A guide to real estate and housing market indicators

Buying a home is a major commitment. Understanding real estate market trends and housing market indicators lends insight into the current residential housing market in your purchase area. Locking into a mortgage at the wrong time could mean you’ll pay too much.

Housing market indicators are sets of residential data that provide insights into how residents live and pay their mortgages. Both first-time home buyers and investors can gain valuable insights from housing indicator data, including where to live and how much they can expect to pay in a given real estate market.

Let’s review the most commonly used housing market indicators that offer housing market predictions for 2024 and beyond.

Housing affordability

Housing affordability is a term used to describe the percentage of the population that qualifies for a mortgage in a specific area. To gather this data, surveyors look at the median income of local households and compare it with the average price of a home.

Indicators of affordability

Market analysts share benchmark information to help real estate agents and individual home buyers determine if the single-family housing market is affordable.

• Low affordability: When the average income in an area does not suffice to qualify for a mortgage on an average-priced home. This scenario often indicates high home prices.
• High affordability: This occurs when the average household earns significantly more than what is required to manage a mortgage, suggesting lower home prices and potentially easier loan qualification processes.

Rental affordability

Rental affordability describes the percentage of the population that can afford to rent a home or apartment. Rental affordability statistics assume that the average tenant will spend a maximum of 30% of their monthly income on rent. Here’s how to determine the affordability of a rental market:

• Low rental affordability: When most renters spend more than 30% of their monthly income on rent.
• High rental affordability: When the majority of renters spend less than 30% of their monthly income on rent.

Being aware of affordability trends in a particular market allows you to make an informed decision about purchasing or renting in various housing markets.

Supply and demand in real estate

Reviewing an area’s current housing market type can help you gain a high-level overview of a real estate market and gauge the supply and demand of the local market.

Home prices

The house price index, which the Federal Housing Finance Agency compiles, doesn’t make a judgment based on affordability. Instead, it simply shows you how much you will likely pay for a home. House price indexes also track how home values in an area move over time.

Home price is essential for both investors and primary residence home buyers. As an investor, you should only buy homes in areas with increasing price values. Look at your finances and the monthly payments that you’ll need to cover. If you can’t comfortably afford a home in the area you’re looking in, you may want to search in a more affordable ZIP code.

Home sales

Home sales indexes look at sales activity and how quickly buyers snatch up homes in a certain area. Most databases update their home sale indexes annually and compare them to the previous year.

If home sales are on the rise, it means that there’s more competition for each residential property. You might not have as much room to negotiate with a seller. If home sales decline, it means that you’re entering a buyer’s market. You have more leeway to ask for concessions and financial assistance from sellers when you have less competition for a home.

Housing supply

Housing supply indexes track the number of vacant homes for sale, and there are different indexes for new homes put up on the market for the first time versus older homes. Surveyors typically update housing supply indexes annually and allow you to see how supply is moving.

Housing supply is a strong indicator of price. If there is a low housing inventory, it means that more people are moving to that area. This raises the average price of each home and means you’ll have more competition if you want to buy.

When the housing supply increases, it means people are moving out of the area (or there’s too much construction), making prices for each living space drop when the supply is too high.

National homeownership rate

The national homeownership rate is the percentage of households that own their living space. It takes every county in the United States into account when it averages data.

A high homeownership percentage correlates with a housing market that’s well-adjusted. When housing is affordable and income is locally proportionate, homeownership flourishes. If the national homeownership rate falls, it can mean that housing is less affordable and that it isn’t the ideal time to buy or invest – at least until prices drop.

Home building indexes

Home building indexes track new residential construction starts, construction spending and the rate at which new homes are being built.

Housing starts

The term “housing start” refers to the initiation of construction on a new residential property. Indexes monitor both single-family and multifamily units. More housing starts mean more construction in that area.

Housing starts can be a helpful indicator for investors. Housing prices will likely rise if more construction companies invest more money in a certain area.

Construction spending

A monthly report by the U.S. Census Bureau outlines construction spending and how much money is spent on construction services in any area. It gives a summary of the expenses used to build new properties or improve and modify existing ones.

