The numbers: Home sales inched up for the first time in four months, even as the U.S. housing market continues to deal with a dearth of listings.
Pending home sales rose by 0.3% in June from the previous month, according to the monthly index released Thursday by the National Association of Realtors.
The figure exceeded expectations on Wall Street. Economists were expecting pending home sales to fall 0.5% in June.
Transactions were still down 15.6% from last year.
Pending home sales reflect transactions where a contract has been signed for the sale of an existing home but the sale has not yet closed. Economists view it as an indicator of the direction of existing-home sales in subsequent months.
Big picture: Home sales rose as the housing market contends with excess buyer demand and a shortfall in the supply of homes for sale.
What the real-estate experts said: “The recovery has not taken place, but the housing recession is over,” NAR chief economist Lawrence Yun said. “The presence of multiple offers implies that housing demand is not being satisfied due to lack of supply.”
The NAR also said it expects rates for 30-year mortgages to average 6.4% this year and to fall to 6% in 2024.
The NAR also expects existing-home sales to fall 12.9% in 2023 from the previous year, to 4.38 million, before recovering in 2024 to a rate of 5.06 million.
The group also expects home prices to hold steady this year, falling only slightly by 0.4% to $384,900, before rising 2.6% next year to $395,000.
“The West — the country’s most expensive region — will see reduced prices, while the more affordable Midwest region is likely to see a small positive increase,” Yun added.
“For millions of Americans, adequate housing is more of an aspiration than a reality,” said Sen. Bob Casey, D-Pa., who serves as chairman of the Senate Special Committee on Aging, at a Thursday hearing.
“In particular, too many older adults and people with disabilities cannot afford accessible housing,” Casey said.
About 26% of the U.S. population — or about 61 million people — have a disability, Casey said. At the same time, 1 in 5 Americans will be older than 65 by 2030.
Accessible homes — which offer specific features or technologies — can help older and disabled individuals continue to live in their own homes or in communities they choose. That may include wider doorways, lower counters and sinks and accessible bathrooms.
Yet less than 5% of the national housing supply is accessible, Casey said. Moreover, less than 1% of housing is available to wheelchairs.
Leaders on both sides of the political aisle agree the shortage of adequate housing is a problem.
The U.S. is between 3 million and 6 million houses short of what the market needs, noted Sen. Mike Braun, R-Ind., ranking member of the Senate aging committee.
The problem has been complicated by state and federal regulatory burdens, higher infrastructure costs, supply chain constraints, work force shortages and increased materials costs due to inflation, Braun noted.
“Sometimes we’re at odds in terms of what we should do, but there’s always practical legislation in the middle, and I’d hope that we can have those conversations that get us there,” Braun said.
Suggestions for improvements emerged during Thursday’s hearing.
For Dominique Howell, a disability housing advocate based in Philadelphia, finding an adequate place to call home that can accommodate her disability has been a struggle, she testified at Thursday’s hearing.
Five years ago, Howell said, she was “wrongfully evicted” from her home, along with her daughter, who was 3 years old at the time, and her grandmother.
Howell was initially prohibited from entering a shelter, due to the home- and community-based services she receives. After finding legal representation, she was able to enter the shelter, though she slept in her power wheelchair for a year.
Today, Howell and her daughter have found a home. However, it still has accessibility challenges, she said. When the elevator breaks, she and other residents are sometimes forced to spend weeks in their homes.
“Housing is a human right and unfortunately for too many Americans, especially people with disabilities, are not being equally granted the right of housing they can afford that is accessible,” Howell said.
To address the situation, Pennsylvania and other states should “develop affordable accessible housing to match the needs of residents,” she said.
Retrofitting older homes to update them and improve accessibility may be one solution, said Jenny Schuetz, a senior fellow at Brookings Metro. However, updating millions of homes is an “enormous task” that would require both private and public capital, she said.
Making homes more affordable for elderly and disabled populations is crucial, said Allie Cannington, senior manager of advocacy at The Kelsey, a disability-forward housing developer.
“For people with disabilities who rely on Supplemental Security Income and other forms of federal assistance, there is no U.S. housing market where rent is affordable,” Cannington said, an issue that affects more than 4.8 million people with disabilities.
The U.S. has not built enough housing since the Great Recession to keep up with job and population growth, noted Schuetz. To fill the gap, the U.S. needs about 3.8 million additional homes nationally, according to estimates, she said.
Local markets are also feeling the effects. In Indiana, for example, 18,000 to 22,000 new houses per year are needed in order to meet average demand, according to Rick Wajda, chief executive of the Indiana Builders Association. Yet the state only reached those levels of production in 2020 for the first time since 2007, he said.
To reverse the “underbuilding” trend that has been prevalent since the Great Recession, there should be financial incentives for local governments to revise zoning to allow for more kinds of structures, Schuetz said.
Regulations may be relaxed to shorten delays that often lead to increased building costs, according to Wajda. Permit, hookup or impact fees, as well as development and construction standards, may get in the way of development, he said.
Restrictive building codes may also add thousands of dollars to a house’s cost, thereby adding thousands of dollars to the cost of a house, Wajda said.
“All regulations should be examined for their impact on housing affordability,” he said.
To address the shortage of accessible and affordable housing for vulnerable populations, Casey has proposed a bill that would require a percentage of homes built through the Low-Income Housing Tax Credit Program to meet accessibility standards.
It remains to be seen whether the proposal will receive the support needed to become law.
Sales of previously occupied U.S. homes fell in June to the slowest pace since January, as a near-historic low number of homes for sale and rising mortgage rates kept many would-be homebuyers on the sidelines. The national median sales price fell on an annual basis for the fifth month in a row, though fierce competition led to about one-third of homes selling for more than their list price.
Existing home sales fell 3.3% last month from May to a seasonally adjusted annual rate of 4.16 million, the National Association of Realtors said Thursday. That’s slightly below what economists were expecting, according to FactSet, and marks the slowest sales pace since January.
Sales sank 18.9% compared with June last year. All told, sales are down 23% through the first half of this year.
The national median sales price fell 0.9% from June last year to $410,200. That’s the smallest annual decline since March. While down from a year earlier, the median sales price rose from the previous month, reaching the second-highest level on records going back to January 1999.
“Perhaps home prices are beginning to firm up or at least certainly any downward pressure is ending,” said Lawrence Yun, the NAR’s chief economist.
The latest housing market figures are more evidence that even with prices easing back on an annual basis after rising for more than a decade many house hunters are being held back by a persistently low inventory of homes for sale.
Some 1.08 million homes remained on the market by the end of June, down 13.6% from a year earlier, the NAR said. That amounts to a 3.1-month supply at the current sales pace. In a more balanced market between buyers and sellers, there is a 5- to 6-month supply.
The shortage of homes for sale has kept the market competitive, driving bidding wars in many places, especially for the most affordable homes. About one-third of homes purchased last month sold for above their list price, and 76% of homes sold in June were on the market for less than a month.
“This is a tough market to be a buyer,” Yun said.
The combination of high borrowing costs and intense competition for the most affordable homes on the market is shutting out many first-time buyers. They accounted for 27% of home sales last month, down from 28% in May and 30% in June last year, the NAR said. In a normal housing market, that would be 40%.
The U.S. housing market has yet to emerge from a slump that started a little more than a year ago, when the average rate on a 30-year mortgage began to climb from ultra-low levels as the Federal Reserve began raising its short-term rate in its fight against inflation.
