Building Materials Press Even Higher

New-home buyers are facing higher prices, and a big reason is escalating building costs. Building material prices are up 19% over a year ago, according to a report from the Bureau of Labor Statistics. Material costs have jumped by about 36% just since the pandemic began. Many builders are passing on those higher costs to home buyers.

The price of a new home continues to climb and reached a median sales price of $436,700 in March. That is up 21% compared to a year ago, according to the Commerce Department. Only 14% of new-home sales in March were priced below $300,000. A year ago, it was 34%. Builders have cited higher development costs and materials as the main reasons for the price jumps.

The rises in material costs continue even as softwood lumber prices take a pause from recent record highs. Read more: Lumber Prices Tumble to Lowest Level of 2022

But the costs of other products necessary to build a home continue to soar, such as steel mill products, ready-mix concrete, and gypsum products, which are used for drywall.

Source: “Building Materials Prices Move Higher, Up 19% Year Over Year,” National Association of Home Builders’ Eye on Housing blog (May 12, 2022)

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Cities With the Most Older, Newer Homes

What’s better: a brand-new home or an older home? While buyers may have preferences, costs can be a factor. Some real estate experts say selling costs are up to 30% lower for older homes compared to newer ones. But others argue that older homes can require repairs that may skew the true costs.

Whatever the preference, each market has its balance of new and older homes. Point2 Homes, an online real estate marketplace, measured the current inventory of old and new homes for sale in the nation’s largest cities to find the highest concentration of homes that are more than 50 years old compared with the cities that have the most homes for sale that were built in the past 10 years. The study defined an older home as those built no later than 1970. New homes were considered built in or after 2012.

Detroit and Baltimore have the oldest homes for sale in the country, the study finds. Ninety-two percent of homes for sale in Detroit are considered older and built prior to 1970. In Baltimore, 83% of the current housing stock for sale is at least 50 years old.  

Meanwhile, newer homes abound more in the South, led by El Paso, Texas. El Paso is the only city in the study that passes the 50% mark for newer home listings.   Source: “In With the New or In With the Old? Top U.S. Cities With Largest Shares of Old and New Homes for Sale,” Point2homes.com (May 11, 2022) Comment

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Buyers Resilient Against Rising Rates

Mortgage rates continue to push higher, but home buyers aren’t spooked. Mortgage applications for home purchases moved 5% higher last week compared to the previous week, and buyer competition remains elevated in many markets.

Even as costs rise, buyers remain focused on their homeownership aspirations. The 30-year fixed-rate mortgage rose to a 5.30% average last week, up from 2.94% just a year ago, Freddie Mac reports.

High inflation and the Fed’s tightening policy are the main drivers behind rising rates, Nadia Evangelou, National Association of REALTORS®’ senior economist and director of forecasting, writes on the association’s blog.

Mortgage rates have risen more than 2 percentage points since the beginning of the year. The monthly mortgage payment has increased by about $520 since the first week of January, when rates averaged 3.2%, Evangelou notes.

Still, “home buyers continue to show resilience even though rising mortgage rates are causing monthly payments to increase by about one-third as compared to a year ago,” says Sam Khater, Freddie Mac’s chief economist. “Several factors are contributing to this dynamic, including the large wave of first-time home buyers looking to realize the dream of homeownership. In the months ahead, we expect monetary policy and inflation to discourage many consumers, weakening purchase demand and decelerating home price growth.”

Freddie Mac reports the following national averages with mortgage rates for the week ending May 12:

• 30-year fixed-rate mortgages: averaged 5.30%, with an average 0.9 point, up from last week’s 5.27% average. Last year at this time, 30-year rates averaged 2.94%.
• 15-year fixed-rate mortgages: averaged 4.48%, with an average 0.9 point, dropping from last week’s 4.52% average. A year ago, 15-year rates averaged 2.26%.
• 5-year adjustable-rate mortgages: averaged 3.98%, with an average 0.3 point, rising from last week’s 3.96% average. A year ago, 5-year ARMs averaged 2.59%.

Freddie Mac reports commitment rates along with average points to better reflect the total upfront cost of obtaining the mortgage. Source: Freddie Mac and “Instant Reaction: Mortgage Rates, May 12, 2022,” National Association of REALTORS®’ Economists Outlook

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Renters Facing Bidding Wars

Bidding wars have grown common in home sales, but now they’re part of the process of renting an apartment as well. As demand outstrips supply, renters are trying to outbid others to get the property they want.

