5 Shifts in Mortgage Lending Impacting Home Buyers in 2023

Five key borrowing shifts are impacting home purchases in general and here along the Outer Banks and if you are buying or even thinking about buying a home in the next 6-12 months, this video should be part of your due diligence. Welcome to another episode of Emerald Isle Vacation Home Specialist. I am Denis Raczkowski, the real estate broker-baker living the dream on the North Carolina Outer Banks. For the past couple of years, buyers have fueled a red-hot housing market as they rushed to secure record-low mortgage rates. But FIVE shifts have been underway for the past several months both nationally and locally which may affect how buyers secure financing for their next home purchase. In this blog I summarize the national trends and speak specifically to local impacts on home buyers. Number one is rising interest rates. Not likely will we be seeing interest rates below 3% on a 30-year fixed rate mortgage any time soon. Never say never but a robust economy and strong job numbers resulting in rising inflation have pushed rates up. If you are a buyer, there are benefits even with a 7% mortgage interest rate. First, there is no more panic buying, settling for what’s not under contract. Second, there is less competition. Higher interest rates are pushing some would-be buyers out of the market. Third, there is more choice. Houses are staying on the market longer so you can visit more options. And fourth, there is no need to worry about a 30 year fixed mortgage. My advice to you is “Buy and REFI.” Mortgage rates are only going to go down by the end of 2023 and the beginning of 2024. And on that note, my first mortgage rate was 18%. We got that down to a more reasonable 11% by assuming the sellers’ first mortgage, a strategy no longer available to home buyers. My point is to be flexible and look long term. Which is what you should do when purchasing real estate.

Number two is tightening of lending standards. Nationally, the most favorable rates will go to borrowers with stellar credit scores –scores of 750 and above– and to borrowers who make large down payments, 25% and more. However, lending criteria in the vacation and second-home markets are a different animal and tighter criteria give new meaning to the adage, ‘real estate is local.’ Tighter underwriting criteria apply here no matter the credit score or down payment so second-home buyers face even higher rates. This is a huge issue here in my second-home real estate market here in Emerald Isle but lenders know that homeowners always care more for their primary home, after all they have to live somewhere, than they do for a second home or investment property. Financing second homes is a unique niche and several non bank entities are moving into it here along the coast. One lender I refer to works with clients with credit scores as low as 675. Another has a product that looks at rental revenue streams as opposed to your reported income. If you would like information on either of these niche lenders leave a comment below.

Number three is larger mortgages. Continued higher home prices are leading to larger loan amounts. The national average is right around $380,000. A year ago that number was $332,000. This increase is due, in part, to buyers nationally who are upsizing their space. Applications for mortgage amounts north of $700,00 have jumped year after year while mortgages in the $200,000 range have decreased slightly. Here along the Outer Banks, larger mortgage amounts reflect rising prices and not so much larger homes. After all, most people relocating to the coast are downsizing. And that’s a good thing because it's a rare home along the Crystal Coast that exceeds 3000 sq. ft. Bottom line, America is an expensive place to live and housing is a primary reason. My first mortgage dollar amount was $68,000 and my most recent mortgage dollar amount was $350,000.

Number four is more non bank lending. More and more Buyers/borrowers are turning to non bank options to secure financing for several reasons. Non banks are competing more on interest rates and underwriting than banks ever have. That is likely to continue as banks seemingly are content to compete from the sidelines. Indeed, the top five US banks, Wells-Fargo, Bank of America, JPMorgan-Chase, US Bancorp and Citigroup were responsible for only 21% of the total mortgage originations last year, a 118% decline from only 11 years ago. Non bank lenders offer traditional loans at lower costs, with more relaxed eligibility criteria and expanded digital options in loan processing. While I am not a fan of Rocket Mortgage for the simple reason that when the rocket takes off with my financial data I don’t know where it goes, Rocket Mortgage issued the highest dollar amount of single family home loans in 2021. Here, along the Crystal Coast, two out of every three of my buyers are using non bank options for one very good reason. Local institutions understand the market better than the brick and mortar big banks. For example, when my wife and I purchased our first oceanfront home here in Emerald Isle, we used our mainland bank to secure the mortgage. The first words out of our banker’s mouth were: “How the hell can a 2000 ft. stick frame house cost that much?” I replied that it might have something to do with it sitting on land that abuts the Atlantic Ocean.” For our second home purchase in Emerald Isle, we used a local, non bank for our loan.

Number five is rate lock-in effect. Some homeowners are not selling because they don’t want to give up their existing ultra-low interest rate. This squeezes supply and places upward pressure on home pricing. Of course, mortgage rates aren’t the only factor potential home sellers consider prior to putting their homes on the market. Some homeowners are seeking more or less space and some are looking at public school districts or certain quality of life amenities, especially if they are fortunate to have the flexibility to work remotely. Indeed, it is quality of life issues that have fueled the coastal Carolina real estate market these past few years and it shows no signs of abating.

BONUS. As you have learned, the real estate market on the Outer Banks does not always operate in lockstep with national trends. The market here is so unique that I wrote a book about it, Live Where You Vacation. It is available on Amazon but if you make a request in the comments below, I will send you an e-chapter as my thank you for staying with this video to the end. Go to www.EmeraldIsleHomesforSaleNC.com and sign up for my blog. Explore the video tab for my weekly uploads to my YouTube channel. Subscribe to my YouTube channel and receive free donuts at my Flip Flops Donut shop. Ready to buy or sell? Call me at 919-308-2292. Text your email address to 919-308-2292 and subscribe to my newsletter. My book, "Live Where You Vacation" is available on Amazon.com or at Kindle. I post weekly blogs and videos, on real estate, on personal improvement and life here along the Crystal Coast. Thanks for reading. See you next week.