If you’re like many clients I speak with, you probably believe we are on the brink of a real estate crash and you are asking yourself if you should try to time the market or buy now.  Here are a few of the common myths about the current real estate situation that many people believe:

Prices are at an all-time high, we must be near the top!

The market is just too hot, I’m going to wait it out a few years until it cools and I can get a better deal!

There is no way all those people can realistically afford homes – a crash is imminent! 

However, if you look at the data and the current economic situation, you’ll quickly realize how different the current environment is from where we were in 2008 (the last time home prices were at an all-time high).

The problem with the emphatic statements above is that they are myths, and they may be stopping you from living the life you want.

By the end of this article, you’ll realize that it’s not a bad idea to move up to a bigger, better, more comfortable home.  Instead, you’ll realize that you should buy that dream house right now if it fits in your budget.

Reason #1: Housing is MORE affordable today than it has been over the last 20 years!

The vast majority of the country has lower monthly housing payments relative to median income today than during the previous twenty years.  Today the national payment to income ratio is at 22.8%, meaning that on average, homeowners are paying 22.8% of their gross income to cover their monthly housing expenses (principle, interest, taxes, and insurance).  You can see from 2000 to 2007 that ratio exploded upwards to 34.6%, which in hindsight was clearly not sustainable.  Today’s payment to income ratio is clearly lower than historical norms for two reasons.

1. Interest rates today are still well below historical averages (the 30 year average rate going back to 1965 is approximately 7.75%)
2. Median income has been increasing over the last few years

With incomes rising and interest rates still well below historical norms, housing is relatively affordable for most areas of the country.

There are certainly exceptions to the national averages.  California, Washington D.C., New York, Delaware, Maine, and Oregon are well above the 25% payment to income ratio historical averages and very well may near be reaching their cyclical top in prices, unless income growth in those states continue to rise quickly it is likely real estate appreciation will slow or even dip for a period of time.

That does not mean a crash is imminent, it means I would be more cautious buying in those areas, I would want to be confident I was going to live in the home for five to ten years, and I would not want to stretch myself beyond what is comfortable for a payment.

“The Debt Service Ratio for mortgages is near the low for the last 38 years.  This ratio increased rapidly during the housing bubble, and continued to increase until 2007.  With falling interest rates, and less mortgage debt, the mortgage ratio has declined significantly.” –Calculated Risk

Reason #2: A strong U.S. Economy is churning out well qualified buyers.

To buy a home, you need income and for most of us, that means a job.  Since the Great Recession, the U.S. has been consistently creating jobs, over the last twelve months 2.28 million net new jobs have been created.

Having a job alone isn’t enough. You have to have a well-paying job to afford a home in most places.  The data on earnings shows that all those new jobs are forcing employers to compete for talent by increasing hourly earnings.

We now have more people working and they’re earning more money than they were before the last crash, thus they can afford housing at a higher price.

“Even though CoreLogic’s national home price index got to the same level it was at the prior peak in April of 2016, once you account for inflation over the ensuing 11.5 years, values are still about 18% below where they were.” – Dr. Frank Nothaft – CoreLogic Chief Economist

As a Utah resident, I’m happy to say job growth has been particularly good in Western states.  It stands to reason the states with the quickest pace of job growth will also be the states with the most competition for housing and likely the highest rates of real estate appreciation in the coming years.

Reason #3: Existing home inventory levels are low relative to the number of qualified buyers. 

The U.S. economy has added 2.28M net new jobs in the most recent twelve month period, meanwhile there has only been 1.16M new dwelling building permits pulled.  Over the last year the U.S has created 1.97 net new jobs for every one dwelling being built.  Historically that average has been closer to 1.25 to 1.5 new jobs created for every new housing unit.

Clearly home builders are not building fast enough to keep up with the demand coming from new job creation.  Until builders catch up, we will have greater demand for housing that we have supply, and home prices should continue to rise in most areas of the country, especially those areas with quickly expanding economies.

As of May 2018, the U.S. Bureau of the Census reports a 5.2 month inventory of homes in the U.S.  The months’ supply indicates how long the current inventory of homes for sale would last at the current sales rate if no new additional homes were built.

Looking at the graph below, clearly we are not in an oversupply situation like we were before the crash.  Once the supply level approaches seven months’ supply, I start to get nervous.

Reason #4: Mortgage credit standards are near an all-time high.

It’s no secret the Mortgage Meltdown and the ensuing Great Recession were fueled by cheap, easy credit, with little if any consideration to the borrower’s ability to realistically make on time payments and pay the loan down over time.

Years of real estate appreciation had warped the minds of credit policy makers and borrowers alike, the accepted dogma was that real estate only went up, why worry about a borrower’s ability to repay, they can always sell or refinance the debt.

That didn’t work out so well…

Today however, underwriting standards are tight as a tick.  Clients need solid credit, documented two year history of income, a reasonable assessment of the likeliness of that income continuing, and down payment funds must be verified as the clients’ own.

Mortgage credit standards are measured in mass by a couple of different organizations, both have similar findings.  Today underwriting standards if anything are too strenuous.

The Urban Institute measures default risk and states a level of twelve percent is reasonable on their modeling system.  Today we are near six percent, meaning they believe we could double default risk and still be within their reasonable tolerances.

 The Mortgage Bankers Association measures similar credit and underwriting standards with their Mortgage Credit Availability Index.  This index measures how easy or difficult it is to obtain mortgage financing, the higher the score the easier, the lower the score the more difficult to obtain credit.

As you might have guessed, the index blew its top off approaching a 900 on the index in the years preceding the 2006 real estate bubble that lead to the Mortgage Meltdown.  As delinquency rates started to increase, lenders quickly got their wits about them and started tightening credit standards.

That was a lot like watching a toilet flush.  As credit standards tightened, those owning property with no chance of paying, those with the assumption real estate would always go up, which afforded them  options to refinance and pull cash out or sell at a higher price, had their dreams crushed and titles to their homes taken away.

The Mortgage Credit Availability Index bottomed just below 100 in 2011 and as of March 2018 has not yet hit 200.  Today’s buyers are legit, they have income, credit, assets, full appraisals to set valuations, and qualify to actually pay back the mortgage debts they are taking out.

Reason #5: Mortgage loan delinquencies are near record lows.

Not surprisingly after 10 years of incredibly tight mortgage lending standards, mortgage loans are performing incredibly well.  Delinquencies and defaults are near an all-time low, which speaks to the overall strength of the real estate and mortgage market.

It appears mortgage lenders have learned their lesson and nearly a decade after the bottom of the Meltdown; tight lending standards accomplished their goal of keeping delinquencies low.  Currently mortgage foreclosure rates are about one percent.

“Unemployment and lack of home equity are two factors that can lead to borrowers defaulting on their mortgages.  Unemployment is at the lowest level in 18 years and for the first quarter, the CoreLogic Equity Report revealed record levels of home equity growth with equity per owner up $16,300 on average for the year ending March 2018.” – Dr. Frank Nothaft – Chief Economist at CoreLogic

Reason #6: Americans are sitting in $5.42 Trillion of tappable equity. 

One of the things that led to the Mortgage Meltdown and Great Recession was that Americans were using their homes like cash registers, constantly pulling out cash every few years, and far too few had substantial equity in their homes when the economy slowed.

That is exactly the opposite of what we are seeing today. 

Black Night just reported that Americans are sitting on a record amount of tappable equity, currently estimated to be in excess of $5,420,000,000,000 ($5.42 Trillion in tappable equity).

Tappable equity is defined as the amount of equity between your current mortgage balance and eighty percent of the current value of your home.  For example, if you owe three hundred thousand on your home and your home is worth five hundred thousand, you would have one hundred thousand of tappable equity.  This is equity that is easily accessible with a HELOC (home equity line of credit) or a new first mortgage.

Unlike the previous real estate run up from 2002 to 2006, Americans are not yet tapping their equity.  In fact, Americans are paying down their mortgage balances at record levels which has led to record amounts of tappable equity creation, estimated at $381 Billion in the first quarter of 2018 alone.  That is an incredible amount of wealth being created in three months!

Record amounts of tappable equity could be bullish for small business owners and the U.S. economy as a whole, this equity is a potential source of investment in new businesses or it could utilized to restructure higher interest rate debts.  It also tells us that Americans are being judicious with their home equity and thus far are not treating their home equity like an ATM machine.

Reason #7: The luxury home market has not seen the run up in prices that starter and mid-level homes have. 

The housing recovery began at the starter home level and was aided by significant first time homebuyer tax credits and record low interest rates.  As demand grew from the bottom up so has the rate of real estate appreciation that has not been balanced since the recovery began.

