2017 Real Estate Market Developments Déjà vu All Over Again?

Posted by Brittany Carr on Wednesday, June 14th, 2017 at 12:09pm.

 

Written by Robert H. Ruth

What is the State of the Market?

The market is experiencing increasing sales volume fueled by a shortage of inventory. 

  • Current inventory is less than 4 months, 2 months in some metro areas
  • Home price appreciation is up over 6% YTD, and could increase by 10% this year
  • Demand is at the strongest levels since 2012

Factors Influencing Growth

Interest rates are not dramatically increasing as had been expected, but rather, have moderated as has the 10 Yr. Treasury Yield: 

Date

30 Yr. Fixed Rate

10 Yr. Treasury Yield

11/8 election

3.500%

1.93

12/8

4.000

2.40

1/8

3.990

2.40

2/8

4.125

2.38

3/8

4.250

2.58

4/8

4.000

2.33

5/8

4.125

2.35

6/2

3.875

2.23

6/5

3.750

2.15

Low rates are also increasing affordability in tandem with the shortage of inventory

We saw this happen before …in 2003-2006…the result was not good last time. Is it different this time?

The inventory situation is getting worse. Per NAR, home inventory is down 9% y-o-y in April, and the average time frame a house was on the market fell below 30 days for the first time ever.

Average Days on Market

2012

100

2013

66

2014-15

55

2016

50

2017

34

Extreme Price Appreciation

  • Prices are now at/near 2006 levels
  • Long term appreciation averages around 3%, but the forecast is for home price appreciation to average between 5-6% through 2018 if inventory levels do not improve
  • Market is becoming “frothy” in many areas, like Boston, Sacramento, Seattle, Nashville ,

We Are in a Sellers Market characterized by: 

  • Low Inventory
  • Houses sell quickly
  • Houses sell above asking price
  • Bidding wars
  • Sellers outright reject contingent offers and will may not pay for reasonable repairs due to lack of scheduled maintenance
  • Rapid acceleration in median home prices

Underwriting Standards are being relaxed: FNMA announced changes to their DU underwriting  guidelines this week. The changes go into effect in late July, and some of the changes are dramatic ; this bears  a striking resemblance to the reduction in UW standards that ignited the housing crisis :

  • Maximum allowable debt-to-income (DTI) ratio is being increased to 50%
  • For ratios between 45 and 50% certain additional compensating factors are no longer required
  • Documentation standards for self –employed income borrowers is being relaxed, so
  • The number of borrowers required to only provide 1 year of personal and business tax returns will increase
  • The maximum allowable LTV ratios for adjustable rate loans will be aligned with fixed rate products for all transactions, occupancy, and property types up to a maximum 95 LTV
  • Disputed tradelines on credit reports on approved loans may not need to be investigated any further

My advice?

Take advantage of this opportunity to ensure that your clients are in a strong position to withstand any interest rate increases that may come down the road by locking in their financing  at these low rates.  To be frank, I did not expect this drop in rates would occur, but we are now within striking distance of 2 milestones: the low rates in the market on election day last year, and we are now within 25 bp of the all- time historic lows for the 30 year fixed rates.  I am always available to discuss any scenarios with you and your clients at your convenience.

 

Robert H. Ruth
Senior Mortgage Banker
Direct: 401.789.4441
Mobile: 401.743.4364
Email: rhr11@icloud.com
NMLS ID: 513243



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