New Home Sales Decline Slightly, Prices Too
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15YR Fixed
6.47%
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New Home Sales Decline Slightly, Prices Too
Sales of newly constructed homes were virtually unchanged in February. The 662,000 seasonally adjusted annual units recorded in during the month was down by 2,000 units or 0.3 percent from the rate in January. This did, however, put sales 5.9 percent higher than they were in February 2023.
The report from the U.S. Census Bureau and the Department of Housing and Urban Development estimated that, before adjustment, sales for the month totaled 60,000 units compared to 57,000 the previous month and 56,000 in February of last year. Thus far this year, sales of new homes are up 4.4 percent over the same period in 2023 at 117,000 units.
The median price of houses sold during the reporting period was $400,500 and the average price was $485,000. In February 2023 the relative prices were $433,300 and $499,100.
At the end of February there were an estimated 451,000 new homes available for sale. This is a projected 8.4-month supply at the current sales pace and is unchanged from the inventory level one year earlier.
Robert Dietz, economist for the National Association of Home Builders noted, “Completed and ready-to-occupy inventory has increased 23 percent over the last year, rising to 85,000 homes. Homes advertised for sale but not started construction have increased almost 18 percent over the last year to 106,000. In contrast, homes available for sale that are under construction have declined 2 percent to 272,000.”
New home sales plunged by 31.5 percent from January to February in the Northeast and were 60.9 percent lower year-over-year. The Midwest posted a 2.4 percent decline for the month, but sales increased 15.3 percent on an annual basis.
Sales in the South rose 3.7 percent compared to January but were 10.0 percent lower for the year. The West posted increases of 2.3 percent and 43.4 percent from the two earlier periods.
Seller Update - Monmouth County
Hey there, Sellers! Let's dive into some key real estate metrics that can help you better understand the current market trends and how they can impact your selling experience.
First up, we have the Months Supply of Inventory, which sits at a low 2.01. This indicates that there is a relatively low inventory of homes on the market compared to the current level of demand. With less competition out there, your property could stand out more to potential buyers.
Next, we see a 12-Month Change in Months of Inventory of -88.5%. This means that the inventory of homes for sale has decreased significantly over the past year, creating a more competitive market for sellers. With fewer homes available, yours could attract more attention from eager buyers.
When we look at the Median Days Homes are On the Market, we see a quick turnaround time of just 27 days. This suggests that homes in this area are selling fast, which could be great news for you if you're looking to sell quickly.
The List to Sold Price Percentage is a strong 99.6%, indicating that sellers in this market are typically getting very close to their asking price when their homes sell. This could give you confidence in setting an asking price that reflects the current market conditions.
Finally, the Median Sold Price in this area is $710,000. This gives you an idea of the average price at which homes are selling, allowing you to gauge where your property might stand in comparison.
Overall, these metrics paint a picture of a fast-moving and competitive market where homes are selling quickly and close to their asking prices. If you're thinking about selling, now could be a great time to capitalize on these favorable conditions. So, get ready to showcase your property and attract those eager buyers!
Pending Home Sales Unchanged, Near Record Lows
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Pending Home Sales Stayed Sideways Near Record Lows
The National Association of Realtors (NAR) releases two widely followed home sales reports. Existing Home Sales measure transactions of homes other than new construction (i.e. previously owned and occupied homes). The Pending Sales index is an advance indicator for Existing Homes. It measures contract signings but not closed sales.
Through a combination of historically low affordability and inventory, both metrics have been operating at the lowest levels in more than a decade (not including the temporary drop in pending sales seen at the onset of pandemic lockdowns). Today's pending sales update kept the index perfectly unchanged at those long term lows.
There were small regional variations as follows:
Northeast... +0.8% versus last month (down 6.4% from last year)
Midwest .... +0.5% versus last month (down 2.2% from last year)
South......... -2.3% versus last month (down 6.5% from last year)
West.......... +4.2% versus last month (down 4.9% from last year)
As seen in the chart above, the sharpest deceleration in the pace of sales is likely behind us. Recent changes have been much smaller by comparison. NAR is hopeful for 2024, citing the recent decline in mortgage rates.
Additionally, NAR's Chief Economist Lawrence Yun noted "although declining mortgage rates did not induce more homebuyers to submit formal contracts in November, it has sparked a surge in interest, as evidenced by a higher number of lockbox openings."
Rates Plummet to Lowest Levels Since May, 2023 After Fed Announcement
30YR Fixed
6.62%
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15YR Fixed
6.15%
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Rates Plummet to Lowest Levels Since May, 2023 After Fed Announcement
Today brought the scheduled Fed policy announcement that we've been waiting for and mortgage rates plummeted as a result. So does that mean the Fed cut rates? No... The Fed kept its policy rate perfectly unchanged, as expected.
In fact, it was unlikely that the Fed would have said anything significant in the actual policy announcement itself (although they did add a single word that hinted at the prevailing rate hike cycle being over). Instead, today's focus was on the dot plot which the Fed uses to convey its outlook for the Fed Funds Rate 4 times per year.
September's dot plot was bad for rates, but economic data and Fed speeches since then have led investors to expect today's dot plot to be much more friendly. That ended up being exactly what happened with September's unfriendly changes being completely erased.
30 minutes later, Fed Chair Powell held a press conference in which he said nothing to object to the rate market's very strong reaction. In other words, he saw the big drop in rates (as implied by bond trading levels) and didn't have a problem with it. The market viewed this as a further endorsement of the momentum.
When all was said and done the average 30yr fixed rate for a top tier scenario was nearly 0.30% lower than yesterday afternoon--one of the biggest single day drops on record. Our rate index is now well into the high 6% range.
From 8% to Under 7.5%, Mortgage Rates Near-Record Week
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7.51%
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15YR Fixed
7.05%
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From 8% to Under 7.5%, Mortgage Rates Had a Near-Record Week
The average top tier 30yr fixed mortgage rate was over 8% as recently as October 19th. At the start of the present week, things weren't much better at 7.92%.
What a difference a few days make--especially the last 3. The improvement seen on Wed-Fri is the 3rd biggest in well over a decade. And if we throw out March 2020 (as we often do, due to unprecedented volatility relating to the onset of the pandemic), we're left with only one other example back early November of 2022.
So is this some kind of seasonal pattern? You'd be forgiven for drawing that conclusion, but in both cases, rates had recently surged to new long-term highs and then encountered surprisingly friendly economic data.
