May 2, 2022
Home affordability is nearly the worst on record as mortgage rates spike
By Diana Olick, CNBC.com
KEY POINTS :
Mortgage rates just hit their highest level since 2009, and home prices are continuing to experience double-digit gains. Now, nearly all of the major housing markets in the United States are less affordable than they have been historically, and affordability is near its worst point on record.
New calculations from Black Knight, a mortgage technology and data provider, show that 95% of the 100 biggest U.S. housing markets are less affordable than their long-term levels. That figure was at 6% at the start of the Covid pandemic. Thirty-seven markets are less affordable than they have ever been.
Home price gains did pull back slightly in March, but they were still up 19.9% year over year. Compared with February, prices rose 2.3%, the fifth time since the pandemic began when home prices rose more than 2% in a single month. Prices were up 5.9% in the first three months of the year. Consumers are grappling with rising prices across categories, from real estate to airfare to groceries.
The average rate on the popular 30-year fixed started this year at 3.29% and hit 5.55% on Monday, according to Mortgage News Daily. Rates could move even higher after Wednesday’s Federal Reserve meeting, when markets will get more commentary on the Fed’s drive to curb inflation.
Homebuying affordability has not been this bad since July 2006, when rates were around 6.75%. Then, it took about 34% of the median income to cover the monthly mortgage payment, including principal and interest, for a home purchased with a 20% down payment.
As of April 21, that payment-to-income ratio had reached 32.5%. Historically, a ratio above 21% has caused the housing market to cool off, with the exception of the last two years. The pandemic has created an anomaly in the housing market, because demand is so high and supply is so low.
If rates were to rise just 50 basis points more or home prices were to increase just 5% more, home affordability would be the worst on record, according to Black Knight. (Of those two factors, the 5% rise in prices would be more likely.)
It is often said in the housing market that consumers don’t buy the home price, they buy the monthly payment. That payment is at a new high, up $552 (an increase of 38%) year to date to $1,809, and up $790 (or 72%) since the onset of the pandemic.
In reaction to weaker affordability, consumers are suddenly turning to adjustable-rate mortgages, which offer a lower interest rate. The ARM share of rate locks from potential homebuyers jumped from 2.5% in December to nearly 8% in March, according to Black Knight. As of last week, that share was more than 9%, according to the Mortgage Bankers Association.
April 8, 2022
Housing Bubble Pop Likely If Mortgage Rates Hit 5.75%
It may not be as destructive as 2008 due to some factors
By Keith Griffin, National Mortgage Professional News – The chief investment officer Americas, UBS Financial Services, is advising her clients a housing bubble is possible in the near future. The magic number is a 5.75% 30-year fixed rate mortgage - and that’s fairly near.
As National Mortgage Professional reported yesterday, the daily fixed rate has topped 5.25% this week. The Federal Reserve has already signaled interest rate increases for the remainder of 2022 to keep inflation at 2% down from its current rate of almost 8%.
In her client note entitled “Mortgage mania,” Solita Marcelli, GWM Chief Investment Officer Americas, UBS Financial Services, writes, “Monthly mortgage payment as a percentage of median household income, a metric of affordability, is now approximately 28% compared with 31% during the housing bubble of the mid-2000s. Assuming flat home prices, we estimate that mortgage rates would have to surpass 5.75% for the payment to income ratio to exceed the housing bubble.”
She adds, “In addition, although mortgage rates are still historically low, we expect the sudden move in rates to have some psychological impact on buying behavior in the near term, especially for entry level and first-time homebuyers. The impact would also likely vary across regions, with expensive coastal markets in California and Hawaii likely being more negatively impacted on a dollar payment basis.”
Attom, a research data company, said today the percentage of income stands at 26.3% of average wages needed to buy a median-price home. That is at the highest point since the third quarter of 2008. It was up from 24.9% in the fourth quarter of 2021 and 21.8% in the first quarter of last year – the largest annual increase since at least 2005. The Attom research says, in general, home affordability has gotten tougher across the U.S. as prices and mortgage rates surge.
Marcelli says there are benefits to a housing slowdown. “We believe a deceleration in the rate of home price appreciation would actually be a positive for the housing market as it would narrow the gap between wage and home price growth,” she said.
She also notes, though, this may not be an explosive housing bubble burst like that experienced in 2008. The primary reasons are better underwriting conditions, more responsible buyer behavior, and a substantial homeowner equity base.
While adjustable-rate mortgages obviously aren’t a sign of bad behavior, they can put people on the street if payments become unaffordable. Marcelli said, “The rise in mortgage rates is unlikely to affect homeowners as much this time around. In 2005, 40% of mortgages were adjustable rate – today that figure is about 1%.”
March 14, 2022
Share of Homes Selling Above List Price
Doubles Daily Dose, DSNews – This month marks the two-year anniversary of the coronavirus pandemic, which the World Health Organization officially declared on March 11, 2020. According to a new report from Redfin, the housing market has changed drastically as there are now half as many homes to choose from, as prices increased 34%. Overall, the number of homes on the market is down 49.9% from 2020 to a record low of approximately 456,000.
Remote work and record-low mortgage rates motivated scores of Americans to relocate during the pandemic, intensifying a housing shortage that began in the wake of the 2008 financial crisis. With few homes available to purchase, house hunters have waged fierce bidding wars, causing prices to rise. The median home sale price is now $369,125, the highest on record and up 33.6% from $276,225 in 2020. That’s a significantly larger jump than the prior two-year period, where home prices grew an estimated 10%.
The share of homes selling for above list price has doubled, while homebuyers are now twice as likely to pay more as they strive to beat out the competition. Nationwide, 46.3% of homes sell for more than the asking price, up from 21.8% in 2020. Nearly 6,000 homes have sold for $100,000 or more over asking price so far this year, up from 2,241 during the same period last year. The typical home sells in just 25 days, down from 53 days in 2020. A record 44.7% of homes sell within just one week, compared with 30.8% two years ago.
A record 70% of home offers written by Redfin agents faced bidding wars on a seasonally adjusted basis in January. That’s up from 33.4% in April 2020, the earliest month in Redfin’s records. An offer is considered part of a bidding war if a Redfin agent reported that it received at least one competing bid.
Some 32.4% of Redfin.com users nationwide looked to move to a different metro area in January, up from the previous peak of 31.5% in Q1 of 2021, and significantly higher than before the pandemic.* The most popular destinations in January were Miami, Phoenix, Tampa, Sacramento, and Las Vegas. Relatively affordable, warm metros usually top the list, and have only become more popular during the pandemic as people have left expensive coastal markets in search of lower prices and more space in the Sun Belt. San Francisco, Los Angeles, New York, Seattle and Washington, D.C. were the top metros homebuyers looked to leave in January.
Mortgage rates are back above pre-pandemic levels after hitting an all-time low of 2.65% in January 2021. The average 30-year fixed mortgage rate was 3.76% during the week ending March 3, 2022, according to the latest data from Freddie Mac. That’s up from 3.29% two years earlier, when early signs of the pandemic had already started to put downward pressure on mortgage rates. Rates surged at the end of 2021, though they’ve dropped slightly in recent weeks as Russia’s invasion of Ukraine has shaken global financial markets.
Homebuyer demand for second homes was up 87% from pre-pandemic levels in January—the most recent period for which data is available. That’s the highest level in a year and just shy of the record 90% gain in September 2020. It’s worth noting that preliminary February data suggests second-home demand slowed as mortgage rates jumped.
Interest in second homes surged during the pandemic because many affluent Americans purchased vacation properties to escape crowded, boarded-up cities. Additionally, some Americans bought second homes not as vacation properties, but as full-time residences to live in while they rent out their old homes.
To view the full report, including charts and methodology, click here.
March 9, 2022
Mortgage applications jump 8.5% as Russia’s war pressures rates
Borrowers’ demand for mortgages increased across the board, for purchases and refis
By Flávia Furlan Nunes, Housing Wire – Mortgage applications jumped 8.5% for the week ending March 4, as mortgage rates dropped for the first time in three months as a result of Russia’s war in Ukraine, the Mortgage Bankers Association (MBA) reported on Wednesday.
Borrowers’ demand for mortgages increased across the board. The MBA‘s seasonally adjusted refi index rose 8.5% from the previous week, with a larger gain in government refinances. Meanwhile, the purchase index was up 8.6% in the same period.
Compared to the same week one year ago, mortgage apps overall dropped 35.8%, with a sharp decline in refi (-49.9%) compared to purchase (-7.4%). The survey, conducted weekly since 1990, covers over 75% of all U.S. retail residential mortgage applications.
According to Joel Kan, MBA’s associate vice president of economic and industry forecasting, the “war in Ukraine spurred an investor flight to quality, which pushed U.S. Treasury yields lower.” Consequently, mortgage rates declined for the first time in 12 weeks, he said.
The trade group estimates that the average contract 30-year fixed-rate mortgage for conforming loans ($647,200 or less) decreased to 4.09% from 4.15% the week prior. For jumbo mortgage loans (greater than $647,200), rates dropped to 3.79% from 3.88% the week prior.
The survey showed that the refi share of mortgage activity decreased to 49.5% of total applications last week, from 49.9% the previous week. VA apps rose to 10.4% from 10.2% in the same period. The FHA share of total applications increased to 8.7% from 8.6% the prior week. Meanwhile, the adjustable-rate mortgage share of activity rose from 5.3% to 5.2%. The USDA went from 0.4% to 0.5%.
Regarding purchase applications, Kan said prospective buyers acted on lower rates and the early start of the spring buying season. He added: “The average loan size remained close to record highs, with higher-balance loan applications continuing to dominate growth.”
Experts told HousingWire that the turmoil could lower mortgage rates at least in the short-term, because investors often flee to safer options during periods of conflicts, such as U.S. Treasury notes, bonds and mortgage-backed securities. On Thursday, Freddie Mac PMMS Mortgage Survey showed its rates at 3.76% for the week ending March 3, down from 3.89% in the previous week. Buyers on average bought 0.8 mortgage points.
“Looking ahead, the potential for higher inflation amidst disruptions in oil and other commodity flows will likely lead to a period of volatility in rates as these effects work against each other,” Kan said in a statement.
March 1, 2022
Will Rising Rates Bring Balance to the Housing Market?
By Mark Fleming, First American Economic Insights – In December 2021, the Real House Price Index (RHPI) increased 21.7 percent compared with December 2020, the highest annual growth rate since 2014. The record increase was driven by rising mortgage rates and rapid nominal house price appreciation, which make up two of the three drivers of the RHPI. The 30-year, fixed-rate mortgage and the unadjusted house price index increased by 0.4 percentage points and 21.4 percent respectively. Even though household income increased 5 percent since December 2020 and boosted consumer house-buying power, it was not enough to offset the impact of higher mortgage rates and rising nominal prices on affordability. In the near term, affordability is likely to wane further, as mortgage rates are expected to continue to rise and the pace of house price appreciation exceeds gains in household income. How buyers and sellers react to higher rates may help the housing market regain some balance.
Existing Homeowners Locked In? When mortgage rates fall, a potential home buyer can buy the same amount of home for a lower monthly payment or buy more home for the same monthly payment. The 40-year tailwind of declining mortgage rates has allowed homeowners to buy a home at one mortgage rate and then later sell and move into a more expensive home when rates are lower. This long-run decline in mortgage rates has encouraged existing homeowners to move out and move up.
