The Lending Coach

Coaching and teaching - many through the mortgage process and others on the field

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Home Prices and Home Sales – Mid-Year Update

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More data has been released on both home prices and home sales…and the numbers are fascinating.

The numbers are a month or two behind, due to the time it takes to gather and report the information, but the trends are clearly visible.

black handled key on key hole

Home prices are continuing to appreciate, although the number of sales is declining year-over-year.

Home Prices

The National Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices rose 2.1% in April and 20.4% year over year, which is basically flat from the previous report…but still blistering hot.

The FHFA (Federal Housing Finance Agency) released their House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts.

While you can have a million-dollar home with a conforming loan amount, it’s typically measuring your mid-priced homes.

Prices rose 1.6% in April and are up 18.8% year over year, which is a slight decrease from 19.1% in the previous report, but also extremely hot.

“House price appreciation continues to remain elevated in April,” said Will Doerner, Ph.D., Supervisory Economist in FHFA’s Division of Research and Statistics.

“The inventory of homes on the market remains low, which has continued to keep upward pressure on sales prices. Increasing mortgage rates have yet to offset demand enough to deter the strong price gains happening across the country.”

Home Sales

Pending Home Sales, which measures signed contracts on existing homes, rose 0.7% in the month of May. This was much stronger than the 4% decline expected, but sales are still down 13.6% year over year.

There is no doubt that higher interest rates are impacting demand, but this report does include the majority of the rise. Additionally, the fact that sales were higher with the rise in home prices and lack of inventory clearly shows that the purchase market still remains strong.

New Home Sales, which measures signed contracts on new homes, were up 10.7% in May to a 696,000 annualized pace, which was above expectations.

The report is actually stronger than it appears as there was a positive revision to the previous month. When factoring that in, sales are up 18% from the initially reported number. Year over year sales they are down 5.9%. There were 444,000 homes for sale at the end of May, but only 37,000 or about 6% are actually completed. The rest are either not started or under construction.

The median home price remained steady at $449,000, which is up 15% year over year and points to an increase in higher priced homes sold. The Average priced home came in at $511,400, which is up 16% from last year.

In Conclusion

Would you like to find out more?  Contact me to discuss your current situation and how you might be able to take advantage of today’s market.  It would be my pleasure to help you!

Marry the House…But Date the Rate

brides holding white bouquet of roses

I can’t take credit for the popular phrase “Marry the house…but date the rate”. It’s being posted by mortgage professionals and real estate agents all over the place.

What does this expression mean? 

It means that if you find a home you love, don’t let current interest rates prevent you from moving forward and buying it.

Essentially, don’t be afraid to buy the house you want right now because of external market conditions!

A mortgage does not have to be long term, in fact most people refinance their homes several times as mortgage rates improve or should they need to take cash out from their equity.

Is It A Good Idea?

Committing to the house doesn’t mean you have to commit to today’s financing forever. Buyers can always look for a better financing opportunity down the road and make a change when the time is right.

signages for real property selling

It is absolutely possible to change your financing to more favorable terms later, should better rates and products become available… and if rates only get worse, then you’ll be glad you married the house when you did.

Interestingly, the average tenure of a mortgage is under 6 years…meaning most homeowner’s either move or refinance their mortgages quite often.

Better Rates Down The Road?

I do think there’s a good possibility of lower rates in the future.  More on that hereand here.

Believe it or not, we might be in for an upcoming perfect storm – and in a good way for borrowers.

It does look a recession is around the corner, which almost always results in lower mortgage rates. I know that sounds counter intuitive, but mortgage rates actually fall during recessions.

Also, one of the few areas that seem relatively immune from recession is the housing market.  Historically, one of the safest bets during recession is real estate.

The chart below shows how housing stays quite resilient during and through recessions:

Looking back at eight of the nine recessions since 1960, home prices significantly increased or at least remained stable each time during and after the recession.  One of the reasons this occurs is because interest rates significantly fall during recessionary periods.

What Buyers Should Do Now

Essentially, all of these factors listed above should combine for LOWER rates later this year into 2023.

person with keys for real estate

Of course, things can change, but it sure is looking like a recession is on the horizon, which will undoubtedly bring lower mortgage rates.

Well, waiting to purchase a home and “timing the market” is one option…but it’s almost always a bad idea.  

Why?  Because no one knows exactly when rates will hit rock bottom – and home prices will continue to accelerate.

More importantly, buyers will miss out on the gains of owning a home. Homes increased in value over 15% last year in the west…and things aren’t getting any cheaper.  More on trying to time the market here…

Purchase Strategy

I recommend making your purchase now – and NOT paying extra discount points to lower your interest rate.  As a matter of fact, you could use “negative” points to help offset any closing costs.

