What do higher interest rates mean for home buyers?

According to the National Association of Realtors [1], about 87% of home buyers use some sort of financing to purchase a new home. On average, they finance about 88% of the value of their home purchase (even more for first-time home buyers).

These statistics mean that the purchasing power these home buyers have – measured by the mortgage interest rate – makes a big difference.

As of this writing, the Federal Home Loan Mortgage Corporation (FHLMC, known as “Freddie Mac”) reports [2] that the national average for a 30-year fixed rate mortgage (with 0.6 points) is at about 3.0%. This is up slightly from the 2.66% rate measured at the end of 2021, which was the lowest since the organization began reporting in 1971.

To put these rates into historical context, the highest rates observed by Freddie Mac were reported in October 1981, at about 18.63% (with 2.2 points). For the most part, mortgage rates have been at or below five percent for about the past decade.

Why does this matter? It matters because changes in the interest rate can make home buying more or less expensive. Take the following example.

The Massachusetts Association of Realtors reported that the median sales price of a single-family home in Massachusetts was $529,000 in April 2021 (a record high) [3]. At a current interest rate of 3.0% and assuming a 20% down payment, the monthly payment on this loan (with no points or PMI, and not including escrows for taxes or insurance, etc.) would be $1,784.23.

If the interest rate were to increase to 4.0% — a big increase, but still a relatively low rate historically-speaking — the payment would increase $236.19 per month for the same loan. This presents the home buyer with one of two choices: pay more or get less.

If the buyer doesn’t change their buying habits at all and just purchases the same property at the higher 4.0% rate, they will end up paying back $85,030 more to the bank over the life of the loan. That’s about a surcharge of about 16% of the value of the home.

In order to avoid this surcharge entirely, the buyer would need to put down more money up-front. In this case, they would need to increase their down payment by about 9.35%, or about $49,462, to reduce the total amount financed and keep payments the same. That would bring the total down payment on this home to $155,262 (29.35%) — a lot of money.

Not all buyers can pay more. If the buyer is strapped for cash and wants or needs to keep both their monthly payment and down payment low, that means they will need to find a cheaper home. In this case, in order to still have a monthly payment of $1,784.23 at 4.0%, the buyer would need to spend a maximum of about $467,160 on a new home. That’s a decrease of almost $62,000 (12% ) of home value. Unless the buyer finds a deal, that is likely to result in a decrease of some desirable feature (fewer bedrooms or bathrooms, less back yard space, etc.).

These dilemmas all point to the need for close coordination between real estate agents and financing agents for home buyers in the current market, and for buyers to act quickly to buy available property before rates climb higher. Recent signals of higher inflation are pointing to the possibility of future rate increases, so if you are able to move, don’t wait to buy!

 

Note: The examples used in this article are based on national averages. Actual monthly payments vary widely and depend on many factors, including the lender and financing program, the buyer’s financial information, and the property being purchased. In order to find out more about your specific situation and purchasing power, it is recommended that you speak with a qualified financing agent.

References:

[1] https://www.nar.realtor/newsroom/pandemic-caused-buyers-to-seek-multi-generational-homes-sellers-to-sell-faster

[2] http://www.freddiemac.com/pmms/

[3] https://www.wgbh.org/news/local-news/2021/05/18/median-home-price-in-massachusetts-hits-record-high-of-529-000

“Can I sell my home during a pandemic?”

Maybe you were planning to sell your home this year, long before COVID-19 was in the headlines. Or perhaps being stuck in your house due to quarantine and social distancing has demonstrated that your current home is not the right fit for you and your family.

But is it now the right time? Can you actually sell your home during a pandemic?

YES. The answer is absolutely yes.

Although the process is slightly different, we have had clients successfully sell AND buy new homes this spring.

Despite the restrictions in place to prevent the spread of the virus and even in the face of massive unemployment, there are still many, many qualified buyers in the market. And because there are not many homes for sale right now (an inventory shortage that began long before Coronavirus), bidding wars are still occurring, which often results in sellers getting their asking price or ABOVE for their home.