Global demand for U.S. Treasurys, which lenders use as a guide to pricing loans, investors’ expectations for future inflation and what the Fed does with interest rates influence rates on home loans.
The average rate on a 30-year home loan is still more than double what it was two years ago, when the ultra-low rates spurred a wave of home sales and refinancing. Weekly average rates on a 30-year mortgage ranged between 6.67% and 6.79% in June, according to mortgage buyer Freddie Mac. This week, the average rate slipped to 6.78%, the lowest level in four weeks. A year ago, the rate averaged 5.54%.
Higher mortgage rates can add hundreds of dollars a month in costs for homebuyers on top of already high home prices. They also discourage homeowners who locked in those low rates two years ago from selling — one reason the supply of homes for sale has been low even during the traditionally busy spring homebuying season.
A new housing development built along a canal near the Mokelumne River is viewed on May 22, 2023, near Stockton, California.
George Rose | Getty Images
Lawrence Yun has as big a stake in the Federal Reserve’s moves as any economist: As the chief economist for the National Association of Realtors, his industry is a target of the Federal Reserve’s efforts to tame inflation with higher interest rates.
But the housing’s industry’s bigger problem right now may be the bond market, and specifically, spreads between treasuries and mortgage rates that suggests homebuyers’ economic challenges may not decline even as the Federal Reserve is nearing the end of its interest-rate hikes. There is a historically-wide difference between the 10-year treasury bond, a benchmark for pricing mortgages, and the actual price of an average 30-year loan. Usually around 1.75 percentage points, and as low as 1.3 in 2021, the so-called mortgage spread is hovering at more than 3 percentage points now. And that is propping up mortgage rates, keeping home owners from selling their homes and buying nicer ones, and hurting first-time buyers, Yun said.
“Buyers know 3.5% mortgages aren’t coming back,” Yun said. “So 5.5% would bring out buyers.”
Why mortgage spreads should move lower
Logically, mortgage spreads should move down sharply from here, thanks to the recent spate of good economic news, and bring relief to home buyers who have seen affordability deteriorate sharply since 2020.
Traditionally, spreads widen when markets fear a recession. They spiked before the financial crisis of 2008, for example. Collapsing spreads help revive housing activity after a recession arrives, or can prop up the housing market in a crisis, which happened in 2021 as the Covid pandemic threatened an economic crash. But as the Fed began raising interest rates in March 2022, mortgage rates rose even faster than bond yields.
The case for wide spreads this past year was two-fold. Partly, it was rooted in the idea that the 10-year treasury yield would rise as the Fed hiked more. Fear of a 2023 recession also contributed — evidenced by a sharp widening of spreads in March, after Silicon Valley Bank failed.
Now, both cases are evaporating. Last week’s inflation report showed consumer prices rose just less than 3% for the 12 months ending in June, down from more than 9% a year earlier. Low inflation should persist into the fall, because the government’s measure of housing inflation lags private market data that has been moving lower since last summer. The consumer price index is expected to only start to reflect the now year-old dip in rents and home prices in parts of the U.S. by year-end.
The recent inflation news pushed the 10-year treasury lower, touching 3.76% after reaching 4.09% earlier in July. Mortgage rates also dropped, to 6.89% last Friday from a recent peak of 7.22%, according to Mortgage News Daily. But the spread between the two was little changed.
How much the big mortgage spread costs homeowners
If the spread between 10-year bonds and mortgages were to revert to normal, it would make a huge difference in monthly payments for home buyers.
On a $500,000 mortgage, for example, a 7% interest rate spits out a monthly payment of $3,327, plus taxes and insurance. That falls to $2,934 if rates go to 5.8%, which would represent a 2 percentage-point gap between treasuries and mortgage rates, and to $2,777 with mortgages at a spread of 1.5 percentage points — back within the range of the long-term average, 1.75 points.
The closing of spreads alone would save that borrower $6,600 a year in payments. A $500,000 loan would typically require about $150,000 in pretax annual income.
“People consider changing their cable company for $30 a month,” Yun said. “$600 a month is a big number.”
A narrowing of spreads last fall, which reversed in February and March, helped stabilize a falling real estate market, according to Logan Mohtashami, lead analyst for HousingWire in Irvine, Calif.
But bond market and housing experts are skeptical of whether the spreads will narrow, and mortgage rates fall, as fast as homebuyers might like.
The Fed is widely expected to raise the Fed funds rate at its meeting on July 25-26, with futures prices implying a 96.1% chance of a quarter-point increase, according to the CME Group Fedwatch Tool. That will support Treasury yields, at least in theory.
More than that, the Fed has stopped buying up mortgage securities as the bonds on its balance sheet mature. That depresses the price mortgages can command in secondary markets or from federally-backed loan buyers like Fannie Mae and Freddie Mac, and puts pressure on lenders to demand wider spreads from borrowers, said Rob Haworth, senior investment strategy director at U.S. Bank in Seattle.
Banks may also seek bigger spreads on loans made in the next few months because of the risk the mortgages will be repaid quickly when borrowers refinance next year as rates fall, he added.
“One might attribute it to quantitative tightening,” Haworth said. “The Fed is a seller.”
Indeed, the Fed has signaled that it doesn’t want mortgage rates to fall soon, according to Mohtashami, citing comments made by Minneapolis Federal Reserve Bank president Neel Kashkari who said in February that lower rates and a hotter market would “make our job harder” in controlling inflation.
“I assumed the spreads would stay high until the Fed cried Uncle and started cutting rates,” Mohtashami said. “If the banking crisis hadn’t happened in March, they would be lower.”
But markets have defied the Fed before, as recently as this week, when the 10-year Treasury yield dropped even as traders remain convinced the central bank will hike rates at least once more.
If the drop in inflation is sustained — a big if — and rising consumer confidence pushes any recession further into the future, markets are likely to reset interest rates with or without the central bank.
The Fed will raise rates at least once more, but the second rate increase many investors have expected may be delayed or canceled if inflation stays tame, said Doug Duncan, chief economist at Fannie Mae. That would let last week’s modest dip in mortgage rates continue, even though Fannie doesn’t expect the central bank to cut interest rates until at least early next year, he said.
How banks think about lending rates
Fannie Mae’s forecast calls for rates to be near current levels through 2023. But the Mortgage Bankers Association of America sees the 30-year rate dipping to 5.2 percent next year.
Banks’ reaction to changing spreads may be tricky to predict, Duncan said. On the one hand, banks would have to watch out for more prepayments if interest rates come back down, pressuring them to keep spreads wide, he said. But that might be overwhelmed by an increase in the value of mortgages that banks already own, as loans from the late 2010s and 2020 that pay lower rates regain value they lost as rates rose, he said. In that case, more banks would probably be more willing to let spreads fall, he added.
Mortgage rates could come down quicker than expected if banks respond to rising mortgage-bond values by relaxing spreads, Duncan said. When the Fed tried to talk markets into tightening credit in 2013, mortgage spreads actually became smaller, loosening mortgage credit, Haworth said.
“Unless rates go back to 3 percent, banks are still going to be better off, even if prepayments pick up,” Duncan said.
The housing market may feel out of whack to home buyers coping with fast-rising home prices and 7% mortgage rates. But like it or not, the housing market is in the pink of health.
