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Will Inflation and Rising Mortgage Rates Cause Home Price Growth to Slow?

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“Supported by near-zero borrowing costs and a rush by existing homeowners to find more space, average U.S. house prices have soared by over one-third since the pandemic started,” according an article published by Yahoo! Finance. This probably doesn’t come as a surprise to any Americans who have been house hunting over the past several months and years.  With rising inflation costs and continued increases in mortgage rates, may experts are speculating what may be in store for home prices.

A poll of almost 30 property analysts revealed that Americans can expect to see home prices continue to increase by just over 10% in 2022.  Further, home prices are predicted to slow below increases of only 5% in the following year and again in 2024.  Reporters Indradip Ghosh and Prerana Bhat quote Brad Hunter, head of consultancy Hunter Housing Economics, “The rise in home prices has been staggering, and we do expect a significant slowdown going forward, particularly in the wake of a near-doubling of mortgage rates”.

Despite the slowing of home price growth, which is currently at a pace of 20% increase, affordability is predicted to still be an issue for many, specifically first time home buyers.  The rate of inflation, rising mortgages rates and, although declining, the steady continued rise in home prices are huge stumbling blocks for those looking to become home owners.  In fact, almost all of the 29 analysts polled predicted overall affordability will worsen over the next two years. 

Read the entire article.

Photo Credit: Mohd Azrin

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House Hunting Stress and Anxiety on the Rise

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The idea of buying a new home is exciting as buyers begin to dream and envision themselves in the home of their dreams, beginning a new chapter of their lives.  However, the current state of the real estate market is causing some prospective homeowners to feel less excited, and more overwhelmed and stressed.  The process of scouring listings, trying to outbid other buyers while watching prices and rates rise is creating anxiety in some buyers. 

In a recent article published by Money.com, reporter Aly J. Yale states, “Andrea Anderson Polk, a licensed professional counselor in Northern Virginia, has even seen health issues arise due to housing stress. Her clients have experienced sleep problems, difficulty concentrating, chronic fatigue and more. Relationship problems are a common theme too.”

The article goes on to details ways homeowners can adjust their thinking and prepare for the process of searching for a home in order to make it less stressful.  For example, its suggested buyers set realistic expectations about the process to avoid disappointment or frustration.  Additionally, deciding to work with a good agent will help reduce stress because the agent can set expectations and guide the buyer through the process. Among one of the most important suggestions, buyers should pay attention to their mental health.  A therapist quoted in the article suggests, “Monitor your current mindset throughout the day and identify negative thinking patterns by avoiding ‘what if’ statements and imagining worst-case scenarios”. 

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Good News on Horizon for First Time Home Buyers?

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For the past several months, the news about the U.S. Housing market has repeated a very similar message month after month- high demand and low supply is driving up home prices.  In fact, the average annual home appreciation rate was recorded at 19.2% in January 2022, a record high increase.

In an article published by Fortune.com, it is stated that the number of mortgage applications recently decreased a bit, most likely in response to an increase in mortgage rates. Nevertheless, it isn’t anticipated that this will result in a significant decrease in demand for houses.  Reporter, Will Daniel, states, “After all, in March, active home listings in the U.S. were down roughly 18.6% compared to a year ago. And the U.S housing market is facing a shortage of nearly 6 million new single-family homes.”  It will take a bit more time for the housing market to balance out.

However, home buyers should remain optimistic.  Realtor.com surveyed prospective home sellers and reported that 64% of these home owners anticipate listing their home for sale within the 2022 calendar year.  The survey also might give the first time home buyers, who have largely been priced out of the market, a glimmer of hope. More than half of the homeowners who indicated they would be listing their home plan to list below $500,000, which some may consider “relatively affordable”. 

Those waiting for new construction homes may have to continue to be patient.  “We’re at the lowest level of inventory on record back at least 23 years,“ according to Redfin’s deputy chief economist Taylor Marr. “So housing starts are not quite making that large of a dent in terms of the inventory shortage just yet.”

