Impacts of Housing Supply

Home prices have increased for over ten years now. Earlier in this ten year run, the increase was fueled by the housing market recovering. Now, even with the number of home sales slowing, the basic economic law of supply and demand is driving prices higher. After the Great Recession, home builders made significant cuts to home construction levels. Meanwhile, the Millennial generation was the biggest population cohort the US had ever seen, and they were entering prime home-buying years at the same time. Meaning, demand for homes was increasing as the supply was restricted by reduced construction.

Fast forward to 2024, what are home construction levels like now?

A recent article described February’s increase in home starts a “surge.” New housing starts in February increased by 10.7%, exceeding analysts’ expectations with an annualized rate of 1.52 million home starts. Single-family home starts reached their highest level in two years, and multifamily starts increased by 8.3% after declining in January.

How good is this news? On the one hand, it is great having higher than expected levels of new housing starts. On the other hand, even with this increase, the needed level of home starts to keep pace with housing demand still exceeds actual home starts. A mortgage industry executive stated construction is not likely to catch up with demand “for several years.” In other words, we are still some time away from seeing a balanced market in terms of available homes. 

The National Association of Home Builders (NAHB) is forecasting that single-family home starts could increase 5% to 6% in 2024. While that seems like good news, I noted that in the forecast are many references to expected lower interest rates for builders and lower mortgage rates for buyers in 2024. Frustratingly, early April economic news caused the Fed to back off of rate cut predictions and mortgage rates increased back to their highest recent levels of mid-November 2023. If this trend does not reverse, home demand could decrease and builders may cut back on their home starts as they face higher costs.

In short, although housing starts did increase in February, persistent concerns about inflation may keep interest rates high and could lead to a future decrease in housing starts. 

My message to home buyers is unchanged though. If you want to buy a home now and you can make it work with the current high home prices and higher interest rates than we have seen in recent years, now is still a good time to buy. This is because there is not as much competition for available homes as there will be if and when mortgage interest rates do decline. Get the house you want now, and if interest rates increase later, you timed the market well. If interest rates fall after you close your purchase, you can refinance the home later and take advantage of the lower rates then. Give me a call to get an idea of what home price fits your budget and how we can help you win a contract.

A home buying journey

As we’ve heard on the news, read on the internet, and on this blog, home affordability is tough right now. Statistically, it could be one of the hardest with home values at all-time highs, mortgage rates off their all-time lows, recent high inflation, and wages not keeping up with all of these trends. 

I’ve been reminiscing over my own home buying experiences, and even though home values were not as high as they are now, I remember experiencing similar struggles. Here’s a little of my own story…

It’s 2005, during the housing boom, and it was a “great time to buy” as “everyone” was purchasing a home. I joined the crowd and quickly discovered I struggled to afford anything where I was renting. Over the course of several months, I went under contract three times, and all three fell through for issues with home inspections. It was frustrating spending money on home inspections and appraisals I never used. I decided to take a break from looking at homes. 

Fast forward to May 2006, I began searching for homes again. This time, I looked even further out and at town homes and condos as they were cheaper. I did go under contract on a town home, and thankfully, no inspection issues. Even though I felt I was over paying, by this point, I felt like I had to make this home work. I did purchase the town home, and moved 10+ miles away from where I currently lived.

We all know what happened in 2008 with the beginning of the housing crash. Condos and town homes lost even more value when compared to single family homes. At one point, my town home lost 80% of its value. I remember my 2012 property taxes being less than $100 because my county assessed value was so low. 

Let’s jump forward in time to late 2012… the housing had yet to recover. People were saying it is a “bad time to purchase a home” because the value would just drop. Still, I did purchase a new home in early 2013 while holding onto my town home for many more years hoping its value would recover. By the end of 2014, home prices stabilized and began climbing again. I did sell my town home in 2018 for a small loss, but not the 80% loss it once showed on paper.

I feel the point of my story is there is never a perfect time to buy a home. Timing the market is impossible. I bought when “everyone” was buying and was a “great” time to buy. Turns out it wasn’t… and then bought when people were saying to not buy because prices keep falling, which wound up being a good time to buy.

When is the right time to buy? As I said last time, when you know you will be in the area for several years to allow for some appreciation – while also taking advantage of tax write offs (property taxes and mortgage interest) – this, in my opinion, is the time to buy a home.

I know the market is hard and especially for first time home buyers trying to get into the market. I hear from clients today about the housing market, and I too remember being in a similar spot. I hope this story of my own journey provides some encouragement.

Whether you are getting ready to start or continue your home buying journey, contact me today. I’ll help you develop a plan, strategy, and next steps toward getting you into that new home!