Last November it was a low reading in the Consumer Price Index (CPI) that gave investors hope regarding a shift in inflation. Unfortunately, that shift proved to be a head-fake and rates continued lower into February of 2023, it's been up, up, and away since then.
This time around, scheduled data gets the credit again, but there's a more robust assortment. The good times began to roll on Wednesday after Treasury announced lower-than-expected auction amounts (lower supply of bonds relative to expectations means lower rates, all other things being equal). The rally gained momentum with economic data at 10am and again with the Fed announcement in the afternoon.
Thursday was mild by comparison, but kept the trajectory intact with help from slightly higher Jobless Claims data, and especially from traders exiting bets on higher rates. In the bond market, the simple act of "no longer betting on higher rates" forces a trader to effectively enter a bet on lower rates.
This morning's jobs report was in a unique position to cast a deciding vote on the past 2 days of potential exuberance. If jobs came in higher than forecast, the drop in rates would indeed have seemed overly exuberant and we would likely be seeing a decent push back. As it happened, jobs were weaker than forecast. Additionally, the unemployment rate ticked up more than expected and the past few months of jobs gains were revised lower.
To be sure, the labor market is still exceptionally strong, but the rate market had been pricing in something even stronger. Today's jobs numbers increasingly paint a picture of a labor market that is cooling back down to more historically normal levels. Some economists and pundits are concerned about even more weakness, but we're not here to pontificate on the future.
All we know is that this has been some of the best 3 days of news for mortgage rates and bonds that we've seen since rates first began to launch higher 2 years ago. Granted, the magnitude of the drop is greatly facilitated by the fact rates were at multi-decade highs in the past few weeks, but we're not complaining.
The average conventional 30yr fixed rate is now back below 7.5% for top tier scenarios. You may see a very wide variety of rates today and early next week. This sort of volatility makes lender offerings more stratified than normal. Some of the lenders quoting rates with discount points are already able to do so in the high 6's. Laggards are still near 8%.
As always, keep in mind that rate indices assume a flawless scenario and most scenarios aren't flawless. The best way to use such an index is to track the day-over-day change from a known quote or baseline.
Mixed Results for August Construction
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7.33%
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15YR Fixed
6.65%
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Mixed Results for August Construction
Results of the August Residential Construction report from the U.S. Census Bureau and the Department of Housing and Urban Development were decidedly mixed. While permits were issued at a rate higher than anticipated, housing starts sunk to the lowest level since June 2020,
Construction was started on residential units at a seasonally adjusted annual rate of 1.283 million, an 11.3 percent decline from the July level of 1.447 million units. Further, the earlier results represent a downward revision from the original estimate of 1.452 million. Both Econoday and Trading Economics had consensus forecasts of 1.44 million units. Starts were 14.8 percent lower than in August 2022.
Single-family starts were down 4.3 percent from July to an annual rate of 941,000. This, however, was 2.3 percent higher than the level a year prior. Multifamily starts plunged 26.3 percent month-over-month and 41.0 percent on an annual basis to a rate of 334,000 units.
Permits for residential construction rose to a seasonally adjusted rate of 1.543 million units, a 6.9 percent increase from the 1.443 million rate in July and the highest level in ten months. Permits were, however, still down 2.7 percent on an annual basis. The number was about 100,000 units higher than consensus estimates.
Construction permits were issued for 949,000 single-family homes on an annualized basis, a 2.0 percent increase from July and 7.2 percent more than a year earlier. Multifamily permits were 14.8 percent higher than the prior month but, at an annualized 535,000 units, down 17.7 percent from August 2022.
On a non-adjusted basis, construction was started on 114,200 residential units, 84,100 of which were single-family houses. In July the totals were 130,600 and 91,200. Permits rose from 118,700 in July to 142,000 with single-family permits increasing from 77,800 to 88,400.
Construction was completed on 126,000 units in August, an annualized rate of 1.406 million units. Single-family completions totaled 83,100, a rate of 961,000 units.
At the end of August, there were 1.688 million units under construction, 676,000 of which were single-family houses. In addition, in addition, there was a backlog of 282,000 permits, 142,000 of them for single-family units.
National Association of Home Builders analyst Danushka Nanayakkara-Skillington noted that, as an indicator of the economic impact of housing, there are now 676,000 single-family homes under construction, down 16.3 percent from a year earlier. “Meanwhile, there are currently over 1 million apartments under construction. This is up 13.2 percent compared to a year ago (894,000). Total housing units now under construction (single-family and multifamily combined) are 0.8 percent lower than a year ago.”
Over the first eight months of 2023, housing starts have totaled 960,000, 12.5 percent fewer than at the same point in 2022. Single-family starts are down 15.1 percent and multifamily starts are 6.6 percent lower. Year to date, 1.007 million permits have been issued, a decline of 15.8 percent. Single family permits are 15.5 percent off last year’s pace, and those for multifamily units are down 17.7 percent. So far in 2023 there have been 946,600 homes completed, up 5.8 percent YTD. However, single-family completions are down 1.5 percent for the same period while multifamily homes account for a quarter of the total, with annual growth of 26.1 percent.
The level of permitting rose by 9.3 percent in the Northeast compared to July and was 14.5 percent lower on an annual basis. The region saw the only monthly gain for starts, up 1.0 percent, but the rate plunged by 45.5 percent from the previous year.
The Midwest posted a 14.3 percent increase in permitting for the month but lagged the prior August by 0.5 percent. Starts declined by 7.5 and 12.1 percent from the two earlier periods.
Permits were issued in the South at a rate 3.9 percent higher than in July and 1.6 percent lower year-over-year. Starts were down 4.9 and 6.1 percent, respectively.
Permitting jumped 9.4 percent in the West, remaining 2.1 percent lower the in August 2022. The West posted monthly and annual declines in starts of 28.9 percent and 20.2 percent.
Why It’s Still a Seller’s Market Today
Why It’s Still a Seller’s Market Today
Even though activity in the housing market has slowed from the frenzy that was the ‘unicorn’ years, it’s still a seller’s market because the supply of homes for sale is so low. But what does that really mean for you? And why are conditions today so good if you want to sell your house?
