September 2021 Real Estate Market Update

September 14, 2021

"September" on white wood background with fall leaves

Probably the biggest news out there right now is the drop in pending home sales, so let’s look at pending home sales going all the way back to 2012.

Pending home sales since 2012, where 100 is the historically heathy level, where we have dropped far below that only during January 2014 and during the housing crisis. We still stand well above that level, although we have seen a recent drop. https://www.nar.realtor/research-and-statistics/housing-statistics/pending-home-sales

Historically, you can see we were trending above the healthy market level for quite some time, we see the dip during lockdown, a sharp increase for a while after lockdown, and the red arrow represents the current drop (although we are still well above the historically healthy market level – indicating we are still in a very good market).

We are seeing some signs of softening in the housing market, but context is important here… We’re still very much in a sellers’ market, but we are seeing some early signs of softening. Odeta Kushi, Deputy Chief Economist, First American

Showingtime’s monthly index shows July 2019 at 123 and the last report at 189.4. https://showingindex.stats.showingtime.com/docs/lmu/x/ShowingTimeShowingIndex?src=page

Taking a look at the ShowingTime Monthly Index, we see a tremendous amount of home showings as we started off this year, and a steady decline over the past few months. However, to provide context, July 2019 has an index of 123, and right now we sit at 189 – still well ahead.

Data shows that 49.6% of homes sold for more than the initial list price in July - far ahead of the number reported in July 2020, when 26.8% of homes were sold above initial asking price, but below June’s total when 50.4% of homes sold for more than initially listed. OJO Labs, Real Estate Technology Firm

Percentage of homes selling over lsit price, according to OJO labs shows July 2020 at 26.8%, June 2021 at 50.4%, and July 2021 at 49.6%. https://cdn.ojo.me/assets/competition_AUG_11_weekly_newsletter_2021.pdf

In to July 2020, 26.8% of the homes sold over list price. June and July were about 50% of homes selling over list price. Although things are cooling down, it is still a very robust market.

New Monthly Listing Counts 2017-2021 shows 2017-2019 at a steady pace with an increase in may. 2020 shows a drop around the same time, and 2021 shows the increase happening in June. https://www.realtor.com/research/data/

Taking a look at the new monthly listing counts according to realtor.com, we can see that historically we see a peak in new listings in May. When listings started coming back to market last year after the lockdown, we never hit the historical number that we’d seen in previous years (2017-2019) – a factor in the low inventory that has led to this year’s imbalance between supply and demand. If we continue to see less listings coming to market, then we’re going to see an upward pressure on prices until we can get back to the historical norms.

If these changing inventory dynamics continue, we could see a wave of real estate activity heading into the latter part of the year. Danielle Hale, Chief Economist, realtor.com

So are homes affordable right now?

Monthly Mortgage Payment Increasing Significantly, according to NAR where we stood at $1,033 in June 2020 and $1,255 in June 2021. https://www.nar.realtor/blogs/economists-outlook/housing-affordability-weakens-in-june-as-home-prices-ascend

Looking at monthly mortgage payments going all the way back to April 2020, we do see a slight increase starting in March.

Affordability continues to decrease from 186 in January to 155 in April and 146 in June. https://www.nar.realtor/blogs/economists-outlook/housing-affordability-weakens-in-june-as-home-prices-ascend

Affordability is decreasing (here, the higher the bar, the more affordable homes are). To put that into context, we turn to the Housing Affordability Index from 1990 all the way to today.

Housing affordability index from 1990 to day according to nar, shows more affordable housing today as compared to 2008 and before, but less affordable since – where this does take into account wages, interest rates, etc. https://www.nar.realtor/blogs/economists-outlook/housing-affordability-weakens-in-june-as-home-prices-ascend, https://www.nar.realtor/research-and-statistics/housing-statistics/housing-affordability-index, and https://www.nar.realtor/research-and-statistics/housing-statistics/housing-affordability-index/methodology

Again, the higher the bar, the more affordable homes are. Homes are, beyond a doubt, less affordable today than the past few years. However, homes are much more affordable today than they were at any point leading up to the housing crisis. This index does take into consideration wages, prices, and mortgage rates.

Median asking rent since 1988 is increasing over time and with a sharp, sharp increase over the past 2 years. http://www.census.gov/housing/hvs/files/currenthvspress.pdf

What about rental rates? They are continuing to climb, looking all the way back to 1988, and they have skyrocketed in the past few years. Not only are rental rates increase more rapidly than mortgage rates, but you gain no equity as a renter.

Percentage of Income Needed for a Mortgage Payment Increasing as Home Prices Continue To Climb According to nar where the historical norm sits at 21.2% and we sit at 17.1 today. https://www.nar.realtor/blogs/economists-outlook/housing-affordability-weakens-in-june-as-home-prices-ascend

The percentage of income needed for a mortgage payment is also increasing, because of price appreciation. However, let’s put that into perspective, 17.1% of monthly income is needed for a mortgage payment right now, but the historical norm is 21.2%. Although we have seen an increase, we are still below the historic average.

