A new report from Redfin revealed 2012 was an absolutely fantastic time to purchase a home.
Collectively, that crop of home buyers earned $203 billion in equity since their well-timed purchases, with the median homeowner having gained 261%, or $141,000.
The average home sold in 2012 has increased by a whopping $110,000, from a median sale price of $210,000 to an estimated value of $320,000 today.
And these lucky buyers typically started off with just $54,000 in home equity that ballooned into $195,000.
Biggest Home Equity Gainers by City
In terms of most home equity gained, it was San Francisco leading the way with $741,000 median dollars, followed by San Jose ($669,000) and Oakland ($461,000).
Rounding out the top five were Seattle ($364,000) and Los Angeles ($318,000).
Home equity has grown a staggering $15 billion in the Los Angeles metro alone thanks to rising home prices since the fairly recent housing bottom.
They’ve also gone up more than $8 billion in Seattle and $7.9 billion in Oakland.
On a percentage basis, Tacoma, Washington (1453%) and Virginia Beach, VA (1333%) led the way, thanks in part to their proximity to major U.S. military bases.
Median home equity growth in Tacoma is $218,000 through September, and $80,000 in Virginia Beach.
This means sellers might be able to pocket six figures when unloading their properties, despite owning them little more than half a decade.
The numbers are based on about 1.4 million home sales across 138 housing markets nationwide during 2012, the year we hit bottom post-Great Recession.
They determined the homeowner’s 2012 equity based on the down payment used to purchase the property via county records.
For homes that are still owned today, current home equity is calculated as the difference between the homeowner’s outstanding loan balance and the property’s Redfin Estimate.
For homes that have been sold since 2012, calculated equity was the difference between the homeowner’s outstanding loan balance and the home’s sale price.
Homeowner Equity Hits All Time High
Meanwhile, aggregate home equity in mortgaged real estate increased by nearly $427 billion (4.8%) year-over-year from the second quarter of 2018 to a new all-time high, per CoreLogic.
However, the second quarter increase in home equity was the lowest annual gain in equity since the fourth quarter of 2012, a reflection of slowing home price growth.
As you can see from the map above, many homeowners have only seen home equity gains between one and five thousand dollars over the past year.
And in North Dakota, this number is down $5,000. Idaho is a standout with home equity up $22,100 on average, followed by Wyoming (+20k) and Nevada (+$17k).
Since the end of 2011, when home equity stopped its decline, borrowers have gained a massive $5.9 trillion in equity.
But it appears we are beginning to peak or at least plateau. And with for-sale home prices equally expensive, it’s tough for an existing homeowner to cash out and move somewhere cheap.
Homeowners are also sitting on a ton of untapped equity, with cash-out refinancing a shadow of its former self.
Whether this changes in light of these massive equity gains, coupled with the ultra-low mortgage rates on offer, remains to be seen.
The good news is today’s homeowner seems to be in pretty good shape relative to the homeowners of a decade ago.
They’ve got tons of home equity, a very low mortgage rate, and they probably truly qualified for their home loan at the time of origination, something that couldn’t be said in 2006.
Negative Equity Is Still a Thing
Somewhat amazingly, two million homes were still in a negative equity position, aka underwater, in the second quarter.
That represented 3.8% of all homes with a mortgage.
While it’s the lowest share since CoreLogic began tracking in the third quarter of 2009, several states are still feeling the effects of the worst housing crisis in modern history.
Negative equity levels remain highest in Louisiana, Connecticut, Illinois, Iowa, and New Jersey.
The economist Selma Hepp says home prices in some areas are rising because of limited inventory.
Areas that saw price declines during the pandemic are expected to make a comeback, she said.
Anaheim, California; Seattle; and Sacramento, California; topped the list of Metropolitan areas.
The US housing market started off on a solid footing this year as home prices rose.
But it’s not necessarily because buyers are back in droves. High mortgage rates have kept would-be sellers locked into their current properties, making inventory tight and raising demand for the little that’s on the market, Selma Hepp, the chief economist at CoreLogic, said.
In April, prices for single-family homes rose by 2% year-over-year and 1.2% from the previous month, according to CoreLogic’s Home Price Index. The increase is above the seasonal monthly average, which has historically been at 0.9%, Hepp added.
National home prices are expected to grow 4% this year. But not all markets will fall in line with the average. In fact, there is likely to be a bifurcation in price moves across the US.
The trend is set to follow a reversion back to the mean or a return from pandemic-era migration. In the early days of the lockdowns, some markets saw a rapid appreciation in home prices while others saw double-digit declines, Hepp said.
People moved from expensive West Coast markets and cities to more affordable areas. Now, she said that markets that saw values increase rapidly were leveling out to be more in line with the incomes in those areas.
“When you look long-term, home prices tend to revert back to the rate of growth of income,” Hepp said. “And whenever you have a situation where home-price gains exceed income gains, it’s likely to readjust at some point because if folks can’t afford homes in those markets, then there’s no sales activity. That means home prices decline.”
On the other end, markets that experienced steep price plunges are expected to make a comeback, especially areas that have low inventory, she said.
Below is a list of 51 metropolitan areas expected to see the most home-price increases in the next 12 months, from the highest to the lowest.
The data is taken from CoreLogic’s HPI, which measures the year-over-year changes in single-family-home values based on data from more than 400 US cities. The index changes are based on repeat sales of the same properties.
The metropolitan areas listed below have the highest probability of seeing price declines in the next 12 months.
“In these markets, when we look at how much prices exceed local incomes, it has been substantial. And that increases the vulnerability for price declines going forward,” Hepp said.
Finally, while mortgage rates can be difficult to predict, Hepp said that we had likely peaked for the year. CoreLogic expects that mortgage rates will gradually decline for the remainder of the year to about 5.8% if inflation rates continue to decline, she said.
Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.
This week’s episode starts with a discussion about new scams, including Google Voice and AI scams.
Then we pivot to this week’s money question from Jaime, who left us a voicemail:
“Hi, Nerds. Wanted to call in and ask a question. I’m looking for just an opportunity to supplement my income, and I came across one opportunity that’s called tradelines, and I was wanting your advice, your opinion, on tradelines, if it’s something worth doing. From my understanding, tradelines is when you sell your authorized user accounts on your credit card to people who need to boost their credit, for a certain amount of money a month. So, I thought it may be a good way to supplement my income, as well as that I do have a 815 credit score, and so, I was curious as to your guys’ opinion on the matter. So, thank you for answering it. Have a great day.”
Check out this episode on either of these platforms:
Episode transcript
Sean Pyles: Your credit report can help you borrow money, but what if you could use your credit report to earn money? Would you do it even if it was a little sketchy?
Liz Weston: Welcome to NerdWallet’s Smart Money podcast, where you send us your money questions and we answer them with the help of our genius Nerds. I’m Liz Weston.
Sean Pyles: And I’m Sean Pyles. Listener, I have a question for you. What are you thinking about — money-wise, I mean? Are you wondering how to buy a house in a still expensive market, or do you want to get serious about saving for retirement but aren’t sure how?
Liz Weston: Whatever your money question, the Nerds have your back. You can leave us a voicemail or text us on the Nerd hotline at 901-730-6373. That’s 901-730-NERD. You can also email us at [email protected].
Sean Pyles: This episode, Liz, Sara and I answer a listener’s question about making money from your credit report. But first, in our This Week in Your Money segment, Liz and I are talking about the scams you need to watch out for now.
Liz Weston: Yes, because scammers work hard, but the Nerds work harder. So, we’re going to give you the scoop on how fraudsters are attempting to strip you and your loved ones of your money and your personal information.
Sean Pyles: Indeed. So, Liz, what scams should our listeners be aware of?
Liz Weston: OK. According to the Identity Theft Resource Center, the top scam in 2022 was the Google Voice scam. And how it works is typically somebody will contact you on social media in response to a post, whether you’re selling something, trying to find a lost pet, something like that. But then the person will say they’re concerned about scammers, so they want you to confirm your identity through a text. You then get a text with a Google Voice verification code. And if you give it to them, poof, you’ve been scammed.
Sean Pyles: OK. So, you have been scammed through a text code. What’s going on there?
Liz Weston: When you give the scammer that verification code, they’re able to create a Google Voice account that’s connected to your phone number. The scammer can then use that voice account to scam other people or even get more information about you to try to get into your accounts.
Sean Pyles: Yikes.
