84% of Americans Believe Buying a Home is a Good Financial Decision

 

84% of Americans Believe Buying a Home is a Good Financial Decision | MyKCM

According to the National Association of Realtors®’ 2017 National Housing Pulse Survey, 84% of Americans now believe that purchasing a home is a good financial decision. This is the highest percentage since 2007 – before the housing crisis. Those surveyed pointed out five major reasons why they believe homeownership is a good financial decision:

  1. Homeownership means the money you spend on housing goes towards building equity, rather than to a landlord
  2. Homeownership creates the opportunity to pay off a mortgage and own your home by the time you retire
  3. Homeownership is an investment opportunity that builds long-term wealth and increases net worth
  4. Homeownership means a stable and predictable monthly mortgage payment
  5. Homeownership allows for various deductions on federal, state, and local income taxes

The survey also revealed that the majority of Americans strongly agree that homeownership helps create safe, secure, and stable environments.

Bottom Line

Homeownership has always been and still is a crucial part of the American Dream.

Thinking of Selling? You Should Act NOW!

 

Thinking of Selling? You Should Act NOW! | MyKCM

If you thought about selling your house this year, now more than ever may be the time to do it! The inventory of homes for sale is well below historic norms and buyer demand is skyrocketing. We were still in high school when we learned the concept of supply and demand: the best time to sell something is when supply of that item is low and demand for that item is high. That defines today’s real estate market.

Lawrence Yun, Chief Economist at the National Association of Realtors, recently commented:

“Buyer interest is solid, but there is just not enough supply to satisfy demand. Prospective buyers are being sidelined by both limited choices and home prices that are climbing too fast.”

Yun goes on to say:

“Current demand levels indicate sales should be stronger, but it’s clear some would-be buyers are having to delay or postpone their home search because low supply is leading to worsening affordability conditions.”

In this type of market, a seller may hold a major negotiating advantage when it comes to price and other aspects of the real estate transaction, including the inspection, appraisal and financing contingencies.

Bottom Line

As a potential seller, you are in the driver’s seat right now. It might be time to hit the gas.

Homeowners: Your Home Must Be Sold TWICE

 

Homeowners: Your Home Must Be Sold TWICE | MyKCM

In today’s housing market, where supply is very low and demand is very high, home values are increasing rapidly. Many experts are projecting that home values could appreciate by another 5%+ over the next twelve months. One major challenge in such a market is the bank appraisal.

If prices are surging, it is difficult for appraisers to find adequate, comparable sales (similar houses in the neighborhood that recently closed) to defend the selling price when performing the appraisal for the bank.

Every month in their Home Price Perception Index (HPPI), Quicken Loans measures the disparity between what a homeowner who is seeking to refinance their home believes their house is worth, as compared to an appraiser’s evaluation of that same home.

Bill Banfield, VP of Capital Markets at Quicken Loans urges anyone looking to buy or sell in today’s market to remember the impact of this challenge: 

“While a 1 or 2 percent difference in home value opinions may not seem like a lot, it could be enough to derail a mortgage.

A homeowner [or a buyer] could be forced to bring more cash to closing in order to make a mortgage work if the appraisal is lower than expected. On the other hand, if an appraisal comes in higher, they could be surprised with more equity than they had planned. Either way, if owners are aware of their local markets it will lead to smoother mortgage transactions.”

The chart below illustrates the changes in home price estimates over the last 12 months.

Homeowners: Your Home Must Be Sold TWICE | MyKCM

Bottom Line

Every house on the market has to be sold twice; once to a prospective buyer and then to the bank (through the bank’s appraisal). With escalating prices, the second sale might be even more difficult than the first. If you are planning on entering the housing market this year, let’s get together to discuss this and any other obstacle that may arise.

The High Impact of Low Interest Rates on Your Purchasing Power

 

The High Impact of Low Interest Rates on Your Purchasing Power | MyKCM

According to Freddie Mac’s latest Primary Mortgage Market Survey, interest rates for a 30-year fixed rate mortgage are currently at 3.96%, which is still near record lows in comparison to recent history!

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 will decrease if you plan to stay within a certain monthly housing budget.

