Recent Gains in home prices break record

Home-price gains in 2021 are on pace to smash last year’s all-time high after record-low mortgage rates fueled bidding wars across the U.S., Fannie Mae said in a forecast on Friday.

Home prices probably will surge 17% this year, beating the record gain of 11% set in 2020 that surpassed the prior peak of 10% seen at the height of the real estate boom that petered out in mid-2006, the largest U.S. mortgage securitizer said.

Prices for homes began spiking last year after the Federal Reserve stepped into the bond markets in March 2020 to purchase Treasuries and mortgage-backed securities to support the economy during the pandemic and prevent the type of credit crunch that crashed the U.S. financial system in 2008.

Both type of asset purchases — Treasuries and mortgage bonds — put downward pressure on rates because home-financing costs tend to track long-term Treasury yields. When the Fed became the 800-pound gorilla in the bond markets it boosted competition for the fixed assets, which resulted in investors having to accept smaller yields.

“We believe strong price appreciation is likely to continue in coming months,” Fannie Mae economists said in commentary released on Friday with the forecast. “When compared to this past spring, housing market activity has cooled, as indicated by measures such as the number of homes with multiple bids, average days on the market, and sales prices relative to asking prices. However, these indicators all remain well above the historical norm and point to a continued tight market.”

The U.S. real estate market struggled with low inventory prior to the start of the pandemic because of years of underbuilding after the 2008 financial crisis put hundreds of construction companies out of business.

Following an initial lull in the housing market during the first months of the pandemic, demand for real estate began to accelerate as Americans working from home, and often schooling their children at the kitchen table, became dissatisfied with their existing digs.

The average U.S. rate for a 30-year fixed mortgage dipped below 3% for the first time ever in July 2020, four months after the Fed started buying bonds, and went on to set new records a dozen more times in 2020. The current all-time low is the 2.65% set in the first week of 2021, as measured by a Freddie Mac data series that goes back to 1971.

Lower rates typically mean buyers qualify for bigger mortgages because lenders use a formula that compares the monthly bill of the new loan, with its cheaper financing costs, against income and other debts. That sparked bidding wars for property that drove up home prices.

The rate seen in 2021’s first week is likely to stand in the record books as the bottom, Fannie Mae said. The Fed is set to begin tapering those bond purchases in November of December, according to the minutes of last month’s meeting released last week.

The average 30-year fixed rate next year probably will be 3.3%, compared with 2.9% in 2021, the mortgage giant said.

Next year, home-price appreciation is expected to slow but not fall of a cliff, according to the Fannie Mae forecast. The sale price of U.S. homes probably will gain 7.4% in 2022, Fannie Mae said.

That would beat the 3.3% average annual appreciation seen in the decade before the start of the pandemic, according to data from the Federal Housing Finance Agency.

Kathleen Howley, Forbes

Housing boom will end when interest rates rise

The current housing boom will flatten in 2022—or possibly early 2023—when mortgage interest rates rise. There is no bubble to burst, though prices may retreat from panic-buying highs.

The boom produced some frantic buying, bids in excess of asking prices, and plenty of worry among would-be homeowners. But this has not been a bubble. A bubble is not simply rising prices, but demand not justified by fundamental economic factors. The key to the buying boom has been low mortgage rates plus a shift in desired housing type.

Mortgage rates hit what was then an all-time low of four percent in 2011, and then remained in that neighborhood until the pandemic, when they hit three percent. The decline in mortgage rates in 2020 dropped the monthly payment on a house by 12 percent, enabling many people to buy houses now rather than later.

In addition to the low mortgage rates, some people saw a future of remote work and wanted more space, which often means moving out of an apartment into a single family house. Others found urban living less fun, so they headed into the suburbs where houses are more common than apartments.

The increased demand for houses drove prices up, quite predictably. Yet the supply could not adjust as fast as demand. Home builders ramped up production in the second half of 2020, but after a few months they ran into supply constraints. Ready-to-build lots were all bought up, labor for construction was hard to find and social distancing made workers less productive. Now rising materials prices and goods on back-order squeeze profit margins. That’s how we find ourselves in the current housing boom.

