This is not your Father’s economy, nor is it that generations opportunities and challenges. It is today when interest rates are still historically low while housing prices are historically high. What is going to happen is on the minds of this generations new first time home buyers. While the numbers do not relate in any other way to yesterday, or for that matter tomorrow, the numbers are staggering.
Forbes.com recently released the latest results of their American Dream Index, in which they measure “the prosperity of the middle class, and…examine which states best support the American Dream.”
The monthly index measures several different economic factors, including goods-producing employment, personal and commercial bankruptcies, building permits, startup activity, unemployment insurance claims, labor force participation, and layoffs.
The national index score was rounded out to 100.0 in January as a baseline for comparison and it rose the fourth straight month in a row to 101.8.
Alaska, coming in at 89.4, represented the lowest score on the index due in part to the recent collapse in oil prices. In contrast, Wyoming came in with the highest score at 115.1. The full results can be seen in the map below.
Forbes Senior Editor Kurt Badenhausen explained why many states saw a boost in the index last month:
“The American Dream Index rose for the fourth straight month to 101.8 propelled by gains in goods-producing jobs and building permits, as well as declines in unemployment claims and mass layoffs.
Goods-producing jobs (manufacturing, mining, construction and agriculture) were up for the ninth straight month in May…Building permits rose for the fourth straight month compared to the prior year.”
The American Dream, for many, includes being able to own a home of one’s own. With the economy improving in many areas of the country, that dream can finally become a reality.
- Existing Home Sales reached their third highest mark this year in May.
- Inventory of homes for sale has dropped 8.4% since last year, marking the 24th consecutive month of year-over-year declines.
- NAR’s Chief Economist, Lawrence Yun had this to say: “Those able to close on a home last month are probably feeling both happy and relieved. Listings in the affordable price range are scarce, homes are coming off the market at an extremely fast pace and the prevalence of multiple offers in some markets are pushing prices higher.”
“Those able to close on a home last month are probably feeling both happy and relieved. Listings in the affordable price range are scarce, homes are coming off the market at an extremely fast pace and the prevalence of multiple offers in some markets are pushing prices higher.”The biggest surprise? This is the first time in years where the $1M and up price range had the highest jump in sales when compared to last year and to all other price ranges (29.1%)! The two price ranges right underneath the $1M range were a close second and third. As the price went up, so did the sales! With additional inventory available in the higher price ranges, and the economy improving, many luxury buyers are finding it easier to find their dream homes. Yun commented,
“The job market in most of the country is healthy and the recent downward trend in mortgage rates continues to keep buyer interest at a robust level.”
Bottom LineIf you are one of the many homeowners who is looking to sell your starter or trade up home and move up to a luxury home, now is the time!
“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”One of the many advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you with this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.” Freddie Mac describes the 4 Cs that help determine the amount you will be qualified to borrow:
- Capacity: Your current and future ability to make your payments
- Capital or cash reserves: The money, savings, and investments you have that can be sold quickly for cash
- Collateral: The home, or type of home, that you would like to purchase
- Credit: Your history of paying bills and other debts on time
Bottom LineMany potential home buyers overestimate the down payment and credit scores needed to qualify for a mortgage today. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so as well.
Myth #1: “I Need a 20% Down Payment”Buyers overestimate the down payment funds needed to qualify for a home loan. According to the First Quarter 2017 Homeownership Program Index (HPI) from Down Payment Resource, saving for a down payment was the barrier that kept 70% of renters from buying. Rob Chrane, CEO of Down Payment Resource had this to say,
“There are many mortgage-ready renters today, but they don’t know it. Often, homebuyers remain sidelined for years due to the down payment.”Many believe that they need at least 20% down to buy their dream home, but programs are available that allow buyers put down as little as 3%. Many renters may actually be able to enter the housing market sooner than they ever imagined with new programs that have emerged allowing less cash out of pocket.