Housing market subdued

Subdued. That’s how Fannie Mae’s chief economist describes consumer sentiment toward the housing market, as recorded in the enterprise’s latest Home Purchase Sentiment Index (HPSI).

To which I respond…. “Oh, really? I hadn’t noticed.”

For those of us in the real estate industry, it is pretty obvious the market is subdued. I get it. Home prices are high and not substantially coming down (if at all depending on your market area). Also rates remain stubbornly high compared to the past few years. It is easy to see how the market got subdued.

While the index increased in January for the third-consecutive month, it remained well below its pre-pandemic high.

One thing to note about this index, it looks at past actions/sentiment. The recent reading from early March included data collected in January. Meaning, the data is five weeks old at its time of release.

Something changed in late February and March. My phone began ringing more often. My clients are making offers on homes with multiple offers. A more “real time” analysis seems to show the market gaining some momentum. Perhaps rates jump over 7% again (they’ve tested 7% twice in the past several months, and both times moved back below 7% rather quickly) or another bank crashes and people get really nervous. It’s quite an interesting time out there!

Even with all of this happening, the Spring market is here. More people are out looking, and competition for the limited number of homes out there is beginning to increase. I’ll be interested to see the HSPI numbers later this year once we have the figures for March and April.

For those of you looking to purchase a home in the state of Georgia, contact me today! I can get you ready to make an offer in just a few minutes, and work toward getting your loan pre-underwritten to make your offer stronger in an increasingly crowded market.

Homeowner wealth climbs

Another report by the National Association of Realtors shows home values climbing and net worths increasing. I’ll touch on the numbers AND also why viewing a home as more than an investment is important.

First, the numbers. The report looked at home ownership in rising middle class markets over the past decade (2010 to 2020). An owner who purchased a home at a median sales price in 2010 of $162,000 now sees their home valued at almost $230,000. This represents over a 40% increase, which is pretty staggering considering home values struggled from 2010-2014.

Also of note this report doesn’t include home value increases in 2021 (which saw home values rise by 20% in some markets) or even year to date increases. Meaning, the current number is definitely more than this 40% increase from the report.

Owning a home as an investment is one thing, yet do not forget the other values a home brings to the table. A personal story… my first home purchase was in 2006, and the home lost about 80% of its value (not a typo). I purchased another home in 2013, and kept the previous home as a rental for several years. I eventually sold the home in 2018 for $3,000 less than what I paid for it in 2006.

While the home was technically a “loss” on paper, in reality for me, it wasn’t.

• I was able to own my home. I could paint the walls whatever color I wanted and never needed to worry about the rent going up.
• My mortgage payment was at least 40% lower than average rents at the time. Meaning, it saved me thousands of dollars each year.
• I also benefited from deducting property taxes and mortgage interest on my personal income taxes. This saved me money ever year in taxes owed to the IRS.

Even though I “sold at a loss,” I certainly did not regret the purchase. It also didn’t feel like a loss either. It is easy to get caught up in buying a home as an investment, and it can be a great investment. In the race to get under contract, remember, there are many, many reasons to own a home. It being a potential investment is only one of them.

Home values rising

As my colleague Rodney Shaffer touched on earlier this week, it is really competitive out there in the housing market. A by product of a seller’s market is housing prices go up and up and up.

FHFA’s recent report states home prices increased over 5% in the second quarter of this year. Sure, values dipped in the Spring due to Covid. Once people began feeling more comfortable and states began opening up, the housing market took off.

This trend is expected to continue as the economy rebounds and more and more people get back to work. Fortunately historically low interest rates are offsetting some of the impact of rising prices.

How does one operate in a hyper competitive market?

• One method is doing a TBD underwrite. Rodney touched on this in his last post too. Go ahead and get through the underwriting process. This way the seller knows your loan is already approved pending a contract, appraisal, clear title, and ability to insure the home. It definitely gives you an advantage over other offers that go through the absolute minimum to make an offer
• Another thing is being very available to view homes. Homes are going under contract in just a few days. Unfortunately, seeing a home come on the market mid week, it is probably under contract by the end of the week. If you see a home come on the market, and you love it, chances are everyone else loves it too. You’ll need to get out and see it within 24 hours.
  

