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Demand for apartments plummeted in the national apartment market in the third quarter, coming off what had been several quarters of strong run-up in demand and rent growth for the national multifamily market.
In fact, apartment demand turned negative last quarter, the first Q3 in at least 30 years that such a phenomenon occurred, according to RealPage Inc. The summer months are typically strong for the for-sale and rental housing markets, making the Q3 drop in demand this year particularly significant.
Net demand was -82,095 units in Q3 among the markets tracked nationally by RealPage, bringing year-to-date net demand to -47,143 units. Negative demand means more renters moved out of than into apartments during a specified period.
Jay Parsons, head of economics and industry principals for RealPage, in a statement accompanying the report said soft leasing numbers and weak home sales point to low consumer confidence. People tend to go into wait-and-see mode during periods of uncertainty, he also said.
It’s possible, too, record rental-rate growth across the U.S. observed in the past 18 months, up until the end of this summer, has more renters doubling up to split the rent.
There’s a record number of apartments under construction across the U.S., prompting questions of whether the sudden slowdown in apartment demand will affect that pipeline, as well as future investment decisions by capital groups and developers.
Carl Whitaker, director of research and analysis at RealPage, said in an email that a performance slowdown will almost certainly cause investor groups to reassess their view on the marketplace but it’ll take something more drastic than a one- or two-quarter period of moderation for groups to significantly adjust their approach to acquisitions and dispositions.
“Multifamily’s share of total (commercial real estate) investment grew steadily even in the pre-pandemic cycle, and the past two or so years have only further solidified apartments as a highly coveted space for investor groups,” he added.
There are some 917,000 apartments under construction, by RealPage’s count — the most on record since the company began tracking the market in the early 1990s.
Whitaker said what’s most likely to influence a construction slowdown are external economic factors, such as rising interest rates and supply chain challenges. Even with the performance slowdown and record amount of construction, he said it would take a prolonged and significant pullback to influence development appetite measurably.
One area of the market where at least some investors could slow development and investment as they tighten the screws on deals: real estate markets that boomed during the pandemic but are hitting the brakes hard.
Boise, Idaho, may be the poster child for such a market, with home values at $323,897 in March 2020, peaking at $515,378 in March 2022, which has since fallen to $502,547 in August, according to Zillow Group Inc. (NYSE: ZG). The typical observed market rental rate in Boise went from $1,333 in March 2020 to $1,886 in August 2022, according to Zillow.
The housing market has cooled very rapidly in Boise in recent months, although rental rates have yet to decline. They grew only 0.2% between July and August, though.
Sean Robertson, originations and underwriting director at New York-based Churchill Real Estate, said his company looked at tertiary markets that boomed in the wake of remote work during the onset of the pandemic. Churchill typically focuses on workforce-housing deals, or properties that can rent at or below 140% of the area median income.
But, ultimately, those pandemic boom markets didn’t make sense for investment — and less so now.
“Those markets were very difficult to comp,” he said. “A lot of developers were going in, overpaying for land, looking to be the market leader as far as amenity packages, finishes … (I)t hasn’t really been battle-tested yet.”
Like many others in multifamily, Churchill has been keen to finance deals in established Sun Belt markets, such as Austin, Texas, and Phoenix. With the cost of capital higher now, and companies like Churchill taking a harder look at which deals to move forward on, high-growth markets in the Southeast and Southwest are places it still feels good about, Robertson said.
But Sun Belt cities are becoming more suburban in nature, following migration trends and where more affordable projects can be pursued. Places like Katy or McKinney in Texas — about 30 miles from Houston and Dallas, respectively — are some of the places Churchill recently closed deals on.
It’s also targeting affordable metros on a relative basis, such as the Inland Empire in southern California, and markets that’ve undergone an industrial boom in the past few years.
When a deal in the Lehigh Valley of Pennsylvania first crossed his desk, Robertson said, it was a “no” initially. But after checking out the area, one of the most prolific warehouse markets in the U.S. that services much of the Northeast, his team’s thinking changed.
“There was not much supply of Class A or even B-plus apartments,” he said. “The housing stock was very old but you saw every industrial REIT sign up, massive (buildings) out there employing thousands of people. They need a place to live.”
Other investors that bet on small cities and towns that grew rapidly in light of the pandemic still see potential for some of those nontraditional markets — if there’s a sustainable growth story.