The chart below shows what impact rising interest rates would have if you planned to purchase a home within the national median price range, and planned to keep your principal and interest payments between $1,850-$1,900 a month.

The High Impact of Low Interest Rates on Your Purchasing Power | MyKCM

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). Experts predict that mortgage rates will be closer to 5% by this time next year.

Act now to get the most house for your hard-earned money.

5 Reasons Why You Should Not For Sale By Owner!

 

5 Reasons Why You Should Not For Sale By Owner! | MyKCM

In today’s market, with home prices rising and a lack of inventory, some homeowners may consider trying to sell their homes on their own, known in the industry as a For Sale by Owner (FSBO). There are several reasons why this might not be a good idea for the vast majority of sellers.

Here are the top five reasons:

1. Exposure to Prospective Buyers 

Recent studies have shown that 94% of buyers search online for a home. That is in comparison to only 16% looking at print newspaper ads. Most real estate agents have an internet strategy to promote the sale of your home. Do you?

2. Results Come from the Internet

Where did buyers find the homes they actually purchased?

  • 51% on the internet
  • 34% from a Real Estate Agent
  • 8% from a yard sign
  • 1% from newspapers

The days of selling your house by just putting up a sign and putting it in the paper are long gone. Having a strong internet strategy is crucial.

3. There Are Too Many People to Negotiate With 

Here is a list of some of the people with whom you must be prepared to negotiate if you decide to For Sale by Owner:

  • The buyer who wants the best deal possible
  • The buyer’s agent who solely represents the best interest of the buyer
  • The buyer’s attorney (in some parts of the country)
  • The home inspection companies, which work for the buyer and will almost always find some problems with the house
  • The appraiser if there is a question of value

4. FSBOing Has Become More And More Difficult

The paperwork involved in selling and buying a home has increased dramatically as industry disclosures and regulations have become mandatory. This is one of the reasons that the percentage of people FSBOing has dropped from 19% to 8% over the last 20+ years. 

The 8% share represents the lowest recorded figure since NAR began collecting data in 1981.

5. You Net More Money When Using an Agent 

Many homeowners believe that they will save the real estate commission by selling on their own. Realize that the main reason buyers look at FSBOs is because they also believe they can save the real estate agent’s commission. The seller and buyer can’t both save the commission.

Studies have shown that the typical house sold by the homeowner sells for $185,000, while the typical house sold by an agent sells for $245,000. This doesn’t mean that an agent can get $60,000 more for your home, as studies have shown that people are more likely to FSBO in markets with lower price points. However, it does show that selling on your own might not make sense.

Bottom Line

Before you decide to take on the challenges of selling your house on your own, let’s get together and discuss the options available in your market today.

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What You Need to Know About The Mortgage Process

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Rates Are Actually Much Higher This Week. Here’s Why

After spending more than a month holding fairly steady near 8-month lows, rates are moving quickly higher this week. Not only are the underlying reasons somewhat opaque but there are multiple media outlets reporting the “lowest mortgage rates of the year.” What’s really going on here?

The discrepancy between actual mortgage rate movement and certain news stories is easy to explain (as seen in a past newsletter), so let’s start there.  At issue is the fact that Freddie Mac’s weekly rate survey is a longstanding industry benchmark for mortgage rates.  It’s heavily relied-upon by analysts working in the secondary mortgage market as well as journalists who simply use it as their one source for a weekly mortgage rate update.

Because the report is released at 10am on Thursday morning, we tend to see a glut of news stories offering similar conclusions about mortgage rate movement.  This seemingly unified message only adds to the confusion.  After all, if all these big news organizations are telling us that rates are at the lowest levels of the year, it must be true, right?

WRONG!

Freddie’s data is GREAT for long-term analysis of general mortgage rate trends but it does a GREAT DISSERVICE to prospective borrowers keeping an eye on day-to-day changes.

The reason is strikingly simple: rates can move every day, but Freddie’s survey only covers the first 3 days of any given week.  Moreover, most of the responses tend to come in on Monday and Tuesday.

In other words, Freddie’s survey is best described as “Monday/Tuesday rates vs last Monday/Tuesday’s rates.” This creates obvious problems if rates are making bigger moves in the second half of any given week–especially if they moved in the opposite direction during the first half of the week.

