Author: Kovacs

If you’re hoping to buy a home this year, you’re probably paying close attention to mortgage rates. Since mortgage rates impact what you can afford when you take out a home loan – and affordability is a challenge today – it’s a good time to look at the big picture of where mortgage rates have been historically compared to where they are now. Beyond that, it’s important to understand their relationship with inflation for insights into where mortgage rates might go in the near future.

Giving Context to the Sticker Shock

Freddie Mac has been tracking the 30-year fixed mortgage rate since April of 1971. Every week, they release the results of their Primary Mortgage Market Survey, which averages mortgage application data from lenders across the country (see graph below):

Looking at the right side of the graph, mortgage rates have increased significantly since the start of last year. But even with that rise, today’s rates are still below the 52-year average. While that historical perspective is good context, buyers have gotten used to mortgage rates between 3% and 5%, which is where they’ve been over the past 15 years.

That’s important because it explains why the recent jump in rates might have you feeling sticker shock even though they’re close to their long-term average. While many buyers have adjusted to the elevated rates over the past year, a slightly lower rate would be a welcome sight. To determine if that’s a realistic possibility, it’s important to look at inflation.

Where Could Mortgage Rates Go in the Future? 

The Federal Reserve has been working hard to lower inflation since early 2022. That’s significant because, historically, there’s been a connection between inflation and mortgage rates (see graph below):

This graph shows a pretty reliable relationship between inflation and mortgage rates. Looking at the left side of the graph, each time inflation moves significantly (shown in blue), mortgage rates follow suit shortly after (shown in green).

The circled portion of the graph points out the most recent spike in inflation, with mortgage rates following closely behind. As inflation has moderated a bit this year, mortgage rates haven’t yet made a similar move.

That means, if history is any guide, the market is waiting for mortgage rates to follow inflation and head back down. It’s impossible to accurately predict where mortgage rates will go for sure, but moderating inflation means mortgage rates going down in the near future would fit a well-established trend. 

Bottom Line

To understand where mortgage rates may be going, it’s helpful to look at where they’ve been in the past. There’s a clear connection between inflation and mortgage rates, and if that historical relationship holds true, the recent decline in inflation may mean good news for the future of mortgage rates and your homeownership goals.

The housing market continues to shift and change, and in a fast-moving landscape like we’re in right now, it’s more important than ever to have a trusted real estate agent on your side. Whether you’re buying your first home or selling once again, it’s mission critical to work with an expert who can guide you through each unique step of the process. 

The reality is, not all agents operate the same way. To truly make a powerful and confident decision as you buy or sell a home, you need a real estate expert who uses their knowledge of what’s really happening with home prices, housing supply, industry projections, and more to give you the best possible advice. Someone who can provide clarity and trust like that is essential to your success. Jay Thompson, Real Estate Industry Consultant, explains:

“Housing market headlines are everywhere. Many are quite sensational, ending with exclamation points or predicting impending doom for the industry. Clickbait, the sensationalizing of headlines and content, has been an issue since the dawn of the internet, and housing news is not immune to it.”

Unfortunately, when information in the media isn’t clear, it can generate a lot of fear and uncertainty for consumers. As Jason Lewris, Co-Founder and Chief Data Officer at Parcl, says:

“In the absence of trustworthy, up-to-date information, real estate decisions are increasingly being driven by fear, uncertainty, and doubt.”

But it doesn’t have to be that way. Buying a home is a big decision, and it should be one you feel confident making. You can lean on an expert to help you separate fact from fiction and get the answers you need.

The right agent can assist you in figuring out what’s going on at the national level and in your local area. They can debunk headlines using data you can trust. Experts have in-depth knowledge of the industry and can provide context, so you know how current trends compare to the normal ebbs and flows in the housing market, historical data, and more.

Then, to make sure you have the full picture, an agent can tell you if your local area is following the national trend or if they’re seeing something different in your market. Together, you can use all that information to make the best possible decision.

After all, making a move is a potentially life-changing milestone. It should be something you feel ready for and excited about. And that’s where a trusted expert comes in.

Bottom Line

If you want sound advice and trusted information about our local housing market, let’s connect.

If you’re a homeowner, odds are your equity has grown significantly over the last few years. Equity builds over time as home values grow and as you pay down your home loan. And, since home prices skyrocketed during the ‘unicorn’ years, you’ve likely gained more than you think.

According to the latest Equity Insights Report from CoreLogic, the average homeowner has more than $274,000 in equity right now. That much equity can help you achieve certain goals. In a recent article, Bankrate elaborates: 

“While the pandemic created serious challenges, the silver lining for anyone who owned a home was the sizable equity gain. Understanding how home equity works, and how to leverage it, is important for any homeowner.”

Here are a few examples of how you can put your home equity to work for you.

1. Buy a Home That Fits Your Needs

If your current space no longer meets your needs, it might be time to think about moving to a bigger home. And if you’ve got too much space, downsizing to a smaller home could be just right. Either way, you can put your equity toward a down payment on a home that fits your changing lifestyle. A real estate agent can help you figure out how much equity you’ve got and how to use it when buying your next home.

2. Reinvest in Your Current Home

Renovations are a great option if you want to change your living space, but aren’t yet ready to make a move. Home improvement projects give you the freedom to tailor your home to match your needs and personal style. But it’s important to consider the long-term benefits certain upgrades can bring to your home’s value. Lean on a real estate professional for the best advice on which improvement projects to prioritize in order to get the greatest return on your investment when you sell later on.

3. Pursue Personal Ambitions

Home equity can also serve as a catalyst for realizing your life-long dreams. That could mean investing in a new business venture, retirement, or funding an education. While you shouldn’t use your equity for unnecessary spending, using it responsibly for something meaningful and impactful can really make a difference in your life.

