Pending Home Sales at the End of 2022

 December 2022 ended the year with an increase in pending home sales. This was the first increase seen in the housing market since May. Those in the industry believe that the mortgage rates were what enticed the buyers.

The pending sales index also went up 2.5% from November to December. The pending sales index is determined by signed contracts to buy a home which is different from existing home sales. The pending sales index is released by the National Association of Realtors (NAR). This is good news, but it is still down 33.8% from the same time in 2021.

“This recent low point in home sales activity is likely over,” said Lawrence Yun, NAR chief economist. “Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market.”

The Northeast was down 6.5% from November and the Midwest was down 0.3%. All other regions saw an increase with the West being the highest at 6.4%.

“The new normal for mortgage rates will likely be in the 5.5% to 6.5% range,” Yun predicted. “Job gains will steadily become important in driving local home-sales markets. The South, in particular, is set to outperform the rest of the country, thanks primarily to better job market conditions in this part of the country.”

Buyers are out there and are actively searching for a home. “Mortgage applications have been trending higher alongside lower rates, pending home sales are up, and builder confidence increased in January,” Kushi said. “Interested buyers are out there. From a financial perspective, the decision to buy a home comes down to a payment-to-paycheck calculation, and lower rates may help to reduce the mortgage payment while higher incomes can increase one’s monthly paycheck.”

There is still the challenge of affordability. “Though mortgage rates fell as low as 6.27% in December, down 0.8 percentage points from November’s high, home prices remained elevated, up 8.4% compared to the previous year,” she said.

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The Age Most Are Purchasing Homes In The Current Market

 The average age for a first-time homebuyer is getting older.  On average in the U.S. a first-time home buyer is 33 years old and the overall average age of homebuyers is 47.  This data was first gathered in 1981 and current average ages are drastically higher. 

Each succeeding generation is seeing a drop in homeownership.  A current report found that between 1985-2020 homeownership rates  broken down by generation are 77.8% for Baby Boomers, 69.1% for Generation X and 47.9% for Millennials.  In terms of the real estate markets, the Millennials represent the major portion of homebuyers.

The change in the average age is due to several different factors.  Home prices continue to rise due to lack of inventory and student debt is now also adding to the expenses.   Mortgage rates are also shifting and are also adding to the problem especially along the coasts. Younger generations have gone to college and have college debt that is also making it difficult to save money for a down payment.

Since this is such a big generation, over the past five years we have seen a massive increase in the purchasing of homes.  New first-time homebuyers in their 30s outweigh those in their 60s.  In 1981 the typical homebuyer was at the average age of 31 according to the National Association of Realtors.

In terms of overall homebuyers 34% are first-time homebuyers.  Younger Millennials made up 81%  in the generational bracket, while 48% were older Millennials.  Even though older Millennials made up less of the Millennial homebuyers, they were the biggest generation of first-time homebuyers.

The bad news is that Millennials are perceived to have less money than the preceding generations. Generation X came in on top with $125,000 as the median annual household income, where Millennials were only $110,300 per year. Millennials are perceived as the most educated group with 84% having earned a bachelor’s degree from a four year college even though they are not the highest paid generation.

Sixty percent of homebuyers were married couples, 19% were single females, 9% were males and 9% were unmarried couples.  Baby Boomers were the highest group with 27% single female buyers.  For unmarried couples, the Millennials had the highest at 21%.  Thirty one percent of homebuyers had a child under 18 living at home.

If you are in the market to purchase a home, hire a real estate agent in your area.  Many homebuyers today are purchasing for investment to earn a passive income.  A Realtor can help you find the perfect home for investment due to the rise in rental income.

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Steps to Take When Buying A House

 The best way to start your house search is to work with a local sales agent who can help you navigate the home buying process. Here is a list of the steps you and your realtor should take when going through the homebuying process.

1. Make sure you’re ready

You not only need to be financially read, but also emotionally ready when it comes to purchasing a home.  It is said that buying a house is one of the most stressful things to do when it comes to life events.  With that being said, you are going to be at your home for a good amount of time so there are questions to ask yourself.  What are your goals for the next few years?  Are you going to be purchasing a home with a partner, if so, are you all in agreement on how much you want to spend?  Is there a chance that you might need to relocate for work?  Are you thinking about starting a family?  These are big life questions that can help you determine if this is the right time to purchase a home.

