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Is Homeownership Still Considered Part of the American Dream?

Posted on March 31, 2021 by Joey Torkildson - Buying Myths, Demographics, First Time Home Buyers, For Buyers, Millennials

Since the birth of our nation, homeownership has always been considered a major piece of the American Dream. As Frederick Peters reports in Forbes:

“The idea of a place of one’s own drives the American story. We became a nation out of a desire to slip the bonds of Europe, which was still in many respects a collection of feudal societies. Old rich families, or the church, owned all the land and, with few exceptions, everyone else was a tenant. The magic of America lay not only in its sense of opportunity, but also in the belief that life could in every way be shaped by the individual. People traveled here not just for religious freedom, but because in America anything seemed possible.”

Additionally, a research paper released just prior to the shelter-in-place orders issued last year concludes:

“Homeownership is undeniably the cornerstone of the American Dream, and is inseparable from our national ethos that, through hard work, every American should have opportunities for prosperity and success. It is the stability and wealth creation that homeownership provides that represents the primary mechanism through which many American families are able to achieve upward socioeconomic mobility and greater opportunities for their children.”

Has the past year changed the American view on homeownership?

Definitely not. A survey of prospective homebuyers released by realtor.com last week reveals that becoming a homeowner is still the main reason this year’s first-time homebuyers want to purchase a home. When asked why they want to buy, three of the top four responses center on the financial benefits of owning a home. The top four reasons for buying are:

59% – “I want to be a homeowner”
33% – “I want to live in a space that I can invest in improving”
31% – “I need more space”
22% – “I want to build equity”

Millennials believe most strongly in homeownership.

The survey also reports that 62% of millennials say a desire to be a homeowner is the main reason they’re buying a home. This contradicts the thinking of some experts who had believed millennials were going to be the first “renter generation” in our nation’s history.

While reporting on the survey, George Ratiu, Senior Economist at realtor.com, said:

“Americans, even millennials who many thought would never buy, have a strong preference for homeownership for the same reasons many generations before them have — to invest in a place of their own and in their communities, and to build a solid financial foundation for themselves and their families.”

Odeta Kushi, Deputy Chief Economist for First American, also addresses millennial homeownership:

“Millennials have delayed marriage and having children in favor of investing in education, pushing marriage and family formation to their early-to-mid thirties, compared with previous generations, who primarily made these lifestyle choices in their twenties…Delayed lifestyle choices delay the desire for homeownership.”

Kushi goes on to explain:

“As more millennials get married and form families, millennials remain poised to transform the housing market. In fact, the housing market is already experiencing the earliest gusts of the tailwind.”

Bottom Line

As it always has been and very likely always will be, homeownership continues to be a major component in every generation’s pursuit of the American Dream.

How a Change in Mortgage Rate Impacts Your Homebuying Budget

Posted on March 30, 2021 by Joey Torkildson - First Time Home Buyers, For Buyers, Interest Rates, Move-Up Buyers, Pricing

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.

Buyer & Seller Perks in Today’s Housing Market

Posted on March 25, 2021 by Joey Torkildson - For Buyers, For Sellers, Housing Market Updates, Interest Rates

Right now, the housing market is full of outstanding opportunities for both buyers and sellers. Whether you’re thinking of buying your first home, moving up to a bigger one, or selling so you can downsize this spring, there are perks today that are powering big moves for people across the country. Here are the top two to keep on the radar this season.

The Biggest Perk for Buyers: Low Mortgage Rates

Today’s most compelling buyer incentive is low mortgage interest rates. The 30-year fixed-rate is now averaging just over 3%. While that’s slightly higher than the record-lows from 2020 and earlier this year, it’s still way lower than historic norms, making purchasing a home an ongoing perk for hopeful buyers (See graph below):This is a huge advantage for buyers and helps to make owning a home attainable for more households – and there’s good reason to strive for homeownership. The latest Homeowner Equity Report from CoreLogic shows how homeowners saw major gains in their net worth last year, all thanks to owning a home. Frank Martell, President and CEO of CoreLogic, explains:

“Positive factors like record-low interest rates and a booming housing market encouraged many families to enter homeownership. This growing bank of personal wealth that homeownership affords was noticed by many but in particular for first-time buyers who want a piece of the cake. As a result, we may see more of those currently renting start to enter the market in the near future.”

