, sales, and inventory are going up from the pre-pandemic levels they were in at a modest pace.
He said that the tight inventory picture suggests that should mortgage rates drop, there will be more movement in the market.
The competing demands of first time buyers and retirees will keep the would be buyers out of the market for a long time.
“Mortgage rates are really critical to the path of the housing market in the year ahead,” said Jeff Tucker, senior economist at Zillow. “We are watching to see affordability gradually improve. That should breathe some life back into the market.”
He said more inventory would then become available from the locked-in homeowners clinging to their ultra-low mortgage rates from the past couple of years.
As a result, the search for affordability is leading many would-be homebuyers toward lower-priced metro areas where the cost of a house can fit within more families’ budgets, said George Ratiu, manager of economic research at Realtor.com.
Some markets such as Manchester, New Hampshire and Columbus, Ohio are still seeing homes change hands even though buyers from more expensive locations are lured by solid local economies and median prices.
The 2022 Market: A Wonderful Surprise for Buyers and Sellers in the Aftermath of Recession and Declining Mortgage Rates, as Revised by Steinberg
Leonard Steinberg, a corporate broker at New York, stated that in the years to come, we might see a similar image of 2022, a somewhat trying first half and a surprisingly strong back half.
During the spring selling season, homes tend to sell for a seasonal premium and that’s when most buyers are trying to get it done.
“The spring market will be busier and more competitive, for buyers, while the next two months will be the calm before a more hectic time,” said Tucker.
The market has a really boring year, so it might be the surprise for a lot of people. “It would be a great change of pace. It would be a wonderful surprise if there was a boring year in the housing market.
“With more than 10 million open jobs and still not enough applicants to fill them, the labor market would have to experience a sharp and significant drop to move the needle on spending,” he said. “This scenario is more likely if corporate executives overreact to the recession chatter and preemptively cut payrolls, which would create a self-fulfilling downward spiral.”
But traditional seasonal norms are expected to kick in come March as more inventory becomes available and more buyers starting to look at what’s available — as long as buyers can stomach the current rates and sellers are willing to give up the ultra-low rates they enjoyed in the past couple years.
Last July marked the first month-over-month decrease for the national index since February 2012 and that continued through November, with seasonally adjusted prices falling 0.3% month over month.
All cities in the 20-city index reported declines before seasonal adjustments. There were 19 cities that still reported declines after seasonal adjustments.
The November Real House Price Index – Predictions for South Florida, Tampa and Tampa, and Implications for Mortgage Rates and Homebuying
Home prices rose 7.7% in November from the year before, a smaller jump than the 9.2% growth seen in October, according to the latest S&P CoreLogic Case-Shiller US National Home Price Index, released Tuesday.
In November, cities in the South had the highest year-over-year gains, with Miami, Atlanta and Tampa all showing increases of greater than 10%. Miami led the way with an 18.4% price increase from the year prior, followed by Tampa and Atlanta. All 20 cities reported lower price increases compared to the previous year.
Bright MLS chief economist Lisa Sturtevant said the November report showed evidence of a slowing housing market during the fall, but it may not be the worst yet.
“This one percentage point reduction in rates can allow as many as three million more mortgage-ready consumers to qualify and afford a $400,000 loan, which is the median home price,” said Sam Khater, Freddie Mac’s chief economist.
He expects mortgage rates to remain around 6 percent for the next few weeks, because of the effect of the Fed’s actions.
The US economy added 517,000 jobs in January, which was a record,according to the Bureau of Labor Statistics. Analysts were expecting something closer to 185,000 jobs. The surprising number makes the Fed’s historic and aggressive efforts to cool the labor market and bring inflation down through rate hikes all the more complicated.
Housing economists and those in the mortgage market are looking to the next report on inflation, set to be released February 14, to see if the pace of price hikes continues to slow.
The tension between expectations and economic data will continue to seep through financial markets for several more months, said George Ratiu, Realtor.com’s manager of economic research.
The president and CEO of theMBA said that affordability is a challenge but that demand for homes will recover heading into the spring.
It remains to be seen whether further actions by the Federal Reserve will mean higher rates for people who werejust getting their heads around rates at the lower level.
The pending sales index, based on signed contracts to buy a home rather than the final sales that are accounted for in existing home sales, rose by 8.1% from December to January, beating economists’ predictions for a rise of 1%. Following a downwardly revised 1.1% rise in December, the January jump followed.
Home sales were down by 24.1% in the first quarter of this year, but the market appears to be bottoming out before improvements can be made, according to President and COO of the Mortgage Bankers Association, Lawrence Yun.
The Northeast, Midwest, South, and the West each saw a month-to-month increase in pending home sales.
“An extra bump occurred in the West region because of lower home prices, while gains in the South were due to stronger job growth in that region,” Yun said.
The 30-year Fixed Mortgage Rate: A Keystone to Real Estate Growth and Growth in the coming months and a Crucial Driver for Future Market Dynamics
The 30-year fixed mortgage rate is projected to go down to an average of 6.1% in 2020 and 4.8% in 2024, as the economy continues to add jobs.
“But as rates are right back up in February, it’s likely that any momentum in this market will be short lived and affordability challenges will remain key to the direction and speed the market moves in the coming months,” she said.