More than a year into the COVID-19 pandemic, mortgage rates continue to hover around historic lows which, along with a scarcity of properties and pressure from a spurring millennial class looking to relocate, has caused a massive surge in mortgage applications, propelling home sales to a record 14-year high.

The question remains: is now the time to buy?

Mortgage rates will continue to oscillate between historic lows, but experts predict rates will begin to increase gradually later in year. Lower rates have also led to an increase in mortgage applications, and some lenders have tightened their applications in order to get a hold on things.

The current rise in home prices is likely to go down at some point, making the waiting game a better strategy for someone who isn’t necessarily in need of a new home right now.

If you’re in the market right now, expect fierce competition from other buyers and a stifling inventory that fails to compensate for the incredible demand we’re seeing. However, if you can afford some time, this can be an especially productive time to get your affairs in order prior to beginning the home-buying process.

Mortgages 101

The two most common types of mortgages are 30 and 15-year fixed-rate mortgages. With these types of loans, your interest and monthly payments will remain the same throughout the entirety of the loan. 

For new homebuyers, the main difference between the two is lower rates for 15-year and lower monthly payments for 30-year loans. 

Aside from the two above-mentioned loans, aspiring homeowners can also choose an adjustable-rate mortgage, which fixes your interest and monthly payments during the first few years of the loan, after which the rates will reset at specific intervals, according to the market.

The main advantage of ARMs is that they are considerably cheaper than fixed-rate mortgages, at least for the first few years of the loan, but they can also prove a double-edged sword should interest rates rise during the life of the loan.

Current Mortgage Rates—Where are we headed?

Mortgage rates sunk deep during 2020, igniting a wave of refinance activity and purchases throughout the country. As a result, many people were able to afford homes that were slightly out of budget prior to the low rates.

Beginning in January 2021, rates have started to trend higher week-over-week compared to last year, but experts estimate that the change will be modest if not small, and that we should expect to see it happen over time.

Increased vaccination efforts and government relief packages could even spur more positive activity and lower rates. Even with rising rates, now will still be an advantageous time to refinance or purchase a new home for those who have the willpower and the budget to bid out other buyers.

Factors that Influence Rates

There are a number of economic factors that govern the way mortgage rates fluctuate up and down. 

1. The Federal Reserve: also known as the “Fed”, the government entity took swift action when the pandemic started and announced plans to keep money moving through the economy by dropping the short-term Federal Fund interest rate to between 0% - 0.25%.
2. The 10-year Treasury note: mortgage rates move in unison with the yields on the government’s 10-year Treasury notes. Yields dropped below 1% for the first time in March 2020 and have been slowly rising ever since. 
3. The broader economic apparatus: Unemployment rates and changes to gross domestic product are also important indicators of the overall economy status. When the pandemic started, unemployment rates were up and have yet to recover fully, while GDP also took a hit and has recovered partially. 

There is no universal mortgage rate for everyone. Many different factors in the current market and your personal financial situation will determine your outcome but taking ample time to choose the right lender will help you the most in achieving your desired payments. 

Your retirement is just that — yours. You can make it whatever you want. For some, that means a smaller home with fewer rooms to keep clean. For others, moving into a bigger house with more land is their dream. If you want to spend your golden years surrounded by loved ones making great memories, a homestead may be your best bet.

What’s a homestead?

A homestead has traditionally been thought of as a large farm with a central home and lots of land. But, you don’t have to have 10 or more acres to enjoy a simpler life surrounded by friends and family. Depending on your interests, you can do everything from gardening and beekeeping to running your own home-based business and hosting large family gatherings from an acre or less. Your Vero Beach Team realtor can help you find a home that allows you to take advantage of Florida’s beautiful weather to pursue any type of retirement you could possibly dream of.

Getting Started

Any time you buy or sell a home, your first step is to research what you want and where you can afford it. You’ll need to decide, among other things, how much land you need, how many bedrooms make the most sense, and what, if any, resources you want available on your property.

Something else that deserves your attention here is timing. The real estate market moves quickly, and, if you find the perfect property, you may find yourself in a situation where you have to sell your current home at the same time as buying your new one. If you’ve already accepted an offer on your current property, you may be able to make an offer on the new one and request an extended closing so that you will have cash on your sale to go toward your purchase. Your realtor can help negotiate this process.

