I saw dozens and dozens of headlines yesterday reporting that mortgage interest rates had fallen below 5% on a 30-year fixed rate mortgage. The catch is on the day that was reported, yesterday, interest rates were actually above 5% on a 30-year fixed-rate loan. As our chart below shows, the MND Rate index was reporting 5.09% and, below that, Optimalblue was reporting 5.326%. Both of the aforementioned charts are updated daily and considered by many in the industry to have the most current and accurate information.
How could all the big headlines be wrong?
Well, actually the articles I scanned were not wrong in what they were reporting, the headline would just give many home buyers a different impression perhaps than what was actually being reported. What prompted the headlines was yesterday, like every week on Thursday, the Freddie Mac Primary Mortgage Market Survey® (PMMS®) results were released. In Freddie Mac’s report, it showed the average 30-year fixed rate mortgage was 4.99% (see the Freddie Mac chart at bottom). The catch is, the survey is done from Monday through Wednesday of the week and then the results reported on Thursday. Many lenders submit their rates to Freddie Mac on Monday meaning by the time the report comes out they are 3-days old. A lot happens in the mortgage market in 3-days, in fact a lot can happen during one day. Oh yeah, the other thing worth noting is if you read the details on the Freddie Mac survey the stated rate was only obtained by paying 0.80 in points, so 8/10 of 1% of the loan amount would be paid up front to get that rate.
Freddie Mac’s Survey Is Very Valuable and Relevant
During the 14 year period prior to the housing bubble bursting in 2008, there were 92,065 building permits issued for new single family homes in the 3 most active home building counties in St Louis. As the table shows below, over half the permits issued during that period were in St Charles County alone, with the other half in the counties of St Louis and Jefferson.
Needless to say, when the housing bubble burst in 2008 and the market collapsed, new home construction came to a screeching halt. However, after about 5 years, the market quickly regained lost ground and for the past several years it seems home builders couldn’t build homes fast enough. We’ve had a low inventory of homes for sale for so long it’s starting to seem normal. But still, over 14 years have passed since the bubble burst and we are still way behind on new home construction. In the 14-year period after the bubble burst, there have been 40.528 building permits issued for new single family homes in the St Louis area counties mentioned above, a decline of nearly 56% from the prior 14-year period.
St Louis New Home Building Permits -1994 through 2007 and 2008 through 2021
There were 4,516 building permits issued for new single-family homes in the St Louis area during the 12-month period ended June 30, 2022, a decrease of 12.05% from the same period a year ago when there were 5,135 permits issued, according to the latest data from the Home Builders Association of St. Louis & Eastern Missouri (St Louis HBA). Five of the seven counties covered in the report saw a decrease in building permits from the same period a year ago with three of the counties have a double digit decline.
Maybe you’ve received an unsolicited offer recently to buy your home via email or postcard from Opendoor, a home buying firm. OpenDoor will make an offer on your house, bypassing the traditional method of selling your home via a REALTOR® using the MLS (which reaches 13,000+ REALTORS®) and entices you with catchy phrases on their website like “Get an instant offer and get paid” and “Skip showings and repairs”. It can sound good and SIMPLE but, according to the FTC complaint against OPENDOOR LABS, Inc. (Opendoor) and the agreement and consent order, “…consumers who sold to Opendoor have lost money compared to what they would have received through a traditional sale.”
According to the latest data from HUD and the US Census Bureau, there is a 9.3 month supply of new homes for sale in the U.S. as of June, 2022. As the chart below illustrates, this is the largest supply of new homes for sale since May 2010 when there was also a 9.3 month supply. It wasn’t that long ago, August 2020 to be exact, when the supply hit a record low level of 3.3 months.
St Louis New Home Supply is a little lower…
It’s a little hard to pinpoint the new home supply in St Louis for several reasons. One, not all new homes that are for sale are listed in the MLS and then the MLS allows new homes to be listed in two categories, both new construction and normal residential, so that can skew the data as well. Nonetheless, we do the best we can to sort through the data. As our table at the bottom shows, there is currently a little over a 7-month supply of new homes for sale in St Louis, so still higher than a historical “norm” but about 2-months less than at the national level.
