The HousingWire award spotlight series highlights the individuals who have been previously recognized by the HW Editors’ Choice Awards. Nominations for HousingWire’s Women of Influence award are now open through Friday, May 19, 2023. Click here to nominate a female leader in the industry — a client, colleague, boss or friend — it can even be you!
HousingWire’s prestigious Women of Influence award showcases the outstanding efforts of women in housing. From driving business growth to building high-performing teams and impacting public policy, the Women of Influence honorees consistently set a new standard for what it means to be true leaders in housing.
To celebrate the launch of the 2023 nominations, HousingWire reached out to several of our previous Women of Influence honorees to learn the secret to their success and gain some insight into how these impressive women got their start in the industry.
“When I started out in mortgage lending almost 40 years ago, I worked in the mailroom at a small mortgage company. At that time, my main goal was to provide for my family and to be the most indispensable employee at the company no matter my role. At small companies there are not always perfectly defined roles, so my success was measured by my ability to be willing to fill any role necessary to help grow the company. As I have learned more and changed roles throughout my career, the ability to take responsibility for any task and take accountability for any issue have been the hallmarks of my success.” — Susan Anthony, chief operating officer, Finance of America Reverse and 2019 Woman of Influence
“The secret to my success is having a career goal that I care passionately about. I will retire when Veterans are known as the most aggressive rate shoppers in the industry. There is a lot of work to be done to accomplish this goal and I spend a great time educating and spreading the word. Educating Veterans and helping them save money on the biggest purchase of their life feeds my soul and that is the key to my success.” — Jennifer Beeston, senior vice president of mortgage, Guaranteed Rate and 2022 Woman of Influence
“When I first started in real estate, I was like a kid in a candy store! I was working my tail off with no immediate payoff, but I was completely obsessed with this industry and it fueled me to keep going. That passion has never faded. For the last 15 years, I’ve shown up every single day with a clear purpose to serve others and a drive to be great. Being present and realizing that every day is a new opportunity to bring innovative ideas, improve and move the ball forward. It’s been a wild ride, but I wouldn’t have it any other way!” — Dava Davin, founder of Portside Real Estate Group and 2020 Woman of Influence
Click here to nominate someone for the 2023 award before the May 19th deadline!
Surging interest rates and home price appreciation made March one of the most challenging months for prospective homebuyers looking to make purchases, according to a recent report.
Annual home price gains saw 19.9% annual appreciation in March, down from an upwardly revised 20.1% in February, which was the first month to see price growth greater than 20%, according to Black Knight’s monthly mortgage monitor report. While the annual home price growth reflects a slowdown in March after accelerating for the previous four months, home prices are up about 6% nationwide year-to-date and the 30-year mortgage interest rate of 5.11% as of April 21 continued to propel a lack of affordable homes.
“As measured by the share of median income required to make the principal and interest payment on the average-priced home bought with 20% down, U.S. housing was the least affordable ever back in July 2006 when it took 34.1% to make that P&I payment,” Ben Graboske, president of Black Knight Data & Analytics, said in a statement.
“As of April 21, that payment-to-income ratio has now climbed all the way to 32.5%, within just 1.6 percentage points of the prior record,” Graboske added.
A rate increase of 50 more basis points or a 5% increase in home prices would push affordability to its worst level on record, according to the report. Since the start of 2022, rates have gone up 200 basis points and housing prices have surged 5.9%.
Adjustable-rate mortgages, which typically have lower interest rates than fixed-rate mortgages, have become an attractive option for borrowers in a challenging housing market. The spread between 30-year and ARM offerings is the widest it’s been since 2014 and within 20 basis points of an all-time high.
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The ARM share of purchase rate locks by volume spiked from 2.5% in December to about 8% in March – the highest share since 2017. As of mid-April, applications for ARM mortgages jumped to 8.5% of total mortgage applications, the highest level since 2019, according to the Mortgage Bankers Association.
