Taking the Fear out of Saving for a Home

 

Taking the Fear out of Saving for a Home

If you’re planning to buy a home, knowing what to budget for and how to save may sound scary at first. But it doesn’t have to be. One way to take the fear out of budgeting is understanding some of the costs you might encounter.  And to do that, turn to trusted real estate professionals. They can help you plan your finances and prepare your budget.

Here are just a few costs experts say you can expect.

1. Down Payment

Saving for your down payment is likely top of mind as you set out to buy a home. But do you know how much you’ll need to save? While each situation is different, there’s a common misconception that putting 20% down toward your purchase is required. An article from the Mortgage Reports explains why that’s not always the case:

“The idea that you have to put 20% down on a house is a myth. . . . The right amount depends on your current savings and your home buying goals.”

To understand your options, partner with a trusted real estate professional to go over the various loan types, down payment assistance programs, and what each one requires.

2. Closing Costs

Make sure you also budget for closing costs, which are a collection of fees and payments made to the various people involved in your transaction. Bankrate explains:

“Closing costs are the fees you pay when finalizing a real estate transaction, whether you’re refinancing a mortgage or buying a new home. These costs can amount to 2 to 5 percent of the mortgage so it’s important to be financially prepared for this expense.”

The best way to understand what you’ll need at the closing table is to work with a trusted lender. They can provide you with answers to the questions you might have.

3. Earnest Money Deposit

If you want to cover all your bases, you can also consider saving for an earnest money deposit (EMD). An EMD is money you pay as a show of good faith when you make an offer on a house. According to realtor.com, it’s usually between 1% and 2% of the total home price.

This deposit works like a credit. It’s not an added expense – it’s paying a portion of your costs upfront. You’re using some of the money you already saved for your purchase to show the seller you’re committed and serious about their house. Realtor.com describes how it works as part of your sale:

“It tells the real estate seller you’re in earnest as a buyer, . . . . Assuming that all goes well and the buyer’s good-faith offer is accepted by the seller, the earnest money funds go toward the down payment and closing costs. In effect, earnest money is just paying more of the down payment and closing costs upfront.”

Keep in mind, an EMD isn’t required, and it doesn’t guarantee your offer will be accepted. It’s important to work with a real estate advisor to understand what’s best for your situation and any specific requirements in your area. They’ll help you determine what moves you should make in the homebuying process to have the greatest success.

Bottom Line

Budgeting for your home purchase doesn’t have to be scary. Let’s connect so you’ll have an expert on your side to answer any questions you have along the way.

Millennials Are Still a Driving Force of Today’s Buyer Demand

 

Millennials Are Still a Driving Force of Today’s Buyer Demand

If you’re thinking about selling your house but wondering if buyers are still out there, know that there are still people who are searching for a home to buy today. And your house may be exactly what they’re looking for.

While the millennial generation has been dubbed the renter generation, that namesake may not be appropriate anymore. Millennials, the largest generation, are actually a significant driving force for buyer demand in the housing market today. Here’s why.

Millennial Homebuying Power

While there’s no denying higher mortgage rates are making it more challenging to afford a home today, many millennials are still eager and able to buy homes – whether it’s their first or they’re moving up. That’s in large part because of the value they place on education.

A recent article from First American says millennials may be the most educated generation in our nation’s history. Because of that, they tend to earn higher wages, and that translates to greater homebuying power. Odeta Kushi, Deputy Chief Economist at First American, explains:

“In 2020, millennials with a bachelor’s degree had a median household income of over $100,000, while those with at least a graduate degree had a median household income of over $120,000. Compare those income levels with the median household income of millennials with just a high school degree (or some college) of $60,000 and the earning power benefits of higher education are undeniable. . . . Millennials’ pursuit of higher education is good news for the housing market. . . because education is the key to unlock both greater earning power and, in turn, homeownership.”

And since wages are one of the key things that factor into affordability when it comes to buying a home, these higher earnings can help millennials achieve their homeownership goals.

