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The average 30-year fixed mortgage rate just hit 8% for the first time since 2000, putting housing financing costs at historically high levels.

Given high prices and high interest rates, homebuyers must earn $114,627 to afford a median-priced house in the U.S., according to a recent report by Redfin, a real estate firm, which analyzed median monthly mortgage payments in August 2023 and August 2022.

The firm considers a monthly mortgage payment to be affordable if the homebuyer spends no more than 30% of their income on housing. At the time of the analysis, the average 30-year fixed mortgage was 7.07%.

The median U.S. household income was $75,000 in 2022, Redfin found. While hourly wages in the U.S. grew 5% over the past year, according to the real estate firm, that has not outpaced rising housing costs.

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Those current market trends have left homeownership out of reach for many people, experts say.

“Housing affordability is incredibly difficult for potential homebuyers,” said Jessica Lautz, deputy chief economist and vice president of research at the National Association of Realtors.

How home affordability has changed

In August 2020, the typical monthly mortgage payment was $1,581, based on an average interest rate of 2.94%, Redfin found. At the time, the typical house cost roughly $329,000, and homebuyers would have needed an annual income of $75,000 to afford it. 

However, those record-low levels were the result of “highly unusual events, like a pandemic and a nearly catastrophic financial crisis,” said Mark Hamrick, senior economic analyst at Bankrate.com.

Nowadays, the typical U.S. homebuyer’s monthly mortgage payment is $2,866, according to Redfin — an all-time high.

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While the economy and the housing markets move through cycles, it’s unlikely for mortgage rates to decline substantially in the near term, especially as the Federal Reserve is expected to keep the benchmark rate high for longer, added Hamrick.

Additionally, the constrained supply of homes for sale is a “direct result of the lock-in effect,” said Hamrick. The low supply pressures prices upward as current homeowners are less compelled to move or put their houses on the market as they don’t want to trade their low-rate mortgage for one that is significantly higher.

“Higher rates are also increasing the cost and availability of builder development and construction loans, which harms supply and contributes to lower housing affordability,” Alicia Huey, NAHB’s chairman and a homebuilder and developer from Birmingham, Alabama, previously told CNBC.

‘This pain shall pass’

“People should know that this pain shall pass,” said Melissa Cohn, regional vice president of William Raveis Mortgage in New York. “In the next year or two years, interest rates will be lower, and people will have the ability to refinance.”

That said, competition for homes on the market is likely to be worse in a few years as interest rates cool, she said. There are many buyers who remain on the sidelines because of current high rates.

“When interest rates come down, everyone’s going to come back to the marketplace,” said Cohn.

How to decide: Buy now or wait?

The decision of purchasing a home is intensely personal and prospective homebuyers should tread with caution, experts say.

“When deciding to purchase a home, it comes down to personal finances, stability and the length of time they plan on owning,” said Lautz.

In addition to mortgage costs, prospective homebuyers should keep their other financial goals in mind, as well as maintenance costs, said Hamrick. The biggest regret among recent homebuyers was not being prepared for maintenance and other costs, according to a Bankrate survey.

However, “homeownership is the primary means of wealth creation in this country,” said Hamrick.

The typical homeowner has $396,200 in wealth compared to the average renter at $10,400, added Lautz.

First-time homebuyers may consider tapping retirement funds or taking advantage of first-time homebuyer programs that may offer down payment assistance. Buyers can also consider temporary buydowns, which are paid by either the real estate broker or seller, to help lower the monthly payment, said Cohn.

However, it will be important for prospective buyers to work with professionals in the long run, experts say. Buyers should examine all options, consult with realtors about overlook areas and talk with mortgage brokers to consider all the possible loan options, said Lautz.

“This is potentially the most expensive transaction somebody will be associated with in their lifetimes,” said Hamrick. “It should be done as well as possible to the benefit of the buyer.”

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Source: cnbc.com

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Biggerpockets’ David Greene joins us on today’s podcast to discuss his latest book, Pillars of Wealth. Hear how to make, save, and invest your money in order to hit financial freedom faster. David shares several insights on building wealth, including why incompetence could be holding you back from success. David and Shelby also discuss inflation, the current state of the economy, and the way winners think. Don’t miss it!

Listen to today’s show and learn:

  • About David Greene and Pillars of Wealth [2:25]
  • A helpful tip for increasing motivation [7:45]
  • Why it doesn’t take super smarts to be financially savvy [10:25]
  • How David Greene got into real estate [11:24]
  • How incompetence is holding you back from success [13:28]
  • David Greene’s DISC profile [15:38]
  • How to get better at social media and being social [16:38]
  • Why defense matters when it comes to getting rich [18:42]
  • The first step to becoming wealthy [21:06]
  • Tracking your real estate marketing budget and net earnings [23:07]
  • David Greene’s thoughts on inflation and the economy [25:26]
  • Preparing for a major recession [29:07]
  • Building skills in order to build wealth [31:13]
  • What leadership is and why leaders make more money [33:24]
  • How winners think [35:19]
  • Giving your best and getting excellence in return [36:53]
  • Why most real estate agents aren’t what the market wants [41:55]
  • Hacks for getting more energy to get more done [48:08]
  • The easy button: deceptive information on  success [49:56]
  • The good news [54:06]
  • Applying your work-out work ethic to work [54:30]
  • Where to find and follow David Greene [55:77]

David Greene

David Greene is a real estate broker and and co-host of the BiggerPockets Real estate podcast. The author of best selling books “Long Distance Real Estate Investing”, “Buy, Rehab, Rent, Refinance, Repeat”, and “Sold: Every Real Estate Agents Guide to Building a Profitable Business”, David is a nationally recognized authority on real estate, and has been featured on CNN, Forbes, and HGTV as well as over 25 different real estate podcasts. A licensed real estate broker and lender, David runs “The David Greene Team”, a top producing real estate company in Keller Williams where he has won multiple awards for production. An active real estate investor, David owns properties of various asset classes across the country.