Low mortgage rates are a plus for buyers right now, but experts forecast we’ll see them continue to rise as the year goes on. If you’re ready to purchase a home, it’s wise to get started on the process soon so you can secure today’s comparatively low rate.

The Biggest Perk for Sellers: Low Inventory

Today, there are simply not enough houses on the market for the number of buyers looking to purchase them, and it’s creating a serious sellers’ market. According to Danielle Hale, Chief Economist at realtor.com:

“Total active inventory continues to decline, dropping 50 percent. With buyers active in the market and sellers still slow to put homes up for sale, homes are selling quickly and the total number actively available for sale at any point in time continues to decline.” (See map below):

The lack of houses for sale continues to challenge the market, and with low mortgage rates fueling buyer demand, homes are hard for buyers to find today. According to the latest Realtors Confidence Index Survey by the National Association of Realtors (NAR), the average house is now receiving 4.1 offers and is on the market for only 20 days.

Buyers are clearly eager to purchase, and because of the shortage of inventory available, they’re often entering bidding wars. This is one of the factors keeping home prices strong and giving sellers leverage in the negotiation process.

Homeowners who are in a position to sell shouldn’t wait to make their move. There’s a light at the end of the tunnel for today’s inventory shortage, so listing this spring will get your house on the market when conditions are most favorable. With low inventory and high buyer demand, homeowners can potentially earn a greater profit on their houses and sell them quickly in the fast-paced spring market.

Bottom Line

Whether you’re thinking about buying or selling a home, there are major perks available in today’s housing market. Let’s connect today to discuss how these favorable conditions play to your advantage in our local area.

Why You Should Think About Listing Prices Like an Auction’s Reserve Price

Posted on March 24, 2021 by Joey Torkildson - Buying Myths, First Time Home Buyers, For Buyers, Housing Market Updates, Move-Up Buyers, Pricing

For generations, the homebuying process never really changed. The seller would try to estimate the market value of the home and tack on a little extra to give themselves some negotiating room. That figure would become the listing price of the house. Buyers would then try to determine how much less than the full price they could offer and still get the home. The asking price was generally the ceiling of the negotiation. The actual sales price would almost always be somewhat lower than the list price. It was unthinkable to pay more than what the seller was asking.

Today is different.

The record-low supply of homes for sale coupled with very strong buyer demand is leading to a rise in bidding wars on many homes. Because of this, homes today often sell for more than the list price. In some cases, they sell for a lot more.

According to the Home Buyers and Sellers Generational Trends report just released by the National Association of Realtors (NAR), 45% of buyers paid full price or more.

You may need to change the way you look at the asking price of a home.

In this market, you likely can’t shop for a home with the old-school mentality of refusing to pay full price or more for a house.

Because of the shortage of inventory of houses for sale, many homes are actually being offered in an auction-like atmosphere in which the highest bidder wins the home. In an actual auction, the seller of an item agrees to take the highest bid, and many sellers set a reserve price on the item they’re selling. A reserve price is the minimum amount a seller will accept as the winning bid.

When navigating a competitive housing market, think of the list price of the house as the reserve price at an auction. It’s the minimum the seller will accept in many cases. Today, the asking price is often becoming the floor of the negotiation rather than the ceiling. Therefore, if you really love a home, know that it may ultimately sell for more than the sellers are asking. So, as you’re navigating the homebuying process, make sure you know your budget, know what you can afford, and work with a trusted advisor who can help you make all the right moves as you buy a home.

