NAR: Contract Signings, Down Again, May Have Hit Bottom

Home buyers continue to recoil from higher mortgage rates and home prices, with pending home sales in July plummeting nearly 20% year over year, according to data from the National Association of REALTORS® released Wednesday. Though summertime is traditionally busy for the real estate market, contract signings across all regions of the country were down by double-digit percentages annually, the data shows. The West has seen the most market contraction, with pending home sales down 30%.

Pending home sales have fallen in eight of the last nine months as the market retreats from its pandemic highs. Still, NAR Chief Economist Lawrence Yun says a turnaround is likely. “In terms of the current housing cycle, we may be at or close to the bottom in contract signings,” he says. “This month’s very modest decline reflects the recent retreat in mortgage rates. Inventories are growing for homes in the upper price ranges, but limited supply at the lower price points is hindering transaction activity.”

Affordability is taking a big hit, too, plunging in June to its lowest level since 1989, NAR reports. Rising mortgage rates have made home loans more expensive, adding to the cost of homeownership. The typical monthly mortgage payment was nearly $2,000 in June, up 54%—or $679—compared to just one year ago. “Home prices are still rising by double-digit percentages year over year, but annual price appreciation should moderate to the typical rate of 5% by the end of this year and into 2023,” Yun says. “With mortgage rates expected to stabilize near 6% alongside steady job creation, home sales should start to rise by early next year.”

©National Association of REALTORS®
Reprinted with permission

New-Home Sales Plummet as Rising Costs Sideline More Buyers

Just a year ago, homebuilders were overflowing with new contracts and, at times, raffling off their few remaining lots to wait-listed buyers. But since then, buyer traffic has slowed significantly as costs have soared. Rising mortgage rates and high inflation have crashed the homebuilding party.

New-home sales in July reached their slowest pace in six years, the Department of Housing and Urban Development and the Census Bureau reported Tuesday. New single-family home purchases declined 12.6% month over month and were down nearly 30% from a year earlier. “The disappointing sales pace mirrors an ongoing decline in builder sentiment as elevated mortgage rates and higher construction costs are pushing more consumers out of the market, particularly entry-level buyers,” says Jerry Konter, chairman of the National Association of Home Builders.

It’s yet another sign of a sudden plunge in the new-home sector. Housing starts for single-family construction projects dropped 10% year over year in July; mortgage applications for new-home purchases fell 16.1% the same month; and homebuilding sentiment dipped for the eighth straight month in August. The number of buyers backing out of new-home contracts also is growing: Homebuilder cancellation rates have more than doubled since April, according to John Burns Real Estate Consulting. In July, 17.6% of builder contracts fell through, compared to 8% in April.

Homebuilding contracts tend to have longer construction timelines that can stretch six months or more. And while buyers who signed a contract earlier this year may have been banking on locking in a low mortgage rate, those rates have nearly doubled since the beginning of 2022. Last week, the 30-year fixed-rate mortgage averaged 5.13%, and the rise in borrowing costs has added hundreds of dollars to monthly mortgage payments.

Still, new-home prices continue to stretch higher despite the recent pullback in sales. The median price for a new home in July climbed nearly 6% compared to the previous month, reaching $439,400. One culprit: Building materials have jumped 35.7% since January 2020. “The sharp drop in new-home sales is another clear indicator that housing is in a recession,” says Danushka Nanayakkara-Skillington, the NAHB’s assistant vice president for forecasting and analysis. “The combination of higher prices and increased interest rates are generating a notable slowing of the housing market.”

Inventory for newly constructed single-family homes was at a 10.9-month supply in July, up a whopping 81.7% from a year earlier. However, of 464,000 units nationwide, only 45,000 are completed and ready to occupy; the remainder is still under construction, according to government data. Last week, Lawrence Yun, chief economist for the National Association of REALTORS®, signaled some optimism for the new-home market’s long-term outlook. “Homebuilders are naturally very cautious about rising unsold inventory during the construction phase,” Yun says. “But those completed homes are finding buyers within three months, which is relatively swift for the new-home market. Improving conditions within the supply chain for the delivery of items such as lumber and appliances will lessen overall uncertainty.”

©National Association of REALTORS®
Reprinted with permission

Homes Haven’t Been This Unaffordable Since 1989

The average monthly mortgage payment jumped 54% year over year in June while the median household income rose only 5.8%, according to the National Association of REALTORS®’ Housing Affordability Index. As home affordability weakened and the median home price shot to a record $413,800 in June, NAR’s index fell to its lowest reading in 33 years. “Home prices have increased at a pace that far exceeds wage gains, especially for low- and middle-income workers,” NAR Chief Economist Lawrence Yun said recently.

