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Waiting for the Mortgage Rates to Come Down?

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Waiting for the mortgage rates to come down before you buy a home may not be a good decision.

If you are correct, and the rates do come down by two percent, the savings you benefit from a lower rate will most likely be devoured by the appreciated price increase.

As of 10/27/22, the 30-year fixed-rate was at 7.08% which is the highest level since April 2002. If the rate drops to 5% in three years but the price increases by 5% a year, a $400,000 home today, will cost $463,050 three years from now.

An increasingly popular option that more buyers are considering is to purchase the home today with an adjustable-rate mortgage that could give them a 5.96% rate for five years. Then, refinance to a fixed-rate when rates come down.

Not only will the buyer have lower payments with the ARM, but the buyer will also own the home, and benefit from the appreciated prices which will build equity in the home and increase their net worth.

Mortgage rates have increased over 3% in the first three quarters of this year. Some would-be buyers are wishing they had a do-over so they could get into a home at a lower rate. The current differential between the fixed and adjustable rates are substantial and could lower the monthly payment.

The lower adjustable-rate would save a buyer $323.90 a month during the first period of five years. At any point during that period, they could refinance at better interest rate should it become available. However, if the rates do start trending down, the homeowner might decide not to refinance because the rate on the ARM would have to go down at the next adjustment period to reflect the lower of rates in the market.

Mortgage rates have been low since the housing crisis that caused the Great Recession. The government kept them low to build the economy. Then, the Pandemic threatened the economy, and the government spent a tremendous amount of money to bolster the economy which led to inflation which is what is causing the rates to increase currently.

When inflation is under control and back to acceptable levels, the rates should lower.

Home prices are a different situation. The recent rise in mortgage rates has cause home prices to moderate because it affects affordability. Inventories are still low and there a pent-up demand for housing from purchasers unable to buy during the pandemic.

This coupled with millennials reaching household formation age and insufficient home building to keep up with demand for the last decade, prices are expected to continue to rise. The rate of appreciation could even increase when rates come down which would also increase affordability and demand.

Buyers who feel they missed a window of opportunity to buy before rates started increasing should investigate financing alternatives. Reach out to us and we can discuss the options that are available.

Finding Funds for a Down Payment

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A soft second loan, sometimes called a silent second, is subordinate to the first mortgage, whose payment is deferred or forgiven until a specific date or the resale of the property. This would mean that buyers would not have to contend with regular payments thereby keeping their debt-to-income ratio lower and more affordable.

While normal lending institutions may not be open to such types of financing, family and friends may be. In some cases, these relatives and friends may be inclined to make a gift to help buyers get into a home. Instead of an outright gift, if the person makes the loan, they have options to be repaid at some point in the future or in other cases, they could forgive the debt but don’t have to make that decision today.

There are more than 2,000 down payment assistance programs nationwide. State, county, and city governments run many of them. Other programs could be from churches, employers, non-profit organizations, regional Federal Home Loan Banks, federally recognized Native American tribes and their sovereign instrumentalities or public agencies.

Various local or state Housing Finance Agencies have used "soft second" mortgages for down payment and closing costs to eligible borrowers. For example, the Indiana Housing and Community Development Authority offers down payment assistance in the amount of 3 to 4 percent of the purchase price of the home at zero percent interest with no monthly payments. The loan is fully forgiven after two years if the borrower remains in the home.

In a more mainstream application, let’s say that a parent or other relative was willing to help a buyer with their down payment and possibly, closing costs to purchase a home now. However, they will need the money for their retirement at some determinable point in the future, possibly, five to ten years.

The sales contract would disclose a "soft second" together with the terms which could include interest and due date such as ten years from execution of note or when they sell or refinance the property whichever comes first. It would also specify that no payments would be made until the maturity.

The mortgagor of the "soft second" may also retain the right to forgive the loan.

The lender of the first mortgage must be aware of the intended soft second and it should be mentioned in the sales contract so it can be underwritten by the lender appropriately. Failure to disclose a soft second to the lender is illegal and borrowers who fail to do so could be prosecuted. Mortgage fraud is classified as a Class C felony under federal law.

