Coming attractions 2019

Outlook: Three Mortgage-Industry Trends That We Might See in 2019

Coming attractions 2019

A new round of mortgage industry forecasts and projections suggest that higher interest rates could lead to a purchase-dominated mortgage market in 2019. Meanwhile, mortgage qualification standards have eased, and this could bring more borrowers into the market next year.

Three Mortgage Trends We Could See in 2019

As we move into the holiday season, many home buyers are looking ahead to 2019. And many of them share the same questions: What will mortgage rates do in 2019? Will it be a good time to buy or refinance a home? Here are some recent trends that could carry over into next year.

Prediction #1: Thirty-year mortgage rates could hover around 5% in 2019.

At the start of 2018, the average rate for a 30-year fixed mortgage was 3.95%. That’s based on the long-running survey conducted by Freddie Mac. As of November 8, that average had risen to 4.94%. So today’s mortgage rates are about one full percent higher than they were at the beginning of this year.

As for forecasts and projections, some analysts expect 30-year loan rates to hover around 5% for much of 2019. The Mortgage Bankers Association (MBA) recently predicted that the average rate for a 30-year fixed home loan would start 2019 at 5.0%, and then hover around 5.1% for the rest of next year.

The economic research team at Freddie Mac offered a similar prediction for mortgage rates in 2019. In an October 2018 report, the group stated:

“We anticipate that the 30-year fixed-rate mortgage will average 4.5 percent in 2018, rising to 5.1 percent in 2019 and 5.6 percent in 2020.”

So their long-range outlook mirrors the forecast issued by the MBA. Analysts from both organizations expect long-term home loan rates to hover in the low 5% range for much of next year.

Did you know? While there are different types of home loans, the 30-year fixed-rate mortgage is by far the most popular financing among borrowers today. That’s why you see it mentioned so frequently within news reports, forecasts, etc.

The key takeaway here is that there appears to be some consensus among experts that mortgage rates will remain fairly stable throughout 2019.

Prediction #2: Purchase loans will dominate the market, as refinancing activity declines.

When mortgage rates trend upward, refinancing activity tends to decline. And we’ve already talked about the steady rise in rates that has occurred during 2018.

As a result of that trend, the mortgage market in 2019 will likely be dominated by purchase loans (i.e., those used by home buyers). Mortgage refinancing activity, on the other hand, will likely decline through the end of 2018 and into 2019.

According to a November 2018 press release from the analytics firm Black Knight, almost 1.9 million homeowners across the country still “have an interest rate incentive to refinance” their homes. But the window has closed for many more. The company’s data revealed that roughly 6.5 million homeowners “have now missed their opportunity to refinance their mortgages due to rising rates.”

Bottom line: Some homeowners in the U.S. could still benefit from refinancing. But if rates continue to rise, that number will shrink. In 2019, the mortgage market will probably consist primarily of purchase loans, with a smaller percentage of refinance loans.

Related: 4 things the housing market might do

Prediction #3: Mortgage lending standards will be more relaxed, compared to previous years.

Mortgage lending criteria have eased over the past year, and this could have an impact on the 2019 mortgage market as well. The short version is that it’s generally easier to qualify for a home loan today, compared to previous years.

There are several reasons for this. For one thing, Freddie Mac and Fannie Mae have eased the criteria they use when purchasing mortgage loans from lenders. They’re allowing higher debt-to-income ratios, and higher loan-to-value ratios. This means borrowers today can qualify for a mortgage loan with a higher level of household debt, and with less money down. Generally speaking.

An October 2018 report by the property analytics company CoreLogic stated:

“Mortgage credit underwriting eased for both conventional and Federal Housing Administration (FHA) home-purchase loans during the Q2 2018 compared with a year earlier … In the last few years, GSEs have expanded their credit box to creditworthy borrowers by increasing the maximum debt-to-income (DTI) and loan-to-value (LTV) ratios.”

Note: The GSEs in the above quote are the two government-sponsored enterprises, Freddie Mac and Fannie Mae. Their purchasing criteria tend to “trickle down” to the primary mortgage market, where they affect borrowers.

We recently reported that mortgage loan denial rates have declined steadily over the last seven years or so. This is partly due to an ongoing “easing” trend within the industry.

To be honest, it’s fairly easy to “forecast” this particular trend because it’s already happening. And it’s something that will probably carry over into 2019. That’s good news for borrowers.

