04/25/2022
Two headlines I have seen on my news feeds the past 48 hours: “Housing Prices About To Be
Hammered” - Wall Street
24/7 and “The Economic Shock Hitting The Housing Market is Starting to do Some Damage” –
Fortune
As an agent you can only imagine what your buyers and sellers must think when they read
these articles. I don’t know
the credentials of either writer, but I found some large gaffe’s in both stories. It feels like there is
a rush by some in the
media to be the first to predict a housing bubble in 2022 much like that of 2008. The problem I
see is that the writers
2
are making predictions about the future without solid facts to back their arguments. But how are
your buyers and
sellers supposed to know this? This is where you need to use all of your communication
platforms to your database and
prospects to provide the truth about the current market condition and what will be impacting the
market for the
balance of the year.
After the Fed comments last week, I believe we will see a 6% rate for the 30 year mortgage
sometime this calendar
quarter, but I am not panicked. Yes this will slow the demand, but with the underlying factors for
housing, values will
flatten not burst as the media is eagerly predicting. Here are the underlying factors that support
these truths: 1) The
consumer is stronger today than in 2008; 2) Mortgage credit standards are much higher; 3)
Affordability; 4) Inventory;
and 5) Population Demographics.
Stronger Consumer
Nationwide the average FICO score today is 703 versus 690 in 2008. This speaks to the health
of the consumer and
more broadly the economy. Plus with the previous stimulus deals for the covid slowdown, the
average consumer debt
only increased by $195 from the previous year. From 2007 to 2008 the average consumer debt
increased by
$3,843. Plus savings rates are near all-time highs! This is a driving factor for demand that is
contributing to inflation and
increasing house prices.
Higher Mortgage Standards
In 2008 FNMA allowed approvals with a debt to income ratio of 65%. Today however it is
capped at 50%. In addition in
2008 the average FICO for a new loan was 717, versus 743 last year, AND the median debt to
income ratio was 41% in
2008 versus 37% last year. As a result the default rates today are only 2.5% versus the 13.8%
in all mortgage in 2007!
There will be no glut of homes coming to market due to financial stress.
Affordability
The affordability index measures what percent of the median income is needed to pay the
mortgage payment for a
median priced home. In 2007 this peaked at 35%! Last year it finished at 26%, despite the
rapidly rising home
prices! This lower number is a reflection of lower interest rates, and much higher incomes. With
the recent run-up to a
5% rate, Black Knight reported their affordability index increased to 29% Friday This will be the
key indicator to watch
over the next 6 – 9 months as consumer buy “payments” not “purchase price”.
Inventory
In 2007 the supply of homes was equal to 7 months’ worth of sales. Last month NAR said it was
1.7 months. Per RAL at
the end of February the existing inventory at month end for Lincoln was 0.4 months or 12 days.
THINK ABOUT THAT, WE
HAD A 12 DAY SUPPLY OF HOMES. With recent numbers in the 40’s this is down to a 5 day
supply! I think if we use the
number of days’ supply versus the month’s supply used by the industry, it helps the consumer
understand the market
better and grasp why people are willing to pay so much over the list price.
Demographics
The millennials are moving into the prime buying season of life providing a steady demand for
the next 5-10 years. They
are facing climbing rents and ownership will make sense financially despite the higher prices
and higher rates. I am
seeing clients buy rental properties and increasing the rents 20-30% and getting their property
leased! This will support
and justify buying versus renting, and brings more investors in to compete on price!
Please use these facts to educate your clients about the market so they can make an
informed buying
decision. I am more than happy to meet with you and your clients to talk about
mortgage strategies and how
to win the bid and finance their home without fear in 2022!