Both liens would be recorded for public record for the safety of all parties concerned.

Since this procedure is not commonplace, the advice is to run this concept past your lender prior to writing the offer. With full disclosure in the contract and the proper terms to satisfy underwriting, you should be able to structure a transaction to get a qualified buyer without a down payment into a home.

Some things to consider in the second mortgage note is a firm due date far enough down the road that it isn’t going to trigger risk issues. An example would be ten years or when the property is sold or refinanced, whichever comes first. Specify an interest rate and arbitrary payments which would give the buyer the option to make payments if they wanted. By doing this, the underwriter can calculate payments and amount owed at the term.

In today’s economy, there are a lot of companies that have rich cash reserves, as well as plenty of individuals also. Once buyers have identified a friend or relative to become the lender on the second mortgage, your agent will help you find a lender for the first mortgage who is willing to participate.

The buyer will become pre-approved and the process of finding the home can begin but not until the other steps have been finished.

“Do you feel lucky? Well, do ya?”

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You may remember the famous line in the Dirty Harry movie when Clint Eastwood has just had a shootout with bank robbers and is standing in front of the lone surviving thief who is considering going for his gun. Harry with his gun pointed at the bad guy says to him ""Did he fire six shots or only five? Well, to tell you the truth, in all this excitement, I kinda lost track myself. But being this is a 44 Magnum, the most powerful handgun in the world and would blow your head clean off, you’ve gotta ask yourself one question: Do I feel lucky? Well, do ya?"

Our economy has had a long recovery from the great recession, due in most part to the housing crisis of 2007-2009. Then, the Pandemic hit in 2020 which tanked the worldwide economy but the surprise to homeowners happened to be housing. 2021 became a red-hot market with prices going up by 21% nationally.

In 2022, mortgage rates have increased by four percentage points and haven’t been this high since 2008. Inflation, at the end of September, reached a 40-year high at 8.2%. The Fed recently said they’ll continue raising rates until they can get inflation near their target of 2% annual rate.

People who own homes have seen their values go up dramatically and so has their net worth. Due to the extremely low inventories and the maturing millennial market, there is a lot of pent-up demand for housing.

This leads us to the scene in the movie. You may be considering buying a house now but at the same time, you’re thinking "Have prices and mortgage rates hit the top of the market so they’ll start coming down or will they continue to go up, making it cost more to get into a home?"

The facts are that the U.S. is the strongest economy in the world. The housing bubble of 2007 was created by over-inflated property values and predatory lending practices. Those conditions don’t exist today. There is a housing shortage in America due to not enough homes being built to keep up with demand and people staying in their homes longer.

Homeowners have record amounts equity in their homes and foreclosure rate hit a historic low at the end of 2021 even though it edged up a bit in spring of 2022 as reported by CoreLogic.

Homes are expected to continue to appreciate but not as fast as they did in 2021. The revised predictions for 2022 appreciation vary from Fannie Mae at 16%, Freddie Mac at 12.8% to NAR at 11.5%.

NAR Senior Economist Nadia Evangelou recently said "Mortgage rates are a heartbeat away from the 7% threshold. According to Freddie Mac, the 30-year fixed mortgage rate rose to 6.92% from 6.66% the previous week. While inflation remains elevated, mortgage rates will continue to move up, making homeownership even further out of reach for many."

If the home you could buy this year for $500,000, will cost you $550,000 next year and the mortgage rate goes up from 6.5% to 7.5%, the payment will go from $2,844 to $3,461 based on a 90% mortgage for 30-years.

If interest rates are temporarily high based on the Fed’s position to lower inflation, a home could be purchased at today’s price and refinanced later when the rates come down. 5/1 adjustable rate mortgages allow a borrower to lock in a lower initial rate for five years which would allow a person to find the best time to refinance.

So, back to the movie scene… "you’ve gotta ask yourself one question: Do I feel lucky? Well, do ya?"

When will the market turn?

