Housing Market ‘In Free Fall’ As New Construction Plummets

The number of housing starts, or ​​new houses on which construction started, plunged 14.4% to about 1.5 million last month from 1.8 million in April—sharply below economic projections calling for nearly 1.7 million starts, the Census Bureau reported Thursday.

Building permits also fell more than expected, coming in at less than 1.7 million in May despite expectations they would remain roughly flat from April at about 1.8 million. In emailed comments Thursday, Pantheon Macro chief economist Ian Shepherdson attributed the sharper-than-expected decline to an “abrupt and rapid” drop in new-home sales facing builders, who “overbuilt” since early 2021 to capitalize on demand that’s now “in free fall” and must slow construction to prevent a big hit to profits.

“This is still the early stages of the housing rollover,” adds Shepherdson, predicting the next few months will bring further steep declines in housing construction as additional interest rate hikes make home buying more expensive and push demand even lower.

Home builder stocks took a hit after the data, with the S&P Homebuilders Select Industry Index, which includes home-manufacturing giants such as Masco and Owens Corning, plunging more than 4% Thursday, while the S&P 500 fell 3%. One bright spot in the report: Home completions climbed to the highest level since 2007, which should help home price increases—clocking in at the quickest pace this century—slow from about 20% to the low single digits by the end of next year, says Comerica Bank chief economist Bill Adams.

Historically high savings rates and government stimulus measures helped ignite a home buying frenzy during the pandemic, but signs of a slowdown have quickly emerged as the Federal Reserve embarks on its most aggressive interest-rate-hiking cycle in two decades. According to data released last month, pending home sales slid for the sixth consecutive month in April to the lowest level in nearly a decade, while new home sales plunged nearly 17% from March. More recently, the average interest rate on the popular 30-year fixed mortgage spiked 5.5% to more than 6.2% this week—the highest level since the 2008 financial crisis.

The Fed’s Wednesday rate hike is “likely to accelerate the slowing of the housing market” and eliminate construction jobs, says Mace McCain, chief investment officer at Texas-based Frost Investment Advisors. “We’ll be watching job openings and layoffs closely as the Fed continues to tighten into a slowing economy.”54

“[Fed Chair Jerome] Powell yesterday said the housing market is undergoing a reset, but it’s much more than that,” says Shepherdson, referring to comments Powell made after instituting the largest interest rate hike in 28 years on Wednesday. Speaking to reporters, the Fed chair suggested rising mortgage rates may not be long-lived, saying, “Home buyers need a reset. . . . Ideally, we do our work in a way where the housing market settles in a new place and housing and credit availability are at appropriate levels.”

I’m a senior reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina at Chapel Hill, where I double-majored in business

Source: Housing Market ‘In Free Fall’ As New Construction Plummets—Here’s When ‘Reset’ Could Cool Prices

Critics by Dean Baker

Given other economic data it is certainly plausible that the rate of house price decline is accelerating. The unemployment rate has risen by more than 3 percentage points from its low in 2007, with involuntary part-time rising by another 2 percentage points. If there are twice as many people who fear unemployment or short hours as who actually end up unemployed or working short hours, then the weak economy would have reduced the number of potential homebuyers by 15 percent.

In addition, the plunge in house prices will also reduce demand, since it has destroyed home equity. By some estimates, close to 20 percent of mortgage holders are underwater. After deducting realtor fees and other closing costs, tens of millions of current homeowners would not have enough equity left to make the down payment on a new home. In this respect, many long-time homeowners will face the same difficulty as first-time homebuyers in raising the money needed for a down payment. With the sharp drop in the stock market destroying savings, few of these homeowners will have enough financial wealth to make a down payment.

The danger in this situation is that house prices will go into a downward spiral, with declining house prices destroying equity. The loss of equity reduces the number of potential buyers in the market, putting further downward pressure on prices. This sort of downward spiral will have further negative effects on the economy. As homeowners lose more equity, they will feel the need to cut back further on consumption. In addition, with more homes underwater, default rates will rise with the losses on each foreclosure increasing.

Unfortunately, there has been little real discussion to date of measures that could arrest this sort of price decline. A serious effort would focus on sustaining prices in markets where the bubble has already deflated. Efforts to sustain house prices in markets where the bubble is still deflating will almost certainly fail, and will result in the government wasting money on a failed effort.

