Here we are in the middle of 2023, had to believe. This year has been one of the slowest Real Estate Markets we have seen since 2009. We are experiencing record inflation for the 21st century of the like we have not seen since the early 1970s. This tells us that the cost of goods and services has risen faster than most people’s income streams have. What does this mean for Real Estate now and into the second half of 2023?
Based on the history of inflation you see the Stock markets go up due to the fact that the valuations of companies tend to go higher with inflation. We have seen this throughout history and this time is no exception. What you must be cautious of is when companies’ costs rise so high and the demand for those goods or services decreases thus income for those companies will also decline. After this companies will have to lay off salary-based employees to keep up with the rising costs and when this starts to happen you will see the economy fall into a recession or worse depression.
Inflation is such a killer of economies in many ways not just with the higher costs of goods and services but also with the availability of money with higher interest rates. Over the last year and a half now we have seen interest rates move from historic lows for 30-year fixed-rate mortgages from the 2%-3% range to now a 7%-8% range. What this has done is cut out a whole segment of the population’s ability to qualify for a new home loan. In California, we have starter home prices hovering around $500,000 on average for the state. What the higher interest rates have done is cut the people that could have qualified for this house. For example, the payment on a $500,000 house with 5% down at a 3% interest rate is $2002.62 principal and interest at 7.5% Interest rate the payment would be $3,321.27. At the 3% rate, an average borrower would have to make right about $7,000 a month to qualify for the mortgage. At 7.5% the borrower will have to show around $11,500 a month. This shows you the power of interest rates and buying power.
That said you would assume that Real Estate prices would have to come down to accommodate the higher interest rates. We saw this occur in some markets but not nearly enough to make up the difference. Today we see Real Estate prices staying relatively steady. The reason for this is interesting. Since so many people refinanced or purchased their homes with lower interest rates, they are reluctant to sell their homes as the can’t qualify for a move-up home, and in some cases, people couldn’t afford the house they are living in if they had to do it all over again. So, we are seeing people holding on to the lower interest rates and not selling their homes as they would have to qualify for a new home under the higher interest rates. With people not selling their homes, we are experiencing a supply shortage of homes on the market and with that low supply of available housing prices have remained steady even with the higher interest rates.
The next hammer to fall, unfortunately, is going to be employment layoffs. This is going to happen due to inflation and government spending that fuels inflation with an oversupply of money. In the second half of 2023, I see consumers holding on to their hard-earned money as the average consumer feels that something is going to happen, they just don’t know what. There are many factors that could fuel inflation, but the biggest unreported issue will be the worldwide devaluation of the dollar. When the world drops the US Dollar as the worldwide reserve currency, all the goods we buy from overseas will cost more and more. This is something that no generation of Americans has ever seen, the closest we got to this was the great depression. The way America got out of that was World War 2 by producing Ships, Planes, Autos, Guns, Ammunition, and such. The largest difference between then and now is that we produce very little in the US, we outsource to China and other countries. History tends to repeat itself, so shouldn’t be preparing for a war? If you are paying attention to the world and not preoccupied with all the social issues going on in our country, you will see how close we are to this prophecy coming true.
I don’t like to be negative, and I truly believe in America and the American way of life, however, I must be a realist with what I know and have seen with history. As the US Dollar becomes less valuable in the world markets this will cause further inflationary pressures on our economy. The only way out of this at this point is to figure out a way to re-set America’s debt to the Central Bank or get rid of the Central Reserve Banking system altogether and start with something new. How this could be done I would not know, but I do know it will be a very painful process to every American. With the BRICS nations and a new world reserve currency on the horizon, America is going to have to do something fast, very fast as that is supposed to launch in August of this year, and over half of the world’s nations have agreed to sign on this new asset-backed currency. Our central Bank is going to try and compete with this with a new Central Bank Digital Currency (CBDC). The problem with this is that even our own citizens don’t like the idea of this as Americans don’t like the idea of being watched or controlled in the name of some made-up government issue like climate control. For more on this please I urge you to do research on this as this CBDC is supposed to come out in July of 2023.
What will a CBDC do to interest rates, housing, and inflation? This is something that remains to be seen but rest assured it will be a rocky ride going into the end of the year. I always say if you can own Real Estate do so as Real Estate will have value. I believe that once people see the changes happening there will be a flight to quality investments like real estate. I will bet the Stock Markets will struggle, to say the least. Interest rates will be dependent on how much inflation we have as interest rates will rise as inflation rises. So, if you are looking for advice as to when to buy Real Estate my advice would be to buy as much as you can now, if you can find it, and hold those properties that you hold currently. Keep an eye on the world and what is going on, and research other sources other than your mainstream media that most of us have grown up on as we are not being told the truth to keep the masses under control for as long as they can. Not that one individual can do anything, but the power of the masses can make changes.