Several economic indicators that measure housing activity — from home prices to sentiment surveys — show that home builders and sellers (the few that are out there) are finding strong demand from home buyers.
News of the housing market’s relative health may be welcome to some — like real-estate agents and investors — but it’s becoming a concern for economists. The more buoyant the housing market, economists say, the more likely the U.S. Federal Reserve will unveil another interest-rate hike, which further heightens the risk of a recession.
“‘The housing market has started to recover, and this is a problem for the Fed because more demand for housing will boost home prices and rents.’”
— Torsten Slok, chief economist at Apollo
“The housing market has started to recover, and this is a problem for the Fed because more demand for housing will boost home prices and rents,” Torsten Slok, chief economist at Apollo, wrote in a note in May. And housing is a big part of how the government measures inflation, he added. This will make it more difficult to reduce inflation from 5% to the Fed’s 2% inflation target, he said.
If the Fed launches another rate hike, it would push mortgage rates, which are already in the 7% range, to go even higher.
“The housing market is in a very — if fragile — recovery,” Mike Simonsen, founder and president of real-estate analytics firm Altos Research, told MarketWatch.
“There appears to be more demand than available supply for homes, especially in the real-estate market,” he explained, which is keeping home prices high, but that doesn’t mean demand could evaporate if the current situation changes. Recall when rates doubled from pandemic-era lows in 2021 to 7% last year, which zapped home-buying momentum.
House hunters have adjusted their expectations. But if rates were to jump from 7% today to even higher levels, “I would not be at all surprised if homebuyers stopped abruptly again,” Simonsen said, stating his thesis for the fragility of the sector. Americans broadly expect rates to go over 8%, according to a March survey by the New York Federal Reserve.
MarketWatch looked at three housing-market indicators — and the picture looks rosier than ever:
Active listings are down — blame interest rates
Redfin’s deputy chief economist, Taylor Marr, said his go-to indicator was active listings.
Active listings are down this spring, compared to the previous year, according to the company’s data. At the end of June, the number of homes listed for sale on the market was down 8.1% over the prior year.
“It really captures that supply is pulling back significantly relative to demand,” Marr said.
Redfin data says that active listings of homes are down.
As a result, the housing market is seeing an excess of demand and not enough supply, which has led to a resurgence of bidding wars in some parts of the U.S.
While this metric is showing signs of the housing market returning to life and heating up amid a shortage of houses for sale, Marr said he’s not yet ready to call it a recovery. “It’s hard to declare completely the bottom of the housing market,” he said.
Still battle-scarred by the housing crash of the Great Recession, Marr said economists “might be hesitant” to say that the housing market is in recovery mode. “We still have a lot of uncertainty with the economy ahead,” he added. “If the economy really takes a turn three or four months from now for whatever reason, it could certainly bring the housing market back lower than it was even last November,” he added.
The price gap between new and existing homes
With a major shortage of resale homes, new-home sales have been taking off.
Home builders, understandably, are thrilled about the inventory shortage.
The National Association of Home Builders measures builders’ sentiment in a monthly index, and that indicator has been very cheery of late. In June, the index turned positive for the first time in nearly a year. Builders were scaling back price reductions; they were happy about current sales conditions as well as sales over the next six months, the NAHB said.
“A bottom is forming for single-family home building as builder sentiment continues to gradually rise from the beginning of the year,” said Rob Dietz, chief economist of the NAHB.
One of the major U.S. home builders, Lennar, also offered some commentary on its second-quarter earnings call last month. The company’s executive chairman, Stuart Miller, said that “the market and the economy will remain constructive for home builders as pent-up demand continues to come to market and consume affordable offerings.”
Miller also doesn’t expect the supply issue to be fixed anytime soon: “We believe that the supply constraint will continue to limit available inventory and maintain supply-demand balance,” he said on the call. “The core elements of the supply shortage will not resolve in the near term as the almost 15-year production deficit will take years to resolve.”
Home-builder confidence, as a result, is signaling high optimism about the future of the housing market, and a return to normalcy.
Builders have ramped up building new single-family and multi-family homes.
Ali Wolf, chief economist at Zonda, looks at how prices of new homes trend relative to resale homes as a key indicator of the health of the housing market. Her conclusion? Housing industry professionals involved in the construction and sale of new homes are out of a recession, given the robust demand.
In fact, demand has been so strong that new homes — generally considered to be more expensive than resales — have become more affordable in home buyers’ eyes given the competition in the existing home space.
Typically, new homes are 20% more expensive than resales, Wolf said. And today? That spread has fallen to 4%.
So what’s going on? Builders are not necessarily slashing prices. Instead, existing home prices have risen as homeowners are reluctant to sell.
That’s a good deal for buyers. New homes, Wolf said, are traditionally considered a “luxury good.” They’re brand new, and buyers can often customize them. They also require less maintenance than older homes.
Sellers are holding out on cutting prices
Simonsen, who leads Altos Research, said price cuts were his go-to indicator to gauge the health of the real-estate market. Specifically, price cuts formed a proxy for demand, he explained.
“When the houses are on the market, if there are no buyers for the current houses that are listed, people start taking price cuts,” Simonsen said.
And to be clear, price cuts jumped last year, when rates jumped, he added.
But that dynamic has since changed, as seen in the chart below. “There are currently fewer price reductions now than in 2018 or 2019,” Simonsen said.
Data from Redfin says that homeowners aren’t cutting prices on their homes when selling, possibly due to strong interest from buyers.
And for those of you holding out for home prices to crash? Keep waiting, Simonsen said.
“There’s nothing in the data that shows prices crash,” he said. Even if a recession hits at the end of the year, which results in more job layoffs, demand for home-buying falling, and an increase in foreclosures and distress, that’s still a few years from now, he added.
“There’s no signal of home prices crashing anywhere,” Simonsen added.
If you’re a retiree and you’re trying to square the circle of rising costs, longer lifespans, more expensive medical care and turbulent markets, don’t be afraid to run the numbers on your biggest investment.
That would be your home — if you own it.
U.S. house prices are now so high that it is almost impossible for seniors not to ask themselves the obvious question: “Should we cash in, invest the money, and rent?”
Right now the average U.S. house price is nearly $360,000. That’s about a third higher than just a few years ago, before the COVID-19 pandemic. The lockdowns, the panic, the stimulus checks and 2.5% mortgage rates have all passed into history. But the sky-high prices remain — for now.
After several years of double-digit percentage increases, apartment-rent growth is falling for only the second time since the 2008 financial crisis. WSJ’s Will Parker joins host J.R. Whalen to discuss.
There is a similar story for seniors. Federal data show that the average U.S. house price is now nearly 17 times the average annual Social Security benefit — an even higher ratio than it was in August 2008, just before Lehman Brothers collapsed. At that juncture, the average house price was 15 times higher.
U.S. National Home Price Index vs. average rent of primary residence in U.S. city, according to the U.S. Bureau of Labor Statistics. Indexed: January 1987=100.
S&P/Case-Shiller
Our simple chart, above, compares average U.S. home prices with average U.S. rents, going back to 1987. (The chart simply shows the ratio, indexed to 100.) The bottom line? House prices are very high at the moment compared with rents — again, prices are about where they were in 2006-07.
And the two must run in tandem over the long term, because the economic value of owning a house is not having to pay rent to live there.
If there are times when, in general, it makes more financial sense for seniors to rent than to own, this has to be one of those.
