Mortgage demand rises 2.2% as interest rates decline slightly

Mortgage applications rose 2.2% last week compared with the previous week, prompted by a slight decline in interest rates, according to the Mortgage Bankers Association’s seasonally adjusted index.

Refinance applications, which are usually most sensitive to weekly rate moves, rose 2% for the week but were still 86% lower than the same week one year ago. Even with interest rates now back from their recent high of 7.16% a month ago, there are precious few who can still benefit from a refinance — just 220,000, according to real estate data firm Black Knight.

Mortgage applications to purchase a home rose 3% for the week, but they were down 41% from a year ago. Some potential buyers may now be venturing back in, hearing that there is less competition and more negotiating power, but there is still a shortage of homes for sale and prices have not come down significantly.

Rates are still twice what they were at the beginning of the year, but they eased somewhat last week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased to 6.67% from 6.90%, with points increasing to 0.68 from 0.56 (including the origination fee) for loans with a 20% down payment.

“The decrease in mortgage rates should improve the purchasing power of prospective homebuyers, who have been largely sidelined as mortgage rates have more than doubled in the past year,” Joel Kan, an MBA economist, said in a release. “With the decline in rates, the ARM share [adjustable-rate] of applications also decreased to 8.8% of loans last week, down from the range of 10% and 12% during the past two months.”

Mortgage rates haven’t moved at all this week, as the upcoming Thanksgiving holiday tends to weigh on volumes.

“It’s not that things aren’t moving. They just aren’t moving like normal,” said Matthew Graham, chief operating officer at Mortgage News Daily. “Expect things to get back closer to normal next week, but for the market to continue to wait until December 13 and 14 for the biggest moves.”

That’s when the government releases its next major report on inflation and the Federal Reserve announces its next move on interest rates.

Fed officials see smaller rate hikes coming ‘soon,’ minutes show

Federal Reserve officials earlier this month agreed that smaller interest rate increases should happen soon as they evaluate the impact policy is having on the economy, meeting minutes released Wednesday indicated.

Reflecting statements that multiple officials have made over the past several weeks, the meeting summary pointed to smaller rate hikes coming. Markets widely expect the rate-setting Federal Open Market Committee to step down to a 0.5 percentage point increase in December, following four straight 0.75 percentage point hikes.

Though hinting that less severe moves were ahead, officials said they still see few signs of inflation abating. However, some committee members expressed concern about risks to the financial system should the Fed continue to press forward at the same aggressive pace.

“A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate,” the minutes stated. “The uncertain lags and magnitudes associated with the effects of monetary policy actions on economic activity and inflation were among the reasons cited regarding why such an assessment was important.”

The minutes noted that the smaller hikes would give policymakers a chance to evaluate the impact of the succession of rate hikes. The central bank’s next interest rate decision is Dec. 14.

The summary noted that a few members indicated that “slowing the pace of increase could reduce the risk of instability in the financial system.” Others said they’d like to wait to ease up on the pace. Officials said they see the balance of risks on the economy now skewed to the downside.

Focus on end rate, not just pace

Markets had been looking for clues about not only what the next rate hike might look like but also for how far policymakers think they’ll have to go next year to make satisfactory progress against inflation.

Officials at the meeting said it was just as important for the public to focus more on how far the Fed will go with rates rather “than the pace of further increases in the target range.”

The minutes noted that the ultimate rate is probably higher than officials had previously thought. At the September meeting, committee members had penciled in a terminal funds rate around 4.6%; recent statements have indicated the level could exceed 5%.

Over the past few weeks, officials have spoken largely in unison about the need to keep up the inflation fight, while also indicating they can pull back on the level of rate hikes. That means a strong likelihood of a 0.5 percentage point increase in December, but still an uncertain course after that.

Markets expect a few more rate hikes in 2023, taking the funds rate to around 5%, and then possibly some reductions before next year ends.

The post-meeting statement from the FOMC added a sentence that markets interpreted as a signal that the Fed will be doing smaller increases ahead. That sentence read, “In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.“

Investors saw it as a nod to a reduced intensity of hikes following four straight 0.75 percentage point increases that took the Fed’s benchmark overnight borrowing rate to a range of 3.75%-4%, the highest in 14 years.

When will the hikes end?

Several Fed officials have said in recent days that they anticipate a likely half-point move in December.

“They’re getting to a point where they don’t have to move so quickly. That’s helpful since they don’t know exactly how much tightening they’re going to have to do,” said Bill English, a former Fed official now with the Yale School of Management. “They emphasize policy works with lags, so it’s helpful to be able to go a little bit more slowly.“

Inflation data lately has been showing some encouraging signs while remaining well above the central bank’s 2% official target.

