The average profit margin on median-priced single-family home and condo sales hit 59%. That’s up from 56.6% in Q2 2023, according to new data from ATTOM’s U.S. Home Sales Report for Q3 2023.

The rebound of the U.S. housing market has pushed the median nationwide home price up to a new high of $350,000. This contrasts with the trend in 2022-2023, which was perceived as a reverse of the decade-long market boom.

Gross profits on typical single-family home and condo sales increased 5% quarterly to $129,900 and were up 3.2% annually.

The uptick was attributed to historically low supply,consumer-price inflation, stock market declines, and a rising unemployment rate.

Typical profit margins increased from Q2 to Q3 2023 in 85 of 155 metro areas with sufficient data. They remained down annually in 103 (66%) metros.

The biggest quarterly profit-margin increases in metros of least 1 million were:

• Birmingham, AL: 41.2% to 50.9%
• Buffalo, NY: 73.9% to 82.9%
• Rochester, NY: 65.4% to 71.9%
• Kansas City, MO: 44.5% to 50.2%
• Tucson, AZ: 59.1% to 64.8%

The biggest quarterly profit-margin decreases for metros of least 1 million in population were:

• San Jose, CA: -7.3% (from 105.4% to 98.1%)
• Fresno, CA: -6.3% (from 77.1% to 70.8%)
• Raleigh, NC: -5.6% (from 61.9% to 56.3%)
• San Diego, CA: -4.9% (from 78.7% to 73.8%)
• Austin, TX: -4.8% (from 50.3% to 45.5%)

Median home and condo prices increased in 110 (71%) of the 155 metro areas analyzed in Q3 2023. Additionally, prices rose annually in 125 of those areas (81%).

Nationwide, the median home price reached a new high of $350,000. This marks a 2% increase from the previous record of $343,000 in Q2 2023. It’s also up 6.1% from $329,900 in Q3 2022.

Metro areas with the biggest increases in median home prices from Q2 2023 to Q3 2023 were:

• Buffalo, NY: +14.7%
• Scranton, PA: +11.4%
• Trenton, NJ: +11.1%
• New York, NY: +9.9%
• Syracuse, NY: +9.8%

Home prices reached new highs in 86 out of 155 metro areas (55%) during the third quarter of 2023. Metro areas with a population of over 1 million that set or tied records during this period include:

• New York, NY
• Chicago, IL
• Philadelphia, PA
• Miami, FL
• Atlanta, GA

Metro areas with a population of at least 1 million experienced the largest decline in median home prices from Q2 to Q3 2023:

• New Orleans, LA: -5.2%
• Indianapolis, IN: -4.6%
• San Francisco, CA: -4.4%
• Austin, TX: -4%
• Dallas, TX: -3%

In Q3 2023, all-cash purchases made up 36.6% of single-family home and condo sales nationwide. That’s a slight increase from 36.4% in Q2 2023 and up from 35.2% in the same quarter last year.

Institutional investors across the country accounted for 5.9% (1 in every 17) of single-family home and condo purchases. This is down from 6.2% in Q2 2023 and 7.6% in Q3 2022, reaching the lowest level since Q4 2020.

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• The average 30-year fixed-rate was 7.63% as of October 19, 2023. That’s up slightly from the previous week’s average of 7.57%. A year ago, it was 6.94%.
• The average 15-year fixed-rate was 6.92%. That’s up from 6.89% last week. A year ago, it was 6.23%.

With rates continuing their ascent toward 8%, Sam Khater, Freddie Mac’s Chief Economist, advised borrowers to shop around with multiple lenders for the best rates. He also advised first timers to find out about down payment assistance programs.

“With research showing down payment is the single largest barrier to first-time homebuyers attaining homeownership, borrowers should also ask their lender about down payment assistance,” he said.

Numerous down payment assistance programs are available nationally, including Freddie Mac’s DPA One.

Khater said that it’s not just homebuyers that are feeling the pinch of rising rates. Homebuilders are feeling it as well.

“Incoming data shows that the construction of new homes rebounded in September but as rates keep rising, home builders appear to be losing confidence,” he said. “As a result, we expect construction to trend down in the short-term.”