“Properties are definitely in short supply, and demand is high,” Bruce Ailion, a real state pro and attorney for Atlanta’s RE/MAX Town and Country, told realtor.com®. “For example, we had a property that had been renting for $1,260 a month. When the tenant left, we put the property on the market at $1,595 and had over 600 inquiries and close to 300 applications. That means we were underpriced for the current climate.”

Some tenants will offer over the listed price to get their application ahead in the stack. Property owners may even return to applicants and ask them to submit their “highest and best offer” in such cases. Some owners are specifying in ads for their rental units that prospects should be ready for a bidding war and should submit their very highest offer.

Austin, Texas, real estate pro Jasen Edwards told realtor.com® that in the first quarter of the year, rentals in the suburbs were sold out for 35% higher than the listed asking price.

In the Los Angeles rental market, “we’re seeing bidding wars with 10-plus offers leading to leases going for substantially over ask,” Blake Stargel, a real estate professional with Compass, told realtor.com®. “This is now the norm. According to local agents, while 10% over asking is common, particularly hot properties can go for 1.5 times the listed monthly rent.” Source: “Inside the Wild World of Rental Bidding Wars—and What It Takes to Win,” realtor.com® (May 11, 2022)

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Americans Fear Inflation’s Impact

Inflation is running at a 40-year high as the costs of everyday goods rise. Americans are increasingly concerned about how inflation will affect their personal finances and their long-term financial goals, including homeownership.

More than half of about 1,000 U.S. adults surveyed in March said that higher costs may have a “big negative impact” on plans like buying a home or retiring comfortably, according to the Country Financial’s Security Index. About 90% of those surveyed are concerned about inflation.

Adding to their inflation concerns, Americans also are concerned about stock market volatility, rising interest rates, and recession fears.

The average consumer is spending $500 more a month on living expenses than a year ago, according to a National Association of REALTORS® blog post from late April.

Home buyers may need to lower their budgets to keep pace. House hunters would be smart to search for a home that is about $40,000 cheaper than they would have a year ago as a result of the rising costs, Gay Cororaton, an NAR research economist, writes on the association’s blog.

“The increased cost of spending on other items impacts the ability of the average consumer to have enough leftover income to purchase a home,” Cororaton writes.

Troy Frerichs, vice president of investment services at Country Financial, told CNBC that consumers should create a budget and consider how the increase in costs may affect monthly household budgets and how it affects long-term financial plans. Some financial plans may need to be changed, he says. Source: “More Than Half of Americans Say Inflation May Have a ‘Big Negative Impact’ on Long-Term Financial Goals, Survey Finds,” CNBC (May 9, 2022)

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Tips for Home Buyers Purchasing With Friends, Family

A growing number of consumers are exploring unconventional pathways to homeownership, including buying a home with a friend, family member, or partner, according to the National Association of REALTORS®’ 2021 Home Buyers and Sellers Generational Trends Report.

With rising costs, home buyers may find pooling their money together can put homeownership more within reach.

“This strategy can help ease the financial burden of purchasing a home to some degree,” says Glenn Brunker, president of Ally Home. “But buyers should be prepared to navigate the potential risks.”

Brunker recommends that those considering purchasing a home with friends, family members, or partners keep some points in mind:

1. Finalize and stick to a budget. Buyers should set their budget prior to starting their home search. The budget should include not just how much home they can afford but also how they will manage the additional expenses of homeownership, like closing costs, taxes, lawyer fees, utilities, maintenance, and more. Consider how a lower budget may offer the chance to save more or even handle the mortgage payment on your own. “Ideally, the division of these costs should be put in writing to avoid any future conflicts as a result of planned or even unexpected costs,” Brunker adds.
2. Establish how the property will be titled. A legal professional can also help both parties determine how they will title the property, Brunker says. For example, four friends may be purchasing a home together, but one makes the majority of the down payment. These buyers might structure a tenancy in common agreement so one party owns 40% of the home and the other three each own 20%.
3. Consult with a legal professional. Along with a lender and real estate professional, buyers should meet with a title agent or real estate attorney to ensure all buyers understand the legal options available and implications of the agreement, Brunker says. “This professional can help answer important but often overlooked questions like, what is the exit plan if one party wants to move? What are the rights of survivorship?” Brunker says.

