If You’re Worried about Mortgage Rates Control what You Can

Posted on by Mike Padlo

Chances are you’re hearing a lot about mortgage rates right now. You may even see some headlines talking about last week’s Federal Reserve (the Fed) meeting and what it means for rates. But the Fed doesn’t determine mortgage rates, even if the headlines make it sound like they do.

The truth is, mortgage rates are impacted by a lot of factors: geo-political uncertainty, inflation and the economy, and more. And trying to pin down when all those factors will line up enough for rates to come down is tricky.

That’s why it’s generally not worth it to try to time the market. There’s too much at play that you can’t control. The best thing you can do is control the controllables.

And when it comes to rates, here’s what you can influence to make your moving plans a reality.

Your Credit Score

Credit scores can play a big role in your mortgage rate. As an article from CNET explains:

“You can’t control the economic factors influencing interest rates. But you can get the best rate for your situation, and improving your credit score is the right place to start. Lenders look at your credit score to decide whether to approve you for a loan and at what interest rate. A higher credit score can help you secure a lower interest rate, maybe even better than the average.”

That’s why it’s even more important to maintain a good credit score right now. With rates where they are, you want to do what you can to get the best rate possible. If you want to focus on improving your score, your trusted loan officer can give you expert advice to help.

Your Loan Type

There are many types of loans, each offering different terms for qualified buyers. The Consumer Financial Protection Bureau (CFPB) says:

“There are several broad categories of mortgage loans, such as conventional, FHA, USDA, and VA loans. Lenders decide which products to offer, and loan types have different eligibility requirements. Rates can be significantly different depending on what loan type you choose.”

When working with your team of real estate professionals, make sure you find out what’s available for your situation and which types of loans you may qualify for.

Your Loan Term

Another factor to consider is the term of your loan. Just like with loan types, you have options. Freddie Mac says:

“When choosing the right home loan for you, it’s important to consider the loan term, which is the length of time it will take you to repay your loan before you fully own your home. Your loan term will affect your interest rate, monthly payment, and the total amount of interest you will pay over the life of the loan.”

Depending on your situation, the length of your loan can also change your mortgage rate.

Your Purchase Price

Huh? How can you control that? As many buyers wait for a change in interest rates, home prices are rising. They have been since 2010 and there is no change in that trend in sight. Depending on your market, it’s possible that any benefit you gain from a modestly lower interest rate in 6 or 12 months will be offset by the home you buy costing more than if you just bought it now.

Interest Rate (eventually)

Buying now at what will likely be a lower purchase price than 6 or 12 months from now will lock in the price you pay. When rates eventually come down you can refinance and gain the long term benefits of BOTH a lower price and a lower interest rate.

Bottom Line

Remember, you can’t control what happens in the broader economy. But you can control the controllables.

Let’s connect to go over the things you can do that’ll make a difference. By being strategic with these factors, you may be able to combat today’s higher rates and lock in the lowest one you can.

⚠️New Rules Could Make Waiting to Buy a Home More Costly

Posted on by Mike Padlo

Will Sellers Stop Paying for Buyer Agents while YOU Foot the Bill?

The recent National Association of Realtors (NAR) lawsuit settlement has sent shockwaves through the real estate market. A core issue was the traditional commission structure, where sellers typically covered buyer agent fees. Although this practice is still currently the norm, this could soon change when the mandatory changes resulting from the lawsuit go into effect on August 17, 2024. Here’s what you need to know as a potential buyer:

From Seller-Funded to Buyer Beware:

For years, the NAR advocated for a commission structure where listing brokers shared their commission with the buyer’s broker and agent, often a 50-50 split . This meant buyers felt their representation was “free” since the seller’s broker paid the commission. Although the lawsuit challenged this practice, it was not eliminated. The main problem was actually with the requirement that home listings in the MLS (multiple list service) were required to show some amount of compensation offered to buyer agents. This made sellers feel that they had no choice regarding the sharing of the commission they are paying to their listing broker. If the settlement requirements remain unchanged when they go into effect they will result in a ban on disclosing any shared commissions amounts in the MLS. Bottom line, this will require listing agents to provide a more complete and transparent explanation to seller’s regarding their options related to offering shared commission.

