TheMReport — News and strategies for the evolving mortgage marketplace.
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46 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST ORIGINATION How Much Home Can Buyers Afford? With rates rising, here's how homebuyer affordability is being affected. A ccording to a study by Zillow, a homebuyer who could have bought a home valued at $393,700 in January 2018 would now be able to afford a home worth $372,000. That's assuming they want to keep their monthly payment the same as it would have been at the beginning of 2017, when mortgage rates were at 4.15 percent. The study indicated that rising interest rates were likely to bite into homebuyers' budget more than they might have antici- pated. The study, which forecasts mortgage rates to rise to 6 percent by the end of 2019, said that at that rate a buyer would be able to afford a home worth $319,000 to maintain their budget. This would also result in making concessions on location as well as space, the study pointed out. Additionally, buyers who were being pushed towards less- expensive segments of the market where the inventory crunch was also the most pronounced were likely to push prices in that segment upward. It would also result in the loss of potential homes that could be bought. "Right now, home shoppers wanting to spend no more than 30 percent of their median U.S. income can afford 56.5 percent of available homes," the study found. "With rates at 6 percent, they would be looking among 48 percent of available homes—a loss of 49,660 potential homes." So then, would timing the market help? Not really, according to Aaron Terrazas, Senior Economist at Zillow. "A home is the most valuable asset that most people will ever own, so it's especially important not to gamble with it," he said. "In the end, the best time to buy a home is always when the time is right for an individual buyer—often when they're financially ready, when they're relocating to a new area, or a major life event requires them to upsize or downsize." At the metro level, the study found that the impact of the rising mortgage rates was being felt more acutely in the hottest hous- ing markets. For example, in San Jose, a 6 percent mortgage rate would have buyers making the $118,400 median household income looking at homes that were $102,100 less expensive than those they might con- sider now. Why Real Estate Professionals Are Embracing Fintech Fintech is helping secure collaboration between all parties in a real estate transaction. F intech is evolving to be a big name in the real estate industry due to increased demand from homebuy- ers for better service. Here's how fintech is securing collaboration between all parties in a real estate transaction, according to First American's proprietary Real Estate Sentiment Index (RESI) for the fourth quarter of 2018. According to Mark Fleming, Chief Economist at First American, the largest group of prospective homebuyers, millennials, expect greater efficiency and convenience in their home-buying experience. First America surveyed title in- surance agents and real estate pro- fessionals across the nation to gauge their interest in fintech. Prospective homebuyers felt pressured to settle deals quickly before opportunities fade away due to low inventory and high home prices. Based on the respondents' perspective, Fleming pointed out three key innovations: secure collaboration and communi- cation portals, eClosing and remote online notarization, and chatbots to engage borrowers. Forty-five percent of title agents and real estate profession- als surveyed said that the most important financial technology that helps potential homebuyers accelerate transactions is secure collaboration and communication portals. The respondents indicated that a secure platform allows them to correspond with lenders, real estate agents, escrow officers, and other parties involved with the real estate transaction. The report found that 34 percent of title agents and real estate professionals believe that remote online notarization and eClosings will have a large impact and will help homebuyers close their trans- actions faster and more efficiently. Through remote online notariza- tion, a notary can notarize docu- ments remotely over the internet via tamper-evident digital tools, sophisticated fraud prevention technologies, and live audio-video conferencing. Fleming notes that "eClosing, the electronic execution of mortgage loan closing, can also reduce the risk of manual errors in the closing process, improving loan quality alongside efficiency." Eighteen percent of title agents and real estate professionals indicated that tools that help with process efficiency and automation, such as customer service chatbots, would help deliver a more efficient home-buying experience. "With more and more prospec- tive homebuyers searching for homes and information online, chatbots can help real estate agents engage potential customers in real time as they are browsing online listings, at any time of day. 2019 is anticipated to bring increased adoption of these innovations," Fleming said.