First time home buyers are back

First-time homebuyers have returned to the housing market. The share of buyers purchasing a home for the first time rebounded to pre-pandemic levels, now representing 45% of all buyers (up from 37% in 2021 per Zillow’s 2022 Consumer Housing Trends Report).

This is primarily attributed to a cooling market, allowing new buyers to survey their housing options. The share of first-time buyers plummeted during the pandemic, as first-time buyers lost out to older, repeat buyers who were able to tap the equity in their existing homes and use cash to make a stronger offer.

This also feeds into my post from last week… less competition for homes makes it easier for first time home buyers to get into their own home!

“First-time buyers now appear to be making relative gains as high mortgage interest rates disproportionately encourage current homeowners to stay put,” said Manny Garcia, a Zillow population scientist. “While rising mortgage rates are hurting affordability for all buyers, first-time buyers may be less deterred by higher rates because they’re comparing a monthly mortgage payment to what they’re paying in rent.”

As mentioned countless times on this blog, it is definitely cheaper to own than rent in Georgia!

A downside to this? While there are fewer buyers overall, first-time buyers may find more competition for starter homes. This trend will only worsen as the mood shifts to it being a “good time to buy a home.” No one knows when the sentiment will shift, but it will. Just look at how quickly the market cooled. Homes were flying off the market and then precipitously dropped from May to July. The housing market will come roaring back once people believe it is a good time to buy.

Given the current market, it is a good time to get ahead of the curve. Mortgage rates are higher now than in early 2022, but inventory levels are still tight. This means now is a great time to buy a home as the competition is lower than normal. If you are buying in the state of Georgia, contact me today. I can get you ready to make an offer on a home in just a few minutes!

Now is a great time to buy a home!

Happy New Year! Yes, 2023 is a great time to purchase a home. I am well aware if you do a search for “is now a good time to buy a home?,” one is likely to find plenty of articles saying now is a bad time to purchase. While there are many good points in these articles (I’ve read a lot of them), they all seem to be missing one important thing…

Competition.

Or perhaps I should say, the lack of competition.

Follow with me for a moment… in 2020-2021, the market was crazy. Sellers were receiving 5, 10, 20+ offers on a home (one agent I know received over 100 on a listing!). The offers were always over (sometimes way over!) asking price. Every offer waived some contingencies, and most waived all of them. This means the buyer had no protection on their earnest money and had to buy the home “as is,” or forfeit their earnest money if they decided not to buy the home.

This isn’t a great way to buy a home. As we moved into mid and late 2022, the market shifted. Yes, there are still multiple offers on homes. Yet it is only a few offers on most homes. Properties are going under contract at/around list price, and buyers are getting contingencies on their contracts (not to mention sellers giving money to closing costs!).

There are many reasons to consider waiting to buy a home (rates are higher, home prices are high, inventory levels are low, a looming recession). Why should someone consider buying right now? To me, it is simply competition…

Many would-be buyers will sit this spring market out because everything they read says “now is a bad time to buy a home.” Let’s say the stories change this time next year. For example, prices have leveled out, mortgage rates have lowered, so 2024 is a great time to buy. Do you know what that means? Competition will be fierce! Buyers in my “spring market 2024” example would include:

• Everyone who decided to push off buying a home in 2023 because it “isn’t a good time to buy a home.”
• Everyone who planned on buying a home in 2024.
• Some who planned to buy in 2025 or 2026 and decided to move up their timeline because “now is a good time to buy a home.”

When the mood shifts to now being a “great time to buy a home,” inventory levels will still be low. The supply-and-demand dynamics dragging inventory levels (too many buyers and too few homes available) isn’t going away anytime soon. The market will resemble to craziness of 2020-mid 2022.

Yes, mortgage rates are higher, but finding the right home is hard. It is way easier to refinance a home you already own versus fighting the crowd to get a home when rates are lower. I’ve bought two homes in my life, and refinanced them both.

Regardless of what is in the news, taking the long term view, now is a great time to buy a home. If you are buying in the state of Georgia, contact me today. I can get you ready to make an offer on a home in just a few minutes!

Wills – A Wise Move for Homeowners

If you own a house in Georgia, and you want to control who receives title if you die, you need a will. In the last two weeks, I have heard of two young homeowners who died without a will, compounding the grief of their loved ones.

To be clear, I am not an attorney, so I strongly recommend you seek legal counsel regarding a will, but I have talked with multiple attorneys recently and here’s what they taught me.

Georgia homeowners can use a will to specify who will receive title to a home they own upon their death. If the will is legally drafted and properly executed, homeowners can specify anyone – even someone not related to them – as recipient of their home’s title upon their death.

