February 22, 2022 – The Listing Conundrum. The prime problem today is that there are not enough houses to purchase.

Economic Commentary

The Listing Conundrum. We have previously spoken about the fear of missing out in the real estate market (FOMO). Rising prices and rising interest rates are creating a sense of urgency among buyers – especially Millennials who are entering the prime age of needing more space for their growing families. The prime problem today is that there are not enough houses to purchase. The term “lack of inventory” has become synonymous with the real estate market today.

There are several drivers of this lack of inventory. For one, baby boomers are holding onto their suburban houses far into retirement. The rising value of their real estate has actually made it easier for them to afford their spacious homes, making the need for downsizing less of an issue. An additional factor in play involves an issue we have rarely seen before in our history – the fear of not having a home into which they can transition.

Imagine a spouse saying – Honey, if we sell, we could get hundreds of thousands for our home which would help us afford retirement. Now imagine the other spouse replying – But where would we live? There are no homes for sale. How to solve this conundrum? We need more listings, but those who could provide the listings are hesitating. Higher interest rates may actually help, because they could slow buyer demand. Builders continuing to ramp up production as supply chain issues ease could also ease the shortage. There is no easy way out—but eventually a balance will be restored.

Weekly Interest Rate Overview

The Markets. Mortgage rates continued their upward climb in the past week.  For the week ending February 17, 30-year rates rose to 3.92% from 3.69%. In addition, 15-year loans increased to 3.15% and the average for five-year ARMs also increased to 2.93%. A year ago, 30-year fixed rates averaged 2.81%, over 1.00% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates jumped again due to high inflation and stronger than expected consumer spending. The 30-year fixed-rate mortgage is nearing four percent, reaching highs we have not seen since May 2019. As rates and house prices rise, affordability has become a substantial hurdle for potential homebuyers, especially as inflation threatens to place a strain on consumer budgets.” Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Real Estate News

Home sellers in 2021 may have been a little shocked at the profit they made selling their homes. A report shows that home sellers nationwide realized a profit of $94,092 on a typical sale in 2021, up 71% from two years ago, according to ATTOM Data Solutions, a real estate data firm. Home seller profits rose in more than 90% of the housing markets tracked based on median purchase and resale prices, marking the highest level since 2008. The $94,092 profit on a median-priced home sale in 2021 accounted for a 45.3% return on investment compared to the original purchase price, according to ATTOM Data Solutions’ “Year-End 2021 U.S. Home Sales Report.” Median home prices saw double-digit gains last year as buyers flooded the market. They’ve been driven by historically low interest rates and a desire to change their living circumstances sparked by the coronavirus pandemic. “What a year 2021 was for home sellers and the housing market all around the U.S.,” says Todd Teta, chief product officer at ATTOM. “Prices went through the roof, kicking profits and profit margins up at a pace not seen for at least a decade. All that happened as the virus pandemic raged on, which actually helped drive the increases instead of stifle them.” Households that have managed to escape job losses during the pandemic have rushed to the housing market, which has led to a market boom, Teta says. “No doubt, there are warning signs that the surge could slow down this year,” he adds. “But 2021 will go down as one of the greatest years for sellers and one of the toughest for buyers.”  Source: ATTOM Data Solutions

CoreLogic, Irvine, Calif., said consumer desire for homeownership against persistently low supply of for-sale homes created one of the hottest housing markets in decades in 2021 — and spurred record-breaking home price growth. The company’s monthly Home Price Index reported annual home price appreciation at 18.5 percent in December. And it said home price gains averaged 15 percent in 2021—up from 6 percent in 2020. However, the CoreLogic HPI Forecast said while price gains will likely continue the year above 10 percent, they are projected to slow to 3.5 precent by December. The report noted in 2021 home price growth in 2021 started off at 10% in the first quarter, steadily increasing and ending the year with an increase of 18% for the fourth quarter. “Much of what we’ve seen in the run-up of home prices over the last year has been the result of a perfect storm of supply and demand pressures,” said Frank Nothaft, chief economist with CoreLogic. “As we move further into 2022, economic factors – such as new home building and a rise in mortgage rates – are in motion to help relieve some of this pressure and steadily temper the rapid home price acceleration seen in 2021.” The report said on a month-over-month basis, home prices increased by 1.3% from November. In December, annual appreciation of detached properties (19.7%) was 5.5 percentage points higher than that of attached properties (14.2%). Source: The Mortgage Bankers Association

Zillow, Seattle, said home values are growing fastest in areas with the highest share of kids, reflecting the impact Millennials are having on family-friendly neighborhoods with a shortage of available homes. In addition, a record number of Millennials will reach key age milestones for home buyers over the next two years, which could further accelerate price gains, Zillow said in a report, Millennial Demand is Driving up Prices in Kid-Friendly Neighborhoods. “As Millennials go, so goes the housing market, and we are seeing now as Millennials age that they are looking for homes that fit the needs of growing families,” said Zillow Economist Nicole Bachaud. She noted Millennial demand has pushed up home prices in areas with the most children. “Competition for homes in these family-friendly areas should intensify in the coming years as more Millennials reach the key age of 32, adding to the affordability squeeze,” she said. Zillow reported the top 10 percent of ZIP codes with the largest share of kids in each county analyzed saw 21.3 percent growth on average from October 2020 to October 2021 compared to 17.6 percent in ZIP codes with the smallest share of kids. “That trend started in 2013, which, not coincidentally, was the year the oldest Millennials turned 32, the age when many new parents buy their first homes,” the report said. “That’s the median age of first-time home buyers and one year older than the median age of fathers with newborns.”  Source: Zillow