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Challenging Housing Market Results in Nearly 80% of Homeowners Preferring to Renovate Than Move

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42% of homeowners say rising interest rates are delaying their home improvements; nearly half that are planning projects have encountered material delays In light of a difficult housing market filled with high home prices and low supply, Discover Home Loans issued a survey to better understand homeowners’ attitudes towards home improvements, purchasing and refinancing. According to its survey, Discover found 79% of homeowners would rather renovate their current home than move to a different one. In fact, 58% of Gen Z and millennial homeowners are currently working on home improvements or plan to do so within the next three months, and the majority, 82%, say they plan to improve their home as a form of investment. “With tappable home equity on the rise, now is the time for homeowners to finance their home improvements with a home equity loan and ultimately, stay in the homes they love long-term,” said Rob Cook, vice president of marketing, digital & analytics of Discover Home Loans. “In some markets, there’s a challenge of low housing inventory and high demand, which is increasing home prices and giving another reason for homeowners to stay with and invest in their current home.” According to the survey, homeowners are most wanting to conduct routine maintenance, update appliances or refinish their flooring. Notably, the number of Americans planning to update their floors jumped 11 percentage points since August 2020; meanwhile, those planning to replace external elements (roofing, doors and gutters) increased seven percentage points. Current Economic Conditions Creating Snags for Some While appetite for home improvement projects remains high, those planning immediate projects are running into problems with price increases and material sourcing. About half of those planning a home improvement now or in the next three months, 48%, say they’ve experienced delays in getting materials for their projects, and 41% think they will encounter delays. More than 57% of homeowners undertaking projects have gone over budget, and nearly two in three report their project cost has increased since their initial contractor bid. Rising interest rates have had a significant impact as well, resulting in 42% of homeowners delaying their home improvement project. “As the U.S. continues to deal with rising material costs and supply chain issues, it’s more important than ever for homeowners to plan ahead for their remodel”, said Cook. “The best first step is to get your financing in order. Starting with a loan calculator, like the one provided by Discover Home Loans, can help give homeowners a sense of how much they can borrow, and what monthly payments may look like.” About Discover Discover Financial Services (NYSE: DFS) is a digital banking and payment services company with one of the most recognized brands in U.S. financial services. Since its inception in 1986, the company has become one of the largest card issuers in the United States. The company issues the Discover card, America’s cash rewards pioneer, and offers private student loans, personal loans, home loans, checking and savings accounts and certificates of deposit through its banking business. It operates the Discover Global Network, comprised of Discover Network, with millions of merchant and cash access locations; PULSE, one of the nation’s leading ATM/debit networks; and Diners Club International, a global payments network with acceptance around the world. For more information, visit www.discover.com/company.

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Providers of single-family rental homes increasingly turned to the development of new housing over the past two years as a means of responding to housing market supply constraints and a corresponding surge in demand for single-family rental housing. According to data from the current Single-Family Rental Market Index (SFRMI), released this week and produced by the National Rental Home Council (NRHC) and John Burns Real Estate Consulting (JBREC), homes built for the purpose of renting – ‘build-for-rent’ homes – accounted for 26% of properties added to the portfolios of single-family rental home providers in the fourth quarter of 2021, compared to just 3% in the third quarter of 2019. Purchases of existing individual homes by single-family rental home providers during that time decreased from 81% to 57%. “America needs a viable and sustainable supply of quality, affordably-priced rental housing. By making long-term commitments to the communities in which they build and invest, single-family rental home providers are constantly working to meet the demand,” said David Howard, executive director of NRHC. “One of the areas where this is most evident is in the market for build-for-rent housing, an innovative effort to bring new supply to the market for rental housing, providing communities with an invaluable source of critically needed middle-income and workforce housing.” For perspective on today’s housing supply-demand dynamic, consider: There are 870,000 more renter households today than there were at the beginning of the COVID health pandemic. (Harvard’s Joint Center for Housing Studies) In 2020, there were 65,000 entry-level homes built in the United States. During the 1970s the number of entry-level homes built in the United States routinely surpassed 420,000 annually. (Bipartisan Policy Center) Over the last five years, the amount of owner-occupied housing in the United States has increased more than 10% while the amount of rental housing has increased just over 2%. (U.S. Census Bureau) Between 2018 and 2020 the housing stock deficit increased by 52% as the undersupply of homes