Housing Market Trends

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%. 

Freddie Mac’s Primary Mortgage Market Survey (PMMS) contains some good news for people who would like to purchase a home in the months ahead. After peaking at over 6% earlier this year, the average 30-year fixed-rate mortgage (FRM) fell to 5.13% this week.

“Inflation appears to be beyond its peak, which has stopped the rapid increase in mortgage rates that the housing market was experiencing earlier this year,” said Sam Khater, Freddie Mac’s chief economist. “The market continues to absorb the cumulative impact of the large price and rate increases that led to a plunge in affordability. As a result, over the rest of the year purchase demand likely will continue to drag, supply will modestly increase, and home price growth will decelerate.”

According to the PMMS, the 30-year fixed-rate mortgage averaged 5.13%, down from last week when it averaged 5.22%. The average 15-year fixed-rate mortgage declined slightly to 4.55%.

The average 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.39%, down from 4.43% last week.

The slight decline in mortgage rates, coupled with last month’s sharp drop in the median home price, makes buying a home slightly more affordable. Still, when compared to a year ago, monthly payments are still quite high.

Last year at this time, the average 30-year fixed-rate mortgage carried an interest rate of just 2.86%. The principal and interest charge on a $300,000 mortgage was $1,242 per month. The same loan this week at 5.13% is $1,634 a month, nearly $400 more.

Opportunities ahead?

It’s clear that rising mortgage rates and record-high home prices slammed the brakes on the housing market. In the months ahead, real estate professionals say it may provide opportunities for people who have recently been priced out of the housing market. But Erik Wright, CEO at New Horizon Home Buyers in Chatanooga, Tenn., says not all markets are the same.

"The higher interest rates have decreased demand to a certain extent, but in markets where there is still a significant shortage of available housing compared to the demand, prices are still continuing to increase due to competition," Wright told ConsumerAffairs. "In other markets, where supply and demand are closer together, prices have stabilized and even decreased slightly."

For people considering a home purchase, Wright says the most important consideration is the affordability of the monthly payment based on the current interest rates. If Freddie Mac is correct and the current trend continues, those rates could be lower in the weeks ahead.

Despite a big drop in home sales that has partly been caused by a dramatic rise in mortgage rates, “second home” sales appear to be holding their own. According to Barron’s, second-home sales jumped 90% at the start of 2021 when compared to mid-2020.

Data compiled by HomeLight, a company matching homebuyers with real estate agents, shows that there has been a shift in who is buying second homes. According to the company’s summer 2022 survey, 64% of agents report that it’s people who don’t currently own a home who are buying what are typically thought of as “second homes.”

In other words, first-time buyers are buying their second home first. 

According to the agents in the survey, record-high home prices and rising mortgage rates are driving this trend. Some agents estimate that purchasing your “second” home as your first property in today’s market can help to save an estimated $76,000 on the cost of the property. In the Pacific region, the savings are even greater –  an estimated $177,000.

Clarissa Marshall, an agent with EXP Realty in Asheville, N.C., has noticed the trend in her market.

“A majority of the homes I’ve sold recently have been second homes, and are being purchased not by locals, but by people from all over the country,” Marshall told ConsumerAffairs. “Since the pandemic, these first-time homebuyers are able to work remotely, and are realizing they have the capability to live somewhere with more land, and for way less.”

Buying for the future

But Marshall says not all of those first-time buyers are moving in. She said she recently sold a home to a woman in her thirties who currently works and lives in Chicago. 

“She purchased a home in Asheville knowing one day she would relocate here, but for now, is continuing to rent and live in her apartment,” Marshall said.

Rose Ciardiello, an agent with William Raveis Realtors in the quaint coastal town of Guilford, Conn., has witnessed the same thing, with many first-time buyers from New York City, nearly a three-hour drive away, buying their “second home” first.

“It started off with renters not wanting to be cooped up in their apartments while there were various COVID restrictions, but now in the latter half of 2022, employees don’t need to be in their office five days a week, or really at all,” Ciardiello told us. “While these residents still have their apartments in the city, they actually are spending more time in their ‘second’ homes in Guilford.”

Branson a popular second home market

Brad Gore, a veteran agent in Branson, Missouri, has sold many vacation homes over the years. But lately, he has seen out-of-state buyers with a different purpose than in the past.

“What these people are doing is purchasing a home here in Branson, but continuing to rent their primary residences,” Gore said. “While they are not using these ‘second’ homes, they will rent them out to make additional income.”

Gore says some of the first-time buyers are trying to purchase properties in a growing, hot market before it explodes. They continue to rent their principal residence but want to be invested in real estate in a more affordable area.

HomeLight expects the trend to continue, especially as rising mortgage rates erode home affordability in markets like San Francisco, Las Vegas, Austin, and Phoenix.

After going down during the early days of the pandemic, rents are rising again. Almost 60% of renters report that their rent has gone up during the last 12 months. One in three say the increase was by 10% or more.

A new survey, released by Freddie Mac, also found that only 38% of renters saw their wages increase during that time. A third of survey participants said their increase in pay won’t cover their increased rent. 

In more bad news for both tenants and landlords, nearly 20% of people who experienced a rent increase say they are now “extremely likely” to miss a payment.

“The surge in rents that took place over the last 12 months has created even greater housing uncertainty for the most vulnerable renters,” said Kevin Palmer, head of Freddie Mac Multifamily. “Our survey shows that the national housing affordability crisis is worsening and that inflation is a key driver.”

The cost of housing has steadily risen since the beginning of 2022. In its July Consumer Price Index (CPI), the Labor Department reported that the cost of shelter rose 0.6% from June to July and is up 5.7% year-over-year.

The growth in rents is slowing

Other sources suggest that rents are growing even faster, especially for single-family homes. CoreLogic puts the year-over-year single-family home rent at 13.2%, rising nearly as fast as purchase prices. But its report contains some good news for renters.

“While the annual growth in single-family rents is nearly double that of a year ago and is still near a record level, price growth began decelerating in June,” said Molly Boesel, principal economist at CoreLogic. “Nationwide, both year-over-year and month-over-month growth were slower in June than they were earlier this year, and roughly half of the largest U.S. metro areas experienced a slowdown in annual growth in June.”

The Freddie Mac survey tried to gauge the impact of rising prices on consumers' housing choices, and it included a set of questions that were specific to renters. The nationwide online survey was conducted this year from June 6 to June 10 among a representative sample of 2,000 American consumers aged 18 and older. 

Not surprisingly, nearly every household in the survey was impacted by inflation during the last 12 months, which made rent increases even more painful. Sixty-six percent of consumers in the survey singled out higher costs for groceries and household supplies as adding to their financial burdens. Among the other most cited cost increases were those for transportation, eating out, and utilities.

Renters make up most of the pool of potential homebuyers, and the survey suggests that this pool of people is quickly drying up. Nearly three-quarters of survey participants report that they have put off homebuying plans. About half said home prices have increased to the point that a suitable home is no longer affordable.

What is true in one housing market isn’t necessarily true in another, especially when it comes to home values. Moody’s Analytics, in partnership with Fortune magazine, has analyzed the U.S. housing market and has projected which metro areas will lose value as the air goes out of the housing bubble and which metros might even gain value.

As mortgage rates spiked in the first half of 2022, home sales slowed since fewer people could afford the payments at record-high prices. The Moody's analysts have looked at housing markets coast-to-coast and have projected where falling sales are likely to affect prices the most.

After crunching the data, the researchers predict that home values will be flat between the fourth quarter of this year and the fourth quarter of 2023. That’s a huge slowdown from the nearly 20% annual increase that homes posted in the previous 12-month period.

Prices may rise and fall 

The analysis suggests that potential home buyers who are waiting for a significant drop in home prices may be disappointed. The largest declines will likely take place in the nation’s most expensive housing markets, which are mostly on both coasts.

The Villages, Fla., could see a 6.96% decline in home values, and Punta Gorda, Fla., could see home prices fall 6%. The Moody's analysis calls for a 5.57% reduction in Reno, Nev., a 5.5% drop in Honolulu, and a 5.52% decline in Spokane, Wash. 

For the moment at least, prices in the expensive markets of Austin and Las Vegas are holding steady, with the analysts saying prices could break either way in the months ahead.

On the flip side, 183 housing markets could actually see an increase in the average home price in the year ahead. Moody's suggests that prices could rise 4.12% in Albany, Ga., and New Bern, N.C. Prices are expected to rise by 3.84% in Augusta, Ga., 3.73% in Hartford, Conn., and 3.29%  in Casper, Wyo.

Hoping for a housing crash?

The prediction that home prices might not drop that much, and might even go up in some places, may be disappointing to people hoping for a more attractive entry point to the housing market. 

A recent ConsumerAffairs study found that 78% of consumers believe there will be a housing market “crash” and that many members of Gen Z are actively hoping for one.

The Moody's analysis suggests that there will likely be a market correction – and a mild one at that – rather than a crash. A housing crash is a sudden and steep decline in home values, often leading to economic ruin for many homeowners. A housing correction, on the other hand, is a slow and steady return of elevated home values back down to balanced levels.

The cost of renting an apartment in New York City hit a record high in June, as the median asking price hit $3,500, according to data collected by New York real estate site StreetEasy. It was even higher in Manhatten, hitting a median of $4,100 a month.

But the nation’s largest city is not the only place where the cost of renting a home is now rising faster than home prices. In many major population centers, where jobs pay well and are relatively plentiful, rents are rising through the roof.

Real estate broker Redfin reports that rents in the Cincinnati housing market jumped 39% in June. The median asking price was $1,815, giving the Ohio city the distinction of experiencing the largest percentage increase among the nation’s 50 largest metros. Seattle, Nashville, and Austin were close behind with rent increases of at least 30%.

Supply and demand

Housing economists point to supply and demand as the cause behind these increases – the same factor that has driven home prices to record highs and priced millions out of the home purchase market. Inventory levels of homes for sale remain extremely low, but demand rose dramatically during the first two years of the COVID-19 pandemic.

People who can’t afford to buy a home must continue to rent, creating another supply and demand imbalance. Lily Liu, CEO of Piñata, a landlord services app, says home prices have slowed their rise. However, she points out that high mortgage interest rates have made a home purchase unaffordable for many people.

“People were looking in the last few months whether prices would drop significantly,” Liu told NextAdviser. “Prices are actually pretty stable on the housing side, which means it still continues to be a difficult market to buy.” 

Rents in some cities are rising faster than the national average

Daryl Fairweather, chief economist at Redfin, says rents are rising faster in some markets than others. She sees a slowdown in rent growth because, just like with homebuyers, there is a limit to what renters can pay.

“Rent growth is likely slowing because landlords are seeing demand start to ease as renters get pinched by inflation,” Fairweather said. “With the cost of gas, food and other products soaring, renters have less money to spend on housing.” 

While the rise in rents may slow in the months ahead, Fairweather doesn’t see that happening everywhere. She notes that rents are still climbing at unprecedented rates in strong job markets like New York and Seattle and in areas like San Antonio and Austin that soared in popularity during the pandemic.

After years of declining inventory, there are a growing number of homes for sale. The inventory of available homes rose by 30.7% on an annual basis last month, the largest increase on record.

As sellers face more competition, prices are likely to fall. But the Realtor.com Monthly Housing Trends Report shows that hasn’t happened yet. Average listing prices remain near their all-time high.

"The U.S. housing market continues to move toward more evenly balanced supply and demand compared to the 2021 frenzy,” said Danielle Hale, chief economist for Realtor.com. “Our July data shows elevated mortgage rates left many buyers tightening their budgets and sellers responding with price reductions, while home shoppers who kept searching saw more available options." 

Even though home inventories increased in July, new listings declined. Hale says the shift in the housing market may be causing current homeowners to put off selling for a while.

“But data indicates that homeowners grappling with this decision are still in a good position in many markets, with buyer interest keeping well-priced homes selling quickly,” she said. “Plus, many sellers have a substantial equity cushion to leverage, thanks to the past decade of rising prices. Whether or not they take advantage of these opportunities will be key to inventory trends moving forward."

Lack of buyers

The report concludes that a lack of buyers is the main reason inventory levels are increasing. Rapidly rising mortgage rates have made homes at current prices unaffordable for millions of would-be buyers.

With more buyers on the sidelines, many sellers have begun to cut their asking prices after two or three weeks with no offers. The previously red-hot markets of Las Vegas, Denver, Austin, Nashville, Tampa, and Sacramento saw the most price reductions, according to the Wall Street Journal.

Realtor.com reports that typical monthly mortgage payments are now 1.5 times higher than in July 2021, with many buyers putting their purchase plans on hold. That is giving active listings room to grow. 

However, Hale says buyers aren’t the only people affected by the shift in market conditions. Sellers, seeing prices dip and facing the same high mortgage rates when they buy another house, are staying put for now. New listings declined in July for the first time since March.

If mortgage rates remain elevated, home prices will have to moderate to draw buyers back into the market. July’s median listing price was $449,000 - just $1,000 less than June’s record high. On a square foot basis, year-over-year asking price growth moderated slightly in July from the June pace.

