So far, it’s been quite a ride this year, and our nation has truly seen its fair share of hurdles. From COVID-19 to record unemployment and then the resulting recession, just to name a few, the second quarter of 2020 has had more than a few challenges. Amidst the many roadblocks, however, the U.S. homeownership rate rose again, signaling great strength in the recovery of the housing market and an indication that even in a time of crisis, Americans still feel confident about buying a home.
Yesterday, the U.S. Census Bureau announced:
“The homeownership rate of 67.9 percent was 3.8 percentage points higher than the rate in the second quarter 2019 (64.1 percent) and 2.6 percentage points higher than the rate in the first quarter 2020 (65.3 percent).”
The increase is also represented by race and ethnicity of the householder:There are many reasons why the homeownership rate in this country is rising, and one of the key factors is historically-low mortgage rates. Rates hovering at all-time lows are helping to drive affordability and enabling more potential homeowners to enter the market today. According to Ralph McLaughlin, Chief Economist for Haus:
“Mortgage rates are the icing on the cake for households that were thinking about buying…They found an unexpected opportunity during the worst economic downturn America has seen since the Great Depression.”
In addition, many potential homebuyers have been using their time this year to search for homes that offer more space than their current rental apartments. Many of these homebuyers are younger and, as noted by Odeta Kushi, Deputy Chief Economist at First American, are the buyers driving the homeownership rate in an upward direction:
“Big jump in the homeownership rate today, mostly driven by younger households. We saw a spike in the number of owners, and a decline in the number of renters. This is the highest rate of homeownership since 2008.”
This growth is outstanding news for the housing market and for those who have recently found their new homes. If homeownership is on your shortlist this year, maybe now is a great time to meet with a real estate professional to evaluate your current situation. Perhaps historically low mortgage rates can help you to become a homeowner too.
If you’re thinking of buying a home this year, let’s connect today to take your dream one step closer to reality.
Announcement from the census: As a result of the coronavirus pandemic (COVID-19), data collection operations for the CPS/HVS were affected during the second quarter of 2020. In-person interviews were suspended for the duration of the second quarter and replaced with telephone interview attempts when contact information was available. If the Field Representative was unable to get information on the sample unit, the unit was made a Type A no interview (no one home, refusal, etc.). See the FAQ for more information.
In June, the number of first-time homebuyers accounted for 35% of the existing homes sold, a trend that’s been building steadily throughout the year. According to the National Association of Realtors (NAR):
“The share of first-time buyers increased in March through June—right into the heart of the pandemic period and the surge in unemployment—and is now trending higher than the 29% to 32% average in past years since 2012.” (See graph below):
Why the rise in first-time homebuying?
NAR continues to say:
“The major factor is, arguably, low mortgage rates. As of the week ended July 16, the 30-year fixed mortgage rate dropped to 2.98%. With rates so low that are locked in under a 30-year mortgage, the typical mortgage payment, estimated at $1,036, has fallen below the median rent, at $1,045. For potential home buyers who were thinking of purchasing a home anyway before the pandemic outbreak and who are likely to remain employed, the low mortgage rate may be the clincher.”
Clearly, historically low mortgage rates are encouraging many to buy. With the average mortgage payment now estimated at a lower monthly cost than renting, it’s a great time for first-time homebuyers to enter the market. According to the Q2 2020 Housing Trends Report from the National Association of Homebuilders (NAHB):
“Eighty-four percent of Gen Z’s planning to buy a home are first timers, compared to 68% of Millennials, 52% of Gen X’s, and 21% of Boomers. Looking at results by region shows that over 60% of prospective buyers in the Northeast and South are buying a home for the first time. The share is above 55% in the Midwest and West.”
There are, however, challenges for first-time buyers. A recent survey conducted by NeighborWorks America also notes that understanding the homebuying process may be the most significant barrier for many hopeful homeowners:
“Homeownership is a particular challenge for many, despite high levels of interest. Americans believe there are many benefits to homeownership and half of non-owners will seek information about the process in the next few years…a large share of non-owners say the process is too challenging and only a minority know where to find advice if they wanted it. And although many would seek the guidance of community and non-profit programs, only one in three non-owners are aware of such services.”
If you’re among the first-time homebuyers who feel the process is complicated, you’re not alone. If you’re not sure where to begin or you simply want help in figuring out how to save for a home, finding a trusted real estate advisor to work with is a critical step toward your success. A real estate professional can help you understand the process, review your current situation, and guide you with a plan to help you to feel confident when buying a home.
If you’re interested in purchasing a home and need help getting started, let’s connect today so you can take advantage of the support available to guide you through each step of the way.