Here’s how the shift could impact your wallet:

  • The Seller Subsidy Shuffle: Sellers might be less inclined to automatically cover buyer agent fees. They could list their homes with lower commissions for buyer agents, or even zero compensation. This could leave the responsibility – and potentially the cost – of agent representation squarely on your shoulders. NOTE: Although this would be seriously poor judgement by the seller, that is the subject of a different article.
  • The Rise of a La Carte Fees: The traditional bundled commission might be broken down into separate fees for various buyer agent services. This can be transparent, but it also means you’ll be paying directly for things like showings, negotiations, and paperwork – services previously covered by the seller commission.
  • Locking in Potentially Higher Fees: Another requirement of the proposed settlement is that buyer agent fees be negotiated between the buyer and their agent and locked in by a buyer agency contract. Sellers paying for the buyer agent’s commission will not be permitted to pay more than that contract amount even if they were offering more. Therefore, it will be necessary for buyer agents to lock in contract agreement fees high enough to be profitable. Presently, buyer agents can agree to accept whatever the seller is offering, even if LESS than they would normally charge. With the proposed changes, buyers would have to cover the difference.

Why Choosing to Buy Without an Agent Can Cost You More :

You might be thinking of just not hiring an agent to help you buy your home. Going unrepresented can be risky. Here’s a look at why:

  • Losing Out: A good agent can help you prepare an offer that not only meets your criteria and budget. but also checks enough boxes for the seller to make them choose yours. In the current market we’re in right now, this can be a valuable benefit of working with an agent and can make or break your ability to find and purchase you’re ideal home.
  • Negotiation Nightmare: A skilled buyer’s agent can negotiate a lower purchase price, seller concessions, seller funded repairs and other various purchase terms, potentially saving you tens of thousands of dollars. Negotiating on your own can be stressful and lead to leaving money on the table.
  • The Knowledge Gap: The real estate market is complex. An experienced agent can navigate legalities, paperwork, and market trends, ensuring a smooth and successful transaction. Going solo can lead to costly missteps, delays and possibly overpaying for your home.

Bottom Line

The lawsuit settlement changes are currently scheduled to take effect on August 17, 2024. You can avoid dealing with any of these potential negative implications of the settlement changes by BUYING BEFORE August 17, 2024. Doing so will allow you to take advantage of the current system and ensure you will be able to get the valuable Realtor representation you need. If you have any questions about this subject or would like to get started with the home buying process don’t hesitate to reach out.

Common Questions for Potential Home Buyers

Posted on by Mike Padlo

If you’re thinking of buying a home this year, you’re probably paying closer attention than normal to the housing market. And you’re getting your information from a variety of channels: the news, social media, your real estate agent, conversations with friends and loved ones, the list goes on and on. Most likely, home prices and mortgage rates are coming up a lot.

Here are the top two questions you need to ask yourself as you make your decision, including the data that helps cut through the noise.

1. Where Do I Think Home Prices Are Heading?

One reliable place you can turn to for information on home price forecasts is the Home Price Expectations Survey from Fannie Mae – a survey of over one hundred economists, real estate experts, and investment and market strategists.

According to the most recent release, the experts are projecting home prices will continue to rise at least through 2028 (see the graph below):

So, why does this matter to you? While the percent of appreciation may not be as high as it was in recent years, what’s important to focus on is that this survey says we’ll see prices rise, not fall, for at least the next 5 years.

And home prices rising, even at a more moderate pace, is good news not just for the market, but for you too. It means, by buying now, your home will likely grow in value, and you should gain home equity in the years ahead. But, if you wait, based on these forecasts, the home will only cost you more later on. 

2. Where Do I Think Mortgage Rates Are Heading?

Over the past year, mortgage rates spiked up in response to economic uncertainty, inflation, and more. But there’s an encouraging sign for the market and mortgage rates. Inflation is moderating, and here’s why this is such a big deal if you’re looking to buy a home.

When inflation cools, mortgage rates generally fall in response. That’s exactly what we’ve seen in recent weeks. And, now that the Federal Reserve has signaled they’re pausing their Federal Funds Rate increases and may even cut rates in 2024, experts are even more confident we’ll see mortgage rates come down.

