Joel Kan, MBA’s Vice President and Deputy Chief Economist, attributed the rising rates to the Federal Reserve’s cautious stance on adjusting policy amidst persistent inflation and resilient economic indicators, including strong employment data. Despite the unfavorable rate environment, the demand for refinancing, especially VA refinancing, remained robust.
Other notable trends include a decrease in average loan sizes, with purchase loan sizes—often viewed as a proxy for home prices—dropping to $449,400 from $453,000. Additionally, there was a shift in the composition of mortgage applications, with increases in FHA and VA loan shares.
So, what explains the rising number of homeowners refinancing their mortgages even with rising mortgage interest rates? There are numerous reports indicating that many homeowners across the country are becoming cash-strapped and having a difficult time paying bills, thus resorting to pulling out equity from their homes, even if it means accepting a higher interest rate. I’ve also observed reports indicating that consumer credit card debt is at historically high levels, with interest rates on this debt being astronomical. This situation is prompting people to refinance their home loans again, even at higher rates, because even though their mortgage may be at a higher rate, it still appears to be a bargain compared to the 27 or 28% on a credit card. I haven’t seen enough verifiable data to confirm if either of these situations is true, but both are plausible.
Refinance Index vs 30 Yr Fixed Mortgage Chart
(click on image for live, interactive chart)
Hous
Scorecard on December Predictions:
- 2024 Home Sales Forecast: I projected a slight decrease in the annual sales volume to about 22,400 homes. The data from the first quarter shows a varied trend with the 12-month home sales at the end of each month being:
- January: 22,702 sales
- February: 22,836 sales
- March: 22,690 sales
These numbers suggest a relatively stable market, albeit with a slight variance from the predicted downward trend. The sales in February exceeded expectations, hinting at a possibly more dynamic market than initially forecasted.
- 2024 Home Prices Forecast: I anticipated a modest increase in home prices to peak around $196/foot in the summer, followed by a leveling off to approximately $184/foot by year-end. The first quarter showed median prices per foot as follows:
- January: $175/foot
- February: $178/foot
- March: $186/foot
The March figure aligns closely with the expected summer peak. This rapid ascent in prices suggests a stronger upward momentum in the housing market than forecasted, possibly reflecting tighter inventory or increased demand.
Updated Forecast for 2024:
Given the trends observed in the first quarter, I am revising my forecast for the St. Louis real estate market in 2024 as follows:
- Home Sales: The initial months of 2024 demonstrate a robustness that might offset the predicted decline. While the fluctuation in monthly sales advises caution, the overall stability could mean ending the year closer to 22,700 home sales, slightly above the early prediction.
- Home Prices: The quicker than anticipated rise in median prices per foot, particularly the jump in March, prompts an upward revision in the price forecast. Should this trend persist, we might see the peak prices approaching $200/foot by mid-year, with a less pronounced decline towards year-end, potentially stabilizing around $190/foot.
A Word of Caution:
As always, this forecast is contingent on prevailing economic conditions, including interest rates and inflation trends. Significant deviations in these or other macroeconomic factors could impact the market differently than expected.
In summary, the St. Louis housing market is showing signs of robust activity and price growth in the first quarter of 2024. Buyers and sellers should stay informed and agile, ready to adjust to the dynamic market conditions.
St Louis 5-County 12-Month Home Sales and Price Trend
(click on chart for live, interactive chart)
As 2024 approaches, I conducted my customary in-depth analysis of historical St. Louis real estate market data to get my projection for St. Louis home sales and prices. Home sales in the five-county St. Louis core market appear to be gradually declining, based on statistics and trends from the previous ten years, as seen in the chart below
2024 St Louis Home Sales…
The data for the 12-month period ending December 31, 2023, will be available in a few days. I anticipate that home sales will be roughly 22,600 for the year, but there will be a slight decline by the end of 2024, bringing St Louis home sales down to about 22,400. This isn’t a huge drop (0.8%), but it is a noticeable change that could give buyers in the market a bit more leeway.
2024 St Louis Home Prices…
While home prices have been on the rise, the median price per square foot is increasing at a slower rate than in previous years. I anticipate St. Louis home prices will increase by only about 1% from their 2023 peak, reaching a peak in the summer of 2024 at approximately $196/foot, and then leveling off slightly, falling to around $184/foot by December 2024. It’s important to bear in mind that this type of fluctuation is common, whether you’re buying or selling. Prices are not falling dramatically, but they’re also not rising sharply. This follows a more consistent, dependable pattern. These are the trends to watch out for in the St. Louis market in 2024 if you’re in the game.
