Hot Market for Home Sellers Causes Misery for Home Buyers…174

#homebuyer #homeseller #realestate

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Saw this article on how great home ownership is and wanted to go over it with you. It contains some fascinating points.

Thoughts/questions:

1. It’s somewhat obvious that the housing market has been great for home owners and home sellers, but did you know that the increase in wealth had risen by 6 trillion dollars?

2. It’s even more than 19.8% if you look at the past two years…as much as 30% or more higher in some areas.

3. I don’t understand why seniors only got an appreciation of 4%? Oh wait! That is in just 1 quarter! The gains are impressive.

4. Yes, this trips people up all the time. Let’s say you have a $200,000 home, and the value increases 20%. That home is now worth $240,000, so an appreciation of $40,000. Let’s take an $800,000 home with a value increase of 20%. You now have a $960,000 home with an appreciation of $160,000. The gain as a percentage is a monster at higher priced homes.

5. Why do “policies have to be focused more on making sure that the lower-income and many more middle income folks participate in the benefit of homeownership”?

Let’s take a 100,000 home and there is a 20% increase in the value of the home. That’s 20,000. 20,000 in 2022 isn’t getting anyone out of their current class. And, that 100,000 home is probably going to need at least 20,000 in maintenance and repairs over time, so where is that “wealth” going to come from? This has the makings of a bad deal for lower and middle income folks.

What are these policies that can be focused more on making sure lower and middle income folks participate in the benefits of homeownership? Here are a few policies right now.

a. Mortgage interest deduction
b. Low down payment programs
c. Closing and down payment assistance.

What more is there to do? Are we talking about setting the table for real wage growth in the United States? Are we talking about defending and promoting upward mobility through changes in banking, tax, and employment law? What is it?

6. While I am sure this data is accurate, I disagree with the premise that the pending homes sales index portends to a slowing of the housing market. I believe the reason why the pending home sales index has gone down is that there is just no inventory. Within one weekend, pretty much all of the homes that are listed go under contract. The ones that don’t are dramatically overpriced. No inventory is going to cause pending home sales to go down because you will have fewer sales with no inventory.

7. There was a huge mortgage rate increase over the course of about a month. This morning, I checked the 30 year fixed rate and it was hovering around 5.55% I’m noticing more houses come back on market after going under contract. I suspect this is because the buyers have not been in close contact with their lenders and didn’t realize there was such an increase in the cost of borrowing money(higher rates). They were operating under the false belief that the rates were still in the low 3’s. I have been asking the lenders I work with to meet with clients and go over the new numbers with them so they are not caught in a situation where they finally get an accepted offer only to not be able to close on the house.

Fed funds article

8. There is a false belief that the fed funds rate and the mortgage rate move in unison. They are related, but it isn’t a 1 to 1 ratio. This article does as good of job as I’ve seen with the explanation so that is why I am using it.

9. In the example given, the fed raised the rates 25 basis points, but the mortgage market rather quickly moved 2% or more .. so there is a relation, both went up. But mortgage rates have continued to climb BEFORE the federal reserve increased the fed funds rate today.

10. This is a good example, and exactly what I am seeing in the housing market. A $500.00/month increase in possible mortgage payments is going to affect affordability because it’s going to change your debt to income ratio. It also means you have to find an extra 500 dollars per month in addition to higher gas prices, higher food prices, etc.

#11 As a real estate agent, I tell my home buyers that some people do get lucky and time the market. An example of this would be someone who is looking to downsize.

We also don’t know the future. We don’t know where interest rates will be next year, the year after, etc. Surely along the timespan of 30 years, mortgage rates will fluctuate. If you are buying now, there may be moments to refinance in the future.

Sources:

https://www.thestreet.com/personal-finance/real-estate/housing-wealth-soars-high-income-do-best

https://www.nasdaq.com/articles/heres-how-much-the-feds-50-basis-point-rate-hike-could-cost-new-mortgage-borrowers

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