Buying, selling, or refinancing a home in today’s market can be quite an intimidating process to many. From elevated interest rates to volatile home prices, more and more elements are beyond predictability. I recently watched other real estate professionals market themselves as real estate saviors, promising the world in order to falsely take the fear out of the process for consumers (& “win the deal” for themselves). In my opinion, however, nothing is scarier in real estate than an over-promising sales person guaranteeing things they simply have no control over.
As a real estate agent and mortgage broker, I cannot be a savior. Rather, I see myself as your real estate “Sherpa.” Sherpas, as you may know, are an ethnic group in Nepal who are famous as highly skilled and capable mountaineering guides in the Himalayas. Unable to make the trek alone, summit-seeking climbers hire Sherpas to manage and navigate the dangerous trek up Mount Everest. And while Sherpas make most Everest ascents possible, the chance of reaching the summit is ultimately out of their hands.
Buying, selling, or financing a home can feel like climbing a mountain. It seems scary, danger exists if you make a wrong turn, and there are plenty of nay-sayers claiming you can’t do it. To overcome the obstacles, you need a partner who is experienced, resilient, and calm under pressure. But, be wary of the guide who guarantees you a trip to the summit; who are they to control the weather in such extreme conditions?
I cannot guarantee you the perfect house at the lowest price with the fastest close. I cannot guarantee you an underwriter will approve your loan. And I cannot guarantee your home will sell in 2 days for full asking price. There are too many variables to a transaction to pretend like I wield the real estate cosmos in my hands. Again, I am not a savior. I am, however, your real estate Sherpa, determined to use my experience, skills, and knowledge to help you make the best decisions possible during your next unpredictable real estate expedition.
This 6-6-6 sign is indeed a great omen for buyers!
Back in September, I explained in a video post the troubles ahead for our market as 30-yr mortgage rates hit 7% for the first time in 20 years. Homes were becoming increasingly unaffordable as high rates and home values squeezed many would-be buyers out of the market.
Thankfully, some balance has been restored as both rates and values have receded, meaning there is now hope ahead for the market. Today I want to walk you through some points to see how today’s affordability is back in line with historical norms, and why if you are a buyer you should be getting excited for a home purchase in the year ahead. Either click on the video above or read below for the full insight.
First a brief history overview…over this past summer, annual inflation was running at over 8% and consistently higher than market forecasts. There seemed to be no end in sight for price increases everywhere, including rates for mortgages. As a result, mortgage rates skyrocketed from 5% to nearly 7.5% in 2 months.
That’s when I did my last post on this topic to sound the alarms about housing becoming increasingly unaffordable. I compared the present market to the last time rates hit 7% in 2002 and the last time home values peaked in 2005 to show today’s market was less affordable than either of those eras. This was gauged by the percentage of income going to buying a median priced home by a household earning median income.
I illustrated how either home values would need to fall 21% or rates drop to 4% for the market to come back in balance, and I ultimately forecasted that we would see decreases in both in the months ahead.
That projection has mostly played out, largely thanks to inflation readings falling faster than expected. Mortgage rates have slid back down to 6% and home values have dropped another 9% since August.
The US Census Department also recently released an updated estimate for Sacramento household median income, which saw an expected increase due to inflation pressures as well.
When accounting for these market changes, the percentage of income going to a mortgage payment is no longer at record highs. In other words, we should not expect home values to continue to fall due to affordability issues. Now, will they still fall anyways? Perhaps they do still fall a bit further because markets don’t always act logically and predictably.
But that’s all the more reason if you’re a buyer and have been waiting to purchase to jump back in the market. These stats show support for current market values, and the short-term projection is for mortgage rates to remain at or below 6%. Many sellers are panicking as the average listing is on the market for 6 weeks and selling for 6% off their asking prices.
These 3 sixes are a literal jackpot sign for buyers entering the market. Thru January we’ve seen signs of the market picking back up and home prices stabilizing, so buyers should feel confident getting out there and ahead of the spring time rush.
Let my team and I help you get pre-approved for financing, find the right home in your area that meets your budget, and negotiate a deal for you in this buyer’s market. We’re here to help you from start to finish, so please reach out with any questions and interest you have on buying a home now or in the future.
