It’s been a seller’s market for many years now. It started as early as 2018 in some purchase price point areas – mainly first time home buyer price points back in 2018. It soon spread throughout the market, and became just as an extreme of a seller’s market as it was a buyer’s market during the housing crash well over a decade ago.
I can understand why buyers are frustrated and discouraged:
The easy one, I see it every day with my job and talking to buyers.
Home values continue to increase and are up by 7% (or more) year to date in some markets.
Mortgage rates are on the rise and have risen above 5% for the first time in many, many years.
Home affordability is close to an all time low. Combine the rising home values from the past few years with interest rates at 5%, and we’ve almost past the all time level for worst home affordability set in 2006.
While there are many things to be discouraged over, there are some positive signs:
As of this post, mortgage rates have calmed down. Rates shot up in Feb/Mar/Apr to their current highs. While rates are definitely higher now than at the start of the year, they have – for now – got into a steadier range.
Homes are now sitting longer on the market, and we are seeing more and more price reductions on listed homes.
The last several contracts my clients won included a sufficient amount of days for due diligence, the appraisal contingency and financing contingency.
Most importantly, more inventory is on the way from two sources:
A Realtor.com survey found 64% of respondents looking to sell their home by the end of the summer. Pandemic related delays are coming to an end, and people are going ahead with plans to move.
Forbearance programs are over. Homeowners have a lot of equity in their homes so expect people to look to sell a home they can’t afford to gain the equity out of it rather than allowing the home to go into foreclosure. This isn’t 2008!
It is still a seller’s market, yet signs show the market beginning to balance. I’ve been telling my clients to hang in there as signs are pointing to things easing up for buyers looking for their new home!
Part of the stimulus plan by the Federal Reserve during the Covid caused Recession was purchasing bonds. This was a repeat effort by the Feds just like they did during the Great Recession. Just as they stopped this effort several years ago, they started the process of ending bond buying again.
The process began in November 2021. The Fed was purchasing $120 Billion monthly in bonds ($80 Billion in Treasuries and $40 Billion in mortgage backed securities). It was reduced to $105 Billion (a $70 & $35 breakdown) in November and down to $90 Billion ($60 & $30) in December. This trend will continue until the Fed is completely out of the bond buying business.
What can we expect from Tapering? The main impact for readers of this blog – mortgage rates will rise. Rates were predicted to end 2021 in the low 3s for a 30 year fixed rate loan (they did) and move into the upper 3s by the end of 2022.
How will this impact home loans?
expect a sharp drop in the number of refinances in 2022
we may see a cooling of the housing market in terms of purchase volume, but not necessarily a cooling in housing prices
What will keep prices steady for home sales? For one, sellers who do not need to move may simply take their home off of the market if they cannot get a high price for their home. The bigger story here is the sheer number buyers still looking to purchase a home. Many would-be buyers stopped looking in 2021. With many still wanting to purchase a home, along with Millennials in their prime home-buying years, and an improving economy, signs remain positive for the housing market itself.
While we may be in a new year (hello 2022!), this year should still be another’s seller’s market (although possibly not as severe as 2021).
It is still a competitive market. With the numbers of homes expected to be sold this winter higher than normal, now is a good time to get ready to purchase a home. If you are buying in the state of Georgia, contact me today. In a few minutes, I can have you prequalified and working toward getting your loan pre-underwritten approved.
Here is a quick summary of how national policy priorities can impact conventional mortgage interest rate calculations. Conventional mortgage giants Fannie Mae and Freddie Mac charge what are called “guarantee fees” in their interest rate pricing models. These “g-fees” cover losses from borrower defaults, administrative costs and provide a return on capital. In 2019, g-fees amounted to 58 basis points on average for a 30-year fixed rate loan. Lenders typically pass these g-fees along to borrowers in the form of higher interest rates.
Congress and the mortgage giants can modify mortgage interest rate fee structures to generate additional revenue to cover national policy priorities. For example, in 2020, Fannie and Freddie implemented a 50 basis point fee specific to mortgage refinances (dubbed the “Adverse Market Fee”). The fee only applied to refinances, not purchases. This fee caused rates on refinances to be slightly higher than rates on similar home purchase mortgages. The refinance fee was eliminated earlier in 2021.
