Happy Friday! Welcome to The Realty Report, your go-to source for the latest news and insights on the real estate market. Whether you're a first-time homebuyer, an experienced investor, or simply interested in keeping up with the market trends, we've got you covered.

"The best investment on earth is earth." - Louis Glickman

Market Data Update

What’s Going On?

Let’s get to it

• New listings have dropped by double-digit percentage points for four consecutive weeks.

• Mortgage demand from homebuyers hit a 28-year low, with a 6% drop in applications last week.

• Home prices were up 5.8% in December 2022 compared to December 2021 but have since fallen 4.4% below their June 2022 peak.

• Nationwide, pending contracts to buy a home fell from 58,000 to 55,000, indicating some buyers may be backing out of contracts.

• New home sales rose 7.2% in January 2023, with 66% of homes still under construction or not yet started (i.e., empty lots).

• Builders are offering mortgage buydowns to ease affordability concerns and keep sales going.

• The Fannie Mae Economic and Strategic Research Group expects subdued home sales for 2023 due to an upcoming recession.

The Breakdown

Hold on to your seat belt because the Fannie Mae Economic and Strategic Research Group (ESR) just predicted that home prices will be taking a tumble starting from the second quarter of this year through 2024. And it's not just home prices that will be affected - housing starts activity (a.k.a. new home construction) is also expected to slow down since there is an abundance of new homes for sale that are already under construction or completed. As such, builders will likely prioritize selling these homes before starting any new ones. This will continue to limit housing inventory in the market.

In an interesting twist, new home sales actually saw an increase in January compared to December last year. But haven’t home sales been plummeting? Yeah, but there are a few reasons for this. First, homebuyers likely rushed to purchase a home in January to take advantage of lower interest rates, which were hovering around 6% compared to roughly 7% in December last year. Second, “new home” sales actually refer to pending contracts on new construction homes that are either completed, under construction or not yet started (i.e., an empty lot). That means many of these homebuyers haven’t closed on their house and they most likely haven’t locked in their interest rate.

And it gets worse. The minutes of the Federal Open Market Committee (FOMC) meeting indicate a higher trajectory for mortgage rates as the Federal Reserve may prepare to increase the interest rate by 0.25% again on March 22^nd . According to the meeting minutes, more than one-third of Federal Reserve Officials anticipate hiking the interest rate throughout the year, with none of them projecting any rate cuts. More importantly, the minutes also mentioned a potential for large declines in property prices as “greater than usual”. Yikes.

So, what does this mean for homebuyers who have already entered contracts for homes that are still under construction? If interest rates continue to rise, they may not be able to qualify for their home, leading to buyer cancellations. We are already starting to see some of this happen and it will incentivize builders to offer concessions by either buying down the homebuyers’ interest rate or lowering home prices.

If prices drop significantly, we could be looking at negative home prices compared to last year.

_{Important Note: The above passage is our commentary and opinions about the real estate market, NOT financial advice.} 

Investing Tip Of The Week:

20% Down Payment vs. PMI: What You Need to Know

Many people believe that a 20% down payment is a requirement when purchasing a home, but this is not necessarily true. While a 20% down payment can provide some benefits, such as lower mortgage payments and no PMI, it can also be a significant financial hurdle for many potential homebuyers.

The average home price is often much higher than what most people can save up for a 20% down payment. For example, a $400,000 home would require an $80,000 down payment, which can take years to save up for, even for the most diligent savers. And if history is any indication of the future, that $400,000 home would be worth much more in the future. This is where PMI comes in to help.

PMI allows homebuyers to put down a smaller down payment, usually around 3-5% of the home price. While PMI does add an additional cost to your monthly mortgage payment, it is usually a small price to pay compared to the amount required for a 20% down payment. Plus, once you have reached 20% equity in your home, your PMI payment will go away, which can happen sooner than expected due to market appreciation.

Ultimately, the decision to put 20% down or pay for PMI depends on your financial situation and priorities. If you have the means to save up for a larger down payment and a lower mortgage payment appeals to you, it may make more financial sense. However, if you need assistance getting into the housing market, PMI can be a valuable option to consider. Don't let the fear of PMI deter you from purchasing a home and starting to build wealth.