The latest Existing Home Sales Report from the National Association of Realtors (NAR) shows housing supply is still astonishingly low. Housing inventory is measured by the number of available homes on the market. It’s also measured by months’ supply, meaning the number of months it would take to sell all those available homes based on current demand. In a balanced market, there’s usually about a six-month supply. Today, we have only about 3 months’ supply of homes at the current sales pace (see graph below):
As the visual shows, given the current inventory of homes, it’s still a seller's market.
Today, we’re nowhere near what’s considered a balanced market. In fact, the current months’ supply is half of what’s typical of a normal market. That means there just aren’t enough homes to go around based on today’s buyer demand.
As Lawrence Yun, Chief Economist for NAR, says:
“There are simply not enough homes for sale. The market can easily absorb a doubling of inventory.”
How Does Being in a Seller’s Market Benefit You?
Sellers, these conditions give you a real edge. Right now, there are buyers who are ready, willing, and able to purchase a home. And, because there's a shortage of homes up for sale, the ones that do hit the market are like magnets for those buyers.
If you work with a local real estate agent to list your house right now, in good condition, and at the right price, it could get a lot of attention. You might even end up with multiple offers.
Bottom Line
Today’s seller’s market sets you up with a big advantage when you sell your house. Because supply is so low, your house will be in the spotlight for motivated buyers who are craving more options. Let’s connect so you understand what’s happening in our local area as you get ready to enter the market.
Expert Home Price Forecasts Revised Up for 2023
Expert Home Price Forecasts Revised Up for 2023
Toward the end of last year, there were a number of headlines saying home prices were going to fall substantially in 2023. That led to a lot of fear and questions about whether there was going to be a repeat of the housing crash that happened back in 2008. But the headlines got it wrong.
While there was a slight home price correction after the sky-high price appreciation during the ‘unicorn’ years, nationally, home prices didn’t come crashing down. If anything, prices were a lot more resilient than many people expected.
Let's take a look at some of the expert forecasts from late last year stacked against their most recent forecasts to show that even the experts recognize they were overly pessimistic.
Expert Home Price Forecasts: Then and Now
This visual shows the 2023 home price forecasts from seven organizations. It provides the original 2023 forecasts (released in late 2022) for what would happen to home prices by the end of this year and their most recently revised 2023 forecasts (see chart below):
As the red in the middle column shows, in all instances, their original forecast called for home prices to fall. But, if you look at the right column, you’ll see all experts have updated their projections for the year-end to show they expect prices to either be flat or have positive growth. That’s a significant change from the original negative numbers.
There are a number of reasons why home prices are so resilient to falling. As Odeta Kushi, Deputy Chief Economist at First American, says:
“One thing is for sure, having long-term, fixed-rate debt in the U.S. protects homeowners from payment shock, acts as an inflation hedge - your primary household expense doesn't change when inflation rises - and is a reason why home prices in the U.S. are downside sticky.”
A Look Forward To Get Ahead of the Next Headlines
For home prices, you’re going to continue to see misleading media coverage in the months ahead. That’s because there’s seasonality to home price appreciation and they’re going to misunderstand that. Here’s what you need to know to get ahead of the next round of negative headlines.
As activity in the housing market slows at the end of this year (as it typically does each year), home price growth will slow too. But, this doesn’t mean prices are falling – it’s just that they’re not increasing as quickly as they were when the market was in the peak homebuying season.
Basically, deceleration of appreciation is not the same thing as home prices depreciating.
Bottom Line
The headlines have an impact, even if they’re not true. While the media said home prices would fall significantly in their coverage at the end of last year, that didn’t happen. Let’s connect so you have a trusted resource to help you separate fact from fiction with reliable data.
People Are Moving, But Where & Why?
Where Are People Moving Today and Why?
Plenty of people are still moving these days. And if you’re thinking of making a move yourself, you may be considering the inventory and affordability challenges in the housing market and wondering what you can do to help offset those. A new report from Gravy Analytics provides insight into where people are searching for homes and what they’re prioritizing most right now. That information could help you plan your own move.
1. People Are Moving to Cities with Lower Housing Costs
One big factor motivating where buyers are going is affordability and that’s no big surprise. People are relocating to areas that have less expensive housing options. As a result, small cities are thriving. Hannah Jones, Economics Data Analyst at Realtor.com, summarizes why:
“Affordability is still very much front and center . . . a lot of what’s available is outside of the price range of many buyers. . . . so they look elsewhere for a little more bang for the buck.”
The takeaway for you? If you’re having trouble finding a home that fits your budget, it may help to browse other, more affordable locations nearby.
2. People Want to Live Where They Vacation
And, if you’re already expanding your search radius, you may be able to include a location that features your favorite type of destination, like a suburb near the beach or a mountain town. Data shows many other homeowners are making that type of move a priority today. According to the same report from Gravy Analytics:
“Whether it’s the opportunity to enjoy more weekend hikes in the mountains or to wake up to a lakeside sunrise, people are moving to areas that were once thought of as vacation spots.”
Even with today’s home prices and mortgage rates, here’s why a move like this could be possible for you. If you’re already a homeowner, the equity you’ll get when you sell your current house can help fuel that move and give you the down payment you’d need for your dream home.
3. People Who Work Remotely Are Taking Advantage of that Flexibility
Ongoing remote work is another major factor in where people are moving. A recent report from the McKinsey Global Institute says this about recent movement patterns:
“Many of these moves happened because employees untethered from their daily commutes began to care less about how far they lived from the office.”
If you’re a remote or hybrid worker, you don’t have to live in the same city, or sometimes even the same state, as your job. That means you can prioritize other things, like being closer to loved ones, when buying a home.
In fact, the same McKinsey Global Institute report notes for people who moved during the pandemic, 55% reported moving farther from the office. And since remote work is still a popular choice today, homebuyers will likely continue to take advantage of that flexibility.
Bottom Line
Lots of people are still moving today. If you want help navigating today’s inventory or affordability challenges, and expert advice to help you find your ideal home, let's connect.
Home prices continue to climb with ‘striking’ regional differences
Home prices continue to climb with ‘striking’ regional differences, says S&P Case-Shiller
Prices nationally rose 0.7% month to month, seasonally adjusted.
The index’s 10-city composite fell 1%, year over year, slightly less than the 1.1% decrease in the previous month.
The 20-city composite dropped 1.7%, the same as the annual decline in April.
Home prices in May rose for the fourth straight month on the S&P CoreLogic Case-Shiller home price index, but regional differences are widening.
The gains come despite a sharp jump in mortgage interest rates during the month.