Chicago-based Pangea Mortgage Capital closes multifamily loans across the U.S., particularly for acquisitions and rehab deals. It’s a subsidiary of Pangea Properties, which owns about 13,000 apartments nationally.
Some of the apartment deals Pangea closed on recently were in places like Moscow, Idaho; Bend and Eugene, Oregon; Kennewick, Washington; and San Luis Obispo, California.
“There’s been a flight, I think, in the post-pandemic world to some of these non-urban areas, somewhere where there’s a work-life balance,” said Michael Bachenheimer, director and head of West Coast originations at Pangea Mortgage Capital. “There’s a whole argument to be made that the five-day workweek, where you’re in an office all five days, is slowly eroding.”
It’s particularly relevant for the tech sector, with those companies pulling back on their office plans as more of their employees are working remotely permanently. Some tech workers who once lived in the pricey Bay Area or Seattle have moved to places like Eugene, Oregon.
Tertiary markets tend are generally less competitive and offer better value plays and more yield, Bachenheimer said, but certain markets work for specific reasons.
Moscow, Idaho, for example, is home to the University of Idaho, which provides continued housing demand from the university as well as their suppliers.
Tertiary markets — perhaps, especially, ones on the fringe of larger metropolitan areas — may continue to be popular with apartment investors and developers, as affordability pushes people farther out or to new markets. And while the permanence of remote work is still debated, if a greater number of people have more choice in where they live, that can spur demand in new cities or towns.
When examining deals now, Bachenheimer said, there are no areas off the table, but because of the Federal Reserve’ position to continue to raise interest rates, Pangea is more closely examining the exit underwriting.
“A lot of deals, while they look great today, they don’t look good two to three years from now,” he continued. “We’re cutting leverage on the front end.”
The growing threat of a recession and deal slowdown in the wake of higher interest rates has some real estate groups preparing to seize on potential distressed opportunities.
The growing threat of a recession and deal slowdown in the wake of higher interest rates has some real estate investors preparing to seize on potential distressed properties or loans.
Real estate insiders say much of the investment market remains in a stalemate and price-discovery mode — some sellers aren’t willing to adjust pricing, and buyers are applying more scrutiny around deal terms and where they invest.
A lot of capital was raised in 2020, at the onset of the Covid-19 pandemic, in anticipation of a wave of distress, which mostly didn’t materialize. But now recession threats and rapidly raising interest rates have increased the potential for distress in the coming months.
“There are funds and groups coming together that want to play in the distressed market,” said George Mitsanas, principal at San Francisco mortgage banking firm Gantry Corp., which has an $18 billion portfolio of serviced commercial mortgages spanning more than 2,100 loans nationally.
Mitsanas said he also expects family offices to see opportunity. “A number of my clients are billionaires where their leverage has always been low, and they have a tremendous amount of capital … If there’s a disruption in the marketplace for good deals, I think the family offices will swoop in and start increasing their real estate holdings,” he said.
The office market is commonly cited as the property type that may face the biggest issues, which could present opportunities for those looking to buy distressed properties.
Estimates of how much office building values may decline because of pandemic changes to work vary. One recent analysis by the Mortgage Bankers Association found, if widespread hybrid work persists, companies would need around 80% of the office space they previously needed, resulting in building income and values dropping 10% to 20%.
Distress isn’t apparent yet, although there are warning signs. Trepp LLC’s commercial mortgage-back securities’ special servicing rate rose to 4.94% in September, a hair higher than the August rate of 4.92%. Loans enter special servicing when financial issues arise, affecting a borrower’s ability to stay current on payments.
Trepp noted in its report that September CMBS data reflects market suspicions that August was an inflection point for specially serviced loans.
“The office sector has a large concentration of loans with near-term maturities and tenants with expiring leases,” it said. “Lockdown periods during the pandemic displayed the ease at which companies can implement a work-from-home policy, and if many of the major tenants in the office sector shed their leases and opt to implement a full or hybrid WFH model, this could have a major impact on the CRE market.”
Looming maturities and lease terminations are starting to be reflected in the special-servicing numbers, according to Trepp.
Scott Sherman recently launched Torose Equities, a Miami company targeting value-add deals, including office buildings, in the Southeast.
Sherman said, since the pandemic, he’s been looking to buy office properties, a sector where he hasn’t seen many active buyers, given the questions over remote and hybrid work’s long-term impact.