Liz Weston: So, the bottom line is, yes, yikes is right. Don’t give strangers any verification code that you get through text. If it’s dealing with your bank accounts, your financial accounts, Google Voice, whatever it is, if the text comes through and a stranger wants it, ignore them.
Sean Pyles: And maybe avoid giving internet randos your phone number in general.
Liz Weston: Yeah, that’s a good idea.
Sean Pyles: Whenever I’m communicating with folks on apps, whether I’m trying to buy or sell something, I like to keep communication within that app. When someone’s trying to get you to communicate on a different platform, that to me is a red flag that they’re up to no good.
Liz Weston: Oh, yeah, that’s a really good point. And Sean, that wasn’t the only scary scam we learned about recently. Can you talk about artificial intelligence scams?
Sean Pyles: Yes. Artificial intelligence is being used by scammers now in a terrifying way. There is a growing number of AI voice spoofing scams, and here’s how it works. You might get a call from a sibling, a parent, friend, and they’re absolutely hysterical. They’ll be sobbing and saying that they’ve been kidnapped and they need you to wire money to them ASAP to free them. And of course, you want to do that because you want to free your loved one, but the truth is that they were never in danger. That wasn’t even your loved one calling you. It was a scammer using an AI-generated version of their voice and potentially a call spoofer to make it look like they were calling you directly.
Liz Weston: Oh, my God, that’s horrifying.
Sean Pyles: Yes. And what’s really scary is that in general, across the board, AI is developing faster than we can keep track of, and scammers are taking advantage of that. They’re using the content that you post online, things like videos on TikTok or audio that you’re recording on a podcast, for example, and they’re able to make a model of your voice, inflection and all. So, the example that I just gave shows how AI is being used in what’s called imposter scams, but AI is also being used in other types of scams, too.
Liz Weston: I’m having a moment here, Sean, it’s like, how much of our voice is out there, yours and mine?
Sean Pyles: A tremendous amount. Actually, I hope that no scammers are listening to this because it would be very easy for them to use our voice to do exactly what I just described there.
But there are some ways that we can protect ourselves, Liz, and anyone else listening. So, for AI voice spoofing, imposter scams specifically, one suggestion that sounds awfully dystopian and it kind of is, is that you need to make a safe word or phrase for yourself and your loved ones. This is a word or phrase that in an emergency your loved one could tell you or you could tell a loved one to confirm that it’s actually them and not a scammer calling. Ideally, this would be a few words that you can use in a conversation that wouldn’t be super obvious.
You might say something along the lines of, “Oh, my wallet is on the dresser.” Instead of saying like, “Banana, banana, banana.” That might throw people off and sound a little bit awkward on a phone call. But in general, folks should know that scammers are always going to be leveraging new technologies to rip you off, so it’s important to stay up to date on the latest scams.
Liz Weston: And I just want to drop in: We actually came up with a safe phrase when my daughter was a teenager and she wanted to leave a party or leave a friend’s house without alerting them that there was a problem. So, this isn’t something that’s way out of line. I think a lot of families do this anyway, but it’s something to talk about and make sure everybody remembers what that phrase is so that you can use it in case of emergency.
Sean Pyles: Absolutely. And now I want to zoom out a little bit and discuss the underlying technique that many scammers use to take advantage of you. This is something called social engineering. And it is essentially scammers attempting to manipulate you through social interactions. This can happen many different ways. It could be someone posing as your boss sending you a text message where they urgently need you to go buy them a bunch of gift cards. Or it could be that stranger messaging you online trying to get you to give a Google Voice verification code, like Liz mentioned earlier. The goal of the scammer is to manipulate your emotions through social interactions, to earn your trust or create a sense of panic that makes you reveal your personal information or send them money.
Liz Weston: And that sense of panic or that sense of urgency is key to the scam. So, anytime somebody is pushing you, pushing your buttons, trying to make you do something quickly, that’s a good time to step back or try to step back and take a breath and go, “Hey, this might be a problem.” And of course, if gift cards are involved, you know it’s a scam.
Sean Pyles: Yes.
Liz Weston: So, Sean, what can we do?
Sean Pyles: All right. I think folks should recognize that everyone is vulnerable to this. And that even you, our smart, savvy listener, could potentially fall victim to some social engineering. But owning your susceptibility and knowing how scammers will try to dupe you, can help you spot a scam before you give someone your personal information or money or both.
Liz Weston: And if you’re looking for a resource to help educate you about scams, I recommend AARP’s Fraud Watch. You don’t actually have to be retired to take advantage of this, but they do a really good job of keeping track of scams that are on the rise and educating you about your options. Also, if you are the victim of a scam, please report it to the Federal Trade Commission and the Identity Theft Resource Center.
All right, now let’s get onto this episode’s money question.
Sean Pyles: Sounds good. This episode’s money question comes from Jaime, who left us a voicemail. Here it is.
Jaime: Hi, Nerds. Wanted to call in and ask a question. I’m looking for just an opportunity to supplement my income, and I came across one opportunity that’s called tradelines, and I was wanting your advice, your opinion, on tradelines, if it’s something worth doing. From my understanding, tradelines is when you sell your authorized user accounts on your credit card to people who need to boost their credit, for a certain amount of money a month. So, I thought it may be a good way to supplement my income, as well as that I do have a 815 credit score, and so, I was curious as to your guys’ opinion on the matter. So, thank you for answering it. Have a great day.
Liz Weston: To help us answer Jaime’s question on this episode of the podcast, we’re joined by our dear Smart Money pal and regular host of the show, Sara Rathner. Hey, Sara.
Sara Rathner: Hey, everybody. Glad to be here.
Sean Pyles: Great to chat with you, Sara. So, the practice of selling authorized user slots on your credit cards to strangers is not new, but it is sketchy for a number of reasons.
Liz Weston: Yeah. First, we should back up and explain what an authorized user slot actually is. It’s basically the place where you add an authorized user, which is typically someone who you’ve added to your credit card who’s allowed to use your account to make charges but who isn’t responsible for making payments.
Sara Rathner: Becoming an authorized user on somebody else’s account can help your credit, assuming that primary user — that’s the person who holds the account originally — is responsible in their use of the card. And it’s a fairly common practice among people who actually know each other.
You see this a lot with parents and their children. Parents will add children as authorized users on their accounts until the child is old enough to get their own credit card account. That’s usually between the ages of 18 and 21. You might also add a relative or a close friend to your credit card this way, both to give them access to the card if they need it, and you have that agreement, and also to help them build credit.
And credit card issuers and credit scoring companies are basically cool with this. This is a feature that’s built into cards. And you can always opt to not give the authorized user an actual card. So, they are added to your account, but they don’t have a physical card with which to make any purchases. So, you’re building their credit without letting them spend your money.
Sean Pyles: And what’s most relevant to our listener’s question is that some companies have decided to turn this into a business. They sign up folks who are willing to rent out their authorized user slots and charge people who are trying to build their credit.
Sara Rathner: Right. And the thing is, the companies that do this typically keep the vast majority of the “rent.” They could charge up to $1,000 for one of your authorized user slots, but you only get $50 to $300, and they pocket the rest. But you have to do the work of contacting your issuer, adding the person as an authorized user, and then removing them when the rental period is done. And you can add an authorized user online pretty easily for the most part, but you may have to call and wait on hold to remove them. So, now we’re talking about a fairly decent amount of your time and effort for $50 to $300. Not great.
Tradeline sellers promise their users don’t get access to your credit card information and won’t make purchases, but you’re going to want to keep an eye on your transactions to make sure. And credit card issuers, even though they allow for authorized users, they’re not fans of this, obviously. If your issuer figures out what you’re doing, they could close your account, and that could hurt your credit score.
Sean Pyles: And again, you have a stranger attached to your tradeline, which just feels weird and gross to me.
Sara Rathner: Yeah, honestly, I wouldn’t even want most people I know to be attached to my tradeline, let alone complete strangers. No offense to literally everyone I know, but no, don’t touch my money.
Sean Pyles: There are also some ethical concerns around selling your tradelines. First, you are perpetuating and profiting off a system that makes people who are in a vulnerable position pay for access to better credit, at least on a short-term basis. Meanwhile, the person renting your tradeline may not be getting a long-term solution to their credit woes because after they are done renting your tradeline, that account comes off their credit reports and their credit could go right back to where it was originally. And then there are also the ethics of potentially violating the terms of your agreement with your credit card issuer.