Home values continue to rise

Normally when home sales slow, prices slow too… sometimes prices go down. The housing market continues to buck this trend. Per the S&P CoreLogic Case-Shiller US National Home Price index, home values increased 6% from January 2023 to January 2024. This follows an over 5% increase year-over-year from December. This makes two months in a row with cities across the US reporting annual price increases.

I’ve covered reasons why home values are still climbing even with the decline in total number of sales. The quick version is some combination of the following:

• owners wanting to hold on to very low mortgage rates,
• fear of selling but not being able to find a new home,
• Boomers staying in their homes longer/not downsizing compared to previous generations,
• higher mortgage rates,
• all time high on home prices,
• years of under-building with new construction

All of this has led to a shortage of millions of available homes for sale across the country.

The current housing market is and continues to be a challenge. It can feel daunting… like climbing a mountain and coming over a hill just to see more of an uphill journey.

What should buyers do? It’s a tough question.

It seems as is the inventory challenge won’t lift for several years. While some say home values should flatten or drop, will they? I mean, the US is still dodging a recession many experts claimed was coming the past few years. Also, values dropping could be regional. For example, while home prices fell out west (double digits drops in some areas), home values continued to rise in metro Atlanta.

What is my advice to clients? It is the same as it has always been… if you know you plan to be in the area for several years, owing a home and getting the appreciation that comes with owning this home is the better way to go. It feels like home values won’t drop by much (if ever) in metro Atlanta, and it is easier to refinance once you are already living in the home instead of competing with more and more buyers should mortgage rates drop. Buying now is still the way to go if the plan is to be in the home for 3+ years.

Plan on living and working in the state of for the next several years? Want to get pre-underwritten allowing you to make a strong offer? If yes, contact me today. I can get you prequalified today, pre-underwritten ASAP, and ready to make offers on your new home!

“Spread” Impact Now Decreasing…

In July 2023, I posted about the impact of the “spread” on this Mortgage Blog. The “spread” is the difference between interest rates for 10-Year US Treasuries vs mortgages. Financial experts consider 10-year Treasuries to be the financial instrument most similar to a mortgage based on overall risk. Because mortgages have a greater default risk than Treasuries, mortgage rates are higher.  For many years, the spread was consistently between 1.5% and 2.0%. As noted in the prior post, starting around October 2022, the spread had grown to about 3.0%. The post concluded that should the spread shrink back to a more normal historical level, mortgage rates would decline and help borrowers.

I spotted a recent Wall Street Journal article documenting that the spread had been declining for 8 straight weeks. The article noted that, while declining, the spread was still “far larger than the historical average.” It also noted that the spread decline was giving mortgage rates “an extra push lower.”

The article then goes on to explain why the spread exists in the first place. As with so many financial rates, it all has to do with risk. When conventional mortgages are closed, lenders sell the loans to Fannie Mae or Freddie Mac. Fannie and Freddie then package mortgages into mortgage backed securities (MBS) and sell them to investors. The investors consider MBS to be riskier than 10-Year Treasuries, so Fannie and Freddie must deliver higher interest rates to persuade investors to buy MBS instead of Treasuries. These higher interest rates flow through to home buyers. So what makes MBS riskier than Treasuries?

When homeowners pay off their mortgages early, the note holders lose their stream of interest income. Mortgages are paid off when the homeowners sell their homes, or when interest rates decline and the homeowners refinance their higher rate mortgages, paying them off with their new lower rate mortgages. The risk caused by early loan payoffs causes investors to require higher interest rates for MBS.

The largest buyers of MBS have been the Federal Reserve and banks. Since early 2022, they have been buying less MBS. With lower demand for MBS, Fannie and Freddie had to increase the rates they pay to investors still buying MBS. That also increased MBS rates vs Treasuries.

Some good news….the Federal Reserve has recently indicated that it might cut interest rates later this year, as economic data shows cooling inflation numbers.

Bottom Line: The Federal Reserve lowering rates + a shrinking spread could deliver a significant boost to home buyers in the coming months by lowering mortgage rates and improving affordability.

Are you considering a Georgia home purchase? Give me a call to discuss your options soon. While it may seem attractive to wait for the spread to shrink and interest rates to drop, that could cause a serious increase in competition. The extreme competition for available homes in 2020 and 2021 caused many buyers to pay more than the listing price for their homes and surrender buyer protections just to win the contract. I recommend that buyers proceed now, while the competition is not as fierce and they can negotiate better deals. If rates, do drop significantly, refinancing an existing mortgage is usually a great option.

