New single family home sales fell for the fourth straight month in April, signaling the end of the recent housing boom.
The US has moved from a housing boom into a “housing correction”, according to Mark Zandi, chief economist at Moody’s Analytics. In an interview with Fortune magazine, the economist said all the evidence shows the housing market has “peaked”.
Zandi’s comments were in response to data which shows the US housing market is cooling down.
US census figures said sales of new single‐family houses in April 2022 fell for the fourth month in a row and were 16.6% below the March rate.
A new report by real estate brokerage Redfin revealed that almost one in five sellers were now dropping their prices – the fastest rate since October 2019.
What is causing this? The shift is mostly attributed to the relatively high-rate environment. Another component is inventory has also been increasing steadily since February, according to Federal Reserve data (although inventory levels are still low!). The economist, who is also a regular contributor to The Washington Post, used the term “housing correction” to mean that the housing boom would end and give way to a period “where home prices will fall in some regional markets.”
Using the word “regional” is important in the quote. Some areas of the country may not see a big fall in prices. For example, the metro Atlanta area may escape a significant price correction due to lower than ideal inventory levels and people are still moving into the metro Atlanta area. This new phase of the market will not be nationwide like the correction of 2008. We won’t see housing prices dropping 50% (or more) across the entire country.
Lastly, he went on to predict that year-over-year home price growth would flatline over the coming 12 months, which would mark the worst period for the sector since 2012. He also predicted in some overvalued markets home prices could decline by between 5%-10%.
We are in a new phase of the housing market, so what should a buyer do? It depends on how long one plans to own a home. If a buyer is looking at a short term purchase of just a few years, this could be a risky time to buy. On the other hand, if you’ve been looking for a year, need a larger home for an expanding family, and plan on staying in the home for 5-10 (or more) years, you would see home values recover and exceed your initial purchase price over that time frame.
Lastly, I haven’t touched on the “supply and demand” aspect of the market. There are still more buyers who want to own a home than there are homes to purchase. The supply and demand component should provide a floor for home values.
It is definitely an interesting time. If you are buying a home in the state of Georgia and want to go over pros and cons of buying, contact me today. I can help get you going on a TBD underwrite to allow your offer to stand out from the crowd. Even with all of this data showing the housing market is slowing, homes are still getting multiple offers! Meaning, there is still quite a lot of demand and not enough supply of homes out there to purchase.
The 20% down payment myth is driven by the fact that borrowers must pay PMI when obtaining a conventional loan with less than 20% down. Many home buyers want to avoid the added monthly PMI cost. I personally think that PMI is an effective tool to help some people buy homes sooner. I recently had a friend refer his adult daughter to me. When I counseled her to make a 5% down payment and pay the monthly PMI, Dad challenged me. Here’s how I explained it to him.
His daughter wanted to buy a $200,000 house and had about $25,000 of savings. A 5% down payment was $10,000 and a 20% down payment was $40,000. Remember that a home buyer must pay closing costs and prepaid escrow at closing, in addition to the down payment. And I always recommend that buyers keep cash available in a bank account after closing, to provide a “reserve” should an emergency arise.
The $10,000 down payment left her with $15,000 for closing costs, prepaid escrow, and her “emergency fund.”
To avoid PMI, she would need to save another $25,000 or more for the 20% down payment. I asked Dad how long it would take her to save that and he said 5 to 10 years. I then told Dad that with Anna’s great credit score and 5% down payment, her PMI cost would be less than $60 per month.
She could stop paying rent and buy a house now in a rapidly appreciating home market. Paying PMI to buy now would enable her to build equity as home prices rise, rather than just continuing to save more and more to keep up with rising home prices while she rented and saved (not to mention that a $200,000 home today is no longer going to be a $200,000 home in the 5-10 year time frame it would take to save up 20%).
And current interest rates are near historic lows. There’s no way to predict now what future interest rates would be when she finally saved enough to pay 20% down.
When I explained the math, her dad agreed and she bought a home with a 5% down payment.
Note that PMI premiums are calculated based on the down payment amount and the borrower’s credit score. In general, the lower the down payment, the higher the PMI premium. And in general, the lower the borrower’s credit score, the higher the PMI premium. So not everyone will have such a clear choice as Anna did. But for borrowers with good to great credit scores, my opinion is that paying mortgage insurance is often better for building wealth than paying rent and waiting to save the full 20%.
