by Cameron M. Lewis
Branch Manager of Acopia Home Loans
Lenders are posting record volumes due to both the strong purchase market and the incredibly high volume of refinances. Consumers are coming out in droves to take advantage of the interest savings, with rates hovering around historic lows. In Western NC, the inventory of homes is substantially lower than observed in 2019, and sales are surging due to increased buyer demand. Clients are refinancing to lower their monthly payment, reduce their interest cost, shorten their loan term, and/or to cash-out for home improvements or additional property purchases. Please do keep in mind that the cost to refinance is slightly higher than the cost to purchase due to the Federal Housing Finance Agency’s .5% adverse market fee, which has been recently implemented in 2020. This correlates to a cost of $1,400 on a $280,000 loan, or instead could be reflected in a slightly higher interest rate by roughly .125% on a refinance versus a purchase.
We have seen two main changes this year due to COVID-19. Freddie and Fannie are requiring self-employed borrowers (those owning at least 25% of a business) to provide YTD Profit & Loss Statements, their last 2 monthly business bank statements and some proof that their business is operational within 20 days of closing. So, those who own restaurants or other businesses adversely impacted by COVID are having a harder time obtaining financing. However, this slight pullback in self-employment demand has been overshadowed by borrowers who can now work remotely that are relocating to WNC while keeping their high paying jobs from larger cities. This demand is off the charts, and when observed by many of these relocation buyers, our real estate prices and property taxes are much less than what they are accustomed to seeing. This really is regional specific depending on where buyers are coming from.
It is vital that buyers seeking financing get fully pre-approved up front, because once they identify a property most buyers are being required to make decisions and move forward quickly. The best properties sell quickly, and with good reason. Previously encountered rarely in our market, many buyers are making offers sight unseen, offering higher up-front deposits, shortened due diligence and closing dates, and offering above list price to try to wrap up contracts on attractive listings. The high demand is pushing up purchase prices and to no surprise some appraisals are coming in low. There is the possibility that a low appraisal could work to the borrower’s benefit if the seller is willing to reduce the sales price as a result. Otherwise buyers should keep these market realities in mind to secure the most desirable properties on the market.
Do you need to sell real estate? The good news is – historically there has never been a better time in Western NC market history to sell. Inventory is low due to obvious reasons (COVID), and with the holidays upcoming this trend seems on track to continue.
THE BOTTOM LINE: The FED is artificially keeping rates low to boost the economy during this unprecedented time. It has sparked a refi boom and is increasing the demand for housing. This is creating a “feeding frenzy” in many offer situations and is driving up prices. Sellers are in control and buyers are being forced to rely on the due diligence timeframe to vet properties. As the economy gets back on track the FED is expected to slowly turn off the spigot and rates will rise to more normal levels. My advice is simple. Take advantage of the low rates while they last.
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