Builder sentiment in the market for single-family homes rose 1 point in July to 56, according to the National Association of Home Builders/Wells Fargo Housing Market Index.
It marks the seventh straight month of gains and the highest level since June 2022. A reading above 50 is considered positive sentiment.
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Builders say low supply in the resale market is driving demand for new construction, but higher mortgage rates and supply-side challenges continue to put pressure on the market.
“Although builders continue to remain cautiously optimistic about market conditions, the quarter-point rise in mortgage rates over the past month is a stark reminder of the stop and start process the market will experience as the Federal Reserve nears the end of the ongoing tightening cycle,” said Robert Dietz, NAHB’s chief economist.
The average rate on the popular 30-year fixed mortgage crossed over 7% briefly in May and then again at the end of June. It has only come down slightly in the last week. Those higher rates are straining affordability in the market, where prices for existing homes are rising yet again.
Of the NAHB index’s three components, current sales conditions in July rose 1 point to 62; buyer traffic increased 3 points to 40, the highest reading since June of last year; and sales expectations in the next six months fell 2 points to 60. The drop in expectations is due to that jump in interest rates and the resulting hit to affordability.
Despite higher mortgage rates, however, builders are using fewer incentives. Just 22% of builders reported cutting prices in July. This is down from 25% in June and 27% in May.
Sales of newly built homes in May, the latest reading available, jumped 13% compared with April and were 20% higher than May 2022, according to the U.S. Census Bureau. The median price was down over 7% from May of last year, but that median may be skewed by the mix of homes selling, which is currently leaning toward the lower end.
Before the 2008 housing crisis, home sellers would offer DPA to FHA borrowers and raise the sales price to cover the cost, creating exaggerated losses for the FHA program.
The housing environment is different today – where a lender has far less control over a home’s sales price and no control over the appraiser, according to a paper published by Ted Tozer, a non-resident fellow at Urban Institute and the former president and CEO of Ginnie Mae.
“By lifting this restriction to allow lenders to provide DPA, either through self-funding or through a grant program, policymakers could help remove the down payment obstacle for many families,” Tozer said.
Lenders could provide DPA through two channels — the first channel through self-funding offered on an unlimited basis.
The lender could charge the borrower a 1% higher interest rate to fund a 3.5% down payment, which would allow the lender to issue a Ginnie Mae–guaranteed mortgage-backed security (MBS) that would generate enough of a premium to fund the required down payment, Tozer explained.
These loans would still have access to all the features of the FHA streamline refinance program, allowing borrowers to reduce their payments if they stay on their new mortgage.
“Given the robustness of using premium-price Ginnie Mae MBS to fund the program, there wouldn’t be a need to limit its availability,” Tozer said.
The second channel would be through a grant provided by the lender’s corporate funds.
Since lender grants have limited funding, the programs could be restricted to specific income levels and priority markets, the paper noted.
Through this channel, borrowers would still have to pay mortgage insurance costs – which would come down to the difference between the private mortgage insurance that the GSE loans require and the 0.55% annual mortgage insurance premium required by the FHA.
“The FHA could work with Congress to amend the FHA Modernization Act so only entities that can affect the home’s sales price are banned from providing DPA,” Tozer said.
As an alternative solution, Tozer floated the idea of making the FHA program a zero-down-payment program – a proposal first made by the George W. Bush administration in 2004.
“If this change were made, the FHA program would join the other government-insured programs offered by the U.S. Department of Veteran Affairs and the U.S. Department of Agriculture that do not require a down payment,” Tozer noted.
The paper’s suggestion to amend the FHA Modernization Act comes amid affordability pressures on first-time homebuyers.
The lack of homes for sale is driving up home prices and the 30-year fixed rates have been hovering near 7% in the past two months.
“Housing affordability remains dangerously close to the 37-year lows reached late last year, despite the Federal Reserve’s attempts to cool the market,” said Andy Walden, Black Knight’s vice president of enterprise research.
Here we go with another week. Current mortgage rates are dealing with the slightest bit of upward pressure this morning, as bond yields continue to push higher.
The rest of the week is somewhat light on economic data, but that doesn’t mean that mortgage rates won’t bound around at all. Read on for more details.
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Market Outlook 2.5.18 from Total Mortgage on Vimeo.
Where are mortgage rates going?
Rates flat to start the week – still poised to increase
Mortgage rates moved higher on Friday after a strong monthly jobs report for January got released, increasing investor optimism for more rate hikes from the Fed in 2018.
Click here to get today’s latest mortgage rates (Jul. 21, 2023).
If this trend holds over the next few days, that will mean another big spike for rates in the Freddie Mac Primary Mortgage Market Survey (PMMS). We’ve already seen the average rate on a 30-year fixed rate mortgage jump up twenty-seven basis points (one basis point = 0.01) since the first week of the year.
The average rates on a 30-year fixed rate mortgage made its way up to 4.22% (0.5 points) in last Thursday’s PMMS. With mortgage rates on the rise for four consecutive weeks now, one’s natural curiosity begins to wonder where and when the climb will end.
Given the market’s expectations for a strengthening economy and multiple increases to the federal funds rate throughout the year, the general consensus is that mortgage rates will continue to move higher as the year unfolds.
Trying to hang your hat on a narrow target for where mortgage rates will be in a few months, let alone a year, is a mostly losing game due to the many moving parts at play; however, predictions are still made and at the moment we’re seeing a few different sources calling for the 30-year fixed rate at 5.00% by the year’s end.
That would no doubt be a massive step up from where rates are right now, but it’s certainly not out of reach with the way rates have kicked off the year. In an environment of continually rising rates, the obvious best move is to lock in a rate as soon as possible before rates have a change to get any higher.
Of course, there are always personal factors that come into play with different borrowers, which is why talking through your scenario with a seasoned mortgage professional is extremely beneficial to determining your ideal path forward.
