Category: Interest Rates (Page 15 of 31)

Inflation and Real Estate – Should Buyers Wait? History Says “NO!”

July 23, 2022 / Tom Bonetto

Inflation is hot…and so is real estate. But what does the future hold for both?

As we’ve talked about before, the Federal Reserve is late to the party in dealing with inflation and the latest data shows the rate of inflation is still rising.

Many are feeling the pinch in their wallets, at the gas pump, and at the grocery store.

For would-be real estate buyers that just begs the question…is now a good time to purchase a home?

I’m linking to an article from the real estate blog Keeping Current Matters, and the author does a great job in highlighting why now might be a very good time to buy. You can access the entire article here…

Greg McBride, the Chief Financial Analyst at Bankrate, explains how inflation is affecting the housing market:

“Inflation will have a strong influence on where mortgage rates go in the months ahead…Whenever inflation finally starts to ease, so will mortgage rates — but even then, home prices are still subject to demand and very tight supply.”

While there’s no denying it’s more expensive to buy and finance a property this year than it was last year, it doesn’t mean potential buyers should pause their search. Here’s why…

History Says So – Real Estate Is A Great Hedge Against Inflation

During periods of inflation, prices generally rise across all areas of the economy.

Historically, however, real estate ownership is a fantastic protection against those increasing costs because buyers can “lock-in” what’s likely the household’s largest monthly fixed cost for the duration of your loan.

Not to mention, as property prices continue to appreciate, the home’s value will, as well.

That’s why Mark Cussen, Financial Writer at Investopedia, says:

“Real estate is one of the time-honored inflation hedges. It’s a tangible asset, and those tend to hold their value when inflation reigns, unlike paper assets. More specifically, as prices rise, so do property values.”

Secondly, nearly all industry experts agree that although the current rate of home appreciation can’t stay this hot, the likelihood of homes losing value is extraordinarily slim. As Selma Hepp, Deputy Chief Economist at CoreLogic, says:

“The current home price growth rate is unsustainable, and higher mortgage rates coupled with more inventory will lead to slower home price growth but unlikely declines in home prices.”

Warning Sign with Arrow Labeled Inflation

In Conclusion

Purchasing real estate is one of the best financial decisions that can be made during inflationary times. Buyers also receive the advantage of the added security of owning their property in a time when experts are forecasting prices to continue to rise.

If you are considering a purchase, your real estate search shouldn’t go on hold because of rising inflation or higher mortgage rates. Contact me for more…as it would be my pleasure to help you.

Housing Market Update: Balance Beginning to Return

July 11, 2022 / Tom Bonetto

Scale with One Large Ball and Many Small Balls that are Tilted toward the Small Balls

I’m linking to a great article regarding today’s housing market. Essentially, climbing housing costs caused many house hunters to drop out in recent months, which is now providing some relief for the buyers who remain.

‘Homebuyers are getting some relief as sellers slash their prices at a record rate and mortgage rates drop following months of increases’ – Tim Ellis, Market Analyst

Tim Ellis is a housing market analyst with Redfin, and the entire article can be found here…

Activity

Leading indicators of homebuying activity, per Ellis:

For the week ending July 7, 30-year mortgage rates fell to 5.3%—the largest 1-week drop since 2008. This was down from a 2022 high of 5.81% but up from 3.11% at the start of the year.

Fewer people searched for “homes for sale” on Google—searches during the week ending July 2 were down 2% from a year earlier.

The seasonally-adjusted Redfin Homebuyer Demand Index—a measure of requests for home tours and other home-buying services from Redfin agents—was down 15% year over year during the week ending July 3.

Desk with Laptop, Notebook, Pencils, and Coffee

Touring activity as of July 3 was down 14% from the start of the year, compared to a 7% increase at the same time last year, according to home tour technology company ShowingTime.

Mortgage purchase applications were down 17% from a year earlier during the week ending July 1, while the seasonally-adjusted index was down 4% week over week.

“Conditions for homebuyers are improving. Housing remains expensive, but mortgage rates just posted their biggest weekly drop since 2008, which makes buying a home a bit more affordable,” said Redfin chief economist Daryl Fairweather. “One way buyers can take advantage of the shift in the market is seeking concessions from sellers. That could include asking the seller to buy down your mortgage rate, pay for repairs or cover some of your closing costs.”

The Data

A few other key facts regarding today’s housing market, from Ellis’ analysis:

The median home sale price was up 13% year over year to $396,000. This growth rate is down from the March peak of 16%.

The median asking price of newly listed homes increased 15% year over year to $399,973, but was down 2.1% from the all-time high set during the four-week period ending June 5.

New listings of homes for sale were down 1.4% from a year earlier.

Active listings (the number of homes listed for sale at any point during the period) fell 2% year over year—the smallest decline since October 2019.

45% of homes that went under contract had an accepted offer within the first two weeks on the market, down from 49% a year earlier.

Also, pending home sales were down 13% year over year, the largest decline since May 2020.

On average, 7% of homes for sale each week had a price drop, a record high as far back as the data goes, through the beginning of 2015.

