Home buying activity tends to pick up in the spring, as more and more buyers shake off the winter chills and prepare to enter the real estate market. This year, the spring home-buying "season" will be marked by low inventory across much of the country. And that will keep things competitive for home buyers seeking a property to purchase.
42: Number of Months Inventory Has Declined
Inventory has been the big housing headline for the last couple of years. And real estate markets nationwide continue to contract, as demand outweighs the supply of homes for sale.
According to Danielle Hale, chief economist for realtor.com, inventory within the nation's housing market has been dropping steadily for years.
"This year [2018] there is even less inventory than last year," she told Forbes recently. "According to our February 2018 data inventory is down 8.5% from last February."
According to Hale, housing market inventory (the number of homes listed for sale) has declined for 42 consecutive months. That's nearly a four-year trend!
Granted, these are national averages. Housing trends and conditions can vary widely from one city to the next. For instance, larger metro areas tend to have more demand for housing, and often less inventory, than smaller surrounding cities. And the big tech hubs — like Austin, Seattle and Denver — are among the tightest real estate markets in the country as we enter spring 2018.
Tight inventory is affecting sales volume too. "We expect little growth in sales in 2018, given tight inventories," said Gregory Daco, chief U.S. economist at Oxford Economics in New York.
There has been an uptick in new construction permits nationwide. But it will be a while before this has any measurable impact on housing markets across the country.
According to Aaron Terrazas, as senior economist at Zillow:
"New construction has showed signs of perking up, but remains well below estimates of demand. More importantly, builders face rising labor, materials and land costs making it difficult to build at a price point attractive to entry-level buyers."
What It Means for Buyers and Sellers
For home buyers, these trends highlight the importance of working with an experienced real estate agent when making a purchase. An agent can help you navigate the local real estate market and make a strong offer in a timely fashion. This is the key to success in a tight, competitive housing market. And those are the kinds of conditions we are seeing nationwide, as we enter the spring home-buying season.
Sellers can benefit from the high demand and relatively low supply we are seeing right now. Under these conditions, homes tend to sell faster and for a higher percentage of the initial list price. Multiple-offer situations are also more common when housing demand exceeds the available supply.
All in all, it should be an interesting spring for the real estate market.
Heads Up Home Buyers: Mortgage Rates Just Took a Big Jump
Are you thinking about buying a home in 2018? Are you on the fence about entering the real estate market? If so, you might want to consider buying sooner rather than later. Mortgage rates just rose again, and economists from Freddie Mac and other groups are predicting that they could rise gradually throughout 2018.
Mortgage Rates Hit Highest Level Since December 2016
During the week of February 8, 2018, the average rate for a 30-year fixed home loan rose to 4.32%. Rates haven't been that high since December 2016. This is based on the weekly mortgage industry survey conducted by Freddie Mac. The average rates for 15-year fixed mortgages and 5/1 ARM loans rose as well. Those are the three categories tracked by this survey.
According to the Freddie Mac report:
"The U.S. weekly average 30-year fixed mortgage rate rocketed up 10 basis points to 4.32 percent this week. Following a turbulent Monday, financial markets settled down with the 10-year Treasury yield resuming its upward march. Mortgage rates have followed. The 30-year fixed mortgage rate is up 33 basis points since the start of the year."
This is actually the continuation of a trend that began a few weeks ago. For a while now, mortgage rates have been following a steady upward path. During the latter half of 2017, and into the beginning of 2018, the average rate for a 30-year mortgage hovered below 4%. Then it crossed that threshold and shot up by 25 basis points (0.25%), which brings us up to the latest reading.
Chart: 30-Year Loan Rates Over the Last Year
The average rates for a 30-year fixed home loan going back one year are higher now than they've been all year. (4.17% February 9, 2017 vs. 4.32% February 8, 2018)
This is not surprising to industry watchers and analysts. Last year, economists from the Mortgage Bankers Association and Freddie Mac were predicting that rates would rise gradually throughout 2018. Some forecasts suggested that the average rate for a 30-year mortgage would reach 5% by the end of this year. And that's entirely plausible, given this recent uptick in lending rates.
So what's causing this recent rise in borrowing costs? Several things. Over the last year, the Federal Reserve has been gradually increasing the short-term federal funds rate. This can have an indirect affect on consumer borrowing costs. The Fed's policy changes, along with general economic improvements, are partly what's driving the rise in interest rates -- including those used for mortgage loans.
And some economists are predicting that we will see a continued yet gradual rise in rates throughout 2018.
All of this makes a good argument for buying a home sooner rather than later. Home buyers who postpone their purchases until later in the year could encounter higher mortgage rates. And when you consider the fact that home prices are still rising in most parts of the country, there's even more urgency.
Granted, you should never make a home purchase until you are 100% ready to do so, financially and emotionally. It has to be the right move for you, one that will improve your qualify of life in some way. With that being said, it might make sense to buy sooner rather than later to avoid possible rate hikes and home-price increases.
Note: Mortgage rates can vary from one borrower to the next due to a number of factors, including credit history and the type of loan being used. The numbers presented above are based on averages reported by Freddie Mac.