The report analyzes residential and nonresidential construction, which shows the health and growth of the market across different regions. Residential construction may include homes or complexes, whereas nonresidential construction consists of hospitals or shopping centers.

Home building rates

The Home Building Rates, as measured by the National Association of Home Builders (NAHB) Housing Market Index, reflects the confidence levels of builders in the single-family housing market. Compiled monthly, it assesses builders' perceptions regarding current sales and anticipates sales conditions over the next 6 months, serving as a gauge for the housing market's momentum.

Home loan originations

Home loan originations reveal trends in how individuals finance their home purchases.

Conventional mortgage originations

Mortgage origination indexes track the number of new mortgage loans issued in an area, and mortgages by the number of new loans issued. Mortgage origination simply refers to the beginning of a new mortgage loan. These indexes typically don’t track the dollar amount of each mortgage.

High mortgage originations typically correlate with high home affordability and reasonable home prices. When households earn more money and homes aren’t too expensive, more people apply for mortgage loans. Buying a home in an area with higher mortgage origination can be a good idea if you want to move into an affordable area.

FHA originations

FHA origination indexes track the number of new FHA loans issued in a given area. FHA loans are a type of government-backed loan, backed by the Federal Housing Administration (FHA). They have insurance that protects the lender if the borrower stops making payments, allowing the lenders to issue these loans to borrowers with more debt, lower credit scores and fewer assets.

High FHA loan origination can mean that home prices in an area are lower than in the surrounding areas. FHA loans have lower dollar limits than conventional mortgages, so they’re ideal for less-expensive areas. More FHA loan origination in a certain area can also mean lower average income and credit scores.

Mortgage health indicators

Mortgage health indicators provide insight into the stability of a market. Spikes of nonpayment or foreclosure filings may suggest signs of distress within mortgage markets.

Mortgage delinquency

Mortgage delinquency indexes track the number of buyers who are behind on their mortgage loan payments. Mortgage delinquency indicates borrowers who are over 30 days late on their mortgage payments but not yet in foreclosure. This metric serves as an early indicator of financial strain among homeowners in a specific area, potentially signifying a mismatch between living costs and average income, or overly optimistic lending practices.

Seriously delinquent mortgages

On the other hand, seriously delinquent mortgages refer to loans where the borrower is more than 90 days late on payments. This condition often leads to foreclosure, pointing toward more severe economic distress or instances where initial home prices significantly outpaced the borrowers' financial capabilities. An increase in this rate may signal a local economy in decline or a housing market that was overvalued.

Foreclosure auctions

The foreclosure auction index catalogs the number of foreclosure homes. This indicator includes both foreclosure starts and foreclosure completions.

You might want to consider buying a foreclosed home if you’re a real estate investor. While a rising number of foreclosure auctions is a negative indicator of the economy’s overall health, more foreclosures usually mean lower prices – but don’t underestimate the number of repairs the average foreclosure needs.

Homeowner equity trends

Homeowner equity trends offer insights into a market's financial stability and potential for investment. This includes observing the change in home values and identifying homeowners with either negative or positive equity.

Change in aggregate

The change in aggregate signifies homeowners' overall equity shift. Positive changes signal increasing homeowner equity, indicating well-managed loans and housing affordability. On the other hand, negative changes reflect rising foreclosures and less affordable housing.

Underwater borrowers

Indexes of underwater borrowers count those whose mortgages exceed their homes' value. A mortgage loan can also go underwater if a homeowner misses payments or if local property values fall.

An increase in underwater mortgages suggests declining home prices and a struggling housing market, while a decrease points to a healthy or recovering housing market.

The bottom line: Optimize your investment with market insights

Understanding the housing market through various indicators is important for both personal home buyers and seasoned investors. For investors, staying ahead with comprehensive market data could make the difference in your portfolio. Home buyers can gain insights into affordability and the best times to buy.

If you’re ready to take the next steps toward becoming a homeowner, start the approval process today with Rocket Mortgage®.