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ANSWER TO THE QUESTION
What Is Your Best Advice for a Home Buyer in 2022?
 
Keep an eye on interest rates, and stay in contact with your loan officer! Rates moved up during the first weeks of 2022, and they could keep rising. If your pre-approval was from a month or two ago, it’s time to refresh the numbers and see where you stand.
 
Too many buyers skip the mortgage pre-approval. Others get a pre-approval but never call their loan officer again, and assume nothing will change. Don’t make these mistakes!

The mortgage amount you qualify for can change when interest rates change. It can also change if you take on more debt, or if your credit score changes, or your income changes. Stay on top of your financial picture, and keep your lender in the loop.

There are some strategies you can use for a lower rate. Paying down debts will improve your debt-to-income ratio and boost your credit score, helping you qualify for better offers. Or, you could increase your down payment, or add another signer to the mortgage. You could pay a point (pre-paid interest) to obtain a lower interest rate. Your loan officer will have suggestions for your situation.

This seems like simple advice and a no-brainer, but trust us, we see the lack of communication between home buyer and loan officer occur quite often.  With the rates rising in 2022, please make the effort. 
Interesting Statistics
This month, we wanted to take a look at how the two years of the pandemic affected the real estate market, casting a net over the entire MLS area and looking at both Single Family Homes as well as Townhomes and Condominiums. We tracked three factors - Supply, Demand, and Price. Take a look below at our interesting statistics. 
It's no surprise to anyone that ventured into home-buying in the last two years that inventory was lacking, however it is startling to see just how significantly it dropped from January 2020 to December 2021. The increase in inventory in the first half of last year seems to correlate with the Covid Vaccine rollout, however perhaps sellers were spooked by the spread of variants as homes for sale plummeted in the 3rd and 4th quarters. 
This graph of demand appears to be similar to a typical market - buyer demand grows through the Spring and Summer and falls of in the Fall and Winter. This is caused by a couple different factors - weather changes, school district deadlines, and availability of inventory. However, what's interesting here is that the increase in demand was so sharp in 2020 and slowly tapered off in 2021. According to ShowingTime, a tracker of home showing appointments, October 2021 had a record amount of buyer traffic, reversing the seasonal trend. Buyers were determined to find their home, even if it meant closing near the holidays. 
If you've ever taken Economics 101, you may have heard your professor say that the Law of Supply and Demand is a theory that defines the relationship between the price of a given good and the willingness of people to either buy or sell it. Generally, as price increases, the market  is willing to supply more and demand levels off. Which could be why the 2020-2021 Real Estate Market had everyone questioning their understanding of consumers. We watched median home price increasing by almost $100K before eventually leveling off. However, as these reports show us, supply continued to fall as prices rose, and demand remained strong. That being said, economists and Realtors are both predicting that home price increase will slow in the upcoming year, though still likely to go up. Will this create a shift in supply and demand? We're excited to find out! 
Kevin's Korner

How Home Ownership Helps Protect You From Inflation

Inflation is back in the news this year. While the U.S. inflation rate had remained low at about 2% since 2010, it has surged past 5% this year, pushing up prices and squeezing pocketbooks. Thankfully, there are a few ways to reduce the harmful impacts of inflation, and many Americans are already using one – homeownership. Here’s a look at what inflation is and how owning a home can offer some protection against it.

WHAT IS INFLATION?

Inflation is a general increase in prices and decrease in the value of money. When inflation occurs, products and services become more expensive on average. The more inflation there is, the more prices rise.

A monthly or annual “inflation rate” is used to measure inflation. The government calculates the inflation rate using the Consumer Price Index (CPI), which tracks the prices of over 80,000 products and services.

WHAT ARE THE EFFECTS OF INFLATION?

As explained earlier, inflation causes prices to rise and the value of money to fall. This means that wealth that is kept in property, such as a home, is often better protected from inflation, while wealth that is kept in cash, such as a bank account balance or paper bills, typically loses value to inflation. This is because property prices often go up with inflation, while cash buys less as prices rise.

