The gap between home appraisals and sale prices is rising.
That’s according to a new report from Corporate Settlement Solutions (CSS), which analyzed 10 states on the East Coast and Midwest for the share of properties that were appraised for more than the sale price, in addition to the average value over appraisal.
CSS’s analysis concluded that during the first half of 2024, 51% of sales in these states had appraised values that were higher than the sale price. That’s the largest share since the beginning of the COVID-19 pandemic in March 2020.
In 2020, 42% of properties were appraised for more than the sale price. This share was 42% in 2021, 46% in 2022 and 50% in 2023. The average percentage value of an over-appraised property in 2024 so far is 8.9%.
Properties were considered accurately appraised if these values fell within $2,500 of the sale price. Across the 10 states studied, slightly more than 40% of transactions met this definition.
Importantly for buyers and sellers who are striking deals, the percentage of properties sold this year for more than the appraised value is just 8.4%. The average percentage value of under-appraisal is 7.3%. These deals are relatively rare and can be jeopardized if terms have to be renegotiated due to an appraisal that comes in lower than the agreed-upon sale price.
“The growing gap between home appraisals and actual sale prices underscores the challenges of providing accurate valuations in a rapidly appreciating market with limited inventory,” CSS CEO Ashley Jelinek said in a statement.
“The big question is how long will this continue given that many housing economists are suggesting that home appreciation is normalizing and, in some markets, even decreasing. It is inflection points like the one we may be approaching that emphasize the importance of accurate, market-centric valuations.”
The states that CSS analyzed are Florida, Kentucky, Michigan, North Carolina, New Jersey, New York, Ohio, South Carolina, Virginia and West Virginia.
New York had the lowest percentage of over-appraised properties at 33.6%, and the percentage value of over-appraisals was a miniscule 4.6%. This suggests that New York has the most accurate appraisals of the 10 states analyzed. But New York also has the highest share of properties with an appraisal value below the sale price (14%).
Kentucky had the highest percentage of over-appraised properties at a whopping 72.7%, but the percentage value of over-appraisal was a modest 9.7%, just above the average for the 10 states analyzed. The average under-appraised value in Kentucky was 4.9%
North Carolina had the highest percentage value of over-appraisal at a somewhat shocking 33.3%, and 58.7% of properties in the state were over-appraised. Virginia‘s share of over-appraised properties over was 68.6%, while the average percentage value of over-appraisal there was 10.7%. Virginia’s share of properties sold for more than appraised value was the lowest of the 10 states at 2.9%.
Purchasing a home is one thing, but purchasing a luxury home is a project at a different level. And if you’re planning to take out a $700,000 mortgage — one that’s just shy of the 2024 conforming loan limit of $766,550 — you’re going to need some pretty serious income to repay that debt. We’re talking about an annual income of around $180,000 – $200,000.
When it comes to qualifying for a mortgage, it’s more than just income that matters — and there’s no one-size-fits-all answer to the question, “What income do I need for a $700K mortgage?” That said, there are some important rules of thumb around how much of your income should be spent on a mortgage that can help you determine what’s appropriate for your income — and other factors that mortgage lenders look at during the qualification process.
Income Needed for a $700,000 Mortgage
Again, there’s no set income level required for a $700,000 mortgage — but a mortgage that large is likely to have a hefty monthly payment, which means you’ll need some decent cash flow to be able to make it work.
One rule of thumb states that your housing costs should be no more than 30% of your gross monthly income — that is, your income before taxes or any other deductions. We can use this rule to estimate how much income you need to make a $700,000 mortgage payment feasible.
First-time homebuyers can prequalify for a SoFi mortgage loan, with as little as 3% down.
How Much Do You Need to Make to Get a $700K Mortgage?
Let’s start by using a mortgage calculator to get a rough estimate of how much money per month a $700,000 mortgage will cost.
To create an example, we’ll assume the property value is $750,000, and that you start out with a $50,000 down payment. While your interest rate will vary depending on factors like market conditions and your credit score, we’ll put it at 7.00%, which is fairly typical as of the second quarter of 2024.
Plugging those numbers into the calculator, you’ll see that the estimated monthly payment comes out to about $4,657 per month. To make our 30% rule above even simpler, we can multiply that total by three to get a low-end ballpark income that’s appropriate for a payment that large. That figure comes to around $170,000 per year. Keep in mind, though, that this figure doesn’t include taxes and insurance, which can add an appreciable amount to that monthly bill. And if you’re putting down a smaller down payment, you’ll also have to pay private mortgage insurance (PMI). Add all that to the mix and you’re looking at an annual income requirement that is closer to $180,000 – $200,000.
For many Americans, that income requirement probably sounds pretty hefty: Per the most recent Census data from 2022, the median household income in the United States is $74,580. (Of course, exact income and cost-of-living figures vary by state.) Still, such a large loan may be within reach for some households — though it’s not just income that matters.
Recommended: The Best Affordable Places to Live by State
What Determines How Much House You Can Afford?
Income is obviously an important part of what qualifies you for a mortgage. After all, lenders are interested in your being able to repay the loan over time. However, your ability to earn enough money to support the payment is only one factor that goes into their overall assessment. While each lender has its own specific requirements and criteria, they all look at similar factors.
What Mortgage Lenders Look For
Some of the factors lenders consider when qualifying a borrower for a mortgage include:
• Income
• Job stability
• Credit history and credit score
• Existing debt
• Existing assets, such as bank and investment accounts
• Money available for down payment
To verify all this information, your mortgage loan officer will likely ask for documentation including your tax returns, W-2s, pay stubs, bank statements, and potentially more. Speak with your loan officer directly to learn exactly what you’ll need to submit as part of the mortgage preapproval process.
What Is a Good Debt-to-Income Ratio?
Let’s take a closer look at one very important part of your mortgage application: your debt-to-income (DTI) ratio. This important measurement is expressed as a percentage, and shows lenders how the debt you already carry compares to your available monthly income. It’s calculated by dividing your monthly debts over your gross monthly income.
While, again, specific requirements vary, most lenders require a DTI of 36% or lower, though in some cases borrowers can be qualified with a DTI of up to 50%. Generally speaking, though, the lower your DTI, the better; even if you can qualify with a higher amount of debt, it’ll be more difficult to make your monthly payments.
$700,000 Mortgage Breakdown Examples
As we’ve seen above, in order to qualify for a $700,000 mortgage loan, you’ll likely need a household income of at least about $180,000 per year — although again, whether or not you qualify will depend on many factors aside from your income, like your credit score and existing level of debt.
One way to get a good sense of how much house you can afford at your current income level is to use a home affordability calculator. If you toggle the “advanced” settings, you can also include costs like homeowners insurance and property taxes along with your income and existing debts. The calculator will spit out an estimate of how much house you can afford given all these circumstances — but remember, again, that this is only an estimate and not a guarantee.
Pros and Cons of a $700,000 Mortgage
Like any financial product (and anything in life), a $700,000 mortgage has both drawbacks and benefits to consider. Here are a few to keep in mind.
Pros of a $700,000 Mortgage
• Home appreciation may pay for the amount you spend in interest and prove a worthwhile investment
• Home ownership offers stability
• If you make timely payments, your mortgage could reflect positively on your credit history — and boost your credit score over time
Cons of a $700,000 Mortgage
• A mortgage is still a form of debt, and you will pay for the loan in the form of interest
• When you own your home, you’re responsible for any and all maintenance and repairs — which isn’t true for those who rent
• Depending on your interest rate, you may end up paying far more than the original home price over the loan’s lifetime
How Much Will You Need for a Down Payment?
There’s an old rule of thumb that states you should save up at least 20% of the home’s purchase price for a down payment. On a property listed for more than $700,000, that would come out to at least $140,000 — a pretty sizable chunk of change to save up!
However, these days, even conventional loans allow some first-time borrowers to put down as little as 3.00% on their home purchase — which, in this case, comes out to a far more reasonable $21,000. There is a caveat to be aware of, though: Borrowers who put down less than 20% will likely be required to pay PMI, which can add a few hundred dollars a month to your mortgage payment. Still, for those who have the cash flow to support this additional cost, it can be a worthy trade for earlier access to homeownership.
Can You Buy a $700K Home With No Money Down?
Some mortgage programs do allow borrowers to take out a mortgage with no money down — though you may have to meet certain eligibility requirements to qualify. For example, government-backed loans from the U.S. Veterans Administration (VA) and U.S. Department of Agriculture (USDA) loans don’t have a minimum required down payment, though these are only available to service members, veterans, and their families or to those looking in designated rural areas, respectively.
Is a $700K Mortgage With No Down Payment a Good Idea?
