How Much Leverage Do Today’s House Sellers Have?

How Much Leverage Do Today’s House Sellers Have?

The housing market has been scorching hot over the last twelve months. Buyers and their high demand have far outnumbered sellers and a short supply of houses. According to the latest Existing Home Sales Report from the National Association of Realtors (NAR), sales are up 23.7% from the same time last year while the inventory of homes available for sale is down 25.7%. There are 360,000 fewer single-family homes for sale today than there were at this time last year. This increase in demand coupled with such limited supply is leading to more bidding wars throughout the country.

Rose Quint, Assistant Vice President for Survey Research with the National Association of Home Builders (NAHB), recently reported:

“The number one reason long-time searchers haven’t made a home purchase is not because of their inability to find an affordably-priced home, but because they continue to get outbid by other offers.”

A survey in the NAHB report showed that 40% of buyers have been outbid for a home they wanted to purchase. This is more than twice the percentage in 2019, which was 19%.

What does this mean for sellers today?

It means sellers have tremendous leverage when negotiating with buyers.

In negotiations, leverage is the power that one side may have to influence the other side while moving closer to their negotiating position. A party’s leverage is based on its ability to award benefits or eliminate costs on the other side.

In today’s market, a buyer wants three things:

1. To buy a home
2. To buy now before prices continue to appreciate
3. To buy now and take advantage of historically low mortgage rates while they last

These three buyer needs give the homeowner tremendous leverage when selling their house. Most realize this leverage enables the seller to sell at a good price. However, there may be another need the seller has that can be satisfied by using this leverage.

Here’s an example:

Odeta Kushi, Deputy Chief Economist at First American, recently identified a situation in which many sellers are finding themselves today:

“As mortgage rates are expected to remain near 3%, millennials continue to form households and more existing homeowners tap their equity for the purchase of a better home…Many homeowners may want to upgrade, but do not for fear that they will be unable to find a home to buy.”

She then offers a possible solution:

“While the fear of not being able to find something to buy will not disappear in a limited supply environment, new housing supply can incentivize existing homeowners to move.”

There’s no doubt many sellers would love to build a new home to perfectly fit their changing wants and needs. However, most builders require that they sell their house first. If the seller sells their home, where would they live while their new home is being constructed?

Going back to the concept of leverage:

As mentioned, buyers have compelling reasons to purchase a home now, and many homeowners have challenges to address if they want to sell. Perhaps they can make a deal to satisfy each party’s needs. But how?

The seller may decide to sell their home to the buyer at today’s price, which will enable the purchaser to take advantage of current mortgage rates. In return, the buyer might lease the house back to the seller for a pre-determined length of time while the seller’s new home is being built. A true win-win negotiation.

Not every buyer will agree to such a deal – but you only need one.

That’s just one example of how a seller might be able to overcome a challenge because of the leverage they have in today’s market. Maybe you feel a need to make certain repairs before selling. Perhaps you need time to get permits or approvals for certain upgrades you made to the house. Whatever the challenge, you may be able to work it out.

Bottom Line

If you’re considering selling your house now but worry a huge obstacle stands in your way, let’s connect. Maybe with the leverage you currently have, you can negotiate a deal that will allow you to make the move of your dreams.

 

Better Garbage Disposal Care Tips

A garbage disposal can be a great addition to your kitchen. If it isn’t taken care of correctly, though, the blades can dull or rust over time, and the overall effectiveness of the disposal will drop significantly. With proper care and maintenance, you can add years to the effective life of your garbage disposal. Perhaps more importantly, the care that you put into your disposal now will pay off in the long term by helping to prevent costly repairs and the premature replacement of your disposal unit.

Proper Garbage Disposal Use

One of the best things that you can do for your garbage disposal is to learn how to use it properly. This may seem like a no-brainer as most garbage disposals simply require you to put your scraps in and flip a switch; in reality, though, there’s a bit more to it than that. If you’re sending the wrong items down your disposal you can dull the blades, clog it, or even damage your unit, which can lead to costly repairs.

Ideally, you should use your garbage disposal to dispose of softer food items and things like ice that will melt anyway. Avoid disposing of bones, shells, fibrous vegetables such as celery or asparagus, hard seeds or pits, and nuts. You should also watch out for overly starchy food items like potato skins, as well as items that can continue to soak up water or become kind of a gloppy mess like cooked pasta or coffee grounds. Fats and oils should also be avoided, though that’s in part because of what they can do to your plumbing.

One other tip to keep in mind when using your garbage disposal: Run cold water before and after using the disposal to make sure that food is properly moistened and washed away. This not only helps the garbage disposal to work properly, but it will also help prevent food buildup that can lead to bad smells in your kitchen.

