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.
In my conversations with clients and business professionals across the country, I am always amazed at their perspectives on the economy. Of course, it’s natural for there to be a disparity amongst different people, but often their outlook and opinions gives me great insight on the pulse of a market. I have seen and heard it all. There have been some well-known public figures who would gauge a real estate region based on the traffic at the local coffee shop. Others follow sales of intangible clothing items to see if consumers are buying socks, accessories or the like. Everyone tries to predict in their own way, for their own purposes, how the economy is doing – especially when it comes to the financing or acquisition of real estate.
In a recent not well broadcasted news headline, LendingClub, a leading online peer-to-peer alternative lending platform announced that it is tightening its credit standards for new loans. Their move linked them with other lenders across the nation who have expressed concerns that riskier borrowers are taking on too much debt. They referenced worse-than-expected performance on loans in their portfolio which prompted the immediate change.
Additionally, in a recent Federal Reserve report, analysis of auto loans revealed that loans to borrowers with less than perfect credit are performing much worse than in previous years. While lending in this sect has been increasing over the past few years, the trends in satisfactory repayment timetables have been declining. Expect to soon see changes in the ease of getting new auto financing in the coming months.
In more wide-ranging real estate news, Moody’s put out a report regarding commercial real estate highlighting the fact that for the first time since early 2016 markets are starting to decline. Furthermore, they noted that financing for commercial real estate properties nationally has become more difficult to arrange.
Then, there is the recent report published by Freddie Mac’s Chief Economist, Sean Becketti, who deliberated the likelihood of a “Real Estate Bubble.” I found it interesting to note that his answer to the question of, “Are we in a house price bubble?” was, “Not Yet.” Yikes?! His job is typically to be the “chief cheerleader” of the real estate economy – convincing everyone that real estate is a no-lose proposition. His comment certainly gave me pause, as I dissected the rest of his article.
Mr. Becketti went on to explain that market evidence does not support the fact that we are in a “bubble.” He did note that home prices have been soaring over the last five years, growing about twice as fast as the long-term average. He cited how increased home pricing has been disproportionate to ‘income growth,’ which is a strain on affordability. He referenced how a large number of metropolitan statistical areas have high price-to-income ratios and have suspiciously high house prices per square foot.
He compares and contrasts the current real estate marketplace to the one prior to the great recession. He concludes, “Despite the substantial house price increases in recent years and the evidence that house prices are unusually high in a growing number of metro areas, we do not believe there is a house price bubble at present.” Case closed? I think not. It is difficult to predict a recession or bubble until it has begun. Experts spend their lifetime analyzing data with no surefire way to predict this with certainty. When it comes to our friends “Debbie” or “Roger” who might be looking to buy or sell a house, there is no better method than to speak to a local expert who is in the trenches and sees first-hand, in real-time, how the market is performing. Real estate is a long-term hold and no one should be making decisions based on short-term predictions or trends.
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