Category: Community

Getting Comfortable with the New Normal Mortgage Rates

Gary Thompson ... "Your Utah Realtor!"

The biggest shock to homebuyers is the soaring mortgage rates of 2022 that doubled in one year resulting in approximately 15 million mortgage ready buyers displaced from the market due to affordability issues.

As of February 23, 2023, the 30-year fixed rate mortgage was at 6.5%.  While that is twice as high as it was on January 6, 2022, it is still lower than the 7.75% average rate since April 2, 1971, according to the Freddie Mac Primary Mortgage Market Survey.

When rates increase at a rapid pace like this, it takes time for the public to adjust and begin to accept it as the new normal.

Prior to the housing bust that led to the Great Recession, the normal for mortgage rates was in the 6% range and existing home sales were over 6.5 million for three years.  From 2007 to 2014, home sales were closer to 5 million with 2008-2011 at just above 4 million annually.

From January 17, 2008 to March 5, 2020, mortgage rates averaged 4.32%.  In this 12-year period, buyers experienced some of the lowest mortgage rates ever and became to expect that rates would always be that low. 

Then, during the hardest part of the pandemic, the government took unprecedented actions to influence rates even lower to where they averaged 3.06% between March 5, 2020 and March 17, 2022.

It appears that mortgage rates have peaked in this latest cycle.  In December 2022, the rates came down for four straight weeks following two weeks of slightly higher rates.  The question is what to anticipate for 2023.

The National Association of REALTORS(R) is expecting mortgage rates to be below 6% in the last half of 2023 possibly, 5.5% to 5.7%.  Zillow’s chief economist believes rates will drop to around 5.5% for 2023.  The Mortgage Bankers Association expects that “30-year mortgage rates will end 2023 at 5.3%.”  Fannie Mae forecasts rates will end 2023 at 5.7%.

Relying on the experts, rates are not going to return to the unusual levels during the pandemic or even in the past 12-14 years.  The new normal may well indeed be at the mid-5% level and when the public gets use to it, sales will begin to rise again.

Some buyers may need to adjust their price points because higher payments are directly impacted by the higher rates.  Even if they could have afforded more with the lower rates, that was a missed opportunity.  When the Fed gets inflation under control and the market rebounds from the pent-up demand, another window could be lost.

David Stevens, CEO of Mountain Lake Consulting, and former Assistant Secretary of Housing recently said in a LinkedIn post talking about the housing market in 2023 “So be advised…this may be the one and only window for the next few years to get into a buyers’ market. And remember…as the Federal Reserve data shows…home prices only go up and always recover from recessions no matter how mild or severe.  Long term homeowners should view this market…right now…as a unique buying opportunity.”

Gary Thompson
CRS, SRS, SFR, e-Pro, Broker Associate
Masters Utah Real Estate
(801) 821-9292
5486604-AB00
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If you’re on the sidelines, at least get ready…

Gary Thompson ... "Your Utah Realtor!"
It's time to get ready

If you’re on the sidelines to buy a home, there are things you can do to be ready when you do get back in the game.

Improve your credit score to qualify for the best mortgage rate available which are reserved for those with the highest scores.  Get a copy of your current credit reports from all three of the main credit bureaus: Equifax, TransUnion, and Experian.  You can get them at AnnualCreditReport.com without paying for them.

While you won’t see a credit score on these reports, you will see a history of your available credit accounts.  According to the Federal Trad Commission, one in five people have at least one error on one of their credit reports which can lower your score or increase the cost or likelihood of receiving new credit.  Identify and correct these mistakes. 

Explain in writing the error in the report and include copies of documents that support your dispute.  Both the credit bureau and the business that supplied the information must correct the information that is in error.  There will not be a fee to correct it.  You can get specific info for the process on each credit reporting companies’ website and from the FTC Consumer Advice.

There is a term call “credit utilization” which describes how much of your available credit on each revolving account is currently being used.  If the limit on one card were $10,000 and you had a $5,000 balance, the utilization ratio is 50%.  Amounts above 30% can negatively impact your credit score even if you do pay the balance each month.

Any delinquent items that may appear on your credit report need to be cleared up.  Regardless of whether there is a legitimate reason, it needs to be explained to the credit bureau.  Beginning in 2023, medical collections less than $500 will no longer be reported on consumer credit reports.