About 95% of the 100 largest markets are now less affordable than their long term benchmarks from 1995 to 2003, up from just 6% at the start of the pandemic. Markets in a third of the country are now the least affordable they’ve ever been.
From Census: Sales of new single‐family houses in March 2022 were at a seasonally adjusted annual rate of 763,000, according to estimates released today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 8.6 percent (±12.9 percent)* below the revised February rate of 835,000 and is 12.6 percent (±11.3 percent) below the March 2021 estimate of 873,000.
As we can see below, the uptrend in sales is still intact, so housing starts have held up OK. Even though multifamily construction has boosted housing starts recently, the slowdown in single-family purchases hasn’t been anything too dramatic yet. However, as rates move up, mortgage buyers of new homes will feel the pinch as new homes are always more expensive than existing homes in an apples-to-apples comparison. The one thing housing has going for it now is that we don’t have the speculative booming demand as we saw from 2002 to 2005.
From Census:
The median sales price of new houses sold in March 2022 was $436,700. The average sales price was $523,900.
Sticking with the theme of this year: the housing market is savagely unhealthy for both existing homes and new homes. The builders have pricing power and they — along with home sellers — have pushed it very hard since 2020. They were simply doing what the marketplace allowed them to do with low inventory and low mortgage rates.
The builders have to deal with an overhang of unbuilt homes, unlike the existing home sales market. For the rest of the year, we will see how much damage 5%+ mortgage rates have done with regard to cancelations. Builders have to find buyers for canceled homes, then think about their demand. The builders are always mindful of higher rates.
From Census: For Sale Inventory and Months’ Supply: The seasonally‐adjusted estimate of new houses for sale at the end of March was 407,000. This represents a supply of 6.4 months at the current sales rate.
My rule of thumb for anticipating builder behavior is based on the three-month average of supply:
When supply is 4.3 months, and below, this is an excellent market for the builders.
When supply is 4.4 to 6.4 months, this is just an OK market for the builders. They will build as long as new home sales are growing.
When supply is 6.5 months and above, the builders will pull back on construction.
Because the previous new home sales data was revised positively, the three-month average monthly supply is at 5.9 months. March’s headline number showed 6.4 months of supply. This is something I am keeping an eye on because two of my last three recession red flags have to do with new home sales and housing starts directly. So, went monthly supply spikes, the builders will pull back.
Single-family starts aren’t doing much right now, but multifamily construction is doing well. More weakness in new home sales will force the builders to pull back on construction of new homes on the single-family side.
A good way to track the builders is through the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), and you can see below that this year’s decline is more accurate than what we saw last year. Last year, COVID-19 created a demand surge, giving this index an unrealistic high level to work from. However, we don’t have that anymore, so the recent weakness in the builder’s confidence is legit.
From NAHB:
All in all, the new home sales report wasn’t bad because of the positive revisions, but to me, like other housing data, it’s lagging behind the reality of the world we live in today. Mortgage rates have spiked faster than usual, and some of the data we have been reporting on hasn’t had the duration impact of higher rates. So, going ahead, we will see the real impact of higher rates.
We have seen the MBA purchase application data show weakness this year, but nothing too dramatic yet. In 2014 we had a 20% year-over-year decline trend. In 2018, we had three mild negative year-over-year prints. Currently, the four-week average is showing a -9.75% year-over-year decline. It will be prudent to keep an eye out on the year-over-year data trends more than the week-to-week data.
Going forward, I will keep a close eye on the builders to see if they will be cutting back on housing construction as new home sales fall. This by itself will raise a recession red flag. One thing to remember, the last two times rates rose and the builders got impacted, rates, later on, fell to help the builders out.
If bond yields and mortgage rates fall more noticeably, the builders should have a more positive outlook. This isn’t the case now, but it’s something to look at if economic growth gets weaker.
