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Windermere Real Estate Chief Economist, Matthew Gardner weighs in on mortgage rates, inflation and Dodd-Frank.
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The question that we have to take a look at when it comes to mortgaging is the Quality Residential Mortgage, QRM. Remember back last year we gave you the fact that the federal government, CFPB, The Consumer Federal Protection Bureau was taking a look at all mortgaging. And they said what really defined a quality residential mortgage? And different government reports either called it a quality residential mortgage or a qualified residential mortgage, QRM. There were four major considerations. One is what types of products would the mortgage industry be allowed to give? Second was what was going to be the borrower's ratio as far as monthly debt to gross income. And the borrower's ratio to monthly debt to monthly gross income. We talked about the front and the back end debt situations and how was that going to change. We talked aboutwhat was going to be the minimum down payment and what was going to be minimum FICO score. There were four major points – type of mortgage, front end and back end debt, the amount of down payment, and the FICO score. Those were the things that the federal government was going to look at to define a quality residential mortgage. Half of that has already been determined. Product type? CFPB came out some time in January, the middle of January, saying that, alright, we only want real strong conventional mortgages; no crazy negative amortization, no crazy balloon payment loans. The second piece, the monthly gross income vs. the monthly expense, those ratios. That front end ratio is going to stay at 28. They were more lenient than most people thought they were going to be. They originally said they thought the back end ratio should be 36 percent, but when the information came out, when the regulations came out, they said that could go to 43 percent with even some exceptions over that. So those first two pieces, product type and the borrower's ratios – front end and back end – they've already been decided. However, ladies and gentleman, the last two have not and those are the two most important. How much down payment is going to be demanded and what's going to be the minimum FICO score. This is from Bloomberg news. The six regulators drafting the separate QRM rule including the Department of Housing and Urban Development, The Office of Controller and This Currency, and The Securities and Exchange Commission must decide whether to include such a requirement – meaning a 20 percent down requirement, and whether to make it less than a 20 percent they originally proposed. Again, on a previous slide we showed what the original proposals were. They thought that if you were purchasing a home, you should put 20 percent down. I don't think it's going to come out as 20 percent. Most experts don't think it's going to come out at 20 percent. Most experts are kind of guessing it's going to be about 10 percent, but ladies and gentleman, that's going to be a minimum requirement needed. What we're saying here and the FICO score, no one's taking a guess what the minimum FICO score is going to be. But both of those issues are going to be settled over the next couple of months. The only thing I can tell you is what that's going to do is tighten lending standards a little bit. So if you have a buyer looking to buy a house right now, well what do we know? Well in most parts of the country, prices are going up. It seems that interest rates now are heading up north. And the requirements to getting a mortgage are going to become more stringent. If someone's looking to buy a house, I think they should move right now. I think they should jump on that right now. There's a better interest rate, a better price,probably a less expensive mortgage overall. And it will require less money down than it might in a couple of months from now. Again, we need to sit with our buyers and sellers and talk intelligently about what's about to take place in the market. When we're talking to buyers right now, QRM should be part of our conversation. COURTESY OF STEVE HARNEY, KEEPING MATTERS CURRENT
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Buyer urgency was up at the end of 2012 70% as prices are leveling out in the valley with some areas experiencing higher demand than supply. The coast generally follows this trend and we have seen a marked bump in sales activity since the holidays.
The forecast is for sales to continue to improve throughout 2013 and appreciation levels to return to 3-3/5% per year over the next 4 years. The time to buy is now! The Warrenton/Hammond area is teetering on a sellers market and average sales of homes in Astoria are shooting over the $350,000 mark for the first time in many months. Markets such as Gearhart, Seaside, Cannon Beach and Arch Cape are seeing cash buyers return in the higher end markets with move up and second home buyers returning to the $300-$500,000+ market.
Overall the predictions are that 2013 is going to be a banner year in Real Estate sales and with that however we expect to see a rise in interest rates. The message is once again BUY NOW!
"Let others lead small lives, but not you, Let others argue over small things, but not you, Let others cry over small hurts, but not you, Let others leave their future in someone else's hands, but not you." Jim Rohn