By Lisa Johnson Mandell

Aug 11, 2023

Mortgage rates rose for the third week in a row, dashing homebuyers’ hopes that real estate might become a bit more affordable near summer’s end.

Interest rates for a 30-year fixed-rate mortgage averaged 6.96% for the week ending Aug. 10, according to Freddie Mac. That’s up significantly from a year ago when rates averaged 5.22%, and well over double the rates two years earlier when they hovered at 2.87%.

These near 7% rates have arrived just as inflation numbers ticked up in July, fueling worries that the Fed could raise benchmark rates at its next meeting in September.

And this might not even be the worst news for homebuyers—who, for the week ending Aug. 5, were also hit with higher home prices.

With home prices, mortgage rates, and inflation all inching upward, what does this mean for homebuyers and sellers? Here’s what the latest real estate statistics seem to foretell in our latest installment of “How’s the Housing Market This Week?”

Home prices rise again

Homebuyers had reason to be hopeful when list prices dipped in July to $440,000, down from $443,900 one year ago. Yet for the past two weeks, they’ve been on the upswing again, creeping 0.7% higher for the week ending Aug. 5 compared with last year.

Yet in her analysis of the latest housing data, Realtor.com® economic research analyst Hannah Jones predicts, “We will not see a new peak home price in 2023, above the June 2022 record of $449,000.”

So even though prices have indeed begun to head north again, they are probably not going to reach the summits of summer 2022.

Still, “Affordability is likely to continue to be the chief challenge for homebuyers,” says Jones.

The number of new listings is still sliding

New listings—a measure of the number of sellers listing their homes for sale—were down again this week, by 14% from one year ago. Many sellers are waiting to put their homes on the market until interest rates drop, so they can command a better price.

The number of new homes on the market has been dipping for the past 57 weeks. Yet this free-fall does not seem as extreme as earlier.

“The gap is starting to shrink,” says Jones. All that said, active inventory (both new and old listings that have been lingering on the market) is “lagging behind year-ago levels by 9%.”

This week marks the seventh consecutive decline in the number of homes actively up for sale, compared with the same time last year—and the gap is growing. This indicates that there are still people out there who are ready, willing, and able to buy—despite high interest rates, rising home prices, and other hurdles.

“But the continued drag from existing homeowners choosing to stay put, which we measure as new listings, is holding back overall inventory,” says Jones. “We expect a dip of 5% for 2023 overall compared to 2022.”

Yet all is not lost for homebuyers.

“New construction offers buyers an alternative and new-home sales continue to climb from year-ago lows,” Jones points out.

Homes are staying on the market longer

A little more good news for buyers: For the week ending Aug. 5, homes spent seven extra days on the market compared with this time last year.

This is a positive trend that has lasting power. For more than a year (55 weeks in a row), the time a typical home stays on the market is up compared with the same time one year ago.

This benefits buyers: If homes are sitting on the market longer, eager sellers might be more inclined to take a lower offer. It also could indicate that those troublesome bidding wars that were common a year or two earlier might be in the rear-view mirror.

“It could indicate that the market is finding a new normal,” concludes Jones, “where homes sit on the market for fewer days than pre-pandemic, but longer than was common during the height of the real estate frenzy.”

Lisa Johnson Mandell is an award-winning writer who covers lifestyle, entertainment, real estate, design, and travel. Find her on ReallyRather.com

By Clare Trapasso

Jul 10, 2023

Yes, we’ve all heard it. Buying a home today might seem like the most unaffordable, and therefore impossible, it’s ever been. Home prices are near record levels, pushed up by bidding wars erupting on anything well-situated and move-in ready. Plus, mortgage rates are nearing 7%.

But here’s the thing: The baby boomers had it worse.

In May of this year, the typical buyer spent just under a third of their household income, about 32.8%, on housing. As uncomfortable as that might be, it’s not even close to how much buyers plunked down in the early 1980s.

In 1981, the same year the AIDS virus was identified, the Iran hostage crisis came to an end, and “Raiders of the Lost Ark” topped the box office charts, homebuyers that September and October spent 51.3% of their household income on their mortgage payments.

Let that sink in for a moment.

Furthermore, that percentage doesn’t even include what they paid for utilities, property taxes, insurance costs, and homeowners association fees.

