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Archive for the ‘First Time Home Buyers’ Category

Experts Agree: Options Are Improving for Buyers [INFOGRAPHIC]

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Experts Agree: Options Are Improving for Buyers [INFOGRAPHIC] | Simplifying The Market

Experts Agree: Options Are Improving for Buyers [INFOGRAPHIC] | Simplifying The Market

Some Highlights

  • Buyers hoping for more homes to choose from may be in luck as housing inventory begins to rise. Many experts agree – new sellers listing their homes is great news for buyers and the overall market.
  • Although the supply increases are modest, more homes means more options for buyers. A rise in inventory may also help slow the price gains we’ve seen recently and could be a sign of good things to come.
  • If you’re searching for a home, rising inventory is welcome news. Let’s connect today to discuss new listings in our area.

Diving Deep into Today’s Biggest Buyer Concerns

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Diving Deep into Today’s Biggest Buyer Concerns | Simplifying The Market

Last week, Fannie Mae released their Home Purchase Sentiment Index (HPSI). Though the survey showed 77% of respondents believe it’s a “good time to sell,” it also confirms what many are sensing: an increasing number of Americans believe it’s a “bad time to buy” a home. The percentage of those surveyed saying it’s a “bad time to buy” hit 64%, up from 56% last month and 38% last July.

The latest HPSI explains:

“Consumers also continued to cite high home prices as the predominant reason for their ongoing and significant divergence in sentiment toward homebuying and home-selling conditions. While all surveyed segments have expressed greater negativity toward homebuying over the last few months, renters who say they are planning to buy a home in the next few years have demonstrated an even steeper decline in homebuying sentiment than homeowners. It’s likely that affordability concerns are more greatly affecting those who aspire to be first-time homeowners than other consumer segments.”

Let’s look closely at the market conditions that impact home affordability.

A mortgage payment is determined by the price of the home and the mortgage rate on the loan used to purchase it. Lately, monthly mortgage payments have gone up for buyers for two key reasons:

  1. Mortgage rates have increased from 2.65% this past January to 2.9%.
  2. Home prices have increased by 15.4% over the last 12 months.

Based on these rising factors, a home may be less affordable today, but it doesn’t mean it’s not affordable.

Three weeks ago, ATTOM Data released their second-quarter 2021 U.S. Home Affordability Report which explained that the major ownership costs on the typical home as a percent of the average national wage had increased from 22.2% in the second quarter of 2020 to 25.2% in the second quarter of this year. They also went on to explain:

“Still, the latest level is within the 28 percent standard lenders prefer for how much homeowners should spend on mortgage payments, home insurance and property taxes.

In the same report, Todd Teta, Chief Product Officer with ATTOM, confirms:

Average workers across the country can still manage the major expenses of owning a home, based on lender standards.”

It’s true that monthly mortgage payments are greater than they were last year (as the ATTOM data shows), but they’re not unaffordable when compared to the last 30 years. While payments have increased dramatically during that several-decade span, if we adjust for inflation, today’s mortgage payments are 10.7% lower than they were in 1990.

What’s that mean for you? While you may not get the homebuying deal someone you know got last year, that doesn’t mean you shouldn’t still buy a home. Here are your alternatives to buying and the trade-offs you’ll have with each.

Alternative 1: I’ll rent instead.

Some may consider renting as the better option. However, the monthly cost of renting a home is skyrocketing. According to the July National Rent Report from Apartment List:

“…So far in 2021, rental prices have grown a staggering 9.2%. To put that in context, in previous years growth from January to June is usually just 2 to 3%. After this month’s spike, rents have been pushed well above our expectations of where they would have been had the pandemic not disrupted the market.”

If you continue to rent, chances are your rent will keep increasing at a fast pace. That means you could end up spending significantly more of your income on your rental as time goes on, which could make it even harder to save for a home.

Alternative 2: I’ll wait it out.

Others may consider waiting for another year and hoping that purchasing a home will be less expensive then. Let’s look at that possibility.

We’ve already established that a monthly mortgage payment is determined by the price of the home and the mortgage rate. A lower monthly payment would require one of those two elements to decrease over the next year. However, experts are forecasting the exact opposite:

  • The Mortgage Bankers Association (MBA) projects mortgage rates will be at 4.2% by the end of next year.
  • The Home Price Expectation Survey (HPES), a survey of over 100 economists, investment strategists, and housing market analysts, calls for home prices to increase by 5.12% in 2022.

