Are Higher Mortgage Rates a Good Thing?

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Have you dipped your toes into lava lately? I joke about this with my clients who are currently shopping for a new home, especially if they started their search within the last few months – The day before Christmas, the average 30-year fixed mortgage rate was 3.05%. Then, a few weeks ago (Easter), that rate spiked to 5%. And now rates are creeping even higher. So much for taking that family vacation this year! This jump in mortgage rates is forcing many buyers to take a more critical look at their current budget and, in some cases, lower their expectations of what they can genuinely afford or get out of the buying process altogether.

Are higher mortgage rates a good thing? 

Mortgage rates are the highest they’ve been in 13 years, and home affordability is the lowest in 15 years. Is that a good thing? The lead analyst at HousingWire, one of Real Estates leading resources, says yes, it’s a good thing. He says spiking mortgage rates could take some steam out of the red hot market and give inventory a chance to rise. If that happens, it could slow down the rate of home price appreciation and reduce the possibility of an overheated housing market ending in a big crash or bust. He agrees that higher mortgage rates are the best thing because we are in a “savagely unhealthy housing market” and need to get off these shallow inventory levels. Too many people are chasing too few homes, and we desperately need a breather. Redfin said that more sellers are cutting home prices as housing demand softens, partly because of this sharp increase in mortgage rates. And it could be a few months before the actual effect of higher mortgage rates is genuinely noticeable. 

Will Home Values Go Down in 2022?

Should you wait to buy that new home until prices drop? Again, the experts say no, and I agree based on the metrics. One school of thought is that home prices have been artificially inflated the previous few years due to historically low rates and the pandemic. But not one single major real estate firm thinks prices will drop this year. Thankfully, we are starting to see a slowdown compared to last year’s unsustainable run. In 2021, according to the S&P CoreLogic Case-Shiller home price index, home prices skyrocketed to nearly 19%. To put this in perspective, the average appreciation rate in Sacramento over the prior 25 years (not including 2020 and 2021) was just over 8% per year. And this includes the Great Recession 2007 – 2009.

HERE IS A WONDERFUL TOOL provided by The Federal Housing Finance Agency to track appreciation in the US from 1991 to the present.

Rising prices have primarily been due to supply-demand imbalance, and I don’t see this going away anytime soon. Even with rates on the rise, we should see some fall off, but not significantly. According to The National Association of Realtors, the inventory of unsold homes was only 950,000 as of the end of March. According to NerdWallet Home Buyer Report, published this January, nearly 26 million Americans plan to purchase a home in the next 12 months. Given that between 5 and 6 million homes sold in each of the past five years, this doesn’t bold well for buyers. Again, we have too many buyers chasing too few properties.

These higher mortgage rates should take some much-needed steam out of the market, and experts agree that high demand and low inventory are here for the foreseeable future. Hopefully, this clarifies if you are like so many buyers trying to decide if they should buy now or wait. But, of course, whether you purchase a home in 2022 is a very personal decision and depends on your financial situation and the market where you live.

The above information is for educational purposes only. Guild Mortgage Company offers home financing only. All loans are subject to underwriter approval. Terms, conditions, and eligibility requirements apply.

THE BEST TIME TO SELL YOUR HOME IS COMING SOON!

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If you are like many buyers and sellers, when you are in the moment of looking to purchase or thinking of selling your home, you all ask the same questions; Is now the right time to sell your home? Likewise, is this the right time to buy a home? My simple answer is, “the best time depends on your priorities, goals, and situation.”

When I started in this business almost 20 years ago, my ego sometimes got the best of me; I thought I knew it all and could foresee when rates would go up or down and how these changes would affect the housing market. I learned very quickly that I do not possess this superpower. I promptly changed my tune – my job is to guide my clients with the safest and most secure loan choices possible and let the historical data help build some consensus to formulate a plan or strategy to buy or sell.

With that said, it’s interesting to see what market professionals are saying is the best time to sell your home. If you have been on the fence waiting for the right time to sell, you might want to look at the data. According to Realtor. com®’s fourth annual Best Time To Sell report, the ideal time to list your home in Sacramento is the week of April 17. Because it possibly has the perfect balance of housing market conditions that favor home sellers, more so than any other week in the year.

Also, Money.com listed Elk Grove #4 on their list of best places in the country to sell a home in 2022. According to Realtor.com’s chief economist Danielle Hale, “Sellers listing in mid-April can expect to find relatively high buyer interest, coupled with limited competition from other sellers, that equates to fast-selling homes at top dollar,” she said in a recent news release. But, of course, market conditions are variable and not always the same for everyone, and the best time to list your home can change quickly.

If you think it’s time, here are three things you should do first:

#1) Find an experienced lender to secure financing to know your options and what you qualify for if you are thinking of buying a new home after you sell. It’s not just about getting a great interest rate; it’s also about working with a lender who will take the time to be sure you are in the right loan for your situation.

#2) Find a great Realtor to work with to list your home and possibly help you find another. I know some of the best in the business and would love to introduce you to one or two that work in your area.

#3) Layout your Game Plan with your agent and your lender. Once you have settled on your agent and lender, it is best to be open with your budget, dream neighborhood, and comfort level regarding the monthly payment and cash needed to close. This will help your team implement a strategy that will put you in the best position to win.

The above information is for educational purposes only. Guild Mortgage Company offers home financing only. All loans are subject to underwriter approval. Terms, conditions, and eligibility requirements apply.

