Navigating Today's Housing Market

Just in time for the spring housing market, conditions for buyers are improving again. The Mortgage Bankers Association (MBA) reports mortgage rates fell last week after rising toward 8%. Not surprisingly, demand for mortgages increased.

“Mortgage rates dropped below 7% last week for most loan types because of incoming economic data showing a weaker service sector and a less robust job market, with an increase in the unemployment rate and downward revisions to job growth in prior months,” said Mike Fratantoni, MBA’s chief economist. 

Fratantoni said mortgage applications for home purchases increased 7.1% but that was still 11% below last year’s level. 

“By contrast, refinance volume picked up by 12%, with a larger, 24% increase in the government refinance index," he said. "While these percentage increases are large, the level of refinance activity remains quite low, and we expect that most of this activity reflects borrowers who took out a loan at or near the peak of rates in the past two years.”

The average rates

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 6.84% from 7.02%, with points decreasing to 0.65 from 0.67 for 80% loan-to-value ratio (LTV) loans. The effective rate decreased from last week.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $766,550) decreased to 7.04% from 7.21%, with points increasing to 0.38 from 0.36 for 80% LTV loans.  

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 6.77% from 6.86%, with points increasing to 0.95 from 0.90 for 80% LTV loans.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 6.37 percent from 6.66 percent, with points increasing to 0.77 from 0.67 for 80% LTV loans. 

The average contract interest rate for 5/1 ARMs was unchanged at 6.38%, with points decreasing to 0.52 from 0.67 for 80% LTV loans. 

There’s a cost that comes from living by yourself in an apartment. There’s no one to share the rent or expenses.

Zillow, the online real estate marketplace, has calculated the extra financial cost faced by a single apartment dweller as the “singles tax.” According to Zillow, that “tax” has risen to $7,110 in 2024. In other words, that single apartment dweller could save that amount each year by having a roommate.

"While some renters may envy their coupled-up friends for dodging the singles tax, solo renters enjoy perks that go beyond financial savings. There's no arguing over which show to binge-watch next or disputes about whose turn it is to clean up after dinner," said Emily McDonald, Zillow’s  rental trends expert. "Still, it's crucial for renters to really dive into what living alone costs in their area and decide if the price tag is worth it."

Zillow's analysis also reveals that cohabitating renters across the country enjoy annual combined savings of $14,220 over their solo-dwelling counterparts. The savings are much greater in more expensive rental markets.

For example, roommates or couples in New York City are seeing potential savings of $40,200. That’s money that could be directed toward reducing debt or increasing savings.

West Virginia, Mississippi, Arkansas, Louisiana and New Mexico. What do these five states have in common?

If you said they have the lowest income per capita in the U.S., you would be partially correct. Four of the five are in that category.

So it might be somewhat surprising that a new study from ConsumerAffairs found another common link among these five states: they have the largest percentage of mortgage-free homes in America. They have the largest percentage of homeowners who don’t make a monthly mortgage payment.

Owning your home free-and-clear is somewhat rare in the U.S., a status that usually isn’t achieved until later in life. Data from the National Association of Realtors (NAR) suggests that around 80% of buyers in the U.S. needed some kind of financing to purchase a home from July 2022 to June 2023. 

But in two states – West Virginia and Mississippi – slightly more than 50% of homeowners don’t have a mortgage.

Demographics

Jessica Lautz, NAR’s deputy chief economist and vice president of research, says demographics could be part of the explanation.

“This is likely a factor of home prices and how long the owner has been in the home,” said Lautz. “It is more likely that seniors who have been in their homes for longer periods would be mortgage-free. In areas like Colorado and Utah, which had pandemic-fueled housing booms, there may be more recent home buyers who have not yet had an opportunity to pay off their mortgage.”

In fact, about one-half of mortgage-free homeowners are 65 and older. Another factor is the recent trend of all-cash purchases, especially by people who sold houses in expensive states and moved to these states where prices are lower. 

“The U.S. still has tight housing inventory, and when there are multiple offers, the all-cash buyer is likely to win,” said Lautz. “In December of 2023, the share of all-cash buyers was 27% of home buyers.”

The drop in mortgage rates to below 7% is good news for prospective homebuyers but unfortunately, there’s now a new challenge. It may be harder to qualify for a mortgage.

The Mortgage Bankers Association (MBA) reports mortgage availability decreased in December. That means there was less money to lend.

“Credit availability declined in December to the lowest level since 2012, as ongoing industry consolidation is resulting in more loan programs being removed from the marketplace,” said Joel Kan, MBA’s vice president and deputy chief economist. “Both conventional and government indices experienced decreases. The decrease in the government index was driven by lower investor demand for renovation loans and streamlined refinance loans.”

The Mortgage Credit Availability Index (MCAI) is the tool that tracks mortgage activity. In December, the index dropped 4.6% to 92.1. The index was benchmarked to 100 in March 2012.

Bottom line, a declining MCAI means lenders have tightened their standards, demanding larger down payments and higher credit scores. Buyers might have to shop around more to find a mortgage lender they can work with. 

If you’re looking for a mortgage lender, this ConsumerAffairs tool might help.

While credit availability was down across the board, it was down most in government lending programs, such as FHA loans. Conventional loan availability declined only half as much.

Housing experts are largely in agreement when it comes to 2024’s homebuying opportunities. They should be better than last year’s.

The experts ConsumerAffairs consulted this week predict interest rates could fall below 6% in the months ahead.

So if you’ve been waiting patiently for an opportunity to buy your first home, 2024 may be your year. But if your job allows you to work remotely and you’re willing to relocate, the opportunities may be even greater.

A recent ConsumerAffairs study identified the best cities for first-time buyers. While home prices were a key component, the study also considered quality-of-life factors. Each metro received a financial friendliness score and a quality-of-life score, which were added together for an overall score.

The quality-of-life score components include crime rates, unemployment rate, climate and racial diversity.

The top 10

Based on those factors, here are the 10 best metros for first-time homebuyers:

1. Raleigh-Cary, N.C.

2. Provo-Orem, Utah

3. Naples-Marco Island, Fla.

4. Oxnard-Thousand Oaks-Ventura, Calif.

5. Cape Coral-Ft. Myers, Fla.

6. San Diego-Chula Vista-Carlsbad, Calif.

7. Port St. Lucie, Fla.

8. Barnstable, Mass.

9. Boise, Idaho

10. Bridgeport-Stamford, Conn.

What makes Raleigh so special? It’s the largest city in the “Research Triangle” of North Carolina, which gets its name from the biggest research park in the U.S. — covering 7,000 acres, where over 50,000 people work at companies including IBM and Cisco.

The Raleigh-Cary area has the fifth-highest financial friendliness score of all metro areas, and it ranks 14th in having the least violent crime.

In addition to comparative affordability and safety, Raleigh-Cary residents benefit from the area’s exceptional greenway system, diverse arts scene, free museums — the “Smithsonian of the South” — and temperate climate.

Madison, Wisc., Knoxville, Tenn., and Elizabethtown, Ky., also rank as markets that are friendly to first-time buyers. Check out the full study here.

First, the good news. Mortgage rates have fallen from their October highs of around 8%. Freddie Mac reported the 30-year fixed-rate mortgage was around 6.95% on Friday.

But for buyers eager to buy a home, that might not be enough to improve affordability. Because, as the Wall Street Journal has pointed out, falling rates may have excited buyers but they haven’t moved sellers.

Rather, not that many current homeowners appear motivated to sell. If they have a mortgage rate of around 3% they might not be ready to list their homes for sale and buy another one until rates are a lot lower.

So, if the recent drop in mortgage rates is enough to bring buyers to the market, they may not find an increase in homes for sale. Instead, they are back to competing with one another for available homes, which in the past has resulted in bidding wars and higher home prices.

Consider this: millions of homes were purchased in 2020 and 2021, during the pandemic. Not only are recent purchasers unlikely to sell anytime soon, they have rock-bottom mortgage rates and are not willing to part with them.

Relocating could help

House hunters who are willing to move to a lower-cost city, when available homes are more plentiful, may find the best opportunities.

"Now that we're seeing the beginning of an affordability turnaround, home buyers are still looking for markets where they can capitalize on lower prices," said Realtor.com Chief Economist Danielle Hale. "Even in some of the more expensive markets, we'll see double-digit sales growth as sales start to rebound from their historic lows, helped by mortgage rates which are expected to finally relent."

But sales growth has to be measured against current sales. Real estate experts say they expect 2023 home sales to be the lowest in about a decade.

Real estate agents had a lot of spare time on their hands in October. Pending home sales, a measure of sales contracts signed but not yet closed, fell 1.5% from an already low rate, according to the National Association of Realtors (NAR).

NAR says it is the lowest number for pending sales since the index was launched in 2001. That suggests that most buyers can’t handle the combination of high prices and high interest rates.

And interest rates were very high in October, around 8%. Asking prices for homes may have still been rising during the month. 

"During October, mortgage rates were at their highest, and contract signings for existing homes were at their lowest in more than 20 years," said Lawrence Yun, NAR’s chief economist. "Recent weeks' successive declines in mortgage rates will help qualify more home buyers, but limited housing inventory is significantly preventing housing demand from fully being satisfied. 

But can we expect the absence of buyers to increase the inventory of available homes, increasing competition among sellers and resulting in lower prices? The jury is still out on that one.

Steve Nicastro, the content team lead at Clever Real Estate, says inventory is still tight and it may be months before that changes. But he says it’s clear that there are fewer buyers in the market these days.

'Affordability still a significant concern'

“Affordability remains a significant concern and has priced many buyers out of the market,” Nicastro told ConsumerAffairs. Many potential buyers are either waiting for better conditions or have just given up on buying and are now renting instead.”

Shmuel Shayowitz, president and chief lending officer at Approved Funding, says the pending home sales number must be viewed in the context of mortgage rates. They were at 8% in October but are around 7.25% now. He thinks the decline in mortgage rates is a bigger factor for buyers than a slight build in inventory levels.

"For buyers, the fact that mortgage rates have been consistently improving since the end of October will have a favorable impact on those looking for homes,” he told us. “On a $400,000 loan, a drop of 1% from 8% to 7% can represent over $270 a month in savings. That will certainly start getting some people off the fence.”

Nicastro says the outlook for housing in 2024 is hard to predict, though he does expect some increase in housing inventory next year. How much, he says, depends on interest rates. Unless rates “plummet” he doesn’t expect current homeowners with a 3% mortgage rate to put their homes on the market.

This year has been – and should continue to be – a great year for consumers wanting to do home improvements like closet updates, solar panels, and kitchen and bathroom remodels.

But there are always a number of bad actors who think they can play contractor and make some money off the boom.

One contractor didn’t like where things were headed and seven years after launching his career as a roofing contractor, Dmitry Lipinskiy, CEO of Directorii, sold his business and became consumer advocate. He told ConsumerAffairs, “It’s hard to find a contractor you can trust but it doesn’t have to be this way.”

Contractor advice straight from the horse’s mouth

Now that he’s turned consumer champion, ConsumerAffairs asked Lipinskiy if he would share some insider information on how we all can protect ourselves against contractors who make big promises and leave us hoping that they’ll follow through. Here are some of his thoughts on several home-related topics:

How to find the best building materials and contractors

“Do your research: look for independent reviews and guides. Youtube and Google are great, but pay attention to sources: make sure they are not coming from manufacturers themselves,” he said.

For example, he said several online services are putting their money where their mouths are in regard to recommendations.

Lipinskiy pointed to Google which offers a $2000 guarantee, Contractor's List’s $10,000 guarantee (in Texas) for its recommendations, and Directorii.com which offers a $20,000 guarantee in all states for all recommendations. 

“These sites might have a limited number of contractors listed, but unlike more popular sites these sites don't have ‘fine prints’ stating you are hiring at your own risk: they help you with disputes,” he said.

ConsumerAffairs offers a number of resources to help homeowners who are planning improvements, including an analysis of some of the best bathroom remodeling contractors, including verified reviews.

Working with an insurance company after a weather disaster.

“Document and take pictures of everything before. Outside items are the most important. You will need a picture to prove the condition of items before: grill, pool, fence, deck, furniture etc.,” Lipinskiy advises. “Make sure your contractor is present during inspection with an adjuster to keep him accountable for the scope of damage and to help him to document everything.”

How about warranties?

One of the things that motivated Lipinskiy to hang up his contractor hat was all the gimmicks contractors use. At the top, he lists “50-year” and “lifetime” warranties. He throws extra shade on asphalt manufacturers that make those offers because the life expectancy in his estimation is really only 15-20 years.

“Many issue warranties without inspection of the jobs because they know they will put liability on contractors when a claim is filed,” he said, noting that transferability of warranties is also a “joke.”

Disputes over large projects and how to avoid them.

How can you avoid a dispute when things go wrong? Lipinskiy's suggestions include:

• Never pay in full until the majority of the work is done

• Ask for lien waivers from subcontractors and suppliers

• Check references

• Ask for the warranty registration process and how to file a claim if something goes wrong.

• Understand the dispute resolution process before it takes place. 

But, whatever you do, “Don't give large deposits,” he suggested. “Rather use small increments based on stages of projects completed: 25%/25%/25%25% is a good example.” 

Home prices are high and so are interest rates, but that hasn’t stopped Americans from buying their first home. 