Without a will, here’s how Georgia law works. Upon the homeowner’s death, then the home title is divided between the deceased’s legal spouse and children. The legal marriage is critical here. If the deceased is not married and has no children, then the home’s title passes to the deceased’s parents. Remember this is Georgia law – without a will to specify who receives title, Georgia law will always transfer title according to these rules.

Now here are two horror stories for instruction. An estate attorney told me about a client who lived with someone for several years, but they never legally married. The client’s partner owned the house, but title was never granted to the client and the partner did not have a will. Because this couple was not married, when the partner died suddenly, the deceased’s title passed by law to the deceased’s parents. Why? The surviving client was not on the title, the couple was not legally married, and the deceased had no children. The parents did not like the client and they took title to their child’s home per Georgia law and evicted the client.

Someone called me last week asking if I could help them refinance the home they occupy. This person and their fiancee lived in the home together for several years. They never married and the home’s title was in the fiancee’s name only, and there was no will. Then the fiancee died suddenly at a young age. The surviving partner was defined as beneficiary on the deceased’s accounts and insurance policies and was even able to obtain legal authority to serve as the estate administrator. Yet as administrator to an estate with no will, the surviving partner has a fiduciary duty to dispose of the estate’s assets according to Georgia law. While this person has been making all mortgage payments and has lived in the home for several years, they are now at the mercy of the deceased fiancee’s parents regarding the home. They could evict, move into the home, or force a sale of the home and take all of the profits from the sale. This person has no rights to the home under Georgia law.

If you own a home in Georgia, the easiest way to avoid these nightmares is to legally / officially execute a will. This is especially true if you want your house to go to someone who is not your legal spouse, your child, or your parent. It is not very expensive and will be priceless to your heirs if they can avoid the heartbreaking examples I described above. Even if you are young, tragedies can happen – none of us is guaranteed another day. I can connect you with an attorney who will handle your will efficiently and effectively.

And if you want to buy a home in Georgia, please give me a call. Dunwoody Mortgage helps our clients win contracts in competitive bid situations. I’ll remind you to document a will after closing.

Working with appraisers

Due to changes in the mortgage process, loan officers are no longer allowed to have direct contact with appraisers. It has been this way for years now. All appraisals are ordered through Appraisal Management Companies (AMC). When a lender has a question or needs something clarified on an appraisal report, all requests are made to the AMC and then relayed to the appraiser.

While loan officers cannot speak directly with an appraiser, real estate agents can. However, more than a quarter of real estate professionals say they avoid having any interaction with an appraiser, falsely believing they legally can’t. Often real estate agents only speak directly with an appraiser when there is a problem, and 19% say they don’t interact with appraisers at all. Of those who don’t interact, most say they avoid contact because they think they’re not legally allowed to speak to the appraiser, or they’re concerned that the interaction might lead to appraisal bias.

However, “regulations allow real estate agents, or other persons with an interest in the real estate transaction, to communicate with the appraiser and provide additional property information, including a copy of the sales contract,” according to NAR’s FAQs on the residential appraisal process.

Real estate pros who do interact with appraisers say they try to provide additional information to help them in their valuation, the survey shows. These pros also may meet with the appraiser onsite to provide comps, a list of improvements made to the property or information on multiple offers.

Working with an appraiser can make a big difference on where the value lands. In this hyper competitive/appreciating market over the past few years, the seller’s agent should speak with the appraiser and provide comps showing how they came up with the price, divulge unique features on the home, and provide details about how competitive the process was for getting the home under contract. The best agents I work with always consult with the appraiser during the appraisal process.

So while I cannot speak with an appraiser, real estate agents can, and should.

FHA Loan Limit Rises for 2023

The Department of Housing and Urban Development recently announced the increased FHA mortgage limits for 2023. In the new year, the FHA limit will go to $592,250 for single family homes in Metro Atlanta counties. That’s an increase of 25.6% over the 2022 FHA loan limit of $471,500.  (Note that non-metro Georgia counties will have a lower FHA loan limit. Most, but not all, non-metro counties will have a $472,030 limit for 2023. Go to https://entp.hud.gov/idapp/html/hicostlook.cfm to search for the FHA limit in your specific county.)  The new FHA loan limit means that a Metro Atlanta buyer can purchase a $613,730 house with a 3.5% down FHA loan.

On a percentage basis, this increase is significantly higher than the 12% increase in the conforming loan limit which was recently reported in the Mortgage Blog.

For perspective, the 2018 FHA loan limit was $359,950, so the FHA limit has increased by about 64.5% over the last 5 years. In that same time period, conventional loan limits have risen from $453,100 to the new $726,200 level – a 60.3% increase.