Even if you do qualify for a $700,000 mortgage with no down payment, it may not be the best idea financially speaking. Along with potentially being on the hook for the additional expense of mortgage insurance, you’ll start out with very low equity in your new investment, and your monthly payments may be substantially higher than they would be otherwise.
Can You Buy a $700K Home With a Small Down Payment?
Short answer: Maybe! As we’ve discussed, your ability to qualify for a mortgage is multifactorial, and the size of your down payment is only one of the many pieces mortgage lenders will consider. If the rest of your application is solid, a lender may qualify you for a $700,000 mortgage with a down payment as low as 3.00% ($21,000) if you’re a first-time homebuyer. Again, though, the only way to know for sure is to actually apply.
Can’t Afford a $700K Mortgage With No Down Payment?
If you’re not yet in financial shape to afford a $700,000 mortgage, or the process of saving up a down payment is getting you, well, down, there are steps you can take to get ready to make the purchase.
Pay Off Debt
It may be one of the most common tips to qualify for a mortgage — but it’s for good reason. Having even a small amount of debt can seriously impact your buying power, so paying off what you can and lowering your DTI can go a long way toward making a larger mortgage possible.
Look into First-Time Homebuyer Programs
If you’re a first-time buyer, it’s worth looking into first-time buyer programs that may be able to help you with your down payment or qualify you for a mortgage when you might otherwise not. One of the best-known first-time homebuyer programs is the FHA mortgage, which is backed by the Federal Housing Administration and may help you qualify even with a lower credit score.
Build Up Credit
Along with lowering your overall debt, building up your credit score can also help you qualify for a lower interest rate — which, over the course of a 30-year loan, can translate to big savings. Even a percentage point difference could save you thousands of dollars in the long run, so taking the time to repair or strengthen your credit today may be a well-placed effort.
Start Budgeting
If you don’t yet have a budget, the time before you purchase a home is a great time to start one. After all, homeownership usually comes with its own slate of expenses, from repairs to maintenance items and more, so ensuring you know where your money is going will help you prepare to meet those financial needs. (And, in the meantime, you may find some areas where you can make cuts that will make the upfront expenses, like your down payment, more feasible.)
Recommended: Refinance Your Mortgage and Save
Alternatives to Conventional Mortgage Loans
While conventional mortgages are the most common — and one of the most affordable options for those who qualify — there are different types of mortgage loans to consider. For example, as discussed, if you’re a first-time homebuyer, you may be able to qualify for an FHA loan from the Federal Housing Administration, which helps buyers qualify with lower credit scores than a conventional loan requires.
USDA and VA loans are also viable options for those looking in rural areas or who are (or are married to) service members or veterans.
Mortgage Tips
Need more mortgage help? Visit a home loan help center to study up on everything from amortization to escrow.
The Takeaway
While it takes a higher income to qualify for (and successfully pay off) a $700,000 loan, for many borrowers, it’s within reach — especially once you’ve found the right lender. Getting a mortgage doesn’t only depend on your income. There are multiple factors in play and learning the right mix could land you in a new home.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
How much income do I need for a $700K mortgage?
While there’s no one set income level that will automatically qualify you for a $700,000 mortgage, using the rule of thumb that your housing payment should be no more than a third of your gross monthly income, you’ll likely need somewhere between $180,000 and $200,000 per year to qualify, depending on other factors like your interest rate.
What is the monthly payment on a $700K mortgage?
Specific payment amounts depend on a wide range of factors including the interest rate you qualify for, the property taxes in your location, and the size of your down payment. In an example where you’re purchasing a $750,000 home with a $50,000 down payment at a 7.00% interest rate, your monthly payment would be close to $4,700 before insurance or taxes.
Can I afford a million-dollar home if I make $100K?
Again, how much money you make is only one factor that qualifies you for a mortgage — no matter its size. That said, because of the size of the monthly payment of a large mortgage, a $100,000 salary likely wouldn’t be enough to get you into a million-dollar home.
Photo credit: iStock/DMP
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
If you’re buying a home or plan to, there are a few good reasons you may want to lock in your mortgage rate this week.
Getty Images/iStockphoto
If you’re a potential homebuyer who’s wondering whether it really makes sense to buy a home in today’s tough (and expensive) housing market, you certainly aren’t the only one. For starters, home prices remain elevated due to a mix of limited inventory and persistent demand. And, ongoing inflation issues have led the Federal Reserve to keep its benchmark rate paused at a 23-year high. As a result, mortgage rates remain elevated, vastly increasing the cost of buying a home and giving many buyers pause.
But while buying a home can be a little more difficult (and substantially more expensive) in the current economic environment, it still makes sense to consider in many cases. After all, owning a home comes with a long list of benefits for homeowners, from the safety and security this type of investment provides to the potential to build equity in your property (which can be accessed at an affordable rate in the future).
If you’re going to purchase a home soon, though, you have a crucial decision to make: when to lock in your mortgage rate. And, with various economic factors at play, there are a few compelling reasons why this week might be an opportune time to make your move.
Learn more about your top mortgage loan options online now.
4 big reasons to lock in a mortgage rate this week
There are a few reasons you may want to consider locking in a mortgage rate this week, including:
Mortgage rates have dipped
The Federal Reserve decided to keep interest rates paused during its meeting earlier this week, and, as a result, mortgage rates have experienced a decline, with 30-year conventional loan rates dropping from an average of about 7.07% last week to today’s average rate of 7.00%. What that shows is this latest pause in rate hikes, coupled with other favorable economic data — like the latest inflation report showing a slight drop month-over-month — has created a more favorable environment for borrowers.
After all, lower mortgage rates translate to reduced monthly payments and the potential for significant savings over the life of your loan. And, all it takes is a fraction of a percent, like the rate drop we’ve seen over the last week, to make a big difference in terms of your loan costs. So, by locking in a mortgage rate now, you can capitalize on this dip and potentially secure a more affordable mortgage.
You may also want to consider that home prices may continue to stay elevated or even rise in many markets. If this home appreciation trend continues, delaying your purchase in hopes of lower rates could result in paying more for a home, potentially negating any benefits you gain from waiting for mortgage rates to drop further. But by moving forward with your home purchase now, you can potentially secure a property before prices climb.
Compare some of the best mortgage rates available to you here.
The uncertain economic environment poses risks
While mortgage rates have decreased recently, the economic landscape remains uncertain. Inflation, though it’s showing signs of easing, has proven stubborn over the past couple of years, and there’s no guarantee that this downward trend will continue. If inflation were to climb again unexpectedly, the Federal Reserve might respond with more aggressive rate hikes, leading to higher mortgage rates.
And, that’s not just a theoretical. The Fed has been clear about its goal of reducing inflation by keeping rates elevated, and it has already put off the expected mid-year rate hikes in lieu of more rate hike pauses. By locking in your rate now, though, you protect yourself against potential future increases and gain peace of mind in an unpredictable market.
Limited home inventory calls for quick action
The housing market also continues to face a shortage of available homes. This limited inventory has been a persistent issue since the start of the pandemic, driving up competition among buyers and putting upward pressure on home prices. And, while there’s hope that the inventory problems will improve in the coming months, many homeowners are holding onto their current record-low mortgage loan rates right now.
So, rather than selling and buying a new home with a much higher mortgage loan rate, many current homeowners are opting to stay put instead. That is making it even more challenging to find suitable properties in today’s market. By locking in the most favorable mortgage loan rate you can find right now, though, you position yourself to act quickly when you find a home that meets your needs, giving you an edge in a competitive market.
Increased lender competition can benefit buyers
Today’s elevated mortgage rates are slowing down the mortgage loan market, which means that lenders are vying for reduced business. This competition can lead to more favorable terms for borrowers, including lower rates and reduced fees. By engaging with lenders and locking in a rate now, you can take full advantage of this competitive environment, potentially securing terms that might not be available if market conditions shift.
Some lenders are also offering loan products that are designed to make homeownership more accessible, such as low down payment options, first-time homebuyer programs and loans with flexible credit requirements. But, these products may become less available or less favorable if economic conditions change. Making your move now allows you to consider these or other specialized offerings as part of the mortgage loan process while they’re still readily available.
The bottom line
While the decision to lock in a mortgage rate is ultimately based on your circumstances and goals, the current market conditions present a compelling case for action. Mortgage rates are down compared to last week, and increased lender competition could mean that there are more (or better) mortgage loan options to consider. And, by locking in a rate now, you could not only secure a more favorable mortgage rate but could also position yourself to act decisively in a competitive housing market.
Angelica Leicht
Angelica Leicht is senior editor for Managing Your Money, where she writes and edits articles on a range of personal finance topics. Angelica previously held editing roles at The Simple Dollar, Interest, HousingWire and other financial publications.
