Homes With Higher Fire Risk Sell for Nearly $120K More

The risk of a house fire isn’t slowing buyers in this market frenzy. The median sale price of homes that have conditions creating a high risk of fire was $550,500 in April, compared to $431,300 for homes with a low risk of fire, according to a new study from Redfin.

The typical home with a high risk of fire sold for $119,200—or nearly 28% more—than the typical home with a low fire risk. That marks the largest premium in dollar terms since at least 2017, Redfin reports.

Homes that could be susceptible to fires have historically been more expensive because they are generally larger and located in pricier areas along West Coast metros. But the price premium for high-risk homes has climbed more since the pandemic began.

Many Americans have moved from cities to suburbs and rural areas where homes often are at greater risk due to their proximity to flammable vegetation, the Redfin study notes. The median sale price of high-risk homes climbed by nearly 52% in April compared to two years earlier. The median sales price of lower-risk homes rose by 41%.

“Suburban homes tend to be more expensive because they’re large, and demand for large homes skyrocketed during the pandemic as Americans sought respite from crowded city life,” says Sheharyar Bokhari, Redfin’s senior economist. “Pandemic buyers also hunted for deals due to surging home prices, and while fire-prone homes aren’t cheaper on average, buyers may feel they’re getting more bang for their buck because they’re getting more space. And for some pandemic buyers, the fire-prone home they bought in suburbia was actually cheaper than their last home because they were relocating from somewhere like San Francisco and Seattle.”

Source: 

“Homes With High Fire Risk Sell for Nearly $120,000 More Than Low-Risk Homes as Americans Flock to Fire-Prone Suburbia,” Redfin (June 6, 2022)

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Reprinted with permission

Mortgage Rates Jump Even Higher After Fed Hike

After the Federal Reserve raised its key short-term benchmark rate by another three-quarters of a percentage point on Wednesday, the average for the 30-year fixed-rate mortgage climbed to its highest level in 14 years, remaining above 6% and hitting more home buyers’ pocketbooks. It’s the fifth time this year the Fed has taken aggressive action to try to tame 40-year-high inflation.

The 30-year fixed-rate mortgage jumped a quarter of a percent this week to a national average of 6.29%, Freddie Mac reports.

While mortgage rates are not directly tied to the Fed’s fund rate, the Fed’s action does often trickle down in some ways to rates. Mortgage rates are more closely connected to 10-year Treasury yields, which surged to their highest level since 2011, Freddie Mac reports. That has prompted mortgage rates to double or more their levels of a year ago.

The monthly mortgage payment on a $400,000 loan is about $2,470 compared to $1,660 a year ago, the National Association of REALTORS® reports. Owners may be locked into their current loans as mortgage rates rise, and the 3% rates from last year may not be back anytime soon, Nadia Evangelou, NAR’s senior economist and director of forecasting, says on the association’s blog. “While the nation is suffering from a severe housing shortage, lower mobility can make housing inventory even tighter and cause home prices to continue to escalate.”

“Rising mortgage rates have continued to slow housing market demand, resulting in slowing sales and slower home price appreciation,” adds Ruben Gonzalez, chief economist at Keller Williams. Indeed, existing-home sales slipped further in August, down about 20% compared to a year ago, NAR reported this week. NAR Chief Economist Lawrence Yun has blamed softening sales on escalating mortgage rates.

Freddie Mac reports the following national averages with mortgage rates for the week ending Sept. 22:

• 30-year fixed-rate mortgages: averaged 6.29%, with an average 0.9 point, up from 6.02% last week. Last year at this time, 30-year rates averaged 2.88%.
• 15-year fixed-rate mortgages: averaged 5.44%, with an average 1 point, rising from last week’s 5.21% average. A year ago, 15-year rates averaged 2.15%.
• 5-year hybrid adjustable-rate mortgages: averaged 4.97%, with an average 0.4 point, rising from last week’s 4.93% average. A year ago, 5-year ARMs averaged 2.43%.

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

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NAR Helps White House Brainstorm Inventory Solutions

Raising the alarm about the nation’s housing supply crisis, Leslie Rouda Smith, president of the National Association of REALTORS®, told policymakers at a White House meeting Wednesday that the U.S. is short 5.5 million homes to meet the needs of its population—and that’s creating new affordability challenges for millions of Americans.

“Housing supply is the number one issue for millions of consumers who are locked out of the market,” Rouda Smith said following the meeting, which included other housing leaders who also stressed possible solutions to overcome the shortage. “I conveyed to the administration and my colleagues our support for a comprehensive plan that includes investment in new construction, zoning reforms, expansion of financing, and tax incentives to spur investment in housing and convert unused commercial space to residential.”

The White House meeting also included National Economic Council Director Brian Deese, Domestic Policy Council Director Ambassador Susan Rice, Housing and Urban Development Secretary Marcia Fudge and Federal Housing Finance Agency Director Sandra Thompson. Leaders from other housing industry organizations also were present, including the Mortgage Bankers Association, National Association of Home Builders, National Multi-Housing Council and National Fair Housing Alliance.

During the meeting, housing officials highlighted legislative, administrative, private sector, and state and local actions needed to address housing supply and affordability. “Discussions like this are critical to raising awareness about housing affordability,” Rouda Smith said. “Middle-income, first-time and first-generation home buyers feel the most impact of this supply shortage as they face greater obstacles in the current economic climate.”

NAHB CEO Jerry Howard said the nation is facing a growing housing affordability crisis and the meeting with top administration officials came at a critical time to address how to move the housing market forward and boost the economy. Among the calls for solutions, Howard said builders have urged the administration to create policies to ease supply chain problems, which they’ve said contribute to construction delays and higher home building costs.

