Housing market is too far gone.

Sp33dealer

Bully Troll Crew
Aug 3, 2005
54,529
DFW
My builder missed the date by 10 days which really wasn’t too bad except I was out $1k ish for a u haul rental to store my whole house belongings for the whole time and they didn’t pay for it.

I got them back when they fucked up the drainage during the build and I had a shitload of algae ridden standing water on my property, they dug an 85 foot long, 3 foot French drain which took a crew two days to do since my back yard isn’t exactly accessible with larger equipment. I know that would have cost thousands of dollars and all I had to do was pay half of the cost of reinstalling my fencing ($600).

The builders were pretty decent people, their realtor was a total piece of shit greasy weasel who I wouldn’t piss on if he were on fire. bonus: he bought on my street so I drive by him twice a day
Why did you have to pay $600 for the fence?
 

hootpie

OT Supporter
Oct 5, 2003
48,218
Northern California
Yes, I realize that the recent rate of appreciation in the housing market is abnormal.

Homes appraising for exactly the contract price in an appreciating market is not abnormal, it is a function of appraisal methodology and not “suspicious.”
You believe that homes consistently appraising for exactly the contract price, which is hundreds of thousands over an already inflated price (putting them noticeably over comps) isn't suspicious? At all?

Roughly 3-4 years ago (while prices were still appreciating regularly) I had friends who consistently had to put up extra cash because the homes didn't appraise for the purchase price.
 
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aloe

OT Supporter
Aug 26, 2002
148,134
Dallas, Tejas
You seriously believe that homes consistently appraising for exactly the contract price, which is hundreds of thousands over an already inflated price (putting them noticeably over comps) isn't suspicious? At all?

Roughly 3-4 years ago (while prices were still appreciating regularly) I had friends who consistently had to put up extra cash because the homes didn't appraise for the purchase price.
Supply and demand, sir. 3-4 years ago was different. Less over bid situations and longer DOM compared to the current.

Home appraisals are getting to contract values due to the sheer number of over ask accepted offers and quick closes, which in turn make their way onto the MLS with the reflected higher $/sqft.

The market is just resetting a lot faster compared to 3-4 years ago.
 
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saabguy

Saab-free since 2013. Mortgage guru
OT Supporter
Aug 11, 2003
26,103
Loserville. Population: 1
Anyone got any good docs/advice/links on buying new construction?

Things to look for, be aware of, include in contract etc. I will likely be bidding on some released homes soon, and so will my soon retired parents, so just looking to do all the research possible before we dive in.

I assume the first step would be to get a buyer’s agent to help with the contracts/bidding offers?
From a developer? I don't think there's much you can do. Get your own agent before you go look at new construction. They may still try to cut that agent out, or not pay them anything, so buyer beware. You don't have much leverage. They know what houses have gone under contract for, and after every X number of houses sold (or weeks), they will escalate the price higher. You don't even really "bid" or "offer". They have a base price. There will be options/upgrades you can add on to it, and that's how you get your final price. They may have an in-house lender who is usually someone that isn't good at their job and will offer you $$ towards closing costs as an incentive to use them. Often times their other costs and rates are higher than you'd find elsewhere, which offsets whatever "credit" you're getting.
 
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saabguy

Saab-free since 2013. Mortgage guru
OT Supporter
Aug 11, 2003
26,103
Loserville. Population: 1
Can't wait to buy the dip when all these new homeowners are under water and stop paying their mortgage.
That's going to be a difficult forecast to come true...inventory is still low which is still forcing bidding wars, even as rates rise. It may slow down the rate of appreciation, but I don't think you will see a similar 2008 "bubble burst." As for people underwater, most buyers are not doing 100% financing combo-piggyback negative amortization pay-option ARMs. They are generally standards "vanilla" loans with money down. And within a few months, even if they put down a minimal down-payment, the markets are appreciating so much that they already have decent equity. It would take a BIG pop in order for people to get underwater, and I just don't see it. There is more equity in homes now than ever.
 

