Buying • Real Estate • September 21, 2022

Inflation and Interest Rates are Rising, What The Future Looks Like for Housing Market Buyers

by Suzanne Volkman

housing market

Expert Advice for First-Time Home Buyers and Homeowners

We have asked expert financial and real estate bloggers for their advice to help first-time homebuyers and homeowners looking to sell. Here are their thoughts:

1. Focus on How Long You Plan to Own the Home

Greg Wilson, a Chartered Financial Analyst with 22+ years of real estate investing experience, says that buying a house depends on your time horizon, not the market.

He said, “Unless your time horizon is only a few years, go ahead and buy when you are ready to buy. It’s too tough to predict when and if prices will swing one way or another.

Focus on your time horizon’s goals, not near-term storms. It’s also important to remember that the word mortgage translates to “until death.”

Greg concluded by making the point that this is because a property is a long-term commitment, not a commitment to a market cycle.

Greg Wilson at chachingqueen.com

2. Buying a Primary Residence is Not an Investment

Andrew Herrig of Wealthy Nickel distinguishes between buying properties for investment and buying to have a roof over your head.

He said, “As a homeowner and a real estate investor, I have bought and sold dozens of homes over the past 15 years.

With the current market dynamics of rising interest rates and potentially stabilizing or falling prices, investors and homeowners should be cautious in their approach.”

However, Andrew said, “Buying or selling a primary home is rarely a financial decision. Your home is not an investment and should not be treated as such.

As long as you are not overextending your finances to purchase, there is no reason to wait for a “better” market. Similar to trying to time the stock market and buy on the dips, that market may never come.”

Andrew Herrig at wealthynickel.com

3. House Hack for Financial Independence

Max Marvelous, a financial blogger and money expert at Maxmymoney, says that the best way to deal with the uncertainty and economic risk of a mortgage is to get others to contribute to it.

He said, “With housing accounting for more and more of the typical budget, finding creative ways to decrease your housing expense is prudent. House hacking is how many Millennials are lightening their mortgage load each month.”

He explains that house hacking involves finding a home you can live in while simultaneously earning an income from it. Stating, “There are many ways you can go about this:

Buying a duplex and renting out the other side
Renting out individual rooms
Having an in-laws’ quarters

With my first home, I was able to effectively live “rent-free” due to my tenants paying rental income to me each month.

I was able to invest all the money I would be spending on my mortgage. They had affordable housing, and I received semi-passive income, a win-win situation.”

Max Marvelous at maxmymoney.org

4. Use an Escalator Clause to Avoid Overpaying in a Difficult-To-Read Market

Carley Rojas Avila of Home to Havana recommends an escalator clause to avoid overpaying for a home.

With recent interest rate changes changing the cost of buying a house for most first-time homebuyers, some housing markets remain hot, while others are starting to cool.

She states that “Using an escalator clause can be a great way to save money in this new housing market that can be difficult to gauge.

An escalator clause tells sellers how much you’re willing to spend up to, automatically increasing the amount you offer for the house in specified increments up to a specific price.

If the house receives no other or lower bids, you’re not stuck paying an unnecessarily high price for the home.

This can be a great way to make a sensible offer on a home while not overspending in a time when it can be hard to predict the market.”

Carley Rojas Avila at hometohavana.com

5. Focus on Ideal Home, Not Market as Housing Under-Production May Keep Housing Stable

While surging inflation rates and high inflation are causing many would-be homeowners to question their purchase, David Eberhardt of Nature Of Home, feels like it might be the wrong focus.

David states, “A home impacts your quality of living- positively and negatively.

Having a place to live in the right location, with the right features to live fully, can be worth paying a premium (although it has to be within your budget and financial plans).

So, focus on finding the home you want and less on what the markets are doing. Sellers may feel the pressure to sell as the housing market is cooling and prices may dip, but from 2000-2015 there has been a 5.4% under-production of housing, which should help home prices remain strong.”

Davin Eberhardt at natureofhome.com

6. Go for It

Tim Thomas, of timthomas.co recommends home ownership over renting and suggests if an opportunity to buy a house presents itself, buyers should go for it.

Tim states, “The US economy is facing a very uncertain outlook, and inflation is at historic highs. This is a reflection of how things are with the global economy.

Should this uncertainty be a sign of a pending housing market crash? No one can say for sure, but homeownership is preferable to renting, and you’ll always need a roof over your head.

I’m not an accredited advisor, but I would look at the big picture. If you can get a mortgage at the right price, go for it.”

Tim Thomas at Wealthy Living

7. The Best Time to Buy is When You’re Ready for the Commitment.

The writer for Dad Is Fire, a blog dedicated to gaining financial independence and retiring early, says the best time to buy a home is when you are ready for the commitment, whether it is a rental house or a primary residence.

The expert states, “The sooner you buy the home, the sooner you start paying down the mortgage. But only buy a house you can afford to hold for a while.

In the early 2000s, I bought eight homes. Then in 2008, they dropped in value by ~50%. I wasn’t worried about it since I purchased them with the intention of holding 20+ years.

Now I am retired at 43. Could I have retired if I waited a few years and bought when the market dropped? Probably not yet because I might still be paying down the mortgages. But when you are ready to hold for a long time.”

