The weather is nice, are more listings on the way?

This spring took a fair while to develop locally as winter like weather persisted well into April. But now it is sunny and warm and with that turn of season often comes a bunch of fresh new listings. We could use a hit to inventory to help buyers out who still face multiple offers on homes in and around the local median price. That is running just under $500,000 right now. 

Buyers are facing pretty typical interest rates when compared to the 50 year average. That long run of years and years at below average rates has no doubt spoiled things a bit now that we have settled into a more "normal" mortgage market. 

Buyers can also take advantage of some new mortgage products aimed at helping first time buyers get into the market with low to zero downpayment and sometimes a little government assistance. These programs can really help buyers get an opportunity in this still tight market.

Despite losing a huge portion of eligible buyers the stingy inventory has kept things favoring sellers a bit. A rush of new spring listings will likely level the field offer buyers some negotiating room. Buyers haven't had that in quite a while.

Be sure to contact me if you are interested in these new programs.

Spring Outlook

Spring is here, at least by the calendar if perhaps not by the weather. Traditionally there is an uptick in new listings this time of year. The local MLS showed just that last month. The real question is whether an uptick in buyers will follow. That is also a typical scenario. But we just came out of a long red-hot period in real estate that was driven by artificially low interest rates. These crazy low rates made it possible for lower income people to buy a house. Many of them jumped at the opportunity. 

It also made it downright easy for people who purchased starter homes a few years earlier to sell and move up to a larger home, sometimes without having a higher mortgage payment. Bigger house lower payment? Where do I sign? 

As rates began to creep up two things happened and it is a good thing that they both happened. The higher rates eliminated a number of buyers at the lower end of the income spectrum. Where they qualified to buy at 3% they no longer qualified at 6%. This took buyers out of the marketplace, which normally would lead to flat or declining prices. There was however, an additional effect of stifling the move up market. People are sitting on huge equity reserves but they are reluctant to give up the sub 3% loans they have. So as the buyers dried up the inventory also flattened out and that was a bit of a stalemate. 

The worst thing that could happen now is a massive rush of new inventory. People feel like there is a lot of buyers because there is so few homes in inventory, in reality there are very few buyers right now, it just so happens there is even less inventory. I would compare the market in 2018 to today as follows. In 2018 there was 10,000 buyers vying for 1,000 houses. Today there is 1,000 buyers vying for 100 houses. From the buyers perspective it feels the same, but for the market at large there are very few homes actually being sold. 

Hopefully we will see a slight uptick in inventory to ease the pressure off buyers, but not too much so as to cause a drop in prices. Only time will tell but this extra cool spring is not helping to get sellers off the fence. Usually it is the warm spring days that get the market awake and eager. We haven't had any warm spring days yet. Stay tuned.

Do's and Don'ts for Mortgage Borrowers

As rates have crept up, buyers are finding themselves in a position to borrow very close to the maximum amount the bank will qualify them. When rates were in the 2's and 3's I found many buyers were borrowing substantially less than the bank offered them. Now, not so much. When the buyer is at or near the maximum borrowing limit the underwriters in charge of approving the loan can get really picky and tight on any discrepancies or variances from the guidelines. Borrowers should not assume they qualify, nor should they assume they do not. Loans are complicated instruments and it is always worth sitting with a professional loan officer to find out if you qualify and what to do the get qualified.

Generally the base guidelines for conventional mortgage borrowing are as follows:

• PITI (Principle, Interest, Taxes, Insurance) is <36% of gross income 
• Total debt service is <43% of total gross income
• Credit report is clean, no derogatory entries in 24 months
• Stable provable income for two years without gaps
• Minimum 6 months on the current job 

These are guidelines and routinely borrowers are granted exceptions based on superior credit, low LTV (Loan to Value), or excellent reserve cash in the bank. Exceptions are often made for job time as well. For example a college engineering grad that takes a brand new job as an engineer can get a waiver on the time on job due credit for time in college so long as employment is verifiable as permanent. 

It is important to check with you mortgage professional who will look at your specific financial situation and give you far better advice than I can. I have seen 50% debt to income ratios approved. I have seen 50% PITI as well. It happens but it almost always happens when the borrower has other strong financial attributes. A low credit score will always make it difficult to get any exception from these guidelines. Being right up against the wall on multiple guidelines will also make it difficult to get an exception even if your credit score is sky high.

Buyers should avoid the following activity when buying a house:

• Opening new lines of credit
• Allowing credit balances to get larger
• Applying for credit lines of any kind
• Moving money around in bank accounts
• Making large cash deposits into personal accounts
• Closing credits lines unless advised to do so by lender
• Changing banks during the process
• Taking unpaid leave from job

Buyers should do the following:

• Leave the down payment money in the account untouched
• Continue making all debt payments on time as scheduled
• Contact your loan officer before making any financial move
• Immediately get documents requested by loan officer

Remember the closer you are to the maximums the harder it is to get exceptions. You will find that a bank making a mortgage loan of $200,000 on a $500,000 home with a borrower that has an 800 credit score, and $800,000 in the bank will be much more lenient than a 620 credit score borrower putting 3% down with a debt to income ratio of 50% and no money left in the bank after the loan closes. 

Buyers need to follow the loan officer's lead. Do not make assumptions, always ask the loan officer before making financial decisions. I have watched buyers lose their buying opportunity because they failed to heed the advice of the loan officer or failed to ask before making a financial move.

The most important thing to remember is this simple rule: He who has the money, makes the rules. They may not seem fair, but they are what they are and banks don't care about your feelings.