The Perks of Owning More Than One Home

 

The Perks of Owning More Than One Home

Many things have changed over the past couple of years, and real estate is no exception. One impact is an increased desire to own more than one home. According to the recent Luxury Market Report from Luxury Home Marketing:

“As trends such as remote working and flexi-hours took hold in 2021, so too did the flexibility of relocating as well as the growth of second homeownership.”

This may be because the pandemic has altered how we think about our homes. Where we live has become, more than ever, our safe space and our getaway. And with the rise in remote work, more people are reconsidering where they want to live and buying second homes to give them greater flexibility. If you fall in that category, here are just a few of the perks you’ll enjoy, and how owning a second home may be a great decision for your lifestyle and your future.

Enjoy a Change in Scenery (or Weather)

When you have two homes, you can alternate between them as the weather changes or as you crave different scenery. Do you want to live in an area with a particular season? Would alternating between a resort and a suburban setting be ideal? With two homes, you have those options. Being able to move between homes based on which location best suits you at the time gives you added flexibility and variety that can help increase your happiness.

Build Your Wealth Faster

You may have heard that home equity is skyrocketing, thanks to ongoing home price appreciation. CoreLogic reports that the average homeowner gained $56,700 in equity over the last year. With home prices projected to continue rising, if you purchase a second home, you could benefit from rising equity on both properties to build your wealth (and your net worth) even faster.

Be Closer to Loved Ones

The pandemic has also reignited the importance of being near our loved ones. One option worth exploring is whether you want your second home to be near the people who matter most in your life. This makes it easier to see your loved ones but still gives you your own dedicated, private space so you can be nearby for major life events or longer visits.

Lock in Your Expenses

Buying a second home today and locking in your mortgage rate may be a good option if you’re looking to stabilize your housing costs for the long haul. If you’re approaching retirement or are looking to use your second home as your permanent residence in the future, buying that house now with today’s rate and price may be a good financial decision. That way, no matter what happens with rates and prices in years ahead, your monthly payment is locked in for the next 15-30 years.

Bottom Line

Having multiple homes has considerable benefits. If owning a second home is something you’re interested in, let’s connect to explore your options, discuss the benefits, and take the next step to start your home search.

Buyers: How to Put Your Best Foot Forward

Housing prices continue to climb, inventories continue to remain low, demand for housing is intense, and there’s absolutely no relief in sight. It’s a hard time to be a homebuyer right now! Despite that, you can still find a house that you’ll love; it may just take a little extra polish and shine as you head into your home buying adventure. Cash is still king, but you can be more competitive by putting your best foot forward with your offers.

Here are our best tips for buyers trying to secure a home in this busy and tight market.

Bring a Pre-Approval Letter From Your Lender

It’s one thing to think you’ll be approved for a loan, and yet another to know it. In today’s competitive market, your seller doesn’t want to wonder; they want to be certain that the contract they sign is one that will be able to close. This is doubly a concern for sellers who are faced with multiple offers in a short period, since sometimes they all look pretty good on the surface.

Going to your bank and making it as far as your loan approval process can go without a house gives a seller confidence that they won’t be back in the same place in a month, trying to sell a house that already had a contract fall through on it. For them, that might mean delaying their own purchase, or even having to sell their home at a discount, since buyers are sometimes nervous when previous contracts didn’t close.

Go Conventional!

Although many buyers can get into a home faster with an FHA loan, especially with the sometimes lower down payment requirements, sellers know that FHA and other loan programs carry additional requirements for the house itself, too. Although these are usually items most houses will already have if someone is living in them (for example, heat in every room), sellers have often heard horror stories and simply don’t want to deal with the unknown.

Rather than using an FHA program, work on your credit and choose a conventional loan. Conventional loans have far fewer requirements on the property itself, making them an easy transaction for your home seller. There’s nothing wrong with using an FHA loan if you have the time and patience to house hunt using one, but nothing says “easy peasy” to a seller like a conventional loan.

Bring Your Best Offer

Your best offer is the highest amount you’re willing to pay for the property in question, not an ideal price that you’d like to pay. In a different market, where buyers get their picks of the litter, you can feel out a seller to see where the bottom is, but in a market like what we’re still facing in most of the country, you’re far more likely to be competing with several offers at once, so the seller will probably either accept or reject yours rather than try to negotiate.

