A WEEKLY GLIMPSE OF REAL ESTATE FINANCE NEWS
3/31/2025
Tax Time Tips when Buying a Home : If planning to acquire a home loan during the tax filing and acquisition period here are a couple of suggestions. File taxes as soon as possible, especially this year when IRS personnel are being reduced among other agency changes. A lender will seek your last tax returns, especially if you own or recently acquired rental property, have recently changed employment or work part time or have tip or bonus income to declare. If you file for an extension, as self-employed borrowers often do, check with your loan provider regarding the best way to proceed. Finally, if you expect a refund which will be used in any upcoming transaction, make sure of its receipt within the time frame of any transaction. Direct any questions to your loan provider.
Note: Whether you view the current Trump Administration’s actions as an efficiency program or an assault on our agencies and programs, the changes continue to impact our real estate sales and lending environment. More changes occurred this past week but I am taking a break from such news. I will catch you up next week.
Why Don’t I Get the Lowest Rate: This is a recurring question from home loan borrowers. The media announces the latest low home finance interest rate but often a borrower is disappointed and confused that after applying for a loan the rate they are quoted is higher than the announced rate. You are not being systematically disadvantaged or discriminated against. Loan pricing takes into account a borrower’s “loan profile” wherein the rate is adjusted for the lender’s risk. The most common lender risks include:
*Down Payment Amount Known as the loan-to-value (LTV), more down payment equates to less risk. (To Obtain LTV: Divide the loan amount by the purchase price. In other words, a 90% LTV equates to a 10% down payment )
*Credit Score: The higher the credit scores the less risk to the lender.
*Debt-to-Income (DTI) Ratio: The higher the DTI the greater the risk DTI is determined by dividing total monthly debt payments by gross monthly income. a ration above 42 can trigger higher rates or loan denial)
* Cash Reserves: How much money will the borrower have at the completion of the transaction – after accommodating down payment and closing costs?
The interest rate is slightly adjusted for the risks (mostly for those noted above but others could occur) causing the quoted rate for any particular borrower to be slightly higher than the media announced lowest rate. In today’s current uncertain lending environment, lenders can be a bit more risk adverse than when the economy is more certain and predictable.
When Do You Need a Second Opinion: We often hear of second opinions in relationship to serious medical diagnosis. The phrase has now more frequently entered the mortgage arena. Although there are times when a second opinion is advisable, they are not always useful. The desire for a second opinion related to a mortgage is almost always triggered by the disappointment accompanying a would-be buyer’s initial qualifying interview. Learning that one is not qualified for the amount of home loan necessary to purchase a desired home is perhaps the most disheartening news heard by an already frustrated home buyer.
The first reaction in this situation is to seek another opinion. Rein in the emotion for a moment and consider the following:
- Was the news accompanied by a thorough explanation of why you are not currently qualified?
- Were you confident that the lender was knowledgeable even though you didn’t like the message that you are not ready to purchase now?
- Did you have a chance to clarify all of your questions and did you understand the information you received?
- Was there a discussion about what you could do to become qualified?
- Was there a plan to stay in touch and work together toward qualification?
No lender wants to disappoint you. Recognizing the reality of the loan approval process and what you specifically have to do to meet the challenges may be better than being told what you want to hear and later being denied your loan request. A denial might occur after eagerly entering a purchase contract, acquiring significant expenses of credit reports, appraisals and home inspections and the loss of a down payment. And finally, after discovering that the initial lender was accurate and honest, there is the embarrassment that prohibits you from returning to that lender in the future quest to purchase a home.
None of this is to say that a second opinion might, not be warranted, but to merely suggest that you be honest with yourself in why you are seeking it.
Recession Comment: Everyone has their own definition of what constitutes a recession. There is an old story about a Judge when asked to define pornography replied, ”I can’t define it but I know when I see it”. We tend to “feel” a recession. Perhaps that is why some suggest that we are already in one? For most, I suspect that talking about recession remains a but premature. The question remains, if a recession is coming should I buy a home now?
