Real Estate Information Archive

Mortgage rates have increased significantly in recent weeks. And that may mean you have questions about what this means for you if you’re planning to buy a home. Here’s some information that can help you make an informed decision when you set your homebuying plans.

The Impact of Rising Mortgage Rates

As mortgage rates rise, they impact your purchasing power by raising the cost of buying a home and limiting how much you can comfortably afford. Here’s how it works.

Let’s assume you want to buy a $400,000 home (the median-priced home according to the National Association of Realtors is $389,500). If you’re trying to shop at that price point and keep your monthly payment about $2,500-2,600 or below, here’s how your purchasing power can change as mortgage rates climb (see chart below). The red shows payments above that threshold and the green indicates a payment within your target range.

As the chart shows, as rates go up, the amount you can afford to borrow decreases and that may mean you have to look at homes at a different price point. That’s why it’s important to work with a real estate advisor to understand how mortgage rates impact your monthly mortgage payment at various home loan amounts.

Are Mortgage Rates Going To Go Down?

The rise in mortgage rates and the resulting decrease in purchasing power may leave you wondering if you should wait for rates to go down before making your purchase. Realtor.com says this about where rates could go from here:

“Many homebuyers likely winced . . . upon hearing that the Federal Reserve yet again boosted its short-term interest rates by three-quarters of a percentage point—a move that’s pushing mortgage rates through the roof. And the already high rates are just going to get higher.”

So, if you’re waiting for mortgage rates to drop, you may be waiting for a while as the Federal Reserve works to get inflation under control.

And if you’re considering renting as your alternative while you wait it out, remember that’s going to get more expensive with time too. As Nadia Evangelou, Senior Economist and Director of Forecasting at the National Association of Realtors (NAR), says:

“There is no doubt that these higher rates hurt housing affordability. Nevertheless, apart from borrowing costs, rents additionally rose at their highest pace in nearly four decades.”

Basically, it is true that it costs more to buy a home today than it did last year, but the same is true for renting. This means, either way, you’re going to be paying more. The difference is, with homeownership, you’re also gaining equity over time which will help grow your net worth. The question now becomes: what makes more sense for you?

Bottom Line

Each person’s situation is unique. To make the best decision for you, let's connect to explore your options.

One of the hottest topics of conversation in today’s real estate market is the shortage of available homes. Simply put, there are many more potential buyers than there are homes for sale. As a seller, you’ve likely heard that low supply is good news for you. It means your house will get more attention, and likely, more offers. But as life begins to return to normal, you may be wondering if that’s something that will change.

While it may be tempting to blame the pandemic for the current inventory shortage, the pandemic can’t take all the credit. While it did make some sellers hold off on listing their houses over the past year, the truth is the low supply of homes was years in the making. Let’s take a look at the root cause and what the future holds to uncover why now is still a great time to sell.

Where Did the Shortage Come From?

It’s not just today’s high buyer demand. Our low supply goes hand-in-hand with the number of new homes built over the past decades. According to Sam Khater, VP and Chief Economist at Freddie Mac:

“The main driver of the housing shortfall has been the long-term decline in the construction of single-family homes.”

Data in a recent report from the National Association of Realtors (NAR) tells the same story. New home construction has been lagging behind the norm for quite some time. Historically, builders completed an average of 1.5 million new housing units per year. However, since the housing bubble in 2008, the level of new home construction has fallen off (see graph below):The same NAR report elaborates on the impact of this below-average pace of construction:

“. . . the underbuilding gap in the U.S. totaled more than 5.5 million housing units in the last 20 years.” 

“Looking ahead, in order to fill an underbuilding gap of approximately 5.5 million housing units during the next 10 years, while accounting for historical growth, new construction would need to accelerate to a pace that is well above the current trend, to more than 2 million housing units per year. . . .”

That means if we build even more new houses than the norm every year, it’ll still take a decade to close the underbuilding gap contributing to today’s supply-and-demand mix. Does that mean today’s ultimate sellers’ market is here to stay?

We’re already starting to see an increase in new home construction, which is great news. But newly built homes can’t bridge the supply gap we’re facing right now on their own. In the State of the Nation’s Housing 2021 Report, the Joint Center for Housing Studies of Harvard University (JCHS) says:

“…Although part of the answer to the nation’s housing shortage, new construction can only do so much to ease short-term supply constraints. To meet today’s strong demand, more existing single-family homes must come on the market.”

