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The Cost of a Home Is Far More Important than the Price

The Cost of a Home Is Far More Important than the Price | Simplifying The Market

Housing inventory is at an all-time low. There are 39% fewer homes for sale today than at this time last year, and buyer demand continues to set records. Zillow recently reported:

“Newly pending sales are up 25.5% compared to the same week last year, the highest year-over-year increase in the weekly Zillow database.”

Whenever there is a shortage in supply of an item that’s in high demand, the price of that item increases. That’s exactly what’s happening in the real estate market right now. CoreLogic’s latest Home Price Index reports that values have increased by 5.5% over the last year.

This is great news if you’re planning to sell your house; on the other hand, as either a first-time or repeat buyer, this may instead seem like troubling news. However, purchasers should realize that the price of a house is not as important as the cost. Let’s break it down.

There are several factors that influence the cost of a home. The two major ones are the price of the home and the interest rate at which a buyer can borrow the funds necessary to purchase the home.

Last week, Freddie Mac announced that the average interest rate for a 30-year fixed-rate mortgage was 2.87%. At this time last year, the rate was 3.73%. Let’s use an example to see how that difference impacts the true cost of a home.

Assume you purchased a home last year and took out a $250,000 mortgage. As mentioned above, home values have increased by 5.5% over the last year. To buy that same home this year, you would need to take out a mortgage of $263,750.

How will your monthly mortgage payment change based on today’s lower mortgage rate?

This table calculates the difference in your monthly payment:The Cost of a Home Is Far More Important than the Price | Simplifying The MarketThat’s a savings of $61 monthly, which adds up to $732 annually and $21,960 over the life of the loan.

Bottom Line

Even though home values have appreciated, it’s a great time to buy a home because mortgage rates are at historic lows.

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How Low Inventory May Impact the Housing Market This Fall

How Low Inventory May Impact the Housing Market This Fall | Simplifying The Market

Real estate continues to be called the ‘bright spot’ in the current economy, but there’s one thing that may hold the housing market back from achieving its full potential this year: the lack of homes for sale.

Buyers are actively searching for and purchasing homes, looking to capitalize on today’s historically low interest rates, but there just aren’t enough houses for sale to meet that growing need. Sam Khater, Chief Economist at Freddie Mac, explains:

Mortgage rates have hit another record low due to a late summer slowdown in the economic recovery…These low rates have ignited robust purchase demand activity…However, heading into the fall it will be difficult to sustain the growth momentum in purchases because the lack of supply is already exhibiting a constraint on sales activity.”

According to the National Association of Realtors (NAR), right now, unsold inventory sits at a 3.1-month supply at the current sales pace. To have a balanced market where there are enough homes for sale to meet buyer demand, the market needs inventory for 6 months. Today, we’re nowhere near where that number needs to be. If the trend continues, it will get even harder to find homes to purchase this fall, and that may slow down potential buyers. Danielle Hale, Chief Economist at realtor.com, notes:

“The overall lack of sustained new listings growth could put a dent in fall home sales despite high interest from home shoppers, because new listings are key to home sales.”

The realtor.com Weekly Recovery Report keeps an eye on the number of listings coming into the market (houses available for sale) and the total number of listings staying in the market compared to the previous year (See graph below):How Low Inventory May Impact the Housing Market This Fall | Simplifying The MarketBuyers are clearly scooping up homes faster than they’re being put up for sale. The number of total listings (the orange line) continues to decline even as new listings (the blue line) are coming to the market. Why? Javier Vivas, Director of Economic Research at realtor.com, notes:

“The post-pandemic period has brought a record number of homebuyers back into the market, but it’s also failed to bring a consistent number of sellers back. Homes are selling faster, and sales are still on an upward trend, but rapidly disappearing inventory also means more home shoppers are being priced out. If we don’t see material improvement to supply in the next few weeks, we could see the number of transactions begin to dwindle again even as the lineup of buyers continues to grow.”

Does this mean it’s a good time to sell?

Yes. If you’re thinking about selling your house, this fall is a great time to make it happen. There are plenty of buyers looking for homes to purchase because they want to take advantage of low interest rates. Realtors are also reporting an average of 3 offers per house and an increase in bidding wars, meaning the demand is there and the opportunity to sell for the most favorable terms is in your favor as a seller.

Bottom Line

If you’re considering selling your house, this is the perfect time to connect so we can talk about how you can benefit from the market trends in our local area.

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Is Now a Good Time to Move?

