As the real estate market undergoes significant shifts, home buyers, real estate agents, and luxury investors - especially those in California’s Wine Country; Napa Valley, St. Helena, Yountville, Sonoma, etc. – must adapt their strategies to capitalize on emerging opportunities like that of Reverse Mortgaging.
This blog delves into the surge in reverse mortgage usage, and the changing dynamics of international buyer activity. Whether you're considering a home purchase or investment, understanding these market dynamics can help you make informed decisions in the ever-evolving real estate landscape.
The insights provided in this blog are courtesy of Brian Bowman, Vice President of Mortgage Lending at Origin Point, a leading provider of innovative real estate financing solutions, and my Origin Point “point person” (pardon the pun.) With decades of experience in the industry, Brian offers a unique perspective on the factors shaping today's luxury real estate market.
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What is OriginPoint?
If you follow me on social you’ve seen my post about OriginPoint along with their latest products. OriginPoint is a mortgage origination company that partners closely with Compass Real Estate to streamline the home-buying process. Founded by industry leaders (Guaranteed Rate and Compass Real Estate), OriginPoint offers a range of mortgage products and services tailored to meet the needs of Compass Agents' clientele. By integrating with Compass, OriginPoint aims to create a seamless experience for buyers, from searching for a home to securing financing, enhancing the overall efficiency and client satisfaction within the real estate transaction.
Reverse Mortgage For Home Purchase
Use a reverse mortgage to pay off an existing mortgage and access additional cash or equity through a second-position loan or equity line. This can also help finance the purchase of a new property.
Key Advantages of Reverse Mortgages
- No Required Payments: Borrowers are not obligated to make monthly payments on the loan.
- Non-Recourse Protection: Borrowers can remain in their home indefinitely and are not personally liable for repayment beyond the home's value.
- Flexible Qualification: Traditional credit and income requirements are not necessary to qualify for the loan.
Source: FTC - Consumer Advice: Reverse Mortgages
The Movement of Interest Rates
Mortgage interest rates have already moved significantly lower over the past several weeks. Where they move from here will be determined by many factors – not the least of which is the next jobs report to be released next week. After the weaker report for July, another tepid or even moderate job report for August would just about clinch a rate decrease by the Federal Reserve when they meet in mid-September.
Wait? The Fed has not already lowered interest rates? Then how come mortgage rates are going down already? This is just a reminder that the Federal Reserve directly controls short-term rates. The Federal Funds Rate is the rate banks charge each other for short-term lending. How short-term? Overnight. Banks are constantly getting deposits and making loans, and they are required to keep a certain reserve requirement each day. Therefore, if they are short of this requirement, they may have to add reserves overnight. When the Fed changes the Federal Funds rate, certain short-term rates move automatically, for example, the prime lending rate.
Long-term rates are indirectly affected by the movements of the Fed. However, the bond market trades every day just like the stock market. Thus, while they are influenced by the Fed’s moves—long-term rates can move in anticipation of Fed activity. For example, when the last jobs report was released, long-term rates such as mortgage rates moved down immediately. Yet, short-term rates such as the three-month Treasury did not move nearly as much. Thus, if we have a weaker jobs report for August, mortgage rates may move down again. But don’t expect rates to move down when the Fed lowers their Federal Funds rates because the markets would have already anticipated that move. That is unless the Fed surprises the market and makes a bigger move than expected -- such as a 0.5 percent decrease instead of .25 percent.
Real Estate Report
Reverse Mortgages
Qualified older Americans may be able to use a reverse mortgage not just to stay in their current home but also to buy a new home. Reverse mortgages were first written in 1961, according to Investopedia. They became better known when President Ronald Reagan signed the Housing and Community Development Act into law in 1988. Since then, the U.S. Department of Housing & Urban Development and the Federal Housing Administration have worked to add safeguards through federal regulations, insurance, and more stringent qualifying criteria.
Today, qualified older Americans may be able to use a reverse mortgage not just to stay in their current home but also to buy a new home. Buyers, who must be at least 62, must demonstrate they have the income to pay real estate taxes and the cost of homeowner insurance and can afford to maintain their home, whether a single-family home or a condo, says Steve Resch, vice president of retirement strategies with Finance of America Reverse, based in Tulsa, Okla. Those who might benefit most are homeowners who want to access capital without affecting their budget or savings because borrowers have no required principal or interest payments for as long as they are living in the property.