Anonymous at Dadisfire.com

8. Have a Qualified Team

Latoyia Downs, a travel blogger at The Impulse Traveler, thinks the best advice for dealing with this unpredictable market is to be sure that you have an experienced, qualified team.

She states, “Whether you are a first-time homebuyer, looking to invest, or a seller, hire a professional who fully understands the home buying and selling process.

While you may know about the process, the advice and guidance of someone who deals with these situations regularly are invaluable.

With sellers receiving multiple offers and buyers willing to pay well over the asking price, having an experienced real estate agent and an attorney could help you maneuver unexpected situations and save you time, effort, and money in the long run.”

LaToyia at theimpulsetraveler.com

The Housing Market In Summary

The instability of the housing market can be accredited to the increase in unemployment, the high buyer demand compared to home availability, and labor and supply shortages for builders.

Hopefully, this advice can help first-time homebuyers and sellers maneuver the housing market in this unsteady market.

Article Courtesy of Tim Thomas, Image Courtesy of Careerstepup.com

Market Trends • Real Estate • September 12, 2022

US Home-Price Growth Slowed in June

by Suzanne Volkman

Home-price growth in the US decelerated in June as the sales slowdown gripped the market.

A national measure of prices rose 18% year-over-year, smaller than the 19.9% climb in May, the S&P CoreLogic Case-Shiller index showed Tuesday.

The housing market has quickly slowed from its pandemic-era frenzy, with the Case-Shiller figures reflecting the start of the pullback that began to pick up pace in June. Mortgage rates that nearly doubled this year have sidelined buyers, leading sales to drop throughout the US. Goldman Sachs Group Inc. economists said Tuesday in a note that price growth will likely slow sharply over the coming quarters.

“The deceleration in U.S. housing prices that we began to observe several months ago continued in June,” said Craig Lazzara, a managing director at S&P Dow Jones Indices. “It’s important to bear in mind that deceleration and decline are two entirely different things, and that prices are still rising at a robust clip.”

The crazy bidding wars of the recent past are receding as sellers become more flexible: 92% of owners who sold their homes in the past year accepted some buyer-friendly terms, according to a new report from Realtor.com.

A measure of prices in 20 US cities increased 18.6% in June, down from the 20.5% gain in May. Tampa, Miami and Dallas posted the highest gains.

The market slowdown has caused some big investors to pull back. Home Partners of America, the single-family landlord owned by Blackstone Inc., will stop buying homes in 38 US cities. The company cited home-price appreciation, local regulations and market demand as some factors in figuring out where it would back away.

“We and Home Partners remain fully committed to expanding access to homeownership and continue to actively purchase homes on behalf of our residents in more than 20 of the highest growth markets in the US,” a Blackstone spokesperson said in an emailed statement. “We are pausing in markets that represent less than 5% of our recent activity.”

The index, which covers more than 27 years of data, is an important measure of the health of the housing market in part because of its breadth of measurements around the country.

Market Trends • September 12, 2022

Economists Have a Strange New Buzzword for the Housing Market That Will Shock Buyers and Sellers

by Suzanne Volkman

This term cropped up most recently in an analysis by Realtor.com economist Jiayi Xu, who notes, “Our weekly data suggests that the U.S. housing market keeps progressing toward a more balanced market.”

Many economists of late have remarked on the market’s more even-keel turn.

But what does a balanced housing market actually look like—and mean—for buyers and sellers?

In a nutshell, “balance” means that the raging seller’s market that’s dominated since the COVID-19 pandemic is slowly shifting—not into full buyer’s market territory, but toward a middle ground that puts buyers and sellers on more even footing.

Here’s what balance looks like—in terms of home prices, number of new listings, and more—so both buyers and sellers can better navigate this new normal of real estate today.

Homes are lingering on the market longer

Over the past two years, the pace of real estate sales has sped up significantly. Nationally, homes are on the market a median 35 days before getting snapped up. But this rush is waning.

For the week ending Aug. 20, properties spent four extra days on the market compared with this time last year.

“For a fourth week in a row, homes are sitting on the market for a longer time than last year,” adds Xu. “As both buyers and sellers adjust to the rebalancing market, expectations shift, reducing the sense of urgency in the market and reinforcing the trend toward longer sale timelines.”

Home sellers are less eager to list

While today’s homebuyers are less gung-ho to sprint to the closing table, home sellers are also dragging their feet to the market. For the week ending Aug. 20, the number of new listings dropped by 12% from a year earlier.

“This week marks a seventh straight week of year-over-year declines in the number of new listings coming up for sale, and a second consecutive week with double-digit declines,” notes Xu.

This newfound reluctance to list not only means buyers have fewer fresh listings to peruse, but it could also throw the market’s rebalancing progress off-kilter.

“This pullback from sellers could slow the speed at which the housing market rebalances,” says Xu. “Buyers looking for more bargaining power may need patience.”

By Judy Dutton

Sep 5, 2022

Market Trends • Real Estate • September 9, 2022

Amid Good News, There’s a Crucial Housing Market Detail We’re All Overlooking

by Suzanne Volkman

Recent real estate headlines are bursting with promising news for homebuyers, heralding a bright new housing market that’s more “balanced” and “buyer-friendly.”

