The world of real estate is constantly evolving, and even though it’s been over eight years since the bubble burst, we’re still feeling the impact of that event as changes to the system continue to ripple through the industry. From time to time, there is important news that real estate agents are aware of, but it doesn’t reach the radar for the regular consumer. So, here are few points that are noteworthy for anyone looking to buy or sell a home:
Mortgage rates: In February 2011, the rate on a 30-year fixed rate mortgage was just over 5 percent. From that point, rates fell for two years straight, until they reached a low point of about 3.3. For the first half of 2013, rates bumped around in the mid 3’s.
Then, the Federal Reserve Bank started talking about the possibility of cutting back on quantitative easing, a process by which it floods the economy with trillions of dollars produced by the purchase of mortgage-backed securities. Just the talk of cutting back was enough to cause mortgage rates to rise, and they shot up from 3.4 to 4.4 in less than a month. By the end of 2013, rates were about 4.5, and everyone thought they had missed the boat on ever again being able to get a 30-year fixed rate in the 3’s.
Well, happy days are here again, and home buyers are going to get a second bite at the apple on super low mortgage rates. During the week of Oct. 16, rates dipped below 4 percent. In less than a month, they fell from approximately 4.25 to 3.97. The average for this week was even a little less at 3.92.
Whether they’ll go much lower and how long they’ll stay below 4 is anyone’s guess. Furthermore, economists generally predict that mortgage rates will generally rise over the next several years. But for now, it’s still possible to go out and get a 30-year loan at an interest rate that starts with a 3!
Qualified Mortgage Rule: The Qualified Mortgage Rule, or QRM, isn’t something that most home buyers will hear about. But it’s a regulation, born out of the banking collapse, one that can have a significant impact on how easy it is to get a home loan and how much that loan might cost.
Basically, the QRM is a set of qualification standards that lenders must follow in order for a mortgage to be sold to investors. Virtually all mortgages are sold to investors of some sort, so it is critical for banks to meet QRM rules. If qualification standards are too tight, the number of people who can buy a house is reduced. If standards are too loose, mortgage defaults can rise to unacceptable levels. Consequently, there has been an effort to find just the right balance for QRM rules, or what has been called the Goldilocks standard.
This month, the final QRM rule was put in place, and it looks good for consumers. One fear was that it would include a requirement for 20 percent or even 30 percent down payments. That would keep a lot of potential home buyers out of the market.
Since the recession, most of us don’t have a lot of cash lying around. Plus, the drop in real estate prices erased the home equity that most people use for the down payment on a new house.
Fortunately, the QRM rule didn’t include a down payment requirement. That doesn’t mean you won’t need a down payment, but it means the free marketplace will set that amount, not the government. As a result, most down payments are likely to be much less than 20 percent. So, if you’re thinking about buying a home, check with your lender. The amount of down payment you’ll need is probably much less than you think.
Contract of Sale: Virtually all real estate agents use some form of the Maryland Association of Realtors Contract of Sale. Every year, there are changes made to that contract, and the changes take effect in October. Much of the time, the revisions are technical in nature and amount to inside baseball for real estate agents. But occasionally, these modifications can have a real impact on consumers and/or how a contract might be structured or negotiated.
This year, there are some changes that will have a bearing on how buyers and sellers might approach the home inspection process. We won’t go into the details here. However, if you’re buying or selling a house, make sure your agent is using the most recent version of the Contract of Sale and also make sure he or she understands how it differs from past practices.
Bob and Donna McWilliams are practicing real estate agents in Maryland with more than 25 years of combined experience. Their email address is McWilliams@BobDonna.com.