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      Pre-Approval: Your 1st Step in Buying a Home

      Pre-Approval: Your 1st Step in Buying a Home | MyKCM

      In many markets across the country, the number of buyers searching for their dream homes outnumbers the number of homes for sale. This has led to a competitive marketplace where buyers often need to stand out. One way to show you are serious about buying your dream home is to get pre-qualified or pre-approved for a mortgage before starting your search.

      Even if you are in a market that is not as competitive, understanding your budget will give you the confidence of knowing if your dream home is within your reach.

      Freddie Mac lays out the advantages of pre-approval in the ‘My Home’ section of their website:

      “It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”

      One of the many advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you through this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.”

      Freddie Mac describes the ‘4 Cs’ that help determine the amount you will be qualified to borrow:

      1. Capacity: Your current and future ability to make your payments
      2. Capital or cash reserves: The money, savings, and investments you have that can be sold quickly for cash
      3. Collateral: The home, or type of home, that you would like to purchase
      4. Credit: Your history of paying bills and other debts on time

      Getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and it often helps speed up the process once your offer has been accepted.

      Bottom Line

      Many potential homebuyers overestimate the down payment and credit scores necessary to qualify for a mortgage today. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so.

      Where Are Mortgage Interest Rates Headed In 2019?

      Where Are Mortgage Interest Rates Headed In 2019? | MyKCM

      The interest rate you pay on your home mortgage has a direct impact on your monthly payment; the higher the rate, the greater the payment will be. That is why it is important to know where rates are headed when deciding to start your home search.

      Below is a chart created using Freddie Mac’s U.S. Economic & Housing Marketing Outlook. As you can see, interest rates are projected to increase steadily over the course of the next year.

      Where Are Mortgage Interest Rates Headed In 2019? | MyKCM

      How Will This Impact Your Mortgage Payment?

      Depending on the amount of the loan that you secure, a half of a percent (.5%) increase in interest rate can increase your monthly mortgage payment significantly.

      According to CoreLogic’s latest Home Price Index, national home prices have appreciated 6.2% from this time last year and are predicted to be 5.1% higher next year.

      If both the predictions of home price and interest rate increases become a reality, families would wind up paying considerably more for their next homes.

      Bottom Line

      Even a small increase in interest rate can impact your family’s wealth, so don’t wait until next year! Let’s get together to evaluate your ability to purchase your dream home now.

      What's Going On With Home Prices?

      Whats Going On With Home Prices? | MyKCM

      According to CoreLogic’s latest Home Price Insights Report, national home prices in August were up 5.5% from August 2017. This marks the first time since June 2016 that home prices did not appreciate by at least 6.0% year-over-year.

      CoreLogic’s Chief Economist Frank Nothaft gave some insight into this change,

      “The rise in mortgage rates this summer to their highest level in seven years has made it more difficult for potential buyers to afford a home. The slackening in demand is reflected in the slowing of national appreciation, as illustrated in the CoreLogic Home Price Index.  

      National appreciation in August was the slowest in nearly two years, and we expect appreciation to slow further in the coming year.”

      One of the major factors that has driven prices to accelerate at a pace of between 6-7% over the past two years was the lack of inventory available for sale in many areas of the country. This made houses a prized commodity which forced many buyers into bidding wars and drove prices even higher.

      According to the National Association of Realtors’ (NAR) latest Existing Home Sales Report, we are starting to see more inventorycome to market over the last few months. This, paired with patient buyers who are willing to wait to find the right homes, is creating a natural environment for price growth to slow.

      Historically, prices appreciated at a rate of 3.7% (from 1987-1999). CoreLogic predicts that prices will continue to rise over the next year at a rate of 4.7%.

      Bottom Line

      As the housing market moves closer to a ‘normal market’ with more inventory for buyers to choose from, home prices will start to appreciate at a more ‘normal’ level, and that’s ok! If you are curious about home prices in your area, let’s get together to chat about what’s going on!

      2 Factors to Watch in Today's Real Estate Market Whether Buying or Selling

      2 Factors to Watch in Todays Real Estate Market Whether Buying or Selling | MyKCM

      When it comes to buying or selling a home there are many factors you should consider. Where you want to live, why you want to buy or sell, and who will help you along your journey are just some of those factors. When it comes to today’s real estate market, though, the top two factors to consider are what’s happening with interest rates & inventory.

      Interest Rates

      Mortgage interest rates have been on the rise and are now over three-quarters of a percentage point higher than they were at the beginning of the year. According to Freddie Mac’s latest Primary Mortgage Market Survey, rates climbed to 4.72% for a 30-year fixed rate mortgage last week.

      The interest rate you secure when buying a home not only greatly impacts your monthly housing costs, but also impacts your purchasing power.