However, in the markets where sale prices are in line with rents, it would be desirable for the government to try to prevent prices from overshooting. It can do this by directly intervening in the market, buying up foreclosed properties. This could be an effective policy that carries little downside risk. In fact, this policy certainly carries less risk than continuing to allow Fannie Mae and Freddie Mac to guarantee mortgages in markets where the bubble is still deflating……

Related contents:

Mortgages Surge Past 6% And Hit Their Highest Level Since 2008: Housing Market Could ‘Torpedo’ US Economy, Expert Warns 

Housing Market Boom ‘Is Over’ As New Home Sales Implode–Here’s What To Expect From Prices This Year 

Mortgage Demand Plunges To 22-Year Low As ‘Worsening’ Affordability Deters Buyers—But Here’s Why Prices Will Still Rise

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How The Real Estate Industry Can Simplify The Investment Process

For generations, real estate has proven to be a successful way to build wealth in America. People buy a home, often build equity over time, then sell their home.

CNBC reported in December that close to 95,000 homes were flipped in the third quarter of 2021, an increase for the second quarter in a row. In the past, buying single-family homes, fixing them up and selling them at a profit has largely been the purview of those with access to capital and privy to hard-to-obtain information, such as accurate data on home valuations and the true costs of conducting repairs. These acted as barriers to entry.

My company uses the power of data and technology to bring lending for real estate investors into the digital age, and I’ve observed technology has ushered dramatic changes into the market in recent years. If the real estate industry is to continue to grow and welcome groups of investors who have traditionally been walled out, I believe key stakeholders must continue to rid the home-buying process of high fees, needless complexity and inefficiencies, as well as expand access to capital.

Artificial intelligence is already creating change among lenders.

Buying a home obviously requires money, and that typically means acquiring a loan. To do that, an investor usually needs a good credit score. FICO is one of many ​​ways lenders assess someone’s creditworthiness. Most measure factors such as someone’s level of debt, credit history, the type of credit used and new credit accounts. For years, critics have questioned whether FICO is an accurate way to predict someone’s ability to pay back a loan.

In recent years, more and more lenders have turned to alternative means to measure creditworthiness, my company included. The rise of artificial intelligence has begun to create massive change. The ability to find alternative ways to determine credit risk could open more doors to groups who have not always received a fair credit evaluation.

That said, much has been written about the problem of introducing bias into these AI algorithms. While I believe AI is still a good option, it is still important to consider some challenges associated with using AI in the lending process.

For example, AI-based engines exhibit many of the same biases as humans because they were trained on biased credit decisions and historical inequities in housing and lending markets data. In order to address these inequities, AI-based engines should be designed to encourage greater equity, rather than try to align with previous credit decisions. Lenders can achieve this by removing bias from data before a model is built, which includes eliminating model variables that directly or indirectly create fair lending disparities.

Moreover, it’s important to add more constraints to the model so that it can encourage equity. For example, these constraints can reduce the difference in outcomes for people in different zip codes who have the same risk profile. If AI-based engines are left unchecked, they can reinforce the inequities that lenders want them to eliminate.

There’s still more to be done.

Buying a home is a stressful process; identifying the right market, finding a home that fits the investor’s criteria, getting financing and closing on time can be challenging. An investor needs to study the market by researching statistics in the area, including housing prices, housing inventory, listing prices and days on the market. In addition, one must get prices for renovation materials and identify the ​​right contractors. As such, investors need adequate tools to analyze different markets and deals.

Years ago, determining a home’s value required a real estate agent. Along with large institutional investors, agents were primarily the only ones with access to this information on a large scale. Now, technology has leveled the playing field, and a real estate investor can log on to Zillow, Redfin or similar sites and learn about price, value and trends regarding nearly any property in the country. This has simplified the buying process, but more needs to be done. Here are a few areas the real estate industry could work to address:

• Developing a better experience for virtual walkthroughs: Today, there are solutions that allow for virtual inspections to avoid the hassle of scheduling an in-person visit, which can be challenging, particularly if the property is out of state. But there is an opportunity to further streamline the process by leveraging technology. Virtual reality headsets showed early promise but haven’t taken off as expected, and there’s a significant need to improve the way to get an on-the-scene feeling for a property without spending the time and money to visit in person.

• Providing more digital tools and products: Tackling the different steps and paperwork involved with buying requires a degree of know-how. For real estate investors, speed is crucial, as an investor might be in the process of acquiring multiple properties at the same time while competing with other investors. It can be cumbersome and tedious to manage the paperwork for multiple properties at the same time. For this reason, companies in the real estate space can also aim to create technology that further streamlines the process, provides transparency every step of the way and helps scale.

The area is ripe for disruption. The goal for the players in the real estate industry should be to make the process of buying and selling a home much more akin to buying and selling a car. If we do that, we can truly transform the real estate industry.