Caring for Your Garbage Disposal

In addition to keeping an eye on what goes down your garbage disposal, putting some time into periodic maintenance will go a long way toward avoiding significant problems with your unit. Before doing any work with your garbage disposal that requires you to be anywhere near the blades, make sure that the disposal is unplugged so that it can’t accidentally come on while you’re working on it. This is one of the most important things you can know about working on your disposal!

Some garbage disposal maintenance is pretty simple to do. If you don’t use your disposal very often, make a point of running some water and turning the disposal on every 2-3 days. This ensures that the blades and other components won’t start to rust as a result of sitting there unused in a moist environment for too long, and keeps certain components from drying out. You should also give a whiff to check for unpleasant smells around the sink every few days. If you do start to smell something, either cut up some lemon or orange peels and feed them to the disposal, or mix some ice cubes with rock salt and baking soda and use that. Either solution should take care of your odor problems.

If the disposal isn’t working or seems to be struggling, cut off the power and shine a light down the sink so you can see if anything is tangled around the blades or otherwise obstructing them. Using pliers, a wrench, or specialized tools that might have come with your disposal (and NEVER your hands), untangle or otherwise remove any debris before plugging the unit back in, then see if that took care of the problem.

Garbage Disposal Repair and Replacement

Proper care and maintenance can add years to the life of your garbage disposal, but there will come times when you need professional repairs done or simply need to replace the disposal with a newer unit. Fortunately, HomeKeepr can help you with this. Sign up for a free account today and connect with pros who can give your disposal the attention it needs, or install a brand new unit if you need one.

What It Means To Be in a Sellers Market

If you've given even a casual thought to selling your house in the near future, this is the time to really think seriously about making a move. Here's why this season is the ultimate sellers market and the optimal time to make sure your house is available for buyers who are looking for homes to purchase.

The latest Existing Home Sales Report from The National Association of Realtors(NAR) shows the inventory of houses for sale is still astonishingly low, sitting at just a2-month supply at the current sales pace.

Historically, a 6-month supply is necessary for a normal or neutral market in which there are enough homes available for active buyers(See graph below):When the supply of houses for sale is as low as it is right now, its much harder for buyers to find homes to purchase. As a result, competition among purchasers rises and more bidding wars take place, making it essential for buyers to submit very attractive offers.

As this happens, home prices rise and sellers are in the best position to negotiate deals that meet their ideal terms. If you put your house on the market while so few homes are available to buy, it will likely get a lot of attention from hopeful buyers.

Today, there are many buyers who are ready, willing, and able to purchase a home. Low mortgage rates and a year filled with unique changes have prompted buyers to think differently about where they live and they're taking action. The supply of homes for sale is not keeping up with this high demand, making now the optimal time to sell your house.

Bottom Line

Home prices are appreciating in todays sellers market. Making your home available over the coming weeks will give you the most exposure to buyers who will actively compete against each other to purchase it.

 

How a Change in Mortgage Rate Impacts Your Homebuying Budget

Mortgage rates are on the rise this year, but they're still incredibly low compared to the historic average. However, anytime there's a change in the mortgage rate, it affects what you can afford to borrow when you're buying a home. As Sam Khater, Chief Economist at Freddie Mac, shares:

Since January, mortgage rates have increased half a percentage point from historic lows and home prices have risen, leaving potential homebuyers with less purchasing power. (See graph below):

When buying a home, its important to determine a monthly budget so you can plan for and understand what you can afford. However, when you need to stick to your budget, even a small increase in the mortgage rate can make a big difference.

According to the National Association of Realtors (NAR), today, the median existing-home price is $313,000. Using $300,000 as a simple number close to the median price, here's an example of how a change in mortgage rate impacts your monthly principal and interest payments on a home.If, for example, you're getting ready to buy a home and know your budget allows for a monthly payment of $1200-1250 (marked in gray on the table above), every time the mortgage rate increases, the loan amount has to decrease to keep your monthly cost in range. This means you may have to look for lower-priced homes as mortgage rates go up if you want to be able to maintain your budget.

In essence, its ideal to close on a home loan when mortgage rates are low, so you can afford to borrow more money. This gives you more purchasing power when you buy a home. Mark Fleming, Chief Economist at First American, explains:

Monthly payments have remained manageable despite soaring home prices because of low mortgage rates. In fact, monthly payments remain below the $1,250 to $1,260 range that we saw in both fall 2018 and spring 2019, but they are on track to hit that level this spring.

Although they remain low, mortgage rates have begun to increase and are expected to rise further later in the year, thus affordability will test buyer demand in the months ahead and likely help slow the pace of price growth.