Federal Reserve has new chairman
The big news this morning out of the Federal Reserve is the swearing in of the newest Fed chairman, Jay Powell. You can read the full transcript of Powell’s first comments as chairman here.
It was a fairly brief and to the point opening statement, with Powell towing the party line on economic growth and price stability. Powell, who was already a member of the Fed (Fed Governor), takes on his new role at an interesting time for the U.S. economy, with the stock market struggling and bond yields rising.
On top of that, we’re only a little more than a month away from the Fed’s March meeting–when the FOMC is widely expected to raise the federal funds rate for the first time in 2018 by a quarter point.
Looking ahead to the rest of the week
We’ve actually got a fairly light week of economic data ahead of us. There aren’t any major market moving reports scheduled for release–only a small batch of minor reports that are unlikely to sway mortgage rates too far in either direction.
This does open up the door for international data and political events to have more of an influence on the markets. It also brings with it the potential for the status quo to continue, meaning last week’s bump higher from the monthly jobs report won’t be retreating back down.
Rate/Float Recommendation
Lock now before rates rise further
Current mortgage rates are poised to continue rising over the coming weeks and months. While there’s always the possibility that we will get a few dips here and there, the long term trend is certainly for rates to move higher.
If you’re looking to refinance or purchase a home in 2018, your best bet is likely going to be to lock in a rate sooner rather than later. As stated, many analysts have been calling for rates to hit 5% on a 30-year fixed rate.
Click here to head to our Mortgage Builder and figure out how much you could save.
Today’s economic data:
PMI Services Index
The PMI Services Index hit a 53.3 in January. That’s slightly below the prior reading and exactly what analysts had expected. This is a 9-month low.
ISM Non-Mfg Index
The Composite Index hit a 59.9 in January. That’s up from the prior revised reading of 56.0.
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Notable events this week:
Monday:
PMI Services Index
ISM Non-Mfg Index
Tuesday:
International Trade
Fedspeak
JOLTS
Wednesday:
Fedspeak
EIA Petroleum Status Report
10-Yr Note Auction
Thursday:
Fedspeak
Jobless Claims
Friday:
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Carter Wessman
Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.
A few notable mortgage rates slumped over the last seven days. The average interest rates for both 15-year fixed and 30-year fixed mortgages slid down. We also saw a cut in the average rate of 5/1 adjustable-rate mortgages.
As inflation surged in 2022, so too did mortgage rates. To rein in price growth, the Federal Reserve began bumping up its federal funds rate — a short term interest rate that determines what banks charge each other to borrow money. By making it more expensive to borrow, the central bank’s goal is to reduce prices by curtailing consumer spending.
After hiking interest rates 10 times since March 2022, the Fed pumped the brakes at its June meeting. The central bank’s federal funds rate will remain at a range of 5.00% to 5.25% for the time being, although the Fed hasn’t ruled out the possibility of further increases if inflation doesn’t continue to moderate. The Fed will decide whether or not to raise rates at its next meeting on July 26.
Current Mortgage Rates for July 2023
Mortgage rates change every day. Experts recommend shopping around to make sure you’re getting the lowest rate. By entering your information below, you can get a custom quote from one of CNET’s partner lenders.
About these rates: Like CNET, Bankrate is owned by Red Ventures. This tool features partner rates from lenders that you can use when comparing multiple mortgage rates.
The most recent Consumer Price Index, a popular gauge of price growth, shows that the Fed’s string of rate hikes is having its intended effect. Annual inflation is now at 3.0% for the 12-month period ended in June, which is the lowest it’s been in more than two years.
The Fed doesn’t set mortgage rates directly, but it does play an influential role. Mortgage rates move around on a daily basis in response to a range of economic factors, including inflation, employment and the broader outlook for the economy. A lower inflation rate is good news for mortgage rates, but the potential for additional hikes from the central bank this year will keep upward pressure on already high rates.
“Mortgage rates will continue to ebb and flow week to week, but ultimately, I think rates will stick to that 6% to 7% range we’re seeing now,” said Jacob Channel, senior economist at loan marketplace LendingTree.
Rather than worrying about mortgage rates, though, homebuyers should focus on what they can control: getting the best rate they can for their financial situation.
To increase your odds at qualifying for the lowest rate available,take the steps necessary to improve your credit score and to save for a down payment. Also, be sure to compare the rates and fees from multiple lenders to get the best deal. Looking at the annual percentage rate, or APR, will show you the total cost of borrowing and help you make an apples-to-apples comparison among lenders.
30-year fixed-rate mortgages
The average 30-year fixed mortgage interest rate is 7.23%, which is a decrease of 14 basis points compared to one week ago. (A basis point is equivalent to 0.01%.) Thirty-year fixed mortgages are the most common loan term. A 30-year fixed mortgage will usually have a higher interest rate than a 15-year fixed rate mortgage — but also a lower monthly payment. You won’t be able to pay off your house as quickly and you’ll pay more interest over time, but a 30-year fixed mortgage is a good option if you’re looking to minimize your monthly payment.
15-year fixed-rate mortgages
The average rate for a 15-year, fixed mortgage is 6.48%, which is a decrease of 11 basis points compared to a week ago. You’ll definitely have a larger monthly payment with a 15-year fixed mortgage compared to a 30-year fixed mortgage, even if the interest rate and loan amount are the same. However, if you’re able to afford the monthly payments, there are several benefits to a 15-year loan. You’ll most likely get a lower interest rate, and you’ll pay less interest in total because you’re paying off your mortgage much quicker.
5/1 adjustable-rate mortgages
A 5/1 ARM has an average rate of 6.19%, a fall of 5 basis points compared to a week ago. With an adjustable-rate mortgage mortgage, you’ll usually get a lower interest rate than a 30-year fixed mortgage for the first five years. However, you could end up paying more after that time, depending on the terms of your loan and how the rate adjusts with the market rate. Because of this, an ARM might be a good option if you plan to sell or refinance your house before the rate changes. Otherwise, changes in the market mean your interest rate could be much higher once the rate adjusts.
