Uncommon Knowledge
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LOS ANGELES — The average long-term U.S. mortgage rate rose for the fourth consecutive week, another setback for prospective homebuyers just as the spring homebuying season gets going.
The average rate on a 30-year mortgage rose to 6.94% from 6.90% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.65%. The average rate is now just below its highest level since mid-December, when it was 6.95%.
When mortgage rates rise, they can add hundreds of dollars a month in costs for borrowers, limiting how much they can afford in a market already out of reach for many Americans. They also discourage homeowners who locked in rock-bottom rates two or three years ago from selling.
Rates have been creeping higher in recent weeks as reports showing stronger-than-expected inflation at the consumer and wholesale levels and the economy stoked worries among bond investors that the Federal Reserve will wait until later this year before it begins cutting interest rates. A closely followed inflation report on Thursday showed showed prices across the country rose pretty much as expected last month.
Investors’ expectations for future inflation, global demand for U.S. Treasurys and what the Fed does with interest rates can influence rates on home loans.
Despite the recent increase, the average rate on a 30-year mortgage is still down from the 23-year high of 7.79% it reached in late October.
The pullback in rates in November and December helped lift sales of previously occupied U.S. homes by 3.1% in January versus the previous month to the strongest sales pace since August.
Still, the recent uptick in rates is an unwelcome shift for would-be homebuyers just as the spring homebuying season ramps up.
“The recent boomerang in rates has dampened already tentative homebuyer momentum as we approach the spring, a historically busy season for homebuying,” said Sam Khater, Freddie Mac’s chief economist. “While sales of newly built homes are trending in a positive direction, higher rates and elevated prices continue to pose affordability challenges that may leave potential homebuyers on the sidelines.”
Competition for relatively few homes on the market and elevated mortgage rates are limiting house hunters’ buying power on top of years of soaring prices.
Already there are signs that the rise in rates in recent weeks has had an impact on home sales.
Contract signings on U.S. homes fell 4.9% in January from the previous month and were down 8.8% from a year earlier, the National Association of Realtors said Thursday. The report is a barometer of future home purchases as there’s typically a lag of a month or two between a signed contract and a completed sale.
Meanwhile, home loan applications have declined for three consecutive weeks, according to the Mortgage Bankers Association.
Homeowners seeking to refinance got some good news this week. Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, declined this week, pulling down the average rate to 6.26% from 6.29% last week. A year ago it averaged 5.89%, Freddie Mac said.
Source: abcnews.go.com
“Despite the significant decline in mortgage affordability in the past two years, millions of families who do not own their home have the means to afford the largest share of a homeowner’s cost — the mortgage,” said Zillow senior economist Orphe Divounguy. However, he emphasized that income isn’t the only obstacle. “It’s crucial to recognize … [Read more…]
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Mortgage rates have jumped above 7 percent for the first time since early December, according to one leading index.
Figures from the Mortgage Bankers Association (MBA) show the rate on a 30-year fixed-rate home loan hit 7.06 percent in the largest weekly increase since October.
Soaring rates have poured cold water on demand, with home purchase mortgage applications tumbling 10.6 percent in the week to February 16, the MBA said.
It comes as several experts are warning prospective buyers to stave off purchasing their dream home as mortgage rates are certain to come down again before the end of the year.
Several measures of inflation not cooling as fast as expected are behind rates ticking up slighly. Once these fall, rates should follow later in the year.
US mortgage rates are tracked by several different indexes including the MBA and Freddie Mac. Freddie Mac reports rates on a 30-year home loan are slightly lower at 6.77 percent.
Mortgage rates have jumped above 7 percent for the first time since early December, according to the Mortgage Bankers Association
Soaring rates have poured cold water on demand, with home purchase mortgage applications tumbling 10.6 percent in the week to February 16, the MBA said
MBA SVP and chief economist Mike Fratantoni said: ‘Potential homebuyers are quite sensitive to these rate changes, as affordability is strained with both higher rates and higher home values in this supply-constrained market.’
