Skip to content

Category: Mortgage Rates

Posted on

Is a 15-or 30-Year Mortgage Right for You?

Is a 15- or 30-Year Mortgage Right for You?

You can build equity faster with a shorter term since more of your payment goes toward paying down principal.

Takeaways

    • When choosing a mortgage, two main options is a 30-year term and a 15-year term, though some lenders have additional options.
    • A longer-term mortgage will usually mean lower monthly payments, but a higher cost over the life of the loan; a shorter-term mortgage will reduce the overall loan cost and may have a lower interest rate, but will require higher monthly payments.
    • No matter your loan term, you can make additional payments toward the principal to save money and pay your mortgage off faster.

If you’re preparing to buy a home, you will need to look at not only mortgage interest rates, but also loan types and terms. Your mortgage term is how long you have to repay the loan, and most terms are 15 or 30 years.

Should you get a 15- or 30-year mortgage? If you can afford the payment on a 15-year mortgage, the long-term interest savings are great. But the lower monthly payment of a 30-year mortgage could offer you more flexibility if your financial situation changes.

Here, we break down the 15- vs. 30-year mortgage debate, including the pros and cons of each and how to decide between the two.

What Is the Difference Between a 15- and 30-Year Mortgage?

The primary difference between a 15- and 30-year mortgage is the length of time to pay off the loan.

A 15-year mortgage pays off your home in half the time of a 30-year loan and saves on interest overall. Borrowers typically qualify for lower interest rates for 15-year loans because the shorter term reduces risk for lenders.

The shorter term also means that more of your payment goes toward paying down principal, so you can build equity faster than with a 30-year mortgage. The trade-off is a higher monthly payment than a 30-year mortgage – at current rates, 20% or more. “The higher costs may not leave room for additional homeownership costs, such as renovations or unexpected repairs and maintenance,” says Shelby McDaniels, national director of business development at Chase Home Lending.

A 30-year loan’s lower monthly payment can provide more cushion in your budget. This can help make homeownership a possibility for more people.

30-Year Mortgage Pros and Cons

Pros

    • Lower monthly payments than a 15-year loan because they are stretched out over a longer time.
    • Easier to qualify for this loan with its smaller payments.
    • More room in your budget for other financial goals.

Cons

    • Higher interest rates because lenders consider a 30-year loan a greater risk than a 15-year loan.
    • Higher total interest paid.
    • Slower growth in home equity than a 15-year loan.

15-Year Mortgage Pros and Cons

Pros

    • Lower interest rates compared with 30-year loans because lenders take on less risk.
    • Lower total interest charges than a 30-year mortgage
    • Quicker loan payoff.
    • Faster equity growth, with more of your payment going toward principal.

Cons

    • Higher monthly payments compared with a 30-year loan.
    • You may not qualify for as big a loan because of the higher monthly payments.
    • Larger payments leave less flexibility for other financial goals, such as saving.

Crunching the Numbers: 15- vs. 30-Year Mortgage

Let’s say you need a $300,000 mortgage and qualify for a 15-year at 6.5% or a 30-year for 7.5%. Here’s how those costs would compare:

15-Year 30-Year Difference
Monthly Payment $2,613 $2,098 $516 savings per month if you choose a 30-year mortgage
Total Interest Paid After Full Term $170,398 $455,152 $284,754 savings in total if you choose a 15-year mortgage
Total Loan Amount After Full Term $470,398 $755,152

Alternatives to a Standard Mortgage Payoff

Exploring Other Mortgage Terms

If you’re on the fence between a 15-year and a 30-year loan, some lenders offer terms in the middle, such as a 20- or 25-year mortgage term. There are even some companies with 10- or 40-year terms if you’re looking for even more flexibility. Ask your mortgage professional to run the numbers to see which term option is best for you.

Paying Off Your 30-Year Mortgage in 15 Years

“There are tricks and hacks to dramatically reduce interest over the loan term,” says Erik Katz, president and founder of Rustic Country Real Estate in West Point, California. “If you take a 30-year loan and pay a few extra hundred a month, you may pay that mortgage down in 15 years anyway.”

Katz also suggests making an extra full payment at the end of each year if you can swing it to make a nice dent in the principal. You can also set up mortgage payments every two weeks, which results in an extra payment per year.

This way, if things ever get tight financially, you’re not locked into a higher payment. Just confirm that your lender doesn’t charge a prepayment penalty.

Refinancing

Starting off with a traditional 30-year term is best for many people. But if circumstances arise a few years into the mortgage that might allow you to refinance to a 15-year loan, such as a dramatic drop in interest rates, it could be worth exploring.