Faster house price appreciation, modestly rising mortgage rates and record low levels of homes for sale have been the economic dynamics dominating the housing market during the second half 2021. While existing homeowners have historically high levels of equity and may feel wealthier because of it, many have also secured historically low fixed-rate mortgages. There is a financial “lock-in” effect that increases as mortgage rates rise and as the size of a mortgage increases. Rising mortgage rates increase the monthly cost of borrowing the same amount that a homeowner owes on their existing mortgage. The higher the prevailing market mortgage rate is relative to the homeowner’s existing mortgage rate, the stronger the lock-in effect. Why move out and move down?
Additionally, the record low level of houses for sale makes it difficult to find a better, more attractive house to buy, so sellers – who are also prospective buyers – don’t sell for fear of not finding something to buy. The good news is that builders have been breaking ground on more new homes, which may alleviate some of the supply crunch and encourage existing buyers to move. Nonetheless, buying a home is often prompted by lifestyle decisions more so than financial considerations. Despite the financial lock-in, homeowners will still make the decision to move based on lifestyle changes, such as needing more space to accommodate a growing family or relocating for a new job or other reason.
The Housing Market Will Adjust
Homeowners may feel rate-locked into their homes, but first-time home buyers have no such financial lock. Yet, first-time home buyers must also contend with the record low supply of homes in a declining affordability environment. But what goes up, must eventually moderate. Rising rates may be a housing market headwind in 2022, but as some buyers pull back from the market due to affordability and supply constraints and as new construction adds more supply, house prices will moderate, resulting in a more balanced housing market.
February 22, 2022
U.S. existing home sales accelerate; investors elbowing out first-time buyers
By Lucia Mutikani, Reuters -- U.S. home sales unexpectedly increased in January, but investors paying in cash are squeezing out first-time buyers from the housing market amid record low inventory and higher prices. The surge in sales of previously owned homes last month reported by the National Association of Realtors on Friday also reflected buyers rushing in to close contracts in anticipation of mortgage rates rising further. Investors made up the largest share of transactions in six years last month.
Mortgage rates have climbed to levels not seen since 2019 as the Federal Reserve is expected to start increasing interest rates next month to tame soaring inflation. Economists are anticipating as many as seven rate hikes this year.
"This is the rush to get in before borrowing costs move higher," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. "Unfortunately, first-timers are being priced out of the increasingly expensive purchase."
Existing home sales jumped 6.7% to a seasonally adjusted annual rate of 6.50 million units last month. Sales rose in all four regions, with strong gains in the Midwest, the most affordable region. Sales soared 9.3% in the densely populated South, which is experiencing an influx of residents from other regions as companies embrace remote work.
Economists polled by Reuters had forecast sales decreasing 1.0% to a rate of 6.10 million units. Home resales, which account for the bulk of U.S. home sales, fell 2.3% on a year-on-year basis.
Strong demand for housing against the backdrop of a strengthening labor market and massive savings is outstripping supply, curbing sales. Builders have been unable to significantly ramp up construction because of shortages and higher prices for inputs like softwood lumber for framing as well as cabinets, garage doors, countertops and appliances. According to a report this week from the National Association of homebuilders, delivery of these products was taking "months," raising construction costs and delaying projects. The Commerce Department reported on Thursday that the backlog of homes approved for construction but yet to be started raced to a record in January. read more Stocks on Wall Street were trading lower amid building tensions in Ukraine. The dollar rose against a basket of currencies. U.S. Treasury prices were higher.
Tight supply is keeping house prices elevated. The median existing house price increased 15.4% from a year earlier to $350,300 in January. Sales remained concentrated in the higher price brackets, where houses are less scarce.
Sales of homes $250,000 and below, the much sought after price category, continued to decline. First-time buyers accounted for 27% of sales last month, compared to 33% a year ago. Rising mortgage rates could make home buying even less affordable for this group. Individual investors or second-home buyers, who make up many cash sales, bought 22% of homes. That was the largest share since October 2015 and was up from 15% a year ago. Investors are renovating, and either reselling or renting the homes to take advantage of the hot housing market. All-cash sales made up 27% of transactions compared to 19% last January.
There were a record-low 860,000 previously owned homes on the market last month, down 16.5% from a year ago. At January's sales pace, it would take an all-time low 1.6 months to exhaust the current inventory, down from 1.9 months a year ago. A six-to-seven-month supply is viewed as a healthy balance between supply and demand. In January, houses typically remained on the market for 19 days, down from 21 days a year ago.
Seventy-nine percent of homes sold last month were on the market for less than a month. The 30-year fixed-rate mortgage averaged 3.92% in the week ending Feb 17, the highest since May 2019, according to data from mortgage finance agency Freddie Mac. That was up from 3.69% in the prior week. Economists expect rising mortgage rates will contribute to slowing sales this year.
"Resilient demand and strong income gains will underpin the housing market, but limited supply and declining affordability from both higher prices and sharply higher mortgage rates will constrain the pace of sales," said Nancy Vanden Houten, lead U.S. economist at Oxford Economics in New York.
February 17, 2022
U.S. Housing Starts Drop 4.1% in First Decline in Four Months
By Jordan Yadoo, yahoo!finance -- New U.S. home construction fell in January for the first time in four months, indicating pandemic-related labor absences and winter weather tempered recent progress on building activity. Residential starts dropped 4.1% last month to a 1.64 million annualized rate, according to government data released Thursday. Still, applications to build rose to an annualized 1.9 million units, the highest since 2006.
High materials costs and difficulty attracting skilled labor remain headwinds for builders, inhibiting new construction and aggravating home shortages across markets. Moreover, sky-high prices and the recent rise in mortgage rates risk hampering affordability.
At the same time, the increase in building permits and a pickup in the number of homes authorized but not yet started suggests residential construction will remain healthy in coming months. “Despite a somewhat slower start to 2022, builders have continued to make progress on their backlog of homes, and consumer demand continues to outpace supply,” Kelly Mangold at RCLCO Real Estate Consulting, said in a note. The median estimate in a Bloomberg survey of economists called for a 1.7 million pace of housing starts in January. New construction fell sharply in the Midwest, probably a reflection of winter. Starts of single-family homes in the Northeast also plunged.
Single-family starts declined 5.6% in January to an annualized pace of 1.12 million units as multifamily starts -- which tend to be volatile and include apartment buildings and condominiums -- decreased to 522,000. The number of one-family homes authorized for construction but not yet started climbed 5.6% to 151,000 in January, one of the highest levels in 15 years.
While residential construction will likely be underpinned by growing backlogs, sales could take a hit from higher borrowing costs. A recent survey showed a record-low 25% of Americans said now is a good time to purchase a house.
February 4, 2022
"Split Settlements" Prohibited in Virginia
From Virginia SCC Bureau of Insurance -- The Virginia Bureau of Insurance ("Bureau"), the Virginia oversight authority for the title insurance and real estate settlement industry within the Commonwealth, on February 4, 2022, issued an order prohibiting the current practice known as a "split settlement," where escrow, settlement and closing services subject to the Virginia Real Estate Settlements Act ("RES") and Real Estate Settlement Agents Act ("RESA"), are bifurcated between more than one settlement agent. This Bureau has notified all Virginia title licensed and registered settlement agents of its that “split settlements” violate RES and RESA procedures, and must, therefore cease within the Commonwealth of Virginia. During a typical "split settlement," the escrow, closing, or settlement tasks for which the settlement agent is responsible, are shared/divided between two settlement agents. Most often a split settlement occurs when the purchaser and the seller select separate settlement agents, and those agents divide the closing services, attempting to follow the respective the purchaser's and seller's responsibilities to the transaction. However, as detailed by the Bureau in its February 4th letter, Virginia statutes and regulations do not authorize split settlements.
Other entities, namely the Virginia State Bar and the Virginia Real Estate Board, respectively regulate Virginia licensed attorneys and Virginia real estate brokers acting as settlement agents. The Bureau avers that while the Code does not prohibit the settlement agent from retaining or engaging other individuals or entities to assist with performing certain administrative components of the settlement transaction, it is ultimately the buyer’s designated settlement agent, who must perform all of the settlement services prescribed by the Virginia Code. The Bureau's position, therefore, is that, “the title settlement agent's fiduciary responsibility cannot be transferred, delegated or substituted, and that there can only be one settlement agent involved in the settlement or closing.”
According to the Bureau, if multiple settlement agents were anticipated or authorized under the Code, there would be no need for the Code to designate the buyer as having the exclusive right to choose the settlement agent for the transaction and to specify that this right cannot be varied or waived. Additionally, § 55.1-907 of the Virginia Code clearly does not support the notion of bifurcation of settlement services. For a person attempting to seek penalties for the settlement agent's failure to cause disbursement under § 55.1-907 of the Code, a split settlement could create an unduly burdensome and complicated situation whereby each settlement agent could attempt to abdicate responsibility for causing the failed disbursement.
Accordingly, the Bureau's position is that Virginia's applicable laws and regulations provide for a single settlement agent, identified by the buyer, who is responsible for all of the escrow, closing or settlement services prescribed by the Code. As such, the Bureau views participation in split settlement arrangements by title settlement agents as a violation of applicable Virginia laws and regulations.
January 24, 2022
How Will Rising Mortgage Rates Impact Spring Home-Buying?
By Mark Fleming, First American Economic Insights – In November, year-over-year nominal house price appreciation reached 21.5 percent, the sixth consecutive month it has set a new record. According to our Real House Price Index (RHPI) - which measures housing affordability based on changes in income, interest rates and nominal house prices - affordability declined 21.0 percent compared with a year ago, as the growth in nominal house prices combined with the 30-basis point increase in the 30-year, fixed mortgage rate vastly outpaced the 4.4 percent increase in income. Affordability is likely to decline further in 2022, because both mortgage rates and nominal house prices are expected to rise. Fed Expected to Raise Rates Soon The Federal Reserve has signaled the end of the easy money era is near. In order to combat inflation, the Fed is expected to increase rates as soon as March. Mortgage rates typically follow the same path as long-term bond yields, which are expected to increase due to the Fed’s tightening of monetary policy, higher inflation expectations and an improving economy. The consensus among economists is that the 30-year, fixed mortgage rate will increase from its November rate of 3.1 percent to 3.7 percent by the end of 2022. Some forecasters predict rates will reach 4 percent, which is still historically low, but well above what buyers have grown accustomed to in recent years. Rising Mortgage Rates Likely to Reduce Affordability We can use the RHPI to model shifts in income and interest rates and see how they either increase or decrease consumer house-buying power and affordability. When mortgage rates increase, holding income constant, consumer house-buying power decreases. If the average mortgage rate remained at its current level of approximately 3.5 percent through the spring home-buying season, assuming a 5 percent down payment and holding average household income constant at the November 2021 level of $69,800, house-buying power falls by approximately $25,000. If rates increase to the anticipated end of 2022 level of 3.7 percent, house-buying power would fall by $36,000. Finally, if mortgage rates reach 4 percent as some industry experts anticipate, house-buying power would fall by nearly $52,000 compared with November 2021. Rising mortgage rates impact affordability, but one of the root causes of rising mortgage rates is an improving economy, and an improving economy often leads to stronger wage growth. Rising household income can blunt the negative impact that higher rates have on house-buying power. In fact, our estimate of average household income increased approximately 0.6 percent on a monthly basis in November 2021. If incomes continue to increase at this rate through the end of 2022, the income growth would reduce the projected end-of-year 2022 decrease in house-buying power to just $700, instead of $36,000. FOMO (Fear of Missing Out) or FOBO (Fear of Better Options)? While rates are expected to increase steadily throughout 2022, many potential home buyers may try to jump into the market now before rates rise further. The fear of missing out, or “FOMO,” on low rates and the potential loss of house-buying power may supercharge the housing market ahead of the spring home-buying season. However, housing supply tends to increase in the spring months as more sellers list their homes for sale. While home buyers may have FOMO because of rising rates, they may not want to succumb to the fear of better options, or “FOBO,” because there may be a better home option or options when there’s more homes for sale, even if it means they may pay more.