Zillow's 2023 Consumer Housing Trends Report found that in 2023 half of all home buyers are purchasing their first home, the highest share that Zillow has ever recorded.  That’s an increase from 45% last year and a meaningful jump from 37% in 2021. 

Zillow says the share of first-time buyers probably hasn't been this high since 2010 when there was a first-time home buyer tax credit.

The percentage of first-time buyers has increased, in large part because people who already own homes aren’t selling and buying new homes. In many cases, existing homeowners have a mortgage rate well below 5% and aren’t willing to trade it in for an interest rate north of 7%.

Factors depressing sales

That’s where mortgage rates are right now, with some housing economists expecting the average 30-year fixed-rate mortgage to hit 8% in the coming weeks.

"High mortgage rates and a shortage of inventory keep would-be repeat buyers in their current homes," said Zillow’s senior population scientist Manny Garcia. "A greater relative share of first-time buyers is filling the gap, and they're competing against each other for the limited number of affordable starter homes on the market." 

Because of rising mortgage rates, first-time buyers are able to afford to pay less for a home, at a time when average home prices are rising once again. A new report from real estate brokerage Redfin estimates buyers have lost tens of thousands in purchasing power since 2022.

The report uses the example of a buyer with a total budget of $3,000 a month. With the mortgage rate at 7.4%, that buyer could afford to pay $429,000 for a home.

A loss of $71,000

However, a year ago the same buyer could have purchased a home costing $500,000 because the prevailing mortgage rate was around 5.5%. In other words, the buyer lost an estimated $71,000 in purchasing power because of the higher mortgage rate.

Today’s mortgage rates are the highest in about 20 years, but their impact is much more severe. In 2003, a 7% mortgage rate was not such a heavy burden because homes cost much less than they do today. A decade or more of rock-bottom mortgage rates allowed home prices to surge to record levels – levels some economists say are not sustainable with mortgage rates this high.

“The combination of high monthly mortgage payments and historically low housing inventory has pushed many would-be homebuyers out of the market,” the report’s authors wrote. 

“Home-purchase applications dropped to their lowest level in nearly 30 years during the week ending August 18, and Redfin’s Homebuyer Demand Index—a measure of requests for home tours and other buying services from Redfin agents—was down 7% year over year.”

July turned out to be a fairly unpleasant month for people selling a home and for buyers. Sales continued to fall but home prices ticked higher.

The National Association of Realtors (NAR) reports sales of existing homes declined 2.2% from June. Compared to July 2022, sales fell off a cliff and were down 16.6%.

On a monthly basis, sales were slightly higher in the West but were down in the Northeast, Midwest and South. All four regions registered year-over-year sales declines.

“Two factors are driving current sales activity – inventory availability and mortgage rates,” said NAR Chief Economist Lawrence Yun. “Unfortunately, both have been unfavorable to buyers.”

Buyers with good credit still had to pay close to 7% for a mortgage. Rates have moved beyond 7% in August.

Finding a home to purchase was just as much of a problem. Total inventory was up slightly from June but was down nearly 15% from 12 months earlier.

Inventory levels are keeping prices high

Housing economists say it’s that low inventory number that is keeping home prices elevated. The median existing-home price for all housing types in July was $406,700, an increase of 1.9% from July 2022. Prices rose in the Northeast, Midwest and South but were unchanged in the West.

Single-family home sales slid to a seasonally adjusted annual rate of 3.65 million in July, down 1.9% from 3.72 million in June and 16.3% from the previous year. The median existing single-family home price was $412,300 in July, up 1.6% from July 2022.

“Most homeowners continue to enjoy large wealth gains from recent years with little concern about home price declines,” Yun said. “However, many renters are concerned as they’re facing growing affordability challenges because of high interest rates.”

The exceptions to fast-rising rents can be found in Florida. The CoStar Group reports that a recent wave of apartment construction has shifted the supply and demand balance to renters, causing rents to stabilize, and in some cases fall in Tampa.

For those secretly hoping for a housing market crash to lower prices, that doesn’t appear to be in the cards – at least not in the immediate future. Distressed sales – foreclosures and short sales – represented only 1% of sales in July, virtually unchanged from June and the previous year.

A strong economy with low unemployment is usually a good thing but that combination is helping to push mortgage rates to their highest level in two decades, creating challenges for homebuyers.

Freddie Mac reports the average 30-year fixed-rate mortgage has an interest rate of 7.09% and some housing economists suggest the rate could reach 8%.

That might not have been a problem 20 years ago when the average home sold for less than $250,000. Today, however, many homes sell for well over $400,000.

“The economy continues to do better than expected and the 10-year Treasury yield has moved up, causing mortgage rates to climb,” said Sam Khater, Freddie Mac’s chief economist. “The last time the 30-year fixed-rate mortgage exceeded seven percent was last November. Demand has been impacted by affordability headwinds, but low inventory remains the root cause of stalling home sales.”

Though rates briefly touched 7% a year ago, 7.09% is the highest rate since April 2002. Rates have steadily risen as the Federal Reserve has tightened a key interest rate over the last 18 months to slow inflation.

Eroding affordability

The current mortgage rates are more than double what they were at the end of 2021. Today, people buying a $350,000 home with a 20% down payment would have a mortgage payment of $1,880 a month, compared to $1,159 two years ago.

With fewer consumers able to afford today’s payment, why haven’t home prices fallen?

"There are simply not enough homes for sale," said Lawrence Yun, chief economist for the National Association of Realtors (NAR). "The market can easily absorb a doubling of inventory."

In July, NAR reported the median existing-home price for all housing types was $410,200, the second-highest price of all time and down 0.9% from the record-high of $413,800 in June 2022.

The monthly median price surpassed $400,000 for the third time, joining June 2022 and May 2022 ($408,600). Prices rose in the Northeast and Midwest but softened in the South and West.

A lot of considerations go into buying a home but the cost of financing is a big one, especially if the home is $400,000 to $500,000 or more. With current interest rates, it’s hard to keep the monthly payment within 30% of gross income.

Last week mortgage rates ticked higher, getting closer to 7%. Freddie Mac reported the average 30-year fixed-rate mortgage rate increased to 6.96%. That’s 1.74% higher than a year ago.

Analysts say the increase is the product of a resilient economy with low unemployment and strong wage growth, which historically has kept purchase demand solid.

But if you are a potential buyer, all is not lost. Despite higher interest rates, a monthly payment doesn’t have to be that much higher if you can get the home at a reduced price. And even with reduced inventory, that appears to be happening in many markets.

‘Returning to normal’

"The housing market is returning to normal seasonal patterns, and that's a positive sign for buyers who faced stiff competition this spring," said Zillow senior economist Nicole Bachaud. 

"As summer winds down and kids head back to school, home shopping gets put on the back burner. Traditionally, buyers who remain in the market gain a bit more bargaining power heading into the fall.”

The typical U.S. home value climbed 0.9% from June to July — a rapid pace for this time of year, but slower than the 1.4% growth in the two preceding months. The nation's typical home value is now $349,679, which is 1.4% higher than last July and 46% above pre-pandemic levels in February 2020. 

Austin was the only major market in which home values dipped from June to July, falling 0.5%. The slowest monthly home value growth was in San Antonio, which slowed 0.2%, Denver, which also experienced a 0.2% decline, Birmingham, where growth slowed by 0.3% and Memphis, which also declined 0.3%.

Fannie Mae’s latest housing sentiment survey found a record number of Americans agree that now is a bad time to buy a home. That could mean there will be less competition, and if you need to buy now, it could actually work in your favor.

Just when home prices showed signs of actually going down a bit in some overheated markets, the cost of buying a home has gone up again. Not the purchase price but the monthly payment.

According to Freddie Mac, the average 30-year fixed-rate mortgage has risen to 6.81%, but that’s just the average. Even borrowers with good credit scores are paying north of 7%.

You can blame a robust, resilient U.S. economy. Unemployment is low, the stock market is in rally mode, and the Federal Reserve will most likely keep raising interest rates to combat inflation.

While the Fed’s action doesn’t directly affect mortgage rates, it does indirectly. Because of recent bullish economic data, the yield on the U.S. Treasury’s 10-year bond moved sharply higher since the start of July. Mortgage rates are directly tied to bond rates.

Real estate professionals are quick to point out that, on a historical basis, a 7% mortgage rate is not that unusual. Before the housing market crash in 2008, buyers were routinely paying between 6% and 7%.

The problem is home prices. Fifteen years ago home prices were in the $250,000 ballpark, making for a manageable monthly payment.

Now, home prices are in the $400,000 range, perhaps affordable when the mortgage rate was 3% but more of a burden when it’s 7%. If you need to borrow $400,000, your monthly payment went up nearly $100 in less than a week.

Why prices aren’t going down

If you’re wondering why the combination of high prices and high mortgage rates doesn’t reduce sales to the point that prices have to fall, there’s a simple reason. Because current homeowners with a 3% rate don’t want to trade it for one at 7%, they aren’t moving.

The lack of homes for sale creates competition among the few buyers who can afford a hefty monthly payment. Homes are still selling at these prices but millions of would-be buyers are priced out of the market.

The question is, will continually rising interest rates become a tipping point, finally sending home prices sharply lower? Realtor.com’s revised 2023 outlook expects only a modest drop in home prices of 0.6% for the year. 

“This may not be enough to noticeably bring down costs until the end of the year as inflation and rates start to fall too," said Danielle Hale, chief economist for Realtor.com.

In spite of much higher mortgage rates, home prices have maintained their near-record levels after surging during the pandemic. A new report from Zillow suggests there may be a good reason for that.

There are so few homes on the market that demand still exceeds supply. How much? According to Zillow, the U.S. needs an additional 4.3 million homes to satisfy demand.

"The U.S. housing market is like a high-stakes version of the game musical chairs," said Orphe Divounguy, senior economist at Zillow. "There are simply not enough homes for millions of people. Unless we address the shortage of smaller, more affordable, starter-type homes, we risk leaving families without a seat,  and it will only get worse over time."

Ben Miller, CEO of SimpleNexus, a digital mortgage platform, agrees. He notes that conditions are marginally more promising for buyers as we head into the summer but lack of inventory remains a stiff challenge.

‘Demand has intensified’

 “With fewer homes available for sale, demand has intensified, leading to increased competition among buyers and resulting in bidding wars, an accelerated market pace and less room for negotiations,” Miller told ConsumerAffairs. “The share of all-cash buyers is the highest it’s been in nearly a decade, so buyers planning to use home financing need lenders to be extremely fast and responsive.”

There are two reasons for the shortage of available homes. Builders never regained the pace of home construction they had before the 2008 housing market crash, so the number of households in search of a home has grown much faster than available homes.

Compounding the shortage are current high mortgage rates, more than double what they were 18 months ago. Current homeowners who might like to move up or relocate are staying put, unwilling to trade their 3% mortgage rate for one close to 7%.

Thinking outside the box

Miller says the current situation requires borrowers and lenders to think outside the box and come up with financing solutions that make sense.

“This could include combining incomes with a family member or friend to purchase a home together, renovating a current home to fit future needs, or extending a home search to new areas to find something that makes sense for the buyer’s lifestyle,” he said.

“Considering that mortgage debt carries much lower interest than other forms of debt, consumers with a lot of personal debt who are ready to make a home purchase could even come out ahead on overall monthly expenses by consolidating their debt into a home loan.”

Mortgage rates could fall in the future, but if they did that would probably mean that economic conditions have worsened. Miller says today’s mortgage rates are not that high compared to before 2008, but back then home prices were much lower than they are today so monthly payments were lower.

If rates were to decline by a point or two and home prices declined a bit, it could be enough to improve affordability. Miller thinks that trend could be in place but it might take some time to play out. 

“Buyers should not put off buying a home just because the rates were better two years ago than they are today,” he said.

The spring housing market finally showed up last month. After declines in March and April, sales of existing homes actually increased in May, albeit only slightly.

The National Association of Realtors (NAR) reports home sales edged up by 0.2% in May from the previous month but remained 20% lower than in May 2022. While mortgage rates above 6% may have contributed to the recent slowdown in sales, there is increasing evidence that the lack of available homes also plays a major role.

NAR reports the inventory of unsold homes increased by 3.8% last month, a significant one-month gain, and gave buyers more options. But inventory levels are still near all-time lows.

Greg McClure, president and broker at Realty ONE Group in Sacramento, says his local market is doing well but would do better with more listings.

“Sales are trending up, home prices are trending up but inventory will remain an issue through the rest of the year,” McClure recently told ConsumerAffairs. “The lack of inventory will continue to hold the market back. With interest rates expected to stabilize and more buyers entering the market we will find ourselves in a micro situation of 18 months ago with many more buyers than available homes."

More stable mortgage rates

Lawrence Yun, NAR’s chief economist, says there are clear signs that mortgage rates have begun to stabilize.

"Mortgage rates heavily influence the direction of home sales," Yun said. "Relatively steady rates have led to several consecutive months of consistent home sales."

In more good news for prospective homebuyers, NAR reports prices were slightly lower last month. The median existing-home price for all housing types in May was $396,100, a decline of 3.1% from May 2022, when the median price was more than $400,000. Prices grew in the Northeast and Midwest but fell in the South and West.

But in a sign the overall market remains highly competitive, properties typically remained on the market for 18 days in May, down from 22 days in April. Seventy-four percent of homes sold in May were on the market for less than a month.

Housing economists predict renters could find some relief in the coming months because of an increase in multi-family construction. 

