Have we Returned to Pre-Recession Sales Numbers?

By Leo Anzoleaga and RG

A lot of us are uncertain about the tepid recovery, and it is affecting our confidence when considering investing in the housing market. Nonetheless, there are many positive signs that should bolster our outlook.

Between January 2000 and December 2012, the net return on investment in the real estate market has been 46.2 percent. It has outperformed the DOW, S&P and NASDAQ put together. The market is in a much better position than last year; in fact, it is above historically healthy levels.

Real estate market sales are up, but by how much? Houses at almost all price points are experiencing positive sales growth; this means there is clear momentum towards recovery. It is an unanticipated time of the year for the buildup of such a momentum and it is a great opportunity for us to strive to maintain a positive outlook. The housing market is arguably the backbone of this economy’s recovery, and this positivity regardless of season is also reflected in the upswing in stocks. Moreover, the DOW, S&P, and NASDAQ have all been doing very well over the past few months, indicating growing consumer confidence.

 

Let’s break down the data for the housing market by region on an annual basis and figure out expectations in the real estate market. We will be using the NAR statistics collected in November 2012. The national average growth for single family homes stands at +16.4%. The South (+16.3%) lies right on the middle of the curve; the lowest—yet still substantial—growth is in the West at +10.1%. The market is especially booming in the Midwest at +25.4% while the Northeast U.S. has experienced +13.9% growth. Condo and Co-ops sales are higher with a 28.9% increase nationally. The Midwest once again leads the figures with a mammoth +50% increase, followed by the South at +35.3% and the Northeast at +28.6%. Growth in the West is a comparatively modest +10%. The numbers are once again positive, but skewed the opposite direction in the $1m+ market. The national average is +44.1%, with the West at +63.7%, The Midwest at +15% and Northeast and South with +27.6% and +25.1%.

It is evident that we are not back to pre-recession highs but we are experiencing a recovery—stocks are continuing to do well and expectations remain positive. However, we are experiencing a major inventory problem as a result of the rapid increase in sales. Buyers are being forced to compete for limited real estate as demand outstrips supply. Let’s look further into this in our upcoming blog. We would love to know what your expectations are for the upcoming months.

Mandated Minimum Down Payments (QRM)

By RG, Mortgage Gurus

                We now know that poor regulation and disincentives for proper underwriting of mortgages were major contributory factors of the recent housing bubble and the subsequent recession. The government’s response has primarily been stricter implementation of rules and regulations in hopes of preventing future catastrophes of similar magnitude. In a time like this it is important to consider that excessive regulations may also breed problems of another kind—“a regulatory tidal wave,” as David Stevens, the president of the Mortgage Bankers Association, stated in his address on January 16.

The Department of Housing and Urban Development, the Office of the Comptroller of Currency, and the Securities and Exchange Commission are expected to draft new rigorous measures for potential homebuyers and their mortgage eligibility. This ruling is an attempt to implement a section of the Dodd-Frank Wall Street Reform; it will have a significant impact on both the financial and real estate sectors of the US economy. In the next few months, the proposed Qualified Residential Mortgage (QRM) rule will potentially affect minimum down payments and FICO scores of potential homebuyers.

                The minimum down payment rule was originally proposed to be 20 percent by the FDIC and the Federal Reserve; however, this is being reconsidered due to a significant amount of protests in 2011. The percentage could possibly be reduced to 10% or even 5%. In addition, private mortgage insurance is being considered to reduce pressure on borrowers and lenders.

                So what does this mean for homebuyers? The size of the QRM’s percentage will affect the affordability of homes by limiting the amount of persons able to make purchase decisions. The new standards will mandate who qualifies for lending and borrowing, which means that a required minimum down payment will effectively shrink the size of the mortgage credit market. It is not hard to imagine how this could adversely affect the market’s recovery by limiting small and medium homebuyers.

Critics of QRM believe that the government may be imposing too great a social cost for the current market conditions. What are your opinions on QRM? Do you think that your family, friends and neighbors are well informed about it? There is a lot of uncertainty regarding the repercussions of higher stringency. The recovery is steady, notably owing to positive market sentiment, but will it continue to be adequate? Or will we be subject to another correction?

 

Just OK?

You never realize how much pride you take in your job until someone asks you the most important question—So, how are you guys doing? I don’t know if it’s like this in every business, but it’s a hard question to answer for most sales people. It’s difficult because we believe that if you don’t think we are doing well it could cost us business. However, I have found that this thought could not be further from the truth. I’ve realized that people by nature just want to help. If they like you, they will want to see you succeed. If they know you they want you to give them advice. If they trust you they want YOU to be the person to provide the service that you have to offer. 

