How Much Leverage Do Today’s House Sellers Have?

How Much Leverage Do Today's House Sellers Have? | Simplifying The Market

The housing market has been scorching hot over the last twelve months. Buyers and their high demand have far outnumbered sellers and a short supply of houses. According to the latest Existing Home Sales Report from the National Association of Realtors (NAR), sales are up 23.7% from the same time last year while the inventory of homes available for sale is down 25.7%. There are 360,000 fewer single-family homes for sale today than there were at this time last year. This increase in demand coupled with such limited supply is leading to more bidding wars throughout the country.

Rose Quint, Assistant Vice President for Survey Research with the National Association of Home Builders (NAHB), recently reported:

“The number one reason long-time searchers haven’t made a home purchase is not because of their inability to find an affordably-priced home, but because they continue to get outbid by other offers.”

A survey in the NAHB report showed that 40% of buyers have been outbid for a home they wanted to purchase. This is more than twice the percentage in 2019, which was 19%.

What does this mean for sellers today?

It means sellers have tremendous leverage when negotiating with buyers.

In negotiations, leverage is the power that one side may have to influence the other side while moving closer to their negotiating position. A party’s leverage is based on its ability to award benefits or eliminate costs on the other side.

In today’s market, a buyer wants three things:

  1. To buy a home
  2. To buy now before prices continue to appreciate
  3. To buy now and take advantage of historically low mortgage rates while they last

These three buyer needs give the homeowner tremendous leverage when selling their house. Most realize this leverage enables the seller to sell at a good price. However, there may be another need the seller has that can be satisfied by using this leverage.

Here’s an example:

Odeta Kushi, Deputy Chief Economist at First American, recently identified a situation in which many sellers are finding themselves today:

“As mortgage rates are expected to remain near 3%, millennials continue to form households and more existing homeowners tap their equity for the purchase of a better home…Many homeowners may want to upgrade, but do not for fear that they will be unable to find a home to buy.”

She then offers a possible solution:

“While the fear of not being able to find something to buy will not disappear in a limited supply environment, new housing supply can incentivize existing homeowners to move.”

There’s no doubt many sellers would love to build a new home to perfectly fit their changing wants and needs. However, most builders require that they sell their house first. If the seller sells their home, where would they live while their new home is being constructed?

Going back to the concept of leverage:

As mentioned, buyers have compelling reasons to purchase a home now, and many homeowners have challenges to address if they want to sell. Perhaps they can make a deal to satisfy each party’s needs. But how?

The seller may decide to sell their home to the buyer at today’s price, which will enable the purchaser to take advantage of current mortgage rates. In return, the buyer might lease the house back to the seller for a pre-determined length of time while the seller’s new home is being built. A true win-win negotiation.

Not every buyer will agree to such a deal – but you only need one.

That’s just one example of how a seller might be able to overcome a challenge because of the leverage they have in today’s market. Maybe you feel a need to make certain repairs before selling. Perhaps you need time to get permits or approvals for certain upgrades you made to the house. Whatever the challenge, you may be able to work it out.

Bottom Line

If you’re considering selling your house now but worry a huge obstacle stands in your way, let’s connect. Maybe with the leverage you currently have, you can negotiate a deal that will allow you to make the move of your dreams.

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The Reason Mortgage Rates Are Projected to Increase and What It Means for You

The Reason Mortgage Rates Are Projected to Increase and What It Means for You | Simplifying The Market

We’re currently experiencing historically low mortgage rates. Over the last fifty years, the average on a Freddie Mac 30-year fixed-rate mortgage has been 7.76%. Today, that rate is 2.81%. Flocks of homebuyers have been taking advantage of these remarkably low rates over the last twelve months. However, there’s no guarantee rates will remain this low much longer.

Whenever we try to forecast mortgage rates, we should consider the advice of Mark Fleming, Chief Economist at First American:

“You know, the fallacy of economic forecasting is don’t ever try and forecast interest rates and/or, more specifically, if you’re a real estate economist mortgage rates, because you will always invariably be wrong.”

