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Amid the Pandemic, Mortgage Rates Set Records

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As residents of the U.S. sort through the many updates on the progress of containing the outbreak of COVID-19 cases, anxiously await news for a vaccine and patiently waiting to find out when life will return to some sense of normal, the U.S. economy fluctuates with the positive and not so encouraging updates.  Most recently, the news of the economic uncertainty due to the pandemic has impacted mortgage rates, yet again.

According to an article published by CNN, mortgage rates recently dropped below 3% for a 30 year mortgage.  This drop marked a 50 year record low for mortgage rates.  As a result, many home buyers, and those that were sitting on the fence debating purchasing a home, have decided that there’s no time like the present to make the move.  The demand for homes has increased, especially since the lower rates has allowed more prospective home buyers to afford homes that might have been just beyond their reach just a few short weeks ago.

However, just as the daily news cycle is filled with promise coupled with concerning medical and economic updates, the good news about rates is wrapped with a warning of what may be on the horizon.  Since the rise in coronavirus cases seems to be surging again, more job layoffs and even job losses could be inevitable.  Obviously, as unemployment rises, home buyers can be hesitant, if not unable, to purchase a home.

As the article quotes Danielle Hale, chief economist for Realtor.com, things could look up soon, “On the upside, signs of progress toward a coronavirus vaccine give hope that there’s a path to a new normal where health concerns don’t dominate decision making.”  We all hope that comes sooner rather than later.

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How Will Homeowners Be Expected Pay Back Paused Mortgage Payments?

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As American homeowners suffer economic losses due to the global pandemic, mortgage companies allowed their borrowers to pause their mortgage payments, also known as forbearance.  This offers some relief and peace of mind to homeowners struggling to pay their monthly bills due to job loss or a reduction of pay.

However, in recent weeks, incorrect or misinterpreted information has caused some homeowners to panic, believing that once the forbearance period comes to an end, they will be expected to pay their missed mortgage payments back in a lump sum.  An article published by HousingWire.com sets the record straight.

The article, written by Ben Lane, indicates “Fannie Mae and Freddie Mac each issued a statement Monday, reiterating that borrowers are not required to repay their missed payments all at once when their forbearance period ends.” Additionally, Lane quotes the Federal Housing Agency Director, ‘“During this national health emergency, no one should be worried about losing their home,” FHFA Director Mark Calabria said in a statement. “No lump sum is required at the end of a borrower’s forbearance plan for Enterprise-backed mortgages.”’

Its important for borrowers and lenders to understand and communicate the next steps and what will be expected of the borrower once the forbearance period comes to an end.  Many lenders will offer a repayment plan, a payment deferral or a modification of the loan.  The borrower should reach out directly to their lender and discuss the details of these next steps.

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Why is the Number of First Time Home Buyers Declining?

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With reports of continued low mortgage rates, many might assume the housing market would be booming with home sales.  However, it would seem that some other economic factors are affecting potential home buyers’ decisions.

The number of adults planning to purchase a home has dropped 2% since last year, and the number of first time home buyers among the groups looking to purchase a home is down 5%, from 63% in 2018 to 58% this year.  According to an article published by CNBC.com, written by Anne Cusak, a lack of affordable home coupled with worries about the economy and personal economic stability are to blame.

According to Rose Quint, the National Association of Home Builders assistant vice president for survey research, “…potential buyers are held back by the lowest levels of affordability in a decade.”  Many first time home buyers are limited in their budget; as home prices increase, they aren’t necessarily able to keep up.  Since the lower end of the real estate market has seen the fastest price increase, these home buyers are being priced out. 

Even if the home prices are within reach and the mortgage rates continue to stay low, prospective buyers are less than eager to jump in when they feel their personal finances are on shaky ground.  Cusak notes, “Buying a home is an incredibly emotional experience, and potential buyers will often pull back when they have the slightest fear of losing their jobs or losing any income.”

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What Influences Mortgage Rates?

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Keeping up with the ups and downs of mortgage rates can be daunting.  As home owners consider refinancing their home and buyers try to determine the right time to purchase a home and secure a mortgage rate, it can feel like they are aiming at a moving target and aren’t sure when to actually lock in a rate.  It can make many wonder what causes the rates to fluctuate?  The answer is, many factors impact the mortgage rates.

In an article published by Bankrate, Deborah Khearns thoroughly details several of the reasons mortgage rates increase and decrease over time.  As many know, the Federal Reserve can play a roll in mortgage rate changes.  As the article states, “The Federal Reserve doesn’t set mortgage rates but, sometimes, their decisions can indirectly influence them.”

It is probably pretty obvious that the economy and its current conditions influence the mortgage rates.  It may be surprising, however, to learn that it’s a bad economy that actually helps improve mortgage rates for buyers.  As the economy becomes less favorable, investors tend to move toward safer investments like bonds.  According to Greg Mc Bride, Bankrate’s chief financial analyst, increased number of bond investors results in “…pushing bond prices higher but the yields on those bonds lower.”

The article goes on to discuss the influence of inflation and origination costs as well as the borrower’s financial and credit history and the impact of those on rates.  Read the entire article.

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Why is National Delinquency Rate is Important?

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The national delinquency rates on home is a number that may not be tracked diligently by real estate professionals.  It isn’t as widely tracked as mortgage interest rates, average days to close and housing price fluctuations, but it may offer insight to the health of the American economy.

