While there have been signs recently that the market may be shifting toward the favor of home buyers, prices are still on the rise in many areas around the country. The median sales price in July is up 6% nationwide, year over year. But if buyers are hoping to wait it out, keep in mind that mortgage rates are increasing. The typical mortgage payment jumped over 13% in the past year, a result of a 0.6 percentage point increase in mortgage rates, according to CoreLogic, a real estate research firm.
Mortgage rates are expected to keep rising, too. CoreLogic predicts a further 10% increase in buyer's mortgage payments by next July, rising by twice the expected rate for home prices. Rates are expected to increase by about 0.43 percentage points between this year and next, while prices are predicted to only rise by 1.8% over the same period.
Based on these projections, CoreLogic researchers predict the inflation-adjusted typical monthly mortgage payment to rise from $937 in July 2018 to $1,003 by July 2019. Furthermore, real disposable income is expected to increase by only around 2.5 percent over the next year. That means “home buyers would see a larger chunk of their incomes devoted to mortgage payments,” CoreLogic researchers note.
While mortgage payments are on the rise, they’re still low by historical standards, CoreLogic researchers note. In July 2018, the typical inflation-adjusted mortgage payment still remained 26.8 percent below the all-time peak of $1,280 in July 2006. The average mortgage rate in June 2006 was 6.7 percent compared to 4.5 percent in July 2018.
With mortgages expected to rise, it is important for buyers to note that their buying power will continue to decrease.
A home that costs $1.5m bought today with approximately 20% down would have a mortgage of approximately $6,150. If purchased a year from today at the same price, that same home is expected to have a monthly payment of $6,500.
The difference comes out to an approximate $350 a month, or $4,200 a year.
With rate increases expected to outpace home price decline, now is a great time to start your home search.
Source: Steven Thomas - Orange County Housing Report
The current inventory has not reached a peak. Typically, the active listing inventory peaks in the summer market, sometime between July and August. This year, it does not look like it will reach a peak until October, around the mid-point of the Autumn market. In the past month, an extra 15% more homes were placed on the market compared to last year at this time. The peak has also been delayed due to demand being down considerably, now at its lowest levels since 2007. When demand is down, fewer homes are pulled from the active listing inventory as pending sales.
Such a delayed peak is a strong indicator of a much slower spring for the following year. With the current market set to peak sometime in October (as opposed to when it typically peaks in August), it will not have as much time to "catch up," especially with decreasing demand. As a result, more homes will be on the market this coming spring, leading to more seller competition.
Market time also saw a noticeable change from previous years. Typically, the market time (days a house is on the market) flattens during the summer months. This is due in part to less homes coming on the market at this time, as families with children head back to school (we see drops in demand for similar reasons). This year, a sizeable drop in demand, along with a consistently growing active inventory (which has yet to peak) have contributed to the atypical spike in market time we're now seeing. at around 100 days, we are now solidly in a balanced market, a market that does not favor the buyer, nor the seller. This movement may pave the way for a coming buyers market, something we would see for the first time in years.
These shifts in the long-standing seller's market we have become accustomed to have cooled the market considerably,leading to less bidding wars and longer time spent on the market. These shifts will most likely not represent a drastic change to the balance between buyers and sellers any time this year, but they could be the signs of changes to come. For now, this evolving market has been more challenging for sellers than what they have been used to. This new equilibrium necessitates a more cautious approach to the housing market.
See below for each respective city's market time statistics:
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