Even in today’s competitive market, it’s important not to waive an appraisal or inspection. Let’s connect so you can feel empowered when you submit an offer on the home of your dreams.
Remote Work Trends Mean Flexibility for First-Time Homebuyers
Today’s low inventory can be challenging for homebuyers, especially if you’re looking to purchase your first home. But if you’re one of many people who work remotely, you may have a great opportunity to use the flexibility you have at work to achieve your homebuying goals this year.
In a recent report, Arch Capital Services explains how the ongoing trend of remote work can open up more options for homebuyers:
“. . . This will enable those who are able to work from home on a part-time or hybrid basis to move slightly farther away from job centers. . . . For workers who secure full-time remote jobs, their place of residence will be determined by affordability and personal preferences.”
Extra Flexibility in Your Career Means Extra Flexibility in Your Home Search
If your job is 100% remote, you don’t have to be tied to a specific location or office. So, if you’ve been having a hard time finding what you want in your local area, it may be time to expand your search.
One option you could consider is moving to a place where you’ve always wanted to live, like the mountains, beach, or closer to loved ones. When you broaden your search radius to include those locations, it’ll give you additional homes to consider.
It could also allow you to search for a more affordable location where you have more options in your price range. This can help you achieve two goals – saving money and finding additional features that meet your needs. To truly highlight this benefit, a recent First American article discusses the great ways remote work can really help you with your homebuying goals. Ksenia Potapov, Economist at First American, says:
“For potential first-time home buyers, leveraging their house-buying power in more affordable markets can also help them buy more attractive homes – more square footage and rooms, more options for different home styles and neighborhood amenities – increasing the opportunity to find a home that suits their preferences.”
Remote work doesn’t just give you expanded flexibility for your career. If you’re no longer tied to a location because of your office, you have a great opportunity to expand your housing search. Let’s connect to explore how this can open up your options.
10 Cities where new listings are actually RISING.
Finding homes is tough everywhere, but in some cities, builders have been working overtime to meet the surging demand. [Realtor.com]
Which of the following is the most challenging, seemingly intractable pain point faced by home buyers in 2022?
NO HOMES FOR SALE!!
Builders put up new homes at a rapid pace to meet demands. Check out the the areas where housing inventory is rising and you probably won’t have trouble finding your dream home.
Click on link to read more.
http://lstrep.co/4c5lL6Txu , Click on link for the best advice if you are considering selling you home this year.
The real estate market is soaring today. Residential home values are rising, and that’s a big win for homeowners. In 2020, there was a double-digit increase in home values – a trend that’s expected to head toward similar levels this year.
However, skyrocketing prices are causing some to start questioning affordability in the current housing market. Many are quick to emphasize the fact that homes today are less affordable than they were last year. Black Knight, a leading provider of data and analytics across the homeownership life cycle, just reported on the issue.
The findings show the historical averages of the national payment to income ratio, which they define as “the share of the median income needed to make the monthly payments on the median-priced home.” Their study reveals:
- The average over the last 25 years was 23.6%
- The average over the last 5 years was 20.1%
- The average today stands at 20.5%
Right now, housing payments are slightly less affordable than the five-year average – but only by less than ½ a percentage point. However, they’re significantly more affordable than the 25-year average. Put another way, a buyer will likely make a slightly greater financial sacrifice to afford a home right now than if they purchased a home within the last five years. On the other hand, it also means the potential financial sacrifice is not nearly as great as it was over the last 25 years.
Does making a sacrifice to buy a home today make financial sense in the long term?
Last week, the Federal Reserve announced that, in the first three months of the year, household net worth increased by $968 billion based solely on the values of the real estate they owned. Another report from CoreLogic reveals the average annual gain in homeowner equity was $33,400 per borrower.
Homeownership continues to be the cornerstone to building personal wealth. For most Americans, their home is the largest asset they own. On top of that, the difference between the net worth of homeowners and renters is significant at every income level. Here’s a table detailing that point using data from a study done by First American:Owning a home is an essential steppingstone to grow a household’s net worth. Despite the slightly greater sacrifice in the percentage of monthly income you’ll spend on housing today, for most homebuyers, the payoff of starting to build equity now will be worth it.
Since prices have risen dramatically over the past 18 months, it’s slightly less affordable to buy a home today than it was a year ago. However, when you consider the equity gain and weigh the long-term benefits of building your net worth, you may question if you can afford not to buy now.
Buying a Home Is Still Affordable
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:
- Mortgage Rates
- Mortgage Payments as a Percentage of Income
- 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:The 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.
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.
There’s No Reason To Panic Over Today’s Lending Standards
Today, some are afraid the real estate market is starting to look a lot like it did in 2006, just prior to the housing crash. One of the factors they’re pointing to is the availability of mortgage money. Recent articles about the availability of low down payment loans and down payment assistance programs are causing fear that we’re returning to the bad habits seen 15 years ago. Let’s alleviate these concerns.
Several times a year, the Mortgage Bankers Association releases an index titled The Mortgage Credit Availability Index (MCAI). According to their website:
“The MCAI provides the only standardized quantitative index that is solely focused on mortgage credit. The MCAI is…a summary measure which indicates the availability of mortgage credit at a point in time.”
Basically, the index determines how easy it is to get a mortgage. The higher the index, the more available mortgage credit becomes. Here’s a graph of the MCAI dating back to 2004, when the data first became available:As we can see, the index stood at about 400 in 2004. Mortgage credit became more available as the housing market heated up, and then the index passed 850 in 2006. When the real estate market crashed, so did the MCAI (to below 100) as mortgage money became almost impossible to secure. Thankfully, lending standards have eased somewhat since. The index, however, is still below 150, which is about one-sixth of what it was in 2006.
Why did the index rage out of control during the housing bubble?
The main reason was the availability of loans with extremely weak lending standards. To keep up with demand in 2006, many mortgage lenders offered loans that put little emphasis on the eligibility of the borrower. Lenders were approving loans without always going through a verification process to confirm if the borrower would likely be able to repay the loan.
Some of these loans offered attractive, low interest rates that increased over time. The loans were popular because they could be obtained quickly and without the borrower having to provide documentation up front. However, as the rates increased, borrowers struggled to pay their mortgages.
Today, lending standards are much tighter. As Investopedia explains, the risky loans given at that time are extremely rare today, primarily because lending standards have drastically improved:
“In the aftermath of the crisis, the U.S. government issued new regulations to improve standard lending practices across the credit market, which included tightening the requirements for granting loans.”
An example of the relaxed lending standards leading up to the housing crash is the FICO® credit score associated with a loan. What’s a FICO® score? The website myFICO explains:
“A credit score tells lenders about your creditworthiness (how likely you are to pay back a loan based on your credit history). It is calculated using the information in your credit reports. FICO® Scores are the standard for credit scores—used by 90% of top lenders.”
During the housing boom, many mortgages were written for borrowers with a FICO score under 620. Experian reveals that, in today’s market, lenders are more cautious about lower credit scores:
“Statistically speaking, 28% of consumers with credit scores in the Fair range are likely to become seriously delinquent in the future…Some lenders dislike those odds and choose not to work with individuals whose FICO® Scores fall within this range.”
There are definitely still loan programs that allow a 620 score. However, lending institutions overall are much more attentive about measuring risk when approving loans. According to Ellie Mae’s latest Origination Insight Report, the average FICO® score on all loans originated in February was 753.
The graph below shows the billions of dollars in mortgage money given annually to borrowers with a credit score under 620.In 2006, mortgage entities originated $376 billion dollars in loans for purchasers with a score under 620. Last year, that number was only $74 billion.
In 2006, lending standards were much more relaxed with little evaluation done to measure a borrower’s potential to repay their loan. Today, standards are tighter, and the risk is reduced for both lenders and borrowers. These are two very different housing markets, so there’s no need to panic over today’s lending standards.