Supply Of Homes For Sale Is Shrinking
With inventory declining, there will be fewer homes on the market, finding a home of your dreams may become more difficult going forward. There are buyers in more and more markets surprised that there is no longer a large assortment of houses to choose from. Sellers willing to keep their house on the market in winter may be more flexible in negotiating the terms of an offer; extending the time to close or agreeing to other concessions.
Home Prices Are Increasing
Home prices have been on the rise for the last couple years, and prices are projected to appreciate by over 25% from now to 2018. First time home buyers will probably pay more both in price and interest rate if they wait until the spring. Even if you are a move-up buyer, it will wind-up costing you more in net dollars as the home you will buy will appreciate at approximately the same rate as the house you are in now.
Interest Rates Are Projected to Rise
The Mortgage Bankers Association, the National Association of Realtors, Freddie Mac and Fannie Mae have all projected that the 30-year mortgage interest rate will be over 5% by the spring. That is an increase of almost one full point over current rates.
Owning a Home Helps Create Family Wealth
Whether you are rent or you own the home you are living in, you are paying a mortgage. Either you are paying your mortgage or your landlord’s. The Fed, in a recent study, revealed that the net worth of the average homeowner is 30 times greater than that of a renter.
Buy Low, Sell High
We would all agree that, when investing, we want to buy at the lowest price possible and hope to sell at the highest price. Housing can create family wealth as long as we follow this simple principle. Today, real estate is selling ‘low’ compared to where it will be in the coming years. It’s time to buy
Homebuyers have preferred fixed-rate mortgages the past few years because of the low interest rates and the certainty of the monthly principal and interest payment. As longer-term rates rise, ARMs with their lower initial interest rates will become more appealing to loan applicants. Hybrid ARMs are particularly attractive because they have an initial extended fixed-rate period of 3 to 10 years — and then adjust annually thereafter. Nearly all of the ARM lenders participating in the survey offered a hybrid. The 5/1 hybrid (a five-year fixed-rate initial period before the rate resets annually) was by far the most common, followed by the 3/1, 7/1 and 10/1. Far less common were ARMs where the re-pricing frequency was fixed for the life of loan, such as a one-year adjustable, a 3/3 ARM (which adjusts once every three years), or a 5/5 ARM (which adjusts every fifth year).
Banks are definitely doing more ARMs because they’re selling the consumer what they’re asking for, which is a lower monthly payment. In early January 2014, the interest rate savings for the 5/1 hybrid ARM with a 30-year term — the most common ARM offered in today’s market — compared to the 30-year fixed-rate mortgage amounted to about 1.36 percentage points. For a $250,000 loan, the monthly principal and interest payment on a 5/1 hybrid would be about $194 less than on the 30-year fixed-rate loan over the first five years of the loan.
Many borrowers with adjustable-rate mortgages were among the first to default during the downturn. When their rates adjusted after an initial teaser period, they were unable to refinance and got stuck owing sharply higher payments. This time around will be different, lenders say, because underwriting standards are tougher for hybrid ARMs, so borrowers will be less likely to get squeezed when interest rates reset. Moreover, regulators have all but banned the interest-only and balloon payment features that made ARMs ticking time bombs during the financial crisis.
For many, it makes a lot of sense to take a shorter-term mortgage, If the borrower is in a situation where they’re not going to be in that home for more than seven years, it would be incorrect for them to take the fixed rate when the ARM is giving them a benefit of lower monthly payments.
In 2008, as the last boom ended, “for sale by owner” transactions reached 13 percent of all sales as sellers sought to avoid the expense of paying a commission to a brokerage. As prices and sales plummeted, so did FSBOs, falling to 9 percent in 2010. The figure tends to go up when the market is hot because it’s easier for sellers to go it alone, and that number declines during a down market because there’s a glut of unsold properties. However, FSBOs haven’t budged from that level in 2013 despite the strongest prices, tightest inventories and healthiest demand if five years. One-third of those FSBO sellers probably would not have needed a professional to market their homes since they knew the buyer prior to the home purchase, according to the National Association of Realtors.
Also, many of today’s FSBOS didn’t do much to market their homes. One-third of FSBO sellers took no action to market their home, and 60 percent did not offer any incentives to attract buyers. But homeowners who sell their property on their own may not always be able to tap the pool of buyers that an agent can in the open market, which could reduce the range of offers. And the process of selling a home can be painstaking and confusing, potentially more trouble than it’s worth. FSBO homes in 2013 sold for over 16% less than agent-assisted home sales.