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Is the Housing Market Correcting on Mt. Hood?
Saturday, June 18, 2022
Is the Housing Market Correcting on Mt. Hood?
If you're following the news, all of the headlines about conditions in the current housing market may leave you with more questions than answers. Is the boom over? Is the market crashing or correcting? Here’s what you need to know.
The housing market is moderating compared to the last two years, but what everyone needs to remember is that the past two years were record-breaking in nearly every way. Record-low mortgage rates and millennials reaching peak homebuying years led to an influx of buyer demand. At the same time, there weren’t enough homes available to purchase thanks to many years of underbuilding and sellers who held off on listing their homes due to the health crisis.
This combination led to record-high demand and record-low supply, and that wasn’t going to be sustainable for the long term. The latest data shows early signs of a shift back to the market pace seen in the years leading up to the pandemic – not a crash nor a correction. As realtor.com says:
“The housing market is at a turning point. . . . We’re starting to see signs of a new direction, . . .”
Home Showings Then and Now
The ShowingTime Showing Index tracks the traffic of home showings according to agents and brokers. It’s a good indication of buyer demand. Here’s a look at that data going back to 2019 (see graph below):
The 2019 numbers give a good baseline of pre-pandemic demand (shown in gray). As the graph indicates, home showings skyrocketed during the pandemic (shown in blue). And while current buyer demand has begun to moderate slightly based on the latest data (shown in green), showings are still above 2019 levels.
And since 2019 was such a strong year for the housing market, this helps show that the market isn’t crashing – it’s just at a turning point that’s moving back toward more pre-pandemic levels.
Existing Home Sales Then and Now
Headlines are also talking about how existing home sales are declining, but perspective matters. Here’s a look at existing home sales going all the way back to 2019 using data from the National Association of Realtors (NAR) (see graph below):
Again, a similar story emerges. The pandemic numbers (shown in blue) beat the more typical year of 2019 home sales (shown in gray). And according to the latest projections for 2022 (shown in green), the market is on pace to close this year with more home sales than 2019 as well.
It’s important to compare today not to the abnormal pandemic years, but to the most recent normal year to show the current housing market is still strong. First American sums it up like this:
“. . . today’s housing market looks a lot like the 2019 housing market, which was the strongest housing market in a decade at the time.”
Bottom Line
If recent headlines are generating any concerns, look at a more typical year for perspective. The current market is not a crash or correction. It’s just a turning point toward more typical, pre-pandemic levels. Let’s connect if you have any questions about our local market and what it means for you when you buy or sell this year.
Why Home Loans Today Aren’t What They Were in the Past
Wednesday, June 1, 2022
Why Home Loans Today Aren’t What They Were in the Past
In today’s housing market, many are beginning to wonder if we’re returning to the riskier lending habits and borrowing options that led to the housing crash 15 years ago. Let’s ease those concerns.
Several times a year, the Mortgage Bankers Association (MBA) releases an index titled the Mortgage Credit Availability Index (MCAI). According to their website:
“The MCAI provides the only standardized quantitative index that is solely focused on mortgage credit. The MCAI is . . . a summary measure which indicates the availability of mortgage credit at a point in time.”
Basically, the index determines how easy it is to get a mortgage. The higher the index, the more available mortgage credit becomes. Here’s a graph of the MCAI dating back to 2004, when the data first became available:
As the graph shows, the index stood at about 400 in 2004. Mortgage credit became more available as the housing market heated up, and then the index passed 850 in 2006. When the real estate market crashed, so did the MCAI as mortgage money became almost impossible to secure. Thankfully, lending standards have eased somewhat since then, but the index is still low. In April, the index was at 121, which is about one-seventh of what it was in 2006.
Why Did the Index Get out of Control During the Housing Bubble?
The main reason was the availability of loans with extremely weak lending standards. To keep up with demand in 2006, many mortgage lenders offered loans that put little emphasis on the eligibility of the borrower. Lenders were approving loans without always going through a verification process to confirm if the borrower would likely be able to repay the loan.
An example of the relaxed lending standards leading up to the housing crash is the FICO® credit score associated with a loan. What’s a FICO® score? The website myFICO explains:
“A credit score tells lenders about your creditworthiness (how likely you are to pay back a loan based on your credit history). It is calculated using the information in your credit reports. FICO® Scores are the standard for credit scores—used by 90% of top lenders.”