Early Indicators Show More Existing-Home Inventory Is on Its Way

When we look at existing homes, the latest reports signal that housing supply is growing gradually month-over-month. This uptick in existing homes for sale shows things are beginning to shift. Based on recent data, Odeta Kushi, Deputy Chief Economist at First American, has this to say:

“It looks like existing inventory is starting to inch up, which is good news for a housing market parched for more supply.”

Lawrence Yun, Chief Economist at NAR, echoes that sentiment:

“As the inventory is beginning to pick up ever so modestly, we are still facing a housing shortage, but we may have turned a corner.”

So, what does all of this mean for you? Just because life is starting to return to normal, it doesn’t mean you missed out on the best time to sell. It’s not too late to take advantage of today’s sellers’ market and use rising equity and low interest rates to make your next move.

Bottom Line

It’s still a great time to sell. Even though housing supply is starting to trend up, it’s still hovering near historic lows. Let’s connect to discuss how you can list your house now and use the inventory shortage to get the best possible terms for you.

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.

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):The 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.

Mortgage rates are on the rise this year, but they’re still incredibly low compared to the historic average. However, anytime there’s a change in the mortgage rate, it affects what you can afford to borrow when you’re buying a home. As Sam Khater, Chief Economist at Freddie Mac, shares:

“Since January, mortgage rates have increased half a percentage point from historic lows and home prices have risen, leaving potential homebuyers with less purchasing power.” (See graph below):

When buying a home, it’s important to determine a monthly budget so you can plan for and understand what you can afford. However, when you need to stick to your budget, even a small increase in the mortgage rate can make a big difference.

According to the National Association of Realtors (NAR), today, the median existing-home price is $313,000. Using $300,000 as a simple number close to the median price, here’s an example of how a change in mortgage rate impacts your monthly principal and interest payments on a home.If, for example, you’re getting ready to buy a home and know your budget allows for a monthly payment of $1200-1250 (marked in gray on the table above), every time the mortgage rate increases, the loan amount has to decrease to keep your monthly cost in range. This means you may have to look for lower-priced homes as mortgage rates go up if you want to be able to maintain your budget.

In essence, it’s ideal to close on a home loan when mortgage rates are low, so you can afford to borrow more money. This gives you more purchasing power when you buy a home. Mark Fleming, Chief Economist at First American, explains:

“Monthly payments have remained manageable despite soaring home prices because of low mortgage rates. In fact, monthly payments remain below the $1,250 to $1,260 range that we saw in both fall 2018 and spring 2019, but they are on track to hit that level this spring.

Although they remain low, mortgage rates have begun to increase and are expected to rise further later in the year, thus affordability will test buyer demand in the months ahead and likely help slow the pace of price growth.”

Today’s mortgage rates are still very low, but experts project they’ll continue to rise modestly this year. As a result, every moment counts for homebuyers who want to secure the lowest mortgage rate they can in order to be able to afford the home of their dreams.

Bottom Line

Thanks to low mortgage rates, the spring housing market's in bloom for buyers – but these favorable conditions may not last for long. Let’s connect today to start the homebuying process while your purchasing power is still holding strong.

When thinking about selling, homeowners often feel they need to get their house ready with some remodeling to make it more appealing to buyers. However, with so many buyers competing for available homes right now, renovations may not be as vital as they would be in a more normal market. Here are two things to keep in mind if you’re thinking of selling this season.

1. There aren’t enough homes for sale right now.

A normal market has a 6-month supply of houses for sale, but today’s housing inventory sits far below that benchmark. According to the National Association of Realtors (NAR), there’s only a 1.9-month supply of homes available today. As a result, buyer competition is high and homes are only on the market for about 21 days, during which time many receive multiple offers from hopeful buyers.

In a competitive market that’s moving so quickly, it makes sense to sell your house when buyers are scooping homes up as fast as they’re being listed. Spending costly time and money on renovations before you sell might just mean you’ll miss your key window of opportunity. While certain repairs on your house may be important, your best move right now is to work with a real estate advisor to determine which improvements are truly necessary, and which ones are not likely to be deal-breakers for buyers.