Instead of paying discount points to access lower mortgage rates, borrowers can receive credits from their lender and use those monies to pay for closing costs and fees associated with the home loan.

More on that strategy here…

Yes, the interest rate might be slightly higher, but you will want to refinance this mortgage when rates drop later this year or next year!  This will also limit your out-of-pocket fees for the initial transaction.

In Conclusion

Although things look a little grim currently, the future is actually looking bright for mortgage rates later this year and into next year.

Would you like to find out more?  Contact me to discuss your current situation and how you might be able to take advantage of today’s market.  It would be my pleasure to help you!

Rents Hit All-Time Highs – It Might Be Time To Purchase Instead

a house for rent placard

Rents across the U.S. have risen above $2,000 a month for the first time ever…and that’s just the nationwide number.  Rents here in the west are rising at a much higher rate.

apartment architecture balcony building

In Arizona, for example, rents are up over 33% year-over-year…and in California, they are up nearly 25%, per Rent.com.

A new report from Redfin shows that nationally listed rents for available apartments rose 15% from a year ago. Again, that’s the national figure – and rents in the west have gone up even more.

In Los Angeles, the median asking rent is $3,400. Rents are up more than 30% in Austin, Seattle, and Cincinnati. Even in formerly affordable cities such as Nashville it’s now $2,140, up 32% from last year.

So, Should You Rent or Buy?

What all of this information is telling us is that housing is becoming more expensive, whether you buy or rent.

“Housing is getting less affordable for everyone at every level,” says Daryl Fairweather, the chief economist for Redfin. She says after the last housing crash we didn’t build enough homes for a decade. And that lack of supply is the biggest force pushing up home prices.

yellow concrete house

I’m linking from an NPR article – you can find the entire piece here…

Fairweather says home builders built fewer homes in the decade starting in 2010 than in any 10-year period since the 1960’s. “So I think it’s going to take at least another decade to dig ourselves out of this hole.”

On the lending side, I personally have been advising my clients to take a look at their overall housing expenditures to see if purchasing a home might actually be cheaper in the long run.

In many cases, it’s smarter to pay even a slightly higher monthly payment early on to take advantage of building equity instead of paying someone else’s mortgage.

For investors, this looks like a good time to purchase, even with higher interest rates.  Rents are increasing, and because of supply shortages, valuations (and expected rents) should continue to rise.

Industry Trends

Here are a few key industry developments, per the Rent.com article:

1. Prospective homebuyers gain some hope in the housing market

person with keys for real estate

According to that Redfin report, more than one in five home sellers dropped their prices in the past month. It’s the largest drop rate since Fall 2019.

“The sudden surge in mortgage rates led to a sudden and significant cooldown in the housing market in May,” said Redfin Economics Research Lead Chen Zhao.

With interest rates continuing to climb, mortgage applications have gone down 14 percent when compared to last year. This housing market cool-down should give current renters a moment to decide their next steps in their home buying journey.

2. Along with interest rates, rent prices are skyrocketing in some areas

With cities like Phoenix and Los Angeles continuing to see dramatic increases in rent prices, it’s difficult to determine whether to move to a new unit, stay, or purchase.

That’s why it’s important to do your research to see if purchasing might be the most strategic move.

Fairweather thinks that landlords are less likely to raise rents by a significant amount for existing tenants versus a new one. Be sure to read over your lease for any restrictions in yearly rent increases and negotiate with your landlord on new terms, if needed.

In Conclusion

Although home prices and interest rates are up, purchasing a home might very well be the best option available, as rents are rising faster than home prices at this point.

Don’t hesitate to contact me to discuss your current situation and how you might be able to take advantage of today’s changing market.  It would be my pleasure to help you!

Housing Supply and Demand

As you probably know, the number one driver of economics is supply and demand…and it absolutely applies to today’s housing market.

judges desk with gavel and scales

Supply and demand is a true economic law.  Just like gravity is a physical law, supply and demand is an economic certainty – and it isn’t just a theory.  It’s truth.

With that in mind, supply and demand absolutely applies to real estate.  The less supply, the more demand…and as you probably learned in your Econ 101 class, prices go up.

Understanding Housing Demand

The easiest way to understand the dynamics at play here is to take a look at the demand side first…and this is best shown by the number of new household formations.

Essentially, household formations are number of new households that will be formed at a particular time.  They are based on projections of population by age cohort and age-specific headship rates.

Household formation is the underlying driver of long-term demand for new housing and thus new home construction.

