Archive for category: Blog

 By Clare Trapasso

Sep 18, 2023

Every morning, first-time buyer Anthony Valenti wakes up and then checks to see if any new homes have come onto the market in the Hartford, CT, area.

Valenti, 29, has been looking for a house to share with his fiancée since the spring of last year. The couple, both nurses at local hospitals, have been living with their parents to save money for their down payment.

They started their home search in the $300,000 range and quickly realized that there wasn’t much available at that price. Despite higher mortgage rates topping 7%, they adjusted their budgets and are now in the $400,000-plus range. But there aren’t many move-in ready, three-bedroom, two-bathroom homes with a two-car garage available.

He recently lost his first bidding war to another buyer who made a cash offer that was more than $75,000 over the list price.

“When the prices are at this point, you’re not getting your bang for your buck. Houses that are 1,200 square feet are going for crazy amounts of money,” says Valenti. “We want somewhat of a turnkey house. I don’t want to come home from a 12-hour shift and start laying tile.”

Valenti’s predicament is typical of what most first-time buyers are facing: Entry-level homes no longer come with entry-level prices.

First-time buyers are facing a housing market in which the median home list prices have shot up 38%, mortgage rates have roughly doubled, and the housing shortage has only worsened over the past four years, according to Realtor.com® and Freddie Mac data.

The monthly mortgage payment on a typical home has more than doubled since 2019. And first-time buyers are competing with cash-flush investors and wealthier, repeat buyers.

The competition from other buyers is particularly fierce for smaller, lower-priced starter homes—because, for many, that’s all they can afford. These entry-level homes have traditionally been most first-time buyers’ entrée to the American dream.

The traditional pattern: Buyers live in these cheaper homes for a while, building wealth that can be used to finance their next nicer/newer/larger home purchase, or to pass along to future generations.

But today, many first-time homebuyers who would have been able to purchase a starter home just a few years ago can no longer afford to do so. Even homes priced within the budgets of young couples can quickly become out of reach amid a bidding war.

Bu general consensus, just a few years ago, starter homes were generally defined as costing below $200,000. Today, they’re generally closer to $400,000, says Ali Wolf, chief economist of building consultancy Zonda. Buyers who don’t earn more than the median income in their area often can’t afford them.

“For people who haven’t already purchased a home, the chance of becoming a homeowner has gotten a lot harder,” she says. “A starter home may not be within reach for many Americans.”

In January 2019, households earning below $75,000 could afford about half of the homes on the market, according to the Urban Institute, a think tank. Four years later, they could afford just 25%.

“Now, owning a home has become a luxury,” says Wolf.

Valenti initially wanted to buy before the COVID-19 pandemic, but then prices shot up. So he decided to wait for them to come down. Instead, prices remained high and then mortgage rates shot up.

“Never in a million years did I think I would be 30 years old and still living with my parents,” he says. “Plan B will be to rent something. In a year, [my fiancee and I will] be married.”

A first-time buyer’s success can be tied to where they’re looking

A young person’s chance of becoming a homeowner isn’t dependent only on how much money they make and if their family and friends can help them out financially. It also depends on where they’re looking.

First-time buyers in the Des Moines, IA, area are still able to become homeowners—but local real estate agent Beth Van Zee isn’t sure how much longer that can last.

Before the pandemic, first-time buyers could find a three-bedroom, two-bathroom ranch home on a quarter-acre in the city limits, she says. Now, those same homes are selling from $250,000 to $275,000.

First-time buyers “just have to lower their expectations,” says Van Zee, with Coldwell Banker Mid-America. “They’re going to have to go out farther away from the metro.”

In 2021, when mortgage rates bottomed out, those making less than the median income of the area could afford a home in Huntsville, AL, says local real estate broker Matt Curtis.

“Now, the median income cannot afford the median home in our area,” he says.

Many Huntsville-area buyers are looking for ways to save money. They’re purchasing properties with multiple bedrooms they can rent out or shopping for new construction so that the builders can buy down their mortgage rate. Others are buying homes that are farther from their jobs and where prices are lower.

Many 20- to 40-year-olds are leaving San Francisco and California’s Silicon Valley because it can be difficult to find a decent starter home for under $1 million, says Patrick Carlisle, chief market analyst of the San Francisco Bay Area for Compass. Most of the area’s starter homes are condos.