In Conclusion

Would you like to find out more? Contact me to discuss your current situation and how you might be able to take advantage of today’s market. It would be my pleasure to help you!

Marry the House…But Date the Rate

June 27, 2022 / Tom Bonetto

I can’t take credit for the popular phrase “Marry the house…but date the rate”. It’s being posted by mortgage professionals and real estate agents all over the place.

What does this expression mean?

It means that if you find a home you love, don’t let current interest rates prevent you from moving forward and buying it.

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.

Is It A Good Idea?

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.

It is absolutely possible to change your financing to more favorable terms later, should better rates and products become available… and if rates only get worse, then you’ll be glad you married the house when you did.

Interestingly, the average tenure of a mortgage is under 6 years…meaning most homeowner’s either move or refinance their mortgages quite often.

Better Rates Down The Road?

I do think there’s a good possibility of lower rates in the future. More on that here…and here.

Believe it or not, we might be in for an upcoming perfect storm – and in a good way for borrowers.

It does look a recession is around the corner, which almost always results in lower mortgage rates. I know that sounds counter intuitive, but mortgage rates actually fall during recessions.

Mortgage Rates and Recessions from 1972-2022

Also, one of the few areas that seem relatively immune from recession is the housing market. Historically, one of the safest bets during recession is real estate.

The chart below shows how housing stays quite resilient during and through recessions:

Case-Shiller US Price Index from 1960-2022

Looking back at eight of the nine recessions since 1960, home prices significantly increased or at least remained stable each time during and after the recession. One of the reasons this occurs is because interest rates significantly fall during recessionary periods.

What Buyers Should Do Now

Essentially, all of these factors listed above should combine for LOWER rates later this year into 2023.

Of course, things can change, but it sure is looking like a recession is on the horizon, which will undoubtedly bring lower mortgage rates.

Well, 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 importantly, buyers will miss out on the gains of owning a home. Homes increased in value over 15% last year in the west…and things aren’t getting any cheaper. More on trying to time the market here…

Purchase Strategy

I recommend making your purchase now – and NOT paying extra discount points to lower your interest rate. As a matter of fact, you could use “negative” points to help offset any closing costs.

Instead of paying discount points to access lower mortgage rates, borrowers can receive credits from their lender and use those monies to pay for closing costs and fees associated with the home loan.

More on that strategy here…

Yes, the interest rate might be slightly higher, but you will want to refinance this mortgage when rates drop later this year or next year! This will also limit your out-of-pocket fees for the initial transaction.

In Conclusion

Although things look a little grim currently, the future is actually looking bright for mortgage rates later this year and into next year.

Would you like to find out more? Contact me to discuss your current situation and how you might be able to take advantage of today’s market. It would be my pleasure to help you!

Rents Hit All-Time Highs – It Might Be Time To Purchase Instead

June 21, 2022 / Tom Bonetto

Rents across the U.S. have risen above $2,000 a month for the first time ever…and that’s just the nationwide number. Rents here in the west are rising at a much higher rate.

In Arizona, for example, rents are up over 33% year-over-year…and in California, they are up nearly 25%, per Rent.com.

A new report from Redfin shows that nationally listed rents for available apartments rose 15% from a year ago. Again, that’s the national figure – and rents in the west have gone up even more.

In Los Angeles, the median asking rent is $3,400. Rents are up more than 30% in Austin, Seattle, and Cincinnati. Even in formerly affordable cities such as Nashville it’s now $2,140, up 32% from last year.

So, Should You Rent or Buy?

What all of this information is telling us is that housing is becoming more expensive, whether you buy or rent.

“Housing is getting less affordable for everyone at every level,” says Daryl Fairweather, the chief economist for Redfin. She says after the last housing crash we didn’t build enough homes for a decade. And that lack of supply is the biggest force pushing up home prices.

I’m linking from an NPR article – you can find the entire piece here…

Fairweather says home builders built fewer homes in the decade starting in 2010 than in any 10-year period since the 1960’s. “So I think it’s going to take at least another decade to dig ourselves out of this hole.”

On the lending side, I personally have been advising my clients to take a look at their overall housing expenditures to see if purchasing a home might actually be cheaper in the long run.

In many cases, it’s smarter to pay even a slightly higher monthly payment early on to take advantage of building equity instead of paying someone else’s mortgage.

For investors, this looks like a good time to purchase, even with higher interest rates. Rents are increasing, and because of supply shortages, valuations (and expected rents) should continue to rise.

Industry Trends

Here are a few key industry developments, per the Rent.com article:

1. Prospective homebuyers gain some hope in the housing market

According to that Redfin report, more than one in five home sellers dropped their prices in the past month. It’s the largest drop rate since Fall 2019.

“The sudden surge in mortgage rates led to a sudden and significant cooldown in the housing market in May,” said Redfin Economics Research Lead Chen Zhao.

With interest rates continuing to climb, mortgage applications have gone down 14 percent when compared to last year. This housing market cool-down should give current renters a moment to decide their next steps in their home buying journey.