A reverse mortgage could also benefit those who might outlive their retirement savings. The reverse mortgage amount will range from 35% to 60% of the value and is determined by the age of the youngest borrower, the current appraised value & of the home, and current interest rates, says David Tourtillott, a loan originator with Homestead Mortgage LLC in Hyannis, Mass. Available funds can be left in a line of credit, which can appreciate over time, Resch says. “A borrower can use them for a variety of needs, from in-home health care to HOA costs or to build an ADU,” he says. Once a borrower sells a house, the remaining monies are paid back, first to the reverse mortgage company. Some don’t like reverse mortgages because of the closing fee of 2% of the appraised value, plus origination and attorney fees. Resch doesn’t recommend them for borrowers who plan to live in their house for less than 10 years.
Source: Realtor Magazine: Is a Reverse Mortgage Smart?
2024 Midsummer Market Update Overview
Read how interest and inflation rates are affecting real estate in wine country.
International Buyers in U.S. Real Estate
At $42 billion worth of sales, international buyers purchased one-fifth (21.2%) less U.S. real estate from April 2023 to March 2024, compared to the previous year. The 54,300 existing homes sold are 36% fewer annually, and the lowest since the National Association of Realtors (NAR) began tracking in 2009. International buyers accounted for 2% of the $2.1 trillion in total U.S. existing-home sales during that period.
“The strong U.S. dollar makes international travel cheaper for Americans but makes U.S. homes much more expensive for foreigners,” said NAR Chief Economist Lawrence Yun, accounting for the decline.
“Therefore, it’s not surprising to see a pullback in U.S. home sales from foreign buyers. ”The average and median purchase prices for foreign buyers were the highest ever recorded by NAR, at $780,300 and $475,000, respectively.
The top destinations for foreign buyers in the U.S. were:
- Florida (20%)
- Texas (13%)
- California (11%)
- Arizona (5%)
- Georgia, New Jersey, New York, and North Carolina (4% each)
Florida has remained the top destination for foreign buyers for 16 consecutive years.
All-cash sales accounted for half of international buyer transactions compared to 28% of all existing home buyers. Canada led all countries of origin in the share of foreign buyer purchases of U.S. existing homes at 13%, followed by China and Mexico (11% each), then India (10%).
China was first in U.S. residential sales dollar volume at $7.5 billion, which continues a trend dating back to 2013. Canada ($5.9 billion), India ($4.1 billion), Mexico ($2.8 billion), and Colombia ($0.7 billion) rounded out the top five. Non-resident foreign buyers (68%) were more likely to make an all-cash purchase than resident foreign buyers (36%). More than two-thirds of Canadian (69%) and Chinese (68%) buyers made all-cash purchases, the highest shares among the top foreign buyer nations.
Source: NAR: International Transactions in U.S. Residential Real Estate
Buyer-Friendly Market Conditions
The market is getting more buyer-friendly as a result of a combination of increasing inventory levels and price decreases, according to Realtor.com’s July housing data. In July 2024, the number of active homes for sale increased by 36.6% from the same month the previous year, reaching a post-pandemic high. At the same time, the percentage of listings with price reductions reached 18.9%, the highest level since October.
“The inventory scars of the pandemic-era housing market are continuing to fade,” said Danielle Hale, Chief Economist of Realtor.com. “Although active listings are still short of the pre-pandemic mark, we saw the gap continue to narrow meaningfully as active listings hit a post-pandemic high. As sellers continue to list homes and buyers become choosier, the time a home spends on the market is extending, thereby helping the housing market move in a more buyer-friendly direction.
In response, sellers are curbing expectations and reducing listing prices more often which could set the stage for more sales this fall, especially if mortgage rates continue to decline.”
National Market Stats
The total number of properties for sale climbed by 22.6% nationwide, marking the ninth consecutive month of growth and exceeding the 22.4% rate from the previous month. Although inventories remain below pre-pandemic levels, the difference between the levels in 2017–2019 and the current levels is decreasing.
Source: Mortgage Point: Share of Active Homes For Sale Hits Post-Pandemic High
The applicant is subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Refinancing your mortgage may increase costs over the term of your loan. Restrictions may apply.
This is not a commitment to lend. The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the borrower does not meet these loan obligations, then the loan will need to be repaid. Otherwise, the loan must be repaid when the last borrower passes away or sells the home. Prices, guidelines, and minimum requirements are subject to change without notice. Some products may not be available in all states. Subject to review of credit and/or collateral; not all applicants will qualify for financing. It is important to make an informed decision when selecting and using a loan product; make sure to compare loan types when making a financing decision. This material has not been reviewed, approved, or issued by HUD, FHA, or any government agency. Rate is not affiliated with or acting on behalf of or at the direction of HUD, FHA, or any other government agency. To find a Reverse Mortgage counselor near you, search the HECM Counselor Roster at https://entp.hud.gov/idapp/html/hecm_agency_look.cfm or call (800) 569-4287.
