In January, we published our annual Hottest Neighborhoods report, identifying the 10 neighborhoods in the country that we predicted would see fast growth in home values this year, based on Redfin.com user data and insights from local Redfin agents. Nine of the 10 neighborhoods in the January report are in San Jose.
Now we’re checking back to see if these California neighborhoods outperformed in home value growth as predicted. We’re also identifying the hottest three neighborhoods in the largest metro areas to close out the year.
To assess the accuracy of our predictions, we calculated median home sale price growth in each neighborhood between December 2017 and July 2018. If home prices grew, the neighborhood was confirmed “hot.” If home prices declined, the neighborhood was deemed “cool.”
Median sale price growth between December 2017 and July 2018.
Eight of our 10 picks for the Hottest Neighborhoods in 2018 were spot on with price growth above 5 percent between December 2017 and July 2018. Our top pick, Bucknall (San Jose), saw prices grow 6.2 percent during that period, and 89 percent of homes sold above their asking price. Our second pick, Cambrian (San Jose), saw 6.1 percent price growth.
Redfin Silicon Valley agent Kalena Masching is not surprised that these neighborhoods saw strong price growth. Masching believes that both Cambrian and Bucknall will continue to be hot neighborhoods.
“Especially as buyers are priced out of the peninsula areas, many of these neighborhoods offer relative price savings,” said Masching. “Bucknall offers a great community vibe. It’s very walkable and also has a desirable commute. Homes in Cambrian are more affordable relative to Bucknall and the nearby areas with similar amenities. New tech campuses moving into downtown and West San Jose provide Cambrian homeowners an easy commute without being right in the middle of the city.”
West Santa Clara (Santa Clara), Lakewood (Sunnyvale), and Rex Manor (Mountain View) all experienced price growth above 10 percent.
Masching explains, “Lakewood has been hot for years, especially with home prices about a million dollars less than nearby Sunnyvale West. Similarly, Rex Manor is significantly more affordable than the surrounding parts of Mountain View. It’s a great place to get your foot in the door if you’re under a $2 million budget and want to be in Mountain View.”
White Oak and Ortega were the two predicted hottest neighborhoods, where prices actually declined between December and July.
“I’ve noticed in Ortega that single family homes are staying on the market a lot longer. Additionally, almost all of the sales from May and June were townhomes and condos, which has a lowering effect on the prices” said Masching.
What Neighborhoods Are Hot in your Metro Area?
Below we’ve ranked the top three hottest neighborhoods in each major metro area so you can see what places in your city are likely to be the most popular among buyers for the remainder of 2018. These places were identified using our Hottest Neighborhoods algorithm, which ranks neighborhoods based on increases in favorites and visits to home listings on Redfin.com.
Consumers between the ages of 62 and 70 can earn up to 8 percent more in Social Security for every year they delay taking disbursements. Therefore, some homeowners in this age bracket are borrowing against their properties’ equity to fund their daily living expenses, hoping to push off taking Social Security benefits—a tactic some lenders even tout for retirees. But the Consumer Financial Protection Bureau warns that the costs and risks of such a financial strategy are too great.
The CFPB says the cost of a reverse mortgage tends to exceed its lifetime benefits, and withdrawing home equity could limit a person’s options when moving or experiencing a financial setback. “A reverse mortgage loan can help some older homeowners meet financial needs but can also jeopardize their retirement if not used carefully,” according to former CFPB Director Richard Cordray. “For consumers whose main asset is their home, taking out a reverse mortgage to delay Social Security claiming may risk their financial security because the cost of the loan will likely be more than the benefit they gain.”
However, some financial experts say it’s a more plausible option than people may think. Jamie Hopkins, co-director of the American College’s New York Life Center for Retirement Income, wrote in a past column for Forbes that the CFPB’s conclusion is wrong. “The CFPB’s analysis, misrepresentations, and inaccurate conclusions fail to provide a comprehensive review of potential benefits of Social Security deferral and proper use of home equity,” Hopkins wrote. “Instead, the report unleashed an overly broad and inaccurate censure that could hamper meaningful discussion.”