But what this exuberant outlook seems to be missing is a bit more balance itself. Yes, homebuyers have it a little bit better, in some places. But for others, it’s still a war zone—or, at best, a mixed bag—according to the latest statistics highlighted in our weekly column “How’s the Housing Market This Week?”

“Today’s home shoppers are contending with a more buyer-friendly market than last year’s by several measures. However, they also face significant hurdles,” notes Realtor.com® Chief Economist Danielle Hale in her analysis. “While there are more homes available for sale, and there may be more time to make an offer on one, the typical home has a higher price and will cost much more to finance than one year ago.”

Since the numbers never lie, here’s a reality check to help both homebuyers and sellers navigate the highly dynamic world of real estate today.

Home prices are up and down, depending on how you look at it

The latest August data from Realtor.com places the median home price nationwide at $435,000. And, for the week ending Aug. 27, listing prices rose by 13.2% over that same week last year.

“The typical asking price was up from last year by double digits for a 37th week,” says Hale.

But here’s another way to look at: Although prices are up over last year, they’re down compared to last month. In fact, August’s $15,000 drop from July’s median home price of $440,000 is the steepest fall-off seen in the past six years.

“While a seasonal decline in prices is typical in our historical real estate data, this month’s dip is larger than usual from July to August,” says Hale. “Price momentum in the housing market has shifted.”

That bodes well for cash-strapped buyers as we enter the fall market, which is typically the best time to buy a home.

Fewer home sellers are listing—but they may be missing out

For the week ending Aug. 27, the number of new listings on the market dropped by 12% compared to that same week a year earlier. That’s the eighth straight week of declines, and the third consecutive week showing a double-digit drop.

Clearly, sellers are miffed they can no longer call all the shots with desperate buyers—although from a purely objective standpoint, they might be missing the big picture that they’ve still got it pretty good.

“Even though home prices are near record highs and home equity has soared, homeowners appear to be less eager to list homes for sale compared to last year,” says Hale. “Recent survey data shows that while home sellers are in a good position, typically getting their list price and still generally satisfied with the price and other aspects of their home sale, these markers have shifted over the last year. Among the most recent sellers, twice as many had to contend with a buyer request for repairs.”

Homebuyers have more time to make an offer

In August, listings lingered on the market 42 days before getting snapped up. And for the week ending Aug. 27, homes spent an extra five days on the market compared to last year.

In other words, buyers today have more breathing room to close the deal, but still less time than they had back before COVID came along and spurred the market into hyperdrive.

“Homes still spent 22 fewer days on the market compared to the typical August 2017-2019,” points out Hale. “Put simply, today’s shoppers still have weeks less than pre-pandemic shoppers had to consider whether the typical listing is a good fit. But they have a bit more time to make decisions compared to last year, and recent momentum is in their favor.”

Mortgage rates are up

According to Freddie Mac, for the week ending Sept. 1, the average 30-year fixed mortgage rate increased to 5.66%, a steep hike from the previous week’s 5.55%.

In sum, homebuyers will pay dearly to finance a house today. And while many might be tempted to put their home search on hold until interest rates subside, some may be driven to forge ahead, since rents are up, too.

“With rents high and continuing to rise, some home shoppers will remain motivated to navigate the currently shifting housing market,” Hale concludes. “But others have paused their searches, creating some opportunities for those who are pressing on.”

Home Improvement • September 1, 2022

Fences and Other Shared Costs With Neighbors: Who Is Responsible?

by Suzanne Volkman

When it comes to figuring out who is responsible for fences and other shared costs between neighbors, sometimes the legal responsibility depends on your state of residence and its local regulations.

Here’s how to determine if a homeowner or neighbor should assume partial or full responsibility for situations where there is a shared outdoor-related expense.

Review Local Law

A common shared expense between neighbors is having a shared fence. Conflicts can quickly arise between neighbors over who is responsible for the fence’s maintenance, including paying for and making changes to painting, staining and other repairs.

Additional issues may also arise where neither neighbor is at fault. For example, a storm could cause a tree to fall in a neighbor’s yard and damage the shared fence. Who becomes responsible for repairs or replacement costs in this scenario?

Before escalating into any unnecessary conflicts, David Tully, realtor at eXp Realty, recommends checking state and local ordinances to determine policies for responsibilities of shared outdoor-related expenses.

“If you are living in a community, neighborhood, municipality or in a big city, there is a great possibility of existing law talking about the distribution of workload and expenses,” said Tully. “Depending on the local ordinance, the guidance of shared fences and their expenses and duties would be mentioned differently, but you can find a common point.”

For neighborhoods where there is an HOA or other shared community space, there may be different rules regarding shared expenses. Consult your HOA’s governing documents or speak with a representative to find out more information.

Discuss the Concern With Your Neighbor

The general rule of thumb in most jurisdictions is if a homeowner shares a fence with their neighbor, both are responsible for equally maintaining and repairing the fence. This is because the fence is on or close to the property line for both owners and both neighbors enjoy similar benefits from the fence.

However, there may be moments when issues arise or you don’t know what would be best for both parties. What if one neighbor wants a fence which is substantially more expensive than the agreed upon repairs? And what if a neighbor offers to cover the full expense for the shared fence even though there is no agreement between the neighbors?

