Isn’t that the million dollar question? I wish I knew the exact answer. A safe answer is not in the next couple of years.
I’ve talked a lot about the lack of homes for sale. The same issue is in the rental market too. Reflecting the unprecedented housing shortages across the United States in the post-pandemic market, U.S. vacancy rates hit their lowest readings in decades in 2021. According to NAHB’s analysis of the 2021 American Community Survey (ACS), rental vacancy rates reached a new low of 5.2%, the lowest levels recorded by the ACS since the survey started generating these data in 2005.
Additionally, NAHB’s forecast indicates the balancing of the market will take years to correct itself, and will take place between 2025 and 2030. Even on their short term projection, it is still two years away.
If the rental market is stretched, and we’ve already discussed the shortage of homes being built/for sale in my February series, what should a buyer expect in 2023? Glad the question was asked 🙂
Realtor.com 2023 housing forecast says 2023 will offer buyers less competition on the number of for-sale homes. Compared to the wild ride of the past two years, 2023 will be a slower-paced housing market, which means drastic shifts like price declines may not happen (if at all) as quickly as some have anticipated.
Going back to the Zillow report referenced in my first post this month, it noted, while national home value declines from peak levels have been minimal, some markets have seen significant changes. Atlanta isn’t one of those markets. People are still moving into metro Atlanta, and there are not enough homes to buy for the number of people wanting to own homes in this market. Our housing prices have a floor, so there is no need to fear a 2008 home value crash.
In all of my posts, we are seeing a trend. The housing crunch isn’t changing in the next few years, more buyers will enter the metro Atlanta housing market as the US population continues to move to the southeast, housing prices have a “built in” floor due to supply and demand… the only thing different from the past few years and when the market heats up again is the competition… or lack thereof. Those who got out of the market and quit trying to buy will find it very different now in this cooled/fewer looking for homes market.
I remember speaking with someone is March 2020 saying they wanted to wait until the summer to get a really good deal as the housing market collapsed from Covid. I advised him if he wanted a good deal, he needed to purchase a home in March or April. Why? My thought process then was there was nothing wrong with the economy. When things open up and go back to normal in a month or two, home prices will go back to where they were and we will pick back up where we left off. Other than me being wildly optimistic on when life would go back to normal, when the economy opened up, the “deals” were gone.
I feel we are in a similar window now with fewer buyers making offers on homes. My clients are getting under contract with time for due diligence, appraisal/financing contingencies, the seller giving money for closing costs, and even contingencies to sell a home prior to buying the new home! This is as close to a “buyer’s” market we will see until the housing inventory issue sorts itself out, which is forecast to be years down the road.
Next month – new topics. Promise!
If you’ve read these posts and decided now is the time to buy before everyone else jumps back into the housing market, contact me today (see my banner above for contact info). I’ll get you ready to make offers on homes in no time!
I started the year saying now is a great time to buy a home. For the month of February, I’ll include a series of posts expanding on this thought process. We’ll touch on affordability, housing prices, and the shortage of homes.
Let’s start with affordability. Zillow, Seattle, said U.S. home values are easing down, starting to provide relief for potential home buyers facing affordability challenges. Zillow reported the typical U.S. home fell to $357,733 in November, and is now down 0.5% from the peak peak last year.
Add on the fact mortgages rates improved to end 2022/start 2023, monthly costs for home ownership went down for the first time since July, and for only the second time in the past 19 months.
We are not at a point of home prices dropping (more on this in the next post). But for the first time in several years, we aren’t seeing double digit appreciation.
Zillow Senior Economist Jeff Tucker said November’s news is a positive sign that affordability may at least stabilize in 2023, helping households budget and plan for housing decisions in the months and years ahead. Tucker said, “The two big questions are whether mortgage rates will continue to decline, and whether that will be enough to bring buyers back in time for the spring selling season. In the meantime, those on the prowl for a house will benefit from motivated sellers, unusual bargains and a welcome lack of competition.”
As I said to start the year, the articles saying 2023 is a bad time to purchase a home aren’t talking about the lack of competition. The quote from Zillow’s Senior Economist is spot on for those who are looking, and they are seeing contingencies, sellers doing repairs on homes, and seller concessions.
Beginning to think 2023 may be a good time to buy a home? If you are buying in the state of Georgia, contact me today! I can get you pre-approved quickly and have you out making offers in no time!
