Mortgage rates, Home Prices and Affordability- September 2022
Mortgage rates, home prices, appreciation vs deceleration, and home affordability. These are three of the most important topics happening right now and influencing the Tampa Bay real estate September update.
We’re going to dig in! How does that get measured, and why you’re hearing about bad affordability on the news, which is not exactly how it’s working out.
Mortgage rates, inflation and what’s ahead
What are the mortgage rates and projections from the experts? If you’ve been listening to the news, you’ve heard that we just had a change to the fed rate of interest and that goes on then to impact mortgage rates.
Looking back at mortgage rates though, if you’ve been following along with us you’ve seen how much rates really rose from the beginning of the year all the way to mid to late June-ish. Since then there’s been all this volatility and fluctuation in the rate. So why is that? Inflation is the enemy of long term interest rates and while the Federal Reserve doesn’t call mortgage rates, they’re certainly making moves right now to ease that inflation, aren’t they?
Easing Inflation
When that happens, mortgage rates tend to respond. So what are the projections going forward? Just yesterday, the Fed met and increased the base rate by three quarters of a percent, that has the power already to affect those long-term lending rates like mortgages. And we are seeing market rates rise and fall on a daily basis. Mortgage rates for New construction that isn’t started yet could be more unpredictable. It’s important to get preapproved before looking at homes and to stay in CLOSE contact with your lender.
Where does this go next? Well, if we look at the projections from Freddie Mac, Fannie Mae, MBA, and NAR, these are the latest data that we’ve got as of August. And if we average all of those projections together over the next four quarters, they think that they will stabilize over the next year. The experts still feel that the Federal Reserve is getting inflation under control.
I think as we look at this, low to mid fives is the projection for into next year, and that would bring a lot more predictability for buyers. The critical part right now is to get preapproval before looking at any homes and work with a GREAT lender- we know many if you need an introduction.
Home Price Appreciation- what’s the forecast?
Let’s start by saying that if you’re interested in getting an idea of your home’s value in this market, let us know and you can start with a free home value report here or call us! Another topic on everyone’s mind is home price appreciation. I’m gonna do my best to explain it because what we are hearing right now is that home prices are decelerating. We’re talking about deceleration, we’re seeing it in some markets with sellers bringing their list prices down.
Housing Prices- what’s happening now.
There’s a lot of confusing information out there around the Tampa real estate world, and I want to do my best to share this with you.
Start with this quote from Mark Zandy, chief Economist at Moody’s Analytics. He says,
“I don’t think national housing prices will decline in a meaningful way, but there may be some price declines across the country”.
Basically this is talking mostly about out west in California and over that side of the country. I want to give you some context to this though, to show how home price appreciation is still expected going forward based on today’s buyer demand and low inventory.
What does that mean in the grand scheme of things? While this chart below may help with that. Appreciation is slowing but not depreciating. That’s where Deceleration comes into play.
Let’s, let’s walk through it. The percent year-over-year of homes with price increases for 2022 so far, (data from Core Logic) was just released.
Home Price Acceleration versus depreciation or Deceleration
And so you can see year over year, January, February, March, home prices were accelerating crazily at a rapid pace. Record breaking home price appreciation at the beginning of the year.
But what happened since then? We’ve come off that high of 20% year over year home price appreciation and it’s starting to fall, that’s what you can see in May, June, July, the deceleration in price increases. So the pace of appreciation is slowing and that’s deceleration. It’s not depreciation where prices would have to go into the negative.
Yes, we are seeing some drop in the list prices. For example, a client could sell for $400,000 three to four months ago, now it’s going to sell for $370,000 or so. In this case, it feels like depreciation, especially to those homeowners, because things are measured in a couple of different ways. So year over year, what you’re seeing here is continued appreciation but at a slower pace. On the other hand, month over month, we’re certainly keeping our eye on that because that’s what our clients are looking at. That’s what you’re feeling if you’re thinking prices are going down.
Does Tampa Bay have Buyers still?
There are plenty of buyers out there in Tampa Bay right now and we’ve still got low inventory. We know that prices are still projected to continue rising but at a slower pace. We’ll see what impact Hurricane Ian has and will be monitoring that.
The list price a year ago was the floor of negotiation. You could list it this and then it would get bid higher with multiple offers. Those bidding wars bidding the price up, that was the floor of the negotiation. What’s happening right now was the market starts to shift. Now the list price is much more of a ceiling for the negotiation and buyers have got that little bit more negotiating power and we’re seeing that change month over month and that’s what we keep an our eye on.
Was WAS Appreciation like before the Pandemic- what was NORMAL?
Leading up to the pandemic, the average or typical home price appreciation over a year was about 3.8%. That’s where we’re starting to look back to; getting on that trend line as we move forwards. One thing to remember is the majority of that home price appreciation happened earlier in the year. It happened at the beginning of the year. And we’re seeing that starting to soften now. But experts are still projecting by the end of the year overall 11.3% home price appreciation for 2022. Why are they still projecting that? Because inventory still historically low compared to 2019 before the pandemic. Historically low! Down 42.2% from where we were the same week in 2019. That’s what’s continuing to drive upward pressure on home prices. Inventory’s still low and we’ve still got buyers in the market in Tampa Bay.
Affordability in todays market
Let’s talk for a couple of minutes about affordability. When we get to talking about this, you hear all kinds of different things in the News. First place to look is the Housing Affordability Index, that NAR releases. They release this every month going back to the nineties.
The way that you read it is the higher the bar, the more affordable a home is. Right what stands out are the years after the housing crisis where distressed properties dominated the market. The high of that market, the housing affordability index read 197. Now we’re at about 98.5. The way you read this is a 100 reading of the Housing affordability index is an “even” reading. It means the average individual, the average household in this country can afford a hundred percent of the average mortgage payment
We’ve benefited from a lot of cover from interest rates over the last several years to help develop that affordability. While now it’s at 98.5%. So technically things are less affordable, but this is not a disaster scenario by any means in housing affordability.
What is affordability based on?
It’s based on three things:
1. The price of homes
2. Interest rates
3. Wages. The blend of these is how they come up with afford the affordability index.
Compared to one year ago though, the monthly mortgage payment rose to 1,944 from 1,265, that’s an increase of 53.7%. So homes are are feeling less affordable right now in that regard. Mortgage payments have been increasing.
Another thing we want to start looking at to break down affordability and understand:
What is the average mortgage payment or income committed to a mortgage payment?
Right now it sits at 25.4%, assuming a 30 year fixed mortgage, 20% down payment on a median price home with a median income.
So affordability has definitely dropped, but it’s not a disaster situation. If you’re hearing about affordability in the press, this gives you some context to what that looks like.
Three things you can do in this market
What can you do in a scenario like this?
I want to wrap up with a couple of things and give you a couple of resources of things you can do. Three things right now I think you can do. If you’re struggling with affordability.
First, expand your search to different areas. You might not be able to be within 20 minutes of the top beaches. Maybe change your criteria. If you were looking at buying a home nearer to the beaches, maybe you need to look a bit further out at something that is more affordable.
Second thing you can do is explore alternative financing options. We work with some great lender partners. They can help you understand what you ready qualify for. There are some great products in the market. Learn how you could manage some of your other debts if you have any. How you could structure the debt that you’re taking on in the mortgage. There might be some options that you haven’t thought about. So let us connect you to some great lenders.
Third, look to see if there are any grants or have you any access to gift funds or downpaymentresource.com is a great resource for you and some of the lenders that we work with. Work and target down payment resources as well. If you’re ready to start searching, we’re here to help, and you can even get started here
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