Home mortgage rates are down but you’d better hurry

Small changes in mortgage rates can have a big impact on the housing market.

North Texas home sales fell about 6 percent in the fourth quarter of 2018 in large part due to higher home finance costs. The drop in home buys in the final months of the year caused sales for all of 2018 to drop for the first time in almost eight years.

Higher mortgage rates — which rose to about 5 percent in early November — were the biggest contributor to the slump in Dallas-Fort Worth home purchases last year.

Now that mortgage costs have eased off a bit, builders and real estate agents say they’re seeing more home shoppers hit the market.

They’d better hurry. Home finance costs are traditionally the lowest at the start of the year.

And the Federal Reserve has signaled that more interest rate hikes are coming in 2019.

“It provides a little bit of urgency in a market where buyers have gotten lackadaisical about mortgage rates — they just assumed they would stay low,” said Paige Shipp of housing analyst Metrostudy Inc.

Potential buyers were caught off guard last year when they found they couldn’t afford as much house as they wanted and their monthly mortgage payments would be higher than expected.

“The buyers that said interest rates are too high and we can’t do this are probably regretting that they didn’t get approved for a loan and keep hunting houses,” Paige said. “Rates are lower now.

“If people want to buy a home in the spring, they need to stay on top of where mortgage rates are.”

The decrease in nationwide average mortgage rates to just under 4.5 percent has already caused a surge in applications for home loans.

“We have seen a boost in loan application volume, both for purchase and for refinance,” said Frank Nothaft, chief economist for CoreLogic. “Fixed-rate mortgage rates are down about a half percentage point from November 2018.

“That is an important gain in affordability,” he said. “For example, to buy a $300,000 home with 20 percent down payment, the monthly principal and interest payment for a $240,000 30-year fixed-rate loan has dropped from $1,280 to $1,209, a monthly savings of $71. That makes a big difference in a family’s budget.”

Nothaft still expects home loan costs to move higher this year — back to near 5 percent at the end of 2019. And rates are still almost a half percentage point higher than they were a year ago.

“With interest rates expected to rise, if the prospective home buyer is ready to buy, it’s better to act sooner than later,” he said.

Lawrence Yun, the National Association of Realtor’s chief economist, said the dip in home finance costs should bring another 200,000 nationwide home sales this year. “Falling mortgage rates have always boosted sales,” Yun said. “Sentiment and enthusiasm has turned for the better.”

The National Association of Home Builders has even boosted its outlook for U.S. home starts this year because of the lower finance rates.

“Our forecast calls for a slight improvement in sales due to rates falling from 5 percent to 4.5 percent,” said the builders’ association’s top economist Robert Dietz.

If you are planning to buy a house, don’t dawdle. Contact the Indigo Skye Group and let us go over your options on what you can afford or how to best price your home to sell.

No one expects the recent reduction in home mortgage rates to last forever.

Home mortgage rates are changing mortgage chart indigo skye group blog
Home finance costs have dropped since a recent peak of almost 5 percent in November. (Source: Freddie Mac)

Buying a Home Young is the Key to Building Wealth

Buying a Home Young is the Key to Building Wealth

Homeowners who purchase their homes before the age of 35 are better prepared for retirement at age 60, according to a new Urban Institute study. The organization surveyed adults who turned 60 or 61 between 2003 and 2015 for their data set.

“Today’s older adults became homeowners at a younger age than today’s young adults. Half the older adults in our sample bought their first house when they were between 25 and 34 years old, and 27 percent bought their first home before age 25.”

The full breakdown is in the chart below:

The study goes on to show the impact of purchasing a home at an early age. Those who purchased their first homes when they were younger than 25 had an average of $10,000 left on their mortgage at age 60. The 50% of buyers who purchased in their mid-twenties and early-30s had close to $50,000 left, but traditionally had purchased more expensive homes.

Many housing experts are concerned that the homeownership rate amongst millennials, those 18-34, is much lower than previous generations in the same age range. The study results gave a great reason why this generation should consider buying instead of signing a renewal on their lease:

“As people age into retirement, they rely more heavily on their wealth rather than their income to support their lifestyles. Today’s young adults are failing to build housing wealth, the largest single source of wealth, at the same rate as previous generations.

While people make the choice to own or rent that suits them at a given point, maybe more young adults should take into account the long-term consequences of renting when homeownership is an option.”

Bottom Line

If you are one of the many young people debating whether buying a home this year is right for you, let’s get together to discuss your options!

 

Related article: Dispelling the Myth About Home Affordability

Buying a House This Year? Here is Your 1st Step!

Buying a House This Year? Here is Your 1st Step!