December 20, 2021
What’s the Outlook for the Housing Market in 2022?
By Odeta Kushi, First American Economic Insights -- At first glance, the outlook for the 2022 housing market is a familiar one – strong millennial demand for homes constrained by an ongoing, historic housing supply shortage. This supply-demand imbalance generated the record house price appreciation seen in 2021 and, given this dynamic shows few signs of changing, we expect house price appreciation to remain high in 2022. While rising mortgage rates in 2022 may reduce affordability (all else held equal) and prompt house prices to moderate, that’s only likely to take house price growth from record-breaking levels to strong and steady. Entering 2022, a still red-hot sellers’ market means homeowners remain poised to reap significant equity gains, but will they tap that equity to move up to a bigger or better home, or will rising rates prove to be too much of a financial disincentive? At the entry level, first-time home buyers can expect to see affordability erode further as mortgage rates rise, but will that add urgency to first-time buyers to make their move sooner, rather than later?
Will Historic Equity Levels Spur Existing Homeowners to Escape the ‘Lock In’ Effect?
Homeowners in the second quarter of 2021 had an average of $280,000 in equity -- a historic high. With house price appreciation expected to remain strong into 2022, this equity accumulation shows no signs of abating. Just over 65 percent of households in the United States are homeowners, so most households will likely benefit in 2022. Increasing house price appreciation may encourage existing homeowners to use that equity to purchase a larger and more attractive home – a dynamic known as the wealth effect of rising equity, which is already happening to some extent.
In the latest existing-home sales report, the increase in home sales relative to one year ago was strongest at the upper end of the market, as sales of homes priced over $1 million increased nearly 31 percent, followed closely by a 25 percent increase in the sales of homes priced between $750,000 and $1 million. Since first-time home buyers generally don’t purchase at the higher end of the market, the home sales at these price points are typically occurring among existing homeowners, who are playing “housing musical chairs” by selling to each other.
“Locked In” or Ready to Move?
While an existing homeowner may have more purchasing power because the equity in their home has surged with price appreciation, the price of the home upgrade they are interested in has also increased. And, even if the homeowner has the purchasing power, it’s hard to buy what’s not for sale as housing supply remains near historic lows. The fear of not finding something to buy in a housing market with historically low inventory is one reason the average length of time homeowners live in their home has reached a high of nearly 10.7 years.
Another factor that may keep existing homeowners on the sideline is the high likelihood of rising mortgage rates in 2022. While existing homeowners are sitting on record levels of equity, many of these owners have also secured historically low fixed-mortgage rates. There is a financial “lock-in” effect that increases as mortgage rates rise and the size of the mortgage increases. The good news is that the pandemic has brought with it a new normal -- work-from-home. This may allow existing homeowners who are sitting on record levels of equity to move somewhere cheaper, where their equity can get them a lot more home, even in a rising mortgage rate environment.
The Struggle is Real, and Likely Worsening, for First-Time Home Buyers
Millennial home buyers, many of whom are first-time buyers, made up the largest share of home buyers in 2021. Yet, this generation continues to lag their generational predecessors at the same age when it comes to homeownership, primarily because they’ve chosen to delay key lifestyle decisions that are highly correlated with homeownership in order to further their educations. As they continue to age into their home-buying years in 2022, they will face a market with rapid house price appreciation, limited inventory, particularly in the lower price segment, and higher mortgage rates. Worse yet, first-time homebuyers don’t have the equity from the sale of an existing home to bring to the closing table. While the fundamentals support continued first-time home buyer demand in 2022, these buyers will face an uphill battle if housing supply remains near historic lows. You can’t buy what’s not for sale.
While mortgage rates are expected to increase in 2022, consensus still puts them below 4 percent, which is very low from a historical perspective. Continued wage growth will help boost household income, increasing house-buying power. Finally, the untethering of workers from the office gives first-time home buyers the greater opportunity to move to less expensive areas. Research shows that even prior to the pandemic, there was a movement from larger metros to smaller ones, and from urban cores to suburbs and exurbs. The migration to smaller metros and suburbs is likely to continue because of millennials’ lifestyle choices as they continue to age into homeownership and the pandemic-driven acceleration of the untethering of workers from the office.
According to our third quarter First-Time Homebuyer Outlook Report cities such as Buffalo, Pittsburgh or Oklahoma City, offer first-time home buyers the most opportunities for homeownership because the median renter’s house-buying power in these cities allows first-time home buyers to consider a much greater selection of homes to buy. You can’t buy what’s not for sale in your own market, but you can relocate.
The Outlook for 2022
While the global pandemic remains a part of our daily lives, if the health situation continues to improve, the housing sector will once again have the wind at its back in 2022. Although we’re likely to remain in a competitive sellers’ market through next year, it’s possible that the affordability crunch and ongoing supply shortage may ease the full-throttle demand we’ve seen in 2021 and result in a moderation of house price growth. The beneficiaries of continued house price appreciation will be existing homeowners, while first-time buyers will continue to struggle to find something to buy as affordability erodes. Despite headwinds, millennials who were not able to buy in the competitive 2021 housing market will try again in 2022 and beyond because buying a home is as much a lifestyle decision as it as a financial one.
December 15, 2021
Where Can Residential Real Estate Investors Find the Most Potential ROI?
By Odeta Kushi and Ksenia Potapov, First American Economic Insights – Over the past year, increasing investor activity in residential real estate, particularly in single-family homes, has drawn a lot of attention. News of large institutional investors snapping up single-family homes underscored this summer’s historically hot housing market. Investors now own an estimated 2 percent of single-family rental housing units in the U.S., but investor activity varies significantly across markets. Adapting a metric commonly used for measuring the return on investment for commercial real estate can help identify the most attractive markets for residential real estate investors.
Housing’s Investment Return
Investors in commercial real estate often use a concept called the capitalization rate (cap rate) to calculate their potential rate of return on a real estate investment. The cap rate measures the net operating income of a property – its rental income less any operating costs, such as property taxes, insurance, and maintenance and repair costs – compared to the value of the property. Similar to the yield on a bond or the rate of return on an investment, the higher the cap rate, the more profitable the investment. While commonly calculated for commercial real estate transactions, it can be applied to residential real estate as well.
To calculate the typical market-level residential cap rate, take the median residential market rent and assume that the property will be vacant for three of the 12 months of the year (the typical vacancy assumption mortgage lenders use when underwriting a residential investment property), leaving an investor with nine months of collected rent. After accounting for property costs – property taxes, maintenance costs and annual homeowner’s insurance premium – we are left with estimated total rental income. Dividing the estimated total rental income by the median home sale price in each market yields a residential cap rate.
Which Markets Offer the Highest Return?
Breaking down the cap rate for the median single-family home in each of the top 50 U.S. markets reveals the residential housing markets that are potentially the most profitable from a real estate investment perspective. Of the top 50 U.S. markets, the five markets with the highest cap rates in the third quarter of 2021 were Pittsburgh (3.4 percent), Birmingham, Ala. (3.3 percent), Memphis, Tenn. (3.3 percent), Detroit (3 percent), and Virginia Beach, Va. (3 percent). The five markets with the lowest cap rates were New York (0.1 percent), San Jose, Calif. (0.3 percent), San Francisco (0.4 percent), Los Angeles (0.7 percent), and Boston (0.9 percent).
Markets with higher residential cap rates are more likely to have higher investor activity. For example, in the third quarter of 2021, Memphis had the third-highest cap rate in the top 50 markets and one of the highest shares of investor sales (the share of single-family homes purchased by a business entity) – 23 percent. Meanwhile, Boston had a cap rate of 0.9 percent and just over 8 percent of single-family home sales were investor purchases.
Some of the most affordable markets have the highest cap rates because home sale prices and property taxes are lower, while rent growth is strong. The average property tax rate among the top five highest cap rate markets was 0.8 percent, while the average property tax rate for the five lowest cap rate markets was 1 percent. Meanwhile, rent increased by over 8 percent in 2021 compared with 2020 for the top five markets, compared with only 1 percent in the bottom five markets.
Why the Shift to Investments in Single-Family Homes for Rent?
Investors in the real estate market have usually flocked to multifamily property investments rather than investments in single-family homes because the return on investment on multifamily properties is typically higher. According to Real Capital Analytics data, the multifamily cap rate in the top 50 U.S. markets ranged from 3.9 to 6.4 percent in the third quarter of 2021. While the return on investment on multifamily properties is higher, so is the risk. Historically, single-family housing has been a relatively safe asset with few periods of house price depreciation. For an investor, the slightly lower cap rate in exchange for a safer asset makes economic sense. Where cap rates are high and rent growth is strong, we are likely to see continued interest from investors in single-family housing.
Residential capitalization rates for the top 50 U.S. markets in this analysis are derived by dividing net operating income (rental income less operating expenses) over market value. To calculate rental income, median rent is derived from the 2019 American Community Survey microdata, the latest year available, and extrapolated to Q3 2021 using the Zillow Observed Rent Index. Based on typical underwriting guidelines, 25 percent of gross rent is assumed to be absorbed by vacancy losses and maintenance expenses. We then subtract other operating expenses, including property taxes derived from First American Data & Analytics’ market-level property tax rate data and an annual homeowner’s insurance premium assumed to be 0.4 percent of the home value. The resulting net operating income is divided by the average of the median single-family home sale price in each market in Q3 2021.
December 3, 2021
How will the Housing Market Fare as Rates Rise?
By Mark Fleming, First American Economic Insights – In the month of October, the average 30-year, fixed mortgage rate increased to its highest level since March of this year – 3.07 percent. For context, the historical average of the 30-year, fixed mortgage rate dating back half a century is 7.8 percent. In the history of recorded data on the 30-year fixed mortgage rate, it has never been as low as in the last decade. More importantly, from the peak of mortgage rates in September 1981 at more than 18 percent, there has been a consistent long-run downward trend.
The declining 30-year, fixed mortgage rate has been one of the most important driving forces of both purchase and refinance activity for the last 40 years. Holding income constant, when market mortgage rates are lower than the rate at the time of a borrower’s last purchase or refinance, the borrower can borrow the same amount for less. Today, the expectation is that mortgage rates are likely to continue rising as the Federal Reserve slows their bond buying, the economic recovery continues, and inflation remains elevated. Higher mortgage rates will mean consumer house-buying power, all else equal, will decline and it will cost a borrower more per month to buy their “same home” or refinance.
As we enter this rising-rate environment, examining how existing-home sales, refinances and house prices reacted in previous rising-rate eras can provide valuable insight into how today’s housing market may react as rates rise.
Home Sales, Refinances, and Prices During Rising Mortgage Rate Eras
Existing-Home Sales When Mortgage Rates Rise: Historically, when mortgage rates rise, existing-home sales don’t necessarily fall. The graph below shows how the housing market responded to six significant rising-rate eras over the last 30 years. The 2005-2006 rising-rate era preceding the 2008 housing crisis stands out because sales fell dramatically. Existing-home sales also decreased in the 1994 rising-rate era, as the Federal Reserve increased the federal funds rate to prevent strong economic growth from feeding inflation. However, in the four other rising-rate eras graphed, existing-home sales increased (1996, 1998-2000, 2013) or only declined after prolonged resistance (2017-2018). Context matters and each rising-rate era is different. The housing market’s response in each rising-rate era depended on the reason why rates are rising.
