By the time you read this, everything could have changed — the local residential housing market is on fire! If you were in the market to buy or sell a home during the second or third quarter, you know what I am talking about. The worldwide pandemic did not slow down the residential real estate market. Assuming you were a buyer during these times, I guarantee you experienced some frustrations — among these, the low inventory of available homes and the bidding wars that come with a seller’s market.
The mortgage industry offering record low interest rates encouraged buyers to purchase homes at a higher price point while staying in their ideal monthly payment range.
Coincidentally, we also saw a surge in home price appreciation. Scarcity is one of the main reasons home values increased. “Unless an increasing number of new homes are constructed, some buyers could miss out on the opportunity to purchase a home or have the opportunity delayed. In the meantime, prices show no signs of decreasing,” said Lawrence Yun, National Association of Realtors’ chief economist.
But let’s take a minute to read the first line again. Mortgage rates and regulations change daily. As I was writing this article, I had a lunch meeting with some of my lender partners, Laura Garza and Joe Cuellar with Geneva Financial. We discussed some big news the Federal Housing Finance Agency (FHFA) had just announced. They will be imposing a .500 percent fee on all refinances sold to Fannie Mae (FNMA) and Freddie Mac (FHLMC) starting Sept. 1 due to economic uncertainty.
Although it might not sound like much, that is an estimated $1,400 extra in fees for the average consumer. In a time where homeowners are taking advantage of the low interest rates to refinance for a lower monthly mortgage payment, it might seem counterintuitive.
It’s estimated that 4.1 million Americans sought out mortgage forbearance at the height of the pandemic and that number has decreased over time. The CARES Act provides protection for borrowers but not lenders. Bankers and mortgage servicers continued to make payments to investors for mortgages sold in the secondary market. With money going out but less money coming in, current reserves might not be adequate to sustain the industry long term.
Cue the new imposed fees for refinancing. It resulted in immediate backlash from mortgage insiders. “To us, this only makes sense if FHFA is worried that Fannie and Freddie will see losses spike in the coming quarters as forbearance ends and borrowers have to resume making payments,” said Jaret Seiberg, an analyst with Cowen Washington Research Group. “This could be a way to shore up their capital, which reduces the risk that the enterprises would burn through their limited capital and require taxpayer assistance through the preferred capital lines.”
The new fee increase is only being applied to the refinancing of homes, but what is next? Could we see similar fees added to home purchases? Only time will tell. If you are looking to buy a home now, first get approved for a home loan. Once you have that pre-approval, it is like having a check on hand. Hire a realtor that can guide you through the process.
What does the fourth quarter for 2020 hold? Most economists predict that low supply and high demand will continue to fuel home prices. Our local economy has always fared better than other metro areas. Builders are building, investors are flipping, and we continue to push for homeownership because homeownership supports the broader economy.
This article was provided by Real Estate Agent from Caza Group, references available upon request.