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Photo Credit: Tierra Mallorca

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Mortgage Rate Increases Continue

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Americans who have been paying attention to the housing market realize that prices have been steadily climbing over the past several months. The fact that the supply of homes on the market has not been able to keep up with the demand for homes isn’t helping control housing prices.  Now, those looking to purchase are now going to have to face increased mortgage rates as well.

Since at least 2018, mortgage rates have not exceed 5% for a 30 year mortgage.  In reality, the rates above 5% in 2018 didn’t last long.  Prior to that short lived stint above 5% in 2018, the 30 year mortgage has remained below 5% since 2011.  Mortgage rates have been slowly increasing over the past several weeks as the U.S. responds to inflation and the economic impact on a global level due to the crisis in the Ukraine.  The 30 year mortgage now finally surpassed 5% having jumped to 5.02%.  According to an article published by CNBC.com, rates one year ago were at 3.38%.

With news of the continued rate increased coupled with the steady climb of housing prices, which have been reported to be up 20%  since February 2021, buyers will feel the hit and many might just be priced out of some markets.

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Will the FHA Introduce a 40 Year Mortgage?

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In many respects, the COVID-19 pandemic appears to moving optimistically toward its end, with many aspects of American’s life returning to more normal activities.  Nevertheless, some American homeowners who were severely impacted by the shutdowns, and were able to take advantage of the forbearance, are still climbing their way out of the financial challenges. 

As these homeowners exit forbearance, the Federal Housing Administration wants to help them navigate the next phase.  In an article published by HousingWire.com, information about an FHA program where an option to enter a 40 year loan modification with partial claim is described.  Reporter, Flavia Furlan Nunes states, “In September, the FHA posted a draft mortgage letter proposing a 40-year loan modification combined with a partial claim. The goal is to help borrowers reach the targeted reduction of 25% of the monthly principal and interest portion of their mortgage payments.”

It goes on to detail a proposal from Ginne Mae (Government National Mortgage Associate- GNMA), to introduce a 40 year mortgage.  Michael Drayne, Ginnie Mae acting executive vice president, explains, “We have begun the work to make this security product available because an extended term up to 40 years can be a powerful tool in reducing monthly payment obligations with the goal of home retention.” This offer would follow a loan modification term of 40 years already offered by Fannie Mae and Freddie Mac.

Read the entire article for more information about the programs and how homeowners have fared in paying some of their mortgage payments during forbearance.

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Home Values Expected to Outpace Original Forecasts

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As 2022 neared, real estate professionals began to forecast the housing market for the spring of 2022.  Many experts predicted that the drastic increase to home values that Americans saw during the height of the pandemic, would begin to slow down significantly.

Nevertheless, as March 2022 approaches, some real estate experts are adjusting their predictions.  In an article published on Nasdaq.com, Marc Rapport reports that, for example, the Zillow economists adjusted their initial prediction of a 11% increase in home values for 2022 to a predicted 16.4% increase.  The report prepared by Zillow explained, “The robust long-term outlook is driven by our expectations for tight market conditions to persist, with demand for housing exceeding the supply of available homes.”

Yet, some economists don’t see that type of growth happening again this year.  Lawrence Yun, the National Association of Realtors chief economist, predicts growth around 3-5% for 2022, continuing through 2023. “The good news is that home prices should begin to normalize later in 2022 as more homes come on the market,” Yun said in Rapport’s article.

Of course factors such as inflation, home price increase and mortgage rates affect affordability of home for many Americans.  Even as home prices level out, these other economic factors will surely impact what the future holds for the real estate market.    Read the entire article.

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How Does A Rate Increase by The Fed Impact Mortgage Rates?

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In an article published on Realtor.com, it was stated, “The Fed hinted …  that a quarter-percentage-point increase is soon coming to its benchmark short-term borrowing rate. This would be the first increase since December 2018”.  The reason for this predicted move is to help ease the rate of inflation. 

This increase directly affects the rate at which banks lend money to each other.  However, indirect impacts of this increase would be increases to rates for savings accounts, and of course, rates for borrowing.  According to this article, “That likely will put pressure on mortgage rates, and even though the Fed’s benchmark rate doesn’t directly affect home borrowing rates, they do often have an impact.”