      Purchasing power, simply put, is the amount of home you can afford to buy for the budget you have available to spend. As rates increase, the price of the house you can afford to buy will decrease if you plan to stay within a certain monthly housing budget.

      The chart below shows the impact that rising interest rates would have if you planned to purchase a $400,000 home while keeping your principal and interest payments between $2,020-$2,050 a month.

      2 Factors to Watch in Todays Real Estate Market Whether Buying or Selling | MyKCM

      With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5% (in this example, $10,000). Experts predict that mortgage rates will be over 5% by this time next year.

      Inventory

      A ‘normal’ real estate market requires there to be a 6-month supply of homes for sale in order for prices to increase only with inflation. According to the National Association of Realtors (NAR), listing inventory is currently at a 4.3-month supply (still well below the 6-months needed), which has put upward pressure on home prices. Home prices have increased year-over-year for the last 78 straight months.

      The inventory of homes for sale in the real estate market had been on a steady decline and experienced year-over-year drops for 36 straight months (from July 2015 to May 2018), but we are starting to see a shift in inventory over the last three months.

      The chart below shows the change in housing supply over the last 12 months compared to the previous 12 months. As you can see, in June, July, and August, inventory levels have started to increase as compared to the same time last year.

      2 Factors to Watch in Todays Real Estate Market Whether Buying or Selling | MyKCM

      This is a trend to watch as we move further into the fall and winter months. If we continue to see an increase in homes for sale, we could start moving further away from a seller’s market and moving closer to a normal market.

      Bottom Line

      If you are planning to enter the housing market, either as a buyer or a seller, let’s get together to discuss the changes in mortgage interest rates and inventory and what they could mean for you. 617-901-4500.

      Are Home Prices Softening or Are They Falling?

      Are Home Prices Softening or Are They Falling? | MyKCM

      We are beginning to see reports that more housing inventory is coming to the market and that buyer demand may not be increasing at the same pace it did earlier this year. The result will be many headlines written to address the impact that these two situations will have on home values.

      Many of these headline writers will confuse “softening home prices” with “falling home prices,” but there is a major difference between the two.

      The data will begin to show that home values are not appreciating at the same levels as they had over the last several years (softening prices). This does NOT mean that prices are depreciating (falling prices).

      Here is an example: Over the last several years, national home values increased by more than 6% annually. If you had a home worth $300,000 at the beginning of the year, it would be worth $318,000 by year’s end. If the appreciation rate “falls” to 4%, that $300,000 house would be worth $312,000 at the end of next year – a $6,000 difference.

      The price of the home did not fall. It just didn’t increase at the level it had the previous year.

      Appreciation rates are projected to end this year at approximately 5%, and then drop to somewhere between 4-5% next year. This drop in appreciation rate will cause home price increases to soften.

      Again, this does not mean that home prices will depreciate, but instead that they will appreciate more slowly.

      Bottom Line

      Be careful when reading headlines that discuss home values. Some headline writers will be legitimately confused and will use the word falling in place of softening. Others will realize that the headline “Home Prices are Falling!” will get more clicks than “Home Prices are Softening” and will intentionally write the more compelling headline. Read the article. If the word depreciation is not mentioned, home values are not falling.

      Is the Real Estate Market Finally Getting Back to Normal?

      Is the Real Estate Market Finally Getting Back to Normal? | MyKCM

      The housing market has been anything but normal for the last eleven years. In a normal real estate market, home prices appreciate 3.7% annually. Below, however, are the price swings since 2007 according to the latest Home Price Expectation Survey:

      After the bubble burst in June 2007, values depreciated 6.1% annually until February 2012. From March 2012 to today, the market has been recovering with values appreciating 6.2% annually.

      These wild swings in values were caused by abnormal ratios between the available supply of inventory and buyer demand in the market. In a normal market, there would be a 6-month supply of housing inventory.

      When the market hit its peak in 2007, homeowners and builders were trying to take advantage of a market that was fueled by an “irrational exuberance.”

      Inventory levels grew to 7+ months. With that many homes available for sale, there weren’t enough buyers to satisfy the number of homeowners/builders trying to sell, so prices began to fall.

      Then, foreclosures came to market. We eventually hit 11 months inventory which caused prices to crash until early 2012. By that time, inventory levels had fallen to 6.2 months and the market began its recovery.

      Over the last five years, inventory levels have remained well below the 6-month supply needed for prices to continue to level off. As a result, home prices have increased over that time at percentages well above the appreciation levels seen in a more normal market. 

      That was the past. What about the future?

      We currently have about 4.5-months inventory. This means prices should continue to appreciate at above-normal levels which most experts believe will happen for the next year. However, two things have just occurred that are pointing to the fact that we may be returning to a more normal market.

      1. Listing Supply is Increasing

      Both existing and new construction inventory is on the rise. The latest Existing Home Sales Report from the National Association of Realtors revealed that inventory has increased over the last two months after thirty-seven consecutive months of declining inventory. At the same time, building permits are also increasing which means more new construction is about to come to market. 