Buying a home is “not as unaffordable as it’s ever been,” says Realtor.com® Chief Economist Danielle Hale. But, “in the grand scheme of things, housing is pretty unaffordable right now.”

To figure out how affordable buying a home has been over the past 50 years, the Realtor.com data team analyzed data going back to 1973. We looked at monthly existing single-family home prices from the National Association of Realtors®, weekly mortgage interest rates for 30-year fixed loans from Freddie Mac, and median annual household income from the U.S. Census Bureau. Then we calculated the typical mortgage payment of a buyer taking out a loan on the median-priced home and what percentage of their household income that would eat up.

The analysis doesn’t factor in regional price differences, new construction, or the percentage of income that individual buyers spent on homes.

“If you go back in history, you can find a period where housing is more unaffordable than it is now,” says Hale. “But you have to go back almost 40 years.”

Why today’s buyers wouldn’t want to purchase a home in 1981

In the fall of 1981, homes were cheap by today’s standards.

The typical single-family home cost just $66,125—about six times less than the cost this past May, according to the most recent data from NAR.

However, the typical household was bringing in only about $19,074 in 1981, according to U.S. Census Bureau data. And mortgage rates topped 18% that fall. (And you thought 7% was rough.)

Those turbo-sized rates meant that 99.5% of a buyer’s first year of mortgage payments was going toward just the towering amount of interest on the loan. The buyer didn’t pay down 10% on the principal of the balance until the 18th year of the loan, assuming the buyer didn’t refinance—which most buyers did. (This calculation includes a 20% down payment.)

Today’s average family is earning about $73,505 a year. But in May, they were contending with median existing-home prices of $410,100 and mortgage rates hovering in the mid-6% range and which have since risen to the high 6% territory. About 85% of their first year’s mortgage payments is going to interest.

One important difference is that instead of waiting nearly two decades to have 10% of their principal paid off, they achieve that milestone by year seven.

“Mortgage rates play a really substantial role in how affordable housing is at any time, especially since so many buyers buy with a mortgage,” says Hale.

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Uncomfortable similarities between 1981 and 2023

There are a few similarities between then and now. Inflation was soaring in the early ’80s, causing the U.S. Federal Reserve to hike interest rates. (Sound familiar?) The nation was also in a full-blown recession in 1981. Fast-forward 42 years, and the nation appears to be flirting with another downturn.

The number of home sales slowed in the early 1980s as well as in this post-pandemic housing market as fewer folks can afford to buy due to higher mortgage rates.

Then, as now, most of those purchasing homes earn more than the median income—unless they had very generous family members, stock options, or trust funds. Or they’re existing homeowners who can put the equity they built in their last home into their new one.

“Boomers have been saying things were harder when we were young for a long time. And in some respects, they are right,” says Hale. “But in other respects, they don’t have the same amount of student loan debt and child care costs that young people have today.”

Plus, once mortgage rates fell, most folks who purchased homes in the early 1980s had refinanced their loans to lock in the new rates and “drastically” lower their monthly mortgage payments. By 1986, rates had fallen back down to the single digits.

Recessions and pandemics may be good times to buy homes

As counterintuitive as this may seem, recessions may be financially advantageous for buyers to purchase homes—if they remain employed and have the funds to do so. That’s because interest rates usually (but not always, as the early 1980s demonstrated) fall during economic downturns. That makes homebuying more affordable.

Over the past 50 years, homes were the most affordable as the country climbed out of the Great Recession. In early 2012 and 2013, buyers were spending about 14%—or less—of their income on a home. That’s because mortgage rates were below 4%.

The same thing happened in the early days of the pandemic. The economy ground to a halt as stay-at-home orders proliferated and mass layoffs ensued. To stimulate the economy, the Fed cut interest rates and mortgage rates fell below 3%—for the first time ever.

Those low rates triggered the big run-up in prices and offset those gains. Since buyers were spending less on interest, they could afford to purchase more house. The result? In spring 2020, buyers were spending just under 18% of their income on housing.

“Affordability is one of the factors that kicked off the buying frenzy that we saw in the early part of the pandemic,” says Hale.

It wasn’t until mortgage rates climbed above 4% in March 2022 that buyers began to get priced out. That month they spent just under 25% of their income on housing. As rates ticked up and affordability worsened, more buyers left the market and fewer homes went up for sale (as sellers didn’t want to give up their low rates).

