Economist Lawrence Yun Offers Hope for the Housing Market

Last week Dr. Lawrence Yun, Chief Economist and Senior V. P. of Research at the National Association of Realtors, paid a visit to Charlottesville to offer his economic and real estate outlook at the Charlottesville Area Association of Realtors (CAAR) General Membership Meeting. He emphasized that the moderate recovery we’re experiencing in rising home sales is a positive thing because it is much more sustainable than the boom in the early 2000s caused by subprime lending. The challenge we face today, he said, is the lack of supply to meet the demand. Specifically, there are too few available houses that meet the needs of first time home buyers. Yet he is hopeful that steady recovery will continue and that there will be the potential for growth going forward.

In order to create a more detailed picture of what is happening, he presented his analysis of the middle class today. The fact that median household income has not fully recovered to match the levels seen in 2000 and 2007, he says, has upset middle class ideas about the American Dream. He then pointed out that a majority of American families are not directly impacted by positive spikes in the economy because only 10% of them have a meaningful ($100K or more) investment in the stock market, which contributes to the overall viewpoint that the economy is not recovering. Then there is the fact that despite making high profits, businesses are not spending as much as they used to. And even though the employment rate is rising and the unemployment rate appears to be falling, he pointed out that what these statistics fail to show is the unemployed person who is not actively searching for work, as this is a requirement to be included in the unemployment rate. Specifically in Charlottesville, he said, there are 20,000 more people with jobs in the area than there were in 2000, which has contributed to the high housing demand.

By Lawrence Yun
By Lawrence Yun

In addition, rent is at a 7-year high, he said, and will be the driver of inflation in the future. Rising rents encourage home ownership, which offers the benefit of a stable mortgage payment. And a high inflation rate will mean higher mortgage interest rates. But currently the rate of homeownership is at a 50-year low. Younger households are less likely to own, a fact explained by the large wealth gap between young adults (defined by those under 35) and retirees. While wealth has grown for retirees since 1983, it has declined for those under 35. Yun sited contributing factors such as the rise of tuition and student loan debt, as well as medical inflation. This is the reason, Yun said, we’re seeing less foot traffic and lockbox openings.

The National Association of Realtors will make a large effort in the next year, he said, to present to the next President of the United States the benefits of home ownership. These include a lower juvenile delinquency rate, better health, self-esteem, and civic engagement. But since all of these benefits can be counteracted by foreclosure, the National Association of Realtors will emphasize the need for sustainable home ownership. The good news in Virginia is that the mortgage delinquency rate is lower than the rest of the country.

In an article published on Forbes online titled “Are We Entering a New Housing Bubble?” Yun argues that we are not heading toward another bubble as we currently lack the inventory for such a thing to happen. He advocates for more home-building in order to meet the current demand and maintain a gradual recovery of the economy.

Yun - Fed Policy re Mortgage Rate
By Lawrence Yun

He also pointed out at the CAAR meeting that the Federal Reserve always waits until after an election to raise rates because they don’t want to affect the outcome of the election. But Yun predicts that the mortgage rate will be more affected by inflation in 2017 and 2018, rather than by actions of the Federal Reserve. His economic forecast is that the economy will continue to be subpar, but may be affected by whoever is elected for President of the United States. He predicts that growth of the GDP will be 1.6%.

Yun - Economic Forecast
By Lawrence Yun

His housing forecast is as follows.


Yun - Housing Forecast
By Lawrence Yun


TRID and Your Real Estate Mortgage

TRID stands for TILA (Truth in Lending Act)-RESPA (Real Estate Settlement Procedures Act) Integrated Disclosure Rule. Despite having such a convoluted name, the measure’s espoused aims are pretty simple: to improve the transparency and clarity of the mortgage processes, with respect to the consumer. It’s been in the works for a while, and its scheduled date of institution (August of this year) was pushed back to this month. As of October 1, 2015 there are a few important changes to mortgage process, mostly in the form of new paperwork and new time constraints. We’ll break down what to expect.

