How an Expert Can Help You Understand Inflation & Mortgage Rates

How an Expert Can Help You Understand Inflation & Mortgage Rates | MyKCM

If you’re following today’s housing market, you know two of the top issues consumers face are inflation and mortgage rates. Let’s take a look at each one.

Inflation and the Housing Market

This year, inflation reached a high not seen in forty years. For the average consumer, you probably felt the pinch at the gas pump and in the grocery store. It may have even impacted your ability to save money to buy a home.

While the Federal Reserve is working hard to lower inflation, the August data shows the inflation rate was still higher than expected. This news impacted the stock market and fueled conversations about a recession. It also played a role in the Federal Reserve’s decision to raise the Federal Funds Rate last week. As Bankrate says:

“. . . the Fed has raised rates again, announcing yet another three-quarter-point hike on September 21 . . . The hikes are designed to cool an economy that has been on fire. . .”

While their actions don’t directly dictate what happens with mortgage rates, their decisions have contributed to the intentional cooldown in the housing market. A recent article from Fortune explains:

“As the Federal Reserve moved into inflation-fighting mode, financial markets quickly put upward pressure on mortgage rates. Those elevated mortgage rates . . . coupled with sky-high home prices, threw cold water onto the housing boom.”

The Impact on Rising Mortgage Rates

Over the past few months, mortgage rates have fluctuated in light of growing economic pressures. Most recently, the average 30-year fixed mortgage rate according to Freddie Mac ticked above 6% for the first time in well over a decade (see graph below):

How an Expert Can Help You Understand Inflation & Mortgage Rates | MyKCM

The mortgage rate increases this year are the big reason buyer demand has pulled back in recent months. Basically, as rates (and home prices) rose, so did the cost of buying a home. That pushed on affordability and priced some buyers out of the market, so home sales slowed and the inventory of homes for sale grew as a result.

Where Experts Say Rates and Inflation Will Go from Here

Moving forward, both of these factors will continue to impact the housing market. A recent article from CNET puts the relationship between inflation and mortgage rates in simple terms:

“As a general rule, when inflation is low, mortgage rates tend to be lower. When inflation is high, rates tend to be higher.”

Sam Khater, Chief Economist at Freddie Mac, has this to say about where rates may go from here:

“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, . . .”

While there’s no way to say with certainty where mortgage rates will go from here, there is something you can do to stay informed, and that’s connect with a trusted real estate advisor. They keep their pulse on what’s happening today and help you understand what the experts are projecting. They can provide you with the best advice possible.

Bottom Line

Rising inflation and higher mortgage rates have had a clear impact on housing. For expert insights on the latest trends in the housing market and what they mean for you, let’s connect.

A Crucial First Step: Mortgage Pre-Approval [INFOGRAPHIC]

A Crucial First Step: Mortgage Pre-Approval [INFOGRAPHIC] | MyKCM

Some Highlights

  • Mortgage pre-approval means a lender has reviewed your finances and, based on factors like your income, debt, and credit history, determined how much you’re qualified to borrow.
  • Being pre-approved for a loan can give you clarity while planning your homebuying budget, confidence in your ability to secure a loan, and helps sellers know your offer is serious.
  • Connect with a trusted professional to learn more and start your homebuying process today.

Expert Forecasts on Mortgage Rates

Expert Forecasts on Mortgage Rates | MyKCM

If you’ve been thinking of buying a home, you may have been watching what’s happened with mortgage rates over the past year. It’s true they’ve risen dramatically, but where will they go from here, especially as the market continues to slow?

As you think about your homeownership goals and decide if now’s the time to make your move, the best place to turn to for that information is the professionals. Here’s a summary of the latest mortgage rate forecasts from housing market experts.

Experts Project Mortgage Rates Will Stabilize

While mortgage rates continue to fluctuate due to ongoing inflationary pressures and economic uncertainty, experts project they’ll start to stabilize in the months ahead. According to the latest projections, mortgage rates are expected to hover in the low to mid 5% range initially, and then potentially dip into the high 4% range by later next year (see chart below):

Expert Forecasts on Mortgage Rates | MyKCM

That could bring you some welcome relief. So far this year, mortgage rates have climbed over 2% due to the Federal Reserve’s response to inflation, and that’s made it more expensive to buy a home. And wondering if the rise in rates will continue is keeping some prospective buyers on the sidelines.