Borrowers and lending professionals have already seen slight increases in long term rates for loans such as the 30 year mortgage.  At the end of January, the rates averaged just over 3.5%, in comparison to the 2.77% borrowers were seeing January 2021.   Some experts predict rates could increase to 4% by the end of 2022.

Nevertheless, rates at even these increased percentages, are still hovering at historically low interest rates.  Read the entire article for more details.

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What Are Future Plans for the Allstate Campus?

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Allstate Insurance Company Headquarters was located at the Northbrook campus for more than 50 years.  However, as with many American companies, the pandemic introduced a wide-spread shift for employees to work from home.  With Allstate specifically, close to 95 percent of their employees have chosen to work from home.  The need for the large multi-building campus was no longer needed by the insurance company and it was listed for sale.

According to an article published by TheRealDeal.com, the Northbrook campus was purchased for $232 million.  Due to the shift in demand for e-commerce, commercial property such as this is no longer purchased with the intent to house employees, instead its investors are looking to develop the land to build warehouses. 

The article states, “The Nevada industrial developer that agreed to pay $232 million for Allstate’s suburban Chicago campus aims to transform the site into 3.2 million square feet of warehouses — assuming it gets the approval of local governments.”  Therefore, the key next step, however, will be to get approval from the neighboring towns of Glenview, Northbrook and Prospect Heights.  The developer hopes to gain the confidence of these towns, who may be concerns about the impact of a large warehouse facility as a neighbor. 

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Slow Down in Home Price Gains Reported

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U.S. home prices have consistently risen each month in comparison to the prices in 2020.  As many Americans are aware, the onset of the pandemic created a high demand for homes and with the short supply and low rates, prices increased significantly.

However, a recent report indicates the price increases may be slowing down.  CNBC.com reports in an article written by Diana Olick, “Home prices rose 19.5% in September year over year, down from a 19.8% annual gain in August, according to the S&P CoreLogic Case-Shiller National Home Price Index. That is the first decrease in the annual gain since May 2020.”

Some cities continue to see significant increases in pricing compared to September 2020.  For example, Phoenix home prices grew just over 33% compared to September 2020.  Even some of the cities in America that reported the smallest gains still have increases of more than 10%.

The managing director at S&P Dow Jones Indices, Craig Lazzara, may have coined the most accurate description of this data:  “Deceleration”.  Prices are still strong, it just appears the growth is slowing down a bit.  The combination of an anticipated increase of homes coming on the market with mortgage rates slightly increasing are potential factors.

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How Has the U.S. Managed to Avoid Another Foreclosure Crisis?

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As the COVID-19 pandemic began to spread across the United States last spring and states announced shut downs, many Americans found themselves unemployed or underemployed.  As a result, the federal government took swift action to provide mortgage payment relief by allowing homeowners to enter forbearance.  A year later, as of March 2021, 2.5 million homeowners were still in forbearance, according to the Mortgage Bankers of America.

Realtor.com published an article, noting the opinions of experts who explain that, despite this alarming number of U.S. homeowners behind on payments, a potential foreclosure crisis is unlikely.  In the article, reporter Sharon Lurye explains, the current housing market conditions are likely to provide a safety net for many of homeowners.  Houses, in many parts of the United States, continue to be in high demand and the inventory remains low.  Coupled with low interest rates, homeowners behind on payments, possible nearing the end of their forbearance, could still decide to sell the home for a profit. Additionally, as Americans getting their footing and learn to adjust to the current conditions, forbearance rates dropping nationwide.

Nevertheless, there are still areas of the country where homeowners are not only seriously behind on payments, but the housing market is not as strong due to weak economies and lack of employment.  These homeowners will continue to need assistance by reaching out to their lender with the hopes of renegotiating the terms of their loan in a way that makes it feasible to make the payments.  Still, some may decide to just sell and move to a rental property, assuming they can find a property to rend. 

The good news, it seems that the U.S. isn’t headed toward a wide-spread foreclosure crisis, however there are Americans that continue to struggle and may for months and years to come.

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