Posts Tagged as Housing Market Trends

Rising Mortgage Rates Fail to Dampen the Buyer's Market

Rising Mortgage Rates Fail to Dampen the Buyer’s Market

2016 was a stellar year for buyers, witnessing mortgage rates below 3.75% all summer on the average 30-year fixed-rate mortgage. With the steadily rising interest rates of today’s real estate financing trends, currently at around 4.5% and climbing for the typical FHA loan, you’d think there would be some sort of sales slowdown – but that couldn’t be further from the case.

Flying High
Home sales are moving on up – flying in the face of rising interest rates. This may slow increases in housing prices, but it’s still expected to remain a seller’s market across most of the United States for 2017. And because interest rates still remain historically low overall (despite multiple raises by the fed), 2017 remains a great time to purchase a home – and buyers are scrambling to take advantage.

Heating Up
Having more potential buyers than sellers means it will continue to be a seller’s market across the country. Nationally, inventory was less than 4 1/2 months toward the end of last year, with the country experiencing a shortage that hasn’t been like this in 20 years. At present, in the hottest markets such as Denver, well priced homes are receiving multiple offers – and selling fast.

No End in Sight
New home building may later offer some minor relief, but that remains to be seen. Especially hard hit continues to be the lower-priced homes, first-time buyer segments, as well as retirees. Because so many owners owe much more on their homes than they’re worth, inventory remains in back-stock. Some homes that did make it to the market experienced financing issues as the appraisals came in well below sales prices.

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It’s Been Confirmed, It’s a Seller’s Market

Fistfights breaking out at your brokerage over the possibility of gaining a listing? Just in case the dog-eat-dog listing races and woeful number of affordable homes on the market for buyers weren’t enough of a confirmation of real estate trends, Trulia and Realtor.com statistics have finally confirmed: It’s a seller’s market.

Strongest Seller’s Market Ever
Brand-new spring housing market numbers have confirmed the trend, looking to statistics from the country’s 100 largest metro cities. Boiling the trends down by zip code, it uncovered a shortage of homes nationwide – a deficiency that hasn’t been this bad in 20 years.

Inventory for March is down 6.6% from a year ago, and unsold inventory a 3.8 month supply. (A balanced market is a 5-6 month supply.) This has led to monthly rises in home prices, up nationally 5.7% for February, year-over-year.

Slim Pickins
As buyers frantically search for affordable homes, the market is getting increasingly competitive, with first time buyers experiencing the greatest hardship. Even as more homes enter the market for the popular summer sales season, they’re flying off neighborhood shelves fast. And at entry-level, where demand is greatest, sellers remain firmly in the driver’s seat.

Heavy Competition
There’s no shortage of people on the lookout for a new home. And though people prefer a home that’s move-in ready over one they have to upgrade, its concession-time in a market where bidding wars are par for the course. Sellers are optimistically pricing their homes – and most are selling anyway.

To compete, buyers are dropping contingencies and coming in with cash. Multiple offers are the new norm. Worse, real estate trends of home appraisals regularly coming in well below sales price are dropping a wrench in the works for would-be first-time, mortgage-dependent buyers.

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Bucking the Trend: Dropping Mortgage Rates

Despite expected real estate trends, the average interest rates for 30-year fixed-rate mortgages have experienced an unexpected drop. Typically, when the Fed raises interest rates, mortgage rates likewise climb, as seen in recent short-term hikes as recently as March (and with two more that are expected later this year).

However, for the first time since November 2016, Freddie Mac reported rates below 4%. In fact, as of the week following Memorial Day, 30-year fixed-rate mortgages averaged 3.94%, dropping to rates even lower than the same time last year, reaching a new 2017 low.

What Gives?
As nail-biting would-be buyers raise their eyebrows, Wall Street investors are nodding their heads – because while mortgage interest rates are influenced by the Fed’s short-term interest rates, they’re more closely tied to the 1-year U.S. Treasury bond market. Investors consider the short-term bond market safer than volatile stocks.

When investors get spooked (think: market downturn or an unpredictable government administration), they shift their money into bonds, which mortgage rates are an inverse reflection of: Bonds up = mortgages down.

How Long Will it Last?
As lower interest rates translate into lower monthly payments for buyers, many are watching the market with a hopeful eye. Even 15-year fixed-rate mortgages and five-year adjustable rate mortgages are riding the downward trend, pushing buyers into a home-buying frenzy. And with good reason: Rates are expected to continue their gradual climb.

However, with today’s financial and political uncertainty, the ‘when’ is anybody’s guess. Meanwhile, home shoppers are trying to take advantage of added opportunities to up-scale (size, location, amenities) as even mere fractions of a point could add up to hundreds more per month in mortgage payments.

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