Housing Market

Three Reasons Why Pre-Approval Is the First Step in the 2020 Homebuying Journey

When the number of buyers in the housing market outnumbers the number of homes for sale, it’s called a “seller’s market.” The advantage tips toward the seller as low inventory heats up the competition among those searching for a place to call their own. This can create multiple offer scenarios and bidding wars, making it tough for buyers to land their dream homes – unless they stand out from the crowd. Here are three reasons why pre-approval should be your first step in the homebuying process.

1. Gain a Competitive Advantage

Low inventory, like we have today, means homebuyers need every advantage they can get to make a strong impression and close the deal. One of the best ways to get one step ahead of other buyers is to get pre-approved for a mortgage before you make an offer. For one, it shows the sellers you’re serious about buying a home, which is always a plus in your corner.

2. Accelerate the Homebuying Process

Pre-approval can also speed up the homebuying process, so you can move faster when you’re ready to make an offer. In a competitive arena like we have today, being ready to put your best foot forward when the time comes may be the leg-up you need to cross the finish line first and land the home of your dreams.

3. Know What You Can Borrow and Afford

Here’s the other thing: if you’re pre-approved, you also have a better sense of your budget, what you can afford, and ultimately how much you’re eligible to borrow for your mortgage. This way, you’re less apt to fall in love with a home that may be out of your reach.

Freddie Mac sets out the advantages of pre-approval in the My Home section of their website:

“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”

Local real estate professionals also have relationships with lenders who can help you through this process, so partnering with a trusted advisor will be key for that introduction. Once you select a lender, you’ll need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.”

Freddie Mac also describes the ‘4 Cs’ that help determine the amount you’ll be qualified to borrow:

  1. Capacity: Your current and future ability to make your payments
  2. Capital or Cash Reserves: The money, savings, and investments you have that can be sold quickly for cash
  3. Collateral: The home, or type of home, that you would like to purchase
  4. Credit: Your history of paying bills and other debts on time

While there are still many additional steps you’ll need to take in the homebuying process, it’s clear why pre-approval is always the best place to begin. It’s your chance to gain the competitive edge you may need if you’re serious about owning a home.

Bottom Line

Getting started with pre-approval is a great way to begin the homebuying journey. Let’s get together today to make sure you’re on the fastest path to homeownership.

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    2020 Luxury Market Forecast


    By the end of last year, many homeowners found themselves with more equity than they realized, and at the same time their wages were increasing. When those two factors unite, it can spark homeowners to think about making a move to a larger or more expensive home in the luxury space. That said, now is a perfect opportunity to take a look at the forecast for the 2020 luxury market.

    Three Things to Think About in the 2020 Luxury Housing Market

    1. Prices

    The U.S. economy is strong today, with buying opportunities throughout the luxury end of the market. Thomas Veraguth, Strategist at UBS Global Wealth Management, says in Barrons.com,

    “There’s a good link between luxury real estate prices and [economic] growth.”

    Available inventory is a key element that can impact home prices. At the upper range, the inventory is greater in comparison to the entry-level market, making moving up to a luxury home a growing reality for many buyers right now.

    2. Activity in the Market

    With more buying opportunities at the higher end, we should start to see an increase in activity. The same article states,

    “Affluent homebuyers will start to come out of the woodwork as they find rising luxury rents less appealing and sellers get even more negotiable on price.”

    Buyers looking in the luxury market are taking the opportunity to negotiate on price in a segment where there are more choices, too. According to the Luxury Market Report, homes sold for an average of 96.94% of the list price in December.

    Buyers are also getting more for their money with greater purchasing power due to the current low interest rates.

    3. Buyers Are Coming Back

    Keep in mind, buyers are often sellers too, especially those looking to move up. Homeowners with an entry-level home can take advantage of the inventory shortage at the lower end of the market, thus driving higher sales prices for their current homes. Combined with growing equity in the homes they’re listing, it’s a great time for those who are ready to make a luxury move.

    The extra equity and greater purchasing power are bringing many buyers back to the market. The same article mentioned that,

    “We’ve already seen buyers who’ve been on the sidelines for two years tread back into the market.”

    Bottom Line

    If you’re considering entering the luxury market, 2020 is shaping up to be a great year for those who are ready to make that move. Let’s get together to set your real estate plan for the year.