In the Federal Reserve’s campaign to bring down inflation, record-high home prices are in the Fed’s crosshairs. Policymakers see the housing market as a major driver of the overall inflation rate.

A new study of home prices underscores just how much work the Fed has to do in that regard. Real estate site Home Bay reports that the price of U.S. homes has far outpaced the overall rate of inflation over the last four decades and has accelerated in the last two years.

Researchers focused on housing’s cost per square foot. Their study found that the median price per square foot of a home in the U.S. has increased 310% since 1980. Since 2020, when home prices exploded during the first year of the COVID-19 pandemic, prices have exceeded overall inflation by 139%.

The median square footage of a new single-family home is 2,356 and is priced at $397,100, making the median price per square foot $169. In 1980, the median price per square foot was only $41.

Highest and lowest cost per square foot

According to the study, here are the U.S. cities where the cost per square foot is the highest:

1. San Jose ($801)

2. San Francisco ($656)

3. Los Angeles ($520)

4. San Diego ($494)

5. New York ($458)

Here are the cities with the lowest cost per square foot:

1. Memphis ($92)

2. Cleveland ($103)

3. Pittsburgh ($134)

4. Indianapolis (134)

5. Buffalo ($139)

Hoping for a correction or crash

These prices, coupled with rising mortgage rates, have reduced the number of consumers who are actively shopping for a home. A new study by the ConsumerAffairs Research Team suggests that many consumers are waiting out the decrease in affordability and are banking on home prices and mortgage rates to fall in the months ahead.

In fact, our research found that 78% of Americans think we’ll soon face a housing market crash. The youngest consumers – members of Gen Z – are most likely to want one so prices will fall.

Nearly half of respondents in the survey of 1,000 consumers said they believe the housing market will tank next year. About 75% of participants said they plan to buy a home if the market crashes.

Most industry experts say a market crash like the one that occurred during the 2008 financial crisis is unlikely because of the imbalance between buyers and available homes. However, they concede that home prices will drop as affordability declines.

A correction is normally a decline of between 10% and 20%. In the ConsumerAffairs survey, 80% of respondents said they would like to see a correction that would make a home purchase more affordable.

Home sales have dropped sharply from last year’s peak all across the U.S., and sellers are cutting prices as rising interest rates make homes less affordable. At the same time, a new report shows that rents are surging.

Rentometer, a residential asset data firm, has analyzed rent costs for a three-bedroom single-family home in 252 U.S. cities. In the second quarter, the company found that 96% of these areas had recorded year-over-year average rent increases.

Perhaps more notable, 80% of the municipalities saw the average rent increase by 10% or more. Miami had the biggest increase in average rent, rising 59%. Rents are up 31%  in Tempe, Ariz., 21% in San Diego, and 30% in Austin.

Even some markets where rents are relatively low saw big increases in the second quarter. The average rent is up 24% in Memphis and 13% in Indianapolis.

States with widespread increases

Arizona, Florida, Georgia, and Texas have experienced some of the most widespread rent increases. In Arizona, Tempe, Scottsdale, Tucson, Peoria, and Pheonix have recorded double-digit year-over-year rent increases.

Besides Miami, Florida rents have skyrocketed in Fort Lauderdale, Boca Raton, Tampa, and Jacksonville. In the Orlando metro, the Orange County Commission voted unanimously this week to require landlords to give tenants 60 days' notice before increasing rents.

“The 60-day notice is critical," said Orange County Mayor Jerry Demings. "Having this ordinance in place gives tenants time to prepare and seek alternative housing in the event that they do not wish to stay where they are currently living."

Renters just about everywhere are feeling financial pressure. In Louisville, Ky., a new report shows that the median rent is outpacing the median income in the city.

Tenants are being priced out in New York City

A report from StreetEasy found that more than one-third of new rental leases in New York City are the result of the previous tenants being priced out of the market after getting deep discounts during the early days of the pandemic. The report found that the citywide median rent hit a record high of $3,349 in May. That represents a 34% increase from the near record lows seen last year during the height of the pandemic.

Housing economists say rents are rising because fewer people are buying homes. In its most recent report, the National Association of Realtors (NAR) said sales of existing homes in June were 5.4% lower than in May and were down 14.2% from June 2021.

Ian Shepherdson, a chief economist at Pantheon Macroeconomics, told the New York Post that home listings have increased by 40% over the last four months, setting up what he thinks will be a major housing market correction. He believes home prices may eventually fall by as much as 20%.

People in three-quarters of the 50 largest housing markets are better off continuing to rent than becoming a first-time home buyer, according to a new analysis from Realtor.com. Researchers say the shift took place in the first half of 2022 when mortgage rates nearly doubled.

It’s not that rents are cheap. But mortgage rates that are over 6% have simply made buying a home unaffordable for a large sector of the population. 

"With rents and for-sale home prices both hitting record-highs in June, the rising cost of financing a home purchase stands out as the clear driver of rental affordability relative to typical starter homeownership costs,” said Realtor.com Chief Economist Danielle Hale.

While mortgage rates hovered around 3%, the cost of a monthly house payment was very competitive with rent, which increased last year at about the same rate as home prices.

"While more markets offered relative rental affordability in June than in January, rents are still rising across the country,” Hale said. “Plus, many of the areas that favored renting are among the biggest tech cities, where real estate tends to come at a premium.”

Median rent price hit a record high in June

The median price of a rental in the U.S. hit a new high for the 16th consecutive month in June, but it still was less expensive than the monthly ownership costs of a home. Although sale prices of homes also hit multiple record-highs in the first half of the year, Realtor.com's June analysis found that mortgage rate hikes were the biggest driver of the widening affordability gap between renting and first-time buying.

In June, it cost $1,876 a month to rent a typical home or apartment. That’s a 12-month increase of 14.1%.

People buying their first home were faced with ownership costs that were nearly 30% higher than rents in June. The typical monthly ownership cost was about $2,437. Realtor.com estimates that higher mortgage rates added about $416 to the average monthly house payment in June.

Erik Wright, CEO of New Horizon Homebuyers in Eastern Tennessee says people who are deciding whether to buy or rent should carefully crunch the numbers.

“I think the most important consideration is what can you afford for a monthly payment based on the current interest rates,” Wright said. “The price you can pay for a house has probably changed significantly from back when interest rates were around 3%.”

Large markets favor renting over buying

The Realtor.com analysis suggests that renting is the best choice in larger markets. The country's biggest tech cities accounted for eight of June's top 10 metros that favored renting over buying. That list was led by Austin, where the monthly starter homeownership cost was 97.8% higher than the median rental price. In all of the top 10 markets, renting was at least 52% more affordable than first-time buying.

Only 11 metro areas favored first-time buying over renting in June. It was more economical to rent a home in Cincinnati than to buy one in January, but the economics flipped during the first half of the year. In June, Cincinnati’s monthly starter home costs were $14 less than rental prices.

Pittsburgh is the most economical rental market in the top 50, with ownership costs averaging 33% less than rental costs. It’s followed by Birmingham and St. Louis.

In what could be good news for people who want to purchase a home, the number of buyers canceling deals in June hit its highest level since the start of the COVID-19 pandemic.

A report from real estate broker Redfin shows that nearly 15% of all sales contracts last month were canceled, the highest rate since April 2020, when the pandemic temporarily brought the housing market to a standstill. 

The reason for the increase is no mystery – it’s due to the combination of higher mortgage rates and rising home prices. The monthly payment on the same house might be several hundred dollars more a month than it was at this time last year.

The average rate on a 30-year fixed mortgage started at around 3% in 2022 and has been rising steadily ever since. It briefly hit 6% in mid-June, and the average mortgage rate is still around 5.75%, according to Mortgage News Daily.

Advantage, buyers

This turn of events gives a slight edge to buyers who have had to compete in this market with multiple offers on a declining number of available homes. With a significant number of buyers backing out of deals, the remaining buyers should face less competition – at least as long as mortgage rates remain at current levels.

Chase Gardner, a researcher at Insurify, says fewer people shopping for homes should take some of the pressure off of home prices.

“Additionally, housing markets typically see their greatest yearly supply between July and September — a time period we’re just now entering,” Gardner told ConsumerAffairs. “Fewer buyers on the market plus increased housing stock is likely to slow the recent spike in home value growth and demand in coming months.”

Recession worries

Jody Kahn, senior vice president at JBREC, told CNBC that she is seeing a sharp increase in cancelations that are occurring not long after the contract is signed, especially where new construction is concerned.

“Builders state buyers are nervous about a potential recession, struggling to get comfortable with higher payments, or expecting home prices to decline,” she said.

Buyers now may have the most leverage they have enjoyed since the housing market took off two summers ago. Taylor Marr, Redfin’s deputy chief economist, says that gives them more room to negotiate. 

A year ago, it was common for buyers to offer over the asking price without seeing the property and to waive inspections. Marr says that is no longer happening except in the most competitive segments of the housing market.

The Federal Housing Administration (FHA) is adding new flexibility that mortgage lenders can pass along to qualifying borrowers who experienced a gap in employment or loss of income because of the COVID-19 pandemic.

In the agency’s just-released Mortgagee Letter 2022-09, it stated that salaried, self-employed, and hourly wage-earners who were affected by COVID-19 but now have steady income will now have a much better chance at buying a home through affordable FHA-insured mortgage financing.

“The changes we are announcing today further our efforts to facilitate recovery from COVID-19 and support access to homeownership, particularly for populations most deeply impacted by the pandemic,” said FHA Commissioner Julia Gordon. 

“The pandemic affected the livelihoods of tens of millions of workers in this country, particularly workers of color and those at the lower end of the wage scale. Limiting these families’ homeownership opportunities because of the unavoidable impacts of an unprecedented global health crisis, when they are otherwise well-qualified for a mortgage, is unnecessary and contrary to this Administration’s goals and FHA’s mission.”

Applicants need to provide documentation

Mind you, this is not an all-inclusive, no-questions-asked change. There are more than 20 pages of the different categories, documentation, and calculations that the FHA will require from a borrower.

Fortunately, the agency has compiled all the program’s caveats so that applicants can quickly find the things they need -- like profit and loss statements, balance sheets, business and credit reports, and tax returns. The biggest hurdles that ConsumerAffairs identified will affect people who frequently changed jobs and employees who are on temporary leave.

Among other things, those who frequently changed jobs will need to verify and document their income to show that they are in a stable financial condition. They'll also need to either obtain transcripts of training and education demonstrating qualification for a new position or employment documentation evidencing continual increases in income and/or benefits. 

Those on temporary leave will be required to provide a written statement confirming their intent to return to work, their intended date of return to work, documentation from their current employer confirming their eligibility to return to work after temporary leave, and documentation of sufficient liquid assets.

Doing your FHA homework

Anyone who wants to take out an FHA-backed mortgage would be wise to do a little homework. ConsumerAffairs has a package of guides and FAQs that should help anyone no matter what FHA question they have. They include:

• What is an FHA loan?

• The 9 requirements for an FHA loan in 2022

• Conventional mortgage loans vs. FHA loans

The FHA and the U.S. Department of Housing and Urban Development (HUD) also provide informational material that can help with questions or concerns about applying for pandemic-related mortgage applications. Those resources include:

• COVID-19 resources for homeowners 

• Counselors who can answer questions

The HUD frequently updates changes and answers questions via social media as well. Here’s a list of all the agency’s social media sites.

With mortgage rates hovering around 3% throughout the pandemic, the cost of a mortgage was less than the comparable rent in many markets. That was one reason for the sustained increase in home sales.

But now the script is flipped. A recent report from Zillow shows that the monthly mortgage payment is more than the cost of renting in 45 of the nation’s top 50 housing markets. 

Two things have changed. Interest rates have surged, nearly doubling from recent lows. Meanwhile, the price of homes continues to rise. In its latest report for May, the National Association of Realtors (NAR) found that the median home price was a record-high $407,000.

When you put that together with higher mortgage rates, you get a monthly payment for a typical home that is well over $2,000 a month. Zillow Economist Nicole Bachaud says the recent surge in mortgage rates to nearly 6% could bring big changes to the housing market.

“We are already seeing signs of waning demand, and expect these recent rate hikes to quicken the market's needed rebalancing,” Bachaud said. “While shoppers will likely experience less competition for homes than the frenzied recent months, their purchasing power has dwindled." 

Rents haven’t risen as fast

Even though more people are being pushed into the rental market, the numbers don’t show a sharp increase in the cost of renting. In fact, a recent report from rental site Zumper shows just the opposite.

Zumper’s National Index suggests that rent price increases are slowing. According to the report, the median one-bedroom rent is up 0.5% from May to June. It's another all-time high, but it's also a much more reasonable growth rate than the one to two percentage point increases that became the norm during the height of the pandemic.

The median cost of a two-bedroom rental is down a significant 2.9% from May to June, a signal that some consumers who’d put off buying a home are finally making the jump as housing prices begin to level off. 

New York City rent is still the highest

Median rent is the highest in New York City, where a typical apartment costs $3.600. Oakland, Calif., has the 10th-highest rent at $2,100 a month.

"Although rents have accelerated since the start of 2021, the rapidly rising cost of a mortgage still makes rent the cheaper option nearly everywhere,” Zillow concludes.