FHA Loans were born from the great depression in 1933. The idea of the government insuring a Real Estate loan, at the time, was ground breaking. In today’s world we expect the government to step in and try to fix things when the economy is sluggish or depressed. Back then our government was far less apart of the ordinary citizen’s life. So when the private sector was approached by the government to insure mortgages that were traditionally insured privately by large down payments was a ground breaking concept. At the time Banks and Brokers were the only way to get a home loan and they required that a potential home buyer put 25-50% or more down to buy a home. So when the government said they would insure mortgages up to 95% of the value of the home, you can imagine how this changed the way Real Estate Loans were originated. It was designed to stimulate housing growth to get the country out of the grips of the Great Depression. It worked, along with a whole new age of people relying on the government to help them when things were tough. Out of the Great Depression we also got a welfare system, unemployment insurance that the government collected from employers to help with displaced workers, and a whole litany of other programs that expanded the scope of the Government. The Federal Housing Administration (FHA) was designed to be a short-term way to get the housing markets stimulated to get out America out of the depression. The program still exists today, and you can take full advantage of it.
Today FHA loans are still alive and well and are used still today to get people into home with a small down payment. FHA loans are still a viable loan for those that have a small amount of money to purchase a home. The way an FHA loan works is very similar to Conventional or Private Loans in that a potential borrower must qualify for the loan with their income and current credit. When we say qualify there are several factors that a lender must review in order for a client to “qualify” for any loan. These factors are but not limited to having shown the ability to handle credit or in today’s word have a credit score that meets the criteria of an FHA loan (550 or better). Generally speaking FHA loans are more liberal when it comes to having a good credit score than that of it’s Conventional counterpart. If a borrower has a low credit score due to circumstances out his or her control and has shown that they are trying to take care of it and that is the only factor with regards to their financial situation they generally can get approved for a FHA Loan. There are several other factors that must fall into line before that can happen, however. For instance a borrower’s house payment combined with their monthly bills should not exceed 43% of their gross monthly income. This brings us to verifying income and what is required by FHA. First, a potential borrower must have a two year history of working that could be multiple jobs or a combination of school and a job and must be able to show that their income will be stable enough to maintain the mortgage payment. Next, a borrower has to be able to prove they have enough money for the 3.5% down payment. This money can come from savings or can be a gift from a relative or a close family friend, or aa approved Down Payment Assistance Program.
We talk about FHA loans being a federally insured loan, but what exactly does that mean when you have to pay the mortgage insurance on a FHA loan? Simply put there are two payments to the insurance fund a borrower will have to make; one the upfront insurance is 1.75% of the loan amount (Sales Price minus the 3.5% down payment requirement) this is actually added to the loan so you don’t have to come out of pocket for this; two the monthly payment of the mortgage insurance is a small percentage of the Loan amount every month. These insurance payments go into pools that are designed to protect the lender’s yield on the loan if there is a foreclosure. This insurance makes FHA loans more appealing to lenders and thus lenders have more flexible underwriting guidelines and can get more people into homes utilizing the FHA Loan.
When talking about flexible Underwriting guidelines your eyes probably just rolled to the back of your head. Not to worry I am here to help break it down to simple bullet points that you may not have heard of before. Being evaluated for loan approval seems daunting but that is why we have a team of folks to walk you through the whole process. Our highly qualified loan originators will walk you through the process. The Loan Officer will gather your pay-stubs, tax returns, bank statements and W2’s and they will do the analysis for you. Your loan officer will check your credit, check your debt-to-income ratio, and make sure you have enough money verified to close the transaction. The loan officer’s job is to paint your financial picture with your financial information and presented it to the underwriter, who will approve your loan. Our Loan Officers do this every day, multiple times, so they are experts at what it takes to get an FHA loan approved, so when you are looking for expert advice and guidance please let us to walk you through this process.
The benefits of using an FHA Loan are:
Now that we have explored the history and the benefits of using an FHA loan you may ask how do I apply for an FHA Loan? At MAE Capital Real Estate and Loan, we have over 35 years’ experience working FHA loans, so we would be your logical choice, not to mention our interest rates are better than the rest. Simply click on this link and you can start to apply right now or call us at 916-672-6130 and we can do it for your over the phone.