On the flip side, if you start out with a 15-year mortgage and the payments become difficult to manage, you can see if stretching it out into a longer loan term might help ease the financial pressure. Just be aware that doing so will mean paying more interest over the life of the loan.

15- vs. 30-Year Mortgage: How to Decide

Deciding between a 15- or 30-year mortgage comes down to finances and flexibility. Keep in mind that 30-year mortgages are far more common than 15-year loans for a reason: They are more affordable. The lower payment will give you more wiggle room, especially if your financial future is uncertain or your dream home wouldn’t be within reach with a 15-year mortgage.

On the other hand, a 15-year mortgage can offer savings if you have steady income to support your monthly payments and other expenses, including emergencies. “If the interest rate is a lot lower for the 15-year, that’s where I would advise to run the numbers,” says Katz.

Age may be a factor in your decision when weighing a 15- versus 30-year mortgage as well. “A 15-year mortgage could be a better option for those who are determined to pay off additional debts quickly, especially those who are preparing for an early retirement and want to minimize monthly payments,” says McDaniels.

A 40-year-old borrower, for example, could pay off a 15-year mortgage by age 55 while still owing on a 30-year mortgage through age 70.

If your ultimate goal is to save money, says Katz, “the name of the game is how fast can you get your house paid down.” Do the math and calculate your potential mortgage payment before you decide.

Source: money.usnews.com ~ By Dawn Papandrea ~ Image: CanvaPro

Posted on

Tax Assessed Value vs. Market Value: What’s the Difference?

Tax Assessed Value vs. Market Value

Home prices aren’t set in stone; instead, their value can change depending on a few key factors—that’s what makes buying and selling real estate so fun! (Or frustrating, depending on your perspective.)

As a buyer or seller, you will likely hear two “prices” thrown about: tax-assessed value vs. market value. So what’s the difference?

While assessed value and market value may seem similar, these numbers can be different—typically, the value as assessed is lower—and they’re used in different ways. So let’s clear up any confusion, so you can use these terms to your advantage.

Tax value vs. market value: What is market value?

Casey Fleming, a former real estate appraiser and author of “The Loan Guide: How to Get the Best Possible Mortgage,” says the technical definition of market value is “the most probable price that a given property will bring in an open market transaction.” Or, in plain English, “It’s the price that a buyer is willing to pay for a home, and that a seller is willing to accept.”

Real estate agents are trained to pinpoint a home’s value in the real estate market, which is done by looking at a variety of characteristics, including the following:

    • External characteristics: Curb appeal, exterior condition of the home, lot size, home style, availability of public utilities.
    • Internal characteristics: Size and number of rooms, construction and appliance quality and condition, heating systems, and energy efficiency.
    • Comps, or comparables: What similar homes in the same area have sold for recently.
    • Supply and demand: The number of buyers and the number of sellers in your area.
    • Location: How desirable is the neighborhood? Are the schools good? Is the crime rate low?

A home’s market value is often a good starting point for determining all kinds of concerns that home buyers might have.

For one, listing agents use this value to help sellers come up with a fair asking price for their home. And, since buyers shouldn’t just trust what sellers say their place is worth, their own agents can also determine the home’s approximate value and come up with a different price that they think their clients should offer.

No number is right or wrong; the ultimate deciding force is what price a buyer and seller determine they are willing to shake hands on to close the deal.

Tax assessed value vs. market value: What is assessed value?

When trying to understand a property’s assessment value, you must know who is assessing it and why.

Municipalities, mostly counties, employ an assessor to value real estate and levy property taxes on it.

To arrive at a value for tax purposes, the assessor looks at what similar properties are selling for, the value of any recent improvements, any income you may be making from, say, renting out a room in the property, and other factors—like the replacement cost of the property if, God forbid, it burns down in a fire (which sounds dark, but assessors are thorough professionals, who consider every possibility).

In the end, the assessor comes up with an assessment value of a home and deducts any tax exemptions for which you qualify. Then, that number is multiplied by an “assessment rate,” also known as “assessment ratio,” a uniform percentage that each tax jurisdiction sets that is typically 80% to 90%, to arrive at the taxable value of your property.

So if, say, the market value of your home is $200,000 and your local assessment tax rate is 80%, then the taxable value of your home is $160,000. That $160,000 is then used by your local government to calculate your property tax bill.

The higher your home’s assessed value, the more you’ll pay in tax. You can check with your local tax assessor for a more exact tax date for your home, or search by state, county, and ZIP code on publicrecords.netronline.com.

Assessed and market values: What they can mean for you

While a home’s value in the market can rise and fall precipitously, based on local conditions, assessed values are typically not as sensitive to fluctuations.