The consumer price index in October was up 7.7% from a year ago, the lowest reading since January. However, a measure the Fed follows more closely, the personal consumption expenditures price index excluding food and energy, showed a 5.1% annual rise in September, up 0.2 percentage points from August and the highest reading since March.

Those reports came out after the November Fed meeting. Several officials said they viewed the reports positively but will need to see more before they consider easing up on policy tightening.

The Fed has been the target lately of some criticism that it could be tightening too much. The worry is that policymakers are too focused on backward-looking data and missing signs that inflation is ebbing and growth is slowing.

However, English expects the Fed officials to keep their collective foot on the brake until there are clearer signals that prices are falling. He added that the Fed is willing to risk a slowing economy as it pursues its goal.

“They have risks in both directions, if doing too little and doing too much. They’ve been fairly clear that they view the risks of inflation getting out of the box and the need to do a really big tightening as the biggest risk,” he said. “It’s a hard time to be [Fed Chairman Jerome] Powell.”

Buyer Guide: Starter vs. Forever Homes

Is there a difference between the right house for your current situation versus your ideal home for life?

There’s usually a big difference for most buyers, and it’s a good idea to consider both options carefully.

When deciding between a starter and a forever home, there’s a lot to think about beyond your budget. This quick breakdown can help you get started:

What are the main differences between a starter home and a forever home? 

Starter Homes:

  • Have lower upfront costs. This means lower mortgage payments, but refers to upkeep and utilities costs as well.
  • Require compromise. If you divide the features you’re looking for between “must have” and “would be nice,” a starter home lacks most “would be nice” features.
  • Need less commitment. It’s easier to sell the home in less than 10 years should you need to.
  • Are a stepping stone. They can be renovated to grow with you, become a rental property, or be sold to help finance a new home later.

Forever Homes:

  • Cost more. You can expect higher home prices, mortgage payments and monthly living expenses.
  • Check all your boxes. The home should have the features and space you’ll need long term.
  • Are high-commitment. Selling in less than 10 years is more likely to result in financial losses, which can be limiting.
  • Let you establish yourself. You’ll have more time to gain equity and plant firm roots in your community.

When is considering both options important?

Exploring both options is especially important if:

  • You haven’t lived in the area for at least a year. You might want to remain flexible while you familiarize yourself.
  • You’re at your budget’s limit. Could you comfortably cover your expenses for a few months if something disrupted your income? If you aren’t certain, a starter home might be worth exploring.
  • Your future plans aren’t set in stone. Having a consistent vision of the future is important so you don’t end up paying for amenities and space you don’t need.

Still not sure what to do? Let’s discuss your thoughts and questions together.

Using Gift Money for Your Down Payment

Gift-giving season is upon us — and did you know that you can potentially use gift money to help cover your down payment?

You most certainly can. However, there are some limitations and a few bases you’ll need to cover so your gift money is properly accounted for. Here are a few things to know:

Amount

There’s no maximum dollar amount of gift money that can go toward your down payment. But there might be a minimum borrower contribution depending on your loan, so we’ll double-check whether this applies to you.

Source

You’ll need to provide proof of where your gift money came from. If possible, ask the donor to gift it in a manner that has a paper trail, e.g., a bank transfer or check.

If you receive a check, it’s best to deposit it in person so you can obtain a receipt. Make sure your gift money is deposited into the account you’ll be using for your mortgage.

Who

There are certain rules for who can give you money toward your down payment, but they differ depending on your loan type.

Typically, any immediate family member, spouse or fiance is acceptable. Reach out if you’re unsure who can contribute gift money toward your loan.

Letter

A gift letter provides more information on the donor as well as written confirmation that they do not intend for you to pay the money back. Your letter should include key information such as:

  • Their name(s), address and contact information.
  • Their relationship to you.
  • Exact dollar amount.
  • The date it was gifted or transferred.

Signed confirmation that the money given does not need to be repaid.

Have questions about the right way to use gift money for your down payment? Let’s chat.

How do construction loans work?

Building your home from the ground up can be extremely rewarding. You get to have a lot more control over your property’s design and construction, and starting from scratch can be an adventurous passion project.

But how can you finance both the property purchase and construction? Do you need one loan for the land and another for the house? Will a standard mortgage work?

Here’s a quick rundown of your main options.

What are construction loans?

Construction loans can cover the cost of raw land, building permits, construction and other expected financial obligations between purchasing land and building a home. They typically include a completion time limit of 12 months, though buffer limits for both budget and construction time can vary.