A typical rent payment in May is more expensive than a mortgage payment with a 20% down payment, including taxes and insurance, in just five of the 50 largest U.S. metros. In May 2019, renting was more expensive in 28 of those metros. 

Zillow analysts say home values finally turned the corner in May to show a slightly slower pace of annual growth after annual price appreciation set new record highs for 13 straight months. The current growth rate is 20.7%, which is down from 20.9% in April. 

Mortgage rates cooled off a bit this week, dropping to an average of 5.7% for a 30-year fixed-rate mortgage. For prospective buyers waiting for these higher rates to bring down home prices, the wait may be long indeed.

“The rapid rise in mortgage rates has finally paused, largely due to the countervailing forces of high inflation and the increasing possibility of an economic recession,” said Sam Khater, Freddie Mac’s chief economist. “This pause in rate activity should help the housing market rebalance from the breakneck growth of a seller’s market to a more normal pace of home price appreciation.”

But so far, that hasn’t happened. In its latest report on home sales, the National Association of Realtors (NAR) put the median home sale price in May at a record $407,000. With a mortgage rate near 6%, the monthly payment has priced millions of people out of the housing market.

Still plenty of buyers

But because there are so few homes available for purchase, along with plenty of people who can afford those higher home payments, sales have not plunged. Kate Wood, housing expert at NerdWallet, says the housing market is probably not in a “bubble.”

"While inflation pushing up the cost of raw materials is more bad news for new construction, we've actually seen prices for existing homes — which had been experiencing sharp year-over-year increases — begin to cool down,” Wood told ConsumerAffairs. “Yes, it's from a raging boil to a strong simmer, but with interest rates eating into home buyers' budgets, any shift toward normalization in the housing market is good news for buyers.”

Yet the higher monthly costs to purchase a home have not dampened demand. NAR reported this week that pending home sales – contracts signed but not yet closed – actually increased in June, rising 0.7%. 

A market in transition

Compared with May 2021, however, pending sales were down 13%. NAR Chief Economist Lawrence Yun says that suggests the housing market is in transition.

"Contract signings are down sizably from a year ago because of much higher mortgage rates," Yun said.

Because home prices and mortgage rates are rising together, Yun said it is more difficult to make a 20% down payment. With 10% down on the median-priced home, Yun says the average house payment has increased by $800 a month since the beginning of the year.

Wood says that the higher monthly payments have yet to deter buyers, and home prices don’t appear ready to fall anytime soon. Of course, she says that could be good news for people who already own homes.

With home prices at record highs and mortgage rates well over 5%, fewer Americans are buying homes – a fact reflected in the most recent mortgage data.

Last week, the Mortgage Bankers Association reported that applications for mortgages fell by 6.5% in just one week. That was followed by a report from property data firm ATTOM showing that residential mortgage origination in the first quarter of this year fell 18% from the fourth quarter of last year.

That’s the largest quarterly decrease since 2017 and down 32% from the first quarter of 2021. While much of the decline was in refinancing existing mortgages, mainly because rates are now the highest in about a decade, it’s clear that there are fewer buyers in the current market.

Deborah Hauser, executive director of the Boston real estate firm Senné, says the combination of rising mortgage rates and rising home prices are hitting first-time buyers the hardest.

“First-time homebuyers represent the largest share – 31% – of people purchasing homes, according to data from the National Association of Realtors (NAR),” Hauser told ConsumerAffairs. “And most first-time buyers are younger than 40, which means the buyer pool is deep, a good indication that demand will remain strong, especially since housing inventory is at historical lows.”

It’s getting harder to buy a home

The new housing market environment requires buyers to have higher incomes and larger down payments in order to purchase a similarly priced home from last December, when interest rates were around 3%. That will price many first-time buyers out of the market because Hauser says lenders are not likely to budge from their strict underwriting standards.

“Processes to prevent mortgage defaults have been in place for a number of years, so we are less likely to see that affect housing and since we are woefully behind in new construction, the demand will continue to outpace supply in the foreseeable future so housing is predicted to remain solid for a number more years,” she said.

If not for the lack of available homes for sale, prices might soften considerably in this environment. Because there are still enough buyers who can afford the higher prices for the limited number of available homes, market experts like Hauser expect that sellers will remain in the driver’s seat for the foreseeable future.

Zillow, an online real estate marketplace, has surveyed housing economists and concluded that the current frothy housing market is not in a bubble.

The latest Zillow Home Price Expectations Survey polled more than 100 experts from academia, government, and the private sector to seek a consensus opinion on the state of housing and the outlook during this uncertain economic time. Of those surveyed, 60% said they do not believe the U.S. housing market is currently in a bubble, compared to 32% who think we are in a bubble and 8% who are not sure. 

A bubble exists in an environment where home prices have exceeded fundamental values and consumers’ ability to continue purchases. Buyers suddenly disappear from the scene and values come back to earth.

Still plenty of qualified buyers

Even though the Mortgage Bankers Association reports that mortgage applications plunged 6.5% last week, real estate sales veteran Josh Altman, co-founder & advisor at BidMyListing.com, says rapidly rising home prices aren’t keeping buyers out of the market.

“June and July are some of the most popular months to purchase a home,” Altman told ConsumerAffairs. “The summer season is one where there is a competitive inventory; houses do not stay on the market long. The average number of days a house was listed on the market was only 31 days in the month of May.”

While the lack of housing inventory is contributing to higher prices and is making homes less affordable, Altman says the competition for available homes will keep prices on the higher side, at least for now. That may put pressure on first-time buyers, who tend to be young, but Altman says there are plenty of buyers who can afford the limited number of homes that are on the market. 

“One of the primary reasons people want to buy a house is appreciation and ownership,” Altman said. “As a result, home prices will continue to increase until there is a significant change in interest rates and inventory along with other factors like supply chain limitations and the low market inventory.”

Last housing bubble

The last time there was a housing bubble was the early 2000s, when lax underwriting standards and cheap money led to a boom in homebuilding with ever-increasing prices. It all came crashing down in a wave of foreclosures in 2009.

"Although a recession is looking more and more likely, the housing market today is a far different beast than what we saw in the mid-2000s," said Zillow economist Nicole Bachaud. "Unlike in 2006, this market is underpinned by strong fundamentals and has been built on mortgages with sound credit, factors that won't change in the near term."  

Altman advises would-be buyers to research the location where they want to buy a home. A comparison of the local real estate market to the national market can show if the local market is in line with the national real estate trends. A disconnect could offer negotiation opportunities, he says.

May was the least affordable month to purchase a home in 16 years, according to a new analysis from property data firm Black Knight. 

The report found that U.S. home prices have risen 42% since the start of the pandemic in 2020, with the average home having gained almost 9% in value just since the start of 2022. Price increases slowed slightly in April but are still rising by double-digits.

More telling is the fact that the monthly principal and interest (P&I) payment on the average-priced home with 20% down is nearly $600 more than it was at the start of the year and $865 more than before the pandemic.

With 30-year mortgage rates at 5.25%, the share of median income required to make that P&I payment climbed to 33.7% as of May 19. That's just below the 34.1% high that was reached in July 2006.

Bad time for first-time buyers

Yatin Karnik, the founder of Confer, Inc. and a former senior vice president at Wells Fargo, says borrowers are now facing heavy challenges in financing a home purchase.

“It especially impacts first-time home borrowers, which is one-third of the purchase market,” Karnick told ConsumerAffairs. “With rising interest rates being imperative to tame inflation during this upcoming buying season, affordability will be further stretched for borrowers.”

As a result, Karnick expects that the affordability factor will likely weigh heavily on the housing market in the months ahead. As a result, he anticipates a slight reduction in home prices as investor demand slows.

But that doesn’t automatically mean people who want to buy a home to live in will have an easy time. Thanks to rising mortgage rates, many would-be buyers will find that homes are still out of their price range.

“In reality, potential home buyers are being priced out of the market,” Karnick said.

Growing wealth gap

Deborah Hauser, executive director of Residential Brokerage at Boston real estate firm Senné, agrees, but only to a point. Even with higher interest rates, she expects that the summer real estate market will find plenty of buyers at current high prices.

“If sellers decide to cash in and more inventory comes to market, then we will see some price adjustments, but otherwise, the lack of inventory will keep prices high, at least until mortgages remain under 6%, which remains to be seen,” she told us.

Housing economists say worsening affordability is widening the wealth gap in America. While the rapid escalation in prices is a burden for people who are trying to buy a home, it remains a bonanza for current homeowners because it's increasing their net worth.

The Black Kight report found that current homeowners gained $1.2 trillion in collective tappable equity – the amount available to borrow against while retaining at least a 20% equity stake in the home – in just the first quarter of 2022.

In total, mortgage holders gained $2.8 trillion in tappable equity over the past 12 months, a 34% increase that equates to more than $207,000 in equity available per borrower.

Home prices have posted record gains in recent years, in part because of a lack of homes on the market. But after hitting new record lows earlier this year, a report from Realtor.com suggests that this trend is reversing.

Housing inventory, which is a measure of available homes for sale, recorded the first year-over-year increase in May since June 2019. Danielle Hale, Realtor.com’s chief economist, says there are probably a couple of reasons for that.

"Among key factors fueling the inventory comeback are new sellers, who are listing homes at a rate not seen since 2019, as well as moderating demand, with pending listings declining year-over-year in May," Hale said.

But buyers continue to face headwinds. Despite the increase in available homes and a recent jump in mortgage rates that has made a home purchase less affordable for many, sellers continue to push the envelope when it comes to listing prices.

The Realtor.com report shows that the median listing price hit an all-time high of $447,000 in May. That’s a 17.6% increase when compared to May 2021.

Tapping equity to counter inflation

While these conditions present a challenge for people who hope to purchase a home, it continues to be good news for current homeowners regardless of whether they plan to sell or not. Steve Resch, vice president of Retirement Strategies at Finance of America Reverse, says more homeowners are tapping the equity in their homes as inflation continues to increase the cost of living.

"Americans are adjusting budgets due to rising costs for food, energy, and just about everything else,” Resch told ConsumerAffairs. “One overlooked asset that could help combat rising costs is real estate, which in many parts of the country, has skyrocketed at rates that far exceed consumer inflation rates. For seniors, who currently control over $10 trillion in home equity, this could be the key to balancing their budgets and safeguarding their retirement plans.”

Resch says homeowners have several options when it comes to accessing home equity. They could refinance their existing mortgage, though with rising mortgage rates that’s less attractive right now. They can also take out a home equity line of credit.

“For retirees who intend to stay in their homes for the long term, however, an alternative to traditional financing could also be a reverse mortgage,” Resch said.

With a reverse mortgage, the borrower doesn’t make payments as long as they live in the home. For tax purposes, Resch says the loan proceeds aren’t considered income.

“This can go a long way towards balancing a budget and supplementing income," he said.

Sales of existing homes continue to fall as rising mortgage rates present buyers with affordability issues.

The National Association of Realtors (NAR) reports that home sales fell 2.4% from March to April. Compared to April 2021, sales were off by 5.9%. 

In previous months, sales declines were often the result of fewer available homes for sale. But in April, sales fell against a backdrop of rising interest rates that increased the average monthly mortgage payment.

"Higher home prices and sharply higher mortgage rates have reduced buyer activity," said Lawrence Yun, the NAR's chief economist. "It looks like more declines are imminent in the upcoming months, and we'll likely return to the pre-pandemic home sales activity after the remarkable surge over the past two years."

Prices are still high

Fewer sales did not translate into lower prices. The NAR reports that the median existing home price for all housing types in April was $391,200, an increase of 14.8% from April 2021. Those numbers mark 122 consecutive months of year-over-year price increases.

Some economists believe a drop in demand for homes will eventually provide a break for buyers. But with a very tight housing inventory, Michael Gifford, CEO & co-founder of Splitero, isn’t sure when that might happen.

“The reality is that there is significant pent-up demand in all markets, with supply slowly trickling out,” Gifford recently told ConsumerAffairs. “The question is about seller motivation when it comes to dropping their price. Selling motivation is low in this market for most sellers as their next home is challenging to locate whether they are trying to buy or rent.”

Mortgage rates are a headwind for buyers

Even if prices were to moderate in the months ahead, mortgage rates will likely remain a headwind for buyers. The average 30-year, fixed-rate mortgage dropped slightly this week to 5.25%, according to Freddie Mac. A year ago, buyers were locking in a 3% mortgage rate.

With declining sales, the number of homes on the market rose nearly 11% last month, giving buyers more choices and reducing the likelihood of bidding wars. But home shoppers still have to move quickly. 

NAR data shows that properties remained on the market for an average of 17 days in April before going under contract. Eighty-eight percent of homes sold in April 2022, were on the market for less than a month.

When Americans rented a truck from Penske to move, cities in the Sunbelt were their most popular destination over the last 12 months. The company says the pandemic years of 2020 and 2021 were busy.

In fact, the company’s annual moving report found that early 2022 is even busier. Penske describes truck rentals for do-it-yourself moves as “robust.”

