Covid-19

Is the Market Cooling Off?

The housing market has been on fire this year, but the first signs of cooling down are beginning to appear. The market is sure to remain tight, with prices continuing to rise, inventories remaining low and buyer demand remaining strong. However, price gains look to be moderating after the spectacular and somewhat unsustainable pace we have seen so far this year. Nationwide, home prices were up double digits from the previous year. Home prices were rising beyond the level that many buyers could stomach. Look for home price gains to slow this year, up another 3.5% by year-end, after a sharp 8.2% so far (Kiplinger). Interest rates have fluctuated a bit in recent months, but they are still below 3%, making them attractive when compared to pre-pandemic rates. Since most homebuyers purchase as much home as their mortgage payment will allow, lower mortgage rates can quickly juice up demand and home prices, particularly when there is a shortage of homes like we’ve seen this year. Homebuyers will continue to get a great deal on their mortgage, thanks to mortgage rates hovering around those record lows. Sales are slowing though, with existing homes logging sale declines over the past four months. Pending sales were also down after peaking in May. Inventories though slim, aren’t falling the way they had been, and available listings are trending up. Competition is slightly less intense now than it was this spring. Some Realtors are reporting that new listings are no longer getting a flood of offers on the first day they hit the market, as was common earlier this year. The market is shifting as buyers are holding off on purchasing due to buyer fatigue. The wave of demand that powered the housing boom seems to be slowing as buyer optimism wanes. Buyers don’t want to be forced in a house they don’t love. Buying a home is a big deal and it’s not the time to make a rash decision and put in an offer on a home that you are not sure about. Builders are trying to take advantage of strong demand for new homes and help aid low inventory. However, with building materials increasing in expense and skilled labor being hard to find, there is only so much they can do. On a national level, construction isn’t going fast enough to effectively ease the shortage, but it certainly has helped. Experts predict we won’t be out of a seller’s market anytime soon but the signs of the market cooling off are there and it can only get better for buyers who are sticking with the market.
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The Cost of Waiting in 2021

If you have buyers leaving the market it may be because they are waiting for the market to crash or waiting for home prices or interest rates to go down. Truthfully, neither is likely to happen anytime soon. There's no question that the real estate market is red hot. Despite fierce competition, now is the perfect time for buyers to buy purchase! The housing market is seeing major gains this year, especially in Salt Lake City. Homes are appreciating faster than ever. Not looking into the market at this opportune time could hurt more than help your clients in the long run. Even with all of this talk around the “housing bubble” bursting and fear of an impending crash like that of 2008, the market today is completely different from where it was back then. In 2006-2008, mortgage lenders were watering down lending standards, and providing loans for people with questionable credit. Lenders are more cautious now. They have tightened credit standards and as the economy continues to get back to normal from the pandemic, lenders are staying selective. A crash is highly unlikely anytime soon. Also, to consider is how much gain homeowners have been seeing, from a financing and strategy standpoint, people are going to be less likely to let their homes go even when appreciation slows down. Since they have built up so much equity in their property already. I hate to be the one to break the news but if your clients are waiting for prices and interest rates to lower it is honestly not in the cards anytime soon. There has been a 20% increase year over year in home prices. So the thought that prices are going to fall back to the lows from a year or two ago, is unlikely with demand being so high. Even though rates are higher today than they were at the beginning of the pandemic, they are still fantastic when compared to rates four or five years ago. While we don’t know for certain if they will go down, we do know they will go higher in the coming months. The federal reserve is still involved in keeping mortgage rates down, but at some point this policy could change. So, the best bet is to think that interest rates are going to be higher in the coming years and get your clients locked into the low rate of today before it’s gone. If you have a buyer on the fence about purchasing in the summer market, send me their information. I would be happy to review their situation and advise them on a strategy that will help them be a successful buyer in today’s market.
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3.8 Million Homes Needed to Close the Affordable Housing Gap

