The 6 Worst Mortgage Mistakes You Can Make

Is your house your castle? Or a monkey on your back?

The answer might depend on your mortgage. Getting an affordable property at a great rate can make you feel as if life couldn’t be any sweeter.

But ask anyone who bought a house with a mortgage they didn’t understand and couldn’t afford, and they will likely tell you their house has brought them nothing but frustration and tears.

If you’ll be in the market for a new place soon, make sure you avoid the following six mortgage mistakes.

1. Not reviewing your credit first

You’ll need your credit score to be in great shape if you want the best terms on a mortgage.

At least six months before you go to your first open house, go to That’s the official site where you can get free credit reports issued by the big three credit-reporting agencies: Experian, Equifax and TransUnion. You’re entitled to one free credit report from each agency annually.

When you get your report, identify and correct any errors before you apply for a mortgage.

Also check your credit score. Some banks and credit cards now offer the most widely used credit score, the FICO score, as a monthly perk for their customers. If your bank or card does not, check out this article, which offers more ways to get that all-important number for free.

If you find your credit score simply stinks, learn how to boost it fast by reading “Boost Your Credit Score Fast With These 7 Moves.”

Bottom line: Spend the time to get your credit in the best possible shape so that you can get lenders’ most favorable terms.

2. Failing to get preapproved

Getting preapproved by a bank for a given loan amount is one way to avoid the heartbreak that comes from falling in love with a house that is way out of your price range. It may also give you an edge if yours is not the only offer for the same property. A seller will feel more confident selecting a bid from someone with a mortgage preapproval rather than from a person who hasn’t begun the process.

However, don’t get carried away by the preapproval amount the bank gives you. Remember, what the bank thinks you can afford and what you can actually afford may be two different things. For more, check out, “Stop and Think: How Much House Can You Really Afford?”

3. Not shopping around for the best rate

The Consumer Financial Protection Bureau says nearly half of mortgage borrowers don’t shop around, and that’s a big mistake. Seasoned shoppers search for the best deals on soap, furniture and cars, but some fail to look for a better mortgage rate.

It may be convenient to use your primary bank for a mortgage, but that could also be expensive if its rates aren’t competitive. For instance, take a 30-year fixed-rate mortgage of $200,000: For every 0.25 percent you reduce the interest rate, you save about $28 a month. Over a 30-year period that can add up to a lot of extra cash.

Go to the Money Talks News Solutions Center and start comparing mortgage rates.

4. Ignoring mortgage fees

While you’re investigating rates, don’t forget the fees. Many mortgages come packed with fees of all kinds. Some — such as your county recording fee — are likely fixed, but others are negotiable.

Before your closing, you should be provided with a good-faith estimate of the fees. Ask your lender to review what they are for and then see if you can negotiate a lower price. These are a few of the fees likely to have the most wiggle room:

  • Loan origination fee
  • Application fee
  • Broker fee
  • Underwriting fee

5. Saving too little for a down payment

Not having a down payment stashed away can sink your prospects for getting a mortgage. After being bitten by the housing market crash, traditional lenders shy away from giving mortgages to those bringing nothing to the table.

You generally need to have a down payment of between 5 and 20 percent to qualify for a conventional loan. And if you put down less than 20 percent, be prepared to pay for mortgage insurance.

6. Not understanding your mortgage terms

Underwater mortgages weren’t the only problem homeowners faced during the Great Recession. An untold number of people also lost their houses simply because they signed on the dotted line without understanding what the heck their mortgage entailed.

For example, people thought they’d hit the jackpot with adjustable-rate mortgages, known as ARMs. Homeowners were fine for the first few years while their mortgage rate was fixed and low. But when it reset to the current market rate, that affordable monthly payment suddenly wasn’t so affordable.

The moral of the story is to always understand what you’re signing up for. It’s not enough to know what your monthly payment is today. You also need to ask if the interest rate can change and, if so, when and by how much it will increase.

If you’re not comfortable with the loan terms or don’t understand them, it’s better to walk away than to make an expensive and potentially life-altering mistake.

Freddie Mac August Forecast: Housing Affordability Challenges Slowing Home Sales Growth

MCLEAN, Va., Aug. 27, 2018 (GLOBE NEWSWIRE) — Ongoing supply and demand imbalances and weakening affordability conditions, particularly in markets out West, are expected to keep a lid on home sales growth through the rest of the year, according to Freddie Mac’s (OTCQB: FMCC) August Forecast.

