A Tale of Two Housing Markets

We didn’t think we’d ever find ourselves quoting English literature in this newsletter, but today we have to quote our esteemed fellow Brit and all-around legendary guy Charles Dickens. 

In today’s real estate industry, we’re not just seeing a tale of two cities, it’s a tale of two housing markets.

Today, we’ll show you that while home prices are keeping a lot of people out of homeownership, a lot of existing homeowners are seeing the value of their homes go up and up. 

We’ll also report on diverging signs from the economy. While there are signs that the economy is hot, there are also signs that it’s cooling.

We think it’s so important to stay informed in all areas of the industry. In today’s newsletter, we aimed to give you a broad scope on trends across many sectors. We hope you enjoy it.

– James and David

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Economy adds more jobs than expected

The Bureau of Labor Statistics released its latest jobs update which shows signs of both a hot economy and a cooling economy. Here’s a breakdown:

Signs of a hot economy 

• 272,000 jobs were added, much more than the expected 180,000. Hiring was strongest in healthcare (+68K jobs) and local government (+43K).

• Strong wage gains are well above inflation. Average hourly earnings rose 0.4% MOM and 4.1% YOY, slightly above expectations. 

• Prime-age labor force participation is highest in 22 years

Signs of a cooling economy

• The unemployment rate rose from 3.9% to 4.0%, the highest since Jan. 2022

• Overall labor force participation rate fell to 62.5%, lower than the 62.7% of last month and the 62.6% of last year. This is lower than the long-term average of 62.8%.

Our take

For those who don’t know, the "jobs report" is actually two different surveys: the "Establishment Survey" of business HR data which is showing signs of a hot economy, and the "Household Survey" of workers which is showing signs of a cooling economy. Unfortunately, for the housing sector, bond markets are giving more weight to the former than the latter. Already mortgage rates have increased and they are likely to stay elevated. Tomorrow the latest CPI report will drop while the Fed concludes its June conclave. Regrettably, it’s very unlikely that the Fed will cut interest rates at this meeting.

Home equity spikes nationwide

Homeowners nationwide saw their equity increase by 9.6% for an average gain of $28,000 from Q1 2023 through Q1 2024. That is the biggest year-over-year increase since late 2022, according to CoreLogic. No state saw home equity losses. 

Here are the states and metros with the highest increases in home equity:

Our take

We are really seeing the tale of two housing markets. On the one hand, we’re facing an enormous affordability crisis where many people can’t get into homes. At the same time, many homeowners are cashing in big time. The rise in the cost of living has boosted equity for a lot of existing homeowners. It's also helped many homeowners who were upside down on their home loans. Right now, 1.8% of mortgages are underwater, but if home prices increase another 5%, that will lift 111,000 underwater homeowners out of their negative equity situation.

Markets where investors own the most

Institutional investors (those who own 1,000 homes or more) own the highest share of homes in markets in the Southeast, especially in Atlanta where built-to-rent homes are proliferating. By contrast, small investors (those who own between 2 and 9 homes) own the highest share of homes in Las Vegas and metros in northern California. That’s from Resiclub's analysis of new data from Parcl Labs. 

Here are the top 10 markets that had the highest share of small and institutional investors:

Our take

As we’ve noted before, the idea that investors are taking over the market is just a myth. Even at the peak of 2022, institutional owners only purchased about 2% of available single-family homes nationwide. This report from Resiclub really helps give us some good perspective here. We encourage you to share it because this kind of solid information helps us combat all the misinformation out there.

Schematics

The news that just missed the cut

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• Top takeaways from NAR’s update on steering

• Why Fitch says the office sector is likely to get worse

• The “Full House” house in San Francisco just listed for $6.5M

Foundation Plans

Advice from James and David to win the day

Not only are we seeing new listings have their traditional rebound after the Memorial Day weekend decline, but we’re seeing them spike compared to last year. As a result, home buyers have a lot more options. To help them close deals quickly and smoothly, we’d like to give you some tips on what you can do as a buyer’s agent:

Meet with multiple lenders – If your clients opt to buy a pre-existing home rather than a new home from a builder, then make sure they see at least 3 mortgage lenders. Encourage your clients to start their search at least 60 days before they start to seriously look for homes. From each lender, make sure your clients get a good-faith estimate. That way they can make an apples-to-apples comparison between offers. A good-faith estimate breaks down the terms of the mortgage, including the interest rate and fees.

Make sure your clients are pre-approved not just pre-qualified – Pre-qualification is just a basic overview of a borrower’s ability to get a loan. You provide a mortgage lender with information—income, assets, debts, and credit—but you don’t need to produce any paperwork to back it up. In return, you’ll get a rough estimate of what size loan your client can afford. However, it’s not a guarantee that they’ll get approved for the loan. Pre-approval, by contrast, is an in-depth process that involves a lender running a credit check and verifying income and assets. Then an underwriter does a preliminary review of your client’s financial portfolio. If all goes well, the underwriter issues a letter of pre-approval, a written commitment for financing up to a certain loan amount. Sellers typically will accept offers only from pre-approved buyers. 

Don’t change jobs or apply for new lines of credit before a purchase – If your clients do these things right before purchasing a home, that will hurt their chances with mortgage lenders. Applying for multiple lines of credit can make a mortgage lender think that your clients are desperate for money. The lender might change the mortgage terms or even deny the mortgage altogether, even if your client has a closing date on the books. Changing jobs while under contract on a property can create a big issue in the eyes of an underwriter. Mortgage lenders like to see at least two years of consistent income history when pre-approving a loan.

As we said, the best thing your clients can do is apply for new credit and/or change jobs AFTER they’ve closed on their house. 

Follow these tips and your closings should go a whole lot smoother and easier. To learn more about what you can do to help your buyers seal the deal, start here and here.

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:

“Dare to live the life you have dreamed for yourself. Go forward and make your dreams come true.” – Ralph Waldo Emerson

We can’t improve on Emerson. Dare to live the life you want friends. Work to make it happen. Nobody else is going to do it for you.

Have a fantastic week, and we’ll see you back in your inbox on Friday

– James and David