The residential real estate market has come roaring out of the gates in 2020. Compared to this time last year, the number of buyers looking for a home is up 20%, and the number of home sales is up almost 10%. The increase in purchasing activity has caused home price appreciation to begin reaccelerating. Many analysts have boosted their projections for price appreciation this year.
Whenever home prices begin to increase, there’s an immediate concern about how that will impact the ability Americans have to purchase a home. That thinking is understandable. We must, however, realize that price is not the only element to the affordability equation. Mark Fleming, Chief Economist at First American, recently explained:
“When demand increases for a scarce (limited or low supply) good, prices will rise faster. The difference between houses and other goods is that we buy them with a mortgage. So, it’s not the actual price that matters, but the price relative to purchasing power.”
While home prices have risen recently, mortgage interest rates have fallen rather dramatically. At the beginning of last year, the 30-year fixed-rate mortgage stood at 4.46%. Today, that number stands over a full percentage point lower.
How does a lower mortgage rate impact your monthly mortgage payment?
Michael Hyman, a research data specialist for the National Association of Realtors (NAR), explained in a recent report that, even though home values have increased over the last year, the monthly cost of owning a home has decreased:
“With lower mortgage rates compared to one year ago, the payment as a percentage of income fell to 15.5%…from 17.1% a year ago.”
When purchasing a home, the price is not as important as its cost. Today, the monthly expense (cost) of purchasing the same house you could have purchased last year would be less. Or, you could purchase a more expensive home for the same monthly expense.
Fleming, looking at all aspects of the affordability equation (prices, wages, and mortgage rates), calculated the actual numbers in a recent blog post:
“Low mortgage rates and income growth triggered a 13.5% increase in house-buying power compared with a year ago.”
Since wages have increased and mortgage rates have dropped to historically low levels, this is a great time to buy your first home or move up to the home of your dreams. As Tendayi Kapfidze, Chief Economist at LendingTree, recently advised:
“If you are in a point in your life where you’re considering buying a home today, it’s a better time to buy than 10 years ago. If you can get a mortgage, you’re getting much lower interest rates, and it enables you to afford more.”
Whether you’ve considered becoming a homeowner for the first time or have decided to sell your home and buy one that better suits your current lifestyle, now is a great time to get together and discuss your options.
- If you’re thinking of buying a home and you’re not sure where to start, you’re not alone.
- Here’s a guide with 10 simple steps to follow in the homebuying process.
- Be sure to work with a trusted real estate professional who will be with you every step of the way.
Recently, David Greene, co-host of the BiggerPockets podcast and a nationally renowned author and speaker, wrote an article in Forbes explaining how investing in real estate could help build wealth. Many of the points he made also apply to a family owning their own home. Here are a few:
“The rising of home prices over time, is how the majority of wealth is built in real estate. This is the ‘home run’ you hear of when people make a large windfall of money. While prices fluctuate, over the long run real estate values have always gone up, always, and there is no reason to think that is going to change.
One thing to consider when it comes to real estate appreciation affecting your ROI is the fact that appreciation combined with leverage offers huge returns. If you buy a property for $200,000 and it appreciates to $220,000, your property had made you a 10% return. However, you likely didn’t pay cash for the property and instead used the bank’s money. If you consider that you may have put 10% down ($20,000), you actually have doubled your investment, a 100% return.”
“By nature, real estate is one of the easiest assets to leverage I have ever come across—maybe the easiest. Not only is it easy to leverage the financing of it, but the terms are incredible compared to any other kind of loan. Interest rates are currently below 5%, down payments can be 20% or less, and loans are routinely amortized over 30-year periods.”
3. Paying Off the Debt
“One of the best parts of investing in real estate is the fact that … you’re slowly paying down your loan balance with each payment to the bank… After enough time passes, a good chunk of every payment comes off the loan balance, and wealth is created.”
4. Forced Equity
“Forced equity is a term used to refer to the wealth that is created when an investor does work to a property to make it worth more…
Example of this would be adding a third or fourth bedroom to a property with only two, adding a second bathroom to a property with only one, or adding more square footage to a property with less than the surrounding houses.”
Though Green was talking about investors, the same could be said about a family upgrading their own home.
Green put it best by saying:
“There are many ways to build wealth in America, but real estate might be the safest, steadiest and simplest way to do so.”