Based on these projections, let’s see the possible impact on a monthly mortgage payment:Diving Deep into Today’s Biggest Buyer Concerns | Simplifying The MarketBy waiting until next year, you’d potentially pay more for the home, need a larger down payment, pay a higher mortgage rate, and pay an additional $3,696 each year over the life of the mortgage.

Bottom Line

While you may have missed the absolute best time to buy a home, waiting any longer may not make sense. Mark Fleming, Chief Economist at First American, says it best:

“Affordability is likely to worsen before it improves, so try to buy it now, if you can find it.”

The Truths Young Homebuyers Need To Hear

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The Truths Young Homebuyers Need To Hear | Simplifying The Market

For many young or first-time homebuyers, purchasing a home can feel intimidating. A recent survey shows some homebuyers ages 25 to 40 may be unsure about the homebuying process and what they can afford. It found:

  • “1 in 4 underestimated their buying potential by $150k or more”
  • “1 in 4 underestimated the increase in value by $100k or more”
  • “47% don’t know what a good interest rate is”

Because they feel uncertain, many young homebuyers have given up on their search, or worse, they’ve decided homebuying isn’t for them and never started on their journey to begin with.

If you’re interested in buying but aren’t sure where to begin, here are three key concepts about homeownership you should understand before you get started.

1. What You Need To Know About Down Payments

Saving for a down payment is sometimes viewed as one of the biggest obstacles for homebuyers, but that doesn’t have to be the case. As Freddie Mac says:

The most damaging down payment myth—since it stops the homebuying process before it can start—is the belief that 20% is necessary.”

According to the most recent Home Buyers and Sellers Generational Trends Report from the National Association of Realtors (NAR), the median down payment for homes purchased between July 2019 and June 2020 was only 12%. That number is even lower when we control for age – for buyers in the 22 to 30 age range, the median down payment was only 6%.

2. You May Be Able To Afford More Home Than You Think

Working remotely, exercising, and generally spending more time than ever in our homes has changed what many people are looking for in their living space. However, some young homebuyers don’t feel they can afford a home that suits their growing needs and have decided to continue renting instead. That means they’ll miss out on some of the long-term benefits of owning a home. As an article recently published by NAR points out:

“Many young adults are underestimating how much they need for homeownership, the survey finds. Millennials underestimated how much home they can afford right now, how much interest they would pay over a 30-year mortgage, and how much home values appreciate, on average, over 10 years…”

Knowing how much home you can afford when starting the buying process is critical and could be the game-changer that gets you from renting to buying.

3. Homeownership Will Become Less Affordable the Longer You Wait

Finally, with mortgage rates starting to rise along with home prices appreciating, putting off buying a home now could cost you much more later. Sam Khater, Chief Economist at Freddie Mac, notes:

As the economy progresses and inflation remains elevated, we expect that rates will continually rise in the second half of the year.”

Most experts forecast interest rates will rise in the months ahead, and even the smallest increase can influence your buying power. If you’ve been on the fence about buying a home, there’s no time like the present.

Bottom Line

If you feel overwhelmed by the prospect of starting your home search, you’re not alone. Let’s connect today so we can talk more about the process, what you’ll need to start your search, and what to expect.

Homeowner Wealth Increases Through Growing Equity This Year

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Homeowner Wealth Increases Through Growing Equity This Year | Simplifying The Market

Building financial wealth and stability remains one of the top reasons Americans choose to own a home, and as a homeowner, your wealth often grows without you even realizing it. In a recent paper published by the Urban Institute, Home Ownership is Affordable Housing, author Mike Loftin illustrates how homeowners increase their equity and their wealth simply by making monthly mortgage payments:

“The principal portion that reduces the loan balance builds the homeowner’s equity. In doing so, the principal payments behave like an automatic savings account. The principal payment is not money going out; it is money staying in.”

But home equity – the difference between the value of your home and what you currently owe – isn’t just built through your monthly principal payments. Home price appreciation plays a vital role in growing your equity and, ultimately, your wealth.

As Freddie Mac explains:

“Homeownership has cemented its role as part of the American Dream, providing families with a place that is their own and an avenue for building wealth over time. This ‘wealth’ is built, in large part, through the creation of equity…Building equity through your monthly principal payments and appreciation is a critical part of homeownership that can help you create financial stability.”

