Over the course of the last thirty years, a shift has happened. An entire generation has been raised to believe that a college education is their key to unlocking opportunities that were not available to their parent’s or grandparent’s generations.
Due to this, student loan debt has soared to $1.5 trillion and represents the largest category of debt, surpassing credit card and auto loan debt in 2010 and never looking back. As more and more Americans continue their education amongst rising tuition costs, this number will no doubt increase.
Many housing experts have blamed student loans for a drop in the homeownership rate for young families, and to an extent, they’ve been right. Increased debt at the time of graduation has no doubt limited young people from being able to afford a home at the same rate as their parents or grandparents did at the same age.
In a recent Forbes article, the author explained that “in just the class of 2017, the average student has about $40,000 in debt — almost enough for a 20% down payment on a median-priced home.”
The Federal Reserve set out to determine exactly how much impact student loan debt has had on the homeownership rate of those 18-34 (millennials). Their results found that,
“Every $1,000 in student loan debt delays homeownership by about 2.5 months, but it doesn’t prevent homeownership entirely.
In fact, by the time college grads reach their 30s, those with student loan debt have a homeownership rate nearly identical to those who didn’t take out loans.” (emphasis added)
In the Wall Street Journal’s coverage of the Fed report, they found that recent graduates prioritize paying off their student loans over saving for a down payment, despite their desire to be a homeowner. Many with debt want to “get that monkey off (their) back (before they) make any new investments.”
This has just delayed the wave of young home buyers from hitting the market. But as Danielle Hale, the Chief Economist at realtor.com warns,
“2020 will be peak millennial, the year when the largest number of millennials will turn 30.”
By age 30, those who attained a bachelor’s degree right after high school will be one or two years away from paying off their loans and will have been in their career long enough to earn a higher salary.
In the long run, research shows that attaining a bachelor’s degree or more actually increases the chances that someone will become a homeowner.
Bottom Line
If you are one of the many millennials who has prioritized paying down your student loans over saving for a down payment, you’re not alone. Even if you are a couple years away from paying off your loans, let’s get together to help you determine if waiting really is the best decision for you!
In today’s fast-paced world, where answers are a Google search away, there are some who may wonder what the benefits of hiring a real estate professional to help them in their home search are. The truth is, with the addition of more information, comes more confusion.
Shows like Property Brothers, Fixer Upper and the dozens more on HGTV have given many a false sense of what it’s like to buy and sell a home.
Now more than ever, you need an expert on your side who is going to guide you toward your dreams and not let anything get in the way of achieving them. Buying and/or selling a home is definitely not something you want to DIY (Do It Yourself)!
Here are just some of the reasons you need a real estate professional in your corner:
There’s more to real estate than finding a house you like online!
There are over 230 possible steps that need to take place during every successful real estate transaction. Don’t you want someone who has been there before, someone who knows what these actions are, to ensure you achieve your dream?
You Need a Skilled Negotiator
In today’s market, hiring a talented negotiator could save you thousands, perhaps tens of thousands of dollars. Each step of the way – from the original offer, to the possible renegotiation of that offer after a home inspection, to the possible cancellation of the deal based on a troubled appraisal – you need someone who can keep the deal together until it closes.
What is the home you’re buying or selling worth in today’s market?
There is so much information out there on the news and on the internet about home sales, prices, and mortgage rates; how do you know what’s going on specifically in your area? Who do you turn to in order to competitively and correctly price your home at the beginning of the selling process? How do you know what to offer on your dream home without paying too much, or offending the seller with a lowball offer?
Dave Ramsey, the financial guru, advises:
“When getting help with money, whether it’s insurance, real estate or investments, you should always look for someone with the heart of a teacher, not the heart of a salesman.”
Hiring an agent who has his or her finger on the pulse of the market will make your buying or selling experience an educated one. You need someone who is going to tell you the truth, not just what they think you want to hear.
Bottom Line
Today’s real estate market is highly competitive. Having a professional who’s been there before to guide you through the process is a simple step that will give you a huge advantage!
In many markets across the country, the number of buyers searching for their dream homes outnumbers the number of homes for sale. This has led to a competitive marketplace where buyers often need to stand out. One way to show that you are serious about buying your dream home is to get pre-qualified or pre-approved for a mortgage before starting your search.
Even if you are not in an incredibly competitive market, understanding your budget will give you the confidence of knowing whether or not your dream home is within your reach.
