Housing Market: Fall 2022 Updates with Sentry Residential
by Lizann Lightfoot - October 7th, 2022
What is currently happening in the 2022 Housing Market?
Dan: First, I have to mention our Real Estate training program, which offers opportunities through the Military Spouse Employment Partnership (MSEP) and is available to service members and veterans too. You can register for the training program here.
Here’s my perspective on the Fall 2022 Housing Market. There’s no crystal ball in real estate, but there is great data we can use to make sense of what’s going on. So let’s talk about these 4 categories.
Prices in the 2022 housing market
Dan: Data is always lagging, but we are currently in a housing market price correction. June 2022 was the largest 1-month drop in home prices in 50 years. It was a 2% price drop in the month of June. This makes sense, because mortgage rates have been going up from 4.375% in May to 6.125% average by June 10th. That is the largest jump ever in our country’s mortgage rate. That means if you were paying $2,500 per month on a $500,000 mortgage in the month of May, that same value of mortgage would cost someone $3,100 in June. This is a dramatic change in your payments and costs. One of the contributing factors is that we’ve had a leapfrog effect of pricing for several years. Everyone raised prices higher than the comps because prices kept going up.
Now that the market is trying to correct, the max house costs have come down, and we are seeing rates come down as sellers get used to the new “normal.” For the past year, sellers could charge whatever they wanted. Now the buyers have more power over the prices.
New construction in many markets across the US have decreased their prices by 5-10%, which makes a huge impact on the overall market. There will be some markets where prices continue to drop, but we expect it to stabilize in most markets.
The good news for sellers is that the price drops are working, because most homes that have dropped their price have had offers within 30 days. So if you lower your price, your house won’t just sit on the market indefinitely.
Volatility in the 2022 housing market
Dan: Will your home equity continue to increase? Maybe. The pandemic home-buying hotspots had increases of 60-80% increase in value over the past 2 years. These were popular areas like Phoenix, Tampa, Riverside, Boise, Las Vegas, Nashville, and Jacksonville Florida. Those areas will probably see a home value decrease of 25-30% in the next year. That doesn’t mean don’t buy in those markets, but if you saw those prices go up, then be willing to wait or fight for a bargain.
Areas that saw slower growth, like Ohio, Pennsylvania, Massachusetts, Missouri, New York, Illinois, Indiana, Kentucky, Maryland, Virginia, will probably see a strong market in the next 12 months.
Housing inventory in the current market
Dan: Lowering prices is due to the fact that we are seeing more inventory than we were in the past few years. In March 2022, we only saw a total of 240,000 single-family homes available on the national housing market. Compared to 2 years ago, when that number was 1.1 million. That’s less than 25% of the normal inventory. In the past 5 months, that number has jumped up to 538,000 homes for sale nationwide. We’re still at about half of what we normal see in a healthy real estate market. There is still a seller’s advantage because of the limited inventory, but it is shifting back to a more neutral market. We’re seeing houses sitting longer on the
Mortgage interest rates in 2022
Dan: Do not confuse mortgage interest rates with the FED rate hikes. We have had some of the largest rate hikes in a row, and we expect another one in September. Those don’t directly correlate to an interest rate increase in your mortgage. They are more geared towards consumer spending, credit cards, etc. This is trying to correct the rising inflation rates. After the first FED rate hike, we saw mortgage rates drop, so there are other factors not directly tied to the FED.
When inflation is down to about 2% (which will take a while because it’s currently at 9%), then mortgage rates may shift more, but we will probably see conventional loans stay around 5-6% for the rest of this year (with fluctuations), and the VA Loan rates around 4.25-5.25%. Once things stabilize, we expect to see interest rates come back down.
When consumers have more confidence, rates usually go up, and buyers in the market go up. We expect the buyer pool to shrink in the next few months.
What does the housing market mean for the families PCSing this fall?
Dan: I’m in San Diego California, where last year rents went up by 30%. At least if you buy, you are in control because then you're locked in to a mortgage payment. People always ask, “Should I buy a home?” Ultimately, whether you should buy depends on where you are going, how long you will be there and what you’re going to do with that house when you leave. In some markets, it may make sense right now to rent or live on base.