Refinance Applications When Mortgage Rates Rise: The same resiliency cannot be said of refinance mortgage demand. In each rising-rate era, refinance applications fall, which is not surprising, as the decision to refinance is typically a strictly financial one. When mortgage rates rise, there are fewer borrowers who are “in the money” to refinance.
House Prices When Mortgage Rates Rise: House prices are more resistant to rising mortgage rates. Apart from the 1994 rising-rate period, when house prices declined slightly and briefly, house prices have always continued to rise, albeit more slowly, when rates have increased. In the 2005-2006 housing bubble, house prices eventually declined after initially increasing, but never declined below the level at the beginning of the rising-rate era. House price appreciation is resistant to rising mortgage rates primarily because most home sellers would rather withdraw from the market than sell at lower prices – a phenomenon we refer to as “downside sticky.”
Context Matters: It is not a foregone conclusion that rising rates will reduce sales or prices this time, but it is likely that refinances will suffer. When it comes to purchase demand, one must consider what else is going on in the economy that influences buyers’ decisions. If rates increase because of the strength of the post-pandemic economic recovery, that may boost the confidence of prospective buyers to purchase a home, even if it is more expensive to do so. The lesson? Context matters for purchase demand. The economy is improving, and millennials continue to age into their prime home-buying years in large numbers, so the context remains good for the housing market.
November 22, 2021
Home values appreciate 19.2% YoY in October
By Eric C. Peck, Daily Dose, DSNews -- According to Zillow’s latest Home Value Index (ZHVI), home value appreciation slowed in October 2021 for the third consecutive month, as home values rose 1.3% over September, slower than the all-time high monthly appreciation of 2% in July. Zillow has found that the typical home value in the U.S. is now up to $312,728. Annual growth of 19.2% ($50,405) is the highest in Zillow data, reaching back to 2000.
"Home buyers shopping this fall shouldn't expect the same frenzied demand that triggered bidding wars on listings this spring and summer," said Zillow Senior Economist Jeff Tucker. "The normal seasonal slowdown of autumn has returned, when many families are busy with back-to-school activities and planning for the holidays. Buyers can expect less competition, meaning more time to decide on a house and the potential for prices to fall on listings they've saved on Zillow."
Home values did not drop in any of the 50 largest U.S. metros polled by Zillow, but monthly home value growth decelerated in 42 of them. The slowest monthly growth was seen in Milwaukee (0.1%), San Francisco (0.3%), Buffalo (0.3%), and St. Louis (0.4%), while the fastest was in Raleigh (2.7%), Nashville (2.4%), and Atlanta (2.3%). The average October monthly appreciation in the U.S. from 2015 through 2019 was 0.4%.
Median home list prices have fallen since July, and the share of homes that saw a price cut before selling rose slightly over September, as well, now standing at 14.7%—nearly double the year's low point in April. The most recent data on the share of homes that sold above list price shows a monthly decline of 6.6% in September to 47.2%, down from a peak of 51.3% in July.
U.S. housing inventory was down in October, as the nation’s housing supply was down 17.4% year-over-year, and contracting by 1.1% since September, after rising from May through September. October home listings spent 10 days on the market on average, compared to nine in September; and seven in April, May, and June.
As home buyer options became limited due to a lack of inventory, those searching for homes were forced to turn to rentals to meet their housing needs, as the rapid rise in rents since March pushed annual growth to 14.3%, the highest rate in the series' history (which began in 2015). The typical monthly rent in the U.S. stood at $1,873 in October, approximately $234 higher year-over-year.
Regionally, rents fell from September in eight of the 50 largest U.S. metro areas, compared to just one the month before, with the largest monthly drops found in Hartford, Connecticut (-1%); Baltimore (-0.6%); and San Jose, California (-0.5%), while the largest gains came from Miami (2%); Salt Lake City (1.9%); and Orlando, Florida (1.8%).
“We currently expect 6.12 million existing-home sales to close in 2021, up 8.5% from an already strong 2020 and also up from our previous forecast of 6.04 million sales this year,” said Tucker in his report.
“Existing home sales volume rose to 6.29 million (SAAR) in September—up 7% from August, the fastest one-month growth in the annualized series since last fall. This stronger-than-expected showing is the main contributor to the upward revision in our near-term outlook for the series. Our longer-term forecast for sales was also revised up, in part due to changes in home affordability. Though sharply rising home prices present affordability challenges for many, low mortgage rates continue to keep monthly payments manageable for those who can afford a down payment.”
Click here for more on Zillow’s Home Value Index (ZHVI) for October 2021.
November 9, 2021
Top title industry claims trends
From American Land Title Association, email@example.com -- Learning about claim trends and hearing stories that lead to claims are important to title professional as they are a valuable teaching tool. While all claims are not covered, they are claims nonetheless and need to be resolved. Regulators will dole out fines for not properly responding to insured.
According to an industry survey, the top claims by number (not cost) are:
Recording problems, fraud/forgery, access and mechanics liens are the types of issues title policies are designed to cover. These make up about a quarter of the number of claims. Meanwhile, nearly three quarters of the types of claims that are typically handled are either closing or searching errors. This is where the industry has a chance to make a difference.
Missing or an incorrect legal description can cause big problems down the road. Little errors can cause big problems sometimes. Mistakes could be minor or result in the deed of trust being indexed incorrectly resulting in a $1 million deed of trust getting foreclosed.
Another common closing error is the failure to pay assessments, taxes or municipal liens, as well as failing to make payoffs for prior mortgages or judgments. Neglecting to pay or close lines of credit are not as common anymore but can still result in claims.
Execution defects where the signatory does not match title or there’s a missing spouse are other common closing errors that can spur a claim. Additionally, a botched notary acknowledgement can make a document void.
Common search errors that can lead to claims include:
Forgery and identify theft are two main culprits when it comes to fraud. The increase in property values spurs the increase in forgeries. With rising values, criminals will pretend to be the homeowners.
Wire transfer fraud continues to be a top threat. A new trend is that the criminals can block the initial wiring instructions email. Then when the title/settlement agent receives an email with wiring instructions, they think it’s the original.
Claims can often be prevented at the closing table. Recommendation is to slow down. When conducting the search and exam, read all the documents. Often easements and restrictions can show up in the middle of a document. It’s not enough to just have in the file. An important piece is to follow the underwriter’s guidelines. In addition, know the underwriter’s representative. Talk to them when you have questions.
When a claim comes in, the first thing to do is investigate and ask some questions.
The total amount of claims paid each year has dropped over the past year. In 2010, the industry paid roughly $1.1 billion in claims. This decreased to $468 million in claims paid in 2020. For more data, check out ALTA’s industry financial data.
October 28, 2021
Mortgage rates rise to an 8-month high, tanking refinance demand
By Diana Olick, CBC News Online -- Mortgage rates have been on a tear this month, rising yet again last week to the highest level in eight months, according to the Mortgage Bankers Association. That caused mixed demand for mortgages last week, resulting in no change from the week before.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) increased to 3.30% from 3.23%, with points decreasing to 0.34 from 0.35 (including the origination fee) for loans with a 20% down payment. That rate was 30 basis points lower one year ago.
As a result, refinance demand fell 2% week to week, seasonally adjusted. Volume was 26% lower than the same week one year ago. The refinance share of mortgage activity decreased to 62.2% of total applications from 63.3% the previous week.
“The increase in rates triggered the fifth straight decrease in refinance activity to the slowest weekly pace since January 2020. Higher rates continue to reduce borrowers’ incentive to refinance,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a release.
Mortgage applications to purchase a home increased 4% for the week but were 9% lower than the same week one year ago. As home prices continue to rise, and most of the sales are in higher price tiers, the average loan size rose to its highest level in three weeks.
“Both new and existing-home sales last month were at their strongest sales pace since early 2021, but first-time home buyers are accounting for a declining share of activity,” added Kan.
The latest read on home prices from S&P Case-Shiller showed prices up nearly 20% nationally, but the annual gain, which has been rising steadily for the past year, did not change from the previous month. That could be a sign that higher mortgage rates are taking at least a little bit of the heat out of prices.
Mortgage rates edged down slightly to start this week, but that could just be a brief reprieve before next week. The Federal Reserve is widely expected to announce next Wednesday that it will taper its purchases of mortgage-backed bonds. That should send rates even higher.
October 11, 2021
The biggest risk to the housing market right now: It's not rising mortgage rates or a stock market correction
By Logan Mohtashami, Housing Wire – Now that we are heading toward the end of 2021, what can we say about the U.S. housing market this year? No question it has been another year of ups and downs with seemingly conflicting data, which could indicate a coming boom or a bust depending on how you decide to parse it. If we stick to the facts, however, we can glean a few important take-homes as to what risks the housing market faces for 2021 and beyond.
First and foremost, it is important to remember that more Americans are buying homes with mortgages in 2020 and 2021 than any single year from 2008-2019. If you are familiar with my work, this will not be a surprise. From 2008 to 2019 we had the weakest housing recovery ever, following a bust. Following these years of doldrums, in the years 2020 to 2024 we have the best housing demographic patch ever recorded in history.
These solid demographics for housing will provide stable, built-in replacement demand. Don’t expect a buying or construction boom during this period. Mature economies are like large ocean liners. They have limits on how fast they can maneuver and what they can and can’t do. This is why my line in the sand for total sales (new & existing homes) for the years 2020 to 2024 is 6.2 million. If new and existing home sales combined get above this number during these golden years then they will beat my expectations. We had no chance of reaching this number during the years 2008 to 2019.
Based on our demographics, our two sweet spot years will be 2022 and 2023. During this time we will have a lot of people of first-time home-buying age that will need shelter. But housing demand won’t just be from millennials and Gen Z coming into home-buying age: we will also have our move-up, move-down, cash and investor buyers adding to the demand.
August 23, 2021
Readers comment about real estate stories in Washington Post
By Ilyce Glink and Samuel J. Tamkin, Washington Post (Post Reader’s Comments) -- You recently had a column with reader’s comments. This prompts me with two stories for you.
First story: I am an attorney. A client recently sold a building, and, as we approached the closing, the sale had a bump because there was an old utility bill outstanding from before he bought the property 10 years ago. In this local municipality, utility bills are like real estate taxes; they are a lien on the property and even have priority over a mortgage.
He was furious; he said it should have been paid prior to the closing (he was right). When I asked him who his attorney was, he said he relied upon the bank’s attorney. I told him the bank’s attorney is not his attorney!
His attorney was probably from out of town and didn’t realize the municipality’s subtle utility expense status. There was a title insurance policy, but it was only a lender’s policy and only benefited the lender. He could have been paid for an owner’s policy for a small premium, which would have protected him, but “why pay for such an expense when it is just a gimmick?”
Title insurance is not a gimmick. You are not buying a newspaper. You’re making a sizable investment, so protect yourself. I do only the occasional closing, but when I personally buy real estate, I get an owner’s title insurance. It is a little expensive where I live (and states should review these companies), but they provide a necessary expense. Don’t be cheap!
Second story: About 40 year ago, a bankruptcy trustee conducted a trustee’s auction. There was a vigorous auction and one party was the winner. After taking care of a couple of procedural matters, the bankruptcy trustee went up to the successful bidder to discuss execution of documents for a closing within an acceptable period of time.
The bidder, to the trustee’s surprise, said he was willing to pay the cash price there and then, and took out a wad of Confederate dollars! The Trustee, with some fast footwork, was able to get the second highest bidder to step in.
