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Tag: interest rates (Page 3 of 6)

Consumer View of US Housing Market Reach New Lows – But Is It Correct?

Neighborhood

Only 21% of Americans say it is a good time to buy a house, the lowest percentage ever in Gallup’s polling sample.

Prior to 2022, for example, 50% or more respondents unfailingly thought it was a good time to make a home purchase, and you can find the specifics of the poll here….

Graph of Percentage of People Who Said It Was a Good Time To Buy a House

The latest results are from Gallup’s annual Economy and Personal Finance poll, conducted over 3 weeks in April. Unbelievably, 78% percent of those surveyed say it is a bad time to buy a house right now.

To add some context, Gallup first asked Americans about their thoughts on the housing market in 1978, when 53% thought it was a good time to buy.

Per Jeffrey Jones’ report, “thirteen years later, when the question was asked again, 67% held that view. The record high of 81% was recorded in 2003, at a time of growing homeownership rates and housing prices.”

No doubt the respondents are sure of their positions, but does the data really bear that out?  And what does the future hold?

The Current Situation – Two Viewpoints

Per Jones, “in the past two years, as housing prices have soared and the Federal Reserve has raised interest rates to try to tame inflation, houses have become less affordable for many Americans, and views of the housing market have tumbled.”

Graph of Americans That Expect Home Prices to Rise

However, another housing survey, this one from the industry specific MBS Highway, showed in April another solid increase in buying activity as the spring selling/buying season kicked into high gear. This marks the 4th-straight month of improving sentiment for their report.  You can find out more on that here…

MBS Housing Survey in April 2023

68% of respondents characterized their market as ‘active’ and 33% of respondents indicated that they were now seeing price increases.

Media Bias Might Be To Blame

The latest Existing Home Sales report showed that the median home price declined on an annual basis for the first time in almost 11 years. That seems like a big headline, right?!

ABC News of Red Flags in Mortgage Market

This is a classic case of the media trying to gain and keep viewership with shock headlines.

In many ways, our mainstream media is not truly interested in digging deeper for the facts and truth.  You can find out more on that here…

First of all, the decline was only 0.2% – and it was for the median home price, which is NOT the same as appreciation.

FHFA’s latest appreciation report showed that home prices rose 5.3% year over year. And according to Case-Shiller, they rose 3.8% year over year.

FIFA House Price Index

These are the two best ways to measure home price appreciation.

The Real Inside Scoop

Although no one can deny that higher mortgage rates are keeping would-be buyers on the sideline, the story that no one is talking about is the lack of housing supply.  You can find out more on that here…

More importantly, let’s take a closer look at active listings in the US:

Graph of Active Existing Home Listings in the US

You might remember from your Econ 101 class that supply and demand is what sets prices.  Smaller supply means that a higher price is to be paid…so I do believe that home prices will not be going down any time soon!

Cartoon Graph with House in the Background

All things considered, the opportunity in this market appears to be very favorable.  If you are trying to wait to time the market, that home you are waiting for will just be more expensive down the road. 

And if you make that purchase now and interest rates fall (as many think will happen), you can easily refinance into a lower rate!

In Conclusion

Per Jones, “it is likely that Americans’ pessimism about homebuying reflects the high prices and high interest rates that are conspiring to make mortgage payments less affordable. These attitudes may keep many prospective homebuyers out of the market.”

If that’s the case, that means there is a window of opportunity for buyers ready to act today.

Do reach out to me to find out more, as it would be my pleasure to help you finance that investment property or the home of your dreams.

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The Temporary Rate Buydown – A Great New Option

House with Blue Door

A unique offering is now available – a temporary rate buydown – to lower your interest rate and monthly payment in years one and two of your new mortgage. 

Temporary Buydowns with Small Cartoon Graph
hand of a person using a calculator near cash money on wooden table

This is a negotiated cost to be paid by the seller or builder – and your loan rate is reduced for an initial period.

This temporary rate buydown lowers your monthly payment and leaves more cash on hand each month. That difference is yours to save or put to good use around your new home.

There are no surprises…the rate buydown is adjusted each year by a set amount. It diminishes gradually until it settles at the original rate with no reduction of mortgage payment at the end of the initial period.

Buydown Example

Here’s an example of a $400,000 mortgage amount with a two-year and one-year buydown option.

Assuming an interest rate of 6%, the principal and interest payment would be $2,398.20 on a 30-year fixed mortgage…

And here’s what those payments would be with the buydown options:

Chart of 2-1 Buy Down and 1-0 Buy Down

As you can see, the savings are quite significant – nearly $500/month in year one and an overall savings of nearly $9,000 in years one and two!

Reach Out To Me For More

This temporary rate buydown is available on Conventional, FHA, VA, and USDA loans.  You can contact me here and I would be happy to run multiple scenarios for you, as well.

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Mortgage Rates 2022 – Current vs Historical Trends

black and silver laptop with stock market display on screen

Mortgage rates have essentially doubled since the beginning of this year. Historically, however, interest rates have often been higher — sometimes much higher — than they are today.

magnifying glass on top of document

The average 30-year mortgage rate over the last fifty years is just under 8%. So even though today’s mortgage rates have jumped to the 5% range, they’re still a good deal by comparison.

I’m linking to an article from Peter Miller of The Mortgage Reports that’s a must read in order to gain some good perspective on what’s happening in today’s marketplace.

2022 Mortgage Rate Chart

Mortgage interest rates fell to record lows in 2020 and 2021 during the Covid pandemic.

However, inflation has now surged to four-decade highs, causing those rates to rise quickly this year.

Graph of 30 year Mortgage rates in 2022 from January to August

Historical Chart

Despite this increase, today’s 30-year mortgage rate is still quite a bit below average from a historical perspective.

Freddie Mac — the main industry source for mortgage rates — has been keeping records since 1971. Between April 1971 and August 2022, 30-year fixed-rate mortgages averaged 7.76 percent.

Graph of Historical 30 Year Mortgage Rates from 1971-2022

Here’s the average mortgage rate by year since 1974…

Chart of Average 30 Year Rate per Year from 1974-2021

Mortgage Rate Outlook

As Freddie Mac explained on August 4:

roll of american dollar banknotes tightened with band

“Mortgage rates remained volatile due to the tug of war between inflationary pressures and a clear slowdown in economic growth. The high uncertainty surrounding inflation and other factors will likely cause rates to remain variable, especially as the Federal Reserve attempts to navigate the current economic environment.”

With that said, it’s not easy to predict what will happen to mortgage rates in late 2022. The Fed is likely to keep hiking interest rates in an attempt to bring inflation under control.  Couple that with a recession, however, and mortgage rates could very well move lower.

In Conclusion

Finally, it’s important for you and our clients to understand that the average mortgage is held for less than 7 years…and they are not at all married to that rate, especially if they get better!

If you or your clients 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.

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

Zoomed Out Picture of Neighborhood

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

a laptop with graph on screen

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…

Picture of Greg McBride

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.

white concrete building

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.

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Marry the House…But Date the Rate

brides holding white bouquet of roses

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? 

Apartment with Staircase

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.

Woman Holding Sold Sign

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 hereand 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.

person with keys for real estate

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.

Family in Front of a House

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!

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