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Housing affordability has declined dramatically in 2022 due to continued rising home prices and a three-percentage point jump in mortgage rates. Based on the popularity of Google searches for "housing bust" or "housing bubble", it could be surmised that buyers are anticipating relief, but they are probably not going to see it anytime soon.

Home price appreciation is moderating and is down from the 20% level experienced in 2021. Some of the major industry prognosticators are estimating anywhere from 9% to 14% for 2022. Interest rates are expected to continue to rise through the end of 2022 and could be at 7%. Freddie Mac 30-year fixed-rate mortgage was 6.66% on October 6, 2022.

Even though homes currently for sale increased to 3.2 months in August 2022, it isn’t that much more than it was for the same month in 2021 when it was at 2.6 months. Most markets are still entrenched in favor of sellers because a balanced market between buyer’s and seller’s is at six month’s supply.

While buyers may be feeling that a new home is no longer affordable, there are several affordability indexes that provide a baseline for objective measurement. The National Association of REALTORS� produces a monthly index. Affordability is determined by indicating a median income person/family can afford to purchase a median priced home with a 20% down payment based on a 25% qualifying ratio for monthly housing expense to gross monthly income.

The index is structured so that a value of 100 indicates that a family with the median income has exactly enough income to qualify for a mortgage on a median priced home. When the index is above 100, the family has more than enough to qualify.

The NAR Housing Affordability Index for 2019, 2020, and 2021 was 159.7, 169.9 and 152 respectively. It was 143.1 in January and by April had decreased to 108.1 and the preliminary number for June is 98.5. The decrease in the index is directly affected by rising interest rates and home prices outpacing family income.

Home sales were seasonally adjusted in August to be 4.8 million which is down .4% from the previous month and down 19.9% from August 2021. Lower sales are partly a function of a smaller pool of eligible buyers and concerns about a variety of economic conditions.

This may not sound like good news for buyers whether they are labeled first-time or move-up, but it is an objective view of the market. It has become more expensive to buy a home now and will continue to increase in the future.

Getting into a house using whatever devices are necessary can at least put the momentum on your side. Homes are appreciating faster than inflation and the fact that leverage improves the growth rate due to using borrowed funds to buy the home is also to the buyer’s advantage.

So, getting back to the original question "when will the market turn to make homes more affordable?" It may not be a dramatic change but more likely, a subtle one. Prices will moderate by still appreciating but not as much as in 2021. Inventories will increase slightly but won’t affect price because the low supply has been almost a decade in the making and it will take time to reach balance in the market.

Mortgage rates are not as low as they were, but they never were before in the history of the U.S. Millions of people had mortgages in the 1980’s that were as high as 18.5%. Buyers financed the homes at the going market rate, sometimes with creative financing, and refinanced the properties later when the rates came down and the values had gone up.

Real estate is still a great hedge against inflation, and many times, the largest and best investment individuals have. The Federal Reserve Survey of Consumer Finances found that homeowner’s net worth is 41 times greater than renters.

Another Tool to Improve Affordability

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The rapid rise in mortgage rates during 2022 coupled with continued appreciation of home prices have limited the number of buyers in the market which is reflected by the lower number of home sales currently. "It’s a fact that many households are impacted by higher mortgage rates as they no longer earn the qualifying income for the median-priced home." Nadia Evangelou, NAR Economist

One of the things that agents are doing to help buyers lower their house payments is to suggest an adjustable-rate mortgage. The rates on these types of loans are tied to indexes that reflect the current market rates and produce less risk for the lender. The payments adjust on the anniversary date based on the index plus margin named in the note.

While many people think that they only adjust upward, they also adjust downward when the index indicates it. For the week of September 29, 2022, the Freddie Mac 5/1 ARM was 5.03% compared to the 30-year fixed-rate of 6.70%.

Another tool that experienced agents are using to address affordability issues are interest rate buydowns. In recent years, there have not been many buydowns used because interest rates were already very low, but now, more people are considering them again.

A buydown is prepaying the interest on a mortgage at the time of closing to lower the payment for a specific period or for the term of the mortgage. Obviously, it would be more expensive to buydown the rate for the whole term of the mortgage.

