crash
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This article is part of a series put together by the Total Mortgage marketing team that provides loan officers and other sales professionals with a crash course in marketing and self-promotion. To read other articles in this series, click here.
Good business doesn’t change.
Or does it?
As the market recovers from the housing crisis, many loan officers and housing professionals are making the mistake of trying to return to a pre-crash business model.
Pre-crash, there was no such thing as a smartphone. Your average homebuyer hadn’t grown up with the internet. Most transactions were conducted over the phone, maybe with an email or two here and there. Unfortunately, this isn’t 2005. Reaching today’s homebuyers requires a different set of skills.
This guide will help start you down the right path.
Meet the next generation of homebuyers
You’ve probably heard the word “Millennials” thrown around to describe today’s college kids and recent grads, but that moniker actually applies to anyone born from the early 80’s up until around 2000.
So while one of the biggest myths out there right now is that Millennials are still years and years away from buying their first homes, that’s simply not true. They’re already here.
So is the intent to buy homes. According to a 2014 survey conducted by Fannie Mae, 76% of younger renters actually think that owning is more sensible than renting in the long term.
What’s more—there are a LOT of them. Millennials number around 76.6 million, more than even Baby Boomers. In a few years, they’ll make up a majority of buyers, and without an understanding of what separates them from past generations, you may find yourself struggling.
Marketing to Millennials
There’s one thing that will never change: a house is still a huge purchase, especially for a generation crippled student loan debt.
Winning over Millennials will be an uphill battle for most loan officers, as they may be the toughest generation to market to yet. In a 2012 Pew Research Center survey, just 19% said most people could be trusted, compared with 40% of Baby Boomers.
To earn the trust of Millennials, you’re going to have to be able to:
- Meet them halfway, on the platforms they use most.
- Be fast, accurate, and personable.
- Promote yourself in ways that make them feel involved, understood, and educated, not marketed at.
- Understand what they value and promote accordingly.
If all that has you scratching your head, don’t worry. We’ll go through the basics components of a good marketing plan next.
Going beyond the phone
Traditionally, the phone has been the key point of contact when it comes to mortgages. Regardless of where the lead came from or how it reached the loan officer, the goal has always been to get that lead on the phone.
But Millennials are much less likely to respond to offers of phone calls so you can talk about their concerns. In fact, many will try to get out of talking to you completely. A greater reliance on personal cell phones over a family landline has turned talking on the phone into a much more personal act.
Many other older marketing tactics also won’t work, either because younger generations have started to abandon the medium or grow wise to marketing lingo:
- Direct mail
- Radio ads
- Print ads
Even email marketing can backfire if not done right. Millennials have grown up sifting through junk mail. They’ll have no problem deleting anything that isn’t relevant to their needs or interests. To learn more about email marketing the right way, our guide on email lead nurturing is a great start.
The importance of a CRM
We’ve already touched on Customer Relationship Management tools (or CRMs) in our blog on referral partners, but here are the basics.
CRMs are built to keep all of your contacts, accounts, leads, referral partners, and emails in one place, organized and ready for you. A CRM isn’t the sort of platform you can wave around to impress prospective clients or referral partners, but it will help you stay on top of all the channels you manage on a day to day basis.
There are tons of platforms out there. If a CRM sounds right for you, shop around before settling on one. At Total Mortgage, we offer our loan officers a few different CRM options just so they can find one that fits their workflow.
Creating content you can market
A great way to build a relationship with potential clients? Give them something valuable, no strings attached, with your name on it. This builds goodwill while attracting potential clients to a space you control—generally a blog or newsletter.
This isn’t a new idea. Way back in 1904, for instance a struggling Jell-O gave out free cookbooks full of Jell-O recipes, only to see their sales balloon to over one million (on a ten cent product).
The trick, of course, is knowing what sort of content will be most valuable to the kind of people who are likely to become your customers. That’s something we can definitely help you out with. We’ve run a popular industry blog for almost 10 years. Our guide to content will be a great jumping off point.
Once you’re ready to post, you encounter a whole new set of problems. In order for your content to reach as many people as possible, you have to make it friendly to search engines like Google. If you’re wondering how we do it, this guide on on-page optimization and this other one on generating links to your page will be a treat for you.