Prices nationally rose 0.7% month to month, seasonally adjusted. The index’s 10-city composite gained 1.1%, and the 20-city composite gained 1%.
Prices nationally were still down 0.5% compared with May 2022, but they are just 1% below their June 2022 peak.
The 10-city composite fell 1%, year over year, slightly less than the 1.1% decrease in the previous month. The 20-city composite dropped 1.7%, the same as the annual decline in April.
“Home prices in the U.S. began to fall after June 2022, and May’s data bolster the case that the final month of the decline was January 2023,” said Craig Lazzara, managing director at the S&P DJI. “Granted, the last four months’ price gains could be truncated by increases in mortgage rates or by general economic weakness. But the breadth and strength of May’s report are consistent with an optimistic view of future months.”
Lazzara, however, noted that “regional differences continue to be striking,” with cities in the so-called Rust Belt outperforming the rest of the nation. Prices in Chicago gained 4.6%; in Cleveland, 3.9%; and New York, 3.5% — making for the top performers. The Midwest took over the South’s reign as the strongest region.
“If this seems like an unusual occurrence to you, it seems that way to me too. It’s been five years to the month since a cold-weather city held the top spot (and that was Seattle, which isn’t all that cold),” added Lazzara.
Of the 20-city composite, 10 cities saw lower prices in the year ended May 2023 versus the year ended April 2023 and 10 saw higher prices.
Cities in the West, where prices had inflated the most, were the worst performers in May. Seattle, down 11.3%, and San Francisco, down 11%, were the worst.
Prices are rising again because supply is still very low. Current homeowners are reluctant to sell, given that most are paying mortgage rates that are less than half of today’s rates. Demand returned after the initial jump in mortgage rates, as buyers seem to be getting used to a new normal.
“The housing market remains unaffordable for many buyers, but some areas are seeing high levels of competition as a result of low for-sale inventory,” said Hannah Jones, research analyst at Realtor.com. “Limited existing home stock means many markets are seeing competition reminiscent of the last few years.”
Shocking Headlines About Home Prices - Don't Fall For It
Don’t Fall for the Next Shocking Headlines About Home Prices
If you’re thinking of buying or selling a home, one of the biggest questions you have right now is probably: what’s happening with home prices? And it’s no surprise you don’t have the clarity you need on that topic. Part of the issue is how headlines are talking about prices.
They’re basing their negative news by comparing current stats to the last few years. But you can’t compare this year to the ‘unicorn’ years (when home prices reached record highs that were unsustainable). And as prices begin to normalize now, they’re talking about it like it’s a bad thing and making people fear what’s next. But the worst home price declines are already behind us. What we’re starting to see now is the return to more normal home price appreciation.
To help make home price trends easier to understand, let’s focus on what’s typical for the market and omit the last few years since they were anomalies.
Let’s start by talking about seasonality in real estate. In the housing market, there are predictable ebbs and flows that happen each year. Spring is the peak homebuying season when the market is most active. That activity is typically still strong in the summer but begins to wane as the cooler months approach. Home prices follow along with seasonality because prices appreciate most when something is in high demand.
That’s why, before the abnormal years we just experienced, there was a reliable long-term home price trend. The graph below uses data from Case-Shiller to show typical monthly home price movement from 1973 through 2021 (not adjusted, so you can see the seasonality):
As the data from the last 48 years shows, at the beginning of the year, home prices grow, but not as much as they do entering the spring and summer markets. That’s because the market is less active in January and February since fewer people move in the cooler months. As the market transitions into the peak homebuying season in the spring, activity ramps up, and home prices go up a lot more in response. Then, as fall and winter approach, activity eases again. Price growth slows, but still typically appreciates.
Why This Is So Important to Understand
In the coming months, as the housing market moves further into a more predictable seasonal rhythm, you’re going to see even more headlines that either get what’s happening with home prices wrong or, at the very least, are misleading. Those headlines might use a number of price terms, like:
Appreciation: when prices increase.
Deceleration of appreciation: when prices continue to appreciate, but at a slower or more moderate pace.
Depreciation: when prices decrease.
They’re going to mistake the slowing home price growth (deceleration of appreciation) that’s typical of market seasonality in the fall and winter and think prices are falling (depreciation). Don’t let those headlines confuse you or spark fear. Instead, remember it’s normal to see a deceleration of appreciation, slowing home price growth, as the months go by.
Bottom Line
If you have questions about what’s happening with home prices in our local area, let’s connect.
The "Slow" Housing Market's Questionable Excuse
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Slow Housing Market's Questionable Excuse (And a Much Better Alternative)
Inventory! That's been a buzzword for the housing market for more than a decade, but it's been especially prevalent in 2023 as the excuse for slower home sales. How good of an excuse is it?
Before digging into that question, let's take a look at the data that needs to have excuses made for it. This week brought the monthly release of Existing Home Sales from the National Association of Realtors (NAR).
Existing sales began the year with a pop, but have consistently been fading since then.
The chart above captures all-time highs and 12-year lows all in the space of few years (thanks Covid).
When it comes to explaining the slump, the National Association of Realtors places INVENTORY at the top of the list. And while no one should disagree that more inventory would result in more home sales, perhaps we're overlooking the bigger issue: RATES.
In the NAR's defense, they're quite aware that rates are a problem. But the recent hyperfocus on inventory might be overdone. After all, wouldn't many more homeowners consider moving up if they weren't faced with the prospect of giving up their 3% mortgage in exchange for something closer to 7%?
"There are simply not enough homes for sale," according to NAR Chief Economist Lawrence Yun. "The market can easily absorb a doubling of inventory."
To be sure, more inventory would be a good thing in almost every regard. A doubling of inventory would likely keep prices in check or push them slightly lower, but it might not conjure up as much buying demand as you might assume. Two separate stats in the Existing Home Sales data illustrate the point. The first is for inventory in terms of UNITS.
This chart makes it seem as if inventory is in line with all time lows and not building as quickly as it normally does at this time of year. But the takeaway changes a bit when we look at inventory in terms of "months of supply."
Since it's not incredibly easy to quickly glean the takeaway from the two charts above, here you go: in terms of units, inventory is nowhere near mid-2020 levels while "months of supply" is well above. Let's zoom in:
In separate data released this week, we saw more evidence of moderation on the demand side of the home sales equation. Housing Starts (the ground-breaking phase of new construction) were revised much lower after last month's surge and the current month's data came in just below forecasts. Without a doubt, the construction side of the market is doing much better than the resale side relative to pre-covid levels, but it's also only about a quarter of the market.
