According to recent data from realtor.com, median rental prices have reached their highest point ever recorded in many areas across the country. The report found rents rose by 8.1% from the same time last year. As it notes:
“Beyond simply recovering to pre-pandemic levels, rents across the country are surging. Typically, rents fluctuate less than 1% from month to month. In May and June, rents increased by 3.0% and 3.2% from each month to the next.”
If you’re a renter concerned about rising prices, now may be the time to consider purchasing a home.
Monthly Rents Are Higher Than Monthly Mortgage Payments
When you weigh your options of whether to buy a home or continue renting, how much you’ll pay each month is likely top of mind. According to the National Association of Realtors (NAR), monthly mortgage payments are rising, but they’re still significantly lower than the typical rental payment. NAR indicates the latest data on homes closed shows the median monthly mortgage payment is $1,204.
By contrast, the median national rent is $1,575 according to the most current data provided by realtor.com. In other words, buyers who recently purchased a home locked in a monthly payment that is, on average, $371 lower than what renters pay today(see graph below):
Rents Are Rising Sharply, and They Continue To Increase
The difference in monthly housing costs when comparing renting and homebuying today is significant, but many would-be homebuyers wonder about the future of rental prices. If we look to historical Census data as a reference, the median asking rent has risen consistently since 1988 (see graph below):The rise in rent over time clearly shows one of the major advantages homeownership has over renting: stable housing costs. Renters face increasing costs every year. When you purchase your home, your mortgage rate is locked in for 30 years, meaning your monthly payment stays the same over time. That gives you welcome peace of mind and predictability for many years ahead.
Bottom Line
With rents continuing to rise across the country, renters should consider if now is the right time to buy. There are multiple benefits to buying sooner rather than later. Let’s discuss your options so you can make your most powerful decision.
In today’s sellers’ market, you’re set up to win big when you list your house.
That’s because homes are selling fast, receiving 4.4 offers on average and often selling above the asking price. Then, when you buy your next home, you’ll also win by addressing your changing needs and taking advantage of near historic-low mortgage rates.
If you’re ready to make a move, let’s connect so you can capitalize on today’s market and find your next dream home.
If you’re thinking of buying a home but wondering if waiting a few years will save you in the long run, think again.
The longer the wait, the more you’ll pay, especially when mortgage rates and home prices rise. Even the slightest change in the mortgage rate can have a big impact on your buying power no matter your price point.
Don’t assume waiting will save you money. Let’s connect to set the ball into motion today while mortgage rates are hovering near historic lows.
With forbearance plans about to come to an end, many are concerned the housing market will experience a wave of foreclosures like what happened after the housing bubble 15 years ago. Here are four reasons why that won’t happen.
1. There are fewer homeowners in trouble this time
After the last housing crash, about 9.3 million households lost their home to a foreclosure, short sale, or because they simply gave it back to the bank.
As stay-at-home orders were issued early last year, the overwhelming fear was the pandemic would decimate the housing industry in a similar way. Many experts projected 30% of all mortgage holders would enter the forbearance program. Only 8.5% actually did, and that number is now down to 3.5%.
As of last Friday, the total number of mortgages still in forbearance stood at 1,863,000. That’s definitely a large number, but nowhere near 9.3 million.
2. Most of the 1.86M in forbearance have enough equity to sell their home
Of the 1.86 million homeowners currently in forbearance, 87% have at least 10% equity in their homes. The 10% equity number is important because it enables homeowners to sell their houses and pay the related expenses instead of facing the hit on their credit that a foreclosure or short sale would create.
The remaining 13% might not all have the option to sell, so if the entire 13% of the 1.86M homes went into foreclosure, that would total 241,800 mortgages. To give that number context, here are the annual foreclosure numbers of the three years leading up to the pandemic:
2017: 314,220
2018: 279,040
2019: 277,520
The probable number of foreclosures coming out of the forbearance program is nowhere near the number of foreclosures coming out of the housing crash 15 years ago. The number does, however, draw a similar comparison to the three years prior to the pandemic.
3. The current market can absorb any listings coming to the market
When foreclosures hit the market in 2008, there was an excess supply of homes for sale. The situation is exactly the opposite today. In 2008, there was a 9-month supply of listings for sale. Today, that number stands at less than 3 months of inventory on the market.
As Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), explains when addressing potential foreclosures emerging from the forbearance program:
“Any foreclosure increases will likely be quickly absorbed by the market. It will not lead to any price declines.”
4. Those in power will do whatever is necessary to prevent a wave of foreclosures
Just last Friday, the White House released a fact sheet explaining how homeowners with government-backed mortgages will be given further options to enable them to keep their homes when exiting forbearance. Here are two examples mentioned in the release:
“For homeowners who can resume their pre-pandemic monthly mortgage payment and where agencies have the authority, agencies will continue requiring mortgage servicers to offer options that allow borrowers to move missed payments to the end of the mortgage at no additional cost to the borrower.”
“The new steps the Department of Housing and Urban Development (HUD), Department of Agriculture (USDA), and Department of Veterans Affairs (VA) are announcing will aim to provide homeowners with a roughly 25% reduction in borrowers’ monthly principal and interest (P&I) payments to ensure they can afford to remain in their homes and build equity long-term. This brings options for homeowners with mortgages backed by HUD, USDA, and VA closer in alignment with options for homeowners with mortgages backed by Fannie Mae and Freddie Mac.”
When evaluating the four reasons above, it’s clear there won’t be a flood of foreclosures coming to the market as the forbearance program winds down.
Bottom Line
As Ivy Zelman, founder of the major housing market analytical firm Zelman & Associates, notes:
“The likelihood of us having a foreclosure crisis again is about zero percent.”
