Here’s Why the Housing Market Isn’t Going To Crash [INFOGRAPHIC]
Mortgage Rates
2 Things Sellers Need To Know This Spring
A lot has changed over the past year, and you might be wondering what’s in store for the spring housing market. If you’re planning to sell your house this season, here’s what real estate experts are saying you should keep in mind.
1. Houses That Are Priced Right Are Still Selling
Houses that are updated and priced at their current market value are still selling. Jeff Tucker, Senior Economist at Zillow, says:
“. . . sellers who price and market their home competitively shouldn’t have a problem finding a buyer.”
The need to price your house right is so important today because the market has changed so much over the past year. Danielle Hale, Chief Economist at realtor.com, explains:
“With a smaller pool of buyers today and more competition from other homes on the market, homesellers will likely need to adjust their price expectations in the market this spring.”
While this spring housing market is different than last year’s, sellers with proper expectations who lean on a real estate expert for the best advice on pricing their house well are still finding success. And that’s great news if you’re thinking about selling.
2. Buyers Are Still Out There
As mortgage rates have risen and remain volatile, some buyers have pressed pause on their plans. But there are still plenty of reasons people are buying homes today. Lisa Sturtevant, Chief Economist at Bright MLS, spells out the mindset of today’s buyers:
“For some buyers, higher mortgage rates simply means buying a home is out of the question unless home prices fall. For others, higher mortgage rates will be a hurdle but ultimately will not keep them from getting back into the market after sitting on the sidelines for months.”
That’s why, if you’re interested in selling your house this spring, it’s helpful to work with a real estate agent who can help connect you with those buyers who are ready to purchase a home.
Bottom Line
There are still clear opportunities for sellers this spring. If you’re wondering if it’s the right time to make a move, let’s connect today.
The Two Big Issues the Housing Market’s Facing Right Now
The biggest challenge the housing market’s facing is how few homes there are for sale. Mark Fleming, Chief Economist at First American, explains the root causes of today’s low supply:
“Two dynamics are keeping existing-home inventory historically low – rate-locked existing homeowners and the fear of not finding something to buy.”
Let’s break down these two big issues in today’s housing market.
Rate-Locked Homeowners
According to the Federal Housing Finance Agency (FHFA), the average interest rate for current homeowners with mortgages is less than 4% (see graph below):
But today, the typical mortgage rate offered to buyers is over 6%. As a result, many homeowners are opting to stay put instead of moving to another home with a higher borrowing cost. This is a situation known as being rate locked.
When so many homeowners are rate locked and reluctant to sell, it’s a challenge for a housing market that needs more inventory. However, experts project mortgage rates will gradually fall this year, and that could mean more people will be willing to move as that happens.
The Fear of Not Finding Something To Buy
The other factor holding back potential sellers is the fear of not finding another home to buy if they move. Worrying about where they’ll go has left many on the sidelines as they wait for more homes to come to the market. That’s why, if you’re on the fence about selling, it’s important to consider all your options. That includes newly built homes, especially right now when builders are offering concessions like mortgage rate buydowns.
What Does This Mean for You?
These two issues are keeping the supply of homes for sale lower than pre-pandemic levels. But if you want to sell your house, today’s market is a sweet spot that can work to your advantage.
Be sure to work with a local real estate professional to explore the options you have right now, which could include leveraging your current home equity. According to ATTOM:
“. . . 48 percent of mortgaged residential properties in the United States were considered equity-rich in the fourth quarter, meaning that the combined estimated amount of loan balances secured by those properties was no more than 50 percent of their estimated market values.”
This could make a major difference when you move. Work with a local real estate expert to learn how putting your equity to work can keep the cost of your next home down.
Bottom Line
Rate-locked homeowners and the fear of not finding something to buy are keeping housing inventory low across the country. But as mortgage rates start to come down this year and homeowners explore all their options, we should expect more homes to come to the market.
Lower Mortgage Rates Are Bringing Buyers Back to the Market
As mortgage rates rose last year, activity in the housing market slowed down. And as a result, homes started seeing fewer offers and stayed on the market longer. That meant some homeowners decided to press pause on selling.
Now, however, rates are beginning to come down—and buyers are starting to reenter the market. In fact, the latest data from the Mortgage Bankers Association (MBA) shows mortgage applications increased last week by 7% compared to the week before.
So, if you’ve been planning to sell your house but you’re unsure if there will be anyone to buy it, this shift in the market could be your chance. Here’s what experts are saying about buyers returning to the market as we approach spring.
Mike Fratantoni, SVP and Chief Economist, MBA:
“Mortgage rates are now at their lowest level since September 2022, and about a percentage point below the peak mortgage rate last fall. As we enter the beginning of the spring buying season, lower mortgage rates and more homes on the market will help affordability for first-time homebuyers.”
Lawrence Yun, Chief Economist, National Association of Realtors (NAR):
“The upcoming months should see a return of buyers, as mortgage rates appear to have already peaked and have been coming down since mid-November.”
