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Category: Housing Market (Page 1 of 23)

Change Is Around The Corner – May 2022

a close up shot of letter dice on an open notebook

It looks like the housing market is showing signs of change.

The last 2+ years have seen huge increases in prices, historically low interest rates, and extreme inventory shortages.

couple passing carton box to each other while unpacking car

Today, however, we seeing the early signs of a housing market change.

Home Prices and Inventory

Home prices have skyrocketed over 35% in the last 2+ years…and even more in some parts of the west.  This has to do with increased demand and low supply (you might remember this from your Econ 101 class).  Couple that with low interest rates, and you have a true barn burner on your hands!

Recently, though, it looks like more homes are coming to market.

Phoenix, for instance, has been one of the hottest markets in the US. Inventory has been at near all-time lows over the last year-and-a-half.

However, in the week of 5/16 through 5/22, more than 3,000 active listings have been added to the ARMLS residential database. That’s more than any time since 2010. Home inventory is now growing at the fastest rate since 2005 in the Valley of the Sun.

As another example, the mountain communities of Southern California have seen inventories essentially double in the last 3 months…and buyers are now starting to see price reductions on homes that haven’t sold as quickly as sellers would like.

That’s something that market hasn’t seen for years.

Home Sales and Starts

Per data from Redfin, April had a 9% year-over-year decline in homes for sale — the smallest annualized decrease since March 2020 and the first single-digit drop in supply for any month since the COVID-19 pandemic started.

And as you can see in the graph above, housing starts are increasing as well, but not quite as fast as demand.

While the inventory issue may be showing signs of easing, homes continue to sell quickly.  The typical home that sold in April went under contract in only 18 days, Redfin reported. That’s six days faster than the same month last year and the shortest average time on market ever recorded in April.

What most industry analysts are forecasting are that prices will likely go up more slowly than they did in early 2021, but they will keep rising, just at a slower rate.

Industry Analysts

From Justin Pope at The Motley Fool“Home prices will likely peak when supply and demand meet in harmony, which doesn’t seem to be the case yet. It’s hard to make that case until I stop coming across mobs of people trying to squeeze into an open house showing. When sellers no longer can turn away buyers offering thousands over the asking price.”

decorative illustration of money box and arrows

“There could be a recession coming, and mortgage rates might keep rising, like buckets of water trying to calm the raging fire of home prices in the U.S. Nobody knows for sure what will happen next, but I don’t see enough evidence that prices will be plunging anytime soon”

David Crown in Forbes for investors – “Multifamily also appears poised to remain on the incline. In fact, CBRE expects a record-breaking 2022 for the sector: “We forecast multifamily occupancy levels to remain above 95% for the foreseeable future and nearly 7% growth in net effective rents next year.”

Julie Vincent from Mashvisor“Though the housing market prices are expected to jump at the beginning of the year, experts predict that towards the second half of the year, prices are to stabilize. It is due to more inventory being available and, therefore, more choices for buyers. Property values are expected to remain more consistent.”

In Conclusion

It does appear that there’s change on the horizon in the housing market. It looks like things are beginning to move back towards a “normal” cycle, with increased supply and single digit valuation increases anticipated later this year.

Would you like to find out more?  Contact me to discuss your current situation and how you might be able to take advantage of today’s changing market.  It would be my pleasure to help you!

Financing Strategy, Recession, and Mortgage Rates – May 2022 Edition

white paymaster ribbon writer adding machine placed on tabletop

Many experts are warning of a potential recession later this year, which has many questioning if it’s a good time to purchase a home…and worrying about mortgage interest rates, in particular.

We know that inflation is at 40-year highs – and as a result, mortgage rates are up over 2% in the last 4 months.

This is one of the most rapid increases in mortgage rates we’ve seen in recent memory.

With all of this in play, what’s the outlook for the future of mortgage rates and housing – and what’s the best strategy to navigate these rough waters?

Let’s take a look at a what’s happening today and also consider a little history of Federal Reserve rate hikes and recession.

Believe it or not, we might be in for an upcoming perfect storm – and in a good way for borrowers.

Inflation

Mortgage rates are primarily driven by inflation, which erodes the buying power of the fixed return that a mortgage holder receives.  When inflation rises, lenders demand a higher interest rate to offset the more rapid erosion of their buying power.

When the Federal Reserve increases the federal funds rate, they are trying to slow the economy and curb inflation. If successful in cooling inflation, mortgage rates will indeed decline.  History proves this during rate hike cycles for the past 50 years.