Bottom Line

Someone who’s more familiar with the housing market of the past than that of today may think offering more for a home than the listing price is foolish. However, frequent and competitive bidding wars are creating an auction-like atmosphere in many real estate transactions. Let’s connect so you have the best advice on how to make a competitive offer on a home in our local market.

Should We Fear the Surge in Cash-Out Refinances?

Posted on March 23, 2021 by Joey Torkildson - For Buyers, For Sellers, Housing Market Updates

Freddie Mac recently released their Quarterly Refinance Statistics report which covers refinances through 2020. The report explains that the dollar amount of cash-out refinances was greater in 2020 than in recent years. A cash-out refinance, as defined by Investopia, is:

“a mortgage refinancing option in which an old mortgage is replaced for a new one with a larger amount than owed on the previously existing loan, helping borrowers use their home mortgage to get some cash.”

The Freddie Mac report led to articles like the one published by The Real Deal titled, House or ATM? Cash-Out Refinances Spiked in 2020, which reports:

“Americans treated their homes like ATMs last year, withdrawing $152.7 billion amid a cash-out refinancing spree not seen since before the 2008 financial crisis.”

Whenever you combine the terms “spiked,” “homes like ATMs,” and “financial crisis,” it conjures up memories of the housing crash we experienced in 2008.

However, that comparison is invalid for three reasons:

1. Americans are sitting on much more home equity today.

Mortgage data giant Black Knight just issued information on the amount of tappable equity U.S. homeowners with a mortgage have. Tappable equity is the amount of equity available for homeowners to use and still have 20% equity in their home. Here’s a graph showing the findings from their report:In 2006, directly before the crash, tappable home equity in the U.S. topped out at $4.6 trillion. Today, that number is $7.3 trillion.

As Black Knight explains:

“At year’s end, some 46 million homeowners held a total $7.3 trillion in tappable equity, the largest amount ever recorded…That’s an increase of more than $1.1 trillion (+18%) since the end of 2019, the largest percentage gain since 2013 and – you guessed it – the largest dollar value gain in history, to boot. All in all, it works out to roughly $158,000 on average per homeowner with tappable equity, up nearly $19,000 from the end of 2019.”

2. Homeowners cashed-out a much smaller amount this time.

In 2006, Americans cashed-out a total of $321 billion. In 2020, that number was less than half, totaling $153 billion. The $321 billion made up 7% of the total tappable equity in the country in 2006. On the other hand, the $153 billion made up only 2% of the total tappable equity last year.

3. Fewer homeowners tapped their equity in 2020 than in 2006.

Freddie Mac reports that 89% of refinances in 2006 were cash-out refinances. Last year, that number was less than half at 33%. As a percentage of those who refinanced, many more Americans lowered their equity position fifteen years ago as compared to last year.

Bottom Line

It’s true that many Americans liquidated a portion of the equity in their homes last year for various reasons. However, less than half of them tapped their equity compared to 2006, and they cashed-out less than one-third of that available equity. Today’s cash-out refinance situation bears no resemblance to the situation that preceded the housing crash.

What Credit Score Do You Need for a Mortgage?

Posted on March 22, 2021 by Joey Torkildson - Buying Myths, First Time Home Buyers, For Buyers, Move-Up Buyers

According to data from the most recent Origination Insight Report by Ellie Mae, the average FICO® score on closed loans reached 753 in February. As lending standards have tightened recently, many are concerned over whether or not their credit score is strong enough to qualify for a mortgage. While stricter lending standards could be a challenge for some, many buyers may be surprised by the options that are still available for borrowers with lower credit scores.

The fact that the average American has seen their credit score go up in recent years is a great sign of financial health. As someone’s score rises, they’re building toward a stronger financial future. As more Americans with strong credit enter the housing market, we see a natural increase in the FICO® score distribution of closed loans, as shown in the graph below:If your credit score is below 750, it’s easy to see this data and fear that you may not be able to qualify for a mortgage. However, that’s not always the case. While the majority of borrowers right now do have a score above 750, there’s more to qualifying for a mortgage than just the credit score, and there are still options that allow people with lower credit scores to buy their dream home. Here’s what Experian, a global leader in consumer and business credit reporting, says:

Federal Housing Administration (FHA) loans: “With a 3.5% down payment, homebuyers may be able to get an FHA loan with a 580 credit score or higher. If you can manage a 10% down payment, though, that minimum goes as low as 500.”
Conventional loans: “The most popular loan type typically comes with a 620 minimum credit score.”
S. Department of Agriculture (USDA) loans: “In general, lenders require a minimum credit score of 640 for a USDA loan, though some may go as low as 580.”
S. Department of Veterans Affairs (VA) loans: “VA loans don’t technically have a minimum credit score, but lenders will typically require between 580 and 620.”

There’s no doubt a higher credit score will give you more options and better terms when applying for a mortgage, especially when lending is tight like it is right now. When planning to buy a home, speaking to an expert about steps you can take to improve your credit score is essential so you’re in the best position possible. However, don’t rule yourself out if your score is less than perfect – today’s market is still full of opportunity.

Bottom Line

Don’t let assumptions about whether your credit score is strong enough put a premature end to your homeownership goals. Let’s connect today to discuss the options that are best for you.

What Is the Strongest Tailwind to Today’s Recovering Economy?

Posted on March 17, 2021 by Joey Torkildson - For Buyers, For Sellers, New Construction

Last year started off with a bang. Unemployment was under 4%, forecasters were giddy with their projections for the economy, and the residential housing market had the strongest January and February activity in over a decade.

Then came the announcement on March 11, 2020, from the World Health Organization declaring COVID-19 a worldwide pandemic. Two days later, the White House declared it a national emergency. Businesses and schools were forced to close, shelter-in-place mandates were enacted, and the economy came to a screeching halt. As a result, unemployment in this country skyrocketed to 14.9%.

A year later, the economy is recovering, and the U.S. has regained more than half of the jobs that were originally lost. However, some businesses are still closed, and many schools are still struggling to reopen. Despite the past and current challenges, there is one industry that’s proven to be a tailwind helping to counter all of these headwinds to our economy. That industry is housing. Remarkably, the residential real estate market (including existing homes and new construction) has flourished over the last twelve months. Sales are up, prices are appreciating, and more new homes are being built. The housing market has been a pillar of strength in an otherwise slowly recovering economy.

How does the real estate market help the economy?

At the beginning of the pandemic, the National Association of Realtors (NAR) released a report that explained:

“Real estate has been, and remains, the foundation of wealth building for the middle class and a critical link in the flow of goods, services, and income for millions of Americans. Accounting for nearly 18% of the GDP, real estate is clearly a major driver of the U.S. economy.”

The report calculated the total economic impact of real estate-related industries on the economy as well as the expenditures that resulted from a single home sale. At a national level, their research revealed that a single newly constructed home had an economic impact of $88,416.

Here’s how it breaks down:The map below shows the impact by state:The impact of an existing home sale is approximately $40,000.

Real estate has done more for our economic wellbeing than virtually any other industry over the last year. It’s been a beacon of light during a very challenging time in our nation’s history.

Bottom Line

Whether you’re buying a newly constructed home or one that already exists, you’re making a positive economic impact in your local community – and it’s a step toward your homeownership goals as well.

What Is the #1 Financial Benefit of Homeownership?

Posted on March 16, 2021 by Joey Torkildson - First Time Home Buyers, For Buyers, For Sellers, Housing Market Updates

There are many financial and non-financial benefits of homeownership, and the greatest financial one is wealth creation. Homeownership has always been the first rung on the ladder that leads to forming household wealth. As Freddie Mac explains:

“Homeownership has cemented its role as part of the American Dream, providing families with a place that is their own and an avenue for building wealth over time. This ‘wealth’ is built, in large part, through the creation of equity…Building equity through your monthly principal payments and appreciation is a critical part of homeownership that can help you create financial stability.”