But now that experts say mortgage rates should stabilize, this gives you a bit more certainty about what they think the future holds, and that may help you feel more confident about your decision to buy a home.

Bottom Line

Whether you’re looking to buy your first home, move up to a larger home, or even downsize, you need to know what’s happening in the housing market so you can make the most informed decision possible. Let’s connect to discuss your goals and determine the best plan for your move.

A Window of Opportunity for Homebuyers

A Window of Opportunity for Homebuyers | MyKCM

Mortgage rates are much higher today than they were at the beginning of the year, and that’s had a clear impact on the housing market. As a result, the market is seeing a shift back toward the range of pre-pandemic levels for buyer demand and home sales.

But the transition back toward pre-pandemic levels isn’t a bad thing. In fact, the years leading up to the pandemic were some of the best the housing market has seen. That’s why, as the market undergoes this shift, it’s important to compare today not to the abnormal pandemic years, but to the most recent normal years to show how the current housing market is still strong.

Higher Mortgage Rates Are Moderating the Housing Market 

The ShowingTime Showing Index tracks the traffic of home showings according to agents and brokers. It’s also a good indication of buyer demand over time. Here’s a look at their data going back to 2017 (see graph below):

A Window of Opportunity for Homebuyers | MyKCM

Here’s a breakdown of the story this data tells:

  • The 2017 through early 2020 numbers (shown in gray) give a good baseline of pre-pandemic demand. The steady up and down trends seen in each of these years show typical seasonality in the market.
  • The blue on the graph represents the pandemic years. The height of those blue bars indicates home showings skyrocketed during the pandemic.
  • The most recent data (shown in green), indicates buyer demand is moderating back toward more pre-pandemic levels.

This shows that buyer demand is coming down from levels seen over the past two years, and the frenzy in real estate is easing because of higher mortgage rates. For you, that means buying your next home should be less challenging than it would’ve been during the pandemic because there is more inventory available.

Higher Mortgage Rates Slow the Once Frenzied Pace of Home Sales

As mortgage rates started to rise this year, other shifts began to occur too. One additional example is the slowing pace of home sales. Using data from the National Association of Realtors (NAR), here’s a look at existing home sales going all the way back to 2017. Much like the previous graph, a similar trend emerges (see graph below):

A Window of Opportunity for Homebuyers | MyKCM

Again, the data paints a picture of the shift:

  • The pre-pandemic years (shown in gray) establish a baseline of the number of existing home sales in more typical years.
  • The pandemic years (shown in blue) exceeded the level of sales seen in previous years. That’s largely because low mortgage rates during that time spurred buyer demand and home sales to new heights.
  • This year (shown in green), the market is feeling the impact of higher mortgage rates and that’s moderating buyer demand (and by extension home sales). That’s why the expectation for home sales this year is closer to what the market saw in 2018-2019.

Why Is All of This Good News for You?

Both of those factors have opened up a window of opportunity for homeowners looking to move and for buyers looking to purchase a home. As demand moderates and the pace of home sales slows, housing inventory is able to grow – and that gives you more options for your home search.

So don’t let the headlines about the market cooling or moderating scare you. The housing market is still strong; it’s just easing off from the unsustainable frenzy it saw during the height of the pandemic – and that’s a good thing. It opens up new opportunities for you to find a home that meets your needs.

Bottom Line

The housing market is undergoing a shift because of higher mortgage rates, but the market is still strong. If you’ve been looking to buy a home over the last couple of years and it felt impossible to do, now may be your opportunity. Buying a home right now isn’t easy, but there is more opportunity for those who are looking.

Why Pre-Approval Is a Game Changer for Homebuyers

Why Pre-Approval Is a Game Changer for Homebuyers | MyKCM

If you’re planning to buy a home this year, you might have heard that pre-approval is a necessary step to take before starting out on your journey. But why is that? And is it still important in today’s shifting market?

The truth is, getting a pre-approval letter from your lender is critical, and when it comes to your home search, it can be a game changer in so many ways.

To better understand why, it’s important to know what pre-approval is. Freddie Mac defines the process like this:

“A pre-approval is an indication from your lender that they are willing to lend you a certain amount of money to buy your future home. The lender you work with will provide you with a pre-approval letter, which is an official document that states the maximum amount they are willing to lend you, . . .”