At today’s rate, a typical homebuyer faces paying around $1,000 per month than had they bought two years ago when rates were around 3.08 percent.
In February 2022, a buyer purchasing a $400,000 home with a 5 percent deposit would face monthly payments of $1,619. With a 7.06 percent rate, this rises to $2,543.
Mortgage rates echo moves in the 10-year Treasury yield which have been rocked by a stronger-than-expected inflation report that casts doubt on when the Federal Reserve will be able to cut interest rates.
The Fed’s benchmark funds rate is currently at a 22-year high of between 5.25 and 5.5 percent.
In theory, higher rates are supposed to reign in consumer spending and dampen inflation but prices have remained persistently high.
Investors had hoped for a rate cut during the Fed’s next meeting in March but now only 6.5 percent think this is likely, according to the CME FedWatch tool.
Realtor Sam DeBianchi, who starred on Million Dollar Listing Miami, told Fox’s Mornings with Maria prospective buyers should not ‘buy the American dream home right now’
Officials confirmed interest rates will remain at their current level of between 5.25 and 5.5 percent
However, around 75 percent agree there will be a rate cut by June.
Many real estate experts are now urging prospective buyers to wait for rates to come down.
Realtor Sam DeBianchi, who starred on Million Dollar Listing Miami, told Fox’s Mornings with Maria: ‘Because rates are so high or higher in general, people are trying to add all of the bells and whistles into their purchase, naturally, because they want to roll it all in. They want to come out of pocket too much.
‘I think, as a buyer, you need to maybe put your expectations aside. Don’t buy the American dream home right now. But, think about the American dream home in the future.’
Similarly, Melissa Cohn, regional vice president at William Raveis Mortgage, recently told Forbes that mortgage rates will be ‘at least 2 percent lower by 2025.’
Source: dailymail.co.uk
Significantly more Americans own a home now than a decade ago, but the disparity between Black homeownership rates and those of other racial and ethnic groups has grown wider, according to the National Association of Realtors.
Overall, U.S. homeownership increased over the decade to 2022, with 10.5 million more homeowners across the country, the study by the trade group found, drawing on Census data. Asian Americans experienced the sharpest increase over the period, with ownership rates soaring to a historic high of 63.3%. Hispanic Americans saw a gain of 3.2 million households, to reach a new peak of 51.1%.
While Black Americans also saw homeownership advance, the gain was modest. And at 44.1%, their rate is notably lower than that for Asian, Hispanic and White Americans. The gap between Blacks and Whites – the highest among the four major groups – widened by a percentage point from 2012, to 28 percentage points.
“Minority homeownership gained ground,” Jessica Lautz, NAR deputy chief economist and vice president of research, said in a statement. “While the gains should be celebrated, the pathway into homeownership remains arduous for minority buyers.”
The NAR’s analysis showed 55% of Asian and 51% of Black and Hispanic howe owners were first-time buyers, something that places them at a particular disadvantage in a market marked by high prices and limited supply. That’s because first-timers “must rely on down-payment sources beyond gained housing equity,” Lautz said.
Other challenges for would-be buyers of color include difficulties in saving for a down payment — as they typically spend higher proportions of their income on rent and paying back student loans.
Black homebuyers, for instance, reported the highest levels of student-loan debt among all groups, with 41% carrying a record high median debt of $46,000, while 29% of Hispanic buyers had student loan debt with a median of $33,000. The NAR has also cited data showing Black Americans draw on pension or 401(k) savings more than any other group.
Citing data from the Home Mortgage Disclosure Act, the NAR last year said Black and Hispanic homebuyers face additional barriers in securing mortgages, such as higher denial rates compared with their White and Asian counterparts.
For those who do obtain mortgages, the interest rates tend to be higher on average, Tuesday’s report showed. For loans originated in 2022, 20% for Blacks and 21% for Hispanics exceeded 6%, in contrast with lower percentages among Asian and White borrowers.