Seniors who own their own homes may think high interest rates on new mortgages don’t affect them. They most likely either already have a mortgage at a lower, older rate or they’ve paid off their home loan. But if you want to sell, you’ll almost certainly be selling to someone who needs a mortgage.
If borrowing costs drive down real-estate prices, seniors who hold off on selling may miss out on gains they may never see again. After the last housing peak, in 2006, it took a full decade for prices to recover fully. Those who sold when the going was good had the chance to buy lifetime annuities at excellent rates or to invest in stocks and bonds that overall rose about 80% over the same period.
Incidentally, there is also an exchange-traded fund that invests in residential REITs, Armada’s Residential REIT ETF HAUS, -0.53%,
though in addition to single-family homes and apartment-complex operators, about 25% of the fund is invested in companies involved in manufactured-home parks and senior-living facilities.
For each person, the math will be different, and there are a number of questions you need to ask. Where do you want to live? How much would you get if you sold your house? How much would you pay in taxes? How much would it cost to rent the right place? Do you want to leave a property to your heirs? And what would be the costs of moving — both financial and emotional?
The conventional wisdom is that you should own your home in retirement.
“I would advise any and all retirees against renting if at all possible,” says Malcolm Ethridge, a financial planner at CIC Wealth in Rockville, Md. “You need your costs to be as fixed as possible during retirement, to match your income being fixed as well. If you choose to rent, you’re leaving it up to your landlord to determine whether and by how much your No. 1 expense will increase each year. And that makes it very tough to determine how much you are able to allocate toward everything else in your budget for the month.”
A key point here, from federal data, is that nationwide rents have risen year after year, almost without a break, at least since the early 1980s. They even rose during the global financial crisis, with just one 12-month period where they fell — and then by only 0.1%.
“My general advice for clients is that owning a home with no mortgage in retirement is the best scenario, as housing is typically the highest cost we pay monthly,” says Adam Wojtkowski, an adviser at Copper Beech Wealth Management in Mansfield, Mass. “It’s not always the case that it works out this way, but if you can enter retirement with no mortgage, it makes it a lot easier for everything to fall into place, so to speak, when it comes to retirement-income planning.”
“Renting comes with a lot of risk,” says Brian Schmehil, a planner with the Mather Group in Chicago. “If you rent, you are subject to the whims of your landlord, and a high inflationary environment could put pressure on your finances as you get older.”
But it’s not always that simple.
“With housing costs as high as they are now though, renting may be a viable solution, at least for the moment,” says Wojtkowski. “We don’t know what the housing-market trends will be going forward, but if someone is waiting for a housing-market crash before they move, they could very likely be waiting for a long time. We just don’t know.”
“Any decision comes with pros and cons,” says Schmehil. “Selling when your home values are historically high and renting allows you to capture the equity in your home, which is usually a retiree’s largest or second-largest financial asset. These extra funds allow you to spend more money on yourself in retirement without having to worry about doing a reverse mortgage or selling later in retirement, when it may be harder for you to do so.”
Renting also allows you to be more flexible about where you live, for example nearer your children or grandchildren, he adds.
And as any experienced property owner knows, renting also brings another benefit: You no longer have to do as much work around the house.
“Renting is great in that you don’t need to maintain a residence,” says Ann Covington Alsina, a financial planner running her own firm in Annapolis, Md. “If the dishwasher breaks or the roof leaks, the landlord is responsible.”
Wojtkowski agrees, noting that many people no longer want to spend time mowing the lawn or shoveling snow in retirement. “Ultimately, one of the things that I’ve seen most retirees most concerned with is eliminating the general upkeep [and] maintenance of homeownership in retirement,” he says.
Several planners — including Covington Alsina and Wojtkowski — note that one alternative to selling and renting is simply downsizing. This can free up capital, especially when home prices are high, like now, without leaving you exposed to rising rents.
Many baby boomers have been doing exactly that.
Meanwhile, I am reminded of my late friend Vincent Nobile, who — after a long and fruitful life owning homes and raising a family — found himself widowed and alone in his 80s. He rented a small cottage on a New England sound and said how glad he was that he never had to worry about maintaining the roof or the appliances, or fixing the plumbing or the heating, or any one of a thousand other irritations. Or paying property taxes — which go down even more rarely than rents.
When the regular drives to Boston got too onerous, he moved into the city and rented there. And he was glad to do it. The money he had made was all in investments — a lot less hassle both for him and his heirs.
I once asked him if he would prefer to own his own home. He shook his head and laughed.
The Long Island housing market continues to be slowed by a dearth of inventory and higher mortgage rates.
There were 2,521 homes contracted for sale in Nassau and Suffolk counties last month, a drop of 7.6 percent from the 2,727 homes contracted for sale in June of last year, according to preliminary numbers from OneKey MLS.
The number of pending home sales last month was the fewest for the month of June in the last 10 years.
For the first half of 2023 there were 12,914 homes contracted for sale in Nassau and Suffolk. Other than the first half of 2020, when the pandemic crippled home sales for two months, this year’s first six months have seen the fewest pending home sales since the first six months of 2014.
Though demand remains strong, brokers attribute the recent weakened sales numbers to a continued lack of supply exacerbated by higher mortgage rates.
There were 5,058 homes listed for sale with OneKey MLS as of Friday, 2,448 in Nassau and 2,610 in Suffolk. That’s down 26.2 percent from the 6,858 homes that were listed for sale at the end of June 2022.
At the same time, rising mortgage rates are keeping homeowners who have paid off their mortgages or have loans at much lower rates from making moves. This week the average rate for a 30-year fixed mortgage hit 7.03 percent, according to bankrate.com. That’s the highest interest rate since October and more than double the rate of just 18 months ago.
“The problem is many homeowners refinanced their mortgages over the last few years and no one wants to go from a 3- or 4-percent mortgage to a 6- to 7-percent mortgage,” said Ken Olson, an associate broker with HomeSmart Premier Living Realty, which has six Long Island offices. “The buyers are out there, and they’ve gotten used to the higher rates, but with the low inventory there are fewer transactions.”
Meanwhile, though home prices have pulled back slightly from their highs of last year, Long Island home prices remain robust, thanks mostly to the low supply and high demand market environment.
The median price of closed home sales in Nassau last month was $689,000, up 3.6 percent from the previous month’s median of $665,000, but down 3.6 percent from the $715,000 median price recorded in June 2022.
In Suffolk, the median price of last month’s closed home sales was $565,000, an increase of 2.7 percent from the $550,000 median price in May and 0.9 percent higher than the $560,000 median of a year ago. Last month’s median price in Suffolk is the highest since the $575,000 median in July 2022.
If you’re looking to sell your home, do yourself a favor and pick up that paintbrush and say adieu to white walls and vibrant hues.
A new study from real estate marketplace Zillow shows that dark gray interiors are in vogue among prospective homebuyers, potentially helping sellers rake in slightly bigger bucks on closing day.
Homes with rooms painted in dark, dusky shades commanded higher bids than those with lighter interiors, the study found. A home with a charcoal gray kitchen, for example, can sell for $2,512 more than similar homes, while dark gray in the living room or bedroom can bring in offers $1,755 higher than pale neutrals. By comparison, a white kitchen can lower a home’s sale price by more than $600, Zillow’s research found.