Millennials Continue To Be a Driving Force of Demand

A number of studies have looked into how the millennial generation views homeownership and how they’re uniquely positioned to define the housing market moving forward. As the largest generation, the volume of potential millennial homebuyers will have an impact on the market for years to come. As an article in Forbes explains:

“At about 80 million strong, millennials currently make up the largest share of homebuyers (43%) in the U.S., according to a recent National Association of Realtors (NAR) report. Simply due to their numbers and eagerness to become homeowners, this cohort is quite literally shaping the next frontier of the homebuying process. Once known as the ‘rent generation,’ millennials have proven to be savvy buyers who are quite nimble in their quest to own real estate. In fact, I don’t think it’s a stretch to say they are the key to the overall health and stability of the current housing industry.”

If you’re thinking of selling your house but are hesitant because you’re worried that buyer demand has disappeared in the face of higher mortgage rates, know that isn’t the case for everyone. While demand has eased this year, millennials are still looking for homes. As Mark Fleming, Chief Economist at First American, says in an article:

"While not the frenzy of 2021, the largest living generation, the Millennials, will continue to age into their prime home-buying years, creating a demographic tailwind for the housing market.”

Bottom Line

Millennials are interested in and well-positioned to achieve their homeownership dreams. If you’re ready to sell your house, know that it may be just what they’re looking for.

3 Graphs Showing Why Today’s Housing Market Isn’t Like 2008

 

3 Graphs Showing Why Today’s Housing Market Isn’t Like 2008

With all the headlines and talk in the media about the shift in the housing market, you might be thinking this is a housing bubble. It’s only natural for those thoughts to creep in that make you think it could be a repeat of what took place in 2008. But the good news is, there’s concrete data to show why this is nothing like the last time.

There’s Still a Shortage of Homes on the Market Today, Not a Surplus

For historical context, there were too many homes for sale during the housing crisis (many of which were short sales and foreclosures), and that caused prices to fall dramatically. Supply has increased since the start of this year, but there’s still a shortage of inventory available overall, primarily due to almost 15 years of underbuilding homes.

The graph below uses data from the National Association of Realtors (NAR) to show how the months’ supply of homes available now compares to the crash. Today, unsold inventory sits at just a 3.2-months’ supply at the current sales pace, which is significantly lower than the last time. There just isn’t enough inventory on the market for home prices to come crashing down like they did last time, even though some overheated markets may experience slight declines.

Mortgage Standards Were Much More Relaxed Back Then

During the lead-up to the housing crisis, it was much easier to get a home loan than it is today. Running up to 2006, banks were creating artificial demand by lowering lending standards and making it easy for just about anyone to qualify for a home loan or refinance their current home.

Back then, lending institutions took on much greater risk in both the person and the mortgage products offered. That led to mass defaults, foreclosures, and falling prices. Today, things are different, and purchasers face much higher standards from mortgage companies.

The graph below uses Mortgage Credit Availability Index (MCAI) data from the Mortgage Bankers Association (MBA) to help tell this story. In that index, the higher the number, the easier it is to get a mortgage. The lower the number, the harder it is. In the latest report, the index fell by 5.4%, indicating standards are tightening.

This graph also shows just how different things are today compared to the spike in credit availability leading up to the crash. Tighter lending standards over the past 14 years have helped prevent a scenario that would lead to a wave of foreclosures like the last time.

The Foreclosure Volume Is Nothing Like It Was During the Crash

Another difference is the number of homeowners that were facing foreclosure after the housing bubble burst. Foreclosure activity has been lower since the crash, largely because buyers today are more qualified and less likely to default on their loans. The graph below uses data from ATTOM Data Solutions to help paint the picture of how different things are this time:

Not to mention, homeowners today have options they just didn’t have in the housing crisis when so many people owed more on their mortgages than their homes were worth. Today, many homeowners are equity rich. That equity comes, in large part, from the way home prices have appreciated over time. According to CoreLogic:

“The total average equity per borrower has now reached almost $300,000, the highest in the data series.”

Rick Sharga, Executive VP of Market Intelligence at ATTOM Data, explains the impact this has:

“Very few of the properties entering the foreclosure process have reverted to the lender at the end of the foreclosure. . . . We believe that this may be an indication that borrowers are leveraging their equity and selling their homes rather than risking the loss of their equity in a foreclosure auction.”

 This goes to show homeowners are in a completely different position this time. For those facing challenges today, many have the option to use their equity to sell their house and avoid the foreclosure process.

Bottom Line

If you’re concerned we’re making the same mistakes that led to the housing crash, the graphs above should help alleviate your fears. Concrete data and expert insights clearly show why this is nothing like the last time.

What Happens to Housing when There’s a Recession?