Expect more sales, lower rates, and bottoming home values
2022 was a rough year for the real estate market. Interest rates and home values both changed course at the fastest pace on record, causing many potential buyers & sellers to hit the pause button on their transaction efforts. As we enter a new year, sellers likely have been waiting for the rain to finally end to list their homes, while buyers have been waiting for lower rates and home values before jumping back in the market. Will the current “bear” real estate market end? Will a “bull” market return? Read more as I share my insight on what’s ahead for our market (& read all the way to the end for why they are called bear & bull markets!)
The bear market will come out of hibernation (but don’t expect a bull market to return)
Most regions throughout California have become “bear” markets, meaning home values have fallen consistently and considerably. Take Folsom, for example, where the average home price fell 25% from May to December. That’s a sobering statistic for current home owners considering selling, but keep in mind the current values are still higher than they ever have been if you exclude the insane Covid-related boom. These recent declines are largely due to higher interest rates and hesitant home buyers, but also because of SIGNIFICANTLY fewer home sales. To be precise, the 4th quarter (October-December) was the slowest quarter in over 20 years in Sacramento County, with fewer than 30 homes selling per day in a county comprised of over 600,000 housing units!
Average Folsom home prices over the last 15 months. From the May high of $959,000, the average home price has plummeted to $721,000 (nearly 25%) in only 7 months!
Expect the market to pick back up in 2023 as more sellers put their homes up for sale and buyers eagerly purchase them. Affordability has improved due to declining home values, thus inspiring first-time home buyers to get back into the market. After 3+ years of competitive bidding wars and few homes for sale, buyers are now calling the shots in transactions. The typical listing is selling for 6% less than the asking price, with sellers often paying credits towards closing costs and home repairs. Many buyers will score great bargains on homes this year, but they shouldn’t expect rapid price appreciation to return to the market just yet.
Interest rates will settle down (but don’t expect record lows to return)
Interest rate declines are also helping affordability. Yes, you read that right…interest rates are going down! After peaking at nearly 7.5% in October, 30-yr fixed rates are settling down near 6% in recent days, and likely poised to drop further in the months ahead (more on that in a future post).
While rates aren’t likely to plummet back to 3%, 30-yr rates in the ~5% range will help to stabilize the real estate market and reduce the sting buyers feel when calculating their monthly payments.
Sacramento home values will bottom out (but don’t expect big price gains to return)
The worst is likely behind us with falling home prices. After dropping 2-3% per month since May, Sacramento area home values should find a bottom sometime this year. Rent rates remain high everywhere (1-bedroom apartments are renting for over $2,000/month!), which will help prop up home values as tenants weigh the options between renting and buying. 2023 buyers may risk some short-term losses in equity, but that is a small risk to take for the big rewards of purchasing a home in this strong buyer’s market. After 6 months of price drops, the average listing is on the market for 6 weeks & selling for 6% off the asking price. These 6s may be a troubling sign for sellers, butfor buyers it’s a proverbial jackpot! Get out in the market and let me help you dictate the terms of your next home purchase!
2023 will feel like an awakening after a dormant second-half of last year. If you are a seller, you need to make worthwhile preparations to your property to make it stand out above the competition. If you are a buyer, you need to “start your engines” and follow my top 5 tips from my prior post to get ready to decisively act when the right home comes up for sale. Both sides need to be partnered with an experienced mortgage and real estate broker like me who can navigate you through this changing market. I look forward to helping more clients in the weeks ahead prepare for their 2023 transactions.
PS – Bull & Bear markets earned their names based on how these animals attack. A bull lowers its head and then surges its horns upwards in an attack, hence why a bull market is known as one that is on the upswing. Bears, however, get high and then attack down with their giant paws. When a financial market (like today’s real estate market) is going down in value, its known as a bear market. Now you know!
Let’s revisit this chart & show you how we are consistently better than the competition
Mortgage rates dropped over 1% from Halloween to Thanksgiving, making it the best winning streak for rates this year. During that same time period, our lenders dropped their rates by nearly 1.5%, making ours some of the lowest around!
As a mortgage broker, we have the ability to secure the best rates offered by our wide array of wholesale lenders. This means the rate we find for you is generally lower than anything else you may find at a traditional retail bank.
*Rates illustrated are based on a loan amount less than $648,250 with 740+ credit score & 25% home equity
Here is a chart showing how our 30-yr fixed rates* recently compared to the industry at large. The blue line is the Mortgage News Daily Index, a broad sample of rates offered by various mortgage companies, while our available rates are shown on the orange line. You can see our rates have been consistently lower than the industry index, on average, by .23%.