A little CYA…
It’s worth noting that the aforementioned estimates are based on the current economic conditions and patterns. Interest rates, inflation, and unemployment are just a few of the many factors that influence the economy, and even experts (who know a lot more than me) can’t always agree on where these trends are headed. As a result, any major shifts in these areas might significantly impact the direction of the St. Louis housing market in the upcoming year.
St Louis 5-County Core 12-Month Home Sale and Price Trend – Past 10 Years
(click on chart for live, interactive chart)
Federal Reserve Chair Jerome Powell’s press conference yesterday, along with the Federal Open Market Committee (FOMC) statement, provide crucial insights into the Fed’s economic outlook and monetary policy. These insights are pivotal for understanding the trajectory of mortgage rates and the St. Louis real estate market.
Powell’s Press Conference Highlights
- Economic Activity and Rate Adjustments: Powell noted, “We have raised our policy interest rate by 5-1/4 percentage points… Our actions have moved our policy rate well into restrictive territory.”
- Housing Sector Observations: He remarked, “After picking up somewhat over the summer, activity in the housing sector has flattened out… largely reflecting higher mortgage rates.”
Key Takeaways from the FOMC Statement
- Economic and Inflation Outlook: The FOMC stated, “Recent indicators suggest that growth of economic activity has slowed… Inflation has eased over the past year but remains elevated.”
- Banking System Resilience: The statement highlighted, “The U.S. banking system is sound and resilient. Tighter financial and credit conditions… are likely to weigh on economic activity.”
Anticipated Interest Rate Movements
- Future Rate Decisions: The FOMC announced, “The Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent.”
- Monetary Policy Considerations: “In determining the extent of any additional policy firming… the Committee will take into account the cumulative tightening of monetary policy,” indicating a measured approach to future rate changes.
Implications for Mortgage Rates and St. Louis Real Estate
- Mortgage Rate Trends: Combining Powell’s remarks with the FOMC statement suggests a period of careful assessment in rate adjustments. This could lead to stabilization or moderate fluctuation in mortgage rates.
- Market Dynamics in St. Louis: Stable or gradually adjusting mortgage rates, alongside ongoing economic and inflation monitoring, could result in a balanced real estate market. Buyers and sellers in St. Louis may experience a period of relative predictability and sustained market activity.
Conclusion
The integrated perspectives from Jerome Powell’s press conference and the FOMC statement offer a detailed view of the Federal Reserve’s stance on economic conditions and monetary policy. For the St. Louis real estate market, these developments suggest a period of cautious optimism, with potential stability in mortgage rates and a balanced market environment. Real estate stakeholders should consider these insights in their market strategies and decision-making processes.
In the ever-evolving landscape of the housing market, prospective homeowners and investors alike keep a close eye on mortgage interest rates. Today, there was a modest decrease in the 30-year fixed-rate mortgage interest rate, now hovering between 7.5% and 7.6%. This shift comes in the wake of the Federal Reserve’s recent decision to maintain the Overnight Federal Funds Rate at a range of 5.25% to 5.50%.
This current rate represents a slight relief from the recent peak in , yet it remains a figure that echoes the rates of over two decades ago. To put this into perspective, the last time mortgage interest rates soared to such heights was in late 2000, a reality that today’s borrowers may find daunting.
The first chart below illustrates the trajectory of mortgage rates over the last several years while the chart below it is a long-term look at rates going all the back t0 1971.
Despite the Federal Reserve’s pause in rate hikes, as noted in their latest meeting, the market has responded with a cautious optimism that is reflected in today’s slight rate reduction. Federal Reserve Chairman Jerome Powell has been clear that this holding pattern does not signal an end to the tightening cycle, but rather a strategic pause, with the central bank retaining the option to adjust rates if inflation trends shift.
For homebuyers, this dip presents a nuanced opportunity. While rates are not at the historic lows seen in recent years, any decrease can translate to significant savings over the life of a mortgage. It’s a reminder that in the world of real estate financing, timing, and vigilance are everything.
As we continue to navigate through these turbulent economic waters, stay tuned for updates on interest rate trends and their implications for the real estate market. Whether you’re looking to buy, sell, or simply stay informed, understanding the dynamics of mortgage rates is key to making empowered decisions.
I’ve been in the real estate business since I was 17, which means it has been 45 years of experiencing various market conditions, including recessions, inflation, 18% mortgage rates, the burst of the housing bubble, and a myriad of other good and bad things. However, I can confidently say that I have never witnessed a real estate market quite like the one we have been experiencing in the past couple of years.
So, what makes the current real estate market so unique?