Put simply, pre-approval from a lender helps you understand your true price range and how much money you can borrow for your loan. That can make it easier when you set out to search for homes. And since you’ll know what you’re approved for, it’ll also help once it’s time to submit an offer on the home of your dreams.

Another added benefit is that pre-approval lets the seller know you’re qualified to buy their house. Paul Centopani, Editor for the Mortgage Reportsexplains:

“. . . most sellers won’t even consider an offer unless the buyer is pre-approved at the right price point. Sellers and their agents want to know you’re ready and able to finance your offer amount. So you’ll want to have your preapproval teed up as soon as you’re serious about bidding on a home you like.”

Every advantage you can gain as a buyer is crucial in a market that’s constantly changing. You’re going to need guidance to navigate these waters, so it’s important to have a team of professionals, such as a real estate advisor and trusted lender, on your side. They’ll help make sure you’re ready to put your best foot forward.

Bottom Line

Getting pre-approved for a mortgage helps you better understand what you can borrow and shows sellers you’re serious about purchasing their home. Let’s connect so you have the tools you need to succeed as a homebuyer in today’s shifting market.

The Drop in Mortgage Rates Brings Good News for Homebuyers

The Drop in Mortgage Rates Brings Good News for Homebuyers | MyKCM

Over the past few weeks, the average 30-year fixed mortgage rate from Freddie Mac fell by half a percent. The drop happened over concerns about a potential recession. And since mortgage rates have risen dramatically this year, homebuyers across the country should see this decline as welcome news.

Freddie Mac reports that the average 30-year rate was down to 5.30% from 5.81% two weeks prior (see graph below):

The Drop in Mortgage Rates Brings Good News for Homebuyers | MyKCM

But why is this recent dip such good news for homebuyers? As Nadia Evangelou, Senior Economist and Director of Forecasting at the National Association of Realtors (NAR), explains:

“According to Freddie Mac, the 30-year fixed mortgage rate dropped sharply by 40 basis points to 5.3 percent. . . . As a result, home buying is about 5 percent more affordable than a week ago. This translates to about $100 less every month on a mortgage payment.

That’s because when rates go up (as they have for the majority of this year), they impact how much you’ll pay in your monthly mortgage payment, which directly affects how much you can comfortably afford. The inverse is also true. A decrease in mortgage rates means an increase in your purchasing power.

The chart below shows how a half-point, or even a quarter-point, change in mortgage rates can impact your monthly payment:

The Drop in Mortgage Rates Brings Good News for Homebuyers | MyKCM

Bottom Line

If your home doesn’t meet your needs, this may be the opportunity you’ve been waiting for. Let’s connect to see how you can benefit from the current drop in mortgage rates.

Things To Avoid After Applying for a Home Loan

Things To Avoid After Applying for a Home Loan | MyKCM

Once you’ve applied for a mortgage to buy a home, there are some key things to keep in mind. While it’s exciting to start thinking about moving in and decorating, be careful when it comes to making any big purchases. Here are a few things you may not realize you need to avoid after applying for your home loan.

Don’t Deposit Large Sums of Cash

Lenders need to source your money, and cash isn’t easily traceable. Before you deposit any amount of cash into your accounts, discuss the proper way to document your transactions with your loan officer.

Don’t Make Any Large Purchases

It’s not just home-related purchases that could disqualify you from your loan. Any large purchases can be red flags for lenders. People with new debt have higher debt-to-income ratios (how much debt you have compared to your monthly income). Since higher ratios make for riskier loans, borrowers may no longer qualify for their mortgage. Resist the temptation to make any large purchases, even for furniture or appliances.

Don’t Co-Sign Loans for Anyone

When you co-sign for a loan, you’re making yourself accountable for that loan’s success and repayment. With that obligation comes higher debt-to-income ratios as well. Even if you promise you won’t be the one making the payments, your lender will have to count the payments against you.

Don’t Switch Bank Accounts

Lenders need to source and track your assets. That task is much easier when there’s consistency among your accounts. Before you transfer any money, speak with your loan officer.

Don’t Apply for New Credit

It doesn’t matter whether it’s a new credit card or a new car. When you have your credit report run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), it will have an impact on your FICO® score. Lower credit scores can determine your mortgage interest rate and possibly even your eligibility for approval.

Don’t Close Any Accounts

Many buyers believe having less available credit makes them less risky and more likely to be approved. This isn’t true. A major component of your score is your length and depth of credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both of those aspects of your score.