A key concept in sports and business is, “Know your competition.” That concept also applies to home buyers in this very competitive market. So who are you competing with when offering on a home? There are many other people just like you who want to own and live in a primary residence. But increasingly, you are competing with investors, individuals and corporations buying homes which they will then rent. Here are some statistics on recent investor purchases from a second quarter 2021 Redfin study:
Nationwide, investors bought 67,943 homes in Q2 – $48.5 billion.
This is a 15.1% / $9.6 billion increase over Q1.
This is a 106.7% / $27.6 billion increase over last year – 2020 Q2.
Investors bought 15.9% of homes sold – about one in every six homes sold.
Investor purchases of single family homes and condos increased in Q2.
Investors purchased 21.2% of low-priced American homes. But due to Atlanta’s relatively low home prices, investors purchased 23.6% of Atlanta homes.
74% of Q2 investor purchases were all-cash purchases.
OK, “enemy” may be too strong a term, but this tune rocks, and when was the last time you saw a music video in the Mortgage Blog, so let’s use it!
So how do you compete with investors making all cash offers? According to another study by Redfin, noted in this prior Mortgage Blog post, all cash offers deliver the greatest competitive advantage to the home buyer. The second most powerful offer detail is a zero-day finance contingency. By using a zero-day finance contingency, the home buyer is basically waiving her right to an earnest money refund if underwriting denies the loan application. Why would someone take that risk and offer a zero-day finance contingency? Because they have already been fully approved by underwriting prior to making the offer. We call this obtaining underwriting approval on a “to be determined (TBD)” property.
In August 2020, we used this approach with one of my clients. Jim wanted to buy a home in a very competitive market, and he wanted every competitive advantage he could get. So we obtained his TBD approval before he started making offers. When Jim’s Realtor saw the approval letter, he replied, “This is as good as a cash offer!” Now I don’t know that I would totally agree with that, but I would say it’s the next best thing to a cash offer. Then Jim actually beat a cash offer and has been living in his dream home for the last year now. Many more of my clients have successfully used TBD approvals to win their own homes this year.
Not every lender can obtain underwriting approvals for a TBD address. Dunwoody Mortgage can do it. Do you want to buy your own piece of the American Dream in Atlanta before prices rise more and mortgage interest rates increase? Then call me today and let’s get to work on your TBD approval so you can defeat your competition, whom you now know a little better.
The 20% down payment myth is driven by the fact that borrowers must pay PMI when obtaining a conventional loan with less than 20% down. Many home buyers want to avoid the added monthly PMI cost. I personally think that PMI is an effective tool to help some people buy homes sooner. I recently had a friend refer his adult daughter to me. When I counseled her to make a 5% down payment and pay the monthly PMI, Dad challenged me. Here’s how I explained it to him.
His daughter wanted to buy a $200,000 house and had about $25,000 of savings. A 5% down payment was $10,000 and a 20% down payment was $40,000. Remember that a home buyer must pay closing costs and prepaid escrow at closing, in addition to the down payment. And I always recommend that buyers keep cash available in a bank account after closing, to provide a “reserve” should an emergency arise.
The $10,000 down payment left her with $15,000 for closing costs, prepaid escrow, and her “emergency fund.”
To avoid PMI, she would need to save another $25,000 or more for the 20% down payment. I asked Dad how long it would take her to save that and he said 5 to 10 years. I then told Dad that with Anna’s great credit score and 5% down payment, her PMI cost would be less than $60 per month.
She could stop paying rent and buy a house now in a rapidly appreciating home market. Paying PMI to buy now would enable her to build equity as home prices rise, rather than just continuing to save more and more to keep up with rising home prices while she rented and saved (not to mention that a $200,000 home today is no longer going to be a $200,000 home in the 5-10 year time frame it would take to save up 20%).
And current interest rates are near historic lows. There’s no way to predict now what future interest rates would be when she finally saved enough to pay 20% down.
When I explained the math, her dad agreed and she bought a home with a 5% down payment.
Note that PMI premiums are calculated based on the down payment amount and the borrower’s credit score. In general, the lower the down payment, the higher the PMI premium. And in general, the lower the borrower’s credit score, the higher the PMI premium. So not everyone will have such a clear choice as Anna did. But for borrowers with good to great credit scores, my opinion is that paying mortgage insurance is often better for building wealth than paying rent and waiting to save the full 20%.