The U.S. economy in the second quarter grew at its fastest pace in nearly four years, but housing activity played a limited role in the expansion. New home construction, existing-home sales and sales of new homes all declined last quarter, as homebuilder challenges, limited inventory and steady price gains created headwinds for the housing market.

Looking ahead to fall, Freddie Mac expects market conditions to remain mostly the same, with a modest rise in housing starts slightly easing inventory constraints. Total home sales (new and existing) for the year are now forecasted to increase 0.2 percent, and home price growth – which has softened somewhat in recent months – is still anticipated to rise 6.0 percent.

“The housing market hit some speed bumps this summer, with many prospective homebuyers slowed by not enough moderately-priced homes for sale and higher home prices and mortgage rates,” said Freddie Mac Chief Economist Sam Khater. “These challenges were predominantly seen in expensive markets out West, where demand and sales are beginning to dampen because of weakening affordability.”

Added Khater, “The good news is that the economy and labor market are very healthy right now, and mortgage rates, after surging earlier this year, have stabilized in recent months. These factors should continue to create solid buyer demand, and ultimately an uptick in sales, in most parts of the country in the months ahead.”

Forecast Highlights

  • The robust labor market and healthy U.S. economy, forecasted to grow 2.8 percent this quarter and 2.7 percent for the year, should continue to boost consumer spending and business investment.
  • Mortgage rates jumped earlier this year, but have remained mostly flat since late May. Looking ahead, they are expected to gradually trend higher and average 4.60 percent for the year.
  • Limited inventory continues to affect home sales and prices. Total (new and existing) home sales are now forecasted to increase only modestly this year to 6.14 million, while prices are expected to moderate, but still at a pace well above inflation.
  • Slower home sales growth, as well as decreased refinance activity due to higher mortgage rates, are expected to cause single-family first-lien mortgage originations to slide around 8 percent this year to $1.66 trillion.

Freddie Mac makes home possible for millions of families and individuals by providing mortgage capital to lenders. Since our creation by Congress in 1970, we’ve made housing more accessible and affordable for homebuyers and renters in communities nationwide. We are building a better housing finance system for homebuyers, renters, lenders, investors and taxpayers. Learn more at, Twitter @FreddieMac and Freddie Mac’s blog

Buying a home? Here’s where prices are going

The Federal Reserve has raised short-term interest rates, which affect mortgage loan costs, twice so far in 2018, with two more increases expected yet this year. Combined with several years of dramatic price increases, limited inventory and slow wage growth, that is pushing some buyers out of the market. Less demand means sellers can’t ask as much for their homes.

“Demand was so high for so long, and the inventory was so low, that sellers raised prices because they could,” said Nikolas Scoolis, an analyst with Meyers Research, a housing consultancy. “We may have reached an inflection point. Buyers may now be thinking this price feels expensive for what I’m getting, and sellers may have to reset their expectations.”

That’s begun to show up in listing prices, according to a survey by Zillow.

Home sellers have cut listing prices across much of the country, according to the real estate research firm. About 14 percent of all listings in the U.S. had a price cut in June, up from a low of 11.7 percent near the end of 2016. The median price cut was about 3 percent, Zillow found.

In all, home value growth is slowing in almost half the nation’s 35 largest metro areas. The biggest changes occurred on the West Coast, including in Sacramento and Seattle. About 20 percent of listings in San Diego cut prices in June, up from 12 percent a year ago, the survey found. Higher-priced listings are cutting prices more often than lower-priced listings.

“The frenetic pace of the housing market over the past few years is starting to return toward a more normal trend,” said Zillow senior economist Aaron Terrazas. “The housing market has tilted sharply in favor of sellers over the past two years, but there are very early preliminary signs that the winds may be starting to shift ever-so-slightly.”

Still, it’s too soon to call this a buyer’s market, Terrazas said. Housing prices will appreciate at about double their historic rate over the next 12 months, he said.

Robert Dietz, chief economist for the National Association of Home Builders, sees price growth slowing to the 3 percent to 4 percent range nationally. Case-Shiller’s repeat sale index shows prices rose 48 percent from January 2012 to May 2018, he said.

