As existing home sales soar, inventory dwindles and prices rise

By Sabrina Karl

Sales of existing homes are on a tear throughout the country, bringing already low inventories lower and driving sales prices up, according to the latest monthly report from the National Realtors Association.

September’s reading represents the fourth month in a row that existing home sales have risen, registering 9.4% higher than in August. In addition, last month’s sales eclipsed last September’s reading by almost 21%.

At 6.54 million units sold, it’s the highest level seen in 14 years, when 6.68 million were sold in May 2006.

Typically, sales begin to slow down at this time of year. But 2020’s historically low mortgage rates have driven significant numbers of buyers into the market. Meanwhile, the inventory of available homes has dropped 1.3% since August and more than 19 percent since last September.

The current imbalance between buyers in the market and homes available is the lowest on record, with inventory at the end of September dwindling to a 2.7 months’ supply. That’s less than half of the 6-month supply that’s considered to indicate a balanced market.

As a result, the median existing home price has been shooting up, from $271,500 in September 2019 to $311,800 this year, for an almost 15% gain. It’s the 103rd consecutive month that the median price has exhibited year-over-year growth.

The month-over-month and year-over-year sales increases were present in all four regions of the U.S., with the trend most pronounced in the Northeast. Median price increases were also observed in every region.

A slight pullback is starting to be seen, however, in the Midwest, South, and West. A week after releasing its existing home sales report, the Realtors published data on pending home contracts, a forward-looking indicator. Overall, pending contracts are down a modest 2.2% from August, with only the Northeast region showing a September increase.

A single credit card or more than one — What’s the smarter choice?

By Sabrina Karl

Perhaps you’ve heard about “credit card maximizers”, the folks who hold a dozen or more different cards to squeeze out the maximum rewards. At the other end are cardholders who have owned a single card for decades.

Which is the smarter strategy? As with many things, the best choice for most folks lies somewhere in between, with your own money management personality being the biggest determinant of the most beneficial approach for you.

At the extremes, it’s easy to see the pluses and minuses. Holding a single card makes managing payments and tracking expenses exceptionally simple. You also never have to choose which card to use.

But by holding more than one card, you can significantly boost how much you recoup from your spending. For instance, you could open a card that pays an attractive cash back rate on gasoline purchases and use it only for that. Other common categories that can be worth a new card are Amazon or Target purchases, dining out, or groceries.

Of course, going to extremes and continually opening additional cards to score new and better rewards can in theory allow you to earn as much as possible on every penny you spend. But it requires a lot more work to manage a stable of cards, their payments, and your decisions on which card to use.

On top of this, frequently applying for new cards will hurt your credit score, as will any missed payments because you can’t keep track of everything.

For some personalities, a single card is most appealing. Just be sure to occasionally review if you’re getting rewards well-suited to you. But for many spenders, the sweet spot is to hold a few different cards, with certain ones dedicated to specific easy-to-remember purchases, bringing more rewards to your bottom line.

Can I qualify for a mortgage if I’m self-employed?

By Sabrina Karl

Self-employment numbers are on the rise in the U.S., making it an increasingly frequent question of whether you can qualify for a mortgage without a steady employee’s income. Fortunately, the answer for many self-employed applicants is yes, though documentation requirements can certainly be a bit more work.

Rates can also be higher for self-employed applicants, but it’s not always the case. Many factors play a role here, and the good news is that several are within your own control.

The logic behind lenders being a bit more picky on this front is that they consider self-employment income to be less reliable than employed, W-2 income. However, a self-employed applicant who has run her own business profitably for several years will be looked upon differently than one who just started working for herself within the past year.

For those who have a co-borrower with steady W-2 income, the rate you’re offered may not be affected, and your odds of being approved are significantly enhanced. However, you won’t escape the extra paperwork requirements.

Unless, that is, you opt for a no- or low-documentation loan, which some lenders offer for those with hard-to-document income. As you might predict, however, these lower-paperwork loans come at a price, in the form of a higher mortgage interest rate.

That’s why it’s best for your bottom line if you can collect all the paperwork your lender requires, which will almost certainly include 1-2 prior years’ tax returns, and likely also a profit & loss statement for your business and recent business bank statements.

What isn’t different for self-employed applicants is that the conventional mortgage wisdom still applies: shop around for the best offer, and boost your approval odds and lower your rate by increasing your credit score, reducing debt, and considering a larger down payment.

Three choices on paying the costs to refinance

By Sabrina Karl

Just like taking out a new mortgage, refinancing involves transaction costs. From lender fees and title service to appraisals and possible discount points, closing costs will accompany any refinancing.

How much your refinance will cost depends on several factors, but most typically ranges from 2 to 5 percent of your loan amount. That means if your refinanced loan will be $250,000, you should expect costs of at least $5,000.

So how to pay for these? There are three main ways. The first is simply to pay out of pocket at the time you’re refinancing. Over the long term, this is generally the lowest cost option, as you won’t be financing those costs. But it can feel like the priciest choice if coughing up that much cash feels like a stretch, or isn’t even doable.

That’s why a popular option is to roll closing costs into the balance of the new mortgage. So if you had planned to refinance to a $250,000 mortgage, with closing costs of $6,000, you would instead take out a mortgage for $256,000.

Obviously you’ll pay interest on the $6,000 for the life of the loan. But since that’s a relatively small amount compared to the full loan, it can be a reasonable trade-off for not having to produce that cash at closing.

The third option is to ask your lender for a no-fee refinance. But the trade-off here is that your overall mortgage rate will go up, perhaps as much as a half percent. This will raise your monthly payment and can prove expensive over time, hitting home the reminder that there is no such thing as a “free” lunch.

Keep in mind that a hybrid approach is sometimes possible, such as paying for your appraisal out of pocket, but then financing the lender fees.

Mortgage rates continue to hit new lows

By Sabrina Karl

It’s been an eventful six months for mortgage rates, and the drama has yet to let up, providing ample opportunity for millions of home buyers and owners to still capitalize with a new or refinanced loan.

Let’s rewind to early February, when coronavirus fears in the U.S. were just germinating. Freddie Mac’s national weekly average of 30-year fixed mortgage rates dropped to 3.45%, the lowest the industry had seen in three and half years, when rates declined to 3.42% in October 2016.

But that was just an early sign of much more significant movement in the near future. Freddie Mac has been tracking its weekly mortgage average for almost 50 years, since 1971, and on March 6 of this year, the average dropped to its lowest reading ever, hitting 3.29%. The previous low was 3.31% in November 2012.

March’s “historic low” has not held onto its title, though, as the Freddie Mac 30-year average has delivered seven more all-time lows since then. Even more notable is that we have now dropped into averages below 3%, with Freddie Mac recording its first average below that threshold on July 16.

Then came last week’s reading, released as usual on Thursday. Dropping Freddie Mac’s historic low yet again, the average 30-year rate registered at just 2.88%.

It’s a far cry from the 3.60% average rate we saw last August. Or the 52-week high of 3.78% we saw at Halloween.

No one can ever reliably predict mortgage rates and how low they’ll go. But it’s possible we haven’t seen the bottom yet. Still, conventional wisdom on locking mortgage rates suggests securing a rate that is “in the neighborhood” of what will ultimately be the low, and being content there, as holding out for a lower rate may backfire if rates instead go up.