Sara Rathner: Yeah. Tradeline sellers like to tout themselves as providing more equitable access to credit, which is complete bollocks, essentially. Can I say that word on this podcast? I know we’re a clean podcast, but I was trying to think of alternatives to the word I have in my mind. So, listeners, just envision what you think I was about to say and you’re probably right. There’s nothing equitable about charging a person $1,000 to build their credit, point blank. That is absolute nonsense. Another nice way to put that.
You can improve your credit score over time without buying a tradeline from a stranger. It’s not necessarily going to be free, I will get into that, but it’ll be a significantly lower cost, and you can often get that money back.
So, let me explain how. One way is to utilize what’s called a secured credit card. That’s a credit card where there’s typically no credit check required. You don’t have to have an established credit history. You could have bad credit as well. You put down a cash deposit, oftentimes it’s around $200, but there are some cards that have lower deposits. And if you have the money and you require a higher credit limit, then you can also put down more.
That cash deposit becomes your credit limit. That’s the amount that you can charge every billing cycle on your card. And then you use your card carefully and responsibly for a couple of months. Don’t charge more than maybe 30% of that total credit limit. Put one recurring charge on there, like a streaming service or your cell phone bill or something like that. Pay it off on time in full every month. And you’ll start to see within several months, you’re beginning to establish that credit history.
And when you reach a point where you’re ready to graduate to a more traditional unsecured credit card that doesn’t require that security deposit, you’ll actually get that money back. So, you’re essentially just fronting the money for yourself, rather than paying this separate entity money that you’ll never get back to supposedly build your credit.
Another option is something called a credit builder loan — that’s essentially a really small personal loan that you do pay interest on — and then you make regular payments, and then the loan is paid off. You do have to make interest payments on this. But it is, again, a more legitimate way to build your credit. So, that’s option two.
Option three is being added as an authorized user of a card held by somebody you actually know personally, a friend or a family member that you trust. So, those are three other options for you that will not cost you this outsized amount of money.
Sean Pyles: Yeah. And the impact of using a secured credit card or a credit builder loan will remain on your credit profile for years to come, unlike simply renting the tradeline, where it is again gone after you’re done paying for it.
Well, now let’s get to another part of our listener’s question, which was really just about how to supplement your income. And there are lots of ways to do it that are not as sketchy as the tradeline option that we have just gone deep into. Sara, I’m wondering if you have any thoughts about this or if you have had any success maybe working on a side hustle and supplementing your income in the past?
Sara Rathner: Yeah. I mean, so listen, here’s the thing, it’s really hard to make money for nothing. So, oftentimes, the most sustainable side hustles that can be the most lucrative actually utilize a skill that you already have. I am a writer. I have worked as a freelancer, so that’s been my side hustle. I even got into ghostwriting. And I got into ghostwriting for financial planners, which was how I learned so much about personal finance. That’s how I got my start. And so, if you have a skill that is something you can monetize, preferably not something that’s like a fun hobby, because when you monetize a hobby, it becomes a real drag.
But if it’s just a skill that you have, maybe you are good at home repairs and you can do little home repair jobs for friends and neighbors, dog walking, cat sitting, obviously, babysitting. There are lots of things that you can do that you can charge money for. So, start doing that. I mean, even helping friends clean out their basement and then charging them by the hour for that. If you’re a really organized person, that’s a great way to make money.
Sean Pyles: Yeah. I will say I’m wary of any sort of side hustle that markets itself as first and foremost being easy, because there’s usually some kind of catch, like they’re just a straight-up scam or a little weird, like you’re selling photos of your feet or something on the internet. So, some people are totally fine with that, that’s up to them. But you have to think about the trade-off. If something is easy, you’ll be doing something else a little bit different elsewhere.
And like you said, Sara, there are a lot of videos that I see in my TikTok feed that are like, oh, if you are a painter or if you’re into photography, you can just monetize that and set up an Etsy shop.
But when you turn your creative outlet into a source of income, it can really suck all the joy from it. So, even if that is a skill and it’s something you like to spend your time on — it’s nice to have some things that aren’t about making money and to have it be distinctly your own personal hobby. So, I would caution against trying to make money off of that if you have such a creative hobby.
Sara Rathner: Yeah. And sometimes creative hobbies like crafting, photography, things like that, there’s a fair amount of investment at the outset of buying equipment and materials that you need. So, it takes a long time to become a profitable professional photographer, for example. If you’re looking for a quick way to make money from a side hustle, you want to think about the initial investment. For me, side hustling as a writer meant using the laptop I already owned. So, that wasn’t too high of a lift for me. But if I decided to sell hand-knit sweaters on Etsy, then I would have to invest in the equipment, the yarn, which is expensive. And also, the time building up inventory and then selling it online. And probably, paying fees to whatever site I was using to make those sales. So, that’s what you want to think.
You want to think about that cost-benefit analysis of that side hustle, how much do you have to buy in to get started? Which brings us to another thing, multilevel marketing schemes. You know when you have to buy $10,000 worth of ugly leggings to keep in your garage, and then you try to sell them to all your neighbors, and all of your neighbors secretly hate you and talk about you behind your back? Don’t do that. We don’t like it. We’re not going to buy your ugly leggings.
Sean Pyles: And I have some other considerations for our listener or anyone else that’s really interested in supplementing their income, maybe starting a side hustle. And I think that’s important for them to determine if there’s a specific amount of money they want to earn monthly. Knowing that could help them narrow down their options in terms of what sort of side hustle they want to focus on. I’m just wondering, also, what’s driving their push for this. Is there some sort of budget shortfall that they have, too? And if so, could they maybe make up for that by cutting expenses?
But in terms of other side hustles, there are a few other parameters to think about besides how much they might want to earn monthly, like how much time do they want to spend on a side gig, how much effort do they really want to exert? These are things that come to mind for me because I’m someone who has done some side work in the past, and I kind of resented it. Because when I’m not working my 9-to-5 job, I want to have that time for myself. And having to then pick up another job after I’ve worked all day long, it just isn’t appealing for me personally. So I think it’s important for anyone who’s getting into this to just know what they do and don’t want to do around a side hustle.
Sara Rathner: That is absolutely valid. When I was doing the side hustle on top of a full-time job thing, I mean my life outside of work really took a hit. It was a substantial amount of time. And I was at a point in my life where I could dedicate the time to do it, but you get real tired. I mean, I’m not going to lie. So, that’s something to think about, how much additional working hours per week are you going to be adding on your plate? And if it’s the kind of thing where you tutor two kids for two hours a week, maybe that feels sustainable for you on top of your normal full-time job. But if you’re talking about an extra 10 to 20 hours a week of work or more, I mean that’s like taking on another full-time job, and everything else in your life is going to suffer.
Liz Weston: Well, speaking of jobs, you might have the opportunity to, if you do hourly work, you may be able to volunteer for another shift, or work more hours, or simply put more effort into getting a promotion at work so you can earn more money. Sometimes that’s a much more efficient way to go about increasing your income than picking up a side hustle.
Sara Rathner: Yeah. Or even job hunting and negotiating a higher salary in a new position, too.
Liz Weston: There you go.
Sean Pyles: I think there are some creative ways where you can get some, maybe, extra benefit from a side job that you pick up. One thing that I’ve considered in the past is actually picking up a part-time job at my local nursery, maybe working one day a week for a few hours. And as someone who’s really into gardening, if I could get a discount on their plants in addition to making a little bit more money, and getting to know more about these plants, and connect with people who are really into gardening in my community, that has a lot of benefits for me. And it would make the time I would spend working worth it if I were to do that.
Liz Weston: Oh, you’re reminding me. A friend of mine picked up a job with an airline largely for the travel benefits. So, she works I think about 20 hours a week. She has a lot of flexibility, and she can fly either for free or — get this — pay 60 bucks and go first class.
Sean Pyles: That’s pretty sweet.
Liz Weston: I would shift some luggage for that. That sounds like a pretty good deal to me.
Sean Pyles: That also raises the idea again of what are you getting besides the money from a side gig, that there are so many other things to weigh beyond just the time that you spend. How can you really make any sort of side gig worth it for you truly?
Sara Rathner: Yeah. And then you talk about supplementing your income, what are you going to do with that money? What’s your plan? Maybe you have some debts you need to pay off. Or if you’re bringing in an extra $100, $200 a month, is that money going into your debt, or is it easy to just justify spending more because you have a little extra money in your pocket? So, what has to come after all that extra work is the discipline to actually apply that money into a specific goal or a specific problem you’re trying to solve in your life with that extra money. So, definitely be really diligent about, “OK, this is how much extra money I’m earning every month. I’m putting it right into my credit card debt. I’m putting it right into my student loan. I’m putting it right into this savings goal that I have or an investing goal that I have. And I’m not just putting it into my checking account and then spending more money.”
