March 29, 2022 – The Listing Shortage Worsens. There are a ton of buyers out there, but not enough listings.

Economic Commentary

The Listing Shortage Worsens. Since we constantly remind our readers that it is impossible to predict the future, we wonder who predicted that the listing shortage would become even more severe in 2022? Most of us were looking for an easing of the listing shortage as the new year arrived. But here we are with one-quarter of the year behind us and there are a ton of buyers out there, but not enough listings.

This does not mean that this shortage will remain severe throughout this year. There are several factors that have the potential to increase listings in this market. For one, the federally mandated moratorium on foreclosures has been lifted and forbearance plans are ending. While foreclosures add bank sale inventory, many with equity are likely to sell their homes to avoid foreclosure. The increase in interest rates coupled with higher home prices will likely keep some potential buyers out of the market, reducing demand.

While these and a few other factors are likely to help ease the shortages, it is not likely that they will contribute to a sudden turn in the market. It is more probable that these changes will be gradual and as sellers realize that appreciation has slowed down, even more will sell because they sense the “top of the market.” Keep in mind that unforeseen events are also possible. From pandemics to wars—we have experienced these types of factors as well. The bottom line? There is no instant fix for the listing shortage, but these severe conditions are not likely with us forever.

Weekly Interest Rate Overview

The Markets. Mortgage rates continued to march upward in the past week.  For the week ending March 24, 30-year rates rose sharply to 4.42% from 4.16% the week before. In addition, 15-year loans increased to 3.63% and the average for five-year ARMs also climbed to 3.36%. A year ago, 30-year fixed rates averaged 3.17%, more than 1.00% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “This week, the 30-year fixed-rate mortgage increased by more than a quarter of a percent, as mortgage rates across all loan types continued to move up. Rising inflation, escalating geopolitical uncertainty and the Federal Reserve’s actions are driving rates higher and weakening consumers’ purchasing power. In short, the rise in mortgage rates, combined with continued house price appreciation, is increasing monthly mortgage payments and quickly affecting homebuyers’ ability to keep up with the market.”  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

An analysis by First American Financial Corp. economist Ksenia Potapov has found that increased opportunities to work from home may improve homeownership opportunities in more affordable market. According to Potapov, affordability in the U.S. fell in 2021 on a year-over-year basis, as house-buying power was unable to keep up with red-hot nominal house price growth. The decline in affordability was broad based, as affordability fell in most major markets across the U.S., yet some markets remain more affordable than others for potential first-time home buyers. Affordability for a potential first-time home buyer can be defined as the share of homes for sale that are within the median renter’s house-buying power. The amount of house-buying power a renter has relative to nominal house prices in any market greatly influences the supply of homes they can afford. The pandemic, Potapov said, has untethered many workers from their offices, providing some renters the opportunity to pursue homeownership in cities that may be more affordable. Where one lives today is less correlated with where they work, and one study suggests that even once the pandemic wanes, 20% of full workdays will be completed from home. Consequently, the widespread acceptance of remote work has triggered greater interest in relocating to less expensive markets. The pandemic and the ability to work from home have prompted many people to seek more space, as their home is now also their office, their gym, and their daycare center. If they can’t afford a home that fits their needs in their own market, one solution is to move to a market where they can. In the coming years, many workers may leverage their ability to work remotely and their house-buying power to become homeowners in more affordable markets. “As millennials continue to age into their prime home-buying years and the opportunity to work remotely becomes more common, it may be time to update the age-old real estate adage to location, location, re-location,” Potapov said. Source: National Mortgage Professional

More than three-quarters of Americans who have a yard say the family yard space is one of the most important parts of their home, according to a poll of 1,700 consumers by the TurfMutt Foundation. Since the pandemic began, homeowners are showing more appreciation for their yards and spending more time in them, the poll found. What’s more, 72% of consumers say a spacious yard would be at the top of their wish list if they were searching for a new home. Homeowners are more willing to invest in their yards and are using them for everyday activities, including work-from-home office space, according to the survey. “What we are seeing with Americans is greater reliance on the backyard as an extension of the home,” says Kris Kiser, president and CEO of the TurfMutt Foundation. “It’s not just a place that looks pretty—it’s a place to live and do daily activities such as working, dining, and relaxing. They’ve discovered that ‘backyarding’ is a better way to live and there’s no turning back. They are also willing to hire professionals and invest money into yard improvements.” Eighty-four percent of respondents say they plan to invest more in their yard in 2022, including by purchasing plants, trees, flowers, vegetables to plant; purchasing items to maintain or improve their grassy areas; and installing or updating hardscaping themselves, the survey shows. Other popular projects include interest in installing a fence (19%) or a shed (15%) or adding a swimming pool (10%). Besides refocusing the yard space for entertaining, relaxing, or doing hobbies, a yard also has become a place to work from. Fifty-eight percent of respondents said they’ve spent time performing job-related functions in their yard during the pandemic, with men doing so more often than women. Source: TurfMutt

A survey by one of the leading producers of fiber reinforced cement shows that homeowners are taking severe weather threats seriously and is a driving force on which projects they take up and how much they spend. James Hardie Industries commissioned a survey of 1,000 homeowners from Wakefield Research that is intended to “illustrate the impact of homeowners’ concerns about severe weather on their home renovation spending and choices.” The survey revealed that a vast majority, 76% to be exact, of homeowners reported that their renovation plans were influenced by the possibility of extreme severe weather events that have become more common over the last few years. 54% of surveyed homeowners responded that just the thought of extreme weather events influenced their decisions about home renovations. “The impact of climate change and severe weather on home design and spending is something we have been closely watching for several years now. Homeowners are looking to protect their homes and their families inside those homes,” says Fran Flanagan, Head of Consumer Insights at James Hardie — “As the pandemic continues to give people more time at home, many homeowners are reassessing their properties to determine what needs to be done and in what order.” James Hardie’s study confirms this trend: 87% of homeowners said they want to continue renovating in 2022.” One interesting fact discovered by the survey is who are completing projects and how much is spent on average. The survey found that millennials completed more COVID-era projects than their Generation X counterparts, or their baby boomer grandparents. In addition, millennials spent much more money than other generations—an average of $40,600 for millennials compared to $10,000 and $11,000 for Gen x and boomers, respectively. Source: MReport