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, Google, the world’s largest search engine, reported that the search “When is the housing market going to crash?” had spiked 2,450% since late March. According to CNBC, searches for “Why is the market so hot” had doubled since last week. Clearly, market participants and analysts are starting to get worried about prices, and it has even caught the ear of The Federal Reserve.
Home Buyer Perspective
COVID has brought more prospective homebuyers into the marketplace than is typical for this time of year – usually the hottest homebuying period. It doesn’t help that there are fifty percent fewer homes on the market than this time last season. On top of that, according to data from Redfin, over 40% of homes currently on the market were selling for more than their list price. According to data firm Black Knight, almost 75% of the largest housing markets in the U.S. saw home price appreciation of 10% or higher. To put this into perspective, on a $500,000 home, the increase equates to approximately $170 more a month in a mortgage payment.
Home Seller Perspective
Who wouldn’t want to sell at the “top of the market?” The fact that home inventory levels are at such low levels shows that sellers are a little cautious and hesitant about putting their homes on the market. I field many calls from sellers concerned about where they would go and the price-point of the house they would pay – assuming they could even find something. The conversation then shifts to doing work on the current home they own, where we discuss equity strategies to finance improvements or major construction to make it happen. Many sellers are “cash-poor” but “equity rich” – where they have a lot of money tied up in equity that they can access once their house sells. For that, we have a new “Bridge Loan” program that I discuss with them.
Homeowner Perspective
Finally, perhaps many owners are frantically searching google, trying to see how much time they have left to take advantage of these current value levels before the market drops. The amount of equity in residential real estate is at historical levels – like never before and truly gives savvy owners the opportunity to maximize their finances at the cheapest levels possible. In the commercial real estate world, that is how many wealthy owners have amassed their fortunes by re-financing debt and pulling out cash or lower payments or terms.
There is much to say on this topic, and when speaking to clients, I make sure to personalize the situation to their specific short-term and long-term circumstances. That said, a quick rebuttal to the concern is – what if prices stay the same, but rates rise another 50 basis points? That, too, will add at least $140 extra per month to the same scenario. Furthermore, what about the wasted rent that almost no one talks about and the fact that part of your mortgage payment is principal – where you are building equity – not counting any home appreciation?! The bottom line is that no one can predict “the bottom” of any market – but it is the astute individual that capitalizes along the way before a significant change occurs. To the rest, I say, good luck with your home searches and your Google searches!
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