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Nobel Prize recipient, Richard Thaler, in his research into seemingly irrational economic behaviors, “found that consumers generally search too little, get confused while evaluating complex alternatives, and are slow to switch from past choices, even if it costs them.” “Why are consumers leaving money on the table?”

Based on this behavior, a borrower securing a mortgage might depend on their existing banking relationship or a single referral from a friend or agent rather than shopping multiple lenders.

When shopping for a lower mortgage rate, consider that not all lenders share the same business practices.  Some may lure unsuspecting borrowers to a rate, knowing full well that they cannot deliver on it.  After making a loan application and supplying information necessary for approval, they reveal that the rate is not available for “whatever” reason.

They’re counting on the borrower wanting to get into the home because the closing date is near and they’ll compromise by accepting the higher than quoted rate.

Shopping for a mortgage rate can result in savings because rates are set by individual lenders.  To get an apples-to-apples comparison, the terms of the mortgage being shopped should be consistent among the lender candidates.

Consumers can make additional savings by not only shopping for better rates but for better terms and fees, which can vary widely among lenders.

The amount of savings can be affected not only by the difference in rates, but the size of the mortgage and the length of time borrowers expect to keep it without refinancing or selling.

• Advertised rates are generally for A++ borrowers and the determination is the lender’s based on many factors.  It may be unlikely those rates are offered to you. 
• A recommendation for the best lender from a friend or family member will not necessarily be the best for you.
• Instead of accepting the first offer received, shop for at least three to five offers.
• Your personal bank may be convenient but it may not offer you the best rate, terms, and fees.
• Ask if there is room to negotiate the rate or fees.

Ask your real estate professional for recommendations of several trusted lenders for you to shop a rate, terms, and fees. 

Filed under: Blog by Chris Clark
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A person’s decision to sell their home comes with a lot of other decisions causing an owner to stress or procrastinate.  Early in the process, the owner will consider selling the home “As Is” to avoid the looming issues that accompany selling a home.

From a seller’s standpoint, “as is” means the buyer will purchase the home in its current condition without asking for any repairs.  While it is convenient for the seller to take this approach, the normal trade out is the property will not result in the highest possible sales price.

Regardless of how the home is sold, the seller is required to disclose all defects which include repair history, condition of systems and appliances, water damage, pest infestation, radon, and other things that affect the value and livability of the home.

From a buyer’s point of view, they may think there is something wrong with the home which could result in them avoiding the home completely or making a substantially lower offer to cover not only the known issues but also the unknown ones.

It would be reasonable for a seller to allow a buyer to make inspections to determine what the condition of the home and what kind of expenses they might be faced with.  In some situations, based on provisions in the sales contract, the buyer, after making inspections, may decide not to continue with the contract which could extend the marketing time for the seller by having to find another buyer.

Selling a home “as is” is like wholesaling the property.  A comparison could be trading your car to a dealer when buying a new one.  The dealer will usually give you the best price for the new car but won’t offer you a retail price for the trade-in.  If the dealer were to give you a “retail” price for the trade-in, they would probably expect a “retail” price for the new purchase.

Even if the seller doesn’t want to go through the effort to make major improvements, they still need to consider things that will ease the buyers’ concerns about the home.  These include a thorough cleaning, decluttering, yard cleanup, and repairs on known issues like leaking faucets, lighting, doors, and appliances to name a few examples.

If this path is taken, the cost to the seller will be not realizing the maximum sales price compared to comparable homes that have sold recently in the area that have been updated.

There are companies who will buy your home for cash.  Their ads are very appealing to sellers because it solves their concerns about putting the home on the market.  Realize these companies are not charities but “for profit” who expect to be able to recoup the money paid to you, pay all repairs, renovations, and sales expenses plus make a profit for the risk taken.

As a homeowner, you will always realize more of your equity by approaching it with a risk/reward analysis to determine how to sell it for the highest price with the least expenses.  Your real estate professional will act as a fiduciary to put your best interests ahead of their own.  It is worth the effort before embarking on an “as is” scenario.

Filed under: Blog by Chris Clark
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Doing nothing may be a lot more costly than doing something.  With rates twice what they were in 2021 and the first half of 2022, many buyers are sitting on the sideline.  For some, it has to do with not being able to afford the home they want at today’s mortgage rates and for others, it is not willing to accept that the low rates that were available are not only gone, but may never be available again.

