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Category: Housing Market (Page 2 of 19)

Forecast 2020 – Housing and Interest Rates in the New Decade

A strong job market, increased real wages, and historically low mortgage rates should support a solid housing market in 2020, most economists predict.

Believe it or not, the problem will be finding enough homes for buyers, as housing inventory is near all-time lows throughout much of the country.

With low unemployment and interest rates well below historical averages, the real estate industry is being constrained by shortage in housing availability, especially at lower price ranges. Not enough homes are being built, and homeowners are staying put longer, creating a bit of a bottleneck.

With that said, most experts believe it will be a good year for home buyers – and even better for home sellers.

Let’s take a look at what the insiders are saying about housing, the Federal Reserve, and mortgage interest rates in 2020….

HOUSING

“The housing market appears poised to take a leading role in real GDP growth over the forecast horizon for the first time in years, further bolstering our modest-but-solid growth forecasts through 2021,” said Doug Duncan, Fannie Mae’s chief economist. “In our view, residential fixed investment is likely to benefit from ongoing strength in the labor markets and consumer spending, in addition to the low interest rate environment.”

Affordability

Current research shows that housing has actually become more affordable this year, despite home appreciation and tight inventory. Affordable homes are possible thanks to lower mortgage rates and greater purchasing power.

For the average home buyer, month-to-month housing costs are lower than they’ve been at almost any point in the last three years because real wages are up and interest rates are down.

You can find out some specifics about housing affordability here….

Appreciation

The trade association for real estate agents predicts moderate growth in the housing market and continued low mortgage rates.

They believe that new-home sales are expected to rise to 750,000, an 11 percent increase that puts them at a 13-year high. Existing-home sales will continue to be held down by lack of supply, rising modestly to 5.6 million, a 4 percent increase.

The national median sale price of an existing home is expected to grow to $270,400, an increase of 4.3 percent from 2019.

Here’s what CoreLogic sees regarding appreciation for 2020:

Rents Rising

Rents are rising and will likely continue to accelerate in 2020, according to the latest market report from Zillow.

Apartment rents grew 2.3% year-over-year, driving the median U.S. rent up to $1,600 per month. At the same time, housing values showed the lowest growth since February 2013, and inventory of for-sale homes fell.

With fewer homes on the market, national rent growth is projected to rise in 2020.

Single-family rents rose 2.9% year over year, according to CoreLogic’s Single-Family Rent Index, which measures rent changes among single-family rental homes, including condos.

As you might expect, now is not good time to be a renter, especially when you consider the missed opportunity on home appreciation.

Historically Low Inventory

According to the 2020 National Housing Forecast from Realtor.com, the national housing shortage will continue in 2020, possibly reaching historic low levels.

The graphic below shows where inventory is today relative to other times over the last 35 years:

“The market is still years away from reaching an adequate supply of homes to meet today’s demand from buyers,” Realtor.com’s senior economist George Ratiu says. “Despite improvements to new construction and short waves of sellers, next year will once again fail to bring a solution to the inventory shortage.”

THE FEDERAL RESERVE

Many consumers believe that the Federal Reserve sets mortgage interest rates. Interestingly, that’s not the case….the Fed doesn’t make mortgage rates, they are driven by the bond market market on Wall Street.

The Federal Reserve surely influences mortgage rates, but they don’t set them.  You can find out more on that here…

For the Federal Reserve, manipulating the Federal Funds Rate is one way to manage its dual-charter of fostering maximum employment and maintaining stable prices.  So, when the Fed lowers or raises the Fed Funds Rate, interest rate markets generally move in that direction.

Quantitative Easing and Interest Rate Manipulation

The Federal Reserve started re-purchasing Treasury Bonds in September of 2019, something which they have not done since 2017.

Blogger Craig Eyermann does a fantastic job of defining Quantitative easing: “(QE) is an extraordinary monetary policy that the Federal Reserve implemented during the Great Recession to stimulate the economy after it had cut interest rates to zero percent by purchasing government-issued debt securities, such as U.S. Treasury bills and bonds, to get the effect of additional cuts to interest rates. As a result of its QE policies, the Federal Reserve became one of the largest single creditors to the U.S. government at a time when the size of the national debt was surging.”

What many experts generally agree upon is that the Fed has utilized QE to keep interest rates low, especially considering they lowered the Federal Funds rate 3 times in 2019. 

What all of this means is that, essentially, the Fed is trying to maintain a relatively low interest rate environment…which should be good for mortgage rates in general.

Voting Membership Changes

The Federal Open Market Committee (FOMC) consists of twelve members–the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis.