Thomas LaSalvia, Senior Economist, Moody’s Analytics:
“We expect the labor market to remain robust, wages to continue to rise—maybe not at the pace that they did during the pandemic, but that will open up some opportunity for folks to enter homeownership as interest rates stabilize a bit.”
Sam Khater, Chief Economist, Freddie Mac:
“Homebuyers are waiting for rates to decrease more significantly, and when they do, a strong job market and a large demographic tailwind of Millennial renters will provide support to the purchase market.”
Bottom Line
If you’ve been thinking about making a move, now’s the time to get your house ready to sell. Let’s connect so you can learn about buyer demand in our area the best time to put your house on the market.
Pre-Approval in 2023: What You Need To Know
One of the first steps in your homebuying journey is getting pre-approved. To understand why it’s such an important step, you need to understand what pre-approval is and what it does for you. Business Insider explains:
“In a preapproval [sic], the lender tells you which types of loans you may be eligible to take out, how much you may be approved to borrow, and what your rate could be.”
Basically, pre-approval gives you critical information about the homebuying process that’ll help you understand your options and what you may be able to borrow.
How does it work? 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 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 higher mortgage rates impacting affordability for many buyers today, a solid understanding of your numbers is even more important.
Pre-Approval Helps Show You’re a Serious Buyer
Another added benefit is pre-approval can help a seller feel more confident in your offer because it shows you’re serious about buying their house. A recent article from Forbes notes:
“From the seller’s perspective, a preapproval [sic] letter from a reputable local lender often can make the difference between accepting and rejecting an offer.”
This goes to show, even though you may not face the intense bidding wars you saw if you tried to buy during the pandemic, pre-approval is still an important part of making a strong offer. In fact, Christy Bieber, Personal Finance Writer at The Motley Fool explains it may be the most important part of making an offer:
“Pre-approval maximizes the chances you’ll be able to actually close the deal – and sellers want to see that.
The fact that a pre-approval gives you a better chance of getting your offer accepted is undoubtedly the most important reason to complete this step . . .”
Bottom Line
Getting pre-approved is an important first step towards buying a home. It lets you know 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 purchase a home in today’s market.
Think Twice Before Waiting for 3% Mortgage Rates
Last year, the Federal Reserve took action to try to bring down inflation. In response to those efforts, mortgage rates jumped up rapidly from the record lows we saw in 2021, peaking at just over 7% last October. Hopeful buyers experienced a hit to their purchasing power as a result, and some decided to press pause on their plans.
Today, the rate of inflation is starting to drop. And as a result, mortgage rates have dipped below last year’s peak. Sam Khater, Chief Economist at Freddie Mac, shares:
“While mortgage market activity has significantly shrunk over the last year, inflationary pressures are easing and should lead to lower mortgage rates in 2023.”
That’s potentially great news if you’re a buyer aiming to jump back into the housing market. Any drop in mortgage rates helps boost your purchasing power by bringing down your expected monthly mortgage payment. This means the lower mortgage rates experts forecast this year could be just what you need to reignite your homebuying goals.
While this opens up a window of opportunity for you, remember: you shouldn’t expect rates to drop back down to record lows like we saw in 2021. Experts agree that’s not the range buyers should bank on. Greg McBride, Chief Financial Analyst at Bankrate, explains:
“I think we could be surprised at how much mortgage rates pull back this year. But we’re not going back to 3 percent anytime soon, because inflation is not going back to 2 percent anytime soon.”
It’s important to have a realistic vision for what you can expect this year, and that’s where the advice of expert real estate advisors is critical. You may be surprised by the impact even a mild drop in mortgage rates has on your budget. If you’re ready to buy a home now, today’s market presents the opportunity to get a more affordable mortgage rate, find your dream home, and face less competition from other buyers.
Bottom Line
The recent pullback in mortgage rates is great news – but if you’re ready to buy now, holding out for 3% is a mistake. Work with a local lender to learn how today’s rates impact your goals, and let’s connect to explore your options in our area.
Applying For a Mortgage? Here’s What You Should Avoid Once You Do.
While it’s exciting to start thinking about moving in and decorating after you’ve applied for your mortgage, there are some key things to keep in mind before you close. Here’s a list of 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 Cosign Loans for Anyone
When you cosign 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 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.
Do Discuss Changes with Your Lender
Be upfront about any changes that occur or you’re expecting to occur 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 major life changes, be sure to consult your lender – someone who’s qualified to explain how your financial decisions may impact your home loan.
Mortgage Rates Are Dropping. What Does That Mean for You?
Mortgage rates have been a hot topic in the housing market over the past 12 months. Compared to the beginning of 2022, rates have risen dramatically. Now they’re dropping, and that has to do with everything happening in the economy.
Nadia Evangelou, Senior Economist and Director of Forecasting at the National Association of Realtors (NAR), explains it well by saying:
“Mortgage rates dropped even further this week as two main factors affecting today’s mortgage market became more favorable. Inflation continued to ease while the Federal Reserve switched to a smaller interest rate hike. As a result, according to Freddie Mac, the 30-year fixed mortgage rate fell to 6.31% from 6.33% the previous week.”
