The Hardest Part of Buying a Home, According to Buyers

You can find advice for prospective home buyers all over the internet — including, of course, in our articles. But who knows better than the buyers themselves what they’re having trouble with? For over half of survey respondents, 56% to be exact, the biggest problem is finding the right property. This is probably partially the current market, with very low inventory, and partially buyers not knowing what or where they can afford to buy.

This isn’t one of the categories buyers mention, though. For nearly a third of respondents, the most difficult part is understanding the process and paperwork involved. 20% cite primarily monetary issues, either with saving for a down payment or getting a loan. Comparatively few, only 7%, believe that COVID-19 was a significant complication. Meanwhile, 18% of respondents don’t think the process of buying a home is difficult at all.

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ARMs Gaining Popularity As Interest Rates Rise

The majority of homebuyers choose fixed-rate mortgages (FRMs) over adjustable-rate-mortgages (ARMs) in order to not have to deal with the uncertainty of changing interest rates. However, there’s very little uncertainty right now — interest rates are going up. This does include both FRMs and ARMs, but ARMs tend to have lower starting rates — a 5-year ARM was at 4.28% in mid-April. Buyers are predicting that even with an adjustable rate, their rate is not likely to surpass the 30-year fixed rate of 5.37% as of the end of April.

ARMs aren’t exactly popular, though. Even with their share doubling in the past three months, that’s still only 9% of mortgages. About as large a share of potential buyers are instead choosing to simply wait for a better time, with mortgage applications dropping by 8% and refinance applications dropping by 9%. Refinance applications are also drastically lower than the same time last year, having dropped a whopping 71%. New mortgage applications also dropped since last year, by a much more modest but still significant 17%.

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Bay Area Prices Remain High Despite Rising Interest Rates

The usual effect of rising interest rates is a decrease in demand, as buyers would rather wait to lock in a lower rate. Decreased demand should then translate to lower prices, since sellers want to encourage buyers. Not so in the San Francisco Bay Area right now. Prices are still going up, and demand didn’t really go down all that much.

The culprit? A couple of factors. Most significantly, inventory is extremely low in the Bay Area. Buyers are encouraged to take opportunities where they can, since they don’t come up often. That often means paying less-than-ideal prices. Secondly, the Bay Area is generally a high-income area and already has high prices. Even with rising prices, most people able to purchase there aren’t going to be suddenly priced out. Those looking for a median-income or lower household aren’t looking in that area to begin with.

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For Those Unable to Buy, Renovation is the Next Best Thing

We know that the wildly high post-lockdown demand was in large part driven by fear of missing out, or FOMO. People definitely took notice of the low interest rates and decided to take advantage of them. Interest rates are no longer low, and home purchasing demand has slowed. However, home renovations are still in high demand for just a bit longer. Renovating is not as expensive as buying, so homeowners with FOMO who could not afford to buy instead sought to remodel their current homes to better suit their needs.

In turn, though, home renovation costs have also increased rapidly in response to demand. By the last quarter of 2021, the year-over-year change in home remodeling costs had risen to 9.4%, about 2.5 times the expected 3.8% increase. Current projections have the Q3 2022 increase at an incredible 19.7%. But just like with rising home prices, increasing home remodeling costs will begin to price out even those affected by FOMO. Q3 is predicted to be the peak, with the prices starting to slow again by Q4 2022.

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Has Homeowner Tenure Reached Its Peak?

Over approximately the past decade, the average length of time homeowners have stayed in their home has steadily increased, from 10.1 years in 2012 to the peak of 13.5 years in 2020. Until last year. The figure actually dipped in 2021, decreasing to 13.2 years, even slightly below the 2019 average of 13.3 years.

Much of this can be attributed to the economic aftermath of the pandemic, as relocations increased dramatically in 2021 as a result of work-from-home opportunities and low mortgage rates. It’s unclear whether this is a temporary decline, or 2020 was the peak of homeowner tenure and it’s going to continue to decrease. Analyzing the reasons for the decrease and why it’s been increasing in the first place suggests it’s probably going to go back up. Work-from-home is still happening; however, mortgage rates are no longer low and are still going up. Meanwhile, the initial reasons for the increase over the past decade include increased propensity for aging in place and a desire to keep one’s property tax base low. Neither of these are changing much, even with the ability to transfer your property tax base in some cases.

