Learn Why Home Prices Fluctuate
How Covid-19 Can Affect Your Mortgage
If you’re like most Americans, COVID-19 has changed your life in some way. You may be working from home, or have lost some of your income. You might be an essential worker, under more stress at work than ever before.
If you have any children, they may be going to school online or in a hybrid form. You’re juggling a lot of new concerns and trying to adjust your life to a new normal.
In the midst of all these other changes, your housing costs may also have been affected. You may have noticed that mortgage rates have changed in the midst of the Coronavirus pandemic.
Amidst the negative impact of the economic downturn caused by COVID-19, there are some positives that have been made possible by interventions into the mortgage system.
How Coronavirus Affects Mortgage Rates
The Federal Reserve has taken steps to protect homeowners and the economy by making getting a mortgage and financing in 2020 easier than ever.
There are now lower interest rates available on mortgages and home equity lines of credit. Mortgage rates had already started falling, but then the Federal Reserve made an emergency rate cut on March 3, 2020.
The Fed ended up cutting the rate a full percent, setting a target federal funds rate from a 0% to 0.25% range.
The rate has remained near zero since then, and the Fed has promised not to raise the rate until there is proof of significant and sustained economic recovery.
Part of the process of responding to the COVID-19 crisis included the Fed buying up billions of dollars of mortgage-backed securities, which resulted in a drop in mortgage rates from spring through summer.
Home sellers and buyers were understandably reluctant to make any big changes as the early stages of the coronavirus crisis unfolded. So both buyers and sellers pulled back in the spring. However, as of this summer, sales are beginning to recover.
It May Be A Great Time To Refinance
With the reduction in rates, now could be the ideal time to refinance your home. Here are some things to consider before making a decision.
Right now lenders are very burdened with a large number of applications, so if you decide to refinance, make sure you give your application a fighting chance by checking the completeness along with having all necessary documentation attached.
If you opt to fill out an application online it will alert you if you’re missing anything before you submit it to the lender.
Clarify why you’re refinancing so you can get the right kind of loan for your specific needs.
Your goal may be to lower monthly payment, to shorten the term of your loan, to secure a low fixed-rate loan, to replace your adjustable-rate mortgage, to get a cash-out refinance to borrow more than you owe or to get rid of FHA mortgage insurance.
Another important step in the process is to shop around. Don’t go with the first lender you find. If you apply to multiple lenders you’ll put yourself in the position to accept only the best deal you find.
Each lender will give you a loan estimate, which you can then compare to find the best rate possible.
Factors To Consider
In the case of refinancing a home, ordinarily, you would be able to lock in your rate when you apply, but due to the volatility of the market right now, you may have to wait till later in the process to lock in a rate, as they are changing so rapidly.
One note of caution is that this is not a good time to opt for a cash-out refinance, as you may want to keep your house’s equity in case of an emergency, such as possible unemployment.
If you’re buying a house, be aware that there are fewer houses on the market right now. No matter how much the Fed shores up mortgage rates, they can’t make more houses available.
In the midst of COVID-19, many homeowners are choosing to hunker down and hold on to their existing property. Choices may be more limited no matter what kind of rates you’re able to get for a new mortgage.
It may take time, patience, an eagle eye, and a good realtor to assist you in your search.
Despite the tendency of homeowners to be conservative during a crisis, you may benefit from someone who’s seeking to downsize their primary residence as a response to a change in income, or a desire to streamline and simplify their household.
Despite the uncertainty that COVID-19 has caused for so many homeowners and buyers, there are steps you can take to secure a good initial mortgage rate or refinance your current mortgage.
Megastar Financial Corp is here to answer any questions you may have, and assist you with all aspects of mortgage financing.
What Causes Home Prices to Fluctuate In California
If you’re wondering why California home prices fluctuate, there are a number of factors to consider. You may hear that there is a buyer’s market and a seller’s market. When home prices are lower, it is a buyers market; when they are higher, it is a seller’s market. Things like lower interest rates for mortgages can affect the price of homes, while the scarcity of the resources (e.g., the number of homes on the market ) can also affect prices in a given area.
When trying to predict the fluctuations of the housing market, there are complicated forecasting tools that can be utilized. These tools use a wide range of variables, as there are several indicators that can be used to estimate changes in the market. Let’s discuss some of the factors that cause housing market fluctuations in California.