Interest rates on a 30-year fixed-rate mortgage peaked at 6.28% a little over a month ago on June 14th, sending shockwaves through the St Louis housing market. After peaking however the rates have subsided, today dropping to 5.5%, the lowest rate since July 5th. This decline brings the mortgage rates down to the range they were I for most of May this year.
The inventory of homes for sale in the St Louis core market area increased to a 1.04 month supply in June 2022, an increase of nearly 12 percent (11.8%) from a year ago when there was a 0.93 month supply. As our chart below illustrates, this is the first time since August 2019 there has been a year-over-year increase in inventory and then the increase was just 3.1%. While a double-digit increase is significant, we do need to keep in mind that, at just over a one-month supply of listings for sale is still crazy low! The median listing supply in St Louis was 3.5 months in 2015, 2.9 in 2016, 2.5 in 2017, 2.4 in 2018, 2.6 in 2019 then dropped to 1.5 months in 2020 and down to a record low 1.2 months in 2021. So, even after this double-digit increase we are still at a level this even low by last year’s record low standards.
St Louis 5-County Core – Year Over Year Percentage Change In Listing Supply
If you’re heard it once, you’ve likely heard it a hundred times, “all real estate is local”. This is why you can’t put too much faith in national news or data if you are interested in buying or selling a home in St Louis. This is also why at MORE, REALTORS®, we put so much time, effort and money into producing the best and most accurate local data we can. We think it’s important to bring the data and information down to the local level.
“Homebuyers are canceling deals at highest rate since start of COVID” was the headline earlier this week on Inman News, an online real estate industry publication read by many brokers and agents. My usual response to news like this is “I wonder if that’s true in St Louis?” and I set out to pull the data to see.
There is not really a way to count “canceled” deals…
While I don’t know exactly what the writer of the Inman article was referencing in terms of “canceled” deals. However, in a typical contract to purchase a home in St Louis only gives the purchase one way to “cancel” a contract and that is in the building inspection contingency where the purchaser has the right to terminate the contract for no reason. When that happens it is not reported to the REALTOR® Multiple Listing Service (MLS) as a “canceled” listing however, it is simply put back on the market. There are certainly other reasons contracts fail and listings come back on the market such as the buyer’s inability to get financing, appraisal issues, etc.
Price reductions are quickly showing up more and more on real estate listings in the St Louis area. As the Infograph below illustrates, 31% of the current active listings in St Louis have had at least one price reduction. Since the price homes sell at isn’t known until closing and a home sale typically takes 4 to 6 weeks to close, the actual sold prices won’t reflect these price reductions for a while. For example, in the past 30 days (through today) there have been 2,381 closings of home sales in the 5-county St Louis core market at a median price of 104% of the original list price. In about a month we’ll revisit that stat and see how things look.
Ever heard the expression “It’s not if, but when..”? That is something that I’ve heard for a while now about a recession. With everything that has happened to our economy including rising interest rates, rising inflation, the government printing more and more currency and running up greater debt, it seemed inevitable we would see a recession. To officially be in a recession, the GDP (Gross Domestic Product) has to fall for two successive quarters. For the first quarter of this year, GDP declined at an annual rate of 1.6%. The second quarter GDP numbers won’t be released until later this month (July 28th) however, the GDPNow forecasting model of the Federal Reserve Bank of Atlanta is forecasting a decline of 2.1% in GDP for the 2nd quarter of this year at this point. If their forecast is correct, we will officially be in a recession.
What happens to St Louis home prices during a recession?
There are many factors at play in every recession that make them unique, such as unemployment rates, interest rates, etc, making it unrealistic to think that home prices are going to behave the same way during every recession, however, I thought it would be worth looking at what happened during the last couple of recessions.
2020 Recession (Q1 and Q2)
We had a short recession in early 2020 caused primarily by COVID that only lasted the minimum period of two quarters. During this period, as the chart below shows, St Louis home prices continued to increase at a fairly consistent rate. In 2019 the median price of a home in the St Louis MSA was $188,575 and in 2020 it was $208,000, an increase of 10.3%. Then in 2021, the year after the recession, the median St Louis home prices was $227,000, an increase of 9.1% from the year before.
