Getting creative

As you’ll see in our first story, the housing market just hit record highs in terms of housing payments and home prices. Statistics like those help explain why we are in the midst of an affordability crisis.

This is why we think it is so crucial that agents know about all the various financing options out there. In today’s Foundations Plans, we present two of the more creative options out there.

We also think it’s important for agents to know about the short-term rental market, as many younger buyers are considering renting out portions of their homes to make supplemental income. We’ve included a story about that too.

With knowledge like this, we can provide value for our clients, quite literally!

– James and David

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Housing market hits two all-time highs

The median U.S. monthly housing payment hit an all-time high of $2,894 during the four weeks ending May 5, up 14% from a year earlier. Meanwhile, median home prices rose 4.5% to $384,721, also a record high. That’s according to Redfin’s latest housing market update. Here’s what else they report:

• New listings rose 9% year over year, the smallest increase in three months

• Pending home sales dropped 3% from a year earlier, the biggest decline in two months

• 30% of homes sold above asking price, flat from a week earlier and down 2% YOY

• 6.2% of home sellers dropped their asking price, the highest share since November and up 4.3% YOY

• Mortgage-purchase applications increased 2% week over week

Our take

This was one of the toughest four-week stretches for both sellers and buyers. High home prices, coupled with high mortgage rates, kept sellers and buyers from making moves. Fortunately, last week’s encouraging economic news drove mortgage rates down a bit and could stir some action in the market. As you can see, mortgage applications are up slightly. We will have to see if this trend holds after the latest CPI report drops this Wednesday. Let’s keep our fingers crossed.

Top zip codes for equity-rich properties

45.8% of mortgaged homes nationwide are equity-rich, down 0.3% from last quarter’s 46.1%, according to ATTOM. That marks the third consecutive quarterly decrease and the lowest number in two years. This indicates that the total estimated loan balances tied to these properties did not surpass half of their estimated market values.

Even though the amount of equity-rich properties is dropping, many homeowners are sitting on a significant amount of equity, thanks to increasing home prices. 

Here are the top zip codes with the highest percentages of equity properties:

1. 83340 – Ketchum, ID – 86.4%

2. 49855 – Marquette, MI – 84.9%

3. 92657 – Newport Coast, CA – 84.8%

4. 93108 – Santa Barbara, CA – 84.6%

5. 94024 – Los Altos, CA – 84.2%

6. 93110 – Santa Barbara, CA – 83.7%

7. 33480 – Palm Beach, FL – 83.5%

8. 33146 – Miami, FL – 83.4%

9. 08243 – San Isle City, NJ – 83.4%

10. 76115 – Fort Worth, TX – 83.0%

Our take

It’s not surprising that the most equity-rich states are concentrated in the Northeast or West. However, it may come as a surprise that California is one of the top five states with equity-rich properties totaling 58.6%. These are the kind of tidbits that are great to share with potential clients. Show them how they can leverage their equity to either secure a HELOC or a Home Equity Loan. Be the knowledge broker you wish you had. Be the change you want to see in the world.

Top 10 best cities for short-term rental investments

Clever Real Estate teamed up with Rabbu.com (a Charlotte-based short-term rental investment platform) to rank the 50 largest U.S. metros on how they accommodate the short-term rental business. Their ranking included parameters such as occupancy rate, median home sale price, number of total listings, and a variety of others.

Here is their list of the top 10 best short-term rental markets for 2024. 

1. Tampa, FL

2. Orlando, FL

3. Jacksonville, FL

4. Boston, MA

5. Miami, FL

6. Buffalo, NY

7. Columbus, OH

8. Chicago, IL

9. Providence, RI

10. Kansas City, MO

Our take

As agents, we must stay current on this aspect of the housing market. Homeowner attitudes have changed significantly in such a short time. AirBnB was only founded in 2008, and homeowners are considering arbitrage and short-term rentals to generate rental income now. More than half of Millennial and Gen Z buyers view the ability to rent out a portion of their home for rental income as “very” or “extremely” important. We encourage you to study this report. It not only details which markets are the most lucrative, but also the preferences of short-term rental (STR) users and why they’ll choose a STR over a hotel.

Schematics

The news that just missed the cut

• Settlements reached by Anywhere, RE/MAX, and Keller Williams have been approved

• Use this technique to generate content online

• 6 mistakes home buyers make when getting a mortgage 

• What to know when buying a house overseas

• 50 global housing markets with the most millionaires

Foundation Plans

Advice from James and David to win the day

Since housing affordability is still an issue for many buyers, agents should know how to use non-traditional financing methods. Today, we will cover two creative financing methods – seller financing and subject-to financing.

Seller Financing – Seller financing involves the seller providing credit to the buyer instead of the buyer securing a loan from a traditional lender. This arrangement can be used for properties with or without an existing mortgage. It establishes a new payment schedule based on negotiated terms such as a down payment, purchase price, and interest rate, determining the new monthly payment.

Main benefits: 

• Negotiation Flexibility: All terms are open for negotiation, enabling buyers to customize the agreement to suit their financial requirements.

• Simplified Process: Since there are no banks involved, the transaction can proceed more smoothly and inexpensively without lending fees.

• Potential for Improved Terms: Buyers and sellers can negotiate all payment aspects, not just the purchase price, potentially leading to better and more adaptable loan conditions.

Subject-to Financing – This is a method where the buyer assumes the seller's existing mortgage payments. The seller's original mortgage remains in place, with the buyer taking over the payments without the loan being formally transferred. This approach results in the property's deed being transferred to the buyer while the existing mortgage remains in the seller's name. Consequently, the buyer owns the property but makes payments on the original mortgage.

Main benefits:

• Lower Entry Cost: This typically demands less initial cash compared to conventional financing methods.

• Favorable Interest Rates: Buyers can profit from assuming an existing mortgage with a lower interest rate than what is presently available in the market. 

• Maturity Advantage: By taking over a mortgage that began even a year before the purchase, buyers can leverage a more advanced amortization schedule, effectively bypassing a substantial amount of interest.

When using these financing methods, you will have to educate your clients and, occasionally, other agents as well. However, informed agents who understand these methods can offer their clients valuable solutions, especially in tough market conditions or for properties that struggle to sell using traditional means. To learn more, start here and here.

To learn more about Estate Media, visit their website.

Just in Case

Keep the latest industry data in your back pocket with today’s mortgage rates:

“We have two lives, and the second begins when we realize we have only one.” — Confucius

Thanks for reading, and we’ll see you back here on Friday!

– James and David