People Want Less Expensive Homes – And Builders Are Responding

    In today’s housing market, there are two main affordability challenges impacting buyers: mortgage rates that are higher than they’ve been the past couple of years, and rising home prices caused by low inventory. To overcome those challenges, many people are working with their agents to find less expensive homes. And with newly built homes making up a historically large percentage of the total available inventory today, that search often includes brand new homes. People Are Spending Less on Newly Built Homes The graph below uses the latest information from the Census to show, in June, more of the newly built home sales in this country were in lower price ranges than in 2022:   Last year, only 58% of newly built home sales were less than $500,000. This June, that number was up to 65%. This means more people are buying less expensive newly built homes right now while affordability remains a challenge.  Builders Are Offering Lower-Cost Options Builders have picked up on this trend and are reacting accordingly. George Ratiu, Chief Economist at Keeping Current Matters, explains: “Builders are also responding to this shift by bringing slightly smaller homes to market in an effort to meet lower price points . . .” New data from the Census further confirms this pattern – it shows the median sales price of newly built homes has dipped down in recent months (see graph below):   And as Mikaela Arroyo, Director of the New Home Trends Institute at John Burns Real Estate Consulting, says, the builders who are most responsive to this trend are forming pathways to homeownership:  “. . . it is creating opportunities for people to be able to afford an entry-level home in an area. . . . if you get that size down, that automatically will make it a more affordable home. The [builders] that are decreasing [size] the most are probably the ones that try to build more of an affordable product.”  How an Agent Can Help  Builders producing smaller, less expensive newly built homes give you more affordable options at a time when that’s really needed. If you’re hoping to buy a home soon, partner with a local real estate agent to find out what’s available in your area. An agent can help you look at newly built homes or ones under construction nearby.  Bottom Line If you’re having a hard time finding a home you like in your budget, let’s connect. You need a real estate professional who knows all about the latest inventory in our area, including homes still under construction or just built. That way you have an expert on your side who can provide information on builder reputations, builder contracts and negotiations, and more to help you with the homebuying process.

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How Inflation Affects Mortgage Rates

    When you read about the housing market in the news, you might see something about a recent decision made by the Federal Reserve (the Fed). But how does this decision affect you and your plans to buy a home? Here's what you need to know. The Fed is trying hard to reduce inflation. And even though there’s been 12 straight months where inflation has cooled (see graph below), the most recent data shows it’s still higher than the Fed’s target of 2%:    While you may have been hoping the Fed would stop their hikes since they’re making progress on their goal of bringing down inflation, they don’t want to stop too soon, and risk inflation climbing back up as a result. Because of this, the Fed decided to increase the Federal Funds Rate again last week. As Jerome Powell, Chairman of the Fed, says: “We remain committed to bringing inflation back to our 2 percent goal and to keeping longer-term inflation expectations well anchored.” Greg McBride, Senior VP, and Chief Financial Analyst at Bankrate, explains how high inflation and a strong economy play into the Fed’s recent decision: “Inflation remains stubbornly high. The economy has been remarkably resilient, the labor market is still robust, but that may be contributing to the stubbornly high inflation. So, Fed has to pump the brakes a bit more.” Even though a Federal Fund Rate hike by the Fed doesn’t directly dictate what happens with mortgage rates, it does have an impact. As a recent article from Fortune says: “The federal funds rate is an interest rate that banks charge other banks when they lend one another money . . . When inflation is running high, the Fed will increase rates to increase the cost of borrowing and slow down the economy. When it’s too low, they’ll lower rates to stimulate the economy and get things moving again.” How All of This Affects You  In the simplest sense, when inflation is high, mortgage rates are also high. But, if the Fed succeeds in bringing down inflation, it could ultimately lead to lower mortgage rates, making it more affordable for you to buy a home. This graph helps illustrate that point by showing that when inflation decreases, mortgage rates typically go down, too (see graph below):    As the data above shows, inflation (shown in the blue trend line) is slowly coming down and, based on historical trends, mortgage rates (shown in the green trend line) are likely to follow. McBride says this about the future of mortgage rates: “With the backdrop of easing inflation pressures, we should see more consistent declines in mortgage rates as the year progresses, particularly if the economy and labor market slow noticeably.” Bottom Line What happens to mortgage rates depends on inflation. If inflation cools down, mortgage rates should go down too. Let's talk so you can get expert advice on housing market changes and what they mean for you.

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Explaining Today’s Mortgage Rates

    If you’re following mortgage rates because you know they impact your borrowing costs, you may be wondering what the future holds for them. Unfortunately, there’s no easy way to answer that question because mortgage rates are notoriously hard to forecast.   But, there’s one thing that’s historically a good indicator of what’ll happen with rates, and that’s the relationship between the 30-Year Mortgage Rate and the 10-Year Treasury Yield. Here’s a graph showing those two metrics since Freddie Mac started keeping mortgage rate records in 1972:   As the graph shows, historically, the average spread between the two over the last 50 years was 1.72 percentage points (also commonly referred to as 172 basis points). If you look at the trend line you can see when the Treasury Yield trends up, mortgage rates will usually respond. And, when the Yield drops, mortgage rates tend to follow. While they typically move in sync like this, the gap between the two has remained about 1.72 percentage points for quite some time. But, what’s crucial to notice is that spread is widening far beyond the norm lately (see graph below):   If you’re asking yourself: what’s pushing the spread beyond its typical average? It’s primarily because of uncertainty in the financial markets. Factors such as inflation, other economic drivers, and the policy and decisions from the Federal Reserve (The Fed) are all influencing mortgage rates and a widening spread. Why Does This Matter for You? This may feel overly technical and granular, but here’s why homebuyers like you should understand the spread. It means, based on the normal historical gap between the two, there’s room for mortgage rates to improve today. And, experts think that’s what lies ahead as long as inflation continues to cool. As Odeta Kushi, Deputy Chief Economist at First American, explains: “It’s reasonable to assume that the spread and, therefore, mortgage rates will retreat in the second half of the year if the Fed takes its foot off the monetary tightening pedal . . . However, it’s unlikely that the spread will return to its historical average of 170 basis points, as some risks are here to stay.” Similarly, an article from Forbes says: “Though housing market watchers expect mortgage rates to remain elevated amid ongoing economic uncertainty and the Federal Reserve’s rate-hiking war on inflation, they believe rates peaked last fall and will decline—to some degree—later this year, barring any unforeseen surprises.” Bottom Line If you’re either a first-time home buyer or a current homeowner thinking of moving into a home that better fits your current needs, keep on top of what’s happening with mortgage rates and what experts think will happen in the coming months. If you have any inquiries regarding this blog or your real estate venture, feel free to reach out.

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