Home prices have risen over 40% since 2006. This has prompted another round of media fearmongering that a housing bubble is imminent.
As you might have recognized, the media has been talking about a housing bubble for the past several years, only to see home prices continue to be well supported.
Is Today’s Market Like The Bubble of 15 Years Ago?
Comparing today’s housing market to the market in 2006 requires us to understand some key differences to help us see the full picture. Let’s break that down.
The majority of individuals who buy homes do so based upon monthly payment. Therefore, we must consider differences in mortgage interest rates, as well as differences in household income between the market in 2006 and today.
Mortgage rates in 2006 ran about 3% higher than interest rates that are available today. This helps make the monthly payment today much lower, even in some cases where the amount borrowed is higher.
Meanwhile, average hourly earnings have increased by 55% from 2006 to today, according to the Bureau of Labor Statistics.
Homes Are Actually MORE Affordable Today
Because of the rise in income, as well as the drop in interest rates, the cost to purchase a home today appears to be significantly more affordable than it was in 2006.
Additionally, today’s appreciation is due to record low home inventory levels and strong demographic demand, which wasn’t the case in 2006.
Don’t let the media scare you out of all the wonderful benefits of home ownership. Contact me today to find out more!
Whether a borrower is making a home purchase or refinancing their current mortgage, choosing the right mortgage loan originator is critical to their success.
The right lender is a crucial part of the purchase process…but how do you know if the loan originator is an expert and understands your needs and financial situation?
In this article, we’ll go over several ways to identify how borrowers can identify a great home financing partner.
Purchasing a home is one of the most important transactions of our lives, so we need someone who can not only find a low interest rate, but understands the borrower’s financial situation and long-term goals. The terms of the mortgage are going to impact the borrower’s household finances for years to come, so it’s important to find the right fit!
The right loan originator will help determine the mortgage program and term, as well as walk the borrower through that lengthy process. Lenders should have experience in the local market and the type of transaction (primary residence, 2nd home, or investment property), as well.
Understanding the Local Market
It’s important that a borrower’s originator has knowledge of the community. They should be able to offer personalized expertise and information unique to the area buyers are considering.
The lender should also have a good report with the borrower’s real estate agent and other real estate professionals. This will give the buyer access to a resourceful network of inspectors, contractors, financial professionals, in their area.
With record-low mortgage rates and the increased demand for living space, coupled with the entrance of a large group of first-time home buyers, our market is expected to be tight for the foreseeable future.
Utilizing a local loan officer to help you navigate the home market, one who is focused on helping you make the best decisions for your financial situation and long-term goals, is crucial.
Access to a Variety of Mortgage Programs
There are always a number of factors that impact loan qualification – such as self-employment, student loan debt, and credit score, just to name a few.
There truly is no one-size-fits-all mortgage, and you buyers should consider working with a loan originator that has access to multiple loan programs.
With that in mind, it’s critical that borrowers work with a local loan officer with access to a multitude of home loan programs that fit’s their scenario. There are many types of loans out there, and it’s the lender’s responsibility to recommend the right product for the borrower’s needs.
A Trustworthy Lender
The borrower’s relationship with their loan officer shouldn’t end at closing. A reputable lender should be concerned with your overall purchase experience and ask for your feedback after the transaction.
The borrower should continue to rely on their lender as a resource for advice and expertise for all of their future real estate needs.
One way for a borrower to find out about the lender’s reputation is to check online reviews. Both positive and negative ones should be readily available with a simple online search. Check out Zillow or Social Survey to find out more about your chosen lender!
Long Term Perspective
Ultimately, the right originator should be a strong advocate and listener who will act in the borrower’s best interest throughout the process.
The right lender should ask many questions, be cooperative and willing to listen, plus really know the borrower’s financial situation and goals. Their communication must be top notch.
Purchasing a home might seem like a one-time thing, but that’s not the reality of purchasing real estate. The right loan originator will be a partner for the long-term and shouldn’t take a one-time transactional approach. It’s wiser to find a home financing partner for a lifetime.
It would be my pleasure to help any borrower for the long term! Please do reach out to me for more information or to discuss how I might be able to help.
New home sales, which measures signed contracts on new homes, were up 21% in March, and the February number was revised higher, as well.
Taking out the revision, sales would be up 32% from last month’s original number.
Sales are up 67% on a year over year basis, although that is a little bit skewed, due to the economy being shut down this time last year.
