Home Trends and Predictions in 2015

The new year brings resolutions and predictions. Check out The Home Buying Institute’s Five Real Estate Predictions to Watch in 2015. Get an insider’s look at the prediction and how it relates to real estate housing, mortgage lending, and home buyers buying. Are you betting with or against these predictions?

Prediction 1: Home values will continue rising, but more slowly than 2014.There is no such thing as a “the” housing market when it comes to pricing trends. It is a local thing. We understand that to be true as we view housing markets throughout the country. In states or cities where population is increasing and job opportunities are plentiful, housing would be more active than parts of our country that are depressed or deficient in employment openings.

CoreLogic, a financial data firm, published its annual HPI Forecast that predicts monthly home price gains and annual pricing trends stated it is expected that home prices will rise from July 2014 to July 2015 by 5.7%. July is the time for families with school age children who make enrollment a priority when relocating. Following winter break is another time that home demands may be on the rise and may precipitate price gains.

Generally speaking the consensus is that residential property values will continue rising in 2015 but at a slower pace than what has been seen in the previous 12 months.

Prediction 2: Double-digit gains will be limited to California and the Southwest.According to a real estate information company, Zillow, it believes that the rapid pricing gain will be in California and the Southwest. Their data is stating that double digit increases will most likely be in only a select few cities in California and the Southwest.

A map featured in this article indicates cities that may see a double-digit price gain include ten cities in California, Reno and Las Vegas, Nevada. Zillow uses their predictions based on their own pricing models, housing trends, sales prices, and other data.

Prediction 3: Mortgage Rates should remain low through first half of 2015.
In the latest comments from the Federal Reserve earlier this month, the Fed indicated they plan on keeping rates relatively low for the first part of 2015. Rates today resemble the historic rates of Dec of 2007 for the 30 year conventional fixed rate. Unlike 2007 though, the Jumbo rates are much lower today than seven years ago. Additionally government rates are as low as I have seen them in my 23 year mortgage career. Do not rule out some rate volatility as both the stock market and bond market move now on predictions, speculation, and emotion as opposed to logic and data. But overall rates will assist in making home buying affordable in all price points. This is a nice Christmas present from the Fed as we begin 2015.

Prediction 4: Foreclosures will continue to decline, as a percentage of total inventory.
When the housing market crashed, activity of home foreclosures was on the rise and continued to remain so over the last few years. Soon foreclosures declined which brought back confidence to the real estate market, both to buyers and sellers. With competitive, low mortgage rates, buyers anticipated the joys of home ownership. Distressed properties were fewer and values of homes were appraised closer to their true value. This confidence was uplifting to the real estate market and mortgage lenders.

The foreclosure market has not completely disappeared, and according to Realty Trac, a company that monitors foreclosure activity, states that we will not “cross the finish line until early 2015”. Many analysts are in agreement with this prediction. A decline in foreclosure activity will help solidify home prices, normalize inventory, and allow more move up buyers to help boost the housing market, as well as the overall economy.

Prediction 5: Mortgages Will Be Easier to Obtain.
In July, the Federal Reserve released a report that stated mortgage lenders are “relaxing their standards” mostly in debt ratios and credit scores. Lenders are allowing for credit scores to be lower and debt ratios to be higher for borrowers. The reason for this “relaxation” is due to the reduction in loan applications. Lenders needed to increase the volume of borrowers, and found the best solution was to loosen their lending standards.

In Vegas, the house always wins eventually. In 2015, the Loan StarTeam sees homebuyers winning. There is a perfect formula in play here: reasonable and rational appreciation of homes, affordability with low rates merged with a renewed sense of consumer confidence, and lower unemployment numbers. 2015 could be the best time for buying and selling real estate in the last seven years. Here is to 2015, a year we all win in the housing market.

5 Secrets that Keep Closings on Track and Money in Your Pocket

Secret #1 - Keep Your Deal from Drowning

One or two times a year, the flood gates open…..figuratively, and an independent flood certification notifies me that one of the properties I am financing is in a flood zone.  Informing all parties the subject property is in a flood zone is no fun. To the naked eye, the subject property does not look like it is in flood zone.  Many times the seller did not have to buy flood insurance when he purchased the home.  Telling all parties involved that the topography has changed since the property was last purchased is like Noah trying to convince his neighbors that live on the hill that they too should build an ark. 