Supply and Demand
One of the biggest reasons house prices fluctuate in California and in other parts of the country is simple supply and demand. If there is plenty of competition (a lot of houses being sold at once) and little demand for houses in that specific area, then the cost of housing will go down. In the opposite end of the spectrum, if there are few houses being sold and the demand is high for that area, then the price of the housing will go up. The market fluctuates with demand. Sellers can’t necessarily control these variables, but they can list at a time when demand is higher. Conversely, a buyer may be smart to purchase a property when demand is lower overall.
When the economy is on the downturn, the housing market also drops. When it is hard to secure a mortgage loan because banks are being cautious, housing becomes less expensive. If the majority of people are struggling to secure a mortgage loan, even with lower interest rates, it leaves fewer people able to buy homes.
Something called “perceived scarce resources” often affects the pricing of property in California. For example, certain sections of the state are considered highly desirable places to live, like Silicon Valley. If you work for a tech company, for example, you’ll want to live close to your job — but so do thousands of other people who are employed by these companies and work in these areas. That means the immediate surrounding area is considered “prime location” for people who work in your organization. The further out you move from that “prime area,” the less expensive the housing will be. Even if the commute isn’t terrible for those living outside that exact location, the idea of living as close as possible has buyers convinced that housing in that closest range is a scarce resource– and buyers will pay more to live there.
Of course, if you do pay more to live in a prime area, you may not always be able to afford your choice. Roughly 63% of homeowners are behind on their payments. They are not aware of programs that can help, and sadly, many of them lose their homes as a result. This scenario can be avoided, however, by being smart about the home you buy and the resources available to you. In many cases, the perception of the resources being scarce is not realistic. You could save thousands of dollars by buying in an area just outside the prime real estate area.
The Biggest Driving Factor
Ultimately, the biggest driving factor of real estate price fluctuations is the consumer. Trends in consumer buying, interest rates, desirable areas, conveniences, and other consumer-based factors really control real estate prices. Currently, we’re experiencing a buyer’s market because of the lower interest rates and how they make mortgages more affordable.
MEGASTAR FINANCIAL CORP. is an Equal Housing Lender. DBO Lic # 603 G365 NMLS Lic # 235828(3043)*
Licensed by the Department of Business Oversight (DBO) under the California Finance Lenders Act * NMLS # 1162668.
As prohibited by federal law, we do not engage in business practices that discriminate on the basis of race, color, religion, national origin, sex, sexual preference, marital status, age (provided you have the capacity to enter into a binding contract), because all or part of your income may be derived from any public assistance program, or because you have, in good faith, exercised any right under the Consumer Credit Protection Act. We are regulated by the Fair Housing Act (overseen by HUD) and the Equal Credit Opportunity Act (overseen by CFPB), Washington, DC, 20580.
Example of 30 year mortgage:
$300,000 sales price, $60,000 down payment, $240,000 loan amount, 360 months, 3% interest rate, 3.132% APR, $1,029 Principle and Interest monthly payments, Payment does not include taxes, insurance premiums or HOA dues. The actual payment amount will be greater. Rates shown valid on publication date of June 29th, 2020. This example is for a conventional, not jumbo, mortgage product; there are restrictive upper loan amounts for conventional loans based on the property’s location. Example given requires a minimum 740 credit score with a debt to income ratio of under 45%. Applicant must be employed. This is not a promise to lend. All terms and conditions are based on the subject property, the applicant’s credit worthiness and the applicant’s ability to repay the loan.
15-Year Fixed-Rate Mortgage:
The payment on a $300,000 15-year fixed-rate loan at 2.723% and 80% loan-to-value ratio (LTV) is $1,626. The annual percentage rate (APR) is 3.178%. Payment does not include taxes and insurance premiums. The actual payment amount will be greater. Rates shown valid on publication date of June 29th, 2020. This example is for a conventional, not jumbo, mortgage product; there are restrictive upper loan amounts for conventional loans based on the property’s location. Example given requires a minimum 740 credit score with a debt to income ratio of under 45%. Applicant must be employed. This is not a promise to lend. All terms and conditions are based on the subject property, the applicant’s credit worthiness and the applicant’s ability to repay the loan.