Good News – Housing Market Appears to be Thawing

It’s very encouraging to see February’s home sales statistics! The National Association of Realtors (NAR) released data showing February home sales were 9.5% higher than January, and significantly higher than what analysts had predicted for February. I read an article on this topic that stated home sales grew at a “pace that far exceeded expectations and suggested the housing market is continuing to thaw rapidly.”

The supply of new homes increased 5.9% as compared to January, and that is an increase of 10.3% over February 2023. The new home supply is helping to address home buyer demands.

Additional positive news for home sellers, but not so much for home buyers included:

• The national median home price increased 5.7% over last year, to $384,500.
• 20% of homes listed received multiple offers and closed with a price above the original listing price.

While home prices are continuing to rise, Fed Chairman Jerome Powell recently stated that the Fed expects inflation to decrease in the coming months. Decreasing inflation often leads to lower mortgage rates, so I’m hopeful that future lower interest rates will help home buyers. (But that could lead to greater competition for the homes that are listed.)

We’ve mentioned this many times in these blog posts, but it’s worth mentioning again…we at Dunwoody Mortgage can help home buyers win the contract with our To Be Determined (TBD) address underwrite. I explained this to some Realtors recently and they were very excited about it. The quick summary is that we can underwrite your loan application without an address. Once you are approved, you can submit offers with 0-day finance contingencies and short closing windows. This makes your offer stand out to home sellers and their Realtors. I have had clients win against cash offers using the TBD approval. And when I shared the approval letter with one Realtor, he enthusiastically replied, “This is as good as a cash offer!” It’s a powerful advantage we can give homebuyers.

Considering a Georgia home purchase in 2024? Now is a great time to buy – before competition gets worse and you have to sacrifice important buyer protections like a reasonable due diligence period to win a contract. Give me a call to start planning now. With a TBD approval, Dunwoody Mortgage can put you in a position to win the contract and own your dream home.

Condos and insurance

Last week I discussed some deal breakers/challenges when purchasing a condominium. Today, let’s talk about condo insurance. I know people want to save money as everything seems so much more expensive these days. It is easy to find cheap HO-6 policies (condo policies) online, yet I don’t recommend it.

One of the most confusing things when it comes to insurance is matching up a buyer’s own personal HO-6 policy with the master condominium project policy. Some of the master policies have larger deductibles that could create a gap in coverage. Some insurance companies may pay these deductibles out of the Dwelling coverage on a homeowners HO-6 policy. Other insurance companies may require this to be a specific line item/addition to the policy (just like extra coverage for jewelry).

Given the potential gaps in coverage with the master policy and a basic HO-6 policy, the fact different insurance providers pay out differently in terms of claims, and having sufficient coverage in general to protect one’s belongings, I cannot stress enough how important it is to speak with an actual insurance agent versus typing in data into a website. The premium may be higher, but insurance isn’t any good without the correct coverage.

Spoiler alert – I am not an insurance agent. I am not licensed or experienced to talk about all the ins-and-outs of policies. This is why I’m encouraging anyone buying a condo to speak with an actual agent. I will go into one very common misnomer about a condominium master policy.

Everyone knows the master policy is there to rebuild the unit in the event of a total loss. Heaven forbit if a condo building were to burn down, the master policy will reconstruct the building. What many do not know is the policy only puts the home back to its original design. Meaning, if an owner has put in hard wood floors, granite countertops, etc., and the original build was carpet and laminate countertops, the owner is responsible for the money needed for the upgrades made on the unit.

This is where the homeowners HO-6 policy comes into play. Not only does the homeowners’ coverage replace their belongings (appliances, electronics, clothes, etc.), it also provides money for the upgrades/renovations done to the home. Again, this is why one needs to speak with an agent to make sure there is adequate coverage to pay for all these things.

The moral of the story – when buying a condo, speak directly with an agent to ensure adequate insurance coverage.

Buying a single family home, townhouse or condominium? Doing it in the state of Georgia? If yes, contact me today. I can get you ready to make a strong offer on your next home!

Differences when buying a condo

Buying a home comes with challenges. If you want to take the challenge up a notch, purchase a condominium. When buying a home, the borrower always needs to be approved in terms of credit, income, assets, etc. When purchasing a condominium, the project itself also needs to get approved.

There are a few things that can stop approval of a condominium regardless of how well qualified a buyer may be. Let’s discuss a few of those. Remember, this is only for a home considered to be a condominium. If someone is purchasing a single family home, none of this applies to the approval process.

