Mortgage Rates Rise After Preapproval

Buyers are getting preapproved for mortgages to better compete in a fast-paced housing market and to be mortgage-ready as soon as they are ready to make an offer. However, preapproval doesn’t lock in their mortgage rate, which can continue to rise .

Some buyers are finding that after their offer is accepted, they must stretch their budgets to afford rising mortgage rates. They face the choice of reducing their homebuying budget or taking on a higher monthly mortgage payment.

In preapproval letters, the quoted mortgage rate is referred to as a “floating” rate, which can rise and fall with the market. Typically, buyers are unable to lock in a mortgage rate until after they sign a purchase agreement to buy a home, according to The Mortgage Reports.

Mortgage rates have gone up by more than a full percentage point over the last six months. The 30-year fixed-rate mortgage averaged 3.89% last week, according to Freddie Mac. Economists largely predict rates will continue to rise throughout the year. Rates are still low by historical standards, but with rising home prices, fluctuations in mortgage rates can make a big difference in what people can afford.

Buyers should contact their lender to verify the current mortgage rate as they prepare to make an offer to make sure a home still fits their budget, The Mortgage Reports recommends. They also may want to budget for rising rates specifically. A preapproval sets the limit for what they can borrow at the quoted rate. House hunters who max out their budget on an offer may therefore face going over that limit after the mortgage rate increases.

Once a final loan application has been approved, buyers may aim to lock in rates. Rate-lock periods often last between 15 and 60 days. Lenders typically recommend that buyers lock their rate in for a period that ends after their anticipated closing dates, helping to prevent delays.

Read more: Buyers Rush to Lock in Rates Source: “What Happens If Mortgage Rates Rise After You Get Preapproved?” The Mortgage Reports (Feb. 28, 2022)

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Affordability in the New-Home Market Is Dwindling Fast

New-home buyers are facing even steeper prices. The median sales price of a newly built single-family home rose to $423,300 in January, up more than 13% from a year ago, according to data from the National Association of Home Builders. Higher development costs and rising prices for construction materials are to blame, builders say. “New-home prices continue to rise as the cost of materials increases,” says NAHB Chief Economist Robert Dietz. “Higher mortgage rates will slow homebuying demand over the course of 2022, and the Russia-Ukraine crisis will add short-term volatility to the bond market.”

Sales of newly built single-family homes decreased 4.5% month over month in January, the Census Bureau and Department of Housing and Urban Development reported Thursday. However, buyer demand remains high while inventory is limited, builders say. “Builders are grappling with supply-chain issues that are extending construction times and increasing costs,” says NAHB Chairman Jerry Konter. “Policymaking needs to focus on alleviating production bottlenecks, particularly as it relates to lumber and other building materials.”

Despite the challenges, new-home sales are up 34.4% over a year ago. But builders say material and pricing bottlenecks are preventing them from ramping up production.

Regionally, new-home sales posted drops in three out of the four major regions of the U.S. last month, led by a 10.7% decrease in the Northeast, a 7.4% drop in the South, and a 3.7% decline in the Midwest. The West was the only region of the U.S. to post an increase last month, with new-home sales rising 1.2%. Source: National Association of Home Builders

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Mortgage Rates Dip

The 30-year fixed-rate mortgage reversed course this week and decreased to an average of 3.89%, Freddie Mac reports. However, with expectations of even higher inflation on the horizon, mortgage rates likely will resume their upward trek over the coming weeks, Nadia Evangelou, senior economist and director of forecasting at the National Association of REALTORS®, notes on the association’s blog.

Despite this week’s decline, mortgage rates have risen by more than a full percentage point over the last six months, says Sam Khater, Freddie Mac’s chief economist. “Overall economic growth remains strong, but rising inflation is already impacting consumer sentiment, which has markedly declined in recent months,” Khater says. “As we enter the spring homebuying season with higher mortgage rates and continued low inventory, we expect home price growth to remain firm before cooling off later this year.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Feb. 24:

• 30-year fixed-rate mortgages: averaged 3.89%, with an average 0.8 point, dropping from last week’s 3.92% average. Last year at this time, 30-year rates averaged 2.97%.
• 15-year fixed-rate mortgages: averaged 3.14%, with an average 0.7 point, dropping slightly from last week’s 3.15% average. A year ago, rates averaged 2.34%.
• 5-year hybrid adjustable-rate mortgages: averaged 2.98%, with an average 0.3 point, unchanged from last week. A year ago, 5-year ARMs averaged 2.99%.

Freddie Mac reports average commitment rates along with average points to better reflect the total upfront costs of obtaining the mortgage. Source: Freddie Mac and “Instant Reaction: Mortgage Rates, February 24, 2022,” National Association of REALTORS® Economists’ Outlook blog

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Investment Firms Target Vacation Homes

Vacation homes have seen growing demand since the pandemic began, and investors are taking notice of the sector, largely the domain of individual homeowners until now.

Investors want to capture more of the bustling market for short-term rentals. Saluda Grade, a New York investment firm, has teamed up with AvantStay, a short-term rental operator, to buy about $500 million of homes. Saluda Grade, which is targeting homes within driving distance of major population centers, will buy the properties, and AvantStay will manage them for a fee, The Wall Street Journal reports.

