Fannie Mae, Freddie Mac to back loans of nearly $1 million

Starting next year, home buyers in high-cost areas of the country (namely California) will be able to borrow nearly $1 million for a mortgage loan backed by the government to make it easier and cheaper for some borrowers to buy a home.

The maximum size of home-mortgage loans eligible for backing by Fannie Mae and Freddie Mac will jump to $970,800 in high-cost markets such as parts of California and New York, up from $822,375 this year, the Federal Housing Finance Agency said Tuesday. For most parts of the country, loan limits will rise to $647,200 from a 2021 maximum of $548,250, said FHFA, which oversees Fannie Mae and Freddie Mac.

Here's how inflation is affecting home prices>

Source: Realtor.com

Inflation is a red-hot topic right now, and for good reason: In October, the annual inflation rate rose to an alarming 6.2%. That's the highest it's hit since November 1990, over 30 years ago, and a steep uptick from the manageable 2% for the past five years.

So, what's the impact of inflation on housing? According to a Stanford University study, residential real estate has historically been an "investment safe-haven" during inflationary periods. Researchers found that during the 1970s (another moment of surging inflation), home prices rose relative to the size of the economy.

How does this affect home prices? Even before inflation started rising, the housing market has been tight, with prices and rents climbing. The more people jump into the housing market, the greater the demand, the lower the supply, and the higher the prices go. The air is already thin on this front, with home sales and median rents reaching record highs this year.

As inflation eats away at homebuyers' spending power, many may be wondering: When will things get better? Most places will see higher prices for housing as the supply chain issues are resolved. People had been shifting from spending on goods to spending on experiences-going to the gym, dining out, taking a cruise. COVID-19 totally reversed that.

There is also a serious zoning construction problem throughout much of the U.S., making the market even tougher for people looking to buy and rent. Land use restrictions, whether the size of a lot that a single-family house can go on or for a multifamily rental or condo property, is further restricting supply.

The other big question that will affect the real estate market is where mortgage interest rates go next. The 30-year mortgage rate could rise to 3.7% by the end of next year from the current 3%. As a result, some buyers will no longer qualify for mortgages at higher interest rates. For homebuyers who have extra cash on hand, this will be a good time to jump into the market as they look to hedge against inflation during this moment when money isn't going as far as it used to.

Migration in the first half of 2021

Overall, fewer people moved in the first half of 2021 compared to a year earlier. That's normal. Remember that when the pandemic hit last March, millions of people "panic-moved," leaving their homes in urban centers. Nevertheless, people are no longer rushing to relocate due to the pandemic as millions of Americans are already vaccinated.

According to the data, people continue to move away from urban centers while small towns and rural areas attract even more movers. There has been ample talk about people moving away from big cities and showing interest in less crowded areas. Indeed, even a year after the pandemic, people continue to move to small cities as many of them telework.

A share of inbound moves lower than 50% translates to more people leaving than moving to the area for the specific period. While more people are leaving urban areas, rural areas had the highest share of inbound moves in 2021 at 54.6% followed by micropolitan areas1 with a low commuting flow (53.8%) and small towns with a high commuting flow (53.2%).

Meanwhile, micropolitan areas and small towns are gaining even more movers compared to a year earlier. While home prices reach new record highs, affordability seems to be one of the primary motivations for this trend. A huge draw for these smaller towns is that the cost of housing consumes a much smaller chunk of people's salaries as they are able to find bigger homes for their families.

How much value do accessory Dwelling units add to a home?

Whether you call them granny flats, in-law suites, or garage apartments- accessory dwelling units ("ADUs") are on the rise. Based on the estimates from a study by the mortgage lender Freddie Mac, there are 1.4 million homes with an ADU in the United States in 2019. This number includes both attached and detached units and takes into account ADUs built both with permission and illegally.

Likely due to the pandemic, the number of ADU permits is slowing down in cities like Portland or Los Angeles, but more Americans are still searching for ADUs online than ever before, according to Google Trends.

A 2017 University of Berkely study finds that ADUs in Portland and Seattle cost $156,000. In another ADU hub-Austin, TX-constructing an accessory unit will cost you between $125,000 and $300,000, according to Texas ADU builders.

And then there's California. Maxable, a service that helps property owners plan, hire, and manage their ADU project throughout California, claims that in the southern part of the state, an ADU costs between $95,000 and $330,000. In the San Francisco Bay Area, ADU prices range from $149,000 to $400,000.

Baby boomers playing a larger role in housing

The past year's frenzied housing demand has more to do with the demographic makeup of America than a onetime, pandemic-driven boom, a new Zillow® analysis of the age, sex, race, and income of home buyers over a decade reveals. Millennials and baby boomers - two of the biggest generations in U.S. history - are in the market for homes in a big way.

With an aging population helped by an improving economy, individuals of every age group over 30 were buyers at higher rates in 2019 than those same age groups in 2009.i Still, a major construction slowdown after the Great Recession contributed to a lower rate of American households forming in the years since that time; there simply have not been enough homes for everyone who wanted to move out on their own.

Even as buyers are trending older. The median age of a recent buyer - somebody who bought a home in the past year - was 44 in 2019, up from 40 in 2009. That's largely because baby boomers, who make up a big share of the population, are also more active in the housing market than those their age ten years ago. The share of recent buyers who are 60 years and older grew 47% from 2009 to 2019. Over the same period, the share of recent buyers ages 18-39 fell 13%.

In 2019, many of the same forces driving moves during the pandemic were already in place; buyers were seeking affordability, and markets in the Sun Belt were drawing new buyers. Jacksonville had the highest share of households that had bought their home within the past year (5.6%). Ultra-expensive metros San Francisco (2.9%), New York (2.6%) and Los Angeles (2.1%) had the smallest share of recent buyers.

November to November Stats for Santa Cruz, Monterey & the Bay Area (Does a year make a difference?)

Comments: What jumps out as you might expect is median price. All 3 counties showed an increase year over year (29% in Santa Cruz, 8.5% in Monterey, 21.6% in Santa Clara). Understandably, list price to sale price also jumped most notably in Santa Clara County. New listings dropped a bit in Santa Cruz and Monterey but over 11% in Santa Clara. 2021 sales were similar to 2020. Display of MLS data is deemed reliable but is not guaranteed accurate by the MLS.