“What may be a completely ordinary ranch-style house in most of the country that would sell for $300,000 or $400,000 or even less, here can go for $1.6 million to over $2 million,” says Carlisle. “That’s very challenging for first-time homebuyers.”

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The costs of delaying a home purchase

While there are costs to buying a home, there are costs to delaying the purchase as well.

“Homeownership is a wealth builder for people, slowly over time. If you delay entry into homeownership, you delay the start of that wealth-building process,” says Realtor.com Chief Economist Danielle Hale.

Those who purchase homes earlier in life are more likely to have traded up into more expensive homes and have paid off their mortgages by retirement, says Jung Choi, a senior research associate at the Urban Institute.

During the pandemic, the record-low mortgage rates, in the mid-2% range, helped more first-time homebuyers become homeowners.

“The homeownership rate is significantly lower than the prior generation, which can have long-term implications on future wealth,” she says.

Today’s first-time buyers are spending larger shares of their income to become homeowners, says Hale. They’re also struggling to come up with down payments.

Rising rents and general inflation have hampered buyers’ efforts to save. Just 8% of buyers received family assistance, according to a recent survey of real estate agents conducted by John Burns Research & Consulting.

However, loans with lower down payments are less likely to be accepted by sellers if they have another offer with a higher down payment. That puts first-time buyers at a big disadvantage against investors and repeat buyers, who can use their home equity to help finance their next purchase.

“It’s a tough situation for buyers,” says Hale.

Becoming a homeowner isn’t impossible

While the American dream might seem to some to be just that, a dream, becoming a homeowner isn’t impossible.

Professionals with dual incomes, who waited to buy while they saved money and climbed the ladder within their fields, will have an easier time than younger buyers on a single income who are just starting out. And even those who are at the beginning of their careers are finding ways to make it happen.

Teegan Webster, 24, and her husband, 25, bought their first house last summer. The newly constructed, 1,500-square-foot house sits on a quarter of an acre in the small town of Cedar City, UT.

Webster, who has a young son and who works part time for an educational consulting company, began saving for a home when she was 15. Those savings helped her and her husband, a religious educator, to purchase their three-bedroom, two-bathroom home without family assistance.

Homeownership’s “been my dream my whole life,” says Webster. “We wanted to start building equity, and we were in the position to move and thought that it was the right time.”

Still, high home prices and rising mortgage interest rates were a challenge. They bid on three homes and prevailed on the third.

They offered the asking price and were surprised when their bid was accepted. The sellers were so eager to sell that they also paid for Webster’s closing costs and bought down her mortgage rate temporarily for two years.

While she loves her new home, she acknowledges that it’s not everything she ever dreamed of having in a home.

“For a first house, you’re not going to buy your dream home,” says Webster.

Clare Trapasso is the executive news editor of Realtor.com. She was previously a reporter for the Associated Press, the New York Daily News, and a Financial Times publication. She also taught journalism courses at several New York City colleges. Email clare.trapasso@realtor.com or follow @claretrap on X (formerly Twitter).

By Tiffani Sherman

Sep 5, 2023

Did you know Publishers Clearing House and Disney World’s Epcot share something in common?

Yes, both had TV commercials in heavy rotation in the 1980s; but, naturally, we’re referring to something more relevant to real estate.

The architecture firm that designed Epcot also designed a house for Harold and LuEsther Mertz, founders of Publishers Clearing House, the direct marketing company known for its sweepstakes and prize-based games.

And now, the mansion that was built on the back of magazine subscriptions and the hope of million-dollar paydays is on the market for $5.5 million. The Longwood, FL, home was built in 1979.

“When I first saw it, my mind was blown,” says listing agent Pamela Porazzo, with Real Property International. “When I first drove through the gates, I was like, ‘Oh my God, I can’t believe this is back here.’”

The huge home sits on 11 manicured acres in a gated community.

“The property is just so beautiful,” she says, comparing it to a resort. “There’s this really large lake in the middle and a bridge going over the lake. The whole thing is just spectacular.”

That lake is human-made and stocked with fish. And there’s a sandy beach area nearby and more than 20 large statues and fountains scattered around.

The property includes three structures: the 14,623-square-foot main house, a 2,650-square-foot pool/guesthouse with two bedrooms, and an additional building that could serve as staff quarters.

The current owners have lived here since 1996 and are the home’s third owners. Many of the dwelling’s over-the-top elements date back to the Mertz family.

