How to Determine If You Can Afford to Buy a Home

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The gap between the increase in personal income and residential real estate prices has been used to defend the concept that we are experiencing an affordability crisis in housing today.

It is true that home prices and wages are two key elements in any affordability equation. There is, however, an extremely important third component to that equation: mortgage interest rates.

Mortgage interest rates have fallen by more than a full percentage point from this time last year. Today’s rate is 3.75%; it was 4.86% at this time last year. This has dramatically increased a purchaser’s ability to afford a home.

Here are three reports validating that purchasing a home is in fact more affordable today than it was a year ago:

CoreLogic’s Typical Mortgage Payment

“Falling mortgage rates and slower home-price growth mean that many buyers this year are committing to lower mortgage payments than they would have faced for the same home last year. After rising at a double-digit annual pace in 2018, the principal-and-interest payment on the nation’s median-priced home – what we call the “typical mortgage payment”– fell year-over-year again.”  

The National Association of Realtors’ Affordability Index

“At the national level, housing affordability is up from last month and up from a year ago…All four regions saw an increase in affordability from a year ago…Payment as a percentage of income was down from a year ago.”

First American’s Real House Price Index (RHPI)

“In 2019, the dynamic duo of lower mortgage rates and rising incomes overcame the negative impact of rising house price appreciation on affordability. Indeed, affordability reached its highest point since January 2018. Focusing on nominal house price changes alone as an indication of changing affordability, or even the relationship between nominal house price growth and income growth, overlooks what matters more to potential buyers – surging house-buying power driven by the dynamic duo of mortgage rates and income growth. And, we all know from experience, you buy what you can afford to pay per month.”

Bottom Line

Though the price of homes may still be rising, the cost of purchasing a home is actually falling. If you’re thinking of buying your first home or moving up to your dream home, connect with CARA Realtors  so you can better understand the difference between the two.

Retrieved from: https://www.keepingcurrentmatters.com/

Depending on the Price, You’re Going to Need Advice

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To understand today’s complex real estate market, it is critical to have a local, trusted advisor on your side – for more reasons than you may think.

In real estate today, there are essentially three different price points in the market: the starter-home market, the middle-home market, and the premium or luxury market. Each one is unique, and depending on the city, the price point in these categories will vary. For example, a starter or lower-end home in San Francisco, California is much more expensive than almost any other part of the country. Let’s explore what you need to know about each of these tiers.

Starter-Home Market: This market varies by price, and these homes are typically purchased by first-time home buyers or investors looking to flip them for a profit. Across the country, homes in this space currently have less than 6 months of inventory for sale. That means there aren’t enough homes on the lower end of the market for the number of people who want to buy them. A low supply like this generally increases competition, drives bidding wars, and sets up an environment where homes sell above the listing price. According to data from the National Association of Realtors (NAR) on realtor.com,

“The desire for affordability continues to push down the inventory for homes listed for less than $200,000.00.”

Middle-Home Market: This segment is often thought of as the move-up market. Typically, the buyer in this market is moving up to a larger, more custom home with more features, all coming at a higher price. Across the country, this market is looking more balanced than the lower end of the market, meaning it has closer to a 6-month supply of inventory for sale. This market is more neutral, but leaning towards a seller’s market.

Premium & Luxury Home Market: This is the top end of the market with larger homes that have even more custom features and upgrades. Nationwide, this market is growing in the number of homes for sale. In the same realtor.com article, we can see that year-over-year inventory of homes in this tier has grown by 4.7%. Today, there are more homes available in the premium and luxury space, leading to more of a buyer’s market at this end.

Bottom Line

Depending on the segment of the market and the price point you’re looking at, you’re going to need the advice of a true local market expert. Let’s get together to help you navigate the home-buying or selling process in your market.

Retrieved from: https://www.keepingcurrentmatters.com/

Be on the Lookout for Gen Z: The Next Generation of Homebuyers

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You’ve likely heard a ton about Millennials, but what about Gen Z? In the next 5 years, this generation will be between the ages of 23 and 28, and they’re eager to become homeowners faster than you may think.