Nonetheless, homebuilders remain more optimistic than they were at the beginning of the year according to other data out this week from the National Association of Home Builders (NAHB).
If high rates are a root cause of the housing market issue (and no, we're not ignoring the fact that low rates served as a sort of root cause in 2020-2022, acting to pull forward a significant amount of home sales volume), what's the root cause of high rates and what will it take for things to change?
As we discussed last week, it's almost all about inflation. Last week's friendlier CPI data helped rates move sharply lower. But this week's labor market data pushed back in the other direction. The following chart of 10yr Treasury yields shows the relative movement in the rates market.
Mortgage rates tend to follow a similar path to 10yr yields over time, so it's no surprise to see mortgages a bit higher versus last week with the average top tier 30yr fixed rate back around 7%. Freddie Mac's index covers the 5 weekdays leading up to Wednesday on any given week. During that time last week, rates were indeed much higher than the 5 days leading up to this past Wednesday.
In other words, Freddie's survey hasn't caught up to reality yet. It also runs a bit lower on average because it doesn't adjust for upfront costs whereas Mortgage News Daily does. That means a quote of 6.625% with 1% discount paid upfront would be recorded as 6.625% by Freddie, whereas the rate with no discount points would be closer to 7.125%.
Rates will receive their next big dose of information next week when the Fed announces its latest rate hike. The market already knows the hike is coming, so that part won't be a market mover. Rather, traders will tune in to hear what Powell has to say about how the outlook may be changing in light of recent progress on inflation. There's a chance the market comes away from next week's Fed hike with the sense that it was the last hike in a long time. Of course there's also a chance that Powell is concerned about market exuberance and thus doubles down on the higher rate narrative. There's no way to know which direction rates will go on Wednesday, only that the risk of volatility is bigger than normal.
Rent Increases Return to Pre-Covid Levels
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6.88%
-0.02%
15YR Fixed
6.30%
-0.01%
Rent Increases Return to Pre-Covid Levels
Increases in single-family rents soared in the post-pandemic environment but have now moderated to the annual levels in the pre-pandemic years of 2010 to 2019. CoreLogic’s Single-Family Rent Index (SFRI) recorded an annual increase of 3.4 percent in May. Since the start of the pandemic, single-family median rents have increased by $470, or 30 percent. The company, however, does not see rents declining in the near term.
“After increasing at an accelerated pace for more than two years, annual single-family rent growth returned to its pre-pandemic rate in May,” said Molly Boesel, principal economist for CoreLogic. “High inflation may be affecting renters’ abilities to absorb continually higher monthly payments, which could be keeping year-over-year rent increases relatively low. However, even in the current economic environment, monthly single-family rent increases returned to a typical seasonal pattern in February of this year, suggesting that single-family rents are poised to continue increasing throughout 2023.”
The Chicago area had the highest annual increase among the 20 largest markets, 6.6 percent. The median monthly rent in that metro is currently $2,327. Charlotte, North Carolina had the second largest annual gain at 5.9 percent, followed by Boston and New York, each at 5.7 percent.
Of the 20 metros shown in Table 1, Chicago posted the highest year-over-year increase in single-family rents in May 2023, at 6.6%. Charlotte, North Carolina was second with an annual gain of 5.9 percent, followed by Boston and New York (both at 5.7 percent.)
The Las Vegas area was the only metro to post a decline. Rents declined 1.3 percent but were still at a median of $2,143 in May.
Lower-priced properties saw increases more than double that of those in the highest tier. The increase of properties with rents at least 75 percent less than the regional median rose 5.6 percent compared to 2.1 percent for those in with rents at least 125 percent higher than the median. A year earlier the bottom group saw an increase of 14.4 percent while the highest tier rose 13 percent. The lower-middle priced tier was up 4.3 percent, and the higher-middle priced tier rose 3.7 percent. Both had grown at an annual rate of nearly 15 percent in May 2022.
Price increases for both attached and detached single-family houses are shrinking but remain higher for attached units. That group increased by 4.2 percent while detached rentals grew 2.5 percent.
Explaining Today’s Mortgage Rates
Explaining Today’s Mortgage Rates
If you’re following mortgage rates because you know they impact your borrowing costs, you may be wondering what the future holds for them. Unfortunately, there’s no easy way to answer that question because mortgage rates are notoriously hard to forecast.
But, there’s one thing that’s historically a good indicator of what’ll happen with rates, and that’s the relationship between the 30-Year Mortgage Rate and the 10-Year Treasury Yield. Here’s a graph showing those two metrics since Freddie Mac started keeping mortgage rate records in 1972:
As the graph shows, historically, the average spread between the two over the last 50 years was 1.72 percentage points (also commonly referred to as 172 basis points). If you look at the trend line you can see when the Treasury Yield trends up, mortgage rates will usually respond. And, when the Yield drops, mortgage rates tend to follow. While they typically move in sync like this, the gap between the two has remained about 1.72 percentage points for quite some time. But, what’s crucial to notice is that spread is widening far beyond the norm lately (see graph below):
If you’re asking yourself: what’s pushing the spread beyond its typical average? It’s primarily because of uncertainty in the financial markets. Factors such as inflation, other economic drivers, and the policy and decisions from the Federal Reserve (The Fed) are all influencing mortgage rates and a widening spread.
Why Does This Matter for You?
This may feel overly technical and granular, but here’s why homebuyers like you should understand the spread. It means, based on the normal historical gap between the two, there’s room for mortgage rates to improve today.
And, experts think that’s what lies ahead as long as inflation continues to cool. As Odeta Kushi, Deputy Chief Economist at First American, explains:
“It’s reasonable to assume that the spread and, therefore, mortgage rates will retreat in the second half of the year if the Fed takes its foot off the monetary tightening pedal . . . However, it’s unlikely that the spread will return to its historical average of 170 basis points, as some risks are here to stay.”
Similarly, an article from Forbes says:
“Though housing market watchers expect mortgage rates to remain elevated amid ongoing economic uncertainty and the Federal Reserve’s rate-hiking war on inflation, they believe rates peaked last fall and will decline—to some degree—later this year, barring any unforeseen surprises.”
Bottom Line
If you’re either a first-time home buyer or a current homeowner thinking of moving into a home that better fits your current needs, keep on top of what’s happening with mortgage rates and what experts think will happen in the coming months.