Danielle Hale, Chief Economist at Realtor.com, explains:

“. . . mortgage rates will continue to ease in 2024 as inflation improves and Fed rate cuts get closer. . . . a key factor in starting to provide affordability relief to homebuyers.”

As an article from the National Association of Realtors (NAR) says:

“Mortgage rates likely have peaked and are now falling from their recent high of nearly 8%. . . . This likely will improve housing affordability and entice more home buyers to return to the market . . .”

No one can say with absolute certainty where mortgage rates will go from here. But the recent decline and the latest decision from the Federal Reserve to stop their rate increases, signals there’s hope on the horizon. While we may see some volatility here and there, affordability should improve as rates continue to ease.  

Bottom Line

If you’re thinking about buying a home, you need to know what’s expected with home prices and mortgage rates. While no one can say for certain where they’ll go, making sure you have the latest information can help you make an informed decision. Connect with a trusted local real estate agent so you can stay up to date on what’s happening and why this is such good news for you.

Lower Rates to Start 2024

Posted on by Mike Padlo

If you want to buy a home, it’s important to know how mortgage rates impact what you can afford and how much you’ll pay each month. Fortunately, rates for 30-year fixed mortgages have come down significantly since the end of October and are currently under 7%, according to Freddie Mac (see graph below):

 

This recent trend is great news for buyers. As a recent article from Bankrate says:

“The rate cool-off somewhat eases the housing affordability squeeze.”

And according to Edward Seiler, AVP of Housing Economics and Executive Director of the Research Institute for Housing America at the Mortgage Bankers Association (MBA):

“MBA expects that affordability conditions will continue to improve as mortgage rates decline . . .”

Here’s a bit more context on how this could help with your plans to buy a home.

How Mortgage Rates Affect Your Search for a Home

Understanding the connection between mortgage rates and your monthly home payment is crucial for your plans to become a homeowner. The chart below illustrates how your ability to afford a home changes when mortgage rates shift. Imagine your budget allows for a monthly payment between $2,400 and $2,500. The green part in the chart shows payments in that range or lower (see chart below):

 

As you can see, even small changes in rates can affect your budget and the loan amount you can afford.

Get Help from Reliable Experts To Understand Your Budget and Plan Ahead

When you’re looking to buy a home, it’s important to get guidance from a local real estate agent and a trusted lender. They can help you explore different mortgage options, understand what makes mortgage rates go up or down, and how those changes impact you.

By looking at the numbers and the latest data together, then adjusting your strategy based on today’s rates, you’ll be better prepared and ready to buy a home.

Bottom Line

If you’re looking to buy a home, you should know the recent downward trend in mortgage rates is good news for your move. Team up with a trusted real estate agent and lender to plan your next steps. 

Understanding Today’s Mortgage Rates

Posted on by Mike Padlo

If you’re following mortgage rates because you know they impact your borrowing costs, you may be wondering what the future holds for them. Unfortunately, there’s no easy way to answer that question because mortgage rates are notoriously hard to forecast.  

But, there’s one thing that’s historically a good indicator of what’ll happen with rates, and that’s the relationship between the 30-Year Mortgage Rate and the 10-Year Treasury Yield. Here’s a graph showing those two metrics since Freddie Mac started keeping mortgage rate records in 1972:

As the graph shows, historically, the average spread between the two over the last 50 years was 1.72 percentage points (also commonly referred to as 172 basis points). If you look at the trend line you can see when the Treasury Yield trends up, mortgage rates will usually respond. And, when the Yield drops, mortgage rates tend to follow. While they typically move in sync like this, the gap between the two has remained about 1.72 percentage points for quite some time. But, what’s crucial to notice is that spread is widening far beyond the norm lately (see graph below):

If you’re asking yourself: what’s pushing the spread beyond its typical average? It’s primarily because of uncertainty in the financial markets. Factors such as inflation, other economic drivers, and the policy and decisions from the Federal Reserve (The Fed) are all influencing mortgage rates and a widening spread.

Why Does This Matter for You?