Housing affordability “dramatically tumbled” in the second quarter amid rising mortgage rates and climbing home prices, NAR data shows. Monthly mortgage payments on a typical existing single-family home surged by nearly a third compared to the first quarter and by half compared to a year earlier. The 30-year fixed-rate mortgage has nearly doubled in that time. Although rates stabilized somewhat this month, they remain significantly higher than a year ago.

The average monthly mortgage payment rose to $1,944 in June from $1,265 a year earlier—a $679 difference, NAR notes. The annual mortgage payment as a percentage of income rose to 25.4%; most financial experts consider housing payments that exceed 25% of income to be unaffordable. “Monthly mortgage payments have soared compared to last year, and rising home prices are not helping affordability conditions,” Michael Hyman, a research data specialist at NAR, notes on the association’s Economists’ Outlook blog. “One good sign for the housing market is a welcome increase in the supply of inventory. Another is that rates recently have cooled, slowing the pace of growing monthly mortgage payments.”

Housing affordability posted double-digit declines in June compared to a year ago in all four major regions of the U.S. The Midwest was the most affordable region, with a median household income of $90,650 but a qualifying income of $68,496 needed to buy a median-priced home in the area.

On the other hand, the least affordable region continues to be the West, where the median family income was $98,498 but a qualifying income of $141,552 was needed to purchase a median-priced home. This marks the fourth consecutive month the Western region posted a reading on NAR’s affordability index below 100, which means a family earning the median income in the region can’t afford a median-priced home.

©National Association of REALTORS®
Reprinted with permission

Mortgage Rates Settle In the 5% Range

Mortgage rates appear to be settling in the 5% range after recent dramatic climbs that shocked home buyers. The 30-year fixed-rate mortgage averaged 5.13% this week, down slightly from its 5.22% average a week ago, Freddie Mac reports.

Mortgage rates peaked at 6% in early June, which prompted a pullback in housing demand. However, “home sales may soon stabilize since mortgage rates have fallen to near 5%, thereby giving an additional boost of purchasing power to home buyers,” says Lawrence Yun, chief economist for the National Association of REALTORS®.

Inflation appears to have peaked, which has stopped the rapid increase in mortgage rates, says Sam Khater, Freddie Mac’s chief economist. “The market continues to absorb the cumulative impact of the large price and rate increases that led to a plunge in affordability,” Khater says. “As a result, over the rest of the year, purchase demand likely will continue to drag, supply will modestly increase and home price growth will decelerate.”

Total mortgage demand fell to its lowest level in 22 years last week, the Mortgage Bankers Association reports. A big contributor is falling refinance applications, as homeowners have less incentive to refinance due to higher rates. Still, mortgage applications to purchase a home are 18% lower than a year ago as more buyers step away due to higher mortgage rates and inflation, the MBA reports.

Freddie Mac reports the following national averages with mortgage rates for the week ending Aug. 18:

• 30-year fixed-rate mortgages: averaged 5.13%, with an average 0.8 point, falling from last week’s 5.22% average. Last year at this time, 30-year rates averaged 2.86%.
• 15-year fixed-rate mortgages: averaged 4.55%, with an average 0.7 point, dropping from last week’s 4.59% average. A year ago, 15-year rates averaged 2.16%.
• 5-year hybrid adjustable-rate mortgages: averaged 4.39%, with an average 0.3 point, dropping from last week’s 4.43% 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 the mortgage.

©National Association of REALTORS®
Reprinted with permission

Mortgage Rates Rocket Back Above 5%, But Market ‘Stabilizing’

Home buyers are having difficulty gauging opportunities to save on a property purchase as mortgage rates become more volatile. The average for the 30-year fixed-rate mortgage swung above 5% again this week, clocking in at 5.22%, Freddie Mac reports. Last week, the average for the 30-year fixed-rate mortgage was 4.99%. However, rates may not go much higher: Lawrence Yun, chief economist for the National Association of REALTORS®, says falling inflation in July may suggest mortgage rates are topping out.

“Although rates continue to fluctuate, recent data suggest that the housing market is stabilizing as it transitions from the surge of activity during the pandemic to a more balanced market,” says Sam Khater, Freddie Mac’s chief economist. “Declines in purchase demand continue to diminish while supply remains fairly tight across most markets. The consequence is that house prices likely will continue to rise, but at a slower pace for the rest of the summer.”

