If you’re looking to buy a home this fall, there are a few things you need to know. Affordability is tight with today’s mortgage rates and rising home prices. At the same time, there’s a limited number of homes on the market right now and that’s creating some competition among buyers. If you’re strategic, there are ways to navigate these waters. The first thing you’ll want to do is get pre-approved for a mortgage. That way you’ll know your numbers and can set yourself up for success from the start of your home search.

What does pre-approval do for you? To understand why it’s such an important step, you need to know what pre-approval is. As part of the homebuying process, a lender looks at your finances to determine what they’d be willing to loan you. From there, your lender will give you a pre-approval letter to help you know how much money you can borrow. Freddie Mac explains it like this:

“A pre-approval is an indication from your lender that they are willing to lend you a certain amount of money to buy your future home. . . . Keep in mind that the loan amount in the pre-approval letter is the lender’s maximum offer. Ultimately, you should only borrow an amount you are comfortable repaying.”

Basically, pre-approval gives you critical information about the homebuying process that’ll help you understand how much you may be able to borrow. Why does this help you, especially today? With higher mortgage rates and home prices impacting affordability for many buyers right now, a solid understanding of your numbers is even more important so you can truly wrap your head around your options.

Pre-Approval Helps Show Sellers You’re a Serious Buyer

There are more buyers looking to buy than there are homes available for sale and that imbalance is creating some competition among homebuyers. That means you could see yourself in a multiple-offer scenario when you make an offer on a home. But getting pre-approved for a mortgage can help you stand out from other hopeful buyers.

As an article from Wall Street Journal (WSJ) says:

“If you plan to use a mortgage for your home purchase, preapproval should be among the first steps in your search process. Not only can getting preapproved help you zero in on the right price range, but it can give you a leg up on other buyers, too.”

Pre-approval shows the seller you’re a serious buyer who has already undergone a credit and financial check, making it more likely that the sale will move forward without unexpected delays or financial issues.

Getting pre-approved is an important first step when you’re buying a home. The more prepared you are, the better chance you have of getting the home you want. Let's connect so that you have the tools you need to purchase a home in today’s market.

Joe

 

Week Ending 9/22/2023

Fed Projections

From the Joe Smith Team at Cross Country Mortgage At the highly anticipated meeting on Wednesday, Fed officials confirmed their outlook for short-term rates to remain at elevated levels for quite a while. While this was not much of a surprise, the news caused mortgage rates to climb to their highest levels in decades.

As expected, the Fed made no change in the federal funds rate, and the statement released after the meeting was very similar to the prior one. The key information was the latest set of projections from officials for future monetary policy. First, the median forecast from 19 Fed officials is for an additional 25 basis point rate hike this year. In addition, they anticipate that the federal funds rate will remain near current levels for a substantially longer period of time than in the last set of projections released three months ago. The bottom line is that officials currently do not see rate cuts coming as soon as investors expected. According to Chair Powell, they want to see "convincing evidence" that inflation is on track to return to target levels before loosening monetary policy. In housing news, sales of existing homes in August fell slightly from July and were 15% lower than last year at this time. Inventory levels stand at just a 3.3-month supply nationally, far below the 6-month supply typical in a balanced market. The median existing-home price of $407,100 was 4% higher than last year at this time. There is no doubt that additional inventory of homes available for sale continues to be desperately needed, but the latest data contained mixed news. Overall housing starts in August were disappointing with a larger than expected decline of 11% from July to the lowest level since June 2020. Most of the weakness came from the multi-family sector, however, with just a modest drop in single-family units. More encouragingly, building permits, a leading indicator, increased for both single-family and multi-family units. Builders again cited tight credit conditions for loans and high prices for land, labor, and materials as obstacles to a faster pace of construction.

Week ahead

Investors will continue to watch for Fed officials to elaborate on their plans for future monetary policy. For economic reports, Consumer Confidence and New Home Sales will be released on Tuesday. Personal Income and the PCE price index, the inflation indicator favored by the Fed, will come out on Friday.

Tue 9/26 New Home Sales Tue 9/26 Consumer Confidence Fri 9/29 Core PCE Fri 9/29 Personal Income

Mortgage Rates Rose 0.15% Dow Fell 500 NASDAQ Fell 400

Joe Smith Branch Manager / SVP M 617-308-3337 D 617-236-1555 W crosscountrymortgage.com/the-joe-smith-team E jsmith@ccm.com We would like to thank our partner, MBSQuoteline for their insightful information. All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.