Home Prices Hit New Peaks Despite Affordability Issues
30YR Fixed
6.96%
-0.13%
15YR Fixed
6.38%
-0.04%
Home Prices Hit New Peaks Despite Affordability Issues
The Black Knight Mortgage Monitor for May doesn’t even hint at a housing crisis on the horizon. Affordability is again (or maybe still) a concern, but buyers are out there, and home prices reflect that fact. Homeowners are performing well on their mortgages (and aren’t about to give up their low rates), and while the current report doesn’t touch on the subject, continue to build on their equity. In addition, builders are getting back in the game, shoring up hope of a lessening in the perennial shortage of available homes.
Home prices, which eased late last year have now risen for five straight months, completely reversing the earlier declines. Black Knight says its Home Price Index hit an all-time high, rising 0.7 percent from April to May. While the year-over-year growth rate is currently hovering at 0.1 percent, the May increase is equivalent to annualized growth of 8.9 percent. If the recent pattern continues, that annual growth rate may turn and begin trending higher as early as next month.
Twenty-seven of the 50 largest U.S. markets have returned to their previous price peaks or set new ones this spring. Even the West Coast, where some of the largest downward corrections happened last year, saw many of its markets reheat in May. San Jose was up 1.4 percent, Los Angeles rose 1.0 percent, and Seattle gained 0.9 percent. Austin, Texas is a major exception to the price hikes. The deficit from its peak continues to grow, reaching -13.8 percent in May.
“There is no doubt that the housing market has reignited from a home price perspective,” according to Black Knight Vice President Andy Walden. “Firming prices have now fully erased the pullback we tracked through the last half of 2022 and lifted the seasonally adjusted Black Knight HPI to a new record high in May.
This, of course, means that affordability is taking a hit, fueled by rising interest rates as well as home prices. As of June 22, with 30-year rates at 6.67 percent, it required $2,258 per month in principal and interest to make the monthly payment on a median-priced home, given 20 percent down on a 30-year mortgage. This exceeds the previous high of $2,234 required last October. Nationally, it takes 35.7 percent of median household income to make the average P&I payment. Only rising income since the fall of 2022 has kept May from being the most unaffordable month in the past 37 years.
Inventories continue to be the principal driver of home prices. For-sale listings have deteriorated in 95 percent of major markets this year and are at about half of pre-pandemic levels. Meanwhile, more than 60 percent of existing mortgage holders – and potential sellers – are sitting on first lien rates below 4 percent, with significant disincentive to list in this high-priced, low inventory, high-rate environment.
Still, prepayments (SMM or single-month mortality) rose by 23 percent in May to 0.54 percent, the highest level since September. Twenty-eight percent of prepayments were related to home sales, but all drivers rose by double digits. There were 22 business days in the month, two more than in April, which also accounted for a 10 percent increase in the SMM. Prepayments are still down 40 percent year-over-year.
Walden commented, “As it stands, housing affordability remains dangerously close to the 37-year lows reached late last year, despite the Federal Reserve’s attempts to cool the market. The challenge for the Fed now is to chart a path forward toward a ‘soft landing’ without reheating the housing market and reigniting inflation. But the same lever used to reduce demand – raising rates – has not only made housing unaffordable almost universally across major markets, but it has also resulted in significant supply shortages by discouraging potential sellers unwilling to list in such an environment, further strengthening prices. At this point, even if rates come down, but not so sharply as to entice potential sellers out of their sub-3.5 percent mortgages, it could risk a widespread reheating of home prices across the U.S.”
Walden sees welcome news in May’s residential construction data. “New construction starts and completions were both strong in May. However, most projects underway in the month were 5+ multi-family units, as opposed to single-family residential (SFR) units. SFRs made up just 40 percent of the total and is now at construction levels still approximately 30 percent below the 2005 peak.”
There is also good news on the mortgage delinquency front. The national delinquency rate fell 11 basis points (bps) in May to 3.10 percent, returning to a near-record low after a calendar-driven spike in April. The number of borrowers missing a single payment dropped by 94,000 or 9.5 percent erasing nearly half of the prior month’s increase. Loans 90 or more days past due, are down 30 percent year-over-year and within 1 percent of the post-Great Recession low in 2019.
Mortgage Rates Back Over 7% as Markets Digest Economic Data
30YR Fixed
7.14%
-0.08%
15YR Fixed
6.50%
-0.15%
Mortgage Rates Back Over 7% as Markets Digest Economic Data
Until a few weeks ago, it looked like we might have seen the last of 7% mortgage rates, but the last 2 weeks have been brutal. The culprit has been a collection of several scheduled economic reports that were stronger than economists expected.
Generally speaking, strong economic data puts upward pressure on rates. This is a particularly sensitive relationship at the moment because the Fed has clearly stated it will hike rates a few more times unless the economy downshifts more abruptly than it has been. With that in mind, some of the recent data hasn't shown any downshift at all!
One solid example from this week was the business activity index in the services sector (via ISM), which rebounded massively:
On the same morning, the ADP employment data proved to be a much bigger deal, coming in at 497k versus a median forecast of 228k. Although the track record is far from perfect, ADP's stated goal is to predict the all-important nonfarm payroll (NFP) count in the Labor Department's big monthly jobs report. In this week's case, NFP was set to come out the following morning.
Although NFP didn't nearly live up to ADP's hype, it was nonetheless solid with 209k jobs created versus forecasts calling for 225k. Wages grew a bit faster than expected, and unemployment remained near record lows at 3.6%.
While this is good news for the economy and the labor market, bonds (which drive mortgage rates) like bad news and the news wasn't bad enough for bonds to undo the damage done on Thursday.
Incidentally, stocks occasionally like bad news these days too. This is a bit counterintuitive, but it has to do with the data's implication on the Fed's rate hike outlook. Specifically, the stronger data causes the market to predict a higher trajectory for the Fed Funds Rate:
In the bigger picture, the recent weakness is changing the shape of the trend in longer-term rates. The following chart uses Treasury yields to show a "breakout" from a recent trend of lower highs.