Steve Resch, vice president of retirement strategies at leading reverse mortgage industry lender Finance of America, knows a lot about the intersection between the interests of financial planning professionals and reverse mortgage industry members.
Financial planners have been, and remain, one of the most sought-after referral partnerships for reverse mortgage professionals to establish ties with. That has certainly not diminished in the current business environment.
To get a better understanding of the kinds of concerns and interests financial planners have at the moment, RMD sat down with Resch to discuss some of what he is seeing right now.
Chris Clow/RMD: The reverse mortgage business in general is going through a time of reduced volume. But it seems like things are starting to pick back up. Conversations I’ve had with a lot of front-line originators have been more optimistic over the past few months. And I’m curious how this combines with what you do for Finance of America.
Steve Resch: In my position, I work directly with financial advisers. We have not really seen much change in our business recently, because a lot of what we do with the advisers involves using home equity for strategic planning purposes, and that doesn’t really go away in high interest rate environments.
We have still had numerous conversations and activity with the advisers. However, we’re finding — and I’ve seen this for a while, and it’s becoming more and more prevalent — that the most receptive part of our conversations is the use of home equity for long-term care management.
Clow: That’s interesting. Why is that?
Resch: This is something the advisers are very open to. I just came back from an investment conference last week, where I spoke on this topic, and they were very receptive, very open to it, because the advisers all need to figure out how to manage long-term care expenses for our clients. The clients are very hesitant to pay for an insurance solution, which can be very expensive — we could be talking $10,000 to $15,000 per year for an insurance solution.
Steve Resch, VP of retirement strategies at Finance of America, the leading reverse mortgage lender.
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Steve Resch
” data-medium-file=”https://www.housingwire.com/wp-content/uploads/2024/01/stephenresch_far.jpg?w=300″ data-large-file=”https://www.housingwire.com/wp-content/uploads/2024/01/stephenresch_far.jpg?w=800″ src=”https://www.housingwire.com/wp-content/uploads/2024/01/stephenresch_far.jpg?w=800″ alt=”Steve Resch, VP of retirement strategies at Finance of America, the leading reverse mortgage lender.” class=”wp-image-434884″ srcset=”https://www.housingwire.com/wp-content/uploads/2024/01/stephenresch_far.jpg 800w, https://www.housingwire.com/wp-content/uploads/2024/01/stephenresch_far.jpg?resize=150,150 150w, https://www.housingwire.com/wp-content/uploads/2024/01/stephenresch_far.jpg?resize=300,300 300w, https://www.housingwire.com/wp-content/uploads/2024/01/stephenresch_far.jpg?resize=768,768 768w, https://www.housingwire.com/wp-content/uploads/2024/01/stephenresch_far.jpg?resize=650,650 650w” sizes=”(max-width: 800px) 100vw, 800px”>Steve Resch
So, if we can manage that risk by using home equity to manage the risk, and our only costs involved there are setting up, for example, a line of credit, then we’ve had limited costs. We’ve got cash-flow savings for the next 20 years that we would have been spending on an insurance solution. And yet, we’ve still managed the risk because we have a portion of home equity reserved for long-term care planning.
And that, of course, grows and compounds over time. It has an inflation factor built in just like an insurance policy does, because it’s tied to interest rates, which, of course, are tied to inflation. So, the advising community is very open and very excited about this because again, it’s managing the risk at low cost.
Clow: One of the predominant things I’ve heard from people in the business is that HECM for Purchase (H4P) is a sleeping giant just waiting for the right opportunity. How, if at all, has H4P entered the conversation with the financial planner partners you know?
Resch: It is definitely becoming more prevalent as well. Circling back to the conference I attended, I had two female advisers come up to me after the presentation. They told me they both used H4P in their divorce settlements. I think this is a phenomenal opportunity.
In fact, we’re working on a presentation about using H4P for divorce settlements, but aside from that, it’s a phenomenal opportunity. Your investment assets are what provide income; you don’t live off of home equity. Home equity is where you live and stay. So, using the reverse for purchase, they were able to get into homes they wanted to be in and not drain down any invested assets, which provide revenue for that. It’s a great opportunity.
Clow: Is it a “sleeping giant” in the business, or is that potentially overblown?
Resch: I do believe it’s a sleeping giant. I think it probably would have been more prevalent even a few years ago, if we hadn’t had the massive explosion in home appreciation brought on by COVID. I think that pushed a lot of people to the sidelines because it was really a cash purchase market. You didn’t have time to really go through financing — at least that’s the way it was in my area. everything was being purchased for cash and then you finance later.
So, I think the real estate markets in general, while still strong, have settled down. And you have opportunities to negotiate; you have opportunities to do financing. And I think this is an ideal time for the reverse for purchase to really start moving to the forefront.
Clow: I’m curious about the evolutions that you’ve observed in the conversation since the pandemic. There was a huge refinance volume that dropped off, and then you’ve also had industry consolidation, and home prices have not ticked down significantly at a national level. What, to you, is the most identifiable evolution of your conversations since the pandemic?
Resch: Our goal, or our objective, is always to teach, educate and present the opportunity of using home equity as a strategic component in a financial plan. So, prior to COVID, through COVID, that has still been our messaging: Let’s use home equity. We’re not paying attention to interest rates or changes in PLFs; we’re looking at the concept of using home equity to safeguard and enhance the retirement plan.
To that end, I would say that, over the past several years, that education is getting out there, and I do believe we are starting to turn that learning curve where advisers are much more open to it. Circling back to the conference I was at, we had numerous advisers who came up and what they said was, “Thank you for being here, it’s really great to be able to talk to someone in the industry in person.”
A lot of the issues that they had were that if they wanted to find out information about a reverse mortgage, and they would start Googling it, everything that popped up was from a lender. But we had an opportunity to have a one-on-one conversation without the pressure of a sale.
Clow: Is that important?
Resch: Yes, this is what these people need. They still need to be educated; you can read about it, you can run through scenarios, but they still need that conversation, that education. And I think we are still evolving toward that, where they’re much more open to talking, much more open to listening and asking questions, because they see the reality as well that we have the demographics that demand that we look at home equity as far as retirement planning goes.
So, again, our evolution, I don’t think I can tie it to anything that’s really happened as far as COVID or anything else. It’s all a learning curve, and I think we are really starting to move up that S-curve.
It’s no secret that the price tags of single-family homes — the ideal dwelling in terms of space, independence, and resale value — have spiked, and many current homeowners have been reluctant to let go, but a buyer whose heart is set on a single-family home may be able to follow a playbook to find their prize.
Buying a single-family home isn’t dramatically different from purchasing another type of property, but the process has a few variations. Here are some guidelines.
What Is a Single-Family Home?
The definition would seem easy enough, but it does vary according to real estate experts and government sources. The U.S. Census Bureau says single-family homes include fully detached and semi-detached homes, row houses, duplexes, quadruplexes, and townhouses. Each unit has a separate heating system and meter for public utilities, and has no units above or below.
According to other definitions of a single-family home, the building has no shared walls; it stands alone on its own parcel of land. In some places, the number of kitchens the home has informs the definition.
Unlike a multi-family property, a single-family home is meant for one person or household. Among the types of houses out there, including condos, co-ops, townhouses, and manufactured homes, the single-family home remains the holy grail for many Americans. 💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.
First-time homebuyers can prequalify for a SoFi mortgage loan, with as little as 3% down.
Benefits of Purchasing a Single-Family Home
While condos and townhouses may come with shared amenities and lower maintenance, traditional detached single-family homes come with different perks. When people buy a single-family home, they’re looking for benefits specific to this property type.
Spacious, Quiet, and Intimate
A single-family home is typically larger than a condo or townhome. Moreover, since the property is often on its own lot without shared walls, a single-family home offers more space and more privacy inside and outside the home.
Possibly No HOA
A co-op association or a condo or townhouse homeowners association sets and enforces rules and collects fees to pay for shared amenities. Anyone who buys into an HOA community must live by the CC&Rs: the covenants, conditions, and restrictions. They can be lengthy, and the ongoing fees can constantly rise.
You may be able to buy a detached single-family home with no HOA and paint your mailbox, or house, pink or purple — unless you live in a city like Palm Coast, Florida, that allows only earth tones and light or pastel hues but no colors that are deemed “loud, clashing, or garish.”
Then again, HOAs are becoming more common for detached single-family homes in planned communities. In fact, about 65% of single-family homes built in 2020 were in an HOA, Census Bureau data shows.
Single-Family Home Appreciation
Generally, single-family homes are in higher demand than multi-family or other properties. Because of both the building and demand, when a person buys a single-family home, the value may increase faster.