In addition to bringing your best offer, keep your list of requests short. You can (and should) absolutely ask for repairs to major items you noted when you viewed the home, but now is not the time to sweat the little things. The longer that list is now, before you’ve even had your inspection, the less likely it is that the seller will want to work with you.

Go Forth Boldly Into Your Offer

Putting in an offer on a home in this breakneck speed real estate market can be extremely intimidating, but you never have to face the unknown alone. When it comes time to move into your new home, you’ve got an entire network of friends and partners to help you patch up, paint up, clean up, and even move in!

Remember to reach out to your HomeKeepr community when you need a hand with anything to do with your home. Your real estate agent can provide you with recommendations for some of the best mortgage professionals to work with, no matter where you live or what you need.

4 Simple Graphs Showing Why This Is Not a Housing Bubble

 

4 Simple Graphs Showing Why This Is Not a Housing Bubble

A recent survey revealed that many consumers believe there’s a housing bubble beginning to form. That feeling is understandable, as year-over-year home price appreciation is still in the double digits. However, this market is very different than it was during the housing crash 15 years ago. Here are four key reasons why today is nothing like the last time.

1. Houses Are Not Unaffordable Like They Were During the Housing Boom

The affordability formula has three components: the price of the home, wages earned by the purchaser, and the mortgage rate available at the time. Conventional lending standards say a purchaser should not spend more than 28% of their gross income on their mortgage payment.

Fifteen years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high. Wages, however, have increased, and the mortgage rate, even after the recent spike, is still well below 6%. That means the average purchaser today pays less of their monthly income toward their mortgage payment than they did back then.

In the latest Affordability Report by ATTOM Data, Chief Product Officer Todd Teta addresses that exact point:

“The average wage earner can still afford the typical home across the U.S., but the financial comfort zone continues shrinking as home prices keep soaring and mortgage rates tick upward.”

Affordability isn’t as strong as it was last year, but it’s much better than it was during the boom. Here’s a chart showing that difference:

If costs were so prohibitive, how did so many homes sell during the housing boom?

2. Mortgage Standards Were Much More Relaxed During the Boom

During the housing bubble, it was much easier to get a mortgage than it is today. As an example, let’s review the number of mortgages granted to purchasers with credit scores under 620. According to credit.org, a credit score between 550-619 is considered poor. In defining those with a score below 620, they explain:

“Credit agencies consider consumers with credit delinquencies, account rejections, and little credit history as subprime borrowers due to their high credit risk.”

Buyers can still qualify for a mortgage with a credit score that low, but they’re considered riskier borrowers. Here’s a graph showing the mortgage volume issued to purchasers with a credit score less than 620 during the housing boom, and the subsequent volume in the 14 years since.

Mortgage standards are nothing like they were the last time. Purchasers that acquired a mortgage over the last decade are much more qualified. Let’s take a look at what that means going forward.

3. The Foreclosure Situation Is Nothing Like It Was During the Crash

The most obvious difference is the number of homeowners that were facing foreclosure after the housing bubble burst. The Federal Reserve issues a report showing the number of consumers with a new foreclosure notice. Here are the numbers during the crash compared to today:

There’s no doubt the 2020 and 2021 numbers are impacted by the forbearance program, which was created to help homeowners facing uncertainty during the pandemic. However, there are fewer than 800,000 homeowners left in the program today, and most of those will be able to work out a repayment plan with their banks.

Rick Sharga, Executive Vice President of RealtyTrac, explains:

“The fact that foreclosure starts declined despite hundreds of thousands of borrowers exiting the CARES Act mortgage forbearance program over the last few months is very encouraging. It suggests that the ‘forbearance equals foreclosure’ narrative was incorrect.”

Why are there so few foreclosures now? Today, homeowners are equity rich, not tapped out.