Tully recommends resolving any concerns by talking directly to the neighbor in question. This helps sort out shared cost issues and ensure you maintain a good relationship with your neighbors.

“By communicating, you would get to know their concern which will provide insight into the problem. It’s easier to find a solution when both parties are willing to work together,” said Tully.

Come to an Agreement About Other Shared Expenses

The fence is just one example of a shared expense between neighbors. Others to think about include gate considerations, fall cleanup, snow removal, land modification and vegetation planting and trimming. Even the wall supporting or maintaining a fence can become a shared expense if the wall must be erected, repaired or replaced.

Mike Gregor, realtor at Cohen Agency SiM, LLC, said all shared costs must be divided equally among neighbors. The exception is if neighbors have prior negotiation on how they should pay for the building of the new outdoor-related item in question.

Neighbors should discuss costs of shared expenses together and come to an agreement that works for and benefits both parties. A conversation with the neighbor is a good way to start, Gregor said, as long as both sides are satisfied with the arrangement.

Buying • Selling • September 1, 2022

Advice for buyers & sellers in today’s housing market by Ryan Lundquist

by Suzanne Volkman

ADVICE FOR BUYERS:

Don’t lowball like it’s 2008: It’s not a name-your-price market, so you still have to make reasonable offers instead of way below market value. I find some buyers think it’s 2008, and that’s not the vibe right now. For instance, a property was priced well at $450,000 and a buyer offered $320,000 (final closed price was $455,000). If you get lucky at a low level, great. I’m just saying, being reasonable rather than lowballing is likely a better strategy.

Be patient: Instead of selling in hours or days, properties are spending weeks or longer on the market. This is a real advantage for buyers, so you can take more time to shop. Yet, if you find something perfect, be swift since properties that check all the boxes are going quickly with multiple bids.

Ask for credits (if you can): We’re tending to see more buyers asking for credits to help with closing costs or repairs, so talk with your agent about whether asking for credits is something the market will allow (big point). Remember, this isn’t going to work in every price range or situation.

Buy down the rate if possible: Talk to your loan officer about what it would take to buy down the mortgage rate. This means you can pay more to get a lower rate. Or better yet, if you’re in a situation where the seller is going to offer a credit, consider using that credit to buy down the rate. Getting your monthly payment lower can be a massive financial win.

Target overpriced listings: Overpriced homes represent opportunities for buyers, so go after them. Of course, some sellers are stubborn about accepting offers below their unrealistic list price.

Don’t overpay: On one hand it’s unwise to lowball as a strategy, but still try to get the price lower if possible. Local stats show even when properties get multiple offers today, they aren’t tending to get bid up to the crazy levels we saw last year. Generally speaking, you probably don’t need to offer as aggressively high as you might have two quarters ago. In Sacramento last month we saw buyers on average pay about 2% below the original list price (which is about $12,000 below). This is the average though, so it would be a colossal mistake to automatically offer $12,000 below whatever the asking price is (seriously). Remember, there are many examples of offers still going above the list price, so don’t impose an average on every escrow. All that said, try to get in below the list price if you can because that’s becoming more common. But recognize this is a case-by-case situation that depends heavily on what the property is actually worth and how close pricing was to market value.

Realize there is still competition: About 37% of homes last month in the Sacramento region sold above the original list price, so not everything is selling below like some are talking about. Remember, selling above or below the list price isn’t just about the market. It’s about how the property was priced.

Don’t string sellers along: An agent friend told me about a situation where the buyer was in contract for 40 days and then backed out. Look, it happens, and buyers should back out as needed, so I’m not saying to stay. Do what you need to do. All I’m saying is if you’re on the fence, find a way to be decisive so you can give the seller more space to find another buyer. In a market with quick change, idling buyers can cost the seller money.

ADVICE FOR SELLERS:

Don’t expect to call the shots: Sellers are no longer getting to dictate all the terms, so be careful about expecting buyers to bend to your will.

Be ready to negotiate: You’ve lost power and you need to be prepared to offer credits to buyers and negotiate as needed. Look, your net profit will be lower if you reduce the price or offer a credit, but focus on the bigger issue of how much money you’re making with historically high prices.

Plan for fewer offers: Don’t expect multiple bids, but if it happens, great. The truth is you might only get one offer. I’ve heard a number of sellers holding out for more offers, which is bold move today.

Realize demand has truly shifted: In the Sacramento region there were 30%+ fewer buyers last month compared to one year ago. This has caused supply to shoot up very quickly, which means buyers have more options. The good news is about 70% of the market is still active, but it’s no joke to see a sizeable chunk of buyers sitting on the sidelines.

Forget about hot headlines from the past: The market has changed. We’re not blazing like we were six months ago. My advice? Scrap hot headlines and get familiar with the housing temperature today. It doesn’t matter what cryptocurrency sold for in March. The only thing that matters is what it’s selling for today. It’s the same in real estate. What is competitive to your house and getting into contract right now? That’s the key for pricing.

Don’t get offended over requests for credits: Buyers are forking over big bucks to purchase a home right now due to higher prices and a spike in rates. This means some buyers are going to want help with closing costs or repairs. A seller recently got bent out of shape with a buyer asking for a credit, and to me that showed the seller was simply out of touch with today’s trends.

