Real Estate Hot Topics in Portland Summer 2021
Julie Williams (JW):
I am with Brian Page today and he is with Guild Mortgage. Brian has been in the business even longer than I have. How long have you been a mortgage officer?
Brian Page (BP):
Oh my goodness, this is my 32nd year coming up this summer.
JW:
Brian is also a student of the economy. He really watches all of the indicators out there, more than anyone I know. So that is who I always turn to if I’m kind of curious about what we see coming down the pike. First of all, Brian, the big story, besides just the hot market, has really been interest rates which has been driving our hot market this year. What do you see happening with interest rates?
BP
Well, I continue to see some volatility going on out there in this environment right now. I think the general direction recently has been slightly downwards, but prior to that, at the start of the year, more or less forwards, we started to see an upwards moving bias for rates. And I think that will, somehow re-institute itself as we get closer into the fall. And then as we go into the winter months, I think the expectations are for slightly higher rates, but still very, very favorable rates for this current environment.
JW:
So above three in the winter.
BP: Yeah, most likely. Yeah. So right now we’re hovering just slightly under three. And I think we’ll see above three, maybe gravitating closer to three and a half, but that’d probably be about the peak for a while.
JW:
Okay. Which is just insane because I mean, historically they’ve been so much higher and I’m just amazed at how long that they stayed at these really low rates.
So what concerns do you see, you know, the, the market has been so hot and homes are selling so quickly with multiple offers, driving the prices up. What concerns do you see from a lending standpoint?
BP:
I think one of the things that we have spoken about over the past would say six months or so is, you know, with this aggressive, uh, valuation environment that we’ve got right now is the appraisals for the transactions where there is some financing involved. So from the lending perspective, we’re always concerned that the property appraises at the value. And that’s really one of the concerns. I think that’s foremost amongst not just agents, but sellers and buyers.
JW:
So, we’ve seen a lot of people waving their appraisal contingency or covering a portion of that. If the appraisal comes in low, have you seen any problems with us doing that?
BP:
That’s a good question. And occasionally there are, but right now I think in this environment as well, we do see, situations where a low appraisal doesn’t impede the financing for the transaction. So really what I’m meaning in regards to that is that essentially lenders will lend on. So they place their concerns for the lending based on that difference in evaluation. So if someone’s putting down a significant down payment, which is often what we see in this environment, then they are putting down more than the minimum that lenders require. So in that regards, if there is a low appraisal and it still meets the minimum lending standards, we’re able to provide financing for them. I think where there’s a concern for some people is that they put 20% down for example, and the appraisal is low, then they’re in a situation where you might have to have mortgage insurance and that’s not necessarily something they anticipated.
JW:
Yeah. I think it’s really, um, it’s a shame in a lot of ways because it’s, it’s giving such an advantage to cash buyers and people who have a really large down payment. And then of course, it’s almost impossible to get a contingent offer accepted. So you somehow have to sell your home to get the cash if that’s where your cash is coming from.
BP:
That’s what I was going to ask you is that, is there a situation where as you’re representing the seller, you’re reviewing offers and you see the differences amongst those offers where financing or not, or that the percentage of financing the buyers presenting, whether that becomes a consideration for the decision to think?
JW:
Oh, sure. Yeah. I’ve seen, you know, and I’m advising sellers too, if they’re putting 20% or less down then that appraisal gap can really become a problem. And then, you know, always favorable for cash buyers because we’re not dependent on the appraisal and it can be a lot quicker, easier transaction. And some sellers are just… they do pay attention to where that money is coming from. And, I’ve had sellers, not like the fact that somebody is liquidating, a retirement account. Although I know that the reason they’re doing that is so that they can make a non-contingent offer to get their offer accepted and then put their home on the market and repay that retirement account. But sellers definitely, you know, when you have a choice, when you have so many offers to choose from, you know, they really do look at everything. They don’t just look at price. They’re looking at all of the terms. Because sometimes the price will really be really similar with two or three offers.
BP:
I think you’re also kind of speaking to, um, a big factor for a lot of folks, whether it’s financing or what have you is preparation. You know, those buyers that are prepared and have done their own diligence as well and realize that they need to have their assets available for their cash to close. Maybe they’re, uh, somehow being proactive and deciding to go ahead and take the tax consequences, liquidate an asset like that and have it ready and available so that there’s not a problem with it at the point of the offer.
JW:
Yeah. And it’s also important for sellers or their agent to actually look at those preapproval letters because sometimes they’re a very light approval. They’re more of a pre-qualification letter. And if we just assume that it says what we want it to say, that could bite us down the road. So, you know, when I see a letter that says they’re fully approved and it’s just really subject to, you know, the property, um, qualifying, then it’s, it seems to be a much better letter. Um, and you know, sometimes we talked about this before that sometimes buyers have a little bit more complicated situation and they need to plan ahead to get that letter because when we’re writing an offer on a property on a Saturday and we reach out to our lender and bless your hearts, that you’re working on the weekends too, and providing those letters for us, if they haven’t really done the prep work upfront to get you what they need, that can be a problem. Because we’re eager to get that offer in before a deadline.
BP:
That’s a good point, especially in this environment, that we call the COVID era, there are situations where an analysis of past income, past history of that income and the ability to project forward for that income is not jus, you know, a five minute review. It might, if you’re self-employed, it might require providing a profit and loss statement. Albeit an unaudited one, which is a little easier to provide, but those things just aren’t generated in a couple of hours time typically. So I think preparation is really ideal. It’s very difficult for us as a lender, no matter how many years of experience we might have, to review someone’s circumstances in the span of a couple of hours, and make a decision.
