Refinance Tips 2024: Key Strategies for Texas Homeowners

(0:00) Yes, there are still costs. There are never loans that get done without costs, regardless of what (0:06) the internet and advertising tells you. There are title fees, credit reporting fees, possibly (0:11) appraisal fees, recording charges, et cetera, et cetera.

And if you think that a lender is going (0:15) to do a free refinance for you because you're just such a great guy or gal, then I've got some (0:19) oceanfront property in Arizona that I'd like to show you. So there's always costs. It's just a (0:26) lender on your behalf.

Well, hello, hello, hello to all you internet explorers out there. (0:39) You have stumbled upon the Texas Real Estate and Finance Podcast Real Estate Market Update for the (0:44) week of January the 16th. And guess what everyone? We very well might be starting to see a light at (0:49) the end of this declining market tunnel.

We have rising inventory, which is good for buyers, (0:53) declining interest rates, also good for buyers, a weakening economy, believe it or not, (0:58) good for buyers, and a Fed looking to possibly start cutting rates very, very soon. (1:03) So if you've survived as a realtor, title rep, or lender through all this recent turmoil, (1:08) then you might be perfectly positioned to start the next chapter of success in your real estate (1:12) career. And I am here today to help.

My name is Mike Mills. I'm not only your balding host and (1:17) companion through this exciting industry that we all know and love, but I'm also a local North (1:23) Texas mortgage banker with Geneva Financial. And when I'm not dumping word salad into this (1:27) microphone each week, I'm helping your clients get into the home of their dreams.

(1:30) With rising home prices, outrageous insurance costs, and high but slowly declining interest (1:35) rates, navigating the home buying process can be intimidating and overwhelming for anyone. But my (1:41) team and I are experts at breaking down this complicated process into easy, understandable (1:46) steps to put your buyers at ease and let them focus on the most important part, looking for (1:51) and finding that perfect home for their family. And the best part is when we all reach the finish (1:55) line of the transaction, my team's going to make sure that this experience will get you eight more (1:59) referrals from that client.

My job is to make your job easier so you can help more people live the (2:04) American dream of home ownership. So if you're looking for a partner to build for the future, (2:08) give me a call and let me show you how we can help. All right, enough about me.

How are we (2:11) going to help you expand your ever-growing real estate brain today? Well, per the use, (2:15) we are starting with mortgage rates. We had a big week in the bond market last week, (2:18) and we finally found our way back to the 6% neighborhood. Now, this isn't necessarily great (2:23) news for the economy as a whole, but it is for those of us trying to make our way through real (2:26) estate.

And I'm going to tell you how we got here. Housing inventory is starting on its annual (2:29) decline down. However, rates are also starting to decline along with home prices as well.

All this (2:35) spells great news for buyers, but two States are leading the charge in inventory gains and not (2:40) looking to slow down anytime soon. And you guessed it. Texas is one of those States.

I'll tell you (2:45) what all that means for your business. Now I'm sure that almost everyone is aware of the (2:48) significant and historic news that happened this weekend. US bankruptcies hit their highest level (2:53) in 14 years.

What does that mean for your business? I'm joking about that being the (2:56) biggest news story, obviously, because the fact that single women who have lower household incomes (3:00) in an increasingly unaffordable housing market, and yet still hold a significantly larger share of (3:06) homeownership than single men should be celebrated and evaluated to help you focus your marketing. (3:12) I'm going to break it down for you. Okay.

Enough with the jokes. Uh, former president, (3:16) Donald Trump had his life threatened in an assassination attempt this weekend. I'm going (3:19) to briefly share my thoughts on this.

It's not real estate related, but it is on everyone's mind. (3:23) So we do have to touch on it just a bit. And finally, for my main topic today, (3:27) with rates starting to fall and expected to continue into the fall while in fall, (3:31) you're going to have clients that have bought from you in the last couple of years, reaching (3:34) out and asking when they should look at refinancing.

