Overcoming Housing Market Fears
webadmin • May 6, 2024
The recent headlines broadcasting mortgage rates surpassing the 7% mark have instilled a sense of apprehension among potential homebuyers. In a market perceived as increasingly unaffordable, it's easy to feel discouraged. However, with the right mortgage strategy, you can transform this challenging market into an opportunity.
Historical Perspective on Mortgage Rates
While current rates hovering around 7% seem daunting, a historical review reveals a broader context. During the early 1980s, mortgage rates soared to 18% and even in more stable times, rates have frequently fluctuated above 10%. This historical perspective is vital because it demonstrates that while today’s rates are higher than in recent years, they remain within a historical long-term normal rate range.
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Impact of Job Growth on Housing Demand and Prices
Recent job market data presents a mixed but overall positive picture that could significantly influence the housing market. In March, the economy added a robust 303,000 new jobs, exceeding expectations, and revisions to prior months added another 22,000 jobs. The unemployment rate also dipped to 3.8%, signaling strong economic momentum. These indicators suggest a growing number of people entering or re-entering the workforce, which traditionally boosts housing demand as more individuals and families gain the financial confidence to purchase homes. Increased Buyer CompetitionThe influx of new jobs and the overall decrease in unemployment are likely to lead more people to consider buying a home. As more individuals gain employment, the pool of potential homebuyers increases, leading to heightened competition in the housing market. This is particularly relevant in today’s environment, where housing inventory remains relatively low across many regions. Increased competition among buyers can naturally drive-up home prices, especially in desirable areas with extremely limited supply.
Appreciation Trends in Real Estate
The real estate market has consistently appreciated over the years, a trend that is likely to continue due to ongoing supply constraints and robust demand. Delaying a home purchase in anticipation of falling rates could result in higher prices later. Moreover, the longer you are in a home, the higher percentage of your payment goes towards principal reduction. This is called amortization, which is the math equation that determines how your mortgage balance will be paid off. In the first few years, most of your payments go towards interest costs, the longer you are in the home, the higher percentage of your payments go towards reducing your principal balance. Delaying buying both leaves you exposed to higher real estate prices and delays you from getting deeper into your mortgage loan where more of your payment goes towards principal.Example Scenario: Imagine you are eyeing a $300,000 home today. With an average appreciation rate of 4% per year, the same home could cost about $312,000 next year. By waiting, not only do you pay $12,000 more, but you also lose a year’s worth amortization (paying down the loan balance).
Financial Drain of Renting
Continuing to rent while waiting for the perfect economic conditions means every rent check is an investment in someone else’s financial future. Renting offers no return on investment through appreciation or amortization.Strategies to Win in Today’s Housing Market
Fully Underwritten Pre-Approval:
This step demonstrates to sellers that your financials are thoroughly vetted, significantly strengthening your offer in a competitive market. If you are going to complete against multiple offers, why not be the most prepared offer the seller will see? Convert to Cash with our Power Buyer Program: By making a cash offer, you bypass many of the hurdles that come with loan financing, making your bid far more attractive to sellers.Exploring Grant Programs:
Programs like those offered by Luminate can cover up to 2% of your down payment, reducing your upfront costs and facilitating easier entry into homeownership.Adopting a Strategic Mindset:
The philosophy of "marry the home, date the rate" encourages purchasing the right home now and refinancing if and when rates drop. This strategy ensures you start building equity immediately and can take advantage of lower rates later. Despite the headlines highlighting soaring mortgage rates, it's important to understand that residential real estate prices have appreciated 74 out of the last 82 years. That means home values go up 90% of the time.Carefully review the chart below that shows real estate prices going up in green, versus prices going down in red. Despite prior periods of elevated mortgage rates, home prices are much more likely to go up than down.
As rates are now on the rise, it may very well create an opportunity where a seller is willing to contribute towards a temporary interest rate buydown. What questions do you have and how can we help you?
Here at Luminate Home Loans, we’re always looking for ways to offer more value to our clients and partners. That’s why we’re thrilled to announce that we’re now a wholly owned subsidiary of Luminate Bank®—and soon, we’ll officially transition under the Luminate Bank® name.
For years, homebuyers have been hoping for a return to the ultra-low mortgage rates seen during the pandemic. But as we move through 2025, it’s becoming increasingly clear that today’s rates—hovering between 6% and 8%—aren’t going anywhere.
Luminate Bank® Welcomes Josh Eifert as Chief Financial Officer, Honoring Legacy of Dave Turk [Minneapolis, Minn.] – [2/4/2025] – Luminate Bank® is proud to announce the appointment of Josh Eifert as its new Chief Financial Officer, succeeding Dave Turk, who has played a pivotal role in shaping the company's strong financial foundation. Josh brings a wealth of experience and strategic vision to Luminate Bank, with 26 years in the banking industry. Most recently, Josh served as CFO at Tradition Capital Bank in Edina, Minnesota, where he led the financial strategy during its remarkable growth from $300 million to more than $2.5 billion in total assets. Before his tenure as CFO, Josh contributed to Tradition Capital Bank in other key financial roles. He began his career with Norwest and Wells Fargo Banks, gaining extensive expertise in financial and operational capacities. Luminate Bank's leadership transition reflects the company's thoughtful succession planning, ensuring its financial strategies remain robust and forward focused. Under the leadership of Dave Turk, Luminate Bank has built an exceptional financial infrastructure, delivering consistent results and creating a foundation that positions the company for continued success. Luminate Bank's CEO, Marc Campbell, shared his confidence in the appointment: "Josh not only brings exceptional financial acumen and strategic insight to Luminate Bank, but he also embodies the principles that define our organization: integrity, innovation, and a steadfast commitment to excellence," Luminate Bank's CEO, Marc Campbell, shared with confidence. "His leadership will ensure our financial strategies succeed and inspire confidence across all who depend on us." "I am honored to join Luminate Bank at such an exciting time. The company's remarkable history of financial excellence and its forward-thinking approach align perfectly with my values and vision," stated Josh Eifert. "I look forward to collaborating with the talented leadership team to build on this strong foundation and drive continued success for our customers, employees, and stakeholders." Josh graduated from the University of Minnesota with a degree in finance and completed the Graduate School of Banking at Colorado. CEO Marc Campbell expressed gratitude for retiring CFO Dave Turk's contributions, saying, "Dave has been instrumental in positioning Luminate as a financial leader. His dedication, insight, and stewardship will always be a part of our company's legacy." Josh Eifert will officially assume his role on February 18, 2025. About Luminate Bank® At Luminate Bank, We Open Doors—empowering individuals and families to achieve their financial dreams through personalized service and innovative digital solutions. As a nationwide bank headquartered in Minneapolis, Minnesota, we are committed to helping our clients meet their financial goals with a blend of modern technology, traditional values, and the trusted guidance of experienced professionals. Known for our exceptional commitment to customers, we take pride in delivering a seamless, supportive experience for every step of the journey. Our dedicated mortgage division has branches and a team of loan originators across the US, making expert home financing solutions accessible to communities nationwide. Luminate Bank is committed to safeguarding your money and accounts with FDIC insurance coverage up to applicable limits. Learn more about how we can open doors for you at www.luminate.bank , follow us on Instagram, LinkedIn, and Facebook, or call (952) 939-7200. For media inquiries, please contact: Debbie Schwake, CMO debbie.schwake@luminate.bank
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