So how can you successfully navigate the sale of your home right now?

First, find a real estate agent who pays close attention to federal and state rules on safely conducting open houses, inspections, and other aspects of the sale.

At a recent open house we hosted, we allowed only one group of buyers to tour the home at a time and we offered hand sanitizer and masks to buyers who did not bring their own supplies.

We also had the home professionally cleaned after both the open house and home inspection to help protect the homeowner.

In our opinion, now is not a great time to attempt to sell your home on your own. There are many potential liability, health and safety minefields to navigate. Moving can be stressful on it’s own; let your agent assume responsibility for making sure the sales process complies with all the rules and regulations.

Second, ask your agents about their technological capabilities and if they can provide virtual home tours as part of your listing.

Sometimes, a buyer will request a showing and find out immediately once inside that the layout doesn’t work for them. If they can virtually tour your home first online, you might cut down on unnecessary in-person tours of your living space. While we never mind conducting showings, the nature of a pandemic definitely favors having LESS people in your home.

Third, be sure potential buyers are qualified.

Due to the current unemployment numbers and shakiness in the economy, many mortgage lenders are requiring applicants to make a larger down-payment and have higher credit scores than usual.

While it is more difficult to obtain a mortgage right now, we have found that there ARE buyers out there who meet this threshold. Be sure to request that buyers have a pre-approval letter to submit along with any offers to purchase.

Be prepared to pass papers/close on your home without being in the same room as the buyers.

Due to social distancing guidelines, some real estate closings are taking place with the buyers and sellers in different rooms while attorneys handle the transfer of papers. While this isn’t necessarily a bad thing, it’s a change from past practices you might be familiar with.

Bottom line: if you are ready to put your home on the market, don’t let COVID-19 steer you off your personal path. It’s still possible to sell your home and sell it successfully.

Please reach out to us to talk through any concerns you may have. We’ll work with you to come up with a plan that makes you feel safe and comfortable throughout the entire selling process.

Send us an email using our Contact Form, or give us a call at 978-494-4450. In addition to answering your questions, we offer a free estimate and consultation of how you might price your home in the market.

Covid 19 and Real Estate

The recent outbreak of Covid 19 is having a profound effect on the real estate market across the country.

Here in Massachusetts, recent government orders have significantly curtailed real estate open houses and other social gatherings. In addition, inspections of smoke and carbon monoxide detectors normally required prior to a closing may be deferred if the buyer contractually assumes responsibility for installing the detectors and the subsequent inspection happens within 90 days of the conclusion of the COVID-19 emergency.

For our part, due to the Governor’s advisories, our business office at 145 South Main Street in Bradford, Massachusetts will be closed to the public until further notice. However, we are actively advising clients (long-term and new ones!) on the real estate market via phone and e-mail. So, if you have any questions you’d like to talk about, please feel free to contact us. We look forward to hearing from you!

 

Five tips to make buying a home less “haunting”

Let’s face it – the process of buying a home can be intimidating sometimes. But there are things you can do as a consumer to help put your mind at ease. Here are our top five tips to make buying a home less of a “trick” and more of a “treat”:

1. Get pre-approved for financing.

It takes money – usually, lots of money – to purchase property. Sellers know this, so they often ask potential buyers to provide evidence of their financial ability before accepting an offer. To help improve your chances of getting an offer accepted – and to avoid pitfalls later in the process – do yourself a favor and get this evidence up front. Most commonly, this involves getting a pre-approval letter from a mortgage lender to purchase a home within a certain price range and according to certain terms. If you’re a cash buyer or using other funds (ie. a gift, inheritance, etc.), you can obtain certification from your financial institution that those funds are available and sufficient to cover a purchase. If you are able to, it’s always best to get this documentation before you start looking at houses to buy. Getting pre-approved doesn’t guarantee financing, but it does avoid lots of unfortunate entry-level decisions and help you focus on properties within your purchasing power.