This year, there are four presidents rotating out that voted in 2019: Boston (Eric Rosengren), Chicago (Charles Evans), KC (Esther George), St Louis (James Bullard).

The new four presidents that are rotating in for 2020 are: Cleveland (Loretta Mester), Philly (Patrick Harker), Dallas (Robert Kaplan), Minneapolis (Neel Kashkari).

The make up of the 2020 Fed is a bit different that 2019, as three of the new members are generally in favor of lower interest rates, and only one (Mester) has been open about raising the Federal Funds rate.

Most experts agree that this board will opt for lower rates than previous administrations.

MORTGAGE INTEREST RATES

The average rate on the 30-year fixed mortgage is hovering in the low 4% range as we enter 2020, a full percentage point lower than where it was a year ago. Low rates are boosting already strong demographic demand drivers in the market.

Many prognosticators are stating the average fixed rate might well fall into the mid 3% range in 2020.  That would be the lowest annual average ever recorded in Freddie Mac records going back to 1973.

Why are lower rates expected?  Let’s take a look…

Reasonably Low Inflation

As stated earlier, mortgage rates are set by bond investors who keep a watch on inflation as a gauge of the yields they are willing to take. Rising inflation eats into their returns and leads to higher mortgage rates. In a low-inflation environment, like today, they can still make money while taking low yields, which translates into low rates for borrowers.

Inflation has been extremely low over the last year and a half – and most experts (including those that sit on the Federal Reserve Board) are not seeing many new inflationary indicators, either. 

This means that interest rates should stay low, unless inflation rears its ugly head.

Recession Fears

Many, like me, were predicting a recession in 2019 , but it never really emerged. Unemployment stayed low and corporate profits continued to rise.

With that said, a recession at end of 2020 still possible, but may be delayed into 2021 due to some financial engineering by the Federal Reserve.

A couple of things to keep in mind…

  • Manufacturing already struggling
  • Shipments have been declining
  • Yield curve was inverted earlier this year (this inversion has happened before every single recession on record)

The key metrics to watch will be an uptick in initial jobless claims and the overall unemployment rate

When recession eventually comes, rates will significantly decline.

Stocks – Longest Expansion in History

The U.S. is officially in its longest expansion, breaking the record of 120 months of economic growth from March 1991 to March 2001, according to the National Bureau of Economic Research.

The economy has been on a growth spurt since June 2009 and now surpasses the previous record expansion set between March 1991 and March 2001 before the dot-com bubble burst.

The decade-long expansion has been fueled by job growth, record-low unemployment rates and low interest rates.

There were 21.4 million jobs created during the expansion after a loss of 9 million during the recession.

Overall household wealth — which includes home values, stock portfolios and bank accounts minus mortgages and credit-card debt — spiked 80 percent over the last decade.

At the same time, some experts worry that a recession is on the horizon as history suggests that expansion can’t continue forever. Other causes for concern are the US-China trade and tariff dispute and a sluggish global economy.

“It’s unusual to have gone so long without a recession” ​when looking at the economic data going back to the 1950s, ​said David Wessel, director of the Hutchins Center on Fiscal and ​M​onetary ​P​olicy at the Brookings Institution.​

As mentioned previously, if there is a recession, rates will most definitely come down even more.

In Conclusion

2020 looks to be a positive one for both buyers and sellers, although the market would clearly be considered a “seller’s market”, because inventory is so low.

However, because real wages are up, home affordability is up, and interest rates are forecasted to remain low, buyers are in a great position to purchase.  It just might take a little more negotiations to agree upon the purchase price!

In reality, now is a fantastic time to purchase. Contact me for more information, as it would by my privilege to help you.

Forecast Shows That 2020 Will Be a Big Year for 1st Time Buyers

Next year should be a big one for first-time homebuyers.

I’m linking to an article by Aly J. Yale at The Mortgage Reports that shows that the 1st time buyer market is getting bigger.

According to new data, up to 9.2 million first-time buyers will hit the market between 2020 and 2022.

A New Frontier for First Timers

Says Yale, “according to a new analysis from credit bureau TransUnion, anywhere from 8.3 million to 9.2 million first-time homebuyers will enter the housing market between 2020 and 2022.

That’s up from just 6.67 million between 2013 to 2015 and 7.64 million between 2016 to 2018.”

Joe Mellman, senior vice president at TransUnion, the next couple of years should mark a turn-around for homebuyers.

