TheMReport — News and strategies for the evolving mortgage marketplace.
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cover story Sharga pointed out that the trend to watch comes not from buyers but from sellers—disappearing sellers. "Limited inventory and increasing home prices are having an effect on the lending landscape," Sharga suggested. "Limited inventory is creating opportunities for new home builders to re-enter the housing market in a meaningful way and, to a certain extent, create a separate channel for purchase loans in concert with non-bank lenders. This limited inventory— extremely limited in areas like Southern California—is causing prices to rise. Lenders need to work with qualified appraisers who can stay on top of pricing trends in order to provide accurate valuations to lenders in this quickly improving environment. Rising prices will also move some borrowers from a negative or near-negative equity position into positive territory, which potentially makes them candidates for refinancing." Susan Pryor, branch manager at Silverton Mortgage Specialists and radio show host of Real Estate Radio Atlanta, agreed. "The biggest challenge right now is lack of inventory," she said. "We have tons of prequalified buyers who are having a very hard time finding a home that meets their criteria. There are three things contributing to buyers not being able to find the home they want. The first is that the number of foreclosed properties has dropped dramatically in recent months. Second, larger institutional investors have been buying up all the smaller homes. The institutional investors have bought thousands of properties in metro Atlanta in the last six months. Finally, people have been nervous about putting their home on the market because they are worried about how much equity they have lost." According to Loan Value Group's Frank Pallotta, however, rising home prices and declining housing supply could be threatened once "banks begin to chip away at that foreclosure backlog." 24 | The M Report Pallotta went on to note, "We will almost certainly see an increase in supply that may cause a drag (or decline) on home prices again." Key Takeaway: In areas where inventory is limited, such as Southern California, homebuilders are faced with increasing opportunities, and as they re-enter the marketplace, channels are opening up for purchase loans in to get into positive equity positions before selling their current home and taking advantage of today's low home prices and low interest rates to move up, meaning more opportunities for lenders." Baker said lenders should look internally to convince buyers. "Reduced home sale prices, several years of lower-than-normal transaction activity, and renewed consumer interest in buying houses means that lenders should close their desired transactions at a specific rate of advantage over unapproved bidders. For instance, something like, 'Did you know that among those homebuyers who find a property they love and then make a bid on it, those who have preapproved financing lined up prevail more often than those who don't take the time to line up a lender and get ready to act fast in today's rapid-fire market?'" Key Takeaway: Below-average "There's room to be pickier with the number of buyers increasing again, and there's an opportunity to approach buyers early in their process, because getting preapproved and being able to act fast are things buyers can really use in their favor in today's environment." —Lanny Baker, Zip Realty, Inc. conjunction with non-bank lenders. Additionally, limited numbers of available homes will cause prices to rise in areas experiencing stronger inventory shortages. Today's Buyers and Sellers A ppreciating home prices can be helpful to track for several reasons, Sharga said. "First, as home prices improve, borrowers move from negative or near-negative equity positions to positive equity, meaning that they may qualify for conventional refinancing (there are a surprisingly high number of borrowers still paying interest rates of 5 percent or more). Similarly, many of these borrowers may have been waiting be seeing an improved new purchase home loan environment," Baker noted. "There's room to be pickier with the number of buyers increasing again, and there's an opportunity to approach buyers early in their process, because getting preapproved and being able to act fast are things buyers can really use in their favor in today's environment." "Lenders can capitalize on the frequency of multiple-bidder home sale situations to tout the benefits of prequalification/preapproval," he suggested. "Point out how hard it is to find a house and then how hard it is to submit a prevailing bid. And use those dynamics to argue for preapproval. A great and potentially persuasive statistic would document that preapproved buyers are prevailing to successfully transaction activity coupled with renewed consumer interest in purchasing homes indicates an improved environment for mortgage lending is on the horizon. As more buyers enter the marketplace, originators have the opportunity to approach potential borrowers earlier in the process to move forward with preapprovals that can assist aspiring homeowners seeking to make transactions in an increasingly competitive marketplace. Homing In on the Hot Spots O ne of the cornerstones of the housing sector—and the mortgage business—has of course, always been summed up in three words: location, location, location. However, differing or confusing statistics predicting the nation's best or worst markets are the enemy of real estate and lending professionals. Cutting through foggy findings for the year ahead, Sharga said, "There are two types of markets outperforming averages. One set of markets is made up of areas that were hardest hit during the housing bust: coastal California and Arizona, for example. As distressed inventory has been processed and cleared, many markets in these states have rebounded dramatically. Phoenix had one of the highest home price appreciation rates in 2012. The other markets showing strength are those in areas where economic