Last Updated: February 11, 2019 BY Michelle Schroeder-Gardner – 48 Comments
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When I originally wrote this article, we had no offers on our home and we were feeling somewhat negative about it. However, last week we accepted an offer on our home and it’s scheduled to (hopefully) close in July.
It’s been nearly four months and our house hasn’t sold yet.
We’ve had exactly 30 showings and great reviews, yet no offers.
Not even a single lowball offer.
Our home is priced quite competitively and below comparables, so we are afraid to lower the price any further.
We are already going to lose money with what our home is priced at now so we are currently wondering about other possible options. I knew selling a home would be stressful, but I didn’t realize that it would be this stressful. Many ideas have been going through my mind but it’s hard to decide what the best decision is.
Below are some of the things we have been thinking about possibly doing since our house hasn’t sold yet.
Make a temporary decision.
There are many decisions we could make just for the time being.
We could take our home off the market temporarily to see if our neighborhood experiences a rebound. Temporarily doing this could be risky though as our neighborhood could lose value over time instead of gaining value.
However, there is a chance that our neighborhood could go up, which would mean that we might not lose as much money if we were to rent it out while we waiting for it to rebound.
Move back home.
Of course, one of our options is just to move back home since our house hasn’t sold yet. Right now we are just renting in Colorado, so we do have the option to move back home at the end of our lease.
This isn’t the ideal situation as we didn’t move ALL the way out here just to move back to St. Louis one year later. However, this is most likely our best choice as well as the most realistic one if it doesn’t sell.
Moving back home would also get rid of a lot of the worries that go along with the options below.
Rent our home to long-term renters.
We are debating renting out our home on a long-term basis. We could most likely find long-term renters somewhat easily and I definitely think we could charge more than our mortgage payment each month.
We wouldn’t get rich from renting it out to long-term renters, but it could be enough to cover our mortgage and possibly one day even pay it off and keep it as a rental forever. There also wouldn’t be a ton of work involved, at least not when compared to renting it out to short-term renters.
The major downsides of renting out our home on a long-term basis would be if we had bad renters and the fact that we would be long distance landlords. We might need a property management company and if we did that then the revenue from the monthly rent would be much lower.
Rent our home to short-term renters.
On the other hand, we could also think about renting out our home on a short-term basis on a website such as Airbnb, VRBO, or Homeaway. This would also allow us to have a place to come back to, which would be very nice.
The major downside to doing this is that we are so far away and it would be hard to manage something like this from states away. This is because someone would have to clean up after each stay, restock items such as toilet paper, and so on. I’ve also searched and there are no companies in our area that offer property management for vacation rentals either.
Drop the price significantly.
We originally priced the home below what we bought it for back in 2009, and we’ve dropped it since it’s been listed as well.
The last and least fun option would be to just drop the price until someone bites, but that would mean losing a significant amount of money.
However, the plus side would mean that the house would hopefully sell quicker. This is not an option I would ever want to take but it does exist…
Have you sold a house before? Did you ever feel panicky about whether it would sell or not? What would you do if there were no offers on a home you had for sale?
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It was a wild ride for the housing market last week! The 10-year yield rose noticeably, sending mortgage rates near 7% right in the heart of the spring selling season. New listings data fell, however, active inventory grew. And purchase apps had a weekly negative print, continuing the 2023 theme of higher rates impacting the data.
Here’s a quick rundown of the last week:
Total active listings grew by 3,809 weekly, but new listings are still trending at all-time lows.
Mortgage rates rose last week as we started the week at 6.55% but ended at 6.90%.
Purchase application data fell 4.8% weekly as the streak of higher rates impacting the weekly data continues.
Weekly housing inventory
They say slow and steady wins the race; well, for housing inventory in 2023, it’s been terribly slow this spring. How slow has the active listing growth been? Here is my crazy stat for the week: Last year at this time, the weekly active inventory grew by 25,542 in just one week. This year from the seasonal bottom, the total increase has only been 18,722.
Can anyone say savagely unhealthy? In my wildest dreams, I would have never thought this could happen being so close to June.
Weekly inventory change (May 12-19): Inventory rose from 420,381 to 424,190
Same week last year (May 13-20): Inventory rose from 312,857 to 338,399
The inventory bottom for 2022 was 240,194
The peak for 2023 so far is 472,680
For context, active listings for this week in 2015 were 1,108,932
According to Altos Research, new listing data fell last week, and the year-over-year decline is very noticeable as we have been trending at all-time lows all year. However, at this time last year, we saw some new listings growth versus 2021 levels. In the second half of 2022, mortgage rates spiked toward 7.37%, and new listings started to trend negative as some people gave up listing their homes with rates so high.