In Short, Consult an Expert

To sum it up, be upfront about any changes when talking with your lender. Blips in income, assets, or credit should be reviewed and executed in a way that ensures your home loan can still be approved. If your job or employment status has changed recently, share that with your lender as well. Ultimately, it’s best to fully disclose and discuss your intentions with your loan officer before you do anything financial in nature.

Bottom Line

You want your home purchase to go as smoothly as possible. Remember, before you make any large purchases, move your money around, or make any major life changes, be sure to consult your lender – someone who’s qualified to explain how your financial decisions may impact your home loan.

Why Home Loans Today Aren’t What They Were in the Past

Why Home Loans Today Aren’t What They Were in the Past | MyKCM

In today’s housing market, many are beginning to wonder if we’re returning to the riskier lending habits and borrowing options that led to the housing crash 15 years ago. Let’s ease those concerns.

Several times a year, the Mortgage Bankers Association (MBA) releases an index titled the Mortgage Credit Availability Index (MCAI). According to their website:

“The MCAI provides the only standardized quantitative index that is solely focused on mortgage credit. The MCAI is . . . a summary measure which indicates the availability of mortgage credit at a point in time.”

Basically, the index determines how easy it is to get a mortgage. The higher the index, the more available mortgage credit becomes. Here’s a graph of the MCAI dating back to 2004, when the data first became available:

Why Home Loans Today Aren’t What They Were in the Past | MyKCM

As the graph shows, the index stood at about 400 in 2004. Mortgage credit became more available as the housing market heated up, and then the index passed 850 in 2006. When the real estate market crashed, so did the MCAI as mortgage money became almost impossible to secure. Thankfully, lending standards have eased somewhat since then, but the index is still low. In April, the index was at 121, which is about one-seventh of what it was in 2006.

Why Did the Index Get out of Control During the Housing Bubble?

The main reason was the availability of loans with extremely weak lending standards. To keep up with demand in 2006, many mortgage lenders offered loans that put little emphasis on the eligibility of the borrower. Lenders were approving loans without always going through a verification process to confirm if the borrower would likely be able to repay the loan.

An example of the relaxed lending standards leading up to the housing crash is the FICO® credit score associated with a loan. What’s a FICO® score? The website myFICO explains:

“A credit score tells lenders about your creditworthiness (how likely you are to pay back a loan based on your credit history). It is calculated using the information in your credit reports. FICO® Scores are the standard for credit scores—used by 90% of top lenders.”

During the housing boom, many mortgages were written for borrowers with a FICO score under 620. While there are still some loan programs that allow for a 620 score, today’s lending standards are much tighter. Lending institutions overall are much more attentive about measuring risk when approving loans. According to the latest Household Debt and Credit Report from the New York Federal Reservethe median credit score on all mortgage loans originated in the first quarter of 2022 was 776.

The graph below shows the billions of dollars in mortgage money given annually to borrowers with a credit score under 620.

Why Home Loans Today Aren’t What They Were in the Past | MyKCM

In 2006, buyers with a score under 620 received $376 billion dollars in loans. In 2021, that number was only $80 billion, and it’s only $20 billion in the first quarter of 2022.

Bottom Line

In 2006, lending standards were much more relaxed with little evaluation done to measure a borrower’s potential to repay their loan. Today, standards are tighter, and the risk is reduced for both lenders and borrowers. These are two very different housing markets, and today is nothing like the last time.

Why Rising Mortgage Rates Push Buyers off the Fence

Why Rising Mortgage Rates Push Buyers off the Fence | MyKCM

If you’re thinking about buying a home, you’ve probably heard mortgage rates are rising and have wondered what that means for you. Since mortgage rates have increased over two percentage points this year, it’s natural to think about how this will impact your homeownership plans.

Today, buyers are reacting in one of two ways: they’re either making the decision to buy now before rates climb higher or they’re waiting it out in hopes rates will fall. Let’s look at some context that can help you understand why so many buyers are jumping off the fence and into action rather than waiting to buy.

A Look Back: How the Current Mortgage Rate Compares to Historical Data

One factor that could help you make your decision to buy now is how today’s mortgage rates compare to historical data. While higher than the average 30-year fixed rate in recent years, the latest rates are still comparatively low when you look at the bigger picture of where rates have been since 1971 (see graph below):

Why Rising Mortgage Rates Push Buyers off the Fence | MyKCM

Mark Fleming, Chief Economist at First Americanexplains it like this:

“. . . historical context is important. An average 30-year, fixed mortgage rate of 5.5 percent is still well below the historical average of nearly 8 percent.”

