Persistent inflation is proving “quite harmful to the housing market,” says NAR Chief Economist Lawrence Yun.

The housing market is quickly contracting as rising mortgage rates and stubbornly high inflation prompts more home buyers—and even sellers—to back away. The National Association of REALTORS®’ Pending Home Sales Index, a forward-looking indicator based on home contract signings, dropped for the fourth consecutive month in September, down 10.2% compared to August and a whopping 31% compared to a year earlier.

“Persistent inflation has proven quite harmful to the housing market,” says NAR Chief Economist Lawrence Yun. “The Federal Reserve has had to drastically raise interest rates to quell inflation, which has resulted in far fewer buyers and even fewer sellers.”

The number of active listings also is falling quickly as more homeowners grow reluctant to trade in the lower mortgage rates they secured in the last few years for today’s higher rates. “The new normal for mortgage rates could be around 7% for a while,” Yun says. “On a $300,000 loan, that translates to a typical monthly mortgage payment of nearly $2,000, compared to $1,265 just one year ago—a difference of more than $700 per month. Only when inflation is tamed will mortgage rates retreat and boost home purchasing power for buyers.”

NAR’s latest report also shows that all four major regions of the U.S. are seeing a sharp pullback in home sales, with pending home sales down about 27% or more on a year-over-year basis in each region. The West is seeing the largest yearly contraction in pending home sales, down 38.7% annually. However, the Northeast posted the largest month-over-month drop in September, with pending home sales down 16.1% compared to August, NAR reports.

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Reprinted with permission

NAR Chief Economist Lawrence Yun paints a picture of what could happen with borrowing costs once it passes a critical threshold.

Mortgage rates remained just shy of 7% this week—the 30-year fixed rate loan is at 6.94%—which could be a “new normal” after recent rapid increases in borrowing costs, says Nadia Evangelou, senior economist and director of forecasting for the National Association of REALTORS®. Mortgage rates have been hovering near 7% for the last month.

Higher mortgage rates are prompting home buyers to adjust their price points so they don’t go over budget. A year ago, a home buyer looking to spend about $1,500 on a monthly mortgage payment could afford a $380,000 home, says Lisa Sturtevant, chief economist for Bright MLS. Today, with mortgage rates more than double what they were a year ago, that budget has dropped to $250,000. “In many areas of the country, homes in this price range don’t exist,” she says. First-time home buyers may be hit particularly hard because they don’t have equity to roll into a new home purchase, Sturtevant adds.

The heights that mortgage rates have reached caught the housing market off guard. “At the beginning of the year, it seemed very unlikely that mortgage rates would push past 6%,” Sturtevant says. “Now the question is how high will they go? A lot of the answer depends on how aggressive the Federal Reserve is going to go on rate hikes in its next two meetings. But the impacts of the Federal Reserve’s actions are crystal clear: The Fed will continue to raise rates in an attempt to tamp down inflation, even if it causes pain in the short term.”

NAR Chief Economist Lawrence Yun warned at the recent National Association of Real Estate Investors conference in Atlanta that mortgage rates could rise up to 8.5%, “which would be another big shock to the housing market.” With inflation outpacing wage growth, the typical family is spending more than 25% of their income on mortgage payments, Evangelou writes at the association’s blog, Economists’ Outlook. “Including other expenses, such as mortgage insurance, home insurance, taxes and expenses for property maintenance, homebuying costs exceed 30% of a typical family’s income,” she notes. Many financial experts consider households in this situation to be cost-burdened.

Mortgage rates at 7% were typical in the mid- to late-1990s and early 2000s. But home buyers today are facing high inflation and more expensive home prices. “The 30-year fixed-rate mortgage continues to remain just shy of 7% and is adversely impacting the housing market in the form of declining demand,” says Sam Khater, Freddie Mac’s chief economist. “Additionally, homebuilder confidence has dropped to half of what it was just six months ago, and construction—particularly single-family residential construction—continues to slow down.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Oct. 20:

• 30-year fixed-rate mortgages: averaged 6.94%, with an average 0.9 point, rising from last week’s 6.92% average. Last year at this time, 30-year rates averaged 3.09%.
• 15-year fixed-rate mortgages: averaged 6.23%, with an average 1.1 point, rising from last week’s 6.09% average. A year ago, 15-year rates averaged 2.33%.
• 5-year hybrid adjustable-rate mortgages: averaged 5.71%, with an average 0.4 point, dropping from last week’s 5.81% average. A year ago, 5-year ARMs averaged 2.54%.

Freddie Mac reports commitment rates along with average points to better reflect the upfront cost of obtaining the mortgage.

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Reprinted with permission

Not revealing known property defects to a buyer—a common problem in real estate, studies show—can land you in court. Follow these best practices to avoid liability.