2. Get a home inspection.

It’s unlikely that even a savvy home buyer can pick up on every potential defect in a home during a quick open house visit or a private showing. Plus, most of us aren’t professional contractors, so there are things we might miss or that might be difficult to find. That’s why it’s always a good idea to hire a home inspector to check these things out and advise you on potential issues before you sign a purchase and sale agreement. In Massachusetts, inspections usually must be conducted during a ten-day period between an offer to purchase and the signing of a purchase and sale agreement, or they are waived (note: these deadlines can vary based upon your sales contracts, so be sure to consult your agent and/or attorney).

3. Know when to go beyond a home inspection.

There are certain things a typical home inspection might not cover, such as septic systems, private wells, swimming pools, and contamination by lead paint, mold, radon, asbestos, or pest infestation. The list goes on. Sometimes you need to ask to add these items on to your typical inspection order. Other times you need to hire a specialist to look at them separately. Be sure to ask up-front and get the advice you need in a timely fashion.

4. Resolve complex issues early on.

Depending on the property you’re buying, strange issues can pop up. For example, maybe there is a question about boundary lines or easements on the property. Maybe the person living there has unsatisfied liens on the property, or owes back taxes, or doesn’t yet have the legal right to sell (such as if an estate is trying to sell property before getting court approval). If you’re applying for a mortgage on the property, sometimes these issues will be identified by your bank. Even so, it can be wise to consult an attorney to answer any questions about a property and to get these issues resolved before the closing.

5. Educate yourself about the area.

It’s important to remember that we refer to a “piece” of property because land is part of a bigger puzzle, be it a neighborhood, or a region, etc. No home is an island in and of itself (unless you’re actually buying an island). Before you buy, ask questions about the surrounding area to make sure it suits your needs. Is it noisy? How is traffic? Do these factors vary on weekdays, weeknights, and weekends? Is there a lot of criminal activity in the area? Is the property convenient to shopping, highways, etc. If you have children, how are the schools? Is the property zoned for whatever you intend to do with it (or if you want to do additional work)? Is it in a flood zone, and if so, do you need to buy flood insurance? Are there any other hazards nearby? If it’s a condominium, what are the association’s rules, and how are the finances? Asking these and many more questions is usually referred to as doing “due diligence,” and it’s an important part of the home buying process. Make sure you do as much research as you can before you buy to avoid surprises later.

When it comes to buying property, don’t be haunted by problems! Ask your real estate agent for advice and guidance throughout the process.

Seller Alert: Keep an eye on proposed transfer tax hikes

Seller alert: there are some proposals floating around Beacon Hill right now that could make selling your home more expensive.

Gov. Charlie Baker has proposed increasing the housing transfer tax to pay for climate change initiatives. This tax is a burden Massachusetts home sellers must pay when transferring ownership of their home to a buyer. For every $500 of your selling price, the state of Massachusetts charges you a $2.28. Baker wants to increase this tax to $3.42, and housing advocates are looking to DOUBLE the tax to $4.56.

Here’s a breakdown of how those proposals would affect your sale:

Say you’re selling your home for $350,000:

  • Under the current real estate transfer tax of $2.28, you’d be responsible for paying $1,596 to the state.
  • If Gov. Baker’s proposal for $3.42 is approved? You’d pay $2,394.
  • If housing advocates have their way of doubling the tax? Your tax burden goes up to $3,192.

When selling your home, every dollar counts. Even if you support the initiatives this tax increase would support, you’ll want to know your bottom line when it comes to your financial picture in a real estate transaction. That’s why we’ll be keeping a close eye on the Legislature as they work to wrap up their business for the year. We’ll keep you posted!

How solar panels can affect a home sale

You see the solar energy sales reps going door-to-door on your street, and maybe your neighbor recently had solar panels installed on their roof. It sounds like a great deal (for your wallet and the environment), but how will it affect your ability to sell your home in the future?

According to the U.S. Department of Energy’s Office of Energy Efficiency & Renewable Energy, a recent study found that home buyers have been willing to pay a premium of about $15,000 for a home with an average-sized solar array.