That Trustee made sure that all future auctions were published with a required payment in “U.S. Dollars.”
Our response: Thanks for sharing some of the highlights of your career. (We couldn’t make this stuff up.) And you’re absolutely right about title insurance. Owner’s policies are worthwhile, but in some states, it is more expensive than it needs to be. We always recommend that home buyers obtain an owner’s title insurance policy when they buy a home.
On the cash at closing, thank you for that story. That adds to what we wrote about a couple of weeks ago with most closing and settlement agents only taking wire transfer funds for purchases of homes or, in other cases, bank checks. These days with currency regulations, we don’t know of any settlement or closing agents that take cash for the purchase of a home.
Reader comment: In a recent column, you wrote that the power of attorney for financial matters and health care carry through death. But, in fact, powers of attorney for financial matters and health care are only valid until the person dies. So, the executors and trustees are the only ones with access.
Our response: You’re correct. We should have been clearer in our column. A power of attorney is good so long as the person who signed the power of attorney is alive. Upon that person’s death, the power of attorney is no longer valid. If there is a will, the executor listed would take over. If not, the would-be heirs would need to petition the court to name an executor of the estate.
August 6, 2021
The way homebuilders erect and sell their products is changing.
By Lew Sichelman, The Housing Scene -- Not to any great degree. So-called "stick building," in which houses are put together piece by piece at the job site, is still the norm. And most builders are still using model homes to show off their wares in the best light possible.
But slowly and surely, they are changing the way they do business -- some say for the better.
In Washington's Northern Virginia suburbs, for example, upscale builder Van Metre Homes is toying with putting up townhouses comprised of various modules. And several firms are pushing forward with 3D-printed houses -- mostly one-offs, but in at least one case, an entire (albeit small) community.
Modular construction isn't new. It is a more efficient way to build because it limits waste under factorylike conditions, and it's often less expensive. Even so, it accounts for only 3% of all new houses, according to the National Association of Home Builders.
But Van Metre's experiment takes it to another level. In partnership with Joseph Wheeler, a professor of architecture at Virginia Tech, the builder's POWERHaus product will include such cutting-edge technology as ductless HVAC systems, energy control panels that track consumption, electric car-charging capabilities and induction cooking that limits the amount of heat that escapes into the house.
Once the sections are trucked to the site and assembled using Wheeler's "plug-and-play" concept, solar panels will be added to achieve "net zero" status, in which the units should produce at least as much energy than they consume.
Meanwhile, in Richmond, Virginia, a 3D-printed home construction company called Alquist is erecting a 1,550-square-foot house with three bedrooms and two baths. The expected selling price is about $210,000, but energy-saving features are expected to cut utility costs in half (from those of a traditional home).
The house was built with concrete, extruded row upon row until it reached the prescribed height. That alone is projected to cut costs by 15% per square foot. But it was also built in under 15 hours -- as opposed to the normal four weeks -- and with a crew of just two. In this house, Alquist printed only the exterior walls, but the company says it will also build interior walls in future houses.
Concrete construction isn't new, either. But only 8% of new houses are concrete-framed, whereas 91% are wood-framed, NAHB reports. (The other 1% are steel.) Builders shy away from these and other methods largely because they can't find experienced workers. They also cite cost as an issue. But with the cost of lumber so high, that could be changing.
Whereas most 3D-printing construction endeavors have focused on urban areas, Alquist is taking particular aim at rural locations -- many of which face even greater affordable housing challenges than big cities. The company, which also is working with Habitat for Humanity, intends "to build homes for people who live outside of the places where most funding for housing programs is spent," said CEO Zachary Mannheimer.
Elsewhere, ICON, an Austin, Texas-based company that uses a giant 3D printer and concrete as a substrate, has built six such houses in a 51-acre master-planned property. And in Rancho Mirage, California, Mighty Buildings, in conjunction with a local developer, will put up 15 houses that are built in panels. The panels will use a polymer material comparable to synthetic stone, and will be assembled at the site.
"In early 2018, there were no 3D-printed houses in North America," said ICON CEO Jason Ballard. "Now we're gearing up for hundreds."
Selling is changing, too, with at least two major builders going far beyond 360-degree video tours. Now, you can design and buy a house completely online without ever leaving the comfort of your living room.
With the new reservation system from Taylor Morrison, the nation's fifth-largest homebuilder, customers can choose a floor plan, select a home site using an interactive map and reserve the house -- all online. The tool complements technology that the company unveiled last year, including 3D virtual tours, self-guided tours and an online shopping cart.
The system "takes the friction out of homebuying," said CEO Sheryl Palmer. "Consumers crave ease and simplicity, whether they're purchasing a car, groceries or a new home."
Similarly, the Atlanta-based Pulte Group, which has operations in more than 40 markets, is now offering a fully integrated online process where buyers in some of its communities can complete the entire transaction, including securing financing.
"The events of 2020 dramatically accelerated the transition to online shopping, as more people are purchasing a broader array of products and services than ever before," said Pulte President Ryan Marshall. The online option lets buyers "purchase their new homes on their own terms and timeline," he said.
Added regional president Brandon Jones: "Now the last piece of the online homebuying process is in place: the ability to click and buy."
July 23, 2021
Labor Law: It is legal for businesses to mandate COVID-19 vaccinations
By Karen Michael, Richmond Times-Dispatch (reported May 21, 2021) – As vaccines are now broadly available to most U.S. workers, questions remain about whether employers can mandate vaccinations and require that employees show proof of vaccination.
Businesses, in most cases, can require employees receive a vaccination. Last month, for instance, a Texas hospital system with 26,000 employees was among the first major health care systems to mandate vaccinations of all of its employees, and reportedly has already terminated at least one management employee who failed to receive the vaccine by the hospital’s deadline.
About 44% of employers that responded in a recent survey by Arizona State University said they will require employees to get vaccinated, while 31% will just encourage it and 14% will require just some employees be vaccinated.
No Virginia laws currently prevent employers from requiring workers to receive the vaccine as a condition of employment.
The only official opinion on this topic came from Attorney General Mark Herring, who recently said the state’s public colleges and universities have the authority to require vaccines among their students. He said colleges “may condition in-person attendance on receipt of an approved COVID-19 vaccine during this time of pandemic.”
Under federal law, the Equal Employment Opportunity Commission has suggested employer-mandated vaccinations do not violate federal discrimination laws, including the Americans with Disabilities Act.
The EEOC cautioned employers that administer the vaccine from asking pre-screening questions that go beyond the scope of those that are job-related and consistent with business necessity.
Employers that require the vaccine as a condition of employment are safer to not administer the vaccinations themselves so as to not run afoul of the ADA.
Some states initially pushed back on vaccination mandates, introducing a flurry of legislation around the country.
Arkansas legislators passed a law on April 28 prohibiting the state and local governments from mandating the vaccine as a condition of employment, among other prohibitions. But this new state law doesn’t apply to private businesses.
New Jersey recently clarified that its New Jersey Law Against Discrimination would not prohibit an employer from requiring a worker to receive the COVID-19 vaccine in order to return to the workplace unless the person is unable to do so as a result of disability or pregnancy.
Employers that mandate the vaccine must make reasonable accommodations to workers who are unable to receive the vaccine due to a disability or sincerely held religious belief.
Employers cannot simply terminate an employee if this is the case. The company must engage in an interactive process to determine if the employee can nevertheless continue working.
July 20, 2021
Once-in-a-Generation' Housing Inventory Crisis in Focus at Realtor® Policy Forum
By Wesley Shaw, NAR Media Contacts - A top official from the U.S. Department of Housing and Urban Development joined policy experts from the National Association of Realtors® on Thursday [July 15th] to discuss solutions for the nation's historic housing supply shortage. The virtual policy forum went in depth on research commissioned by NAR and authored by the Rosen Consulting Group, which found that the U.S. is in the midst of an "underbuilding gap" of around 6 million housing units dating back to 2001. The report, Housing is Critical Infrastructure, has taken center stage in national conversations on housing policy, particularly after President Joe Biden last week reiterated his administration's focus on housing as part of its broader infrastructure push.
"The U.S. housing shortage is … the result of more than a decade of severe underbuilding and underinvestment," NAR President Charlie Oppler said to open Thursday's event. "Reaching the necessary volume will require a major, long-term national commitment … [and] building all types of new housing must be an integral part of any national infrastructure plan. Like roads and bridges … housing is an essential long-term asset that helps families climb the economic ladder to prosperity, brings folks closer to job opportunities, and generates tax revenue that supports community residents."
President Biden is aiming for what he called a "historic investment" in housing that would generate 2 million additional homes in the U.S. through construction and rehabilitation.
RCG Senior Vice President and former HUD economist David Bank focused on the connection between the NAR report he co-authored and the President's infrastructure ambitions in his remarks Thursday.
"Critical infrastructure … refers to the physical assets and the systems that we need to keep our country and our communities safe and vibrant," said Bank. "In that respect, it's hard to think of a physical asset that's more critical to our success and the vibrancy of our communities than access to decent, safe and affordable housing."
HUD's Senior Advisor Alanna McCargo joined Bryan Greene, NAR's vice president of policy advocacy, to discuss strategies the administration is considering to boost housing supply. As NAR has also continued to do, McCargo stressed that a broad number of approaches and policies will be needed to rectify a problem that has been decades in the making.
"There are not really any silver bullets," said McCargo, who joined HUD this year after serving as vice president of the Urban Institute's Housing Finance Policy Center. McCargo said the administration will take "a serious look at how we accelerate renovation and rehabilitation construction projects." She highlighted the importance of working on the local level to reform zoning and land use policies and also noted that the rising costs of construction must be addressed. "Getting on track on an … aggressive renovation and rehab process, and also building resiliency and energy efficiency into that for the future, are going to be really key approaches" that the administration is prioritizing.
The National Association of Realtors® is America's largest trade association, representing more than 1.4 million members involved in all aspects of the residential and commercial real estate industries.
July 7, 2021
Mortgage applications fall for third straight week
By Tim Glaze, Housing Wire -- Mortgage applications decreased again, this time falling 1.8% in the week ending July 2, 2021, according to the latest report from the Mortgage Bankers Association. This marks the third straight week of application declines, and represents the lowest level since the January 2020.
“Treasury yields have been volatile despite mostly positive economic news, including last week’s June jobs report, which showed ongoing improvements in the labor market,” said Joel Kan, MBA associate vice president of economic and industry forecasting. “However, rates continued to move lower, especially late in the week.”
Kan said the 30-year fixed rate was 11 basis points lower than the same week a year ago, and refinance applications have trended lower than 2020 levels for the past four months. Those who are filling out purchase mortgage applications are requesting bigger loan amounts, but there are fewer applicants. It has most acutely affected first-time homebuyers.
“Swift home-price growth across much of the country, driven by insufficient housing supply, is weighing on the purchase market and is pushing average loan amounts higher,” Kan said. The refinance share of activity decreased to 61.6% of total mortgage applications from 61.9% the previous week. On an unadjusted basis, the market composite index decreased 1% compared with the previous week. The seasonally adjusted purchase index also decreased only 1% from one week earlier. The FHA share of total mortgage applications remained increased to 9.8% from the week prior, and the VA share of total mortgage applications increased to 10.8% from 10.5%.
Here is a more detailed breakdown of this week’s mortgage applications data:
June 22, 2021
Refinance's reign continued to wane in May
Overall, the refinance share of the market mix accounted for just 44% of origination activity
By Alex Roha, Housing Wire -- Though the number of high-quality refi candidates grew from 12 to more than 14 million from March through May — a 15% increase — actual refinance rate locks dropped by 27% over the same period, according to recent data from Black Knight’s Originations Market Monitor.
