Buying Power

The news is getting better and better for buyers. Our first story shows how they have gained a significant amount of purchasing power in the past few months. That is great to see.

But obviously, that doesn’t mean there aren’t a ton of hurdles that could keep the average buyer from getting the home they want.

In today’s Foundation Plans, we discuss how agents can not only help solve those financial problems but catch them before they even become problems. 

After all, that’s our number one job as agents–to stay several steps ahead of our clients and think through everything before they have.

The best way to do that is to always stay informed… and on that note, let’s dig into today’s stories!

– James and David

Homebuyers gaining purchasing power

Homebuyers have gained $22,250 in purchasing power since mortgage rates hit a five-month peak in April. That astonishing fact is from Redfin's latest report. Here are the other major key points:

• Mortgage rates have fallen to 6.85%, down from the high of 7.5% in April

• New listings of homes for sale are up 7% year over year 

• The total number of homes for sale is near its highest level since late 2020

• 60% of homes that were on the market in May have been listed for at least 30 days without going under contract, up 50% from 2022

• 40% of homes have been on the market for at least two months without going under contract, up 28% from 2022

Our take

Now is a great time for serious homebuyers to get under contract on a house, especially when compared to earlier this year and all of last year. Mortgage rates are at their lowest level in more than four months, thanks to the latest inflation reports. Many sellers are having a hard time finding buyers due to the uptick in homes for sale and many listings going stale. This gives buyers a chance to get a good deal and negotiate for other concessions, like home repairs or help with closing costs. Our advice: tell your buyers to start taking action now before the Fed cuts rates in September and more people jump into the market.

Morgan Stanley: Homeowners are the “strong hands”

In a recent investment note, Morgan Stanley analysts say that U.S. homeowners are the “strong hands” in the current real estate cycle because they have the financial capacity to hold onto an asset for an extended period, despite market volatility or downturns. The company explains this conclusion by offering several key data points about U.S. homeowners:

• 39% of them are mortgage-free

• Among those who have a mortgage:

  • 96% have a fixed-rate mortgage

  • 76% have an interest rate below 5.0%

  • 35% have an interest rate between 3.00% – 3.99%

  • 21.9% have an interest rate below 3.0%

Our take

Just look at that chart. 96% of U.S. mortgage borrowers have long-term fixed rates. Other than France, no other country comes close to us. This has given the U.S. homeowner a tremendous leg up. We suggest sharing this info with any prospective buyers. Since homeowners are this cycle’s “strong hands”, there will be a lack of homeowner distress, and few distressed sales. That’s one reason why national home prices remained stable despite mortgage rates doubling.  

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Metros with the highest rates of evictions

Evictions surged in major cities, specifically in the American Sunbelt, according to the Wall Street Journal. Compared to pre-2020 norms, eviction filings are up 35% or more in a half-dozen cities and surrounding metropolitan areas over the past twelve months. In the first five months of this year, there have been a total of 422,000 eviction filings across 33 cities nationwide.

Here are the Top 6 cities with the sharpest rise in eviction filings:

1. Las Vegas, NV

2. Columbus, OH

3. Phoenix, AZ

4. Dallas, TX

5. New York, NY

6. Philadelphia, PA

Our take

We wanted to bring this story to your attention because we want to contrast it with the previous one. While homeowners are doing great, a lot of renters aren’t. Foreclosures are down, but evictions are up. This just shows how the housing market contains a variety of trends that work in different directions. To those agents who focus on leasing, study Eviction Lab’s latest report to see how you can be of service to these landlords. They might want to sell their current investment. You’ll never know until you reach out.

The news that just missed the cut

• The DOJ doesn’t think the NAR settlement is enough.

• This mansion is the most expensive home ever sold in San Francisco.

• New homes no longer have hallways – here’s why. 

• Here’s what “rentvesting” is and how it works.

• J.Lo and Ben Affleck list their Beverly Crest estate for $68M.

Foundation Plans

Advice from James and David to win the day

As we mentioned in our first story, buyers are experiencing a resurgence of negotiating power. But that doesn’t mean they won’t encounter financial hurdles during the purchasing process. Today, we’d like to give you some tips on how to help your buyers when they run into these hurdles:

Down payment or closing cost issues – If a buyer is short on their down payment, there are options. First, find out exactly how much the lender requires, and see if it would help for the buyer to switch to a different loan product. Ask if it is possible to use gift funds to make up the difference. Sometimes, borrowers can cash out an investment account, 401k or another account to build up their down payment. They could also get a co-signer and solve the problem. That’s not all. Check to see if your buyer qualifies for any of these down payment assistance programs.  

Debt-to-income ratio issues –  Encourage buyers to pay down debts and not take on any new debt until after closing. Typically, the total debt-to-income ratio should be 36% or less, and the total housing expense should be 28% or less. If your buyer has a high DTI, several strategies could help lower it. The buyer could pay off a credit card / student loan / car loan / etc. Find out if the loan has to be paid off or just paid down. Ask the lender if a different loan product would require a different ratio. If your buyer is self-employed, their DTI is based on their post-tax or net income, not their pre-tax or gross income. Because many self-employed individuals take a lot of business deductions to reduce their tax burden, they often wind up with a low taxable income. Consequently, they should consider taking fewer deductions to increase their net income. This may result in a higher tax burden, but it can make qualifying for a mortgage easier. 

Credit score issues – These issues need to be dealt with at the very start of the homebuying process. They come in two forms: low scores or a specifically damaging item like a tax lien or a recent default. Find out which one you are dealing with. If the buyer’s score is too low — by about 15 points or less — it is probably fixable with a few easy remedies. Ask the buyers to use Experian.com to update their credit and correct errors. They can use Experian Boost to improve scores. If the buyer’s credit score is too low for the loan product, the borrower might need to switch to an FHA or a more lenient type of mortgage.

As you can see, this is a big topic. We’ve only begun to scratch the surface. It’s so important that agents know all the options out there. Start here and here to learn more.

To learn more about Estate Media, visit their website. And if you haven’t done so already, fill out this brief survey designed by EM. One lucky entrant will win a $500 Whole Foods gift card!

Just in Case

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

“The distance between dreams and reality is called discipline.” — Paulo Coelho

Strive to make your dreams come true friends. Take action. You can do it! Thanks for reading. We’ll see you back here on Friday!

– James and David