2. Get your finances in order

Again this is one of the biggest financial decisions you will make in your lifetime.   Before you take the plunge, make sure you are 100% financially stable.   A great resource is a home affordability calculator.  With this tool, you can help determine your budget by listing your income, debts, location and down payment amount.  You can compare how much your mortgage would be versus how much income you bring in.  This will help you keep your housing hunting to a home you can realistically afford.   Along with this, check your credit score too.  A high credit score will allow you to get a lower interest rate.

3. Make a plan for the down payment

After you figure out what you can afford, then you want to determine your down payment. The norm is to put down 20% but nowadays many potential home buyers are opting to put down less.  The downfall to this is you will have to pay private mortgage insurance (PMI) when you put less than 20% down.   Note that certain loans require a minimum downpayment.  There are many programs out there that can assist with a downpayment.

4. Create a wish list

List some things you would love to have in your new home (a wish list). Things to think about when creating a list are, detached or attached unit, ideal location and move-in ready or fixer-upper.  If you have a big family and pets, your best choice would be a single-family home with a yard.  You will want to choose a neighborhood that best fits your lifestyle.  If you love the outdoors, you should look for a neighborhood with tons of greenspace and walking trails.  If you are good with your hands, then a fixer-upper could be right for you.

5. Find the right mortgage

There are several different types of mortgages.  A conventional loan offers a low minimum down payment but is strict with qualifications.  An FHA loan is backed by the Federal Housing Administration and is usually easier to qualify for but you will more than likely have to have mortgage insurance.  A VA loan is backed by the Department of Veterans Affairs and is only for active or former service members. A jumbo loan is used when the home that is being purchased is more than standard lending limits.  A renovation loan will allow you to combine the costs of your home improvements with the home loan.  Depending on your situation and your credit score there is a loan that is right for you.

6. Find the right Realtor

Once you have your mortgage pre-approval and you know what you are looking for, it is time to find an agent who can help you with your search.  You will want to interview several agents to find one that fits you.  Professionals in the industry say that it is a good idea to at least interview three different agents.   Word of mouth is a way to find an agent.

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A Record Decline in Mortgage Rates

 Why did the mortgage rate have the biggest decline this month since 2008?

According to Sam Khater of Freddie Mac, "over the last two weeks, the 30-year fixed-rate mortgage dropped by half a percent, as concerns about a potential recession continue to rise."

"Over the last two weeks, the 30-year fixed-rate mortgage dropped by half a percent, as concerns about a potential recession continue to rise," reported Sam Khater, Freddie Mac's chief economist. The higher rates are also affecting the number of mortgage applications. According to the Mortgage Bankers Association, applications dropped 5.4% in one week.

According to CNN, this is the largest decline we have seen since December of 2008. The week ending on July 7th the 30-year fixed mortgage rate averaged 5.30% which was down from the previous week which was at 5.70%. Although this is the largest decline we have seen, the rate was still a good bit higher than it was in July 2021.

"Rates are still significantly higher than they were a year ago, which is why applications for home purchases and refinances remain depressed," said Joel Kan, MBA's associate vice president of economic and industry forecasting. "Purchase activity is hamstrung by ongoing affordability challenges and low inventory, and homeowners still have reduced incentive to apply for a refinance."

The sharp decline stems from economic concerns about the high increases that came in May and June. Mortgage rates are at the highest levels along with listing prices. Listing prices have risen over 8.5% year-over-year for the last two years. The good news for buyers, more homes are being listed now according to Joel Berner, Realtor.com's senior economic research analyst.

Although there is more inventory, buyers are stills struggling with the inflation in home prices. This time last year, a buyer could purchase a home priced at $390,000 and put 20% down and still have a monthly payment of only $1,299. Freddie Mac reports that a buyer in today's market can purchase the same priced home with 20% down and the payment has jumped to $1,733 at the current rate of 5.30%.

"This inversion might sound ominous, especially in the midst of sustained inflation that both markets and the Fed agree will likely require more fed funds rate hikes to tame, but it remains to be seen whether these market conditions will lead to increases in the unemployment rate or decreases in production that characterize a recession," Joel Berner, Realtor.com's senior economic research analyst said.

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