Source: How The Real Estate Industry Can Simplify The Investment Process

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Affordable Housing Crisis Demands ADUs And DADUs, PDQ

Rising mortgage rates mean fewer would-be buyers can afford first homes. That takes them out of the land of the American Dream, and places them squarely, and possibly interminably, back in renting country. These folks, who otherwise would have left the renting population, are instead adding to the cohort.

Their increased demand is helping propel monthly rents northward. Everywhere, it seems, the affordable housing crisis is growing, and there exists no indication it will be reversed or even slowed anytime soon.

If there are solutions to the crisis, one may be found in the concept of the Detached Accessory Dwelling Unit, or DADU. Known in some places as granny flats or coach houses, these compact dwellings are legally permitted on parcels of existing homes,

They provide additional housing options to those who otherwise likely wouldn’t have hope of finding one. And for that reason, many municipalities are making way for them. Seattle’s ADUniverse website is one example of how accepting they’ve become.

Johnston Architects

Pacific Northwest-based Johnston Architects has addressed the concept with its Twisp Cabin, which was originally designed as a vacation cabin located in the Methow Valley of Washington State. The home design has since proven remarkably adaptable.

It can be customized to almost any kind of home site or individual’s needs and has even turned up as a family home on Orcas Island, Washington. It can also be built from multiple materials, among them Cross-Laminated Timber (CLT). What’s more, it was designed to meet Seattle’s ultra-tough energy codes, the nation’s most rigorous.

The 1,300-square-foot Twisp Cabin, whose plans can be bought for $7,000, is one of a number of Johnston Architects’ customizable home designs available for purchase.

“We’ve seen housing prices increase year over year since the recession, to the point where a lot of residents couldn’t even qualify for their homes today if they had to buy them all over again,” says Jack Chaffin, a partner at Johnston Architects.

“With a chunk of their net worth tied up in the value of their houses, some homeowners, especially on fixed incomes, are vulnerable to economic downturns or unexpected expenses, like a health care crisis or increased property taxes. One way to increase affordable housing in urban areas and keep existing homeowners more secure is by building ADUs or DADUs . . .

[They] could be a solution to ‘aging in place.’ Build yourself a smaller house to live in and rent out your larger home to someone else.” Johnston Architects isn’t the only architectural firm getting in on the growing interest in ADUs nationwide. Read on for insights into two others, as well as their ADU plans.

Artisans Group

This award-winning, women-owned design studio has teamed with three municipalities in the Puget Sound area to deliver four distinctive designs featuring pre-approved construction sets eligible residents can obtain at no cost. Each of the designs might be appropriate as a backyard cottage, vacation home or adorable small dwelling.

In a prepared statement, the firm acknowledged that as many cities experience unprecedented growth, available housing stock is depleted and what housing does remain available grows ever more unaffordable. “Looking at current municipal codes, ADUs can provide an opportunity to increase the density of established neighborhoods without demolishing the neighborhood character,” the statement noted.

“However, designing a quality ADU that maximizes space and use within a minimal footprint is a challenge, takes careful consideration and is expensive for most people.”

In recognition, Artisans Group reported it got to work developing functional, beautiful and malleable predesigned ADUs, each offering savings from $25,000 to $40,000 in design fees. A number of these designs offer varying roof lines and pitch alternatives, as well as an array of entryway and view considerations.

“On a practical level,” the firm reports, “five people can purchase the same exact ADU plan and come away with five very different-looking ADUs.”

Shape Architecture

Denver, Colo.-based contemporary architecture firm Shape Architecture takes pride in designing homes that offer reduced square footage, smaller carbon footprints and lowered cost, yet meet clients’ needs for space. Homes include features highly familiar to Japanese designers, including sliding walls able to convert living rooms into guest bedrooms or family rooms into playrooms.

Shape Architecture crafted one of Seattle’s 10 pre-approved DADU designs and has built a number of DADUs across the country, some overcoming incredibly limited space parameters. In a prepared statement, the firm noted its ADU design experience has evolved into helping clients interested in multi-generational “family compounds” featuring attached or detached accessories.

Bottom line? If this admittedly limited sample is any indication, it appears very small dwellings may hold a key to helping address a very large national problem.

I launched my freelance writing career in 1989 and have since produced more than 5,000 bylined articles for a wide array of traditional and web-based

Source: Affordable Housing Crisis Demands ADUs And DADUs, PDQ

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2022 Housing Market: Will It Continue To Bubble Or Will It Burst?

Every month, there are thousands of searches in Google for terms related to: “Is there a housing bubble?” Clearly, it’s a question on many people’s minds. For this to be a bubble, it’s not just about high prices; investment needs to be driving demand way beyond where it should be.