Mortgage rate trends
Mortgage rates were historically low throughout most of 2020 and 2021 but increased steadily throughout 2022. Now, mortgage rates are well above where they were a year ago. Fewer buyers are willing to jump into the housing market, driving demand down and causing home prices in some regions to ease. But that’s only part of the home affordability equation.
“Interest rates have been much higher in the past and people bought homes and financed homes at those rates,” said Daniel Oney, research director at the Texas Real Estate Research Center at Texas A&M University. “But it’s been hard for people to react to such a rapid increase in just a short amount of time.”
Even though the Fed hit pause on rate hikes in June, mortgage interest rates will continue to fluctuate on a daily basis. That’s because mortgage rates aren’t tied to the federal funds rate in the same way other products are, such as home equity loans and home equity lines of credit, or HELOCs.
As long as inflation continues to trend downward, though, mortgage rates should decline slightly towards the end of 2023. The most recent housing forecast from Fannie Mae calls for the average 30-year fixed mortgage rate to close out the year at around 6.3%.
“Mortgage rates have been volatile for some time now and while they could eventually start trending down over the next six months to a year as inflation growth continues to cool, their path is probably going to be bumpy,” Channel said.
We use data collected by Bankrate to track rate changes over time. This table summarizes the average rates offered by lenders nationwide:
Current average mortgage interest rates
Loan type
Interest rate
A week ago
Change
30-year fixed rate
7.23%
7.37%
-0.14
15-year fixed rate
6.48%
6.59%
-0.11
30-year jumbo mortgage rate
7.26%
7.39%
-0.13
30-year mortgage refinance rate
7.33%
7.44%
-0.11
Rates as of July 18, 2023.
How to find the best mortgage rates
To find a personalized mortgage rate, talk to your local mortgage broker or use an online mortgage service. When shopping around for home mortgage rates, consider your goals and current financial situation.
Specific mortgage rates will vary based on factors including credit score, down payment, debt-to-income ratio and loan-to-value ratio. Having a higher credit score, a larger down payment, a low DTI, a low LTV or any combination of those factors can help you get a lower interest rate.
Apart from the interest rate, other factors including closing costs, fees, discount points and taxes might also affect the cost of your house. Be sure to comparison shop with multiple lenders — such as credit unions and online lenders in addition to local and national banks — in order to get a mortgage loan that’s the best fit for you.
What’s the best loan term?
When picking a mortgage, you should consider the loan term, or payment schedule. The loan terms most commonly offered are 15 years and 30 years, although you can also find 10-, 20- and 40-year mortgages. Mortgages are further divided into fixed-rate and adjustable-rate mortgages. The interest rates in a fixed-rate mortgage are fixed for the duration of the loan. For adjustable-rate mortgages, interest rates are stable for a certain number of years (typically five, seven or 10 years), then the rate adjusts annually based on the market rate.
When choosing between a fixed-rate and adjustable-rate mortgage, you should consider the length of time you plan to live in your house. Fixed-rate mortgages might be a better fit if you plan on staying in a home for quite some time. Fixed-rate mortgages offer more stability over time compared to adjustable-rate mortgages, but adjustable-rate mortgages may offer lower interest rates upfront. If you aren’t planning to keep your new home for more than three to 10 years, however, an adjustable-rate mortgage might give you a better deal. There is no best loan term as a general rule; it all depends on your goals and your current financial situation. It’s important to do your research and think about your own priorities when choosing a mortgage.
After two consecutive weeks of increases, mortgage applications decreased 6.9% in the week ending June 25, 2021, according to the latest report from the Mortgage Bankers Association.
Mortgage applications had increased 2.1% and 4.2% in the previous two weeks, respectively.
The 6.9% dip brought application volume to its lowest level in almost 18 months, according to Mike Fratantoni, MBA’s senior vice president and chief economist. Purchase applications for conventional loans also declined to its lowest level since May 2020.
“Mortgage rates were volatile last week, as investors tried to gauge upcoming moves by the Federal Reserve amidst several divergent signals — including rising inflation, mixed job market data, strong consumer spending, and a supply-constrained housing market that has led to rapid home-price growth,” Fratantoni said.
“As the economy progresses and inflation remains elevated, we expect that rates will continue to gradually rise in the second half of the year,” added Sam Khater, Freddie Mac’s chief economist. “For those homeowners who have not yet refinanced – and there remain many borrowers who could benefit from doing so – now is the time.”
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The refinance share of activity decreased to 61.9% of total mortgage applications from 62.5% the previous week. On an unadjusted basis, the market composite index decreased 7% compared with the previous week. The seasonally adjusted purchase index also decreased 5% from one week earlier.
The FHA share of total mortgage applications remained unchanged at 9.5% from the week prior, and the VA share of total mortgage applications also decreased to 10.5% from 11.2%.
Here is a more detailed breakdown of this week’s mortgage applications data:
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) rose to 3.20% from 3.18%
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $548,250) decreased to 3.23% from 3.26%
The average contract interest rate for 30-year fixed-rate mortgages decreased to 3.19% from 3.21%
The average contract interest rate for 15-year fixed-rate mortgages also decreased to 2.56% from 2.58%
The average contract interest rate for 5/1 ARMs increased to 2.98% after remaining unchanged for the last two weeks at 2.69%, with points decreasing from 0.26 (including the origination fee) for 80% LTV loans
In August 2020, Taylor Lopez and her husband Joseph bought their home for $180,000 in the fast-growing city of Anna.
They bought the three-bedroom house built in 1966 with a loan carrying a 3.8% mortgage rate. “From an investment standpoint, it felt like a good choice,” said Lopez, 36, a real estate manager for restaurant chain Wingstop.
