Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
Well it didn’t take very long.
The Fed increased interest rates a few weeks ago and we’re starting to see the impact on housing already.
A week after the only rate hike of 2016, the 30-year fixed-rate mortgage jumped to 4.3% for the week ending Dec. 22, 2016. This is up from 4.16% the week before, and from last year’s 3.96%.
I read a couple of different pieces on this the other day that walked through what’s happening…
The Refi Market
First, regarding the refi market, one report showed that the number of potential refinance candidates dropped by more than 50% as roughly 4.3 million borrowers were removed from the pool of potential refinance candidates.
That left just approximately 4 million borrowers who both benefit from and likely qualify for a refinance.
Also, according to the same report, another 700,000 borrowers lost the incentive to refinance with the latest interest rate increase. That means that right now there are 3.3 million borrowers in the eligible to refinance pool, which also means that 5 million borrowers lost the incentive to refinance since the beginning of November when interest rates began to increase.
The refinance population has only been this low on two occasions in recent history - December 2013 and January 2014.
The Purchase Market
Another article stated that pending home sales fell to lowest level since January 2016.
NAR, as usual, hurried to state the obvious that the two main drivers of the decrease in pending sales was the interest rate hike and available inventory.
They also said that their forward-looking index fell 2.5% in November, and after falling further in December, their index is now 0.4% below November 2015 and at its lowest reading since January 2016.
But it wasn’t an across-the-board decrease...
According to NAR, the Northeast saw monthly and annual pending sales gains in November. In the Midwest, their index fell 2.5% in November, and is now 2.4% lower than November 2015.
In the South, pending home sales declined 1.2% in November, and are now 1.3% lower than the same time period last year. And in the West, their index fell a whopping 6.7% in November and is now 1% below a year ago.
Based on these trends, NAR believes that 2017 could see only a small gain in home sales.
Their chief economist had an interesting take on this... he said that higher borrowing costs “somewhat cloud” the outlook for the housing market in 2017, but the forecast isn’t quite as gloomy as it may appear.
He thinks that the impact of higher rates will be “partly neutralized” by stronger wage growth as a result of the 2 million net new job additions that are expected next year.
So, it looks like we might still see some balance in the market with these offsetting factors. But it bears watching nonetheless.
What Do You Think?
Tell us what you think about all of this in the comments section below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.