When compared to 2020, 20% more Americans moved in 2021. New remote work opportunities enabled an estimated 14 million to 23 million Americans to relocate, according to the U.S. Census Bureau.

Houston was the top moving destination in 2021, and other Texas cities were not far behind. Austin, Dallas, and San Antonio were other popular new cities that truck renters called home. And despite the appeal of mild winters in the Sunbelt, even Chicago got in on the moving action.

The top 10 moving destinations

Here’s Penske’s list of the top moving destinations in 2021:

1. Houston, Tex.

2. Las Vegas, Nev. 

3. Phoenix, Ariz. 

4. Charlotte, N.C.

5. Denver, Colo. 

6. San Antonio, Tex.

7. Dallas, Tex. 

8. Orlando, Fla. 

9. Austin, Tex. 

10. Chicago, Ill.

Popularity equals rising housing costs

Not surprisingly, cities near the top of the list have seen the biggest increase in home prices. The Houston Association of Realtors recently reported that people who bought a home in Houston needed to increase their incomes by nearly 27% in order to qualify for a median-priced house.

That same report showed that the current median-priced home in Houston is $330,800, and only 47% of households make enough money to afford a single-family home. That’s down by almost 10% from the same time in 2021.

If people who are priced out of the housing market must rent instead, Xiaodi Li, an economist at Moody's Analytics, says that will make rent costs more expensive.

“However, we should also consider the macro environment and whether a recession will hit the U.S. economy," Li told ConsumerAffairs. “We expect rents, especially those in high-cost areas, might be negatively affected alongside home sale prices.”

Home prices in Phoenix, number three on Penske’s list, are growing faster than any city in America. According to the S&P CoreLogic Case-Shiller Home Prices Indicies, the median home price in the Arizona city has risen 33% over the last 12 months and is up 57% over the last two years.

When the housing market collapsed in 2008 and home prices plunged, it wasn’t long before investors swooped in and bought distressed properties to convert them to rental properties.

The trend has only increased over the last decade and has coincided with a dramatic drop in homes for sale. Real estate experts have attributed record-high home prices, in part, to the declining number of homes on the market.

Lately, some homeowner associations (HOA) in large subdivisions have adopted bylaws to limit the number of homes that can be occupied by anyone other than the owner. 

The Wall Street Journal reports that the Whitehall Village Master Homeowners Association is attempting to amend its covenants to require anyone buying a home in the development to live in the home or leave it unoccupied for six months before it can be rented. 

Among the arguments made by the HOA for this action is to protect property values. The HOA has claimed that rental properties are not maintained at the level of owner-occupied homes and can make a neighborhood less desirable.

Small impact at first

Greg Kurzner, a strategic real estate investing adviser at Real Estate Bees in Atlanta, is heavily involved in residential “buy and hold” investing and purchasing homes for resale. He says companies like Invitation Homes, American Homes 4 Rent, and others began institutionalizing the business of residential rental properties around 2012 and were not initially impacting the housing market in a significant way. 

“Over time, that has changed, with firms buying more and more homes for rent and more firms entering the residential rental industry,” Kurzner told ConsumerAffairs. 

Unlike the immediate post-housing crash years, Kurzner said today’s real estate investors are happy to pay the list price for homes because rental rates are increasing. He says they often hold an advantage over owner-occupant buyers because they can pay cash and settle quickly. In short, they’ve been very good for sellers.

“The presence of buy-to-rent competitors has further exacerbated a low inventory market and there is little chance the trend will slow down until rental rates and or the costs associated with rental ownership increase to a point where investing in rentals isn't profitable,” he said. 

Highly profitable

Investing in rentals appears to be very profitable at the moment. The Journal cites data from CoreLogic that shows one out of five homes that sold in December was purchased by an investor. The National Association of Realtors reports that the median price for a home selling in February was 15% higher than 12 months earlier.

Kurzner says HOAs can and do implement rental restrictions, and they take many forms. Some restrict short-term rentals such as Airbnbs, and others prohibit rentals entirely.

“HOAs can typically implement restrictions as long as they do so as they would when adding or amending their covenants and restrictions for anything else,” Kurzner said. “Most amendments or changes to covenants require a supermajority vote of the owners.” 

To make the changes enforceable, Kurzner said HOAs should seek legal counsel to prepare documents that are legal, enforceable, and don't violate any local, state, or federal laws. An attorney can help ensure that the restrictions are not discriminatory.

Consumers hoping to purchase a home are feeling strong headwinds just as the spring home-buying season gets underway. Prices are at record highs while mortgage rates continue to climb, increasing the average monthly payment.

According to data compiled by Bankrate, the interest rate on the average 30-year fixed-rate mortgage is 5.14%, up from 4.85% a week ago. The increase is at least indirectly tied to inflation.

Mortgage rates are closely correlated to the yield on the 10-year Treasury bond, which has moved higher in recent weeks because of inflation. A year ago, the average mortgage rate was just over 3%.

Big difference

Two percentage points make a huge difference when it comes to a monthly payment. Principal and interest on a $400,000 mortgage at 3.14% is $1,717. The same mortgage at 5.14% produces a monthly payment of $2,182 – an extra $465 a month. Over the life of the loan, that adds up.

“The difference in 3% and 5% mortgage rates translates to $125,000 more on a $500k home,” Polina Ryshakov, lead economist at real estate broker Sundae, recently told ConsumerAffairs.

“We’re about to head into the spring selling season with record-low inventory so we likely won’t see a slow in sales any time soon.”

‘Extremely difficult process’

It’s that record low inventory of homes that is keeping home prices at record levels. A report issued this week by the National Association of Realtors (NAR) found that rising prices and declining affordability now hold back many buyers, especially minorities.

The biggest challenges identified are a lack of affordable homes, a lack of homes that fit their criteria, competing with multiple offers, and saving for a down payment.

"Record-high home prices and record-low inventory have made the home buying process exceedingly difficult,” said Dr. Jessica Lautz, NAR vice president of demographics and behavioral insights. “Our new study shows that while the inventory crisis is affecting potential buyers of every race, nearly all home buyers agree that homeownership is still an important part of the American Dream.”

While buyers are finding fewer choices, they are also encountering higher asking prices. The NAR reports that the median price of an existing home selling in February was $357,000, 15% higher than in February 2021. Those conditions have raised the average monthly payment by 28%.

The number of homes to choose from, meanwhile, got smaller. Inventory levels were down 15.5% from a year earlier.

Mortgage rates are marching toward 5%, and home prices are at a record high. Should you consider a 40-year mortgage?

While a 30-year mortgage seems like a long time, a 40-year loan seems like an eternity. But financing the loan over an extra 10 years will bring down the monthly payment, which is getting so high that it is squeezing hundreds of thousands of people out of the housing market.

The principal and interest on a 30-year fixed-rate mortgage of $300,000 at 4.8% is $1,574. That same loan financed for 40 years at that same fixed rate lowers the payment to $1,407.

Benefits and drawbacks of longer loans

Before you sign on the dotted line, consider the downside. Kristina Morales, a Realtor in Cleveland, Ohio, said lower monthly payments come at a cost.

“The obvious downside is how much more a borrower pays in interest compared to a 30-year fixed mortgage loan,” Morales told ConsumerAffairs. “The longer the loan, the more the borrower pays in interest. I have seen mortgage simulations where a borrower using a 40-year mortgage would pay in interest alone almost what they paid for the home – in essence, almost doubling the cost of the home.”

Of course, that assumes the homeowner pays the mortgage for the full 40 years. The average for owning one particular home is about eight years. But even in a short-term situation, homeowners will pay more in interest on the first payment than they would on the same loan financed for 30 years.

“If you get a $300,000 30-year mortgage at a 5% interest rate, you'll pay about $24,500 in principal in the first five years, and pay almost $280,000 in interest in 30 years,” Holden Lewis, home and market insights expert at NerdWallet told us. “With the same amount and interest rate on a 40-year loan, you'll pay about $13,400 in principal in the first five years, and more than $394,000 in interest over 40 years.”

A 40-year loan makes sense for some people

That said, a 40-year fixed-rate mortgage might be preferable to an adjustable-rate mortgage (ARM), especially at a time of volatile interest rates. For all its faults, both Morales and Lewis said they would recommend the longer fix-rate loan over an ARM.

“As I talk with my lender partners about ARMs, they are saying that there is not a huge discount in the rate like we would historically see,” Morales said.

For someone struggling to qualify for a mortgage, Morales said it might make the most sense to take out a 40-year loan. As the borrower begins to earn more money, they could apply some of that extra cash to pay down the principal each month, which would lower interest costs.

The trend of higher home prices and higher mortgage interest rates continued to March, requiring larger down payments and higher monthly mortgage payments. 

The Monthly Housing Trends Report from Realtor.com shows that the median home price hit $405,000 for the first time ever in March. But that surge in home prices might be enough to cool down a housing market that has been red-hot since the start of the COVID-19 pandemic.

"Despite the $405,000 price tag, March data reveals we are starting to take some steps towards a more balanced market," said Danielle Hale, chief economist for Realtor.com. "Buyer demand is moderating in the face of high costs, and we're beginning to see more homeowners take price cuts on their listings and overall inventory declines lessen in response.”

Rising interest rates

At the same time, potential buyers are facing headwinds from rising interest rates. Freddie Mac reports that March ended with the average 30-year fixed-rate mortgage rate at 4.67%, the highest in four years.

“Mortgage rates continued moving upward in the face of rapidly rising inflation as well as the prospect of strong demand for goods and ongoing supply disruptions,” said Sam Khater, Freddie Mac’s chief economist. “Purchase demand has weakened modestly but has continued to outpace expectations. This is largely due to unmet demand from first-time homebuyers as well as a select few who had been waiting for rates to hit a cyclical low.”

Tara and Shannon Gannon of Team Gannon Real Estate, a Long Island, N.Y., firm, are seeing the effects of rising prices and rising interest rates. They tell us it could create a more stable market in the months ahead and reduce the number of bidding wars that have frustrated many would-be buyers.

“Buyers are aware of the rising rates and might not be so inclined to offer tens of thousands of dollars over asking prices,” the team told ConsumerAffairs. “We have also noticed an increase in price reductions.”

Because of these conditions, the Gannon Team predicts a lighter spring real estate market, as some homeowners with low interest rates may be reluctant to sell and purchase another home at a higher rate.

Home constructions pick up speed

The Realtor.com report also found a substantial increase in new home construction, something that could help alleviate an acute housing shortage that has persisted for years.

“Assuming all these factors and new construction hold steady, we could begin to see inventory increases this summer – welcome news for buyers who have endured pandemic home shopping and can continue their journey despite higher buying costs,” Hale said. 

Hale says the current conditions may spark a flurry of buying before rates rise even more. But on the flip side, she says buyers who are able to put off a home purchase for a few months may find more homes to choose from in mid to late summer.

Inflation is increasing the cost of living for just about everyone, but renters may be feeling the most pain. New data analyzed by Realtor.com suggests that American renters spent 30% of their monthly budgets on rent in February.

But that’s just the average. February rents accounted for an even higher portion of household incomes in 14 of the 50 largest U.S. markets, with the list of least affordable areas dominated by Sun Belt metros like Miami, Tampa, and San Diego.

According to the report, the median rent hit a new high of $1,792 last month, up more than 17% over February 2021. Rents were higher across all apartment sizes, but studio apartments experienced the fastest growth, rising to a median of $1,474.

However, larger units also posted double-digit gains. Rents for both one-bedroom and two-bedroom units rose more than 16%, with the median rent on a two-bedroom unit going over $2,000 a month for the first time.

“With rents surging nationwide, February data indicates that many renters' budgets may be stretched beyond the affordability limit," said Realtor.com Chief Economist Danielle Hale. 

High rents prevent homeownership

The sudden rise in rents not only creates an affordability issue for renters, but it also makes it much harder for them to save enough money to become homeowners. Hale says renters who hope to become buyers also face other challenges.

“Fast-rising mortgage rates and still-limited numbers of homes for sale could mean some would-be buyers may stick with the flexibility of renting,” Hale said. “With rental demand already outmatching supply, rental affordability will remain a challenge.”

Mortgage rates jumped last week and start this week very close to the 5% mark. The average 30-year fixed-rate mortgage hit 4.95%, moving more than a full percentage point in just the last six months. The difference in one percentage point on a $250,000 mortgage is $149 a month, an amount that could price many buyers out of the market.

Housing shortage

A new report by the Pew Research Center finds that several factors are contributing to rising rents. Among them are a shortage of new construction and a surge in home buying during the early months of the pandemic, which was encouraged by record-low mortgage rates.

The report shows that 46% of American renters spent 30% or more of their income on housing in 2020, including 23% who spent at least 50% of their income. That means nearly half of U.S. rents meet the U.S. Department of Housing and Urban Development’s definition of being “cost-burdened.” 

"Whether it's rent or mortgage payments, the general rule of thumb is to keep monthly housing costs to less than 30% of your income,” Hale said. 

For renters who want to buy a home and need to save for a downpayment, Hale says it’s important to find a relatively affordable rental unit -- something that’s getting harder to do.

Zillow, the online real estate marketplace, has some good news and bad news for first-time home buyers.