In many markets across the country, the number of buyers searching for their dream homes outnumbers the number of homes for sale. This has led to a competitive marketplace where buyers often need to stand out. One way to show that you are serious about buying your dream home is to get pre-qualified or pre-approved for a mortgage before starting your search.
Even if you are not in an incredibly competitive market, understanding your budget will give you the confidence of knowing whether or not your dream home is within your reach.
Freddie Mac lays out the advantages of pre-approval in the ‘My Home’ section of their website:
“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”
One of the many advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you through this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.”
Freddie Mac describes the ‘4 Cs’ that help determine the amount you will be qualified to borrow:
- Capacity: Your current and future ability to make your payments
- Capital or cash reserves: The money, savings, and investments you have that can be sold quickly for cash
- Collateral: The home, or type of home, that you would like to purchase
- Credit: Your history of paying bills and other debts on time
Getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and it often helps speed up the process once your offer has been accepted.
Many potential homebuyers overestimate the down payment and credit scores necessary to qualify for a mortgage. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so today.
You may have heard that the housing market is softening. There is no doubt that buyer traffic has decreased. There are fewer purchasers in the market than there were last month and at this time last year. What you may not have heard, however, is that there is still a severe shortage of listing inventory in many regions of the country.
In a recent interview discussing the housing market, First American’s Chief Economist Mark Fleming put it simply:
“The biggest challenge is really the availability of supply.”
When we look at available inventory numbers released by the National Association of Realtors (NAR), we see that the actual number of homes for sale has decreased in each of the last five months.
What does this mean to you as a seller?
The best time to sell is when there is less competition. That guarantees you a better price and fewer hassles in the transaction.
If you are thinking of selling your house this year, the best time to put it on the market might be right now. Let’s get together to evaluate the demand for your house in our market!
Following last year’s real estate market was like riding a rollercoaster. The market started off strong in 2018 and then softened before finishing with a mild flurry. However, one thing that did not waiver was America’s belief that owning a home makes sense from a financial standpoint.
An end-of-the-year survey by the Federal Reserve Bank’s Center for Microeconomic Data revealed that:
“The majority of households continue to view housing as a good financial investment.”
And that percentage has increased over the last three years.
Though there is some uncertainty as to how the real estate market will perform over the next twelve months, one thing remains very certain: America’s belief in homeownership.
- Interest rates are projected to increase steadily throughout 2019, but buyers will still be able to lock in a rate lower than their parents or grandparents did when they bought their homes!
- Home prices will rise at a rate of 4.8% over the course of 2019 according to CoreLogic.
- All four major reporting agencies believe that home sales will outpace 2018!
This year started strong for real estate, but then the market began to soften. Home inventory in the starter and move-up categories dwindled to almost nothing, mortgage rates were projected to rise, and home sales had decreased for several months in a row.
To many, the outlook heading into 2019 appeared dim… at best.
Then, in a 24-hour window last week, things seemed to change. On Wednesday, the National Association of Realtors’ (NAR) revealed in theirExisting Homes Sales Report that home sales had INCREASED for the second consecutive month. The next day, NAR’s economic research team announced that the percentage of first-time buyers in the market was higher than last month and even higher than a year ago.
What happened to turn around the downward momentum in the market?
You only needed to wait a few hours to find out. On the heels of NAR’s revelations, Zillow released their November Real Estate Market Report that explained:
“After nearly four years of annual declines in inventory, the number of homes for sale has now increased year-over-year for three straight months…”
Ending 2018, we now know two things:
- Listing inventory increased over the last three months
- Home sales increased over the last two months
Maybe a lack of inventory was the major challenge all along.
But, what about those pesky interest rates?
Last Thursday (the day after all of the above news), Freddie Mac announced that mortgage rates did not increase but instead decreased…again. From their release:
“The response to the recent decline in mortgage rates is already being felt in the housing market. After declining for six consecutive months, existing home sales finally rose in October and November and are essentially at the same level as during the summer months.
This modest rebound in sales indicates that homebuyers are very sensitive to mortgage rate changes – and given the further drop in rates we’ve seen this month, we expect to see a modest rebound in home sales as well.”
Will 2019 start out better than many have predicted? Perhaps, but we’ll have to wait and see. Things do look much better today, though, than they did just a month ago.
- Existing home sales are currently at an annual pace of 5.32 million and have increased on a monthly basis for the last two months.
- The inventory of existing homes for sale remains below the 6-months needed for a normal market and is now at a 3.9-month supply.
- Inventory remains low due to high demand from buyers who are still looking for houses to buy