Either the seller or the buyer can buydown the rate and it would be specified in the sales contract. From a practical perspective, sellers in the recent past haven’t had to consider this option because of the high demand and multiple offers that were commonplace. Now that sales have slowed, and both inventory and market time is increasing, some sellers want to make their homes more marketable and are seeking a competitive advantage.

A common temporary buydown is called a 2/1 which reduces the payment in the first two years of the loan by calculating the borrower’s payment at 2% less than the note rate for the first year and 1% less than the note rate for the second year. Years three through thirty, the payment would be the normal payment at the note rate.

A buydown is a fixed rate, conforming mortgage that the borrower must qualify at the note rate to indicate that borrowers will be able to afford the mortgage after the first two years of lower payments.

As an example, on a $400,000 sales price with a 90% mortgage at 5.54% interest for 30-years, the normal principal and interest payment would be $2,053.08. By using a 2/1 buydown, the payment for the first year would be at 3.54% interest, 2% lower than the note rate, making the payment $1,624.61. The second year, it would be at 4.54% interest, 1% lower than the note rate, making the payment $1,823.63.

The buyers’ payment would be $428.47 lower each month for the first year and $220.45 a month lower for the second year. The total savings would be $7,787.04 which becomes the cost of the 2/1 buydown. This amount must be paid at the time of closing by either the seller or the buyer.

2/1 Buydown Example 1st Year 2nd Year 3rd … 30th Years
Interest Rate 4.7% 5.7% 6.7%
Principal & Interest Payment $1,867.10 $2,089.44 $2,323.00
Monthly Savings $455.90 $233.56
Annual Savings/Total Savings $5,470.80 $2,802.72 $,8,273.52

The most prevalent providers of buydowns in the past have been builders. It is a concession like paying closing costs or upgrades for the buyer. As sales have started to slow, some builders in particular price ranges and areas are currently considering this benefit to close more sales.

To summarize: a buydown is a fixed-rate mortgage where the interest is pre-paid for a period to help the borrower with lower payments for a time. A 2/1 buydown allows the buyer to have significantly lower payments in the first two years which will give them time to settle into the house while they can be confident of what the payment will be in years three through thirty.

The pre-paid interest is deductible for the buyer, even if the seller pays for it. This is something that the buyer will want to talk about with their tax advisor when they are doing their income tax for that year.

If you are selling a home, talk to your listing agent about this option to increase marketability. If you are a buyer, discuss this as an affordability option. If your agent isn’t familiar with buydowns, ask them to research it with a trusted mortgage officer. Buydowns are legal and have been available for decades. The determining factor may be whether the market has softened enough that sellers are willing to consider them.

Five Factors that affect the Sale of Any Home

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Owners directly control four of the five factors that affect the sale of any home: price, location, condition, terms, and the agent you select. The one thing you can’t control is the location of the home, but you can adjust the other factors to compensate for failings.

The seller controls the price of the home which determines its positioning in the marketplace. If is priced too high, it will take longer to sell and, in some cases, for less than what it should have sold for because when it doesn’t sell immediately, it is assumed that there must be an issue with it. If it is priced too low, the owner will not realize as much of their equity as they should.

Not pricing the home in the proper search brackets could keep the property from being exposed to potential and likely, buyers. For example, if a home is priced at $399,000 to follow an age-old retail marketing principle, many of the most likely buyers will never know about it because they are searching for properties in the $400,000 to $450,000 range.

The seller also controls the condition of a property which affects not only the marketability of a home but indirectly, the price. Homes in the best condition appeal to more buyers because for the most part, they are using their available cash for the down payment and closing costs and may not be able to afford to make cosmetic or more expensive improvements to the property.

Clutter can keep buyers from seeing your home, and more importantly, it will keep them from seeing themselves in your home. There are three basic causes of clutter: there is too much stuff in the home; there is not enough space in the home; and there is no organization.