 

What Happens to Housing when There’s a Recession?

Since the 2008 housing bubble burst, the word recession strikes a stronger emotional chord than it ever did before. And while there’s some debate around whether we’re officially in a recession right now, the good news is experts say a recession today would likely be mild and the economy would rebound quickly. As the 2022 CEO Outlook from KPMG says:

“Global CEOs see a ‘mild and short’ recession, yet optimistic about global economy over 3-year horizon . . .

 More than 8 out of 10 anticipate a recession over the next 12 months, with more than half expecting it to be mild and short.”

To add to that sentiment, housing is typically one of the first sectors to rebound during a slowdown. As Ali Wolf, Chief Economist at Zonda, explains:

“Housing is traditionally one of the first sectors to slow as the economy shifts but is also one of the first to rebound.”

Part of that rebound is tied to what has historically happened to mortgage rates during recessions. Here’s a look back at rates during previous economic slowdowns to help put your mind at ease.

Mortgage Rates Typically Fall During Recessions

Historical data helps paint the picture of how a recession could impact the cost of financing a home. Looking at recessions in this country going all the way back to 1980, the graph below shows each time the economy slowed down mortgage rates decreased.

Fortune explains mortgage rates typically fall during an economic slowdown:

“Over the past five recessions, mortgage rates have fallen an average of 1.8 percentage points from the peak seen during the recession to the trough. And in many cases, they continued to fall after the fact as it takes some time to turn things around even when the recession is technically over.”

While history doesn’t always repeat itself, we can learn from and find comfort in the trends of what’s happened in the past. If you’re thinking about buying or selling a home, you can make the best decision by working with a trusted real estate professional. That way you have expert advice on what a recession could mean for the housing market.

Bottom Line

History shows you don’t need to fear the word recession when it comes to the housing market. If you have questions about what’s happening today, let’s connect so you have expert advice and insights you can trust.

Pre-Approval Is a Critical First Step on Your Homebuying Journey

 

Pre-Approval Is a Critical First Step on Your Homebuying Journey

If you’re planning to buy a home this year, one of the first steps on your journey is getting pre-approved. Especially in today’s market when mortgage rates are higher than they were just a few months ago, getting a mortgage pre-approval can be a game changer. Here’s why.

What Is Pre-Approval?

To better understand why pre-approval is key, it’s important to know what pre-approval is. The Mortgage Reports explains it like this:

“When you’re ready to take the leap into homeownership, your first step is mortgage preapproval. . . . A mortgage preapproval is when a lender determines you’re qualified for a home loan. Your preapproval letter shows the maximum loan amount you’re approved for (your home buying budget), as well as the specific interest rate and loan term you can expect.”

As part of the pre-approval process, a lender will look at your finances to determine what they’d be willing to loan you. From there, your lender will give you a pre-approval letter to help you understand your true price range and how much money you can borrow. That can make it easier when you set out to search for homes because you’ll know your overall numbers. And with mortgage rates rising and impacting affordability, a solid understanding of your numbers is even more important.

Pre-Approval Can Signal You’re a Serious Buyer

Another added benefit is that pre-approval lets the seller know you’re qualified to buy their house. A recent article from realtor.com notes:

". . . getting pre-approved can actually improve your chances of falling into the sellers’ good graces, and you’ll want to get it done as early as you possibly can in the home-buying process."

Even though bidding wars are easing this year as the market shifts, preapproval is still an important part of making a strong offer. It can help a seller feel more confident because it shows you’re serious about their home and that you’re a qualified buyer.

Bottom Line

Getting pre-approved for a mortgage is critical. It helps you better understand what you can borrow and shows sellers you’re serious about purchasing their home. Connect with a local real estate professional and a trusted lender so you have the tools you need to succeed as a homebuyer in today’s market.

3 Questions You May Be Asking About Selling Your House Today [INFOGRAPHIC]

 

3 Questions You May Be Asking About Selling Your House Today [INFOGRAPHIC]

Some Highlights

• If you’re planning to sell your house this year, you likely have questions about what the shift in the housing market means for your home sale.
• You might be wondering: Should I wait to sell? Are buyers still out there? And can I afford to buy my next home?
• Let’s connect so you can get answers to these questions and learn about the opportunities you still have in today’s housing market.

 

What’s Ahead for Home Prices?