A poll released in June by Reuters found that housing prices were escalating at twice the rate of inflation and wage growth. The value of U.S. homes rose 8.3 percent during the past year with a median home price of $217,300, according to Zillow.

All this means that homebuyers will be using more of their income to make home purchases, particularly as the Federal Reserve continues to raise rates, Scoolis said.

“Rising rates ultimately make buyers ask the hard questions. What will I compromise to buy a home—location, price, design, or size?” he said.


Mortgage Loan Rates Mixed, Applications Dipped Slightly Last Week

The Mortgage Bankers Association (MBA) released its weekly report on mortgage applications Wednesday morning, noting a dip of 0.2% in the group’s seasonally adjusted composite index for the week ending July 20. Mortgage loan rate movements were mixed last week.

Mortgage loan rates did not move much last week, with the 30-year fixed rate loan ending the week about one tick above where it began, at 4.65% according to Mortgage News Daily. The yield on 10-year Treasury bonds closed the week at around 2.82% on Tuesday, down four basis points week over week.

On an unadjusted basis, the MBA’s composite index was unchanged week over week. The seasonally adjusted purchase index decreased by 1% compared with the week ended July 13. The unadjusted purchase index decreased by 1% for the week and was 2% higher year over year.

The MBA’s refinance index increased by 1% week over week and the percentage of all new applications that were seeking refinancing rose from 36.5% to 36.8%.

Adjustable rate mortgage loans accounted for 6.3% of all applications, up from 6.1% in the prior week.

According to the MBA, last week’s average mortgage loan rate for a conforming 30-year fixed-rate mortgage remained unchanged at 4.77%. The rate for a jumbo 30-year fixed-rate mortgage rose from 4.66% to 4.72%. The average interest rate for a 15-year fixed-rate mortgage ticked up from 4.22% to 4.23%.

The contract interest rate for a 5/1 adjustable rate mortgage loan decreased from 4.12% to 4.09%. Rates on a 30-year FHA-backed fixed rate loan were unchanged at 4.78%.


Booms Are Back In These 25 Real Estate Markets

Denver, Colorado. (Shutterstock)

Many investors like real estate because of the potential for steady, above-average returns with only a limited downside risk. Others, however, are more intrigued by the possibility of a quick strike in a real-estate boom, holding a property for a short time as values rise and magnifying their return with leverage from a mortgage or other low-cost loan.

Boom markets don’t come along very often in real estate. There haven’t been any since the big crash of 2008, and before that, they were usually limited to one or two places at a time, like Houston in the mid-1980s, New York later that decade or Southern California in the early 1990s.

But booms are back, with some already well under way and a good number in the early stages. Home building lagged almost everywhere in the last decade while strong economic growth has pumped up demand for housing in many local markets, creating the imbalance that drives a boom.

The 25 markets listed below are mainly in the early stages of a boom, even though home prices have already been rising at a brisk pace. Denver is the exception, with prices already into boom territory.

www.LocalMarketMonitor.comLOCAL MARKET MONITOR


At Local Market Monitor, we identify potential boom markets by calculating how much the current average home price is above the local “income price.” When that margin is greater than 15%, a boom is possible. You can see that our calculations range from 16% for Asheville and Sacramento to 47% for Denver. This is a metric we have been monitoring for over 25 years, and it has proved to be extremely reliable at identifying booms and busts in advance.

The importance of identifying a boom market is that home prices in a boom take on a life of their own, increasing at a high rate for several years, with jumps of 10-15% a year quite likely. Obviously, if you invest at the early stage of a boom, you can expect a big increase in value in just a few years.

The markets in our list have three characteristics that support a run-up in prices during the next few years.

  • They’re already over-priced compared with the income price (no longer “recovering”).
  • The average home price increased at least 8% last year.
  • And with the exception of West Palm Beach, the local economy has been strong, in many cases adding jobs well above the 1.6% national rate.

What kind of investment can you make in these markets? It’s got to be one you can quickly exit in a few years. Single-family is always easiest, and if you’ll be renting out, stick with short leases. Rehab for immediate resale is a good strategy, maybe staging several properties at once. Apartment buildings or existing rentals are lesser choices because they probably won’t have the same appreciation.