“That’s where I’m seeing the best opportunities,” he continued. “Looking forward over the next year, with rates rising, there’s going to be a lot of potential distressed situations to take advantage of.”
That doesn’t exclusively mean distressed properties, but also potential issues when owners can’t refinance maturing debt.
South Florida is somewhat of an anomaly, as companies continue to relocate there, Sherman said, fueling demand for office space. But in other places, the outlook is cloudier.
The level and depth of distress in any property type is impossible to ascertain. But most market observers aren’t predicting a repeat of the global financial crisis fallout for commercial real estate in the late 2000s.
The political environment, both domestically and abroad, are also wild cards for what happens in the broader economy. The war in Ukraine and outcomes of the U.S. election are creating uncertainty, Mitsanas said, and questions investors have to ask include whether there’s going to be an energy shortage this winter.
“Are interest rates going to stay high? What about inflation? Those uncertainties have people nervous,” he said.
But, he added, most real estate owners have plenty of reserves if a rainy day becomes a storm.
Adam Ducker, CEO of Bethesda, Maryland-based RCLCO Real Estate Consulting, said in the past month or two, it’s become a more commonly held view there will be distress.
“It may not be 2009 levels of distress but enough to change investment strategy, create a new fund, reposition something,” Ducker said. “There’s been a meaningful change around the energy of this in the last 30 days.”
While office space gets a lot of the attention, Ducker said the market is bracing for real estate dislocation in general.
For example, in the multifamily market, which has been on fire during the pandemic, deals that closed at high values and low capitalization rates won’t necessarily see distress but are pricing so differently now than they did less than a year ago. It’s become more difficult to refinance or get construction financing, Ducker added, which may present opportunities.
“At the moment, there’s a historically high level of money that’s been earmarked for real estate investing that hasn’t been invested,” he said.
Workspace Property Trust out of Boca Raton, Florida, recently closed on a $1.1 billion portfolio deal that included 8 million square feet of suburban office space in 14 U.S. markets.
It was notable for its size but also because it exclusively included office space.
It was a challenging deal to close because of rapidly escalating interest rates. Workspace recently had a deal-closing party for the portfolio and handed out replica mallets because the sale was like whack-a-mole to get to the finish line, said Roger Thomas, Workspace co-founder, president and chief operating officer.
“We were able to craft together alternative balance-sheet financing, which many people had suggested we would never get that accomplished,” Thomas said. “We managed to get it done. If it had gone much longer, I’m not sure if we would have been able to hold it together.”
Such is the environment now for most commercial real estate deals, even for property types like industrial and apartments.
Roger Thomas is co-founder of Workspace Property Trust.
But Thomas said he remains bullish on suburban office’s future — given demographic shifts to the suburbs and an increasing unwillingness to commute long distances multiple days a week — and is looking for opportunities.
And there’s not a lot of competition in the suburban office buying market right now, Thomas added, as many public real estate investment trusts have pivoted from office more broadly.
“In this challenged market, you’re not going to see people starting up at this stage in the game,” he said. “They’re going to wait for the markets to come back.”
He said it’s possible his company will go through a bit of a quiet period as the markets settle. But because some owners will be coming up against debt maturities, that can be where a company like Workspace can get a deal done.
Sherman, who previously started Tricera Capital LLC, a real estate company that bought retail properties as that sector went through a repositioning, said buying potential or outright distressed properties requires creativity and figuring out how each deal is different.
“Borrowers that now have this issue are going to be faced with a choice: Do they give back the keys, put in more capital or find some other potential way to fill the hole?” he said. “I think that’s where I’d like to try to find opportunities, where we come in and fill that hole.”
The market is moving toward “a win-win experience” for buyers and sellers, according to a new report.
A home for sale in Centennial, Colorado.
Denver metro’s housing market continues to creep ever closer to balance, according to the latest monthly report from the Denver Metro Association of Realtors (DMAR). The shift is impacting all levels of sales, including the $1 million and up “luxury” category.
The end of September saw active listings increase to 7,683, a 10.72% increase from August and a 93.48% increase from September 2021. Month over month, sales volume decreased by 6.38%, and pending sales declined by 15.41%. Closed properties saw a sharp decline from last year, at 27.6%, with 4,113 residences closing in September. Average days on the multiple listing service (MLS) hit 26 days in September, a 100% increase from last year, according to the report.
Despite Denver Realtors seeing price reductions happen in desirable areas where they haven’t seen price reductions since the pandemic, some metrics are still on the rise; the median close price in September was $580,000, a .87% increase from August and a 9.43% increase from September 2021.