The situation has only gotten worse, with buyers spending nearly a third of their income on housing in May.

“When housing is unaffordable, it’s very tempting to stretch your budget,” says Hale. But with inflation, rising property taxes, and high energy bills, “now’s probably not a good time to do that.”

Clare Trapasso is the executive news editor of Realtor.com where she writes and edits news and data stories. She previously wrote for a Financial Times publication, the New York Daily News, and the Associated Press. She also taught journalism courses at several New York City colleges. Email clare.trapasso@realtor.com or follow @claretrap on Twitter.

By Sally Jones

Jul 18, 2023

The housing market has been decidedly stuck of late. Sellers with low mortgage rates are holding on to their homes, leaving buyers with scant listings to choose from.

And buyers who do find a house face substantial economic challenges as median home prices and mortgage rates remain high.

With sellers and buyers at an impasse, misconceptions and outright myths are popping up on both sides about the state of the market on social channels and forums.

1. The housing market is about to crash, just like in 2008

Today’s buy-sell stalemate has some would-be buyers almost hoping that we are in a bubble—that it will burst and lead to plentiful homes available at fire-sale prices.

No one can blame a buyer dealing with the double whammy of higher home prices and interest rates for hoping for a lucky break. But the reality is that the 2008 housing market collapse tripped a recession that caused record job losses. And job loss doesn’t further anyone’s financial dreams.

Even if we are in a bubble right now—and most experts say it’s hard to call it until it’s in the rearview mirror—conditions are not at all like they were in 2008.

Unlike today, there was a glut of new homes being built then, sellers were trying to attract buyers, and homebuyers could qualify for a mortgage with little to no money down.

“That access to credit included a surge in lenders offering loans to buyers with lower credit scores, or subprime borrowers,” says Chris Ragland, principal at Ragland Capital.

Easy credit might sound good in theory, but some loans were adjustable-rate mortgages with a low “introductory teaser” rate. And once the introductory rate ended and the loan adjusted to a higher rate, some buyers could no longer afford their monthly payments.

“Subprime borrowers in particular who suffered a job loss had little to no accumulated equity in their homes,” says Ragland. So when the economic downturn came, they were immediately underwater on their loans and many defaulted.

None of these conditions is true today. Today almost half of all homeowners have more than 50% equity.

“Laws were passed in 2010 to strengthen verification of a borrower’s ability to repay a loan,” says Ragland.

And the drivers of today’s home prices are entirely different.

“The 2020 to 2022 price increase was driven by an inventory shortage and unusually low interest rates,” says Bruce Ailion, attorney and Realtor® in Atlanta.

2. Owners have such good rates, they will never sell

One of the biggest complaints about today’s housing market is that there just aren’t enough homes for sale. And given the unbeatable interest rates available two years ago, when many bought or refinanced, what would make sellers budge?

“Mortgage rates were forced lower than they should have been, lower than they likely ever will be again,” says Ailion. So when you look at it from the seller’s point of view, it doesn’t make sense to give up a low long-term rate.

But in reality, there are always life events that force homeowners to sell.

People get new jobs and have to relocate. Growing families need more room or want to be in a particular school district. Retirees downsize or move to a better climate. Seniors move to be closer to family or go into assisted living. And their home will go up for sale.

3. As rates rise, home prices will drop

Many would-be homebuyers have hoped that higher interest rates would bring home prices down. But the relationship between interest rates and home prices is complex.

“Interestingly, the increase in interest rates has not resulted in a decline in prices in most markets,” says Ailion.

In fact, home prices have been all over the place this year and vary from city to city. Home prices are still being driven by inventory. And in the most popular locations, an updated home that’s move-in ready might still get multiple offers.

“Some buyers are dating the rate and marrying the house,” Ailion explains. “Today’s high interest rates can be refinanced in the future. And today’s housing prices will likely be higher when those lower interest rates return.”

4. Good-credit buyers are subsidizing buyers with bad credit

This myth blew up over a misunderstanding about government-backed Fannie Mae and Freddie Mac loans and a new fee structure.