Zillow research finds homes with a charcoal gray kitchen can sell for an estimated $2,512 more than similar homes.
Zillow Group, Inc/ Getty images
Prospective buyers are embracing moody, dramatic tones due, in part, to the influence of home improvement TV shows and social media. But that’s not the only reason they’re gravitating toward shades of dark gray, Mehnaz Khan, a color psychology specialist and interior designer, said.
Home as refuge
“Gray is the color of retreat,” Khan said in a statement. “As we come out of the pandemic and return to our hectic lives, buyers want home to be a refuge. They want to withdraw and escape from the uncertainty of the outside world, and rooms enveloped in dark gray can create that feeling of security.”
Zillow’s researchers surveyed 4,700 recent and prospective homebuyers across the U.S. to assess their color preferences. Buyers were shown images of homes with interiors and doors painted in one of 10 or 11 colors. The colors were then rated based on buyers’ perception of each respective home, how likely they were to tour the homes and how much they’d be willing to pay for them.
Charcoal gray scored the highest in the study, meaning that the color was linked to homes that received the highest bidding offers. But it wasn’t the only color buyers were willing to shell out for, according to the report. Bathrooms painted in terra-cotta brown could boost a home’s sale price by $1,624.
Zillow research finds homes with a terracotta brown bathroom can sell for an estimated $1,624 more than similar homes.
Zillow Group Inc/ Getty
A relatively low-cost way to spruce up a space, painting is an extremely popular project among homeowners. Interior painting was the most popular home improvement project in 2021, with roughly 32% of households reporting they’d undertaken some form of painting project, according to an Angie’s List report.
That has led more home purchasers to opt for one strategy, purchasing mortgage points, as a way to defray higher monthly payments.
Mortgage points let buyers pay an upfront fee to lower the interest rate on their loans. In some cases, sellers will help to buy down rates to help ease transaction costs.
Almost 45% of conventional primary home borrowers bought mortgage points in 2022 to reduce their monthly mortgage payments, a trend that has continued into this year, according to recent research from Zillow.
That is up from 29.6% in 2021, when interest rates were lower.
The 30-year fixed-rate mortgage currently averages 6.7% according to Freddie Mac, up from 5.8% a year ago. The 15-year fixed-rate mortgage now averages about 6%, up from 4.8% a year ago.
This week, the Federal Reserve decided to pause the interest rate hikes it has put in place to combat high inflation.
As rates stay higher, those who are in the market for a home lose purchasing power. Some experts have urged buyers to consider purchasing mortgage points to lower their monthly payments.
Stephanie Grubbs, a licensed real estate agent at the Zweben team at Douglas Elliman Real Estate in New York, recently did exactly that when one of her clients lowered their asking price.
“This fabulous apartment just had a price reduction, which means you can use those savings to buy down your rate,” Grubbs wrote in the updated ad.
Grubbs, a former financial advisor, said her firm started bringing up the strategy more when the Fed started hiking interest rates.
“In an effort to try to be creative, we talk to sellers about offering to buy down a rate,” Grubbs said.
Other experts say buyers purchasing mortgage points can be a great strategy for the right situation.
That goes particularly if a buyer can afford the extra upfront costs.
Being able to lower that monthly payment can really help give some more wiggle room in people’s budgets and help them reach affordability.
Nicole Bachaud
senior economist at Zillow
Mortgage points refer to the percentage amount of the loan. Typically, one point is worth 1% of the loan value, according to Nicole Bachaud, senior economist at Zillow.
If the loan value is $300,000, one point would typically cost $3,000 and lower the interest rate 0.25 percentage points, she said.
“Being able to lower that monthly payment can really help give some more wiggle room in people’s budgets and help them reach affordability,” Bachaud said.
In addition to higher upfront costs, home buyers should also weigh other factors before buying mortgage points.
“For most instances, it is definitely a considerable cost savings to be able to buy down on points,” said Kamila Elliott, a certified financial planner and co-founder and CEO of Collective Wealth Partners, a boutique advisory firm in Atlanta. Elliott is also a member of the CNBC Financial Advisor Council.
However, if you buy points and then refinance, that will not allow enough time for your upfront payment to appreciate, Elliott said.
Another important consideration is your timeline for how long you plan to live in the home.
With rates and home prices high, that means closing costs are also elevated, Elliott said.
Consequently, if you move before three to five years, you may take a bigger financial hit, she said.
“There could be a huge loss if you can’t stay in that property long enough to have those expenses amortized out over the time that you’re there,” Elliott said.
If you have extra money when buying a home, you may instead choose to increase the size of your down payment.
This can be advantageous because it creates more equity in the home, Bachaud noted. It may also lower your monthly payments.
If that extra money is enough to bring your down payment to 20% of the home purchase price, that would eliminate the need for private mortgage insurance, which adds to monthly costs for mortgage borrowers who put down less than those sums.
However, you may see more of an effect on your monthly expenses by buying points rather than increasing your down payment, Elliott said.
It costs less for a seller to buy down somebody’s mortgage than it does for them to take a price reduction.
Stephanie Grubbs
licensed real estate agent at Douglas Elliman Real Estate
A point may cost $3,000 to $4,000, for example. But putting those sums toward a down payment likely will not make much of a difference on your monthly costs, Elliott said.
If you want to make sure your mortgage payment doesn’t exceed one-third of your take home income, then paying down on points could be the better option, she said.
In some situations, a seller may offer to buy down the rate, a concession to help offset costs for buyers. Grubbs said she has discussed employing this strategy with clients in her real estate practice.
“It costs less for a seller to buy down somebody’s mortgage than it does for them to take a price reduction,” Grubbs said.
Homebuyers may want to consider pursuing a 2-1 buydown, a mortgage that provides a low interest rate for the first year, a slightly higher rate in the second year and a full rate for the following years.
A 2-1 buydown may also sometimes be seller financed, according to Bachaud.
Talking to a loan officer can help you decide the best decision for your situation, Bachaud said.
How well any homebuying strategy fares in the long run depends on one big unknown: how the Federal Reserve will handle interest rates going forward.
The latest projections from the central bank call for two more rate hikes this year.
While today’s rates feel high, Elliott said she often reminds people that homebuyers in the 1980s would have loved to have had access to 6% mortgage rates.
Last month’s Long Island home sales continued to lag behind sales numbers from recent years as home prices remain firm.
There were 2,470 homes in Nassau and Suffolk counties contracted for sale last month, down 9.6 percent from the 2,732 Long Island homes contracted for sale a year ago, according to preliminary numbers from OneKey MLS.
Though slightly lower than last year, Long Island home prices are holding fairly steady. The median price of closed home sales in Nassau last month was $662,150, down 3.3 percent from the $685,000 median price recorded in May 2022.
In Suffolk, the median price of closed home sales last month was $550,000, down slightly from the $555,000 median price recorded a year ago.
The current inventory of available Long Island homes for sale has risen in recent months but is still historically low. There were 5,058 homes listed for sale as of Tuesday, 2,533 in Nassau and 2,525 in Suffolk. That’s more than the 4,844 homes listed for sale at the end of April but 16.4 percent fewer than the 6,053 homes listed for sale at the end of May 2022.
While some brokers say that comparing home sales to the frenzied buying that took place though the COVID-19 pandemic doesn’t reflect what’s happening in the current market, the number of pending Long Island home sales are still significantly lower than pre-pandemic levels. Last month’s 2,470 pending home sales are 21.2 percent lower than the 3,133 pending home sales recorded in May 2019.
