Why 5% Mortgage Rates Aren’t a Threat

Mortgage rates are on the rise. Could that derail sales? According to First American’s Potential Home Sales model, even if the 30-year fixed-rate mortgage rose to 5 percent, the impact on the housing market would be modest.

Many economists are predicting that the 30-year fixed-rate mortgage will average 5 percent by the end of 2018 or early 2019.

First American’s Potential Home Sales model estimates the potential for existing-home sales based on market fundamentals. The market potential for existing-home sales based on current fundamentals is 6.11 million at a seasonally adjusted annualized rate. If the 30-year fixed-rate mortgage rose to 5 percent, the impact would be a slight decline to 6.1 million existing-home sales, according to the model.

“The reason mortgage rates are rising—positive economic conditions—is also causing household income to rise, which helps offset the increase in borrowing costs from higher rates,” Mark Fleming, First American’s chief economist, writes in a column at the company’s Economic Center Blog.

Also, home buyers can adjust to higher mortgage rates by taking a lower rate available through an adjustable-rate mortgage than a fixed-rate mortgage or by purchasing a less expensive home, Fleming notes.

“The housing market is flexible and can adjust to moderately higher mortgage rates without significant impact,” Fleming writes. “The likely rise in mortgage rates is not the worry for first-time home buyers, but whether they can find something to buy in today’s supply-constrained market.”


Source: “What’s the Outlook for Housing Market Potential Amid Rising Mortgage Rates?” First American Economic Center Blog (June 18, 2018)

Why New-Home Market Can’t Meet Demand

The new-home market is unable to meet growing buyer demand because there aren’t enough workers to build homes, builders say.

At the beginning of the year, there were 250,000 unfilled construction jobs, including those for home framers, electricians, masons, carpenters, and other duties needed to build a new home. The unemployment rate in the building industry is significantly higher than the national unemployment rate—7.4 percent versus 4.1 percent, respectively.

The dearth of construction workers is slowing down all stages of new-home construction, builders say.

“It takes me twice as long now to do an estimate as it used to,” Jason Scott, owner of North Star Premier Custom Homes in Westlake, Ohio, told realtor.com®. Now, he says he sometimes has to wait eight to 10 weeks to find workers for his projects. It used to take him one day. This is a scenario builders are facing with home construction across the country, according to the National Association of Home Builders.

“We’ve got rising housing demand at the same time that the residential construction industry lacks workers,” says Robert Dietz, the NAHB’s chief economist.

Dietz forecasts that about 900,000 single-family homes will be built in 2018, but he adds that 1.2 million are needed to keep up with buyer demand.

Builders are taking the heat for not building more homes as inventory shortages of homes for sale grows across the country. Some economists are saying the lack of new-home construction is one of the drivers behind higher home prices due to the inventory crunch.

But builders say the shortage of workers is leading to higher costs for them, too. Scott says several subcontractors—such as for siding, roofing, and concrete—have raised their prices by at least 10 percent since the new year. He told realtor.com® that he is now paying double what he did a decade ago for framing.

“I know builders who haven’t factored these [workers’ pay] increases in, and they’re watching $10,000 to $15,000 come off their bottom line,” Scott says.

Many workers in construction left the field during the housing crisis and have not returned. The decline of vocational educations has also led fewer young people to pursue careers in skilled trades.

Some organizations are stepping in to train more workers for construction. For example, the Home Builders Association in Colorado Springs, Colo., has partnered with a local school district to start a vocational program, Careers in Construction, in six schools. Home Depot recently pledged $50 million to the Home Builders Institute, an educational trade group, to support a Pre-Apprenticeship Certificate Training program in schools and on military bases.

“The worker shortage is severe,” Dietz says. “The industry is going to have to recruit the next generation of construction workers—or we’ll continue to underbuild houses, there won’t be enough houses, and home prices will continue to rise faster than incomes.”

Source: “What’s Holding Back New Home Construction? There’s No One to Build ‘Em!

“A Man Is Not a Complete Man, Unless He Owns a House”

Homeownership: The famous quote by Walt Whitman, “A man is not a whole and complete man, unless he owns a house and the ground it stands on,” can be used to describe homeownership in America today. The Census revealed that the percentage of homeowners in America has been steadily climbing back up since hitting a 50-year low in 2016. The homeownership rate in the first quarter of 2018 was 64.2%, higher than last year’s 63.6%.

Chief Economist, Dr. Ralph McLaughlin, in his VUE Blog gave these new homeownership numbers some context:

“The trend is clear: the homeownership rate has been ticking up for five consecutive quarters, and the number of new renter households has fallen for four consecutive quarters. Owner-occupied households grew by 1.345 million from a year ago, while the number of renters actually fell by 286,000 households.

