State of the Market

For the past few months, we’ve been reporting on the downward trend in existing home sales. Well, we are glad to tell you that the trend has finally reversed itself. In our second story, we give you all the main highlights from the NAR’s promising report.

But we know not all the news is rosy. There’s growing acceptance that mortgage rates might remain above 6% for the year, making homes still unaffordable for many buyers across the country.

That’s why, in today’s Foundation Plans, we’re going to discuss the touchy subject of Adjustable-Rate Mortgages. Now we know memories of the 2008 crash are still vivid for a lot of people, but we think the situation has changed, and that there are certain situations where an ARM can make sense for clients. We’ll explain why below.

With that, let’s get into today’s Blueprint.

– James and David

Zillow forecasts rise in home prices

U.S. home prices are expected to rise +0.9% over the next 12 months (July 2024 – July 2025), according to Zillow’s latest forecast via resiclub. Here are the other takeaways from its update:

• U.S. home prices have risen 2.8% from July 2023 to July 2024

• Zillow anticipates 4.1 million home sales for 2024, which would be 1% more than last year, but lower than the previous forecast of 4.2 million home sales.

• Zillow expects home values to climb 1.8% in 2024

• Top 5 metros with the highest projected 12-month home price growth:

  • Knoxville, TN: +4.2%

  • New Haven, CT: +2.9%

  • Syracuse, NY: +2.7%

  • McAllen, TX: +2.6%

  • Hartford, CT: +2.4%

Our take

With inflation continuing to fall and the Fed expected to start cutting rates in September, we anticipate that mortgage rates will fall too. This will definitely stimulate housing activity, with both new listings and sales rising over the long term. Housing affordability should also improve. But we’re not getting our hopes up too high. It’s unlikely that mortgage rates will fall below 6% this year.

Existing home sales rise for first time in 4 months

In July, sales of previously owned homes rose nationwide for the first time in four months. Existing home sales rose 1.3% to a seasonally adjusted annual rate (SAAR) of 3.95 million, according to the latest market update from the NAR. Here’s what else the association reports from July:

• The median sales price increased 4.2% from a year ago to $422,600, marking the 13th consecutive month of year-over-year price gains.

• The inventory of available homes rose 0.8% month-over-month, reaching 1.33 million, still well below the pre-pandemic norm of more than 1.9 million (an inventory of 1.33 million represents 4 months’ supply at the current sales pace).

• Regional breakdown of month-over-month existing home sales:

  • Northeast: +4.3%

  • West: +1.4%

  • South: +1.1%

  • Midwest: +0.0%

Our take

This is good news, especially after that 4-month losing streak. The combination of high prices and borrowing costs has made this one of the least affordable housing markets for buyers on record. Take this stat: in June, the typical family only earned 93.3% of the qualifying income needed to afford the median-priced US home, according to the latest NAR affordability index. But there is a silver lining–the jump in inventory (20% YOY). That indicates some homeowners are willing to surrender their 3% mortgages and list their properties, which means buyers have a lot more options. 

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Top 10 “easiest” markets for homebuyers

Although it’s hard to buy a home in today’s market, some markets are “easier” on buyers than others. Realtor.com analyzed 200 metros to determine which are more favorable for buyers. They based their findings on five factors: 1) the year-over-year shift in median list price, 2) the year-over-year shift in the share of listings that saw price reductions, 3) the year-over-year shift in active listing count, 4) median days on the market, and 5) the change in active listing levels between July 2019 and July 2024.  

Here are Realtor.com’s top 10 easiest housing markets for homebuyers:

1. Lubbock, TX

2. Punta Gorda, FL

3. Lakeland, FL

4. Crestview, FL

5. Tampa, FL

6. North Port, FL

7. Miami, FL

8. Port St. Lucie, FL

9. Gainesville, FL

10. Orlando, FL

Our take

Florida markets dominate the list due to a significant increase in active listings, driven by high growth rates that began even before the pandemic. Cities like Punta Gorda are experiencing price corrections after the pandemic housing boom. Meanwhile, new construction in metro areas like Miami has slowed due to decreased demand, resulting in longer market times for homes. Additionally, Florida's condo market has softened, particularly after the 2021 Surfside condo collapse, leading to new safety standards and costly special assessments. This has contributed to price drops and higher listing levels in the state’s coastal areas.

The news that just missed the cut

• What Redfin thinks a Harris presidency could mean for the housing market 

• NY Times on the new rules changes

• How to interview and qualify your clients before the listing appointment

• How to reduce buyer stress and sell more homes (post NAR settlement)

• Oprah’s amazing real estate portfolio

Foundation Plans

Advice from James and David to win the day

We anticipate that the Fed will start cutting interest rates in September, most likely by a quarter basis point. Unfortunately, mortgage rates might not drop by that much, and will likely stay above 6% throughout all of 2024. That means affordability will still be an issue for a lot of buyers. In today’s edition, we’re going to give you a primer on Adjustable-Rate Mortgages (ARMs) and explain when homebuyers should consider using them. 

Don’t let their bad rep dissuade you – We’re not in 2008 anymore. ARM underwriting is much stricter than it used to be. Shady and risky lending practices have gone by the wayside. You actually have to qualify for an ARM and show that you're able to pay for a rate that adjusts upward. Consequently, fewer people can qualify for ARMs. As a result, there are fewer ARMs out there now than in the early 2000s. Before the financial crisis, ARMs made up about a third of all mortgage originations, but now that number is around 10%. 

Cases when getting an ARM makes sense – There are two cases: 1) When buyers are going to live in the home for a short term and 2) when rates are highly fluid. We’ll break down both situations:

• If your clients plan on living in the house for a short term (less than 10 years), they should consider getting an ARM. There's no reason to pay a slightly higher rate to lock in a 30-year fixed mortgage when they can get a cheaper initial rate through an ARM. In an adjustable-rate mortgage, there is a fixed-rate period, when the interest rate on the loan doesn't change. The initial period can range from six months to 10 years, but the most common terms are three, five, or 10 years. For example, a 5/1 ARM has a fixed rate period of five years, and then the rate resets once a year. So, if a buyer plans on living in a home for only a short time, they can sell the house or refinance the terms of their loan before the fixed-rate period ends, and avoid the risk of a potentially increasing mortgage rate.

• Homebuyers should consider ARMs when rates are high and volatile, especially when rates are expected to decrease, as is the case now. That's why homebuyers should also ask themselves whether rates are likely to be lower in the future than they are now. If the answer is yes, then they should go for an ARM. With rate cuts likely starting in September, mortgage rates will likely settle at a lower baseline in the next few years. Most economists and market watchers estimate that we could see a neutral mortgage rate in the mid-5% range by the end of 2025. Homeowners can then refinance their mortgages for cheaper in the future. Of course, there's no guarantee that rates fall in the years ahead; all they can do is make the best decision they can. That’s why we say that many buyers should consider an ARM if they qualify to get an affordable home loan. 

As agents, we need to bring all reasonable options to the table for our clients. We understand that there is still a huge resistance to using ARMs after the ‘08 crisis, but again, things are different now. We encourage you to familiarize yourself with the subject. Start with this excellent interview with Redfin economist Chen Zhao.

To learn more about Estate Media, visit their website.

Just in Case

Keep the latest industry data in your back pocket with today’s mortgage rates:

That’s it for today friends. Have a wonderful weekend and we’ll see you back here next Tuesday!

– James and David