Possibilities for Renovation and Expansion
When people buy single-family homes, they’re buying into the potential to expand or renovate extensively. If the lot is big enough, single-family homeowners could put an addition on the property.
Single-family homes can be an attractive buy simply because of the option to expand in the future, unlike properties with shared lots or walls. 💡 Quick Tip: Not to be confused with prequalification, preapproval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for preapproval to within the same 14- to 45-day period, since many hard credit pulls outside the given time period can adversely affect your credit score, which in turn affects the mortgage terms you’ll be offered.
How to Buy a Single-Family Home
Ready to buy a single-family home? Anyone from a first-time buyer to a seasoned investor may find appeal in a single-family home.
Recommended: First-Time Homebuyers Guide
1. Draw Up Your Financial Priorities
First, it’s important to look at finances. Your credit scores can have a significant impact on getting approved for a mortgage. To get a clear read on credit, but not scores, buyers can request free credit reports from the three major credit bureaus.
Additionally, it can be helpful for a qualified first-time homebuyer — who can be anyone who has not owned a principal residence in three years, some single parents, and others — to look into specialty mortgages to see if they qualify for them.
A loan from the Federal Housing Administration (FHA) may allow a down payment as low as 3.5%. A USDA loan (from the United States Department of Agriculture) requires nothing down, and a VA loan (from the Department of Veterans Affairs) also usually requires nothing down. Some conventional lenders allow qualifying first-time buyers to put just 3% down.
It’s important to know, though, that all FHA loans require an upfront and annual mortgage insurance premium, regardless of the down payment size. VA loans require a one-time “funding fee.” And borrowers with conventional conforming loans who put down less than 20% will pay private mortgage insurance until their loan-to-value ratio drops to 80% and they request removal, or to 78%, when it falls off.
2. Decide on Your Preferred Type of Housing
No two houses are alike, just as no two homebuyers are. Everyone has different tastes and priorities about where they want to call home.
Before hitting every open house in town, consider deciding on must-haves for a single-family detached home, including privacy, proximity to businesses, size, and style. This could help determine if a single-family home is the right fit.
3. Arrive at Your Price Point
Armed with an understanding of the type of house, it’s time to think about the price point. In addition to thinking about the down payment, buyers will want to calculate a monthly mortgage payment and total loan costs.
Figuring out a price point before looking at homes can take the emotion out of the process. That way, buyers have a budget in mind and a “do not exceed” amount before they fall for a home.
4. Search for a Good Real Estate Agent
Buying a single-family home can be fun, stressful, and fast-paced. Working with a trusted real estate agent can make the process a little easier.
To find a real estate agent, you might consider:
• Reaching out to friends for referrals
• Checking out local real estate association websites
• Using an agent selling homes in the area you want to buy in
You might want to interview more than one agent, asking about their experience, availability, and philosophy. The choice of agent will likely come down to a combination of personality match and experience.
5. Find Your Neighborhood
Armed with an agent and budget, it’s time to dive deeper into neighborhoods. Once again, the choice of where to search will come down to the buyer; there’s no one “right” place to buy a single-family home.
As buyers explore neighborhoods, they might prioritize the following:
• School district
• Walkability
• Proximity to workplace
• Community resources
• Budget
An experienced agent can help buyers distill their priorities and even point them in the right direction. Typically, buyers will have to balance the above elements, as it might not be possible to check all the boxes in a single neighborhood.
6. Tour Homes With Your Agent
Once buyers decide what neighborhoods they want to buy a single-family home in, it’s time to start touring properties.
When touring a single-family home with an agent, try to allot between half an hour to an hour. In the case of open houses, prospective buyers can walk in at any time, but private home tours require a buyer’s agent to gain access to the property.
When buying a single-family home, everyone will have their own checklist of what they want, which might include:
• Listing price
• Number of bedrooms and bathrooms
• Storage space
• Floorplan
• Plot of land
• Deck and porch
• Garage and driveway
It could help to take photos or notes while touring a home to refer to them long after you’ve left the property.
7. Choose a House and Bid
Found a place and ready to make an offer? Time to get a home loan in order. Luckily, buyers will have a good idea of what they can offer on a property based on their finances with the upfront legwork.
Your agent can help with negotiating a house price.
How to make an offer? It pays to understand comps and the temperature of the market, and then:
• Figure out the offer price
• Determine fees
• Budget for an earnest money deposit
• Craft contingencies
With an offer drawn up, it’s time to submit it to the seller and wait for the next steps.
8. Review the Process and Get Ready to Move
Buying a single-family home isn’t a done deal once an offer is submitted. Typically there will be a back and forth, perhaps over offer price or contingencies.
Once everything is agreed on, and the inspection is resolved, it’s time to tally moving expenses and pack up.
9. Head to Closing and Move Into Your New Property
The final part of buying a single-family home is closing day. During closing, the buyer and seller meet with their agents to go over paperwork, and settle any outstanding costs, and formally turn over property ownership.
Next, it’s just moving everything in and settling in. Even after closing, homeownership may feel overwhelming, but there are plenty of resources to make it easier.
Ready to Buy a Home Quiz
The Takeaway
Ready to buy a single-family home? The process before you may seem daunting, especially if it’s your first home purchase. But if you break it down to small steps and keep your budget and dream-house priorities top of mind, home sweet home may be closer than you think.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
How much does it cost to buy a single-family home?
Zillow put the typical value of a single-family home at $354,000 in April 2024. New construction costs more. The median sales price of new houses sold in February 2024 was $400,500, according to the U.S. Census Bureau.
Can you buy a single-family home with no money down?
If a buyer qualifies for a mortgage backed by the Department of Veterans Affairs or Department of Agriculture, or one issued directly by those agencies, they may be able to purchase a home with no down payment.
What are the most important things to consider when buying a house?
Location (including property tax rate, quality of schools, walkability, crime rate, access to green space, and the general vibe), your ability to cover all the costs, duration of your stay, and square footage may be important.
How much should you have in savings to buy a single-family house?
You’ll need to have enough to cover a down payment, closing costs, and moving fees while ideally preserving an emergency fund.
Photo credit: iStock/jhorrocks
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As we head into peak home-buying season, signs of life have begun to spring up in the housing market.
Even so, still-high mortgage rates and home prices amid historically low housing stock continue to put homeownership out of reach for many.
Moreover, the National Association of Realtors agreed to a monumental $418 million settlement on March 15 following a verdict favoring home sellers in a class action lawsuit. Still subject to court approval, the settlement requires changes to broker commissions that will upend the buying and selling model that has been in place for years.
Housing Market Forecast for 2024
Elevated mortgage rates, out-of-reach home prices and record-low housing stock are the perennial weeds that experts say hopeful home buyers can expect to contend with this spring—and beyond.
“The housing market is likely to continue to face the dual affordability constraints of high home prices and elevated interest rates in 2024,” said Doug Duncan, senior vice president and chief economist at Fannie Mae, in an emailed statement. “Hotter-than-expected inflation data and strong payroll numbers are likely to apply more upward pressure to mortgage rates this year than we’d previously forecast.”
Despite ongoing affordability hurdles, Fannie Mae forecasts an increase in home sales transactions compared to last year. Experts also anticipate a slower rise in home prices this year compared to recent years, but price fluctuations will continue to vary regionally and depend strongly on local market supply.
U.S. home prices declined in January for the third consecutive month due to high borrowing costs, according to the latest S&P CoreLogic Case-Shiller Home Price Index. But prices year-over-year jumped 6%—the fastest annual rate since 2022.
Chief economist at First American Financial Corporation Mark Fleming predicts a “flat stretch” ahead.
“If the 2020-2021 housing market was too hot, then the 2023 market was probably too cold, but 2024 won’t yet be just right,” Fleming said in his 2024 forecast.
Will the Housing Market Finally Recover in 2024?
For a housing recovery to occur, several conditions must unfold.
“For the best possible outcome, we’d first need to see inventories of homes for sale turn considerably higher,” says Keith Gumbinger, vice president at online mortgage company HSH.com. “This additional inventory, in turn, would ease the upward pressure on home prices, leveling them off or perhaps helping them to settle back somewhat from peak or near-peak levels.”
And, of course, mortgage rates would need to cool off—which experts say is imminent despite rates edging back up toward 7%. For the week ending April 11, the 30-year fixed mortgage rate stood at 6.88%, according to Freddie Mac.
However, when mortgage rates finally go on the descent, Gumbinger says don’t hope they cool too quickly. Rapidly falling rates could create a surge of demand that wipes away any inventory gains, causing home prices to rebound.