But this boom is not a bubble, because the rise in prices is easily explained by the fundamentals of cheap mortgages and supply limitations. Recent housing starts are below historical averages, though that is justified by lower population growth. But with the shift from multifamily to single family housing, recent construction levels make sense. There need be no sudden drop in new construction to maintain a reasonable equilibrium.

When will the boom end? The two keys are satisfying the new demand and mortgage rates. Low mortgage rates allowed young families to buy houses earlier than they otherwise would have. It did not change the economics of buying for people who were never going to be homeowners. Instead, low mortgage rates enabled people to achieve their dreams earlier than they otherwise would have. In this sense, the strong housing market of 2020 and 2021 has been borrowing from the future. However, the shift in preferences from urban living to suburban living by people who previously could have bought houses is permanent new demand. At least, so long as they don’t become disillusioned about home ownership.

Mortgage rates are likely to rise when financial markets anticipate more inflation and action by the Federal Reserve to stem inflation. Although the Fed’s traditional tools impact short-term rates, with only small effect on mortgage rates, the new actions by the Fed impact mortgages directly. The Fed has been buying mortgages wholesale, depressing mortgage interest rates. The Fed has also been buying many treasury securities, which are often competitors to mortgages for institutional investors.

Mortgage rates are likely to rise a full percentage point by mid-2022, though this forecast exceeds the average prediction of my fellow economists. They doubt long-term interest rates will rise by a percentage point even out to December 2022. If they are right and I am wrong, then the housing market will remain strong longer.

Business leaders in the housing supply chain should enjoy their strong sales this year but not anticipate further growth in the coming years. Major capital projects must pencil out with sales back at 2019 levels.

Prospective home buyers should probably chill. It’s been a tough buying season. Although prices are unlikely to fall nationwide, there will probably be easier buying opportunities in 2023.

by Bill Conerly, Forbes

5 trends fueling hot real estate market

The housing market is on fire.

What began as a pickup in demand early in the pandemic has evolved into an all-out buying spree. Sales of new and previously owned homes, while off their peaks, remain elevated. Construction has picked up somewhat, but contractors are struggling to shore up supply. With inventory sitting near record lows, price growth has accelerated to rival the 2000s housing bubble.

Reports published Tuesday confirmed the boom is alive and well. Prices soared through March at the fastest rate since 2005, according to S&P CoreLogic. Separately, Census Bureau data showed new single-family home sales slowing 5.9% through April. Still, the sales pace sits well above the pre-pandemic norm.

But it’s not just conventional gauges posting shocking superlatives — fundamental change is afoot in US housing. Alternative data, from lumber prices to the realtor-to-listing ratio, show a handful of structural shifts taking place throughout the market. Glenn Kelman, CEO of real-estate brokerage Redfin, unpacked several of them on a Twitter thread that racked up more than 14,000 likes in less than 48 hours. 

     Here are the five major changes reshaping the US housing sector.

1 – Buyers face a persistent shortage of available homes

At its core, the market boom is simply a result of too few homes. Economists are largely confident that, while trends are similar to the mid-2000s bubble, it’s a nationwide supply shortage driving prices higher, and not risky lending practices.

  • More realtors than listings

The number of available homes in the US totaled 1.16 million at the end of April, according to the National Association of Realtors. NAR ended last month with 1.48 million members.

The association’s membership has exceeded listings through much of the year as sales bite into home availability.

  • Historically low inventory

The national supply of available homes in the US plummeted to record lows at the start of the pandemic and have only just risen from those levels through 2021. The monthly inventory rose to 4.4 months in April, but the bounce has as much to do with a slowing pace of sales as it does with a pickup in construction.

  • Homes selling at a record pace

When homes are coming up for sale, they aren’t staying on the market all that long. The average home now sells in a record-low 17 days, Kelman wrote on Twitter.

2 – People are fleeing cities for cheaper locales

The story of the 2020-2021 housing market is also one of migration. Americans largely fled densely populated cities for suburbs and traded their apartments for homes while mortgage rates were low. And after years of intense crowding in metropolitan areas, people seeking more space during the work-from-home period rushed to less populated states.