Mortgage rates are highly correlated with longer-term Treasuries so it's no surprise that they are also breaking out. In fact, they began to break out in late May and then moved even higher this week. The result is a new trend of "higher highs" that started in March:
The average lender moved well into the 7% range this week. That's much higher than suggested by Freddie Mac's weekly rate survey, which came in at 6.81% this week, but keep in mind that Freddie's survey has implied "points" (upfront loan costs that help bring the rate lower) that are not counted or reported. Contrast that to MND's index (the blue line in the chart above) which takes points into consideration. Lastly, Freddie's number is also an average of the 5 preceding days whereas MND is an up-to-the-moment check on prevailing rates.
What's next?
Expect the market to continue readily responding to economic data. One of the most important reports--the Consumer Price Index--will be out next Wednesday morning. If it shows inflation cooling more than expected, rates definitely have room to move lower. But if it takes a page out of this week's book and exceeds forecasts, rates will likely continue the trend of higher highs.
Today’s Housing Inventory Is a Sweet Spot for Sellers
Today’s Housing Inventory Is a Sweet Spot for Sellers
One of the biggest challenges in the housing market right now is how few homes there are for sale compared to the number of people who want to buy them. To help emphasize just how limited housing inventory still is, let’s take a look at the latest information on active listings, or homes for sale in a given month, as it compares to more normal levels.
According to a recent report from Realtor.com:
“On average, active inventory in June was 50.6% below pre-pandemic 2017–2019 levels.”
The graph below helps illustrate this point. It uses historical data to provide a more concrete look at how much the numbers are still lagging behind the level of inventory typical of a more normal market (see graph below):
It’s worth noting that 2020-2022 are not included in this graph. That’s because they were truly abnormal years for the housing market. To make the comparison fair, those have been omitted so they don’t distort the data.
When you compare the orange bars for 2023 with the last normal years for the housing market (2017-2019), you can see the count of active listings is still far below the norm.
What Does This Mean for You?
If you’re thinking about selling your house, that low inventory is why this is a great time to do so. Buyers have fewer choices now than they did in more normal years, and that’s continuing to impact some key statistics in the housing market. For example, sellers will be happy to see the following data from the latest Confidence Index from the National Association of Realtors (NAR):
The percent of homes that sold in less than a month ticked up slightly to 74%.
The median days on market went down to 18 days, showing homes are still selling fast when priced right.
The average number of offers on recently sold homes went up to 3.3 offers.
Bottom Line
When supply is so low, your house is going to be in the spotlight. That’s why sellers are seeing their homes sell a little faster and get more offers right now. If you’ve thought about selling, now’s the time to make a move. Let’s connect to get the process started.
Mortgage Rates Jumped Over 7% This Week, Even if You Heard They Were 6.71%
30YR Fixed
7.02%
-0.02%
15YR Fixed
6.42%
-0.03%
Mortgage Rates Jumped Over 7% This Week, Even if You Heard They Were 6.71%
Mortgage rates have been hovering in the high 6's for weeks, but they broke above 7% on Thursday. At the same time, multiple news outlets reported a 30yr fixed rate of 6.71%. Who's lying?
While the 6.71% news may be prolific, it is all traced back to one source: Freddie Mac's weekly rate survey. This is the longest-standing mortgage rate index in the US and the most widely cited. It does a great job of capturing general levels over the long run, but it doesn't necessarily line up with the reality in the trenches on any given day.
Here's the reality: 6.71% implies widespread availability of 6.625% and 6.75% (rates are most frequently offered in .125% increments, and 6.71% is an average). You could certainly get a rate of 6.625% if your scenario, credit, and down-payment were ideal, but at the average lender, you'd be paying a bit more upfront.
In other words, you'd be paying "points" in some form or another. Freddie's survey used to collect information on points. It no longer does. That means a loan at 6.625% with 1 point is counted the same as a loan at 6.625% and no points. But those two loans are not the same. In fact, a point is worth roughly 0.50% in rate! So the "no point" equivalent of 6.625% is actually 7.125%.
The other complicating factor is that Freddie reports the average rate over the preceding 5 business days. In this week's case, rates were in the process of jumping on Thursday--a day that won't be reflected in Freddie's numbers until next week.
With all that in mind, it's less of a surprise to consider that MND's rate index (which accounts for points) jumped back over 7% on Thursday and has been running slightly higher in general.
Thursday's jump was driven by data. Both GDP and Jobless Claims data turned out to be stronger than expected. Strong data tends to push rates higher--especially at present when market participants know that economic resilience means a resumption of rate hikes from the Fed. The Fed doesn't set mortgage rates directly, but expectations for future hikes correlate with mortgage rate movement.
And here's a closer look at how Fed rate expectations evolved this week:
We can get more perspective on recent rate movement by examining 10yr Treasury yields, which tend to move much like mortgage rates. Last week, we examined a 10yr yield range between 3.72 and 3.84%. This has been a mostly boring sideways grind as the market waits for data like Thursday's. Interestingly enough, Thursday just barely resulted in a challenge to the ceiling, and yields were back in the range by Friday.
What's the significance? It simply speaks the indecision that continues plaguing the rate market. This range is a drop in the bigger picture bucket. It will take much bigger moves driven by much more data to create meaningful change in the rate landscape.
In this week's housing-related data, home prices defied expectations with FHFA's index rising 0.7% in April. Case Shiller's index was expected to fall 2.6%, but fell only 1.7% over the same time (it is more volatile than FHFA).
New Home Sales came in much higher than expected, and have generally been the saving grace for home sales data as high rates keep homeowners reluctant to give up the low rates on their existing homes.
April Home Prices Bolster Case for Recovery
30YR Fixed
6.91%
-0.01%
15YR Fixed
6.32%
+0.00%
April Home Prices Bolster Case for Recovery
Both the S&P CoreLogic Case-Shiller U.S. National Home Price Index and the Federal Housing Finance Agency’s (FHFA’s) Home Price Index (HPI) show home prices continuing to increase in April although at a much-diminished rate than in the earlier low-interest rate environment. The annual rate of change for the Case-Shiller indices is now in negative territory.
The Case-Shiller National Index, which covers all nine census divisions, posted a decline of 0.2 percent in April, compared to an annual gain of 0.7 percent in the previous month. Before seasonal adjustment, that index was up 1.3 percent month-over-month and rose 0.5 percent after adjustment.
The 10-City Composite dropped 1.2 percent, down from the -0.7 percent annual change in March. The 20-City Composite posted a -1.7 percent year-over-year loss, down from -1.1 percent the prior month. Both city composites increased 1.7 percent month-over-month before adjustment. Afterward, the 10-City was up 1.0 percent and the 20-City 0.9 percent.