Prepare your house like it was a first date: If you can, take care of basic cosmetic repairs prior to listing. It’s like going on a date. You want to impress and put your best foot forward. Buyers today have more space to scrutinize details, so tightening up details gives buyers fewer reasons to say NO.

Help the escrow be fast: Buyers are pickier about staying in contract, so do all you can to help the escrow be smooth and quick. An escrow with fewer surprises and hurdles is a good thing right now. The last thing you want is for buyers to be stuck waiting while uncertainty is growing. On that note, it might not be a bad idea to take care of Section 1 damage prior to listing (or get a pest report so the buyer is informed prior to making an offer).

Don’t get stuck on the original list price: There is nothing holy about the list price, so don’t get stuck there. If the market isn’t biting, it’s time to reduce the price. In the Sacramento region we historically only see about 14% of properties sell at the original list price, so 86% of the time the price is literally going either higher or lower. And in today’s market, there is a better chance of going lower rather than higher.

Stop believing in unicorns: Look, everyone hopes for a mythical buyer to swoop in and pay more. In Sacramento, it’s a Bay Area buyer, and I suspect in many other states it’s a cash buyer from California. Keep in mind only about 15% of the local market has been cash, so it seems wise to price for 85% of transactions that are financed. Don’t price for the unicorn!!!

Be in tune with picky buyers: Buyers are pickier about condition, location, and price. Buyers can be this way for two reasons: 1) It’s more difficult to afford a house with today’s prices and higher rates; and 2) There is more supply, so there are more options.

Buying down the rate is NOT your silver bullet: I’m hearing lots of people talk about keeping the price high and giving a credit to the buyer to buy down the rate. I get the sentiment because a lower rate helps the buyer, but this is ultimately a seller-oriented narrative. It’s especially common to hear this from builders with new construction. The truth is some buyers are going to want a price reduction as well as a credit. As a seller, you’re going to have to see what the market allows you to do rather than dictating the terms. ”

Ryan Lundquist
Certified Real Estate Appraiser
TEL: 916-595-3735
LundquistCompany@gmail.com

Advice for buyers & sellers in today’s housing market

Buying • August 16, 2022

‘One actionable thing’ that can save prospective homebuyers up to $104,000 over the life of their mortgage

by Suzanne Volkman

As today’s prospective home buyers confront high home prices and rising interest rates, there’s one thing they can do to save money — raise their credit scores.

“This is one actionable thing buyers can do to save a little bit of money in this market,” said Amanda Pendleton, consumer finance expert at Zillow Home Loans.

A new analysis from Zillow finds home buyers with lower credit scores may pay $103,626 more over the life of a 30-year fixed mortgage loan than someone with an excellent score, based on the current price of a typical home, $354,165.

Buyers with fair credit scores — between 620 and 639 — may be paying $288 more per month for their monthly mortgage payments compared to home buyers with excellent scores, between 760 and 850.

That difference is due to the interest rates those borrowers are charged. While a fair credit score qualifies for a 6.688% interest rate, an excellent score can command a far lower rate of 5.099%. The calculations are based on home values from the Zillow Home Value Index and interest rates from the FICO Loan Savings Calculator as of July 26.

Credit is one factor homebuyers can control

“Affordability is the biggest story of the housing market right now,” said Pendleton.

“We’ve seen home values nationwide up nearly 20% year over year,” she said. “When you combine that with these rising mortgage interest rates, the typical monthly payment on a home is 62% higher today than it was just a year ago.”

If you’re a buyer in today’s market, a lot of factors are outside your control, Pendleton said. But you can control your credit and financial history.

Your credit score measures your likelihood of paying back a loan. Mortgage lenders use those scores to determine whether to offer you a loan, and the interest rate you will pay on that debt.

Your credit score is determined by factors considered on your credit report, such as your bill-paying history, unpaid debts, the number of outstanding loans you have, how long those accounts have been open, how much available credit you are using and new credit applications you have made.

Your credit score may vary depending on the company providing it. Scores typically range from 350 to 850.

“It really does pay off for a buyer to take steps to improve their credit score and also shop around for a mortgage as we see rates climb,” Pendleton said.

If you’re thinking of buying a home, you want to think about your credit score at least six months ahead of that goal, Pendleton said.

First, check your credit report, which you can check weekly for free through the end of 2022, to help give you an idea of what a lender is going to see when they pull your credit. Generally, those free reports are available once a year.

Keep an eye out for anything that seems off, like incorrect information you want to dispute, or late payments you want to avoid in the future.

Then, make a plan based on where you stand looking at your current credit profile.

That may include paying down debt to less than 30% of your limit. “That’s going to have the biggest impact on your score in a positive direction,” Pendleton said.

Stay consistent with your bill payments, such as for your credit cards and car, and make sure they go through on time.

As you get closer to your home-buying goal, avoid making larger purchases that need to be financed, such as buying a new car or furniture, as that will negatively impact your debt-to-income ratio. Applying for new credit cards or loans can also hurt your score.

The good news is that you may be able to bring your credit score up in as little as three to six months, depending on your credit record, Pendleton said.

Moreover, if you are coming in as a first-time homebuyer with a lower credit score, explore other loans and programs that may be available for someone who fits your profile.