For example, if the annual inflation rate is 5%, a $200,000 home affected at that rate would increase in price by an extra $10,000 ($200,000 x 0.05) a year. Conversely, a $200,000 bank account balance would fall in value by about $10,000 a year since the cash would no longer buy as much due to increasing prices. While some cash accounts do pay interest, it’s often not enough to keep up with inflation.

HOW DOES HOMEOWNERSHIP GUARD AGAINST INFLATION?

There are three important ways in which owning a home can provide protection against inflation.

1. Home prices usually rise with inflation

One of the rising prices no one complains about is the price of the home they own. Home prices typically increase with inflation, and when you own your home, that means your investment is likely to be protected from inflation or even benefit from it. If inflation is a rising tide, then your home could be thought of as a boat that rises with it.

2. Rent typically increases with inflation

The alternative to owning a home is renting, and rents usually go up with inflation. While some of the costs of homeownership increase with inflation too, if you have a fixed-rate mortgage, your monthly mortgage payment (principal and interest) will never increase! That means the higher rents rise and the longer you stay in your home, the bigger your savings over renting are likely to be.

3. Fixed mortgage payments devalue with inflation

Thanks to inflation, if you have a fixed mortgage payment, the value of the money you pay your lender decreases as long as there’s inflation. For example, assume you earn $50,000 a year at the start of a 30-year mortgage, the inflation rate is 3% during every year of your loan and the “real value” of your income never increases (you only received a 3% cost-of-living adjustment every year). After 30 years, your income would be $122,855, but your mortgage payment (principal and interest) would remain the same!

CONCLUSION

Make no mistake, this is a simplification of a fairly complex topic. There are additional ways to reduce the effects of inflation, such as certain investment strategies, and inflation alone is not a reason for someone to rush into homeownership before they’re ready. But as part of a solid financial plan, it’s easy to see why inflation protection is one of the many benefits of homeownership.

For a free mortgage consultation to learn about your options for buying or refinancing a home, get in touch today.


Information provided by:
Kevin P. Koykar, CFP®, ChFC®
Senior Loan Officer
kevin.koykar@dkmortgage.com
dkmortgage.com/koykar
C: 224-639-5100


 

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Ryan's Review 
Maneskin on SNL
Two Saturdays ago, the Italian rock & roll band Måneskin performed on SNL.  The band has gained popularity in the US from their cover of Beggin', originally written and performed by Frankie Valli and The Four Seasons. However, Måneskin first came on the music scene after winning the 2021 Eurovision Song Contest with their track Zitti e buoni. In the same year, they reached top 10 in the UK Singles Chart, the first Italian rock band to do so. But their addictive cover of Beggin' is what brought them to radios and social media across the US. 

Beggin' was the band's first performance on the popular sketch show, and they rocked it. It was awesome to see the lead singer, in three-inch leather boots and super smokey eyes, just totally in his element. His attitude reminded me a lot of Iggy Pop - not the same music of course but the same level of swagger.  Rock and Roll swagger - a rarity these days.

What I like about SNL and their music performances is the bands are pretty reflective of what's going on in the music world. They've featured all types of bands and artists, but as of late, there's been a lack of Rock & Roll bands rolling through their New York stage, which is still a reflection of the music world in general. In the past several years, we have rarely seen a rock band or performer gain popularity and stay on the scene for a long time. Greta Van Fleet comes to mind, they actually performed on SNL in 2019, but they've only put out one album.  Did they burn out?  And Måneskin too could just be a flash in the pan type of band, we'll see.

But this is a fun performance and it might just give you some hope that Rock and Roll is not dead. The 2nd performance of their song I Wanna Be Your Slave, check that one out as well.

What SNL has that's truly unique is that they have a world stage - the audience is millions of people. You can tell the band got pumped up for that and they delivered.  If you've discovered some newer rock music, send it to me.  I'm all ears.

Keep on Rockin' in the Free World,
Ryan Gable
Have a Safe and Happy New Year! 
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