By Jesse Williams
Change is in the air. That message came through loud and clear at Massachusetts-based Broker/Owner Anthony Lamacchia’s “Crush It In Real Estate” kickoff event, as both Lamacchia and another consummate real estate expert, billion-dollar mortgage broker Shant Banosian of Guaranteed Rate, urged real estate professionals to begin preparing for a very different kind of market sometime in the next couple years.
“You are going to see a significant change—now can I tell you exactly when it’s going to be? No,” Lamachia said at the event last week. “But I’ll tell you what I think. I think we’re talking two to three years.”
With inflation continuing to rise and mortgage rates already hitting 4%, most observers have understood that 2022 will not be a continuation of 2021. But Lamacchia and Banosian took a step further to say that a market shift will not happen all at once, and those who will be best prepared for it are already modifying their business practices and expectations.
“It happened quickly, and some people might not realize how quickly,” Banosian said.
After seeing runaway success as a broker, topping $2 billion in originations in 2021, Banosian was cautious rather than pessimistic about 2022, pointing out that demand remains strong and a broader economic recovery continues across the country.
At the same time, interest rates have already jumped to nearly 4% this year, and Banosian said there is little chance of seeing them come back down anytime in the near future. But he compared the current path of the real estate market to 2018, when rates broke 5% but low inventory kept prices and demand from plummeting.
“Economically, our buyers in this market are working in the right sectors, income is up across the country,” Banosian said. “There’s a lot of confidence that’s been created. So I personally think…you should absolutely talk to your buyers about this. I do not think that it’s going to slow down home-price appreciation—I don’t think it’s going to pull it back too much.”
With the Fed widely expected to hike rates multiple times this year, Banosian pointed out that even a moderate increase in mortgage interest will make a huge difference for a buyer. A 0.75% increase in rates—roughly the difference between spring 2021 and today—results in a $10,000 increase in down payment on a $500,000 home, and a monthly payment climbing by about $350.
Lamacchia said, in his experience, some people still have PTSD from 2008, expecting a market pullback or crash to tank the value of their home. Economists have remained mostly optimistic that price growth will moderate rather than plummet, and Zillow even revised their prediction for 2022 home prices upward last month despite spiking interest rates.
Dispelling these fears and uncertainties will become increasingly the job of real estate professionals going forward, Lamacchia said, as he argued that demand is still there and that with good information, buyers will remain in plentiful supply.
“There is no denying it will have an impact on buyer demand,” Lamacchia said. “We have such an over-amount of demand that I don’t think we’re going to notice anytime soon, but when we get to the end of this year, that’s when we are going to start to notice…I actually believe this is a good thing.”
Banosian said the most important thing is to make sure that these changes are not a surprise, and agents can do things like getting clients pre-approved again or send out the most updated information on mortgage rates and price projections so people understand the dynamics of a shifting market.
“Speed, in my opinion, is super important,” Banosian said. “You have to be able to compete, and you have to be as appealing as possible to a seller and a seller’s agent.”
That means knowing all the numbers “cold,” Banosian explained, and he recommended getting a more concrete pre-commitment before an offer—something he has been offering his clients over the last several months.
A handful of other policy changes are also on the horizon, according to Banosian, which have the potential to create more wrinkles in specific markets or types of markets. Fanne Mae and Freddie Mac recently tweaked how they treat second homes in response to the “explosion” in short-term rentals, making down payments and interest rates more expensive. Second homes are also more likely to be treated as investment properties if they are in that “gray area” between residence and rental, he added.
Those changes, which are set to phase in on April 1st of this year, will cause an approximate 1% increase in rates on those types of homes compared to primary residences, according to Banosian, and could have further-reaching effects in vacation markets.
Another policy change is for condos, with Fannie and Freddie more closely scrutinizing maintenance, code violations, financing and insurance in reaction to the tragedy in Florida last summer, when a condo collapsed and killed 98 people. Federal authorities are investigating the cause of that disaster, although owners waited more than two years to address major issues identified in the building by engineers.
“If there’s a special assessment or a pending special assessment, be prepared that the lender is going to ask a lot more questions,” he said.
Banosian said that he is continuing to offer loans on these types of properties, as well as packages based on the new rates for second homes.
Lamacchia reiterated that a moderating of the wildness that has characterized the last year or so should actually be a welcome sight, and hopefully an indication that the market is on its way toward more balance.
“Some of it’s really good—we’ve got to take a little bit of fuel off of this fire. Things are going too crazy,” he said.
Jesse Williams is RISMedia’s associate online editor. Email him your real estate news ideas to jwilliams@rismedia.com.
