The economy is beginning to stall as the Fed has repeatedly increased its discount rate over the past few months to fight inflation. As Jerome Powell put it, “We have got to get inflation behind us,” even “if the chances of a soft landing are likely to diminish.”

Inflation did edge down last month and has possibly peaked. Unfortunately, if it has peaked, it is likely because we are on the edge of or in a recession. Mass layoffs have been announced at multiple large companies (11,000 at Facebook, 10,000 at Amazon, etc.), and new housing starts have plummeted

A survey by the National Association of Business Economics found 72% of economists predict a recession in 2023 (and one with high unemployment, unlike the technical recession of Q1-Q2 2022), and the Bloomberg Economics model puts the odds at 100%

So, we can expect relatively high inflation and a recession in 2023 while interest rates on the average 30-year mortgage have more than doubled over the past year.

While a housing crash like 2008 is extremely unlikely, real estate prices have already started to decline (at least month-over-month prices have), and needless to say, this isn’t a particularly ideal market to be buying in.

And we should remember that historically speaking, the Federal Reserve’s discount rate as of this writing (4%) is still low by historical standards.

U.S. Federal Funds Rate Over Time – Trading Economics

On the other hand, housing prices have gone up substantially faster than inflation. Bill McBride at Calculated Risk has put together a “housing affordability index” that takes into account median income, housing price, and interest rates, and this is what it looked like back in June.

housing affordability price index
Housing Affordability Price Index (1976-2022) – Calculated Risk

This shows that housing is as unaffordable as it’s been since just before the Great Recession, and that was back in July. It’s certainly gotten worse in the past few months. But even still, affordability is better than it was back when Volker broke the back of inflation in 1982 by jacking interest rates through the roof. 

So how should investors approach this volatile real estate market? Well, as I like to say, every market has pluses and minuses. In a buyer’s market, it’s easy to buy, not sell. In a seller’s market, it’s easy to sell, not buy. In this odd market, creativity could be the key. But first, let’s look at the straightforward advice for flippers and homeowners.

Advice for Flippers and Wholesalers

Six months ago, the market was on fire and assuming you could find a motivated seller or value-add property, it wasn’t usually tough to find an end buyer for it. That is rapidly starting to shift. And it’s likely to shift more. For flippers who need to rehab a property and won’t likely list it for sale again for 2-6 months, you should assume the market will be worse than it is now. It would be wise to reduce your maximum acceptable offer from 5-10% as a contingency.

Wholesalers need to realize they need a better deal than in the past to entice end buyers. In addition to lowering your offers, you should also consider asking for longer closing times, as it may take longer to find one. And, of course, you should be honest and open about what you’re doing with the seller. Don’t pretend you’re the end buyer.

Need to Move? Rent Your Home

Whether you are a real estate investor or not, if you own your home and need to move for work or other reasons, selling your home is not the way to go.

Instead, it makes more sense to rent out your current home and then rent where you are moving (assuming it doesn’t make sense or is unaffordable to buy there). 

Rent prices across the country are trending back down after skyrocketing in 2021. Indeed, the graph for rent prices is quite the roller coaster:

rent change yoy
Rent Measures: Year-Over-Year Change (2015-2022) – Calculated Risk

While this will make it less profitable to rent out your current property, it will also make it much more affordable to find a place to rent where you’re going. And the benefits of holding real estate accrue over time, whereas renting is temporary. 

Whenever rates go back down, you can simply buy a home where you have moved to. Although I know, that makes for a lot of moving, and moving sucks, it’s the price we pay for financial freedom.

Subject To and Seller Financing

The last time we had high-interest rates (and again, they were much higher than now) was in the 1970s and early 1980s. And that was when seller financing first became popular. As interest rates make traditional lending options less attractive, seller financing can again become a useful tool.

One of the best groups to market to is those without any debt on their properties. About 37% of homeowners have no mortgage. For such owners, seller financing at a lower interest rate can be an important point of negotiation. Indeed, many such owners are older and would rather have a stream of income than a lump sum.

Subject to deals is an even more attractive possibility. Subject to means you buy the property “subject to the existing financing.” In other words, the seller’s name stays on the mortgage, but the buyer begins making the mortgage payments.