Forward-looking housing data flipped in November, so HousingWire created the weekly Housing Market Tracker to provide real-time forward-looking housing data. I also recently joined Mike Simonsen’s Top of Mind podcast to talk about what’s happened in housing over the past year. Forward-looking housing data might not be sexy, but it works.
From FHFA: U.S. house prices rose 4.3 percent between the first quarters of 2022 and 2023, according to the Federal Housing Finance Agency House Price Index (FHFA HPI). House prices were up 0.5 percent compared to the fourth quarter of 2022. FHFA’s seasonally adjusted monthly index for March was up 0.6 percent from February.
How and why did the index reach this high, and what should we expect in the future?
Inventory is still near record lows
The easiest economic discussion right now is the housing inventory story in the U.S. and that it’s historically low. However, it’s also the most-lied-about topic in recent economic history. People claim inventory isn’t low because “shadow inventory” is on the verge of adding millions of homes into the marketplace any second now. Another myth is that we’ll have a silver tsunami where every Baby Boomer lists their home in one month, flooding the marketplace with inventory.
The NAR total active listings data is between 2 million and 2.5 million in a normal market between 1982-2023. Post COVID-19, we broke to all-time lows and it’s hard to get it back to those levels: we’re currently at 1,040,000 active listings. This is a fact that some people have a hard time believing because they believe the shadow inventory or vacant home thesis.
These are often middle-age male stock traders or anyone from the anti-central bank movement who has been part of a borderline crazy bearish American economic crash squad that only can be matched by the Russian troll movement spreading disinformation about the state of the U.S. economy. Economic cycles come and go, but the 24/7 doom porn people are a one-trick pony that will fall into the grave with all American bears who have failed since 1790.
NAR total inventory since 1982:
I prefer the Altos Research weekly single-family data to the NAR data because it gives us a fresh look at not only active listing data but new listing data. This way, nobody can be surprised when old stale data comes to the marketplace. This is also why we created the weekly Housing Market Tracker article. We want to connect the dots with supply and demand.
The Altos Research new listing data is essential in tracking the supply aspect of housing, which is why I include it as part of the Tracker. Even in 2022, when we had the most significant home sales collapse ever recorded, the new listing data never exploded higher; in fact, it was trending at all-time lows in 2021 and 2022, and now is at a new all-time low in 2023.
The data in the charts above should clear up any shadow inventory and vacant home nonsense we have heard for over 11 years. Let’s talk about the second significant factor: demand!
Last year was a whirlwind for housing economics. The first three months of 2022 were so bad that I deemed it the unhealthiest housing market post-2010. I coined the term savagely unhealthy because we had too many people chasing too few homes. More than 70% of the marketplace saw multiple bids on properties.
In February of 2021, I talked about how we needed higher rates to cool down the housing market because this wasn’t the housing bubble of 2005. However, by February 2022, it was too late; so much home-price growth in such a short time meant that demand would collapse when mortgage rates did rise.
Mortgage rates going from 3% to 5% had been the norm for the markets; mortgage rates going from 3% to 7.37% was another story altogether. As a result, home sales collapsed in 2022 in the most prominent fashion ever recorded in U.S. history.
So what has changed? Well, starting Nov. 9, 2022, mortgage rates fell and mortgage demand got better. We didn’t see a recovery in demand, it just stabilized.
Since Nov. 9, purchase application data has had 17 positive prints versus nine negative prints after making some holiday adjustments. Year to date, we have had 10 positive prints and nine negatives, and tomorrow purchase applications should be negative, which shows the stabilization in demand so far in 2023.
It is simple supply and demand economics. Last year, home sales crashed because mortgage rates exploded higher after the most significant short-term home-price gains ever in history. However, after Nov. 9, that reality changed from crashing home sales to stabilizing.
So the moral of the story is that the market dynamics were very historical last year; active inventory and monthly supply were low, but home sales were crashing, and the inventory that was on the market, especially in the seconnd half of 2022, required price cuts to sell.