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Dallas-Fort Worth home sales, prices only take slight hit from higher mortgage rates
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After more than two years in the home, they’ve been thinking about selling. Joseph works in Lewisville and Taylor works in Addison, so they would like to find a place offering a shorter commute.
D-FW Real Estate News
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But, like many other would-be upsizers in Dallas-Fort Worth, the couple feels locked into their current home.
Although they could get a good return on a sale, they would have to shop in a dramatically more expensive housing market than when they first purchased and sacrifice their current loan for a new one at a much higher rate.
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After a wave of low-rate homebuying and refinancing from 2020 to 2022, more than half of outstanding Texas mortgages have rates of less than 4%, according to Federal Housing Finance Agency data.
Since last fall, the average rate for a 30-year, fixed-rate mortgage has been hovering between 6% and 7%.
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“There are people that want to sell, but that is what is keeping them there at their house,” said Misty Michael, a real estate agent in the Sachse and Plano area.
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The Lopez family said any home they would want to buy, in school districts they want to be in and that wouldn’t require a lot of work, would start in the $400,000 range.
“It doesn’t make sense when you weigh out all the pros and cons, so we’re continuing to drive about an hour each way to work,” Lopez said. “We could always purchase a home at a higher interest rate, then refinance it if the interest rates go down, but that’s an if and when situation.
“When you’re playing with that much money, it doesn’t seem like a risk I’m willing to take right now.”
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Changing math
Since the start of 2020, the median price of a single-family home in Dallas-Fort Worth has risen more than 50%, according to North Texas Real Estate Information Systems and the Texas Real Estate Research Center at Texas A&M University.
On top of that, the Federal Reserve has aggressively increased its federal funds rate for more than a year, indirectly driving up mortgage rates. Freddie Mac recorded an average 30-year mortgage rate of 6.96% on July 13.
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The result: The monthly principal and interest payment for a median-priced Dallas-Fort Worth home at the average rate with a 20% down payment, before insurance or property taxes, was about $980 in January 2020. In June, it was more than $2,100.
For buyers who purchased a $300,000 home at the record low of 2.65% in January 2021, just buying a house at the same price again at today’s average rate would add almost $900 to their monthly payments before taxes and insurance.
Purchasing a bigger or nicer home would add significantly more to that already-elevated payment, so people with job promotions or babies on the way looking to upgrade to bigger homes may not find a good enough deal to justify it financially.
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“It now is significantly more expensive to make these marginal changes that you might have been planning,” said Texas A&M economist Adam Perdue. He and his wife are expecting a baby soon and have considered getting a bigger home, but they too have a low rate on their home in Brazos County and don’t want to take on higher monthly payments.
While prices are declining slightly year to year, Texas A&M economists don’t expect them to return to where they were at the beginning of 2020. Rates are also expected to decline, but not back down to the record lows. Mortgage Bankers Association forecasts rates in the 5% range by 2024.
Still buying and selling
As mortgage rates rose and sellers held back, new single-family home listings in Dallas-Fort Worth dropped 22% between June 2022 to June 2023, limiting options for people looking to buy.
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Buyers with an immediate need to move are still purchasing homes, and people continue to move to Texas from other parts of the country. Local home sales recorded in June were down only slightly from a year before.
“We have a ton of buyers that are wanting to buy a home,” Michael said, adding that buyers may choose to refinance later. “You have people getting married, having babies, kids going to college.”
More casual buyers without an immediate need to move may no longer be shopping, said Drew Kayes, who heads up homebuying company Opendoor’s operations in Dallas-Fort Worth and Houston.
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“A lot of those folks right now are not in the market because they’re locked into a sub-4% rate, and that’s more of a luxury move than a necessity move,” Kayes said.
Jason Dickson, co-owner of North Texas-based Nuwave Lending, said while it may be hard for homeowners to leave their current home, it may be worth it for them to tap into equity they’ve built up during the pandemic to pay off credit card debt or auto loans.
“They’ll gladly sign up for the higher interest rate in the new house if they have the benefit of taking that equity and improving their overall financial position,” he said.
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A silver lining
Nipun Gadhok, 31, doesn’t want to lose his 3% rate but hopes to purchase a new home for him and his girlfriend next year.
Gadhok, a development manager for the Nehemiah Co., a local firm behind residential communities throughout Dallas-Fort Worth, purchased his five-bedroom home in Fort Worth’s Augusta Meadows neighborhood in 2021.
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He’s looking to buy a home along the outskirts of the metro area, potentially in one of his company’s developments on the east end of Mesquite. Knowing he has a rate he may never get again, he’s not planning to sell his Fort Worth house.
He intends to keep it as a rental property and is already renting out rooms to four other tenants. With mortgage rates causing many people to rent, that’s turning out to be a good side hustle.
“People are choosing to rent, they are not as much inclined to buy,” Gadhok said. “The rates really helped me out in the way that I’m not having problems with finding tenants.”
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With elevated mortgage rates sidelining both home buyers and sellers, existing home sales fell in June, according to the latest report from the National Association of Realtors (NAR). Sales were also down significantly from a year prior.
Total existing home sales slipped 3.3% in June from the prior month to a seasonally adjusted annual rate of 4.16 million. Year-over-year, sales dropped 18.9% from 5.13 million in June 2022.
“The first half of the year was a downer for sure with sales lower by 23%,” said Lawrence Yun, NAR’s chief economist. “Fewer Americans were on the move despite the usual life-changing circumstances. The pent-up demand will surely be realized soon, especially if mortgage rates and inventory move favorably.”
The median existing-home price in Junefor all housing types – which includes single-family homes, condos and townhouses – was $410,200, the second-highest price of all time and down 0.9% from the record-high of $413,800 in June 2022. The monthly median price surpassed $400,000 for the third time, joining June 2022 and May 2022 ($408,600). Also noteworthy, prices rose in the Northeast and Midwest but waned in the South and West.