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As we move into the second half of the year, one thing is clear: the current real estate market is one for the record books. The exact mix of conditions we have today creates opportunities for both buyers and sellers. Here’s a look at four key components that are shaping this unprecedented market.
A Shortage of Homes for Sale
Earlier this year, the number of homes available for sale fell to an all-time low. In recent months, however, inventory levels are starting to trend up. The latest Monthly Housing Market Trends Report from realtor.com says:
“In June, newly listed homes grew by 5.5% on a year-over-year basis, and by 10.9% on a month-over-month basis. Typically, fewer newly listed homes appear on the market in the month of June compared to May. This year, growth in new listings is continuing later into the summer season, a welcome sign for a tight housing market.”
This is good news for buyers who crave more options. But even though we’re experiencing small gains in the number of available homes for sale, inventory remains a challenge in most states. That’s why it’s still a sellers’ market, giving homeowners immense leverage when they decide to make a move.
Buyer Competition and Bidding Wars
Today’s ongoing low supply, coupled with high demand, creates a market characterized by high buyer competition and bidding wars. Buyers are going above and beyond to make sure their offer stands out from the crowd by offering over the asking price, all cash, or waiving some contingencies. The number of offers on the average house for sale broke records this year – and that’s great news for sellers.
The latest Confidence Index from the National Association of Realtors (NAR) says the average home for sale receives five offers (see graph below):For buyers, the best way to put a compelling offer together is by working with a local real estate professional. That agent can act as your trusted advisor on what terms are best for you and what’s most appealing to the seller.
Home Price Appreciation
The competition among buyers is driving prices up. Over the past year, we’ve seen home price appreciation rise across the country. According to the most recent Home Price Index (HPI) from CoreLogic, national home prices increased 15.4% year-over-year in May:
“The May 2021 HPI gain was up from the May 2020 gain of 4.2% and was the highest year-over-year gain since November 2005. Low mortgage rates and low for-sale inventory drove the increase in home prices.”
Rising home values are a big part of why real estate remains one of the top sought-after investments for Americans. For potential sellers, it also means it’s a great time to list your house to maximize the return on your investment.
A Rise in Home Values and Equity
The equity in a home doesn’t just grow when a homeowner pays their mortgage – it also grows as the home’s value appreciates. Thanks to the jump in price appreciation, homeowners across the country are seeing record-breaking gains in home equity. CoreLogic recently reported:
“…homeowners with mortgages (which account for roughly 62% of all properties) have seen their equity increase by 19.6% year over year, representing a collective equity gain of over $1.9 trillion, and an average gain of $33,400 per borrower, since the first quarter of 2020.”
That’s a major perk for households to leverage. Homeowners can use that equity to accomplish major life goals or move into their dream homes.
Bottom Line
If you’re thinking about buying or selling, there’s no time like the present. Let’s connect to talk about how you can take advantage of the conditions we’re seeing today to meet your homeownership goals.
With home prices continuing to deliver double-digit increases, some are concerned we’re in a housing bubble like the one in 2006. However, a closer look at the market data indicates this is nothing like 2006 for three major reasons.
1. The housing market isn’t driven by risky mortgage loans.
Back in 2006, nearly everyone could qualify for a loan. The Mortgage Credit Availability Index (MCAI) from the Mortgage Bankers’ Association is an indicator of the availability of mortgage money. The higher the index, the easier it is to obtain a mortgage. The MCAI more than doubled from 2004 (378) to 2006 (869). Today, the index stands at 130. As an example of the difference between today and 2006, let’s look at the volume of mortgages that originated when a buyer had less than a 620 credit score.Dr. Frank Nothaft, Chief Economist for CoreLogic, reiterates this point:
“There are marked differences in today’s run up in prices compared to 2005, which was a bubble fueled by risky loans and lenient underwriting. Today, loans with high-risk features are absent and mortgage underwriting is prudent.”
2. Homeowners aren’t using their homes as ATMs this time.
During the housing bubble, as prices skyrocketed, people were refinancing their homes and pulling out large sums of cash. As prices began to fall, that caused many to spiral into a negative equity situation (where their mortgage was higher than the value of the house).
Today, homeowners are letting their equity build. Tappable equity is the amount available for homeowners to access before hitting a maximum 80% combined loan-to-value ratio (thus still leaving them with at least 20% equity). In 2006, that number was $4.6 billion. Today, that number stands at over $8 billion.
Yet, the percentage of cash-out refinances (where the homeowner takes out at least 5% more than their original mortgage amount) is half of what it was in 2006.
3. This time, it’s simply a matter of supply and demand.
FOMO (the Fear Of Missing Out) dominated the housing market leading up to the 2006 housing bubble and drove up buyer demand. Back then, housing supply more than kept up as many homeowners put their houses on the market, as evidenced by the over seven months’ supply of existing housing inventory available for sale in 2006. Today, that number is barely two months.
Builders also overbuilt during the bubble but pulled back significantly over the next decade. Sam Khater, VP and Chief Economist, Economic & Housing Research at Freddie Mac, explains that pullback is the major factor in the lack of available inventory today:
“The main driver of the housing shortfall has been the long-term decline in the construction of single-family homes.”
Here’s a chart that quantifies Khater’s remarks:Today, there are simply not enough homes to keep up with current demand.
Bottom Line
This market is nothing like the run-up to 2006. Bill McBride, the author of the prestigious Calculated Risk blog, predicted the last housing bubble and crash. This is what he has to say about today’s housing market:
“It’s not clear at all to me that things are going to slow down significantly in the near future. In 2005, I had a strong sense that the hot market would turn and that, when it turned, things would get very ugly. Today, I don’t have that sense at all, because all of the fundamentals are there. Demand will be high for a while because Millennials need houses. Prices will keep rising for a while because inventory is so low.”
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