Factors add up to skyrocketing housing market
Earlier this month when the weather was just about perfect, I enjoyed walking through our neighborhood and beyond. As I strolled, I noticed For Sale signs on several properties. It crossed my mind that some or those houses probably were already sold or very close to a purchase.
In perusing a local independent realtor’s website, I was impressed by the sales activity. Almost every property featured was topped by a SOLD banner. Many, it noted, sold within two days, and several, the site noted, were purchased for more than the asking price. I had seen this closer to home, as well. A house in my neighborhood recently sold for more than 12% of asking price —on the day it listed. The house wasn’t made of gold, so what is the attraction?
In the midst of a global pandemic and national recession, demand for homes has skyrocketed. According to the HUD Research Office, new homes sales increased 16% from January through July 2020. Existing home sales rose more than 8% in that period. Many factors are associated here; pent-up savings from less spending opportunities, need for more home office space, and even desire to get out of congested cities and into spread out suburbs. However, historically low interest rates are perhaps the most crucial in pinpointing this development. Whether you own a home, want to purchase a home, or plan to buy an investment property, this environment presents potential opportunities and many thoughts to consider.
Refinancing most often occurs when mortgage rates change, people want to change the terms of the loan, or cash is needed from equity of the house. The monthly mortgage payment for many clients represents the largest monthly expense. As such, it is important to break that number down, and think about the impact it has on your specific financial plan. Do you have excess cash that you want to put towards a lower monthly payment? Can you afford to keep paying a mortgage payment in retirement or should you pay it off before retirement? Do you have a large purchase coming soon that can’t be paid through investment accounts? The reason why a refinance is completed will determine the benefits, but the goal for each occasion is to better balance your home equity, your mortgage payment, and your assets into a more advantageous financial position for you.
While there is no limit to the number of times you can refinance a home, the tedious process and refinancing costs may dissuade too much refinancing. In addition, homeowners across the country have been demanding to refinance in order take advantage of the historically low interest rates. Applications to refinance homes increased 52% in September 2020 from September 2019. This means mortgage lenders may have backlogs for refinancing applications and may take new mortgage applications first. It may be wise to inquire with several different mortgage lenders to compare wait times before making a decision.
If you are planning to buy — home prices have increased dramatically. The dwindling supply of houses has been engulfed by the ferocious demand for real estate. In July 2020, home prices had increased 4.8% nationally from the previous year. While right now is certainly the time to buy and lock in a low rate, the actual cash needed for down payments continues to hurt younger individuals who may have less excess cash available. However, if the individual qualifies, mortgage lenders may offer loans with less than 20% down payments, in some cases as low as 3.5%.
While interest rates are expected to remain low throughout the next couple of years, as indicated by the Federal Reserve, the housing market continues to roar. Some analysts think that when the coronavirus has subsided and potential buyers are willing to tour open houses and consider moving, the inventory of homes will increase and prices will stabilize. The story will continue to evolve with housing, much like the economy as a whole.
If you have any questions regarding how your home or potential home fits into your financial picture, don’t hesitate to reach out to a financial advisor. He or she will be happy to guide you, answer questions or put you in contact with trusted mortgage lenders when you’re ready.
Have safe, healthy and happy Thanksgiving.
Pete Hoover was destined to be a financial advisor. He has always been intrigued by numbers and money matters. They represent captivating puzzles to be analyzed, shaped and fit into place as pictures of financial solidarity. For nearly 40 years, Hoover has tackled those financial puzzles. In 2005, he launched Hoover Financial Advisors, located in Malvern. Hoover can be reached by emailing pete@ hfaplanning.