If you aren’t going to purchase, at least use that time to your advantage. Save up to eventually buy a home. And educate yourself about the buying process, and know how the VA loan works, so you are ready when it makes sense to purchase.
Should I buy or rent a home?
Dan: This year, we may see BAH rates increase. (Calculate your current BAH or the BAH at your next military base here.) There are places you can buy near your base that you can then rent out, and that will become a cash flow to you after you move away. In places like San Diego, it’s harder to buy and don’t want to owe more than what the house is worth. Watch the markets, and make a decision on what is best for you.
You can use this Rent vs. Own Calculator to see which option makes the most sense for you when you are PCSing.
Sentry has compiled a series of short Military Homebuyer videos here, with instructions on how military families can use a VA Loan, find a real estate agent, and understand the homebuying process.
Advice to sellers in 2022
Dan: If I were going to sell right now, I would recommend getting a great real estate agent. Look at ratings and reviews (which I know you can do on PCSgrades). They will understand how to price your home competitively.
Be realistic about the price. The leapfrogging is over. It’s almost always better to be priced just under the market, because that will create a buyer frenzy and you will ultimately sell for a higher rate and on a better timeline than if you try to list the home above market price.
Next, be prepared for more traditional selling timelines. For the past few years, we saw homes selling immediately. We are moving closer to a 60-90 day timeframe for your house to sell. Don’t panic, there are still a lot of people out there who want to buy a home. It’s still going to be a good time to sell.
What should military families look for in a real estate agent?
Dan: First and foremost is experience. There are a lot of real estate agents out there. Agents who are experienced (the number of times they have gone through a transaction with a client). You learn something new from every transaction, so the more opportunities you have, the better you can navigate clients through whatever comes up.
Make sure you have a military-friendly agent who understands what a PCS is, knows how to view and calculate your BAH, and is prepared to walk you through all aspects of the VA loan. It’s a bonus if they have also completed a PCS and can sympathize with you about the process.
Finally, it’s important to have a good personal connection. You want them to be qualified, but you also have to like them, respect them, and want to make a major decision with them. We make sure our agents at Sentry are experienced and can do a great job of serving military members and veterans.
Types of home loans for military families
Susan: If you are a service member or veteran, I will recommend the VA loan most of the time, but not all the time. Conventional Loans are also important to you. The VA Loan allows you to purchase a home you will live in, but conventional loans allow you to buy a rental property, 2nd home, vacation homes, or a primary residence.
This is a great time because there are more quality loan options available today. Conventional loans can be for 10 years, 15, 20, or 30. The shorter the term, the lower interest rates you will have available. For the past two years, our government had to artificially keep interest rates low so our economy wouldn’t crash during the pandemic. Now that rates are readjusting, there are homeowners who can no longer qualify for certain homes.
We don’t have to use the 30-year fixed all the time. A hybrid ARM is an Adjustable Rate Mortgage that offers a fixed rate for the first 5 or 7 years before it becomes variable, and these are usually at a lower rate. If you are a military family who will move in a few years, you can take advantage of the lower rate of the ARM.
Conventional products have so many different options available to fit your life or properties. There are wonderful first-time homebuyer options with lower down-payment options, there are fixer-upper or renovation loans, there are construction-to-permanent loans if you want to build your own home. If you don’t want to refinance your current interest rate, you could do a home equity loan that allows you to take advantage of your home’s value.
VA Home Loan benefits for military families
Susan: There are benefits the VA Loan has that other loans don't have. There are no loan limits, unlike the ceiling other lenders have. There is no down payment on a VA Loan, and the rates are often competitive. There’s a limit to the closing costs, and you can ask the seller to pay closing costs for you (which was unlikely in the past few years, but is becoming more normal again). If you get a VA Loan, and then rates go down next year, there’s a streamlined process for refinancing to help you get into lower interest rates. VA Loans don’t make you pay mortgage insurance, which you typically have to pay if you put less than 20% down on a conventional loan. This makes your monthly payment lower.
There is a VA Loan funding fee, which is usually absorbed into your loan amount, so it won’t impact your monthly payment much. And if you have a disability rating through the VA, you can get that funding fee waived.