The good news is that the housing market will eventually return to 2019, pre-pandemic conditions -- when homes were more plentiful and affordable. The bad news is that a return to normal probably won’t happen until 2024 at the earliest.

Until then, Zillow’s panel of experts predicts that there will be fewer homes on the market and that they will cost more. Tabitha Mazzara, director of operations at mortgage lender MBANC, agrees with that assessment. She recently told ConsumerAffairs that low inventory will be the prime factor keeping home prices elevated.

“At most, we will see some flattening of home prices, but don't expect prices to plunge in 2022,” Mazzara said. “Where housing is concerned, we're not in a bubble that's going to pop any time soon.”

Fewer homes for sale

Zillow traces skyrocketing home prices to declining supplies of homes for sale, crediting that trend with a 32% increase in home prices over the last two years. Total inventory has fallen from a monthly average of 1.6 million units in 2018 and 2019 to just over 1 million units in 2021. Monthly figures in 2022 are even lower. 

At the same time, millions of Americans have sought to purchase homes. Many were renting apartments in 2020 when the pandemic began and suddenly saw the need for more space.

About 38% of the Zillow experts predict that inventory levels should return to a monthly average of 1.5 million units or higher in 2024. Some are more optimistic, believing things could be in a more normal state by sometime next year. However, almost no one in the group is expecting a turnaround this year.

"Inventory and mortgage rates will determine how far and how fast home prices will rise this year and beyond," said Zillow Senior Economist Jeff Tucker. "We are seeing new listings returning to the market, slowly, as we enter the hottest selling season of the year, but this supply deficit is going to take a long time to fill." 

Intense competition for homes

The reason for the “supply deficit” isn’t complicated. Since the housing market crash of 2008-09, builders have reduced the production of new homes by nearly 50%. At the same time, many baby boomers have decided to remain in their homes as they age and are not selling.

Because building costs have risen so much over the last decade, builders are producing fewer entry-level homes that first-time buyers can more easily afford. That’s caused first-time buyers to compete with one another for the limited number of entry-level homes on the market.

There is hope for first-time buyers, the Zillow experts say, but patience will be required. While most believe the market will return to normal in 2024, some expect it will take much longer. Eighteen percent of the experts polled did not believe the share of first-time buyers will rise above 45% until after 2030.

The last two years of the COVID-19 pandemic have completely transformed the U.S. housing market, according to a new report from real estate marketplace Zillow.

Zillow reports that the number of homes for sale continued to fall in February and is now 48% below 2020 levels. Home prices are still rising and are, on average, 32% higher than two years ago.

Meanwhile, rents have accelerated in the last year of the pandemic. Zillow estimates that a one-year lease would cost almost $3,400 more per year than one signed two years ago.

These trends are making it harder for renters to become homeowners, especially since interest rates are also starting to rise. Tabitha Mazzara, director of operations at mortgage lender MBANC, says the lack of available homes is the main driver of prices. She says prices may level off at some point but will not go down over the next six months.

“Although we're seeing a lot of volatility in some sectors of the economy -- gas prices, the stock market -- basic law of supply and demand will preclude any downward trend in home prices,” Mazzara told ConsumerAffairs. “There's a low supply of housing, and ongoing supply chain issues mean that isn't going to be resolved quickly by homebuilders. Further, inflation is raising the price of building materials.”

Real estate investors are doing just fine

While the short-term future may pose challenges for buyers, investors may have never had it so good. People who have invested in real estate since the start of the pandemic have seen the value of their properties appreciate faster than most other assets.

Jawad Nayyar, co-founder of DAO PropTech, a company assisting real estate investors, says investors are well-positioned to weather inflation.

“Asset markets usually have a growth rate higher than the inflation rate over longer periods, so it is a great hedge against inflation over longer periods even in adverse economic conditions,” Nayyar told us. 

‘Rising at unfathomable rates’

Zillow economist Nicole Bachaud agrees that a lack of inventory has been the major force shaping the real estate market over the last two years. She notes that there are roughly 730,000 houses currently for sale in the U.S., compared to 1.4 million in February 2020. 

"We've seen strong demand for homes and prices rising at previously unfathomable rates,” Bachaud said. “A wave of millennial and baby boomer buyers have depleted housing inventory that was never really replenished following the Great Recession."

Looking ahead, Zillow economists expect annual home value growth to continue to accelerate through the spring, peaking at 22% in May before gradually slowing to 17.8% by February 2023. Sales in 2022 are forecast to rise 4.8% above levels in 2021, which would be the best year for sales since 2006.

For buyers, that means moving quickly. When a home is listed for sale, it doesn’t last very long. Zillow estimates that homes now go under contract within 11 days of appearing on the market, six days faster than a year ago.

Home mortgage rates have started the week above 4%, making it even more expensive to purchase a home. To compensate, analysts say some buyers are using a risky tactic that helped blow up the housing market more than a decade ago.

Because higher home prices and higher interest rates combine for higher monthly mortgage payments, an increasing number of buyers are foregoing a 30-year fixed-rate mortgage and instead are selecting an adjustable-rate mortgage (ARM). Data firm CoreLogic has shown that the share of mortgages that have adjustable rates rose to 10% in January.

Buyers on the very edge of affordability sometimes select an ARM because the rate is significantly lower than a fixed-rate mortgage, at least at the beginning. While the rate on a 30-year fixed-rate mortgage has risen to over 4%, rates on ARMs can be a full point lower.

ARMs can be attractive because they offer an initial low rate for several years. The term might be as few as three years or as much as 10 years. After that, the rate adjusts about once a year to reflect prevailing rates. If they adjust higher, the monthly payment goes up.

‘Hoping and praying’

Last summer Joyce, of Trinity, Texas, took out an ARM with Finance of America Reverse. She tells us that she was very happy with the experience but has concerns about how high the rate could eventually go.

“I'm hoping and praying that they're not going to rapidly increase the rate and terms because it's an adjustable rate,” Joyce wrote in a ConsumerAffairs review. “It's already gone up once but I'm glad there is a cap. If there had not been the 7% cap, we would not have accepted the mortgage at all.”

And therein lies the concern some housing experts have with ARMs. Until very recently, mortgage rates have been low and stable. As long as that scenario prevails, ARMs carry less risk.

Changing environment

But in a rising interest rate environment, it is hard to predict how high rates might go. Joyce’s loan caps at 7%, but that is probably more than twice the rate she started with.

In the early 2000s, millions of borrowers took out subprime mortgages with low “teaser” rates that quickly escalated to double digits. Because many borrowers couldn’t really afford the low rates to begin with, the increase in monthly payments created a wave of foreclosures that tanked the housing market.

No one is suggesting history is about to repeat itself, but a new generation of homebuyers, too young to remember the 2008 housing crash, should be aware of the pitfalls. Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors, says buyers should be mindful of borrowing costs.

“While the next few weeks will be unpredictable as markets continue to churn, the outlook is for mortgage rates to rise even higher,” she said in a statement. 

Home shoppers who are considering an ARM might be wise to consult an objective financial adviser who has knowledge of the real estate industry. When shopping for a lender, checking out thousands of verified ConsumerAffairs reviews of mortgage companies will also be helpful.

Rising home prices and rising mortgage rates are not a good combination. Frustrated homebuyers headed to the sidelines last week, as the Mortgage Bankers Association (MBA) reported a big drop in loan applications.

According to the MBA, applications for home mortgages dropped 1.2% from the previous week. Much of the decline was for refinanced loans because the higher rates made refinancing less appealing. 

Many consumers who took out mortgages to purchase a home were buying expensive homes. The average purchase application loan size remained elevated at $453,200 - the second-highest amount in the MBA's survey.

Making home purchases even less affordable, most buyers are now paying over 4% for a mortgage. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 4.23% from 4.12% the week before.

‘High demand and growth’

Jawad Nayyar co-founder and chief vision officer of DAO PropTech, a firm assisting real estate investors, says the housing market should continue to move higher despite rising rates and prices.

“In some areas of high demand and growth, the value growth might be as high as 25%,” Nayyar told ConsumerAffairs. “We believe the current bullish trend would also translate into higher growth rates for the next year, increasing the values further by another 15%. Towards the end of the year, the market growth is expected to slow down, due to political uncertainty.”

Tabitha Mazzara, Director of Operations at mortgage lender mbanc, agrees that home prices will not only hold their current value in the months ahead but are likely to move even higher. She notes that inventory levels are way below normal.

“With ongoing supply chain issues, we won't be seeing any sudden increase in inventory in the near future, either,” Mazzara told us. “The minute any property becomes available, people are still buying, and there is still a lot of money in circulation from government programs designed to stimulate the economy during COVID.”

Not enough homes for sale

Mazzara says the current market is drawing homeowners and investors who are longing for some stability.

“The stock market is up and down, crypto is up and down, and the bond market is also affected by the situation in Ukraine,” she said. “But home prices will not have that same volatility."

Joel Kan, the MBA's associate vice president of Economic and Industry Forecasting, says mortgage rates may remain volatile for a while because of uncertainty surrounding Federal Reserve policy and the war in Ukraine.

Consumers who were stuck in a renting situation last year paid more than in years past.

A recent report from Zumper, a site that allows consumers to search for apartments, shows that the median rent on a one-bedroom apartment rose 12% year-over-year in 2021. That pushed prices to $1,374, on average. Prices rose even higher for two-bedroom apartments, at 14.1% growth year-over-year. Unfortunately, things don't seem to be off to a better start in 2022.

"Rent has opened 2022 in much the way it spent 2021 -- setting a new all-time high," Zumper's Jeff Andrews noted.

Here are the cities with the top five highest rent prices per month as of January 2022, according to Zumper's data:

1. New York, N.Y. -- $3,260
2. San Francisco, Calif. -- $2,850
3. Boston, Mass. -- $2,720
4. San Jose, Calif. -- $2,390
5. Miami, Fl. -- $2,340

Consumers returning to cities

Housing demand has been recovering in recent months following the rollout of COVID-19 vaccines. East coast cities like New York have seen an influx of residents who are making their way back after a mass exodus in 2020. That competition is making it easier for landlords to raise rent prices.

Andrews says the national housing shortage has also played a major role in pushing up rents. 

"The sudden increase in housing demand since the pandemic began in March 2020 exacerbated what was already a national housing shortage that dates back to the financial crisis in 2008, after which annual housing production dropped substantially," he said. 

"While some of the post-pandemic demand might fade as the pandemic becomes endemic, the housing shortage is a long-term issue that will likely continue to push rent up in 2022."

Mortgage rates are moving higher, making homes – already at record highs in terms of median price – less affordable.

The average rate on a 30-year fixed-rate mortgage with conforming loan balances increased this week to 3.64%, still relatively low from a historical perspective. But rates were below 3% several months ago when John, of Georgetown, Texas, decided to refinance his mortgage and contacted eight lenders.

“The mortgage rates and closing costs varied widely,” John wrote in a ConsumerAffairs review. “I ended up refinancing my mortgage with Jake at Network Capital. Jake was able to save me 22% off my original home mortgage.”

But fewer current homeowners like John are refinancing this week since the opportunity to get a lower rate has largely passed, at least for now. The Mortgage Bankers Association (MBA) reports that the number of refinancing applications plunged by 3% from the previous week. It was 49% lower than one year ago.

"Mortgage rates hit their highest levels since March 2020, leading to the slowest pace of refinance activity in over two years,” said Joel Kan, MBA's associate vice president of Economic and Industry Forecasting.

Some home buyers getting more serious

Kan says the average 30-year fixed-rate mortgage has increased 30 basis points in just two weeks, primarily due to a recent spike in the yield on the 10-year Treasury bond. Mortgage rates are keyed to the 10-year bond. 

Kan says the increase in mortgage rates may have slowed refinancing activity, but it has also caused some prospective home buyers to get more serious.

"Despite the increase in rates, purchase applications jumped almost 8 percent, with conventional purchase applications accounting for much of the stronger activity,” Kan said. “The average loan size for a purchase application set a record at $418,500.”

Realtors report that demand for homes remains strong despite rising mortgage rates. But according to Kan, buyers are facing challenges to finding homes in their price range, especially with the cost of financing going up.

Every rise in rates makes monthly payments more expensive. A 0.5% increase in interest rates on a 418,500 mortgage increases the monthly payment by $115.

If you’re a homeowner, you may have recently received some unsolicited offers from total strangers who say they’ll buy your house, sight-unseen, for cash.

The housing market is red-hot, with median home prices at record highs, so why would any homeowner respond to such an appeal? 

Josh Stech, CEO and founder of Sundae, a company that facilitates home sales to investors without using a broker, said these solicitations are targeting a certain type of homeowner – one who is desperate.

“The industry is partly fueled by a cottage industry of real estate gurus who make money offering to teach people how to find and prey on ‘desperate’ sellers,” Stech said in an interview with ConsumerAffairs. “While I won’t name names, I can confirm that wholesalers will use a number of well-honed predatory practices such as the bait and switch tactic.”

Middlemen for investors

Stech says many operators don’t really buy the home at all, but rather are “wholesalers” who act as a middleman for an investor. They persuade the homeowners to agree to a below-market price, citing needed repairs, and then find a way to reduce that price even more.