The National Association of REALTORS® reported this week that housing affordability decreased precipitously in the second quarter, driven by a sharp rise in rates and double-digit home price increases. The average monthly mortgage payment on a typical existing single-family home (assuming a 20% down payment) climbed to $1,841, marking an increase of $444 compared to the first quarter.

Households are spending 24.3% of their income on mortgage payments, up from 16.9% a year ago, according to NAR data. First-time home buyers are getting hit hardest, typically spending about 37% of their household income on mortgage payments. Most financial experts consider households to be cost-burdened when they spend more than 25% of their income on housing.

Freddie Mac reports the following national averages with mortgage rates for the week ending on Aug. 11:

• 30-year fixed-rate mortgages: averaged 5.22%, with an average 0.7 point, rising from last week’s 4.99% average. Last year at this time, 30-year rates averaged 2.87%.
• 15-year fixed-rate mortgages: averaged 4.59%, with an average 0.7 point, increasing from last week’s 4.26% average. A year ago, 15-year rates averaged 2.15%.
• 5-year hybrid adjustable-rate mortgages: averaged 4.43%, with an average 0 point, increasing from last week’s 4.25% average. A year ago, 5-year ARMs averaged 2.44%.

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

©National Association of REALTORS®
Reprinted with permission

Vulnerability to a Cyberattack Could Land You in Court

You’re putting your livelihood at risk if you’re “asleep at the wheel” when it comes to creating a data security plan, especially as the real estate industry faces growing cyberthreats, says Maame Nyamekye, staff attorney at the National Association of REALTORS®, in NAR’s latest “Window to the Law” video. The impact of a cyberattack on your business could be great: “A data security breach could potentially hurt your business financially, lead to a lawsuit and tarnish your reputation,” Nyamekye says.

Still, many businesses are unprepared. Only 35% of companies have programs in place to detect, prevent and respond to fraud threats, according to a survey earlier this year by tax services firm KPMG. “Fraud, compliance risk and cyberattacks are increasing at an alarming rate, eating away profits across the U.S.,” says Amanda Rigby, forensic service network leader at KPMG. “Collectively, these issues create a ‘threat loop,’ which can quickly overwhelm companies with economic loss, regulatory loss and reputation loss. Despite the potential for calamity, the majority of U.S. companies are not ready to fight the threat loop.”

Get Smart

• 5 Signs Your Device Is Infected With a Virus
• Quiz: Test Your Cybersecurity Know-How
• Being Your Clients’ Frontline Defense Against Fraud
• 6 Steps to Secure Your Router Against Cyberattacks

In the video, Nyamekye highlights what brokers and agents can do to minimize their risk in the event of a data security breach. The tips are based on Federal Trade Commission principles for creating a data security plan. Nyamekye urges members to:

1. Take stock of the information your brokerage handles and where it’s being stored. You also need to know who in the company has access to what.
2. Have a retention policy outlining what information your company will retain and for how long based on legal requirements and your business’s needs, Nyamekye says. At least 35 states have laws addressing the proper disposal of personal information.
3. Be proactive in having safety measures in place both for your technology and physical space to protect any sensitive information and prevent unauthorized access.

Get all of Nyamekye’s tips in the latest “Window to the Law.”

©National Association of REALTORS®
Reprinted with permission

Inventory Issues Block Foreign Investors

Worsening housing affordability and stubborn inventory shortages are not only pushing more Americans out of the real estate market but also blocking many foreign investors from purchasing homes in the U.S., according to the National Association of REALTORS®’ newly released 2022 Profile of International Transactions in U.S. Residential Real Estate.

The annual number of home purchases in the U.S. by foreign buyers was the lowest on record in the 12 months from April 2021 to March 2022, the report shows. International buyers purchased 98,600 U.S. homes in that time, marking a 7.9% drop from the previous year and the lowest number since NAR began tracking such data in 2009. This is the second straight year of steep declines in foreign investment in the U.S. since the COVID-19 pandemic began. NAR Chief Economist Lawrence Yun notes that “restrictions and general caution tied to international travel during the pandemic” continue to hinder demand from abroad. However, he adds, affordability and inventory challenges were the top issues cited by international buyers who decided not to purchase a home in the U.S.

Despite fewer sales, the overall dollar value of foreign home purchases in the U.S. has spiked because of record-high home prices. Foreign investors purchased $59 billion worth of U.S. real estate from April 2021 to March 2022, an 8.5% increase from the previous year, according to NAR’s report. The average and median purchase prices for international buyers have increased 17.7% year over year and reached record highs—$598,200 and $366,100, respectively. (In that same time period, the overall median price for an existing home jumped 10% to $374,300, NAR data shows.) Chinese buyers paid the highest average purchase price at just over $1 million, according to NAR’s report. Nearly one-third of Chinese buyers purchased property in California.