Well, today I'm going to break (3:38) it all down for you so you can be the expert in all things, real estate for everyone who calls (3:43) your number. So tune into the end and learn when refinancing makes sense. Now, before we start, (3:47) if you find today's episode helpful in any way at all, please do this Texas native a solid and (3:52) share it with your network.

The growth that we are experiencing is amazing. We got some big (3:56) time guests on the horizon and we are building our listener base each and every week. And you guys (4:00) are the reason why.

So keep up the great work, like comment and share this post with anyone (4:05) that you think it might benefit. As a matter of fact, I just found out recently that Spotify (4:09) launched the ability to comment directly on their app. If you like what you hear.

So to all my (4:14) Spotify listeners out there, drop us a hello. Where are you listening from? I would love to hear (4:18) from everyone. So drop us a note.

Greatly appreciate it. Okay. First up, stay with me.

(4:23) Hey, Mike, what are the rates? Well, according to mortgage news daily, as of July 15th, (4:28) 2024, the average 30 year fixed conventional mortgage rate on the market is 6.81%. The (4:33) average 30 year FHA rate is 6.26%. The average 30 year VA rate is 6.29%. The average 15 year (4:40) conventional rate is 6.30%. And the average jumbo rate is 6.62%. Mortgage bonds benefited (4:47) greatly last week after headline inflation declined by a 10th of a percent to 3.0%. That's (4:53) the lowest level that we've seen in over three years. Core CPI, which strips out food and energy (4:58) costs actually increased a 10th of a percent month over month and a 3.3% increase from a (5:03) year ago. But this increase was the smallest that we've seen since April of 2021.

So this just all (5:09) means that the rate of inflation is slowing and with higher unemployment and declining inflation, (5:14) the market is looking to and expecting a possible rate cut at the fed September meeting. We still (5:19) have a few months of data coming our way between now and then, but if things continue along this (5:23) path, we might start to see a light at the end of this high rate tunnel, but only time will tell. (5:27) The reason for this drop in headline inflation was due to a decline in mostly in gas prices.

(5:32) They fell by 3.8% in June, which helped offset the 0.2% increase in both food and shelter costs. (5:38) Housing related costs have been one of the most stubborn components of inflation and makes up (5:42) about a third of the overall CPI calculation. So a significant slowdown in growth of this number (5:47) not only helped for June's reading, but is also expected to start driving down future inflation (5:52) data because of the lag effect, which I've explained in previous episodes before.

(5:56) Now, another big impact on lower inflation numbers came from auto prices. Used vehicle (6:00) prices decreased 1.5% on the month and we're down 10% from a year ago. And this particular (6:06) item was one of the main drivers of the initial surge of inflation back in 2021.

So if you're (6:11) in the market for a new or used vehicle, they are getting cheaper and cheaper every single day. (6:15) And with the end of the year, right around the corner, December of 2024 might be a great time (6:20) to buy that car that you've been looking at. Now with all of this and with the employment (6:24) data really starting to show some weakness, although we've known it's been weak for quite (6:27) a long time, by the way, shout out to Danielle D Martino booth for staying on top of all those (6:31) labor numbers and really showing us the BS in the BLS numbers.

But again, with all of that (6:35) as a backdrop to a weakening economy, the likelihood of a rate cut in the September (6:40) fed meeting now stands at almost a hundred percent. According to the CME fed watch tool. (6:44) Now, does that guarantee a rate cut in September? No, but it does indicate the overall market (6:50) sentiment is that we're about to get that long awaited fed pivot, but be aware a quarter of a (6:55) percent change in the fed funds rate is not going to turn around the market in an instant.

In fact, (6:59) historically, when the fed does begin to pivot and cut rates, that typically signals things (7:05) starting to get worse for the overall economy. So although a rate cut is a welcome change, (7:10) historically speaking, at least it might be the start of a significant economic downturn time (7:14) will tell, but we're all excited about rates and costs coming down. So stay tuned for future updates.