“Better that rate reductions happen at a metered pace, incrementally improving buyer opportunities over a stretch of time, rather than all at once,” Gumbinger says.
He adds that mortgage rates returning to a more “normal” upper 4% to lower 5% range would also help the housing market, over time, return to 2014-2019 levels. Yet, Gumbinger predicts it could be a while before we return to those rates.
Nonetheless, Kuba Jewgieniew, CEO of Realty ONE Group, a real estate brokerage company, is optimistic about a recovery this year.
“[W]e’re definitely looking forward to a better housing market in 2024 as interest rates start to settle around 6% or even lower,” says Jewgieniew.
NAR Settlement Rocks the Residential Real Estate Industry
Following years of litigation, the National Association of Realtors (NAR) has agreed to pay $418 million to settle a series of antitrust lawsuits filed in 2019 on behalf of home sellers.
The plaintiffs claimed that the leading national trade association for real estate brokers and agents “conspired to require home sellers to pay the broker representing the buyer of their homes in violation of federal antitrust law.”
Though the landmark settlement is subject to court approval, most consider it a done deal.
The settlement requires NAR to enact new rules, including prohibiting offers of broker compensation on multiple listing services (MLS), the private databases that allow local real estate brokers to publish and share information about residential property listings. The rule is set to take effect in mid-July, once the settlement receives judge approval.
Moreover, sellers will no longer be required to pay buyer broker commissions and real estate agents participating in the MLS must establish written representation agreements with their buyer clients.
NAR denies any wrongdoing and maintains that its current policies benefit buyers and sellers. The organization believes it’s not liable for seller claims related to broker commissions, stating that it has never set commissions and that commissions have always been negotiable.
How Will the New Rules Impact the Buying and Selling Process?
Per the settlement’s terms, the costs associated with buying and selling a home are set to change dramatically.
“The primary things that will change are the decoupling of the seller commission and the buyer commission in the MLS,” says Rita Gibbs, a Realtor at Realty One Group Integrity in Tucson. “It’s gonna cause some chaos.”
While sellers will no longer be able to offer broker compensation in the MLS, there’s no rule prohibiting off-MLS negotiations. Because of this, Gibbs suspects buyers and sellers will continue offering broker compensation off the MLS.
The Department of Justice confirmed it will permit listing brokers to display compensation details on their websites. However, buyer agents will need to undergo the tedious task of visiting countless broker websites to find who’s offering what.
Michael Gorkowski, a Virginia-based real estate agent with Compass, is also trying to figure out how to manage the potential ruling.
“We often work with buyers for many months and sometimes years before they find exactly what they’re looking for,” Gorkowski says. “So in a case where a seller isn’t offering a co-broker commission, we will have to negotiate that the buyer pays an agreed-upon commission prior to starting their search.”
The Changes Will Impact These Home Buyers Most
“In the short term, it is absolutely going to injure buyers, especially FHA and VA buyers,” Gibbs says. “With rare exception, these buyers are not in a position to pay for their own agent.”
Gibbs says that if sellers don’t offer compensation, many buyers who can’t otherwise afford to pay a broker will choose to go unrepresented.
Gorkowski notes that veterans taking out VA loans face a unique challenge under the new rules. “[P]er the VA requirements, buyers cannot pay so it must be negotiated with the seller for now.”
As a result, NAR is calling on the U.S. Department of Veterans Affairs to revise its policies prohibiting VA buyers from paying broker commissions. Even so, there’s skepticism that the federal government will be able to implement changes in time for the July deadline.
Gibbs and Gorkowski are among the many agents especially concerned about first-time home buyers. After July, first-time and VA buyers will be required to sign a buyer-broker agreement stating that they will compensate their broker—but Gibbs says many won’t have the means to do so.
In this situation, agents would likely only show buyers homes where sellers are offering compensation.
“This is a very troubling situation,” Gorkowski says.
Housing Inventory Forecast for 2024
With many homeowners “locked in” at ultra-low interest rates or unwilling to sell due to high home prices, demand continues to outpace housing supply—and likely will for a while—even as some homeowners may finally be forced to sell due to major life events such as divorce, job changes or a growing family.
“I don’t expect to see a meaningful increase in the supply of existing homes for sale until mortgage rates are back down in the low 5% range, so probably not in 2024,” says Rick Sharga, founder and CEO of CJ Patrick Company, a market intelligence and business advisory firm.
Housing stock remains near historic lows—especially entry-level supply—which has propped up demand and sustained ultra-high home prices. Here’s what the latest home values look like around the country.
Yet, some hopeful housing stock signs have begun to sprout:
Existing inventory is showing signs of loosening as impatient buyers and sellers have begun to accept the reality of mortgage rates oscillating between 6% and 7%.
Home-builder outlook also continues to get sunnier, trending back up amid declining mortgage rates and better building conditions.
The most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), which tracks builder sentiment, saw a fourth consecutive monthly rise, surpassing a crucial threshold with an increase from 48 to 51 in March. A reading of 50 or above means more builders see good conditions ahead for new construction.
At the same time, new single-family building permits ticked up 1% in February—the 13th consecutive monthly increase—according to the latest data from the U.S. Census Bureau and U.S. Department of Housing and Urban Development (HUD).
Residential Real Estate Stats: Existing, New and Pending Home Sales
Though some housing market data indicates signs of growth are in store this spring home-buying season, persistently high mortgage rates may hinder activity from fully flourishing.
Here’s what the latest home sales data has to say.
Existing-Home Sales
Existing-home sales came to life in February, shooting up 9.5% from the month before, according to the latest data from the NAR. Sales dipped 3.3% from a year ago.
Experts attribute the monthly jump to a bump in inventory.
“Additional housing supply is helping to satisfy market demand,” said Lawrence Yun, chief economist at NAR, in the report.
Existing inventory rose 5.9%—logging 1.07 million unsold homes at the end of February. However, there are still only 2.9 months of inventory at the current sales pace. Most experts consider a balanced market falling between four and six months.
Meanwhile, existing home prices continue to soar to unprecedented heights, reaching $384,500, which marks the eighth consecutive month of yearly price increases and a February median home price record.
New Home Sales
Sales of newly constructed single-family houses ticked down by a nominal 0.3% compared to January, but outpaced February 2023 sales by 5.9%, according to the latest U.S. Census Bureau and HUD data.
Amid a high percentage of homeowners still locked in to low mortgage rates, home builders have been picking up the slack.
“New construction continues to be an outsized share of the housing inventory,” said Dr. Lisa Sturtevant, chief economist at Bright MLS, in an emailed statement.
Sturtevant notes that declining new home prices are coming amid a recent trend of builders introducing smaller and more affordable homes to the market.
The median price for a new home in February was $400,500, down 7.6% from a year ago.
Source: U.S. Census Bureau and U.S. Department of Housing and Urban Development
Pending Home Sales
NAR’s Pending Homes Sales Index rose 1.6% in February from the month prior even as mortgage rates approached 7% by the end of the month. Pending transactions declined 7% year-over-year.
A pending home sale marks the point in the home sales transaction when the buyer and seller agree on price and terms. Pending home sales are considered a leading indicator of future closed sales.
The Midwest and South saw monthly transaction gains while the Northeast and West saw declines due to affordability challenges in those higher-cost regions.
“While modest sales growth might not stir excitement, it shows slow and steady progress from the lows of late last year,” said Yun, in the report.
Ongoing Affordability Challenges Could Throw Cold Water on Spring Home-Buying Hopes
Though down from its 2023 high of 7.79%, the average 30-year fixed mortgage rate in 2024 remains well over 6% amid rising home values. As a result, home buyers continue to face affordability challenges.
According to data from its first-quarter 2024 U.S. Home Affordability Report, property data provider Attom found that median-priced single-family homes remain less affordable than the historical average in over 95% of U.S. counties.
For one, the data uncovered that expenses are eating up more than 32% of the average national wage. Common lending guidelines require monthly mortgage payments, property taxes and homeowners insurance to comprise 28% or less of your gross income.
At the same time, home prices and homeownership expenses continue to outpace wage growth.
Consequently, the latest expense-to-wage ratio is hovering at one of the highest points over the past decade, according to the Attom report, despite some slight affordability improvements over the last two quarters.
“Affording a home remains a financial stretch, or a pipe dream, for so many households,” said Rob Barber, CEO at Attom.
Pro Tips for Buyers and Sellers
Here are some expert tips to increase your chances for an optimal outcome in this tight housing market.
Pro Tips for Buying in Today’s Real Estate Market
Hannah Jones, a senior economic research analyst at Realtor.com, offers this expert advice to aspiring buyers:
Know your budget. Instead of focusing on price, figure out how much you can afford as a monthly payment. Your monthly housing payment is influenced by the price of the home, your down payment, mortgage rate, loan term, home insurance and property taxes.