Miami, Florida. (Shutterstock)

Note that the Price/Rent ratio is well above 20 in most of these markets, which means that fewer renters are able to pay what you would normally want. You’re really just renting the property for extra return, not the main reward, so don’t hold out for top rental dollar because you may not get it.

Now let’s talk about risk. We identify boom markets for their investment potential but also to identify where the risk of investing is higher than normal. Boom markets are risky markets. The more home prices move above the income price, the riskier a market gets. Denver is already a riskier market than Asheville. In the boom that preceded the 2008 crash, prices in some markets were more than 60% higher than the income price — and subsequently fell by that amount and more. You don’t want to be holding a property past the peak of a boom.

Local Market Monitor also forecasts home prices. We forecast that prices will rise briskly in all 25 of these markets over the next three years. But the risk for investors increases in boom markets along with the prices.

What can end a boom? In Houston back in the 1980s, it was a drop in oil prices. In 2008, it was sub-prime mortgages. These days it could be a trade war, an economic crisis, a political crisis, a real war.

How to protect yourself: If home price increases drop off — from 9% a year to 5%, let’s say — sell. If you wait for the peak, you’ll find few buyers, maybe none.

And maybe you shouldn’t even wait that long — it takes time to sell a property. Maybe just set a reasonable appreciation goal and sell when the market hits that.


Housing market remains strong, despite mortgage rate worries

he Federal Reserve is raising interest rates, and that’s led some to worry that mortgage rates will spike and put an end to the housing boom in the United States.

Not so fast, according to the head of a big homebuilder.

Stuart Miller, executive chairman of Miami-based builder Lennar, said Tuesday that “concerns about rising interest rates and construction costs have been offset by low unemployment and increasing wages.”

He added that there is still a “short supply” of houses on the market after “years of underproduction of new homes.” And he said “demand remained strong” and “affordability remained consistent” thanks to rates that remain relatively low.

Miller made those remarks in Lennar’s earnings release Tuesday morning. The company reported revenue and profits that topped Wall Street’s forecasts.

Shares of Lennar (LEN) surged more than 7% on the news. Rival builders Pulte (PHM), DR Horton (DHI), Toll Brothers (TOL) and KB Home (KBH) all rose too.

Lennar’s results are an encouraging sign for the group, which has been hit hard this year on fears that higher interest rates will start to take a bite out of demand for new homes.

Builder stocks have been hit hard this year, with many of them — including Lennar — falling more than 20% in 2018.

But Lennar’s results and other recent data may be assuaging fears that the bottom is going to fall out of the housing market.

The federal government said Monday that new home sales in May were better than expected, citing particular strength in the southern part of the US.

That should be good news for the broader economy.

Lewis Alexander, chief US economist at Nomura, said in a report Tuesday that he was raising his GDP estimate for the second quarter, citing the stronger home sales figures and expectations of higher broker commissions.

And according to the closely watched S&P Case-Shiller index that was released Tuesday morning, home prices continued to rise across the country — with 17 of the 20 cities tracked in the index registering increases.

“Given the combination of strong demand and lean inventories, especially for existing homes, we expect home prices to continue appreciating at a modest pace for the remainder of the year,” said Barclays economist Pooja Sriram in a report Tuesday.

As long as the housing market remains stable, that should give consumers more confidence. To that end, the government reported strong retail sales figures for May earlier this month.

And it was led by healthy gains at home-improvement stores like Home Depot (HD) and Lowe’s(LOW). These chains tend to do well when people are looking to sell their home.


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7 benefits of a Federal Reserve interest rate hike

Federal Reserve Chairman Jerome Powell speaks at a news conference following the Federal Open Market Committee meetings in Washington, U.S., March 21, 2018.

Interest rates are going up. The Federal Reserve hiked rates once already this year in March. And at its meeting this Tuesday and Wednesday, the Fed is likely to raise the federal funds rate again. Many experts predict there will be a third rate hike before the end of the year.

Sure, the increases mean it will cost more to borrow. But you’ll benefit from getting better rates on high-yield certificates of deposit.

Healthier returns on CDs are only one gain from the Fed’s rate-raising campaign. Here’s how you can take advantage of other positive outcomes from Fed rate increases.

Get expert advice and tools to help you make better financial decisions. Sign up for the Bankrate newsletter today.

