Category: Residential

Capital Economics: Expect home prices to increase as mortgage rates drop

Forecasts a 3% increase in prices by end of year

For the last two weeks Freddie Mac reported 30-year, fixed-rate mortgages averaging 3.6%, a three-year low.

For reference, the 2018 average from this time last year sat at 4.53%. These low rates, combined with a low housing inventory will lead to an increase in home prices, Capital Economics said in a report on Monday. The report predicts a 3% increase.

“As with any other asset, lower interest rates will act to boost home values,” Capital Economics reported. “Other things equal, with a given income and debt-to-income (DTI) ratio, a lower interest rate raises the amount a household can spend on a home.”

At the beginning of the year, Capital Economics originally predicted a rise in prices of 2% over 2019. The economic research consultancy admits it did not forsee the 30-year rate dropping below 4% this year. With the magnitude of the drop, Capital Economics is now edging home prices up a percentage point from its original forecast.

The report goes on to state that there are many more factors that play into home prices, and concedes that the previous relationship between house price growth and changes in interest rates is weak.

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Build to Rent Still Booming

As homeownership continues to fall, the single-family rental market is picking up steam.

Traditionally, single-family homes were just that: residences for homeowners. But times are changing. Tour a single-family development and you may discover that all the occupants are renters. What’s afoot?

Changes in the tax code have made owning less advantageous, and consumers are no longer buying into the American dream of homeownership. Those two trends are fueling the growth of what’s known as build-to-rent (B2R). Today B2R is one of the fastest-growing sectors of the U.S. housing market, and demand from renters and investors is exceeding supply.

A popular new real estate asset class, B2R is attracting niche players and such high-profile operators as Toll Brothers and Lennar, which recently announced new investments in the space.

Statistics Tell The Story

· More than one-third (39%) of all U.S. rental properties are single-family homes – the highest percentage since 1965 – while homeownership is at an all-time low.
· About 16 million rental properties today are single-family homes, and another 13 million rental households are expected to be formed by 2030, the Urban Institute reports.

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Fannie Mae: One-third of homebuyers didn’t shop around for a mortgage

Borrowers are “leaving money on the table,” Fannie’s Duncan says

More than a third of 2018 homebuyers say they did not shop around before selecting their mortgage lender, according to Doug Duncan, chief economist of Fannie Mae.

“Although homebuyers who received only one quote didn’t usually express regret, most still reported trying to negotiate mortgage terms with somewhat less success than those who did shop around,” Duncan said. “By not shopping around to give themselves leverage when negotiating their mortgage, some homebuyers are leaving money on the table.”

The biggest reason people gave for not shopping around was a pre-existing relationship with a lender, he said.

“Many recent homebuyers who received only one quote reported doing so because they were more comfortable with that particular lender,” Duncan said. “Non-shoppers also reported much less concern with competitive terms when selecting a lender, citing other non-financial priorities, such as customer service/responsiveness and having a preexisting account with a lending institution.”

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Millennials want to buy homes, but their wallets are saying no

First-time homebuyers made up 42% of spring’s home-shoppers

As summertime heats up, it’s safe to say that spring has officially come to an end. But while its cooler days may be behind us, data says its uptick in home buying interest is here to stay.

According to a survey from Realtor.com, this spring was filled with home-buying interest, especially from the nation’s first-time buyers.

This group of homebuyers, who often tend to be Millennials, made up 42% of spring’s home-shoppers.

“Based on our user responses, just under half of all home shoppers this spring were searching for their first home, and many of them were aging Millennials likely driven by life events such as moving in with a partner, getting married or starting a family,” Realtor.com writes. “It may come as a surprise to some people that Millennials are looking to small towns or suburbs, but when it comes to buying a home, Millennials aren’t that different than other generations.”

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U.S. Pending Home Sales Increase by Most in Three Months

The index for pending home sales rose by 2.8 percent month-over-month in June.

Bloomberg)—Contract signings to purchase previously owned U.S. homes rose in June by the most in three months, indicating demand may pick up with the help of lower mortgage rates and steady job growth.