In the report, Realtor Libby Levinson-Katz described Denver as moving towards a balanced market, something the city has not seen in more than 16 years.
“A traditional cycle for the Denver real estate market is seven years. Due to an economic crash and a global pandemic, the cycles were extended, but a correction is needed,” she said. “The market is entering a period of neutrality where the bullish ways of extreme markets make way for a stage of compromise, with buyers and sellers working together for a win-win experience.”
After a year of questioning whether $1 million homes should be considered luxury properties in Denver, that category of homes is seeing significant shifts.
According to the DMAR report, home inventory to last the market less than three months creates a seller’s market, while home inventory that lasts the market more than six months creates a buyer’s market. The market for attached homes costing $1 million or more hit 2.83 months of inventory, just on the cusp of exiting the seller’s market category. Similarly, detached homes in the $100,000 to $199,999 are getting close to leaving a seller’s market, as it stands at 2.75 months of inventory.
Realtor Colleen Covell commented in the report that although the numbers may technically show the luxury market as still in a seller’s market, she’s seeing something different.
“We are experiencing full inspection objections, price reductions, no competing offers, no appraisal gaps and even contingent offers. The question on everyone’s mind is are we finally in a luxury buyer’s market? The technical statistics may say ‘not yet,’ but it sure feels close,” Covell said in the report.
More luxury home sellers (those with properties worth $1 million or more) listed their homes in September, at an 18.86% increase than in August, while the attached luxury market saw a 66.67% increase in new listings from the prior month. Total, 649 homes hit the market last month. The luxury market is seeing quite the influx of inventory, with 5,962 new listings so far in 2022.
The average days on the market rose month over month for the luxury market, 31.82% and 40% for detached and attached homes respectively, giving buyers more time to decide to make an offer. Pending sales also dropped in September, as did the close-price-to-list-price ratio, according to the report.
A Redfin report recently found that price drops are becoming increasingly common in the luxury home category — yet a Denver home recently listed at $28.9 million, which would be a high-water mark in residential sales here.
DMAR includes the metro counties of Adams, Arapahoe, Boulder, Broomfield, Clear Creek, Denver, Douglas, Elbert, Gilpin, Jefferson and Park counties in its monthly real estate reports. The organization pulls data from REcolorado.
Whether you are a first-time homebuyer or a seasoned veteran, the negotiation part of the transaction can be a little daunting and stressful. However, it is necessary to ensure you are getting the best possible deal for your money. So, what should you negotiate when buying a home?
“The only thing that is reliable is change.”
Median prices for a single-family in the Denver metro area have dropped for the fourth straight month, according to the newest report from the Colorado Association of Realtors (CAR).
At $620,000, that median price for Denver-area homes has fallen by $40,000 since April’s record high, but it’s still up by approximately 10% from August 2021. Likewise, the condo/townhome market has also seen a decline in median pricing to $405,000, a $38,000 decrease from this April, but still 8% higher than August 2021.
Across the state of Colorado, median single-family prices also dropped for the fourth straight month in August, to $570,000, representing a $30,000 fall from April, and a 9.6% increase from last year. Median condo/townhome sales increased from July to August statewide to $414,961, which is still a $20,000 decrease from April, the CAR report states.
The close-to-list-price dropped below 100% for the first time since early 2020 for single-family Denver-area homes in August. With the number of days on the market also increasing, Colorado home buyers are perhaps demonstrating a more cautious approach to purchasing homes, according to the report.
The median price for a single-family home in Denver County decreased by 9.5% from July to August, representing a historically seasonal drop in pricing from past years. Last year saw a 7.5% decrease, while 2020 saw just a 0.4% increase. The four years prior to that saw between 2.5% and 6.7% decreases.
“The sky isn’t falling, there isn’t some explosive market change as the market itself is always in motion, always in a state of flux and is about as reliable as a 1973 Ford Pinto,” Denver-area realtor Matthew Leprino said in the report. “The only thing that is reliable is change and the fact that, year-over-year, market-over-market, values always increase with the wisdom of a historic perspective.”
Despite signs favoring a buyer’s market, inventory still remains well below the four- to six-month range that represents a balanced market. Across the state, the month’s supply of inventory — meaning the amount of time before all existing inventory runs out if no new listings hit the market — was 1.3 months for the townhome/condo market and two months for single-family homes.