In my 2023 forecast for prices, I stated that mortgage rates needed to stay higher, above 5.875%, for prices to have a mild decline, in contrast to the massive price gains we have seen in 2020 through 2022. I chose 5.875% because my affordability index model was shot, but I also saw that the housing market changed when rates moved from 7.37% to 5.99%.
Imagine what the housing data would look like if rates were in the low 5% for 2023. This is why tracking weekly housing data is critical. We don’t have a housing demand recovery as we saw with the COVID-19 recovery, we just have a stabilization in demand, and total active listings are still near all-time lows.
As you can see in the FHFA home price index below, the growth rate of prices cooled down a lot with higher mortgage rates, but those didn’t crash prices like in 2007 and 2008, a period in time with much higher active supply.
Also, to go along with the FHFA home price index, not only was housing inventory over 4 million in the NAR data in 2007, but we also had massive growth in forced sellers. As we can see in the chart below, we had massive credit stress in the system.
So, as we get ready for the second half of 2023, we will track the weekly housing data. We will focus on the actual data that matter, positive or negative. The most significant change this year is that home sales are not collapsing in the same fashion they were last year.
For the fifth consecutive month, pending home sales declined in March from February, down 1.2%, signaling a potential return to “much calmer” conditions, according to the National Association of Realtors.
Only the northeast region saw an increase in pending sales in March from February, according to an NAR news release based off data from its pending home sales index. But compared to the prior year, “pending sales fell for the 10th consecutive month, by 8.2%, with pending sales down across all regions.”
Lawrence Yun, chief economist for the NAR, said the dip in contract signings suggests “multiple offers will soon dissipate and be replaced by much calmer and normalized market conditions.”
He also expects higher mortgage rates to remain a key factor affecting home sales.
Yun forecasts the 30-year fixed mortgage rate will reach 5.3% by the fourth quarter, resulting in a 2022 mortgage rate average of 4.9%. The average mortgage rate should jump to 5.4% by 2023, Yun said.
“As it stands, the sudden large gains in mortgage rates have reduced the pool of eligible homebuyers, and that has consequently lowered buying activity,” Yun said. “The aspiration to purchase a home remains, but the financial capacity has become a major limiting factor.”
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Yun additionally expects inflation will average 8.2% for the year, “although it will start to moderate to 5.5% in the second half of this year.” As of March the higher mortgage rates and sustained price appreciation has resulted in a year-over-year increase of 31% in mortgage payments – although major Sun Belt metros such as Tampa, Phoenix and Las Vegas have seen increases closer to 50% year-over-year.
Despite that, Yun said: “Overall existing-home sales this year look to be down 9% from the heated pace of last year. Home prices are in no danger of decline on a nationwide basis, but the price gains will steadily decelerate such that the median home price in 2022 will likely be up 8% from last year.”
Renters will face similar increases, which Yun says could prompt some renters to explore ownership – although the increasing mortgage rates may price them out.
“Fast-rising rents will encourage renters to consider buying a home, though higher mortgage rates will present challenges,” Yun said. “Strong rent growth nonetheless will lead to a boom in multifamily housing starts, with more than 20% growth this year.”
Even as home inventory remains low, Yun also expects single-family homebuilders to take a cautionary approach, resulting only in a modest “boost to construction of less than 5%.”
The HousingWire award spotlight series highlights the individuals who have been previously recognized by the HW Editors’ Choice Awards. Nominations for HousingWire’s Insiders award are open now through Friday, June 23, 2023. Click here to nominate an industry insider — a client, colleague, boss or friend — it can even be you!
For the last eight years, the HW Insiders award program has provided the housing industry with the opportunity to recognize the professionals who are making a major impact on their organizations, but aren’t in the public eye. This unique award spotlights some of the industry’s most fascinating people and roles, and it shines a light on a variety of accomplishments that are behind the growth and success of the housing industry’s top businesses.
