Key indicators for Western Washington housing still rising, but brokers detect slowdown and uncertainty

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Early seasonal snow and questions swirling around the tax plan unveiled last week by House Republicans could make the usual seasonal slowdown more pronounced, say industry leaders from Northwest Multiple Listing Service. For October, however, key indicators trended upwards.

Pending sales rose nearly 8 percent from a year ago, closed sales were up 5.2 percent, and prices jumped about 8.2 percent, with 14 counties reporting double-digit gains. Even the number of new listings improved on the year-ago total.

Northwest MLS figures for the 23 counties it serves show members added 8,466 new listings to inventory during October, outgaining the year-ago total of 7,575 by 11.8 percent. Buyers outnumbered new listings, with 10,586 of them having their offers accepted. That number of pending sales was up nearly 8 percent from the same month a year ago.

“The challenge for buyers actually isn’t lack of choice, it is the rapid pace of sales,” suggested Ken Anderson, president/owner of Coldwell Banker Evergreen Olympic Realty.

“The market in Thurston County has never been better for sellers, and they’re getting the message,” Anderson remarked. His analysis revealed a 10-year high for sellers coming to market during October. “These savvy sellers are not waiting until spring to sell. They are taking advantage of today’s great market and making their move now,” he reported.

Buyers may find themselves in a quandary as the year winds down as they contemplate limited supply, possible upticks in interest rates and tax reform. Last week’s announcement of a provision in a GOP tax proposal to cap the mortgage interest deduction is concerning to buyers, brokers and builders.

“Imagine if the proposed plan to cap the mortgage interest deduction at $500,000 is approved in a market that is starved for homes and where the median price [for a single family home in King County] is now $630,000,” said O B Jacobi, president of Windermere Real Estate. “Homeowners may be less likely to sell because they would be giving up their grandfathered tax credit on their current home. That’s fewer homes for sale in a market where we really need them,” he stated, adding, “There could also be a flood of new buyers trying to purchase before the plan is passed, adding to the already hyper-competitive market conditions.”

Northwest MLS data show 66 percent of single family homes sold so far this year (Jan. – Oct.) in King County had selling prices of $500,000 or higher.

Within King County prices are considerably higher. In Seattle, year-over-year prices jumped 17.6 percent, from $625,000 to $735,000. On the Eastside, the median price for a single family home rose 10 percent from a year ago, increasing from $768,000 to $845,000. Nevertheless, high prices did not seem to deter many house-hunters.

J. Lennox Scott, chairman and CEO of John L. Scott Real Estate, noted October was the “best ever for sales activity in the Puget Sound region. With a large buyer pool for each new listing, we saw a higher percentage of new listings sell within the first 30 days of coming on the market,” Scott reported, while also noting the seasonal change in housing market dynamics. “As we enter the winter market, the number of new listings being added will be in short supply from now through February,” he explained.

Inventory remains low in many counties in the Northwest MLS system. Overall, there is only 1.5 months of supply of single family homes and condos combined. In King County, it’s less than one month. Industry analysts say four to six months typically indicates a balanced (or “normal”) market.

Most brokers agree inventory will not grow over the next few months. “Sellers who bring their homes on the market over the next three months will have a lot of interest because of the pent-up demand of buyers who are going to have fewer houses to consider,” suggested Wilson.

“Homebuyers in our area are at a real disadvantage right now,” commented Wilson, a member of the Northwest MLS board of directors. “They have to be pre-underwritten with their lenders, put forward a conventional or better offer, put down substantial earnest money, and hope that multiple offers do not escalate the price out of their affordability zone.” He fears “more and more buyers will be sidelined.”

 

~Northwest Multiple Listing Service

 

 

 

Republican tax plan would hit Seattle, Eastside homebuyers dealing with pricey market

mortgage-calculator-tennesseeAspiring homeowners in the Seattle region, dealing with the hottest housing
market in the country, would be hit especially hard by the new GOP tax plan
unveiled Thursday.
The proposal would cap the federal mortgage-interest deduction at $500,000
for new-home purchases, down from the limit of $1 million. Basically, new
homeowners would only be able to deduct the interest on the first $500,000
of their mortgage.