We’ve seen home sales drop on an annual basis since the Federal Reserve began hiking the benchmark rate in spring of 2022. Mortgage rates have settled into the 6% to 7% range over the last three months, depressing existing home sales.
Total housing inventory recorded at the end of June was 1.08 million units, unchanged from May, but down 13.6% from June 2022 (1.25 million). Meanwhile, unsold inventory sits at a 3.1-month supply at the current sales pace, up slightly from 3.0 months in May and 2.9 months in June 2022, NAR said.
“Home sales fell but home prices have held firm in most parts of the country,” NAR’s Yun added. “The national median home price in June was slightly less than the record high of nearly $414,000 in June of last year. Limited supply is still leading to multiple-offer situations, with one-third of homes getting sold above the list price in the latest month.”
Although all four regions experienced year-over-year sales declines, the Northeast fared better while the Midwest held steady, and the South and West posted decreases.
Zooming in on the Northeast, existing-home sales there grew 2.0% from May to an annual rate of 510,000 in June, down 21.5% from June 2022. The median price was $475,300, up 4.9% from the prior year. In the Midwest, existing-home sales remained unchanged from one month ago at an annual rate of 990,000 in June, decreasing 19.5% from one year ago. The median price there was $311,800, up 2.1% from June 2022. In the South, existing home sales disappointed as they faded 5.4% from May to an annual rate of 1.91 million in June, a decrease of 16.2% from the previous year. The median price was $366,600, down 1.2% from June 2022. Lastly, in the West, existing-home sales declined 5.1% from the previous month to an annual rate of 750,000 in June, down 22.7% from one year ago. The median price was $606,500, down 3.4% from the same period last year.
The good news is that the housing recession that was predicted by some economists has not materialized, noted Lisa Sturtevant, chief economist for Bright MLS.
”With positive inflation news and a strong labor market, the possibility that the Fed will be able to bring the economy in for a “soft landing” is improving. As the economy normalizes, however, we are still in the midst of a very unusual housing market, with so much inventory locked down as a result of the low pandemic mortgage rates,” said Bright MLS’s Sturtevant.
Properties in June on average remained on the market for 18 days, identical to May but up from 14 days in June 2022. Conversely, 76% of homes sold in June were on the market for less than a month. First-time buyers were responsible for just 27% of sales in June, down from 28% in May and 30% in June 2022, illustrating the affordability crisis at play.
For transaction types, all-cash sales accounted for 26% of purchases in June, up from 25% in both May 2023 and June 2022. Meanwhile, individual investors or second-home buyers, who make up many cash sales, purchased 18% of homes in June, up from 15% in May and 16% the previous year.
Distressed sales, which include foreclosures and short sales, represented only 2% of sales in June, virtually unchanged from last month and the prior year.
In this market, the lack supply remains the main constraint but new housing construction should help alleviate some of the supply pressures, according to Sturtevant. As a result, homebuilders kept capitalizing on a lack of competition and injected supply into the marketplace. However, inventory will still be sparse and prices “will have nowhere to go but up in the second half of 2023.”
“Existing home sales will continue to remain suppressed while both sides of this market are feeling the heat of affordability constraints, and we will likely continue to see buyers turning their eyes towards the new construction market – which can offer incentives to tip the scales in favor of buyers’ budgets as well as offer more available inventory,” added Nicole Bachaud, a senior economist at Zillow.
Like many of you, we are seeing a significant increase in commercial real estate (“CRE”) loan workouts. The magnitude of the swell in distressed CRE loans remains unclear, although one thing is certain: appreciating the options and remedies for CRE participants, particularly lenders and borrowers, has never been more critical.
A Changing Landscape
Under contemporary commercial real estate finance practices, many CRE loans are typically structured as nonrecourse interest-only loans with balloon payments at maturity. In times of low interest rates and booming property values – the case over the last decade or so – borrowers were generally able to refinance their loans with relative ease.
Unfortunately for borrowers, times have changed dramatically, and the current real estate lending environment has thrown the traditional playbook out the window. In response to persistently high inflation, the Federal Reserve has raised interest rates by 500 basis points since March 2022 (with additional hikes expected this year). Rate hikes, combined with declines or threatened declines in real property values, have resulted in a challenging environment for CRE refinancings.
Borrowers eager to refinance will face higher borrowing costs, and banks, skeptical that property values will recover soon, have grown reluctant to issue new loans. Additionally, many properties (particularly in the office sector) cannot support the carrying costs associated with higher-interest alternative credit providers.
What Lies Ahead
A spike in real estate foreclosures, deeds-in-lieu, and CRE loan modifications is therefore looming (if not already here). Until values stabilize, CRE may become a “hot potato,” with borrowers whose equity values have evaporated uninterested in expending additional resources to retain their properties and lenders reluctant to take them over.
If history is any indication of what’s ahead, we expect the increased activity in loan workouts to result in a mix of mortgage and mezzanine foreclosures, bankruptcy filings, deeds-in-lieu, loan modifications, loan sales, and property short sales.
CRE Loan Workout Outcomes
From “amend and extend” strategies to deeds-in-lieu. there are many potential paths that a loan workout may take. There are tax implications to each outcome that will have to be considered and may drive many of the decisions in a loan workout. Those include cancellation of debt income for recourse loans, capital gains treatment for nonrecourse loans, and a material loan modification being treated for tax purposes as an exchange of debt.
Amend and Extend: In most cases, we expect to see agreements between borrowers and lenders to modify CRE loans permitting the borrower to continue to own and operate property under more favorable loan terms. This “amend and extend” strategy became popular after the 2008 financial crisis when experts expected property values to recover quickly, which ultimately came to pass. It remains to be seen whether lenders will show the same flexibility in the current climate.
