There was a LOT happening in the mortgage industry this past week, especially with the shift, and Kyle Whissel turns the mic over to Jason Hall to get the low down. The 2 main points?
1. Loan limits have increased
2. Interest rates aren't expected to raise as much as previously thought
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Podcast Transcript:
It is time, guys. Welcome to the Whissel Way Podcast. My name is Kyle Whissel with Whissel Realty Group, joined, as always by Mr. Jason Hall with Team Home Loans. Jason, we're going to turn a lot of the attention on today's show to you, because there's been a lot happening in the last week when it comes to the mortgage industry. For those of you that are realtors, you're listening to this show, you know the market has been changing.
We're literally starting to do events called The Gift of the Shift because there is a shift happening in the real estate industry right now. You're starting to see a lot more homes coming on the market, you're starting to see that inventory grow, it's taking a little bit longer for homes to sell, interest rates have been you know going up and up over the last year or two, and so, the government has a little bit of control over what happens in the real estate market, right? There's a couple things that have changed in the last week in particular. So Jason, kind of get us up to speed on that.
- Yeah, so a couple things. So the government has pretty much taken over Fannie Mae and Freddie Mac during the crisis that we went through, the 2008-2011 time frame, and they've always helped control loan limits, and kind of setting the conforming loan limits, or what we now refer to the high balance in the higher county areas like San Diego, L.A., Frisco. And every year, they look at, hey, what's the average sales price, what's going on, do we need to raise loan limits, keep them the same, and there for a while it was the same, during the downturn, in the last few years that they've been raising those limits up, while currently, as of right now, the conforming high balance limit for San Diego County, where most of us are located, is been 649,750 for this past year. But we just found out this week, they're raising up to $690,000. That's a $40,000 increase for San Diego County, and what's great about that program is the Fannie Mae program is much more flexible when it comes to credit, debt-to-income ratios, reserves, and what reserves, of course, are is, meaning you have money in the bank, saved, after all your down payment, your closing costs, a lot of your jumbo lenders out there want you to have six, 12 months, 24 months of reserves, where a lot of people buy it in this 650 to 800 range, haven't had, you know a ton of reserves because they're young, it takes a lot to buy it takes a lot to rent, and you know that's slowed down some of the buying in that price range, and with Fannie Mae now raising that, a lot of lenders are now taking that effect right away, definitely will go into effect for January 1st for all lenders, but a lot of them have already taken that into impact. It's going to be huge. That's going to help a lot more people get in, it includes FHA, includes VA, everything gone up and so its going to help people get in, and its still a good loan. Meaning their underrating the loan, it's not like you just breath Kyle, we talked about this in the past when you and I first met, I could get anybody a loan, right.
- You literally got me loans for breathing onto a mirror and fogging it.
- I remember it.
- Yeah and now.
- I thought it was weird normally you sign but you just put a mirror under my nose, I thought it was super awkward.
- Yeah super awkward, but I tell people look they go why, you know I'm afraid the government makin easy and it's like no they're not it's still difficult to get a loan, it's not just anybody gets a loan you still got to have a job, you got to have credit, its got to make sense. But the Fannie Mae loan is one of the easier loans to get, along with FHA and VA versus a jumbo bank. Now what's also unique is the jumbo rates are a little bit less then our Fannie rates now that the governments in they've added all this additional costs so that the government can get, you know paid for insured and used and stuff, and that's a whole nother topic I could you know get into, but everybody wants the low rate but a lot of people don't have those higher reserves, those higher credit scores, those lower debt income ratios. So I'm excited about the loan limits.
- Alright so that's first loan limits have increased, which for loan types that are easier to qualify for now you can go a little bit higher on the price, so that's a good thing. Now there's a second thing that happened this week, so get us up to speed on that.
- Yeah so the second thing that happened this week is on Wednesday morning fed chairmen Powell came out and, you know their take on rates has been for the last year, year and a half. The economies great we're going to raise rates, we're going to continue to raise rates in 2019 we're going to do all this stuff, and they literally came out on Wednesday the 28th and said hey we're now not as bullish on increasing rates we're starting to see a slow down, you know in the world economy, definitely starting to see stuff in the United States economy and they're now taking, hey we're probably going to raise maybe just a quarter percent here in December and probably not going to raise early in 2019, because we start to forecast and see things. Now, you know, I'm a conservative, I did vote for Trump over Clinton, and Trumps pounding it for a year, what are you guys doing raising rates, he has not wanted rates raised at all for the past year, and he's been screaming stop, stop, stop, cause he could see the forecast of you know, if you keep raising the rates its going to hurt the economy we don't want to hurt the economy as we're coming out of some tuff times, and any setting president wants everything to be great when they're the president. So its kind of interesting now, you know fed chairmen powell has, you know kind of come out on Wednesday saying hey look we're going to slow down, the stock market went up 500 points, rates actually went down, this rarely, rarely happens together Kyle. Typically when stock markets go up we see rates go up, when the stock market goes down we see the rates go down, but on that Wednesday 500 point up on the stock market and rates improve?
- Dude, I'm looking at this second, it is up 617.7 points right now, that is massive.