Source: nationalmortgagenews.com
The mean rate for a 15-year fixed-rate refinance moved higher this week, while 30-year fixed refinance rates trailed off. The average rate on 10-year fixed refinance increased.
Refinance rates saw some turmoil over the last week, but they’ve been slowly dropping from their peaks in 2023. Experts say slowing inflation and the Federal Reserve’s projected interest rate cuts should help push mortgage interest rates down to around 6% by the end of 2024.
Over 82% of homeowners currently have interest rates below 5% on their property. If home loan rates stabilize over the next several months, more homeowners should be able to save money through refinancing. But in order for refinance applications to pick up in a meaningful way, rates would need to fall substantially, according to Mark Zandi, chief economist at Moody’s Analytics.
Mortgage refinance 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.
Refinance rates are currently between 6% and 7%, but your personal interest rate will depend on your credit history, financial profile and application.
Here are the average refinance rates provided by lenders across the US. We track refinance rate trends using information collected by Bankrate:
Product | Rate | A week ago | Change |
---|---|---|---|
30-year fixed refi | 7.18% | 7.21% | -0.03 |
15-year fixed refi | 6.58% | 6.52% | +0.06 |
10-year fixed refi | 6.47% | 6.38% | +0.09 |
Rates as of Feb. 13, 2024
When mortgage rates hit historic lows during the pandemic, millions of homeowners were able to refinance to lower interest rates. While experts don’t anticipate another refinancing boom, it’s a positive sign that rates are now tending to move downward or sideways instead of soaring up.
For homeowners looking to refinance, remember that you can’t time the market: Interest rates fluctuate on an hourly, daily and weekly basis, and are influenced by an array of macroeconomic factors. Your best move is to keep an eye on day-to-day rate changes and have a game plan on how to capitalize on a big enough percentage drop, said Matt Graham of Mortgage News Daily.
When you refinance your mortgage, you take out another home loan that pays off your initial mortgage. With a traditional refinance, your new home loan will have a different term and/or interest rate. With a cash-out refinance, you’ll tap into your equity with a new loan that’s bigger than your existing mortgage balance, allowing you to pocket the difference in cash.
Refinancing can be a great financial move if you score a low rate or can pay off your home loan in less time, but consider whether it’s the right choice for you. Reducing your interest rate by 1% or more is an incentive to refinance, allowing you to cut your monthly payment significantly.
Refinancing in today’s market could make sense if you have a rate above 8%, said Logan Mohtashami, lead analyst at HousingWire. “However, with all refinancing options, it’s a personal financial choice because of the cost that goes with the loan process,” Mohtashami said.
Homeowners usually refinance to save money, but there are other reasons to do so. Here are the most common reasons homeowners refinance:
The rates advertised online often require specific conditions for eligibility. Your personal interest rate will be influenced by market conditions as well as your specific credit history, financial profile and application. Having a high credit score, a low credit utilization ratio and a history of consistent and on-time payments will generally help you get the best interest rates.
The average rate for a 30-year fixed refinance loan is currently 7.18%, a decrease of 3 basis points compared to one week ago. (A basis point is equivalent to 0.01%.) A 30-year fixed refinance will typically have lower monthly payments than a 15-year or 10-year refinance, but it will take you longer to pay off and typically cost you more in interest over the long term.
The average 15-year fixed refinance rate right now is 6.58%, an increase of 6 basis points from what we saw the previous week. Though a 15-year fixed refinance will most likely raise your monthly payment compared to a 30-year loan, you’ll save more money over time because you’re paying off your loan quicker. Also, 15-year refinance rates are typically lower than 30-year refinance rates, which will help you save more in the long run.
For 10-year fixed refinances, the average rate is currently at 6.47%, an increase of 9 basis points from what we saw the previous week. A 10-year refinance typically has the lowest interest rate but the highest monthly payment of all refinance terms. A 10-year refinance can help you pay off your house much quicker and save on interest, but make sure you can afford the steeper monthly payment.