Disclaimer: This article includes predictions and forecasts provided by third parties outside of our company. We have presented them here as an educational service to our readers. The Home Buying Institute (HBI) makes no claims or assertions about future economic conditions.

San Diego neighborhood. Source: Flickr, dmcdevit

San Diego Gets a ‘Slow but Steady’ Housing Forecast for 2019

A recent forecast for the San Diego real estate market suggests that home prices will continue rising into 2019, but at a slower pace than the previous year.

Forecast for San Diego Real Estate Market

The real estate research team at Zillow recently predicted that the median home value for San Diego, California would rise by around 4.3% over the next 12 months. This forecast was issued in November 2018, so it stretches into the fall of 2019.

As of November, the median home value in San Diego was $629,100. That was an increase of 6.2% over the previous 12 months.

So this particular forecast suggests that house values in San Diego will rise a bit more slowly next year than they did in 2018. This mirrors broader projections for the nation as a whole. The general consensus among housing analysts and economists appears to be that annual home-price appreciation will cool a bit over the coming months.

Rising Prices Create Affordability Issues for Many

Affordability has become an issue for many would-be home buyers in the San Diego area. This is another trend that is affecting many major cities across the country, but particularly in the western coastal markets.

During the 20-year period from 1998 to 2018, the median home value in San Diego rose by around 217%. But the median household income only rose by around 77% during that same 20-year timeframe.

This is true for many cities across California. Home prices have risen at a faster pace than income over the past couple of decades, and that has created affordability issues for a lot of residents.

The bottom line is that it has become harder for a person with median income to purchase a median-priced home in the San Diego area. These affordability issues could affect the local housing market in 2019, by softening demand.

In fact, the California Association of REALTORS® pointed to this trend in its forecast for the state’s housing market, published in October:

“A combination of high home prices and eroding affordability is expected to cut into housing demand and contribute to a weaker housing market in 2019, and 2018 home sales will register lower for the first time in four years.”

Sales have declined as well. Last month, the property analytics company CoreLogic reported that home sales across San Diego County dropped by 17.5% in September, compared to a year earlier. That was the lowest level of sales activity for a September in 11 years, and it could be a side effect of the affordability issues mentioned earlier.

Clearly, there is a shift occurring here. This is partly what’s driving the more modest forecasts for the San Diego housing market in 2019.

Positive Sign: Housing Inventory Rose in 2018

One bit of good news for home buyers planning to enter the market in 2019 is that housing inventory has risen over the past year. As of September 2018, the San Diego housing market had about a three-month supply of homes for sale. That was up from a low of about 1.5 months at the end of 2017.

This means there are more homes listed for sale today than last year. This is a trend we are seeing in a lot of housing markets across the western U.S. right now. And it’s good news for home buyers, because it means they will have more properties to choose from (and possibly less competition) compared to those who purchased in the past.

Inventory growth could also have a moderating effect on annual home-price appreciation, by tilting the scales of supply and demand toward a more balanced position.

Disclaimer: This article contains predictions and forecasts relating to the housing market in San Diego, California. Those forward-looking statements were provided by third parties not associated with our company. The publishers of this website make no claims or assertions about future housing conditions.

Credit Score

Average Credit Score for FHA Borrowers Dropped to 681 in 2018

An October 2018 report published by CoreLogic (a housing analytics and research company) showed that the average credit score among home buyers using an FHA loan dropped to 681 during 2018. A few years back, during the first quarter of 2011, the average credit score among home buyers using FHA loans was 709.

This indicates that a higher percentage of borrowers with lower scores are using this particular program to finance their home purchases. It’s a trend that could continue into 2019.

Related: Mortgage denial rates have dropped

Average Credit Score Among FHA Home Buyers

CoreLogic’s study examined a variety of trends relating to mortgage underwriting standards, for both FHA and conventional home loans. Among other things, they discovered that the average credit score among home buyers using the FHA program has dropped steadily over the last seven years or so.

To quote the report:

“Since Q2 2011, the average credit score of homebuyers with FHA loans has declined steadily (709 in Q1 2011 to 681 in Q2 2018) making loans more accessible to borrowers with moderate credit history.”

In contrast, the average score among home buyers using a conventional mortgage loan has remained largely unchanged since 2009. It has hovered within the range of 758 – 763 over the last nine years or so.

Terminology: FHA loans are originated by mortgage lenders and insured by the Federal Housing Administration, a government agency. Conventional loans, on the other hand, are not insured or guaranteed by the government. That’s the primary difference between these two financing options.

So it seems that the credit standards used by mortgage lenders have eased over the years for FHA borrowers, while holding steady for conventional borrowers.

The key takeaway for borrowers is this. If you have a relatively low score, you might have an easier time getting approved for an FHA loan than conventional. But it’s still wise to explore all of your financing options.

How Low Can You Go?

The 680 credit score mentioned above is just the average among FHA home buyers for the second quarter of this year. The official minimum required score is quite a bit lower. But here, it’s important to understand the difference between the program requirements set forth by HUD, and the requirements of individual mortgage lenders.

The FHA loan program is managed by the Federal Housing Administration, which falls under the Department of Housing and Urban Development (HUD). According to HUD Handbook 4000.1, borrowers need a “minimum decision credit score” of 500 or higher to be eligible for an FHA loan. A score of 580 or higher is required for maximum financing, and to take advantage of the 3.5% down payment option.

But those are just the official minimums. Mortgage lenders can set their own standards for credit scores as well, and these can vary from one lender to the next. So the only way to know if you qualify for the program is by speaking to an FHA-approved mortgage lender (or more than one, ideally). Meeting the minimum credit score requirement, by itself, does not automatically qualify a borrower for this program.

FHA Borrowers Are Carrying More Debt as Well

The above-mentioned report also showed that the average debt-to-income (DTI) ratio has risen, among home buyers using this program. It said that the “DTI for FHA loans started to rise after Q2 2015 and had reached its highest level in at least 14 years during Q2 2018 at 43 percent, up from 42 percent in Q2 2017.”

This means that borrowers are qualifying for and using FHA-insured mortgage loans with a higher level of debt than before, on average. So there appears to be some easing in this area as well.

Jacksonville waterfront

Jacksonville Leads Housing Forecasts Among Florida’s Major Cities

Jacksonville waterfront

Florida’s statewide Realtor association recently issued an overall rosy assessment of the state’s real estate market. Forecasts from other industry groups suggest that home prices in Jacksonville could rise by double digits over the next year, outpacing most other Florida cities.

Forecasts for Biggest Housing Markets in Florida

According to a November 1, 2018 press release from Florida Realtors®, the state’s “housing market had more sales, higher median prices, more pending sales and more new listings in 3Q 2018,” compared to the same time a year ago.

That’s for the state as whole. But when it comes to buying a home, local conditions matter more than statewide trends. And home-price appreciation can vary widely from one city to the next. So we looked to the housing and economic research team at Zillow to see what they expect for 2019, at the city level.

As it turns out, Jacksonville has one of the strongest housing market forecasts stretching into 2019. Zillow’s analysts predicted that the median home value in Jacksonville would rise by a whopping 12.6% over the next year. (This forecast was issued at the end of October 2018, so it extends into the fall of 2019.)

For comparison, here are Zillow’s predictions for other major cities in Florida.

  • Tampa: At the end of October 2018, the median home value in Tampa was around $216,000. At that time, the company was predicting that the median would rise by 6% over the next 12 months.
  • Orlando: The median house value in Orlando, Florida rose to around $234,000 as of fall 2018. That was a gain of roughly 10% from a year earlier. Looking forward, the group predicts that the median home price in Orlando will rise by 5% through fall of 2019.
  • St. Petersburg: The housing market in St. Petersburg has also experienced double-digit home price growth over the last year or so. By Zillow’s estimate, the median value rose 12.1% over the past 12 months (as of November 1, 2018). Their one-year forecast for this market calls for an additional gain of 5% over the next year.
  • Tallahassee: Among the major cities in Florida, Tallahassee had one of the lowest median home values. Zillow estimated it at $177,400, as of November 1. They predicted that the median home price in Tallahassee would rise by 4.3% over the coming year.
  • Sarasota: The real estate market in Sarasota has experienced smaller price gains than the cities listed above. The median home value for the city rose 5% over the past year, with a 12-month forecast calling for an additional 4% in appreciation.
  • Miami: As of fall 2018, the median house price within the Miami real estate market had reached $333,600. That marked a rise of about 4.6% over the previous year. The company’s economists predicted that the median value would rise by 3.6% over the next year or so.
  • Palm Beach: One of Florida’s most expensive real estate markets, Palm Beach has experienced a leveling of home values. In fact, Zillow reported a slight dip in the median home value for Palm Beach over the past year. Looking forward, however, they predict that the median price point will rise by 2.5% over the next year.
  • Cape Coral: Among the major Florida cities on this list, Cape Coral had the weakest housing market forecast extending over the next 12 months. At least, in terms of price growth. As of November 1, 2018, Zillow was forecasting a one-year change of just 0.1% for this market.

Granted, these are just forecasts. They are the equivalent of an educated guess based on current housing trends and expectations for the near future. So we probably shouldn’t get too hung up on the exact numbers being forecasted here.

The big takeaway here is that, while home prices across Florida are expected to rise in 2019, conditions can vary quite a bit at the city level. Home buyers who are planning to enter the real estate market in 2019 should research local conditions, as part of their preparation.

Disclaimer: This article contains predictions and forecasts for various housing markets across Florida. Those forward-looking statements were issued by third parties not associated with our company. As a general rule, the Home Buying Institute does not make claims or assertions about future housing conditions.

FHA logo

Analysis: FHA Loans Most Popular in Rhode Island, Mississippi, Maryland

According to data collected by the Urban Institute, Rhode Island is the number-one state in the country for FHA loan usage. Mississippi and Maryland also had a relatively high percentage of FHA loans last year, compared to the nation as a whole.

FHA Loans Most Popular in Rhode Island, Mississippi & Maryland

The Urban Institute (an economic research group based in Washington, D.C.) conducts extensive research into various housing-related trends in America. Among other things, they gather data relating to the different kinds of home loans that are used by borrowers nationwide, and at the state level.

Their website offers an interactive map tool that gives insight into all kinds of housing and mortgage-related metrics. We used that tool to determine which states in the U.S. had the highest percentage of FHA loans (as a share of overall mortgage lending activity).

As it turns out, Rhode Island is the number-one state in the nation in terms of FHA loan usage by borrowers. According to the Urban Institute, 38.5% of home buyers in Rhode Island used an FHA loan in 2017. That’s quite a bit higher than the national average of 24.8% during the same period.

While Rhode Island had the highest percentage of FHA loans among U.S. states last year, the conventional home loan still reigned supreme. Nearly 55% of home buyers in that state used conventional mortgage loans to finance their purchases last year.

Here’s the basic difference between these financing options:

  • FHA loans are insured by the government, via the Federal Housing Administration. Borrowers must make a down payment of 3.5%. Mortgage insurance is required and might have to be paid for the “life” of the loan.
  • Conventional loans are not insured or guaranteed by the government. Eligible borrowers could make a down payment as low as 3%. Mortgage insurance is typically required when the loan-to-value ratio is above 80%, but it can usually be canceled when the homeowner reaches 80% equity.

Mississippi and Maryland also had a relatively high percentage of FHA loans used by home buyers in 2017. FHA-insured mortgage loans accounted for 33.6% of all purchase loans in Mississippi last year, and accounted for 31.4% in Maryland. The national average was 24.8%.

Other Insights About Loan Programs

The Urban Institute’s interactive map reveals other insights regarding the type of home loan used in states across the country. Here are a few notable highlights:

  • Alaska and Hawaii had the highest percentage of VA loans last year, followed by Virginia. At 4.3%, the state of New Jersey had the lowest percentage of home purchases backed by a VA loan.
  • Among U.S. states, Wisconsin had the highest percentage of conventional loans among home buyers who purchased a property in 2017. Conventional mortgage financing accounted for 73.8% of purchases in Wisconsin last year.
  • Alaska, West Virginia and Mississippi had the highest percentage of low-down-payment home purchases (i.e., those with an investment of 3.5% or below).
  • On average, down payments were highest in Washington, D.C., California and Oregon. In those states, the percentage of home buyers who put down 20% or more was higher than all other states.
  • Among U.S. states, New York, Connecticut and New Jersey had the highest percentage of first-time buyers last year. In all three of those states, about 60% of home purchases in 2017 were made by first-time buyers.

Note: The Home Buying Institute offers a number of tutorials and explainers on the different types of loans that are available these days. Here’s a good starting point for additional research.

application rejected

Too Much Debt: the #1 Reason for Mortgage Rejection Last Year

Editor’s note: This is the second article in a two-part series. In part one, we explained how the overall rate of mortgage loan rejection has declined steadily over the last few years. This report focuses on the leading cause of application denial.

According to a recent housing report, the “debt-to-income ratio” was the most common cause of mortgage rejection in the United States during 2017. It led to more home loan denials than any other single factor. That’s partly because Americans are carrying more debt these days, on average.

Debt-to-Income: Leading Cause of Mortgage Rejection

In October 2018, the real estate analytics company CoreLogic put out a detailed report relating to mortgage denial in the U.S. The good news was that the rate of loan denials dropped steadily from 2010 to 2017. This means that a higher percentage of borrowers have been reaching the “finish line” and successfully closing on their loans, compared to previous years.

This report also listed the most common reasons for mortgage loan rejection. Excessive debt topped the list.

This kind of data is publicly available, thanks to the Home Mortgage Disclosure Act (HMDA). This federal law requires lenders to report a variety of details about the individual loans they make. The information goes into a database, where it can be mined for insight. Among other things, the HMDA asks lenders to provide the reason for denial, in cases where they turn down or reject a mortgage loan application.

CoreLogic analyzed HMDA data to produce its recent report. To quote that report:

“According to the 2017 HMDA data, 30.3% of denied applications attributed ‘debt-to-income ratio’ as the primary reason for mortgage loan denial, up from 28.8% in 2016 and 28.2% in 2015. In fact, since 2015 it has become the number one reason that lenders have turned down purchase-mortgage applications.”

In earlier years, a poor credit history was the number-one reason for mortgage rejections nationwide. But the debt-to-income ratio has surpassed credit history over the past few years, making it the top reason why loan applications get turned down.

Definition: The debt-to-income ratio, or DTI, is a numerical comparison between (A) the borrower’s gross monthly income and (B) the amount of money he or she spends on recurring monthly debts. The combined or “back-end” DTI, which lenders are most concerned with, includes all types of recurring debt such as auto loans, credit cards, and the mortgage loan itself.

While mortgage lenders consider a variety of factors when reviewing loan applications. They examine bank balances, employment history, credit scores and more. They also use the DTI to ensure that a person isn’t taking on too much debt relative to their income. And based on this report, it’s the debt-to-income comparison that leads to the most mortgage rejections.

Related: How much debt is too much?

DTI Standards Are More Relaxed Today, as of 2018

Here’s some good news to counter the doom and gloom above. The standards for debt-to-income ratios have actually eased over the last couple of years. These days, mortgage lenders are allowing borrowers to have a higher level of debt.

This is largely due to policy changes made by Freddie Mac and Fannie Mae. Those are the two “government-sponsored enterprises,” or GSEs, that buy loans from lenders and sell them to investors. Fannie and Freddie are now regulated by the government, and they have strict criteria for the kinds of loans they can purchase. One of those criteria has to do with the debt-to-income ratio.

Over the last couple of years, Fannie and Freddie have increased their maximum allowable DTI for the loans they purchase. The limit rose from 45% to 50%, allowing borrowers to qualify with higher debt levels than before.

Meanwhile, however, the average level of household debt in America continues to rise. According to an August 2018 Reuters report:

“Americans’ borrowing reached $13.29 trillion in the second quarter, up $454 billion from a year ago, marking a 16th consecutive quarter of increases, a New York Federal Reserve report released on Tuesday showed.”

So while the DTI limits are higher now than in previous years, so too is the average level of debt among borrowers. This is likely the leading cause in the rise of DTI-related mortgage loan rejections.

application rejected

Mortgage Denial Rates Have Declined Over the Past Seven Years

Editor’s note: This is the first in a two-part series. This article explains how the overall rate of mortgage loan denial in the U.S. has declined steadily in recent years. Part two examines the leading cause of rejection, which is the debt-to-income ratio.

There’s some good news on the mortgage front. A recent industry report showed that the rate of mortgage loan denials has dropped steadily over the last seven years or so.

That means a higher percentage of mortgage applicants are being approved for financing these days. It’s the latest sign of a general easing trend within the lending industry.

Mortgage Loan Denials Have Declined Steadily

Earlier this month, the property information company CoreLogic published a detailed report on mortgage denial rates in the U.S. The overall percentage or rate of mortgage denials nationwide dropped steadily from 2010 to 2017.

The rejection rate peaked at nearly 19% during 2007. That was back when the housing market and mortgage industry was starting its meltdown, and lenders were drawing back. The denial rate would eventually drop to 10% ten years later, in 2017.

According to the report: “[Mortgage] denial rates have steadily declined through the housing recovery and a growing economy – and were lower in 2017 than in 2004. In 2017, only about 1-in-10 applications were turned down.”

Terminology: In this context, a loan “denial” occurs when a person applying for a mortgage gets turned down by the lender for whatever reason. The denial rate shows the percentage of applicants who were turned down, based on total loan application volume for that period.