Here is the new listings data for this week over the last several years:
2023: 59,651
2022: 84,298
2021: 76,051
And here’s the new listing data for the same week in more normal years to give some historical perspective:
2017: 89,411
2016: 90,048
2015: 90,323
The NAR data goes back decades and illustrates how hard it’s been to get the total active listings back to the historical range of 2 million to 2.5 million. The latest existing home sales report, which I wrote about here, showed the year-over-year growth went from 1.03 million to 1.04 million.
NAR: Total inventory:
The 10-year yield and mortgage rates
A crazy week in the 10-year yield shot mortgage rates higher. We have a lot of drama talking points with the debt ceiling issue, but the jobless claims data had a good report, reversing the big negative number in the previous week.
When I talk about mortgage rates, it’s really about where I feel the 10-year yield will go for the year. In my 2023 forecast, I said that if the economy stays firm, the 10-year yield range should be between 3.21% and 4.25%, equating to 5.75% to 7.25% mortgage rates.
Now if the economy gets weaker, meaning the labor market sees a noticeable rise in jobless claims, then the 10-year yield should break under 3.21%, going all the way to 2.72%. This would take mortgage rates under 6%, and if the spreads return to normal, this could even get us below 5% mortgage rates again.
However, on that front, jobless claims did have a good week, as they fell which is a positive sign for the labor market, not a negative.
From the St. Louis Fed: “Initial claims for unemployment insurance benefits declined 22,000 to 242,000 in the week ended May 13, bringing the four-week moving average down to 244,250.”
Purchase application data
The housing market shifted significantly when mortgage rates peaked late year and started to fall. During that time, purchase applications had more positive than negative prints, stabilizing demand. As we can see below, our waterfall dive in purchase apps stopped as rates fell.
However, with that said, whenever rates rise, it impacts the weekly data negatively, and last week’s purchase apps were down 4.8%. With mortgage rates rising back near 7%, this week’s application data will likely be negative.
When mortgage rates rose from 5.99%-7.10% earlier in the year, we had three weeks of negative data. Then as rates fell, the data line got better — traditionally, total volume peaks in May, and seasonality kicks in for the rest of the year. I am keeping an eye out in the second half of 2023. If mortgage rates fall noticeably, we might have another surge in demand late in the year which we have seen in the previous three years.
The week ahead
We are getting closer and closer to some short-term resolution to the debt ceiling issue, but the wild ride might still get crazier this week. The debt ceiling issue is a wild card for market activity this week, with or without a resolution, so the focus would be put there until it’s finished or punted until September. The market will pay more attention to that than economic data this week.
However, we do have some key economic reports this week, including new home sales, pending home sales, and the personal consumption inflation data on Friday, which the Fed wants to get closer to 2%. The world likes to pay more attention to the CPI inflation data, but core PCE at 2% is the Fed’s target level.
The marketplace knows that the growth rate of inflation peaked last year, but it’s trying to time the economic expansion and when the next job-loss recession starts. This is why I stress following jobless claims weekly. We need to keep an eye on the 10-year yield because, due to the debt default fiasco, bond yields can have a chaotic week, which could quickly be reversed up or down.
This is why these weeks, when we have political factors, we must be careful in making statements about a long-term change in the data. Once this drama story ends, we can focus on real economic data.
Most mortgages carry a 30-year term, even if they’re adjustable for some period of those three long decades.
But in some cities, it’s reasonably possible to pay off your mortgage a lot earlier thanks to low home prices and decent wages.
Now, this isn’t to say you should pay your mortgage down aggressively…it’s just that you could, if you were so inclined.
Unsurprisingly, most of the cities in the top 10 list can be found in the central states, like Ohio, Michigan, and Missouri. But there are also spots in Pennsylvania and New York where home buyers can get free and clear in no time at all.
The Fast List
The data nerds over at Realtor came up with the list above by calculating median home prices in the top 50 markets in the U.S. and lining them up with the recommended 28% housing DTI ratio.
The result is a short 5.4 years to pay off a median priced home of $128,000 in Cleveland, Ohio. Sure, your football team won’t be very good, but at least you’ll have a football team.
And if you focus on tackling the mortgage, you’ll only have to pay taxes and insurance on your digs in little more than half a decade.
