Apr. 8: Cash sales slide; loan officer weighs in on current lending environment

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. See more


First time?


We are well aware there is a problem with the first time homebuyer. They are saddled with large student loan debt, and are under-employed for the most part. The other big issue – low housing inventory is making the starter home unaffordable. When you look at the expensive areas, it gets ridiculous. The mortgage payment for a starter home in San Francisco (admittedly an extreme example) would run someone 110% of median income! I have said it before: the difference between 2% GDP growth and 3% GDP growth is housing. To address the dearth of inventory, we should have a run rate of 2 million starts a year. Yet we remain mired around 1.2 million. It obviously isn’t an oversupply issue – it is a credit issue. Yet the consensus seems to be that the financial sector remains “unregulated” and needs to be reined in. You would think politicians would like to see 3% economic growth but apparently they don’t.


While the inventory of homes is low, commonly used measures such as months of inventory or number of units for sale, severely underestimate the shortage. The number of units for sale divided by the number of households has been flat at 1.7% since early 2013, its lowest level ever! During the housing boom it was as high as 3.5%. Worse, 1.7% is an underestimate as household growth is substantially below trend.


Is cash still king?


Cash sales are at their lowest level in 7 years, according to CoreLogic. In 2015, they accounted for 34% of all sales. The peak was January 2011 when they hit 47%. Pre-crisis, that number was in the high 20s. Unsurprisingly, the states with the highest foreclosure pipeline and the lousiest real estate markets have the highest cash sales percentages.


Hourly wages and home buying


Income inequality and fair wealth distribution are two factors of the economy that are kept in check with minimum wages. In consumer economies where the unemployment rate is set by macroeconomic conditions, minimum wages help in keeping inflation from increasing too rapidly. Consumer economies tend to benefit from minimum wages almost immediately through increased business activity. In other words, workers who make more money will spend more money. Low wages have been a staple of business efficiency since the late 20th century. Businesses that outsource certain processes to developing nations are generally opposed to minimum wages as a matter of cost efficiency. Some small businesses cannot afford to pay minimum wages. This situation often results in stagnant growth.


So how does an increase in hourly wages effect home buying? The current state of increasing housing prices has economists worried about a stalling national economy. Economist Elliot Eisenberg, specializing in national housing economics, believes proposals to raise the minimum wage would help but it’s “a blunt instrument.” For him, raising wages would put money in people’s pockets but it wouldn’t solve the lack of supply or the high housing prices and likely would not help people buy increasingly expensive homes.


So there it is again folks, too little inventory and sky-rocketing costs on the available homes. The basic possibilities, as I see them are an individual earning extra income will obviously have additional money. That same individual will either, spend more money, which helps boost the economy and create other opportunities. Or, that person will use their additional earnings to pay off debt and/or save for a down payment on a home if the “American Dream” is in fact a dream of their own.


One Loan Officer weighs in:


This year will be a banner year in closings for the larger producers of LO’s and affordable housing will be front and center in the OR and WA State Legislature.  I am already seeing it in Olympia and hearing of it in Salem as I am active in Government Affairs for the realtors in Clark County in WA and builders in OR.  We were just up in Olympia for the Realtor Hill Day and it was pervasive everywhere that housing costs are out of control for the $400K and under homes.  The supply is so low and rents are sky high that many folks can’t even get a home to rent or buy.  I bet this is happening in many areas of the country as well.  It all has to do with land supply and if this eased up it would be better for all.


Turn times are finally under control with the CD. It did take a couple of months (tons of OT from many companies across the area) and it also took escrow that long as well to get their side figured out.  The funnier part is that is slowed down closings and thus caused the closings report to slide.  What a hoot!  None of the analysts from NAR associated the decline in closings with TRID which I do find laughable.  Call it what it is folks!


This year we will see the increased costs from TRID covered in the rates and also lenders will be increasing their processing fees or admin (whatever the lender wants to call it) as well.  Also, by early spring most companies will start this process of slowing raising their rates to cover as it will not come all at once in my humble opinion.  I think it has already started in a very slow way after this last dip from the oil issue on the market.  When the rates came back they came back almost too fast and so I do believe it is already starting for some lenders that are taking advantage of the situation in the markets.  But for those of us that had rates in the teens 30+ years ago – I am still super happy with the rates below 7.00%.  Although, when they do start to tick up it will be a shocker for many folks and will also change the housing market and create much more Non-QM lending.  That is also coming back out of the woodwork.  No more subprime, we are politically correct with Non-QM now (LOL).



A circus owner runs an ad for a “lion tamer wanted” and two people show up. One is an old golfer in his seventies, the other a drop-dead gorgeous brunette with a great body in her twenties….

The circus owner tells them, “I’m not going to sugar coat it. This is one ferocious lion. He ate my last tamer so you two had better be good or you’re history.  “Here’s your equipment… a chair, a whip and a gun. Who wants to try out first?”

The gorgeous brunette says, “I’ll go first.”

She walks past the chair, the whip and the gun and steps right into the lion’s cage. The lion gets all heated up, starts to snarl and pant and begins to charge her.  As he gets close, the gorgeous brunette throws open her coat, revealing her beautiful, perfect naked body.

The lion stops dead in his tracks, sheepishly crawls up to her and starts licking her feet and ankles. He continues to lick and kiss every inch of her body for several minutes, then lays down and rests his head at her feet.

The circus owner’s jaw is on the floor!! He says, “That’s amazing! I’ve never seen anything like that in my life!”

Then he turns to the old golfer and asks, “Can you top that?”

The tough old golfer replies… “Possibly… but you’ve got to get that lion out of there first.”





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