by tyler | Oct 25, 2023 | CNN, homes
New home sales in the United States surged higher in September from the month before, even as mortgage rates remained over 7%, making financing a home costlier and pushing people out of the market.
Sales of newly constructed homes jumped 12.3% in September to a seasonally adjusted annual rate of 759,000, from a revised rate of 676,000 in August, according to a joint report from the US Department of Housing and Urban Development and the Census Bureau. Sales were up 33.9% from a year ago.
This represents the fastest pace of sales since February 2022 and easily exceeds analysts’ expectations of a sales pace of 680,000.
Sales of existing homes have been trending down since February and are down 20% year to date in September from a year ago. There is an ongoing inventory and affordability crunch that has homeowners with mortgage rates of 3% or 4% reluctant to sell and buy another home at a much higher rate. In August, rates topped 7% and have lingered there as the Federal Reserve continues to address inflation.
The average rate for a 30-year, fixed-rate mortgage was 7.63% last week, according to Freddie Mac, and there are indications it could continue to climb.
“With one more Fed interest rate hike expected for the year, interest rates are not anticipated to drop any time soon,” said Kelly Mangold of RCLCO Real Estate Consulting.
New construction has been an appealing alternative, attracting determined buyers frustrated by the historically low supply of existing homes. Still, affordability concerns remain.
“The constraints in the housing market have created a significant amount of pent-up demand, as more and more households are living in homes they may have outgrown and are deciding to buy despite current market conditions,” said Mangold.
According to the report, new home sales activity increased the most in the south, “a region that continues to outperform due to availability of land, population and job growth, and a relatively lower cost of living,” said Mangold.
While new home sales are a much smaller share of the overall sales market than existing home sales, the inventory picture is rosier for new construction homes.
The seasonally adjusted estimate of new homes for sale at the end of September was 435,000. This represents a supply of 6.9 months at the current sales pace.
By comparison, there were 1.13 million existing homes for sale at the end of September, or the equivalent of 3.4 months’ supply at the current monthly sales pace.
Typically, the ratio of existing homes to new homes has been closer to 5 to 1, but lately it has been closer to 2 to 1, according to the National Association of Realtors.
by tyler | Oct 17, 2023 | CNN, homes
Adjustable-rate mortgages, which got a bad name during the housing meltdown of the late 2000s, are gaining some traction again as would-be homebuyers face the highest rates in decades for fixed-rate mortgages.
As rates for the 30-year fixed-rate loan climb to levels not seen in 23 years, would-be homebuyers are looking for alternatives.
The most popular kind of mortgage — a 30-year, fixed-rate loan — reached an average rate of 7.67% last week, according to the Mortgage Bankers Association.
Meanwhile, the average rate for a kind of adjustable rate mortgage — a 5/1 ARM — dropped to 6.33% from 6.49%.
(Freddie Mac, which provides an average that CNN covers weekly, does not track interest rates for adjustable rate mortgages).
“Mortgage applications increased for the first time in three weeks [last week], pushed higher by a 15% jump in ARM applications,” said Bob Broeksmit, CEO of MBA. “With mortgage rates well above 7%, some prospective homebuyers are turning to ARMs to lower their monthly payment in the short term amidst these high mortgage rates.”
Leading up to the foreclosure crisis, home buyers signed on for teaser rates that then reset and caused monthly payments to balloon above borrowers’ ability to pay them. Now, stricter regulations and more transparency have made ARMs less risky than they used to be.
But they are still a roll of the dice, because your rate will not stay the same for the life of the loan. And while it may go down, it could also go up.
ARMs offer a fixed rate for a set period — typically five, seven or 10 years — but after that, the interest rate resets to current market rates.
A 5/1 ARM, for example, has a fixed rate for five years and then resets every year after that, while a 5/6 ARM is fixed for five years and then resets every six months. Loans reset based on a reference index like the Secured Overnight Financing Rate or the rate on short-term US Treasuries. There are also caps on how much a rate on an ARM can go up or down during each reset period and over the life of the loan.
Here’s why ARMs are getting a second look from some buyers.
Strong economic news over the past few weeks — a surprisingly robust jobs report and resilient consumer spending — has caused the Federal Reserve to suggest that its benchmark interest rate will remain “higher for longer.”
These economic data points “created shock waves through the market,” said Melissa Cohn, regional vice president at William Raveis Mortgage.