Here’s how all of the above played out this time around.  Mortgage rates were indeed in line with the year’s lowest levels on Monday (only June 14th was any better as far as individual days are concerned).  But the next 3 days all saw rates move convincingly higher.  Freddie’s survey responses–being weighted toward the start of the week–simply didn’t capture the magnitude of the rate spike (it will be reflected in next week’s numbers unless we get a friendly bounce between now and then).

The bottom line is that rates are definitely not at 2017’s lowest levels.  In fact, in terms of day-over-day changes in actual lender rate sheets (remember, humans respond to surveys, and they might not all be cross-checking actual rate sheets before firing off their responses to Freddie), rates are as high as they’ve been since May 16th.

A major caveat is that the recent range of mortgage rates has been exceptionally narrow by historical standards.  It’s also been holding fairly close to the lowest levels in 8 months.  Still, the amount of movement over the past few days adds up to hundreds, even thousands of dollars for some borrowers’ loan quotes.  That could be quite the surprise if they’ve just heard about the “lowest rates of the year” on the evening news.

2017-6-29 nl1

What’s Moving Markets?

Now that we know WHAT mortgage rates have actually been doing, let’s talk about WHY.  If you remember the so-called “taper tantrum” in 2013 (the market reaction to the Fed signalling its intent to buy fewer bonds), then you’re halfway there.

This time around, the focus is on the European Central Bank (ECB), whose bond buying puts it in the same league as the Fed in terms of impact on financial markets.  Whereas the Fed has long since stopped expanding its balance sheet (they may even begin shrinking it later this year), the ECB continues adding more bonds to its balance sheet every month.

Given the huge impact of the taper tantrum in the US, investors are on guard for any indication of tapering in the EU.  ECB President Mario Draghi gave just such an indication in a series of comments earlier this week.  He spoke of deflation being replaced by reflation, above-trend growth, and the need to gradually adjust bond-buying parameters.

ECB Officials would subsequently try to explain that Draghi was aiming for comments that balanced positive developments with the ongoing need for substantial bond buying.  But the takeaway for market participants was that the ECB is moving closer and closer to tapering.

Why should rates in the US care about what’s going on with the European Central Bank?  To make a long story short, global bond markets (which drive interest rates) are interconnected and interdependent to a certain degree.  US rates might not respond to European rates in lock-step, but they definitely respond.  As such, it’s no surprise to see European benchmark rates surging and US rates following with a more measured version of the same move.

2017-6-29 nl2

Is this the end of low rates forever?  Not by a long-shot.  First of all, we’re only a few days into a move that took several months to play out in the US.  We can’t yet know if European rates are embarking on a similar journey.

Even if that happens, it’s good to keep in mind that rates generally move higher when central banks are actually in a bond-buying cycle.  True, that sounds terribly counterintuitive (after all, if the Fed/ECB are buying bonds, rates should be going down), but the following chart with QE time-frames in the US doesn’t lie.

2017-6-29 nl4

Don’t read too much into this chart because it could be competently argued several ways.  The point of posting it is to offer perspective.  What might seem like a surefire reason for rates to move higher could merely be the catalyst for a temporary correction in the bigger picture.  After all, most economists and analysts thought low rates were a thing of the past by the end of 2010 and 2013.  The subsequent years were the best 2 years of the recovery.
Housing-Specific News

There were several interesting developments in housing this week.  2 weeks after comments on a potential “housing emergency” due to tight inventory, The National Association of Realtors (NAR) now says the perception of a seller’s market could provide motivation for owners to list their homes, thus relieving some of the inventory pressure.

As for the month of May, there was no such relief in sight.  The NAR blamed lopsided supply and demand for the lowest Pending Home Sales levels since January.  Despite the justification, it’s worth noting that this index hasn’t been able to get back above its current range since the meltdown.

2017-6-29 nl3

Both Black Knight and Case-Shiller released their monthly home price indices.  Both set record highs at the national level, and both reports agree that the national numbers are being dragged higher by several outstanding regional markets.  Of the two, the Case-Shiller report did more to provide a counterpoint to the positivity, citing some signs of deceleration.