Over the last couple of weeks I’ve been seeing rates on 30-year fixed mortgages fall substantially… I’ve seen some recent quotes for 5.5%!
When you look at a straight affordability perspective, taking 1/2% off the interest rate (which is what has happened in the last few weeks) on a $200,000 loan saves you $1000 per year in interest charges, which would be a monthly savings of $83 or is like taking nearly $14,000 off the purchase price of the house, as compared to the higher interest rate.
With inventory at record highs and affordability at 3 year highs, this is a great time to be a buyer. Below I have listed the loan officers that I recommend if you are looking for information on what you can afford, how mortgages work, or want to get a pre-approval. Please feel free to contact them or myself if there’s anything we can do for you!
Nicci Brown – Edina Realty Mortgage
Cheryl Stuntebeck – Bell Mortgage
No consideration has been received for these recommendations.
This is exciting news for both buyers and sellers in the Twin Cities, Aaron! I think this will be, at least, a stable year for all of us. Thank you for the great info! ~ Jeanie Hoholik
Why do you think it’ll be stable?
Many sellers are still asking outrageous and unrealistic prices for their houses. A 1980s 3/2 in the boonies of Shoreview isn’t worth $250k, and the market shows this, yet sellers are stubborn.
“My neighbor got $250k for his house three years ago — why can’t I?”
This market has a long, LONG way to go before it actually corrects itself.
Disco,
2007 total unit sales will be approximately 40,000. The average number of units sold each year from 1997 – 2006 was about 50,000 but hit 58,233 units in 2004. If you look at the historical average then, unit sales for 2007 were only down 20% but if you compare to 2004 they were down 31%!!!!
If you look at the years 2003 – 2005, there was approximately an excess 22,000 units sold in comparison to the 10 year average. 2006 was 2,000 under average and 2007 was 10,000 under average, so seeing 2008 sales of 40,000 units (10,000 under average) would bring us back to “parity” in terms of average units sold per year over the last 10 years.
If you look at the time period of 1992 to 1997, the average unit sales was 42,500/yr so 2007′s 40,000 is actually really good!
So if you’re saying that the market isn’t willing to pay these prices I’d argue that sales aren’t that far off from historical norms and so the market as a whole is saying it WILL pay these prices.
The Housing Affordability Index (HAI), which takes into account the median home price, median family income and the current interest rate, hit 141 in December 2007. 1997 – 2003 had a pretty consistent HAI of 155. While that suggests affordability is about 10% lower than the historical average, 10% off of today’s prices isn’t the end of the world.
I guess what bothers me most is the endless litany of “the market is turning the corner.” The NAR harps on this all the time. It’s rhetoric aimed at the media and at buyers to convince them that now is a good time to buy. Now is always a good time to buy according to them. Each year is the year that the market rebounds. Real economists are saying it’ll be deep into 2009 before we see any recovery.
And frankly, we need a housing recession. Prices went too high too fast, far outstripping any gains made in wages. In 2000, the median metro price was $152k and $230k in 2006. That’s an increase of better than 51%. I don’t have to tell you that my salary did not rise 51% in that time.
My wife and I hope to buy our first house this year. Combined we make over $100k. I don’t know if it will happen, though, because I still feel like the market is way overpriced for what you get. Add to that the soaring property taxes (and a state govt that is either unwilling or unable to fix the problem) and renting seems like a pretty good alternative.
“Stable,” is relative based on Aaron’s statistics. 2007 is a year of change where sales decreased in the latter 1/3 of the year. Using Aaron’s linear analysis, this would provide that units will sink below 40,000 in 2008 and stability will not have returned.
The improvement in HAI may be mostly due to lower interest rates and a drop in the median price. Higher units valued under $1,000,000 apparently are dropping faster in price than units under $300,000. So this would slow down the drop in the median price given there are more lower priced units.
I think Disco’s observation that his income hasn’t grown at the same rate as housing prices have increased is a very solid observation that may be extrapolated to the economy as a whole. And, I think Aaron would agree given his request in prior blogs for sellers to lower their prices.
The HAI doesn’t appear to be able to factor in three key issues. One, more down payment money is needed to secure the best rates or to obtain financing at all. M1(cash, checking, etc.) money supply remains flat even though the FED is stuffing the economy with cash. The assumption is that banks are hoarding the cash to absorb capital erosion, thus reducing lending. These two factors would appear to inhibit some lending to even higher quality buyers. Although, there does appear to be a demand by banks to provide mortgages.
