Mortgage Rates Could Hamper Affordability

About 87.5 million households are unable to afford a median-priced new home, according to data from the National Association of Home Builders. If the new-home market prices were to rise by just $1,000, an additional 117,932 would be priced out.

Mortgage rates also could further hamper household affordability. Many economists have predicted rates will rise over the course of this year.

NAHB researchers provide an example of how affordability erodes with rising rates: For a new home in 2022 with an estimated median price of $412,506 and a 30-year fixed-rate mortgage of 3.5%, an increase of one-fourth of a percentage point in the interest rate would price about 1.1 million households.

A table provided by the NAHB shows the number of households priced out of the market for a new home at the median price of $412,5050 based on fluctuations in interest rates.

Source: “Households Priced Out By Higher Interest Rates,” National Association of Home Builders’ Eye on Housing blog (March 7, 2022)

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Jumbo Loans Reach 16-Year High

Hoping to take advantage of mortgage rates that are still historically low, more Americans are pushing into higher mortgage levels to afford more expensive homes. Lenders reported that 2021 marked the highest dollar volume in jumbo loan originations since 2005. Jumbo loans are mortgages that exceed the loan limits of Fannie Mae and Freddie Mac.

Rates were cheaper last year, which gave buyers extra budgeting power. In 2021, mortgage rates on jumbo loans reached an all-time low.

The number of jumbo loans more than doubled in 2021 compared to the prior year, according to a new report from CoreLogic, a real estate data firm. The year-to-year comparison, however, is coming off very low numbers set in 2020 when the pandemic outbreak began in the U.S.

Still, jumbo-loan securitization in 2021 marked the largest issuance since 2007, according to CoreLogic.

Borrowers getting jumbo loans have better credit profiles than those buyers active during the housing bubble of 2005 and 2006, CoreLogic reports. Last year, borrowers with jumbo loans had an average credit score 30 points higher than that group in 2005 and 2006. Borrowers also had average loan-to-value and debt-to-income ratios that were 5 percentage points lower than those in 2005.

Jumbo loan originations are predicted to fall this year, however, as mortgage rates are expected to rise and home prices are forecast to moderate. Source: “2021: A Banner Year for Jumbo Loan Securitization,” CoreLogic (March 4, 2022)

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Office Occupancy Is Increasing

Employees are headed back to the office. After the pandemic caused many companies to encourage work-from-home policies for office workers, real estate indicators signal a reversal. As they return, companies want more space.

As of February, office occupancy continued to increase, with 84% of 390 metro areas seeing a rise, according to CoStar data. Since the third quarter of 2021, 30 million square feet of office space has been absorbed, which is on par with prepandemic levels, the National Association of REALTORS® reports.

Still, vacancies remain. About 100 million square feet of office space nationwide have been vacant since the start of the pandemic in the U.S. in 2020. Gay Cororaton, an NAR research economist, predicts that reabsorbing that office space could take through the end of 2024.

Over the past year, office occupancy gains were highest in Boston. On the other hand, New York, Chicago, and Washington, D.C., continue to see high vacancies.

“Occupancy is increasing in major tech metro areas,” Cororaton says on the blog. “The rising occupancy in these tech metro areas indicate that tech companies are contributing to the demand for office space, even as nationally, 45% of mathematical and computer workers work from home for at last some part of the time.“Commercial Weekly: Office Occupancy Rose in 84% of Metro Areas as of 2022 Q1,” National Association of REALTORS® Economists’ Outlook blog (Feb. 25, 2022)

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Reprinted with permission

High Heating Bills Stun Homeowners

Heating bills this winter have left many homeowners in sticker shock. The rising cost of fuel has made heating bills jump by from 5% to 50% this winter—a warning that federal agencies made last fall.

Still, in some regions, heating bills are higher than forecasters anticipated.

Money Magazine spoke to homeowners who reported heating bills double their 2021 levels in Minnesota, while In Wyoming, residents said their heating bills climbed by $100 or more compared to a year ago. Natural gas suppliers in Missouri, Mississippi, and Alabama said they raised prices by 96% this year.