“While we’ve recently seen a boom in refi activity, actual homeownership rates are down,” he said. “Challenges have included high home prices, sluggish wage growth, and limited housing inventory, but we may be starting to see daylight as slowing home price appreciation, low unemployment, increased wage growth, and low interest rates are helping affordability. As a result, we are optimistic that first-time homebuyers will contribute more to home ownership than at any time since the start of the Great Recession.”

Survey Results

TransUnion also surveyed potential first-time homebuyers on the perceived challenges that they face.

Interestingly, their results showed that most people are interested in buying a house for more privacy or the opportunity to build wealth.

Only about a quarter said they want to buy a home due to getting married or having children.

Per Yale’s article, “more than a third said they want a more steady job before buying a house. Another third said home prices are just too high.” 

Finally, the survey also found that many first-time buyers aren’t aware of their financing options.

“Many of our potential first-time homebuyer respondents don’t seem to be aware of the wide variety of financing options available to them,” Mellman said. “It suggests there’s a large opportunity for lenders to proactively identify consumers who are interested in becoming first-time homebuyers and then educating them on options they may not be aware of.”

Where to go for help

It would be my pleasure to help any first time buyers through the home buying process. Don’t hesitate to reach out to me for more information or to schedule a consultation.

Buying a Home Is the Most Affordable It’s Been in Almost 3 Years

Home prices have slowed a bit in some areas, but they continue to climb in the majority of markets in the U.S.  Inventory is stubbornly low in many parts of the country, but even with these factors, now is actually a good time to purchase.

Believe it or not, research shows that housing has actually become more affordable this year, despite home appreciation and tight inventory. Affordable homes are possible thanks to lower mortgage rates and greater purchasing power.

“Affordability is about the best it can be compared to what it is likely to be over the next few years. So, in that sense, it’s a good time to buy right now if you have the financial means.” –Lawrence Yun, Chief Economist, National Association of Realtors

However, this positive development may not last for too much longer. That’s why it pays to hunt for homes and mortgage rates now, as waiting could prove expensive.

I’m linking to an article from Erik Martin at The Mortgage Reports – you can find the entire piece here…

What The Numbers Show

Martin highlights a Black Knight study (found here) that shows “housing affordability hit nearly a three-year high in September.” Other findings from the report include:

  • The drop in mortgage rates since November has been enough to amp up buying power by $46,000 while keeping monthly principal and interest (P&I) payments the same
  • The monthly P&I needed to buy an average-priced home is $1,122. That’s down about $124 a month from November 2018, when interest rates were near 5%
  • Monthly P&I payments now require only 20.7% of the national median income. That marks the second-lowest national payment-to-income ratio in 20 months

Martin writes “that last point may be the most important. For the average home buyer, month-to-month housing costs are lower than they’ve been at almost any point in the last three years.”

Why Is Housing More Affordable Now?

Lawrence Yun, the chief economist for the National Association of Realtors, states that lower mortgage rates right now are helping to offset higher home prices.

“Assuming you put down 20% on a median-priced home, your monthly mortgage payment would be $1,070 at this time last year. That’s assuming a 4.7% mortgage rate at that time,” he says.

Today, your monthly payment on that same home could be down to $990 — $80 less — even though you would have paid more for the home thanks to rising real estate prices.

Will This Trend Continue?

Yun, and many other economists, believe that mortgage rates will likely remain attractive through 2020.

“But then they will rise, which will knock off many buyers from the pool of eligible purchasers,” predicts Yun. 

Should You Act Now?

Please do reach out to me so we can analyze your current situation to see if a home purchase might be in your best interest.  Based on the data, now is really the time to get started…and it would be my pleasure to help you.

The Cost of Waiting to Purchase a Home and Trying to Time the Market

If you’re shopping for a home today, you know it can be hard work. You might not find something right away and it’s easy to become frustrated and fatigued.

Sometimes buyers get discouraged and say, “Let me take off a few months, maybe I’ll come back 6 months later.”

Some, on the other hand, think that the market might weaken shortly or that interest rates will fall even further…and are trying to essentially “time the market” Is that the right strategy?

The Cost of Waiting

Here’s the potential problem with that thinking…while you might want to take time off and away from your search, the market isn’t taking time off!

The cost of waiting to buy is defined as the additional funds it would take to buy a home if prices & interest rates were to increase over a period of time.

The market is quite good in terms of appreciation right now in California and Arizona. The forecasted growth in value is 2.4% in just the next 6 months; let’s quantify that.

The Numbers

A home worth $300,000 today would be worth $7,300 more in 6 months. Additionally, if you were planning on putting the same percent down, you would have to borrow more because the home is more expensive.

What about interest rates? Rates today are at very attractive levels, so does it make sense to wait for rates to go down further…and what if they don’t?