Some states, like Oregon, prohibit the assessment from being increased by more than 3% a year, “even if the market value goes up more,” says Nathan Miller, founder of Rentec Direct, a software company that educates property managers and landlords.

Don’t be upset as a property owner if your assessment is calculated at a lower amount than you’d figured. It doesn’t mean your property value is actually less.

Assessed value is used mostly for property tax purposes. A lower assessment means a lower tax bill. Home buyers and sellers, on the other hand, look more to marketplace value than at property tax data.

However, assessed value can come up when you buy or sell a home, because this number, unlike the loosey-goosey market value, is public knowledge contained in property records. So, rising assessed values bode well when home sellers try to justify their sales price to a buyer: “Hey, the assessed value is $310,000, and I’m only asking $320,000.”

Likewise, buyers can use assessed value to justify a lower price: “Hey, the assessed value is $260,000, and you’re asking for $300,000. What gives?”

But the thing to remember with values both market and assessed is that at the end of the day, the price of a home is the amount for which a seller is willing to sell, and a buyer is ready to buy. The only number that matters is the price a buyer and a seller agree on.

Source: realtor.com ~ By Lisa Kaplan Gordon ~ Image: Thought Catalog

Posted on

Complete Timeline of the Mortgage Process

Complete Timeline of the Mortgage Process

Each mortgage runs on its own timeline, but you might need about three to five months to secure a property and a home loan.

If you’re using a mortgage to buy a home, here’s what to expect from start to finish

Key Takeaways

    • The homebuying process can last about three to five months, but how long it ultimately takes depends on your unique situation.
    • The biggest variable in the mortgage timeline is finding a home to buy – and having your purchase offer accepted.
    • Once you’ve found a property and decided on a lender, loan processing and closing typically lasts about a month.

Borrowing a mortgage to finance your home purchase can be complex and confusing, especially if you’re a first-time homebuyer. Thankfully, having the right professionals in your corner can make the mortgage process easier to understand, so you can focus on finding a home you’ll be happy living in for years to come.

Here’s what the mortgage timeline usually involves, keeping in mind that delays can arise from factors outside of your control:

Securing a Mortgage Preapproval: Up to 45 Days

When you’re in the planning stage of getting a mortgage, it’s a good idea to check your finances and set a budget. Then, get preapproved to see how much you can borrow. Here’s what to expect during each step of this part:

Review your finances. Your financial standing influences whether you qualify for a mortgage, how much you can borrow and your lending terms. Lenders usually give the best loan terms to borrowers with credit scores in the mid-700s or above and debt-to-income ratios of around 45% or less.

Before applying for a mortgage, consider checking your credit report for errors.

“People are often surprised by their credit score because it’s being dragged down by something on their credit reports they had no idea about,” says Lindsay Barton Barrett, a licensed associate real estate broker with Douglas Elliman in New York. “That’s something you want to dig into.”

You may decide to dispute errors on your credit report, work on raising your credit score or pay down your debts to qualify for favorable loan terms. This part of the mortgage timeline may take a few weeks or longer if you need to improve your finances.

Create a budget. Setting a budget upfront is a good idea to avoid falling in love with a home you can’t afford. One rule of thumb says to spend 28% or less of your monthly income on your total housing payment.

If you bring home $7,000 a month before taxes, then you can spend up to $1,960 on your monthly mortgage payment. That amount should cover your principal, interest, taxes, mortgage insurance and homeowners insurance, plus any HOA fees.

“The biggest mistake is spending what you’re fully qualified for instead of what your budget allows,” says Nicole Rueth, senior vice president of The Rueth Team Powered by Movement Mortgage. “I’ve seen a lot of first-time homebuyers overspend.”

A mortgage calculator can help you figure out which homes you can buy, based on your estimated monthly budget and how much you’ll put down at closing. A lender may say you can borrow more based on your financial situation, but only you know what you’re comfortable paying every month while still meeting your other obligations.

Get pre-approved. Once you have a budget in mind, contact a lender and ask for a preapproval in that amount. You’ll save time if you have the necessary documents handy:

    • W-2 forms from the last two years.
    • Most recent pay stubs.
    • Copies of tax returns for the last two years.
    • Personal bank statements for the last two to three months.
    • Identification, such as a driver’s license.

The lender reviews these documents and pulls your credit report to determine whether you qualify for a home loan. It’s a good idea to keep your mortgage shopping within a 45-day window to reduce the impact to your credit score.

If everything checks out, the lender gives you a letter saying how much you can borrow. Most preapproval letters are valid for 60 to 90 days.