First and foremost, I’ve pondered this question extensively, and I honestly can’t recall a time in this industry when the supply of homes for sale was not at least 4 to 6 months’ worth. Although there was a brief period in 2015 when the inventory of homes in St. Louis fell below 4 months, it quickly returned to nearly 5 months. From 2016 until early 2020, the inventory fluctuated between approximately 2 and 3 months, and then began a downward trend, hitting a record low of less than a 1-month supply in the latter part of 2021. While the supply has slightly increased since then, it still hovers around 1 month.
Months of Inventory – St Louis 5-County Core – 2013 – 2023
This situation showcases the basic law of economics—supply and demand. The supply of homes for sale in St. Louis is exceptionally low, and even though the number of home buyers in the market has seemingly declined significantly over the past few years, there still isn’t enough supply to meet the demand of the remaining buyers. Consequently, in accordance with the law of supply and demand, prices tend to rise when supply is insufficient to meet demand. While it’s easy to increase widget production to meet demand, it’s not as simple to suddenly add thousands of homes to the market in the St. Louis real estate market. Factors such as a lack of available land for development in high-demand areas, lengthy approval processes for new developments, labor shortages in the trades, difficulty in controlling construction costs, and the significant time required to bring a substantial number of homes to the market contribute to this complexity. As a developer, I can attest that the development process is lengthy enough for the market dynamics to change entirely before the first home hits the market.
So, where did all the houses go in St Louis? Why aren’t there more homes for sale?
What strange and confusing times we live in! Some seemingly credible predictions made by qualified experts suggest that our banking system could collapse, our currency may become worthless, and our country may face a significant downturn. Meanwhile, others claim that there is no cause for alarm. Here in St. Louis, the real estate market continues to thrive as if everything is great in our economy, despite the fact that interest rates have doubled in the past year. I have been in this business for 43 years, and although I have seen many ups and downs in the market, I have never seen anything quite like this before. It appears that there is a stark dichotomy between the economy and the St. Louis real estate market at present, as if they are two entirely separate entities. Could this be the result of the low inventory and high demand for housing, leading homeowners to throw caution to the wind? Or is it possible that the St. Louis economy is stronger than the national economy? Whatever the reason may be, despite talk at the national level of a looming housing market crash, the St. Louis real estate market continues to thrive.
Is the St Louis real estate market going to crash?
Now, onto the question of whether the St. Louis real estate market is going to crash. This is a fair question, given the current issues outlined above. However, so far, there are no clear signs of a crash. That’s not to say that there won’t be any changes to the market, as I believe we’ll see some, but nothing that indicates a crash is imminent at this point. Almost a year ago, I wrote an article in which I stated that “I don’t think St. Louis home prices will come crashing down, in fact, I don’t even think they are going to decline necessarily.” This prediction has proven to be accurate. However, I also said in that same article that “I think the premiums buyers have paid over and above the value of the home they were buying are going to quickly come to an end,” and this has proven to be inaccurate.
Despite my prediction, there are still bidding wars happening between buyers on new listings. The STL Market Chart table below shows that last month, the median price of homes sold was equal to 100% of the current list price at the time of sale. Given that the median is indicative of the midpoint of the frequency of values, if the midpoint is 100%, then it appears that plenty of homes are selling in excess of the list price.
The data for the St. Louis real estate market shows that there is a strong buyer demand. In addition, the market is facing the persistent issue of low inventory. These factors have contributed to the resilience of the St. Louis housing market, making it unlikely to succumb to a crash at this point. However, if there is increased economic uncertainty, inflation, and rising interest rates, we may reach a tipping point and see St. Louis home prices decrease. Despite this possibility, it is unlikely to happen anytime soon based on current data.
Continue reading “When will the St Louis real estate market crash?“
For the past several months there have been many reports anticipating the moves of the Federal Reserve regarding interest rates then followed by tons of articles, blog posts and videos analyzing then predicting the impact of the Fed’s decision on the economy. The other popular topic in this area is the “Money Supply”, usually M2 money supply and whether it’s increasing or decreasing as well as the impact on the economy.
Should St Louis homeowners and potential home buyers really care about the Fed Funds rate or M2 money supply?
First, let’s talk about the Fed Funds rate and what it is, what it is intended to do and the affect it can have on the real estate market. The Fed Funds rate is the interest rate at which banks lend to each other overnight to maintain their reserve requirements. This rate is set by the Federal Reserve, and changes to the rate can have a ripple effect throughout the economy, including the mortgage and housing markets. When the Fed lowers the Fed Funds rate, it can stimulate economic growth by making it cheaper for banks to borrow money, which can lead to lower mortgage interest rates. Lower mortgage rates make it more affordable for homebuyers to finance their purchases, which can increase demand for homes and drive up prices. Conversely, when the Fed raises the Fed Funds rate, it can lead to higher mortgage interest rates, which can slow down the housing market and lead to lower demand and prices.