Looking at inventory levels – there were only 307,000 new homes for sale in March, down 7% from last year. There are 14% fewer homes for sale under $300,000 compared to last year. The Median home price was reported at $331,000 up not even 1% from last year.
Appreciation
Home prices continue to increase across the country, as the latest S&P CoreLogic Case-Shiller Home Price Index report showed a 12% annual gain in February — up from 11.2% in January.
Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate nationally.
It’s the ninth straight month of increasing prices. The 12% home price gain is the highest recorded increase in the last 15 years!
Phoenix, San Diego, and Seattle reported the highest year-over-year home price gains among the 20 cities in February, with Phoenix leading the way with a 17.4% increase from 2020. San Diego showed a 17% increase, and Seattle showed a 15.4% increase.
“Some recent signs suggest that the historically tight inventory pressures may finally be starting to ease,” said Zillow Economist Matthew Speakman.
“Should those signs materialize, the meteoric rise in home prices may finally have a reason to come back down to earth. For now, red hot home price appreciation shows few signs of cooling.”
If you were a homeowner in 2020, you were a big winner, thanks to fantastic home price appreciation.
Real estate analytics firm CoreLogic reported that the U.S. Home Price Index rose 9.2% in December from a year earlier, largest annual gain in more than six years.
This was primarily due to low inventory and attractive low-interest rates.
“The housing market exceeded expectations in 2020, closing out the year with the highest annual home price gain since February 2014 in December at 9.2%. Despite a blip in April, home-purchase demand surged as record-low mortgage rates persuaded first-time homebuyers to enter the market. Meanwhile, the consequences of the pandemic were seen in the dwindling supply of homes — dropping, on average, 24% below 2019 levels — as homeowners delayed selling.”
Key Findings from 2020
Nationally, home prices increased 9.2% in December 2020, compared with December 2019. On a month-over-month basis, home prices increased by 1% compared to November 2020.
December 2020 gains across all of the 10 select metropolitan areas (see table 1 below) surpassed their December 2019 levels.
Affordability concerns continue to persist as prices continue to steeply rise. For instance, in San Diego, prices increased 10.4% year over year in December 2020 compared to the 3% gain December 2019. San Diego home prices are also forecasted to increase an additional 8.2% over the next 12 months.
At the state level, Idaho, Indiana and Maine had the strongest price growth in December, up 19.1%, 16.1% and 15.2%, respectively.
“Two record lows are fueling home price gains: for-sale inventory and mortgage rates,” said Dr. Frank Nothaft, chief economist at CoreLogic. “Prospective sellers with flexible timetables have opted to delay listing their home until the pandemic fades or they are vaccinated. We can expect more inventory to come available in the second half of the year, leading to slowing in price growth toward year-end.”
Home Ownership
More good news…the percentage of Americans who own a home—67.4% in the third quarter of 2020—was the highest in 12 years. In the third quarter of 2019, the rate was 64.8%.
Fannie Mae and Freddie Mac are tightening the underwriting criteria for second homes and investment properties. They will also begin to limit the number of these mortgages that they will acquire.
“Recent amendments to our senior preferred stock purchase agreement with Treasury impose additional risk criteria on the loans we acquire,” the Government Sponsored Enterprise said in a letter. “One of those restrictions is a 7% limit on our acquisition of single-family mortgage loans secured by second home and investment properties.”
This means that non-owner occupied transactions (2nd homes and investment properties) will become a bit more difficult in terms of qualification and slightly more expensive, in terms of interest rates.
Lenders are now being forced to add to the cost of the loan and raise interest rates – anywhere from 50 basis points to as high as 250 bps. That can mean an increase in rate of 1/8% to 1.25%, depending on the investor.
Finance of America, my employer, has added 50 basis points for all 2nd home and investment property purchases and refinances. This is on the low side, relative to many in the industry, as others that I’ve spoken to have added as much as 250 bps.
From Investopedia: “Basis points, otherwise known as bps, are a unit of measure used in finance to describe the percentage change in the value of financial instruments or the rate change in an index or other benchmark. One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form.”
Don’t hesitate to contact me for more information to see how this might impact your upcoming purchase.
Thomas Eugene Bonetto
Mortgage Loan Originator
NMLS: 1431961
About The Coach
Tom Bonetto has been helping his customers and players achieve their best for nearly 30 years. His goal is to provide both a superior customer experience and tremendous value for both his business associates and his players alike.