Tom Dickson, an adviser at Reverse Mortgage Funding, told HousingWire that the organization still considers this a strategy for some retirees. “We found that while financial advisers are interested in the idea, they have a very, very, very difficult time persuading their clients to defer their benefit,” Dickson says. “It’s certainly a solid idea. It’s just that in the marketplace, it’s not one that advisers have had a lot of success with in terms of client adoption.”
Foreclosures are disappearing from most community listings. Foreclosure filings—default notices, scheduled auctions, or bank repossessions—fell 6 percent in the third quarter, dropping to the lowest level since the fourth quarter of 2005. Foreclosure activity in the third quarter is now 36 percent below the pre-recession average of 278,912 properties with foreclosure filings, according to ATTOM Data Solutions’ latest report.
“A decade after poorly underwritten mortgages triggered a housing market crash, it’s clear that the foreclosure risk associated with those problem mortgages has faded—average foreclosure timelines have dropped to a two-year low, and the share of foreclosures tied to 2004-to-2008 loans has dropped well below 50 percent,” says Daren Blomquist, senior vice president at ATTOM Data Solutions. “The biggest foreclosure risk in today’s housing market comes from natural disaster events such as the twin hurricanes of a year ago. Foreclosure starts spiked in the third quarter in many local markets impacted by those hurricanes.”
Blomquist also notes they’re seeing modest but widespread foreclosure risk associated with Federal Housing Authority loans originated in 2014 and 2015. Areas like New York, Chicago, Atlanta, Miami, San Antonio, and Dallas-Fort-Worth, Texas, are seeing some of the biggest increases in foreclosures from such FHA loans originated in 2014 or 2015.
Overall, the metro areas with the highest foreclosure rates in the third quarter were Atlantic City, N.J. (1 in every 152 housing unit received a foreclosure filing); Trenton, N.J. (1 in every 236); Fayetteville, N.C. (1 in every 253); Peoria, Ill. (1 in every 299); and Philadelphia (1 in every 326).
Properties that were foreclosed in the third quarter are seeing a slightly shorter process. The foreclosure process is averaging 713 days, which is down from 899 days a year ago. The states with the longest average timelines for foreclosed homes are Hawaii (1,491 days); Indiana (1,295 days); Florida (1,177 days); Utah (1,170 days); New Jersey (1,137 days); and New York (1,092 days).
The 30-year fixed-rate mortgage hasn’t averaged this high since 2011, as it inches closer to the 5 percent threshold.
“Rising rates paired with high and escalating home prices is putting downward pressure on purchase demand,” says Sam Khater, Freddie Mac’s chief economist. “While the monthly payment remains affordable due to the still low mortgage rate environment, the primary hurdle for many borrowers today is the down payment and that is the reason home sales have decreased in many high-priced markets.”
Freddie Mac reports the following national averages with mortgage rates for the week ending Oct. 11:
30-year fixed-rate mortgages: averaged 4.90 percent, with an average 0.5 point, rising from last week’s 4.71 percent average. Last year at this time, 30-year rates averaged 3.91 percent.
15-year fixed-rate mortgages: averaged 4.29 percent, with an average 0.4 point, rising from last week’s 4.15 percent average. A year ago, 15-year rates averaged 3.21 percent.
5-year hybrid adjustable-rate mortgages: averaged 4.07 percent, with an average 0.3 point, rising from last week’s 4.01 percent average. A year ago, 5-year ARMs averaged 3.16 percent.
First comes the house and then maybe marriage or children, according to surveyed millennials detailed in Bank of America’s 2018 Homebuyer Insights Report, which was culled from 2,000 consumer responses. The survey finds that 23- to 40-year-olds value homeownership above nearly everything else: 72 percent call it a top priority compared to 50 percent who say getting married or 44 percent who say having children are top priorities. “Being able to retire” topped homeownership in the survey at 80 percent.