michael

Florida Man, Esq.
Dec 21, 2001
112,632
The ether
That's going to be a difficult forecast to come true...inventory is still low which is still forcing bidding wars, even as rates rise. It may slow down the rate of appreciation, but I don't think you will see a similar 2008 "bubble burst." As for people underwater, most buyers are not doing 100% financing combo-piggyback negative amortization pay-option ARMs. They are generally standards "vanilla" loans with money down. And within a few months, even if they put down a minimal down-payment, the markets are appreciating so much that they already have decent equity. It would take a BIG pop in order for people to get underwater, and I just don't see it. There is more equity in homes now than ever.
good to hear.
 

saabguy

Saab-free since 2013. Mortgage guru
OT Supporter
Aug 11, 2003
26,103
Loserville. Population: 1
You seriously believe that homes consistently appraising for exactly the contract price, which is hundreds of thousands over an already inflated price (putting them noticeably over comps) isn't suspicious? At all?

Roughly 3-4 years ago (while prices were still appreciating regularly) I had friends who consistently had to put up extra cash because the homes didn't appraise for the purchase price.
The appraiser institute handbook tells appraisers to come up with their comps, do all the adjustments to try and "equalize" the properties (account for differences in size, amenities, condition, age, location, etc.), and you get an "adjusted value" of each comp. There will be a low and a high adjusted value. If the sales price is within the low and high adjusted values, then "the sales price IS the market value."

That's why they come in "exactly" at purchase price. It does no good for an appraiser to go higher than necessary. Also appraisals are accounting for time adjustments. If a comp sold 3 months ago in a market that is seeing 18% market appreciation, that's 1.5% increase per month. So a house that sold 3 months ago for $650k would potentially sell for $679,250 3 months later. Appraisals are being scrutinized and graded. You can't just wing a number in the hopes that it'll sneak by.
 

hootpie

OT Supporter
Oct 5, 2003
48,218
Northern California
The appraiser institute handbook tells appraisers to come up with their comps, do all the adjustments to try and "equalize" the properties (account for differences in size, amenities, condition, age, location, etc.), and you get an "adjusted value" of each comp. There will be a low and a high adjusted value. If the sales price is within the low and high adjusted values, then "the sales price IS the market value."

That's why they come in "exactly" at purchase price. It does no good for an appraiser to go higher than necessary. Also appraisals are accounting for time adjustments. If a comp sold 3 months ago in a market that is seeing 18% market appreciation, that's 1.5% increase per month. So a house that sold 3 months ago for $650k would potentially sell for $679,250 3 months later. Appraisals are being scrutinized and graded. You can't just wing a number in the hopes that it'll sneak by.
This is super informative thanks. I was wondering why the appraisals are never above or below the purchase price.

Are appraisers motivated at all to ensure the appraisal is at or above the contract price? Any conflict of interest there?
 

Sp33dealer

Bully Troll Crew
Aug 3, 2005
54,529
DFW
From a developer? I don't think there's much you can do. Get your own agent before you go look at new construction. They may still try to cut that agent out, or not pay them anything, so buyer beware. You don't have much leverage. They know what houses have gone under contract for, and after every X number of houses sold (or weeks), they will escalate the price higher. You don't even really "bid" or "offer". They have a base price. There will be options/upgrades you can add on to it, and that's how you get your final price. They may have an in-house lender who is usually someone that isn't good at their job and will offer you $$ towards closing costs as an incentive to use them. Often times their other costs and rates are higher than you'd find elsewhere, which offsets whatever "credit" you're getting.
This

Absolutely get an agent. Ours helped us a ton during our new home build in a new community. She went above and beyond and even helped us with upgrades and dos/donts based on her experience
 

saabguy

Saab-free since 2013. Mortgage guru
OT Supporter
Aug 11, 2003
26,103
Loserville. Population: 1
This is super informative thanks. I was wondering why the appraisals are never above or below the purchase price.

Are appraisers motivated at all to ensure the appraisal is at or above the contract price? Any conflict of interest there?
no motivation. I invited one appraiser to speak at a luncheon to a group of agents, and he said it's not in his interest to go higher than sales price. Because if something goes bad with the loan down the road, and there is a forensic underwriter scrubbing the file, he may get called on the stand to testify why he valued the house at $X when it was under contract for less.