Month over month, overall rate lock volume was down 4.7% in May, with declines seen across purchase locks (-3.4%) as well as cash-out (-3.4%) and rate/term (-8.2%) refinance locks.
“Though interest rate offerings trended downward across all mortgage products in May, overall rate locks were still down across the board,” said Black Knight secondary marketing technologies President Scott Happ. “The severity of shortages in for-sale inventory seems to be a key driver behind the 3.4% decline in purchase locks from April, but the dip in refinance locks seems to have more to do with borrower psychology.”
According to Happ, February’s rise in rates drained some of the excitement in the market. Rates kicked up nearly a quarter of a percentage point throughout February, eventually peaking at 3.18% at the start of April. Since then, rates have fluctuated above or below 3% by roughly seven basis points. Despite significant increases in refinance incentive since then, Happ noted refinance activity simply hasn’t rebounded as expected.
“As interest rates declined from March through May, refinance incentive rose by 15%,” Happ continued. “This brought the number of high-quality refi candidates in the market to over 14 million as of the end of May, but rate lock volume has failed to keep pace.”
Overall, the refinance share of the market mix dropped again last month, accounting for just 44% of origination activity. In March, the share of refinances in mortgage origination volume dipped below 50% for the first time in 15 months. Since then, refis have slowly slipped downwards.
Where refinance rate locks struggled, purchase rates locks are still hovering above numbers seen a year ago. Both cash-outs (+32%) and purchase loans (+42%) were up from last May, though it is important to note these data points are painted against 2020’s pandemic-driven backdrop.
According to Black Knight, the average loan amount in May was up $6,000 to $316,500. The data giant attributed this rise as a result of increased jumbo lending and consistent home price appreciation. A report from Redfin found in May, nearly 54% of homes sold above their asking price — another record high and up from 26% a year ago.
“May marked the likely peak of the blazing hot pandemic housing market, as many buyers and sellers are vaccinated and returning to pre-pandemic spending patterns,” said Taylor Marr, Redfin lead economist. “Sellers are still squarely in the drivers’ seat, but buyers have hit a limit on their willingness to pay. The affordability boost from low mortgage rates has been offset by high home price growth.”
The three metropolitan areas with the greatest percentage of lock volume — both refinance and purchase — were the Los Angeles-Long Beach-Anaheim metro, New York-Newark-New Jersey metro and the Washington-Arlington-Alexandria metro. But the top 20 metros were neck-and-neck for whether purchases or refis made up more of the lending pie.
June 8, 2021
Technology Helping Bring Closing Times Back Down
From American Land Title News -- The time to close on a mortgage decreased for the fourth consecutive month, according to the latest report from ICE Mortgage Technology.
ICE reported the average time to close all loan types declined to 51 days during April. This was down from 54 days compared to October 2020. Despite the decline, the time to close is still taking nine days longer compared to 42 days in April 2020.
According to the report, it took 49 days to close on a purchase. This was down from 51 days in March, but up from 46 days in April 2020. Meanwhile, it took 53 days to close a refinance in April. This was down one day compared to March, but still up two weeks compared to April 2020.
“The decrease in average time to close is not surprising, given the increase we have observed in the adoption of digital transformation tools,” said Joe Tyrrell, president of ICE Mortgage Technology. “This trend also aligns with findings from our 2020 Borrower and Lender Insights Survey, in which both borrowers and lenders noted that digital mortgage technologies are making it faster and easier to close a mortgage loan, thus improving the overall experience for participants.”
The report also showed that April was the second consecutive month of slowdown in share of refinances among total originations. The percentage of refinances dropped to 56% of all closed loans in April, down from 63% in March. However, the percentage of purchases increased to 43% of total closed loans for the month of April, up from 36% in March, reflecting the highest percentage since August 2020.
June 2, 2021
Mortgage Applications Decrease in Latest MBA Weekly Survey
By Adam DeSanctis, Mortgage Bankers Association Weekly -- Mortgage applications decreased 4.0 percent from one week earlier, according to data from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending May 28, 2021. This week's year-over-year results are being compared to the week of Memorial Day 2020.
The Market Composite Index, a measure of mortgage loan application volume, decreased 4.0 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 5 percent compared with the previous week. The Refinance Index decreased 5 percent from the previous week and was 6 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index decreased 5 percent compared with the previous week and was 2 percent lower than the same week one year ago. "Mortgage applications decreased for the second week in a row, with the overall index reaching its lowest level since February 2020," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "Tight housing inventory, obstacles to a faster rate of new construction, and rapidly rising home prices continue to hold back purchase activity. The government purchase index declined to its lowest level in over a year and has now decreased year-over-year for five straight weeks. Purchase applications were down almost 2 percent from a year ago, but that was compared to the week of Memorial Day 2020." Added Kan, "Refinance activity dropped for the second straight week, even as the 30-year fixed rate decreased slightly to 3.17 percent. Even though rates have been below 3.20 percent over the past month, they are still around 20-30 basis points higher than the record lows in late 2020." The refinance share of mortgage activity decreased to 61.3 percent of total applications from 61.4 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 3.7 percent of total applications. The FHA share of total applications increased to 9.6 percent from 9.1 percent the week prior. The VA share of total applications decreased to 10.9 percent from 11.2 percent the week prior. The USDA share of total applications remained unchanged from 0.4 percent the week prior. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) decreased to 3.17 percent from 3.18 percent, with points increasing to 0.39 from 0.35 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate increased from last week. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $548,250) increased to 3.34 percent from 3.30 percent, with points increasing to 0.38 from 0.30 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.16 percent from 3.20 percent, with points increasing to 0.31 from 0.25 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week. The average contract interest rate for 15-year fixed-rate mortgages increased to 2.56 percent from 2.53 percent, with points increasing to 0.31 from 0.27 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 5/1 ARMs decreased to 2.54 percent from 2.81 percent, with points remaining unchanged at 0.29 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
May 24, 2021
NAR: Almost 50% of homes sold for more than list price
And 25% of home sales were all-cash transactions
By Tim Glaze, Housing Wire – The National Association of Realtors Confidence Index Survey for April reveals how hot the housing market is. Per the report, homes that sold had five offers on average, and nearly 50% of homes sold for more than their list price during the four weeks ending May 16. NAR expects home prices in the next three months to increase nearly 6% from one year ago and will increase almost 3% from last year’s sales level.
The April 2021 survey was sent to 50,000 Realtors selected from NAR’s over 1.4 million members, and to 6,686 respondents in the previous three surveys who provided email addresses. There were 3,541 respondents to the online survey which ran from May 3-10, 2021, of which 1,731 had a client.
“With little supply in the market, homes typically sold within 17 days — down from 27 days one year ago, as buyer competition heats up,” NAR said in a statement. “The share of first-time buyers decreased to 31% from 32% in the prior month, and 36% one year ago. The pandemic continues to impact how people live and work.”
Eighty-five percent of buyers purchased a property in a suburban, small town, rural, or resort area — the same percentage as a year ago. Sixty percent of Realtors reported they had potential buyers looking for work-from-home features such as an extra room, a finished basement, or a bigger home.
25% of all sales were cash sales, per the report. Buyer traffic index was noted as “very strong” in every state except Utah, South Dakota, Minnesota, Michigan, Indiana, Kentucky, Vermont, New Hampshire, Delaware, Maryland, and Washington D.C.
However, there are signs that housing market demand may be reaching its peak, according to a recent study from Redfin.
Pending sales for the seven-day period ending May 16 were down 10% from four weeks prior, compared to an 8% increase during the same period in 2019. Mortgage purchase applications also decreased 4% week over week.
“Make no mistake, the housing market is still very hot and will remain hot for the rest of the year,” said Daryl Fairweather, Redfin chief economist. “But there may be signs that some buyers would rather spend their money on restaurants, vacations, and other things they have held back on for the past year, instead of on housing now that the threat of the pandemic is dissipating in America.”
New listings of homes for sale were down 12% from the same period in 2019, and active listings — the number of homes listed for sale at any point during the period — fell 49% from the same period in 2019. (2019 is being used as a reference point since 2020 data is skewed by the pandemic.)
This is happening, of course, with prices remaining astronomically high. Home prices were recently reported at a record high of $352,975, and were up 24% year over year. Asking prices increased to $358,975, also a record high.
May 22, 2021
Existing home sales fall for third month in April-low inventory pushes home-prices up in every region
By Alex Roha, Housing Wire – April’s existing home sales painted a familiar picture of a market still grappling with low supply as sales dropped for the third month in a row, down 2.7% from March to 5.85 million, the National Association of Realtors reported on Friday.
Despite the decline, housing demand is still strong compared to one year ago, evidenced by existing home sales from this January to April, which are up 20% compared to 2020. Continued demand is stoking already red-hot price appreciation, with the median existing home price for all home types in April coming in at $341,600 — up 19.1% from April 2020 as every region recorded a price increase.
Steep competition stirred in part by low mortgage rates, demographic factors and an improving economy is pushing home prices up at the strongest pace in decades, with sales happening at lightning speed and often for well above list price, noted Zillow Economist Matthew Speakman. This elevated level of competition may be starting to wear on buyers’ confidence and could be holding back sales volumes.
“Last month, existing home sales recorded their best bottom line in any April since 2006,” Speakman said. “New listings volume got a decent bump in March and April, and more people believe it’s a good time to sell a home than at any time since the pandemic began.”
While borrowers battle it out in the bidding trenches, unsold inventory sits at a 2.4-month supply at the current sales pace, slightly up from March’s 2.1-month supply and down from the 4-month supply recorded in April 2020.
According to NAR, these numbers continue to represent near-record lows.
Properties typically remained on the market for 17 days in April, down from 18 days in March and from 27 days in April 2020. Roughly 88% of the homes sold in April 2021 were on the market for less than a month.
Because housing inventory is such a key element right now, Fannie Mae‘s economic and strategic group modified its 2021 predictions. The group said it had expected that a combination of waning COVID-19-induced movement into single-family housing and continued tight inventories would lead to a slowing pace of existing home sales as the year progresses. The group noted that despite year-over-year increases, they can’t push their existing home sales predictions any higher under current circumstances.
NAR also noted the role of inventory in existing home sales.
“We’ll see more inventory come to the market later this year as further COVID-19 vaccinations are administered and potential home sellers become more comfortable listing and showing their homes,” said Lawrence Yun, NAR’s chief economist. “The falling number of homeowners in mortgage forbearance will also bring about more inventory.”
NAR expects the additional projected to cool down the torrid pace of price appreciation later in the year.
However, as Joel Kan, the Mortgage Bankers Association’s associate vice president of economic and industry forecasting pointed out, in the short-term, inventory shortages will persist. U.S. Census Bureau data from earlier this week showed residential housing starts have started to slow due to challenges in the cost and availability of building materials.
First-time buyers, who made up a good share of the 2020 purchase market were responsible for 31% of existing home sales in April, down from 32% in March and 36% in April 2020.
“First-time buyers in particular are having trouble securing that first home for a multitude of reasons, including not enough affordable properties, competition with cash buyers and properties leaving the market at such a rapid pace,” Yun said.
Broken down regionally:
May 18, 2021
The Docket: An Exceptional Plat Attack
The Docket is a monthly TitleNews Online feature provided by ALTA’s Title Counsel Committee which reviews significant court rulings and other legal developments and explains the relevance to the title insurance industry.
