Home Prices Keep Rising

I have great news for current homeowners, the S&P CoreLogic Case-Shiller index showed that US home values increased at a 13.2% annual rate on average.  So homeowners continue building their wealth rapidly.  This was up from 12.0% in February. The biggest winners are in Phoenix, San Diego, and Seattle, where home price rose at 20.0%, 19.1%, and 18.3% respectively. Homeowners in the Atlanta realized increases of 11.2% annualized.  That ranks #17 out of the top 20 US metro areas.

While this news is great for current homeowners, it poses a challenge for homebuyers.  With prices rising and the intense competition for available homes, it’s even more difficult for homebuyers to win a contract.

Recent Mortgage Blog posts have covered techniques home buyers can use to win.  The strongest technique for buyers who need mortgage financing is to make offers without a financing contingency.

A Realtor recently explained to me that he now coaches his clients to make smaller down payments to keep more cash in reserve to cover potential appraisal shortfalls. Most houses Atlanta are now selling at prices higher than originally listed. But a high offer price, by itself, may not be attractive to sellers when mortgage financing is involved.

(Yes, I have used this cartoon recently, but I love the smiles on the sellers’ and their Realtor’s faces, so here it is again!!)

Here’s why, the mortgage LTV is calculated based on the lower of the contract purchase price or the appraised value.  If a home appraises for lower than the contract price, the mortgage amount will be based on the LTV using the lower appraised value, not the contract price.  An offer above the list price is not really convincing unless the buyer commits to cover any appraisal shortfall. And, in this rapidly appreciating market, it can be challenging for appraisal values to keep pace. The appraisers must look back in time to find comparable homes that have already closed. So appraisal values can lag market prices.

My Realtor friend has seen lower cash offers beat out higher financed offers when the financed offers did not include a commitment to cover an appraisal shortfall. So homebuyers with cash available to make larger (say 20%) down payments may want to plan to make 5% to 10% down payments and hold the remaining cash in reserve to cover a possible low appraisal. 

This type of environment is VERY challenging for homebuyers who can only afford a small down payment. Buyers with only enough cash to make 5% (or less) down payments have little room to cover appraisal shortfalls. My recommendation is this, talk with parents, grandparents, and in-laws about their ability and willingness to make cash gifts in the event of a low appraisal. Blood relatives can give home buyers cash for closing. This can be a great way to help young adults with little available cash actually win in this environment.

Do you know someone who wants to buy a home in Georgia? Are they uptight thinking about this crazy market? Please refer them to me. I’ll work carefully with them and do everything a lender can do to help them win the contract.

2021 Is Not 2008

Multiple clients have recently asked me if the currently hot housing market will lead to a housing bubble that “pops” like in 2008. I first tell them that if I could accurately predict the future, I would be sitting on a tropical beach, not working. Then we discuss market fundamentals. I found this recent article from Zillow comparing the current housing market to 2008. It provides MUCH more detail than you’ll find in in this blog post. I think reading the detail is a great time investment for homeowners and home buyers.

With my degree in economics, I tend to view everything in terms of supply vs. demand fundamentals. And this article explains why the fundamentals are different now:

Housing Demand: Several sustainable factors are driving housing demand higher now, in contrast to more artificial demand drivers that led to the 2008 bubble.

The massive Millennial generation is now entering the prime home-buying age. Tens of millions of Americans are approaching their early thirties – the median age for first time home buyers. An estimated 46 million Americans will reach age 34 in the next decade. This demographic fact will cause “built-in” home demand even if other economic factors change.

The “Great Reshuffling” is in its early stages. 95% of experts surveyed believe that working from home at least part-time will continue as the coronavirus fades. Millions of renters living in high-cost areas could afford to buy a home in less-expensive areas, thus taking advantage of increased teleworking opportunities. More companies are making flexible work arrangements permanent, so this could further fuel home buying demand in lower cost communities.

Housing Supply: The current supply of homes for sale is very limited relative to the demand. The mismatch of supply and demand is driving home prices up at a rapid pace. There were less than 1 million homes listed for sale nationwide in March. This is the 18th straight month of annual declines. The number of homes listed for sale in March was down 32% from March 2020! So what is causing the supply problem?

