Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Shmuel has over two decades of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. Shmuel provides a uniquely holistic approach to comprehensive real estate and financial matters that goes well beyond any single transaction. Shmuel is an award-winning financier recognized for maximizing the short-term and long-term objectives of his client. As a contributing writer to many local and regional newspapers and publications, his insights have been featured in the media for many topics, including mortgages, personal finance, appraisals, and real estate trends.
Last week everyone “gained” an hour of sleep when we changed the clock back one hour as we do every year around this time. Although, it is very possible that many lost that same hour or more going through their emails and social media feeds with reminders to change their clocks. Jokes aside, times are changing indeed in the real estate market, and it’s time to make that adjustment.
Mortgage rates are now a full percentage point higher than they were just twelve months ago and seem to be continuing their steady incline. Here is a practical example of the impact that this might have on a $500,000 priced home given a standard twenty percent down payment. On a $420,000 mortgage, that increase is going to cost a home buyer approximately $235 more a month in the mortgage payment. To offset that escalation, buyers would have to get that same home for $50,000 less in price to be at the same bang-for-buck from a year ago.
It goes without saying that such an increase in cost might influence home prices. We are finally starting to see that impact. Not a week goes by without reports from various agencies and surveys highlighting the beginning of a softening of the housing market and the effect thereof. I won’t bore you with the data and research. Traditionally, an increase in financing cost leads to a decrease in home prices, as well as an increase in homes on the market. Serious sellers who have been on the fence about selling their house up to now will quickly look to sell before prices further decline.
The National Association of Realtors (“NAR”) just released a report that sales without a Realtor, i.e. “For Sale By Owner” (FSBO) has decreased to historically low levels. In theory, that means, more than ever, sellers are utilizing the services of a real estate agent to get their home sold. Statistically, that might be accurate, but there have been recent articles such as one in the Washington Post that analyzed the data and showed that the NAR report includes “discount brokerages” and online “flat-fee” portals as a real estate agent transaction. Regardless of one’s viewpoint on this, there is no question that the average commissions paid to Realtors are dropping.
All of this data is well in line with what is expected in such an environment. Historically, during transitional markets, people begin to look for values and discounts. “Price is what you pay, Value is what you get,” is a quote attributed to Warren Buffett, the world’s most famous value investor. I believe we are starting to see a shift away from a sellers-market, to a buyers market, and even more so to a stabilizing marketplace where home appreciation of 5-10% annually is no longer a given.
I often have the opportunity and pleasure to be invited to speak at different real estate brokerages in New Jersey and New York and have been doing so more frequently of late. Real estate professionals and industry leaders are eager for market insight now more than ever, and it’s a pleasure to be able to share our tools and strategies for this changing landscape. Some industry experts predict that within twelve months almost thirty percent of real estate and mortgage professionals will be leaving the business. It’s incredible to hear some of the on-the-ground examples of all of these scenarios coming to fruition.
In line with Mr. Buffett’s “valuable” advice, the recommendation now more than ever is to align yourself with professionals who understand the changing marketplace and can guide you in maximizing your financial objectives.
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