2023 Housing Market Predictions

 There is light at the end of the tunnel hopefully for potential homebuyers. According to professionals in the industry, the trends are shooting toward more affordability.

“Americans finding ways to make payments on a roof over their heads will drive the market next year,” says Zillow chief economist Skylar Olsen. “Affordability is going to be the biggest factor in housing for 2023, but there’s room for optimism on that front if mortgage rates recede.”

Those in the industry have five housing market predictions for 2023.

1. Housing affordability will improve slightly

Those in the industry say there are signs of both the home inventory and monthly mortgage cost will stabilize. Home values should not go down, but they will not keep skyrocketing to space. In fact, national home prices are predicted to remain flat, and they may even fall in some areas.

Inflation is showing some signs of easing up and mortgage rates are starting to also dip. The mortgage rates will continue to go up and down which can cause stress to the housing market.

2. The Midwest will grow in demand

The Midwest has not seen the home price increases like many of the other regions in the US. Professionals believe that this will attract homebuyers to the Midwest. Places like Iowa, Missouri, Illinois, Kansas, and Ohio have more affordable homes.

The mortgage-to-income ratios in many Midwest cities such as St. Louis, Missouri, and Toledo, Ohio, make them the perfect place for first-time homebuyers. There are also more sellers willing to list right now in these areas which mean there is more inventory than in most regions.

3. More friends and family will buy homes together

According to Zillow, 18% of homebuyers have purchased with a friend or a relative who was not a spouse. Buying with someone else helps with your debt-to-income ratio and helps with a larger down payment. The seller’s market has pushed buyers into thinking creatively.

4. New construction buyers may have more choice — and even bargains

Builders’ sentiment is rising and it is leading to more homes being built. A rise in new construction can mean better discounts for potential home buyers. It is reported that new homes under construction are up 50% since February 2020.

5. More homeowners may leverage their home as a source of income

Rental prices are rising higher right now than home values. This means that your home could net you income by renting it. Your rental income will more than likely be higher than your mortgage payment.

In a 2021 survey of home buyers, one-third said they were purchasing just to rent out the home. The record low mortgage rates in 2020 and 2021 made it easier to purchase second homes as income producers. If you are worried about finding a renter for a home, Zillow Rental Manager is your solution. Zillow Rental Manager allows you to screen tenants and collect rent payments. You can post your rental online and on the app for free.

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A Drop in Refinancing Hurt Mortgage Rates in May

 According to Black Knight's monthly market monitor, May saw a 5% drop in rate lock volume due to a slow month for refinancing. The drop in refinance activity fell for both rate term refis and cash-outs. This is not good news for lenders because they rely on the purchase market for origination volumes.

Black Knight's monthly market monitor report watches the trends in the homeownership life cycle. It is the leader in the industry with its own software, data and analytics program.  The combined insight of the Black Knight HPI and Collateral Analytics’ home price and real estate data provides one of the most complete, accurate and timely measures of home prices available, covering 95% of U.S. residential properties down to the ZIP-code level. In addition, the company maintains one of the most robust public property records databases available, covering 99.9% of the U.S. population and households from more than 3,100 counties.

The report revealed that slower monthly mortgage originations caused a dip
of 4.8% in rate locks. Mortgage rates are down this month 7 basis points from April which came in at 5.34%. There was a 23.6% decline in rate/term refinance lending activity from April and an 89.9% dip year over year. As for cash-out refinance locks they were down 11.9% from April and 42.2% from the same time last year.

“We’ve seen rate/term refinance activity essentially evaporate and cash-out activity is now suffering as well,” said Scott Happ, president of Optimal Blue, a division of Black Knight. “While there is volume pressure across the board due to rising rates, purchase volumes are holding up the best and are now driving 82% of all origination activity.”

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What To Expect With the Mortgage Process

 

Purchasing a home is a big life decision and the mortgage process is a big part. Especially in today's hot housing market, a buyer needs to have all their ducks in a row. Here are several steps to take which will walk you through the mortgage process.

1. Get a free rate quote (or two)

With anything you buy, you always shop around for the best deal. This is the same for mortgages. You will want to obtain a free rate quote from at least a couple of different lenders. Before contacting a lender, have the answers to these questions. Are you buying a home or refinancing your current mortgage? What kind of home are you looking for? Will this be your primary residence? When are you looking to buy/refinance? Where do you want to live? The majority of lenders will want you to answer these questions when you are asking them for a free quote.