In the years after the Great Recession, the number of homes built was significantly less than the number needed to keep pace with population growth. Many home builders have sought to avoid risk by limiting construction due to memories of unsold homes and bank foreclosures. The supply of vacant homes is now at its lowest level since 1957 – over 60 years ago.

And, due to the pandemic, many potential home sellers decided not to move. Some were concerned that they would quickly sell their home but not be able to secure a new home, so they elected not to sell.

When you combine the demographics driving demand with these housing supply limitations, this article concludes that the 2021 housing market will not implode as did the 2008 market.

Keep in mind that one real estate fundamental is “location, location, location.” It is possible that certain specific markets may see a housing downturn. For example, the ability to work remotely may mean that people leave certain high-cost cities since they need not worry about commutes. This could drive home prices down somewhat in these specific areas. But I believe these fundamentals apply to the housing market nationally.

Are you (or do you know) a Millennial who wants to buy a home in today’s hyper-competitive market? If yes, call me. At Dunwoody Mortgage, we have tools to help our clients win the contract. I would love to help you buy your first (or not first) home, and we will make the process as easy as possible on you.

A good time to buy a home!

The holiday season is upon us! We are on the other side of Halloween, headed toward Thanksgiving and then the month full of holidays – December. Guess it is time to stop looking at homes…

Not true!

This time of year is a great to both sell a home and purchase a home. Here are some reasons why someone should consider purchasing a home now.

• There is less competition on the market for sellers during this time of the year. The same is true for buyers as there are fewer people looking to buy a home.
• This means both buyers and sellers are serious about making a real estate sale – no tire kickers this time of year. Everyone is buys with holiday planning and events.
• Thinking spring market? Well, a lot of buyers and sellers are thinking the same thought. Meaning, by the time the new year rolls around, there will be plenty of more homes and buyers out – more competition on both sides.
• Rates are still low. Mortgage rates are lower now than last year and close to their yearly lows of 2019.

On a personal note, I’ve personally purchased a few homes. The time I purchased during the holidays was easier than when I’ve looked and bought homes during the spring/early summer. Less inventory means a more focused search for finding a home. Fewer buyers meant the seller only had a few offers to consider instead of a dozen or more!

While the year is coming to an end, the housing market never really does end. It just keeps going and going. Now is a great time to get out there and find that home. If you are buying in the state of Georgia, contact me today. You can get prequalified in a few minutes, and a pre-approval in just a few more minutes. You’ll be ready to make an offer on a home in no time at all!

Home equity reaches all time high

The amount of equity in US homes now exceeds the levels seen before the housing crash. Available equity in the US is just over $6 trillion, which is 25% higher than the peaks seen during the housing boom.

Black Knight Inc uses data and analytics to provide forecasts for the mortgage and real estate industries. Their surveys indicate just over half of home owners have rates at 0.750% or higher than current rates. The average home owner has $140,000 in equity in their homes.

Meaning… homeowners have enough equity to avoid PMI (or get rid of PMI if currently on their loan) and lower their monthly payment by moving to a better interest rate.

With rates at yearly lows, and lots of equity in homes, it is the right environment for a refinance. So… should you refinance?

The main question I ask clients is “how much longer do you plan to remain in the home?”

• If the homeowner is looking to move in the near future, then it rarely makes sense to refinance.
• If the monthly savings begins to exceed $100 per month and a break-even point is around 2-3 years, then a refinances begins to make more sense.

Another question I get is “when should I consider refinancing?” It is a great question, and my answer is simple… if the current interest rate is 0.500% or higher than your rate, then at least have a conversation.

Own a home in Georgia and your interest rate is at or over 4.500%? Wondering if now is a good time to refinance? Contact me today. In just a few minutes, we’ll put together some numbers to see if a refinance could make sense. A credit pull isn’t required for this conversation.

Mortgage rates are as low as they’ve been in a couple of years. There is more equity than ever in US homes. If you are planning on remaining in your home for 2+ years, now may be a great time for a refinance.

Planning the move

At The Mortgage Blog, we talk often about making a plan for the mortgage. Today, let’s talk about a different type of plan – the move itself!

It makes perfect sense. I mean, we make plans to ensure the home loan goes smoothly. There is a plan for the home we look to buy (area of town, school districts, size of home, size of yard, etc.). I mean, why wouldn’t we tackle moving with the same concepts.

So here’s to planning the move! Where to begin? Let’s begin the same way we begin a home search, with a plan. Just like you’d sort potential homes by number of beds, baths, etc., let’s begin sorting our possessions into categories such as:

• clothes
• kitchen items
• plates
• glasses
• decorative items
• toys
• important documents
• toiletries
• books

Looking at an entire house full of items is overwhelming. Sorting through each category becomes more manageable. With the categories in place, it makes the next step of sorting easier.

Once everything is sorted, it becomes obvious what to do with all of the possessions. Reviewing each category separately, you can begin to see what items you want to keep, what items to sell/donate/give away, and what items simply need to be recycled or thrown away.

The final step is to begin packing as soon as you are able to do so. Planning a summer move? Well, you don’t need winter clothes in the spring. Pack them up! Use the same logic for other items you don’t need access to all of the time. By getting a head start on packing, it will lessen the burden when it comes to packing up the entire house.

Still overwhelmed? Packing and organizing just isn’t your thing? No worries! Lots of people don’t like this stuff. If you want to consult a professional, how about Amber Blandford with Joyful Spaces. Amber owns and operates the professional organizing services provided by Joyful Spaces. When some people run screaming in fear of organizing, Amber feels a rush of joy! She’ll help you get going!

So there are some thoughts on planning a move. Still need to plan on how to pay for the home purchase? I’m always happy to help! Contact me today. If buying in the state of Georgia, I can get you prequalified in a few minutes and have you well on your way to making an offer on your new home!

The mysterious case of home ownership

Home buyers continue to make assumptions (most of which are bad) when it comes to buying a home. Meaning, the options for education for buying a home are not as good as they should be.

That is why you have The Mortgage Blog!

This misinformation is undoubtedly holding some back from even looking to try and purchase a home. Let’s take a look at a recent survey by Fannie Mae to see some of the false assumptions buyers have about purchasing a home:

• most buyers assume the minimum credit score is higher than what is actually required to qualify
• most buyers assume the down payment is higher than what is actually required as a minimum down payment
• few home buyers are aware of low down payment programs such as Fannie Mae Home Ready requiring only 3% down

Under these assumptions, many potential buyers assume home ownership isn’t even an option and therefor do not do any further investigating into possibilities of buying a home.

The Mortgage Blog has covered all of these topics and more:

• Credit Scores: Low Credit Score Options, Credit Score Basics, Understanding your credit score.
• Down Payments: Small down payment loan options, Low Down Payment Options, Truth about down payments, Down payment basics
• Low Down Payment Programs: Changes coming to Home Ready, 3% down and a great Interest Rate, 3% down conventional loans are back

The Mortgage Blog has your back! Reading over these, one will learn a large down payment is not needed to buy a home (as little as 3% down on a conventional loan and 3.5% on an FHA loan), perfect credit is not required (down to 620 on FHA and conventional and sometimes as low as 580 on FHA), and there are programs out there for first time home buyers.

Been wanting to own a home but confused at all of the misinformation out there? Just want a straight answer or two? Contact me! I will be happy to answer your questions about home ownership. If you are looking to buy in the state of Georgia, I can get you prequalified and on your way to owning a home!

Mortgage rates rise again

Mortgage rates are on the rise (from the dead?!? 🎃🎃🎃Happy Halloween! 🎃🎃🎃) again in the month of October. Mortgage rates jumped sharply to yearly highs and to levels not see in over seven years. Mortgage rates for a 30 year fixed loan are nearing 5%. What is going on!?!

Mortgage rates rising can be scary!

A year ago, mortgage rates were just under 4%… that is about a full point lower than they are today. I know what a lot of people think… “it is because of the Federal Reserve raising rates.” Not exactly.

The Federal Reserve raised rates three times so far this year at 0.250% each time. That means the Federal Funds Rate is up 0.750% on the year, but mortgage rates are up almost 1%. Why the difference?

• the Federal Funds rate directly impacts the rate on second mortgages, car loans, credit card rates, etc.
• bond values – specifically mortgage backed security bonds (or MBS bonds)- impact rates for first mortgages. As these bond values decrease, mortgage rates increase.