Be flexible about home size and location. Perhaps your budget is sufficient for a small home in your perfect neighborhood, or a larger, newer home further out. Understanding your priorities and having some flexibility can help you move quickly when a suitable home enters the market.
Keep an eye on the market where you hope to buy. Determine the area’s available inventory and price levels. Also, pay attention to how quickly homes sell. Not only will you be tuned in when something great hits the market, you can feel more confident moving forward with purchasing a well-priced home. A real estate agent can help with this.
Don’t be discouraged. Purchasing a home is one of the largest financial decisions you’ll ever make. Approaching the market confidently, armed with good information and grounded expectations will take you far. Don’t let the hustle of the market convince you to buy something that’s not in your budget, or not right for your lifestyle.
Pro Tips for Selling in Today’s Real Estate Market
Gary Ashton, founder of The Ashton Real Estate Group of RE/MAX Advantage, has this expert advice for sellers:
Research comparable home prices in your area. Sellers need to have the most up-to-date pricing intel on comparable homes selling in their market. Know the market competition and price the home competitively. In addition, understand that in some price points it’s a buyer’s market—you’ll need to be prepared to make some concessions.
Make sure your home is in top-notch shape. Homes need to be in great condition to compete and create a strong “online curb appeal.” Well-maintained homes and attractive front yards are major features that buyers look for.
Work with a local real estate agent. A real estate agent or team with a strong local marketing presence and access to major real estate portals can offer significant value and help you land a great deal.
Don’t put off issues that require attention. Prepare the home by making any repairs or improvements. Removing any objections that buyers may see helps focus the buyer on the positive attributes of the home.
Will the Housing Market Crash in 2024?
Despite some areas of the country experiencing monthly price declines, the likelihood of a housing market crash—a rapid drop in unsustainably high home prices due to waning demand—remains low for 2024.
“[T]he record low supply of houses on the market protects against a market crash,” says Tom Hutchens, executive vice president of production at Angel Oak Mortgage Solutions, a non-QM lender.
Moreover, experts point out that today’s homeowners stand on much more secure footing than those coming out of the 2008 financial crisis, with many borrowers having substantial home equity.
“In 2024, I expect we’ll see home appreciation take a step back but not plummet,” says Orphe Divounguy, senior macroeconomist at Zillow Home Loans.
This outlook aligns with what other housing market watchers expect.
“Comerica forecasts that national house prices will rise 2.9% in 2024,” said Bill Adams, chief economist at Comerica Bank, in an emailed statement.
Divounguy also notes that several factors, including Millennials entering their prime home-buying years, wage growth and financial wealth are tailwinds that will sustain housing demand in 2024.
Even so, with fewer homes selling, Dan Hnatkovskyy, co-founder and CEO of NewHomesMate, a marketplace for new construction homes, sees a price collapse within the realm of possibility, especially in markets where real estate investors scooped up numerous properties.
“If something pushes that over the edge, the consequences could be severe,” said Hnatkovskyy, in an emailed statement.
Will Foreclosures Increase in 2024?
In February, total foreclosure filings were down 1% from the previous month but up 8% from a year ago, according to Attom.
“These trends could signify evolving financial landscapes for homeowners, prompting adjustments in market strategies and lending practices,” said Barber, in a report.
Lenders began foreclosure on 22,575 properties in February, up 4% from the previous month and 11% from a year ago. Meanwhile, real estate-owned properties, or REOs, which are homes unsold at foreclosure auctions and taken over by lenders, spiked year-over-year in three states: South Carolina (up 51%), Missouri (up 50%) and Pennsylvania (up 46%).
Despite foreclosure activity trending up nationally and certain areas of the country seeing notable annual increases in REOs, experts generally don’t expect to see a wave of foreclosures in 2024.
“Foreclosure activity is still only at about 60% of pre-pandemic levels … and isn’t likely to be back to 2019 numbers until sometime in mid-to-late 2024,” says Sharga.
The biggest reasons for this, Sharga explains, are the strength of the economy—we’re still seeing low unemployment and steady wage growth—along with excellent loan quality.
Massive home price growth in homeowner equity over the past few years has also helped reduce foreclosures.
Sharga says that some 80% of today’s homeowners have more than 20% equity in their property. So, while there may be more foreclosure starts in 2024—due in part to Covid-era mortgage relief programs phasing out—foreclosure auctions and lender repossessions should remain below 2019 levels.
When Will Be the Best Time To Buy a Home in 2024?
Buying a house—in any market—is a highly personal decision. Because homes represent the largest single purchase most people will make in their lifetime, it’s crucial to be in a solid financial position before diving in.
Use a mortgage calculator to estimate your monthly housing costs based on your down. But if you’re trying to predict what might happen next year, experts say this is probably not the best home-buying strategy.
“The housing market—like so many other markets—is almost impossible to time,“ Divounguy says. “The best time for prospective buyers is when they find a home that they like, that meets their family’s current and foreseeable needs and that they can afford.”
Gumbinger agrees it’s hard to tell would-be homeowners to wait for better conditions.
“More often, it seems the case that home prices generally keep rising, so the goalposts for amassing a down payment keep moving, and there’s no guarantee that tomorrow’s conditions will be all that much better in the aggregate than today’s.”
Divounguy says “getting on the housing ladder” is worthwhile to begin building equity and net worth.
Frequently Asked Questions (FAQs)
Will declining mortgage rates cause home prices to rise?
Declining mortgage rates will likely incentivize would-be buyers anxious to own a home to jump into the market. Expect this increased demand amid today’s tight housing supply to put upward pressure on home prices.
What will happen if the housing market crashes?
Most experts do not expect a housing market crash in 2024 since many homeowners have built up significant equity in their homes. The issue is primarily an affordability crisis. High interest rates and inflated home values have made purchasing a home challenging for first-time homebuyers.
Is it smart to buy real estate before a recession?
If you’re in a financial position to buy a home you plan to live in for the long term, it won’t matter when you buy it because you will live in it through economic highs and lows. However, if you are looking to buy real estate as a short-term investment, it will come with more risk if you buy at the height before a recession.
With rate cuts predicted for later this year, mortgages could potentially become slightly cheaper.
Getty Images
While more stable over the past nine months, the economy was highly volatile from 2020 through the first half of 2023.
After the pandemic hit, the Fed dropped the fed funds rate to zero and demand surged in the housing market causing home values to skyrocket. Then, inflation began to run away and the Fed hiked rates 11 times. Meanwhile, the average 30-year fixed mortgage interest rate went from 2.8% in late 2021 up to a 22-year high of 7.79% in October 2023.
Since December, mortgage rates have been more stable, fluctuating between 6.5 and 7%. However, many are now wondering if rumored Fed cuts will change that.
“As the market gains more certainty and as inflation curbs, it is very likely that there will be rate cuts this year,” says Scott Haymore, senior vice president and head of mortgage capital markets and product management at TD Bank. “Currently, Fed Funds futures contracts have three rate cuts built in starting in the second half of this year,” he says.
If Fed rate cuts do happen as many expect, how far can you expect mortgage rates to drop, if at all? We asked some experts for their rate predictions.
See how low of a mortgage interest rate you could secure here now.
How far will mortgage rates fall when the Fed cuts rates?
Here’s where three experts predict mortgage rates are heading:
Around 6% or below by Q1 2025: “Rates hit 8% towards the end of last year, and right now we are seeing rates closer to 6.875%,” says Haymore. “By the first quarter of 2025, mortgage rates could potentially fall below the 6% threshold, or maybe even lower.”
Hold steady through 2024: Afifa Saburi, a capital markets analyst for Veterans United Home Loans, doesn’t think rates are going to drop much this year. “Mortgage rates won’t fall much from where they are today because the rate cuts that the Fed has penciled in are already priced in by the markets. This means that almost all of the rate relief that we would see from rate cuts is already here,” Saburi explains.
Hold steady through mid-2025: Jeremy Schachter, branch manager at Fairway Independent Mortgage Company, says he expects rates will stay in the higher 6% range and won’t fall much in 2024 or even early to mid-2025. “With goals of the Federal Reserve to get inflation around the 2% mark, I don’t expect the Feds to lower rates until September or later in 2024,” Schachter says. “Unfortunately, we still have to have a bit more pain in the economy with higher unemployment to see the Federal Reserve lower rates.”
The bottom line? While rates may drop modestly, we likely won’t be getting back to the 3 to 5% rates that were the norm from 2010 to 2020 in the upcoming year.
Learn more about today’s mortgage rates online now.
Should you wait to buy a home?