In its report, CAR noted the affordability challenges in the state, with housing affordability remaining at its lowest ever, according to the Housing Affordability Index. CAR’s index takes into account interest rates, county median income and median sales prices.
CAR also offers insight into what’s happening in specific cities and counties throughout Colorado. In the city of Aurora, inventory rose 40% year over year, with one particular zip code reporting a huge 128% increase.
Similarly, Douglas County inventory was up as well, with 70% more homes on the market compared to August 2021. While median prices for Douglas County homes dropped for the fourth straight month, those prices are still up more than 10% from last year.
The Boulder and Broomfield counties demonstrated a common theme of big-time price reductions on listings, while other categories saw big increases. Home prices have increased 11% since the beginning of the year, and the list price-to-sale price ratio is at 104%.
Realtors are “counseling their clients to price their homes closer to the end of 2021’s sales, not to those that sold six months ago. The demand is still there and the local economy is still strong. The real estate market is still moving, as long as it’s priced right,” Broomfield and Boulder realtor Kelly Moye said in the report.
CAR uses a Minneapolis-based real estate tech company to compile its reports from multiple listing service (MLS) data.
n a recent poll of nearly 3,000 Coloradans, 88% of respondents said the rising cost of living is a serious problem in the state. In the Denver metro area, 31% said they are worried about losing their home, according to the poll from the Colorado Health Foundation.
“Lack of resources for the growing number of people moving here,” one person surveyed said when asked about the most important issue facing Colorado.
According to a recent report from national rental marketplace Zumper, rent for a one-bedroom apartment in Denver has jumped 26.6% from this time last year. Denver’s two-bedroom rentals are up 14.8%.
While Denver saw more properties on the market this April compared to April 2021, the average home sale price in Denver hit $726,988, making homeownership unaffordable for many potential buyers.
Even 83% of the individuals surveyed in the poll who reported earning more than six figures said that the rising cost of living is a serious problem in Colorado.
Affordability in Colorado is disproportionately impacting people of color, with higher percentages than white respondents reporting in the poll that they’re concerned about losing their homes, have cut back on food or health care to afford housing or worked multiple jobs to afford housing.
The majority of nearly 3,000 Coloradans surveyed in the poll, including Democrats, Republicans and independent voters, agreed that policy change is necessary to lower housing costs.
Two of the most popular solutions in the poll were ensuring landlords cannot raise rents on current tenants too quickly (74% agreed) and requiring developers to build housing for people with lower income levels (71%).
The City of Denver is seeking to address affordability with a proposal mandating that new development include a certain amount of affordable units. The Denver Community Planning and Development told Denver Business Journal that 1,202 affordable units with city financing are already under construction as of this month, with an additional 779 income-restricted units in the planning stage.
Businesses are also seeking to address the shortage of affordable housing, for example in mountain towns, where Vail Resorts (NYSE: MTN) is investing in 876 affordable units specifically for workers at some of its most high-profile, and expensive, ski resorts.
But some Coloradans are simply choosing to leave the state, which may become an increasingly popular option with remote work making it possible to live in less expensive areas. At the end of last year, around one in four Denver homebuyers were looking to relocate, according to Redfin data. Cities with high costs of living were seeing the most interest in net homebuyer outflow in that study.
And according to U.S. Census Bureau data, 12,606 fewer people moved to Colorado in 2021 than in 2020. While 2021 saw the smallest population gain for Colorado since 1990, the Centennial State had 15% more people moving out than moving in, according to HireAHelper.
Some of the fastest-growing cities in the U.S. are nearby, including in Utah, Arizona and Texas, according to Rocket Mortgage. A LinkedIn report last year found that Phoenix was one of the top destinations for Denver users who had left the city over the past two years.
While inventory is on the rise, so are prices. The average price of a single-family detached home in Denver Metro is $825,073, representing a 3.93 percent increase from last month. With consecutive months of increased prices and interest rates, a buyer’s monthly mortgage has increased as well. The average close-price-to-list-price ratio in April for the detached market was 107.29 percent. With the increase in supply, the close-price-to-list-price ratio is an example of how the market was reacting a month ago.
The relationship between closed sales and month-end active inventory impacts the supply and demand of the market and, therefore, many other statistics including average sales price. The most significant factor influencing the supply and demand of this market is interest rates. With many individuals refinancing due to low-interest rates on their house and interest rates north of five percent, there is minimal financial incentive to move.