Sean Pyles: All right. Well, Sara, thank you for talking with us.
Sara Rathner: Thanks for having me.
Sean Pyles: And with that, let’s get on to our takeaway tips, and I will start us off. Be skeptical of anyone promising “easy money.” Tradeline sellers make most of the profit and take none of the risk of adding strangers to your credit card’s authorized user slots.
Liz Weston: Next, beware of sacrificing your good credit for profit. If your credit card issuer shuts down your accounts, that could hurt your credit scores.
Sean Pyles: Finally, consider other options. There are many other side hustles that can supplement your income that are 100% aboveboard.
Liz Weston: And that’s all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at 901-730-6373. That’s 901-730-NERD. You can also email us at [email protected]. And visit nerdwallet.com/podcast for more information on this episode. Remember to follow, rate and review us wherever you’re getting this podcast.
Sean Pyles: And here’s our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Liz Weston: This episode was produced by Sean Pyles and myself with the help of Tess Vigeland. Kaely Monahan mixed our audio. And a big thank-you to the thoughtful folks on the NerdWallet copy desk for all their help.
And with that said, until next time, turn to the Nerds.
First off, here are my 2018 predictions in case you want to see how they panned out.
Overall, I think I did alright, though my call for the 30-year fixed to end 2018 at 4.5% didn’t quite materialize.
There’s actually still time for that to happen thanks to a late rally, but it’s doubtful. Anyway, let’s get to those 2019 predictions…
1. Mortgage rates will only rise moderately, if at all
Sure, mortgage interest rates will probably increase somewhat in 2019, but it’s doubtful we’ll see anything close to the carnage we saw in 2018.
The silver lining to all the movement this year is less next year, or at least that’s the hope.
We’ve already seen some pullbacks in late 2018 thanks to the ongoing trade war and concerns of an impending recession, which could force the Fed to pump the brakes on future rate hikes.
Similarly, traders may ditch stocks and head for safe haven bonds, which would push down yields and ideally trickle down to lender rate sheets too.
Regardless, mortgage rates remain attractive when you look at historical levels, especially since home prices are still below peaks in many metros seen during the last boom.
I personally don’t see higher mortgage rates being a roadblock for most folks, though it’s obvious they can reduce overall home purchasing power.
That just means looking for cheaper homes, such as those in the suburbs instead of the big city. Or hoping for a raise at work. Or a larger down payment.
Here is the 2019 mortgage rate forecast for more on that.
2. ARMs will grab a 10%+ market share
That being said, I do expect a more meaningful shift to adjustable-rate mortgages in 2019. I’m talking 10%+ share as opposed to the current 5-7%.
This could be existing homeowners tapping equity and going with an ARM to avoid a big payment shock as their loan amounts rise.
And also new home buyers opting for cheaper financing in the face of the big, scary 5% 30-year fixed mortgage rate.
If they’re able to snag a 5/1 or 7/1 ARM in the 3% range, it might feel like the better move, especially if it’s not a forever home.
Remember, homeowners move a lot more frequently than every 30 years, so alternative loan programs may be a more ideal fit.
3. Home prices will keep going up (no bubble)
We’ve seen a lot of pessimism in 2018 and talks of a market top or near-market top, but I disagree.
Is real estate in a bubble? Nope. If anything, I’d call it growing pains as buyers and sellers recalibrate.
Sure, it’s not going to be a bidding war every time, but home prices should continue to rise in 2019 and beyond. We’ll just see smaller percentage gains, but still gains.
In other words, instead of prices rising 10% year-over-year, they might only rise 4-5%, depending on the metro in question.
Of course, not all markets will continue to see gains in 2019, and the seller’s market may tip toward a buyer’s one in some areas, or at least level out.
But with today’s crop of homeowners in great equity positions and boring old fixed-rate mortgages, there’s no real catalyst to cause a bubble burst.
A decade ago, the real estate environment was completely different. Most homeowners had the worst ARMs you could dream up, zero home equity, and many shouldn’t have even owned properties to begin with (had proper underwriting actually existed at the time).
4. We will see a strong spring home buying season
If you’re in the market to buy a home in 2019, expect another tough go at it. As noted, home prices will probably keep chugging higher.
And competition, while perhaps not as fierce, will remain, especially in the more popular areas of the country.
Even if inventory creeps up slightly, I don’t expect sellers to flood the market thanks to issues like a lack of move-up inventory and the mortgage rate lock-in effect, whereby they don’t want to forego their low fixed rate.
At the same time, plenty of Millennials are coming of age and looking to buy, despite the higher rates and prices. And if anything, these apparent headwinds can serve as motivation (urgency) to buy sooner than later.
The difference in 2019 might be that the seller trying to unload a property for top dollar that hasn’t been renovated in 30 years might be in for a rude awakening.
But sellers with nice homes in desirable areas should continue to see lots of demand.
5. Millennials will buy, old-timers will cash in
I expect Millennials to account for the lion’s share of home purchases in 2019. Many individuals in this beloved generation are at that prime buying age of 30 or so.
And a lot of them are looking to buy real estate, even if they’re not married or having kids. This demand will ultimately be good for the market, but perhaps not great for them.
For one, inventory will still be a problem next year, especially in the starter-home category, and it’s no secret home prices aren’t all that attractive at the moment.
While they might not get the best price on their first home, they’ll at least get a relatively good mortgage rate.
Those who are looking to sell a home will increasingly need to cater to the Millennial buyer – that means smart design, loads of technology inside the home, cool outdoor spaces, and close proximity to independent restaurants, bars, and coffee shops.
If you want to sell your house for top dollar, you’ll need to get rid of the doilies and the oversized curtains, oh, and also the granite countertops. Quartz please.
I expect long-time homeowners to continue to cash in and downsize/move elsewhere to realize the massive gains seen over the past several years.
Lenders and real estate agents who want their business will need to approach it differently as well, with more of a focus on technology and convenience.
If you’re using a phone to make contact, it’s probably wise to text as opposed to call.
6. Cash out refis, HELOCs, and similar home equity offerings will gain in popularity
The narrative continues to be “no one wants to lose their low mortgage rate,” but life happens.
And so I expect plenty of homeowners to start tapping into all that equity they’ve accrued over the past five or so years.
We’re going to see rate and term refis plummet, but cash out refis get a lot more popular with existing homeowners.
Same goes for HELOCs, home equity loans, and new alternative products where homeowners share in future appreciation for payment-free equity access.
I also expect more companies to pitch their home equity products a lot harder, and for others to introduce them in 2019.
If rates come down we might see a real surge in cash outs…
7. More non-QM and outside-the-box originations, looser underwriting
At the same time, I expect mortgage underwriting standards to loosen a bit more as the pool of eligible buyers and refinancers wanes.
Whenever there’s a lull in new business, lenders will begin digging a bit deeper to find the prospects they may have ignored when the sun was shining.
The non-QM space seems to be buzzing as more originators migrate to companies that can do more than the run-of-the-mill banks and lenders.
Perhaps they’ll pick up the slack, or force conventional lenders to widen their credit box to include more nonconforming stuff.
That could eventually be a bad thing if we slip back into the wild west days of a decade ago.
8. More disruptors in the mortgage and real estate space
We’ve seen a ton of companies disrupt the mortgage and real estate industries, and they will probably be even more prevalent in 2019.
I anticipate more new startups will emerge with clever ways to do things faster and easier, perhaps at the expense of human beings.
The digital mortgage will get more real and commonplace, and just about everyone will be using technology like real-time income and asset verification.
This should shorten the lengthy loan process and reduce fraud, with less ability to game the system when data is being pulled directly from the source.
I also expect more home sellers to use discount real estate brokerages like Redfin, or sell to iBuyers like Opendoor and Offerpad.
9. Mortgage layoffs will increase
Sadly, with lower loan volumes expected in 2019, mortgage lenders will be forced to adjust staffing levels accordingly. This may be seen in both sales and operations, with less need for all positions.
We’ve already seen a wave of layoffs in 2018, and there’s a good chance we’ll see the same thing next year too.
Part of this will have to do with volume, and part of it will have to do with those new technologies mentioned.
If lenders are forced to work more efficiently in light of lower profits, there’s a greater chance they’ll embrace tech.