I recently went to an amazing conference in which Brian Buffini said that if you do a good job for your past clients there is an 84% chance that they will refer you to their friends, family and co-workers. He went on to say that the problem is not a lack of business but instead a lack of asking. That is so true! We are so hesitant to ask for help in the majority of areas in our lives. We don’t want people to know our dirt. We don’t want people to know that we are probably not all that we are presenting ourselves to be so, in turn, most sales people just can’t get off the blocks and be truthful about the actual status of their business. It’s simple—we just need to ask for help! 

So, how are Kevin and I doing?  Well, we did okay this year. Just okay? Yes. This year was a satisfactory year. We were able to break ground in one of the most competitive areas of the country. We met some amazing people and some not so nice people. We began doing business with some amazing real estate agents.  We didn’t meet all of our expectations for 2012 but we learned a ton of lessons along the way.

We are going to need your help in 2013. How can you help us?  It’s as simple as asking this question:  If you were buying or refinancing a home, or had a friend or family member who was, do you have a lender you would refer them to?

If your response is, “No, I don’t have anyone” then, well, I would love to be that person and to add you to our Client Appreciation Program. Every month I send out valuable real estate or customer information that my clients find helpful as well as an item of value. Some of you may already be in our Client Appreciation Program and have already received letters about it. However, if you would like to be in this program and are not already please let us know and we will add you to the program.  

Thanks again for all your help. I genuinely value your friendship and all of your help. If there’s anything I can ever do for you, please don’t hesitate to call me.

Leo

"Not so Fast, my Friend!"

The interest rate market is super hot and the housing market in the D.C. area has finally hit a bottom and is beginning to climb. Conventional wisdom says that now is a great time to buy! The National Association of Realtors is beaming ads all over the airwaves confirming what your commonsense already tells you to be true. The only problem is that this “wisdom” is wrong, wrong, a thousand times wrong. It may very well be a great time for you to buy, and for my sake I hope it IS the right time for you to buy. But it’s not the right time for everyone to buy!

If you're looking to buy a primary residence, there is only ONE instance when it ABSOLUTELY makes sense to buy and it has nothing to do with the state of the market.

If you have a good, steady job; good (preferably excellent) credit; low debt ratios; you can make AT LEAST a 10% down payment with 36 months of payment reserves held in liquid assets; and you have a 7+ year time horizon for staying at that property then it might be a good time to think about buying. If you meet these basic criteria and can afford to buy a house that meets your long-term needs in terms of bedrooms, bathrooms, square footage, location, school system, etc. then it very well could be a great time to buy. But remember this: "qualifying" is not the same as "affording" as the government has made qualifying standards absurdly loose (3.5% down payment, 580-640 credit score, 55% debt to income ratio BEFORE taxes).

In sum, the best time for YOU to buy has nothing to do with the state of the market--if the market's average mortgage rate is at 7% it should make no difference to you if you are in the position to buy and can afford the payment. If mortgage rates were at 2% it should make no difference if your financial obligations would keep you up at night as a homeowner.

If you buy a house for the long-term—barring catastrophe (see buyers in 2005)—then it is exceedingly unlikely that anything but good news awaits you in terms of finances, overall lifestyle, and personal freedom. But if you buy for frivolous reasons or because you’re trying to time the market, then don’t be surprised if headaches await your tenure as a homeowner.

People Matter in this Biz!

Nobody’s perfect. No referral partner that we work with is perfect. None of our support staff, service providers, supervisors, clients, or significant others is perfect. We’re certainly not perfect (at least Leo isn’t…). In our business we don’t value perfection—we value loyalty, hard work, good faith, honesty, professionalism and, ultimately, successful delivery of the task the vast, vast majority of the time.

Given that nobody is perfect, we attempt to work with people who meet our stated criteria. Therefore, as often as possible we attempt to do our title business through Worldwide Settlements. Leo’s long standing relationship with Worldwide Settlements—through his infancy in this business to what he is today—is a testament to our belief that Worldwide Settlements meets and exceeds our stakeholders’ needs.

What I’ve come to value is Worldwide Settlements’ excellent working relationship with my processor, our closers and me. I value their patience with us in those maddening hours before settlement that sometimes seem more like a frantic sprint to the finish line than a quiet marathon. I value their fast turnaround times, their responsiveness, and their incredible flexibility with regard to closing time and location—throughout the entire Mid-Atlantic!

In this business, the mortgage guys always, always have to work with multiple title companies—this branch will always do business in any given month with 2, 3 or even more title companies, most of which are very competent—but Leo and I value certain things in people we work with and we’ll continue to strive to do as much business with people who meet the mark as possible. Therefore, we at LeaderOne DC offer a resounding endorsement to Doan Vo's team at Worldwide Settlements.

How to Select a Lender, Part 2

It’s been far longer than we expected because we’ve been swamped with work, by the grace of God. However, it’s now time for us to follow up on part 2 in how to select a lender.