For example, Kyle Day, vice president of customer success OJO Labs, was recognized as a 2022 HW Insider for his success in recruiting new agents, deploying successful training campaigns and improving back-end lead processes at OJO.
Since joining OJO, Day has launched and scaled four agent support teams. He ensures that each team works in concert to deliver the best possible support to agents so that they can focus on providing consumers with personal attention and experience.
HousingWire reached out to Day to learn more about his role at OJO, his career and what upcoming projects he’s most excited about.
HousingWire: In your role as vice president of customer success you’re constantly communicating with agent teams to see how they can be supported. What are some of the themes that you’re hearing from new agents?
Kyle Day: Given that the market continues to be challenging for agents and teams, the main theme we’re seeing in the area of support, is that agents want that support to be genuine. In other words, agents want to be treated as partners, they want the service provider to truly care about their success, and to provide meaningful help and guidance. I’m happy to say that we’ve made this a competitive differentiator at OJO. Most agents we work with are commenting on how genuinely helpful we are.
HW: Are there any upcoming projects that you can share with us? What are you most excited about for the rest of 2023?
KD: We’re most excited about the launch of our Pro platform. OJO is doubling down on the importance of partnerships. We’re providing a more robust service to top-performing agents and teams. Launching and scaling OJO Pro is the top priority for 2023.
HW: As you look back at your career, are there any pivotal moments or decisions that helped get you where you are today?
KD: Every time I have left one employer to start a job at another, it has been a pivotal moment in my career. Unlike some people who change companies every few years, I’ve only had three significant moves in the past 20 years. I’m a very loyal and dedicated employee, so when I decide to move on, it’s a highly calculated decision designed to unlock a new level in my career. So far, each move has produced the intended results.
Click here to nominate someone for the HW Insiders Award, today!
From NAR Research: In April, the median existing-home price for all housing types was $391,200, up 14.8% from April 2021 ($340,700), as prices increased in each region. This marks 122 consecutive months of year-over-year increases, the longest-running streak.
Wait, what? How are home prices up 14.8% year over year? We were told that population growth is slowing, we were told that Americans would panic sell and that massive inventory would hit the marketplace once rates got to 4%. Spoiler: If you haven’t realized that the housing market since 2012 has been trolled out by professional grifters who don’t ever forecast sales, that is on you. Economics done right should be boring, and you always want to be the detective, not the troll. It’s May 19, mortgage rates are over 5.5%, and the mass exodus of 7-8 million Americans selling their homes to cash out at any price has never happened.
Inventory is always seasonal. It rises in the spring and summer and fades in the fall and winter. My rule to get the housing market out of the unhealthy stage is that we need total inventory back between 1.52 million and 1.93 million. Today inventory levels are at 1.03 million.
I use the 1.52-1.93 million range because it brings us back to 2018-2019 levels, the last time we had a balanced housing market. The last time we had total inventory growth was back in 2014 when we tried to get back to 2.5 million units and six months of supply; we couldn’t do that then, even though purchase application data was down on trend 20% year over year.
Because we had a housing credit bubble from 2002 to 2005, the credit demand push on exotic loan debt structures was a setup for future forced credit selling. What I mean by forced credit selling is that the homeowner’s credit financials didn’t allow them to have the capacity to own the home any longer, so they were forced to sell their home. This created an abnormal amount of foreclosures and short sales, which exploded the supply levels for the existing home sales market. As we can see below clearly, the market worsened before the job-loss recession happened.
This was a big reason why we saw the monthly supply data pick up in 2006, 2007 and 2008 — all before the job-loss recession happened late in 2008. The job-loss recession added more forced credit selling into the mix.
We have been through a lot of drama since 2012, especially the drama in 2020, 2021 and 2022. We are sitting with just 2.2 months of supply. Now supply should pick up with higher rates — we had our first weekly positive print. We are not taking the unhealthy housing market theme off this marketplace.
