Existing home sales are still too hot

The National Association of Realtors reported that existing home sales for January were at 6,669,000, which beat estimates. The year-over-year growth was an impressive 23.7%. The median sales price also jumped 14.1% year over year, which I warned could happen during the years 2020-2024. On a recent HousingWire podcast, I discussed the need for higher mortgage rates to cool down this growth rate.

Currently, the 10-year yield is 1.35%, which is now above a critical level that I have talked about for some time. We should all be jumping for joy as the bond market shows the American bears that America is back. Mortgage rates should also creep higher. When the 10-year yield gets into the range of  1.33%-1.60%, we will have achieved our goal for the “America is Back”  economic model that I proposed last year, which I believe could only happen in 2021.

With the yield in that range, we can expect the mortgage rate to move up toward 3.375%. We still have a lot of work to do to earn the right to create this range in the bond market; the first would be hitting 1.60%, which we haven’t yet. The chart below shows the 10-year yield as of the close of Thursday. Today, bonds are selling off and yields are higher.

Mortgage rates are still meager, historically speaking, but 3.375% or higher may be enough to slow the home price growth rate – which, right now, is simply too hot. The days on the market went from 43 days last year to 21 days currently.

So far this year, the MBA purchase application data is running stronger than even I thought. This metric is a predictor trend of demand 30-90 days out. I believed the peak rate of growth in purchase applications would be around  11% year over year up until March 18th. It is trending at 13.1% this year, so we are off to a good start for 2021.

New home sales, existing home sales, and the builder’s confidence index that went parabolic towards the end of 2020 have stopped going up and started to fall.  The last report on new home sales shows that housing data moderates and moves back to the trend.

The monthly sales prints for existing home sales show that this metric has stopped its parabolic move higher, but it still has not moderated enough. We still have not  completely made up for the lost sales in 2020 due to COVID-19.  We should have ended 2020 with 5,710,000 -5,840,000 in existing home sales but only realized 5,640,000.  This number is only 130,000 higher than what we had in 2017, so this isn’t the booming speculative buying we saw during the height of the housing bubble years.

Once this makeup demand is exhausted, existing-home sales should moderate toward 6.2 million or even lower to get back to the trend. If existing home sales stay above 6.2 million on the monthly sales print for the entire year, we can consider the demand to be even better than expected.

For the rest of the year, the single most important and healthy event for the housing market would be higher mortgage rates to cool down home prices’ growth rate. We will see if mortgage rates rise high enough to cool demand and reduce the multiple bid situation we currently have in many markets.

Nobody wins when the housing market is too hot – not even sellers because they will need to find somewhere else to live. We have enough supply to grow sales to pre-cycle highs, but when choices are limited, the willingness to sell and move becomes less attractive.

Source: housingwire.com

Price-to-Rent Ratio in 50 Cities

Better to buy or rent? The price-to-rent ratio helps to gauge affordability in any city, especially for people on the move, and millions of Americans are, thanks in part to a remote-work boom.

The number can be helpful when looking at a certain area and deciding whether to plunk down your life savings into a home—if it’s even within reach—or pay a landlord and wait.

Read on to see the home price-to-rent ratio in 50 of the biggest U.S. cities.

First, What Is the Price-to-Rent Ratio?

The price-to-rent ratio compares the median home price and median annual rent in a given area. (You’ll remember that the median is the midpoint, where half the numbers are lower and half are higher.)

Median home sale price divided by median annual rent equals the ratio.

Let’s say the median rent in a city is $3,000 a month and the median sale price is $1,000,000. The price-to-rent ratio would be nearly 28—$1,000,000 divided by $36,000.

To make sense of that number:

•  A ratio of 1 to 15 typically indicates that it is more favorable to buy than rent in a given community.
•  A ratio of 16 to 20 indicates it is typically better to rent than buy.
•  A ratio of 21 or more indicates it is much better to rent than buy.

The ratios could be useful when considering whether to rent or buy. And investors often look at the ratios before purchasing a rental property.

The number also may be used as an indicator of an impending housing bubble, as a substantial increase in the ratio could mean that renting is becoming a much more attractive option in that specific housing market.

If you’re exploring different areas, it might be a good idea to estimate mortgage payments based on median home prices.

A Snapshot of Real-Life Ratios

Here are 50 (plus one) popular metropolitan areas and their price-to-rent ratios as 2021 began, when the U.S. median home sale price was $346,800, the Federal Reserve Bank of St. Louis reported.

Median sale price listed comes from Redfin as of December 2020. Median rents listed come from a Zumper national rent report from February 2021, based on a one-bedroom apartment.

Remember, as home prices and rents shift over time, so do the ratios.