The U.S. Census Bureau this week reported a big spike in residential construction starts which include new apartment buildings. Construction starts on apartments increased in May by the largest margin since 1985.

It comes at a good time for renters, especially those in the most expensive markets. A ConsumerAffairs study published last month identified markets where renters are feeling the most pain, as well as cities where rents are most affordable.

Researchers found that North Dakota, South Dakota, and Iowa are the best states for renters while California, Massachusetts and Nevada are the worst.

Real estate site Real Estate Witch recently listed the seven most expensive cities in which to rent a home and the percentage the cost has risen over the last 12 years.

1. San Jose (85%)

2. Denver (82%)

3. Seattle (81%)

4. Portland, Ore. (72%)

5. San Francisco (71%)

6. Nashville (62%)

7. Austin (60%)

Lots of good jobs

What these cities have in common is a fast-growing population and an abundance of high-paying jobs. San Jose and San Francisco are in the heart of Silicon Valley and have some of the most expensive homes in the nation. Nashville and Austin experienced growth spurts during the pandemic.

What puts additional pressure on renters is the fact that rent tends to go up on a regular basis and it also tends to increase faster than incomes. Personal finance advisers say renters should pay no more than 30% of their monthly income on rent, but in the most expensive cities that’s the exception, not the rule.

However, there are a handful of cities where the rent-to-income ratio is below 30%.

1. Miami (28%)
2. Los Angeles (25%)
3. Orlando (25%)
4. San Diego (25%)
5. Riverside, Calif. (24%)
6. Tampa (24%)
7. Las Vegas (23%)
8. New Orleans (22%)
9. New York (21%)

Low-income renters are getting squeezed

But rents remain high just about everywhere. According to a recent Zillow study, the Housing Choice Voucher program, also known as Section 8, cannot keep up with demand from low-income families in most American cities.

“Renters across the country are struggling as costs have skyrocketed and vouchers have failed to keep up," said Orphe Divounguy, senior economist at Zillow. "Better calculating for voucher values and more funding are good short-term solutions, but building more homes is the long-term answer."

Zillow research found there was not a single large metro area with enough vouchers to meet demand. Across the country, there were nearly 10 times as many eligible voucher recipients as there were vouchers. In addition, there were nearly four times more severely cost-burdened households than voucher recipients.

Photo (c) d3sign - Getty Images

Home equity for the average homeowner with a mortgage declined in the first quarter for the first time since 2012. But the decline was far from a market “crash” many predicted – and some hoped for – in 2022.

A report from CoreLogic, a property information firm, found the average U.S. home lost about $5,400 in the first quarter of this year, compared to the same quarter in 2022. That leaves the average homeowner with about $274,000 in equity.

Of course, that’s just the average. Depending on where you live your equity situation could be quite different.

For example, average home equity declined by $74,000 in Washington State and $60,000 in California. In fact, most western states that saw big increases in home values during the pandemic saw prices fall the most.

At the same time, homeowners in some other areas of the country saw their homes increase in value. Home equity rose $25,000 in Florida, $24,000 in Rhode Island and $23,000 in Maine. CoreLogic provided this map showing states where homeowners lost equity and others gained.

“Home equity trends closely follow home price changes,” said CoreLogic Chief Economist Selma Hepp. “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.”

Hepp says many people who purchased homes last year have gained no equity in the last 12 months but she expects that to change as home prices continue to rise again, albeit at a much slower pace.

Hepp also notes that a lot of homeowner’s equity was gained during the pandemic. Before the pandemic, she says the average homeowner had about $182,000 in home equity.

A few homeowners have negative equity, meaning they owe more on their mortgage than the home is worth. While that was a big problem contributing to the 2008 housing market crash, it’s much less of a concern now.

CoreLogic reports that from the fourth quarter of 2022 to the first quarter of 2023, the total number of mortgaged homes in negative equity was unchanged, remaining at 1.2 million homes or 2.1% of all mortgaged properties.

Make no mistake, putting a roof over your head is an expensive proposition, whether you’re buying or renting. But lately, the scales appear to be tipping toward renting.

Industry data show new lease rent rose slightly less than 2% on an annual basis in May. Compare that to the two previous years when rents skyrocketed by 25%. 

In a recent study, real estate brokerage Redfin found that there are only four major U.S. housing markets where it’s cheaper to own a home than to rent one – Detroit, Philadelphia, Cleveland, and Houston. Nationally, renting is 25% cheaper than buying.

Redfin analyzed prices for single-family homes, condos/co-ops and townhouses in the 50 largest U.S. metros. Researchers estimated what a homebuyer’s monthly housing payment would be on those properties using the estimate of the homes’ value in March and a 6.5% mortgage interest rate—the average rate in March. 

Then, researchers estimated what the monthly rent would be on those same homes using the Redfin Rental Estimate. On the purchase side of the equation, researchers assumed a 5% down payment, a homeowner’s insurance rate equal to 0.5% of the purchase price, and 1.25% annual property-tax rate if no tax records were available. 

‘Buying often makes sense’

“Buying a home often makes more financial sense than renting if you can afford a down payment and monthly mortgage because you’re building equity,” said Redfin Deputy Chief Economist Taylor Marr. “When you own your home, your home pays you; when you rent, you and your home pay your landlord.” 

That has always been the popular assumption and may be one reason so many people want to own their homes. But Marr acknowledges that in this environment, buying isn’t a feasible option for everyone.

Some personal finance experts say that renting a home, in many cases, is a better option when it comes to building wealth. While it’s true that home values are likely to increase over time, it’s not always the case, and millions of homeowners discovered during the 2008 housing market crash.

‘Opportunity cost’

The money required as a down payment on a home can be viewed as an “opportunity cost,” meaning it could have been invested in other ways than to purchase a home. 

For now, the monthly cost of owning a home is rising much faster than rents. According to Redfin’s study, mortgage rates would have to plunge to even the playing field.

Even if the 30-year-fixed mortgage rate dropped to 5%, Redfin says the median estimated monthly mortgage payment for homebuyers would be $2,993, or 10% higher than the $2,716 median estimated monthly rent. 

Today, Redfin puts the estimated national monthly mortgage payment $3,385, compared to a national average rent of $2,715.

The cost of putting a roof over your head continues to rise, whether you buy or rent. But lately, more people are embracing the renting lifestyle because the monthly cost of owning is much higher than it once was, thanks to higher mortgage rates.

But just like buying a home, the cost of renting one can vary widely depending on where you live. A new ConsumerAffairs study found that the best places to rent are in the Midwest. The worst places to rent are mostly on the east and west coasts.

Specifically, North Dakota, South Dakota and Iowa are the best states for renters. California, Massachusetts and Nevada are the worst states for renters.

The highest median rent is in Hawaii, at $1,774 a month. The lowest median rent can be found in West Virginia, at $770.

The lists

Here are the 10 best states for renters, ranked in order:

1. North Dakota

2. South Dakota

3. Iowa

4. Kansas

5. Alabama

6. Minnesota

7. Indiana

8. Wisconsin

9. Missouri

10. Oklahoma

Here are the 10 worst states for renters, ranked in order:

1. California

2. Massachusetts

3. Nevada

4. Hawaii

5. New York

6. Louisiana

7. Florida

8. Connecticut

9. Alaska 

10. New Jersey

Rents have gone up just about everywhere over the last couple of years but the 10 best states all have something going for them - a relatively low cost of living. They all have a lower percentage of household income going toward rent. Not only is the rent less, but utility bills are also typically lower in these states.

North Dakota offers the lowest rent-to-income ratio in the U.S. The state’s median overall rent is $853, which accounts for about a quarter (25.1%) of residents’ monthly household income. The state has one of the lowest unemployment rates (2.1%), which is good for its residents’ job security.

Not so great

On the flip side, California has some definite drawbacks when it comes to affordable housing.

“One is that landlords can charge more since there is a great demand,” Joy Aumann, founder of LuxurySoCalRealty, told us. “The price of developing new housing is rising, and tenants are forced to pay these fees. There is simply not enough housing in some locations due to a housing shortage.”

Other states on the “worst list” have similar issues. In Massachusetts, demand for apartments exceeds supply so there are fewer vacancies. When you find one, it costs more.

In Nevada, the high cost of rent is coupled with higher-than-average electric bills. Not only is the rate higher but residents tend to use a lot of electricity to keep cool in the desert heat.

Single-family existing-home sales prices climbed in approximately 70% of measured metro areas – 152 of 221 – in the first quarter of this year, according to the National Association of Realtors. The national median single-family existing-home price declined 0.2% from one year ago to $371,200.

But those numbers cover the nation as a whole. Individual markets can differ, based on a number of factors. ConsumerAffairs has done a deep-dive into six U.S. housing markets – and one in Canada – to see how individual markets are faring. Here’s what we found:

Sacramento

California markets experienced some of the most rapid price appreciation in the nation in 2020 and 2021 so you would expect prices to fall the most in those cities. In Sacramento, that hasn’t happened.

Adam Littlefield, senior vice president of Real Estate Operations at Investment.com, reports that in the Sacramento metro area over the last six months, from November 2022 to May 2023, sales are down but prices aren’t.

“We have seen a significant decline in the number of single-family homes for sale, dropping 43% in that time,” Littlefield told ConsumerAffairs. “Prices continue to remain high in this area despite high interest rates. Over the last six months, we have seen the sold price range between 93% - 98% of the original listing price. However, this has dropped from the previous year to date where we were seeing sold prices over original list prices.”

"In the Greater Sacramento, Calif., area market we continue to struggle with low inventory,” said Greg McClure, a Realtor with Realty ONE Group Complete. “Over the last six months, the amount of available inventory went from low to even lower.”

McClure says high interest rates appear to be affecting sellers – who don’t want to give up their current low interest rates – as much as buyers.

South Florida

South Florida is another market where real estate experts predicted a significant price adjustment. Again, that has yet to materialize.

That may be because there aren't that many homes for sale. Desiree Avila, a Realtor whose territory includes Broward County, says active listings have fallen more than 21% in the last six months.

"The median sale price of single-family homes is up from $540,000 in October 2022 to $565,000 in March 2023, an increase of 4.6%,” Avila told us. “In short, overall active listings are down, sales are up and prices continue to rise.”

South Florida’s real estate market has its own particular character because of several highly desirable characteristics, and Avila says that should help it to outperform many other markets in the nation. So far, the market appears unfazed by interest rates.

“Over the next six months, barring another big event like the pandemic, I believe the market here will continue to be resilient,” Avila said.

Philadelphia

In Philadelphia, it’s still a seller’s market but not to the extent it was a year ago. Rinal Patel, the founder of Webuyphillyhome, says conditions have softened enough that buyers aren’t completely shut out.

“Inventory has increased since February enabling the housing market to return to normal since last year,” Patel said. 

But she notes homes are sitting on the market for longer periods of time, making the market feel “sluggish.” Over the next six months, she doesn’t anticipate any abrupt changes to the status quo.

“There should only be a slight increase or decrease in price, or prices may even remain the same,” she said. “However, all these are dependent on the condition that the demand and supply of houses remain as it is. I perceive things are more likely to remain steady – as steady as we have experienced in the past few months – over the next six months.

Atlanta

Atlanta is a southern real estate market that benefitted from an influx of new residents during the pandemic. But even with higher interest rates, homes have maintained their values for the most part, largely because there just aren’t that many homes for sale.

“In the past six months, the number of homes available for sale in the Greater Metro Atlanta area has decreased, which is atypical during the spring market, typically a time when the most new listings are seen,” said Todd Emerson, general manager of Harry Norman Realtors in Atlanta. The current number of homes for sale is approximately 13,500 compared to 18,000 six months ago.”

Emerson attributes the decline to the volatility of interest rates and the "lock-in" effect it has had on current homeowners. 

“Specifically, 83% of homes with mortgages have rates below 5%, and potential sellers may be hesitant to list their homes due to the prospect of purchasing a new home with a higher interest rate,” he said.

Over the next six months, Emerson expects an increase in inventory, especially if mortgage rates decline. But he notes there is currently only a two-months supply of homes on the market so the market could remain out of balance well into 2024.

Austin

Austin’s population grew rapidly during and after the pandemic, pushing up home prices. But unlike the other markets in our report, the market is not suffering from a lack of available homes for sale. Jasen Edwards, chair of the Agent Editorial Board in Austin, tells us the market is still very active.

“Over the last six months, prices have climbed by around 5% while inventory has increased by about 20%,” Edwards told ConsumerAffairs.

As for the next six months, Edwards expects Austin home prices to continue to rise, even as supply and demand continue to maintain their balance.

Apartments

Christopher Stout is principal at StoutCap, which invests in multifamily residential projects across the U.S. He tells us apartment building inventory has completely disappeared.

“Recently, we have found that our opportunity to buy has been frozen due to the rapid rise in interest rates over the last nine months,” Stout said. “We have recently purchased in North Carolina, and are now buying in Northwest Arkansas. These are wonderful markets to do business in, but deals do not come along often.”

Stout says he expects the multifamily market to “thaw” in the next six months, especially as builders continue their pace of adding new construction.

Ontario

For some international perspective on housing market trends, ConsumerAffairs went north of the border to check out market conditions in  Kitchener/Waterloo, Ontario.

Ayesha Rehan is a partner at Ontario Property Buyers. She tells us there is growing confidence in Canada that rates will soon start coming down, probably before that begins to happen in the U.S.

