Housing Market Roundup Apr. 24, 2023

Here is a summary of housing market reports that have come across the MBA NewsLink desk:

Redfin: Real Estate Investors Lose Money on 1 in 7 Homes They Sell

Redfin, Seattle, said one of every seven (13.5%) U.S. homes sold by an investor in March sold for less than the investor bought it. That’s comparable with February’s 14.5% rate—the highest since 2016. It’s also nearly triple the share of a year earlier and compares with a record low of 2.8% in May. By comparison, 4.8% of overall U.S. homes that sold in March sold at a loss.

While most housing investors still reaped gains, those gains have shrunk. The typical investor who sold a home in March sold it for 45.9% more ($145,714) than the price they paid, down from 55.3% ($173,458) a year earlier and a pandemic peak of 67.9% ($199,274) in June 2022.

“Home flippers aren’t reaping the gains they used to,” said Phoenix Redfin agent Van Welborn. “I recently showed one of my buyers a three-bedroom single-family home in Glendale that was listed by an investor. My client ultimately found another house they liked better, and the investor ended up losing about $20,000. The investor bought the home for $450,000 and sold it for $480,000, but put $50,000 of work into it. The house also sold below the $550,000 list price after sitting on the market for almost four months.”

The report said investors are making less money selling homes—and losing money in some cases—because the housing market has slowed dramatically in response to rising mortgage rates.

Fannie Mae: Economy Resumes Gradual Slowdown Following Bank Turmoil

Fannie Mae, Washington, D.C., said due primarily to an upward revision in recent consumer spending data, its Economic and Strategic Research Group now forecasts stronger first quarter GDP growth but maintains its belief that economic momentum is running out of steam.

Fannie Mae said while the panic following the bank failures in March appears to have subsided, the banking turmoil occurred during an already-tightening credit cycle, and the ESR Group believes the additional, incremental tightening in credit conditions owing to the financial fallout will contribute to a modest recession beginning in the second half of 2023.

“The economic slowdown has resumed – whether the end result is a modest recession or simply a soft landing remains unanswered – although we continue to expect the former, as we have since April of last year, when we first made our 2023 recession call,” said Doug Duncan, Senior Vice President and Chief Economist with Fannie Mae. “The greater-than-expected resilience of the housing sector to the affordability pressures of higher home prices and mortgages rates is central to our expectation that the recession will be modest. In our view, while it would be premature to expect no further difficulties in the banking sector other than credit tightening, we’re maintaining our baseline expectation of a modest recession, as we see signs of a weakening employment market, slowing retail sales, and declining manufacturing activity. However, the rapid response of hopeful homeowners to periodic declines in mortgage rates, even from the currently higher rates, gives us additional confidence in our use of the word ‘modest.’”

First American: Falling House Prices, Softening Labor Market Unlikely to Trigger Wave of Foreclosures

First American Financial Corp., Santa Ana, Calif., released its monthly Real House Price Index, showing real house prices decreased by 0.2 percent between January and February. Real house prices increased by 31.6 percent year over year.

The report said consumer house-buying power increased by 0.5 percent between January and February, and decreased 21.7 percent year over year. Median household income has increased 4.1 percent since January 2022 and 80.8 percent since January 2000. Real house prices are 33.3 percent more expensive than in January 2000.

“Affordability has now improved for four straight months, yet remains down 32 percent since February 2022, according to the RHPI. Recently falling mortgage rates have overpowered the affordability-dampening effects of higher nominal house prices,” said Mark Fleming, chief economist at First American. “Nominal house price appreciation has slowed dramatically in response to affordability-constrained lower demand. After peaking in March 2022 at 21 percent nationally, annual nominal house price growth has since decelerated by 18 percentage points to 3.1 percent in February.

The report said states with the greatest year-over-year increase in the RHPI were Maryland (+41.3 percent), Nebraska (+40.0 percent), Alabama (+39.7 percent), Iowa (+39.6 percent) and Florida (+39.5 percent). No states showed a year-over-year decrease. Among metros tracked by First American, markets with the greatest year-over-year increase in the RHPI were: Miami (+50.0 percent), Indianapolis (+45.3 percent), Jacksonville, Fla. (+42.5 percent), Baltimore (+40.1 percent) and Louisville, Ky. (+40.1 percent). No markets showed a year-over-year decrease.

Redfin: Gen Z Tracking Ahead of Their Parents’ Generation; Millennials Behind

Redfin, Seattle, reported nearly one-third (30%) of 25-year-olds owned their home in 2022. That’s slightly higher than homeownership rates for millennials (28%) and Gen Xers (27%) when they were 25, and slightly lower than the rate for baby boomers (32%) when they were 25.

Some Gen Zers were able to take advantage of record-low mortgage rates in 2020 and 2021 to buy homes, putting the generation on a slightly better homeownership trajectory than their parents. But those who didn’t buy homes during that period may struggle to break into the market now that housing costs have shot up, and the economy is showing signs of slowing.

Many Gen Zers took advantage of 3% mortgage rates to become homeowners in 2020 and 2021. The typical mortgage rate for homebuyers under 25 using a conventional loan was 3.3% in 2020 and 3.1% in 2021. They have also benefited from a strong job market and double-digit wage growth. For 16-24 year olds, wages rose 12% from a year earlier in January, roughly double the increase for the overall population. Young adults’ incomes have risen quickly largely thanks to the tight pandemic-era labor market.

“The rising tide lifted Gen Z homebuyers in 2020 and 2021; they were part of the pandemic-driven homebuying frenzy,” said Redfin Chief Economist Daryl Fairweather. “Record-low mortgage rates, remote work providing freedom to move somewhere more affordable and skyrocketing rental costs motivated some Gen Zers to break into the housing market. While the oldest of their generation had just graduated college when the pandemic started and hadn’t started building up their bank accounts, they had some financial advantages. The unemployment rate was near record lows in late 2021 and 2022, with pandemic-related labor shortages in industries that attract young workers like hospitality and retail prompting those employers to boost pay. Government stimulus payments, the pause on student loan repayments and the fact that many young adults lived with family during the lockdowns also helped Gen Zers save money.”

Black Knight First Look: Mortgage Delinquencies Hit Record Low in March, While Prepayments Rise on Easing Rates, Seasonal Tailwinds

Black Knight, Jacksonville, Fla., released it monthly First Look Mortgage Monitor, showing the national delinquency rate dropped 53 basis points (-15%) in March, falling below 3% for the first time on record, ending the month at just 2.92%.

The report said factoring in March’s decline, past-due mortgages (including active foreclosures) fell to their lowest level in nearly 23 years. Serious delinquencies (90+ days past due) showed marked improvement, falling by 51,000 to their lowest level since March 2020, with volumes shrinking in every state.

The report said likewise, every state saw overall delinquencies fall in March, with improvements ranging from 11.9% in Washington to 21.5% in Vermont. Both foreclosure starts (+9.0%) and sales (+4.6%) rose in the month but still remain well below pre-pandemic volumes at the national level.

Black Knight said active foreclosure inventory held steady, but remains 31,000 (12%) below March 2020 levels. The prepayment rate rose to 0.50% (+44% month over month) driven by seasonal tailwinds in sale-related prepayments and an increased demand for refis due to falling rates.