“Natural gas prices have skyrocketed globally,” Megan McFarland, a spokesperson for Pacific Gas & Electric, told an NBC station in California. “We’ve seen a 90% higher cost than last winter. We’re not making any money off this situation.”

The higher utility bills can particularly affect low-income households, who tend to spend three times as much of their income on energy costs compared with the rest of the population, Money Magazine reports, citing Natural Resources Defense Council data. Programs are available to help low-income residents pay their energy bills. Learn more: Benefits.gov. Source: “‘I Gasped’: Abnormally High Heating Bills Are Outraging People Across the Country,” Money (Feb. 15, 2022); “‘It Stresses Our Family’: PG&E Customers Face Hefty Bill Increase,” KCRA-3 NBC (Feb. 8, 2022); and “Home Heating Costs Are Rising. Here Are 4 Ways to Lower Your Utility Bills,” Consumer Reports (March 3, 2022)

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Rates Drop Amid Russia-Ukraine Conflict

Mortgage rates fell again this week amid Russia’s invasion of Ukraine, sparking uncertainty across the globe including in U.S. markets. The 30-year fixed-rate mortgage dropped to a 3.76% average this week, Freddie Mac reports.

“Geopolitical tensions caused U.S. Treasury yields to recede this week as investors moved to the safety of bonds, leading to a drop in mortgage rates,” says Sam Khater, Freddie Mac’s chief economist. “While inflationary pressures remain, the cascading impacts of the war in Ukraine have created market uncertainty. Consequently, rates are expected to stay low in the short term but will likely increase in the coming months.”

The National Association of REALTORS® echoed that sentiment. Nadia Evangelou, NAR’s senior economist and director of forecasting, wrote on the association’s blog that rates likely will rise soon as the Fed remains on course to raise its short-term interest rates in order to control inflation.

Freddie Mac reports the following national averages with mortgage rates for the week ending March 3:

• 30-year fixed-rate mortgages: averaged 3.76%, with an average 0.8 point, dropping from last week’s 3.89% average. Last year at this time, 30-year rates averaged 3.02%.
• 15-year fixed-rate mortgages: averaged 3.01%, with an average 0.8 point, falling from last week’s 3.14% average. A year ago, 15-year rates averaged 2.34%.
• 5-year adjustable-rate mortgages: averaged 2.91%, with an average 0.3 point, dropping from last week’s 2.98% average. A year ago, the 5-year ARM averaged 2.73%.

Freddie Mac reports average commitment rates along with average points to better reflect the total upfront costs of obtaining the mortgage. Source: Freddie Mac and “Instant Reaction: Mortgage Rates, March 3, 2022,” National Association of REALTORS® Economists’ Outlook blog

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Homeowners Value Their Yards More

More than three-quarters of Americans who have a yard say the family yard space is one of the most important parts of their home, according to a poll of 1,700 consumers by the TurfMutt Foundation. Since the pandemic began, homeowners are showing more appreciation for their yards and spending more time in them, the poll found. 

What’s more, 72% of consumers say a spacious yard would be at the top of their wish list if they were searching for a new home. Homeowners are more willing to invest in their yards and are using them for everyday activities, including work-from-home office space, according to the survey.

“What we are seeing with Americans is greater reliance on the backyard as an extension of the home,” says Kris Kiser, president and CEO of the TurfMutt Foundation. “It’s not just a place that looks pretty—it’s a place to live and do daily activities such as working, dining, and relaxing. They’ve discovered that ‘backyarding’ is a better way to live and there’s no turning back. They are also willing to hire professionals and invest money into yard improvements.”

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Eighty-four percent of respondents say they plan to invest more in their yard in 2022, including by purchasing plants, trees, flowers, vegetables to plant; purchasing items to maintain or improve their grassy areas; and installing or updating hardscaping themselves, the survey shows. Other popular projects include interest in installing a fence (19%) or a shed (15%) or adding a swimming pool (10%).

Besides refocusing the yard space for entertaining, relaxing, or doing hobbies, a yard also has become a place to work from. Fifty-eight percent of respondents said they’ve spent time performing job-related functions in their yard during the pandemic, with men doing so more often than women. Source: TurfMutt

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