Greenwich Home Sales, Interest Rates, TRID and the CFPB

TRID RegulationsHigher End Sales and Contracts Looking Up

So far this year, the 2017 Greenwich real estate market has been very interesting, particularly at the high end. We have an even dozen properties that have either closed or are under contract for over $5 million. Much of this hasn’t been reported, because only two of those properties have actually closed. Of the 10 other properties waiting to close; one of the houses under contract is listed for $17.5 million, and two listings are between $8 and $10 million. This is after a year where we only had 28 properties sell between $5 and $10 million for all of 2016.

Year-to-date, we have 48 sales of single-family homes, plus another 78 contracts waiting to close. Sales from $1 to $2 million have been the strong point in this market. On the inventory side, properties have been going off the market just about as fast as they have been coming on so our inventory continues to be low with only 448 house listings.

Will Higher Interest Rates Hurt Sales – Not in the Short Term

Despite the snow this week, it’s been a mild winter and buyers have been more active than in the harsh winter years. In addition to the mild winter, increased buyer activity is attributable to expectations by buyers of rising interest rates. Interest rates perked up earlier, but only a little and they seem to have settled around 4% or a little under. (Interestingly enough, the non-conforming, so-called jumbo loans/larger loans, have lower interest rates than the conforming and often government-insured loans.)

Now micro-economics say rising interest rates will result in lower real estate sales, however, the National Association of Realtors, did a study of interest rate increases and house sales. What they found was that usually when interest rates increase it’s because the economy itself is expanding and people have higher incomes and feel wealthier. The result is that the expanding economy tends to increase sales and interest rates are more an indicator of this. So, higher interest rates, provided they are accompanied by an expanding economy, don’t necessarily correlate to lower home sales.

What we have seen in each of the last few years are pundits at year-end predicting higher interest rates in the coming year. This has resulted in a jump in January contracts followed by a drop in February as interest rates don’t continue their rise and people dial back their expectations of increasing interest rates. With the Trump administration, this may well change. We have had a long period of expansion and are due for a correction, however, the expansion has been a fairly lackluster one, but slow growth and certainty are better than no or negative growth.

TRID is Hindering House Sales

While higher interest rates may or may not mean lower house sales depending on the economy, one thing that clearly has hindered the housing market are the Dodd Frank and TRID mortgage regulations and the thousands of pages of regulation that have been created. Along with all of the regulations came thousands of compliance officers that had to be hired to interpret and enforce these new regulations from the Consumer Financial Protection Bureau. To see just how bad it is, just take the name of the massive new TRID regulations. TRID is an acronym that contains two other acronyms; TILA-RESPA Integrated Disclosure rule. Now TILA stands for Truth in Lending Act and RESPA stands for Real Estate Settlement Procedures Act so just the title should be the Truth in Lending Act – Real Estate Settlement Procedures Act Integrated Disclosure Rule and the regs themselves are worse.

These regulations lead to silly real world results that actually hurt buyers. Buyers with “preapproved” mortgages can be denied by the bank at the last minute. Compliance issues can prevent funding, for a buyer that doesn’t fit neatly within the requirements of a particular type of mortgage and its regulations. Most Greenwich buyers’ finances don’t fit neatly within the regs. They have unusual and often complex financial situations. As a result, some really outstanding loan officers have to jump through hoops to get the buyer a mortgage. Too often it turns out there is a brick wall on the other side of the last hoop.

Another example of how this increased complexity has made closings take longer and be more difficult, is that the standard Greenwich purchase agreement now provides for a ten-day extension for failing to close on time rather than a three-day period for delayed closing that had been in place for decades. This is directly related to the complexity of the new regulations and the uncertainty that the regulations have generated.

Mortgage Regulations Need to Be Redone

The result is more problems for buyers in getting loans, more expenses for banks that are passed through to consumers, fewer community banks that can afford the compliance costs and fewer people qualifying loans. Now I’m not against regulations, but the system that we have now is not working and it is holding back the economy and the housing market. It is badly in need in rationalizing.

 

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