In the late 70’s, rates were around 10% and in the early 80’s went up to 18%.  Interestingly, many buyers went ahead and purchased at those record level highs and refinanced a few years later when rates came down.  By the end of the decade, prices had continued to increase so that buyers had a significant equity in their home.

Tenants who waited for the rates to go down didn’t see savings because the price of homes had gone up.  More importantly, they missed the opportunity to build equity in their home through amortization and appreciation.

If you purchased a $400,000 home today on an FHA loan at 6.3% for 30 years, your total payment with taxes, insurance, and mortgage insurance premium would be about $3,459 a month.

That payment could save you a little bit if you were paying $3,500 for rent.  However, when you consider the monthly appreciation, assuming a 3% annual rate, and the monthly principal reduction due to amortization, the net cost of housing would be $2,229.  You would be paying $1,270 more each month to continue to rent which would amount to over $15,000 in one year alone. 

That loss would be about twice the amount of the down payment to get into the home.  Furthermore, in seven years, at the same 3% appreciation, your $7,500 investment in a down payment would grow to $138,000 in equity in seven years.  If the appreciation is greater than that, the equity would be much more.

You’re going to be paying rent to live in a home; you might as well benefit from the equity buildup from amortization and appreciation that is only available to the owner.

The benefit of acting now is that sales are down which are affecting prices, although not dramatically.  When the Fed gets a handle on inflation, and interest rates do moderate some, more buyers will be in the market and supply and demand will again cause prices to rise.  Then, you can refinance to a lower rate but your investment in the home will be at a lower basis.

To run your own numbers, use our Rent vs. Own.  If you have questions, call me and I’ll explain how to use it and what to expect for the home you’d like to have.

Filed under: Blog by Chris Clark
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There are fees and expenses associated with mortgages that must be paid by the closing date for closing costs, and pre-paid items, in addition to the down payment.  These amounts can vary according to the type of loan, mortgage company, customary practices of the area, and the terms of the contact.

According to Freddie Mac, the amounts could vary between 2-5% which is considerable.  Most buyers want a more specific number and that can depend on the conditions mentioned previously.

For buyers, the largest amounts are loan origination fees which is usually one percent of the amount borrower, points paid by buyer which are one percent or more of the mortgage amount, owner’s title policy if paid by the buyer, and the pre-paid items mentioned above.

Certain types of mortgages allow the seller to pay specific closing costs for the buyer with full disclosure in the sales contract.  For example, all the buyers’ closing costs can be paid by the seller for VA mortgages up to 4% of the sales price.  FHA and USDA allow sellers to pay up to 6% of the sales price to be used for closing costs and pre-paid items.

For conventional loans, underwritten by Fannie Mae or Freddie Mac, sellers can contribute up to 3% if the down payment is less than 10% and up to 6% if the down payment is 10-25%.

Asking a seller to pay a buyer’s closing costs is tantamount to lowering the price of the home.  In a highly competitive market, the seller may be less willing to pay a buyer’s closing cost than in a soft market.

Settlement dates affect the amount of pre-paid interest. Mortgage interest is paid in arrears, after the money has been used.  The principal and interest portion of the payment is allocated to pay for the interest on the principal balance for the previous month and the remainder is applied to reduce the principal of the loan.  Each succeeding payment has less going to interest and more going to principal until the loan is fully retired.

When a buyer closes on the sale of a home, the first payment will not be due until first of the month following the next full month after closing.  The buyer is also responsible for interest from the funding date, usually at closing.  This amount is usually reflected on the buyer’s closing statement, as interest to the end of the month.  It pre-pays the interest from closing until the next first of the month.

If the buyer closed on the 2^nd of the month, the pre-paid interest would be far greater than if the buyer had closed on the last day of the month.  To minimize this out of pocket expense, many times closings will be scheduled toward the end of the month.

Another large buyer’s closing cost is property insurance.  The lender will require that the home be insured for at least the amount of the mortgage being borrowed.  Insurance must be paid for in advance, usually at closing.  In addition to the annual premium, the lender may require an escrow account be established to collect 1/12 of the annual property taxes and property insurance to be paid with the payment so there is enough money in the account to pay them when they are due.

When setting up the account, the lender may require an additional two months of reserves for the insurance to be renewed in advance of the policy expiring.

The amount of reserves for the taxes depends on when the taxes must be paid.  At closing, the seller will credit the buyer with the amount of taxes from January 1 to the closing date since taxes are also paid in arrears.  The lender will probably have the buyer pay two to three months’ taxes additionally at closing so the tax bill can also be paid before it is due.  Some states give the taxpayer a discount for paying them in advance.

