First Time Homebuyers Archives - Fort Collins Homes

First-Time Buyer Challenges in Colorado’s Housing Market

Tips for first time home buyers in 2021 - Town Square Real Estate - Town Square Real Estate

Everybody is asking, “When’s a good time to buy?”

According to the National Association of REALTORS®, first-time buyers median age hit 36 last year, the oldest on NAR’s record. In 1981, it was 29.

First-time buyers are receiving fewer financial gifts or personal loans from their family, roughly 22% in 2022, compared with 28% in 2021. This may explain why the share of first-time buyers compared with all buyers has shrunk slightly.

Some first-time homebuyers get indirect financial support when they move directly from the family home into their own home. Without a rent payment obligation, they have the opportunity to save for a down payment when living at home.

Even as home prices and interest rates in Colorado remain high, many first-time buyers are ready to buy for this simple reason: rents rarely decrease

Clearing The Hurdles To Homeownership
Federal loans like FHA and Veterans Affairs (VA) home loans require little to no down payment. The Colorado Housing and Finance Authority offers grants for down payments, if buyers take a homebuyers class and meet certain income limits.

In 2019, Bank of America committed $5 billion to help its low- to moderate-income clients make their first purchase. Two years ago, the bank increased its Community Homeownership Commitment program to $15 billion. Eligible applicants can receive a $7,500 grant for closing costs, plus up to 3% or $10,000 for a down payment.

As interest rates have risen, the popular “2-1 buydown” loan offers a lower interest rate in the first two years of the loan before adjusting to a higher rate in year three. Buyers qualify at the higher third year rate. If interest rates fall in the next few years, buyers can refinance at a lower rate.

More First-Time Buyer Challenges
Buyers may feel they’ll never get to home ownership because of debt, lower incomes or low credit scores.

For credit scores below 580, a knowledgeable lender can put together a plan to help a potential buyer raise their scores above 620.

CHFA, the Colorado Housing and Finance Authority, saw an increase in first-time buyers starting in 2015, as Colorado’s population increased, but incomes in recent years did not keep up with home prices. CHFA’s first-time buyer numbers have since declined due to the drop in affordable homes for sale plus rising interest rates.

Low- and moderate-income buyers find it difficult to compete with cash offers and non-first-time buyers with cash from equity in their homes.

An FHA loan also means higher monthly payments because of mortgage insurance (that protects the bank in case the borrower defaults). Some sellers also believe the FHA loan can involve strict conditions, such as being required to repair peeling exterior paint, and therefore bypass offers made with FHA financing.

Trying to time the housing market is like trying to time the stock market. You’re going to have hits and misses. Look at your budget and do what is right for you.

Working with a knowledgeable lender is critical to preparing and planning the financing for a first-time buyers. Contact me for more information about programs for first-time buyers.

Source: coloradosun.com

Commercial And Residential Real Estate Continues To Ride The Tailwinds

Both the residential and commercial markets in Northern Colorado are robust according to industry experts, despite the headwinds of higher interest rates, a potential recession and changes in how Americans work.

Residential
The residential market experienced upheaval in the past several years with growth during the pandemic followed by a dip starting in 2022 as interest rates ticked up.

Longmont and Johnstown were among the communities topping the charts for sales over the past couple of years. Median prices are rising but not at the previous rate of growth.

The Northern Colorado population continues to grow. By 2050, the Weld County population is forecast to reach 610,000 people and the estimate for Larimer County is 495,000 people. That means more homes will be needed.

Key points:
• Inventories will remain low, but the number of potential buyers has declined because of interest rates. Homeowners with mortgage rates below current market rates are reluctant to move.
• Builders are not keeping up with demand, even though newly built homes are selling a bit slower compared to 2021 and 2022.
• Home appreciation is expected to be flat or see a slight increase.
• Inflation will taper off.
• If a recession happens, it will be a slowdown instead of a full-fledged recession.
• The market is normalizing compared to recent years that were epitomized by “rushes”. Since 2020, 75% of the people who bought houses express “buyers remorse” which could result in increased sales activity as people attempt to correct their situations.

