Monday, July 19th, 2021
In today’s real estate market, mortgage interest rates are near record lows. If you’ve been in your current home for several years and haven’t refinanced lately, there’s a good chance you have a mortgage with an interest rate higher than today’s average. Here are some options you should consider if you want to take advantage of today’s current low rates before they rise.
Sell and Move Up (or Downsize)
Many of today’s homeowners are rethinking what they need in a home and redefining what their dream home means. For some, continued remote work is bringing about the need for additional space. For others, moving to a lower cost-of-living area or downsizing may be great options. If you’re considering either of these, there may not be a better time to move. Here’s why.
The chart below shows average mortgage rates by decade compared to where they are today:Today’s rates are below 3%, but experts forecast rates to rise over the next few years.
If the interest rate on your current mortgage is higher than today’s average, take advantage of this opportunity by making a move and securing a lower rate. Lower rates mean you may be able to get more house for your money and still have a lower monthly mortgage payment than you might expect.
Waiting, however, might mean you miss out on this historic opportunity. Below is a chart showing how your monthly payment will change if you buy a home as mortgage rates increase:
Breaking It All Down:
Using the chart above, let’s look at the breakdown of a $300,000 mortgage:
- When mortgage rates rise, so does the monthly payment you can secure.
- Even the smallest increase in rates can make a difference in your monthly mortgage payment.
- As interest rates rise, you’ll need to look at a lower-priced home to try and keep the same target monthly payment, meaning you may end up with less home for your money.
No matter what, whether you’re looking to make a move up or downsize to a home that better suits your needs, now is the time. Even a small change in interest rates can have a big impact on your purchasing power.
If making a move right now still doesn’t feel right for you, consider refinancing. With the current low mortgage rates, refinancing is a great option if you’re looking to lower your monthly payments and stay in your current home.
Take advantage of today’s low rates before they begin to rise. Whether you’re thinking about moving up, downsizing, or refinancing, let’s connect today to discuss which option is best for you.
Thursday, July 15th, 2021
Last week, Fannie Mae released their Home Purchase Sentiment Index (HPSI). Though the survey showed 77% of respondents believe it’s a “good time to sell,” it also confirms what many are sensing: an increasing number of Americans believe it’s a “bad time to buy” a home. The percentage of those surveyed saying it’s a “bad time to buy” hit 64%, up from 56% last month and 38% last July.
The latest HPSI explains:
“Consumers also continued to cite high home prices as the predominant reason for their ongoing and significant divergence in sentiment toward homebuying and home-selling conditions. While all surveyed segments have expressed greater negativity toward homebuying over the last few months, renters who say they are planning to buy a home in the next few years have demonstrated an even steeper decline in homebuying sentiment than homeowners. It’s likely that affordability concerns are more greatly affecting those who aspire to be first-time homeowners than other consumer segments.”
Let’s look closely at the market conditions that impact home affordability.
A mortgage payment is determined by the price of the home and the mortgage rate on the loan used to purchase it. Lately, monthly mortgage payments have gone up for buyers for two key reasons:
- Mortgage rates have increased from 2.65% this past January to 2.9%.
- Home prices have increased by 15.4% over the last 12 months.
Based on these rising factors, a home may be less affordable today, but it doesn’t mean it’s not affordable.
Three weeks ago, ATTOM Data released their second-quarter 2021 U.S. Home Affordability Report which explained that the major ownership costs on the typical home as a percent of the average national wage had increased from 22.2% in the second quarter of 2020 to 25.2% in the second quarter of this year. They also went on to explain:
“Still, the latest level is within the 28 percent standard lenders prefer for how much homeowners should spend on mortgage payments, home insurance and property taxes.”
In the same report, Todd Teta, Chief Product Officer with ATTOM, confirms:
“Average workers across the country can still manage the major expenses of owning a home, based on lender standards.”
It’s true that monthly mortgage payments are greater than they were last year (as the ATTOM data shows), but they’re not unaffordable when compared to the last 30 years. While payments have increased dramatically during that several-decade span, if we adjust for inflation, today’s mortgage payments are 10.7% lower than they were in 1990.
What’s that mean for you? While you may not get the homebuying deal someone you know got last year, that doesn’t mean you shouldn’t still buy a home. Here are your alternatives to buying and the trade-offs you’ll have with each.
Alternative 1: I’ll rent instead.
Some may consider renting as the better option. However, the monthly cost of renting a home is skyrocketing. According to the July National Rent Report from Apartment List:
“…So far in 2021, rental prices have grown a staggering 9.2%. To put that in context, in previous years growth from January to June is usually just 2 to 3%. After this month’s spike, rents have been pushed well above our expectations of where they would have been had the pandemic not disrupted the market.”
If you continue to rent, chances are your rent will keep increasing at a fast pace. That means you could end up spending significantly more of your income on your rental as time goes on, which could make it even harder to save for a home.
Alternative 2: I’ll wait it out.
Others may consider waiting for another year and hoping that purchasing a home will be less expensive then. Let’s look at that possibility.
We’ve already established that a monthly mortgage payment is determined by the price of the home and the mortgage rate. A lower monthly payment would require one of those two elements to decrease over the next year. However, experts are forecasting the exact opposite:
- The Mortgage Bankers Association (MBA) projects mortgage rates will be at 4.2% by the end of next year.
- The Home Price Expectation Survey (HPES), a survey of over 100 economists, investment strategists, and housing market analysts, calls for home prices to increase by 5.12% in 2022.
Based on these projections, let’s see the possible impact on a monthly mortgage payment:By waiting until next year, you’d potentially pay more for the home, need a larger down payment, pay a higher mortgage rate, and pay an additional $3,696 each year over the life of the mortgage.
While you may have missed the absolute best time to buy a home, waiting any longer may not make sense. Mark Fleming, Chief Economist at First American, says it best:
“Affordability is likely to worsen before it improves, so try to buy it now, if you can find it.”