In this month’s issue: we look at early increases in 2025 conforming loan limits, a new California law that will help improve credit scores, a potential renovation boom powered by home equity lending, home buying sentiment among the military compared to civilians, trends in for-sale inventory, and housing affordability metrics.
Where Does the Existing Home Market Go From Here?
As we look ahead to the end of 2024 and into 2025, the housing market faces competing forces, according to First American Economist Odeta Kushi. Demand-boosting dynamics are on one side and momentum-slowing dynamics are on the other, likely creating a very modest recovery in existing-home sales from current cycle lows. Existing home sales as a percentage of total households are historically low, at just 2.9%. By contrast, the pre-pandemic average was 4.4%. Only 94 of every 10,000 existing homes are for sale, lower than the pre-pandemic historical average of 220 of every 10,000 homes. Given the current number of households in the U.S. today, a more normal level of seasonally adjusted annualized existing-home sales, would be 5.8 million, 50% above the current rate of 3.86 million. For the housing market to regain momentum, Kushi said, it will take both a significant increase in the number of homes on the market and continued affordability improvements.
Mortgage Rates Climb but Sellers Still Listing Homes
The average 30-year conforming rate rose to 6.61% this month, 30bps higher than when the Fed cut rates last month. However, the higher rates haven’t stopped sellers from listing their homes. Data from Altos Research shows that for-sale inventory of single-family homes is up 33% from a year ago, and new pending sales are also on the rise. Homes under contract the week of 10/14 were 9% higher from the same week last year and 11% higher from the same week in 2022.
Veterans are More Likely Than Civilians to Buy Homes Next Year
A new survey conducted by Veterans United Home Loans looked at the financial health and optimism of veterans and active-duty service members versus civilians. The survey analyzed respondents’ home purchase timelines and motivating factors, personal finance and their outlook for the U.S. economy. What they found was that 74% of the greater military community—which includes veterans and active-duty service members—plan to buy a home in the next year, compared to 69% of civilian respondents. This marks a shift from last year when civilians were more bullish.
If these intentions come to fruition, lenders may want to reacquaint themselves with the special benefits and protections that active military, their families and veterans are entitled to in home financing. The military status feature in the First American Data & Analytics FraudGuard® solution verifies a mortgage applicant’s status—active, retired, or a survivor of military personnel—under the Servicemembers Civil Relief Act (SCRA). This ensures those who are, or have, legitimately served in the military are afforded the benefits they are due.
Affordability Gets a Boost
Affordability metrics take into account interest rates and home prices as well as rates of home price appreciation. Lower mortgage rates contributed their part recently to improve affordability, which will continue if rates keep trending down. Nationally, home prices increased by only 0.1% from August to September and by only 3.9% year over year, according to the First American Data & Analytics Home Price Index report, giving another boost to affordability. Even though home prices reached a record high in September, the 3.9% gain is the ninth straight month that annual house price appreciation has slowed, falling to its slowest pace since mid-2023. That’s all very good news for those who’ve been stuck on the sidelines waiting for affordability gains to motivate them into action. But those affordability gains could erode if the housing supply can’t keep up with increased demand. “While home prices reached a new record high in September, the pace of growth continues to slow,” said First American Chief Economist Mark Fleming. “Lower mortgage rates have improved affordability, which will likely stimulate demand in the coming months, especially if rates continue to ease. If housing supply does not increase amid that potential increased demand, it’s possible that price appreciation could accelerate again.”
Equity-Rich Homeowners Look to Tap Equity for Renovation Projects
Annual spending for home improvement and maintenance is projected to grow to $477 billion on an annual basis in the next 12 months, according to the Joint Center for Housing Studies of Harvard University. Carlos Martin, director of the Remodeling Futures Program at the JCHS, said the remodeling uptick will stem from lagging construction and muted sales of existing homes—what the market has deemed the "lock-in" effect.
Homeowners looking to start big-ticket renovation projects will most likely look to tap the equity in their homes either through a cash-out refinance or through a home equity line of credit or home equity loan.
New California Law Will Help Would-Be Homeowners Build Their Credit Scores
California renters will soon be able to have on-time rental payments reflected in their credit scores. Governor Newsom signed Bill 2747 into law last month requiring landlords of buildings with 15 or more units to offer tenants the option to report their on-time rent payments to credit bureaus, helping renters who consistently pay on time to build their credit scores. This change is significant for the 17 million renters in California. While FHA, Fannie Mae, and Freddie Mac do not require borrowers to have a certain number of credit tradelines, individual lenders may have additional requirements for a minimum number of tradelines. This new law should help potential homebuyers qualify for a new home when previously they could not due to limited credit tradelines or a poor credit score.
Early Increase in 2025 Conforming Loan Limits
Historically, lenders often raise their conforming loan limits to their broker partners prior to an official announcement by Fannie Mae and Freddie Mac. With the announcement expected from the GSEs next month, certain large lenders have already raised their limits slightly over $800k and over $1.2 million for Alaska and Hawaii, helping some homebuyers avoid jumbo loans that have higher rates than conforming loans, not to mention more stringent guidelines. FHFA’s baseline confirming loan limit for mortgages backed by Fannie Mae and Freddie Mac in 2024 was $766,550, up 5.5% from 2023 conforming loan limits. Adjustments in conforming loan limits usually follow changes in home prices—national home prices rose by 4.3% year-over-year in July 2024.
About This Blog:
What We’re Watching is a monthly blog of industry news curated by Brian Haber, who monitors the mortgage market for First American Data & Analytics.