Homebuyers are ARMing Themselves

Lemme guess, there's a high probability that one of your New Year Resolutions was to buy a home this year? or maybe save a little bit more money for a down payment?

But you haven't because YOU can't catch a break; home inventory has been low, interest rates have nearly doubled this year, home prices are still strong, rents are still increasing, and not to mention, the cost for EVERYTHING has gone up?!! (Have you seen the price for a Brisket now-a-days?!)

Homebuyers are getting beat up this year and the popular question I get now-a-days, is, how are people still able to afford a home in this market!?

Before I dive into that answer, let's figure out where we are at

Consumer Price Index (CPI) Data

Earlier this month the July Consumer Price Index (CPI) was released and that report gave us a ton of information on the State of the economy--In a general sense, this report is a measure of how expensive everything is, compared to last month and last year for goods and services.

The July CPI showed that overall inflation increased year-over-year to 8.5% compared to July 2021...meaning good and services are now 8.5 cents more expensive for every $1 spent compared to this time last year.

It also showed that rents rose up 5.7% higher year-over-year, or up $85/month assuming $1,500 rent and $114 if your rent is $2,000!! ---that's almost a full tank of gas right now!

...and more than likely higher especially if you live in Houston!

Energy prices dropped 7.7% from just a month ago (yay!) but still a whopping gain of 44% compared to this time last year! ...not looking great, right?

But, that is where we are at today...now to answer the question:

How are people still able to buy homes with rising rates?

Well, all the factors I just mentioned have a short term "dire" outlook for the economy versus the outlook for the longer-term and that short-term outlook is creating some opportunity for savvy homebuyers borrowing in this environment

SO- with that said, shorter-term fixed rates (hint, hint) are now well below the longer-term fixed rates mortgages....aka the 30-year mortgage.

What does this all mean?

It means that clever homebuyers are are "ARMing" themselves with shorter-term fixed options compared to their 30yr fixed cousins and by "ARMing" themselves, it's setting them up for homebuying bliss!

Now wait just a mortgage minute Are you suggesting Adjustable Rate Mortgages? Those are snake-oil loans!

....that's pretty much the response I get when I mention ARMs....ARMs are NOT the devil, Bobby Boucher, and before you change the channel, or call me a loan huckster, hear me out a bit.

If you think about it, every home owner that has a mortgage has an adjustable rate mortgage -- the terms at which the rates are fixed, are different.

Even a 30-yr fixed rate is adjustable once the initial term expires, it just so happens, the initial term is 30 YEARS!!

The main question is, why would you lock in the LONGEST-termed rate if you don't plan to be in your house for 30yrs?

So let's answer the question, how long do you plan to be in your house? 30yrs? 10yrs? or maybe 5 to 7 years?

Even if you answered 30yrs you still might want to take a read because both 30yr fixed and 10yr fixed ARMs are amortized over 30yrs, meaning, your payment with either option is based on the 30yr period by regular payments on the borrowed money.

So, if both options are amortized over 30yrs, and if your timeline is projected to be less than 10yrs, why would a calculating home buyer lock in a rate till 2052 and NOT look into their shorter-term, 3, 5, 7, or even 10yrs fixed rate options?

As of late, the shorter-term fixed rates are almost a full 1% below where a similar loan profile would be compared to their 30yr fixed step-brother, that full 1% rate difference, automatically adds $$ to your bank account month-over-month and year-over-year!

Take that inflation!

In matter of fact, commercial lending deals are wholly based on ARMs to give businesses flexibility to pivot in the market, as the market changes.

Being creative, keen, and flexible in this market will be key to accomplishing your goal of homeownership.

BOTTOM LINE: With rates expected to increase yet again in late September, recent CPI data showing us that inflation still hasnt' been tamed, and with the cost of good and services still increasing, homebuyers now have a fighting chance to buy a home by ARMing themselves.

As we see real estate inventories slightly rising (finally) looking into an adjustable rate mortgage could be a great tool to keeping your purchasing power high, and your monthly budget low, all while giving you the flexibility you need based on your timeline in a home

That will do it for today, thanks so much for reading, stay tuned for my next article and remember...

I loan it. So you can own it! Until next time!

...and if you plan to be in your home for 30yrs, can you at least update the kitchen and bathrooms before you sell it -- the homebuyer in 2052 will thank you ;)

Ralph Tapia is a Mortgage Loan Officer located in Houston, Texas.

I left the Oil and Gas Industry after 11 years before deciding to get my Mortgage Originator License and go full time. If you need home financing or have questions about financing in general, I'm just a phone call away.

RALPH TAPIA?| Sales Manager & Mortgage Loan Originator NMLS# 1420289 9811 Katy Freeway Suite 1025 Houston, TX 77024 C: 281.881.0612 [email protected]

Want to Get the Process started? APPLY here: https://www.cmgfi.com/mysite/ralph-tapia

CMG Financial, LP NMLS# 1820 | Licensed to do business in Texas | An Equal Housing Opportunity Lender | cmgfi.com