Your real estate agent will be able to give you an estimate of closing costs that should prepare you to purchase a home.  The lender is required by law to supply you with a Loan Estimate within three days of receiving your loan application.

A Closing Disclosure will provide the final details of the mortgage loan you have selected.  It includes loan terms, estimated monthly payment, and the fees and other costs incurred with the mortgage.  You must receive it three business days before you close on the mortgage loan so that you can compare it with the Loan Estimate.

Filed under: Blog by Chris Clark
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Last week the Fed raised the federal funds rate 25 bps instead of 50 bps, and mortgage rates continued to improve.  It’s likely the Fed eases their aggressive rate hikes and many expect rates to drop into the 5% range by Q4.The recent rate drop saves a $500k buyer over $300/mo.  This opens a window of opportunity for buyers who were sidelined by affordability concerns.

• Multiple offers are in full effect in many markets and buyers need to understand the driving factor:  lack of inventory.  The single family home sector is very low right now due to the “lock in effect”, and it doesn’t look to be improving anytime soon.

Filed under: Blog by Chris Clark
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Sales in February 2023 were up 14.5% month over month and still down 22.6% year over year according to the NAR Housing Snapshot.  The median sales price dipped 0.2% to $363,000 and there are 2.6 months supply of homes on the market compared to 1.7 months a year ago.

“Inventory levels are still at historic lows, and consequently, multiple offers are returning on a good number of properties.” According to Lawrence Yun, Chief Economist for the National Association of REALTORS®.

It is still important to have a strategy for potentially competing with other buyers on the house you want to buy.  The plan should include several available provisions and options, so that at the time of drafting the sales offer, you can consider exactly what to include based on the situation.

Unless a person is paying cash, you need to be pre-approved by a trusted mortgage professional long before you start looking at homes.  Include the written pre-approval letter along with the offer.  When you are making an offer on a home, have the mortgage professional available to reassure the listing agent by phone who will convey that to the seller.

If you’re concerned about multiple offers, make your best offer first because you may not get to counter and simply lose out to another buyer.  Starting with a low offer and gradually coming up doesn’t work in highly competitive situations.  In some cases, a low-ball offer could cast a pall on any consideration of your purchase contract altogether.

The listing agent will calculate the expenses on the different offers for the seller to show them what their net proceeds will be on each contract.  Some types of financing have more costs incurred to the seller.  Asking the seller to make repairs or other financial concessions could lower their net even though your offer may be higher.

From a buyer’s standpoint, contingencies provide options for things that may be uncertain like qualifying for a mortgage, discovery of major impediments to the condition of the home, and other things.  To the seller, they are obstacles that may invalidate the contract causing the home back on the market.  If the contingencies are necessary, try to make them as palatable to the seller as possible.

Instead of waiving your rights to make inspections, consider a very short inspection period to minimize the time the property is in limbo.  Instead of asking for repairs, provide a simple “accept or reject” once the inspections have been made.

Try to accommodate the seller’s desired closing and possession dates.  Sometimes an earlier date may be more desirable for a seller and other times, it might be a later date based on the home they’ll be moving into.  Your agent can do some research and find a flexible alternative that may appeal to the seller.

Increase your earnest money deposit more than the minimum.  It is a pecuniary indication that you are serious.  Your agent can tell you what that amount should be and alternatives like increasing the earnest money after certain contingencies have been met.

Escalation clauses state that you are willing to increase your offer by a certain amount up to a specified maximum, subject to another bona fide offer being received before yours is accepted.  Your agent will be able to further explain how these might work in your situation as well as share their experience with them in other similar negotiations.

You as a buyer and your offer to purchase need to be seen as the solution to the seller’s situation in price, terms, and reliability to close.  Working with an experienced agent with seasoned negotiation skills is key to your success in buying a home in a competitive environment.   Download our Buyers Guide.

Filed under: Blog by Chris Clark
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Filed under: Blog by Chris Clark
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Mortgage rates, which have risen more than half a percent over the last five weeks, fell this week amid fears about the sturdiness of the nation’s banking industry. Silicon Valley Bank and two others that primarily support the technology industry shuttered operations, sending shock waves through the U.S. economy.

