Real Estate Weekly: August 5, 2022

INSIDE

This Issue

HOW A RECESSION WILL AFFECT THE HOUSING MARKET PAGE 5 FINANCIAL REWARDS FOR RENEWING RENTERS PAGE 7 CLASSIFIEDS PAGE 7

AUG. 05, 2022

TABLE OF CONTENTS

INSIDE PAGE

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How a recession will affect the housing market....................................................................................P5 Q&A Ask Our Broker.......................................................................P6

Financial rewards for renewing renters..........P7 Classfieds.............................................................................P7

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Aug. 05, 2022

STAT Real Estate Stat

$416,000 The median price of existing home sales across the United States in June 2022, the highest average we’ve seen in over 2 years.

Source: National Association of Realtors

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Now could be the time to sell a new home and earn a slice of the real estate pie.

Record-low interest rates is renewing interest in the housing market for many people.

“When sellers are interviewing real estate agents to market their homes, their primary focus is usually on the advertising that the agent will offer them,” says Jessica Goodbody of Weichert Realtors.

Let us help you meet your marketing goals by advertising your listings in Real Estate Weekly.

Call 360.416.2180 Today!

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Aug. 05, 2022

t w w m R a b k

i t o m u i s w c m a s

How a recession will affect the housing market

By Erik J. Martin CTW Features

We’re hearing a lot more talk lately about a nationwide recession, a scary word to many that triggers memories of the Great Recession of 2007 to 2009, after the housing bubble burst and significant market corrections occurred.

But just because economic numbers are pointing toward a recession this year or next doesn’t necessarily mean that we’ll enter this undesirable territory. Still, it’s helpful to better understand what a recession is, what causes it, and how it can impact the real estate market – especially if you are considering buying or selling a home in the near Aug. 05, 2022

future.

“A recession is a significant economic slowdown in the form of higher unemployment, a drop in gross domestic product, lower wages, and less manufacturing output,” Jonathan Miller, president/ CEO of Miller Samuel Inc. and a member of The Counselors of Real Estate, says. “A technical definition of a recession is two consecutive quarters of negative gross domestic product (GDP) growth, and we may actually already be in a technical recession, since the second quarter of 2022 looks like it may come in with a negative GDP, as the first quarter of this year did.”

Typically, recessions are

caused by an imbalance in local, national, or global economic circumstances.

“The US economy contracts during a recession, with money and investments exiting riskier projects and entering more stable investments. A recession leads to an adjustment of prices and growth, often resulting in falling prices, including lower prices on homes for sale,” explains Dennis Shirshikov, a strategist with Awning.com.

“A recession tends to slow down the housing market overall, as fewer people have access to credit and income to borrow and purchase homes.”

The last time we encountered a recession was between March and April

2020, when COVID first hit – a slump that was unusually short but deep.

Recall that, during that period and throughout 2020, listing, showing, selling, and purchasing real estate was much more difficult due to pandemic-related issues and tighter finances experienced by consumers.

“It seems reasonable to assume that, in a recessionary environment, housing prices could feel some downward pressure.

Even with the large run-up they’ve experienced just over the last 12 months, with home prices rising over 20% year-over-year, homeowners who are feeling financially strained might look to tap into the equity they’ve built up in

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their homes,” says Dr. Jim Schultz, a former finance professor at Winthrop University. “ But while home prices may dip during a recession, “other factors like low inventory may prop up home prices somewhat,” suggests Martin Orefice, founder/CEO of Rent to Own Labs. “Remember that housing inventory, especially on the low end of the market, is still distressingly low, and a recession would definitely make this worse. Many people would take their homes off the market to wait for better prices. New construction would slow down, too, and private equity firms would keep right on buying up available homes as investment assets or sources of rental income.”

While it’s difficult to predict precisely where mortgage rates would land during a forthcoming recession, some say rates would probably rise because banks are less likely to make loans.

“It would also get considerably more difficult to borrow from banks, as lending standards are usually tightened in the secondary market for mortgages tends to be slower in a recession,” Shirshikov continues.

However, consider that the Federal Reserve often cuts interest rates during a recession to stimulate economic growth, “the opposite of what they are trying to do now,” Miller notes.

Anticipate foreclosures likely to jump significantly if we veer into a recession.

That’s because many people would lose their jobs and be unable to afford their

mortgage payments. We observed a dramatic rise in foreclosures in the wake of the Great Recession years ago.

Ask Shirshikov, and he’ll tell you that a recession is likely, particularly in the second half of 2022.

“However, based on the current level of high employment and inflation, the recession would be relatively short to correct certain market fundamentals like the rising price of oil and consumer goods. Shortly after this correction, the economy would start to recover,” he predicts.

Orefice, on the other hand, says there’s simply too much volatility in the economy right now to be able to make a helpful recession prognostication.

“Jobs numbers look great, but inflation is being stubborn. The stock market is trending down lately, crypto is collapsing, and the war in Ukraine continues to throw wrenches into oil prices,” he continues.

