Stunning report on housing affordability

Shocking numbers

With so much information on the Internet, our goal with this newsletter has always been to source the best reports and data, and then bring it to your attention.

While we do feel that way about all our stories, we encourage you to pay close attention to today’s third story, which discusses a stunning report on the housing affordability crisis.

We know many of our readers work in the luxury market, but we feel it’s our duty to keep everyone up to speed on the crisis facing many people across this country. 

Right now, the typical homebuyer cannot afford the median-priced home in 46 out of the 50 states. That is just shocking.

There is so much more in the report below. We summarized the main points, but again, we do encourage you to take a further look.

- James and David

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Home prices soar

Home prices in February spiked 6.4% year over year, which managed to top January’s annual gain of 6%. This is the fastest rate of price growth since November 2022, according to S&P CoreLogic Case-Shiller’s latest update. Here’s what else they report:

• On a seasonally adjusted basis, home prices rose 0.4% in February, compared to the 0.3% rise in January.

• Annual price growth was higher in February compared to January in both the 10-city index (8.0% vs. 7.4%) and the 20-city index (7.3% vs. 6.6%).

• San Diego saw the biggest price rise among the 20 cities in the index, up 11.4% from February of 2023

• Portland, Oregon, saw the smallest gain in the index of just 2.2%.

Our take

Despite the large increase in new listings in February, surprisingly strong housing demand kept home prices high during the first two months of the year. Keep in mind, though, that Case-Shiller updates reflect past data, not current trends. For instance, while this report has been released now, its conclusions are based on the data gathered from December to February. Since that time, mortgage rates have jumped nearly a full percentage point and inventories have continued to increase. So while we’re likely to continue to see price increases in the March data, expect future updates to show easing price growth.

The Fed keeps interest rates steady

The Federal Reserve announced Wednesday that it will leave interest rates unchanged as inflation continues to remain higher than expected. The Fed decided unanimously to keep the short-term policy rate steady at a range of 5.25% to 5.5%. It has been keeping interest rates at this level since July 2023. 

Fed Chair Jerome Powell knocked down any talk of stagflation and made it clear that further rate hikes are unlikely. He anticipates that, in line with current market expectations, rate cuts are going to come later than previously expected this year.

Our take

None of this comes as a surprise, and what the Fed did will unlikely move the needle on mortgage rates. Whether or not mortgage rates will fall will depend on how bond markets react to inflation data coming in the next few months. The market is now expecting one rate cut by the Fed later in the year. Meanwhile, we’ll get new data on inflation on May 15th. Until we see declines in inflation, expect interest rates and mortgage rates to remain higher for longer.

Stunning report on housing affordability

Buyers need to earn at least $119,769 annually to afford a median-priced home of $332,494 with a 10% down payment, according to a new survey from Clever Real Estate. That income is about $45,000 more than the typical American household earns per year ($74,755). 

According to NAR data, the median home buyer hasn’t put 20% down on a home since 1989. Today, the median buyer puts down 15%.

Here are the few states and metros where the median-priced home is affordable on the median salary.

States

1. West Virginia

2. Ohio

3. Iowa

4. Indiana

Metros

1. Pittsburgh, PA

2. Cleveland, OH

3. St. Louis, MO

4. Memphis, TN

5. Indianapolis, IN

6. Birmingham, AL

Our take

We encourage all our readers to check out this survey. It is jam-packed with so much good information that we couldn’t fit it all in this section. We do want to highlight this one stat: 61% of Americans cannot afford the median-priced home, even after a 20% down payment. That’s shocking. We genuinely hope locales will learn from Texas and Florida. Those states have found the most effective way to deal with housing affordability – increase supply!

Schematics

The news that just missed the cut

• Zillow introduces non-exclusive touring agreement in response to NAR settlement 

• Ideas on where to invest in real estate 

• A shortage of construction workers is driving home prices up

• A.I. says these are the perfect dream homes for every type of American

• This is what’s preventing developers from converting offices into residences

Foundation Plans

Advice from James and David to win the day

Today, we finish our two-part series on the NAR settlement and the implications it might have for real estate. If you missed Tuesday’s edition, you can read the first part of our series here. We are now going to answer some more frequently asked questions about these cases and the potential changes to our industry.

How many lawsuits are still out there? – Over 20 lawsuits are ongoing nationwide, primarily initiated by home sellers, with a few filed by buyers. Some are class-action suits, allowing the inclusion of eligible individuals who did not personally sue. The majority are recent filings awaiting their initial court appearance. Others are progressing towards trial or an appeal. Attempts have been made to consolidate certain commission cases, but courts have thus far deemed this unnecessary.

Is cooperative compensation going away? – No. It's just moving out of the MLS as a specific field. Brokers can still offer commissions on their listings, through their own websites or other non-MLS channels. Most importantly, all forms of compensation need to be negotiated between buyer agents and their clients directly. The terms need to be spelled out in an agreement before an agent shows a house to a potential buyer.

Can the buyer agent’s commission be financed? – Fannie Mae and Freddie Mac have said that their policies on interested party contributions allow property sellers to make contributions to the borrower’s closing costs, subject to maximum limits ranging between 2% and 9% of the property value. Loans backed by Freddie and Fannie permit buyer agent’s commission to be financed. However, this is not true for V.A. loans. Current rules prevent borrowers who use V.A. loans from paying the commission of their real estate agents when buying a home. This rule predates the NAR settlement or any of the lawsuits, but the U.S. Department of Veterans Affairs is reconsidering its stance in light of recent events. No final decision has been made yet. 

To stay up to date on all the developments, we encourage you to bookmark and use these resources. Visit them frequently and as needed.

To learn more about Estate Media, visit their website.

Just in Case

Keep the latest industry data in your back pocket with today’s mortgage rates:

That’s a wrap on this edition of The Blueprint!

Remember: each day is a gift and a new opportunity to lead the life you want and to become the person you want to be. The mistakes and missteps you’ve made in the past don’t define you. Live as intentionally as you can and be ruthlessly focused on the goals you’ve set out to achieve. You can do it!

Thanks for reading, and have a great weekend. We’ll see you back here on Tuesday!

- James and David