Is Now a Good Time to Move? | Simplifying The Market

How long have you lived in your current home? If it’s been a while, you may be thinking about moving. According to the latest Profile of Home Buyers and Sellers by the National Association of Realtors (NAR), in 2019, homeowners were living in their homes for an average of 10 years. That’s a long time to time to be in one place, considering the average length of time homeowners used to stay put hovered closer to 6 years.

With today’s changing homebuyer needs, especially given how the current health crisis has altered our daily lifestyles, many homeowners are reconsidering where they’re at and thinking about moving to a home with more space for their families. Here’s why it might be a great time to make that happen.

The real estate market has changed in many ways over the past 10 years, and current homeowners are earning much more equity today than they used to have. According to CoreLogic, in the first quarter of 2020 alone, the average homeowner gained approximately $9,600 in equity. If you’re considering selling your house right now, you may have accumulated more equity to put toward a move than you realize.

Dialing back 10 years, many homeowners also locked in a fairly low mortgage rate. In 2010, the average rate was only 4.09%. This motivated homeowners to stay in their houses longer than usual to keep their rate low, rather than moving. Just last Thursday, however, average mortgage rates hit a new historic low at 2.86%. Sam Khater, Chief Economist at Freddie Mac explains:

Mortgage rates have hit another record low due to a late summer slowdown in the economic recovery…These low rates have ignited robust purchase demand activity, which is up twenty-five percent from a year ago and has been growing at double digit rates for four consecutive months.”

Ten years ago, we couldn’t have imagined a mortgage rate under 3%. Looking at the math today, making a move into a new home and locking in a significantly lower rate than you have now could save you greatly on a monthly basis, and over the life of your loan (See chart below):Is Now a Good Time to Move? | Simplifying The MarketAs the example shows, you can save a substantial amount every month if you qualify for today’s low mortgage rate, and the savings can really add up over the life of a 30-year fixed-rate loan.

Bottom Line

As a homeowner, you have a huge opportunity to move up right now. Whether you want to save more each month or get more home for your money based on your family’s changing needs, it’s a great time to connect to discuss the market in our area. Buyers are actively looking for more homes to buy, and you can win big by making a move if the time is right for you.

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Have You Ever Seen a Housing Market Like This?

Have You Ever Seen a Housing Market Like This? | Simplifying The Market

The year 2020 will certainly be one to remember, with new realities and norms that changed the way we live. This year’s real estate market is certainly no exception to that shift, with historic highlights continuing to break records and challenge what many thought possible in the housing market. Here’s a look at four key areas that are fundamentally defining the market this year.

Housing Market Recovery

The economy was intentionally put on pause this spring in response to the COVID-19 health crisis. Many aspects of the common real estate transaction were placed on hold at the same time. Thankfully, technology and innovation helped the industry power forward, and business gradually ramped back up as shelter-in-place orders were lifted.

The result? Total transformation of the market from rock-bottom lows to exceptional highs. Today, the housing recovery is being called truly remarkable by many experts and is far exceeding expectations. From pending home sales to purchase applications, buyers are back in business and homes are selling – fast.

According to the Housing Market Recovery Index by realtor.com, the market has surpassed pre-pandemic levels, and has regained the strength we remember from February of this year (See graph below):Have You Ever Seen a Housing Market Like This? | Simplifying The Market

Record-Breaking Mortgage Rates

Historically low mortgage rates are another 2020 game-changer. Today’s low rate is one of the big motivating factors bringing buyers back into the market. The average rate reached an all-time low on multiple occasions this year, and it continues to hover in record-low territory.

When rates are this low, buyers have a huge opportunity to get more for their money when purchasing a home, something many are eager to find while continuing to spend more time than expected at home this year, and likely beyond.

Continued Home Price Appreciation

One of the key drivers of home price appreciation this year is historically low inventory. Inventory was low going into the pandemic, and it is still sitting well below the level needed for a normal market. Although sellers are slowly making their way back into the game, buyers are scooping up homes faster than they’re coming up for sale.

This is a classic supply and demand scenario, forcing home prices to rise. Selling something when there is a higher demand for what is available naturally bumps up the price. If you’re ready to sell your house today, this may be the optimal time to make your move. As Bill Banfield, EVP of Capital Markets at Quicken Loans, notes:

“The pandemic has not stopped the consistent home price growth we have witnessed in recent years.” 

Increasing Affordability

Even as home prices continue to rise, affordability is working in favor of today’s homebuyers. According to many experts, rates this low are off-setting rising home prices, which increases buyer purchasing power – an opportunity not to be missed, especially if your family’s needs have changed. If you now need space for a home office, gym, virtual classroom, and more, it may be time to reconsider your current house.

According to Mortgage News Daily:

“Those shopping for a home can afford 10 percent more home than they could have one year ago while keeping their monthly payment unchanged. This translates into nearly $32,000 more buying power.

Bottom Line

With mortgage rates hitting historic lows, home prices appreciating, affordability rising, and the market recovering like no other, 2020 has been quite a year for real estate – perhaps one we’ve never seen before and may never see again. Let’s connect today if you’re ready to take advantage of this year’s record-breaking opportunities.

 

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It’s Not Just About the Price of the Home

It’s Not Just About the Price of the Home | Simplifying The Market

When most of us begin searching for a home, we naturally start by looking at the price. It’s important, however, to closely consider what else impacts the purchase. It’s not just the price of the house that matters, but the overall cost in the long run. Today, that’s largely impacted by low mortgage rates. Low rates are actually making homes more affordable now than at any time since 2016, and here’s why.

Today’s low rates are off-setting rising home prices because it’s less expensive to borrow money. In essence, purchasing a home while mortgage rates are this low may save you significantly over the life of your home loan.

Taking a look at the graph below with data sourced from the National Association of Realtors (NAR), the higher the bars rise, the more affordable homes are. The orange bars represent the period of time when homes were most affordable, but that’s also reflective of when the housing bubble burst. At that time, distressed properties, like foreclosures and short sales, dominated the market. That’s a drastically different environment than what we have in the housing market now.

The green bar represents today’s market. It shows that homes truly are more affordable than they have been in years, and much more so than they were in the normal market that led up to the housing crash. Low mortgage rates are a big differentiator driving this affordability.It’s Not Just About the Price of the Home | Simplifying The Market

What are the experts saying about affordability?

Experts agree that this unique moment in time is making homes incredibly affordable for buyers.

Lawrence Yun, Chief Economist, NAR:

“Although housing prices have consistently moved higher, when the favorable mortgage rates are factored in, an overall home purchase was more affordable in 2020’s second quarter compared to one year ago.”

Bill Banfield, EVP of Capital Markets, Quicken Loans:

“No matter what you’re looking for, this is a great time to buy since the current low interest rates can stretch your spending power.

Mortgage News Daily:

“Those shopping for a home can afford 10 percent more home than they could have one year ago while keeping their monthly payment unchanged. This translates into nearly $32,000 more buying power. 

Forbes:

Homeowners are the clear winners. Low mortgage rates mean the cost of owning is at historically low levels and who gains all the benefits of strong house price appreciation? Homeowners.”

Bottom Line

When purchasing a home, it’s important to think about the overall cost, not just the price of the house. Homes on your wish list may be more affordable today than you think. Let’s connect to discuss how affordability plays a role in our local market, and your long-term homeownership goals.

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Should You Buy an Existing Home or New Construction?

Should You Buy an Existing Home or New Construction? | Simplifying The Market

Finding the right home to purchase today is one of the biggest challenges for potential buyers. With so few homes for sale and construction of newly built homes ramping up, you may be wondering if you should consider new construction in your search process. It’s a great question to ask, and one to look at from the pros and cons of what it means to buy a new home versus an existing one. Here are a few things to consider when making the best decision for your family.

New Construction  

When buying a new home, you can often choose more energy-efficient options. New appliances, new windows, a new roof, etc. These can all help lower your energy costs, which can add up to significant savings over time. With programs like ENERGY STAR, your home also helps protect the environment and reduces your carbon footprint.

Lower maintenance that comes with a newer home is another great benefit. When you have a new home, you likely won’t have as many little repairs to tackle, like leaky faucets, shutters to paint, and other odd jobs around the house. With new construction, you’ll also have warranty options that may cover portions of your investment for the first few years.

Another solid benefit to new construction is customization. Do you want a mudroom, stainless steel appliances, granite countertops, hardwood floors, an office, or a multipurpose room to homeschool your children? These items can be customized to your specific needs during the design phase. With an existing home, you’re buying something that’s already completed, so if you want to make changes, you may need to hire a contractor to help get your home ready for your family.

Existing Home

When buying an existing home, you can negotiate with the current homeowner on price, which is something you generally don’t get to do with a builder. Builders know their material and construction costs, and they have a price set for the model you’re buying. So, if you want to negotiate, then maybe an existing home will be best.

For many families, having an established neighborhood is also important. Some buyers like to know the neighbors, if it’s family-friendly, and traffic patterns before making a commitment. When you buy new construction, you won’t have a full view of some of those details until the lots around you are sold.

