Why Buying or Selling a Home Helps the Economy and Your Community
If you’re thinking about buying or selling a house, it’s important to know that it doesn’t just affect your life, but also your community.
The National Association of Realtors (NAR) releases a report every year to show how much economic activity is generated by home sales. The chart below illustrates that impact:
As the visual shows, when a house is sold, it can make a big difference in the local economy. The impact comes largely from the workers required to build, update, and buy and sell homes. Robert Dietz, Chief Economist at the National Association of Home Builders (NAHB), explains how the housing industry adds jobs to a community:
“The economic impact means housing is a significant job creator. In fact, for every single-family home built, enough economic activity is generated to sustain three full-time jobs for a year, per NAHB research. . . . And one job for every $100,000 in remodeling spending.”
Housing being a major job creator makes sense when you consider there are many different industries involved in the process. A recent article from Fortune notes housing activity could have a more robust impact than you think due to the many ways it’s tied to the economy:
“Housing has three direct linkages to economic activity (GDP): the construction of new homes, the remodeling of existing homes, and that of housing transactions. . . . consider the activity associated with home sales – think broker fees, lawyers, etc. – which are a sizable contributor to housing’s GDP footprint.”
When you buy or sell a home, you work with a team of professionals, including contractors, specialists, lawyers, and city officials. Each person plays a role in making the transaction happen.
So, when you make a move in the housing market, you’re not just meeting your own needs, you’re also making a positive impact on the community. Knowing this can give you a sense of empowerment as you make your decision this year.
Bottom Line
Each and every home sale is important for the local economy. If you’re ready to move, let’s connect. It won’t just change your life – it’ll also have a strong positive effect on the whole community.
Are Home Prices Going Up or Down? That Depends…
Media coverage about what’s happening with home prices can be confusing. A large part of that is due to the type of data being used and what they’re choosing to draw attention to. For home prices, there are two different methods used to compare home prices over different time periods: year-over-year (Y-O-Y) and month-over-month (M-O-M). Here’s an explanation of each.
Year-over-Year (Y-O-Y):
- This comparison measures the change in home prices from the same month or quarter in the previous year. For example, if you’re comparing Y-O-Y home prices for April 2023, you would compare them to the home prices for April 2022.
- Y-O-Y comparisons focus on changes over a one-year period, providing a more comprehensive view of long-term trends. They are usually useful for evaluating annual growth rates and determining if the market is generally appreciating or depreciating.
Month-over-Month (M-O-M):
- This comparison measures the change in home prices from one month to the next. For instance, if you’re comparing M-O-M home prices for April 2023, you would compare them to the home prices for March 2023.
- Meanwhile, M-O-M comparisons analyze changes within a single month, giving a more immediate snapshot of short-term movements and price fluctuations. They are often used to track immediate shifts in demand and supply, seasonal trends, or the impact of specific events on the housing market.
The key difference between Y-O-Y and M-O-M comparisons lies in the time frame being assessed. Both approaches have their own merits and serve different purposes depending on the specific analysis required.
Why Is This Distinction So Important Right Now?
We’re about to enter a few months when home prices could possibly be lower than they were the same month last year. April, May, and June of 2022 were three of the best months for home prices in the history of the American housing market. Those same months this year might not measure up. That means, the Y-O-Y comparison will probably show values are depreciating. The numbers for April seem to suggest that’s what we’ll see in the months ahead (see graph below):
That’ll generate troubling headlines that say home values are falling. That’ll be accurate on a Y-O-Y basis. And, those headlines will lead many consumers to believe that home values are currently cascading downward.
However, on a closer look at M-O-M home prices, we can see prices have actually been appreciating for the last several months. Those M-O-M numbers more accurately reflect what’s truly happening with home values: after several months of depreciation, it appears we’ve hit bottom and are bouncing back.
Here’s an example of M-O-M home price movements for the last 16 months from the CoreLogic Home Price Insights report (see graph below):
Why Does This Matter to You?
So, if you’re hearing negative headlines about home prices, remember they may not be painting the full picture. For the next few months, we’ll be comparing prices to last year’s record peak, and that may make the Y-O-Y comparison feel more negative. But, if we look at the more immediate, M-O-M trends, we can see home prices are actually on the way back up.
There’s an advantage to buying a home now. You’ll buy at a discount from last year’s price and before prices start to pick up even more momentum. It’s called “buying at the bottom,” and that’s a good thing.
Bottom Line
If you have questions about what’s happening with home prices, or if you’re ready to buy before prices climb higher, let’s connect.
Why You Can’t Compare Now to the ‘Unicorn’ Years of the Housing Market
Some Highlights
- Comparing housing market metrics from one year to another can be challenging in a normal housing market – and the last few years have been anything but normal. In a way, they were ‘unicorn’ years.
