More buyers opt for adjustable-rate mortgages as rates rise

 
 

Rising interest rates are making adjustable-rate mortgages an increasingly attractive alternative to common 30-year, fixed-rate home loans.

ARMs made up 13% of all home loans by dollar volume in March, their highest share since January 2020, according to CoreLogic.

The increase coincides with a sharp rise in mortgage rates. The average weekly rate on a 30-year mortgage slipped this week to 5.25% from 5.3% last week, which was the highest level since 2009, according to mortgage buyer Freddie Mac. The average rate was 3% a year ago.

Rising mortgage rates, in conjunction with sharply higher home prices, make homeownership less affordable.

“It’s natural for homebuyers to be looking at ways to reduce that mortgage payment, and one of the ways is to use an adjustable-rate mortgage,” said Selma Hepp, deputy chief economist at CoreLogic.

Adjustable-rate mortgages don’t make it any easier to qualify for financing, but they do offer buyers some flexibility with their monthly mortgage payments in the first few years of the loan term.

For example, a homebuyer who takes out a typical 5/1 ARM will have a low, fixed rate for the first five years of the loan. After that, the loan adjusts to an adjustable interest rate, which could be higher or lower, until the debt is paid off, or the buyer refinances the loan.

Such loans became less attractive the last couple of years as average long-term mortgage rates fell to an all-time low.

ARMs’ share of all loans by dollar value sank to just 4% in January 2021 from 13% a year earlier, according to CoreLogic. ARMs have made up between 10% and 19% of all loans by dollar value over the last 12 years.

At the height of the last housing boom in 2005 ARMs represented just under 45%, CoreLogic said.

Back then, such home loans were more common because lenders could sign up homebuyers for a loan and then take it off their balance sheet by selling it to investment banks that made a big business of selling mortgage-backed securities to investors. Far looser lending criteria also set up many loans to default when they adjusted to a higher rate.

Such a scenario isn’t in the cards now, however, as banks have beefed up their lending standards since the Great Recession.

“We still see very solid underwriting standards,” Hepp said. “The last few years have been some of the best underwritten loans, irrespective of what people use as their mortgage type.”

Keep reading.

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7 Home Remodeling Projects with the Best Return on Your Investment

 
 

Putting money out for a home renovation can be a challenging decision, especially when you don’t have a clear idea of how much value it will add to your home in the long run.

Some of that uncertainty can be attributed to the labor or material costs, while the most pressing challenges are rooted in renovations or remodeling projects that do not offer a higher return rate on your investment.

With the costs of most goods rising every year, it would be wise to choose projects that can deliver the highest return on your investment in the form of a higher home value. To give you more insight, here are seven of the best remodeling projects that bring you the most ROI.

Garage Door Replacement

Garage door replacement is, across the country, one of the safest remodeling projects that you can undertake. The average ROI on a garage door replacement is 93.3% for an average investment of $4,041. As a result, many defer to garage remodeling as their first choice, especially when on a tight budget. 

In addition, when getting a new garage door, it is imperative to ensure that you are not compromising on quality. Make sure to get a door with a lifetime warranty and for the materials to be long-lasting. For example, aim for galvanized steel for the door tracks and one of the multi-layered four square designs for the door itself. A way to save some cash could be to retain the motor from your previous garage door unless it has degraded over the years. 

Manufactured Stone Veneer

Many homeowners find manufactured stone veneer attractive due to conventional reasons. On top of being stylistically appealing, it helps maintain heat in winter, cools the home in summer, and is one of the most sturdy of all building materials. Besides that, it also offers one of the best returns on investment out of all remodeling projects. 

The current ROI for manufactured stone veneer is 91.4%, which is quite high given the cost that goes into labor and materials. To make that more concrete, the average cost of this renovation is $11,066, out of which you are able to recoup roughly $10,109 post-sale. 

It’s worth noting that when installing stone veneers, you will get the best results from dedicated professionals. If not installed properly, moisture can get trapped behind the walls or the walls can even fall apart if not properly caulked and sealed. A professional team will help you avoid this, so when installing a manufactured stone veneer, it’s wise not to cut any corners.

Minor Kitchen Remodel-Midrange

A kitchen remodel offers many opportunities for you to recoup your investment if the current cabinetry has good bones. At 71.2%, the return on investment in most cases is fairly reasonable, given the influence it can have on potential buyers. You can leave the cabinet sections and drawers as it is and replace only the fronts with shaker-style panels. You can also install new hardware to make sure everything looks and feels squeaky clean. 

The most pressing components of a kitchen are the cooktop/oven and refrigerator. By replacing these with the latest models, your chances of securing a high bid are increased drastically. To accentuate the aesthetics of your kitchen, replace the countertops and install a mid-tier sink and faucet. For the final touch, repaint the walls, trim, and ceiling, so every element of your kitchen resonates well with the viewer.