If you’re looking for a way to stand out from the crowd, though, you might want to check into our guide on marketing videos. Total Mortgage creates video for a wide range of uses, and we’ve found that it can really make a difference (especially if you use our tips).
Social media and you
Social media isn’t a hot new fad anymore—it’s a fact of life for a large percentage of the population, Millennials and Boomers alike. That makes it a great way for you to connect directly with your audience and give potential customers a feel for who you are.
Most companies big and small have a Facebook page these days. That’s a great first step, but it’s not going to get you far. If you’re wondering where to go next, we have some great resources on how to get started on other platforms and engaging with followers.
Of course, gathering followers and interacting with your peers isn’t the only thing social media is good for. It also makes for a great advertising platform. Facebook especially offer tons of options for targeting your ads to a specific audience. Take a look at our primer on social advertising here.
Mobile and apps
Housing is a slow and steady kind of industry. Many smaller companies and brokers still haven’t made the jump to online lending, much less considered the part mobile will play in their future.
However, that future is coming up quick. Right now about 56% of internet traffic already comes from mobile devices. That’s a huge number, and it’s only going to go up as new users age into the market.
While updating (or even creating) your site, consider optimizing for mobile, so that it will look nice and stay usable to potential borrowers on the go. Another thing to consider? An app. Our MyTotal Mortgage app has played a huge part in allowing us to reach a new set of homebuyers. It might not be right for everyone, but if you’re working with a larger company that has the resources, consider raising the issue with your sales manager.
Referral partners
In the face of all this talk of SEO and Twitter, it’s easy to overlook the old-school tactics that will still play well with this generation of homebuyers. Namely, building up a network of referral partners.
One thing that hasn’t changed about buying a house? It still takes a small army of people, including realtors, inspector, contractors—you get the picture. By creating a network of professionals you trust (and who trust you), you create opportunities for buyers to find you through word of mouth.
If you’re interested in seeing a breakdown of how Total Mortgage loan officers make this happen, guess what—we have a guide for it. Just click here to learn more.
To get more specifics about what the Total Mortgage marketing team does for our loan officers, check out other articles in this series, or by visiting our career portal.
Source: totalmortgage.com
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How do you know if your business is headed for a crash? Will your income fall off a cliff in 60 to 90 days or will you keep your momentum?
Before there were reliable Seismometers, earthquakes were even more destructive than they are today. Entire cities were built on fault lines and there would be no warning before destruction would ensue. Before tornado sirens, tornadoes would hit and no one would have time to hide in cellars and basements. There was no warning to take action. Before planes and pilots had the ability to detect and report turbulence to the planes around them, turbulence would seemingly come out of nowhere and surprise the passengers, wreck their lunch trays, and freak everyone out. Now they have on-board weather radar and better reporting so they can warn everyone and steer around the disturbances.
Fortunately, we now have seismometers, tornado sirens and turbulence indicators, but what about your early warning signs? How do you know when you’re heading for a crash before you’re actually experiencing turbulence, earthquakes or a tornado to your own income stream?
Five early warning signs you’re headed for a crash
Warning Sign: you’re blaming everyone and everything for your lack of momentum
The blame could be put on market conditions, your broker, lack of inventory, higher interest rates or what party is in office.
Solution
Put down your ‘blame-thrower’ and embrace these affirmations:
“If it’s meant to be, it’s up to me!” and “I’m a do-er, I do things now, I get things done!”
Warning Sign: You’re not exercising
If you’re experiencing a lack of energy or feeling depressed or unmotivated, it could be because you’ve stopped your work out routine.
Solution
There’s an African proverb that says: “When you pray, move your feet!” Get back to exercising, but make it even better for your business. Join OrangeTheory, Zumba, CrossFit or form a walking club in your neighborhood. Being around other people gives you an opportunity to talk about real estate while you’re getting back on your exercise routine!
Warning Sign: You’re not following a profit-driven schedule
Hoping, waiting or speculating for your next few transactions is not a plan. Your daily, profit-driven schedule must include proactive lead generation, furiously fast lead follow-up, pre-qualifying, presenting, negotiating and closing.
Solution
Set a specific, short-term goal of generating new, pre-qualified appointments and leads. If you need three new listings in the next 30 days, your short-term goal is to set at least one new listing appointment this week. What are you doing today to achieve that goal?
