Uncertain Times
So what’s happening in the real estate market as we continue to careen through these unprecedented times? Much indeed! We heard last month that 7 out of 10 Americans are having to tighten their belt to afford their rent or mortgage payments. Inflation has climbed sharply due to all the COVID relief spending in Washington. According to research done by the Free Thought Project, over 80% of the US dollars in existence were printed in the last 2 years. Home prices are sky high, The new year brings some further instability in the market. With Goldman Sachs predicting that the Federal Reserve will raise rates four times this year, it’s no surprise that mortgage rates have already started to rise. The MReport stated that “Mortgage rates continued to climb for the second consecutive week, as the latest Primary Mortgage Market Survey (PMMS) from Freddie Mac found the 30-year fixed-rate mortgage (FRM) averaging 3.56% with an average 0.7 point for the week ending January 20, 2022.” This was up from last week which average 3.45%. They also reported that “Mortgage rates moved up again as the 10-year U.S. Treasury yield rose and financial markets adjusted to anticipated changes in monetary policy that will combat inflation,” said Sam Khater, Freddie Mac’s Chief Economist.“
Softening Demand
With consumers already struggling with housing costs, the increase in mortgage rates could slow things down a bit. In fact, The latest Mortgage Bankers Association Builder Application Survey (BAS) for December 2021 shows that mortgage applications for new home purchases dropped 7.1% compared to December 2020. Month-over-month, compared to November 2021, mortgage apps decreased by 5%. In addition, The National Association of Realtors reported that existing home sales for December came in as a miss of estimates at 6.18 million, prompting Housing Wire to speculate that home sales may have peaked in 2021.
However, it is unlikely that these factors alone will cause a steep drop in home prices. DS News reported that Zillow data shows that “inventory levels in December dropped by 11.1% to 923,000 units, an all time low recorded by Zillow. This number represents a 19.5% reduction from levels seen at the end of 2020 and a 40.5% drop from pre-pandemic times at the end of 2019.” It is difficult to predict the impact of that low a level of inventory, but it could definitely keep the prices up as more and more people are competing for a shrinking number of homes to purchase.
Wild Card: The Stock Market
One wild card in the whole equation is the stock market. As of this writing, the market has been dropping broadly for the last week. a knowledgeable trader I know says that brokerages will have to start making margin calls if the market keeps falling. That can have a strong impact on various markets when investors have to scramble to cover their stock positions. The market could drop precipitously and we could see the recession that the Fed has been fighting so hard to keep at bay. What will happen remains to be seen, but keep your eye on the major indexes.
What’s Happening with Notes?
Notes are still an excellent investment, especially when considering the 1.1 million mortgage loans in forebearance. These notes are already becoming available, with Freddie and Fannie releasing inventory in the 2nd half of 2021. Non-performing notes are excellent for creating a larger spread between your investment and the unpaid balance on the loan. This additional yield is a great benefit when times are uncertain, but non-performing notes take a lot more work and are not for the passive investor. Performing notes are still the way to go for the investor who wants to build a cash flowing portfolio. One way to boost returns with performing notes is to buy only a portion of a note. That way you can help the original note holder with a short term cash issue which can boost your yield on the front end while allowing the seller hold the back end of the note for longer term income. The NoteUnlimited partial calculator tool can show you how to analyze these kinds of deals quickly and easily to allow you to tailor your offer to the situation.
Bottom Line
We love the stability of the note business and all the income potential that it offers. Opportunities abound for the creative note investor. You can find notes from online marketplaces like NotesDirect, Paperctac or through your own marketing. But bottom line is that buying notes is a numbers game. The more notes that you can look at in the shortest amount of time, the better you will do in this business. That’s why we’re so proud of the NoteUnlimited bundle of apps. These can help you analyze data more quickly and with fewer errors. It so much easier than bouncing around to five different websites looking for local market data, valuations, crime statistics and trends. And our redeeming/non-redeeming tool creates quick comparison chart so you can reliably sort your potential assets and find those that fit your specific criteria. If you haven’t tried it yet, go to NoteUnlimited.com to try it free. If you’re already a user, please post below and tell us your favorite part of using the tool. And don’t forget to tell your friends about the free note calculator available to everyone.
Go out and have make it a prosperous 2022.
Gary
References:
https://themreport.com/daily-dose/01-20-2022/rates-second-week
Eric C. Peck
Mortgage Rates Climb for the Second Consecutive Week
https://themreport.com/daily-dose/01-20-2022/new-home-purchases
Demetria C. Lester
Mortgage Applications Decreased 7.1% for New Home Purchases
https://dsnews.com/daily-dose/01-21-2022/inventory-of-homes
Kyle G. Horst
Inventory of Homes Drops Again to 923,000 Units
https://themreport.com/daily-dose/12-15-2021/housing-payments-us
Demetria C. Lester
Majority of Americans Struggling With Housing Payments
https://www.housingwire.com/articles/did-existing-home-sales-peak-in-2021
Did existing home sales peak in 2021?
By Logan Mohtashami
https://www.cnbc.com/2022/01/10/goldman-predicts-the-fed-while-hike-rates-four-times-this-year-more-than-previously-expected.html
Goldman predicts the Fed will hike rates four times this year, more than previously expected
https://thefreethoughtproject.com/80-of-all-us-dollars-in-existence-have-been-printed-in-just-the-last-two-years/
80% of All US Dollars in Existence Have Been Printed in Just the Last Two Years