How’s the housing economy? Higher interest rates and home prices on one side, and persistent demand stemming from demographic growth on the other, keeps buyer sentiment in a state of flux, says NAHB.
A majority of respondents in the Fannie Mae Home Purchase Sentiment Index (HPSI) survey believe it is a good time to sell a home. Forty percent of respondents believe home prices will go up in the next 12 months.
But 85% of the consumers surveyed say the current housing economy makes it is a bad time to buy a home. They cite high home prices and mortgage rates as the primary reasons. This sets a record high in negative consumer homebuying sentiment. NAHB reports the homeownership rate for households aged less than 35 decreased to 38.2% in the third quarter of 2023. Compared to the peak of 69.2% homeownership rates in 2004, overall homeownership rates today are 3.2 percentage points lower and below the 25-year average rate of 66.4%.
Good for Sellers, Bad for Buyers?
In search of better housing and living costs, Insider resorts that more than 8.2 million Americans moved to different states between 2021 and 2022. Texas topped the U.S. Census Bureau’s state-to-stage migration chart, with 100,000 people moving from California to Texas. Californians also moved to Arizona, Florida, Washington and Nevada in record numbers. Migration from New York to Florida was second on the migration chart, with over 91,000 people making the move. But the migration numbers dropped last year as Texas housing costs rose.
The bright light in the housing economy is that Interest in newly built homes is on the rise, largely due to financing incentives. Many homebuilders are offering to buy down the interest rate on the home loan or pay some or all closing costs.
Meanwhile, state housing finance agencies seek to meet the affordable housing needs of their residents, including first-time homebuyers, by providing down payment assistance programs. Freddie Mac’s newly launched DPA One® is an innovative new tool. It’s designed to make it easier for mortgage lenders to participate in the down payment assistance programs. DPA One aggregates and showcases down payment assistance programs in a single, standardized, insights-rich tool. Lenders can quickly and efficiently access and compare programs to help make home ownership possible for more families.
Rising mortgage rates, elevated construction costs and limited existing inventory helped push housing affordability in the third quarter of 2023 to its lowest level in more than a decade. The NAHB/Wells Fargo Housing Opportunity Index (HOI) shows just 37.4% of new and existing homes sold between the beginning of July and end of September were affordable to families earning the U.S. median income of $96,300.
Is Interest Rate Relief on the Way?
Given cooling job growth and wage growth data, the bond market has seen a decline in interest rates, with the 10-year Treasury rate falling below 4.6% to a near two-month low. Economists say this is good news for interest rates. Employment data will be one of the key components in determining whether to hold the federal funds rate again at its December meeting.
The Mortgage Bankers Association (MBA) is predicting purchase originations to increase 11% next year. When adjustable-rate-mortgages recently experienced a decrease in rates, MBA showed an uptick in ARM applications. But MBA says it does not expect the Fed to hike interest rates further on 30-year mortgages this year. MBA analysts predict that the Fed will cut interest rates three times in 2024. Inflation may come down faster as a result.
What? Texas’ Unemployment Rate is Among the Worst in the Country?
Texas has been able to add enough jobs month after month to accommodate the state’s growing population. A growing population also means a growing labor force. But a slow-down in job growth over the summer led to a rise in state’s unemployment rate. But this is actually a promising measure of the economy’s growth, say the experts. They say the higher unemployment rate reflects an expanding labor force. Labor is bolstered by rising domestic migration into the state. And more native residents opt to remain in Texas than any other state in the country.
Insurance Coverage Challenges For Texas Homeowners and Buyers
Multiple weather catastrophe risks combined with rising costs have created a challenging market environment for insurers. Many have pulled out of Florida and California due to climate risks, and Texas may be next. Texas ranks No. 8 in the U.S. for overall climate vulnerability says the research from the Environmental Defense Fund and Texas A&M University.
Weather or climate disaster events resulting in more than $1 billion impacted Texas in 2023 according to the National Oceanic and Atmospheric Administration National Centers for Environmental Information. That includes wind storms, hail storms, tornadoes and the recent drought and heat wave from April to September.
IRS Releases Guidelines on Energy Efficient Home Tax Credits
The Internal Revenue Service released guidelines on the new energy efficient home credit. The Inflation Reduction Act (IRA) allows contractors who build new energy efficient homes a tax credit of up to $5,000 per home. The actual amount of the credit depends on eligibility requirements. These include the type of home and the home’s energy efficiency.
Eligible contractors must construct or substantially reconstruct and rehabilitate a qualified new energy efficient home located in the United States. They also must own the home and have a basis in it during the construction. And they must sell or lease the home to a person for use as a residence.
Individuals or entities looking to claim the credit should consult with a tax professional to determine whether and how they can claim the credit and determine whether the credit can be used with other tax incentives or Federal incentives.