Fortunately, I have a good solution for you and your clients when you run into this scenario. Do not linger in disbelief of the determination.  Realize the first step is to work with your lender to appeal the determination by the flood certification company.  Avoid the natural temptation to talk the lender into believing you.  Instead find out what your lender requires to solve the problem….to prove the subject property is not in the flood zone, flood insurance is not required, and the closing can take place…and ultimately the home can be sold.

The solution is to contact a land survey company, have an elevation survey shot, and then work through the process of having the flood certification company amend their certification.  Now the price and time it takes to do this will vary.  Time is critical to keeping the closing on track.  The sooner you have the elevation survey shot and work to correct/amend the flood certification, the more likely you are to avoid a the black cloud of uncertainty that blows a termination and release to the property from the south.

The last flood certification issue I had was this past July.  The listing agent, Tracy Haskins, found the perfectly qualified man for the job!  His name is James Carter with Carter Land Surveying.  Simply put, he knows the drill.  James knows exactly what to provide AND the fastest way to resolve the issue with the flood certification companies.   His knowledge is invaluable and his fee is fair.  Save this information:

James Carter

404-213-5706

jcarter@carterlandsurveying.com

If you have ever run into this issue, you know how important a James Carter is.  If you have not…hope you do not, but anticipate that you might, and keep this number for future reference.  My goal is to share resources and expertise that may keep your sale on track and not be washed away.

Stay tuned for Secret #2.

Avoid “The Big Gotcha” When Closing on Your Home Loan

My iPhone rang and on the other end of the phone was one of my clients, distraught, rushing to explain how the buyer (and the buyer’s lender) of her house did not have their cash to close verified yet.  Closing would be delayed, her interest rate would need to be extended, and her blood pressure rocketed while realizing moving plans had to be reconstructed.  Some form of this scenario happens ALL TOO OFTEN in today’s mortgage industry. 

Two reasons why the Big Gotcha happens...
1) Borrowers are not properly educated as to the importance of verifying cash to close and establishing a reasonable timeline. 

2) Today, more than ever, mortgage lenders create a thorough paper trail and document every dollar used in buying and closing on a new home.

The best way to avoid THE BIG GOTCHA is to make a game plan with your lender.  From the beginning, understand the amount of money you need to have verified in your bank account, when the money must be verified, and what documentation is needed for all non-payroll related deposits. 

A checklist to help you avoid delays and surprises…

 
1) Email your lender specifically where your money is coming from for the closing. Use specific dollar amounts if coming from multiple sources.

2) Establish a timeline with your lender on when those funds will be in the main bank account.

3) Request in writing from your lender what documentation will be needed to verify funds.

4) Contact your lender (as many times as necessary) before you move money from one account to another, get a gift for closing funds, sell an asset to another individual for funds to close or liquidate or borrow against a retirement account….yes, PLEASE over communicate!

5) Funds for closing must be wired to the closing agent’s account.  Contact the closing agent for wiring instructions and a time frame for when the wire should be sent.  Typically wiring funds 24 hours in advance is recommended.

Cash to close on the purchase of a new home can come in a variety of ways, including tapping into a 401k, receiving a gift from a family member, a settlement, selling a car, or selling jewelry... just to name a few.  I have even had buyers sell a race horse for funds for closing.

Examples of standard documentation required by a lender…

1) If using equity from sale of current home, please provide copy of closing statement on sale of home.

2) If selling an asset, please take picture of asset then provide documentation to establish a fair market value (e.g., blue book value if selling a car),. Also provide bill of sale, copy of check, and copy of deposit slip showing funds going into your bank account.

3) If tapping into a retirement account, please get a copy of the monthly statement, a copy of the check or proof of wire, and a copy of the deposit slip.

4) Getting a gift from a family member is great!  Simply get gift letter from your lender, get the letter signed by all parties, and get a copy of the check and deposit slip showing funds going into your bank account.

At this point you may be able to relate to the catch phrase, “moving paper through a paperless society" from Dunder Mifflin; the fictional paper company in Steve Carell’s sit- com, The Office.  Simply put, it is “documentation overkill."  Accept it as fact and then move forward with supplying the documentation.

The main thing you can do to avoid THE BIG GOTCHA is to work with your lender to create a game plan on what needs to be documented and when the money AND documentation will be ready. 

Two big “NO NO’s"...

1) Please do not sell an asset for cash or get a gift funds in cash.  Cash is near impossible to document.  You can see a common theme in this process: connecting the dots from where the money came from into the bank account that is being used for cash to close on your new home. 

2) Do not wait till the last minute.  Stay out in front of this potential pitfall by communicating with your mortgage banker.  If you are going to be out of town during any part of the loan process alert your lender and processor.  Going on a cruise for 10 days during the loan process without the right preparation and planning is likely to create a BIG GOTCHA.  Yes, it happens.

My goal is to provide you some checkpoints to avoid last minute chaos and disappointment.  Cash to close is a very big deal!  Typically there is a fair amount of documentation needed for cash to close.  In an age where technology is so advanced and the speed of communication is instantaneous, it is surprising how common this issue can potentially be.   Uneducated, unguided buyers are left with a frustrated (sometimes furious) look on their face as they scramble, jump, and crawl through last minute hoops to satisfy the lending requirements for cash to close. 

Buyers that plan and prepare in advance will continue to their closing without interruption.  Please use this checklist so that you can be that buyer!  It will ensure a more pleasant home buying experience, which is my goal as well as your Realtor’s goal. 

The only thing we have to fear, is fear itself……inflationary fear

Two observations I have seen since I became a mortgage banker on October 1^st 1991:  1) the most commonly asked question in the mortgage business is, “What is your interest rate?” and 2) the biggest change I have seen in the last twenty three years in the mortgage business is rates move on emotion and speculation, before economic data is released and studied.  How are these two observations linked together?

Interest rates have major impact on monthly payment.  Homeowners want to know what price range they should be shopping in and what mortgage payment they can afford.  Rates dictate affordability in the buyer’s mind.  Rates are constantly advertised and used as a primary decision maker for purchasing or refinancing.  Mortgage companies go to great lengths to advertise interest rates.  Governments attempt to stimulate or slow the economy thru regulating rates.  In short, the perception is interest rates rule the psyche of the consumer.

So it is no surprise that mortgage bankers are asked to predict the future of rates every time we answer the phone.   Based on this historical chart it is easy to predict rates will go up.  The only question is “when?”  The answer is simple.  Rates will go up when speculation and emotion drive them up.  When I entered the mortgage business economic data would come out first, suggesting how strong the economy was (or was not) and rates would move accordingly, providing a true reflection of the state of our economy.  Today, perhaps much like the stock market, the market prices interest rates in anticipation of what economic data will be released and speculative interpretation of how that signals the state of our economy. 

A recent move in interest rates serves as a great example of this observation.  Fifty three weeks ago, interest rates for a 30 year fix were resting at close to a 42 year low.  Then one Tuesday, the Federal Reserve hinted that the Federal Government would begin tapering off on their monthly purchase of Mortgage Backed Securities (MBS).  In the span of 4 hours, rates rocketed to .75% in rate, rates moved from 3.5% range to 4.25% range on a 30 year fixed.  “When is turns, it burns” and ouch…that day left a scorching burn!  Keep in mind the cause of this rocket- like rise was a hint……a hint the government was tapering.  

 

Reprodeced with the permission of Mortgage-X.com

 None of us need to be a recognized, published economist to understand rates are low, really low and affordability is up.   Historical data suggest we are near the basement of the interest rate cycle.  Rates will go up.  The question is when will rates go up?  Many “experts” believe rates will stay low for a while.  The government has a huge debt service.  Low interest rates are in the government’s best interest.  The economy is getting stronger.  Jobs are coming back from overseas to America.  Some prognosticators believe the DOW is going to 18,000 +.    Today, one year later, many experts see tapering as a positive sign the economy can stand without the aid of the government.  What a difference a year makes!  Consumer confidence is going up and unemployment is going down.  We are in an election year (just ask Eric Cantor).  All these factors suggest rates should stay steady for a while.  But as Lee Corso says every Saturday on ESPN in the fall, “Not so fast my friend!”  Nothing, and I mean nothing makes rates race up like inflationary fears.  Beware that the speculation of inflation is growing like a tidal wave at sea.  Be alert and listen for the anticipation of inflation.  The government keeps a watchful eye on inflation.  Short of a national tragedy, nothing will make for a dramatic increase in rates go up in a recovering economy like inflationary fears.  

 

So do not fear “inflationary fears”.  Anticipate it.  Lock in on rates at your first opportunity.  Do not find yourself in the same shocking position as those 53 weeks ago who returned from lunch to learn rates had jumped from 3.5% range to 4.25% range one afternoon in the summer.  There is no warning of rates going up when speculation and emotion gain momentum…..especially when it relates to inflation.  Remember gasoline prices going from $1.50 to $3.00/ gallon overnight?  Bingo!