Freddie Mac lays out the advantages of pre-approval in the ‘My Home’ section of their website:
“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”
One of the many advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you through this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.”
Freddie Mac describes the ‘4 Cs’ that help determine the amount you will be qualified to borrow:
- Capacity: Your current and future ability to make your payments
- Capital or cash reserves: The money, savings, and investments you have that can be sold quickly for cash
- Collateral: The home, or type of home, that you would like to purchase
- Credit: Your history of paying bills and other debts on time
Getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and it often helps speed up the process once your offer has been accepted.
Bottom Line
Many potential homebuyers overestimate the down payment and credit scores necessary to qualify for a mortgage. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so today.
Every year around this time, many homeowners begin the process of preparing their homes in case of extreme winter weather. Some others skip winter all together by escaping to their vacation homes in a warmer climate.
For those homeowners staying at their first residence, AccuWeather warns:
“The late-week cold shot should fade next week, but this is a warning shot for winter’s return late in the month and early February.”
Given this, it’s time to go and stock up on winter weather supplies! However, if you’re tired of shoveling snow and dealing with the cold weather, maybe it’s time to consider obtaining a vacation home!
According to the Investment & Vacation Home Buyers 2018 Report by NAR:
“72% of vacation property owners and 71% of investment property owners believe now is a good time to buy.”
It’s time to take advantage of the equity in your home. As the latest Equity Reportfrom ATTOM Data Solutions stated:
“Nearly 14.5 million U.S. properties (are) equity rich — where the combined estimated amount of loans secured by the property was 50 percent or less of the property’s estimated market value — up by more than 433,000 from a year ago to a new high as far back as data is available, Q4 2013.
The 14.5 million equity rich properties in Q3 2018 represented 25.7 percent of all properties with a mortgage.”
This means that over a quarter of Americans who have a mortgage would be able to use some of their home equity to make a significant down payment toward a vacation home, and many are doing just that! According to the same report by NAR:
“33% of vacation buyers purchased in a beach area, 21% purchased on a lakefront, and 15% purchased a vacation home in the country.”
Many homeowners who are close to retirement will use some of their equity to purchase vacation homes, which may eventually become their permanent homes post-retirement!
Bottom Line
If you are a homeowner looking to take advantage of your home equity by investing in a vacation home, let’s get together to discuss your options!
As we kick off the new year, many families have made resolutions to enter the housing market in 2019. Whether you are thinking of finally ditching your landlord and buying your first home or selling your starter house to move into your forever home, there are two pieces of the real estate puzzle you need to watch carefully: interest rates & inventory.
Interest Rates
Mortgage interest rates had been on the rise for much of 2018, but they made a welcome reversal at the end of the year. According to Freddie Mac’s latest Primary Mortgage Market Survey, rates climbed to 4.94% in November before falling to 4.62% for a 30-year fixed rate mortgage last week. Despite the recent drop, interest rates are projected to reach 5% in 2019.
The interest rate you secure when buying a home not only greatly impacts your monthly housing costs, but also impacts your purchasing power.
Purchasing power, simply put, is the amount of home you can afford to buy for the budget you have available to spend. As rates increase, the price of the house you can afford to buy will decrease if you plan to stay within a certain monthly housing budget.
The chart below shows the impact that rising interest rates would have if you planned to purchase a $400,000 home while keeping your principal and interest payments between $2,020-$2,050 a month.
With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5% (in this example, $10,000).
Inventory
A ‘normal’ real estate market requires there to be a 6-month supply of homes for sale in order for prices to increase only with inflation. According to the National Association of Realtors (NAR), listing inventory is currently at a 3.9-month supply (still well below the 6-months needed), which has put upward pressure on home prices. Home prices have increased year-over-year for the last 81 straight months.
The inventory of homes for sale in the real estate market had been on a steady decline and experienced year-over-year drops for 36 straight months (from July 2015 to May 2018), but we are starting to see a shift in inventory over the last six months.
The chart below shows the change in housing supply over the last 12 months compared to the previous 12 months. As you can see, since June, inventory levels have started to increase as compared to the same time last year.
This is a trend to watch as we move further into the new year. If we continue to see an increase in homes for sale, we could start moving further away from a seller’s market and closer to a normal market.
Bottom Line
If you are planning to enter the housing market, either as a buyer or a seller, let’s get together to discuss the changes in mortgage interest rates and inventory and what they could mean for you.