In many markets across the country, the number of buyers searching for their dream homes outnumbers the number of homes for sale. This has led to a competitive marketplace where buyers often need to stand out. One way to show that you are serious about buying your dream home is to get pre-qualified or pre-approved for a mortgage before starting your search.

Even if you are not in an incredibly competitive market, understanding your budget will give you the confidence of knowing whether or not your dream home is within your reach.

Freddie Mac lays out the advantages of pre-approval in the ‘My Home’ section of their website:

“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”

One of the many advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you through this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.”

Freddie Mac describes the ‘4 Cs’ that help determine the amount you will be qualified to borrow:

  1. Capacity: Your current and future ability to make your payments
  2. Capital or cash reserves: The money, savings, and investments you have that can be sold quickly for cash
  3. Collateral: The home, or type of home, that you would like to purchase
  4. Credit: Your history of paying bills and other debts on time

Getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and it often helps speed up the process once your offer has been accepted.

Bottom Line

Many potential homebuyers overestimate the down payment and credit scores necessary to qualify for a mortgage. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so today.

 

Related Article: Dispelling the Myth About Home Affordability

Is the Recent Dip in Interest Rates Here to Stay?

Is the Recent Dip in Interest Rates Here to Stay?

Interest rates for a 30-year fixed rate mortgage climbed consistently throughout 2018 until the middle of November. After that point, rates returned to levels that we saw in August to close out the year at 4.55%, according to Freddie Mac’s Primary Mortgage Market Survey.

After the first week of 2019, rates have continued their downward trend. As Freddie Mac’s Chief Economist Sam Khater notes, this is great news for homebuyers. He states,

“Mortgage rates declined to start the new year with the 30-year fixed-rate mortgage dipping to 4.51 percent. Low mortgage rates combined with decelerating home price growth should get prospective homebuyers excited to buy.”

In some areas of the country, the combination of rising interest rates and rising home prices had made some first-time buyers push pause on their home searches. But with more inventory coming to market, continued price growth, and interest rates slowing, this is a great time to get back in the market!

Will This Trend Continue?

According to the latest forecasts from Fannie Maethe Mortgage Bankers Associationand theNational Association of Realtors, mortgage rates will increase over the course of 2019, but not at the same pace they did in 2018. You can see the forecasts broken down by quarter below.

Bottom Line

Even a small increase (or decrease) in interest rates can impact your monthly housing cost. If buying a home in 2019 is on your short list of goals to achieve, let’s get together to find out if you are able to today.

 

Related Article: Where are interest rates headed in 2019?

Buying A Home This Year? Here’s What to Watch

Excited About Buying A Home This Year? Here’s What to Watch

As we kick off the new year, many families have made resolutions to enter the housing market in 2019. Whether you are thinking of finally ditching your landlord and buying your first home or selling your starter house to move into your forever home, there are two pieces of the real estate puzzle you need to watch carefully: interest rates & inventory.

Interest Rates

Mortgage interest rates had been on the rise for much of 2018, but they made a welcome reversal at the end of the year. According to Freddie Mac’s latest Primary Mortgage Market Survey, rates climbed to 4.94% in November before falling to 4.62% for a 30-year fixed rate mortgage last week. Despite the recent drop, interest rates are projected to reach 5% in 2019.

The interest rate you secure when buying a home not only greatly impacts your monthly housing costs, but also impacts your purchasing power.

Purchasing power, simply put, is the amount of home you can afford to buy for the budget you have available to spend. As rates increase, the price of the house you can afford to buy will decrease if you plan to stay within a certain monthly housing budget.

The chart below shows the impact that rising interest rates would have if you planned to purchase a $400,000 home while keeping your principal and interest payments between $2,020-$2,050 a month.

With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5% (in this example, $10,000).

Inventory

A ‘normal’ real estate market requires there to be a 6-month supply of homes for sale in order for prices to increase only with inflation. According to the National Association of Realtors (NAR), listing inventory is currently at a 3.9-month supply (still well below the 6-months needed), which has put upward pressure on home prices. Home prices have increased year-over-year for the last 81 straight months.

The inventory of homes for sale in the real estate market had been on a steady decline and experienced year-over-year drops for 36 straight months (from July 2015 to May 2018), but we are starting to see a shift in inventory over the last six months.

The chart below shows the change in housing supply over the last 12 months compared to the previous 12 months. As you can see, since June, inventory levels have started to increase as compared to the same time last year.

This is a trend to watch as we move further into the new year. If we continue to see an increase in homes for sale, we could start moving further away from a seller’s market and closer to a normal market.

Bottom Line

If you are planning to enter the housing market, either as a buyer or a seller, let’s get together to discuss the changes in mortgage interest rates and inventory and what they could mean for you.

 

Related Article: Where are interest rates headed in 2019?