Do you know someone in Georgia who fears they are “missing out” as they rent while home values rise rapidly? If yes, please connect them with me. I’ll work to help them buy sooner with a mortgage that best fits their need, with as small of a down payment as possible.
I know I posted this information about a year ago, but I hear this myth so often in the mortgage market, I will keep repeating this…..You do NOT need 20% down to buy a home!
According to recent National Association of REALTORS data, the average down payment made by recent home buyers is 12%. Younger buyers tend to put down less. Buyers between age 22 and 30 made an average 6% down payment. Recent home buyers between age 31 and 40 made an average 10% down payment. This ultimately follows common sense, as younger buyers have had less time in the work force to save for a down payment.
Veterans using VA mortgage financing can obtain loans with a 0% down. FHA mortgages have a 3.5% down payment requirement. And borrowers can obtain conventional mortgages with only 3% down.
The 20% down myth is driven by the fact that borrowers must pay PMI when obtaining a conventional loan with less than 20% down. Many home buyers want to avoid the added PMI cost in their monthly payment. But I personally think that PMI is an effective tool to help people buy homes and build wealth sooner. I recently had a friend refer his adult daughter to me. When I counseled her to make a 5% down payment and pay the monthly PMI, Dad challenged me. He did not want her to pay PMI. In my next blog post, I’ll explain my PMI response to Dad. Spoiler alert….the daughter did by a house with 5% down and paying PMI – it made very good financial sense.
Do you know a friend or family member who wants to buy a home in Georgia? Don’t let them by discouraged by the 20% down myth. Tell them that is only a myth and then connect them with me. It is very possible that I can help them finance a home purchase sooner, instead of waiting to save more money. We will work to make their home ownership dreams a reality – hopefully right now.
I have great news for current homeowners, the S&P CoreLogic Case-Shiller index showed that US home values increased at a 13.2% annual rate on average. So homeowners continue building their wealth rapidly. This was up from 12.0% in February. The biggest winners are in Phoenix, San Diego, and Seattle, where home price rose at 20.0%, 19.1%, and 18.3% respectively. Homeowners in the Atlanta realized increases of 11.2% annualized. That ranks #17 out of the top 20 US metro areas.
While this news is great for current homeowners, it poses a challenge for homebuyers. With prices rising and the intense competition for available homes, it’s even more difficult for homebuyers to win a contract.
A Realtor recently explained to me that he now coaches his clients to make smaller down payments to keep more cash in reserve to cover potential appraisal shortfalls. Most houses Atlanta are now selling at prices higher than originally listed. But a high offer price, by itself, may not be attractive to sellers when mortgage financing is involved.
(Yes, I have used this cartoon recently, but I love the smiles on the sellers’ and their Realtor’s faces, so here it is again!!)
Here’s why, the mortgage LTV is calculated based on the lower of the contract purchase price or the appraised value. If a home appraises for lower than the contract price, the mortgage amount will be based on the LTV using the lower appraised value, not the contract price. An offer above the list price is not really convincing unless the buyer commits to cover any appraisal shortfall. And, in this rapidly appreciating market, it can be challenging for appraisal values to keep pace. The appraisers must look back in time to find comparable homes that have already closed. So appraisal values can lag market prices.
My Realtor friend has seen lower cash offers beat out higher financed offers when the financed offers did not include a commitment to cover an appraisal shortfall. So homebuyers with cash available to make larger (say 20%) down payments may want to plan to make 5% to 10% down payments and hold the remaining cash in reserve to cover a possible low appraisal.
This type of environment is VERY challenging for homebuyers who can only afford a small down payment. Buyers with only enough cash to make 5% (or less) down payments have little room to cover appraisal shortfalls. My recommendation is this, talk with parents, grandparents, and in-laws about their ability and willingness to make cash gifts in the event of a low appraisal. Blood relatives can give home buyers cash for closing. This can be a great way to help young adults with little available cash actually win in this environment.
Do you know someone who wants to buy a home in Georgia? Are they uptight thinking about this crazy market? Please refer them to me. I’ll work carefully with them and do everything a lender can do to help them win the contract.
Multiple clients have recently asked me if the currently hot housing market will lead to a housing bubble that “pops” like in 2008. I first tell them that if I could accurately predict the future, I would be sitting on a tropical beach, not working. Then we discuss market fundamentals. I found this recent article from Zillow comparing the current housing market to 2008. It provides MUCH more detail than you’ll find in in this blog post. I think reading the detail is a great time investment for homeowners and home buyers.