Finally, timing comes into play. With an existing home, you can move in based on the timeline you agree to with the sellers. With new construction, you need to wait for the house to be built. Depending on the time of the year you’re buying and the region you’re in, the weather can also be a factor in the timeframe. This is something really important to keep in mind, especially if you need to move sooner rather than later. Over the past few months with COVID-19 and social distancing regulations, some areas for new construction have been delayed.

Bottom Line

Whether you want to buy a newly built home or one that’s already established, both are great options. They each have their pros and cons, and every family will have different circumstances driving their decision. If you have questions and want to know more about the options in our area, let’s connect today so you can feel confident making a decision about your next home.

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Homes Are More Affordable Right Now Than They Have Been in Years

Homes Are More Affordable Right Now Than They Have Been in Years | Simplifying The Market

Today, home prices are appreciating. When we hear prices are going up, it’s normal to think a home will cost more as the trend continues. The way the housing market is positioned today, however, low mortgage rates are actually making homes more affordable, even as prices rise. Here’s why.

According to the Mortgage Monitor Report from Black Knight:

“While home prices have risen for 97 consecutive months, July’s record-low mortgage rates have made purchasing the average-priced home the most affordable it’s been since 2016.

How is that possible?

Black Knight continues to explain:

“As of mid-July, it required 19.8% of the median monthly income to make the mortgage payment on the average-priced home purchase, assuming a 20% down payment and a 30-year mortgage. That was more than 5% below the average of 25% from 1995-2003.

This means it currently requires a $1,071 monthly payment to purchase the average-priced home, which is down 6% from the same time last year, despite the average home increasing in value by more than $12,000 during that same time period.

In fact, buying power is now up 10% year-over-year, meaning the average home buyer can afford nearly $32,000 more home than they could at the same time last year, while keeping their monthly payment the same.”

This is great news for the many buyers who were unable to purchase last year, or earlier in the spring due to the slowdown from the pandemic. By waiting a little longer, they can now afford 10% more home than they could have a year ago while keeping their monthly mortgage payment unchanged.

With mortgage rates hitting all-time lows eight times this year, it’s now less expensive to borrow money, making homes significantly more affordable over the lifetime of your loan. Mark Fleming, Chief Economist at First American, shares what low mortgage rates mean for affordability:

“In July, house-buying power got a big boost as the 30-year, fixed mortgage rate made history by moving below three percent. That drop in the mortgage rate from 3.23 percent in May to 2.98 percent in July increased house-buying power by nearly $15,000.”

The map below shows the last time homes were this affordable by state:Homes Are More Affordable Right Now Than They Have Been in Years | Simplifying The MarketIn six states – Arkansas, Iowa, Kentucky, Louisiana, Maryland, and West Virginia – homes have not been this affordable in more than 25 years.

Bottom Line

If you’re thinking of making a move, now is a great time to take advantage of the affordability that comes with such low mortgage rates. Whether you’re thinking of purchasing your first home or moving into a new one and securing a significantly lower mortgage rate than you may have on your current house, let’s connect today to determine your next steps in the process.

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Current Buyer & Seller Perks in the Housing Market

Current Buyer & Seller Perks in the Housing Market | Simplifying The Market

Today’s housing market is making a truly impressive turnaround, and it’s also setting up some outstanding opportunities for buyers and sellers. Whether you’re thinking of buying or selling a home this year, there are perks today that are rarely available, and definitely worth looking into. Here are the top two.

The Biggest Perk for Buyers: Low Mortgage Rates

The most impressive buyer incentive today is the average mortgage interest rate. Just last week, mortgage rates hit an all-time low for the eighth time this year. The 30-year fixed-rate is now averaging 2.88%, the lowest rate in the survey’s history, which dates back to 1971 (See graph below):Current Buyer & Seller Perks in the Housing Market | Simplifying The MarketThis is a huge advantage for buyers. To put it in perspective, it means that today you can get a lower rate than any of the past two generations of homebuyers in your family if you decide to purchase at this time.

In addition, the National Mortgage News notes how today’s buyers have increasing purchasing power due to these low mortgage rates:

“Purchasing power rose 10% year-over-year…With interest rates hitting record lows, buyers were able to afford $32,000 “more house” as of July 23 than they could the year before with the same monthly payment.”

This is a great perk for buyers who are hoping to potentially get more for their money in a home, something many are considering today as they re-evaluate the amount of space they ideally need for their families. It is an opportunity not seen in 50 years, and one not to be missed if the time is right for you to buy a home.

The Biggest Perk for Sellers: Low Inventory

Today, there are simply not enough houses on the market for the number of buyers looking to purchase them. According to the National Association of Realtors (NAR):

“Total housing inventory at the end of June totaled 1.57 million units, up 1.3% from May, but still down 18.2% from one year ago (1.92 million).”

