Higher Rates, Homes over Stocks, Low Inventory, and the Marshall Fire

FHFA Director Sandra Thompson Changes Course

Mark Calabria was the previous FHFA Director and personally my arch enemy #1!  While he led Fannie Mae and Freddie Mac’s conventional financing, he continued to make decisions that increased the cost and limited the access when we all needed help the most.. in the middle of the COVID crisis.  He did it to increase reserves for Fannie and Freddie in hopes to leave conservatorship and go private.  When President Biden was about to fire him; he quit instead.  No one cried.

In came Sandra Thompson, with incredible experience and conviction to right many wrongs.  One of the first things she did was reverse the delivery fees Calabria added to refinances, second homes and investment properties.  This immediately dropped interest rates and gave affordability a boost.  Well she changed directions on us without warning earlier this week.  Here is a text from her to a good friend who used to work at HUD…

The fee increases were put in place to help address the rapid and historic home price increase that took place last year. There is an existing private market for many of these super jumbos (i.e. high balance loans) and they are dilutive to the mission loans. The fee is not applicable to FTHB with AMI 100% or less. Also, the fee for seconds was not commensurate with the fee for investor loans and had not been updated in awhile and these loans help subsidize the affordable loans.
Not a risk issue –
I also asked Fannie/Freddie to look at the whole pricing schematic this year.  We haven’t done a review since 2015

What is she saying?  President Biden was the first President to have a homeownership platform before getting elected.  Thompson’s statement is in alignment with his home affordability platform.  That those who can afford to buy second/vacation homes or can afford loans in the high balance loan limits can afford to offset the costs and fund programs for homebuyers with income equal to or less than the area median income.

The increases to high balance loans.. those loan amounts between $647,200 and $684,250 will be anywhere from .25% to 1% higher in rate depending on the loan to value and product feature (purchase, refi, cash out refi, fixed or ARM)

The increases to people buying a second/vacation home .. think lakehouse, mountain retreat, or simply a home 100 miles away from where they live now, will be .5% to 2% higher in rate depending on loan to value.

I imagine investment home pricing is next to go up. These increased prices will be rolled out starting January 15th with 60 day locks and finish mid February with 15 day locks.

BOTTOM LINE:You need to work with a creative lender now more than ever!  Every borrower situation is going to be reviewed.  We will move some borrowers from second home purchases to investment loans (where we can use the rental income).  We will move some borrowers from high balance into conforming loans or jumbo.  Based on the twist of the fee not applying to first time home buyers who have income equal to or less than the Area Median Income, we will remove some spouses from loans to drop qualifying income.  We can not change the fact that this increase is coming, what we can do is creatively and intelligently maneuver the change and lessen the impact.  That is our job as a lender, advisor and partner to you and your clients!

Inventory Goes Lower Still!

How was that even possible?  December 31st 2021 ended the year with a historically low 968 single-family homes and 509 attached homes for sale. I am reminded that there are 3.3 million people in Denver’s Metro and 1.4 million households. December typically sees less homes come on the market and this year was no exception. New listings were down 29% with only 2,652 new listings, yet 4,504 families celebrated closings and another 3,321 families put a home under contract.

Demand is not slowing; it’s only limited by what’s for sale.   This will continue to put pressure on home prices as we ended 2021 up 17% in median closed prices for the DMAR 11 county area.  At last count, CoreLogic showed the Denver market up 18.4% in November.  This spring we will continue to see multiple bids and prices pushed higher as buyers come out full force.  We will be posting our Appraisal Gap Insurance flyer again this week and having a flash back to the 11 Tips to Getting an Accepted Offer blog we did last February.  WOW.. it’s happening again!

Did you miss January’s DMAR Market Trends video?  This extremely low inventory, strong demand and still historically low rates, have buyers and sellers looking to us for answers.  Well, I’m happy to jump in face first into the folly of forecasting and answered three burning questions in this months Market Update:

1. Where will interest rates go?
2. Will home prices keep going up?
3. Is now the right time to sell?

I’ve Done the Math!

I highlighted this example in the Market Trends Update and wanted to show the graph and how I got there.  First off.. homeownership isn’t for everyone.  But for those who want to build a future that gives them options, I will say that homeownership pays dividends the stock market hasn’t. Having an investment portfolio myself, I have the option of selling a property if I need quick cash.  I can do a cash out refinance with no taxable event.  I can live off the rental income or give the properties to my kids upon death with a step up in value.  And I can 1031 exchange into better investment opportunities. I talk a lot about this at our Building an Investment Empire class.  Want to join us?  They are every 2nd Thursday (which happens to be this week).  RSVP in person or online below.

In the meantime.. let me show you the power real estate has.. called LEVERAGE.  I’ve done the math… putting $30,000 down on a $525,000 home would have yielded you as much as a 20% increase in equity over the last year…that’s $105,000. If you put that same $30,000 in the stock market at the very bottom in March 2020 and picked all the right stocks; you would have received a 95.5% yield or $28,650 in returns on that same $30,000. Plus, the home that is appreciating pays off dividends (called rental income), provides safety for others, and gives you the options mentioned above.  Plus, as forecasting goes, some experts are saying we will see a stock market correction later this year.  I don’t know.. but what I do know, is where I am putting my money 😉


Options for Marshall Fire Homeowners

Over 1000 homes were lost.  Apartments were also lost.  Many are still trying to figure out what to do next.  But one good thing that happened was President Biden declared the area a disaster area which provides grants thru FEMA to those in need as well as gives insurance companies the ability to pay out claim amounts without having to send adjusters.  I have several clients who have already received their payouts.

Moving forward those affected need options.  Options that help them secure financial stability again, a place for their families to feel safe and an ability to rebuild.  FHA has options for those who want to buy a home while rebuilding the home they lost.  Whether it’s the FHA option or just an evaluation of their situation, we need to be champions for homeownership and help those who needs us.  Please let me know if you have friends/clients who simply want a conversation about their options.. I am around this weekend and my team is happy to give their time and knowledge freely!

Nicole Rueth has been passionately advising clients on their wealth building and home financing strategies for over 17 years. Her path has been non-conventional and it is a benefit to her clients.  www.TheRuethTeam.Com.