“They’ve also been known to use phony inspections and legal threats to lock in the seller at a price far below what the house is worth,” Stech said. “Once they have done all they can to secure the home at the lowest possible price, they then turn around and sell the house to an investor and pocket the spread as their ‘assignment fee’ without ever purchasing the home or putting up any money to make repairs.”

Stech says the wholesaler’s profit comes at the expense of the homeowner, who loses a significant amount of their equity.

“In some cases, an offer can be $70,000 below what the home is really worth,” he said. “That is a lot of money to a person who may have fallen on hard times and needs to sell their home.”

Homeowners have options

The problem many homeowners face is a lack of money to make the repairs and improvements needed to sell the property at its market value. If significant repairs are required, the property might not pass a mortgage inspection and must sell for cash. Cash buyers typically offer well below market value.

Stech says his company can provide an alternative by putting a homeowner in touch with a number of investors who purchase “as-is” properties. The difference, he says, is his company provides a platform where buyers must compete with one another.

“Sundae serves as an advocate to ensure the seller gets the best price,” Stech said.

There are other alternatives as well. A homeowner may apply for a home equity loan to make the repairs, then list the home for sale with a real estate broker. 

While they may be more likely to get closer to the market value, there are costs involved. There are usually closing costs for the home equity loan, and a typical brokerage fee is 6% of the sale price.

With home prices rapidly increasing over the last few years, the challenge facing first-time homebuyers is even steeper in 2022. But with more organizations allowing remote work, buyers have more options than they used to.

Instead of living within commuting distance of an urban area office, employees are able to live farther away and take advantage of more affordable home prices and an overall lower cost of living. The housing experts at Realtor.com have crunched the numbers and assembled a list of the best housing markets for first-time buyers.

To make the list, a city had to have a strong job market, light traffic, plenty of places to eat and drink, a younger population, affordability, and more homes to choose from. The 2022 top 10 markets, in ranked order, are: 

1. Magna, Utah 

2. Chalco, Neb.

3. Mauldin, S.C.

4. Beech Grove, Ind.

5. Portsmouth, Va.

6. Cottage Grove, Wis.

7. Grimes, Iowa

8. Kuna, Idaho

9. Ferndale, Mich.

10. Maitland, Fla.

"Buying a first home is always a challenging undertaking, and it's been an especially tough couple years for first-time buyers, many of whom are struggling to find a home that's within their budget or win in a competitive bidding situation," said Realtor.com Chief Economist Danielle Hale. "With this in mind and the fact that remote work has given people more flexibility in where they live, we wanted to identify markets where first-timers have a chance to become homeowners and find a great quality of life."

The markets on the list have about twice the number of available homes for sale than the national average. They also have the kinds of amenities that tend to draw young families.

A good mortgage rate is also important

But even when you can find an affordable home, Promise, of Hellertown, Pa., says getting the best possible mortgage rate is also an important factor. She reports a good experience dealing with Rocket Mortgage.

“Very efficient, and a small group of people I was in contact with, which I loved because they knew my case through and through,” Promise wrote in a ConsumerAffairs review. “They answer and explain all questions perfectly! Highly recommend to anyone looking to buy a home for the first time!”

Getting a good mortgage rate is even more important now because rates appear to be heading higher. According to Money magazine, the interest rate on a 30-year fixed-rate mortgage started the week at 3.846%, up 0.039 percentage points over the weekend. 

Because of supply chain bottlenecks, home builders are struggling to finish homes because they can’t get all the materials they need.

The shortage has been magnified because builders have significantly increased production in the last 12 months. As a result, the Wall Street Journal reports that there have been cases in which people have moved into unfinished homes that may lack gutters or garage doors.

Some builders have been forced to suspend sales in some of the nation’s most active housing markets as they wait for supplies of home building materials to catch up with demand.

These same issues, to a lesser extent, are affecting home remodeling companies. In a ConsumerAffairs review, Becky of Windsor, Colo., said she ordered new windows from Champion Windows and Home Exteriors last March.

“Some of our windows were finally installed mid-September 2021,” Becky wrote last month. “We have tried to get a response as to when we will get our other windows and front door, promises that the GM would contact us multiple times, never has happened.”

A spokesman for Champion Customer Care responded to Becky’s post, apologizing for the delay and telling her the company is working through its supply chain issues.

“We are working with our factory and your local Champion office to get an update on your order and will be in touch with you as soon as possible to complete your installation,” the company said.

Problems began with the pandemic

According to the Journal report, the building and remodeling industry’s persisting supply chain issues are largely rooted in the COVID-19 pandemic. Since the start of the pandemic, outbreaks of the virus have closed entire factories and limited transportation options. Building materials have to compete with other consumer products that have overwhelmed ports for nearly a year and a half.

Executives at one builder – Homes by WestBay LLC in Riverview, Fla. – say their company has begun to order the windows for new homes six months in advance, giving themselves three times the lead time that was normal before the pandemic.

The migration of people from large metro areas to mid-sized cities is expected to continue in 2022, making those real estate markets among the most robust in the nation.

When the pandemic caused offices to close and employees to work remotely, many packed up and moved to more affordable areas where they could buy larger homes. In its 2022 housing forecast, Realtor.com expects that trend to continue and further boost property values.

Concentrated in the Mountain West, the Midwest, and New England, 2022’s top 10 housing markets are predicted to be:

1. Salt Lake City, Utah 

2. Boise, Idaho, 

3. Spokane, Wash.

4. Indianapolis, Ind.

5. Columbus, Ohio

6. Providence, R.I.

7. Greenville, S.C.

8. Seattle, Wash.

9. Worcester, Mass.

10. Tampa, Fla. 

These cities are expected to see the strongest combined growth in home sales and listing prices among the 100 largest U.S. metros, according to Realtor.com data.

For example, the median home price of $564,062 is expected to increase by 8.5% next year in Salt Lake City. Even in Tampa, the number 10 market, the median price of $335,814 is expected to grow by 6.8%.

Things in common

The hottest markets have a number of factors in common. They all have a strong job market, with a lower average unemployment rate than the rest of the top 100 markets. They also have higher average job growth. Five of the top 10 also have a higher share of STEM jobs than the 100 metro average.

While there is no question that remote workers have been on the move over the last 18 months, Danielle Hale, chief economist at Realtor.com, says these markets have other things going for them.

“The top housing markets rely to varying degrees on outside real estate traffic, but even the markets attracting the most real estate attention from elsewhere -- Greenville, Boise, and Spokane -- have thriving local economies with below-average unemployment rates,” Hale told ConsumerAffairs. “In other words, while these markets likely benefit from remote work opportunities, that is not the only driver of real estate growth in these areas.”

Affordability is also a big factor. Homes in major coastal markets have become increasingly expensive when compared to cities in the Midwest and South. Hale says Columbus and Indianapolis make the list because home buyers’ money goes a long way.

“With above-average shares of STEM jobs in these markets contributing to below-average unemployment rates, they are attractive markets to start and grow a career,” she said. “With above-average shares of younger households and rent vs. buy considerations that are tipped in favor of buying, these areas will likely do well no matter how common remote-work is as an option for workers.”

Prospective buyers who were unable to buy homes in 2021 may have a slightly better chance in the coming year, but they will still face a competitive market. Realtor.com’s 2022 Housing Forecast predicts that listing prices will continue to rise, along with mortgage rates.

First-time buyers are likely to face the stiffest challenge because demand from this market segment will exceed the slight recovery in the inventory of affordable homes. Surveys suggest that more homeowners will list their homes in the first half of the year, but homebuilders aren’t expected to keep pace with the demand.

Realtor.com Chief Economist Danielle Hale says she expects single-family housing starts will increase 5% in 2022, but that may not help buyers looking for lower-priced, entry-level housing. She says some builders in some markets have been able to target this market, but it remains a challenge.

“The key challenges facing builders trying to serve entry-level homebuyers and others looking for lower-priced housing are their own cost pressures,” Hale told ConsumerAffairs. “Prices are high and in some cases still rising for land, lumber, and other inputs to building a home. On top of this as the jobs market improves, builders continue to face challenges hiring the right workers with the right skills to complete homes.”

More sellers in 2022

Realtor.com data suggests that more homeowners plan to sell in the coming year, which should improve inventory levels. At the same time, buyers should be prepared to pay more -- usually more than the list price -- in the nation’s most competitive markets.

“One bright spot for entry-level buyers is that even if they aren't buying new homes themselves because of the price premium, the improvement in construction will contribute to an overall lift in homes available for sale, and that will mean better options than buyers likely faced in 2021, even as the housing market remains competitive,” Hale said.

Realtor.com expects 2022 home sales will increase more than 5%, hitting their highest level in 16 years as buyers remain active and inventory begins to recover from recent steep declines. Just as in 2021, next year’s buyers should be prepared to act quickly, as desirable properties won’t stay on the market for very long.

Workplace dynamics may turn out to be the wild card in the 2022 housing market. If remote work becomes more permanent in more industries, affordable housing markets may see an influx of new residents, many of whom will be earning high salaries.

That trend started in 2020 with the beginning of the pandemic, and it has bolstered housing markets in the South and Midwest. If the trend continues in 2022, it could make some affordable markets less affordable in the coming months.

The housing market is showing no signs of slowing down into the end of the year, even as mortgage rates move higher. The National Association of Realtors (NAR) reports that pending home sales jumped 7.5% in October.

Pending sales are based on signed contracts that are expected to close within the next 60 days. Despite the sharp increase from September signings, pending sales were still 1.4% lower than October 2020, which set the bar for late-year transactions.

The NAR previously reported that completed transactions also rose in October when most economists expected the combination of rising mortgage rates and declining inventories to keep buyers shopping for holiday gifts instead of homes.

“Motivated by fast-rising rents and the anticipated increase in mortgage rates, consumers that are on strong financial footing are signing contracts to purchase a home sooner rather than later,” said Lawrence Yun, NAR’s chief economist. “This solid buying is a testament to demand still being relatively high, as it is occurring during a time when inventory is still markedly low.”

Pending sales were the strongest in regions of the country where home prices are the most affordable. Sales were up 11.8% in the Midwest region and 8% higher in the South.

Mortgage rates are still low by historical standards but have risen over the last couple of months. In mid-September, a buyer with excellent credit secured an average 30-year-fixed-rate mortgage slightly below 3%. By the end of October, the average rate had risen to 3.22%.

First-time buyers face a big challenge

According to Yun, the biggest challenge in the current market hits first-time buyers especially hard. While there is a general shortage of homes for sale, the shortage is greatest in lower-priced, entry-level properties.

The total inventory of available homes at the end of October was about 1.25 million units. That’s down 0.8% from September and 12.0% from October 2020. That poses a distinct challenge for buyers, who often have to compete with each other for available homes.

Another challenge is the rising price of homes. The NAR reported last week that the median existing-home price for all housing types in October was $353,900. That’s 13% more than in October 2020.

The cost of renting an apartment is surging, especially in major cities where rents plunged during the pandemic. A new report from Realtor.com shows that people who fled urban areas during the pandemic are moving back.

Rents fell sharply early in the pandemic because fewer people wanted to live in congested urban areas when they were working remotely. But in September, Realtor.com data shows that rents in the 10 biggest U.S. technology cities like Austin and New York were 6.3% higher than in March 2020.

‘Past the recovery phase’

On a national basis, the report shows that rents grew at a double-digit annual pace -- 13.6% -- for the second month in a row. George Ratiu, manager of Economic Research for Realtor.com, says the nation’s big tech hubs saw the fastest growth.

"September data confirms the U.S. rental market has moved past the recovery phase and is fully back in business,” Ratiu said. “Rental demand remains unseasonably high, driven by still-limited housing supply, rising mortgage rates pushing buyers towards renting, and more people returning to big cities."

The move from U.S. cities to the suburbs early in the pandemic fed demand for single-family homes, so prices for those houses skyrocketed. While the housing market has cooled a bit, prices remain at all-time highs. 

“Rents didn't rebound from COVID-19 declines as quickly as for-sale home prices, but rental activity has now reached a level not unlike the homebuying frenzy seen earlier this year, before fall seasonality kicked in,” Ratiu said. “The good news is that if rents continue to parallel home listing prices, rental price growth could potentially begin cooling this winter."

Technology centers see the most demand

Realtor.com notes that the rebound in rents in technology centers like San Francisco and Austin began in April, at about the time the vaccine rollout reached critical mass. Over the last two months, rents have accelerated even more. 

The average rent in the 10 largest U.S. technology cities grew by 9.9% year-over-year in September and was 6.3% higher than in March 2020. During the height of the pandemic, rents were down as much as 7.2%.

Rents in Austin experienced the biggest September gain, rising 22.3%. Rents were up 15.5% in Denver. Seattle, where rents fell 12.1% at one point during the pandemic, recorded an average rent increase of 8.1% in September.

Raitu says the days of rental deals in metros like San Francisco and Manhattan may be over, but he sees a silver lining for renters with more flexible timelines. He believes people who sign a lease in January or February may end up getting slightly better deals. 