The 30-year fixed-rate mortgage decreased to 6.6% this week, Freddie Mac reports. That means most Americans can afford to buy a median-priced home and spend less than 25% of their gross income on their monthly mortgage payment—a gauge for measuring affordability—says Nadia Evangelou, senior economist and director of real estate research at the National Association of REALTORS®.

“Rates may decrease even further in the coming weeks, depending on reactions in the financial market and the outcome of the Fed’s meeting next week,” Evangelou adds. The Federal Reserve meets next week to decide the trajectory of its short-term benchmark interest rate and whether to continue or pull back on aggressive hikes.

Mortgage rates largely follow the course of 10-year Treasury yields, which have been falling ever since the announcement of the closures of Silicon Valley Bank, Signature Bank and Silvergate Capital.

“Turbulence in the financial markets is putting significant downward pressure on rates, which should benefit borrowers in the short-term,” says Sam Khater, Freddie Mac’s chief economist. “During times of high mortgage rate volatility, home buyers would greatly benefit from shopping for additional rate quotes.”

Freddie Mac’s research shows that home buyers could potentially save $600 to $1,200 annually by taking the extra time to shop and collect quotes from multiple lenders.

Freddie Mac reports the following national averages with mortgage rates for the week ending March 16:

30-year fixed-rate mortgages: averaged 6.6%, dropping from last week’s 6.73% average. Last year at this time, 30-year rates averaged 4.16%.
15-year fixed-rate mortgages: averaged 5.9%, dropping from last week’s 5.95% average. A year ago, 15-year rates averaged 3.39%.

by Melissa Tracey
Melissa Dittmann Tracey is a contributing editor for REALTOR® Magazine, editor of the Styled, Staged & Sold blog, and produces a segment called “Hot or Not?(link is external)” in home design that airs on NAR’s Real Estate Today radio show. Follow Melissa on Instagram and Twitter at @housingmuse.

Filed under: Blog by Chris Clark
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The housing market in 2021 and part of 2022 was anything but normal.  Mortgage rates were at all time lows and may never reach those levels again.  Double-digit appreciation drove prices to new heights.  Low inventories fueled by high buyer demand made multiple offers a normal expectation.

As we look at the market snapshots provided by MLS in the various markets across the U.S., it appears that things may be returning to normal, but not necessarily in all areas.  While there are more homes on the market now than a year ago, there are less sales due primarily to the doubling of mortgage rates in 2022.

Time on the market is lengthening but that can be explained by the removal of approximately 15 million homebuyers who now have affordability issues.  When the market shifted, sellers expectations for what they thought their home is worth are not keeping pace with current conditions.

Some sellers who didn’t put their home on the market in 2021 and 2022 for whatever reason, remember the peak of the prices they could have sold their home for and now that they are ready, instead of looking at today’s prices, still expect to get the higher value.

Every experienced agent knows that all real estate is local and while you can look at trends on a national basis, it takes a knowledgeable professional to assess the local market, even on a neighborhood basis, to determine what a property will reasonably sell for currently.

A seller who has owned their home for several years is going to realize a good profit and return on their investment.  If they are ready to sell in today’s market, that should be their focus and not on what might have been, had they sold at the recent high.

There is no way to predict when prices will achieve their high whether it is in stocks, bonds, commodities, or housing prices.  It is only after it has hit the pinnacle and started retreating, that It can be identified.

Don’t be concerned about the market you missed regardless of whether you are a buyer or a seller.  When real estate is viewed as a long-term investment, time takes care of things that can be incredibly stressful in the short term.

The average 30-year fixed-rate mortgage for the last 50 years is 7.76% according to the Freddie Mac PMMS survey.  The current 6.60% is considerably below that benchmark and it appears to be trending lower.  The current rate is what today’s buyer must pay to borrow.

Home prices have experienced 7.16% appreciation for the last fifty-five years according to the Federal Reserve Economic Data of the St. Louis Fed.  Compared to the average inflation rate of 4.3% for the same period, homes provide a hedge against inflation and a significant contribution to personal net worth.

If you’re in the market to buy or sell, contact your real estate professional to find out what your market is doing and what options you have available.

Filed under: Blog by Chris Clark
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Time.com

Mortgage rates are rising, and the housing market appears to be softening nationwide. But in many U.S. markets, would-be buyers are facing a big problem: there’s just nothing to buy. Housing inventory—the number of homes on the market—has been falling since the rebound from the Great Recession as investors snapped up homes and as more older Americans decided to age in place.

