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Educational Resources For Realtors

A Look At Home Price Appreciation

A look at home price appreciation

According to one recent study, California home prices saw a major increase of 20% in April of 2021 - shattering another already impressive record and reflecting the incredible surge of activity in the Read more...

According to one recent study, California home prices saw a major increase of 20% in April of 2021 - shattering another already impressive record and reflecting the incredible surge of activity in the market over the last two years. In Southern California in particular, prices hit an all-time high of $655,000. Not only is that an enormous 20.2% increase over 2020, but it's also approximately $25,000 higher than the price record that was set just one month prior, in March. The Factors That Impact Home Price Appreciation: An Overview But the strength of the market isn't the only thing having a significant impact on home price appreciation - far from it. Equally important is the growing net worth of the homeowners themselves. "Net worth" is a term used to describe the total value of all of a person's assets, minus the value of all of their debts and various financial liabilities. It's an important number to know, as it's a quick way to truly understand someone's larger financial health. It's also important to understand within the context of real estate, because the average net worth of homeowners tends to be dramatically higher than people who are renting. According to one recent study in 2019 the average net worth of people who owned homes was literally 40 times higher than those of renters. Those who fell into the former category had a median net worth of $255,000, while those who fell into the latter had a median net worth of only $6,300. As expected, this is a financial gap that has only been getting more significant since the onset of the Great Recession more than a decade ago. But if you understand how real estate works, this actually makes a great deal of sense. Someone's home tends to be their primary source of wealth. As average home values skyrocket and houses continue to appreciate, their wealth goes up. You don't get to enjoy the same benefits if you're living in someplace like an apartment, for example. Another important idea to understand has to do with the fact that home price appreciation and home equity are directly linked. Home equity is described as the total value of someone's interest in their current home. One of the fastest ways to build equity is to make the largest down payment that you can. If you make a down payment of over 20% (assuming you're financially able to do so), it will instantly offer more equity than it would if you had made a smaller payment. The vast majority of all people don't purchase homes in cash - they get the necessary funds via a mortgage loan. When that loan originally begins, the financial institution who gave it to you has a much larger interest in your home than you do. But as you continue to make payments, your interest goes up while the bank's goes down until the loan has been paid off. Therefore, another way to look at home equity would be to say that it's the part of your home that you actually own - meaning a financial representation of what you've already paid off on the original loan. Additional Considerations About Home Value Appreciation Of course, real estate is a complicated topic - and home value appreciation is no exception. While the factors outlined above are certainly important, there are a number of others that will directly impact a home's price appreciation, too. One of these are the neighborhood comps - something that a lot of homeowners in California are benefiting from right now. When similar homes in a neighborhood sell - meaning ones with similar floor plans, features or other qualities - that can absolutely cause a home to appreciate much faster. Because the real estate market across the country is so hot right now, a lot of people are finding that their homes are growing in value much faster than they otherwise would have had things been more stagnant. Location is also another factor that impacts home price appreciation. The quality of the local school district, the total number of desirable employment opportunities, and even the distance to points of attraction like shopping or entertainment venues can all make a home's value increase. Finally, any upgrades or updates that have been made to a home can also cause the value to appreciate. This is especially true in older homes that may have already had outdated features. If you own a home in Los Angeles with a current estimated value of between $150,000 and $250,000, for example, choosing to remodel your kitchen could add between $19,000 and $23,000 to the value of your home immediately after the project is completed. Adding a bedroom could add between $8,000 and $10,000, and even adding just a full bathroom could add between $1,900 and $2,300. Obviously, how much value certain upgrades will add depends largely on the area of the country where you live. In the end, understand that home price appreciation is still somewhat at the mercy of the local market. If someone is buying in a buyer's market, they'll be able to negotiate on the price of a home far easier than they would if it were a seller's market for obvious reasons. But the good news is that in California in particular, home prices are expected to continue appreciating for the foreseeable future - a trend that shows absolutely no signs of slowing down anytime soon. Love, Kartik

By Kartik Subramaniam

August 02, 2021

Educational Resources For Realtors

How You Can Help Prepare Long Term Buyers for Their Home Purchase

Potential home buyer putting down clock

As a real estate agent, you will inevitably encounter clients needing more time to buy a home. These long-term buyers may be waiting for a job transfer, building their savings, or improving their credit. Read more...

