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Category: Housing Market (Page 3 of 33)

The Fed’s Decision, Continued Home Appreciation, and Refinance Opportunities

There’s been a flurry of news recently, so let’s take a look at what’s been going on – both with interest rates and home valuation.

Is the Fed Done With Rate Hikes?

After eleven rate hikes since March of last year, the Fed left their benchmark Federal Funds Rate unchanged at a range of 5.25% to 5.5% at their meeting last Wednesday, just like they did in September.

The Fed Funds Rate is the interest rate for overnight borrowing for banks and it is not the same as mortgage rates.

When the Fed hikes the Fed Funds Rate, they are trying to slow the economy and curb inflation.

What’s the bottom line?

The Fed’s decision to pause rate hikes for the second straight meeting was unanimous. However, Fed Chair Jerome Powell did leave the door open for another rate hike at their next meeting on December 13.

The strength of the labor sector remains a key factor in their decision, with the Fed looking for clear signs that the labor market is softening as they consider further rate hikes.

While the latest job reports for October were weaker than forecasted, it remains to be seen if that’s enough for the Fed to pause additional hikes.

The Fed will see November’s job data from ADP and the BLS (releasing December 6 and December 8, respectively), along with upcoming inflation reports, which will certainly play a role in their decision.

Home Prices Hitting New Highs

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices nationwide rose 0.9% from July to August after seasonal adjustment, marking the seventh consecutive month of gains.

The Federal Housing Finance Agency’s (FHFA) House Price Index also saw home prices rise 0.6% in August, with their index reporting gains every month so far this year.

Note that FHFA’s report measures home price appreciation on single-family homes with conforming loan amounts, which means it most likely represents lower-priced homes. FHFA also does not include cash buyers or jumbo loans, and these factors account for some of the differences in the two reports.

What’s the bottom line?

Home values have hit new all-time highs according to Case-Shiller, FHFA, CoreLogic, Black Knight and Zillow, more than recovering from the downturn we saw in the second half of 2022. This year, prices are on pace to appreciate between 6-8% depending on the index, based on the reported pace of appreciation through August.

These indexes show that now remains a great opportunity for building wealth through homeownership and appreciation gains.

Refinance Opportunities

Refinances still make up almost one third of all mortgage transactions, even though rates have risen.  You may be wondering how this can be? 

Many consumers have amassed a large amount of debt, paying much higher rates of interest, thanks to the Fed hiking rates so aggressively.  And many of those individuals are only making the minimum payments, with no path to paying off their debt. 

At the same time, most homeowners have record levels of equity in their homes.

Many homeowners are benefiting from a type of refinance where we pull that equity out of the home to pay off those debts, saving money on the overall monthly payments. 

Additionally, there are ways to gain equity at an accelerated pace and significantly shorten the length of your mortgage, by applying those savings as an additional payment each month.

Call me today to review your current debt situation and see if I can help!

A Must-Listen Podcast for Real Estate Professionals

I’d like to link to a podcast from my good friend and fellow mortgage originator Mike Nelson.  Mike is a fantastic resource and provides some wonderful perspective on what’s happening in the marketplace today.

In this episode, he is interviewing real estate agent Paul Gusiffand it’s a must listen.  If you are short on time, start listening at the 6:20 mark to the end.  It’s really incredible!

Paul has been top tier agent for over 35 years and provides some excellent insights on what’s happening today and how to get ready for the next business cycle.

Paul Gusiff is one of the top real estate agents in Southern California.

Mike Nelson provides fantastic service for loans in Colorado, Florida, and Texas.

I hope you enjoy it!

Great News for Multi-Unit Financing | A Low Down Payment Option

I have some great news to report, as Fannie Mae is dramatically reducing the down payment requirements for purchasers utilizing multi-unit properties as their primary residence.

Historically, buyers would need to bring in a minimum of a 25% down payment for a 3-4 unit property or 15% for a duplex. That all changes starting November 18, 2023.

