Is Relief On The Way? – Real Estate Market Update

Ever since the housing boom of 2020, demand in the market has far outstripped available supply. This has caused a real problem for home buyers as prices have continued to rise to ever greater heights. Admittedly, you have to look hard, but there are signs that some of the pressure may finally be coming out of housing.

More housing may be finally coming to the market. It’s possible that home sellers want to take advantage of potentially being at the top of the market before rates rise high enough to knock certain buyers out of the market for affordability reasons.

Of course, we’re in the thick of traditional home buying season, so listings are going to be up anyway. To control for that, we compared the relative increase in listings from our friends at Rocket Homes^SM between April and May to April and May 2021.¹ You’ll remember the housing market was extremely hot all of last year. According to their data, listings are up more than 80% from this time last year.

What’s more, this isn’t an aberration unique to one site. CNBC has an article touching on the fact that listings are up compared to last year at several sites across the web. While it has yet to convert into more existing home sales, it should be encouraging for home buyers.

Moreover, as rates go up, there will be certain folks who drop out of the market and wait for a more affordable time. However, this means that for the buyers who remain committed to purchasing at higher rates, they may encounter fewer bidding wars and have a better chance of getting their offer excepted.

Of course, rates are likely to continue to rise moderately. In addition to anticipated additional increases in the federal funds rate, the Federal Reserve has begun selling off mortgage-backed securities (MBS) it bought in 2020 in order to both stabilize the housing market and to stimulate the economy by keeping rates lower than they otherwise would have been since the corresponding yields could be lower based on always having a willing buyer.

Now that the economy is on more stable footing and the Fed is pulling back, rates will need to be higher in order to attract investors. As such, it’s not a bad idea to let your buyers know to lock their rate as soon as possible. In order to be the most prepared, they can take advantage of the Verified Approval and RateShield^®programs.^2,3

A Verified Approval is a type of prequalification in which your client’s credit is pulled and we have them share documentation regarding income and assets they’ll be using to qualify. You may see this referred to in other places as a preapproval. Both clients and sellers can be confident that they have the funds to make their offer.

Where RateShield takes things a step further is in allowing a home buyer to lock their rate for up to 90 days while they shop for a home. Even better, it features a one-time float down option allowing them to take advantage of rates that have fallen after they lock.

The rest of this article is aided by analysis from our friends at Econoday.⁴ Let’s get into it.

Consumer Price Index (CPI)

Prices were up 0.3% in April and 8.3% year-over-year. When food and energy were removed from the equation, prices rose 0.6% and 6.2% since last April.

The cost of shelter is what we really care about in this report. That’s up 0.5% overall. Within that, rent was up 0.6% and the amount a homeowner would need to rent an equivalent space was up 0.5%.

Retail Sales

Overall retail sales were up 0.9% in April. When vehicles were taken out, the uptick was 0.6%. When further removing gas from the equation, sales were up 1%.

Taking a look at categories important in the housing sector, sales were down 0.1% at building material and garden supply stores. On the other hand, sales of furniture and home furnishings were up 0.7%, while sales of electronics and appliances were up 1%.

Housing Market Index

Home builder sentiment was down 8 points from April, settling at 69. This is the lowest the reading has been since June 2020. Higher mortgage rates, low inventory, labor and material shortages contributed to the pessimistic outlook.

Present sales of single-family homes were down 8 points at 78. Expectations for the same sales 6 months in the future were down 10 points at 63. Meanwhile, traffic of prospective buyers going through new homes was down 9 points at 52.

New Residential Construction

Completions of homes were down 5.1% in April to come in at 1.295 million, 8.6% lower than last year. Meanwhile, single-family completions were down 4.9% at 1.001 million. There were 281,000 multifamily completions.

Builders broke ground in April at a seasonally adjusted annual rate of 1.724 million, down 0.2%. This is 14.6% higher than a year ago. Single-family starts were down 7.3% at 1.1 million. Meanwhile, 612,000 multifamily starts happened.

On the permit side, these were down 3.2% at 1.879 million, and 3.1% higher than last April. Single-family permits were down 4.6% at 1.11 million. Finally, 656,000 multifamily permits were issued.