The geopolitical conflict following the Hamas incursion into Israel has led to higher oil prices, which act as inflationary, Cohn added.
Mortgage rates currently hover above 7.5%, and with another Fed meeting at the end of the month, “we need to expect rates to remain higher longer than we would like,” said Cohn.
While the Fed does not set mortgage rates directly, its actions influence them.
Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.
Some housing groups — including the Mortgage Bankers Association, National Association of Realtors and the National Association of Home Builders — wrote a letter last week urging the Fed to stop hiking rates.
Still, “rates won’t drop like a rock,” Cohn predicted, though there will be bubbles of rate drops, she said.
She recommends looking at five- and seven-year adjustable rates while keeping the monthly cost as low as possible and refinancing in 12 to 24 months.
“Hopefully, by the end of the year, [the Fed’s] rate hikes will really come through,” she said, meaning that inflation will come down and, in turn, mortgage rates will start decreasing next year.
While the overwhelming share of loans are still fixed-rate mortgages, ARMs are becoming more attractive in the current higher-rate environment.
The share of all loan applications that were adjustable-rate mortgages was 9.2% last week, according to MBA, the highest share since November 2022, when rates on 30-year fixed rate loans were also over 7%.
While ARMs come with more risks, they may be more cost effective in the near term for some buyers.
A buyer purchasing a median-priced $407,100 home with 20% down that they expect to live in for 7 years will pay over $14,500 more during that time with a 30-year fixed rate loan at 7.57% than they would with a 5/1 ARM at 6.33%, even if rates increase when it resets, according to numbers from Freddie Mac, which has a calculator borrowers can use to compare loans.
ARMs also often allow you to pay off more of the principal on the loan in those seven years. Generally, homeowners with higher mortgage rates will pay more in interest rather than principal for a longer time than those with lower interest rates.
Still, even with shorter-term savings, ARMs aren’t for everyone. For many people, a fixed rated loan, even at 7% or above, is better because of the set payments and the possibility to refinance to a lower rate, should rates drop.
Financial planners have some suggestions for homebuyers considering an ARM.
Kaylin Dillon, a certified financial planner in Kansas, said buyers should clear a couple of bars before getting into an ARM, including having extra cash to throw at payments on a monthly basis.
“I only suggest getting an ARM if you can afford to make excess mortgage payments large enough to pay off the loan in full before the fixed rate period of the loan ends,” she said. “This way, you have paid off your home at the lower interest rate without the risk of a ballooning interest rate at the end of the fixed period.”
If the rising rates have put your dream house out of reach, maybe it is time to take a breather from the housing market, said Jay Zigmont, a certified financial planner and founder of Childfree Wealth, based in Mississippi.
“You shouldn’t try to get fancy with your financing just to make your house ‘work,’” Zigmont said. He added that there is no guarantee that the value of the home will rise or that you will be able to refinance when the fixed term of the ARM ends.
If a buyer’s income is not expected to rise much and their monthly cash flow is already tight, taking on the possible burden of higher mortgage payments when an ARM resets is certainly a risk, said Cohn.
“What happens when the rate changes and you have to pay more each month? What happens if you lose your job and you can’t even afford to refinance? If you’re not willing to take on those risks, a fixed-rate is a better solution,” she said.
by tyler | Oct 12, 2023 | CNN, homes
Mortgage rates climbed for the fifth consecutive week Thursday, following recent jobs and inflation reports that surged past forecasts and set expectations that decades-high interest rates could stay higher for longer.
The persistently higher mortgage rates are putting added strain on today’s would-be homebuyers who are also confronting elevated home prices due to a lack of inventory of homes for sale.
The 30-year fixed-rate mortgage averaged 7.57% in the week ending October 12, up from 7.49% the week before, according to data from Freddie Mac. A year ago, the 30-year fixed-rate was 6.92%. The last time rates were this high was in December 2000.
“The good news is that the economy and incomes continue to grow at a solid pace,” said Sam Khater, Freddie Mac’s chief economist. “But the housing market remains fraught with significant affordability constraints. As a result, purchase demand remains at a three-decade low.”
The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit.
Mortgage rates have spiked during the Federal Reserve’s historic inflation-curbing campaign — and while a good deal of progress has been made, it is not yet as low as the Fed would like.