Loan modification agreements come in many different flavors. They may simply extend maturity dates on the same terms and conditions. By extending out loan maturity dates to 2025 or later, lenders and borrowers are betting that the additional term will allow sufficient time for interest rates to fall, occupancy rates to rise, and property values to recover enough to allow for a more successful sale or refinancing. Loan modifications can also be used to adjust interest rates, loan covenants, the cash management waterfall, defer capital expenditure requirements, provide additional liquidity, allow for the entry of a new equity partner, and otherwise waive existing defaults. In many cases, to obtain these concessions form the lender, a borrower or its sponsor may be required, in addition to fees, to reduce principal or invest new equity for capital improvements or as a carried interest reserve.
Foreclosures: CRE loans are underwritten based on the value of the underlying collateral. A real property loan is collateralized by a mortgage on the property itself, whereas a mezzanine loan (and sometimes preferred equity) is collateralized by a pledge of the sponsor’s equity in the entity that owns the property. After a loan default, the lender has several enforcement options, including foreclosure. Generally, a successful foreclosure extinguishes all junior liens and encumbrances and removes them from the property’s title.
The foreclosure process differs from state to state and by the type of collateral. Foreclosures of mortgages, leasehold mortgages, or deeds of trust on real property can be judicial or non-judicial. That threshold question will typically determine the duration of the process. A judicial foreclosure takes months or years, depending on the defenses raised by the borrower. A non-judicial foreclosure can be completed in a matter of weeks. Although more common in judicial states, most mortgage loans contain provisions that entitle the lender to the appointment of a receiver early in the case to take control of the property. This remedy may also be available in non-judicial states where the lender commences an action in state court for the appointment of a receiver. A judicial foreclosure provides a borrower that wants to delay or contest the lender’s enforcement of its remedies with a forum to raise defenses and create triable issues of fact. In non-judicial states, the burden is on the borrower to commence an action in court to enjoin or stop the foreclosure. That presents a higher bar to overcome.
In contrast, a foreclosure on a pledge of the membership or partnership interest in the mortgage borrower, either under a mezzanine loan or as additional collateral securing a mortgage loan, is always a non-judicial process. Equity interests in commercial entities are personal property. Thus, a pledge of an equity interest is governed by the Uniform Commercial Code, which expressly contemplates non-judicial foreclosures provided that they are conducted in a commercially reasonable manner.
Unlike the mortgage lender, which can foreclose on the borrower’s fee interest, a mezzanine lender forecloses on the equity interest in the fee owning entity. This means that the mezzanine lender is taking ownership and control of an entity and all of its debts and liabilities, including the mortgage loan. This prospect of having to assume the mortgage loan and provide a replacement guaranty, if any, may deter some mezzanine lenders from foreclosing on their loans.
Bankruptcy: Many CRE loans have been structured as non-recourse, meaning that the lender’s recourse is limited to the property itself. To discourage borrowers (who may have invested relatively limited equity in the property) from filing for bankruptcy protection in an effort to halt foreclosure proceedings and then to try to cramdown their lenders, commercial real estate loans often require a credit-worthy guarantor to provide a springing recourse guaranty (known as a non-recourse carve-out guaranty). Personal liability under the guaranty for the entire loan balance springs into existence – becoming a recourse loan – upon the happening of specified “bad” events, such as a bankruptcy filing by borrower.
The advent of the springing recourse guaranty puts the guarantor in the position of having to repay the entirety of the loan in full if the borrower files for bankruptcy (or triggers certain other defaults). As a result, borrowers generally avoid filing bankruptcy except where: (1) the property’s value exceeds the amount of the guaranty and whatever other obligations may need to be paid in bankruptcy; and (2) the guarantor is insolvent or is itself prepared to file for bankruptcy protection as well, such that the liability exposure under a springing guaranty is less of a threat.
Deeds-In-Lieu: For a variety of reasons, borrowers may prefer to give the property to the lender via a deed-in-lieu, rather than delay the inevitable by forcing the lender to conduct a foreclosure. For borrowers and guarantors, a deed-in-lieu of foreclosure may include a release that will extinguish or reduce liability under any existing guaranties and loan documents (although such releases will typically exclude environmental indemnities). For lenders, a deed-in-lieu should expedite the transfer of the property and allow for a more seamless transition.
A similar method to consensually transfer ownership and control exists under Article 9 of the Uniform Commercial Code. This is known as a “strict foreclosure” and allows for the sponsor to transfer its equity interest in the fee owner to the mezzanine lender.
One complexity here is that the borrower cannot force its lender to take the property. While it may seem counterintuitive, once the default actually occurs the lender may be unwilling to take ownership of the property due to the expenses associated with it, required capital expenditure projects, and cost and time to manage it. The property may also have potential successor liability issues, such as environmental issues, that often deter lenders from accepting title. If the lender has control of the rents through a lockbox and cash management arrangements, a borrower will not be able to cutoff the flow of funds without triggering recourse liability under a springing guaranty. Thus, the lender can continue to receive the cash flow without having to assume the risks of actual fee title ownership. On the other hand, if cash flow is not sufficient to cover the operating, repair and maintenance costs of the property, a lender may have to move quickly to assume ownership and control to preserve the value of its collateral. In that case, a deed-in-lieu of foreclosure may be a desired approach.
A deed-in-lieu may present other issues if a mezzanine loan or loans also exist. In certain cases, depending on the terms of the mezzanine loan documents and any intercreditor agreement between the mortgage lender and mezzanine lender, the consent of the mezzanine lender may be required before a borrower could convey the property to the mortgage lender. That requirement will give the mezzanine lender an opportunity to extract its own concessions in return for its consent.
Other Possible Variations
While beyond the scope of this introductory article, there are numerous other potential paths that a loan workout may travel. For example, the lender may decide to sell its loan to an opportunistic buyer that is willing to exercise remedies to acquire the property.
