How the Current Lending Environment Could Increase Inventory

Now, with over four years since the beginning of the “Great Recession”, it’s lisell-your-house_topkely that many would-be sellers are in an ideal position to make a move and take full advantage of the incredible appreciation that we’ve seen in the housing market.  How?  For starters, think of all the Baby Boomers who are ripe to make a move, but have been holding off due to qualifications or home values.  Also, with interest rates so low, job stability increasing and lending qualifications actually easing, it’s more accessible for X and Y Generations to move up.

The following are some very specific developments that are making lending easier:

  1. Self-employed borrowers (as a group) have done better over the last two years than 2010 and 2009
  2. Values are moving up, which will help bring some properties above water
  3. Overall household income in our area is higher than other areas in the country
  4. Low interest rates, 40-year programs and a slew of other great lending programs are making mortgage qualification easier
  5. Those who had a history of short selling or foreclosure are likely eligible for lending this year — Generally, two years must pass since a short sale and three years after a foreclosure for a person to be eligible for mortgage financing again

If you haven’t reached out to your favorite Mortgage Advisor, now is certainly the time to get his/her input on how you can help your clients make an ideal move in such an extraordinary environment.

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What to Make of the 2012 Affordability Index

bigstock-Dollars-House-7073454There’s been a ton of press lately about the 2012 Affordability Index reaching a projected level of 194, but how might that impact you and what can we expect for 2013? 

First let’s address what the reading indicates.  In effect, a reading close to 200 means that a family has TWICE the income necessary to purchase a median-priced home with 20% down payment.  This explains why we have seen so much demand for housing and home prices rising.  Now, just imagine for a minute that getting a mortgage loan was easy (I know, don’t laugh too hard).  Can you imagine where housing prices might be if the lending environment created even greater demand?

On to 2013.  The prediction on the Affordability Index for 2013 is estimated to decline to 160.  Not bad considering that such a prediction indicates that households will have 160% of the income required to purchase a median-priced home with 20% down payment, but that also means a drop in overall affordability by 17.5%.   What drives this decline: less jobs/income, higher housing prices or higher interest rates?  All three?  Well, let’s look at jobs/income.  Most predictions on jobs indicate that we’ll see steady growth on that front.  Regarding housing prices, the consensus there is that prices will definitely rise, somewhere between 3.4% and 9.7%.  Finally regarding mortgage interest rates, it appears that the Fed and the slow-growing economy will keep rates low, and I can certainly agree with that prediction.  So let’s put it all together to see the impact, assuming:

  • 2% income growth
  • 6.55% housing appreciation (average of the prediction)
  • .25% increase in 30-year fixed interest rates

As your instincts are probably trying to tell you, this DOES NOT add up!  There’s only an 8.5% decrease in affordability— half of the prediction.  But when I increase rates by another 0.25%, appreciation by the full 9.7% AND have wages flat, I get the 17% drop in affordability.   Now, you combine this with the theory that lending guidelines will ease a bit  in 2013, especially given greater qualifications, steady job growth and property appreciation, and 2013 really has to be “The Year of the Home Purchase”.

Leveraging data provided by such progressive services as Producers Forum also clearly demonstrates  the tremendous demand in the current market, despite the fact that the Winter market has been historically slower for both housing inventory and buyers.  Conclusion, anyone remotely serious about purchasing a home should prepare now for the process, as it may be a longer than expected process given the high competition and low inventory.  Now is the time to certainly leverage your preferred real estate and mortgage professional.