Article By: Jim Porter – October 14, 2022
Don McDonald of Re/Max Gold Elite Partners made a detailed PowerPoint presentation for the Northern Solano County Association of Realtors recently on the national and local real estate market. Solano County, like pretty much every county in the country, has seen a decrease in sales and an increase in inventory.
As of Sept. 1, Solano County had 2.3 months of inventory, which is twice as much as there was Sept. 1, 2021. This is good news for serious homebuyers who need to buy their first house or dream-home buyers who can afford today’s interest rates because now they are not involved in bidding wars with four or five other offers to beat.
I know most of what I have written this past six months has been positive about the health of our local homeowners, but this market is now officially a buyer’s market. The existing homeowners in our county may have been able to sell their home one year ago for 10% more than they could today but most don’t care because they have an affordable low-rate house payment and aren’t selling.
Fannie Mae is forecasting they expect mortgage rates to average 4.5% in 2023, which is one of the reasons mortgage rates are so stubbornly high today. When a mortgage is funded, the investor who buys the loan pays a premium of 2% to as much as 4% for the loan to the originating lender based on the rate, in the hopes the loan will be on the books at least seven to 10 years.
For example, Freddie Mac and Fannie Mae, the world’s largest mortgage investors, might buy a 30-year, 6.875% fixed-rate, $600,000 mortgage today from a mortgage company for $618,000. If we see 4.5% mortgage rates next year and the homeowner refinances the mortgage in 12 months, this is a loss for the investor.
This also affects the rates portfolio lenders can offer because if a credit union or a bank does a loan for a customer or member at zero points and the loan pays off in 12 months, the lender will never recover the cost to originate, process and fund the loan. The cost of staffing a processing, underwriting, sales, marketing and the compliance department is a huge expense for all lenders.
Today’s conventional, VA and FHA loans do not have any prepayment penalty and over the past 32 years, we have had many refinance markets.
Unfortunately, today, many people are not willing to pull the trigger at today’s rates to buy a house with the hopes of a refinance in 2023 or 2024. These folks are fearful this inflation and global recession may turn into a depression. Unlike the Great Recession, 14 years ago, when 25% of our local homeowners suffered a short sale, job loss, foreclosure or bankruptcy, this time the only people suffering are the mortgage companies that have already laid off 200,000 people nationwide year to date, the hard-working, frustrated Realtors and builders, and the retired folks who live off their IRAs, with the stock market down 30% this year, and of course the families that live paycheck to paycheck with no savings while paying $7 per gallon and $7 for butter.
As Warren Buffett says, “It’s never paid to bet against America. We come through things, but it’s not always a smooth ride.” You might say this was easy for him to say because he is 92 and worth billions, but remember he has been around since 1930 and started with nothing.
Baron Rothschild, an 18th century British nobleman, is credited for saying “the time to buy is when there’s blood in the streets.” Buy now, keep your FICOs high and refinance during the next refinance mania like I did – and like your parents did.
Jim Porter, NMLS No. 276412, is the branch manager of Solano Mortgage, NMLS No. 1515497, a division of American Pacific Mortgage Corporation, NMLS No. 1850, licensed in California by the Department of Financial Protection and Innovation under the CRMLA / Equal Housing Opportunity. Jim can be reached at 707-449-4777.
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