Second, in the Twin Cities, home quality and attention to staging are poor. There appears to be a general deterioration in upkeep. This may also be proven by the declining sales projections for companies such as Home Depot and Lowes. But mostly, some people just need to clean their houses before they list. My goodness, folks, get a clue.
Third, current homeowners may have debt beyond the value of their homes and cannot sell because they won’t, can’t and/or are afraid to enter the market. And, fill in more reasons you can think of. Anyway, it’s more difficult by far to move up to a higher priced home.
However, rents have been rising and this may create more of a floor under housing prices.
Finally, a real concern is when house pricing deflation ends. The world demand for commodities including materials for homes may create an increasing inflation rate, along with corresponding interest rate increases, that lowers housing prices further. This is what the HAI apparently tries to weigh. One could argue higher building costs should improve prices. But, higher interest rates with higher prices may make home less affordable.
Goldman Sachs is predicting another nationwide drop in pricing by 20%-25%.
I think the only conclusion I can draw from all that we’ve said together, assuming we have our facts straight, is that home affordability may be improving. HAI is a statistic. How it factors in increased job loss, lack of a downpayment, etc., the answer may be that it doesn’t.
It’s still a market. There are many more sellers than buyers. Supply and demand still matters. Which says to me homes are still priced too high, in general.
I’m actually seeing some significant price drops in the lower end of the segment as well… some townhouse developments have seen a 10% – 15% price drop in 2007 alone. The high end got hit by the jumbo rate increase and tighter lending, the low end by the lack of new 1st time buyers, foreclosures and tighter lending.
I would agree that in general the market is still overpriced, but some houses are more overpriced than others. One house I looked at in Maple Grove recently was priced in the $370′s and was maybe worth $330k. That will be around for a long time to come and will likely sell for far lower eventually. If it were under $345k, it would have likely had an offer by now and had sold.
Thanks for the replies.
Another factor that seems to have bubbled to the surface recently is the price of gas. Seems like we’re going to see $3/gal for a long time, and that is going to make houses closer to the city centre more expensive. Conversely, I’d think it might have the opposite effect in the exurbs. Unfortunately for me, we’re looking for houses in the near burbs (Roseville, New Brighton, etc.).
I think the price of gas has helped drive down activity out in the exurbs but the growing traffic problem has also hurt them. Back when inventory was scarce and prices were higher, Buyers had to go out there to find a home. With today’s inventory and pricing, they don’t need to.
I don’t think you’ll have to worry about houses in the “near burbs” going up in price but you will find the exurbs prices fall faster.
Yes, I think the near burbs prices may not rise, but they also don’t drop as far, nor as fast as elsewhere.
Seems like in the near burbs, you first pay for location, second for location, third for location, and somewhere near the seventh or eighth criterion you begin to talk about the property itself
It all depends on the burb and its stability. I can tell you of a few suburbs that are down substantially in the last couple years and a few that are at or near where they were a couple years ago.
The MAAR Top 100 report is very enlightening… as will the 2007 RREAR when it comes out in a couple weeks.
The Top 100 is good, but it only shows average sale price, not median. Average can be very misleading.
I agree it isn’t as good of an indicator of true market activity like Median is. Unfortunately, Median is a lot harder number to track, but I’m trying to get MAAR to either add it or use it instead of Average.
You’ve got to give MAAR credit for publishing the data they have in the last couple years… there’s always some who are concerned about “giving away the crown jewels” and there are others like me that believe it helps educate people and improves dialog.
Yes, it is definitely nice to have the data.
However, Median is just as easy to track as Average. If they’re using Excel (or any other spreadsheet program), it’s just =MEDIAN instead of =AVERAGE.
They did use Excel for some of it initially but have had to go to more advanced tools to publish all this data… otherwise they’d spend all month making reports!
From what I had heard before, it was a matter of how they were compiling data that they were not calculating it before and didn’t keep the source data so they could only go back as far when they started collecting it.
A little bird told me Median data for The 100 is coming in the next few months
Excellent! Thank you for checking on that.
St Paul AAR has data by municipality (13-county) which DOES include median. Right now they only have November. I assume it takes a while to compile the data. Here’s hoping they get December posted soon. SPAAR also has detailed county-level data.
Do you know if MAAR would be interested in posting that data?
Since they’re working on a solution already, my guess is that they will not want to bother using SPAAR’s data in the interim since it would be for so limited a time.
I’m always chomping at the bit for the latest and greatest info so I’ll post it as soon as it’s available!