Novice Sellers

With soaring home prices and high demand, homeowners are finding it a great time to sell. But some sellers—particularly first-timers—may be so caught up in the headlines about the rosy market that their expectations may become clouded.

Real estate professionals shared with realtor.com® some of the mistakes of rookie home sellers in the current market:

Unrealistic price expectations: It’s a seller’s market, but that doesn’t mean a sky-is-the-limit pricing strategy will still work. “First-time sellers often erroneously believe that the list price means the desired purchase price,” Lindsay Reishman, founding partner at The Reishman Group in Washington, D.C., told realtor.com®. “In fact, the list price simply indicates an approximate appropriate price, and its purpose is to drive interest in the property.”

Accepting the highest offer: Buyers can make some giant bids to beat out the competition, but those offers can fall apart. Real estate pros say sellers can become so focused on a number that they overlook the reliability of a bid. Home offers can fall apart for a number of reasons, including financing, appraisals, or inspections. “In this market, it’s not uncommon for a buyer to submit an offer for a home, sight unseen,” Deborah Ann Spence, a broker at Fierce Real Estate Corp. in Bala Cynwyd, Pa., told realtor.com®. “Then, if the buyer doesn’t like what he eventually does see, the offer can be withdrawn and the property is likely to lose traction.”

Trying to FSBO: “For sale by owner” may be tempting to homeowners who believe the seller’s market offers them an opportunity to DIY their home sale. However, the FSBO route could limit the home’s exposure to larger pools of buyers since FSBOs can’t be listed on the multiple listing service. Also, even if the home does get buyer attention, a real estate agent by the seller’s side is critical to navigating the process and paperwork and sorting through multiple offers.

View more common slip-ups of first-time home sellers at realtor.com®. Source: “8 Things First-Time Home Sellers Often Get Wrong in Today’s Crazy Market,” realtor.com® (March 9, 2022)

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Reprinted with permission

Americans Fear Even Higher Rental Costs

Rents have been climbing higher and higher, and Americans have felt it in their wallets. A record number of Americans say they expect rents will rise even more over the next year as well, according to a newly released Fannie Mae survey.

Sixty-nine percent of respondents said rental prices will rise. Consumers expect rents to increase by 7.1% over the coming year.

“Persistent increases in asking rents will eventually push up the average rent of the entire stock of units on the market,” the Federal Reserve Bank of San Francisco wrote in an economic brief last month.

The median rent for a one-bedroom apartment rose to an all-time high in February, according to Zumper’s National Index.

The National Mortgage News reports that rents can be a lagging indicator in the Bureau of Labor Statistics’ consumer price index. Most renters don’t see a change until their lease is renewed or they relocate. So many tenants may not have yet experienced the worst of the hikes in asking prices, they note.

Rents in New York jumped 33% between January 2021 and January 2022, according to data from the online listing site Apartment List. That is nearly double the national rate and the highest increase of the 100 largest cities tracked by Apartment List.

“We’re seeing that rents have returned and basically surpassed where they were pre-pandemic,” Nancy Wu, an economist with StreetEasy, a real estate website, told The New York Times.

Nationwide, rents rose nearly 18% in that period, according to Apartment List’s data. Researchers found that even cities that didn’t see a significant decline early in the pandemic, such as in Tampa, Fla., and Phoenix, have still seen large jumps in rents.

Many renters may be aspiring home buyers. But they may be feeling priced out there, too. Home prices have been rising by double-digit percentages over the past year. Forty-six percent of consumers recently surveyed in February said they believe home prices will continue to rise over the next 12 months, and 67% expect mortgage rates to increase as well, according to a separate Fannie Mae consumer sentiment survey. Source: “Record Share of Americans say Rents Will Keep Rising This Year,” National Mortgage News (March 7, 2022) and “Rents Are Roaring Back in New York City,” The New York Times (March 7, 2022)

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Mortgage Rates Could Hamper Affordability

About 87.5 million households are unable to afford a median-priced new home, according to data from the National Association of Home Builders. If the new-home market prices were to rise by just $1,000, an additional 117,932 would be priced out.

Mortgage rates also could further hamper household affordability. Many economists have predicted rates will rise over the course of this year.

NAHB researchers provide an example of how affordability erodes with rising rates: For a new home in 2022 with an estimated median price of $412,506 and a 30-year fixed-rate mortgage of 3.5%, an increase of one-fourth of a percentage point in the interest rate would price about 1.1 million households.

A table provided by the NAHB shows the number of households priced out of the market for a new home at the median price of $412,5050 based on fluctuations in interest rates.

Source: “Households Priced Out By Higher Interest Rates,” National Association of Home Builders’ Eye on Housing blog (March 7, 2022)

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Reprinted with permission

Jumbo Loans Reach 16-Year High

Hoping to take advantage of mortgage rates that are still historically low, more Americans are pushing into higher mortgage levels to afford more expensive homes. Lenders reported that 2021 marked the highest dollar volume in jumbo loan originations since 2005. Jumbo loans are mortgages that exceed the loan limits of Fannie Mae and Freddie Mac.

Rates were cheaper last year, which gave buyers extra budgeting power. In 2021, mortgage rates on jumbo loans reached an all-time low.

The number of jumbo loans more than doubled in 2021 compared to the prior year, according to a new report from CoreLogic, a real estate data firm. The year-to-year comparison, however, is coming off very low numbers set in 2020 when the pandemic outbreak began in the U.S.