That’s certainly pretty cool if you’re not one to carry lots of debt. And you might get a decent water view on the “North Coast,” a term I’ve never heard until today.
You can pull off the same magic in cities like Rochester, NY, Pittsburgh, PA, and Buffalo, NY.
There are plenty of other major metros on the list as well, including the likes of St. Louis, Indianapolis, Cincinnati (hard to spell, but decent football), and Kansas City (great baseball).
In Indy, some 71% of the homes are affordable to prospective home buyers, and St. Louis was deemed a top 10 up-and-comer by Realtor.com thanks to strong projected home sales and future home price appreciation.
So if you don’t want to worry about the mortgage for more than a handful of years, as opposed to into your old age, check out those cities. You may even be able to take out a 15-year or 10-year fixed mortgage at the outset to save a ton in interest and grab a lower mortgage interest rate.
Conversely, if you want to keep your mortgage forever, look at these 10 superstars.
The Slow List
In Los Angeles, it will actually take you nearly the full 30-year term to pay off your mortgage. The annual income of around $100,000 in the 90210 requires a lengthy 29.4-year amortization period.
So no 15-year fixed for you unless you’re making big bucks. You’ll need a 30-year mortgage.
The same goes for much of the Bay Area, including San Jose and San Francisco, and in sunny San Diego. That explains why lenders are increasingly offering zero down mortgage options like the POPPYLOAN.
Hot cities such as Denver are starting to get a hair expensive too seeing that it’ll take the average buyer 21.3 years to pay off the mortgage without breaking the bank or raiding the retirement nest egg.
It’s a little bit better in places like Miami and Portland, but these cities are clearly getting more expensive as homeowners from nearby states (and countries) flock to affordability.
However, there are still some relative bargains to be had in places like Sacramento, California and Austin, Texas where it can take less than 15 years to get mortgage-free while still saving for retirement and living comfortably.
Missouri is not just the Show Me State; it’s also home to some of the best college towns in the country.
These lively hubs of education and entertainment are the perfect places to explore and soak in the quintessential college experience. In this article, we’ll take you on a journey through five of Missouri’s most vibrant college towns. Whether you’re a prospective student, a recent graduate looking to lay down roots or simply in search of a fun weekend getaway, these college towns in Missouri have something for everyone.
Nestled in the heart of Missouri, Columbia is the epitome of a cool college town. With a population of around 125,000, this city is home to the prestigious University of Missouri, affectionately known as Mizzou. The university’s beautiful red brick buildings and sprawling campus are an impressive sight to behold. But the town’s appeal goes far beyond its academic pedigree.
Downtown Columbia is a bustling area filled with an eclectic mix of stores, restaurants and bars. You’ll find everything from cozy coffee shops to trendy boutiques, making it the perfect place to spend a leisurely afternoon. If you’re looking for entertainment, make sure to check out The Blue Note, a historic venue that hosts some of the best live music acts in the state throughout the year.
For outdoorsy types, Columbia provides ample opportunities to connect with nature. Rock Bridge Memorial State Park, with its picturesque hiking trails, limestone caves and tranquil streams, is just a short drive from the city center. The MKT Trail, a popular biking and jogging path, connects Columbia to the Katy Trail, the nation’s longest rails-to-trails project that spans over 240 miles.
While St. Louis is often recognized for its iconic Gateway Arch and mouthwatering barbecue, it’s also one of the most dynamic college towns in Missouri. The city boasts several higher education institutions, including Washington University, Saint Louis University and University of Missouri-St. Louis. These esteemed universities not only draw students from all over the world but also contribute to the city’s rich cultural tapestry.
The Delmar Loop, a vibrant stretch of shops, restaurants and entertainment venues, is a hotspot for college students and locals alike. From killer international cuisine to quirky specialty shops, the Loop is a place where you can truly experience the spirit of St. Louis in all its glory.
For those seeking a taste of St. Louis’s storied past, the city offers a wealth of historical attractions. The Missouri History Museum, located in picturesque Forest Park, showcases the region’s rich history through engaging exhibits and special events. Additionally, the stunning Cathedral Basilica of Saint Louis, adorned with intricate mosaics, is a must-visit landmark.
Straddling the border of Missouri and Kansas, Kansas City is a thriving metropolis known for its jazz music, delicious barbecue and a flourishing arts scene. The city is also home to several colleges and universities, including the University of Missouri-Kansas City, Rockhurst University and the Kansas City Art Institute. This diverse array of educational institutions has helped shape Kansas City into one of the most exciting college towns in Missouri.
