Heads Up Home Buyers: Mortgage Rates Just Took a Big Jump

Are you thinking about buying a home in 2018? Are you on the fence about entering the real estate market? If so, you might want to consider buying sooner rather than later. Mortgage rates just rose again, and economists from Freddie Mac and other groups are predicting that they could rise gradually throughout 2018.

Mortgage Rates Hit Highest Level Since December 2016

During the week of February 8, 2018, the average rate for a 30-year fixed home loan rose to 4.32%. Rates haven’t been that high since December 2016. This is based on the weekly mortgage industry survey conducted by Freddie Mac. The average rates for 15-year fixed mortgages and 5/1 ARM loans rose as well. Those are the three categories tracked by this survey.

According to the Freddie Mac report:

“The U.S. weekly average 30-year fixed mortgage rate rocketed up 10 basis points to 4.32 percent this week. Following a turbulent Monday, financial markets settled down with the 10-year Treasury yield resuming its upward march. Mortgage rates have followed. The 30-year fixed mortgage rate is up 33 basis points since the start of the year.”

This is actually the continuation of a trend that began a few weeks ago. For a while now, mortgage rates have been following a steady upward path. You can see that clearly in the chart below. During the latter half of 2017, and into the beginning of 2018, the average rate for a 30-year mortgage hovered below 4%. Then it crossed that threshold and shot up by 25 basis points (0.25%), which brings us up to the latest reading.

Chart: 30-Year Loan Rates Over the Last Year

The chart below, courtesy of Freddie Mac, shows average rates for a 30-year fixed home loan going back one year. As you can see, rates are higher now (on the right side of the chart) than they’ve been all year.

Chart: Average mortgage rates over the last year | Source: Freddie Mac PMMS

This is not surprising to industry watchers and analysts. Last year, economists from the Mortgage Bankers Association and Freddie Mac were predicting that rates would rise gradually throughout 2018. Some forecasts suggested that the average rate for a 30-year mortgage would reach 5% by the end of this year. And that’s entirely plausible, given this recent uptick in lending rates.

So what’s causing this recent rise in borrowing costs? Several things. Over the last year, the Federal Reserve has been gradually increasing the short-term federal funds rate. This can have an indirect affect on consumer borrowing costs. The Fed’s policy changes, along with general economic improvements, are partly what’s driving the rise in interest rates — including those used for mortgage loans.

And some economists are predicting that we will see a continued yet gradual rise in rates throughout 2018.

All of this makes a good argument for buying a home sooner rather than later. Home buyers who postpone their purchases until later in the year could encounter higher mortgage rates. And when you consider the fact that home prices are still rising in most parts of the country, there’s even more urgency.

Granted, you should never make a home purchase until you are 100% ready to do so, financially and emotionally. It has to be the right move for you, one that will improve your qualify of life in some way. With that being said, it might make sense to buy sooner rather than later to avoid possible rate hikes and home-price increases.

Note: Mortgage rates can vary from one borrower to the next due to a number of factors, including credit history and the type of loan being used. The numbers presented above are based on averages reported by Freddie Mac.