• Operating Budget: The Home Owner’s Association (HOA) budget must save 10% of the annual budget to reserves/savings. No exceptions. If the annual budget is $600,000, then $60,000 (or more) must be put into reserves.
• Litigation: Is the HOA named in a lawsuit? This can be problematic depending on the nature of the suit. It isn’t necessarily a deal killer; however, it is definitely a hurdle to get past!
• Ownership: If one individual (or entity) owns 10% or more of the units in a project, the project will not be approved.
• Delinquency: Are 15% or more of the owners in the project delinquent on their HOA dues? If yes, this can also cause a problem until the delinquency rate is reduced.
• Mixed Use Buildings: if too much of the square footage of a building is dedicated to commercial space (think businesses on the first floor and residential on top), this will also be a problem. The current guidelines have commercial/mixed-use space capped at 35%.
• Investment Properties: if more than 50% of the total units are rented out as investment (non-primary residence or second home), this is also likely to lead to a denial.

None of those points even gets into the additional information condo projects need to provide in terms of structural, safety, repair issues stemming from the condo building collapse in Florida in June 2021. I am not downplaying/glossing over the tragedy of that day/complaining about more guidelines. I’m simply saying this horrific event added more to getting condo projects approved.

What should buyers who are interested in purchasing a condo do? I suggest getting as long of a financing contingency as possible for the approval of the condo project itself. If a buyer is thinking of waiving the financing contingency, then they should speak with their agent about adding a special stipulation to the contract protecting their earnest money in the event the condo project ultimate is not approved.

I close lots of condos, but they can be challenging. Protecting one’s earnest money and doing some research on the project prior to making an offer is the way to go as unexpected things happen.

Are you in a position where you don’t know if a will be approved? If the condo is in the state of Georgia, contact me. I can help coach you on things to request/review to see if it is likely a condo will be approved and map out the best way to proceed toward buying the home.

Renovation Loan Overview

At Dunwoody Mortgage, we offer homebuyers many different types of renovation loan options.  A renovation loan is a single mortgage that funds the home purchase plus the cost of repairs and upgrades, all based on the as-completed value of the home.  The renovation loan eliminates the need for a second mortgage or construction loans that require payoff when the work is complete.

And current homeowners can use a renovation refinance mortgage to add in-law suites, accessory dwelling units (ADUs), theater rooms, master suites, and much more to their existing homes without having to move.

Renovation loan to value ratios are based on the lower of the as-completed cost (home purchase plus renovation costs) or the as-completed appraised value.  Homebuyers can obtain FHA renovation loans with as little as a 3.5% down payment and conventional renovation loans with as little as 5% down.  If the buyer qualifies based on income criteria, they can obtain a conventional renovation loan with only 3% down.

There are different types of renovation loans.  Each allows certain improvements but may limit other types of improvements.  Some loan types are simpler from a documentation standpoint.  Therefore, it’s critical for homebuyers (or current owners wanting to finance renovations) to discuss their plans in detail with their loan officer.  For example, some types prohibit structural changes while others allow them.  Some loan types allow detached ADUs while others permit only attached ADUs.

Renovation loans cover labor and materials costs, soft costs (eg., permits, fees, licenses), and contingency reserves.  Some loan types will include up to 6 months of mortgage payments if a homeowner must vacate the property during the construction period.

Some other renovation guidelines include:

• 15- and 30- year loan terms accepted.
• Single family homes, townhouses, and condos accepted.
• Second homes and investment homes accepted.
• 2 – 4 unit primary residences (think duplex and triplex) accepted.  The borrower must live in one of the units.
• Non-occupant co-borrowers permitted – for example, parents can cosign loans to help their adult children qualify.

Are you searching for homes in Georgia but just cannot find the perfect home?  Have you looked at older homes in great locations and wished that they had modern updates?  Perhaps a renovation mortgage can help you take an available older home and turn it into your dream home.  Give me a call to discuss renovation loan details. 

Homebuyer Sentiment Improves

In January, Fannie Mae’s Home Purchase Sentiment Index (HPSI) increased to its highest level in two years. Fannie Mae calculates the HPSI using responses to its National Housing Survey. Fannie Mae’s website states that the HPSI “is designed to provide signals on future housing incomes.”

Fannie Mae attributes the higher HPSI rating to the following factors:

• 82% of respondents stated that they are not concerned about losing their jobs in the next year. That is an improvement from 75% in December.
• 36% of respondents believe mortgage interest rates will decrease over the next year. That is the highest percentage of people expecting a rate decrease in the history of the survey. (28% of respondents expect rates to increase while 35% expect rates to remain unchanged.)
• 17% think that now is a good time to buy a home. That pessimistic outlook served to limit the HPSI increase.

The full HPSI index increased 9.1% from January 2023.

