Government Getting More Conservative on Lending Criteria

When a consumer takes out a mortgage loan from a bank they do so on the primary mortgage market. The primary mortgage market consists of anyone who directly loans money to consumers, for example a bank.

The primary lender packages up and sells these mortgages on the secondary market as mortgage backed securities to free up funds and be able to lend more money.

One of the largest players in the secondary market is the government and they set their criteria on what type of mortgages they will buy. Currently, consumers can qualify for mortgages with DTI (Debt to Income) ratios all the way up to 49% and the government will still buy them on the secondary market. However, the government has begun to hint that they want to take a more conservative position and bring their DTI limits to 43% 

So how does this effect both buyers and sellers? 

For buyers: You will now have less purchasing power as you will qualify for a smaller mortgage amount. For example, say you gross $10,000 a month. Currently you can have a monthly debt of $4,900 at that income level.  

Hypothetically, Let's say in that $4,900 monthly debt, $2,800 goes towards your mortgage, $1,500 goes towards your credit card expenses and the remaining $600 goes towards car loans. Now keeping your wage at $10,000 and lowering the DTI to 43% you can now only have monthly debt of $4,300. If your credit card and car loan expense stays the same, you've now gone from being able to afford a $2,800 monthly mortgage payment to a $2,200 monthly mortgage payment. 

For Sellers: Being that buyers will have less purchasing power, the market will not appreciate as much as it has for the past two years (7%-10% YTD). Simply, what this means is that if you're planning on waiting to sell for another few years to see your home appreciate, don't. Interest rates are only going up from here so it makes more sense to sell now when buyers can still afford more than usual due to lower interest rates. While you can take advantage of the low rates yourself on your next purchase. 

As always if you have any questions, give me a call 201-403-1314. 

-Kyle Kovats, New Jersey Realtor

Why is the First-Time Home Buyers Market Lacking Inventory?

With the jobs market still recovering we are seeing homeowners stay in their first homes for longer periods of time. This is due to stagnant wages and outsourcing becomes more and more prevalent. 

The biggest correlation to the housing market is the jobs market. When the jobs market is booming the housing market is on fire and many "upgrade buyers" enter the market. When the jobs market is uncertain, people hold onto their first homes rather than becoming "upgrade buyers". This leads to a low amount of inventory in the first-time homeowners market. 

So how do you find a home when there's nothing on the market? 

1) Call me. 

2) Tell me exactly what you're looking for, be as specific as possible. Once I know exactly what you're looking for I can almost always find you a home off the market that suits your needs. 

As always if you have any questions, feel free to give me a call 201-403-1314. 

-Kyle Kovats, New Jersey Realtor 

October 2013: How's the Real Estate Market Doing?

The real estate market in NJ has experienced rising home values since early 2012. Why? Interest rates reaching all-time lows lead to a huge surge in buyers and has fueled the housing market for the past 22 months. Bidding wars have become commonplace and multiple offers on properties, the norm. In fact, one of the only problems that I’ve run into is that houses are selling for too much money in these bidding wars and buyers have to put down a larger down payment to meet lending criteria due to appraisal values coming in below sales prices.

But what happens when interests rates rise, will the housing market slump? Over the summer from June to August we saw interest rates rise nearly 1% and all this did was bring more buyers to the market than we previously had. The reason for this is buyers did not want to miss out on locking in an interest rates in the 3-4.5% range (30-year rate today is 4.28%). I personally saw a ton of buyers coming out from their rentals in the Hoboken and NYC areas to find homes in the suburbs.

Economists have stated that buying in New Jersey will be cheaper than renting until interest rates hit roughly 6%. The bottom line is we may not experience the 7-10% appreciation in home values per year that we’ve seen over the last 22 months but the housing market should continue to appreciate for the foreseeable future. 

If you'd like to check out some of the current inventory we have in North Jersey, check out my website, NorthJerseySuburbs.com. If you have any questions at all please feel free to e-mail me, KyleKovats@Gmail.com 

-Kyle Kovats, New Jersey Realtor 

Why The Luxury Homes Market is Booming

Since June interest rates have risen roughly 1% causing renters who were on the fence about their buying timetable to speed up their searches. In the Essex County market we have seen a huge surge in buyers from areas such as Hoboken, New York City, and Jersey City. A lot of these young couples were renters who became active buyers.

The surge in buyers has caused record lows in inventory and made prices appreciate above normal appreciation rates. We've even seen bidding wars break out in the luxury home market which is usually not common due to the "jumbo" loan process.