Congress sometimes mandates fees to pay for specific legislative priorities. For example, in 2011, Congress applied an extra 10 basis points to the g-fees charged by Fannie and Freddie. Congress passed this extra fee to cover a three-month payroll tax cut. The fee was set to expire in September 2021. Recently, some Senate members have proposed moving the expiration date from 2021 to 2032. They estimate the extra g-fee will generate $21 billion in revenue to help fund the estimated $579 billion designated to pay for roads, power grid modernization, and rural broadband expansion. Mortgage industry and housing advocacy groups – often in opposition on other policy proposals – are now united in opposition to this use of g-fees. The infrastructure package does not have a housing component. So this proposal will tax home mortgage holders without benefitting national housing concerns. People who pay cash for their homes will not pay this fee.
How will this impact you? If the fee is extended, there’s no change to what people have experienced since 2011 in terms of applying for a home loan or changes for doing a home loan. If the fee is allowed to expire, it won’t cause a significant change in interest rates as the fee is minimal. Ultimately there will be a minimal impact to consumers. I just find this topic interesting.
All of this said, if you (or someone you know) want to buy a home in Georgia, now is still a great time to buy as interest rates are near historic lows. These current low rates increase your buying power. And Dunwoody Mortgage offers tools to help home buyers win the contract in this competitive market. Contact me to get started.
Unison’s March 21 homeownership survey gives interesting insight regarding how the pandemic has impacted Americans’ feelings about their homes. It covers many different aspects of American home ownership in 2021. Here are some points that I find most interesting.
The pandemic forced Americans to do everything from home, so homes became schools, offices, gyms, and more. Therefore, 64% of respondents stated their home is more important now than ever before. 91% of respondents stated that owning a home makes them feel more successful, stable and secure. Before covid, 58% of homeowners felt an emotional attachment to their homes. After the pandemic changed our lifestyles, 70% of owners now feel an emotional attachment to their homes. Millennials reported the highest level of emotional attachment to their homes.
90% of respondents view their home as an asset as opposed to a burden. However, 29% of owners had to take some sort of action to keep up with their mortgage payments due to pandemic impacts. To weather the storm, homeowners accessed retirement savings, delayed remodeling projects, rented out portions of their homes, and sought forbearance relief. The study noted that Millennials reported the greatest economic impacts from covid.
45% of homeowners are planning a 2021 home improvement project. 33% of mortgage-holders say they would tap their homes’ equity to finance a home improvement. That’s up from 21% before the pandemic. The most popular planned renovations are kitchen and bathroom remodels. Only 4% believe creating a dedicated home work space will most improve their home life.
Finally, 37% of Millennials stated that the pandemic has made them consider moving. The biggest drivers of the desire to move are (1) needing more space, (2) reducing living expenses, and (3) job location flexibility.
The study has a lot more detail than I can cover here. Check it out if you want to learn more.
From a mortgage perspective, interest rates are still close to historic lows. Now is still a great time to buy a new home or do a cash out refinance to fund a home improvement project. If you know someone in Georgia considering a move or a refinance, please refer them to me. The Dunwoody Mortgage team can help our buyers win purchase contracts and will make the mortgage process as simple as possible.
As the Mortgage Blog has stated many times recently, buying a home in metro Atlanta is now a very competitive endeavor. Home buyers seek every possible advantage to win. A recent Redfin report documented the effectiveness of certain strategies. Here’s a quick summary:
All cash offers increase the buyers’ odds of winning by 290%.
Waiving the financing contingency increases the buyers odds by 66%.
Using a price escalation clause has no significant impact.
Waiving the inspection contingency has no significant impact.
I must say that the last two surprised me. But let’s focus on the effective strategies. The impact of making a cash offer is obviously huge, but one key in this market is that now cash offers must match or exceed the list price, or the offer may not win.
What if you have the cash but would prefer to finance some of the purchase? You have two options. I’m currently working with a client who made an all cash offer. After winning the contract, he applied for a relatively small mortgage. He could pay all cash, but he’s using the mortgage to keep some money invested in the stock market. With this strategy, we can close on time and it doesn’t concern the seller. But the buyer has no financing contingency or appraisal contingency protections. If the appraisal is low or underwriting denies the loan, the buyer must still close using his cash or will most likely lose his earnest money.
Another strategy for a cash rich buyer is to close the purchase with cash and then immediately do a home loan after closing. We call this a “delayed financing loan.” This gives the buyer the advantages of a cash offer and the ability to finance the home later and recoup some of the assets used for the purchase. Note that all of the assets used for the purchase must be from the buyer’s own accounts. The buyer cannot borrow money from a relative or anywhere else. If any of the funds for the cash purchase (even only $1,000) are from an account not owned by the buyer, then this quick finance option is not available. If not all the funds came from the buyer, then the buyer must wait 6 months after closing the purchase to do a refinance loan. And note that interest rate pricing on the delayed financing loan differs from the first approach described above.
Waiving the financing contingency is an effective tool for buyers who don’t have the cash to purchase without a mortgage. But it can be a risky strategy if the buyer has not addressed financing first. At Dunwoody Mortgage, we can underwrite loans with a “to be determined” property. Once approved, the buyer can confidently waive the financing contingency and offer a relatively short closing date. This is a great way to strengthen your offer versus your competition. Not every mortgage lender can offer TBD underwriting.
Are you buying a home in Georgia and want to win the bidding war? Call me about one of these options today. I’ll work with you to help you win the contract and close on your new home as soon as possible. (And for good measure, here are a few more creative Realtor ideas for winning the contract. I can help you with #4!)
A recent National Association of Realtors (NAR) economist blog noted that 24% of first-time home buyers obtained FHA financing in January, while 59% obtained conventional mortgage financing. This is very interesting as it contrasts the picture painted in my blog post from September 2019. That post noted that 75% of Millennial home buyers obtained FHA financing. While not all first-time home buyers are Millennials, the recent data still appears to be a significant change from only about 18 months ago.
FHA mortgages once attracted many first time home buyers with a 3.5% minimum down payment. But beginning in 2014, home buyers could obtain conventional loans with only a 3% down payment. FHA loans also appeal to home buyers with lower qualifying credit scores. Conventional interest rate pricing charges higher interest rates for lower credit scores. Because FHA pricing places less emphasis on the borrower’s credit score than conventional loans, FHA pricing was often more attractive to buyers with credit scores less than 700, especially when those buyers could only make a small down payment.
Note that “standard” conventional loans with a 3% down payment require the borrower to pay a higher interest rate and mortgage insurance premium as compared to 5% (or more) down conventional loans. But conventional mortgage giants Fannie Mae and Freddie Mac began offering special loan programs (called Home Ready and Home Possible, respectively) to home buyers whose annual income falls below a threshold (currently about $65,000 in the Atlanta area) and with credit scores of 680+. With these programs, 3% down conventional loans become very competitive with FHA loans for buyers who qualify.
When a buyer qualifies for the Home Ready / Home Possible program discounts, they can save money in two ways as compared to FHA financing. First of all, conventional loans do not require up-front mortgage insurance. FHA loans require a 1.75% up front mortgage insurance premium that is typically rolled into the loan amount. Secondly, when the borrower’s equity reaches 20%, the conventional loan mortgage insurance can be cancelled, even when the borrower initially made only a 3% down payment. Borrowers who use FHA mortgages with less than a 10% down payment must pay monthly mortgage insurance premiums for as long as they own the mortgage. The monthly FHA insurance premium is 0.85 for all loans with less than 10% down payments. That is about $177 per month on at $250,000 mortgage. The fact that such a large insurance premium is permanent makes many buyers consider conventional loans more favorably.
Are you considering your first home purchase? Be sure to explore all the loan programs available to you, including conventional and FHA mortgages. Give me a call and I’ll help you compare your options to determine which will give you the lowest total payment, considering both the interest rate and the mortgage insurance components.
As we have mentioned in multiple recent Mortgage Blog posts, it is a VERY competitive market for Atlanta home buyers. I’ve heard a 15-year veteran of the mortgage business say, “I’ve never seen it like this.” I have a Realtor friend who listed a home on a Friday in late January. By the following Monday she had received 106 offers.