Here’s a quick look at what’s happened historically when the Federal Reserve raises the federal funds rate:

Notice how rates actually DECREASE after inflation starts to slow. 

Most experts hope that the Federal Reserve is aggressive at tackling inflation, as they are really late to the game.  Better late than never, I guess!

By the way, don’t be fooled if you see inflation numbers come in lower over the next few months.  Many in the media have talked about “peak inflation” as right around the corner.  I don’t buy it. 

Federal Reserve Chairman Jerome Powell

Peak inflation will be in September/October of this year.  Just watch.

Also, it does look like some of the supply chain issues that have plagued us (and has contributed to inflation), might be worked out by this fall.  Or at least, we can hope for that!

Recession

The first quarter US Gross Domestic Product (GDP) reading came in at -1.4%.  That means the US economy actually shrunk by nearly a percent and a half.  Not good news, to be sure.

The definition of a recession is back-to-back negative GDP quarters.  So, if the April-June numbers are negative, we will officially be in a recession.  And this seems likely. If not now, it will be soon.

The Fed has stated that they will be moving the federal funds rate higher in the coming months – possibly even 3 percentage points this year.

The thick grey bars in the chart below demonstrate recessionary periods…and they correspond very closely to the Federal Reserve interest rate hikes.

Secondly, when you take a look at the combination of high inflation and low unemployment, a recession always follows:

Finally, another great barometer of a coming recession has to do with the difference in yield between the 10-year treasury bond and the 2-year treasury bond.

Investopedia: An inverted yield curve describes the unusual drop of yields on longer-term debt below yields on short-term debt of the same credit quality. Sometimes referred to as a negative yield curve, the inverted curve has proven in the past to be a relatively reliable lead indicator of a recession.

As you can see by the chart below, we are nearing that point now where we have an inverted yield curve.

So, when you take a look at negative GDP growth, the combination of inflation/high-employment, and the inverted yield curve, it is most likely that we will see recession very soon.

Mortgage Rates

As stated earlier, mortgage rates generally FALL during recessionary periods.

This might seem counter-intuitive, but history bears this out.  Take a look at the chart below:

Notice that mortgage rates actually fall during recessionary periods.  You can see the recessions are pictured in the dark blue verticals, and mortgage rates are highlighted inside of them.

Also, one of the few areas that seem relatively immune from recession is the housing market.  Historically, one of the safest bets during recession is real estate.

The chart below shows how housing stays quite resilient during and through recessions:

Looking back at eight of the nine recessions since 1960, home prices significantly increased or at least remained stable each time during and after the recession.  One of the reasons this occurs is because interest rates significantly fall during recessionary periods.

So, things look to be lining up for lower rates ahead!

Potential for Perfect Financing Storm

Essentially, all of these factors listed above combine for LOWER rates later this year into 2023. 

lightning and gray clouds

So, what’s a buyer or home owner to do now?

Of course, things can change, but it sure is looking like a recession is on the horizon, which will undoubtedly bring lower mortgage rates.

Well, waiting to purchase a home and “timing the market” is one option…but it’s almost always a bad idea. 

Why?  Because no one knows exactly when rates will hit rock bottom – and home prices will continue to accelerate.

More importantly, buyers will miss out on the gains of owning a home. Homes increased in value over 15% last year in the west…and things aren’t getting any cheaper.  More on trying to time the market here…

Today’s housing market is extraordinarily strong, as there is record low inventory:

On the other side, there are more new households than ever – and these are competing for fewer homes:

Strong demand and tight supply should continue to be supportive of home price increases, so prices are not coming down.

Again, what’s a potential buyer to do? Fortunately, there’s a great solution here.

Purchase Strategy

I recommend making your purchase now – and NOT paying extra discount points to lower your interest rate.  As a matter of fact, you could use “negative” points to help offset any closing costs.

Instead of paying discount points to access lower mortgage rates, borrowers can receive credits from their lender and use those monies to pay for closing costs and fees associated with the home loan.

More on that strategy here…

Yes, the interest rate might be slightly higher, but you will want to refinance this mortgage when rates drop later this year or next year!  This will also limit your out-of-pocket fees for the initial transaction.

Refinance Strategy

selective focus photo of stacked coins

If you are considering refinancing, now might be a good time to do a “cash-out” refinance and take advantage of all of the equity that’s been built over the last 5 years and pay down debt.

Rebates can be good for refinances, too, as loan’s complete closing costs can be “waived”. This allows the homeowner to maximize the amount of money received from the refinance transaction.

Then, refinance in early 2023 when rates come down.  That means you can have the cash now, and a more-than-likely lower rate later.