Next, the the M2 money supply. The M2 money supply includes cash, checking accounts, savings accounts, and other liquid assets that can be easily converted into cash. When the M2 money supply increases, it can stimulate economic activity by making more money available for borrowing and spending. This can lead to lower mortgage interest rates as well, as banks have more funds available to lend out. However, if the M2 money supply increases too rapidly, it can lead to inflation, which can cause mortgage interest rates to rise.
So, as you can see, both the Fed Funds rate and M2 money supply can have a significant impact on the cost of a home mortgage as well as home prices so I would say the answer to the question I posed is “yes”. Granted, we don’t all need to become economists or stay up late at night pouring through spreadsheets and date, but to be aware of factors that affect the economy as a whole and as a result, the real estate market we’re in, would be wise.
How can knowledge of the Fed Funds rate and M2 money supply help me as a home seller or buyer?
The short answer is, it gives you a little insight into perhaps where things are headed which may help you make the decision to buy or sell sooner or later. For example, perhaps you are contemplating buying an home but anguishing over the fact the mortgage interest rates are double what they were a year or two ago and you’re thinking maybe you should wait until things settle down. Well, if you see the Fed Funds rate getting increased with talk of more increases while that is no guarantee mortgage interest rates will increase as well, as I explained above, it’s certainly an indicator that is a likelihood. Therefore, you may decide it’s better to make a move now than later.
What’s an easy way to track this stuff?
I have the answer for you. The charts below are two of the many charts and other information available on St Louis Real Estate Search as well as from MORE, REALTORS® . The first chart shows the relationship historically between St Louis home prices and the M2 Money Supply. Generally, they follow the same trend but, when the trend for one changes, like it did with St Louis home prices (the red line on the chart) beginning in the late 90’s through the housing market bubble burst after 2006, something happens to bring them back in line. As you can see, starting a little over 3 years ago the pace at which M2 was growing outpaced St Louis home prices, but St Louis home prices quickly caught up. Now it’s the opposite and it looks like both a making a downward correction.
The bottom chart shows the close relationship between the Fed Funds rate and mortgage interest rates. With little exception, when the Fed Funds rate increases or decreases, mortgage rates follow. For the past year, the Fed Funds rate has increased and the trend is upward so I wouldn’t expect to see falling mortgage interest rates anytime soon.
According to results just released by Lending Tree from a survey they conducted in October, 41% of American’s surveyed expect the housing market to crash next year. As the table below, which shows the results by generation, the Millennials are the most pessimistic about the market with 44% of the millennials surveyed believing the housing market is headed to a crash. The most optimistic generation? Baby boomers, with only 35% of the generation I belong to believing we are headed to a crash.
Inflation is the leading culprit…
Of those surveyed that believe the housing market is headed for a crash in the next year, 33% felt inflation would be the leading cause of the crash, followed by 24% that said it was interest rates.
Continue reading “Forty-One Percent of Americans Think The Housing Market Will Crash Next Year“
During the third quarter of this year, there were 907 properties with foreclosure filings in the St Louis MSA, according to ATTOM Data’s U.S. Foreclosure Market Report. This represents an increase of 44.43% in St Louis foreclosures from the same quarter a year ago but is a decline of 16% from the second quarter of this year, according to the report.
As the table below shows, with the exception of Bond County in Illinois, all 15 counties reported had an increase in foreclosure activity during the 3rd quarter over last year, and all at least a double-digit increase. Lincoln County, Missouri saw the largest increase at 325% followed by Macoupin County, Illinois at 293%. Only five of the 15 counties saw an increase in foreclosure activity from the prior quarter.
Given the inflation numbers announced yesterday, rising interest rates and the rest of the economic challenges that exist we are likely to see a continued increase in foreclosure activity for the foreseeable future.
[xyz-ips snippet=”Foreclosures-For-Sale-and-Homes-For-Sale”]
St Louis MSA Foreclosure Activity – 3rd Quarter 2022
Data source: ATTOM Data Research – Copyright 2022 St Louis Real Estate News
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.
Continue reading “The Coming Recession and Its Potential Affect on St Louis Home Prices“
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.
Continue reading “Showings Of St Louis Listings Fall To Levels Below January“
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.
Mortgage Interest Rates – 2000-Present- 30-year fixed rate mortgage
(click on chart for live, interactive chart)
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.
If we look farther back it gets better….
Continue reading “St Louis Home Values Declined In Past 12-Months After Inflation“
Even with the high rate of inflation, rising interest rates and general unrest in the economy, during the past two weeks there were more new contracts written on listings than there were new listings. According to the STL Real Estate Trends Report, exclusively available from MORE, REALTORS®, during the last two weeks there were 1,496 new contracts accepted on listings in the St Louis 5-County core market while there were 1,432 new listings during the same period. While there were only 4.5% more sales than listings, given the fact we are already in a low-inventory market, this is fairly significant.