Country Club Plaza, an upscale shopping district with Spanish-inspired architecture, is a popular destination for students and visitors. With its open-air courtyards, beautiful fountains and an extensive array of shops and restaurants, the Plaza is the perfect place to indulge in some retail therapy or enjoy a delicious meal.
The nearby Nelson-Atkins Museum of Art, with its vast collection of artwork spanning centuries, is a must-visit for art enthusiasts. The museum’s famous Shuttlecocks, a series of giant sculptures that dot the museum’s lawn, have become an iconic symbol of Kansas City.
For those hoping to experience Kansas City’s vibrant music scene, head to the 18th and Vine Historic District, where you’ll find the American Jazz Museum. While in the area, don’t miss the opportunity to catch a live jazz performance at one of the neighborhood’s legendary clubs, like The Blue Room or the Gem Theater.
Located in the scenic Ozarks region, Rolla is a charming college town that houses the renowned Missouri University of Science and Technology. Known for its strong emphasis on engineering and applied sciences, the university has produced generations of brilliant minds that have contributed to advancements in various fields. The town’s close-knit community and picturesque surroundings make it an ideal setting for those seeking a more intimate college experience with an emphasis on the STEM fields.
Rolla’s quaint downtown area offers a delightful mix of shops, cafes and restaurants, perfect for a leisurely stroll or a bite to eat. The Tater Patch, a local favorite, serves up delicious home-style cooking in a cozy atmosphere. For something a little more upscale, Matt’s Steakhouse offers a mouthwatering selection of steaks and seafood.
Outdoor enthusiasts will find plenty to do in the Rolla area. The Ozark National Scenic Riverways, located just a short drive from town, offers opportunities for canoeing, fishing, hiking and more in a pristine natural setting. For those interested in exploring the geological wonders of the region, the Mark Twain National Forest is home to numerous caves and caverns, perfect for spelunking adventures.
Situated along the banks of the mighty Mississippi River, Cape Girardeau is a charming college town that is home to Southeast Missouri State University. The campus’s idyllic setting, combined with a strong sense of community and a diverse array of academic programs, makes it an attractive option for students from all walks of life.
The revitalized downtown area, with its brick-paved streets and historic architecture, offers a unique blend of shopping, dining and entertainment. Be sure to check out Cape Riverfront Market, a lively open-air market where you can find fresh produce, local crafts and delicious food truck fare. The nearby Riverfront Park, a picturesque promenade along the Mississippi River, is the perfect place to take in the beauty of the area and catch a glimpse of the iconic riverboats that glide along the water.
Cape Girardeau is also a haven for history buffs. The city is home to several noteworthy attractions, like the Cape Girardeau Conservation Nature Center, The Glenn House and the Red House Interpretive Center, which offer insights into the area’s rich heritage and natural beauty.
Make one of these Missouri college towns your home
Missouri’s college towns provide a diverse and engaging blend of education, entertainment and natural beauty. From the bustling streets of Columbia and St. Louis to the scenic landscapes of Rolla and Cape Girardeau, these college towns in Missouri are definitely worth a visit.
The rise of active listings in this spring housing market reminds me of a zombie slowly rising from its grave. Yes, we found the seasonal bottom for housing inventory on April 14, but this year’s rise in active listings has been tepid at best.
Here’s a quick rundown of the last week:
Total active listings grew 662 weekly, and new listing data is still trending at all-time lows.
Mortgage rates fell last week as we started the week at 6.65% and got as low as 6.49% to end the week at 6.55%.
Purchase application data rose 5% weekly as the streak of lower rates impacting the weekly data continues.
Weekly housing inventory
Well, the best thing I can say for spring 2023 inventory is that we found the seasonal bottom a few weeks ago. On the positive side, we’re at least seeing inventory rise — some had feared that because new listing data was trending at all-time lows, we wouldn’t see a spring increase in the active listings at all. This doesn’t appear to be the case for 2023.
However, new listing data is very seasonal and we have less than two months left before it starts declining again. I had hoped we would see more active listings before that period, but unfortunately that’s not the case. In fact, this data line has been absolutely crazy.
How crazy?
Last year, from April 22 to April 29, total single-family inventory grew by 16,311 in that one week. This year, from the seasonal bottom on April 14 to now — a whole month — total active inventory has only grown by 14,913.