The index of pending home sales increased 2.8% from the previous month, exceeding the most optimistic forecast in a Bloomberg survey of economists, data out Tuesday from the National Association of Realtors in Washington showed. Still, contract signings were down 0.6% from June of last year on an unadjusted basis.

Key Insights
The gain in contract signings is a welcome sign for the housing market as it struggles to accelerate despite a recent dip in mortgage rates. Still, elevated prices and limited supply may constrain growth even as the Federal Reserve is expected to lower borrowing costs for the first time in a decade.

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Only half of Americans can afford an entry-level home

This spells major opportunity for the rental market

Just over half of Americans can afford an entry-level home as affordability issues continue to plague the nation’s housing market, and the situation is creating a robust opportunity for rentals.

Only 54% of Americans can afford a home priced at 20% of the median home price in their area, according to a study of 130 metros by John Burns Real Estate Consulting, which called that benchmark a reasonable proxy for an entry-level home.

But while this figure seems bleak, the report noted that affordability is improving, increasing 3% thanks to a recent drop in mortgage rates.

“The plunge in mortgage rates has created homeownership possibilities for 2.7 million more households as well as move-up possibilities for current homeowners with enough equity,” the analysts wrote. “This will spur home-buying activity this year, possibly averting the decline in volume we have been forecasting.”

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Fannie Mae lowers mortgage rate forecast and says home-price growth will accelerate

Mortgage giant predicts 30-year fixed rate will average 3.7% in 2019’s second half

Fannie Mae issued a new forecast that predicts the average U.S. rate for a 30-year fixed mortgage will be 3.7% in the second half of 2019, down from the 3.9% the mortgage financier called for a month ago. That compares to a 4.4% average rate in the first quarter and 4% in the second quarter.

Cheaper mortgage rates will cause a heat-up in home prices, according to the forecast. Last month, Fannie Mae said it expected home prices to grow 4.6% in 2019. In the new forecast, it called for a 5.4% increase.

“With lower mortgage rates taking effect, the deceleration in house price growth that was so prominent over the past year may be pausing,” Fannie said in commentary that accompanied the new forecast.

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Fannie Mae: Home buying sentiment falls as more Americans say now is not a good time buy

In June, Fannie’s HPSI fell by 0.5 points in June to 91.5

In June, housing confidence fell slightly as more Americans reported now is not a good time to buy, according to Fannie Mae’s latest Home Purchase Sentiment Index.

According to the GSE’s report, sentiment fell by 0.5 points in June to 91.5. Although this rate is a decline from last month’s near survey high of 92, it still remains 0.8 points higher than the same time period in 2018.

Despite this annual increase, the report indicates that a majority of its components either declined or remained relatively flat in June.

Notably, the only component to increase this month, which was the index that measures whether or not mortgage rates will go down, edged up 8 percentage points to -29%.

Fannie Mae Senior Vice President and Chief Economist Doug Duncan said growing expectations that mortgage rates will remain steady suggest improved stability for housing affordability.

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WSJ: More buyers are using down payment assistance programs

About 13% of borrowers using FHA loans in Q1 got help with down payments.

The bogeyman of the financial crisis is back. The use of down payment assistance programs, known as DAPs in the lending industry, doubled between 2013 and 2016, The Wall Street Journal said in a Sunday article that cited Freddie Mac analysis of the National Survey of Mortgage Originations.

The share of buyers using one of the more than 2,500 down payment assistance programs in the U.S. rose to 10% from 5%, the WSJ said. Also, about 13% of borrowers who used Federal Housing Administration mortgages in 2019’s first quarter got government help with down payments, up from 8.6% five years earlier, according to FHA data.

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Here’s how long it will take to save for a down payment in major U.S. cities

The nationwide average climbs to 14 years as affordability issues mount

The nationwide average to save for a 20% down payment for a median-priced home on a median income is now 14 years, according to Unison’s Home Affordability Report.

For average-earning Millennials, that means homeownership may not be attainable until they are well into their 40s.

In the least affordable cities, the average time to save for 20% down was 30 years or more.

Los Angeles won top billing for the toughest major metro to buy into at an alarming 43 years.

In L.A., the median home value is $622,523, but the median income is just $58,043, meaning that it could take a prospective homebuyer until 2061 to save up enough cash for a down payment, the report noted.

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