The Hidden Cost of Home Ownership

If you’ve never owned your own property before, there are some costs you should prepare yourself for ahead of time. Should you take out a mortgage, you’ll have your monthly mortgage payment, but often there are additional costs and fees added that a new homeowner will not expect. Listed below are items you should expect to pay once you become a homeowner.
Property Taxes
When you rent, you are not responsible for the property taxes on the property. But when you become a homeowner, you’re expected to pay yearly property taxes, of which go to public works, wages for government workers or public school boards. Based on the current value of your home, property taxes are assessed every year and will likely change to reflect an increase (or decrease) in your home’s value. Property taxes can be paid at one time, or they can be divided into 12 payments over the course of a year and added to your mortgage payment. When you’re trying to determine what your mortgage payment will be each month, don’t forget to factor in property taxes.
Home Maintenance
When you live in a rental property, most maintenance is performed by the landlord or a property manager. When you become a homeowner, those maintenance costs fall upon you. When you purchase a home, all maintenance items should be considered when it comes to your overall budget. Will you want to replace all the appliances? Will the property need new windows or a new roof? Does the home need basic upgrades? Most people in the industry suggest you allocate 1% of your home’s worth for maintenance costs every year, but the reality is that 1% is likely the minimum – you should plan on more than 1% maintenance costs each year as a homeowner, and if you plan on any larger renovations, bet on the costs to be even higher.
Mortgage Insurance
Most people, when they buy a home or property, are able to do so by taking out a mortgage loan. If you put less than 20% of the cost of your property down, you’re required to have Private Mortgage Insurance (PMI). PMI protects lenders if the borrower defaults on their loan. PMI is charged annually, and it will typically cost 0.5% to 1% of the entire loan amount. The payments are generally paid each month rather than in a large one-time payment. If you plan on taking out a mortgage loan, and you don’t have 20% to put down, expect to add private mortgage insurance payments to your other monthly bills.
Supplemental Insurance
Do you live in an area prone to natural disaster? As a homeowner you’ll need to have regular home insurance to protect your home or property from typical things (plumbing issues, roof leaks, etc.) that homeowners encounter. Should you live in an area that’s prone to weather-related issues (floods, tornadoes, earthquakes, hurricanes) you will want to purchase supplemental insurance to make sure your home is covered should nature decide to show herself.
Landscaping and Lawn Care
When you rent a condo or an apartment, it’s highly likely you are not spending a lot of time outside in a yard. When you buy your own property (should it have a yard or some kind of outdoor area), expect some hidden costs to come in the form of lawn care. Does the yard need some major landscaping? Are you going to mow it yourself, or will you hire a company to do it? Do you have a lawn mower, rakes, snow or leaf blower, yard tools, shed, and any other items needed to keep your yard looking great year-round? A yard comes with extra costs, so be sure to know how much you want to spend on upkeep per year.
HOA Fees
If you’ve been renting your previous residence, it’s likely you haven’t had to pay Homeowners Association (HOA) fees for your apartment or rental. Should you buy a house, condo or townhouse in a neighborhood with common areas, a clubhouse, pool, or any other kind of community meeting places, it’s likely you’ll move into a neighborhood with an HOA. HOA fees can vary in terms of what the HOA covers within the community, but unless you know through your Realtor or through the homeowner the monthly fee, you can expect to spend anywhere from $10 to hundreds of dollars per month on HOA fees.
Buying your first home or property is a huge step in anyone’s life. Before you start your property search, make sure you consider all of the items above when you’re thinking of buying a home or property and during your property search.

Understanding Home Owners Insurance

Understanding Your Homeowner Insurance Policy As homeowners, none of us can ever truly be prepared for tornadoes, floods or other natural disasters. But having adequate insurance can reduce potential losses. Surveys have found that nearly half of homeowners couldn’t identify or verify the value of all their possessions if they were lost in a disaster or know whether their insurance will cover all of their home repairs. A homeowner policy usually doesn’t cover: flood, earthquake, landslide, mudslide, sewer backup or identity theft. Your homeowner policy may not cover claims related to: dog bites, swimming pools, trampolines or operating a business from your home. Sites such as Insure.com and MSN Money.com are good places to help you better understand your policy (cash value or replacement costs?), know your coverage (are floods, earthquakes and water-line breaks covered?) and document your valuables (just what do you have, how much is it worth and how do you prove it?). It is also good to understand your policy as it relates to fire. As someone who recently had a family member lose their home to fire, please find out if your policy provides for temporary housing costs and learn how they place value and reimburse you for your belongings. If nothing else, you will have peace of mind knowing how the process works. Additionally, please don’t put off purchasing that fire proof safe for important papers and valuables; and consider using automatic web-based back up systems for your computer so that you do not lose all your data. Carbonite.com is one such service that is easy and invisible while providing a huge value at a low cost and I am sure there are others.

The Home Buying Process: 7 Steps to Success

Home buyers tend to have a lot of questions about the house hunting and buying process. This is particularly true for first-time buyers who have never navigated their way through it before. This article lays it all out for you, from start to finish. Here are seven steps you should take when buying a home.

1. Review your credit situation.

Credit scores are an important qualifying factor for home buyers who need mortgage financing. The FICO score, in particular, is the one most commonly used by mortgage lenders. According to industry experts, home buyers generally need a credit score of 600 or higher to qualify for a loan. But that number is not set in stone, and some loan programs are more flexible than others.

You can order your credit reports from Experian, Equifax and TransUnion, and then review them for errors. You can also order your credit scores (different from your reports) to see how you stack up against the national average. A higher score could help you qualify for a better mortgage rate.

2. Determine your monthly housing budget.

A mortgage lender cannot tell you how much of a monthly payment you can comfortably afford. They can only tell you the amount you qualify for. You should determine your home-buying budget for yourself, before shopping for a loan. The idea is to get a basic budget on paper, including the most you are comfortable spending each month toward your housing costs. This will come in handy later on.

3. Get pre-approved for a mortgage loan. 

If you’re planning to pay cash for a home, you can obviously skip this step. But if you’re like most home buyers, and you need mortgage financing to complete your purchase, you can benefit from getting pre-approved.

