Love, Money + Real Estate #19
A look at the housing economy pre-election
Greetings.
Ever want to get away from it all? You’re not alone. Last week, the National Association of Realtors released its 2022 Profile of Buyers and Sellers. The data was nothing short of extraordinary.
Some highlights about home buyers:
First-time buyers made up only 26% of all buyers, down from 34% last year and a peak of 50% in 2010 during the First-Time Home Buyer Tax Credit period. The share of first-time buyers was the lowest since NAR began tracking the data.
The age of the typical first-time buyer was 36 years – up from 33 years of age one year ago – and the typical repeat buyer’s age climbed to 59 years from 56 years in 2021. Both ages are the highest in the history of the data set.
The median expected home tenure for first-time buyers was 18 years, the highest ever recorded and up from 10 years in 2021. Clearly, no one wants to give up the amazing, sub-4% interest rates they snagged. Unless they absolutely have to.
The median distance between the home that recent buyers purchased and the home from which they moved was 50 miles – a record high and more than a three-fold jump from a median of 15 miles from 2018 through 2021.
The shares of buyers who purchased homes in small towns (29%) and rural areas (19%) were the highest ever recorded. The shares of homes purchased in suburban (39%) and urban (10%) locations declined from one year ago.
In terms of the share of home buyers by race, White Americans accounted for 88% of all buyers, followed by Hispanic Americans at 8%, Black Americans at 3%, and Asian Americans at 2%. The shares for White and Hispanic Americans increased from a year ago – 82% and 7%, respectively – while the shares of Black and Asian American buyers declined – both down from 6%.
The median number of weeks that buyers searched for a home was 10, an increase from eight weeks in 2020 and 2021.
Home buyers typically purchased their homes for 100% of the asking price, with 28% purchasing for more than asking price.
Nearly nine in 10 buyers (86%) and sellers (87%) purchased or sold a home using a real estate agent or broker.
Some highlights about home sellers:
The typical home seller was 60 years old in 2022. In 2021, the average age of a seller was 56.
21% of sellers are selling to be closer to friends and family, while 11% moved because of retirement or because the neighborhood became less desirable.
Sellers lived in their homes for 10 years before selling, which is up from 8 years in 2021, but is the same tenure as in 2019 and 2020.
41% of sellers purchased a larger home, while 32% bought a home that was roughly the same size.
The median home sales price was 100% of the final list price. That is the highest ever recorded.
A lot of these statistics fall into the “land of never before,” and have a lot to do with the Pandemic and its aftermath. The question is, what’s next?
Mortgage interest rates pass 7%
Last week, Freddie Mac noted that 30-year fixed rate loans averaged 6.95%. The last time interest rates were this high was in 2002. (Use this link to see for yourself.)
But, that’s not really the whole story. Rates are well into the 7% range, for anyone who has less than perfect credit. According to Bankrate, the average rate for a 30-year fixed rate mortgage is actually 7.32%. (See below.) Some housing economists think we could be above 8% by Q1 2023.
Many buyers are close to that number right now. If you have an average credit score of 700 and you live in Illinois, for example, your interest rate might be closer to 7.8%. That’s pretty scary, and a good reason why first-time buyers have pretty much disappeared from the scene. In addition to having a tough time coming up with down payment cash, homes are a lot less affordable than they were a year ago.
Where do we go from here?
I am often asked is we’re heading for a housing crash. Some experts think we are. But, others don’t see a return to the housing depression of 2008-2012 on the horizon. Surely, prices in some areas will decline. In fact, the market is already changing:
Redfin says pending home sales were down 35% at the end of October.
The National Association of Realtors (NAR) says pending transactions slid 31%. “Persistent inflation has proven quite harmful to the housing market,” according to NAR Chief Economist Lawrence Yun.
Declining demand is starting to push down prices. In October, Redfin reported that the median home sale price was $365,725, which is up 5% year over year. But, it is down 7% from a record high of $392,250 in June. That isn’t much of a decline - yet! - and housing economists are all over the map with their predictions of how much prices will fall.
The truth is, if your home quintupled in value in 5 years, you’ll probably see your home value fall somewhat. What’s somewhat? Maybe 10 to 15%. It takes a lot to sustain that sort of home value increase over time, so you can’t expect momentum to be upward indefinitely.
But other industry observers say we’re heading for a steeper fall. It’s hard to see how that would happen, given that we’re still 4 to 6 million homes short, according to NAR and other sources. If interest rates come down in a couple of years, buyer demand will boom. And, the real estate cycle will begin again.
What are you seeing in your neighborhood? Are there many homes for sale? If there are, that’s a good sign that prices are declining.
The latest from Best Money Moves, Think Glink, Law Problems, and This Week in Wealth
There’s a lot of new content up on ThinkGlink, LawProblems and Best Money Moves. Be sure to hop over and take a look.
Also, don’t forget to tune into my weekly show, This Week in Wealth, with RIA Tom Fortino. Sunday morning at 6:30a.m.CT on wgnradio.com. This week, we tried to clear up some confusion about iBond rates.
Vote. Please.
By the time you read this, I’ll have voted in the mid-term elections. I hope you’ll vote as well.
There’s nothing more important in a democracy than exercising your right to vote. Please choose carefully. As with every election, everything is at stake.
On a personal note
This has been one of the most beautiful autumns I can remember. It’s almost as if every leaf was hand-painted. Walking in the gorgeous weather reminded me that nature can be a great tonic for anxiety, stress, or whatever ails you. As we gear up for the end of the year, be sure to get out and appreciate the beauty of your neighborhood.
Best,
Ilyce