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If you spent your teenage years waiting anxiously for one of your siblings to get out of the shower, the idea of selling your spacious, multi-bathroom home and moving into a smaller house or condo may feel like a reversal of fortune.

Yet for many retirees, downsizing makes financial and practical sense. Younger baby boomers — those currently ranging in age from 57 to 66 — made up 17% of recent home buyers, while older boomers — ages 67 to 75 — accounted for 12%, according to a 2022 report from the National Association of Realtors Research Group. Boomers’ primary reasons for buying a home were to be closer to friends and family, as well as a desire to move into a smaller home, the report said. Both younger and older boomers were more likely than others to purchase a home in a small town, and younger boomers were the most likely to buy in a rural area.

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For retirees Fred and Shelby Bivins, selling their home in Green Valley, Ariz., will enable them to realize their dream of traveling in retirement. The Bivinses have put their 2,050-square-foot Arizona home on the market and plan to relocate to their 1,600-square-foot summer condo in Fish Creek, Wis., a small community about 50 miles from Green Bay. They plan to live in Wisconsin in the spring and summer and spend the winter months in a short-term rental in Arizona, where they have family.  

Fred, 65, says the decision to downsize was precipitated by a two-month stay in Portugal last year, one of several countries they hope to visit while they’re still healthy enough to travel. “We’ve had Australia and New Zealand on our list for many years, even when we were working,” says Shelby, 68. The Bivinses are also considering a return visit to Portugal. Eliminating the cost of maintaining their Arizona home will free up funds for those trips. 

With help from Chris Troseth, a certified financial planner based in Plano, Texas, the Bivinses plan to invest the proceeds from the sale of their home in a low-risk portfolio. Once they’re done traveling and are ready to settle down, they intend to use that money to buy a smaller home in Arizona. “Selling their primary home will generate significant funds that can be reinvested to support their lifestyle now and in the future,” Troseth says. “Downsizing for this couple will be a positive on all fronts.”

Challenges for downsizers 

For all of its appeal, downsizing in today’s market is more complicated than it was in the past. With 30-year fixed interest rates on mortgages recently approaching 8%, many younger homeowners who might otherwise upgrade to a larger home are unwilling to sell, particularly if it means giving up a mortgage with a fixed rate of 3% or less. More than 80% of consumers surveyed in September by housing finance giant Fannie Mae said they believe this is a bad time to buy a home and cited mortgage rates as the top reason for their pessimism. “This indicates to us that many homeowners are probably not eager to give up their ‘locked-in’ lower mortgage rates anytime soon,” Fannie Mae said in a statement. As a result, buyers are competing for limited stock of smaller homes, says Hannah Jones, senior economic research analyst for Realtor.com. 

Here, though, many retirees have an advantage, Jones says. Rising rates have priced many younger buyers out of the market and made it more difficult for others to obtain approval for a loan. That’s not an issue for retirees who can use proceeds from the sale of their primary home to make an all-cash offer, which is often more attractive to sellers. 

Retirees also have the ability to cast a wider net than younger buyers, whose choice of homes is often dictated by their jobs or a desire to live in a well-rated school district. While the U.S. median home price has soared more than 40% since the beginning of the pandemic, prices have risen more slowly in parts of the Northeast and Midwest, Jones says. “We have seen the popularity of Midwest markets grow over the last few months because out of all of the regions, the Midwest tends to be the most affordable,” she says. “You can still find affordable homes in areas that offer a lot of amenities.” 

Meanwhile, selling your home may be somewhat more challenging than it was during the height of the pandemic, when potential buyers made offers on homes that weren’t even on the market. The Mortgage Bankers Association reported in October that mortgage purchase applications slowed to the lowest level since 1995, as the rapid rise in mortgage rates has pushed many potential buyers out of the market. Sales of previously owned single-family homes fell a seasonably adjusted 2% in September from August and were down 15.4% from a year earlier, according to the National Association of Realtors. “As has been the case throughout this year, limited inventory and low housing affordability continue to hamper home sales,” NAR chief economist Lawrence Yun said in a statement. 

However, because of tight inventories, there’s still demand for homes of all sizes, Jones says, so if your home is well maintained and move-in ready, you shouldn’t have difficulty selling it. “The market isn’t as red-hot as it was during the pandemic, but there’s still a lot to be gained by selling now,” she says.

Other costs and considerations 

If you live in an area where real estate values have soared, moving to a less expensive part of the country may seem like a logical way to lower your costs in retirement. While the median home price in the U.S. was $394,300 in September, there’s wide variation in individual markets, from $1.5 million in Santa Clara, Calif., to $237,000 in Davenport, Iowa. But before you up and move to a lower-cost locale, make sure you take inventory of your short- and long-term expenses, which could be higher than you expect. 

Selling your current home, even at a significant profit, means you will incur costs, including those to update, repair and stage it, as well as a real estate agent’s commission (typically 5% to 6% of the sale price). In addition, ongoing costs for your new home will include homeowners insurance, property taxes, state and local taxes, and homeowners association or condo fees.

Nicholas Bunio, a certified financial planner in Berwyn, Pa., says one of his retired clients moved to Florida and purchased a home that was $100,000 less expensive than her home in New Jersey. Florida is also one of nine states without income tax, which makes it attractive to retirees looking to relocate. Once Bunio’s client got there, however, she discovered that she needed to spend $50,000 to install hurricane-proof windows. Worse, the only home-owners insurance she could find was through Citizens Property Insurance, the state-sponsored insurer of last resort, and she’ll pay about $8,000 a year for coverage. Her property taxes were higher than she expected, too. When it comes to lowering your cost of living after you downsize, “it’s not as simple as buying a cheaper house,” Bunio says 

Before moving across the country, or even across the state, you should also research the availability of medical care. “Oftentimes, those considerations are secondary to things like proximity to family or leisure activities,” says John McGlothlin, a CFP in Austin, Texas. McGlothlin says one of his clients moved to a less expensive rural area that’s nowhere near a sizable medical facility. Although that’s not a problem now, he says, it could become a problem when they’re older. 

If you use original Medicare, you won’t lose coverage if you move to another state. But if you’re enrolled in Medicare Advantage, which is offered by private insurers as an alternative to original Medicare, you may have to switch plans to avoid losing coverage. To research the availability of doctors, hospitals and nursing homes in a particular zip code, go to www.medicare.gov/care-compare.

At a time when many seniors suffer from loneliness and isolation, a sense of community matters, too. Bunio recounts the experience of a client who considered moving from Philadelphia to Phoenix after her daughter accepted a job there. The cost of living in Phoenix is lower, but the client changed her mind after visiting her daughter for a few months. “She has no friends in Phoenix,” he says. “She’s going on 61 and doesn’t want to restart life and make brand-new connections all over again.”

Time is on your side 

Unlike younger home buyers, who may be under pressure to buy a place before starting a new job or enrolling their kids in school, downsizers usually have plenty of time to consider their options and research potential downsizing destinations. Once you’ve settled on a community, consider renting for a few months to get a feel for the area and a better idea of how much it will cost to live there. Bunio says some of his clients who are behind on saving for retirement or have high health care costs have sold their homes, invested the proceeds and become permanent renters. This strategy frees them from property taxes, homeowners insurance, homeowners association fees and other expenses associated with homeownership 

The boom in housing values has boosted rental costs, as the shortage of affordable housing increased demand for rental properties. But thanks to the construction of new rental properties in several markets, the market has softened in recent months, according to Zumper, an online marketplace for renters and landlords. A Zumper survey conducted in October found that the median rent for a one-bedroom apartment fell 0.4% from September, the most significant monthly decline this year. 