    2020 Outlook: Real Estate Market Forecast

    We’re in the midst of the longest economic expansion in U.S. history, and economists think there’s still room to grow. A recent survey by the National Association for Business Economics found that experts believe the U.S. economy will remain positive throughout 2020.1

    Still, given that recessions are a natural (and necessary) part of a business cycle, we know this period of growth will inevitably end. So you may be wondering … how will an eventual recession impact the real estate market?

    Many Americans assume a recession would lead to a decline in housing prices like we saw during the Great Recession of 2008. But the real estate market crash we experienced wasn’t typical. In fact, the last recession wasn’t typical at all. It was the worst economic downturn since the Great Depression of the 1930s.

    ATTOM Data Solutions analyzed real estate prices during the last five recessions and found that, in the majority of cases, home prices actually went up. Only twice (in 1990 and 2008) did prices decline, and in 1990 it was by less than one percent.2

    So what can historical precedent—combined with today’s data—tell us about the future of real estate? Here’s where experts predict the housing market is headed in 2020 and beyond.

     

    HOME PRICES WILL KEEP RISING

    Economists predict U.S. housing prices will continue to rise, regardless of a recession. In fact, property data firm CoreLogic forecasts a faster rate of growth for home prices in 2020 than we saw in 2019, with the biggest gains at the lower end of the market.3

    Arch MI Chief Economist Ralph DeFranco expects entry-level home prices to increase faster than incomes this year, making it even more difficult for many first-time buyers to afford to enter the market.4

    “Low interest rates and a shortage of starter homes will continue to push up prices,” predicts DeFranco. “This is especially the case for lower price points, since builders have tended to focus on more expensive, higher-profit houses and less on replenishing low inventories of entry-level homes.”4

    “Real estate is on firm ground with little chance of price declines,” said National Association of Realtors Chief Economist Lawrence Yun. "However, in order for the market to be healthier, more supply is needed to assure home prices as well as rents do not consistently outgrow income gains.”5

    What does it mean for you? If you have the ability and desire to buy a home now, don’t let a fear of recession or falling prices hold you in limbo. Economists expect home values, as well as rent prices, to continue rising. So you’ll likely pay more the longer you wait.

     

    INVENTORY CONSTRAINTS WILL CONTINUE

    According to Redfin, Americans are staying in their homes longer. In 2019, the average homeowner had resided in their home for 13 years, up from just eight years in 2010. That means there are fewer homes available today for those who want to buy.6

    It’s possible that an increase in new construction could offer some relief. The National Association of Realtors (NAR) expects single-family housing starts to total one million this year, the highest level since 2007. And NAR Chief Economist Lawrence Yun predicts the average price of new construction will decline slightly as builders shift to building smaller, more affordable homes.7

    However, these efforts may not be enough to meet current demand. “Despite improvements to new construction and short waves of sellers, next year will once again fail to bring a solution to the inventory shortage,” predicts Realtor.com Senior Economist George Ratiu. “In 2020, we expect inventory to struggle to grow and could instead reach a historic low level.”8

    What does it mean for you? If you’re looking to buy a starter home, be prepared to compete for the best listings. Start your search early, and if you’re up against a deadline (like a new baby), build in plenty of time to find the right home. We can help you assess your options, including new construction and up-and-coming developments.

     

    MORTGAGE RATES WILL REMAIN LOW

    Mortgage rates have declined more than a full percentage point since November 2018, when they hit a recent peak of 4.94%.9 The Mortgage Bankers Association predicts rates will remain low, at around 3.7%, through mid-2021.10

    While it may not seem significant, on a $200,000 30-year fixed-rate mortgage, that lower rate means buyers could save around $145 on their monthly payment and more than $52,000 over the life of their mortgage. Lower mortgage rates make homeownership more accessible and affordable for buyers.

    Although economists expect mortgage rates to stay low, they caution against waiting to act. Economic factors, shifts in supply and demand, or unforeseen impacts of the November election could cause rates to rise unexpectedly. “We recommend borrowers with long-term plans of staying in their homes to lock in a low rate now because there’s no telling how long these low rates will last,” warns Preetam Purohit, a capital markets trader at Embrace Home Loans.11

    What does it mean for you? If you’re looking to buy a home, act soon to lock in a historically low mortgage rate. It will minimize your monthly payment and could save you a bundle over the long term. And if you plan to stay in your current home for a while, consider whether it makes sense to refinance your mortgage at today’s lower rates.

