Home buyers and homeowners got another chance this week to lock in historically low rates. The 30-year fixed-rate mortgage averaged 2.98%, Freddie Mac reports.

“Despite the re-acceleration of economic growth, the recent bond rally drove mortgage rates down for the second consecutive week,” says Sam Khater, Freddie Mac’s chief economist. “These low mortgage rates, combined with the tailwind of first-time home buyers entering the market, means that purchase demand will remain strong into next year. However, affordability pressures continue to be an ongoing concern for home buyers.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Nov. 10:

• 30-year fixed-rate mortgages: averaged 2.98%, with an average 0.7 point, dropping from last week’s 3.09% average. Last year at this time, 30-year rates averaged 2.84%.
• 15-year fixed-rate mortgages: averaged 2.27%, with an average 0.6 point, dropping from last week’s 2.35% average. A year ago, 15-year rates averaged 2.34%.
• 5-year hybrid adjustable-rate mortgages: averaged 2.53%, with an average 0.4 point, dropping from last week’s 2.54% average. A year ago, 5-year ARMs averaged 3.11%.

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

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The rapid rise in home prices over the past year is prompting Fannie Mae and Freddie Mac to revisit the maximum size of home mortgages they will back for 2022, possibly increasing to nearly $1 million in some areas, The Wall Street Journal reports.

That would mark a sharp jump compared to this year: The government-backed enterprises currently back single-family mortgages to $548,250 in many parts of the country and to $822,375 in pricier areas, such as California and New York.

The Wall Street Journal is reporting that the baseline levels are expected to jump to about $650,000 in many areas and to just under $1 million in high-cost areas.

However, the actual caps won’t be released by the Federal Housing Administration, which oversees Fannie Mae and Freddie Mac, until Nov. 30. The new limits would take effect in January 2022.

Freddie Mac and Fannie Mae update their loan limits annually. They use a formula that factors in average home price increases nationally.

Home prices have surged since the pandemic. The median single-family existing-home sales price jumped by 16% to $363,700 in the third quarter compared to a year earlier, according to the National Association of REALTORS®.

Fannie and Freddie guarantee about half of the $11 trillion mortgage market. Neither entity issues loans directly. Instead, they purchase loans from lenders and package them into securities that are then sold to investors. Mortgages within Fannie Mae and Freddie Mac’s limits are referred to as conforming loans.

Fannie Mae and Freddie Mac’s share of the mortgage market has comprised nearly 60% of all new mortgages during the pandemic, up from 42% in 2019, according to the Urban Institute.

Some housing analysts are expressing concern over Fannie Mae and Freddie Mac increasing their threshold prices and saying the government’s role in the mortgage market is becoming too big. But others in favor of the increases say that it helps borrowers in more expensive markets to be able to afford rising prices.

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Military families with Veterans Affairs loans are losing out in the competitive housing market. Sellers are showing preference to buyers with more conventional financing or all-cash offers that they believe will offer a faster and smoother closing.

Ninety-four percent of real estate professionals surveyed said sellers are most likely to accept an offer with conventional financing over a government-backed loan, according to an April 2021 survey conducted by the National Association of REALTORS®.

But sellers may have some outdated concerns over VA loans, Caitlin Turkovich, branch manager specializing in VA loans at Union Home Mortgage in Las Vegas, told CNBC. VA loans are partly guaranteed by the U.S. Department of Veterans Affairs and offer zero percent down financing.

“VA loans are actually the easiest to qualify for if you have entitlements,” Turkovich told CNBC. Entitlements refer to the amount the VA will repay if the borrower defaults.

Turkovich says buyers using VA loans should work with a lender who specializes in VA loans to help clear up possible misunderstandings and outline specifics in buyer preapproval letters.

Also, Turkovich says VA loan buyers can take other steps to try to stand out, like by making a 5% down payment. That matches the minimum for some conventional mortgages, and it also drops the VA loan funding fee from 2.3% to 1.65%, she notes.

VA loan buyers also may make their offer stronger by offering earnest money—such as 5% versus the standard 1%, Cedric Stewart, a real estate professional with Keller Williams in Rockville, Md., told CNBC. “The largest earnest money deposit is another instrument to communicate an ease in the relationship,” Stewart said.

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Rising mortgage rates don’t seem to be scaring off home buyers. Mortgage applications to purchase a home, viewed as a gauge of homebuying demand, increased 2% last week, the Mortgage Bankers Association reported Wednesday.