As the housing market cools in response to the dramatic rise in mortgage rates, home price appreciation is cooling as well. And if you’re following along with headlines in the media, you’re probably seeing a wide range of opinions calling for everything from falling home prices to ongoing appreciation. But what’s true? What’s most likely to happen moving forward?

While opinions differ, the most likely outcome is we’ll fall somewhere in the middle of slight appreciation and slight depreciation. Here’s a look at the latest expert projections so you have the best information possible today.

What the Experts Are Saying About Home Prices Next Year

The graph below shows the most up-to-date forecasts from five experts in the housing industry. These are the experts that have most recently updated their projections based on current market trends:

As the graph shows, the three blue bars represent experts calling for ongoing home price appreciation, just at a more moderate rate than recent years. The red bars on the graph are experts calling for home price depreciation.

While there isn’t a clear consensus, if you take the average (shown in green) of all five of these forecasts, the most likely outcome is, nationally, home price appreciation will be fairly flat next year.

What Does This Mean?

Basically, experts are divided on what’s ahead for 2023. Home prices will likely depreciate slightly in some markets and will continue to gain ground in others. It all depends on the conditions in your local market, like how overheated that market was in recent years, current inventory levels, buyer demand, and more.

The good news is home prices are expected to return to more normal levels of appreciation rather quickly. The latest forecast from Wells Fargo shows that, while they feel prices will fall in 2023, they think prices will recover and net positive in 2024. That forecast calls for 3.1% appreciation in 2024, which is a number much more in line with the long-term average of 4% annual appreciation.

And the Home Price Expectation Survey (HPES) from Pulsenomics, a poll of over one hundred industry experts, also calls for ongoing appreciation of roughly 2.6 to 4% from 2024-2026. This goes to show, even if prices decline slightly next year, it’s not expected to be a lasting trend.

As Jason Lewris, Co-Founder and Chief Data Officer for Parcl, says:

“In the absence of trustworthy, up-to-date information, real estate decisions are increasingly being driven by fear, uncertainty, and doubt.”

Don’t let fear or uncertainty change your plans. If you’re unsure about where prices are headed or how to make sense of what’s going on in today’s housing market, reach out to a local real estate professional for the guidance you need each step of the way.

Bottom Line

The housing market is shifting, and it’s a confusing place right now. Let’s connect so you have a trusted real estate professional to help you make confident and informed decisions about what’s happening in our market.

Should You Still Buy a Home with the Latest News About Inflation?

 

Should You Still Buy a Home with the Latest News About Inflation?

While the Federal Reserve is working hard to bring down inflation, the latest data shows the inflation rate is still high, remaining around 8%. This news impacted the stock market and added fuel to the fire for conversations about a recession.

You’re likely feeling the impact in your day-to-day life as you watch the cost of goods and services climb. The pinch it’s creating on your wallet and the looming economic uncertainty may leave you wondering: “should I still buy a home right now?” If that question is top of mind for you, here’s what you need to know.

Homeownership Is Historically a Great Hedge Against Inflation

In an inflationary economy, prices rise across the board. Historically, homeownership is a great hedge against those rising costs because you can lock in what’s likely your largest monthly payment (your mortgage) for the duration of your loan. That helps stabilize some of your monthly expenses. James Royal, Senior Wealth Management Reporter at Bankrate, explains:

“A fixed-rate mortgage allows you to maintain the biggest portion of housing expenses at the same payment. Sure, property taxes will rise and other expenses may creep up, but your monthly housing payment remains the same.”

And with rents being as high as they are, the ability to stabilize your monthly payments and protect yourself from future rent hikes may be even more important. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), explains what happened to rents in the latest inflation report:

“Inflation refuses to budge. In September, consumer prices rose by 8.2%. Rents rose by 7.2%, the highest pace in 40 years.”

When you rent, your monthly payment is determined by your lease, which typically renews on an annual basis. With inflation high, your landlord may be more likely to increase your payments to offset the impact of inflation. That may be part of the reason why a survey from realtor.com shows 72% of landlords said they plan to raise the rent on one or more of their properties in the next year.

Becoming a homeowner, if you’re ready and able to do so, can provide lasting stability and a reliable shelter in times of economic uncertainty.

Bottom Line

The best hedge against inflation is a fixed housing cost. If you’re ready to learn more and start your journey to homeownership, let’s connect.