It should be noted that this technically triggers the due on sale clause in every bank’s mortgage documents. This would give the lender the right to foreclose, and while it’s rare they do this, it’s something you need to be aware of. 

The vast majority of mortgages these days are fixed-rate, and most were taken out between 2018 and early 2022 when rates were very low. Being subject to one of these low-interest loans is an enormous boon. Remember, a great deal can be made with terms. It isn’t all about the price.

One other point to be mindful of here is that the last time subject to deals was popular was shortly after the housing crash in 2008 when credit markets were tight. The advantage was predominantly that it allowed a buyer to purchase the property without much cash down or without having to seek a bank loan. 

Today, the advantage has to do with the interest rates of the loans. That means most buyers will want to hold those loans for a long time and likely the duration. The seller will likely not be okay with this, especially since being stuck with a mortgage in their name could interfere with a future attempt to get a new mortgage on a different property. You should be honest and forthright about how long you intend to hold the loan in their name and stick to your word.

Cash Purchases and Partners

When interest rates are high, cash is king. Of course, “have money” isn’t particularly helpful advice, as this tweet amusingly points out:

But even if you don’t have money, that doesn’t mean you can’t buy with cash. Whereas private loans may have been the best way to raise money a few years ago, partnerships may be more enticing now; i.e., you do the work and bring the deal, the partner brings the cash, and you split the deal. You can find such partners the same way you would find private lenders

For these, the pitch should include a plan to refinance with a bank loan and pay off most of the equity partner’s investment whenever rates come back down. 

Buying Portfolios

This one is a bit more speculative, but we have seen a notable uptick in the number of sellers liquidating portfolios of houses and small multifamilies. Indeed, we have purchased four such portfolios in 2022 alone and have sort of made this our specialty. 

From what I can tell, a combination of reasons have led to this, which I believe are:

  • Many owners of portfolios (particularly between 5-30 units) couldn’t keep up with rent increases over the past few years and now have quite under-rented portfolios, which they don’t want to deal with.
  • In this interest-rate environment, it doesn’t make sense to refinance, and it would be difficult and take a long time to sell many scattered sites individually.
  • The general difficulty of managing a group of spread-out houses and small multifamily units.

I should also point out that they usually sell these portfolios at significant discounts. The four we bought this year were, from my estimates, between 75%-80% of their value.

If you are fairly well established and can handle low cash flow on a newer purchase for the immediate future while you get the rents up, this could be an opportunity to explore. 

Conclusion

It’s important to remember that every real estate market has its advantages and disadvantages. When it’s hard to find good deals, it’s usually easy to sell. The same goes for a market teetering on the edge of a recession with high inflation and high-interest rates. 

You just might have to be a bit more creative. 

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Mortgage rates were on a declining trend in November despite the Federal Reserve‘s efforts to tame inflation — but lower rates haven’t been enough to convince home buyers to lock in their mortgages rates in this volatile market.

Rate lock dollar volume was down 21.5% month over month in November, remaining at the lowest level since February 2019, according to Black Knight‘s originations market monitor report. Overall lock volumes are now down 39% over the past three months and down by 68% compared to last year’s level.

The decline was driven across the board by purchase locks, which were down 22%, reflecting the strong impact of seasonality, the long Thanksgiving holiday weekend, and the nationwide lack of housing inventory. 

Refinance activity continued to fall by double digits last month, with cash-outs down 86% and rate/term down by 93% compared to November 2021. Refinance activity made up 15% of the month’s lock activity, marking a near-record low share, Black Knight said.

Mortgage rates pulled back in November based on what the market perceived as good inflation news, Scott Happ, president of Optimal Blue, a division of Black Knight, said. However, the drop in rates wasn’t enough to spur higher rates of lock activity.

“The spread between mortgage rates and the 10-year Treasury yield narrowed by 13 basis points during the month to 283 basis points in a sign that investors and lenders may be seeking to accelerate the impact of falling rates. But, despite the improvement in rates, lock activity remained subdued.”

Producer price index — a measurement of prices paid for goods and services by businesses — rose 7.4% in November, down from the revised 8.1% gain reported for October. The consumer price index — which measures prices paid by U.S. consumers for goods and services — is slated to be released on Tuesday and will be one of the indicators the Fed will review to raise interest rates this week. 

Headwinds from both interest rates and affordability continue to challenge purchase lending, with the dollar volume of such locks down 37% over the past three months and more than 50% from November 2021.

Purchase lock counts — which exclude the impact of rising home prices — were down 48% year over year and 27% compared to pre-pandemic levels in 2019. 

Credit scores for cash-out refinances fell four points from the previous month to 686 but remained unchanged for purchase and rate/term refinance transactions. The average purchase price fell 1.3% from the previous month to $414,000 and the average loan amount dropped 2.2% to $340,000 in November. 

“While we would normally expect some seasonal pullback in activity in November, we are also seeing exceptionally strong headwinds in purchase activity from continued affordability challenges and a refinance market that has dwindled to all but nonexistent levels,” Happ said. 

“Stalled inventory and rates nearly twice what they were a year ago are combining to negate the benefits of recent home price and rate declines from an affordability perspective.”



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After Hurricane Ian, Florida real estate took a huge hit. With multiple communities literally underwater and the entirety of Southwest Florida facing pricey home repairs, Florida went from being the Sunshine State to the “do we have enough insurance?” state overnight. And with more and more natural disasters taking shape across the US, how can homeowners, landlords, and renters prepare for what mother nature is throwing at us?

Thanks to both heavy state and federal funding, Florida is well on its way to a successful recovery, but how did this happen? To learn more about the ins and outs of disaster recovery, we brought on Jeremy Edwards, Press Secretary at FEMA (Federal Emergency Management Agency), to share what the federal government is doing to aid in building back communities. Jeremy touches on storm tracking, pre-disaster preparedness, flood insurance coverage, and temporary housing programs landlords can use to help affected areas.

We also take a detour to talk about the rising insurance costs in disaster-prone areas like the Gulf Coast and the flood mitigation assistance grants that FEMA has set up for local governments to lower their chances of a devastating event. Jeremy also talks about what private homeowners can do if they don’t have enough insurance coverage, and how they can build back better so their own homes are protected when disaster strikes.

