Interest rates

Mortgage interest rates play a big role in the housing market, impacting demand, home prices, and affordability. They also fluctuate daily based on a whole slew of factors, including Federal Reserve policy, the bond market, investor interest in mortgage-backed securities, and, of course, inflation.

In early 2021, mortgage rates hovered around all-time lows, according to Freddie Mac. The average rate on a 30-year, fixed-rate mortgage was just 2.74% in January, up from 3.62% the year before and 4.76% a decade prior.

Housing inventory

Housing inventory — or the supply of homes that are currently available for purchase — is another important factor in the housing market, too. When inventory is low and demand is high, it creates a seller’s market. Home prices rise, bidding wars erupt, and sellers have the upper hand in negotiations.

If inventory is high, on the other hand, buyers tend to have the advantage. In a buyer’s market, there are more available listings than there are buyers to purchase them. This slows down price growth and makes the market less competitive overall.

As far as today’s inventory goes, supply has been very low in recent years, and the coronavirus pandemic only worsened things. With sellers leery about having strangers in their homes — not to mention loads of economic uncertainty — the number of for-sale listings plummeted in 2020, at one point reaching its lowest level ever recorded. Listings have since recovered slightly but still remain fairly low. It’s possible widespread vaccinations will help loosen supply constraints and get sellers back on the market, but, of course, only time will tell.

Delinquencies and foreclosures

Mortgage delinquencies and distressed properties like foreclosures and REOs are another part of the market to pay attention to, especially if you’re an investor. Both of these tend to rise in times of economic hardship. (Case in point: During the financial crisis over a decade ago, there were around 3.8 million foreclosures.)

Though the pandemic has certainly caused some economic trouble — not to mention plenty of job loss — the same isn’t occurring this time around. That’s thanks to a variety of foreclosure bans (one from the White House for government-backed properties and another from the Federal Housing Finance Agency for those with Fannie Mae– and Freddie Mac-owned loans). As of early 2021, foreclosures were actually down 80% due to these measures.

Housing market cycles and crashes

Real estate, along with the overall economy, tends to be cyclical. There are booms and busts, and as we saw with the housing crash back in 2007-2008, some of these extremes can get pretty bad.

Fortunately, most experts don’t think we’re nearing another crisis just yet. Though the economy is in a recession, there are a few key differences in today’s housing market versus those of downturns past.

For one, property owners have record levels of equity. Between Q3 2019 and Q3 2020, homeowner equity jumped by $1 trillion, and according to recent data, a mere 3% of properties have negative equity. This equity protects borrowers in the event their homes lose value, giving them a sort of buffer if the market turns.

Lending standards are also stricter than they once were, so homeowners likely have fewer debts and better credit profiles; overall, they’re more financially equipped to handle the mortgages they’ve taken out. On top of all this, there are low interest rates to consider. The Federal Reserve has committed to keeping the federal funds rate around zero until at least 2023. This should keep mortgage rates low and housing demand high for the foreseeable future.

Now that we’ve covered the basics, let’s look at a few more timely trends we’ve seen in the last few weeks.

Here’s what’s happening in the real estate market in August 2021.

1. Federal protections are expiring

The day many investors and landlords have longed for is finally here: As of August 1, the CDC’s ban on evictions expires, and landlords will soon be able to start evicting nonpaying tenants. To be clear, there are still rental assistance programs and state and city measures that can help tenants who are behind, but for those unable to leverage these programs (or in a place with no protections), eviction may be the only course of action for a landlord.

The national foreclosure moratorium also expires at the close of July, so mortgage servicers will be able to start filing notices fairly soon. Still, they’ll have some new CFPB-enforced hoops to jump through (like attempting loss mitigation with the homeowner). When you throw in the pretty hefty timelines on foreclosures in some states (over 3,000 days in Hawaii!), it could be a while before investors see more distressed properties hit the market.

2. Inventory is inching up

Listings are finally starting to climb, albeit slowly. According to Realtor.com, new listings were up 9% in the week ending July 24, for the second week in a row, and the market has seen year-over-year inclines in 15 of the last 18 weeks.

Another good sign? The gap between today’s total inventory and last year’s is shrinking. Current inventory is now down just 31% compared to a year prior. At the start of July, it was 35%.

3. Demand is decreasing — and competition is slowing down

There are definitely signs that buyers are getting burned out. For one, sales are dropping. Pending sales dipped 11% from their 2021 peak, according to Redfin, and the speed at which homes are selling slowed too. The typical property now sells just 19 days faster than this time last year, according to Realtor.com. In the first week of July, it was 23 days.

Finally, mortgage applications — at least for purchase loans — have decreased as well. According to the Mortgage Bankers Association (MBA), applications to buy a home were down 18% over the year last week and have declined for three months straight. Purchase applications are now at their lowest point since May 2020.

4. Rates are still super low

Mortgage rates dipped below 3% back in April and have largely stayed there ever since. Last week, the average rate on a 30-year mortgage came in at a mere 2.8%, while 15-year loans saw an average 2.1% — a record low for these loans.

As First American reported, the low rates are making housing slightly more affordable (homebuying power increased 8% in May), but sky-high price growth has held progress back in this department.

5. Investors are busy

Investors have apparently taken note of the market’s improving conditions and are acting fast. According to Redfin, investors bought a whopping $49 billion in homes during the second quarter of the year. By volume, investor purchases were up 15.1% over Q1 and 106.7% from Q2 2020 (when the pandemic began making an impact).

iBuyers are also getting back in the game. Purchases from iBuying companies were up 20% over the last quarter of 2020.

6. Home price drops are becoming more common

Overall home prices are still on the rise (up 18% over the year, in fact), but price drops — or the number of sellers reducing their list price while already on the market — have increased.

Redfin’s data shows that 4.1% of listings had price drops in the week ending July 11, inching the market back toward 2019 levels. Sale-to-list price ratios are also plateauing, hopefully indicating a slowdown in bidding wars and ever-escalating offers.

7. Rents are skyrocketing

For those investors with rental properties, things have really turned around. Reports last week showed rents clocking in at their highest point in almost two years. What’s more, in 44 of the biggest 55 markets, rents are the most expensive on record. Apartments rents, specifically, are also up.

The bottom line

Real estate trends are always changing. Want to stay on top of these latest trends and happenings? Contact Cheryl@caprealtygroup.com for more information about your specific neighborhood trends.