And much of the decision is through software and automation and review of that. But still some of the variables in there have to do with some subjectivity and that’s where you come into problems. And the more prepared you are on the further in advance, those things are reviewed and discussed and, reanalyzed and so forth. The better off that person is. So that’s my best advice for buyers is to begin the process, not on Sunday afternoon at four o’clock when you find a house that you really like, and I get how that happens. We all, as consumers do that, but being prepared, if you know, it might be an idea that you want to pursue, begin a couple weeks before. That’s really helpful.
JW:
And I think that profit and loss statement. That’s something a lot of people probably don’t realize that it’s a new thing that’s in place. When we purchased, our home, we didn’t have to have that. And we were self-employed, that was a whole different ball game back then. But now my gosh, even to refinance, we would need to have a profit and loss statement now. And not all self-employed people prepare that.
BP:
Absolutely. And there are changes. And during the era of COVID, there were a lot of, most that has a difficulty. And sometimes that means they might not be financeable in this current environment. Maybe there will be. But those kinds of things to say, maybe they will be, take perhaps even a couple of weeks of work in preparation between a CPA, the business owner, the lender, analyzing, reanalyzing and so on. But it does take some time.
JW:
Yeah, good tips. So here’s my, here’s my thought. Prices have gone up dramatically, you know, over a hundred thousand dollars on average in the last two years, or less than two years. And so, this is obviously a problem for buyers because they’re getting priced out of the market. We, you know, we started looking at one price range and there just are no longer homes that are desirable in that price range. But besides that, it feels like this is really a seed of inflation. You know, I grew up during a time of inflation when I was a kid, believe it or not. And I remember that seventies inflation…you go to the store and things would be more expensive every time you went. And, it was a big topic and I feel like that’s starting now. I feel like things are increasing in price. I don’t know if homes are triggering that, is it because, you know, obviously the real estate market is a really big piece of our economy. I don’t know if that is triggering some inflation, but what do you see? I know you’re really a student of, of all things economic. What do you see as far as inflation?
BP:
Well, that’s been a big topic of discussion, obviously within the markets themselves, amongst the fed members, amongst investors and traders, and real estate as a component within the analysis of inflation and the indexes that are there. And to this point, I think that the Federal Reserve in particular, maybe not so much traders and investors out there, the Federal Reserve in particular is making assumptions that whatever’s occurred to this point will be transitory. And that’s a word that most of us don’t like to hear meaning it’s temporary. It will go back to, pre problem, index levels. And by problem, I mean the inflationary problem we’re seeing right now, which is somewhere running around a 5% or so year over year, which is a strong inflation number. The Federal Reserve’s target is somewhere around two, two and a half percent that they want to attain. So by them, trying to assuage the markets and let them know that real estate prices are not, something that will be permanent which is really difficult to imagine that that’s not the case. I think they fall back on rents and things of that nature too. But by them taking that approach, I think it leaves the runway open for more value increase. I mean, obviously there are other issues that are, that are part of this as well. But outside of that, I think that the Federal Reserve has done a good job of really calming the markets, taming the markets, and letting them know that much of the inflation outside of real estate and labor costs. Those are the two big ones, are really something that are, based upon supply issues.
JW:
Yeah, that’s what I was going to mention is the supply chain issues. And I’ve seen that a lot. I have a few buyers who are building homes right now, and with new construction, it seems like it’s a regular occurrence. You know, we, can’t get this product, we need to swap it out for this product or it’s just going to take longer and we don’t have the labor. And so it’s taking a long time and it’s costing more. And I can see that supply chain issues would cure themselves over time. But I don’t, I don’t know about real estate prices coming back down.
BP:
I agree. And having to pay those people who are building those houses a little bit more, or the person who’s serving you in the restaurants, and so forth, a little bit more, I think that’s where the danger lies is in labor costs and that’s something we have to wait and see, whether that’s going to sort itself out. And a lot of people are talking about this perhaps occurring sometime when school comes back, and things get to a little more moderate levels as far as that goes. We’ll see. I’m a little anxious about that.
JW:
Well, I think we’re all a little bit anxious about real estate in general. It’s just been a kind of a crazy year…a crazy couple of years, so we shall see, but thank you so much for your time today, Brian. I really appreciate this. Anything else you want to mention?
BP:
Well, I would just say that the preparation as you, as we kind of went down the road on, is really key for most buyers today. But, as a seller, I’m always curious to know, is there a preparation involved as a seller? Is there something that a seller has to be prepared for in this current environment? Much like the buyer has to?
JW:
Well, they prepare their property, but from a financing standpoint?
BP:
No, strictly from a selling standpoint. So preparing the property.
JW:
You know, a lot of sellers don’t really want to do a lot of home prep right now because they have heard that homes are selling quickly, and that they don’t need to. I think it’s always a good idea to have your home looking its best and being really ready for that inspection. Although a lot of people are waving the inspection contingency right now, that doesn’t really stop them from backing out, they still have an inspection, but they’re buying as is. But I do think that that sellers, are getting a little bit, I hate to use the word cocky, but, I do think that we’re starting to see a shift and I think we’re starting to see things level out. I don’t see this crazy trajectory continuing. I feel like we’re going to be flattening a little bit just from what I’ve been seeing. Maybe fewer multiple offers lately, buyers backing out, buyers getting cold feet. And so I think from a home prep standpoint, to have your home looking good, but also being ready for a roof inspection, you know, still have your home in really good condition. Otherwise I just think you could be leaving money on the table. When the buyers, you know, they get past the excitement of the offer and they get in there and look at the house for a second time, I think it’s important to have at home ready and, so that you can keep that buyer secure and move forward.
BP:
Well, thanks again for having me. This has been really enjoyable.
JW:
Thank you. And that’s all we have for today. Thank you for sitting and listening to our conversation today. I think it’s been great. We’ll have to do this again. Thank you.
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