  • Low-tax states seeing huge inflows

Attractive tax rates seemingly played a major role in the moving bonanza. Four people moved into low-tax states for every one that left, Kelman said. That ratio rose to 5:1 in Texas and 7:1 in Florida.

  • Moving families face a new status quo

Americans who moved during the pandemic took a few risks. In a Redfin survey of 2,000 homebuyers, 63% said they bid on a home they hadn’t seen in person yet.

Separately, those moving to low-tax states enjoyed far lower housing costs. In many instances, the money saved allowed one parent to stop working, and many buyers are retiring early, Kelman said in a Wednesday tweet.

  • Inventory and prices up in SF and NYC

Still, some of the country’s biggest cities aren’t down for the count. Inventory has swung higher in New York City and San Francisco by 28% and 77%, respectively, according to Kelman. Yet prices are increasing steadily in both markets, suggesting that, while many are moving out, enough are moving in to support already lofty prices.

3 – It’s getting more and more expensive to build homes

The simplest solution to slowing homes’ rapid price growth would be to increase supply. Yet the combination of a historic surge in demand with supply-chain bottlenecks as the economy reopened have hindered contractors.

  • Lumber prices exploded higher

Most recently, surging lumber costs cut into builders’ efforts. Prices soared to record highs earlier in May and closed 280% higher year-over-year on Tuesday.

  • Not enough building space

Even if lumber cost less, there’s scant room to build homes. The New Home Lot Supply Index — which tracks lots ready for building — fell 10% to a record low in the first quarter, according to housing analytics firm Zonda.

Even the firms that have empty lots are running behind in converting them to sellable homes. About 242,000 authorized homes hadn’t been started yet in April, the Census Bureau said last week. That’s the highest level since 1979. 

  • Builders waiting for the opportune moment

The various shortages and bottlenecks have led builders to hit the brakes and wait for profitability to rebound. Nearly one-in-five contractors surveyed by the National Association of Realtors in April said they’re delaying construction or sales.

About 47% said they added escalation clauses to contracts last month. The clauses allow contractors to lift homes’ selling prices to offset an increase in building costs.

4 – Pricey construction, unrelenting demand is driving stronger home inflation

With builders unable to meet demand with new supply, prices predictably shot through the roof. Experts see home-price inflation staying hot into 2023, and with selling prices already elevated, a long rally could further dent home affordability across the US.

  • Prices hit record highs

While the rate of sales has cooled slightly, price growth remains strong. The median selling price of new homes rose to a record-high $372, 400 in April, the Census Bureau said Tuesday.

The median price for previously owned homes rose to a record of its own last month. The average existing home cost $341,000 in April, the National Association of Realtors said on May 21.

  • Sell-over-ask at record highs

For those looking to sell, there’s never been a better time. Homes are selling on average for 1.7% above their asking price, Kelman wrote on Twitter. That’s the largest average overshoot on record.

5 – Americans increasingly prioritize value and space

Still, not all buyers are losing out as the market boom charges onward.

  • Two-thirds of buyers say they snagged great deals

A Redfin survey of 600 homebuyers found that about two-thirds of people who moved during the pandemic bought a unit that was the same size or larger than their previous home. The same share of buyers spent the same or less on housing, the firm added.

  • Most had more cash after they moved

Moving during the pandemic also tended not to break the bank. Of the Americans reporting they moved into larger homes, 78% said they have the same amount of disposable income or more after their move, Kelman said.

“Idaho home price could triple and still seem affordable to a Californian,” the Redfin CEO said in a tweet.

~Ben Winck, Insider 

Buyers snapping up homes in 5 days or less

Nationwide, almost half of homes sold above list price. These and several other record-breaking measures made April a historic month for housing.

Note: Pandemic lockdowns significantly slowed home buying and selling in April 2020, which means the year-over-year trends for home prices, pending sales, closed sales and new listings are somewhat exaggerated. 