Continue to save for a down payment because mortgages less than 80% of loan-to-value require mortgage insurance which increases the monthly payment.  The exception to the rule is for VA loans which do not require it.  The cost of mortgage insurance could add 0.5% to 2% or more to the payment.

Lower your debt-to-income ratio by paying off installment loans for cars, boats, and other things.

While there are legitimate credit repair services available, you may be able to get excellent advice from a trusted mortgage professional.  You’ll eventually want to be pre-approved before you start looking at homes.  Your real estate agent can make a recommendation to connect you with someone who will get you ready to get back into the game.

Gary Thompson
CRS, SRS, SFR, e-Pro, Broker Associate
Masters Utah Real Estate
(801) 821-9292
5486604-AB00
Contact Me Visit Website Subscribe to Newsletter

Cash-Out Refinance

Gary Thompson ... "Your Utah Realtor!"

With the rapid appreciation that homes have had in the last two years, most homeowners have equity.  A common way to release part of the equity is to cash-out refinance but some homeowners may not be eligible currently.

This type of loan replaces the current mortgage by paying it off and an additional amount of cash for the owner.  Generally, lenders will consider a new mortgage up to a total of 80% of the current value.

Typically, the rate on a cash-out refinance will be slightly higher than a traditional purchase money mortgage.  As is in any lending situation, the rate depends on the borrower’s credit and income.  The best interest rates are available to borrowers with higher credit scores, usually over 740.

Loan-to-value can affect the rate a borrower pays also.  A 70% loan-to-value mortgage could be expected to have a lower interest rate than an 80% LTV because there is a larger amount of equity remaining in the property and therefore, less risk for the lender.

There are no restrictions on how the owner can use the money.  It can be used for home improvements, consolidating debt, other consumer needs or for investment.

Eligibility Requirements as found in FNMA Selling Guide B2-1.3-03 Cash-Out Refinance Transactions

“Cash-out refinance transactions must meet the following requirements:

  • The transaction must be used to pay off existing mortgages by obtaining a new first mortgage secured by the same property or be a new mortgage on a property that does not have a mortgage lien against it.
  • Properties that were listed for sale must have been taken off the market on or before the disbursement date of the new mortgage loan.
  • The property must have been purchased (or acquired) by the borrower at least six months prior to the disbursement date of the new mortgage loan except for the following:
    • There is no waiting period if the lender documents that the borrower acquired the property through an inheritance or was legally awarded the property (divorce, separation, or dissolution of a domestic partnership).
    • The delayed financing requirements are met. See Delayed Financing Exception below.
    • If the property was owned prior to closing by a limited liability corporation (LLC) that is majority-owned or controlled by the borrower(s), the time it was held by the LLC may be counted towards meeting the borrower’s six-month ownership requirement. (In order to close the refinance transaction, ownership must be transferred out of the LLC and into the name of the individual borrower(s). See B 2-2-01, General Borrower Eligibility Requirements (07/28/2015) for additional details.)
    • If the property was owned prior to closing by an inter-vivos revocable trust, the time held by the trust may be counted towards meeting the borrower’s six-month ownership requirement if the borrower is the primary beneficiary of the trust.
  • For DU loan case files, if the DTI ratio exceeds 45%, six months reserves is required.”

Let me know if I can be of any help! Sincerely, Gary

Gary Thompson
CRS, SRS, SFR, e-Pro, Broker Associate
Re/Max Masters
(801) 821-9292

5486604-AB00 Contact Me Visit Website Subscribe to Newsletter

Skip the Starter Home?

Gary Thompson ... "Your Utah Realtor!"

For generations, people have begun their homeowner experience with a “starter” home.  Part of the logic may be that by beginning with a smaller home, they can learn what it takes to run the home and discover some of the unexpected costs that come along with it.  A slightly longer view into the future could suggest a different strategy.

As of March 4, 2021, the average 30-year mortgage rate according to Freddie Mac was 3.02%; up .37% from the week of January 7th this year.  At the same time, in 2020, the rate was 3.29% and in 2019, it was 4.41%.  That is a difference of 28 and 139 basis points.

The principal and interest payment on a $300,000 mortgage would have been $236 higher two-years ago and $44 more one-year ago.  Today’s low mortgage rates are saving buyers lots of interest especially when you factor in the median tenure for sellers is approximately ten years.  Even though prices have increased over the last two years, some people may be able to afford more now with the lower rates.