This won’t impact most Americans because they don’t own homes that expensive. But it’s a big deal locally, where the median single-family houseselling today is worth $725,000 in Seattle and $855,000 on the Eastside.

Even with a regular down payment, lots of buyers here take out a mortgage
that’s over half-a-million dollars, and they would lose out on some of their
itemized tax benefits if the Republican tax plan passes.

The change wouldn’t apply to current mortgages — only new sales going
forward. And it wouldn’t impact anyone who takes the standard deduction,
which would nearly double under the tax plan, because the mortgage-interest
break is only used by people who itemize their deductions.

But the potential impact — combined with proposed limits on two other tax breaks, for home flippers and mansion owners — looks large. So far this year, 30 percent of all sold homes and refinances in King County used mortgages above $500,000. Looking at single-family houses, 36 percent of
new mortgages this year were above half-a-million dollars. Those rates are
likely to rise in future years as home prices here go up faster than anywhere
in the country.

More than 11,000 King County homebuyers so far this year took out a
mortgage over $500,000, including 4,500 in Seattle, 1,090 in Bellevue, 760
in Kirkland, 660 in Redmond and 560 in Issaquah, according to Attom. Most
of those are single-family houses, but also about 1,200 condos in Seattle,
mostly downtown.

Homes with mortgages over $500,000 made up half of new sales this year in
Sammamish, 35 percent in Bellevue, Redmond and Issaquah, and 29 percent
in Seattle. On the other end, less than 5 percent of new mortgages this year
topped half a million dollars in Tukwila, SeaTac, Kent and Des Moines.
The savings from the tax break can add up. Across the Seattle metro area, the
typical homeowner who used the deduction claimed $11,540 last year.
There are two other possible impacts from the tax plan that would serve to
make housing more unaffordable, said Windermere chief economist Matthew
Gardner.

First, homeowners could be less likely to sell, preferring instead to benefit
from their grandfathered tax credit on their current home. That would starve
a market of homes for sale at a time when inventory is at record lows.
Second, interested buyers might rush to purchase to be eligible for the tax
credit before the plan could pass, increasing demand during what is typically
a slow time of year. “The longer-term effects could be substantial,” he said.

He noted that homebuilders and other special-interest groups have or are
likely to come out against the plan, and called the proposal a “first stab at a
remarkably complex issue.”

The changes would impact people the most in the early years after they buy,
since mortgage payments initially are mostly interest, which is what the tax
break is used for.

Two other elements of the tax overhaul could cost local homeowners as well.
The proposal would also limit capital-gains-tax breaks on home sales.
Currently, homeowners can generally exclude from gross income up to
$500,000 profit on a home sale if they’ve used the house as a principal
residence for two out of the previous five years. The GOP proposal would
change that so the exemption would be applied only if people lived in the
home as their primary residence for five out of the prior eight years. And
they’d be able to use the exemption only once every five years, targeting
speculators and home flippers.

What’s more, the plan would cap property-tax deductions at $10,000. Most
locals wouldn’t be affected. The average homeowner in King County pays
about $5,600 in property taxes; even on expensive Mercer Island, the typical
tax bill is $8,800. But some owners of large homes have bills that top
$10,000; in Medina, the typical homeowner pays $15,200 a year in property
taxes, and on Hunts Point, where the typical home value tops $3 million,
homeowners pay $22,300 in property taxes.

~Mike Rosenberg, Seattle Times

The Gardner Report Third Quarter 2017 Western Washington

Matthew Gardner, Windermere’s Chief Economist just released his 3rd quarter 2017 forecast for Western Washington. Housing inventory is still very low and is unlikely to improve through the balance of the year. Washington State added 79,600 new jobs over the past 12 months and a growth rate of 2.4% – double the national growth rate of 1.2% There is a modest slowdown in growth as we are getting closer to full employment. Matthew Gardner predicts that Washington will add 81,000 new jobs in 2017. He believes Washington will continue to outperform the U.S. as a whole. Prices have risen 12.3% year over year. We are still experiencing a seller’s market with low housing inventory. Matthew predicts our current low mortgage rates will begin to rise moderately in 2018.