Siding Replacement-Vinyl and Fiber Cement

Redoing your siding is one of the guaranteed remodels that can help you attract potential buyers, so long as your house has sidings. Sidings can be one of the more tricky remodels to work on, because, in the last 50 or so years, many types of siding have been developed, some better than others. 

When landing on the right choice of siding replacement, look at the financial costs but also the localized costs in your community. Even though nationally, the siding with the best ROI is Fiber-Cement siding, other types of siding may offer a better ROI for your local community. However, the ROI on Fiber Cement is 68.3%, which is the best out of most materials. Slightly higher than vinyl siding which is sitting at 67.2%. 

Window Replacement

Replacing windows serves as a great chance to add some extra value to your home but also to staunch out-of-control electric and heating bills. One of the common ways people lose money on their heating and electricity is when old windows leak out air conditioning and heat. 

The standard choice for window replacement, wood, and vinyl are within 1% when it comes to their rate of return on investment. Vinyl is slightly higher at 67.5%, while wood sits at 66.3%. Since both replacement options are so close in terms of ROI, you can make your choice based on what works for your budget and fits the style of your home.

Deck Addition

Adding a deck to the property creates a focal point for the property but is also one of the best ways to add value to it. The ROI for adding a deck to your property is 64.8% if you use a wood deck, with a composite deck being only slightly less economically friendly with 62.1% However, once again, it is important to consider the overall style of your home and which would be more visually appealing to any future buyers.

Asphalt Shingles

When getting a roof replacement, many experts recommend that you go with asphalt shingles over the relatively more modern metal roofing. Asphalt shingles last as long as metal roofing in most cases. 

In addition, the average cost for a metal roof is nearly double that of an asphalt roof, with a metal roof averaging about $51,436 compared to the $31,535 for an asphalt roof. All things considered, there are other factors that can sway your decision, such as initial costs, duration of the remodel, and extensive labor costs, so be mindful of those.

Keep reading on CoreFinanceGroup.com

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The U.S. Housing Market Has Peaked

 
 

But no, we’re not headed for anything even close to 2008.

If you’ve tried to buy a home in the past two years, you have my most profound sympathies. Your experience has probably gone something like this: You found your dream home online; sent photos around to your family; visited the premises (or decided to buy, sight unseen); got your financial statements in order; smartly offered 10 percent over asking; and learned, several hours later, that no fewer than 831 other people had bid for the same house, which sold to a couple who paid 50 percent over asking, all cash, and cinched the deal with a contract amendment promising to name their firstborn child after the seller.

Yes, the American real-estate market really has been historically hellish, or historically hot, depending on whether you were trying to buy a home or sell one. Within the past year, just about every housing statistic you could imagine set some kind of berserk record. Home prices hit a record high, the share of homes that sold above asking hit a record high, and the number of available homes for sale hit a record low.

But the vibe is shifting. I count at least three signs that the national housing market is about to experience a significant slowdown.

First, as the Federal Reserve raises interest rates to combat inflation, mortgage rates are soaring. In April, the 30-year fixed rate surpassed 5 percent for the first time in more than a decade. As borrowing becomes more expensive, so does buying.

If you take the long view, financing a house is still pretty cheap. The 30-year rate is lower today than it was for any month except one (June 2003) from the 1990s to the Great Recession. But on an annualized basis, rates are rising faster than at any time in 40 years. Buyers seem to have anticipated this moment. In the late winter, one index of housing prices hit its highest month-to-month increase ever, which might suggest that home buyers said “Ah, screw it!” and made ridiculous offers to lock in a cheaper mortgage rate, just before rates took off.

Second, the number of homes for sale—a.k.a. housing inventory—is finally perking up after plunging to all-time lows during the pandemic.

In the hottest markets, such as California and Colorado, the number of available homes is increasing significantly faster than the national average, according to Altos Research, while the share of new listings going into contract “immediately” (meaning within days, or even hours) is declining quickly.

Inventory doesn’t sound as sexy as home prices, but this might be the single most important statistic to watch. “My view has been that the market shift will show up first in inventory, [because] as inventory increases, house-price growth will slow,” says Bill McBride, a real-estate and economics writer.

In 2006, McBride famously called Americas housing bubble when he saw inventory skyrocketing to absurd highs. Today doesn’t look anything like 2006, he assured me. During the worst of the housing crash, inventory as a share of the market was about five times higher than it is today. Instead, McBride said that the next few years will likely resemble the period around 1980. To combat high inflation from the 1970s, the Fed Chair Paul Volcker hiked up interest rates, jolting the economy into a deep recession. The housing market basically stalled until 1982. That sort of stall-out, rather than some crazy plunge into the abyss, is probably our worst-case scenario.