Selling a home is about positioning it to sell which sometimes means temporarily or permanently getting rid of things that make the home look small or distracts the buyers from seeing its potential for them.

Terms are the financial preferences established by the seller. In a competitive market with multiple bids, a seller may not have to offer any terms such as a financing, appraisal, or inspection contingencies. This will restrict the number of buyers who are financially able to pay cash and are willing to do so.

In lower price range homes, there could be a wealth of qualified buyers that need to use low down payment options, closing cost assistance from the seller, or other things. When the seller consents to offer a variety of terms, the market of potential buyers increases. The seller can still select the most qualified if they are not limiting protected classes.

The fourth marketing factor that the seller controls is the agent they select to represent them in the sale of the home. Selecting the "right" person to market your home is very important and worth careful consideration.

Your agent will be the manager of the entire marketing process. They’ll position your home to be competitive with the other homes in your price range and area while attracting the broadest range of buyers possible. Your agent will offer advice on what needs to be done before the property is offered for sale. Your agent can also offer recommendations for a variety of service providers if work needs to be done.

There are a lot of professionals involved in the sale of a home like lenders, title officers, appraisers, inspectors, insurance agents, surveyors, and the buyer’s agent, just to name a few. Your listing agent will coordinate the communications between the other professionals and negotiate directly with them. Your agent’s role as third party negotiator is critical and you need to feel confident in their ability to serve your best interests.

  1. Price
    • Too high; not realistic
    • Doesn’t acknowledge Internet search range
  2. Location
    • A poor location can negatively affect price
    • Since location cannot change, must adjust price for a poor location
    • Condition
    • Clutter
    • Drive-up appeal
    • Deferred maintenance
    • Odors
    • Carpets
    • Lack of updates
  3. Terms (applicable to certain price ranges)
    • Buyer concessions like closing costs
    • Incentives like home warranty, appliances, floor covering, etc.
    • Buy-down interest rates
  4. The Agent you select
    • Experience
    • Knowledge of neighborhood
    • Promotional expertise

For more information, download our Sellers Guide.

Gift Amount Increased for 2022

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The limit for tax free gifts for 2022 is $16,000 and no tax is due to the donor or the donee. There are provisions that would allow gifts higher than this amount providing the total lifetime gifts above the annual exclusion of $12.06 million for 2022 has not been met.

The donor and donee can be separate persons so that the aggregate tax-free gift for one-year amounts to more money. For instance, a father and mother can gift $16,000 each to their married son in 2022 and an additional $16,000 each to the daughter-in-law for a total $64,000.

If the son and daughter-in-law used the money as a down payment to purchase a home, depending on how recent the gift occurred, the mortgage company might require a gift letter from the parents stating the amount was a gift and is not expected to be repaid. Lenders may ask the exact amount of the gift, where it came from and the relationship involved.

Family members and friends with financial resources can become the catalyst that allows buyers with good credit and income but without a down payment to purchase a home. Sometimes, the gift is looked at as an early inheritance that allows the recipient to show their gratitude and the donor to see the enjoyment and benefit of the gift.

In some situations, the buyers have saved enough money for a minimal down payment, but the gift allows them to put more money down that may help them get a lower interest rate or eliminate the need for private mortgage insurance.

The important thing involving gift funds is to have complete disclosure with the lender. It is best discussed during the pre-approval process. Your real estate professional should also know about it so they can guide you through the process.

Housing Affordability – Call to ARMs

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Housing Affordability is negatively affected by both rising home prices and mortgage rates. A 20% increase in nominal home prices and a 2% increase in the 30-year fixed rate mortgage since January have contributed to a 46 point drop in the NAR Housing Affordability Index.

The Index was 143 in June 2021 and is 98.5 in June of 2022. The Housing Affordability Index indicates whether a median income family can qualify for a mortgage loan with a 20% down payment and 25% qualifying ratio for monthly housing expenses to gross monthly income.

100 points is considered the tipping point. As the Index rises above that point, housing is considered more affordable and as it declines, it is considered less affordable.

