Three Reasons Why Housing Demand Is Likely to Remain Strong
Your Guide to the Housing & Mortgage Markets"HOUSEHOLD HEADSHIP" RATES ARE SOARING: HERE'S HOW IT IMPACTS HOUSING DEMAND 1 - "HOUSEHOLD HEADSHIP" RATES ARE SOARINGThe number of individuals who are forming their own households has soared in recent years, and the trend is likely to continue according to a recent study conducted by the Federal Reserve. Click here to view the full study. This has resulted in "several million" new households being formed in recent years, which has contributed to the huge demand for housing. This is one of the main reasons why rents and house prices have increased. 2 - FEWER ROOMMATESAnother trend that has become apparent in recent years is that relatively fewer adults are living with roommates and more are living alone. This is also contributing to the increase in housing demand. 3 - STRONG JOBS MARKETThe jobs market is the strongest it's been in over two decades with over 11 million job openings. Inflationary pressures and a tight labor market are causing employers to increase wages. This is also contributing to the increase in housing demand because people tend to buy houses when they have higher-paying jobs. NUMBER OF THE WEEK 52% That's how many children aged 18-34 are still living with their parents (these adults will eventually need to buy or rent, which will increase the demand for housing) [credit: Brian Reno, BDR Mortgage Capital | source: Momentifi]
Three Ways Buyers Benefit from Seller-Paid Points
Here's a great negotiating strategy for a changing market. "Seller-paid points" are where the seller pays points to reduce the interest rate on your mortgage. One point = 1% of the loan amount paid up front to your mortgage lender at the closing. This buys you a lower interest rate on your mortgage and a lower monthly payment. Here are three ways you can benefit from this strategy as a buyer: 1 - More Purchasing Power Paying points to reduce your rate can have 2-3 times the impact on your purchasing power vs. reducing the purchase price by that same amount. For example: 2 points on a $500,000 mortgage is $10,000. You'd probably need to reduce your purchase price by $20,000 - $30,000 in order to have the same impact on your monthly payment 2 points on a $1,000,000 mortgage is $20,000. You'd probably need to reduce your purchase price by $40,000 - $60,000 in order to have the same impact on your monthly payment 2 - Less Interest Cost Over the Life of the LoanYour total savings over the life of the loan is likely to be significantly more with seller-paid points vs. a reduction in the purchase price. In fact, it could end up being 2-3 times the impact, depending on the specifics of your situation. 3 - Easier to Qualify for a MortgageYour interest rate, your APR, and your monthly payment would all be lower with seller-paid points vs. a reduction in the purchase price. This means that your debt ratio would also be lower and it would likely be easier for you to qualify for financing. Let me know if you'd like for me to run some numbers and see if seller-paid points might make sense in your situation! [credit: Brian Reno, BDR Mortgage Capital | source: Momentifi]
Two New Reasons To Sell Now Vs. Later
The government is driving up housing costs...again. 1 - The Government's New Rule The FHFA, which is the government agency that oversees Fannie Mae and Freddie Mac, decided that lenders must charge higher fees and interest rates to homebuyers who have a debt-to-income ratio greater than 40%. The debt-to-income ratio is the buyer's total monthly debt payments DIVIDED BY their total monthly income. For example, if the buyer's total monthly debt payments (credit cards, car, mortgage, etc.) are $2,800 and their total monthly income is $7,000, their debt-to-income ratio would be 40% ($2,800 / $7,000 = 40%). The new rules go into effect on May 1, which may impact potential buyers at that time. Buyers won't have to pay the extra fees if you close on the sale of your home before then. 2 - The Domino Effect Unfortunately, this new rule may cause closing delays or deals to fall through at the last minute after May 1. That's because the buyer's income and expenses can change several times throughout the home-selling process. This is especially true if the buyer's income is from self-employment, part-time employment, or “gig economy” employment. Even small changes in income and expenses can cause the buyer's debt-to-income ratio to cross the new 40% threshold. This may drive up interest rates at the last minute, invalidate loan approvals, or result in closing delays. NUMBER OF THE WEEK: 40% The new rules will impact buyers if their debt-to-income ratio is greater than 40%. [credit: Brian Reno, BDR Mortgage Capital | source: Momentifi]
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