San Francisco

It’s no secret that San Francisco housing prices are way up there. The median sale price was $1,350,000, and median rent was $2,680 per month (or $32,160 a year). That gives the hilly city a price-to-rent ratio of 42.

A snug studio at, say, $2,000 a month yields a ratio of 56.

San Jose, Calif.

Golden State housing continues its pricey rep. The median sale price in San Jose was $1,050,000, and the city had median rent of $25,560 yearly ($2,130 a month), leading to a price-to-rent ratio of 41.

Seattle

The Emerald City had a median sale price of $725,000 and median annual rent of $20,388, for a price-to-rent ratio of close to 39.

Los Angeles

A median sale price of $831,000 and median one-bedroom rent of $23,280 a year ($1,940 a month) shines a Hollywood light on renting, with a ratio of 36.

Long Beach, Calif.

With a median home price of $675,000 and rent of $1,600 a month, Long Beach earned a ratio of 35.

Santa Ana and Anaheim, just north of Santa Ana, were in the same league, with ratios of 33 and 34.

Honolulu

The ratio in the capital of Hawaii is a steamy 35, with a $620,000 median sale price and median rent of $17,520.

Oakland, Calif.

Oakland, across the bay from San Francisco, had a median sale price of $785,000 and median rent of $24,000 a year ($2,000 a month), earning a price-to-rent ratio of close to 33.

Austin, Texas

A hotbed for artists, musicians, and techies, Austin had a price-to-rent ratio of 33, thanks to a median sale price of $475,000 and median annual rent of $14,400.

San Diego

Hop back to Southern California beaches and “America’s Finest City,” where a median sale price of $690,000 and median rent of $21,600 led to a ratio of 32.

New York, NY

The median sale price here was $725,000 and median rent was $28,200 a year ($2,350 a month), which equates to a price-to-rent ratio of nearly 26.

Of course the city is composed of five boroughs, the Bronx, Brooklyn, Manhattan, Queens, and Staten Island, and it’s probable that most of the sales under $725,000 were not in Manhattan (where the median was $1.18 million) or Brooklyn (where the median was $915,000).

Just looking at Manhattan, even with rents falling to under $3,000 a month, the ratio looks more like 34 or 35.

Boston

With a median sale price of $702,000 and median rent of $24,240 a year, Beantown had a price-to-rent ratio of 29.

Portland, Ore.

The midpoint of buying here of late was $485,000, compared with median rent of $16,800, for a price-to-rent ratio of 29.

Tucson, Ariz.

In Tucson, the median sale price of $251,000 and median annual rent of $8,760 rounded up to a ratio of 29.

Denver

The Mile High City logged a renter-leaning ratio of 28, thanks to a median sale price of $476,000 and median annual rent cost of $16,800.

Colorado Springs, Colo.

With a median sale price of $366,000 and annual rent of $13,080, this city at the eastern foot of the Rocky Mountains had a recent price-to-rent ratio of 28.

Albuquerque, N.M.

In the Southwest, Albuquerque heated up to a ratio of 28, based on a median home sale price of $250,000 and rent of $8,880.

Washington, D.C.

The nation’s capital is another pushpin on the map with a high cost of living. The median sale price of $640,650 compares with median rent of $23,520 annually ($1,960 a month), translating to a ratio of 27.

Mesa, Ariz.

With a median sale price of $325,000 and median rent of $12,240, Mesa slithers to a price-to-rent ratio of nearly 27.

Las Vegas

Sin City has reached a ratio of 26, based on a $314,900 median sale price vs. $12,000 in rent.

Phoenix

Phoenix’s price-to-rent ratio has revved up to 26, with a median home sale price of $320,000 and $12,120 in rent.

Raleigh, N.C.

The North Carolina capital, the City of Oaks, logs a ratio of 25, based on a $320,000 median home sale price and median rent of $12,600.

Tulsa, Okla.

Tulsa had a price-to-rent ratio of 25, with low median rent of $7,680 but home sale prices ticking up to a median of $192,000.

Dallas

This sprawling city had a recent median sale price of $374,000 and median annual rent of $14,640, leading to a price-to-rent ratio of 25.5.

Sacramento, Calif.

This Northern California city had a recent median sale price of $402,000 and rent of $16,800, for a price-to-rent ratio of 24.

Fresno, Calif.

Fresno makes the list with a price-to-rent ratio of nearly 23, based on figures of $300,000 and $13,200.

Oklahoma City

The capital of Oklahoma had one of the lower price-to-rent ratios until recent home price spikes. It logs a ratio of 23 lately, based on figures of $215,000 and $9,240.

Arlington, Texas

Back to the Lone Star State, this city between Fort Worth and Dallas, with median figures of $250,000 and $11,400, had a ratio of 22.