Todays mortgage rates are still very low, but experts project they'll continue to rise modestly this year. As a result, every moment counts for homebuyers who want to secure the lowest mortgage rate they can in order to be able to afford the home of their dreams.

Bottom Line

Thanks to low mortgage rates, the spring housing market’s in bloom for buyers but these favorable conditions may not last for long. Lets connect today to start the homebuying process while your purchasing power is still holding strong.

 

 

Is This the Year to Repaint Your Home?

There’s nothing like a postcard-fresh paint job on your home to make it look and feel brand new again, but it’s unlikely you’ll need a new coat of paint every year. So how do you know when it’s time to repaint? Let’s walk through some of the biggest signs that it’s time to break out the buckets and brushes.

The Purpose of Paint

Although paint is nice to look at, and the color you choose definitely tells a story and lends a mood to the whole neighborhood, paint serves another very important function as a waterproof barrier. For many homes, especially those that are older, there’s very little standing between the siding and the living space. This is why having a good paint really matters. Paint waterproofs that siding, and helps prevent moisture from crossing from the outdoors inward. This, in turn, helps slow the damage time brings, like wood rot and damage from insects drawn to a moist environment. So even though it’s a lovely thing to look at, paint is really one of your best defenses against the elements.

Painting isn’t limited to wooden siding, though. You can also paint many types of siding considered non-paintable with the right kind of preparation and primer. So, if your house is covered in a horrific color of vinyl siding, for example, all hope is not lost.

How to Tell It’s Time to Paint

Knowing when it’s time to paint your house is as much an art as a science. There are definitely things you can look for that indicate the time is coming near, but you’ll also need to balance that with the expense and effort involved. Here are a few clear indicators to watch:

• There’s chipping paint. Most people know that chipping paint is a sign it’s probably about time to start considering a paint job. But there’s a fine line between a little bit of acceptable flaking and serious chipping. If you’re only noticing a few very small flakes falling off here and there, you should be working on picking a new color, but you don’t necessarily need to stop everything to get to painting. On the other hand, if big chips of paint are shedding off in multiple places, you’ve probably waited too long.
• Your waterproofing is failing. If your paint no longer keeps water from soaking into your siding, and instead it seems to be absorbing more water, your waterproofing has failed. Generally, you want water to bead up on your siding, then work its way down and onto the ground. If the paint is so far gone that your siding is soaking up rainwater, a paint job is needed ASAP. Waiting risks further, more serious damage.
• There’s damage. Visible siding damage is a good sign it’s time to paint. After all, after you’ve fixed the holes in the siding created by woodpeckers, or by falling trees during storms, you’ll want to ensure the paint matches. Sometimes you can get away with just painting that side of the house, but large patches or siding replacements will usually not match existing paint, even if you use the same bucket. UV light breaks down the pigments quickly; just how quickly depends on the colors you’ve chosen.
• You’re ready for a change. Look, you can paint your house just because you hate the color. It’s totally legit and, frankly, can be a much easier process than painting to deal with damage or worn out paint. Just make sure you’re preparing the surface just like you would for a coat of paint meant to be a repair so it’ll adhere properly.

A Little Painting Help From Your Friends

If it’s time for some paint, but you don’t have the energy, skills, or schedule opening to do the job yourself, you’re in luck. Your HomeKeepr community knows lots of great painters. They can even help with those not-so-typical paint jobs you’ve been thinking about! Just look for a recommendation and you’ll soon be on your way to fresh paint, and a fresh jewel in your neighborhood.

Is Homeownership Still Considered Part of the American Dream?

Since the birth of our nation, homeownership has always been considered a major piece of the American Dream. As Frederick Peters reports in Forbes:

The idea of a place of ones own drives the American story. We became a nation out of a desire to slip the bonds of Europe, which was still in many respects a collection of feudal societies. Old rich families, or the church, owned all the land and, with few exceptions, everyone else was a tenant. The magic of America lay not only in its sense of opportunity, but also in the belief that life could in every way be shaped by the individual. People traveled here not just for religious freedom, but because in America anything seemed possible.

Additionally, a research paper released just prior to the shelter-in-place orders issued last year concludes:

Homeownership is undeniably the cornerstone of the American Dream, and is inseparable from our national ethos that, through hard work, every American should have opportunities for prosperity and success. It is the stability and wealth creation that homeownership provides that represents the primary mechanism through which many American families are able to achieve upward socioeconomic mobility and greater opportunities for their children.

Has the past year changed the American view on homeownership?