Buy a Home for Your Parents With This Special Loan Program

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As a long-time Mortgage lender in Sacramento, I have used this relatively unknown loan program to help my clients purchase new homes for their parents while avoiding the more stringent rules and higher rates that come with buying an investment property.

It is not uncommon that I get that call from a concerned client, trying to figure out how to help their parents move closer to them, so they can spend more time with the grandkids, or worse case they need emergency help. The challenge of long-distance caregiving can be a significant drain on the family, and this program may be the answer.

Unfortunately, purchasing a second home or investment property often means you need to put up a much larger down payment than you would for a primary residence, and the interest rate might be higher. The benefit of this Family Opportunity Mortgage is that even if you currently own a primary residence, the new loan is subject to the same guidelines and rates as an owner-occupied home! If your parents don’t have sufficient income or cannot work and wouldn’t qualify for a mortgage on their own, this could be the program you could use to help them.

This unique mortgage offers several benefits over traditional second home mortgages. First, no occupancy requirements – For second homes, typical rules require the borrower to occupy the home for some part of the year. There is no such requirement for this type of mortgage however, the parents must live in the property as their primary residence.

Secondly, there are no distance requirements – Some underwriters may require that a second home not be located near your primary residence. This rule has softened, but the underwriter would ask for a strong case of why this home should be considered a 2nd home under standard underwriting guidelines. But thankfully, with this program, there are no distance requirements! The home could be located right next to yours or in a different town; it’s still priced and underwritten as a primary residence, allowing you to secure a home for your parents at a lower cost.

Not all lenders offer this program, so be sure to ask your lender if this is available or give me a call anytime. We can cover this in more detail to see if you are eligible for this unique program.

The above information is for educational purposes only. All data, loan programs, and interest rates are subject to change without notice. All loans are subject to underwriter approval. Terms, conditions, and eligibility requirements apply. Always consult an accountant or tax advisor for complete eligibility requirements on tax deduction.

What You Should Know About Down Payment Gifts

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With an extreme lack of inventory facing so many of my buyers right now, they need all the help they can get. The biggest obstacle for many is the lack of money for a down payment. Thankfully, one solution is to get some help in the form of a gift from a family member, close friend, or a charitable organization. 

As a mortgage professional, I have become very familiar with the IRS code on this topic because there is so much confusion regarding the tax implications of giving a cash gift to help a loved one buy a home. Before I delve deeper into this, a disclosure: I am not a licensed tax preparer and don’t ever want to be one – I have mad respect for tax professionals. This article is not to advise specific tax guidelines but instead give some useful, general information to help lead you in the right direction. Please seek a tax professional for more detail.

The 2021 annual gift exclusion will not change from its current $15,000 that you can give to as many individuals – your kids, grandkids, their spouses – as you’d like, without gift tax consequences. The person receiving the money does not have to report it to the IRS or pay gift or income tax on its value. However, if you give the gift and it’s more than $15,000 per individual, you will want to pay close attention to the following. 

Here is the good news for most of us. Unless you are gifting more than $11.7 million, you will pay no taxes on that gift. Yes, you heard me right. I am talking millions here – Thanks to the lifetime gift tax exemption, you can give away $11.7 million tax-free throughout your entire life and not pay one penny on gift taxes. Of course, this could change as new tax policies get enacted, so be sure to always check with Uncle Sam or your tax professional before writing that check.

When my clients learn about this little nugget, they realize worrying about gifting more than the yearly allotment of $15,000 is a moot point. Most will not pay any taxes on the gift as most of us cannot fathom having $11.7 million to give our loved ones when we pass. According to the Joint Committee on Taxation (2015), only 2 out of 1000 people who die – owe any estate tax. So gift away, my friends! Show your loved ones how much you care now that you have this critical information in your pocket!

Home values are up. Can you still afford to buy?

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Home prices in California are going up and will probably continue to do so. Does that mean they are less affordable?

The news can be misleading and confusing as it recently touted the significant move higher in the median home price, currently up 15% nationally versus last year. And 14.3% in Sacramento County, says the Sacramento Association of Realtors. 15% sounds awfully high. But the median home price does not measure appreciation. Instead, it marks the middle price point of recent home sales. 

With a substantial lack of inventory for lower-priced homes, more transactions occur for higher-priced homes, which pushes the median home price higher.

The actual Sacramento home price appreciation rate was about 1.25% for the last quarter, or 5% annualized. And it is forecasted to increase by a similar margin next year. So have you been priced out of the market?

The short answer is no, or at least not yet. California’s affordability factor has improved year over year because mortgage rates are down by almost a full percent, and incomes have gone up (Avg. weekly net pay is up 5.7% year over year nationally). Also, remember, only a portion of your income goes towards paying your mortgage. A 5% rise in income can offset a much more significant percentage rise in housing expense.

Let’s assume your monthly earnings did not improve from last year. Consider a buyer’s max purchase price of a new home, based on his/her income and debt was $450,000 last year. Maybe this buyer decided to wait because they were nervous about the market. Now, that home is worth about $472,500.

As a mortgage professional, if I were to use the same income and debt structure I used last year, this buyer would now afford a home for $490,000. This tells us that homes are actually more affordable, even though they have appreciated.

Granted, I am using very simple math here, and this does not get into down payment or cash required to purchase this home but is purely to show you the media doesn’t’ always get it right. Take the time to work through these numbers with a mortgage professional you trust, and don’t give up your dream of homeownership!