Warning Sign: The overconsumption of negative news
You could also call this one the association with negative people or incessantly doom-scrolling. How do you feel when you spend your time this way?
Solution
Follow a media-free morning or media-free day. Unless what you’re watching or listening to is in support of your powerful mindset or providing you valuable market or business knowledge, step away from that media!
Warning Sign: You’re not making enough contact with people ready to transact
Are you conflict-avoiding, contact-avoiding and hiding out from potential business?
Solution
Are you in a position to hear the word ‘no’ every day, so you can hear the word ‘yes’ more often? If not, you’re not having enough conversations about real estate. You must make a minimum number of contacts every day in order to meet or exceed your goals. If you have to do 18 transactions this year, you must make 18 contacts every workday, until your skill drives that ratio down to a lower number.
Follow these solutions to your early warning signs and soon you’ll be back on track and ready to take on the world. Don’t ignore your early warning signs, if you do then you’ll have a big crash ahead!
Tim and Julie Harris host a podcast for real estate professionals. Tim and Julie have been real estate coaches for more than two decades, coaching the top agents in the country through different types of markets.
Source: housingwire.com
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Vin Diesel—he’s just like us. Sort of.
At least, his home is pretty average, as far as movie star properties go. Diesel, bought this Hollywood Hills 2 bedroom/3 bathroom house in 2000 for just $562,500. Vin Diesel previously tried to sell the home for $1.3 million in 2013 and rented it out prior to that. Now it’s on the market for $1.395 million.
While the home may be lacking the 5+ bedrooms, basement bowling alleys, and ballroom-sized living rooms of most celeb crash pads, it still has some great features to help get you past the slightly dated bathrooms. It has beautiful hardwood floors throughout, as well as skylights and a beamed ceiling. Plus there’s also a pool out back. Not bad.
Ready to take a peek?
[huge_it_slider id=”11″]
All photos via Trulia
Filed Under: Uncategorized
Source: totalmortgage.com
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The good news:
While the exact numbers will vary depending on where you live, the latest survey of real estate experts forecasts that home prices will end 2016 up 4.5 percent on year-over-year basis.
And the bad:
Looking forward, they also expect the annual pace of home value appreciation to slow to 3.6 percent in 2017, 3.2 percent in 2018, 3.1 percent in 2019 and to 2.9 percent in 2020.
America’s two housing markets
House prices have always varied greatly by location, but never more so than during the current housing recovery. Prices are—and have been—rising at very different rates in major markets.
Since the housing boom and bust gave way to recovery, the U.S. housing market has seemingly split into two unequal parts: Middle America, and coastal America. Home values are growing rapidly in markets on both East and West Coasts as hot job markets help keep demand for housing high, and more slowly in the Midwest and Heartland, where negative equity is still pervasive and job growth scant.
As a result, Americans—especially younger millennials—are moving away from Middle America and to the coasts in large numbers, whether for jobs, lifestyle preferences or both.
This June, home prices in San Francisco were rising 9.5 percent on a year-over-year basis while prices in Chicago rose only 1.4 percent.
How long will this trend continue?
More than half of those experts in the survey said they believed this trend has either already begun to reverse or will reverse in coming years.
Another 11 percent said this trend was actually an illusion, and that coastal markets are no more or less popular now than they’ve always been relative to Middle America. Just 25 percent of experts with an opinion said the coastal/Middle America split was likely to be permanent.
Of those experts who said the trend was likely to reverse, a majority (56 percent) said job growth in the middle of the country—driven by companies looking for cheaper alternatives to the coasts in which to expand—would eventually lure residents back to the Heartland.
Similarly, almost a quarter (24 percent) said Americans would migrate inland in search of more affordable housing, and 13 percent said Americans would start to seek the most traditional lifestyle that the middle of the country has to offer. Only 2 percent said climate change is likely to force residents away from the coasts.
In addition to the coastal/inland divide, the housing market has also experienced a notable shift between urban and suburban communities. The suburban home – long a symbol of success, stability, and the American Dream—may be losing some of its luster as urban homes grow in value more quickly.
Local factors, like employment and income growth, transportation infrastructure improvements like new highways and mass transit, and new home construction will have as much or more impact on home prices in your community than national or regional factors.