To get the best refinance rates, make your application as strong as possible by getting your finances in order, using credit responsibly and monitoring your credit regularly. And don’t forget to speak with multiple lenders and shop around.
Source: cnet.com
In the current mortgage landscape, ensuring the highest standards of loan quality is paramount not only during the origination process but also over the life of the loan. As the mortgage industry grapples with a changing market and regulatory complexities, we sat down with Amanda Phillips, Executive Vice President of Compliance at ACES Quality Management, to discuss how lenders can foster long-term success through a robust servicing QC process.
HousingWire: What were some of the challenges faced by lenders in 2023, and what is the outlook for 2024?
Amanda Phillips: 2023 was a year of trials and tribulations for financial institutions. Mortgage applications hit their lowest level since 1996, and lenders were faced with the compounding challenges of dwindling origination volume, soaring home prices, rising interest rates and inadequate housing inventory.
Thankfully, the tune of the housing industry has changed over the last few weeks. Analysts predict 2024 will bring a rise in mortgage origination volume and, potentially, several cuts to interest rate. While the challenge of low housing inventory persists across the country, I have a feeling loan officers will be busier. While the industry basks in the much-needed optimism for 2024, one thing is for certain, quality control (QC) and compliance are still important and worthy of lenders’ attention. An uptick in origination volume tends to bring an uptick in QC defects.
HW: Why is quality control (QC) crucial for lenders in the mortgage industry, and how can lenders maintain QC effectively?
AP: QC is crucial for lenders to ensure loan quality and mitigate risk. A well-rounded QC program can catch loan defects before regulators arrive for exam or investors send loans back for re-purchase. Operational capacity and the staggering cost to originate are challenges lenders will continue to face, leading many lenders to offset this hurdle by maintaining mortgage servicing rights (MSR). To maintain profitability through MSR, lenders also needa robust servicing QC program.
Maintaining QC begins with regularly assessing the integrity of both servicing portfolios and staff to ensure they adhere to all relevant servicing rules, guidelines and regulations. Fortunately, QC is a crucial area where lenders can see immediate returns from easy-to-implement audit and compliance technology. Lenders are advised to regularly review and update operational/compliance procedures and quality control frameworks, conduct self-assessments to test those updates, and, of course, remediate findings.
To mitigate and manage inherent servicing risks, your risk management team must identify your institution’s specific risk areas. From there, your internal audit team should ensure the proper processes and procedures are in place to address those risks. Subsequently, the QC team is responsible for verifying, from a transactional perspective, that your organization aligns its actions with its declarations and takes necessary measures regarding associated risks. Traditional methods, such as manual tracking and spreadsheets, make this process all the more prone to mistakes. This is why utilizing audit technology is so powerful; mistakes are significantly reduced, and efficiencies gained through less manual entry needed from the QC team.
The CFPB’s priorities signal the importance of self-assessment and remediation. Dot your I’s and cross your T’s with a paper trail. Lenders should review their in-house practices to ensure they meet the standard and compare with the recommendations from regulators.
HW: What role does the Consumer Financial Protection Bureau (CFPB) play in the mortgage servicing landscape, especially concerning compliance with the CARES Act and servicing regulations?
AP: The CFPB continues to emphasize compliance with the CARES Act and other servicing regulations, particularly in areas like fair lending, fair servicing, and forbearance. Over the last several years, they have clearly stated the priorities of fair lending and achieving equitable and fair housing programs. The CFPB has actively stated that strictly relying on artificial intelligence (AI) and automated complex credit models will not be tolerated. If a borrower was denied, the lender needs to be able to accurately speak to and explain why and how the decision was made.
This is just another area of how implementing a robust QC process can help lenders avoid these regulatory pitfalls. With audit technology, lenders will have this process documented and ready to pull up in the event of a regulatory audit or discrepancy.
HW: What steps should servicers take to identify and manage inherent servicing risks?