April was another history-making month for housing, with homes selling for higher prices and in fewer days since at least 2012. The following measures all hit new records:

  • The national median home-sale price hit a record high of $370,528, up 22% from 2020.
  • The number of homes for sale fell to a record low.
  • The typical home sold in just 19 days, a record low.
  • 49% of homes sold above their list price, a record high.
  • The average sale-to-list ratio, a measure of how close homes are selling to their asking prices, hit a record high of 101.6%.

“To put the scarcity of housing into context, there is plenty of room for supply to increase and demand to taper off, and we would still find ourselves in a historically strong seller’s market,” said Redfin Chief Economist Daryl Fairweather. 

“While Americans brace themselves for a lot of changes as workplaces and schools reopen, the story of the housing market will largely remain the same. There simply aren’t enough homes for sale in America for everyone with the desire and the means to buy one right now. Until new construction takes off–over the course of years, not months–home prices will continue to increase. This housing boom is nowhere close to over.”

Indianapolis is home to the country’s fastest housing market. The typical home in the Indianapolis metro went under contract after just four days on the market in April, down from 10 days a year earlier.

“I’m helping buyers understand the current market by advising them that it’s no longer unusual for a home to sell for up to $50,000 above asking price,” said Indianapolis Redfin agent Andrea Ratcliff. “Builders have waiting lists of at least a year and people are hesitant to sell their homes because there are so few options available for them to buy. Plus, remote workers are moving into the Indianapolis area, fueling even more homebuyer demand. Those factors are exacerbating our local housing shortage and fueling the competitive cycle.”

Homes in Seattle also sold exceptionally fast in April, with half of all homes pending sale in just 5 days in each of those metros.

Three of the five most competitive markets of the month were in California. In Oakland, 81.5% of homes sold above list price, a higher share than any other metro. It’s followed by San Jose (78.2%), Tacoma, WA (73.7%), Austin (73.7%) and Sacramento (72.5%).

~Tim Ellis, Redfin

Rates sharply higher; homebuyer competition fiercer than ever

  • Mortgage rates bounced higher again this week, making homebuying even more expensive at the start of the all-important spring market.
  • With home prices skyrocketing, any rise in rates knocks even more potential buyers out of the running, and yet somehow the housing market is more competitive than ever.

Mortgage rates bounced higher again this week, making homebuying even more expensive at the start of the all-important spring market.

With home prices skyrocketing, any rise in rates knocks even more potential buyers out of the running, and yet somehow the housing market is more competitive than ever.

The average rate on the 30-year fixed mortgage hit its last low of 2.75% at the end of January, and has since climbed pretty steadily, according to Mortgage News Daily. After a sizeable move overnight, it now stands at 3.45%.

“Since the beginning of February, the total damage is nearly 3/4ths of a percent, making it one of the biggest moves in any 6 weeks, ever,” said Matthew Graham, chief operating officer at Mortgage News Daily.

“The purchase market always weathers these storms, and the ultra-tight supply situation coupled with still-ravenous demand in many metro areas may keep the housing market surprisingly buoyant. The bigger question is when rising rates will ultimately impact prices.”

The rate is the same now as it was a year ago. The difference from a year ago, however, is that home prices are soaring.

Prices are now up over 10% from this time in 2020, according to CoreLogic, and there appears to be no letup in the gains. This is due to the record low supply of homes for sale. 

Homebuilders are not stepping up as much as hoped, because they are facing higher costs for land, labor and materials. They also continue to experience delays in getting materials to job sites, due to Covid. Single-family housing starts came in much lower than expected in February, and the backlog of unbuilt homes is rising.

“There has been a 36% gain over the last 12 month of single-family homes permitted but not started as some projects have paused due to cost and availability of materials,” said Robert Dietz, chief economist of the National Association of Home Builders.

“Single-family home building is forecasted to expand in 2021, but at a slower rate as housing affordability is challenged by higher mortgage rates and rising construction costs.”

New homes already come at a price premium to existing homes, so rates are particularly important to that market.