The greatest benefits of FHA loans accrue to home buyers who have less than great credit and limited cash for a down payment. Home buyers can obtain an FHA loan with a 3.5% down payment. For buyers with lower credit scores, FHA loans often provide lower interest rates and payments than conventional loans. And FHA loans allow shorter waiting periods after major credit events such as foreclosures and bankruptcies.

High home value appreciation in 2020 and 2021 has driven the increases in FHA and conforming loan limits. But in 2022, the rapid pace of home value appreciation has cooled considerably.  In recent months, home buyers have been able to win some contracts with offers less than the home’s list price, and some sellers have contributed cash towards closing costs.  Unless market forces change dramatically, my expectation is that the 2024 FHA loan limit increase will be much less than 25.6%.

If you want to buy a Georgia home in 2023, give me a call. I can help you think through your options, plan for your purchase and make aggressive offers needed to win in this competitive market.

It’s no longer just about the jobs report

Until recently, all attention about the direction of the economy focused soley on the jobs report. Analysts made predictions and then analyzed where they got things wrong. Then there is the quarterly growth data (GDP). Together with the jobs report, the markets reacted until the next set of numbers were released.

Now we have another focus, and it involves inflation.

Now analysts are obsessing over the inflation numbers. The Consumer (CPI) and Producer (PPI) price reports are “where it is at” with the regard to influencing the stock and bond markets today. We are even reacting to inflation reports from Europe, because the entire world seems to be in a similar situation.

For example, last week, it was announced that the CPI increased by 7.7% annually, with the core number increasing by 6.3% annually. The core excludes the volatile components of food and energy. Overall, these numbers were seen as better than expected and the stocks and bond markets reacted very positively. Though this is only one month of data, it is hoped that this report represents the beginnings of the improvement we have been waiting for (and the reason for my post last month about the Federal Reserve moving too fast/perhaps need to slow down on rate hikes)

Today, market movement is all about inflation and the wide range of data gives analysts and the Fed plenty to chew upon.

Home appreciation to decline

We definitely will not see double digit home apprecation in 2023. We could see a slight decline.

Reports from Fitch Ratings and Veros Real Estate Solutions forecast sharp declines in home price appreciation over the next year. Fitch expects overvaluation to moderate by the end of this year, with the declining trend in home prices.

“Home price correction exhibits strong locality,” the report said. “Price growth is still concentrated on the East Coast, while home prices on the West Coast started to dip, and this trend has begun to spread in the Midwest. Unbalanced housing inventory and the uneven relationship of house prices and rents across the country are the primary drivers behind the diverging trends.”

As previously mentioned in this blog, what is happening in the metro Atlanta area may not follow the same nationwide trends. Thur far, this is the case. Home prices out west have fallen since the late spring/early summer while keeping steady in metro Atlanta.

One thing keeping the Atlanta metro area different (so far) is constraints on the housing supply. There are still not enough homes on the market; meaning, supply and demand is keeping homes from falling. Even with all of this, the VeroFORECAST of 300 U.S. markets anticipates home prices will appreciate on average just 1.5% for the next 12 months (including metro Atlanta)

With rents still rising, now is a great time to buy. Yes, mortgage rates are higher, but finding the right home is still challenging. Find your home now (with less competition to get it) and look to take advantage of a dip in mortgages rates the next time rates fall to lower your payment. It is easy to refinance… much harder to find the perfect home.

Ready to own a home in Georgia? If yes, contact me today (see my banner above for contact info). We can get started in just a few minutes and get you pre-approved for the offer on your new home!

Mortgage Interest Rates Improve

The most exciting mortgage news from the week before Thanksgiving was the significant drop in mortgage interest rates. Official reports show rates improved almost one-half of one percent. I actually had a client whose rate improved by five-eighths (0.625) of one percent. That is a significant impact on home affordability and I hope that trend continues.

Many people wonder how mortgage interest rates can decrease when the Federal Reserve has been consistently raising the Federal Funds rate in recent months. As discussed in a recent Mortgage Blog post, mortgage rates are not directly linked to the Federal Funds rate. The Fed most directly influences mortgage rates using purchases of mortgage bonds. Now that the Fed is not buying mortgage bonds to lower interest rates (called quantitative easing), other economic factors naturally impact mortgage rates.

One of the most important economic influences on mortgage rates is inflation. When inflation trends higher, mortgage rates tend to increase as well. It’s no surprise that without Fed mortgage bond purchases keeping mortgage rates low, the recent high inflation numbers have caused mortgage rates to rise rapidly.