Anticipating the future wants and needs now may present some opportunities for preparing for the inevitable.  By purchasing a larger home today, a buyer can lock in today’s low rates and prices to allow themselves room to grow without the expenses of moving.

Each time you sell and purchase a home, there are expenses associated with each side of the transaction.  Purchase costs could be 1.5 to 3% while sales expenses could easily be 2.5 times that much.  These expenses lower the value of your equity. 

Instead of looking at the low mortgage rates as generating a savings from the payment you might normally have to make, consider it an opportunity to purchase more home that will possibly meet your needs for a longer time while eliminating the cost of selling and purchasing in the transition.

Let me know if you have any questions or if I can help you find your next home or Investment!

Much Success! Gary

Gary Thompson
CRS, SRS, SFR, e-Pro, Broker Associate
Re/Max Masters
(801) 821-9292

5486604-AB00 Contact Me Visit Website Subscribe to Newsletter

Annual Home Advisory

Gary Thompson ... "Your Utah Realtor!"

Homeownership is a privilege and a responsibility. Even after decades of owning a home, you may still need some help to handle some of its challenges by focusing on the three “M”s of homeownership: maintenance, minimizing expenses and managing debt and risk.

While many people recognize the benefits of annual wellness, financial, vehicle and equipment maintenance visits, an important checkup that you may not have considered is an annual homeowner advisory or real estate review. Why would you treat the investment in your home with less care than you treat your car or your HVAC system?

Consider exploring the following:

  • Do you know the current value of your home? (You can, by obtaining a list of comparable sales in your immediate area, as well as what is currently on the market for sale.)
  • Have you compared your assessed value for tax purposes to the fair market value in order to possibly reduce your property taxes?
  • Even if you’ve refinanced in the last two years, can you save money and recapture the cost of refinancing in the length of time you plan to remain in your home?
  • Have you considered reducing your mortgage debt with low-earning cash reserves that will not be needed soon?
  • Do you have a record of the improvements you’ve made to your home since you purchased it? Do you know what items can be included?
  • Have you considered investing in rental homes in good neighborhoods to increase your yields and avoid the volatility of the stock market?
  • When was the last time you updated your home inventory of personal belongings? Do you have pictures as well as written documentation?
  • Do you need recommendations of repairmen and other service providers?

This service is part of my point of difference as a real estate professional to provide information to help homeowners not only when they buy and sell but all the years in between too.  My goal is to create lifelong relationships with our customers as their “go to” person whenever they have a real estate question.

My strategy is to provide reliable, consumer-based information about homeownership on a regular basis through email and social networking.  If it benefits you by helping you be a better homeowner, maybe you’ll consider us your real estate professional.

When you don’t know the answers to real estate questions, you know where to get them.

We’re always here to serve your real estate needs. By helping you with the three “M”s of homeownership, we can earn your confidence and trust for the next time you move or a friend of yours needs a recommendation.

Much Success! Gary

Gary Thompson
CRS, SRS, SFR, e-Pro, Broker Associate
Re/Max Masters
(801) 821-9292

Contact Me Visit Website Subscribe to Newsletter

Mortgage Forgiveness

Gary Thompson ... "Your Utah Realtor!"

5/20/2020

During the mortgage meltdown that caused the Great Recession a decade ago, some homeowners lost their homes to foreclosure or constructed a short sale to get out from under the debt.  In most of the cases, the lenders forgave all or part of the debt owed them.

Similarly, in the early 90’s after the failure of the Savings & Loans in the U.S., thousands of homeowners lost their homes in the same way but back then, the policy of the IRS was to consider the forgiven debt as income.  Today, it is still considered income which means that a homeowner could lose their home because they could not afford to pay for it and to make matters worse, they would owe income tax on the debt relieved.

The good news is that in 2007, Congress passed the Mortgage Forgiveness Act and it has continued to be extended with its current expiration of 12/31/20.

The amount forgiven for income tax purposes may not be the same amount owed to the lender.  Mortgage forgiveness has a limited exclusion for discharged home mortgage debt for a principal residence only; it does not include second homes or investment properties.  Only the amount of mortgage debt that can be treated as acquisition indebtedness in included.

