With Terry Story, 29-year veteran Real Estate Agent with Keller Williams in Boca Raton, FL
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Small Banks And Credit Unions Are Allowed Back Into Mortgage Market
Congress recently passed a bill titled the Home Mortgage Disclosure Adjustment Act (HMDA). The Act frees regional banks from stricter Federal Reserve oversight and reporting rules. As a result, small banks and credit unions will be able to offer more mortgages to the public.
This is welcome news for the National Association of Realtors (NAR). They hope this bill will boost homeownership by making mortgages more accessible.
Lax banking oversight in the 1990s and early 2000s made mortgages far too easy to get, even for those with bad credit, leading to the mortgage loan crisis of 2007. Regulators then went to the other extreme, going too far implementing rules that were too strict for smaller financial institutions.
Steve sees the HMDA as good news for home buyers and a happy middle to the banking regulations’ pendulum. Now, banks are still adequately restricted in what they can do, so as not to cause another crisis. Furthermore, they also have more freedom to serve their customers’ mortgage and banking needs.
Kids More Involved In Home Purchase Decisions
On another housing related topic, Terry notes that children now have more of a say in home-buying decisions. This is especially true with millennial parents, 74% to be exact. Survey says they want their children’s views taken into consideration in major household decisions such as home purchases.
So What Do Children Want In Real Estate?
Top of the list is having their own bedrooms, preferably with their own bathrooms. Kids also strongly value being close to where their friends live. Other kiddie considerations include having a large yard and proximity to parks and playgrounds for biking, recreation, and sports.
To Steve’s surprise, swimming pools weren’t high on this list, with only 21% of kids wanting homes with pools.
For Terry, the silver-lining in all this is that kids learn valuable financial and decision-making lessons through the home-buying process with their parents. Terry calls this adulting. The Urban Dictionary defines adulting as carrying out duties and responsibilities expected of fully-grown adults, such as paying off credit card debt or settling a beef without blasting social media.
Will The Rise In Mortgage Interest Rates Impact Housing?
After a recent bump-up, the 30-year mortgage rate stands at 4.66%, well above its July 2016 rate of 3.40%. But the NAR isn’t overly worried about the increase. Rates are still low by historical standards, and the recent increase isn’t expected to have much of an impact on the housing market.
With the economy doing well and unemployment at historical lows, the current rate of home sales lags past periods of similar economic expansion. Terry attributes this lag to tight housing inventory, her current bugaboo for slower home sales. Higher interest rates aren’t holding back buyers. It’s just that there aren’t enough homes for sale. Had there been more inventory, more homes would have been sold because of strong pent-up demand.
This combination of low inventory and higher mortgage rates is also keeping existing homeowners from putting their homes on the market for the following three reasons:
- Inability to find suitable and suitably priced replacement homes.
- Not wanting to pay higher mortgage interest rates on the homes they buy.
- Fear of paying higher property taxes on the homes they buy.
Consequently, the solution to tight inventory is to build more homes. With mortgage rates poised to likely climb higher as the Fed raises interest rates, builders are holding back on new construction because they do not see this as an opportune time to expand housing inventory to meet demand.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week, we get together with noted real estate agent Terry Story. Terry is a 29-year veteran with Keller Williams located in Boca Raton. Welcome to the show, Terry.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: Let’s get right to it. There was a new bill that was passed in Congress, and it has been looked upon favorably by the National Association of Realtors, so known as the NAR. What is the provision of that bill that they particularly like?
Terry Story: Sure, well, what they really like is the easing mortgage credit through reduced regulatory burdens on small community banks and credit unions. Basically, this will allow small banks as credit unions, the ability to offer more mortgages to the public, which is always a good thing.
Steve Pomeranz: Okay.
Terry Story: More options.
Steve Pomeranz: You’re reading is excellent. [LAUGH]
Terry Story: [LAUGH] What does it really mean?
Steve Pomeranz: Let’s talk in common language. The bottom line is that they reduced some regulations, the pendulum swings both ways. Mortgage loans and other types of loans got way too easy.
Terry Story: Right.
Steve Pomeranz: In the early 2000s, like anybody…if you fog a mirror kind of thing.
Terry Story: That’s right, you had a pulse, you got a mortgage.
Steve Pomeranz: Exactly, and that really kind of almost destroyed the economy. And now the pendulum’s swung the other way, and it tightened, and it tightened, and it created more regulation to actually try to control human behavior. And so, in a sense, the pendulum swinging back a little bit, maybe kind of towards the center. I do think that regulations are still pretty tight.
Terry Story: Yes.
Steve Pomeranz: But they do…especially on the small banks because they don’t really have the capacity to do a lot of compliance, and a lot of forms and the like. So I think, personally, it’s a good thing.
Terry Story: Yes, everything’s check and balances, and as long as that’s in place, we’re good.
Steve Pomeranz: Another topic, and this is something new to me, and I’m still working to get used to it. But it seems that children of home buyers now have more impact on home-buying decisions. So let’s take that step by step and see what that actually means.
Terry Story: Well, it’s those millennial parents. And these are the parents between 18 and 36. And their children are important to them, and they rely on—I should say, they rely on their decisions, but they, they take their thoughts into consideration.
Steve Pomeranz: Yeah.
Terry Story: So for example, 74% of millennial parents between these ages report that they had their children weigh in on the decisions to buy a house or not. To give you an example, the top request children include, they want their own bedrooms, they want their own baths.
Steve Pomeranz: Okay, hold on, so that’s reasonable?
