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Demystifying Mortgage Rates: How to Secure the Best Deal for Your Dream Home

Homebuyer Education
Demystifying Mortgage Rates: How to Secure the Best Deal for Your Dream Home

The Housing Market Rollercoaster: My Love-Hate Relationship

Just like most people living in Sweden, I had to suffer through the challenges of the housing market. My love-hate relationship with real estate started when I rented a student room in Gothenburg and was forced to move three times within 9 months. A year later, I moved to Stockholm and struggled to find a place to rent all over again. Eventually, my boss knew someone who knew someone and saved me from the streets.

Three years later, I made the big decision to buy my own flat. Fast-forward four years, and I realized that my real estate investing bravado only led me to lose money when I sold the flat. Following the lessons learned, I decided to become a savvier investor and better research the market to spot the right opportunities.

I’m not alone in this journey. Housing is one of the hottest topics in Sweden, especially in Stockholm where property prices have been rising roughly 15% year over year. Even the uninitiated can understand that purchasing your own property makes more sense than renting, especially since mortgage rates have been super low in the past 10 years. However, if you lack the minimum deposit requirements to get a mortgage loan, you’ll have to battle the second-hand rental market to find a place to live.

In my quest to demystify the housing market, I discovered a solution that I hope will ease the pain of understanding the market and devising a property purchase strategy.

Hacking the Housing Market with Data

Potential property buyers in Sweden only have two opportunities to see a property – typically one on Saturday and another on Sunday, each visit lasting around 30 minutes. Can you feel the anticipation building up? Imagine how many people will be visiting the property together with you. The fear of missing out takes over as you realize you may lose your dream home to any of those tens or hundreds of other couples investigating, measuring, and photographing your future crib.

If you’re like me, you not only want to find a good place to live, but you also want to maximize the chances of making a good investment. Thus, you may have additional questions, such as:

“People say that one should spend 1 to 2 years researching the Real Estate Market before devising a purchase strategy. I tend to agree with this statement, provided there is limited historical data available and no good tools to help one make such an important decision in a short amount of time.”

Today, most buyers use two websites to search for properties: Hemnet and Booli. Despite these websites allowing historical analysis of sale prices, the information is only presented in a list format spread across several pages, not offering any easy way to download the underlying data in bulk to perform a more comprehensive analysis. As a consequence, following one’s gut becomes the default route.

To address this gap, I decided to build my first Tableau Web Data Connector. This allowed me to download not only the data for properties currently on sale but, more importantly, the historical sales data, enabling me to easily and quickly demystify the market and get answers to the questions that matter to me.

This was only possible thanks to Booli’s API, which allows users to download housing data when integrated into third-party applications. I’ve fetched some data with the connector and created a few visualizations that quickly helped me better understand the market as a whole within a few hours rather than months.

Uncovering Market Insights with Tableau

I’ve focused on the central Stockholm area, as this is where I wanted my next crib to be located. The dashboard I created provides interesting first insights about the market while displaying summary data of over 50,000 properties sold in Stockholm between 2011 and early March 2016.

You can access the interactive version of this dashboard on Tableau Public. To use the Booli Web Data Connector for free, simply start up your copy of Tableau Desktop or Tableau Public, choose the Web Data Connector, and paste this link (updated on 13 April 2018): https://alexeskinasy.github.io/booli-wdc. Type the city name (e.g., Stockholm, Nacka, Malmö), select between Live or Historical data, and you’re good to start deriving your own insights.

One of the insights I uncovered was the seasonality pattern for the 50,000 properties sold since 2011 in Stockholm. I instantly fell in love with this chart, as it clearly indicates that the supply of properties during the summer months (June, July, August) is much lower than the yearly average, and the average sale prices are also lower.

In other words, that’s shopping time! And please, never EVER try to sell your house during the summer or in December, as you will have to settle for much less. I actually made this mistake myself – I sold my first flat in July and lost a lot of money. As my estate agent claimed, “Supply is lower during the summer, so prices go up.” In reality, it’s the desperate ones who are selling during the summer, not the buyers.

Identifying Investment-Grade Properties

As I was having fika (a Swedish coffee break) with some friends, I asked if such a thing as “investment-grade” properties existed in Sweden. I’ve then learned that the value of a property is directly related to its location, as well as being identified as “Sekelskifte” – which means “turn of the century” in Swedish, basically anything constructed before between roughly 1850 and 1920.

To validate those claims of location and Sekelskifte driving prices with my own data, I firstly identified such properties on the map by coloring them using the following simple formula. I didn’t want to live in a one-bedroom flat or pay too high maintenance costs, so I needed to narrow the search down further with my personal requirements.

What I got was a confirmation that in order to secure a good investment and satisfy my personal requirements, I should limit my search to specific locations such as Vasastan, Norrmalm, and Östermalm. This came with the added benefit that I wouldn’t have to rush from one side of town to another to attend property showings.

Furthermore, I also wanted to confirm that people prefer older-type properties, Sekelskifte. Therefore, I’ve built a visualization showing price trends vs. construction year, where each bubble represents a property sold, and the red ones are Sekelskifte. The downward trend line clearly indicates that the newer the property, the lower the price. I would definitely recommend investing in a Sekelskifte rather than a Funkis (functional style, modern-type built after the 1920s).

