Unpacking the Long-Term Benefits of Homeownership

Unpacking the Long-Term Benefits of Homeownership If you’re thinking about buying a home soon, higher mortgage rates, rising home prices, and ongoing affordability concerns may make you wonder if it still makes sense to buy a home right now. While those market factors are important, there's more to consider. You should think about the long-term benefits of homeownership too. Think about this: if you know people who bought a home 5, 10, or even 30 years ago, you’re probably going to have a hard time finding someone who regrets their decision. Why is that? The reason is tied to how home values grow with time and how, by extension, that grows your own wealth. That may be why, in a recent Fannie Mae survey, 76% of respondents say they believe buying a home is a safe investment. Here’s a look at how just the home price appreciation piece can really add up over the years. Home Price Growth over Time The map below uses data from the Federal Housing Finance Agency (FHFA) to show just how noteworthy price gains have been over the last five years. And, since home prices vary by area, the map is broken out regionally to help convey larger market trends:   If you look at the percent change in home prices, you can see home prices grew on average by just over 57% nationwide over a five-year period. Some regions are slightly above or below that average, but overall, home prices gained solid ground in a short time. And if you expand that time frame even more, the benefit of homeownership and the drastic gains homeowners made over the years become even clearer (see map below): The second map shows, nationwide, home prices appreciated by an average of over 297% over a roughly 30-year span. This nationwide average tells you the typical homeowner who bought a house 30 years ago saw their home almost triple in value over that time. That’s a key factor in why so many homeowners who bought their homes years ago are still happy with their decision. And while you may have heard talk throughout the year that home prices would crash, it hasn’t happened. In fact, experts project home prices will continue to rise for years to come.  Bottom Line If you’re wondering if it still makes sense to buy a home today, it's important to focus on the long-term advantages that come with homeownership. When you’re ready to start your homebuying journey, let’s chat.

Why Today's Housing Inventory Shows a Crash Isn't on the Horizon

Why Today’s Housing Inventory Shows a Crash Isn’t on the Horizon You might remember the housing crash in 2008, even if you didn't own a home at the time. If you’re worried there’s going to be a repeat of what happened back then, there's good news – the housing market now is different from 2008. One important reason is there aren't enough homes for sale. That means there’s an undersupply, not an oversupply like the last time. For the market to crash, there would have to be too many houses for sale, but the data doesn't show that happening. Housing supply comes from three main sources: Homeowners deciding to sell their houses Newly built homes Distressed properties (foreclosures or short sales) Here’s a closer look at today's housing inventory to understand why this isn’t like 2008. Homeowners Deciding To Sell Their Houses Although housing supply did grow compared to last year, it’s still low. The current months’ supply is below the norm. The graph below shows this more clearly. If you look at the latest data (shown in green), compared to 2008 (shown in red), there’s only about a third of that available inventory today. So, what does this mean? There just aren't enough homes available to make home values drop. To have a repeat of 2008, there’d need to be a lot more people selling their houses with very few buyers, and that's not happening right now. Newly Built Homes People are also talking a lot about what's going on with newly built houses these days, and that might make you wonder if homebuilders are overdoing it. The graph below shows the number of new houses built over the last 52 years: The 14 years of underbuilding (shown in red) is a big part of the reason why inventory is so low today. Basically, builders haven’t been building enough homes for years now and that’s created a significant deficit in supply. While the final blue bar on the graph shows that’s ramping up and is on pace to hit the long-term average again, it won’t suddenly create an oversupply. That’s because there’s too much of a gap to make up. Plus, builders are being intentional about not overbuilding homes like they did during the bubble. Distressed Properties (Foreclosures and Short Sales) The last place inventory can come from is distressed properties, including short sales and foreclosures. Back during the housing crisis, there was a flood of foreclosures due to lending standards that allowed many people to get a home loan they couldn’t truly afford. Today, lending standards are much tighter, resulting in more qualified buyers and far fewer foreclosures. The graph below uses data from the Federal Reserve to show how things have changed since the housing crash: This graph illustrates, as lending standards got tighter and buyers were more qualified, the number of foreclosures started to go down. And in 2020 and 2021, the combination of a moratorium on foreclosures and the forbearance program helped prevent a repeat of the wave of foreclosures we saw back around 2008. The forbearance program was a game changer, giving homeowners options for things like loan deferrals and modifications they didn’t have before. And data on the success of that program shows four out of every five homeowners coming out of forbearance are either paid in full or have worked out a repayment plan to avoid foreclosure. These are a few of the biggest reasons there won’t be a wave of foreclosures coming to the market. What This Means for You Inventory levels aren’t anywhere near where they’d need to be for prices to drop significantly and the housing market to crash. According to Bankrate, that isn’t going to change anytime soon, especially considering buyer demand is still strong: “This ongoing lack of inventory explains why many buyers still have little choice but to bid up prices. And it also indicates that the supply-and-demand equation simply won’t allow a price crash in the near future.” Bottom Line The market doesn’t have enough available homes for a repeat of the 2008 housing crisis – and there’s nothing that suggests that will change anytime soon. That’s why housing inventory tells us there’s no crash on the horizon.

Why is Housing Inventory So Low?

