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Homes slipping out of reach; Rates jump; Zillow + US = TEAM 😮

By October 5, 2021 No Comments

As house prices keep rising, incomes aren’t keeping up

House prices are rising at a record pace but incomes aren’t keeping up, which is making homeownership less and less affordable.

The median American household would need 32.1% of its income to cover mortgage payments on a median-priced home, according to the Federal Reserve Bank of Atlanta. That is the most since November 2008, when the same outlays would eat up 34.2% of income.

Supercharged home prices in markets across the country are canceling out the impact of modestly higher incomes and historically low interest rates, two factors that typically make owning a home more affordable. 

Prices rose at a record pace for the fourth consecutive month in July, driven by a shortage of houses for sale. Higher prices require buyers to take out larger loans, essentially signing them up to make larger mortgage payments each month for years.

The Atlanta Fed calculates affordability using a three-month average of median home prices from CoreLogic Inc. and median household incomes based on census data. In July, the latest month in the Atlanta Fed’s calculations, median home prices were $342,350, up 23% from the year before. 

However median incomes were $67,031, up only 3%.

Declining affordability will have the biggest impact on buyers shopping for their first homes, who will have to sign up for larger monthly payments, buy less desirable homes or step back from the market altogether, economists said.

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Also rates are rising, so refi while you can

It was only a matter of time, but mortgage rates may finally be heading the way many housing experts have expected them to travel by this point in 2021: sharply upward.

Rates on America’s most popular types of home loans surged last week, according to a widely followed survey.

Homeowners who pulled the trigger on a refinance prior to last week — when rates sat well below 3% for months — can now celebrate both their savings and their foresight. Those who have been delaying a refi because they expected rates to fall further should consider last week’s rise a wake-up call.

The average interest rate on 30-year fixed-rate mortgages jumped last week from 2.88% to 3.01%, mortgage giant Freddie Mac reported on Thursday.

It was the largest weekly increase since mid-February, when optimism was first building over the country’s COVID-19 vaccination program.

Sam Khater, Freddie Mac’s chief economist, says last week’s steep rise in rates was partly due to soaring interest on Treasury bonds, specifically the 10-year Treasury note. When the yield on the 10-year improves, fixed mortgage rates tend to rise.

“Many factors led to this increase,” Khater adds, “including the Federal Reserve communicating that it will taper its support of the capital markets, the broadening of inflation and emerging energy supply shortages which compound other labor and materials shortages.”

The Fed recently said it may soon taper its monthly buying of tens of billions of dollars in Treasury bonds and mortgage-backed securities. Those purchases have been a COVID tonic for the economy — and have helped keep mortgage rates low.

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Now the Federal Government is using Zillow data to make research happen

Can we all agree that Zillow isn’t the best place to get data you can count on?

No, no we can’t.

Despite Zestimates often inaccurately valuing properties, the Census Bureau is leaning on the online listing portal for data.

During a U.S. Census Bureau Local Employment Dynamics Webinar earlier this year, economists from real estate firm Zillow showed how pairing Census Bureau data, paired with Zillow data, revealed the impact of the pandemic on housing market trends.

And what’s especially galling is the results of the study — are actually very interesting.

Zillow found that nearly two million renters unable to afford homes in metro areas could now afford to buy farther out because they no longer had to commute to work.

As a result, many renters became homebuyers and home and rental prices diverged around the time the pandemic hit the United States.

New for-sale housing inventory improved during the summer of 2020 but failed to keep up with sales growth. In 2020, there were fewer houses for sale (Zillow’s research data site) than in 2019, which created a home buying market with hyper-competitive conditions.

That said, the pandemic didn’t destroy urban areas.

Despite some concern that a pandemic-related mass exodus from metro areas was changing U.S. cities, cities are still very much alive and the housing market in some has even grown.

Zillow economists found pandemic’s impact on where people live varied across regions.

To clearly define urban and suburban, the Zillow Group used a ZIP code classification system for urban, suburban and rural areas. It then combined them with Census Bureau variables, such as population density, age of housing stock and other variables.

In cities in the Northeast and West regions like New York and San Francisco, home value growth trailed the suburbs but the opposite happened in markets in the Midwest. For example, home values surged the city in the Kansas City and Cleveland metro areas, where urban prices were relatively affordable.  

Basically, it appears that people in larger, more expensive metros were not willing to pay premium prices for proximity to amenities that were no longer available during the pandemic, like restaurants, museums and theaters. But demand boomed in more affordable urban areas.

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