Existing home sales surge as interest rates point higher

Sales of previously occupied U.S. homes bounced back in September to their strongest pace since January as mortgage rates tick higher, motivating buyers to get off the sidelines.

The National Association of Realtors said Thursday that existing homes sales rose 7% compared with August to a seasonally-adjusted annual rate of 6.29 million units. That was stronger than the 6.11 million units that economists had been expecting, according to FactSet.

Sales were down 2.3% compared with September last year, a time when home purchases surged as buyers who had held off during the early months of the pandemic returned in force.

“The increase in sales in the latest month I would attribute to mortgage rates,” said Lawrence Yun, the NAR’s chief economist. “This autumn season looks to be one of the best autumn home sales seasons in 15 years.”

Yun noted that a dip in mortgage rates in August gave buyers urgency to close deals on homes, which translated into the sharp September increase in completed transactions.

While the average rate for a 30-year mortgage remains near historic lows, it has been inching higher since August, when the weekly rate averaged 2.77%, according to mortgage buyer Freddie Mac.

This week, the average rate rose to 3.09%, the highest level since April, when it peaked at 3.18%. A year ago, the rate averaged 2.8%. When mortgage rates rise, it gives would-be homeowners less buying power.

Economists expect mortgage rates to rise up to 4% next year as the Federal Reserve takes action to control rising inflation. The central bank is widely expected to announce a timetable for reducing its monthly bond purchases at its policy meeting next month. Those bond purchases have helped keep mortgage rates at ultralow levels for much of the last 18 months.

The median home price jumped to $352,800 last month, a 13.3% increase from September last year. The rise in prices continued to weigh on first-time buyers, who accounted for 28% of all sales last month. That’s the lowest level since July 2015, the NAR said.

Homes purchased in cash rose 23% in September from the previous month. Individual investors, who account for many cash sales, accounted for 13% of all home sales last month.

Despite the sharp increase in sales last month, there are signs the housing market frenzy that drove 20% to 25% annual increases in the median home price is easing. Properties on the market are receiving fewer multiple offers and buyers increasingly are refusing to waive their right to a home inspection or appraisal, Yun said.

Still, the inventory of homes on the market remains tight in much of the country, which continues to support higher prices.

At the end of September, the inventory of unsold homes stood at just 1.27 million homes for sale, down 0.8% the previous month and down 13% from a year ago. At the current sales pace, that amounts to a 2.4 months’ supply, down from 2.7 months a year ago, the NAR said.

Homes continue to sell within days of being put up for sale. Homes typically remained on the market 17 days before getting snapped up last month. That’s held steady the past six months. In a market that’s more evenly balanced between buyers and sellers, homes typically remain on the market 45 days. All told, 86% of homes sold last month were on the market for less than 30 days.

The inventory of homes for sale should begin to improve next year, as builders continue to ramp up construction and the end of mortgage forbearance programs force homeowners in financial straits to put their home up for sale, Yun said.

“The days of inventory being down 20% or 25%, those days are over,” Yun said. “The decline is lessening and soon in 2022 we’ll begin to see inventories are higher year-over-year.”

-Associated Press

Are New “For Sale by Owner” Sites Changing the Rules?

When home prices rise steadily over several straight years, seller’s markets crop up where demand is strongest. One of the side effects is a renewal of interest among home sellers in trying to find a way to forgo the traditional six percent commission that real estate brokerages charge. Typically, that means marketing their homes on their own.

During the current three-year old housing recovery, however, there’s no sign that more sellers are going “FSBO”, or “for sale by owner.” Since 2012, sale prices have risen about 20 percent, according to CoreLogic.[1] In several of the hottest markets like Riverside CA or Los Angeles price increase are near or exceeding 10 percent in 2015 alone.[2]


Despite the strength of the recovery, interest among home sellers in going it alone has yet to materialize. According to the National Association of Realtors’ annual Profile of Home Buyers and Sellers, only 8 percent of sellers went FSBO in 2014, fewer than in 2013 and the smallest share since the association started collecting data in 1981.[3] But a lot has changed in 35 years and NAR’s survey may not be providing a complete picture of how the Internet may be empowering consumers to reduce the fees they pay real estate brokerages.

The traditional definitions of FSBO may mask a growing trend among many sellers to do more of the marketing themselves with the help of the Internet and brokerages using newer models.

Here are a few of the new ways people are saving when selling their home:

Auctions. Foreclosure auctions were a significant part of the real estate business four or five years ago and now online auctions have become an increasingly popular way for owners to sell their homes at a good price without having to wait for months. Sites like Auction.com and Hubzu.com offer incentives to buyers to buy their next home at an auction.