(7:19) Since rates are starting to head in the right direction, what does that mean for the housing (7:24) market as a whole? Well, according to Mike Simonson of Altos research nationally inventory (7:28) dip last week, it was a week that did include the long 4th of July holiday weekend, but home prices (7:33) dipped as well along with new listings. Now, by the way, this isn't unusual when it comes to the (7:39) 4th of July weekend, but in 2022 inventory rose by 3% during this same week. And that was really (7:45) the start of the market turning down on all of us good times there for sure.

I still got a little (7:48) PTSD from all that. So right now there are about 651,000 single family unsold homes on the market (7:54) around the country. That's just slightly below where we were last week, but 38 and a half percent (7:59) higher than this time.

Last year, we still do have 32% fewer homes on the market at this time (8:05) than we did in 2019 all across the country. Now the market did add 57,000 new unsold listings (8:11) last week with another 11,000 that went immediately under contract. Now Simonson points out in this (8:16) HousingWire article that he likes immediate sales numbers as a gauge of organic levels of market (8:22) demand.

So Mike says the more people waiting to buy the right place, the more who jump on a deal (8:27) when they see it. Only 16% of the listings were immediate sales this week, and that's super low (8:32) and has been declining since May. And the 68,000 total new listings is actually 6% fewer sellers (8:38) than last year.

And right now there's about 382,000 total single family homes under contract. (8:42) That's relatively unchanged from last week and just 1% more than a year ago. (8:46) Sales are slow and not growing, but lower rates might help that.

Right now the median price of (8:51) all listings is about 450,000, and that's down just about 1% from last week and unchanged from (8:56) last year. Mike also notes in the article that some 38.3% of the nation's listings have taken (9:02) a price cut from their original list price. And that's more price cuts than any recent July that (9:07) we've seen.

Now he points to this number as one of the reasons that he continues to expect home (9:11) price appreciation to decelerate. In his mind, it's a leading indicator of where the market is (9:17) heading. Now, those are national numbers, but what about right here in the good old Lone Star (9:21) state? Well, around here, we're seeing a little bit of a different story.

And depending on your (9:25) point of view, it could be a good thing or a bad thing. So according to Redfin, there are currently (9:31) 162,714 active homes for sale in Texas right now. And this is the highest inventory level that (9:36) we've seen in almost 10 years, which is very good for affordability.

The median list price is about (9:42) $389,000 across the state. Also slightly higher, but again, this is median, which is a mix of (9:47) sales and not necessarily the average value of homes. The average price per square foot right (9:52) now is about $182 a foot.

But Texas and Florida are experiencing inventory growth like we have (9:57) not seen in some time. And this is a good thing. Now it would be better if sales growth came along (10:02) with this, but higher inventory will eventually mean lower prices and therefore more buyers being (10:08) able to afford more homes.

So ultimately this is good for the long-term health of our market, (10:14) just maybe not so good for any sellers that have homes sitting on the market right now that (10:17) aren't being sold. Now, hopefully lower rates will spur along more transactions, but we may have to (10:22) wait until we roll around to spring next year because this fall and winter, although do we (10:27) even really have falls in Texas? Anyway, the next few months will most likely be slower than we've (10:32) seen in some time, at least as it pertains to sales volume. But all of that is shaping up to (10:36) give us a big time bump when buying season rolls around again next spring.

So inventory is climbing, (10:41) but this is great news for affordability. All right, let's move on to a couple of stories (10:44) that could impact how you manage your business this year. So first up, U.S. bankruptcies just (10:49) hit their highest level in over 14 years.

346 companies have declared bankruptcy through June (10:55) of 2024. This is the most since 2010, a year after the great financial crisis. U.S. bankruptcies have (11:02) also recorded their largest monthly increase in the last four and a half years with 75 new (11:07) bankruptcies in June of 2024.

Even during the 2020 pandemic, the highest number of filings in any (11:12) given month was 74. And the highest share of bankruptcies have been in consumer discretionary (11:18) companies with a total of 55. These are the type of businesses that you don't necessarily have to (11:22) or need to purchase the stuff that they sell, but you want to discretionary income.

Now, all of this (11:27) is just further evidence of weakening consumer spending. And this is another contributing factor (11:31) as to why we have seen such a slowdown in home sales volume. Companies are struggling right along (11:36) with the consumer.

And that means big purchases like a home might be put on hold for the foreseeable (11:41) future. And remember, the decline in rates is directly tied to the decline in our economy. (11:46) And this is just one more red flag that indicates that we might be in for some rough waters ahead.

(11:50) Now, this next story isn't breaking news or anything, but like me, I don't think many of (11:53) you out there realize the impact of this, but when you think about it, it makes absolute total sense. (11:58) So in 1981, the national association of realtors first started the profile of home buyers and (12:03) sellers and a stunning finding was made. Single women outpaced single men and the housing market.

(12:09) In fact, single women were second only to married couples when it comes to homeownership. In 1981, (12:14) 73% of homebuyers were married couples. 11% were single women and 10% were single men.

And today (12:21) those shares stand at 59% of married couples, 19% of single women and 10% of single men. (12:29) So even with lower household incomes and an ever increasing unaffordable housing market, (12:34) women are kicking our butts today when it comes to building wealth through homeownership. And (12:39) what's really crazy about this stat is that it wasn't until 1974 that women were legally protected (12:45) to obtain a mortgage without a cosign.

You see before the passage of the fair housing act, (12:50) which prohibits against sex discrimination in housing related transactions and the protection (12:56) of the equal credit opportunity act, it was very commonplace for a widow to need a male relative (13:02) as a cosigner. If she wanted to purchase a house because under federal law, women had no legal (13:08) recourse for this or any other lending discrimination. And then again, the numbers (13:13) obviously bared out because immediately it showed that they're being more responsible, (13:16) having better credit, paying their bills on time and doing much smarter things with their money.

(13:21) Shocking. I know. Now knowing all this now should shape how you conduct your marketing activities (13:27) for now going forward.

Who's your ideal client? Where are they buying? These are all questions (13:32) that you need to know the answers to. And apparently Beyonce was right again. Howdy (13:36) single ladies.

Howdy single ladies for housing that is not for me. I found one of those single (13:40) ladies a long time ago and that was terrible singing by the way, but you know, got to make it (13:43) fun. Okay.

And, uh, one last thing here before we get to our main topic, and this is just because (13:48) I need to do this. Um, as I'm sure all of you know, former president Donald Trump had an assassination (13:53) attempt against his life this past weekend. Now, whether you like the guy or not, I think everyone (13:57) can agree that this is not the road that we want to see our country headed.

The internet right now (14:02) is ablaze with conspiracy theories on how and why this happened. But the reality is, is that no one (14:08) knows yet. And honestly, most of us probably never really know how this person was able to get into a (14:13) position to potentially do irreparable harm to our political discourse.

But luckily Trump made it out (14:20) relatively unscathed and had some Epic images that will live on the internet forever to show for it. (14:26) And he most likely sealed his victory as the next president of the United States. If he hadn't (14:31) already look, I am not a huge fan of president Trump, but I don't really have any love for the (14:35) Biden administration either.

I just don't want a repeat of all the political chaos that plagued us (14:40) in the sixties when we lost some of our greatest leaders of all time in a very short span of a (14:47) couple of years. And while it is incredibly tragic that a firefighter did lose his life in this (14:52) assassination attempt, I'm honestly just glad that this poor misguided kid missed. Otherwise it might (14:57) have triggered things and events that none of us want to live through or experience.

So please just (15:04) let us try to get to November and let the people make their choice. It's an illusion of a choice (15:08) that we all have between these two guys, but I digress. I just hope we can make it to November (15:13) with everybody healthy and safe because the alternative to this could have been much, (15:18) much worse.

All right. Now with mortgage rates starting to fall in a possible fed rate cut on (15:23) the horizon, many homeowners are going to begin asking when they should look at refinancing their (15:28) mortgage. Should you do it as soon as rates fall below where you are or should you wait to see if (15:32) they fall even more? Well, good news.