Homeowners Continue To See Equity Increase

CoreLogic recently published their latest Homeowner Equity Insights Report, and it shows continued growth in equity amidst record home price appreciation. The report provides several key takeaways, all of which point to rising wealth for homeowners:

  1. The average equity gain of mortgaged homes during the past year was $33,400
  2. The current average equity of mortgaged homes is greater than $216,000
  3. There was a 6% increase in total homeowner equity over the past year
  4. Total U.S. homeowner equity has reached nearly $1.9 trillion

Here, you can see the equity gains by state:Homeowner Wealth Increases Through Growing Equity This Year | Simplifying The Market

Equity Provides Homeowners with Flexibility

In addition to being a critical tool in building wealth, a homeowner’s equity also provides significant flexibility. When you sell your house, the accumulated equity comes back to you in the sale. Recent increases in home equity coupled with record-low mortgage rates mean it could be the perfect time for homeowners looking to make a move.

Mark Fleming, Chief Economist at First American, notes:

“Existing homeowners today are sitting on record amounts of equity. As homeowners gain equity in their homes, the temptation grows to list their current home for sale and use the equity to purchase a larger or more attractive home.”

Increasing equity also helps families facing challenges brought on by the pandemic. Frank Martell, President and CEO of CoreLogic, explains in the recent Homeowner Equity Insights Report:

“Homeowner equity has more than doubled over the past decade and become a crucial buffer for many weathering the challenges of the pandemic. These gains have become an important financial tool and boosted consumer confidence in the U.S. housing market, especially for older homeowners and baby boomers who’ve experienced years of price appreciation.”

Bottom Line

Home equity has always been a powerful wealth-building tool, and homeowners continue to see their financial stability increase. Let’s connect today so you can better understand how much equity you have in your current home or if you’re ready to take the next step in building your savings as a homeowner.

Pre-Approval Makes All the Difference When Buying a Home

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Pre-Approval Makes All the Difference When Buying a Home | Simplifying The Market

You may have been told that it’s important to get pre-approved at the beginning of the homebuying process, but what does that really mean, and why is it so important? Especially in today’s market, with rising home prices and high buyer competition, it’s crucial to have a clear understanding of your budget so you stand out to sellers as a serious homebuyer.

Being intentional and competitive are musts when buying a home right now. Pre-approval from a lender is the only way to know your true price range and how much money you can borrow for your loan. Just as important, being able to present a pre-approval letter shows sellers you’re a qualified buyer, something that can really help you land your dream home in an ultra-competitive market.

With limited housing inventory, there are many more buyers active in the market than there are sellers, and that’s creating some serious competition. According to the National Association of Realtors (NAR), homes are receiving an average of 5.1 offers for sellers to consider. As a result, bidding wars are more and more common. Pre-approval gives you an advantage if you get into a multiple-offer scenario, and these days, it’s likely you will. When a seller knows you’re qualified to buy the home, you’re in a better position to potentially win the bidding war.

Freddie Mac explains:

“By having a pre-approval letter from your lender, you’re telling the seller that you’re a serious buyer, and you’ve been pre-approved for a mortgage by your lender for a specific dollar amount. In a true bidding war, your offer will likely get dropped if you don’t already have one.”

Every step you can take to gain an advantage as a buyer is crucial when today’s market is constantly changing. Interest rates are low, prices are going up, and lending institutions are regularly updating their standards. You’re going to need guidance to navigate these waters, so it’s important to have a team of professionals such as a loan officer and a trusted real estate agent making sure you take the right steps and can show your qualifications as a buyer when you find a home to purchase.

Bottom Line

In a competitive market with low inventory, a pre-approval letter is a game-changing piece of the homebuying process. Not only does being pre-approved bring clarity to your homebuying budget, but it shows sellers how serious you are about purchasing a home.

5 Things Homebuyers Need To Know When Making an Offer

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5 Things Homebuyers Need To Know When Making an Offer | Simplifying the Market

When it comes to buying a house, you’re looking for the perfect place to call home. The problem is, in today’s market there just aren’t that many homes available to purchase. With inventory hovering near record lows and sky-high buyer demand, a multi-offer scenario is the new normal. Here are five things to keep in mind when you’re ready to make an offer.

1. Know Your Numbers

Having a complete understanding of your budget and how much house you can afford is essential. That’s why you should connect with a lender to get pre-approved for a loan early in the homebuying process. Taking this step shows sellers you’re a serious, qualified buyer and can give you a competitive edge in a bidding war.

