Probably the biggest news out there right now is the drop in pending home sales, so let’s look at pending home sales going all the way back to 2012.
Historically, you can see we were trending above the healthy market level for quite some time, we see the dip during lockdown, a sharp increase for a while after lockdown, and the red arrow represents the current drop (although we are still well above the historically healthy market level – indicating we are still in a very good market).
Taking a look at the ShowingTime Monthly Index, we see a tremendous amount of home showings as we started off this year, and a steady decline over the past few months. However, to provide context, July 2019 has an index of 123, and right now we sit at 189 – still well ahead.
In to July 2020, 26.8% of the homes sold over list price. June and July were about 50% of homes selling over list price. Although things are cooling down, it is still a very robust market.
Taking a look at the new monthly listing counts according to realtor.com, we can see that historically we see a peak in new listings in May. When listings started coming back to market last year after the lockdown, we never hit the historical number that we’d seen in previous years (2017-2019) – a factor in the low inventory that has led to this year’s imbalance between supply and demand. If we continue to see less listings coming to market, then we’re going to see an upward pressure on prices until we can get back to the historical norms.
So are homes affordable right now?
Looking at monthly mortgage payments going all the way back to April 2020, we do see a slight increase starting in March.
Affordability is decreasing (here, the higher the bar, the more affordable homes are). To put that into context, we turn to the Housing Affordability Index from 1990 all the way to today.
Again, the higher the bar, the more affordable homes are. Homes are, beyond a doubt, less affordable today than the past few years. However, homes are much more affordable today than they were at any point leading up to the housing crisis. This index does take into consideration wages, prices, and mortgage rates.
What about rental rates? They are continuing to climb, looking all the way back to 1988, and they have skyrocketed in the past few years. Not only are rental rates increase more rapidly than mortgage rates, but you gain no equity as a renter.
The percentage of income needed for a mortgage payment is also increasing, because of price appreciation. However, let’s put that into perspective, 17.1% of monthly income is needed for a mortgage payment right now, but the historical norm is 21.2%. Although we have seen an increase, we are still below the historic average.
According to Freddie Mac, 28% of your monthly income can go to a home buying budget and you’re still in an affordable range.
According to the National Association of Realtors (NAR), housing costs are not burdensome if they account for no more than 30% of income. This would require your monthly mortgage payment to be more like 25% (principal and interest only), to account for additional costs like insurance, taxes, utilities, etc.
To put this into perspective, look at the mortgage payment as a percentage of income. NAR says this should be 25%, the historic average is 21.2%, and today we sit at 17.1%. Homes are less affordable, not unaffordable.
There are 5 aspects of the market right now that make it anything but normal.
1. Mortgage Rates
2. Price Appreciation
3. Supply of Inventory
4. Days on Market
5. Multiple Offers
Mortgage rates have been fueling the demand over the past year. Looking all the way back to the 1970s, rates have fallen from an average of over 8% to somewhere around 2.8% today. The instability of the world, and especially the job market right now, are causing these extremely low rates for a fairly long period of time.
According to this Black Knight study, we are seeing 14% home price appreciation. Other estimates are 17% (Case-Schiller). Average annual appreciation sits at 4.1%. There is no denying we are seeing robust appreciation across the country.
Months of inventory of supply has been a big issue over the last year. A balanced market is typically between four and six months of inventory on hand.
Today, we sit at 2.6 months of supply on the market, looking all the way back to 2011. We need more homes on the market.
As of July, it took 17 days to sell a home (to place it under contract). Looking all the way back to March of 2019, you can see peaks of 42 or 49 days on market. 17 days? That is quick
The average number offers received on a home for sale has historically been about 2.5. Today, we are seeing 4.5 offers for every home. Last spring this number was 5.
In conclusion, let’s take a quick peek at the home price forecast going into 2022. MBA, Fannie Mae, Freddie Mac, and NAR are all averaging 5.5%, so if you are waiting until next year to buy, it might cost you more. The market is cooling down, but is far from normal, and will take some time to equalize.
Finally, here is how we wrapped up September in Tallahassee: