Is the red hot housing market finally over?

Today we’re going to discuss pending home sales first. And that has been one of the biggest headlines that you can find out there. And rightly so since pending home sales is a lead indicator of changes in the market.

But part of that is going could also be seasonal. And I want to share a quote from Odeta Kushi. She’s the deputy chief economist from First American.

Pending home sales September 2021

Next we want to look closely at what those pending home sale numbers look like and what all the fuss is about.

This graph above shows you very clearly at the end a downward trend in pending sales that all the news outlets are to. While yes it is true we have a decline pattern starting. This decline may also be just a seasonal type decline.

Even though we have been seeing some sellers put their houses on the market later in the year, we don’t really know where that’s market is going. We may see some more inventory. We may see a bounce here.

Furthermore, we want to look at the dotted line here. This line indicates historical healthy level of pending home sales, according to the National Association of Realtors. And if we further examine January of 2019 and beyond here, we’ve been above that dotted line for quite some time nationally.

As for San Antonio market we have a chart here that shows you that San Antonio experienced a decline of 2.7% in pending home sales in August versus a 17.7% increase in pending home sales in 2021 August.

And then 2019, which we were still in a sellers’ market, 1986 pending home sales. So we’re still solidly in a sellers’ market. Maybe we have a little pullback here. It may just be seasonal. But I think we’re really looking at a lack of inventory to help push in more pending home sales and absorb pent up buyers.

Average days on the market

To further exacerbate the problem on a national level we can see here that the days on market has been in steady decline. As lenders buyers and sellers have adapted to the new market conditions homes are getting bought and completing the sales process faster and faster.

Months of inventory of homes for sale

Months of inventory on a national scale continues to hold steady at 2.6 months worth of inventory. We will keep an eye on that as this develops throughout the fall. Only time will truly tell.

Locally on the inventory front we are drag even further behind as San Antonio is still a destination area where people are moving. We’ve been around that 1.4 months level for the majority of the summer now and even lower in other areas of the greater San Antonio area for some time now.

For instance, Universal City has been near just a month of inventory all summer long.

Live Oak Texas is also super low on inventory. With less than a month of inventory at any point of the summer I smile for any seller that puts their home on the market in that little town and cringe when we have to take a buyer in to face the madness.

Affordability of homes in 2021

Moving on to affordability. The National Association of Realtors here providing the content for this graph that we’re looking at. In beginning April 2020, we’re at around a thousand dollar principal and interest payment average here. And as you can see, getting into 2021, we have a significant increase in that mortgage payment all the way up to $1,255. That’s just principal interest. So taxes, insurance is going to bring that even higher.

Locally this past year through August we experienced a 13.1% increase in August median sales price. That’s the median sales price. $260,000. That’s a 13% jump, over last year, which had a 5.9% jump. So we’re definitely headed in the upward trajectory of what people can afford. It doesn’t mean it’s not affordable. It just means that we’re starting to see a higher payments due to price.

Now let’s look at this in another perspective. Here is what mortgage payments as a percentage of income looks like. And the reason this is important is because it shows the guidance from National Association of Realtors at 25%.

And that basically says that if you’re spending 25% or less of your income, then the payment is considered to be affordable. Now, we all have our own definitions of what’s affordable to us and what’s not affordable. But based on this guidance and the historical averages, because interest rates fluctuate back and forth over time, the historical average is 21.2%. That’s what people usually are paying out of their percentage of income.

Right now, the percentage with today’s interest rates and everything else in consideration, their taxes, insurance, is 17.1%. So we still have room to run to close that gap on historical averages. And we have a lot more room to run if we’re using the National Association of Realtors’ guidance for percentage of income and your payment.

So we could still see increases in prices that are can be tolerated by today’s buyers at today’s incomes. We could also see increases in interest rates, which experts are predicting to go up and remain with in guidance.

Interest Rates for homes in 2021

Speaking of interest rates we are at 2.87% this week on a 30 year fixed Conventional. Hooray!

Historically, according to this chart, we’ve been as high as 12.7% back in the 1980s. I hope that never happens again but I guess anything is possible. The real point is experts all agree rates will go up at the beginning of next year. Not by a whole lot but enough to make a real difference to anyone shopping at their max budgets.

Bottom Line

We can only predict so far into the future. Right now it looks like more of the same but with higher rates and prices that will help slow things down. But it will still be more expensive than it is today at the end.

If you are a buyer keep on swinging! If you are a home seller that needs to buy afterwards check your calculations on how much interest you can afford to pay on the other end and considered pulling the trigger on selling now and lock in a low rate on your next purchase.

If you have questions feel free to schedule a call back with me below!