Mortgage Rates Reach Lowest Level in Over a Year, Offering New Opportunities for Homebuyers

August 21, 2024

Mortgage Rates Reach Lowest Level in Over a Year, Offering New Opportunities for Homebuyers

In August 2024, mortgage rates hit their lowest level in over a year. According to Freddie Mac, the current rate for a 30-year fixed mortgage has had a significant drop from nearly 8% last year. This decline presents a promising opportunity for potential homebuyers and sellers.

Falling Mortgage Rates Boost Affordability and Market Activity

Currently, the 30-year fixed-rate mortgage hovers around 6.5 percent, with rates expected to continue to decline in coming months as inflation decelerates and we enter into the election. For buyers, reduced mortgage rates could mean lower monthly payments and increased purchasing power, making owning a home more attainable. Some Sellers are offering 2/1 temporary interest rate buydowns, which drop the start rate to 4.5% the first year, which provides amazing savings for homebuyers. Sellers could benefit from heightened market activity as lower rates attract more buyers, leading to quicker sales and competitive offers.

Recent data highlights a resurgence of interest in the housing market, particularly in Los Angeles and Orange County. Over the past few weeks, there has been a noticeable increase in foot traffic at weekend new home sales offices and open houses. Lenders are also seeing a rise in clients reconnecting to explore financing options.

HPSI Data Confirms Increased Consumer Confidence in Real Estate

The latest data from the Fannie Mae Home Purchase Sentiment Index (HPSI) reveals a positive shift in consumer confidence within the real estate market. In June 2024, the HPSI rose by 3.2 points, reaching a score of 72.6. This increase represents a modest but notable resurgence of optimism among consumers about both buying and selling homes. 19% of respondents now view the current market as a favorable time to purchase a house, while a substantial 66% believe it is an advantageous time to sell.

Sales Surge and Inventory Expansion

The MLS reported a 3.9% increase in the number of homes sold from June to July 2024. This rise in sales activity, combined with a 10.5% increase in inventory, suggests a more dynamic market environment. Despite these positive trends, the average days on market has extended to around 40 days, indicating that while buyers are active, the process of securing a home may still involve a longer timeline.

For prospective homebuyers, the current mortgage rate presents a compelling incentive to act. With rates at their lowest in over a year, buyers can secure more favorable financing terms and make their home purchase more affordable. Additionally, the increase in inventory offers a broader selection of properties to choose from, further enhancing opportunities in the market.

As the real estate landscape continues to evolve, staying informed about these developments can help buyers make strategic decisions. The combination of lower mortgage rates and increased market activity may set the stage for a rewarding homebuying experience in the months ahead.

Strategic Sales and Marketing offers a variety of real estate sales and marketing services. Our team has years of experience working with the real estate industry and understands the steps required to identify and connect with potential buyers. Please contact us for more information about our services.

2024 Changes to California’s Home Insurance Market

May 28, 2024

2024 Changes to California’s Home Insurance Market

With nearly 40 million residents and a homeownership rate of 55.8%, California boasts one of the largest and most dynamic real estate markets in the United States. However, recent shifts in the home insurance landscape have raised concerns among current and prospective homeowners. Despite these changes, there are still reasons to be optimistic about purchasing a home in California.

Understanding the Current Situation

Over the past year, several major insurers announced limitations on new homeowners’ policies, citing factors including wildfire risk, rising construction costs, and reinsurance premiums. These changes have left many homeowners wondering about the availability and affordability of insurance coverage.

2022
Allstate and State Farm Insurance pause writing new homeowners’ policies in response to increasing costs.

2023
Farmers Insurance and Safeco announce limitations on new policies, while the USAA tightens wildfire and safety standards.

2024
The Hartford, American National, and State Farm announce non-renewals or policy cancellations, reflecting ongoing challenges in the market.

Moving Forward

The recent news of major insurers limiting or pausing the writing of new home insurance policies can understandably create anxiety for homeowners across the state. However, there are safeguards in place to protect certain homeowners from policy non-renewals. For example, the California Department of Insurance ensures that if residents live in a wildfire-prone area, their insurer cannot issue a cancellation or nonrenewal for one year following a governor-declared state of emergency. Homeowners can check their eligibility on the California Department of Insurance website.