This may feel overly technical and granular, but here’s why homebuyers like you should understand the spread. It means, based on the normal historical gap between the two, there’s room for mortgage rates to improve today.

And, experts think that’s what lies ahead as long as inflation continues to cool. As Odeta Kushi, Deputy Chief Economist at First American, explains:

“It’s reasonable to assume that the spread and, therefore, mortgage rates will retreat in the second half of the year if the Fed takes its foot off the monetary tightening pedal . . . However, it’s unlikely that the spread will return to its historical average of 170 basis points, as some risks are here to stay.”

Similarly, an article from Forbes says:

“Though housing market watchers expect mortgage rates to remain elevated amid ongoing economic uncertainty and the Federal Reserve’s rate-hiking war on inflation, they believe rates peaked last fall and will decline—to some degree—later this year, barring any unforeseen surprises.”

Bottom Line

If you’re either a first-time home buyer or a current homeowner thinking of moving into a home that better fits your current needs, keep on top of what’s happening with mortgage rates and what experts think will happen in the coming months.

Questions To Ask Yourself if You’re Considering Buying a Home

Posted on by Mike Padlo

If you’re thinking of buying a home, chances are you’re paying attention to just about everything you hear about the housing market. And you’re getting your information from a variety of channels: the news, social media, your real estate agent, conversations with friends and loved ones, overhearing someone chatting at the local supermarket, the list goes on and on. Most likely, home prices and mortgage rates are coming up a lot. 

To help cut through the noise and give you the information you need most, take a look at what the data says. Here are the top two questions you need to ask yourself about home prices and mortgage rates as you make your decision: 

1. Where Do I Think Home Prices Are Heading?

One reliable place you can turn to for that information is the Home Price Expectation Survey from Pulsenomics – a survey of a national panel of over one hundred economists, real estate experts, and investment and market strategists. 

According to the latest release, the experts surveyed are projecting slight depreciation this year (see the red in the graph below). But here’s the context you need most. The worst home price declines are already behind us, and prices are actually appreciating again in many markets. Not to mention, the small 0.37% depreciation HPES is showing for 2023 is far from the crash some people originally said would happen.

Now, let’s look to the future. The green in the graph below shows prices have turned a corner and are expected to appreciate in 2024 and beyond. After this year, the HPES is forecasting home price appreciation returning to more normal levels for the next several years.

So, why does this matter to you? It means your home will likely grow in value and you should gain home equity in the years ahead, but only if you buy now. If you wait, based on these forecasts, the home will only cost you more later on.  

2. Where Do I Think Mortgage Rates Are Heading?

Over the past year, mortgage rates have risen in response to economic uncertainty, inflation, and more. We know based on the latest reports that inflation, while still high, has moderated from its peak. This is an encouraging sign for the market and for mortgage rates. Here’s why.

When inflation cools, mortgage rates generally fall in response. This may be why some experts are saying mortgage rates will pull back slightly over the next few quarters and settle somewhere around roughly 5.5 and 6% on average.

But, not even the experts can say with absolute certainty where mortgage rates will be next year, or even next month. That’s because there are so many factors that can impact what happens. So, to give you a lens into the various possible outcomes, here’s what you should consider:

  • If you buy now and mortgage rates don’t change: You made a good move since home prices are projected to grow with time, so at least you beat rising prices.
  • If you buy now and mortgage rates fall (as projected): You probably still made a good decision because you got the house before home prices appreciated more. And, you can always refinance your home later on if rates are lower.
  • If you buy now and mortgage rates rise: If this happens, you made a great decision because you bought before both the price of the home and the mortgage rate went up.

Bottom Line

If you’re thinking about buying a home, you need to know the facts on what’s happening with home prices and mortgage rates. While no one can say for certain where they’ll go, expert projections can give you powerful information to keep you informed. Let’s connect so you have a professional to add in an expert opinion on our local market.

What You Need To Know About Saving for a Down Payment

Posted on by Mike Padlo

If you’re planning to buy your first home, then you’re probably focused on saving for all the costs involved in such a big purchase. One of the expenses that may be at the top of your mind is your down payment. If you’re intimidated by how much you need to save for that, it may be because you believe you must put 20% down. That doesn’t necessarily have to be the case. As the National Association of Realtors (NAR) notes:

“One of the biggest misconceptions among housing consumers is what the typical down payment is and what amount is needed to enter homeownership.”