VA home loan myths
Susan: People think you can only use your VA benefits once. That is not true! If you used the VA loan to purchase your current house, then sell that house, you can use the VA Loan for your next house.
Can you have more than one VA loan active at a time? It’s not normal, there are restrictions, but there are certain situations where it could happen. If both you and your spouse serve in the military, you could each use your VA eligibility loans on two different properties.
Can you use a VA loan on a rental property? No. However, if you have a VA on your current house and are getting transferred to another area, you can turn your current house into a rental property. But if you leave your VA loan active on that property (which is now a rental), then you will need to use a conventional loan to buy a house in the next market.
There are some misconceptions with the VA that you don’t need to contribute any money at all. It’s true that you don’t need a down payment with the VA loan, but there are still closing costs, and those are often around 3% of the total price. This often catches people by surprise because they expected to use the VA loan and get a home without any money. So you still need to save up for closing costs, even when using the VA loan.
Another misconception is that the Veterans Administration (VA) is the lender for these loans. No, the VA loan is a benefit that was created in the original GI Bill to help more veterans achieve the dream of home ownership. The VA loan is an agreement between lenders which says that if the veteran walks away from this house, the VA will help cover the expense that is incurred if the veteran walks away. Lenders will still consider the risk, and for higher price points they may require a down payment.
The final common misconception I see a lot is that condos are cheaper than homes. What I say is watch those HOA fees. When you add those fees into the monthly payments of the mortgages, the total often ends up being more than the mortgage alone for a single-family home. So do your research and consider all the fees when comparing purchasing a condo vs. buying a home.
Finally, know that rental rates have increased all over the country. This could be a great time to buy, because rentals have become so expensive. Do a side-by-side comparison when deciding to rent or to buy and where to invest your money.
Sentry offers a monthly VA loan class online for free. You can register for the next VA loan class here.
The Rapid Fire Round!
Should I stage my home?
Dan: Yes, you should stage your home, but that doesn’t necessarily mean a bunch of furniture. First, declutter your home, then ask an agent to help you decide which pieces to keep.
What is virtual home staging?
Dan: There is also virtual staging available through some photographers to help people visualize your home, and the photos are what encourage people to come and make a visit, even if it isn’t how the home looks right now. Ask your real estate agent to arrange and cover the cost of virtual staging.
What do I look for in a home if I plan to rent it out when I PCS?
Dan: Buy every property as if it is an investment, because you never know when you will need to move out of your “primary residence.” Use the site RentoMeter.com to see if you can cover the mortgage with the cost of rent. You can also do research on Zillow. Buy a home in a good area, in as good of condition as you can. Be prepared to do some work on it, but a good property management company can help you with that.
What makes Sentry unique?
Dan: It’s our people. What makes a great company great is all about the caliber of the people within it. We really do live to serve those who serve to live. We support a really unique group of home buyers because we really want to support military members and improve their lives for generations through homeownership.
Our Guests: Daniel DeVille, CEO and Co-founder of Sentry Residential
I’m part of 8 generations of military, grew up in a military family with my dad as a Vietnam Air Force veteran. I have been a serial entrepreneur, running several companies. I wanted to connect my heart back to service, which I was able to do in 2018 with Sentry Residential. It is the first nationwide brokerage set to serve military members and veterans. About 90% of our agents are former military, active military, or military spouses, so they know what it’s like to walk a mile in your shoes. We live to serve those who serve to live, and also help veterans moving into the next stage of life.
Susan Lenaway, Vice President of Mortgage at Pennymac
I’m a military “brat” and have always lived either on baes or right near a base, including right now where I am just outside of Camp Pendleton. I have over 30 years of experience in the mortgage industry.
Lizann Lightfoot, the "Seasoned Spouse" is a professional writer and speaker for the military community. After two decades with her service member, her family has been through 7 deployments and 6 PCS moves. Lizann has raised 5 children and published several books for military families. Her most recent book is "Open When: Letters of Encouragement for Military Spouses" published Sept 2021 by Elva Resa. You can find Lizann's articles and resources at SeasonedSpouse.com
