Embracing the Comeback: Why Today's ARMs Are Different

The resurgence of adjustable-rate mortgages (ARMs) might trigger memories of the 2008 housing crash, when they were widely used. Today, however, ARMs are making a comeback for different reasons, and this trend doesn't necessarily signal a cause for concern. Let's delve into why ARMs are gaining popularity once again and why the current landscape is fundamentally different.   The Resurgence of ARMs Examining data from the Mortgage Bankers Association (MBA), a noticeable shift has occurred in recent years, as depicted in the following graph: This graph illustrates a significant increase in the utilization of adjustable-rate mortgages, particularly after hovering around 3% of all mortgages in 2021. The driving force behind this trend is simple: mortgage rates experienced a notable upswing last year. Faced with higher borrowing costs, many homeowners opted for ARMs as an alternative to traditional loans, offering them a more favorable interest rate.   Distancing from the Past To gain a comprehensive understanding, it's crucial to differentiate the current wave of ARMs from their pre-2008 counterparts. The 2008 housing crash was fueled, in part, by loose lending standards. During that era, banks and lenders extended ARMs without necessitating proof of employment, assets, or income. Consequently, loans were extended to individuals who lacked the financial capacity to repay them, setting the stage for widespread financial turmoil. In contrast, contemporary lending standards have undergone a profound transformation. The lessons learned from the housing crash have prompted banks and lenders to adopt rigorous verification processes. Today's borrowers are required to demonstrate their ability to repay loans through comprehensive checks of income, assets, and employment history. Archana Pradhan, an Economist at CoreLogic, underscores this shift by revealing that a substantial percentage of ARMs originated in 2007 involved minimal documentation, while the current landscape mandates full documentation and responsible lending practices.   The Nuanced Reality Laurie Goodman from the Urban Institute further solidifies this point, asserting that today's ARMs present no more risk than other mortgage products. Instead, these mortgages can provide lower monthly payments, potentially increasing accessibility to homeownership for a broader spectrum of aspiring buyers.   In conclusion, concerns about the resurgence of ARMs mirroring the circumstances that led to the 2008 housing crash are largely unfounded. Current ARMs are operating within a vastly different lending environment, characterized by responsible lending practices and comprehensive borrower qualification requirements. This shift has led to a more secure lending landscape that prioritizes the financial well-being of both lenders and borrowers. For prospective first-time homebuyers seeking to navigate the complexities of today's housing market, it's advisable to connect with a trusted lender. Exploring lending options tailored to individual financial situations can pave the way for achieving homeownership aspirations despite prevailing affordability challenges.

View more

Debunking Foreclosure Fears: No Foreclosure Flood Ahead

The current trend of escalating costs across various sectors, ranging from groceries to fuel, has sparked concerns about the possibility of a growing number of individuals struggling to meet their mortgage obligations. This has led to speculation about an impending wave of foreclosures. However, while there has indeed been a slight increase in foreclosure filings compared to the previous year, experts are advising against the expectation of a massive surge in foreclosures.   Bill McBride, a reputable authority on the housing market renowned for accurately predicting the 2008 foreclosure crisis due to his meticulous analysis of data and market dynamics, holds a different perspective this time: "Contrary to previous occurrences, There will not be a foreclosure crisis this time."   Let's delve into the reasons behind the diminished likelihood of another foreclosure wave. Limited Number of Homeowners Significantly Behind on Mortgage Payments One of the primary factors that contributed to the high foreclosure rate during the previous housing crash was the lax lending standards that enabled individuals to secure mortgages even without demonstrating their ability to repay them. During that era, lenders were lenient when evaluating applicant credit scores, income levels, employment statuses, and debt-to-income ratios. Today, the lending landscape has undergone a significant shift, resulting in more stringent lending standards. As a result, a higher proportion of buyers now possess the financial capacity to fulfill their mortgage commitments. Data provided by Freddie Mac and Fannie Mae underscores this positive trend, revealing a decline in the number of homeowners who are significantly behind on their mortgage payments (refer to the graph below): Molly Boese, Principal Economist at CoreLogic, offers insight into the limited extent of homeowners facing mortgage payment challenges: “May’s overall mortgage delinquency rate matched the all-time low, and serious delinquencies followed suit. Furthermore, the rate of mortgages that were six months or more past due, a measure that ballooned in 2021, has receded to a level last observed in March 2020.” For a notable increase in foreclosures to occur, there would need to be a substantial rise in the number of individuals unable to meet their mortgage obligations. Given the current strong performance of mortgage payments by a significant number of buyers, the likelihood of a foreclosure surge is minimal.   In Conclusion If concerns about an impending flood of foreclosures are troubling you, rest assured that the available data does not support this notion. In fact, a substantial portion of qualified buyers are consistently honoring their mortgage commitments at an impressive rate.

