Until or unless something gives,and soon, in the real estate market, it appears that we are headed for a showdown. Who will blink first?
My mid-year evaluation shows far too little incentive for consumers on all sides of the fence. That is a big concern. Let's take a look at where all sides are at as we come up on the end of the first half of 2013:
HOME OWNERS: Still not selling unless they absolutely have to. Most are not taking the bait. They read about the "home prices up 10%" stories, but realize that over the past five years their own home may have dropped more than 33% in value. These incremental price increases still have yet to reach "profit potential".
INVESTORS: In many areas, "the good ones are gone". It appears that the vast majority of the "steals and deals" have been purchased and in some cases flipped already. Now with fewer foreclosures coming onto the market than in recent years, the best deals are getting harder to find. In other cases, the investment groups have maxed out on purchases, and are waiting for the market to improve to the point of being able to flip for a decent profit.
MORTGAGE BROKERS & BANKS: Many are still extremely busy looking to close the loans they started during the rush of low rates during April. Now that mortgage rates, while still great compared with five years ago, are going back up and may stay higher, they will soon face a challenge.
COMBINED: The home owners aren't eagerly selling, the investors are waiting, and the mortgage lenders are faced with higher rates. Thus, the standoff.
How can we spur some action?
Lender Processing Services, in its April Mortgage Monitor report, shows that nearly nine million Americans are currently eligible to refinance. This number is based on potential borrowers with at least a 20% equity in their homes with credit scores above 720 and currently paying at least 4.5%.
Meanwhile, the Mortgage Bankers Association just reported that the Refinance Index declined by nearly 15% for the week ending May 31, 2013, and sits at its lowest level since November 2011.
Why aren't people refinancing? It could be any of three reasons. Marketing. The market. The fees associated.
MARKETING: How many of those nine million realize that they are eligible to refinance? When so much of the real estate related "news" is devoted to the negative statistics, there is no incentive for current home owners to pick up the phone and investigate. Ironically, this is the fault of the banks and mortgage lenders who should be using market research to their advantage. Nine million home owners who could be current customers shouldn't be that hard to find!
THE CURRENT MARKET: It continues to amaze me about the number of renters I talk to who do not receive mailers or information from local mortgage brokers or realty agents about renting to buy or spending on a mortgage instead of rent money. The recent survey released by Fannie Mae's Economic & Strategic Research Group, based on more than 3,000 renters and owners shows that 42% believe they "will not be able to obtain a mortgage within the next five years".
The Survey results also showed that most renters "understand the advantages of home ownership".
FEES ASSOCIATED: In most instances, there are costs to the homeowner that qualifies for a refinance, and they can be sizeable. Of course, these fees are how the banks and brokers generate their income. Some homeowners have a fear of it not even be worthwhile to research a refinance. For example, suppose a homeowner could save $300 per month by reducing to the current mortgage rate from the one they are currently paying. But suppose that refi would cost them $3,000 out of pocket to complete.
To the homeowner, that means (based on that $300 per month for 10 months) it would really be nearly one year before they would see a direct financial benefit. For that matter, they could perhaps use some or all of that $3,000 for an improvement or upgrade on their home in hope of increasing the value down the road.
In other words, before they start, the consumer may not see a direct value in considering a refinance.
The banks and the lenders, as of now, see no reason to have to reduce their fees.
Therefore, here we sit. Until somebody blinks. Hopefully, it won't take the entire summer for that to happen.
Places in Time III
1 day ago