STL Real Estate Trends Report
(click on report for current report)
This week it was announced that the U.S. inflation rate in March had increased to a staggering 8.5% the highest rate in over 40 years as illustrated by the chart below. The last time the inflation rate was higher than this was in December 1981 when it hit 8.9%. The “inflation rate” that I’m referring to, and is the most commonly reported, is based upon the Consumer Price Index for All Urban Consumers (CPI-U): U. S. city average. One of the categories included in the CPI-U is “shelter”. The report shows the shelter inflation rate at 5% which, on the surface sounds low however, the median price of homes sold in St Louis in March was $250,000 an increase of just over 4% from March 2021 when the median sold price was $240,000.
What does an inflation rate of 8.5% mean for the real estate market?
With everything going on in our economy, country and world now I think it’s literally impossible to predict what is going to happen on any front with any level of accuracy however, a good guide would be what has happened in the past during similar times. With this in mind, lets look at what the market looked like the last time inflation was at this level, December 1981:
- Mortgage interest-rates on a 30-year fixed mortgage were an average of 17%-18% (see chart below)
- The inflation rate actually reached a peak of 14.4% in March of 1980
- St Louis home prices peaked during the 1st quarter of 1979 then declined until bottoming-out during the 2nd quarter of 1981 (see chart at bottom)
Mortgage interest rates were at 3.69% for a 30-year fixed-rate loan as of this past Thursday, February 10, 2022., according to Freddie Mac’s Primary Mortgage Market Survey®. As the chart below illustrates, mortgage interest rates hit a low of 2.77% in August of 2021 and have pretty much been trending upward since.
Within the last few days, there have been a lot of reports in the media projecting mortgage interest rates to go higher this year. A lot of it is based on the current inflation rates which are not good so if the economy and rate of inflation improve, so would mortgage rates but time will tell. Personally, as of today and subject to any new major disruptions, I think rates in 2022 will stay in the mid 3% range and climb to the upper 3’s, perhaps 3.9% but could very well go over 4% if the Federal Reserve raises rates as much as is currently rumored now.
Mortgage Interest Rates – 30 Year Conventional Loan
(click on chart for live, interactive chart)
As you’ve probably heard by now, the most recent inflation news was not good. As the chart below illustrates, the Consumer Price Index (CPI) for all products in the U.S. (city average) for November 2021 was 303.4, an increase of 6.88% from a year ago when it was 284.1. This is the highest 12-month increase in inflation we have seen in over 39 years, since June 1982.
What effect will this record-setting increase in inflation have on home prices?
The second chart below depicts the percentage change in the inflation rate from a year ago (the blue line) as well as the percentage change in the St Louis home price index from a year ago (the red line). As you look at the chart and reference the marked-up one I have below it, you will see a pattern. Historically, when inflation rates increase significantly and consistently from a year ago, lower home prices follow. Will this happen this time as well? It’s hard to say right now as we still have an incredibly low supply of homes on the market, which tends to fuel higher prices, and we’ll need to see if the rise in inflation is sustained over the next few months. For the time being, I’ll make the prediction that in 2022 we will see, at a minimum, a flattening of home prices…so maybe not a decline, but a pause on the rate of increase. Time will tell.
[xyz-ips snippet=”Foreclosures-For-Sale-and-Homes-For-Sale”]
As the charts below illustrate, at the beginning of this year, mortgage interest rates for a 30-year conforming conventional loan were at 2.771%, FHA loans were at 2.703%, and VA loans were at 2.372%. As of yesterday, those rates have increased to 3.357%, 3.468%, and 3.101% respectively.
While conforming 30-year conventional loans have seen an increase of 21% in rates (from 2.771% to 3.357%), FHA loans have seen an increase of 28% (from 2.703% to 3.468%) and VA loans have seen an increase of 30% (from 2.372% to 3.101%).
What does this mean in terms of the cost of a home?
To make the comparison simple, I’ll just base my comparison on the price of a “typical” home in the St Louis 5-county core market using the median price of homes sold in October which was $234,900. Downpayments will vary based upon loan type from no downpayment being required on a VA loan, to a minimum of 3% on a conventional and 3.5% on an FHA but based upon a loan amount equal to the median price of $234,900, below are the differences in the monthly payment on that amount by loan type from the beginning of this year until now:
- Conventional – $948 to $1,023
- FHA – $939 to $1,038
- VA – $898 to $990
If we factor in the increase in home prices, it gets worse.