On the "grid" where you have the comps listed and all the value adjustments, you come up with the net adjusted price for each. If the 3 net adjusted prices are $630k, $635k, and $675k, and the house is under contract for $650k, then $650k is the appraised value because the price is "bracketed" by a lower & higher value. That same appraisal, if the parties decide they want to increase sales price to $660k so the seller can cover $10k in closing costs, just submit the amendment to the appraiser, and bam...now appraised value is $660k because it's still bracketed. "when the subject property price is bracketed by the adjusted comp prices, the sales price IS the market price."
 

saabguy

Saab-free since 2013. Mortgage guru
OT Supporter
Aug 11, 2003
26,103
Loserville. Population: 1
So what are we talking?
I mentioned it earlier...jumbos are just a different animal right now. There's no "standard" because the market is so volatile. Some investors are not pricing well because of the risk. Some are OK but have more restrictive qualifying criteria. As described in the article below, there is risk that an investor "buys" a $100k loan for $104k, but that loan is paid off/refinanced/sold/etc. before they can even recoup the $4k in interest. That has a lot of investors scared...

Article below is regarding conventional/conforming loans. Jumbos really need to be priced on a case-by-case/scenario-by-scenario because the rates and terms are highly sensitive to the loan parameters and file qualifications:


Why Some Rate Quotes Are So Different And Why "Points" Are On The Rise
Fri, May 6 2022, 4:58 PM
It was yet another tough week for the mortgage market with rates rising to their highest levels since 2009, but how high have they actually risen?
There’s a correct answer and then there’s the answer that can be gleaned from widespread media coverage of Freddie Mac’s weekly mortgage rate survey. As is often the case during times of heightened volatility, survey-based rates tend to lag behind reality.
On a positive note, Freddie correctly identified a large uptick in rates as well as their status as the “highest since 2009.” Unfortunately, the survey continues lagging behind the average lender based on an objective review of actual rate sheets. Whereas Freddie moved up to 5.27%, most lenders are at least a quarter of a point higher.
20220506 nl2.png

This doesn’t mean Freddie is “wrong” when it comes to rates. The survey is just limited in terms of what it can tell us regarding same-day availability of rates in a rapidly changing environment. Over longer time horizons and for the purpose of getting a general sense of how rates have been moving, the survey serves its purpose.
20220506 NL1.png

The other potential complication is that Freddie’s survey has another cost component that isn’t captured in headlines. In addition to the rate itself, “points” are also included. 1 point = 1% of the loan balance, paid upfront in order to obtain a lower interest rate. The rate reducing power of a point can vary over time, but at the moment, 1 point is generally worth at least 0.25% in rate. For instance, a rate of 5.25% with 1 point is roughly the same as a rate of 5.5% with no points.
While it’s great that Freddie also publishes points, the unfortunate reality is that media headlines and consumers tend to focus on the rate itself.

Are people really paying extra points on mortgages right now? Aren’t points “bad?”
There’s an old, popular, and oftentimes valid idea that you shouldn’t pay extra points for a mortgage. It’s especially valid when rates are broadly trending lower or if there’s any other reason a homeowner expects to sell or refinance in the foreseeable near-term future. You’d have to hold on to that mortgage for a certain amount of time before the monthly payment savings offset the additional upfront cost. There’s also the question of what else could be done with the money today that might benefit your personal balance sheet more than a modest reduction in monthly payment (i.e. paying off other debt, adding to investments, etc.).
The fact of the matter is that points are almost always simply a choice between paying upfront versus paying over time. More often than not, it was easier to make a case for not paying points during most of the past 40 years. In many cases that’s still true, but at the moment, points can’t be avoided in certain scenarios!

Why do certain scenarios require “points” right now?
Whether or not a loan quote actually shows “points,” there’s always an interest rate and an upfront cost associated with any loan. For instance, if your lender sells your loan, the rate of the loan will determine the price the lender receives. Higher rates mean higher monthly payments, so banks that buy loans are willing to pay more for those upfront. Incidentally, this is why you, as a consumer, can pay less upfront when you opt for the higher rate–because the bank that’s ultimately buying your loan (“the investor”) will cover the cost you would otherwise have paid in the form of upfront points. Your lender gets it either way.
Here’s the issue right now though: due to market volatility and the speed with which rates have risen, investors simply aren’t paying up for higher rates. It always takes some time for the market for higher rates to become active after fast spikes and 2022 has been the fastest spike in decades. Additionally, any time rates are significantly higher than they’ve been, lenders are concerned that today’s new mortgages will be refinanced very quickly as soon as rates fall.