     

    MILLENNIALS WILL DRIVE THE MARKET

    Millennials are expected to account for more than half of all mortgages this year, outnumbering Generation X and Baby Boomers combined. It’s not surprising, considering their age and stage of life. In 2020, the largest cohort of millennials will turn 30, and the oldest millennials will turn 39.8

    "Family changes tend to drive home-buying decisions," explains Realtor.com Chief Economist Danielle Hale. "Millennials are going to be active in the housing market not just because they're just at the age when they're thinking about becoming first-time home buyers, but they're also in the age range when they're having kids."12

    Younger millennials flocked to urban centers that offered easy access to work, shopping, and restaurants. But high prices, lack of square footage, and subpar schools are driving millennials out to the suburbs as they begin to marry and expand their families.

    In response, a new model for suburban living has emerged. “Hipsturbias,” or mixed-use communities that bring the live/work/play concept to the suburbs, were recently named one of the top real estate trends for 2020 by the Urban Land Institute.4

    What does it mean for you? If you’re a millennial who has been priced out of urban living or is looking for more space for your growing family, a number of suburbs in our area have a lot to offer. We can point you towards the communities that will best meet your needs. And if you’re a homeowner with plans to sell, give us a call. We know how to market your home to millennials … and can help you sell quickly for top dollar by appealing to this leading market segment!

     

    WE’RE HERE TO GUIDE YOU

    While national real estate numbers can provide a “big picture” outlook, real estate is local. As local market experts, we can guide you through the ins and outs of our market and the issues most likely to impact sales and home values in your particular neighborhood.

    If you’re considering buying or selling a home in 2020, contact us now to schedule a free consultation. We’ll work with you to develop an action plan to meet your real estate goals this year.

     

    START PREPARING TODAY


    If you plan to BUY this year:

    1. Get pre-approved for a mortgage. If you plan to finance part of your home purchase, getting pre-approved for a mortgage will give you a jump-start on the paperwork and provide an advantage over other buyers in a competitive market. The added bonus: you will find out how much you can afford to borrow and budget accordingly.
    2. Create your wish list. How many bedrooms and bathrooms do you need? How far are you willing to commute to work? What’s most important to you in a home? We can set up a customized search that meets your criteria to help you find the perfect home for you.
    3. Come to our office. The buying process can be tricky. We’d love to guide you through it. We can help you find a home that fits your needs and budget, all at no cost to you. Give us a call to schedule an appointment today!

     

    If you plan to SELL this year:

    1. Call us for a FREE Comparative Market Analysis. A CMA not only gives you the current market value of your home, it will also show how your home compares to others in the area. This will help us determine which repairs and upgrades may be required to get top dollar for your property, and it will help us price your home correctly once you’re ready to list.
    2. Prep your home for the market. Most buyers want a home they can move into right away, without having to make extensive repairs and upgrades. We can help you determine which ones are worth the time and expense to deliver maximum results.
    3. Start decluttering. Help your buyers see themselves in your home by packing up personal items and things you don’t use regularly and storing them in an attic or storage locker. This will make your home appear larger, make it easier to stage ... and get you one step closer to moving when the time comes!

     

    Sources:

    1. NBC News -
      https://www.nbcnews.com/business/economy/what-impending-recession-new-survey-shows-most-people-think-they-n1098511
    2. Curbed -
      https://www.curbed.com/2019/1/10/18139601/recession-impact-housing-market-interest-rates
    3. HousingWire  -
      https://www.housingwire.com/articles/corelogic-expects-home-prices-to-do-this-in-the-next-12-months/
    4. Forbes -
      https://www.forbes.com/sites/alyyale/2019/11/15/2020-housing-outlook-expert-predictions-for-mortgage-rates-home-prices-tech-and-more/#343ea4522935
    5. National Association of Realtors -
      https://www.nar.realtor/newsroom/expect-continued-economic-growth-slower-real-estate-price-gains-and-small-chance-for-recession-in
    6. Redfin -
      https://www.redfin.com/blog/homeowners-staying-in-their-homes-longer/
    7. HousingWire -
      https://www.housingwire.com/articles/builders-are-coming-to-the-housing-markets-rescue/
    8. Realtor.com -
      https://www.realtor.com/research/2020-national-housing-forecast/
    9. YCharts -
      https://ycharts.com/indicators/30_year_mortgage_rate
    10. MBA Mortgage Market Forecast November 2019  -
      https://www.mba.org/news-research-and-resources/research-and-economics/forecasts-and-commentary
    11. Dallas Morning News -
      https://www.dallasnews.com/sponsored/real-estate/2019/11/23/experts-predict-where-mortgage-interest-rates-land-in-2020/
    12. Realtor.com -
      https://www.realtor.com/news/trends/biggest-changes-coming-in-2020-real-estate-and-tips-for-buyers-and-sellers/

     

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      How to List Your Home for the Best Price

      If your plan for 2019 includes selling your home, you will want to pay attention to where experts believe home values are headed. According to the latest Home Price Index from CoreLogic, home prices increased by 4.7% over the course of 2018.