  • The new Loan Estimate form consolidates the Good Faith Estimate and the Truth in Lending Disclosure forms into a shorter, “easier-to-understand” text.
  • A check on lender fees. Lenders can’t impose any fee on a consumer until said consumer receives a loan estimate and indicates an intent to proceed. The only fee a lender can impose is a “reasonable” fee for gathering a potential buyer’s credit information.
  • ○ This makes it easier for buyers to shop around and gives them a better grasp of interest rates. Consequently, it takes lenders longer to pre-approve prospective buyers.
  • The new Closing Disclosure form consolidates the Truth-in-Lending statement and the HUD-1 settlement statement into one shorter text, and disseminates the information therein with language that is easier for a buyer to understand. It also requires a detailed account of the whole real estate transaction, including closing costs and other fees and loan terms. The goal is to make the experience at the “closing table” easier to manage, especially for first-time buyers.
  • Now that the lender is giving out more information ahead of time, both s/he and the title company may have to adjust their roles and normal ways of doing things.
  • Disclosures must be provided within a specific time frame.
  • Lenders must make the Loan Estimate Form available to the consumer within three business days of the consumer’s loan application–three days after the consumer provides Social Security #, property value estimates, etc.
  • The buyer must get a Closing Disclosure Form three business days before the loan is consummated and s/he has contractual obligations to the mortgage.
  • Any significant term changes (changes in the loan product, the addition of a prepayment penalty, or increases in the APR) will start a new waiting period of three days.
  • Both of the aforementioned forms can be delivered in person or electronically.

The TRID’s new rules are not retroactive–they only apply to applications received after October 1. It’s important to stay sharp and review procedures to make sure you’re staying within its guidelines. The National Association of Realtors contends that if even 1 out of 100 closing transactions experience TRID-related issues, it’ll amount to about 4,000 botched transactions in a month alone! The new legislation will make lenders extra careful when providing mortgages, and it will likely result in extended mortgage times and delayed closing dates. It’s essential that the new forms are accurate and carefully evaluated, if you want to ensure that the mortgage process is carried out smoothly and your settlement occurs on time. Last minute negotiations may impact the three day rule and delay closing, so make sure that everything is in order with all parties far in advance of the scheduled settlement date! If you have any questions or concerns, feel free to contact us!

House Payment with an Adjustable Rate Comparison

If you have a high house payment, that doesn’t mean your home is more valuable, it may indicate that your mortgage rate is higher than it has to be.

Although fixed rates are currently low, you might consider looking into an adjustable rate mortgage.  Depending on how long you plan to own your home, an ARM may provide the lowest cost of ownership. 

There are different types of ARMs. One type, an FHA ARM, features a maximum rate change of 1% during one period and the maximum lifetime cap of 5% over the initial rate.

The chart below shows an example of a 30 year mortgage with a five year fixed rate that can adjust every one year after that, based on independent indexes.  The payment on the adjustable is $153.48 lower for the first five years/60 payments.  The lower interest rate loans amortize faster than higher interest rate loans.  The ARM in the example below has a lower unpaid balance of $4,239 at the end of the first five years.

At the end of the first period, the total savings on the ARM is $13,477.  The breakeven point for this loan would be 8.5 years. If the borrow felt they would sell the home prior to this point, the housing cost for this ARM would be lower, even if the mortgage rate increased to the maximum level at each adjustment period.

Always consult with a trusted mortgage professional to learn more about the advantages and disadvantages of varying programs.  You can also contact one of our agents to help guide you as well. 

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Finding the Right Mortgage Lender

Obtaining a mortgage for your new home is not about picking the first person or company you find on the web or call. Selecting the right mortgage lender is essential. The mortgage lender should make you feel confident that he/she will work with you to find the best loan to fit your mortgage needs.  It’s important to find a full-time professional who specializes in residential loans and is familiar with local conditions, values, and practices. A loan officer experienced in putting together unusual transactions is also beneficial.

Here are a few questions to help you select the right loan officer.

  1. What percentage of your business is FHA & VA compared to conventional mortgages and how long have you been doing them?
  2. What percentage of your loans close on time according to the sales contracts?
  3. Will my credit score affect my interest rate?
  4. Will you help me select the best loan product for me regardless of your commission?
  5. Are there prepayment penalties on any of the loans we’re considering?
  6. Are there any restrictions on refinancing any of the loans we’re considering?
  7. When is my loan rate locked-in? Is there a charge for that?
  8. Is your loan underwriting in-house?

Ask your real estate professional to recommend a few trusted lenders.


Finding the Best Interest Rate

Homebuyers will endlessly search for the right home, but what about the right interest rate? Over 50% of buyers don’t do their homework when it comes to finding the best interest rate for their new mortgage. They will accept the rates and terms from the very first lender.

There are many factors that affect the interest rates and terms provided by a lender.  The borrower, the property, credit score, home location, price and loan amount, down payment, loan terms, interest rate and loan type are all interpreted differently by each lender.

Researching several lenders to compare rates and terms for your mortgage could result in a lower payment and less cumulative interest paid over the life of the loan.  You would be surprised to see the difference 0.5% can make on your mortgage loan.

If you’re worried about your credit score being affected by having multiple lenders check your credit, don’t be concerned.  Credit bureaus will understand when several similar requests  appear during a specific period of time.

Contact for a list of trusted mortgage professionals to consider.