The health crisis we face as a country has led businesses all over the nation to reduce or discontinue their services altogether. This pause in the economy has greatly impacted the workforce and as a result, many people have been laid off or furloughed. Naturally, that would lead many to believe we might see a rush of foreclosures like we saw in 2008. The market today, however, is very different from 2008.
The concern of more foreclosures based on those that are out of work is one that we need to understand fully. There are two reasons we won’t see a rush of foreclosures this fall: forbearance extension options and strong homeowner equity.
1. Forbearance Extension
Forbearance, according to the Consumer Financial Protection Bureau (CFPB), is “when your mortgage servicer or lender allows you to temporarily pay your mortgage at a lower payment or pause paying your mortgage.” Thisis an option for those who need immediate relief. In today’s economy, the CFPB has given homeowners a way to extend their forbearance, which will greatly assist those families who need it at this critical time.
Under the CARES Act, the CFPB notes:
“If you experience financial hardship due to the coronavirus pandemic, you have a right to request and obtain a forbearance for up to 180 days. You also have the right to request and obtain an extension for up to another 180 days (for a total of up to 360 days).”
2. Strong Homeowner Equity
Equity is also working in favor of today’s homeowners. This savings is another reason why we won’t see substantial foreclosures in the near future. Today’s homeowners who are in forbearance actually have more equity in their homes than what the market experienced in 2008.
The Mortgage Monitor report from Black Knight indicates that of all active forbearances which are past due on their mortgage payment, 77% have at least 20% equity in their homes (See graph below):Black Knight notes:
“The high level of equity provides options for homeowners, policymakers, mortgage investors and servicers in helping to avoid downstream foreclosure activity and default-related losses.”
Many think we may see a rush of foreclosures this fall, but the facts just don’t add up in this case. Today’s real estate market is very different from 2008 when we saw many homeowners walk away when they owed more than their homes were worth. This time, equity is stronger and plans are in place to help those affected weather the storm.
Inventory is arguably the biggest challenge for buyers in today’s housing market. There are simply more buyers actively looking for homes to purchase than there are sellers selling them, so the scale is tipped in favor of the sellers.
According to the latest Existing Home Sales Report from the National Association of Realtors (NAR), total housing inventory is down 18.8% from one year ago. Inventory is well below what was available last year, and the houses that do come to the market are selling very quickly.
Sam Khater, Chief Economist at Freddie Mac notes:
“Simply put, new housing supply is not keeping up with rising demand. We estimate that the housing market is undersupplied by 3.3 million units, and the shortage is rising by about 300,000 units a year. More than half of all states have a housing shortage.”
Why is inventory so low?
There are many reasons why it’s hard to find a home to buy today, stemming from an undersupply of newly constructed homes to sellers pressing pause on their moving plans due to the current health pandemic. One of the key factors making it even more challenging, however, is the amount of time current homeowners are staying in their homes. There has truly been a fundamental shift in the market that started about 10 years ago: people are staying put longer, and it’s contributing to the shortage of houses for sale.
In the 2019 Profile of Home Buyers and Sellers, NAR explained:
“In 2019, the median tenure for sellers was 10 years…After 2008, the median tenure in the home began to increase by one year each year. By 2011, the median tenure reached nine years, where it remained for three consecutive years, and jumped up again in 2014 to 10 years.”
As shown in the graph below, historical data indicates that staying in a home for 5-7 years used to be the norm, until the housing bubble burst. Since 2010, that length of time has trended upward, toward 9-10 years, largely due to homeowners aiming to recoup their equity:Thankfully, with the strength the market has gained over the last 10 years, today’s homeowners are in a much better equity position. Now is a fantastic time for homeowners who are ready to make a move to break the 10-year trend and sell their houses, especially while buyer demand is so high and inventory is so low. It’s a prime time to sell.
In addition, with today’s historically low interest rates, there’s an opportunity for sellers to maintain a low monthly payment while getting more house for their money. Think: move-up opportunity, more square footage, or finding the features they’re really looking for rather than doing costly renovations. With more new homes poised to enter the market this year, homeowners ready to make a move may have a golden opportunity to do so right now.
There are simply not enough houses for sale today. If you’re ready to leverage your equity and sell your house, let’s connect today. It’s a great time to move while demand for homes to buy is extremely high.
- A recent study shared by NAR notes that both buyers and sellers think an agent is more helpful than ever during the current health crisis.
- Expertise and professionalism are highly valued and can save buyers and sellers time and effort along the way.
- If you’re thinking of buying or selling a home this year, let’s connect to be sure you have a trusted professional on your side.
There’s great opportunity for today’s homeowners to sell their houses and make a move, yet due to the impact of the ongoing health crisis, some sellers are taking their time coming back to the market. According to Javier Vivas, Director of Economic Research at realtor.com:
“Sellers continue returning to the market at a cautious pace and further improvement could be constrained by lingering coronavirus concerns, economic uncertainty, and civil unrest.”