1. Higher returns for savers

If you’re a saver, low interest rates have brought about the financial equivalent of a long drought. Any improvement, even modest, is welcome and overdue.

“Rising interest rates would benefit elderly Americans on fixed incomes and others who rely on interest income to help cover their living expenses,” says Alan MacEachin, corporate economist with Navy Federal Credit Union.

2. Tamed inflation

Most broad-based measures of prices indicate inflation has continued to remain under control in the U.S. in recent years. The central bank’s target for inflation is 2 percent, but inflation has yet to hit the bull’s-eye on a sustained basis, as measured by personal consumption expenditures, or PCE.

If the Fed achieves its objectives in steering the economy, inflation should remain under control.

A positive inflation scenario after a rate increase might include “lower prices of imported consumer goods, due to a likely higher exchange value of the dollar if our domestic rate increases are not matched by policy tightening in other major economies,” says Daniil Manaenkov, U.S. forecasting specialist at the Research Seminar in Quantitative Economics at the University of Michigan.

3. More lending

A credit bubble rightfully received some of the blame for the financial crisis in 2007. In the aftermath, lending came to a complete stop.

Lending has resumed. “Banks may have a greater incentive to loan out reserves at higher interest rates, and the increased flow of additional credit would boost economic growth,” says Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida.

4. More interest income for retirees

As a rate boost brings better returns to savings vehicles, senior citizens should enjoy better paydays by putting their money in CDs and savings accounts. “Higher interest rates on CDs and other financial instruments will particularly help older Americans trying to live on their retirement savings,” says Lynn Reaser, chief economist at Point Loma Nazarene University in San Diego.

As the population ages in coming years, many more Americans will come to appreciate even modest increases in interest income during retirement when they buy certificates of deposit.

5. Stronger dollar to boost purchasing power

As the Fed continues to boost rates (and with the outlook for more rate hikes to come), the U.S. dollar gets more support. Ultimately, that means more purchasing power with the greenback compared with other currencies.

Predicting moves in the foreign exchange market is difficult, but Snaith and other economists say the dollar could strengthen further as the Fed boosts rates.

Fed tightening “is likely to mean a somewhat higher dollar, so people traveling to Europe will do well,” says Dean Baker, co-director of the Center for Economic and Policy Research in Washington.

6. Stocks will trade on fundamentals

As the Federal Reserve embarks on what officials have called “normalization” (that is, a backing away from record-low rates), stock prices may start to make more sense and not reflect the central bank’s easy monetary policy quite so much.

“A normalization of rates would return the focus to market fundamentals and off of focusing on the nuances of each Fed statement,” says David Nice, former senior economist at DS Economics in Chicago.

7. Would-be homebuyers may get off the fence

As the Fed continues to raise rates, higher mortgage rates likely will follow. If the prospect of higher mortgage rates compels you to a home sooner than later, you won’t be alone.

“Higher mortgage rates could push buyers off the fence — increasing demand, increasing prices and increasing home equity so that more people can sell their homes,” says Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania.


The Housing Crisis Is Officially Over

happy family mother and daughter playing at home in a tent.
The financial crisis was a decade ago, and many Americans have recovered. At the peak of the economic downturn, more than 30 percent of American homeowners owed lenders more than the value of their homes. Now, that number has finally dropped to under 10 percent.

However, millions are still reeling from aftershocks of the housing crisis: Nearly 4.5 million homeowners are underwater on their mortgages, according to a new report from Zillow.

Click to read more about which states are still being hit hard by the foreclosure crisis.

In the late 2000s, the housing bubble burst sent home values into a freefall, with the typical U.S. home losing more than a quarter of its value when the market crashed, sending millions of homeowners into negative equity.