CoreLogic reports low end homes have appreciated by fifty five percent, while high end homes have only appreciated by thirty percent since 2013.  It is unusual that low end homes would appreciate eighty three percent greater than high end homes; it is a trend that will not continue forever.

We are seeing signs the high end real estate marketing is coming to life.  Premium home searches now make up over forty one percent of all home searches online and luxury homes days on market is at the lowest levels in over a year.

One potential explanation is that middle and low end home owners have seen considerable equity gains over the last decade and are now able to sell for substantial gains and buy with significant down payments.  Couple those large down payments with a strong economy and rising wages, its logical more buyers would be showing up in the luxury market.

Bloomberg reports high end homes in premium markets across the country have surged over the last year.  In many areas across the country this trend is just starting and the high end appreciation has not yet caught up to the low end and middle range homes.

“Median home values nationally rose eight percent in March compared with a year earlier, while neighborhoods of San Francisco and San Jose, California, have increased more than 25 percent.

Prices in Delaware and New York, such as the Hamptons, also surged more than twenty percent.” -Blomberg News

This may be an opportunity to sell in a middle market that has seen significant gains, and buy in a high end market that is yet to see the run up in values.  Every market is different and these opportunities may not exist where you live, if you are considering moving up, it’s worth checking with a local REALTOR to determine if your location has seen this similar split market with the low to mid-range homes leading the way with appreciation thus far.

Reason #8: Rising interest rates are not likely to kill the real estate market.

The Federal Reserve conducted the largest monetary policy experiment in history, commonly known as the QE (quantitative easing) program, and resulting in the U.S. central bank holding a massive $4.5 trillion portfolio of U.S. Treasuries and mortgage bonds.  QE began in 2008 and officially concluded in 2014; however the income from the QE investments continued to be rolled into new bond purchases until late 2017.

Since the Fed exited the market as a net buyer of mortgage bonds, interest rates have moved higher leading some to believe that higher interest rates will put an end to real estate appreciation.  While it is clear that long term mortgage rates have reversed their thirty plus year trend lower, it is not yet clear the higher rate trend will negatively impact real estate values.  Surprisingly to most people, thus far the opposite has happened.

Home price appreciation has accelerated as interest rates have been rising throughout 2018.   While this is somewhat counterintuitive, interest rates tend to rise in good economic times, when unemployment is low and the economy and wages are rising.  The wave of qualified buyers and limited supply of homes for sale has overpowered rising interest rates thus far.

“Constrained home supply, persistent demand, very low unemployment, and steady economic growth have given a jolt to the near-term outlook for U.S. home prices.  These conditions are overshadowing concerns that mortgage rate increases expected this year might quash the appetite of prospective home buyers.” – Terry Loebs – Founder Pulsenomics 

Interestingly this is not the first time higher interest rates have accompanied rapid real estate appreciation, as a matter of fact; the last six times mortgage rates increased by more than one percent, residential real estate prices increased.

Reason #9: Homeownership rates are beginning to turn higher.

After more than a decade of declining homeownership rates, owning the real estate Americans inhabit is regaining its allure.  The official homeownership rate peak was at 69.2% in 2005.  As credit standards began to tighten, many were no longer able to qualify for financing, and soon thereafter the real estate crash was upon us.

The parents that lost their homes and the children who remember their parents going through that unsavory experience both had a bad taste for owning real estate.  Many had decided never to buy a home and that renting was going to be a better choice for them.

We are now nine years into the real estate recovery and it appears consumer sentiment towards owning real estate is starting to change.  Not only has the homeownership rate bottomed and begun its ascent higher for the last two years, Gallup also recently reported that one out of three Americans believe that owning real estate is the best long term investment.

It appears the emotional scars that were left by the Mortgage Meltdown and Great Recession may just now be healing for some.  As the scary memories of being foreclosed upon subside and Americans return to homeownership, it’s likely we see more buyers enter the market in the coming years.

Reason #10: Recession does not equal a housing crisis! 

Our country has experienced economic growth for almost a decade.  Economic expansion cannot happen forever, the economy will need to take a breather at some point and most analysts believe a recession can’t be too far off.

“Experts largely expect the next recession to begin in 2020.” – Pulsenomics

 “The economic expansion that began in mid-2009 and already ranks as the second-longest in American history most likely will end in 2020 as the Federal Reserve raises interest rates to cool off an overheating economy, according to forecasters surveyed.” – Wall Street Journal

Here is a graph comparing the opinions of those surveyed by both the Wall Street Journal and Pulsenomics:

According to the Merriam-Webster Dictionary, a recession is defined as follows:

“A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.”

During times of recessions, the economy slows noticeably, but that does not mean we are headed for another housing crisis.  The last housing crisis was a result of fake demand that was a false signal to homebuilders to massively increase the number of homes they were building. 

That fake demand stemmed from cheap and easy credit, which fueled the greed in all parties involved and eventually led to a massive oversupply of homes and the eventual crash.

Today lending standards are solid (maybe too much so) and the demand for housing is real.  Homebuilders thus far cannot keep up with demand and we have a housing shortage. 

Today’s situation is the polar opposite of what we saw before the last crash.  It is highly unlikely that the next recession leads us into another real estate crash.  In fact, looking back forty five years and six recessions, housing prices continued to appreciate in all but one recessionary period. 

 “If a recession is to occur, it is unlikely to be caused by housing-related activity, and therefore the housing sector should be one of the leading sources to come out of the recession.” – Mark Fleming – Chief Economist First American

Bottom line, an economic recession may be likely in the coming years, but a full blown housing crisis is very unlikely. 

Reason #11: Buying your dream home is not about money – it’s about enjoying your lifestyle! 

As I wrote this article, I’ve simultaneously been emailing my architect who is helping my family design our new home.  I’ve been in my current home since 2010 and when I bought it, I thought I would never move, this was definitely going to be our forever home I thought.  It’s in a great neighborhood, killer views, and after eight years of work, we have it fixed up and looking exactly like we want it.  Time to move!

As my kids have gotten older and my personal taste and preferences have changes, I’ve started to want to be outdoors more.  Instead of living in the thick of it, I want to watch it from afar.  I want my kids to grow up on streams, trails and mountain bikes instead of PlayStations and iPhones.

So we are leaving the “forever house” for the next “forever house”, one that I believe will enable me to create deeper relationships with my kids before they take off for college and begin their own journey in life.

This does not mean that I think you should overspend and pray that real estate will go up forever.  We all know that real estate is going to have its ups and downs; the longer you hold real estate the higher the probability you have of time protecting you against short term zigs and zags of the market.

One last word of advice as you consider buying your dream home, one that better fits your lifestyle and family for decades to come.  Do not overspend!  Do not put yourself in a situation where your home turns into a financial burden that detracts from your lifestyle, your ability to be a great spouse, a great father, and practice your profession the way you want to.

I personally have never bought a home that cost more than twice my annual income (and that is my max budget for my new forever home as well).  I tell clients that two to three times your annual income in my opinion should be the limit, especially when you have kids, college, weddings, and retirement coming faster than most of us realize.

In closing, my advice is to live life without fear that another real estate crash is coming, but in doing so, do not forget what brought about the last real estate crash.

Happy house hunting,

Josh Mettle NMLS #219996 is an industry leading author and mortgage lender, specializing in financing physicians, dentists, CRNA, and physician assistants.  You can get more great physician real estate and mortgage advice here or his by visiting his book site.  Josh is also a fourth generation real estate investor, and owns a number of rental homes, apartment units and mortgages.  Josh is dedicated to helping physicians become more financially aware and able; listen to “Physician Financial Success” podcast episodes or download Josh’s latest tips and advice here.

Copyright © 2017 eJLM LTD. All Rights Reserved. Fairway Independent Mortgage Corporation. NMLS#2289. 4801 S. Biltmore Lane, Madison, WI 53718, 1-877-699-0353. Other restrictions and limitations may apply. Equal Housing Lender. Disclosures

If you are like many of the clients we work with, you’re likely unclear how mortgage and real estate professionals are paid.  You might even assume that because you are a doctor, the eyes get big and the real estate or mortgage person you are working with only sees dollar signs, and since this is not your area of expertise, you may have some concerns.

Here are a few comments we hear from clients regularly:

“I’m not going to use a Realtor because I can find a home on Zillow or online without an agent.”

“What is your rate, I’m calling to see who will give me the lowest rate and that’s who I will go with?”

“Can you send me a Good Faith Estimate before I give you my information?”

The way these clients are going about shopping for a home and a lender is all backwards, it’s the exact opposite of how I shop for a Realtor or lender when I want to buy a home, an investment property, apartment building or office building.

