University of California Employees: Rising Rates Join Long List of Housing Dilemmas

Healthcare Provider Update: For the University of California, the primary healthcare provider is Kaiser Permanente, which is part of a network that offers comprehensive medical services to faculty and staff. They participate in programs designed to provide quality health care as well as manage costs effectively. Looking ahead to 2026, healthcare costs for University of California employees are projected to rise significantly. Premiums in the Affordable Care Act (ACA) marketplace are expected to increase sharply, with some states anticipating hikes exceeding 60%. This situation may result in more than 22 million marketplace enrollees facing increases in their out-of-pocket premiums by over 75% due to the potential expiration of enhanced federal subsidies. The combination of escalating medical costs and these subsidy changes will likely strain budgets and access, prompting employees to reevaluate their healthcare options for the upcoming year. Click here to learn more

While rising interest rates continue to remake the housing market, University of California employees must be vigilant about adapting their home-buying strategies and financial planning to limit short-term impacts on long-term financial goals, 'says Paul Bergeron, a representative of the Retirement Group, a division of Wealth Enhancement Group.

For University of California employees, knowing the bigger economic picture will help them navigate these rising mortgage rates and housing costs that will affect today and into retirement, 'says Kevin Landis, of the Retirement Group, a division of Wealth Enhancement Group.

In this article we will discuss:

• 1. Roaring mortgage rates & home prices affect University of California employees.

• 2. Limited inventory and rising costs are among the housing market challenges.

• 3. Strategies for first-time homebuyers and retirees about the current housing market.

Homebuyers who entered the hot U.S. housing market have seen a transformation. University of California employees must admit the average 30-year fixed mortgage interest rate jumped from about 3.2% at the beginning of 2022 to 5.3% in mid-May, the highest level since 2009. This increase came after the Federal Reserve raised the federal funds rate - a key benchmark for short-term interest rates - to combat some of the highest inflation in decades. As a University of California employee, you need to understand why these rates have fluctuated and what their future projections are.

Although mortgage rates aren't directly tied to the Fed funds rate, monetary policy dictates all borrowing costs. The yield on the 10-year Treasury is sensitive to changes in the federal funds rate and also depends on bond market longer-term expectations for economic growth and inflation. University of California employees can use this information to decide how to allocate funds to treasuries and other assets.

Housing Costs Are Soaring

You might be thinking how buyers have dealt with low inventory, bidding wars, and rising prices for almost two years now - as a University of California employee. The national median price of existing residences increased 14.8% last year to USD 391,200 by April 2022. Almost seven out of 185 metropolitan areas recorded double-digit annual price increases in the first quarter. Price increases in more affordable small and medium-sized cities outpaced those in more expensive metropolitan markets as more homebuyers took advantage of working remotely. University of California employees must account for these atypical gains to avoid buying property at an undervalued price.

The market conditions and home values may differ regionally and even by neighborhood in the same city. The ten most expensive cities had median home prices of USD 662,000 in Denver and USD 1,875,000 in San Jose in April. One-half of the nation's ten most expensive housing markets is in California, where there is a persistent housing shortage. University of California employees must consider the housing shortage when considering buying California real estate and, if possible, wait until prices normalize.

I've seen rent prices go up with home prices as a University of California employee looking to rent a home. The median rent for 0- to 2-bedroom properties in the 50 largest U.S. metropolitan areas was USD 1,827 in April 2022 - up 16.7% year-over-year. More pronounced increases were in Sun Belt cities like Miami (51.6%), San Diego (25.6%), and Austin (24.7%).

Those looking for a home might be in a tough spot right now - especially prospective homebuyers, renters renewing a lease, and anyone else looking for somewhere to live. Consider this article as you become a University of California employee and avoid the situation above.

Affordability Is Waning

For those University of California employees with slim financial resources, rising mortgage rates and property prices have impacted affordability. A USD 300,000 borrower would pay USD 1,666 per month at 5.3%, versus USD 1,297 per month at 3.2% today. Even more important is affordability in high-cost areas and for first-time buyers who have not benefited from gains in home equity. It suggests University of California employees in high-cost areas do market research and consider other less-expensive and more reasonable locations.

Mortgages originated by borrowers who started a home search and were prequalified by a lender before interest rates spiked may not still be approved. In recent months, demand for lower-rate adjustable-rate mortgages (ARMs) has spiked. An ARM that has a fixed rate for the first three, five, seven, or ten years of a 30-year term before adjusting to market rates might tempt borrowers who expect to move someday and need a lower monthly payment to qualify for a larger mortgage.

Other buyers adjust expectations and settle for a cheaper home. Still, others might give up the search because the homes they want are not affordable, or their dream neighborhoods are out of reach. And as a University of California employee considering buying or renting a home, you have to understand how many entry-level buyers may be priced out of the market - at least temporarily - because of these ridiculously high prices.

Because purchase contracts are signed many months before the homes are built, buyers of new homes may be particularly exposed to changing interest rates. With their deposits in jeopardy, University of California employees planning to buy may pay the extra fee to extend rate locks for six, nine, or twelve months.

