Refi Boom Over? Record Appreciation; Affordability Crisis? Not Here
PANICKED LISTING AGENT; PURCHASES HARDER THAN REFI’S
I got this text last week from a panicked listing agent: “Jay, my listing is supposed to close Friday and the lender went MIA; how fast can you close?” I get texts and emails like that all the time, but have been getting them slightly more often lately, and I suspect the reason has to do with all the “refi shops” trying to turn into “purchase shops.”
Mortgage industry guru, Rob Chrisman, reminded us today that “Freddie Mac 30-year fixed mortgage rates started 2020 at 3.72%, just 40 basis points above its all-time low, and plunged to 2.65% by the start of 2021. Now they’re back up to 3.125% – 3.25%. Freddie’s volume in February was over 75 percent refi…”
With rates up so much, many lenders are now panicking too and trying to shift to purchase money mortgages in a hurry.
The problem for refi lenders though is that purchases are much more difficult than refi’s, as lenders need to understand all of the many nuances associated with a purchase (allowable contract language; inspections; cash to close; appraisal issues; speed; etc.) and most refi shops don’t.
This is always a boon for us, as we end up getting the deals that blow up. But, buyers should beware, and they should make sure their lender has ample purchase experience.
REFI OPPORTUNITIES NOT OVER
While most of the “easy pickin’” refi’s are long gone, there are still millions of borrowers who can benefit from a refi, particularly if they have PMI or debts to consolidate.
HOUSING APPRECIATES AT FASTEST PACE IN 15 YEARS
The WSJ reported today that housing appreciated at its fastest pace in 15 years last year – at an average rate of 11.2%. The biggest gains were in Phoenix (almost 15%), and in Seattle and San Diego (both over 14%). The reasons for the appreciation are the usual: (1) low rates; (2) demand for more space; (3) tight inventory; and (4) strong millennial demand.
SO, DO WE HAVE AN AFFORDABILITY CRISIS?
It is not as bad as we think, and Ben Carlson of Ritholtz Wealth Management explains why in this excellent blog.
Yes, housing has appreciated 240% since 1989, but rates have dropped from about 10% to around 3%.
So, while housing prices are way up, average payments are only up by about 50%.
EVEN BETTER – When you adjust payments for inflation, they are actually down 30% from 1989 on average!
And finally – when you account for the fact that the average house today is much bigger than the average 1989 home, with many more amenities, housing is downright cheap. 😊
While Ben admits that he cherry-picks some of his data, his overall message is very accurate.
The so-called affordability crisis is vastly overstated when inflation and lower rates are accounted for.
I encourage agents to share this blog or Ben’s blog with clients who are overly concerned about too hot of a market.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167