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Existing-Home Sales Slip Again

Existing-home sales slipped further in August as economists blame the “housing recession” mostly on higher mortgage rates, though home prices continue rising, according to newly released data from the National Association of REALTORS®. But while existing-home sales, which reflect transactions for single-family homes, townhomes, condos, and co-ops, fell a modest 0.4% month over month in August, they’re down about 20% compared to a year ago.

“The softness in home sales reflects this year’s escalating mortgage rates,” says NAR Chief Economist Lawrence Yun. “Nonetheless, homeowners are doing well, with near-nonexistent distressed property sales, and home prices are still higher than a year ago.”

Home prices rose 7.7% in August compared to a year ago, according to NAR. The median existing-home sales price for all housing types increased to $389,500, with every major region of the U.S. posting hikes in home prices last month. But August did mark the second consecutive month in which the median sales price dropped from its record high of $413,800 from June. NAR’s report notes that follows a typical seasonal drop in home prices after they peak in early summer.

Here are additional key indicators from NAR’s August housing report:

• Days on the market: Eighty-one percent of homes were on the market for less than a month. Properties typically remained on the market for 16 days, down from 17 days a year ago.
• Housing inventory: Fell 1.5% month over month but is unchanged from last year’s levels. Unsold inventory is at a 3.2-month supply at the current sales pace. “Inventory will remain tight in the coming months and even for the next couple of years,” Yun says. “Some homeowners are unwilling to trade up or trade down after locking in historically low mortgage rates in recent years, increasing the need for more new-home construction to boost supply.”

• All-cash sales: Accounted for about a quarter of transactions, up slightly from 22% a year ago. Individual investors and second-home buyers tend to make up the biggest bulk of cash sales. They purchased 16% of homes, which is up from 14% a year ago.
• First-time buyers: Comprised 29% of sales, holding steady from last month and a year ago.
• Distressed sales: Foreclosures and short sales comprised just 1% of sales, continuing a historically low level.

Regional Snapshot

Existing-home sales dropped on an annual basis in all four major regions of the U.S. in August. But month-over-month figures varied.

• Northeast: Existing-home sales rose 1.6% month over month, reaching an annual rate of 630,000. However, sales in the Northeast are down 13.7% from a year ago. Median price: $413,200, a 1.5% increase from August 2021.
• Midwest: Sales dropped 3.3% compared to the prior month, reaching an annual rate of 1.16 million. That’s down nearly 16% from August 2021. Median price: $287,900, up 6.6% from last year.
• South: Existing-home sales held steady month over month but were down 19.3% from a year ago. Sales reached an annual rate of 2.13 million. Median price: $356,000, an increase of 12.4% from August 2021.
• West: Sales rose 1.1% month over month but are down 29% compared to a year ago. Sales reached an annual rate of 880,000. Median price: $602,900, a 7.1% increase from last year.

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Builders Aim to Win Buyers Back

Even as demand for new homes fizzles—about a quarter of homebuilders are reducing their prices to attract more buyers as foot traffic falls—single-family construction jumped 3.4% in August, the Commerce Department reported Tuesday. Economists are calling it a “surprising bounce back” after five consecutive months of declines.

Still, builder sentiment fell in September to its lowest level since 2014, according to data from the National Association of Home Builders. Rising mortgage rates, which topped 6% last week, and construction delays due to supply chain disruptions are among builders’ top concerns, the NAHB’s report shows. More than half of builders surveyed say they are using incentives to bolster sales, including offering mortgage rate buydowns, free amenities and price reductions, according to the NAHB/Wells Fargo Housing Market Index.

Talking Points to Calm Consumers’ Housing Bubble Fears

Lawrence Yun, chief economist for the National Association of REALTORS®, lays the blame for the new-home market’s slump squarely on mortgage rates. “However, this month’s increase in housing starts implies that builders still see profit opportunities, even as they concede on prices,” Yun says. “Material prices, including for lumber, have been moderating, and fully completed homes are selling fast.” Unfinished homes that remain under construction are the ones sitting on the market for long periods, Yun adds.

The NAHB agrees with Yun’s assessment. “Buyer traffic is weak in many markets as more consumers remain on the sidelines due to high mortgage rates and home prices that are putting a new-home purchase out of financial reach for many households,” says Jerry Konter, the NAHB’s chairman. “In another indicator of weakening market, 24% of builders reported reducing home prices, up 19% last month.”

NAHB Chief Economist Robert Dietz adds that the “housing recession” shows few signs of abating as builders continue to grapple with elevated construction costs and buyers now face 6% mortgage rates.

Home building permits—a gauge of future construction—fell in August to the slowest pace in more than two years, the Commerce Department reports.

Multifamily Properties Continue to Shine

Meanwhile, multifamily construction climbed to its best monthly performance in 35 years. “Apartment demand has been strong, with rents rising at a historically high pace,” Yun says. “Those consumers unable to qualify for a mortgage at higher interest rates are renewing their rental leases. Job creation is also boosting the rental demand.” Construction on multifamily dwellings surged 28% in August to an annual pace of 640,000 units, the Commerce Department reports.

Still, builders remain worried. The Federal Reserve meets on Wednesday and is expected to raise its benchmark interest rate by another 75 basis points in an effort to tame inflation. Housing analysts are concerned about the further impact that could have on mortgage rates.

However, some economists point to the stubborn housing shortage as a saving grace that could keep the real estate market from a deep downturn. By some estimates, the nation was short about 5 million homes before the onset of the pandemic. “The shortage is not going away soon,” Yun says. “The near-term single-family outlook is complicated due to high mortgage rates. But the long-term outlook for homebuilders is bright due to the need to build more to fully relieve the housing shortage.”

©National Association of REALTORS®
Reprinted with permission