The Latest on Supply and Demand in Housing

 

The Latest on Supply and Demand in Housing

Over the past two years, the substantial imbalance of low housing supply and high buyer demand pushed home sales and buyer competition to new heights. But this year, things are shifting as supply and demand reach an inflection point.

The graph below helps tell the story of just how different things are today.

This year, buyer demand has eased as higher mortgage rates and mounting economic uncertainty moderated the market. This slowdown in demand is clear when you look at the red bar on the graph. It uses the latest data from ShowingTime to illustrate how showings (an indicator of buyer demand) have softened by just over 12% compared to the same time last year.

Now for a look at how housing supply has changed, turn to the green bar. It uses data from realtor.com to show active listings are up nearly 27% compared to last year. That’s because the moderation of demand allowed housing inventory to increase in 2022.

What Does This Inflection Point Mean for Buyers?

If you’re thinking of buying a home, you’ll have less competition and more options than you would have had last year. Enjoy having more homes to choose from in your home search and lean on a trusted real estate professional to understand how the increase in supply has also increased your negotiation power. That professional can talk you through the opportunities and challenges buyers face in today’s shifting market. You may be surprised to find they’re different than they were a year ago.

What Does This Inflection Point Mean for Sellers?

If you’re looking to sell your house, know that inventory is still low overall. That means, if you work with an agent to price your house based on current market value, it will still sell despite the inventory gains and moderating buyer demand this year. That’s because there are still buyers out there who want to move, and your house may be exactly what they’re looking for.

Bottom Line

If you’re thinking of buying or selling a home, the best place to turn to for information on today's supply and demand is a trusted real estate professional. Let’s connect so you know what’s happening in our local market and what that means for you.

The Emotional and Non-financial Benefits of Homeownership

 

The Emotional and Non-financial Benefits of Homeownership

With higher mortgage rates, you might be wondering if now's the best time to buy a home. While the financial aspects are important to consider, there are also powerful non-financial reasons it may make sense to make a move. Here are just a few of the benefits that come with homeownership.

Homeowners Can Make Their Home Truly Their Own

Owning your home gives you a significant sense of accomplishment because it’s a space you can customize to your heart’s desire. That can bring you added happiness.

In fact, a report from the National Association of Realtors (NAR) shows making updates or remodeling your home can help you feel more at ease and comfortable in your living space. NAR measures this with a Joy Score that indicates how much happiness specific home upgrades bring. According to NAR:

“There were numerous interior projects that received a perfect Joy Score of 10: paint entire interior of home, paint one room of home, add a new home office, hardwood flooring refinish, new wood flooring, closet renovation, insulation upgrade, and attic conversion to living area.”

And as a homeowner, unless there are specific homeowner’s association requirements, you typically won’t have to worry about the changes you can and can’t make.

If you rent, you may not have the same freedom. And if you do make changes as a renter, there’s a good chance you’ll need to revert them back at the end of your lease based on your rental agreement. That can add additional costs when you move out.

The Responsibilities of Homeownership Give You a Greater Sense of Achievement

There’s no denying taking care of your home is a large responsibility, but it’s one you’ll take pride in as a homeowner. Freddie Mac explains:

“As the homeowner, you have the freedom to adopt a pet, paint the walls any color you choose, renovate your kitchen, and more. . . . Of course, along with the freedoms of homeownership come responsibilities, such as making your monthly mortgage payments on time and maintaining your home. But as the property owner, you'll be caring for your own investment.”

You’re not taking care of a living space that belongs to someone else. The space is yours. As an added benefit, you may get a return on investment for any upgrades or repairs you make.

Homeownership Can Lead to Greater Community Engagement

That sense of ownership and your feelings of responsibility can even extend beyond the walls of your home. Your home also gives you a stake in your community. Because the average homeowner stays in their home for longer than just a few years, that can lead to having a stronger connection to your local area. NAR notes how that can benefit you:

“Living in one place for a longer amount of time creates an obvious sense of community pride, which may lead to more investment in said community.”

If you’re looking to put down roots, homeownership can help fuel a sense of connection to the area and those around you.

Bottom Line

If you’re planning to buy a home this year, there are incredible benefits waiting for you at the end of your journey, including the ability to customize your home, the sense of achievement homeownership brings, and a greater connection to your community. Let’s connect to discuss everything homeownership has to offer.