      2. Buyer Demand is Softening

      Ivy Zelman, who is widely respected as an industry expert, reported in her latest ‘Z’ Report:

       “While we continue to expect a resumption of growth in resale transactions on the back of easing inventory in 2019 and 2020, our real-time view into the market through our Real Estate Broker Survey does suggest that buyers have grown more discerning of late and a level of “pause” has taken hold in many large housing markets.

      Indicative of this, our broker contacts rated buyer demand at 69 on a 0- 100 scale, still above average but down from 74 last year and representing the largest year-over-year decline in the two-year history of our survey.”

      With supply increasing and demand waning, we may soon be back to a more normal real estate market. We will no longer be in a buyers’ market (like 2007-February 2012) or a sellers’ market (like March 2012- Today).

      Prices won’t appreciate at the levels we’ve seen recently, nor will they depreciate. It will be a balanced market where prices remain steady, where buyers will be better able to afford a home, and where sellers will more easily be able to move-up or move-down to a home that better suits their current lifestyles.

      Bottom Line

      Returning to a normal market is a good thing. However, after the zaniness of the last eleven years, it might feel strange. If you are going 85 miles per hour on a road with a 60 MPH speed limit and you see a police car ahead, you’re going to slow down quickly. But, after going 85 MPH, 60 MPH will feel like you’re crawling. It is the normal speed limit, yet, it will feel strange.

      That’s what is about to happen in real estate. The housing market is not falling apart. We are just returning to a more normal market which, in the long run, will be much healthier for you whether you are a buyer or a seller.

      Home Prices: The Difference 5 Years Makes

      Home Prices: The Difference 5 Years Makes | MyKCM

      CoreLogic recently released their Home Price Index ReportOne of the key indicators used in the report to determine the health of the housing market was home price appreciation. CoreLogic focused on appreciation from July 2013 to July 2018 to show how prices over the last five years have fared.

      The graph below was created to show the 5-year change in price from July 2013 to July 2018 by price range.

      Home Prices: The Difference 5 Years Makes | MyKCM

      As you can see in the graph, the highest price appreciation occurred in the lowest price range with 48% growth, while the highest priced homes appreciated by 25%. This has been greatly fueled by the lack of inventory of homes available at the lower price ranges and high demand from first-time buyers looking to enter the market.

      Where were prices expected to go?

      Every quarter, Pulsenomics surveys a nationwide panel of over 100 economists, real estate experts, and investment and market strategists and asks them to project how residential home prices will appreciate over the next five years for their Home Price Expectation Survey (HPES).

      According to the Q3 2014 survey results, national homes prices were projected to increase cumulatively by 19.5% by December 2018. The bulls of the group predicted home prices to rise by 27.8%, while the more cautious bears predicted an appreciation of 11.2%.

      Where are prices headed in the next 5 years?

      Data from the most recent HPES shows that home prices are expected to increase by 20.0% over the next 5 years. The bulls of the group predict home prices to rise by 31.2%, while the more cautious bears predict an appreciation of 9.3%.

      Bottom Line

      Every day, thousands of homeowners regain positive equity in their homes. Some homeowners are now experiencing values even greater than those before the Great Recession. If you’re wondering if you have enough equity to sell your house and move on to your dream home, let’s get together to discuss conditions in our neighborhood!

      Homeownership is a Dominant Gene

      Homeownership is a Dominant Gene | MyKCM

      There are many things that factor into the decision to buy a home. New research from the Urban Institute suggests that one of those things may be inherited from your parents.

      Children are More Likely to Own a Home if Their Parents Did

      According to an analysis of millennial homeowners, the homeownership rate of those whose parents rent their homes is 14.4%, while the rate amongst millennials whose parents are homeowners is 31.7%!

      “A young adult’s odds of homeownership are highly correlated with their parent’s homeownership.

      Without controlling for such factors as age, income, education, marital status, and race or ethnicity, there is a 17 percentage-point gap between the homeownership rate for young adults whose parents are renters and young adults whose parents are homeowners.”

      The study also revealed that as a parent’s net worth increases, so does the likelihood that their child will own a home. These two findings are not surprising as we know from the Survey of Consumer Finances that a homeowner’s net worth is 44x greater than that of a renter.

      So, a parent who is a homeowner will have more wealth which will, in turn, increase the chances that their children will own their own homes in the future.

      Below is a breakdown of the relationship between a parent’s wealth and a millennial’s likelihood to own a home.

      Homeownership is a Dominant Gene | MyKCM

      The Good News: The high homeownership rate amongst baby boomers (likely the parents of many millennials) is a great sign that millennials will want to own homes. We are already seeing this in the high-demand environment that we are currently experiencing in the starter and trade-up markets.

