What's in this article?
For this week’s edition of market insights, we have two major publications’ takes on aspects of the housing market.
The Economist has an analysis of how we can have high rates and low inventory but still see prices rising. And Yahoo can—apparently—simplify your homebuying decision into one step.
Let’s take a look.
Latest average U.S. Mortgage Rates 2023-09-07
- 30-year fixed: 7.12% (previous week: 7.18%)
- 15-year fixed: 6.52% (previous week: 6.55%)
- 30-year FHA index: 7.042% (previous week: 6.941%)
- 30-year fixed rate Jumbo index: 7.674% (previous week: 7.461%)
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The American housing market: high prices, limited supply, high rates, and—strong growth?
Economist magazine recently released its own take on why U.S. home prices are still skyrocketing, mortgages are so expensive, and there is still a shortage of available properties.
They also explore why, despite these hurdles, the American housing market has remained surprisingly resilient and what its implications are for the broader economy.
The key to this paradox, they say, lies in that delicate balance of supply and demand.
While demand for homes has waned due to rising rates, the supply of available properties has declined in tandem.
Long-term fixed-rate mortgages, common in the U.S., have contributed to this shortage as homeowners with low-interest mortgages are reluctant to sell their homes.
Approximately 82% of homeowners hold mortgages below 5%, creating a state of suspended animation in the housing market.
Implications for the broader economy
Interestingly, this slowdown in transactions hasn’t harmed the economy.
Homeowners, unable to upgrade, have instead invested in renovating their current homes, boosted by the rise of remote work.
Remodeling expenditures have surged, contributing around 2% to GDP in 2022.
The advantages of home builders
Newly built homes offer a significant advantage—availability.
This year, new construction homes make up approximately one-third of active listings, a significant increase from the average of 13% observed in the two decades prior to the COVID-19 pandemic, according to the National Association of Home Builders.
Daryl Fairweather of Redfin pointed out an interesting aspect that builders benefited from the absence of competition from existing homeowners.
Homebuilders have also showcased their boldness by providing attractive incentives to potential buyers.
One of the most notable initiatives is the reduction of mortgage rates by as much as 1.5 percentage points. This is achieved through a one-time upfront fee that results in decreased future interest payments.
Consequently, their in-house mortgage companies are offering rates of approximately 5%.
Remarkably, for homebuilders, these rate buy-downs translate to a reduction of about 6% from the selling price. With robust balance sheets, they can easily afford this adjustment.
Default risks for the future
However, challenges lie ahead as mortgage rates continue to climb.
The Fed’s monetary policy may face a test, with rising rates potentially impacting demand and homebuilder activity. If prices decline, homeowners with little equity may face default risks.
In the coming years, the property market’s resilience will play a crucial role in forming the economy and inflation.
Whether it remains robust or faces challenges, one thing is certain: until interest rates normalize, the dream of homeownership for many Americans will remain deferred.
Yahoo Finance simplifies the home buying process to one step
Yahoo Finance came up with this fun piece that (over?) simplified a homebuyer’s difficult decision process about which house to choose: suggesting you should buy a house that advertises any one of the following features.
Even if choosing a home was that simple (HINT: it’s not) it still might be useful to know what is generally considered by some as a good incentive on house listings.
Summary of the best 10 features for a home listing—according to Yahoo:
- Minimal work needed: Homes with less renovation work to do have less trouble selling.
- Good location: Realtors often praise the value of location, as it can significantly impact the property’s value and desirability.
- Updated kitchen: Kitchens with modern design and appliances are a major selling point for potential buyers.
- Updated bathrooms: Like kitchens, bathrooms for maximum functionality and aesthetics are more appealing to buyers.
- Open floor plan: Open floor plans are reportedly popular among buyers as they create a spacious and inviting atmosphere.
- Outdoor living space: A well-curated outdoor living space can add value to a home and attract buyers.
- Energy-efficient features: Energy-efficient homes, such as ones with modern appliances like tankless water heaters, are in demand due to their potential for cost savings and environmental benefits.
- Smart home technology: Smart home features can make a home more convenient and appealing to tech-savvy buyers.
- Ample storage: Adequate storage space is a must-have for many buyers, making it an important feature to consider.
- Neutral décor: Neutral décor allows potential buyers to envision themselves in the space and can make a home more appealing. Think of beige, grey, and white walls.
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