We want to take a moment to introduce you to Cross-County Mortgage's Debt-Service-Coverage-Ratio (DSCR) program and share a recent success story involving some of their clients. CCM is a preferred lending partner of mine. This program is for investment properties only and allows borrowers to qualify based on the cash-flow of the property. Several of the DSCR highlights are below.  The borrower's employment and income is not verified or documented. In other words, we don't need paystubs, tax returns, etc, even if they are self-employed or own other properties. Previous landlord experience is not required if certain conditions are met, including current ownership of their primary residence. DSCR can be as low as 75% in some situations. For example, for qualified individuals, if the monthly housing payment on the subject property is $1,000, the rent could be as low as $750. Interest only option available, which can help reduce the monthly cost and potentially increase borrowing power. Gift funds are allowed after a 10% contribution from the borrower's own funds. Success Story  CCM recently worked with buyers who were under contract to purchase an investment property but had just started a new business, so they were lacking a two year history of self-employment and tax returns. They wouldn't have qualified under most traditional loan programs given these circumstances. However, we were able to approve and close their loan using our DSCR program! This is another example of The Joe Smith Team finding a way to make a deal work. In this market, it is more important than ever to align yourself with a team that has the tools, knowledge, and experience to help you and your customers close more transactions on time and without issues! As always, don't hesitate to call/email them with any questions about this or any other of their amazing portfolio of products! And please tell them that Joe Wolvek sent you...:) -The Joe Smith Team/Joe Smith Branch Manager / SVP M 617-308-3337 D 617-236-1555 W crosscountrymortgage.com/the-joe-smith-team E jsmith@ccm.com

 

Are you thinking about selling your home or condo? If so, today’s mortgage rates may be making you wonder if that’s the right decision. Some homeowners are reluctant to sell and take on a higher mortgage rate on their next home. If you’re worried about this too, know that even though rates are high right now, so is home equity. Here’s what you need to know.

Bankrate explains exactly what equity is and how it grows:

“Home equity is the portion of your home that you’ve paid off and own outright. It’s the difference between what the home is worth and how much is still owed on your mortgage. As your home’s value increases over the long term and you pay down the principal on the mortgage, your equity stake grows.”

In other words, equity is how much your home is worth now, minus what you still owe on your home loan.

How Much Equity Do Homeowners Have Now?

Recently, your equity has been growing faster than you might think. To help contextualize just how much the average homeowner has, CoreLogic says:

“. . . the average U.S. homeowner now has about $290,000 in equity.”

That’s because, over the past few years, home prices went up significantly – and those rising prices helped your equity to accumulate faster than usual. While the market has started to normalize, there are still more people wanting to buy homes than there are homes available for sale. This high demand is causing home prices to go up again.

According to the Federal Housing Finance Agency (FHFA), the Census, and ATTOM, a property data provider, nearly two-thirds (68.7%) of homeowners have either fully paid off their mortgages or have at least 50% equity (see chart below):

That means nearly 70% of homeowners have a tremendous amount of equity right now.

How Equity Helps with Your Affordability Concerns

With today’s affordability challenges, your equity can make a big difference when you decide to move. After you sell your house, you can use the equity you've built up in your home to help you buy your next one. Here’s how:

• Be an all-cash buyer: If you've been living in your current home for a long time, you might have enough equity to buy a new house without having to take out a loan. If that's the case, you won't need to borrow any money or worry about mortgage rates. The National Association of Realtors (NAR) states:

“These all-cash home buyers are happily avoiding the higher mortgage interest rates . . .”

• Make a larger down payment: Your  equity could be used toward your next down payment. It might even be enough to let you put a larger amount down, so you won't have to borrow as much money so today’s rates become less of a sticking point. Experian explains:

“Increasing your down payment lowers your principal loan amount and, consequently, your loan-to-value ratio, which could lead to a lower interest rate offer from your lender.”

If you're thinking about moving, the equity you've built up can make a big difference, especially today. To find out how you can use your equity for your next home, let’s connect.

Joe

 

Have you ever wondered how inflation impacts the housing market? Believe it or not, they’re connected. Whenever there are changes to one, both are affected. Here’s a high-level overview of the connection between the two.