Most construction loans can be divided into two main categories:

1. One-Time Closing Loans

Often called construction-to-permanent loans, these are actually two loans conveniently bundled into one closing appointment.

You start with a construction loan, paying only interest throughout the building process. Once construction is complete, your balance converts into a mortgage, which you’ll pay back monthly just like any other conventional mortgage loan.

There are various loan terms and rate types (adjustable or fixed) for one-time closing loans to fit your plans and needs. One of the most appealing benefits of a one-time closing loan is that the merged process can help decrease your closing costs.

2. Two-Time Closing Loans

A two-time loan includes two loans with separate closings. This means you can potentially use separate loan options to seek out better interest rates, but you’ll have additional closing costs.

Though the variety of options can be financially advantageous for some borrowers, others may find the process of qualifying and applying for two different loans difficult depending on their circumstances.

Financing your dream home can feel complicated, but it doesn’t have to be. Get in touch today to discuss your options.

How to Use Home Equity to Empower Your Retirement

When you decide to retire, you’ll need to determine how much money it will take to live comfortably and remain financially sound. Social Security and retirement investments such as a 401(k) or IRA can help, but there may be times when you need more income. One often overlooked source of income is your home equity.

What Is Home Equity?

Home equity is the difference between the balance on your mortgage and your home’s current market value. For example, if you owe $90,000 on your home loan and your property is worth $350,000, your home has $260,000 of equity.

Equity can fluctuate based on the market. In a seller’s market, you may have more equity than in a buyer’s market. A real estate appraiser can provide you with an official valuation based on comparable home sales in your area. You can also get a general idea by reviewing real estate websites and searching for recently sold properties similar to yours in location, size, and age.

How to Turn Home Equity into Cash

Once you know how much equity you have, there are several ways to turn it into cash.

  • Home equity loan or line of credit. A home equity loan generally offers a fixed amount of credit and interest rate that you repay over a set period of time, usually ranging from five to 15 years. A home equity line of credit is a revolving balance that can be drawn from when needed. Similar to a credit card, you make payments on the amount you borrow.
  • Cash-out refinance. You can also draw on your home’s equity by doing a cash-out refinance. In this case, you refinance your mortgage for more than its current balance, taking the cash difference.
  • Reverse mortgage. Another option for tapping into the equity in your home is generally available to homeowners 62 years or older. With a reverse mortgage, the lender makes payments to the borrower—the reverse of a traditional mortgage. The homeowner isn’t required to pay back the loan as long as it remains their primary residence, provided the borrower continues to meet all loan obligations, such as paying property taxes, fees, and hazard insurance, and maintaining the home. If the homeowner fails to meet these or other loan obligations, the loan will need to be repaid.
  • Downsizing. You may decide your home is too large for your retired lifestyle or that you no longer need to live in an expensive area. You could sell your home and buy a smaller, less expensive place. This would allow you to keep some of the equity you had built.

Pros and Cons of Tapping Home Equity

Using your home equity can offer advantages, depending on the method you choose. Reverse mortgages, for example, allow you to tap into your equity while staying put and retaining ownership. And downsizing often comes with lower maintenance costs and work, and you won’t have to take on additional debt.

However, there are downsides. If you choose a new loan product, such as a home equity loan or line of credit or a cash-out refinance, you are taking on additional debt requiring monthly or another periodic repayment. This may not be the best choice if your income will be significantly reduced due to retirement. And while downsizing has its advantages, you’ll have to move, which can be emotional as well as costly.

There is no one-size-fits-all way to use your home equity for retirement. The best option for you will depend on your personal situation. Speak with a financial expert and take time to carefully consider each option to make the right choice for you.

By Stephanie Vozza

5 Telltale Signs of an Overpriced Listing

Knowing whether the price is right for a property you’re interested in is vital to avoid problems further down the road.

It can be easy to miss though, especially in a hot market. With stiff competition, an overpriced listing can still get plenty of bids as if nothing is amiss — the downsides of overpaying often come later on, like during the appraisal process or when reselling.

Luckily, there are a few easy ways anyone can look out for a potentially overpriced home. Here are five signs to look for during your search:

1. It’s been on the market awhile. If a home was listed several weeks or months ago, it could mean that something about the property made other buyers avoid offering. If the reason isn’t obvious, asking for your agent’s input or taking a thorough tour are both good ideas.

2. The price doesn’t compare to neighboring offers. You can ask your agent to do a comparative market analysis (CMA) on a listing. This will provide an expert check on how the price compares to similar properties in the area.

3. It has recent (needless) upgrades. Making essential repairs (like new roofing) before selling is common practice. But not all upgrades add value, and some sellers use low-effort renovations (e.g., new wallpaper) in order to justify a much higher price.