The short answer is that if one purchases a home at market value, with a loan they can afford and intends it to be a long-term investment, home purchasing remains one of the best ways to build eventual wealth. (go to the tip sheet section of our website (www.humboldthomeloans.com) and scroll down to the tip sheet “Never a Better Time to Buy”. It is an excellent explanation for reticent buyers). Home ownership is not only a long-term investment but more importantly, it satisfies a family emotionally. Being able to paint and decorate as you please, have a pet, kids to have their own bedrooms and knowing that your monthly payment cannot be increased at the whim of a landlord/owner are the intangible benefits of home ownership.
But what about future home values and interest rates? No one can predict this with any assurance. Low inventory remains the culprit for keeping values elevated but I believe that the annual increase will hover round 4%, far below past years. Sellers who have been waiting for two years or more for the right time to sell may e ready to move and may e a bit negotiable in price?
Interest rates, in a recession, typically go down, but in the short term are likely to remain in the current range of 6.75 to 7.0 percent. The questions are not only if but when will they change? Our best guess is to expect little change until at least June or July when the FED has “suggested” a small reduction in the FED rate. Remember, a FED reduction does not automatically translate to a reduction in mortgage rates but does reflect a trend.
Bottom line, the best option is still to purchase when you find the right home at an affordable price and you can qualify for an appropriate loan
Avoid Analysis-Paralysis: This market requires careful decision making. It is easy to become paralyzed when weighing all the possibilities. You must assess your personal economic comfort level. Do the math. Don’t be bullied into any transaction without clear thinking and assessment of the pros and cons. At the same time, don’t miss out on purchasing that right home simply because of reluctance to make the decision. Finally, trust your intuition. Your lender can help with the facts and figures but the decision has to be yours.
Until next week, be good to yourself and kind to others.
3/24/2025
FED Reacts as Expected: Chairman Powell indicated that two buzz words, “uncertainty and tariffs”, factored into the FED’s decision to wait for more data before making any change in rates. As inflation reduced from a high of 9% to 2.5% by the end of last year, further rate reductions were anticipated in 2025. The aggressive tariff practices of the Trump administration were immediately viewed as inflationary. The uncertainty accompanying the dismantling of the Federal Government via the wholesale arbitrary firing of large segments of the Federal workforce) has caused employment concerns.
The FED may now face very difficult decisions related to rising inflation and a weakening labor market. The remedy for combating inflation is generally raising rates while the very opposite is the typical way to attack a rising unemployment problem. Determining which trend to address, and how, will be defining issues for the FED in the months ahead. (a major concern is whether the FED will remain independent – this issue was addressed in a recent Glimpse) At this latest meeting the FED seemed to suggest a middle road approach, forecasting two small rate adjustments of a quarter percent each later this year, the first to most likely occur in their mid-June or late July meeting.
A third concern for the FED is the market dropping into stagflation. Defined as an economic cycle of slow growth, high unemployment and inflation, stagflation can be difficult to overcome once it materializes. While everyone wants interest rates to decline the best scenario is for rates to reduce because inflation has naturally declined rather than as a solution for controlling the economy.
When the FED announces a rate adjustment it can be a bit confusing. The FED controls short-term rates, known as the rate at which lenders borrow from each other. This rate is currently 4.25-4.50 percent. Although there is no direct relationship, FED rates eventually impact long term mortgage rates by establishing a trend. But mortgage rates are higher, currently adjusting periodically between 6.625 and 7.0 percent.
Consumer Sentiment Plummets: The following comment is from economist, Elliot Eisenberg: Mid-m
March figures from the University of Michigan Survey of Consumer Sentiment were dismal. Overall consumer sentiment sank 11%, and after big declines in January and February, is at its lowest level since 2022 and COVID. Now at its worst level since 1980. Pessimism was broad-based and seen across all groups by ae, education, income, wealth, political affiliation and geography. Unemployment expcttons are at their worst since March 2009.
While high levels of consumer spending contributed to inflation and remain elevated, no one, including the FED, hoped for a cratering of consumer sentiment and spending.
Dual Agency Can Be a Gamble: Dual agency in the real estate arena is when a licensee engages in both the purchase and the financing of property. In an environment where the number of real estate transactions, for both sales and lending personnel diminish ideas of how to increase potential earnings flourish. While there is no law prohibiting a properly licensed individual from representing someone purchasing as well as financing real estate, there is a potential regulatory gamble involved with conflict-of-interest issues. Dual agency in our current economic situation remains unlikely, hard times promote creative solutions. As noted, it is not unlawful but be aware if you encounter this situation.
