Monday Morning Economist: Homogenization and Differentiation

The Country's greatest national holiday, the Super Bowl, has come and gone and with its passing comes the Spring Real Estate Market.  Like most industry professionals, I have taken the short offseason to catch up on continuing education, implemented new tools and energetic staff and prepared to leverage the still historically low interest rates for the forecasted strong 2013 purchase and resale market.  Agents are busy internalizing inventory within their market and lenders equally so taking applications and collecting documentation needed to issue upcoming pre-approval letters.  We all need to educate our clients with the understanding Inventory is significantly down and contract offers are going to be competitive.

Our local real estate market has been somewhat isolated compared to the rest of the country.  But many homeowners in our area are still unable to list their home because of low equity positions derived from the 100% interest only and negative amortization mortgage financing solutions secured nearly a half decade ago.  Further exasperating the situation are homeowners with adequate equity holding off the selling their home till they find something suitable to purchase.  Both factors culminate with the historically low cost of financing and relatively strong local employment numbers to erode any surplus of inventory.  Days on market in the DC area has shrunk 36% compared to this time last year because of these low levels.  In fact the number of properties on the market in December decreased to the fewest since January of 2001 meanwhile the median sales price in the area has raised nearly double-digits from January of 2012.

All-cash investors stand in good negotiating position as their offers are void of contingencies typically written into contracts aimed at protecting homebuyers. New lending guidelines introduced by the Consumer Financial Protection Bureau (CFPB) will further lead to the homogenization of lending products.  It is now more important than every for a homebuyer to work with a reputable lender having a strong local market understanding and presence.  Contingent on sale contract offerings are going to be a reality for homebuyers who can't qualify for financing taking a "buy before sale" approach.  For all others it will be important to make their contract standout as strong as possible while removing as much perceived risk to the contract contingencies designed to protect said homebuyers. 

Listing agents are making after hour calls to lenders on almost every offer before presenting it to their sellers for consideration.  Good lenders working together with buying agents and their clients will come up with creative ways to standout such as being prepared and highlighting both their strong credentials and overall seriousness by agreeing to close quickly, say in as little as two to three weeks.  In some cases this may require a short rent-back to the sellers but definitely will signal a buyer's ability to buy a home.  An appreciating market is a great local economic signal and informing our buyers of the competition they will come up against is an important step in helping them successfully win the home that will meet their needs.  Check with your client's lender before putting a contract together to make sure your buyer's offer is as competitive as it can be.  In a commoditized lending environment service will be the great differentiator whether that is in having the ability to close quickly or simply having the ability to write shorter contingency periods.  

Thad Musser is a Vice President at First Savings Mortgage and has over 12 years of mortgage banking experience with an undergraduate degree in Economics and masters in Finance. tmusser@firstsavings.com ~ www.thadmusser.com.

(Article image courtesy of PT Money, Creative Commons attribution)