Many things impact mortgage rates. The economy, inflation, and Fed policy, just to name a few. That makes forecasting rates difficult. However, there’s one metric that has held up over the last fifty years – the relationship between mortgage rates and the 10-year treasury rate. Here’s a graph detailing this relationship since Freddie Mac started keeping mortgage rate records in 1972:The Reason Mortgage Rates Are Projected to Increase and What It Means for You | Simplifying The MarketThere’s no denying the close relationship between the two. Over the last five decades, there’s been an average 1.7-point spread between these two rates. It’s this long-term relationship that has some forecasters projecting an increase in mortgage rates as we move throughout the year. This is based on the recent surge in the 10-year treasury rate shown here:The Reason Mortgage Rates Are Projected to Increase and What It Means for You | Simplifying The MarketThe spread between the two is now 1.53, indicating mortgage rates could rise. Actually, a bump-up in rate has already begun. As Joel Kan, Associate VP of Economic Forecasting for the Mortgage Bankers Association, reveals:

“Expectations of faster economic growth and inflation continue to push Treasury yields & mortgage rates higher. Since hitting a survey low in December, the 30-year fixed rate has slowly risen, & last week climbed to its highest level since Nov 2020.”

How high might they go in 2021?

No one knows for sure. Sam Khater, Chief Economist for Freddie Mac, recently suggested:

“While there are multiple temporary factors driving up rates, the underlying economic fundamentals point to rates remaining in the low 3% range for the year.”

What does this mean for you?

Whether you’re a first-time buyer or you’ve purchased a home before, even an increase of half a point in mortgage rate (2.81 to 3.31%) makes a big difference. On a $300,000 mortgage, that difference (including principal and interest) is $82 a month, $984 a year, or a total of $29,520 over the life of the home loan.

Bottom Line

Based on the 50-year symbiotic relationship between treasury rates and mortgage rates, it appears mortgage rates could be headed up this year. It may make sense to buy now rather than wait.

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Where Have All the Houses Gone?

Where Have All the Houses Gone? | Simplifying The Market

In today’s housing market, it seems harder than ever to find a home to buy. Before the health crisis hit us a year ago, there was already a shortage of homes for sale. When many homeowners delayed their plans to sell at the same time that more buyers aimed to take advantage of record-low mortgage rates and purchase a home, housing inventory dropped even further. Experts consider this to be the biggest challenge facing an otherwise hot market while buyers continue to compete for homes. As Danielle Hale, Chief Economist at realtor.com, explains:

“With buyers active in the market and seller participation lagging, homes are selling quickly and the total number available for sale at any point in time continues to drop lower. In January as a whole, the number of for sale homes dropped below 600,000.”

Every month, realtor.com releases new data showing the year-over-year change in inventory of existing homes for sale. As you can see in the map below, nationwide, inventory is 42.6% lower than it was at this time last year:Where Have All the Houses Gone? | Simplifying The Market

Does this mean houses aren’t being put on the market for sale?

Not exactly. While there are fewer existing homes being listed right now, many homes are simply selling faster than they’re being counted as current inventory. The market is that competitive! It’s like when everyone was trying to find toilet paper to buy last spring and it was flying off the shelves faster than it could be stocked in the stores. That’s what’s happening in the housing market: homes are being listed for sale, but not at a rate that can keep up with heavy demand from competitive buyers.

In the same realtor.com report, Hale explains:

Time on the market was 10 days faster than last year meaning that buyers still have to make decisions quickly in order to be successful. Today’s buyers have many tools to help them do that, including the ability to be notified as soon as homes meeting their search criteria hit the market. By tailoring search and notifications to the homes that are a solid match, buyers can act quickly and compete successfully in this faster-paced housing market.”

The Good News for Homeowners

The health crisis has been a major reason why potential sellers have held off this long, but as vaccines become more widely available, homeowners will start making their moves. Ali Wolf, Chief Economist at Zonda, confirms:

“Some people will feel comfortable listing their home during the first half of 2021. Others will want to wait until the vaccines are widely distributed.”

With more homeowners getting ready to sell later this year, putting your house on the market sooner rather than later is the best way to make sure your listing shines brighter than the rest.

When you’re ready to sell your house, you’ll likely want it to sell as quickly as possible, for the best price, and with little to no hassle. If you’re looking for these selling conditions, you’ll find them in today’s market. When demand is high and inventory is low, sellers have the ability to create optimal terms and timelines for the sale, making now an exceptional time to move.