As a side note, My name is Josh Mettle,  i’m a fourth generation real estate investor, I currently co-own and co-manage over 120 rental units in Salt Lake City, UT.  I bought my first rental property when I was twenty years old and I’ve never looked back.  Buying hundreds of units and taking out dozens upon dozens of residential and commercial mortgages over the last twenty years, I’ve learned a few things about the real estate and mortgage industry.

Let’s first discuss how Realtors and mortgage lenders are paid, that will help us uncover any conflicts of interest and help you know what you might worry or not worry about. 

Realtors traditionally are paid a six percent fee by the seller to list and sell a home.  If I’m going to sell my home for five hundred thousand, that means I have to account for thirty thousand of the proceeds being paid out as a commission to the listing Realtor at closing.  As a side note, if they market your home, hold open houses, send postcards, spend hours marketing and talking to potential buyers and the home does not sell…  They make nothing.

As a buyer if you decide to make an offer on that home and you are not represented by a Realtor, by what is called a buyer’s agent, then the listing agent makes the full six percent commissions.  If you do have a buyer’s agent representing you, then your agent and the listing agent split the six percent commission and they each get three percent.

In most instances this is not negotiable, once a seller signs a listing agreement they have legally agreed to allow the listing agent to market the home for sale and consented to payout the six percent commission.  If you come along unrepresented, the listing agent in most cases is not going to arbitrarily agree to reduce their commission.

Think about it for a moment, it would be like someone coming to a hospital and for some reason deciding to pay cash instead of using their  insurance card.  Is the hospital going to offer them a forty percent discount because they paid cash?  Not likely.

Is that evil or manipulative?  No, that is just how the industry works; we understand it and we move on.

The point I’m trying to make is, as a buyer of real estate, it costs you nothing in most instances to be represented by a professional Realtor, and it makes little sense to do it yourself in most instances.

Let me give you an example of how convinced I am that a good Realtor with a great local reputation is worth their fee.  My wife went out and got her real estate license for the buying and selling of our personal properties.  After a few years I realized that yes, we are saving some money in commissions.  But I also wasn’t seeing as many opportunities, she was busy with her life and taking care of the family, she wasn’t out scouring for investments full time like my Realtor had been.

When we went to sell a property, we were always second guessing ourselves on the market value and we ended up selling one property very quickly and I believed we left a lot of money on the table because we were not as knowledgeable as we thought we were.

Finally I asked my wife to let go of her license and I convinced her (it wasn’t hard) and my other partner that we needed to find and use the best Realtor in the area.  That Realtor would have deals come up that would never even hit the multiple listing service, they would negotiate with the other Realtor (most of which he’d done business with before) better than we could, and they would be more in tune with the market movements and help us price properties better.

As someone who has been in this game for a long time and owns a lot of real estate, I use a Realtor.  It saves me significant time and even more stress.  I look at it as insurance that I don’t make a short sighted mistake.  I think it’s worth it, especially in the current real estate market which is extremely difficult to find and contract a good home in.

What about mortgage lenders and mortgage brokers?  We all know we need one to finance a home, but isn’t the lowest price lender always the best?

I’ll leave that question up to you to answer after I share with you the facts about how both mortgage brokers and Loan Officers are paid.

First of all you should understand the difference between a mortgage broker and a loan officer

A mortgage broker does not make loans, they take your application and all of your documents and submit that data to an investor (think Wells Fargo, Bank of America, etc.).  The investor sends you the legal disclosures, orders the appraisal, underwrites the loan, sends the final closing disclosure, closing documents and wire to the title/escrow/attorney (depending on the state you are buying in) for closing.

Since brokers are not the direct lender, they may not be experienced with handling difficult loans and many of them don’t have any control over how fast the deal closes.  Remember brokers do not control the disclosures, the appraisal being ordered, the underwriter, etc., the people doing those jobs are not employees of the broker and they don’t have ultimate control.  They submit your package to the lender and then sit back and wait for the investor to respond.

They also do not have the same opportunity to ask for exceptions or variances as do direct lenders, so in many instances we see loans declined by brokers, who are referred to us and we are able to close quickly.

Mortgage Lenders  on the other hand lend their own money.  As such, they typically have more control over the speed at which your loan moves and can make more exceptions to guidelines.

Every  lender is different and their risk appetite can vary widely from year to year, but it’s important for you to understand the distinction between a mortgage broker and a mortgage  lender.

Both  lender and broker are paid a flat fee, percentage, or salary for originating loans.  The Dodd Frank Act and a specific provision contained within the act, called the Loan Officer Compensation Rule, legally require mortgage originators to be paid the same way on every loan.

Click here if you want to learn more about the Loan Officer Compensation Rule.

Both  lenders and brokers are covered under the act and as such, do not have the ability to steer you towards a loan program that would financially benefit them more than another.  Most loan originators today are paid between .3% and 1% of the loan amount, depending on what company they work for, if they have a base salary, and what part of the country they originate loans in.  Loan officers in Kentucky who average $60,000 loans are going to be paid a higher percentage per loan than loan officers in California that average $600,000 per loan.

Think about that for a minute, most mortgage lenders are paid one tenth to one third the amount Realtors are paid on the same transaction.  There is not that much profit in the mortgage origination business now days.

The important thing for you to understand is that a loan officer cannot charge you a higher rate or push you towards one loan program over another in order to make a higher commission.  They are paid the same way on every loan regardless of the loan characteristics.

Of course there are more expenses to originate a loan than just paying the loan officer commission.  There is significant legal and regulatory overhead, hourly wages to pay processors, underwriters, disclosure teams, closing document and wire teams, lots of human capital at work to get a loan closed seamlessly and quickly.

And that is where the cost differences in mortgages really come in to play.  As a  Loan Officer, I have to make a decision on what type of mortgage operation I want to run.  The question I have to ask myself is, “what kind of experience do I want to build for my clients, what will I be proud of?”

I want to work with a mortgage lender that treats its employees fairly and invests in technology to improve communication and the client experience. A mortgage lender that sees value in convenience, flexibility, common sense underwriting, speed, and recruiting employees who share these same values while of taking care of their clients.

However, in order to offer all of this for your clients, rates cannot be as low. It’s not economically viable.

My advice to clients is to consider the rates, but also dig deeper and review the online reviews of each institution, look for testimonials from past physician clients, and even ask to speak with a few of their past clients if you are feeling in your gut something might be off.

That might seem like a lot of work, but it’s important to find a mortgage lender and loan officer who can avoid potential hurdles. If not navigated properly, these hurdles could lead to frustrating closing delays that last for weeks. Here at Fairway Independent Mortgage Corporation we strive to provide a simple and rewarding home loan experience. Our team has the experience to help navigate the home loan process and guide you if your loan gets complicated.

I hope you found this article interesting and worth your time.  Feel free to send me your questions or comments; I’d love to hear them.

Josh Mettle
Area Manager & Sr. Loan Officer

Director of Physician Lending
385-355-2130 O
801-699-4287 M
eFax 866-574-5371
josh@joshmettle.com
2063 E 3900 S, Salt Lake City, UT 84124
NMLS#219996

Josh Mettle NMLS #219996 is an industry leading author and mortgage lender, specializing in financing physicians, dentists, CRNA, and physician assistants.  You can get more great physician real estate and mortgage advice here or his by visiting his book site.  Josh is also a fourth generation real estate investor, and owns a number of rental homes, apartment units and mortgages.  Josh is dedicated to helping physicians become more financially aware and able; listen to “Physician Financial Success” podcast episodes or download Josh’s latest tips and advice here.

Copyright©2018 Fairway Independent Mortgage Corporation. NMLS#2289. 4750 S. Biltmore Lane, Madison, WI 53718, 1-877-699-0353. All rights reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Equal Housing Lender. AZ License #BK-0904162; Licensed by the Department of Business Oversight under the California Financing Law; Loans made or arranged pursuant to a California Financing Law License. CA-DBO219996; Licensed Nevada Mortgage Lender; Licensed by the NJ Department of Banking and Insurance; Licensed Mortgage Broker- N.Y.S. Department of Financial Services; Rhode Island Licensed Broker & Lender.

Earlier this year I sat as an attendee at the WCI conference, also known as the Physician Wellness and Financial Literacy Conference in Park City, UT.  I was approached by a physician attendee who recognized me and asked: “Josh – when will the real estate bubble pop?”

He went on to explain that his young family had outgrown their home and were uncomfortably waiting for the next real estate crash to come before moving up to his dream home, or at least a home that would fit his growing family.  I asked him, “Why do you believe we are in another real estate bubble?”

His answer was surprising to me, he had swallowed the myth that today’s real estate prices (which are the highest ever in most areas of the country) were evidence we are near the next cliff and a crash is imminent.

I was puzzled that he had not sought more data-driven reasons to arrive at his conclusion, and the idea for this article was born.  I’m grateful for WCI to give me the opportunity to answer his questions, and yours, in a data-driven format.