For a new home with an estimated median price of $346,757 in 2021 and the recent 30-year fixed-rate mortgage rate of 3%, a quarter percentage point increase in the interest rate would price out approximately 1.3 million households, according to a new calculation by the NAHB. 

The supply crunch of existing homes is only exacerbated by higher mortgage rates. Homeowners who sell would likely have to buy their next home at a higher interest rate, so that’s a significant deterrent to moving.

The number of newly listed homes for sale for the week ended March 13 was 24% lower year over year, according to realtor.com. The total number of homes for sale is now half of what it was a year ago.

While this situation makes it harder for buyers, it also shows that buyer demand has not fallen off much, even in today’s higher rate environment. If buyers had fallen back, the supply would be rising.

Buyers are in fact, “flooding the housing market early this year, eager to find a home of their own,” according to Danielle Hale, realtor.com’s chief economist. On average, homes are selling seven days faster than last year.

Housing demand was pulled forward last year. The pandemic created an emotional need to nest, not to mention a practical need for more space, given the work- and school-from-home environment. Even as vaccinations rise and more people go back to offices and schools, homebuyers are still not only out in force but are increasingly competitive.

Just over a third of homes sold in February went for more than their original asking price. That is the largest share on record, according to Redfin, a real estate brokerage.

Diana Olick, CNBC

Despite snowstorms, Puget Sound housing market stayed strong


February saw one of the snowiest days on record in the Seattle area, with people in some areas waking up during Valentine’s Day weekend to nearly a foot outside their windows.
But, even with the weather, the Puget Sound region housing market didn’t let up, according to the February report from Northwest Multiple Listing Service.

“It’s amazing how close the February numbers are when compared to February 2020, which was, of course, right before our world changed,” said Mike Grady, president and CEO of Coldwell Banker Bain. “Despite our similarly lousy February weather, the data shows that the market continues to be hot, with residential inventory very tight and median prices rising by double digits across most of our counties.”

In King County in February, there were 2,893 new listings added to the market, slightly lower than in February of last year. Total active inventory in the county was down nearly 18% year-over-year, reflecting the limited inventory that has marked the region’s housing market over the past year.

For residential listings, total active inventory was down nearly 41% compared to the same time last year. The total number of active listings for condos, however, was up more than 50% compared to February of 2020.

Pending sales overall were down slightly year over year, but were up compared to last month, the report found.

“This tells me that neither the snowstorm that hit the region nor the jump in mortgage rates deterred buyers who were still out in force last month,” Windermere Chief Economist Matthew Gardner said.

Gardner added even though pending condo sales also decreased compared to the same time last year, several neighborhoods in Seattle, including Queen Anne, downtown Seattle and Ballard, “performed better than expected.”

“That suggests to me that there may not be the mass exodus from the core urban areas that many have been predicting,” Gardner said.

Closed sales in King County were up about 13.5% compared to the same time last year, with 2,146 closed sales over the course of the month. Home prices were also up more than 10% year over year, with the median price for closed sales in February coming in at $679,075.

Prices were also up from last month, when the median closed sale price was $644,950. Among residential homes, prices rose even more steeply in February, up more than 11% year over year. For condos, prices rose only about 1% compared to the same time last year.

“Like last year, before we knew what was just around the corner, buyer demand is high. There continues to be opportunities for buyers seeking condos, and median prices are more stable, so that’s also good news for buyers,” Northwest MLS Director John Deely, executive vice president of operations at Coldwell Banker Bain, said.

For buyers looking for residential homes, though, they face a more difficult market.
“Our brokers are working hard to help prepare buyers both emotionally and financially for the realities they face, and to help position them as the winning purchaser,” he said.


“With things opening up, and open house restrictions eased to allow more people at one time, brokers are also spending a good amount of time preparing their sellers to get comfortable with having people in their homes and to safely facilitate viewings, as well as managing and analyzing all the offers.”

Moving forward, brokers said they were optimistic more homes would be added to the market and the region’s housing market would stay strong.