That is what we’ve seen this year. Stocks are up on the year, the economy is better, and MBS bond values are down… meaning, higher mortgage rates. Remember the reason we saw all time historic lows for mortgage rates was two-fold.

First, the economy went through the Great Recession. In this environment, investors move money out of stocks and into bonds. The more money into bonds mean those values go up, and mortgage rates go down. As the economy improved, more money is going into stocks and out of bonds (bond values drop and mortgage rates rise).

Second, the Federal Reserve purchased bonds (quantitative easing or QE) to help push rates down to stimulate the housing market. The economy is now doing well, the Federal Reserve ended QE, and the Feds are now selling off some of the bonds they bought during QE. All of the factors pushing rates to historic lows are gone, and the current environment on rates is pushing them up. This trend doesn’t look like it will change anytime soon.

What can we expect? Earlier this year, mortgage rates jumped 0.75%, but recovered about half of those losses. We can expect to see some market fluctuations, and possibly some positive improvements in mortgage rates. Those looking for rates to get below 4% again? Those days are long behind us now, and probably not returning anytime soon.

Worried about rates going up even more? Considering buying a home but waiting for the right time? If you are buying in Georgia, contact me today. Let’s talk about what buying a home would look like for you, and see how the current dynamics in play will impact your next home purchase.

Should we worry about a new housing bubble?

 The last 5 years in the Real Estate market have been a real roller coaster ride. We have all seen significant fluctuations of the valuation of our homes over the last 5 years. Many have seen their home values decrease as much as 30-40% and most have seen a complete rebound in the current market. Those who bought a home since 2008 have most likely seen a significant increase in the value of that property.

 It is currently still a seller’s market with limited property available to purchase. Many ask how could we go from a significant over supply in the market to an under supply in such a short period of time?

 We have approximately 500,000 homes in the United States destroyed each year. This could be from natural disasters, fire, and demolition. We need to build approximately 800,000 net new homes to keep up with the growing population. Net new homes is the difference between new homes minus destroyed homes. Here in lies the problem.

 Between the years mid 2008 through mid 2013, only approximately 600,000 total homes per year were built. Subtract the estimated 500,000 homes destroyed, and there was only a net gain of 100,000 new homes each year.

 You do not need a math or economics degree to see the significant shortage that was created over the last 5 years. Some economists have indicated the rapid rise in housing prices may create a housing bubble again. In order to have another housing bubble, we would have to go into another over supplied market. My opinion is we are still digging out from the market being under supplied and this rapid increase in pricing is mostly a correction to the over supplied market from 2008-2013.

 Are home values going higher? The current trend is yes, home values are rising. If you look at historical data, houses appreciate on average between 4.5-6% per year over the last 30 years. I give a range because there are many ways to manipulate the data and a range is usually the best way to look at the growth.

 This 4.5-6% appreciation exceeds the average increase in income or inflation. As we experienced in the last few years, we know it can be a bumpy ride. Remember that buying and owning a home is still one the of the best investments you can make even if the value does not go straight up each year.

HARP revamped

The government announced changes to the HARP program this morning (October 24, 2011). I know there will be lots of questions about the program and the changes, so let’s try a “Q and A” approach to this post!

* I’ve offset the updated portions of HARP with bold colored text. *

Q: What is HARP?

A: HARP is the Home Affordable Refinance Program, but like characters from the Lord of the Rings, it has many different names including Making Homes Affordable, DU Refi Plus, Freddie Relief, and some even refer to it as the Obama Refi Plan.

Like HARP, Gandalf has many names including Gandalf the Grey, Gandalf the White, The White Rider, Greyhame, Mithrandir, Stormcrow, The Grey Pilgrim, Tharkun, Olorin, Láthspell… you get the idea.

Q: Does anyone qualify for HARP?

A: No. There are two main items that each current homeowner must meet to qualify. First, either Fannie Mae or Freddie Mac must own your mortgage. Second, Fannie or Freddie must have received your loan prior to June 1, 2009.

Q: How do I know if Fannie Mae or Freddie Mac own my loan?

