Category: Mortgage News

Posted on

Mortgage and Real Estate update!

Mortgage and Real Estate update!

– Demand has rebounded slightly but the demand is still weak and falling
– Inventory is building above 2019 levels
– Rates will continue to rise (Don’t expect to Fed to pivot yet)
– Lending is going to get harder
– A recession is coming
– Home prices are going to continue to fall

Sellers are getting more and more frustrated as their homes linger on the market and get almost no showings. The realization that this market is a bear market and it will only get worse before the Fed can come in too late with low rates in the middle of a hard landing. If you are trying to sell your home there are ways to get attention and get offers. This is when you ask your agent to get proactive, come up with ideas to get traffic, and get your home sold before more price drops come and you are forced to do the same.

You need an agent that understands the market not just how to get a listing.

Posted on

Canada’s mortgage fraud problem

Oh high lending standards, oh high lending standards,  wherefore art thou high lending standards?

An undercover team from CBC Marketplace went out and visited 10 homes listed by agents and brokers. Out of those 10, 6 of them offered to commit fraud to sell them the house. Not 1 or 2 but 6.

The pair visited 10 properties for sale by real estate agents or brokerages where previous research indicated fraud may be taking place. 

The agents busted offered to facilitate mortgage fraud by setting up buyers with counterfeit documents and brokers who would apply on their behalf. According to Carl Davies, head of fraud and identity at Equifax Canada, 15k and 24k mortgage applications are flagged each month for suspicious activity. 60% of those end up being cases of fraud.

This is the problem when the market for real estate and mortgages dries up and the party is over. I would not be surprised if, in the US, we see an acceleration of such cases. Hold and behold the American Banker Association is warning of the same issues and seeing a sharp rise in risky applications and fraud.

When you are trying to keep the lights on, the temptations for cutting corners and fraud rise. The same thing happened in late 05 and 06 when all the good qualified buyers started drying up. We had the same thing happen in 2020 and 2021 when top earners went out in a historical disproportional number to buy homes and second homes to ride out the pandemic. The picking is slim, rates are up, and the creativity is rising in mortgage products as prices fall.

I have warned before and will continue to warn that current regulations on non-bank lenders are nearly non-existent and we are setting ourselves up for a crisis.

Posted on

September Mortgage Update

It’s not getting better. It’s getting worse!!!!!

I have been telling homebuyers to wait and be patient. Sellers and agents are still in disbelief of how quickly things turned and still believe in the normalization of the market. It’s not going to happen until the Fed pivots and the Fed just said they won’t even stop raising the Fund rate until 2023.

There is no relief coming. What is coming are higher rates, lower demand for homes, less liquidity in the mortgage industry, hire unemployment, and bigger price drops as the RE market joins the stock market.

As people continue to track Zestimatetimate on Zillow and see their wealth fall they will pile on and sell. Older folks (aged 65 and older) who own 38% of the housing stock will be under more pressure to sell as their nest egg starts cracking and as their utility bills and property taxes continue to rise. Homeowners seeing lower prices could finally start to believe they can sell their homes and afford a new home.

Homebuyers, this is not the time to buy, but to sit and watch the market to see when great deals are available with much less competition. We are a few months away from capitulation in the RE market barring a full 180 of the Fed.

So listen to the Fed, watch those months of supply of new construction/unemployment numbers/MBS prices/Mortgage applications/Rates and see those deals in homes come in faster and bigger.

For home sellers don’t wait for those above numbers to get worse and be forced to sell at lower and lower prices. You can still find an impatient badly advised (not all agents are the same) buyer now to hold the bag and you can go off and buy a new home for cheaper.

Posted on

Real Estate News September 2022

Things are not improving, and leading indicators show they won’t!  

If you are looking to buy a home now, I recommend waiting. No point in paying a high-interest rate and not getting a big discount which will continue to build with time.

If you are a seller you should get your equity out as quickly as you can. Homes take longer to sell but can sell quickly if well priced and move-in ready.

The Fed has again reiterated that they are committed to fighting inflation and will need several months of much lower inflation reads to stop. Unemployment is starting to slowly climb (a lagging indicator) as well as the participation rate.

Homebuilders are starting to slash prices as inventory is building, 1.6 million homes are under construction, and plummeting sales.

Expect home prices to continue to fall and fall faster in the coming months unless the Fed makes a 180. It is possible that the Fed decides to pivot when unemployment and inflation crisscross going in opposite directions. This might not automatically mean that the Fed will cut rates but at least we know when rates will flatten out. As the Fed said, they want to keep rates elevated to prevent any resurgence of inflation.
.