If you’re like many doctors I speak with, you probably believe we are on the brink of a real estate crash and you are asking yourself if you should try to time the market or buy now.  Here are a few of the common myths about the current real estate situation that many people believe:

Prices are at an all-time high, we must be near the top!

The market is just too hot, I’m going to wait it out a few years until it cools and I can get a better deal!

There is no way all those people can realistically afford homes – a crash is imminent! 

However, if you look at the data and the current economic situation, you’ll quickly realize how different the current environment is from where we were in 2008 (the last time home prices were at an all-time high).

The problem with the emphatic statements above is that they are myths, and they may be stopping you from living the life you want.

By the end of this article, you’ll realize that it’s not a bad idea to move up to a bigger, better, more comfortable home.  Instead, you’ll realize that you should buy that dream house right now if it fits in your budget.

Reason #1: Housing is MORE affordable today than it has been over the last 20 years!

The vast majority of the country has lower monthly housing payments relative to median income today than during the previous twenty years.  Today the national payment to income ratio is at 22.8%, meaning that on average, homeowners are paying 22.8% of their gross income to cover their monthly housing expenses (principle, interest, taxes, and insurance).  You can see from 2000 to 2007 that ratio exploded upwards to 34.6%, which in hindsight was clearly not sustainable.  Today’s payment to income ratio is clearly lower than historical norms for two reasons.

1. Interest rates today are still well below historical averages (the 30-year average rate going back to 1965 is approximately 7.75%)
2. Median income has been increasing over the last few years

With incomes rising and interest rates still well below historical norms, housing is relatively affordable for most areas of the country.

There are certainly exceptions to the national averages.  California, Washington D.C., New York, Delaware, Maine, and Oregon are well above the 25% payment to income ratio historical averages and very well may near be reaching their cyclical top in prices, unless income growth in those states continue to rise quickly it is likely real estate appreciation will slow or even dip for a period of time.

That does not mean a crash is imminent, it means I would be more cautious buying in those areas, I would want to be confident I was going to live in the home for five to ten years, and I would not want to stretch myself beyond what is comfortable for a payment.

“The Debt Service Ratio for mortgages is near the low for the last 38 years.  This ratio increased rapidly during the housing bubble, and continued to increase until 2007.  With falling interest rates, and less mortgage debt, the mortgage ratio has declined significantly.” –Calculated Risk

Reason #2: A strong U.S. Economy is churning out well-qualified buyers.

To buy a home, you need income and for most of us, that means a job.  Since the Great Recession, the U.S. has been consistently creating jobs, over the last twelve months 2.28 million net new jobs have been created.

Having a job alone isn’t enough. You have to have a well-paying job to afford a home in most places.  The data on earnings shows that all those new jobs are forcing employers to compete for talent by increasing hourly earnings.

We now have more people working and they’re earning more money than they were before the last crash, thus they can afford housing at a higher price.

“Even though CoreLogic’s national home price index got to the same level it was at the prior peak in April of 2016, once you account for inflation over the ensuing 11.5 years, values are still about 18% below where they were.” – Dr. Frank Nothaft – CoreLogic Chief Economist

As a Utah resident, I’m happy to say job growth has been particularly good in Western states.  It stands to reason the states with the quickest pace of job growth will also be the states with the most competition for housing and likely the highest rates of real estate appreciation in the coming years.

Reason #3: Existing home inventory levels are low relative to the number of qualified buyers. 

The U.S. economy has added 2.28M net new jobs in the most recent twelve month period, meanwhile, there has only been 1.16M new dwelling building permits pulled.  Over the last year, the U.S has created 1.97 net new jobs for every one dwelling being built.  Historically that average has been closer to 1.25 to 1.5 new jobs created for every new housing unit.

Clearly, home builders are not building fast enough to keep up with the demand coming from new job creation.  Until builders catch up, we will have greater demand for housing that we have supply, and home prices should continue to rise in most areas of the country, especially those areas with quickly expanding economies.

As of May 2018, the U.S. Bureau of the Census reports a 5.2-month inventory of homes in the U.S.  The months’ supply indicates how long the current inventory of homes for sale would last at the current sales rate if no new additional homes were built.

Looking at the graph below, clearly, we are not in an oversupply situation like we were before the crash.  Once the supply level approaches seven months’ supply, I start to get nervous.

Reason #4: Mortgage credit standards are near an all-time high.

It’s no secret the Mortgage Meltdown and the ensuing Great Recession were fueled by cheap, easy credit, with little if any consideration to the borrower’s ability to realistically make on-time payments and pay the loan down over time.

Years of real estate appreciation had warped the minds of credit policymakers and borrowers alike, the accepted dogma was that real estate only went up, why worry about a borrower’s ability to repay, they can always sell or refinance the debt.

That didn’t work out so well…

Today, however, underwriting standards are tight as a tick.  Clients need solid credit, documented two-year history of income, a reasonable assessment of the likeliness of that income continuing, and down payment funds must be verified as the clients’ own.

Mortgage credit standards are measured in mass by a couple of different organizations, both have similar findings.  Today underwriting standards if anything are too strenuous.

The Urban Institute measures default risk and states a level of twelve percent is reasonable on their modeling system.  Today we are near six percent, meaning they believe we could double default risk and still be within their reasonable tolerances.

The Mortgage Bankers Association measures similar credit and underwriting standards with their Mortgage Credit Availability Index.  This index measures how easy or difficult it is to obtain mortgage financing, the higher the score the easier, the lower the score the more difficult to obtain credit.

As you might have guessed, the index blew its top off approaching a 900 on the index in the years preceding the 2006 real estate bubble that lead to the Mortgage Meltdown.  As delinquency rates started to increase, lenders quickly got their wits about them and started tightening credit standards.

That was a lot like watching a toilet flush.  As credit standards tightened, those owning property with no chance of paying, those with the assumption real estate would always go up, which afforded them options to refinance and pull cash out or sell at a higher price, had their dreams crushed and titles to their homes taken away.

The Mortgage Credit Availability Index bottomed just below 100 in 2011 and as of March 2018 has not yet hit 200.  Today’s buyers are legit, they have income, credit, assets, full appraisals to set valuations, and qualify to actually pay back the mortgage debts they are taking out.

Reason #5: Mortgage loan delinquencies are near record lows.

Not surprisingly after 10 years of incredibly tight mortgage lending standards, mortgage loans are performing incredibly well.  Delinquencies and defaults are near an all-time low, which speaks to the overall strength of the real estate and mortgage market.

It appears mortgage lenders have learned their lesson and nearly a decade after the bottom of the Meltdown; tight lending standards accomplished their goal of keeping delinquencies low.  Currently, mortgage foreclosure rates are about one percent.

 

“Unemployment and lack of home equity are two factors that can lead to borrowers defaulting on their mortgages.  Unemployment is at the lowest level in 18 years and for the first quarter, the CoreLogic Equity Report revealed record levels of home equity growth with equity per owner up $16,300 on average for the year ending March 2018.” – Dr. Frank Nothaft – Chief Economist at CoreLogic

Reason #6: Americans are sitting in $5.42 Trillion of tappable equity. 

One of the things that led to the Mortgage Meltdown and Great Recession was that Americans were using their homes like cash registers, constantly pulling out cash every few years, and far too few had substantial equity in their homes when the economy slowed.

That is exactly the opposite of what we are seeing today. 

Black Night just reported that Americans are sitting on a record amount of tappable equity, currently estimated to be in excess of $5,420,000,000,000 ($5.42 Trillion in tappable equity).

Tappable equity is defined as the amount of equity between your current mortgage balance and eighty percent of the current value of your home.  For example, if you owe three hundred thousand on your home and your home is worth five hundred thousand, you would have one hundred thousand of tappable equity.  This is equity that is easily accessible with a HELOC (home equity line of credit) or a new first mortgage.

Unlike the previous real estate run up from 2002 to 2006, Americans are not yet tapping their equity.  In fact, Americans are paying down their mortgage balances at record levels which has led to record amounts of tappable equity creation, estimated at $381 Billion in the first quarter of 2018 alone.  That is an incredible amount of wealth being created in three months!

Record amounts of tappable equity could be bullish for small business owners and the U.S. economy as a whole, this equity is a potential source of investment in new businesses or it could be utilized to restructure higher interest rate debts.  It also tells us that Americans are being judicious with their home equity and thus far are not treating their home equity like an ATM machine.

Reason #7: The luxury home market has not seen the run-up in prices that starter and mid-level homes have. 

The housing recovery began at the starter home level and was aided by significant first-time homebuyer tax credits and record low-interest rates.  As demand grew from the bottom up so has the rate of real estate appreciation that has not been balanced since the recovery began.

