Weekly Mortgage and Real Estate Report – Week of March 26, 2018

The Aftermath 

Like the first two months of the year, March has been a very interesting month. From an economic perspective, the two “headline” events included a very strong employment report and the Federal Reserve Board announcing that they were raising rates for the fifth time in just over two years. And while these are very important events shaping the economic landscape, we have to remind ourselves that there are many other factors in play right now.

For example, while we witnessed the effect of the tax changes on the stock market even before the plan was enacted, the economic effects of the tax plan are just starting to hit. While the vast majority of the changes in the economy will be positive, we have already pointed out that the price to pay for stronger economic growth will be higher interest rates. These rates will affect consumers such as homebuyers, but also the government’s budget. For example, in February, the federal government racked up the largest deficit in six years because of lower tax receipts and increased spending — which included a higher bill for interest on the government’s massive debt.

Even the immigration debate and implementation of tariffs will influence the economy. One of the greatest needs today is more inventory for our nation’s homebuyers and builders are complaining about the lack of skilled labor to build our homes. Tariffs on lumber and steel will also have a negative effect upon the cost of building our homes, though it is hopeful that our domestic production can step-up and create more jobs while they fill in the gaps. Thus, there is no free lunch. Every change brings positives, but also costs. The good news is that the economy is stronger, and jobs are being created — plus homebuyers are waiting to purchase your home if you are willing to sell it!

 Self-employed workers have a hard time demonstrating to residential lenders that they meet income requirements, according to The Wall Street Journal. Since self-employed workers don’t receive a W-2, lenders have to consult tax returns to verify the applicant’s income. The WSJ reports — That’s a challenge for lenders, because on one hand, self-employed applicants need to show enough income to qualify for a home loan. On the other hand, they want to lower their taxable income by taking deductions and write-offs that they’re legally entitled to. Self-employed business owners will often write-off personal and business expenses, such as office equipment and car leases. For this reason, net income reported on a tax return may not be an accurate reflection of business earnings, the report continues. WSJ offers tips for self-employed applicants: find a good accountant who can explain business cash flow to a potential lender and find a lender with enough experience to understand a self-employed applicant’s tax return. Source: Builder — Are you self-employed and considering purchasing? We have the experience to assist you.Seventy-two percent of renters “prefer” or “strongly prefer” to own a home rather than rent one, according to a SCE Housing Survey conducted by the Federal Reserve Bank of New York. Nearly 56 percent of renters view homeownership as a “good investment,” the survey finds. The majority of renters favor homeownership, despite expressing concerns about their ability to one day afford a home. However, they do believe it’s getting easier to qualify for a home loan. Sixty-five percent of renters say qualifying for a loan is “somewhat difficult” or “very difficult,” but that is gradually declining. Twenty percent of renters view qualifying for a home loan as “somewhat easy” or “very easy,” which is up from 15 percent in 2015. Renters also believe home prices will continue to increase one year from now as well as five years from now. They anticipate a 5.1 percent increase in prices over the next year. Source: Federal Reserve Bank of NY

Home buyers locked in heated bidding wars are increasingly turning to escalation clauses to keep their offers in play, The Wall Street Journal reports. Escalation clauses are addendums to real estate contracts in which a prospective buyer is able to submit an offer but then raise his or her offer in increments to a maximum amount if others submit competing offers. In competitive real estate markets where homes are fetching multiple bids, real estate professionals are finding escalation clauses a useful tool to eliminate the back and forth of offers and counteroffers. It also helps buyers avoid getting caught in a frenzy where they may end up paying more than what they intended. “A buyer can think of an escalation clause as a ‘have your cake and eat it too’ clause,” David Reiss, a Brooklyn Law School professor who specializes in real estate, told The Wall Street Journal. “But in real estate, as with cake, it is hard to have it all.” Reiss says a concern of escalation clauses is that buyers may be giving an advantage to sellers. With these clauses, buyers are indicating the maximum amount they are willing to pay for the house and revealing to the seller how much higher they are willing to go. Housing experts say that before using an escalation clause, buyers should see if it could affect the type of home loan available to them in the event the appraisal does not match the escalated price. Buyers also will want to be specific about the type of documentation the seller must provide before the escalation clause kicks in. Source: The Wall Street Journal


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