The fact that we now have four consecutive quarters where owner households increased while renter households fell is a strong sign households are making a switch from renting to buying. This is a trend that multifamily builders, investors, and landlords should take note of.”

In a separate article comparing the rental population in America to the homeowner population, Realtor.com also concluded that the gap is now shrinking:

“The U.S. added 1.3 million owner households over the last year and lost 286,000 renter households, the fourth consecutive quarter in which the number of renter households declined from the same quarter a year earlier. That could pose challenges for apartment landlords, who are bracing this year for one of the largest infusions of new rental supply in three decades.”

America’s belief in homeownership was also evidenced in a survey conducted by Pew Research. They asked consumers “How important is homeownership to achieving the American Dream?”

The results:

  • 43% said homeownership was essential to the American Dream
  • 48% said homeownership was important to the American Dream
  • Only 9% said it was not important

Bottom LineHomeownership has been, is, and always will be a crucial part of the American Dream.

Millennials Are Skipping Starter Homes for Their Dream Homes

A new trend has begun to emerge. With home prices skyrocketing in the starter home category, many first-time homebuyers are skipping the traditional starter homes and moving right into their dream homes.

Millennials Are Skipping Starter Homes for Their Dream Homes | Keeping Current Matters

What’s a Starter Home?

According to the National Association of Realtors (NAR), simply put, a starter home is a one or two-bedroom home (sometimes even a small, three bedroom).Prices vary widely by market but starters on average cost $150,000 to $250,000 while trade-up and premium homes cost upwards of $300,000.”

Finding Their Forever Homes Now

A recent CNBC article revealed that there are many factors that delayed older millennials (ages 25-35) from buying a home earlier in their lives. The aftereffects of the Great Recession teaming up with larger education costs forced many to either remain living in their parent’s homes or to rent.

With the economy continuing to improve, many millennials have been able to break into better-paying jobs which has helped spur down payment savings. As the dream of homeownership comes closer to reality, many millennials are saving for their forever homes.

According to the latest statistics from NAR, 30% of millennials bought homes for $300,000 or more this year (up from 14% in 2013). Diane Swonk, Chief Economist at Grant Thornton weighed in saying, “They rented for longer. Now they’re going to where they want to stay.”

More and more millennials are settling down, getting married, and starting families, which is a huge factor driving them to look for larger homes.

Increased competition in the starter home market has also been a driving force in waiting to afford their dream homes. Inventory in the starter home market is down 14.2% from last year, according to research from Trulia. This has driven prices up and has led to bidding wars.

Many first-time buyers who were originally looking for starter homes are realizing that for just a little bit more of an investment, they could afford trade-up or premium homes instead.

Bottom Line

If you plan on purchasing your first home this year, work with a local professional who can help you determine how much house you can afford. You may be pleasantly surprised.

5 Reasons Why to Sell This Summer!

5 Reasons Why to Sell This Summer! | Keeping Current Matters

Here are five reasons listing your home for sale this summer makes sense.

1. Demand Is Strong

The latest Buyer Traffic Report from the National Association of Realtors (NAR) shows that buyer demand remains very strong throughout the vast majority of the country. These buyers are ready, willing and able to purchase…and are in the market right now! More often than not, multiple buyers are competing with each other to buy the same home.

Take advantage of the buyer activity currently in the market.

2. There Is Less Competition Now

Housing inventory has declined year-over-year for the last 35 months and is still under the 6-month supply needed for a normal housing market. This means that, in the majority of the country, there are not enough homes for sale to satisfy the number of buyers in the market. This is good news for homeowners who have gained equity as their home values have increased. However, additional inventory could be coming to the market soon.

Historically, the average number of years a homeowner stayed in his or her home was six, but that number has hovered between nine and ten years since 2011. There is a pent-up desire for many homeowners to move as they were unable to sell over the last few years because of a negative equity situation. As home values continue to appreciate, more and more homeowners will be given the freedom to move.

The choices buyers have will continue to increase. Don’t wait until this other inventory comes to market before you decide to sell.

3. The Process Will Be Quicker

Today’s competitive environment has forced buyers to do all they can to stand out from the crowd, including getting pre-approved for their mortgage financing. This makes the entire selling process much faster and much simpler as buyers know exactly what they can afford before home shopping. According to Ellie Mae’s latest Origination Insights Report, the average time it took to close a loan was 41 days.