Weekly inventory change (May 5-12): Inventory rose from 419,725 to 420,381
Same week last year (May 6-13): Inventory rose from 300,481 to 312,857
The inventory bottom for 2022 was 240,194
The peak for 2023 so far is 472,680
For context, active listings for this week in 2015 were 1,108,932
According to Altos Research, new listing data rose weekly but is still trending at all-time lows this year. When you consider that a home seller is a natural homebuyer as well, you can see why the housing market broke after mortgage rates went on a roller coaster last year. Mortgage rates went above 6.25%, then declined back to 5% then spiked back to 7.37%. We have not been able to recover from that mortgage rate spike and it has bled into 2023 as well.
Last year, new listing data, while trending at all-time lows, was at least rising year over year. That is no longer the case after the second half of 2022.
New listing weekly data for this week in May over the past three years:
2023: 62,382
2022: 73,515
2021: 71,191
New listing data from previous years for the same week, to give you some historical perspective:
2017: 90,112
2016: 82,621
2015: 98,436
The NAR data goes back decades and it illustrates just how hard it’s been to get the total active listings back to the historical range of 2 million to 2.5 million. The next existing home sales report comes out this week and we should see an increase in active listings, which have been stuck at 980,000 active listings over the last three months.
NAR: Monthly active listings
NAR: Total active listing data going back to 1982
I often get asked about the big difference between NAR and Altos Research inventory data. This link explains the difference. Overall, inventory data tends to move together, even if different sources are working with other numbers and have a different methodology.
The 10-year yield and mortgage rates
For 2023, one of the most important economic storylines has been the 10-year yield refusing to break below the critical levels I have talked about for months — the level between 3.37%-3.42%. I believed this level was going to be so hard to break under that I named it the Gandalf line in the sand. No matter how crazy things have gotten in 2023, the 10-year yield only broke it once, at the height of the banking crisis. That didn’t last long as we headed right back higher.
As you can see in the chart below, that line in the sand has been tested many times.
When I talk about mortgage rates, it’s really about where I feel the 10-year yield will go for the year. In my 2023 forecast, I said that if the economy stays firm, the 10-year yield range should be between 3.21% and 4.25%, equating to 5.75% to 7.25% mortgage rates.
Now if the economy gets weaker, meaning the labor market sees a noticeable rise in jobless claims, then the 10-year yield should break under 3.21%, going all the way to 2.72%. This will take mortgage rates under 6%, and if the spreads return to normal, this can get us below 5% mortgage rates again. Yes, I said below 5% again.
Can you imagine the housing market at that point? We would have much more stability.
However, for that to happen, jobless claims would need to rise to 323,000 on the four-week moving average. We did have a big jump in jobless claims last week. However, this data line can have some odd quirks week to week, so focus more on the trend and the four-week moving average rather than one week’s data.
From the St. Louis Fed: “Initial claims for unemployment insurance benefits increased by 22,000 in the week ended May 6, to 264,000. The four-week moving average also rose to 245,250.”
Last week, mortgage rates didn’t move much, but as the year goes on, we will be tracking more and more economic data to get clues on the economic cycle and where mortgage rates will be heading.
Purchase application data
The dynamics of the U.S. housing market changed starting Nov. 9, 2022, when the purchase application data began to react more positively as mortgage rates fell. Since that time, making some holiday adjustments to the data, we have had 17 positive weekly prints versus seven negative prints. Year to date, we have had 10 positive prints versus seven negative prints.
Last week, the weekly data showed a positive 5% print, while the year-over-year data shows a 32% year-over-year decline.
I view this data line as just a stabilization of the housing demand data, coming off a waterfall dive in 2022. However, this stabilization is critical because of what it has done: It has changed the housing dynamics.
When housing demand collapsed last year, the low inventory didn’t provide a big shield against pricing getting much weaker. Pricing in the second half of the year was going negative month to month, of course, from an overheating start in 2022. Starting from Nov. 9, the entire housing dynamics changed from demand collapsing to demand stabilizing.
This explains pricing getting firmer in 2023 due to the low inventory environment. Purchase apps look out 30-90 days before they hit the sales data, so we don’t have the sharp recovery data we saw during the COVID-19 recovery. However, we do have a good stabilization story here today.
I traditionally weigh this data line after the second week of January to the first week of May, and now that we are in the second week of May, I would say the 2023 purchase apps data is slightly positive, with stabilization for sure, just not a booming mortgage demand market with mortgage rates still over 6%.