The housing market won’t be like this forever, but right now, it is the hand we’ve been dealt. If you are looking to purchase a new home in Georgia, contact me today. I can help you get started, work with you to get a TBD underwriting approval, and give you an advantage as you make offers for your new home.

Trade wars and mortgage rates

Last week was to be the culmination of negotiations between the US and China about a trade deal. Then came some finger pointing, blaming, and honestly tactics you see as negotiations come to an end. What is all of this doing to the market? I’m glad you asked!

Stocks were all over the place last week and this week… down 500 points to open one day only to rebound and finish the day flat… down a few hundred points… down over 600 points Monday… up 350 points as I write this post. Stocks are all over the map.

Brace yourselves!

Mortgage rates are in a similar position. The talk toward the end of the year (slowing economy, trade wars, bad economic news) pushed mortgage rates lower. In fact, rates are well over a half a point lower today than they were this time last year. The many months of tariffs and speculation pushed stocks lower and rates higher.

What happens with the trade negotiations:

• If a trade deal is reached, one would expect stocks to rebound back to their all-time highs. Obviously this depends on the final details of the trade agreement, but overall expect to see rates get a little worse.
• If both sides walk away from the negotiating table, then expect stocks to get worse and mortgage rates continue to improve.

What to do? If considering a refinance, this is a good time to move forward. Mortgage rates are as low as they’ve been in over a year. If considering a refinance to lower one’s rate OR take equity out of a home, there hasn’t been a better time in quite some time to do it. If you’ve been sitting on the fence about buying a home hoping rates could go lower, this angle is trickier. On the one hand, sure, mortgage rates could improve should trade negotiations fail. On the other hand, rates were much higher than they are now when stocks were at all-time highs. If a trade deal is finalized, we could see stocks jump back up to or surpass the all-time high. If that happens, expect mortgage rates to rise. It’s no coincidence that mortgage rates improved towards the end of 2018 as stock values fell. The same will happen should stocks take off again.

With rates sitting as low as they’ve been in over a year, now is the time to take advantage of them whether you are looking to purchase or refinance. If you are in need of a mortgage in the state of Georgia, contact me today. I can have you ready to move forward on a purchase or refinance is a little over 10 minutes. It’s that easy!

A Special Offer from Dunwoody Mortgage

Thank you for completing our home buying educational series. To show our commitment to you, there is a special offer. Watch the video for more details.

 

Link for online questionnaire: http://vid.us/wmik9g

To contact any of us at Dunwoody Mortgage Services, click here!

 

Why is the economy now recovering faster?

Many ask themselves this question every day. It seems that the economy is starting to turn around but appears to be sluggish or slowly improving. I believe there are a few components that are causing a seemingly slow recovery.

 

1. The Government: Washington continues to battle over the debt limit, and fears of a fiscal cliff have hurt the growth of the economy. There is also a point when excessive regulation creates an environment for companies to keep excessive capital reserves. When things like this occur, it has an impact on the economy. The liquid requirements, stress tests, and capital requirements on banks have created less capital in the market to invest in business. Let’s face it, it is harder now than before to be an entrepreneur or live the American dream. Over regulation is as damaging as under regulation. Many feel we have gone from one extreme to the other.

 

2. Housing market: Our  country thrives during a strong housing market. It always has and always will. When new construction is booming everyone benefits. It has a trickledown effect on the economy that either directly or indirectly effects everyone in our country. While new home starts have been up in 2014, even that has slowed as we enter the second half of the year.

 

With the housing market impacting the economic recovery, maybe the better question to ask is “why are we not having a faster housing recovery?” That leads us into the third factor – lending guidelines – which will get its own post later this week.

Rise of the Interest Rates – Part 2

Like any good summer blockbuster, you need at least one sequel. As the End Begins for historically low interest rates (at least, today it appears that way), let’s take a look at what was probably the biggest influence on lowering interest rates.

The End (perhaps) has begun.