Industry observers maintain that apples-to-apples comparisons of real estate statistics pose a challenge since there are so many variables, particularly mortgage rates, inventory levels and prices. For instance, the average mortgage rate for a 30-year fixed loan in May 2019 was about 4 percent, while this May the rate averaged well above 6 percent.
In addition to the mortgage rate disparity, the current number of homes on the market pales in comparison to four years ago. The inventory of available Long Island homes for sale in May 2019 was 13,147, about 160 percent more than the current supply of 5,058.
And of course, home prices have soared compared to pre-pandemic levels. The median price of closed Nassau home sales from last month is 25 percent higher than the $530,000 median price from May 2019. The median price of closed home sales in Suffolk from last month is 41 percent higher than the median price of $390,000 from May 2019.
Orlando, Florida — Chrissy and Cole Robinson are finally unpacking in their newly purchased home after a daunting search in Northern California’s Silicon Valley.
“There were 15 other offers on this house,” Chrissy Robinson told CBS News.
Silicon Valley home prices have seen some of the steepest declines in the nation, dropping 11.8% between April 2022 and April 2023, per Redfin. As a result, it’s drawing in buyers despite higher mortgage rates, according to real estate agent Kelly Dippel.
“There’s more buyers than available homes,” Dippel said.
The average 30-day mortgage is now at 6.91%, according to the Mortgage Bankers Association.
“People that have locked in these low interest rates, are they really gonna wanna sell their house and buy something else for close to 7%?” Dippel explained. “They’re gonna hang on.”
A four-bedroom, two-and-a-half bathroom home in San Jose, California, was listed for $1.5 million, an eye-popping number for most of the country. But in Silicon Valley, Dippel said, it’s “priced competitively.”
California home prices jumped during the pandemic, but now, with tech industry layoffs and remote work, they have declined as some have chosen to move east to more affordable states, subsequently driving up home prices there.
In Orlando, Florida, it has been a seller’s market, as home prices keep rising and inventory keeps falling.
Orlando home shopper Avel Ramirez said he has had no luck so far.
“I’m looking basically an hour out, into cities and towns that I don’t even know about,” Ramirez said.
In the Orlando metropolitan area’s Orange and Seminole counties, the median price for a home jumped about 24% in two years, from $347,119 in March of 2021, to $431,875 in March of this year, according to the Orlando Regional Realtor Association.
Buyers are advised to prepare to settle, bring cash offers and close quickly.
“We’re saying them gone within three to five days,” Orlando real estate agent Heather Pryor said of the time homes are sitting on the market.
U.S. debt default would cause borrowing costs to jump.
getty
A default on the nation’s debt, if Congress is unable to raise the federal debt ceiling in coming weeks, would boost mortgage rates by at least two percentage points and cause a slump in home sales as costlier financing puts real estate beyond the reach of more Americans, according to Jeff Tucker, a Zillow senior economist.
While it’s still unlikely the federal government will fail to pay its bills, the chances have increased in recent weeks because of an ongoing stalemate in Congress, Moody’s Analytics said last week. The chance of a debt default now stands at 10%, up from a previous estimate of 5%, the research firm said.
“Any major disruption to the economy and debt markets will have major repercussions for the housing market, chilling sales and raising borrowing costs, just when the market was beginning to stabilize and recover from the major cooldown of late 2022,” said Zillow’s Tucker.
The average U.S. rate for a 30-year fixed home loan likely would rise to 8.4% in coming months, he said, from last week’s 6.35%, as measured by Freddie Mac. That increase in borrowing costs would cause home sales to slump by 23%, while the U.S. unemployment rate likely would balloon to 8.3% from last month’s 3.4% as the economy entered a recession, Tucker said.
It would be a “self-inflicted disaster,” Tucker said.
Jaret Seiberg, the housing policy analyst for Cowen Washington Research Group, views Tucker’s estimates as possibly too conservative.
“Our view is that the Zillow report may be a best-case scenario as our concern is that credit markets will freeze up if there is a default,” Seiberg said.
Comments made by former President Donald Trump during a CNN “Town Hall” last week increased the chances of a debt disaster, Seiberg said. Trump told CNN’s Kaitlan Collins a debt default “could be nothing” and might be just “a bad week or a bad day.”
That stands in stark contrast to remarks he made while he was in the White House. On July 19, 2019, Trump described the nation’s obligation to pay its bills as “a very, very sacred thing in our country” and added, “I can’t imagine anybody ever even thinking of using the debt ceiling as a negotiating wedge.”
With a razor-thin Republican majority in the House of Representatives, even a few hold-outs inspired by Trump’s remarks could doom a chance to come to an agreement about raising the debt cap, Seiberg said. Negotiations over the debt ceiling aren’t about how much to spend – they’re about paying bills already incurred.
“We continue to view a default as unlikely, but that is premised on our belief that politicians realize how dangerous a default would be for the economy,” Seiberg said. “The problem is that unlike in prior fights, not every political leader agrees, as we heard this week from former President Donald Trump. It is why we cannot rule out a default.”
While economists agree that a failure of the U.S. government to pay its bills would be a recession-inducing catastrophe, they don’t agree on the “X date,” meaning the day a default would begin. Treasury Secretary Janet Yellen puts the month as June, and the earliest potential day as June 1. The U.S. Treasury said in January it would use “extraordinary measures” to move money around to delay a default as long as possible.
Goldman Sachs economists estimate the U.S. “will likely exhaust its cash and borrowing capacity by late July.” Zillow puts the default date as “almost certainly by August, depending on the flow of income tax receipts this spring.”
“It is impossible to predict with certainty the exact date when Treasury will be unable to pay all of the government’s bills,” Yellen told the Independent Community Bankers of America on Tuesday. “Every single day that Congress does not act, we are experiencing increased economic costs that could slow down the U.S. economy.”
The mortgage market is already showing signs of investor fear. Last month, the spread between 30-year fixed mortgage rates and 10-year Treasury yields reached the widest in almost 40 years. When spreads are wide, the mortgage rates that track the 10-year Treasury yield are higher than they normally would be as investors demand a risk premium.
In May’s first week, the spread was 2.95 percentage points, close to the 3.07 in mid-March that marked the widest margin since 1987, and beating the 2.96 in late December 2008 that was the biggest spread of the Great Recession, comparing Freddie Mac’s weekly rate average with 10-year Treasury data from the Federal Reserve.
“We are already seeing the impacts of brinksmanship,” Yellen said. “The U.S. economy hangs in the balance.”
U.S. debt default would cause borrowing costs to jump.
getty
A default on the nation’s debt, if Congress is unable to raise the federal debt ceiling in coming weeks, would boost mortgage rates by at least two percentage points and cause a slump in home sales as costlier financing puts real estate beyond the reach of more Americans, according to Jeff Tucker, a Zillow senior economist.
While it’s still unlikely the federal government will fail to pay its bills, the chances have increased in recent weeks because of an ongoing stalemate in Congress, Moody’s Analytics said last week. The chance of a debt default now stands at 10%, up from a previous estimate of 5%, the research firm said.
“Any major disruption to the economy and debt markets will have major repercussions for the housing market, chilling sales and raising borrowing costs, just when the market was beginning to stabilize and recover from the major cooldown of late 2022,” said Zillow’s Tucker.