The borrower and lender may also agree to convert all or a portion of the lender’s loan into equity of the borrower (or a new joint venture), while bringing in another investor to inject needed funds into the project.
The possibilities are numerous, and creative thinking (and counsel) are a must.
2023 Goulston & Storrs PC. National Law Review, Volume XIII, Number 201
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
6 in 10 Americans have a FICO score above 700. [Source: Experian]
A good credit score can potentially help you save money on your mortgage, car insurance, credit cards and many other things. Alternatively, a bad credit score could increase costs in these same areas.
Many of life’s biggest purchases (like a house, a car or college tuition) are things that can affect your credit. Most people don’t have enough disposable money to pay for these large expenses up front.
How much damage can a bad credit score really cause? A 2020 survey suggested that individuals who take out an auto loan of $25,346 with a “fair” credit score could pay up to $3,847 more interest than a person with a “very good” credit score taking out the same loan.
Similarly, someone with a “fair” credit score may pay $8,640 in interest for a student loan, but another student with a “very good” score might only pay $3,933 interest for the same loan.
It can be helpful to know credit score statistics to understand your eligibility and trustworthiness in comparison to other Americans for making large purchases and paying back your loans on time. We’ve compiled a list of the most important credit score statistics you should know. This information could help you make critical decisions regarding your score and may help you improve your credit score.
Note: we reference the most updated data available, but sometimes that information is from many years ago—check each individual source for specifics.
General credit score statistics
According to recent research, millions of Americans are credit invisible, while others have a credit history that is insufficient. Here are some general credit score statistics that highlight credit reports, average monthly credit scores and other current data.
Nearly 28 million Americans are credit invisible, meaning they have no credit history with a nationwide consumer reporting agency. (Source: Oliver Wyman, 3)
21 million Americans had credit history that has gone stale or is insufficient to produce a score under the most common scoring models. (Source: Oliver Wyman, 3)
38 percent of adults ages 18 to 24 say they never check their credit scores. (Source: Javelin)
27 percent of adults say they check their credit score monthly. (Source: Javelin)
1 in 3 adults are unable to obtain a credit score from conventional models. (Source: VantageScore)
More than half a million Credit Karma members achieved an average first score of 639 after not having an initial TransUnion score when they checked their credit scores for the first time. (Source: Credit Karma)
Average credit score from 2012 to 2021: (Source: Experian)
FICO score statistics
When considering how Americans are doing financially, especially by each generation, FICO scores allow us to analyze changes in stability and creditworthiness. Here are some of the most recent FICO statistics.
The average FICO score hit 716 in April 2022. (Source: FICO)
23.3 percent of Americans have a FICO score between 800 and 850. (Source: FICO)
9 percent of Experian customers have a FICO score below 550. (Source: Experian)
From 2020 to 2021, the average subprime consumers’ FICO score increased by eight points, from 578 to 586. (Source: Experian)
Nearly 60 percent of Americans have a FICO score above 700. (Source: Experian)
The Villages, an adult community in Florida, had the highest average FICO score of American cities at 785. (Source: Experian)
California cities Los Altos (777) and Saratoga (776) took second and third place for the cities with the highest average FICO score. (Source: Experian)
VantageScore statistics
Since 2006, VantageScore has encompassed 2,500 users between 2,200 financial institutions. Average VantageScore statistics of 2021 show generational disparities and contrasts.
The average VantageScore credit score in January and February of 2022 was 696. (Source: VantageScore)
Generation Z had a median VantageScore of 661 in 2021. (Source: Experian)
Millennials had a median VantageScore of 667 in 2021. (Source: Experian)
Generation X had a median VantageScore of 685 in 2021. (Source: Experian)
The baby boomer generation had a median VantageScore of 724 in 2021. (Source: Experian)
VantageScore is able to score about 96 percent of all consumers in the United States who are 18 or older. (Source: VantageScore)
Approximately 14.5 percent of adults nationwide are newly scorable. (Source: VantageScore)
In 2021, 1 in 3 adults were unable to obtain a credit score from conventional models. (Source: VantageScore)
States with the highest average VantageScores in March 2022: (Source: VantageScore)
Minnesota: 726
New Hampshire: 722
Vermont: 721
Massachusetts: 719
Washington: 718
States with the lowest average VantageScore in March 2022: (Source: VantageScore)
Mississippi: 662
Louisiana: 670
Alabama: 673
Arkansas: 673
Oklahoma: 674
Credit score demographics
Credit scores vary across different age groups and demographics. Listed below are 2021’s VantageScores separated by age group, income bracket and data change over the past year.
Average credit score per age group, as of 2021: (Source: Experian)
18-24 years old: 679
25-40 years old: 686
41-56 years old: 705
57-75 years old: 740
76+ years old: 760
Average credit score per income bracket: (Source: Federal Reserve Bank of New York)
Low income: 658
Moderate income: 692
Middle income: 735
Upper income: 774
Understanding credit score statistics isn’t as complex as you may think. Maintaining a strong credit score is crucial to financial stability and can help you get approved for loans and credit cards. Not sure how to look at or take care of your credit score? There are many great resources available to help you view and build credit, including credit repair sites and other financial assistance.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Nature Lewis
Associate Attorney
Before joining Lexington Law as an Associate Attorney, Nature Lewis managed a successful practice representing tenants in Maricopa County.
Through her representation of tenants, Nature gained experience in Federal law, Family law, Probate, Consumer protection and Civil law. She received numerous accolades for her dedication to Tenant Protection in Arizona, including, John P. Frank Advocate for Justice Award in 2016, Top 50 Pro Bono Attorney of 2015, New Tenant Attorney of the Year in 2015 and Maricopa County Attorney of the Month in March 2015. Nature continued her dedication to pro bono work while volunteering at Community Legal Services’ Volunteer Lawyer’s Program and assisting victims of Domestic Violence at the local shelter. Nature is passionate about providing free knowledge to the underserved community and continues to hold free seminars about tenant rights and plans to incorporate consumer rights in her free seminars. Nature is a wife and mother of 5 children. She and her husband have been married for 24 years and enjoy traveling internationally, watching movies and promoting their indie published comic books!