View more

Spokane Real Estate Market Update 2023: Insights and Analysis

Spokane's real estate market has been in the news lately for its position in the top 10 out of 100 largest housing markets with declining values over the last year. This news has led many homeowners, potential buyers, and investors to wonder about the outlook for Spokane's real estate in 2023 and beyond. In this blog post, we'll dive into the numbers, trends, and reasons behind the Spokane housing market. Whether you're a homeowner, someone thinking of buying, or just curious about Spokane's real estate scene, this post will give you a clear understanding.   Current Market Trends: Spokane's Situation Spokane's real estate market fits into the larger picture of national housing trends. When we look at the Freddie Mac house price index, we see that Spokane's recent ranking reflects changes in its value. Compared to other cities, especially in the Western United States, Spokane's situation aligns with a broader regional pattern. For context, cities like Boise, Idaho, and Austin, Texas, also experienced value declines, showing a trend across the Western region.   Why Home Values Dropped and Factors Involved The decline in home values from June 2022 to June 2023 brings up questions about why this happened. While a little over three percent might not sound like much, it's important to think about what it means for homeowners and potential buyers. Additionally, remote work's impact on real estate choices is important. Many looked for cheaper housing outside their current location due to remote work, but changing remote work dynamics have led some to rethink their plans. Amid these changes, people have both embraced and questioned their move to Spokane.   Seeing Spokane In-Person: What Buyers Are Thinking For those thinking about buying, it's crucial to understand the ups and downs of the market. People's experiences after visiting Spokane provide insights into how their opinions changed after seeing the city firsthand. Some who were certain about moving had doubts after seeing it in person. This highlights the significance of visiting potential new places before making major real estate decisions.   Sellers' Perspectives and Solutions Sellers are in a different position, often influenced by equity. Trends show that those who bought homes before 2022 are generally in a good spot. However, for those who bought during that year, creative solutions come into play. In a market with high equity but challenging interest rates, unconventional approaches like seller financing or rent-to-own arrangements offer options for those looking to move on.   Market Fluctuations and Inventory The market's complexity arises from a mix of factors. The shortage of available homes has caused both sellers and buyers to adjust their expectations. While the supply of available homes has increased, the time homes spend on the market is still relatively short. This suggests a fast-paced market amid these changes. As a result, real estate professionals are adapting, sometimes resorting to extreme measures to secure listings, which raises concerns about the overall market stability.   Cash Sales and Affordability Cash sales add another layer to Spokane's real estate story. About 20 percent of homes are being sold for cash. This trend comes from various factors, including the influence of interest rates, investor activity, and the desire for flexibility in an uncertain market. This trend prompts us to think about the broader affordability situation, as cash sales might challenge traditional financing norms.   The Spokane real estate market in 2023 is full of complexities and changes. While a drop in home values is a highlight, opportunities remain for buyers and sellers. Homeowners who purchased before 2022 generally have an advantage, while potential buyers face challenges due to high interest rates. With limited homes available and cash sales playing a role, everyone needs to approach the market carefully and stay informed. As the year goes on, we'll see how the market reacts to ongoing changes and whether things stabilize. In a landscape where knowledge is key, staying informed and seeking professional advice are essential for making smart real estate decisions in this evolving environment.

View more