This letter not only helps you define your budget but also shows sellers you’re a serious buyer who has lined up financing. “In some markets, there are properties you can’t even see if you don’t have a preapproval letter,” Barton Barrett says.

Finding a Property and Making an Offer: 10 Weeks

Homebuyers typically view homes for 10 weeks before finding a property to buy, according to Freddie Mac.

The timeline for finding a property and making an offer vary with each homebuyer, but a real estate agent can help speed things along. The right agent will be familiar with homes in your market that are within your budget and guide you through the whole process.

“If you see a property and it’s not quite right, you can communicate what you liked and didn’t like to your agent, which will help guide your search,” Barton Barrett says. When that property closes, “Take note of what it listed for and what it closed for. That can help you set expectations.”

Once you find your dream home, you will work with your real estate agent to create an offer. This document includes a price, a suggested closing time frame – typically 30 to 90 days from the accepted offer – and conditions that allow you to cancel or renegotiate the contract. For example, you might make the offer contingent on mortgage financing and a satisfactory home inspection.

When you and the seller agree on price and terms, you will both sign a purchase agreement.

Applying for a Mortgage: One Week

Once you’ve had your purchase offer accepted and you’re under contract for the property you want, you can get official loan estimates from the lenders you got preapproved with. Compare their closing costs and interest rates, using the best offer to try to negotiate your loan terms because some lenders will match interest rates or offer discounts.

You could save thousands of dollars just by doing this. For instance, if you buy a $400,000 home and put down 10%, you save $117 a month with a 6% interest rate compared with 6.5%. This adds up to over $9,000 in interest savings over the first five years of the loan.

Once you’ve found the right lender, tell the loan officer that you’d like to move forward with the mortgage application. This is called your “intent to proceed.” At this point, you’ll be able to lock in your interest rate and purchase mortgage discount points to buy down your rate

Underwriting and Loan Processing: Three to Four Weeks

The underwriting phase starts as soon as you’ve signed a purchase agreement and applied for a mortgage. This part varies from a few days to a couple of weeks, according to loan software firm ICE Mortgage Technology. The timeline depends on how busy the underwriters are and how quickly you answer questions and submit documents.

Here’s what to expect during loan processing:

Review documents. Your lender will send your mortgage application to the underwriting department to review all of your supporting documents. Underwriters confirm that you meet eligibility requirements for the mortgage, make sure your income and employment are stable, and check that you have money for closing costs and a down payment. Respond quickly to questions and requests for additional documents, such as a letter that explains the source of a large bank deposit, to keep your closing date on track.

Order a home inspection. If your purchase offer includes a home inspection contingency, you will hire a professional to check the home’s physical attributes, mechanical systems and major appliances.

“A home inspection is so critical to understanding what you’re buying,” Rueth says. “They are getting in the crawl spaces and up in the attic and the roof, and looking at the electrical panels. They are really looking at the bones of that home.”

Based on the walk-through, the inspector creates a report that lists any problems. Depending on the terms of your contract, you may be able to walk away from the purchase if the report reveals significant damage you don’t want to deal with.

Get a home appraisal. Your lender will order an appraisal to verify the home’s value, which is based on its condition and selling prices of similar homes in the area. Lenders do this to ensure they can sell the home and recoup their investment if you default on the loan.

If the appraised value of the home is higher than the selling price, then that means you’ve found a good deal. But the reverse could create problems because the bank won’t lend more than the appraised value of a property. In that case, you have a few options, including:

    • Pay the difference in price yourself, although it may be risky if the home isn’t worth the selling price.
    • Negotiate with the seller to lower the home price.
    • Walk away from the deal, depending on the terms of your contract.

Complete a title search. During the title search, a title company or attorney researches public records to confirm the property’s legal owner and ensure it has no pending claims or liens. Title insurance is a policy you can buy to protect against future claims on the property. You’ll be required to buy lender’s title insurance, but an owner’s policy is optional.

Closing on the Property: One Week

If your finances and the property you’re buying meet the lender’s underwriting requirements, you will be “cleared to close” on the mortgage. You have only a few days to go until you sign the mortgage agreement and get the keys to the home.

Your lender should send you a closing disclosure, which is a five-page document that sums up the terms of your loan and what you will pay at closing. You’ll have at least three days to review this document and compare the numbers to the loan estimate. You shouldn’t find significant changes between these two documents unless there’s a legitimate reason or you’ve agreed to certain changes.

You’ll be responsible for choosing a closing agent to gather the legal documents for your loan and handle the money for the purchase. Once you schedule the closing, ask your closing agent what to bring. This usually includes a valid ID and your cash to close payment, typically a cashier’s check.