A recent Freddie Mac study on the U.S. housing supply found that approximately 3.8 million additional homes are needed in order to close the affordable housing gap. The ongoing housing shortage is large and rising, due in part to the effects of the pandemic, as well as the high demand for homes coming from eager buyers rapidly entering into the purchasing market. Even before the COVID-19 pandemic and current recession, the housing market was facing a substantial supply shortage. In 2018, it was estimated that there was a housing supply shortage of approximately 2.5 million units, meaning that the U.S. economy was about 2.5 million units below what was needed to match long-term demand. Using the same methodology, it was estimated that the housing shortage increased to 3.8 million units by the beginning of 2021. The main driver of the housing shortfall has been the long-term decline in the construction of single-family homes as builders struggle to meet exploding demand. In 2020, it was estimated that there were only 65,000 new entry-level homes completed—less than one-fifth of the entry-level homes constructed per year in the late 1970s and early 1980s. "The U.S. is currently experiencing an increase in housing demand that is well beyond what record low mortgage rates would typically yield as many people are spending more time at home. This high demand has driven the housing supply shortage even higher and has caused home prices to rise over 12% from a year ago." Freddie Mac experts do not expect housing demand to decrease any time soon.

*Source: Freddie Mac- Perspectives & Research*

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Low Mortgages Rates are Propelling Wave of Cash-Out Refinances

The continuation of favorably low interest rates has propelled a wave of cash-out refinances, the most we have seen since the financial crisis of 2008. Many think this is cause for concern, but its not; at least not yet. Given the rapid growth in the home process in the last year, the share of cash-out refinances isn't terribly high. There were more during earlier housing booms, including the housing crash 15 years ago. A cash-out refinance allows a borrower to swap their current loan for a new one with a higher balance. So, homeowners can pay off their old mortgage and still have cash left over. A recent report found that in 2020 the amount of equity tapped into through cash-out refinances increased by 42%. These days, it appears that most borrowers are using the funds to pay down other debt and to update their homes. Home improvement spending sky-rocketed during the pandemic. Homeowners are sitting on a lot of home equity right now and what a lot of people are doing is taking this money, getting a cash-out refinance, and using the cash to make renovations to their home. Many projects from adding a screened-in porch, updating a bathroom, creating a home gym or adding an official home office all add to overall value of a home. These are smart moves to make as the improvements are actually going to help their home sell for a significantly higher amount of money in a few years. It's important to do home improvements that are low cost but add the biggest value to your home. Interested in looking into the amount of equity you could tap into? Reach out about a cash-out refinance. Whether you are looking to pay off some debt or complete a home remodel, we can help guide you ever step of the way. Call today! 801.206.4343

*Source: Kiplinger Letter: Vol.98, No.10**

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Seller Confidence is Growing Due to Vaccines

Last fall, a published Zillow report found that 29% of homeowners reported that their life or financial situation was too uncertain to enter into the housing market. The share of homeowners feeling this uncertainty dropped to 25% at the beginning of this year. This is a sign that potential sellers are growing more confident thanks to the continued demand for homes, rapid home appreciation and vaccine distribution. Homeowners who decided to sell their homes during the uncertainty of 2020 were rewarded with offers above list price, shorter selling times and buyer demand that has lasted well past the traditional “peak” selling season. That trend is likely to continue into 2021 as vaccine distribution continues to help re-jump the economy. The vaccine rollout will likely bring a boost of inventory that the market desperately needs, as sellers become increasingly willing to move now that the pandemic is more under control. This will result in a greater number of new listings beginning this spring. This increase in inventory will give buyers much needed breathing room and more options in an extremely competitive market. The pandemic triggered a buying frenzy, at first with wealthy city-dwellers wanting to get away to suburban life. As companies have continued to let more of their staff work from home, people have realized they can live far from the office, in whatever location suits their desires. These flurry of activity will die off eventually, but for now it continues to be a motivating factor. Economists are forecasting a pretty hot market in 2021, driven by historically low mortgage interest rates and a surge of young buyers approaching prime home buying years. If you’re feeling overwhelmed or uncertain about the current market, the best thing to do is to talk to a mortgage professional who can answer all of your questions. We can tell you what kind of mortgage you qualify for, and the best strategy to help you achieve your real estate goals. Contact us today with any questions you have about buying or selling. 801.206.4343

**Source: Zillow Premiere Agent & MBS Highway**

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Is Inflation Going to Get Out of Hand in 2021?