I am here to answer all of those questions and more. Now, (15:36) if you own a home, then this is going to be something that's going to be of interest to you. (15:40) But most of you guys out there listening are realtors and I'm sure most of you do own your (15:43) homes.

But if you don't, this is still important for you as well. Look, I do this each and every (15:48) week so you guys can better help your clients with all of their real estate needs and be their (15:53) go-to source for all things home ownership and interest rates and refinancing is just one more (15:59) piece to this real estate puzzle. So the more you know about how it works, the better you position (16:03) yourself as an expert in your field.

Alright, first off, what kind of refinances are there? (16:08) Well, there's rate and term refinances, cash out refinances, streamline refinances, (16:13) and home equity lines of credit or second liens. Today, we're mostly going to focus on rate and (16:18) term refinances. I've talked about all the others in past episodes and I'll dive more into this (16:22) topic in the coming weeks, but a rate and term refinance is just what it says.

You're refinancing (16:26) your loan to get a different interest rate or a different term, like going from a 30-year term (16:30) to a 15-year term. Now, if you have a VA or FHA loan, you have the option to do what's called a (16:35) streamline refinance, which is basically the same thing, but it just has fewer requirements and lower (16:40) costs related to obtaining the new loan. Again, I'm going to cover this in greater depth in the (16:44) future, but it's just another version of a rate and term.

So how do these refinances work? And (16:48) more importantly, when should you look to do a refinance? So first off, the requirements are (16:52) basically the same as they were when you got your original. Again, streamlines being somewhat of an (16:56) exception to that, but more or less, you still have to have your credit pulled. You still have to have (17:00) a debt to income ratio that fits the loan program.

However, in most cases, you will not need to pay (17:05) much of anything out of pocket to do this if you don't want to. And oh, by the way, you can do any (17:10) kind of refinance with any mortgage lender you want. You see, there's a common misconception (17:15) that you have to do this with your current lender or that you'll even get an easier or better deal (17:19) if you go with that current lender.

When in fact, in many cases, you might get a worse deal when you (17:25) work with your current servicing bank than if you called and talked to other lenders. You see, (17:29) the bank that already has your loan in their system knows that you're not likely to shop around (17:34) because it's easier just to call them. So they'll often take a little bit of advantage of this and (17:38) maybe give you a slightly higher rate than you could have got if you just shopped around a little (17:42) bit.

All right. So a borrower completes an application, has a conversation with their (17:46) lender about rates and costs and payments. Then the lender collects the necessary documentation.

(17:50) You might have to order an appraisal. This is always going to depend on several factors, (17:54) like your loan to value, how much you owe versus how much the house is worth. (17:57) It also depends on what type of loan you're doing.

And honestly, if the value that your lender puts (18:01) in the automated underwriting system is accepted by the algorithm. You see, getting that appraisal (18:05) waiver can be a bit of an art in some cases. So make sure your lender has had some experience (18:10) doing these things.

Then as long as everything lines up and your value is good, then you can (18:14) often roll all of the closing costs into your new loan. Yes, there are still costs. There are (18:20) never loans that get done without costs, regardless of what the internet and advertising tells you.

(18:25) There are title fees, credit reporting fees, possibly appraisal fees, recording charges, (18:30) et cetera, et cetera. And if you think that a lender is going to do a free refinance for you (18:33) because you're just such a great guy or gal, then I've got some oceanfront property in Arizona that (18:37) I'd like to show you. So there's always costs.

It's just a matter of who is paying the cost. You (18:42) or the lender on your behalf. You see, your loan amount may not increase by the amount of the cost (18:48) like it does in many streamlines, but that just means your rate is most likely higher than it (18:52) would have been if you had rolled the costs into your loan.

Instead of electing a quote, (18:57) no costs, you're going to pay for it somewhere, whether it be in the actual costs or a slightly (19:01) higher rate than is otherwise available to you. Now, the real question is when does it make sense (19:07) to refinance? Now here's where figuring out all this might actually be easier than you think, (19:11) because for a rate in term refinance, it's actually a pretty simple formula to decide if now (19:16) is the time to refinance or if you should wait. You see, all you have to do is take your old payment (19:21) and compare it to the new payment with the lower rate.