The Gardner Report  | Western Washington Q3 2017

The following analysis of the Western Washington real estate market is provided by Windermere Real Estate Chief Economist Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact me.

ECONOMIC OVERVIEW


The Washington State economy added 79,600 new jobs over the past 12 months—an impressive growth rate of 2.4%, and well above the national growth rate of 1.2%. However, as we anticipated in last quarter’s report, we continue to see a modest slowdown in the growth rate as the state grows closer to full employment. Growth has been broad-based, with expansion in all major job sectors other than Aerospace (a function of a slowdown at Boeing). Given the current rate of expansion, I am raising my employment forecast and now predict that Washington will add 81,000 new jobs in 2017.

Given the robust job market, it is unsurprising that the state unemployment rate continues to fall. The current unemployment rate in Washington State is 4.6% and we are essentially at full employment. Additionally, all counties contained within this report reported either a drop or stability in their unemployment rate from a year ago. I maintain my belief that the Washington State economy will continue to outperform the U.S. as a whole. Given such a strong expansion, we should also expect solid income growth across Western Washington.

HOME SALES ACTIVITY


  • There were 25,312 home sales during the third quarter of 2017. This is an increase of 3.6% over the same period in 2016.
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  • Clallam County maintains its number one position for sales growth over the past 12 months. Only four other counties saw double-digit gains in sales. This demonstrates continuing issues with the low supply of listings. There were modest declines in sales activity in six counties.
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  • The market remains remarkably tight with listing inventory down by 14.2% when compared to the third quarter of 2016. But inventory is up a significant 32% compared to the second quarter of this year. Pending sales rose by 5.2% over the same quarter a year ago, which suggests that closings in Q4 will still be robust.
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  • The key takeaway from this data is that inventory is still very low, and the situation is unlikely to improve through the balance of the year.
Annual Change in Home Sales

HOME PRICES


  • Given tight supply levels, it is unsurprising to see very solid price growth across the Western Washington counties. Year-over-year, average prices rose 12.3% to $474,184. This is 0.9% higher than seen in the second quarter of this year.
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  • With demand far exceeding supply, price growth in Western Washington continues to trend well above the long-term average. As I do not expect to see the new home market expand at any significant pace, there will be continued pressure on the resale market, which will cause home prices to continue to rise at above-average rates.
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  • When compared to the same period a year ago, price growth was most pronounced in Grays Harbor County where sale prices were 20.1% higher than the third quarter of 2016. Nine additional counties experienced double-digit price growth.
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  • Mortgage rates in the quarter continue to test the lows of 2017, and this is unlikely to change in the near-term. This will allow home prices to escalate further but I expect we will see rates start to rise fairly modestly in 2018, which could slow price growth.
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Western Washington Heat Map
Annual Change in Home Sale Prices

DAYS ON MARKET


  • The average number of days it took to sell a home in the quarter dropped by eight days when compared to the same quarter of 2016.
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  • King County continues to be the tightest market, with homes taking an average of 17 days to sell. Every county except San Juan saw the days on market drop from the same period a year ago.
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  • This quarter, it took an average of 43 days to sell a home. This is down from the 51 days it took in the second quarter of 2016 and down by 8 days from the second quarter of this year.
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  • At some point, inventory will start to grow and this will lead to an increase in the average time it takes to sell a house. However, I do not expect that to happen at any time soon. So we remain in a seller’s market.
Average Days on Market

CONCLUSIONS


Market Speedometer
This speedometer reflects the state of the region’s housing market using housing inventory, price gains, home sales, interest rates, and larger economic factors. For the third quarter of 2017, I have left the needle at the same point as the second quarter. Though price growth remains robust, sales activity has slowed very slightly and listings jumped relative to the second quarter. That said, the market is very strong and buyers will continue to find significant competition for accurately priced and well-located homes.

ABOUT MATTHEW GARDNER


Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has more than 30 years of professional experience both in the U.S. and U.K.