Most lenders agree that you should spend no more than 28% of your gross monthly income on a mortgage payment (including principal, interest, taxes and insurance). Freddie Mac: Essential Guide to Creating a Homebuying Budget

According to Freddie Mac, 28% of your monthly income can go to a home buying budget and you’re still in an affordable range.

The 25% mortgage payment to income share takes into consideration that a homeowner has other expenses such as property insurance, taxes, utilities, and maintenance, so that total housing expenses are no more than 30% of income. Housing costs are not burdensome if they account for no more than 30% of income. National Association of Realtors (NAR)

According to the National Association of Realtors (NAR), housing costs are not burdensome if they account for no more than 30% of income. This would require your monthly mortgage payment to be more like 25% (principal and interest only), to account for additional costs like insurance, taxes, utilities, etc.

Mortgage Payment as a Percentage of Income According to NAR where nars guidance is 25%, the historical average is 21.2% and today is 17.1%

To put this into perspective, look at the mortgage payment as a percentage of income. NAR says this should be 25%, the historic average is 21.2%, and today we sit at 17.1%. Homes are less affordable, not unaffordable.

 

There are 5 aspects of the market right now that make it anything but normal.

  1. Mortgage Rates
  2. Price Appreciation
  3. Supply of Inventory
  4. Days on Market
  5. Multiple Offers

Historical mortgage rates by decade according to Freddie mac. 1970s at 8.86%, 1980s at 12.7%, 1990s at 8.12%, 2000s at 6.29% and 2010s at 4.09%. http://www.freddiemac.com/pmms/pmms30.html

Mortgage rates have been fueling the demand over the past year. Looking all the way back to the 1970s, rates have fallen from an average of over 8% to somewhere around 2.8% today.  The instability of the world, and especially the job market right now, are causing these extremely low rates for a fairly long period of time.

Annual Home Price Appreciation by Calendar Year according to black knight and nar has an average annual appreciation of 4.14%, and today we sit at 14.10%. https://cdn.blackknightinc.com/wp-content/uploads/2021/04/BKI_MM_Feb2021_Report.pdf https://cdn.nar.realtor/sites/default/files/documents/forecast-q3-2021-us-economic-outlook-07-29-2021_1.pdf

According to this Black Knight study, we are seeing 14% home price appreciation. Other estimates are 17% (Case-Schiller). Average annual appreciation sits at 4.1%. There is no denying we are seeing robust appreciation across the country.

Months’ supply refers to the number of months it would take for the current inventory of homes on the market to sell given the current sales pace. Historically, six months of supply is associated with moderate price appreciation, and a lower level of months’ supply tends to push prices up more rapidly. National Association of Realtors (NAR)

Months of inventory of supply has been a big issue over the last year. A balanced market is typically between four and six months of inventory on hand.

Months inventory of homes for sale from 2011 to today shows a large decrease over time from a high of 9.5 to 2.6 today. https://www.nar.realtor/topics/existing-home-sales https://www.nar.realtor/newsroom/existing-home-sales-expand-1-4-in-june

Today, we sit at 2.6 months of supply on the market, looking all the way back to 2011. We need more homes on the market.

Average days on market shows early 1029 at 45 and today at 17. https://www.nar.realtor/research-and-statistics/research-reports/realtors-confidence-index https://cdn.nar.realtor/sites/default/files/documents/2021-07-realtors-confidence-index-08-23-2021.pdf

As of July, it took 17 days to sell a home (to place it under contract). Looking all the way back to March of 2019, you can see peaks of 42 or 49 days on market. 17 days? That is quick

Average Number of Offers Received on the Most Recent Closed Sale - July According to NAR shows 2.2-2.9 from December 2017 to 4.5 offers per home today. https://www.nar.realtor/research-and-statistics/research-reports/realtors-confidence-index https://cdn.nar.realtor/sites/default/files/documents/2021-07-realtors-confidence-index-08-23-2021.pdf

The average number offers received on a home for sale has historically been about 2.5. Today, we are seeing 4.5 offers for every home. Last spring this number was 5.

On the same home for a mortgage payment of $1,027 in January 2021, you are looking at $1,243 in January 2022 and $1,375 in 2023 when taking into account home loan amount, mortgage rates, and annual home price appreciation.

In conclusion, let’s take a quick peek at the home price forecast going into 2022. MBA, Fannie Mae, Freddie Mac, and NAR are all averaging 5.5%, so if you are waiting until next year to buy, it might cost you more. The market is cooling down, but is far from normal, and will take some time to equalize.

Finally, here is how we wrapped up September in Tallahassee:

 

August 2021 Tallahassee Residential Listings: 750 listed, 612 sold, 81.6% sold, $288,075 average sold list price, $284,350 average sold sale price, 45 days on market, 4.7% listings expired, $362,275 average unsold list price. Kelly Chavers, REALTOR

 

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