In 75 of the 100 cities Zumper surveyed, the median rent for a one-bedroom apartment was flat or down from the previous month. (For more on the advantages of renting in retirement, see “8 Great Places to Retire—for Renters,” Aug.)

Aging in place

Even if you opt to age in place, you can tap your home equity by taking out a home equity line of credit, a home equity loan or a reverse mortgage. At a time when interest rates on home equity lines of credit and loans average around 9%, a reverse mortgage may be a more appealing option for retirees. With a reverse mortgage, you can convert your home equity into a lump sum, monthly payments or a line of credit. You don’t have to make principal or interest payments on the loan for as long as you remain in the home. 

To be eligible for a government-insured home equity conversion mortgage (HECM), you must be at least 62 years old and have at least 50% equity in your home, and the home must be your primary residence. The maximum payout for which you’ll qualify depends on your age (the older you are, the more you’ll be eligible to borrow), interest rates and the appraised value of your home. In 2024, the maximum you could borrow was $1,149,825.

There’s no restriction on how homeowners must spend funds from a reverse mortgage, so you can use the money for a variety of purposes, including making your home more accessible, generating additional retirement income or paying for long-term care. You can estimate the value of a reverse mortgage on your home at www.reversemortgage.org/about/reverse-mortgage-calculator.

Up-front costs for a reverse mortgage are high, including up to $6,000 in fees to the lender, 2% of the mortgage amount for mortgage insurance, and other fees. You can roll these costs into the loan, but that will reduce your proceeds. For that reason, if you’re considering a move within the next five years, it’s usually not a good idea to take out a reverse mortgage.

Another drawback: When interest rates rise, the amount of money available from a reverse mortgage declines. Unless you need the money now, it may make sense to postpone taking out a reverse mortgage until the Federal Reserve cuts short-term interest rates, which is unlikely to happen until late 2024 (unless the economy falls into recession before that). Even if interest rates decline, they aren’t expected to return to the rock-bottom levels seen over the past 15 years, according to a forecast by The Kiplinger Letter. And with inflation still a concern, big rate cuts such as those seen in response to recessions and financial crises over the past two decades are unlikely. 

Note: This item first appeared in Kiplinger’s Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Source: kiplinger.com

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Strained affordability and challenges to remote work opportunities have contributed to the lowest share of home buyers relocating in 18 months, Redfin reports. 

The 23.9% share of movers between September and November, down from 24.1% a year earlier, is the first annual decline in Redfin records dating back to 2017, the brokerage said. Relocations fell for the third consecutive month and are down from a record high of 26% over the summer.

Besides lofty mortgage rates and weighty principal and interest payments, Redfin pins some of the migration slowdown on employer constraints on remote work, which enabled more home buying moves during the coronavirus pandemic. Prices have since risen in cheaper destinations like Florida and Boise, Idaho, and locales like Sacramento and Las Vegas now top the top metros homebuyers are looking to move to. 

“Prices in Sacramento — the most popular destination this month — are up about 35% since before the pandemic, compared with an 8% increase in the Bay Area,” wrote Dana Anderson, data journalist at Redfin. 

Los Angeles for the first time topped Redfin’s rankings of metros buyers are looking to leave, followed by San Francisco and New York. The 10 most popular migration destinations by net inflow of searchers all had lower home prices than the most common origin of buyers coming in. 

The brokerage determined the coveted destinations through its data of over 2 million Redfin users who viewed homes for sale online across over 100 metros. 

Homeowners are also showing less interest in leaving their city limits — while there was a 4% drop annually in searches for a new metro, there was a 3% decrease in queries within the homebuyer’s city. Despite the negative trends, migration rates are still well above pre-pandemic levels around 19%.

Source: nationalmortgagenews.com

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What is an FHA loan?

An FHA loan is a mortgage insured by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development. With a minimum 3.5% down payment for borrowers with a credit score of 580 or higher, FHA loans are often a good fit for first-time home buyers or people with little savings or credit challenges.

You could still qualify for an FHA loan even if you don’t meet the requirements for a conventional mortgage or if you had a bankruptcy.

The federal government doesn’t issue FHA loans, but it does insure them. That insurance protects lenders in case of default, which is why FHA lenders are willing to offer favorable terms to borrowers who might not qualify for a conventional home loan.

FHA loans are issued by private, FHA-approved lenders, including many banks, credit unions and nonbanks (a type of lender).

An FHA home loan can be used to buy or refinance numerous types of homes, including:

Specific types of FHA loans can also be used to finance new construction or renovate an existing home. However, all properties — existing or new construction — must undergo an FHA appraisal. If the property meets government standards, then you can use an FHA loan to buy (or refinance) it.

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FHA vs. conventional loans

In general, it’s easier to qualify for an FHA loan than for a conventional loan, which is a mortgage that isn’t insured or guaranteed by the federal government.

Here are some key differences between FHA and conventional loans:

  • Credit score and history: FHA loans allow for lower credit scores than conventional loans. If you’ve had credit problems (including bankruptcy), you might find it easier to qualify for an FHA loan.

  • Mortgage insurance: Unlike conventional loans, all FHA loans require mortgage insurance. (However, the amount you pay varies based on the size of your down payment.) With a conventional loan, mortgage insurance generally isn’t required if you make a 20% down payment or once you reach 20% equity in your home.

  • Gift funds for down payments: FHA rules are more flexible regarding monetary gifts from family, employers or charitable organizations you can apply to your down payment.

  • FHA appraisal: To qualify for an FHA loan, the property must undergo an appraisal to make sure it meets government standards for health and safety. An FHA appraisal is different and separate from a home inspection. Conventional loans don’t require this.

  • Closing costs: FHA loans may involve closing costs that aren’t required by conventional loans.

FHA loan requirements

The FHA sets minimum requirements for borrowers seeking an FHA loan. However, each FHA-approved lender can determine its own underwriting standards, so long as those requirements are in line with the minimums set by the FHA. For instance, one lender may require a minimum credit score of 600 and another a minimum of 620.

Lenders each set their own interest rates and fees, too. To make sure you get the best FHA mortgage rate and loan terms, shop more than one FHA-approved lender and compare offers.

In general, here are the basic requirements to expect when applying for an FHA loan.

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Credit score for FHA loans

According to the FHA, the minimum credit score for an FHA loan is 500. If your score falls between 500 and 579, you can qualify for an FHA loan, but you’ll need to make a down payment of at least 10%.

If your credit score is 580 or higher, you can qualify for a down payment as low as 3.5%.

Again, these are FHA guidelines; individual lenders can and often do opt to require a higher minimum credit score.

🤓Nerdy Tip

If your credit score doesn’t measure up, you may want to work on building your credit before you begin home shopping. When you’re ready, find a lender that specializes in FHA loans. These lenders might be more experienced at working with credit-challenged borrowers.