2. Brace for a Fast Pace

Today’s market is dynamic and fast-paced. According to the Realtors Confidence Index from the National Association of Realtors (NAR), the average home is on the market for just 17 days – that means from start to finish, a house for sale in today’s climate is active for roughly 2.5 weeks. A skilled agent will do everything they can to help you stay on top of every possible opportunity. And, as soon as you find the right home for your needs, that agent will help you draft and submit your best offer as quickly as possible.

3. Lean on a Real Estate Professional

While homebuying may seem like a whirlwind process to you, local real estate agents do this every day, and we know what works. That expertise can be used to give you a significant leg up on your competition. An agent can help you consider what levers you can pull that might be enticing to a seller, like:

  • Offering flexible rent-back options to give the seller more time to move out
  • Your ability to do a quick close or make an offer that’s not contingent on the sale of your current home

It may seem simple, but catering to what a seller may need can help your offer stand out.

4. Make a Strong, but Fair Offer

Let’s face it – we all love a good deal. In the past, offering at or near the asking price was enough to make your offer appealing to sellers. In today’s market, that’s often not the case. According to Lawrence Yun, Chief Economist at NAR:

“For every listing there are 5.1 offers. Half of the homes are being sold above list price.”

In such a competitive market, emotions and prices can run high. Use an agent as your trusted advisor to make a strong, but fair offer based on market value, recent sales, and demand.

5. Be a Flexible Negotiator

If you followed tip #3, you drafted the offer with the seller’s needs in mind. That said, the seller may still counter with their own changes. Be prepared to amend your offer to include flexible move-in dates, a higher price, or minimal contingencies (conditions you set that the seller must meet for the purchase to be finalized). Just remember, there are certain contingencies you don’t want to forego. Freddie Mac explains:

Resist the temptation to waive the inspection contingency, especially in a hot market or if the home is being sold ‘as-is’, which means the seller won’t pay for repairs. Without an inspection contingency, you could be stuck with a contract on a house you can’t afford to fix.”

Bottom Line

When it’s time to make an offer, it’s important to consider not just what you need, but what the seller may need too. Let’s connect so you have expert advice on this step in the homebuying process to put your best offer on the table.

Owning a Home Has Distinct Financial Benefits Over Renting [INFOGRAPHIC]

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Owning a Home Has Distinct Financial Benefits Over Renting [INFOGRAPHIC] | Simplifying The Market

Owning a Home Has Distinct Financial Benefits Over Renting [INFOGRAPHIC] | Simplifying The Market

Some Highlights

  • When you rent, you build your landlord’s wealth, your monthly payment depends on ever-rising rents, and you don’t benefit from home price appreciation.
  • On the other hand, when you own your home, you build your own wealth, your monthly payment is locked in, and you benefit directly from home price appreciation.
  • If you’re feeling the challenges of a competitive market, remember that homeownership is a long-term game. Persevering today will lead to financial rewards in the future.

Housing Wealth: The Missing Piece of the Affordability Equation

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Housing Wealth: The Missing Piece of the Affordability Equation | Simplifying The Market

The real estate market is soaring today. Residential home values are rising, and that’s a big win for homeowners. In 2020, there was a double-digit increase in home values – a trend that’s expected to head toward similar levels this year.

However, skyrocketing prices are causing some to start questioning affordability in the current housing market. Many are quick to emphasize the fact that homes today are less affordable than they were last year. Black Knight, a leading provider of data and analytics across the homeownership life cycle, just reported on the issue.

The findings show the historical averages of the national payment to income ratio, which they define as “the share of the median income needed to make the monthly payments on the median-priced home.” Their study reveals:

  • The average over the last 25 years was 23.6%
  • The average over the last 5 years was 20.1%
  • The average today stands at 20.5%

Right now, housing payments are slightly less affordable than the five-year average – but only by less than ½ a percentage point. However, they’re significantly more affordable than the 25-year average. Put another way, a buyer will likely make a slightly greater financial sacrifice to afford a home right now than if they purchased a home within the last five years. On the other hand, it also means the potential financial sacrifice is not nearly as great as it was over the last 25 years.

Does making a sacrifice to buy a home today make financial sense in the long term?

Last week, the Federal Reserve announced that, in the first three months of the year, household net worth increased by $968 billion based solely on the values of the real estate they owned. Another report from CoreLogic reveals the average annual gain in homeowner equity was $33,400 per borrower.