Why It’s Now An Empty Nesters’ Housing Market

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There’s a mismatch in the housing market. Demand is rising, yet homebuilders don’t have the capacity to create the supply.  They haven’t banked as much land, they haven’t filed the permits and they’ve become increasingly short of labor—one possible byproduct of the Trump administration’s crackdown on illegal immigrants.

In fact, the nation is probably short about 700,000 homes on an annual basis. That explains why new home sales have been somewhat disappointing.

It also explains why sellers in many markets are now in prime position. According to Realtor.com, in December and January the supply of existing homes was 3.6 months, something that hadn’t happened since January 2005. In Seattle, for instance, the average time a house stays on the market is 36 days, compared with the national average of 90 days. In Dallas-Ft. Worth, it’s 42 days, according to Realtor.com.

Combine that with the prospect of higher-priced mortgages thanks to the Federal Reserve’s decision to begin lifting interest rates and it makes buyers a little more motivated. “We’ve seen home sales surge because buyers are beginning to realize there is this expectation that mortgage rates will rebound: you might as well get in now,” says Bernard Baumohl, chief global economist at The Economic Outlook Group. He says prices are rising at twice the rate of inflation and more than two times the rate of average hourly pay. That’s bad news on the affordability front for first-time buyers who are trying to get onto the first rung of the housing ladder.
Click here for more articles from Time Inc.’s Looking Forward series.

But it’s great news for empty nesters and other homeowners looking to downsize. Even better, there’s less of a supply constraint because developers have targeted the boomer market by building high service, luxury condominiums in major markets. And why not, says Peter Wells, a partner at Real Capital Solutions, which is developing a luxury condo tower in suburban Dallas: “When [boomers] sell their big place, they’re cash rich and it becomes all lifestyle driven.” Spring is a traditional time for buying and selling homes, and this season stands to be a busy one.

~Bill Saporito, Time

Economic News – Gardner Report 3rd Quarter 2017

Matthew Gardner, Windermere’s Chief Economist just released his 3rd quarter 2017 forecast for Western Washington. Housing inventory is till very low and is unlikely to improve through the balance of the year. Washington State added 79,600 new jobs over the past 12 months and a growth rate of 2.4% – double the national growth rate of 1.2% There is a modest slowdown in growth as we are getting closer to full employment. Matthew Gardner predicts that Washington will add 81,000 new jobs in 2017. He believes Washington will continue to outperform the U.S. as a whole. Prices have risen 12.3% year over year. We are still experiencing a seller’s market with low housing inventory. Matthew predicts our current low mortgage rates will begin to rise moderately in 2018.

WWA Gardner Report Q3, 2017

Was September the sign of a bigger market cool down?

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Statistics, especially month-to-month statistics, don’t always give the best indicator of the local real estate market.

For instance: The Northwest Multiple Listing Service has found that, in September, inventory reached 1.7 months of supply by the end of the month. September was tied with February for the high in supply for the year. (A balanced market has  four to six months of supply.)

Couple that with the $20,000 decline in the median sales price in King County to $565,000, and you’d get the sense that maybe some balance is coming back to the market.

Then again, listings often fall off by about 30 percent every September and October, compared to the spring and summer months. And in the winter, they drop off even more. Every price drop feels like a annual change.

“While prices for single-family homes and condos were up more than 14 percent annually in King County, it’s hard to ignore the $20,000 price drop between August and September,” said OB Jacobi, president of Windermere Real Estate.

“But if you look at the historic data more closely, it shows that prices have also dropped between August and September in five of the past six years, which points to a seasonal pattern rather than a long-term trend that we need to be concerned about.”

But that doesn’t mean it’s all negativity. Just because the market is slowing doesn’t mean buyers will be up a creek without a paddle, according to J. Lennox Scott, CEO and chairman of John L. Scott.

“The pressure cooker for the housing market continues as the typical seasonal market comes into play for new listings coming on the market,” Scott told NWMLS. “October will be the best month for selection and availability until late February.”

Get in while the getting’s good, Seattle buyers.

~Zosha Millman, Seattle PI

This is the Hottest Real Estate Market in the Country–by Far

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Home prices have been on the rise nationally since February, but no area of the country has seen a spike like the Pacific Northwest.