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Younger Generations Look to Social Media to Find Agents

You’ve heard of first-time homebuyers. You don’t hear as much about first-time homesellers, even though of course they must exist. But now there’s reason for them to make the news. It turns out a significant number of homeowners in the younger generations — Gen Z and Millennials — are already looking to sell, despite also being the predominant first-time homebuyer generations. This includes 44% of Gen Z homeowners and 35% of Millennial homeowners.

With both first-time homebuyers and first-time homesellers being mainly between the ages of 18 and 41, agents really need to focus their marketing efforts if they want to do business with them. That requires knowing what people in this age category are looking at in terms of marketing. 59% of Gen Zers and 65% of Millennials consider social media marketing to be important for a real estate agent. Fortunately, this isn’t likely to ostracize other cohorts, since 58% of Gen Xers and 60% of Baby Boomers are in agreement. Agents that don’t have social media presence and are struggling to find deals may want to rethink their strategy.

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Stagnant Wages Major Struggle for First-Time Homebuyers

Many older people think of Millennials as being young kids who have no life experience and no financial know-how. The reality is Millennials are in the normal age range for first-time homebuyers, and some are even older. Their financial problems are not due to lack of knowledge. It’s due to a series of economic struggles that were completely out of their control.

Most Millennials came to age during the Great Recession, and so employment simply wasn’t available during the years when they were expected to find a job. That has made it more difficult to find one even after the Great Recession ended, as employers are expecting someone their age to have more experience. The 2020 recession, during a time when society expects their age group to be looking for a house, hit Millennials yet again.

In addition, inflation has far outpaced wage growth. Even those Millennials who have a job are not earning nearly as much adjusted for inflation as older generations were at the same age. Only about half of Millennials are employed full-time, and less than two-thirds are employed at all. Even though wages are increasing, they are still stagnant because of how quickly prices are increasing. Between 2012, when the market was finally recovering from the Great Recession, and 2020, when the most recent recession started, wage growth was at 24%. Home prices, however, went up over 3.5 times as much, by 86%.

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Mortgage Rates Approaching 5%

After a period of low mortgage rates, they’re going back up quickly. That is the expected effect of current Fed policy, but we may hit 5% faster than expected, possibly as early as next month. As of the beginning of April, the average 30-year fixed rate was 4.59%. If they do hit 5%, it would be highest rate in the past decade, though they did get close in November of 2018 at 4.94%.

The increasing rates are definitely going to slow down the real estate market. That may be a good thing for the market, given how hot it’s been, but it’s definitely not good for buyers. Demand isn’t going to disappear completely, though. And the effect is probably mostly psychological. Historically speaking, 5% isn’t a particularly high rate. It’s just that rates have been trending downward for quite some time, so it isn’t going to be familiar territory for the new generations of buyers.

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Despite Work-From-Home, Many Relocations Are Local

It’s true that some people have taken work-from-home as an opportunity to travel far and wide, but it could be that most buyers still want to be relatively near where they already are. They also aren’t looking for major changes in community type, whether urban, suburban, or rural. Nor are their motivations primarily financial, except in cases in which they changed jobs.

In a small survey of 514 respondents who were actively searching for a home, just over 40% of them were looking between 6 and 50 miles away, and over a quarter were searching between 2-5 miles away. However, it is important to note that of those looking more than 50 miles away, most were looking over 500 miles away. Between 63% and 77% of respondents wanted to stay in the same community type, and if they wanted a switchup, it would probably be to a suburban area. The primary reasons for moving were either lifestyle fit or major life events, not a growing wanderlust prompted by the possibility of a work-from-home model.

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Buyers Want to Bring the Outdoors Into Their Home

What buyers want and what they’re able to get isn’t always the same thing. Buyers nowadays are frequently settling, due to high prices. However, their search keywords are a decent indicator of what they want, even if it’s just wishful thinking. And what they want right now is outdoor living, except from the comfort of their home.

The number 1 most searched home feature is a swimming pool. In fact, buyers currently seem rather obsessed with water. If they can’t get a pool or hot tub, many are happy with a view of the water, and it doesn’t necessarily need to be an ocean view. The second most searched term is a view of rivers, and beaches, waterfronts, lakes, or really any kind of water is a popular view. Buyers are also looking for other types of outdoor amenities, such as horse facilities, boating facilities, golf, tennis, and basketball. And of course, they search for a large lot or outbuildings to accommodate all these features.