The week ahead: Big housing data coming up
We have a jam-packed week with economic data, especially for housing. We have the builder’s confidence data, housing starts and existing home sales. Monday, we also have the New York Fed quarterly credit and debt update. Those charts are my favorites as they show how credit stress in the U.S. today doesn’t look like anything we saw in the run-up in 2008.
Since the foreclosure process has started again, we should be working our way back up to pre-COVID-19 levels. However, 30, 60, and 90-day lates are near all-time lows, and it took many years to build up the credit stress we saw from 2005 to 2008, before the job-loss recession.
Retail sales come out on Tuesday, which can move the bond market depending on what the report shows. As the year progresses, all these reports will give us more clues to see where the economy is heading. That’s critical since economic data can move the bond market and what can move the 10-year lower or higher drives mortgage rates as well. If mortgage rates head lower, we could see inventory drawn down faster during the seasonal decline period of fall and winter.
It might mean the largest gains are behind us, though a bubble isn’t necessarily forming either
With home prices showing no signs of letup, housing bubble fears continue to fester.
The fact that we were talking about a potential bubble a couple years ago, before home prices notched even more double-digit gains, might give some prospective home buyers pause.
But are things different this time around, despite the massive increases in prices since things bottomed in 2012?
Well, Trulia chief economist Ralph McLaughlin spoke to Bloomberg about the current state of the housing market and seems to think we’re not entering bubble territory, but rather climbing toward a plateau.
His exact words in the interview were, “I don’t think we’re in a bubble. We may be reaching a plateau.”
If you’re wondering what the distinction is, just picture both items. A bubble grows larger and larger and eventually pops because it’s so unstable.
A plateau is one of those tabletop rock formations you’ll find out in Arizona that’s elevated but flat. It’s not going anywhere fast, but it is high up in the air. Of course, it’s got a pretty steep drop on either end, so I don’t know how comforting the analogy is.
In a less literal sense a plateau can defined as a period of calm following a period of activity or change.
McLaughlin equates a plateau to a “slow soft landing,” as opposed to a bubble popping dramatically. Perhaps a realization that prices are too expensive for most folks, leading to a price cut. Not an outright market rout.
Why It’s Different This Time
One thing that might insulate home prices
Despite the massive gains we’ve seen
Is the lack of aggressive home loan financing
Gone are the days of no doc loans and stated income underwriting
The Trulia economist goes on to describe the current state of lending, which is quite a departure from the stated income and no doc stuff seen before the last crisis.
These days, we’re talking QM loans that are fully documented with maximum DTI ratios of 43%. Back then you could choose your own adventure, and your occupation and salary. Lenders didn’t seem to care, nor did Wall Street, so prices kept on rising until it became clear we had built a massive house of cards.
McLaughlin added that many of these borrowers shouldn’t have even owned homes to begin with, implying that they only did because of the faulty underwriting in practice at the time. Today, it’s a lot more difficult to send a shoddy mortgage through the pipeline.
However, he did utter some rather ominous words, saying, “Those days are over.”
To me, that just screamed foreshadowing, you know, that moment when you think everything is hunky-dory before it all comes crashing down.
Now I don’t think we’re quite at that point, but we’re certainly heading in that direction. And eventually lenders will ease credit standards to accommodate higher home prices…it’s inevitable.
In the meantime, if you do believe we’re entering some kind of plateau, it could still make sense to buy a home, or at least hold your current one because rent is just so darn high.
McLaughlin sees home prices moderating in the next few years as we get further along in the current cycle – instead of gains of 10% year-over-year, we might expect to see 5-10%, or even just one to five percent gains.
Starter Home Inventory Down 44% Nationally
Even if homes are technically affordable to prospective buyers
The lack of available inventory is making it very difficult to find something
And home prices are often being driven up even higher via bidding wars
The entire housing ecosystem is out of sync and limiting mobility across all cohorts
The problem is that it’s still next to impossible to find a home to buy. Nationally, starter home inventory is apparently down nearly 50%.
In hot spots like the Bay Area, it’s down a staggering 70-80%. In other words, it’s next to impossible for a first-time buyer to land a home unless they move to the outskirts, or if home builders step up their game.
The same trend can be seen in the move-up market, making it difficult for existing owners to upsize as they grow their families.
Despite this, homes are apparently still quite affordable, per a new report released today by RealtyTrac. The company noted that it’s trending in the wrong direction, but still relatively reasonable historically.