- Expect unsettling housing market headlines this year, mostly due to unfair comparisons with the ‘unicorn’ years.
- Let’s connect so I can share the data that puts those headlines in the proper perspective.
This Real Estate Market Is the Strongest of Our Lifetime
When you look at the numbers today, the one thing that stands out is the strength of this housing market. We can see this is one of the most foundationally strong housing markets of our lifetime – if not the strongest housing market of our lifetime. Here are two fundamentals that prove this point.
1. The Current Mortgage Rate on Existing Mortgages
First, let’s look at the current rate on existing mortgages. According to the Federal Housing Finance Agency (FHFA), as of the fourth quarter of last year, over 80% of existing mortgages have a rate below 5%. That’s significant. And, to take that one step further, over 50% of mortgages have a rate below 4% (see graph below):
Now, there’s a lot of talk in the media about a potential foreclosure crisis or a rise of homeowners defaulting on their loans, but consider this. Homeowners with such good mortgage rates are going to work as hard as they can to keep that mortgage and stay in their homes. That’s because they can’t go out and buy another house, or even rent an apartment, and pay what they do today. Their current mortgage payment is more affordable. Even if they downsize, with today’s higher mortgage rates, it could cost more.
Here’s why this gives the housing market such a solid foundation today. Having so many homeowners with such low mortgage rates helps us avoid a crisis with a flood of foreclosures coming to market like there was back in 2008.
2. The Amount of Homeowner Equity
Second, Americans are sitting on tremendous equity right now. According to the Census and ATTOM, roughly two-thirds (around 68%) of homeowners have either paid off their mortgage or have at least 50% equity (see chart below):
In the industry, the term for this is equity rich. This is significant because if you think back to 2008, some people had to make the difficult decision to walk away from their homes because they owed more on the home than it was worth.
But this time, things are different because homeowners have built up so much equity over the past few years alone. And, when homeowners have that much equity, it helps us avoid another wave of distressed properties coming onto the market like we saw during the crash. It also creates an extremely strong foundation for today’s housing market.
Bottom Line
We are in one of the most foundationally strong housing markets of our lifetime because homeowners are going to fight to keep their current mortgage rate and they have a tremendous amount of equity. This is yet another reason things are fundamentally different than in 2008.
The Main Reason Mortgage Rates Are So High
Today’s mortgage rates are top-of-mind for many homebuyers right now. As a result, if you’re thinking about buying for the first time or selling your current house to move into a home that better fits your needs, you may be asking yourself these two questions:
- Why Are Mortgage Rates So High?
- When Will Rates Go Back Down?
Here’s context you need to help answer those questions.
1. Why Are Mortgage Rates So High?
The 30-year fixed-rate mortgage is largely influenced by the supply and demand for mortgage-backed securities (MBS). According to Investopedia:
“Mortgage-backed securities (MBS) are investment products similar to bonds. Each MBS consists of a bundle of home loans and other real estate debt bought from the banks that issued them . . . The investor who buys a mortgage-backed security is essentially lending money to home buyers.”
Demand for MBS helps determine the spread between the 10-Year Treasury Yield and the 30-year fixed mortgage rate. Historically, the average spread between the two is 1.72 (see chart below):
Last Friday morning, the mortgage rate was 6.85%. That means the spread was 3.2%, which is almost 1.5% over the norm. If the spread was at its historical average, mortgage rates would be 5.37% (3.65% 10-Year Treasury Yield + 1.72 spread).
This large spread is very unusual. As George Ratiu, Chief Economist at Keeping Current Matters (KCM), explains:
“The only times the spread approached or exceeded 300 basis points were during periods of high inflation or economic volatility, like those seen in the early 1980s or the Great Financial Crisis of 2008-09.”
The graph below uses historical data to help illustrate this point by showing the few times the spread has increased to 300 basis points or more:
The graph shows how the spread has come down after each peak. The good news is, that means there’s room for mortgage rates to improve today.
So, what’s causing the larger spread and making mortgage rates so high today?
The demand for MBS is heavily influenced by the risks associated with investing in them. Today, that risk is impacted by broader market conditions like inflation and fear of a potential recession, the Fed’s interest rate hikes to try to bring down inflation, headlines that create unnecessarily negative narratives about home prices, and more.
Simply put: when there’s less risk, demand for MBS is high, so mortgage rates will be lower. On the other hand, if there’s more risk with MBS, demand for MBS will be low, and we’ll see higher mortgage rates as a result. Currently, demand for MBS is low, so mortgage rates are high.