Fannie& Freddie Future Privatization: Fannie Mae and Freddie Mac are Government Sponsored Entities (GSE) that provide necessary liquidity for our real estate financing arena. Here is how it works.
- Borrower obtains financing locally (mortgage broker, bank or credit union)
- Lending entity “sells” loan to Fannie Mae or Freddie Mac to obtain a return of funds with which to make more loans (without this liquidity, lending agencies would not be able to continue making loans)
- The borrower is usually unaware of this transaction with either Fannie or Freddie
The Trump administration has recently removed the leadership and board members of both entities. This appears to be a first move toward privatization of this crucial part of our lending process. There is little evidence that privatization would be beneficial to consumers. Quite the opposite is more likely as the agencies would be subject to investor oversight with the focus on profit vs service. And without liquidity our home mortgage capacity would be severely interrupted if not rendered -totally unfunctional. As indicated in previous glimpses, be careful what we wish for.
Buyer & Seller Cautiousness: As we look forward to a surge in real estate transactions in the Spring, there could be dark clouds on the horizon. Actions from the Trump administration have not promoted enthusiasm for our housing future. . In times of chaos or uncertainty many choose to wait and see rather than make changes. Current errors and future threats to social security income are likely to create caution for both older home buyers and sellers. If social security income can be interrupted, older consumers are unlikely to proceed with buying or selling real estate.
The same might be said for those whose student loan payments have been reinstated with increased monthly payments. A shrinking economy does not convey optimism. Unemployment is debilitating accompanied by personal economic loss from which it can take months or years to recover. When wages are interrupted credit scores can plummet making loan qualification difficult or impossible. Interest rates projected to remain between 6.5 to 7 percent will continue to create affordability issues for some prospective home buyers. The list goes on! I am not trying to be pessimistic but current affairs require everyone to be realistic as we continue to participate in the real estate arena.
There is No Perfect Time: Oddly, in spite of the above (and other) impacts I remain optimistic. Sellers still want to sell and buyers want to buy. It may sound like a commercial, but there is no perfect time to buy or sell a home. . Challenging times also offer opportunities but one must be prepared. Home pricing needs to be realistic if sellers want to sell. Buyers need to know what their purchasing capacity is as they seek to buy. Anyone seeking to engage in buying or selling real estate should seek professional guidance.
Until next week, be good to yourself and kind to others.
3/17/025
The Noise is Deafening: Tariffs on, tariffs off, Federal workers fired, workers recalled, workers fired, courts order workers rehired. Stock markets are down, unemployment up, inflation factor down. Debt ceiling crises averted but wait, maybe not. Interest rates behaving like a yo-yo, the cost of consumer goods expected to increase, recession talk begins.
Although we refer to this market as one of confusion, chaos might be a better description. Among all of the conversations, the above-mentioned market conditions are the ones that mostly touch the real estate and financing sectors and are the factors that we are navigating every day. Below is one person’s view of individual issues and how they might affect our real estate arena.
Pity the FED: The FED meets tomorrow and Wednesday for their second meeting this year. FED chairman, Jerome Powell, continues to indicate that FED decisions will be made based upon data. With that data, as indicated above, ever changing, confusing and undependable, I expect the FED to stand pat at this upcoming meeting. Some pundits, expecting the worst (see recession talk below), predict up to three rate reductions tis year. Previous predictions were one adjustment. Decisions will be made mostly on inflation and unemployment behavior. For instance, a possible increase in costs of goods and services would typically be viewed as inflationary and beget an increase in FED rates. On the other hand, an increase in unemployment could eventually lead to the FED wanting to ease rates. Anyone want to guess which way we are going?
Inflation Numbers Unexpectedly Good: With all of the conflicting information, an inflation factor of 2.8% was announced last week, which is the closest we’ve been to the FED’s 2% annual goal in several years. The White House immediately indicated that this was evidence that their actions are effective while skeptics pointed out that the numbers did not yet reflect the tariff impact on cost of goods and services. Another piece of data the FED has to evaluate.