Spotting Hidden Gems: Maximizing Your Bargaining Power

Let’s say you’ve followed my steps and have now devised your own purchase strategy. Next, you’ll be trying to apply this strategy on the live property data that you have just collected with the Booli Web Data Connector. However, applying your strategy on your dashboard ends up filtering out every item from the view, so you are left with no potential properties to buy. What do you do now? Should you change your strategy?

I would say if you can afford waiting, be patient and stick to your original strategy. Refresh the dataset every new week and see if a property that interests you shows up in your dashboard. Much patience, right? Yes, this is no different from stock trading, and arguably the best traders will not trade based on their gut but rather on facts.

With Tableau, you can start being a little creative and adventurous with your strategy and try spotting unique opportunities. For example, I’ve decided to analyze the impact of having a property listed for too long on the market, i.e., those that didn’t sell quickly enough. My hypothesis was that these properties would sell for less, potentially even lower than the listing price, translating into a negative Margin of Negotiation.

My hope was that this would even hold true for Sekelskifte properties. Earlier in this article, we saw that a property takes an average of two weekends to sell, or 18 days. I combined this metric with the Margin of Negotiation to create a visualization based on historical data that could potentially confirm we can really pay less than the listing sale price.

These two trend lines pointing down don’t lie. It doesn’t really matter if it’s a Funkis or a Sekelskifte – the longer it takes to sell, the higher the discounts one could achieve. There are even some Sekelskifte-type properties between 1 and 2 months to sell, offering a 25% discount.

There could be a number of reasons why these properties took so long to sell. Perhaps they were in really bad shape, presenting water leaks and mold, or located on noisy streets. But maybe there wasn’t anything wrong with those properties; other things may have contributed to a non-sale, such as poor-quality ads, the building’s door getting blocked, and very few buyers attending the showing.

Perhaps these are very large properties, say 200 square meters, but they only have 2 enormous rooms and 1 bathroom. One would expect at least 3 bedrooms and 2 bathrooms for a property of this size, so if you’re into property reprogramming, these could be one-of-a-kind chances.

Unlocking the Secrets of Mortgage Rates

While I’ve been focusing on demystifying the housing market, it’s crucial to understand the role of mortgage rates in securing your dream home. Mortgage rates are the interest charged on the loan you take out to purchase or refinance your home. Even small differences in this rate can result in substantial changes in the total amount you pay over the life of the loan.

There are several factors that influence mortgage rates, and they could be as big as the global economic climate or as small as the policies of a particular lending institution. By understanding the factors that impact mortgage rates, you will be better prepared to follow the ebbs and flows of mortgage rate trends and possibly secure a more favorable rate.

Some of the key factors that influence mortgage rates include:

  • Gross Domestic Product (GDP): A growing economy can lead to higher mortgage rates as the central banks work to ensure sustainable long-term growth.
  • Employment Data: Higher employment rates typically lead to higher interest rates as people spend more, and the Fed focuses on controlling inflation.
  • Inflation Trends: Lenders will often increase their margins on rates to stay ahead of inflation, as it erodes the purchasing power for both individuals and businesses.
  • Key Interest Rates: Central banks, like the Federal Reserve in the US, set the benchmark interest rates that influence the cost of borrowing money, including mortgages.
  • Monetary Policy Decisions: Policies aimed at stimulating the economy might involve lowering interest rates to encourage borrowing and investment.
  • Investor Sentiment: If investors believe central bank rates will rise, they will require higher rates to buy mortgage-backed securities.
  • Supply and Demand: A surplus of homes on the market may lead to lower prices and rates, while a shortage can drive prices and interest rates up.
  • Housing Starts: The number of new homes being constructed is generally a good indicator of the health of the real estate market, which can impact mortgage rates.
  • Banks’ Financial Health: More stable lending institutions can often afford to offer lower rates.
  • Competition and Operational Costs: The amount of competition among lenders and the inherent costs of lending and operation can influence the rates offered to consumers.

Charting Your Path to Homeownership

As we culminate our exploration of the factors that influence mortgage rates, it’s clear that the journey to securing the best mortgage rate is both complex and deeply nuanced. Understanding mortgage rates is pivotal in making informed decisions that can significantly impact the long-term cost of homeownership or the savings that can be realized through refinancing.

Throughout this article, we’ve examined the factors that impact mortgage rates, including the macroeconomic indicators like GDP, employment data, and inflation trends that dynamically influence them. We’ve broken down how central bank policies, real estate market health, and lender-specific criteria each play a role in shaping the rates you encounter.

It’s these factors, from global economic trends to the stability of your lending institution, that converge to determine the rates available in the market. In making informed choices about mortgage selection, it’s crucial to consider not only the current rates but how they play a role in your broader financial picture. It’s about understanding the timing, the terms, and how each piece fits into your long-term financial strategy.

With HaCC Housing, you’re not just securing a rate; you’re charting a pathway to financial wellbeing. As you navigate your own mortgage journey, remember that the optimal rate is one that aligns with your individual needs and circumstances. Stay informed, consult with experts, and consider the full picture of your financial health.

With the right knowledge and the right partner, you can unlock rates that not only save you money but also provide peace of mind and financial stability for years to come. Trust in HaCC Housing to illuminate the path to your successful mortgage selection. Your journey to informed homeownership starts here; count on us to be by your side, offering the insights and support you need to navigate the world of mortgage rates confidently.

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