Today, many buyers are more willing to take on home improvement projects themselves in order to get the home they’re after, even if it means putting in a little extra work. Home Advisor explains:

“When it comes to the number of home improvement projects completed, Gen Z homeowners are leading the pack, completing an average of 3.5 projects. Millennials closely follow Gen Z, taking on an average of 3.3 projects, followed by Gen X at 2.8 projects. Boomers completed an average of 2 projects, and the Silent Generation completed the fewest projects, on average, at 1.8 per household. Compared to 2019, millennials are spending 60% more on home improvement and doing on average 30% more projects.”

In this market, it may be wise to let future homeowners remodel the bathroom or the kitchen to make design decisions that are best for their specific taste and lifestyle. As a seller, your dollars and time might be better spent working on small cosmetic updates, like refreshing some paint and power washing the exterior. Instead of over-investing in your home with upgrades that the buyers may change anyway, work with a real estate professional to determine the key projects that will maximize your listing, without overdoing it.

2. Focus on getting a good return on your investment.

When planning any bigger projects to tackle, you and your real estate agent will want to discuss the potential return on your investment and if those projects are worth the cost. Some homes do need a kitchen or bathroom renovation, roof repairs, or other major work, but definitely not all of them. You might be surprised by how well your house could fair in today’s sellers’ market. Hanley Wood states:

“The 2020 Cost vs. Value report shows a predictable increase in costs for all 22 remodeling projects but a consistent dip in the perceived value of those projects at the time of home sale, as estimated by real-estate professionals in more than 100 metro areas across the U.S. This results in a slight downturn on the return on investment for nearly all projects relative to the trends we saw in last year’s report.”

Ideally, homeowners getting ready to move should try to avoid over-investing in big renovations if they won’t make that money back when they sell their house. According to the 2020 State of Home Spending report from Home Advisor:

“The average household spending on home services rose to $13,138, an increase over last year’s survey results, where homeowners who did projects spent $9,081 on average in 2019.”

Before you renovate, contact a local real estate professional to see if it’s the best course of action. You may find out that putting your house on the market as-is will help you sell quickly, and it may result in the best return on your investment. Every home is different, but a conversation with your agent is mission-critical to make sure you make the right moves when selling this season.

Bottom Line

We’re in a strong sellers’ market, and that means you have the leverage to sell your house on your terms. Let’s connect today to determine if renovating is really the best way to spend your time and money before you sell.

Last year, many homeowners thought twice about selling their houses due to the onset of the health crisis. This year, however, homeowners are beginning to regain their confidence when it comes to selling safely. The latest Home Purchase Sentiment Index (HPSI) by Fannie Mae shows that 57% of consumers believe now is a good time to sell.

Doug Duncan, Vice President and Chief Economist at Fannie Mae, explains:

“Overall, the index’s monthly increase was driven largely by a substantial jump in the share of consumers reporting that it’s a good time to sell a home, with many citing favorable mortgage rates, high home prices, and low housing inventory as their primary rationale.”

Normally, spring is the busiest season in the housing market – the time when many homeowners decide to list their houses. While this is obviously not a normal year since the pandemic is still very much upon us, experts are optimistic that consumer positivity around selling will lead to more homeowners making moves this year. Duncan continues to say:

“We will pay close attention to see if this newfound optimism develops into a trend.”

What does this mean if you’re thinking of selling your house?

The fact that there are so few houses available for sale today is one driver that’s encouraging consumers to think more positively about selling. The National Association of Realtors (NAR) states:

"Total housing inventory at the end of January amounted to 1.04 million units, down 1.9% from December and down 25.7% from one year ago (1.40 million).”

With so few homes available to buy, your house will be more likely to rise to the top of an eager purchaser’s wish list in this competitive market. Today’s high buyer activity is creating upward pressure on home prices and more multiple-offer scenarios. According to the Realtors Confidence Index Survey from NAR, the average home for sale is receiving 3.7 offers today, up from 2.3 offers just one year ago. This makes selling even more enticing.

In this kind of sellers’ market, you have a huge advantage in the process. And here’s another win – you can also use your equity toward a down payment on a new home when you move.

Wondering where you’ll go if you try to move while it’s so challenging to find a home to buy? Well, in many areas, there are more homes available at the higher end of the market, so finding a move-up home may be less of an issue if you’re ready to search for your dream home this spring.

Bottom Line

If you pressed pause on selling your house last year, now may be the best time to put your plans back into motion while inventory is so low. Let’s connect today to get the process started.