Why would a lender not want you to refi too soon?
Remember the point (no pun intended) about each interest rate having an associated cost? In cases of higher rates, that cost structure means an investor might front $104,000 to buy a loan with a principal balance of $100,000. They would then need to keep that loan long enough to earn at least $4000 of interest just to break even because they will only receive the principal balance of $100k when the loan is refi’d or paid off.
Where this becomes particularly problematic is for certain loans that inherently carry big additional costs. Things like 2nd homes, investment properties, lower FICO scores and higher loan-to-value ratios can quickly rack up several points in additional costs that have to be absorbed either by paying points upfront or by higher interest rates. During more normal times, those higher rates would allow the investor to cover those additional costs. At present, investors aren’t offering much of a premium for higher rates. That leaves borrowers with only one option of paying those points upfront.

Why is all this happening?
Quite simply, the market continues adjusting to a new reality where the Federal Reserve (aka “the Fed”) is rapidly removing the rate-friendly punchbowl of monetary policy that’s been in place since the start of the pandemic. This is a topic we’ve covered fairly extensively in recent newsletters, so there’s no need to belabor the point. Here are links to the last two examples:
The Fed's Playbook is Already Out For Next Week
Mortgage Rates Are a Bit Higher (And Way Lower) Than You've Been Told" data-contentid="62631918e3232a09d066a27a" data-linktype="newsletter" rel="noopener">Mortgage Rates Are a Bit Higher (And Way Lower) Than You've Been Told

This week essentially brought more of the same with the Fed confirming all of the market’s fears about the pace of rate hikes and the winding down of the Fed’s bond buying efforts. NOTE: Wednesday’s Fed rate hike has NOTHING to do with this week’s mortgage rate movement. That rate hike was priced into the market months ago. Markets were more interested in the official announcement of the Fed’s balance sheet normalization. This was also widely expected, but the details weren’t fully confirmed. Bottom line: this week’s rate volatility was the byproduct of traders adjusting to the details of the normalization plan.
 

Remy Bressant

Boots in the cab SMDFTB
OT Supporter
Jul 24, 2015
40,107
SoCal
My cousin has owned his own mortgage brokerage for two decades now. He thinks it's suspicious as well and he's advised me to not buy anything for at least 12-18 months.
As someone who spent years in that industry, him having his own brokerage means absolutely nothing. I wouldnt use that as be all end all advice.
 
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hootpie

OT Supporter
Oct 5, 2003
48,218
Northern California
As someone who spent years in that industry, him having his own brokerage means absolutely nothing. I wouldnt use that as be all end all advice.
I don't view it as the be all end all--simply giving context of where I'm getting this from as someone who is farrrrrr from an expert in this field.

That being said, when someone like him that is generally very pro "buy a house it'll go up in the long term" says "give it 12-18 months before you do anything" it stands out.
 

Slimmy

Yep.
Mar 14, 2000
140,484
Ft. Lauderdale
From a developer? I don't think there's much you can do. Get your own agent before you go look at new construction. They may still try to cut that agent out, or not pay them anything, so buyer beware. You don't have much leverage. They know what houses have gone under contract for, and after every X number of houses sold (or weeks), they will escalate the price higher. You don't even really "bid" or "offer". They have a base price. There will be options/upgrades you can add on to it, and that's how you get your final price. They may have an in-house lender who is usually someone that isn't good at their job and will offer you $$ towards closing costs as an incentive to use them. Often times their other costs and rates are higher than you'd find elsewhere, which offsets whatever "credit" you're getting.
These houses are being released with already chosen options, so there's very little in the way of upgrades to pick/change, just have to wait for the weekly release cadence to get the list of available homes/models and their list prices, then we make an offer and wait to see if it wins. I assume the contracts are pretty standard boilerplate from a developer, just not sure if there's anything we need to watch out for or be aware of so it doesn't come back to bite us in 6-8 months when it reaches completion.

I doubt we'll be using the in-house lenders as well.
 

saabguy

Saab-free since 2013. Mortgage guru
OT Supporter
Aug 11, 2003
26,103
Loserville. Population: 1
These houses are being released with already chosen options, so there's very little in the way of upgrades to pick/change. I assume the contracts are pretty standard boilerplate from a developer, just not sure if there's anything we need to watch out for or be aware of so it doesn't come back to bite us in 6-8 months when it reaches completion.