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Mid-April Could Be the Sweet Spot for Sellers has released their Best Time to Sell Report for 2022, and the predictions land on April 10-16. Spring is usually a hot season for the real estate market, and this year is no different. Demand is going up, prices are still high, and inventory is still low. Homes are already selling quickly after listing.

It’s not going to last for too much longer, though, which is why the window is so small. Mortgage rates are increasing, which will reduce buyer demand or cause them to look for lower priced listings. Inventory is also starting to recover as construction is accelerating. Also, if you are planning to sell in order to buy a new home, keep in mind that the best time to sell is frequently not a good time to buy.

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March Real Estate Market Trends

Prices are still going up, as are interest rates. Despite this, the market is currently going strong. It’s unclear whether this is temporary or seasonal, or part of a larger trend, but the near future of real estate is looking fairly good.

The reason for the rate increase is a recent increase to the federal funds rate of 25 basis points. The initial announcement didn’t have an immediate effect, but later caused an increase in interest rates. This, in addition to rising prices, has contributed to a decrease in home sales. However, it’s still above pre-pandemic levels, and supply is improving, which should help keep prices in line.

Part of the reason for supply increases is increased construction. Though construction actually decreased in the Western US, it has increased elsewhere and is at its strongest since 2006. Builders remain confident despite a slight drop in confidence, from 81 to 79, due to increased costs.

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Preparing Your Income Property for Pet-Owning Tenants

Some property owners don’t like the idea of allowing pets on their property. However, it’s probably a good idea to consider offering a pet-friendly rental property. 72% of renters own pets, so pet-friendly rentals are in high demand. This ensures you’re more likely to find a tenant and also allows you to charge more for rent. You can also ask for a pet deposit, in addition to the normal security deposit.

You also shouldn’t be too worried about property damage. Yes, pets can cause minor damage to property, but it’s actually more likely that costly property damage is caused by young children or even adults. In addition, you can reduce property damage by replacing carpets with linoleum, vinyl, or laminate floors. These are more resistant to damage and easier to clean. It may also be a good idea to install pet doors and gates.

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Is California the Happiest State?

WalletHub examined 182 of the largest cities in the US in an effort to answer the question of which cities were the happiest. Their research focused on various aspects of emotional and physical well being, income and employment, and community and environment. As it turns out, their data suggest that California could be a very happy state. 6 of the top 10 ranked cities are in California. This includes Fremont, which was the number 1 ranked city, as well as San Francisco, San Jose, Irvine, Huntington Beach, and San Diego. The other four cities in the top 10 were Columbia, MD; Madison, WI; Seattle, WA; and Overland Park, KS.

However, these results should be taken with a grain of salt. WalletHub never directly asked anyone whether they were happy or not, though their methodology does include –among many other criteria — a few clear correlations, such as suicide rates and depression rates. Their data may be accurate, but the conclusion that their data points to happiness is up for debate. In addition, the focus was 182 of the largest cities. It’s entirely possible that the happiest places are not large cities, or even cities at all. Not to mention California has a huge advantage in this regard, since it is very large, is almost entirely urban, and makes no legal distinction between cities and towns. California therefore has far more cities analyzed by the data than any other state, at 28. WalletHub’s selection criteria did include at least two cities per state, but many states only use data from those two cities.

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2022 Forecast is Unclear, But Points to Likely Slowdown

The results of a November 2021 survey of real estate professionals about the 2022 forecast are in, and they’re rather split. 41% expect prices to continue to rise and 41% expect them to fall. The remaining 18% predict prices will remain about where they are. Keep in mind, though, the survey was conducted a few months ago and may not reflect experts’ current beliefs. In addition, all of those who predicted continued rise in price conceded that the rate of increase will probably be slower.

There are a few factors pointing to slowdown, whether it’s a decline or a slower rise in home prices. Interest rates are increasing, which decreases buyer demand and buyer purchasing power, pulling down prices. The job recovery is still lagging behind. Forbearance exits mean greater inventory. Even global events are threatening to destabilize the economy, and uncertain buyers makes for less frequent buyers.

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Townhouse Construction Recovers Quickly and Continues to Increase

Most people who have been paying attention to real estate are aware that the construction industry has been struggling lately. But there’s one area where the industry is doing just fine, and that’s townhouses. Townhouse construction dropped in 2020 along with everything else, but it’s already recovered and is now above pre-pandemic levels. It seems townhouses are simply in fashion right now, as they feel like single-family homes — and are considered as such by some categorization methods — but are generally less expensive.