Debt-to-income ratio

Your debt-to-income ratio, or DTI, is a measure of your monthly debt payments in relation to your pretax income. That includes your rent or mortgage costs in addition to things like auto or student loans and credit card balances. In general, lenders view a lower DTI as more favorable when issuing loans.

DTI requirements for FHA loans differ based on your credit score and other compensating factors, such as how much cash you have in the bank. If you have a credit score from 500 to 579, the FHA generally requires a DTI of less than 43%.

It’s still possible to get an FHA loan with a DTI that’s higher than 50%, but you’ll have to meet compensating factors, and your options will be limited.

Down payments and gift funds

The minimum down payment required for an FHA loan is 3.5% if you have a credit score of 580 or higher. If you have a credit score from 500 to 579, you’ll have to put down at least 10% of the purchase price.

The good news? It doesn’t all have to come from savings. You can use gift money for your FHA down payment, so long as the donor provides a letter with their contact information, their relationship to you, the amount of the gift and a statement that no repayment is expected.

🤓Nerdy Tip

Look into state and local down payment assistance programs for first-time home buyers, usually defined as someone who has not owned a home within the past three years. You may be able to find low- or no-interest loans, or even grants, to help you pull together the cash.

FHA appraisal

The property you’re trying to buy with an FHA loan has to undergo an appraisal from an FHA-approved professional and meet FHA minimum property requirements.

The FHA appraisal is separate and different from a home inspection. The goal is to be sure the home is a good investment — in other words, worth what you’re paying for it — and ensure it meets basic safety and livability standards.

For an FHA 203(k) renovation loan, the property may undergo two appraisals: an “as is” appraisal that assesses its current state and an “after improved” appraisal estimating the value once the work is completed.

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Mortgage insurance

FHA mortgage insurance is built into every loan. When you first get an FHA mortgage, you’ll make an upfront mortgage insurance payment, which can be rolled into the total amount of the loan. Then, you make monthly mortgage insurance payments thereafter. The length of your monthly payments varies based on the size of your down payment.

  • If your down payment is less than 10%: You will pay FHA mortgage insurance for the life of the loan.

  • If your down payment is 10% or more: You will pay FHA mortgage insurance for 11 years.

With a conventional loan, you can cancel private mortgage insurance once you reach 20% equity in your home. FHA mortgage insurance can’t be canceled in the same way.

🤓Nerdy Tip

Once you have enough home equity, you could choose to refinance your FHA loan into a conventional loan. This would remove the FHA mortgage insurance requirement, but you’d have to meet new qualifications and pay additional closing costs and fees.

Types of FHA loans

The FHA offers a variety of loan options, from standard purchase loans to products designed to meet highly specific needs. A full list of all FHA loan products and eligibility requirements is available at HUD.gov. Here are some common options:

Home purchase: Basic Home Mortgage 203(b)

The Basic Home Mortgage 203(b) is the standard single-family home loan backed by the FHA. Only primary residences — not vacation or second homes — qualify for FHA-insured loans.

FHA refinance loans

You may want to refinance your FHA loan to lower your interest rate, shorten your mortgage term or get cash flow for a costly project, such as a home renovation. Options include:

  • FHA streamline refinance: This can save you time and paperwork because it doesn’t require a new appraisal.

  • FHA cash-out refinance: This loan replaces your current mortgage with a new, larger loan. The difference is paid to you in cash.

  • FHA 203(k) refinance: This loan lets you roll the cost of repairs or renovations into the total amount of your mortgage. Upgrades must meet FHA eligibility requirements.

FHA renovation loans

  • FHA 203(k) rehabilitation mortgages: This option helps borrowers finance fixer-uppers by rolling purchase and renovation costs into one loan. The standard 203(k) loan lets borrowers finance improvements over $5,000. The FHA limited 203(k) loan lets borrowers finance improvements up to $35,000.

  • Title 1 Property Improvement Loans: These loans are also available to finance home repairs and improvements. Homeowners can obtain this loan without refinancing their existing mortgage, and the funds can be used to supplement a 203(k) loan. However, you can borrow only up to $25,000 for a single-family home.

Other specialty FHA loans

  • Energy-efficient mortgages: An energy-efficient mortgage can be used to finance home improvements to help a home save energy. To qualify for this financing, the home must undergo an energy assessment from a qualified professional.

  • Construction-to-permanent loans: This loan type helps borrowers finance the purchase of a home that’s still being built by paying the contractor in installments. When the home is finished, the loan converts to a permanent mortgage. Qualifying for these types of loans can be more difficult and time-consuming than a traditional purchase mortgage.

  • Manufactured homes: This includes the type sometimes called a mobile home. Manufactured homes can be bought with FHA financing, so long as everything meets HUD requirements. For example, HUD mandates that a manufactured home is at least 400 square feet, and it must be designed to use as a dwelling attached to a permanent foundation.

FHA loan limits

No matter what type of FHA loan you’re seeking, there will be limits on the mortgage amount. These limits vary by county. FHA loan limits in 2024 range from $498,257 to $1,149,825.

  • Low-cost county limit: The upper limit for FHA loans on single-family homes in low-cost counties is $498,257. An example is Lucas County, Ohio, where Toledo is located.

  • High-cost county limit: The upper limit for FHA loans in the highest-cost counties is $1,149,825, which would include mortgages in San Francisco County, California, for example.

Some counties have housing prices that fall somewhere in between, so the FHA loan limits are in the middle, too. An example is Denver County, Colorado, where the 2024 FHA loan limit is $816,500. You can visit HUD’s website to look up the FHA loan limit in any county.

How to apply for an FHA loan

Applying for an FHA loan will require personal and financial documents, including but not limited to:

  • A valid Social Security number.

  • Bank statements for, at a minimum, the past 30 days. You’ll also need to provide documentation for deposits made during that time, such as pay stubs.

Your lender may be able to automatically retrieve some required documentation, like credit reports, tax returns and employment records. Special circumstances — such as if you’re a student or you don’t have a credit score — may require additional paperwork.

Pros and cons of FHA loans

An FHA loan might be your best option for homebuying if you have credit challenges. Still, it’s important to understand the trade-offs.

Benefits of FHA loans

  • Lower minimum credit score requirements than conventional loans.

  • Down payments as low as 3.5%.

  • Debt-to-income ratios as high as 50% allowed (in some cases, may be higher if you meet compensating factors).

Disadvantages of FHA loans

  • FHA mortgage insurance lasts the full term of the loan with a down payment of less than 10%.

  • Property must undergo a separate appraisal and meet strict health and safety standards, which some sellers will consider an added hurdle.

  • No jumbo loans: The loan amount cannot exceed the conforming limit for the area.

Though the FHA sets standard requirements, FHA-approved lenders’ requirements may be different.

FHA interest rates and fees also vary by lender, so it’s important to comparison shop. Getting a mortgage preapproval from more than one lender can help you compare the total cost of the loan.

Ways to get the best FHA mortgage rates

When you’re shopping for an FHA loan, it’s smart to make sure your financials are in as good a shape as possible. This means pulling your credit reports from the three main credit reporting agencies — Experian, Equifax and TransUnion — and addressing any errors you might find. If possible, you might also pay down any larger balances, which has the added benefit of improving your debt-to-income ratio. While FHA loans might have more lenient requirements than some other loan types, having a better credit score and DTI will likely net you a better rate.