Setting Up Shop

Like moving in any home, you’ll have to start with furniture, but having a homestead also means you’ll need to create entertaining space for family and friends, and, likely, you’ll need tools to upkeep your home and participate in your hobbies. One example here is making sure everyone has enough sleeping space. You only have three bedrooms, for example, and need one for a home office, you may need to have a pullout couch or a kids’ room with bunk beds (there are many different types of bunk bed examples on MorningChores.com).

When your retirement also includes running a home-based business, you also want to research Florida LLCs. Forming your LLC is important when buying a new home because it does offer some protection for your personal assets. Keep in mind, especially if you’re moving from one state to the next, that each location will have different regulations forming your business structure. Plan to use the formation service instead of an expensive attorney to ensure your LLC is formed correctly and legally.

When your retirement day finally comes, you do not have to conform to anyone’s ideals. You’ve worked your entire life to do what you want and now is your chance. If you want to enjoy more time with friends and family, having space where you can spend time together might make more sense than moving into a traditional retirement setting. Talk to your realtor about options available in your preferred area, and then let the dreaming begin. When you’re ready to find a property for retirement and beyond, let the Vero Beach Team be your eyes and ears on the ground. (772) 696 2359

Is the Real Estate Market Going to Crash?

While many areas of the economy have contracted, the housing market has stayed remarkably strong. But can the good news last?

When COVID-related shutdowns began in March, real estate brokers and clients scrambled to respond to the shift. Record-low interest rates caused some lenders to call a halt to new underwriting, and homeowners debated whether or not to put their houses on the market. However, those first days of uncertainty ushered in a period of unprecedented demand in the U.S. real estate market, which ended the year with increasing average home prices (up 13.4% from the previous year) and shrinking days on market (13 fewer than in 2019).¹

Now, as the spring market approaches, you may be wondering whether the good times can continue to roll on. If you’re a homeowner, should you take advantage of this opportunity? If you’re a buyer, should you jump in and risk paying too much? Below we answer some of your most pressing questions.

How is today’s market different from the one that caused the 2008 meltdown?

At the beginning of the pandemic, fears of an economic recession and an ensuing mortgage meltdown were top of mind for homeowners all across the country. For many buyers and sellers, the two seemed to go hand in hand, just as they did in the 2008 economic crisis.

In reality, however, the conditions that led to 2008’s recession were very different from those that triggered the current downturn—and this time, the housing market is the source of much of the good news.² This is in line with historical patterns, as housing prices traditionally hold steady in the face of recession, with homeowners staying put and investors putting their money into bricks and mortar to ride out uncertainty in the stock market. 

This time around, because of lessons learned in 2008, banks are better funded, homeowners are holding more accrued equity, and, crucially, much of the economic activity is focused on financial factors outside the housing market. As many industries quickly pivoted to work-from-home, early fears of widespread job loss-related foreclosures have failed to materialize. Federal stimulus payments and the Paycheck Protection Program also helped to offset some of the worst early effects of the shutdown.

Are we facing a real estate bubble?

A real estate bubble can occur when there is a rapid and unjustified increase in housing prices, often triggered by speculation from investors. Because the bubble is (in a sense) filled with “hot air,” it pops—and a swift drop in value occurs. This leads to reduced equity or, in some cases, negative equity conditions.

By contrast, the current rise in home prices is based on the predictable results of historically low interest rates and widespread low inventory. Basically, the principle of supply and demand is working just as it’s supposed to do. In addition, experts predict a strong seller’s market throughout 2021 along with increases in new construction.³ This should allow supply to gradually rise and fulfill demand, slowing the rate of inflation for home values and offering a gentle correction where needed.

Effects of low-interest rates

According to Freddie Mac, rates are projected to continue at their current low levels throughout 2021.⁴ This contributes to home affordability even in markets where homes might otherwise be considered overpriced. These low-interest rates should keep the market lively and moving forward for the foreseeable future.

Effects of low inventory

Continuing low inventory is another reason for higher-than-average home prices in many markets.⁵ This should gradually ease as an aggressive vaccination rollout and continuing buyer demand drive more homeowners to move forward with long-delayed sales plans and as new home construction increases to meet demand.⁶

Aren’t some markets and sectors looking particularly weak?

One of the big stories of 2020 was a mass exodus from attached home communities and high-priced urban areas as both young professionals and families fled to the larger square footage and wide-open spaces of suburban and rural markets. This trend was reinforced by work-from-home policies that became permanent at some of the country’s biggest companies.

Speculation then turned to the death of cities and the end of the condo market. However, it appears that rumors of the demise of these two residential sectors have been greatly exaggerated. 