Ron Damashek, a partner at Dickinson Wright PLLC, provided today’s review of a decision by an Arizona appeals court addressing policy exceptions on a plat. Damashek can be reached at firstname.lastname@example.org.
Facts: VACC purchased land in Mesa, Ariz., with the intent to develop single family residences for sale. Unfortunately, VACC’s property was platted as one large lot, rather than as individual lots.
Notwithstanding this limitation, VACC constructed and sold 19 lots improved with residences as fee simple properties. However, when VACC contracted to bulk sell 333 single family residential lots to D.R. Horton, Horton’s title agency discovered the plat limitation. Although VACC and Horton successfully amended the plat to permit the sale of individual lots, it took eight months to do so, and the contract was revised to sell the lots to Horton in installments, rather than as a one-time purchase.
VACC made a claim under its title insurance policy to recover the costs associated with amending the plat. Chicago Title Insurance Co. denied coverage based on a policy exception for “loss or damage, and … costs, attorneys’’ fees or expenses that arise” because of “easements, covenants, conditions and restriction as set forth on the plat,” and the litigation ensued.
Holding: The trial court granted summary judgment to CTIC because the policy insured title subject to the conditions in the plat and did not provide insurance for a specific use. The Arizona Court of Appeals affirmed, rejecting numerous attempts to avoid the effect of the policy exception.
First, the court rejected VACC’s claim that title was not marketable, finding that VACC could have sold the property in the same manner that VACC acquired it. The court also dispatched VACC’s argument that the plat violated Mesa’s municipal ordinances, finding that the city never made such a claim; rather, VACC’s proposed change in use created the need to amend the plat, which is distinct from a pre-existing code violation.
In addition, the court rejected VACC’s argument that its property could not be marketed as VACC intended, finding that an insured’s hope, or even expectation, is not what is insured under a title policy. The court also denied VACC’s related claim that, under the “reasonable expectations” doctrine, the parties’ alleged intent to allow VACC to sell the property in individual units was defeated. According to the court, this doctrine applies only when there is a standardized, non-negotiated contract that a party did not read and probably would not have understood if the party read it. However, VACC negotiated policy coverage, including requesting and being granted specific changes to, or the removal of, certain exceptions. As such, the court considered the policy to be a negotiated agreement to which the reasonable expectations doctrine did not apply.
Finally, an endorsement against portions of the property being improperly subdivided and not contiguous was found not to apply because the endorsement expressly stated that it did not modify any terms and provisions of the policy, including the policy provision excepting from coverage costs arising out of the scheduled plat. Not surprisingly, the court also rejected VACC’s bad faith claim. A win on all fronts.
Importance to the title industry: This Arizona decision is important to the title industry because it illustrates how and why a policy coverage exception should be enforced in the face of a myriad of challenges based on the insured’s purported intent rather than the parties’ contract.
May 14, 2021
Foreclosures down in April as moratorium continues
By Tim Glaze, Housing Wire -- The number of properties with foreclosure filings hit 11,810 in April, down 1% month over month and 17% year over year, according to a recent study from RealtyTrac and ATTOM Data Solutions.
May marks the 14th month of the federal government’s foreclosure and eviction moratorium. States with the highest April foreclosure rates were Delaware (one in every 5,700 housing units with a foreclosure filing), Nevada (one in every 5,738), Illinois (one in every 5,890), Florida (one in every 6,375), and New Jersey (one in every 6,390). Metro areas with a population larger than 1 million with the highest foreclosure rates were Cleveland, Ohio (one in every 3,550), Las Vegas (one in every 4,838), Riverside, California (one in every 5,020), Jacksonville, Florida (one in every 5,243), and Chicago (one in every 5,324).
States with at least 100 April foreclosure starts that saw the greatest monthly increase in starts included Washington (up 76%), New York (up 53%), Kentucky (up 47%), Alabama (up 28%), and Indiana (up 26%).
Rick Sharga, RealtyTrac executive vice president, said most of today’s foreclosure activity is made up of vacant and abandoned properties, or commercial loans — which often don’t have the same protections as loans on residential properties.
“With the federal government’s foreclosure and eviction moratorium, coupled with the CARES Act mortgage forbearance program, the government and mortgage services industry have worked together exceptionally well to prevent millions of unnecessary foreclosures,” Sharga said. “Because of these programs, and the nearly 90% success rate of borrowers resuming mortgage payments as they exit forbearance, a large influx of foreclosures when the programs expire seems very, very unlikely.”
The Consumer Financial Protection Bureau (CFPB) released a notice of proposed rulemaking in early April that would amend Regulation X to provide a special pre-foreclosure review period prohibiting servicers from starting foreclosures until after December 31, 2021. Under current CFPB foreclosure rules, a borrower must be 120 days delinquent before the foreclosure process can start.
The Bureau said that nearly 2.1 million households in forbearance are past the 90-day delinquent mark and said it is concerned that those homeowners may be transferred immediately in to the foreclosure process once their forbearance period expires.
According to the Bureau, while many protections of the CARES Act only apply to federally backed mortgages, the Bureau is looking to set a blanket standard across the industry so that all homeowners would have similar protections regardless of who the owner or servicer of the loan is. The CFPB said it will also cover the private mortgage sector that currently makes up 30% of the market.
“The nation has endured more than a year of a deadly pandemic and a punishing economic crisis. We must not lose sight of the dangers so many consumers still face,” said CFPB Acting Director Dave Uejio. “Millions of families are at risk of losing their homes to foreclosure in the coming months, even as the country opens back up.
May 13, 2021
Things Are Heating Up Early in the Hottest Markets for Real Estate in April 2021
By Cicely Wedgeworth, REALTOR® .com - Summer vacation, here we come! With June in sight and states opening up across the country, real estate activity is buzzing—especially in the Northeast and Midwest, where buyers are jumping fully into the market earlier than usual, according to the latest analysis of Realtor.com® data. Looking at how quickly homes sell and which metros’ listings are viewed the most on our site gives us a picture of which markets are the hottest in the nation. And for the month of April, five of the top 10 markets were in the Midwest.
“The Midwest is the area where we see really strong seasonal patterns, because those markets cool off more dramatically than other markets do in the winter,” notes Realtor.com Chief Economist Danielle Hale. Buyers there typically wait till it warms up more—say, in June—to really get going. But of course this is no typical year when it comes to real estate.
This year, the combination of low mortgage rates, rising home prices, and a large group of people at the typical first-time home buyer age has spurred real estate activity to new heights. Affordability is also a factor—in all but one of the eight Midwestern metros in the top 20, the median home list price was below the national median of $375,000 in April.
Meanwhile, the top two markets remained the same as in March: the New Hampshire metros of Manchester and Concord. Manchester, the state’s largest city, is no stranger to the hottest markets list—it was No. 2 in April 2020. Concord, on the other hand, leaped 22 spots from last year to land at No. 2 this year.
“It’s pure madness,” says Joelle Sturm, a Realtor® with Better Homes & Gardens, Masiello Group, in Concord. “I’ve been doing real estate for 20 years in this area, and I’ve never seen a market like this.” And by that she means multiple offers all over the place, and homes selling for tens of thousands of dollars over the asking price. It’s mostly buyers coming in from Massachusetts, Connecticut, and New York with plenty of cash, she says.
“They almost don’t care what the prices are,” Sturm says. “I feel bad for our local buyers because first-time home buyers are priced out.”
The median list price for Concord in April was up 8.6% compared with one year earlier.
The lack of available homes across the country has caused headaches for buyers, who find themselves caught in bidding wars. Homeowners have been reluctant to list their homes during the pandemic, but as vaccination rates rise, they are easing back into the market. Still, new listings in April were down 25% from the 2017–19 average.
“We’re starting to see sellers come back at least to where they were a year ago, but I fully expect it’s going to continue to be a seller’s market in many parts of the country,” Hale says.
February 16, 2021
Why Can’t We Build Enough Homes to Meet Demand?
By Mark Fleming and Odeta Kushi, First American Insights -- In this episode of the REconomy podcast from First American, Chief Economist Mark Fleming and Deputy Chief Economist Odeta Kushi discuss the headwinds home builders face as they try to ramp up new home construction amid today’s strong demand for housing and an historic housing supply shortage.
Odeta Kushi: Hello, and welcome back to another episode of the REconomy podcast where we discuss economic issues that impact real estate, housing and affordability. I'm Odeta Kushi, deputy chief economist at First American and here with me is Mark Fleming, chief economist at First American Hi, Mark.
Mark Fleming: Hi, Odeta.
Odeta Kushi: Well, you've probably heard quite a bit about the housing supply shortage. And, if you haven't heard about the shortage, you may at least have noticed that house prices around you seems to be going higher and higher. Now, the main reason for that is a decade-long imbalance between housing supply and demand. So today, we'll be talking about some of the headwinds to building more homes. Let's just call them the four L's: labor, land, lumber, and laws. And we'll start with the first labor. Mark, what's the issue? Why can't we get more construction workers? Do we have enough construction workers? I guess, is the first question.
Mark Fleming: I mean, we can't find enough construction workers because we actually need to build a lot more homes, even more than we have historically built in normal and good times. And that actually has to do with the fact that we've had a long decade of increased demand for not just home ownership, but shelter in general, all of the demographic demand from millennials over the last decade, forming new households, has driven up the demand not only for single family homes for people to own, but lots and lots of rental units. In fact, broadly speaking, demand for shelter has increased dramatically. At the same time, as you point out, the amount of construction is underperforming even normal levels, partially due to a lack of labor. You can think of it from a deficit and debt perspective. The debt is the total amount of accumulated deficits. For the last decade, we've been running deficits of not building enough each year to even keep up with the new demand for housing, add all those deficits up, and that creates a significant debt. So, the run rate of a million new homes built a year, that's just not enough. It's just not enough.
Odeta Kushi: So we need to fill the deficit is what you're saying, and build our way.
Mark Fleming: Build our way out of it.
Odeta Kushi: Yeah, absolutely. And it seems like this will be an ongoing issue, because as we know, millennials continue to form households, and baby boomers are living longer than ever. And so we'll continue to form households. And it seems that new home building really needs to keep up the pace. And labor has been one of the major headwinds to building more homes, you need more construction workers in order to build more homes. And, as we recently found, if you look at the ratio of housing starts, so that's the number of new homes breaking ground, relative to construction employment, you know, prior to the pandemic, that was about 1.4 starts per construction worker in the timer period between the Great Recession and just prior to the pandemic. But, before the Great Recession that ratio hovered at around two starts per worker. So pretty low in comparison.
Mark Fleming: Wait, you're talking about the P word?
Odeta Kushi: Productivity.
Mark Fleming: Right. So, fancy ratios aside, the question we're trying to figure out here is, how many homes, can be built by a certain amount of workers? Oh yeah, remember my old 80s references in the last podcast? Remember the Tootsie Pop commercial? How many licks does it take to get to the center of a Tootsie Pop? It's something like that. How many workers do we need to build one house? That's about productivity. And hey, guess what? Has that really changed in the last 50 years? Think back to the middle of the 20th century? How do we build a home, we brought a bunch of supplies to a site, a bunch of labor put this stuff in kind of the same way as today. In fact, where have the big enhancements been in terms of productivity? Well, there's things like the nail gun, that probably helps to some degree, but you still need a human to know where to point it. And so, we have this challenge of basically a lack of any significant productivity growth over the last half century or so in the housing sector. This is still an extremely labor-
intensive industry space. It requires a lot of labor to build a house and that hasn't changed.
Odeta Kushi: And that's a great point, Mark. It does not lend itself well to automation and outsourcing. So, the only way to build more homes is to bring more people to the job – more hammers, more homes.