“This has started to create a lot more buyer confidence in potential future rate cuts, resulting in a frenzy of buying activity, and forcing inventory to decline once more,” she said. “We have seen inventory drop from 536 active listings and 284 homes sold in Kitchener/Waterloo for November 2022, to 716 active listings and 611 homes sold in Kitchener/Waterloo for March 2023.”

If the U.S. housing market follows that pattern, a recession in the U.S. that prompts the Federal Reserve to stop raising and begin cutting interest rates could result in more home sales and higher prices since, with lower mortgage rates, homes would be more affordable than they are now.

The National Association of Realtors (NAR) is out with its March existing home sales report and it’s mostly good news for people who want to buy a home. But how good remains to be seen.

Sales of existing homes fell sharply – by 2.4% – in March, mostly because of higher mortgage rates. Compared to March 2022 sales were down 22%. With fewer buyers in the marketplace, there was less competition, meaning it was good for buyers.

With the decline in sales, the median home price also fell. But here, the news wasn’t quite as good. The March median home price was down only 0.9% from a year ago at $375,700.

The third piece of good news for home shoppers was the March inventory level. Even though the supply of available homes remains near all-time lows, the situation improved last month. The inventory of unsold existing homes rose 1% from the prior month to 980,000.

Less competition, lower prices, and more choices. However, those factors are simply the national average. Where home prices went down tended to be markets where homes were, and still are very expensive. Inventory levels and prices may also vary widely, depending on the type of home you’re looking for.

"Home sales are trying to recover and are highly sensitive to changes in mortgage rates," said NAR Chief Economist Lawrence Yun. "Yet, at the same time, multiple offers on starter homes are quite common, implying more supply is needed to fully satisfy demand. It's a unique housing market."

A few more first-time buyers

First-time buyers were responsible for 28% of sales in March, up from 27% in February but down from 30% in March 2022. NAR's 2022 Profile of Home Buyers and Sellers – released in November 2022 – found that the annual share of first-time buyers was 26%, the lowest since NAR began tracking the data.

Despite the decline in home sales and the increase in inventory levels, homes still sold quickly in March. The NAR reports showed homes typically remained on the market for 29 days last month, down from 34 days in February but up from 17 days in March 2022. Sixty-five percent of homes sold in March were on the market for less than a month.

The wild card in this housing market is interest rates. According to Freddie Mac, the average 30-year fixed-rate mortgage was 6.27% as of April 13. One year ago it was 5% but on its way up.

These days, renting an apartment can be an expensive undertaking, and a new report from real estate marketplace Zillow says it’s especially expensive for minorities.

The latest Zillow Consumer Housing Trends Report found the typical Black, Hispanic and Asian American Pacific Islander (AAPI) renter all reported spending $50 per rental application. White renters, meanwhile, reported paying an average of $35. 

The costs add up because the report shows Black and Hispanic renters tend to submit more applications before finding an apartment. Thirty-eight percent fill out and pay for five applications while only 21% of white renters submit five applications.

"Monthly rent prices are nearly the highest they've ever been, and unfortunately for so many people, finding a place to rent comes at an even higher cost," said Manny Garcia, a population scientist at Zillow. "We so often hear about the benefits of renting and the flexibility it offers, but disparities persist, and many renters of color aren't granted the same mobility as others because of higher upfront costs."

Zillow points out that it offers an online application process the company says can save renters money if they are filling out multiple applications. People hoping to rent a home can fill out a single form and use it to apply for any property listed on the platform, all for a flat fee. They can use the form as many times as they like over a 30-day period.

The Fair Housing Act

The Fair Housing Act, passed in 1968, protects people from discrimination when they are renting or buying a home, getting a mortgage, seeking housing assistance, or engaging in other housing-related activities. 

According to the Zillow report, the typical U.S. renter is 39 years old. Compared with the adult population as a whole, renters generally tend to be younger, less likely to identify as white, more likely to have never been married, and, and more likely to identify as LGBTQ+. 

“These trends are especially true for recent renters,” the authors wrote. “Demographic change tends to play out over a long time: Most of these characteristics have not changed substantially, if at all, over the last few years.” 

Homebuyers hoping to purchase a home during the spring housing market are finding it tough sledding. Yes, still-high home prices and mortgage rates that have doubled since 2021 are presenting a challenge.

But added to those issues is a significant drop in available homes to buy. Even after buyers pre-qualify for a mortgage, a new report from Zillow suggests they are finding limited options.

"We know there are a lot of motivated buyers looking for homes. When we see mortgage rates fall, sales pick up," said Skylar Olsen, Zillow's chief economist. "But buyers are disappointed in their options. Homeowners aren't giving up their current house and low monthly payments to join a tight, expensive market. Meanwhile, volatility in the economy makes planning extremely difficult." 

February is typically the month that home listings begin to rise in anticipation of the spring market. That didn’t happen this year, Olsen says.

In fact, the addition of new listings in February fell to a record low for late winter, nearly a third lower than before the pandemic and 22% lower than last year. Zillow suggests that mortgage rates are likely driving the decline. If a homeowner has a 3.5% mortgage rate they aren’t selling their home and taking out a 6.5% mortgage on a new place to live unless they absolutely have to.

A return of bidding wars?

And this shortage of listings is contributing to yet another buyer frustration. Lawrence Yun, chief economist at the National Association of Realtors (NAR), says when there are more buyers than sellers, it will likely lead to a return of bidding wars that were common during the pandemic.

"Inventory levels are still at historic lows," Yun said. "Consequently, multiple offers are returning on a good number of properties."

When there are multiple offers on a property the house usually sells for more than the asking price, keeping home prices elevated. According to Fortune Magazine, the housing market correction that began late last year may be losing steam, confronting buyers with both higher prices and steep mortgage rates.

More people are renting apartments because they can’t afford to buy homes with sky-high mortgage rates. But the good news is, apartments appear to be plentiful and rising rents have slowed considerably.

Apartment List’s latest National Rent Report shows the national average apartment rent in March was up 2.6% from March 2022, the smallest annual increase since April 2021. The growth in rents is now slightly less than before the pandemic.

Even though more people are renting instead of buying, new apartments continue to come on the market. With new home sales stalled, many builders have shifted to building apartment complexes.

That has actually increased the number of apartment vacancies, taking pressure off of rents. Nearly 1 million units were under construction at the end of last year, the most since the early 1970s. Industry sources say the building boom will increase available apartments by nearly 5%.

“Even as rent growth has turned positive again, we continue to see easing on the supply side of the market,” the report’s authors wrote. “Our vacancy index currently stands at 6.6%, which now puts it back in line with the average pre-pandemic rate. With a record number of multi-family apartment units currently under construction, we expect that supply constraints will continue to soften.”

Landlords may have to compete for renters

The report says 2023 could be the first time since the early stages of the pandemic that apartment owners will have to compete for renters, rather than the other way around. It’s already happening in a number of expensive housing markets.

Average annual rents are down 5.4% in Scottsdale, Ariz. The average rent is down 4.1% in Mesa, Ariz., and has fallen 4% in Los Vegas.

Those markets had a lot of room to fall since rents there had grown rapidly since 2020. On the flip side, cheaper rental markets have gotten more expensive.  

Rents have risen by at least 6% over the last year in Boston, Chicago, Cincinnati, Indianapolis and Louisville.

The U.S. Department of Housing and Urban Development (HUD) has proposed a rule to restore a fair housing doctrine designed to prevent discrimination when it comes to purchasing a home. The action would rescind a Trump-era rule that changed how HUD applies the Fair Housing Act.

HUD officials say the original interpretation of the Act, applied a decade ago, is more consistent with lawmakers’ intentions. They say the law’s broad purpose is to eliminate unnecessary discriminatory practices from the housing market.

"Discrimination in housing continues today and individuals, including people of color and people with disabilities, continue to be denied equal access to rental housing and homeownership," said HUD Secretary Marcia Fudge. “Today’s rule brings us one step closer to ensuring fair housing is a reality for all in this country.”

The rule published in the Congressional Record would essentially reestablish “the discriminatory effects doctrine” that gives consumers a tool for addressing policies that “unnecessarily cause systemic inequality in housing, regardless of whether they were adopted with discriminatory intent.”

Used to challenge zoning requirements

In the past, the doctrine has been used to challenge policies that had the effect of excluding people from housing opportunities. For example, the doctrine has been used to challenge zoning requirements, lending and property insurance policies, and criminal records policies. 

Under the 2013 rule, the discriminatory effects framework was fairly straightforward. If a housing policy had a discriminatory effect on a protected class it was considered a violation of the law, even if there was no intent to discriminate. 

HUD officials said the 2020 rule complicated that analysis by adding new pleading requirements, new proof requirements, and new defenses, all of which made it more difficult to establish that a policy violates the Fair Housing Act and harder for entities regulated by the Fair Housing Act to assess whether their policies were lawful. 

Fears of bank failures after the collapse of Silicon Valley Bank have had an unexpected – and for homebuyers – a positive result. It’s just gotten a little easier to buy a home.

Mortgage rates reaching 7% late last year eroded affordability for millions of people who would like to purchase a home. But in recent days mortgage rates have dropped, and it can all be traced to investor worries about banks.

The fear that more banks could be at risk and drag down the economy has caused investors to sell stocks and put their money into U.S. Treasury bonds. Not only are the bonds backed by the full faith and credit of the U.S. government, but many bonds are also paying over 4%.

So how does that help homebuyers? Because the more money flowing into the 10-year Treasury note, the lower the interest rate the government has to pay investors. And because mortgage rates are keyed to the 10-year bond, when the 10-year yield goes down, so do mortgage rates.

Rates are falling

Earlier this week, Mortgage Daily News reported the average 30-year fixed-rate mortgage had fallen from 6.76% last Friday to 6.57%. A day later Credible, another interest rate monitor, reported the average mortgage rate had fallen to 6%, saving a new buyer well over $100 a month on the median-priced home.

As you might expect, that’s causing more people to apply for mortgages. The Mortgage Bankers Association (MBA) reports applications increased by 6.5% last week from the previous week. There were even more borrowers refinancing their mortgages.

“Treasury yields declined late last week, as market concerns over bank closures and the potential for broader ripple effects triggered a flight to safety in Treasury bonds,” said Joel Kan, MBA’s vice president and deputy chief economist. “This decline pushed mortgage rates for all loan types lower, with the 30-year fixed rate decreasing to 6.71 percent.” 

But what about home prices?

While interest rates are coming down, home prices remain high. But the latest evidence suggests that situation is improving as well, at least among the most expensive homes.

According to Zillow, the number of U.S. cities where the typical home costs $1 million or more has declined from last summer’s peak. Fifty-eight markets that were in that exclusive club in July no longer are.

But even buyers in less-expensive housing markets are seeing some relief. The typical U.S. home is worth 4.1% less than it was last July, according to the Zillow Home Value Index. In current million-dollar cities, the typical home has lost 6.3% of its value during that time, on average.

Late last week the average 30-year fixed-rate mortgage interest rate rose past 7% for the first time since October, according to Mortgage News Daily. Though slightly below that now, higher mortgage rates can be expected to present challenges for home buyers since home prices are still at elevated levels.

The one bright spot for buyers is a new report from real estate brokerage Redfin, showing the national median home price has fallen for the first time since 2012. But the decline is only 0.6%, the result of last fall's surge in mortgage rates.  Redfin Deputy Chief Economist Taylor Marr says it's no surprise.

"Home prices skyrocketed so much over the last few years that they were likely to come down once rates rose from historic lows," Marr said. "Mortgage rates rising to the 7% range was the straw that broke the camel’s back, dampening homebuying demand and leading to sellers asking less for their home.”

The average mortgage rate is now almost a full point above where it was in early January when market analysts held out hope that the spring homebuying season would offer better opportunities for buyers. Should rates remain elevated, or move higher, affordability could continue to be an issue.

But would that mean home sales would “crash,” as a few pundits have predicted? Probably not. Even in San Francisco, one of the housing markets where home prices have fallen the most in recent months, homes are still selling.

Ying He, a Realtor with Barb Co Real Estate, has seen little change in demand for the city’s median-priced single-family homes that sell well above $1 million. In fact, she says there is still a shortage of these homes for sale.

“Multiple bids and hundreds of thousands of dollars above asking are still happening,” she told ConsumerAffairs. “There are still lots of qualified buyers out there”

Condos are cooling

Condos are another story, however. He says condos are still sitting on the market for longer and sales should be even slower if mortgage rates continue to rise.

“They will sell at the right price but that might take some time before supply and demand balance out,” she said.

Less expensive markets in the South and Midwest may be most affected by the rise in mortgage rates. Home prices in these cities are still rising and unless there is an abundance of high-wage jobs, fewer buyers may be able to afford them. 

Here’s why: if you are buying a home that costs $400,000 and making a 20% down payment, that average 30-year fixed-rate mortgage will cost around $230 more a month than it would have in early February.

Compared to 12 months ago, before rates took off, today's monthly payment is about 50% more.

The housing market has shown new strength lately. Mortgage rates are down and mortgage applications are up.

But one real estate industry expert tells ConsumerAffairs that conditions are about to get even better for people who have been priced out of the housing market over the last year. Aaron Wagner, CEO of Development at Axia Partners and founder and managing partner at Wags Capital, predicts home prices are about to undergo a dramatic reset.

“Higher interest rates changed everything,” Wagner told ConsumerAffairs. “Some of these people who could have afforded a $700,000 home when rates were low might now barely be able to afford a $250,000 condo.”