Pre-approval is when a mortgage lender reviews your financial and credit history to determine your “creditworthiness.” When you get pre-approved for a specific loan amount, you’ll be able to narrow your house search to that price range.

Having a pre-approval letter also shows sellers that you are serious about (and capable of) purchasing their home. This can make a big difference in active real estate markets, where the seller may receive multiple offers from competing buyers.

4. Find a real estate agent to help you.

All home buyers can benefit from having professional help from an agent. This is especially true if you are buying a home for the first time, or in a new city you’re not familiar with. An agent can help you find a home that meets your needs, evaluate the seller’s asking price, put together a strong offer, and negotiate effectively based on current market conditions.

5. Start house hunting.

House hunting is the most exciting part of the home buying process. This is where you and your agent visit homes to find one that matches your needs. If you have a smart phone, be sure to bring it along so you can take pictures. And focus on the more permanent features of the home, such as the location, the lot, the square footage, etc. Don’t worry about the paint or the decor — you can always change those things.

6. Make a smart offer based on market conditions.

Once you’ve determined that the seller’s asking price is fair and reasonable, you are ready to make an offer on the property. In most cases, it’s wise to make the offer contingent upon the home inspection. It gives you a way to back out of the deal if the inspector uncovers an issue you’re not comfortable with. Your agent will help you prepare an effective offer. It’s one of their core skills.

7. Attend closing to sign your paperwork — and get your keys! 

Once you’ve made it through the inspection stage, you’re ready to attend the closing. (It’s also called “settlement” in some parts of the country.) This is when the title to the property is transferred from the seller to the buyer. You’ll also be signing a lot of paperwork and paying any other fees that are due.

Real Estate Market Expected to Remain Tight in 2018

Real estate markets across the U.S. are expected to remain tight in 2018, as demand for homes continues to exceed the available supply. This is according to a survey of more than 100 economists, academics, and housing market experts.

Housing Market Still Tight, Heading Into 2018

In its most recent “Home Price Expectations Survey,” Zillow asked the 100+ panelists about the most surprising real estate trends of 2017. Most pointed to the chronically low level of inventory as the most surprising trend of last year. More importantly, the panelists surveyed said they expect those conditions to carry over into 2018.

A lack of supply has been the big real estate headline for the past couple of years. In many cities across the country, homes for sale are in short supply. This forces buyers to compete for limited inventory.

In a separate report, published just last week, the company’s analysts actually quantified the drop in housing inventory that has occurred nationwide.

Key findings from the January 18 Zillow report:

  • There are 10 percent fewer homes on the market to choose from than a year ago, and up to 40 percent fewer in housing markets where home values are appreciating fastest.
  • For-sale inventory across the country is down 10 percent since last December and has been falling on an annual basis for the past three years.
  • The inventory shortage is most pronounced in some of the housing markets where home values are appreciating the fastest.

Low Inventory Is Boosting Home Prices

This is partly why home prices across the country have risen steadily (and in some markets significantly) over the last couple of years. There is plenty of demand for homes in most parts of the country right now, but not enough supply to meet it. This inventory imbalance has put consistent upward pressure on house values for the last couple of years.

By one estimate, U.S. home prices rose by 6.5% over the past year alone. That’s a higher level of appreciation than the historical average going back several decades. The hottest real estate markets, where supply is lowest, experienced double-digit price growth during 2017 alone.

Home values appear to be cooling a bit, as we move into 2018. Or perhaps “normalizing” is the right word. But the inventory situation is still very much imbalanced in most cities across the nation.

Consider the numbers. A healthy and “balanced” real estate market is said to have somewhere between a 5-month and 6-month supply of homes for sale. As of December, the U.S. had a meager 2.6-month supply of homes for sale. And some of the hottest markets were in the 1-month range, or even below that mark.

Buyers Should Bring Their ‘A’ Game

In a tight real estate market with limited inventory, home buyers need to bring their ‘A’ game. Working with a real estate agent is a good start. An experienced, market-savvy agent can help you locate a suitable property and evaluate the asking price. More to the point, an agent can help you make a strong offer in a timely fashion — and that’s the key to success in a competitive market with limited supply.

It’s also wise for buyers to have their financing lined up ahead of time, before shopping for a home. Sellers will expect this. Buyers planning to pay cash should be prepared to show banks statements. And those using a mortgage loan can benefit from being pre-approved by a mortgage lender.

What’s Happening in the Housing Market, as of January 2018

Home prices across the country continue to rise, though they’re showing signs of slowing a bit. Mortgage rates, meanwhile, continue to hover around 4% on average. And inventory is still constrained. Here’s a look at these and other housing market trends, at the start of 2018.

