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Low rates, refis, remodeling drive the housing market

Historically low mortgage rates have kept brokers and underwriters busy, with would-be homebuyers in the house-starved Monroe County real estate market bringing more buying power to the offer table.

“Every time rates drop, buying power increases,” said Andy Kachaylo, president at RE/MAX Hometown Choice and president of the Greater Rochester Association of Realtors. “If your payment was $1,000 at 3 percent and the rates drop to 2.75, your payment is still $1,000 but you get another $12,000 in buying power.”

If only inventory could satisfy buyer demand.

For more than two years, Monroe County has had the lowest monthly supply of homes in the state, with the most recent reading well under two months.

“It’s actually gotten worse now that rates are dropping,” said Sam DiPiano, president of Rochester-based Haus Capital Corp.

Of course, real estate firms have learned how to deal with this. What obviously has changed the landscape is the coronavirus pandemic.

Social distancing, lockdowns and work-from-home edicts have interrupted normal life, and realty firms have enacted extreme precautions to ensure the health of clients and agents. Open houses have transformed to virtual showings.

The concept of virtual showings actually isn’t all that new. Agents and mortgage brokers have worked with out-of-town buyers who never stepped inside the living room until they owned it.

“The last three years, with the shortage of inventory, buyers have been buying sight unseen,” Keith Thompson, mortgage manager for The Summit Federal Credit Union, said. “Buyers haven’t always been available to take a tour so they FaceTime with their agent to buy the house.”

And now, desperate times have called for innovative measures, measures that could last long after the pandemic has been suppressed.

“Our agents are learning how to be more virtual and in the end that could be the good thing that comes out of this,” said Fred Corsi, president of Howard Hanna’s Western New York region. “We had a training course on how to do a virtual showing and we had 900 live views (among agents). Another 3,000 watched the replay. That tells me our agents are buying in.

“So in the future when someone says, ‘I want to see the house on Cascade Street,’ the agent can say, ‘Stay where you are and I’ll be with you as I show you the home.’ ”

But until the supply of homes on the market increases substantially, many of the people taking advantage of low interest rates aren’t looking for a house. There has been a major shift to refinancing in the region. In 2019, of all the mortgages approved by The Summit Federal Credit Union, around 75 percent were on new homes and 25 percent were refis.

In the first quarter of 2020, there was 180-degree shift, with around 80 percent written for refinancing, Thompson said.

The trend actually began in earnest in the third quarter of 2019, according to an analysis of mortgages by national real estate warehouse ATTOM Data Solutions. Refis in the Rochester metro area were up 27.5 percent year-over-year in Quarter 3 and up 23 percent in Quarter 4.

That’s because, with so few homes available, it has made financial sense to rework the terms of a high-rate mortgage and/or shorten the term of a current mortgage. That is even more true today.

“If someone had a 30-year mortgage and was in it for five years at close to 4 ½ percent, they might be able to get into a 15-year mortgage at 2.5 percent, or close to it, and have a similar payment,” Thompson said.

Home equity loans also play into the low-rate refinancing equation. Many homeowners like where they live; they like their neighborhood and neighbors but were looking to move because they had become empty-nesters or wanted something different.

Except they’re finding that what they want isn’t on the market or that 17 others wanted the same house and were willing to bid more.

Thus, homeowners are taking advantage of low interest rates to stay put and have something new by remodeling the kitchen and bathroom or creating a sun room.

That, in turn, leads to fewer listings, meaning the cycle of inventory shortage goes on and on. Yet low interest rates kept lenders busy last month, even as the coronavirus pandemic led to financial uncertainty.

There’s no question that the economic impact will begin to effect borrowing, as well as consumer confidence as it relates to the overall economy and their ability to meet financial obligations.

“There’s definitely an impact where people are nervous,” Thompson said. “They’re saying, ‘I work at a certain facility and I’m not sure if I’ll get paid.’ ”

Federal agencies are well aware of the apprehension, and impact of businesses being forced to close. In mid-March, the Federal Housing Finance Agency (FHFA), which regulates both the Federal Home Loan Mortgage Corp. (Freddie Mac) and Federal National Mortgage Association (Fannie Mae), order a pause of at least 60 days on foreclosure proceedings and evictions. The FHFA backs $5.5 trillion in mortgages.

New York Gov. Andrew Cuomo also said the state has the authority to tell banks to pause mortgage payments for 90 days based on a homeowner’s financial hardship. The payments will be pushed to the end of the mortgage.

Besides the short-term relief, the Federal Open Market Committee provided $700 billion in guarantees on new mortgage writing, saying it would buy $500 billion in treasury bills and $200 billion in agency-backed mortgage securities in order to keep the housing market moving.

Before the committee’s intervention, rates had begun to creep back upward.

“There was such an inundation of new mortgages the lending market raised the rate to slow it down a bit,” said Sherri Forbes, loan originator at Homestead Funding and president of the Mortgage Bankers Association of Greater Rochester.

That rate movement can create turmoil for buyers. Someone could be approved at a variable rate for $150,000, find their home two days later but learn, because rates went up, they no longer qualify at that price range.

“It’s sad and I feel sorry for the buyer in that situation,” Forbes said. “That’s why I tell people to do your research and be careful where you get your loan from. I personally like to qualify our buyers at a little higher rate, just in case,” Forbes said.

Forbes said the relationship between buyer and lender is a critical component of a home purchase, not merely for the rate or the terms.

“A house is the biggest investment most people will make in their lifetime,” Forbes said. “They should trust the person you’re getting your loan from, especially in these turbulent times.”

Despite a market where there has been a dearth of inventory, there are 3,100 members agents in the 12 counties covered by the GRAR (Monroe, Ontario, Livingston, Wayne, Genesee, Orleans, Wyoming, Yates, Allegany, Steuben, Seneca and Cayuga).

More people are interested in joining the real estate party, too. The typical GRAR licensing class draws about 30 registrants, Kachaylo said. The most recent had 45.

And even as the coronavirus crisis curtails open houses and decreases the number of showings, the best agents, Kachaylo said, still stay busy.

“We use down time to move forward, such as taking a class to improve your ability to help a client down the road,” he said. “And you never know when somebody’s going to move, you just have to be ready.

“You can’t focus on what’s happened in the past or look in the rear-view mirror or you’ll crash.”

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