How many people really understand what “Tapering” is? When you hear finance person speak of the proposed Fed. Tapering they are speaking of the Federal Reserve and their effect on the financial markets. So how does this affect real estate? Simply put is affects the available low cost money to fund a mortgage. So in order to get a mortgage funded your new mortgage is structured with a higher interest rate to bring in Private Money. This “Private Money” is Wall Street money and frankly, in most cases, our 401K money.
In recent weeks It has been common to see the Mortgage Bond Market moving 60 bases points in a single day. Bases points are a percentage of a single percent. This does not sound like much but when you multiple bases points by your mortgage amount you can see how this adds up quickly. With the large market swings and an unlocked mortgage rate you could see, in a single day, your month payment increase substantially. So simply put higher rates equate to lower approved mortgages or reduced buying power.
When speaking with Michael Gillett of MN Capital I was informed that home buyers buying power is being reduced due to the increasing mortgage rates. Gillett went on to say, with the flood of cash buyers in the real estate market it is difficult to purchase a property today with conventional financing and even worse with FHA financing. With conventional financing an appraisal is required and the loan simply takes time to complete. The cleaner the buyer the faster the loan will be approved. With FHA the property must have everything working at 100%. So simple little things such as a stove, water heater, HVAC unit, that the buyer plans to replace anyway, most be working 100% when the loan funds. So you can see how this could be a huge issue when applied to everything on a property. So an all cash buyer has a huge advantage as they take a property “as is.”
Sandy Cordery of Orangetree Realty indicates that the real estate market is very busy with most properties selling within two weeks once posted on the MLS. Cordery went on to say, the bulk of these deals are all cash buyers. With real estate selling so quickly property values are going up fast and appraisers are having a difficult time appraising a property at a selling price due to all of the historical short sell properties. Short sell properties did allow people to purchase properties under value but they also depressed the values in the same area. Cordery did said that not all areas are seeing equal increases in values in terms of percentage with some areas seeing as much as 30% increase in value over the past six months.
We have a free market system which is still the best way to operate. It will not always benefit everyone but it will benefit most. The more Banks, Mortgage Bankers and Brokers the better rates and terms will be available to the consumer. Do not blindly think that your Bank, Mortgage Banker or Broker will give you the best deal. Shop your rate with at least two of the three. You have to make the monthly payment so get the best deal you can.
You can reach the two interviewed at;