Dave:
This is On the Market, a BiggerPockets podcast, presented by Fundrise.
Hey, what’s going on everyone? Welcome to On the Market. I’m your host, Dave Meyer. Today we’re going to be talking about the impact of natural disasters on local economies and the housing market because of what happened recently in Florida with Hurricane Ian. Most of us here at BiggerPockets were actually at the BiggerPockets conference during Hurricane Ian or right after Hurricane Ian. And one of the most common questions that I got then, and following that is, how does this impact people, either renters or homeowners, landlords in the area? How do governments, how do investors respond to these types of situations? So since then we have been gathering some information. We’ve done a bunch of research on how these types of events impact the housing market, and we have the press secretary from FEMA, the Federal Emergency Management Association, who’s joining us today to talk about how the federal government basically assists state and local governments in their recovery efforts.
So not only if you were impacted, hopefully not either directly or indirectly by Hurricane Ian, there will be some really good information for you about how to access some of those funds. But also just as investors, home buyers, people in general interested in the economy, there is some really good information about how to prepare yourself, how this all works. And so I think we have a really interesting show for you. So make sure to stick around for this one.
Okay, so if you’re not familiar with Hurricane In, it was a huge disaster. Unfortunately, 146 people in Florida died from the event as it hit mostly Fort Myers and Naples, Florida. As we learned from our interview with Jeremy in a few minutes, there’s actually 26 counties in Florida that were directly impacted. And this has just been a terrible situation across the board. Obviously, personally, people have lost their homes, they’ve lost their possessions, many people are displaced. I read a sort of heartbreaking article earlier about elderly retirees who are struggling to rebuild.
And so this has been a really big issue. And of course, we don’t want to make light of the humanitarian and social issues that came out of this. We deeply feel for the people have been impacted. But as this show talks about investing home ownership, we want to talk about what happens in these situations to our businesses, our investments, the things that the people on the show might be wondering about. So we did some research and what we’ve seen is that since the events in Hurricane Ian, the housing market in this area has really taken a very significant hit. And a lot of this area of Florida, which is Western Florida, was already starting to see a decline. You probably know this, but it was one of the hottest markets in the entire country during the pandemic, and it was starting to come down.
But since then, in the weeks ending October 16th, so just a couple weeks ago, we saw that the pending home sales down nearly 60%, 60%, year over year in Cape Coral, Florida, which is really significant. We’re also seeing similar numbers in Naples, 52%, and North Port, 51%. Meanwhile, elsewhere in Florida, the housing market is cooling but not as much. Like in Miami for example, it’s 47%. In Jacksonville, it’s 46%, Palm Beach, it’s 43%. So you’re seeing that this area of the country is seeing a more significant slowdown in the housing market than the rest of this. Nationwide, I should mention, that home sales are down 32%. So when you look at areas like Cape Coral, it’s nearly double what’s going on in the US as a whole. And that obviously makes sense because there’s just less inventory on the market, a lot of homes need to be repaired.
But obviously, this means that we’re going to see some decreased activity in the housing market. For example, in Cape Coral, we’ve seen that new listing sank 59% on a yearly basis, and this is just going to further exacerbate this problem. We’re not going to see a lot of home buying activity in this area until there’s more homes that have been fixed and can enter the market. Now, this does have longstanding implications, not just for this area, but also due to just some of the things that we see happen after a hurricane. So thanks to Pooja Jindal, who’s our researcher, did some research into this and we found that after hurricanes, financial hardship causes a large spike in home mortgage delinquencies.
For example, after Hurricane Ida, which was in 2021, but we wanted to compare what’s happening now to something previously. We saw that in Houma metro area, which is in Louisiana, the delinquency rate for mortgages went up from 1% per month to 7%. So it’s 7x’d because of these hurricane. And now we’ve seen that the percentage of home buyers in Houma who are at least three months behind on payments jumped by 50%. So this sort of makes sense logically that all of these areas are going to be negatively impacted economically. And we don’t know exactly what will happen with Hurricane Ian specifically. But if this pattern continues, this could be a drag on that area’s economy for the foreseeable future.
The second thing that I think is really interesting and potentially has long standing implications, not just for this part of Western Florida, but also for Florida and really the whole country, is what happens with insurance here. Because this event, Hurricane Ian, private insurance losses are expected to reach $67 billion. This is one of the largest natural disasters in the United States history. And that doesn’t even include funds. We’re seeing these huge numbers come out.
CoreLogic, one of the greatest, biggest real estate analytics firms came out and said that they think that the damage that was caused could be between 28 and $47 billion just for home sales. That first issue included businesses and other stuff. But just for that, it could be one of these deadliest costliest storms in the history of Florida. And this comes at an interesting time for Florida because Florida has already seen a lot of insurance companies start to leave, and premiums in Florida have gone up very, very significantly. Florida insurers, people who still operate, insurers who still operate, depend heavily on what is called reinsures. This is basically insurance companies for insurance companies. So like insurance companies, they analyze risk and they estimate how much to charge in premiums to ensure that they can pay for everything in case there’s an event like this. But sometimes they’re wrong.
And so they actually take out insurance to make sure that if they’re wrong, someone else comes in with even more money to refill their coffers basically. So they’re really dependent on these reinsurance programs. And actually Florida has actually, the state government has had to come in and create its own reinsurance programs because there’s just not enough insurance dollars coming into Florida. Just as an example of what is going on with Florida’s insurance program back in May, Governor Ron DeSantis called a special legislative session to try and shore up the insurance program and lawmakers took steps to including providing $2 billion in reinsurance to carriers. But obviously, that’s not enough, right? $2 billion, that’s great. But I just said that some of the estimates here are that insurance are going to be between 28 and $47 billion. Now, we haven’t really heard from any insurers that this is going to be a catastrophic event for them and they can’t pay for it.
But we’ve already start to see insurance premiums go up in states like Florida or in places where I invest in Colorado where there’s more wildfires. So that is just an open question about what goes on with insurance. I don’t know exactly what’s going to happen, but there have been a lot of questions. I’ve been reading Florida newspapers all day preparing for this about what’s going to happen with the insurance market in Florida. So although it looks like, according to Redfin, housing market activity is really declining, it looks like investors are actually not really that deterred right now. There was a recent Wall Street Journal article that says that investors are basically swooping in. And I was very excited to see that the person they quoted was Ken Johnson, who we had on this podcast back in, I think it was like May or June, to talk about his rent versus buy model that he created. Just as a reminder, it’s a great episode if you want to go check that out.
But according to Ken Johnson, what he thinks is going to happen is, quote, “We’ll most likely see an increase in prices almost immediately driven mostly by continued strong demand and stormed induced inventory shortages.” He goes on to say, “While pricing might be erratic for the first few months, the demand for living along a coastline with warm weather and a business friendly economy seems to have led to quick economic recoveries after recent past hurricane strikes.” So this is just something to note that although it does look dire right now, and that is sort of going nationwide where we’re seeing a decline in housing market activity, Ken Johnson, who again was on the show, thinks that this is going to be probably pretty short lived. And according to his research economic activity, home buying activity has picked up relatively quickly in Florida after similar events in the past.
So we invited on Jeremy Edwards from FEMA to talk about how the federal government is helping state and local governments shore up the insurance system, provide disaster relief for the people who need it. And so we’re going to take a quick break, but after that, we’ll welcome on Jeremy Edwards from FEMA.
Jeremy Edwards, the press secretary for FEMA. Welcome to On the Market.