2. When Will Rates Go Back Down?
Odeta Kushi, Deputy Chief Economist at First American, answers that question in a recent blog:
“It’s reasonable to assume that the spread and, therefore, mortgage rates will retreat in the second half of the year if the Fed takes its foot off the monetary tightening pedal and provides investors with more certainty. However, it’s unlikely that the spread will return to its historical average of 170 basis points, as some risks are here to stay.”
Bottom Line
The spread will shrink when the fear investors feel is eased. That’ll mean we should see mortgage rates moderate as the year goes on. However, when it comes to forecasting mortgage rates, no one can know for sure exactly what will happen.
The True Value of Homeownership
Buying and owning your home can make a big difference in your life by bringing you joy and a sense of belonging. And with June being National Homeownership Month, it’s the perfect time to think about all the benefits homeownership provides.
Of course, there are financial reasons to buy a house, but it’s important to consider the non-financial benefits that make a home more than just where you live.
Here are three ways owning your home can give you a sense of accomplishment, happiness, and pride.
You May Feel Happier and More Fulfilled
Owning a home is associated with better mental health and well-being. Gary Acosta, CEO and Co-Founder at the National Association of Hispanic Real Estate Professionals (NAHREP), explains:
“Studies have shown the emotional and psychological benefits that homeownership has on a person’s health and self-esteem . . .”
Similarly, Habitat for Humanity says:
“Residential stability among homeowners is related to improved life satisfaction, . . . along with better physical and mental health.”
So, according to the experts, owning a home can improve your psychological wellness by making you feel happier and more accomplished.
You Can Engage in Your Neighborhood and Grow Your Sense of Community
Your home connects you to your community. Homeowners tend to stay in their homes longer than renters, and that can help you feel more connected to your community because you have more time to build meaningful relationships. And, as Acosta says, when people stay in the same area for a longer period of time, it can lead to them being more involved:
“Homeowners also tend to be more active in their local communities . . .”
After all, it makes sense that someone would want to help improve the area they’re going to be living in for a while.
You Can Customize and Improve Your Living Space
Your home is a place that’s all yours. When you own it, unless there are specific homeowner’s association requirements, you’re free to customize it however you see fit. Whether that’s small home improvements or full-on renovations, your house can be exactly what you want and need it to be. As your tastes and lifestyle change, so can your home. As Investopedia tells us:
“One often-cited benefit of homeownership is the knowledge that you own your little corner of the world. You can customize your house, remodel, paint, and decorate without the need to get permission from a landlord.”
Renting can limit your ability to personalize your living space, and even if you do make changes, you may have to undo them before your lease ends. The ability homeownership gives you to customize and improve where you live creates a greater sense of ownership, pride, and connection with your home.
Bottom Line
Owning your home can change your life in a way that gives you greater satisfaction and happiness. Let’s connect today if you’re ready to explore homeownership and all it has to offer.
Keys to Success for First-Time Homebuyers
Buying your first home is an exciting decision and a major milestone that has the power to change your life for the better. As a first-time homebuyer, it’s a vision you can bring to life, but, as the National Association of Realtors (NAR) shares, you’ll have to overcome some factors that have made it more challenging in recent years:
“Since 2011, the share of first-time home buyers has been under the historical norm of 40% as buyers face tight inventory, rising home prices, rising rents and high student debt loads.”
That said, if you’re looking to purchase your first home, here are two things you can consider to help make your dreams a reality.
Save Money with First-Time Homebuyer Programs
Being able to pay for the initial costs and fees associated with homeownership can feel like a major hurdle. Whether that’s getting a loan, being able to put together a down payment, or having money for closing costs – there are a variety of expenses that can make buying your first home feel challenging.
Fortunately, there are a lot of public and private first-time homebuyer programs that can help you get a loan with little-to-no money upfront. CNET explains:
“A first-time homebuyer program can help make homeownership more affordable and accessible by offering lower mortgage rates, down payment assistance and tax incentives.”
In fact, as Bankrate says, many of these programs are offered by state and local governments:
“Many states and local governments have programs that offer down payment or closing cost assistance – either low-interest-rate loans, deferred loans or even forgivable loans (aka grants) – to people looking to buy their first house . . .”
To take advantage of these programs, contact the housing authority in your state and browse sites like Down Payment Resource.
The Supply of Homes for Sale Is Low, So Explore Every Possibility
It’s a sellers’ market, meaning there aren’t enough homes on the market to meet buyer demand. So, how can you be sure you’re doing everything you can to find a home that works for you? You can increase your options by considering condominiums (condos) and townhomes. U.S. News tells us these housing types are often less expensive than single-family homes:
“Condos are usually less expensive than standalone houses . . . They are also less expensive to insure.”
