Biggest trends of the year in the home mortgage loan sphere

Magilla Loans is at the epicenter of loans in America. As America’s anonymous loan search engine, we are able to see exactly what loans are closing each day.  Here is what CEO Chris Meyer is seeing:

  • Low inventory
  • Rates climbing
  • HELOC rush

Low inventory

Typical of hot real estate markets, there’s a cycle. Home prices rise, people catch on and want in, and then they decide to sell. Soon, even more people jump in the market and serious sellers make their sale, causing inventory to thin. Buyers get wise to the overheated marketplace and decide to wait until the prices come down. The sellers who are eager to make a buck overprice their houses and when they don’t sell, they become income properties. As a result, the rental markets fill up with income properties, and the inventory continues to thin out.

Rates climbing

While this will happen in the short term, Meyer cautions that it may be a moot topic.  “At Magilla Loans, while we foresee rising rates in the upcoming year, comparatively speaking, they are still at or near historic lows.  Having the ability to obtain a thirty-year mortgage at or near 3.5-4.5% is insane.  Lock and load, and don’t worry about it for the rest of your life,” Meyer says.  It is one of the most unusual transactions in humankind.  We find a house, and we want to obtain a mortgage.  The lender gathers everything he or she needs to complete the transaction and we or they ask to “lock the rate.”  If laypeople were let behind the curtain, they would understand that the rate lock will hurt them half the time and benefit them half the time.

There is puffery in your lender’s rate, and the consumer is generally at a disadvantage.  Speaking honestly, a lender of any kind (broker, loan officer…) has no idea where rates will be tomorrow.  Sure, they have their lifetime of experience and years of knowledge which do help their ability to prognosticate, but it is just that, a guess.  The real and simple fact is that you are in a time of unbelievable historic lows in the residential loan marketplace, and if you are buying or refinancing a residential home mortgage, you are a very lucky human being.  Lucky, because you just happen to be ready at the right time in history to buy or refinance.  Sorry, it just that simple.  We are not slighting any profession, it is simply that sometimes, we all get lucky.

HELOCs rise

“This is the scary part for me,” says Meyer.  When prices rise, especially dramatically, we all feel the mortgage euphoria and go to Zillow.  Then, we pull equity out of our homes for all the wrong reasons (to buy a car, pay for college, a wedding, a boat).  (Yes, we are aware underwriters have gotten stricter, but where there is a will, there is a way.)   PLEASE, PLEASE, PLEASE, everyone, be careful of ever pulling equity out of the place you live.  It is your home, the roof over your head.  Be conservative and only do this as a last resort to improve your home’s value – the true need for a home equity line of credit.

Simple advice

Be cool, pigs get slaughtered.  We are at historic lows for mortgage rates, and they are not going to spike that drastically in the next year that it would preclude you from getting a solid thirty-year fixed rate loan.  The important thing is that you do NOT overpay for a home.  Your desire to have a home must be tempered by the reality of the current state of your marketplace.  This is the difficult part and why some people get absolutely hammered (my technical term).  Figure out your time horizon (how long you will be in the home) and if you could handle a 25% reduction in the value of your home.  This is the minimum reduction you should expect in an overheated market.

Be careful, my friends.