Wagner doesn’t expect some type of systemic event like the 2008 housing market crash but he does expect similar home price declines. As long as mortgage rates remain above 6% he says there will simply not be enough buyers to absorb the inventory of new and existing homes.

Where the opportunities will be

Wagner says some of the best opportunities will be in commercial real estate but he says small residential investors and people who want to purchase a home to live in will also see lower prices. It’s simple economics, he says. It was abnormally-low interest rates for 10 years that allowed home prices to hit record highs.

“As the good terms (low interest rates) go away then home values are going to sink,” Wagner said. “If prices are high and terms are high, nobody can buy. What that will do is force a softening of pricing.”

The million-dollar question, of course, is exactly when this is going to happen. Wagner expects the process to begin in the second quarter of this year. By the third and fourth quarters, he says buyers will regain a lot of their leverage.

“When these prices soften I think that’s when there’s going to be an opportunity for investors and for homebuyers – regular everyday people,” he said.

Photo (c) Andrii Yalanskyi - Getty Images

Mortgage interest rates continue to fall and the housing market, left for dead a few months ago, is showing signs of life.

The Mortgage Bankers Association (MBA) reported this week that mortgage applications rose 7.4% last week from the week before. Some of those applications were to refinance an existing mortgage but the combined increase suggests buyers are beginning to return, just ahead of the spring housing market.

Joel Kan, MBA’s vice president and deputy chief economist, says the continued decline in mortgage rates is a key factor.

“Applications rose last week as the 30-year fixed mortgage rate inched lower to 6.18%, its fifth consecutive weekly decline,” Kan said. “The 30-year fixed rate is almost a percentage point below its recent high of 7.16% in October 2022.” 

One point makes a big difference

One percentage point makes a big difference in the monthly payment, especially on a loan of hundreds of thousands of dollars. Last year, the combination of record-high home prices and a doubling of mortgage rates priced millions of people out of the housing market. Kan says many of those consumers still want to become homeowners.

“Purchase activity that was put on hold last year due to the quick runup in rates is gradually coming back as rates ease and housing demand remains strong, driven by supportive demographics and the ongoing strength in the job market,” he said.

However, the return of buyers to the housing market could limit how much home prices will moderate over the rest of the year. A ConsumerAffairs study, published last summer, showed many people not only expected a housing market “crash,” but were also hoping for one so they could buy homes at a lower price.

More expensive homes

Just a 1% decline in the average mortgage rate has not only drawn more buyers back into the market, Kan says they are able to afford more expensive homes – not good news for those waiting for prices to fall.

“The average loan size on a purchase application increased to $428,500 – the largest average since May 2022,” Kan said. “This increase is a sign that the recent upward trend in purchase activity remains skewed toward larger loan sizes and less first-time homebuyer activity, as entry-level housing remains undersupplied, and buyers struggle with affordability in many markets.”

According to the National Association of Realtors (NAR), pending home sales increased in December for the first time since May – another sign that purchase activity is rising. While sales fell 6.5% in the Northeast, they rose 6.1% in the South, where prices tend to be lower.

NAR Chief Economist Lawrence Yun says mortgage rates will likely level off in the 5.5% to 6.5% range later this year, improving home affordability for some, if only slightly.

The Federal Communications Commission (FCC) has been quiet lately, but it’s a new year and the agency’s Robocall Response Team is taking off its gloves again.

After receiving nearly 1,500 unwanted call complaints related to mortgages from consumers in 2022, the agency has announced actions to shut down what it calls a homeowner-focused robocall scam campaign involving Florida-based real estate brokerage firm MV Realty.  

The FCC’s Enforcement Bureau has demanded telecommunications companies "do whatever is necessary" to put a stop to suspected illegal traffic from dialing platform PhoneBurner and voice service provider Twilio that it feels is allowing illegal robocall traffic from MV Realty to get through to targeted consumers.  

State attorneys general are stepping up to add some muscle to the FCC’s efforts, too. In Pennsylvania, Florida, and Massachusetts, state AGs recently filed lawsuits alleging that MV Realty misled consumers specifically about the terms of the company’s so-called Homeowner Benefit Program, and that the company went even further by obtaining mortgages on consumers’ homes without their knowledge. 

Florida Attorney General Ashley Moody laid out the case against MV Realty. 

"The defendants offer homeowners $300 to $5,000 as a cash loan alternative in exchange for an agreement to use the company as an exclusive listing broker," Moody said.

"However, after accepting the payment, homeowners discover that MV Realty files a 40-year lien on the property that requires paying 3% of the value of the home to MV Realty, regardless of whether the company ever provides any real estate listing services.

ConsumerAffairs reached out to MV Realty for comment but did not immediately receive a response. However, on the Better Business Bureau website, the company has defended itself against most complaints.

When one homeowner complained that the company placed a lien on his property, the company said it did no such thing.

"I want to make clear, MV Realty does not put a lien on your home," the company wrote. "We file a memorandum. The purpose of the memorandum is to serve public notice of the homeowner's obligations under the *** agreement. The only time a lien is placed on a home is if the homeowner has violated the contract and has listed the home with another realty company instead of giving MV Realty the first opportunity to sell the home. This was made clear in your agreement signed and notarized, as well as the leave behind signed and left with you."

In a November 2022 statement to the media, MV Realty denied that it cold-called prospects.

Do you know what a mortgage relief scam looks like?

Meanwhile, the Federal Trade Commission (FTC) is warning distressed homeowners to be mindful of warning signs of a mortgage relief scam. The two most common are if a scammer demands payment upfront before the consumer gets any services. That’s illegal — and a warning sign to avoid them, the agency said.

The other money-oriented telltale sign is if someone demands that they be paid only by cashier’s check, wire transfer, or a mobile payment app. Scammers like victims to pay this way because it’s hard for them to get their money back.

Another “poof, it’s gone” angle is if a scammer tries to convince a person to transfer the deed to their home to the scammer. Again, once that’s done, you can kiss that ownership goodbye, too. 

Consumers may be getting tired of hearing this, but the FCC took extra time in its announcement to advise consumers who receive unwanted or suspicious calls to be careful and do these eight things:

1. Don’t answer calls from unknown numbers;

2. Be aware that spoofing can make scam calls appear to be local and/or from a trusted institution;

3. Don’t provide any personal or financial information – including mortgage or home ownership information – to unknown callers;

4. Remember that legitimate callers will generally not use pressure tactics or demand immediate payment;

5. Only contact your bank or financial institution using their legitimate contact info from their website or a bill rather than trusting that the unknown caller is calling from that institution;

6. Talk to friends and family who might be targeted so they understand how to protect themselves from scam robocallers;

7. File a complaint with the FCC at www.fcc.gov/complaints; and

8. Contact law enforcement if you have been the victim of a scam.

UPDATE: In an email to ConsumerAffairs, Twilio confirmed that it has blocked the accounts in question -- PhoneBurner and MV Realty -- from its network indefinitely. 

After mortgage interest rates more than doubled last year, some people predicted a housing market “crash.” In fact, a ConsumerAffairs study in August found a significant number of people not only predicted a crash, but hoped for one so they could afford to buy a home.

For those folks, there’s good news and bad news. The bad news is that a market crash, like the one at the beginning of the financial crisis, is unlikely. But if you have your sights set on four particular markets, you just might get your wish.

In a note to investors, obtained by the New York Post, analysts at Goldman Sachs predicted four U.S. housing markets could experience a crash similar to the one that sent home values plunging in 2008.

The investment bank singled out San Jose, Austin, Phoenix and San Diego as the markets where home values could drop more than 25%. In the 2008 crash, average home values in the U.S. fell by 27%.

“Our 2023 revised forecast primarily reflects our view that interest rates will remain at elevated levels longer than currently priced in, with 10-year Treasury yields peaking in 2023 Q3,” the analysts wrote. “As a result, we are raising our forecast for the 30-year fixed mortgage rate to 6.5% for year-end 2023, representing a 30 basis point increase from our prior expectation.” 

A common factor

The four markets all have one thing in common. They are already among the most expensive in the nation. In fact, San Jose is number one. So while prices may plunge from their record highs, that doesn’t exactly make them affordable for the average buyer.

When we recently polled real estate experts about the status of once-hot markets, the results were mixed. Ari Rastegar, the CEO of the Rastegar Property Company, told us Austin may have cooled but is still pretty hot. But Jasen Edwards, chair of the Agent Editorial Board, says he has seen some sharp declines. 

“The median home price in Austin has dropped by 3.7% but still reached a new all-time high of $503,000 in December 2022,” Edwards told ConsumerAffairs. “Austin home sales have declined 18.3% compared to the same period last year.”

As for the national real estate market, Golden Sachs analysts see only a mild correction. 

“This [national] decline should be small enough as to avoid broad mortgage credit stress, with a sharp increase in foreclosures nationwide seeming unlikely,” the analysts wrote. 

The U.S. housing market started 2023 in a much different place than it did in 2022. Then, home prices were reaching record highs and 3% mortgage rates made them affordable.

Now, mortgage rates are over 6% and home sales have fallen for 11 months in a row. In some markets, prices have fallen but on average, the National Association of Realtors (NAR) reports the median home price went up in December.

To get a gauge of the housing market, you have to look at individual cities and look at prices, time on the market, and how many sellers are cutting the price. We consulted experts with insight into these five markets:

• San Francisco

• Austin

• Nashville

• Richmond

• Milwaukee

San Francisco, Austin and Nashville were three of the nation’s hottest housing markets in 2021. Richmond and Milwaukee saw mostly moderate gains in comparison. So where are they now?

San Francisco

Ying He, a Realtor with Barb Co in San Francisco, says the market is facing a “high degree of uncertainty,” in part because of its dependence on Big Tech. She says the recent round of layoffs has hurt buyers’ confidence in the market. But the market has actually gone from overheated to more balanced.

“We had a market correction in the second half of 2022,” He told ConsumerAffairs. “My analysis says by the end of the year, the prices were down about 15% from the peak in spring 2022. Since the New Year, there has been very little inventory on the market. So far in 2023, it looks like we will have low inventories, more moderated prices, and far fewer bidding wars.”

Alex Capozzolo, the co-founder of Brotherly Love Real Estate, agrees that sales have slowed in the San Francisco metro in the last few months and prices have come down by double-digits. Still, he says the median home value in the market is north of $1.5 million while rents have moderated.

“Overall, despite the city's high cost of living rental properties seem to be more viable and could remain so for the foreseeable future,” he told us.

Austin

Ari Rastegar, the CEO of the Rastegar Property Company, says Austin is one market that, while perhaps not still on fire, is still pretty hot. He says the presence of two tech giants, Apple and Tesla, is still driving growth.

“So, we're seeing prices begin to come up again, rents on apartments begin to grow again and I think that whatever you see improving on a national level, in Austin it'll be wildly exaggerated in a positive sense as well, and Tesla and Apple really tell that whole story," he said.

Jasen Edwards, chair of the Agent Editorial Board, has a more cautious view of the Austin market. He expects the market will continue to shift toward buyers this year.

“The median home price in Austin has dropped by 3.7% but still reached a new all-time high of $503,000 in December 2022,” Edwards told ConsumerAffairs. “Austin home sales have declined 18.3% compared to the same period last year.”

But he concedes that may simply lead to a more stable market in 2023, with an increase in available homes for sale.

Nashville

The Nashville housing market was already growing before the Covid pandemic hit. In 2020 and 2021 it was among the nation’s hottest. Joe Hafner, a broker and owner of Hafner Real Estate in Nashville, sent us some interesting data.

In the second half of 2022, closed sales were down 26% compared to 2021, with year-over-year drops of 40% in November and 38% in December. Normally, prices would decline as well, but Hafner said that didn’t happen.

“In the same July to December time window, the median sales price per square foot has actually gone up 14%, including year-over-year rises of 8% in November and 10% in December,” Hafner told us. “Days on the market (DOM) have also been on the rise, averaging 23 days in November 2022 vs. 11 days in November 2021 and 25 days in December 2022 vs. 12 days in December 2021. All of those numbers remain well below the traditional average of 60-90 DOM.”

Richmond

When markets like Nashville were booming during the pandemic, Richmond’s housing market was moving at a slower pace. The Virginia Association of Realtors says sales slowed in 2022 but prices haven’t given up much ground.

Shri Ganeshram, CEO of Awning, a firm assisting real estate investors around the U.S., says there are very good reason’s why Virginia’s capital has maintained a steady housing market.

“The area's strong economy, low unemployment rate, and proximity to major cities like Washington, D.C. and Baltimore are attracting more buyers to the market,” he told us.

Milwaukee

Of the five housing markets, Milwaukee may be the one offering buyers the best opportunity. Midwestern markets tend to be less expensive than California and the Sunbelt. Ganeshram says the recovery from the pandemic has been slow but the market regained some stability last year.

“However, the market still faces challenges from a high unemployment rate and a limited number of affordable housing options,” he said.

That said, money buys more house in Milwaukee. According to Redfin, the median home price in the market last year was $167,000 – 1.5% below 2021 and well below the national average.

Photo (c) Andrii Yalanskyi - Getty Images

Thanks to a significant drop in the 10-year Treasury bond yield, the average mortgage rate also fell over the last seven days, making a home mortgage slightly more affordable.