In the example below, a homeowner purchased a home and refinanced the home five years later at 80% of the market value.  The new loan proceeds were used to payoff the original mortgage and make $30,000 of new capital improvements.  The revised acquisition debt is the acquisition debt at the time of refinance plus the capital improvements made with the loan proceeds.

The new $400,000 loan produced $39,417 of home equity debt which is not considered acquisition debt.  Home equity debt is money borrowed on a home and can be used for any purpose, but it may not be tax deductible or considered acquisition debt.  Acquisition debt is money borrowed to buy, build or improve a principal residence subject to a $750,000 limit.

Assume that the borrower never made a payment on the new loan.   If the new loan went through foreclosure while the Mortgage Forgiveness Relief Act is in effect, the forgiveness would be limited to the acquisition debt of $360,583 and the remaining amount of $39,417 would be considered income and subject to tax.

This article is meant to inform homeowners of liabilities associated with foreclosures and possible remedies that may be available.  This example is meant to illustrate the portion of a loan that could be forgiven.  Taxpayers should always consult their tax professional regarding their specific situation and the way the law would apply to their situation. For more information, see IRS Publication 4681.

Example 
Purchase Price … 5 years ago$400,000
Mortgage at time of purchase … Acquisition Debt$360,000
Fair Market Value … Today, 5 years later$500,000
Refinanced 80% – Loan to Value$400,000
Replaced unpaid balance – current acquisition debt$330,583
Capital improvements made with loan proceeds$30,000
Revised acquisition debt$360,583
Home equity debt … difference in refinanced amount and acquisition debt$39,417

Gary Thompson
CRS, SRS, SFR, e-Pro, Broker Associate
Re/Max Masters
(801) 821-9292

Contact Me Visit Website Subscribe to Newsletter

It’s Different This Time!

Gary Thompson ... "Your Utah Realtor!"

Of course, it is!  We haven’t experienced a global pandemic in our lifetime.  We haven’t had an economic shutdown like this before.  Uncertainty is understandable and people tend to fear what they don’t understand. With all that said, it doesn’t mean there are not opportunities for people who can act in this unprecedented environment.

During the recent Great Recession, housing prices experienced dramatic reductions in value due to the subprime mortgage crisis.  Homeownership in the U.S. peaked in 2004 at 69.2% when lenders with questionable practices would approve almost anyone who applied for a mortgage. 

Since the Great Recession, Congress and the mortgage industry enacted significant rules that require a person to actually qualify based on the ability to pay back the loan, cash and savings necessary to close, the house securing the loan and sufficient credit history.

Both first-time buyers and investors were able to capitalize on opportunities during that recession by acquiring properties at below market prices.  These buyers had good credit, the necessary down payment, income and the willingness to act at the moment.  Interestingly, those prices did not stay depressed for long.

Today, there is a big part of America that has good credit, the necessary down payment and sufficient income to qualify but are in a wait and see posture.  It is understandable that both sellers and buyers across the country are uncertain whether now is a good time for them individually to make a move. 

Consumers should understand the difference in the ability to qualify for a home and the ability to afford and maintain it.  If a buyer is secure with their income and job status, a real estate market with less competition can definitely be an opportunity.

Currently, the homeownership rate is estimated at 65.1% based on the U.S. Census Bureau.  This is only slightly lower than its all-time high.

“The housing sector enters this current recession underbuilt rather than overbuilt” states Robert Dietz, chief economist with the National Association of Home Builders, “that means as the economy rebounds … which it will at some stage … housing is set to help lead the way out.”  Ali Wolf, chief economist with Meyers Research, believes housing will be the hero this time “Last time housing led the recession.  This time it’s poised to bring us out.”

The majority of housing economists don’t expect prices to fall because we’re still experiencing a housing shortage.  Both existing homes on the market and new construction cannot meet the high demand from buyers, some who have been trying to buy and have lost bidding wars.

There is probably an equal number of sellers and buyers who are waiting to see what happens to the economy which will reduce the overall sales.  However, for the sellers who are in the market, their prices may stay solid based on the lack of inventory for the buyers who are staying in the market.

All real estate is local and each market, in its various price ranges have their own current characteristics.  If you would like to investigate how it might affect your decision to buy or sell, now or in the near future, we can arrange a video meeting.  We can provide you with current inventory levels in your area and price range, recent sales and current demand levels.