NAR Research: At the end of April, the total housing inventory amounted to 1,030,000 units, up 10.8% from March and 10.4% from one year ago (1.15 million). Unsold inventory sits at a 2.2-month supply at the current sales pace.
In February of 2021, when I was saying that we need higher rates to cool housing, my mindset was that there were two things higher rates could do: They could cool down price growth and create more days on the market. More days on the market is the number on the short-term data line that I want to rise to above 30 days. Currently, it’s at 17 days; anything that is a teenager with this data line is exceptionally unhealthy.
NAR Research: First-time buyers were responsible for 28% of sales in April; Individual investors purchased 17% of homes; All-cash sales accounted for 26% of transactions; Distressed sales represented less than 1% of sales; Properties typically remained on the market for 17 days.
Currently, the housing market is reacting just like you would expect when we have higher rates. When have seen higher rates cool down sales before, and right now, it seems the same to me. I kept that target level of 1.94% going on during 2020-2022 as an inflection point for housing. This is sticking with my theme in the past that when rates rise, it cools down housing. Even though mortgage rates are historically low, they still always matter because mortgage buyers are the biggest homebuyers in America. We still have some legs to move lower in sales. Hopefully, this chart gives you some context to previous times when rates have risen post-2010.
The one aspect of higher rates that I have gotten wrong so far is that I was anticipating a bigger hit to mortgage demand by now. Because the home-price growth level broke my model, higher rates at this stage mean a bit more to me than most. So, I was anticipating purchase application data to be down 18%-22% year over year by now. That level would be a traditional decline with a noticeable hit from demand working from a higher base than in the previous expansion. I like to use a four-week moving average on this data line on a year-over-year basis only, and as of today, this hasn’t happened. By October of this year, we will have more challenging comps to with worth, and that might be when the four-week moving average gets to 18%-22% declines year over year.
The purchase application data is down 12% week to week, ending the two-week positive streak, and it’s down 15% year over year. The four-week moving average is negative at 12.75% year over year, which is about 5.25%-9.25% better than I thought with rates this high.
Obviously, from my housing work, you can tell I haven’t been a fan of this housing market once it became apparent the housing shortage was getting worse in 2021. I talked about needing higher rates to cool things down and the cool-down is happening, but not fast enough. I am more concerned that the economic data, which is getting softer, will send bond yields lower and take rates down with it before we have a real shot to get real inventory growth.
Again, I know this is a first-world problem to have. However, I am just staying consistent with my economic work model for the years 2020-2024: the only thing that can make total home sales fall below 6.2 million is if home-price growth is over 23% and then rates rise. We have that happening currently, so the need to create more inventory and days on the market has to benefit here. A balanced market is the best housing market and we don’t have one today; it’s still a savagely unhealthy housing market.
Despite a 40% year-over-year increase in market share to 1.4% during the first quarter of 2022, Doma Holdings was unable to produce a net profit.
During the first quarter of 2022, Doma recorded a GAAP net loss of $50.026 million, compared to a net loss of $11.8 million a year prior. In addition, the title insurer’s revenue was down 12% year over year from $127.8 million in Q1 2021 to $112.2 million in Q1 2022.
Executives attributed the lower revenue and increased net loss to an overall downturn in the mortgage market.
“In the first quarter, the mortgage market rapidly readjusted with refinance transactions down industry-wide by 63% year over year, per the Mortgage Bankers Association,” Max Simkoff, the CEO of Doma, said during the firm’s first-quarter earnings call with investors on Tuesday. “Based on the recent trend in rates it is likely we will see a continued negative impact on the overall mortgage market. While the market could always change for the better, we believe the challenges the mortgage market faces will continue at least through the rest of 2022.”