FHA loans are notable for requiring low down payments, but if you’re able to make one that’s higher than the minimum, you’ll look like a safer candidate to lenders. This is also likely to get you lower rate offers.

Once you feel confident about your application, compare mortgage rates between at least three FHA lenders. Even small differences in the rate you pay could save you — or cost you — thousands of dollars over the term of a home loan. And while you’re comparing lenders, look into first-time home buyer programs offered by your state’s housing authority. Many of these nonprofit agencies offer down payment and closing cost assistance in the form of grants.

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Source: nerdwallet.com

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Broker, Fulfillment, Servicing Software Products; Housing for the Aging Population

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Broker, Fulfillment, Servicing Software Products; Housing for the Aging Population

By:
Rob Chrisman

Thu, Dec 28 2023, 10:54 AM

If someone reports their company for tax evasion in the U.S., he or she will receive 30 percent of the amount collected. Have you ever loaned someone money and had them not pay you back? Here’s one thing that you can do to them (IRS’ 1099-C). While we’re on the general topic, despite strong retirement savings, Fidelity Investments’ Q3 2023 analysis reveals a surge in hardship withdrawals and 401(k) loans, addressing short-term financial challenges. By the numbers: 3 percent took hardship withdrawals (up from 1.8 percent in 2022). 8 percent tapped into 401(k) loans (compared to 2.4 percent last year). The silver lining? Retirement balances are on the rise, and savings rates remain steadfast. For those planning retirement, consider suggesting reverse mortgages as a game-changer. They offer an alternative, allowing access to funds without swiftly depleting hard-earned savings. If you haven’t set up reverse division at your shop, well, 10,000 people a day turn 62. Today’s podcast can be found here, and this week’s is sponsored by Gallus Insights. Mortgage KPIs, automated at your fingertips. Gallus allows you to go from data to actionable insights. If you can use Google, you can use Gallus. Hear an Interview with attorney Brian Levy on the NAR lawsuits and the implications for housing finance moving forward.

Broker and Lender Software, Products, and Programs

Are you a compliance nerd? A group of mortgage industry veterans has launched a software company for loan servicing that is getting a lot of attention. Keep your eyes and ears open for MESH software (Mortgage Enterprise Servicing Hub), which is their brand name for a series of software products aimed at loan servicers. The first product runs hundreds of compliance rules on loan portfolios daily, so servicers have a daily review of all loans against everything the CFPB, Agencies and States can throw at them. Look up “MESH Auditor”.

It’s time to start planning for the year ahead! Join the Computershare Loan Services (CLS) team from January 22 – 24 in The Big Easy for MBA’s Independent Mortgage Bankers Conference. With CLS’ originations fulfillment, co-issue MSR acquisition, subservicing, and mortgage cooperative, IMBs can streamline their operations, minimize expenses, and maximize profits. Contact the CLS team today to schedule a meeting in New Orleans.

Ring in the new year with a kinder outlook by joining us for the highly anticipated “Kind Mindset” event presented by Kind Lending. Taking place on January 16th, 2024, at The Buckhead Club in Atlanta, GA, this immersive event is designed to empower attendees with valuable insights on growth, success, and mindset. With an impressive lineup of speakers, including Kind Lending’s CEO/Founder, Glenn Stearns, and special guest Captain Charlie Plumb, 6-year Prisoner of War and former Fighter Pilot, this event promises to be a transformative and inspirational experience. Get ready to cultivate a “Kind Mindset” and embark on a journey of transformation and success. Register today.

Aging, Down Payments, and Housing Demographics

Do you think getting old is hard? The U.S. Census Bureau released a report showing that about 4 million U.S. households with an adult age 65 or older had difficulty living in or using some features of their home. About 50 million, or 40 percent, of U.S. homes had what were considered to be the most basic, aging-ready features: a step-free entryway into the home and a bedroom and full bathroom on the first floor. About 4 million or 11 percent of older households reported difficulty living in or using their home. The share increased to nearly 25 percent among households with a resident age 85 or older. Over half (about 57 percent) of older households reported their home met their accessibility needs very well, but only 6 percent of older households had plans to renovate their home in the near future to improve accessibility.

In general, Zillow expects home prices to remain roughly flat in 2024, with only a 0.2% increase in its housing market index. Existing home sales are expected to fall further to 3.74 million. Zillow does mention that this forecast does not take into account the latest forecast from the Fed, and the expectation for big rate cuts in 2024.

Falling mortgage rates have put some spring in the step of the homebuilders, according to the latest NAHB / Wells Fargo Housing Market Index. As one would expect, with mortgage rates down roughly 50 basis points over the past month or two, builders are reporting an uptick in traffic as some prospective buyers who previously felt priced out of the market are taking a second look. With the nation facing a considerable housing shortage, boosting new home production is the best way to ease the affordability crisis, expand housing inventory and lower inflation. But builders have lagged production for so many years…

Non-builder loan officers find the builder world a tough nut to crack. Many, if not most, big builders are dealing with the mortgage rate issue by subsidizing buy-downs. Builders generally build free upgrades into their models, and these funds are being used to buy down the rate. The builder gets full price for the house, loses a few points on the mortgage, which might have instead gone to upgraded countertops or something else.

Even if one can get approved for a loan, buying can still be prohibitively expensive. Receiving help from family and friends for that crucial down payment can be a major turning point for many consumers. In fact, nearly 2 in 5 homeowners (39 percent) have received down payment assistance, according to LendingTree’s Mortgage Down Payment Help Survey, of nearly 2,000 U.S. consumers. 78 percent of Gen Z homeowners reported some financial support for a down payment, mostly from their parents. 54 percent of millennials have received down payment help, followed by 33 percent of Gen Xers.

Almost a third (31 percent) of Americans think putting down 20 percent for a down payment is obligatory. However, 59 percent of current homeowners say their down payments were less than 20 percent of the home’s purchase price, and just 29 percent put down 20 percent or more. One in 10 Americans never took out a mortgage, while 15 percent had a mortgage but have since paid it off. Baby boomers are the most likely to have paid off their mortgages, at 29 percent.

As anyone shopping for a home can tell you, it’s slim pickings out there. For many years we have been seeing the biggest squeeze in the starter home category. It appears that for years part of the problem is a lack of confidence to move up to the next category. People in starter homes are staying put, which is keeping homes off the market.

Capital Markets

It was another slow news day yesterday without any meaningful economic data or news to move sentiment. However, investors are laden with optimism as a soft-landing for the economy comes into view and seem to be throwing caution to the wind with over 150 basis points of Fed Funds easing fully priced in for next year. In accordance with that, benchmark bonds rallied to fresh highs yesterday after the U.S. Treasury sold $58 billion in 5-year notes to excellent demand. The strong auction exposed some short positioning, and it invited additional late buying. That followed Tuesday’s $57 billion 2-year Treasury auction that attracted a record number of indirect buyers to snap up high yields before the Fed’s anticipated rate cuts, which are fully priced in to begin at the March meeting in just over 80 days. Yields on benchmark treasuries have dropped to levels not seen since the summer.