What this means for you
So far, coastal markets have been doing well. Prices are up, and many have started to think they’re on their way back to pre-crash highs. However, thanks to all the possibilities discussed above, that may not be the case at all.
If you’re in a hot coastal market, this can mean three things for you:
- Thinking about selling your home? 2016 might just be the best year to do so.
- Just bought a home this year? Don’t expect your new home to appreciate as it has been, at least through the end of the decade.
- Looking at buying a home as an investment? You’ll probably get a better rate of return in the stock market. However, these predictions will vary greatly depending on where you live.
This, of course, depends on your location.
Source: totalmortgage.com
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“Then came the advent of technology like LP and DU, which changed the game. I vividly remember spending around six hours trying to figure out how to run LP for the first time. Eventually, automation kicked in, and that’s when technology started to make its mark in our industry. In 2001, I graduated with a degree in finance and transitioned from the back end to the front end, and my brother gave me a real challenge – handling all the manufactured home packages. It was a steep learning curve, but I tackled it head-on.”
However, Volpe’s journey isn’t just defined by technological shifts; it’s a story intertwined with market turbulence and resilience. The seismic events of 9/11 and the 2008 market crash cast their shadows, adding layers of complexity to his narrative.
“When the financial crisis hit, it was a tough time for the industry. However, we weathered the storm because we didn’t focus on risky loans like many others did,” he said, revealing the mindset that carried them through the market chaos. “Our approach during that was pretty lean and focused.”
The allure of stated-income subprime loans held little appeal for Volpe’s team. Instead, they embraced a strategy of one loan at a time, minimizing risk and ensuring their longevity even as others faltered.
“Had we chosen that route, we might not have survived,” he said. “Many companies went under because they had a plethora of loans tied up in warehouse lines without investors to support them. Despite the challenges, our team, which we humorously dubbed the ‘bulky team,’ remained the top originating team in Arizona and even among all loan officers nationwide during those years. It was a period of keeping our heads down, finding innovative solutions, and continuing to assist clients.”
Source: mpamag.com
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According to the recent Census report, “Sales of new single‐family houses in July 2023 were at a seasonally adjusted annual rate of 714,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.4% (±12.8%) above the revised June rate of 684,000 and 31.5% (±16.3%) above the July 2022 estimate of 543,000.”
As we can see in the chart below, new home sales are growing, even with the negative revisions we have seen in the report. While existing home sales are still negative year over year, new home sales are growing year over year. While new home sales market is small compared to the existing home sales market; their buyers are older and make more money.
New Home Supply
New home supply is a more complicated matter. There needs to be more clarity on how many active listings this sector can supply in the U.S. Currently, we have 75,000 new homes ready for sale. We are almost back to pre-Covid-19 levels. One thing to remember with the chart below is that even in the worst period of the biggest housing supply crash in history, the new home completed supply stayed below 200,000.
This isn’t the area to look for significant new inventory for sale, folks — it never has been. Most of the active units of supply in scale will have to come from the existing home sales market.
According to the new home sales report, “The seasonally‐adjusted estimate of new houses for sale at the end of July was 437,000. This represents a supply of 7.3 months at the current sales rate.”
Here’s my model for understanding the builders:
- When supply is 4.3 months and below, this is an excellent market for builders.
- When supply is 4.4-6.4 months, this is just an OK market for builders. They will build as long as new home sales are growing.
- When supply is over 6.5 months, the builders will pause construction.
As we can see in the chart below, we have made significant progress in bringing the supply down for the builders, which is suitable for housing permits in the future. However, we aren’t below 6.5 monthly on the three-month average yet.
Another topic that needs more clarification is analyzing the monthly supply data. Breaking down this data (7.3 months) into different categories is vital:
- 1.3 months of the supply are homes completed and ready for sale — about 75,000 homes.
- 4.3 months of the supply are homes that are still under construction — about 254,000 homes
- 1.8 months of the supply are homes that haven’t been started yet — about 108,000 homes
The homes that haven’t been started yet are at an all-time high, and the builder’s confidence has fallen a bit lately, so don’t look for a rush to build until they have a better idea of whether they can sell these homes once they’re complete.