The Fed’s preferred inflation measure, the core Personal Consumption Expenditures index, is currently 3.9%, which is nearly double the Fed’s target of 2%. But it is the lowest annual increase that index has seen in two years and is a positive step toward the Fed’s target.
“Last week’s jobs report exceeded investor expectations, with 336,000 net new jobs, resulting in a late-week surge in the 10-year Treasury yield and a bump in mortgage rates,” said Hannah Jones, senior economic research analyst at Realtor.com.
But the incursion by Hamas into Israel this weekend created geopolitical uncertainty that brought mortgage rates lower: Investors sought out the safety of the bond market, sending the yield on the 10-year Treasury note falling earlier this week.
Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow. While the Fed does not set the interest rates that borrowers pay on mortgages directly, its actions influence them.
“Though the weekly movement settled from last week’s surge, rates remain near two-decade highs and more than 4 [percentage] points higher than two years ago,” said Jones.
“The Fed’s ‘higher-for-longer’ monetary policy keeps upward pressure on rates, making a descent unlikely until new data suggests that inflation is moving in the right direction.”
Even as rates were climbing last week applications for mortgages ticked up slightly, mostly because of an increase in applications for adjustable-rate mortgages, or ARMs, according to the Mortgage Bankers Association.
“Mortgage applications increased for the first time in three weeks, pushed higher by a 15% jump in ARM applications,” said Bob Broeksmit CEO of MBA. “With mortgage rates well above 7%, some prospective homebuyers are turning to ARMs to lower their monthly payment in the short term amidst these high mortgage rates.”
MBA’s average rate for a fixed-rate 30-year mortgage last week moved up to 7.67%, while the average rate for a 5/1 ARM, that has a fixed rate for the first five years and resets once per year after that, dropped to 6.33% from 6.49%. (Freddie Mac does not track average rates for adjustable rate mortgages.)
Adjustable rate mortgages accounted for 9.2% of all mortgages last week, according to MBA. That’s the highest share since November 2022, when rates on 30-year fixed rate loans also were over 7%.
Prospective buyers have had to get creative to prepare financially for homeownership, said Jones.
“Though buyers have shown signs of adjusting to the higher-rate environment, limited inventory has kept home prices elevated, cutting further into the buying power of shoppers hoping to find a suitable home,” she said.
While many repeat buyers can leverage their existing home equity in today’s expensive market, she said, younger home buyers often have a harder time coming up with the money for a home purchase.
At today’s mortgage rate, a household typically needs an annual income of at least $120,000 to purchase a median-price US home, assuming a 20% down payment, Jones said.
by tyler | Sep 28, 2023 | CNN, homes
US mortgage rates surged to their highest level in nearly 23 years this week as inflation pressures persisted.
The 30-year fixed-rate mortgage averaged 7.31% in the week ending September 28, up from 7.19% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 6.70%.
“The 30-year fixed-rate mortgage has hit the highest level since the year 2000,” said Sam Khater, Freddie Mac’s chief economist, in a statement. “However, unlike the turn of the millennium, house prices today are rising alongside mortgage rates, primarily due to low inventory. These headwinds are causing both buyers and sellers to hold out for better circumstances.”
The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit.
Mortgage rates have spiked during the Federal Reserve’s historic inflation-curbing campaign — and while a good deal of progress has been made since June 2022, when inflation hit 9.1%, Fed officials say there is still a ways to go.
The Fed’s preferred inflation measure, the core Personal Consumption Expenditures index, is currently 4.2%, which is more than double the Fed’s target of 2%. Economists expect it to drop to 3.9% when the latest reading is released on Friday.
This week’s mortgage rate surge followed last week’s small move higher, as investors settled in for “higher-for-longer” interest rates after last week’s Fed policy meeting, said Danielle Hale, chief economist at Realtor.com.
Hale said the takeaway from the meeting was that the upward adjustments from the Fed haven’t ended.
“Revised economic projections show that another rate hike this year is definitely on the table, and the expected policy rate in 2024 and 2025 was also higher than previously forecast,” she said. “Market participants are still playing catchup.”
While the Fed does not set the interest rates that borrowers pay on mortgages directly, its actions influence them.
Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.
The yield on 10-year Treasuries rose from 4.3% on September 20 to 4.6% as of September 27.
Mortgage applications continued to drop last week, according to the Mortgage Bankers Association, as mortgage rates went higher.
