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  • Jonathan Poyer

A Quarterly Deep Dive into Residential Real Estate - Charts, Charts, and More Charts!

It is time for a dive into the housing market having some fun with graphs and charts. So here we go!

  • Total home sales for March fell by 2.7% from February and were down 2.1% from a year ago

  • Existing home sales were at an annual rate of 4.19 million in March, 4.3% below February sales and 3.7% lower than March 2023

  • New home sales for March grew 8.8% from February to an annualized rate of 693,000 (14% of total home sales)

  • New residential construction fell in March with total starts decreasing 14.7%, the largest monthly decline since May 2022

  • Single-family housing starts fell 12% MoM in March

  • Overall mortgage activity was down 1.8% MoM and 10.4% YoY at the end of April

  • Refinance activity for April was down 3.3% compared to March

Some additional details:

Total housing stock was 146.4 million units; an increase of 1.6m units over last year

Homeownership rate in Q1 2024 ticked down to 65.6% from 65.7% in Q4 2023

Now, let us look at mortgage rates and mortgage ownerships. This seems to be like the beginning of where the rubber meets the road when it comes to investment opportunity and the health of the residential housing market. At the end of March 2024, the average 30-year mortgage rate was 6.8%. At the same time, the effective rate of interest on mortgage debt outstanding stands at 3.8%. At the end of April, the 30-year rate climbed to 7.17%

Overall mortgage activity was down 1.8% MoM and 10.4% YoY at the end of April.

More than six out of ten mortgages have rates below 4% through purchase or refinancing. Freddie Mac found that homeowners with a fixed mortgage rate have locked-in $66,000 in savings on average per household.

Breaking this information down by generation, Millennials have the highest average loan amount and remaining balance, with a remaining term of 25 years on average. Interestingly, the Silent and Baby Boomer generations still have more than 18 years in remaining term, a result of refinancing at low rates in recent years. Over 90% of Gen Z are first-time homebuyers and there are very few ARM rates, primarily concentrated among the Silent and Baby Boomer generations:

While Gen Z has the highest mortgage rate on average, Gen X has the lowest at 4.0%. Purchased rates primarily drive the low rates Millennials obtained and the low rates of the Gen Xers are driven mainly by refinance rates. Digging deeper, 37% of all Millennial borrowers' purchases occurred in 2020 and 2021 while 25% of all Gen Xers' purchases were in 2020 and 2021. 62% of Gen Z borrowers purchased a home in 2022 and 2023.

Furthermore, 13% of Gen Z borrowers have rates above 7% even though they have the fewest total number of mortgages overall. Gen X has the highest number of mortgages above 7% with 700,000 followed by Millennials. These borrowers have the most likelihood of refinancing if rates were to come down.

Housing Supply:

Switching gears to housing supply (and demand), we see some very interesting statistics. When we couple this with the mortgage situation of borrowers and look into that information by generation, another picture emerges.

At the end of Q4 2023, the percent of US homes for sale was 0.5% of total US housing, the lowest value in 58 years (1965):

Q2 is often highlighted as "moving season" as school ends. In April, the number of homes actively for sale grew by 30.4% compared to last year. However, the total number of unsold homes increased by 20% compared with last year. 12.2% more homes were listed for sale compared to 2023 and the median price of homes for sale remained about the same at $430,000

Compared to last year, sellers are listing more small and affordable homes, which has kept the median price stable. Higher mortgage rates compared with last April increased the monthly cost of financing 80% of the typical home by roughly 6.9% compared to a year ago. The impact of higher mortgage rates is impacting not just the momentum and speed of sales but the size of homes being sold and bought and the size of new homes under construction. Homes buyers once targeted are now much less affordable.

Sales for new homes fell but rose for existing homes despite an increase in new builds overall.

It appears that higher rates, and lack of options, are "trapping" people in their homes. The supply of existing supply has remained stable but low while new home construction supply has increased sharply since 2021.

The trapping or "locked in" effect for existing homeowners is impacting the economy beyond the housing market. The last time that existing homeowners were in a similar situation was in the late 1970s and early 1980s. You can see in the below graph that home price appreciation continued as rates remained high. From here, we see two possible outcomes: 1) rates dip a little bit lower and unlock homeowners who need to move thus creating a little softness. 2) If rates come down more significantly, whatever supply put on the market will be met by the opportunity for demographics priced out of home ownership finding affordability again.

Overall, the housing situation and the impact that rates have had on the economy are quite extensive. Some positive and some negative. There are too many to list here. However, one large positive is that US mortgages are near their lowest delinquency levels in over 20 years with mortgage delinquencies the lowest of all loan types making up just 2.4% of all 90+ delinquent loans.

We have said this before, and it bears repeating: Housing is an asset where prices are set at the margin of buying and selling. Money in motion, through sales and purchases, is what sets the market. This velocity is greatly impacted by interest rates and the economic position of borrowers/homeowners. At this time, existing homeowners are doing whatever it takes to stay in their homes and to keep paying their monthly mortgages. This is good for housing and good for those asset holders. It also puts pressure on those seeking homes and those just entering the market. Builders and buyers are adjusting their demand curves, and the market will surely adjust. For the time being, the housing market is strong.

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