Related Links and Resources:

It might go without saying, but I’m going to say it anyway: We really value listeners like you. We’re constantly working to improve the show, so why not leave us a review? If you love the content and can’t stand the thought of missing the nuggets our Rockstar guests share every week, please subscribe; it’ll get you instant access to our latest episodes and is the best way to support your favorite real estate podcast. Have questions? Suggestions? Want to say hi? Shoot me a message via Twitter, Instagram, Facebook, or Email.

-Aaron Amuchastegui

Source: realestaterockstarsnetwork.com

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Mortgage rates could drop in 2024 but the decrease may be small.

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In less than two years, mortgage rates have more than doubled. At the end of 2021, the average 30-year fixed-rate mortgage had a 3.11% interest rate, according to Freddie Mac. Now, at the beginning of November 2023, the average has climbed to 7.94%.

The picture isn’t necessarily any brighter for other mortgage types either. For an adjustable rate mortgage (ARM), the average 5/1 ARM (meaning the interest rate is fixed for five years and then changes once per year after) has an annual percentage rate (APR) of 8.16%, while a 10/1 ARM comes in at 8.23%, according to Bankrate.

But will the picture look different in 2024? It depends who you ask. Some experts take a stronger view on rates falling in 2024, while others are less certain that will happen. In general, though, most seem to think that mortgage rate drops are more likely to occur toward the second half of 2024, though the change might be relatively small.

Not sure what mortgage interest rate you can qualify for? Find out here now.

Will mortgage rates go down in 2024?

Fannie Mae, for example, projects 30-year fixed-rate mortgages will start 2024 at an average of 7.1% and fall to 6.7% by Q4 2024.

“In 2024, do not anticipate mortgage rates to drop significantly. The current market environment leans towards stability rather than volatility and fear,” says Nathaniel Pitchon-Getzels, a buyer’s agent and listing agent at Compass. 

“Before we see rates come down, it’s possible we’ll experience another rate increase. If they do decrease, it’s likely to be a gradual shift, possibly occurring at the end of the second quarter or the beginning of the third quarter,” he adds.

Rhonda Fisher, a real estate broker at Trust Equity Group and eminent domain expert with Consumer Notice, takes a similar view.

While she says she hopes mortgage rates come down in 2024, “the economic forecast suggests otherwise. With a strong employment market and inflation not decreasing as quickly as hoped, it doesn’t appear the Federal Reserve will be able to bring down rates anytime soon. The current rates are slated to continue until next year.”

Depending on economic variables like inflation, however, it’s possible that overall interest rates, including mortgage interest rates, will trend downward next year.

“If inflation and the economy weaken then we should expect to see interest rates lower toward the end of 2024,” says Fisher.

One way to get an idea of when mortgage rates are turning the corner and heading lower is to see when mortgage lenders stop making discount points mandatory. In the current environment, lenders often require homebuyers to pay money upfront in exchange for lower mortgage rates, in order for lenders to then be able to sell those loans to investors, explains Dan Green, CEO of Homebuyer.com.

“If you want to look smart and predict when mortgage rates will fall, keep an eye on discount points. Discount points will be a leading indicator for next year’s rates. When lenders start charging fewer points to buyers, that’s your signal that rates are about to drop,” he says.

He also thinks rates for different common loan types will generally move cohesively.

“Mortgage rates are generally close for the four major loan types – conventional, FHA, USDA, and VA. Over the last five years, VA and USDA loans averaged 0.25 percentage points below conventional loans, which averaged 0.15 percentage points lower than FHA loans. Buyers shouldn’t expect much change there,” says Green.

Learn more about your mortgage rate options here now.

Navigating the real estate market in 2024

If rates aren’t expected to drop significantly in 2024, what does that mean for buyers and current homeowners?

“Exactly what I always say to folks: what are your goals, what are you hoping to accomplish?” says Fisher. “For example, if a homeowner needs to make home improvements or renovations that are costly, a cash-out refinance might prove financially better than a personal loan.”

Some homebuyers also might be better off buying now than waiting to see if mortgage rates in 2024 drop.

“In the upcoming year, buyers need to be strategic and act promptly if they want to purchase a house. Waiting may lead to substantial losses in equity because property values continue to rise,” says Pitchon-Getzels.

Some sellers are also offering concessions, such as rate buy-downs in this environment, adds Fisher.

Still, it’s important to be mindful of what you can truly afford. Even if you think interest rates will drop and you can refinance later, that can be a risky strategy.

“When you buy a home, you have to expect that you’ll make its payments for the next 30 years because, even if mortgage rates drop, there’s no guarantee you’ll be eligible to refinance,” says Green. “What if you take a pay cut? What if you fall ill? What if life throws you a curveball?”

Instead, he says, “the best strategy for a homebuyer is to pick a mortgage and a payment that’s comfortable and stick with it. If the market improves and refinancing is possible, that’s terrific and lucky. But if refinancing is never an option, that’s okay, too, because the payment you’re making is within your zone of comfort.”

If you are in the market for a mortgage, be sure to shop around with different mortgage providers to see where you can get the best rate. Even a small difference in interest rates can add up to thousands of dollars in interest over the life of your loan, depending on the specifics, so it’s important to find the best fit for your circumstances. 

Start shopping for mortgage rates today.

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Source: cbsnews.com