The Mortgage Bankers Association (MBA) reports the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 6.23% from 6.42%. The rate on more expensive homes is even lower. The average rate on a 30-year fixed-rate mortgage with jumbo loan balances (greater than $726,200) decreased to 6.08%.

The average rate on FHA loans, often used by first-time buyers, dropped 13 basis points in the last week to 6.26%. While those rates are much higher than they were a year ago, they’re down from October’s highs when the rate went over 7%.

If you think that falling rates may be a signal to start house-hunting again, you aren’t alone. MBA says lenders had a busy week.

“Mortgage application activity rebounded strongly in the first full week of January, with both refinance and purchase activity increasing by double-digit percentages compared to last week, which included the New Year’s holiday observance,” said Mike Fratantoni, MBA’s senior vice president and chief economist. 

But despite those gains, Fratantoni says refinance activity remains more than 80% below last year’s pace because anyone considering refinancing their mortgage probably did so last year when rates were around 3%.

Builders are offering rate buy-downs

Still, those interested in buying may find the trend encouraging. If the average mortgage rate falls to 6% it would save a buyer $237 a month on a monthly payment, compared to October’s high.

People buying new homes are finding they can save even more. Many home builders are “buying down” the mortgage rate by as much as 2% to entice buyers. In November, the National Association of Home Builders said a survey of builders showed 59% of builders were offering incentives, a significant increase from September.

Specifically, 25% of builders reported paying buyers’ points, an increase from 13% in September. Twenty-seven percent of builders reported paying mortgage rate buy-downs, an increase from 19% in September.

New home buyers who secure a 2% rate buy-down from their builder would save around $376 a month on a $300,000 mortgage. Builders as well as lenders are optimistic that incentives, coupled with falling rates, will draw some prospective buyers back to the market.

“Mortgage rates are now at their lowest level since September 2022, and about a percentage point below the peak mortgage rate last fall,” Fratantoni said. “As we enter the beginning of the spring buying season, lower mortgage rates and more homes on the market will help affordability for first-time homebuyers.”

Home affordability improved slightly in November, according to the latest Zillow Market Report. The average rent also fell, bringing down the cost of shelter.

However, buying a home still remains a challenge. Even though prices have retreated from their record highs in some markets, they remain well above pre-pandemic prices.

Still, the improvement is welcome for people hoping to purchase a home. As previously reported, the average 30-year fixed-rate mortgage in November dropped from over 7% to around 6.5%. Zillow said that decline reduced the average cost of a mortgage by nearly 5%.

While home prices remain stubbornly high in some markets they are falling in others. Zillow put the value of the average home at $357,733, 0.2% less than in October and down 0.5% from June’s peak.

Combined with the drop in mortgage rates, lower home prices brought down the average monthly house payment for the first time since July. Industry experts say it’s unlikely there will be a big increase in affordability anytime soon but the latest trend, caused by a huge drop in demand, is a positive sign.

"The housing market entered a deep freeze this November as buyers paused their purchasing plans, likely till after New Year's in many cases," said Zillow’s senior economist Jeff Tucker. "The two big questions are whether mortgage rates will continue to decline and whether that will be enough to bring buyers back in time for the spring selling season. In the meantime, those on the prowl for a house will benefit from motivated sellers, unusual bargains and a welcome lack of competition."

Expensive markets saw the biggest declines

Of course, all real estate is local. While the national drop in average home values has been small, the nation’s most expensive markets, and those seeing the biggest increases during the pandemic, have experienced the steepest decline in home value.

The average home price is down 10.6% in San Jose, Calif.; 10.4% in Austin; 9.5%  in San Francisco; and 8.1% in Phoenix.

The positive trend in real estate also extended to the rental market last month. Average rents fell 0.4% from October to November, the largest one-month decline in the seven-year history of the Zillow Observed Rent Index. 

After peaking during the summer, average rents fell 0.1% in October. Zillow says that decisively closes the door on a period of nearly two years of above-average monthly rent increases that began in the first year of the pandemic.

If you’re moving someplace and need temporary housing or thinking about renting a home or an apartment where you are, proceed with caution. Rental scams are sweeping the U.S.

The number of rental scams has grown more than 60% in the last year, with victims reporting losses of more than $350 million.

This is not your basic confidence scam either. These bad actors realize that people looking to rent want to move fast, so they surgically design their scams to suck in as many potential victims as they can.

In one recent case, WLS-TV reported that a woman’s home in Aurora Ill. was listed for rent without her knowledge or permission, and led to a throng of “renters” showing up on her front stoop trying to get inside. She said some of those had already paid thousands of dollars to rent her home.

Another couple in Austin Texas was so thrilled that they found the perfect place – one that came with a hard-to-find doggy door for their pooch – they wasted no time in sending the deposit and first month's rent. Unfortunately, the scammers wasted no time in taking that $5,200 check and high-tailing it out of town. 

Unfortunately for Zillow, scammers are using the real estate platform to list fake rental properties. Fortunately, however, Zillow has been very proactive in trying to take down fake listings and warn consumers about what telltale signs they should be looking for.

Ask these five questions before renting any place

Zillow says that there are five questions that anyone looking to rent should ask themselves to try and detect whether a property or seller is for real.

1. Does the monthly rent seem too good to be true?

“One clue to a scam is a rental price that’s too low for the neighborhood. If you see an affordable apartment in your dream location and the rent is way below what others are charging, there may be a problem,” the company warns, adding that first-time renters and long-distance movers are more often than not prime targets because the scammer realizes time is of the essence and pushes things like “rare opportunity.”

To avoid the “too good to be true” scam, research rental prices in the area for the size of the unit and amenities you’re looking for. Zillow also suggests using its Rent Zestimate on the listing as a baseline for what you might expect to pay for the rental. 

“If you’re interested in a listing where the rental price is unexpectedly low, ask the property manager or landlord upfront why the rent is so low for the area, and keep copies of all your communication.”

2. Is this listing for real?

Zillow says that if you see the same listing showing up multiple times, but under a different name, that’s a clue it may be a scam. 

Search listings you’re interested in checking out to see if they appear elsewhere online – Craigslist, local rental websites, etc. 

“If the property is listed on major rental listings sites, make sure the listing contains the same contact information, landlord name, address and other high-level details,” Zillow suggests.

3. How does the rental agent want to be paid?

If a rental agent, landlord or property manager wants to be paid in cash, head for the hills with that money tucked in your pocket. If they ask that the money be wired? Don’t do it. Money order? Don’t do that, either. Using either of these methods is the same as sending cash and you’ll never be able to trace it. 

“Typically the best way to make any type of rental payment is through electronic deposit from your bank account,” Zillow says. “You can set this up with your bank. This way, there’s a clear, easy-to-access record of where your money went. You can also use a credit card (subject to interest) or a paper check (if you still have some). Larger, modern properties often have a website with a resident portal where you pay your rent online.”

4. Are you being asked to provide personal information before viewing the property?

If a property owner says that you need to fill out a bunch of forms before you ever see the place – things like Social Security numbers, date of birth, or even a credit card number for some sort of deposit, you should insist that you see the place in person so you can identify that it actually exists.

If you’re unable to view the rental in person, request an online tour or consider perhaps asking a real estate agent or friend to view it on your behalf.

“If the landlord claims they’re unavailable to show the property, or conditions the showing on you providing sensitive personal information in advance, this may be a red flag,” Zillow said.

5. Virtual tour offered?

If you’re not in the same city where the rental property you’re looking at is, and are forced to do a “virtual tour,” be careful – those pictures may look nice, but they may not be real or the building may not actually be up for rent. 

If you’re searching for rentals remotely and can’t visit an apartment or house yourself, ask someone you trust, such as a friend, agent or a fellow employee if you’re moving for a job offer, to visit in person for you. Zillow suggests using its Rental Walkthrough Checklist to thoroughly vet the rental before you commit to a lease.

“If you feel you need to do further research on the property, the local assessor’s office or county clerk can provide property records. Verify all names, websites and phone numbers in the listing. If the property manager has a website, read reviews to spot any potential red flags ahead of time,” the company suggests.

Home mortgage rates, whose meteoric rise earlier this year brought the housing market to a standstill, have begun to fall.

In its weekly update the Mortgage Bankers Association (MBA) reports the average 30-year, fixed-rate mortgage fell to 6.49% this week, down from 6.67% the previous week. The rate is below 6.5% for the first time in months.

But is it enough to revive home sales? Probably not yet, though mortgage applications for a home purchase rose 4% from the previous week. But compared to the same week in 2021, applications were down 41%.

 “The economy here and abroad is weakening, which should lead to slower inflation and allow the Fed to slow the pace of rate hikes,” said Joel Kan, MBA’s vice president and deputy chief economist. “Purchase activity increased slightly after adjusting for the Thanksgiving holiday, but the decline in rates was still not enough to bring back refinance activity. Refinance applications fell another 13%, and the refinance share of applications was at 26%. Both measures were at their lowest levels since 2000.”

Low rates led to record-high home prices

Record-low mortgage rates a year ago – and near record-low rates over the previous five years – led to the record rise in home prices. With a 2.9% mortgage rate, many buyers could afford a $500,000 home. When the mortgage rate hit 7%, many fewer could.

The National Association of Realtors (NAR) reports home affordability fell in September as the monthly mortgage payment climbed 57.8% and median family income rose by 3.9%. According to NAR, a mortgage is affordable if the mortgage payment – principal and interest – amounts to 25% or less of the family's income.

While the slow pace of home buying has started to bring down home prices, Business Insider predicts it won’t do much to improve affordability in 2023. Even if there is a 20% decline in home prices, buyers would still face steep monthly payments as long as mortgage rates remain at present levels.

Buyers need a big drop in mortgage rates

If a $500,000 home falls to $400,000, the principal and interest payment at 6.5%, with 20% down, is $2,023 – and that doesn’t include taxes and insurance. 

If the rate declines to 5.5%, buying the same home would cost $1,817 a month. Lowering the rate to 4.5% would produce a monthly payment of $1,621. That may be the interest rate at which affordability sharply improves.

That said, many real estate professionals say dramatic decreases in both home prices and interest rates simply aren’t in the cards next year. Realtor.com predicts mortgage rates will average over 7% for all of 2023 and home prices, instead of falling 20%, may go up slightly because of the shortage of homes for sale.

“It’s going to be a tough year for homebuyers, home sellers, and the overall housing market,” said Realtor.com Chief Economist Danielle Hale. But “we’re going to take some steps toward a better balance between buyers and sellers.”

Buying a home is more costly than it has been in a decade. Not only have prices risen dramatically since the start of the COVID-19 pandemic, but interest rates are also rising.

Some of those costs are frontloaded into the first year of homeownership. But that first year costs less in some cities than in others. People contemplating a move to a more affordable city might do well to consider those cities that are kindest to the housing budget.

Analysts at SmartAsset, a financial website, compared 20 of America’s major cities, looking at five metrics. They considered a 20% down payment on the median-valued home, the average closing costs, monthly mortgage payment, property taxes, and homeowners insurance. 

Indianapolis ranks first in terms of first-year affordability. The median home price is $220,500 – more than $100,000 below the national average. Closing costs average around $3,000. Property taxes are also low.

It’s followed by another Midwestern city, Columbus, Ohio. The median home price is $236,000 and the average closing costs are second-lowest in the study at just $3,541.

Philadelphia ranks third. While median home prices are higher than in Indianapolis and Columbus,  upfront costs to get into a home are around $55,016. The City of Brotherly Love might rank higher but its average closing costs of more than $8,000 are the second-highest in the study.

Number four and five on the list are both major cities in the South. Houston ranks fourth with an affordable median home value of  $261,500. Upfront costs, including closing costs, averaged $56,400 in 2022. First-year housing costs average $79,000.

Rounding out the top five is Jacksonville, Fla. Buying a home there will cost $85,631 in the first full year of homeownership, including $64,062 in upfront costs and $21,569 in annual recurring expenses.

California cities are a lot more expensive

Those five housing markets are huge bargains compared to the most expensive cities. The top four most expensive cities in the first year are all in California – San Francisco, San Jose, Los Angeles, and San Diego.

That said, no city escaped first-year homeownership costs increases, which, according to SmartAssets, increased dramatically this year. The average monthly mortgage payment exceeds $1,000 in all 20 cities in the study. 

Home prices and mortgage rates are joined at the hip. When both go up, home sales fall. That appears to be happening now with benefits for buyers.

A new report from real estate marketplace Zillow found that home prices have fallen sharply from their record highs reached earlier this year. High mortgage rates have simply made a home purchase less affordable for millions of people.

"Home prices in October remained in suspended animation as more buyers, but especially sellers, took a wait-and-see approach to market conditions," said Skylar Olsen, chief economist at Zillow. "Fewer home sales is the hallmark of a housing market lull, but right now potential sellers sensitive to losing their historically low mortgage rates have as much, if not more, of a reason to wait for a robust spring season and hope for mortgage rate relief.”

A report from Freddie Mac suggests that relief is on the way. The company, chartered by Congress to supply mortgage funds, reports the average rate on a 30-year fixed-rate mortgage fell from 7.08% last week to 6.61% this week, the largest one-week decline in 41 years.

‘Long road ahead’

“Mortgage rates tumbled this week due to incoming data that suggests inflation may have peaked,” said Sam Khater, Freddie Mac’s chief economist. “While the decline in mortgage rates is welcome news, there is still a long road ahead for the housing market.”