If you’re deciding whether to buy now or wait, this is important context to have. Today’s mortgage rate still gives you a window of opportunity to lock in a rate that’s comparatively lower than decades past.

A Look Ahead: What Happens if Rates Climb Further

The buyers who are springing into action now are also motivated to make their move because they know rates have risen steadily this year, and they’re eager to get ahead of any further increases.

Why? When mortgage rates climb, they impact the monthly mortgage payment you’ll have on the home you’re buying. Basically, it’ll likely cost you more to buy a home if you wait. Experts say mortgage rates will rise (although more moderately) in the months ahead. Odeta Kushi, Deputy Chief Economist at First Americanexplains:

“. . . ongoing inflationary pressure remains likely to push mortgage rates even higher in the months to come.”

So, if you’re ready and financially able to buy now, it may make more sense to get off the fence and make your purchase sooner rather than later. As Nadia Evangelou, Senior Economist at the National Association of Realtors (NAR), says:

With even higher interest rates on the horizon, I don’t see any reason to hold off from purchasing a home right now. If you feel financially secure, you should start looking for a home.”

At the end of the day, there is no perfect advice on when to buy a home. What you should do depends on your goals, your finances, and your personal situation. Use this information with the help of local real estate professionals to make an informed decision on what’s best for you. Bill McBride of Calculated Risk sums it up best:

“. . . if you’re on the fence about whether to buy now or wait for a better deal, buying sooner rather than later might be wise. That said, home buying is always a personal decision. Whether you should buy in 2022 depends on your financial situation and the local housing market where you live.”

Bottom Line

For many buyers, rising mortgage rates are motivating them to act now and make a purchase before rates rise higher. To decide what move is best for you, let’s connect so you have expert advice on your side.

How Today’s Mortgage Rates Impact Your Home Purchase

How Today’s Mortgage Rates Impact Your Home Purchase | MyKCM

If you’re planning to buy a home, it’s critical to understand the relationship between mortgage rates and your purchasing power. Purchasing power is the amount of home you can afford to buy that’s within your financial reach. Mortgage rates directly impact the monthly payment you’ll have on the home you purchase. So, when rates rise, so does the monthly payment you’re able to lock in on your home loan. In a rising-rate environment like we’re in today, that could limit your future purchasing power.

Today, the average 30-year fixed mortgage rate is above 5%, and in the near term, experts say that’ll likely go up in the months ahead. You have the opportunity to get ahead of that increase if you buy now before that impacts your purchasing power.

Mortgage Rates Play a Large Role in Your Home Search

The chart below can help you understand the general relationship between mortgage rates and a typical monthly mortgage payment within a range of loan amounts. Let’s say your budget allows for a monthly mortgage payment in the $2,100-$2,200 range. The green in the chart indicates a payment within that range, while the red is a payment that exceeds it (see chart below):

How Today’s Mortgage Rates Impact Your Home Purchase | MyKCM

As the chart shows, you’re more likely to exceed your target payment range as mortgage rates increase unless you pursue a lower home loan amount. If you’re ready to buy a home, use this as your motivation to purchase now so you can get ahead of rising rates before you have to make the decision to decrease what you borrow in order to stay comfortably within your budget.

Work with Trusted Advisors To Know Your Budget and Make a Plan

It’s critical to keep your budget top of mind as you’re searching for a home. Danielle Hale, Chief Economist at realtor.com, puts it best, advising that buyers should:

Get preapproved with where rates are today, but also consider what would happen if rates were to go up, say another quarter of a point, . . . Know what that would do to your monthly costs and how comfortable you are with that, so that if rates do move higher, you already know how you need to adjust in response.”

No matter what, the best strategy is to work with your real estate advisor and a trusted lender to create a plan that takes rising mortgage rates into consideration. Together, you can look at your budget based on where rates are today and craft a strategy so you’re ready to adjust as rates change.

Bottom Line

Even small increases in mortgage rates can impact your purchasing power. If you’re in the process of buying a home, it’s more important than ever to have a strong plan. Let’s connect so you have a trusted real estate advisor and a lender on your side who can help you strategize to achieve your dream of homeownership this season.