If you save enough on the new payment to (19:26) break even on the costs associated to doing the new loan in less than three years, then it's (19:32) probably time to pull the trigger. Now there are a couple extra things to consider here though. If (19:36) you're moving from a 30 year loan to a 15 year loan, your payment is most likely going to go up, (19:41) not down because of that shorter term to pay off the mortgage and figuring out the math on if that (19:46) makes sense takes a little bit more data about the interest savings over time and then the cost (19:51) incurred.

Also, if you're doing a streamline for an FHA or VA loan, then there is no cost added (19:58) back to your loan. They can't. And in that case, it almost always makes sense.

You just might want (20:02) to check and see what the rates look like. If you didn't do the streamline and added in the cost of (20:07) the loan instead, you might actually get a better deal in some cases. And the last thing to consider (20:11) outside the basic formula is where the overall interest rates are headed.

Are they going to (20:16) continue to decline and is right now a little bit too early to refinance? So how do you know if you (20:21) should wait? Well, if you listen to follow this podcast, I help answer that question each and (20:25) every week, but otherwise you need a knowledgeable experience lender to help you gauge where rates (20:31) are headed. And if now is the best time to pull the trigger or if you should wait just a little (20:35) bit longer. Now, other than those circumstances, if you subtract out the costs of setting up your (20:40) new escrow account, this is where your taxes and insurance get paid out of.

You see, you do this (20:44) actually because your current escrow account gets refunded back to you after you close and pay off (20:49) your old loan. It's almost kind of like a little mini cash out. It is your money and that money is (20:53) just being put into your new loan, but you don't need to do anything with it because you have a (20:58) new escrow account that's already set up for you in most cases.

So you can just keep that check that (21:02) you get back from your current servicer and do whatever you want with it. Also, you get to skip (21:06) at least one mortgage payment. And if you do it right and time it correctly, you can skip too.

So (21:11) you take the total costs, subtract the escrow setup and divide it by the amount your mortgage payment (21:17) is coming down. And if that number is less than 36 months or three years, then you are golden. (21:23) So if your total actual loan costs were say around $7,000 and you were saving about 200 a month on (21:29) your new payment, that number comes out to 35, 35 months to break even on the cost.

So if you (21:34) aren't planning on moving or selling in the next three years, then this is an absolute no-brainer. (21:38) Now, if that number comes out to three to five years to break even, then it becomes kind of a (21:43) personal preference at that point. If you know for sure that you aren't planning on moving (21:46) anytime soon or doing anything different with your home situation, it could still easily make sense.

(21:51) However, if it takes more than five years to break even on the cost of this refinance, (21:56) I would say that it absolutely does not make sense. And the reason is, is that five years is (22:00) just too long of a time horizon to know where life is going to take you. So in that case, (22:05) it's often best to wait until the math makes more sense.

And that's it. Pretty simple stuff. (22:09) Now, if you have questions about any of that or want more information on how all the other (22:14) refinance programs work, give me a shout.

I'd be happy to walk you through all the options. And (22:18) trust me, you can find my contact information pretty much anywhere on the internet. So give (22:22) me a buzz.

Well, folks, that is all for today. I hope you got a lot out of today's episode, (22:26) but I just want to say we are living in some unprecedented times. And the only way through (22:31) all this insanity is by sticking together.

We all have our differences, but at the end of the day, (22:36) everybody wants the same thing. We want to have the opportunity to provide for and protect our (22:39) loved ones. We all want to find a safe place to live and settle down and raise our family.

And (22:43) we all need that human connection that binds it all together. More love, more understanding, (22:48) more compromise, and more kindness. Because if we all just focus on how to be the best versions (22:54) of ourselves every day and stop worrying about everybody else, then often the rest takes care (23:00) of itself.

So until next time, be great humans and keep grinding. Life is what you make it. (23:06) So make it great.

See you later.