In the “to add insult to injury” category, home prices have increased significantly since January as well, In January the median price was $215,000, so between then and October the median price of a St Louis home increased 9.2%. With the interest rates increasing at the same time the cost of a typical St Louis home increased fairly significantly as shown below:
- Conventional – $867 to $1,023 (+18%)
- FHA – $859 to $1,038 (+21%)
- VA – $821 to $990 (+21%)
The moral of the story…don’t wait to buy.
While I certainly can’t predict the future, especially given all the uncertainty in our economy with inflation, employment issues, etc, if I were in the market to buy a home I don’t think I would wait “until things get better”. The reason for my opinion is, as I’ve illustrated here, the true “cost” of a home (assuming you are not paying cash for it) is a combination of price and interest rate. So, even if home prices see an adjustment or the seasonal dip we often see during winter if interest rates continue to rise, is the higher cost of borrowing going to offset the lower price? I think that is a possibility. Or, the flip side, if interest rates go down but then prices go up, is the savings in lower rates lost?
To benefit from waiting, in terms of the cost of the home, we would need interest rates to stay the same, or decline and home prices to decline or interest rates to drop and home prices stay the same. Right now I don’t see either of the two aforementioned scenarios likely to happen.
Continue reading “Mortgage Rates Have Increased Significantly This Year“
In spite of the challenges of a low-inventory market as well as the threat of inflationary pressure on the economy, St Louis home sales still remain strong. As the infographic below shows (exclusively available from MORE, REALTORS®) year-to-date home sales through October of this year are outpacing last year by over 5% and the prior 3 years as well by an even larger margin!
Yesterday afternoon, the Federal Reserve released a statement that was quite a vote of confidence for how the economy is doing. The Fed Reserve’s statement included “…the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low.” and went on to say “Market-based measures of inflation compensation remain low;”.
As a result of the positive economic conditions, the Federal Open Market Committee announced it would lower the target range for the federal funds rate to 2 to 2-1/4 percent. The committee went on to give a very positive outlook on the future economy as well saying that “sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes…”.
Will the move by the Fed Reserve cause lower mortgage interest rates?
It’s hard to say if this announcement will prompt immediate lower interest rates as the mortgage market takes a little longer view of things. However, while we don’t know if mortgage rates will decline or, if so by how much, I think, absent some major shift or change in the economy, it is safe to say that mortgage rates are not going up at this time or in the very near future.
Mortgage interest rates have been at historic lows for years…
Continue reading “Strong Economy and Low Inflation Prompt Fed Reserve To Lower Interest Rates“
It’s good when the value of your home increases, right? Yes, generally, most homeowners, look at their homes as an investment in addition to shelter for their families so they are generally happy to see the value of their investment increase. The flip side of it is, homebuyers, particularly first-time buyers, would, of course, like to see lower prices and better value in the home they buy. The thing that helps balance out these competing interests is inflation, but more specifically, the rate of income growth.
Not to get into an economics lesson here (which I’m not qualified to teach anyway) but if homebuyers incomes increase at about the same rate as home prices (ditto for interest rates) then, more or less, the “affordability” of a home to a buyer remains the same. Problems arise when those things get out of whack, such as in the period from about 2000 through 2007 when home prices were increasing at a much higher rate than incomes were (and interest rates rose too making it even more fun) which eventually led to the housing bubble burst in 2008 and the real estate market crash.
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Continue reading “City of St Louis Has Best Home Affordability In St Louis Area“
It seems almost crazy to even throw out the idea of an adjustment in St Louis home prices or, perhaps even, any sort of slow down in the rate of home price appreciation given that the inventory of homes for sale is so low in so many parts of the St Louis area, however, maybe it’s something to look at. For anyone that has been reading what I have written here over the past 8+ years, you will hopefully know that I am not a “gloom and doom” guy at at all, but I do share my honest outlook on the market. Having said that, I do feel home prices are something worth taking a look at.
What is causing the concern about home prices?
For starters, new housing affordability information was just released yesterday by ATTOM Data Solutions which shows home affordability in the St Louis area has eroded somewhat. The table below, based upon the ATTOM data, shows what percentage of the average wages for the area are needed to make monthly house payments on a median-priced home with a 30-year fixed rate mortgage and a minimal downpayment of 3%. It also shows how much, on a year over year basis, income has risen in that county versus how much home prices have increased. As the table shows, it takes a pretty big chunk of pay to pay for the typical median priced home today and, in most cases, home prices are rising at higher rates than income is rising. Even if the year over year income/home price increase looks ok, home prices have been on the rise here for several years so if we look at a 5 year period home price growth is outpacing income growth.