CoreLogic reports low-end homes have appreciated by fifty-five percent, while high-end homes have only appreciated by thirty percent since 2013.  It is unusual that low-end homes would appreciate eighty-three percent greater than high-end homes; it is a trend that will not continue forever.

We are seeing signs the high-end real estate marketing is coming to life.  Premium home searches now make up over forty-one percent of all home searches online and luxury homes days on market is at the lowest levels in over a year.

One potential explanation is that middle and low-end homeowners have seen considerable equity gains over the last decade and are now able to sell for substantial gains and buy with significant down payments.  Couple those large down payments with a strong economy and rising wages, its logical more buyers would be showing up in the luxury market.

Bloomberg reports high-end homes in premium markets across the country have surged over the last year.  In many areas across the country, this trend is just starting and the high-end appreciation has not yet caught up to the low end and middle range homes.

“Median home values nationally rose eight percent in March compared with a year earlier, while neighborhoods of San Francisco and San Jose, California, have increased more than 25 percent.

Prices in Delaware and New York, such as the Hamptons, also surged more than twenty percent.” -Blomberg News

This may be an opportunity to sell in a middle market that has seen significant gains and buy in a high-end market that is yet to see the run-up in values.  Every market is different and these opportunities may not exist where you live, if you are considering moving up, it’s worth checking with a local REALTOR to determine if your location has seen this similar split market with the low to mid-range homes leading the way with appreciation thus far.

Reason #8: Rising interest rates are not likely to kill the real estate market.

The Federal Reserve conducted the largest monetary policy experiment in history, commonly known as the QE (quantitative easing) program, and resulting in the U.S. central bank holding a massive $4.5 trillion portfolio of U.S. Treasuries and mortgage bonds.  QE began in 2008 and officially concluded in 2014; however, the income from the QE investments continued to be rolled into new bond purchases until late 2017.

Since the Fed exited the market as a net buyer of mortgage bonds, interest rates have moved higher leading some to believe that higher interest rates will put an end to real estate appreciation.  While it is clear that long-term mortgage rates have reversed their thirty plus year trend lower, it is not yet clear the higher rate trend will negatively impact real estate values.  Surprisingly to most people, thus far the opposite has happened.

Home price appreciation has accelerated as interest rates have been rising throughout 2018.   While this is somewhat counterintuitive, interest rates tend to rise in good economic times, when unemployment is low and the economy and wages are rising.  The wave of qualified buyers and limited supply of homes for sale has overpowered rising interest rates thus far.

“Constrained home supply, persistent demand, very low unemployment, and steady economic growth have given a jolt to the near-term outlook for U.S. home prices.  These conditions are overshadowing concerns that mortgage rate increases expected this year might quash the appetite of prospective home buyers.” – Terry Loebs – Founder Pulsenomics 

Interestingly this is not the first time higher interest rates have accompanied rapid real estate appreciation, as a matter of fact; the last six times mortgage rates increased by more than one percent, residential real estate prices increased.

Reason #9: Homeownership rates are beginning to turn higher.

After more than a decade of declining homeownership rates, owning the real estate Americans inhabit is regaining its allure.  The official homeownership rate peak was at 69.2% in 2005.  As credit standards began to tighten, many were no longer able to qualify for financing, and soon thereafter the real estate crash was upon us.

The parents that lost their homes and the children who remember their parents going through that unsavory experience both had a bad taste for owning real estate.  Many had decided never to buy a home and that renting was going to be a better choice for them.

We are now nine years into the real estate recovery and it appears consumer sentiment towards owning real estate is starting to change.  Not only has the homeownership rate bottomed and begun its ascent higher for the last two years, Gallup also recently reported that one out of three Americans believe that owning real estate is the best long-term investment.

It appears the emotional scars that were left by the Mortgage Meltdown and Great Recession may just now be healing for some.  As the scary memories of being foreclosed upon subside and Americans return to homeownership, it’s likely we see more buyers enter the market in the coming years.

Reason #10: Recession does not equal a housing crisis! 

Our country has experienced economic growth for almost a decade.  Economic expansion cannot happen forever, the economy will need to take a breather at some point and most analysts believe a recession can’t be too far off.

“Experts largely expect the next recession to begin in 2020.” – Pulsenomics

 “The economic expansion that began in mid-2009 and already ranks as the second-longest in American history most likely will end in 2020 as the Federal Reserve raises interest rates to cool off an overheating economy, according to forecasters surveyed.” – Wall Street Journal

Here is a graph comparing the opinions of those surveyed by both the Wall Street Journal and Pulsenomics:

According to the Merriam-Webster Dictionary, a recession is defined as follows:

“A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.”

During times of recessions, the economy slows noticeably, but that does not mean we are headed for another housing crisis.  The last housing crisis was a result of fake demand that was a false signal to homebuilders to massively increase the number of homes they were building.

That fake demand stemmed from cheap and easy credit, which fueled the greed in all parties involved and eventually led to a massive oversupply of homes and the eventual crash.

Today lending standards are solid (maybe too much so) and the demand for housing is real.  Homebuilders thus far cannot keep up with demand and we have a housing shortage.

Today’s situation is the polar opposite of what we saw before the last crash.  It is highly unlikely that the next recession leads us into another real estate crash.  In fact, looking back forty five years and six recessions, housing prices continued to appreciate in all but one recessionary period.

 “If a recession is to occur, it is unlikely to be caused by housing-related activity, and therefore the housing sector should be one of the leading sources to come out of the recession.” – Mark Fleming – Chief Economist First American

Bottom line, an economic recession may be likely in the coming years, but a full-blown housing crisis is very unlikely. 

Reason #11: Buying your dream home is not about money – it’s about enjoying your lifestyle! 

As I wrote this article, I’ve simultaneously been emailing my architect who is helping my family design our new home.  I’ve been in my current home since 2010 and when I bought it, I thought I would never move, this was definitely going to be our forever home I thought.  It’s in a great neighborhood, killer views, and after eight years of work, we have it fixed up and looking exactly like we want it.  Time to move!

As my kids have gotten older and my personal taste and preferences have changes, I’ve started to want to be outdoors more.  Instead of living in the thick of it, I want to watch it from afar.  I want my kids to grow up on streams, trails and mountain bikes instead of PlayStations and iPhones.

So we are leaving the “forever house” for the next “forever house”, one that I believe will enable me to create deeper relationships with my kids before they take off for college and begin their own journey in life.

This does not mean that I think you should overspend and pray that real estate will go up forever.  We all know that real estate is going to have its ups and downs; the longer you hold real estate the higher the probability you have of time protecting you against short-term zigs and zags of the market.

One last word of advice as you consider buying your dream home, one that better fits your lifestyle and family for decades to come.  Do not overspend!  Do not put yourself in a situation where your home turns into a financial burden that detracts from your lifestyle, your ability to be a great spouse or parent and practice your profession the way you want to.

I personally have never bought a home that cost more than twice my annual income (and that is my max budget for my new forever home as well).  I tell clients that two to three times your annual income, in my opinion, should be the limit, especially when you have kids, college, weddings, and retirement coming faster than most of us realize.

In closing, my advice is to live life without fear that another real estate crash is coming, but in doing so, do not forget what brought about the last real estate crash.

Happy house hunting!

Black Night just reported that Americans are sitting on a record amount of tappable equity, currently estimated to be in excess of $5,420,000,000,000 ($5.42 Trillion in tappable equity). 

Tappable equity is defined as the amount of equity between your current mortgage balance and eighty percent of the current value of your home.  For example, If you owe three hundred thousand on your home and your home is worth five hundred thousand, you would have one hundred thousand of tappable equity.  This is equity that is easily accessible with a HELOC (home equity line of credit) or a new first mortgage.

We see this report very bullish for the U.S. economy as a whole.  Many Americans will be able to utilize their record amount of tappable equity to start new businesses, fund new investments, and payoff higher interest rate loans. 

What interest rates are your business or personal loans currently at, are they higher than today’s fixed mortgage interest rates? 

Many of our clients are considering tapping their record equity and trying to determine the best way to do so. 

We are warning them about the likely rise in the Prime Rate, which is the adjustable rate that home equity lines of credit (HELOCs) are based on.  Currently Prime Rate is at 5.00%, however the Federal Reserve is forecasting two more interest rate increases this year and three more next year.

As you can see below, Prime Rate has predominantly ranged between five and twenty percent interest since 1960, only recently has Prime spent considerable time below the five percent range.  We believe Prime is very likely headed towards its historically higher rates. 

We are encouraging clients that want to utilize some of their tappable equity to lock in fixed rate loans with shorter durations than they have now.  If they want to use their equity, we would advise they invest wisely, and if possible shorten the term of their current mortgage payoff with a ten, fifteen, or twenty year fixed mortgage. 