“There’s a lot more yield available in the short-term market,” Ryan Craft, Saluda Grade’s chief executive, told The Wall Street Journal.

The startup reAlpha Tech Corp. is reportedly pooling money from small-time investors to buy short-term rental homes as well.

But buying properties one by one can take time and make it more difficult for investors to invest large sums all at once, The Wall Street Journal reports. Also, many cities have restrictions on the amount of short-term rental listings.

“Regulatory risk is a huge problem,” Sebastian Rivas, CEO of Andes STR, told The Journal.

But investors are eyeing how to take advantage of the growing interest in short-term rentals. Short-term rentals, such as those offered through Airbnb and Vrbo, have been growing in demand as remote work has allowed more people to work from anywhere. Read more: Short-Term Rentals Surge Among Remote, Hybrid Workers Source: “The Vacation Home Listed on Airbnb Might Be Owned by Wall Street,” The Wall Street Journal (Feb. 15, 2022) [Log-in required.]

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Moving More Stressful Than Breakups

Moving can be stressful. In fact, 38% of survey respondents said moving is more stressful than parting ways with a significant other, according to Move.org, a relocation resource.

Moves can be costly, often much more so than what many plan for. Seventy percent of Americans who used professional moving services say they were charged more than their initial quote. Thirty-one percent said they paid $100 to $300 more, and 32% of respondents said they paid $500 to $1,000 more. Thirteen percent of respondents said they paid $1,000 or more, according to the Move.org survey.

More than half of people who used professional moving services said they felt scammed for having to pay more than their initial quote.

Move.org researchers advise budgeting more than what you’re quoted as well as comparing quotes from multiple professional moving services. Also, “we recommend finding vetted professional movers with reliable customer service,” the study says.

Compounding issues on moving, people also say they’ve run into numerous shortages in the moving process. Sixty-one percent of respondents said they experienced a shortage of moving trucks. Sixty-three percent said they saw a shortage of packing materials. Sixty-four percent of respondents also said they found a shortage of professional moving services.

Moving takes time regardless of the shortages. Forty-one percent of respondents said it took them 15 to 40 hours to pack their belongings, and 27% said it took them 40 to 80 hours. Source: “Most Americans Hire a Mover, Here’s Why You Should Find the Right One,” Move.org (Feb. 9, 2022)

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Consumers Optimistic About Housing

More than 50% of prospective buyers recently surveyed say they feel optimistic about the housing market—despite headlines over rapidly rising costs that can feel discouraging. The new survey from the real estate tech company OJO Labs shows that many house hunters remain hopeful that the next three months will offer a good opportunity to buy a home, as buyers feel more urgency with the threat of rising mortgage rates.

Consumers have become more hopeful about their homebuying chances than they were last month. Slightly fewer than half of all respondents expressed a positive sentiment about homebuying the previous month, according to the OJO Labs survey. This latest survey was conducted between Jan. 25 and Feb. 14 with more than 900 respondents.

A separate survey by NerdWallet, released in January, showed 45% of millennials are optimistic about buying a home in 2022. They showed more optimism than Gen Z (35%), Gen X (24%), and baby boomers (31%). Millennials cited personal finances, savings, and higher incomes as reasons for their optimism. Source: “More Consumers Still Feel Positive About Buying in the Next Three Months,” OJO Labs (Feb. 17, 2022) and “Home Buyers Still Hopeful, Would-Be Sellers Less So,” NerdWallet (Jan. 25, 2022)

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Homes More Affordable Than Renting

Home prices are rapidly rising, but rental prices are as well, and at a faster pace. In more than half of the nation’s largest U.S. metros, Americans likely will find buying a starter home more affordable than renting, according to a newly released report from realtor.com®.

Median rental prices rose 19.8% year over year in January. That has outpaced monthly starter homeownership costs, despite a very competitive housing market, researchers say. For comparison, the monthly costs of buying a home with up to two bedrooms have seen an 11% year-over-year jump, according to realtor.com®. Meanwhile, apartment costs for all unit sizes continue to increase: Studios are up 21% annually, and one-bedroom and two-bedroom units are both up by 19.2%.

In January, the monthly cost of buying a starter home was more affordable than renting a similar-sized apartment in 26 of the 50 largest metros realtor.com® tracks.

“U.S. rental markets are more than making up for lost time, with January data showing national rents continued to surge by double digits over the last year and at a faster pace than for-sale home prices,” says Danielle Hale, realtor.com®’s chief economist. “So much faster, in fact, that even as monthly starter home costs increased in many of the markets that favored buying, rents for a similar-sized unit were 20% higher.”

Rental and homebuying costs are both climbing. But several factors may tip affordability in favor of first-time buying, Hale says. Rents are forecasted to outpace listing price growth in 2022. Also, the majority of property owners recently surveyed say they plan to raise rental asking prices this year.

However, “the buy-versus-rent decision ultimately depends on personal circumstances like where you live, your financial situation, and how long you want to live in your next home,” Hale says. “As mortgage rates continue climbing, those looking to buy their first home in 2022 are more likely to find lower costs now than later in the year, but home selection is expected to improve as we move toward spring when many homeowners target listing their home for sale.”

The following 10 areas topped realtor.com®’s list of metros that favor buying a starter home over renting.

Source: realtor.com®

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