Do you know someone in Georgia who fears they are “missing out” as they rent while home values rise rapidly? If yes, please connect them with me. I’ll work to help them buy sooner with a mortgage that best fits their need, with as small of a down payment as possible.
I know I posted this information about a year ago, but I hear this myth so often in the mortgage market, I will keep repeating this…..You do NOT need 20% down to buy a home!
According to recent National Association of REALTORS data, the average down payment made by recent home buyers is 12%. Younger buyers tend to put down less. Buyers between age 22 and 30 made an average 6% down payment. Recent home buyers between age 31 and 40 made an average 10% down payment. This ultimately follows common sense, as younger buyers have had less time in the work force to save for a down payment.
Veterans using VA mortgage financing can obtain loans with a 0% down. FHA mortgages have a 3.5% down payment requirement. And borrowers can obtain conventional mortgages with only 3% down.
The 20% down myth is driven by the fact that borrowers must pay PMI when obtaining a conventional loan with less than 20% down. Many home buyers want to avoid the added PMI cost in their monthly payment. But I personally think that PMI is an effective tool to help people buy homes and build wealth sooner. I recently had a friend refer his adult daughter to me. When I counseled her to make a 5% down payment and pay the monthly PMI, Dad challenged me. He did not want her to pay PMI. In my next blog post, I’ll explain my PMI response to Dad. Spoiler alert….the daughter did by a house with 5% down and paying PMI – it made very good financial sense.
Do you know a friend or family member who wants to buy a home in Georgia? Don’t let them by discouraged by the 20% down myth. Tell them that is only a myth and then connect them with me. It is very possible that I can help them finance a home purchase sooner, instead of waiting to save more money. We will work to make their home ownership dreams a reality – hopefully right now.
I have great news for current homeowners, the S&P CoreLogic Case-Shiller index showed that US home values increased at a 13.2% annual rate on average. So homeowners continue building their wealth rapidly. This was up from 12.0% in February. The biggest winners are in Phoenix, San Diego, and Seattle, where home price rose at 20.0%, 19.1%, and 18.3% respectively. Homeowners in the Atlanta realized increases of 11.2% annualized. That ranks #17 out of the top 20 US metro areas.
While this news is great for current homeowners, it poses a challenge for homebuyers. With prices rising and the intense competition for available homes, it’s even more difficult for homebuyers to win a contract.
A Realtor recently explained to me that he now coaches his clients to make smaller down payments to keep more cash in reserve to cover potential appraisal shortfalls. Most houses Atlanta are now selling at prices higher than originally listed. But a high offer price, by itself, may not be attractive to sellers when mortgage financing is involved.
(Yes, I have used this cartoon recently, but I love the smiles on the sellers’ and their Realtor’s faces, so here it is again!!)
Here’s why, the mortgage LTV is calculated based on the lower of the contract purchase price or the appraised value. If a home appraises for lower than the contract price, the mortgage amount will be based on the LTV using the lower appraised value, not the contract price. An offer above the list price is not really convincing unless the buyer commits to cover any appraisal shortfall. And, in this rapidly appreciating market, it can be challenging for appraisal values to keep pace. The appraisers must look back in time to find comparable homes that have already closed. So appraisal values can lag market prices.
My Realtor friend has seen lower cash offers beat out higher financed offers when the financed offers did not include a commitment to cover an appraisal shortfall. So homebuyers with cash available to make larger (say 20%) down payments may want to plan to make 5% to 10% down payments and hold the remaining cash in reserve to cover a possible low appraisal.
This type of environment is VERY challenging for homebuyers who can only afford a small down payment. Buyers with only enough cash to make 5% (or less) down payments have little room to cover appraisal shortfalls. My recommendation is this, talk with parents, grandparents, and in-laws about their ability and willingness to make cash gifts in the event of a low appraisal. Blood relatives can give home buyers cash for closing. This can be a great way to help young adults with little available cash actually win in this environment.
Do you know someone who wants to buy a home in Georgia? Are they uptight thinking about this crazy market? Please refer them to me. I’ll work carefully with them and do everything a lender can do to help them win the contract.
The reason it’s a zoo out there right now trying to find a home…. owning a home creates wealth. Home equity can be up to 90% of the total wealth in a house hold. So while prices are rising, this is why the demand for buying a home remains high.
I do remember the housing crash having started in the mortgage industry in 2007. I also remember from history another housing crash in the 1930s. Other than these two major outliers, home ownership helps grow a person’s net worth.
How much?
