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REAL ESTATE NEWS & INFORMATION
A Drop in Equity Doesn’t Mean Low Equity
You may see media coverage talking about a drop in homeowner equity. What’s important to understand is that equity is tied closely to home values. So, when home prices appreciate, you can expect equity to grow. And when home prices decline, equity does too. Here’s how this has played out recently. Home prices rose rapidly during the ‘unicorn’ years. That gave homeowners a considerable equity boost. But those ‘unicorn’ years couldn’t last forever. The market had to moderate at some point, and that’s what we saw last fall and winter. As home prices dropped slightly in the back half of 2022, equity was impacted. Based on the most recent report from CoreLogic, there was a 0.7% dip in homeowner equity over the last year. However, the headlines reporting on that change aren’t painting the whole picture. The reality is, while home price depreciation during the second half of last year caused equity to drop, the data shows homeowners still have near record amounts of equity. The graph below helps illustrate this point by looking at the total amount of tappable equity in this country going all the way back to 2005. Tappable equity is the amount of equity available for homeowners to access before hitting a maximum 80% loan-to-value ratio (LTV). As the data shows, there was a significant equity boost during the ‘unicorn’ years as home prices rapidly appreciated (see the pink in the graph below).But here’s what’s key to realize – even though there’s been a small dip, total homeowner equity is still much higher than it was before the ‘unicorn’ years.And there’s more good news. Recent home price reports show the worst home price declines are behind us, and prices have started to go up again. As Selma Hepp, Chief Economist at CoreLogic, explains:“Home equity trends closely follow home price changes. As a result, while the average amount of equity declined from a year ago, it increased from the fourth quarter of 2022, as monthly home prices growth accelerated in early 2023.” The last part of that quote is particularly important and is the piece of the puzzle the news is leaving out. To further emphasize the positive turn we’re already seeing, experts say home prices are forecast to appreciate at a more normal rate over the next year. In the same report, Hepp puts it this way:“The average U.S. homeowner now has more than $274,000 in equity – up significantly from $182,000 before the pandemic. Also, while homeowners in some areas of the country who bought a property last spring have no equity as a result of price losses, forecasted home price appreciation over the next year should help many borrowers regain some of that lost equity.”And even though Odeta Kushi, Deputy Chief Economist at First American, references a slightly different number, Kushi further validates the fact that homeowners have a lot of equity right now: “Homeowners today have an average of $302,000 in equity in their homes.”That means if you’ve owned your home for a few years, you likely still have way more equity than you did before the ‘unicorn’ years. And if you’ve owned your home for a year or less, the forecast for more typical price appreciation over the next year should mean your equity is already on the way back up.Bottom LineContext is everything when looking at headlines. While homeowner equity dropped some from last year, it’s still near all-time highs. Reach out to a trusted real estate professional so you can get the answers you deserve from an expert who’s there to help as you plan your move this year.
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Your Needs Matter More Than Today’s Mortgage Rates
If you’re thinking about selling your house right now, chances are it’s because something in your life has changed. And, while things like mortgage rates are a key part of your decision on what you’ll buy next, it’s important to not lose sight of the reason you want to make a change in the first place. It’s true mortgage rates have climbed from the record lows we saw in recent years, and that has an impact on affordability. With rates where they are right now, some homeowners are deciding they’ll wait to sell because they don’t want to move and have a higher mortgage rate on their next home. As Danielle Hale, Chief Economist at Realtor.com, explains: “. . . homeowners who locked in a 30-year fixed rate in the 2-3% range don't necessarily want to give that up in exchange for a rate in the 6-7% range.” But your lifestyle and your changing needs should matter more. Here are a few of the most common reasons people choose to sell today. Any one of these may be more important than keeping your current mortgage rate. As Ali Wolf, Chief Economist at Zonda, says in a recent tweet: “First-time and move-up buyers are both active . . . the latter driven by life changes. Divorce, marriage, new higher paid job, and existing home unsuitable all referenced.” Relocation Some of the things that can motivate a move to a new area include changing jobs, a desire to be closer to friends and loved ones, wanting to live in a dream location, or just looking for a change in scenery. For example, if you live in suburbia and just landed your dream job in NYC, you may be thinking about selling your current home and moving to the city for work. Upgrading Many homeowners decide to sell to move into a larger home. This is especially common when there’s a need for more room to entertain, a home office or gym, or additional bedrooms to accommodate a growing number of loved ones. For example, if you’re living in a condo and decide it’s time to seek out a home with more space, or if your household is growing, it may be time to find a home that better fits those needs. Downsizing With inflation driving up everyday expenses, homeowners may also decide to sell to reduce maintenance and costs. Or, they may sell because someone’s moved out of the home recently and there’s now more space than needed. It could also be that they’ve recently retired or are ready for a change. For example, you’ve just kicked off your retirement and you want to move to somewhere you can enjoy the warm weather and have less house to maintain. Your new lifestyle may be better suited for a different home. Change in Relationship Status Divorce, separation, or marriage are other common reasons individuals sell to buy different homes. For example, if you’ve recently separated, it may be difficult to still live under one roof. Selling and downsizing may be better options. Health Concerns If a homeowner faces mobility challenges or health issues that require specific living arrangements or modifications, they might sell their current home to find one that works better for them. For example, you may be looking to sell your home and use the proceeds to help pay for a unit in an assisted-living facility. With higher mortgage rates, there are some affordability challenges right now – but your needs and your lifestyle matter too. As a recent article from Bankrate says: “Deciding whether it’s the right time to sell your home is a very personal decision. There are numerous important questions to consider, both financial and lifestyle-based, before putting your home on the market. . . . Your future plans and goals should be a significant part of the equation . . .” Bottom Line If you’re ready to find your next home, connect with a real estate professional. That way you have an expert on your side to help you navigate the process and find a home that can deliver on what you’re looking for.
