Fall housing trends: What will happen to home prices and mortgage rates?

What’s up with housing this fall

This fall, 2 factors dominate real estate:

In many housing markets, there aren’t enough affordable homes for sale to satisfy demand.

Mortgage rates continue to linger near historical lows.

The result is frustration: Low mortgage rates boost affordability, but prospective buyers feel like they don’t have much choice.

Here are 5 trends affecting real estate this fall:

Not enough homes for sale

As would-be homebuyers in a lot of markets know, there aren’t enough houses for sale, and we need more new ones.

Supply isn’t going to catch up with demand this fall: We’re heading into the months when fewer people put their homes up for sale than they do in the spring and summer.

Housing economists say builders need to construct more houses, but that’s a long-term solution because construction takes time.

Meanwhile, the lingering effects of the housing crash continue to prevent owners from putting their homes up for sale. According to CoreLogic, 7.1% of homes with mortgages had negative equity earlier this year, meaning that their homes were worth less than the amount owed on the loans. These negative-equity homes tend to stay off the market because the owners can’t afford to sell.

“New construction is failing to keep up with household formation, meaning that the low vacancies in rentals and the tight supply of homes for sale will continue to be a key theme for housing in the months ahead,” says Jonathan Smoke, chief economist for Realtor.com.

Rising home prices

Home sales slowed toward the end of summer. Normally, you would think that if fewer people are buying homes, then prices wouldn’t increase very much. But home prices went up 5.1% in August compared with 12 months earlier, more than double the overall inflation rate.

Home sales “inched backwards because inventory isn’t picking up to tame price growth and replace what’s being quickly sold,” says Lawrence Yun, chief economist for the National Association of Realtors.

Yun says that, without more new construction, the housing recovery could stall. The signs are ominous this autumn: “There will be an expected seasonal decline in new listings in coming months, which could accelerate price appreciation and make finding an affordable home even more of a struggle for would-be buyers,” Yun says. He adds that in many areas outside of the Northeast, “prospective buyers appear to be either wavering at the steeper home prices pushed up by inventory shortages, or disheartened by the competition for the minuscule number of affordable listings.”

Rents will keep going up

Rents for apartments and houses keep going up. Nationwide, the average rent for a 1-bedroom apartment was $940 in September, up from $932 in August, according to Abodo, a search engine for apartment hunters. Apartment availability is especially tight in Miami, New York City and the San Francisco Bay Area, says Sam Radbil, Abodo’s communications manager.

Not everyone wants to live in an apartment. The number of single-family houses for rent has surged in the years following the housing crash. About 15.2 million houses were for rent in 2015, according to the National Multifamily Housing Council. In 2012, about 12 million houses were for rent.

Even with such rapid growth in the number of houses for rent, some markets have seen steep rent increases for 3-bedroom houses, according to RentRange, a data and analytics company for single-family rentals. The metro areas of Fort Myers, Florida, and New Orleans saw average year-over-year rent increases of more than 20% for 3-bedroom houses, according to RentRange. At least 25 metro areas had double-digit percentage rent increases for houses, RentRange reports.

Continued low mortgage rates

Mortgage rates were remarkably stable over the summer. In Bankrate’s weekly survey, the 30-year fixed varied from a low of 3.52% in early July to a high of 3.64% in mid-September. It’s unusual for mortgage rates to remain in such a small range for 3 months.

Not only did rates stay steady, but they hovered just above the modern-day low of 3.5%, set in December 2012.

Mortgage rates are likely to remain low, even if the Federal Reserve raises the overnight interest rate in one or both of its last 2 meetings of the year (Nov. 1-2 and Dec. 13-14).

“I think rates stay where they’re at,” says Bob Walters, chief economist for Quicken Loans. “I don’t see them dropping a whole lot, but I don’t see them rising.” Economic growth is slow and inflation is low. “We are in a deflationary world, for the most part, and interest rates are the beneficiary.”

Walters has one caveat, and it’s a big one: He says the financial markets assume Hillary Clinton will win the presidential election. If Donald Trump wins, the reaction in the financial markets is unpredictable.

More detailed credit reports

When you apply for a home loan, you provide so much financial information about yourself that it feels intrusive. Now lenders are digging even deeper into your bill-paying history.

Mortgage lenders are now looking at whether you pay off your credit cards every month or you carry balances from month to month. If you pay off your credit cards every month, you’re more likely to qualify for the best rate and lowest mortgage fees. If you make minimum monthly payments and you carry over balances every month, you might end up paying more for your mortgage.

The information about your credit card payment history is called trended credit data, and Fannie Mae’s loan software has begun using the info when deciding whether to approve loans, and how much to charge in interest and fees.

The introduction of trended credit data will help borrowers “on the border, that are making more than the minimum payment each month,” says Mindy Armstrong, senior product manager for Fannie Mae. Those loan applicants are more likely to be approved, she says.


Holden Lewis

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