The Relationship Between Housing Inflation and Overall Inflation

Shelter inflation is the measure of price growth specific to housing. It comes from a survey of renters and homeowners that’s done by the Bureau of Labor Statistics (BLS). The survey asks renters how much they’re paying in rent, and homeowners how much they’d rent their homes for, if they weren’t living in them.

Much like overall inflation measures the cost of everyday items, shelter inflation measures the cost of housing. And for four consecutive months, based on that survey, shelter inflation has been coming down (see graph below):

Why does this matter? Well, shelter inflation makes up about one-third of overall inflation, as measured by the Consumer Price Index (CPI). So, when shelter inflation moves, it leads to noticeable moves in overall inflation. That means the recent dip in shelter inflation might be a sign that overall inflation could fall in the months ahead.

That moderation would be a welcome sight for the Federal Reserve (the Fed). They’ve been working to get inflation under control since early 2022. While they’ve made some headway (it peaked at 8.9% in the middle of last year), they’re still trying to get to their 2% goal (the latest report is 3.3%). 

Inflation and the Federal Funds Rate  

What’s the Fed been doing to lower inflation? They’ve been increasing the Federal Funds Rate. That interest rate influences how much it costs banks to borrow money from each other. When inflation climbed, the Fed responded by raising the Federal Funds Rate to keep the economy from overheating.

The graph below shows the relationship between the two. Each time inflation (shown in the blue line) starts to climb, the Fed raises the Federal Funds Rate (shown in the orange line) to try to get it back to their target of 2% (see below):

The circled portion of the graph shows the most recent spike in inflation, the Fed’s actions to raise the Federal Funds Rate to fight that, and the moderation of inflation that happened in response to that hike. As inflation gets closer to the Fed’s current 2% goal, they may not need to raise the Federal Funds Rate much further.

A Brighter Future for Mortgage Rates?

So, what does all of this mean for you? While the actions coming out of the Fed don’t determine mortgage rates, they do have an impact. As Mortgage Professional America (MPA) explains:

“. . . mortgage rates and inflation are connected, however indirectly. When inflation rises, mortgage rates rise to keep up with the value of the US dollar. When inflation drops, mortgage rates follow suit.”

While no one can predict the future for mortgage rates, it’s encouraging to see the signs of moderating inflation in the economy. 

Bottom Line

Whether you’re looking to buy, sell, or just stay informed about the housing market, let’s connect. 

 

If you're planning to buy a home one thing to consider is what experts project home prices will do in the future and how that might affect your investment. While you may have seen negative news over the past year about home prices, they’re doing far better than expected and are rising across the country. And data shows, experts forecast home prices will keep appreciating.

Experts Project Ongoing Appreciation

Pulsenomics polled over 100 economists, investment strategists, and housing market analysts in the latest quarterly Home Price Expectation Survey (HPES). The results show what the panelists project will happen with home prices over the next five years. Here are those expert forecasts saying home prices will go up every year through 2027 (see graph below):If you’re someone who was worried home prices would fall because of stories you’ve read online, here's the big takeaway. Even though home prices vary by local market, experts project prices will continue to rise across the country for years to come. And these numbers indicate the return to more normal home price appreciation.

And while the projected increase in 2024 isn’t as large as 2023, it’s important to recognize home price appreciation is cumulative. In other words, if these experts are correct, after your home’s value rises by 3.32% this year, it’ll appreciate by another 2.17% next year. This is a good example of why owning a home is a choice that wins big over time.

What Does This Mean for You?

Once you buy a home, price appreciation raises your home’s value, and that grows your household wealth. To see how a typical home's value could change in the next few years using the expert projections from the HPES, check out the graph below:In this example, let’s say you bought a $400,000 home at the beginning of this year. If you factor in the forecast from the HPES, you could potentially accumulate more than $71,000 in household wealth over the next five years.

So, if you're thinking about whether buying a home is a good choice, remember how it can be a powerful way to grow your wealth in the long run. 

Bottom Line: According to the experts, home prices are expected to grow over the next five years at a more normal pace. If you’re ready to become a homeowner, know that buying today can set you up for long-term success as home values (and your own net worth) grow. Get in touch so we can start your homebuying process today.