July 23, 2024 – The Listings Are Here

Economic Commentary

A few months ago, we delineated the reasons that listings would start to grow after several years of real estate purchase prospects not being able to find a house. These reasons included long-term demographic factors such as baby boomers wanting to age in place, but finally aging out of their homes. They also included short-term factors such as life happenings including millennials getting married and having kids — and discovering that their first-time ownership condo does not fit anymore.

Sure, the rise in listings was delayed by the “lock-in” effect. So many potential sellers had low mortgage rates and they did not want to sell into a market which would require a subsequent purchase at a much higher rate. In reality, we are now seeing that these higher interest rates are working in favor of more listings. How? Higher rates have suppressed purchase demand enough that the organic growth in listings is now higher than the growth in demand. In addition, as time goes on, fewer and fewer homeowners have mortgage rates less than five percent.

Thus, for sale signs are now proliferating in many areas around the country. We are moving from a strong sellers’ market to a more balanced market. It is not quite a buyers’ market. Rates have started to fall a bit from their highs and the next question is — will lower mortgage rates increase buyer demand enough to swing the market back to the seller side? That will depend upon how quickly they fall. With the Federal Reserve meeting next week, we would speculate that the Fed is aware of this possibility and would be in favor of a more gradual easing of interest rates to avoid stoking the flames of housing inflation through higher house prices. For now, the balance seems to be about right.

Weekly Interest Rate Overview

Freddie Mac reported that mortgage rates continued to decrease in the past week. 30-year fixed rates fell to 6.77% from 6.89% the week before. In addition, 15-year loans decreased to 6.05%. A year ago, 30-year fixed rates averaged 6.78%, roughly the same as today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “The 30-year fixed-rate mortgage fell to its lowest level since mid-March, dropping 12 basis points from last week. Mortgage rates are headed in the right direction and the economy remains resilient, two positive incremental signs for the housing market. However, homebuyers have yet to respond to lower rates, as purchase application demand is still roughly 5 percent below Spring, when rates were approximately the same. This is not uncommon: sometimes as rates decline, demand weakens, and the apparent paradox is driven by buyers making sure rates don’t decline further before they decide to purchase.”  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

The Merriam-Webster Dictionary defines the “sandwich generation” as a generation of people who are caring for their aging parents while supporting their own children—and according to new research by Realtor.com, 17% (or one-in-six Americans) of Americans fall into this designation who are taking care of children under 18, and their parents/grandparents; an impact which has surprisingly led them to homeownership. The report also examines how the current Sandwich Generation has received support to help save for retirement or afford a home of their own. “Unfortunately for home shoppers, affordability is still a big challenge in the current housing market, but for the Sandwich Generation, family support is providing a helping hand when it comes to finances,” said Laura Eddy, VP Research and Insight for Realtor.com. “Over half of adults within the Sandwich Generation who receive financial support from family members report that this support is helping them to afford a home, while a little less than half (47%) said the support helped them save for retirement.” The ongoing lack of available inventory has kept home prices high and competition intense among buyers. For the Sandwich Generation, nearly half (47%) say their caregiving circumstances have impacted their finances, including their housing. Among negative impacts, 30% say they’ve been prevented from buying a home, and another 30% report they’ve been prevented from paying off their mortgage. By contrast, a third say their caregiving situation has helped them financially to buy a home. “It’s not uncommon for people to find themselves taking responsibility for the home of an aging or deceased family member and ultimately inheriting the home after they pass,” said Kendall Bonner, a Realtor.com housing expert. “With today’s increased home equity and the state of current lending rates, it can be an extremely helpful way to get into the housing market, especially if they are not currently a homeowner. Real estate continues to be the most consistent method for building generational wealth.” Source: Mortgage Point

People fortunate enough to own vacation properties likely insure their places just like they do their personal residences. But if they don’t tell the insurance company that their getaway home is not always occupied, they could be in for some surprises. Holiday homes that are not occupied year-round are a greater insurance risk: Since no one is around for extended periods, there’s no one to spot a broken pipe, a leaking roof or any of the other myriad things that can go wrong. If a problem is not caught early and repaired, the damage could be extensive. That’s why insurers usually charge more for homeowners policies on vacation houses. But if you don’t inform the company up front and then need them to step in later, your claim could be denied. Your policy could even be canceled. Even if you rent out your place for some of the time, you could run into trouble if you don’t advise your insurer, warns Chris Carter, author of the Florida Real Estate blog. Depending on the circumstances, he says, the company could look the other way, require a rental endorsement or say it won’t cover rentals at all. That’s why you should be forthright with your insurance agent about your situation and your intentions. Otherwise, you might find yourself in a scenario that impacts coverage of your primary home, according to Richard Rudolph, a research fellow at the Texas Real Estate Research Center (TRERC). Some carriers have specific underwriting rules about secondary houses, says Rudolph, who warns that it’s best to learn about them before you take out a policy. If not, you’ll “certainly learn them after a loss occurs,” writes Rudolph in a recent TRERC article. Industry expert Mark Friedman recommends obtaining at least three quotes, as costs vary among carriers. But a good place to start is with the same company that insures your main residence. In fact, some carriers will not insure second homes on a stand-alone basis; they want both policies or none at all. A second reason to give your current carrier an opportunity to bid has to do with liability. While the vacay house is insured for property losses in the same manner as a primary dwelling, liability coverage is somewhat different. Rather than location, liability coverage is based on the actions of the insured. If you fall off a ladder and are hospitalized for an extended period with a broken back, you’ll be covered. Ditto if a contractor sustains a concussion when a beam falls on their head. You have liability coverage on your main property, so you don’t really need it on the secondary home. But if you ask the insurers to drop it from your second home’s policy, it will “result in a higher premium on the property portion of the policy and less favorable coverage,” Rudolph writes. Source: Lew Sichelman, The Housing Scene For UExpress

Homebuyers are increasingly turning to family members, most often parents, for help buying a house in competitive markets, reflecting a shift in the way many families finance home ownership. The share of young homebuyers relying on older mortgage co-signers is as high as it has been in at least 30 years, according to a Freddie Mac analysis of its home loans. In 1994, 1.6 percent of first-time homebuyers under 35 had a co-borrower age 55 or older. By 2022, after a pandemic-era spike, that figure had more than doubled to 3.7 percent, matching a high set in 2015.A separate analysis of federal mortgage data set by Redfin suggests the trend in co-signers above 55 years old on younger homebuyers’ purchases picked up even more in 2023. Meanwhile, the share of homebuyers in their 20s, 30s and early 40s receiving financial help for a down payment is also rising, after declining for much of the past five years. Overall, 12 percent of homebuyers relied on down payment help from friends and family as of April, up from 9 percent last year, according to survey data from the National Association of Realtors. The youngest buyers — ages 25 to 33 — were the most likely to receive familial help, with nearly 1 in 4 receiving cash gifts or loans toward their purchases. “The housing market is an affordability-challenged place right now,” said Daryl Fairweather, chief economist at Redfin, a national real estate brokerage. “People who are succeeding are coming in with a lot of cash and large down payments — and often, family support.” The trend of younger homebuyers, who are more often first-timers, seeking parental help to reach a middle-class milestone is just the latest sign of growing disparities between younger generations and older ones who have had more opportunities over the past 20 years to lock in cheaper mortgages. As homebuying becomes increasingly tough to reach for first-timers, Realtors confirm that more parents are stepping in to help, sometimes taking out loans against their own homes to fund their children’s. More parents are also getting involved in the homebuying process from the beginning, considering joint purchases less of a handout to their children and more of a long-term family investment, brokers said. Source: Northwest Arkansas Democrat Gazette