In Conclusion

Although things look a little grim currently, the future is actually looking bright for mortgage rates later this year and into next year.

Would you like to find out more?  Contact me to discuss your current situation and how you might be able to take advantage of today’s market.  It would be my pleasure to help you!

Real Estate/Mortgage Market Webinar – Featuring Industry Expert Barry Habib

The Lending Coach and Finance of America Mortgage are proud to present a special virtual event featuring mortgage and housing expert Barry Habib on Wednesday, April 6th. He will be discussing where the housing market’s heading in 2022.

In case you are unfamiliar, Barry Habib is a real estate and mortgage industry executive, bestselling author, and founder and CEO of MBS Highway. Barry is also a well known media resource and TV commentator on the mortgage and real estate markets.

He has recently been named America’s top real estate forecaster by Zillow and Pulsenomics®.

Join us to learn all about housing rates, recession, and how to be best prepared to serve your borrowers this year!

Wednesday – April 6, 2022 at 10:00 a.m. PDT:

As a professional in the real estate industry, you know that interest rate fluctuation and real estate pricing can be a challenge to predict.

Stay ahead of your competition and find resources to help you become a trusted advisor to buyers and borrowers in your community in this rapidly changing environment.

Barry will discuss his predictions for the housing market going forward in 2022 and the benefits of utilizing this system to show clients and referral partners the power of homeownership.

Do register today!!

Key Trends in Today’s Real Estate Market

aerial photography of buildings under blue and white sky during golden hour

As we move into 2022, one thing is clear…today’s real estate market is one for the record books.

white house

The exact mix of conditions we have today creates opportunities for both buyers and sellers.

Home values are appreciating at rates we have not seen since the housing boom nearly 15 years ago.

At the same time, there is a general shortage of homes for sale across the nation. This has led to prevalent bidding wars, as homebuyers struggle to purchase a home before prices go even higher.

Let’s take a look at today’s real estate market and how it will affect you as a home buyer (and seller).

4 Main Developments

  • Home Price Appreciation
  • Shortage of Available Homes
  • Purchase Competition and Bidding Battles
  • Rise in Home Equity

Let’s take a closer look at these 4 factors…

Home Price Appreciation

Over the past year, we have seen incredible home price appreciation throughout the US. According to the most recent Home Price Index (HPI) from CoreLogic, national home prices have increased over 18% year-over-year!

brown and white wooden house

This creates a great opportunity for current homeowners to tap into that equity via a cash-out refinance to make other investments or pay off more expensive consumer debt.

It is not at all unexpected that rising home values are a big part of why real estate remains one of the top investments. For potential sellers, it also means it is a great time to list your house to maximize the return on your investment.

Shortage of Available Homes

In 2021, the number of homes available for sale fell to an all-time low. In recent months, however, inventory levels gradually began to trend up.

According to the latest Monthly Housing Market Trends Report from Realtor.com, newly listed homes have grown by nearly 5%.  This isn’t fantastic news for buyers, but the trend is heading in a positive direction.

However, even though we are experiencing small gains in the number of available homes for sale, inventory remains a challenge in most states.

This would still be considered a “seller’s market”, giving current homeowners a good deal of control if/when they decide to put their house up for sale.

Purchase Competition and Bidding Battles

Today’s low supply combined with high demand creates a market with buyer competition and bidding wars.

Purchasers are being forced to become aggressive to make sure their offer stands out from the crowd by offering over the asking price or waiving some contingencies.

multiethnic businesswomen checking information in documents

The number of offers on the average house for sale broke records last year.  As a matter of fact, last year’s Confidence Index from the National Association of Realtors (NAR) stated that the average home for sale received at least five offers!

For buyers, the best way to put a convincing offer together is by working with your local real estate professional. That agent can act as your trusted advisor on what terms are best for you and what is most appealing to the seller.

Rise in Home Equity

The final key trend we see in today’s real estate market is the rise in home values and equity. One key thing to consider:

The equity in a home does not just grow when a homeowner pays their mortgage — it also increases as the home’s value appreciates.

Due to this increase in appreciation, homeowners across the country are seeing record-breaking gains in home equity.

graph and line chart printed paper

This is clear when looking at CoreLogic’s recent reports that indicate homeowners with mortgages (which account for roughly 62% of all properties) have seen their equity increase by 19.6% year-over-year!

Again, this has produced a great opportunity for current homeowners to tap into their home equity.  They can do this with a cash-out refinance to make home improvements, other real estate investments, or pay off higher balance consumer debt.