2. Choose a loan originator

Once you find the best quote, you will want to choose a loan originator. Once you have chosen a loan originator, they will be your point of contact when it comes to the mortgage application. The loan originator is the middle man and can make communication between all parties run smoothly.

3. Get preapproved

In the current seller's market, this is a must. Getting preapproved lets a seller and an agent know that you as a buyer are serious. In order to get preapproved, you will need to give your chosen lender your credit score, income, debts, and any other financial obligations. Once you are preapproved, the lender will give you a letter that will last 90 days.

4. House shop

Once you know the amount you are preapproved for, it is now time to shop for a home. Remember to choose the right Realtor who can help you narrow down your options.

5. Make an offer

When you and your Realtor have found your dream home, you need to make an offer. This is where your preapproval letter comes into play. A preapproval letter will give you a leg up on other buyers.

6. Lock your rate and get an appraisal

Once your offer has been accepted it is time to get into the loan options and rates. You will want to choose the right type of loan and rate that fits your budget. During this time you will also want to get an appraisal on the home. Usually, the appraisal is requested by the lender. The lender wants to make sure the loan amount is not over what the value of the home is appraised for.

7. Apply for financing

Now is the time to apply for your loan. Plan on a week to two weeks to finalize your loan application. You will need to gather all your documentation which includes your most recent pay stubs, employment records, bank statements, tax returns, government-issued ID, and social security number.

8. Underwriting

This is part of the mortgage process where a lender will assess the risk of approving your loan. This is the final decision stage for your loan application.

9. Final review

Once your loan is approved it is time to go over all of the paperwork. Your lend will review everything and make sure it is ready for closing. You will also get a closing statement which will show you how much money you need to bring to the closing.

10. Closing time

The final step is the closing. At the closing, you will sign documents and pay the closing costs. Once you have completed this, you are given the keys to your new home!

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Inventory Is Rising As of July 2021's Report

According to the National Association of Realtors (NAR) housing inventory is starting to improve. Industry leaders predict that home prices will begin to level off as the inventory starts to increase.

As of July 2021 on a year-over-year basis sales were up by 1.5% over this time last year. Existing home sales including single-family homes, townhomes, condominiums and co-ops also increased. Total existing-home sales jumped 2.0% to a seasonally adjusted annual rate of 5.99 million.

July also reported the current sales rates of unsold inventory sits at a 2.6 month supply. This is up from June 2021 but is still behind from this time last year. New construction will benefit from the low level of existing homes on the market.

Homes were on the market an average of 17 days in July which is an all-time low. This time last year homes stayed on the market for an average of 22 days. This summer homes 89% of homes that were sold stayed on the market for under a month.

Low inventory is still pushing home prices up. July reported a 17.8% increase in the median sales price of existing homes to $359,900. This is the 113th consecutive month of year-over-year increase according to the NAR. Multifamily existing homes were up 14.1% from a year ago to a median price of $307,100.

If you are in the market for a home, contact a local Realtor. Working with a local sales professional will help you save money and time. Realtors know the community the best.

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Another Drop in Mortgage Rates

 

Mortgage interest rates have been rising from the record low rates that were seen at the beginning of 2021.  Good news for those that missed out, rates are showing a dip back towards record lows. Freddie Mac reported the 30 year fixed rates have dropped to 2.88% and the 15 year fixed rates have dropped to 2.22%. These are the lowest levels seen since the middle of February 2021.

"Since their peak at 3.18% in April, mortgage rates have declined by thirty basis points," said Sam Khater, Freddie Mac's chief economist. "While this decline is not large, it provides modest relief to borrowers who are purchasing in a market with strong home appreciation and scant inventory."

The rising house prices coupled with rising rates pushed some buyers back from purchasing. Now that the rates are dropping these buyers hopefully will start actively looking again.  George Ratiu of Realtor.com believes the rates will offset the higher home prices.

"For buyers seeking predictable monthly payments, the continuation of low rates will enable them to keep searching for a desirable home with the peace of mind that their housing costs will remain steady for years to come with a low fixed-rate mortgage," he said.

Another positive outcome in the home market is the home inventory is up 5%.  Sellers are encouraged by the rising home prices and are now putting their homes on the market.

"The influx of fresh listings is helping moderate record-breaking price growth, presenting more opportunities for buyers. However, affordability will remain a challenge for many first-time buyers, as the monthly payment for the typical home is still $116 higher this week than it was a year ago."

Refinancing dropped in June 2021 due to the rising rates.  June 2021 saw refinancing 30% lower than in March of 2021 and 60% down from January 2021.  Now since the rates are dipping again, now is a good time for homeowners to revisit refinancing.

If you are in the market for a new home, contact a Realtor who can help with the process from start to finish.  This is a great time for potential homebuyers to take advantage of the low mortgage rates.

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How A Down Payment Can Affect Your Purchasing Power

Down payments are a big part of purchasing a home with a mortgage  Your minimum down payment depends on the type of mortgage, the lender and your finances.

When borrowing money from a lender to purchase a home, the more cash you put down, the better your financing terms will be. It is important to understand what a down payment is and how much cash you need to have. A down payment is the cash that is put down on a large purchase such as a car or a home. The amount of the down payment is usually a percentage of the total amount of the cost. A $350,000 home with a down payment of 10% would be $35,000.

Different lenders and different loans will require a different percentage of the whole cost for the down payment. If you are obtaining a VA loan or a USDA loan you are not required to make a down payment because these are backed by the federal government. The magic number in most cases, when it comes to a down payment, is 20%. With most lenders, 20% down on the purchase of a home will give you a good mortgage rate and allow you to bypass mortgage insurance. An FHA loan that is backed by the FDA, requires a minimum of 3.5% of the purchase price. Many conventional loans (Fannie Mae HomeReady and Freddie Mac Home Possible) mortgages require as little as 3% down.

Remember, a larger down payment will get you a better mortgage interest rate, lower upfront and ongoing fees, more equity in your home from the start and a lower mortgage payment. Lenders like a larger down payment because the risk becomes lower for them. A professional lender can help you through this process. They can help you determine how much to put down and how it affects your monthly mortgage amount.

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Steps To Take Prior to Obtaining a Mortgage

Applying for a mortgage is one of the most important steps in purchasing a home unless you are lucky enough to just pay cash. Getting a mortgage is a big stress factor when it comes to buying a home. Planning can help the process run much smoother. Below are six important facts to know when it comes to mortgaging your dream home.

1. Define a realistic budget

What you can afford makes a big difference when budgeting for a home purchase. Apply for a loan that you know you will be able to pay. Your monthly mortgage payment should be 28% of your income according to most lender's standards. If you have any other monthly debt payments, those added to your monthly mortgage payment should not exceed 36% of your total income.

2. Improve Your DTI (debt-to-income) ratio

This is a very important figure to a lender. A lender will want to know your DTI ratio to determine how much they can loan you. You are in luck if your DTI is 0 - 36% because you should have no problem with your desired mortgage. If your DTI is above the desired percentage you still can obtain a mortgage by lowering your DTI. A good way to accomplish this is to reduce or pay off current debts.

3. Make a huge down payment

The higher your down-payment the better your rates will be. A high down payment can also allow you to have better terms with your mortgaging services. Your monthly DTI can be reduced if you have a lower mortgage payment due to a big down-payment usually over 20% of your borrowing amount.

4. Boost your credit score

Your credit score can also boost or hinder your loan rate. If your credit score is low, avoid debts, make your payments on time to help boost your credit score.

5. Prepare the necessary paperwork

When you are applying for a mortgage, you will need to provide a lot of paperwork. The lender will ask for things such as pay stubs from the past month, your tax returns for at least a year, and bank statements for a few months. Some lenders might also ask for credit cards, loan statements, retirement funds, and other investments.

Being prepared and having everything in line will make the mortgage application process run smoothly and will be less stressful. Remember using a mortgage lender and a Realtor is the best way to ensure a smooth transaction.

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Tips On How To Budget For Home Renovations

 

Whether it is a full renovation or just some minor updates, it is always important that you budget for your home remodel. The rule of thumb is that most upgrades or renovations increase your home’s value but this is not always the case if you do not stick to your budget and renovation plan. Here are five things to do when determining your budget for the project.