In the run-up to the housing bubble, some homeowners were using their homes as personal ATM machines. Many immediately withdrew their equity once it built up. When home values began to fall, some homeowners found themselves in a negative equity situation where the amount they owed on their mortgage was greater than the value of their home. Some of those households decided to walk away from their homes, and that led to a rash of distressed property listings (foreclosures and short sales), which sold at huge discounts, thus lowering the value of other homes in the area.

Homeowners, however, have learned their lessons. Prices have risen nicely over the last few years, leading to over 40% of homes in the country having more than 50% equity. But owners have not been tapping into it like the last time, as evidenced by the fact that national tappable equity has increased to a record $9.9 trillion. With the average home equity now standing at $300,000, what happened last time won’t happen today.

As the latest Homeowner Equity Insights report from CoreLogic explains:

“Not only have equity gains helped homeowners more seamlessly transition out of forbearance and avoid a distressed sale, but they’ve also enabled many to continue building their wealth.”

There will be nowhere near the same number of foreclosures as we saw during the crash. So, what does that mean for the housing market?

4. We Don’t Have a Surplus of Homes on the Market – We Have a Shortage

The supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued price appreciation. As the next graph shows, there were too many homes for sale from 2007 to 2010 (many of which were short sales and foreclosures), and that caused prices to tumble. Today, there’s a shortage of inventory, which is causing the acceleration in home values to continue.

Inventory is nothing like the last time. Prices are rising because there’s a healthy demand for homeownership at the same time there’s a shortage of homes for sale.

Bottom Line

If you’re worried that we’re making the same mistakes that led to the housing crash, the graphs above show data and insights to help alleviate your concerns.

The Top Indicator if You Want To Know Where Mortgage Rates Are Heading

 

The Top Indicator if You Want To Know Where Mortgage Rates Are Heading

Mortgage rates have increased significantly since the beginning of the year. Each Thursday, Freddie Mac releases its Primary Mortgage Market Survey. According to the latest survey, the average 30-year fixed-rate mortgage has risen from 3.22% at the start of the year to 3.55% as of last week. This is important to note because any increase in mortgage rates changes what a purchaser can afford. To give you an idea of how rising mortgage rates impact your purchasing power, see the table below:

How Can You Know Where Mortgage Rates Are Headed?

While it’s always difficult to know exactly where mortgage rates will go, a great indicator of where they may head is by looking at the 50-year history of the 10-year treasury yield, and then following its path. Understanding the mechanics of the treasury yield isn’t as important as knowing that there’s a correlation between how it moves and how mortgage rates follow. Here’s a graph showing that relationship over the last 50 years:

This correlation has continued into the new year. The treasury yield has started to climb, and that’s driven rates up. As of last Thursday, the treasury yield was 1.81%. That’s 1.74% below the mortgage rate reported the same day (3.55%) and is very close to the average spread we see between the two numbers (average spread is 1.7).

Where Will the Treasury Yield Head in the Future?

With this information in mind, a 10-year treasury-yield forecast would be a good indicator of where mortgage rates may be headed. The Wall Street Journal just surveyed a panel of over 75 academic, business, and financial economists asking them to forecast the treasury yield over the next few years. The consensus was that experts project the treasury yield will climb to 2.84% by the end of 2024. Based on the 50-year history of following this yield, that would likely put mortgage rates at about 4.5% in three years.

While the correlation between the 30-year fixed mortgage rate and the 10-year treasury yield is clear in the data shown above for the past 50 years, it shouldn’t be used as an exact indicator. They’re both hard to forecast, especially in this unprecedented economic time driven by a global pandemic. Yet understanding the relationship can help you get an idea of where rates may be going. It appears, based on the information we have now, that mortgage rates will continue to rise over the next few years. If that’s the case, your best bet may be to purchase a home sooner rather than later, if you’re able.

Bottom Line

Forecasting mortgage rates is very difficult. As Mark Fleming, Chief Economist at First American, once said:

“You know, the fallacy of economic forecasting is don’t ever try and forecast interest rates and or, more specifically, if you’re a real estate economist mortgage rates, because you will always invariably be wrong.”

However, if you’re either a first-time homebuyer or a current homeowner thinking of moving into a home that better fits your changing needs, understanding what’s happening with the 10-year treasury yield and mortgage rates can help you make an informed decision on the timing of your purchase.