Today has a fuller calendar than the past two sessions in regard to economic news. We are under way with initial jobless claims (+12k to 218k, a little higher than expected), continuing claims, advanced economic indicators for November (goods trade balance, retail inventories, and wholesale inventories), none of which moved rates. Later today brings the NAR’s Pending Home Sales Index for November, Freddie Mac’s Primary Mortgage Market Survey, and another large amount of supply from the Treasury, headlined by $40 billion 7-year notes. We begin the day with Agency MBS prices worse a few ticks (32nds), the 10-year yielding 3.81 after closing yesterday at 3.79 percent, and the 2-year is down to 4.25.

 Download our mobile app to get alerts for Rob Chrisman’s Commentary.

Source: mortgagenewsdaily.com

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© MicroStockHub – iStock/Getty Images Plus

Mortgage rates dropped below 7% for the first time since August, hitting 6.95% this week, Freddie Mac reported Thursday. It’s a holiday gift for home buyers who were sidelined in recent months by higher borrowing costs.

The latest rate drop brings the monthly mortgage payment for a $400,000 home to $2,118. That’s $183 less per month compared to earlier this fall when rates surged to 7.79%, says Jessica Lautz, deputy chief economist at the National Association of REALTORS®. Economists predict rates to fall even further heading into the new year.

Adding to the optimism, the Federal Reserve decided Wednesday to leave its benchmark interest rate unchanged and said three rate cuts are likely in 2024. The potential for rate cuts in the new year offers hope that pressure on other interest rates, including long-term mortgage rates, will ease. NAR forecasts mortgage rates to average 6.3% in 2024.

As rates come down, “the momentum is moving in the right direction for stronger sales activity in 2024,” Lautz says. “Will it be a traditional spring real estate market, or will it start to heat up in the winter months as rates decline? Let’s also hope the lower mortgage interest rates translate into stronger homebuilder activity, as inventory will be needed as buyers move from the sidelines.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Dec. 14:

  • 30-year fixed-rate mortgages: averaged 6.95%, falling from last week’s 7.03% average. A year ago, 30-year rates averaged 6.31%.
  • 15-year fixed-rate mortgages: averaged 6.38%, increasing from last week’s 6.29% average. Last year at this time, 15-year rates averaged 5.54%.

Source: nar.realtor

Apache is functioning normally

After nearly two years of trudging through a frozen housing market, the consensus among mortgage professionals is that the worst of it is over.

The Federal Reserve recently signaled plans to slash interest rates three times in 2024, shifting toward the next phase in its monetary policymaking.

“It finally seems like we are turning a corner and that’s good news after two years of the Fed’s negative perspective that we’ve heard,” Max Slyusarchuk, CEO of A&D Mortgage, said in an interview.

The spread between the 30-year fixed-rate mortgage and the 10-year Treasury yield has narrowed after sitting at over 300 basis points, compared to the historic norm of 150 bps. 

But how much will the decline in mortgage rates and a narrowing of the spreads breathe life into the dour origination landscape?

“At the end of the day if mortgage rates come down, I don’t just think that’s gonna solve the inventory problem right away,” said Ben Cohen, managing director at Guaranteed Rate.

“There’s still going to be a lag. So my concern is that rates are going to come down but inventory is not going to just all of a sudden be plentiful and now we’re in a situation where home prices get driven up because there is still low inventory. You have all these buyers that have been waiting for rates to come back and now they’re back and all this becomes really competitive again.”

Mortgage professionals say 2024 will be a ‘recovery year’ as markets slowly return to normal. But a combination of factors – high home prices, lack of inventory, elevated rates — temper expectations for even a moderately strong year. 

HousingWire interviewed a dozen loan officers and mortgage executives about their strategies for 2024, which mortgage products they expect to be in demand, and the magic rate needed to get sellers and buyers back in the market.

Strategies for 2024

I’m heavily focused on recruiting, improving technology and marketing, empowering the loan officers — by giving them the same technology and marketing support. Whatever I have for me, I will do it for them as well. This way I can help them grow their business. 

We will use AI to help with customer service. AI can understand the loan status, a loan profile and AI can respond to the consumer. If they want to know what’s going on with rates, their loan, AI can give them an answer. 

The second project I’m working on is having a mobile app where the the client can download the app and use it to take care of their transaction. We are going to shift to using a mobile app so we don’t have to use phone calls, emails and text messages anymore.

— Thuan Nguyen, CEO of Loan Factory, Inc.

A lot of what you hear is very cliche-ish. You have to make more calls, got to call on more people — all that is true.

But I think it’s more complex than that.

A successful loan officer in this market needs a very capable qualified assistant. I think they need to have all systems firing, meaning they’ve got to do the traditional stuff where you’re doing broker open houses, you’re going to open houses, you are doing coffee clutches and breakfasts and all that. 

Simultaneous to that, I think you got to be heavily engaged in what I call the ‘virtual war’ and that means you’re driving your social media and you’re in your your subscribing to systems that drive alerts to your database’s activity. And then you have to have a process in a system to manage those alerts and have outreach to those alerts to where you’re capitalizing on them in a quick time. 

— John Palmiotto, chief production officer at The Money Store

What people who don’t understand marketing have done is unintentional marketing. They’re just doing what they see everybody else doing and what we’re finding is those who are succeeding today and are going to thrive in 2024 have a lot of intention in their social media. 

It’s not social media, it’s social networking. Networking has always been a key component to drive growth and fostering true community with your referral partners and your sphere of influence. So you have to be intentional, you have to be very strategic – understanding the audience that you’re going after and leveraging it as a social networking platform. 

— Shane Kidwell, CEO of Dwell Mortgage

We’re now having to put in work every day without necessarily reaping the immediate reward. Staying disciplined to putting in the effort every single day at the absolute highest level even though we’re not going to see the immediate reward.

We’re laying the constant groundwork word doing the agent training. We’re doing it to where some of that is not reaping us rewards here. It’s that type of mindset that we have to have, because luck is hard work meeting opportunity.

— Matt Weaver, VP of mortgage sales at CrossCountry Mortgage

I recently got licensed in the state of Ohio because that’s where I’m from. I have a lot of connections in Ohio. I’m comfortable with lending there because I know I’m very familiar with the area. I think a lot of my friends and family members and circle of influence up there are going to be refinancing in the next six, 12, 18 months and I want to be licensed and ready to go when that time comes so that I can help them. 

— Justin McCrone, loan officer at Atlantic Coast Financial Services

Origination goals

I would be happy with doing $65 million to $75 million next year. I left and joined Revolution in 2023 for a couple months with no origination, I’m probably gonna hover around $50 million this year, whereas I did $100 million in 2022 at Guaranteed Rate. 

— Larry Steinway, senior vice president of mortgage lending and branch manager of Revolution Mortgage

The Mortgage Bankers Association (MBA) has a report on where they think the business is going, you have Fannie Mae on where they think the business is going. We look at all that and then we look at the size of the sales team, who we’ve recruited, what we think how much business will pick up.

I think the first quarter is going to be tough. And I think it’ll pick up once you get past the first quarter spring market and on. So we’re planning for a 20% increase.

— Jon Overfelt, director of sales and principal at American Security Mortgage Corp.

I think I’m doing marginally better than this year. We’re now looking at a declining rate environment versus the rising rate environment.  So that will allow people to be more optimistic. I would imagine we’ll be about 10 to 15% better next year than this year. 