On closing day, you will go for a final walk-through of the house with your real estate agent to make sure the seller addressed repairs and to check for new damage. Then, you’ll sign the final sales contract at closing.

After Closing on the Mortgage

Now that you’ve settled into your home, you’re on a new timeline: making mortgage payments for the life of the loan. To protect against future financial problems, work on stashing away about six months’ worth of mortgage payments in a savings account, Rueth says.

“When you’re late on your mortgage, it can really affect your credit score for a long time,” Rueth says.

Your lender or loan servicer can declare your loan in default, the first step in the foreclosure process, if you’re behind.

Your savings can help you through financial emergencies, but you will also need it to maintain and repair your home.

Source: money.usnews.com ~ By: Kim Porter ~ Chart: US News & World Report

Posted on

Housing market predictions: 5 year forecast

housing market predictions

It’s been a wild real estate ride over the last few years. After a red-hot market characterized by very low interest rates and frenzied bidding wars, mortgage rates increased to their highest level in more than 20 years. The average rate for a 30-year mortgage more than doubled between August 2021, when it was just 3 percent, and October 2023, when it reached 8 percent. (Rates have now dipped a bit and were back below 7 percent as of August 2024.)

As you might imagine, this trend has led to a slowdown in buying activity. Even so, with inventory still scarce, home prices have hit new records and remain unaffordable in many parts of the U.S.

Real estate forecasts for the next 5 years

There are plenty of predictions about where the housing market is going this year. But what about further out? After all, buying a home often requires long-term planning. We asked several industry experts to peer into their crystal balls and give us their real estate forecast for the next five years. Here’s looking at you, 2029.

The current housing market
  • Home sale prices: The country’s median existing-home sale price in June 2024 was $426,900, according to the National Association of Realtors (NAR) — the highest median price NAR has ever recorded. For new-construction homes, National Association of Homebuilders (NAHB) data shows that June’s median sale price was only slightly lower at $417,300.
  • Inventory: The supply of homes for sale is increasing, but remains too low to meet demand. Per NAR data, the inventory of unsold existing homes was at a 4.1-month supply in June. It’s typically believed that a balanced market would require a 5- to 6-month supply.
  • Days on market: With high prices and mortgage rates putting a purchase out of reach for many, homes are taking longer to sell. In June, the median length of time homes spent on the market was 22 days, up from 18 days one year earlier, per NAR.
  • Homes sold: Nationwide sales of existing homes fell 5.4 percent in June 2024, per NAR. Meanwhile, the pace of new single-family home sales fell 16.5 percent in May 2024 from a year earlier, per NAHB data.
  • Mortgage rates: According to Bankrate’s weekly survey of large lenders, the average 30-year mortgage rate as of August 7 was 6.59 percent.

Forecast for mortgage rates and types

Lawrence Yun, NAR’s chief economist, says mortgage interest rates have likely crested, at least for the rest of 2024. “I believe we’ve already reached the peak in terms of interest rates,” he told attendees at a November NAR convention. Within two years, he says, the rate should return to 5.5 or 6 percent, assuming the federal budget deficit does not put permanent upward pressure on all borrowing costs.

Because rates are high, Yun foresees a greater interest in adjustable-rate mortgages through next year. However, after that, he predicts 90 percent of Americans will return to the traditional 30-year fixed-rate mortgage.

A fixed-rate mortgage provides the certainty borrowers want.— Greg McBride, Bankrate Chief Financial Analyst

Greg McBride, CFA, Bankrate’s chief financial analyst, thinks the 30-year fixed will remain the dominant mortgage product. “A fixed-rate mortgage provides the certainty borrowers want,” he says. “It is the best gauge of affordability, and there is very little upfront advantage to taking an adjustable-rate mortgage, as those rates aren’t much lower than fixed rates right now,” he says.

Predictions for home prices

Yun foresees no major changes in purchase price tags on a nationwide level next year, with fluctuations of only about 5 percent one way or the other. Overall, in five years, he expects prices to have appreciated a total of 15 to 25 percent.

McBride predicts home prices will average low- to mid-single-digit annual appreciation over the next five years. This rate of appreciation, he says, is consistent with the long-term average of home prices increasing by a rate that hovers a percentage point above the inflation rate.

Will the housing market crash?

While it may show bubble-like characteristics, Yun does not expect the residential real estate market to burst. He does predict that sales will be at a low point next year, with only 5.3 million units sold, but he foresees a gradual increase afterward, up to an annual 6 million units by 2027.

