State of the Real Estate Market – what it means for the players.
I, like so many of you I suppose, have been reading all kinds of articles lately from one economist or another in trying to sort out what will happen to this red-hot real estate market. Common sense tells us it will cool, of course, but when and how much and who will be affected by it the most? The reasons for the hot market are well known because we are looking in our rear-view mirror of the past 2 years.
Inventory has been low. New construction of homes is low due to a decade long dry spell and now supply chains are hindering building materials continuing to slow new construction. Buyers have been plenty; millions of Millennials have reached their prime home buying years; investors have been out in droves (accounting for almost 21% of buyers last December). Interest rates have been at record low numbers. Unemployment is low, and work from home options have increased allowing buyers to move out of the more expensive cities to burbs. Whew! Well, if that’s not enough to make your head spin, I don’t know what is! So many factors affect a market and there are plenty in our current market to add to the mix.
A rise in interest rates over the past months has certainly pumped the brakes on a small percentage of buyers. However, with interest rates on the rise, many buyers are more determined than ever to buy and buy soon. Which is partly why some are predicting prices to continue to rise this year. And historically, those interest rates at 5 or even 6% are still low. The Feds are wavering on how much to raise interest rates being that real estate has always been a battleground in fighting inflation and makes up a significant part of the U.S. economy.
Sellers are confronted with the choices to stay put and keep that low interest rate achieved from re-financing, or to take advantage of the equity they’ve gained so quickly over the past few years. In our area homes have appreciated as much as 30-45% based on our increase of average sale price in the county. It’s a common scenario to put a price tag on your home. We in real estate rich CA often look at our home through dollar signs. Until, that is, when we come back to the reality of where we would move to. This decision should always fall back on where we are in our life and what is the end goal.
If you are thinking of moving/selling – or buying, it’s always good to have a plan in place. It’s not about timing the market and “luck is not a strategy.” A recession in our future may not mean lower home prices, but likely slower home appreciation. In many ways, this could be a good thing and bring us to a calmer environment of selling and buying homes.
We are always available to help provide values, ideas and plans for those mulling these ideas around.
Let's Talk About Loans
As realtors, it’s our job to counsel our clients on all things HOMES. That includes knowing a little bit about every aspect of the buying and selling process…including financing. Now, we are nowhere near the experts on lending, but we know people who are! Don’t ever hesitate to reach out to us for a reference to the BEST lenders in the area. And yes, they can even represent you out of the area!
So, let’s break down the most common types of loans.
Conventional Loans consist of fixed rate mortgages and adjustable-rate mortgages. Fixed rate mortgages are self-explanatory: your interest rate and mortgage payments will stay the same for the duration of your loan. You can always refinance, to lower your rate if the market decreases. Adjustable-rate mortgages are quite the opposite. ARMs are available in a variety of different forms and term lengths, with the most common being 3/1, 5/1, 7/1 and 10/1. The first number represents the number of years your interest rate will remain fixed. The second number represents how often your interest rate will change after the fixed rate period expires. ARMs are ideal for those that only plan to stay in their home for a short amount of time. Many of you may not be very familiar with ARMs, and that’s likely because they have not been a common option for the past few years because interest rates have been so low. However, now that interest rates are increasing, ARMs are coming back around.
If you do not have much of a down payment, an FHA loan might be your best option. FHA loans are insured by the Federal Housing Administration (hence, the name, FHA). Though this option does not require a large down payment, it does require the borrower to pay monthly private mortgage insurance (PMI) in addition to the interest payment and mortgage payment. Once the borrower pays off a specified amount of the loan (usually 20%), they no longer need to pay for PMI.
Conventional lending will only loan up to a certain amount, and anything over that falls into a jumbo loan category. Jumbo loans can have either a fixed rate or an adjustable rate – it depends on what fits the borrower’s lifestyle and length of anticipated time owning the property. Like we mentioned before: if you are planning to live in your home for a short amount of time (under 10 years) an ARM may be more favorable. However, if you are planning to live in your home long term, a fixed rate may be the better option.
If you have ever served in the military, you are eligible to apply for a VA loan, which is guaranteed by the Department of Veterans Affairs. VA loans do not require any down payment, one does not need to be a first-time home buyer, and private mortgage insurance is not needed. VA loans do require certain repairs to be completed before the close of escrow, like section one termite work.
As you can see, loans come in many shapes and sizes. What works for one borrower, may not work for another. It’s best to connect with a lender who can find the most favorable option for you. We are always happy to help connect you with a trusted and proven lender.
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