I doubt we'll be using the in-house lenders as well.
There's not really anything you can watch out for. Their contracts are lock-tight. Even if you did find something in their contract that you didn't like, they are not going to change it. If you want the house, here's where you sign. They're blowing through high volumes of houses, they've got the assembly line set up from building to sales, to contracts, to closing. In a way it's convenient that they already have the system set up. But you really don't have much control over the contract or anything like that. I would look for the warranty periods and make sure they are doing your post-closing inspections and fixing any punch list items that may need attention after closing.
 

Slimmy

Yep.
Mar 14, 2000
140,484
Ft. Lauderdale
There's not really anything you can watch out for. Their contracts are lock-tight. Even if you did find something in their contract that you didn't like, they are not going to change it. If you want the house, here's where you sign. They're blowing through high volumes of houses, they've got the assembly line set up from building to sales, to contracts, to closing. In a way it's convenient that they already have the system set up. But you really don't have much control over the contract or anything like that. I would look for the warranty periods and make sure they are doing your post-closing inspections and fixing any punch list items that may need attention after closing.
Yea, that sounds about right. Thanks.
 
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Remy Bressant

Boots in the cab SMDFTB
OT Supporter
Jul 24, 2015
40,107
SoCal
These houses are being released with already chosen options, so there's very little in the way of upgrades to pick/change, just have to wait for the weekly release cadence to get the list of available homes/models and their list prices, then we make an offer and wait to see if it wins. I assume the contracts are pretty standard boilerplate from a developer, just not sure if there's anything we need to watch out for or be aware of so it doesn't come back to bite us in 6-8 months when it reaches completion.

I doubt we'll be using the in-house lenders as well.
are they still giving incentive to use their in house lender? rates are usually pretty market competitive and they literally exist to close deals for the builder. unless there is no incentive and your guy can beat their pricing substantially there really isnt a reason not to use the in house lender, I say this having been in the in house lender for several of the big public builders from 2010-2017.
 

Sp33dealer

Bully Troll Crew
Aug 3, 2005
54,529
DFW
There's not really anything you can watch out for. Their contracts are lock-tight. Even if you did find something in their contract that you didn't like, they are not going to change it. If you want the house, here's where you sign. They're blowing through high volumes of houses, they've got the assembly line set up from building to sales, to contracts, to closing. In a way it's convenient that they already have the system set up. But you really don't have much control over the contract or anything like that. I would look for the warranty periods and make sure they are doing your post-closing inspections and fixing any punch list items that may need attention after closing.
We are coming up on our 2 year workmanship warranty I actually have our builder coming by in an hour lol
 
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Slimmy

Yep.
Mar 14, 2000
140,484
Ft. Lauderdale
are they still giving incentive to use their in house lender? rates are usually pretty market competitive and they literally exist to close deals for the builder. unless there is no incentive and your guy can beat their pricing substantially there really isnt a reason not to use the in house lender, I say this having been in the in house lender for several of the big public builders from 2010-2017.
Not sure, haven't gotten that far yet, I assume we could get more details on that once the bid offer is accepted.

Will definitely see what they can offer, not going to just outright refuse to use their lender, but will compare to what we can get outside.
 

Remy Bressant

Boots in the cab SMDFTB
OT Supporter
Jul 24, 2015
40,107
SoCal
Not sure, haven't gotten that far yet, I assume we could get more details on that once the bid offer is accepted.

Will definitely see what they can offer, not going to just outright refuse to use their lender, but will compare to what we can get outside.
who is the builder? this is in Florida right?.
 

Remy Bressant

Boots in the cab SMDFTB
OT Supporter
Jul 24, 2015
40,107
SoCal
Lennar, SW Florida.
Lennar Mortgage is their mortgage company, I believe it used to be called Eagle home loans.
that company literally exists to fund Lennar home purchases on time, they drive their staff like a sweat shop and they did not miss closings or lose deals when I was in the business. that may have changed in the last 5 years.

from time to time Lennar will do an MSA with another mortgage company on some of their projects, which is essentially a mortgage company paying $$$$$ to be the in house lender on a project. those guys are equally capable especially in a major metropolitan area.
 
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