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The U.S. Department of Housing and Urban Development (HUD) and Federal Housing Administration (FHA) have a new policy that allows lenders to include rental income from Accessory Dwelling Units (ADUs) in borrowers’ qualifying income when underwriting mortgages.

An ADU is defined as any single habitable living unit with separate ingress and egress which meets minimum dwelling requirements, that may be added onto or detached from a primary one-unit single-family home.

The policy helps more first-time homebuyers, seniors, and inter-generational families to build wealth by leveraging the power of ADUs.

Here are the new policies:

• Allow 75% of the estimated ADU rental income for some borrowers to qualify for an FHA-insured mortgage on a property with an existing ADU. This additional income flexibility will help to increase access to homes with ADUs for homebuyers with limited incomes, allowing them to benefit from the wealth-building opportunity of a property with an ADU.
• Use 50% of the estimated rental income, for some borrowers, from a new ADU the borrower plans to attach to an existing structure, such as in a garage or basement conversion, to qualify for a mortgage under FHA’s Standard 203(k) Rehabilitation Mortgage Insurance Program. This will enable more homeowners with limited incomes to build ADUs, helping them sustain homeownership and expanding the production of ADUs as rental housing.
• Include ADU-specific appraisal requirements for appraisers to clearly identify, analyze, and report on ADU characteristics and the estimated rent the ADU can be expected to generate. The guidance provided in the Mortgagee Letter will assist appraisers to more accurately determine the market value of a property with an ADU and also will help advance the maturation of ADU valuation, thereby increasing access to ADU financing as more cities and states remove zoning barriers.
• Add ADUs to the types of improvements that can be financed under FHA’s mortgages for new construction. This allows new homes to be built with ADUs from the ground up, an important source of ADU production in addition to rehabilitating existing structures.

FHA-approved lenders may begin offering borrowers mortgages on properties with ADUs under the new policies effective immediately.

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Despite this, the increase brought a partial recovery from August’s housing starts decline.

The rebound is likely due to permits approved months ago before mortgage rates surpassed 7%. According to a survey this week, homebuilder confidence dropped to a nine-month low in October. Builders reported reduced levels of traffic.

Housing starts increased 3.2% in Midwest, West, and South but plunged 19% in Northeast. Overall housing starts accelerated 7%. But multi-family building permits dropped 14%.

“The under-construction pipeline remains extremely elevated relative to historical averages, suggesting that a backlog of inventory will be coming to market in the next few months and years,” said Colin Johanson, an economist at Barclays in New York. “This backlog, once in the market, could help alleviate price pressures, although this remains to be seen until the under-construction number begins to show consistent declines.”

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MBA’s Market Composite Index, which measures mortgage application volume, dropped 6.9% on a seasonally adjusted basis compared to the previous week. On an unadjusted basis, the Index decreased by 7% compared to the previous week.

Meanwhile, the Refinance Index declined by 10% from the previous week and was 12% lower than the same week last year. The seasonally adjusted Purchase Index dropped 6% compared to one week earlier. The unadjusted Purchase Index fell by 5% compared to the previous week and was 21% lower than the same week last year.

“Applications decreased to their lowest level since 1995, as the 30-year fixed mortgage rate increased for the sixth consecutive week to 7.70 percent – the highest level since November 2000,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Both purchase and refinance applications declined, driven by larger drops for conventional applications. Purchase applications were 21 percent lower than the same week last year, as homebuying activity continues to pull back given reduced purchasing power from higher rates and the ongoing lack of available inventory. The ARM share was 9.3 percent, the highest share in 11 months, as some borrowers look for alternative ways to lower their monthly payments. Refinance activity was at its lowest level since early 2023. There is very limited refinance incentive with mortgage rates at multi-decade highs.”  

The Refinance Index dropped to 30.5% of total applications. It was 31.6% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 9.3%, accounting for their highest share in 11 months. This is likely the product of people looking for alternative ways to lower monthly payments.

The share of FHA mortgage applications rose to 14.8% from 14.4% the previous week. The share of VA applications rose to 10.7% from 10.2% the previous week. The share of USDA mortgage applications remained steady at 0.5% from the prior week.