“It’s very dramatic when you walk through the solid brass doors into the home, because you have very high ceilings, and you can see what I refer to as the conservatory,” Porazzo says. “It’s a music room with a nice seating area. It’s all curved windows, and it’s all really pretty.”

Similar to Epcot, the home’s construction was a massive undertaking. In fact, it took nearly seven years to build this house, while the famed Disney addition was completed in just three years.

“The staircase has its own story,” Porazzo notes. “It’s a one-piece staircase, and it was dropped in from the ceiling and is anchored 16 feet into the ground. The home is made out of concrete, and I was told the doors and windows are bulletproof. It’s a really solid home.”

The expansive primary bedroom features two bathrooms, three closets, a gym, private sitting area, and patio—the perfect space for buyers in search of a retreat.

An impressive office/library spans two stories, has a spiral staircase, and offers ample space to curl up and read. Plus, it’d be quite the backdrop for Zoom meetings.

And the property’s larger-than-life theme extends to the eight-car garage, which was designed to hold limousines—the owner previously owned a limo company, according to Porazzo.

She says the home could use a bit of maintenance and maybe a few cosmetic updates. The kitchen has its original St. Charles steel kitchen cabinets, which were once a status symbol in the design world.

“That speaks to the quality of the home and what went into the home,” Porazzo says. “Someone might come in and see it and be like, ‘Let me work with this and keep it the way it is.’ You never know which direction they’re going to go.”

Tiffani Sherman is a Florida-based writer who covers real estate, finance, and travel.

Mortgage rates fell for the second week in a row, averaging 7.12% for a 30-year fixed-rate loan in the week ending Sept. 7, according to Freddie Mac.

This downward trend is a welcome relief after rates spiked to a 22-year high of 7.23% two weeks earlier. Still, these rates are formidable—more than double what they were two years ago when they dipped below 3%—which has ground America’s housing market to a near standstill.

“The housing market has shuffled along at a slow pace for more than a year now as the market waits for mortgage rates to stabilize or decline,” says Realtor.com® data Scientist Sabrina Speianu in her analysis. “Heading into the fall housing season, mortgage rates, home prices, and housing availability continue to remain a challenge for both homebuyers and home sellers who themselves may need to purchase a home as they sell their current one.”

As the autumn homebuying season unfolds on shaky ground, we’ll explain what the most recent real estate statistics mean for buyers and sellers in our latest installment of “How’s the Housing Market This Week?”

What’s next for mortgage rates?

With the Federal Reserve slated to meet on Sept. 19 and 20 to discuss whether or not to raise benchmark interest rates, many are trying to read the economic tea leaves and forecast whether mortgage rates will rise or fall in response.

“All eyes are on macroeconomic indicators such as job market strength and inflation, which will guide the Federal Reserve in charting the path forward for interest rates,” says Speianu.

With the job market robust but cooling off and inflation slowing down, “the market is not anticipating the Federal Reserve to increase rates in September and it is also less likely that they will raise rates before year-end,” predicts Speianu.

With a possible end to rate hikes in sight, the housing market might just begin to inch forward.

How high mortgage rates lead to fewer listings

Until mortgage rates drop, the supply of homes for sale will remain slim.

For the week ending Sept. 2, the number of new listings sank by 8.5% compared with one year ago.

“While the number of newly listed homes increased from July to August, new home listings have once again begun to decline as is expected heading into September,” says Speianu.

Fewer sellers are listing their homes since many have low mortgage rates they’re reluctant to give up—thus locking sellers into their homes and locking buyers out. As a result, overall inventory (of both new and old listings) has also declined, lagging behind year-ago levels by 5.2%.

“In the meantime, new construction offers buyers an alternative, and new-home sales continue to climb from year-ago lows,” adds Speianu.

Home prices edge upward

As if high mortgage rates weren’t daunting enough for would-be buyers, low housing inventory has inflated home prices.

After a welcome stretch of annual price declines in June and July, median list prices rose year over year in August, to hover at a median of $435,000.

And for the week ending Sept. 2, median home prices rose by 0.2% compared with last year. But the good news is that home prices didn’t top last June’s record high of $449,000.

The bad news? Home prices are not likely to fall dramatically anytime soon.

“A renewed existing-home inventory crunch is still supporting listing prices as homebuyers find fewer opportunities compared to last year,” adds Speianu.