A recent Wall Street Journalarticle covered some painful mistakes that home buyers have made in their zeal to win the contract. It’s a fascinating review of decisions some buyers wound up regretting in this uber competitive market. The article noted that “pandemic buying fever” has sometimes led to buyer’s remorse. A key point for home buyers to consider is that a house, “unlike expensive jewelry or clothing, can’t be returned if the buyer is unhappy with it, so a cardinal rule of home buying is that you shouldn’t rush into a purchase.” Critical home buyer mistakes included:
Waiving home inspections that could have identified unacceptable or expensive problems like woodpeckers and wasps.
Accepting home “issues” that one would not accept in a more “normal” market – the article’s example was toxic black mold and asbestos.
I have recently seen home buyers risk their earnest money with zero-day financing or appraisal contingencies. In my opinion, a zero-day financing contingency can make sense when underwriting has already approved the buyer (see the blog post mentioned below), and a zero-day appraisal contingency can make sense when the borrower is making a large down payment. But these approaches do have risk and the home buyer should thoroughly understand the situation before taking these (calculated) risks.
My recommendation is this…plan ahead and think carefully about what you are willing to risk in this market. Then make offers that are as aggressive as possible, given your risk tolerance. Perhaps you are willing to offer a zero-day due diligence period with a $5,000 earnest money payment. In that case, you may still want to pay for a home inspection to protect your long-term interests. If the inspection identifies an expensive structural issue, it may make sense to terminate the contract and forfeit the earnest money rather than close on a house that will require tens of thousands in repairs. Perhaps you have available cash, and you are willing to risk having to make a larger down payment than you originally planned, in which case you may consider a zero-day appraisal contingency.
One of our recent posts described a smart way for buyers to claim a competitive advantage in this market. I’ve used this approach with several buyers in recent months and it has worked well. In one case, one of my clients beat a cash offer!! If you want to compete more effectively in this home market without taking more risk than you can accept, call me and we can discuss a “TBD property underwrite.” I would love to help you succeed and win, even in this challenging market.
Covid continues to cause interesting (and some perhaps fun) trends in housing.
A January 26 Wall Street Journalarticle covers a new covid-induced housing trend…Millennials seeking to escape covid risk in urban environments are feeling isolated and lonely, so they are moving to remote co-living spaces. In these residences, the tenants rent furnished rooms in big shared homes. Former vacation homes, country manors, farms, or converted hotels are now serving as these communal living spaces.
The trend began in Europe. One example is in a village outside of Berlin and is described as a “5-acre property, based in a converted manor, includes shared offices, a sauna, a swimming pond, a yoga studio and 20 rooms for guests who get three meals a day and pay less rent than for a Berlin apartment.” The article states that every room is leased.
This trend’s popularity is also growing in the US, as more large companies announce delayed returns to office work. A company called Outsite operates multiple US facilities in places like LA, Lake Tahoe, Santa Cruz, and Oahu. Outsite’s international locations include France, Portugal, and Barbados. The site in the Canary Islands really got my attention. Right now, weekly rentals there are listed at $300! I’m ready to go. Here’s a photo of the Canary Island location.
As vaccines continue to roll out and the world returns to a more “normal” situation, these trends may fade away. People will likely transition back to more traditional single family living situations.
If you work in Georgia and decide to follow this trend, you might eventually return. When you do, please contact me if you want to buy a house. Mortgage interest rates will likely stay near historically low levels for a while. (They may move up from the current rock-bottom levels, but I suspect they will still be low, from a historical perspective.) The Dunwoody Mortgage team makes home buying efficient and we help you every step of the way. We even have tools to help you win a contract in this most competitive buying environment. Let me know if you want to learn more. For now, just join me in dreaming of living and working in the Canary Islands for a month!
A recent mortgage industry headline surprised me, “Many Homeowners Still Missing Out.” The subheading read, “80% of owners have not refinanced.” Given that interest rates have reached historic lows, with less than 3.0% rates often available for 30 year mortgages, I’m really surprised that so many people have not refinanced.
The article provides the following statistics:
Almost 30% of mortgage holders do not know their current interest rate!!
Almost 20% of borrowers have refinanced in 2020.
