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Will Covid-19 Mortgage Forbearance Lead to a Housing Crash?

Aubrielle Madia — Wed, 03 Feb 2021 05:27:05 +0000

The COVID-19 health crisis has created unprecedented circumstances, one of which has the been the financial burden Americans are experiencing. Throughout the crisis, mortgage forbearance plans have played an important role in helping homeowners manage their finances by providing short-term liquidity to mortgage borrowers. Mortgage forbearance temporarily removes the obligation for borrowers to make their monthly mortgage payment. These plans are used by borrowers when they experience a financial hardship such as job loss, or reduction of income; both of which have been a product of the pandemic.

In the beginning of the economic disruptions caused by the health crisis, the government immediately put forbearance plans into place to preserve home ownership. Today, almost three million households are actively in a forbearance plan. Though 29.4% of those in forbearance have continued to stay current on their payments, many have not. According to Yanling Mayer, Principal Economist at Corelogic, roughly one-third of borrowers in forbearance are at least 150 days behind on payments.

During mortgage forbearance, homeowners are given the option to not make their payments, but it raises the question: how many homeowners will be able to catch up on their mortgage payments after their forbearance programs end? There’s currently widespread speculation that a forthcoming wave of foreclosures and short sales could be the result, potentially leading to another crash in home values. Fortunately, today’s situation is different than the housing crash of 2008 since many homeowners have higher amounts of equity in their homes.

What are the experts saying?

Over the past month, several industry experts have weighed in on this subject:

Michael Sklarz, President at Collateral Analytics stated that if there is a flood of borrowers unable to catch up on their payments, he believes more homeowners will take advantage of the competitive real estate market and list their homes for sale rather than undergo foreclosure.

Odeta Kushi, Deputy Chief Economist at First American weighed in on the foreclosure process and expanded on the two major components of foreclosure – both economic shock and delinquency. However, she did state that delinquency is not enough for foreclosure to take place and signaled the importance of equity. She continued further by stating that with equity, sale, or refinance of the property, the homeowner can weather the economic shock.

Don Layton, Senior Industry Fellow at the Joint Center for Housing Studies of Harvard University stated that since we are seeing a greater cushion of equity, homeowners have more options to access the funding they need through refinancing, credit lines, or even a loan modification. He continued by declaring that in a worse-case scenario, they will be able to sell the house and monetize their increased net worth while reducing their monthly payment obligations – suggesting that there will only be a modest increase in foreclosures.

As you can see, even though many homeowners may be facing a financial burden, the increase in homeowner equity is acting as a safety net for them; giving them more creative options to access the funds they need. There is, however, a possibility that not all homeowners will be able to use their equity to their advantage, suggesting there will be some that may face foreclosure, but most homeowners will be able to save themselves from this burden through their equity.

Won’t the additional homes on the market impact prices?

Due to the remaining highly competitive real estate market and low interest rates, distressed homes (abandoned homes, homes in need of significant repairs, tax delinquent homes, foreclosed homes, and short sales) which normally sell at a discount, will result in a minimal impact in the housing market as home values and equity have resisted the economic shock.

In addition to increasing home and equity values, there is also currently an unprecedented lack of inventory on the market. Per realtor.com, economists have found that the number of homes for sale was down 39.6%, amounting to roughly 450,000 fewer homes for sale than last December. As a result, the lack of inventory and increasing buyer demand will force higher home prices. But even if inventory begins to increase, economists also predict that the market has the potential to absorb 500,000 homes this year without it causing home values to depreciate.

Clearly the pandemic has led to both personal and economic hardships for many American households. The overall residential real estate market, however, has weathered the storm and will continue to do so in 2021.

Why Home Ownership is the Key to Building Wealth

Aubrielle Madia — Thu, 21 Jan 2021 09:22:26 +0000

Why Home Ownership is the Key to Building Wealth

It is an established financial principle that homeownership is the key to wealth building. In fact, most recent data certifies that home ownership, regardless of income level, is one of the biggest positive drivers of wealth creation. The Federal Home Loan Mortgage Corporation recently quoted home ownership as the cornerstone to the “American Dream,” as it provides families with a place that is their own as well as an avenue for building wealth over time. This wealth is accrued by the creation of equity, the difference between the market value of your home and the amount you owe the lender who holds the mortgage. As you continue to pay down your principal balance and your property appreciates over time, you enhance your financial stability.