It’s no secret that the real estate market slows down in the winter and typically nearly screeches to a halt from shortly before Christmas to shortly after New Years. Therefore, when tracking showing activity in the St Louis area, the first week of January of each year is used as the base, or “0” value and then each rolling 7-day period afterward is compared to that first week.
As the chart below shows, in 2020 and 2021 all weekly averages of showing activity were above the baseline of January until getting close to Thanksgiving, with the one exception being late March and Early April of 2020 which was a result of the COVID-19 pandemic beginning. The orange line depicts this year and it shows showing activity all year has been below the levels of the prior two years for the most part, however, the gap has widened in the past couple of weeks. On July 4th, for the prior 7-day period the number of showings was less than the first week of January and it dipped further on July 5th to 6.9% fewer showings during that 7-day period than the first week of January. Granted, it is always going to dip around a holiday but last year for the period ended July 5th there were 9.1% more showings than the first week of January, for a difference of 16% from this year.
Rising interest rates and increased inflation are no doubt two of the big reasons for this along with a low inventory of homes for sale.
After hitting the highest rate in over 13 years just two weeks ago at 6.28%, as the chart below shows, mortgage interest rates on 30-year fixed mortgages declined today to 5.75%. The likelihood of interest staying under 6% is hard to to say at this time but I would say enjoy it while it lasts!
Mortgage Interest Rates – 30 and 15-Year Conventional Loans, FHA Jumbo and and 5/1 ARM Loans
Price reduction, what’s that? All we seem to have heard about the last couple of years with regard to home prices is how much OVER the list price buyers were having to pay in order to buy a home. So, to be talking about price reductions today seems odd. However, as the infographic below illustrates, there have been listings with price reductions over the past couple of years, it’s just the current level of them is higher than we have seen in a while.
For the first three weeks of June there were 1,475 new listings of homes for sale in the St Louis 5-county core market, according to the STL Real Estate Trends Report from MORE, REALTORS®. During the same period, there were 1,194 new contracts written on homes for sale resulting in a new listing to new contract ratio of 1.25. This ratio of listings to new sales is higher than it was 3 weeks ago when I shared the last update from the STL Real Estate Trends report and it was 1.05 at thattime for the period reported which was the first 3 weeks of May.
It was at the end of last week that the mortgage bond market blew apart forcing mortgage interest rates up so when our new report for this week is release next Thursday we’ll see what effect that had on the market.
After over 40 years in the real estate business in St Louis I’ve seen many times just how fast a good, or even great housing market can turn sour as well as the other way around. Two years ago, economic conditions relevant to the housing market included:
A St Louis housing market that is showing signs of slowing as well as concern and even fear among real estate agents and consumers.
Does this mean St Louis home prices will come crashing down?
First off, I’m not an economist, in fact I didn’t even attend college and I certainly don’t have a crystal ball showing me the future, but I am a data junkie that has lived through a variety of markets spanning more than 4 decades. My experience as well as my study of past markets as well as current indicators of things to come certainly give me an opinion. In times past, my opinions on the market have been spot on, almost to the point that I even surprised myself (such as in October 2006, at the peak of the housing boom when I predicted the collapse) and other times I’ve been wrong, sometimes way wrong. The reality is that the housing market is affected, or can be affected by so many different economic factors, as well as social issues, consumer sentiment and more that I don’t believe anyone can predict what it’s going to do accurately consistently.
The bond market had one of the worst days in history yesterday resulting in mortgage interest rates on a 30-year fixed rate mortgage hitting 6.0% and above. This is the highest rates have been since November 20, 2008 when the mortgage interest rates were 6.04%, according to Freddie Mac’s Primary Mortgage Market Survey®.
Is there a silver-lining to the higher interest rates?
Given that the reason for the higher interest rates has to do with our high inflation rates and declining economic conditions, it’s hard to find much positive to say about what is happening. Having said that, the one thing that comes to mind is these rate increases will no doubt slow down the rapid price growth on homes we’ve seen over the past couple of years. This will likely cause home prices to flatten and the premiums buyers have paid over and above what the buyer, seller and agents involved knew the home was actually worth are history in my opinion.
So, while as a buyer, you will be facing higher interest rates than you would have a year ago, you should receive some relief in the price not being as high as it would have if the low rates were still here, less competition due to some buyers leaving the market and being able to purchase a home without paying a significant premium above the value to get it.