With affordability threatening to limit buyer’s ability to purchase, more borrowers are considering an adjustable-rate mortgage. For the last ten years, fixed-rate mortgages have been so low, only about 3% of borrowers used adjustable-rate mortgages.

There is a lot of misinformation about ARMs that keeps some would-be buyers from even considering them. Even before the housing crisis of 2007, many safeguards were put into place to protect borrowers.

"As long as the ‘spread’ between ARMs and fixed-rate mortgages continues, more first-time home buyers may choose ARMs because the lower mortgage rate gives them a purchasing power ‘boost’ over the 30-year fixed mortgage rate." Mark Fleming, First American Chief Economist

The potential ARM candidate is probably not a first-time homebuyer. They should be tolerant to risk and more financially savvy with predictably increasing income. These buyers may recognize that they do not intend to stay in the home for a long time.

Adjustable-rate mortgages, generally start out at a lower-rate than a fixed-rate but can adjust, up or down, based on an independent index plus a specified margin and anniversary date that are referenced in the note. Most ARMs have stated interest rate caps that limit the amount of adjustment of the rate both on a periodic basis and a lifetime. FHA ARMs have a limit of 1% per adjustment period and a 5% lifetime cap over the original note rate. Conventional loans, more commonly, have a 2% per adjustment period and a 6% lifetime cap.

A particularly popular type of adjustable-rate mortgage is referred to as a 5/1 which means the rate for the first period lasts five years and then, each adjustment period after that is for one year. This allows a buyer to have stability in the rate during the first five years. If they plan to sell in less time than that, they will not have to deal with the adjustment.

A 5/1 ARM will have a lower payment for five years because of the lower initial rate and assuming a worst case scenario, a conventional ARM could increase a maximum of 2% at the end of the first period which would put the rate at higher than the fixed rate at the time they started. However, that is not where the breakeven point occurs. It is not until all the savings from the initial period have been exhausted, that the ARM will become more expensive than the fixed-rate alternative.

An ARM Comparison can help buyers to determine breakeven point. Let’s compare a 5.66% FRM with a 4.51% 5/1 ARM with 2 and 6 caps. A $450,000 30-year term loan amount will have a P&I payment of $2,600.41 for the fixed compared to $2,286.76 for the ARM. The $317.65 monthly savings will accumulate for 60 months plus a $6,673 lower unpaid balance on the ARM due to a lower interest rate.

The total savings in the first period would be $25,732. If you assume that the payment would increase to the maximum at each adjustment period, the breakeven point will occur at 7 years and 4 months. If you were to sell the property prior to the breakeven, the ARM would produce a lower cost of housing.

One of the benefits for lenders making adjustable-rate mortgages is that they have less risk because the yield can change to reflect the current market. Most ARMs must adjust down as well as up which means if rates do come down, the buyer can continue with the ARM at a lower rate or convert it to a fixed-rate at the, then, current rate.

Use the ARM Comparison to see where the breakeven point will be for you. Get mortgage rates for FRM and ARM mortgages from Freddie Mac and download our Buyers Guide.

Surviving Spouse Sale Period

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Married couples who own a home as joint tenants with rights of survivorship, the surviving spouse inherits the home, along with their basis, and it does not trigger a taxable event. Unfortunately, the capital gain exclusion is reduced to a single person’s share unless the survivor disposes of the property in the granted time.

Married couples, filing jointly, have up to $500,000 of capital gain exclusion on qualifying sales. As a single taxpayer, the survivor is only entitled up to $250,000 exclusion of capital gain. For instance, if the home at the time of death is worth $900,000 with a basis of $400,000, the gain is $500,000. If the surviving spouse sells the home, their exclusion is only a maximum of $250,000 which would make the other $250,000 subject to long-term capital gains tax.

However, there is an exception to the rule that if a sale occurs within two years of the death of their spouse, the survivor is entitled to the $500,0000 exclusion if the ownership and use tests are met prior to the death. The two-year period begins on the date of death and ends two-years after that date which means the property needs to close and fund by that anniversary.

For more information contact your tax professional and download IRS Publication 523 and download the Homeowners Tax Guide.