Home Prices Still Climbing

Home prices in most cities across the U.S. continue to rise, posting above-average annual gains. According to the latest data reported by Zillow, the median home value for the nation as a whole rose by 6.5% over the last year or so. That’s more than the historical average for annual price growth, going back several decades.

Economists predict that home prices will slow a bit during 2018, perhaps returning to a more “normal” rate of appreciation over the coming months. Of course, these kinds of trends can vary by location. Some markets are more competitive than others, with less inventory and more demand. And those markets will likely outpace the national average in 2018.

Mortgage Rates Break the 4% “Glass Ceiling”

On January 18, Freddie Mac announced the results of its latest Primary Mortgage Market Survey® (PMMS). This long-running survey gathers interest rate data from more than 100 lenders nationwide, to compile an average.

The average rate for a 30-year fixed home loan rose to 4.04% for the week ending January 18, 2018. That’s the first time this average has risen above 4% since July of 2017. (For the last few months, it has been hovering below 4.0%.) So we’ve crossed a threshold in that department.

Analysts with Freddie Mac and the Mortgage Bankers Association expect rates to rise gradually over the coming months. But, as usual, there will probably be some ups and downs along the way.

Limited Inventory in Most Housing Markets

Here’s a trend that’s very relevant to home buyers. Inventory in most real estate markets across the country is tight right now, in relation to demand. This is partly why home prices have been rising steadily for the last few years. There just aren’t enough homes listed for sale in most areas to meet the demand from buyers.

According to a recent news release from Zillow, there are 10% fewer homes on the market today (nationally) than there were a year ago. In some of the markets where prices are rising fastest, there are 40% fewer homes compared to a year go.

To quote their report:

“The number of homes for sale nationwide has declined on an annual basis for the past 35 straight months, and just 16.7 percent of a panel of housing experts surveyed in December 2017 expect a meaningful increase of home building in 2018, a sign that limited inventory could continue to drive the housing market this year.”

This underscores the importance of having help from an experienced real estate agent. Now, more than ever, it’s important for home buyers to make strong offers in a timely action — and to support those offers with actual market data. This is the key to success in a competitive market with limited inventory.

So those are some of the most important trends in the current housing market, as we head into 2018.

Top 5 Tips for House Hunting in 2018

The real estate market has changed dramatically over the last few years. While conditions vary from city to city, the overall trend has been one of rising prices and limited inventory. So home buyers entering the market in 2018 will have some homework to do. With that in mind, here are five tips for house hunting in 2018.

1. Be realistic with your expectations and your wishlist.

If you’re planning to buy a home in 2018, you probably already have a wishlist with property features, location, number of rooms, etc. And that’s fine. You should have a clear idea about what you want and need from a home.

At the same time, you’ll want to balance those expectations with the realities of the market. And the current reality is that inventory is limited in most cities, as we move into 2018.

A “balanced” real estate market has somewhere around five to six months worth of supply. At the beginning of 2018, most housing markets across the country had less than a three-month supply of homes for sale. These markets tend to favor the seller over the buyer, in terms of negotiating leverage. It also makes things competitive for buyers. So you’ll want to be flexible and open-minded regarding the home you want to purchase.

2. Validate the asking price.

If real estate asking prices were set in stone, they would be called “selling prices.” Period. But that’s not always how it works. As a house hunter and buyer, you’ll want to evaluate the seller’s asking price by comparing to recent sales in the area. This is what real estate agents refer to as “comps,” and it’s another key service agents provide to their clients.

3. Make a strong offer, and be swift about it.

In a fast-moving real estate market with limited inventory, timing is everything. In many cases, buyers are lining up for desirable properties. So it’s important to keep up with the market, and to move swiftly with a strong offer when the right house comes along. Try to get your offer in as quickly as possible (without sacrificing your due diligence), and make sure your offer is supported by comparable sales data. This is another aspect of the house hunting process where an agent can help.

4. Get your financing squared away.

Are you planning to pay cash for a house? If so, the sellers will want to see bank statements that prove you have the funds. Using a mortgage loan? The sellers will probably want to see a pre-approval or pre-qualification letter from a mortgage lender. These are realities of the current real estate market.

It’s wise to have your financing arranged before you begin house hunting. It will make sellers more inclined to accept your offer. It also helps you narrow your home search to coincide with your budget — and that can be a real timesaver.

5. Talk to an agent today!

An experienced and motivated real estate agent can make your 2018 house hunting experience smoother and more successful. An agent can help you navigate the entire process, especially steps one through three above.