What is the future of real estate in America?
At the Mortgage Bankers Association of America’s convention this week in Chicago, this question was on the minds of the thousands of mortgage lenders who congregated to discuss technological innovations and pat themselves on the back for exceeding $1 trillion in originations this year.
Economists at the conference predicted that the future, at least the short-term future, looks pretty good. Before we get to the future, however, let’s take a quick look at how the real estate world has changed in the past decade.
Ten years ago, interest rates were about 10 percent, or about the historical average. Slightly more than 3.5 million existing homes were sold, plus an addition half million or so newly constructed homes.
If you wanted to buy or sell a home, you called your agent, who only represented the seller. Buyers had no representation. Some people had home inspections; home warranties were just getting started out in California. And, the World Wide Web as we know it didn’t exist.
Since that time:
Technology has taken hold of real estate. Clearly, the biggest changes in real estate have come from the application of advanced technologies to the home buying, selling and financing process.
Today, you can shop for homes and loans online. You can live in Maryland and sell your home online to a person from Milwaukee who has never seen it. At the same time, you can make an offer for a home in Los Angeles you’ve seen only through 360 degree photos on the Web.
Mortgage lenders and non-mortgage companies, like Microsoft and Intuit, have jumped into the fray, offering an online opportunity to shop for a loan. That makes sense to a lot of people, since it’s easier to browse through 10 web sites than it is to call 10 lenders on the telephone.
Aside from the Internet, secondary market leaders Fannie Mae and Freddie Mac have used technology to speed up the home loan approval process. Their systems, Loan Prospector and Desktop Underwriter, allow a borrower to get approved for a conventional loan within minutes rather than weeks or even months. According to Leland Brendsel, chairman of Freddie Mac, Loan Prospector processes the same number of applications in a week that used to take a year.
Services have converged. Gone are the days when you had to make individual calls to a variety of different places to get something done. Today, if you are not adverse to paying a bit more for the convenience, you can purchase a whole variety of real estate-related services from a single company.
Your lender or your real estate agent may offer everything from mortgages to title services, escrow services, insurance and home inspections. If you’re moving cross-country, your real estate agent might be able to hook you up with a relocation company that will do everything from find you an agent and real estate attorney in your new city to signing up your daughter for ballet lessons.
What this means is that the same fingers are going into your wallet over and over again.
The face of American home buyer has changed. This has been the decade of minorities and immigration, people who work hard, and save their earnings to make their dream of homeownership a reality. And additional 8 million families will have purchased homes before this decade is through 1990s. Many of these families are minorities or immigrants.
While minorities and immigrants are still turned down for loans nearly twice as often as white non-minority home buyers are, the numbers of minority homeowners has risen significantly in the past ten years.
Technology has helped, since it tends to be color-blind. Falling interest rates and the unilateral stretching of lending ratios has helped even more.
Interest rates have fallen, and fallen. Clearly, the housing market has been the biggest beneficiary of falling interest rates. When interest rates were 10 percent, approximately 3.5 million homes were sold. Now that interest rates are hovering at or below 7 percent, more than 4.7 million existing homes plus more than 800,000 new homes will be sold this year.
Lower interest rates has made homeownership affordable to millions of Americans. But lenders have also recognized that there are various ways to show you are a good credit risk.
In the past decade, lending ratios have been stretched so that first-time borrowers may spend up to 41 percent of their gross monthly income on all their debt. At the same time, zero down payment loans are being introduced. You’ve never needed less money to buy a home.
Home buyers are now represented. In the past ten years, buyer brokerage has moved into the mainstream, giving buyers someone they can legitimately trust to put their interests forward.
Buyer brokerage has leveled the playing field just at a time when record numbers of first-time buyers entered the market. It has also spawned a whole new breed of agency: Transactional brokers, or dual agents. These agents represent both sides of a single transaction, and are deemed not to represent either party’s best interests. They only facilitate the deal.
Published: Oct 12, 1998