We love doing business as a mortgage broker because we can find the best rates around. We never work with just one bank, because banks are always changing their rates. Sometimes one is overwhelmed so they raise rates to intentionally push business away. Other times they have a “sale” and discount their rates more than others. Our job is to find those opportunities to get you the best interest rate possible.
And what’s even better is you do not pay us for our services; the lender does! When you combine our experience & service with great interest rates, you get the best of all worlds! If you or someone you know has been waiting for a rate decrease to refinance or purchase a home, give me a call.
After spending this year on the sidelines, buyers should be revving up for a purchase in the new year
2022 was an unprecedented year for the real estate market. Interest rates and home values both changed course at the fastest pace on record, causing many potential buyers to hit the pause button on purchasing a home.
As we approach the end of the year, much of that market volatility is now hopefully behind us. Home values have leveled off over the last 60 days after dropping ~12% since spring time, and 30-yr fixed interest rates have slipped back below 6% on growing reports of moderating inflation.
Presently, buyers remain hesitant. In November, fewer than 1,000 homes sold in Sacramento County; the lowest November tally since 2007. Its likely that buyers won’t fully reengage till after the holiday season, but I think potential buyers should be “revving” their engines NOW in preparation for a 2023 home purchase.
I anticipate a very active start to the new year as home values and interest rates continue to normalize. Its imperative that if you are considering an upcoming home sale or purchase that you get your ducks in a row now. Here are 5 things I can help you with NOW to best prepare for an upcoming home purchase:
#1 – Get Acclimated to Market Stats and Trends
Knowing your numbers will help you to confidently negotiate with a seller. Not all neighborhoods are following the general market trends, so work with a professional to know what’s going on in your areas of interest.
#2 – Get Pre-Approved
Knowing what you can afford & understanding your financing options will keep your home search focused & realistic.
#3 – Get Your Financial House In Order
Identify errors on your credit report & oddities on your bank statements that may need attention to make the underwriting & escrow processes easy and predictable.
#4 – Get Your Actual House In Order
Do you need to sell your old home to buy a new home? Sale-contingent offers are more common-place in this current market. Its important to tackle necessary fix-it projects now so you can quickly list your home for sale when you find your next home to buy. Don’t know which projects to focus on? We can help! Even if you are a first-time buyer, knowing your lease terms & getting non-essentials boxed up ahead of time will help you plan your home purchase accordingly and make the process less stressful.
#5 – Get Real With Your Needs & Wants
Its inevitable that a home purchase will require some form of compromise (with your partner, your budget, or both!). Have a written list of what is most important to you & your family in your next home. Having a clear vision & set of priorities will help you be decisive when the right home comes along.
2023 will be one of the strongest “buyer’s” markets of the last decade. Buyers will have the advantage over sellers when negotiating price and other terms. As a broker with over 20 years of experience, I have seen that the best deals go to the clients who are prepared and calculating when buying a home. Don’t let your emotions and impulses drive the process; follow my 5 starting tips now and call on me and my team to help navigate your next home purchase.
-Bobby
Success is where preparation and opportunity meet.” -Bobby Unser, race car driver
It may be time for a cash-out refinance, but time is running out to get the best terms
Total US household debt continues to climb even as borrowing costs rise with higher interest rates, particularly on credit cards. The total debt level recently hit a record amount of $16.5 trillion…with a T!!!
While over $11 trillion is attributed to mortgage debt, that leaves $5 trillion in car, student, and credit card loans. By my account, that averages to more than $40,000 per household in consumer debt! Many of us are facing harder times with the on-going economic slow down along with surging gas and food prices. With credit card balances & their interest rates at all-time highs, it may be time to consider a cash-out refinance to consolidate high-rate loans.
Home values remain reasonably resilient & most homeowners have record levels of home equity. At the same time, mortgage rates are settling down, with our best-priced lenders back in the 5s on 30-yr fixed loans.
Has the economic slowdown forced you to borrow more against credit cards, cars, and education? Borrowing from your equity at a low rate to pay off higher rate debt will lower your overall monthly payments and lower your interest costs over the long-run. I can help you determine the “blended rate” of your various debts, the effective interest rate you’re paying across all of your loans (including your mortgage). If your blended rate is over 5%, then its time to consider a cash-out refinance.
Consider the following graphs…according to CreditCards.com the national average credit card interest rate is nearly 20%, the highest mark in the last 20 years. With The Fed suggesting further increases to the Federal Funds Rate, this will lead to even higher credit card rates.