According to realtor.com, “Nearly 80 percent of Generation Z members say they want to own a home before age 30,” and Concentrix Analytics said, “52% of prospective Gen Z buyers are already saving to buy a home.”

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Wikipedia defines Generation Z (Gen Z) as “the demographic cohort after the Millennials. Demographers and researchers typically use the mid-1990s to mid-2000s as starting birth years.”

The report from Concentrix goes a little deeper on Gen Z, identifying the main reasons this cohort wants to own homes:

  • 55% want to own a home because they want to start a family
  • 47% want to build wealth over time
  • 33% want to make their family proud

Although they’re eager to buy, this generation also perceives a few challenges ahead:

  • 66% believe saving for a down payment and closing costs will be challenging
  • 58% feel covering the monthly costs of owning may be difficult
  • 52% perceive a lack of knowledge about where to start

It is also interesting to note that 21% of Gen Zers think their parents will provide financial help, 17% will use a down payment assistance program, and 15% believe other family members will help them. One of the highlights of the report mentioned,

“More than half of Gen Zers who think they’ll receive help also think they will need to pay their parents back, compared to 40 percent of millennials.”

Bottom Line

It is never too early to start saving for your own home, whether you are part of Gen Z or a different generation. If you would like to know where to start and how much you need to save to reach your goal of buying a home, let’s get together so you can better understand the process.

Retrieved from: https://www.keepingcurrentmatters.com/

What FICO® Score Do You Need to Qualify for a Mortgage?

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While a recent announcement from CNBC shares that the average national FICO® score has reached an all-time high of 706, the good news for potential buyers is that you don’t need a score that high to qualify for a mortgage. Let’s unpack the credit score myth so you can to become a homeowner sooner than you may think.

With today’s low interest rates, many believe now is a great time to buy – and rightfully so! Fannie Mae recently noted that 58% of Americans surveyed say it is a good time to buy. Similarly, the Q3 2019 HOME Survey by the National Association of Realtors said 63% of people believe now is a good time to buy a home. Unfortunately, fear and misinformation often hold qualified and motivated buyers back from taking the leap into homeownership.

According to the same CNBC article,

“For the first time, the average national credit score has reached 706, according to FICO®, the developer of one of the most commonly used scores by lenders.”

This is great news, as it means Americans are improving their credit scores and building toward a stronger financial future, especially after the market tumbled during the previous decade. With today’s strong economy and increasing wages, many Americans have had the opportunity to improve their credit over the past few years, driving this national average up.

Since Americans with stronger credit are now entering the housing market, we are seeing an increase in the FICO® Score Distribution of Closed Loans (see graph below):What FICO® Score Do You Need to Qualify for a Mortgage? | MyKCMBut hang on – don’t forget that this does not mean you need a FICO® score over 700 to qualify for a mortgage. Here’s what Experian, the global leader in consumer and business credit reporting, says:

FHA Loan: “FHA loans are ideal for those who have less-than-perfect credit and may not be able to qualify for a conventional mortgage loan. The size of your required down payment for an FHA loan depends on the state of your credit score: If your credit score is between 500 and 579, you must put 10% down. If your credit score is 580 or above, you can put as little as 3.5% down (but you can put down more if you want to).”

Conventional Loan: “It’s possible to get approved for a conforming conventional loan with a credit score as low as 620, although some lenders may look for a score of 660 or better.”

USDA Loan“While the USDA doesn’t have a set credit score requirementmost lenders offering USDA-guaranteed mortgages require a score of at least 640.”

VA Loan: “As with income levels, lenders set their own minimum credit requirements for VA loan borrowers. Lenders are likely to check credit scores as part of their screening process, and most will set a minimum score, or cutoff, that loan applicants must exceed to be considered.”