4. There Will Never Be a Better Time to Move Up

If your next move will be into a premium or luxury home, now is the time to move up! The inventory of homes for sale at these higher price ranges has forced these markets into a buyer’s market. This means that if you are planning on selling a starter or trade-up home, your home will sell quickly, AND you’ll be able to find a premium home to call your own!

Prices are projected to appreciate by 5.2% over the next year, according to CoreLogic. If you are moving to a higher-priced home, it will wind up costing you more in raw dollars (both in down payment and mortgage payment) if you wait.

5. It’s Time to Move on With Your Life

Look at the reason you decided to sell in the first place and determine whether it is worth waiting. Is money more important than being with family? Is money more important than your health? Is money more important than having the freedom to go on with your life the way you think you should?

Only you know the answers to the questions above. You have the power to take control of the situation by putting your home on the market. Perhaps the time has come for you and your family to move on and start living the life you desire.

That is what is truly important.

An Important Factor in Getting Your House SOLD!

So, you’ve decided to sell your house. You’ve hired a real estate professional to help you through the entire process, and they have asked you what level of access you want to provide to your potential buyers.

Access: An Important Factor in Getting Your House SOLD! | Keeping Current Matters

There are four elements to a quality listing. At the top of the list is Access, followed by Condition, Financing, and Price. There are many levels of access that you can provide to your agent so that he or she can show your home.

Here are five levels of access that you can give to buyers, along with a brief description:

  1. Lockbox on the Door – this allows buyers the ability to see the home as soon as they are aware of the listing, or at their convenience.
  2. Providing a Key to the Home – although the buyer’s agent may need to stop by an office to pick up the key, there is little delay in being able to show the home.
  3. Open Access with a Phone Call – the seller allows showings with just a phone call’s notice.
  4. By Appointment Only (example: 48-Hour Notice) – Many buyers who are relocating for a new career or promotion start working in that area prior to purchasing their home. They often like to take advantage of free time during business hours (such as their lunch break) to view potential homes. Because of this, they may not be able to plan their availability far in advance or may be unable to wait 48 hours to see the house.
  5. Limited Access (example: the home is only available on Mondays or Tuesdays at 2pm or for only a couple of hours a day) – This is the most difficult way to be able to show your house to potential buyers.

With May proving to be the best month to sell your home, access can make or break your ability to get the price you are looking for, or even sell your house at all.

Home Inspections: What to Expect

Home Inspections: What to Expect | Keeping Current Matters

So you made an offer, it was accepted, and now your next task is to have the home inspected prior to closing. Oftentimes, agents make your offer contingent on a clean home inspection.

This contingency allows you to renegotiate the price you paid for the home, ask the sellers to cover repairs, or even, in some cases, walk away. Your agent can advise you on the best course of action once the report is filed.

How to Choose an Inspector

Your agent will most likely have a short list of inspectors that they have worked with in the past that they can recommend to you. HGTV recommends that you consider the following 5 areas when choosing the right home inspector for you:

  1. Qualifications – find out what’s included in your inspection and if the age or location of your home may warrant specific certifications or specialties.
  2. Sample Reports – ask for a sample inspection report so you can review how thoroughly they will be inspecting your dream home. The more detailed the report, the better in most cases.
  3. References – do your homework – ask for phone numbers and names of past clients who you can call to ask about their experiences.
  4. Memberships – Not all inspectors belong to a national or state association of home inspectors, and membership in one of these groups should not be the only way to evaluate your choice. Membership in one of these organizations often means that continued training and education are provided.
  5. Errors & Omission Insurance – Find out what the liability of the inspector or inspection company is once the inspection is over. The inspector is only human after all, and it is possible that they might miss something they should have seen.

Ask your inspector if it’s okay for you to tag along during the inspection, that way they can point out anything that should be addressed or fixed.

Don’t be surprised to see your inspector climbing on the roof or crawling around in the attic and on the floors. The job of the inspector is to protect your investment and find any issues with the home, including but not limited to: the roof, plumbing, electrical components, appliances, heating & air conditioning systems, ventilation, windows, the fireplace and chimney, the foundation, and so much more!

Bottom Line

They say ‘ignorance is bliss,’ but not when investing your hard-earned money into a home of your own. Work with a professional who you can trust to give you the most information possible about your new home so that you can make the most educated decision about your purchase.

Is Family Mortgage Debt Out of Control?

Is Family Mortgage Debt Out of Control? | Keeping Current Matters

Some homeowners have recently done a “cash out” refinance and have taken a portion of their increased equity from their house. Others have sold their homes and purchased more expensive homes with larger mortgages. At the same time, first-time buyers have become homeowners and now have mortgage payments for the first time.

These developments have caused concern that families might be reaching unsustainable levels of mortgage debt. Some are worried that we may be repeating a behavior that helped precipitate the housing crash ten years ago.