The average U.S. rate for a 30-year fixed home loan likely would rise to 8.4% in coming months, he said, from last week’s 6.35%, as measured by Freddie Mac. That increase in borrowing costs would cause home sales to slump by 23%, while the U.S. unemployment rate likely would balloon to 8.3% from last month’s 3.4% as the economy entered a recession, Tucker said.
It would be a “self-inflicted disaster,” Tucker said.
Jaret Seiberg, the housing policy analyst for Cowen Washington Research Group, views Tucker’s estimates as possibly too conservative.
“Our view is that the Zillow report may be a best-case scenario as our concern is that credit markets will freeze up if there is a default,” Seiberg said.
Comments made by former President Donald Trump during a CNN “Town Hall” last week increased the chances of a debt disaster, Seiberg said. Trump told CNN’s Kaitlan Collins a debt default “could be nothing” and might be just “a bad week or a bad day.”
That stands in stark contrast to remarks he made while he was in the White House. On July 19, 2019, Trump described the nation’s obligation to pay its bills as “a very, very sacred thing in our country” and added, “I can’t imagine anybody ever even thinking of using the debt ceiling as a negotiating wedge.”
With a razor-thin Republican majority in the House of Representatives, even a few hold-outs inspired by Trump’s remarks could doom a chance to come to an agreement about raising the debt cap, Seiberg said. Negotiations over the debt ceiling aren’t about how much to spend – they’re about paying bills already incurred.
“We continue to view a default as unlikely, but that is premised on our belief that politicians realize how dangerous a default would be for the economy,” Seiberg said. “The problem is that unlike in prior fights, not every political leader agrees, as we heard this week from former President Donald Trump. It is why we cannot rule out a default.”
While economists agree that a failure of the U.S. government to pay its bills would be a recession-inducing catastrophe, they don’t agree on the “X date,” meaning the day a default would begin. Treasury Secretary Janet Yellen puts the month as June, and the earliest potential day as June 1. The U.S. Treasury said in January it would use “extraordinary measures” to move money around to delay a default as long as possible.
Goldman Sachs economists estimate the U.S. “will likely exhaust its cash and borrowing capacity by late July.” Zillow puts the default date as “almost certainly by August, depending on the flow of income tax receipts this spring.”
“It is impossible to predict with certainty the exact date when Treasury will be unable to pay all of the government’s bills,” Yellen told the Independent Community Bankers of America on Tuesday. “Every single day that Congress does not act, we are experiencing increased economic costs that could slow down the U.S. economy.”
The mortgage market is already showing signs of investor fear. Last month, the spread between 30-year fixed mortgage rates and 10-year Treasury yields reached the widest in almost 40 years. When spreads are wide, the mortgage rates that track the 10-year Treasury yield are higher than they normally would be as investors demand a risk premium.
In May’s first week, the spread was 2.95 percentage points, close to the 3.07 in mid-March that marked the widest margin since 1987, and beating the 2.96 in late December 2008 that was the biggest spread of the Great Recession, comparing Freddie Mac’s weekly rate average with 10-year Treasury data from the Federal Reserve.
“We are already seeing the impacts of brinksmanship,” Yellen said. “The U.S. economy hangs in the balance.”
April saw fewer Long Island home sales, as home prices climbed last month.
There were 2,220 homes contracted for sale in Nassau and Suffolk counties in April, according to preliminary numbers from OneKey MLS. That’s a drop of 9.1 percent from the 2,444 homes contracted for sale the previous month and 22.1 percent fewer than the 2,851 pending home sales recorded in April 2022.
Long Island pending home sales have now seen year-over-year declines for the last 22 months. In the first four months of this year, pending home sales are down 18.8 percent from the first four months of last year, falling from 9,806 to 7,966.
Home prices, which had been trending lower, climbed higher in April. The median price of closed home sales in Nassau last month was $660,000, up 2.2 percent from the $645,000 median price in March, but still down $6,500 from the $666,500 median recorded in April 2022.
The median price of closed home sales in Suffolk in April was $540,000, a spike of 4.8 percent from the $515,000 median price of the previous month, and the same as the median price recorded in April 2022.
Meanwhile, the still-low number of available homes for sale is keeping prices firm. There were 4,865 Long Island homes listed for sale with OneKey MLS—2,393 in Nassau and 2,472 in Suffolk—as of Monday. That’s up from the 4,715 homes that were listed for sale at the end of March, and 14 percent fewer than the 5,658 homes listed for sale at the end of April 2022.
After drifting lower in the last couple of weeks, mortgage rates have gone up again. The average rate in New York is currently about 6.8 percent for a 30-year fixed loan, according to bankrate.com.
Stocks closed down slightly on Thursday as investors reacted to mixed earnings reports and new weekly jobless claims numbers. CenterSquare Investment Management senior strategist Uma Moriarity joined CBS news to discuss what the developments mean for investors.
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The spring homebuying season in the U.S. is off to a tepid start as buyers contend with sharply higher mortgage rates and near historic-low inventory of properties on the market.
Existing U.S. home sales fell 2.4% last month from February to a seasonally adjusted annual rate of 4.44 million, the National Association of Realtors said Thursday. That’s below the 4.5 million home sales economists were expecting, according to FactSet.
Sales slumped 22% compared with March last year. The annual drop was steepest in markets across the Western part of the country, where sales sank more than 30% from a year ago.
The national median home price slipped 0.9% from March last year to $375,700, the NAR said. That’s the biggest annual median home price drop since January 2012.
While the drop in prices is good news for buyers after years of soaring home values, a stubbornly low inventory of properties for sale continues to drive bidding wars in many markets, especially for the most affordable homes.
Some 28% of homes purchased last month sold for more than their list price, said Lawrence Yun, the NAR’s chief economist.
“Home sales are trying to recover and are highly sensitive to changes in mortgage rates,” Yun said. “Yet, at the same time, multiple offers on starter homes are quite common, implying more supply is needed to fully satisfy demand.”
The U.S. housing market has been slow to regain its footing this year after posting its deepest slump in nearly a decade in last year. Homebuyers continue to grapple with sharply higher mortgage rates, which can add hundreds of a dollars a month in costs, on top of home prices that have only come down slightly recently after soaring in recent years.
While more homes traditionally hit the market during the spring homebuying season, the number of properties for sale remains near historic lows at under 1 million, limiting options for would-be buyers.
Some 980,000 homes were on the market by the end of March, the NAR said. That’s an increase of 1% from February and 5.4% from March last year. Even so, that amounts to a 2.6-month supply at the current sales pace. In a more balanced market between buyers and sellers, there is a 5- to 6-month supply.
The inventory of homes for sale has yet to return to pre-pandemic levels. Last month’s inventory was down 41% from March 2019, when there were 1.7 million homes on the market.
The uptick in homes for sale in March reflects properties sitting on the market longer. The number of homes listed for sale for the first time in March was down 17% from a year earlier, Yun said.
Many homeowners who locked in a mortgage rate in 2020 and 2021, when they averaged below 3%, are reluctant to sell now that rates have doubled, which is limiting the inventory of homes for sale.
The average long-term rate on a 30-year mortgage mostly rose in March, climbing to 6.73% by the second week of the month. Higher rates can add hundreds of a dollars a month in costs for homebuyers, on top of already high home prices.