In Conclusion

If you are considering purchasing a home, conditions are a bit challenging because of low inventory, but the rewards can be substantial, as the housing appreciation is expected to continue into 2022!

Contact me to discuss becoming a homeowner or pulling out some equity in your current home, as it would be my pleasure to help you!

Major Pricing Increases Coming on Second Home Mortgages: Fannie Mae and Freddie Mac

autumn barn colorado colorful

Mortgage interest rates and fee structures are increasing for second home financing, thanks to the Federal Housing Finance Agency (FHFA).

The FHFA has announced targeted escalations to Fannie Mae and Freddie Mac’s upfront fees for second home loans.

Here’s their announcement: 

Upfront Fee Adjustments for Second Home Loans to Take Effect

For second home loans, upfront fees will increase between 1.125 percent and 3.875 percent, depending on the loan-to-value ratio.

Why The Change?

Essentially, this appears to be the FHFA’s attempt at revenue redistribution.  They will be charging more for 2nd home financing in order to facilitate increased participation in first-time and low-income borrower programs.

FHFA Acting Director Sandra Thompson

In a statement, FHFA Acting Director Sandra Thompson said the fee increases are to provide better access to mortgages for first-time and low-income borrowers, as well as strengthen Fannie Mae’s and Freddie Mac’s balance sheets.

“These targeted pricing changes will allow the Enterprises to better achieve their mission of facilitating equitable and sustainable access to homeownership, while improving their regulatory capital position over time,” said Thompson.

“Today’s action represents another step FHFA is taking to strengthen the Enterprises’ safety and soundness and to ensure access to credit for first-time home buyers and low- and moderate-income borrowers.”

In short, it looks like second homeowners will be footing the bill and helping fund first-time buyer and low-income borrower programs.

illustration of woman analyzing financial line graphic

What Does it Mean?

For mortgages on 2nd homes, they will now look nearly identical to investment properties in terms of rates and fees.

Traditionally, 2nd homes had similar rates and fees relative to primary residences.  Here are a few sample scenarios prior to the FHFA’s move…assumptions: 760 credit score, 20% down (80% loan-to-value):

Primary residence or 2nd home

  • Interest Rate – 3.5%
  • Points – $0

Investment Property – single family residence

  • Interest Rate – 4.5%
  • Points – 1.5 (1.5% of the loan amount)

After April 1st,, here’s what we can expect:

Primary residence

  • Interest Rate – 3.5%
  • Points – $0

Second Home or Investment Property – single family residence

  • Interest Rate – 4.5%
  • Points – 1.5 (1.5% of the loan amount)

These rates/fees are just examples to show the differences in between primary residences and 2nd home/investment properties. Of course, rates are subject to change daily.

wallet with coins banknotes and credit card for payment

Also, these increases are for loans purchased by Fannie Mae and Freddie Mac on/after April 1st, 2022 – and most lenders will need to have these increases in place for loans closing in March.

For example, under the new plan, the buyer of a second home with a $300,000 mortgage loan amount and loan-to-value ratio of 65% will pay an additional fee of $4,875 if their mortgage is acquired by Fannie Mae or Freddie Mac, per the National Association of Home Builders.

Prior to the policy change, the same buyer would pay no additional fee for the comparable mortgage.

Dissenters

“With the nation in the midst of a housing affordability crisis and many more workers electing to telework, this is exactly the wrong time for federal regulators to be raising fees on homeownership and second homes,” Chuck Fowke, chairman of the NAHB, which has spoken out against the fee increases.

The National Association of Realtors (NAR) chimed in, as well: “Fannie Mae and Freddie Mac will face greater risks as the market is waned off of the extraordinary federal support during the pandemic, and these changes may help them to support the maximum access and affordability possible for the market in a sound manner,” said NAR President Leslie Rouda Smith.

“However, we are concerned that any fee increases that exceed necessary levels in the current environment will harm affordability and access for consumers. REALTORS® believe any excess revenues gleaned from the fee increases must be used to support homeownership opportunities in underserved communities, expanding affordability and access in a safe manner.”

In Conclusion

Unfortunately, get ready to pay more for your second home.

As always, mortgage rates for second homes will depend on a borrower’s credit score and down payment. With current mortgage rates on the rise during the first part of 2022, some market watchers are even forecasting that the new fees could increase interest rates to nearly 5% for second home purchases late this spring.

If the new mortgage interest rates aren’t to your liking for 2nd homes, you always have the alternative lending market to explore. There are other options out there!

Do reach out to me to find out more, as it would be my pleasure to help you!

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