It looks as if we are starting to see buyer demand wane just a little bit.
According to the Home Purchase Sentiment Index, just 35% of buyers say it is a good time to buy. The perception is it’s not a good time to buy. However, according to Showingtime, that doesn’t seem to be the case.
Buyer traffic is down slightly, but we are ahead of where we were over the summer of last year – a time where we packed a ton of business into a few months coming out of the lockdown. The reality is that buyers are experiencing buyer fatigue as a result of high price appreciation (14.6% this past year, according to Case-Shiller) and low inventory.
However, even though the market is hyper-competitive, we are seeing a turn in the coming months. Forecasts are predicting prices to rise a bit more, interest rates are forecasted to increase, and, while things may cool off a bit, the prediction is still for a seller’s market this year.
Now, let’s take a look at equity data from CoreLogic. The average gain in equity on a mortgaged home over the past year was $33,400. The average amount of equity on a home with a mortgage is $216,000. Tremendous, tremendous equity in homes across the country. 38.2% of the homes in this country are owned free and clear.
We’re seeing more inventory coming into market as we go into the second half of the year, and it is moving very quickly.
Price appreciation will moderate as rates and inventory rise later this year.
It’s going to cost more in the future to borrow the money to buy a home.
We are seeing an 8.9% average home price forecast from Ivy Zelman, NBA, NAR, Fannie Mae & Freddie Mac.
The most recent Builder Confidence Housing Market Index from the National Association of Home Builders came out showed that we are ahead of where we were pre-pandemic, but there are concerns of land, labor, and lumber. Although we are seeing increased building numbers, it will not be enough to solve to the inventory challenge.
Forbearance has dropped down to 3.93% – not an indicator of a flood of foreclosures coming to market.
Black Knight released a study showing the share of mortgages in forbearance with less than 10% equity, 4% based on the current loan to value. If you add in 18 months of deferred interest, that rises to 9%. If you add in 18 months of deferred principal and interest, that rises to 13%. So folks that have at least 10% equity can sell their home, put a little bit of money in their pocket, and get to the other side of the financial crisis that their family is facing.
According to realtor.com, there is an 8.8% growth in month-over-month housing inventory – 1.3% in Florida – with the expectation that more inventory will to come into market as we progress through the summer.
As we look at data from Zelman & Associates, we see that the second home market surged in 2020. In 2019, the second home market grew by 2%. In 2020, the second home market was actually forecasted to constrict just a little bit, but it grew by 27%. People left the urban areas where the pandemic was raging. It could be an opportunity for additional inventory to be brought back to market.
Overall, as we look to the second half of this year, sales are forecasted to increase nicely. Six and a half million homes sold in this country last year. The forecast for this year is close to 7 million homes. The biggest challenge this year we’ll have is we won’t reach the market potential. We cannot sell homes that we don’t have. We need more homes available for those who want to buy them. As we move into 2022, it is as good or better than what we saw last year at six and a half million homes.
With the forecasted appreciation and interest rates, it is still a good time to buy. However, sometimes the headlines can terrify, rather than clarify.
One headline you may read is about cash out refinances. In the first quarter of this year, 41 billion dollars was processed as cash out refinances. At the height of the housing crisis 320 billion dollars was cashed out as cash out refinances. Forty-one billion times four quarters, is 164 billion dollars cashed out. No where near what it was back then.
This is nothing like the amount of equity extraction during the housing bubble as a percentage of disposable income. Back in the housing crisis, the amount of equity extraction – or cash out refinances – as a percentage of disposable personal income was close to 10%. For Q1, we are at 0.8%.
The reality is people have a lot of equity in their homes and they will access that equity.
Another headline you may read about is increasing mortgage payments. We have seen almost 20% growth in the average mortgage payment. But let’s not forget to put that into context. First, what people wanted in a home changed in the last year. Second, we saw that people are willing to pay extra for those different needs.
Affordability may also be a headline you may hear about. Consider NAR’s housing affordability index where the higher the index, the higher number, the more affordable homes were. Years when distressed properties dominated the market, homes were very, very affordable. So when someone says that homes aren’t as affordable today as what they’ve been in the past, your first question should be, “As compared to when?”
Finally, the housing bubble headline. Harvard just came out with their 2021 State of Nation’s Joint Study for Housing saying that conditions today are different than in the early 2000s. Credit availability is stricter, there is increasing prices due to increasing demand, a tight supply, and record low interest rates. What we face is a supply and demand imbalance.
As a part of the home price expectation survey, the forecast for housing for the next few years is very good. They’re forecasting this year almost 9% appreciation. A little over 5% next year. And then getting into more historical normal appreciation the years following. Historical appreciation in this country has been about 3.8%. Buying a home today can lend significant.
On an average priced home ($350,000), the equity growth over the next five years is just over $93,000.
Here’s how the Tallahassee market wrapped up:
