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Potential homebuyers are always cautioned to be aware of mortgage lending standards and the difficulty they might face when trying to obtain a mortgage. Credit availability is expanding, making it easier to get a mortgage now than it was a year ago. The market is still tight however, and homebuyers should be prepared to shop around until they find a lender who is offering something that will meet the needs of their family. Mortgage lending companies have high standards so it is important to make sure you and anyone else who will be included on the mortgage have their credit in check. The mortgage market is strict because lenders do not want to be put in a situation where they are forced to repurchase loans that are not paid on. They also do not want to end up in a litigation situation due to loan issues. What Has Happened to the Number of Mortgages? Due to the strict nature and requirements of the lending companies, the number of mortgages given out has significantly dropped. A report by the Housing Financial Policy Center at the Urban Institute showed that about 6.3 million fewer mortgages were given out between 2009 and 2015. The reasons behind this statistic are strict regulations and policies. These mortgages would have been granted if the lending standards where more reasonable. Mortgage companies rely on calculations to determine if a home buyer will become delinquent on their payment. They will not give you a loan if you are too much of a risk for them. Credit history has a huge impact on this decision since lenders can see how often you pay back your debts. The history they receive is extensive. This view into your financial past causes lenders to take less risk when lending to you for your mortgage. The Effect on the Economy The housing market is recovering at a slower pace than it should since less potential homebuyers are being offered loans. While the market is still recovering with positive trends, fewer buyers can create a strain on other economic factors like home goods or construction jobs. Bottom Line After the housing market boom and bust, mortgage lenders became stricter in their lending standards. It is not impossible to get a mortgage loan, but it can still be difficult for potential home buyers. Stay on top of your credit and make sure you and anyone else who is applying are in a good financial position so you can be approved for a loan. It is important to research different companies and their requirements to ensure success in getting a mortgage.Original: https://www.westaustinhomesforsale.com/blog/mortgage-pre-qualifications-difficulties/
If you have walked through the aisles of your local grocery store or stopped at the gas station lately, you have seen the impact of the increased rate of inflation that the United States is facing. Most economists agree that the increase in interest rates is due to the economic chaos that was started by the COVID-19 pandemic. Even though we seem to be coming out of the “pandemic era,” the economic impacts of the global pandemic are expected to be felt for quite some time. As is always the case, an increase in inflation rates has had a direct impact on the mortgage industry. When the mortgage industry is impacted, the asking price for homes reflects it. When inflation rates go up, so do mortgage rates. Whether you are buying or selling a home in today’s real estate market, it’s important that you understand how those rates impact home prices. How Do Mortgages Work? Before we fully dive into how mortgage rates impact home prices, we should gain a solid understanding of how mortgages work. In most cases, people who buy homes obtain a mortgage because they don’t have enough cash on hand to make a full-cash offer for a home. The borrower and the lender come to an agreement about how much money will be borrowed, and the borrower will make monthly payments in order to pay the money back over time. In order to stay in business, those lenders must charge interest on the money that they lend. In addition to ensuring that they make a profit on the money that they lend, lenders must charge interest to protect themselves from the risk of a borrower defaulting on the loan. Interest rates are determined by the central bank, which means the economy plays a significant role in the amount of interest that a borrower must pay on a mortgage. Higher interest rates lead to higher monthly mortgage payments. Since the purchasing power of a dollar decreases when inflation rates go up, lenders must charge higher interest rates on the money that they lend. What Happens When Mortgage Rates Increase? Before we dive into the impact of mortgage rates on home prices, let’s take a look at what happens when mortgage rates go up. If a buyer wants to purchase a home that costs $400,000 and mortgage rates are at 4%, a borrower will need to pay around $1,900 per month for the duration of a typical 40-year mortgage. If the same buyer finds the same home while mortgage rates are at 5%, their monthly payment would be $2,138 per month. An increase of $238 over the life of a 30-year mortgage results in the borrower repaying $85,680 more. Obviously, an increase of that magnitude results in fewer people being able to obtain mortgages. Generally, higher mortgage rates lead to fewer people actively looking for homes to purchase. At the end of 2021, mortgage rates were around 3%, which is quite low. However, by April of 2022, those rates had jumped to around 5.1%. This means that the monthly payment on a $300,000 home had increased from $1,283 in 2021 to $1,629 by April of 2022, an increase of 27%. The Law of Supply and Demand Whether you’re buying or selling a home, there are few factors that matter more than pricing. Obviously, location has always been (and will always be) the most important aspect of real estate, but pricing is a very close second. When trying to sell your home, it is crucial that you price your home competitively. However, you also want to make sure that you get as much money as possible out of your home. On the other side of the transaction, home prices are a major part of the puzzle for buyers. When shopping for a home, you likely do so on a budget. Your mortgage lender will let you know how much you can afford to spend on a home, so you need to find homes that fit within your budget. The entire real estate industry largely hinges on the laws of supply and demand. When there are more buyers than sellers in a market, sellers are able to charge more for their properties, as the inventory is lower. Conversely, when there is a lot of inventory but very few buyers, sellers will need to lower their asking price in order to sell their home. When a single buyer has his or her choice of homes, the buyer holds most of the leverage in negotiations. What Mortgage Rates Mean for Home Prices Higher mortgage rates decrease the number of viable buyers in the housing market. Not only does it become harder for people to get approved for loans, but qualified buyers often choose to wait for mortgage rates to return to normal before they obtain a mortgage. If those buyers are not in a position where they must make a move, it’s not uncommon for them to wait for lower mortgage rates before making a purchase. Fewer buyers in the market means that home sellers need to lower the asking price of their homes. Obviously, this is great news if you are a buyer who has already started the pre-approval process. You can expect home prices to be lower because you don’t have as much competition. Not having to fear a bidding war gives you a great advantage when you begin the negotiation process. Unfortunately, if you are trying to sell your home in today’s market, you should plan on it taking longer, and you will need to be open to negotiating on your price, as there simply aren’t as many qualified buyers in the market. Are Mortgage Rates Expected to Drop? At the onset of the pandemic, policymakers in Washington D.C. lowered interest rates to historic lows. In fact, there was a time in 2020 where mortgage rates were below 2%, the lowest they had ever been. Economists do not expect interest rates to ever return to those levels. Those rates were reflective of an unprecedented event that left the Federal Reserve scrambling to stabilize the economy. However, it is also expected that interest rates will not return to the 5.1% levels that they were at earlier in 2022. Instead, economists believe that interest rates will stabilize at somewhere between 3.5% and 4% by the end of 2022. Ideally, this will lead to a stabilization of the real estate market. Since interest rates will not be too high or too low, home prices should return to a more normal level.Original: https://www.westaustinhomesforsale.com/blog/increasing-mortgage-rates/
Some Highlights
If you’re thinking about selling your house, recent headlines about home prices falling month-over-month may have you second guessing your decision—but perspective matters.
While home prices are down slightly month-over-month in some markets, home values are still up almost 10% nationally on a year-over-year basis. A nearly 10% gain is still dramatic compared to the more normal level of appreciation, which is 3-4%.
Let’s connect to find out how much equity you have in your current home and how you can use it to fuel your next purchase.
Original: https://www.simplifyingthemarket.com/en/2023/01/20/whats-really-happening-with-home-prices-infographic?a=986690-df769d177e30b7f7b52325ba1ca2262b
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.
Original: https://www.simplifyingthemarket.com/en/2023/01/19/pre-approval-in-2023-what-you-need-to-know?a=986690-df769d177e30b7f7b52325ba1ca2262b
Whether you’re already a homeowner or you’re looking to become one, the recent headlines about home prices may leave you with more questions than answers. News stories are talking about home prices falling, and that’s raising concerns about a repeat of what happened to prices in the crash in 2008.
One of the questions that’s on many minds, based on those headlines, is: how much will home prices decline? But what you may not realize is expert forecasters aren’t calling for a free fall in prices. In fact, if you look at the latest data, there’s a case to be made that the biggest portion of month-over-month price depreciation nationally may already be behind us – and even those numbers weren’t significant declines on the national level. Instead of how far will they drop, the question becomes: have home values hit bottom?
Let’s take a look at the latest data from several reputable industry sources (see chart below):
The chart above provides a look at the most recent reports from Case-Shiller, the Federal Housing Finance Agency (FHFA), Black Knight, and CoreLogic. It shows how, on a national scale, home values have changed month-over-month since January 2022. November and December numbers have yet to come out.
Let’s focus in on what the red numbers tell us. The red numbers are the change in home values over the last four months that have been published. And if we isolate the last four months, what the data shows is, in each case, home price depreciation peaked in August.
While that doesn’t guarantee home price depreciation has hit bottom, it confirms prices aren’t in a free fall, and it may be an early signal that the worst is already behind us. As the numbers for November and December are released, data will be able to further validate this national trend.
Bottom Line
Home prices month-over-month have depreciated for the past four months on record, but there’s a strong case to be made that the worst may be behind us. If you have questions about what’s happening with home prices in our local market, let’s connect.
Original: https://www.simplifyingthemarket.com/en/2023/01/18/have-home-values-hit-bottom?a=986690-df769d177e30b7f7b52325ba1ca2262b
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.
Original: https://www.simplifyingthemarket.com/en/2023/01/17/think-twice-before-waiting-for-3-mortgage-rates?a=986690-df769d177e30b7f7b52325ba1ca2262b
It doesn’t matter if you’re someone who closely follows the economy or not, chances are you’ve heard whispers of an upcoming recession. Economic conditions are determined by a broad range of factors, so rather than explaining them each in depth, let’s lean on the experts and what history tells us to see what could lie ahead. As Greg McBride, Chief Financial Analyst at Bankrate, says:
“Two-in-three economists are forecasting a recession in 2023 . . .”
As talk about a potential recession grows, you may be wondering what a recession could mean for the housing market. Here’s a look at the historical data to show what happened in real estate during previous recessions to help prove why you shouldn’t be afraid of what a recession could mean for the housing market today.
A Recession Doesn’t Mean Falling Home Prices
To show that home prices don’t fall every time there’s a recession, it helps to turn to historical data. As the graph below illustrates, looking at recessions going all the way back to 1980, home prices appreciated in four of the last six of them. So historically, when the economy slows down, it doesn’t mean home values will always fall.
Most people remember the housing crisis in 2008 (the larger of the two red bars in the graph above) and think another recession would be a repeat of what happened to housing then. But today’s housing market isn’t about to crash because the fundamentals of the market are different than they were in 2008. According to experts, home prices will vary by market and may go up or down depending on the local area. But the average of their 2023 forecasts shows prices will net neutral nationwide, not fall drastically like they did in 2008.
A Recession Means Falling Mortgage Rates
Research also helps paint the picture of how a recession could impact the cost of financing a home. As the graph below shows, historically, each time the economy slowed down, mortgage rates decreased.
Fortune explains mortgage rates typically fall during an economic slowdown:
“Over the past five recessions, mortgage rates have fallen an average of 1.8 percentage points from the peak seen during the recession to the trough. And in many cases, they continued to fall after the fact as it takes some time to turn things around even when the recession is technically over.”
In 2023, market experts say mortgage rates will likely stabilize below the peak we saw last year. That’s because mortgage rates tend to respond to inflation. And early signs show inflation is starting to cool. If inflation continues to ease, rates may fall a bit more, but the days of 3% are likely behind us.
The big takeaway is you don’t need to fear the word recession when it comes to housing. In fact, experts say a recession would be mild and housing would play a key role in a quick economic rebound. As the 2022 CEO Outlook from KPMG, says:
“Global CEOs see a ‘mild and short’ recession, yet optimistic about global economy over 3-year horizon . . . More than 8 out of 10 anticipate a recession over the next 12 months, with more than half expecting it to be mild and short.”*
Bottom Line
While history doesn’t always repeat itself, we can learn from the past. According to historical data, in most recessions, home values have appreciated and mortgage rates have declined.
If you’re thinking about buying or selling a home this year, let’s connect so you have expert advice on what’s happening in the housing market and what that means for your homeownership goals.
Original: https://www.simplifyingthemarket.com/en/2023/01/16/what-past-recessions-tell-us-about-the-housing-market?a=986690-df769d177e30b7f7b52325ba1ca2262b
Some Highlights
Buying a home is a major transaction that can seem even more complex when you don’t understand the terms used throughout the process.
If you’re looking to become a homeowner this year, it’s important to know these housing terms and how they relate to the current market so you feel confident throughout the homebuying process.
Let’s connect so you have expert answers for any questions as they come up.
Original: https://www.simplifyingthemarket.com/en/2023/01/13/key-terms-to-know-when-buying-a-home-infographic?a=986690-df769d177e30b7f7b52325ba1ca2262b
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