4. Understand Your Options to Avoid Foreclosure

Today the number of foreclosure filings remains below the norm, so there’s no need to fear a wave of foreclosed homes flooding the market. But unfortunately, there are still some homeowners who experience the foreclosure process each year. If you’re facing financial difficulties, having a clear understanding of your options and how your equity can help is crucial. Equity can act as a financial cushion that can be used in times of unexpected challenges or unforeseen circumstances that may disrupt your ability to make mortgage payments on time.

In an article, Freddie Mac explains it this way:

“If exiting your home is the best option for you, selling with equity may be a good option. When selling with equity, you are using the proceeds from selling your home at a higher price than the amount you owe on your mortgage to pay off your remaining mortgage debt.”

Bottom Line

Your equity can be a game changer in reinvesting in your needs, pursuing your goals, and even helping you avoid foreclosure during difficult times. If you’re unsure how much equity you have in your home, let’s connect so you can start planning your next move.

If you’re thinking of buying or selling a home, one of the biggest questions you have right now is probably: what’s happening with home prices? And it’s no surprise you don’t have the clarity you need on that topic. Part of the issue is how headlines are talking about prices.

They’re basing their negative news by comparing current stats to the last few years. But you can’t compare this year to the ‘unicorn’ years (when home prices reached record highs that were unsustainable). And as prices begin to normalize now, they’re talking about it like it’s a bad thing and making people fear what’s next. But the worst home price declines are already behind us. What we’re starting to see now is the return to more normal home price appreciation.

To help make home price trends easier to understand, let’s focus on what’s typical for the market and omit the last few years since they were anomalies. 

Let’s start by talking about seasonality in real estate. In the housing market, there are predictable ebbs and flows that happen each year. Spring is the peak homebuying season when the market is most active. That activity is typically still strong in the summer but begins to wane as the cooler months approach. Home prices follow along with seasonality because prices appreciate most when something is in high demand.

That’s why, before the abnormal years we just experienced, there was a reliable long-term home price trend. The graph below uses data from Case-Shiller to show typical monthly home price movement from 1973 through 2021 (not adjusted, so you can see the seasonality):

As the data from the last 48 years shows, at the beginning of the year, home prices grow, but not as much as they do entering the spring and summer markets. That’s because the market is less active in January and February since fewer people move in the cooler months. As the market transitions into the peak homebuying season in the spring, activity ramps up, and home prices go up a lot more in response. Then, as fall and winter approach, activity eases again. Price growth slows, but still typically appreciates.

Why This Is So Important to Understand

In the coming months, as the housing market moves further into a more predictable seasonal rhythm, you’re going to see even more headlines that either get what’s happening with home prices wrong or, at the very least, are misleading. Those headlines might use a number of price terms, like:

• Appreciation: when prices increase.
• Deceleration of appreciation: when prices continue to appreciate, but at a slower or more moderate pace.
• Depreciation: when prices decrease.

They’re going to mistake the slowing home price growth (deceleration of appreciation) that’s typical of market seasonality in the fall and winter and think prices are falling (depreciation). Don’t let those headlines confuse you or spark fear. Instead, remember it’s normal to see a deceleration of appreciation, slowing home price growth, as the months go by.

Bottom Line

If you have questions about what’s happening with home prices in our local area, let’s connect.

If you’re a homeowner ready to make a move, you may be thinking about using your current house as a short-term rental property instead of selling it. A short-term rental (STR) is typically offered as an alternative to a hotel, and they’re an investment that’s gained popularity in recent years.

While a short-term rental can be a tempting idea, you may find the reality of being responsible for one difficult to take on. Here are some of the challenges you could face if you rent out your house instead of selling it.

A Short-Term Rental Comes with Responsibilities

Successfully managing your house as a short-term rental takes a lot of time and effort. You’ll have to juggle tasks like dealing with reservations, organizing check-ins, and tackling cleaning, landscape, and maintenance duties. Any one of those can feel demanding, but all together, it’s a lot to handle.

Short-term rentals experience high turnover rates, as new guests check in and out frequently. This home traffic can lead to increased wear and tear on your property—meaning you may need to make more frequent repairs or replace your furniture, fixtures, and appliances more often. 

Think through your ability to make that level of commitment, especially if you plan to use a platform that advertises your rental listing. Most of them have specific requirements hosts must meet. An article from Bankrate explains:

“Managing a rental property can be time-consuming and challenging. Are you handy and able to make some repairs yourself? If not, do you have a network of affordable contractors you can reach out to in a pinch? Consider whether you want to take on the added responsibility of being a landlord, which means screening tenants and fielding issues, among other responsibilities, or paying for a third party to take care of things instead.”

There’s a lot to consider before taking the leap and converting your house into a short-term rental. If you aren’t ready for the work it takes, it could be wise to sell instead.

Short-Term Rental Regulations

As the short-term rental industry continues to grow, regulations have increased. Legal restrictions commonly include limits on the number of vacation rentals in a particular location. This is especially true in larger cities and tourist destinations where there may be concerns about overcrowding or housing shortages for permanent residents. Restrictions may also apply to the type of property that can be used for short-term rentals.

Many cities also require homeowners to obtain a license or permit before renting out their properties. Nick Del Pego, CEO at Deckard Technologies, explains:

“Renting short-term rentals is considered a business by most local governments, and owners must comply with specific workplace regulations and business licensing rules established in their local communities.”

It is important to thoroughly check whether short-term rentals are regulated or prohibited by the local government and your homeowners’ association (HOA) before even considering renting out your home. 

Bottom Line

Converting your home into a short-term rental isn’t a decision you should make without doing your research. To decide if selling your house is a better alternative, let’s connect today.