The price of single family homes in the Seattle area has soared 13.5% in the past 12 months. That’s more than twice the national average of 5.9%.

The median single family home in Seattle, as of August, costs $730,000 – though residents willing to brave the 1.5 hour (one way) commute from Snohomish or Pierce County can find a home for $455,000 or $313,000, respectively.

The numbers, from the monthly Case-Shiller home price index, show Portland in second place nationally, with an average 7.6% increase.

Demand for homes in Seattle has greatly outstripped supply, which has fueled the steep increases. And prices aren’t expected to drop anytime soon, since there’s not a lot of private undeveloped land left for builders to create new subdivisions.

The 12-month surge is the largest increase in Seattle housing prices since 2006, in the midst of the housing bubble. Since 2012, when the market bottomed out, average home costs have increased 79% – and they’re now 20% above their previous peak at the height of the bubble.

Chris Morris, Fortune

 

From Boeing to Microsoft, Amazon to Starbucks, how Seattle’s business innovation has shaped the world

Seattle businesses attract creatives with an irresistible combination of great jobs, outdoor amenities and a progressive workplace culture that now includes a $15-an-hour minimum wage. Great companies are the driving engine that grew Seattle into a booming creative mecca, and their forward-thinking CEOs – especially Microsoft’s Bill Gates and Amazon’s Jeff Bezos – are the city’s rock stars.


Here’s a look at how the most important Seattle companies grew, and how they continue to shape the city’s future.

The builders

Before The Boeing Co, company historian Michael Lombardi notes, Seattle was a logging hamlet. William E Boeing changed that when he founded his commercial aircraft company here in 1916, just two years after the first ever commercial flight. “Seattle and Boeing grew up together,” Lombardi says. As Boeing’s fortunes rose and fell, so did the city’s.

During the early 1970s, Boeing saw a big government contract end, and Seattle unemployment shot to 17%. One wag posted a billboard that read, “Will the last person leaving Seattle – turn out the lights.”

Boeing bounced back, thanks to its diversity. While most aircraft firms specialize in commercial planes, spacecraft or military projects, Boeing pursues all three, Lombardi notes. As China and other Asian nations visited to purchase planes, Seattle became a more international city. Today, Boeing has roughly 80,000 local employees, and the 20 to 50-year production timeframe for airplane models means Boeing brings economic stability to the region, he notes.

Another constant presence is 116-year-old Nordstrom. The chain grew to nearly 350 stores by making shopping special, with live piano music, in-store restaurants and legendary sales staff, who meticulously note and remember customers’ preferences.

“Nordstrom made Seattle the customer-service capital of the United States,” says Robert Spector, a longtime local business observer who has authored books on Amazon and Nordstrom, including The Nordstrom Way to Customer Experience Excellence (Wiley Sept 2017).

Ever an innovator, Nordstrom jumped into e-commerce ahead of competitors, in 1998. Last year, the company brought its store experience and website together with a Reserve & Try feature, which lets customers choose items online to try on at their local store.

A top Seattle style-setter, Nordstrom added more than a dozen exclusive labels to its remodeled downtown flagship store last year, including Louis Vuitton and Beyoncé’s Ivy Park. Nordstrom is one of the last department store brands to retain leaders from the founding family, notes author Spector. He says their success stems from the Nordstroms’ habit of making each new generation start on the sales floor.

While Nordstrom gave Seattle fashion flair, REI served rugged outdoor explorers. Founded in 1938, the company’s flagship store on Seattle’s Capitol Hill was a popular early tourist attraction for its then-rare selection of affordable mountaineering gear, says Alex Thompson, REI’s vice-president for brand stewardship and impact.

Today, REI doesn’t just sell gear – it’s about getting people outside, offering more than 250,000 outdoor classes annually, Thompson notes. The company’s new Force of Nature initiative facilitates women-led outdoor events, and is prompting gear-makers to design with women in mind.