During the first quarter, just nine percent of U.S. housing markets were less affordable than their historic norms, a big jump from two percent of markets a year ago.
Just check out the chart above to see where we’re at. I will say that’s it’s easy to pretend everything looks dandy when you compare it to the crazy levels seen in 2006 and 2007.
The most affordable counties by historic standards can be found in areas of Boston, Baltimore, Birmingham, Providence, and Chicago.
The least affordable counties by historic standards include places like Denver, NYC, Omaha, Austin, Dallas, San Francisco, and St. Louis.
At the peak of the previous housing bubble in the second quarter of 2006, 454 of the 456 counties analyzed (more than 99%) by RealtyTrac were less affordable than their historic norms.
At this juncture it’s only 43 counties. So maybe it is a plateau. I’m just worried about that cliff on the far end of it.
Read more: When will the next housing bust take place?
The interest rate on home mortgages is running much higher than usual relative to the interest rate on long-term treasury bonds. Mortgage industry professionals wonder if the spread will return to normal—meaning lower mortgage rates so long as treasury interest rates remain stable. That will probably happen, but not in 2023.
The spread is wide by historical standards. Before the pandemic, the average spread over all available data was 1.69 percentage points. February 2019, for example, 10-year treasury bonds paid 2.68% interest. The average 30-year fixed rate mortgage cost the homeowner 4.37%, The difference was right at the long-term average of 1.69%. Most of the time the spread ranges between 1.5% and 2.0%.
The home buyer goes to a mortgage originator—usually a mortgage broker or bank—who quotes an interest rate. Then the originator sells the loan, usually to a government sponsored entity such as Fannie Mae or Freddie Mac. Like any middleman, the mortgage originator is paid for this service. The originator is paid a cash equivalent to the value of pushing the interest rate up. The first week of 2020, for example, the average mortgage interest rate was 3.72%. Fannie Mae’s average interest rate paid to investors was 2.61%. What happened to the difference between those two rates, the 1.11% spread? That paid the mortgage originator for his services. That payment can be thought of as the retail mortgage spread.
When Fannie or Freddie sells a bundle of mortgages to investors, the interest rate is based on supply and demand, of course. Investors generally think mortgages are inferior products compared to treasury bonds. Although both are deemed safe, the U.S. treasury will keep paying interest for the term of the bond. But homeowners have the option to refinance when mortgage rates drop. The option to refinance means that when interest rates drop, homeowners refinance. The investors no longer own an old mortgage with a high interest rate. Instead, investors now have cash that they have to reinvest at the new, low interest rates. Investors don’t like this.
When interest rates are rising, investors also have a problem. They are stuck with old, low-interest mortgages that nobody will pay off early. They would like to get their cash back and buy some of the new, high-interest mortgages, but that’s not happening.
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The option for homeowners to refinance their mortgages makes mortgage-backed securities an inferior investment option. So investors will buy them only if they offer a premium over treasury bond interest rates. That is the wholesale mortgage spread.
At any moment in time, the total spread is the sum of the retail spread and the wholesale spread. The total spread widened a good bit in the first half of 2020, when the Federal Reserve was pushing interest rates down while the government sent out stimulus checks. Homeowners refinanced their mortgages to take advantage of the lower interest rates. Apartment dwellers started shopping for homes, enabled by cash in their bank accounts plus low mortgage rates. The mortgage originators were swamped with business. They could not handle all of the mortgage refinancings that the public wanted, at least not right away. While they were adding staff and training the new hires, they boosted their profit margins. The retail spread rose a great deal, and the wholesale spread just a little. This was documented by William Emmons of the Federal Reserve Bank of St. Louis.
The wide total spread between mortgage rates and treasury bonds in early 2023 seems to be due to the wholesale level. Bond traders cite volatility of interest rates as the key factor. Remember that rising interest rates mean that mortgage-backed security owners receive few prepayments they most want them. Falling interest rates mean that mortgage-backed securities owners receive most prepayments when they least want them. So the prospect of interest rate changes in either direction spooks investors away from mortgage-backed securities.
At the retail level, some spread widening would be expected due to the mortgage originator’s interest rate risk. The borrower gets an interest rate quote, but then walks away if rates fall, leaving the first originator in the lurch. But if interest rates rise, that borrower holds the originator to the quote. In a more volatile interest rate environment, both spreads increase.