When a home buyer discovers a property defect that wasn’t disclosed by the seller or listing agent, the buyer may sue, claiming the home was misrepresented. This has become a more urgent problem in real estate since buyers in last year’s frenzied market started waiving the home inspection contingency to win bidding wars. Sixty percent of sellers admit to not disclosing a known problem with their property to buyers, according to a July study from Cinch Home Services(link is external).

“Failure to properly disclose can lead to misrepresentation claims, ranging from fraud to negligence and, in some states, innocent misrepresentation,” Deanne Rymarowicz, associate counsel at the National Association of REALTORS®, warns in the latest “Window to the Law” video. She cites a court case in which an agent was ordered to pay $170,000 after being found to have shown a “reckless disregard for the truth” by not disclosing a listing’s prior water damage.

Rymarowicz offers best practices to help avoid a misrepresentation claim due to the failure of the seller to disclose:

• Do not complete a disclosure form on behalf of a seller.
• Encourage the seller to reveal all known facts and defects, and share them with the buyer.
• Review the seller’s disclosure form to make sure they answered all the questions.
• If the seller refuses to disclose a material fact or defect you’re aware of, you should disclose it to the buyer as soon as possible.
• Document any information the seller has provided to the buyer, such as answers to questions about the condition of the property. Keep any research you’ve done separately on the condition of the property as well.

©National Association of REALTORS®
Reprinted with permission

Economists eye two possible scenarios: Rates could rise to 8% or higher by the end of the year, or they could stabilize. Know what to expect.

Mortgage rates this week dipped slightly below 7%, even after the Federal Reserve aggressively raised its benchmark interest rate again to tame inflation. The 30-year fixed-rate mortgage averaged 6.95% this week after hitting a 20-year high of 7.08% last week, Freddie Mac reports.

“Even with the Federal Reserve raising its short-term fed funds rate by another large amount, longer-term interest rates look to move only slightly,” says Lawrence Yun, chief economist for the National Association of REALTORS®. “The mortgage market has already priced in the latest Fed move.”

On Wednesday, the Fed approved its fourth consecutive rate hike of three-quarters of a percentage point to help bring down 40-year high inflation. The central bank’s lending rate now falls within the target range of 3.75% to 4%—its highest since January 2008. “The inflation picture has become more and more challenging over the course of this year,” Fed Chairman Jerome Powell said at a news conference Wednesday. “That means we have to have policy be more restrictive, and that narrows the path to a soft landing.”

What Happens Next?

Mortgage rates will start to “drift lower” once inflation has been contained—but that could be another year or two, Yun notes. However, the slight dip this week in rates likely will offer little relief to priced-out buyers. “Unsure buyers navigating an unpredictable landscape keeps demand declining while other potential buyers remain sidelined from an affordability standpoint,” says Sam Khater, Freddie Mac’s chief economist.

Mortgage rates likely will be volatile in the coming weeks, adds Lisa Sturtevant, chief economist for Bright MLS. “Home buyers expecting mortgage rates to fall significantly will be disappointed,” she says. “The question is: Will rates stabilize or will they push even higher?”

Sturtevant says that if inflation remains stubbornly high, the Federal Reserve could continue to aggressively raise rates. “Under this scenario of persistently higher inflation, mortgage rates could climb to 8% or beyond in late 2022 and into the first part of 2023,” she says.

But if October’s inflation data—which will be released next week—shows signs of easing and offers some indication that the Fed’s tactics are working, the Fed could pull back on its rate increases. That could mean mortgage rates would stabilize, “though probably still remaining around 7%, on average, through the first part of 2023,” she notes.

Mortgage Rate Averages This Week

Freddie Mac reported the following national averages with mortgage rates for the week ending Nov. 3:

• 30-year fixed-rate mortgages: averaged 6.95%, with an average 0.8, falling last week’s 7.08% average. Last year at this time, 30-year rates averaged 3.09%.
• 15-year fixed-rate mortgages: averaged 6.29%, with an average 1.2 point, dropping from last week’s 6.36% average. A year ago, 15-year rates averaged 2.35%.
• 5-year hybrid adjustable-rate mortgages: averaged 5.95%, with an average 0.2 point, falling from last week’s 5.96% average. A year ago, 5-year ARMs averaged 2.54%.

Freddie Mac reports commitment rates along with average fees to better reflect the total upfront cost of obtaining the mortgage.

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Reprinted with permission

Many under the age of 40 are looking at real estate as a means to generate income rather than looking for their own home to live in, a new survey shows.

A growing number of young adults are charting a different path toward building wealth through homeownership, prioritizing buying an investment property before a primary residence, according to a new survey by Mynd, a company that leverages technology tools to help investors buy, finance and manage single-family rental properties.

Forty-three percent of people younger than 40 say they are considering becoming “rentvestors,” who continue to rent their own home while shoring up income from an investment property, Mynd’s 2022 Consumer Insights Report(link is external) shows. That compares to just 9% of baby boomers and 27% of Gen Xers who are using the same wealth-building strategy. Some first-time investors see this as an opportunity to make more money and better afford a lifestyle in larger, more expensive markets, the report notes.