With its co-op ownership model and commitment to sustainability, REI is about more than profits. An example: after opening a zero water and energy-use distribution center in the Arizona desert last year, the company made the plans public, so others could use them. Spreading the gospel, many former REI execs now lead other Seattle outdoor organizations such as The Mountaineers, while former chief executive officer Sally Jewell served as Secretary of the US Department of the Interior.

“There’s a strong correlation between working at REI and going off to do great things,” says Thompson.

The innovators

Seattle’s over-dependence on Boeing jobs ended in the 1980s, after Bill Gates and Paul Allen brought their software startup to town. When Microsoft Windows was introduced in 1983, it became an instant hit, ushering in the age of the personal computer. In 1986, the company settled into its Redmond campus, which now employs more than 46,000 people. Along the way, the ‘Microsoft effect’ brought affluence to the Eastside, which grew its own downtown in Bellevue.

“When I arrived in Seattle in the late 1970s, before Microsoft took off, it was still just a big town,” says Spector. “Now it’s a medium-sized city.”

One thing this chilly city loves is coffee. Howard Schultz saw Seattle’s potential for an Italian-style coffeehouse scene and bought the original Starbucks store in Seattle’s Pike Place Market in 1987. Suddenly, Seattleites couldn’t get to work without a $5 latte.

“I think the brilliance of Howard Schultz,” says MOHAI’s Garfield, “was that he took a prosaic item – regular coffee – and made it an essential luxury, and something that people are passionate about.”

While Starbucks exported Seattle coffee culture to more than 22,000 locations around the globe, the company also raised the bar on employee benefits. The chain offered full health benefits to part-timers in 1988, and added college scholarships in 2015. From recycled cups to ethically sourced beans, Starbucks strives to do well by doing good.

The disruptors

As the 21st century neared, a new breed of entrepreneurs arrived in Seattle. Leading the charge was former Wall Street internet project manager Jeff Bezos, who thought consumers would buy products on the internet.

From its first book sale in 1995, Amazon.com touched off an online shopping revolution. Locally, Microsoft executive Rich Barton would follow suit, spinning travel-booking website Expedia out of Microsoft in 1999, and co-founding real-estate site Zillow in 2006.

Amazon would also foster a new, results-oriented corporate culture that became the norm for local tech startups. Sure, kayak to work, bring your dog, and work when you want – as long as your projects get done. “My team set their own schedule,” says corporate communications manager Sam Kennedy.

It must be working: today, while many traditional retailers struggle, Amazon is hiring 100,000 more workers nationally. Locally, its hiring boom is single-handedly spiking home prices.

As Microsoft reshaped Seattle’s Eastside, so Amazon’s sprawling campus is transforming the once-industrial South Lake Union neighborhood north-east of downtown. Google is building a major branch office nearby, and restaurants, condos and shops have sprouted.

In all, Seattle’s companies bring the practical, progressive lifestyle not just to the city but to the world, says MOHAI’s Garfield. Visitors fly home in Boeing planes, on which they’re served Starbucks coffee. Often, they’re wearing Nordstrom dresses or hauling an REI backpack, while they shop on Amazon or use Microsoft Office on their laptops.

“Every iconic Seattle company is about our lifestyle, ethic and culture,” he says. “It’s hard to think of another US city where you can say that.”

~Carol Tice, The Drum

Real Estate Heat Index October 2017

The greater Seattle area is still experiencing a seller’s market. Although the market doesn’t seem as frenzied as it was in the spring, home prices continue to rise at a rate above the national level.

Click on the link below to view Seattle’s Heat Index for October 2017:

SEARE17_2017_10_16097

 

Five Steps to Take Before Buying a Home

When you’re considering buying your first home, you’re probably full of excitement about achieving the American dream. Unfortunately, this dream could turn into a nightmare if you haven’t made sure that you’re financially ready for the costs of becoming a homeowner. Before you call a realtor, take these five steps to get all your ducks in a row.

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1. Calculate what you can comfortably spend

The last thing you want to do is make yourself “house poor” by spending more of your income on a home purchase than you should. The “affordability standard” for housing is that you should spend no more than 30% of your income on housing costs (including insurance and property taxes), while many mortgage lenders prefer that your housing cost is no greater than 28% of your income.

