Rising Home Equity: A Closer Look at U.S. Cities from Q2 to Q3

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As the National Association of Realtors reports, almost every major market in the United States witnessed a rise in home prices from the second to the third quarter of this year. This upward trend in home values has had a varied impact across different demographics: while potential buyers grapple with escalating prices, homeowners enjoy the fruits of increased home equity. The duration of homeownership directly correlates with the appreciation in home value, enhancing the homeowner’s equity based on the current market valuation.

For those keen on staying updated with the real estate market trends, subscribing to a weekly newsletter offers insightful analyses, news, and comprehensive reports directly to your inbox. Understanding the dynamics of home equity and market trends is essential for both prospective buyers and current homeowners.

Zoocasa’s recent analysis sheds light on the equity accumulation in median-priced single-family homes across 25 major metropolitan areas in the U.S., utilizing data from the National Association of Realtors. The study highlights the substantial equity built over the past three years, factoring in the median purchase prices in 2020. It is crucial to remember that actual equity also depends on any existing loans or mortgage balances.

The study reveals that in the majority of examined cities, home values surged by over $100,000 within a three-year span. Notably, cities like Nashville and Tampa witnessed significant increases, aligning with the broader trend. However, West Coast cities, particularly San Diego and Los Angeles, saw even more dramatic rises, with increases surpassing $150,000 in many cases.

Despite San Francisco’s notoriously high housing costs, its price growth was surprisingly outpaced by cities like Miami and New York, although homeowners in San Francisco still saw substantial equity gains of around $200,000. On the East Coast, aside from New York, Boston stood out with a notable price growth, emphasizing the regional disparities in housing market dynamics.

The analysis also highlights cities where the median home price exceeds the national median, yet they still offer substantial equity growth opportunities, such as Tampa. However, for homebuyers on a budget, cities like Oklahoma City and Atlanta present more affordable options, with significant price growth and potential for equity building.

In less expensive markets like Dallas and Philadelphia, homeowners have also enjoyed considerable equity increases, showcasing the widespread nature of the current housing market upswing. However, not all major cities have experienced such robust growth; Chicago and Detroit, for instance, saw more modest increases in home values.

For those considering entering the housing market, especially as the winter season approaches, consulting with a local realtor for tailored advice and insights into specific market conditions is crucial. This approach ensures that both buyers and sellers can navigate the market effectively, capitalizing on the opportunities presented by the current trends in home equity and real estate prices.

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Breaking Down Down Payments for Homebuyers

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The traditional notion of a 20 percent down payment as a prerequisite for a home loan is a common misconception. In reality, the National Association of Realtors® reports that first-time homebuyers in 2022 put down an average of 6 percent, while repeat buyers typically put down an average of 17 percent. Understanding the diverse loan programs available and their varying down-payment requirements is crucial in navigating the homebuying process and finding the best option for your budget.

Conventional Loans

Conventional loans, being among the most popular types, come with varying requirements related to the down payment, income, and credit of the borrower.

Conforming Loans: Generally, the maximum amount borrowable on a conforming loan is $726,200, with the possibility of a down payment as low as 3 percent, depending on location, credit score, and home price.

Nonconforming Loans: For loan amounts exceeding the conforming loan limit, a nonconforming loan requires a minimum 20 percent down payment, potentially leading to a higher interest rate.

HomeReady: An affordable loan program by Fannie Mae, HomeReady is tailored for low-to-moderate-income buyers. With no income or location requirements, it allows a 3 percent down payment, and only one applicant needs to be a first-time homebuyer.

Government-Backed Loans

These loans receive financial backing from the government, providing lenders with added security against payment defaults.

Federal Housing Authority (FHA) Loans: Accessible in every state, FHA loans allow eligible buyers to make down payments as low as 3.5 percent, accommodating various income levels and even individuals with limited credit history.

United States Department of Agriculture (USDA) Loans: Targeting rural regions, USDA loans offer 100 percent financing without a down payment requirement and lower interest rates, making them the most cost-effective among government-backed loan options.

United States Department of Veteran Affairs (VA) Loans: Available to eligible military personnel and veterans, VA loans offer 100 percent financing, reduced interest rates, and fewer associated fees.

How Much is Enough?

With a range of programs available, your down payment amount will influence the type of loan you qualify for. Consider the following advantages and disadvantages of a lower down payment:

Advantages:

Buy Sooner: A lower down payment may expedite your homeownership dreams, particularly in a competitive market with rising prices.

Build Equity Faster: By purchasing a home instead of renting, you can start building your own equity.

Preserve Savings: A lower down payment allows you to reserve money for moving costs, repairs, and emergencies.

Disadvantages:

Larger Mortgage: A smaller down payment results in a higher principal amount, extending the time to pay off the loan and increasing monthly payments.

Higher Interest Rate: Although saving money initially, a lower down payment often leads to a higher interest rate, increasing long-term costs.

Private Mortgage Insurance (PMI): Conventional loans with less than a 20 percent down payment require PMI until 20 percent equity is built, incurring additional costs.

If unable to put down 20 percent, consult with a mortgage lender and a real estate agent to explore alternatives and identify the most suitable loan for specific requirements. Understanding the diverse loan programs and their implications empowers homebuyers to make informed decisions in pursuit of homeownership aspirations.

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A Silver Lining for Homebuyers as Market Adjusts

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In a welcome development for prospective homebuyers, mortgage rates have dipped below 7% for the first time since mid-August, marking the seventh consecutive week of rate declines. The decline comes as a result of improving inflation figures and the Federal Reserve’s decision to pause its rate increases.

The 30-year fixed-rate mortgage rate averaged 6.95% in the week ending December 14, down from 7.03% the previous week, according to data from Freddie Mac. A year ago, the average rate stood at 6.31%. The consistent drop in rates over the past weeks signals a potential thawing of the housing market in the new year.