Why the slowing pace of home sales may speed up soon

Any sellers who can break free of their mortgage rate handcuffs will likely be rewarded with a quick home sale.

The pace of home sales has been slowing for 59 weeks, but that might soon turn a corner.

“The gap is now only two days more than the same time last year,” says Speianu. “While the demand for homes has pulled back due to affordability constraints, there are still eager home shoppers on the market browsing through a declining inventory of homes for sale.”

Margaret Heidenry is a writer living in Brooklyn, NY. Her work has appeared in the New York Times Magazine, Vanity Fair, and Boston Magazine.

By Clare Trapasso

Aug 14, 2023

There’s a rumor going around that the housing market has bottomed out—and there’s nowhere for it to go but back up.

However, while the real estate experts that Realtor.com® spoke with acknowledged the market isn’t getting any worse, it’s not getting any better either. It’s like a car stuck in the mud of high mortgage rates and low inventory, spinning its wheels. It’s not sinking down any further into the muck, but it can’t escape it either.

“The housing market is in gridlock,” says Devyn Bachman, senior vice president of research at John Burns Research and Consulting. “Things are moving, but they’re moving very slowly and ineffectually because of how high mortgage rates still are.”

The new-home market is faring considerably better than the resale market. That’s likely because some builders are able to buy down mortgage rates for buyers who would otherwise be saddled with rates around 7%.

However, builders can’t put up homes fast enough to alleviate the housing shortage, which has hit crisis proportions. Compounding the problem are homeowners, who have largely been loath to list their properties. There are now many more buyers than there are homes for sale, which is why bidding wars continue to erupt across the country.

Sales have plummeted due to that lack of inventory. In 2021, when mortgage rates fell to record lows in the mid-2% range and COVID-19 pandemic buyers flooded the market, sales of existing homes surged to 6.12 million, according to the National Association of Realtors®. The following year, mortgage rates spiked, briefly topping 7%, and sales dropped down to 5.03 million. This year is on pace for 4.16 million sales, a 17.3% decrease from 2022.

The housing market won’t be able to rebound until more homes hit the market. This isn’t expected to happen until mortgage rates fall to the “magic” mid-5% range, says Bachman.

Rates are expected to remain elevated until the U.S. Federal Reserve decides to stop hiking rates to combat inflation and eventually brings them back down again.

Right now, many homeowners don’t want to sell and give up the ultralow mortgage rates in the 2% and 3% range, which they secured during the pandemic. Once mortgage rates drop, they are likely to be more comfortable selling their homes and buying new ones. That’s expected to get the housing market moving again and increase sales.

“You can’t buy what’s not for sale,” says Odeta Kushi, deputy chief economist at First American Financial Corp., a property title and settlement company that provides data and analytics. “If rates come down, that changes the equation for a lot of people.”

Why the housing market is stuck

Typically, a near tripling of mortgage rates over such a short period would result in lower home prices. Buyers can afford to spend only so much on their monthly mortgage payments—which in July were just over double what they were three years earlier for the same property.* While higher home prices certainly contributed to those heftier bills, more than half of that increase was due to higher mortgage rates.

Many buyers have been forced to move farther out, purchase smaller homes, or buy fixer-uppers as they can no longer afford the homes that were solidly within their price ranges just a few years earlier. Other would-be buyers have been priced out.

That diminishing demand and higher rates should have pushed home prices down. But prices came down only 0.9% in July from the previous year, according to the most recent Realtor.com data.

“This market is anything but normal,” says Kushi.

There are simply too many millennials hitting their peak homebuying years who are determined to soldier on despite the financial challenges.

“The number of shoppers out there is lower than there were over the last couple of years—but [the housing] supply has come down even more. It’s making the market feel hotter than it is,” says Ali Wolf, chief economist of the building consultancy Zonda. “The few homes that are available are selling quickly and at or above list price.”

Homeowners listing their properties today are generally doing so because they need to put their properties on the market. These homeowners might be undergoing a divorce, have a death in the family, be moving for a job, need more space to accommodate a new child or aging parents moving in, or be relocating for retirement.

But those aren’t enough properties to get the housing market moving again.

“In order for the market to recover, we need more inventory. The only way we’re going to receive that inventory is if or when mortgage rates retreat,” says Bachman.