Most millennials equate homeownership with personal and financial success, the survey finds. They also say buying a home makes them feel mature (47 percent); act like an adult (47 percent); and feel independent (36 percent).
“Younger generations tell us that owning a home has become a milestone that defines their success, and it’s promising to see them aspiring to homeownership,” says D. Steve Boland, head of consumer lending at Bank of America.
Renters seem to be upbeat about buying, too, but several obstacles are delaying their plan. Nearly 50 percent of renters surveyed say they believe renting long-term will prove to be more expensive than buying a home, and 69 percent believe their rent will continue to increase every year or every other year. Renters acknowledge that their finances, however, are the top barrier to homeownership, citing the lack of down payment funds or not being able to afford the home they want as the biggest obstacles. Also, some myths to homeownership may be preventing renters from taking the plunge into homeownership. Forty-nine percent said they believe they need a 20 percent down payment to buy a home and nearly one in four believe they need a “perfect” credit score to qualify for a mortgage.
After an inspector has finished a home report, buyers may feel overwhelmed by any flaws that might have been found. That’s why it’s important they take the opportunity to learn more so that they can move forward confidently in the transaction.
A recent article at realtor.com® recommends home buyers ask their inspector clarifying questions like: “I don’t understand this; what does it mean?” or “Is this a major or minor problem?” and “Do I need to call in another expert for a follow-up?”
Home inspectors are bound to uncover something in a home; no home is perfect. But the majority of the problems they uncover will likely be minor. Have the home inspector clarify which problems fall within the “minor” or “major” categories.
Keep in mind: “The inspector can’t tell you, ‘Make sure the seller pays for this,’ so be sure you understand what needs to be done,” Frank Lesh, executive director of the American Society of Home Inspectors, told realtor.com®.
If the inspector identifies a potentially major problem, consumers will want to follow up whether they should call an additional expert in to investigate further. For example, consumers may need to bring in an electrician to take a closer look at potential electrical issues that were flagged or a roofer if a roofing problem is suspected. Those specialists can then give an idea of the cost to fix it, which the real estate agent can take to the seller to request a concession, if the seller doesn’t want to fix it prior to the sale.
Also, Lesh says that the list of items a home inspector identifies are issues the new buyer may need to address as soon as they move in. He says it’s like a “to-do list” for those items that did not get repaired by the seller prior to the sale.
Many buyers may be potentially leaving money on the table by failing to contact more than one lender when shopping for a mortgage. Two-thirds—or 65 percent—of 1,000 buyers recently surveyed said they didn’t shop around for a mortgage, despite it being the biggest purchase they’ll ever make.
The study, conducted by PenFed Credit Union, also found a lot of confusion surrounding mortgages. For example, 44 percent of home shoppers believe the best mortgage for them is always the one with the lowest rate.
“The lowest-rate mortgage isn’t always best and consumers should consider additional factors, including the total closing costs and the broader annual percentage rate,” according to the study. “It’s also important to choose a company you trust and consider one that you already have accounts with since it can simplify payments.”
Many consumers also believe being prequalified is the same as being preapproved, or they’re unsure of the terms, the study found. Being prequalified by a lender gives a buyer an idea of what they can afford, but being preapproved for a loan is the extra step that makes you a qualified buyer who can obtain financing for a home purchase.
The survey also found that a majority—58 percent—of surveyed Americans believe adjustable-rate mortgages are only for risk takers. However, lenders say that ARMs may be a viable option for homeowners who plan to stay in their home for less than five years. A 5/5 ARM has a fixed rate for the first five years, for example, and likely has a lower payment than a 30-year fixed-rate mortgage.