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Are Home Prices Going Up or Down? That Depends…
Media coverage about what’s happening with home prices can be confusing. A large part of that is due to the type of data being used and what they’re choosing to draw attention to. For home prices, there are two different methods used to compare home prices over different time periods: year-over-year (Y-O-Y) and month-over-month (M-O-M). Here's an explanation of each. Year-over-Year (Y-O-Y):This comparison measures the change in home prices from the same month or quarter in the previous year. For example, if you're comparing Y-O-Y home prices for April 2023, you would compare them to the home prices for April 2022.Y-O-Y comparisons focus on changes over a one-year period, providing a more comprehensive view of long-term trends. They are usually useful for evaluating annual growth rates and determining if the market is generally appreciating or depreciating.Month-over-Month (M-O-M):This comparison measures the change in home prices from one month to the next. For instance, if you're comparing M-O-M home prices for April 2023, you would compare them to the home prices for March 2023.Meanwhile, M-O-M comparisons analyze changes within a single month, giving a more immediate snapshot of short-term movements and price fluctuations. They are often used to track immediate shifts in demand and supply, seasonal trends, or the impact of specific events on the housing market.The key difference between Y-O-Y and M-O-M comparisons lies in the time frame being assessed. Both approaches have their own merits and serve different purposes depending on the specific analysis required.Why Is This Distinction So Important Right Now? We’re about to enter a few months when home prices could possibly be lower than they were the same month last year. April, May, and June of 2022 were three of the best months for home prices in the history of the American housing market. Those same months this year might not measure up. That means, the Y-O-Y comparison will probably show values are depreciating. The numbers for April seem to suggest that’s what we’ll see in the months ahead (see graph below):That’ll generate troubling headlines that say home values are falling. That’ll be accurate on a Y-O-Y basis. And, those headlines will lead many consumers to believe that home values are currently cascading downward.However, on a closer look at M-O-M home prices, we can see prices have actually been appreciating for the last several months. Those M-O-M numbers more accurately reflect what’s truly happening with home values: after several months of depreciation, it appears we’ve hit bottom and are bouncing back.Here’s an example of M-O-M home price movements for the last 16 months from the CoreLogic Home Price Insights report (see graph below):Why Does This Matter to You?So, if you’re hearing negative headlines about home prices, remember they may not be painting the full picture. For the next few months, we’ll be comparing prices to last year’s record peak, and that may make the Y-O-Y comparison feel more negative. But, if we look at the more immediate, M-O-M trends, we can see home prices are actually on the way back up.There’s an advantage to buying a home now. You’ll buy at a discount from last year’s price and before prices start to pick up even more momentum. It’s called “buying at the bottom,” and that’s a good thing.Bottom LineIf you have questions about what’s happening with home prices, or if you’re ready to buy before prices climb higher, connect with a local real estate agent.
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Why You Can’t Compare Now to the ‘Unicorn’ Years of the Housing Market [INFOGRAPHIC]
Some HighlightsComparing housing market metrics from one year to another can be challenging in a normal housing market – and the last few years have been anything but normal. In a way, they were ‘unicorn’ years.Expect unsettling housing market headlines this year, mostly due to unfair comparisons with the ‘unicorn’ years.Connect with a local real estate professional who can share the data that puts those headlines in the proper perspective.