So, what does that mean for your homeownership plans? As mortgage rates fluctuate, they impact your purchasing power by influencing the cost of buying a home. Even a small dip can help boost your purchasing power. Here’s how it works.
The median-priced home according to the National Association of Realtors (NAR) is $379,100. So, let’s assume you want to buy a $400,000 home. If you’re trying to shop at that price point and keep your monthly payment about $2,500-2,600 or below, here’s how your purchasing power can change as mortgage rates move up or down (see chart below). The red shows payments above that threshold and the green indicates a payment within your target range.
This goes to show, even a small quarter-point change in mortgage rates can impact your monthly mortgage payment. That’s why it’s important to work with a trusted real estate professional who follows what the experts are projecting for mortgage rates for the days, months, and year ahead.
Bottom Line
Mortgage rates are likely to fluctuate depending on what happens with inflation moving forward, but they have dropped slightly in recent weeks. If a 7% rate was too high for you, it may be time to contact a lender to see if the current rate is more in line with your goal for a monthly housing expense.
Mortgage Rates Will Come Down, It’s Just a Matter of Time
This past year, rising mortgage rates have slowed the red-hot housing market. Over the past nine months, we’ve seen fewer homes sold than the previous month as home price growth has slowed. All of this is due to the fact that the average 30-year fixed mortgage rate has doubled this year, severely limiting homebuying power for consumers. And, this month, the average rate for financing a home briefly rose over 7% before coming back down into the high 6% range. But we’re starting to see a hint of what mortgage interest rates could look like next year.
Inflation Is the Enemy of Long-Term Interest Rates
As long as inflation is high, we’ll see higher mortgage rates. Over the past couple of weeks, we’ve seen indications that inflation may be cooling, giving us a glimpse into what may happen in the future. The mortgage market is eagerly awaiting positive news on inflation. As Ali Wolf, Chief Economist at Zonda, says:
“The housing market is expected to face continued uncertainty heading into 2023 as consumers, financial markets, and policymakers work through their respective challenges in today’s economy. . . . we are watching for any additional stability in the MBS market, signs of cooling inflation, and/or less aggressive Federal Reserve action to give us confidence that mortgage rates are past their peak.”
What Does This Mean for the Future of Mortgage Rates?
As we get through the inflation battle and start to see that coming down, we should expect mortgage rates to follow. We’ve seen nods of this over the past couple of weeks. As the Federal Reserve works to bring inflation down, mortgage rates will come down as well. Bill McBride from Calculated Risk says:
“My current view is inflation will ease quicker than the Fed currently expects.”
As we look toward next year, we certainly hope he’s right.
Bottom Line
Mortgage rates will come down – it’s just a matter of time. The hope is we continue to see more positive news on inflation, and that’ll bring mortgage rates down. This will give prospective homebuyers more buying power and lead to more homeowners throughout the country.
What’s Ahead for Mortgage Rates and Home Prices?
Now that the end of 2022 is within sight, you may be wondering what’s going to happen in the housing market next year and what that may mean if you’re thinking about buying a home. Here’s a look at the latest expert insights on both mortgage rates and home prices so you can make your best move possible.
Mortgage Rates Will Continue To Respond to Inflation
There’s no doubt mortgage rates have skyrocketed this year as the market responded to high inflation. The increases we’ve seen were fast and dramatic, and the average 30-year fixed mortgage rate even surpassed 7% at the end of last month. In fact, it’s the first time they’ve risen this high in over 20 years (see graph below):
In their latest quarterly report, Freddie Mac explains just how fast the climb in rates has been:
“Just one year ago, rates were under 3%. This means that while mortgage rates are not as high as they were in the 80’s, they have more than doubled in the past year. Mortgage rates have never doubled in a year before.”
Because we’re in unprecedented territory, it’s hard to say with certainty where mortgage rates will go from here. Projecting the future of mortgage rates is far from an exact science, but experts do agree that, moving forward, mortgage rates will continue to respond to inflation. If inflation stays high, mortgage rates likely will too.
Home Price Changes Will Vary by Market
As buyer demand has eased this year in response to those higher mortgage rates, home prices have moderated in many markets too. In terms of the forecast for next year, expert projections are mixed. The general consensus is home price appreciation will vary by local market, with more significant changes happening in overheated areas. As Mark Fleming, Chief Economist at First American, says:
“House price appreciation has slowed in all 50 markets we track, but the deceleration is generally more dramatic in areas that experienced the strongest peak appreciation rates.”
Basically, some areas may still see slight price growth while others may see slight price declines. It all depends on other factors at play in that local market, like the balance between supply and demand. This may be why experts are divided on their latest national forecasts (see graph below):
Bottom Line
If you want to know what’s happening with home prices or mortgage rates, let’s connect so you have the latest on what experts are saying and what that means for our area.