Jeremy:
Thank you Dave. Great to be here. Thanks for having me.

Dave:
Absolutely. Thank you for being here. Before we get into some of the more recent events, can you help our audience understand what exactly FEMA is and what its mandate is?

Jeremy:
Sure. So FEMA is an emergency management agency. It’s a federal emergency management agency. We kind of operate as a big coordinator of federal resources when there’s a disaster. So most typically, folks’ interactions with FEMA is like something terrible or tragic has happened, whether it’s like a hurricane, a wildfire, flooding event, tornado. And basically what happens is the state or a territory will have a specific amount of resources to respond to that disaster. And usually, if they’re going to tap out of those resources or they don’t have enough money to respond to something significant, then they’ll call on the federal government for what’s called a major disaster declaration or an emergency declaration. And then that’s kind of when FEMA steps in.
And again, our big kind of tools to address those is either direct funding through individual assistance or public assistance. And then the other hat that we put on is a coordinating officer. So we’re basically at HQ pulling, together the various disparate parts of the federal government, whether it’s like the US Army Corps of Engineers, HHS, those types of agencies. Coast Guard, sorry, I was blanking for a second, the US Coast Guard. Bring them all together and then kind of mission assigning them like what they’re going to do.
So we’ll say, “Okay, US Army Corps Engineer, you’re going to go help get the power back on. HHS, you’re going to help set up some temporary health facilities to address those needs. US Coast Guard, you’re going to help us with search and rescue.” So that’s kind of our main role. The other hat we kind of wear that’s been more important with climate change, increased extreme weather is resilience. So we provide a lot of funding through our resilience office, resilience grants. We have flood mitigation assistance and hazard mitigation grant funding, which basically gives communities funding to strengthen them to better stand up, build back better. So that way when disaster is going to come, they’re able to withstand it.

Dave:
Got it. All right. Thank you. So it sounds like you’re funded by the federal government and respond and help preempt. Is it only natural disasters or is there other types of assistance that FEMA provides?

Jeremy:
No, actually, so it’s hazards. So our authority comes from the what’s called the Stafford Act primarily. And basically, natural disasters are usually what people think of, but it’s really any hazard. It could be something that’s related to nuclear, it can be a manmade disaster. We also have a role with continuity. There’s like an issue with there’s some sort of terrible thing that might happen in Washington, DC for example, where we have kind of a continuity role there too. So folks usually think of us when it’s hurricane season because those are kind of the biggest types of disasters that will hit the nation, but it’s really any hazard.