4. The price per square foot is high. This number can be especially helpful if there are not many comparable listings nearby. However, keep in mind any valuable property features that might warrant a higher price per square foot.

5. It has a shifty market history. Has it been bought and sold repeatedly in the past few years? Did pending sales fall through? You may want to ask your agent about it.

Ready to start your home search? Get in touch to set your home financing journey up for success.

Can Homebuyers Save Money By Waiting?

Mortgage rates have risen since the beginning of the year. As home prices still remain high and economic uncertainty creeps in, you might be considering pausing your home search.

Is that the right move, though? The truth is, no homebuying journey is the same — and that’s exactly why the potential costs and savings of waiting are best determined on an individual basis.

Unsure whether to hold off or not? Here are some helpful points to help guide your decision making:

Mortgage rates were at unusual, record lows.
In the ‘90s, for example, interest rates were between 8% and 10%. They could always go down, but it’s important to keep in mind that the low rates we saw until this year were a result of pandemic policies, so it’s unclear when we could see rates like that again.

Higher rates can bring some market relief.
Higher rates can help reduce competition, which could help ease buyer pressures like bidding wars. They can also help keep homes more affordable by slowing price growth.

Real estate trends are often location-specific.
Most of the market trends in headlines are national averages. In reality, your market of interest might not behave anything like this (and can differ even by neighborhood), so it’s always important to check in with your agent about local real estate market conditions.

Personal finance, goals and needs matter most.
Timing the market isn’t as helpful as it might sound if it isn’t in line with your economic situation and accommodation needs. Are you paying for rent while you wait? Factors like this can cut heavily into the potential savings from waiting to buy.

Want to get the full scoop on your best mortgage loan options? Reach out today for personalized, expert help.

Tips for Buying a Home on One Income

You don’t need two incomes to buy a house. It’s becoming quite common (and necessary in some cases) to buy property with a single income these days.

Whether you’re buying your first property on your own or buying a family home with one income for the household, your financial situation shouldn’t hold you back from your goals.

Follow these tips to help build your path to homeownership.

  1. Check your credit. The better your credit score is, the easier it usually is to get a mortgage. Be sure to look for any late payments and collections on your credit report — they’ll need to be settled before you can buy a house.
  2. Consider your savings and cash flow. Take a look at your broader financial picture. You’ll need to have enough saved for your closing costs, down payment and an emergency fund. You’ll also want a good handle on what you can afford for a monthly payment, so reach out to start the preapproval process.
  3. Look into government loan programs. FHA, VA and USDA loans can be great options for first-time homebuyers, with low or no down payment requirements. We can discuss if any of these are a good fit for your credit standing and budget.
  4. Bring in a co-signer or guarantor for the loan. If your credit isn’t where it needs to be or you’re worried about qualifying, you can bring in a co-signer or guarantor to apply for the loan with you. Their solid financial standing could make it easier to qualify and get a lower interest rate than you might on your own.
  5. Have an income protection plan. These plans ensure you have guaranteed earnings should you be unable to work. It should give you some reassurance that you’ll be able to afford your payments, even through hardships.

Get in touch if you need help finding the right mortgage program for your goals.

New Home Checklist Before Moving In

Buying a house can be challenging, but the work doesn’t stop once you sign those closing papers.

As a new homeowner, there are a number of tasks you’ll want to prioritize to ensure your home is safe, secure and primed for success before moving in.

Here are seven tasks to put on your post-closing to-do list:

  1. Locate the breaker box and water shut-off valves. Knowing where and how to shut your water and electricity off can be critical in emergencies like a burst pipe.
  2. Change the locks. There’s always a chance copies of the keys you received are floating around somewhere. A locksmith can install brand-new locks on all entryways before you move in.
  3. Reset the garage door opener. Similarly, the garage door opener will need resetting. You might want to have the manual lock changed out as well.
  4. Install or replace batteries in carbon monoxide and smoke detectors. Make sure these safety devices are operating at move-in — though hopefully you’ll never need them.
  5. Meet the neighbors. Get the names and contact info of your next-door neighbors. You never know when members of your new community could lend a helping hand (or vice versa), so the sooner you introduce yourself, the better.
  6. Check and replace air filters. For optimal performance, HVAC systems need new filters about every three months. Check the unit and note the correct size and brand as soon as possible.
  7. Clear the gutters. Clogged gutters won’t drain properly and can potentially damage your roof. It’s a good idea to check on your gutters seasonally after moving in.

Need help covering home repairs or buying your new home? Get in touch to discover your options today.