“While buyers may be thinking they overpaid if they bought two months ago, this is not the case,” commented Andrew Abrams, Chair of the DMAR Market Trends Committee and Metro Denver Realtor®. “They likely got a slightly lower interest rate and the market is continuing to rise, just not as fast. In the chaos of the recent market, buyers had been waiving their inspections, doing full appraisal gaps and even offering to make their earnest money non-refundable before getting an inspection. Now, we are shifting to a more responsible market. There will still be bidding wars, appraisal gaps and limited inspection items on future properties, but the frequency of those will be less.”
The increased interest rates are already impacting the amount of inventory sitting on the market. While Denver Metro is still relatively low in inventory, the word “historic” is no longer applicable as there were 610 fewer properties on the market last year compared to today. The market usually sees an 8.59 percent increase in month-over-month inventory. This month, it saw an outstanding 44.26 percent increase.
Our monthly report also includes statistics and analyses in its supplemental “Luxury Market Report” (properties sold for $1 million or greater), “Signature Market Report” (properties sold between $750,000 and $999,999), “Premier Market Report” (properties sold between $500,000 and $749,999), and “Classic Market” (properties sold between $300,000 and $499,999).
eanwhile, in the Luxury Market, inventory is on the rise, with a 57.65 percent increase in new listings from this time last year. However, as a result of inflation, more homes will cross the threshold into the Luxury Market simply due to list price or more likely due to bidding wars that end 20 percent or more over the original ask price.
In part due to seasonality, new listings for detached homes rose 26.62 percent from last month. However, this is a 63.73 percent jump from last year for new listings. Pending sales rose 27.15 percent to 562 properties and 599 closed homes, a 17.91 percent increase from last month. Unsurprisingly, the average days in MLS decreased to 14 days from 17 last month, while the median days in MLS of four held strong month-over-month.
The close-price-to-list-price ratio jumped slightly to 108.45 percent up just 0.39 percent from last month. Most notably, this data point was 102.62 percent this time last year, which means there has been a 5.68 percent rise in the last year. As such, the price per square foot total also jumped 16.27 percent from last year to $386 per square foot.
“The spring selling season is off to a great stat and it feels as though more inventory is becoming available than even the data represents,” said Libby Levinson-Katz, DMAR Market Trends Committee member and Metro Denver Realtor®. “My partner and I have had more listings this year than we’ve ever had which feels like a slight change in the marketplace with more Denverites opting to either sell investment properties, move out of state or jump into this crazed market. For perspective, the Luxury Market year-to-date has 2,350 new listings with 1,793 closed. Back in 2018, there were 1,283 new listings with 649 closed properties.”
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Latest mortgage news: Rates Resume Rise
With inflation still posing a threat to the economy, mortgage rates resumed rising this week. The average rate on 30-year mortgages climbed to 5.36 percent, up from 5.27 percent last week, according to Bankrate’s national survey of large lenders.
Competing forces are pushing rates in opposite directions. “The inflation concerns remain intact, but worries about slowing economic growth have increased,” says Greg McBride, Bankrate’s chief financial analyst. “The tug of war between worries about inflation (higher rates) and an economic slowdown (lower rates) will keep mortgage rates rangebound for a bit.”
The Federal Reserve has intensified its fight against inflation — in April, prices rocketed at an annual clip of 8.3 percent. The Fed at the beginning of May raised rates half a point, its largest rate hike in decades. The central bank directly moves interest rates on some mortgage products, namely adjustable-rate mortgages and home equity loans. Fed policy has fewer ramifications for fixed mortgage rates, which more closely follow 10-year Treasury yields.
For borrowers, the recent run-up in rates marks an end of the historically low rates that characterized the period following the global financial crash of 2008 and 2009.
A year ago, the benchmark 30-year fixed-rate mortgage was at 3.13 percent. Four weeks ago, the rate was 5.46 percent. The 30-year fixed-rate average for this week is 2.36 percentage points higher than the 52-week low of 3 percent.
The 30-year fixed mortgages in this week’s survey had an average total of 0.4 discount and origination points.
Over the past 52 weeks, the 30-year fixed has averaged 3.77 percent.
Where mortgage rates are headed
Some mortgage experts think that rates are done rising.