Is homeownership truly a better path to wealth than renting?

Many argue that homeownership is not a viable investment, and rather a liability as it’s taking from your income instead of generating income. While others argue that renting is the route to stress-easy living, but when it comes down to it, renting does not build your wealth as you aren’t generating passive income for yourself, and your payments aren’t being invested towards a hard asset. Rather, your rental payments are being invested into your landlords’ wealth via his/her mortgage and their additional expenses (property taxes, insurance, repairs, etc.), along with a profit margin. Homeownership will always be a better path to wealth as it will contribute to your net worth.

In support of this, the latest Home Equity Insights Report from Corelogic reported four major findings that supported in the link between homeownership and wealth:

U.S Homeowners with mortgages have seen their equity increase by a total of $1 trillion since the third quarter of 2019.
The average homeowner gained approximately $17,000 in equity over last year.
The average household with a mortgage now holds at least $194,000 in home equity.
There’s been a 10.8% increase in equity over the last year.

Here’s a breakdown of the year-over-year equity gain by state:

Source: https://www.keepingcurrentmatters.com

When can you cash in on your housing wealth?

Your home equity is part of your wealth as a homeowner. There are many ways homeowners can leverage their wealth, but the two most common ways for homeowners to cash in on their housing wealth are by selling and/or refinancing.

When selling your home, the equity you’ve built up over time will be yours at the end of the sale. To paint the picture lets have an example, if you had a mortgage of $235,000, you paid off $105,000 of the mortgage and sell the house for $275,000; you would receive a gross profit of $145,000, before seller closing and other transactional costs.

When refinancing your home, you can either refinance to reduce your interest rate, cut monthly payments, or tap into your home equity. The most popular refinance is a cash-out refinance, where you can take out some of the equity you have accumulated. When refinancing, you get a new mortgage. The new mortgage pays off the balance of the old home loan, and normally you’re able to cash out 70-80% of your loan to value. But when refinancing, its required that you apply for the loan to then qualify. You’ll have to file an application for refinance, go through the underwriting process and close on the transaction.

How can these options help homeowners?

Throughout these difficult times, many households have been struggling with their housing and living expenses. Fortunately, homeowners have the upper hand here, where many who have experienced a financial hardship can qualify for mortgage forbearance and repayment plans. Additionally, homeowners who have substantial equity in their home have even more alternatives. Deputy Chief Economist at First American, Odeta Kushi, recently stated that homeowners impacted by the pandemic will not necessarily be faced with foreclosure because with equity, homeowners have the option to sell their home or tap into their equity through refinancing to help weather the storm.

What might the future bring?

Budget experts are predicting home prices will continue appreciating as we move forward. The Home Price Expectation Survey, a survey of a national panel of over one hundred economists, real estate professionals, and market strategists, reported that appreciation of home prices will continue for at least the next five years. By using their projection, the graph below shows the equity build-up a potential buyer is projected to earn when purchasing a $300,000 house this January:

Source: https://www.keepingcurrentmatters.com

For many Americans, home equity is the quickest way to build household wealth. Building home equity, however, is a long-term investment but this wealth gives homeowners more options during both good and difficult times, all while continuously contributing to their overall net worth.

3 Reasons To Be Optimistic about Selling Your House in 2021

Aubrielle Madia — Tue, 12 Jan 2021 01:39:09 +0000

There’s no doubt that this past year has been a challenging one. We experienced a global health crisis, economic downturn, social unrest, and natural disasters, just to name a few. As a result of state-imposed gathering and worker restrictions, and extreme concerns for the continued spread of the virus; many homeowners have reevaluated their living space and what would be best for their family entering 2021. Fortunately, experts are forecasting that the upcoming year is one in which you can be optimistic about selling your house for the following three key reasons.

1. The Economy Is Expected to Continue Improving

The U.S. economy is steadily improving after the economic downturn due to the COVID-19 health pandemic. This outlook is supported by expert reviews of key economic factors, including the gross domestic product (GDP), unemployment, job outlook and inflation. The most critical economic indicator is the GDP, which is a monetary measure of the market value of all goods and services produced in a certain period. The most recent GDP rate was approximately +33.4% for the third quarter of 2020, a large jump from the second quarter rate of -31.4%.