Rates reached a two-decade high of 7.08% in the fall following a series of interest rate hikes by the Federal Reserve. The average rate on a 30-year home loan has eased in recent weeks, slipping to 6.27% last week. The average rate a year earlier was 5%.
The combination of high borrowing costs and intense competition for the most affordable homes on the market is keeping many first-time buyers on the sidelines. They accounted for 28% of home sales in March, up from 27% in February but down from 30% in March last year, the NAR said.
“First-time buyers are still struggling,” Yun said.
U.S. mortgage rates continue to fall as buyers gear up for the spring market.
getty
The decline in mortgage rates over the last month likely will boost U.S. home sales by more than 200,000 as cheaper financing results in more people qualifying for loans, according to Lawerence Yun, chief economist of the National Association of Realtors.
“Each half a percentage point drop in mortgage rates results is an additional 200,000 home sales, and likely even more,” said Yun. “Since more people will qualify for mortgages, it leads to more sales.”
The average U.S. rate for a 30-year fixed home loan dropped to 6.28% last week from 6.73% in March’s first week, according to Freddie Mac. That decline in the cost of financing reduces monthly payments, meaning more buyers will pass the debt-to-income test lenders use to qualify applications.
“Lower mortgage rates open the gate – not for everyone, but for people who were on the margins,” Yun said.
Mortgage rates likely will remain near near the current level in the short term and decline further in the coming months, Yun said. The average U.S. rate for a 30-year fixed mortgage probably will be 6.3% in the second quarter and 5.9% in the third quarter, he said.
About 40% of U.S. home sales go under contract in the April to June period, according to data from NAR. Those sales typically close about two months later, with the buyers moving in the summer months.
“We’re smack dab in the peak of the spring home-buying season right now,” said Bill Banfield, executive vice president of capital markets for Rocket Mortgage. “People want to get into a home and settle their families before the new school year starts.”
Mortgage rates hit 20-year highs at the end of October and again in early November, according to Freddie Mac data, after inflation spooked investors and the Federal Reserve ended a bond-buying program aimed at supporting the economy during the worst of the pandemic.
Rates remained near those peaks until last month’s failure of Silicon Valley Bank, the 16th-largest U.S. commercial bank by assets, and Signature Bank, a smaller bank based in New York that catered to cryptocurrency investors.
That financial instability sent Wall Street investors scurrying for the perceived safety of the bonds markets. The increase in competition for fixed assets sent the average yield on 10-year Treasuries, a benchmark for mortgage rates, to a seven-month low last week, according to data from Intercontinental Exchange.
“Whenever there is unrest in the markets, mortgage rates tend to drop – especially with the Federal Reserve committed to fighting inflation,” said John Hardesty, general manager of the mortgage division at Argyle, a payroll data verification platform used by lenders. “We’re seeing some settling in mortgage rates, and it’s the perfect time for that.”
“If you have these features in your home already, you should definitely flaunt them in your listing description,” said Amanda Pendleton, Zillow’s home trends expert. “That is going to set you ahead of the competition.”
The real estate website evaluated 271 design terms and features included in almost 2 million home sales in 2022. Those that came out on top may add up to about $17,400 on a typical U.S. home.
Two chef-friendly features topped the list of those that helped sell homes for more — steam ovens, which helped push prices up 5.3% over similar homes without them, and pizza ovens, which increased prices by 3.7%.
Other features that rounded out the top 10 included professional appliances, which had price premiums of 3.6%; terrazzo, 2.6%; “she sheds,” 2.5%; soapstone, 2.5%; quartz, 2.4%; a modern farmhouse, 2.4%; hurricane or storm shutters, 2.3%; and mid-century design, 2.3%,
Zillow also looked at which features helped sell homes faster than expected.
Doorbell cameras topped that list, helping to sell homes 5.1 days faster. That was followed by soapstone, with a 3.8 day advantage; open shelving, 3.5; heat pumps, 3; fenced yards , 2.9; mid-century, 2.8; hardwood, 2.4; walkability, 2.4; shiplap walling or siding, 2.3; and gas furnaces, 2.3.
To be sure, homeowners should not necessarily add these features with the idea they will see sale premiums, Pendleton said.
Moreover, some more unique features — like she sheds, spaces dedicated specifically to female home dwellers and their hobbies — may make it so it takes a bit longer to find a buyer who appreciates the amenities.
However, the features are signals of perceived qualify a buyer associates with a nice home right now.
“These personalized features kind of add that wow factor to a home,” Pendleton said.
The current housing market is “anything but traditional,” Pendleton notes.
For buyers, there’s not as many listings to choose from as homeowners do not want to give up their ultra-low interest rates, she noted.
“Homes that are well priced and well marketed are going to find a buyer very quickly today,” Pendleton said.
Existing homeowners are now more likely to be thinking of different ways to re-envision their space, according to Jessica Lautz, deputy chief economist at the National Association of Realtors.
Personalized features kind of add that wow factor to a home.
Amanda Pendleton
home trends expert at Zillow
“There are a lot of people who want to remodel because they are locked into low interest rates and have no intention of leaving their property,” Lautz said.
At the top of homeowners’ wish lists are ways to maximize the square footage of their home, Lautz said, such as basement remodels or attic or closet conversions. Adding home offices is also very popular as people continue to live hybrid lifestyles.
Some improvements also stand to provide a 100% or more return when a home is put on the market.
The top of that list includes hardwood floor refinishing, according to Lautz, which not only makes a home look more beautiful but also makes it more marketable.
“It brings a lot of joy, and it has a lot of bang for the buck when you go to sell your home,” Lautz said.
Putting in new wood flooring or upgrading the home’s insulation also tend to provide returns of 100% or more, she said.
Zillow’s research found certain features may actually hurt a home’s resale value. That includes tile countertops or laminate flooring or countertops. Walk-in closets may also negatively impact a home’s value, as buyers may prefer to use the space for other purposes.
Though improving over the last two months, Long Island home sales continue to lag behind the last couple of years, as home prices also weaken.
There were 2,449 homes contracted for sale in Nassau and Suffolk counties in March, according to preliminary numbers from OneKey MLS. That’s an increase of 28.9 percent from the previous month, but still 16.2 percent fewer than the 2,920 pending home sales recorded in March 2022, and 26 percent fewer than the 3,312 pending sales from March 2021.
Long Island pending home sales have now seen year-over-year declines for the last 21 months. In the first quarter of this year, pending home sales are down 17.5 percent from Q1 2022, falling from 7,043 to 5,810.
Home prices have been trending lower. The median price of closed home sales in Nassau last month was $645,000, slightly higher than the $640,000 median price in February, but down from the $650,000 median recorded in March 2022.
The median price of closed home sales in Suffolk in March was $515,000, a drop of 3.5 percent from the $533,500 median price of the previous month, and down 2.6 percent from the $528,250 median price recorded in March 2022.
Meanwhile, the still-low number of available homes for sale is keeping prices from falling even faster. There were 4,728 Long Island homes listed for sale with OneKey MLS—2,291 in Nassau and 2,437 in Suffolk—as of Thursday. That’s down slightly from the 4,819 homes that were listed for sale at the end of February, and fewer than the 4,853 homes listed for sale at the end of March 2022.
Mortgage rates have drifted lower in the last couple of weeks. The average rate in New York is currently about 6.3 percent for a 30-year fixed loan, down from around 7 percent at the beginning of March.