So, is there a real estate bubble?

I don’t believe there is. Home prices are unlikely to fall by any significant measure. At best, prices will rise more slowly, at a rate that outpaces inflation (just not to the same extreme as this year).

It’s worth keeping in mind that historically speaking, housing bubbles have actually been quite rare. They may feel common because we all lived through one – but the 2007 crisis happened due to a series of events and decisions (such as relaxed lending standards) that would not occur today.

Have lenders been unscrupulous in who they lend to? It doesn’t seem so. Buyers today are extremely qualified. The median FICO for current purchase loans is about 42 points higher than the pre-housing crisis level of around 700, according to data from the Urban Institute.

There were many regulations and restrictions put in place after the 2007 crisis to help maintain a healthy housing market (such as Dodd-Frank) – and many banks were fined millions and even billions of dollars for their participation in lending fraud. They’re wary of getting fined again and so they opt to hold home buyers to high standards.

Speculation was rampant in the early 2000s. Adjustable rate mortgages, which tempted buyers with low introductory interest rates that rose dramatically once homeowners were locked into paying them, were much more popular (and much less regulated).

When interest rates drop, it encourages more investors to enter the market – because they can risk less of their own cash to do so. However, experts seem to unanimously agree that interest rates are going to rise by up to a full percentage point this year. This will help discourage overly-speculative investing as borrowing becomes more expensive – helping to stave off the possibility of a bubble.

The housing market collapsed in 2007 in part because many consumers had almost no equity in their homes – people were buying homes with no money down, and the riskiest mortgages required little proof that buyers could actually afford them. When the housing market was good, it was easy to simply turn around and sell your home if things didn’t work out.

But once the market dipped, many people discovered that their loans were worth more than the homes themselves. Since they had almost no equity in their homes, this meant they couldn’t sell without going into debt – making foreclosure the only option. Today, the average homeowner has over $150,000 worth of equity in their home – an all-time high, which is good.

In the years leading up to the housing crash, new home construction outpaced demand – which contributed to home prices dropping precipitously. Since then, however, new home construction has lagged behind, failing to keep up with a growing population. According to the National Association of Home Builders, the U.S. went from averaging between 9 and 11 million housing starts per decade throughout the 1960s to 2000, to just under 7 million homes during the 2010s.

Increased building regulations, the rising price of lumber/materials/labor, and lingering hesitation due to the crash all contributed to this – and as homes became more expensive to build, home builders were incentivized to build luxury homes rather than starter homes. While the construction industry seems to have hit a recovery point (almost a million homes were built last year), it will likely take years for supply and demand to balance again.

Will Home Prices Drop in 2022?

I’ve talked to experts in multiple real estate markets throughout the country. While some areas are hotter than others, one trend remains clear: demand is high and will likely remain high. Millennials and Gen Z are “coming of age” and placing more emphasis on owning homes as they form new households.

Meanwhile, the latest data from Zillow shows that the number of homes for sale in the U.S. dipped below one million this past December. For comparison: before the crazy bidding wars of 2021, there were an additional 220,000+ homes for sale a year earlier. Demand has yet to decrease, and inventory has actually dropped.

We’re still seeing buyers waive inspections, go all-in with their offers from the start rather than escalate, and go over the appraised value – and it’s been an entire year of this.

So when can we expect home prices to drop, or at least stop climbing so rapidly? My guess is that prices are unlikely to experience a notable dip within the next 5 years. However, we’ll eventually see the market reach more of an equilibrium between buyers and sellers. We can expect such a shift once certain things take place:

  • New home construction continues to increase, helping meet demand (and/or)
  • New technologies like home printing decrease the cost of production (and/or)
  • Cities alter outdated zoning laws to better accommodate growing populations (and/or)
  • Baby boomers – who own much of the US housing stock – begin aging out of their homes

All of these things have the potential to greatly impact the housing market, but none of them are happening overnight. We also don’t know what the average mortgage rate will look like in five years, but that could have a major impact on demand as well.

If you plan on buying a home, you shouldn’t delay meeting with an agent to discuss your options. If you’re thinking of waiting until home prices drop: don’t. You might end up renting forever.

I am the cofounder and CEO of Houwzer, a modern, socially responsible real estate brokerage and home services company focused on consumers. I am

Source: 2022 Housing Market: Will It Continue To Bubble Or Will It Burst?

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Mortgage Refinance Demand Spikes 18% as Interest Rates Stabilize, MBA Says

Homeowners are rushing to refinance their home loans as the opportunity to lock in a low mortgage rate is running out.