But by failing to shop around, consumers’ confusion over what mortgage is best for them may persist—and it could prove costly. A separate study earlier this year found that borrowers could potentially save an average of $1,500 over the life of a 30-year fixed-rate loan by getting just one additional rate quote when shopping for a mortgage, according to Freddie Mac. More quotes can offer even more savings—for example, 80 percent of borrowers who received one additional rate quote while shopping for a mortgage saved between $966 to $2,086 over the life of their loan. Borrowers who gathered five rate quotes saw an average savings of $2,914. Eighty percent of the borrowers who obtained five quotes saved between $2,089 and $3,904, according to Freddie Mac’s report.
Certainly, the best time to trade security deposits for a down payment is different for everyone.
But if you’re considering ditching the landlord for a mortgage, here are five things you need to know that’ll help you figure out if you’re ready to buy a home or keep renting.
#1 Your Down Payment May Not Be the Biggest Hurdle
Let’s not beat around the bush: Buying a home requires a substantial financial commitment.
There’s the down payment, of course. “On average, you want to have a minimum of 5% to 7% of the cost of the home you’re targeting,” says Jason Harriman, a REALTOR® with San Antonio-based Heyl Real Estate Group at Keller Williams Realty. Then, add 3% to 6% more for closing costs, which will vary based on where you live and what taxes your state and city require you to pay.
Tip: Keep in mind if you put down less than 20%, you’ll pay PMI, private mortgage insurance, which protects the lender in case of default. Usually, it’s about $50 to $200 a month. But once you reach a certain threshold on your loan to value ratio, you can cancel PMI.
A healthy credit history is also important. Most borrowers will start to qualify for a mortgage with a minimum score of 620 — but the most competitive interest rates will be offered to those with a score of 700 or above. So if you haven’t started practicing those good credit habits yet, it’s time to start developing them.
One of the trickiest hurdles for young adults, so many of whom are lugging around student loan debt, is the debt-to-income (DTI) ratio. Mortgage companies want borrowers to have a certain level of cash flow each month, and that means taking into account how much you’re paying out to other lenders. Ideally, a borrower’s debt-to-income ratio — how much you pay toward debt each month divided by your gross monthly income — should fall below 36%. (Strictly speaking, a loan is considered able to be paid if the DTI doesn’t exceed 43%.) If yours doesn’t, think about how you can get that debt needle moving in the right direction.
“The best way to do this is to pay off any unsecured debts like credit cards and personal loans, and keep them as close to a zero balance as you can,” says Harriman.
#2 You Probably Will Have to Compromise
Kathleen Celmins, who manages the personal finance site “Stacking Benjamins,” was financially prepared to manage a mortgage. But once the house hunting began, she quickly realized she was priced out of the homes she had envisioned for herself.
“I originally wanted a single-family home with a yard and in a great neighborhood,” she says. But given her price point, the homes she could afford ended up being in, well, not the greatest neighborhoods. “At one point, we looked at a property that was directly behind a strip club,” she laughs. “We didn’t even go inside.”
After several weeks of searching, Celmins realized she needed to find a middle ground. “In my price range, I could get a not-so-great house in a not-so-great neighborhood. Or, I could get a really cute condominium with a gas range and granite countertops,” she says. “It was something I compromised on. I gave up a yard for having fancy stuff in my condo.”
#3 Be Emotionally Ready for Financial Surprises
When it comes to renting, surprises don’t require much emotional investment. The rent goes up? You can move. The fridge is on the fritz? The landlord will send someone over. Home ownership is a bit more hands-on. If the toilet breaks, it’s time to start reading Yelp reviews. And if property taxes unexpectedly rise, it’s on you to appeal or pay up.
“My homeowners association fee doubled in the first year I owned my condominium,” says Celmins. “Then my real estate taxes were reassessed. My mortgage payment went up and I panicked. I didn’t even know that could happen.”
