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Buying Myths

5 Things Homebuyers Need To Know When Making an Offer

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5 Things Homebuyers Need To Know When Making an Offer | Simplifying the Market

When it comes to buying a house, you’re looking for the perfect place to call home. The problem is, in today’s market there just aren’t that many homes available to purchase. With inventory hovering near record lows and sky-high buyer demand, a multi-offer scenario is the new normal. Here are five things to keep in mind when you’re ready to make an offer.

1. Know Your Numbers

Having a complete understanding of your budget and how much house you can afford is essential. That’s why you should connect with a lender to get pre-approved for a loan early in the homebuying process. Taking this step shows sellers you’re a serious, qualified buyer and can give you a competitive edge in a bidding war.

2. Brace for a Fast Pace

Today’s market is dynamic and fast-paced. According to the Realtors Confidence Index from the National Association of Realtors (NAR), the average home is on the market for just 17 days – that means from start to finish, a house for sale in today’s climate is active for roughly 2.5 weeks. A skilled agent will do everything they can to help you stay on top of every possible opportunity. And, as soon as you find the right home for your needs, that agent will help you draft and submit your best offer as quickly as possible.

3. Lean on a Real Estate Professional

While homebuying may seem like a whirlwind process to you, local real estate agents do this every day, and we know what works. That expertise can be used to give you a significant leg up on your competition. An agent can help you consider what levers you can pull that might be enticing to a seller, like:

  • Offering flexible rent-back options to give the seller more time to move out
  • Your ability to do a quick close or make an offer that’s not contingent on the sale of your current home

It may seem simple, but catering to what a seller may need can help your offer stand out.

4. Make a Strong, but Fair Offer

Let’s face it – we all love a good deal. In the past, offering at or near the asking price was enough to make your offer appealing to sellers. In today’s market, that’s often not the case. According to Lawrence Yun, Chief Economist at NAR:

“For every listing there are 5.1 offers. Half of the homes are being sold above list price.”

In such a competitive market, emotions and prices can run high. Use an agent as your trusted advisor to make a strong, but fair offer based on market value, recent sales, and demand.

5. Be a Flexible Negotiator

If you followed tip #3, you drafted the offer with the seller’s needs in mind. That said, the seller may still counter with their own changes. Be prepared to amend your offer to include flexible move-in dates, a higher price, or minimal contingencies (conditions you set that the seller must meet for the purchase to be finalized). Just remember, there are certain contingencies you don’t want to forego. Freddie Mac explains:

“Resist the temptation to waive the inspection contingency, especially in a hot market or if the home is being sold ‘as-is’, which means the seller won’t pay for repairs. Without an inspection contingency, you could be stuck with a contract on a house you can’t afford to fix.”

Bottom Line

When it’s time to make an offer, it’s important to consider not just what you need, but what the seller may need too. Let’s connect so you have expert advice on this step in the homebuying process to put your best offer on the table.

Content previously posted on Keeping Current Matters

Hope Is on the Horizon for Today’s Housing Shortage

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Hope Is on the Horizon for Today’s Housing Shortage | Simplifying The Market

The major challenge in today’s housing market is that there are more buyers looking to purchase than there are homes available to buy. Simply put, supply can’t keep up with demand. A normal market has a 6-month supply of homes for sale. Anything over that indicates it’s a buyers’ market, but an inventory level below that threshold means we’re in a sellers’ market. Today’s inventory level sits far below the norm.

According to the Existing Home Sales Report from the National Association of Realtors (NAR):

“Total housing inventory at the end of April amounted to 1.16 million units, up 10.5% from March’s inventory and down 20.5% from one year ago (1.46 million). Unsold inventory sits at a 2.4-month supply at the current sales pace, slightly up from March’s 2.1-month supply and down from the 4.0-month supply recorded in April 2020. These numbers continue to represent near-record lows.”

Basically, while we are seeing some improvement, we’re still at near-record lows for housing inventory (as shown in the graph below). Here’s why. Since the pandemic began, sellers have been cautious when it comes to putting their homes on the market. At the same time that fewer people are listing their homes, more and more people are trying to buy them thanks to today’s low mortgage rates. The influx of buyers aiming to capitalize on those rates are purchasing this limited supply of homes as quickly as they’re coming to market.Hope Is on the Horizon for Today’s Housing Shortage | Simplifying The MarketThis inventory shortage doesn’t just apply to existing homes that are already built. When it comes to new construction, builders are trying to do their part to bring more newly built homes into the market. However, due to challenges with things like lumber supply, they’re also not able to keep up with demand. In their Monthly New Residential Sales report, the United States Census Bureau states:

“The seasonally‐adjusted estimate of new houses for sale at the end of April was 316,000. This represents a supply of 4.4 months at the current sales rate.”