Bottom Line

Today’s housing market is a big win for sellers, but these conditions won’t last forever. If you’re in a position to sell your house now, you may not want to wait for your neighbors to do the same. Let’s connect to discuss how to sell your house safely so you’re able to benefit from today’s high demand and low inventory.

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Home Mortgage Rates by Decade [INFOGRAPHIC]

Home Mortgage Rates by Decade [INFOGRAPHIC] | Simplifying The Market

Home Mortgage Rates by Decade [INFOGRAPHIC] | Simplifying The Market

Some Highlights

  • Mortgage interest rates have dropped considerably over the past year, and compared to what we’ve seen in recent decades, it’s a great time to buy a home.
  • Locking in a low rate today could save you thousands of dollars over the lifetime of your home loan, but these low rates may not last forever.
  • If you’re in a position to buy a home, let’s connect to determine your best move in today’s housing market while interest rates are still in your favor.
Content previously posted on Keeping Current Matters

Will Low Mortgage Rates Continue through 2021?

Will Low Mortgage Rates Continue through 2021? | Simplifying The Market

With mortgage interest rates hitting record lows so many times recently, some are wondering if we’ll see low rates continue throughout 2021, or if they’ll start to rise. Recently, Freddie Mac released their quarterly forecast, noting:

“The average 30-year fixed-rate mortgage hit a record low over a dozen times in 2020 and the low interest rate environment is projected to continue through this year. We expect interest rates to average below 3% through the end of 2021. While this is a modest rise from 2020 averages, the recent vote by the Federal Reserve to keep interest rates anchored near zero should keep rates low.”

As shown in the graph below, Freddie Mac is projecting low rates going forward with a modest rise that’s expected to continue through 2022.Will Low Mortgage Rates Continue through 2021? | Simplifying The MarketFreddie Mac isn’t the only authority forecasting low rates with a slight rise. Fannie Mae, The Mortgage Bankers Association (MBA), and the National Association of Realtors (NAR) also anticipate low rates with a small increase as 2021 continues on. Here’s the quarterly breakdown of their projections and how they’re expected to play out over the next year:Will Low Mortgage Rates Continue through 2021? | Simplifying The MarketIt’s important to note that, while a small change in interest rates can have a substantial impact on monthly mortgage payments, these rates are still incredibly low compared to where they were just a couple of years ago.

What does this mean for buyers?

Low mortgage rates are creating an outstanding opportunity for current homebuyers to get more for their money while staying within their budget. As the economy gets stronger and we recover from the challenges of 2020, it’s natural for rates to potentially rise in response to a healthier economy. Mark Fleming, Chief Economist at First American, reminds us:

Rising interest rates reduce house-buying power and affordability, but are often a sign of a strong economy, which increases home buyer demand. By any historic standard, today’s mortgage rates remain historically low and will continue to boost house-buying power and keep purchase demand robust.”

With low rates fueling activity among hopeful buyers, there are a lot of people who are highly motivated and looking for homes to purchase right now. In this environment, it can be challenging to find a home to buy, so a local real estate agent will be key to your success if you’re thinking of buying too. Working with a trusted real estate professional to navigate the process while rates are in your favor might be the best move you can make.

Bottom Line

If you’re ready to buy a home, it may be wise to make your move before mortgage rates begin to rise. Let’s connect to discuss how today’s low rates can create more opportunities for you this year.

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3 Ways Home Equity Can Have a Major Impact on Your Life

3 Ways Home Equity Can Have a Major Impact on Your Life | Simplifying The Market

There have been a lot of headlines reporting on how homeowner equity (the difference between the current market value of your home and the amount you owe on your mortgage) has dramatically increased over the past few years. CoreLogic indicated that equity increased for the average homeowner by $17,000 in the last year alone. ATTOM Data Solutions, in their latest U.S. Home Equity Report, revealed that 30.2% of the 59 million mortgaged homes in the United States have at least 50% equity. That doesn’t even include the 38% of homes that are owned free and clear, meaning they don’t have a mortgage at all.

How can equity help a household?

Having equity in your home can dramatically impact your life. Equity is like a savings account you can tap into when you need cash. Like any other savings, you should be sensible in how you use it, though. Here are three good reasons to consider using your equity.

1. You’re experiencing financial hardship (job loss, medical expenses, etc.)

Equity gives you options during difficult financial times. With equity, you could refinance your house to get cash which may ease the burden. It also puts you in a better position to talk to the bank about restructuring your home loan until you can get back on your feet.

Today, there are 2.7 million Americans who are currently in a forbearance program because of the pandemic. Ninety percent of those in the program have at least 10% equity. That puts them in a better position to get a loan modification instead of facing foreclosure because many banks will see the equity as a form of collateral in a new deal. If you’re in this position, even if you can’t get a modification, the equity allows you the option to sell your house and walk away with your equity instead of losing the house and your investment in it.

2. You need money to start a new business

We’ve all heard the stories about how many great American companies started in the founder’s garage (i.e., Disney, Hewlett Packard, Apple, Yankee Candle, Keeping Current Matters). What we might not realize, however, is the garage (along with the rest of the home) supplied the start-up money for many of these companies in the form of a refinance.

If you’re passionate about an idea you have for a new product or service, the equity in your home may enable you to make that dream a reality.

3. You want to invest in a loved one’s future

It’s been a long-standing tradition in this country for many households to help pay college expenses for their children. Some have tapped into the equity in their homes to do that.

Additionally, George Ratiu, Senior Economist for realtor.com, notes:

52% of Americans who bought their first home in 2020 said they got help with their down payment from friends or family. The number one lender? Their parents.

It’s safe to assume a percentage of that down payment money likely came from home equity.

Bottom Line

Savings in any form is a good thing. The forced savings you can earn from making a mortgage payment enables you to build wealth through home equity. That equity can come in handy in both good and more challenging times.

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Millennials: Is It Time to Buy a Bigger Home?

Millennials: Is It Time to Buy a Bigger Home? | Simplifying The Market

In today’s housing market, all eyes are on millennials. Not only are millennials the largest generation, but they’re also currently between 25 and 40 years old. These are often considered prime homebuying years when many people begin to form their own households and invest in real estate. If you’re like many millennials who are spending much more time at home these days, you may have a growing need for more space or upgraded features, making moving more desirable than ever.

For those millennials who already own a home, there’s a great opportunity to move up in 2021. Danielle Hale, Chief Economist at realtor.com, explains:

“Older millennials will be trade-up buyers with many having owned their first homes long enough to see substantial equity gains.”

Even if you bought a home sometime in the last few years, you may have more equity than you realize, and that’s a big factor to consider when you’re thinking about moving. According to the Homeowner Equity Insights Report from CoreLogic:

“In the third quarter of 2020, the average homeowner gained approximately $17,000 in equity during the past year. This marks the largest average equity gain since the first quarter of 2014.”

Growing equity can be the driver you’re looking for to fund your next move, especially if what you need in a home is changing right now. As equity builds over time, it can be put toward the down payment on your next home.

In addition to equity gains, today’s housing market affordability is powered by record-low mortgage rates, so moving at a time when you can get more for your money may be more realistic than you think.

Bottom Line

If you’re a millennial thinking about moving this year, you’re not alone. Let’s connect to shed light on the equity you have in your current home and the opportunities it can create.

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3 Ways You’ll Win When You Buy a Home This Year

3 Ways You’ll Win When You Buy a Home This Year | Simplifying The Market

There are so many great reasons to purchase a home, and over the past year, we’ve realized more of them than we ever thought possible. If you’re a first-time homebuyer, having a home of your own can give you a greater sense of security and accomplishment in a time that’s largely uncertain. If you’re a repeat buyer looking for your dream home, making a move might give you the space or features you need to find greater success and happiness in a new normal way of life. Whatever your motivations are, here are three reasons why becoming a homeowner now may help you win big in the long run.

1. Buying a Home Is a Great Investment

Several recent reports indicate that real estate is still a good investment, topping other options such as gold, stocks, bonds, and savings. Why? Real estate helps you build equity, a type of forced savings that grows your net worth. According to the latest Equity Report from ATTOM Data Solutions:

“The count of equity-rich properties in the fourth quarter of 2020 represented 30.2 percent, or about one in three, of the 59 million mortgaged homes in the United States. That was up from 28.3 percent in the third quarter of 2020, 27.5 percent in the second quarter and 26.7 percent in the fourth quarter of 2019, despite the ongoing economic damage caused by the worldwide Coronavirus pandemic.”

