This week, Chief Economist Danielle Hale discusses what small business optimism, consumer and producer inflation data, and retail sales data signal about the U.S. economy. She also highlights what these data imply for the Fed’s likely path forward.
0:10 – Business optimism trends 0:25 – Inflation trends 1:24 – Mortgage rates 1:40 – Construction trends 2:11 – Real estate listings trends
Home prices rose 8.6% in 3Q, with 46% of metros seeing double-digit price growth – a drop from 80% in 2Q. Of the top 10 high-price-increase metros, 7 are in Fla.
WASHINGTON – An overwhelming majority of metro markets saw home price gains in the third quarter of 2022, according to the National Association of Realtors® (NAR). That increase was in spite of rising mortgage rates that approached 7% and declining sales.
Of the 185 metros NAR tracks, 46% had double-digit price increases, though that’s down from 80% in the second quarter.
The national median single-family existing-home price climbed 8.6% year-to-year to $398,500. While still a notable price increase, it’s down from the 14.2% recorded in the previous quarter.
“Much lower buying capacity has slowed home price growth and the trend will continue until mortgage rates stop rising,” says NAR Chief Economist Lawrence Yun. “The median income needed to buy a typical home has risen to $88,300 – that’s almost $40,000 more than it was prior to the start of the pandemic back in 2019.”
Among the major U.S. regions, the South registered the largest share of single-family existing-home sales (44%) and the greatest year-over-year price appreciation (11.9%) in the third quarter. Prices were up 8.2% in the Northeast, 7.4% in the West, and 6.6% in the Midwest.
Fla. has 7 of top 10 metros for price growth
North Port-Sarasota-Bradenton – 23.8%
Lakeland-Winter Haven – 21.2%
Myrtle Beach-Conway-North Myrtle Beach, S.C.-N.C. – 21.1%
Panama City – 20.5%
Deltona-Daytona Beach-Ormond Beach – 19.6%
Port St. Lucie – 19.4%
Greenville-Anderson-Mauldin, S.C. – 18.9%
Kingsport-Bristol-Bristol, Tenn.-Va. – 18.8%
Tampa-St. Petersburg-Clearwater – 18.8%
10 most expensive markets in the U.S.
San Jose-Sunnyvale-Santa Clara, Calif. – $1,688,000; 2.3%
San Francisco-Oakland-Hayward, Calif. – $1,300,000; -3.7%
“The more expensive markets on the West Coast will likely experience some price declines following this rapid price appreciation, which is the result of many years of limited home building,” Yun says. “The Midwest, with relatively affordable home prices, will likely continue to see price gains as incomes and rents both rise.”
Higher cost for monthly payments
In the third quarter of 2022, stubbornly high home prices and increasing mortgage rates reduced housing affordability. The monthly mortgage payment on a typical existing single-family home with a 20% down payment was $1,840. That’s a marginal increase from the second quarter ($1,837) but a significant year-to-year jump of $614 – or 50%.
Families typically spent 25% of their income on mortgage payments, down from 25.3% in the prior quarter, but up from 17.2% one year ago.
“A return to a normal spread between the government borrowing rate and the home purchase borrowing rate will bring the 30-year mortgage rates down to around 6%,” Yun says. “The usual spread between the 10-year Treasury yield and the 30-year mortgage rate is between 150 to 200 basis points, rather than the current spread of 300 basis points.”
First-time buyer challenges
First-time buyers looking to purchase a typical home during the third quarter of 2022 continued to feel the impact of housing’s growing unaffordability. For a typical starter home valued at $338,700 with a 10% down payment loan, the monthly mortgage payment rose to $1,808 – nearly identical to the previous quarter ($1,807) but an increase of almost $600 (49%), from one year ago ($1,210).
First-time buyers typically spent 37.8% of their family income on mortgage payments, up from 36.8% in the previous quarter. A mortgage is considered unaffordable if the monthly payment (principal and interest) amounts to more than 25% of the family’s income.
A family needed a qualifying income of at least $100,000 to afford a 10% down payment mortgage in 59 markets, up from 53 in the prior quarter. Yet, a family needed a qualifying income of less than $50,000 to afford a home in 17 markets, down from 23 in the previous quarter.