10. Mortgage lenders will either merge or close their doors
While it’s not going to be 2007 or 2008 all over again, I do expect a greater number of mortgage lenders to close their doors in 2019, especially those that rely mostly on refinances.
Over the past several years, lenders have scurried to forge partnerships with real estate companies and agents, knowing home purchase applications will be king for the foreseeable future.
Sure, cash out refis will make up some of the lost ground given up by the lack of rate and term transactions, but it won’t be enough for companies focused solely on the refinance market.
This should also lead to consolidation in the industry with bigger lenders scooping up the smaller ones, which could result in a more concentrated market share at the top, as per usual.
Whether Amazon Mortgage materializes is another question…here are your top purchase lenders by the way.
Bonus: More home buyers will migrate out of state
Thanks to swelling affordability woes, we’ll see more buyers pack their bags for cheaper pastures. This was common back in 2006 and 2007 during the height of the last housing boom.
And if prices and rates keep going up, some will find it easier just to relocate as opposed to paying through the nose for a property that isn’t even ideal.
For example, Southern California renters may head east to Arizona or Texas, while Bay Area residents may find life more affordable in Portland.
Smaller cities may also see bigger home price percentage gains as home buyers flock inland or away from large metros in search of better opportunities.
Real estate brokerage Compass has launched a unique new offering known as “Compass Bridge Loan Services” that solves the buy before you sell conundrum.
Many existing homeowners buy replacement properties when selling their current ones, but it can be tricky to time a sale and purchase concurrently.
Aside from mortgage lending issues, like coming up with a down payment and balancing two monthly mortgage payments, there’s also the other buyer/seller to worry about.
This can be especially challenging in a hot market where all-cash offers are the norm, or if competition makes things like contingencies hard to draw into the contract.
To alleviate these pressures, Compass has joined forced with two large mortgage lenders, Freedom Mortgage and Better, to help their home sellers get a bridge loan.
How Compass Bridge Loan Services Works
Sign listing agreement with a Compass real estate agent
Apply for a bridge loan with any bank, including their preferred lenders
Use funds to purchase replacement property and move in when you want
Sell old property and use proceeds to pay off the bridge loan
First, the home seller signs an exclusive contract with a Compass real estate agent to sell their existing home.
Next, they apply for a bridge loan with the bank of their choice, including Compass’ vetted lenders Freedom Mortgage and Better.
Those two lenders can apparently get the job done fast, as time is often of the essence in situations like these.
For the record, Better isn’t available to customers in MA, NH, VA, and VT, but Freedom Mortgage is available nationwide.
Anyway, once approved for the bridge loan, the home seller can move into their new home using the proceeds for down payment or to simply make monthly housing payments.
To sweeten the deal, Compass agents can “front” the first six months of bridge loan payments to keep liquidity a non-issue for the cash-constrained homeowner.
Sell with Compass Concierge to Fetch a Higher Price
The company also offers a no upfront cost renovation service known as Compass Concierge
Property is prepped and renovated before being listed to get top dollar
And to ensure a quick sale without languishing on the market
Seller only pays for renovations at closing once home sells
In the meantime, a Compass real estate will work to sell the homeowner’s former property.
This may also include Compass Concierge, which is very similar to Curbio in that you can renovate your home before listing and pay the repair costs at closing.
Like Curbio, they’ll recommend what should be done to get the property up to snuff, including new floors, deep cleaning, roof repairs, bathroom and kitchen improvements, painting, and more.
The changes are aimed at improving the property value and making it sell quicker, which could reduce the time you’ve got that bridge loan open.
Speaking of, interest rates on bridge loans are notoriously higher than traditional loans because they’re only intended to be kept for a short period of time.
As such, you won’t want to keep it very long in order to protect your hard-earned money, so this type of service only works for someone looking to make a quick transaction.
The question you need to ask is if the cost outweighs the benefit – it may turn out to be cheaper to sell contingently without the bridge loan.
So be sure to do the math and run some scenarios to ensure you’re going down the right path.
Of course, there are intangibles to consider as well, like missing out on your dream house if the sellers aren’t interested in waiting around for your old home to sell.
From Compass’ perspective, it appears they’re looking to compete with all the disruptors entering the real estate space, including iBuyers like Opendoor, RedfinNow, and Zillow Offers.
These companies will buy your house and even let you trade it in for a new one, completely removing the typical obstacles associated with buying and selling homes at the same time.
Compass has already rolled out the bridge loan service in select markets nationwide and early feedback has apparently been “overwhelmingly positive.”
Splitting assets and moving out can be messy during a breakup, even more so if you are buying a house during a divorce. While separation can complicate the home-buying process, it can still be done.
Before you consider buying a house during a divorce, here are some tips to keep in mind.
Buying a House During Divorce or After Separation: What to Consider
Moving forward as quickly as possible may be tempting, but buying a house during a divorce or after separation can get complicated. It’s possible to buy a house if you aren’t legally separated, but there are many factors to consider.
1. Finalize Your Legal Documents
First and foremost, your mortgage lender will require your legal separation agreement. This is a court-ordered document used to divide assets, debts, and other responsibilities between a couple.
A mortgage is a big financial obligation and your lender will want to make sure you are capable of qualifying for a mortgage as a single homeowner.
2. Figure Out Your Financials
Next, you should figure out exactly how much you can afford. Divorce typically comes with fees and ongoing costs like attorney fees, child support, or alimony, so it’s important to find out what you’re responsible for before determining what you can afford.
Tip: If you are responsible for an existing mortgage, it will be included in your debt-to-income (DTI) ratio and could make it more difficult to buy a home during a divorce. However, if the court awarded your spouse the property, then the lender may exclude that from your DTI.
3. Remove Yourself From First Mortgage
If your spouse was given the house, you will want to make sure you remove yourself from that mortgage so that you are not legally responsible for making monthly payments. This can be done by using a quitclaim deed or by refinancing.
4. Keep Records of Payment History
If you are making payments to your spouse, this will be included in your monthly debt amount. However, if you receive monthly payments, then this can count as qualifying income. Keep records of any payment history and bring this along with your legal separation agreement to your mortgage lender.
5. Get Pre-Approved
After the divorce is finalized, you can take the first step toward getting a mortgage by getting pre-approved. A pre-approval letter can help while shopping for a home. Not only does it say how much you can afford to borrow, but it also lets sellers know that you are a serious buyer.
Is It a Good Idea to Buy a House During a Divorce?
Buying a house during a divorce is possible, but it will be more of a challenge.
If you live in a community property state, then you and your spouse must sign and notarize a quitclaim deed. A quitclaim deed transfers any interest your spouse has in the property over to you or vice versa.
Community property law says that couples who acquire property during a legal marriage own the property equally, and if a quitclaim deed is not signed, then your ex-spouse will have equal rights to your new home.
As a married couple, your spouse’s debts could also affect your ability to qualify for a government-backed mortgage. Lenders calculate your DTI using both your income and debts. If your ex is on the mortgage and has a high DTI, this could also raise your household DTI.
Evaluate your financials and determine whether this is a good time to purchase a home. While you may be able to qualify for a mortgage, it may be better to build your credit score and save money. Improving your credit score and making a larger down payment could make your monthly mortgage payment more affordable.
Are you in the market for a home loan? Total Mortgage’s loan experts are standing by to help you understand your options. We have branches across the country.
What If You Decide to Stay in Your Old Home After the Divorce?
During a divorce, the easiest way to divide the house is to sell it and divide the proceeds. But what if you want to stay in your home?
If both names are on the title, then you both have equal rights to stay in the home after a divorce. However, equal distribution of assets is typically handled in court during a divorce. For example, a judge could award you a percentage of the property based on your income or how much of the mortgage you personally paid.
If both parties want the house, then a court will decide who gets it and at what cost. If you keep the home, you may have to buy out your spouse. However, the court also takes financial viability and children into consideration.
Can You Buy a House With a New Partner Before Your Divorce?
There is no law saying you cannot purchase a home with a new partner before your divorce, but you and your ex must cooperate so that your new home is not viewed as a marital asset.
A quitclaim deed will need to be signed to transfer any interest in the property, even in community property states. You should also be careful of what funds you use to purchase your new home, like the down payment, closing costs, and other fees. The court could decide those funds were community property, which may complicate the entire process.
Consider a Home Loan With Total Mortgage
Divorces can be messy. Before buying a home during a divorce, you need to make sure you can afford a mortgage, especially if you have additional divorce obligations. A certified divorce real estate expert and a divorce attorney can help you maneuver through this process.