However, not all home buyers feel this way. Some people don’t like the look of the panels on their roof. Others may not be happy with the contract you signed with the solar company that installed your system.

We’ve seen this come up while house hunting with our buyer clients. Often, the sale of the home does not end the contract with the solar company. The buyer is either required to take up the already existing contract, or pay to have the panels removed. In those cases, the buyer might decide not to pursue purchasing your home.

If you decide going solar is worth it to you, just be sure to carefully read the sales contract so you know what to tell potential buyers if you ever decide to place your home on the market.

Haverhill home prices fell in April, but properties sold faster

HAVERHILL – Lyric Properties announced today that sales of single-family homes in Haverhill, Mass. increased during the month of April compared to the prior month, but prices were down.

“According to our review of data from MLS, 31 single-family properties were sold in Haverhill during the month of April, compared to 29 sales during March,” said Fred Van Magness, Broker at Lyric Properties. He said the data showed that during that same period, the average sales price of a single-family property decreased slightly, from $349,662 to $334,545, while homes were on the market for less time on average.

“Overall, the numbers show good news for both buyers and sellers,” said Meredith Landrum, a Salesperson affiliated with Lyric Properties and a resident of Haverhill. “People who were looking to buy a home during the month of April saw prices come down a little bit, making ownership slightly more affordable. But, competition in the market led to faster sales, which was good news for people looking to sell their home. It will be interesting to see how home sales perform as we edge closer to the height of the springtime real estate market.”

Lyric Properties is a real estate brokerage doing business in the Merrimack Valley. If you are interested in buying, selling, or renting property, please feel free to contact them for more information at (978) 494-4450.

All data provided by MLS-PIN for single-family property sales by all brokers during the stated period in the stated geographic area. Lyric Properties is not independently responsible for these sales or any data reported herein and makes no promise, warranty or representation as to the accuracy of the same. Prior sales are not necessarily reliable indicators of current or future market performance. Due diligence is always advised. Frederick Van Magness, Jr. dba Lyric Properties, MA Broker No. 149143, PO Box 533, North Reading, MA 01864. (978) 494-4450. www.LyricProperties.com. All rights reserved. Equal Housing Opportunity.

Buyer Beware! (Always do your due diligence.)

When you purchase a piece of property, there are always lots of factors to consider before you sign on the dotted line. You’re making a big purchase, so you want to make sure you’re properly protected from any (unwelcome) surprises later on.

For example, is the property you’re thinking of buying in good condition? How old is the roof? Does the heating system work? Does the property have a septic tank or a private well? Can you add on an extra room sometime in the future?

The process of answering these and many other questions is generally referred to as doing “due diligence.” In Massachusetts, much of this due diligence usually takes place during (or before) a ten-day window of time after an Offer to Purchase is accepted, and prior to a Purchase and Sale Agreement being signed. And, in almost all cases, the responsibility for doing due diligence rests solely with the Buyer individually.

Having said that, you need not feel that you’re alone. Many questions are best answered with the help of qualified professionals. For example, a home inspector can tell you lots of things you might not have realized about the condition of your property and the major systems within. A visit to the code enforcement officer can tell you about zoning and other property features. If you’re buying a condo, you probably also want to check with the homeowner’s association to review applicable rules and financial information.

Other questions require a little more legwork. For example, you might want to find out if the property you’re purchasing is in a flood zone or historic district. That could become a financial burden or limit what you can do with the property. You might wish to know more about local schools, if that’s important to you, or the proximity to other nearby amenities. You might also want to know more about whether there is a lot of crime in the local neighborhood, or if any sex offenders live there. The list goes on and on.

Your real estate agent can help to guide you through the process and make suggestions. But, remember: since you’re the one spending the money, it’s up to you to make sure you do the research you need to satisfy yourself with the quality of what you’re buying. In fact, in many cases, ethical and legal rules limit or prohibit your real estate agent from answering these questions on your behalf. It’s also your responsibility to make sure you find out all the answers you need in a timely manner — usually, not later than the expiration of the period for inspections stated in your Offer to Purchase (assuming you reserve this right for yourself in your Offer — usually a smart consideration!), and sometimes before you even submit an Offer to buy the property. If you wait too long, you might jeopardize your ability to cancel your intended purchase or possibly obtain a reduction in the purchase price to cover needed repairs.