Why Is Housing Inventory So Low? One question that’s top of mind if you’re thinking about making a move today is: Why is it so hard to find a house to buy? And while it may be tempting to wait it out until you have more options, that’s probably not the best strategy. Here’s why. There aren’t enough homes available for sale, but that shortage isn’t just a today problem. It’s been a challenge for years. Let’s take a look at some of the long-term and short-term factors that have contributed to this limited supply. Underbuilding Is a Long-Standing Problem One of the big reasons inventory is low is because builders haven’t been building enough homes in recent years. The graph below shows new construction for single-family homes over the past five decades, including the long-term average for housing units completed: For 14 straight years, builders didn’t construct enough homes to meet the historical average (shown in red). That underbuilding created a significant inventory deficit. And while new home construction is back on track and meeting the historical average right now, the long-term inventory problem isn’t going to be solved overnight.  Today’s Mortgage Rates Create a Lock-In Effect There are also a few factors at play in today’s market adding to the inventory challenge. The first is the mortgage rate lock-in effect. Basically, some homeowners are reluctant to sell because of where mortgage rates are right now. They don’t want to move and take on a rate that’s higher than the one they have on their current home. The chart below helps illustrate just how many homeowners may find themselves in this situation: Those homeowners need to remember their needs may matter just as much as the financial aspects of their move. Misinformation in the Media Is Creating Unnecessary Fear Another thing that’s limiting inventory right now is the fear that’s been created by the media. You’ve likely seen the negative headlines calling for a housing crash, or the ones saying home prices would fall by 20%. While neither of those things happened, the stories may have dinged your confidence enough for you to think it’s better to hold off and wait for things to calm down. As Jason Lewris, Co-Founder and Chief Data Officer at Parcl, says: “In the absence of trustworthy, up-to-date information, real estate decisions are increasingly being driven by fear, uncertainty, and doubt.” That’s further limiting inventory because people who would make a move otherwise now feel hesitant to do so. But the market isn’t doom and gloom, even if the headlines are. An agent can help you separate fact from fiction.  How This Impacts You If you’re wondering how today’s low inventory affects you, it depends on if you’re selling or buying a home, or both. For buyers: A limited number of homes for sale means you’ll want to seriously consider all of your options, including various areas and housing types. A skilled professional will help you explore all of what’s available and find the home that best fits your needs. They can even coach you through casting a broader net if you need to expand your search. For sellers: Today’s low inventory actually offers incredible benefits because your house will stand out. A real estate agent can walk you through why it’s especially worthwhile to sell with these conditions. And since many sellers are also buyers, that agent is also an essential resource to help you stay up to date on the latest homes available for sale in your area so you can find your next dream home.  Bottom Line The low supply of homes for sale isn’t a new challenge. There are a number of long-term and short-term factors leading to the current inventory deficit. If you’re looking to make a move, let’s connect. That way you’ll have an expert on your side to explain how this impacts you and what’s happening with housing inventory in our area.

Mortgage Rates: Past, Present, and Possible Future

Mortgage Rates: Past, Present, and Possible Future If you’re hoping to buy a home this year, you’re probably paying close attention to mortgage rates. Since mortgage rates impact what you can afford when you take out a home loan – and affordability is a challenge today – it’s a good time to look at the big picture of where mortgage rates have been historically compared to where they are now. Beyond that, it’s important to understand their relationship with inflation for insights into where mortgage rates might go in the near future. Giving Context to the Sticker Shock Freddie Mac has been tracking the 30-year fixed mortgage rate since April of 1971. Every week, they release the results of their Primary Mortgage Market Survey, which averages mortgage application data from lenders across the country (see graph below): Looking at the right side of the graph, mortgage rates have increased significantly since the start of last year. But even with that rise, today’s rates are still below the 52-year average. While that historical perspective is good context, buyers have gotten used to mortgage rates between 3% and 5%, which is where they’ve been over the past 15 years. That’s important because it explains why the recent jump in rates might have you feeling sticker shock even though they’re close to their long-term average. While many buyers have adjusted to the elevated rates over the past year, a slightly lower rate would be a welcome sight. To determine if that’s a realistic possibility, it’s important to look at inflation. Where Could Mortgage Rates Go in the Future?  The Federal Reserve has been working hard to lower inflation since early 2022. That’s significant because, historically, there’s been a connection between inflation and mortgage rates (see graph below): This graph shows a pretty reliable relationship between inflation and mortgage rates. Looking at the left side of the graph, each time inflation moves significantly (shown in blue), mortgage rates follow suit shortly after (shown in green). The circled portion of the graph points out the most recent spike in inflation, with mortgage rates following closely behind. As inflation has moderated a bit this year, mortgage rates haven’t yet made a similar move. That means, if history is any guide, the market is waiting for mortgage rates to follow inflation and head back down. It’s impossible to accurately predict where mortgage rates will go for sure, but moderating inflation means mortgage rates going down in the near future would fit a well-established trend.  Bottom Line To understand where mortgage rates may be going, it’s helpful to look at where they’ve been in the past. There’s a clear connection between inflation and mortgage rates, and if that historical relationship holds true, the recent decline in inflation may mean good news for the future of mortgage rates and your homeownership goals.