But the improvement in the environment for buyers is significant. The difference in monthly payments on a $300,000 mortgage is $200 a month when the mortgage rate declines by 1%.

That said, rates will need to keep falling to encourage both buyers and sellers to return to the housing market. Khater says it’s hard to tell when that might happen.

“Inflation remains elevated, the Federal Reserve is likely to keep interest rates high and consumers will continue to feel the impact,” he said.

Monthly payments are still elevated

According to Zillow, the monthly mortgage payment on the purchase of a typical house, even when putting 20% down, was $1,910 in October. That's up 77% over October 2021 and a 107% increase — nearly $1,000 — from 2019. 

And that’s just the principal and interest. Taxes and insurance are also part of the monthly payment, stretching affordability for many to the brink.

While prices should continue to fall as buyers sit on the sidelines, Zillow notes prices may not fall that fast. Home inventory levels remain tight as fewer current homeowners put their homes on the market.

Since many current owners have mortgage rates between 3% and 4% they may be reluctant to sell and purchase another home that has a mortgage rate two or three points higher.

A new report from Realtor.com shows home listings increased 33% in October over October 2021. The increase in inventory is not because more people are selling but because fewer are buying.

The housing market has come to a near standstill in the last few months, leading some to speculate it could be headed for a “crash,” an undefined state in which home values fall.

It’s happened before, as recently as 2009. Then, thousands of homes went into foreclosure and millions of homeowners found themselves owing more than their homes were worth.

Could it happen again? Most housing experts point out that today’s market woes are very different from 13 years ago.

Today, the market has stalled for one big reason – rising mortgage rates. During the COVID-19 pandemic, the housing market exploded. Prices surged because demand far outweighed supply.

Low interest rates fueled record home prices

People with good jobs could afford to pay record-high prices for a home because the interest rate was 3% or less, providing an affordable monthly payment. But when the average 30-year fixed-rate mortgage rate surpassed 7%, as it did last month, then the monthly payment was hundreds of dollars higher, meaning many people who would like to buy a home can no longer afford to.

As a result, home prices have already fallen from their record highs reached in June. But Alex Platt, principal agent with the Platt Group, part of Compass Real Estate in Boca Raton, Fla., says that is far from a “crash.”

“Look, no one knows what’s going to happen,” Platt recently told us. “But I don’t think there’s going to be a big ‘crash’ coming. Could there be a correction, sure? But prices nearly doubled in the last two years. So even if prices come down 10 or 15%, the market is still up.”

But what about people who purchased homes last year, at the very top of the market? Could they trigger a crash, much like they did in 2009? Not really, experts say.

Most people who purchased homes in 2021 got a mortgage rate of 3% or less. As long as they stay employed they should be able to easily swing the monthly mortgage payment.

What's different this time?

So how was 2009 different? At that time, the mortgage industry was approving loans to just about anyone, whether they could afford the home or not. The lender sold the mortgage to Wall Street investment banks within days so lenders didn’t care.

Many of these buyers put no money down and took out subprime mortgages, which had a low “teaser” interest rate for the first year or two before the rate jumped to double-digits. When that happened, millions of those homes went into foreclosure, dragging home values down with them. It was the wave of foreclosures that triggered the crash, flooding the market with repossessed homes.

Today, very few homes are in danger of default, even those whose values are now lower than the purchase price. Unlike more than a decade ago, most of today’s buyers made significant down payments – of up to 20% – and still have some equity even if prices go down.

People who bought homes at the top of the market may feel like there’s a housing market crash, at least for a while. But most real estate economists predict the market will quickly right itself if prices fall too low.

Realtor.com notes that, unlike in 2009, the U.S. still has a severe housing shortage. Even with rising interest rates, demand is expected to exceed – or at least keep up with – the supply of homes.

Rising mortgage rates are making homes much less affordable in the nation’s largest housing markets, prompting first-time buyers to get creative. Buyers in these high-priced markets are expanding their horizons.

A study by ConsumerAffairs found that 81% of prospective homebuyers were considering buying a “second home” first, while continuing to rent their primary residence. A few said they would use their purchase as a vacation getaway but most said they would try to generate revenue from it.

The study found that the youngest cohort of potential buyers, Gen Z, is the most likely to consider this move. Eighty-seven percent of all first-time buyers said they believed buying an investment property would enable them to purchase their primary residence within three years.

The favorite region of the U.S. for second home shopping is the South Central region, selected by 48% of those in the study. The South Atlantic region was closed behind at 43%. Those areas tend to have the lowest median home prices.

Growing trend

Real estate professionals say they have seen evidence of this trend. Rose Ciardiello, an agent with William Raveis Real Estate, a Connecticut-based firm, says the trend actually began early in the COVID-19 pandemic and continues.

“Some of these buyers are renting out their ‘second’ homes while they are occupying rentals in the cities, and others keeping it unoccupied so they can escape whenever they wish,” Ciardiello recently told us. “Some will experiment with both – renting out their home while they’re not there, but keep it on reserve for specific weeks of the year so they can enjoy themselves.”

The ConsumerAffairs study found declining home affordability in the most expensive markets may be contributing to the trend. Nearly all first-time buyers – 92% – said they could not afford a mortgage in this current interest rate environment – even though most earned good salaries – prompting them to consider buying elsewhere.

On second thought, maybe we'll just move

Not only buying but moving. Among Gen Z respondents, 79% said they are considering relocating to a more affordable state or city so they can afford to purchase a home as a primary residence. 

Other generations are also considering packing up. More than 60% of millennials and Gen X are considering moves and even baby boomers, nearing or in retirement, are looking for greener pastures.

“To me, one of the most surprising elements of the study on second homes was that 43% of baby boomers we surveyed said they planned to move to a cheaper state to afford a home,” said Cassidy McCants, deputy editor at ConsumerAffairs.

“Sixty-four percent of all respondents, including Gen Z, millennials and Gen X, said the same but the fact that such a significant percentage of the older population is still struggling to afford a home indicates how much is left to be desired across the board in the current housing market. Boomers we interviewed also said they needed to save $20,557, on average in order to buy their first home — and that they were willing to go $1,976 over their monthly budget to afford a mortgage.” 

According to the National Association of Realtors (NAR), the average mortgage payment in Los Angeles County is now $3,510, up from $2,590 12 months ago. In contrast, the average monthly mortgage payment in Hamilton County, Ohio (Cincinnati) is $1,034, up from $705 a year ago.

There appear to be plenty of affordable markets to choose from. The NAR data show that 40.7% of U.S. counties have median home prices of $150,000 or less.

Rapidly rising mortgage rates, coupled with near-record-high home prices, have priced many buyers out of the housing market. But there are signs in various industry reports that the result of high mortgage rates could improve affordability in the months ahead.

With fewer buyers, the shortage of available homes that plagued buyers over the last two years is finally moving in the other direction. RE/MAX, a national brokerage firm, reports the inventory of homes grew 3.9% in September over August and is up 30.4% year-over-year. The number of homes on the market is growing, even though new listings were down 7.6% last month.

"After a sustained period of quick sales that kept the housing cupboard relatively bare, a supply of two months presents a lot more options for homebuyers," said Nick Bailey, RE/MAX president and CEO. "For a long time, six months of inventory was the standard for a balanced market that favored buyers and sellers evenly. Now, with the evolution of technology and various changes in homebuying patterns, the new standard is becoming four months. We're halfway to that level, and the market is making steady progress toward balance.” 

Competition helps buyers

When there is an ample supply of available homes, sellers face more competition and buyers have more choices. When that happens, home prices usually soften.

A new report from real estate broker Redfin shows that’s already happening. After analyzing nationwide listing prices, the broker says 7.9% of sellers dropped their price during the four-week period ending Oct.9. That’s about double the rate from last year as the market has shifted at a near-record pace.

“Prospective homebuyers and sellers barely had time to get used to 5.5% mortgage rates over the summer before they rose to nearly 7% this month,”  said Redfin Deputy Chief Economist Taylor Marr. “The second sharp rate increase this year, together with nerves about inflation and the direction of the economy,  is dragging home-sale activity down further than it was over the summer and pushing homebuyer sentiment down near its all-time low.”

At long as mortgage rates remain at their present levels there is little benefit for buyers. For many, mortgage payments on the median-priced home are still out of reach. But rates may not remain in that range forever.

The outlook for mortgage rates

Rates could move even higher between now and the end of the year, but some in the industry think buyers could see some relief. The Mortgage Bankers Association (MBA) predicts rates could average around 5.5% by the end of December.

Rising mortgage rates are the indirect result of the Federal Reserve’s aggressive policy to squash inflation – specifically to slow the growth in home prices. That policy has contributed to a sharp rise in the yield on the Treasury’s 10-year bond – which directly influences mortgage rates. When the Fed declares victory and returns to a normal credit policy, mortgage rates could come back down.

With a lower median home price and mortgage rates in the 4% range, affordability conditions could improve to the point that people currently priced out of the housing market could see more choices and affordable monthly payments.

This month has produced no relief for the declining number of people who are considering the purchase of a home. While it’s true that prices have softened a bit, mortgage rates rose to their highest level since 2006 last week.

In its weekly update, the Mortgage Bankers Association (MBA) reported a 2% drop in mortgage applications in just one week. Rising mortgage rates are likely the reason.

“Mortgage rates moved higher once again during the first week of the fourth quarter of 2022, with the 30-year conforming rate reaching 6.81%, the highest level since 2006,” said Mike Fratantoni, MBA’s senior vice president and chief economist. 

In fact, mortgage rates increased across all product types in MBA’s survey, with the largest, a 20-basis-point increase, for 5-year ARM loans. Adjustable rate mortgages (ARM) have suddenly become more popular because the initial rate is typically lower than the rate on a fixed rate mortgage. The downside is lenders can raise the rate at specific periods over the life of the loan.

Tougher qualification standards

Not only are rising mortgage rates pressing would-be buyers, but it’s also now harder to qualify for a mortgage. Joel Kan, MBA’s associate vice president of Economic and Industry Forecasting, says lenders are making less money available for mortgages and have become more choosy over who gets it.

“With the likelihood of a weakening economy, which would lead to an increase in delinquencies, there was a smaller appetite for lower credit score and high LTV (loan to value) loan programs, along with a reduction in government streamline refinance programs,” Kan said. “As mortgage rates have more than doubled over the past year, resulting in a drop in refinance activity, lenders have worked to reduce excess capacity and costs by eliminating underutilized loan programs.”

Kan also said the government credit availability index has declined in seven of the last eight months to its lowest level since April 2013.

With fewer people able to purchase homes, more have to continue renting. That has pushed average rent prices to record levels this year and has been one of the largest contributors to inflation.

When the Bureau of Labor Statistics releases the September Consumer Price Index (CPI), many economists expect that the data will show that trend is continuing.

In a normal housing market, people shopping for their first home have a lot of choices. There are many neighborhoods, mostly older, with modest houses of between 1,000 and 1,500 square feet that sell for well below the median home price.

These homes still exist but in recent years fewer of them have come up for sale. When they do they are quickly snatched up, sometimes by investors who turn them into rental properties.

In its 2022 survey of more than 1,000 real estate agents in the U.S., real estate firm HomeLight found first-time homebuyers are now budgeting an average of $410,000 for their first home – a price many entry-level buyers simply can’t afford.

“There are several reasons for the shortage of starter homes,” Alex Shekhtman, CEO and founder of LBC Mortgage, told ConsumerAffairs. “One is that the construction of new homes has lagged behind population growth. Another is that many existing homes are being snapped up by investors, who then rent them out rather than selling them at an affordable price.”

At the turn of the 20th century, the Greater Heights area of Houston developed as an area dotted with small bungalows. Over the decades, it turned into an area of rental homes that were not very well kept but were affordable. In the last decade, Greater Heights has turned into a real estate investor’s dream.

“When you removed the chain-link fence, pulled back the carpet, and painted the walls back to white, these are charming homes which today we sell for $600,000 to $800,000,” Bill Baldwin, a local broker and city planning commissioner, told the New York Times.

The real estate industry classifies any home under 1,850 as a starter home. Using that definition, the National Association of Realtors (NAR) reported there were only 300,000 starter homes listed for sale in September 2021. Thanks to last year’s booming real estate market, the median list price for a starter home reached $260,000, about 11% higher than in September 2020.

Not much profit in building starter homes

If there is such a big market for starter homes, why don’t contractors build more of them? Daniel Blatman, associate broker at The Agency, a national brokerage firm, says building small homes presents a challenge for contractors. For example, the cost of the land to build a $250,000 home is the same as for a house that might sell for $750,000.

“They (builders) need to sell at higher prices to make the margins work for the amount of effort put into place,” Blatman told us. “It's more economical to purchase a lower-priced home and fix it up than to build ground-up new construction.”

That appears to be the crux of the issue. With the cost of materials, labor, and land, builders go where the money is – larger homes that sell for more.  Daniel Smith, CEO and founder at Keepingly, a home management platform, tells us a typical starter home should list for around $200,000.

“Yet, land costs, construction materials, state and (local) government fees have all risen over the last few decades,” Smith said. “Additionally, rules and regulations around the starter home requirements have shifted. Combined, all these factors have impacted the cost of construction for today’s entry-level home compared to those on the market in previous years.”

Can governments help?

All of the industry experts we consulted agreed that local, state, and federal governments could take action to encourage more entry-level home construction. Shekhtman says the government can offer incentives to builders and expand programs to financially help first-time buyers.