Homeownership continues to be the cornerstone to building personal wealth. For most Americans, their home is the largest asset they own. On top of that, the difference between the net worth of homeowners and renters is significant at every income level. Here’s a table detailing that point using data from a study done by First American:Housing Wealth: The Missing Piece of the Affordability Equation | Simplifying The MarketOwning a home is an essential steppingstone to grow a household’s net worth. Despite the slightly greater sacrifice in the percentage of monthly income you’ll spend on housing today, for most homebuyers, the payoff of starting to build equity now will be worth it.

Bottom Line

Since prices have risen dramatically over the past 18 months, it’s slightly less affordable to buy a home today than it was a year ago. However, when you consider the equity gain and weigh the long-term benefits of building your net worth, you may question if you can afford not to buy now.

Hope Is on the Horizon for Today’s Housing Shortage

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Hope Is on the Horizon for Today’s Housing Shortage | Simplifying The Market

The major challenge in today’s housing market is that there are more buyers looking to purchase than there are homes available to buy. Simply put, supply can’t keep up with demand. A normal market has a 6-month supply of homes for sale. Anything over that indicates it’s a buyers’ market, but an inventory level below that threshold means we’re in a sellers’ market. Today’s inventory level sits far below the norm.

According to the Existing Home Sales Report from the National Association of Realtors (NAR):

“Total housing inventory at the end of April amounted to 1.16 million units, up 10.5% from March’s inventory and down 20.5% from one year ago (1.46 million). Unsold inventory sits at a 2.4-month supply at the current sales pace, slightly up from March’s 2.1-month supply and down from the 4.0-month supply recorded in April 2020. These numbers continue to represent near-record lows.”

Basically, while we are seeing some improvement, we’re still at near-record lows for housing inventory (as shown in the graph below). Here’s why. Since the pandemic began, sellers have been cautious when it comes to putting their homes on the market. At the same time that fewer people are listing their homes, more and more people are trying to buy them thanks to today’s low mortgage rates. The influx of buyers aiming to capitalize on those rates are purchasing this limited supply of homes as quickly as they’re coming to market.Hope Is on the Horizon for Today’s Housing Shortage | Simplifying The MarketThis inventory shortage doesn’t just apply to existing homes that are already built. When it comes to new construction, builders are trying to do their part to bring more newly built homes into the market. However, due to challenges with things like lumber supply, they’re also not able to keep up with demand. In their Monthly New Residential Sales report, the United States Census Bureau states:

“The seasonally‐adjusted estimate of new houses for sale at the end of April was 316,000. This represents a supply of 4.4 months at the current sales rate.”

Hope Is on the Horizon for Today’s Housing Shortage | Simplifying The MarketSam Khater, Chief Economist at Freddie Mac, elaborates:

In the span of five decades, entry level construction fell from 418,000 units per year in the late 1970s to 65,000 in 2020.

While in 2020 only 65,000 entry-level homes were completed, there were 2.38 million first-time homebuyers that purchased homes. Not all renters looking to purchase their first home were in the market for entry-level homes, however, the large disparity illustrates the significant and rapidly widening gap between entry-level supply and demand.”

Despite today’s low inventory, there is hope on the horizon.

Regarding existing home sales, Sabrina Speianu, Senior Economic Research Analyst at realtor.com, explains:

“In May, newly listed homes grew by 5.4% on a year-over-year basis compared to the earlier days of the COVID-19 pandemic last year

In May, the share of newly listed homes compared to active daily inventory hit a historical high of 44.4%, 17.3 percentage points higher than last year and 15.1 percentage points above typical levels seen in 2017 to 2019. This is a reflection of quickly selling homes and, for buyers, it means that while they can expect fresh new listings every week, they will have to be prepared to move quickly on desirable homes.”

As for newly built homes, builders are also confident about what’s ahead for housing inventory. Robert Dietz, Chief Economist at the National Association of Home Builders (NAHB), shares:

Builder confidence in the market remains strong due to a lack of resale inventory, low mortgage interest rates, and a growing demographic of prospective home buyers.”

Things are starting to look up for residential real estate inventory. As the country continues to reopen, more houses are likely to be listed for sale. However, as long as buyer demand remains high, it will take time for the balance between supply and demand to truly neutralize.

Bottom Line

Although it may be challenging to find a house to buy in today’s market, there is hope on the horizon. Let’s connect to talk about your home search so we can find your dream home this summer.