Miami boasted the largest annual increase among metro areas at 5.2 percent, while Chicago broke into the top three in second with a 4.1 percent increase, and Atlanta bumped Charlotte out of third place with a 3.5 percent gain. Seventeen of 20 cities reported lower prices in the year ending April 2023 versus the year ending March 2023. Boston and San Francisco showed 0.1 percent increases and Cleveland gained 0.9 percent.
“The U.S. housing market continued to strengthen in April 2023,” says Craig J. Lazzara, Managing Director at S&P DJI. “Home prices peaked in June 2022, declined until January 2023, and then began to recover. The ongoing recovery in home prices is broadly based. Before seasonal adjustments, prices rose in all 20 cities in April (as they had also done in March). Seasonally adjusted data showed rising prices in 19 cities in April (versus 14 in March).
“On a trailing 12-month basis, the National Composite is 0.2 percent below its April 2022 level, with the 10- and 20-City Composites also negative on a year-over-year basis, but regional differences continue to be striking. Miami’s 5.2 percent gain made it the best-performing city for the ninth consecutive month, but in April Chicago toddled into second place with a 4.1 percent gain. Atlanta and Charlotte (+3.4 percent) round out the top four. The next three positions are occupied by New York, Cleveland, and then perennial medalist Tampa, indicating a remarkable diversity among the top performers. At the other end of the scale, however, the worst eight performers are all in the Mountain or Pacific time zones, with Seattle (-12.4 percent) and San Francisco (-11.1 percent) at the bottom. The Southeast (+3.6 percent) continues as the country’s strongest region, while the West (-6.9 percent) remains the weakest.”
Lazzara continued, “If I were trying to make a case that the decline in home prices that began in June 2022 had definitively ended in January 2023, April’s data would bolster my argument. Whether we see further support for that view in coming months will depend on how well the market navigates the challenges posed by current mortgage rates and the continuing possibility of economic weakness.”
FHFA said its HPI rose 0.7 percent in April compared to March. The annual increase was 3.1 percent, but the previously reported 0.6 percent increase in March was revised downward to 0.5 percent.
For the nine census divisions, seasonally adjusted monthly price changes from March 2023 to April 2023 ranged from 0.1 percent in the Pacific division to 2.4 percent in the New England division. The 12-month changes ranged from a negative 3.8 percent in the Pacific division to an increase of 6.1 percent in the East South Central division.
The Case-Shiller Indices track the matched price pairs for thousands of individual houses, and each was benchmarked in January 2000 at 100. The current value of the National Index is 301.05 and the 10- and 20-City Composites are at 320.87 and 307.43, respectively. FHFA’s HPI is based on home sales financed by either Fannie Mae or Freddie Mac. It was benchmarked at 100 in January 1991 and currently stands at 401.2.
Do homes with solar panels sell for more than comparable homes without panels?
Do homes with solar panels sell for more than comparable homes without panels?
Caption
Yes, homes with owned solar panels typically sell for more than comparable homes without panels. According to a study by Zillow, homes with solar panels sell for an average of 4.1% more than comparable homes without panels. This added value can be as high as 9.9% in some states, such as New Jersey.
There are a few reasons why homes with solar panels sell for more. First, solar panels can save homeowners money on their utility bills. This can add up to thousands of dollars over the lifetime of the solar panels. Second, solar panels are becoming increasingly popular, and many homebuyers are willing to pay a premium for homes that are already equipped with solar panels. Third, solar panels can make a home more attractive to buyers who are concerned about the environment.
In addition to selling for more, homes with solar panels tend to sell faster than comparable homes without panels. A study by the National Renewable Energy Laboratory found that homes with solar panels sell 20% faster than homes without solar panels. This is because solar panels make a home more attractive to a wider range of buyers.
If you are considering installing solar panels on your home, it is important to factor in the potential increase in property value. Solar panels can be a wise investment, both financially and environmentally.
Here are some additional details about the study by Zillow:
The study analyzed over 1 million home sales in the United States between 2012 and 2017.
The study found that homes with solar panels sold for an average of $9,274 more than comparable homes without panels.
The study found that the solar premium varied by state, with homes in New Jersey selling for the highest premium and homes in West Virginia selling for the lowest premium.
If you are considering buying a home with solar panels, it is important to have the solar system inspected by a qualified professional. You should also ask the seller for documentation of the solar system's performance and warranty.
WHY DO NEW JERSEY HOMES w/SOLAR PANELS SELL FOR HIGHEST PREMIUM?
There are a few reasons why homes in New Jersey with solar panels sell for the highest premium compared to other states.
New Jersey has a strong solar market. The state has a number of incentives that make it more affordable to install solar panels, such as a net metering program that allows homeowners to sell excess solar energy back to the grid. This has led to a high penetration of solar panels in New Jersey, with about 1 in 5 homes having solar.
Homebuyers in New Jersey are increasingly interested in sustainability. A recent survey found that 80% of homebuyers in New Jersey say that energy-efficient features are important to them when choosing a home. Solar panels are seen as a way to reduce energy costs and live a more sustainable lifestyle.
New Jersey has a high cost of electricity. The average electricity bill in New Jersey is about $120 per month, which is higher than the national average. Solar panels can help homeowners save money on their electricity bills, which can make their homes more affordable.
As a result of these factors, homes in New Jersey with solar panels sell for an average premium of about 9.9%, which is higher than any other state. This means that homeowners who install solar panels can expect to recoup the cost of their investment in just a few years, and they may even see a profit when they sell their home.
Here are some additional reasons why homes with solar panels are in demand in New Jersey:
Solar panels can increase property value. A study by Zillow found that homes with solar panels sell for an average of $15,000 more than similar homes without solar panels.
Solar panels can make homes more attractive to buyers. Homebuyers are increasingly looking for homes with energy-efficient features, and solar panels are seen as a sign that a home is environmentally friendly.
Solar panels can help reduce energy bills. Solar panels can generate electricity, which can help homeowners reduce their reliance on the grid and save money on their energy bills.
Solar panels can help protect the environment. Solar energy is a clean and renewable source of energy, and it can help homeowners reduce their carbon footprint.
Overall, there are a number of reasons why homes with solar panels are in high demand in New Jersey. If you are considering installing solar panels on your home, you can be confident that you will be making a wise investment that will pay off in the long run.
Ryan Skove
Phone:+1(732) 301-2687