Fannie and Freddie are government-sponsored enterprises (GSEs) on a mission to make mortgages more accessible to first-time homebuyers with lower incomes but good credit. They don’t issue loans directly but work with lenders to lower their risk by guaranteeing certain loans should the borrower default.

The organizations also purchase other lenders’ loans on the secondary market and sell them to investors as mortgage-backed securities. This frees up lenders to be able to keep lending to new borrowers.

Fannie and Freddie are essential organizations in the mortgage industry. About 70% of all mortgages are GSE-backed. So they can set requirements and establish fees.

The new fee structure eliminated upfront fees for first-time homebuyers. At the same time, it increased fees for other loans that are outside the organizations’ stated mission and borrowers who don’t need a leg up: namely, second-home loans, high-balance loans, and cash-out refinances.

It really had nothing to do with a borrower’s credit score.

“It’s a myth,” says Ailion. “Buyers with poor credit always pay a higher interest rate than buyers with good credit.”

Sally Jones writes about home buying, decorating, and renovating. Her work has been published by Realtor.com, Family Handyman, ConsumerAffairs, Reader’s Digest, Brit + Co, and MSN. See her kitchen and bath designs come to life on her blog, Renov8or.

Freddie Mac has announced the launch of a new feature to the underwriting process, designed to increase homeownership opportunities. Underwriting will now include a review of a borrower’s bank account data to identify a history of positive monthly cash flow activity as part of its technology’s loan purchase eligibility assessments, the company stated. The new feature will be available to mortgage lenders nationwide through Freddie Mac’s automated underwriting system, Loan Product Advisor^® (LPA^SM), beginning November 6, 2022, they said.

“With the addition of positive monthly cash flow data, our underwriting system can help with more accurately predicting a borrower’s ability to pay their mortgage because it uses a comprehensive view of how personal finances are managed over time,” said Terri Merlino, Freddie Mac Single-Family senior vice president and chief credit officer. “Our latest innovation levels the playing field and helps make homes more accessible to borrowers whose lenders might not have qualified them with traditional methods of underwriting. This should particularly help first-time homebuyers and underserved communities.”

According to Freddie Mac, wth the borrower’s permission, lenders and brokers can submit financial account data for LPA to identify 12 or more months of cash flow activity for inclusion in the tool’s risk assessment. Data can be obtained from checking, savings and investment accounts, including those used for direct deposit of income and monthly bill payments, such as rent, utilities and auto loans. The account data submitted can only positively affect the borrower’s credit risk assessment. To help identify opportunities, LPA will notify lenders when submitting additional account data could benefit a borrower, they said.

Lenders and brokers can obtain the financial account data from designated third-party service providers using the same automated process they currently use to verify assets, income (using direct deposit), employment, and on-time rent payments via a single report through LPA’s asset and income modeler (AIM).

Working alongside our industry partners, we have made significant progress toward modernizing the mortgage origination process,” said Kevin Kauffman, Freddie Mac Single-Family vice president of client engagement. “In the current market, our latest industry-leading innovation delivers lender efficiencies that can lead to cost savings and improvements to the borrower experience, while meeting Freddie Mac’s strong credit underwriting standards.”

Initial service providers supporting Freddie Mac’s LPA borrower cash flow assessment include Blend, Finicity (a MasterCard company), FormFree and PointServ, the release noted.

For more information, visit www.freddiemac.com.

As escalating mortgage rates and home prices shrink the pool of buyers, help your sellers understand why they’ll likely need to readjust their expectations.

June 21, 2022

by Melissa Dittmann Tracey

Key takeaways:

• Today’s sellers are seeing the market cool considerably from the homebuying frenzy just months ago and need greater education in order to price their home appropriately so it won’t linger.
• It’s still a seller’s market, but buyers are regaining negotiation leverage.
• Those who are relocating or need to sell quickly may not have time to test a high listing price.