Homebuilders are reporting stronger buyer traffic too after a brief lull earlier this fall, according to a recent builder sentiment report released by the National Association of Home Builders.

“Purchase applications increased for both conventional and government loan segments, as housing demand continues to show resiliency at a time—late fall—when homebuying activity typically slows,” says Joel Kan, the MBA’s associate vice president of economic and industry forecasting. “The second straight increase in purchase applications suggests that stronger sales activity may continue in the weeks to come.”

Still, purchase applications for mortgages are 6% lower than the same week a year ago, when the housing market was even more unseasonably lively.

Mortgage rates are at their highest level in more than three weeks and continued to move higher at the start of this week, the MBA reports. The average contract interest rate for 30-year fixed-rate mortgages last week rose to 3.20%, up from 3.16% the previous week, the MBA reports. As rates rise, refinance demand has plummeted and is 31% lower than the same week a year ago.

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The 30-year fixed-rate mortgage was back above 3% this week, and economists believe rates will continue to increase over the next few months.

“The combination of rising inflation and consumer spending is driving mortgage rates higher,” says Sam Khater, Freddie Mac’s chief economist. “Shoppers looking to buy a home are fueling a strong demand while ongoing inventory shortages are not improving in the presence of higher home prices. This reality illustrates the challenging situation facing the housing market.”

The 30-year fixed-rate mortgage averaged 3.10% this week, Freddie Mac reports. The National Association of REALTORS® is forecasting that rates will increase to 3.50% by the middle of 2022.

“With more homes to hit the market and higher mortgage rates, expect the housing market to slow down in 2022 but remain above the pre-pandemic level,” Nadia Evangelou, NAR’s senior economist and director of forecasting, writes for the association’s blog.

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

• 30-year fixed-rate mortgages: averaged 3.10%, with an average 0.7 point, rising from last week’s 2.98% average. Last year at this time, 30-year rates averaged 2.72%.
• 15-year fixed-rate mortgages: averaged 2.39%, with an average 0.6 point, increasing from last week’s 2.27% average. A year ago, 15-year rates averaged 2.28%.
• 5-year hybrid adjustable-rate mortgages: averaged 2.49%, with an average 0.3 point, dropping from last week’s 2.53% average. A year ago, 5-year ARMs averaged 2.85%.

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

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Existing-home sales fared strongly in October even as buyers continued to complain there aren’t enough homes on the market. Existing-home sales, which are completed transactions for single-family homes, townhomes, condos, and co-ops, increased by 0.8% in October compared to September, the National Association of REALTORS® reported Monday. Compared to a year ago, however, sales are down 5.8%.

Meanwhile, the inventory of unsold homes fell by 12% in October compared to last year. A limited supply of homes for sale remains an ongoing issue for the housing market against continued strong demand among potential home buyers.

“Home sales remain resilient, despite low inventory and increasing affordability challenges,” says Lawrence Yun, NAR’s chief economist. “Inflationary pressures, such as fast-rising rents and increasing consumer prices, may have some prospective buyers seeking the protection of a fixed, consistent mortgage payment.”

Mortgage rates remain low, although rates are rising. The 30-year fixed-rate mortgage averaged 3.07% in October, up from 2.9% in September, according to Freddie Mac.

Here’s a closer look at key housing indicators from NAR’s latest housing report:

• Home prices: The median existing-home sales price rose 13.1% year over year to $353,900. Prices climbed in all four major regions of the U.S.
• Housing inventories: Total housing inventory at the end of October was 1.25 million units, down 0.8% compared to September. Unsold inventory sits at a 2.4-month supply at the current sales pace.
• Days on the market: Eighty-two percent of homes sold in October were on the market for less than a month. Properties typically remained on the market for 18 days in October, down from 21 days a year ago.
• First-time buyers: First-time buyers comprised 29% of sales in October, down from 32% a year ago.
• Investors and second-home buyers: Individual investors or second-home buyers comprised 17% of sales in October, up from 13% in September and from 14% in October 2020, NAR reports. Investors and second-home buyers tend to make up the biggest bulk of all-cash sales, which accounted for 24% of transactions in October.
• Distressed sales: Foreclosures and short sales accounted for less than 1% of sales in October, equal to October 2020.

A Regional Look at Home Sales

Two of the four major regions of the U.S. posted month-over-month increases in existing-home sales last month. Still, home sales remain strong in most parts of the country even as housing inventories remain low.