During the housing boom, many mortgages were written for borrowers with a FICO score under 620. While there are still some loan programs that allow for a 620 score, today’s lending standards are much tighter. Lending institutions overall are much more attentive about measuring risk when approving loans. According to the latest Household Debt and Credit Report from the New York Federal Reserve, the median credit score on all mortgage loans originated in the first quarter of 2022 was 776.
The graph below shows the billions of dollars in mortgage money given annually to borrowers with a credit score under 620.
In 2006, buyers with a score under 620 received $376 billion dollars in loans. In 2021, that number was only $80 billion, and it’s only $20 billion in the first quarter of 2022.
Bottom Line
In 2006, lending standards were much more relaxed with little evaluation done to measure a borrower’s potential to repay their loan. Today, standards are tighter, and the risk is reduced for both lenders and borrowers. These are two very different housing markets, and today is nothing like the last time.
What's the Future of the Mt. Hood Real Estate Market?
Tuesday, May 31, 2022
What Does the Rest of the Year Hold for the Housing Market?
If you’re thinking of buying or selling a house, you’re at an exciting decision point. And anytime you make a big decision like that, one thing you should always consider is timing. So, what does the rest of the year hold for the housing market? Here’s what experts have to say.
The Number of Homes Available for Sale Is Likely To Grow
There are early signs housing inventory is starting to grow and experts say that should continue in the months ahead. According to Danielle Hale, Chief Economist at realtor.com:
“The gap between this year’s homes for sale and last year’s is one-fifth the size that it was at the beginning of the year. The catch up is likely to continue, . . . This growth will mean more options for shoppers than they’ve had in a while, even though inventory continues to lag pre-pandemic normal.”
- As a buyer, having more options is welcome news. Just remember, housing supply is still low, so be ready to act fast and put in your best offer up front.
- As a seller, your house may soon face more competition when other sellers list their homes. But the good news is, if you’re also buying your next home, having more options to choose from should make that move-up process easier.
Mortgage Rates Will Likely Continue To Respond to Inflationary Pressures
Experts also agree inflation should continue to drive up mortgage rates, albeit more moderately. Odeta Kushi, Deputy Chief Economist at First American, says:
“… ongoing inflationary pressure remains likely to push mortgage rates even higher in the months to come.”
- As a buyer, work with trusted real estate professionals, including your lender, so you can learn how rising mortgage rate environments impact your purchasing power. It may make sense to buy now before it costs more to do so, if you’re ready.
- As a seller, rising mortgage rates are motivating some homeowners to make a move up sooner rather than later. If you’re planning to buy your next home, talk to a trusted real estate advisor to decide how to time your move.
Home Prices Are Projected To Continue To Climb
Home prices are forecast to keep appreciating because there are still fewer homes for sale than there are buyers in the market. That said, experts agree the pace of that appreciation should moderate – but home prices won’t fall. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), explains:
“Prices throughout the country have surged for the better part of two years, including in the first quarter of 2022. . . Given the extremely low inventory, we're unlikely to see price declines, but appreciation should slow in the coming months.”
- As a buyer, continued home price appreciation means it’ll cost you more to buy the longer you wait. But it also gives you peace of mind that, once you do buy a home, it will likely grow in value. That makes it historically a good investment and a strong hedge against inflation.
- As a seller, price appreciation is great news for the value of your home. Again, lean on a professional to strike the right balance of the best conditions possible for both selling your house and buying your next one.
Bottom Line
Whether you’re a homebuyer or seller, you need to know what’s happening in the housing market, so you can make the most informed decision possible. Let’s connect to discuss your goals and what lies ahead, so you can pick your best time to make a move.
Don’t Let Rising Inflation Delay Your Homeownership Plans
Friday, May 20, 2022
![Don’t Let Rising Inflation Delay Your Homeownership Plans INFOGRAPHIC] | MyKCM](https://files.mykcm.com/2022/05/18153723/20220520-MEM-1046x2334.png)
Some Highlights
- If recent headlines about rising inflation are making you wonder if it’s still a good time to buy, here’s what experts have to say.
- Housing is an asset that typically grows in value. Plus, your mortgage helps stabilize your monthly housing costs, and buying protects you from rising rents.
- Experts say owning a home is historically a good hedge against inflation. Let’s connect if you’re ready to start the homebuying process today.