However, is this boom sustainable? The answer is, it depends. If the fed continues to buy mortgage backed securities to keep interest rates low, we should continue to see buyers come out in the droves in all price ranges. Once interest rates hit roughly 6% and the cost of renting vs. buying become even, then we'll see the market slow down and appreciation scale back. Until then, we will continue to have a booming sellers market.

-Kyle Kovats, New Jersey Realtor

Why Do Some Agents Overprice Properties?

So, you're selling your home and you want to get top dollar. You interview 3 agents and decide to go with the agent that will list your home for the most money. Sounds smart. You're figuring if they're going to list it for the most money they'll surely sell it for the most money, right? Wrong.

Beware of agents who overprice listings, they intentionally do it for a couple of reasons that I will outline below.

1) They bought your listing- the term "buying a listing" refers to a strategy some agents use to get listings. Buying a listing means that they essentially told you that your home is worth alot more money than it actually is to excite you and get you to list with them. After you list with them, month after month after minimal showings they will tell you that your home is priced too high and that you must reduce the price. After six months go by and your home has still not sold, you're left with what we in the industry call a stale listing. You missed the initial excitement of the market during the first 6 weeks that your house was listed. Now, you find yourself in a bad spot where no matter what you do you're not going to get top dollar.

You're probably asking what's the point of agents doing that, they only get paid if they sell my home, so why list it unrealistically? The answer is #2.

2) They intentionally overprice your listing knowing that it won't sell at that price so that they can get buyers to work with from your listing. Here's how it works. An agent will overprice a home, host open houses and field calls on the property for the sole purpose of gaining buyers to work with to sell every home but your own. Your home is essentially a lead generator for them.

How do you combat this? Simply ask any agent that you are considering hiring the following two questions.

1) What is your sale price to list price ratio?
2) What percentage of your listings are actually sold?

-Kyle Kovats, New Jersey Realtor

Housing Inventory Near All-Time Low, Seller's Edition

Housing inventory is near an all-time low, but what does that mean for homeowners considering making a move?

Sellers find themselves in a great position in this market. With interest rates slowly rising and buyers flooding the markets looking to take advantage of the rates while they're still low, sellers are finding themselves choosing between offers rather than hoping to receive just one. As a seller you have a couple of options in this unique market in regard to pricing.

1) Price your home at market value: What we've seen in this market is that if you price your home at market value you will generate a ton of interest in your property and most likely wind up with a bidding war on your hands that very well can cause your home to sell above it's value. The only problem in this scenario is often times the buyer will have to come up with more money at closing because the bank appraisal will come in less than the sales price. It is important to have your realtor look over the details of the contract and put a contingency in the contract that the buyer will agree to pay the difference between sales price and appraisal at closing. This will deter any speed bumps in the closing process.

2) Try to stretch the market: in areas where there is very limited inventory for your specific home, you could potentially try to stretch the market and see what it will bear. However, I would recommend not overpricing too highly because in that case you'll have nobody even taking a look at your home. Again, you could potentially deal with appraising problems if you effectively stretch the market, so it's important to put necessary contingencies in the contract.

If it were my house what would I do? I'd price my home at fair market value and have as many potential bidders get involved as possible to entice a bidding war. Once a bidding war breaks out there's no telling where it can go, and you can REALLY stretch the market in this scenario. Keep in mind the most action on a home is in it's first 6 weeks on the market so pricing at fair market value will catch the publics eye and have the most people interested as possible.

-Kyle Kovats, New Jersey Realtor
NorthJerseySuburbs.com

Housing Inventory Near All-Time Low, Buyer's Edition

You've heard it on the news, you've read it online but how does low housing inventory effect the average consumer?

For buyers, this is one of the most competitive buying markets you'll ever come across. Homes for sale that are priced near market value are breaking out into crazy bidding wars where some houses have sold for up to 20% above asking price. Don't worry too much though because you have some options.

1) Make your offer stand out from the competition. Whether it means waiving various contingencies, putting down a larger down payment to give the seller confidence that your deal will hold firm and not fall apart at the closing table, or even just meeting with the seller face to face to explain why their home is so special to you (yes, some sellers take emotion into consideration). Find different ways to make your offer stand out from the rest in a multiple bid situation.

2) Hire a realtor who actively seeks out off-market properties. With the shortage of inventory I've been prospecting for a minimum of 3 hours per day for my buyers looking for off-market homes that might be open to offers. Basically, I have my buyers tell me exactly what section of town they are looking in and their housing preference and I will call every house in that area and even door-knock the houses that I feel are the best fits. In North Caldwell alone I was able to find 8 homes off of the market that were open to offers for my clients. What it comes down to is actually working and seeking out business rather than waiting for business to come to you.

By the way, I recently launched my website, check it out! NorthJerseySuburbs.com

-Kyle Kovats, New Jersey Realtor