Still, jumbo-loan securitization in 2021 marked the largest issuance since 2007, according to CoreLogic.

Borrowers getting jumbo loans have better credit profiles than those buyers active during the housing bubble of 2005 and 2006, CoreLogic reports. Last year, borrowers with jumbo loans had an average credit score 30 points higher than that group in 2005 and 2006. Borrowers also had average loan-to-value and debt-to-income ratios that were 5 percentage points lower than those in 2005.

Jumbo loan originations are predicted to fall this year, however, as mortgage rates are expected to rise and home prices are forecast to moderate. Source: “2021: A Banner Year for Jumbo Loan Securitization,” CoreLogic (March 4, 2022)

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Reprinted with permission

Office Occupancy Is Increasing

Employees are headed back to the office. After the pandemic caused many companies to encourage work-from-home policies for office workers, real estate indicators signal a reversal. As they return, companies want more space.

As of February, office occupancy continued to increase, with 84% of 390 metro areas seeing a rise, according to CoStar data. Since the third quarter of 2021, 30 million square feet of office space has been absorbed, which is on par with prepandemic levels, the National Association of REALTORS® reports.

Still, vacancies remain. About 100 million square feet of office space nationwide have been vacant since the start of the pandemic in the U.S. in 2020. Gay Cororaton, an NAR research economist, predicts that reabsorbing that office space could take through the end of 2024.

Over the past year, office occupancy gains were highest in Boston. On the other hand, New York, Chicago, and Washington, D.C., continue to see high vacancies.

“Occupancy is increasing in major tech metro areas,” Cororaton says on the blog. “The rising occupancy in these tech metro areas indicate that tech companies are contributing to the demand for office space, even as nationally, 45% of mathematical and computer workers work from home for at last some part of the time.“Commercial Weekly: Office Occupancy Rose in 84% of Metro Areas as of 2022 Q1,” National Association of REALTORS® Economists’ Outlook blog (Feb. 25, 2022)

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Reprinted with permission

High Heating Bills Stun Homeowners

Heating bills this winter have left many homeowners in sticker shock. The rising cost of fuel has made heating bills jump by from 5% to 50% this winter—a warning that federal agencies made last fall.

Still, in some regions, heating bills are higher than forecasters anticipated.

Money Magazine spoke to homeowners who reported heating bills double their 2021 levels in Minnesota, while In Wyoming, residents said their heating bills climbed by $100 or more compared to a year ago. Natural gas suppliers in Missouri, Mississippi, and Alabama said they raised prices by 96% this year.

“Natural gas prices have skyrocketed globally,” Megan McFarland, a spokesperson for Pacific Gas & Electric, told an NBC station in California. “We’ve seen a 90% higher cost than last winter. We’re not making any money off this situation.”

The higher utility bills can particularly affect low-income households, who tend to spend three times as much of their income on energy costs compared with the rest of the population, Money Magazine reports, citing Natural Resources Defense Council data. Programs are available to help low-income residents pay their energy bills. Learn more: Benefits.gov. Source: “‘I Gasped’: Abnormally High Heating Bills Are Outraging People Across the Country,” Money (Feb. 15, 2022); “‘It Stresses Our Family’: PG&E Customers Face Hefty Bill Increase,” KCRA-3 NBC (Feb. 8, 2022); and “Home Heating Costs Are Rising. Here Are 4 Ways to Lower Your Utility Bills,” Consumer Reports (March 3, 2022)

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Reprinted with permission

Rates Drop Amid Russia-Ukraine Conflict

Mortgage rates fell again this week amid Russia’s invasion of Ukraine, sparking uncertainty across the globe including in U.S. markets. The 30-year fixed-rate mortgage dropped to a 3.76% average this week, Freddie Mac reports.

“Geopolitical tensions caused U.S. Treasury yields to recede this week as investors moved to the safety of bonds, leading to a drop in mortgage rates,” says Sam Khater, Freddie Mac’s chief economist. “While inflationary pressures remain, the cascading impacts of the war in Ukraine have created market uncertainty. Consequently, rates are expected to stay low in the short term but will likely increase in the coming months.”

The National Association of REALTORS® echoed that sentiment. Nadia Evangelou, NAR’s senior economist and director of forecasting, wrote on the association’s blog that rates likely will rise soon as the Fed remains on course to raise its short-term interest rates in order to control inflation.

Freddie Mac reports the following national averages with mortgage rates for the week ending March 3:

• 30-year fixed-rate mortgages: averaged 3.76%, with an average 0.8 point, dropping from last week’s 3.89% average. Last year at this time, 30-year rates averaged 3.02%.
• 15-year fixed-rate mortgages: averaged 3.01%, with an average 0.8 point, falling from last week’s 3.14% average. A year ago, 15-year rates averaged 2.34%.
• 5-year adjustable-rate mortgages: averaged 2.91%, with an average 0.3 point, dropping from last week’s 2.98% average. A year ago, the 5-year ARM averaged 2.73%.

Freddie Mac reports average commitment rates along with average points to better reflect the total upfront costs of obtaining the mortgage. Source: Freddie Mac and “Instant Reaction: Mortgage Rates, March 3, 2022,” National Association of REALTORS® Economists’ Outlook blog

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Reprinted with permission