“Rates over 7% and low for-sale inventory continue to create affordability challenges for prospective buyers,” said Bob Broeksmit, MBA president and CEO. “Until rates start to come back down, we anticipate housing market activity will remain slow.”
Markets are experiencing an extraordinarily low number of homes for sale as homeowners stay put with ultra-low mortgage rates that are several percentage points lower than the current rate.
There has been a small uptick in newly listed homes coming to market over the past few weeks, according to Realtor.com, which is seasonally atypical, said Hale.
The first week in October tends to be an ideal week to buy a home, she said, since home prices tend to fall relative to summer highs, and fewer buyers contend for homes. Yet housing inventory remains higher than a typical week, Hale said.
But, she added, mortgage rates will continue to be a wild card, which could make it impossible for some buyers to get in the market now.
Even as demand is dropping, with so few homeowners selling, the market is pushing up prices as those few buyers who remain tussle over the handful of available houses, Hale said.
This combination of higher prices and higher mortgage rates contrasts with easing rents over the past few months. This may cause would-be first-time buyers to wait for home prices and mortgage rates to stabilize and rent instead.
“Buying a starter home is more expensive than renting in all but three major US markets [Realtor.com] studied,” said Hale, “which explains why buyer demand is likely to remain relatively low.”
by tyler | Sep 8, 2023 | CNN, homes
US mortgage rates ticked down for the second week in a row but remain above 7%.
It’s the fourth consecutive week rates have been above 7% as inflation pressure lingers.
The 30-year fixed-rate mortgage averaged 7.12% in the week ending September 7, down from 7.18% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 5.89%, the last time the weekly average has been under 6%.
The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit. The data was collected during a holiday-shortened week.
Mortgage rates have spiked during the Federal Reserve’s historic inflation-curbing campaign, sending home affordability to its lowest level in nearly four decades. Buying a home is more expensive because of the added cost of financing the mortgage and rising home prices.
“The economy remains buoyant, which is encouraging for consumers,” said Sam Khater, Freddie Mac’s chief economist.
But it isn’t good news for inflation, which needs to drop further for mortgage rates to come down.
Even though inflation has started to ease, strong economic data has continued to keep mortgage rates elevated this week, Khater said. That is straining potential homebuyers, who have seen their purchasing power dwindle.
The combination of low inventory and high costs has squeezed would-be homebuyers and sent home sales lower than last year.
Rates are not expected to move much in the near term, said Danielle Hale, chief economist for Realtor.com. They didn’t move much during the shortened Labor Day week, and the strong economy, which has been keeping rates over 7%, has been cooling but at a moderate pace.
“In addition to fewer job openings and slower hiring this summer, recent readings on inflation have shown progress,” Hale said a statement.
Still, inflation remains well above the Federal Reserve’s 2% target. The Personal Consumption Expenditures index for July, released last week, showed that prices increased 3.3% annually.
The Fed has been raising interest rates in an effort to cool the economy and bring inflation closer to its target. But as the economy shows signs of resilience, the bond market is concerned that more hikes may be required to tame inflation. The central bank has three remaining policy meetings this year, including later this month.
While the Fed does not set the interest rates that borrowers pay on mortgages directly, its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.
Although home prices have crept up recently due to historically low inventory, rent prices have trended lower, which Hale says should help move inflation back toward its target in the months ahead.
The economy is nearing an inflection point, she says. But until it shows signs of cooling without protracted job losses or a recession – what’s known as a soft landing – mortgage rate volatility may continue.
With high mortgage rates, stubbornly high home prices and low inventory, fewer people are buying a home.
Applications for a mortgage to buy a home dropped to a 27-year low this week, according to the Mortgage Bankers Association.
“The housing market appears to be stuck heading into autumn, with sales activity likely to stay stagnant until housing inventory increases and mortgage rates decline to more affordable levels,” said Bob Broeksmit, MBA president and CEO in a statement.
However, August saw an uptick in newly-listed homes, according to data from Realtor.com, “suggesting the possibility that we’ve reached a point where some current homeowners are ready for a change despite the market’s challenges,” Hale said.
Still, the number of homes on the market is historically low, and August’s new listings lag behind prior years for the same period.
“This has kept housing markets surprisingly competitive,” Hale said.
by tyler | Jun 29, 2023 | CNN, homes
The housing market showed clear signs of slowing, according to new data released on Thursday.