Odeta Kushi, Deputy Chief Economist at First American, also notes:

“The wealth-building power of homeownership shows that home is not only where your heart is, but also where your wealth is…For the majority of households that transition into homeownership, the most recent data reinforces that housing is one of the biggest positive drivers of wealth creation.”

Last week, CoreLogic released their latest Homeowner Equity Insights Report, which reveals the surge in wealth created over the last twelve months through increased home equity. The report makes five key points:

Roughly 38% of all homes are mortgage-free
The average equity gain of mortgaged homes in the last year was $26,300
The current average equity of mortgaged homes is greater than $200,000
There was a 16.9% increase in total homeowner equity
Total homeowner equity reached over $1.5 trillion

Here’s a map that shows the equity gains by state:Increasing equity is giving homeowners the power to better manage the challenges of the pandemic, especially for those spending more time at home. In the report, Frank Nothaft, Chief Economist for CoreLogic, explains:

“This equity growth has enabled many families to finance home remodeling, such as adding an office or study, further contributing to last year’s record level in home improvement spending.”

The financial advantage homeowners have has not gone unnoticed. In the same report, Frank Martell, President and CEO of CoreLogic, states:

“This growing bank of personal wealth that homeownership affords was noticed by many but in particular for first-time buyers who want a piece of the cake.”

Increasing wealth benefits more than just homeowners.

Last year, the Rosen Consulting Group released a report outlining the benefits of homeownership. In that report, they explained what an increase in net worth – which they call the “wealth effect” – means to the economy:

“In economic literature, the wealth effect is a term used to describe the fact that individuals have a tendency to increase their spending habits when their actual or perceived wealth increases. For homeowners, the latent savings achieved by building equity in their home and the growth in home values over time both contribute to increased net worth. Through the wealth effect, this in turn translates to households having a greater ability and willingness to spend money across a wide range of other types of goods and services that spur business activity and provide a positive multiplier effect that creates jobs and income throughout the economy.”

Bottom Line

Homeownership builds wealth through equity, and this creates a positive impact for homeowners and their communities. Let’s connect today if you’re ready to invest in a home of your own.

How to Make a Winning Offer on a Home

Posted on March 15, 2021 by Joey Torkildson - First Time Home Buyers, For Buyers, Move-Up Buyers

Today’s homebuyers are faced with a strong sellers’ market, which means there are a lot of active buyers competing for a relatively low number of available homes. As a result, it’s essential to understand how to make a confident and competitive offer on your dream home. Here are five tips for success in this critical stage of the homebuying process.

1. Listen to Your Real Estate Advisor

An article from Freddie Mac gives direction on making an offer on a home. From the start, it emphasizes how trusted professionals can help you stay focused on the most important things, especially at times when this process can get emotional for buyers:

“Remember to let your homebuying team guide you on your journey, not your emotions. Their support and expertise will keep you from compromising on your must-haves and future financial stability.”

A real estate professional should be the expert guide you lean on for advice when you’re ready to make an offer.

2. Understand Your Finances

Having a complete understanding of your budget and how much house you can afford is essential. The best way to know this is to get pre-approved for a loan early in the homebuying process. Only 44% of today’s prospective homebuyers are planning to apply for pre-approval, so be sure to take this step so you stand out from the crowd. Doing so make it clear to sellers you’re a serious and qualified buyer, and it can give you a competitive edge in a bidding war.

3. Be Prepared to Move Quickly

According to the latest Realtors Confidence Index from the National Association of Realtors (NAR), the average property sold today receives 3.7 offers and is on the market for just 21 days. These are both results of today’s competitive market, showing how important it is to stay agile and alert in your search. As soon as you find the right home for your needs, be prepared to submit an offer as quickly as possible.