Recession Talk: Tariff wars and increasing unemployment accompanied by an uncertain economy can be a recipe for recession. While FED policy during the past two years was successful in reducing inflation without plunging the economy into a recession, recent predictions of a possible recession seem more ominous. How the FED will react to this situation is unknown since it must pay attention to both a resurrection of inflation and an increase in unemployment. Raising rates would be the typical method to rein in inflation while reducing rates would generally be a remedy for warding off unemployment problems. The absence of a coherent government economic policy creates a dilemma not only for the FED but for business planning and overall economic direction. My opinion is that talk of a recession is premature. At the same time, be wary of those predicting numerous FED rate reductions.
Tariff Indecision: The tariff picture changes daily if not hourly. Tariffs are a tax on imported goods and are paid by the end user, American consumers. A tariff on home building supplies (from Canada) will result in higher costs to build or renovate homes. The effect on current home values is speculative but could cause some seller reluctance thereby reducing the home for sale inventory. In turn, this could create additional affordability difficulties for would-be home buyers. Increasing consumer costs would likely dampen would-be home buyer enthusiasm. If rates have to increase to combat rising inflation, buyers could again be faced with higher rates and less inventory.
Home Refinancing Stimulated: Lenders are boasting about the increase in refinance transactions as interest rates experienced for a couple of days when the rate trended slightly downward. The emphasis is on the word “slightly”. With all of the indecipherable noise, we urge everyone to be alert to uncommonly low-rate quotes. These are often referred to as “get them in the door” ads and while one might be tempted, often the conversation ends with an explanation of why you don’t qualify for the extraordinarily low rate but being assured that you can still obtain a loan. Some call this “bait and switch”.
Fortunately, most lenders do not engage in this kind of distorted promotion. The advertised low rate could be an Adjustable-Rate Mortgage (ARM) quote or a lender MIGHT be trying to attract borrowers with some kind of “special” financing. The latter would be especially unexpected in these current uncertain financial times. Bottom line, be wary of too good to be true offers. Choose to work with a lender who you know will tell you the truth, even if you might not like what is said about rates or your ability to qualify for a loan. Good information is critical to one’s ability to make good decisions.
Becoming An All-Cash Buyer: As the Spring home buying competition heats up, the “help you buy with cash” offers are likely to intensify. The pitch is that sellers are willing to negotiate price with a cash buyer because the transaction is a sure thing and will close escrow quicker vs a buyer who has to rely upon acquiring home loan. A counter argument is that the idea that a cash offer provides a competitive edge may be exaggerated in this current environment.
The basic concept of being able to purchase via a cash offer is via company that will “loan” the prospective borrower the cash. Via a contract, the home is acquired by the company and the borrower has time to acquire the necessary financing with which to purchase. Obviously, there are costs for this service along with the risk of penalties for non-performance. Be very careful if you are tempted to enter any such contract.
CFPB Slated to be Dissolved: The Consumer Finance Protection Bureau (CFPB) is a behind the scenes agency that plays a big role in our real estate financing arena. The CFPB had a controversial beginning with many of us in real estate financing skeptical of its value. The agency was born out of the financial “scandals” of the 2008 – 2010 banking excesses and the accompanying recession. During its nearly 14 year existence its role in protecting consumers from predatory lending actions and preventing another financial crisis has proven mostly successful. Its regulatory role has included the home financing area but included banking activity oversight and regulation of the pay-day operations that disadvantaged many lower paid consumers. The agency has retrieved billions of dollars from investigations into nefarious financial schemes.
Like many other agencies, it is now being stripped of personnel, discontinuing investigations of wrongdoing in the financial world and seemingly being prepared for dissolution. While many, even initial critics, now view the agency as critical in protecting consumers, others claim it is an unnecessary burden on the financial industry, including home mortgage arrangements. With strong opinions on both sides, the dilution and possible elimination of the CFPB could have lasting implications for the entire financial landscape, including home buyers and mortgage lenders. A major concern is that weakening or eliminating this oversight, will it empower or open the door for lenders and other financial institutions and actors to unchecked financial misconduct.
While clearly viewed as a thorn in the side of some financial entities, the CFPB represents a sample of a widely unknown agency that has affected our real estate financing rules and refulations, likely for both good and bad. But, closing or rendering the CFPB ineffectual may fall into that category of “be careful what you swish for” .
Until next week, be good to yourself and kind to others.
We at Humboldt Home Loans are always available to answer any of your real estate finance questions.
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