As we can see with today’s new home sales report, it’s a different world for the builders than for existing homeowners who want to sell and move to another home.
The affordability hit for homeowners is real, so the total cost to move has taken a bit out of demand because prices and rates rose so much together. This is the biggest reason new listings data has been trending at the lowest levels ever. However, the builders, for now, have been able to manage these higher rates more efficiently.
Source: housingwire.com
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Existing home sales data
According to the NAR, total existing-home sales — completed transactions that include single-family homes, townhomes, condominiums, and co-ops — waned 2.2% from June to a seasonally adjusted annual rate of 4.07 million in July. Year-over-year, sales slumped 16.6% (down from 4.88 million in July 2022). “Two factors are driving current sales activity – inventory availability and mortgage rates,” said NAR Chief Economist Lawrence Yun. “Unfortunately, both have been unfavorable to buyers.”
As we can see in the chart below, since 2010, whenever rates rise, demand falls. When rates fall, demand picks up again. What happened with existing home sales in February was that we had three months of positive purchase application data as mortgage rates fell from 7.37% to 5.99%. We had a massive one-month print from 4 million to 4.5 million. After that, little has been happening with existing home sales — mortgage rates and home prices are too high to push growth.
No movement in purchase apps
Purchase application data year to date has 16 negative prints versus 14 positive prints and one flat print. So, there is little movement in either direction. If I swing back to November 9, 2022, then we have 21 positive prints. Hopefully, this shows you the power of forward-looking purchase apps data, which aren’t collapsing currently, but they’re not growing either. We are stuck at deficient levels but heading lower as mortgage rates have risen.
Now let’s look at the buyer profile and the days on the market. Days on the market are growing year over year, positive for housing, but still too low for my taste. You must understand that days on the market are seasonal, so we will be entering the timeline when the days on the market will grow. The key is to focus on the year-over-year data rather than the seasonal fall and rise.
@NAR_Research
First-time buyers were responsible for 30% of sales in July; Individual investors purchased 16% of homes; All-cash sales accounted for 26% of transactions; Distressed sales represented 1% of sales; Properties typically remained on the market for 20 days. #NAREHS
“Total housing inventory registered at the end of July was 1.11 million units, up 3.7% from June but down 14.6% from one year ago (1.3 million). Unsold inventory sits at a 3.3-month supply at the current sales pace, up from 3.1 months in June and 3.2 months in July 2022,” according to NAR.
Historical inventory levels
Even with the biggest one-year sales crash ever, NAR-reported inventory levels are still near all-time lows. If most home sellers are buyers, then when they list their homes, they know they’re qualified to buy a home at current rates. Hopefully, this explains why we still have low active listings data. Traditionally, we have between 2-2.5 million active listings, currently at 1.11 million.
NAR Inventory data going back to 1982.
Today’s existing home sales data shows that we were slowing down again — even before the recent move in higher mortgage rates. However, home sales aren’t crashing like in 2022, and inventory has been negative year over year for some time now. This is a much different housing cycle than the ones we have seen in previous decades.
The 30-year mortgage and low total housing cost has made the American home not only the best hedge against inflation but a hedge against an aggressive Federal Reserve. Remember, sellers are buyers, and we lack both to push more housing demand in the existing home sales market.
Source: housingwire.com
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Don’t call it a comeback,
Good demographics and low mortgage rates have been here for years,
Rockin’ the bubble boys
Puttin’ the bears in fear
That’s a reference to the song “Mama Said Knock You Out” from L.L Cool J. I have used this in other articles and interviews, which runs in line with my big macro take that what drives the housing market are mortgage rates and demographics. So, you shouldn’t be surprised about what I am writing today.
Today, purchase application data confirmed what I needed to see to justify that we should get a positive total existing-home sales year in 2020. Yes, as crazy as it sounds, we can do this for the existing home sales market in 2020.
I wanted to see at least 20 straight weeks of double-digit year-over-year growth on average to make up for the nine negative weeks we saw due to COVID-19. Those nine negative weeks came at a crucial time for the MBA purchase application data as it was right in the data line’s heat months. So, we had a lot of work to do to get back to the point where we can go positive, but it happened.
