Dentist Home Loans

Through our experience working with thousands of dentist and other medical professionals we have gained a deep understanding of the unique challenges you will likely face while getting a home loan. We are here for any question you may have!

Blog By:
Fairway Independent Mortgage Corporation

“We’re in a mental recession… It’s a constant stream of negative headlines for a couple of months… it wears on you.”?—?Sam Khater Chief Economist at Freddie Mac

The media outlets know one thing for sure, fear sells! Acting on these headlines, or deciding not to act because of them, may not protect you and your family at all. Let’s clear up the confusion and find out if the real estate mental recession is likely to become a reality.
First let’s examine a few headlines and the numbers behind the headlines to see if they add up.

I don’t know about you, but this headline and graphic scares me. I’m about to put my personal home on the market for sale this spring and begin construction on a new home. This kind of headline triggers my flight or fight response and I begin to worry about another housing crash.
Should we sit in paralysis until the news media tells us it is all clear?

The problem with these headlines is that they are partly true, but they do not tell the full story. While it is true that cash out refinances as a percentage of all refinance loans are at their highest levels since the recession, keep in mind refinances as a whole are significantly down due to interest rates climbing throughout 2018, many Americans already took advantage of all time interest rate lows and have refinanced at below current market rates.
If you have a three or four percent mortgage rate, chances are you are not going to refinance to today’s higher rate…
Since very few people are refinancing for lower rate, the primary motivating factor to refinance today is to pull out equity. So as a percentage, cash out refinances are up, but the question is how much equity is being pulled out.

When we look at the amount of cash being withdrawn, we see that Americans are withdrawing nowhere near the amount of cash out from 2002 to 2007 (years leading up to the mortgage meltdown). Based on this full picture, are Americans using their homes as an ATM machine again?

Absolutely not, the amount of cash being pulled out is currently very low and has been for the last decade.

Keep in mind, there are a lot of positive and economically viable reasons to pull cash out of your home when you refinance. You can payoff higher interest debt and reduce your outgoing monthly expenses, you can start or expand a business, you can help your kids get through college without taking on higher interest rate student loans, etc. What these numbers tell me is that American’s are not binging on home equity to finance depreciating assets and fancy vacations, they are using their home equity judiciously.
Let’s look at another provocative and concerning headline from Yahoo Finance.

Once again, while it is true that consumer debt has hit an all-time high of $4 trillion, the headline does not tell the full story of the American consumer. What they don’t point out is that income and assets for U.S. households are also at an all-time high.

Household income is up significantly since the Great Recession.

Household wealth in the U.S has skyrocketed since the Great Recession and is now the highest in history as well.

Household debt service payments as a percentage of disposable personal income is lower than it has been in over 35 years!

The increase in wages and current low interest rate environment has made the debt service on that $4 trillion very affordable, more affordable than debt service payments have been in over 40 years.

What about housing you may ask? Surely as housing prices have gone up, the amount Americans are spending to service all that debt must be near a breaking point…
To the contrary, Americans have spent the last decade paying down their mortgage balances while their incomes have been going up. Today, household debt service for mortgages as a percentage of disposable personal income is literally the lowest it has been since 1980. The average American is only spending 4.24% of their income on mortgage debt service, while the historical average has been closer to 5%, and leading up to the housing bubble it was as high as 7.21%.

What about a recession in the U.S., how will that impact real estate?

The economy has been growing for nearly ten years seemingly without pause, at some point all expansionary periods need to take a breather and history has shown us that every expansionary period is eventually followed by a recession. This is nothing to be afraid of, it is the normal ebb and flow of economic markets. Most economists and business professionals polled are predicting the U.S. will enter into a recession in 2020.

The media has certainly covered many of these predictions and you have likely heard about these forecasts before. This news in itself can be frightening, but again does not tell the full story when it comes to housing. The same group polled from Pulsenomics, Duke, NABE, and WSJ that are predicting and economic recession are also predicting continued appreciation in home values.

Keep in mind the definition of a recession is “a period of temporary economic decline for at least two successive quarters”. Having gone through the Great Recession, many of us think that a recession equates to massive swings in home values.
History shows us that is not typically the case. Going back to 1980 we can see that in three of the last five recessions, home prices actually continued to increase, and in the 1990 to 1991 recession, home values moved lower by less than 1% (hardly a huge swing).

Might there be another recession ahead? History tells us so, but history also tells us that in most recessions, home values due quite well. Don’t allow those in the media who are paid to get clicks on their salacious headlines to frighten you into paralysis. If buying a home is affordable to you and your family, if you plan to stay for at least three to five years, there are still significant upside benefits to buying.

Many real estate markets have seen a slowdown over the fall and winter as interest rates crept up towards five percent. That has made sellers in many markets more willing to negotiate on their asking price or cover your closing costs. Thus far in 2019 we’ve seen interest rates back down to the mid four percent range and combine that with the power of the seller paid buydown, a new home might be more affordable than you think.
For more information on how the Seller Paid Buydown Strategy works, take a look at this total cost analysis I created to explain the strategy: Seller Paid Buydown Strategy and I’d invite you to contact me if you have any questions.

Josh Mettle

Loan Officer NMLS 219996

Josh.mettle@fairwaymc.com

385–355–2130

Josh Mettle NMLS #219996 is an industry leading author and ranked top 1% of mortgage originators 2018 by Mortgage Executive Magazine, specializing in financing physicians, dentists, CRNA, and other professionals with highly specialized professional loan programs. You can get more great real estate and mortgage advice here or his by visiting his book site. Josh is also a fourth generation real estate investor, and owns a number of rental homes, apartment units and mortgages. Josh is dedicated to helping physicians and other professionals become more financially aware and able; listen to “Physician Financial Success” podcast episodes or download Josh’s latest tips and advice here.