Sam Khater, Chief Economist at Freddie Mac, expressed optimism, stating, “Potential homebuyers received welcome news this week as mortgage rates dropped below 7% for the first time since August.” Khater added that with inflation decelerating and the Federal Reserve’s indication of possible rate cuts in 2024, a gradual improvement in the housing market is anticipated in the coming year.

Despite the encouraging news, the housing market remains the least affordable since 1984, presenting challenges for buyers. The recent decline in mortgage rates has led to a rise in mortgage applications for the sixth consecutive week, according to the Mortgage Bankers Association. The increase suggests growing borrower demand, particularly among first-time buyers struggling to find homes within their budget.

Lisa Sturtevant, Chief Economist at Bright MLS, noted that homebuyers are acting opportunistically, taking advantage of lower rates during the period between Thanksgiving and New Year’s, traditionally a slower period in the housing market. However, she cautioned that the market won’t heat up quickly due to persistently low inventory.

While falling mortgage rates typically attract more buyers, the constrained inventory situation takes precedence in the current market. Nearly two-thirds of current mortgage holders have interest rates of 4% or lower, making it challenging to motivate homeowners with ultra-low mortgage rates to sell, even if rates drop to the mid-6% levels.

Jiayi Xu, an economist at Realtor.com, highlighted the lock-in effect, where existing homeowners benefit from lower rates on their current mortgages, contributing to low inventory levels. As a result, home shoppers are expected to compete over limited inventory, keeping prices elevated and affordability a top concern.

The impact of the Federal Reserve’s pause and its signal of potential rate cuts in 2024 have played a significant role in the recent decline in mortgage rates. Investors anticipated the Fed’s decision to maintain its benchmark federal funds rate, leading to lower mortgage rates in conjunction with falling 10-year Treasury yields.

While the Fed does not directly set the interest rates for mortgages, its actions influence them. Mortgage rates, tracking the yield on 10-year US Treasuries, respond to market expectations and reactions to the Fed’s policies. The Fed’s projections, including a lower median expectation for the fed funds rate in 2023, further indicate a potential easing of interest rates in the coming year.

As the housing market navigates the challenges of low affordability and constrained inventory, the recent drop in mortgage rates offers a glimmer of hope for prospective homebuyers, potentially paving the way for a more favorable market in the new year.

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Tasks That Must Be Completed by Your Executor

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This is not a fun project, but it must be done. An executor needs to be chosen so they can have a say in what happens to your estate. “Being an executor can be harder than you think. Often, loved ones are chosen, as in many instances they should be, but frankly, they are usually unprepared and then overwhelmed,” says David Frisch, of Frisch Financial Group.

Here is a list of many of the tasks that an executor will need to take on.

1. Obtain a death certificate

A death certificate will be required during the settling of a loved-ones’ estate. A death certificate will be issued by the county you live in and signed by the physician who pronounced your loved one as deceased. Nicholas Bunio of Brookstone Wealth Advisors explains, “If [executors] don’t know what they’re doing, they must find and attorney who does. Otherwise, the beneficiaries of the estate could sue the executor!”

2. Notify the probate court

This is important because probate will handle your assets after you die.  Your executor will need to petition the probate court in the area where you lived. To do this, they will need to get a letter of administration or testamentary.

3. Inform all interested parties

Most of the people close to you and your family will be aware that you have passed. They will know due to attending a funeral or having seen the obituary. Your executor will need to report your death to the Social Security department, banks and all of your financial institutions.

4. Pay all debts and file all taxes

This is a job that your executor will do. They will need to settle all of your obligations with creditors and file your income taxes. This will also apply to inheritance or estate taxes as well.

5. Inventory your assets and plan for their distribution

An executor will make the decision of what assets will go to probate court and what assets will not be taken to probate. This will include property, financial accounts or investments that do not have a requirement to go through probate. This can be due to the fact that the account is a joint account or that it is held in a trust that you established. As the executor you will also determine what items to be sold, kept or discarded. A lot of times these are decided according to the will.

6. Distribute your assets among your beneficiaries

This is done after all of the bills and taxes have been paid and are up to date. As the executor, you will divide the assets according to what is instructed in the will.

7.Complete the final accounting, and all required forms

This is the final step for the executor. The executor will dissolve any of your existing accounts and check that the court has everything it needs to complete your estate settlement.

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Tulane Is Expanding When It Comes to Housing

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This fall two new residence halls opened that were part of a $185 million project for student housing. The complete project that the dorms are part of, will house around 697 more students on campus. Hopefully, this will save some of the places close to campus.

The two new dorm buildings are called Lake and River and are located where Bruff Commons used to be. They both have single and two-person suites. They include a raised courtyard, student lounges, a space for event programming and a place to hold view parties. The 200-seat theater will be used as both a leisure space and lecture hall. On the ground floor between both sets of dorms will be a space called The Hub.

The total $187 million project is called The Village and first broke ground in 2020. “The whole purpose of this is to bring students back on campus. This is really intended to deepen the community here and really transform the whole undergraduate experience,” said Tulane University President Michael Fitts.

The project will also include replacing dorms Irby, Phelps and Paterson with two new residence halls. This means that there are only 153 beds that have been added this fall. Neighbors have had concerns for many years because Tulane has not invested in student housing, which has put a big strain on the surrounding neighborhood. “I’m glad that they’re finally doing something, but they’re playing catch up, ” said Keith Hardie, Maple Residents, Inc.

“We definitely value the importance of the uniqueness of our neighborhoods. So that’s part of the beauty of this project, that by constructing these new residence halls, we may be able to bring back those students who are in the neighborhoods, especially juniors,” explains Tulane Chief Operating Officer Patrick Norton.

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