Are prices and rates going to continue to rise?

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One of the most talked about questions in the real estate market has to do with "Will prices continue to rise now that interest rates have increased dramatically this year?"

It is understandable to think that if the Federal Reserve is using interest rate increases to slow consumer demand, that it would also slow homebuyer demand to moderate prices. Unfortunately for would-be homebuyers, it isn’t the case. High inflation, strong economic growth, low unemployment, and increased wage growth have been associated with high home price appreciation.

In a recent newsletter from First American, Chief Economist, Mark Fleming stated that historically, 90% of total inventory is from existing homes and homeowners are not moving as often as in the past. Prior to 2007, the average tenure was five years. After the housing crisis, between 2008 and 2016, the length of time spent in a home went to eight years.

Lawrence Yun, Chief Economist with the National Association of REALTORS� when talking about the May 2022 statistics: "Nonetheless, homes priced appropriately are selling quickly and inventory levels still need to rise substantially … almost doubling … to cool home price appreciation and provide more options for home buyers." Median sales price rose to a new high of $403,800, up 10.8% from July 2021, while sales are down 20% year over year and inventory increased slightly to 3.3 months from 2.6 months in July of 2021.

In the beginning of 2022, Fannie Mae, Freddie Mac and NAR predicted home price appreciation would be 7.6%, 6.2%, and 5.1% for the year. Their revised forecast has been increased to 16%, 12.8%, and 11.5%. Buyer demand still exceeds inventory levels which is driving prices higher.

While the Fed does not set mortgage rates, it does determine the Fed Funds Rate which is charged by banks to each other for overnight funds. The increases often affect the U.S. Treasury rates to increase and there is generally a reaction when the 10-year U.S. Treasury Note yields increase for the 30-year mortgage rates to increase also.

The National Association of REALTORS�, on their website, states "The Housing Affordability Index measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national and regional levels based on the most recent price and income data." The Index uses the 30-year fixed rate mortgage as provided by Freddie Mac’s Primary Mortgage Market Survey (PMMS).

Mortgage rates have gone up over 2% in the first half of 2022. That dramatically affects the affordability of the home even if the price didn’t increase, which it did. A $360,000 mortgage at 3.05% in December 2021 would have a principal and interest payment of $1,528 for 30-years. At 5.22% as of August 11, 2022, the P&I payment is $1,981 or a difference of $453 dollars or a 30% increase.

As of May 2022, homeowners are now staying in their homes 10.6 years. Part of the reasons can be contributed to the pandemic, but a large degree is attributed to the lack of inventory. Existing homeowners can sell their home for premium prices and in unusually short time frames, but the problem is finding a home to replace it.

The demand for housing still exceeds the supply and price are continuing to rise, although, maybe not as the same pace as 2021. Many economists predicted that price appreciation would slow but CoreLogic reported "Home prices nationwide, including distressed sales, increased year-over-year by 20.9% in April 2022 compared with April 2021. In the same report, CoreLogic predicted "…home prices are forecast to increase on a year-over-year basis by 5.6% from April 2022 to April 2023."

Another frequent question homeowners have is whether to wait to see if prices moderate and interest rates decline. The probability is more likely for prices to continue to increase along with mortgage rates. The consequences of waiting, in hopes of lower prices and rates, could totally price a person out of the market for the home they want.

Using a $400,000 home that could be purchased today at 5.22% on a 90%, 30-year mortgage, the P&I payments would be $1,981. If the price appreciated only 5% in the next year and the mortgage rates were to go up by 1%, the payment would increase by $339 a month. If a person stayed in the home for 7 years, the increased cost would be $28,458 and if they stayed for full term, it would cost them $121,965 more by waiting.

Increases in rates and prices have forced some people out of the market, at least temporarily. For the fortunate ones, who can still afford to buy, even with the increases, acting now could save them tens of thousands and maybe hundreds of thousands depending on the price of the home.

Make an appointment with your real estate professional to get the facts on what you home is worth, the mortgages available, and the logistics to put it together for your best advantage.