Market Update

Quick Take:

• Foreclosures are at an all-time low, but foreclosure starts are increasing, possibly due to the processing of pending filings, indicating lingering financial struggles for some homeowners post-pandemic.
• Airbnb's impact on the housing market is nuanced, with a 77% decrease in short-term rental listings, possibly due to increased regulations or market competition, despite 59.8% of homeowners considering renting their homes rather than selling.
• The myth of Wall Street buying every home in America is debunked, with 'Mom-and-pop landlords' making the largest total purchases, accounting for at least 19.6% of total national sales, reflecting sellers choosing to rent their homes due to mortgage rates.

Debunking myths in today’s market

Contrary to the belief of increasing foreclosures, data from the Fed reveals that the number of foreclosures is currently near an all-time low. However, it must be noted that foreclosure starts are nearly reverting back to their position prior to the pandemic-related moratorium on foreclosure filings. This phenomenon might be largely attributed to the processing of pending foreclosure filings. Although economic indicators signal stability, it is evident that some homeowners are still struggling financially with the aftermath of the pandemic.

At the same time, the idea of Airbnb crashing the housing market is nuanced. While a 2023 Short-term Rental Survey shows that a significant portion of homeowners (59.8%) would consider renting out their homes rather than selling them if they were to acquire another property, a report on the number of short-term rental listings reveals a huge drop from 22,500 in June 2023 to 4,600 in September 2023. This 77% decrease may reflect increased regulations in cities or competition in the market.

Another widespread notion is Wall Street Buying Every Home in America. A report on U.S. National Investor Purchases Through Q2 2023 highlights 'Mom-and-pop landlords' as having the largest total purchases among a pool of investors. Likewise, they account for at least 19.6% of the Total National Sales Through Q2 2023. This is evidence of the increasing number of sellers who want to rent their homes due to mortgage rates.

Quick Take:

• New listings have increased despite high mortgage rates due to a majority of current loans having rates below 4%, limiting new inventory.
• Homeowners with favorable rates at 3% are less inclined to sell their properties compared to those with 6% mortgage rates, which are currently at 7+ percent.
• High mortgage rates are less likely to influence older homeowners, with 26% saying it wouldn't impact their decision to sell, and 43% of them not needing a mortgage to buy a new home; older homeowners tend to relocate to be closer to friends or family.

In cognizance of mortgage rates at 7+ percent, new listings were least expected

New listings have increased this month despite the high mortgage rates. In a report by the FHFA, it revealed that current loans with mortgage rates less than 4% are at 70.7%. Lock-In Rates, depending on the mortgage rate at the time of origination, limit new inventory. Furthermore, homeowners with favorable rates at 3% from origination, compared to the 7% at present, are less inclined to sell their property, in contrast to those at 6% mortgage rates.

On the other hand, the data indicates that mortgage rates are less likely to influence older homeowners. Specifically, about 1 in 4 U.S. homeowners (26%) say high mortgage rates would not impact their decision on when to sell their home. Of the 26% of homeowners, at least 43% reasoned that they would not need a mortgage at all to buy a new home. In a report by NAR, it was seen that 58% of sellers who moved at least 100 miles are aged 55-64. Notably, older homeowners are more likely to relocate to be closer to friends or family.

Quick Take:

• Nearly 70% of homeowners have significant equity in their properties, either fully owning them or having at least 50% equity, with the average U.S. homeowner possessing around $290,000 in equity.
• Substantial equity offers multiple advantages, such as the ability to be all-cash buyers, lower mortgage expenses, better loan terms, and the option to explore assisted living facilities, providing flexibility and choices for individuals and families.
• Equity is a financial milestone that opens up opportunities in various aspects of life, reducing the overall cost of homeownership and providing broader financial and lifestyle choices.

Nearly 70% of homeowners have equity at their disposal

According to the FHFA, the Census, and ATTOM, nearly 68.7% of homeowners have achieved significant financial stability in their homes. This means they have either fully paid off their mortgages or accumulated at least 50% equity in their properties. Furthermore, an accompanying report underscores this trend by indicating that the average U.S. homeowner now possesses approximately $290,000 in equity..