While homeowners’ insurance changes raise concerns, it’s important to recognize they also present opportunities for innovation and resilience. Initiatives aim to stabilize the market and ensure access to affordable coverage for all. Additionally, new players may enter the market, offering innovative solutions to address evolving risks and the needs of consumers.

Despite the challenges facing California’s home insurance market, it’s still a great time to buy a home. By staying informed about market developments, exploring alternative coverage options, and working with knowledgeable insurance professionals, homeowners can protect their investment and enjoy the many benefits of homeownership in California.

Finding Coverage

New homeowners in California can still find coverage through respected insurers. In fact, over one hundred insurers are actively writing home insurance policies across the state. Allstate announced this year that they may start writing new homeowners’ policies again if the California Department of Insurance approves rule changes like allowing the use of computer programs to estimate future risks when seeking price increases. By taking proactive steps to evaluate needs, prioritize preferences, and gather quotes, California homeowners can navigate the insurance market with confidence and secure the coverage they need.

When seeking coverage, homeowners should evaluate their needs and priorities. Understanding the amount of coverage required based on location-specific risks and assessing personal belongings are crucial steps in determining the appropriate policy type and coverage level.

Making a list of priorities, like affordability or specialty coverage, can help new homeowners narrow down their choices. Once priorities are established, gathering and comparing quotes from multiple insurers can provide insight into costs and coverage options.

2024 Home Design Trends

February 15, 2024

2024 Home Design Trends

In 2024, home design trends are poised to redefine living spaces through modern innovation and timeless elegance. As the world continues to evolve, so do the preferences of homeowners seeking to create a space that reflects their unique personalities and lifestyles. This year, expect to see a blend of functionality and aesthetic appeal, with an emphasis on color, versatility, and comfort.

Capturing Tranquility in Vibrant Hues

In December, Pantone officially declared “Peach Fuzz” the 2024 Color of the Year. This blend of soft peach tones is expected to make a big impact in home design this year.

“Peach Fuzz” combines the softness of peach with a lively, dynamic zest. Its adaptability makes it a game-changer for home design. This comforting color can be used in both indoor and outdoor spaces to evoke calmness and optimism.

Infusing Peach Fuzz into Home Interiors

Peach works well with a variety of colors, making this year’s hue easy to incorporate into any living space. Peach Fuzz blends well with neutral tones to create a space that feels both expansive and grounded. In bedrooms, the addition of Peach Fuzz to walls, furniture, and décor helps create a relaxing retreat. Combining Peach Fuzz with darker hues adds depth. This warm tone allows dark colors to pop and brings warmth into potentially cold spaces. Pairing Peach Fuzz with luxurious textures like velvet and silk accentuates the color’s softness.

Peach glows into any room, making it the perfect choice for rooms with little natural light. Pairing Peach Fuzz with glass elements like vases and pendant lights enhances this effect, bringing sunshine into living spaces.

Exterior Accents

In outdoor spaces, adorning exterior walls with Peach Fuzz imparts a welcoming allure. This color works well with natural elements like wood and stone. In gardens, Peach Fuzz accents and outdoor furnishings create a warm and inviting retreat.

Statement Furniture

A popular choice for 2024, dramatic statement furniture can transform a room into a piece of art. Peach Fuzz walls and area rugs create the ideal backdrop for bright colored pieces. Layering striking pieces on top of Peach Fuzz produces a breathtaking effect.

70s Styles

When it comes to home interiors, the 70s are making a big comeback in 2024. Create this look by combining dark woods, shiny lacquered surfaces, plush faux fur rugs, and low-lying furniture. This trend is all about adding style and creativity to your living space.

Checkerboards

Checkerboards are another hot design trend this year. However, 2024 isn’t about the traditional black and white checkers. This year’s popular picks include rugs, furniture, throw pillows, and upholstery in vivid jewel tones.