Meanwhile, mortgage rates have been falling as credit card rates have been rising. 30-yr mortgage rates dipped below 6% this week for the first time since September. Our rates, in particular, continue to be much lower than the industry average (read Our Rates Are Some Of The Best In The Biz).
Let us help alleviate the financial stress of carrying high credit card balances at astronomically high interest rates by refinancing them into a lower fixed rate mortgage. There is a small window this month before cash-out refinances cost thousands higher in fees due to industry-wide changes to these types of loans, so give us a call now & allow us to assess your cash-out refinance options.
**The chart above is for illustrative purposes and not intended to be used as a rate quote. Rates vary based on loan size, credit scores, and many other factors. Give us a call to get a customized and competitive rate quote.**
Major life events will continue to prompt real estate transactions
For the last two years, most home purchases were driven by “wants.” Covid-related isolation made many buyers feel like they “needed” a bigger backyard, a home office, a vacation home, a Red-state zip code…but those were wants, not needs.
With current mortgage rates now over 7%, most existing homeowners may be content sticking with their sub-4% mortgage rate and never moving again. Right?
Think again.
Contrary to recent history, the real estate market is not solely guided by mortgage rates and exuberant home buying trends fueled by reality TV. It’s guided by life; you know, the thing you are constantly planning but inevitably takes an unexpected turn. And its in these turns when people NEED to move to a bigger home, a smaller home, a different state, closer to new work…the list goes on and on.
You never know where life’s next turn may take you
Marriage, job relocation, illness, promotion, divorce, kids, grandkids, death…these events drive the real estate market; keystone life moments that are emotionally charged with excitement, fear, hope or tragedy. As such, its important you and your loved ones enter your real estate transactions with experienced & caring professionals. We know your home purchase or sale is more than a transaction; it’s a significant chapter in your life’s story.
Higher mortgage rates will certainly curtail a homeowner from moving just because they are bored with their current house. But life goes on for the rest of us. Something will come along that will force you to reconsider your living situation. When that time comes, I hope that you’ll give me a call to review things with you. Nearly no one else does what we do: holistically assess your overall real estate position including your current home’s value, your new home buying opportunities, and the mortgage programs available to you.
Life’s unexpected twists & turns may force you to change direction with your real estate affairs, but we will be able to clearly articulate the options available to help you stay on your path.
For the first time in 20 years, 30-year fixed rates hit 7%
The last time 30-yr fixed mortgages were at 7%, the world was very different place:
Gas was $1.36/gallon
“Friends” was still on TV
The iPod was Apple’s latest gizmo
Tom Brady won his 1st Super Bowl
But what’s also drastically different compared to 2002 is our real estate market. 20 years ago, the median price for a Sacramento home was $187,000. That was relatively affordable even with rates at 7%. Today with rates at 7%; not so much. Let’s compare the then & now numbers.
Today, home values are almost 200% higher than they were 20 years ago while income is only marginally up 62% higher. All that translates to is instead of 34% of a household income going to a mortgage payment, it is now standing at an unsustainable 57%. Something has to give.
Let’s compare this percentage of income to what the market was at the last peak of the real estate cycle in 2005.
Home values were less & annual income was less but as a percentage, today’s household’s monthly income going towards a mortgage payment is higher than the levels in in 2005. That is a very troubling statistic. Something is going to break. Something has to change from these 2022 numbers. They are not sustainable. 1 of 2 things is going to happen: home prices have to come down or interest rates have to come down. Let me show you by how much.
How about a middle-of-the-road number of 45% as an acceptable mortgage payment-to-income ratio. To get to that number, home values need come down to $420K in Sacramento County. That’s a 21% drop from where they are right now. Keep in mind from 2005 to 2011, home values in Sacramento County decreased by more than 50%. To have a 21% correction, its not quite as deep of a crash as what we saw, but its very certainly possible to see them come down quite a bit if interest rates stay at these elevated levels at 7%.
Now, if interest rates come down then affordability is obviously aided by paying less in interest & you can pay more for a house. For home prices to remain at their current levels, 30-yr rates will need to fall down to 4% to get that percentage of income to acceptable 44-45% range.
Which is going to happen? I don’t know. We’re going to have to see as we go into Q4 here and see what happens with inflation. See what happens with buyer demand. There’s so many factors that go into impacting the health of the real estate market. But in the present moment right now with prices where they are at, with interest rates where they are at, we are at an unhealthy level.