“After an intense winter in the local real estate market, more new resale listings are on the horizon this month. March historically marks the beginning of the eight month prime-time real estate market,” said J. Lennox Scott, Chairman and CEO of John L. Scott Real Estate. “The intensity we’re seeing in the market should come down slightly as more available homes enter the market, but we have to play catch up with pent-up buyer demand first.”

~Becca Savransky, Seattle P-I

Bidding wars increase as listings at record low

Presidents Day weekend marks the unofficial start of the spring housing market, but if you’re looking to get in this year, hold onto your wallet. Bidding wars are off the charts, even as home prices are rising rapidly.

The primary reason longtime home searchers haven’t bought a house yet is because they keep getting outbid. About 40% of potential buyers cited that in a new survey by the National Association of Home Builders. The reasons are flipped from a year earlier, when 44% said unaffordable prices were the biggest reason they hadn’t bought yet, and 19% cited getting outbid.

Well over half of all buyers, 56%, faced bidding wars on their offers in January, according to a Redfin survey. That is up from 52% in December. More than half of homes are now going under contract in less than two weeks.

“With so few new listings hitting the market, I expect bidding wars to become more common and involve even more potential buyers as we head into the spring homebuying season,” said Daryl Fairweather, chief economist at Redfin.

She advises buyers to be ready to go see properties the moment they hit the market and to get preapproved for a mortgage.

“But know when to back away if the price escalates more than you’re willing to pay,” Fairweather added.

Competition is fierce across the nation, but worst in Salt Lake City, where 9 out of 10 offers faced competition, according to Redfin’s survey of 24 major markets. It was followed by San Diego (78.9%), the Bay Area (77.1%), Denver (73.9%) and Seattle (73.8%).

The problem is supply, or lack thereof — record low supply. Sudden strong demand, driven by the stay-at-home culture of the Covid pandemic, swiftly smacked into already low inventory, due to lackluster homebuilding. Record-low mortgage rates only fueled demand even more.

Paul Legere is a buyer’s agent with the Joel Nelson Group in Washington, D.C. He says his job is only getting tougher.

“The low cost of money now has buyers able to be more aggressive and willing to overpay for properties. As a buyer’s agent, tasked with trying to help clients find value, that piece of the equation is nearly impossible to do,” said Legere. “It is a constant struggle and scramble to find desirable targets.”

Sellers have also pulled back, not wanting to go through the ordeal of putting their homes on the market during Covid. The number of newly listed homes in January was down 29% year over year, pushing the total inventory down 47%, according to realtor.com.

Home prices had appreciated at a double-digit rate each week for 26 straight weeks leading into January. The median listing price for a home was up nearly 13% compared with January 2020.

“Lower mortgage rates are making monthly payments for higher priced homes more manageable,” said realtor.com’s chief economist, Danielle Hale. “But finding a home that checks the right boxes amid limited supply, and saving up for the larger down payment needed with higher home prices, continue to be challenging, especially for first-time home buyers who haven’t accumulated home equity as prices have gone up.”

~Diana Click, CNBC

Real Estate Market gains more in 2020 than any year since 2005

After a record-setting year of home sales in 2020, the housing market still shows no sign of cooling off.

U.S. housing gained about $2.5 trillion in value in 2020 — the most in a single year since 2005, according to a new Zillow analysis. The full stock of U.S. housing is now worth $36.2 trillion.

Strong demand drove intense competition among buyers, causing homes to fly off the market at the fastest pace Zillow has recorded and pushing prices higher. 

Housing demand was already strong coming into the year with the large Millennial generation aging into prime first-time home-buying age and mortgage rates hovering near record lows. The widespread shift to remote work during the COVID-19 pandemic prompted many buyers to re-evaluate their housing options and supercharged demand. 

While many potential buyers faced unprecedented economic hardship because of the pandemic, others with stable income were eager to enter the housing market.

Zillow expects 2021 to be even stronger, possibly exceeding last year’s $2.5 trillion gain. “Builder confidence, perhaps in reaction to the boosted demand, hit record highs and more homes are being built as a result,” said Zillow economist Treh Manhertz. “Add that together and you see why the housing market gained more than in any year since the Great Recession.”