No, the monthly savings with a lower rate are nice but are dwarfed by the missed appreciation and amortization, and it would take many, many years to recoup what you would have lost.

One other thing to consider…if rates drop significantly after your purchase, you can always refinance in the future to take advantage of that lower rate.

Today’s Data

Here’s the data from FHFA – see how the forecast is for nearly 5% appreciation in the year ahead. The longer you wait, the more you miss out on appreciation and the more expensive you new purchase will be.

Stick with it, keep shopping, and you will find something. Don’t hesitate to reach out to me with questions, as it would be my pleasure to help!

Know Your Down Payment Options: From 0% to 20%+

Coming up with enough cash for a down payment when buying a house is the single biggest roadblock for many hopeful home buyers.

But how much do buyers really need?

What is a down payment?

In real estate, a down payment is the amount of cash you put towards the purchase of home.

It is deducted from the total amount of your mortgage and represents the beginning equity — your ownership stake — in a house and property.

Down Payment Options

Many borrowers still believe that 20% is the minimum…and that’s just not the case.  There are options from 0% to 20%+ that can work for many would-be buyers.

For today’s most widely-used purchase mortgage programs, down payment minimum requirements are:

  • FHA Loan: 3.5% down payment minimum
  • VA Loan: No down payment required
  • HomeReady/Home Possible Conventional Loan (with PMI): 3%
  • Conventional Loan (with PMI): 5%
  • Conventional Loan (without PMI): 20% minimum
  • USDA Loan: No Down Payment required
  • Jumbo Loan: 10% down

PMI is “private mortgage insurance…and you can find out more about that here…

Remember, though, that these requirements are just the minimum. As a mortgage borrower, it’s your right to put down as much on a home as you like and, in some cases, it can make sense to put down more.

Benefits of a larger down payment

Conventional loans without mortgage insurance require a 20% down payment. That’s $60,000 on a $300,000 home, for example. There are a number of benefits to bringing in 20%:

  • No mortgage insurance
  • Lower interest rate, in most cases
  • More equity in your home
  • A lower monthly payment

As a reminder, the down payment is not the only upfront money you have to deal with. There are loan closing costs (you can find out more about those here…) and earnest money to consider as well. Before the dramatic music returns, let’s explore some lower down payment options.

Benefits of a smaller down payment

From Dan Green at The Mortgage Reports:

“A large down payment helps you afford more house with the same payment. In the example below, the buyer wants to spend no more than $1,000 a month for principal, interest, and mortgage insurance (when required).

Here’s how much house this home buyer can purchase at a 4 percent mortgage rate. The home price varies with the amount the buyer puts down.”

Even though a large down payment can help you afford more, by no means should home buyers use their last dollar to stretch their down payment level.

A down payment will lower your rate of return

“The first reason why conservative investors should monitor their down payment size is that the down payment will limit your home’s return on investment.

Consider a home which appreciates at the national average of near 5 percent.

Today, your home is worth $400,000. In a year, it’s worth $420,000. Regardless of your down payment, the home is worth twenty-thousand dollars more.

That down payment affected your rate of return.

  • With 20% down on the home — $80,000 –your rate of return is 25%
  • With 3% down on the home — $12,000 — your rate of return is 167%

That’s a huge difference.

However! We must also consider the higher mortgage rate plus mandatory private mortgage insurance which accompanies a conventional 97% LTV loan like this. Low-down-payment loans can cost more each month.

Assuming a 175 basis point (1.75%) bump from rate and PMI combined, then, and ignoring the homeowner’s tax-deductibility, we find that a low-down-payment homeowner pays an extra $6,780 per year to live in its home.”

Once you make your down payment, it’s tougher to get that money back

More from Green: “when you’re buying a home, there are other down payment considerations, too.

Namely, once you make a down payment, you can’t get access to those monies without an effort.

This is because, at the time of purchase, whatever down payment you make on the home gets converted immediately from cash into a different type of asset known as home equity.

Home equity is the monetary difference between what your home is worth on paper, and what is owed on it to the bank.

Unlike cash, home equity is an “illiquid asset”, which means that it can’t be readily accessed or spent.

All things equal, it’s better to hold liquid assets as an investor as compared to illiquid assets. In case of an emergency, you can use your liquid assets to relieve some of the pressure.

It’s among the reasons why conservative investors prefer making as small of a down payment as possible.”

In Conclusion

As you can see, there are a wide variety of down payment options for buyers.  Please feel to contact me to go over those choices, as it would be my pleasure to help you in financing your next home.

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