Housing Market Roundup, Apr. 11, 2023

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

Redfin: Demand for Vacation Homes Down More than 50% From Pre-Pandemic Levels

Redfin, Seattle said mortgage-rate locks for second homes fell by 52% from pre-pandemic levels on a seasonally adjusted basis in March; this compared to a 13% decline for primary homes. Second-home rate locks fell to their lowest level since 2016 in February and remained nearly as low in March.

Redfin reported the drop in second-home demand follows a meteoric rise during the pandemic homebuying boom. Mortgage-rate locks for second homes reached a peak of 89% above pre-pandemic levels in August 2020. At that time, many affluent Americans bought homes in vacation destinations, encouraged by low mortgage rates, remote work and limitations on traveling from place to place.

The report said a scarcity of new listings, elevated mortgage rates, still-high home prices and persistent inflation, among other economic woes, are holding back demand for both primary and second homes. It cited a variety of factors are causing the outsized drop in second-home demand:

–Many potential second-home buyers are priced out because it’s frequently more expensive to buy a vacation home than a primary home. The typical second home was worth $465,000 in 2022, versus $375,000 for a primary home. Additionally, the federal government increased loan fees for second homes in April 2022.

–Vacation-home buyers are quicker to pull back from the market than primary-home buyers because second homes aren’t a necessity.

–Workers are returning to the office. Second homes are less attractive when there’s less time to spend in them. While working from home is more common than it was before the pandemic, the share of job openings that allow remote work has shrunk since early 2022.

–Buying a vacation home to rent it out is nowhere near as attractive as it was during the pandemic homebuying and investing boom. Owners of short-term rentals are reporting a steep decline in business. That’s because many people became vacation-rental hosts during the pandemic, which led to oversupply. Many local governments are also instituting new short-term-rental regulations, like new taxes and stricter permitting. The long-term rental market is also cooling.

–Bank accounts are shrinking as stock markets decline, so would-be buyers have less cash on hand for down payments and monthly payments.

–Many people with the means and desire to buy a second home have already done so, during the pandemic homebuying boom of 2020 and 2021.

“With housing payments near their all-time high; a lot of people can’t afford to buy one home right now, let alone a second,” said Redfin Deputy Chief Economist Taylor Marr. “Add the recent increase in loan fees, inflation, shaky financial markets, the end of pandemic-related financial stimulus and many companies calling workers back to the office, and it’s simply a challenging time for most Americans to buy a vacation home.”

Veros: Flat, Erratic Housing Market over Next Year

Veros Real Estate Solutions, Santa Ana, Calif., released its first quarter VeroFORECAST, anticipating home prices will be flat overall for the next 12 months, a slight improvement from the 0.5% annual depreciation forecast one quarter ago.

“It appears that we have turned the corner from overall slight annual forecast depreciation one quarter ago to an overall flat forecast now,” said Veros Chief Economist Eric Fox. “This suggests that we are now seeing a halt to the continually declining annual forecasts which started a year ago to one that is ticking back up, albeit slightly.”

The report contrasts markets expected to perform relatively and those expected to perform poorly. Markets in North Carolina, Nebraska, Kansas, and upstate New York are all expected to do relatively well, along with Florida and Indiana, Weakest markets are often in former top-performing areas and include parts of Texas, California, Washington state, Utah, Nevada, Idaho and Illinois.

“We do not see a cataclysmic decline in house prices like so many in the national media are forecasting. The fundamentals for this to occur are simply not there like they were in 2007 or 2008,” Fox said. One key reason is that although demand has fallen significantly in many markets, supply remains stubbornly low. Buyers do not want to part with their current 3% mortgage interest rate and exchange it for a rate that is more than double if they don’t have to move.”

The report said the 10 strongest-performing markets in the country forecast over the next 12 months are only forecast to appreciate at the 4% to 5% level and includes the North Carolina markets of Fayetteville, Greensboro, and Greenville, three markets in the Great Plains including Lincoln, Topeka, and Wichita, two markets in upstate New York (Rochester and Buffalo) and also Cincinnati and Albuquerque. These markets are all at lower price points than many other parts of the country.

The 10 least-performing markets over the next 12 months are forecast to depreciate at mid-single digit levels from roughly -4% to -6%. Texas has three markets on this list (Austin, Brownsville, and Victoria) and is joined by the two pricey west coast markets of San Francisco and Seattle; three Utah markets (Provo, St. George, and Ogden); Boise, Idaho; and Atlantic City, N.J.

Fannie Mae: Consumer Confidence in Housing Market Remains Near Historic Lows

The Fannie Mae Home Purchase Sentiment Index increased by 3.3 points in March to 61.3, but it remains only slightly above its record low set late last year.

Overall, four of the Index’s six components increased month over month, most notably those associated with home-selling conditions and consumers’ sense of job security. While the former component remains slightly positive on net, in March 40% of consumers reported that it’s a bad time to sell a home, down from 44% last month, and 21% expressed concern about losing their job in the next 12 months, down from 24% last month. Year over year, the full index is down 11.9 points.

“Despite the recent banking turbulence, the HPSI increased modestly in March, although it still remains near its historical low,” said Mark Palim, Fannie Mae Vice President and Deputy Chief Economist. “With the spring homebuying season now upon us, a large majority of consumers continue to believe that it’s a bad time to buy a home. Homeowners sharing this belief frequently cited ‘unfavorable mortgage rates’ as the primary reason for their pessimism, further corroborating the often-discussed disincentive – or ‘lock-in effect’ – that many mortgage holders who may be considering moving have toward giving up their lower rates. By contrast, surveyed renters once again indicated that high home prices are their primary concern for buying a home.”

Palim added unsurprisingly, consumers also expressed apprehension about the direction of home prices. In March, there was an even split among respondents who said home prices over the next 12 months will go up compared to those who expect them to go down. With affordability constraints, the lock-in effect, and home price direction uncertainty weighing heavily on consumers’ minds, we maintain our forecast that total home sales for the year will remain subdued.”

Black Knight: Rate Lock Volumes Jump 43% in March on Seasonal Tailwinds, Falling Rates, Lower FHA Insurance Premiums

Black Knight, Jacksonville, Fla., issued its monthly Originations Market Monitor, showing rate lock dollar volumes jumped by 43% month over month in March, driven by seasonal tailwinds, falling interest rates and stronger purchase market performance.

The report said lock volumes increased across the board, with purchase locks increasing by 44% in the month, well above the 30% average February to March gain seen across the past five years. Cash-out refinances rose by 31% and rate/term locks grew by 36%, but both remain historically low.

FHA lock volume captured additional market share, accounting for 20% of the March pipeline, up from 18% at the beginning of the year and 12% a year earlier.

“This continues to be an incredibly rate-sensitive housing market, and March’s rate lock activity perfectly illustrates this dynamic,” said Andy Walden, vice president of enterprise research with Black Knight. “Early in the month, when rates started their climb back toward 7% – reaching 6.8% in the process – we saw pronounced downward pressure on originations. In the wake of uncertainty in the banking sector and investors’ flight to the safe haven of U.S. Treasuries, rates came down roughly a quarter of a point. The result? Another quick surge in originations, particularly in the purchase market.”