Despite today’s higher mortgage rates, home prices are still strong, he adds. Even if they decline 5 percent or even 10 percent next year, that’s not anywhere close to crashing, which he says is characterized by about a one-third drop.

A crash happens with oversupply. It will not happen, because there isn’t enough inventory.— Lawrence Yun, Chief Economist, National Association of Realtors

“A crash happens with oversupply,” Yun says. “A 30 percent decrease will not happen, because there isn’t enough inventory.” He believes the housing supply will balance out within five years.

Many other experts agree that there is no danger of an imminent housing market crash. Not only is inventory too scarce, as Yun notes, but lending standards today are much stricter than they were back in the days of the Great Recession. Mortgage lenders are largely not issuing loans that borrowers can’t really afford anymore, which helps keep foreclosure rates low. And those who do borrow have excellent credit: a very high median score of 772, according to the Federal Reserve Bank of New York.

Will we shift into a buyer’s market?

Yun expects the overall seller’s market to continue as long as housing inventory remains low. By five years out, though, he foresees more of a balanced market, where neither the buyer or seller holds a significant advantage. Instead, the negotiating power between parties will be more equal and depend on the individual case.

Caroline Feeney of Narrative Bent, a former director of content and executive editor at real estate site HomeLight, says the shift away from a seller’s market has already begun. She also expects a balanced market within a few years, and says that 55 percent of HomeLight agents surveyed said the markets that heated up the fastest during the pandemic — including Austin, Phoenix and Boise — would likely be the first to cool down. This scenario may already be playing out: The median home sale price in Austin was down 6.2 percent year-over-year, according to June 2024 Redfin data, and homes there were taking a long 50 days to sell.

Where will new homes be built, and what kind?

With hybrid work schedules now common and commuting no longer as relevant, Yun predicts the suburban market will remain strong. He expects growth in Sun Belt areas with rising populations, including the Carolinas, Florida, Texas and Tennessee.

Backing up his prediction, Danushka Nanayakkara-Skillington, assistant VP of forecasting and analysis for NAHB, says 50 percent of new single-family construction is in the South. Southern markets scored big in Bankrate’s 2023 Housing Heat Index as well.

The number of multi-family homes under construction has increased over the last few years — Feeney credits this growth in part to their lower price tags and the pressure on municipalities to relieve shortages and provide more affordable housing. Still, with high mortgage rates and inflationary building material prices, Nanayakkara-Skillington expects the multi-family market’s growth to stabilize within a few years, with the number of new housing starts decreasing.

Tips for preparing to buy a home

Buying a house is a major commitment, and starting to save five years in advance is perfectly reasonable. Here are some strategies to get your finances in shape and save for a down payment so you can be a homeowner by 2029.

1. Think about earning power

Switching jobs is usually the fastest path to a significant salary bump, so be willing to look for other opportunities to increase your earning power. According to a 2022 study from the Pew Research Center, 60 percent of workers who switched jobs earned more money in their new roles, even accounting for inflation. If a new job is not an option, think about the best ways to ask your employer for a raise.

2. Decrease your debt

Saving up to purchase a home isn’t just about growing your bank account. It’s equally important to focus on paying down the amount of money you owe on credit cards, student loans and car payments. By lowering your debt-to-income ratio, you’ll be in a better position to qualify for a mortgage down the line.

3. Improve your credit score

The higher your score, the lower mortgage rate you’re likely to qualify for when you’re ready to buy. Most mortgage types require a minimum score of 620 to qualify, but higher is better. So pay your bills on time and do what you can to raise your credit score before you start house-hunting — it could save you a lot of money in the long run.

4. Focus on your local area

Real estate is hyper-localized, varying greatly not just by region or state but even within the same city. Broad national trends are important to bear in mind, but as you budget and save to buy a house, focus on conditions in the specific neighborhood where you’re looking. This is where a knowledgeable local real estate agent can really shine: Agents are experts in their markets, so find one you like and let their expertise work for you.

It’s been a wild real estate ride over the last few years. After a red-hot market characterized by very low interest rates and frenzied bidding wars, mortgage rates increased to their highest level in more than 20 years. The average rate for a 30-year mortgage more than doubled between August 2021, when it was just 3 percent, and October 2023, when it reached 8 percent. (Rates have now dipped a bit and were back below 7 percent as of August 2024.)

As you might imagine, this trend has led to a slowdown in buying activity. Even so, with inventory still scarce, home prices have hit new records and remain unaffordable in many parts of the U.S.

Real estate forecasts for the next 5 years

There are plenty of predictions about where the housing market is going this year. But what about further out? After all, buying a home often requires long-term planning. We asked several industry experts to peer into their crystal balls and give us their real estate forecast for the next five years. Here’s looking at you, 2029.