Know: 19 Reasons Your Mortgage Loan Could Get Rejected

The situation is improving, but the outlook can appear bleak for Americans with underwater mortgages. Relief can be found with some options that exist for homeowners to avoid foreclosure:

  • Stay and pay: Don’t continue to throw money at a bad investment, but if the sense of obligation pulls you, you can continue to pay your mortgage bill month after month in the hope that your situation improves.
  • Consider a short sale: The goal is to get out of your home quickly and for the bank to forgive remaining debt. Homeowners should be prepared to sell their houses for a lower price than they paid for it.
  • Walk away: Only pull this strategic default card if you’re prepared for the consequences of a drop in credit score, a credit report blemish and guaranteed difficulty in securing a future loan.
  • Refinance your home: A lower interest rate and lower monthly payment through refinancing your mortgage might give you the relief you need in the short and long term.
  • Get a deed in lieu of foreclosure: This allows you to give the house to the lender and avoid foreclosure proceedings altogether. Chief among the benefits is that you are immediately released from most or all indebtedness associated with the defaulted loan and your credit suffers less.
  • Get a reverse mortgage: Available to individuals ages 62 and older, eligible homeowners can access a portion of their home equity by borrowing against it. Seniors can take the money in a lump sum, receive monthly payments, draw on it like a line of credit or use any combination of the three. The homeowner’s obligation to repay the loan is deferred until the homeowner dies or the home is sold.
  • Home loan modification: With a loan modification, lenders lower the interest rate and payment, either temporarily or permanently. It is also fairly common for lenders to extend the term of the loan or to allow borrowers to make up missed payments by tacking them on to the end of the loan or spreading them out over the remaining loan.

Read: Pros and Cons of Getting a Deed in Lieu of Foreclosure

The best option to avoid foreclosure is to stay ahead of your bills, if possible. Research government mortgage assistance agencies like Home Affordable Refinance Program (HARP), Hardest Hit Fund (HHF) and Department of Housing and Urban Development (HUD) for free guidance on how to prevent a foreclosure.


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U.S. Home Values Are Rising at Their Fastest Pace in 12 Years

National home values have increased 8.7 percent since last April to a median value of $215,600, according to Zillow.

The rise in home prices has allowed more people to take cash-out of the homes when they refinance. Refinancing, where the home owner took additional cash out, rose to 61 percent in the first quarter — the highest rate seen since the third quarter of 2008, according to FHFA data.

The pace of appreciation seen by Zillow is the fastest since June 2006, when home values were rising nine percent annually.

San Jose home values appreciated 26 percent year-over-year. Las Vegas, Seattle, Dallas-Fort Worth, San Francisco, Tampa, Atlanta, Charlotte and Orlando all saw double digit a growth.

“The spring home shopping season has been a perfect storm of strong demand and tight supply,” said Zillow senior economist Aaron Terrazas. “Sluggish new construction has exacerbated the supply situation and homes that are hitting the market, are moving very quickly once they do. Americans are also in a spending mood, boosted by recent tax cuts and rising wages.”

In 21 of the 35 largest housing markets, home values have surpassed levels reached during the height of the housing boom over a decade ago.


US sales of new homes slipped 1.5 percent in April

US sales of new homes slipped 1.5 percent in April

FILE- This May 4, 2018, file photo shows a house is under construction in Roseville, Calif. On Wednesday, May 23, the Commerce Department reports on sales of new homes in April. (AP Photo/Rich Pedroncelli, File)

WASHINGTON (AP) — Sales of new U.S. homes fell 1.5 percent in April, held down by a shortage of affordable houses in the most desirable areas and sharp pullback in purchases in the western United States.

The Commerce Department said Wednesday that new homes sold last month at a seasonally adjusted annual rate of 662,000. Despite the setback, new-home sales so far this year are 8.4 percent higher than in 2017.

A solid job market and a shortage of existing homes for sale have led more people into the new home market, even though they are generally more expensive than existing homes. Sales last month occurred disproportionately at the higher end, where profit margins are often greater for builders.

Momentum in the U.S. housing market has overcome even a supply shortage because mortgage rates remain near historic lows. But average mortgage rates have been climbing in tandem with higher rates throughout the economy, reaching a seven-year high of 4.61 percent on a 30-year loan, according to mortgage buyer Freddie Mac.

In April, new-home sales tumbled 7.9 percent in the West and were essentially unchanged in the Midwest and South. Sales improved 11.1 percent in the Northeast. The new-home sales figures are often volatile on a monthly basis and are often revised.

The median sales price of a new home rose 0.4 percent from a year ago, to $312,400. But that masks a broader change last month, which was more sales at luxury prices levels.

Ten percent of new homes purchased in April cost more than $750,000 — twice the percentage of homes bought last year in that range. As a result, the average price of a new home in April shot up 11.3 percent from a year ago, to $407,300.