Originally posted on CNBC

Market Trends • Real Estate • August 16, 2022

Housing Bubble Fears?

by Suzanne Volkman

This spring, about 45% of home sellers said they believed the housing market was headed for a crash in 2022, according to a study from Clever Real Estate. To boot, Google Trends data shows a significant spike in searches for the term “housing bubble.” Doomsday fears are mounting as record-high home prices make more consumers and real estate professionals nervous that the market may be overheated.

But “we almost surely are not” in a housing bubble, says James McGrath, co-founder of the New York–based real estate brokerage Yoreevo. Still, he’s been fielding concerns from clients lately about how a slowing economy could impact real estate. Most leading housing economists agree that the market isn’t in bubble territory. While home prices have never been higher, the market today is considerably different than in 2008 during the last housing crash. So, arm yourself with some talking points to help answer your clients’ questions about the state of the market and calm their concerns.

For one, instead of a housing surplus, like there was in 2008, the nation is facing a severe inventory shortage. Homebuilders put more than 2 million housing units a year into the pipeline in the years leading up to the 2008 bubble and were overbuilding at the time, notes Lawrence Yun, chief economist for the National Association of REALTORS®. “Today, it is exactly the opposite,” he says. “The country is still facing historically low inventory levels and low rental vacancy rates that are the consequences of multiple years of underproduction.”

But how about those surging home prices? After all, the median price of an existing home was $407,600 in May—the first time ever that this figure exceeded $400,000, according to NAR data. Have some markets overheated? Possibly. But economists put it into perspective: A 5% price correction in, say, places like Phoenix could be possible—but that comes after about a 50% price gain in just the last two years. “Even if there were to be a localized price correction, it will not cause harm to the [overall] housing market or to the financial banking system,” Yun says. “Some buyers will simply view it as a second-chance opportunity to get into the market after being outbid by others over the past two years, and the balance sheets of the banking industry are quite strong. So maybe prices would adjust downward—or maybe not. Let it be because it doesn’t really matter this time.”

Housing dynamics remain strong, even as the double-digit price appreciation we’ve become accustomed to begins to slow. NAR predicts the pace of price appreciation to moderate to about 5% or 6% by the end of the year.

Let’s Talk About It

You may hear comments from clients like: “I’m worried about buying. This is a housing bubble.” Here are some tips and talking points to consider:

Don’t dismiss fears. Many homeowners remember the 2008 housing crash, when they may have seen their own home’s value plummet or lost their property to foreclosure. Many millennials, who are the strongest homebuying force today, watched their parents struggle to keep up with their mortgage payments, scaring them off their own homeownership path. Their concerns about a “housing bubble 2.0” may come from a deep place, so acknowledge their fear and let them know that their feelings are legitimate.
Mortgages are structured differently. The kind of subprime lending that was blamed for the 2008 crash is a much smaller and more regulated part of the market today. “The lenders and regulators do not want to make the same mistake of lending to people who cannot repay the mortgage,” Yun says. “Therefore, the credit scores of mortgage approvals have been high.” The typical credit score for a mortgage borrower was a near-record 776 in the first quarter of 2022. During the Great Recession, it dipped to 707. Plus, for adjustable-rate mortgages, which have fluctuating interest rates over a set period of years, borrowers nowadays must show they can afford the fully reset rate, says Glenn Brunker, president of mortgage servicer Ally Homes.
Housing inventories remain low. The nation is roughly 3 million homes short of meeting buyer demand, Freddie Mac estimates. NAR has called for a “once-in-a-generation response” to the supply crisis. About 1.2 million single-family housing starts are predicted for 2023—still far from the 2 million–plus in the early 2000s, according to Statista data. Yun says housing inventory likely will remain an issue for years to come.
Buyer demand remains high. Purchasing a house was the top accomplishment postgraduate students aspire to achieve—more than getting a successful job, getting married, having a baby, or traveling, according to a Grand Canyon University survey. “There is still too much real demand and too little inventory,” McGrath says about the state of the housing market. “Affordability has taken a hit with higher [mortgage] rates, but people still want to buy homes.”
Real estate can be a hedge against inflation. Locking in a fixed-rate mortgage now will protect homeowners against future increases in housing prices. Such an opportunity doesn’t exist when you’re renting, and rental prices have climbed drastically over the last year. Plus, renting doesn’t offer the ability to build equity.
A market correction is not the same as a crash. The housing market has showed recent signs of slowing. But “based on present evidence, there is no expectation that a fallout from a housing correction would be comparable to the 2007–09 global financial crisis in terms of magnitude or macroeconomic gravity,” a group of Dallas Fed economists wrote this spring.

Some markets may experience a slight decrease in home prices as the market readjusts. In June, more than 40% of home sellers dropped their asking price in places like Salt Lake City; Boise, Idaho; Sacramento, Calif.; and other Western hot spots, according to Redfin data.

Homebuying costs have increased $800 every month this year due to higher mortgage rates and home prices, according to Nadia Evangelou, NAR’s senior economist and director of forecasting. The 30-year fixed-rate mortgage, which averaged 2.9% just a year ago, was at 5.51% for the week ending July 14, according to Freddie Mac. “Rising interest rates and buyer fatigue from bidding wars have caused the market to stabilize and return closer to normal, but the market still favors home sellers,” says Scott Orich, a sales associate with Flyhomes in San Mateo, Calif.

Orich has been talking to his home sellers about the importance of pricing their home right for the changing market. “Be more realistic with your expectations, and be patient,” Orich says. “The mad rush of multiple buyers is over.”

Even though the rise in mortgage rates is certainly bracing for house hunters, a large group of buyers is “more focused on buying a home—and hopefully at a slightly more reasonable price than they’d pay three or six months ago,” McGrath says. Also, “they want to be confident they’re not buying into a repeat of 2008.” And you can help them understand that they are not.

Originally posted by the National Association of REALTORS.

Other • August 2, 2022

Study: Roseville ranked among the top cities to live in America

by Suzanne Volkman

According to this Fox 40 article, Roseville has been named the best city to live in California, according to a study from Livability.com.

Out of a list of 100 cities, Roseville is ranked as the country’s number 21 best place to live and is the only city in California that was featured in the study.

“Its bustling downtown houses unique shops (selling everything from coffee to acoustic musical instruments and upcycled art), a growing arts scene, and sublime food and drink options,” Livability.com wrote. “Plus, the area’s strong industries, like public administration, health care, construction and education, make it easy for people to launch or grow a career, making Roseville one of the best places to live in the U.S.”

Livability also mentioned residents’ access to Sutter Health and Kaiser Permanente for health care, which are also two of the city’s major employers, according to the website. Adventist Health and PRIDE Industries are other major employers in the city, Livability said.

The study mentions Roseville as a “remote-ready” city and a “perfect place” to plant roots for those who are looking to work from home.

“Although living in California can be expensive, the city of Roseville is reasonable, and the city has a prime location near Silicon Valley,” Livability wrote.

In the study, Livability said it examined more than 2,300 cities and based on 50 data points grouped into different categories: Amenities, economy, demographics, housing, social and civic capital, education, health care and transportation and infrastructure, and remote readiness.

Cities that were examined were mid-sized, which Livability considers to be a city with a population of 500,000 or smaller.

As part of its methodology, Livability said it pulled data from several public-sector providers including the U.S. Census Bureau, U.S. Department of Housing and Urban Affairs and the Environmental Protection Agency.

As for the top cities on the list, Madison, Wisconsin took the top spot, while Ann Arbor, Michigan is second. Rochester, Minnesota (No. 3), Naperville, Illinois (No. 4), and Overland Park, Kansas (No. 5) round out the study’s top five cities.

Market Trends • Real Estate • August 2, 2022

Adjustable-rate mortgage vs. fixed-rate mortgage: ‘It’s amazing what people don’t know about mortgages’

by Suzanne Volkman

More people are considering adjustable-rate mortgages as a way to (temporarily) lower their monthly housing costs, especially in expensive cities. Should you?

The face-off

It’s tough out there for homebuyers. The median U.S. home price just broke the $400,000 mark for the first time ever (it’s at $407,600 to be exact, up 14.8% from a year ago, according to the latest figures). On top of that, the cost of a 30-year fixed rate mortgage has gotten much pricier too, with rates soaring to 5.51%, up from 2.88% a year ago.

Though there are signs the real estate market is cooling, in competitive housing markets all-cash offers and bidding wars were common until recently. Buyers are under pressure and they’re making all kinds of concessions to get into houses, including skipping home inspections and waiving other contingencies.

Taking out an adjustable-rate mortgage is one strategy buyers have been turning to in an attempt to (temporarily) lower their monthly housing payment. It’s becoming more common especially in expensive housing markets such as San Francisco and San Jose, Calif, and Bridgeport, Conn., according to CoreLogic.

Adjustable-rate mortgages typically start out with a lower-than-average interest rate, and then “adjust” to a higher or lower rate (depending on where fluctuating, market-determined interest rates stand when the adjustment happens, and other factors) after a set period of time. A 5/1 adjustable-rate mortgage (ARM), for example, changes its interest rate once a year after five years. Borrowers sometimes take out an adjustable-rate mortgage if they think they’ll be selling the house before the rate adjusts.

ARMs can be attractive because borrowers will initially have a lower monthly mortgage payment than they would with a traditional 30-year fixed-rate mortgage. Right now the introductory rate on a 5/1 ARM is 4.35% vs. 5.51% for the 30-year fixed.

So which one makes better sense, an adjustable-rate mortgage or a fixed-rate mortgage?

Why it matters

“It’s amazing what people don’t know about mortgages,” says Ken Waltzer, principal and co-founder of KCS Wealth Advisory in Los Angeles. He said he’ll ask clients considering ARMs about two key numbers related to their loan — the index and the margin — and he’ll get blank stares in response.

In addition to understanding those figures, borrowers thinking about an ARM should first find out how soon their payment could go up, and — perhaps most importantly — whether they “will still be able to afford the monthly payment if the rate and payment go up to the maximums allowed under the loan contract,” according to the Consumer Financial Protection Bureau, a federal consumer watchdog. (And remember that the mortgage payment is just one piece of your total housing costs; there’s also homeowner’s insurance and property taxes, and sometimes mortgage insurance and HOA fees. Homeownership typically requires repair and upkeep costs, too.)

“You just need to be careful because there might be periods where rates go super high and you’re paying 10% for a year or two,” Waltzer said. “You need to know if that’s possible.”

You may remember adjustable-rate mortgages from the subprime foreclosure crisis that preceded the 2008 housing crash and Great Recession. ARMs were popular with buyers looking to get a piece of the housing boom (which turned out to be a bubble). Lending standards were looser in those days, leading to situations where lenders approved mortgages for borrowers even if they couldn’t actually afford to pay it off, experts told MarketWatch. “Back in 2006, if you were able to fog your mirror, you could get a loan,” Waltzer said. “Now you actually have to qualify.”

ARMs today are less risky, thanks in part to borrower protections established by the Dodd-Frank Act, according to Ricard Pochkhanawala, senior policy counsel at the Center for Responsible Lending. Dodd-Frank required lenders to fully document a borrower’s income and assets and their ability to repay an ARM before the loan was made, and it said that borrowers must qualify for the loan based on the fully-indexed rate, not the introductory or “teaser” interest rate.

Dodd-Frank was enacted more than a decade ago, but I mention it because its protections are a valuable reminder that when it comes to taking out a mortgage, it’s up to you, the borrower, to decide whether the loan is right for you.

Before taking out an ARM, borrowers should make sure they fully understand specific details including any interest-rate caps or floors. This information is in the loan’s promissory note, which, unfortunately, most people don’t read, said Sarah B. Mancini, a staff attorney at the National Consumer Law Center. If you’re a first-time buyer, consider talking to a HUD-certified housing counselor while you navigate this decision, Mancini suggested.

“It’s a crazy market and I think people are feeling pressure to do things that are really at the outside of what they can afford and what they feel comfortable with, and that’s not a good recipe for success in homeownership,” Mancini told MarketWatch.

“A lot of people who are involved in this process have an incentive to push for the deal to go through, and so consumers have to protect their own interests. The realtors and loan officers all get paid a percentage of the price you pay for a home, so their incentive is not financially-aligned with saying, ‘Go in with a lower asking price.”

The verdict

If we’ve learned anything from the pandemic, it’s that life is unpredictable, so is the economy and so are interest rates. My vote is to go with a fixed-rate mortgage.

My reasons

A fixed-rate mortgage allows you to build your overall financial plan around a relatively predictable monthly housing payment, while ARMs introduce fluctuation.

“It’s easy to be enticed with the lower rate of the ARM and many people probably say, ‘What are the chances that we are still in this house 10 years from now when the rate turns to variable?’ But this leaves the buyer exposed to interest-rate risk that they might regret down the road,” said Ron Guay, a certified financial planner at Rivermark Wealth Management in Sunnyvale, Calif.

“The fixed rate saves the hassle of monitoring the rate environment and makes your largest line item expense a constant number in a world where everything else is more expensive next year (i.e. inflation). You’re protected from rate increases and if rates drop (enough), you can refinance,” Guay said.

He added, “Any argument for the ARM relies on some nonsense that people can foresee higher rates coming and move to a fixed rate before they do, which is just another form of market timing (i.e. a loser’s game).”

Is my verdict best for you?

On the other hand, an ARM can make sense if you’re planning to sell your house before the rate adjusts and if you think interest rates are headed down (meaning that your loan will adjust down). Some people are comfortable making those kinds of bets, others aren’t.

“If you feel there is even a slight possibility you will stay in a home longer than seven years or so, we usually do not recommend an adjustable-rate mortgage to clients,” said Christopher Lyman, a certified financial planner with Allied Financial Advisors, LLC in Newtown, Penn.

“We have had a few clients in recent months who are adamant they will be moving out of this home in the next few years so they take the ARM knowing this will be the cheaper option if all goes to plan, but the worry we have for them is that life throws curveballs when we least expect it and if they are stuck with this ARM and unable to refinance later than they signed up for paying significantly more in interest over the life of the loan.”

Here’s an example of how this could play out with a $440,000 loan, according to Lyman:

A fixed-rate 30-year mortgage at 5.5% would mean a $2,500 monthly payment and $460,000 of interest paid over life of loan.

A 30-year ARM would be 4.75% now and then adjust to 6.75% in five years. Moving forward, the rate can go up by a maximum of 1% a year for the life of the loan with a maximum interest rate of 7.7%. This means an initial payment of $2,300 per month and then $2,800 in five years. In year six, if it goes to the maximum rate of 7.7% the monthly payment would be $3,000 per month. If we assume the above scenario and in year six the interest rate stays at 7.7% for the rest of the loan, then the total interest paid over the life of the loan is $600,000.

Originally posted HERE

Coldwell Banker - Roseville West - GB

Accessibility Statement | Fair Housing Notice

© Coldwell Banker 2023 – 2024. All Rights Reserved. Coldwell Banker and the Coldwell Banker logo are trademarks of Coldwell Banker Real Estate LLC. The Coldwell Banker® System is comprised of company owned offices which are owned by a subsidiary of Anywhere Advisors LLC and franchised offices which are independently owned and operated. The Coldwell Banker System fully supports the principles of the Fair Housing Act and the Equal Opportunity Act.