- 617 right and so.
- That's a big day.
- Yeah, and we closed, that should be the closing 617
- Yeah that's powerful. So we got two things at play here, we've got loan limits going up, and we've got interest rates that were projected to continue to increase maybe not happening so much anymore. So what does that mean for us as realtors, as mortgage professionals? What does that mean for us? Well that means that the direction we've been headed, which has been inventory growing like crazy, a big part of the reason the inventory has been growing, is that your move up buyer market has been hit pretty hard. The primary reason being interest rates, because if someone got a loan three, four, five years ago. Most likely they've got a loan in the threes
- Threes, yeah definitely low fours
- Worst case low fours. The rate, maybe not today but a week ago, the rates were around five right. So its hard when you go to sell a home for lets say 400,000 and then go buy a home for 600,000. 200,000 dollar difference doesn't seem that big.
- But when your talking about percent, percent and a half on interest rates.
- But then when you throw on a two percent higher interest rate, that's a significant jump so what's only a 50% increase in price becomes a 75, 80% increase in mortgage payment.
- Right
- So that has been one of the things that has been holding the market back a little bit, is the rates had already shot up and then project to continue to shoot up. That definitely, you know has been part of the reason that the market's been struggling a little bit and why you have seen the inventory increasing. So I'm actually excited for this for the market, because I think that this can calm people a little bit, cause there's, people freak out right and they freak out about what is forecasted to happen before it actually happens, and this is why you don't want to freak out over things, because it's projected, a projection is purely a projection, its like a hypothesis an educated guess. Nothing is set in stone that rates were going to go up so people kind of freaked out that rates are going to go up oh my god this is going to screw the market over what am I going to do? But, nah maybe the rates aren't going to go up. I would imagine with the fed coming out and saying that today, I don't know if you've looked at your rate sheets today, but I've got to imagine rates have pulled back a little bit.
- We're starting to see slight improvements already. They're coming down already, we've already seen improvements during the day, which is nice to see, and I think as this thing continues to hold as we get other economic updates during the next month here in December. You know I think we will see rates continue to slide back down.
- Cause what ends up happening with mortgage rates is, mortgage rates their projecting, they kind of adjust the rates based on, what their projection is right, so if they believe the feds going to raise rates mortgage rates tend to rise in anticipation of the fed raising rates, and when they anticipate that and the fed does not raise rates there is typically a pull back on the mortgage rates and so I'm pretty excited about this. I'm not going to lie to you because there's been so much out there and a lot of fear in the market right now, and this is something that I think the market needs both for us as real estate and mortgage professionals and for the consumer out there to understand that hey its okay rates aren't going to go to 10% in the next year right, I mean there's people that are fear mongering and putting that out there, so I'm excited about that, and I'm excited about the fact that the loan limits are increasing because the qualifications for a jumbo loan are really tuff right. I mean what is it, six months reserves typically
- Minimum, minimum.
- Minimum six months reserves.
- They're usually more.
- And how many people have, lets say you've got a 5,000 dollar mortgage payment how many people are going to have 30 grand left over, after their 20% down payment, right how many people have that it's so rare. So both of these things are things that if your a real estate agent, if your a lender or if your thinking about buying or selling a home, this should give you a bit of optimism for the direction that we are headed, because there's been so much pessimism about the market and the direction that its headed because of the projections of what's out there. But this is going to change things.
- It’s going to change things, cause you hit it right there. Move up buyers have been halting and we need move up buyers because move up buyers free up their homes, which is kind of the beginning inventory for most first time home buyers. And we don't see builders out there building first time home buyer homes, definitely not in southern California. So this is huge it's going to create more inventory it's going to you know help the economy and as you and I know as real estate goes, the economy always goes. So I'm looking for positive signs, we're excited about it, it's going to kick off for 2019. Thanks for having me on the show again.
- Yeah and if your listening to the podcast and you are a realtor or a mortgage professional your job is to take this information and control the narrative of what's our there, because the typical media, the news, I mean pull up CNN.com right now and I guarantee you 80% of the stories are going to be negative. It's your job as the professional to control that narrative so you need to get this message out there, because all the media is going to do is latch onto the fact that the inventory here in Sandiego increased 42% from a year ago. Their going to latch onto that, they're not going to talk about the fact that even though its gone to 42% there's only 2.7 months of inventory. A normal balanced market is 6 months of inventory. They're not talking about the fact that we still have half the inventory we have in a balanced market, they're just latching onto that 42% increase cause that's scary and gets clicks and views. So your job is to control that narrative above and beyond what the media is doing, let people know this is awesome news, this is optimism, its your job, control the narrative, that is your message for the day here on the Whissel Way Podcast. I want to thank you so much for tuning in, if you want to stay up to date with what we've got going on at The Whissel Realty Group we got a group on Facebook its called The Whissel Way conveniently same name as the podcast we'd love get you connected on there. We're sharing all kinds of tips and tricks and things that we are doing at our office to help grow. And again if your in real estate, mortgage, or just a general business professional there is going to be a lot of opportunity to learn and connect in there. Want to thank you so much for tuning in to the Whissel Way. We'll talk to you next week.