— Robby Oakes, managing director at CIMG Residential Mortgage

Given the rate cycle over the past two years and the record level of available home equity that consumers are sitting on, the second mortgage market is a huge opportunity for originators to serve the cash-out and debt consolidation needs of their clients without touching their low rate first mortgage, make much needed origination income and keep the client close so they can service them again in the next cycle. Home equity is really a no-brainer today. 

Non-QM is also a huge opportunity for originators to serve the needs of their clients and make much needed origination income. Originators will be battling it out again next year for purchase and refinance volume again that fall into the standard agency, government, jumbo buckets. The rate and term and cash-out refinance market will rely on rates decreasing, but even if they move to 6% next year, the industry will struggle with refinances.

— Paul Saurbier, SVP of strategy at Spring EQ

There’s a big push for home affordability. So there’s a lot of programs out there for first-time homebuyers based on where they’re actually buying their home and what their income is. There’s incentives for those people to get into the home a little bit cheaper than who’s already been a homeowner and can’t take advantage of those programs. 

So to me, it’s still a big first-time buyer market in 2024. I’m not saying there are people that are existing but the people that are existing homeowners are only going to move if they absolutely have to move.

–Ben Cohen, managing director at Guaranteed Rate

I think for sure the non-QMs – the more flexible guideline programs are going to continue to be big, especially for people who are investors or self-employed aging populations.

Obviously for people with good credit, good income, solid assets, the 30-year fixed conventional mortgages is the most amazing program that exists for consumers because you don’t have any risk if rates go up and if rates go down you get to refinance and get a lower rate.

I don’t know if it’s national, but 30% of deals right [in my market in California] now are all-cash and so competing against all-cash is still going to be a concern for folks. So that means our job is not only to get them educated on their loan options, but also to make sure we are solid so we get fully underwritten files, making sure we do a lot of work on the front-end so we’re not missing out on deals.

— Brady Thomas, branch manager at American Pacific Mortgage

Home equity products will continue to be attractive options for homeowners looking for specific needs. Based on the goals of the homeowner, Adjustable Rate Mortgages (ARMs) may offer some flexibility. As rates start to tick down throughout 2024, traditional refinances will begin to make more financial sense, as well.

— Michael Merritt, SVP of customer care and default mortgage servicing at BOK Financial

Magic rate?

I would say 5.5%. But the issue is home prices are too high. In order to have the market return to normal, they have to come down a lot more. If rates and prices both come down, it’s easier. But this time, the price might not come down so we have to rely on the rates.

— Thuan Nguyen – CEO of Loan Factory, Inc.

When we get rates in the 5%, I think it’s gonna be fun to be in this business again because people will be willing to leave their 3% interest rate. I think we are going to see (traditional) refinancing transactions really start to kick in in the second half of 2024, 2025.

— Larry Steinway, senior vice president of mortgage lending and branch manager of Revolution Mortgage

I think if we get rates to come down into the 5% range, that’s going to help quite a bit. If people got rates of 7% and 7.5% and they can get a rate at 5%, that’s a refi boom for all of those buyers.

I think rates in the 5%-range or low 6% levels will bring buyers back to the market, but I don’t think we would get a ton of sellers until we have rates in the 4% or low 5%. Somebody who might want to move because they need an extra bedroom or want a bigger backyard won’t move if rates are still at 6% and they’re going from a rate of 3%. But they might do it if they’re getting 4.5%. 

— Brady Thomas, branch manager at American Pacific Mortgage

Business was really busy when they were in the low 6% range and the high 5% levels. If you look back earlier in the year when we had the banking crisis hit, business picked up a lot then and that’s about where rates were – in the high 5%, low 6%. I think somewhere in there, you would see a pretty good pickup. 

— Jon Overfelt, director of sales and principal at American Security Mortgage Corp.

The question people should be asking is at what rate threshold will sellers come back into the market. Given the average mortgage rate is 3.7%, and considering the pent-up deferred sales pressure is growing each day, our view is that somewhere around 5.5% will be a key threshold to attract sellers in a way that brings supply-demand parity into closer balance.

— Jack Macdowell, chief investment officer at Palisades Group

The number will be different based on the goal of the customer. If customers are looking for home improvement, debt consolidation or other spending goals, Home equity products can be positive at current rates. As rates work back towards 6%, I think you will begin to see more refinance options open up.

— Michael Merritt, SVP of customer care and default mortgage servicing at BOK Financial

Our definition of a magic number indicates the rate at which more than half of the buyers are willing to buy. We have an analytical department that analyzes the purchasing power of the U.S. in the past 40 years and they are saying it’s 6.25%. At 6.25%, a majority of people would say, ‘I’m OK to buy.’ That’s when supply and demand will equalize and your property is not going to drop or rise in value.

— Max Slyusarchuk, CEO of A&D Mortgage

Source: housingwire.com

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Mortgage rates slowed their downward momentum to close out 2023, but still finished the year with nine straight weekly drops, according to Freddie Mac. 

The average rate of the 30-year fixed mortgage slid down 6 basis points to 6.61% for the weekly period ending Dec. 28 in the final release of Freddie Mac’s Primary Mortgage Market Survey for 2023. Seven days ago, the average came in at 6.67%. Despite a precipitous recent fall, the latest 30-year rate is still 19 basis points higher than the 6.42% average recorded in the final week of 2022. 

Meanwhile, the 15-year fixed rate edged down to 5.93% from 5.95% week over week. One year ago, it averaged 5.68%.

“The rapid descent of mortgage rates over the last two months stabilized a bit this week, but rates continue to trend down,” said Sam Khater, Freddie Mac’s chief economist, in a press release. 

After coming in at its highest point in 23 years of 7.79% in late October, the 30-year average has tumbled almost 120 basis points in a little over two months, as signs of a cooling economy eased market worries. The 15-year average also briefly crossed over the 7% mark two months ago.

The interest rate retreat picked up in the final few weeks of the year after the December 2023 meeting of Federal Reserve officials, whose comments pointed to a marked shift in their approach to monetary policy next year.

Enthusiasm among investors shot up as a result, putting downward pressure on interest rates, even while some Fed governors have since struck a more cautious tone.

Recent news carries with it a dose of optimism for the home lending community, looking for a good start in 2024 after two years of struggles. “Heading into the new year, the economy remains on firm ground with solid growth, a tight labor market, decelerating inflation and a nascent rebound in the housing market,” Khater said. 

But lenders may need to build strategies around current rate levels for the foreseeable future, with current averages already near economists’ lower-end predictions. A steeper decline would only likely occur in the event of unforeseen economic disruption, according to Jay McCanless, senior vice president of equity research at Wedbush.

Current positions should still support a more active purchase market compared to 2023 but won’t lead to heightened refinance activity, McCanless noted. 

Placing some limits on how low rates could go is the still-wide spread between 10-year Treasury yields and mortgage averages. Two years ago, the spread stood close to 170 basis points, near its historical average. During the height of volatility earlier this year, it had grown to over 300 basis points.

“We don’t know what it’s going to take to bring those spreads back to something closer to normal,” McCanless said. “I think if there’s a big leading question for ’24, it’s what’s going to make spreads narrow?”

The latest 10-year Treasury yield came in at 3.85% midday Thursday, falling from 3.89% on Dec. 22 in a muted trading week. 