Hope Is on the Horizon for Today’s Housing Shortage | Simplifying The MarketSam Khater, Chief Economist at Freddie Mac, elaborates:

“In the span of five decades, entry level construction fell from 418,000 units per year in the late 1970s to 65,000 in 2020.

While in 2020 only 65,000 entry-level homes were completed, there were 2.38 million first-time homebuyers that purchased homes. Not all renters looking to purchase their first home were in the market for entry-level homes, however, the large disparity illustrates the significant and rapidly widening gap between entry-level supply and demand.”

Despite today’s low inventory, there is hope on the horizon.

Regarding existing home sales, Sabrina Speianu, Senior Economic Research Analyst at realtor.com, explains:

“In May, newly listed homes grew by 5.4% on a year-over-year basis compared to the earlier days of the COVID-19 pandemic last year…

In May, the share of newly listed homes compared to active daily inventory hit a historical high of 44.4%, 17.3 percentage points higher than last year and 15.1 percentage points above typical levels seen in 2017 to 2019. This is a reflection of quickly selling homes and, for buyers, it means that while they can expect fresh new listings every week, they will have to be prepared to move quickly on desirable homes.”

As for newly built homes, builders are also confident about what’s ahead for housing inventory. Robert Dietz, Chief Economist at the National Association of Home Builders (NAHB), shares:

“Builder confidence in the market remains strong due to a lack of resale inventory, low mortgage interest rates, and a growing demographic of prospective home buyers.”

Things are starting to look up for residential real estate inventory. As the country continues to reopen, more houses are likely to be listed for sale. However, as long as buyer demand remains high, it will take time for the balance between supply and demand to truly neutralize.

Bottom Line

Although it may be challenging to find a house to buy in today’s market, there is hope on the horizon. Let’s connect to talk about your home search so we can find your dream home this summer.

Content previously posted on Keeping Current Matters

In Today’s Market, Listing Prices Are Like an Auction’s Reserve Price

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In Today’s Market, Listing Prices Are Like an Auction’s Reserve Price | Simplifying The Market

For generations, the process of buying and selling a home never really changed. A homeowner would try to estimate the market value of their house, then tack on a little extra to give themselves some negotiating room. That figure would become the listing price. Buyers would then try to determine how much less than the full price they could offer and still get the home. As a result, the listing price was generally the ceiling of the negotiation. The actual sales price would almost always be somewhat lower than what was listed. It was unthinkable to pay more than what the seller was asking.

Today is different.

The record-low supply of homes for sale coupled with very strong buyer demand is leading to a rise in bidding wars on many homes. Because of this, homes today often sell for more than the list price. In some cases, they sell for a lot more.

According to Lawrence Yun, Chief Economist at the National Association of Realtors (NAR):

“For every listing there are 5.1 offers. Half of the homes are being sold above list price.”

You may need to change the way you look at the asking price of a home.

In this market, you likely can’t shop for a home with the former approach of negotiating to a lower price.

Due to the low supply of houses for sale, many homes are now being offered in an auction-like atmosphere in which the highest bidder wins the home. In an actual auction, the seller of an item agrees to take the highest bid, and many sellers set a reserve price on the item they’re selling. A reserve price is the minimum amount a seller will accept as the winning bid.

When navigating a competitive housing market, think of the list price of the house as the reserve price at an auction. It’s the minimum the seller will accept in many cases. Today, the asking price is often becoming the floor of the negotiation rather than the ceiling. Therefore, if you really love a home, know that it may ultimately sell for more than the sellers are asking. So, as you’re navigating the homebuying process, make sure you know your budget, know what you can afford, and work with a trusted advisor who can help you make all the right moves as you buy a home.

Bottom Line

Someone who’s more familiar with the housing market of the past than that of today may think it’s foolish to offer more for a home than the listing price. However, frequent and competitive bidding wars are creating an auction-like atmosphere in many real estate transactions right now. Let’s connect today so you have a trusted real estate professional on your side to provide the best advice on how to make a competitive offer on a home.

Content previously posted on Keeping Current Matters

How Misunderstandings about Affordability Could Cost You

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How Misunderstandings about Affordability Could Cost You | Simplifying The Market

There’s a lot of discussion about affordability as home prices continue to appreciate rapidly. Even though the most recent index on affordability from the National Association of Realtors (NAR) shows homes are more affordable today than the historical average, some still have concerns about whether or not it’s truly affordable to buy a home right now.

When addressing this topic, there are various measures of affordability to consider. However, very few of the indexes compare the affordability of owning a home to renting one. In a paper just published by the Urban Institute, Homeownership Is Affordable Housing, author Mike Loftin examines whether it’s more affordable to buy or rent. Here are some of the highlights included.

1. Renters pay a higher percentage of their income toward their rental payment than homeowners pay toward their mortgage.

The report explains:

“When we look at the median housing expense ratio of all households, the typical homeowner household spends 16 percent of its income on housing while the typical renter household spends 26 percent. This is true, you might say, because people who own their own home must make more money than people who rent. But if we control for income, it is still more affordable to own a home than to rent housing, on average.”

Here’s the data from the report shown in a graph:How Misunderstandings about Affordability Could Cost You | Simplifying The Market

2. Renters don’t have extra money to invest in other assets.

The report goes on to say:

“Buying a home is not a decision between investing in real estate versus investing in stocks, as financial advisers often claim. Instead, the home buying investment simply converts some portion of an existing expense (renting) into an investment in real estate.”

It explains that you still have a housing expense (rent payments) even if you don’t buy a home. You can’t live in your 401K, but you can transfer housing expenses to your real estate investment. A mortgage payment is forced savings; it goes toward building equity you will likely get back when you sell your home. There’s no return on your rent payments.

3. Your mortgage payment remains relatively the same over time. Your rent keeps going up.

The report also notes:

“Whereas renters are continuously vulnerable to cost increases, rising home prices do not affect homeowners. Nobody rebuys the same home every year. For the homeowner with a fixed-rate mortgage, monthly payments increase only if property taxes and property insurance costs increase. The principal and interest portion of the payment, the largest portion, is fixed. Meanwhile, the renter’s entire payment is subject to inflation.

Consequently, over time, the homeowner’s and renter’s differing trajectories produce starkly different economic outcomes. Homeownership’s major affordability benefit is that it stabilizes what is likely the homeowner’s biggest monthly expense, assuming a buyer has a fixed-rate mortgage, which most American homeowners do. The only portion of the homeowner’s housing expenses that can increase is taxes and insurance. The principal and interest portion stays the same for 30 years.”

A mortgage payment remains about the same over the 30 years of the mortgage. Here’s what rents have done over the last 30 years:How Misunderstandings about Affordability Could Cost You | Simplifying The Market

4. If you want to own a home and can afford it, waiting could cost you.

As the report also indicates:

“We need to stop seeing housing as a reward for financial success and instead see it as a critical tool that can facilitate financial success. Affordable homeownership is not the capstone of economic well-being; it is the cornerstone.”

Homeownership is the first rung on the ladder of financial success for most households, as their home is most often their largest asset.

Bottom Line

If the current headlines reporting a supposed drop-off in home affordability are making you nervous, let’s connect to go over the real insights into our area.

Content previously posted on Keeping Current Matters

Buying a Home Is Still Affordable

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Buying a Home Is Still Affordable | Simplifying The Market

The last year has put emphasis on the importance of one’s home. As a result, some renters are making the jump into homeownership while some homeowners are re-evaluating their current house and considering a move to one that better fits their current lifestyle. Understanding how housing affordability works and the main market factors that impact it may help those who are ready to buy a home narrow down the optimal window of time in which to make a purchase.

There are three main factors that go into determining how affordable homes are for buyers:

  1. Mortgage Rates
  2. Mortgage Payments as a Percentage of Income
  3. Home Prices

The National Association of Realtors (NAR) produces a Housing Affordability Index. It takes these three factors into account and determines an overall affordability score for housing. According to NAR, the index:

“…measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national and regional levels based on the most recent price and income data.”

Their methodology states:

“To interpret the indices, a value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment.”

So, the higher the index, the more affordable it is to purchase a home. Here’s a graph of the index going back to 1990:Buying a Home Is Still Affordable | Simplifying The MarketThe blue bar represents today’s affordability. We can see that homes are more affordable now than they’ve been at any point since the housing crash when distressed properties (foreclosures and short sales) dominated the market. Those properties were sold at large discounts not seen before in the housing market for almost one hundred years.

Why are homes so affordable today?

Although there are three factors that drive the overall equation, the one that’s playing the largest part in today’s homebuying affordability is historically low mortgage rates. Based on this primary factor, we can see that it’s more affordable to buy a home today than at any time in the last eight years.

If you’re considering purchasing your first home or moving up to the one you’ve always hoped for, it’s important to understand how affordability plays into the overall cost of your home. With that in mind, buying while mortgage rates are as low as they are now may save you quite a bit of money over the life of your home loan.

Bottom Line

If you feel ready to buy, purchasing a home this summer may save you a significant amount of money over time based on historical affordability trends. Let’s connect today to determine if now is the right time for you to make your move.

Content previously posted on Keeping Current Matters

Don’t Forget to Budget for Closing Costs

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Don’t Forget to Budget for Closing Costs | Simplifying The Market

When buying a home, it’s important to have a budget and make sure you plan ahead for certain homebuying expenses. Saving for a down payment is the main cost that comes to mind for many, but budgeting for the closing costs required to get a mortgage is just as important.

What Are Closing Costs?

According to Trulia:

“When you close on a home, a number of fees are due. They typically range from 2% to 5% of the total cost of the home, and can include title insurance, origination fees, underwriting fees, document preparation fees, and more.”

For example, for someone buying a $300,000 home, they could potentially have between $6,000 and $15,000 in closing fees. If you’re in the market for a home above this price range, your closing costs could be greater. As mentioned above, closing costs are typically between 2% and 5% of your purchase price. 

Trulia gives more great advice, explaining:

“There will be lots of paperwork in front of you on closing day, and not enough time to read them all. Work closely with your real estate agent, lender, and attorney, if you have one, to get all the documents you need ahead of time.

The most important thing to read is the closing disclosure, which shows your loan terms, final closing costs, and any outstanding fees. You’ll get this form about three days before closing since, once you (the borrower) sign it, there’s a three-day waiting period before you can sign the mortgage loan docs. If you have any questions about the numbers or what any of the mortgage terms mean, this is the time to ask—your real estate agent is a great resource for getting you all the answers you need.”

Bottom Line

As home prices are rising and more buyers are finding themselves competing in bidding wars, it’s more important than ever to make sure your plan includes budgeting for closing costs. Let’s connect to be sure you have everything you need to land your dream home.

Content previously posted on Keeping Current Matters

The Power of Mortgage Pre-Approval [INFOGRAPHIC]

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The Power of Mortgage Pre-Approval [INFOGRAPHIC] | Simplifying The Market

The Power of Mortgage Pre-Approval [INFOGRAPHIC] | Simplifying The Market

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 a competitive edge in a bidding war.
  • In today’s market, connecting with a lender to get pre-approved may be the game-changer that helps you secure your dream home.
Content previously posted on Keeping Current Matters

Should I Buy Now or Wait? [INFOGRAPHIC]

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Should I Buy Now or Wait? [INFOGRAPHIC] | Simplifying The Market

Should I Buy Now or Wait? [INFOGRAPHIC] | Simplifying The Market

Some Highlights

  • If you’re thinking that waiting a year or two to purchase a home might mean you’ll save some money, think again.
  • Mortgage interest rates are currently very low, but experts across the board are forecasting increases in both home prices and interest rates.
  • Buying a home now means you’ll spend less in the long run. Let’s connect to put your homebuying plans in motion before home prices and mortgage rates climb even higher.
Content previously posted on Keeping Current Matters

Patience Is the Key to Buying a Home This Year

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Patience Is the Key to Buying a Home This Year | Simplifying The Market

The question many homebuyers are facing this year is, “Why is it so hard to find a house?” We’re in the ultimate sellers’ market, which means real estate is ultra-competitive for buyers right now. The National Association of Realtors (NAR) notes homes are getting an average of 4.8 offers per sale, and that number keeps rising. Why? It’s because there are so few houses for sale.

Low inventory in the housing market isn’t new, but it’s becoming more challenging to navigate. Danielle Hale, Chief Economist at realtor.com, explains:

“The housing market is still relatively under supplied, and buyers can’t buy what’s not for sale. Relative to what we saw in 2017 to 2019, March 2021 was still roughly 117,000 new listings lower, adding to the pre-existing early-year gap of more than 200,000 fresh listings that would typically have come to market in January or February. Despite this week’s gain from a year ago, we’re 19 percent below the new seller activity that we saw in the same week in 2019.”

While many homeowners paused their plans to sell during the height of the pandemic, this isn’t the main cause of today’s huge gap between supply and demand. Sam Khater, Vice President and Chief Economist at Freddie Mac, Economic Housing and Research Division, shares:

“The main driver of the housing shortfall has been the long-term decline in the construction of single-family homes . . . That decline has resulted in the decrease in supply of entry-level single-family homes or, ’starter homes.’”

When you consider the number of homes built in the U.S. by decade, the serious lack of new construction is clear (See graph below):Patience Is the Key to Buying a Home This Year | Simplifying The MarketThe number of newly built homes is disproportionately lower than the rate of household formation, which, according to the U.S. Census Bureau, has continued to increase. Khater also explains:

“Even before the COVID-19 pandemic and current recession, the housing market was facing a substantial supply shortage and that deficit has grown. In 2018, we estimated that there was a housing supply shortage of approximately 2.5 million units, meaning that the U.S. economy was about 2.5 million units below what was needed to match long-term demand. Using the same methodology, we estimate that the housing shortage increased to 3.8 million units by the end of 2020. A continued increase in a housing shortage is extremely unusual; typically in a recession, housing demand declines and supply rises, causing inventory to rise above the long-term trend.”

To catch up to current demand, Freddie Mac estimates we need to build almost four million homes. The good news is builders are working hard to get us there. The U.S. Census Bureau also states:

“Privately-owned housing units authorized by building permits in March were at a seasonally adjusted annual rate of 1,766,000. This is 2.7 percent (±1.7 percent) above the revised February rate of 1,720,000 . . . Privately-owned housing starts in March were at a seasonally adjusted annual rate of 1,739,000. This is 19.4 percent (±13.7 percent) above the revised February estimate of 1,457,000. . . .”

What does this mean? Lawrence Yun, Chief Economist at NAR, clarifies:

“The March figure of 1.74 million housing starts is the highest in 14 years. Both single-family units and multifamily units ramped up. After 13 straight years of underproduction – the chief cause for today’s inventory shortage – this construction boom needs to last for at least three years to make up for the part shortfall. As trade-up buyers purchase newly constructed homes, their prior homes will show up in MLSs, and hence, more choices for consumers. Housing starts to housing completion could be 4 to 8 months, so be patient with the improvement to inventory. In the meantime, construction workers deserve cheers.”

Bottom Line

If you’re planning to buy this year, the key to success will be patience, given today’s low inventory environment. Let’s connect today to talk more about what’s happening in our area.

Content previously posted on Keeping Current Matters

How Much Time Do You Need To Save for a Down Payment?

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How Much Time Do You Need To Save for a Down Payment? | Simplifying The Market

One of the biggest hurdles homebuyers face is saving for a down payment. As you’re budgeting and planning for your home purchase, you’ll want to understand how much you’ll need to put down and how long it will take you to get there. The process may actually move faster than you think.

Using data from the U.S. Department of Housing and Urban Development (HUD) and Apartment List, we can estimate how long it might take someone earning the median income and paying the median rent to save up for a down payment on a median-priced home. Since saving for a down payment can be a great time to practice budgeting for housing costs, this estimate also uses the concept that a household should not pay more than 28% of their total income on monthly housing expenses.

According to the data, the national average for the time it would take to save for a 10% down payment is right around two and a half years (2.53). Residents in Iowa can save for a down payment the fastest, doing so in just over one year (1.31). The map below illustrates this time (in years) for each state:How Much Time Do You Need To Save for a Down Payment? | Simplifying The Market

What if you only need to save 3%?

What if you’re able to take advantage of one of the 3% down payment programs available? It’s a common misconception that you need a 20% down payment to buy a home, but there are actually more affordable options and down payment assistance programs available, especially for first-time buyers. The reality is, saving for a 3% down payment may not take several years. In fact, it could take less than a year in most states, as shown in the map below:How Much Time Do You Need To Save for a Down Payment? | Simplifying The Market

Bottom Line

Wherever you are in the process of saving for a down payment, you may be closer to your dream home than you think. Let’s connect to explore the down payment options available in our area and how they support your plans.

Content previously posted on Keeping Current Matters