 

As a consumer, you need to make sure you are working with an experienced, professional loan officer.  The largest financial transaction of your life is far too important to place into the hands of someone who is incapable of advising you properly and troubleshooting the issues that may arise along the way.  But how can you tell? 

Here are four simple questions your lender absolutely must be able to answer correctly.  If they do not know the answers run to a lender that does!

1) What are mortgage interest rates based on? 

Mortgage rates are based on mortgage backed securities (MBS) for Fannie Mae, Freddie Mac and GNMA. While U.S. Treasuries/Notes/Bonds tend to move in a similar direction to mortgage bonds, the reality is that mortgage rates are not tied to government bonds in any real way.

2) What is the next economic report or event that could cause interest rate movement? 

A professional lender will have this at their fingertips. Here at LeaderOne DC and throughout the LeaderOne organization, we subscribe to Mortgage Market Guide which guides us on a daily basis with the static and dynamic information we need to properly advise our clients in their transactions. We spend a lot of money each year on the privilege.

3) When Bernanke and the Federal Reserve “change rates,” what does this mean and what impact does this have on mortgage interest rates? 

When the Fed makes a move they can change a rate called the “Federal Funds Rate” or “Discount Rate.”  These are both very short-term rates that impact credit cards, Home Equity credit lines, auto loans and the like.  Generally speaking, when the Fed acts to bring interest rates down it is an attempt to stimulate the economy and when the Fed acts to increase interest rates it is an attempt to depress the economy, generally to rein in inflation. How the bond markets react after learning of the Fed move is entirely dependent upon the market’s prior expectations.

4) Do you have access to live, real time mortgage bond quotes? 

If a lender cannot explain how mortgage bonds and interest rates are moving in real time and warn you in advance of a costly intra-day price change, you are talking with someone who is still reading yesterday’s newspaper and probably not a professional with whom to entrust your home mortgage financing.  Would you work with a stockbroker who is only able to grab yesterday’s paper to tell you how a stock traded yesterday but had no idea what the movement looks like at the present time and what market conditions could cause changes in the near future?  No way! LeaderOne DC uses Mortgage Market Guide and RateWatch (a tool of Mortgage Coach) to guide us in real time.

How to Select a Lender

Why do people join Angie’s List? Why do people check out Apartment Ratings prior to signing a lease agreement? We do this because we value the experiences and words of others because we don’t trust the cheesy lines of advertising slogans found on websites, heard on the radio or seen on TV. But whose opinion do we value the highest? We know that internet reviews are often written from exceptionally satisfied and exceptionally dissatisfied customers. As a result, the most valued “rating” is the referral of a friend, family member, co-worker, or persons of other acquaintance (in this context a real estate agent or financial advisor, for example). Therefore, the best way to select a lender is to start by seeking out a referral from someone you know. At the very least, a referral to a lender is a form of accountability— lenders live and die by referral and cannot afford to do shoddy work for a referred client.

Often times a prospective borrower will be referred to a lender by a friend, family member or real estate agent, for example, and will still compete that lender against another referral, their own depository institution, or against an internet lender(!). When this happens, the consumer now has to determine which way to go.

The first thing every consumer should understand is that the mortgage industry is a highly competitive market. As a result, virtually every company has approximately the same closing costs and interest rates, give or take a little here or there. The immutable law of the universe is thus—you will always find a better deal if you shop forever. My guess, however, is that 40 hours of your time is probably not worth $200 in possible savings!

The second and equally important thing a consumer needs to understand is that it’s not about interest rate. Interest rate is merely one aspect of the total cost of the loan. Credit unions are notorious for their ethically dubious rate quotes—they often quote rate with consumer paying points to obtain the rate. While the credit union will usually state that the rate is with points, the lender correctly assumes that all the relatively uneducated consumer hears is “3.75% on a 30-year mortgage!” This is a time tested and effective technique, unfortunately. Since your mortgage structure is not about rate, what is the mortgage structure about? Total cost. Your total monthly payment weighed against the total upfront costs of the transaction put together based on which loan product makes the most sense with your credit profile, holding period, loan type, and even geography. If a lender takes a loan application from you and spits out a Good Faith Estimate (GFE) and rate quote immediately or within the hour then they are unprofessional because they have not taken the time to marinate over your numbers, structure your transaction in a way that properly meets your needs, or even explain to you the hard facts that are buried within the federal bureaucracy of the GFE and TIL.

LeaderOne DC always takes 1-2 days to marinate over your numbers, structure your transaction, request detailed and accurate closing costs from the title company and then to create a professional presentation that we go over line by line with the consumer in a GoToMeeting online format where we answer any and all questions the consumer may have. Full transparency coupled with proper structure.

Please join us for part 2 in the next week or so for the important questions you should ask your loan officer to determine his or her basic competency.