In the past 10 years, the medium home price grew $176,000. Obviously median is just an average. Using this average, someone who purchase a home for $175,000 with 5% down in 2011 could have over $200,000 of equity in their home now. Wealth accumulation takes time. The earlier and longer someone owns a home, the more equity they build.
Gay Cororatan, a senior economist for the National Association of Realtors, writes “homeownership often has long been pointed to as a way to build wealth over the long run. It also could help narrow racial income and wealth inequity gaps.”
So again, this is why the housing market is still strong even with low inventory. While home prices vary, appreciate faster some years than others, and at times, depreciate, overall home ownership leads to wealth generation.
Want to get in on this housing market? Have no idea where to start? No worries. If you are buying in the state of Georgia, contact me today. In a few minutes, I can have you ready to make offers on a home. We will discuss strategies for making your offer stand out in this crowded housing market.
2020 is shaping up to be a great year for those looking to purchase a home. The past few years have seen housing inventory at lower than normal levels, which put pressure on those looking to purchase a home. This is shaping up to be the year in which inventory levels change.
Home builders seem to be confident. Recent construction numbers are surpassing initial estimates. According to the US Census Bureau, new construction housing starts sit at a 13 year high. December 2019 marked seven consecutive month housing starts have grown.
These positive developments along with a strong economic outlook caused Fannie Mae to revise its housing forecast for the better in 2020. Fannie Mae now expects over 1 million new homes to be made available by 2021. This will also increase the number of resales of existing homes.
In other words, the days of the seller’s market is coming to an end. The playing field is leveling, which will only help buyers in this competitive housing market.
Ready to get started on a home purchase for 2020? The Spring Market is already here! If you are buying a home in the state of Georgia, contact me today. Whether you get started with our online application, or give me a call, in a few minutes you can be well on your way to purchasing a home in 2020!
The trend continues – especially in Atlanta – it is cheaper to own than rent.
With the latest housing push over the past few years, homebuyers have fared better than those who continue to rent. In the recent CoreLogic report:
On average, renters tend to be more cost-burdened than homeowners
Across the US, monthly rents continue to rise.
Home loan payments and associated home ownership costs are lower.
Another stat from the study shows the rental index is up 36% from during the during the housing boom through today, yet home loan payments are down just shy of 5% over the same time period. The study looked at twelve metro areas. On average the rent increases ranged from 20-60% while reporting a drop in the home loan payments anywhere from 3-24%. Lastly, these are sound loans being issued today. With a combination of income growth during the economic recovery, home values appreciating, and sound underwriting guidelines, delinquency rates are lower than they’ve been in decades.
So what is preventing potential buyers from purchasing a home? Often it is misinformation. Too many people feel you must have 20% down to purchase a home (one can buy with as little as 3% down), perfect credit (loan approval can be obtained with a score as low as 620), and no debt (debt to income ratios can be as high as 50% for conventional loans and 55% on FHA loans). This is simply not true. Owing a home with a small down payment, below average credit, and other debt is easier than most imagine.
Contact me today. If the home you are looking to buy a home in the state of Georgia, you can be ready to purchase in as little as a 10 minute phone call. We can also start the process online. It can be that easy!
The federal reserve completed their fourth rate hike of the Federal Funds Rate this week. Guess that means mortgage rates are up? Nope! They are not. Mortgage rates have improved.
In fact, mortgage rates improved by over a half a point better coming off their 2018 highs in early November. Why? This blog covers the topic often, but not often enough as a lot of people believe mortgage rates flow with the actions of the Federal Reserve.
While mortgage rates may get worse when the Federal Reserve raises the Federal Funds Rate, mortgage rates themselves are actually determined by the value of mortgage backed security bonds. As these bond prices go up, mortgage rates go down (and vice versa). The Federal Funds rate impacts rates on car loans, credit cards, and home equity lines (second mortgages). We’ve seen those rates get higher this year as the Fed raised rates a full point in 2018.
What is causing mortgage rates to improve? It’s the usual suspects:
When mortgage rates were at their yearly high, stocks were at an all time high. Since the Dow his 26,800, it has lost 4,000 points (15% of its value) as of this blog post. Money is coming out of stocks and going into bonds. As bond prices go up, mortgage rates go down. It’s no coincidence rates were at their highest point of 2018 when the Dow was just like rates are now improving as the Dow pulls back.
Stocks are slowing their historic run due to bad economic news. There are signs the economy is potentially headed toward a recession (some believe it will happen in 2019). Bad economic news sends investors from higher risk/higher reward stocks into the safer investment/less reward bond market.