If tapping your home equity would put you in a better financial situation, we would love to hear from you and would be happy to run numbers for your specific situation.  Please fill out your free consultation form below!

“Can you use a home equity line of credit as a down payment to purchase a new home or a new investment property?” That’s a question we get all the time, and the simple answer is yes. That is absolutely an allowable source of funds.

Most mortgage underwriting guidelines will allow you to borrow money to be used for a down payment, provided that that money is securitized or collateralized by an asset. If you have a free and clear car, lot, RV, a boat, or if you have some equity in your home, you can borrow against that asset, and you can go ahead and use that as an allowable down payment on the purchase of a new home.

Now, you do need to take in consideration the debt-to-income ratio implications of taking that new debt on. Of course, if you’re buying a new investment property, we would need to figure out what’s the current debt service on your current home going to be with your first and new second mortgage, and will that fit into the debt-to-income ratio to make the new purchase work? Now, if you are buying an investment property, also keep in mind, we can use estimated rents from an operating income statement and comparable rental schedule that an appraisal will do, to offset the new mortgage payment. So if you’re buying a new investment property, and the payment’s $2,000, but the appraiser says that there’s $2,000 in rent that’s going to come from that property, then those two things can help to offset one another.

Hey, I hope you found this interesting and valuable. Do not hesitate to call us or visit our website for additional information.

If you’re one of the millions of Americans who wants to buy a home this year, the constant increases in property values might have you feeling edgy. When you keep getting outbid on homes, you wonder if it’s wise to offer more for the next home you fall in love with.

People who already own homes fret, too. They worry that they’ll sell their current home and then not find a move-up home they can afford.

It can be really unsettling when housing prices rise, which they did in 91 percent of the housing markets tracked by the National Association of Realtors® in the first quarter of 2018*. To fight this feeling, it’s helpful to look objectively at the data behind the 5.7 percent increase in home prices nationally over the past year.

When you understand the factors that make home values rise and fall, you feel more confident about making housing moves when prices are fluctuating.

TWO THINGS INFLUENCE HOME PRICES

Like all products, the prices of homes rise and fall based on supply and demand. When lots of people want to buy and few people want to sell homes, prices rise. When there are more homes for sale than people to buy them, prices fall.

Let’s see what the data tells us about supply and demand for U.S. homes in the first quarter of 2018.

#1 Demand

To buy a home, you need income and for most of us, that means a job . Since the Great Recession, the U.S. has been adding jobs:

Source: Stewart

*The information contained in the article has not been prepared by Fairway Independent Mortgage Corporation and is distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway Independent Mortgage Corporation.

Having a job isn’t enough alone. You have to have a good-paying job to afford a home in most places. The data on earnings shows that all those new jobs are forcing employers to compete for talent. Plus, as Baby Boomers exit the job market, there haven’t enough Gen Xers and millennials to take the jobs Boomers vacate. That’s led to increases in earnings.

 Source: Stewart

So now we have more people working and they’re earning more money. As a Utah resident, I’m happy to say job growth has been particularly good in the Western U.S.:

Source: Stewart

Do the people who have the new jobs make enough money to buy a home? The answer is very much influenced by where you live. In Salt Lake City, for example, a family may need more than the average income, based on the US average hourly earnings, to buy the median priced home. When more people there make more than that average income, more people can afford to buy.

#2 Supply

There are two kinds of homes for sale in the U.S.: New and existing. The supply of both is tight.

Builders are building enough new homes to keep up with demand, according to real estate data from Stewart. It shows only about one new housing unit is being built for every two jobs being created:

NAR estimates homebuilding activity for all housing types is underperforming in roughly two-thirds of metro areas where it collects market data.

Another way to measure supply it to calculate how long it will take to sell all the homes on the market in a metro area – if home sales continued at the current pace. In a market where there are 100 homes on the market and 25 sell each month, that’s a four-month supply. This is the way NAR measures demand.

The current NAR data points to a shortage of existing homes for sale. The average supply of homes for sale during the first quarter of 2018 was 3.5 months nationally – down from 3.7 months in the first quarter of last year.

Looking at the raw numbers, there were 1.67 million homes for sale in 1Q 2018, down 7.2 percent from the 1.8 million for sale at that point in 2017, NAR says.

Housing Demand is Outstripping Supply

Both the supply and demand data clearly show more people want to (and are able to) buy homes in the current market, but there are fewer homes for them to buy.

While there’s no way to know what will happen tomorrow, in the past, that’s led to home price increases.

Wait, Can People Still Afford Homes?

One problem with rising home prices is that they make it harder for people to afford to buy a home. You might think that’s happening in the current market, but the data say otherwise.

Americans, on average, are actually paying less each month for their full homeownership costs (home loan costs + taxes + insurance) today than they have at any time since 1982.

That’s not a typo. Housing payments really are low compared to what the median household is earning in many cities, according to Stewart’s data**:

**The household Debt Service Ratio (DSR) is the ratio of total required household debt payments to total disposable income

WHAT THIS MEANS FOR YOU

The good news conclusion you can draw from all this data is that demand for homes is real and your mortgage payment may be affordable. The challenge you face is that you must beat out all the other homebuyers who want to buy the same home. That can make it tempting to overextend yourself financially to keep up with other buyers.

When looking at a mortgage, it’s important to weigh how it could stress you financially or impact your other life goals.

Fortunately, I’ve got another strategy that can help set you up for home buying success.

It’s called the 17-Day Guaranteed Close and believe me it will make your offer stand amongst the competition.  We actually guarantee we will have your loan ready to close in 17 days or we’ll pay the seller $250 a day if we are late.

Our clients whom have successfully used this program are ecstatic that they were able to beat out other offers not by paying more, but by being better prepared and by having us guarantee the quick closing.   We would love to help you stand out from the masses as well, contact us today to find out more about the 17 Day Guaranteed Close Program.

17 day guaranteed loan close disclaimer:
Copyright©2018 Fairway Independent Mortgage Corporation. NMLS#2289. 4801 S. Biltmore Lane, Madison, WI 53718, 1-877-699-0353. All rights reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates, and programs are subject to change without prior notice. All products are subject to credit and property approval. Not all products are available in all states or for all dollar amounts. Other restrictions and limitations may apply. Fairway is not affiliated with any government agencies. Fairway is required to disclose the following license information. Alaska Mortgage Lender License No. AK2289; Arizona Mortgage Banker License No. 0904162; CA: Licensed by the Department of Business Oversight under the Consumer Finance Lenders Law; Loans made or arranged pursuant to a California Finance Lenders Law License #262571; Illinois Residential Mortgage Licensee No. MB. 0005475; Kansas Licensed Mortgage Company. KS License #MC.0001375; MA Mortgage Broker and Lender License #MC2289″; Minnesota: MN-MO- MN-MO-20183136. This is not an offer to enter into an agreement. Any such offer may only be made in accordance with the requirements of Minn. Stat. Section 47.206 (3) and (4); Mississippi Licensed Mortgage Company; Licensed by the New Hampshire Banking Department Licensed by the NJ Department of Banking and Insurance; Licensed Mortgage Banker- NYS Department of Financial Services; OH MBA License #2289; Oregon Mortgage Lender License ML-3791; Rhode Island Licensed Broker & Lender; VA: NMLS ID # 2289; Washington Consumer Loan Company License No. CL-2289

Copyright©2018 Fairway Independent Mortgage Corporation. NMLS#2289. 4750 S. Biltmore Lane, Madison, WI 53718, 1-877-699-0353. All rights reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Equal Housing Lender. AZ License #BK-0904162; Licensed by the Department of Business Oversight under the California Financing Law; Loans made or arranged pursuant to a California Financing Law License. CA-DBO 219996; Licensed Nevada Mortgage Lender; Licensed by the NJ Department of Banking and Insurance; Licensed Mortgage Broker- N.Y.S. Department of Financial Services; Rhode Island Licensed Broker & Lender.  

If you’re one of the millions of Americans who wants to buy a home this year, the constant increases in property values might have you feeling edgy. When you keep getting outbid on homes, you wonder if it’s wise to offer more for the next home you fall in love with.

People who already own homes fret, too. They worry that they’ll sell their current home and then not find a move-up home they can afford.

It can be really unsettling when housing prices rise, which they did in 91 percent of the housing markets tracked by the National Association of Realtors® in the first quarter of 2018*. To fight this feeling, it’s helpful to look objectively at the data behind the 5.7 percent increase in home prices nationally over the past year.

When you understand the factors that make home values rise and fall, you feel more confident about making housing moves when prices are fluctuating.