Other leading rate trackers showed similar-sized decreases as Freddie Mac’s survey over the past seven days with Optimal Blue’s product and pricing engine placing the 30-year conforming average at 6.56% for Wednesday. The rate fell from 6.63% on Dec. 21.

Zillow’s nationwide 30-year rate declined to an average of 6.2% on Thursday morning, down 7 basis points from last week’s 6.27%.

Source: nationalmortgagenews.com

Apache is functioning normally

As we prepare to bid adieu to 2023, mortgage rates this week again stayed below seven percent.

The 30-year fixed-rate mortgage averaged 6.61% as of Dec. 28, a slight decrease from the 6.67% rate recorded on Dec. 21 according to Freddie Mac‘s Primary Mortgage Market Survey released on Thursday.

The 15-year fixed-rate mortgage averaged 5.93% this week, down from 6.95% one week ago.

HousingWire’s Mortgage Rates Center showed Optimal Blue’s average 30-year fixed rate on conventional loans at 6.56% on Thursday, down from 6.68% recorded at the same time last week.

“The rapid descent of mortgage rates over the last two months stabilized a bit this week, but rates continue to trend down,” said Freddie Mac Chief Economist Sam Khater in a statement. “Heading into the new year, the economy remains on firm ground with solid growth, a tight labor market, decelerating inflation, and a nascent rebound in the housing market.”

One year ago this week, the 30-year fixed-rate mortgage stood at 6.42%, while the 15-year rate stood at 5.68%, reflecting a slightly stronger rate environment ahead of the increases observed throughout 2023.

2024 predictions

Challenges felt this year will persist into 2024 though rates will moderate, according to multiple analysts who spoke to HousingWire. While not universal, many analysts expressed a belief that rates will be lower by this time next year.

“Obviously, this cycle was fast and furious – for lack of a better term – in terms of how quickly rates went up, and volumes basically got cut into a third of what they were two-plus years ago,” said Kyle Joseph, a specialty finance equity research analyst at Jefferies. “It really sent shockwaves through the industry. […] If anything, every day seems to be a higher likelihood that rates are not going higher next year.”

Warren Kornfeld, senior vice president of the financial institutions group at Moody’s, added that he expects rates “will moderate down to about 6% to 6.25%.” Meanwhile, Keefe, Bruyette & Woods (KBW) Managing Director Bose George was slightly more cautious, predicting an average of 6.75%.

Source: housingwire.com

Apache is functioning normally

A “sale pending” sign is posted in front of a home for sale on November 30, 2023 in San Anselmo, California.

Justin Sullivan | Getty Images News | Getty Images

Home prices rose 4.8% nationally in October compared with October 2022, according to the S&P CoreLogic Case-Shiller home price index. That’s a jump from the 4% annual increase in September and marks the strongest annual gain seen in 2023.

The 10-city composite rose 5.7%, up from a 4.8% increase in the previous month. The 20-city composite rose 4.9%, up from a 3.9% advance in September.

The strength in home prices came despite a sharp rise in mortgage interest rates in October. The average rate on the 30-year fixed loan crossed 8% on Oct. 19, according to Mortgage News Daily. That was the highest level in more than two decades. Rates, however, dropped steadily through November and more sharply in December, with the 30-year fixed rate now hovering around 6.7%.

“Home prices leaned into the highest mortgage rates recorded in this market cycle and continued to push higher,” said Brian Luke, head of commodities, real & digital assets at S&P DJI, in a release. “With mortgage rates easing and the Federal Reserve guiding toward a slightly more accommodative stance, homeowners may be poised to see more appreciation.”

Among the top 20 cities, Detroit reported the largest year-over-year gain in home prices at 8.1% in October. San Diego followed with a 7.2% increase and then New York with a 7.1% gain. Home prices in Portland, Oregon, fell 0.6%, the only city in the index showing lower prices in October versus a year ago.

“Home price gains in the CoreLogic S&P Case-Shiller Index have increased by 7% since the beginning of the year and are 1% higher than at the peak in 2022, recovering all losses recorded in the second half of 2022,” said Selma Hepp, chief economist at CoreLogic. “Given the stronger seasonal gains seen in early 2023, annual home price appreciation should accelerate this winter before slowing again next year.”

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Source: cnbc.com

Apache is functioning normally

Well, another year is nearly in the books, which means it’s time to look ahead to what the next 365 days have in store.

While 2022 felt like it couldn’t get any worse, 2023 surprised all of us by being an even rougher year.

Thanks to the highest mortgage rates in nearly a century, loan origination volume ground to a halt, as did home sales.

The only real bright spot was new home sales, though builders had to make some big concessions to unload their inventory.

So what does 2024 have in store? Well, the good news might just be that the worst is finally behind us.

1. Mortgage rates will drop below 6% (and maybe even 5%)

First things first, mortgage rates. While I (and many others) expected mortgage rates to fall in 2023, they defied expectations.

Rates began the year 2023 on a downward slope, but quickly reversed course and surpassed 7% by spring. Then things got even worse as rates climbed beyond 8% in October.

However, inflation has since cooled and economic reports continue to signal that the worst of it could be over.

The Fed has also gotten on board, with their latest dot plot signaling rate cuts for 2024. After raising rates 11 times in less than two years, there could be three or more cuts next year.

While the Fed doesn’t control mortgage rates, their monetary policy tends to correlate. So if they’re cutting rates due to a cooling economy, mortgage rates should also fall.

We’ve already seen mortgage rates ease in anticipation, and they’re expected to go even lower throughout 2024.

This should be helped on by normalizing mortgage rate spreads, which remain about 100 basis points above typical levels.

In my 2024 mortgage rate predictions post, I made the call for a 30-year fixed below 6% by next December.

The way things are going, it could come sooner. And rates could go even lower, potentially dropping into the high-4% range if paying discount points.

2. Homeowners will refinance their mortgages again

I expect 2023 to go down as one of the worst years for mortgage refinances in history.

Interest rates increased from around 3% in early 2022 to over 7% in about 10 months.

Then continued their ascent higher in 2023, meaning very few homeowners benefited from a refinance.

However, two things are working in homeowners’ favor as we head into 2024.

There were about $1.3 trillion in home purchase loan originations during 2023, despite it being a slow year.

And rates have since come down quite a bit from what could be their cycle highs.

If we consider all those high-rate mortgages that funded over the past year and change, we might have a new pool of refi-eligible borrowers, as seen in the chart above from ICE.

It’s also easier to be in the money when refinancing a high-rate mortgage since the interest savings are larger.

So I expect more rate and term refinances in 2024 as homeowners take advantage of recent mortgage rate improvements.

In addition, we might see homeowners tap equity via a cash out refinance if rates keep coming down and get closer to their existing rate.

Refi volume is forecast to nearly double, from around $250 billion this year to $450 billion in 2024.

3. Mortgage rate lock-in will be less of a thing

With less of a gulf between existing mortgage rate and potential new, more homeowners may opt to list their homes for sale.

One of the big stories of 2023 was the mortgage rate lock-in effect, whereby homeowners were deterred from selling because they’d lose their low mortgage rate in the process.

But if the 30-year fixed gets back to the low-5% range, or even the high-4s, more homeowners will be OK with moving.

This is one part affordability, and another part caring less about their low-rate mortgage.

Very few are willing to give up a 3% mortgage rate when rates are 8%+, but the story will change quickly if and when rates start with a 5.