In the first quarter of 2022, Doma opened 35,192 title orders and closed 27,347 orders, compared to 41,084 opened orders and 32,650 closed orders during the first quarter of 2021. When separated into purchase and refinance, Doma executives said that purchase orders were down 13%, while refinance orders had dropped by 20%.
Due to the decline in the refinance market, Simkoff said Doma is refocusing its efforts on increasing its purchase volume. Unlike refinance transactions completed with Doma, as of Q1 2022 not all purchase title orders are completed through the Doma Intelligence platform, which is something Simkoff said the company plans to change by the end of next year.
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“We are refocusing resources from other areas of the company to a narrower set of strategic initiatives that will ensure we rise to solve the biggest pain points in a purchase focused market while also keeping the company on our previously communicated timeline to achieve adjusted EBITDA profitability in 2023,” Simkoff said.
Although Simkoff stressed that he was confident that Doma’s technological offerings will be enticing enough to lenders and other consumers for the company to increase purchase transaction volume, the firm announced a 15% work force reduction last week. A total of 310 positions were cut, with 259 coming from the fulfillment department, reducing the department’s workforce by 28%.
“We have recently made significant reductions to our cost structure across every part of the company in service of helping us act more nimbly and to protect our healthy cash flow position,” Simkoff said. “We expect this reduction will result in an annualized cost savings of $30 million.”
When discussing the firm’s previously announced goals of expanding into appraisal and home warranty, executives sounded far more cautious than in the past.
“In this current market, our investments in Doma Intelligence solutions for the home purchase market become even more critical,” said acting CFO Mike Smith. “Nonetheless, given our outlook for the mortgage market overall in 2022, we are prudent in our spend in other parts of the business to preserve our healthy cash position. This has entailed some tough decisions, including rescoping our entry into the appraisal and home warranty adjacent markets to make better use of our partner resources and provide better returns on investment.”
Cautious and conservative also describe Doma’s outlook on the future of the mortgage market.
“I think we have reacted pretty quickly to what we see as a longer-term market down turn,” Simkoff said. “We are certainly prepared to take further action if we see further deterioration, but we feel like the actions we have taken recently, and a more conservative outlook are the right approach today.”
A duo of bipartisan U.S. House of Representatives lawmakers introduced a bill earlier this year that is designed to increase the supply of available homes on the market. And in order to bring more attention to the issue, the lawmakers recently made a public push about what the bill would do if passed.
The “More Homes on the Market Act,” unveiled in March by Reps. Jimmy Panetta (D-Calif.) and Mike Kelly (R-Penn.), would amend the tax code to incentivize more homeowners to sell their houses, increasing the supply of homes available on the market.
The bill would increase the sales gain tax exclusion to $500,000 for single filers and $1 million for joint filers, according to its current language. Currently, single homeowners who sell their home can only exclude $250,000 in gains from capital gains taxes while joint filers can exclude $500,000.
These were amounts “set in 1997 and not indexed for inflation,” Rep. Panetta’s March announcement stated. “This has had an outsized impact on California homeowners who face some of the highest housing costs in the nation.”
The pair introduced the same legislation in September 2022 under the prior Congress, but the bill did not survive beyond referral to the House Ways and Means Committee. The new version of the bill, House Resolution (H.R.) 1321, has picked up five additional cosponsors as it prepares to go to the same committee.
Rep. Panetta told MarketWatch in an interview last week that Congress can address housing supply constraints with the proposed legislation.
“It’s a pretty simple fix and a pretty straightforward bill,” Panetta said. “A lot of people who have owned homes for a long time are in that position of deciding, do I sell my home that has gained a tremendous amount of capital and then take a huge tax hit? Or do I just sit on it, and give it away?”
Housing affordability and supply is becoming an increasingly common focus for federal and state lawmakers and offers a source of bipartisan work at a time of intense political polarization.
Earlier this month, a bipartisan duo in the U.S. Senate introduced a bill that would address a shortage of affordable housing in rural communities by easing the process for non-profits to acquire properties with USDA rural housing loans. It would also decouple the related rental assistance so that the assistance doesn’t end when the mortgages mature.