The new-home market has recovered

The bright spot in today’s housing market is new homes. Some builders are prioritizing putting up smaller homes, which are more affordable. Those homes are particularly attractive to first-time buyers. Also, builders are more likely than homeowners to cut prices to make a sale, as they’re less emotionally attached to their abodes. And they can offer all sorts of incentives, such as larger lots, nicer finishes, and upgrades throughout a property.

Perhaps most importantly, though, larger builders also often have financing arms. That makes it easier to buy down mortgage rates temporarily or even permanently in some instances.

“New construction has turned the corner, but the resale markets are in a stalemate,” says Bachman. “Builders can offer the better deal right now.”

Every month this year, the number of permits authorized to erect new single-family homes has gone up, points out Robert Dietz, chief economist of the National Association of Home Builders. However, the number of permits is still a little below last year’s tally.

Dietz cautions that the new-home market could still experience a slowdown ahead with higher interest rates for development and new-construction loans. If mortgage rates continue to rise, that would also hurt new construction.

“As [mortgage] interest rates have moved higher during July, some prospective buyers have been priced out of the market, reducing buyer traffic for builders,” he says.

* The calculation compares national median list prices in July 2020 with July 2023 from Realtor.com. It also factors in average weekly mortgage rates for 30-year fixed loans at the start of August in 2020 and 2023 from Freddie Mac. The calculation assumes buyers put down 20% and doesn’t include property taxes, insurance, homeowners association dues, or other fees.

By Devin Meenan

Ask any real estate professional about the macroeconomic challenges they’re facing today, and you’ll get an answer including both “inflation” and “interest rates.” As the former one grows, the latter does, too.

The Federal Reserve’s latest meeting on July 27 saw the board raise interest rates another 25 basis points. This came despite them pausing rate hikes the previous month and inflation falling to 3%, its lowest level in two years. Want a sense of when these hikes might finally end? Look to the labor market. Fed Chairman Jerome Powell has stated that constraining wage growth in line with 2% inflation is a top priority. 

According to the latest report from the Bureau of Labor Statistics, covering July 2023, the labor market continues to slow down. As with June, job gains fell short of economist expectations–187,000 compared to the forecasted 200,000. Job growth has previously been lower than expected in June and July offered the lowest level of job growth since December 2020. However, the unemployment rate fell to 3.5%, falling slightly both from the previous month and economist expectations (both 3.6%). 

NAR Chief Economist Lawrence Yun explained this dichotomy in a reaction to the report:

“There have been steadily fewer job openings, standing at 9.6 million recently compared to 12 million two years ago. It is still the case nonetheless of more help wanted signs than the 5.8 million Americans who are searching for a position. The labor shortage therefore continues. The count of those who are not in the labor force rose a bit in the past month. This is the reason why the unemployment rate fell even with slowing job creation. More importantly, this is why the number of those not in the labor force remains stubbornly high, with around 5 million more not searching for work compared to pre-Covid levels.”

The job sector with the highest gain was health care, which saw an increase of 63,000 jobs. Increases were also seen in social assistance (24,000), finance (19,000)–12,000 in the real estate sector–wholesale trade (18,000), and the public sector (15,000). Industries which saw declines included manufacturing and transportation.

The construction industry saw a continued upward trend with 19,000 jobs added – slightly higher than average monthly gain of 17,000. This reflects reports of increased builder confidence and demand for new homes. 

Wages grew slightly, rising 0.4% month over month and 4.4% year over year. Economists had forecasted 0.3%/4.2% growth. Wage growth presents a double-bind for housing. On one hand, slowing wages are generally considered a sign that efforts to constrain inflation are working, which will in turn bring down interest rates. However, affordability remains a challenge for prospective homebuyers; less money in people’s pockets will do nothing to alleviate that.

Yun offered a perspective and forecast based on this wage growth data:

“The wage rate rose by 4.4% to an average of $33.74 an hour. With consumer price inflation running at 3%, it marks an improvement in the standard of living for working Americans. It is a nice turn after two years of falling living standards when inflation was eating more of a paycheck. The economy is chugging along but is certainly not robust. It could turn into a job-cutting recession if the Fed continues to raise interest rates. If the Fed decides to halt the rate increases, then the housing sector can grow and provide a cushion for the economy.”

Reuters reports that markets are now betting that the Fed’s July rate hike will be the final one. However, the Fed’s decision will be contingent on subsequent inflation levels and the August employment report, according to Nationwide Chief Economist Kathy Bostjancic. 

Whether the labor market can reach levels that satisfy the hawkish Powell by August remains to be seen.