Monday, April 30, 2018

Why Home Prices Are Increasing

There are many unsubstantiated theories as to why home values are continuing to increase. From those who are worried that lending standards are again becoming too lenient (data shows this is untrue), to those who are concerned that prices are again approaching boom peaks because of “irrational exuberance” (this is also untrue as prices are not at peak levels when they are adjusted for inflation), there seems to be no shortage of opinion.

However, the increase in prices is easily explained by the theory of supply & demand. Whenever there is a limited supply of an item that is in high demand, prices increase.

It is that simple. In real estate, it takes a six-month supply of existing salable inventory to maintain pricing stability. In most housing markets, anything less than six months will cause home values to appreciate and anything more than seven months will cause prices to depreciate (see chart below).

According to the Existing Home Sales Report from the National Association of Realtors (NAR), the monthly inventory of homes for sale has been below six months for the last five years (see chart below).

Bottom Line
If buyer demand continues to outpace the current supply of existing homes for sale, prices will continue to appreciate. Nothing nefarious is taking place. It is simply the theory of supply & demand working as it should.

If you are thinking about listing your home for sale or starting the search for your new home, give The McLeod Group Network a call today! 971.208.5093

By: KCM Crew

Thursday, April 26, 2018

“Short of a war or stock market crash…”

This month, Arch Mortgage Insurance released their spring Housing and Mortgage Market Review. The report explained that an increase in mortgage rates and/or home prices would impact monthly payments this way:
·         A 5% increase in home prices increases payments by roughly 5%
·         A 1% rise in interest rates increases payments by roughly 13% or 14%
That begs the question…

What if both rates and prices increase as predicted?

The report revealed:
“If interest rates and home prices rise by year-end in the ballpark of what most analysts are forecasting, monthly mortgage payments on a new home purchase could increase another 10–15%. That would make 2018 one of the worst full-year deteriorations in affordability for the past 25 years.”
The percent increase in mortgage payments would negatively impact affordability. But, how would affordability then compare to historic norms?
Per the report:
“For the U.S. overall, even if affordability were to deteriorate as forecasted, affordability would still be reasonable by historic norms. That is because the percentage of pre-tax income needed to buy a typical home in 2019 would still be similar to the historical average during 1987–2004. Thus, nationally at least, even with higher rates and home prices, affordability will just revert to historical norms.”

What about home prices?

A decrease in affordability will cause some concern about home values. Won’t an increase in mortgage payments negatively impact the housing market? The report addressed this question:
“Even recent interest rate increases and higher taxes on some upper-income earners didn’t slow the market, as many had feared…Short of a war or stock market crash, housing markets could continue to surprise on the upside over the next few years.”
To this point, Arch Mortgage Insurance also revealed their Risk Index which estimates the probability of home prices being lower in two years. The index is based on factors such as regional unemployment rates, affordability, net migration, housing starts and the percentage of delinquent mortgages.
Below is a map depicting their projections (the darker the blue, the lower the probability of a price decrease):

Bottom Line

If interest rates and prices continue to rise as projected, the monthly mortgage payment on a home purchased a year from now will be dramatically more expensive than it would be today.

Contact your local experts at The McLeod Group Network to start the search for your new home! 971.208.5093 or​​
By: KCM Crew

Tuesday, April 24, 2018

14 Factors That Can Stall the Mortgage Closing Process

Once you find your dream house and your purchase offer is accepted, you need to get through one more step before you move in: mortgage closing. The time it takes to close on a home will vary from one person to the next. When everything goes right, loan closings can be completed in as little as 21 to 28 days, says Atlanta-based real estate agent Bruce Ailion. Currently, Ellie Mae reports that the average closing time for home loans is 44 days.
“Factors like the type of home loan or last-minute changes and requests will affect the amount of time it takes before a house becomes yours. But typically, a lender can close on a mortgage in about a month,” states Andrina Valdes, the division president at Cornerstone Home Lending, Inc. in San Antonio, TX.
However, not everything always goes according to plan. Issues can arise that can keep you from settling into your new place for weeks and sometimes months longer than you expected. Here are some of the most common snafus that can delay the mortgage closing process.

1. Expensive purchases for your new home

A word of advice: Don't make any pricey purchases with your credit card before closing on your house. "This could actually put buyers out of qualifying for their new home,” says Texas real estate agent Jeff Peterson.
After an offer on a house is accepted, some people may be tempted to buy a new sofa, dining set, or another expensive piece of furniture. But real estate experts warn that this could be disastrous. Right before closing, the mortgage lender will pull the buyer’s credit to make sure nothing has changed. A big purchase will show up, which could become an issue, because it means that the buyer is taking on more debt.

2. Death of the original homeowner

If there has been a death associated with the desired property, the home may need to go through probate court first to authenticate the former owner's last will and testament. “If that's the case, your closing will be delayed, and there's not much you can do about it,” says Jim Lorio, a Florida real estate investor. In some states, probate can take anywhere from a few months to a few years.

3. Homeowners association issues

If the previous homeowner has outstanding homeowner association (HOA) fees or fines, this could cause delays. In some cases, you may be able to negotiate those fees with the seller; otherwise, you will be responsible for paying them.

