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East Tennessee Real Estate & Neighborhood Source

Unlocking Opportunities: Exploring the Modern Era of Adjustable-Rate Mortgages

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Cast your mind back to the real estate turbulence of 2008, a time when adjustable-rate mortgages (ARMs) commanded the spotlight. Fast forward to today, and ARMs are experiencing a resurgence in popularity among both seasoned homeowners and first-time buyers. Let’s delve into the reasons behind this shift and lay to rest any concerns it might evoke.

A visual representation of data from the Mortgage Bankers Association (MBA) serves as our guide, illustrating the gradual rise in the prevalence of adjustable-rate mortgages over recent years:

As the graph demonstrates, the landscape shifted from approximately 3% of all mortgages in 2021 to a notable increase in ARMs usage last year. The rationale behind this uptick is quite straightforward. With mortgage rates undergoing a significant climb, homeowners found solace in the ARMs option. The allure was simple: ARMs provided a way to secure lower interest rates in a climate where conventional borrowing costs were peaking.

Now, let’s debunk any misconceptions right away – the ARMs of today are not the same as the ones that contributed to the 2008 housing crisis. A pivotal factor behind that crisis was the lax lending standards prevailing at the time. Borrowers could obtain ARMs without substantiating their employment, income, or assets – a recipe for financial instability. This approach landed many homeowners in hot water, as they grappled with loans they were never truly qualified for.

In this iteration, lending standards have undergone a transformation. The financial sector has heeded the lessons from history, implementing stringent verification procedures for income, assets, and employment. In essence, modern-day borrowers are required to qualify for their loans, establishing their capacity to repay.

Archana Pradhan, an Economist at CoreLogic, elucidates the evolution:

“About 60% of Adjustable-Rate Mortgages (ARM) originated in 2007 were granted with minimal or no documentation… Similarly, in 2005, 29% of ARM borrowers had credit scores below 640… At present, nearly all conventional loans, including both ARMs and Fixed-Rate Mortgages, mandate comprehensive documentation, amortization, and are extended to borrowers with credit scores above 640.”

To make this crystal clear, let’s put it in layman’s terms, as described by Laurie Goodman at Urban Institute:

“The Adjustable-Rate Mortgages available today carry no more risk than other mortgage products, and their lower monthly payments could potentially widen access to homeownership for a larger pool of prospective buyers.”

For those concerned that today’s ARMs might resemble the previous crisis triggers, take comfort in knowing that the dynamics have shifted significantly this time around.

And for those venturing into the realm of homeownership for the first time, seeking viable lending options to navigate today’s affordability challenges, consider reaching out to a trusted lender. They stand ready to guide you through the intricate landscape of modern real estate financing.”

The Average Homeowner in Tennessee Gained $53,000 in Equity over the Past Year

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When you think of homeownership, what’s the first thing that comes to mind? Chances are you might focus on the non-financial benefits, like the security or stability that a home provides. But what about equity? While it can be overlooked, a homeowner’s equity helps build long-term wealth over time. Here’s a look at what equity is and why it matters.

For a homeowner, your equity is the current value of your home minus what you owe on the loan. So, as home values climb, your home equity does too. That’s exactly what’s happening today. There aren’t enough homes on the market to meet buyer demand, so bidding wars and multiple offers are driving prices up. That’s because people are willing to pay more to buy a home. Right now, this low supply and high demand are giving current homeowners a significant equity boost.

Dr. Frank Nothaft, Chief Economist at CoreLogic, explains it like this:

“Home price growth is the principal driver of home equity creation. The CoreLogic Home Price Index reported home prices were up 17.7% for the past 12 months ending September, spurring the record gains in home equity wealth.”

To find out just how much rising home values have impacted equity, we turn to the latest Homeowner Equity Insights from CoreLogic. According to that report, the average homeowner’s equity has grown by $56,700 over the last 12 months.

The Average Homeowner Gained over $56,700 in Equity over the Past Year | MyKCM

Curious how your Tennessee stacks up? Check out the map above and you’ll see our average is $53,000 in equity gained.

How Rising Equity Impacts You

If you’re already a homeowner in East Tennessee, equity not only builds your wealth, it also opens doors for you to achieve your goals. It works like this: when you sell your house, the equity you built up comes back to you in the sale. You can use those proceeds to fuel your next move, especially if you’ve decided your needs have changed and you’re looking for something new.

If you’re thinking about becoming a homeowner in East Tennessee, understanding the importance of equity can help you realize why homeownership is a worthwhile goal. It builds your wealth and gives you peace of mind that your investment is a wise one, not just from a lifestyle perspective, but from a financial one too.

Bottom Line

Whether you’re a current homeowner in East Tennessee or you’re ready to become one, it’s important to know how equity works and why it matters. If this inspires you to make a move, let’s connect to explore your options and find out what steps you need to take next.

Contact the Troy Stavros TEAM at CornerStone Realty Associates today at 865-999-0925.

The Importance of Home Equity in Building Wealth

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Homeownership has always been the first rung on the ladder leading to household wealth. As Freddie Mac recently posted:

“Homeownership has cemented its role as part of the American Dream, providing families with a place that is their own and an avenue for building wealth over time. This ‘wealth’ is built, in large part, through the creation of equity…Building equity through your monthly principal payments and appreciation is a critical part of homeownership that can help you create financial stability.”

Home equity is the difference between the current market value of your home and the amount you currently owe on your mortgage. To estimate your equity, subtract your mortgage balance from the market value of your home.

You can find what you owe on your mortgage by looking at your last monthly statement or by contacting your lender. If you need help determining the current market value of your home, just let us know and we can help!

Is homeownership truly a better path to wealth than renting?

Some argue that renting eliminates the cost of property taxes and home repairs. Every potential renter must realize that all the expenses the landlord incurs (property taxes, repairs, insurance, etc.) are already baked into the rent payment – along with a profit margin. You don’t save money by renting.

The Importance of Home Equity in Building Wealth | MyKCM

As proof of this, First American broke down the net worth of homeowners and renters by income categories. Here are their findings: Only one income category ($127-192K) has a higher net worth for renters over homeowners. Every other category shows that being a homeowner leads to greater accumulated wealth.

The Importance of Home Equity in Building Wealth | MyKCM

According to the latest Homeowner Equity Insights Report from CoreLogic, the average homeowner gained $17,000 in equity in just the last year. Here’s a breakdown of the year-over-year equity gain by state:

When can you cash in on your housing wealth?

Your home equity is part of your total wealth as a homeowner. The two most common ways homeowners can leverage their wealth are:

  • Selling
  • Refinancing

Selling: When you decide to sell your home, the equity you’ve built over time will come back to you in the sale. For example, if you paid off your $200,000 mortgage and sold your home for $350,000, you would receive $150,000 after closing. Plus, if you have lived in your home as your primary residence for 2 of the last 5 years, the profit you made on the sale ($150,000) is tax-free!

Refinancing: You can refinance your current mortgage and take out some of the equity you have accumulated. With today’s historically low mortgage rates, you may be able to take out substantial cash and keep your monthly payment the same. Thankfully, homeowners today are doing this responsibly and not repeating the same mistakes made in 2006-2008 when some cashed out their entire equity to purchase luxury items like new cars, lavish vacations, etc.

How can these options help homeowners?

During these difficult times, many households are struggling with their housing expenses. Homeowners, because of their equity, have better alternatives. Odeta Kushi, Deputy Chief Economist at First American, recently explained that homeowners financially impacted by the pandemic will not necessarily be faced with foreclosure:

“The foreclosure process is based on two steps. First, the homeowner suffers an adverse economic shock…leading to the homeowner becoming delinquent on their mortgage. However, delinquency by itself is not enough to send a mortgage into foreclosure. With enough equity, a homeowner has the option of selling their home, or tapping into their equity through a refinance, to help weather the economic shock.”

What might the future bring?

The Importance of Home Equity in Building Wealth | MyKCM

Most experts are calling for home prices to continue appreciating going forward. The Home Price Expectation Survey, a survey of a national panel of over one hundred economists, real estate experts, and investment & market strategists, indicates appreciation will continue for at least the next five years. Using their annual projections, the graph above shows the equity build-up a purchaser would potentially earn by buying a $300,000 home this January:

Bottom Line

Home equity, for most Americans, is the quickest way to build household wealth. That wealth gives homeowners more options during good times and in difficult situations.

Have questions or want to get the process of buying a home started? Call/Text me, Troy Stavros with CornerStone Realty Associates at 865-999-0925 today!

The Road to Homeownership in Knoxville [INFOGRAPHIC]

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The Path to Homeownership [INFOGRAPHIC] | MyKCM

Some Highlights

  • If you’re thinking of buying a home and not sure where to start, you’re not alone.
  • Here’s a map with 10 simple steps to follow in the homebuying process.
  • Let’s connect today to discuss the specific steps along the way in our local area.

Ready to get the process started? Call/Text me, Troy Stavros with CornerStone Realty Associates at 865-999-0925 today!

LIVE VIDEO: Home Equity Gives Knoxville Homeowners Options

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Homeownership is one of the best ways to invest in your financial future, especially as your home equity grows. Home equity is a form of forced savings that can work to your advantage as the value of your home appreciates. Across the country, home equity was increasing before the health crisis swept our nation, and it continues to grow throughout the year, giving sellers powerful options in this market.

According to the just-released Q2 Homeowner Equity Insights Report by CoreLogic:

“U.S. homeowners with mortgages (roughly 63% of all properties) have seen their equity increase by a total of nearly $620 billion since the second quarter of 2019, an increase of 6.6%, year over year.” 

Dr. Frank Nothaft, Chief Economist for CoreLogic, attributes much of the equity growth to rising home prices:

“The CoreLogic Home Price Index registered a 4.3% annual rise in prices through June, which supported an increase in home equity.”

As the map below shows, CoreLogic also indicates that home equity is increasing in every state:

“In the second quarter of 2020, the average homeowner gained approximately $9,800 in equity during the past year.”

Home Equity Give Sellers Options in Today’s Market | MyKCM

What Does This Mean for Sellers? 

When equity is rising, as it is today, you may have more invested in your home than you realize. Mark Fleming, Chief Economist at First American, notes:

“As homeowners gain equity in their homes, they are more likely to consider using that equity to purchase a larger or more attractive home – the wealth effect of rising equity. In today’s housing market, fast rising demand against the limited supply of homes for sale has resulted in continued house price appreciation.”

If you’ve been considering making a move – whether that’s to get into a bigger home or to downsize to a smaller one – it’s a great time to reach out to a real estate professional to learn how to put your equity to work for you. You may be in a position to pay that equity forward toward your next home purchase and afford it sooner rather than later.

Bottom Line

If you’re thinking of selling your home in Knoxville, let’s connect so you can take advantage of what the current market has to offer today.

Call/Text me, Troy Stavros with CornerStone Realty Associates at 865-999-0925 today!

U.S. Homeownership Rate Rises to Highest Point in 8 Years

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For nearly two months, most of us have been following strict stay-at-home orders from our state and local governments. It is a whole new way of life that has put our daily lives on pause. On the other hand, many of us have also found a sense of comfort by slowing down and spending time at home, highlighting the feeling of security that comes with having a much-needed safe place for our families to live.
The latest results of the Housing Vacancy Survey (HVS) provided by the U.S. Census Bureau shows how Americans place immense value in homeownership, and it is continuing to grow in the United States. The results indicate that the homeownership rate increased to 65.3% for the first quarter of 2020, a number that has been rising since 2016 and is the highest we’ve seen in eight years (see graph below):U.S. Homeownership Rate Rises to Highest Point in 8 Years | Simplifying The MarketWhy is the rate increasing? The National Association of Home Builders (NAHB) explained:

“Strong owner household formation with around 2.7 million homeowners added in the first quarter has driven up the homeownership rate, especially under the decreasing mortgage interest rates and strong new home sales and existing home sales in the first two months before the COVID-19 pandemic hit the economy.”

The NAHB also emphasizes the year-over-year increase in each generational group:

“The homeownership rates among all age groups increased in the first quarter 2020. Households under 35, mostly first-time homebuyers, registered the largest gains, with the homeownership rate up 1.9 percentage points from a year ago. Households ages 35-44 experienced a 1.2 percentage points gain, followed by the 55-64 age group (a 0.9 percentage point increase), the 45-54 age group (a 0.8 percentage point gain), and the 65+ group age (up by 0.2 percentage point).” (See chart below):

U.S. Homeownership Rate Rises to Highest Point in 8 Years | Simplifying The MarketHomeownership is an important part of the American dream, especially in moments like this when many are feeling incredibly grateful for the home they have to shelter in place with their families. COVID-19 may be slowing our lives down, but it is showing us the emotional value of homeownership too.

Bottom Line

If you’re considering buying a home this year, let’s connect to set a plan that will help you get one step closer to achieving your dream.