Commercial
In comparison, the commercial market in Northern Colorado remains better than most.

Short-term interest rates, which jumped from 3% to 7.5% in a short period of time, affected construction loans and likely caused some projects to be delayed. As rates begin to level off, they will remain manageable at about 5%.

Compared to the prior year, retail commercial properties have recovered fairly well with supply and demand in balance. Fort Collins retail has completely recovered from the pandemic, and Greeley has almost recovered. Overall along the Front Range, construction of new retail is low.

The office market is the segment in most distress since the pandemic forced many office workers to move home. Nationwide, the return-to-office rate has been about 50%.

Since Northern Colorado doesn’t have as many large corporate offices as found in Denver, its vacancy rates have been lower.

Larimer office vacancies are at 5.7% and Weld’s vacancy rates are at 7.6%, compared with 15.4% in Denver.

The bright spot in commercial real estate, like last year, has been industrial and warehouse uses. Industrial rental rates are growing 4% in Weld County and 6% in Larimer, and everything that’s been built is being absorbed.

By comparison, and taking Amazon distribution center in Loveland out of the equation, industrial is seeing five times more demand than office and retail.

Call me to discuss your future ideas about buying and selling!

Source: bizwest.com

FHA Borrowers Will Pay Reduced Mortgage Insurance Premiums

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On February 22, 2023, the Department of Housing and Urban Development released details of a long-anticipated plan to reduce the annual MIP (mortgage insurance premiums) that are currently charged to FHA borrowers by 30 Basis Points (0.3% of the loan balance).

The FHA mortgage insurance premium is the monthly fee homeowners pay to insure their mortgages. The fee is calculated as a percentage of the loan amount and paid in addition to the monthly principal and interest payments.

The annual FHA mortgage insurance premium will reduce from 0.85% to 0.55% for most new borrowers.

The National Association of REALTORS® applauded HUDs move to reduce the MIP for Federal Housing Administration loans, saying the financial relief will help more homeowners and buyers weather affordability challenges, and potentially save borrowers with FHA-backed mortgages hundreds of dollars a year.

FHA loans offer down payment options as low as 3.5% to first-time and low- to moderate-income home buyers. Eighty percent of FHA borrowers are first-timers, and more than 25% are minorities.

Homeownership is currently the principal source of wealth creation for most American households, but due to a nationwide shortfall in the supply of affordable homes, first-time homebuyers have struggled in recent years to achieve homeownership.

FHA loans offer a small down payment and more flexible underwriting, enabling credit worthy borrowers to begin building wealth through homeownership earlier than they might otherwise.

National Association of REALTORS President Kenny Parcell said in a statement: “Mortgage rates have doubled over the past year, and home prices have increased more than 30% in some counties. In this competitive market, new and low- to moderate-income buyers are often left behind.”

With a $400,000 FHA-insured mortgage, the MIP reduction could save a borrower approximately $1200 in the first year of homeownership.

The MIP reduction is the result of several factors: an improvement in the credit quality of borrowers in the FHA mortgage portfolio, home price appreciation, and significant refinance volume. As a result, the FHA’s mortgage insurance fund has seen gains in its capital reserves.

The FHA mortgage insurance premium reduction became effective in March, 2023.

Find more details about the FHA MIP reduction and savings on page 2 this month’s newsletter!

Contact me about specific loan programs for first time homebuyers available to you or someone you know!

Source: nar.realtor/magazine, nationalmortgageprofessional.com, https://www.mortgagenewsdaily.com/news/02222023-fha-mortgage-insurance

Understanding The Federal Reserve Rate Hikes

The Federal Reserve raised the federal funds rate by 0.75 percentage point for the fourth time in early November, marking an unprecedented pace of rate hikes.

