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June 8, 2020
This week I want to address some of the questions I’ve been getting about this crazy housing market of ours.
Some of the things I’m most often asked are about are whether or not I think the economy is gonna crash, is there going to be a housing crisis, and is there going to be a massive increase of foreclosures and short sales, etc.
From where we stand today, I do not believe that we are going to experience a housing crisis OR a drop in home values. The reason I believe this is because since 2017, most major housing markets have been severely UNDER supplied. Most major cities have had more home buyers (demand) than they have had houses available for purchase (supply), which has left us with a sellers market for quite a while now. For that to shift, we would have to see a massive influx of houses for sale.
So the logical next question is “well isn’t there about to be a bunch of houses available because so many people have lost their income and cannot afford their homes?”. The answer to this question is “sort of”. Bear with me for a minute here… back during the housing crisis of 2008-09, the programs that we have in place today to help people who are facing foreclosure did not exist. Programs like loan modifications and restructuring were not available as they are today for a variety of reasons, and a lot of the programs that people can seek refuge in now are a direct result of the housing crisis in 2008-09.
Additionally, lending guidelines today are very different than they were over a decade ago. Before the great recession, people were able to take cash out of their homes for 100% (or MORE) of it’s value. That is not the case today. Today guidelines only allow someone to borrow up to 85%. This is important because we only see a rise in foreclosure and short sales when homeowners are not in an equity position and they are forced to sell the house for less than what it’s worth.
What’s really interesting is that our housing market actually needs more homes for sale. There are SO many qualified buyer’s right now, and an influx of available homes makes them able to purchase.
If you are regularly a W2 employee, and your income has not been impacted by Covid, it’s really pretty much business as usual. A lender will likely have to do an additional employment verification, and may need more recent documentation of assets. But aside from that, buying right now is not really any different than buying 6 months ago.
If your income HAS been impacted by Covid, the process may be different. There is a chance that a lender will wait to qualify you until your income has resumed it’s pre-Covid regularity. And a lender most likely will not be able to include things like overtime and bonuses as part of your regular income.
From what I personally am seeing, the people who are being impacted the most when it comes to qualifying for a home loan are people who work in the restaurant industry and rely on tip income, retail or sales people who rely on commission, and some industries (like construction) who normally would incur forced overtime. My advice to you if you find yourself impacted like this is to wait to re-qualify for a home loan until after your schedule (and income) has resumed to a steady level so that you are fully aware of what your buying power will be.
No other way to put it, you have to be patient. Some companies are taking 30-45 days to do a refinance. But some are even quoting up to 90 days. This seems to be across the board, and has a lot to do with bank liquidity and the timing of your close.
We’re also seeing that certain types of refinancing may be more difficult to accomplish right now. Specifically, cash-out refinance and refinancing of investment properties seems to be very challenging. However, not all banks are alike, and I highly recommend shopping around if you are facing difficulties with refinancing.
In fact, I recommend shopping around as a buyer also. There are a lot of variables between lenders right now (credit scores, debt to income ratios, interest rates), and it’s worth making sure you are getting the best program and rates for what you need.
Everyone’s burning question is always “what’s going to happen to interest rates??” Well, none of us have a crystal ball, so we have to make our best predictions based on the facts right now. So far, the government has promised to buy all mortgage backed securities until the economy recovers. It does not seem that the economy will fully recover by the end of this year, so it’s a safe bet that we will continue to see the historically low rates that we’re seeing right now for the rest of the year. The rates WILL fluctuate some because the market does move.
The tried and true principles of the past (things like “when the stock market is great, mortgage interest rates are not favorable) are completely out the window. Crazy, right? But we’re seeing all kinds of unprecedented moves and the old rules just don’t apply. So my advice to you if you are seeking to purchase or refinance is to work with someone who is constantly monitoring the MBS market and reports, and who will stay on top of it during your entire transaction.
And finally, I just want to reiterate that no matter what, and no matter what kind of market we are in, if you follow the fuels of finance (Do not overextend yourself, consistently save) you will be in the best position possible for your own circumstances.
So I hope this information is helpful, and if you have any questions be sure to leave a comment!
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