Finally, we can already see these technical statistics—rates, percents, inventory—playing out in the real world. Google searches for homes for sale are falling in major cities, including Boston and Los Angeles. Redfin agents in California say that showings and offers are down double digits since last year. In Minneapolis, showings have fallen rapidly in just the past month.

May and June are historically the most popular months to buy a home. That means that the housing slowdown might be delayed for a few weeks, as the spring surge works its way through the system. But by this summer, sellers expecting dozens of offers in a matter of days could be in for a rude awakening. Before long, flush wannabe homeowners—those lucky enough to be somewhat insulated from rising mortgage rates—will be able to buy without sacrificing the naming rights of their firstborn. Things won’t feel great for everyone. But historically speaking, they just might feel normal.

Keep reading on The Atlantic.

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Homeowners are Seeking Roommates to Help Pay Their Mortgages

 
 

More buyers in the U.S. are opening up to the idea of renting out a room as expenses surge.

Buying a home may seem like a distant dream for many in today’s cutthroat housing market. That is, unless they’re willing to share that dream with a roommate or two. 

With the average U.S. mortgage rate above 5% and home prices at record highs, homeownership feels increasingly out of reach, particularly for young, first-time buyers. To make it work, some are renting out rooms or basements and using the extra income to help offset their costs. 

The practice, which has long been accepted in the U.K. and other European countries, is spreading to the U.S., where the number of buyers who considered renting out a portion of their homes for rental income rose to 31% in 2021 from 24% two years earlier, according to real estate website Zillow’s consumer housing trends report

“That increase in homeowners becoming residential landlords is consistent with the trend we see of buyers coming from a younger generation of side-hustlers aging into the housing market,” said Zillow economist Manny Garcia.

A Lucrative Side Hustle

Here's why homeowners are renting spare rooms for extra cash (%)

 
 

For some, the extra rental income is the only way they can afford to keep up with their mortgage payments and bills that are going through the roof thanks to roaring inflation. That’s why 24-year-old Josh Bowser and his now-fiancé went into the housing market looking for a property with additional rooms to lease.

Bowser knew he had to be strategic with his finances after graduating from college during pandemic-driven economic turmoil and a tight housing market. By living frugally, the young couple saved enough to put a down payment on a three-bedroom townhouse in a North Atlanta suburb in June 2021.

Their $2,200 monthly mortgage cost would have been a “stretch” with their combined incomes, Bowser said. So they found a tenant on Facebook Marketplace who pays $1,000 in rent to live in the second bedroom, subsidizing 45% of their monthly housing bills.  

To cover even more of their monthly costs, the young couple plan to rent out another small guest room downstairs.

“My fiancé and I just split the remainder of our housing expenses, which is probably less than what we'd be paying if we were renting. Instead, it’s going to the principal on our mortgage,” Bowser said.

Sharing a Home

Thanks to apps like Uber and Airbnb, younger generations are accustomed to sharing everything with strangers, from car rides to short-term rentals. It’s not a stretch to extend that concept to their own homes, particularly for millennials, who have about 20% less wealth than their parents had at their age and are still struggling to enter the housing market.

A whopping 67% of millennials and 57% of Gen Z in the U.S. said they were willing to share their homes in exchange for cash, compared to just 34% of baby boomers, according to a 2021 Realtor.com survey

Younger generations are much more likely to rent out their homes

“Affordability was already squeezing people,” said George Ratiu, a senior economist at Realtor.com. “It’s natural to think of their biggest asset — their home — as a potential income stream.”

For Chiffon House-Williams, a homeowner in Teaneck, New Jersey, the extra income erased any doubts she had about having roommates. 

“I’d never considered renting out my basement to a stranger before. It’s my house; that’s my safe haven,” said House-Williams. “But after I had to quit my job,  I thought, ‘Wait, this can be my income.’”

After the 36-year-old mom stopped working to take care of her son while he attended school virtually during the pandemic, she and her husband hired contractors in March 2020 to transform their basement into a one-bedroom apartment, outfitting the space with a standing shower, a kitchenette and a separate entrance for about $22,000 total. 

The couple used the app SpareRoom to find 42-year-old tenant Laura Martin, who has been paying $1,100 in monthly rent since 2021. House-Williams says they will have earned their money back and turned a profit by the end of this year. 

They’ve decided to do more renovations to make even more space to rent out. With plans to let her attic as well as her basement, House-Williams expects she’ll be raking in $21,000 a year in rental income. 

“I’m always thinking about how I can make money without putting in too much effort, that’s just how my brain is wired,” House-Williams said. “By renting out rooms, I’m literally making money in my sleep.” 

Keep reading on Bloomberg.