AP: Servicers should identify specific risk areas, establish proper processes, and conduct audits against policies and procedures. An example of a process improvement could be a Call Monitoring program. Consumer telephone interactions are an essential aspect of servicing that is easy to overlook from a quality perspective. No matter how many controls are in place, the need for human interaction, especially as it relates to collections and loss mitigation efforts, can result in an increased risk of non-compliance. Lenders can leverage a robust Call Monitoring program to identify where improvements are needed to protect the organization from regulatory and reputational risk. ACES Quality Management has a pre-built, configurable Call Monitoring audit pack that enables servicers to establish an additional layer of protection quickly and seamlessly within your QC program.
As financial institutions navigate the intricate web of compliance requirements and market fluctuations, ACES not only enables adherence to regulatory standards but it elevates the entire loan quality paradigm. By fostering a culture of continuous improvement while equipping professionals with powerful data-driven insights, ACES becomes an invaluable ally in mitigating risks and enhancing operational efficiency.
The significance of robust quality control and management in the mortgage sector cannot be overstated. In an environment where precision and compliance are non-negotiable, ACES stands as a testament to innovation and adaptability. For more tactical ways to improve QC, download ACES’ free playbook: Three Lines of Defense for Maintaining Servicing Loan Quality.
Source: housingwire.com
Both 15-year fixed and 30-year fixed refinances saw their average rates increase this week. The average rate on 10-year fixed refinance also inched up.
Despite ticking up in recent weeks, refinance rates have been slowly dropping from their peaks in 2023, bringing much-needed activity to the housing market. Experts say slowing inflation and the Federal Reserve’s projected interest rate cuts should help push mortgage interest rates down to around 6% by the end of 2024.
Over 82% of homeowners currently have interest rates below 5% on their property. If home loan rates stabilize over the next several months, more homeowners should be able to save money through refinancing. But in order for refinance applications to pick up in a meaningful way, rates would need to fall substantially, according to Mark Zandi, chief economist at Moody’s Analytics.
Mortgage refinance 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.
Refinance rates are currently between 6% and 7%, but your personal interest rate will depend on your credit history, financial profile and application.
Here are the average refinance rates reported by lenders nationwide. We track refinance rate trends using data collected by Bankrate:
Product | Rate | A week ago | Change |
---|---|---|---|
30-year fixed refi | 7.21% | 7.03% | +0.18 |
15-year fixed refi | 6.56% | 6.22% | +0.34 |
10-year fixed refi | 6.43% | 6.04% | +0.39 |
Rates as of Feb. 9, 2024
When mortgage rates hit historic lows during the pandemic, millions of homeowners were able to refinance to lower interest rates. While experts don’t anticipate another refinancing boom, it’s a positive sign that rates are now tending to move downward or sideways instead of soaring up.
For homeowners looking to refinance, remember that you can’t time the market: Interest rates fluctuate on an hourly, daily and weekly basis, and are influenced by an array of macroeconomic factors. Your best move is to keep an eye on day-to-day rate changes and have a game plan on how to capitalize on a big enough percentage drop, said Matt Graham of Mortgage News Daily.
When you refinance your mortgage, you take out another home loan that pays off your initial mortgage. With a traditional refinance, your new home loan will have a different term and/or interest rate. With a cash-out refinance, you’ll tap into your equity with a new loan that’s bigger than your existing mortgage balance, allowing you to pocket the difference in cash.
Refinancing can be a great financial move if you score a low rate or can pay off your home loan in less time, but consider whether it’s the right choice for you. Reducing your interest rate by 1% or more is an incentive to refinance, allowing you to cut your monthly payment significantly.
Refinancing in today’s market could make sense if you have a rate above 8%, said Logan Mohtashami, lead analyst at HousingWire. “However, with all refinancing options, it’s a personal financial choice because of the cost that goes with the loan process,” Mohtashami said.