Now, any multi-unit property (2-4 units) can be purchased with just 5% down!

Here are the new calculations:

Here’s a little bit more:

Specifics

This is for a primary residential purchase only, and mortgage insurance will apply if utilizing the 5% down option. 

Secondly, 75% of the expected rents of the non-owner occupied unit(s) can be used as qualifying income for the loan application.

Please do contact me for more, as it would be my pleasure to help with this type of purchase.

The Folly of Timing the Real Estate Market

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Real estate is a substantial investment, often representing one of the most significant financial commitments an individual or family can make.

Given the importance of this investment, some are tempted to try to time the real estate market, hoping to buy at the lowest possible price or sell at the highest.

However, attempting to time the market in real estate is generally a bad idea, fraught with risks and potential pitfalls.

Let’s take a look at some of the factors…

Market Unpredictability

One of the fundamental reasons why trying to time the real estate market is a bad idea is the inherent unpredictability of market fluctuations.

Real estate markets are influenced by a myriad of factors, including economic conditions, interest rates, local trends, and demographic shifts. These factors are often difficult, if not impossible, to predict accurately.

As Tyrone Foster states in his article ‘Why Timing the Real Estate Market Rarely Works’: “Housing prices aren’t merely a byproduct of available inventory. They also depend on broader economic factors, mortgage interest rates, loan availability, incomes, and prospects for the future.”

Attempting to time the market requires forecasting these variables with precision, a task that even seasoned professionals struggle with.

Missed Opportunities

Market timing often involves sitting on the sidelines, waiting for the market to reach an optimal point.

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However, this means potentially missing out on opportunities for rental income or property appreciation. In a rising real estate market, the property’s value may increase significantly, and rental income can provide a steady cash flow, all of which is forgone when trying to time the market.

Transaction Costs

Buying or selling a property involves transaction costs, such as real estate agent commissions, closing costs, and taxes.

Attempting to time the market may result in multiple transactions, each incurring these expenses. These costs can quickly eat into any potential gains from market timing, making it a financially inefficient strategy.

Holding Costs

While waiting for the “perfect” market moment, you may end up holding onto a property for an extended period.

a gift with red ribbon in between red balloons with percentage symbols on a white background

During this time, you’ll incur ongoing costs like mortgage payments, property taxes, maintenance, and insurance. These holding costs can erode any potential profits from market timing.

Emotional Stress

Timing the real estate market can be emotionally taxing. Constantly monitoring market conditions and trying to predict the best moment to buy or sell can lead to stress and anxiety.

Emotions can cloud judgment and lead to impulsive decisions that may not be in your best interest.

Risk of Overpaying or Underselling

Attempting to time the market carries the risk of either overpaying for a property or underselling one.

If you wait for prices to drop but they continue to rise, you may end up paying more than if you had acted earlier. Conversely, if you try to sell at the market peak but miss it, you could undersell and lose out on potential gains.

Diversification

Real estate is just one component of a diversified investment portfolio. Trying to time the real estate market neglects the principle of diversification, which can help mitigate risk.

Relying too heavily on a single investment can expose you to greater financial vulnerability.

In Conclusion

Attempting to time the real estate market is generally a poor strategy due to the inherent unpredictability of market fluctuations, transaction and holding costs, missed opportunities, emotional stress, the risk of overpaying or underselling, and the neglect of diversification principles.

Instead of trying to time the market, it’s often wiser to focus on a long-term investment strategy, considering your financial goals, risk tolerance, and property fundamentals.

Contact me for more, as it would be my pleasure to get to know you and your goals, as real estate should be viewed as a long-term wealth-building tool rather than a short-term speculation game.

Today’s Mortgage Rate Environment: Implications for Real Estate

The mortgage rate environment has a significant impact on the real estate market, influencing both buyers and sellers.

Let’s take a look at the differences between a high mortgage rate environment, a low mortgage rate setting, and today’s situation….and their implications for the real estate sector.