As the saying goes, “Buyer Beware!” Always make sure to do your due diligence before you buy property, and make sure you answer any questions about it before you commit yourself.

The spring market is coming. Thinking of getting in? How to decide if you’re ready.

Although parts of Massachusetts are still blanketed in snow, the calendar says spring officially kicks off this week. Along with (hopefully) better weather, that also means the spring real estate market will start showing signs of life.

If you’ve been toying with the idea of selling or buying a home, you might be wondering if now is your time to take the plunge.

Entering the market is a big decision, one that we know is not taken lightly. Not only are you dealing with a huge transition from one living space to another, the process of selling or buying a property is a pretty big commitment. You’re looking at keeping your house tidy for showings and open houses (as a seller) or giving up some nights and weekends to tour homes and put together offers (if you’re the buyer).

Here are a few questions to ask yourself when deciding whether this is the spring you’ll make your move:

What’s your local market look like?

We always recommend contacting a local real estate agent in your community or the community you’d like to move to in order to get a full picture of what’s selling and what’s not at this moment in time.

When buyers or sellers approach us, we get information about the size, style and design of their house or desired house and then run a report using the Multiple Listing Service (MLS) to see what comparable homes are selling for and how fast they are going under contract.

For a deeper dive on this, please check out our post on an important market factor known as the “absorption rate.”

What’s going on in your life right now? CAN you make a move?

Even if the market where you live or want to live is going gangbusters, it still may not be YOUR time.

Shopping for a house or offering your home for sale is a big deal. Even if your real estate agent (and we definitely strive for this) makes the process as smooth as possible, there’s still a lot for you to do.

If you’re buying, you’ll be spending a lot of time shopping around, attending open houses and showings. You’ll potentially be working with a mortgage company to get approved for a loan, which requires pulling together a lot of information about your personal financial history. You may also be rushing around to put together offers with your agent if a home you want is also wanted by a bunch of other buyers.

If you’re selling, you’re potentially looking at making repairs or cleaning out your house to get it ready for sale. You’ll need to be ready to get out of your house quickly when a potential buyer wants a showing, or be prepared to be away all morning for an open house. If you’re moving to a new property, you may also have all the work of being a buyer at the same time.

Again, at Lyric Properties, we totally get this and try to assume as much of the load as possible, but there are some thing that only you can do. If you know that your personal circumstances will make all of this impossible or too much of a burden, you may want to consider waiting until later in the year to make a move and enter the market.

Are there repairs you want to make before you sell?

This is a decision you can make with your real estate agent once they give you their opinion on what price you might want to list your house for. It could be that your home DOES need repairs, but you’d rather not put any more work into your property and perhaps you’re willing to sell for a little less to compensate for that. Maybe that means that you’re ready to plant a For Sale sign on the first day of spring.

However, if you feel you might be able to list for more, but you need to first repair your fence/upgrade your bathroom/put in newer kitchen appliances, how much time do you need to get that done? If you want to take advantage of the spring market, you probably want to start making those changes NOW.

For more information on how much value you might be able to get from making certain repairs in your home, check out this post.

Finally, does it really matter what the calendar says? What are YOUR goals?

There’s no doubt that the market dips and rises throughout the year. But we’ve sold houses in every season, from the middle of winter to the height of summer. The most important thing we’ve seen for buyers and sellers is entering the market is taking the plunge when it’s PERSONALLY RIGHT for them.

If you’re still not sure, we’re more than happy to talk it through with you and even help you make a list of pros and cons, if that’s helpful. If you run into an agent who is pressuring you to sell RIGHT NOW, question it. (And then call us. Ha ha.)

For an analysis of what your home might be worth in the current market, please contact us online or call us at 978-494-4450. We’ll be ready to go when YOU are.