“Mortgage rates are likely to plateau near current levels,” Mike Fratantoni, chief economist at the Mortgage Bankers Association, said recently. “The financial markets have attempted to price in the impact of Fed actions over this cycle, and they are likely also pricing in the economic slowdown that will result. Once we are past this rate spike and associated volatility, MBA expects that potential homebuyers may be more willing to re-enter the market.”
Mortgage experts who responded to Bankrate’s latest survey say rates are being pressured by the rising prices in the broader economy. Jim Sahnger of C2 Financial Corp. in Jupiter, Florida, is among those predicting higher rates. “Inflation drives interest rates higher, and that’s what we’re living with,” says Sahnger.
Worries about runaway inflation are weighing on stocks and on U.S. Treasury yields, which this week hovered in the range of 2.9 percent. The official inflation figure for April came in at 8.3 percent, one of the highest levels in four decades and a reliable predictor of higher mortgage rates. With inflation running hot, the Fed has indicated it intends to raise rates several times in the coming months. What’s more, the Fed is selling off some of the securities it bought to stave off the coronavirus recession.
As rates have blown past 5 percent, the refinancing boom of 2020 and 2021 seems all but over. Rate-and-term refinance activity dropped by 80 percent in the first quarter of 2022, according to mortgage data firm Black Knight. The name of the game now for homeowners sitting on mounds of equity is cash-out refinances, which accounted for 75 percent of refinances in Q1 2022.
In a disconnect, home prices have been soaring even as mortgage rates rise. The median price for existing houses sold in April was $391,200, up 15 percent from April 2021, the National Association of Realtors reports.
“Eventually mortgage rates will slow down home prices, but it hasn’t happened so far,” says Ken H. Johnson, an economist at Florida Atlantic University. “We should not see rapid upticks in prices as mortgage rates rise. It’s that kind of exuberance that led to past housing downturns.”
Economists had expected rates to rise by the end of 2022, but the surge in rates in the past two months has many forecasters wondering what comes next. As mortgage rates climb, competition should remain intense for the time being among those who can afford to buy.
“There are two sides to rising rates,” says Skylar Olsen, principal economist at real estate technology firm Tomo. “Monthly affordability will take a hit, but we’ll also shake off more of the investor types looking for the leverage of a lifetime, so lifting rates could also mean a saner market. Rates that low caused all sorts of households to rush in, and without the supply to match, price growth has been violent. That stresses affordability too. The fundamentals of demographics, life and built-up savings will still push primary purchases forward. Less heat in housing is good.”
The Bankrate.com national survey of large lenders is conducted weekly. To conduct the National Average survey, Bankrate obtains rate information from the 10 largest banks and thrifts in 10 large U.S. markets. In the Bankrate.com national survey, our Market Analysis team gathers rates and/or yields on banking deposits, loans and mortgages. We’ve conducted this survey in the same manner for more than 30 years, and because it’s consistently done the way it is, it gives an accurate national apples-to-apples comparison. Our rates differ from other national surveys, in particular Freddie Mac’s weekly published rates. Each week Freddie Mac surveys lenders on the rates and points based on first-lien prime conventional conforming home purchase mortgages with a loan-to-value of 80 percent. “Lenders surveyed each week are a mix of lender types – thrifts, credit unions, commercial banks and mortgage lending companies – is roughly proportional to the level of mortgage business that each type commands nationwide,” according to Freddie Mac.
Multi generation buying is nothing new, but it’s something that will change how we buy a home and can pass on a legacy to our children.
Have you considered buying a home with your parents, sisters, brothers? What if you combine your incomes together, and that afforded you to buy land, a home with separate entrances like a walk out basement. In which you will still have some privacy, but now you live in the perfect location and have the perfect home that fits all your needs. There are 3 things to consider that affect your budget for a home: Location, Condition, and Size of a home. In this market you have to give up at least one of these to be able to buy. But how about getting all of these, just by putting your income together with people you consider your family. Once you have built enough equity, you then would use that equity together to buy another home for the next member of the family, and so on. This is the epitome of Teamwork, Makes the Dream Work.
Let’s look at what a 3-bedroom single family home will cost.
Total for closing 26,250 just to get the home. But what about being able to outbid other buyers. Do you have an extra 50k to outbid, right now buyers are outbidding by around 20% over asking. On top of that you’re not able to buy where you want, and or take the home as is.
So, you can see why combining your income, your resources, can help with the overwhelming cost and put your family in a position to save, and to build real estate wealth.
Rora Berhe
Glass Properties Group
Keller Williams Urban Elite.