San Antonio

This Texas city southwest of Austin had a median sale price of $244,000 and median annual rent of $11,280, resulting in a price-to-rent ratio near 22.

El Paso, Texas

El Paso traded a low price-to-rent ratio for a higher one when home prices rose. It’s at a 22, based on recent figures of $187,000 and $8,520.

Omaha, Neb.

With a median sale price of $206,750 and median annual rent of $9,600, Omaha had a recent home price-to-rent ratio of 21.5.

Nashville, Tenn.

The first Tennessee city on this list is the Music City, with a ratio of 21.

Virginia Beach, Va.

The ratio here has reached 21, based on a median home sale price of $290,000 and rent of $13,560.

Tampa, Fla.

This major Sunshine State city had a price-to-rent ratio of 20, based on figures of $290,000 and $14,400.

Jacksonville, Fla.

This east coast Florida city had a recent ratio of 20, based on a median sale price of $233,000 and rent of $11,640.

Charlotte, N.C.

Charlotte’s price-to-rent ratio of 20 arises from a median home sale price of $295,000 and median annual rent of $14,640.

Fort Worth, Texas

Panther City’s price-to-rent ratio has crept up to 20, based on a home sale price of $262,000 and rent of $12,960.

Houston

Houston, we have a number. It’s 20. That’s based on a median sale price of $269,000 and median annual rent of $13,200.

Louisville, Ky.

Despite having a different median sale price ($205,000) and rent ($10,440), Louisville had the same price-to-rent ratio as some bigger cities, at about 20.

Columbus, Ohio

The only Ohio city on this list had a price-to-rent ratio of 20, due to a median sale price of $208,000 and median annual rent of $10,320.

Atlanta

Heading South, Atlanta had a median sale price of $349,450 and median annual rent of $18,480, for a price-to-rent ratio of 19.

Miami

Those looking to put down roots in this vibrant city will find a price-to-rent ratio of a hair under 19, based on $360,000 and $19,200.

Minneapolis

The Mini-Apple is sweeter on renting, with a ratio of 19, based on a median sale price of $295,000 and rent of $15,600.

New Orleans

Next up is another charming Southern city, with a price-to-rent ratio of 18, given a median sale price of $312,500 and median rent of $17,040.

Kansas City, Mo.

In this Show-Me State city, a median home value of $218,000 and median annual rent of $12,000 equate to a price-to-rent ratio of 18.

Chicago

Chi-Town’s 16.5 ratio is based on a $305,000 median home sale price and $18,480 median rent.

Memphis, Tenn.

Memphis logs a ratio of 16, with a median home sale price of $163,000 and median annual rent of $9,960.

Indianapolis

The ratio in this capital city is 16, thanks to a median home sale price of $185,000 and rent of $11,280.

Philadelphia

This major East Coast city had a recent median sale price of $240,000 and median annual rent of $16,200, for a price-to-rent ratio of 15, the number that begins to signal that a place may be more favorable for buying over renting.

Baltimore

Charm City had a recent median home sale price of $198,000 and median rent of $14,160, for a price-to-rent ratio of 14.

Newark, N.J.

Newark, anyone? The median sale price here was $271,000, but median rent spiked to $1,750 a month, leading to a buyer-friendly ratio of 13.

Milwaukee

Milwaukee is more favorable to homebuyers than renters, thanks to a price-to-rent ratio of 11. This Midwest city had a recent median sale price of $155,000 and rent of $14,400.

Detroit

Detroit saw a spike in home sale prices, though the latest median was a relatively low $71,000, compared with median rent of $10,800, for a ratio of 6.5.

The Takeaway

The price-to-rent ratio lends insight into whether a city is more favorable to buyers or renters. Usually in a range of 1 to 21-plus, the ratio is useful to house hunters, renters, and investors who want to get the lay of the land.

If you’re in the market to buy, whether as a primary-home owner or investor, give SoFi mortgage loans a look.

SoFi home loans have competitive rates and no hidden fees. Plus, you may qualify for a loan with well under 20% down.

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Source: sofi.com

The last stand for forbearance housing market crash bros?

In 2021, a lingering symptom of the economic sickness we suffered in 2020 is forbearance. Not the forbearance plans themselves, which allowed mortgage holders to delay their payments for many months, but the fact that 2.72 million homes remain in forbearance and can therefore be considered at risk. Forbearance will have to end at some point, and when it does, couldn’t all these homes flood the housing market at once, driving prices down and scaring would-be homeowners away from purchasing? 

We know the current status of the housing market in America is vigorous, if not hot. The MBA purchase application data is growing at a trend of 12% year over year. This growth is 1% higher than the peak of what I forecasted for 2021, up until March 18.

So while the housing market bubble bears predicted a crash due to the COVID crisis, the exact opposite is happening. Home price growth is accelerating above my comfort zone for nominal home price growth, which is 4.6% or lower. As I have written many times, the housing market’s current strength is not because of COVID-19, but despite it.  Demographics plus low mortgage rates serve as the one-two punch that knocked out COVID-19.

In 2018/2019, when mortgage rates got to 5%, all it did was cool down price gains in the existing housing market. Real home prices went negative year over year, which I wrote back then was very healthy and what the housing market needed.


Here’s how to find property owners ready to sell

In today’s low-inventory environment, complicated by external factors such as forbearance and foreclosure moratoriums, it’s crucial for real estate agents and brokers to be proactive in order to grow their business.

Presented by: PropStream

Today, inventory levels are at all-time lows, and the purchase application data index is above 300. This means home price growth is getting too hot! Just look at the difference 2020 brought into the data lines.

The question remains: will all this strength in the housing market dampen or erase the risk of having all those homes in forbearance once forbearance ends? Here are three reasons you don’t have to worry.

First, the latest chart from BlackKnight shows us that the number of homes in forbearance has been decreasing. We are well off the peak. I expect this number to decline as our employment picture improves; however, there will be a lag period for this data line to show more improvement. 

Second, and this is critical to the story, homeowners’ credit profiles, when they originated their loans, were excellent. The previous expansion had the best loan profiles I have seen in my life. These buyers, especially those who purchased from 2010-2017, have fixed low debt costs due to low mortgage rates, with rising wages and nested equity. As home prices continue to grow beyond expectations, these homeowners have added another year of gains to their nested equity.

In this way, the current housing market backdrop is unlike the housing credit bubble years when loan profiles weren’t healthy, and we had a debt leverage speculative market. Last year, I wrote about the forbearance crash bros to outline their problems with their crash thesis. Here is a link to one of those articles.

And the third reason we don’t have to worry about a crash when forbearance ends is J.O.B.S.!

The primary reason I believe the crash thesis of the housing market bubble boys turned forbearance crash bros will fail is that jobs are coming back. The employment gains started last year and have continued.  We have gained 12,470,000 jobs – and that was not in the forecast of the housing bubble boys.

The February 2020 nonfarm payroll data, which accounts for most workers, had roughly 152,523,000 employed workers. We got as low as 130,161,000 employed workers during the Covid crisis peak and are now back to 142,631,000. We are still short 9,892,000 jobs, which is more than the jobs lost during the great financial crisis.

Sadly, but to be expected, the last two jobs report combined were negative. We will not get back to the employment level we had in February 2020 while COVID-19 is with us, which prevents some sectors from operating at full capacity.  So job growth remains limited until we get more Americans vaccinated.    

Think of this period as the calm before the job storm. 

And the job storm is coming. We are vaccinating people faster every week that goes by. We just need time, and then all the lost jobs will come back and then some. Even those 3.5 million permanent jobs lost will be replaced.

This isn’t 2008 all over again. That housing market recovery was slow, but today our demographics are better, and our household balance sheets are healthier. The fiscal and monetary assistance now is hugely improved from what we saw after 2008. We have everything we need to get America back to February 2020 jobs levels; we just need time.

I am convinced that the number of homes under forbearance will fall as more people gain employment. Expect the forbearance data to lag the jobs data, but they will eventually coincide. 

Disaster relief is coming, and then when we can walk the earth freely, look for the government to do a stimulus package to push the economy along. By Aug. 31, 2021, we will have a much different conversation about the state of U.S. economics. Hopefully, by then, the 10-year yield will have hit 1.33% and higher. Wait for it!

If the jobs data continues to worsen and we decide it is too expensive to help our American citizens in this crisis, we will likely see an uptick in distress sales and forced selling, but we still would not see a bubble crash in the housing market. It may suppress home price growth, but that wouldn’t necessarily be a bad thing since my most significant concern in housing is that home prices are growing too fast.  I recently talked about it on Bloomberg Financial. 

If we are battling COVID-19 as war, would we leave any American behind? Imagine during wartime if we were told to build our tanks, rifles, and gear to fight the war without government assistance. The government can do certain things that the private sector can’t. Without COVID-19, we would still be enjoying the most prolonged economic and jobs expansion in history and have debates about what constitutes full employment. But it happened, and we have the power to leave no American behind once again.

Think about that next time you see someone hawking a housing market bubble crash thesis. All the jobs will come back in time, and we will all be walking in the sun again without a mask. Until then, we need to support government programs, like disaster relief and programs that help homeowners in forbearance get out of it, and help renters too. Let’s not leave any American behind in this war against COVID-19.

Source: housingwire.com