“Among some of the workforce, there is an ongoing trend of flexibility to work anywhere, and this has contributed to an increase in sales in some parts of the country,” Yun says. “Record-high stock markets and all-time-high home prices have worked to significantly raise total consumer wealth and, when coupled with extended remote work flexibility, elevated housing demand in vacation regions.”

Here’s how existing-home sales fared across the country in October:

• Northeast: Sales dropped 2.6% in October, reaching an annual rate of 750,000. That marks a 13.8% decline compared to October 2020. Median price: $379,100, up 6.4% from one year ago.
• Midwest: Sales increased 4.2% to an annual rate of 1.5 million in October, a 6.3% decrease compared to a year ago. Median price: $259,800, up 7.8% from October 2020.
• South: Sales rose 0.4% in October, posting an annual rate of 2.78 million, a 3.5% decrease compared to last year. Median price: $315,500, a 16.1% increase from a year ago.
• West: Sales remained stable in October compared to September, staying at an annual rate of 1.31 million. That is down 5.1% from one year ago. Median price: $507,200, up 7.7% from October 2020.

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National Association of REALTORS® President Leslie Rouda Smith testified before Congress Wednesday, encouraging lawmakers to further help veterans achieve the American dream of homeownership. The hearing before the House Committee on Veterans Affairs Subcommittee on Economic Opportunity brought together lawmakers and housing industry leaders to brainstorm ways to remove barriers specific to veteran homeownership.

“NAR has a tradition of service: 12% of our members are veterans or have a spouse or partner who is a veteran. That’s about 180,000 strong,” Rouda Smith said during her opening remarks. “The overarching theme in our policy solutions is to afford every veteran the opportunity to build wealth through homeownership.”

Rouda Smith highlighted the importance of strengthening the VA Home Loan Guaranty Program during her testimony, citing its benefits for borrowers and its role in closing the racial homeownership gap. “The VA Home Loan Guaranty program offers many unique benefits, including a zero down payment requirement,” said Rouda Smith. “VA loan delinquency rates are lower than FHA loans and comparable to conventional loans. With more than 90% of veterans choosing a no down payment option, this program shows that prudent underwriting and servicing is key.

“Sixteen percent of Black Americans received financing through the VA in 2018, compared to 9% of White Americans. Clearly, hurdles faced by VA borrowers will disproportionally impact home buyers of color. And, unfortunately, many elements of the VA loan program meant to protect veterans and service members are instead keeping them on the sidelines in today’s housing market.”

Following her testimony, Rouda Smith fielded questions from members of the committee and drew on her expertise as a 36-year real estate veteran in Texas. Committee Chairman Mike Levin (D-CA) brought up the appraisal process. “There are problems with the appraisal process, which can undermine the closing if it is longer than the review period,” Rouda Smith said. “VA appraisers are hard to come by, and the best way to solve that problem is to attract more appraisers to serve them. We need to pay them more.”

During the question-and-answer period of the hearing, Rouda Smith also had the opportunity to promote NAR’s Military Relocation Professional credential, which educates REALTORS® about working with U.S. service members and their families and veterans.

4 Recommendations

Rouda Smith spoke to NAR’s efforts to improve the homebuying process for veterans and offered lawmakers four policy recommendations:

1. Provide greater flexibility to make VA loan borrowers more competitive, noting one of the VA program’s most significant disadvantages has been the limitations on fees.
2. Oppose any increase in funding fees to offset costs associated with non-housing–related expenditures.
3. Ensure veterans and service members understand the advantages of a VA home loan through more robust marketing of the program.
4. Improve the home renovation and rehabilitation program.

Along with NAR, representatives from the U.S. Department of Veterans Affairs, Veterans of Foreign Wars, Veterans United Home Loans, and American Legion were present for the hearing.

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Economists predict slower price appreciation, easing inflation, and rising interest rates during NAR’s virtual Real Estate Forecast Summit.

While strong homebuyer demand and inventory shortages will continue into 2022, the housing market is unlikely to repeat this year’s dizzying heights, in which existing-home sales reached their highest point in 15 years with an estimated 6 million sales. Slower growth in home prices, decelerating inflation, and multiple interest rate hikes by the Federal Reserve could contribute to a more normal housing market in the new year, National Association of REALTORS® Chief Economist Lawrence Yun said Wednesday during NAR’s virtual Real Estate Forecast Summit. Yun presented a consensus real estate forecast based on a survey of 20 leading economists.

For 2022, the group of experts predicts that annual median home prices will increase 5.7% and inflation will rise 4%. “Overall, survey participants believe we’ll see the housing market and broader economy normalize next year,” Yun said. In addition, Yun expects existing-home sales will decline to 5.9 million in 2022 and housing starts will increase modestly to 1.67 million as the pandemic’s supply chain backlogs subside.

Housing Affordability Remains a Concern

Even if the market begins to settle down, affordability issues likely will continue to dampen homebuying prospects for many would-be owners. Housing affordability had already reached crisis levels before the pandemic added to the strain, said Todd M. Richardson, general deputy assistant secretary at the Department of Housing and Urban Development’s Office of Policy Development and Research.

However, the Biden administration’s Build Back Better plan offers several programs that have the potential to increase housing access for all. The bill provides $10 billion in down payment assistance for first-generation home buyers, $24 billion for housing choice voucher rental assistance, and $15 billion for the Housing Trust Fund to build and preserve over 150,000 affordable homes for low-income households. “Our programs are about unlocking possibilities,” said Richardson. “Support is needed most for housing in low- to moderate-income communities.”

Manufactured housing offers a potential source of inventory that could help ease the housing crunch. Affordable entry-level homes continue to be among the units in shortest supply, and modern manufactured housing—with its high-quality factory construction and lower per-unit cost—could help fill in some of the gaps, said Lesli Gooch, CEO of the Manufactured Housing Institute. In addition, manufactured homes could offer wealth-building opportunities for buyers. “Research by LendingTree shows that, from 2014 to 2019, the median value of manufactured homes increased by 40%—six points above site-built homes,” said Gooch.

Naa Awaa Tagoe, acting deputy director at the Division of Housing Mission and Goals at the Federal Housing Finance Agency, seconded the call for more affordable housing and shared her agency’s strategies in 2022 for increasing equitable access to homeownership and rentals. Appraisal efficiency, small-balance mortgage purchases and refinances, and low-income housing tax credits are among the division’s top priorities for 2022, said Tagoe.

Regional Differences Could Affect the Housing Market

Housing prices are likely to moderate nationwide, but regional variation could occur in 2022. Overpriced areas with lower predicted population growth will experience a greater slowing of prices compared to those with higher predicted growth, said Ken H. Johnson, associate dean of graduate programs at Florida Atlantic University. “Everyone will experience moderation, but there will be differences,” he said.

Strong building starts in the suburbs could be good news for first-time buyers. Businesses are competing for workers right now, said realtor.com® Chief Economist Danielle Hale, and that means buyers could have more flexibility in choosing where they live. In contrast to Yun, who saw “hidden gem real estate markets” in the South, Hale counseled would-be buyers to look further north. “The Mountain West, pockets of the Northeast, South, and Midwest are all locations where affordability creates incentives,” said Hale.

Demographics Offer Insight Into the Future

Jessica Lautz, NAR’s vice president of behavioral insights and demographics, offered highlights from the 2021 Profile of Home Buyers and Sellers, noting several demographic trends that will continue to affect the housing market into 2022 and beyond:

• Baby boomers want to age in place and will continue to hold onto their homes, contributing to the ongoing inventory shortfall.
• Millennials are the largest generation of potential buyers, but they face significant headwinds, such as low inventory, high prices, and student loan debt.
• A drop in the birth rate to a 100-year low could contribute to continued stagnation in the market: The birth of a child is often a motive to buy, and a child moving out is often an impetus to downsize and sell.

Commercial Offers Opportunities for Growth

Commercial experts on the panel offered their predictions for 2022:

• Multifamily: Rents will likely continue to increase, though part of that accounts for a continued correction from the declines in 2020. Rental units, like single-family homes, are in short supply, and ramping up construction could alleviate some of the strain.
• Industrial: Despite a drop in cap rates, industrial will continue to thrive, with retailers leasing more warehouse space to hold inventory and manufacturers increasing production in the U.S.
• Retail: Brick-and-mortar stores will attract foot traffic with innovations such as livestreaming of products, custom concierge services, and curated local offerings.
• Hotels and lodging: Hotels will continue to struggle with a labor shortage that is affecting capacity. The industry needs to get out the message that hotel jobs are steady, provide good pay, and offer upward mobility.
• Office: This sector is still in the middle of its recovery. The stage is set for growth in the second half of 2022, with central city cores emerging as important hubs for workers commuting from greater distances.

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