He also says people who must rent an apartment now should be prepared to compromise on location and amenities to remain within their budget.

Home mortgage rates are still relatively low, but they’re not as low as they have been. According to the Mortgage Bankers Association (MBA), the rate on loans for purchases and refinancing has hit an eight-month high.

"Mortgage rates increased again last week, as the 30-year fixed rate reached 3.30 percent and the 15-year fixed rate rose to 2.59 percent - the highest for both in eight months,” said Joel Kan, the MBA's associate vice president of Economic and Industry Forecasting.

Because of the recent string of rate increases, there was a fifth straight decline in refinancing activity. Homeowners who had not yet refinanced found less of an advantage in locking in at last week’s higher rate. Despite that, lenders were still busy.

"Purchase applications picked up slightly, and the average loan size rose to its highest level in three weeks, as growth in the higher price segments continues to dominate purchase activity,” Kan said.

Both new and existing-home sales last month were at their strongest sales pace since early 2021, but the housing market is now relying more on homeowners who are moving up. The number of first-time buyers continues to fall.

The number of current homeowners who refinanced their mortgages last week dropped by 2%, making up just 62.2% of total applications. That percentage has fallen as rates have gone up.

Refinancing could still be an option

While the market is changing, it’s not too late to refinance your mortgage; it just depends on your present rate and if it makes financial sense. Although a new mortgage at a slightly lower rate will lower your monthly payment, homeowners also need to consider closing costs. The fees have to be considered when deciding how much a new mortgage will save you money over time.

According to Forbes adviser, taking two years to make up the difference between lower monthly payments and closing costs is ideal. An important consideration, however, is how long you intend to keep the house before selling.

Finding a lender with both low rates and low closing costs will make refinancing more profitable. ConsumerAffairs has rated the best mortgage lenders based on thousands of verified consumer reviews.

Homes are still in short supply and prices remain high, but the U.S. housing market in the first three quarters of 2021 is beginning to return to normal patterns, according to a report from real estate broker RE/MAX.

In 2020, the pandemic sent millions of apartment dwellers in search of more space. Working from home allowed millions of people to live far from the office. As a result, demand for single-family homes surged. Buyers often engaged in bidding wars, pushing a home’s sale price far above its asking price. According to RE/MAX, the intensity among buyers has been “exhausting,” but it slowed a bit as the third quarter came to an end.

Second-most active September

September home sales were down 7.0% from August's total, and the median sales price declined 1.1% to $329,000. Typically, the declines are larger as summer gives way to fall.

"This was the second-most active September for sales in 14 years, trailing only 2020, which was an outlier in many ways," said Nick Bailey, President, RE/MAX, LLC. "Plus, the expected seasonal drop in sales from August to September was half of what it usually is, indicating that buyers and sellers are still very much on the move.”

Research shows that many buyers have moved far beyond commuting distance to the office, complicating employers’ plans to reopen workplaces. The Wall Street Journal/Realtor.com Emerging Housing Markets Index shows that small cities have attracted millions of people since the start of the pandemic.

In the third quarter, Elkhart, Ind., was the number one destination for Americans choosing to live in a small city. It was followed by Rapid City, S.D., Topeka, Kan., Raleigh, N.C., and Jefferson City, Mo. Vacation destinations also attracted new full-time residents.

“There’s a lot of flux in the housing market because of the flexibility people have,” Ben Ayers, senior economist at Nationwide Insurance, told the Journal. “We’ve seen huge demand for homes in suburban and exurban areas, as many people decided they want to move out from the center cores.”

Danielle Hale, chief economist at Realtor.com, said the top-ranked markets in the third quarter had faster-growing populations and more shopping interest from shoppers outside their metro areas than the market as a whole. 

The initial weeks of the COVID-19 pandemic were devastating to the nation’s housing market. People who might have been in the market to buy a home didn’t want to go into a stranger’s house, and homeowners didn’t want them there either. Sales stopped.

But a new study by the U.S. Census Bureau and Zillow chronicles what happened next. Millions of apartment dwellers, suddenly working from home --sometimes with small children -- needed more room.

Single-family home sales surged in suburban areas and small cities since proximity to the workplace was often much less important. As a result, rents in large cities like New York plunged while home prices nearly everywhere took off.

Using U.S. Census data, Zillow economists have shown how the effects of the pandemic changed the housing market. Inventory levels of homes for sale rose sharply at first, but the number of homes for sale dropped just as fast as the number of buyers entering the market rose.

Families doubled up to save money

Despite the high demand, not everyone could afford to buy. Zillow researchers say lower-income households were more likely to rent and were also more likely to have lost jobs in hard-hit industries, such as retail, accommodations, and food services.

The research shows that there was an increase in multi-family and multi-generational households as people who were facing financial pressures turned to alternatives, including “doubling up” or moving back in with their families. That change just added to a decline in rental demand.

There was also a migration toward smaller, more affordable cities. Home values in New York, Chicago, and San Francisco slowed, while sales and prices in cities like Des Moines, Charlotte, Kansas City, Phoenix, and Austin rose the most.

Office location now less important

Before the pandemic, most homebuyers made choices based on affordability, amenities, and where they worked. Now, economists say the shift to remote work removes workplace location as a factor, giving homeowners more freedom.

A Zillow survey conducted early in the pandemic found that most people working remotely liked it and wanted to continue doing so once the pandemic was over. If long-term remote work were possible, 66% of them said they’d consider moving somewhere else.

Somewhere else often includes a resort area, and Zillow says there is evidence that towns on the beach or in the mountains are continuing to draw newcomers who are able to work remotely. 

Zillow said it was able to identify vacation towns that have drawn teleworkers by looking at page views, favorites, “likes,” and the number of times a visitor saved the URL of a vacation town’s website.

The researchers concede that the metrics do not necessarily mean website users are moving to vacation towns, but they point out that the numbers are in line with a 66% growth in pending home sales in vacation towns.

The nation’s housing market is still hot, but it has cooled a little since 2020’s meteoric rise. A new report from real estate marketplace Zillow underscores the changes from 12 months ago.

Last year, buyers eager to flee cities were making full-price, contingency-free offers on homes without ever seeing them. Zillow researchers say that is much less likely to happen in the second half of 2021.

The report also found that bidding wars are not as common as they were a few months ago. This year’s typical buyer made just two offers before one was accepted. Most buyers -- 88% -- also added an inspection contingency to their contract.

"Our 2021 survey of buyers found buying a home got more challenging in the past year, but many buyers were ultimately successful in landing a home without taking unnecessary risks," said Manny Garcia, a Zillow population scientist. "Most buyers continue to get inspections, and sellers appear to prioritize higher offers over waived inspections.”

Record price increase

Sellers are continuing to get higher prices. The S&P CoreLogic Case-Shiller Index shows that home prices rose a record 19.7% year-over-year in July, mainly because the supply of available homes has fallen to record lows.

Despite the continuing shortage of available homes, Garcia said most buyers are able to purchase a home by doing their research, making trade-offs, and “considering a diverse array of options."

The Zillow report also showed that repeat buyers are having an easier time navigating the current market than people buying their first homes, mainly because of record-high home prices. Repeat buyers have thousands of dollars in equity from the sale of their previous house to fund their down payment. 

First-time buyers often struggle to accumulate enough cash for a down payment. They also are less successful in submitting a winning bid. About two-thirds of first-time buyers submit more than one offer, compared to 54% of repeat buyers.

Like the auto industry, real estate adapted quickly during the first months of the pandemic. Agents quickly emphasized online video tours of homes to overcome COVID-19 fears of both buyers and sellers.

Personal home tours have resumed

This year, most buyers personally visited a home before putting in an offer and were much more likely than in 2020 to attend an open house. In fact, this year’s typical buyer visited three open houses, an increase from 2019.

Real estate agency Tom Toole, at RE/MAX Main Line, said it’s important to remember that all real estate is local. Conditions in one housing market may not apply in another.

"So many buyers are hearing horror stories from friends and family about the housing market, so it's important to educate buyers about the local market so they can make the best decision for their family," Toole said. 

Toole says he believes buyers still strongly prefer in-person tours, but virtual tours that gained popularity last year will continue to be an effective tool that is favored by both buyers and sellers. He says watching a video tour of a home helps a buyer narrow down the list of potential houses to be visited in person.

Housing market trends continued to tilt in buyers’ favor last month as the number of homes on the market increased for a fourth straight month. Even more promising, inventory levels for starter homes rose.

Realtor.com’s Monthly Housing Report also showed the U.S. median listing price continued to moderate as more smaller, lower-priced homes came on the market. All in all, it’s good news for people hoping to purchase their first home.

But the improvement is only compared to the spring housing market which was much more active than usual, with bidding wars breaking out for the available homes on the market. When compared to July 2020, the number of available homes for sale plunged 33.5%.

Not yet back to normal

"July housing trends show a market still working its way back toward some version of normal,” said Realtor.com Chief Economist Danielle Hale. “The feverish pace of home sales is beginning to follow historical seasonal patterns, while new listings grew at an unusually high rate for the summer months, further helping the inventory crunch."

In other words, the improvement in conditions for buyers is small and incremental. Affordability remains an issue, especially in the move-up sector of the market. Hale says home shoppers should not expect to see prices move lower anytime soon.

“Still, if these changing inventory dynamics continue, we could see a wave of real estate activity heading into the latter part of the year," she said.

The number of new listings heading into the fall months is still well below levels found in 2017-2019, which were already low by historical standards. The increase in entry-level home listings may give first-time buyers an opportunity to enter the market since they can rarely afford newly-built homes.

An increase in smaller homes for sale

In July, the share of single-family homes having between 750 and 1,750 square feet increased from 30.2% in July 2020 to 36.3% in July 2021. The inventory of homes having between 3,000 and 6,000 square feet decreased from 24.2% to 20.1%.

New listings grew 11.1% over July 2020 in the nation's 50 largest metros, with more than half posting double-digit gains. Listings increased nearly 43%  in Columbus, Ohio, nearly 37% in Baltimore, and nearly 36% in Cleveland.

In fact, the biggest regional new listings increases were in the Midwest, where inventory rose 19.8%. Listings were up 11.3% in the West.

Despite a sizzling housing market, sales of new homes dropped sharply in June, and economists say affordability may have been the main reason. 

The Commerce Department reports that the sale of newly constructed homes fell by 6.6% when compared to May’s results. Sales were down nearly 20% from June 2020. The decline may be linked to the price a buyer has to pay for a new single-family home these days. The median sales price of new houses sold in June 2021, was $361,800.  The average sales price was $428,700.

That’s a lot, especially for a first-time buyer who doesn’t have the equity from a current home to contribute to a down payment. New homes may simply be out of reach for a significant segment of the housing market.

Soaring costs

Despite the push for new “affordable” housing, builders continue to focus on the upper end of the market. Analysts say builders can’t afford to produce entry-level housing because of higher costs. They point to a number of factors, including the soaring price of lumber this year. At one point this year, lumber prices were up 300%. Though they have since moderated, they are still 75% higher than in 2019.

“We also know there are shortages of appliances, labor and affordable lots,” Peter Boockvar, of the Bleakley Advisory Group, told CNBC. “The moderation in home sales is likely a combination of sticker shock and the slowdown in the ability of builders to finish homes because of a variety of delays.”

Because of the high price of new homes, most would-be buyers are looking at existing homes. Those prices have also been surging but are generally lower than prices for new homes. Last week, the National Association of Realtors reported that sales of existing homes rose 1.4% in June after a slight increase in the number of homes on the market. Inventory levels remain low and demand is still strong, so that’s had an effect on prices. 

In June, the NAR said the median existing-home sale price was $363,300, up 23.4% from June 2020. The median home price has now gone up for 112 straight months, posing a challenge for buyers who are finding it difficult to purchase either a new or existing home.

The spring home-buying season appears to have gotten a late start. After four months of declines, sales of existing homes rose 1.4% from May to June, according to the National Association of Realtors (NAR).

Home sales were up nearly 23% when compared to June 2020, but that number loses a lot of meaning when you consider that real estate activity slowed considerably in the early weeks of the pandemic.

Lawrence Yun, NAR’s chief economist, said the increase in sales had less to do with increasing demand and more to do with the fact that home listings increased last month after falling to record lows.

"Supply has modestly improved in recent months due to more housing starts and existing homeowners listing their homes, all of which has resulted in an uptick in sales," Yun said. "Home sales continue to run at a pace above the rate seen before the pandemic."

The median price was $363,300

Inventory levels remain low and demand is still strong, so that’s had an effect on prices. In June, the NAR said the median existing-home sale price was $363,300, up 23.4% from June 2020. The median home price has now gone up for 112 straight months, posing a challenge for buyers.

"At a broad level, home prices are in no danger of a decline due to tight inventory conditions, but I do expect prices to appreciate at a slower pace by the end of the year," Yun said. "Ideally, the costs for a home would rise roughly in line with income growth, which is likely to happen in 2022 as more listings and new construction become available."

Homes continued to sell quickly last month. The time spent on the market before a ratified contract was 17 days, the same as in May. The average home took 24 days to sell in June 2020. Most homes -- 89% -- were on the market for less than a month.