The MBA report shows the year-over-year growth for the last eight weeks has been +21%, +22%,+25%,+6%, +40%,+28% +33% and +27%. As you can see in the chart, these last eight weeks have created enough demand to move the total volumes higher than we would see during the heat months, which is during the second week of January to the first week of May. Since this data looks out 30-90 days, it’s enough demand to help the existing home sales market, which is still a negative year to date, to be positive for the year. The only thing that can stop this is some non-economic events at this stage since we are in October.
Also, throwing this out there. What happened to the ‘we have no homes to buy’ crowd, and the idea that credit is getting too tight? It looks like credit is getting tighter on the surface, and that we have no homes to buy. However, both ideas are incorrect, as I have been talking about all year. Once demand picks up, sales will pick as we have plenty of homes to buy to get sales back positive. I have also tried my best all year to try to debunk the tight credit thesis, which is a common fairy tale these days. More on that here.
While the Bubble Boys were talking smack that we were in trouble and the Forbearance Crash Bros were snarling at us, king demographics and low mortgage rates showed these kids who was really in charge. However, jobs are not done; let’s get 2020 into positive territory to show these overrated rookies who are the real bosses.
Source: housingwire.com
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Mortgage rates only kept climbing in the last week. Buyers in this real estate market notice these affordability changes, and so we can see in the data fewer home purchase offers, slightly climbing unsold inventory, and slightly more price reductions for the homes that are on the market. This is the same pattern as we talked about last week. The first half of the year had surprisingly resilient sales, but that is slowing again. Mortgage rates are at their highest level in 20 years because the economy just keeps reporting strong data. And every uptick in mortgage rates leads to a downtick in the number of home buyers in the market.
Rising rates make more inventory. So how much inventory will we add this fall? Well as of now, these slowing signals are subtle. This housing market is much different from last year at this time. Last year, rates climbed dramatically and so did inventory. Now rates are inching up, and so is inventory. If mortgage rates jump to say 8%, that’s when we’d see big changes in inventory and home prices. Keep watching these numbers here.
Inventory
Inventory of unsold homes on the market is ticking up. It now doesn’t look like next week will be the peak of inventory for the season. It looks like inventory will keep climbing into September. There are now 495,000 single-family homes unsold active on the market. Inventory rose by just under 1% again this week.
This inventory climb at the end of August is not unusual. It’s not a rapid rise, but it also doesn’t appear to be leveling off. Inventory often peaks the last week of August, the fall has fewer sellers and it keeps shrinking through the holidays. Now because mortgage rates have been notably climbing for the last several weeks, we also expect inventory to keep climbing into September as fewer buyers make offers on the existing inventory.
There are 10% fewer homes on the market now than last year at this time. Last year inventory spiked from March through July with spiking mortgage rates. Then it leveled off a bit. So this week inventory lost ground on last year. The inventory gain week to week was more than it was last year at this time. That’s the first time this happened in many months. Last week there were 10.5% fewer homes on the market, this week that’s only 10% fewer. This is one of the subtle signals that higher mortgage rates have slowed this year’s home buyers again.
To understand the future of housing inventory in this country remember the Altos Rule. The Altos rule says that the more available inventory of homes to buy is the result of higher mortgage rates. If rates climb, so does inventory. If rates fall, inventory will fall.
There are 365,000 single-family homes in contract now. That’s up a fraction from last week and 10% fewer than last year at this time. New pending sales of single-family homes going into contract this week came in at 63,000 vs 70,000 last year. In this chart, the height of each bar is the total number of homes in contract that week. The light red portion of the bar represents those newly in contract. The sales rate has slowed since rates did their latest jump of over 7%. In fact, I’d expect the NAR headlines to keep falling on the pending sales measure as well. We could see the sales rate tick down to four million annually on their seasonally adjusted annual rate in the next couple of months.
I’m looking forward to the time when the real-time data starts to grow and the sales rates look more bullish than the headlines, but that’s not happening yet. As we watch the new pending home sales data each week, the next trend we’ll be looking for is how quickly the new pending sales rate shrinks this autumn. See in the chart how the light red portion of each bar shrank so quickly last fall. We had some recovery in the first half of this year. We started the year with 30% fewer homes in contract.