Average contract interest rates:

• The 30-year conforming fixed rose to 7.70% from 7.67%. Points fell to 0.71 from 0.75. The effective rate also increased from last week.
• The 30-year jumbo fixed dropped to 7.56% from 7.70%. Points increased to 0.85 from 0.57. The effective rate declined from last week.
• The 30-year FHA fixed fell to 7.36% from 7.40%. Points dropped to 1.02 from 1.08. The effective rate also decreased from last week.
• The 15-year fixed increased slightly to 6.98% from 6.97%. Points decreased to 1.04 from 1.18. The effective rate decreased from last week.
• The 5/1 ARMs rate rose to 6.52% from 6.33%. Points rose to 1.50 from 0.90. The effective rate increased from last week.

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In several areas, like Phoenix, Seattle, Boston, Miami, and Salt Lake City, mortgages remain prohibitively expensive.

People in the highest-paying occupation group in Cleveland, Milwaukee, and Memphis can easily afford a mortgage. In Cleveland, someone in the legal profession could have an extra $1,095 per month to spare. In Milwaukee and Memphis, that surplus is $990 and $973, respectively.

In California’s high-cost metros, like San Jose, San Francisco, and San Diego, major affordability challenges plague even those in the highest-paying job groups. In San Jose, the mortgage payment for a median-value home is $4,115 more than what someone in the computer and mathematical field can comfortably afford. In San Francisco and San Diego, the difference is $2,821 and $2,378, respectively.

The highest-paying occupation groups vary across metros.

• Legal occupations offer the highest median earnings in 19 of the nation’s 50 largest metros
• Architecture and engineering occupations lead in 15 metros
• Computer and mathematical occupations come first in 11 cities
• Law enforcement occupations lead in three metros
• Health diagnosing and treating practitioner occupations top the list in two cities

The 10 least affordable metros for the highest-paying occupation groups are:

• San Jose, CA
• San Francisco, CA
• San Diego, CA
• Los Angeles, CA
• Boston, MA
• Seattle, WA
• Riverside, CA
• Portland, OR
• Denver, CO
• New York, NY

The top 10 most affordable metros for the highest-paying occupation groups are:

• Cleveland, OH
• Milwaukee, WI
• Memphis, TN
• Detroit, MI
• Pittsburgh, PA
• Charlotte, NC
• Kansas City, MO
• New Orleans, LA
• St. Louis, MO
• Richmond, VA

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“The housing market today also faces a recession very similar to that of the late ‘70s and early ‘80s… In the late ‘70s and early ‘80s, interest rates soared as the Federal Reserve fought to rein in the ‘Great Inflation.’ Sound familiar?” said Mark Fleming, chief economist at First American.

In addition to high inflation and mortgage rates, baby boomers were entering their prime homebuying years at that time. Just like millennials are today.

What happened during that period? Fleming reminds that during the late 70s and early 80s, tighter monetary policy and higher inflation caused mortgage rates to jump to 18%.

Existing home sales dropped nearly 50% from the 1978 peak to the 1982 trough, he said. In today’s market, they’ve fallen almost 40% from the January 2022 peak to August 2023. In 1978, home prices jumped over 14%. Similarly, in 2022, they jumped 17%. By 1982, price growth slowed to 1%. Likewise, by Q2 2023, growth dropped to 5%.

“As mortgage rates reached levels unseen before or since, homes became significantly less affordable and home sales fell,” he said. “By October 1982, inflation had fallen to 5 percent. The Fed allowed the federal funds rate to fall back down to approximately 9 percent by the end of 1982 and the 30-year, fixed mortgage rate fell alongside lower inflation and a lower federal funds rate.”

First American Data & Analytics’ updated Potential Home Sales Model for September 2023 shows that:

• Potential existing home sales decreased to a 5.37 million seasonally adjusted annualized rate (SAAR), a 0.03 percent month-over-month decrease.
• This represents a 53.9 percent increase from the market potential low point reached in February 1993.
• The market potential for existing home sales increased 0.3 percent compared with a year ago, a gain of 14,700 (SAAR) sales.
• Currently, potential existing home sales is 1,424,000 (SAAR), or 21.0 percent, below the peak of market potential, which occurred in April 2006.

Fleming warns that existing home sales may fall below 4 million SAAR for the first time “since the depths of the Great Financial Crisis.” October’s near-8% mortgage rates are reducing affordability and further incentivizing homeowners with low rates to refrain from putting their homes on the market. That combo will likely continue to suppress home sales, he said.