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Continue reading “Home Affordability In St Louis Declining With Increasing Home Prices – Will Home Prices Suffer?“
A lot has happened to affect the real estate market where I grew up in the little town of Ferguson in North County over the past decade. First, like the rest of the country, beginning around 2000, Ferguson saw home prices increase at rates outpacing inflation until finally peaking in 2006 which then led to the housing market bubble burst shortly thereafter. Home prices in Ferguson, and everywhere else, then declined over the next few years until hitting bottom around the end of 2011, or beginning of 2012.
Then, as pretty much most of the St Louis housing market was enjoying a slow and steady comeback in home prices and sales in 2014, came the shooting of Michael Brown by Ferguson police officer Darren Wilson which resulted in riots and violent protests that unfortunately made Ferguson a household name not only around St Louis but around the country and even beyond. Surprisingly, even though that put yet another damper on the real estate market in Ferguson, as the chart below shows, home prices continued the increase begun after hitting bottom in 2012 in spite of it.
For comparison purposes, I decided to put a 10 year chart of home prices for Ferguson next to the same for the City of Chesterfield. Chesterfield is an affluent city in west St Louis County that has enjoyed a fairly robust housing market for a long time now and has not had anything to deal with like Ferguson did with the shooting. When you look at the two charts (which you can click on to see a live chart with actual prices shown as you move your mouse over data points) you will see there is quite a disparity between the two cities. For example, during 2016, the median sales price for a home in Chesterfield was $387,000, a 3.2 percent increase from 2006 when it was $375,000. For Ferguson, the median price of homes sold during 2016 was $43,509, a decline of nearly 42 percent from 2006 when the median home price in Ferguson was $75,000.
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Continue reading “Ferguson vs Chesterfield – A Tale Of Two Cities“
There were 2,290 St Louis Existing Homes Sold in April (in the 5-county core market), an increase of 1.0 percent from April 2015 when there were 2,265 homes sold. The median home price of homes in the St Louis 5-county core market (city of St Louis and counties of St Louis, St Charles, Franklin and Jefferson) during April 2016 was $173,850, an increase of 4.4 percent from April 2015 when the median price of existing homes sold was $166,500.
For the combined markets of the City of St Louis and the County of St Louis, there were 1,241 existing single family homes sold during April 2016, an increase of 9.6% from the prior year and the median home price of homes sold during the month was $158,250, an increase of less than 1% from the prior year.
Distressed home sales still account for over 1 of every 10 home sales….
During the month of April in the St Louis core market, there were 243 distressed home sales (foreclosures, short sales, bank-owned property) which is 10.6% of the total home sales during the month. The median sales price of these distressed sales in April 2016 was $51,780, a decline of 1.0% from a year ago when distressed homes sold for a median price of $52,314.
St Louis home prices in April, on non-distressed existing home sales, rose just 1 percent from year ago…
In spite of some recent news reports boasting much bigger increases in home prices (as much as 17%) based upon the data I have compiled, courtesy of MARIS, the REALTOR regional MLS, the increase in home prices is nowhere near that. If we remove distressed home sales from the data, and look at what the “normal” housing market looks like, in April 2016 there were 2,045 homes sold, an increase of 5% from a year ago when there were 1,947 non-distressed single-family home sales in the St Louis 5-county core market. The median price of these home sales in April was $185,000, an increase of 1.0% from a year ago when the median home price for non-distressed single-family home sales in the St Louis 5-county core market was $183,000.
Why a 17% increase in home prices would not be good and 1% is better…
If St Louis home prices had in fact, as reported by some of the media, increased in the past year by as much as 17% that would mean home prices rose about 17 times more than the rate of inflation. As the table below from the US Labor Bureau shows, the St Louis rate of inflation from the 4th quarter of 2014 to the 4th quarter of 2015 was 0% and, the best I can tell, the most recent rate only indicates about a 1% rate of inflation. Therefore, a 1% increase in home prices in the past year, as I have reported above, is consistent with the current rate of inflation and is a good thing for the long term health of the housing market as we don’t want home prices to rise significantly faster than inflation. How do I know this? Well, as the chart below shows, where I have graphed historically, there has definitely been a relationship between home prices and CPI with the two normally rising at a fairly consistent rate with the big exception being in the early 2000’s. As the chart shows, being in early 2000, home prices began rising at a rate higher than the inflation rate eventually reaching the tipping point in the 4th quarter of 2007 when home prices had increased 42% during the prior 7 year period and the rate of inflation only 20%. We all know what happened next, the housing bubble burst and home prices plummeted back to where they should have been. So, during the period that lead to the housing bubble, home prices were, on average, just increasing just a little over double the rate of inflation and look what happened. Now do you see why I say a 17% increase in home prices in the past year would be bad and the actual 1% it was is good?
