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Renters Facing Bidding Wars

Bidding wars have grown common in home sales, but now they’re part of the process of renting an apartment as well. As demand outstrips supply, renters are trying to outbid others to get the property they want.

“Properties are definitely in short supply, and demand is high,” Bruce Ailion, a real state pro and attorney for Atlanta’s RE/MAX Town and Country, told realtor.com®. “For example, we had a property that had been renting for $1,260 a month. When the tenant left, we put the property on the market at $1,595 and had over 600 inquiries and close to 300 applications. That means we were underpriced for the current climate.”

Some tenants will offer over the listed price to get their application ahead in the stack. Property owners may even return to applicants and ask them to submit their “highest and best offer” in such cases. Some owners are specifying in ads for their rental units that prospects should be ready for a bidding war and should submit their very highest offer.

Austin, Texas, real estate pro Jasen Edwards told realtor.com® that in the first quarter of the year, rentals in the suburbs were sold out for 35% higher than the listed asking price.

In the Los Angeles rental market, “we’re seeing bidding wars with 10-plus offers leading to leases going for substantially over ask,” Blake Stargel, a real estate professional with Compass, told realtor.com®. “This is now the norm. According to local agents, while 10% over asking is common, particularly hot properties can go for 1.5 times the listed monthly rent.” Source: “Inside the Wild World of Rental Bidding Wars—and What It Takes to Win,” realtor.com® (May 11, 2022)

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Americans Fear Inflation’s Impact

Inflation is running at a 40-year high as the costs of everyday goods rise. Americans are increasingly concerned about how inflation will affect their personal finances and their long-term financial goals, including homeownership.

More than half of about 1,000 U.S. adults surveyed in March said that higher costs may have a “big negative impact” on plans like buying a home or retiring comfortably, according to the Country Financial’s Security Index. About 90% of those surveyed are concerned about inflation.

Adding to their inflation concerns, Americans also are concerned about stock market volatility, rising interest rates, and recession fears.

The average consumer is spending $500 more a month on living expenses than a year ago, according to a National Association of REALTORS® blog post from late April.

Home buyers may need to lower their budgets to keep pace. House hunters would be smart to search for a home that is about $40,000 cheaper than they would have a year ago as a result of the rising costs, Gay Cororaton, an NAR research economist, writes on the association’s blog.

“The increased cost of spending on other items impacts the ability of the average consumer to have enough leftover income to purchase a home,” Cororaton writes.

Troy Frerichs, vice president of investment services at Country Financial, told CNBC that consumers should create a budget and consider how the increase in costs may affect monthly household budgets and how it affects long-term financial plans. Some financial plans may need to be changed, he says. Source: “More Than Half of Americans Say Inflation May Have a ‘Big Negative Impact’ on Long-Term Financial Goals, Survey Finds,” CNBC (May 9, 2022)

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Tips for Home Buyers Purchasing With Friends, Family

A growing number of consumers are exploring unconventional pathways to homeownership, including buying a home with a friend, family member, or partner, according to the National Association of REALTORS®’ 2021 Home Buyers and Sellers Generational Trends Report.

With rising costs, home buyers may find pooling their money together can put homeownership more within reach.

“This strategy can help ease the financial burden of purchasing a home to some degree,” says Glenn Brunker, president of Ally Home. “But buyers should be prepared to navigate the potential risks.”

Brunker recommends that those considering purchasing a home with friends, family members, or partners keep some points in mind:

1. Finalize and stick to a budget. Buyers should set their budget prior to starting their home search. The budget should include not just how much home they can afford but also how they will manage the additional expenses of homeownership, like closing costs, taxes, lawyer fees, utilities, maintenance, and more. Consider how a lower budget may offer the chance to save more or even handle the mortgage payment on your own. “Ideally, the division of these costs should be put in writing to avoid any future conflicts as a result of planned or even unexpected costs,” Brunker adds.
2. Establish how the property will be titled. A legal professional can also help both parties determine how they will title the property, Brunker says. For example, four friends may be purchasing a home together, but one makes the majority of the down payment. These buyers might structure a tenancy in common agreement so one party owns 40% of the home and the other three each own 20%.
3. Consult with a legal professional. Along with a lender and real estate professional, buyers should meet with a title agent or real estate attorney to ensure all buyers understand the legal options available and implications of the agreement, Brunker says. “This professional can help answer important but often overlooked questions like, what is the exit plan if one party wants to move? What are the rights of survivorship?” Brunker says.