4. Verification issues

In some instances, the borrower’s landlord, mortgage company, employer, or source of down payment may not be willing to provide verification in a timely manner. Their failure to move quickly can slow you down.

5. Down payment issues

There are times when the lender may require the home buyer to put more money down; this may take time, especially if the buyer lacks the extra funding.

6. Lender may need additional information

In some cases, additional info may be requested late in the process. Other times, the lender may lose a document that will need to be obtained again.

7. Scheduling problems

One party—whether the closing agent, attorney, title company representative, lender, buyer, or seller—may not be available to meet on the closing day, which can push timelines back.

8. Buyer delays

If a buyer is self-employed, sometimes additional documents are required. If the buyer has multiple sources of income, this may need to be documented and verified as well. If the buyer is getting a down payment from an unconventional source or a gift, this could also slow down the process.

9. Flood insurance requirement

If your new home is in a flood zone, you may need to get flood insurance, which may require a benchmark survey. In some markets, this might take three weeks. Then, it must be reviewed by the mortgage underwriter—aka the person who approves your loan. Flood insurance, and even homeowner's insurance, can also sometimes be tough to get, depending on your past history with claims, credit, and location.

10. Appraisal disparities

Before a mortgage is ever approved, the bank must first appraise the home. If the appraisal comes in low, it may take some time to renegotiate the asking price of the home.

11. Title issues

In some cases, there may be a tax lien against the property that needs to be resolved first, in order to move forward with the closing process. Other times, the title may have the incorrect signature or attestation.

12. Property damage

If there is any type of damage to the property, the lender may require repairs prior to closing.

13. Contract disagreements

Sometimes the seller may not agree to the buyer’s contract requests (like agreeing to include the entire contents of the home in the deal). This can kill the transaction or require further negotiation between the agents and other parties involved.

14. Foreclosure

If a homeowner is in foreclosure, it can take up to 10 days to get a payoff from the mortgage company, which often includes legal fees.
Contact your local experts at The McLeod Group Network to start the search for your new home! 971.208.5093 or​​
By:, Nikki Gaskins Campbell

Friday, April 20, 2018

Exploring Salem Oregon: Vintage Weekend

Friday, April 20, 2018 through Sunday, April 22, 2018

The Independence Downtown Association is hosting its first Vintage Weekend. There will be a Vintage Trailer Rally in the park, an Antique Market on C Street, a private Ghost Walk, and more.

Downtown Independence
278 South Main St.
Independence, OR 97351


Photo Credit:

Monday, April 16, 2018

Getting Pre-Approved Should Always Be Your First Step

In many markets across the country, the number of buyers searching for their dream homes greatly outnumbers the number of homes for sale. This has led to a competitive marketplace where buyers often need to stand out. One way to show you are serious about buying your dream home is to get pre-qualified or pre-approved for a mortgage before starting your search.
Even if you are in a market that is not as competitive, understanding your budget will give you the confidence of knowing if your dream home is within your reach.
Freddie Mac lays out the advantages of pre-approval in the ‘My Home’ section of their website:
“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”
One of the many advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you with this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.”
Freddie Mac describes the ‘4 Cs’ that help determine the amount you will be qualified to borrow:
1.    Capacity: Your current and future ability to make your payments
2.    Capital or cash reserves: The money, savings, and investments you have that can be sold quickly for cash
3.    Collateral: The home, or type of home, that you would like to purchase
4.    Credit: Your history of paying bills and other debts on time
Getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and it often helps speed up the process once your offer has been accepted.

Bottom Line

Many potential home buyers overestimate the down payment and credit scores needed to qualify for a mortgage today. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so.

Contact your local experts at The McLeod Group Network for all your Real Estate needs! 971.208.5093 or

By: KCM Crew

Wednesday, April 11, 2018

Rising Home Prices Push Borrowers Deeper Into Debt

More Americans are stretching to buy homes, the latest sign that rising prices are making homeownership more difficult for a broad swath of potential buyers.
Roughly one in five conventional mortgage loans made this winter went to borrowers spending more than 45% of their monthly incomes on their mortgage payment and other debts, the highest proportion since the housing crisis, according to new data from mortgage-data tracker CoreLogic Inc. That was almost triple the proportion of such loans made in 2016 and the first half of 2017, CoreLogic said.
Economists said rising debt levels are a symptom of a market in which home prices are rising sharply in relation to incomes, driven in part by a historic lack of supply that is forcing prices higher.