Definitely not. A survey of prospective homebuyers released by realtor.com last week reveals that becoming a homeowner is still the main reason this year’s first-time homebuyers want to purchase a home. When asked why they want to buy, three of the top four responses center on the financial benefits of owning a home. The top four reasons for buying are:

• 59% – “I want to be a homeowner”
• 33% – “I want to live in a space that I can invest in improving”
• 31% – I need more space”
• 22% – “I want to build equity”

Millennials believe most strongly in homeownership.

The survey also reports that 62% of millennials say a desire to be a homeowner is the main reason they're buying a home. This contradicts the thinking of some experts who had believed millennials were going to be the first renter generation in our nations history.

While reporting on the survey, George Ratiu, Senior Economist at realtor.com, said:

“Americans, even millennials who many thought would never buy, have a strong preference for homeownership for the same reasons many generations before them have — to invest in a place of their own and in their communities, and to build a solid financial foundation for themselves and their families.”

Odeta Kushi, Deputy Chief Economist for First American, also addresses millennial homeownership:

Millennials have delayed marriage and having children in favor of investing in education, pushing marriage and family formation to their early-to-mid thirties, compared with previous generations, who primarily made these lifestyle choices in their twenties Delayed lifestyle choices delay the desire for homeownership.

Kushi goes on to explain:

As more millennials get married and form families, millennials remain poised to transform the housing market. In fact, the housing market is already experiencing the earliest gusts of the tailwind.

Bottom Line

As it always has been and very likely always will be, homeownership continues to be a major component in every generations pursuit of the American Dream.

 

There's No Reason To Panic Over Todays Lending Standards

Today, some are afraid the real estate market is starting to look a lot like it did in 2006, just prior to the housing crash. One of the factors they're pointing to is the availability of mortgage money. Recent articles about the availability of low down payment loans and down payment assistance programs are causing fear that were returning to the bad habits seen 15 years ago. Lets alleviate these concerns.

Several times a year, the Mortgage Bankers Association releases an index titled The Mortgage Credit Availability Index (MCAI). According to their website:

The MCAI provides the only standardized quantitative index that is solely focused on mortgage credit. The MCAI is a summary measure which indicates the availability of mortgage credit at a point in time.

Basically, the index determines how easy it is to get a mortgage. The higher the index, the more available mortgage credit becomes. Here's a graph of the MCAI dating back to 2004, when the data first became available:As we can see, the index stood at about 400 in 2004. Mortgage credit became more available as the housing market heated up, and then the index passed 850 in 2006. When the real estate market crashed, so did the MCAI (to below 100) as mortgage money became almost impossible to secure. Thankfully, lending standards have eased somewhat since. The index, however, is still below 150, which is about one-sixth of what it was in 2006.

Why did the index rage out of control during the housing bubble?

The main reason was the availability of loans with extremely weak lending standards. To keep up with demand in 2006, many mortgage lenders offered loans that put little emphasis on the eligibility of the borrower. Lenders were approving loans without always going through a verification process to confirm if the borrower would likely be able to repay the loan.

Some of these loans offered attractive, low interest rates that increased over time. The loans were popular because they could be obtained quickly and without the borrower having to provide documentation up front. However, as the rates increased, borrowers struggled to pay their mortgages.

Today, lending standards are much tighter. As Investopedia explains, the risky loans given at that time are extremely rare today, primarily because lending standards have drastically improved:

In the aftermath of the crisis, the U.S. government issued new regulations to improve standard lending practices across the credit market, which included tightening the requirements for granting loans.

An example of the relaxed lending standards leading up to the housing crash is the FICO credit score associated with a loan. What's a FICO score? The website my FICO explains:

A credit score tells lenders about your creditworthiness (how likely you are to pay back a loan based on your credit history). It is calculated using the information in your credit reports. FICO Scores are the standard for credit scores used by 90% of top lenders.

During the housing boom, many mortgages were written for borrowers with a FICO score under 620. Experian reveals that, in todays market, lenders are more cautious about lower credit scores:

Statistically speaking, 28% of consumers with credit scores in the Fair range are likely to become seriously delinquent in the future Some lenders dislike those odds and choose not to work with individuals whose FICO Scores fall within this range.

There are definitely still loan programs that allow a 620 score. However, lending institutions overall are much more attentive about measuring risk when approving loans. According to Ellie Maes latest Origination Insight Report, the average FICO score on all loans originated in February was 753.

The graph below shows the billions of dollars in mortgage money given annually to borrowers with a credit score under 620.In 2006, mortgage entities originated $376 billion dollars in loans for purchasers with a score under 620. Last year, that number was only $74 billion.

Bottom Line

In 2006, lending standards were much more relaxed with little evaluation done to measure a borrowers potential to repay their loan. Today, standards are tighter, and the risk is reduced for both lenders and borrowers. These are two very different housing markets, so there's no need to panic over todays lending standards.