During the week ending Jan. 28, mortgage refinance demand jumped 18% from the previous week, according to the Mortgage Bankers Association (MBA). Still, mortgage refinancing activity is much lower than it was this time last year due to higher interest rates.

Although mortgage interest rates are on an upward trajectory, many borrowers may still benefit from refinancing, said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting.

“There’s still demand there from people who are going to benefit from a sub-4% mortgage rate,” said Kan. “We’ve been so used to a 3% mortgage rate for the past couple years that a 3.7% rate seems high, but there are definitely people out there who have a higher rate.”

The MBA expects the average 30-year mortgage rate to reach 4.0% in 2022, which means that homeowners will likely see more rate volatility throughout the year if they decide to wait to refinance. Keep reading to determine if you can still save money by refinancing your mortgage before rates rise further. You can compare current mortgage refinance rates on Credible for free without impacting your credit score, so you can estimate your potential savings.

Mortgage rates are currently steady but are likely to rise soon

Average 30-year mortgage rates spiked in the beginning of 2022 and have been hovering around 3.55% for the past three weeks, according to Freddie Mac. Rates also significantly increased in January for the 15-year loan term, which is popular among homeowners who are refinancing. Average 15-year mortgage rates have stabilized in recent weeks, though, currently sitting at 2.77%.

Although mortgage rates have remained stable in the past several weeks, they’re expected to rise further as the Federal Reserve continues to revise its monetary policy and rises the benchmark rate in 2022. The MBA’s Mortgage Market Forecast predicts that 30-year mortgage rates will average 4.0% in 2022 and 4.3% in 2023.

“I wouldn’t be surprised if we saw some weeks when rates dropped and refis increased between now and then,” Kan said.

With Fed rate hikes anticipated as early as March, it may be wise for homeowners to consider refinancing now to lock in a relatively low mortgage rate. You can visit Credible to compare rates across multiple mortgage lenders at once, so you can find the best offer possible for your financial situation.

Nearly 6M homeowners can still benefit from mortgage refinancing

Despite rising mortgage rates, about 5.9 million “high-quality” candidates could still save an average of $275 per month by refinancing their home loans, according to Black Knight. More than 1 million of these homeowners could save at least $400 on their monthly mortgage payments, and 661,000 of them could save $500 or more per month.

That’s because mortgage rates are still relatively low compared where they were a few years ago. Although the time to lock in a record-low mortgage rate may have passed in 2021, current mortgage rates are still much more favorable than in 2018 when they reached nearly 5%.

If you’re still paying a 5% mortgage interest rate, you may have the opportunity to save money on your monthly payments by refinancing to a lower interest rate or shorter loan term. Plus, it may be beneficial to tap into record-high levels of home equity with a cash-out refinance.

You can browse rates from several mortgage loan lenders in the table below, and use Credible’s mortgage calculator to estimate your monthly payments.

Source: Mortgage refinance demand spikes 18% as interest rates stabilize, MBA says | Fox Business

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Critics:

Rising interest rates are causing big headaches for mortgage lenders, especially those who depend most on refinance business. Demand is simply drying up.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 3.72% from 3.64%, with points decreasing to 0.43 from 0.45 (including the origination fee) for loans with a 20% down payment. That rate was 77 basis points lower the same week one year ago.

As a result mortgage refinance applications, which are highly sensitive to daily rate moves, fell 13% for the week and were 53% lower year over year, according to the Mortgage Bankers Association’s seasonally adjusted index. Rates have now been moving higher for five straight weeks.

“After almost two years of lower rates, there are not many borrowers left who have an incentive to refinance,” wrote Joel Kan, an MBA economist, in a release. “Of those who are still in the market for a refinance, these higher rates are proving much less attractive to them.”

Mortgage applications to purchase a home fell just 2% for the week and were 11% lower than a year ago. Buyers are actually more active now than usual, as some are hoping to get a jump on the popular spring market. With mortgage rates rising, and home prices still soaring, some are concerned they will no longer be able to afford the home they want.

At an open house last Sunday in Waldorf, Maryland, there were already three offers before potential buyers were even let in the door to have a look.

“We thought that because of the winter months that it would slack off a little bit, prices would start to come back down to normal, but that’s not happening. It’s anguish, it’s pain, it’s agony,” said Rondie Robinson, who was house hunting with his wife and daughter.

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Related contents:

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AVERAGE MORTGAGE CLOSING COSTS AND FEES TOP $6,000, STUDY FINDS

VETERANS BORROWING VA LOANS AT A RECORD PACE, STUDY SHOWS

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