Real-estate agents worry that buyers’ weariness from being priced out of the market could make this one of the weakest spring selling seasons in recent years.
Consumers are growing more optimistic about the economy and their personal financial prospects but less hopeful that now is the right time to buy a home, according to results of a survey released in late March by the National Association of Realtors.
At the same time, the average rate for a 30-year, fixed-rate mortgage has risen to 4.40% as of last week from 3.95% at the beginning of the year, according to Freddie Macputting still more pressure on affordability.
These factors “are working against affordability and that’s why you get the pressure to ease credit standards,” said Doug Duncan, chief economist at Fannie Mae. He said that pressure has to be balanced against the potential toll if underqualified buyers eventually default on their mortgages.
CoreLogic studied home-purchase loans that generally meet standards set by Fannie Mae and Freddie Mac, the federally sponsored providers of 30-year mortgage financing.
The amount of these loans packaged and sold by Fannie and Freddie increased 73% in the second half of 2017, compared with the first half of the year, according to Inside Mortgage Finance, an industry research group. In that same period, overall new mortgages rose 15%.
Fannie Mae and Freddie Mac have been experimenting with how to make homeownership more affordable, including backing loans made by lenders who agree to help pay down a buyer’s student debt or making it easier for self-employed borrowers to get mortgages. Several years ago, Fannie and Freddie started guaranteeing loans with down payments as low as 3%.
Sohani Rao, a software engineer in the San Francisco Bay Area, tried to buy a home for about a year but finally gave up a few months ago. Dozens of prospective buyers would show up for open houses, she said, even for homes in poor condition, resulting in bidding wars that put them out of her price range. Ms. Rao said loosening lending standards would only create more bidders.
“Thing are so bad right now,” she said. “By doing this, they might have even made the problem worse.”
Debt-to-income ratios measure the share of a household’s pretax income that goes to paying a potential mortgage, plus credit card payments, student loans and other debt. Borrowers who find themselves saddled with too much debt might struggle to make their monthly mortgage payment or save for major repairs or other emergencies.
Todd Jones, president of BBMC Mortgage, said he is wary of making loans to borrowers whose debt-to-income levels would rise above 45% as a result, because they could find themselves stretched. “Every month is going to be tight,” he said.
Last summer, Fannie Mae moved to back more loans made to borrowers with debt-to-income ratios of up to 50%, up from a typical limit of 45%. Freddie Mac also started backing more of those loans, according to industry researchers.
Fannie’s new policy has resulted in 100,000 new mortgages that otherwise wouldn’t have been made last year and early this year, according to the Urban Institute, a nonpartisan research organization.
Caliber Home Loans, a Texas-based lender, said 25% of its funded loans have debt-to-income ratios of greater than 45%, up from 10% about a year ago.
Economists warn that lenders must tread carefully in making credit more available, given the role easy mortgages played in creating the last housing bubble. The share of new buyers with debt-to-income levels in the 46% to 50% range remains well below the peak of just under 37% registered in 2007, but is nearing the levels of 2004-05, the years leading up to the bubble, CoreLogic data show.
So far lenders are making most of these loans to borrowers who have a history of good credit, though that could change. In the fourth quarter of last year, about 78% of the loans with debt-to-income ratios above 45% were made to borrowers with credit scores of 700 or more, according to Inside Mortgage Finance. Although standards vary by lender, usually any borrower below 650 is considered subprime.
“The problem,” said Guy Cecala, chief executive of Inside Mortgage Finance, “is you’re going to run out of [prime] borrowers.”
The Urban Institute found that the share of borrowers with Fannie Mae-backed mortgages who had high debt-to-income ratios and had credit scores below 700 jumped to nearly 25% in the first two months of this year from 19% a year earlier.
“It’s not a problem today, but it may be a problem tomorrow,” said Stan Middleman, chief executive of Freedom Mortgage, a home lender.

Contact your local experts at The McLeod Group Network for all your Real Estate needs! 971.208.5093 or

By:, Laura Kusisto and Christina Rexrode

Tuesday, April 10, 2018

What Is Private Mortgage Insurance (PMI)?

When it comes to buying a home, whether it is your first time or your fifth, it is always important to know all the facts. With the large number of mortgage programs available that allow buyers to purchase homes with down payments below 20%, you can never have too much information about Private Mortgage Insurance (PMI).

What is PMI?

Freddie Mac defines PMI as:

“An insurance policy that protects the lender if you are unable to pay your mortgage. It’s a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%.

Once you’ve built equity of 20% in your home, you can cancel your PMI and remove that expense from your mortgage payment.”

As the borrower, you pay the monthly premiums for the insurance policy, and the lender is the beneficiary. Freddie Mac goes on to explain that:

“The cost of PMI varies based on your loan-to-value ratio – the amount you owe on your mortgage compared to its value – and credit score, but you can expect to pay between $30 and $70 per month for every $100,000 borrowed.” 

According to the National Association of Realtors, the average down payment for all buyers last year was 10%. For first-time buyers, that number dropped to 5%, while repeat buyers put down 14% (no doubt aided by the sale of their homes). This just goes to show that for a large number of buyers last year, PMI did not stop them from buying their dream homes.

Here’s an example of the cost of a mortgage on a $200,000 home with a 5% down payment & PMI, compared to a 20% down payment without PMI:

The larger the down payment you can make, the lower your monthly housing cost will be, but Freddie Mac urges you to remember:

“It’s no doubt an added cost, but it’s enabling you to buy now and begin building equity versus waiting 5 to 10 years to build enough savings for a 20% down payment.”

Bottom Line

If you have questions about whether you should buy now or wait until you’ve saved a larger down payment, let’s get together to discuss our market’s conditions and help you make the best decision for you and your family. 971.208.5093 or

By: KCM Crew