A few years back my crystal ball cracked and my ability to predict where mortgage rates may be headed cracked with it! No one really knows where interest rates may be headed. While everyone has their opinion, very few may have the true ability to predict it correctly. So while I don’t profess to be an interest rate prediction guru, I can say rates have been very low for nearly a decade and it is probably inevitable they are going to go up, at some point. Have we reached the start of that point?
Maybe, maybe not, but if interest rates do go up, as a mortgage professional or real estate professional, are you prepared? Some of the participants in these industries have never been through any type of prolonged rising interest rate environment or the effects that has on mortgage and real estate. Many of us that have been through those times, may be caught off guard if we shift into that type of environment. Here’s what we all need to remember, the sky is not falling!
Rising rates changes the environment of mortgage and real estate sales, but the real estate and mortgage worlds don’t come to an end because of rising rates. Professionals in these industries just need to change their mindset and seek the new opportunities that all challenges present, if you’re looking.
In my book of business, that opportunity is renovation and renovation lending. I believe that many professionals in the real estate and mortgage industries miss the opportunities that renovation offers. I read in an online article by Kerry Close, from Time.com’s Money section titled, “The One Big Real Estate Trend You Need to Understand in 2017”, published on November 27, 2016, this blurb about renovation:
“And while no one wants to tackle a major overhaul, buyers who are willing to make at least some upgrades can get a better deal, notes Svenja Gudell, Zillow’s chief economist. You won’t be alone: More than half of home owners who bought in the past year got a place that needed at least some updates, according to a recent Zillow survey.”
The link to the full article is here: http://time.com/money/4580149/real-estate-housing-market-trend-2017/
Did you notice the last sentence? The author’s research found, “More than half of home owners who bought in the past year got a place that needed at least some updates…”. My research shows that the United States has averaged approximately 5.3 million existing home sales annually in 2016*. This means that there are potentially 2.6 million home sales where home owners will be doing some type of update or improvement to the home.
One of the most popular renovation loan programs is the FHA 203(k) program. In the fiscal year just ended September 2016, there were a total of 16,998 endorsed 203(k) loans! Other renovation programs are available through Fannie and Freddie or local bank programs, but my experience shows those programs, at most, may be equal to the number of 203(k) loans that are completed. If that presumption is true there were, perhaps, 35,000 renovation loans completed over the year and if the statistic from the Time article is accurate, there are 2.6 million plus renovation opportunities! Did someone say opportunity?
If interest rates do start to rise, traditional home sales and mortgage business slows down. However, there are still great opportunities for those that learn and become efficient with renovation and renovation lending. Real Estate professionals need to learn how to market homes that need some work (over 50% of all home sold per Zillow) with a renovation plan and vision on what the improvements can do to improve the home. This will help these homes sell much faster and not remain on the market for as long. Mortgage professionals need to work with their real estate network to show them the benefits of marketing in this manner and provide the mortgage solutions for those buyers that want to make the improvements to the home.
Some buyers will still want to get a traditional mortgage and pay for the improvements out of pocket, but many will take advantage of the benefits a renovation loan can offer and have the ability to have the improved home 6 to 8 months after they purchase their home. How much more of a satisfied buyer can a real estate professional have than a reference from a buyer stating they found them the perfect home? The truth is, the home wasn’t perfect, but selling the buyer on the future vision of the home and then providing them with the mortgage tools to get the home in very short order after closing, is the key to creating an extremely satisfied client, who will refer business to that real estate and mortgage professional!
In a market where rates may be rising, this is how and when you separate yourself from the field and capture more referrals and continue to stay busy when the industry slows down! Real estate professionals can learn more about marketing homes with a renovation plan and using the latest technology to help your buyer see and experience the renovated home. Information is available at RenovationRealm.com on these techniques. Mortgage professionals should speak to their companies about these programs and if the companies would like information on offering these programs and/or need a correspondent investor they can contact me at Insights@RenovationRealm.com for more information.
Thanks for reading today and check back often for new information and techniques.
* Existing Home Sale data from MortgageNewsDaily.com.