The truth is a little more complex, though. In reality, townhome construction has been on the rise for about a decade, and 2020 was merely a small dip — which also happened in 2011 and 2012. Perhaps townhome construction specifically was largely unaffected by the most recent recession, and this is just a continuation of the trend. It was actually the Great Recession in the latter half of the 2000s that caused townhome construction to plummet, and it’s been steadily recovering ever since. It’s not quite back at 2006 levels, slightly lower than the 2005 peak, but it’s not far off.

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Tips for Online Rental Marketing

Technology has made it easier than ever to secure a tenant for your rental property, as long as you’re making good use of the technology. There are several websites that you can use to help spread the word about your listing. Some of these are websites you may use already for other purposes, and others are specific to real estate. You can even create your own website, though you’ll have to make sure people find out about it.

There’s a number of websites that allow you or your agent to list properties for rent. There’s the local MLS, which would need to be accessed by your agent, but this will also spread to aggregator sites like Zillow and Redfin. Alternatively, you can post to Zillow and Redfin yourself. Other similar websites include Zumper, HotPads, and ListHub. Make sure to verify the information after a property is listed, since automated systems can get things wrong. In your descriptions, include certain frequently searched keywords, like the school district, amenities, area, and some basic features.

Email campaigns still work, but it’s not the only way to expand your reach. Social media websites are excellent at this. It’s especially necessary if you’ve created your own website. The obvious ones include Facebook and Twitter. perhaps less obviously, you can post pictures or videos of your property on Pinterest and Instagram. You can also reach out to your network on LinkedIn.

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Commercial Market Continues Current Trends

The commercial real estate market has been experiencing mixed performances, with some sectors doing better than others. That’s not about to change any time soon. The industrial sector is still going strong, the retail sector continues its recovery, and the office sector keeps lagging behind.

Already low vacancy rates in industry have dropped to near-zero, as what few vacancies remain are completely unusable. New construction isn’t focusing on the industrial sector, except in the Inland Empire, which nevertheless still has a mere 0.9% vacancy rate, down from 3.1% in 2020. San Diego has the highest vacancy rate in Southern California at 2.3%. In the retail sector, the vacancy rate didn’t change much, only increasing 0.2% in San Diego from 4.7% to 4.9%. However, the availability rate — which includes all properties on the market, whether vacant or currently leased — dropped from 6% to 5%. It’s likely that this is representative of off-market leases. Offices are still struggling, with vacancy rates above 12% and availability rates around 17%. The solution to the office problem will probably come in the form of conversions to residential or mixed-use property, which are far more in demand than office space.

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Mortgage Rates Continue to Climb

As of the end of last week, the average 30-year FRM rate is at 3.69%. It’s been steadily increasing since the historic lows of 2020. The ARM and 10-year Treasury Note rates also increased between January and February. Periods of historic lows followed by steady increases aren’t necessarily unexpected, though. That’s been the trend for at least the past three decades — ups and downs but a clear overall downward trend. Precipitous drops have tended to result in a period of reduced average. For the past decade it has averaged somewhere around 4%, but it’s unclear whether the sharp decline in 2019-2020 will result in a reduced average for the coming future.

What may prevent a reduced average is the Fed’s plans for the future. Their gradual reduction of purchases of mortgage-backed bonds (MBBs) has kept mortgage rates relatively stable. They will cease buying MBBs entirely in March, at which point they will begin increasing their benchmark rate throughout 2022. This is going to result in higher interest rates. With the rate already approaching 4%, the increasing rates will likely result in the average going above 4% and continuing the trend of the past decade.

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Fewer Buyers Waiving Contingencies

As of the end of 2021, fewer buyers are choosing to waive contingencies than earlier in the year. This is a return to normalcy, as the frequency of waivers was inflated during the period of heavy competition. Buyers had sought to improve sellers’ perception of their offers by foregoing things such as inspections and appraisals in order to expedite the process. As competition dwindled, fewer buyers felt the need to do that. In addition, the appraisal process is starting to move faster with increased vaccination rates, and home prices remaining high means buyers want to make sure they’re getting their money’s worth.

The percent of people who did not waive any contingencies increased steadily from the trough of 21% in June to the peak in December of 40%. Inspection and appraisal contingencies were most often waived, though there are other types of contingencies. For waivers of inspection contingencies, the peak was 27% in July, down to 19% in November and December. The percent waiving appraisal contingencies decreased from 29% in June to 21% in November and December.

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