The Federal Funds Rate itself – as it moves higher, inflation is slowed. Mortgage rates hate inflation, and combating inflation is a way to help mortgage rates improve.
What to do with this rate improvement? If buying a home, rates are still low and headed back near their levels at the start of 2018. Purchasing a home with these improved rates gives the buyer a 6% increase on their purchase price. Now is a great time to start looking. The spring market for buyers/buying power is already upon us. If you’ve considered doing a refinance to pay off an equity line whose rate is going up and up this year, now is a much better time to consider making this move.
Owning or buying a home in Georgia? Ready for that mortgage conversation? Contact me today, and we’ll get started!
I know it seems we are stuck in a seller’s market. It feels like an eternity at this point! I’ll be back to that theme in a moment, but right now… If you have been putting off buying a home because of fierce competition, now is a good time to look at the market again. Homes are staying on the market longer now than they have all year. There are fewer buyers out looking to purchase a home. This is the best opportunity for buyers so far in 2018!
Regarding 2018 as a whole though, and back to the theme of this post, there are too few homes on the market for the number of buyers wanting to own a home. Sellers tend to receive multiple offers, and can be picky when it comes to whom they choose to sell their home. According to a recent study by Zillow, the market will balance out in the near future.
Zillow’s study says there are signs that the inventory levels are beginning to get better (as I mentioned above), but the country is still dealing with the fallout of limited new construction over several years during the Great Recession. Expect to see conditions continue improving over the next year, and around 2020, Zillow expects the market to become a buyer’s market again. By then, Zillow expects new construction will have caught up to demand. As people move from their existing homes into the new construction, it will put more homes on the market for other people to buy/enter the home ownership market.
It is coming… not as quick as we may like it, but a more balanced market is on its way. In the meantime:
Remember there are a lot of myths out there when it comes to buying a home. For example, you do NOT need 20% down to purchase a home. For more on this, check out my previous post.
There are things buyers can do to make their offers more competitive. For more on this, check out Rodney Shaffer’s recent post.
Better days are coming, but that doesn’t mean you have to wait another year. If you are buying in the state of Georgia, contact me today. I can help you get prequalified to purchase your home, and we can discuss the variety of options to make your offer more competitive in this market.
Sometimes the government gets involved in areas, and things get worse. Here is one area where inaction would be really bad – flood insurance.
On the last possible day, Congress avoided a lapse in the federal flood insurance program when the Senate voted to extend the program through the end of November. The National Flood Insurance Program would have expired July 31 without this action. So the program has been extended, but still doesn’t include any reforms to the program. Despite years of debate and proposals to reform the program, reforms have stalled. In lieu of any changes, Congress has kicked the can down the road another few months. We’ll get to do all of this again in a few months.
This isn’t a case of “they’ll do anything to prevent a lapse of flood insurance coverage.” Congress has let the national flood insurance program lapse some in the past few years. Here is hoping the next change/extension/reform won’t be at the very last minute, but something tells me it will be.
In other mortgage news from the government, it appears the current set up for FHA mortgage insurance will remain the same. There will be no decrease in the monthly premium AND the insurance will still be permanent for the life of the loan. FHA’s insurance program works differently from private mortgage insurance, which typically falls off after a certain amount of time.
The FHA’s policy wasn’t always this way. The FHA’s previous policy required borrowers to pay mortgage insurance premiums until the outstanding principal balance reaches 78% of the original home value, but the FHA instituted the life of loan policy back in 2013. This action was part of the effort to improve the status of their mortgage insurance fund. While there were some good years of rebuilding the fund, the decline of the funds balance in 2017 caused FHA to pause in potential changes to mortgage insurance.
Currently, the mortgage insurance is so high on FHA loans that it rarely makes sense for a borrower to consider using an FHA loan unless they have really low credit and/or a very high debt threshold. Good credit, low debt, but short on the down payment? Conventional loans allow only a 3% down payment (compared to FHA’s 3.5% down payment). Hopefully FHA can update their mortgage insurance policy in the near future to provide more options for well qualified borrowers.
Looking to buy a home before the end of the year? Ready to have a new home for the holidays?!? If you are purchasing in Georgia, contact me today. I’ll get you ready to make an offer in one quick phone call.
Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services and a writer for “the Mortgage Blog.” If you would like to be a guest writer for "the Mortgage Blog" please contact Clay for details.
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