In a Nutshell: In today’s housing market, low inventory, lagging new home construction, rising prices, and tighter credit restrictions are combining to create near-gridlock conditions. Current homeowners aren’t selling, and not enough affordable housing exists to satisfy demand from first-time buyers. Consumers need impartial industry information to understand these challenges and make the right buying decisions at the right time for themselves. We spoke with Sam Garcia, creator of Mortgage Daily, to hear what specific challenges today’s homebuyers face, and what their options are for overcoming them.
I recently took my dog, Penelope, for our regular morning walk around our neighborhood. While we were trotting along, a large white SUV pulled up next to us. The tinted drivers-side window slowly lowered to reveal a smiling woman who peered at us through overly made-up eyelids.
“I hear you’re moving,” she said. “I never even got a chance to come by and say hello.”
I assured the stranger we weren’t moving unless she was privy to some information that I wasn’t. After some back-and-forth, she rolled the window back up and drove off into the neighborhood.
My neighbor watched the whole thing and chuckled as Penelope and I made our way up the driveway. He told me that the smiling stranger was a local real estate agent who makes a habit of chatting with residents to gauge their interest in selling their home.
In the last month, he said, she’d managed to sell three homes before a for sale sign ever made it into the dirt.
Such tactics aren’t uncommon around the country, as real estate prices increase as a result of the overwhelming demand of consumers who move quickly to snap up anything they can from the dwindling supply of available homes.
Mortgage Daily has monitored this issue and other residential real estate trends for more than two decades and provides the latest insights into a US housing market that seems to get hotter every day. Mortgage industry veteran Sam Garcia created the site as a resource for people he knew in the industry and subsequently added a Real Estate section and a Consumer Mortgage News section as it grew.
Today, Mortgage Daily covers important and often misunderstood topics, including reverse mortgages, purchases, cash-outs, refinance timing, and 15-year versus 30-year mortgages.
Though Garcia said the housing market currently favors sellers, that doesn’t mean smart buyers can’t come out as winners in the end. But, while lenders may be willing to extend mortgages to buyers, climbing interest rates are locking some consumers out of their dream homes and freezing the refinance market along the way.
“One thing you see happening now as rates rise is a drop off in the refinance business,” Garcia said. “That means you have all of these lenders who have to make these loans to earn income and investors who want to place their money somewhere at a reasonable rate.”
How Interest Rates are Impacting First-Time Buyers
Garcia noted that private lenders and investors who fund the loans are both hungry for interest income. However, the lull in the refinance market puts pressure on originators to make loans that may be riskier than they prefer.
Those loans can sometimes use alternative lending data for first-time homebuyers who may not have the credit profile required to qualify for a traditional bank loan.
These buyers still have the option of applying for a government-backed FHA or VA mortgage. Both of which offer borrowers a reduced down payment and often feature lower interest rates, but the added paperwork and inspections the government requires can make the mortgages a hard sell in the current housing market.
“You’re dealing with a market that hardly has any inventory and sellers who are getting bombarded with tons of offers,” Garcia said. “You don’t want to be the buyer who has to offer government financing that requires extra work and concessions by the seller.”
Such circumstances put first-time buyers at a disadvantage unless they have the down payment and credit profile necessary to apply for a traditional mortgage that can get them to the closing table faster.
The Rise of Newer and Simpler Adjustable-Rate Mortgages
Not long ago, adjustable-rate mortgages received a bad reputation for their quickly ballooning interest rates that forced many people out of their homes seemingly overnight because their payments became unmanageable.
Adjustable-rate loans typically offer a favorable interest rate up front, but that rate can change based on a multitude of factors. In the past, the rate could shift by as much as double digits with no warning, adding hundreds — and in some cases thousands — of dollars onto the monthly mortgage payment.
The mortgage industry had become like the Wild West prior to the financial crisis, adopting a mentality that anything goes and rules are negotiable. Garcia said current regulations have put an end to those days.
As lending products become more conservative, Garcia said some homebuyers may be better off with an adjustable rate — something he never would have suggested a decade ago.
“Adjustable rates are better for people who know they will be out of the property within five years,” Garcia said. “That’s because, no matter what happens to the interest rate, it can only go up so much.”
Transforming Risk Assessment to Expand the Buyer Pool
Over the last 100 years, anyone who wanted a mortgage just had to put on some nice clothes and head down to a bank or private lender with a stack of paystubs, W-2s, and a wide grin that made them look trustworthy.
If you’ve purchased a home, you know just how invasive the background search can be. My lender knew more about me than my own mother by the time I got the keys to my home.
Although uncomfortable, the process can work for prospective buyers who have the right credit history and financial data to support their down payment. Many consumers, though, have the means to make their monthly payment but lack the credit history necessary to appeal to a bank.
In recent years, lenders have started using alternative data to get these buyers approved for a mortgage that otherwise would be unattainable. This data can include education history, the applicant’s field of work, checking and savings account management, and even social media interactions.
While the use of alternative data has brought many new buyers into the market, Garcia said the presence of more buyers may hurt the prices all buyers pay.
“Using alternative data has been a hot topic lately, and using it would certainly bring in more buyers,” Garcia said, “but the last thing we really need right now is more buyers because there isn’t enough inventory.”
Chronicling the Highs and Lows of Real Estate Finance
Real estate agents have depended on Mortgage Daily as a trusted source of industry news for more than two decades. Garcia’s team manages to stay on top of the latest trends and provides daily insight to professionals who pay a subscription fee to access the resource.
“We also have a free consumer section that includes news from syndicated journalists from across the nation,” Garcia said.
The free consumer section has grown in popularity as more people head into the market with hopes of securing their dream home. Obtaining a mortgage remains a very detailed process, and consumers often turn to Mortgage Daily to learn what they need to know to get the best deal possible.
“We don’t run advertisements from lenders who are looking for business,” Garcia said. “That means we have no problem posting stories that may be critical of lenders or programs. Consumers find that information really valuable.”