Having a substantial amount of equity offers several notable advantages. It enables homeowners to become all-cash buyers, eliminating the need for mortgage payments and making their offers more appealing to sellers. Additionally, it allows for larger down payments, resulting in reduced monthly mortgage expenses and better loan terms, including more favorable interest rates and lower private mortgage insurance costs. This ultimately lowers the overall cost of homeownership. Moreover, it opens up the possibility of exploring assisted living options, whether through payments or buying into such facilities, providing greater flexibility and choices for individuals and families in need of such services. In essence, equity represents both a financial milestone and a pathway to broader opportunities in various aspects of life.

Quick Take: 

• The housing market is showing signs of recovery and normalization, with increasing buyer demand, rising home prices, and new construction providing more options for buyers and sellers.
• Home prices have fully recovered and even surpassed pre-2022 levels, despite a brief downturn following high mortgage rates.
• Housing supply has outpaced demand, leading to price increases, and while high mortgage rates have tempered surges, moderate price growth is expected to continue, aligning with historical averages.

In the midst of volatile housing market

The current state of the housing market is marked by positive signs of recovery and normalization after facing various challenges in recent years. Buyer demand is on the rebound, home prices are experiencing an upward trajectory, and new construction is contributing to an increased array of options for both buyers and sellers. However, certain key challenges persist, particularly concerning limited housing supply and affordability concerns.

Notably, home prices have exhibited a remarkable recovery. Data reveals that the residential real estate downturn following a period of high mortgage rates has been shorter and shallower than initially anticipated. National resale home prices have fully recovered from the declines experienced in the second half of 2022 and have even surpassed their April 2022 peak.

Further, housing supply has outweighed the drop in demand, resulting in an increase in house prices despite a decline in sales. It has been suggested that while high mortgage rates have tempered price surges, home prices are expected to continue growing, aligning with historical seasonal averages. Mid-single-digit growth rates are anticipated by the end of the year.

Quick Take:

• Existing home sales declined by 2.0% in September and 15.4% from a year ago due to supply constraints and affordability issues, while the new single-family housing market surged to its highest level since February 2022.
• Limited housing inventory and higher mortgage rates continue to challenge affordability, impacting both new homebuyers and those looking to trade up or downsize.
• Buyer demand remains strong, mortgage rates are expected to decrease in the coming months, and lending standards are stable, signaling a path of recovery in the housing market, although challenges like limited supply and affordability constraints persist.

The housing market at present

Home sales data reveals a slight decline in existing home sales from one year ago, attributed to various factors, including supply constraints and low housing affordability. Existing-home sales slid by 2.0% in September to a seasonally adjusted annual rate of 3.96 million. Sales retreated by 15.4% from one year ago. However, the market for new single-family houses has surged, reaching its highest level since February 2022. This surge is driven by the limited availability of previously owned homes, which has subsequently fueled demand for new housing and homebuilding.

Housing inventory remains a critical challenge, with limited supply and higher mortgage rates impacting affordability for potential buyers. Limited options for new homebuyers or those seeking to trade up or downsize contribute to the current market dynamics. New listings have been declining as homeowners express uncertainty in the current market.

Despite these challenges, buyer demand remains resilient, with showings remaining elevated compared to pre-pandemic levels. The mortgage rates, though relatively high at 7.31%, are projected to decrease in the coming months and years, with an expected reduction to around 6.57% and further declines expected in 2024. Importantly, the Mortgage Credit Availability Index indicates that lending standards remain under control, providing stability to the housing market.

In conclusion, the housing market is on a path of recovery and growth, with demand, prices, and new construction on the rise. Nevertheless, challenges such as limited housing supply and affordability constraints persist, making it essential for industry stakeholders and policymakers to closely monitor these trends and adapt to the evolving dynamics of the real estate market.