The benchmark short-term borrowing rate has been raised six times this year in an effort to cool down inflation, which is still near 40-year highs and causing most consumers to feel increasingly cash strapped.

The Fed noted in a policy statement that the “cumulative” impact of its hikes are being considered relative to determining future rate increases. Economists are hoping this
signals plans to “step-down” the pace of increases going forward, which could mean a half point hike at the December 13-14 meeting and then a few smaller increases in 2023.

What The Federal Funds Rate Means To You
The federal funds rate, which is set by the central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers
pay, the Fed’s decisions affect the borrowing and saving rates they see every day.

By raising rates, the Fed makes it more costly to use financing, causing people to borrow and spend less, effectively pumping the brakes on the economy and slowing down the pace of price increases.

“Unfortunately, the economy will slow much faster than inflation, so we’ll feel the pain well before we see any gain,” said Greg McBride, Bankrate.com’s chief financial analyst.

Already, “mortgage rates have rocketed to 16-year highs, home equity lines of credit are the highest in 14 years, and car loan rates are at 11-year highs,” said McBride.

How Higher Rates Affect Borrowers
Even though 15-year and 30-year mortgage rates are fixed and tied to Treasury yields and the economy, anyone shopping for a home has lost considerable purchasing power in part because of inflation and the Fed’s rate hikes.

30 Year Fixed Rate Mortgage Comparison For A $300,000 Loan
Dec 2021 Nov 2022
Rate / Payment Rate / Payment
3.11% / $1,283 7.08% / $2,012
That’s an extra $729 a month, an increase of $8,748 per year, and $262,440 more over the lifetime of the loan, according to LendingTree.

The increase in mortgage rates since the start of 2022 has the same impact on affordability as a 35% increase in home prices, according to McBride’s analysis.
“If you had been approved for a $300,000 mortgage in the beginning of the year, that’s the equivalent of less than $200,000 today.”

Interest rates for adjustable rate mortgages and home equity lines of credit are pegged to the prime rate, and will also eventually increase. Most ARMs adjust once a year, but a HELOC adjusts right away.

Meanwhile, consider boosting your emergency savings since savings rates have also increased. Sleep better at night knowing you have some money tucked away just in case.

Call me to discuss your options for a refinance or financing your next home!
Source: www.cnbc.com

Understanding Inflation and Mortgage Rates

This year, inflation reached a high not seen in forty years. The average consumer felt
the pinch at the gas pump and in the grocery store. It has also impacted the ability
of some buyers to save money to buy a home.

When the inflation rate was higher than expected in late summer, concerns about
recession were fueled, prompting the Federal Reserve’s decision to raise the Federal
Funds Rate in late September.

Fortune magazine explains:
“As the Federal Reserve moved into inflation-fighting mode, financial markets quickly put
upward pressure on mortgage rates. Those elevated mortgage rates … coupled with skyhigh home prices, threw cold water onto the housing boom.”

The Rise of Mortgage Rates
In light of growing economic pressures, the average 30-year fixed rate mortgage
recently surpassed 6% for the first time in well over a decade.

The mortgage rate increases this year are the big reason buyer demand has pulled
back in recent months. As rates rose, so did the cost of buying a home and some
buyers were priced out of the market.

Looking Ahead
The relationship between inflation and mortgage rates is simple.

When inflation is low, mortgage rates tend to be lower. When inflation is high, rates
tend to be higher.

Sam Khater, Chief Economist at Freddie Mac, commented:

“Mortgage rates remained volatile due to the tug of war between inflationary pressures and
a clear slowdown in economic growth. The high uncertainty surrounding inflation and
other factors will likely cause rates to remain variable…”

Bottom Line
Rising inflation and higher mortgage rates have had a clear impact on housing.
Contact me for insights on the latest trends in the housing market and what they
mean for you.

www.keepingcurrentmatters.com