Are we going into a recession
Are We Going Into a Recession ?
Having been in the Mortgage Industry as a Mortgage Broker for over 20 years, I have seen several ups and downs. Back in July of 2001, rates for a 30-year fixed were 8.09%, today they are 5.75%. During the last 20 years we have seen them go as low 2.5%, which is the lowest they have ever been. Home values in 2001 were $291,100, today in Colorado, they are $581,101. That’s close to doubling your money in 21 years.
If you listen to the news or the so-called experts, many are stating a housing bust, recession, and another financial collapse. With inflation moving upward to historic numbers, what are we to do? Do I sell now and rent? Do I refinance to pay off debts? Do I make those much needed home improvements? Do I buy an investment property? Should I put money in the bank? Only you can answer those questions. I have heard those questions before in the 2008 Mortgage Meltdown. Some people are even saying that we are going to go through that again. I strongly disagree with that kind of prediction as this market is completely different. Back in 2008 and prior, there were few regulations to help protect homeowners and investors. Lenders and banks were being pressured by the Government to make it “easier” to buy a home. Loans were created for someone who could not prove their income to purchase a home that was way outside their budget, with so called “stated loans.” Lenders and banks would put these loans into Mortgage-Backed Securities and sell them to Wall Street Investors. The problem was these high-risk loans were not what the investors thought was part of the MBS they were purchasing and when the market started to decline, these loans became of no value. So many things have changed since then. Those high-risk loans are no longer available. The FICO Credit Score in 2008 was 699, today it is 751. Regulations now require that for a lender to offer a Qualified Loan, the borrower must be able to prove, with documentation, the ability to repay the payment.
Some talk about homes depreciating 20-30%. What does that mean? If a home was listed at $500,000, but due to demand, sold for $580,000, is that 20% from $500,000 ($100,000) or is it from $580,000 ($116,000) for a value of $464,000? Just because someone else decided to pay over value the actual real dollar depreciation is 7%.
We have seen over the last 3-4 years double digit appreciation in homes. At the same time, we have seen supply not meeting demand. For over a year, the average number of homes available on the market is less than a one-month supply, making the market a strong buyers’ market. In addition, we have seen big business companies come in and purchase homes in blocks of 700-900 at a time. They don’t look at them they just buy them. This contributed to lower supply and increasing prices. One of the reasons big business companies have purchased homes in large blocks was to control/increase rents in neighborhoods.
Are we going into a recession? Maybe, but maybe not. Looking at history, in order to go into a recession, our unemployment numbers need to increase drastically. We are @ 3.6% nationally. If and until unemployment increases, I don’t see a recession.
Let’s talk inflation, what caused it and how do we reduce it? Inflation is an overall increase in the prices of goods/services. This causes currency to lose its value and it doesn’t have the same purchase power as it once did. Due to many factors, shortage of materials, effects of COVID, and the effects of the War in Ukraine, we are having historic inflation. This is why the FEDs have raised rates 3% in the last 90 days. With rates increasing, and the high inflation, it has slowed down the appreciation in homes, thereby having more homes on the market. I believe, over time, this will bring us back to a more normal market where we have a 3-4 month supply of homes available and that benefits both the seller & buyer. In my research I also believe that many of these big businesses that purchased blocks of homes will start to sell them, thereby reducing the cost of renting. This may take 6 months to a year to occur, but I believe we will see this happen. With home values stabilizing, this will actually offer many potential homebuyers the opportunity to buy, i.e. those that don’t have 20% down, those that have a lower credit score, and those that are first time home buyers.
There are loan programs now available that can satisfy many potential home buyer’s needs:
2-1 Buydowns – this is a loan where your payment is calculated at 2 points below the actual rate. The rate then increases 1 point a year for two years. This allows you to have lower payments and the opportunity to get into a home.
5 & 7-Year ARMS – ARMS have been around for a long time but they are not the ARMS of the past. They don’t have pre-pay penalties. The normal start rate is .75% to 1.0 % lower than a 30-year fixed. This allows you to qualify for a home that has been in the past, out of your budget range. It has a cap as to what that rate can go to when it comes out of the initial ARM period. In some ARMS they allow you to refinance the loan without having to qualify, at the new rate and shorter term and in many cases, this lowers your payment.
Rehab Loans – this is a loan where you find a home in the area you like but it may need some work. The lenders will finance the rehab cost, from $20,000 – $150,000. There have been many of these types of homes out there in the past but due to the market demand, many potential home buyers could not get the chance. They were purchased by big companies. Purchasing rental properties where how they count your income has changed. This is great for those who are self-employed.
You can purchase a rental property, and as long your credit score is above 680, and the payment collected for rent is higher than the mortgage payment, you may qualify.
So, the question is…what do you do now? Is now a good time to purchase, buy investment properties, refinance, and have access to some of my equity, sell or rent till the market stabilizes? The answer is what do you think will happen. If you look at how much homes appreciate per year, is it better to own now than later? How much do you think rates are going to go up? If we go into a recession, can you prepare yourself now?
From our experience of providing our services and products through the mortgage meltdown we can help you navigate your future. We suggest you look at where you want to be now, in a year from now, and into your future, and make your plans to prepare yourself and your family. There are some opportunities available now to protect you financially in the future.
As I wrap this up, I want to also share that I have been in the Customer Satisfaction Business since 1977. In 2001, I founded Affordable Interest Mortgage, a full-service residential mortgage brokerage company in Colorado, Arizona, and Wyoming to offer residential mortgage loan products and investment tools.
Since I have been involved in the mortgage industry for over 20 years, I know how to help clients plan for and react to this type of market change involving their home and their finances. My passion and energy are always focused on sharing knowledge and educating consumers about the latest news and updates affecting the mortgage industry and thus their finances. Call me today to explore your mortgage options (720) 895-0500.
COLORADO NMLS #298191: (720) 895-0500
ARIZONA NMLS #2128571 – MB-1021756: (602) 830-1000
WYOMING NMLS #4594: (877) 594-8475
Equal Opportunity Lender.