To produce their report, CoreLogic used data obtained through the Home Mortgage Disclosure Act (HMDA). Among other things, the HMDA requires lenders to report a variety of loan-level information, including the reasons for loan denials in many cases. This act is primarily designed to prevent discrimintation by lenders. But it also yields valuable insights into various mortgage-industry trends, including denial rates.

It’s worth noting that in 2017, the loan rejection rate was the lowest it had been in over a decade. To put it differently, the application success rate for 2017 was the highest it has been in over ten years. That means a higher percentage of borrowers are getting approved for home loans these days.

An Easing Trend in the Lending Industry

The report mentioned above did not speculate as to why the rate or mortgage denials has declined in recent years. But it probably has to do with the overall “easing” trend within the lending industry. This is something we’ve reported on in the past. Over the past few years, it has become easier for borrowers to qualify for home loans.

For instance, Freddie Mac and Fannie Mae are now allowing higher debt levels among borrowers, for the loans they purchase from lenders. This has made it easier to qualify for financing, particularly for those borrowers with relatively high levels of debt. Standards have become more relaxed in other areas as well.

It’s logical that a general easing of borrower qualification requirements would lead to a higher closing rate, and a lower rate of denials. That’s likely the case here.

There are many reasons why a mortgage application might get turned down. They range from debt-related problems to credit issues. Having insufficient income for the desired loan amount is another factor that often leads to rejection. Borrowers must be able to demonstrate that they have enough income to make their monthly payments.

As it turns out, having too much debt is one of the most common reasons for home loan denial in the U.S. And that’s not surprising, when you consider that Americans are carrying more debt these days.

Price reduced sign

Hot Housing Markets Like Denver, San Jose and Seattle Are Cooling

Price reduced sign

A recent report showed that some of the nation’s hottest housing markets are beginning to slow down. Slower home sales have been reported in housing markets like Denver, Oakland, Seattle and San Jose.

But despite this trend, the latest real estate forecasts suggest that home prices in most of these “cooling” markets will continue to climb in 2019.

Hot Housing Markets Are Slowing Down

Is a cooling trend coming to the U.S. real estate market? In some cities and metro areas, the answer appears to be yes. In fact, cooling trends are being reported for some of the nation’s hottest housing markets, like Denver, San Jose and Seattle.

According to a recent report published by Redfin, a nationwide real estate brokerage, the markets with the fastest home sales during the spring of 2018 are now experiencing a significant slowdown.

The company based its analysis on the speed at which homes sell within a particular area. In some of the hottest and fastest-moving real estate markets (like Seattle and San Jose), the average number of days on market has dropped considerably. This suggests a softening of demand in those areas.

To quote the report:

“…this spring [2018] there were fourteen metro areas around the country where half or more of the homes that were listed for sale between March 5 and April 29 went under contract within two weeks. By mid-September, every single market saw its share of homes selling that quickly fall to below 50 percent, with spring’s fastest markets, namely Seattle and San Jose, California, seeing the largest declines, falling by more than 35 percentage points since spring and over 20 percentage points from a year earlier.”

In other words, homes are staying on the market longer in these and other hot housing markets across the country.

And that’s not surprising, when you consider how much home prices have risen in those areas. In San Jose, for example, the median home value rose by a whopping 19% over the past year according to Zillow. Denver and Seattle (also cited in this report) have also experienced steady price growth over the past few years — though nothing like San Jose.

So perhaps these markets are “topping out” in terms of affordability. It’s a cycle we’ve seen many times in the past. When prices rise to the point that the average resident cannot afford to buy a median-priced home, it leads to a weakening of demand. This in turn takes some of the steam out of home-price appreciation.

Sellers Dropping Their Asking Prices

Price reductions are also becoming more common in the nation’s hottest housing markets, like Denver, Seattle and San Jose. Sellers in these and other areas are realizing there’s not the same level of demand as there was in 2016 or 2017. Homes are staying on the market longer.

“As a result, sellers are having to wait longer for offers, and more sellers are dropping their list price to attract buyers,” said Daryl Fairweather, Redfin’s chief economist.

The table below includes some of the hottest real estate markets in the U.S. For each metro area, it shows the percentage of homes that went “off market” or under contract in two week or less. By comparing the August-to-September columns for 2017 and 2018, we can see which markets appear to be slowing down. These include Seattle, San Jose, Portland, Oakland and (to a lesser extent) Denver.

