Category: Housing Market (Page 21 of 38)

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

December 14, 2019 / Tom Bonetto

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 1^st 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

December 7, 2019 / Tom Bonetto

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

October 28, 2019 / Tom Bonetto

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%+

October 5, 2019 / Tom Bonetto

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.

Economic Turbulence on the Horizon – Recession, Rates, and Real Estate

September 7, 2019 / Tom Bonetto

It does look like most economists are pointing to a recession (although most do think it will be relatively mild by historical standards) in the next 12 months.

A recession occurs when there are two or more consecutive quarters of negative economic growth, meaning GDP growth contracts during a recession.

When an economy is facing recession, business sales and revenues decrease, which cause businesses to stop expanding.

How do the economists know this? And what does this mean for interest rates and real estate values? Read on for more…

Recessionary Indicators

The Yield Curve

One of the major indicators for an upcoming recession is the spread between the 10-year US treasury yield and the 2-year US treasury yield.

While various economic or market commentators may focus on different parts of the yield curve, any inversion of the yield curve tells the story – an expectation of weaker growth in the future.

What does this inverted yield curve look like? Here’s a good depiction:

Why does inversion matter? Well, the yield curve inversion is a classic signal of a looming recession.

The U.S. curve has inverted before each recession in the past 50 years. It offered a false signal just once in that time.

When short-term yields climb above longer-dated ones, it signals short-term borrowing costs are more expensive than longer-term loan costs.

Under these circumstances, companies often find it more expensive to fund their operations, and executives tend to temper or shelve investments.

Consumer borrowing costs also rise and consumer spending, which accounts for more than two-thirds of U.S. economic activity, slows.

Unemployment

Unemployment is a recessionary factor, too – as economic growth slows, companies generate less revenue and lay off workers to cut costs.

A rapid increase in the overall unemployment levels—even if relatively small—has been an accurate indication that a recession is underway.

Here’s a chart that shows what happens when unemployment starts to trend upward – and notice that recessions follow shortly thereafter:

As you can see, when things in the economy starts to slow down, one of the first things business do is to reduce their labor force. The curve is flatting now, and unemployment might be ticking up soon.

Mortgage Rates During Recession

When a recession hits, the Federal Reserve prefers rates to be low. The prevailing logic is low-interest rates encourage borrowing and spending, which stimulates the economy.

During a recession, the demand for credit actually declines, so the price of credit falls to entice borrowing activity.

Here’s a quick snapshot of what mortgage rates have done during recessionary periods:

Obtaining a mortgage during a recession might actually be a good opportunity. As mentioned, when the economy is sluggish, interest rates tend to drop.

Refinancing or purchasing a new home could be a great way to get in at the bottom of the market and make a healthy profit down the road. A borrower should be market- and financially savvy when considering large real estate purchases in a recession

Real Estate During Recession

Believe it or not, outside of the “great recession” of 2007 (which was caused, in part, to a housing crisis), home values and real estate actually appreciate historically during times of recession.

That seems counter intuitive…but because interest rates generally drop during recessionary periods, homes become MORE affordable to potential buyers (even though property values are higher), due to the lower payments provided by those lower rates.

When more people can qualify for homes, the demand for housing increases – and so do home prices.

In Closing

Although no one likes to see recession, you can observe that it actually can be beneficial for homeowners and would-be purchasers to refinance or purchase during these periods.

If you have more questions and or would like to strategize about purchasing or refinancing, don’t hesitate to contact me, as it would be my pleasure to help you!