With my degree in economics, I tend to view everything in terms of supply vs. demand fundamentals. And this article explains why the fundamentals are different now:
Housing Demand: Several sustainable factors are driving housing demand higher now, in contrast to more artificial demand drivers that led to the 2008 bubble.
The massive Millennial generation is now entering the prime home-buying age. Tens of millions of Americans are approaching their early thirties – the median age for first time home buyers. An estimated 46 million Americans will reach age 34 in the next decade. This demographic fact will cause “built-in” home demand even if other economic factors change.
The “Great Reshuffling” is in its early stages. 95% of experts surveyed believe that working from home at least part-time will continue as the coronavirus fades. Millions of renters living in high-cost areas could afford to buy a home in less-expensive areas, thus taking advantage of increased teleworking opportunities. More companies are making flexible work arrangements permanent, so this could further fuel home buying demand in lower cost communities.
Housing Supply: The current supply of homes for sale is very limited relative to the demand. The mismatch of supply and demand is driving home prices up at a rapid pace. There were less than 1 million homes listed for sale nationwide in March. This is the 18th straight month of annual declines. The number of homes listed for sale in March was down 32% from March 2020! So what is causing the supply problem?
In the years after the Great Recession, the number of homes built was significantly less than the number needed to keep pace with population growth. Many home builders have sought to avoid risk by limiting construction due to memories of unsold homes and bank foreclosures. The supply of vacant homes is now at its lowest level since 1957 – over 60 years ago.
And, due to the pandemic, many potential home sellers decided not to move. Some were concerned that they would quickly sell their home but not be able to secure a new home, so they elected not to sell.
When you combine the demographics driving demand with these housing supply limitations, this article concludes that the 2021 housing market will not implode as did the 2008 market.
Keep in mind that one real estate fundamental is “location, location, location.” It is possible that certain specific markets may see a housing downturn. For example, the ability to work remotely may mean that people leave certain high-cost cities since they need not worry about commutes. This could drive home prices down somewhat in these specific areas. But I believe these fundamentals apply to the housing market nationally.
Are you (or do you know) a Millennial who wants to buy a home in today’s hyper-competitive market? If yes, call me. At Dunwoody Mortgage, we have tools to help our clients win the contract. I would love to help you buy your first (or not first) home, and we will make the process as easy as possible on you.
My colleague recently covered 2021 projections for the housing market. Those projections forecast a strong year for housing. We see evidence of this with home values continuing to rise.
CoreLogic reported home prices surged over 8% year over year in November. They also increased a little in October, and this trend is expected to continue.
We are seeing this everywhere in the metro Atlanta market. Homes are going under contract within a couple of days of being listed, over asking price, and often with buyers waiving some (or all) contingencies.
Sadly, the availability of for-sale homes has dwindled as demand increases and coronavirus outbreaks continue across the country, which is delaying some sellers from putting their homes on the market.
It is still a seller’s market, and will be for some time now. In this situation, I can’t emphasize some of these points enough for potential buyers.
How does one set themselves apart in this market?
Work with a loan officer (like me) who can get you pre-underwritten. This way your offer can say the loan is approved pending the appraisal and clear title. This sets the offer apart from almost all offers out there.
Work with a loan officer (again, like me!) who will talk with the listing agent to let them know how smooth of a closing to expect.
Do everything in your power to make a non-contingent offer.
Want to know more about some of those items mentioned above for your home purchase? If the home is in the state of Georgia, contact me today. I can have you pre-approved for a home loan same day. I can get a pre-underwritten approval in just a couple of days. It can be that quick!
Stop me if you’ve heard his before… inventory levels are low. Like super low. I am routinely hearing from agents they are receiving 20+ offers on their listings within 24-48 hours of the home being listed. I’ve been in the mortgage industry for 15 years now, and I’ve never seen it like this.
I’ve covered many reasons for the shortage of housing (and also famously said in 2019 that 2021 would be the year the market would begin to balance out. Wow, was that wrong). Covid has a lot to do with is. The uncertain economy/recovery has some people concerned.
Hearing the news of limited housing supply, some home owners fear putting their home on the market. They know they can sell. The concern is finding the new home. Instead, home owners are renovating their current homes. Recent stats from BuildFax supports this sentiment.
Money spent on home repairs soared in November; up 31.85% year-over-year.
Remodel volume and spend, which is a subset of home repairs that includes renovations, additions, and alterations, also increased by 6.38% and 7.60% compared to November 2019, respectively.