Over the last 52 weeks, the volatility of mortgage rates doubled compared to the preceding 52 weeks (measured as the standard deviation of the absolute value of the weekly rate change).
When does this wide spread return to normal? The key factor will be when interest rates stabilize. That will be after the Federal Reserve has finished its tightening, and then eased back to a stable path for future interest rates. As of March 2023, it looks like more tightening is in store. And at some point, probably in 2024, the Fed will drop rates to get the economy going again. Once they get rates to a level that can continue for years, the spread will narrow.
For prospective home buyers looking at their likely mortgage expense, or for new homeowners looking to refinance, the actual mortgage rate will fall when the Fed starts easing, or possibly earlier in anticipation of that easing. Mortgage rates would fall even if the spread remains wide. The narrowing of the spread, when it occurs, will add more downward pressure to mortgage rates. So mortgage rates will decline, probably gradually starting early in 2024 and continuing for two years or so.
St. Louis is known as the “Gateway to the West” to tourists, but locals are more than happy to simply call it the “Lou.” No matter what you like to call this Midwestern hub, one thing’s for certain: There are a lot of excellent St. Louis neighborhoods to call home.
St. Louis really does have it all: great architecture, a sense of community pride (especially when it comes to great beer making), a thriving sports scene, and lot of friendly locals ready to welcome in new residents. The best part? There are 79 distinct and wonderful St. Louis neighborhoods located in the city proper.
Like any big city, neighborhoods in St. Louis are diverse, eclectic, and have their own distinct history and personality. Here are a few of the most popular St. Louis neighborhoods to start apartment hunting in if you’re a new resident:
Central West End
Bordered by St. Louis University and Forest Park, the Central West End is a beautiful neighborhood known for its diverse crowd. Here you’ll find a mix of young singles as well as families. There are many great bars, shops, galleries, and fun sidewalk cafes that line the area.
However, perhaps the most famous building in the Central West End is the Roman Catholic Cathedral Basilica, which boasts one of the largest mosaic art structures on earth. Another major landmark in this neighborhood is the Chase Park Plaza Hotel, one of the city’s most historic hotels.
Due to the neighborhood’s age, there are lots of apartment styles to choose from, from townhomes to high-rises, all with some of St. Louis’s finest architectural highlights. The area hosts a lot of the city festivals too, so be prepared to be out and about– especially during the warm-weather months.
Maplewood
Known as a young, up-and-coming neighborhood, Maplewood could be the perfect area for a resident looking to plant roots and save some green during their first few years in St. Louis. Many locals think Maplewood is the city’s hipster area, and they might not be too far off in their assumptions. For instance, offbeat shops are everywhere in Maplewood, as are laid-back coffeehouses buzzing with creatives and college students.
One of St. Louis’s relics also calls Maplewood home: Saratoga Lanes. This vintage bowling alley is the oldest west of the Mississippi River, according to Explore St. Louis. Beer lovers will also be more than happy to be living in Maplewood, as Schlafly Bottleworks (St. Louis’s most respected craft brewery) offers tours there.
Clayton
Clayton is the famous home of the St. Louis Art Fair, one of the most celebrated events in the city, where 150,000 people flock annually. However, the community events don’t stop there in Clayton. There is also the Gallery Nights receptions and Parties in the Park cocktails (perfect for a roomie weekend outing).
It’s a busy and fast-paced place to call home, but Clayton always presents renters with something to do, whether you’re headed to one of the best bars and restaurants in St. Louis or finding your cultural bearings at one of Clayton’s many art galleries. Clayton is also the home of the St. Louis city government and the Center of Clayton, which is a 136,000-square-foot sports and recreational complex.
Cherokee Street
This is the one neighborhood that everyone in St. Louis is buzzing about. Cherokee Street is full of beautiful vintage and antique shops, artsy and progressive locals, and plenty of Mexican restaurants. If you love all things retro and tacos– this is definitely the place for you.
However, the appeal of Cherokee Street goes well beyond great food and shopping. A lot of renters are flocking here due to the welcoming atmosphere for young startups and business owners.
Many of the businesses here are locally owned and source from excellent vendors. Most have a certain beatnik vibe, making Cherokee Street the perfect place for first-time apartment dwellers or young renters.
If you’re renting with multiple roommates or love to decorate with an industrial, business vibe, then this is the place for you.
Be sure to do some exploring while in St. Louis during your apartment hunt. With literally dozens of neighborhoods, there’s bound to be one with your name on it.