Homeowners usually refinance to save money, but there are other reasons to do so. Here are the most common reasons homeowners refinance:
The rates advertised online often require specific conditions for eligibility. Your personal interest rate will be influenced by market conditions as well as your specific credit history, financial profile and application. Having a high credit score, a low credit utilization ratio and a history of consistent and on-time payments will generally help you get the best interest rates.
The average 30-year fixed refinance rate right now is 7.21%, an increase of 18 basis points over this time last week. (A basis point is equivalent to 0.01%.) A 30-year fixed refinance will typically have lower monthly payments than a 15-year or 10-year refinance, but it will take you longer to pay off and typically cost you more in interest over the long term.
The current average interest rate for 15-year refinances is 6.56%, an increase of 34 basis points compared to one week ago. Though a 15-year fixed refinance will most likely raise your monthly payment compared to a 30-year loan, you’ll save more money over time because you’re paying off your loan quicker. Also, 15-year refinance rates are typically lower than 30-year refinance rates, which will help you save more in the long run.
For 10-year fixed refinances, the average rate is currently at 6.43%, an increase of 39 basis points from what we saw the previous week. A 10-year refinance typically has the lowest interest rate but the highest monthly payment of all refinance terms. A 10-year refinance can help you pay off your house much quicker and save on interest, but make sure you can afford the steeper monthly payment.
To get the best refinance rates, make your application as strong as possible by getting your finances in order, using credit responsibly and monitoring your credit regularly. And don’t forget to speak with multiple lenders and shop around.
Source: cnet.com
Refinancing activity rebounded for the week ending February 2 after declining the previous week, as mortgage rates stabilize in the under-7 percent level, contributing to a rise in home loans application, the Mortgage Bankers Association (MBA) said on Wednesday.
The Refinance Index jumped 12 percent from the week before February and also rose by a percent compared to one year ago, according to MBA. Meanwhile, mortgage applications jumped by nearly 4 percent in the same time span.
The average cost of a 30-year fixed rate mortgage for a loan of $766,550 ticked up slightly to 6.80 percent compared to 6.78 the previous week.
“Mortgage rates have stayed close to where they started the year, despite swings in Treasury yields because of slowing inflation offset by stronger than expected readings on the job market,” Joel Kan, MBA’s deputy chief economist, said in a statement shared with Newsweek. “Rates at these levels have not prompted much of a reaction in the refinance market, as most homeowners have mortgages with much lower rates.”
Mortgage rates peaked at about 8 percent in the fall of 2023, making the cost of a home loan the highest it had been since the turn of the century. The elevated rate environment discouraged both buyers and sellers to step into the housing market who were reluctant to incur higher monthly payments of their housing loan.
Part of the reason rates jumped so high was due to the Federal Reserve’s hiking of its funds rate to battle soaring inflation. The rise in prices is cooling giving confidence that policymakers will slash rates but a strong jobs market is creating uncertainty on how quickly those cuts will happen.
But to begin the year, there is evidence that buyers are showing interest in dipping into the housing market, according to real estate platform Redfin, as rates have fallen over the last few weeks.
Redfin’s Homebuyer Demand Index, which tracks requests for tours, went up 6 percent for the week ending January 28, the platform said. Real estate agents say, however, that that increase in interest has yet to translate to a substantial jump in sales.
MBA experts are seeing a similar bubbling up of buyer interest.
“Purchase activity has been strong to start 2024 compared to the final quarter of 2023. However, activity is still weaker than a year ago because of low housing supply,” MBA’s Kan said.
Supply of homes is a huge challenge for the housing market. Housing economists have told Newsweek in the past that the market is 4 million homes short of demand, contributing to a jump in prices.
Some economists suggest that as mortgage rates fall, the used homes market may pick-up as sellers would begin to come out of the sidelines and finally put their homes in the market.
“Once they start moving, and I suspect we’ll see more and more of those folks moving in the coming year, they’ll have to become somewhat aggressive on pricing, they’re going to have to lower their price,” Mark Zandi, chief economist at Moody’s Analytics, told Newsweek last week.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Source: newsweek.com
It’s no secret that 2023 was a difficult year to buy a home. With mortgage rates briefly topping 8% and home prices breaking records throughout the year, many would-be sellers simply decided not to bother listing their homes, exacerbating already tight inventories.