The red bars in the graph below indicate that the inventory of homes coming into the market continues to decline. It was low as we entered the pandemic and has reduced even further this year. Houses today are selling faster than they’re being listed, and that’s creating an even greater supply shortage (See graph below): Current Buyer & Seller Perks in the Housing Market | Simplifying The MarketThe lack of inventory has been a challenging situation for a while now, and with low mortgage rates fueling buyer demand, inventory is even harder for buyers to find today. Buyers are eager to purchase, and because of the shortage of homes available, they’re encountering more bidding wars. This is one of the factors keeping home prices strong, an advantage for sellers. Lawrence Yun, Chief Economist for NAR notes that this trend may continue, too:

“Home prices rose during the lockdown and could rise even further due to heavy buyer competition and a significant shortage of supply.”

With low inventory and high buyer demand, homeowners can potentially earn an increasing profit on their houses and sell them quickly in this sizzling summer market.

Bottom Line

Whether you’re thinking about buying or selling at home, there are some key perks available right now. Let’s connect today to discuss how they may play to your advantage in our local market.

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Why Homeowners Have Great Selling Power Today

Why Homeowners Have Great Selling Power Today | Simplifying The Market

We’re sitting in an optimal moment in time for homeowners who are ready to sell their houses and make a move this year. Today’s homeowners are, on average, staying in their homes longer than they used to, and this is one factor driving increased homeowner equity. When equity grows, selling a house becomes increasingly desirable. Here’s a breakdown of why it’s a great time to capitalize on equity gain in today’s market.

As average homeowner tenure lengthens and home prices rise, equity, a form of forced savings, can be applied forward to the purchase of a new home. CoreLogic explains:

“Over the past 10 years, the equity position of homeowners has positively changed as a result of more than eight years of rising home prices. As the economy climbed out of the recession in the first quarter of 2010, 25.9% or 12.1 million homes were still underwater, compared to the first quarter of 2020 when the negative equity share was at 3.4%, or 1.8 million properties. Borrowers have seen an aggregate increase of $6.2 trillion in home equity since the first quarter of 2010 and the average homeowner has gained about $106,100 in equity.”

Increasing equity is enabling many homeowners who are ready to sell their current houses today to sell for an increased profit, and then reinvest their earnings in a new home. According to the Q2 2020 U.S. Home Sales Report from ATTOM Data Solutions, in the second quarter of 2020:

Home sellers nationwide realized a gain of $75,971 on the typical sale, up from the $66,500 in the first quarter of 2020 and from $65,250 in the second quarter of last year. The latest figure, based on median purchase and resale prices, marked yet another peak level of raw profits in the United States since the housing market began recovering from the Great Recession in 2012.”

If you’ve been taking a closer look at your house recently and are thinking it might be time for you to make a move, determining your equity position is a great place to start. Understanding how much equity you’ve earned over time can be a key factor in helping you realize the potential profits in your real estate investment and move toward your next homeownership goal.

Bottom Line

With average home sale profits growing, it’s a great time to leverage your equity and make a move, especially while the inventory of houses for sale and mortgage rates are historically low. If you’re considering selling your house, let’s connect today so you can better understand your home equity position and take one step closer to the home of your dreams.

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What Are Experts Saying about Home Prices?

What Are Experts Saying about Home Prices? | Simplifying The Market

Last week, a very well-respected real estate analytics firm surprised many with their home price projection for the next twelve months. CoreLogic, in their latest Home Price Index said:

“The economic downturn that started in March 2020 is predicted to cause a 6.6% drop in the HPI by May 2021, which would be the first decrease in annual home prices in over 9 years.”

The forecast was surprising as it was strikingly different than any other projection by major analysts. Six of the other eight forecasts call for appreciation, and the two who project depreciation indicate it will be one percent or less.

Here is a graph showing all of the projections:What Are Experts Saying about Home Prices? | Simplifying The MarketThere’s a simple formula to determine the future price of any item: calculate the supply of that item in ratio to the demand for that item. In housing right now, demand far exceeds supply. Last week mortgage applications to buy a home were 33% higher than they were at the same time last year. The available inventory of homes for sale is 31% lower than it was last year. Normally, these numbers should call for homes to continue to appreciate.

Bottom Line

Because of the uncertainty with the pandemic, any economic prediction is extremely difficult. However, looking at the limited supply of homes for sale and the tremendous demand for housing, it is difficult to disagree with the majority of analysts who are calling for price appreciation.

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