      Bottom Line

      Even though millennials took longer than many of the generations before them to start home searches of their own, the data shows that they will not be waiting much longer!

      Top 3 Myths About Today's Real Estate Market

      Top 3 Myths About Todays Real Estate Market | MyKCM

      There are many conflicting headlines when it comes to describing today’s real estate market. Some are making comparisons to the market we experienced 10 years ago and are starting to believe that we may be doomed to repeat ourselves. Others are just plain wrong when it comes to what it takes to qualify for a mortgage.

      Today, we want to try and clear the air by shedding some light on what’s causing some of these headlines, as well as what’s truly going on.

      Myth #1: We Are Headed for Another Housing Bubble

      Home prices have appreciated year-over-year for the last 76 straight months. Many areas of the country are at or near their peak prices achieved before the last housing bubble burst. This has many worried that we are headed towards another housing bubble.

      Reality: The biggest challenge facing today’s real estate market is a lack of homes for sale! Demand is strong, as many renters have come off the fence and are searching for their dream homes.

      Historically, a normal market requires a 6-month supply of inventory in order for prices to rise with the rate of inflation. According to the National Association of Realtors (NAR) there is currently a 4.3-month supply of inventory.

      The US housing market hasn’t had 6-months inventory since August 2012! The concept of supply and demand is what is driving home prices up!

      Myth #2: The Rumored Recession Will Lead to Another Housing Market Crash

      Economists and analysts know that the country has experienced economic growth for almost a decade. When this happens, they also know that a recession can’t be too far off. But what is a recession?

      Merriam-Webster defines a recession as “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two consecutive quarters.”

      Reality: Recession DOES NOT equal housing crisis. Many people associate these two terms with one another because the last time we had a recession it was caused by a housing crisis. According to the Federal Reserve, over the last 40 years, there have been six recessions. In each of the previous five recessions, home values appreciated.

      Myth #3: There is an Affordability Crisis Looming

      Rising home prices have many concerned that the average family will no longer be able to afford the most precious piece of the American Dream – their own home.

      There are many different affordability indexes supported by different organizations that all measure different data. For this reason, there is a lot of confusion about what “affordable” actually means.

      The monthly cost of a home is determined by the home’s price and the interest rate on the mortgage used to purchase it. According to Freddie Mac, interest rates have risen from 3.95% in January to 4.59% just last week.

      Reality: As we mentioned earlier, home prices have appreciated year-over-year for the last 76 months, largely driven by high demand and low supply.

      According to a recent study by Zillow, the percentage of median income necessary to buy a home in today’s market (17.1%) is well below the mark reached in 1985 – 2000 (21%), as well as the mark reached in 2006 (25.4)! Interest rates would have to increase to 6% before buying a home would be less affordable than historical norms.

      The starter-home market has appreciated at higher levels (9.4% year-over-year) than any other market. One reason for this is the fact that many of the first-time buyers who have flocked to the starter-home market are being met with high competition. For some hopeful buyers, it may take more than a good offer to stand out from the crowd!

      Bottom Line

      There is a lot of confusion in today’s real estate market. If your future plans include buying or selling, make sure you have a trusted advisor and market expert by your side to help guide you to the best decision for you and your family.

      Rent or Buy: Either Way You're Paying A Mortgage!

      Rent or Buy: Either Way Youre Paying A Mortgage! | MyKCM

      There are some people who have not purchased homes because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize, however, that unless you are living with your parents rent-free, you are paying a mortgage – either yours or your landlord’s.

      As Entrepreneur Magazine, a premier source for small business explained in their article, “12 Practical Steps to Getting Rich”:

      “While renting on a temporary basis isn’t terrible, you should most certainly own the roof over your head if you’re serious about your finances. It won’t make you rich overnight, but by renting, you’re paying someone else’s mortgage. In effect, you’re making someone else rich.”

      With home prices rising, many renters are concerned about their house-buying power. Mark Fleming, Chief Economist at First Americanexplained:

      “Over the last three years, renter house-buying power has increased fast enough to keep pace with house price appreciation, so the share of homes that a renter can afford to buy has remained the same since 2015.

      Although mortgage rates are expected to rise, they are still low by historic standards, and real household incomes are the highest they have ever been. Assuming this trend continues, our measure of affordability, which takes into account income, interest rates, and house prices, indicates thathomeownership is still within reach for renters.”

      As an owner, your mortgage payment is a form of ‘forced savings’ which allows you to build equity in your home that you can tap into later in life. As a renter, you guarantee the landlord is the person building that equity.

      Interest rates are still at historic lows, making it one of the best times to secure a mortgage and make a move into your dream home. Freddie Mac’s latest report shows that rates across the country were at 4.51% last week.

      Bottom Line

      Whether you are looking for a primary residence for the first time or are considering a vacation home on the shore, now may be the time to buy.

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