in the U.S. soared from 2.5 million units to 3.8 million units. (Freddie Mac) “Single-family rental homes are a critical part of America’s housing ecosystem, providing affordably-priced, well-located housing for millions of families and households across the country,” according to Howard. “During and following the COVID health crisis, access to single-family rental homes has become even more important as Americans have had to adjust to new realities of working and schooling from home. Single-family rental homes provide a convenient and affordable option for families searching for either a short- or long-term means to address their housing needs.” The SFRMI for the fourth quarter of 2021 contained data from single-family rental home providers in over 50 metro areas across the United States managing more than 200,000 properties. About NRHC The National Rental Home Council (NRHC) is the nonprofit trade association representing the single-family rental home industry. NRHC members provide families and individuals with access to high-quality, single-family rental homes that contribute to the vitality and vibrancy of neighborhoods and communities. For more information on NRHC or the single-family rental home industry visit www.rentalhomecouncil.org or www.buildforrenthomes.com. Contacts: NRHC – David Howard, dhoward@rentalhomecouncil.org JBREC – Devyn Bachman, dbachman@realestateconsulting.com SOURCE National Rental Home Council

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In February, national rents grew 17.1% year-over-year to a new high of $1,792 per month, representing a higher share of household incomes (29.7%) than in 2021 (24.8%) New rental data shows affordability issues are on the rise, as Americans spent 30% of their monthly budgets on rents in February on average, according to the Realtor.com® Monthly Rental Report. February rents accounted for an even higher portion of household incomes in 14 of the 50 largest U.S. markets, with the list of least affordable areas dominated by Sun Belt metros like Miami, Tampa, Fla. and San Diego, Calif. In February, the U.S. median rental price hit a new high of $1,792 and soared by double-digit percentages (+17.1% year-over-year) for the seventh month in a row. Among unit sizes, studio rents increased at the fastest annual pace, up 17.1% (+$215) to a median of $1,474. Larger unit rents also posted double-digit gains over February 2021: 1-bedrooms, up 16.4% (+$232) to $1,648; and 2-bedrooms, up 16.2% ($278) to $2,002. “Whether it’s rent or mortgage payments, the general rule of thumb is to keep monthly housing costs to less than 30% of your income. And with rents surging nationwide, February data indicates that many renters’ budgets may be stretched beyond the affordability limit,” said Realtor.com® Chief Economist Danielle Hale. “With rents up by nearly 20% over the past two years, rental prices are likely to remain high, but we do expect some cooling from the recent accelerated pace. In light of mounting economic uncertainties and the conflict in Ukraine, some households will prefer to buy, in an effort to lock-in a largely fixed monthly payment as a hedge against further inflation. But fast-rising mortgage rates and still-limited numbers of homes for sale could mean some would-be buyers may stick with the flexibility of renting. With rental demand already outmatching supply, rental affordability will remain a challenge. For renters eager to make the transition to first-time buying, finding a relatively affordable rental is key to saving for a down payment. Tools like the Realtor.com® Rent vs. Buy Calculator can help you frame the numbers in a meaningful way and make the choice that is right for you.” February 2022 Rental Metrics – National Unit Size Median Rent Change over Feb. 2021 Change over Feb. 2020 Overall $1,792 17.1% ($261) 18.8% ($283) Studio $1,474 17.1% ($215) 11.7% ($154) 1-bed $1,648 16.4% ($232) 17.1% ($241) 2-bed $2,002 16.2% ($278) 21.2% ($350) Affordability issues soar nationwide, led by Sun Belt metrosFebruary data indicates that rents are increasingly straining Americans’ budgets, representing roughly 30% of typical household incomes. Year-over-year rent growth in February 2022 was four-times higher when compared to March 2020, before the onset of COVID, highlighting limited supply relative to demand. The acceleration in rents is largely driven by a growing segment of young households, many of whom are turning to renting in the face of the for-sale inventory crunch, record-high listing prices and climbing mortgage rates. In turn, many of the least affordable rental markets are also some of the most competitive areas for buying. These trends are illustrated in Sun Belt metros like Miami, Tampa and San Diego, which topped February’s lists of fastest-growing and least affordable rental markets, as well as the hottest homebuying destinations. February rents made up 29.7% of the typical household income in the 50 largest U.S. metros, a higher share than during the same month in 2021 (25.3%). The rental share of income was even greater in 14 of these markets, led by Miami, at 59.5%; Los Angeles, at 46.0%; and Riverside, Calif., at 45.9% (see table below). Representing nearly half of the country’s largest markets, the Sun Belt claimed half of February’s least affordable areas and all 10 of the fastest-growing rental markets, including four in Florida. The state’s low vacancy rates highlight rising rental affordability, with the Florida supply of vacant rental units (6.6%) declining drastically since 2009 (17.9%). In Miami, the median rental price spiked 55.3% year-over-year in February, bringing it to the top of February’s least affordable markets. Although buying a starter home is more affordable than renting one in Miami, the local for-sale home market is also exploding. Compared to February 2021, listing