When it comes to unemployment, the Federal Open Market Committee (FOMC) estimates the unemployment rate will remain at 6.7% for the remainder of 2020, and it will gradually decline to 5% in 2021. The job outlook, according to the Bureau of Labor Statistics (BLS) expects total employment to increase by 6 million jobs now through 2029. By 2029, positions in health care and social assistance are projected to grow by 3.1 million. Similarly, computer, math, energy production, e-commerce, transportation, and warehouse occupations are predicted to grow rapidly as well. When it comes to inflation, the core inflation rate is predicted to be 1.4% in 2020, and between 2021-2023 the rate will gradually increase to 2%, which is the target inflation rate in a steadfast economy.

2. Interest Rates Are Projected to Stay Low

In March 2020, the FOMC held an emergency meeting to discuss the economic impact of the global health crisis, which lowered the federal funds rate to between 0-0.25%. The federal funds rate is what controls short-term interest rates. These include banks’ prime rate, the LIBOR (London Interbank Offer Rate, which is the global reference rate for unsecured short-term borrowing in the interbank market), adjustable-rate loans, and credit card rates. The Fed is also working on keeping long-term rates low to make borrowing money cheaper, and as a result, encourage consumer and business spending.

In the latest predictions from Freddie Mac, interest rates for a 30-year fixed-rate mortgage are expected to remain where they currently are, at or near 3% for the next year. These low rates will continue to drive demand for those looking to sell your house in the years to come.

3. Future Home Sales Are Forecasted to Grow

As the economy continues to improve, and interest rates remain low, homes are expected to continue appreciating as more people will buy in the coming year, as indicated in the two (2) previous factors. Danielle Hale, Chief Economist at realtor.com says: “We expect home sales in 2021 to come in 7.0% above 2020 levels, following a more normal seasonal trend and building momentum through the spring and sustaining the pace in the second half of the year.”

Economic experts are in align with Danielle Hale, forecasting that both buyers and sellers will remain active in 2021. If you have thought about buying or selling your house this year but have held off, now is the time to take advantage of the market as it will continue to thrive!

What Is An Asset?

Aubrielle Madia — Thu, 17 Dec 2020 05:09:32 +0000

It has contributed to extensive impacts in healthcare, financial losses in national and international business, and a worldwide economic downturn. The current widespread and unprecedented economic distress has many Americans seeking ways to further increase their financial stability and future security. Aside from exploring new business ventures, many Americans have begun investing in more assets to contribute to their overall long-term wealth. In this article, we will discuss what an asset is, different types of assets, and how investing in assets can help prepare you for financial freedom.

An asset is anything that can be owned or controlled by a person or entity to produce positive economic value. There are two main types of assets: personal and business. For this article we will focus on personal assets. Personal assets are items of value that belong to a specific individual. Some of the prominent categories of personal assets are cash or cash equivalents, real estate, personal property, and investment accounts. Within these categories personal assets can include but are not limited to physical cash, checking and savings accounts, money market accounts, certificates of deposit (CD), real property, land, boats, jewelry, vehicles, annuities, bonds, cash value of life insurance, retirement plans, mutual funds, and stocks.

Here at Dynamic Property Partners, we believe the most standout tool is investing in real property. It’s one of the easiest and safest ways to increase your wealth and contribute to your own financial freedom. By investing in real estate, you are investing in a tangible asset, which will provide excellent leverage, high cash yield, equity buildup, and tax advantages. There are also various ways to invest in real estate which include but are not limited to house hacking, fix and flipping, wholesaling, long-term rentals, short-term rentals, and private money lending.

The benefits to owning personal assets are endless. In addition to contributing to your overall net worth, assets can also generate passive income in the form of interest or dividend payments, provide a hedge against inflation, and can be liquidated for the cash equivalent. Additionally, if you are in the market to a apply for a loan of any sort, your assets and their value can give you leverage by helping you appear less risky to your lenders. If you are interested in applying for a home loan, specifically for a renovation project, you can also use your assets as collateral to better qualify for a secured loan. By proving to the lender that you have liquid assets or cash reserves, you are given the upper hand as lenders see you more as a healthier investment.

As you can see, there are many ways to invest in assets to protect your financial future. By attaining assets, you can grow your wealth, while protecting yourself from economic downturns. It is most important, however, to ensure you have a diversified portfolio as the markets are always changing. One of the best ways to ensure your portfolio diversity is by adding assets that provide passive income. Stay tuned for our next investing blog where we will discuss a program in which we offer investors an excellent way to increase their passive income!