First-time buyers accounted for 31% of sales in June, down from 35% a year ago. Yun says first-time buyers are increasingly being challenged by rising home prices and declining inventory.

However, buyers do have the advantage of near record-low mortgage rates. The average 30-year fixed-rate mortgage interest rate was 2.98% during June.

There’s good news if you’re in the market to purchase a home. Realtors report that more homes came on the market in June after months of record-low inventory.

But that relief may be hard to notice. Real estate marketplace Zillow reports that inventory remains low while there has been no letup in demand. Median home prices in June set records for both monthly and annual appreciation.

Zillow economists say the number of home listings increased by 3.1% in June on the heels of another increase in May. Even so, the number of available homes is still nearly 30% below 2020 levels, which in turn was lower than in 2019.

"Another month of rising housing inventory gives buyers some additional options and a little more bargaining power," said Jeff Tucker, senior economist at Zillow. "While the level of inventory remains incredibly low by historic norms, it is now on a trajectory that should give buyers reason to hope for a cooldown in price growth this winter, consistent with normal seasonal trends." 

Sales are also rising, along with prices

While inventory levels are building, so are sales. In an independent report, real estate broker REMAX found that sales of its listings soared 14.2% over a strong May. It also topped all other months in the 13-year history of the report, which covers 53 metro markets. 

The Median Sales Price of $336,000 was also a record, beating the previous record of $320,000 – set in April and tied in May. By REMAX’s count, inventory levels grew by less than 2% last month, with inventory falling by more than 37% below June 2020, levels.

"June saw a unique case of supply and demand rising in unison, thanks to an uptick in sellers listing their homes for sale – a very welcome sign for frustrated buyers," said Nick Bailey, President, RE/MAX, LLC. "People are relocating as companies and individuals make long-term decisions about remote work and getting back to the office.”

Bailey said another factor encouraging the increase in listings is growing confidence among sellers that they can find another home after selling their current one.

“If these trends continue, inventory levels should keep growing," Bailey said.

By Zillow’s estimate, the growth in the number of available homes still has a long way to go before it evens out the market. Sellers will remain in the driver’s seat until that happens, and buyers will have to face the twin challenges of rising prices and near record-low inventory.

The Centers for Disease Control and Prevention (CDC) is extending its eviction moratorium, giving tenants who are unable to make rental payments one more month to stay in their homes without reprisal. The moratorium that was scheduled to expire on June 30, 2021, is now extended through July 31, 2021. The agency stated that this is intended to be the final extension of the moratorium.

“The COVID-19 pandemic has presented a historic threat to the nation’s public health. Keeping people in their homes and out of crowded or congregate settings — like homeless shelters — by preventing evictions is a key step in helping to stop the spread of COVID-19,” the CDC said in its announcement.

Two major factors in the agency’s decision to issue the new order are modeling projections and observational data from COVID-19 incidence comparisons. It found that evictions substantially contribute to COVID-19 transmission -- by as much as 40%. 

“Although there may be additional factors that the authors were unable to adjust for, the authors [of the research] estimated that, nationally, over 433,000 cases of COVID-19 and over 10,000 deaths could be attributed to lifting state moratoria.”

Eligibility under the moratorium

The CDC defines eligible applicants under the moratorium as “any tenant, lessee, or resident of a residential property who provides to their landlord, the owner of the residential property, or other person with a legal right to pursue eviction or a possessory action, a declaration under penalty of perjury indicating that: The individual has used best efforts to obtain all available government assistance for rent or housing.”

Also important is how much the applicant earns. They cannot earn more than $99,000 in annual income for the 2021 calendar year, or no more than $198,000 if filing a joint tax return.

The individual must also prove that they were “unable to pay the full rent or make a full housing payment due to substantial loss of household income, loss of compensable hours of work or wages, a lay-off, or extraordinary out-of-pocket medical expenses.”

The applicant needs to show that eviction would likely render them homeless or cause them to move into and live in close quarters in a shared living setting because they have no other available housing options.

When it comes to properties, the CDC says the living space must be a “residential property” -- a house, building, mobile home, land in a mobile home park, or similar dwelling leased for residential purposes. What’s not included are hotels, motels, or other guest houses rented to a temporary guest or seasonal tenant.

A complete version of the order is available on the CDC’s website.

With homes selling the first weekend they hit the market and a shortage of available listings driving home prices to record highs, you might think homebuilders would be busy. They aren’t.

The Commerce Department reports that applications for new building permits for future residential construction fell in May to a seven-month low. The number of homes that were completed also fell, suggesting that there won’t be any relief for buyers in the immediate future.

The only good news in the report for people hoping to buy a home was an increase in housing starts. Groundbreaking activity rose 3.6% to a seasonally adjusted annual rate of 1.572 million units last month. 

Industry analysts say builders have faced a number of headwinds since the economy reopened. There’s been a shortage of building materials like lumber, which has skyrocketed in price and cut into profit margins. The labor shortage has also limited operations and contributed to higher costs.

The National Association of Realtors (NAR) says there’s a “housing supply crisis” and is calling for a government response. The group has issued a report that traces the problem to the crash of the housing market during the financial crisis of 2008. 

At least 5.5 million more houses needed

Since 2008, home building has occurred at about half its previous rate. The NAR report estimates that the U.S. has built 5.5 million to 6.8 million fewer homes than needed since 2000.

"The state of America's housing stock is dire, with a chronic shortage of affordable and available homes [needed to support] the nation's population," the report states. "A severe lack of new construction and prolonged underinvestment have led to an acute shortage of available housing.”

The bottom line, the report concludes, is that building levels have declined while demand has risen, creating an “enormous” supply gap. The authors say a major national commitment is needed to produce all types of housing. Among specific policy recommendations, they said Congress must work to expand access to resources, remove barriers to and incentivize new development, and make “housing construction an integral part of a national infrastructure strategy.”

"There is a strong desire for homeownership across this country, but the lack of supply is preventing too many Americans from achieving that dream," said Lawrence Yun, NAR's chief economist. "It's clear from the findings of this report and from the conditions we've observed in the market over the past few years that we'll need to do something dramatic to close this gap."

The Mortgage Bankers Association (MBA) said Wednesday that the total number of home mortgage applications decreased by 3.1% for the week ending June 4 compared to the week prior. 

Analysts said the dip in mortgage applications can be at least partly attributed to high home prices, which have hampered home sales recently. 

The decline in mortgage rates likely impacted refinance applications. Factoring in an adjustment for the Memorial Day holiday, the MBA’s index reflected a 5.1% drop in applications for refinancing.

“With fewer homeowners able to take advantage of lower rates, the refinance share dipped to the lowest level since April,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “The large annual decline was the result of Memorial Day 2021 being compared to a nonholiday week, as well as the big upswing in applications seen last May once pandemic-induced lockdowns started to lift.” 

The average contract interest rate for traditional 30-year mortgages decreased to 3.15% from 3.17% last week. Applications for a mortgage were 24% lower than the same week a year ago.

"The average loan size on a purchase application edged down to $407,000, below the record $418,000 set in February, but still far above 2020's average of $353,900,” Kan said. "Home-price growth continues to accelerate, driven by favorable demographics, the recovering job market and economy, and housing demand far outpacing supply.” 

The U.S. housing market is presenting a study in contrast. On one hand, houses sell almost as fast as they go on the market. On the other hand, the number of sales continues to fall.

How can that be? It’s simple. There is huge, pent-up demand for homes but not nearly enough home listings to satisfy that demand.

As a result, sale prices continue to rise. In the four-week period ending May 16, real estate broker Redfin reports its home prices hit a record high of $352,975 and were up 24% year over year, also a record. In yet another record, asking prices increased to $358,975.

Remarkably, 50% of Redfin’s listings that went under contract during that time sold for more than the seller’s asking price, evidence of just how competitive the market has become.

Not enough listings

Despite the hyper-competitive market, the National Association of Realtors (NAR) reports sales of existing homes in April declined 2.7% from March as the number of listings dried up. It marked the third straight month of a sales decline, suggesting that even surging prices have not lured more sellers into the market.

"We'll see more inventory come to the market later this year as further COVID-19 vaccinations are administered and potential home sellers become more comfortable listing and showing their homes,” said Lawrence Yun, NAR's chief economist. “The falling number of homeowners in mortgage forbearance will also bring about more inventory.”

Yun is quick to point out that falling sales are not the result of a lack of buyers. He says more listings on the market would lead to a pick-up in sales and make the market a bit friendlier to buyers. But for now, it’s a challenging time for people trying to buy a home.

Challenges for first-time buyers

"First-time buyers, in particular, are having trouble securing that first home for a multitude of reasons, including not enough affordable properties, competition with cash buyers, and properties leaving the market at such a rapid pace," Yun said.

NAR’s price data shows a lower median home price than Redfin’s, but prices are rising nonetheless. The median existing-home price for all housing types in April was $341,600, up 19.1% from April 2020, as every region recorded price increases. It was a record high and marks 110 straight months of year-over-year gains.

Both NAR and Redfin found homes were selling at the same rapid pace. Properties typically remained on the market for 17 days in April, down from 18 days in March and from 27 days in April 2020. 

Eighty-eight percent of the homes sold in April 2021 were on the market for less than a month.

The rising price of lumber and other building materials has put a serious squeeze on homebuilders, resulting in a 13% drop in single-family housing starts from March to April, according to new data from the U.S. Census.

Housing completions were down by 4.4% -- a slowdown also connected to the price of lumber and building materials like copper, which has hit an all-time high. Nearly 15% of homebuilders surveyed said they are only putting down concrete foundations and then waiting to frame out the house to see if lumber prices shift back in their favor. 

While the number of building permits has gone up, the average number of months it takes a builder to move from authorization to start has also grown longer.

"Builders are delaying starting new construction because of the marked increase in costs for lumber and other inputs," Mike Fratantoni, chief economist at the Mortgage Bankers Association in Washington, told Reuters. "These supply-chain constraints are holding back a housing market that should otherwise be picking up speed, given the strong demand for buying fueled by an improving job market and low mortgage rates."

Labor issues and appliance shortages pose other problems

On top of finding building materials at a decent price, one analyst says that finding the people necessary to build a house has also gotten tougher.

“I have to blame the difficulty in procuring lumber and other products, along with labor issues for the miss, in addition to likely cancellations due to skyrocketing costs for single family starts,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group, told CNBC.

“Builders are also reporting difficulty obtaining other inputs like appliances,” Fratantoni said. “These supply-chain constraints are holding back a housing market that should otherwise be picking up speed, given the strong demand for buying fueled by an improving job market and low mortgage rates.”

The impact on buying a home

Overall, the homebuying market is a good news/bad news story. Mortgage rates are at record lows not too long ago, and the Federal Housing Finance Agency reports that home prices rose 12.2% from February 2020 to February 2021. The 12-month changes ranged from +10.5% in the West North Central region to +15.4% in the Mountain region.

That’s good if you’re a seller. But when sellers have to turn around to buy another home, they will also feel a slight pinch when it comes to the larger mortgages they’ll have to pay off. According to the Mortgage Bankers Association (MBA), the average loan size for new homes increased from $374,353 in March to $377,434 in April.

“The purchase market remains strong overall, but low housing inventory and accelerating home prices have started to adversely impact purchase activity,” said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting.

The average mortgage rate is holding steady at levels below 3%, providing plenty of incentive for homebuyers whose main challenge now is finding a home to purchase. 

The average 30-year fixed-rate mortgage is 2.87%, making even expensive homes more affordable. The rate on the 15-year fixed-rate mortgage is even lower -- $2.125%.

“Since the most recent peak in April, mortgage rates have declined nearly a quarter of a percent and have remained under three percent for the past month,” said Sam Khater, Freddie Mac’s chief economist.

Real estate broker Redfin credits continued rock-bottom lending rates with driving sales, which in turn have driven up prices. In a report, the company said the median home-sale price increased 22% year-over-year to $350,750—an all-time high.

Fewer homes on the market

The declining number of available homes has put sellers in the driver’s seat and is helping to drive up prices. In the study period, the average home sold in a record low 18 days on the market.

In its report, real estate broker RE/MAX found the supply of homes hit a record low of 1.1 months in April compared to 1.3 months in March. But despite low inventory levels, home sales in April were the highest ever for that month and marked the 10th highest month in the past 13 years.

"That's a clear reflection of overwhelming demand and the resilience of today's buyers," said Adam Contos, CEO of RE/MAX Holdings, Inc. "The 32 days on market average – a report record – is noteworthy, too. Many listings are being snapped up the day they go on sale – or within just a few days. 

Realtors report April sales this week

While both brokers’ reports are based on company listings and transactions, we’ll get a more comprehensive picture of the housing market by the end of the week when the National Association of Realtors (NAR) is scheduled to release its existing home sale report for April.

In March, home sales declined because there were not enough homes on the market. Total housing inventory at the end of March totaled 1.07 million units. That was higher than in February but down 28% from March 2020.

Over the last decade, homebuilders have added fewer-than-normal new houses and now face even more challenges to do so. The Wall Street Journal reports the price of lumber this spring is four times its normal price.