By Michael L Baker, Sr. Mortgage Loan Officer
Spring is upon us. The air is crisp and fresh. Lawns are being mowed and I can smell the grass clippings from my office! Spring also means that it is prime-time spring home buying season. Here is what to expect this Spring:
Expect Bidding Wars
I have said this before and I will say it again; it’s a simply supply and demand issue. Supply right now for housing inventory is super low, but demand has stayed consistent if not picked up. As your Economics teacher would tell you when supply is low and demand is high, prices rise. Expect the same thing this spring buying season. Employment specifically in the Kansas City Metro has picked up greatly in the past year, and the outlook for 2016 looks even better.
The WSU Center for Economic Development also predicts that home sales should rise 6.3% in 2016 due to the low levels of housing inventory (homes for sale on the market).
“These tight inventories have resulted in fairly strong home price gains. We expect average home values in the Kansas City area to rise by 6.1 percent this year, followed by a 6.3 percent gain in 2016.”
With all of this in mind expect bidding wars to come up as you are home shopping. Now is when it is so important to have a seasoned Real Estate Agent in your pocket. An Agent who has been through these times before and is one heck of a negotiator. You need a Real Estate Agent who is dialed in to their industry and their community of Real Estate Agents. I cannot stress how many purchases I have been on the lending side of things where my clients Real Estate Agent found them a house before it went on the market due to their connections. A good Real Estate Agent is worth their weight in gold.
Expect to be Prepared
I also highly recommend getting “Pre-Approved” vs. just being “Pre-Qualified”. The key here is to have a true pre-approved loan commitment from your lender before you go shopping. When we Pre-Approve someone we not only review their credit report, income, assets and employment but we take it a step further and actually submit your complete loan application to a human underwriter. They sign off on everything so at that point when you find a house all that is left is to get the signed purchase agreement, title work and appraisal! I have had pre-approvals that have closed on a purchase in as little as 10 days. Just imagine if everyone is writing offers on a house for the same sales price, but your offer says you can close in as little as two weeks! Start the pre-approval process HERE.
You also need to be prepared that you might not get the first house you look at. You might lose out on a few houses. Be prepared for the disappointment but also try and enjoy the ride. When my wife and I bought our first house we had looked at over 40 houses and we were all but ready to just hang it all up and rent for another year. Finally one Sunday afternoon, as we had done so many Sunday afternoons before, we happened to be driving around our ideal neighborhood and found a For Sale By Owner home that we had never seen before. We called our Real Estate Agent, looked at the house that afternoon, wrote up a contract and wrote an earnest money deposit check for the house that very day!
Don’t Expect Interest Rates to Stay Low Forever
The economy is still surely but slowly improving. Mortgage interest rates move in opposite direction of how the economy is performing. A strong economy, expect interest rates to rise. A slumping economy expect interest rates to drop, or stay low as they have. Here is the deal though, these rates they cannot stay this low forever. I don’t have a crystal ball, if I did I’d be sipping Mai Tai’s on my private beach in my $20 million dollar home in Hawaii (which I don’t have, yet)… but that being said it’s easy to see that rates won’t stay this low forever.
There is an old saying in our industry “Don’t fight the Fed.” What this means is if the Federal Reserve is bound and determined to raise the short term interest rates 2-4 times this year, they are more than likely going to do that. It is hard to go against the money printing machine. If the money printing machine decides to slow down the production of printing money (by raising short term interest rates) we are going to ultimately feel that affect in long term interest rates (ie mortgage rates) via inflation. It’s a long story, but let’s put it like this, as inflation increases banks need higher interest rates on long term investments like mortgage rates. When the Fed increases rates that means that the Economy is growing and slow is inflation. As inflation rises so to will mortgage interest rates.
Expect to Pay Your Own Closing Costs
Since the recession of 2008 up until fairly recently it was very common for my clients to ask for, and get, the sellers to pay for most, if not all of their closing costs. It had been a buyers market. When it is a buyers market sellers are much more willing to give in to seller’s concessions (replacing a roof, replacing carpeting or paying for your closing costs). However, as the inventory of homes has stayed low and demand for buying houses has flipped it has now become a seller’s market. The seller has the upper hand. Houses are getting multiple offers and full asking price is the norm with bids going over asking price becoming common. A client of mine heard through his Real Estate Agent about a house coming on the market in their prime neighborhood. They got into a bidding war and the home that was listed at $300,000 sold to my client for $321,000. That is 7% over asking price. Do you think they got the sellers to kick in any for their closing costs at that point?
This can be frustrating for buyers. Many times they are already maxed out coming up with their down payment, but now they also need funds to pay for the title companies costs, mortgage taxes, escrow reserves and more. This alone can be a huge barrier to entry for folks. I work with a lot of Veterans who want to use their VA Entitlement to purchase a home with 0% down. Then you throw in closing costs and the anxiety sets in for these clients. However, we have an ace up our sleeve at Affinity Mortgage. It is called the Lender Rebate. We have some of the lowest interest rates and closing costs in the industry. That allows us to be flexible and help folks with their closing costs though through a Lender Rebate. Most of the time I recommend to my clients to take the lowest interest rate we can get for them without any added points or fees (extra costs to “buy down” an interest rate). However when folks are tight on their down payment and closing costs funds we can take their rate slightly higher, sometimes as little as .125% to .25% and then give them a rebate from the lender to help pay for most, if not all, of their closing costs. Essentially the bank will give you money to help pay your closing costs in trade for a slightly higher interest rate. I’ll do the math for you and make sure it makes financial sense, but my point here is just know that we have ways to help, we are not afraid to think outside the box, and ultimately it is my job to get you into the home of your dreams.
Relax, I got this.