August’s existing home sales were just above a 4 million SAAR.

“But the housing market today is very different from the housing market during the aftermath of the previous housing boom,” he said. “Today’s housing market isn’t anything like the housing market of the mid-2000s – the housing market today is not overbuilt, nor is it driven by loose lending standards, sub-prime mortgages, or homeowners who are highly leveraged. However, the current housing market is similar to the market of the 1980s. History doesn’t repeat itself, but it often rhymes.”

He reminds that the 1980s housing market did rebound. But it took a while.

“Inflation and mortgage rate stabilization were key,” he said. “Because mortgage rates have increased further in October, we expect the housing recessionary conditions to linger in the near-term… Mortgage rate stability, even if the stabilization occurs with rates at a higher level, is the key to an eventual housing recovery.”

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MBA’s Chief Economist and Senior Vice President for Research and Industry Technology Mike Fratantoni, along with Joel Kan, Vice President, Deputy Chief Economist; and Marina Walsh, CMB, Vice President of Industry Analysis, presented MBA’s 2024 outlook at MBA’s  2023 Annual Convention & Expo.

Purchase originations are forecasted to rise by 11% to $1.47 trillion next year. Origination volume is expected to increase by 19%, for a total of 5.2 million loans in 2024. That’s a jump from 2023’s projected 4.4 million.

Fratantoni predicts a mild recession in the first half of 2024. This is due to higher interest rates, tighter credit conditions, and a depletion of pandemic-era household savings.

Lower rates are expected to boost homebuyer demand and increase the inventory of existing homes in 2024. However, the job market is likely to slow down, with fewer jobs added and an increase in the unemployment rate. Fratantoni added that he expects inflation to gradually decline towards the Federal Reserve’s target.

The MBA’s baseline forecast for mortgage rates is 6.1% by the end of 2024 and 5.5% by the end of 2025. The housing market is expected to grow, driven by first-time homebuyers, said Kan. But he warned that challenges such as high prices, low inventory, and limited credit availability remain.

Mortgage lenders continue to face challenges with production losses and excess capacity.

On the servicing side, Walsh said that low delinquencies and prepayments have led to increased net operating income, but delinquency rates are expected to rise in 2024 due to increasing unemployment and financial stress among borrowers.

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DPA One aims to simplify the process of finding and comparing these programs, alleviating the challenge faced by homebuyers in navigating the numerous available options and their guidelines. The software showcases up to three down payment assistance (DPA) programs side-by-side, enabling lenders to review and make quicker and more informed decisions.

Through DPA One, lenders and housing counselors can find appropriate assistance programs and download the results to share with borrowers. Currently, DPA One lists assistance programs available from housing finance agencies in 48 states, with plans to expand to other states by the end of the year.

The platform also caters to the needs of different generations. While first-time buyers, particularly GenZers (18-26 years old), are the primary target audience, Millennials (27-42 years old) and GenXers (43-58 years old) also heavily utilize assistance programs. Even some Baby Boomers benefit from these programs. Additionally, nearly 40% of all programs are meant for repeat buyers who have owned a home in the last three years.

DPA One is described as a “one-stop shop” for down payment assistance. It allows lenders to enter client eligibility parameters and receive fast responses, enabling them to compare and select the most suitable programs.

The platform helps facilitate informed decision-making. It also reduces lenders’ submission errors and queries by using a standardized format.

The ultimate goal of DPA One is to make down payment assistance an integral part of the lending system, simplifying the process for loan officers and borrowers.

According to Down Payment Resources, there are over 2,300 assistance programs offered throughout the country, including lower mortgage rates, silent second mortgages, and grants that do not require repayment. the year.

According to Freddie Mac, DPA One aims to simplify the process of finding and comparing available programs, making down payment assistance an integral part of the lending system.

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Wells Fargo held the rank of the largest mortgage lender among US banks for many years. After the 2008 financial crisis, many financial institutions pulled back from the mortgage segment. But Wells doubled down. And as a result, its market share grew. At one point, Wells was transacting one in every three mortgages in the country.

Earlier this year, Wellls announced it was leaving correspondent lending and cut back in servicing.

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