There have been 9,645 homes sold in the St Louis 5-county core market during the first 5-months of this year which, as the STL Market Chart below illustrates, is a decline of 8.8% from the same time last year when there were 10,579 homes sold.
2022 home sales outpacing 2020…
While this years St Louis home sales are lagging behind last years, as the chart below also shows, 2022 YTD home sales is 2.8% higher than in 2020 when there were 9,382 YTD home sales.
$1 Million+ home sales going strong…
The bottom chart shows there have been 189 one-million dollar+ homes sold in St Louis year-to-date through May 31st, a slight increase over last year when there were 187 homes sold during the period. This years $1,000,000+ home sales are 89% higher than they were during the period in 2020.
Every month Fannie Mae surveys consumers to gauge their sentiment toward whether its a good time to buy or sell a home and publishes the result in their Home Purchase Sentiment Index® (HPSI). In the most recent HPSI report, 79% of the people surveyed said they felt now was a bad time to buy a home, which is the highest percentage of people feeling this way since the survey was begun in 2012. Seventeen percent of those surveyed felt it was a good time to buy a home and 4% didn’t know whether it was or not.
With the bidding wars we’ve seen on listings resulting in sold prices that exceed the asking price in St Louis over the past couple of years, it’s hard to imagine that home values could be lower today than a year ago. Now, before you call me crazy, I’m not saying that St Louis homes are SELLING for LESS now than a year ago. As our STL Market Chart below shows, the median price of homes sold in the St Louis 5-county core market was $254,950 in May 2021 and $270,000 last month, for an increase in sales price of 5.9%. However, given that, as the chart at the bottom shows, the inflation rate has increased 8.6% during the past 12-months, St Louis home prices have not increased as much as inflation, thereby leaving them worth less today than they were worth a year ago after adjusting for inflation.
Home prices last month would have needed to be $276,829 to keep pace with inflation…
In order to keep pace with inflation and make a median-priced St Louis home worth the same in today’s dollars as it was worth a year ago it would have be worth $276,829 today at the current rate of inflation.
There were 5,138 building permits issued for new single-family homes in the St Louis area during the 12-month period ended April 30, 2022, a decrease of 9.69% from the same period a year ago when there were 5,138 permits issued, according to the latest data from the Home Builders Association of St. Louis & Eastern Missouri (St Louis HBA). Four of the seven counties covered in the report saw a double-digit decrease in building permits from the same period a year ago.
Given the low-inventory of homes for sale that has existed for some time now, it may be hard to believe my next statement, but the latest data from the U.S. Census Bureau and HUD show that there is currently a 9-month supply of newly constructed homes in the U.S. As the chart below illustrates, this is the highest level the supply of new homes in the U.S. has reached since May 2010 when there was a 9.3 month supply.
The months supply of depicted below is calculated as the ratio of new homes for sale to the number of new homes sold. The resulting number represents the number of months it would take for the current new home inventory that is for sale to be depleted given the current sales rate if no new additional new homes were built.
There were 2.71 million home loan originations during the first quarter of this year in the U.S., according to the U.S. Residential Property Mortgage Origination Report from ATTOM. This is an 18% decline from the prior quarter, the largest quarterly decline since 2017 and marks the fourth straight quarterly decline in loan originations according to the report.
Refinancing saw a bigger decline than home purchases…
During the first quarter of this year there were 1,446,622 loans originated that were refinances of existing mortgages which is a decline of 21.7% from the prior quarter. There were 1,011,975 loans originated for home purchases during the quarter and this was down 18.3% from the prior quarter.
St Louis is the metro that saw the second-highest decline…
I according to the report the metro area with the largest quarterly decrees and loan origination’s for home purchases was Huntsville Alabama with a 61.3% decrease followed by St Louis Missouri with a 55.3% decrease.
On May 12th the 30-year fixed rate mortgage interest rate hit 5.3%, the highest rates since June 2009, according to Freddie Mac’s Primary Mortgage Market Survey®. As the chart below illustrates, mortgage interest rate have declined the last three consecutive weeks falling to 5.09% at the end of last week, the lowest rate since April 14th when the average interest rate was 5.0%.