In mid-November, published data was positive – inflation is still high but the inflation rate cooled from prior months. Freddie Mac’s chief economist noted that mortgage rates decreased due to data “that suggests inflation may have peaked.”

This good news does not mean that the period of relatively high mortgage rates has ended nor does it indicate a trend of declining mortgage rates. That will all depend on future inflation report data. But the good news is that when mortgage rates hit the 7% level, they quickly moved lower. Hopefully that 7% level will remain the ultimate ceiling for mortgage rates.

Are you (or perhaps someone you know) looking to buy a home in Georgia? With the recent drop in mortgage rates and current sellers’ willingness to negotiate contract terms (such as price and closing cost contributions), right now could be the best time in almost two years to buy a home. Give me a call and we can get you fully underwritten with a TBD address so you can make an aggressive offer, giving you strength to negotiate contract terms in this more favorable market.

New 2023 conforming loan limit

Over the past few years, we’ve witnessed housing prices jump due to limited inventory along with the high demand for homes. With housing prices going up, the conforming loan limit goes up too. Just announced, the 2023 conforming loan limit is $726,200. 

After a decade of remaining at $417,000, the conforming loan limits continues to soar.

• 2017 max limit was $424,100 (up from $417,000 for only about a 2% increase)
• 2018 max limit was $453,100 (about a 7% increase)
• 2019 max limit was $484,350 (another increase of about 7%)
• 2020 max limit was $510,400 (just over a 5% increase)
• 2021 max limit was $548,250 (just shy of an 8% increase)
• 2022 max limit was $647,200 (an 18% increase from 2021)
• the new 2023 maximum conventional loan limit will be $726,200. This is another double digit percentage year of year increase. This time just over 12% higher than 2022.

With 2023 just around the corner, we can begin using the new limits today. This is great news for home buyers as having a larger conventional loan limit helps when navigating the housing market.

With the minimum down payment being 3%, a purchase price of $750,000 could be bought with less than $24,000 down!

By law, loan limits are calculated annually using a formula that factors in average housing prices. I would not expect to see a large increase in 2024 as experts predict a flattening of home values (and depreciation in some markets). This could be where we stand for a couple of years.

If you are looking to purchase in the state of Georgia, contact me today. I can get you prequalified and ready to make an offer on your new home in minutes!

The Cause of Higher Mortgage Rates

A recent article in the Wall Street Journal gave an interesting explanation for 2022’s rapid rise in mortgage interest rates. Most people think mortgage rates have risen because the Federal Reserve has increased the Federal Funds rate several times this year. Not exactly. Here’s quick evidence of that. The first mortgage I closed in 2022 had an interest rate of 3.00%. On March 15, I locked the rate for a new loan at 4.375%. The first time the Fed raised the Federal Funds rate was on March 16.

What caused mortgage rates to rise? In short, it’s economics 101 – supply and demand. In this case, the product involved is mortgage-backed securities. The vast majority of mortgages originated are sold to Fannie Mae and Freddie Mac. Fannie and Freddie package the mortgages into mortgage-backed securities (MBS) and sell the MBS to investors – insurance companies, pension funds, mutual fund managers, etc. Economic factors generated by the pandemic and then its fading created supply and demand shocks that first caused mortgage rates to drop, and then recently caused rates to rise.

When the pandemic first hit, the Fed began buying large quantities of MBS to hold in its portfolio. The increased demand for MBS pushed the security prices up but that inversely pushes the interest rates down. This process is known as “Quantitative Easing.” Banks also bought large amounts of MBS. Americans began saving more during the pandemic. Bank deposits increased significantly while consumer and business borrowing decreased. Since banks had an excess of cash, they decided to buy MBS and put their excess cash to work. So during the pandemic, the Fed and major banks combined to purchase over $1.5 trillion of MBS.

This cannot go on forever, so the Fed began backing off their MBS purchasing in November 2021 and completely stopped in February 2022 – right before rates began rising rapidly. In fact, my colleague discussed this in a January 2022 mortgage blog post. In addition, the 10 largest bank holders of MBS have reduced their MBS holdings by $133 billion in the first 3 quarters of 2022, as bank deposits have leveled off and customer borrowing has increased, leaving less excess cash to buy MBS.

Ultimately, the demand for MBS has dropped significantly now. To motivate other buyers to purchase MBS, the market has forced interest rates much higher. The effect has been dramatic. In recent weeks, mortgage lenders have charged 7.00% or more for 30-year fixed mortgages that had a 3.00% rate to start 2022.

Next time someone tells you they are holding off on a home purchase to see if the Fed raises rates in the coming months, tell them it’s not that simple. Then connect them with me. Mortgage rates are higher, but I still have clients who have saved money with a home purchase compared to the very high current market rents.