Smart Home Technology

Technology continues to make our lives more comfortable and convenient. This is true when it comes to home design as well. Smart technologies like artificial intelligence and augmented reality allow designers and homeowners to test out layouts, furniture, and hues before implementing any design changes to their space.

Rent or Buy? An Honest Look at the Real Estate Market

May 5, 2023

Rent or Buy? An Honest Look at the Real Estate Market

For many people, owning a home is a key part of the American dream. Nearly three-quarters of Americans believe that owning a home is a higher measure of achievement than having a successful career, raising a family, or earning a college degree. According to the National Association of Realtors (NAR), owning a home builds financial security. The net worth of an American homeowner is almost 40 times the net worth of a non-homeowner.

Rental Rates Continue to Rise

According to Fannie Mae, almost 70% of renters would purchase a home if their lease ended now. This makes sense, as rent prices continue to soar in many parts of the country. The average price for a one-bedroom apartment in Southern California is 18% higher than it was last year. Rental price increases will likely continue.

During the pandemic, many landlords had rental rate freezes placed on their properties. These freezes have lifted now, giving landlords the freedom to increase rent prices at will. The University of California Lusk Center for Real Estate predicts continuing rent increases over the next two years.

Is It A Good Time to Buy A Home?

Data suggests the housing market has stabilized. As inflation rates slow, mortgage rates are dropping. Currently, 30-year, fixed-rate mortgage rates average 6.43 percent nationwide. Mortgage rates are even lower for first time homebuyers thanks to mortgage rate discounts instituted by Fannie Mae and Freddie Mac.

Despite the benefits of owning a home, many prospective buyers hesitate due to high interest rates, low home supply, or lack of large downpayment. However, first-time buyers shouldn’t wait. Now is the best time to purchase a home.

Low Down Payments & Greater Chance of Approval

First-time buyers can purchase a home without saving for a 20 percent down payment. In addition to low down payment mortgages, buyers can access down payment assistance through their local housing office.

Getting a mortgage without a big down payment has never been easier. Mortgage lenders recently lowered minimum credit score requirements for FHA, USDA, and VA mortgages. In addition, Congress passed a law to change the way that medical debt is factored into credit scores, raising FICO scores by an average of 22 points.

Low Inventory Will Bring Home Prices Up

Low inventory will likely bring home prices up over the next month and into next season. According to NAR, each state averages less than 20,000 homes for sale each year despite high demand. 57% of homes listed for sale in the U.S. are sold within a month. The supply of existing homes for sale is 2.6 months nationwide. Prospective buyers should act fast to ensure the best price.

Delivering Excellence in Sales

February 3, 2023

Delivering Excellence in Sales

New home buyers rely on their on-site sales associate to guide them through one of the largest decisions of their life. Since each transaction is unique, it is the inexperienced sales associates that fail more often. To deliver an extraordinary experience, it’s important that new home sales associates understand both construction and real estate. This helps ensure the best chance of success. Great new home sales associates know that they are Seller’s agents, while still giving each prospective home buyer an outstanding experience.

Selling isn’t something a new home sales associate does “to” a homebuyer; it’s something they do “for” the homebuyer. Although licensed agents must pass a test to ensure they understand real estate laws and requirements, sales training and coaching is not a state requirement.

Just like an athlete will regularly train to win a race, the highest caliber of new home sales associates constantly hone their skills. Equally important is understanding that the initial sale is only 10% of the job, as new home construction is a specialized side of real estate. Keeping the home buyer engaged through option selections, design center appointments, construction progress, and the last 30 days of their escrow are steps that cannot be overlooked.

What Makes A New Home Sales Associate Successful?

First, they must have a thorough understanding of their builder’s unique buying proposition. What makes that community, design, and location special? Next, they must know the local area intimately. Finally, their role is to communicate this information into the benefit of living in that area, home, and neighborhood, to the prospective home buyer.

Concise and clear communication in a friendly manner is another key to success. Award winning new home sales associates look for innovative ways to market their homes, are responsible for generating leads, retain existing clients, and work with new technology.

The outstanding new home sales associates find ways to stay motivated, investing in training courses, and reading books on sales techniques. They understand that relationships come first. They know a sale cannot exist without a good business relationship.