If you’re ready to move forward, Total Mortgage has your back. Start your application with Total Mortgage today and get your free rate quote in minutes.
Building a home known as an accessory dwelling unit could be a novel solution to low housing supply.
ADUs are units built on the lot of an existing home and tend to be cheaper to construct and live in.
Higher rates have frozen the housing market, leading to a national shortage of homes for sale.
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housing market has never been this unaffordable.
A big problem is extremely low supply, and that could lead to a trend of eager homebuyers building a kind of house—known as an accessory dwelling unit—in the yard of an existing home, according to two researchers at Miami University.
Architecture professors Jeff Kruth and Murali Paranandi pointed to the huge shortage in housing supply as mortgage rates hover near a 20-year high. The shortage of properties has kept home prices elevated and exacerbated housing un affordability, which could result in the rise of accessory dwelling units, they said.
ADUs, also referred to as “backyard homes” and “in-law suites,” are housing units that are built on the land of existing properties. They can also be cheaper to build and to live in, as they’re typically smaller than single-family homes.
“Recent trends – working from home and aging in place, along with a homeownership market that’s pricing out younger adults – all demand housing types that are not readily available in a market dominated by single-family housing.
“We believe ADUs – with their social, economic and environmental benefits – should become a more common housing option,” the researchers said in an op-ed for The Conversation.
Historically, there’s been stiff opposition to ADUs, and there is often a byzantine permitting process in many states that requires obtain as many as seven permits to be allowed to construct a dwelling on a lot with an existing home. But some states are softening their stance as the housing crisis deepens. Leading the charge is California, which is even offering subsidies to make construction more affordable.
32% of homeowners said they were interested in developing an ADU on their property after learning about it, according to a January survey from mortgage giant Freddie Mac. And the trend has already taken off in some packed housing markets, with ADU permits in California jumping from 9,000 to 12,392 from 2018-2020, per UC Berkeley research.
“As the country grapples with alleviating its housing crisis, solutions will require rethinking existing policies and re-imagining what housing development and neighborhood cohesion looks like. ADUs can be on of those solutions,” Kruth and Paranandi wrote.
Rising interest in ADUs and other novel ways into the housing market comes as US housing hangs in a state of limbo, with the high cost of borrowing shutting out both buyers and sellers. The average 30-year fixed mortgage rate topped 7% for the first time since March, and has hovered not far from that level since last November.
This has shut out many buyers, who are faced with higher costs of borrowing, a trend of sellers sitting on the sidelines is also keeping prices high.
Current homeowners are less likely to want to list their home for sale if it means financing the purchase of a new home at a higher rate. Many buyers in the last decade locked in mortgage rates close to historic lows, and the pandemic era in particular saw a steep drop in borrowing costs for buyers, as the the 30-year rate dipped under 3%.
The result is a frozen housing market, with sales unlikely to pick up unless mortgage rates ease substantially. Experts, however, don’t expect a major pullback in rates this year: the 30-year mortgage rate will likely ease to 6% by the end of 2023, Redfin’s chief economist told Insider, which will keep affordability and housing activity low through the second-half of 2023.
Well, 2019 is set to come to a close. It’s certainly been an interesting year (and decade), surely one to remember.
But now it’s time to look forward to what 2020 might bring with regard to the housing market, mortgages, and so on. Let’s dive in.
You can see my 2019 predictions here.
1. Mortgage rates will go down
As always, we tackle mortgage rates first. The forecasts have been wrong year after year lately, with most pundits calling for an end to the ultra-low rate era.
But over time, it has become apparent that this is simply the new normal for rates. They probably aren’t going back to 5-6% anytime soon.
Instead, expect 30-year fixed rates closer to 4%, as they have been for years now. In 2020, we might even see new all-time lows if the election, Brexit, or other geopolitical events really shake things up.
If you’re a home buyer or a refinancer, 2020 will be yet another favorable year in the financing department.
2. Home prices will go up (limited inventory, but not a seller’s market)
Now let’s talk home prices, which don’t have a clear correlation with mortgage rates. No, one doesn’t go up while the other goes down, despite many assuming that.
While we’ve already seen the really stellar years of appreciation since bottoming nearly a decade ago, the end of home price appreciation isn’t quite here yet.
In fact, 2020 should be another solid year in terms of home price growth, likely mirroring the 5-6% gains seen in 2019.
That means even more home equity for those who already own a home, and perhaps a little less sticker shock for those in the market to buy, with prices not all that different from the year prior.
If your wages have increased since then, it may not look all that bad, especially if low interest rates make your home loan financing that much more affordable.
I believe we’ll continue to see a healthy balancing of the housing market between buyers and sellers, though some markets nationwide will continue to be more competitive than others due to a serious lack of supply.
3. Builders will build more homes
Speaking of housing supply, expect home builders to really ramp up their building in 2020.
Fannie Mae is forecasting almost 1 million single-family starts next year, representing a near-10% increase from a year earlier.
That should begin to ease demand in areas that need it, though it may take more than a year or two for it to really show since these projects take time to be completed and marketed to buyers.
The question is will home builders get it right this time around, or overshoot the mark again?
4. Low down payment mortgages will dominate purchases
With regard to financing those new home purchases, I expect a lot of low-down payment mortgages to be involved.
I’m talking the 3% down offered by Fannie and Freddie, 3.5% from the FHA, along with zero down from the VA, USDA, and other individual lenders.
It seems low- and no-down is back en vogue, especially with competition a bit lower in today’s housing market.
Again, this could be an ominous sign we are returning to the dark days of the early 2000s. However, the underlying mortgages should still be a lot cleaner.
5. More quick refis from recent home buyers
I also expect the trend of buy-to-refi to continue in 2020. Many of those who refinanced in 2019 had just acquired their mortgage, but thanks to rate improvements, it was beneficial to refinance just months later.
This drove a lot of refinance volume in 2019, and probably will do the same next year.
As I said, we could see new all-time lows in mortgage rates, so recent buyers, along with not-so-recent buyers, may benefit from a rate and term refinance (or cash-out).
That’ll be great news for mortgage lenders who rely on refis to post big numbers, as the purchase market will likely be just marginally higher than in 2019.
It also means you can do better your second time around if you made some missteps on your first mortgage go-around.
6. More iBuying replacing traditional real estate agents
The disruptors have been around for some time now, and they continue to grow market share and take from the traditional channels.
This includes iBuyers, such as Offerpad, Opendoor, and Zillow Offers, who are gently pushing out real estate agents with their instant all-cash offers.
Unfortunately, these companies are keeping more for themselves in exchange for a little convenience. As I’ve said, homeownership requires constant work.
Part of that is putting in the time/effort to buy and sell a home thoughtfully. You can rush it if you want, but it’ll cost you. Potentially a lot.
7. Cash out refis will be big
While the number of cash out refinances has increased in recent years, the total dollar volume is still a drop in the bucket compared to the early 2000s.
Expect more homeowners to cash in on their home equity in 2020 as mortgage lenders look for new strategies to boost their own pipelines.
With more homeowners ageing in place or simply not moving because there’s nowhere to move, they may instead pull out cash to make much-needed renovations. Or simply to pay for other stuff.
Americans are sitting on a ton of equity, so it’s really a matter of when, not if. And they’ve been sitting on it for a while…
8. Faster digital mortgages will become the norm
Mortgages have been getting faster and faster in recent years thanks to advances in technology.
Nowadays, borrowers have the ability to seamlessly connect financial accounts to an application, forgo a home appraisal, or participate in an eClosing.
We’ve been hearing claims of mortgages in a week, a matter of days, or with the push of a button.
In 2020, I think we get closer to the elusive instant-mortgage, thanks to wider spread adoption of existing and new technologies.
Speed and convenience is becoming more of a selling point for mortgages, so look for a greater number of lenders to offer things like on-time guarantees.
Of course, getting it right (and for a good price) is more important than getting it done fast.
9. Mortgage broker share will rise
Not all mortgages can be streamlined. Some continue to take time, whether it’s because the borrower is self-employed, the property is unique, or some other unconventional scenario.
One group that excels when it comes to tricky or outside-the-box stuff are mortgage brokers. They’ve been actively gaining back market share since nearly going extinct after the Great Recession.
And 2020 will probably be another banner year for the group, thanks in part of better technology leveling the playing field, and a more diverse origination mix.
They’ve also got a new group doing a better job communicating the benefits of using a mortgage broker.