The current housing market
  • Home sale prices: The country’s median existing-home sale price in June 2024 was $426,900, according to the National Association of Realtors (NAR) — the highest median price NAR has ever recorded. For new-construction homes, National Association of Homebuilders (NAHB) data shows that June’s median sale price was only slightly lower at $417,300.
  • Inventory: The supply of homes for sale is increasing, but remains too low to meet demand. Per NAR data, the inventory of unsold existing homes was at a 4.1-month supply in June. It’s typically believed that a balanced market would require a 5- to 6-month supply.
  • Days on the market: With high prices and mortgage rates putting a purchase out of reach for many, homes are taking longer to sell. In June, the median length of time homes spent on the market was 22 days, up from 18 days one year earlier, per NAR.
  • Homes sold: Nationwide sales of existing homes fell 5.4 percent in June 2024, per NAR. Meanwhile, the pace of new single-family home sales fell 16.5 percent in May 2024 from a year earlier, per NAHB data.
  • Mortgage rates: According to Bankrate’s weekly survey of large lenders, the average 30-year mortgage rate as of August 7 was 6.59 percent.

Forecast for mortgage rates and types

Lawrence Yun, NAR’s chief economist, says mortgage interest rates have likely crested, at least for the rest of 2024. “I believe we’ve already reached the peak in terms of interest rates,” he told attendees at a November NAR convention. Within two years, he says, the rate should return to 5.5 or 6 percent, assuming the federal budget deficit does not put permanent upward pressure on all borrowing costs.

Because rates are high, Yun foresees a greater interest in adjustable-rate mortgages through next year. However, after that, he predicts 90 percent of Americans will return to the traditional 30-year fixed-rate mortgage.

A fixed-rate mortgage provides the certainty borrowers want.— Greg McBride, Bankrate Chief Financial Analyst

Greg McBride, CFA, Bankrate’s chief financial analyst, thinks the 30-year fixed will remain the dominant mortgage product. “A fixed-rate mortgage provides the certainty borrowers want,” he says. “It is the best gauge of affordability, and there is very little upfront advantage to taking an adjustable-rate mortgage, as those rates aren’t much lower than fixed rates right now,” he says.

Predictions for home prices

Yun foresees no major changes in purchase price tags on a nationwide level next year, with fluctuations of only about 5 percent one way or the other. Overall, in five years, he expects prices to have appreciated a total of 15 to 25 percent.

McBride predicts home prices will average low- to mid-single-digit annual appreciation over the next five years. This rate of appreciation, he says, is consistent with the long-term average of home prices increasing by a rate that hovers a percentage point above the inflation rate.

Will the housing market crash?

While it may show bubble-like characteristics, Yun does not expect the residential real estate market to burst. He does predict that sales will be at a low point next year, with only 5.3 million units sold, but he foresees a gradual increase afterward, up to an annual 6 million units by 2027.

Despite today’s higher mortgage rates, home prices are still strong, he adds. Even if they decline 5 percent or even 10 percent next year, that’s not anywhere close to crashing, which he says is characterized by about a one-third drop.

A crash happens with oversupply. It will not happen, because there isn’t enough inventory.— Lawrence Yun, Chief Economist, National Association of Realtors

“A crash happens with oversupply,” Yun says. “A 30 percent decrease will not happen, because there isn’t enough inventory.” He believes the housing supply will balance out within five years.

Many other experts agree that there is no danger of an imminent housing market crash. Not only is inventory too scarce, as Yun notes, but lending standards today are much stricter than they were back in the days of the Great Recession. Mortgage lenders are largely not issuing loans that borrowers can’t really afford anymore, which helps keep foreclosure rates low. And those who do borrow have excellent credit: a very high median score of 772, according to the Federal Reserve Bank of New York.

Will we shift into a buyer’s market?

Yun expects the overall seller’s market to continue as long as housing inventory remains low. By five years out, though, he foresees more of a balanced market, where neither the buyer or seller holds a significant advantage. Instead, the negotiating power between parties will be more equal and depend on the individual case.

Caroline Feeney of Narrative Bent, a former director of content and executive editor at real estate site HomeLight, says the shift away from a seller’s market has already begun. She also expects a balanced market within a few years, and says that 55 percent of HomeLight agents surveyed said the markets that heated up the fastest during the pandemic — including Austin, Phoenix and Boise — would likely be the first to cool down. This scenario may already be playing out: The median home sale price in Austin was down 6.2 percent year-over-year, according to June 2024 Redfin data, and homes there were taking a long 50 days to sell.

