Three Things to Know About How The Media Exaggerates News on The Real Estate Market

By Ryan Casey Stephens,  FPQP®
Special Contribut

Powerful narratives shape the world around us. How consumers feel about the real estate market can dramatically affect the balance of buyers and sellers in Dallas-Fort Worth. The good news is you have some ability to present the facts, and that is your most important tool as a real estate professional. There are a few narratives out there in the media at the moment that are begging for clarity. Let’s cover a few of them in this week’s Three Things to Know.

Punishing Qualified Homebuyers

Last week, my news feed was consumed by a story claiming the Biden administration would be charging higher fees to buyers with good credit to subsidize buyers with poor credit scores. I even read articles from major media outlets that went so far as to call the move a reparation. The potential wave of poorly qualified buyers, it was speculated, could also mean a future crisis of foreclosures. 

Fannie Mae and Freddie Mac have adjusted the Loan-Level Price Adjustors they use to determine interest rates, and better pricing can tend to favor lower credit scores. The Third Thing to Know from my column two weeks ago, before these headlines broke, provided a real-world example I encountered in my mortgage business. The sources covering it now are late to the game, though, since the announcement was made in January. You’ll read a May 1 date in their pieces, but that refers to the date after which any loan delivered to Fannie and Freddie must be based on the new pricing. Lenders have been using this pricing for more than a month, and it’s not news to us. 

Customers that will see the highest rate increases will include those with credit scores of 720 to 760 and plan to put down between 15 and 20 percent. Buyers that will receive the most subsidy are those with credit scores ranging from 620 to 629 that only put 3 to 5 percent down on a home. 

First Thing to Know:

There really is a change being made to interest rates and it will favor those with lower credit scores and smaller down payments. It will also impact buyers with higher credit scores and down payments in a negative way. There’s very little chance these changes get rolled back, so it’s important to let potential buyers know that this is part of their new normal, and those with low scores should jump at the chance to take advantage of more affordability.

News of Our Death is Greatly Exaggerated 

This headline isn’t new but is once again resurfacing. Outlets have been warning since last fall that our housing market in the U.S. could face another massive bubble burst in 2023. Some blame the risk of climate change, some interest rates, while others point to the Fed. The common thread amongst them all is that the slight fall in home prices nationwide signals the real risk of a massive decline in home prices later this year. 

Well, I’ve got good news. The latest Case-Schiller price index reported a 0.2 percent increase over the last month and a 2 percent gain over the last year. This index is interesting because it includes cash buyers who currently make up 27 percent of buyers. Cash purchases tend to garner lower sales prices, so any gain on this report signals strong home prices remain in place across the nation.

Second Thing to Know:

Buyers who listened to you and purchased over the last few months timed things well since home prices are once again on the rise. The latest uptick in the data is the good news sellers need to hear. They can list their homes and expect to get the price they need to move, despite high rates. 

Inventory Does Not Equal Demand

On Thursday, we’re going to get a look at the latest Pending Home Sales data. There are persistent lack of inventory issues facing buyers right now. A client of mine listed a home in Keller this weekend and had more than two dozen showings in the first 24 hours. The media is likely to take Thursday’s data and use it to create the narrative that high-interest rates are to blame for this shortage. 

The truth is, though, housing availability has not matched demand in years. We are a rapidly growing population that has not built homes at a rate sufficient to house our younger working citizens. For those interested in an in-depth look at the numbers, I suggest this piece from last year. As I pointed out in February, more inventory is the only solution to this problem until our low birth rates catch up to us in a few decades. 

Third Thing to Know:

More units for sale is the best possible solution to the dual issues facing the North Texas region. By creating less competition for each listing, prices would have a chance to ease, creating affordability to offset high rates. Don’t let the media convince you that the lack of Pending Home Sales is driven by housing bubble fears or high rates when the reality is much simpler. 

Ryan Casey Stephens FPQP® is a mortgage banker with Watermark Capital. You can reach him at [email protected]

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