An Inside Look at the Housing Market with Compass Real Estate
With property sales on the rebound and mortgage interest rates at historical lows, aspiring homeowners might feel more pressured than ever to dip their toes into the housing market.
But, unlike dalgona coffee or making sourdough bread, trends and numbers alone shouldn’t dictate when a person buys a house.
SoFi Financial Planner, Brian Walsh, CFP® met virtually with Compass Real Estate sales manager Michael Schwartz to share insights into today’s housing market, as well as tips for first time buyers.
What Can National Trends Tell Buyers?
“Real estate is a lot like politics,” said Schwartz, who has spent more than a dozen years in the real estate world. Any voter poll will show who’s trending nationally, but diving deep into your local housing market will tell you what’s happening on the ground.
Depending on the makeup of the neighborhood voting body, the national front runner could be polling dramatically worse at the local level, or vice versa.
While high-level, national real estate numbers can shed some light on trends, buyers won’t know what’s happening in their market unless they look at local data.
It’s basic Economics 101: “Real estate is like any commodity on earth,” said Schwartz. “It’s dictated by the laws of supply and demand at that moment.”
The more current and local data a buyer can get, the better informed they’ll likely be of trends in their specific market.
Nationally, home sales jumped in the past month, but that doesn’t mean real estate is booming in every market. High-level trends only tell part of the story.
Additionally, the unpredictable nature of the pandemic has thrown a wrench in housing trends. Schwartz pointed out that while the country has faced things like the Great Recession, there’s no real data on how a pandemic can impact the value of homes.
“For decades, the primary driver of movement for a property has been schools,” Schwartz said. Right now, with kids about to be enrolled in e-learning, this aspect might not be a primary driver.
Likewise, things like commute time or access to local dining and hotspots might weigh less into home value factors than they did even a few months ago. Anecdotally, Schwartz mentioned friends and clients in his Bay Area market, self proclaimed city people, who moved out to the suburbs for more space during COVID-19.
The bottom line when it comes to data and trends right now is “We don’t know how people move in a situation like this,” Schwartz said.
What Should Buyers Look for in Local Trends?
To get a general idea of trends in a specific market, buyers could look at the number of homes actively on the market and number of home sales pending. “If there are 100 homes for sale in your community, and only five are pending, you’re in a buyer’s market,” Schwartz said.
Similarly, buyers should look at what they’re spending each month on rent compared to the estimated cost of a mortgage (including taxes and insurance and other typical costs). If the cost of rent trends close to the cost of a mortgage in a particular area, “it’s an almost necessitated logical conclusion to buy a home,” Schwartz said.
If buyers have already narrowed their search down to a specific neighborhood or street, they might want to consider pulling data regarding the notices of missed mortgage loan payments, Schwartz suggested.
This can be an early indicator of a foreclosure crisis in the neighborhood, which could lead to a decrease of surrounding property values.
Is It Time to Buy?
Housing trends in a local market are only part of the story when it comes to determining when it’s the right time for a person to purchase a home. First-time home buyers are encouraged to keep these financial considerations in mind as well, according to Schwartz:
• Consider closing costs. When buying a home, buyers can expect to pay an additional 2-5% of the purchase price of the home in closing fees. So, for example, if a buyer purchases a home for $250,000, they’ll likely pay between $5,000 and $12,500 in addition to the down payment when they close.
• Annual maintenance. Spending doesn’t stop once the contract is signed. Homeowners should expect to spend anywhere between 1-4% of their home’s value every year for basic maintenance and upkeep.
• Most home ownership is a long-term investment. Unless a person is flipping homes or is a real estate investor, they should probably look at the purchase of their home as a longer-term investment. “If you are getting a loan, this isn’t playing the market,” Schwartz said. Take a good look at finances, including savings and an emergency fund. While no one can predict the future, is purchasing a financially logical step right now for you?
From one-time costs to long-term budgeting and investing, there’s more to home ownership than the monthly mortgage payments. Considering all these factors is a good first step before starting the home search.
Ready to Buy? Check Out These Steps
Everyone’s journey to homeownership will be a little different, but most of them will start out the same way, said Schwartz. Before popping by the nearest open house:
• Look for pre-approval from a trusted lender. “Having money when you need it is essential to the process and you need to work with someone you trust,” Schwartz said. “Without a trusted lender, it’d be like going on a road trip without knowing what you’ll drive.”
A pre-approval letter from a lender lets agents know a buyer qualifies for a loan up to a certain amount and at a specific interest rate, based on their finances and credit history. Having a pre-approval letter typically shows agents and sellers that a buyer is serious about purchasing a property.
Buyers should work with a dependable lender that they trust. If a lender fails to provide financing in time, it could put a home under contract in jeopardy. Not only is it ideal to have pre-approval, but they potential buyers should work with a lender that they feel confident in to hold up their end of the deal.
• Work with a trusted agent. Buying a home is likely the biggest financial decision of a person’s life. To buy without the help of an expert, “I can’t conceive of that,” Schwartz said. An agent will not only help a buyer tour properties, but they should give valuable insight on the local marketplace, down to the specific neighborhood or street. They’ll be able to pull data and draw highly personalized insights.
Before pouring over listings online, take the time upfront to find an agent and get a pre-approval letter—these steps can help ease the rest of the process.
Thinking About Buying? Start Planning
Real estate insights and trends can help buyers understand what’s going on in their market, but ultimately the choice to purchase a home is personal. Savings, income, and long-term financial plans all factor into the decision about what’s best for them.
Beginning the journey to becoming a homebuyer? No one has to do it alone, especially SoFi members. SoFi members planning to buy a home in the future can take advantage of no-cost financial planning from SoFi’s team of financial planners.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.