“Zoning laws could be reformed to allow for more density, which would make it easier and more profitable for builders to construct smaller homes,” he said.

Blatman said governments could reward buying and owning "unimproved land", as well as creating opportunity zone style benefits for certain parcels. They could also provide a benefit to investors who renovate and flip homes.

The government could also offer more creative benefits for housing creation that fit these criteria, which Blatman said would also benefit the developers' other higher-end products. 

“This can be similar to what is done in New York City by building high-end condos on the upper floors of a building and more economical options on the lower floors in order to get a tax abatement, among other benefits," Blatman said.

Relief in the form of these types of innovations and reforms could boost affordable housing the experts say. And with mortgage rates making homes even less affordable, relief can’t come too soon.

The HomeLight survey shows that, while some Midwestern housing markets feature entry-level homes for around $236,000, buyers in West Coast markets are facing list prices of nearly $900,000 for their first home.

A new report finds residential rent is falling – but not all rent is falling.

If you just rented a single-family home, chances are that rent is higher than it was just a few months ago. But if you are renting an apartment, you might have caught a break.

A new report from property data firm CoStar Group found apartment asking rents fell 0.1% in August from the month before. It might not sound like much but it was the first monthly decline in rent since December 2020.

While the slight decline may be heartening for consumers currently priced out of the home purchase market, it doesn’t come close to offsetting the rapid increase in average rents over the last year.

A report from Realtor.com shows people who rent spent 26.4% of their monthly budget in August putting a roof over their heads. Among the 50 largest U.S. metros, coastal areas topped August's list of least affordable rental markets, with rents accounting for the highest shares of household incomes in Miami at 46.5%, Los Angeles at 40.7%, and San Diego, with a 37.1% bite out of the household budget.

"Our analysis underscores the very real rental affordability challenges that many Americans face today,” said Realtor.com Chief Economist Danielle Hale. “Rents are significantly higher than in previous years and are taking up a substantial portion of incomes, which are growing at a slower pace than inflation." 

Single-family home rents rising, but more slowly

Renting a single-family home remains more expensive than moving into an apartment. CoreLogic, a property data firm, reports single-family rent growth was up by 12.6% in July year over year, even though the gains continued to slow from the historic high recorded in April. 

Miami’s 30.6% annual price gain was again the largest in July but is down from the 40.8% year-over-year growth recorded in March 2022. Single-family rents also cooled in red hot Phoenix, but the metro posted a 12.2% annual gain in July, the last month for which data are available.

Even so, Hale says there are some bright spots for renters. Based on the general rule of thumb that you should keep housing costs to under 30% of your paycheck, renters were able to follow best practice in the majority of large metros in August. 

“Plus, as rent growth continued to cool, national rents didn't hit a new record-high for the first time in nine months,” she said. “If these trends and typical seasonal cooling persist, renters may be better able to keep housing costs to a relatively manageable portion of their budgets in the months ahead."

Mortgage rates are still going up, making a home purchase at current prices extremely difficult for a growing segment of the home-buying market.

The average rate on the popular 30-year fixed-rate mortgage hit 6.7% on Friday,  according to Mortgage News Daily. The rate was 3.3% at the start of 2022.

When mortgage rates were around 3%, buying a high-priced home was more affordable. The lower interest rate produced a lower monthly payment.

But when the rate more than doubles in 12 months, the monthly payment on the same house is hundreds of dollars more. Right now, housing experts say the mortgage interest rate is a bigger factor in affordability than the price of the home – which has already started to fall.

The influence of the Federal Reserve

Though not directly tied to the Federal Reserve’s tightening of the federal funds district rate, the Fed’s recent moves have contributed to higher mortgage rates by softening demand for 10-year Treasury notes, which directly affect mortgage rates. As demand for these bonds falls, the interest rate rises.

“The buyer of a median-priced home, at today’s rate and using a fixed 30-year mortgage, is weighing a monthly payment that is about $900 per month higher than a year ago, which adds more than $10,000 to their yearly financing burden,” says George Ratiu, senior economist and manager of Economic Research at Realtor.com. “For buyers watching their take-home pay shrink due to higher prices, and shopping budgets diminish due to rising rates, today’s housing market remains highly unaffordable.”

The disappearing starter home

It’s even worse for people trying to purchase their first home, what was once called a “starter home.” According to the New York Times, builders are no longer constructing these modest, two-bedroom homes with 1,400 square feet or less of living space.

“The disappearance of such affordable homes is central to the American housing crisis,” the Times writes. “The nation has a deepening shortage of housing. But, more specifically, there isn’t enough of this housing: small, no-frills homes that would give a family new to the country or a young couple with student debt a foothold to build equity.”

Builders say it is almost impossible today to build a small house that would sell for $200,000 or less and still make a profit. Not only are land and labor costs much higher now, builders say government restrictions also add to costs.

For all the talk of an impending housing market correction, or even crash, real estate economists point out that every market is different. So far, some housing markets are vulnerable to losing value and ATTOM, a real estate data firm, has found them concentrated in three states.

The company’s Special Housing Risk Report spotlights county-level housing markets around the country that are more or less vulnerable to declines, based on home affordability, unemployment and other metrics that were analyzed in the second quarter of 2022. 

According to the analysis, New Jersey, Illinois, and inland California still had the highest concentrations of the most-at-risk markets in the second quarter, with the biggest clusters in the New York City and Chicago areas. Homeowners in southern and midwestern states were less exposed to falling home values.

The report’s researchers identified patterns, based on gaps in home affordability, “underwater” mortgages, foreclosures, and unemployment. They found that New Jersey, Illinois, and California had 33 of the 50 U.S. counties most vulnerable to potential declines in home values. 

The 50 most at-risk housing markets included nine in and around New York City, six in the Chicago metropolitan area, and 13 spread through northern, central and southern California. The rest of the top 50 counties were scattered across the U.S., including three in the Philadelphia, metro area. 

Values in the South and Midwest are holding up

The South and Midwest had the highest concentration of housing markets where values either have not gone down or are not expected to decline much, if at all in the future. They are considered the “least vulnerable” housing markets.

"The Federal Reserve has promised to be as aggressive as it needs to be in order to get inflation under control, even if its actions lead to a recession," said Rick Sharga, executive vice president of market intelligence at ATTOM. "Given how little progress has been made reducing inflation so far, the Fed's actions seem more and more likely to drive the economy into a recession, and some housing markets are going to be more vulnerable than others if that happens."

The risk of decline in property value was considered from a number of angles. The risk was highest in counties with a large percentage of homes facing possible foreclosure, as well as the percentage of homes at risk of being “underwater,” where the balance on the mortgage is greater than the value of the home.

Researchers also considered the percentage of average local wages required to pay for major homeownership expenses on median-priced single-family homes and local unemployment rates. 

A recent study by the ConsumerAffairs Research Team found a majority of consumers – 78% – said they believe the housing market will crash soon. In August, there was little evidence that it was moving in that direction.

While there is anecdotal evidence that home sellers are reducing their asking prices, the latest Consumer Price Index (CPI) shows the cost of putting a roof over your head continues to rise. The Shelter Index, which includes both rents and home prices, rose 0.7% in August, the fastest rate since January.

Economists point out that much of the increase was driven by rents, which are rising because so many would-be buyers have postponed their home-buying plans. It’s true that one industry report showed home prices eased slightly in July, but most of those decreases occurred in markets where prices had risen the most.

David Keiran, the chief financial officer at Senné, a real estate advisory and investment firm headquartered in Boston, says buyers are heading to the sidelines in growing numbers because they simply can’t afford the current monthly mortgage payments.

“Inflation, high mortgage rates, and record-high home prices are quickly reducing housing affordability, especially for renters looking to enter the homeownership market,” Keiran told ConsumerAffairs. “A typical monthly mortgage payment is 75% higher today than it was in June 2019. And earnings aren’t keeping up with the inflation.”

It's not like 2008

But will a slowdown in purchases lead to a housing market crash? Many housing industry analysts point out that we are far from the situation that existed in 2008 when the housing market did take a dive. Then, a wave of foreclosures triggered by defaults on subprime mortgages created a huge surplus in housing inventory.

At the same time, mortgage lenders abruptly pulled back after significant losses, greatly increasing the underwriting standards for home mortgages. With more available homes and fewer people qualified to buy, home prices plunged.

Things are a bit different now. Inventory levels, which had been at historic lows, have begun to rise a bit, providing buyers with more choices and creating more competition. But some experts think that might not last. Homeowners who have considered selling may be having second thoughts because, after all, they then have to buy something else and pay today’s high mortgage rates.

"With home prices expected to moderate over the forecast horizon and economic uncertainty heightened, both homebuyers and home-sellers may be incentivized to remain on the sidelines – homebuyers anticipating home price declines and potential home-sellers not keen to give up their lower, fixed mortgage rate – contributing to a further cooling in home sales through the end of the year," said Doug Duncan, Fannie Mae's senior vice president and chief economist.

The role of investors

There is another factor that could keep home prices from crashing, a situation that did not exist during the 2008 housing market crash. Today, the real estate industry includes an army of investors – from private equity firms to small businesses. 

Kurt Carlton, co-founder and president of New Western, a national private source of fix-and-flip residential investment properties, says these investors are always on the prowl for an attractive housing deal.

“As prices drop in a down market, we now have a new diversity of buyers to ensure there is a bid in the market beyond traditional homeowners,” he told us.

If true, that’s good news for current homeowners, who stand to hang onto more of their equity. But it also means many who are currently priced out of the housing market may find it very difficult to afford a home purchase, at least until mortgage rates fall.

There were more signs this week that the housing market is weakening, which may be good news for home buyers. Pending home sales, which track contracts signed for home purchases, fell by 1% in July.

The National Association of Realtors (NAR) reports that home sale contracts were down nearly 20% compared to July 2021.

"In terms of the current housing cycle, we may be at or close to the bottom in contract signings," said NAR Chief Economist Lawrence Yun. "This month's very modest decline reflects the recent retreat in mortgage rates. Inventories are growing for homes in the upper price ranges, but limited supply at lower price points is hindering transaction activity."

While the news for home buyers is good, it's not so good for renters. Realtor.com issued a report showing that the cost of renting a home in the suburbs continues to get more expensive. Until the pandemic, renting in the suburbs had always been cheaper than renting in an urban center.

The report shows that the rental price advantage of living in the suburbs vs. urban areas has shrunk by 52.9% compared to three years ago. The U.S. median rental price hit its latest all-time high in July of $1,879.

‘Between a rock and a hard place’

"Whether in a downtown area or suburb, staying put or making a change, renters are stuck between a rock and a hard place when it comes to affordability,” said Realtor.com Chief Economist Danielle Hale. "Compared to three years ago when rental price premiums were typically concentrated in urban hubs, renting is now nearly as expensive in the suburbs, where the rise in remote work has driven a surge in demand." 

At the same time, Hale says urban rents could face higher costs in the coming months. As more companies require employees to return to the office, the convenience of living nearby will become a factor, putting upward pressure on rent in the city.

"Put simply, renters are feeling it everywhere, but there may be some relief ahead,” Hale said. “Survey findings suggest that landlords are adjusting their approaches to renters' tightening budgets, while July data shows rent growth is leveling off at a relatively cooler pace than in 2021."

However, the report notes that national rents reached a new high for the 17th consecutive month in July, even as rent growth continued to slow. So far in 2022, the report shows annual rent gains have been consistently getting smaller month to month, indicating a shift toward a more sustainable balance of rental supply and demand.

Home buyers have faced even stiffer challenges in 2022 from rising mortgage rates and record-high home prices. But that may eventually become an advantage as many buyers get discouraged and forget about a home purchase for a while.

Buyers disappeared in many markets in July and as a result, Zillow reports the housing market showed the first signs of rebalancing, after years of heavily favoring sellers. In its latest market report, Zillow said home values fell in 30 of the nation’s 50 largest housing markets.

"Home values flattening so quickly after recent record growth might surprise, but it's a badly needed rebalancing that gives home buyers more options, more time to shop, and more negotiating power," said Zillow’s chief economist Skylar Olsen.

But before buyers begin celebrating, it’s useful to look at the specific markets where prices fell and where they stayed the same or even rose slightly. The largest price declines occurred mostly in the nation’s most expensive housing markets.

Expensive markets are still expensive

For example, San Jose, in the heart of Silicon Valley, led the way with a 4.5% decline. But San Jose is the nation’s most expensive housing market where the typical home price is still well over $1 million.

Home values actually rose in markets like Miami, Richmond, and Memphis, although the increases were under 2%.

The report suggests that hopes by some frustrated homebuyers that the housing market will see a significant correction or even a crash, might be misplaced. Olsen predicts something of a soft landing for the housing market.

Most equity gains are probably safe

"This slowdown is about discouraged buyers pulling back after the affordability shock from higher rates,” she said. “As prices soften, many will renew their interest, and we will continue our progress back to 'normal.' With buyers ready in the wings once confidence returns, homeowners can expect to keep the majority of the equity gains they've seen in the last two years."

However, the emerging housing market does hold some advantages for buyers. Instead of having to compete with several other buyers and often being outbid, buyers have a little more time. The Zillow report suggests homes will be on the market longer than they were in 2021.

Inventory is up 5.1% on a monthly basis, even though the addition of new home listings plunged 13.6% from June to July. Compared to July 2019, the last “normal” year before the start of the pandemic, new listings were off in July by 15.5%.