Mortgage Heroes Update – June 23rd, 2021
First Half Recap
Video Transcript:
Andy Cruz: Hi mortgage heroes, Andy Cruz here in business development, and this is your weekly video newsletter. This week, we’re going to talk about the first half of the year recap, but before we do, make sure you subscribe to the channel, hit that like button and turn on the notification bell so that every time we drop a new video, you hear about it first.
Well, let’s just jump right on in. We have had quite the beginning to 2020 and the first six months have brought about quite a bit of change that we’re going to go over today. Now, a lot of the details and the nuances [00:00:30] of what we’re going to talk about have been covered in previous videos in a lot more detail. However, if you’re watching this for the first time, or maybe you’ve been away from the channel for a little bit, wanting to catch you up on some of the main topics that have happened the first half of the year, and then paint a picture of what we think is coming for the second half of 2021.
Well, first of all, we started off the brand new year with interest rates rising. Yes, the lows of 2020 are well behind us and the new rates of 2021 are here. Now, you’re always going to continue hearing the term [00:01:00] historically low rates, because historically that is still true. They’re just not the lowest of all time, which we saw hit in 2020. Now, they’re still relatively low because even off of the bottom of the low, a quarter percent difference is relatively not that much in the grand scheme of things.
Back when we first started this industry, there were fixed rates of five and a half percent, 6%, six and a half percent. We’re still locking loans today at under 3% on conventional loans, VA loans [00:01:30] and even FHA. So if you’re still in the market and you’re wondering, oh, well, can I still get a low rate? Well, yes you can. And it’s of course going to be relative to where you’re starting from, but in general, rates have been rising this year and that’s due to a number of reasons, which we’re going to continue talking about.
Well, one of the things that has happened that is actually in support of home ownership is forbearance numbers have decreased. A lot of people are getting out of forbearance, because either their job situation [00:02:00] has changed, they’ve been able to financially catch up on the payments that they were not making, or they’ve been able to work on a modification or a workout program with their loan servicer, the person they’re making the payment to. So forbearance numbers have actually gotten better, but there are still millions of people that are in forbearance that have not caught up and not done a workout plan yet.
Now, a couple of weeks ago, we talked about this has yet to be seen what that outcome is going to be in the marketplace, because eventually, [00:02:30] when the moratoriums lift, these are homes that are going to end up getting into the pre-foreclosure and foreclosure process. That’s not true in all cases, but you are going to see an uptick of that in the future, because there are some folks that are in forbearance that their situation is just unresolved and their bad financial situation isn’t fixed yet.
The other thing that we’ve been talking about this year a lot is the inventory crunch. Inventory continues to be a problem. And this is the good old economic supply and demand. When there’s not [00:03:00] a lot of something, the price of it is typically high. You match that with low interest rates, then the prices continued to escalate even into 2021. We saw this start in 2020, but it’s continued and it’s overlapped into the first couple of months of 2021. Inventory still remains tight, with less homes on the market than there are buyers looking for it.
And prices continue to appreciate as evidenced in the home price index reports. The home price index reports continue to show that prices are climbing to all new highs, which has been aided by the cheap cost of money to [00:03:30] borrow. So something that would have maybe been afforded at 500,000 a year and a half ago is now 600, or 500 is sometimes six 50 or 700. And you see people overbidding other bidders on homes so that they can get their offer to the top of the stack and get their offer accepted. This means that they’ve been putting cash over and above the list price, waiving the appraisal contingency, and even sometimes waiving the inspection contingency altogether just to get into the home.
Inventory crunch will continue to happen [00:04:00] until we see sellers regain confidence that by selling their home, they’ll be able to find a new home. And right now, that’s where that tension is. You see a lot of sellers that are on the fence going, I don’t know that I want to sell, because I could sell at the top and get all my cash out, but I’ve got to now get into the buyer pool with the other 20, 30, 40 people also looking for that next home that I’d be looking for as well. And that’s where that tension is right now and exists. And it will probably exist for the next several months and possibly even all [00:04:30] the way through 2021.
The next thing we’ve got talk about is inflation. We’ve been talking about inflation for quite some time now and how what we see as consumers is we’re noticing inflation in the price of goods and services that we pay for everywhere we go. Now, the Fed’s targeted inflation rate was 2% and it came in a way hotter than that. And it’s probably honestly even higher than what they’re reporting, just because we see it with our own two eyes for the things that we’re paying for normally.
And this inflation is actually them overdoing it, and there’s history behind this. [00:05:00] Again, in all the years of us doing the mortgage industry, we’ve seen the Fed underdo it, and then a problem happens and then overdo it to try to correct the problem. And it never seems to just work out exactly as planned. And unfortunately, it just seems to be the way things go. It’s not because they’re doing something bad intentionally. It’s just that things correct or over-correct based on the decisions they make. And right now, what we’re seeing is we’re seeing over inflation. I don’t want to say it’s hyperinflation [00:05:30] yet, because we’re not technically by definition in a hyperinflated market, but man, are we really flirting with that.
Inflation is going to put pressure, of course, on the consumer’s ability to pay for all things, but then you have that matched with interest rate environment rising and the Fed talking about eventually tapering their bond buying purchasing, which means there’s going to be less Fed participation in the open marketplace and it’ll be the open market out on its own. The open market is going to price in risk. So you have increasing prices to the consumer, you have [00:06:00] mortgage rates that have increased in their rate over the last couple of months, and then you have the marketplace taking on additional risk in the future. It’s actually going to change the landscape for the next six months of 2021 and into 2022 and 2023.
So here’s a quick look of what’s ahead. For the rest of 2021, you should probably expect that inventory is going to remain a challenge. Home prices might remain high, while rates are still low. However, there’s going to be a flattening of prices eventually. The flattening of prices is simply just going to come [00:06:30] from the mathematical effect of the increased cost of money. So when interest rates rise, affordability changes for homeowners. There are buyers looking to enter the market where you could afford a million dollars at two and a half percent. Maybe you can only afford $900,000 at 3%. That just mathematically changes for people. So unless your income increases to cover that difference, people are just stuck playing the game of, well, now where’s my affordability lie with home prices relative to the cost of borrowing the money I need to [00:07:00] buy that home.
The next thing is you’re probably going to see the cost of goods and services continue to be at their high levels through the end of the year. And this is going to be a reversal to some of the policy changes that have caused the inflation. It’s honestly likely that we’re going to expect to see prices be the same they are now, or maybe even increase still a little more.
And lastly, as the foreclosure moratorium starts to draw to an end, you’re going to see homes actually go into pre-foreclosure in the foreclosure process. It’s just an effect of what happened. So [00:07:30] I don’t know exactly how fast it’s going to happen, but you’re going to start seeing homes trickle on the market. You’re going to start seeing there be more inventory, simply from the fact that people who own homes and are unable to catch up on the payments and unable to work out a program to repay what they owe in arrears, those houses are going to hit the market.
And unfortunately, it’s going to hit the market for people who are in a tough spot already, meaning they have not recuperated from their job loss, or they don’t have their full hours back yet and they can’t pay their bills [00:08:00] in full. So it’s already going to happen for people who are already in some sort of distress, but it is a natural process of the forbearance and foreclosure process. So when the forbearance doesn’t work out, or the forbearance ends and then the foreclosure starts, the natural outcome is new homes come on the market. And we’re likely to start seeing that at the end of 2021.
So there’s a couple of things that I just wanted to bring you up to speed on if you hadn’t watched and then paint a picture of what is coming in the next couple [00:08:30] of months, based on the information and the data that we have now. Of course, anything can change. It changes every single day, but there’s a relative high level of confidence I have in all these things, because of the pace and the nature for which we’ve seen things changed so far in 2020 and also in 2021.
Those of you who are watching this that know that someone you love and care about could benefit from this message, please share this with them. Whether they’re a friend, family, coworker, neighbor even, please share this message with someone so [00:09:00] that they’re aware and they know that they could be taking the next right steps in their life and real estate and mortgage to basically get what it is they want in the marketplace still. As always, thanks again for watching and we’ll see you again next week.
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Rates & Fees Disclosure:
‡ The payment on a $300,000 30-year fixed-rate VA loan at 3.000% with a 80% loan-to-value ratio is $1,292.01 with 0 (zero) origination points due at closing. The annual percentage rate (APR) is 3.235%. Payment does not include tax and insurance premium impounds. The actual payment amount will be greater. By refinancing your existing loan, the total finance charges may be higher over the life of the loan. Some state and county maximum loan amount restrictions may apply. Appraisal fee of $600, Processing Fee of $895, Underwriting Fee of $795 included in APR calculations with borrower paying 0 (zero) loan origination points.
‡ Based on Mortgage Heroes internal data.
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