Cornerstones for success is they must be client-focused, creative, energetic, and passionate about their role. Successful agents follow the “5 times in 21 days” rule of follow-up by phone, email, text message, or mail. Knowing no home “sells itself” they keep in front of their prospective buyers and help them overcome obstacles that may arise. To help understand their competitive market, they visit local open houses, this helps to create excellent rapport with realtors.

Real Estate Sales and Marketing Services

Strong partnerships can provide new home sales associates with the support and tools they need to excel. Our leadership team, with combined 70 years of experience in new home construction and real estate sales, provides each team member with this support through all stages of their professional journey.

Understanding How Mortgage Markets Are Priced

October 27, 2022

Understanding How Mortgage Markets Are Priced

Mortgage rates have steadily increased since the start of 2022. During the last week of September, average 15-year fixed and 30-year fixed mortgage rates climbed to their highest levels in fifteen years.

While recent actions taken by the Federal Reserve to slow down the economy and reduce inflation have had an undeniable impact on current mortgage rates, this isn’t the only factor driving mortgage market pricing. The cost of mortgage-backed securities can have a direct impact on residential mortgage rates. This is because mortgage companies lose money when they issue loans when the market is down. When the price of MBSs drop, mortgage providers typically increase mortgage rates. When the price of MBSs goes up, mortgage rates go down.

Recently, we had the opportunity to speak with Judy Downey-Fortson, an experienced loan originator with Loan Depot Builder Division. She gave us her opinion on what happened with the mortgage markets at the end of September.

Can you tell us about your experience in the real estate market?

“Being a loan originator is a lot like working on a production (assembly) line. As an originator, my work places me in the middle part of ‘the line’. Up the line, is the secondary market group working with the mortgage-backed security market (MBS). Down the line is the servicing and securitization group. It’s not actually a line, but a circle when you have loans that need to be securitized.”

Can you explain what mortgage-backed securities are?

“Mortgage-backed securities (MBS) are like buckets full of loans which investors purchase. The price these investors are willing to pay constantly changes. The difference between each bucket is a ½ point in rate. These are referred to as coupons. The loans that can go into a bucket (coupon) can be as high at 1.125% above the coupon’s value. For example, a 5% bucket (coupon) will contain rates up to 6.125%. So, rates at 6.25% would need to go into a different or higher bucket.”

“As loans are placed or secured in each bucket, there is a good understanding for what investors will pay for that bucket. This understanding is based on recent MBS sales.”

What causes the higher discount point costs reflected in recent rates?

“Mainly its Inflation. As rates increase, a new bucket needs to be re-introduced. This is called the 7% bucket and it hasn’t been seen for over 20 years. So, now the question on everyone’s mind is what, or if, investors will pay for a 7% coupon. There is no recent history of this 7% bucket. This means the value of this new bucket is either big time gambling or speculation.”

“Investors make their returns off a ‘hold time’ for the investment. Prepaying a mortgage or refinancing to a lower rate could mean the investor does not make a return. If investors believe that rates will be coming down in the next 12-18 months, they may pay more for the 6.5% bucket, even though it will have a lower return then the new 7% bucket.”

“In 2019, there was a spike in rates which lasted about 8 months. Rates fell quickly in 2020 and a refi boom happened. The investors who bought the higher rate buckets experienced losses due to rapid refi’s and shorter holding times on those buckets of funds. Therefore, we are not seeing rates being offered at a premium (at zero points or rebate to the customer).”

So, what happened during the last week of September?

“Global economics and England were the spark. Prior to the first week of September, England announced that it would be implementing large tax cuts. Think of putting money in peoples’ pockets for them to spend. That’s a key ingredient to fuel inflation. Worldwide investors feared that it would ignite more inflation and bring about a deeper recession. This is the main reason we had volatile reactions in our own U.S. bond market.”

“On Monday, September 26th, large tax cuts were announced, and the bond market tanked over a full point. This caused mortgage rates to skyrocket and lenders to reprice multiple times and face rates that came with points”.