According to the CoreLogic Buyer/Seller Market Indicator, which measures the ratio between sold price and list price, buyer competition reached a new peak nationally in October and November when the ratio climbed to 0.996 – the highest level since 2008, when the data series began. 

The high indicator suggests sellers were generally getting their asking price. With buyer demand continuing to outpace the previous year’s levels amid historically lowest inventory of for-sale homes, the pressure on home prices is expected to fuel home price growth in the first half of 2021.

More than a fifth (21.4%) of the nation’s housing value resides in California, according to Zillow. Homes in California are worth a cumulative $7.8 trillion, more than the next three states combined, and the state boasts four of the 10 metro areas with the highest total housing value — Los Angeles, San Francisco, San Jose and San Diego. 

Zillow found that over the past decade, the total value of the housing stock has more than doubled in six states. 

Idaho leads the way, gaining 149% since 2011. Most of that growth comes from the Boise metro, where the total housing stock has more than tripled in value during that time, the most of any of the 100 largest U.S. metros. Nevada (146.3%), Utah (126.2%), Arizona (116.5%), Colorado (111.6%) and Washington (108%) also saw their total housing market value double over the past decade.

Although the pandemic continues to upend the housing market in many ways, Selma Hepp, deputy chief economist at data analytics provider CoreLogic, predicts competition among buyers will continue to drive home prices up.

“The housing market continued to hold stronger than expected throughout the last months of 2020 and despite increases in infection rates across the country,” she said. “With mortgage rates steadily falling through the end of the year and buyers realizing that the pandemic is still far from over, robust demand was not fazed by traditional seasonal slowdown. And given that we are unsure of when social interaction will be safe again, homebuyers will continue to compete for fewer and fewer homes available for sale, which will drive home prices higher.”

~ Brenda Richardson

Housing Affordability Inches Down, Despite Record-Low Mortgage Rates

Despite hovering around their all-time low for several months now, it looks like mortgage rates have done about all they can for housing affordability.

According to a new report, skyrocketing home prices have now outstripped their power, and overall homebuying affordability is now moving downward.

Data from mortgage insurer First American shows that record-low mortgage rates boosted American homebuying power for much of 2020. At one point, buyers could afford a whopping $15,000 more house thanks to declining interest rates.

But now, with home prices up 8% over last year and 1.5% between just July and August, those days have officially come to an end.

Despite hovering around their all-time low for several months now, it looks like mortgage rates have done about all they can for housing affordability.

According to a new report, skyrocketing home prices have now outstripped their power, and overall homebuying affordability is now moving downward.

Data from mortgage insurer First American shows that record-low mortgage rates boosted American homebuying power for much of 2020. At one point, buyers could afford a whopping $15,000 more house thanks to declining interest rates.

But now, with home prices up 8% over last year and 1.5% between just July and August, those days have officially come to an end.

“Mortgage rates began declining in January 2020 and even dropped below 3% for the first time ever in August.,” says Mark Fleming, chief economist at First American. “But, as mortgage rates have fallen and the housing market has recovered amid strong demand and historically low supply, nominal house price appreciation has rapidly accelerated. In August, the dynamics powering affordability may have reached a tipping point.”

According to the report, affordability dropped by about $775 in August, despite mortgage rates hitting a new monthly low of 2.92%

Though the dip is small, Fleming says it indicates that rising home prices have begun to “erode the affordability gains of recent years.”

Buyers located in the Census Bureau’s Mountain region have it the worst. There, prices have risen by 9.2% in the last year. That area includes Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, and Wyoming.

At the metro level, home prices have risen the most in San Diego, Seattle, Cleveland, San Francisco, Los Angeles, Washington D.C., Boston, Phoenix, Miami and Tampa, Fla. In San Diego, prices rose nearly 30% between August 2019 and August 2020.

Only three markets have seen price growth decelerate: New York, Chicago, and Portland.

~ Aly Yale, Forbes

Home Sales Continue To Rise Despite Low Inventory

Existing home sales continued their surge in September, marking the fourth consecutive month of a strong upward trajectory, according to the National Association of Realtors.