Weekly Housing Market Update – 9/16/22 – Chief NAR Economists, Danielle Hale, not only forecasted the rate hike she also highlights her thoughts around 2:35 of the video regarding home sellers and home buyer.
Sales will weaken and for-sale inventory will grow, but it won’t do much to help affordability, Chief Economist Lawrence Yun said.
WASHINGTON – National Association of Realtors® (NAR) Chief Economist Lawrence Yun spoke before the U.S. Senate Committee on Banking, Housing and Urban Affairs as they dig deeper in an attempt to understand what’s happening in the U.S. housing market.
Yun told the committee that he doesn’t foresee a nationwide decline in home prices despite indications that price growth is set to slow. He testified that the potential for weaker sales should increase available for-sale inventory in some markets, but not enough to diminish persistent affordability constraints that, for many Americans, have kept homeownership out of reach for years.
“In the near term, I do not expect the situation to change appreciably,” Yun said Thursday. “Historic undersupply in the market, combined with continued demand, will likely drive ongoing issues with affordability for many Americans.
“Any short-term price adjustments, if they occur, will be less consequential compared to the immense longer-term housing affordability challenges we face as a country.”
The committee hearings come as the nation confronts a 6-million-unit housing shortage. The decades-in-the-making phenomenon has helped sustain year-over-year price growth for a record 124 consecutive months. A study of other circumstances influencing the market is also particularly compelling given COVID’s impact on U.S. housing and the more recent fluctuations in mortgage interest rates.
“When the Federal Reserve essentially went all-in in the early months of the pandemic … the decline in mortgage rates and the cautious reopening of the economy boosted housing demand,” said Yun. “The housing market always responds to changes in mortgage rates.”
Interest rates, which had been consistently in the 4-to-5% range in the decade preceding COVID-19, hovered near record lows of around 3% throughout much of 2020 and 2021. NAR’s most recent existing home sales report found that the average commitment rate for a 30-year, conventional, fixed-rate mortgage in June was up to 5.52%.
“Any increases in available inventory observed over the first half of this year have been offset by the corresponding increases in consumer costs,” Yun said on Capitol Hill, explaining that rate increases of roughly 2.5 percentage points have added about $800 per month to a median-priced house payment.
“This affordability crunch is felt most acutely as we move down the income scale and by minority households, given the current income distribution in America,” he continued. “That is why housing supply must be addressed to moderate home price and rent gains.”
At its core, real estate is about people and the relationships that are created.
Real estate professionals take on the unique responsibility of guiding clients through a highly personal, and often emotional, multi-step process of selling or buying a home. It is a momentous occasion for everyone who’s gone through it. This can easily be overshadowed by the sheer amount of steps it takes to get to the settlement table and close. The constant support throughout the process is your real estate agent.
In this unique reality of Corona virus aka COVID-19, the importance of keeping the focus on people being served will have a greater, longer, lasting effect.
In our professional tool box, real estate agents have technology. We rely on and utilize it on a normal day to make the transaction part of real estate more efficient and convenient for our clients. This current climate is no different. The way in which we use it may vary but the focus remains on the people, first and foremost your safety.
Current industry standards comply with today’s social distancing necessity.
The Internet – its global reach to market RE for sellers to buyers
Social Media – for marketing and communication ie.GoToMeeting, Zoom, Instant messaging
Your phone – text, email, old school calling
Virtual tours – ie. Matterport, use of a videographer
Electronic signing – ie. DocuSign, Dotloop
Real estate apps – 24/7 home searching ie. Homesnap, Redfin, Zillow,
Online lender applications
Close at home with mobile notary
E-signing closing documents (available for sellers and cash buyers)
Wiring funds and EMD’s ( wiring instructions should be obtained over the phone directly from the title company only)
Online scheduling – options for appointment only at the owners discretion
Title companies, lenders and insurance companies are listed as essential and are open for business. Together with real estate brokerages, each sector is doing everything they can to cooperate and comply with the safety measures while meeting clients needs.