That gap narrowed to just 10% fewer. But we’ve been unable to get closer than that. The market was accelerating this spring, but it is not doing so now. I suppose these negative swings are the other side of the coin for what I’ve called a soft landing in housing. Housing demand cratered, but home prices didn’t crash. Home prices declined in July and September last year, and recovered a bit in the first half of this year. Now demand is softening again and that will keep home prices from appreciating much from here.
American homebuyers are very sensitive to mortgage interest rates. And while higher mortgage rates have hurt affordability for so many, it’s really the change in rates that spur changes in demand. Early this year we had more home buyers than sellers, even with rates in the six-percent range. When rates jump to 7.2% that’s when we see the demand data react accordingly. So it’s not the absolute level, it’s the change in rates that we should be paying attention to.
Price
And we can see it in the home price reduction data too. Price reductions are about to inch above 2018 and 2019 again. 35.5% of the homes on the market have had price reductions. Price cuts always tick up late in the summer, and this year’s seasonal increase is speeding up just a bit with the recent higher mortgage rates. Each week we have slightly fewer buyers, making slightly fewer offers, so slightly more sellers cut their asking prices.
Watching this price reduction curve has been so valuable lately. So insightful. In this chart, each line is a year. You can see last year’s light red line started climbing in March. That told us the pandemic frenzy was over. In September last year, price reductions spiked again with mortgage rates. This year, the dark red curve showed us how rapidly the market was recovering. That told us there was a floor on how far home prices could fall. It really highlights how effective this stat is for understanding the future of home sales prices. Right now 35.5% of the homes on the market have had a price cut.
This is a totally normal level. It is rising, not rising fast, it’s not a strong signal, but it is rising faster than in recent years for August. That tells us that sellers are seeing fewer buyers than they anticipated. This buyer slowdown means any home price appreciation we’ve had year over year is weakening and may be in jeopardy.
Tracking price reductions on the listed homes on the market is really insightful at the local level too. Right now we can see for example that Austin Texas has the most price reductions of any big market and that seems to be climbing. You can use the Altos data to understand local differences which are so important right now.
The median price of single-family homes right now across the country is $449,900. That’s basically unchanged from last week and from last year. Prices tend to cluster around the big round numbers, in this case, $450,000, with a big group priced just under that for search purposes. So home prices are at this $450,000 plateau for a while. That’s the dark red line on this chart. See at the far right end the little plateau. Home sales prices in the future are falling because we can see the ask prices are very stable. Much more stable than they were last year at this time.
The median price of the newly listed cohort this week is $399,000 again that’s also unchanged from last week. That’s the light red line on this chart. The price of the newly listed homes is 1.3% higher than last year at this time. This is when homes go on the market, the sellers and the listing agents know where the demand is, where the buyers are and they price accordingly. So the price of the new listings is an excellent leading indicator of where home sales prices will be out in the future.
We’re in this tricky space looking at year over year home price changes now. Last year the market was slowing so quickly that the comparisons now to last year start to look easier. Prices were falling last year with frozen demand. This year the market is slowing gradually. You can expect that the annual home price appreciation would continue to improve even though the momentum is a bit negative right now. It looks like we’ll end 2023 with home prices up a few percent over where 2022 ended.
And when we look at the price trends for the homes going into contract, we can see the earliest proxy for the sales which will actually close and get recorded in September and October. You can see that the last several weeks have put a little downward pressure on what home buyers are willing to pay. See how the dark red line was above last year for a few months and then in recent weeks, the dark red line is compressing closer to the light red line. That’s sales prices giving up their annual gains with higher mortgage rates.
The median price of the homes that went into contract this week is $378,000. That’s up a tick from last week and over last year, but you can see in the chart the dark red line is drifting lower. Now, the sales comparison gets a lot easier in September when we had that big rate spike in 2022. So assuming we don’t have another mortgage rate spike, the annual price appreciation will continue to improve. On the other hand, if we see 8% mortgage rates, there’s no reason to believe that home prices can’t gap down again like they did last year.
Again this is a very clear reaction to the latest surge in mortgage rates. We have fewer buyers and those buyers are willing to pay just a little bit less. The opposite is true too. If rates were to drift lower, you can expect more buyers, less inventory, fewer price cuts and higher prices in data measures like this one the price of the newly pending sales each week. The data is very clear right now.
See you soon.
Mike Simonsen is the president of Altos Research.
Source: housingwire.com