With the first vaccine rollouts, renters have begun returning to major urban centers, attracted by the sudden rise in available inventory and newly discounted rental rates.⁷ In addition, buyers who were previously laser-focused on a single-family home responded to tight inventory by taking a second look at condos.⁸ While nationwide condo prices continue to lag behind those of detached homes, they’ve still seen significant price increases and days on market reductions year over year.

In addition to these improvements, the 2020 migration has spread the economic wealth to distant suburban and rural enclaves that normally don’t benefit from increases in home values or an influx of new investment. As many of these new residents set up housekeeping in their rural retreats, they’ll revitalize the economies of their adopted communities for years to come.

How has COVID affected the “seasonal” real estate market?

Frequently, the real estate market is seen as a seasonal phenomenon. However, the widespread shutdowns in March 2020, coming right at the beginning of the market’s growth cycle in many areas, has led to a protracted, seemingly endless “hot spring market.”

While Fannie Mae’s chief economist Douglas Duncan predicts slower growth from 2020’s historic numbers, the outlook overall is positive as we embark on the 2021 spring selling cycle.⁹ Duncan anticipates an additional lift in the second half of 2021 as buyers return to business as usual and look to put some of their pandemic savings to work for a down payment. Thus we could be looking at another longer-than-usual, white-hot real estate market.

How will a Biden administration affect the real estate market?

Projected policy around housing promises to be a boost to the real estate market in many cases.¹⁰ While some real estate investors bemoan proposed changes to 1031 Exchanges, the Biden plan for a $15,000 first-time homebuyer tax credit aims to increase affordability and bring eager new home buyers into the market. In addition, Biden-proposed policy pinpoints low inventory as a primary driver of unsustainable home values and is geared toward more affordability through investments in construction and refurbishment.

Overall, according to most indicators, the real estate news looks overwhelmingly positive throughout the rest of 2021 and possibly beyond. Pent-up demand and consumer-driven policies, along with a continued low-interest-rate environment and rising inventory, should help homeowners hold on to their increased equity without throwing the market out of balance. In addition, the increase in long-term work-from-home policies promises to give a boost to a wide variety of markets, both now and in the years to come.  

STILL, HAVE QUESTIONS? WE HAVE ANSWERS

While economic indicators and trends are national, real estate is local. We’re here to answer your questions and help you understand what’s happening in your neighborhood. Reach out to learn how these larger movements affect our local market and your home’s value. 

Sources:

1. Realtor.com -
   https://www.realtor.com/research/december-2020-data/
2. New York Magazine -
   https://nymag.com/intelligencer/2020/06/why-this-economic-crisis-wont-be-as-bad-as-2008.html
3. Washington Post -
   https://www.washingtonpost.com/business/2021/01/11/2021-housing-market-predictions/
4. Freddie Mac -
   http://www.freddiemac.com/research/forecast/20210114_quarterly_economic_forecast.page?
5. Wall Street Journal -
   https://www.wsj.com/articles/housing-market-stays-tight-as-homeowners-stay-put-11611226802?mod=re_lead_pos1
6. Marketwatch -
   https://www.marketwatch.com/story/new-home-construction-activity-soars-to-highest-level-in-over-a-decade-as-builders-rush-to-produce-single-family-homes-2021-01-21
7. Forbes -
   https://www.forbes.com/sites/noahkirsch/2021/01/14/signs-of-a-rebound-new-york-city-rent-prices-are-climbing-back
8. Washington Post -
   https://www.washingtonpost.com/business/2021/01/07/condo-sales-rebound-amid-dwindling-inventory-houses/
9. Mortgage Professional America -
   https://www.mpamag.com/news/fannie-mae-chief-economists-forecast-for-us-economy-housing-market-in-2021-244045.aspx
10. Inman -
    https://www.inman.com/2020/11/09/what-a-joe-biden-presidency-means-for-real-estate-and-housing/

Transcript:

could condo living be right for you?

Now before I go into the pro's and cons - I'm fully aware that there are three types of people. 

#1 - people that are sold on the condo idea 

#2 - people that absolutely would never live in a condo

and #3 - meh - maybe - not sure - why not type

Transcript:

Welcome to the " Let's talk REAL estate podcast - where we talk about real estate - life in general and how it affects you - today's topic will be 

Investment properties 

Seems like everyone's favorite topic around the proverbial watercooler, although in Vero Beach it may be more likely at the golf course or the dinner table.

let's take a closer look and bring some clarity to the subject.