Of course, having the financial flexibility to cover those unexpected things is important, but don’t overlook the importance of having the mental and emotional capability of dealing with them responsibly when they arise. Everything could be peachy for months, and then three maintenance issues might spring up in the same week. Stress management and problem solving skills are home ownership biggies.
#4 A Mortgage Can Be Cheaper Than Rent
Depending on the home you choose and where you live, you may pay a lower mortgage than you paid for rent. But even if you don’t, there’s still the financial advantage of building equity in your home, instead of lining your landlord’s pockets.
#5 Your Lifestyle May Call for Buying Instead of Renting
Many people find a rental can only take them so far. When you’re ready to start a family, you’re going to want a few extra rooms, and that can get expensive with rising rental rates. A yard also provides a safe place for Junior to play or for a dog to scamper around. And speaking of Fido, the vast majority of renters have trouble finding a place that will allow for their pet. Home ownership can end that stress for good.
Then there are the renovations. If you’re itching to test out your DIY skills and personalize your space, you’re probably ready to own. Landlords who allow property renovations — especially DIY projects — are few and far between.
Buying a first home is a big change — both from a financial and an emotional perspective. Still, for many, home ownership can be one of the most rewarding life choices one can make. “Turns out it’s awesome,” said Celmins. “I love it so much.”
The number of homes for sale in the country is starting to flatten, which realtor.com® researchers say is signaling a “crucial inflection point for the inventory crisis.” Inventory has decreased slightly by 0.2 percent from a year ago, but is poised for an increase in the months ahead due to an 8 percent increase in new listings. This marks the largest annual jump since 2013, according to a new report from realtor.com®.
“After years of record-breaking inventory declines, September’s almost-flat inventory signals a big change in the real estate market,” says Danielle Hale, chief economist for realtor.com®. “Would-be buyers who had been waiting for a bigger selection of homes for sale may finally see more listings materialize. But don’t expect the level to jump dramatically. Plenty of buyers in the market are scooping up homes as soon as they’re listed, which will keep national increases relatively small for the time being.”
Properties continue to sell at a fast pace. Homes for sale sold in an average of 65 days, which is four days faster than last year.
But home prices aren’t rising as fast. The U.S. median list price was $295,000 in September, a 7 percent increase year over year, which is lower than last year when 10 percent increases were more the norm.
Overall, larger cities are seeing some of the biggest increases in listed properties. Twenty-two of the largest 45 markets saw year-over-year inventory increases in September. The five markets with the largest jumps in For Sale signs were: San Jose, Calif.; Seattle; Jacksonville, Fla.; San Diego; and San Francisco. All five of these markets posted increases of 31 percent or more.
Mortgage Rates Drop Slightly for First Time in 5 Weeks
October 5, 2018
Borrowers saw a slight cool down in mortgage rates this week following last week’s seven-year high. The 30-year fixed-rate mortgage dipped for the first time after five consecutive weeks of increases, averaging 4.71 percent.
But the higher rates may be deterring some would-be home buyers. “The strength in the economy has failed to translate to gains in the housing market as higher mortgage rates have contributed to the decrease in home purchase applications, which are down from a year ago,” says Sam Khater, Freddie Mac’s chief economist. “With mortgage rates expected to track higher, it’s going to be a challenge for the housing market to regain momentum.”
Freddie Mac reports the following national averages with mortgage rates for the week ending Oct. 4:
30-year fixed-rate mortgages: averaged 4.71 percent, with an average 0.4 point, falling slightly from last week’s 4.72 percent average. Last year at this time, 30-year rates averaged 3.85 percent.
15-year fixed-rate mortgages: averaged 4.15 percent, with an average 0.4 point, decreasing from last week’s 4.16 percent average. A year ago, 15-year rates averaged 3.15 percent.
5-year hybrid adjustable-rate mortgages: averaged 4.01 percent, with an average 0.3 point, rising from last week’s 3.97 percent average. A year ago, 5-year ARMs averaged 3.18 percent.