And a recent Freddie Mac survey finds:

“. . . nearly a third of prospective homebuyers think they need a down payment of 20% or more to buy a home. This myth remains one of the largest perceived barriers to achieving homeownership.”

Here’s the good news. Unless specified by your loan type or lender, it’s typically not required to put 20% down. This means you could be closer to your homebuying dream than you realize.

According to NAR, the median down payment hasn’t been over 20% since 2005. In fact, the median down payment for all homebuyers today is only 14%. And it’s even lower for first-time homebuyers at just 6% (see graph below):

What does this mean for you? It means you may not need to save as much as you originally thought.

Learn About Options That Can Help You Toward Your Goal

And it’s not just how much you need for your down payment that isn’t clear. There are also misconceptions about down payment assistance programs. For starters, many people believe there’s only assistance available for first-time homebuyers. While first-time buyers have many options to explore, repeat buyers have some, too.

According to Down Payment Resource,there are over 2,000 homebuyer assistance programs in the U.S., and the majority are intended to help with down payments. That same resource goes on to say:

“You don’t have to be a first-time buyer. Over 38% of all programs are for repeat homebuyers who have owned a home in the last 3 years.”

Plus, there are even loan types, like FHA loans with down payments as low as 3.5% as well as options like VA loans and USDA loans with no down payment requirements for qualified applicants.

If you’re interested in learning more about down payment assistance programs, information is available through sites like Down Payment Resource. Then, partner with a trusted lender to learn what you qualify for on your homebuying journey.

Bottom Line

Remember, a 20% down payment isn’t always required. If you want to purchase a home this year, let’s connect to start the conversation about your homebuying goals.

The True Value of Homeownership

Posted on by Mike Padlo

Buying and owning your home can make a big difference in your life by bringing you joy and a sense of belonging. And with June being National Homeownership Month, it’s the perfect time to think about all the benefits homeownership provides. 

Of course, there are financial reasons to buy a house, but it’s important to consider the non-financial benefits that make a home more than just where you live.

Here are three ways owning your home can give you a sense of accomplishment, happiness, and pride.

You May Feel Happier and More Fulfilled 

Owning a home is associated with better mental health and well-being. Gary Acosta, CEO and Co-Founder at the National Association of Hispanic Real Estate Professionals (NAHREP), explains:

“Studies have shown the emotional and psychological benefits that homeownership has on a person’s health and self-esteem . . .”

Similarly, Habitat for Humanity says:

“Residential stability among homeowners is related to improved life satisfaction, . . . along with better physical and mental health.”

So, according to the experts, owning a home can improve your psychological wellness by making you feel happier and more accomplished.

You Can Engage in Your Neighborhood and Grow Your Sense of Community

Your home connects you to your community. Homeowners tend to stay in their homes longer than renters, and that can help you feel more connected to your community because you have more time to build meaningful relationships. And, as Acosta says, when people stay in the same area for a longer period of time, it can lead to them being more involved:

“Homeowners also tend to be more active in their local communities . . .”

After all, it makes sense that someone would want to help improve the area they’re going to be living in for a while.

You Can Customize and Improve Your Living Space

Your home is a place that’s all yours. When you own it, unless there are specific homeowner’s association requirements, you’re free to customize it however you see fit. Whether that’s small home improvements or full-on renovations, your house can be exactly what you want and need it to be. As your tastes and lifestyle change, so can your home. As Investopedia tells us:

“One often-cited benefit of homeownership is the knowledge that you own your little corner of the world. You can customize your house, remodel, paint, and decorate without the need to get permission from a landlord.”

Renting can limit your ability to personalize your living space, and even if you do make changes, you may have to undo them before your lease ends. The ability homeownership gives you to customize and improve where you live creates a greater sense of ownership, pride, and connection with your home.

Bottom Line

Owning your home can change your life in a way that gives you greater satisfaction and happiness. Let’s connect today if you’re ready to explore homeownership and all it has to offer.