TWO THINGS INFLUENCE HOME PRICES

Like all products, the prices of homes rise and fall based on supply and demand. When lots of people want to buy and few people want to sell homes, prices rise. When there are more homes for sale than people to buy them, prices fall.

Let’s see what the data tells us about supply and demand for U.S. homes in the first quarter of 2018.

#1 Demand

To buy a home, you need income and for most of us, that means a job . Since the Great Recession, the U.S. has been adding jobs:

Source: Stewart

*The information contained in the article has not been prepared by Fairway Independent Mortgage Corporation and is distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway Independent Mortgage Corporation.

Having a job isn’t enough alone. You have to have a good-paying job to afford a home in most places. The data on earnings shows that all those new jobs are forcing employers to compete for talent. Plus, as Baby Boomers exit the job market, there haven’t enough Gen Xers and millennials to take the jobs Boomers vacate. That’s led to increases in earnings.

 Source: Stewart

So now we have more people working and they’re earning more money. As a Utah resident, I’m happy to say job growth has been particularly good in the Western U.S.:

Source: Stewart

Do the people who have the new jobs make enough money to buy a home? The answer is very much influenced by where you live. In Salt Lake City, for example, a family may need more than the average income, based on the US average hourly earnings, to buy the median priced home. When more people there make more than that average income, more people can afford to buy.

#2 Supply

There are two kinds of homes for sale in the U.S.: New and existing. The supply of both is tight.

Builders are building enough new homes to keep up with demand, according to real estate data from Stewart. It shows only about one new housing unit is being built for every two jobs being created:

NAR estimates homebuilding activity for all housing types is underperforming in roughly two-thirds of metro areas where it collects market data.

Another way to measure supply it to calculate how long it will take to sell all the homes on the market in a metro area – if home sales continued at the current pace. In a market where there are 100 homes on the market and 25 sell each month, that’s a four-month supply. This is the way NAR measures demand.

The current NAR data points to a shortage of existing homes for sale. The average supply of homes for sale during the first quarter of 2018 was 3.5 months nationally – down from 3.7 months in the first quarter of last year.

Looking at the raw numbers, there were 1.67 million homes for sale in 1Q 2018, down 7.2 percent from the 1.8 million for sale at that point in 2017, NAR says.

Housing Demand is Outstripping Supply

Both the supply and demand data clearly show more people want to (and are able to) buy homes in the current market, but there are fewer homes for them to buy.

While there’s no way to know what will happen tomorrow, in the past, that’s led to home price increases.

Wait, Can People Still Afford Homes?

One problem with rising home prices is that they make it harder for people to afford to buy a home. You might think that’s happening in the current market, but the data say otherwise.

Americans, on average, are actually paying less each month for their full homeownership costs (home loan costs + taxes + insurance) today than they have at any time since 1982.

That’s not a typo. Housing payments really are low compared to what the median household is earning in many cities, according to Stewart’s data**:

**The household Debt Service Ratio (DSR) is the ratio of total required household debt payments to total disposable income

WHAT THIS MEANS FOR YOU

The good news conclusion you can draw from all this data is that demand for homes is real and your mortgage payment may be affordable. The challenge you face is that you must beat out all the other homebuyers who want to buy the same home. That can make it tempting to overextend yourself financially to keep up with other buyers.

When looking at a mortgage, it’s important to weigh how it could stress you financially or impact your other life goals.

Fortunately, I’ve got another strategy that can help set you up for home buying success.

It’s called the 17-Day Guaranteed Close and believe me it will make your offer stand amongst the competition.  We actually guarantee we will have your loan ready to close in 17 days or we’ll pay the seller $250 a day if we are late.

Our clients whom have successfully used this program are ecstatic that they were able to beat out other offers not by paying more, but by being better prepared and by having us guarantee the quick closing.   We would love to help you stand out from the masses as well, contact us today to find out more about the 17 Day Guaranteed Close Program.

17 day guaranteed loan close disclaimer:
Copyright©2018 Fairway Independent Mortgage Corporation. NMLS#2289. 4801 S. Biltmore Lane, Madison, WI 53718, 1-877-699-0353. All rights reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates, and programs are subject to change without prior notice. All products are subject to credit and property approval. Not all products are available in all states or for all dollar amounts. Other restrictions and limitations may apply. Fairway is not affiliated with any government agencies. Fairway is required to disclose the following license information. Alaska Mortgage Lender License No. AK2289; Arizona Mortgage Banker License No. 0904162; CA: Licensed by the Department of Business Oversight under the Consumer Finance Lenders Law; Loans made or arranged pursuant to a California Finance Lenders Law License #262571; Illinois Residential Mortgage Licensee No. MB. 0005475; Kansas Licensed Mortgage Company. KS License #MC.0001375; MA Mortgage Broker and Lender License #MC2289″; Minnesota: MN-MO- MN-MO-20183136. This is not an offer to enter into an agreement. Any such offer may only be made in accordance with the requirements of Minn. Stat. Section 47.206 (3) and (4); Mississippi Licensed Mortgage Company; Licensed by the New Hampshire Banking Department Licensed by the NJ Department of Banking and Insurance; Licensed Mortgage Banker- NYS Department of Financial Services; OH MBA License #2289; Oregon Mortgage Lender License ML-3791; Rhode Island Licensed Broker & Lender; VA: NMLS ID # 2289; Washington Consumer Loan Company License No. CL-2289

Copyright©2018 Fairway Independent Mortgage Corporation. NMLS#2289. 4750 S. Biltmore Lane, Madison, WI 53718, 1-877-699-0353. All rights reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Equal Housing Lender. AZ License #BK-0904162; Licensed by the Department of Business Oversight under the California Financing Law; Loans made or arranged pursuant to a California Financing Law License. CA-DBO 219996; Licensed Nevada Mortgage Lender; Licensed by the NJ Department of Banking and Insurance; Licensed Mortgage Broker- N.Y.S. Department of Financial Services; Rhode Island Licensed Broker & Lender.   

There has always been the myth out there that physician home loans are only available for those with an MD and DDS designation.  Well,  we’re here to destroy that myth!  While we do currently offer solutions and services for medical professionals not of those designations, we now have a much more expansive selection available!

We are really excited to provide a new feature available not just for our standard physicians, but that can also specifically cater to CRNA’s, PA’s, DPT’s, NP’s as well as CPA’s and JD’s.  One thing we wanted to mention upfront that this is only available in the states of Arizona, Colorado, Texas and Washington.  We have the ability to provide 95% financing up to $999,999 with no mortgage insurance and 90% financing up to $1,499,999 with no mortgage insurance.  Other key benefits include being able to close up to 60 days prior to a new employment start date, Gift Money from family is acceptable for the down payment and we can do non cash-out refinances as well!  Even 2 unit properties are eligible.

We absolutely love helping out all our medical professional families regardless of designation and are excited to provide more options to them AND to be able to include CPA’s and attorneys in the mix as well!  Contact us today to get started.  It would be our pleasure to be of assistance!

Copyright©2018 Fairway Independent Mortgage Corporation. NMLS#2289. 4750 S. Biltmore Lane, Madison, WI 53718, 1-877-699-0353. All rights reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Equal Housing Lender. Licensed by the Department of Business Oversight under the California Financing Law. Loans made or arranged pursuant to a California Financing Law License. CA-DBO 223291; MA Mortgage Broker and Lender License #MC2289; MA Loan Originator License # 223291; Licensed Nevada Mortgage Lender; Licensed by the NJ Department of Banking and Insurance; Rhode Island Licensed Broker & Lender

Never have there been so many options for physicians seeking a mortgage.  Banks have come out of the woodworks to offer doctor or physician mortgages as they are so often called.  In a nutshell, these loans make it easier for doctors to qualify for mortgage financing.

How does a physician mortgage make it easier to qualify? 

As compared to a conventional mortgage or a jumbo mortgage, the physician mortgage has more malleable underwriting guidelines.

Generally speaking, most doctor mortgages will allow you to:

1. Put zero to 5% down without any monthly private mortgage insurance (this can save you thousands upon thousands over the 5 to 10 years you own your home).

2. Close up to 90 days before the start of your new employment contract. If you have a job ending in Texas, a new job starting in Utah and you want to close on a new home before you start your new job, you will need to use your employment agreement or offer letter to qualify.  No bank anywhere will allow you to use your current Texas employment income to qualify for a primary residence in Utah.  The doctor mortgage allows you to close before you start your new job, making your families transition that much easier.

3. Finance jumbo loan amounts (over $453,100) with less than 20% down payment. For many physicians that are behind the eight ball in saving for retirement or have significant student loan debt from medical school, this can spare some much needed capital for investment in other areas.