Percent of Homes that Went Off Market in Two Weeks or Less
Metro Area Aug. 14 –
Sept. 10, 2017
Mar. 5 – Apr. 29,
Aug. 13 –
Sept. 9, 2018
Warren, MI 37% 51% 35%
Tacoma, WA 41% 61% 39%
Seattle, WA 56% 72% 35%
San Jose, CA 58% 66% 31%
San Francisco, CA 45% 54% 40%
Sacramento, CA 38% 50% 32%
Portland, OR 42% 52% 33%
Omaha, NE 42% 59% 47%
Oakland, CA 50% 61% 38%
Grand Rapids, MI 41% 58% 44%
Denver, CO 47% 62% 41%
Cambridge, MA 49% 60% 44%
Boston, MA 39% 52% 38%
Boise, ID 27% 52% 36%

We can also discern from this table that the “cooling” trend is not happening in all of the hot real estate markets. In fact, the percentage of homes that went under contract in two weeks or less actually rose in some metros, from 2017 to 2018. Boise, Omaha and Grand Rapids all fall into that category.

According to Redfin:

“The common factor among the metro areas that are not slowing down: they’re all smaller cities away from the coasts where homes are much more affordable.”

What conclusions can we draw from this? Among other things, these trends suggest that a lack of affordability is possibly the biggest factor that is causing the nation’s previously red-hot markets to cool down.

Related: Forecasts for 35 largest U.S. metros

Forecast: Home Prices Expected to Keep Rising

Despite the slowing sales cited above, hot housing markets like Seattle, San Jose and Denver still tend to favor sellers over buyers. Strong demand and limited inventory will keep these markets highly competitive for the foreseeable future.

The latest forecasts suggest that these metro areas could see smaller home-price gains in 2019, compared to the past couple of years. But prices are expected to continue rising in San Jose, Denver, and nearly every other city in the table above.

The bottom line to all of this: While some of the nation’s hottest housing markets are cooling, they clearly haven’t gone “cold.” Home sales might be slowing, and price growth might be happening at a slower pace than in previous years. But these markets are still very competitive for home buyers.

Hilly San Francisco

California Housing Forecast for 2019: Rising Prices and a ‘Weaker’ Market

On October 11, the California Association of REALTORS® (C.A.R.) published its 2019 California Housing Market Forecast. Among other things, the industry group predicts that rising home prices and reduced affordability will lead to a slower, weaker housing market in 2019.

California Housing Market Forecast for 2019

Affordability has become a big problem in many real estate markets across the state of California. This is especially true within the San Francisco Bay Area, where a typical resident with average income can scarcely afford to own a home. These issues have also arisen in some of the large coastal cities like San Diego and Los Angeles.

According to the C.A.R. forecast for the California housing market in 2019, these trends could result in weaker demand and fewer home sales next year.

“A combination of high home prices and eroding affordability is expected to cut into housing demand and contribute to a weaker housing market in 2019, and 2018 home sales will register lower for the first time in four years,” the group stated.

They expect to see a modest decline in the sale of existing single-family homes next year, along with a general cooling trend for prices. According to C.A.R. president Steve White: “While home prices are predicted to temper next year, interest rates will likely rise and compound housing affordability issues.”

During 2017, the median home price for the state of California rose by 7.2% year over year. During 2018, it is expected to rise by around 7%. But looking forward, into 2019, C.A.R. predicts that the median home value will rise by just 3.1%.

Of course, real estate conditions can vary widely from one city to another. Most of their 2019 housing market forecast pertains to California as a whole. But when you drill down to the city and metropolitan level, there’s quite a bit of variance.

For example, in the tech-driven city of San Jose, home prices are expected to rise by much more than the 3.1% figure projected for the state as a whole. The economic research team at Zillow recently predicted that the median home value in San Jose would rise by nearly 14% over the next 12 months (through October 2019). That bold forecast is largely due to strong demand and tight inventory conditions in San Jose.

Statewide, however, the C.A.R. forecast predicts slower home-price growth during 2019 compared to this year and last.

Rising Mortgage Rates, Home Prices Could Reduce Affordability

The state’s Realtor association also predicted a slight rise in mortgage rates for 2019. They anticipate that the average rate for a 30-year fixed home loan will rise to 5.2% in 2019, compared to an average of 4.7% in 2018. This long-range outlook closely resembles forecasts issued recently by both Freddie Mac and the Mortgage Bankers Association (more).

Granted, that’s not a huge increase in lending rates. But when you add in the prospect of additional home-price gains, it could definitely reduce affordability for a lot of would-be buyers. This is partly why the C.A.R. forecast for California’s housing market predicts fewer home sales in 2019. With steadily rising costs, fewer and fewer people will be able to afford a home purchase.