I also work for a University of California employee and understand how rising borrowing costs could halt homebuilding demand so as to curtail price increases - and how prices could drop in some overheated markets. Yet most economists do not foresee a collapse in property prices as market fundamentals remain relatively solid. Inventory levels are low, and lenders have been cautious, so most homeowners who bought in the last few years can still afford their mortgages. Cash purchasers include downsizing retirees and investors, who account for about 26% of transactions, are unaffected by interest rates. Assuming the economy and employment remain steady, millennials in their prime home-buying years should be in high demand.

Tips for Bewildered First Buyers.

If University of California employees will take a mortgage, buying a home would stabilize their housing costs for as long as the payment is fixed, while paying rent indefinitely might not help their finances. Or you could create equity in your home as you pay down your loan balance, especially if the home goes up in value.

No one knows where mortgage rates are heading or what will happen next in the housing market despite widespread speculation to the contrary. So how does a University of California employee know whether buying a home is financially prudent? As always, the answer is dependent on where you want to live, how you want to spend your time and money. Here are three ways University of California customers can get ready for homebuying.

1. Develop into a better borrower. University of California employees should get a copy of their credit report before applying for a mortgage to catch errors and correct mistakes. High credit scores may qualify for low interest rates.

2. Collect a down payment. Conventional mortgages require 20% down, but some loan programs allow down payments of 5% to 10%. Should parents or another relative 'gift' cash as a down payment, lenders might ask for a letter of verification as to where the money came from. Local programs might help University of California employees who earn enough to qualify and who attend homeownership classes with down-payment assistance.

Featured Video

Articles you may find interesting:

Loading...
• Corporate Employees: 8 Factors When Choosing a Mutual Fund
• Use of Escrow Accounts: Divorce
• Medicare Open Enrollment for Corporate Employees: Cost Changes in 2024!
• Stages of Retirement for Corporate Employees
• 7 Things to Consider Before Leaving Your Company
• How Are Workers Impacted by Inflation & Rising Interest Rates?
• Lump-Sum vs Annuity and Rising Interest Rates
• Internal Revenue Code Section 409A (Governing Nonqualified Deferred Compensation Plans)
• Corporate Employees: Do NOT Believe These 6 Retirement Myths!
• 401K, Social Security, Pension – How to Maximize Your Options
• Have You Looked at Your 401(k) Plan Recently?
• 11 Questions You Should Ask Yourself When Planning for Retirement
• Worst Month of Layoffs In Over a Year!
• Corporate Employees: 8 Factors When Choosing a Mutual Fund
• Use of Escrow Accounts: Divorce
• Medicare Open Enrollment for Corporate Employees: Cost Changes in 2024!
• Stages of Retirement for Corporate Employees
• 7 Things to Consider Before Leaving Your Company
• How Are Workers Impacted by Inflation & Rising Interest Rates?
• Lump-Sum vs Annuity and Rising Interest Rates
• Internal Revenue Code Section 409A (Governing Nonqualified Deferred Compensation Plans)
• Corporate Employees: Do NOT Believe These 6 Retirement Myths!
• 401K, Social Security, Pension – How to Maximize Your Options
• Have You Looked at Your 401(k) Plan Recently?
• 11 Questions You Should Ask Yourself When Planning for Retirement
• Worst Month of Layoffs In Over a Year!

3. Figure out what you can afford to spend. Our University of California customers understand their budgets. Start with online calculators that consider income, debt, and expenses. A mortgage lender can determine how much you could borrow. Real estate transaction costs can be three to five years before they recover, so consider the stability of your University of California employment and your income.

1. Bloomberg May 12 & May 19, 2022.

   2-3, 7) National Association of Realtors, 2022

2. Realtor.com, 2022

3. National Association of Realtors, 2022

4. Realtor.com, 2022

5. National Association of Realtors, 2022

6. Realtor.com, 2022

7. National Association of Realtors, 2022

8. Realtor.com, 2022

9. Realtor.com, 2022

10. Realtor.com, 2022

11. Realtor.

12. The Wall Street Journal May 5, 2022.

13. NPR, May 12, 2022.

14. Wall Street Journal, December 14, 2021.

Added Fact:

Rising Rates Add to Long List of Housing Dilemmas:
Those 60-something University of California workers and retirees need to understand how rising interest rates could affect their retirement plans and housing decisions. A study by the National Association of Realtors in March 2023 found that 60% of homeowners over 60 have mortgage debt. It means an enormous chunk of this age group could be affected by rising interest rates, which could mean higher mortgage payments and possibly affect retirement savings and financial stability. Age-related issues include evaluating housing options and assessing whether rising rates will affect retirement plans.

Added Analogy:

So the current housing market situation of sky-high prices, low inventory, and rising interest rates is akin to sailing across rough water on a sailing trip toward retirement. Now imagine yourself as a sailor approaching turbulent seas with whipping winds and crushing waves. The housing market is like a body of water - with its moving prices and shrinking options - and rising interest rates are like winds against your financial stability. You must navigate bidding wars and mounting costs while adjusting your sails to reflect the market conditions. As a seasoned sailor looks at wind patterns and charts course to avoid rocky reefs, University of California workers planning to retire and current retirees need to evaluate market conditions, assess financial potential, and make sound decisions about how to sail toward retirement goals.

Sources: