The first change has to do with self employed home buyers. Obviously you remember the early stages of the COVID pandemic. Shelter-in-place was real and business suffered. Employees were losing jobs and businesses were closing. Fannie Mae and Freddie Mac instituted new guidelines that required lenders to verify that businesses were still operating at the time of the close of the transaction. To do this mortgage lenders required business owners to produce a year-to-date profit and loss statement.
Last week Freddie Mac suspended that guideline (Fannie Mae changes could follow soon). Buying a home is easier for self-employed borrowers (including Realtors).
The second change Freddie Mac made will affect home buyers making a down payment of at least 10%. Beginning in March Freddie Mac will allow lenders to use "desk reviews" in lieu of full appraisals for purchases with loan-to-values of up to 90%.
The desk reviews will have to be produced by appraisers so this is something old that is new again. How will this play out? Will appraisers charge the same for a desk review as they have been charging for full appraisals? Will buyers that bid high for a home insist on a full appraisal? The desk review change has the potential to make these transactions less expensive and more likely to close quickly.
These changes by themselves will not solve all problems for all home buyers. These changes are a positive step toward more sensible mortgage lending guidelines and they may directly affect a client of yours next month.
Interest rate update
Below is a look at Freddie Mac's average interest rates which are reported every Thursday. The "experts" expect mortgage interest rates to move higher over the coming months but most of the "experts" hedge their bets when making that prediction.
Here are just some of the reasons the experts say mortgage interest rates could remain low or even fall: weather, the economy, COVID, Ukraine, Girl Scout cookie sales and Punxsutawney Phil.
Ok, I made up the part about Girl Scout cookie sales and Punxsutawney Phil but the rest could have a legitimate impact on interest rates. I expect rates to rise but anything can happen.
Here is a look at Freddie Mac's interest rate survey:
30 year fixed rate 3.55% with 0.7 discount points
15 year fixed rate 2.77% with 0.7 discount points
5 year ARM 2.71% with 0.3 discount points
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Bits and Pieces
The National Association of Realtors says that single women made up 19% of all homebuyers in 2021. That is up from 15% in 2014. Single men made up just 9% of buyers in 2021. A similar survey said that 65% of single women said they would prefer not to wait for marriage to buy a home.................................Home values are up all over the country but a recent Zillow survey tells us that home values are accelerating at a greater speed in communities with the highest percentage of children younger than 18. The trend is expected to continue as millennials see their families grow................................A homeowner is considered "equity rich" if the amount they owe on a mortgage is no more than half of their home's value. As of last quarter 42% of residential home owners with a mortgage were considered equity rich. That is up from 30% in the fourth quarter of 2020.............. ........................How crazy is this real estate market? A recent Real Estate Witch survey found that 90% of millennial homebuyers said they would buy a house sight unseen. Advanced technology makes this less of a gamble these days but that is still a surprising percentage.
I'm not even aware of the status of Arizona's laws regarding marijuana but this news caught my attention: Research from the U.S. Census Bureau and Zillow reveals that home values increased $6,338 more in states where marijuana is legal in some form than states that haven't legalized marijuana............................. .......................The United States Department of Housing and Urban Development is not happy with Los Angeles. A recent HUD audit shows that Los Angeles hasn't used millions of dollars of HUD grants to alleviate homelessness. Much of HUD's resources come from home buyers in the form of FHA mortgage insurance premiums. Home buying would be affordable if FHA's mortgage insurance were less expensive.... ..........................................In the fourth quarter of 2021, the homeownership rate saw a slight decrease compared to a year earlier. The rate fell from 65.5% to 65.4%. The issue, of course, is supply. Rental vacancy hit a 38 year low in the same quarter. ..........................................The Arizona Daily Star published 5 homebuying lessons last year's unsuccessful from home buyers. My favorite is number 2: available homes may not be perfect homes. The article does not discourage home buying but prepares potential buyers for what they should expect.
Quote of the week
"Thinking well to be wise: planning well, wiser: Doing well wisest and best of all."
-Malcolm Forbes
Freddie Mac's underwriting guideline changes will make financing a home easier but rising interest rates are about to make finding a home to finance a whole lot harder.
Rising interest rates make monthly payments more expensive but that's not what I'm talking about. Rising interest rates are about to drive housing inventory even lower.......especially in the lower price ranges. Here are a couple examples of the problem with higher interest rates and how it is affecting housing in Tucson:
Ken and Amy live in Rita Ranch. I helped them refinance a year ago and they have a 30 year fixed rate mortgage of 2.75%. They don't have mortgage insurance any more and their mortgage payment is super low. Amy just graduated from nursing school and now the couple has two incomes. Finally they can move to their dream home in Vail. The problem is that their mortgage payment will double (home price and mortgage interest rates are higher). They have decided to stay in Rita Ranch and fund their retirement account. Their perfect starter will not go on the market.
Oscar and Elvia live in Black Horse Ranch in Catalina and have always wanted to live near her parents near Casas Adobes. They are finally making the move! Like Ken and Amy, they have a low interest rate on their current home. So low in fact that they have decided to keep their starter home in Catalina as a rental. Their perfect starter home isn't going on the market either.
Tucson, we have a problem. Housing inventory in the Old Pueblo is going to be low for the foreseeable future and higher mortgage interest rates are part of that problem.
Thank you for reading. Have a great week!
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StevenV@AltitudeHomeLoans.com