Foreign investors tend to be more insulated from volatility in the U.S. market and likely will return in greater numbers in the future, even as the economy softens here at home, Yun says. “Due to rising interest rates, overall home sales will decline in the U.S. this year,” he notes. “Foreign buyers, however, are likely to step up purchases, as those making all-cash offers will be immune from changes in interest rates. In addition, international flights have increased in recent months with the lifting of pandemic-related travel restrictions.”

A Snapshot of Foreign Buyers

The most number of international buyers in the U.S. from April 2021 to March 2022 came from Canada and Mexico. But Chinese and Canadian buyers spent the most, according to NAR’s report.

• Canada: 11% of foreign buyers, $5.5 billion in residential sales
• Mexico: 8%, $2.9 billion
• China: 6%, $6.1 billion
• India: 5%, $3.6 billion
• Brazil: 3%, $1.6 billion
• Colombia: 3%, $1 billion

Florida was the top U.S. destination for international buyers for the 14th year in a row, accounting for 24% of foreign purchases between April 2021 and March 2022, according to NAR’s report. The following are the states that saw the largest shares of foreign purchases in that time period:

• Florida: 24%
• California: 11%
• Texas: 8%
• Arizona: 7%
• New York: 4%
• North Carolina: 4%

Additional findings from NAR’s report on international transactions:

• Forty-four percent of foreign home buyers paid cash, nearly double the rate of all existing-home buyers (24%). Nearly 70% of Canadian buyers made all-cash purchases, the highest share among foreign buyers, while Asian Indian buyers were the least likely to pay cash (9%).
• Forty-four percent of foreign buyers purchased property to use as a vacation home, rental or both.
• The top reasons foreign buyers cited for deciding not to purchase a home in the U.S. were the cost of the property (65%); the inability to find a property to purchase (57%); the inability to obtain financing, or being unable to qualify for a mortgage (24%); and property taxes (21%).
• Foreign buyers who resided in the U.S. as recent immigrants or who were holding visas purchased $34.1 billion worth of U.S. real estate, a 5.2% increase compared to the previous year. These buyers accounted for 58% of the dollar volume of purchases.
• Foreign buyers who lived abroad purchased $24.9 billion worth of U.S. real estate, up 13.2% from the prior year and accounting for 42% of the dollar volume.

©National Association of REALTORS®
Reprinted with permission

Volatility in Mortgage Rates as Recession Fears Grow

Mortgage rates are showing volatility as the economy slows and recession fears take center stage. The 30-year fixed-rate mortgage rose to an average of 5.51% this week, up from 5.3% last week, according to Freddie Mac.

Home buyers are facing rising costs across the spectrum. Inflation shot to a new 40-year high in June and is accelerating even faster than expected, according to Consumer Price Index data released Wednesday, raising the prospect of a recession. The CPI jumped 9.1% last month, leading to a spike in grocery costs, record-high gas prices, and escalating rents. To boot, monthly mortgage payments soared 51% higher year over year, according to data from the National Association of REALTORS®. The median price for an existing home rose 14.6% year over year in May.

“With the potential of a more aggressive rate hike from the Federal Reserve at the end of the month, mortgage rates will likely rise even further,” says Nadia Evangelou, NAR’s senior economist and director of forecasting. “However, even with this increase, mortgage rates will continue to be historically low—below 8%—in 2022.”

Each bump upward in mortgage rates is being felt hard by home buyers. “Mortgage rates are volatile as economic growth slows due to fiscal and monetary drags,” says Sam Khater, Freddie Mac’s chief economist. “With rates the highest in over a decade, home prices at escalated levels and inflation continuing to impact consumers, affordability remains the main obstacle to homeownership for many Americans.”

Freddie Mac reports the following national averages with mortgage rates for the week ending July 14:

• 30-year fixed-rate mortgages: averaged 5.51%, with an average 0.8 point, increasing from last week’s 5.30% average. Last year at this time, 30-year rates averaged 2.88%.
• 15-year fixed-rate mortgages: averaged 4.67%, with an average 0.8 point, also rising from last week’s 4.45% average. A year ago, 15-year rates averaged 2.22%.
• 5-year hybrid adjustable-rate mortgages: averaged 4.35%, with an average 0.2 point, increasing from last week’s 4.19% average. A year ago, 5-year ARMs averaged 2.47%.

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

©National Association of REALTORS®
Reprinted with permission