Source: Ally Home

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Average Closing Costs By State

As home prices and mortgage rates are increasing, so are closing costs. The average payment for mortgage closing costs for a single-family property was $6,905 in 2021 (including transfer taxes), a 13.4% annual increase, according to CoreLogic’s ClosingCorp, a real estate closing cost data and technology resource.

The average price of a home in the U.S. rose by more than $50,000 last year, while the average purchase closing cost climbed by $818, including taxes, and by $390 when excluding taxes, according to the report.

“As the mortgage industry comes off two years of record-low interest rates and red-hot consumer demand, lenders are now pivoting to address increasing headwinds from higher loan origination costs and lower origination volumes,” says Bob Jennings, an executive with CoreLogic Underwriting Solutions. “The Mortgage Bankers Association recently reported lender origination costs show a 13.2% year-over-year increase, which corresponds closely to the 13.4% increase we were seeing on purchase mortgage closing costs. As the market tightens in 2022, it will be interesting to see how lenders and borrowers respond and how these key metrics move.”

The states with the highest average closing costs in 2021 (including transfer taxes) were Washington, D.C. ($29,888), Delaware ($17,859), New York ($16,849), Maryland ($14,721), and Washington ($13,927), according to the report.

On the other hand, the states with the lowest closing costs (including transfer taxes) were Missouri ($2,061), Indiana ($2,200), North Dakota ($2,501), Wyoming ($2,589), and Mississippi ($2,756).

Source: CoreLogic’s ClosingCorp

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Renters Squeezing Into Tighter Spaces

Apartment sizes have decreased over the past decade, as has the amount of living space per renter, according to a new study from RentCafe. During the pandemic, when more people were spending more time at home, the feature renters may have noticed most is their cramped corridors.

Multifamily experts say there is a need for more space and privacy for tenants living in apartments, but inventory shortages mean renters must make compromises. Many renters have been drawn to single-family rentals since the pandemic, but inventories are tight in that sector as well.

Over the last decade, the total apartment size has been gradually declining, from 943 square feet back then to an average of 913 square feet now, according to RentCafe’s recent study. The reduction has taken place while the number of renters per unit has remained relatively constant.

California renters have the least personal space, according to RentCafe’s analysis.

Meanwhile, renters tend to find the most personal space in units in the Midwest, followed by the South.   Source: “Cities With Most Apartment Space Per Person in 2022: Renters Live Largest in Midwest,” RentCafe (May 5, 2022)

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Homeowners Delay Needed House Repairs

Homes aren’t perfect, and they are often in need of repairs and maintenance. The average home is in need of about $3,150 worth of repairs that haven’t been made yet, according to a new survey of more than 1,000 homeowners conducted by consumer information website Consumer Affairs.

About one in four homes are in need of serious repairs. Forty-five percent of homes are less safe due to those neglected repairs, the study finds. The average homeowner waits more than 10 months to make a critical repair on the home.

Some homeowners inherited needed repairs when they first purchased a house. Forty-three percent of homeowners say they hadn’t made repairs that were needed when they purchased the home.

The expense is the leading reason homeowners have delayed fixing issues. More than half of homeowners surveyed say they don’t have much saved up to pay for home repairs. Only 41% of homeowners say they could afford a $500 repair out of pocket, and that percentage drops to 28% for those who could afford a $1,000 repair.

Source: “Holding Off on Home Repairs,” Consumer Affairs (March 28, 2022)

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Sellers May Nab Highest Price Premiums in May

Home sellers may find the best opportunities to watch their profits peak this month, according to a new study from ATTOM Data Solutions, a real estate data firm. The spring and summer months are the best times of year to obtain the highest home seller profits, according to ATTOM’s analysis, based on home sale trends over the past 11 years.

The months of May, June, and July offer seller premiums of 10% or more above market value.

The top 15 days to sell are led by May 23, May 27, May 16, May 20, and May 19, according to the study. All five of those dates offer a seller premium between 15% and 18%, according to the study.

“Homeowners looking to maximize the price premium they can claim on their homes should sell their properties in May, June, and July when buying activity is at its peak,” says Rick Sharga, executive vice president of market intelligence at ATTOM.

Source: ATTOM Data Solutions

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Mortgage Rates Reach Highest Levels Since 2009

The 30-year fixed rate mortgage averaged 2.96% just a year ago; this week, it averages 5.27%, Freddie Mac reports.