“By September 28th at 1 p.m., revisions were made to the UK policy and a new bond purchasing program similar to quantitative easing in the U.S was introduced, and the market drastically improved. This unexpected new bond purchase program in the UK was the trigger needed to reverse the powerful trend in MBS markets today.”

With the resignation of England’s new PM after only 45 days, we’re seeing an extremely volatile global market that’s struggling with inflation. Bond yields were well over 4% and dropped back down to around 3.7%, which provided better pricing.”

What’s the best course of action for homebuyers?

“ARM loans or 2/1 buydowns as we anticipate rates to improve in the next 12-18 months. Adjustable-rate mortgages are great for people that plan to pay off their mortgage quickly or expect to sell their home in a short amount of time. However, these loans do have slightly tighter ratios for qualifying.”

If inflation continues to increase and rates keep going up, homebuyers could face higher interest rates and higher monthly mortgage payments. Anyone looking to buy a home should lock in a lower mortgage rate now.”

Thank You, Judy for such an insightful look at the market!

Will Home Prices Go Down?

September 14, 2022

Will Home Prices Go Down?

Analysts, home shoppers, renters, homeowners are all wondering whether home prices will reduce at the same margin that costs to build go up. There are conflicting answers however. Looking closely at housing demand we see the need increasing, not decreasing. With rent, land and the cost of construction going up, it’s hard to say “no” to owning a home today. When asked if rent will increase over the next 7 years, you will have a hard time finding someone that would say “the cost to rent will be lower”.

In seven years, home prices will not be lower from today. It’s unlikely anyone believes they will. The price adjustments occurring now will be small and mainly for homes that had unrealistic prices to start with… let’s face it, it should never cost $800,000 to live in Boise!

Instead of waiting for home prices to go down, prospective buyers are weighing the pros and cons and taking action now. Many sellers are offering attractive financing packages to create a more affordable payment. The rule is: If you can afford the payment on a 7-to-10-year fixed loan, fix your payment now and take advantage of the tax deductions that you won’t get with renting. Statistically, most homeowners move every 13 years according to the National Association of Realtors.

Take a look at the recent data from the Mortgage Bankers Association (MBA), which proves all of the above to be correct.

Tax Breaks for Homebuyers

High demand for rentals continues to drive rent prices up with zero deduction to the tenant, while building wealth for the property owner. It is no secret that one of the cornerstones of building wealth is investing in real estate. Anyone looking for tax breaks should consider buying a home instead of renting.

Homeowners can take advantage of several tax deductions including:

Mortgage Interest Deduction
Homeowners can deduct interest paid on a loan related to building, purchasing, or improving their primary home up to $750,000.
Mortgage Points Deduction
Homebuyers pay “points” to their lender when they take out a mortgage. These points are a form of prepaid interest paid up-front in exchange for a lower interest rate. In most instances, mortgage points are fully deductible the year they’re paid.
State and Local Taxes (SALT) Deduction
The SALT deduction allows property owners to deduct payments made for property taxes and income or sales tax payments up to $10,000.

Housing Affordability

For renters, the choice to buy often comes down to affordability. Average rent for a vacant unit in Orange County jumped to $2,570 per month in 2022, up 18.5% from the spring of 2021. Most Southern California renters are already paying more than they would for a 30-year mortgage. This makes a 7-to-10-year fixed mortgage a feasible option for many renters.

Real Estate Wire Fraud More Common Than Most People Believe

June 17, 2022

Real Estate Wire Fraud More Common Than Most People Believe

In 2020, a third of all real estate transactions involved some sort of wire fraud attempt. Today, wire fraud is the single largest threat to real estate transactions.

The goal of mortgage wire fraud is to get buyers to deposit their down payment and closing costs into an account owned and controlled by scammers. Wire fraud can cost victims tens of thousands of dollars and may jeopardize their ability to buy a home. With median home prices above $400,000, it’s not uncommon for homebuyers to wire 20% or more to satisfy their closing obligations.

This type of scam isn’t limited to first-time buyers. It happens to seasoned real estate brokers as well. Recently, we discussed wire fraud with a real estate broker with over 30 years of industry knowledge who wanted to share the shocking experience with us.