prices were up 31.6% in Miami, which jumped 25 spots on the latest Realtor.com® Hottest Markets Ranking. Middle America rental markets offer relative affordabilityAlthough rental affordability is dwindling at the national level, February data offers some good news for some renters, depending on where they live. In many large markets in Middle America, for instance, February rents came in below the recommended max share of monthly paychecks. Additionally, the area accounted for more than half of February’s most affordable rental markets, including Kansas City, Oklahoma City and St. Louis. Still, with February rent growth outpacing incomes even in these relatively affordable areas, renters devoted more of their monthly paychecks towards housing costs than in 2021. After making a swift recovery from earlier COVID setbacks, rents grew over 2021 in each of the 50 largest U.S. metros in February, up by double-digits in 39 markets. February rent growth was in single-digit territory in the remaining 11 metros, keeping rental costs to a lower share of incomes in many of these areas. At No. 8 on the February list of most affordable rental markets, Minneapolis posted the country’s second lowest annual rental price gains, up just 4.5% year-over-year. Compared to a metro like Miami, where rental affordability has dropped dramatically, Minneapolis rents were significantly lower in February ($1,558 vs. $2,929). In February, Middle America dominated the top 10 list of most affordable rental markets, with rents taking up less than 30% of typical household incomes in metros like Kansas City, at 19.9%; Oklahoma City, at 21.1%; and St. Louis, at 22.3%. At the same time, with housing affordability declining and mortgage rates climbing nationwide, Middle America renters might consider putting their monthly savings on rent towards buying a first home. In the No. 1 most affordable rental market of Kansas City, monthly starter home costs were 21.7% lower than rents in January, but also grew double-digits over 2021. For more information, visit Realtor.com®.

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Panel of housing experts sees pandemic-fueled deficits sticking around until then Panel expects a two-year climb back to pre-pandemic for-sale inventory levels Share of first-time buyers is forecast to stay below 2019 levels until 2024 Home price appreciation should outstrip all inflation measures this year except that of energy The housing market is expected to return to pre-pandemic, 2019 norms — at least in terms of inventory and the share of purchases made by first-time home buyers — by 2024 according to a panel of housing market experts polled in the latest Zillow® Home Price Expectations Survey. The dwindling supply of homes for sale has been a key driver of the recent explosion in U.S. home values, which have risen 32% in the past two years. Total inventory has fallen from a monthly average of 1.6 million units in 2018 and 2019 to just over 1 million in 2021, and monthly figures in 2022 are lower still. Inventory should return to a monthly average of 1.5 million units or higher in 2024, according to the largest group (38%) of respondents to Zillow’s survey. But many are more optimistic — the second-largest group (36%) believes supply will bounce back to pre-pandemic levels in 2023, while 2025 earned the third-highest share of votes with 12%. “Inventory and mortgage rates will determine how far and how fast home prices will rise this year and beyond,” said Zillow senior economist Jeff Tucker. “We are seeing new listings returning to the market, slowly, as we enter the hottest selling season of the year, but this supply deficit is going to take a long time to fill.” Return of the first-time home buyerThe pandemic ushered in record-breaking price growth alongside rent hikes that made saving for down payments even more difficult. As a result, the share of first-time home buyers dropped from 45% in 2019 to 37% in 2021, according to a Zillow survey of recent buyers. First-time buyers should regain their pre-pandemic share of the market in a couple of years, according to the majority of experts polled, with 26% pointing to 2024, and 25% liking 2025. Eighteen percent of the experts polled did not believe the share of first-time buyers will rise above 45% until after 2030, despite millennials — the largest U.S. generation ever — aging well into their prime home-buying years before that time. Inflation considerationsInflation has already begun eroding the bottom lines of American households, with the Bureau of Labor Statistics noting rising costs for energy, housing and food as prime factors driving it to a four-decade high. Of the six categories considered, survey participants expect energy prices to increase the most over the course of 2022, followed by house prices, residential rents and food costs. Employee wages and stock prices were ranked fifth and sixth, respectively, rounding out the list. Price growth projectionsPulsenomics founder Terry Loebs said the panel’s average projections for home price growth in 2022 have been revised upward, from 6.6% three months ago to 9% in this survey. “Against the backdrop of tightening Fed policy and increasing mortgage rates, this more bullish outlook for home values suggests that home inventory shortages will remain the dominant price driver this year,” Loebs said. “If price increases this year for homes, rents, energy, and food each exceed wage growth – as the panel expects – home affordability challenges will intensify further, especially for low- and moderate-income renters.” Zillow economists forecast a 16.3% rise in typical home values from February through December. The survey was conducted by Pulsenomics, LLC on behalf of Zillow, Inc. The Zillow Home Price Expectations Survey and any related materials are available through Zillow and Pulsenomics.