A question on many minds these days: Is inflation about to get out of hand from all of the money the Federal Reserve is creating and all the money that Congress is spending? The ingredients for inflation are active in the economy. There is a lot of fiscal and monetary stimulus as congress and the Federal Reserve work to jumpstart the economy after the hit it took from the pandemic. The Recent stimulus bill amounted to about $5 trillion. There is a lot of pent-up demand from consumers, who have had to defer much of their normal spending during the year, on everything from meals out, to travel, to haircuts, to professional clothes for the office. Already, signs of inflation rising are appearing with rising commodity prices and bond yields. Rising home prices don’t factor into government inflation numbers, but they do affect many people's cost of living. However, the Federal Reserve isn't worried. Chairman Jerome Powell is betting that inflation won't get out of hand and that reviving the economy is more important right now. In fact, he actually wants some inflation…not too much, but something a bit above the traditional ceiling of about 2%. If prices do start to jump, Powell figures the Fed can increase interest rates to restrain inflation sometime down the road. Still, higher inflation is expected in the months ahead. Inflation is roughly rising 0.2% a month, which is a reasonable base assumption. If that is the case, we should see 1.5% inflation in March, but it will quickly rise to 2.1% and then 2.4% in April and May, at that relatively being 0.2% assumption. As you can see the increase isn’t outrageous, but it is high enough that consumers will notice. Inflation should begin to relax as we continue to see the economy opening up. There was a surge of jobs added in March as more businesses get back to normal operations. Schools, food service, hotels and amusement parks made up half of the increase this year already. Construction jobs also increased as the weather continues to warm up across the country. With people returning to work the unemployment rate for the country is down to 6% and should continue to fall quickly, hopefully dropping below 5% by the end of the year. One silver lining of the increase in inflation this year is a bigger cost-of-living adjustment for Social Security recipients in 2022. This year's COLA came in at only 1.3%, largely because so many prices dropped or stayed steady in 2020, when pandemic shutdowns effected the economy. Now, prices of gasoline and many other goods and services are rebounding. Figure a jump of social security benefits of about 3% next January.

*Source: Kiplinger Letter: Vol.98, No.10**

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Smart Way to Spend Your Stimulus Check

You may be wondering how to best use the $1,400 payment you may have received as a result of the latest round of stimulus relief. One thing may folks will be doing with their stimulus money is investing it! A recent survey shows that retail investors on average plan to put 37% of their stimulus into stocks. For those investors ages 25-34, the intended share is close to half. Data from the Census Bureau show that of all Americans that received a payment, 15% were putting at least some into savings or investments. One of the best ways to build wealth is by investing. Investing allows you to put your money into accounts that have the potential to bring you a strong return. If you don’t invest, you are missing out on opportunities to increase your financial worth. There is the downside that you have the potential to lose your money in investments, however, if you invest wisely, the potential to gain money is significantly higher than if you never invest. When it comes to investing you don't just have to invest in stocks. You can invest in real estate either through owning your own home, purchasing a home as a rental or vacation property or purchase an investment building. When you invest in real estate, you are putting some of your money into the equity of the property, which is like a forced savings account that can bring you a strong return down the road. Plus, with homes expected to appreciate by 6% in 2021 you could be looking at an amazing return on your investment! Have questions about investing in real estate? Reach out to us by email or give us a call at anytime.
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