Real Estate Wire Fraud Only Happens to Other People…Or Does It? Here Is One Real Estate Broker’s Real Story (Identity Hidden)

“Early Monday morning, my heart sank when I read the email from my attorney that the title company had not received the wire for our closing. I panicked…. hadn’t I been emailing my attorney about the wire?” The victim discovered that they were not communicating with the attorney, because his firewall and email had been hacked by scammers.

“My attorney told me that I needed to immediately call my bank. I felt sick and disoriented all at the same time as I replayed the past events in my mind. I had logged onto the secure website. I received the instructions from the title company and both my attorney and spouse were cc’d on them. How could this be happening? How could I, an experienced real estate broker, be scammed?”

The purchase was scheduled to close on Monday, May 23rd. The wire was sent on Thursday May 19th to be sure of an on-time closing. Due to the out of state transaction, an attorney (rather than escrow) oversaw the legal documents and arranged the closing with a title company. There’s an in-person meeting that takes place the day of closing and the buying parties are normally in attendance. The buyer had been trying to confirm the receipt of the wire with the title company since Friday, but no one was returning calls or responding to emails

“After learning I had been scammed, I realized we missed a crucial step in the wiring process. It was the very thing I had warned others about for years. By going too fast we did not take the time to pick up the phone and directly verify the correct account and routing numbers before sending the wire. Just one phone call, and I could have saved a huge amount of stress and significant financial loss.”

“Please let this be a warning to every home buyer and real estate professional. Wire fraud does not just happen to other people who may be unsavvy about real estate practices. It can happen when we don’t stop and carefully inspect every step of the process. It is my hope that through my example we can help educate others.”

In this case, the bank receiving the wire had flagged it as potential wire fraud. This was only because the wire specifically named the title company as the recipient, so the bank did not allow it to go into the scammer’s account. This was done entirely at the bank’s discretion. There is no law that requires banks to review and match wire and account names.

Understanding Mortgage Wire Fraud

The most common type of real estate fraud involves Business Email Compromise/Email Account Compromise (BEC/EAC). Using spoofing techniques, hackers mimic the email address, phone number or website of trusted people and businesses. The hacker often sends multiple fake emails to gain the victim’s trust. Eventually, the victim is presented with fraudulent wire instructions.

Most people don’t realize they’re communicating with scammers until it’s too late. Once the money is gone, it’s extremely difficult to recover. This is what makes this type of cyber-attack so dangerous.

Preventing Wire Fraud

Always verify wiring information including exact wire account numbers, by calling directly, don’t use the number provided on the instructions. You should call the title or escrow company at the number listed on their official website. Do not use links in emails, only use phone numbers that have been previously verified. It’s also important not to wire money to any account provided by your real estate agent. Real estate agents do not have access to the account information of your settlement agency. These extra steps may take a few minutes of your time, but could save you thousands of dollars and protect your ability to purchase a home.

Buying a home is one of the biggest decisions a person can make. Don’t let mortgage wire fraud ruin your chances of owning a home. Communicate often with your escrow officer or attorney via phone and don’t hesitate to ask questions if anything seems suspicious.

2022 Home Design Trends

March 25, 2022

2022 Home Design Trends

In 2022, home design trends center around flexibility and comfort. With people spending more time at home, homeowners are looking to create spaces that meet a variety of needs. Many of 2022’s home design trends inspire feelings of stability and comfort, while maximizing space for functionality.

Long Banks of Windows

Homeowners everywhere are looking to bring the outside in. Long banks of multiple windows create a space full of light. This has been proven to put homeowners at peace and feel more connected with nature.

It’s not uncommon to see multiple banks of windows spanning two or more walls. Nano Walls and floor to ceiling windows are becoming more common as well.

Kitchen Islands

Most people consider kitchen islands a necessity in the modern home. Over the past few years, these islands have become the hub of the kitchen. When designing an island, flexibility is key. This space is used for multiple purposes including craft projects, homework, and meal prep. In addition to providing extra counter space, it’s not uncommon for kitchen islands to include a dishwasher, prep sink, trash pullout, beverage fridge, and open shelving.