Bottom Line

As you can see, plenty of loans are granted to buyers with a FICO® score that is lower than the national average. If you’d like to understand the next steps to take when determining your credit score, let’s get together so you can learn more.

Retrieved from: https://www.keepingcurrentmatters.com

Millennials and The Road to Home Ownership

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If it seems like all your friends are buying a house… it’s because they are! But don’t worry, you’re not alone if you haven’t. There has been a lot of talk about how, as a generation, millennials have ‘failed to launch’ into adulthood and have delayed moving out of their family’s home. What doesn’t seem to be mentioned in the same context, however, is the large number of millennials who have moved out of their family’s home, but have been renting an apartment, condo, or even a house! Many experts have looked at the homeownership rate among millennials and have questioned if they even want to own homes! The great news is that not only do millennials want to own… they are flocking to the real estate market in larger numbers every year! Buyers aged 18-34 years have comprised the largest share of first-time homebuyers at roughly 50- 60% for the last few years. In 2017, buyers aged 25-34 years accounted for 65% of first-time home buyers, compared to 50% in 2005. According to the National Association of Realtor’s latest Profile of Home Buyers and Sellers, the average age of a first-time home buyer in 2017 was 32. This generation will continue to be the topic of conversation A LOT when it comes to housing as more and more enter ‘average home buying age’.

Experts Need To Stop Lumping All Millennials Together

In a group of people with such a wide age range (18-36 according to the Census), it is impossible to draw conclusions about this generation as a whole, despite what many have tried to do. Many experts have begun to realize that there is a noticeable difference between the behaviors and experiences of this generation, and have therefore divided them into ‘young millennials’ (18-26) and ‘older millennials’ (27-36).

No matter which group you find yourself in, you no doubt have peers that fit into the other category and may even identify with different characteristics from each group.

One of the many reasons that it has been easy for experts to lump all millennials together is the fact that 66% of millennials are under the age of 30, with 22% falling under the age of 25, according to a study by NerdWallet.

With the majority of the generation still in their 20s and either not ready to or not in a position to make huge life-changing decisions (such as buying a home or starting a family), it has been easy for those who follow trends to not notice the progress ‘older millennials’ have already made.

The ‘Responsibility Zone’ Is Calling

Whether pushed into the zone or a willing participant, many ‘older millennials’ are aging into the ‘Responsibility Zone,’ or the age range when responsibilities start to dictate behaviors, such as:

• Moving out of the house

• Getting married

• Buying a home

• Having children

And not necessarily in that order! You may have noticed that many of your friends and family members have started to make pretty big decisions all at once. There are many millennials who are crossing all four of these major life events off their list in a two-year span. If you blink you might miss it!

Over the last 60 years, the median age of first marriage for Americans has increased substantially. The graph below shows the percentage of each generation that was married between the ages of 18-33. This age range fully encompasses the millennial generation and you can see the drastic difference in the percentage that has married by age 33. The Silent Generation led the way with 65% married by this time. The graph on the lower right was created using data from the Census Bureau. It shows that in 1955, the median age for men to be married was 23 and for women, 20. In 2017, men were 30 and women were 27 at first marriage. Even though this difference doesn’t seem very large, (only 7 years), the resulting delay, or ‘failure to launch’ into adulthood, can be felt in the homeownership rate as well as other areas of the housing market.

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Simply put, the homeownership rate is the percentage of homes that are owned by their occupants. The homeownership rate is computed by dividing the number of owner-occupied housing units by the total number of occupied housing units. As the economy has recovered from the housing market crash, more and more young professionals are moving out of their childhood homes and opting for a place of their own. At the same time, many who were impacted by the shake-up in the economy are beginning to rebuild their credit to a point where homeownership may again become an opportunity. The current homeownership rate for all Americans is around 64.2%.

Regardless if you are buying or selling, Cara Realtors is dedicated to providing the highest caliber of exclusive Real Estate Services to all of our clients. Contact us today.

Point Pleasant Office: 732-892-9900

Brick Office: 732-477-0200

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