10. We’ll be one year closer to the next housing crisis
While I do see 2020 being another solid year for both real estate and mortgage, it might be time to start thinking about what’s next.
This housing rally has gone on for quite a while, and we’re certainly well into the late innings in terms of bust to recovery to expansion.
We’ve probably still got a few more good years, but that window is really beginning to narrow.
There’s a lot to start worrying about if we want to avoid making the same mistakes that felled us a decade ago.
My hope is we don’t overbuild and throw underwriting standards out the window again, damaging another generation that seems to finally be warming to the idea of homeownership.
The housing nightmare continues. The National Association of Realtors (NAR) reported that existing home sales for April came in at 5.41 million, down 3.4% from the previous month and 8.6% from last year. But, the savagely unhealthy data line was that home prices are up 14.8%.
Now that we are almost in July, we can safely say the premise that once mortgage rates hit 4%, the mass panic selling of American homeowners who need to get out at all costs, driving total inventory up in the millions, hasn’t happened. In truth, that was always a terrible premise.
My nightmare scenario, on the other hand, has happened and this is bad news for everyone. Total housing inventory has collapsed to all-time lows since 2020 and because this happened during the years 2020-2024, it created forced bidding and drove prices well above my 23% five-year home-price growth model in just two years.
Now that mortgage rates have risen, demand is getting hit, while we are still showing 14.8% home-price growth data. YIKES!
NAR Research: The median existing-home price for all housing types in May was $407,600, up 14.8% from May 2021 ($355,000), as prices increased in all regions. This marks 123 consecutive months of year-over-year increases, the longest-running streak on record.
Since the summer of 2020, I have truly believed that once the 10-year yield broke over 1.94% — which means 4% plus mortgage rates — the housing narrative would change. Home prices have escalated out of control since then, creating more rate move impact damage than it would have traditionally.
Whenever rates rise, we see it impact demand, and mortgage rates are at 6% and no longer at 3%. This is real demand destruction; prices and rates are a double whammy and why I have stressed we need to get inventory higher as soon as possible. The only way this happens is higher rates.
Since March of this year, housing demand has been falling more and more, but inventory is still below the 2010,2013,2016, and 2019 levels, which is a nightmare. Because housing is shelter, people don’t sell their homes to be homeless; it’s where they live. When you’re trying to sell your home, naturally, you’re a homebuyer too.
Rates have risen at the fastest pace ever, which makes houses more expensive, so in theory, some homebuyers can’t move. Home sellers with high equity aren’t as sensitive to higher rates because they bring a more significant down payment. Inventory skyrocketing back toward historical norms of 2 million to 2.5 million, which I would find to be the best thing ever for housing, is not happening this year. NAR Total Inventory Data Back To 1982:
Getting to that historical inventory level will take more time. I have stressed that housing doesn’t move like the stock market. Homeowners are in a better financial position than stock traders, which is why the idea of mass panic selling doesn’t reflect housing reality. You don’t get a margin call at noon and are forced to sell your house in seconds. A real estate investor, on the other hand, doesn’t have that type of shelter relationship with a home, that a homeowner does.
The goal is simple: We need total housing inventory to reach a range of 1.52-1.93 million to return to normal. Currently, we are at 1.16 million. Weakness in demand, time and the massive hit to affordability will get us there, but not at the speed people promoted last October.
Remember, inventory is very seasonal, and in the next few months, the seasonal inventory will fade, but before that happens we should still break over the previous year’s high. We should all be rooting for more inventory to end this madness.
Regarding the monthly supply for housing, we want this to get above four months as soon as possible. This would be a more traditional level for the housing market; we are making some progress here but not where we want to be yet. NAR Monthly Supply Data Before This report
As a nice jump in monthly supply, we see the seasonal push in inventory tied to sales falling, which means the months of supply should increase. This is the best part of today’s existing home report.
NAR Research: Total housing inventory registered at the end of May was 1.16 units, an increase of 12.6% from April and a 4.1% decline from May 2021. Unsold inventory sits at a 2.6-month supply at the current sales pace, up from 2.2 months in April and 2.5 months in May 2021.
Additional bad news from the report is the data for days on the market. The frustrating data line during this savagely unhealthy housing market has been days on the market stubbornly staying at the teenager level. We want this to go much higher to get back to anything normal.
We recently paid a severe price on the home-price growth nationally, and as long as this data line is still at a teenager level, we will not gain the balance in the housing market we need. We need home prices to fall by 17% to return to the peak growth model for the years 2020-2024 — just to have a regular market.
NAR Research: First-time buyers were responsible for 27% of sales in May; Individual investors purchased 16% of homes; All-cash sales accounted for 25% of transactions; Distressed sales represented less than 1% of sales; Properties typically remained on the market for 16 days.
Regarding sales trends, this data line still lags the reality of the rising rate environment, so we have a lot more room to go lower in sales. When mortgage rates were between 4%-5%, it looked more like a traditional downturn in sales with higher rates, adjusting to the massive price gains since 2020.
However, at 6% plus mortgage rates, we are seeing some real demand destruction as the most significant homebuyer in America, mortgage buyers, get hit with a double whammy.
While the purchase application data four-week moving average trend hasn’t gotten to levels that I thought I would see with mortgage rates this high, which was between 18%-22% year-over-year declines, we are picking up the pace now, and that four-week average is down 16.75% year over year. Remember that starting in October this year, the comps will be much harder to work with, so year-over-year declines of 25% to 35% are in play then.
The savagely unhealthy housing market continues until we can get inventory levels to cool down pricing and hopefully reverse some of the extensive material home price damage in America post-2020. If you want more of a guide on knowing when we will see a material change in that discussion, I wrote this article recently to go over what you should be tracking. A good rule of thumb to consider is inventory between 1.52 – 1 .93 million and over four months of supply, and then we are back to a normal marketplace.
Just imagine how much more damage we would have had this year if mortgage rates hadn’t risen. I, for one, am in total agreement with Fed Chairmen Powell: we need a housing reset because nothing good happens with such savagely unhealthy home-price growth.
Of all the housing market bugaboos that haunt and frustrate wannabe buyers in this stressed, prime-time selling season of 2023 (Sky-high prices! Rising mortgage rates! Inflation and economic uncertainty!), one challenge still sits at the center of everything: finding a good home to purchase.
America’s been in a severe housing shortage since at least the earliest days of the COVID-19 pandemic, and it affects just about all else. A shortage of inventory leads to frenzied bidding wars, out-of-reach price tags, and market paralysis.
But the situation is changing, at least in some markets. And Realtor.com® decided to find out where. When it comes to home inventory levels in America, it’s both the best of times and the worst of times—it all depends on where you live.
To gain some insight into where things stand going into the crucial summer season, the data team at Realtor.com crunched the numbers to determine the metropolitan areas with the largest increases—and most substantial decreases—in available home inventory.
You can see for yourself in the table below the change in housing inventory in the 100 largest metros.
So what did we find? Well, across the country, inventory is up year over year, by a little more than 20%. But this is largely a function of the incredibly low inventory levels of the past couple of years. There aren’t more sellers coming onto the market. Instead, homes are sitting longer. And even the current bump in year-over-year inventory still puts this year below pre-pandemic levels. Nationally, the number of new listings was down 22.7% in May compared with the previous year
And the data underscores a truth that has become increasingly evident: There’s no single, monolithic housing market. Instead, real estate has become a tapestry of regional markets, each with unique patterns.
In certain regions, particularly in the more affordable pockets of the Midwest and Northeast, inventory remains tight. Despite higher mortgage rates casting a shadow over buyers and sellers alike, homes are selling at a brisk pace, prices continue to rise, and inventory remains relatively low compared with previous years.
Compare that to the West and South, where hot markets like Austin, TX, Nashville, TN, and Sarasota, FL, have seen inventory more than double compared with this time last year. These pandemic-era boomtowns have been on a roller coaster when it comes to pricing, inventory, and demand.
Nick Libert, a real estate agent with EXIT Strategy Realty in Chicago, calls this a “balanced-stagnant market.”
Elevated rates have put the brakes on the overall housing market activity, from the perspective of buyers and sellers, but a bridled demand is still very much present.
“Not a lot of people are moving,” Libert says. “Part of the reason is there’s very little to look at.”
So let’s take a look at the biggest markets to see what’s what in different parts of the country.