For homeowners who need a little nudge of motivation to get back in the game, it’s good to know that buyers are ready to purchase this season. After spending several months at home and re-evaluating what they truly want and need in their space, buyers are ready and they’re in the market now. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR) explains:
“A number of potential buyers noted stalled plans due to the pandemic and that has led to more urgency and a pent-up demand to buy…After being home for months on end – in a home they already wanted to leave – buyers are reminded how much their current home may lack certain desired features or amenities.”
The latest Market Recovery Survey from NAR shares some of the features and amenities buyers are looking for, especially since the health crisis has shifted many buyer priorities. The most common home features cited as increasingly important are home offices and space to accommodate family members new to the residence (See graph below):The survey results also show that among buyers who indicate they would now like to live in a different area due to COVID-19, 47% have an interest in purchasing in the suburbs, 39% cite rural areas, and 25% indicate a desire to be in small towns.
As we can see, buyers are eager to find a new home, but there’s a big challenge in the market: a lack of homes available to purchase. Danielle Hale, Chief Economist at realtor.com explains:
“The realtor.com June Housing Trends Report showed that buyers still outnumber sellers which is causing the gap in time on market to shrink, prices to grow at a faster pace than pre-COVID, and the number of homes available for sale to decrease by more than last month. These trends play out similarly in the most recent week’s data with the change in time on market being most notable. In the most recent week homes sat on the market just 7 days longer than last year whereas the rest of June saw homes sit 2 weeks or more longer than last year.”
In essence, home sales are picking up speed and buyers are purchasing them at a faster rate than they’re coming to the market. Hale continues to say:
“The housing market has plenty of buyers who would benefit from a few more sellers. If the virus can be contained and home prices continue to grow, this may help bring sellers back to the housing market.”
If you’re considering selling and your current house has some of the features today’s buyers are looking for, let’s connect. You’ll likely be able to sell at the best price, in the least amount of time, and will be able to take advantage of the low interest rates available right now when buying your new home.
Over the past several weeks, Freddie Mac has reported the average 30-year fixed mortgage rate dropping to record lows, all the way down to 3.03%. Last week’s reported rate reached the lowest point in the history of the survey, which dates back to 1971 (See graph below):
What does this mean for buyers?
This is huge for homebuyers. Those currently taking advantage of the increasing affordability that comes with historically low interest rates are winning big. According to Sam Khater, Chief Economist at Freddie Mac:
“The summer is heating up as record low mortgage rates continue to spur homebuyer demand.”
In addition, move.com notes:
“Summer home buying season is off to a roaring start. As buyers flooded into the market, realtor.com® monthly traffic hit an all-time high of 86 million unique users in June 2020, breaking May’s record of 85 million unique users. Realtor.com® daily traffic also hit its highest level ever of 7 million unique users on June 25, signaling that despite the global pandemic buyers are ready to make a purchase.”
Clearly, buyers are capitalizing on today’s low rates. As shown in the chart below, the average monthly mortgage payment decreases significantly when rates are as low as they are today.A lower monthly payment means savings that can add up significantly over the life of a home loan. It also means that qualified buyers may be able to purchase more home for their money. Maybe that’s a bigger home than what they’d be able to afford at a higher rate, an increasingly desirable option considering the amount of time families are now spending at home given today’s health crisis.
If you’re in a position to buy a home this year, let’s connect to initiate the process while mortgage rates are historically low.
Last week, a very well-respected real estate analytics firm surprised many with their home price projection for the next twelve months. CoreLogic, in their latest Home Price Index said:
“The economic downturn that started in March 2020 is predicted to cause a 6.6% drop in the HPI by May 2021, which would be the first decrease in annual home prices in over 9 years.”
The forecast was surprising as it was strikingly different than any other projection by major analysts. Six of the other eight forecasts call for appreciation, and the two who project depreciation indicate it will be one percent or less.
Here is a graph showing all of the projections:There’s a simple formula to determine the future price of any item: calculate the supply of that item in ratio to the demand for that item. In housing right now, demand far exceeds supply. Last week mortgage applications to buy a home were 33% higher than they were at the same time last year. The available inventory of homes for sale is 31% lower than it was last year. Normally, these numbers should call for homes to continue to appreciate.
Because of the uncertainty with the pandemic, any economic prediction is extremely difficult. However, looking at the limited supply of homes for sale and the tremendous demand for housing, it is difficult to disagree with the majority of analysts who are calling for price appreciation.
- Real estate has outranked stocks, savings accounts, and gold as the best long-term investment among Americans for the past 7 years.
- The belief in the stability of housing as a long-term investment remains strong, despite the many challenges our economy faces today.
- Of the four listed, real estate is also the only investment you can also live in. That’s a big win!