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Do Buyers Really Need a 20% Down Payment To Buy a House?

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Many homeowners may remember setting aside money each month in order to save the 20% down payment necessary to purchase a home, especially to avoid having to pay PMI (Private Mortgage Insurance.)  However, more and more first time home buyers are deciding to purchase a home before they have saved the 20% down payment.

According to an article published by Business Insider, reporter Liz Knueven states, “For many young Americans struggling with student-loan payments, higher rent costs, and relatively stagnant salaries, saving a fifth of a home’s value to get a mortgage simply isn’t on the radar.” 

Real estate professionals aren’t against the idea either.  For first time home buyers, especially near large cities where home values are steep, saving the 20% down payment can take many years.  Instead of saving the cash, buyers can purchase a home and begin building equity, even while paying the PMI of .3%-1.2%.  As the home builds in value, homeowners may be able to drop the PMI, once the mortgage value reaches 78%-80%.

Despite the decrease in home buyers waiting to have the 20% down payment, there are still advantages to a larger down payment if its possible.  It can help edge out competition in a multiple offer situation on a home, can help secure a lower interest rate and save the cost of the PMI each month. 

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The 2019 Real Estate Market Saw Growth from 2018

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Despite the fact that, according to survey data released by The Mortgage Bankers Association (MBA), December 2019 home sale activity lagged in comparison to November 2019, over all 2019 saw growth when compared to 2018.

New single family home sales only increased .1 percent from November to December of 2019, but without the seasonally-rate, numbers actually came in with about 3000 less new home sales in December compared to November. Yet, average loan sized increased by close to $10,000 for December 2019. A recap of the entire year, however, shows an increase of new mortgage applications almost 40 percent higher than 2018.

According to an article published by NationalMortgageProfessional.com, Joel Kan, MBA’s associate vice president of economic and industry forecasting  is quoted, “The housing market is seeing signs of a more significant recovery in new residential construction, which is a promising sign for prospective homebuyers. Even though supply continues to lag, we expect to see another year of gradual growth in new home sales, supported by rising household formation and the healthy job market.”

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Photo Credit: Gerd Altmann

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Home Mortgage Applications Soar into the New Year

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2020 has been good to the home mortgage industry so far.  According to an article published last week by CNBC.com, “Total mortgage application volume surged 30.2% last week from the previous week”.  Mortgage companies not only saw an influx of refinance applications, but also an unseasonably high number of home purchase applications.

Interest rates dropped to the lowest level since fall of 2019 and, as a result, refinance applications surged.  In fact, according to the article written by Diana Olick, “Those applications jumped 43% for the week and were 109% higher than a year ago. The refinance share of mortgage activity increased to 62.9% of total applications from 58.9% the previous week.”

However, home purchase applications pulled in some impressive numbers, especially considering the housing market typically doesn’t pick up until February.  The volume of home purchase applications came in at the highest tally since October of 2009. 

Unfortunately, this high demand for homes is met with a very low supply of homes. With a continued supply and demand mismatch, prices could soar and leave some prospective home buyers priced out of the market.

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Photo Credit: Gerd Altmann

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Experts Make Predictions for the 2020 Real Estate Market

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As 2019 comes to a close, the trends of the real estate market for the past year are being reviewed an analyzed.  However, just as it is with all new beginnings, there is also much anticipation and speculation about what 2020 will bring for real estate professionals, home owners and potential homeowners.  Unfortunately, some real estate experts are not seeing much change in the low housing inventory trend in the coming year.

In an article published by Forbes, written by Aly J Yale, Yale states, “…According to the 2020 National Housing Forecast from Realtor.com, the national housing shortage will continue in the New Year, possibly reaching “a historic low level.”  Inventory growth is absent in nine out of ten markets, down from a much more optimistic two of three markets seeing growth at the beginning of 2019.

Contributing to the problem, homeowners are remaining in their homes longer, averaging 13 years.  Additionally, although home construction has seen growth, most of the new homes are “upper-tier” homes.  This leaves entry home buyers little supply in contrast to the large demand.  With homes for sale in the lowest price tier down 10 percent through 2019.

Some positive news to look forward to are the anticipation of mortgage rates remaining low and home prices remaining steady, maybe declining in some markets. 

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Photo Credit: Mark Moz

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Why is the Number of First Time Home Buyers Declining?

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With reports of continued low mortgage rates, many might assume the housing market would be booming with home sales.  However, it would seem that some other economic factors are affecting potential home buyers’ decisions.

The number of adults planning to purchase a home has dropped 2% since last year, and the number of first time home buyers among the groups looking to purchase a home is down 5%, from 63% in 2018 to 58% this year.  According to an article published by CNBC.com, written by Anne Cusak, a lack of affordable home coupled with worries about the economy and personal economic stability are to blame.

According to Rose Quint, the National Association of Home Builders assistant vice president for survey research, “…potential buyers are held back by the lowest levels of affordability in a decade.”  Many first time home buyers are limited in their budget; as home prices increase, they aren’t necessarily able to keep up.  Since the lower end of the real estate market has seen the fastest price increase, these home buyers are being priced out. 

Even if the home prices are within reach and the mortgage rates continue to stay low, prospective buyers are less than eager to jump in when they feel their personal finances are on shaky ground.  Cusak notes, “Buying a home is an incredibly emotional experience, and potential buyers will often pull back when they have the slightest fear of losing their jobs or losing any income.”

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Is Housing Market Ready to Rebound?

