Housing Costs Up 9% for Entry-Level Buyers

The monthly payment for an entry-level home is on the rise. And the rising costs may be one reason why first-time buyers are making up a lower share of buyers this spring. First-time buyers comprised 30 percent of existing-home sales in March, which is down from 32 percent a year ago, according to data from the National Association of REALTORS®.
Monthly housing costs for an entry-level buyer increased $136 to $1,641 nationwide, a 9 percent increase from last year, according to data from John Burns Real Estate Consulting. The higher costs means more consumers must be willing to make trade-offs to buy a home, compromising on size, attached versus detached, and location.
More: NAR Chief Economist Lawrence Yun looks at what’s driving inflation.
“First-time buyers continue to make up an underperforming share of the market because there are simply not enough homes for sale in their price range,” NAR President Elizabeth Mendenhall said in a statement. “Supply conditions improve in higher-up price brackets, which means those trading up should see considerable interest in their home, as well as more listings to choose from during their own search.”
The table below from John Burns Real Estate Consulting shows monthly housing costs for an entry-level home in March 2018 as well as the increase over the last year.

Source: “Challenges Mount for First-Time Buyers,” John Burns Real Estate Consulting (April 20, 2018)

Daily Real Estate News | Wednesday, April 25, 2018

Home Sales Overcome Inventory, Price Woes

Inventory shortages and pressing affordability issues didn’t suppress home sales activity in March. Total sales of existing homes, including single-family homes, townhomes, condos, and co-ops, increased 1.1 percent last month to a seasonally adjusted annual rate of 5.6 million, according to the National Association of REALTORS®. However, home sales are still 1.2 percent below a year ago.
“Robust gains last month in the Northeast and Midwest—a reversal from the weather-impacted declines seen in February—helped overall sales activity rise to its strongest pace since last November,” says Lawrence Yun, NAR’s chief economist. “The unwelcoming news is that while the healthy economy is generating sustained interest in buying a home this spring, sales are lagging year-ago levels because supply is woefully low, and home prices keep climbing above what some would-be buyers can afford.”
Here’s a closer look at some key indicators from NAR’s latest existing-home sales report for March:
Home prices: The median price for existing homes of all types was $250,400, up 5.8 percent from a year ago. “Although the strong job market and recent tax cuts are boosting the incomes of many households, speedy price growth is squeezing overall affordability in several markets, especially those out West,” Yun says.
Inventories: Total housing inventory rose 5.7 percent to 1.67 million existing homes available for sale, but that’s still 7.2 percent lower than a year ago. Inventories have fallen year over year for 34 consecutive months. At the current sales pace, unsold inventory is at a 3.6-month supply.
All-cash sales: Cash transactions comprised 20 percent of sales, down from 23 percent a year ago. Individual investors tend to account for the bulk of all-cash sales. They purchased 15 percent of homes on the market last month, down from 18 percent a year ago.
Distressed sales: Foreclosures and short sales made up 4 percent of home sales. Broken out, 3 percent of sales were foreclosures and 1 percent were short sales.
Days on the market: Fifty percent of homes that sold in March were on the market for less than a month. Properties stayed on the market for an average of 30 days, down from 34 days a year ago.
“REALTORS® throughout the country are seeing the seasonal ramp-up in buyer demand this spring—but without the commensurate increase in new listings coming onto the market,” Yun says. “As a result, competition is swift, and homes are going under contract in roughly a month, which is four days faster than last year and a remarkable 17 days faster than March 2016.”

Source: National Association of REALTORS®

Daily Real Estate News | Monday, April 23, 2018

Spring Has Finally Sprung on Loan Demand

The spring home buying season has gotten off to a slow start, at least based on the number of borrowers taking out home mortgages. However, that may be changing: Mortgage applications rose 4.9 percent last week compared to the previous week, the Mortgage Bankers Association reported Wednesday. Both refinance and purchase applications posted increases, even as mortgage rates remained largely in a holding pattern.

Applications to refinance rose 4 percent during the week, but remain 10 percent lower than a year ago when interest rates were lower. Applications to purchase a home surged 6 percent for the week and are now 10 percent higher than a year ago, the MBA reports. That also marks the strongest reading since January on the index for purchase applications.
The average 30-year fixed-rate mortgage was 4.66 percent, unchanged from the previous week, the MBA reports.
“Rates were roughly flat compared to last week, as the downward pressure of geopolitical uncertainty offset the upward pressure of higher inflation and Fed minutes that signaled greater certainty of rate hikes this year,” says Joel Kan, an MBA economist.
Economists did warn that if mortgage rates move higher, more buyers may be priced out of homeownership. Buyer demand remains strong but rising costs could force buyers to look for less expensive homes, which are in short supply, CNBC reports.