According to the report: “The California median home price is forecast to increase 3.1 percent to $593,450 in 2019, following a projected 7.0 percent increase in 2018 to $575,800.”

Disclaimer: This article includes forecasts and predictions for the California real estate market in 2019. Those projections were made by third parties not associated with the Home Buying Institute. As a general rule, HBI makes no claims or predictions about future housing conditions.

Real estate closing

Average Closing Costs in U.S. and 33 Largest Metros, as of 2018

A housing report published in October showed the average amount of closing costs paid by a “typical” home buyer in 33 of the largest metropolitan areas in the United States. Nationally, home buyer closing costs averaged $6,246 in July of 2018. Among the metros included in this report, costs were lowest in Cincinnati, Ohio ($4,259) and highest in the New York City area ($11,232).

Average Closing Costs Among Home Buyers: 2018

This report was created by the real estate information company Zillow and the San Francisco-based company Thumbtack. Though it was published in October, it used home-price data from July of 2018. Those home values are likely higher now than they were back in the summer. So the average closing costs might be a bit higher as well.

Still, this analysis gives us some insight into what a typical home buyer pays to close on a home. It also provides a good comparison between buying costs in different parts of the country.

The following table was adapted from the Zillow / Thumbtack report:

Metropolitan Area Median Home Value (July 2018) Closing Costs
United States $218,000 $6,246
Atlanta, GA $206,300 $4,877
Austin, TX $298,000 $6,352
Baltimore, MD $264,700 $8,196
Boston, MA $456,400 $8,410
Charlotte, NC $196,800 $4,411
Chicago, IL $219,800 $7,322
Cincinnati, OH $162,000 $4,259
Cleveland, OH $141,500 $4,286
Columbus, OH $182,600 $4,286
Dallas-Fort Worth, TX $231,100 $6,352
Denver, CO $397,800 $5,962
Detroit, MI $156,100 $4,366
Houston, TX $199,300 $6,352
Kansas City, MO $182,600 $5,012
Las Vegas, NV $266,200 $5,559
Los Angeles-Long Beach-Anaheim, CA $643,300 $7,674
Miami-Fort Lauderdale, FL $275,700 $7,398
Minneapolis-St Paul, MN $261,300 $5,271
New York, NY $429,700 $11,232
Orlando, FL $228,700 $7,398
Philadelphia, PA $228,400 $6,701
Phoenix, AZ $256,000 $4,849
Portland, OR $391,800 $5,403
Riverside, CA $358,600 $7,674
Sacramento, CA $400,800 $7,674
San Antonio, TX $185,900 $6,352
San Diego, CA $584,100 $7,674
San Francisco, CA $954,100 $7,674
San Jose, CA $1,292,600 $7,674
Seattle, WA $487,600 $5,741
St. Louis, MO $161,800 $5,705
Tampa, FL $205,900 $7,398
Washington, DC $397,500 $8,201

Charges and Fees for a Real Estate Transaction

Closing costs are the various fees and charges that can accumulate during a typical real estate transaction. Both the buyer and seller can incur them. The buyer’s closing costs are usually higher, especially when a mortgage loan is being used to complete the purchase.

They can be paid separately by the individual parties, or the seller can agree to cover some of the buyer’s costs. It varies. These kinds of details are typically ironed out during initial negotiations and written into the purchase agreement. Who pays what will largely depend on the current state of the local real estate market, and which party has more negotiating leverage.

Closing costs can vary widely from region to region, partly due to differences in housing costs, taxes, etc. You can see this clearly in the table above.

They can also vary from one home buyer to the next within the same region. For instance, some borrowers choose to pay points at closing in exchange for a lower mortgage rate. Others choose to forego this extra upfront cost, taking a higher interest rate instead. This is just one example of a variable that can affect the buyer’s finalized closing costs.

According to the Zillow report mentioned earlier:

“Closing costs add thousands more to the total amount buyers should be prepared to pay. These costs frequently include the origination fee, appraisal, transfer taxes, the first year of homeowners insurance, title insurance, and more. These add about $6,250 to buyers’ expenses on the home purchase for the median home.”

On average, closing costs for buyers in the U.S. range from 2.5% to 5% of the purchase price. Borrowers with limited funds in the bank could potentially reduce their upfront costs by comparison shopping among lenders, skipping the discount points, and asking the seller to make a concession.