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What Are the Experts Saying About Future Home Prices?

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What Are the Experts Saying About Future Home Prices? | MyKCM

A worldwide pandemic and an economic recession have had a tremendous effect on the nation. The uncertainty brought about by both has made predicting consumer behavior nearly impossible. For that reason, forecasting home prices has become extremely difficult.

Normally, there’s a simple formula to determine the future price of any item: calculate the supply of that item in ratio to the demand for that item. In housing right now, demand far exceeds supply. Mortgage applications to buy a home just rose to the highest level in 11 years while inventory of homes for sale is at (or near) an all-time low. That would usually indicate strong appreciation for home values as we move throughout the year.

Some experts, however, are not convinced the current rush of purchasers is sustainable. Ralph McLaughlin, Chief Economist at Haus, explained in their June 2020 Hausing Market Forecast why there is concern:

“The upswing that we’ll see this summer is a result of pent-up demand from homebuyers and supply-in-progress from homebuilders that has simply been pushed off a few months. However, after this pent-up demand goes away, the true economic scarring due to the pandemic will begin to affect the housing market as the tide of pent-up demand goes out.”

The virus and other challenges currently impacting the industry have created a wide range of thoughts regarding the future of home prices. Here’s a list of analysts and their projections, from the lowest depreciation to the highest appreciation:

We can garner two important points from this list:

  1. There is no real consensus among the experts.
  2. No one projects prices to crash like they did in 2008.

Bottom Line

Whether you’re thinking of buying a home or selling your house, know that home prices will not change dramatically this year, even with all of the uncertainty we’ve faced in 2020.

What Is Mortgage Insurance?

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What Is Mortgage Insurance?When it comes to putting a down payment on a house, most lenders are going to ask for 20 percent; however, some lenders will be willing to accept a smaller down payment in exchange for something else.

That something else is usually mortgage insurance. If a lender says they are asking for mortgage insurance, which is also shortened to PMI, it is important for everyone to know what this means.

An Overview Of PMI

PMI stands for private mortgage insurance and is usually required if the borrower is putting down less than 20 percent. The lender will usually go out and find private mortgage insurance before shifting the premium for the insurance policy to the borrower.

Usually, PMI is included with the rest of the mortgage payment. The lender will take the portion of the mortgage payment that makes up the PMI and shift this into an escrow account. Then, the lender will simply move this out of the escrow account to the insurance company to cover the cost of the policy. This is the most common type of mortgage insurance.

What Is The Cost Of Mortgage Insurance?

The cost of PMI is going to depend on a number of different factors. Some of the factors include:

  • The amount of the down payment
  • The person’s credit score
  • The type of mortgage the borrower takes out
  • How long the mortgage is supposed to last

In general, the larger the down payment and the higher the credit score, the lower the mortgage insurance is going to cost. It is also important for people to note that mortgage insurance is not going to last for the length of the mortgage. As a whole, most PMI policies will be phased out once the amount of equity in the home reaches 20 percent of the home’s value. Then, the PMI will usually be waived.

The Purpose Of Mortgage Insurance

Some people might be wondering why they need to purchase PMI at all. This is an insurance policy that is meant to protect the lender against the risk of the borrower defaulting. If the borrower is able to convince the lender that their risk of default is low, they might be able to avoid being asked for PMI.

Homebuyers Are in the Mood to Buy Today

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Homebuyers Are in the Mood to Buy Today | MyKCM

 

According to the latest FreddieMac Quarterly Forecast, mortgage interest rates have fallen to historically low levels this spring and they’re projected to remain low. This means there’s a huge incentive for buyers who are ready to purchase. And homeowners looking for eager buyers can take advantage of this opportune time to sell as well.

There’s a very positive outlook on interest rates going forward, as the projections from the FreddieMac report indicate continued lows into 2021:

“Going forward, we forecast the 30-year fixed-rate mortgage to remain low, falling to a yearly average of 3.4% in 2020 and 3.2% in 2021.”

 With mortgage rates hovering at such compelling places, ongoing buyer interest is bound to keep driving the housing market forward. Rates also reached another record low last week, so homebuyers are in what FreddieMac is identifying as the buying mood:

“While the rebound in the economy is uneven, one segment that is exhibiting strength is the housing market. Purchase demand activity is up over twenty percent from a year ago, the highest since January 2009. Mortgage rates have hit another record low due to declining inflationary pressures, putting many homebuyers in the buying mood. However, it will be difficult to sustain the momentum in demand as unsold inventory was at near record lows coming into the pandemic and it has only dropped since then.”

There’s no doubt that even though buyers are ready to purchase, it’s hard for many of them to find a home to buy today. Mortgage rates aren’t the only thing hovering near all-time lows; homes available for sale are too. With housing inventory as scarce as it is today – a nearly 20% year-over-year decline in available homes to purchase – keeping buyers in the purchasing mood may be tough if they can’t find a home to buy (See graph below):Homebuyers Are in the Mood to Buy Today | MyKCM

What does this mean for buyers?

Competition is hot with so few homes available for purchase and low mortgage rates are helping to drive affordability as well. Getting pre-approved now will help you gain a competitive advantage and accelerate the homebuying process, so you’re ready to go when you find that perfect home you’d like to buy. Working quickly and efficiently with a trusted real estate professional will help put you in a position to act fast when you’re ready to make your move.

What does this mean for sellers?

If you’re thinking of selling your house, know that the motivation for buyers to purchase right now is as high as ever with rates where they are today. Selling now before other sellers come to market in your neighborhood this summer might put your house high on the list for many buyers. Homebuyers are clearly in the mood to buy, and with today’s safety guidelines and precautions in place to show your house, confidence is also on your side.

Bottom Line

Whether you’re looking to buy or sell, there’s great motivation to be in the housing market, especially with mortgage rates hovering at this historic all-time low. Let’s connect today to make sure you’re ready to make your move.

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