A: Great question! It is nice that Fannie Mae and Freddie Mac have both created a look-up tool to make it easier to find out if they own your mortgage. To use Fannie Mae’s, use this link. For Freddie Mac, go here.

Q: Are there any other criteria to meet in order to qualify:

A: Yes, there are other items that potential borrowers must meet. These include being current on your mortgage payments, no late payments in the last 12 months, a qualifying credit score, and borrowers still must qualify based on their income.

Q: NEW – Are there loan to value limits?

A: No, there are now no loan to value limits to qualify. You can be 200% underwater on your mortgage and still qualify to use HARP. This was previously a major holdup to homeowners qualifying to use this program, and it has now been eliminated.

Q: If I have less than 20% equity in my home, will I have to pay PMI on the new loan?

A: No, you will not have to pay PMI on the new loan regardless of the loan to value/amount of equity in your home.

Q: I pay PMI now, can I qualify for the HARP program.

A: Your PMI payments on the new loan will not go up, but the transfer of your PMI from your current loan to the new loan will require some extra steps. Let your loan officer know if you have PMI on your current loan.

Q: I have a second mortgage on my home. Can I still qualify? Would I have to consolidate into one mortgage?

A: Yes, you can still qualify for HARP, but not by consolidating the mortgages. HARP does not allow homeowners to consolidate loans. The second mortgage company must agree to subordinate behind the new first mortgage. The revamped HARP may allow auto-subordinations to occur, which will make it easier for homeowners to use HARP if they have a second mortgage.

Q: Can I refinance any property?

A: Yes, you can. Primary residence, second homes, and investment properties can all qualify for HARP.

Q: NEW – Can I use HARP with any lender?

A: Yes, you can use any lender to refinance your mortgage. Prior to the loan to value changes from 125% to no limit, homeowners were required to use their current loan servicer to go up to 125%. That is no longer the case.

Q: When will these changes go into effect?

A: Lenders should begin coming out with updated guidelines in the next few weeks. Homeowners can more than likely begin using the revamped HARP in December 2011. The HARP is currently extended to go through the end of 2013, so there is plenty of time to take advantage of it!

Q: I have more questions, and would like to get started. What do I do?

A: If the property is in the state of Georgia, I can help get you started with the refinance process. Contact me and we’ll get underway with the process and answering any additional questions you have about HARP. If the property is not in the state of Georgia, contact a local loan officer/lender to get started.

Like the Lord of the Rings, the HARP has a lot of names and details that go with it. Unlike the Lord of the Rings, it won’t be an grand, epic, and sometimes exhausting 1,000+ page read cover to cover… but both come with a happy ending!

“Should I buy?”

I get that question a lot these days. “Should I buy a home?” It is a valid question to ask. Some may be concerned about the stability of their jobs. Others may be concerned about whether or not we’ve hit “the bottom” in regards to housing prices. I do understand the reasoning behind those concerns, but let’s look at it from another angle.

The chart above shows the correlation between purchasing power and home values. Currently, we are siting in one of the best periods for buying a home – low interest rates (purchasing power) with lower home values. This combination is very tempting, but still some are holding back. Why? It seems people feel rates are going to stay low forever. That isn’t the case. Interest rates are like stocks… sometimes they go up/down in price for unexpected reasons. For instance…

This time last year, interest rates were at the same point they are now. In the high 3’s. Then around the start of November, interest rates began to climb. Before the end of December (about a 6 week period), interest rates went from the high 3’s to the mid 5’s. It was an unexpected jump and put some people’s home buying/refinancing plans on hold.

What kind of a difference does that jump in rates make? If you qualified for a principal and interest payment of $1,000 each month, then you’d be able to purchase a home up to $250,000 with a 20% down payment while rates remain at their current levels. With rates in the mid 5’s, that same monthly payment of up to $1,000 would cause the purchase price to decrease to $220,000. That is a loss of $30,000 of purchasing power.

In short, the question you should be asking yourself is not “should I buy?,” but “what am I waiting on?” If you plan to remain in the area you are currently residing for the next few years, this is one of the best times ever to buy a home due to the combination of low rates and lower home values. If you are looking to purchase a home in the state of Georgia, I’d be glad to help you get started!