Yes, we’ve all heard it. Buying a home today might seem like the most unaffordable, and therefore impossible, it’s ever been. Home prices are near record levels, pushed up by bidding wars erupting on anything well-situated and move-in ready. Plus, mortgage rates are nearing 7%.
But here’s the thing: The baby boomers had it worse.
In May of this year, the typical buyer spent just under a third of their household income, about 32.8%, on housing. As uncomfortable as that might be, it’s not even close to how much buyers plunked down in the early 1980s.
In 1981, the same year the AIDS virus was identified, the Iran hostage crisis came to an end, and “Raiders of the Lost Ark” topped the box office charts, homebuyers that September and October spent 51.3% of their household income on their mortgage payments.
Let that sink in for a moment.
Furthermore, that percentage doesn’t even include what they paid for utilities, property taxes, insurance costs, and homeowners association fees.
Buying a home is “not as unaffordable as it’s ever been,” says Realtor.com® Chief Economist Danielle Hale. But, “in the grand scheme of things, housing is pretty unaffordable right now.”
To figure out how affordable buying a home has been over the past 50 years, the Realtor.com data team analyzed data going back to 1973. We looked at monthly existing single-family home prices from the National Association of Realtors®, weekly mortgage interest rates for 30-year fixed loans from Freddie Mac, and median annual household income from the U.S. Census Bureau. Then we calculated the typical mortgage payment of a buyer taking out a loan on the median-priced home and what percentage of their household income that would eat up.
The analysis doesn’t factor in regional price differences, new construction, or the percentage of income that individual buyers spent on homes.
“If you go back in history, you can find a period where housing is more unaffordable than it is now,” says Hale. “But you have to go back almost 40 years.”
Why today’s buyers wouldn’t want to purchase a home in 1981
In the fall of 1981, homes were cheap by today’s standards.
The typical single-family home cost just $66,125—about six times less than the cost this past May, according to the most recent data from NAR.
However, the typical household was bringing in only about $19,074 in 1981, according to U.S. Census Bureau data. And mortgage rates topped 18% that fall. (And you thought 7% was rough.)
Those turbo-sized rates meant that 99.5% of a buyer’s first year of mortgage payments was going toward just the towering amount of interest on the loan. The buyer didn’t pay down 10% on the principal of the balance until the 18th year of the loan, assuming the buyer didn’t refinance—which most buyers did. (This calculation includes a 20% down payment.)
Today’s average family is earning about $73,505 a year. But in May, they were contending with median existing-home prices of $410,100 and mortgage rates hovering in the mid-6% range and which have since risen to the high 6% territory. About 85% of their first year’s mortgage payments is going to interest.
One important difference is that instead of waiting nearly two decades to have 10% of their principal paid off, they achieve that milestone by year seven.
“Mortgage rates play a really substantial role in how affordable housing is at any time, especially since so many buyers buy with a mortgage,” says Hale.
Uncomfortable similarities between 1981 and 2023
There are a few similarities between then and now. Inflation was soaring in the early ’80s, causing the U.S. Federal Reserve to hike interest rates. (Sound familiar?) The nation was also in a full-blown recession in 1981. Fast-forward 42 years, and the nation appears to be flirting with another downturn.
The number of home sales slowed in the early 1980s as well as in this post-pandemic housing market as fewer folks can afford to buy due to higher mortgage rates.
Then, as now, most of those purchasing homes earn more than the median income—unless they had very generous family members, stock options, or trust funds. Or they’re existing homeowners who can put the equity they built in their last home into their new one.
“Boomers have been saying things were harder when we were young for a long time. And in some respects, they are right,” says Hale. “But in other respects, they don’t have the same amount of student loan debt and child care costs that young people have today.”
Plus, once mortgage rates fell, most folks who purchased homes in the early 1980s had refinanced their loans to lock in the new rates and “drastically” lower their monthly mortgage payments. By 1986, rates had fallen back down to the single digits.
Recessions and pandemics may be good times to buy homes
As counterintuitive as this may seem, recessions may be financially advantageous for buyers to purchase homes—if they remain employed and have the funds to do so. That’s because interest rates usually (but not always, as the early 1980s demonstrated) fall during economic downturns. That makes homebuying more affordable.
Over the past 50 years, homes were the most affordable as the country climbed out of the Great Recession. In early 2012 and 2013, buyers were spending about 14%—or less—of their income on a home. That’s because mortgage rates were below 4%.
The same thing happened in the early days of the pandemic. The economy ground to a halt as stay-at-home orders proliferated and mass layoffs ensued. To stimulate the economy, the Fed cut interest rates and mortgage rates fell below 3%—for the first time ever.
Those low rates triggered the big run-up in prices and offset those gains. Since buyers were spending less on interest, they could afford to purchase more house. The result? In spring 2020, buyers were spending just under 18% of their income on housing.
“Affordability is one of the factors that kicked off the buying frenzy that we saw in the early part of the pandemic,” says Hale.
It wasn’t until mortgage rates climbed above 4% in March 2022 that buyers began to get priced out. That month they spent just under 25% of their income on housing. As rates ticked up and affordability worsened, more buyers left the market and fewer homes went up for sale (as sellers didn’t want to give up their low rates).
The situation has only gotten worse, with buyers spending nearly a third of their income on housing in May.
“When housing is unaffordable, it’s very tempting to stretch your budget,” says Hale. But with inflation, rising property taxes, and high energy bills, “now’s probably not a good time to do that.”