Discount brokers. There is nothing new about brokerages that offer their services at rates significantly less than their competitors. Most, however, provide less service for their lower prices. Redfin is probably the best known of a new breed of brokerages that gives buyers rebates and sellers commissions as low as 1.5 percent without reducing service.[4]

Owners.com gives buyers a rebate equivalent to about 1.5 percent of brokerage fees after the closing. The rebate comes from the 3 percent commission that traditionally goes to the buyer’s agent.

Fee for service/listing on MLS. During the housing boom that ended ten years ago, demand was so strong that many owners saw no need for a real estate agent with one exception—they wanted to list their homes on their local MLS. Dozens of brokerages went into business by simply listing homes for a flat fee of $500 to $1000 and not providing other marketing services, or providing other services for fixed fees.

 New online tools. Ten years ago the first web sites and online brokerages for FSBO owners created the first listing inventories of FSBO homes and distributed turnkey tools like yard signs and brochures. Today a new breed of sites has taken FSBO tools to a new level.

Sites like forsalebyowner.com and owners.com provide sophisticated advice and unique tools to help owners value their properties and price them properly. Owners.com provides a trend tracking tool that helps owners see priding trends down to the neighborhood level.

source: totalmortgage.com

Housing Market Predictions for 2016

In 2015, the housing market saw prices continue their climb from where they were a few years back. There’s no telling what exactly 2016 has in store for us, but there’s no denying it’s gotten off on the wrong foot.

Depending on who you talk to, the current problems are either a temporary setback or indicative of things to come. Covering both ends of the spectrum, here are a few things that may–or may not–unfold in the 2016 housing market:

Rising housing prices
Svenja Gullen, Chief Economist at Zillow, and self-proclaimed optimist believes that housing prices are set to rise 3.5 percent in 2016. That’s slightly down from 2015’s nationwide average of about 4 percent. Of course, local markets can vary drastically with their performances, and there will no doubt be cities that will outperform the national average. Denver, Dallas, Miami, Seattle, and Pittsburgh all seem poised to do just that. Zillow has the following as their top 10 housing markets for 2016:

    Denver
    Seattle
    Dallas-Fort Worth, Texas
    Richmond, Va.
    Boise, Idaho
    Ogden, Utah
    Salt Lake City
    Omaha, Neb.
    Sacramento, Calif.
    Portland, Ore.

Rent will go up

Rent.com released their 2015 Rental Market Report, and it doesn’t paint a pretty picture for renters. According to the report, vacancy rates are the lowest they’ve been in almost twenty years. That means demand is high, resulting in little wiggle room when negotiating the price of rent. It doesn’t help when property managers are eager to get after the benjamins, with 88% saying they raised their rent in the past 12 months.

The report also showed that 68% of property managers believe that rising rent will continue in 2016, with an average of 8%. Keeping up with constantly rising rent can be a battle when your income isn’t increasing at a similar rate, which is exactly what’s been happening.

Eager home buyers will continue to struggle

The NAR’s Housing Opportunities and Market Experience (HOME) survey shed some light on the desires of prospective home buyers in 2016. It showed that 94 percent of current renters who are 34 years of age or younger want to own a home in the future. Out of all renters, 83 percent said they have a desire to own, and 77 percent think that homeownership is part of their American Dream.

The inability to afford to buy was the top reason for not currently owning (53 percent), followed by the flexibility of renting as the second most popular reason (19 percent). Lifestyle decisions such as getting married, starting a family or retiring were cited as top reasons for shifting to owning at 33 percent, and improvement in their financial situation came in second at 26 percent.

The clear takeaway from all of this data is that people want to own homes, it’s just difficult to make the dream a reality–especially for young buyers. With wages barely rising and rent soaring, it can be incredibly difficult to put money away for a down payment. It’s particularly burdensome for borrowers who are already struggling with high student loan debt.

The economy will falter

Of course, there are some outliers that do not think the U.S. economy is as strong as the pundits and politicians lead everyone to believe. While most people are blaming foreign affairs for our recent domestic stock market troubles, a few are saying that the cause is actually the Fed’s decision to raise interest rates last month.

They claim that because the Fed’s free money is no longer propping up the markets, the economy is slowly sinking down to its true form. In this scenario, the Federal Reserve is forced to backtrack on its commitment to raise rates, and will ultimately have to cut rates. Home prices could take a hit if the situation got bad enough. This would be terrible news for homeowners. Will it happen? Unfortunately, we’re forced to wait to find out.

source: totalmortgage.com