If you find a great home and the financing fits into your budget, experts say you typically don’t want to wait.
“The best advice is still: When you find a home you love inside your budget, buy it. Mortgage rates are unpredictable but, right now, home values are not,” says Dan Green, chief executive officer at Homebuyer.com. If rates do drop, you can always refinance to secure a lower rate but you won’t always be able to buy a particular home.
You should also consider the opportunity cost of waiting. “On average home appreciation is between 4 and 5% each year. If you decide to hold off until 2025, how much will that home be worth vs. purchasing it now?” asks Schachter. He explains that if you decide to wait and time the market, a home that is worth $500,000 now could have appreciated $25,000 in 2025 (a 5% increase). “The adage, buy the home, date the rate is a perfect example of this scenario,” Schachter added.
A drop in rates also often causes more buyers to enter the market which drives up home prices. “I believe we will see rate cuts come in the fall if at all this year. Along with that, you will see buyers come back to the fray and it will make competition even harder in a housing shortage-dominated market. Yes, rates will be lower but prices may be much higher,” predicts Ralph DiBugnara, president of Home Qualified and senior vice president at Cardinal Financial.
There’s cautious optimism in the air among area real estate professionals looking into the 2024 home sales market.
If trends continue, they see mortgage rates going down and listings going up.
The key word is “if.”
“Looking ahead to 2024, we anticipate mortgage interest rates to settle in the 6% range, which will attract even more buyers into the market, especially come spring,” said Jeanette Schneider, president of Re-Max of Southeastern Michigan.
“Current homeowners who held onto their home due to a favorable interest rate may decide their interest rate isn’t worth keeping a home that no longer meets their needs, and that should bring a bit more inventory to the market.”
Adds Karen Kage, chief executive officer of Realcomp II Ltd., Michigan’s largest multiple listing service: “We are hopeful for interest rates to continue to trend downward in the new year and consumer confidence levels to rise. As we stand today and look ahead, those are, perhaps, the biggest factors in determining what we might see in 2024.”
Nationally, industry analysts and veterans offer a range of predictions for the upcoming year. Among those:
• Buying a new home will remain expensive, according to Zillow, while Redfin said the median sale price could retreat by 1% in 2024
• The market will still be challenging for first-time homebuyers, but an influx of new apartment units could help manage inflation, according to Lawrence Yun, chief economist for the National Association of Realtors
• Sales of existing homes will rebound in 2025, with home-buying costs leveling off in the second half of 2024, according to investment banker Goldman Sachs
• In Michigan, tech startup real estate tracker Houzeo predicted home sellers will return to the market in 2024 and interest rates will stabilize in the second half of the year.
Locally, Schneider predicted a “slight uptick in home sales in 2024, along with a steady, but moderate increase, in home prices.”
“As boomers consider downsizing, we expect to see more cash offers in the market, providing a challenge for first-time buyers,” she said.
The Press & Guide asked area real estate specialists — with a combined experience of more than seven decades — to size up the market for the next year.
Interviewed for this story are:
• Susie Armiak, Realtor, MBA Realty Powered by Real Estate One, Grosse Ile, three years experience as a licensed Realtor and more than 25 years as a residential home builder
• Eric Blaine, associate broker and branch manager, Dearborn Office, Real Estate One, 10 years experience
• Tracey Solomon, Realtor, Re/Max Masters, Davis/Solomon Realty Group, Flat Rock, more than four years experience
• Maria Starkey, Realtor, Starkey Team, MBA Realty, Grosse Ile, 24 years experience. Also contributing: Michael Starkey, Realtor
• Benjamin Welch, associate broker, Century 21 Curran & Oberski, Dearborn Heights, 18 years experience, including owning and operating Street Rock Management (property management) for five years
Susie Armiak
Eric Blaine
Tracey Solomon
Michael and Maria Starkey
Benjamin Welch
Here are edited excerpts of their comments about the year ahead:
Q: Strong demand and tight inventory have defined the real estate market in 2023. How do you see those factors and others shaping the 2024 home sales market?
Armiak: I believe we will continue to see that same trend. Specifically because the higher interests this past year had many sellers/buyers sitting on the fence and new home construction is still behind the demand.
Blaine: Inventory has begun to rise in many markets and is expected to continue that trend in 2024. We expect demand to remain high, as well, and rising inventory will help.
Solomon: Demand is still outpacing supply. Unless this changes, we can expect more of the same seller-weighted market. Election years are historically slower as buyers and sellers may feel unsure about changing economic policy. Post-election, the market typically stabilizes. I suspect that if demand remains high and inventory low, we may not see that expected slowdown. It would be offset by the continued supply/demand pressure.
Starkey: The current market of strong demand and tight inventory is expected to continue into 2024. More buyers than houses continue to be the trend. This is keeping prices in the Downriver market on the high end for homes that are well-maintained and updated. The year ahead will likely continue to be a seller’s market. Homes in need of updating or with deferred maintenance tend to sit on the market longer, resulting in lower noncompeting offers.
Welch: Predicting the 2024 housing market is like forecasting the weather in Michigan – it’s an assumption with a dash of optimism. If interest rates remain the same, the days a home is on the market will continue to increase.
Q: Mortgage interest rates exceeded 7% in 2023. Where do you see mortgage rates in 2024 and how will that affect sales?
Armiak: The most recent Fed meeting stated they would be dropping interest rates three times in 2024 and we are already noticing the benefits of the recently lowered rate, currently at 6.6% for a 30-year fixed rate. (That rate may vary for buyers based on credit score, income and down payment amount.) This rate drop will entice sellers and buyers to make their move. My advice is the sooner the better because it’s going to be crowded in the marketplace once again. Be prepared to make swift and decisive decisions.
Blaine: Rates have held steady for a while and even declined slightly. I expect rates to hold somewhat steady in 2024, allowing more consumers to get off the fence and jump back in the market.
Solomon: Mortgage rates seem to be slowly dropping, which is great news for buyers and sellers. If rates continue to decline, more buyers will enter the market and demand will (again) increase. That will mean a continued shortage of homes and continued pressure on buyers to offer incentives to encourage sellers to accept their offers (fewer contingencies, appraisal guarantees, etc.)
Starkey: Interest rates are anticipated to come down into the 6% range in 2024, which likely will bring more buyers into the market. This may encourage more sellers to list their homes for sale. However, I expect home values will stay steady as demand for homes is expected to continue.
Welch: Increasing interest rates have been a major topic of discussion this year. It appears the Federal Reserve is done with rate hikes and Fannie Mae announced that interest rates could drop into the 6% range by the second quarter. If that happens, I expect a flurry of buyers to hit the market and for home prices to continue to rise.
Q: What is your best advice to potential home sellers for 2024?
Armiak: Connect with an experienced Realtor now to generate your personal marketing strategy. There are multiple items that need to be addressed prior to listing your home. Being prepared will put you in the best position to achieve your goals.
Blaine: It is a great time to sell. Values are up and demand is high.
Solomon: Once you’ve found an agent you trust, listen to their advice. Prepare your home for sale, but don’t overdo it. Timing is everything. Waiting to list until it’s perfect can cost you thousands. Consult your listing agent to prioritize your timing and task list. Utilize a pricing strategy that’s proven effective.
Starkey: Consider taking care of any potential deferred maintenance that could bring down home value. Also, be proactive by having a private home inspection done in advance to address any issues that may come up in a buyer’s private home inspection. This can reduce obstacles throughout the transaction. Last, minimize clutter, reduce excess furnishing that may make the space look smaller and — most importantly — provide a clean home for buyers to tour.
Welch: My advice is to hire a professional so you know all of your options. A professional Realtor will provide guidance, resources and a proven plan to facilitate the sale.
Q: What is your best advice to potential home buyers in 2024?
Armiak: Connect with an experienced Realtor now and begin the pre-approval process with your mortgage lender. It generally takes three months from start to finish. The more prepared you are, the stronger your chances are of getting the home of your dreams. And remember, you can always refinance, but you can’t retrofit the home appreciation value as they continue to rise at an annual rate of 4.7%, per FHFA reports.
Blaine: With value rising — a trend we expect will continue — now is the time to buy before values rise more. Waiting will only cost more and interest rates will not drop enough to help overcome appreciation.
Solomon: Find an agent you trust and communicate your needs and wants. Be financially prepared; your pre-approval matters. Set a home budget that works for your life, not just your balance sheet. Love to travel? Eat out? Give charitably? Factor that in. Adjust your price point to accommodate. (Yes, I’m suggesting you spend less so you can live more.)