Homebuyer Demand Fueled by Low Unemployment

Posted on by Mike Padlo

The spring housing market has been surprisingly active this year. Even with affordability challenges and a limited number of homes for sale, buyer demand is strong, and getting stronger.

One way we know there are interested buyers right now is because showing traffic is up. Data from the latest ShowingTime Showing Index, which is a measure of buyers actively touring homes, makes it clear more people are out looking at homes than there were prior to the pandemic (see graph below):

And though there’s less traffic than the buyer frenzy of the past couple of years, we’re not far off that pace. There are a lot of interested buyers checking out available homes right now.

But why are buyers so active at a time when mortgage rates are higher than they were just last year?

The Job Market Is Growing at a Stronger-Than-Expected Pace

With inflation still high, the Federal Reserve (the Fed) repeatedly hiking the Federal Funds Rate, and a lot of chatter in the media about a recession, it might surprise you just how strong today’s job market is. What might be even more surprising is the fact that it appears to be getting stronger (see graph below):

Each month, the Bureau of Labor Statistics (BLS) reports how many new jobs were added to the U.S. job market. The graph above shows 88,000 more jobs were created in April than in March. In fact, the April numbers beat expert projections. That’s a solid indicator the job market is growing.

Unemployment Is at a Near All-Time Low

Ever since the Fed began fighting inflation, many people expected the low unemployment rate we’ve seen over the past couple of years to rise – but that hasn’t happened.

In fact, what has happened is the unemployment rate has dropped to 3.4% – a 50-year low (see graph below):

With so many people steadily employed and financially stable right now, they’re still able to seriously consider buying a home.

What This Means for You

If you’re thinking about selling your house this year, a market with active buyers is music to your ears. That’s because there’ll be increased interest in your home when you put it on the market, especially at a time when the number of homes for sale is so low.

To get started, your best resource is an experienced real estate agent. They can help you price your house appropriately, navigate the offers you’ll receive, negotiate effectively, and minimize your stress and hassle.

Bottom Line

There are plenty of buyers out there right now trying to find a home that fits their needs. That’s because the job market is strong, and many people have the stable income needed to seriously consider homeownership. To put your house on the market and get in on the action, let’s connect.

What You Need To Know About Home Price News

Posted on by Mike Padlo

The National Association of Realtors (NAR) will release its latest Existing Home Sales Report tomorrow. The information it contains on home prices may cause some confusion and could even generate some troubling headlines. This all stems from the fact that NAR will report the median sales price, while other home price indices report repeat sales prices. The vast majority of the repeat sales indices show prices are starting to appreciate again. But the median price reported on Thursday may tell a different story. 

Here’s why using the median home price as a gauge of what’s happening with home values isn’t ideal right now. According to the Center for Real Studies at Wichita State University:

“The median sale price measures the ‘middle’ price of homes that sold, meaning that half of the homes sold for a higher price and half sold for less. While this is a good measure of the typical sale price, it is not very useful for measuring home price appreciation because it is affected by the ‘composition’ of homes that have sold.

For example, if more lower-priced homes have sold recently, the median sale price would decline (because the “middle” home is now a lower-priced home), even if the value of each individual home is rising.”

People buy homes based on their monthly mortgage payment, not the price of the house. When mortgage rates go up, they have to buy a less expensive home to keep the monthly expense affordable. More ‘less-expensive’ houses are selling right now, and that’s causing the median price to decline. But that doesn’t mean any single house lost value. 

Even NAR, an organization that reports on median prices, acknowledges there are limitations to what this type of data can show you. NAR explains:

“Changes in the composition of sales can distort median price data.”

For clarification, here’s a simple explanation of median value:

  • You have three coins in your pocket. Line them up in ascending value (lowest to highest).
  • If you have one nickel and two dimes, the median value of the coins (the middle one) in your pocket is ten cents.
  • If you have two nickels and one dime, the median value of the coins in your pocket is now five cents.
  • In both cases, a nickel is still worth five cents and a dime is still worth ten cents. The value of each coin didn’t change.

The same thing applies to today’s real estate market.

Bottom Line

Actual home values are going up in most markets. The median value reported tomorrow might tell a different story. Talk to your local Realtor to find out exactly what’s happening in your area market.