Mark Fleming: I gotta ask a question because you mentioned outsourcing. You mean, we can't outsource home building? Oh, that's right. It’s because I need the home built here, not somewhere else.
Odeta Kushi: Exactly. It’s unique to the housing market that you can't do that. And so certainly the way to increase homebuilding is to bring more people to work. And, unfortunately, in the aftermath of the Great Recession, the construction industry lost a large number of workers. During the recession, the construction industry lost about one and a half million jobs. If you look at the pre-recession peak to the trough, it's over well over 2 million jobs. And, it's been very difficult to find workers to come back to the
construction industry. And there's a couple of reasons for that. So one of the reasons is that millennials, the people that are entering the workforce, well, they're just not quite as interested in the construction industry. They want jobs that are less seasonal, less physical, and more in an office environment. And that's proving to be a challenge to the construction industry. Because again, they need to attract millennials to work in this field. The other reason is an aging workforce. A lot of those people that lost their jobs in the
Great Recession, they retired, they were older, and they haven't been able to retain or get those workers back. So, it's been very difficult to attract new workers to this industry.
Mark Fleming: Well, where would we typically have gotten those workers in times past?
Odeta Kushi: Well, typically, in the past, I think right now, there's, there's a deep focus on getting that four-year degree moving away from the trades, and moving into college and office environments. And that's, unfortunately lends itself to difficulty finding construction workers.
Mark Fleming: Well, this is effectively the same dynamic that's at play more broadly across the across the economy in the sense that we're moving to being a more service sector-oriented economy and there are different levels of training to do those kinds of office jobs relative to manufacturing and construction jobs. As we pointed out, you know, with manufacturing, there's the opportunity to outsource it to other places to find the labor. With home construction, you can't outsource it. So you have to bring the labor to you, or
back to my productivity comment, find a way to more efficiently utilize the labor that you have. And, you know, we had a little fun a few minutes ago with the idea that there had been no productivity enhancements. But now the pressure is on and we do see, because of this stress of not being able to find the labor to bring, the industry itself says, well, I need to find ways to increase productivity. Maybe the reason we didn't see that much productivity growth was there was no market pressure to make it happen until now. But modular homes – building components in factories and bringing them to the worksite. These are all things that are actively being experimented with today effectively to try and solve this problem – to increase the productivity of the labor because I can't simply add more labor.
Odeta Kushi: That's a really great point and I think eventually that will revolutionize the way that homebuilding is done. But, right now, we still need to put more people to work and a lot of different dynamics going into that.
Mark Fleming: Do you recall...
Odeta Kushi: Yes.
Mark Fleming: Do you recall or maybe you don't? Does anybody recall the old Sears and Roebuck catalogs. And in fact, at the turn of the 20th century, not the 21st century. So we're talking circa 1900s, early 1900s. You could buy a home in the Sears and Roebuck catalog. And they would build it modularly in a factory and bring it to you. And then you had to assemble it yourself. So in many ways, the question is, are we going back in time to Sears and Roebuck catalog era?
Odeta Kushi: You know, these trends do have a way of coming back around, but this is another reference that went way over my head. That's okay, that's okay. And so clearly a lot of issues in attracting more labor at this time. But with the longer run goal of being able to be more productive in the construction industry, hopefully through use of technology. But and I'll just briefly mention this, it is quite important, but we won't spend a lot of time on it. There is the issue of migrant workers. That's something immigration policy
certainly has a lot to do with. A lot of immigrants that come to the US work in the construction industry. And so that has a bearing on the labor force in this industry.
Mark Fleming: That's not actually even construction industry specific. In fact, migration has played a major role throughout recent history in our economic productivity growth and our economic growth in general. In fact, the 80s and 90s we had a lot of migration for all kinds of industries. And that's one of the ways in which we've been able to grow. Growing GDP is a function of putting more people to work wherever you get them from, and putting each person more productively to work, you combine those two things in some way and that's how we get GDP growth.
Odeta Kushi: That's a really great point. Because when you start to see women enter the workforce, you also see in the data, a big boost in GDP growth productivity and that's really a function of women entering the workforce in large, larger numbers than ever before. And you can see that in the numbers. So that's a good point, immigration is also incredibly important to overall GDP growth, not specifically just to the construction industry. So moving past the labor, let's touch a little bit on land, one of the issues…
Mark Fleming: There's no land. I can't find any land.
Odeta Kushi: You summed it up. That's basically the gist of it. There's a lack of available lots. Not just available lots, but a lack of affordable lots. And that's particularly acute in some of the most desirable locations. So let's think maybe San Francisco, maybe we think of Boston, not a lot of places for builders to build. And that obviously results in increased lot prices and a headwind to building more homes.
Mark Fleming: We have to be a little bit more specific here. There's plenty of land in the United States of America. The problem is it's too far away from where we want to work and play. Interestingly, maybe that's a changing dynamic given the pandemic over the last year. But, what we did in the last half of the 20th century was basically expand suburbia, outside of the urban core, you know, think about all the big cities with all their inner and middle suburbs and areas like that. The GI Bill greatly expanded the suburban-
urban landscape. Building was easy and inexpensive, because there was plenty of land that was in within reasonable commuting distance throughout the 50s, 60s and 70s. In fact, most major cities suburbs, you know, were built then. There was a big expansion, largely feeding and serving baby boomers at the time. Now, the challenge is either you infill develop, which is expensive, or you build on the urban or exurban fringe, but that's now pretty far away from most big cities, which reduces its desirability as a as a potential
building site. Because do you really want to do that hour and a half commute back into Washington DC? Maybe not, unless you only have to do it two days a week. So I think one of the dynamics that might happen in over the next year or so is that the attractiveness of what used to be considered unattractive buildable land on the exurban fringe might now begin to look attractive from a builders perspective because our work and commute patterns may have changed more permanently post-pandemic.
Odeta Kushi: That's a great point. And I think that's also why housing tends to go hand in hand with the subject of transportation. Because, if you want to build further out from the urban core where the jobs are located, you really need to have a supportive transportation system to get people to and from the city. But...
Mark Fleming: Or a bigger road, just make the road bigger, keep on widening it, not a problem. Get the autonomous driving cars,
Odeta Kushi: Automated.
Mark Fleming: Automated, that's right.
Odeta Kushi: Yes. So obviously, lack of affordable lots another headwind, and then we move into lumber. But more generally, this is rising material costs, we're focusing on lumber, because there's been an increase in the cost of lumber. Since about the beginning of the pandemic, it has risen dramatically over the course of kind of the last six to eight months. And that really threatens homebuilder's momentum. And so there was a recent NHB study that showed that the higher lumber prices added nearly $16,000 to the cost of a
typical new single-family home, and over $6,000 for multifamily. And that was since about mid-April 2020. So obviously, this is another kind of cost-prohibitive issue that builders are facing in the industry right now. But, that's alongside rising material costs in other areas as well.
Mark Fleming: It's no surprise. Walk past your local home being built and you clearly see that there's a lot of lumber there. There's also a lot of waste of that lumber. And, again, as we talked earlier about the sort of the market driving the need to find productivity enhancements for labor, same thing here. If I can build the walls in a more efficient way with less waste, given the fact that my material costs are higher. There’s now more incentive to do it in a different way. And so again, the idea of modular manufacturing as a way to
more efficiently use those expensive input resources, drives innovation, and I think that will continue if, a big if, if these construction input costs remain high.
Odeta Kushi: Absolutely. So, there's a focus on efficiency as well. Efficiency, productivity. And then there’s the last of our four L’s, which is actually laws. And what we're referring to here is regulatory burdens. And this is regulatory burdens imposed at all levels of government. So national, state, local, making it harder and more expensive for builders to build. Now, for those of you listening, you may have heard a little bit in this last year about Oregon. Oregon was one of the first states to pass legislation to eliminate exclusive single-family zoning. And this is because Oregon is a state that is suffering from a lack of supply. They need to build more homes. And one of the headwinds that they're facing are regulatory burdens in the way of zoning laws. And so this is something that we find results in an increase in the final price of a home. Again, there was a study from the National Association of Builders that showed that
government regulations accounted for over 24% of the final price of a new single-family home. This is a little more difficult to address and likely needs to be done at the local level, but one of the biggest headwinds, I think, to building more homes.
Mark Fleming: Wait, not in my backyard. No.
Odeta Kushi: The NIMBYs.
Mark Fleming: And now, if anyone has paid attention, there are actually YIMBYs. Yes, in my backyard. So, an interesting dynamic, but you actually put your finger on it, and it relates back to the accessibility of land too. The ability to build has become significantly more expensive, as driven by regulatory zoning costs in general. And it varies very dramatically across the country. These are largely locally designed programs and locally implemented. And so actually, from a policy perspective, if we need to build more housing, it
cannot be done at the federal level. It has to be done at the local level, because it's these regulatory and zoning restrictions that are making it more difficult to build, even though the demand is there, which is exacerbating our shortage problem. And one of the funniest things is, when you look at neighborhoods, and the degree or the level of regulatory costs that are involved at the local market level, it's correlated highly with income and homeownership. The higher the value of the homes, and the higher the
homeownership rates, the more costly are the regulatory burdens to build in those neighborhoods. We like to say that the single largest special interest group in the United States is homeowners. Nearly two-thirds of all Americans are a member of this group. And it's homeowners that generally are very cautious about development happening in their neighborhoods, because it facilitates change. And change, it's often unclear whether it's going to be good or bad. There's a lot of that protectionism of your most important asset against the possibility of change in the form of development. Which is really the root cause of something that will not just persist in the short run, but will be a major theme in addressing a healthy housing market for years to come and that is how do we manage and balance all of these competing interests at the same time as providing enough shelter for all the people in this country who want it.
Odeta Kushi: Just one of the basic universal human rights, right? I mean, you have to have a place to live, it doesn't necessarily need to be homeownership, but you need a place to live, whether that's a multifamily development to rent, or it's a single-family home you buy. We need to be keeping pace with household formation. And this seems to be one of the biggest hurdles towards building more homes. It’s very much concentrated and it's not uniform across the US. We do find, when you look at some of these regulatory
burdens, they seem to be concentrated in California and the East Coast. Unsurprisingly. So you see in Massachusetts, and even in Florida, we find higher regulatory burdens. These costs that the builders incur in the process are then passed on to the potential home buyer. And it's not just zoning, right, there are other costs incurred. There are permitting costs. There is the time it takes to get through the approval process. How long it takes for them to build. All of these things have a cost associated to it, and it's tough for them to build.
Mark Fleming: It feels like the old adage – time is money. Right. Time is money. So, it can be done either directly through money or through time, but this ends up being the same thing – money. But these are good problems. I mean, we talked about all these issues, but these are good problems to have in the building industry because the challenge is tons of demand and a struggle to meet it with the supply. I'd much rather be in that position than where the home construction sector was in the global financial crisis. The reason it
contracted so much and the reason so much labor left the market was all of a sudden there was no demand. No demand anymore, relative to the supply. We're in exactly the opposite situation. Our challenge is, how do we meet the demand? And we like to say, build it and they will come.
Odeta Kushi: Absolutely. And I think that's a great way to end. Thank you, everyone, for joining us on this episode of the REconomy podcast. Be sure to subscribe on Apple, Google, Spotify, or your favorite podcast platform. You can also sign up for our blog at firstam.com/economics. And if you can't wait for the next episode, please follow us on Twitter. It's @OdetaKushi for me and @MFlemingEcon for Mark. Thank you and until next time.
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