4. Make a Fair Offer

It’s only natural to want the best deal you can get on a home. However, Freddie Mac also warns that submitting an offer that’s too low can lead sellers to doubt how serious you are as a buyer. Don’t make an offer that will be tossed out as soon as it’s received. The expertise your agent brings to this part of the process will help you stay competitive:

“Your agent will work with you to make an informed offer based on the market value of the home, the condition of the home and recent home sale prices in the area.”

5. Stay Flexible in Negotiations

After submitting an offer, the seller may accept it, reject it, or counter it with their own changes. In a competitive market, it’s important to stay nimble throughout the negotiation process. You can strengthen your position with an offer that includes flexible move-in dates, a higher price, or minimal contingencies (conditions you set that the seller must meet for the purchase to be finalized). Freddie Mac explains that there are, however, certain contingencies you don’t want to forego:

“Resist the temptation to waive the inspection contingency, especially in a hot market or if the home is being sold ‘as-is’, which means the seller won’t pay for repairs. Without an inspection contingency, you could be stuck with a contract on a house you can’t afford to fix.”

Bottom Line

Today’s competitive market makes it more important than ever to make a strong offer on a home. Let’s connect to make sure you rise to the top along the way.

Will the Housing Market Bloom This Spring?

Posted on March 11, 2021 by Joey Torkildson - For Buyers, For Sellers, Housing Market Updates, Interest Rates, New Construction, Pricing

Spring is almost here, and many are wondering what it will bring for the housing market. Even though the pandemic continues on, it’s certain to be very different from the spring we experienced at this time last year. Here’s what a few industry experts have to say about the housing market and how it will bloom this season.

Danielle Hale, Chief Economist, realtor.com:

“Despite early weakness, we expect to see new listings grow in March and April as they traditionally do heading into spring, and last year’s extraordinarily low new listings comparison point will mean year over year gains. One other potential bright spot for would-be homebuyers, new construction, which has risen at a year over year pace of 20% or more for the last few months, will provide additional for-sale inventory relief.”

Ali Wolf, Chief Economist, Zonda:

“Some people will feel comfortable listing their home during the first half of 2021. Others will want to wait until the vaccines are widely distributed. This suggests more inventory will be for sale in late 2021 and into the spring selling season in 2022.”

Freddie Mac:

“Since reaching a low point in January, mortgage rates have risen by more than 30 basis points… However, the rise in mortgage rates over the next couple of months is likely to be more muted in comparison to the last few weeks, and we expect a strong spring sales season.”

Mark Fleming, Chief Economist, First American:

“As the housing market heads into the spring home buying season, the ongoing supply and demand imbalance all but assures more house price growth…Many find it hard to believe, but housing is actually undervalued in most markets and the gap between house-buying power and sale prices indicates there’s room for further house price growth in the months to come.”

Bottom Line

The experts are very optimistic about the housing market right now. If you pressed pause on your real estate plans over the winter, let’s chat to determine how you can re-engage in the homebuying process this spring.

Has the past year changed the American view on homeownership?

Millennials believe most strongly in homeownership.

Bottom Line

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The Biggest Perk for Buyers: Low Mortgage Rates

The Biggest Perk for Sellers: Low Inventory

Bottom Line

Today is different.

You may need to change the way you look at the asking price of a home.

Bottom Line

1. Americans are sitting on much more home equity today.

2. Homeowners cashed-out a much smaller amount this time.

3. Fewer homeowners tapped their equity in 2020 than in 2006.

Bottom Line

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How does the real estate market help the economy?

Bottom Line

Increasing wealth benefits more than just homeowners.

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1. Listen to Your Real Estate Advisor

2. Understand Your Finances

3. Be Prepared to Move Quickly

4. Make a Fair Offer

5. Stay Flexible in Negotiations

Bottom Line

Danielle Hale, Chief Economist, realtor.com:

Ali Wolf, Chief Economist, Zonda:

Mark Fleming, Chief Economist, First American:

Bottom Line

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