Some housing analysts predicted that inventory would start to climb as builders scrambled to finish more new homes. But in markets where there’s not a lot of new construction, including Hartford, Conn. and Buffalo, N.Y., inventory is hovering near historic lows, according to data crunched by Redfin and provided to TIME.

“I don’t think I’ve ever seen it this bad,” says Becky Koladis, who has been a real estate agent in Hartford for 23 years. “There’s just not a lot to choose from.”

In December, Hartford had just 1.4 months of housing supply, meaning it would take just 1.4 months to sell all the homes on the market at the current pace of demand. Hartford has had less than two months of supply since mid-2021, according to the Redfin numbers; in February 2019, by contrast, it had 5.9 months’ supply. In decades past, economists would say that a balanced housing market has between four and six months of supply, “but we haven’t seen that since the bottom of the last housing market,” says Daryl Fairweather, Redfin’s chief economist.

One reason inventory is so low nationally is that many homeowners were able to lock in record low interest rates in 2020 and 2021. Mortgage rates have skyrocketed since then—the rate for a 30-year fixed mortgage reached 6.7% on March 9, nearly double that of a year ago, according to Freddie Mac. That means that homeowners who bought or refinanced with low interest rates are reluctant to sell their homes and buy another with a mortgage with a much higher interest rate.

The low inventory makes house hunting an even more painful and emotionally charged process than usual, because buyers are finding that there just aren’t that many options. They have to choose between paying a high price for the inventory that is available, or waiting—potentially for a long time.

There are factors at play that make some markets especially brutal. In January, according to Redfin, the places out of the top 100 most-populated metro areas in the country with the lowest inventory were Rochester, N.Y. (1.2 months’ supply); Buffalo, N.Y. (1.4 months’); and Allentown, Penn. (1.5 months’). Rounding out the top ten were Grand Rapids, Mich.; Worcester, Mass.; Greensboro, N.C.; Hartford; Boston; and Montgomery County, Penn.

Aside from Boston, these regions aren’t the ones typically mentioned in the same sentence as “housing crunch,” but there are a few reasons that these Northeastern metropolitan areas are seeing such low supply, Fairweather says.

First off, they’re seen as relatively affordable, so people who have been priced out of places like New York City are heading to smaller cities to be able to own a house. Koladis, the Hartford real estate agent, says she’s seen a lot of buyers relocate to Hartford from New York, New Jersey, and even California.

Second, they’re places in the dense Northeast where there’s not a lot of land to build on, and so there’s not a lot of new construction happening. The U.S. has increasingly come to depend on new construction for inventory—one in three homes for sale right now is new construction, Fairweather says. In 2021, the rate was more like one in four. The current dependence on new construction means that markets where there has been a lot of building in the last few years have a lot more inventory. That includes Austin, Nashville, and Dallas, for instance, three markets that saw prices jump in the last few years because there were bidding wars on existing homes. As more inventory comes on the market, prices level off.

One other reason that there’s low inventory? The influx of investors who have bought properties, including single-family homes, to rent. Investors bought 24% of all single-family homes in 2021, up from around 15-16% each year going back to 2012, according to a Pew Stateline analysis.

“Institutional investors are…making this market more difficult,” says Peter Chabris, a real estate agent in Cincinnati, Ohio, where there is also very low inventory. Three homes went into contract in Cincinnati in February for every new one that was listed, he says.

“It’s stressful, it’s highly competitive, and it’s emotionally challenging,” he says, about buying a home right now.

It’s something buyers across the country are going to reckon with as spring—the traditional home-buying season—approaches and mortgage rates continue to rise. The Federal Reserve has steadily raised interest rates in an effort to tame inflation, and Fed Chair Jerome Powell suggested, when testifying before Congress on March 8, that the Fed would likely need to continue to bring interest rates higher than originally anticipated.

Winifred Jones has been going through the emotional roller coaster that is trying to buy a home for six years. She wants a multifamily property in Hartford, Conn., so that her adult children can live with her but also have their own space. Every year, she says, there’s been more and more competition, and more investors coming in and outbidding her with cash. She’s so sick of getting outbid for homes and then seeing them come up for rentals a few months later that she and her realtor are thinking of trying to find homeowners who are going to sell before they officially list their properties for sale. Until then, she says, she has little optimism she’ll find something.

“There’s just nothing to bid on,” she says. “It’s either way overpriced or not worth it for the money.”

Filed under: Blog by Chris Clark
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