Dave:
Got it. Okay. Thank you for explaining that. Well, we are definitely guilty of thinking of you when it comes to hurricanes because the impetus for this show, our show focuses on people in the real estate industry and home buyers who want to take a data driven approach to their home purchase. And obviously, with Hurricane Ian recently, there was a massive loss of property, obviously, tragic loss of life as well. Can you tell us a little bit about how FEMA was or still is involved in the recovery from Hurricane Ian?

Jeremy:
Sure. So I don’t want to say a good thing about hurricanes, but one benefit in terms of disaster preparedness is you can kind of see it coming a few days out. So we’re tracking the storm early on. Before the storm made landfall, President Biden approved an emergency declaration for Florida, so that way they could kind of preposition materials. That emergency function really helps with the life saving and life sustaining efforts. So making sure that we can move personnel swiftly to an area, making sure they have commodities on hand, helping them with first response, search and rescue operations, things like that. So that was on the front end. We basically put a bunch of people and a bunch of resources in areas that were close enough to where once the storm passed we could basically flood the zone and get in there but far enough away where they’d still be safe.
And then that’s kind of like that immediately response action. So like I said, that’s a lot of search and rescue efforts, making sure we’re saving lives, et cetera. Then, basically right after that happens, you’re switching into recovery mode and that’s kind of where we are now. And that’s something that’s going to continue on likely with a storm like this for years, given the amount of devastation. So right now our primary role is supporting the state in things like debris removal, but then also providing both public assistance and individual assistance. The public assistance is what’s going to the state for things like infrastructure projects. So there’s a lot of bridges that might have collapsed, roads that need to be repaired, and that’s when our public assistance comes in. And then the individual assistance is kind of the money we provide directly to survivors to help them make their homes habitable again, maybe give them some temporary housing assistance as well. So that’s kind of the mode we’re in and that unfortunately, with something like this, is going to be a few years.
Yeah. You just see the pictures, it looks horrible what happened down there and I’m glad to hear that there’s concerted effort by the federal and state governments to help everyone affected by that. What do you typically see? You said years. In this type of situation, I don’t know if FEMA has any estimates, how long does it normally take for communities, we hear specifically about Naples and Cape Coral, some of the worst affected areas, how long does it take for them to recover?
For a disaster like this, we’ve been told it’s probably going to take somewhere in the ballpark of about seven years in this recovery. If you look at old disasters or disasters that we’re still recovering from, like we’re still recovering from Storm Sandy up in New York and New Jersey. There’s still recovery efforts underway for Hurricane Maria, which that community five years later is in the middle of recovery and then they get hit by another hurricane. So these are long efforts.
Part of that is because when you have severely damaged infrastructure, it’s just going to take time to rebuild those things. When you have areas where communities example in Fort Myers Beach have been completely almost washed away in some areas, that’s going to involve folks not only trying to rebuild their lives, but in some instances, they might have to think about making tough decisions, can we even move back here? Can we rebuild here? So these recovery efforts take a long time, but FEMA has the funding and the resources and the personnel. We’re basically there until the recovery’s over. So we still have folks down in Puerto Rico who were originally recovering from Maria, they were there five years later. We have folks all over the country that are still helping folks recover.

Dave:
Got it. Okay. And so for specifically, let’s just look at Hurricane Ian, the recent example, does FEMA help reconstruct homes, for example? You mentioned bridges and stuff, but what about local economic conditions or is it homes, businesses? What is the scale of what you’re assisting with?

Jeremy:
Yeah, so there’s a few different things. The first thing is FEMA is not necessarily the builder or the contractor. What we’re really doing is providing the funds so the state can lead that effort. And a phrase that we use around here is state and local led, federally supported. So the state, because they’re close to the issue, they’re closer their constituents, they’re closer to the residents, they know what they’re going to need and they’re going to have to make sometimes those tougher decisions of maybe we can’t necessarily rebuild a community right here. We might have to start elevating homes. We might have to say this is actually now in a flood plain, we would not advise people building houses here. So we’re basically going to be giving those folks money.
So right now, the federal effort, all told, that’s FEMA assistance and small business administration as well, is about $2.6 billion has gone to the State of Florida. And then beyond just helping folks either rebuild their homes, a couple other tools that they can use are, there’s SBA low interest disaster loans that are available for both homeowners, businesses and in some cases renters that basically in addition to any sort of FEMA assistance, they can get that type of assistance. And FEMA also offers flood insurance. We have a National Flood Insurance Program that insures properties up to $250,000 worth of damage. So there’s a few things, few resources that folks can take care of, but primarily it’s a state that’s going to kind of be leading on those rebuilding efforts and then FEMA’s kind of funding a lot of that stuff.

