My friend and business colleague, John Meussner attends events that increase his revenue and ability to continue to be of service to buyers who need loans. He also shares within his #ActiveRain community and the public so we get a handle on the day-to-day business we engage in to help buyers reach the closing table. Enjoy Part 1 as Part 2 is soon to follow.
Since John Meussner services the Florida market please feel free to contact me when buying a home in metro Miami, Fort Lauderdale and Palm Beach
Tahoe Takeaways Part I - The Market
Each year, Mason McDuffie holds a summit in Incline Village, Nevada on Lake Tahoe at the Hyatt Regency. This event rewards top producers and offers up a weekend of comaradarie, great speakers, food, drinks, and some of the best scenery in all of California.
I've been fortunate enough to be a part of the past 3 years worth of Tahoe events, and this year was especially rewarding as I was asked to speak and moderate a panel of some of our best and brightest sales talent. The 3 day event consisted of education, teambuilding, and fun. One of my biggest takeaways from Tahoe was the state of the market.
Are we in a bubble?
The answer is no. Back in 2006, we had rapidly increasing home prices, a rising stock market, a competitive bidding market on real estate, high consumer confidence (coupled with high consumer debt), and regulations being relaxed more and more. Nearly identical to today, right?
Well, yes. But what's different? The birth/death rate, and our population. Stick with me. The average age of the first time home buyer is 33 years old, and it wasn't tremendously different in 2006. Subtract 33 years from 2006, and what do you get? 1973. Can you think of any landmark legislation that would be an impact on population numbers in 1973? Perhaps you've heard of Roe V Wade.
Regardless of your position on Roe V Wade, it's indisputable that once it occurred, the birth rate dropped - and once those would-be births were would-have-been first time home buyers, builders kept building for a generation of home buyers that was never coming. And then the bottom fell out.
This time around, things are different. There is no similar birth/death rate abnormality to throw into the mix, only simple economics - supply, and demand. Right now, demand is high and supply is low. Those basics nearly always find equilibrium. It's hard to believe that legislation from the 70's could be a primary factor in an economic collapse in the 2000's, but the numbers, nor the timeline, lie. I'd argue this was one of the biggest single factors in the housing collapse, and that factor is not present today.
Will rates continue to rise?
TL;DR answer: Yes. For everyone else - annual mortgage rates enjoyed a bull market from October 1981 - November 2012. Rates moved annually downward from a high of 18.45% all the way down to an average of 3.35% (and Freddie Mac averages include paying points, so all you folks who got a 3.5% with no points, yes, you locked in at the very bottom). That's a 35 year run! Now, we're in a market where demand for mortgage bonds is low, the securities market is a shadow of it's former self, and with the improvements to our economy in recent years and wages finally beginning to increase, there are inflationary pressures on the mortgage bond market.
This is expected to continue into the foreseeable future. Inflation is the enemy of mortgage bonds, and right now, inflation is a concern (this is why the Fed raises rates, as the move stems inflation). Rates should remain in the high 4's, low 5's throughout the year, but in the coming couple of years, don't be surprised if high 5's, low 6's becomes the norm at some point. Add to all this regulatory pressures on mortgage companies, which come at high costs in the fields of compliance (did you know the average mortgage loan costs a mortgage company $8500 to produce?), and rates don't have much chance of coming down.
Will inventory pick up?
TL;DR: Yes. Q1 of 2018 offered us the lowest inventory in 29 years. Simply put, the trend CAN'T continue. There's too much money in high home values for builders not to build, and too much demand for someone to not bring supply. Even with record low inventory, there is expected to be more than $1 Trillion in loan volume originated in 2018. Even with that high a volume, overall originations are expected to decrease. This will result in loss of some mortgage companies from the market (we've already seen some major players leave the industry or cease their mortgage operations), and we'll likely see a lot of consolidation amongst existing companies.
Loan officers are largely in flux because of what can be deemed "undefined uncertainty". There are market pressures, fintech "disruptors", new compliance concerns, and many other factors LOs today are dealing with that have never been seen before. Many LOs, even top producers, will have to look at the viability of their current operations, and we'll likely see a lot of market movement when it comes to industry talent.
And so that's my takeaway from Tahoe, Part I. There was a ton of great info, but the above market information was extremely helpful for me to understand what the heck's going on, and what I can anticipate, so I wanted to share it with you, too.
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