These trends (along with new construction) are causing building material costs to soar.
Given the uncertainty with the recovery, along with rising home prices due to the tight supply, some homeowners are simply reinvesting in their current home.
If this is you and you need money for those renovations, consider a cash out refinance. I have completed many, many cash out refinance loans over the past year. I can help you too!
What about those out there who have to buy a home… the family has grown… need a home office… no room for an addition on the home…. how does one set themselves apart in this market?
Work with a loan officer (like me) who can get you pre-underwritten. This way your offer can say the loan is approved pending the appraisal and clear title. This sets the offer apart from almost all offers out there.
Work with a loan officer (again, like me!) who will talk with the listing agent to let them know how smooth of a closing to expect.
Do everything in your power to make a non-contingent offer.
Need money for a renovation on your home?… Want to know more about some of those items mentioned above for your home purchase?… If the home is in the state of Georgia, contact me today. Whether it is a refinance or a purchase, I can have you pre-approved for a home loan same day. I can get a pre-underwritten approval in just a couple of days. It can be that quick!
We’ve discussed new construction sales increasing recently on this site. Existing home sales are increasing too! August marked the third consecutive month of gains on existing home sales:
the increase was over 2% from July to August
it is over a 10% increase from last year
median sales price for all home types (single family, townhome, condo) was up over 11% from 2019.
Inventory levels are worse now (about 3 months) than last year around this time (about 4 months of inventory)
It’s a seller’s market, and does not seem to be changing anytime soon.
What does someone who owns a home and needs to sell it in order to make a down payment on their new home do in a time like this? Are there any options to avoid making a contingent offer to purchase a new home?
Why yes, there are options! Most people can qualify to carry two mortgages. Their current home + the new home. Given how fast homes are selling, the odds of having two mortgages payments for many months is low. So looking to qualify to buy the new home without selling one’s current home isn’t as daunting as it would seem.
The issue in this scenario would be the down payment. If the plan was to use the equity in the existing home to purchase the new home, how does one come up with the money for a down payment without selling their home?
Here are some options for the down payment on a new home:
Borrow money from investment accounts: if money is tied up in investment accounts, look to borrow the money from yourself! It’s nice when you are the bank. Do consult with your tax professional to ensure any money you take out isn’t a tax liability OR if it is, you plan accordingly.
Borrow from 401k: Most companies allow their employees to borrow some money from their 401k accounts when purchasing a home for as their primary residence. Borrowing and repaying a 401k loan should not trigger any tax liabilities, and the loan can be paid back pretty quickly once the current home sells. Again, it is nice when you are the bank!
Gift from family: Getting money from an acceptable gift source to use for a down payment is allowed. Remember, you do not need 20% down to purchase the home.
Temporary loan: apply and receive a temporary loan, such as a bridge loan, to use for the down payment. This is an option, but it can be more expensive in terms of closing costs (a 401k loan should have little/no fees and a gift from a relative has no fees). The buyer would also have to qualify on the new home loan with three mortgages… the current mortgage, the temporary home loan to use as a down payment, and the new mortgage on the new home.
Combination of the previous options: perhaps one borrows from their 401k and gets a gift from a family member.
Doing anything above could allow a buyer to make a non-contingent offer on their next home, and give them an advantage over anyone who must sell their home to qualify for the new loan.
One last option is using the seller’s market to one’s advantage. Negotiate renting back one’s current home once it is closed. Then use the rent-back time to find their new home. Going this route has its advantages:
Since the home is sold, qualify on just the new mortgage
the equity in the home is now free and ready to be used as a down payment on the new home
The person purchasing your current home has 60 days to occupy it per the terms of a standard home loan used to purchase a primary residence. Is this something that can be done? Yes, I had a client close using a scenario like this month.
Again, if you own a home, use the seller’s market to your advantage. Talk with your agent and negotiate a rent back of your current home. Something like this is negotiated just like the purchase price, closing date, etc.
It’s a seller’s market, and it is hard out there for people looking to purchase a home. Just because it is a tough market doesn’t mean you can’t find ways to make your offer stand out from the crowd! Buying in the state of Georgia? Contact me today! I can help get you prequalified and we can explore several options to see if you are able to make a non-contingent offer on your new home purchase.
Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services and a writer for “the Mortgage Blog.” If you would like to be a guest writer for "the Mortgage Blog" please contact Clay for details.
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