We found where inventory is up and down the most in the 100 largest U.S. metros by going through the Realtor.com monthly housing market data to compare inventory in May 2023 with May 2022. We selected just one per state to ensure geographic diversity. (Metros include the main city and surrounding towns, suburbs, and smaller urban areas.)
Where inventory has risen the most
1. Sarasota, FL
May 2023 year-over-year active listings change: +128.1% May 2023 median list price: $549,900
What a difference a year makes.
Located on the southwestern coast of Florida, known for picturesque white-sand beaches and barrier islands along its Gulf of Mexico shoreline, the Sarasota metro experienced the biggest year-over-year jump in inventory. There were nearly 2.3 times the number of active listings, at just shy of 4,600, this May compared with last.
Unsurprisingly, homes are sitting on the market almost twice as long, now taking about 7.5 weeks to sell.
This midsized metro, which serves as the spring training destination for the Baltimore Orioles, is relatively expensive compared with much of Florida. Median list prices are about 9% above the median state price—only Miami is priced higher.
Carissa Pelczynski, a real estate agent at Preferred Shore in Sarasota, says the attitude of many of the out-of-town buyers who were driving prices up during the pandemic has shifted in the past several months.
“People are just more hesitant now,” Pelczynski says.
Also adding to the inventory glut, according to Pelcynski: Too many sellers are pricing their homes as if the market were still as hot as it was a year or two ago. (It’s not.)
2. Nashville, TN
May 2023 year-over-year active listings change: +124.7% May 2023 median list price: $580,000
Music City is the next stop on our list, with a jump in inventory almost as large as Sarasota’s. This icon of the South is home to the Grand Ole Opry and the Country Music Hall of Fame, and it’s an increasingly popular destination for buyers.
What’s especially notable about Nashville right now is that even as inventory is more than double what it was this time last year, in May the price per square foot hit an all-time high. It surpassed the previous high mark in June 2022.
Homes in Nashville are generally larger than average, with a median size of almost 2,200 square feet. It’s also about 15% more expensive than the national median price per square foot.
A recently listed, 500-square-foot condo just southeast of downtown Nashville and within walking distance of the Cumberland River is around $515,000.This newly constructed, four-bedroom townhome is on the market for about $600,000.
Watch: The Best Cities in the U.S. for Home Sellers Right Now
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3. Austin, TX
May 2023 year-over-year active listings change: +112.5% May 2023 median list price: $583,751
It seems no list of real estate superlatives is complete without Austin. The Lone Star State’s capital city had become one of the hottest markets in the country during the pandemic, with demand—and as a result, prices—exploding. Builders raced to put up homes in the area.
But when mortgage rates rose in 2022, the Austin market was one that cooled the most, with list prices falling 15% from May 2022 to January of this year. Since then, prices have been creeping back up, now at 9% below last year’s peak.
Even as prices are back on the rise, the typical Austin home is on the market for eight long weeks before selling, compared with just two weeks during the spring 2022 pandemic pump peak.
No place on our list has a larger portion of listings that have had a price reduction, with more than 1 in 3 listings having been discounted by the seller.
The number of homes available in the Austin metro is back to pre-pandemic levels, thanks in part to the boom in new construction.
4. New Orleans, LA
May 2023 year-over-year active listings change: +81.0% May 2023 median list price: $345,000
The number of homes available in the Big Easy has earned it a place on our list, with an 81% increase.
Worth noting: By this same time last year, New Orleans inventory was already back on the rise. Measuring from the inventory low point, New Orleans has also seen the number of available homes more than double.
The inventory increase hasn’t quite put it back to pre-pandemic levels, but if the upward trajectory continues, New Orleans should reach that milestone in the coming months.
And although list prices in New Orleans haven’t been as swingy as they’ve been in a place like Austin, they have crept back up—and are now less than 1 percentage point shy of the all-time high set in March 2022.
A newly listed, midcentury boathouse on New Orlean’s iconic Lake Pontchartrain can be found for about $375,000.
5. Tulsa, OK
May 2023 year-over-year active listings change: +74.1% May 2023 median list price: $369,450
There are plenty of homes for sale in Tulsa—they just aren’t the more affordably priced properties that buyers are seeking.
“We have so much more inventory right now, and we just have less buyers,” says local real estate agent Tiffany Johnson, of Tiffany Johnson Homes.
It’s a price point game, she says. “You can’t find anything under $150,000, and anything under $300,000 is selling quickly.”
The market has shifted a lot since last year, especially for sellers who now face more competition.
“The buyers who are in the market are very serious. They will make a move quick, but they have so many houses to choose from, so [sellers and agents ] have to be almost perfect,” Johnson says. “They have to find ways to actually market these homes now.”
Rounding out the top 10 metros where the number of homes for sale has increased the most is Raleigh, NC, at 72.7%; Wichita, KS, at 59.8%; Las Vegas, at 57.5%; Greenville, SC, at 57.1%; and Omaha, NE, at 54.4%.
Where inventory is down the most
1. San Jose, CA
May 2023 year-over-year active listings change: -35.3% May 2023 median list price: $1,530,000
Topping the list of places where inventory is tightest is Silicon Valley’s San Jose. The tech hub is one of the most expensive metros in the nation, with a median price tag of $1.5 million.
Posing another hurdle for buyers: The number of homes for sale is still near record lows. The metro area, with more than 2 million people, had fewer than 1,000 homes for sale in May.
Tuan Tran, a Realtor® at Home Page Real Estate in San Jose, sees changes in this unique and wealthy home market amid turbulence in the tech business.
“Now I see a lot of investors holding back,” Tran says, adding that they are waiting to see whether a tech recession runs deeper. “Inflation is still high. Paychecks haven’t gotten much bigger.”
2. Hartford, CT
May 2023 year-over-year active listings change: -26.0% May 2023 median list price: $424,925
Hartford topped our list of markets that will dominate in 2023, and the low home inventory seems to be proving us right.
Buyers from around the Northeast have poured into the “Insurance Capital of the World,” about 90 minutes southwest of Boston and 2.5 hours northeast of New York City, due to the reasonably priced homes for sale and good jobs available.
The city has the fewest price reductions of any city, with only 1 in 14 listings with a markdown.
In another sign of the market’s strength, Hartford boasts the fastest-selling homes of any place on our list, with the typical home spending just 19 days on the market. That’s less than half the national median time of 43 days in May.
3. Milwaukee, WI
May 2023 year-over-year active listings change: -23.4% May 2023 median list price: $374,950
The housing markets in many traditionally affordable, Midwestern cities, like Milwaukee, have continued to chug along, while other pricier markets have sputtered or stalled.
In May, there were 23% fewer homes for sale than the year before. And the median home in Milwaukee is selling in 29 days, just four days more than the all-time low of 25 days in May 2022.
Another indicator of the overall strength of the Milwaukee market: The relatively small portion of homes that have had a price reduction. Only 1 in 10 is marked down.
For those considering selling in Milwaukee, the metrics suggest a quick sale, likely without a price drop, is still the norm right now. Buyers might want to consider this updated, three-bedroom, two-bathroom Cape Cod for about $225,000.
4. Dayton, OH
May 2023 year-over-year active listings change: -20.3% May 2023 median list price: $234,950
Dayton, a Rust Belt city bout an hour northeast of Cincinnati, is the most affordable of all the cities on our list, with prices 45% below the national median. The “Gem City” is home to the National Museum of the U.S. Air Force.
In contrast to what we’ve seen in the markets that got hot during the pandemic pump, prices in Dayton have been steady: no big swings up or down, but a rather steady and slight incline.
Dayton’s median listing price per square foot in May was up 6.7% year over year.
Buyers can find big deals in Dayton. This four-bedroom, 2.5-bathroom house on a third of an acre is for sale for $219,000.
5. Chicago, IL
May 2023 year-over-year active listings change: -18.5% May 2023 median list price: $376,000
The Windy City features near-record low inventory right now.
The number of available homes crept up by about 2% from April to May. But aside from the February 2022 nadir in inventory, there haven’t been this few homes on the market in Chicago in recent history. (Realtor.com listing data goes back to mid-2016.)
“Currently, what my buyers are seeing—and my sellers are experiencing—is that the north side of Chicago, along the lakefront, has, by far, the most pronounced drop,” says Libert of EXIT Strategy Realty in Chicago.
The rest of the top 10 metros with the largest decrease in inventory were Washington, DC, at -15.6%; Bakersfield, CA, at -13.2%; Albany, NY, at -13.1%; Allentown, PA, at -12.5%; and Seattle, at -10.8%.