Absent action at the federal level, states have been aiming to address housing supply issues in their own ways.
In Washington state, Gov. Jay Inslee (D) recently signed 10 different bills taking aim at supply and affordability issues, including a bill that lifts single-family zoning restrictions to allow for more affordable housing units, as well as easier accessory dwelling unit (ADU) permitting and construction within the state.
In Minnesota, the legislature recently approved bills that would preserve affordable housing projects and provide down payment assistance for first-time homebuyers.
Other indexes also show rates trading on the sidelines. The 30-year fixed rate for conventional loans was 6.97% at Mortgage News Daily on Thursday morning, down one basis point from the previous day. HousingWire’s Mortgage Rates Center showed Optimal Blue’s 30-year fixed rate for conventional loans at 6.71% on Wednesday, compared to 6.70% the previous day.
“Mortgage rates decreased slightly this week in anticipation of the pause in rate hikes by the Federal Reserve,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
Officials at the Fed decided in their June’s meeting to maintain rates in the 5% to 5.25% range, following 10 consecutive hikes. Policymakers want to assess how much banks reduced lending levels due to the recent tumult in the sector and evaluate the impact of their rate hikes so far – including in the housing sector.
Fed Chairman Jerome Powell told journalists that housing, a very interest-sensitive sector, it’s the first place that’s “either held by low rates or is held back by higher rates.”
“We now see housing putting in a bottom and maybe even moving up a little bit. You know, we are watching that situation carefully. I do think we will see rents and house prices filtering into housing services inflation. And I don’t see them coming up quickly. I do see them coming kind of wandering around at a relatively low level now.”
The Fed indicated the federal funds rate will end the year at the 5.6% level, which opens the door for two rate hikes in 2023. The reason for more rate increases is the disappointingly slow decline in core inflation so far this year.
According to Powell, “Not a single person on the Committee wrote down a rate cut this year, nor do I think it’s at all likely to be appropriate.”
Analysts at Goldman Sachs said they had not changed their forecast of one additional hike in July to a peak rate of 5.25-5.5%.
“The combination of the hawkish surprise in the dots and the hint at an every-other-meeting pace strengthens our confidence that the FOMC will hike in July and makes a possible second hike more likely in November than September, though neither is in our baseline forecast,” the analysts wrote.
Higher borrowing costs – for a while
In the housing market, the Fed’s actions mean borrowing is likely to remain expensive for the remainder of the year, according to the Realtor.com economic data analyst Hannah Jones.
“Both housing supply and demand remain stifled by affordability constraints. Mortgage rates have been on the high end of the 6-7% range since the beginning of June and home prices have made their typical seasonal ascent, though less aggressively than in summers past,” Jones said in a statement.
According to Jones, the national median listing price fell year-over-year for the first time in the data’s history last week as sellers adjusted their asking prices to attract buyer demand.
“Despite this annual price decline, homes in many areas are out of the feasible price range for many buyers and still-high interest rates are discouraging homeowners from giving up their current mortgage rate and listing their homes for sale.”
Industry economists believe mortgage rates will trend down only at the end of the year.
“As inflation continues to decelerate, economic growth is slowing and the tightening cycle of monetary policy is reaching its apex, which means mortgage rates are expected to decrease later this year and into next,” Khater said.
Higher rates are impacting mortgage lenders’ production. Analysts at Keefe, Bruyette & Woods wrote in a report, “Mortgage volumes are likely to remain under pressure throughout the rest of 2023, given rates remain in the neighborhood of 7%.”
“Additionally, it is unclear how much more capacity needs to be removed from the system, although the exit of Wells Fargo from the correspondent channel has been a meaningful positive,” the analyst wrote. “So, while we remain somewhat cautious on the originators, we would acknowledge that the backdrop has improved.”