2. Mortgage Interest Rates Are Low

The Primary Mortgage Market Survey from Freddie Mac indicates interest rates for a 30-year mortgage have fallen since November 2018 when they hit 4.94%. In their latest forecast, Freddie Mac expects rates to remain low, leveling out to an average of 2.9% in 2021.

When you purchase a home at a low mortgage rate, it will impact your monthly mortgage payment, giving you the opportunity to likely get more house for your money.

3. Investing in Your Future Pays Off

There are some renters who haven’t purchased a home yet because they’re uncomfortable taking on the obligation of a mortgage. What many renters don’t realize, though, is the financial power of equity.

As a homeowner, your monthly mortgage payment becomes a form of ‘forced savings’ you can reinvest later in life as you see fit. You can use it in a variety of ways, like to fund a loved one’s education, move up to a bigger home, or start your own business. As a renter, you’re actually growing your landlord’s equity instead of your own.

If you’re ready to put your monthly payments to work for you and take steps toward those dreams and goals, purchasing a home may be the way to go, especially as rental prices continue to rise.

Bottom Line

Buying a home sooner rather than later could lead to substantial savings and long-term financial growth. Let’s connect to determine if homeownership is the right choice for you this year.

Content previously posted on Keeping Current Matters

Why It’s Easy to Fall in Love with Homeownership [INFOGRAPHIC]

Why It’s Easy to Fall in Love with Homeownership [INFOGRAPHIC] | Simplifying The Market

Why It’s Easy to Fall in Love with Homeownership [INFOGRAPHIC] | Simplifying The Market

Some Highlights

  • Homeownership provides comfort, stability, and security, and it makes you feel more connected to your community.
  • Your home is something to be proud of and is uniquely yours, so you can customize it to your heart’s desire.
  • If you’re ready to fall in love with a home of your own, let’s connect to get you started on the path to homeownership.
Content previously posted on Keeping Current Matters

47% of New Buyers Surprised by How Affordable Homes Are Today

47% of New Buyers Surprised by How Affordable Homes Are Today | Simplifying The Market

Headlines matter. Right now, it’s hard to read about real estate without seeing a headline that suggests homes have become unaffordable for most Americans. In reality, there’s hard evidence that shows how owning a home is more affordable than renting in most parts of the country, as record-low interest rates are keeping monthly mortgage payments about 23% lower than the typical payment of 20 years ago. Despite the facts, misleading headlines persist, and they impact how hopeful homebuyers perceive the market.

In a recent survey by realtor.com, home shoppers indicated they were surprised by what they could actually afford when buying their first home. In fact, 47% discovered their budget was larger than they expected. George Ratiu, Senior Economist at realtor.com, explains:

“For first-time buyers, especially, the drop in the 30-year mortgage rate…has provided unexpected leverage. Lower rates allowed many buyers to stretch and buy more expensive homes while keeping their monthly budget the same.”

So why do these negative headlines that cast doubt on affordability continue to exist?

Most analysts only look at two of the three elements that make up the affordability equation: price and income. It’s true that incomes haven’t kept up with the price of houses. However, affordability is about the cost of the home, not just the price. For that reason, mortgage rates, the third element of the affordability equation, are important to consider.

For example, here’s the typical mortgage payment for assorted dates going back to 2000, as calculated by CoreLogic:47% of New Buyers Surprised by How Affordable Homes Are Today | Simplifying The MarketOutside of the housing crash (when short sales and foreclosures drove prices down), it’s more affordable to buy a home today when you consider all three elements of the affordability equation: price, income, and mortgage rate.

Bottom Line

Whether you’re a first-time buyer or a move-up buyer, don’t let the headlines scare you away from your dream of homeownership. Instead, connect with mortgage and real estate professionals to determine what you can afford and what’s available at that price. Like almost half of the buyers in the survey, you may be pleasantly surprised.

Content previously posted on Keeping Current Matters