Starkey: Get into the market early. Homes are hitting the market every day — not just in spring. Buyers who get a head start should have less competition than those who wait for more homes to choose from. If potential buyers find a home they love, go for it. If interest rates come down, you can always refinance. There are mortgage companies that offer a “no fee” refinance within the first two years of purchase.
Welch: If you are waiting for interest rates to come down before buying a home, it’s time to rethink your strategy. It is best to buy now because if interest rates drop, the number of buyers competing for the home you want will increase significantly, making it more challenging to buy that home.
Q: What communities do you see as most active for home sales in 2024 and why?
Armiak: I believe all communities will enjoy accelerated activity with the promise of lower interest rates, including those looking for second homes and investment properties. We are already seeing an increase in new listings in what is typically known as a quieter time. However, driving factors will continue to be the usual suspects: marriage, family growth, job change, death and divorce.
Blaine: Southeast Michigan markets, including Dearborn, are going to continue strong sales in 2024.
Solomon: Flat Rock, Woodhaven, Wyandotte and Southgate. All show increased values and searches. “Most active” is a hard metric to use as a measurement. A small community won’t show big sales numbers. However, highly rising values and quick list-to-pending sales dates show they are desirable and likely selling at or above asking with appraisal guarantees. Grosse Ile is a good example.
Starkey: The current market of strong demand and tight inventory is expected to continue into 2024. More buyers than houses continue to be the trend. This is keeping prices in the Downriver market on the high end for homes that are well-maintained and updated. The year ahead will likely continue to be a seller’s market. Homes in need of updating or with deferred maintenance tend to sit on the market longer, resulting in lower noncompeting offers.
Starkey: All Downriver communities will be active for home sales in 2024. The communities with more affordable housing for first-time buyers may see more activity as those buyers get away from renting. Of course, we need homes to come up for sale. Many homeowners are getting older and either moving to warmer climates or looking for less housing maintenance. Investors also like to purchase homes to add to their rental portfolio or to renovate and sell. The “step up” housing may not be as active as many of those homeowners are enjoying 2% to 4% interest rates and are feeling very comfortable with their current housing costs.
Welch: During November in the Downriver area, the number of homes for sale declined by 32% compared with previous months. It’s still a competitive market. With interest floating around 7.5%, there are many buyers just sitting on the bench waiting for rates to come down before they make their move. Imagine what it will be like if, and when, that happens.
After two years of sharp declines, existing-home sales are poised for improvement in 2024. But first, this slice of the housing market must weather the rest of a rocky year in 2023, with existing-home sales expected to end up 18% lower than those of 2022, according to the National Association of REALTORS®. That puts these transactions on track for their worst year in more than a decade.
NAR Chief Economist Lawrence Yun joined other leading housing analysts Tuesday at NAR’s virtual Real Estate Forecast Summit to discuss sales projections heading into 2024—and the experts agreed that better days are ahead for the real estate market.
Mortgage rates likely have peaked and are now falling from their recent high of nearly 8%. NAR predicts the 30-year fixed-rate mortgage to average 6.3% in 2024; realtor.com® projects 6.5%. This likely will improve housing affordability and entice more home buyers to return to the market, Yun says. NAR’s data shows that rates near 6.6% enable the average American family to afford a median-priced home without devoting more than 30% of their income to housing, the threshold commonly used to measure affordability.
NAR is projecting that existing-home sales will rise 13.5% and new-home sales—which are up about 5% this year, defying market trends—could increase another 19% by the end of next year.
Markets to Watch in 2024
Some housing markets likely will experience higher sales upticks in 2024 than others. “Job growth will be a determinant for long-term housing demand,” Yun said.
NAR evaluated 100 of the largest U.S. metro areas to identify the markets with the largest pool of potential home buyers, the greatest likelihood for home price appreciation and more. The following markets have the most pent-up housing demand for 2024, according to NAR:
Danielle Hale, chief economist at realtor.com®, said at Tuesday’s summit that while she’s optimistic the housing market will improve in 2024, inflation is the issue that could derail optimistic real estate forecasts. If inflation doesn’t continue to improve, she said, it could raise long-term interest rates, which then could discourage more homeowners from selling and prolong the inventory bottlenecks in the market. Younger generations of home buyers may continue to be sidelined by higher housing costs and remain as renters. “That could have huge ramifications for the housing market,” Hale said. “The inflation data is very important to watch.”
Overall inflation has been easing, although “shelter inflation” continues to rise. The latest reading of the Consumer Price Index showed that inflation decreased to 3.1% in November. (The Federal Reserve’s target for the inflation rate is 2%.) Yun said an “oversupply” of new apartment units will hit many housing markets in the coming months, which could bring rental rates down and help better control inflation. Hopefully, he added, that will disincentivize the Fed to continue raising its short-term rates.
Regardless of inflation and mortgage rates, the 2024 housing market likely will remain challenging, particularly for first-time buyers who are unable to leverage the proceeds from a previous home sale, summit panelists noted. Plus, amid record low inventory, finding a home to buy will be a top hurdle. Homeowners remain reluctant to sell and give up the low mortgage rates they locked in two years ago. Further, homebuilders have underproduced for decades, leading to a shortage of 5 million housing units nationwide, according to NAR research.
However, current homeowners are in an envious position: With rapid home appreciation in recent years, owners will grow their nest egg in 2024. Even those in markets that are expecting slight dips next year will be able to weather the drop. Home price appreciation has jumped by about 5% over the past year alone. The typical homeowner has accumulated more than $100,000 in housing wealth over the past three years, NAR’s data shows. Plus, the wealth comparison between homeowners and renters continues to be significant: The typical homeowner has $396,200 in wealth versus $10,400 for renters, according to Federal Reserve data. “Over the long term, homeowners build wealth over time,” Yun said.
There’s been a lot of interesting housing-related news over the past week, with some good and some bad.
The first bit is that economists finally believe the national housing bottom is near.
Yes, we’ve heard that before, several times, but per Zillow, the economists surveyed are all “largely” on-board this time.
So that’s good news. The bad news is that more than half of the same respondents believe the homeownership rate will continue to fall from the 65.4% level seen in the first quarter.
In fact, one in five think homeownership will be at or below 63% in coming years, which will test the all-time low established in 1965.
For the record, some areas of the nation have already appeared to bottom, and are actually up quite a bit.
In hard-hit Phoenix, home prices are already up 12% from their bottom. In San Francisco, prices are up 10% from bottom.
But New York, Atlanta, and Chicago are still waiting for the bounce.
Housing Recovery Not Looking Too Hot
Meanwhile, future home appreciation isn’t looking as good as it once was.
Back in June 2010, Zillow-surveyed economists expected cumulative appreciation of 10.3% from 2012 to 2014.
Now, the experts only see home prices appreciating a paltry 3.5% for the same period.
That’s $1.25 trillion less in housing wealth than previously expected. Yikes.
So expect an “L” shaped recovery…in other words, a steep decline, followed by many, many flat years. Sure, it may a be “squiggly L” with little ups and downs, but an “L” nonetheless.
That said, make sure you actually like the place you buy, don’t just buy it because you think you’re going to make a killing off it as an investment.
The good news is mortgage rates continue to be absurdly low, with the 30-year fixed matching a record low 3.48% this week, per Zillow.
I didn’t see rates falling that low, so I’ll start eating my hat now.
But I still think the low rates could be a major artificial stimulus, which has led to homeowners listing the worst properties out there of late.
Why the Housing Recovery Will Take Time
If you’re wondering why the housing market won’t bounce back immediately, you merely need to consider all the ineligible buyers.
Let’s start with the millions of underwater homeowners, who won’t be able to move unless they’re rich enough to buy a new house and short sell or bail on their current property.
There aren’t many people this lucky, especially now that lenders actually document income.
Then there are those who still haven’t gone through foreclosure yet, but are hanging on by a thread.
There are plenty who still haven’t been displaced, but will be in the next several years. So there’s a ton of shadowy shadow inventory yet to materialize.
Even those who received loan modifications are in serious trouble. A recent study released by credit bureau TransUnion found that a scary 60% of those who received loan mods re-defaulted just 18 months later.
So there’s a lot of bad news that just isn’t making it to the presses, largely because we are riding the “good news train” right now in the housing world.
All of these former homeowners will also have difficulty qualifying for a mortgage in the future, so they’re essentially out of the mix.
Let’s not forget the millions that are unemployed…they obviously won’t be able to buy a home either, so this explains the dip in homeownership as well.
And it doesn’t bode well for home prices going forward. Consider that as home prices rise, more would-be home sellers will list their properties. This should keep downward pressure on prices for a long time.
It also makes one question if the bottom is really as close as some think, or even for real. We saw misleading upticks with the homebuyer tax credit too, so it’ll be interesting to see if this latest rally has legs.