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6 Swanky Condo or HOA Amenities Buyers Swoon for but Rarely (or Never) Use

 
 

For people looking to buy a condo or a house that’s part of a homeowners association, the promise of swanky amenities they provide can seem like a total score.

Seriously, who wouldn’t want select access to a pool, spa, or private playroom for the kids? At least that’s the logic that tends to lure people when such “bonus” luxuries are offered.

But the irony is that, while these extras give the impression you’ll be living the good life if you move in, it’s useful to remember that you’re actually paying for them with your HOA dues. And the sad truth is that certain amenities end up sitting empty most of the time. Why squander money on that?

Real estate is expensive enough these days without wasting money on perks you won’t plunder, so make sure to take a step back when salivating over these common HOA conveniences. As nice as they might seem initially, experts say you might end up rarely (or never) using them.

1. Clubhouses

While the idea of a central gathering space might seem alluring, unless you’re planning a birthday party or family reunion, clubhouses are more often than not a wasted amenity.

“Clubhouses are notorious for not being used—most of the time they sit empty,” says Isaiah Henry, the CEO of Seabreeze, a company that manages over 90,000 commercial and residential properties. “There are some communities who host gatherings on a monthly or quarterly basis in their clubhouse, but they’re few and far between.”

Henry says that, in his experience, instead of a clubhouse residents prefer a community swimming pool or even a dog park.

2. Tennis courts

Do you even know how to play tennis? For a lot of people, the answer is no and as a result, this is an amenity that is rarely if ever frequented.

Professional tennis player and property manager Mario Musa says many people get excited when they find out about tennis courts being included in the condo he manages. Some even see it as an opportunity to try tennis for the first time. But in reality, he reports that only about 10% of residents ever use them.

“Even though there is access to all the essential equipment, people don’t frequent the courts,” says Musa, who admits that might be because tennis is not a beginner-friendly sport. “It sounds exciting at first, but I can tell from the footprints left on the clay courts that after a few minutes of trying to hit balls, most people end up taking photos for social media instead of playing a real game.”

Unless you’re a serious tennis player, chances are this won’t score as an amenity love match for you.

3. Screening rooms

Access to a private movie theater may seem Hollywood glamorous, but it’s rarely worth the price of admission (or your HOA fees).

“The idea may fascinate individuals when they are making a buying decision, but once you start living in the condo, trust me, I can tell you from personal experience this amenity has little or no use for residents,” says Kamyar K.S., CEO of World Consulting Group. “Sure, they are good for streaming the Super Bowl or watching the Academy Awards once a year, but because residents rarely hold screenings, most of the time the room is dark and gloomy and looks more like a haunted house.”

And really, Netflix and chill works better when you’re on your own couch, right?

4. Roof decks

While most people find roof decks to be a very visually appealing amenity, they don’t spend as much time up there as they imagine they will.

Though the COVID-19 pandemic might have changed this trend a bit because people were desperate for outdoor space wherever they could find it, in general, property managers report that almost always roof lounges are underused.

“In my last condo that I lived in, I found that the roof deck was rarely used,” says Mathias Ahlgren, CEO and founder of Website Rating. “In fact, after working long hours at the office, I, myself, would often prefer to go out to spend time with friends rather than go home to the roof deck.”

The good news with this one is that if you are a roof deck kind of person, you probably won’t be fighting your neighbors for a chaise lounge.

5. Recreation centers

n addition to on-site gyms (which are actually one of the most used amenities), some HOAs include admittance to nearby recreation centers as part of the package. And unless they’re convenient or you have kids to entertain, it’s likely an added luxury that will languish.

“As part of my HOA for my condo, I am required to pay a fee for admittance to four recreation centers that actually offer some pretty great amenities like a rock-climbing wall and an outdoor pool, but I find that since I work full time, I just don’t use them at all,” says Colorado high school teacher and condo owner Doreen Smith. “If my own kids were still at home, maybe I would use them more, but at this point, I actually pay for a separate gym precisely because I don’t want to be around a bunch of screaming children now.”

In other words, being honest about where you are in your life will help you determine your amenity priorities.

6. All of them—if they have limited hours

If you’re thinking of moving into an HOA community where you’ll be paying fees to use the amenities, make sure to check when they’re open.

“Being a condo owner in a building that offers a multitude of amenities such as a pool, gym, and theater, it gets very frustrating that, due to the amenity hours of operation, I can’t use the amenities as much as I’d like because I’m working,” says Krisztian Riez, a digital consultant for the property management software company Condo Control Central.

“Because I am unable to use the amenities during the week, I try to take full advantage of the amenities on the weekend. However, using amenities I pay for only two days a week doesn’t really suffice for the extra monthly cost.”

For more info like this, go to Realtor.com

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