Outdoor Living Space

As people become more conscious of their health and well-being, outdoor living spaces are becoming an essential part of everyday life. Current trends focus around creating an extension of interior spaces. Outdoor living rooms provide a welcome escape from the indoors. A properly designed outdoor living space allows homeowners to relax and unwind, while enjoying the fresh air and natural surroundings.

Space for Pets

According to the ASPCA, approximately one in five households adopted a pet during the pandemic. Many people quickly realized their existing living space didn’t provide what their furry friend needs. Many architects now incorporate a pet bathing area into the laundry room space. Today, Millennial homebuyers are hitting the market looking for homes which provide pet amenities.

Heated Elements

Heated island countertops and heated floors are some of the most sought-after features in new homes this year. Recommended by home design and remodeling professionals, a heated bathroom floor provides a spa-like experience at home. Heated island countertops provide a welcoming place for friends and family to gather.

Shiplap

Shiplap adds character and texture to bathrooms. Depending on how it’s installed, shiplap can effectively accentuate the height, width, or length of bathroom spaces.

Bar Rooms

Another popular addition, homeowners around the country are turning their formal living spaces into bar and entertainment rooms. Bar rooms provide a private and cozy setting for relaxing and entertaining guests.

Interest Rates Rise – Homebuyers Consider Alternative Loan Programs

January 26, 2022

Interest Rates Rise – Homebuyers Consider Alternative Loan Programs

According to Mortgage News Daily, the average rate of a 30-year fixed mortgage increased to 3.7% on January 18^th, 2022. This is 83 base points higher than this time last year and the highest it’s been since early April 2020.

Throughout 2020, mortgage rates set over a dozen record lows. Low mortgage rates increased homebuyer demand, making home prices rise throughout much of the country. Low inventory combined with high demand spurred bidding wars in several states. As a result, many homes sold for well above their sale price in both 2020 and 2021. In November 2021, home prices ballooned by 18.1% year-over-year. Home prices are still up double digits from this time last year.

Since the pandemic began, the Federal Reserve has purchased large amounts of mortgage-backed bonds to keep mortgage rates low. Although many expected this practice to continue through the first quarter of 2022, Feds have started pulling out of the Mortgage-Backed Security (MBS) market. This has caused mortgage rates to rise.

Despite lenders compressing their margins to keep rates low, many are already hitting 3.75%. This has had a major impact on refinancing in 2022. According to a recent survey by Mortgage Bankers Association, applications to refinance in January 2022 were down 50% from the previous year.

How the Recent Interest Rate Increase Impacts House Payments

At 3.7%, homebuyers looking to spend around $350,000 on an existing home will end up paying approximately $125 more each month than if they’d bought before mortgage rates went up. This may make home ownership inaccessible to many first-time homebuyers. If home prices continue to rise and mortgage rates exceed 4%, demand for homes may cool.

Alternative Loan Programs Offer Lower Interest Rates & Fast Loan Processing

Alternative financing and nonbanks provide bank-related lending services to individuals looking to buy or refinance their home. Alternative lenders fund mortgage loans through credit. They sell mortgages to investors, while managing payment collection from consumers. With fewer financial criteria, non-traditional mortgage lenders provide an easier path to securing a loan. This makes home ownership possible for many underserved individuals.

Most nonbank lenders offer similar services to legacy banks with lower down payments, reduced interest rates, and fast loan processing. Home loans offered by alternative lenders include fixed loans, Federal Housing Administration loans, United States Department of Agriculture loans, jumbo loans, and reverse mortgage loans. Nonbank lenders also offer refinancing options focused on lowering monthly mortgage payments.

Alternative funding has been increasing in popularity since the housing market crash in 2008. A recent study found that 40% of consumers believe nonbanks are a better option than traditional banks. As legacy banks raise their rates, it’s likely more homebuyers will turn to alternative financing to obtain a loan. Even with traditional banks attempting to reduce rates and simplify the loan process, it’s unlikely they’ll be able to compete with nonbanks in terms of loan processing time and interest rate reduction.