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In recent weeks, we’ve seen some interesting trends in the refinancing market. While week-over-week refinance activity has dropped by 8.8%, it’s actually up 15.6% compared to last year. Even the four-week average shows a 1.4% increase. But what’s driving this activity? It’s not just about favorable rates – it’s about homeowner desperation.
A recent Harvard report revealed a startling statistic: the number of cost-burdened homeowners increased by three million between 2019 and 2022. This is happening despite record levels of home equity. According to CoreLogic, the average homeowner’s equity has grown by $28,000 in just the past year, reaching an average of about $305,000.
So why are homeowners struggling? It’s a perfect storm of rising costs:
- Increasing home insurance premiums
- Escalating home repair expenses
- Rising property taxes
Add to this the fact that many can’t afford to move, and you’ve got a recipe for financial stress. The solution for many? Refinancing.
Homeowners are coming to terms with a harsh reality: to stay in their homes, they may need to give up their low 3% interest rates for debt consolidation loans at 7%. It’s not ideal, but for many, it’s necessary.
This trend isn’t limited to the average homeowner. Even high-profile individuals like President Joe Biden and First Lady Jill Biden have reportedly refinanced their Delaware home multiple times. While this particular case raises some questions, it illustrates a broader point: refinancing can be a lifeline for homeowners facing financial pressure.
For loan officers, this presents both an opportunity and a responsibility. It’s crucial to stay in touch with your clients, as their financial needs may change rapidly. You never know when a client might need one refinance – or twenty.
Interestingly, while refinancing activity is up, new home construction faces its own challenges. Despite a significant drop in framing wood costs, we haven’t seen a corresponding decrease in home values. Why? It’s a delicate balance. Flooding the market with new homes could cause home values to drop, potentially leaving current homeowners unable to refinance out of financial difficulty.
This situation highlights the growing importance of non-QM loans. The average non-QM borrower now earns nearly double that of a traditional agency borrower, with 35% down payments becoming the new norm. In fact, a 20% down payment is often no longer sufficient for monthly payments, given that home values are 45% higher than pre-pandemic levels and mortgage payments have increased by roughly 115%.
For loan officers looking to thrive in this market, it’s crucial to understand these trends and adapt accordingly. The non-QM market, in particular, represents a significant opportunity for those willing to navigate its complexities.
In conclusion, while the current housing market presents challenges, it also offers opportunities for both homeowners and loan officers who are willing to think creatively and adapt to changing conditions. By staying informed and responsive to client needs, we can help navigate these turbulent waters and find solutions that work for everyone involved.
