“Prices are increasing faster than we expected them to because of the continual shortage of new homes coming onto the market,” says Senior Economist Joseph Kirchner of realtor.com. “People that had been holding back on buying a home … now have good, steady jobs and are less worried about losing their jobs and hence are going into the housing market.” If the shortage of homes continues, prices could rise 7% to 8% year over year in 2017, he says. Ouch.
That means buyers on a budget “will be able to afford one less bedroom [or need to] accept a house with a longer commute,” Kirchner says.
The first quarter of the year marked the strongest quarterly sales pace in a decade, according to the report. “Prospective buyers poured into the market,” NAR’s Chief Economist Lawrence Yun said in a statement. “Those able to successfully buy most likely had to outbid others—especially for those in the starter-home market.” Read more.
For clients who’ve closed on a home and want to make energy-efficient updates — or clients looking to make similar upgrades prior to selling — a home equity line of credit could be a great option to help pay for a wide range of home improvements.
Energy-efficient upgrades in particular are a great way to both add value and reduce expenses in the long term. Installing insulated windows or updating heating and air conditioning systems are relatively simple projects that can help clients lower their utility costs — but clients may also want to consider integrating these smaller updates into larger upgrades like a kitchen or bathroom remodel. Of course, these projects can get expensive, which is why a home equity line of credit (HELOC) could be a good resource for your clients. In fact, home improvements and remodeling have traditionally been among the most common reasons homeowners take out a HELOC.
There are a number of benefits to using a HELOC to pay for planned upgrades:
- Flexibility. Once someone opens a HELOC, they may draw out funds as needed up to a predetermined credit limit.
- Convenience. Most financial institutions provide checks that can be used to pay directly from the client’s HELOC for services used (for example, a contractor) and purchases made (for materials, appliances, etc.). Or, they can use secure online banking to transfer funds from a HELOC to their checking account to pay for home improvements.
- Low interest rates. Typically, the interest rates on a HELOC are much lower than on most credit cards.
- Possible tax advantages. Tell clients to check with their financial advisor to learn more about what kinds of tax advantages they may qualify for with a HELOC.
The Bank of America Real Estate Center can help clients figure out how much they may be able to borrow for a HELOC. Once they go to the site and type in their home’s street address, they’ll instantly see an estimated range of what their home is worth. Generally, they’re allowed to borrow a portion of their home’s equity (defined as the appraised home value less what is owed).
A recent report released by Down Payment Resource shows that 65% of first-time homebuyers purchased their homes with a down payment of 6% or less in the month of January. The trend continued through all buyers with a mortgage, as 62% made a down payment of less than 20%, which is consistent with findings from December. An article by DS News points to the new wave of millennial homebuyers:
“It seems that the long-awaited influx of millennial home buyers is beginning. Ellie Mae reported that mortgages to millennial borrowers for new home purchases continued their ascent in January, accounting for 84 percent of closed loans.”
Among millennials who purchased homes in January, FHA loans remained popular, making up 35% of all loans closed. Ellie Mae’s Executive Vice President of Corporate Strategy Joe Tyrrell gave some insight into why:
“It is not surprising to see Millennial borrowers leverage FHA loans because they typically offer lower down payments and lower average FICO score requirements than conventional loans. Across the board, we’re continuing to see strong interest in homeownership from this younger generation.”
If you are one of the many millennials who is debating a home purchase this year, contact a local professional who can help you understand your options and set you on the path to preapproval.
If you thought about selling your house this year, now may be the time to do it. The inventory of homes for sale is well below historic norms and buyer demand is skyrocketing. We were still in high school when we learned the concept of supply and demand: the best time to sell something is when supply of that item is low and demand for that item is high. That defines today’s real estate market. Jonathan Smoke, Chief Economist at realtor.com, revealed in a recent article that:
“The biggest challenge to buyers this spring will be simply finding a home to buy and getting it successfully under contract. That’s because the supply of homes for sale is at an all-time low, and yet demand is strong and getting stronger.”
Smoke goes on to say:
“We started the year with the lowest inventory of homes available for sale that we’ve ever seen on realtor.com. While we did see inventory grow 2% in February, total inventory was down 11% over last year.”
In this type of market, a seller may hold a major negotiating advantage when it comes to price and other aspects of the real estate transaction including the inspection, appraisal and financing contingencies.
As a potential seller, you are in the driver’s seat right now. It might be time to hit the gas.