Source: Ally Home

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Average Closing Costs By State

As home prices and mortgage rates are increasing, so are closing costs. The average payment for mortgage closing costs for a single-family property was $6,905 in 2021 (including transfer taxes), a 13.4% annual increase, according to CoreLogic’s ClosingCorp, a real estate closing cost data and technology resource.

The average price of a home in the U.S. rose by more than $50,000 last year, while the average purchase closing cost climbed by $818, including taxes, and by $390 when excluding taxes, according to the report.

“As the mortgage industry comes off two years of record-low interest rates and red-hot consumer demand, lenders are now pivoting to address increasing headwinds from higher loan origination costs and lower origination volumes,” says Bob Jennings, an executive with CoreLogic Underwriting Solutions. “The Mortgage Bankers Association recently reported lender origination costs show a 13.2% year-over-year increase, which corresponds closely to the 13.4% increase we were seeing on purchase mortgage closing costs. As the market tightens in 2022, it will be interesting to see how lenders and borrowers respond and how these key metrics move.”

The states with the highest average closing costs in 2021 (including transfer taxes) were Washington, D.C. ($29,888), Delaware ($17,859), New York ($16,849), Maryland ($14,721), and Washington ($13,927), according to the report.

On the other hand, the states with the lowest closing costs (including transfer taxes) were Missouri ($2,061), Indiana ($2,200), North Dakota ($2,501), Wyoming ($2,589), and Mississippi ($2,756).

Source: CoreLogic’s ClosingCorp

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Renters Squeezing Into Tighter Spaces

Apartment sizes have decreased over the past decade, as has the amount of living space per renter, according to a new study from RentCafe. During the pandemic, when more people were spending more time at home, the feature renters may have noticed most is their cramped corridors.

Multifamily experts say there is a need for more space and privacy for tenants living in apartments, but inventory shortages mean renters must make compromises. Many renters have been drawn to single-family rentals since the pandemic, but inventories are tight in that sector as well.

Over the last decade, the total apartment size has been gradually declining, from 943 square feet back then to an average of 913 square feet now, according to RentCafe’s recent study. The reduction has taken place while the number of renters per unit has remained relatively constant.

California renters have the least personal space, according to RentCafe’s analysis.

Meanwhile, renters tend to find the most personal space in units in the Midwest, followed by the South.   Source: “Cities With Most Apartment Space Per Person in 2022: Renters Live Largest in Midwest,” RentCafe (May 5, 2022)

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Homeowners Delay Needed House Repairs

Homes aren’t perfect, and they are often in need of repairs and maintenance. The average home is in need of about $3,150 worth of repairs that haven’t been made yet, according to a new survey of more than 1,000 homeowners conducted by consumer information website Consumer Affairs.

About one in four homes are in need of serious repairs. Forty-five percent of homes are less safe due to those neglected repairs, the study finds. The average homeowner waits more than 10 months to make a critical repair on the home.

Some homeowners inherited needed repairs when they first purchased a house. Forty-three percent of homeowners say they hadn’t made repairs that were needed when they purchased the home.

The expense is the leading reason homeowners have delayed fixing issues. More than half of homeowners surveyed say they don’t have much saved up to pay for home repairs. Only 41% of homeowners say they could afford a $500 repair out of pocket, and that percentage drops to 28% for those who could afford a $1,000 repair.

Source: “Holding Off on Home Repairs,” Consumer Affairs (March 28, 2022)

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Sellers May Nab Highest Price Premiums in May

Home sellers may find the best opportunities to watch their profits peak this month, according to a new study from ATTOM Data Solutions, a real estate data firm. The spring and summer months are the best times of year to obtain the highest home seller profits, according to ATTOM’s analysis, based on home sale trends over the past 11 years.

The months of May, June, and July offer seller premiums of 10% or more above market value.

The top 15 days to sell are led by May 23, May 27, May 16, May 20, and May 19, according to the study. All five of those dates offer a seller premium between 15% and 18%, according to the study.

“Homeowners looking to maximize the price premium they can claim on their homes should sell their properties in May, June, and July when buying activity is at its peak,” says Rick Sharga, executive vice president of market intelligence at ATTOM.

Source: ATTOM Data Solutions

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