The One Thing Every Homeowner Needs To Know About a Recession
Thursday, May 19, 2022
The One Thing Every Homeowner Needs To Know About a Recession
A recession does not equal a housing crisis. That’s the one thing that every homeowner today needs to know. Everywhere you look, experts are warning we could be heading toward a recession, and if true, an economic slowdown doesn’t mean homes will lose value.
The National Bureau of Economic Research (NBER) defines a recession this way:
“A recession is a significant decline in economic activity spread across the economy, normally visible in production, employment, and other indicators. A recession begins when the economy reaches a peak of economic activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.”
To help show that home prices don’t fall every time there’s a recession, take a look at the historical data. There have been six recessions in this country over the past four decades. As the graph below shows, looking at the recessions going all the way back to the 1980s, home prices appreciated four times and depreciated only two times. So, historically, there’s proof that when the economy slows down, it doesn’t mean home values will fall or depreciate.
The first occasion on the graph when home values depreciated was in the early 1990s when home prices dropped by less than 2%. It happened again during the housing crisis in 2008 when home values declined by almost 20%. Most people vividly remember the housing crisis in 2008 and think if we were to fall into a recession that we’d repeat what happened then. But this housing market isn’t a bubble that’s about to burst. The fundamentals are very different today than they were in 2008. So, we shouldn’t assume we’re heading down the same path.
Bottom Line
We’re not in a recession in this country, but if one is coming, it doesn’t mean homes will lose value. History proves a recession doesn’t equal a housing crisis.
Mortgage Rates Impact on Your Mt. Hood Purchase
Monday, May 9, 2022
How Today’s Mortgage Rates Impact Your Mt. Hood Purchase
If you’re planning to buy a home, it’s critical to understand the relationship between mortgage rates and your purchasing power. Purchasing power is the amount of home you can afford to buy that’s within your financial reach. Mortgage rates directly impact the monthly payment you’ll have on the home you purchase. So, when rates rise, so does the monthly payment you’re able to lock in on your home loan. In a rising-rate environment like we’re in today, that could limit your future purchasing power.
Today, the average 30-year fixed mortgage rate is above 5%, and in the near term, experts say that’ll likely go up in the months ahead. You have the opportunity to get ahead of that increase if you buy now before that impacts your purchasing power.
Mortgage Rates Play a Large Role in Your Home Search
The chart below can help you understand the general relationship between mortgage rates and a typical monthly mortgage payment within a range of loan amounts. Let’s say your budget allows for a monthly mortgage payment in the $2,100-$2,200 range. The green in the chart indicates a payment within that range, while the red is a payment that exceeds it (see chart below):
As the chart shows, you’re more likely to exceed your target payment range as mortgage rates increase unless you pursue a lower home loan amount. If you’re ready to buy a home, use this as your motivation to purchase now so you can get ahead of rising rates before you have to make the decision to decrease what you borrow in order to stay comfortably within your budget.
Work with Trusted Advisors To Know Your Budget and Make a Plan
It’s critical to keep your budget top of mind as you’re searching for a home. Danielle Hale, Chief Economist at realtor.com, puts it best, advising that buyers should:
“Get preapproved with where rates are today, but also consider what would happen if rates were to go up, say another quarter of a point, . . . Know what that would do to your monthly costs and how comfortable you are with that, so that if rates do move higher, you already know how you need to adjust in response.”
No matter what, the best strategy is to work with your real estate advisor and a trusted lender to create a plan that takes rising mortgage rates into consideration. Together, you can look at your budget based on where rates are today and craft a strategy so you’re ready to adjust as rates change.
Bottom Line
Even small increases in mortgage rates can impact your purchasing power. If you’re in the process of buying a home, it’s more important than ever to have a strong plan. Let’s connect so you have a trusted real estate advisor and a lender on your side who can help you strategize to achieve your dream of homeownership this season.
Willamette Week Article on Mt. Hood Real Estate Appreciation
Wednesday, May 4, 2022
A recent article in Willamette Week states home prices in Rhododendron were up 47% over last year. Read article here. The article is about folks moving out of Portland for less expensive housing so they can qualify to buy. This seems to be happening everywhere. Notice there are three of our burgs on Mt. Hood listed in the chart below. These numbers are coming from Zillow based on comments in the article.
Recent RMLS statistics for the Mt. Hood area in March 2022 says our year over year for the entire area including Government Camp was 37.3%. If you add in another 10% for the 2020-2021 season, I can see where these numbers are coming from. I thought the Rhododendron comment was a little misleading under the main heading. These stats are for two years of sales vs. one year of sales.
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