Yikes, Hikes

Throughout much of 2024 we saw list and sold prices drop, except for the fall when interest rates declined and drove up demand. Listing and sold price levels vary based on individual cites and zip codes. While sellers have adjusted to the market correction, affordability still remains a looming problem especially for first time buyers. Home prices still remain relatively high, interest rates are up and insurance premiums keep rising as do property taxes. All of which impact a buyer's affordability. Check the weekly data for the second half of this month. It appears the price trends have reversed some since last year and although some numbers are down, it's ever so slightly. However, sold prices tend to be a lagging indicator of the market. The key to market activity going forward will be interest rates and inventory levels. As interest rates rise, inventory is likely to rise in many areas, which in turn could put downward pressure on prices.

Looking at the chart below,  you can see from the left column just how much buying power is lost on each interest rate increase. This is based on a PITI payment of $3000/mo. Typically buyers are focused on their monthly payment to keep within their budget. The left side of the chart assumes a 20% down payment. On a median priced home of $400,000 (or more) a buyer would need nearly $100,000 for down payment and closing costs to get a conventional loan. The right column shows what income is required to purchase a median priced home in the metro area to keep the PITI at 28% (a typical standard), at $2413/month. In the last few years PITI has climbed much higher than 28%.

When buyers put less than 20% as down payment money, they will incur monthly costs associated with private mortgage insurance. Below is a good explanation of what mortgage insurance is and the factors lenders consider to calculate PMI. Lenders will determine a buyers risk, look at the loan to value (LTV) ratio, as well as the buyer's credit score in order to determine the amount of PMI the buyer must pay. PMI just adds additional monthly costs for buyers and in some cases eliminates their home ownership abilities.