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A Guide To Housing Market Indicators

7-minute read

Buying a home is a major commitment. It’s a great idea to analyze the market and make sure you’re buying at the right time. 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. We’ll take a look at a few of the most commonly used housing market indicators and show you how to use them. 

Homeownership Affordability

Homeownership 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. If the average income wouldn’t qualify for a mortgage, homeownership affordability is low. Low homeownership affordability usually means home prices are very high. If the average household earns significantly more money than needed to manage an average mortgage, homeownership affordability is high.

You might want to look in an area with higher affordability if you want to buy your first home. High homeownership affordability means that prices are usually lower. This means that you might have an easier time qualifying for a loan.

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. If the average household spends less than 30% of their income renting the average space, rental affordability is high. If the average household must spend over 30% of their monthly income to afford the average space, rental affordability is low.

Landlords need to carefully consider rental affordability when they invest. If you buy in an area with high rental affordability, you’ll have more tenant applications to choose from. However, you’ll usually net less money in rent. If you buy in an area with low affordability, you can charge more for rent – if you can find a tenant.

Home Prices

Home prices look only at the average price of the average-sized home. The home price index doesn’t make a judgment based on affordability. Instead, it simply shows you how much you’re likely to pay for a home. Home price indexes also track how home values in an area move over time.

Home price is incredibly important 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 payment that you’ll need to cover. If you can’t comfortably afford a home in the area you’re looking, you may want to search in a more affordable ZIP code.

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Home Sales

Home sales indexes look at 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 property. You might not have as much room to negotiate with a seller. If homes 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 Starts

The term “housing start” refers to the construction of a new property. There are different housing start indexes for single-family and multifamily units. More housing starts mean more construction in that area. 

Housing starts can be a useful indicator for investors. It’s likely that housing prices will rise if more construction companies invest more money in a certain area. 

Housing Supply

Housing supply indexes track the number of vacant homes for sale. 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 the housing supply in an area goes down, 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. On the other hand, if housing supply increases, it means people are moving out of the area or there’s too much construction. Prices for each living space drop when the supply is too high. 

Mortgage Originations

Mortgage origination indexes track the number of new mortgage loans issued in an area. Mortgage origination simply refers to the beginning of a new mortgage loan. Mortgage origination indexes track mortgages by the number of new loans issued. They 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. 

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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. They have insurance that protects the lender if the borrower stops making payments. This allows 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 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 that the average income and credit scores are lower. This is important information for investors who want to buy a rental unit.

Mortgage Delinquency

Mortgage delinquency indexes track the number of buyers who are behind on their mortgage loan payments. A buyer is in standard delinquency if they are over 30 days behind on their loan but not in foreclosure.

Rising mortgage delinquency rates aren’t a good sign for buyers or investors. This could mean that the average income in an area decreases or that the price of living rises disproportionately to income. It can also mean that mortgage companies issue too many mortgage loans to buyers who were less than ideal candidates for the area. Keep a careful eye on home prices and affordability indexes before you invest in this type of area.

Seriously Delinquent Mortgages

Seriously delinquent mortgage indexes track the number of mortgage holders who are very far behind on their monthly payments. A loan holder is “seriously delinquent” when they are more than 90 days behind on their mortgage. Many of these homeowners may be in foreclosure and at risk of losing their homes.

A rising percentage of seriously delinquent loan holders is a bad sign for shoppers. It can mean that home prices were too high when borrowers took their loans or that the local economy is doing poorly. These areas are more likely to have more foreclosed homes available for sale. You might want to consider buying a more affordable foreclosure if you’re an experienced investor. Remember, most of these homes are in poor condition and need a large amount of work before they’re livable.

Change In Aggregate

The change in aggregate indicator refers to the dollar-amount change in the portion of real estate equity that homeowners control. A positive change in aggregate means that homeowners gain equity. A negative change in aggregate means that homeowners lose equity.

The change in aggregate indicator is useful for diagnosing the housing market as a whole. Positive changes in aggregate equity ownership usually mean that housing is affordable and homeowners are managing their loans well. If equity decreases, it means that more homes are going into foreclosure and housing is less affordable.

Underwater Borrowers

Underwater borrower indexes track the number of homeowners who owe more money on their home than it's worth. Underwater mortgages are home loans that are at a higher dollar value than the appraised value of the property. A mortgage loan can go underwater if a homeowner misses payments or if local property values fall.

A rising number of underwater mortgages means that home prices are falling. It’s a general negative indicator of the overall health of the housing market. If the number of underwater borrowers falls, it means that the housing market is in recovery.

National Homeownership Rate

The national homeownership rate is the percentage of households who own their living space. The national homeownership rate 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. This can mean that it isn’t the ideal time to buy or invest – at least until prices drop.  

Foreclosure Auctions

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

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

Summary

Housing market indicators can be useful for both personal home buyers and investors. Housing indicators diagnose the health of the housing market. If you’re an investor, you might want to pay particularly close attention to home price data, foreclosure auction and delinquency rates. Look at home affordability indexes and home price trends if you’re buying your first home. Rental affordability will be very important to you if you’re a landlord. Other national indicators (like aggregate ownership and national homeownership rates) can tell you more about the housing market on a national level.

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