Over 25% have considered refinancing but have not done it.
And over 50% have not even considered a refinance.
I am now doing refinances for customers whom I refinanced in 2019. Mortgage interest rates have continued dropping to the point that a second refinance now makes financial sense for some of my clients.
If you have a mortgage on a Georgia home, here are a couple of clues that you might want to talk with me about refinancing now:
Your interest rate is above 3.5%. The rate typically shows on your mortgage statement. Take a quick minute to look at it.
You obtained a FHA loan more than 2 years ago. With recent home appreciation, it’s worth exploring a conventional refinance in hopes that you can eliminate the FHA mortgage insurance.
The ultimate consideration is how much will the loan cost as compared to how much you can save monthly. Yesterday, I talked with a former purchase client. In 2016, she bought a house with a 3.5% down FHA loan at a 3.75% interest rate. That was a great deal for her….back then. Since she bought the house, it has appreciated over $100,000. With her increased equity, doing a refinance now would lower her interest rate almost a full percentage point, and she would eliminate the FHA mortgage insurance that costs her $155 every month. Her total monthly savings could be around $330. I estimate a refinance will pay for itself in just over a year.
What about you? Is your interest rate over 3.5%? Do you have a 2 year (or older) FHA loan? Do you want to give yourself a raise by lowering your monthly mortgage payment? If yes, give me a call. I can easily help you analyze your current situation to see if a refinance makes sense for you. Don’t wait too long. Who knows when interest rates will start rising.
A recent real estate article noted that since the pandemic began affecting the market, “43% of all homebuyers have faced competition in buying their homes.” It’s a sellers’ market, and that makes it challenging for home buyers.
Given the historically low interest rates, many people are looking to buy homes now. But the current supply of homes for sale is relatively low. In mid-July, the National Association of Realtors’ official listing site showed housing inventory down 32% compared to July 2019. Realtors report that potential home buyers are often getting very frustrated. Bidding wars frequently result over homes listed for sale.
Working with a good buyers agent can help a buyer compete. Here are some other suggestions to improve a buyer’s odds of winning a bidding war:
No strings attached – the “cleaner” the offer the better. A buyer should remove every contingency she can live without. It is best to avoid making an offer contingent on selling your current home. Making a contingent offer lessens its appeal.
Leverage your strength – If you do have to sell your current home before buying, negotiate a short-term rent back of your home after closing. This could give you time to close on your purchase without moving twice. Since it’s a seller’s market, use that to your advantage when negotiating your sale. (Other options, if you must sell your home, include obtaining a short term rental or living with relatives.)
Offer to take the house as is – be sure to get a home inspection, and feel free to cancel the deal if the inspection uncovers a major problem, but otherwise, resolve to deal with minor issues yourself, after closing on the purchase. Requiring the seller to resolve relatively minor issues can make your offer less competitive.
Add a personal touch – I’ve heard of potential buyers hand writing a letter to the seller and describing how the home is perfect for the buyer’s family. Even include a photo of your family. And don’t discuss potential changes you want to make to the house if the seller can hear. Your planned changes may turn them against you.
Speed is of the essence – some buyers want to close quickly. Offer to close as quickly as you can.
Choose a local lender who will help you – I always ask buyers’ agents if they want me to call the listing agent and explain how strong my buyer is. That could help sway the seller. If they don’t want me to call, I ask them to have the listing agent call me. I go to bat for my clients whenever I can. Also, I can obtain underwriting approval on my clients’ applications using a TBD property. The buyer is approved by underwriting before she makes an offer on a home. I then give the buyer a letter stating they are approved by underwriting. Note this – “approved,” not “pre-approved” or “prequalified,” but approved. I did this for clients in July. Their offer beat out an all cash offer, because they could proceed without a financing contingency. Obtaining UW approval before they made their offer very strong, allowing us to remove the financing contingency and close quickly.
Do you want to buy a home in Georgia and want to make the strongest offer possible? Give me a call and let’s start the process. I can get you approved before you make offers, putting you in the strongest possible position to win in this competitive market. And I will go to bat for you to help you win.
Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services and a writer for “the Mortgage Blog.” If you would like to be a guest writer for "the Mortgage Blog" please contact Clay for details.
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