Today, we want to assure everyone that this is not the case. Here is a graph created from data released by the Federal Reserve Board which shows the Household Debt Service Ratio for mortgages as a percentage of disposable personal income. The ratio is the total quarterly required mortgage payments divided by total quarterly disposable personal income. In other words, the percentage of spendable income people are using to pay their mortgage.

Is Family Mortgage Debt Out of Control? | Keeping Current Matters

Today’s ratio of 4.44% is nowhere near the ratio of 7.21% during the peak of the housing bubble and is instead at the lowest rate since 1980 (4.38%).

Bill McBride of Calculated Risk recently commented on the ratio:

“The Debt Service Ratio for mortgages is near the low for the last 38 years. This ratio increased rapidly during the housing bubble and continued to increase until 2007. With falling interest rates, and less mortgage debt, the mortgage ratio has declined significantly.”

Bottom Line

Many families paid a heavy price because of questionable practices that led to last decade’s housing crash. It seems the American people have learned a lesson and are not repeating that same behavior regarding their mortgage debt.

Priced Out of Your Dream Neighborhood? How to Find Its Cheaper Twin

Few things put a crimp in your home-buying dreams like realizing you’ve been priced out of your ideal neighborhood. Hey, it happens. But that doesn’t mean your house hunt should end—it just means you’ll have to open your mind to new neighborhoods.

We know: It’s hard to say goodbye to a place you know and love, but if you want to buy a home, it might be necessary. And guess what? Once you’re settled in, it’s entirely possible you will fall in love with this new nabe, too—that is, if you pick right.

Here’s how to find those alternative areas that will feel amazingly similar to the neighborhood you covet, only at a price you can live with, too.

Separate needs from wants

The first step in finding an affordable neighborhood you’ll love, according to Dillar Schwartz, a real estate agent in Austin, TX, is to “re-evaluate your must-haves versus your wants.” Pare down your must-have list so that you can be a little more flexible with the rest.

Find the things that you absolutely can’t compromise on: a certain school district, for example, or an acceptable commute time. Once you have a few things that are true must-haves, you can rule out any neighborhood that doesn’t meet those criteria. More importantly, you can re-evaluate areas that you hadn’t previously considered but that do meet your most important needs.

Define the features you love

Next, make a list of concrete things you love about your dream neighborhood. This will help you separate your emotional attachment to a neighborhood from the stuff that’s actually important to you.

Be specific: “cool vibes” is not helpful, but “walking distance to a good coffee place” or “access to dog parks” is. When you’re exploring alternative neighborhoods, you might be surprised by how many things on the list you can check off.

Christine Ko, a senior sales associate at Climb Real Estate, in San Francisco, gives this example: “In the city of San Francisco, a handful of neighborhoods have the same style of Victorian homes with period details. While some neighborhoods charge a premium and a higher price per square foot for these homes, you can easily explore surrounding neighborhoods or a few areas farther from the city with the same style of quintessential charm.”

Capitalize on what you don’t care about

Another way to find bargain neighborhoods is to home in on features that other people value that you don’t care about, says Jeff Corriolan, a real estate agent with the Keyes Company in Miami.

For example: If you don’t have kids (or plan to have any), then there’s no need to pay a premium for the best school district (but keep in mind that a good school district is important for your home’s resale value). Or if you work from home or don’t mind driving, being farther from downtown might not matter. Maybe you aren’t bothered by being on a busy street, or you have no interest in taking care of a yard, or you’re a tiny-house aficionado who doesn’t see extra square footage as a plus.

By making a list of features you don’t want, you can maximize the bang for your buck by choosing areas whose “unattractive” features aren’t actually a negative for you.

Explore nearby neighborhoods

OK, so you have your lists of wants and needs and loves and don’t cares, but how do you actually find the neighborhoods that fit your requirements? Start from your dream neighborhood and move a little farther out.

“Look at the nearest surrounding areas,” says Schwartz. Often “neighborhood” lines are somewhat arbitrary, and heading a few blocks in a less hip direction could yield a neighborhood that is similar to where you want to be in all but price point.

Move in/move out/move up

So maybe you have your heart set on this dream neighborhood and nothing else will do. In that case, says Schwartz, your best move is to make a plan that gets you there in a few years.

“Invest in a property with a great return so that you can resell and buy into  your dream neighborhood through appreciation,” she explains. “Most agents refer to this as move in/move out/move up.”

Or who knows? Maybe after you’ve lived in your less-than-ideal “starter neighborhood” for a few years, it will change into a new dream neighborhood where you want to stay.