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The median price of a new home in the U.S. in 2011 was $227,200 and this year, thus far, the median price is $288,000, an increase of 26.7 percent in that five-year period, according to data from the U.S. Census Bureau. During this same period, the Consumer Price Index (CPI), as the chart below illustrates, rose just 6.1%. So why did the median price of new homes during this period rise over 4 times as much as the rate of inflation?
What is driving new home prices up?
The two major components to the cost of a new home are construction cost and finished lot cost. Presently, according to the National Association of Home Builders (NAHB), 61.8% of the price of a new home is construction cost and 18.2% is attributable to the cost of a finished lot. Both of these costs, which account for about 80% of the cost of a new home, have been severely impacted by costs associated with every increasing government regulations. In fact, as the chart below shows, regulatory costs for a new home increased almost 30 percent (29.8%) from 2011 to 2016 while, as I mentioned previously, CPI only increased 6.1%.
What about builder profit margins, are they to blame for higher prices?
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As 2015 quickly comes to an end, we close out what has been one of the better years for the St Louis real estate market in many years! Homes in St Louis sold at a steady pace and St Louis home prices showed solid appreciation! We saw a spring market that brought home buyers racing to new listings often competing with other buyers to see who could make the best offer the quickest, often-times with the final sale price equaling or exceeding the asking price followed by a steady market throughout the summer and into the winter months.
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St Louis Real Estate Market – Recap for 2015:
While the year is not quite yet over, and there will be some additional sales closing in the 4 business days left in the year, I think there is enough data available to tell the story for this year. With that in mind, below is a recap of the St Louis housing market for 2015:
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Continue reading “St Louis Real Estate Market 2015 Recap and Outlook for 2016“
The St Louis real estate market continues to be hot with many sellers benefiting from the low inventory of homes for sale resulting in buyers flocking to new listings and, when the homes are priced right, multiple offers being received in the first day. Happened for one of my clients again this week…took the listing live on Tuesday at noon, had over 8 buyers through that afternoon and evening and multiple offers in hand by the next morning, all above listing price. Granted, we did a lot of pre-listing marketing to generate interest, and the seller worked hard to make sure the home was in show condition, but if the market wasn’t there, it wouldn’t have mattered.
Is all this activity causing St Louis home prices to rise to quickly and too much? I get asked this question frequently today as none of us have yet forgotten what happened when the housing market bubble burst in 2008 so I spend a lot of time watching home prices in relation to the economy. One of the things I look at to gauge how home prices are doing is to compare the rate home prices are increasing with the inflation rate…afterall, the two should be increasing at roughly the same rate. As the charts below show, St Louis home prices tracked the CPI rate pretty closely through the 1980’s and 1990’s until late in the ’90’s when home prices began increasing at higher rate peaking around 2006 and then falling until around late 2011 early 2012 it was beck in line with CPI. If you look closely, you will see, currently, home prices are just slightly above the CPI line indicating that, so far, so good, with regard to home prices. If you want to take a closer look, click on the chart to be taken to the live chart on St Louis Real Estate Search.
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Continue reading “Are St Louis Home Prices Too High?“
Home loan rates have been near historic lows for a while now but the $64 question is, where are home loan rates headed in the future? While there are, of course, a variety of opinions out there, the majority of the noteworthy ones are thinking interest rates are headed upward. In the Well’s Fargo Securities Economic Outlook report for 2014, interest rates in the year ahead (2014) was addresses, saying “we expect long-term rates to exhibit an upward bias as Fed tapering moves forward. However, the extent of any increase in long-term rates should be modest, given continued low inflation and a reduced federal budget deficit “. PNC Bank, in their Economic Outlook report for 2014 forecast that 30 year mortgage rates would increase to 4.95% during 2014, about 1% higher than 2013. Oh yeah, I should also mention, according to a recent poll by Rasmussen Reports, 50% of the consumers surveyed say they expect higher interest rates a year from now. So there you have it…higher rates on the horizon.
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If the last time you looked at your mortgage was when you closed on your loan, it’s time to take it out for an annual once over. New loan programs and opportunities to leverage your home equity can bring you lower mortgage payments and new investment opportunities.
Is a fixed rate mortgage the best choice for you?
Many of us opt for the certainty of a 20 year or 30 year fixed rate mortgage when we get our first mortgage. If you anticipate selling your home within the next 10 years, one of our new hybrid loans may be a better financial fit for you. Hybrid loans typically have a lower fixed rate than a traditional 20 or 30 year mortgage. The savings you receive can well be worth switching to a hybrid loan. Continue reading “Give your mortgage an annual once over; St Louis Mortgage Interest Rate Update“