One reason why they may be more affordable is because they’re often smaller. But they still give you the chance to get your foot in the door and achieve your dream of owning and building equity. Beyond that, another major perk is they typically require less maintenance. As U.S. News says in the same article:
“The strongest reason for purchasing a condo is that all external maintenance is usually covered by the condo association, such as landscaping, pool maintenance, external painting, paving, plowing and more. This fee also covers some internal maintenance, such as gas, electric, plumbing, HVAC and other mechanical systems.”
Townhomes and condos are great ways to get into homeownership. Owning your home allows you to build equity, increase your net worth, and can fuel a future move.
The best way to make sure you’re set up for success, especially if you’re just starting out, is to work with a trusted real estate agent. They can educate you on the homebuying process, help you understand your local area to find options that are right for you, and coach you through making an offer in a competitive market.
Bottom Line
Today’s housing market provides some challenges for first-time homebuyers. But, there are still ways to achieve your goals, like utilizing first-time homebuyer programs and considering all of your housing options. Let’s connect so you have an expert on your side who can help you navigate the process.
Today’s Real Estate Market: The ‘Unicorns’ Have Galloped Off
Comparing real estate metrics from one year to another can be challenging in a normal housing market. That’s due to possible variability in the market making the comparison less meaningful or accurate. Unpredictable events can have a significant impact on the circumstances and outcomes being compared.
Comparing this year’s numbers to the two ‘unicorn’ years we just experienced is almost worthless. By ‘unicorn,’ this is the less common definition of the word:
“Something that is greatly desired but difficult or impossible to find.”
The pandemic profoundly changed real estate over the last few years. The demand for a home of our own skyrocketed, and people needed a home office and big backyard.
- Waves of first-time and second-home buyers entered the market.
- Already low mortgage rates were driven to historic lows.
- The forbearance plan all but eliminated foreclosures.
- Home values reached appreciation levels never seen before.
It was a market that forever had been “greatly desired but difficult or impossible to find.” A ‘unicorn’ year.
Now, things are getting back to normal. The ‘unicorns’ have galloped off.
Comparing today’s market to those years makes no sense. Here are three examples:
Buyer Demand
If you look at the headlines, you’d think there aren’t any buyers out there. We still sell over 10,000 houses a day in the United States. Of course, buyer demand is down from the two ‘unicorn’ years. But, according to ShowingTime, if we compare it to normal years (2017-2019), we can see that buyer activity is still strong (see graph below):
Home Prices
We can’t compare today’s home price increases to the last couple of years. According to Freddie Mac, 2020 and 2021 each had historic appreciation numbers. Here’s a graph also showing the more normal years (2017-2019):
We can see that we’re returning to more normal home value increases. There were several months of minimal depreciation in the second half of 2022. However, according to Fannie Mae, the market has returned to more normal appreciation in the first quarter of this year.
Foreclosures
There have already been some startling headlines about the percentage increases in foreclosure filings. Of course, the percentages will be up. They are increases over historically low foreclosure rates. Here’s a graph with information from ATTOM, a property data provider:
There will be an increase over the numbers of the last three years now that the moratorium on foreclosures has ended. There are homeowners who lose their home to foreclosure every year, and it’s heartbreaking for those families. But, if we put the current numbers into perspective, we’ll realize that we’re actually going back to the normal filings from 2017-2019.
Bottom Line
There will be very unsettling headlines around the housing market this year. Most will come from inappropriate comparisons to the ‘unicorn’ years. Let’s connect so you have an expert on your side to help you keep everything in proper perspective.
Remember and Honor Those Who Gave All
We remember and honor those who gave all.
Some Highlights
The Benefits of Selling Now, According to Experts
If you’re trying to decide if now’s the time to sell your house, here’s what you should know. The limited number of homes available right now gives you a big advantage. That’s because there are more buyers out there than there are homes for sale. And, with so few homes on the market, buyers will have fewer options, so you set yourself up to get the most eyes possible on your house.
Here’s what industry experts are saying about why selling now has its benefits:
Lawrence Yun, Chief Economist at the National Association of Realtors (NAR):
“Inventory levels are still at historic lows. Consequently, multiple offers are returning on a good number of properties.”
Selma Hepp, Chief Economist at CoreLogic:
“We have not seen the traditional uptick in new listings from existing homeowners, so undersupply of housing will continue to heighten market competition and put pressure on prices in most regions. Some markets are already heating up considerably, but price premiums that we saw last spring and summer are unlikely.”
Clare Trapasso, Executive News Editor at Realtor.com:
“Well-priced, move-in ready homes with curb appeal in desirable areas are still receiving multiple offers and selling for over the asking price in many parts of the country . . .”
Bottom Line
If you’re thinking about selling your house, let’s connect so you have the expert insights you need to make the best possible move today.
