Let's Hold Hands

Every week, COMPASS begins our Tuesday morning meetings with coffee, breakfast goodies, and a brief discussion from our Origin Point Rep who speaks to the overall health of the market, the interest rates, and the unexpected hurdles that Buyers must jump to qualify for preapprovals. (For those unclear on the concept, you cannot make a legitimate offer without a preapproval letter in place.) Understanding what you can - and cannot - afford is the first piece of the puzzle. This week, Fif Ghobadian led us through the frank world of underwriting and loans. (Thank you, Fif.)

"EVERY loan comes with conditions," Fif explained, matter-of-factly, "and invariably, these conditions often upset the Buyers, but NO ONE is giving out money without guardrails in place," she added. (Except your parents. )

"Let's remember that the financial meltdown of 2007-2008 was primarily the result of playing fast and loose with Borrowers' stated incomes. Tough underwriters are doing their jobs the way they're supposed to," she said. "It's what keeps the market in check."

"And while I get that such conditions may make Buyers unhappy," she continued, "what I struggle to understand are the Agents who stoke the fire. It's your job and duty to stay calm, hold their hands, and walk your Buyers through the process."

She's right of course, but from a Realtor's® perspective, there doesn't seem to be a standard set of pre-defined "conditions" that the Buyer must meet concerning the loan process; conditions that could more easily be planned and prepared for if there were. Instead, every institution and each Underwriter seems to have a less-than-transparent line in the sand as to what they want, need, or require. It's akin to a moving target, and it's this ambiguity that makes the concept of "conditions" much tougher to explain to our Buyers.

Speaking for myself (because who else would I speak for?) pulling together the paperwork for a loan is right up there with getting a root canal - both are exceedingly painful procedures I'd rather avoid. Can't the bank review my previous pay-off record and know I'm a worthy candidate? (Evidently not.)

I suppose that's the argument for contacting a reputable Mortgage Broker sooner rather than later in the home-buying journey. An experienced Lender helps you navigate the often, complicated system, and hopefully, sets you up for success. In fact, a good local Lender is often the difference between prevailing or failing, (emphasis on "local").

Aside from knowing which Agents perform in a timely fashion, dependable Lenders are the next great line of defense. Listing Agents need to know that the Mortgage Broker will get the loan across the finish line and the Buyer(s) along with it. Make no mistake, when your well-intentioned offer is presented, any good Agent worth their salt will pick up the phone and call the Lender to confirm the prospective Buyers' qualifications before phoning the Seller.

"But what about the $30 deposit my bank asked me to track down?" I asked. "That seemed ridiculous given the amount we were borrowing."

"That $30 could be a monthly payment on an outstanding loan that you conveniently forgot to tell them about," Fif replied. (Moi? I would never.)

"What might seem silly to you," she continued, "may be a critically important piece of the puzzle to the Underwriter." In other words, suck it up and answer the questions already. (That's me interjecting. Fif's too polite to be so blunt.)

So with news that the Feds have finally dropped the basis by 1/2 point (the first cut since the pandemic although, ironically, interest rates on home loans actually ticked up this week), and with inventory growing rapidly, the time to strike for Buyers may be now. Add to this, the reality that there are suddenly several emails that cross my desk with captions that state: "Still Available," OR "I Can't Believe this House hasn't Sold," OR worse yet, "Price Reduced!"and there's sure to be REAL opportunity.

For Sellers, this is both good and bad news. As a Seller, you never want to chase the market down, but down is where we may be heading based on the current yield curve, according to FIf.

What's the "Yield Curve?" (I thought you'd never ask.)

In simple terms, the yield curve – also called the term structure of interest rates – shows the yield on bonds over different terms to maturity. (Did you follow that? This is why I'm not a Banker.)

A normal yield curve implies stable economic conditions and a normal economic cycle.

A steep yield curve implies strong economic growth with conditions often accompanied by higher inflation and higher interest rates.

An inverted yield curve slopes downward with short-term interest rates exceeding long-term rates. This type of curve corresponds to a period of economic recession when investors expect yields on longer-maturity bonds to trend lower in the future.

As of today, the yield is inverted, signaling a recession may be ahead . . . .

However, don't wait for the market to hit rock bottom; bottoms are impossible to time, and more importantly, our Bay Area housing stock is unique. The home you love today isn't likely to be available next week, next month, or next year. Finally, having bought and sold in different phases of the economic cycle, my takeaway is that it's MORE important to correctly time your exit from the marketplace, than you entrance.

So if you're interested in home ownership, if you've been sidelined by the competition, if you thought you couldn't afford the housing market, think again and contact your Lender to get the pre-approval process started. That way, you'll be ready if, and when the right property come along.

Meanwhile, Sarah and I will be here to keep things calm, to hold your hand, and to walk you through the process . . . (We got the message loud and clear., Fif. Thanks for your counsel.)

How can we help you?

Fif Ghobadian can be reached at:
415.203.9468
​[email protected]