Mortgage Interest Rates – 30 and 15-Year Conventional Loans and 5/1 ARM Loan
On May 12th the 30-year fixed rate mortgage interest rate hit 5.3%, the highest rates since June 2009, according to Freddie Mac’s Primary Mortgage Market Survey®. As the chart below illustrates, mortgage interest rate have declined the last two consecutive weeks falling to 5.10% yesterday, the lowest rate since April 28th.
There are more affordable options…
The chart I selected to show below also shows the mortgage interest rates for 15-year mortgages as well as something almost no one has had a reason to talk about for several years, adjustable rate mortgages (ARM’s). With mortgage interest rates as low as they were, ARM’s were rarely considered by a purchaser however, today they provide a more affordable option than a 30-year fixed mortgage. For example, the 5/1 arm shown on the chart below had a rate of 4.2% yesterday.
Mortgage Interest Rates – 30 and 15-Year Conventional Loans and 5/1 ARM Loan
The pending home sales index from the National Association of REALTORS® (NAR) was released showing the midwest region as the only region that had an increase from March to April. According to the NAR report below, the pending home sales index for the midwest increased 6.6% from March to April while declining 3.9% for the nation as a whole. As the table below shows, all while all four regions in the U.S. saw a decline in the pending home sales index from a year ago, the midwest fared the best again showing only a 2.8% decline while the other regions all saw a double-digit decline.
For the first three weeks of May there were 2,115 new listings of homes for sale in the St Louis 5-county core market, according to the STL Real Estate Trends Report from MORE, REALTORS®. During the same period, there were 2,019 new contracts written on homes for sale resulting in a new listing to new contract ratio of 1.05. This is pretty consistent with the recent trend with new listings slightly outpacing new sales. As the tables at the bottom show, for April there were 3,470 new listings and 3,269 new contracts written for a new listing to new contract ratio of 1.06.
The National Association of Home Builders (NAHB) in conjunction with Wells Fargo publishes their House Market Index (HMI) monthly which reveals the sentiment of home builders about the market. In the report released yesterday, the HMI fell 8 points to 69, marking the fifth month in a row that builder sentiment as declined and becoming the lowest level for builder sentiment since June 2020.
It may not be all that bad though…
As it true with most data, it’s all relative. With this in mind, this may be the 5th straight month that builder sentiment has fallen however, as the chart below illustrates at a level of 69 builder sentiment is still at a level that is historically high. Since the inception of the HMI in January of 1985 the median value of the index is 56 so at 69 we’re still well above the overall median. In the last 10 years, the median of the HMI Index has been 63 so the current level is also above that.
There were 4,699 building permits issued for new single-family homes in the St Louis area during the 12-month period ended March 31, 2022, a decrease of 6.86% from the same period a year ago when there were 5,045 permits issued, according to the latest data from the Home Builders Association of St. Louis & Eastern Missouri (St Louis HBA). Four of the seven counties covered in the report saw a double-digit decrease in building permits from the same period a year ago.
There have been a lot of reports over the past month about rising interest rates (mortgage rates on a 30-year fixed-rate mortgage hit 5.27% last week) as well as rising inflation rates (8.5% in March) and the effect these things will have on the housing market. It’s no doubt they will have some affect on home prices and sales and I have been watching the data on St Louis home prices and sales closely and so far there does not appear to be much impact.
St Louis home sales increase in April from March…
There are two ways we analyze home sales at MORE, REALTORS®; the traditional manner, which is what almost all public reports are based upon, closed sales (which are really indicative of what the market was like 1-2 months previously since that is when the contracts were typically written) and then by use of our STL Real Estate Trends Report, which gives us a better idea of the current activity. Our trends report shows the number of new contracts written on listings, so current sales activity as well as the number of new listings entering the market. The good news is, when looking at St Louis home sales activity for April, both closed sales and newly written contracts increased from the month before.
As our chart below shows, there were 2,134 homes sold in St Louis (5-county core market) during April, a 6.4% increase from March when there were 2,005 homes sold. As the STL Real Estate Trends Report shows, there were 3,279 new contracts written on homes during April in the St Louis 5-county core market, an increase of 5% from the prior month when there were 3,124 contracts written.
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