Way back in November 2008, the Federal Reserve announced a plan to purchase bonds. Interest rates dropped 0.500 in one day. Fast forward almost 5 years later, and the Feds are hinting at stopping this permanently. Actually, it is more than hinting. Some individuals on the Federal Reserve not only want it to stop, but want to begin selling the bonds they purchased.

As the Feds bought bonds, it increased their value and lowered interest rates. Way back when in 2008, I blogged about how interest rates were artificially low since the Feds were buying bonds and influencing the value. Interest rates wouldn’t be so low without the Feds involvement.

No one (not even the Federal Reserve) knew this bond buying program would last this long. The Feds have gone through stretches of buying… then nothing… a little selling… some more buying… their actions have been spread out over the years. Now, it will be difference. Sometime in the near future, the Feds will announce the bond buying party is over. They will also look to sell bonds.

Now imagine a bond market where new bonds are coming onto the scene AND the Feds are also trying to resell the bonds they have been buying since 2008. Sounds like a lot of bonds on the market? With that much supply, the demand will drop and so will all bond prices. Look for interest rates to dramatically rise when the Feds officially say the bond buying party is over.

In fact, the market is hedging that the announcement may come later this year. That is one of the reasons interest rates are inching upward… the economy is recovering, stocks are going crazy, and the Federal Reserve is itching to get out of the bond buying market.

Where does this leave those looking to buy a home? As interest rates rise, the purchase power of buyers decreases. In fact, over the past 30 days, buyers have lost 10% of their buying power. The monthly payment on a 30 year fixed mortgage is the same with a $330,000 loan amount with May 1st rates versus a $300,000 loan amount with today’s rates.

While you can’t control the market, I can get prequalify you today. Then you can get out there to look for your new home. Home prices are still low, and so are interest rates. Take advantage of this great combination while you still can.

Residential Real Estate is turning the corner

As a follow up to my post last week, what does residential real estate do next?

Although we still have a lot of challenges ahead of us, the latest information supports last week’s blog. The residential real estate market is starting to recover. The chart below clearly shows we have peaked in the 4 major categories when tracking defaults and late payments on mortgages.

As supply of foreclosures continues to decrease, the inventory level will continue to fall. A strong buying season next spring and summer could spring board us to a manageable inventory levels and move us toward the price appreciation phase of the recovery.

The biggest challenge that still exists is the fact that one in four homeowners with a mortgage owe more than their homes are worth. We have a solution to this with HARP 2 – the updated program from Fannie Mae and Freddie Mac.

If this program is successful, many of these homes will qualify for a refinance. This would reduce monthly mortgage payments by as much as $75-$300 per month. This translates to more disposable income for millions of homeowners that can begin to filter into economy. This will only help spur the economy forward and will aid in its recovery. Stay tuned for the next follow up.

What does residential real estate do next?

I think we are all tired of hearing about residential real estate market and the drop in value of our homes. As many us feel no turnaround is in sight, what do we do next?

Nothing and focus on the future. Why?

Unless you are in a position where you must sell your home, you are only sitting on a paper loss. If you are planning on being in your home for many years to come, you will most likely return to profitability on your home over time.

As bad the real estate market seems, if you do not yet own a home, you should jump in soon. Homes are at an unbelievable value right now with the combination of historically low mortgage rates and the current value of homes. Anyone could look like a Donald Trump three years from now in this market (well, maybe not the hair part).

For those of us (like myself) who have lost significant equity in our homes, the end is closer than you think. Mortgages going 90 days late (or more) have dramatically slowed down. Thus, the future supply of the foreclosure pipeline is also going to slow down.

We all hear about the shadow inventory. These are homes that people have defaulted on their mortgage, but banks have yet to put those homes on the market or completed the foreclosure process. Banks will begin pushing this inventory into the market starting toward the end of this year and the beginning of next. It will take 6-9 months to get the remaining inventory sold. In theory, some markets may wind up with a housing shortage toward the end of 2012.

Once the shadow inventory is gone, combined with the reduced amount of new homes being built, we will have created the perfect storm for an escalation in home values. The suppression in home values won’t last forever. So look to the future, it will be bright and the housing nightmare will be gone.