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The housing market has been gaining strength in the last few years -- particularly during the COVID-19 pandemic. Home values soared, buyer demand jumped, and mortgage rates hit historic lows. And ultimately, it’s made housing one of the few bright spots during an otherwise difficult time.
But the housing market is always in flux, and real estate trends come and go. Throw in that this industry is highly localized, with different conditions in every city, state, and metro area, and you can’t bet on things staying stagnant for long.
Fortunately, understanding the fundamentals of the market can help you stay on top of all these changes. Check out some of those fundamentals below, and scroll down for the most up-to-date real estate trends of the month.
Real estate prices
House prices are influenced by a number of factors, including local buyer demand and the amount of housing supply that’s available for purchase. Generally speaking, high demand and low supply cause housing prices to rise.
Mortgage rates can also play a role since they impact demand. When rates are lower, there tends to be more interest in buying homes. When rates rise, demand might wane a bit.
At the national level, home prices have been rising for some time. As of the end of 2020, the median home price was just under $347,000. Home prices jumped 11% across 2020 alone.
Affordability isn’t just a result of house prices. Incomes, inflation, and interest rates also play a role. So rising prices? They don’t always mean homes are getting less affordable. If rates are particularly low or incomes are increasing, homebuyers might actually be able to afford more house than they could have previously.
Fortunately, that’s exactly the scenario we’re seeing today. When factoring in rates, income trends, and inflation, consumer house-buying power was actually up 21% by the end of 2020.
Mortgage interest rates play a big role in the housing market, impacting demand, home prices, and affordability. They also fluctuate daily based on a whole slew of factors, including Federal Reserve policy, the bond market, investor interest in mortgage-backed securities, and, of course, inflation.
In early 2021, mortgage rates hovered around all-time lows, according to Freddie Mac. The average rate on a 30-year, fixed-rate mortgage was just 2.74% in January, up from 3.62% the year before and 4.76% a decade prior.
Housing inventory -- or the supply of homes that are currently available for purchase -- is another important factor in the housing market, too. When inventory is low and demand is high, it creates a seller’s market. Home prices rise, bidding wars erupt, and sellers have the upper hand in negotiations.
If inventory is high, on the other hand, buyers tend to have the advantage. In a buyer’s market, there are more available listings than there are buyers to purchase them. This slows down price growth and makes the market less competitive overall.
As far as today's inventory goes, supply has been very low in recent years, and the coronavirus pandemic only worsened things. With sellers leery about having strangers in their homes -- not to mention loads of economic uncertainty -- the number of for-sale listings plummeted in 2020, at one point reaching its lowest level ever recorded. Listings have since recovered slightly but still remain fairly low. It’s possible widespread vaccinations will help loosen supply constraints and get sellers back on the market, but, of course, only time will tell.
Delinquencies and foreclosures
Mortgage delinquencies and distressed properties like foreclosures and REOs are another part of the market to pay attention to, especially if you’re an investor. Both of these tend to rise in times of economic hardship. (Case in point: During the financial crisis over a decade ago, there were around 3.8 million foreclosures.)
Though the pandemic has certainly caused some economic trouble -- not to mention plenty of job loss -- the same isn’t occurring this time around. That’s thanks to a variety of foreclosure bans (one from the White House for government-backed properties and another from the Federal Housing Finance Agency for those with Fannie Mae- and Freddie Mac-owned loans). As of early 2021, foreclosures were actually down 80% due to these measures.
Housing market cycles and crashes
Real estate, along with the overall economy, tends to be cyclical. There are booms and busts, and as we saw with the housing crash back in 2007-2008, some of these extremes can get pretty bad.
Fortunately, most experts don’t think we’re nearing another crisis just yet. Though the economy is in a recession, there are a few key differences in today’s housing market versus those of downturns past.
For one, property owners have record levels of equity. Between Q3 2019 and Q3 2020, homeowner equity jumped by $1 trillion, and according to recent data, a mere 3% of properties have negative equity. This equity protects borrowers in the event their homes lose value, giving them a sort of buffer if the market turns.
Lending standards are also stricter than they once were, so homeowners likely have fewer debts and better credit profiles; overall, they're more financially equipped to handle the mortgages they’ve taken out. On top of all this, there are low interest rates to consider. The Federal Reserve has committed to keeping the federal funds rate around zero until at least 2023. This should keep mortgage rates low and housing demand high for the foreseeable future.
Top real estate trends for April 2021
Now that you understand the basics of today’s housing market, let’s take a look at some more timely trends going on across the country -- specifically ones impacting investors, house flippers, and rental property owners.