Existing Home Sales

Sales of existing homes were down 2.4% to an annual rate of 5.61 million. This has fallen 5.9% on the year. Single-family homes saw sales fall 2.5% at 4.99 million. Meanwhile, sales of multifamily units were down 1.6% at 620,000.

Looking at supply, this was up slightly from 1.9 months in March to 2.2 months at the current pace of sales in April. Meanwhile, the median price was $391,200, which is up 4.4% in April and has gone up 14.8% since the same time a year ago.

New Home Sales

New home sales came in at an annual rate of 591,000 in April, down 16.6%. Higher mortgage rates are certainly having an effect. The good news is, supply in the market is up from 6.9 months in March to 9 months based on the current pace of sales. Of course, that’s of limited effect because most people buy existing homes.

The median price of a new home was up 3.6% in April and 19.6% since last April at $450,600.

Gross Domestic Product (GDP)

Overall GDP showed that the economy shrank by about 1.5% in the second estimate of the first quarter. Consecutive quarters of economic shrinkage would signal a recession, something worth keeping an eye on. At the same time, personal consumption expenditures were up 3.1%, which is a very good sign.

Looking strictly at residential investment, this was up 0.4% for the quarter in the latest estimate.

Case-Shiller Home Price Index

Home prices were up 2.4% in March across this 20-city index on a seasonally adjusted basis. Without the adjustment, prices were up 3.1% and 21.2% for the year.

This index is a rolling 3-month average of all transactions within the surveyed cities. It also doesn’t include multifamily homes or those being refinanced.

FHFA House Price Index

Although ostensibly covering the same month, as opposed to Case-Shiller this index isn’t a rolling average. It also only covers transactions backed by the conventional mortgage investors Fannie Mae and Freddie Mac, but it does include multifamily homes and refinance transactions. This explains some of the variance in the data.

According to the Federal Housing Finance Agency, home prices were up 1.5% in March and they’ve spiked 19% since last year.

Consumer Confidence

Consumer confidence was down 2.2 points at 106.4 in April. Meanwhile, people were less enthusiastic in April about purchasing homes or major appliances. Prices and interest rates likely had a big effect.

Last week, mortgage rates were pretty steady on the fixed side. However, given the trend, I would encourage you to urge your clients to lock their rate at the earliest possible time.

The average rate for a 30-year fixed with 0.8 points paid was down a single basis point to come in at 5.09%. This is up from 2.99% last year at the same time.

Looking at shorter terms, the average rate on a 15-year fixed mortgage with 0.8 points paid was up a single basis point at 4.32%, having risen from 2.27% at this time last April.

Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable-rate mortgage fell 16 basis points to 4.04% with 0.3 points paid. This has risen from 2.64% last year.

Now that you know what’s happening in the market, use that knowledge to wow your clients. Have a great month!

¹ Rocket Homes℠ is a registered trademark licensed to Rocket Homes Real Estate LLC. The Rocket Homes℠logo is a service mark licensed to Rocket Homes Real Estate LLC. Rocket Homes Real Estate LLC fully supports the principles of the Fair Housing Act.

For Rocket Homes Real Estate LLC license numbers, visit RocketHomes.com/license-numbers.

California DRE #01804478

² Your client’s participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of their credit, income, employment status, debt, property, insurance and appraisal as well as a satisfactory title report/search. If new information materially changes the underwriting decision resulting in a denial of the credit request, if the loan fails to close for a reason outside of Rocket Mortgage’s control, or if the client no longer wants to proceed with the loan, their participation in the program will be discontinued. If the client’s eligibility in the program does not change and their mortgage loan does not close, they will receive $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. This offer is not valid for self-employed clients. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. This is not a commitment to lend. Additional conditions or exclusions may apply.

³ RateShield Approval is a Verified Approval with an interest rate lock for up to 90 days. If rates increase, your rate will stay the same for 90 days. If rates decrease, you will be able to lower your rate one time within 90 days. Please contact your Home Loan Expert for additional information. This offer is only valid on certain 30-year purchase loans. Additional conditions and exclusions may apply.

⁴ Important Legal Notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of such information may change without notice. Econoday does not provide investment advice, and does not represent or warrant that any of the information is accurate or complete at any time. Copyright 2022 Econoday, Inc. All rights reserved.