Source: “Spring Hits the Housing Market as Weekly Mortgage Applications Rise 4.9%,” CNBC (April 17, 2018)

Daily Real Estate News | Wednesday, April 18, 2018

FOMO Drives Young Buyers Toward Ownership

Fear of missing out—or FOMO, as millennials have coined it—has become a powerful motivator for young buyers to pursue homeownership, according to a new Bank of America survey. In particular, social media platforms such as Facebook and Instagram, where users often post about their lives as homeowners, are big influencers on prospective buyers, the survey of 2,000 U.S. adults finds. “I think it’s motivating them to think about homeownership,” says D. Steve Boland, BofA’s head of consumer lending. “Their interest level is high, and it’s driven by what they see.”
According to the survey, a third of millennials say that when viewing social media posts about homes their peers have purchased, they think: “If they can buy, why can’t I?” And a quarter of all consumers say they fear missing out on an opportunity for themselves to purchase when viewing others’ home photos on social media. Twenty-three percent of consumers—16 percent of whom are first-time buyers—say they are jealous of the homes bought by their friends and acquaintances.
Social media postings about homeownership can stir up emotions in consumers and motivate them to want to own themselves, Ethan Kross, a professor of social psychology at the University of Michigan, told USA Today. “If other people are doing better than we are, that can get us to feel bad,” Kross says. “It reminds us of what things could be like.”

Source: “Instagram, Facebook Photos Spur Millennials to Become Homeowners,” USA Today (April 11, 2018)

Daily Real Estate News | Tuesday, April 17, 2018

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Homeowner Equity Is Hitting a Record High

Homeowners are getting richer, thanks to rising home values. The amount of equity that homeowners can tap into is now at the highest level on record, according to Black Knight Financial Services, a mortgage and finance industry solution provider.
The amount a borrower can take out of a home—while still leaving 20 percent in it—increased by a collective $735 billion during 2017. That is the largest annual increase by dollar value on record, according to Black Knight. The collective amount of tappable equity now stands at $5.4 trillion, 10 percent more than the prerecession peak in 2005.
“There’s no question that a majority of homeowners have amassed considerable equity gains since the downturn,” says Lawrence Yun, chief economist of the National Association of REALTORS®. “Home prices have grown a cumulative 48 percent since 2011 and are up 5.9 percent through the first two months of this year.”
Homeowners are being more conservative, and lenders are much stricter when it comes to tapping into home equity. Homeowners took out $262 billion in cash-out refinances or home equity lines of credit last year, which is less than 1.25 percent of all available equity and is at a four-year low.
“While rising rates tend to dampen utilization of equity in general, the market is poised for a strong shift toward HELOCs, as they allow borrowers to take advantage of growing equity while holding on to historically low first-lien interest rates,” says Ben Graboske, executive vice president of Black Knight Data & Analytics. “Over half of all tappable equity—approximately $2.8 trillion—is held by borrowers with credit scores of 760 or higher and first-lien interest rates below today’s prevailing rate, which creates a large pocket of low-risk HELOC candidates.”
The amount of homeowner equity varies depending on location. Thirty-nine percent of the nation’s total tappable equity is in California alone. Seattle and Las Vegas have also seen large increases in home equity, Black Knight notes.

Source: “Homeowners Are Sitting on $5.4 Trillion in Ready Cash, the Most Ever,” CNBC (April 2, 2018)

Daily Real Estate News | Tuesday, April 03, 2018

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Why Buyers May Lose If They Don’t Act Now

Rising mortgage rates could have a big impact on the direction your buyers choose when shopping for real estate, economists warn. “Every time the interest rates go up, you eliminate a group of people who can no longer afford to buy a house,” Don Frommeyer, a mortgage broker at Marine Bank in Indianapolis, told realtor.com®. “Some people may have to rent for a period of time until they make more money—or buy a smaller house.”
To avoid further complications in their plans, your buyers may want to speed up their home search this spring, as interest rates are forecasted to move higher in the coming months. Forty-four percent of home buyers say rate increases likely will force them to settle for a smaller, less expensive home that requires a longer commute to their jobs, according to a realtor.com® survey. First-time buyers may be most affected by rising costs, as increasing home prices and interest rates price some out of the market.
Mortgage rates are at their highest levels in more than four years. The 30-year fixed-rate mortgage averaged 4.46 percent last week, according to Freddie Mac, and that’s largely expected to increase since the Federal Reserve said it is likely to raise its short-term interest rates this year. That could prompt mortgage rates to move higher at least three times this year, starting this month.
“For the bulk of buyers, it’s not going to kill their decision to purchase a home,” Rick Palacios Jr., director of research at John Burns Real Estate Consulting, told realtor.com®. “If anything, it will get them off the fence by creating a sense of urgency.” Higher rates are “a kick in the pants for you to start thinking seriously [about buying].”
Rate increases—even minor ones—can add up over time. Realtor.com® offers this example: On a $300,000 house with a 30-year fixed-rate mortgage and 20 percent down payment, the difference between a 4 percent and 5 percent mortgage rate is $142 a month. Calculated over the life of the loan, that is more than an extra $51,000. “Buyers thought they could wait forever because rates were going to stay low forever,” says Palacios. “They’re starting to realize that if they’re going to buy, they should probably buy now.”
Home buyers who are concerned about rising rates may want to lock in with a lender, which guarantees the current rate for a set period of time. Still, don’t let your clients linger on making a decision. It typically costs several hundred dollars to lock in a rate.

Source: “Is It Last Call for Low Mortgage Rate? Why Home Buyers Should Act Now,” realtor.com® (March 7, 2018)

Daily Real Estate News | Monday, March 12, 2018