      The map below shows the results of the latest index by state.

      United States Map with Different Colors and Actual Percentages for the Year-Over-Year Change in Price

      Real estate is local. Each state appreciates at different levels. The majority of the country saw at least a 2.0% gain in home values, while some residents in North Dakota and Louisiana may have felt prices slow slightly.

      This effect will be short lived. In the same report, CoreLogic forecasts that every state in the Union will experience at least 2.0% appreciation, with the majority of the country gaining at least 4.0%! The prediction for the country comes in at 4.6%. For a median-priced home, that translates to over $14,000 in additional equity next year! (The map below shows the forecast by state.)

      United States Map with Different Colors and Forecasted Percentages for the Year-Over-Year Change in Price

      So, how does this help you list your home for the best price?

      Armed with the knowledge of how much experts believe your house will appreciate this year, you will be able to set an appropriate price for your listing from the start. If homes like yours are appreciating at 4.0%, you won’t want to list your home for more than that amount!

      One of the biggest mistakes homeowners make is pricing their homes too high and reducing the price later when they do not get any offers. This can lead buyers to believe that there may be something wrong with the home, when in fact the price was just too high for the market.

      Bottom Line

      Pricing your home right from the start is one of the most challenging parts of selling your home. Once you decide to list your house, let’s get together to discuss where home values are headed in your area!

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        5 Ways Tax Reform Has Impacted the 2018 Housing Market

        Starting late last year, some predicted that the 2018 tax changes would cripple the housing market. Headlines warned of the potential for double-digit price depreciation and suggested that buyer demand could drop like a rock. There was even sentiment that homeownership could lose its coveted status as a major component of the American Dream.

        Now that the first quarter numbers are in, we can begin to decipher the actual that impact tax reform has had on the real estate market.

        1. Has tax reform killed off home buyer demand? The answer is “NO.”

        According to the Showing Time Index which “tracks the average number of buyer showings on active residential properties on a monthly basis” and is a “highly reliable leading indicator of current and future demand trends,” buyer demand has increased each month over the last three months and is HIGHER than it was for the same months last year. Buyer demand is not down. It is up.

        2. Have the tax changes affected America’s belief in real estate as a long-term investment? The answer is “NO.”

        Two weeks ago, Gallup released its annual survey which asks Americans which asset they believed to be the best long-term investment. The survey revealed:

        “More Americans name real estate over several other vehicles for growing wealth as the best long-term investment for the fifth year in a row. Just over a third cite real estate for this, while roughly a quarter name stocks or mutual funds.” 

        The survey also showed that the percentage of Americans who believe real estate is the best long-term investment was unchanged from a year ago.

        3. Has the homeownership rate been negatively impacted by the tax changes? The answer is “NO.”

        Not only did the homeownership rate not crash, it increased when compared to the first quarter of last year according to data released by the Census Bureau.

        In her latest Z Report,” Ivy Zelman explains that tax reform didn’t hurt the homeownership rate, but instead, enhanced it:

        “We have been of the opinion that homeownership is most highly correlated with income and the net effect of tax reform would be a positive, rather than negative catalyst for the homeownership rate. While still in the early innings of tax changes, this has proven to be the case.”

        4. Has the upper-end market been crushed by new State and Local Taxes (SALT) limitations? The answer is “NO.”

        In the National Association of Realtors latest Existing Home Sales Report it was revealed that:

        • Sales between $500,000 and $750,000 were up 4.5% year-over-year
        • Sales between $750,000 and $1M were up 15.1% year-over-year
        • Sales over $1M were up 17.3% year-over-year

        5. Will the reforms in the tax code cause home prices to tumble over the next twelve months? The answer is “NO.”

        According to CoreLogic’s latest Home Price Insights Report, home prices will appreciate in each of the 50 states over the next twelve months. Appreciation is projected to be anywhere from 1.9% to 10.3% with the national average being 4.7%.

        Bottom Line

        The doomsday scenarios that some predicted based on tax reform fears seem to have already blown over based on the early housing industry numbers being reported.

        Link to Keeping Current Matters Blog: https-www-mykcm-com-2018-05-10-5-ways-tax-reform-has-impacted-the-2018-housing-market-

         

         

         

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