Each of the four major regions witnessed month-over-month and year-over-year growth, with the Northeast seeing the highest climb in both categories.

Total existing home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 9.4% from August to a seasonally-adjusted annual rate of 6.54 million in September. Overall sales rose year-over-year, up 20.9% from a year ago (5.41 million in September 2019).

In a low-interest rate environment, many buyers who are juggling remote work and learning are searching for larger homes with extra rooms and a dedicated place for an office.

“Home sales traditionally taper off toward the end of the year, but in September they surged beyond what we normally see during this season,” said Lawrence Yun, NAR’s chief economist. “I would attribute this jump to record-low interest rates and an abundance of buyers in the marketplace, including buyers of vacation homes given the greater flexibility to work from home.”


The median existing home price for all housing types in September was $311,800, up 14.8% from September 2019 ($271,500), as prices rose in every region. September’s national price increase marks 103 straight months of year-over-year gains.

Total housing inventory at the end of September totaled 1.47 million units, down 1.3% from August and down 19.2% from one year ago (1.82 million). Unsold inventory sits at a 2.7-month supply at the current sales pace, down from three months in August and down from the four-month figure recorded in September 2019.

The week of Oct. 17 marked the fourth week in a row of homes selling nearly two weeks faster than the prior year.

“During a time when the housing market usually slows down, we are once again reminded that 2020 is anything but typical,” said realtor.com chief economist Danielle Hale. “Going into the last half of October, the median U.S. home for sale is still priced near the year’s peak and is selling almost two weeks faster than last year. At the same time, the pace of change has steadied and for some indicators, even slowed. This could be a welcome relief for buyers who have navigated not only a pandemic, but also a fiercely competitive 2020 homebuying season characterized by double-digit price growth and record low inventory.”

Bidding wars have erupted in many markets where would-be buyers fought over a dwindling supply of homes.

Ruben Gonzalez, chief economist for Keller Williams real estate franchise, predicts mortgage rates will continue to drive demand and are going to remain near record lows the rest of the year, and likely well into 2021.

“Accelerating price increases are potentially going to start to reverse some of the benefits we are seeing from low mortgage rates, and this could start to slow demand from entry-level buyers as their purchasing power diminishes,” he said.

The average commitment rate for a 30-year conventional, fixed-rate mortgage decreased to 2.89% in September, down from 2.94% in August, according to Freddie Mac.

Sales in vacation destination counties have seen a strong acceleration since July, with a 34% year-over-year gain in September.

“The uncertainty about when the pandemic will end coupled with the ability to work from home appears to have boosted sales in summer resort regions, including Lake Tahoe, mid-Atlantic beaches (Rehoboth Beach, Myrtle Beach), and the Jersey shore areas,” said Yun.

Properties typically remained on the market for 21 days in September – an all-time low – seasonally down from 22 days in August and down from 32 days in September 2019. Seventy-one percent of homes sold in September 2020 were on the market for less than a month.

“Higher earners have been more likely to retain their incomes, allowing the housing market to continue booming despite extremely high unemployment levels,” said Gonzalez. “As long as unemployment remains elevated, there is a possibility that we see layoffs spill into the higher-paying sectors that are currently propping up the housing market.”

First-time buyers were responsible for 31% of sales in September, down from the 33% in both August 2020 and September 2019.

Individual investors or second-home buyers, who account for many cash sales, purchased 12% of homes in September, a small decline from the 14% figure recorded in both August 2020 and September 2019. All-cash sales accounted for 18% of transactions in September, unchanged from August but up from 17% in September 2019.

“It’s a tale of two economies,” said Tendayi Kapfidze, chief economist for LendingTree, an online lending marketplace. “Higher income groups are doing far better than lower income groups. Home sales were at a 14-year high, but the details are informative. Homes under $100,000 were down 16.3%, from $100,000 to $250,000 up 4.3% but homes over $1 million were up 106.5%. This change in the mix of homes is a driver of the jump in prices.”

~ Brenda Richardson, Forbes