If I had to guess, its going to be a combination of both prices and interest rates falling in the next 3-6 months for us to find a little bit more of a healthy footing for our real estate market. I know I just showed you Sacramento numbers, but this is an issue statewide and, arguably, nationwide.
What do you think, though? I’d love to see some comments down below. Tell me what your forecast is & we’ll all be on the edge of our seats here as we go into Q4 of 2022. As always, I appreciate you taking the time to watch my videos & read my posts.
Look out for more. I’ll keep you updated with market analysis here at MattsMemos.com.
We built our business so we can serve you with nearly all things real estate
Earlier this year, I wrote about how there are now more real estate agents in America than ever before. But The Blue Waters Group is truly one-of-a-kind; not every firm is licensed as both mortgage brokers and real estate agents who can help you with all of this:
1 – Buy a New Home From finding to writing the offer to facilitating inspections, we help buyers purchase their ideal home
2 – Finance a Home Purchase Our pro-active philosophy & decades of experience make the underwriting process easy, painless and predictable
3 – Sell your Home From marketing to pricing research to contract negotiation, we are a full-service Listing Broker
4 – Buy a Vacation Home We can search all of California to help you secure your favorite getaway property
5 – Buy an Investment Property From traditional rentals to AirBnB properties, we help you analyze the purchase as a business & scrutinize the income and expense projections of purchasing an investment
6 – Refinance Your Current Property Our rates are some of the lowest in the industry and our broker model means we have the most options available to meet your finance needs. The best rates & options are not at the big banks; they are with us!
7 – Obtain a Reverse Mortgage We have lenders who specialize in reverse mortgages, and can help homeowners 62 & up navigate this often mis-understood yet incredibly valuable loan program
8 – Obtain a Home Equity Line of Credit We have direct relationships with banks who offer HELOCs, but will also honestly refer you to a bank outside of our network if our terms are not the best available
9 – Write Contracts for Off-Market Home Sales Sometimes you don’t need a full-service agent; we can help with transaction paperwork for a discounted flat fee
Our clients find us most valuable when we help them in multiple ways on a single transaction. For example, if you want to sell your current home and buy & finance a new one, allow us to help you with all of it! Doing so will simplify & streamline the experience for you, and lower your costs through our discounted commission rates.
Beyond helping you through transaction, we are always striving to earn your trust in all things mortgage & real estate. Bottom line, if you or someone you care about has a real estate question, call me. We have the experience, skills, and compassion to help in every way we can.
From relocations to reverse mortgages, we’ve been helping more baby boomers than ever
As the second-largest generation in history, Baby Boomers have spent their entire lives shaping and shifting the marketplace. We have experienced a boomer boom in our business lately, as more folks in this age range (58-76) reach out to us for advice while facing major life changes.
Several recent blog posts such as “Yo Mama Is So Important” & “19 Is Your New Favorite Number” have touched on topics pertaining to this growing trend, and more clients than ever are inquiring about our reverse mortgage services! Specifically, we have helped recent boomer clients:
Move to a new area to be closer to their adult children
Pull cash out to finance a major purchase rather than sell taxable assets
Obtain a reverse mortgage to help with retirement planning
Many of our clients know we are a one-stop-shop to help you buy, sell & finance homes. But some overlook the fact that we also offer REVERSE MORTGAGES. Already this year, our team has completed more reverse mortgages than in all of the previous three years combined!
These loans are growing in popularity amongst baby boomers, and for good reason. A reverse mortgage allows a client 62 & up to retain ownership of their home, provide access to pent-up equity, and have monthly mortgage-payment relief. We are experts in these programs, and can discuss the pros & cons with you or a loved one. I will be posting again soon with more details about how we can help clients looking for a reverse mortgage.
The Blue Waters Group is designed to help homeowners of all ages, but we are perfectly suited to serve the diverse needs of Baby Boomers. As retirement approaches, it is common to reconsider how you spend your time & money.
Some may decide they want a smaller house or move closer to the grandkids. Others want to free up their hard-earned equity through a reverse mortgage. And even those who choose to not change things up still may look to help their kids or grandkids achieve home ownership by steering them to a trusted real estate professional (that’s us! 😊). No matter the need, our firm is suited to serve you, your friends, your family, and your colleagues with ALL home buying, selling & financing needs.
Matt Sundermier's Memos on Real Estate & on Life 