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This Real Estate Market Is the Strongest of Our Lifetime
When you look at the numbers today, the one thing that stands out is the strength of this housing market. We can see this is one of the most foundationally strong housing markets of our lifetime – if not the strongest housing market of our lifetime. Here are two fundamentals that prove this point. 1. The Current Mortgage Rate on Existing MortgagesFirst, let’s look at the current rate on existing mortgages. According to the Federal Housing Finance Agency (FHFA), as of the fourth quarter of last year, over 80% of existing mortgages have a rate below 5%. That’s significant. And, to take that one step further, over 50% of mortgages have a rate below 4% (see graph below):Now, there’s a lot of talk in the media about a potential foreclosure crisis or a rise of homeowners defaulting on their loans, but consider this. Homeowners with such good mortgage rates are going to work as hard as they can to keep that mortgage and stay in their homes. That’s because they can't go out and buy another house, or even rent an apartment, and pay what they do today. Their current mortgage payment is more affordable. Even if they downsize, with today’s higher mortgage rates, it could cost more.Here's why this gives the housing market such a solid foundation today. Having so many homeowners with such low mortgage rates helps us avoid a crisis with a flood of foreclosures coming to market like there was back in 2008.2. The Amount of Homeowner EquitySecond, Americans are sitting on tremendous equity right now. According to the Census and ATTOM, roughly two-thirds (around 68%) of homeowners have either paid off their mortgage or have at least 50% equity (see chart below):In the industry, the term for this is equity rich. This is significant because if you think back to 2008, some people had to make the difficult decision to walk away from their homes because they owed more on the home than it was worth.But this time, things are different because homeowners have built up so much equity over the past few years alone. And, when homeowners have that much equity, it helps us avoid another wave of distressed properties coming onto the market like we saw during the crash. It also creates an extremely strong foundation for today’s housing market.Bottom LineWe are in one of the most foundationally strong housing markets of our lifetime because homeowners are going to fight to keep their current mortgage rate and they have a tremendous amount of equity. This is yet another reason things are fundamentally different than in 2008.
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The Main Reason Mortgage Rates Are So High
Today’s mortgage rates are top-of-mind for many homebuyers right now. As a result, if you’re thinking about buying for the first time or selling your current house to move into a home that better fits your needs, you may be asking yourself these two questions: Why Are Mortgage Rates So High?When Will Rates Go Back Down?Here’s context you need to help answer those questions.1. Why Are Mortgage Rates So High? The 30-year fixed-rate mortgage is largely influenced by the supply and demand for mortgage-backed securities (MBS). According to Investopedia: “Mortgage-backed securities (MBS) are investment products similar to bonds. Each MBS consists of a bundle of home loans and other real estate debt bought from the banks that issued them . . . The investor who buys a mortgage-backed security is essentially lending money to home buyers.”Demand for MBS helps determine the spread between the 10-Year Treasury Yield and the 30-year fixed mortgage rate. Historically, the average spread between the two is 1.72 (see chart below):Last Friday morning, the mortgage rate was 6.85%. That means the spread was 3.2%, which is almost 1.5% over the norm. If the spread was at its historical average, mortgage rates would be 5.37% (3.65% 10-Year Treasury Yield + 1.72 spread).This large spread is very unusual. As George Ratiu, Chief Economist at Keeping Current Matters (KCM), explains:“The only times the spread approached or exceeded 300 basis points were during periods of high inflation or economic volatility, like those seen in the early 1980s or the Great Financial Crisis of 2008-09."The graph below uses historical data to help illustrate this point by showing the few times the spread has increased to 300 basis points or more:The graph shows how the spread has come down after each peak. The good news is, that means there’s room for mortgage rates to improve today.So, what’s causing the larger spread and making mortgage rates so high today?The demand for MBS is heavily influenced by the risks associated with investing in them. Today, that risk is impacted by broader market conditions like inflation and fear of a potential recession, the Fed’s interest rate hikes to try to bring down inflation, headlines that create unnecessarily negative narratives about home prices, and more.Simply put: when there’s less risk, demand for MBS is high, so mortgage rates will be lower. On the other hand, if there’s more risk with MBS, demand for MBS will be low, and we’ll see higher mortgage rates as a result. Currently, demand for MBS is low, so mortgage rates are high.2. When Will Rates Go Back Down?Odeta Kushi, Deputy Chief Economist at First American, answers that question in a recent blog:“It’s reasonable to assume that the spread and, therefore, mortgage rates will retreat in the second half of the year if the Fed takes its foot off the monetary tightening pedal and provides investors with more certainty. However, it’s unlikely that the spread will return to its historical average of 170 basis points, as some risks are here to stay.”Bottom LineThe spread will shrink when the fear investors feel is eased. That’ll mean we should see mortgage rates moderate as the year goes on. However, when it comes to forecasting mortgage rates, no one can know for sure exactly what will happen.
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