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Homeowners trying to or thinking about putting their home on the market may have been a little hesitant based on the trends in the real estate market over the past year.  As real estate professionals know, and homeowners may have noticed, the real estate market took a turn last summer.  An increased number of homes hit the market, but higher prices and decreased sales, the outlook for homeowners was less than ideal.

However, homeowners may be able to breathe a sigh of relief as this slump could be coming to an end.  With mortgage rates dipping below 4 percent and a slowed housing inventory, it appears prices and home sales should begin to climb again.

According to an article published on Realtor.com, written by Clare Trapasso, “…much of the fate of the housing market relies on mortgage interest rates. If they stay low, buyers have more money to spend on homes. So prices have more room to rise.”  However, homeowners should be aware, despite a high demand for homes as younger buyers begin their families and look to settle down, current buyers, Chief Economist Danielle Hale of realtor.com®  warns “seem a little more patient. They’re more willing to wait for a good property.”

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What Challenges to Buyers with Children Face?

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Buying a home can be an overwhelmingly stressful decision.  There are many factors buyers need to take into account when making a final home purchase decision.  Location, size, floor plan, down payments, and mortgage rates are a few that buyers must consider.  The buyer’s budget is another very important factor that must be considered.  It appears, however, that a specific group of buyers is more likely to go over their set budget when purchasing a home.

According to an article published by The M Report, buyers with children seem to have trouble sticking to their budget when purchasing a home.  In fact, 25.6% of buyers with children exceeded their budget when purchasing a home.  This group also had 31% that were denied a mortgage, where buyers without children only saw 11% denied mortgages.

It appears that having children in the home increases the list of demands that buyers make for their homes.  They want shorter commute times to their workplace, which can put them in more desirable and expensive locations.  The size of the home increases as the need for more space to accommodate growing families increases.  Some buyers make sacrifices on these items in order to stay within, or at least closer, to their budget. 

To make matters more stressful for this group of buyers, many decisions on home purchases can be rushed for families as they work to ensure they are settled before the school year begins. 

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Photo Credit: Franco Giovanella

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What Regrets Are Most Common Among New Home Buyers?

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In an article published by TheMReport.com, a study from Zillow revealing some of the top regrets of home buyers are described.  To begin, it seems that younger, and possibly less experienced, home buyers are more likely to feel some sort of remorse after purchasing a house.  In fact, 81% of home owners under 34 years old have some sort of regret. 

The article states, “Zillow notes that the lower level of satisfaction among younger buyers could be due to their inexperience with the home buying process. Additionally, many of these buyers are likely still living in their first home, and 29% of young homeowners regret rushing the process, compared with 12% of older buyers.” Another source of regret for buyers is a higher than desired mortgage rate and the type of mortgage they were able to secure. 

Very few homeowners, however, report wishing they would have simply rented instead of buying.  “The American Dream of homeownership is still alive and well, and younger buyers who are building families and forging their careers must stretch their budgets to achieve it,” said Zillow Director of Economic Research Skylar Olsen.

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What Influences Mortgage Rates?

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Keeping up with the ups and downs of mortgage rates can be daunting.  As home owners consider refinancing their home and buyers try to determine the right time to purchase a home and secure a mortgage rate, it can feel like they are aiming at a moving target and aren’t sure when to actually lock in a rate.  It can make many wonder what causes the rates to fluctuate?  The answer is, many factors impact the mortgage rates.

In an article published by Bankrate, Deborah Khearns thoroughly details several of the reasons mortgage rates increase and decrease over time.  As many know, the Federal Reserve can play a roll in mortgage rate changes.  As the article states, “The Federal Reserve doesn’t set mortgage rates but, sometimes, their decisions can indirectly influence them.”

It is probably pretty obvious that the economy and its current conditions influence the mortgage rates.  It may be surprising, however, to learn that it’s a bad economy that actually helps improve mortgage rates for buyers.  As the economy becomes less favorable, investors tend to move toward safer investments like bonds.  According to Greg Mc Bride, Bankrate’s chief financial analyst, increased number of bond investors results in “…pushing bond prices higher but the yields on those bonds lower.”

The article goes on to discuss the influence of inflation and origination costs as well as the borrower’s financial and credit history and the impact of those on rates.  Read the entire article.

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2019: What Do Real Estate Experts Think We Should Expect?

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Just few weeks into this new year and the U.S. already seen some pretty significant events that have, for some investors and consumers, created a lack of confidence in the stability of our economy.  An ongoing government shut down, global trade issues and some stock market dips: it should be no surprise potential home buyers may to take pause before jumping into a big investment.

Yet, many experts remain relatively optimistic about how 2019 will fare as far as the real estate and mortgage markets are concerned.  In an article published by the Washington Post, journalist Kathy Orton states, “In their forecasts for 2019, real estate experts anticipate the housing market slowing down, but not stalling, with prices and mortgage rates moderating.”

Orton reports the chief economist of NAR, Lawerence Yun believes, ““The forecast for home sales will be very boring — meaning stable.”  Although home prices are predicted to rise, it will be at a slower pace than home owners have seen in recent years.

Realtor.com expects mortgage rates to reach 5.5 by the end of 2019 and overall, expects to see just 2.2 percent growth in home prices.  Zillow echoes the other experts, with an expected 5.8 percent mortgage rate and a housing price increase of just 3.79.

The Mortgage Bankers Associations believes 2019 will perform better than other experts have predicted.  MBA economists Michael Fratantoni and Joel Kan stated, “Even with the anticipated cool down in economic growth, we expect that housing demand will remain strong, mortgage rates will stabilize, wage growth will increase and home price growth will moderate, providing favorable conditions for growth in the home purchase market.”

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