Your outstanding debts can also impact the amount you can spend on a home. Most lenders want a total debt-to-income ratio — including your mortgage payments and other debts — to be around 36% or less, although you can still get a standard mortgage with a ratio as high as 43%.

This means if your income is $50,000, you could reasonably afford about $1,170 per month for your total housing costs if you stuck to the 28% rule — assuming you didn’t have a substantial amount of other debt that would push your total monthly payments above the recommended 36% of income. If we also assume you can pay 20% down and qualify for an interest rate of 4%, then you could potentially afford a home price of up to $250,000. That may or may not be a realistic price in your area, and you may want to aim lower if you have other sizable debts.

2. Save a down payment of 20%

In our example above, we factored in having a 20% down payment when calculating the price of the home you could afford. Paying at least 20% of the value of the home up front is vital, because it allows you to avoid private mortgage insurance (PMI). PMI insures your lender in the event that you’re unable to make payments and the lender must foreclose on you. On a $200,000 loan, PMI could cost you $100 a month or more, depending on how much you paid up front — and you could be paying it for several years.

You’re stuck with PMI until you pay your loan down to 78% or less of the home’s original value. Once you prove to your lender that you’ve reached that milestone, your lender is required to drop the PMI requirement. .

If you don’t have a down payment, not only will you waste thousands of dollars on PMI and additional interest payments, but you’ll also put yourself at substantial risk. When you make a 20% down payment on a home, the value of the house would have to fall more than 20% for the home to be worth less than you owe on it. If you only make a tiny down payment, however, even a slight downturn in the market could mean you’re underwater — i.e., your home is worth less than you still owe the bank. This makes it difficult or impossible to sell unless you can bring cash to the real estate closing for the difference between what your house sells for and what you still owe.

3. Save an emergency fund of three to six months’ worth of living expenses

When you’re a homeowner, you are responsible for everything that goes wrong in your house. Instead of calling a landlord when the furnace breaks or the pipes freeze, you have to call — and pay for — a repair man. If the problems are costly to fix, or can’t be fixed, you’re the one on the hook. If you don’t have money set aside to cover maintenance, repairs, and replacements, then you’ll have to use credit. You don’t want to be paying interest on your new fridge for the next 10 years, so make sure you have an emergency fund to cover the many costs of being a homeowner.

Not only can an emergency fund help you pay for surprise repairs, but it can also ensure that you don’t lose your home in the event that an illness, job loss, or other crisis puts a major strain on your household finances. If you cannot pay your mortgage because your income has taken a hit, you could be foreclosed on, lose your house, and end up with ruined credit. You don’t want this to happen, so save up enough money to pay the mortgage for several months in case something goes wrong.

4. Get pre-approved for a mortgage loan

When you have your financial house in order, it’s time to prove to the bank that you’re ready for the responsibility of taking on a mortgage. You want to get pre-approved by your chosen financial institution before you start shopping for a home. Getting pre-approved means you’ll have a clear idea of what the bank will lend you so you don’t shop outside of your price range. You’ll also be taken much more seriously by real estate agents and any potential sellers to whom you make an offer. Some sellers won’t even consider offers from someone who isn’t pre-approved, because there’s no way to know whether the financing will be available to complete the sale.

If you want your bids to be competitive and you want to know you’re shopping for houses that are priced right, provide your financial information to the bank before you start house shopping and get a pre-approval letter to take with you.

5. Find a buyer’s agent

Although you can technically buy a house without an agent, it’s usually a bad idea to try it — especially if it’s your first home. An agent can help you spot red flags that should send you running away from a prospective home. Agents know the market and can help you make a reasonable offer so you don’t overpay, and they can also guide you through the steps of the buying process, like getting a home inspection.

You’ll want to be sure you find a buyer’s agent, rather than letting the seller’s agent represent both you and the seller. A buyer’s agent is focused only on your interests and has lots of experience helping homebuyers find the house of their dreams. If you’ve already made sure you’re financially ready before calling a realtor, your agent can help you make the buying process low-stress and successful.