As you can see in the chart above, there are 1.4 million new households being formed in 2022…and this number is a bit higher than average (the green line on the chart).

So, the market needs to account for these 1.4 million new households, either with rental properties or homes.

The Truth About Housing Supply

According to most reports, there are approximately 1.7 million new homes being built this year.  It’s also important to take into account that approximately 100K homes are destroyed annually, that leaves 1.6 million new homes available for the 1.4 million new households (for a surplus of 200K homes).  

This looks like good news! Well, let’s dive a little deeper…

As you can see by the chart above, there will only be 1.3 million homes actually completed this year (and that number seems to be shrinking every month due to labor and supply chain issues). 

And when you factor the 100K destruction number in, the net result is new home supply of only 1.2 million, leaving a 200K shortfall.

Secondly, as you can see by the chart below, there is record low inventory in home here in the US.  Only 1.03 million homes are available today. 

Compare that to 2019 and 2020, where there was nearly TWICE the inventory.

You will notice that there are rises and dips each year…and the increase is due to the spring buying effect, where families want to make sure they’ve found a place by the start of school each year. 

So, the fact that inventory is rising this year is completely normal and expected!

Finally, are there really 1 million homes listed for sale?  Well, yes…but not exactly.

When you consider the number of homes under contract (meaning they are currently showing as available but truly aren’t), the number falls to only 400K available for sale.

As you can see, we are still at near record low inventory…only 33K off of the all-time low, set earlier this year.

Is There a Slowdown Coming?

Well, inventory levels appear to be coming up slightly (much of that having to do with the spring buying/selling season), but not overwhelmingly so.

There will still be a lack of supply for the foreseeable future.  Sure, demand is being tempered a bit by higher interest rates, higher home prices, and stock market/economic instability.

However, there’s still plenty of activity to support price appreciation.  Think about it for a second, people still need places to live…even if they need to pay a bit more to do it.

The meteoric rise in appreciation and home prices may slow (and we are already starting to see that in the price drops of listings), but because of the supply/demand curve, there’s no way that prices will actually depreciate.

We can see this in the number of actual home vacancies to support this. 

As you can see, vacancies are at all-time lows – meaning that an increase in supply (because of 2nd home or investment property ownership) isn’t likely. 

Take the housing crisis of 2008 for example…where nearly 3% of all properties were vacant – because folks were literally walking away from their investments because the carrying costs of homes became too much.

We are nowhere near that point in today’s environment – meaning that our market is quite strong and should stay healthy.

I hope you find this helpful…and don’t hesitate to contact me to discuss your current situation and how you might be able to take advantage of today’s changing market.  It would be my pleasure to help you!

Next Level Athletic Performance – Dr. Patrick Cohn

bench hands field park

As you probably know, one of my favorite athletic mental coaches is Dr. Patrick Cohn of Peak Sports Performance. Dr. Cohn is a sports psychologist out of Orlando Florida.

He’s always preaching about mental toughness – as well as the techniques athletes can use to grasp it.

He sent out an e-mail blast recently that I’ve posted below regarding achieving next-level performance…

How do you go from good to great as a ballplayer? Many players “want” to be better, but their “want” doesn’t lead to action.

person holding baseball bat

You could have the best coach in the world, surrounded by talented teammates, work out with the latest equipment, and dream big dreams, but mere desire never yields positive results alone.

You, of course, need some level of ability. Desire is also important; you need to be passionate about lifting your game. However, raising your game requires instruction, direction, action, and evaluation.

Unfortunately, many players stop at the “desire” stage. Words without actions keep you stuck in a rut.

The 6 Stages of Next Level Performance

1. Passion – When you are passionate about becoming a better pitcher, making a college team, breaking into the starting lineup, or raising your batting average, you can stay motivated to see yourself through the ups and downs.

2. Goal – Passion is desire. However, a goal is a target, something specific you want to achieve. When your goal is clear and specific, you can determine if your plan or actions are on track for achieving your objective.

two female in baseball gears in stadium ready to catch and swing baseball

3. Instruction – You should have someone knowledgeable you can rely on for teaching, coaching, or advising you, such as a coach, elite player, or mental game coach.

4. Direction – You need a plan, plain and simple. A plan is a roadmap that directs you towards your goal.

5. Action – You must act on your plan, not just once in a while or when you feel like working. You must put into action your plan each day.

6. Evaluation – This step is often neglected. Some players give up before evaluating or adjusting their plans when necessary. When you objectively assess your progress, you are more apt to push through the struggle during the season.

When you put into play these six steps, you will accomplish more as an athlete.

You can find out more about Dr. Cohn here – and his blog is here.  I’d encourage you to visit his site and read more!

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