Home sellers had gotten used to setting sky-high asking prices, and voracious buyers were eagerly bidding them up even higher—until now. As the market shifts more in buyers’ favor, over 25% of homes on the market have experienced a price drop as of mid-June, according to data from Altos Research. In some areas of the country, price reductions are even more commonplace–most notably in Provo, Utah, where nearly half of homes on the market had a price reduction in May. Redfin data pinpoints other cities where 40% or more of listed homes are experiencing price drops:

• Tacoma, Wash.
• Denver
• Salt Lake City
• Sacramento, Calif.
• Boise, Idaho
• Ogden, Utah
• Portland, Ore.
• Indianapolis
• Philadelphia

Rumblings of a housing slowdown are growing as higher mortgage rates and double-digit annual home price gains deal a blow to buyers’ budgets. Housing analysts are warning home sellers that they may need to readjust their expectations, but many are still holding on to hope for a big resale profit, after seeing their neighbors generate a bidding war and sell in mere hours in a bidding war for well over the listing price just months ago. In the spring, nearly 6,000 homes sold for $100,000 or more above asking price, according to Redfin data.

“Sellers could do no wrong over the past two years and have become overconfident,” says James McGrath, a real estate broker and co-founder of New York–based real estate brokerage Yoreevo. “They could take the price their neighbor just got, bump it up 5% and still have a line out the door. But with the surge in mortgage rates, those days are over.” Some home sellers are now having to reduce their price 5% below nearby comps to sell quickly, McGrath adds.

Economists are quick to note that overall home prices are not likely to fall precipitously. In fact, the national median home price reached an all-time high of $447,000 in June, according to realtor.com®. An increase in listings for larger homes may be skewing that figure even higher, realtor.com® economists note. Housing inventory is slowly increasing, giving home buyers more selections in many markets and home sellers some extra competition. Meanwhile, buyers are showing greater concern about affordability.

Realigning Expectations

Even when the housing market begins to soften, sellers tend to hold on to the original price they had in mind, McGrath says. “Only after sitting on the market for a few months do they acknowledge their expectations may need to come down,” McGrath says. “Realistic sellers will get ahead of their neighbors with realistic prices to sell first.”

Real estate pros may need to have more upfront conversations with sellers about the list price so a later price reduction isn’t necessary. “Agents may have to do a better job in the current market of educating their sellers,” says Tansey Soderstrom, president of the Orlando Regional REALTOR® Association in Florida. “Homeowners can’t just sell for double what they paid for it anymore. Some sellers may have shown up late to that party.”

Still, some sellers may insist on a certain price against their agent’s advice, risking a feeling of shame if their home lingers on the market. “The pricing will greatly depend on how motivated the seller is,” Soderstrom says, adding that though the market has weakened, it’s still tilted toward sellers. “Some sellers may want to throw out a high price just to see if they can get it. But that strategy is likely different than a person who is relocating or someone who needs to sell quickly.”

Homeowners looking to sell fast need to carefully review competitive prices in the current market with their agent and be prepared when it may not exactly match up with their expectations.

Why Buyers Are Growing Wearier

Higher mortgage rates are shrinking the buyer pool, says Lawrence Yun, chief economist for the National Association of REALTORS®. The 30-year fixed-rate mortgage jumped from 2.93% one year ago to 5.78% as of the week ending June 16, according to Freddie Mac. On a $300,000 mortgage, the average monthly payment has increased from $1,265 last December to about $1,800 at today’s rate, Yun says.

Consumer confidence drives real estate activity, and with inflation at a 40-year high, stock market uncertainty and higher mortgage rates, more buyers are getting priced out, McGrath says. “Even if they can afford it, a buyer isn’t going to make one of the largest purchases of their life if they’re not confident and comfortable with their financial and employment situation,” he adds. As such, “smart sellers will reduce their pricing expectations and sell quickly.”

But home buyers haven’t abandoned the housing market. Demand is still strong and likely will remain so given improving inventory, which particularly will help first-time buyers, says Glenn Brunker, president of the mortgage servicer Ally Home. “Strong homebuyer demand will continue to support higher home price appreciation going forward, but likely at a much slower level,” Brunker says. “Certainly, we’re still in a seller’s market, but the buyer is starting to have more control and negotiating ability than they did six or 12 months ago. We’re seeing healthy examples of customers not buying as frantically, like ‘sight unseen’ offers or waiving their appraisal or home inspection. Those practices are beginning to stall, and it’s a return to a more normalized market with a more logical buying process.”

Melissa Dittmann Tracey

Contributing Editor

Melissa Dittmann Tracey is a contributing editor for REALTOR® Magazine. She can be reached at  mtracey@nar.realtor. Follow her on Instagram and Twitter: @housingmuse