Mortgage rates climbed this week after three weeks of declines, according to the latest survey from Freddie Mac. Separately, a report from the National Association of Realtors showed that pending home sales dropped much more than expected in May.
The 30-year fixed-rate mortgage averaged 6.71% in the week ending June 29, up from 6.67% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 5.70%.
Mortgage rates have remained over 5% for all but one week during the past year and even went as high as 7.08%, last reached in November.
“Despite affordability headwinds, homebuyers have adjusted and driven new home sales to its highest level in more than a year,” said Sam Khater, Freddie Mac’s chief economist. “New home sales have rebounded more robustly than the resale market due to a marginally greater supply of new construction. The improved demand has led to a firming of prices, which have now increased for several months in a row.”
The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit.
The US housing market has been on a wild ride in the past two years: Home sales and prices soared in the recovery from the pandemic; but then as mortgage rates jumped, closings plummeted and prices started coming back to Earth.
Mortgage rates have ticked down in recent weeks, and the 30-year fixed-rate mortgage averaged 6.67% in the week ending June 22.
US pending home sales dropped more than expected in May, according to data released Thursday by the National Association of Realtors.
The index shrank 2.7% from April, to 76.5 in May. Economists were expecting a drop of 0.5%, according to consensus estimates on Refinitiv.
The pending home sales index is a forward-looking indicator based on signed contracts to buy a home rather than final sales, which are accounted for in the existing home sales index.
With May’s tumble and a downward revision to April’s previously steady reading, the index has now declined for three consecutive months.
Year over year, pending transactions were down 22.2%. All four US regions saw year-over-year declines in transactions.
“Despite sluggish pending contract signings, the housing market is resilient with approximately three offers for each listing,” said NAR Chief Economist Lawrence Yun, “The lack of housing inventory continues to prevent housing demand from being fully realized.”
An index reading of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined by the NAR. By coincidence, the volume of existing home sales in 2001 fell between 5 million to 5.5 million, a range considered normal for the current US population.
Meanwhile, investors continued to take in Fed Chairman Powell’s comments on rate hikes.
“Two weeks ago, the Fed signaled that the projected policy rate would be 50 basis points higher than previously expected by the end of 2023, which is also half a point higher than the current rate,” said Jiayi Xu, an economist with Realtor.com. “Powell’s recent comments remarked that the very strong labor market is the main driver behind the Fed’s rate setting decisions and that there’s more restriction coming.”
While this may pose near-term upward pressure on interest rates, including for mortgage rates, she said, she expects a gradual decline that could bring rates near 6.0% by year-end.
The Fed does not set the interest rates that borrowers pay on mortgages directly, but its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.
As rates have cooled over the past couple weeks, applications for mortgages have gone up, according to Mortgage Bankers Association.
“Purchase applications increased for the third consecutive week to the highest level of activity since early May but remained more than 20% lower than year ago levels,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.
New home sales have been driving purchase activity in recent months as buyers look for alternatives to very low inventory of existing homes.
“Existing-home sales continued to be held back by a lack of for-sale inventory as many potential sellers are holding on to their lower-rate mortgages,” said Kan.
Even as rates have been trending lower the past few weeks, for much of May rates were climbing. This resulted in home buyer affordability worsening in May, according to MBA.
The national median monthly payment for purchase loan applicants increased 2.5% to $2,165 from $2,112 in April, the MBA found. It is up $268 from one year ago, a 14.1% increase.
In addition to still-high mortgage rates and housing prices, the shortage of housing supply has worsened the conditions faced by first-time home buyers, creating an especially challenging situation for those dreaming of homeownership.
“While smaller entry-level homes may not meet the criteria of a dream home, there is strong demand, but very few homes available that fit the bill,” said Xu. “Thankfully, builders are taking note of the market need and are making efforts to catch up to demand through new construction, especially of homes at lower price tiers.”
After dropping below 10% in 2022, the proportion of new homes sold that are priced under $300,000 is on an upward trajectory, Xu said.
Early estimates in May indicate that homes within this price range constituted approximately 17% of total sales, marking the highest share since December 2021, when the share was 18%.
“Despite this encouraging news, there remains an urgent need for more homes at the most affordable price points, where the shortage of available inventory is most severe,” said Xu.