 

Estimate home renovation costs

Just like any other investment you do not want to put more money into the project than you can get in return. First, determine the value of your home.  If you are updating specific rooms, you will want to determine the percentage of worth of the room.

A kitchen accounts for 10 to 15 percent of the home’s total value. For example, if your home is worth $200,000 you will want to spend no more than $30,000 on the total kitchen project. If you are looking for the biggest bang for your buck, then a mid-range bathroom remodel will get you the best return on your investment.

Consider home remodeling loan options

It can take a lot of cash to do a big renovation and this can sometimes detour homeowners. There are many loans that are available for this specific purpose.

One option is to refinance your home. Right now mortgage rates are at an all-time low, so you have the option of refinancing for an amount higher than you currently owe. You will be able to pay off your current loan and have cash left over for your home improvements.

Another option is to Cash-out refinance by taking your existing loan and refinancing it for more than you currently owe. You will then have enough money to pay off your original mortgage and make your renovations.

Many homeowners do not want to take the refinancing option, but they still have options. A home equity line of credit (HELOC) that works like a credit card is a way to go. You are given a set limit that you can borrow against.

A home equity loan can also get you the money you need for your projects. With this option, you take out all of the cash at one time. This will be in addition to your original mortgage.

Get home renovation quotes from contractors

It is always a wise decision to go into a project with some sort of estimate on how much the project will cost. A contractor will be able to give you an estimate based on your project. You will want to allow for more cost because a project usually costs more than what the estimate states. The more information you are able to give a contractor the closer the estimate can be to the true cost.

Just like shopping around for the best price or best product, it is always wise to get several quotes from several different contractors. Never just take the lowest bid, make sure you know what materials are being used and the process the contract will take to complete your project. Lower bids tend to be a sign that the contractor cuts corners.

Stick to the home remodeling plan

Just like a trip to the grocery store, to stay on budget you have to stick to your grocery list. It is always a temptation to add little projects here and there to your current remodeling project. These last-minute additions can add up. Remember that every time you change your mind even little changes can be costly to your budget.

Account for hidden home renovation costs

As mentioned before an estimate is only an estimate. The project might look like an easy fix, but there might be other issues lurking beneath the surface. Always give yourself a cushion upfront. Every contractor can agree that most renovation projects usually cost more due to hidden imperfections. Add 10 to 20 percent to your estimated project cost.

Home improvements are in most homeowners’ reach, the trick is figuring out how to plan a home renovation that doesn’t break the bank. It is best to consult with professionals such as a mortgage lender and contractor to help with estimated cost and obtaining the money to give the go-ahead.

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New Construction Homes Are in Demand but Face Many Challenges

Photo by David McBee from Pexels

 The current housing market is strong and new construction homes are in demand. In fact, builder confidence is on the side of new construction as sales have blown expectations. The new construction interest is stemmed from a shortage of listings and record low mortgage rates.

Zillow New Construction Consumer Housing Trends Report 2020 shows that almost half of those who purchased a newly built home in the past two years only looked at new construction. For the 40% who would only look at new construction, the other 60% did consider purchasing an existing home.

Last year not only brought confusion with a global pandemic but also hindered materials, shipping and timelines in new construction. The report revealed that 80% of those who purchased new construction found some part of the purchase process challenging.

Demographics played a big part in the data shown of those who struggled with purchasing new construction. Close to 45% of new construction buyers were under the age of 40 and out of those 70% purchased their first home.

Fair price also was one of the top challenges. Last year 30% said that a fair price was a challenge while this year 37% express issues with fair pricing. Prices are hard to gauge because of the shortage of inventory. There are not enough sales to compare pricing.

Thirty-six percent of home buyers were concerned with the sale of their current home with the completion of their new home. Thirty-five percent admitted they are overwhelmed and doubt some of the processing of building and purchasing a new home.

Using a Realtor can help overcome these challenges. A Realtor can help with communication between the builder and buyer. Fifty-one percent of those purchasing a new construction home asked their Realtor to handle communications with the builder. A Realtor can educate buyers regarding financing and pricing and help buyers with timelines and delays. A Realtor can make purchasing a new construction home a breeze.

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