The chart above from Freddie Mac quantifies the value of a low-rate mortgage.

Aside from allowing people to free themselves of their so-called golden handcuffs, it will also increase existing home sales.

The big question is will it increase available supply, or simply result in more transactions as sellers become buyers?

4. For-sale inventory will remain limited

While I do expect more sellers in 2024, at least when compared to 2023, it might not move the needle on housing supply.

The big story for years now has been a lack of available for-sale inventory. Everyone expected home prices to crash when mortgage rates more than doubled.

Instead, home prices went up because of simple supply and demand. There just aren’t enough homes for sale in most markets nationwide.

As such, prices have defied logic despite worsening affordability. Demand is low but so is supply. And I don’t expect things to get much better.

At last glance, months of supply was around 3.5 months, per Redfin, below the 4-5 months considered balanced.

Sure, lower rates and sky-high prices can get stubborn home sellers off the sidelines. But guess who else is waiting? Buyers. Lots of them who may have been priced out due to 8% mortgage rates.

In the end, it might be a zero-sum game, at least in terms of inventory as more sellers are met with more buyers.

Of course, it will be good for real estate agents, loan officers, and mortgage brokers thanks to a greater number of transactions.

5. Home prices may go down despite lower rates

Lately, there’s been a lot more optimism in the real estate market thanks to easing mortgage rates.

In fact, some folks think the boom days are going to return in 2024 if the 30-year fixed continues to trend lower.

While I’ve constantly pointed out that mortgage rates and home prices don’t share an inverse relationship, it doesn’t stop people from believing it.

Sure, the logic of falling rates and rising prices sounds correct, but you’ve got to look at why rates are being cut.

If the economy is headed toward a recession, even a mild one, home prices could also come down, despite lower interest rates.

Similar to how rates and prices rose in tandem, the opposite scenario is just as possible.

However, because rates are only expected to come off their recent highs, and only a small recession is projected, I believe home prices will continue to increase in 2024.

Interestingly, they may not rise as much in 2024 as they did in 2023, and could even fall in many markets nationwide.

Both Redfin and Zillow expect home prices to fall next year, by 0.2% and 1%, respectively. Fannie Mae is also a bit bearish, as seen in the chart above.

I’m a bit more bullish and believe home prices will climb 3-5% nationally. But this still feels like a modest gain given recent appreciation and the lower rates forecast.

6. The bidding wars won’t be back in 2024

Along the same lines as home prices stumbling in 2024, I don’t expect bidding wars to make a grand return either.

The narrative that lower mortgage rates are going to set off a feeding frenzy seems overly optimistic.

And even flat out wrong. Remember, affordability is historically terrible thanks to elevated mortgage rates and high home prices.

Just because rates ease to the 6s or 5s doesn’t mean it’s a seller’s market again. If anything, it might just be a more balanced market that allows for more transactions.

A lack of quality inventory will continue to plague the market and buyers will still be discerning about what they make offers on.

So the idea of getting in now before it’s too late will be misguided as it typically is. If you’re a prospective buyer, remain steadfast and don’t rush in for fear of missing out.

You might even be able to get a deal if you’re patient, including both a lower interest rate and sales price in 2024.

7. Home sales will increase slightly but remain depressed

Similar to mortgage rates peaking in 2023, I believe home sales may have bottomed as well.

NAR reported that November’s pending home sales were flat from last month and down 5.2% from a year ago. But things could begin to turn around in the New Year.

This means we should see home sales tick up in 2024, though not by much thanks to continued inventory constraints.

Remember, mortgage rates will remain at more than double their 2022 lows, despite some improvements from recent levels.

And while home builders have ramped up construction, there are still few homes available in most markets nationwide.

Most forecasts expect existing home sales to barely budge year-over-year, from maybe just below 4 million to just above.

Meanwhile, newly-built home sales may be relatively flat as well, perhaps rising from the high 600,000s to over 700,000 in 2024.

This will hinge on the direction of mortgage rates. The lower they go, the more sales we’ll likely see.

So things could turn out rosier than expected, though still quite low historically until the inventory picture changes.

8. Home equity lines of credit (HELOCs) will get more popular

The Fed doesn’t raise or lower mortgage rates, but its own rate cuts directly impact rates on home equity lines of credit (HELOCs).

With several rate cuts expected between now and the end of 2024, HELOCs are going to become more and more attractive.

In fact, the latest probabilities from the CME have the Fed cutting rates by 1.5 percentage points by December.

So someone holding a HELOC today will see their rate fall by the same amount, as the prime rate moves in lockstep with the fed funds rate.

For example, a HELOC set at 8% will drop to 6.5% if all pans out as expected.

And because most homeowners still hold 30-year fixed mortgages with rates of 4% or less, they’ll opt for a second mortgage like a HELOC or home equity loan.

If the trend continues into 2025, these HELOCs will be a cheap source of funds to pay for home improvements, college tuition, or even a subsequent home purchase.

All while retaining the ultra-low rate on the first mortgage.

9. More buyers and sellers will negotiate real estate agent commissions

You’ve heard about the many real estate agent commission lawsuits. And changes are already on the way as those cases move along.

While both agents will still get paid to represent buyer and seller, there should be greater transparency in how they’re compensated.

And we may see some different methods of remitting payment. For example, a home seller paying the buyer’s agent directly, not on the listing agent’s behalf.

Of course, this could just result in different paperwork and no real change for the buyer or seller.

However, agents will likely be more transparent about the ability to negotiate, and this could be the key to saving some money.

Instead of being told the commission is 2.5% or 3%, they may tell you that’s their rate, but it’s negotiable.

This could result in home buyers and sellers paying less and/or receiving credits for closing costs.

It’s a step in the right direction as many consumers weren’t even aware these fees could be haggled over.

In the end, it should get cheaper to transact but you’ll still need to be assertive and make your case to receive a discount.

10. The housing market won’t crash

Finally, as I’ve predicted in past years, the housing market won’t crash in 2024.

While we are continuing to experience an affordability crisis of epic proportions, the speculative mania isn’t as pervasive as it was in the early 2000s.

And we can continue to thank the Ability-to-Repay/Qualified Mortgage Rule (ATR/QM) for that, as the screenshot from the Urban Institute illustrates.

After the early 2000s mortgage crisis, many types of exotic mortgages were banned, including interest-only home loans, neg-am loans, and even loans with mortgage terms over 30 years.

At the same time, lenders have to ensure a borrower has the ability to repay the loan, meaning no doc loans and stated income are mostly out as well.

While there are non-QM loans that live outside these rules, they represent a small share of total volume. And the minimum down payments are often 20% or more to ensure borrowers have skin in the game.

Interestingly, it is FHA loans and VA loans that are experiencing the biggest uptick in delinquencies, though they remain low overall.

Even if we see an increase in short sales or foreclosures, we’ve got a severe lack of inventory due to demographics and underbuilding for over a decade.

This explains why home prices are unaffordable today, and also why they’ve remained resilient.

A scenario likelier than a crash would be stagnant home price growth for a number of years, with inflation-adjusted prices potentially going negative at times.

But major declines seem unlikely for most metros nationwide. In the meantime, a combination of wage growth and moderating mortgage rates could make homes affordable again.

Source: thetruthaboutmortgage.com