“Mortgage rates resumed their climb this week as the 30-year fixed reached its highest point since 2009,” said Sam Khater, Freddie Mac’s chief economist. “While housing affordability and inflationary pressures pose challenges for potential buyers, house price growth will continue but is expected to decelerate in the coming months.”

Freddie Mac reported the following national averages for the week ending May 5:

• 30-year fixed-rate mortgages: averaged 5.27%, with an average 0.9 point, rising from last week’s 5.10% average. A year ago, 30-year rates averaged 2.96%.
• 15-year fixed-rate mortgages: averaged 4.52%, with an average 0.8 point, increasing from last week’s 4.40% average. A year ago, 15-year rates averaged 2.30%.
• 5-year adjustable-rate mortgages: averaged 3.96%, with an average 0.2 point, climbing from last week’s 3.78% average. A year ago, 5-year ARMs averaged 2.70%.

Freddie Mac reports commitment rates along with average point to better reflect the total upfront costs of obtaining a mortgage. Source: Freddie Mac

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Top 10 Destinations for Out-of-State Movers

Home shoppers’ interest in relocating to a different state is on the rise, finds a new survey from realtor.com®. During the first quarter, 40.5% of prospective buyers searching for homes for sale on realtor.com® were looking for homes outside of their current state.

“After two years of pandemic remote work, offices have started to reopen, but instead of seeing a slowdown in the number of people interested in homes out of state, we’re seeing an acceleration,” says Danielle Hale, realtor.com®’s chief economist. “Taking a closer look at the top destinations, we see some very different trends driving the desire to live out of state and home shoppers’ diverse needs.”

Affordability remains a key focus for buyers, Hale says. Demand for less expensive areas has increased in recent months due to high inflation and rising mortgage rates. Also, the flexibility from the higher adoption of remote work is fueling greater interest in sunnier climates like the Sun Belt, Hale says. Some buyers also are showing renewed interest in living downtown. Two major metros made realtor.com®’s list of top destinations for out-of-state home shoppers.

The following are the top 10 relocation destinations, according to realtor.com®.

Source: Move Inc.2 Com

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Reprinted with permission

Fed Raises Rate: What It Means for Housing

The Federal Reserve voted on Wednesday to raise its target short-term federal funds rate by a half-point. That marks the largest increase in the Fed’s rate in more than two decades and suggests higher mortgage rates will follow.

The Fed’s latest action looks to control inflation, which is running at a 40-year high. The federal funds rate, which is set by the central bank, is the interest rate banks use to borrow from and lend to one another. While mortgage rates are not directly tied to the Fed’s rate, they are often influenced by it.

As such, many economists say, mortgage rates will likely continue to keep climbing. Already, they’ve increased nearly 2 percentage points since just the beginning of the year, increasing the cost of monthly mortgage payments by hundreds of dollars. The 30-year fixed-rate mortgage averaged 5.10% last week, its highest level since April 2010, according to Freddie Mac.

After the Fed’s action on Wednesday, consumers likely will see changes to their borrowing and saving rates across the board, including higher credit card rates, car loans, student debt, and mortgages, economists say.

Adjustable-rate mortgages and home equity lines of credit may see the biggest impact initially since they are linked more closely to the prime rate, CNBC reports.

But the 30-year and other mortgage rates likely will still be influenced by the Fed’s actions, economists say. By the end of 2022, 30-year rates could be near 6%, says Jacob Channel, senior economic analyst at LendingTree.

That is still low by historical standards, but for home buyers already facing higher prices for homes, the effect may be to price more buyers out.

Lawrence Yun, NAR’s chief economist, said during a session at the 2022 REALTORS® Legislative Meetings this week in Washington, D.C., that he expects a slowdown in housing from its recent highs. The rapid increase in mortgage rates along with the other effects of inflation are taking a toll.

“Mortgages now, compared to just a few months ago, are costing more money for home buyers,” Yun said. “For a median-priced home, the price difference is $300 to $400 more per month, which is a hefty toll for a working family.”

Yun predicts that inflation will remain high over the next several months and that the market will see further monetary policy tightening through a series of rate hikes. Higher mortgage rates will likely slow the market, Yun says. Source: “Here’s What the Fed’s Half-Point Rate Hike Means for Your Money,” CNBC (May 4, 2022) and “The Fed Raises Interest Rates by 0.50%. How Will This Affect the Housing Market,” Motley Fool (May 4, 2022)

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