Terry Story: That’s reasonable.
Steve Pomeranz: I want my own bedroom if you’re going to buy a house, give me a bedroom.
Terry Story: Yeah, right.
Steve Pomeranz: Fine, okay.
Terry Story: I want a large yard.
Steve Pomeranz: [LAUGH] I want a large yard.
Terry Story: I want to be close to the parks and activities where I can ride my bike, but they don’t ride their bikes to parks.
Steve Pomeranz: No?
Terry Story: No.
Steve Pomeranz: No, okay.
Terry Story: It’s nice to know that that’s close by. They like to be near school; more importantly, they like to be near their friends.
Steve Pomeranz: That’s right.
Terry Story: So they’re really influenced, and, you know, Steve, I just went through this with a family and what was really important to the family was…they had made—well, almost made—the decision to buy this one particular house and they said, “well, we got to come back and show the kids.” The kids were not happy with the bedroom arrangements, and so on and so forth. But what was really the driving force with these kids was having their own bedrooms, but their close proximity to their friends.
Steve Pomeranz: Right.
Terry Story: So that’s really, really big with the kids.
Steve Pomeranz: Yeah, do they also want a, like a BMW in the driveway?
Terry Story: I’m sure. [LAUGH]
Steve Pomeranz: All right, I’m being unfair. I noticed that a swimming pool is kind of lower on the list, 21%.
Terry Story: Yeah, and I have another story. I just had a young family move from out of the area, and, absolutely, it was the kid’s decision. He wanted a pool, that’s the only child…the only request that they had was that the house had a pool.
Steve Pomeranz: Okay.
Terry Story: They were willing to take a two-bedroom house, in order to have the pool because that was his number one request. They were willing to move into a 1200 square foot, 1100 square foot house just to have a pool because that was his number one.
Steve Pomeranz: Gee, I wonder if they were thinking that one through.
Terry Story: And they were looking at houses on busy roads, they were-
Steve Pomeranz: Anything to lower the price, so they can get a pool.
Terry Story: Anything to get the pool for their child.
Steve Pomeranz: Wow, okay.
Terry Story: So.
Steve Pomeranz: That’s that. So I think it’s good, of course, you want your kids to be happy. You want them to be near their friends and-
Terry Story: Sure.
Steve Pomeranz: It makes it easier for you as the parent too. Because look, if you’ve got two kids in a room and they’re fighting, whatever,
it’s good to let them have their own separate room.
Terry Story: And it’s also good for the kids to see this as an educational opportunity, to show them the process of adulting even though they’re just young children.
Steve Pomeranz: What is adulting?
Terry Story: [LAUGH] Adulting, which is what my children are going through Yeah, they’re in their twenties and they’re trying to learn how to do certain things.
Steve Pomeranz: What do you mean? Like a checkbook?
Terry Story: Write a check, how to pay a bill, do their laundry.
Steve Pomeranz: What car insurance is.
Terry Story: What car insurance is. That’s adulting.
Steve Pomeranz: That’s adulting.
Terry Story: Yes.
Steve Pomeranz: Okay, that’s a new word for me. Let’s move on, the rate for 30-year mortgages is now four and three-quarters percent. I wonder what the NAR thinks about the impact of that on home sales.
Terry Story: Well, they had done a study, and they’re saying that the real estate market is underperforming currently.
Terry Story: And so, they don’t really feel it’s going to have much of an impact.
Steve Pomeranz: What does that mean? How can a real estate market be underperforming?
Terry Story: If you think about it, Steve, it really is underperforming because we have a great economy, low unemployment. The reason why it’s underperforming is because there’s not enough inventory. We would have a lot more sales if we had the inventory. So it always comes back to inventory.
Steve Pomeranz: So they’re looking at previous periods in economic history, where we had low unemployment. Business has been really good, and yet they should be selling X number of homes at this point, but they’re selling X minus.
Terry Story: Correct.
Steve Pomeranz: So it says it’s underperforming what they expect in this part of the cycle.
Terry Story: That’s right.
Steve Pomeranz: Okay, and we see that all the time. I mean, you and I talk about this continuously. There aren’t enough homes, and I think one of the reasons is that now there’s a new constraint. Because if I’m going to move, if I have a three and three-quarters mortgage, and now I’m going to move. Well, now guess what the mortgage is going to be?
Terry Story: Right, you’re going up.
Steve Pomeranz: Another reason that I might not want to move.
Terry Story: And this is happening and I see it all the time. I’m so frustrated because I meet with sellers, and sellers are like, well, there’s nothing out there to move to, and in reality, I’m going to pay more.
Steve Pomeranz: Yeah.
Terry Story: And not only are they going to pay more with their interest rate, but their taxes.
Steve Pomeranz: Yeah.
Terry Story: So it’s kind of the double… if they lose or, yeah.
Steve Pomeranz: Well, the only answer to any of this is more homes, the builders have got to build more homes, and I know they must have their own constraints because I’m shocked. I mean, in our area, they’re building.
Terry Story: Right.
Steve Pomeranz: But, I mean, we’re talking about across the country, I’m not really asking this question-
Terry Story: Right.
Steve Pomeranz: But it’s rhetorical, why aren’t they building enough homes to create supply to meet demand.
Terry Story: Right.
Steve Pomeranz: Yeah, all right. My guest, as always, is Terry Story a 29- year veteran with Keller Williams and she can be found at TerryStory.com. Thanks, Terry.
Terry Story: Thanks for having me, Steve.
