{"id":3599,"date":"2024-07-22T16:20:13","date_gmt":"2024-07-22T16:20:13","guid":{"rendered":"https:\/\/gpswp.com\/paladinfinancial\/?p=3599"},"modified":"2024-07-22T16:20:14","modified_gmt":"2024-07-22T16:20:14","slug":"housing-market-update","status":"publish","type":"post","link":"https:\/\/gpswp.com\/paladinfinancial\/articles\/monthly-market-reflection\/housing-market-update\/","title":{"rendered":"Housing Market Update"},"content":{"rendered":"\n<p>by Tyler Ellegard, CFA<\/p>\n\n\n\n<p>The post-COVID 19 era of housing has been a unique time in history. We\u2019ve gone from all-time low rates (creating nearly unprecedented bidding wars) all the way to the fastest increase in interest rates in history (leading to much higher costs and significantly lower housing activity). Rising property prices from a supply and demand imbalance, coupled with rising interest rates, have created an environment where homeownership is an increasingly challenging scenario for many. Both potential buyers and sellers are watching closely the potential actions of the Federal Reserve as buyers and sellers try to find a middle ground, but what they consider the true \u201cvalue\u201d may be far apart.<\/p>\n\n\n\n<p>The significant rise in mortgage rates has played a substantial role in the affordability of many families in their pursuit of owning a home. To showcase this, the picture below shows the difference between the mortgage payment, based on the same home value, at the prevailing 30-year average fixed mortgage rates in 2020 versus the current rate in May 2024. &nbsp;The change in rates is responsible for an over 50% increase in the monthly payment, even when the price is at the same level.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img src=\"https:\/\/gradient-websites.s3-us-west-2.amazonaws.com\/news\/documents\/kma1QLErAolUBBmtr5K5ZEY05r9E8xoBvVdHIm74.png\" alt=\"\"\/><\/figure>\n\n\n\n<p>However, home prices increased roughly 45% since May 2020. The picture below reflects the rise in interest rates coupled with the increase in the median home price in the US. It shows that when price increases and interest rates are factored in, the median home monthly payment is now more than 120% higher than it was in 2020.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img src=\"https:\/\/gradient-websites.s3-us-west-2.amazonaws.com\/news\/documents\/saLfwaic7JlFofEPbJi998ZezH7901qDQbsodFpf.png\" alt=\"\"\/><\/figure>\n\n\n\n<p>Additionally, based on the Bureau of Labor Statistics (BLS) Average Hourly Earnings growth, earnings have increased 17.4% during that same period (May 2020 to May 2024).<sup>1<\/sup>&nbsp;This means, for the average homebuyer, wages are higher but the relative cost to purchase a home is significantly more costly now than it was in 2020.&nbsp;&nbsp;<\/p>\n\n\n\n<p>Mortgage rates not only affect demand and cost, but they can also affect a seller\u2019s willingness to change. New listings data from Redfin shows that May of this year experienced the lowest number of homes listed for that month going back to 2012.<sup>2<\/sup>&nbsp; Additionally, the graph below shows the 30-yr mortgage rate for a new loan in black and the average existing mortgage rate in gray.<sup>3<\/sup>&nbsp;The data shows that for many years, the average existing mortgage loan rate declined (gray line) and is now significantly below current rates. So, as a homeowner, in order to transition from one house to another (presuming the owner will borrow money to do so), their new mortgage rate is likely to be significantly higher than the rate they have on their current home.&nbsp;<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img src=\"https:\/\/gradient-websites.s3-us-west-2.amazonaws.com\/news\/documents\/B1DoYiSxK6S79AG4VYNE5HTQPupcgOtWGPCqLPdd.png\" alt=\"\"\/><\/figure>\n\n\n\n<p>Many prospective buyers and sellers are watching the actions of the US Federal Reserve (\u201cFed\u201d). Should the Fed lower their benchmark interest rate, other rates like the 30-yr mortgage rate may fall as well. These actions would create more affordability for prospective buyers as well as an opportunity for prospective sellers to list their homes. At this time, the Fed is not expected to reduce their benchmark rate to a level that would significantly change the current housing dilemma. As it stands, the Fed is only expected to cut interest rates one to two times this year shown by the orange line in the graph below.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img src=\"https:\/\/gradient-websites.s3-us-west-2.amazonaws.com\/news\/documents\/cuSM5dGhi4azOrsthANlqayVKsnJQ5hrIZVJ77GG.png\" alt=\"\"\/><\/figure>\n\n\n\n<p>The housing market can have a significant influence on economic growth and consumer sentiment and spending. As a result, it is important to us to understand the dynamics of the market and how changes to interest rates could affect supply and demand. It is our opinion that prices aren\u2019t likely to fall significantly because we believe there is a consistent source of demand from population changes (millennials especially). Further, we believe that, absent a material change to economic trends, there is significant pent-up demand in the housing market from consumers that are waiting for more attractive entry points on mortgage rates. As a result, we are not forecasting a housing decline like we experienced in 2007-2009, but instead think that housing trends and activity could be higher after this recent period of pause.<\/p>\n\n\n\n<ol><li><a href=\"https:\/\/fred.stlouisfed.org\/series\/CES0500000003\">https:\/\/fred.stlouisfed.org\/series\/CES0500000003<\/a><\/li><li><a href=\"https:\/\/www.redfin.com\/news\/data-center\/\">https:\/\/www.redfin.com\/news\/data-center\/<\/a><\/li><li><a href=\"https:\/\/www.nytimes.com\/2024\/04\/15\/upshot\/mortgage-rates-homes-stuck.html\">https:\/\/www.nytimes.com\/2024\/04\/15\/upshot\/mortgage-rates-homes-stuck.html<\/a><\/li><\/ol>\n","protected":false},"excerpt":{"rendered":"<p>by Tyler Ellegard, CFA The post-COVID 19 era of housing has been a unique time in history. We\u2019ve gone from all-time low rates (creating nearly unprecedented bidding wars) all the way to the fastest increase in interest rates in history (leading to much higher costs and significantly lower housing activity). Rising property prices from a [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[33],"tags":[],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v19.7.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Housing Market Update - Paladin Financial<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/gpswp.com\/paladinfinancial\/articles\/monthly-market-reflection\/housing-market-update\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Housing Market Update - Paladin Financial\" \/>\n<meta property=\"og:description\" content=\"by Tyler Ellegard, CFA The post-COVID 19 era of housing has been a unique time in history. 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