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   ARTICLE   |   From Scotsman Guide Residential Edition   |   June 2018

Help Homebuyers Reach New Heights

Borrower confidence can be enhanced by creating a safety net to guard against the unexpected

Help Homebuyers Reach New Heights

American confidence is legendary. It is this confidence that carried men and women across treacherous waters to a new promised land, propelled us to take to the air with man-made wings and landed us on the moon.

This confidence is fueling the booming housing market. Now, more than ever, originators need to play the role of trusted adviser to educate the consumer so they reach far, but maybe not too far.

The Nike shoe brand’s slogan, “Just Do It,” defines a hard-charging attitude that is not risk-averse. Likewise, a slogan popularized by the baseball movie “Field of Dreams” — and often repeated in the real estate world — reminds us that, “If you build it, they will come.” It, too, is meant to inspire confidence.

In the homebuying market, it’s this same kind of confidence that is helping to drive an incredible run-up in home prices. It also is an opportunity for mortgage originators to continue to rebuild confidence in the homebuying experience and the industry in general. 

Confidence keeps us believing that this boom market will only get better, even when we know naturally that what goes up, must come down. We don’t look backward at cyclical housing dips or historic defaults, however. Instead, we look forward to something new and hopefully better.

Today, loan originators are playing a pivotal role in building homebuyer confidence and instilling this sense of safety. If a potential borrower does not trust the person they are working with or feel safe about the loan product offered, the transaction could be doomed from the onset. That is why, especially in an increasingly commoditized mortgage market, it is imperative for originators to become trusted advisers and educate consumers about all of their options.

Bullish again

Nearly a decade after the 2008 housing crisis and the Great Recession that brought foreclosures and job losses to many well-meaning and hard-working families, Americans appear to be bullish on becoming homeowners again. In ValueInsured’s latest quarterly Modern Homebuyer Survey, 79 percent of millennials who don’t currently own a home want to buy one, and 75 percent would buy a home now if they could afford it.

So, they really do want to buy. The emotional rollercoaster that is homebuying, however, may be getting the best of them.

This is where originators play a key role: by effectively educating homebuyers and guiding them through the process so they will not make a mistake before they get to closing. If existing homeowners have regrets around their current homes, originators can help them properly access equity or suggest a home equity line of credit to make improvements, for example.

Confidence keeps us believing that this boom market will only get better, even when we know naturally that what goes up, must come down.

For the most part, this is an ideal time for originators to consider what they have to offer borrowers that will encourage and boost their confidence in buying a home right now. For some enthusiastic homebuyers, buying now seems to have taken on a more urgent appeal, especially in this feverish housing climate with record-low inventories and interest rates that are still low by historical standards, but rising.

Fast paced

A 2017 Redfin’s survey found that one homebuyer in three made a sales offer without visiting the prospective home. The most common sight-unseen buyers — 41 percent — were millennials, not experienced homebuyers. There also are reports of eager buyers waiving home-inspection contingencies in an attempt to boost their chances in a bidding war. After all, this is among the strongest seller’s markets ever, according to some industry observers. With interest rates rising and the latest tax reforms affecting particularly the expensive coastal real estate markets, there are loud whispers that momentum could be shifting, however.

Just how long can the seller’s market and record home prices stay hot? It’s hard to tell. What has been somewhat overshadowed by the recent positive jobs reports is the fact that while the unemployment rate and job growth are trending positively, wage growth still continues to be described as sluggish some nine years into our economic recovery. Annualized wage growth currently sits at 2.5 percent. The inflation rate is trending near the 2 percent level, with gross domestic product growth last year coming in only slightly higher than the rate of inflation. Eventually, these three key economic indicators will need to go up to sustain home prices at the current trajectory. 

These important economic health benchmarks, while in plain sight, are easy to ignore by exuberant homebuyers, however, especially those high on bidding- war-induced adrenaline. Our long tradition of American confidence is further complicated in this contemporary era by the information buffet and social media overload. If you need reassurance that the financial risks ahead are worth taking, you can always find something online.

In this age of content proliferation, we all have heard of the story of the Powerball lottery winner who scored $300 million overnight. Or we may even know someone on Facebook who went to school with someone who won the supposedly impossible-to-win Powerball lottery. Just as easily, we can come across a post on our social media feed about the brother-in-law of a colleague who won a bidding war by paying $50,000 over the asking price for a house, only to turn around to sell that same property for $100,000 more — a handsome profit.

Unfortunately, the nation’s household debt this past fourth quarter grew at the fastest pace since fourth-quarter 2007, which was during the tail end of the housing bubble. This is all fine, so long as there is a safety net. But, not everyone has one, especially many of the homebuyers who made an offer sight unseen, or bypassed an inspection or paid cash without an appraisal. In the event they confront a significant financial hurdle ahead, their exuberance and confidence may start to dwindle and make way for a different kind of emotion.

Buyer’s remorse

Trulia conducted a study that found 44 percent of Americans regret their real estate decisions. In addition, 71 percent of millennial homeowners regret the home they bought. Some of them could be the same buyers who made home offers sight unseen.

When it comes to the biggest financial decision most Americans will ever make, why are some homebuyers so careless? The truth is that they probably were not careless. Their carefully deliberated decisions — which 44 percent of them now regret — were likely affected by circumstances, supply-demand calculations and over-inflated confidence. They likely did lots of research and took a deep dive into the information buffet. Many likely did not have the trusted counsel of an industry professional, however, to help them with the analysis and decisionmaking.

For millions of confident Americans who bought their homes in this record-breaking market, however, what is their safety net?

In the same study, Trulia also learned that one American homeowner in five (21 percent) said their real estate purchases are now holding them back from purchasing something else. In an age where we are accustomed to changing iPhones every two years, it could be daunting to find yourself stuck in a 30-year mortgage on a home you regret purchasing.

Believe it or not, being stuck might just be one of the best-case scenarios. While some homeowners remain stuck in a home that they feel holds them back, others have no choice but to sell at a loss when they are unexpectedly required to move for a variety of reasons, including job relocations, job losses, a growing family or a sick family member. For millions of confident Americans who bought their homes in this record-breaking market, what is their safety net?

Added insurance

For the eternal optimist, American homebuyers’ confidence is always a glass half full, and the housing market is always going to thrive over time. Still, there is great value in having a safety net in place to protect against downturns in the market cycle. That safety net creates space for people to stay optimistic.

Mortgage originators play a valuable role in advising their clients and helping them to take steps to ensure they have a sense of long-term security. That safety net can encompass something as fundamental as preserving the value of a homeowner’s downpayment, for example. After all, it can take years to save for a downpayment for a house. And that equity, when preserved, also can become the primary source of funds to pay for that next home as the family grows — and the home after that, and the home after that.

Simply put, the downpayment — and the home equity it helps to build — is the foundation of American family wealth. So, it makes sense for mortgage originators to discuss options around preserving that equity in the event of a market downturn. Downpayment-insurance protection does just that by protecting the full amount of the initial downpayment in the event the homeowner has to sell at a loss in a souring market.

•  •  •

Americans’ confidence has always been one of the driving forces of the housing industry and our nation’s progress, as is our ability to envision a future that does not yet exist. Mortgage originators advise Americans during their biggest financial decision: buying a home. They are in a position to help homeowners pursue the American Dream with confidence — and to minimize buyers’ regret. In doing so, they can help build homeowners’ wealth and drive the longevity and success of their own businesses in the process.


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