2. Along with interest rates, rent prices are skyrocketing in some areas

With cities like Phoenix and Los Angeles continuing to see dramatic increases in rent prices, it’s difficult to determine whether to move to a new unit, stay, or purchase.

That’s why it’s important to do your research to see if purchasing might be the most strategic move.

Fairweather thinks that landlords are less likely to raise rents by a significant amount for existing tenants versus a new one. Be sure to read over your lease for any restrictions in yearly rent increases and negotiate with your landlord on new terms, if needed.

In Conclusion

Although home prices and interest rates are up, purchasing a home might very well be the best option available, as rents are rising faster than home prices at this point.

Don’t hesitate to contact me to discuss your current situation and how you might be able to take advantage of today’s changing market. It would be my pleasure to help you!

Housing Supply and Demand

June 13, 2022 / Tom Bonetto

Street Signs with Supply St and Demand Dr

As you probably know, the number one driver of economics is supply and demand…and it absolutely applies to today’s housing market.

Supply and demand is a true economic law. Just like gravity is a physical law, supply and demand is an economic certainty – and it isn’t just a theory. It’s truth.

With that in mind, supply and demand absolutely applies to real estate. The less supply, the more demand…and as you probably learned in your Econ 101 class, prices go up.

Understanding Housing Demand

The easiest way to understand the dynamics at play here is to take a look at the demand side first…and this is best shown by the number of new household formations.

Essentially, household formations are number of new households that will be formed at a particular time. They are based on projections of population by age cohort and age-specific headship rates.

Household formation is the underlying driver of long-term demand for new housing and thus new home construction.

As you can see in the chart above, there are 1.4 million new households being formed in 2022…and this number is a bit higher than average (the green line on the chart).

So, the market needs to account for these 1.4 million new households, either with rental properties or homes.

The Truth About Housing Supply

According to most reports, there are approximately 1.7 million new homes being built this year. It’s also important to take into account that approximately 100K homes are destroyed annually, that leaves 1.6 million new homes available for the 1.4 million new households (for a surplus of 200K homes).

This looks like good news! Well, let’s dive a little deeper…

As you can see by the chart above, there will only be 1.3 million homes actually completed this year (and that number seems to be shrinking every month due to labor and supply chain issues).

And when you factor the 100K destruction number in, the net result is new home supply of only 1.2 million, leaving a 200K shortfall.

Secondly, as you can see by the chart below, there is record low inventory in home here in the US. Only 1.03 million homes are available today.

Compare that to 2019 and 2020, where there was nearly TWICE the inventory.

Record Low Home Inventory Graph from 2018-2022

You will notice that there are rises and dips each year…and the increase is due to the spring buying effect, where families want to make sure they’ve found a place by the start of school each year.

So, the fact that inventory is rising this year is completely normal and expected!

Finally, are there really 1 million homes listed for sale? Well, yes…but not exactly.

Home Inventory with Under Contract Sign in the Background

When you consider the number of homes under contract (meaning they are currently showing as available but truly aren’t), the number falls to only 400K available for sale.

Graph from Jan 2017 to Jan 2022 with Active Existing Home Listings in the US

As you can see, we are still at near record low inventory…only 33K off of the all-time low, set earlier this year.

Is There a Slowdown Coming?

Well, inventory levels appear to be coming up slightly (much of that having to do with the spring buying/selling season), but not overwhelmingly so.

There will still be a lack of supply for the foreseeable future. Sure, demand is being tempered a bit by higher interest rates, higher home prices, and stock market/economic instability.

However, there’s still plenty of activity to support price appreciation. Think about it for a second, people still need places to live…even if they need to pay a bit more to do it.

The meteoric rise in appreciation and home prices may slow (and we are already starting to see that in the price drops of listings), but because of the supply/demand curve, there’s no way that prices will actually depreciate.

We can see this in the number of actual home vacancies to support this.

As you can see, vacancies are at all-time lows – meaning that an increase in supply (because of 2^nd home or investment property ownership) isn’t likely.

Take the housing crisis of 2008 for example…where nearly 3% of all properties were vacant – because folks were literally walking away from their investments because the carrying costs of homes became too much.

We are nowhere near that point in today’s environment – meaning that our market is quite strong and should stay healthy.

I hope you find this helpful…and don’t hesitate to contact me to discuss your current situation and how you might be able to take advantage of today’s changing market. It would be my pleasure to help you!

Category: Interest Rates (Page 15 of 31)

Inflation and Real Estate – Should Buyers Wait? History Says “NO!”

History Says So – Real Estate Is A Great Hedge Against Inflation

In Conclusion

Housing Market Update: Balance Beginning to Return

Activity

The Data

In Conclusion

Marry the House…But Date the Rate

Is It A Good Idea?

Better Rates Down The Road?

What Buyers Should Do Now

Purchase Strategy

In Conclusion

Rents Hit All-Time Highs – It Might Be Time To Purchase Instead

So, Should You Rent or Buy?

Industry Trends

In Conclusion

Housing Supply and Demand

Understanding Housing Demand

The Truth About Housing Supply

Is There a Slowdown Coming?

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