Posted on

Mortgage Rate News July 1 2022

Mortgage News Update!

Rates fell back down a little as the bond market is looking at recession risk and the Fed making a U-turn. Unfortunately, inflation numbers are still going up and the next inflation read will be elevated as inflation spreads through all goods and services with few exceptions. It’s the calm between Fed meetings and more rate hikes next month. Bond short interests are high and correctly betting on more rate hikes.

Housing prices are still elevated at these prices and rates. We have more inventory, slowing sales, and more price reductions. With more new construction coming online every month for the next 18 months (still have supply disruptions), more foreclosures coming (state moratoriums ending), more FOMO sellers, and fears of a coming recession/higher rates slashing the number of buyers out there.

Yes, prices are coming down. Slowing for now, but will accelerate with time. The only thing that can turn this trend around is a sharp drop in inflation (don’t see that coming soon), the Fed stopping rate hikes and plans to reduce the balance sheet (see chances of a sharp drop in inflation), or the return of the bull market (see chances of the Fed making a 180).

Posted on

Mortgage applications are down again!

Applications for mortgages fell 7% for the week and 21% lower YOY while refinancing applications fell 6% for the week and 75% YOY.

When the Fed says it wants to battle inflation through decreasing demand that means higher rates. Higher rates mean more expensive debt and less of it. When you have more expensive debt and less of it then you have less demand. Pretty simple.

Housing is a debt instrument. Nothing more nothing less. You buy a home and it’s debt. Sure you have cash buyers. But really how many of those are actually cash buyers versus using previous taken-out debt or will be transformed into debt soon after? Homes are debt. If you have higher rates, higher borrowing costs, and smaller loans then home prices will have to adjust to that new reality. Oh and by the way pretty much everything else that Americans own is debt too. From cars to TVs everything is debt. And that is at record levels and all of it will get more expensive not just homes.

I have been warning that we are in serious danger of continuing the bear market in stocks, and a potential crash in the real estate market. Maybe not a 2008 extinction-level event but possibly severe enough to erase the gains since the pandemic or 15% to 25%. Not small change if one bought at the peak and might have to stay underwater for 5 to 6 years before getting above water as we go back to a normal growth pattern.

As long as inflation is not under control, the Fed can’t put the foot off the QT brake (gas pedal for QE) and that will lead to mass demand destruction. Inflation unfortunately is now being cost-push with food and energy prices taking the lead with long-term geopolitical issues muddling the waters on top of the physical supply problems (Watch the US/Canada July wheat crop numbers. Betting on wheat and wheat processing companies).

So what do you believe will happen first?
A. Demand for gas and food will fall before demand/prices for homes
B. Demand for homes/homes prices will fall before gas and food

It’s not clear yet what will happen. The Fed is in control and they are in the backseat driving the economy. If inflation persists then the Fed will continue QT. QT continues and demand destruction will continue and then start expanding unemployment and wages. Unemployment and wage losses will force more inventory and more foreclosures (already up double digits but still low and below normal historic levels).

Posted on

Home Sales Fell in April. They Could Soon Fall Even more!

It was great that the article mentioned finally that the housing market has been skewed to the higher-end segment.

“That median is skewed higher because sales continue to be more robust on the higher end of the market, where the supply is stronger. Sales of homes priced between $100,000 and $250,000 fell 29% year over year, while sales of those priced between $500,000 and $750,000 rose 19%. Sales of homes priced over $1 million increased 16% compared with a year ago.”

It is a tale of two cities. If the stock market falls further and we enter into a prolonged bear market, the top end of the market is going to see the biggest drop as wealth is erased at the top. Home prices boomed because the stock market boomed along with lower rates. The volume of homes at the high end soared.

As wealth is erased at the top we will see real estate prices fall at the top and rise at the bottom of the real estate market. Yet to be seen is if the bottom of the market is going to get hit as well.

Scenario 1:
If wages at the bottom keep increasing faster to keep up with inflation, we might see the lower end of the market rise faster if interest rates flatten soon. The upper-middle-class that once bought 750k homes will start turning to 500k or less. The tale would change and tart with “It Was the Worst of Times for the Best. It Was the Best of Times for the Worst”.

Scenario 2:
But if we have a deep recession, rates don’t fall as inflation continues, and wages fall then we might see everyone’s wealth reduced and the tale would then start with “It Was the Worst of Times. It Was the really the Worst of Times”.