Summary: The new year of 2020 welcomes home buyers in Washington State with continuing low interest rates. That welcome, however, is tempered as property prices rise and few new homes are added to the current inventory.
A new year brings new plans and new resolve to carry them out. Even though we are already a few months into 2020, the year is still young. A major goal of many Washingtonians is to buy a home in 2020.
Yet even when resolve is sturdy, prospective home owners must contend with current economic conditions as they are, not as they would like them to be. If economists are right — when they can agree at all, that is — the new year holds out promise while simultaneously posing challenges. The cost of financing is predicted to be very affordable; sale prices are forecast to rise; and the total inventory of available houses is expected to remain modest.
Interest Rates and the Cost of Borrowing In Washington
It may seem elementary to observe but lenders do not profit by simply collecting their own money back from borrowers. In essence, they rent their capital out by charging interest. A quick comparison of advertised rates in the Seattle Times or the Spokesman-Review might leave house shoppers scratching their heads. They all seem to be the same.
This similarity is because banks calculate based on the Federal Funds Rate and the Prime Lending Rate, two standards both established by the Federal Reserve System Board of Governors. The former is the rate that banks can charge each other — yes, banks borrow from other banks — and the latter is what lenders can apply to customers with excellent credit and income profiles as well as 20 percent equity.
Of course, lenders are free to charge higher rates, and do in many cases. Still, when the aim is to make a profit without losing competitiveness, they do not generally veer too far from the Fed’s baseline. A high demand for loans can allow for higher annual percentage rates, as can less than superior credit, for example.
The overall economy also comes into play. Considering the current health crisis plaguing the state of Washiongton, the nation, and the world, economic uncertainty remains rampant.
The Federal Reserve has already slashed rates, and economists do not expect rates to rise much in the coming months in an effort to protect the economy. The current mortgage lending rate nationally hovers at 3.3 percent for a 30-year fixed rate mortgage but many Washington state lenders come in slightly under that figure.
Home Sale Prices In Washington State
Meanwhile, as interest rates are on a downward trend, sale prices are increasing in Washington State and across the nation. Existing homes will sell 4.9 percent higher over the next 12 months, leaving the statewide median sales price at around $443,100 by April 2020. Two influencers are at work with this prediction. First of all, demand is anticipated to remain high. Additionally, the inventory of available houses is on the low side, making purchases very competitive in the coming year. For the initial quarter of 2020, at least, few Realtors see a decent increase in the number of listings. This means that sellers can be much more assertive with what they will accept for their properties.
The drop in housing starts last year keeps inventory that much lower. This is occurring on the local level, too. Seattle and its surrounding counties rank 10th nationally for overall real estate activity but this is principally in the area of commercial properties. Residential real estate ranks much lower against other metro areas around the U.S.
Absent a spike in home building, the hike in sales prices might last throughout the entire year, all other factors going unchanged. Spokane, presently enjoying a large influx of new residents, experienced this tight market through 2019 and its home values soared by year end. The question stands as to whether the pressure to build will reach a boiling point.
More Money Available to Buy a Home in 2020
Whether an incidental occurrence or a response to higher expected purchase prices, lenders will have the latitude to raise the maximum loan amounts. Fannie Mae (Federal National Mortgage Association) lifted its conforming loan limit in 2020 to $510,400 before jumbo loan pricing kicks in. Freddie Mac (Federal Home Loan Mortgage Corporation) did the same. These quasi-government corporations buy conventional loans from banks and finance companies which, therefore, comply to their parameters. With higher prices coming, more money helps buyers to stay in the game.
Government-backed mortgage loans are also bumping up their limits per borrower. Set by the U.S. Department of Housing and Urban Development (HUD), FHA loan amounts are capped higher in virtually every county in the state of Washington. Another guarantor of mortgages, the U.S. Department of Veterans Affairs (VA), now allows zero down payment options without having to adhere to loan limits. As of January 1, 2020, loan limits for VA loans have been eliminated (with exceptions for those who already have more than one VA loan or who have defaulted on these loans in the past).
Discharged military service people can now avail themselves of this expanded benefit. The U.S. Department of Agriculture (USDA) does not place administrative limits on loan totals for its rural development mortgage program beyond what its underwriters determine as borrower capacity to pay the lender back.
More First-Timers in Washington In the Fray
Among the competitors in the 2020 market are first-time home buyers. The credit agency TransUnion estimates that up to nine-million first-timers will begin looking for houses over the next two years. While millennials and Gen-Z types have a reputation for avoiding commitments, houses, apparently, are exempt from this inclination. The combination of low interest rates and rising wages may be responsible for this phenomenon, analysts believe. Even with high prices, recent securing of well-paying jobs for many young people now make ownership a viable option.
First-time home buyers are learning that the old mortgage shibboleths no longer apply. They have options even with a smaller down payment. Credit need not be stellar. Plus, they know that it is not always cheaper to pay rent than to pay down a mortgage. With greater clarity, new prospective home owners are more savvy than their predecessors of a generation ago.
They, nevertheless, must compete with more experienced buyers who might bring more money to the table and better know the tactics of contract negotiation. In the end, there will be more people vying for fewer available houses.
Line Up Financing Quickly to Get a Jump on the Competition
With a tight housing market in Washington, house shoppers need to assemble all of their resources in a fast and efficient manner. Getting a pre-qualification and researching mortgage products are the best steps with which to begin. Contact seasoned and knowledgeable loan officers for a quote and to discuss options without delay.
Need a Loan in Washington?
Will you need mortgage financing to buy a home in Washington? We can help. Sammamish Mortgage has been serving buyers across the Pacific Northwest since 1992. We offer a wide variety of mortgage programs in Washington, Oregon, Idaho, and Colorado. Please contact us today with any financing-related questions you have.