Although mortgage rates are significantly higher than their all-time lows from 2020 and 2021, today’s rates are not that high relative to historic averages, believe it or not.

High Mortgage Rate Environment

In a high mortgage rate environment, interest rates on home loans are elevated. This situation can deter potential homebuyers as higher rates translate into increased monthly mortgage payments.

As a result, the demand for homes often decreases, leading to a slowdown in the real estate market. Homeowners who have fixed-rate mortgages may also be less inclined to sell their homes, as they are locked into lower interest rates, reducing the supply of available properties.

Low Mortgage Rate Environment

Conversely, a low mortgage rate environment is characterized by historically low interest rates on home loans. This situation stimulates the real estate market by making homeownership more affordable for a broader range of buyers.

Lower mortgage rates can incentivize individuals to purchase homes, thereby increasing demand. Additionally, homeowners with existing mortgages may choose to refinance at lower rates, freeing up disposable income that can be spent on housing or other investments.

Today’s Environment

What we are seeing today is a little bit different from historical norms, as mortgage rates are definitely higher that we’ve seen over the last 4 years, but the demand for homes hasn’t decreased!

Normally, when rates are higher, demand decreases due to affordability and home prices generally decline slightly.  Today, however, home prices haven’t moved lower because there just aren’t enough homes available to satisfy the grown need for new homes.

magnifying glass on top of document

So, today we are seeing higher rates AND home appreciation, an interesting phenomenon.

Affordability and Market Activity

One of the most significant impacts of mortgage rates on real estate is affordability. In a low-rate environment, more people can qualify for mortgages and afford larger homes, which boosts overall market activity.

Conversely, higher rates can limit affordability and decrease demand, leading to decreased home prices or extended time on the market.

Investment Decisions

Mortgage rates also influence real estate investors. In a low-rate environment, investors may see real estate as an attractive option for yield, potentially driving up property prices in sought-after areas.

Conversely, higher rates can make other investment opportunities, such as bonds or stocks, more appealing, reducing the flow of capital into real estate investments.

Economic Conditions

The state of the mortgage rate environment often correlates with broader economic conditions, as well. In a low-rate environment, central banks typically employ accommodative monetary policies to stimulate economic growth.

On the other hand, rising rates may indicate a stronger economy but can lead to higher inflation and reduced purchasing power.

Today, we are in a relatively high inflationary environment, so the Federal Reserve has raised the Federal Funds rates to highs we haven’t seen in years.  Although the Fed doesn’t set mortgage rates, they do influence them with policy decisions.  More on that here

Long-Term Considerations

Ultimately, the mortgage rate environment plays a vital role in shaping the real estate landscape, but it is essential to consider long-term trends and local market dynamics.

While low rates may fuel short-term growth, they can also contribute to speculative bubbles.

Conversely, high rates can lead to market corrections but may offer more stable, sustainable growth over time.

Marry the House but Date the Rate

brides holding white bouquet of roses

Essentially, don’t be afraid to buy the house you want right now because of external market conditions!

A mortgage does not have to be long term, in fact most people refinance their homes several times as mortgage rates improve or should they need to take cash out from their equity.

Committing to the house doesn’t mean you have to commit to today’s financing forever. Buyers can always look for a better financing opportunity down the road and make a change when the time is right.

Waiting to purchase a home and “timing the market” is one option…but it’s almost always a bad idea. 

Why?  Because no one knows exactly when rates will hit rock bottom – and home prices will continue to accelerate.  More on that here

In Conclusion

The mortgage rate environment has profound effects on the real estate market, influencing demand, supply, affordability, investment decisions, and broader economic conditions.

Prospective homebuyers, sellers, and investors should stay informed about prevailing mortgage rates and consider their implications when making real estate-related decisions.

More importantly, if a buyer finds the right home, purchasing now is a very good idea…as home values are continuing to increase AND they have the ability to refinance if/when rates come down!

A balanced understanding of how mortgage rates interact with the real estate market is crucial for navigating the complexities of property transactions and investments, so reach out to me to find out more!

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