Although home affordability will improve if mortgage rates actually do decrease, other aspects of home affordability do not seem as positive. A large majority of survey respondents expect home prices will either increase or stay the same. With historically high home prices, the “good time to buy” survey results remains near its historical low. Notably, less than 20% of respondents reported that their income is significantly higher versus last year. This is also a survey low.

The Fannie Mae news release concludes with this statement, “All in all, while a lower mortgage rate path supports our forecast for a gradual increase in housing demand and sales activity in 2024, until we see a meaningful increase in housing supply, we expect affordability will remain a significant barrier to homeownership for many households.”

I believe that now is a great time to buy a home, because there is less competition. Less competition means that buyers have greater odds of winning the contract and that they can negotiate some contract details, like price and seller contributions to closing. When everyone believes that it’s a good time to buy, competition could get so intense that buyers must pay more than a home’s asking price to win the contract.

The challenge now is the supply of homes for sale. One buyer solution is to find a home in a great location that needs some work. Buyers can sometimes negotiate price more aggressively for homes that need updates. We at Dunwoody Mortgage can help with renovation mortgages. A renovation loan is a single loan that finances the home purchase, repairs, and upgrades, all in a single loan with a single underwriting process and closing. Some renovation loan products allow financing of “luxury” upgrades like swimming pools and outdoor entertainment areas. 

Considering buying a home that needs some upgrades so you can give it your own personal touch? Give me a call and we can review all options to find the perfect renovation loan for your specific needs. 

Area Median Income (AMI) loan programs

Last week I touched on a new down payment assistance grant Fannie Mae and Freddie Mac rolled out. This program is connected to Area Median Income (AMI). This $2,500 grant isn’t the only loan program out there tied to AMI. Let’s discuss the others!

First off, to qualify for anything listed below, the applicant must be at or below 100% of the area median income (AMI), which is mapped out to the street level. Meaning, it is different all over the country. Fortunately, there are online lookup tools for AMI. Fannie’s can be found here, and Freddie’s here.

For most of metro Atlanta, the AMI is $102,900. Qualifying at 80% of this threshold is $82,320, and 50% of this number is $51,450. With those details out of the way, let’s jump into the options.

100% of AMI:

Buyer’s whose qualifying income is at or below $102,900 but higher than $82,320 would be eligible for a better interest rate. To qualify, the buyer must be a first time home buyer (FTHB). The definition of a first time buyer is anyone who has not owned a home in 3 or more years. Those who qualify have the Loan Level Pricing Adjustments (LLPAs) waived. Essentially, credit score adjustments are waived. LLPAs also include other things such as the adjustment for purchasing a condo, which is a pretty significant adjustment.

I’m working with a client now who earns over $103,000 in total compensation. Their base income is below $102,900, and they qualify just on their base income. Since these AMI programs use qualifying income only, I had them apply for the loan using just their base income. This allowed us to waive all credit score adjustments. Since the home is a condo, I got to waive this adjustment too. Removing these adjustments allowed my client to get an interest rate 0.375% lower than it would have been otherwise!

Again, this is for actual First Time Home Buyers (FTHB). The next two are for anyone as long as their qualifying income is under the different thresholds.

80% of AMI:

This is where HomeReady (Fannie Mae) and HomePossible (Freddie Mac) come into play. Not only are credit score adjustments waived (as described above), the rates on these programs are better than the rates on a normal 30 year fixed loan. Qualified buyers will see a big improvement on the interest rate, and even more so if purchasing a condo.

As previosly stated, this is qualifying income. If an applicant gets base + commission and only need their base income to qualify (even if they barely qualify), this is the route they should take as the interest rate is noticeably different from a normal 30 year fixed rate loan.

Reminder… anyone can use HomeRead/Home Possible as long as their qualifying income is 80% or less of the AMI.

50% of AMI:

Again, any buyer can use this as long as their qualifying income is 50% or less of the AMI. This is the program I discussed last week. Buyers get the benefits of the HomeReady and HomePossible programs (as described above) along with the $2,500 grant. For more details, see the full post from last week.

And there they are! All the programs tied to Area Median Income (AMI). The Federal Housing Finance Agency (FHFA) uses these programs to help true first time buyers (who have the highest allowed income threshold) and all lower income qualifying buyers get into market to own a home. Regardless of what some may say on social media, home ownership is still a goal of a vast majority of people. The FHFA is using this to help those who need it get started on their home owning journey.

Wondering if you qualify to use one of these programs? If you are looking to purchase in the state of Georgia, contact me today. We can discuss your income and scenarios to make sure you take advantage of everything available to you!