New data from the U.S. Census Bureau published last week shows how drastically housing inventory has changed since 2020, while weekly data from Altos Research offers some insights on where it goes from here.
Census Bureau data on housing inventory estimates details two cycles this decade – the onset of the pandemic and the rise of interest rates – that have been catastrophic for the nation’s for-sale housing inventory.
The onset of the pandemic and government lockdowns sparked a frenzy for homes, especially those away from crowded downtowns and with ample space for home offices and homeschooling. Prospective homebuyers were armed with low interest rates, paused student loan payments and stimulus checks.
The number of owner-occupied homes skyrocketed, quickly depleting the number of vacant for-sale homes. Renters occupied fewer homes, and fewer vacant homes were reserved for them.
The number of homes “held off market” – second homes, vacation homes and others that are neither for-sale, for-rent or occupied – shrank. This could be because their owners snagged profits amid rapidly rising prices, because those who can afford second homes paused buying, or a combination of the two.
Seasonal housing, too, dropped considerably. This is likely due to the fact that seasonal housing – defined as homes intended for periodic occupancy such as for holiday resort guests or farm workers – could be profitably sold to meet soaring homebuyer demand and was not needed during the pandemic’s travel restrictions and weak travel demand.
Most of the trends begun in 2020 continued in 2021 except for renter-occupied homes, which rose above 2019 levels in the second half of the year. This was likely a reflection of the prolonged decline in vacant homes for sale, which made it difficult for would-be buyers to find a home to purchase.
Many of the same pandemic forces that set off the homebuying frenzy also fueled a frenetic pace of inflation. In 2022, the Federal Reserve began taking action to combat these market forces by raising interest rates, starting the second cycle of inventory changes.
Over two years, the Federal Reserve hiked rates 11 times for a total increase of 5.25 percentage points, the fastest pace of hikes in four decades. It has held rates at an effective rate of 5.33% in every meeting of the Federal Reserve Open Markets Committee since July 2023, including in their meeting last week.
Mortgage rates followed suit, walloping buyers’ purchasing power. The sudden run-up in rates discouraged would-be sellers from listing their homes, as they would be faced with much higher monthly payments for the same size home were they to sell and buy another home – if they even qualified for the same size home as they currently own.
This squeezed inventory even further throughout 2022 and 2023, pushing home prices to record highs month after month.
The high-rate environment further pushed owner occupancy up while pushing homes held off market, seasonal housing and homes vacant for sale down. That the number of owner-occupied homes rose throughout 2023 – an abysmal year for home sales – shows just how tightly recent homebuyers are holding onto their low rates.
High rates, combined with low for-sale inventories and high home prices, have also resulted in a surge in home renters. There were nearly 2 million more renter-occupied homes in the fourth quarter of 2023 than in the same quarter of 2019.
The environment has also prompted many homeowners to list their homes for rent rather than sale. The number of homes vacant for rent in the fourth quarter of 2023 was up 4% since the same quarter five years ago, while the number of homes vacant for sale was down 36%.
The extremes of the 2020s have dealt big blows to for-sale inventories. First the 2020-2021 housing frenzy took a big bite out of existing inventories, then the 2022-2023 streak of rate hikes kept would-be sellers from replenishing those inventories.
The 2020s have also seen for-sale inventory siphoned from second homes, vacation homes and seasonal homes. Homebuilders, too, have added to for-sale inventory, pushing the total number of homes in the U.S. up 8.7% since the fourth quarter of 2018. But none of these valves have alleviated the shortage of for-sale homes or the resultant high home prices.
The majority of homes that would be up for sale are being held by owners with low mortgage rates who would rather stay put or rent than sell, a phenomenon known as the “mortgage rate lockdown.” Plus, boomers are aging in place for longer, further depleting available housing stock. In fact, the number of owner-occupied homes is at an all-time high, while the percentage of homes that are owner-occupied is well above pre-pandemic levels.
The only apparent change that could induce significant for-sale inventory back into the market, then, is lower mortgage rates. How quickly would sellers return if rates were lower? We got an early test in December and January when the FOMC forecasted rate cuts in 2024.
As rates began falling steeply from October through December and hovered around 6.6% in January, new listings increased on a year-to-year basis in 14 of 15 weeks, according to data from Altos Research, which, like HousingWire, is owned by HW Media.
The data is an encouraging sign that owners with homes to sell will be responsive to mortgage rates, suggesting rate cuts this year could bring about a rapid uptick in homes for sale.
Less encouraging, however, is how soon the market might see rate cuts. Mortgage rates rose above 7% this week for the first time in 2024 following a strong jobs report and comments by Federal Reserve Chairman Jerome Powell that suggested cuts were less imminent than many bond and equity traders had assumed.
Source: housingwire.com
There’s a reason people are cautioned to make sure they’re on solid financial ground before diving into homeownership. The cost of owning property extends far beyond just the expense of a monthly mortgage payment.
In addition to the money you have to send your mortgage lender every month, you’re required to pay for homeowners insurance, maintenance, repairs, and property taxes. And in some states, the latter can be quite expensive.
Take New Jersey, for example. Known for its soaring property taxes, the median homeowner bill in that category was $8,797, as of 2022.
Now, the good news is that homeowners who itemize on their tax returns can take a deduction for property taxes. The bad news, though, is that homeowners in high-tax states may not be able to write off their property tax bills in full.
As a result of the Tax Cuts and Jobs Act, the state and local tax deduction (otherwise known as the SALT deduction) is now capped at $10,000 regardless of your state of residence. This means the maximum deduction you can take for property taxes and state income taxes combined is $10,000.
It’s worth noting that the $10,000 limit applies to federal taxes. States can set their own limits for deducting property taxes, and in some states, the threshold is higher than $10,000.
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But still, if you’re someone with a $12,000 property tax bill, you automatically don’t get to deduct $2,000 of that total on your federal tax return under the current rules. If you pay $8,000 a year in property taxes and $7,000 a year in state income taxes, you similarly lose out on a deduction to some degree due to the $10,000 SALT cap.
But that $10,000 cap may not last forever. And come 2026, owning a home in a high property tax state may be more affordable.
The Tax Cuts and Jobs Act limited the SALT deduction to $10,000. But that rule is currently set to expire in 2025 unless lawmakers determine otherwise. As such, come 2026, it’s possible that as a homeowner, you may be able to take a larger tax deduction for your property taxes. And that could result in a world of financial relief.
Granted, this potential change may not impact you if you live in a state with no income tax and your current property tax bill is something like $3,500. But for residents of states with higher property taxes, this change could be huge.
At this point, it’s too soon to know whether the $10,000 SALT cap is here to stay for the long haul. But you should also know that you’re not necessarily stuck with the property tax bill you’re assessed.
As a homeowner, you have the right to appeal your property taxes. The process for doing so differs from state to state, but your local tax assessor should be able to walk you through the process of filing an appeal where you live.
To win a property tax appeal, though, you have to prove that the value being assigned to your home by your local tax assessor is higher than the home’s true market value. At a time when home prices are up on a national scale, that may be tough to do.
However, if the real estate market cools off in the coming months or years, fighting your property tax bill may be more doable. If your home is assessed at $500,000, and you can find proof that comparable homes in your neighborhood sold recently for $420,000, you have a case.
If the SALT cap limit expires in 2025 as it’s currently scheduled to do, then you may find that you’re eligible for a larger tax deduction in 2026. However, don’t go into homeownership now banking on a larger tax write-off in 2026. Instead, crunch the numbers to make sure you can afford the full cost of homeownership — regardless of whether the SALT deduction becomes more valuable in the future.
Source: fool.com