Where will new homes be built, and what kind?

With hybrid work schedules now common and commuting no longer as relevant, Yun predicts the suburban market will remain strong. He expects growth in Sun Belt areas with rising populations, including the Carolinas, Florida, Texas and Tennessee.

Backing up his prediction, Danushka Nanayakkara-Skillington, assistant VP of forecasting and analysis for NAHB, says 50 percent of new single-family construction is in the South. Southern markets scored big in Bankrate’s 2023 Housing Heat Index as well.

The number of multi-family homes under construction has increased over the last few years — Feeney credits this growth in part to their lower price tags and the pressure on municipalities to relieve shortages and provide more affordable housing. Still, with high mortgage rates and inflationary building material prices, Nanayakkara-Skillington expects the multi-family market’s growth to stabilize within a few years, with the number of new housing starts decreasing.

Tips for preparing to buy a home

Buying a house is a major commitment, and starting to save five years in advance is perfectly reasonable. Here are some strategies to get your finances in shape and save for a down payment so you can be a homeowner by 2029.

1. Think about earning power

Switching jobs is usually the fastest path to a significant salary bump, so be willing to look for other opportunities to increase your earning power. According to a 2022 study from the Pew Research Center, 60 percent of workers who switched jobs earned more money in their new roles, even accounting for inflation. If a new job is not an option, think about the best ways to ask your employer for a raise.

2. Decrease your debt

Saving up to purchase a home isn’t just about growing your bank account. It’s equally important to focus on paying down the amount of money you owe on credit cards, student loans and car payments. By lowering your debt-to-income ratio, you’ll be in a better position to qualify for a mortgage down the line.

3. Improve your credit score

The higher your score, the lower mortgage rate you’re likely to qualify for when you’re ready to buy. Most mortgage types require a minimum score of 620 to qualify, but higher is better. So pay your bills on time and do what you can to raise your credit score before you start house-hunting — it could save you a lot of money in the long run.

4. Focus on your local area

Real estate is hyper-localized, varying greatly not just by region or state but even within the same city. Broad national trends are important to bear in mind, but as you budget and save to buy a house, focus on conditions in the specific neighborhood where you’re looking. This is where a knowledgeable local real estate agent can really shine: Agents are experts in their markets, so find one you like and let their expertise work for you.

Source: bankrate.com ~ By: Dina Cheney ~ Image: Canva Pro

Posted on

Is Reprieve in Mortgage Rates Enough to Move Buyers?

Mortgage Interate Rates

Mortgage rates are starting to cool off after nearly hitting 7% in recent weeks. Borrowing costs have eased somewhat and housing affordability is showing signs of improvement—just in time for the spring selling season.

The 30-year fixed-rate mortgage averaged 6.74% this week, Freddie Mac reports. Over the last two weeks, rates have fallen by nearly a quarter of a percentage point. Potential home buyers are responding: Mortgage applications for a home purchase—a gauge of future homebuying activity—rose by 5% in the latest week and have been increasing over the last two weeks as rates have moved lower, the Mortgage Bankers Association reports.

For home buyers looking to purchase a $400,000 home with a 20% down payment, the estimated monthly mortgage payment at this week’s rate equates to about $2,073, says Jessica Lautz, deputy chief economist at the National Association of REALTORS®. Compared to October, when rates surged to a 7.79% average, home buyers can now save about $228 per month, she says.

Mortgage rates in the mid-6% range are encouraging more home buyers to return to the market. “Homebuying activity is showing an increase in buyer demand from last year when buyers were apprehensive of rising rates,” Lautz says. But “more housing inventory is needed to meet the demand.” House hunters are still facing multiple-offer situations as they scramble to compete for low inventory.

Home buyers will continue to watch rates carefully, as they also continue to face record-high home prices. While economists have largely predicted rates to stay in the 6.5% or 6.3% range for most of 2024, week-to-week fluctuations remain a wild card for the housing market. Plus, “despite the recent dip, mortgage rates remain high as the market contends with the pressure of sticky inflation,” says Sam Khater, Freddie Mac’s chief economist. “In this environment, there is a good possibility that rates will stay higher for a longer period of time.”

Freddie Mac reports the following national averages with mortgage rates for the week ending March 14:

  • 30-year fixed-rate mortgages: averaged 6.74%, dropping from last week’s 6.88% average. Last year at this time, 30-year rates averaged 6.6%.
  • 15-year fixed-rate mortgages: averaged 6.16%, falling from a 6.22% average last week. A year ago, 15-year rates averaged 5.9%.

Source: nar.realtor ~ By: Melissa Dittmann Tracey ~ Image: Canva Pro