1. Mortgage rates are rising
Mortgage rates started out the year around all-time lows, but over the past month or so, they’ve started trending upward. According to Freddie Mac (OTCMKTS: FMCC), the average 30-year mortgage rate sat at 3.18% as of April 1 -- up from 2.65% in early January.
Rates on 15-year fixed-rate loans are up, too, clocking in at 2.45% -- an increase of almost 30 basis points since the start of the year. See below for a good look at rate trajectories over the last year (blue is 30-year rates; green is 15-year ones).
Data source: Freddie Mac.
Coupled with increasing home prices, these rate jumps are making homes less affordable every week. As an example: On a $300,000 home, a 2.65% rate on a 30-year loan (the average in early January), would give you a monthly payment of $1,208. At today’s rate of 3.18%? The payment would clock in at $1,294 -- nearly $90 more.
To be fair, rates are still historically low. Back in 2019, rates were well into the 4% range at one point, and in 2008 and 2009, annual averages were 5% and 6%. That’s a far cry from what buyers are seeing these days, so a little jump in rates this spring? It’s probably not the end of the world for most investors -- especially for those who have been in the game for a while.
2. COVID-19 relief measures are getting extensions
With coronavirus vaccinations getting more widely distributed, there’s definitely a light at the end of the tunnel pandemic-wise. But it's not over yet, though, and the government is still taking steps to alleviate the economic struggle the coronavirus pandemic has caused for many Americans.
This includes extending various housing-related measures, like the eviction ban, mortgage forbearance options, and various foreclosure moratoriums. The most recent update came from the Centers for Disease Control just this week, when the agency extended its rental property eviction ban through June 30. It was previously set to run out at the end of March.
Though the ban technically comes with a $100,000 to $500,000 fine, many landlords have moved forward with evictions anyway. Some have taken legal action against the CDC, too, and a Texas judge ruled the ban unconstitutional. The Department of Justice filed an appeal, but for now, the measure still stands, and landlords will need to comply if they don’t want to risk facing hefty fine and penalties.
3. Buyer demand is waning
Homebuyer demand spiked not long after the pandemic began, sending home prices upward and inventory to record lows. In looking at recent mortgage data, it appears that trend has finally slowed.
According to Freddie Mac, buyer demand sat at 25% above pre-COVID levels this January. Now? It’s just 8% above those numbers.
Here’s how Freddie Mac summed it up: “We even see that purchase demand is diminished today as compared to late May and early June of 2020 -- when mortgage rates were the same level. This is confirmation that while purchase demand remains strong, the marginal buyer is feeling the affordability squeeze resulting from the increases in mortgage rates and home prices we've experienced in recent months.”
Data from the Mortgage Bankers Association backs this up, too. The organization’s recent Mortgage Applications Survey shows purchase loan activity fell 1% in just the last week of March. (It’s still 39% higher than a year ago, though, so don’t expect bidding wars to disappear anytime soon!)
4. Inventory is still low -- really low
Purchase demand might be waning a bit, but it hasn’t done much to help the market’s supply issue just yet. In fact, according to Realtor.com data, the number of total home listings is down 52% compared to this time last year. Newly listed homes are down 20%.
Both decreases are larger than dips seen in February and indicate that the inventory problem -- which is driving up home prices and causing hot competition -- is probably here to stay for a while.
The issue is the worst in the South, where listings in large metros have decreased nearly 60% year over year. At the market level, Austin, Texas, has it bad with a 72.7% drop, and in Jacksonville, Florida, and Raleigh, North Carolina, it’s not much better. Both cities saw a more than 70% dip in listings year over year.
5. Foreclosures are picking back up despite moratoriums
According to ATTOM Data Solutions, foreclosure filings increased 16% between January and February, while foreclosure starts -- which indicate a lender has just begun the foreclosure process -- were up 15%.
Here’s how Rick Sharga, executive vice president of RealtyTrac, explained it: “The government’s moratorium bans foreclosures on government-backed loans for homeowners, and borrowers in the forbearance program are also protected from foreclosure actions, but loans on commercial properties, investment properties, and properties that are vacant and abandoned do not always have the same protections. This could be why we’re seeing a slight increase in foreclosure starts despite the government programs.”
Foreclosure starts were up the most in the following states:
- Utah (+230%)
- North Carolina (+73%)
- Michigan (+60%)
- Georgia (+58%)
- Mississippi (+54%)
On the county level, the most starts were seen in Los Angeles County, California; Utah County, Utah; Cook County, Illinois; Harris County, Texas; and Riverside County, California.
The bottom line
Whether real estate is your full-time business or just a hobby, staying on top of the ever-changing housing market is critical to your long-term success. Fortunately, we’re here to help with that. Check back here every month for the latest data and trends you need to make smart, profitable investing decisions.
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