“Young people are discovering that buying an investment property gives them the best of both worlds: They can live wherever they want, including cities where they can’t yet afford to buy, and still become property owners, which, as we learned in our survey, is still considered an important part of their American dream,” says Mynd founder and CEO Doug Brien. “Buying an investment property means they can go where their life, their work and their sense of purpose takes them without being tied down, and they can still benefit from the diversification, appreciation and tax benefits of real estate investing.”

As the economy teeters on the brink of recession, diversifying a portfolio may become a bigger priority for prospective buyers. Brien notes that many millennials, who came of age during the Great Recession in 2008, watched their parents and others face great financial loss because they were overleveraged on their mortgages. “This cohort is also more skeptical of the stock and bonds market,” Brien says.

But young adults appear optimistic about real estate’s long-term potential. Brien says he believes many of the younger people buying investment properties don’t necessarily view it as a step toward purchasing a primary residence but as an investment that will live alongside their home one day.

The Remote Investor

Remote investing is another trend helping more first-time investors take the leap. More than half of the properties Mynd manages are owned by out-of-state investors. The company has predicted that number to grow as technology makes it easier to buy and manage investment properties from afar. That doesn’t appear to be a scary thought to consumers: Seventy-two percent of the more than 1,000 survey respondents say they’d consider buying an investment property in a different city or state than where they live.

“For decades, the real estate investment class was seen as too complicated and intimidating for many consumers,” Brien says. “Fast forward to today: Consumers now have access to a slew of tools and platforms that demystify the real estate investment process.” He added that Mynd’s mission has been to help inspire a new crop of investors “who were previously too intimidated by real estate or were constrained to investments within commuting distance.”

Tech property management companies have been introducing tools to help novice and experienced investors alike find, finance, purchase and manage properties remotely.

As recession fears mount, single-family rental investments could grow into an even more attractive asset class, Brien says. “As inflation rises, rents are bound to rise, which increases potential cashflow for property owners.” Twenty-eight percent of survey respondents say they’re considering purchasing an investment property now, despite the current economic climate. “As the Federal Reserve increases interest rates in an effort to tamp down inflation, that can impact demand for rental homes, too,” Brien says. “If it becomes more expensive for potential buyers to finance a purchase, fewer will be able to afford it. This will increase demand for single-family homes and create more upward pressure on rental prices.”

©National Association of REALTORS®
Reprinted with permission

Though not as obvious as fire or flood damage, mold can spread quickly and cause significant property issues if not caught early.

Many homeowners may think the worst thing that can happen to their property is a fire or flash flood. But there’s another kind of threat that’s less obvious yet potentially just as harmful: mold.

Though not as pronounced as fire or flood damage, mold can be equally pervasive, scaling walls, floors and ceilings to inflict significant property damage and health hazards. Mold also is a progressive problem: It can spread quickly if not spotted and addressed early. So, how can homeowners head off mold problems before they begin? Here are five signs you should pay attention to if you suspect mold in your property.

1. Mold-conducive environments. Many homes have rooms or areas that are especially susceptible to mold. Kitchens and bathrooms with old plumbing, pipes or appliances can lead to leaks—which, in turn, fuel mold. Crawl spaces, basements and attics with minimal ventilation and high humidity are ideal environments for mold to thrive. Cracks on exterior walls also can allow water to enter the structure slowly but in enough quantity to generate mold.
2. Allergy-like symptoms. If people visiting or living in your property are experiencing hay fever–like symptoms outside of springtime, or whenever they enter the structure, that can be a sign of mold. Mold causes symptoms very similar to allergies in many people, like itchy eyes or skin and irritated noses, throats and lungs. These mold-exposure symptoms are especially prevalent for those with a preexisting respiratory problem such as asthma.
3. A musty smell. Perhaps the most surefire way to detect mold is its scent. Mold produces a musty odor similar to that of rotting wood. If you catch wind of an odor like this and can’t pinpoint the source, it’s likely mold that is festering nearby.
4. Water stains. If water stains appear on a property’s walls, ceilings or carpeting, there may be mold lurking beneath those surfaces. The older the water stain is, the longer the mold will have had a chance to spread. Even if the source of the water damage has been fixed—like, say, a busted pipe—mold may still be present and thriving.
5. Strange coloring. Not all mold is green, nor does it all have the same texture. In fact, mold can appear in just about any hue, because it takes on the color of whatever it’s eating to sustain itself. If you notice strange discolorations or textures on the surfaces of a home, it may be mold.

Mold isn’t as dramatic as a blazing fire or flash flood, but it can sow just as much damage. If allowed to spread unmitigated, mold will render a home dangerous and unlivable. It can also be incredibly costly to remediate, requiring specialty techniques, equipment and professionals. Your clients should develop a keen eye for detecting mold so that the problem can be addressed before it becomes a major issue.

©National Association of REALTORS®
Reprinted with permission