Polina Ryshakov, senior director of research and lead economist for Sundae, says there’s no need to panic.

“A lot of people are concerned about whether 2008 will happen again, but I don’t believe that is the case. Homeowners today have a lot of equity accrued in their homes because of appreciation over the last few years,” says Ryshakov. “And people will not be incentivized to walk away from their homes, especially if they are locked into low-interest payments, as it would be more expensive for them to rent.”

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Looking into tempting refinancing loan offers Question:

We bought our property for roughly $200,000 and it is now worth roughly twice that amount, about $400,000.

We have a lot of equity and regularly receive offers by mail to refinance our home, including a recent one selling a new mortgage at 2.5%. How can a lender make such an offer given that mortgage rates today are so much higher?

ASK OUR BROKER

By Peter G. Miller Before considering a loan offer from any source, be sure to speak with several lenders.

A 2018 study by Freddie Mac found that “when it comes to mortgages, shopping around for a better rate could save you hundreds or thousands of dollars. Our research indicates that borrowers could save an average of $1,500 over the life of the loan by getting one additional rate quote and an average of about $3,000 for five quotes.”

Answer:

Given the general price increases seen during the past few years, many homeowners have such equity. For instance, the National Association of Realtors (NAR) says median existing home prices nationwide increased 15.4% in 2021 and 12.9% in 2020.

First, what’s the required minimum credit score? The necessary score is likely quite high, say between 780 and 800. Experian reports that 23% of all consumers have a VantageScore ranging between 781 and 850, meaning that in this example, about three-quarters of all potential borrowers do not have sufficient credit standing to qualify.

Third, there may be a minimum loan amount. A minimum loan size makes sense for lenders because they have many fixed costs. That said, if the minimum down payment or equity is 40% and the minimum loan size is $300,000, that means the minimum property value to qualify for 2.5% financing is $500,000 ($500,000 less 40% is $300,000, the required minimum loan amount). Since your property is only worth $400,000 or so, it will not qualify.

Earlier data compiled by the Consumer Financial Protection Bureau (CFPB) found that “three out of four consumers only apply with one lender or broker.”

Second, what is the required loan-to-value (LTV) ratio?

You can typically get financing that does not require mortgage insurance with a down payment of at least 20%.

That creates an 80% LTV. In other words, financing or

Fourth, are any up-front charges or fees required to get the advertised rate? If yes, how much? Such costs can amount to thousands of dollars and demolish low-interest benefits.

Email your real estate questions to Mr. Miller at peter@ ctwfeatures.com.

While the headline features a low-interest rate, you need to look at the complete offer to see if you qualify. There are generally several benchmarks to review.

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refinancing with 20% down or 20% equity makes lenders very happy. However, the offer may require more, say 40% or even higher.

Q&A

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Happily, comparison shopping for mortgages is easy today. Lenders must provide a standard “Loan Estimate” form to fully explain the offer. The rules say that lenders must provide the Loan Estimate within three business days of receiving your application.

Aug. 05, 2022

Financial rewards for renewing renters

By Marilyn Melia Kennedy CTW Features These days, homeowners and renters face the same problem: a shortage of available, affordable places to buy or lease.

The only answer, for both groups, is to stay put.

“Over the last 12 months, renters with expiring leases chose to renew about 58 percent of the time – which is the highest we’ve ever seen,” reports Jay Parsons, vice president and head of economics for RealPage, a real estate data analytics firm.

Although they may want a bigger or otherwise better apartment, renters are often rewarded for remaining.

“Most property managers typically offer a more favorable rate for a renewing resident in good standing,” Parsons explains.

That’s because a new tenant movAug. 05, 2022

ing in entails “turn costs” like new paint or carpet. Plus, there’s always a risk that a new tenant won’t pay reliably or act responsibly.

• Early renewal could up savings.

Sometimes, local laws mandate that renewal offers must be presented a certain amount of days before the current lease expires. But if a renter knows he’ll be renewing, telling the landlord early and asking for a discount might yield some more savings.

It all depends on the vacancies and management policies, “but it never hurts to ask,” says Parsons.

• Unusual lease length can shave costs.

Property managers will usually offer better terms for a lease that expires when demand from new tenants is expected to be strong.

A non-traditional term, like 15 months, that expires during a

busy moving period, like May, instead of a 12-month lease ending in February. Tenants looking to save should also talk about renewing their lease for a time period that’s advantageous to his landlord.

• Don’t expect to haggle.

The property manager of a midsize or large apartment complex may offer favorable rates for renewing tenants, as well as for offseason lease expirations and early renewals, but fair housing laws require that all offers are equitable, note Parsons. That means rates are determines by how the calculations for overall building vacancies, and new rental demand relate to a particular renewal offer.

“Only some ‘Mom and Pop’ housing providers are willing to take on the fair housing compliance risk that comes with negotiating rent,” concludes Parsons.

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