As a real estate agent, you will inevitably encounter clients needing more time to buy a home. These long-term buyers may be waiting for a job transfer, building their savings, or improving their credit. Regardless, your role as their real estate advisor remains essential. Here are some tips to help you guide long-term buyers and ensure their future success in purchasing a home. Additionally, consider enhancing your skills and knowledge through a real estate school, online real estate classes, and real estate exam prep to serve your clients better. Caution Against Large Purchases Buyers must exercise financial prudence when buying a home, and realtors play a vital role in guiding them through this process. One essential piece of advice that realtors should offer long-term buyers is to postpone any significant purchases that could negatively impact their credit. Encouraging clients to prioritize their home purchase over buying a new car or financing expensive furniture can make a considerable difference in their home-buying journey. Large purchases can increase a buyer's debt-to-income ratio, lower their credit score, and affect their mortgage approval chances. Additionally, these financial decisions might signal to mortgage lenders a need for more financial discipline, raising concerns about the buyer's ability to handle mortgage payments. Warren Buffet's concept of delayed gratification offers valuable insight into why buyers should delay these expensive purchases. Delayed gratification is the ability to resist the temptation of an immediate pleasure in the hope of obtaining a more valuable and long-lasting reward in the long term. By practicing delayed gratification, buyers can prioritize their long-term goal of homeownership over short-term desires for material possessions. The ability to delay gratification is linked to many positive outcomes, including academic success, physical health, psychological health, and social competence. This skill is closely related to patience, impulse control, self-control, and willpower, all of which are crucial in home-buying. By advising clients to embrace the concept of delayed gratification, realtors can help them focus on the long-term benefits of homeownership. As they resist the temptation of immediate rewards, buyers can work towards securing their dream home, ultimately reaping the rewards of their patience and financial discipline. By incorporating this perspective into the home-buying process, realtors can better guide their clients toward a successful and rewarding home purchase. Promote Timely Bill Payments Stress the importance of paying bills on time, as missed payments can harm their credit and delay home-buying. If they're at risk of missing a payment, suggest they contact their creditors to work out a solution. TLDR - Pay bills on time or early. Discourage Large Bank Transactions Remind your clients to avoid large withdrawals or unsourced deposits to their bank accounts, as mortgage lenders scrutinize financial history thoroughly. Unusual transactions can lead to mortgage application denial. When purchasing a home, buyers must be mindful of their financial transactions, as mortgage lenders pay close attention to their financial history. Large withdrawals or unsourced deposits can raise questions and potentially jeopardize the approval of a mortgage application. Understanding the impact of such transactions and why avoiding them is vital during the home-buying process is essential. Mortgage lenders evaluate an applicant's financial stability and ability to repay the loan by analyzing their income, expenses, credit history, and existing debts. Unusual transactions, such as significant withdrawals or unsourced deposits, can raise red flags and suggest potential financial issues or undisclosed liabilities. Lenders may perceive these transactions as signs of financial mismanagement or an attempt to conceal relevant financial information, leading to doubts about the applicant's creditworthiness. Moreover, mortgage underwriters must verify the source of funds used for the down payment, closing costs, and reserves. Unexplained or unsourced deposits can complicate this process, as they need clarity regarding the origin of the funds. This lack of transparency may lead lenders to question the legality or legitimacy of the funds, which can ultimately result in a mortgage application denial. Maintaining transparency and consistency in financial transactions is crucial when applying for a mortgage. Buyers should avoid large withdrawals or unsourced deposits to their bank accounts during the home-buying process, as these unusual transactions can raise concerns for mortgage lenders and jeopardize the approval of their mortgage application. By keeping their financial activities clear and well-documented, buyers can increase their chances of securing a mortgage and successfully purchasing their dream home. Warn Against New Credit Applications Instruct your clients not to apply for new credit, including credit cards and financing large purchases. Also, ask about recurring payment plans, such as the iPhone Upgrade Program, which may perform "soft pull" credit checks that could negatively impact their credit score. New credit applications can impact your credit score for several reasons, and it's crucial for people in the process of buying a home to avoid applying for new credit during this time. Here's why: Hard Inquiries: When you apply for new credit, lenders perform a "hard inquiry" on your credit report to assess your creditworthiness. Each hard inquiry can lower your credit score by a few points, and multiple inquiries within a short period can have a more significant impact. A lower credit score may result in less favorable loan terms or even denial of your mortgage application. Debt-to-Income Ratio: Applying for new credit can increase your overall debt and raise your debt-to-income (DTI) ratio. Mortgage lenders consider your DTI ratio when determining your loan repayment ability. A high DTI ratio may lead to higher interest rates or disqualification from certain mortgage programs, making it more challenging to secure a mortgage for your desired home. New Credit Accounts: Opening new credit accounts, such as credit cards or personal loans, can affect your credit score in several ways. Firstly, it reduces your average account age, which can lower your credit score. Secondly, it can impact your credit utilization ratio – the percentage of available credit you're using – another factor lenders consider when evaluating your mortgage application. Financial Instability: Mortgage lenders prefer financially stable applicants with responsible credit behavior. Applying for new credit during the home-buying process can signal financial instability or the inability to manage existing debts, which may raise red flags for lenders. To ensure a smoother home-buying process and increase the chances of securing a mortgage with favorable terms, it's essential to avoid applying for new credit during this time. Instead, focus on maintaining a healthy credit score, paying bills on time, and keeping your debt-to-income ratio low. Maintain Regular Communication As a real estate agent working with long-term buyers, maintaining regular communication throughout their home-buying journey is critical to your professional success. By keeping in touch with your clients, you demonstrate your commitment to their needs and ensure that you remain their go-to expert when they're finally ready to make a purchase. Regular communication helps build trust and rapport with your clients, which is essential for fostering a strong, lasting professional relationship. By staying in touch and providing valuable information, you show your clients that you are genuinely invested in their long-term goals and ready to support them at every step. This proactive approach to client communication allows you to anticipate their needs and provide guidance on any potential challenges they might face during the home-buying process, ultimately making their experience smoother and more enjoyable. Additionally, consistent communication keeps your clients informed about the latest market trends, new listings, and potential opportunities that align with their preferences and budget. By providing regular updates, you ensure that your clients remain well-informed and prepared to make educated decisions when the right opportunity presents itself. This level of attentiveness can set you apart from other agents, who may not prioritize long-term clients similarly. In conclusion, maintaining regular communication with your long-term buyers is essential for securing your position as their trusted real estate advisor. By staying in touch and providing valuable guidance throughout their waiting period, you demonstrate your dedication to their success and ensure that you remain top of mind when they're ready to buy. In a competitive industry, this level of client care can make all the difference in securing future business and building a reputation for exceptional service. Remember, not all clients will be ready to purchase a home immediately. By following these tips and investing in your education through a real estate school, online real estate classes, and learning how to get a real estate license, you can better serve long-term buyers and improve your chances of converting them into successful homeowners in the future. Love, Kartik

By Kartik Subramaniam

January 27, 2021
 

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