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Bidding Wars Are Intensifying at a Slower Pace Than They Were at the Start of the Pandemic By Lily Katz, Senior Data Journalist at Redfin Nationwide, 68.6% of home offers written by Redfin agents faced bidding wars on a seasonally adjusted basis in February—the highest level in Redfin’s records, which date back to April 2020. That’s up slightly from a revised rate of 68% in January and 60.2% a year earlier. On an unadjusted basis, February’s bidding-war rate was 71.4%. “It’s the most competitive time in history to purchase a home because mortgage rates are rising from historic lows amid a worsening supply shortage,” said Redfin Chief Economist Daryl Fairweather. “Bidding wars intensified this year after rates started spiking, which lit a fire under buyers. Competition will likely plateau or even decline if rates keep increasing as expected. Monthly mortgage payments for new buyers are already at a record high. As they continue to creep up, some buyers will move to the sidelines.” Mortgage rates have increased as the government seeks to combat inflation. The Federal Reserve raised interest rates for the first time in four years this week. That caused the average 30-year fixed mortgage rate to jump past 4% for the first time since 2019, hitting 4.16% during the week ending March 17. That’s up from a record low of 2.65% roughly two years ago. The Fed forecast six more rate hikes this year despite economic uncertainty stemming from the war in Ukraine. El Paso, Denver and Minneapolis Are the Most Competitive Housing Markets El Paso, TX had the highest bidding-war rate of the 50 U.S. metropolitan areas in this analysis, with 87.5% of offers written by Redfin agents facing competition in February. Next came Denver at 83% and Minneapolis at 81.1%. Raleigh, NC and San Francisco/San Jose rounded out the top five, with bidding-war rates of 80% and 79.9%, respectively. “Housing inventory in El Paso is ridiculously low—especially for new-construction homes—which is brewing up bidding wars,” said local Redfin real estate agent Salvador Palos. “Buyers here have always loved new, turn-key homes, and those are nearly impossible to find because builders are delayed due to supply-chain issues and labor shortages. A lot of homeowners are also staying put because they’re worried about finding their next home at a time when the economy is so uncertain. It’s not uncommon for newer homes to get 10 to 15 offers and sell for $20,000 over the asking price.” Townhouses Are the Most Competitive Property Type Three-quarters (75.3%) of Redfin offers for townhouses faced competition in February—a higher share than any other property type. Next came single-family homes, with a bidding-war rate of 72.9%. Multi-family properties and condos/co-ops essentially tied for third place, with respective rates of 64.8% and 64.6%. Many homebuyers have sought out townhouses because they’ve been priced out of the market for single-family homes due to surging housing prices. Homes in the $1 Million to $1.5 Million Range Are the Most Competitive Homes listed in the $1 million to $1.5 million range were the most likely to face competition, with a bidding-war rate of 76.6% in February. Next came homes in the $600,000 to $800,000 range (73.8%), followed by homes listed for more than $1.5 million (73.1%). The least competitive were homes listed for less than $200,000 (62.7%), followed by homes in the $200,000 to $300,000 range (67.9%). All other list-price buckets had bidding-war rates of more than 70%. To view the original report, please go to: https://www.redfin.com/news/real-estate-bidding-wars-february-2022/.