4. Doctors who own their practice, working as independent contractors or in a partnership being paid a K-1, all fall under self-employed borrowers and require two years tax returns for conventional and most jumbo loans. A physician mortgage lender will typically have more flexibility in approving these types of clients with less than two year history.  In some cases, a physician mortgage lender can approve a client based on their employment contract, if there is a guaranteed base, before their first day on the job as an independent contractor.

Where are the landmines with a physician mortgage?

One of the biggest mistakes I see doctors making when searching for a mortgage is in assuming they will qualify.  There are so many physician mortgage options out there, it can become confusing and I see far too many physician clients making the decision on a mortgage lender based on interest rate quote alone, without regard to if they will qualify for that program.

The fact that you are a doctor does not mean you will qualify for a doctor mortgage.  The letters MD behind your name is not a de facto pre-approval letter for a physician mortgage.

We receive an unfortunate amount of business from clients whom did their mortgage searching by asking for mortgage interest rates alone.  Once they’ve found a home and deliver their documents, they are declined by the underwriter with real estate deposits on the line and only weeks left to close.

This can be avoided by asking better questions and by verifying the resume and reputation of your physician mortgage lender. 

Understand that not all mortgage loan officers and banks have adequate experience working with doctors; many out there today have access to a physician mortgage program but do not have sufficient experience to help you avoid the landmines.

Does the lender you are considering have positive physician mortgage client reviews?  A lot can be learned by doing a Google search for the bank’s mortgage reviews or by asking the loan officer for past physician clients that you could contact for references.

As I write this article in May of 2018, I’m currently working with five clients that did not do sufficient research on the mortgage lender they chose and have been declined weeks into their real estate purchase agreement.  Here is an email I received this morning from a physician mortgage client in Las Vegas:

Hey Josh,

I was promised a home loan from the other company that pre-approved me in the first place before I was referred to you. I was advised to go back to them after we ran into that hard stop with the co-signer. And even after I explained to them what you had told me about needing a co-signer it took them a week to figure out the exact same thing and tell me no, I need a co-signer. All along the way they were very confident they would have no problem getting my loan through. And now I’m back to where I started with less time.

 I’m never buying a house again,  this process is making me lose my hair. Very frustrating.

 Regardless, I want this house, my realtor is going to request an extension on the days.

 I felt like you had a better sense of the details of what is needed here, and the other company really burned me this past week.

 If you’re still interested in handling this loan my partner will co-sign.

 Best,

Dr. Frustrated   

Speed is another major challenge for most physician mortgage lenders – most are simply too slow to compete in today’s crazily competitive seller’s market. 

Many of my clients are seeing multiple offers on the properties they offer on and the speed at which you can close is a major advantage or hurdle for you as a buyer depending on how fast your mortgage lender can move from contract to close.

This can vary widely by state and even the city in which you are buying in, but if you want to be extremely competitive, you need to be able to close your loan in seventeen days or less.  You need to be able to complete with cash offers in many instances.

I’m hearing clients tell me that many banks are quoting thirty to forty days to close and as such, it is hard for clients to get their offers accepted in this market.

One of the things we do to help clients is guarantee that we can close their loan in seventeen days or less and in some cases we will even guarantee their earnest money so they can make an offer without any financing contingency in the purchase agreement.  This makes a clear statement to the seller that you are legitimately pre-approved and can perform quickly.

The good news is there are solutions to these challenges and you can protect yourself if you take the time to do a little more due diligence before deciding on a physician mortgage lender. 

1. Choose a physician mortgage loan officer who can educate and truly guide you. This person should be able to diagnose and challenges that may arise, should be asking enough intelligent questions to really understand your situation and predict any potential landmines up front.  If you don’t get feeling your loan officer is asking the tough questions and really digging in to understand your situation, keep looking for one that does.

2. Once you have a good feeling about a loan officer; take the time to verify their reputation. Look for client testimonials on their website, check out their LinkedIn page, Google their name and try to find client reviews from Google, Facebook, Angie’s List, etc.

3. Obtain a full credit and income approval. The reality is, the mortgage underwriter is the most important person in the mortgage transaction because they will have the final say in approving or declining your loan.

I always suggest that clients gather and submit their documents up front before making an offer and go through our extensive credit and income approval process.  Rather than having your documents reviewed by an underwriter after you have written an offer, we have reversed the process and have our in house underwriting team review your documents up front, virtually eliminating the chances of something going off the rails after you have contracted your new home.

4. Use the best home search technology available. We advise clients to stay off of the typical media sites like

   Zillow, Trulia, and Realtor.com because those websites do not have direct access to all MLS (Multiple Listing Services), which is what Realtors have access to.

These media companies have some but not all of the data listed on the MLS, and most of what they have is delayed by up to twenty five days, meaning your dream home might be on the MLS today but you may not see it for weeks.  We suggest clients download and use

HomeScout because it will give you access to one hundred percent of the MLS listed homes and gives you the exact same power that a Realtor has to search for a home.

https://homescout.app.link/SEARCHBETTER

5. Carefully select your Realtor. This has become more crucial than ever as the demand for housing has continued to outpace the supply of new homes being built.  In this market, the reputation of your Realtor matters.

You want to use someone who is familiar with physician relocation and has a great reputation for getting deals done.  I would again recommend you seek testimonials or reviews from past physician clients whom have successfully worked with the Realtor before making a final decision.

Let us know if you have any additional questions about doctor mortgages and what we can do to help you and your family.

Josh Mettle NMLS #219996 is an industry leading author and mortgage lender, specializing in financing physicians, dentists, CRNA, and physician assistants. You can get more great physician real estate and mortgage advice here or his by visiting his book site. Josh is also a fourth generation real estate investor, and owns a number of rental homes, apartment units and mortgages. Josh is dedicated to helping physicians become more financially aware and able; listen to “Physician Financial Success” podcast episodes or download Josh’s latest tips and advice here.
Copyright © 2017 eJLM LTD. All Rights Reserved. Fairway Independent Mortgage Corporation. NMLS#2289. 4801 S. Biltmore Lane, Madison, WI 53718, 1-877-699-0353. Other restrictions and limitations may apply. Equal Housing Lender. Disclosures

The main benefit with working with Fairway Independent Mortgage Corporation is that we have a local team and in office underwriters so we can be fast in approving and closing loans to get our clients in their dream home fast, in view of this competitive marketplace.

We offer a 17-day close guarantee or we will pay the seller $250 per day! We have never had to actually do that, that’s how confident we are in our promise to take care of your loan process fast.

My background is actually in advertising and one of the things I’ve often advised my clients NOT to do is to make claims such as “we’re bigger and better” without being able to prove it. Here at Fairway we have a scalable system that is consistent and replicable. There is a tight and efficient operations team where everyone has a well defined role and responsibility that allows us to deliver a 17-day close. My own mortgage was actually closed in 11 days.. I like having been on the side of the client experience, so I can give a real testimonial.

I’d like you to invite you to check out our google and facebook reviews. We shine for our clients, to get them into the home of their dreams when others lenders can’t and we would love a chance to prove our efficiency to you. Anyone can quote a rate, not everyone can deliver efficient, timely and a flawless performance every step of the way.

Click here to view our Google reviews

Facebook reviews

I’m glad to be a part of the Fairway team, please call me with any lending questions you might have, we will find a solution for you.

17 Day Seller Closing Guarantee. $250 per day to the seller for each day closing is late*.

*$250 per day up, up to $2500 towards late closing credits guaranteed to sellers, if Fairway Independent Mortgage Corporation Branch 436 doesn’t close as promised/scheduled. Guarantee starts with the completion of the application with Fairway Independent Mortgage Corporation and is only valid under the following conditions: the borrower must submit all documentation within 24 hours from the time it was requested; the applicant cannot change the loan product(s) and/or terms from those which were originally applied for; the borrower is not applying for VA, Bond, or Brokered Loan; the closing does not occur on the contract closing date due to delays attributable to third parties such as a lack of certificate of occupancy, unresolved title issues, etc., or if the seller or purchaser extends the closing date; the closing does not occur on the contract closing date due to events outside the control of Fairway Independent Mortgage Corporation, including inclement weather, natural disaster, or other catastrophic event. Promotion expires September 30, 2018.

Conditions: Conditions that may apply to the 17-day closing guarantee include, client must be fully credit and income pre-approved, no changes can be made to the Real Estate Purchase Contract after submission of conditions for clear to close, seller must cooperate with scheduling the appraisal inspection without any delays and the appraisal is at value and not subject to repairs, there must be an acceptable preliminary title report, the property must not have extensive insurance claims causing difficulty finding an insurance provider, the offer is not valid on condominiums, rural housing, or unique property types, and the agreement is only valid on conventional, high- balance conventional and FHA transactions