The Mortgage Bankers Association released the most recent national delinquency rate and it is lower than it’s been in 18 years.  According to an article published by the Chicago Tribune, “That’s a big deal, because when large numbers of owners do the opposite – stop paying on their home loans for months at a time — the entire economy feels the effects. Spiking delinquencies in 2007-2008 ushered in the global financial crisis and spawned tidal waves of foreclosures that devastated borrowers and their communities.”    

It sounds like it is some great news, but what has caused the number of delinquencies to drop?  Perhaps, and most likely, we can thank the underwriting rules that were tightened up back in 2010.  Specifically, mortgage lenders are requiring a high FICO score to qualify, avoiding approving mortgages to high risk borrowers more likely to default.   These changes, coupled with continued low rates, a healthy economy and a drop in unemployment are helping ensure more home owners stay on track with their payments.

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Housing Market Predictions: Are We In Store for a Crash?

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Could a housing market slowdown, or worse a housing market crash, be looming?  If Lawrence Yun’s, National Association of Realtors chief economist, analysis is correct, the answer is a resounding “no”.   In fact, the slowdown in the housing market that some areas are experiencing is due to “insufficient supply”, not a lack of demand by buyers.

In an article published by Realtor Magazine, many positive signs for the housing market are present.  For example, the article states “home price growth remains strong in markets across the country—about 5 percent on a nationwide basis so far this year”.

However, the negative effect of the lack of housing supply is that the prices are being driven into price ranges that price some buyers out of the market.  A solution to that issue,the article notes , would be to have builders increase the supply of homes available.

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Real Estate Experts Provide Advice for Investors

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Real Estate is a popular investment vehicle for American investors.  In fact, 89% of investors put their money into real estate, according to a report by Better Homes and Garden Real Estate.  In a recent article published by Forbes, real estate experts provide reminders and warnings regarding real estate investments in order to help insure a profitable investment.

One real estate professional, Lee Kiser, reminds investors to study the real estate taxes of a property before making the purchase.  Its important to understand what the upcoming tax liability may be down the road, and a real estate tax professional may be able to help an investor prepare accordingly.

Shelling out the money for a professional inspection and appraisal might not be top of the list for investors, but according to Angela Yaun of the Day Realty Group, it may help save more money for the investor later.  The investor may be able to get items covered under a home warranty if they are proven to be functioning at the time of the inspection.  It can also make the buyer aware of repair expenses they should plan for later.  A professional appraisal will provide the most accurate square footage and appraised value, important facts to have on hand when the investor is looking to sell their property.

The article goes on to detail the importance of understanding Home Owners Association restrictions, obtaining a Master Land Use plan for the area surrounding the property, and getting accurate and professional estimates for repairs, holding costs and closing costs.

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Photo Credit: Antonio Carlos Cascatrina

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Could 2018 Be The Right Time to Sell Your Home?

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If you have been waiting for the right time to sell your home, there are many reasons experts are saying that the time has come.  In an article written by Devon Thorsby, published by U.S. News and World Report, the reasons that 2018 might prove to be a good time to sell a home are listed.

First and foremost, the past few years of low inventory of homes for sale has left prospective home buyers more than ready to scoop up the perfect house.  Their frustration with available homes has led many house hunters to begin their search earlier than normal with the hopes of purchasing a home before other buyers make their offer.

Additionally, interest rates are still relatively low.  They have been slowly creeping up and are expected increase to 5 percent in 2019.  Many home buyers are motivated to purchase a home sooner rather than later in order to secure a lower interest rate.

Thorsby details additional rationale for putting that “For Sale” sign up this year.  Read the entire article here.

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Why Are More Americans Choosing to Rent instead of Buy Homes?

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The debate over why households choose renting over purchasing a home in the United States has been a hot topic lately.  Analysts have indicated the young generation of millennials are not interested in being tied down to home ownership and prefer renting over buying. However, an article published by CNN by Daniel B. Kline, points out that it is not just millennials who are opting to rent instead of making a home purchase.  Kline also notes that the decision to rent may not be a lifestyle choice, but a financially driven decision.

It is true that the number of households renting a home has increased over the past decade; almost by 10 million.  It is also true that 65 percent of household headed by those 35 years old and younger rent their homes.  However, it’s the heads of households aged 35-44 that made the biggest increase over the past decade.  In this age group, “the percentage of renters jumped from 31% in 2006 to 41% in 2016”.   Heads of households between 45-65 renting homes also increased over the past decade.

However, these households may not all be renting based on lifestyle choices.  In fact, research indicates that many who rent homes would actually like to purchase a home someday.  Further, surveys show that 65% of renters indicated that they are renting homes due to circumstances, not purely by choice.  Circumstances such as increased home prices and tougher mortgage standards may be partially to blame.

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Photo Credit:  Mark Moz

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Low Inventory is Concerning Real Estate Professionals

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The low inventory of homes for sale is causing some real estate companies to panic a bit.  The number of homes for sale March 2017 compared to March 2016 fell seven percent according to the National Association of Realtors.  In an article published by CNBC by Dian Olick, she quotes Glenn Kelman, CEO of Seattle-based Redfin, a real estate firm, “”The inventory is reaching historic lows. It’s never declined faster than it did last month. It’s freaking us out — it’s affecting our business; it’s limiting our sales.”  

The cause of this low inventory issue can be attributed to a few factors.  To begin, many homeowners are deciding to become landlords.  Instead of selling a home when moving on, homeowners are holding on to their home and renting it out.  Another reason is new home construction is declining.  On average, home builders are building about 18 percent fewer homes than the historic average.

The good news for home owners looking to sell, homes are selling quickly and some are even selling above list price.  Homes in April 2016 went under contract in 50 days, as of April 2017, that number decreased to 40 days.

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