Dave:
Got it. Okay. You mentioned insurance, which is something I want to talk about, I’m sure something you talk about all the time. But the idea of home insurance is that you are covered in these types of situations. So how does FEMA work with or augment personal home insurance?

Jeremy:
Yeah, so just to start off, generally, insurance is a confusing concept for a lot of people. It’s very technical. But most homeowners’ insurance actually doesn’t cover things like flooding, unfortunately. So that’s why separate from homeowner’s insurance, if you live in a community that is participating in our NFIP program, the National Flood Insurance Program, FEMA is basically the insurer. They’re underwriting those policies so you can get flood insurance through us and then we will insure your home or property. And then the individual assistance basically is to fill gaps or for folks who might be uninsured.
Now, what I will kind of say to your listeners is that FEMA’s job is really to jumpstart your recovery. We’re not necessarily there to make everyone entirely whole, that’s kind of the state’s primary job. We’re there to basically say, okay, here’s a disaster, here’s injecting money into the problem, either directly to people or to the public through public assistance to the states to basically start that process going. But flood insurance, to your question, is really the best way to protect yourself, which is why we encourage everyone, even if you’re not living on the beach or next to a river bank, to consider getting flood insurance because wherever it can rain, it can flood. And we’ve seen disasters where Hurricane Ida, for example, comes up as a hurricane, turns into basically a storm system and then all of a sudden we see massive flooding in places like New York City that wasn’t even in the path of the storm, so to speak. So that’s definitely going to be the best way to protect yourself from these types of damages.

Dave:
Okay. So it’s not like FEMA’s coming in and people who don’t have insurance are essentially getting recovery funds to completely replace the role of private insurance.

Jeremy:
Exactly. So it’s like you have these pools of money. So you got the flood insurance money that we would encourage everyone to get. If you don’t have flood insurance, we have individual assistance to help those types of folks. But again, reminding everyone that it’s really there to just jumpstart your recovery. And then some other things we have while you’re kind of trying to figure out what to do next, we have transitional sheltering assistance, which basically pays for you to stay in a hotel or a motel. And then we also have our housing mission, which is actually just being stood up now for a few counties where we will basically provide either a trailer or some type of other structure where you can live in while you’re in the process of rebuilding your home or making those necessary repairs. Because the last thing we want is for people to have to stay in a home that is clearly uninhabitable.

Dave:
I’d love to get back to that housing mission in just a minute. I think that’ll be of particular interest to our listeners. But wanted to ask one more thing about insurance, because this seems to be a big issue, particularly in Florida. I was reading that in Florida a lot of insurance companies are leaving the state because it’s becoming so expensive to insure there and that the state has actually stepped up and provided some reinsurance to some of the main providers. And I was just curious how FEMA reacts to that. Is that going to mean that FEMA’s going to have to inject more money into states like Florida in the future because private insurance might be doing less?

Jeremy:
I think what that really means is that, to your point, climate change, rising sea levels, warmer oceans are going to be leading to more of these types of events. That is just the reality of the situation. And what that is going to end up doing is likely going to be higher premiums for some folks who are living in riskier areas. We’ve implemented here at FEMA a new methodology for how we determine folks’ premiums, called Risk Rating 2.0, which basically identifies the true risk of a property. So folks can start making those decisions because that’s what it’s going to come down to, just saying, is it worth the risk to live in an area like this? And that’s what those types of tools will tell you. There’s also other tools like the National Risk Index, which is a great tool that I would encourage anyone who’s moving to a new area considering developing some new property, buying or renting a home, to check that out.
We also just recently announced a new tool with Argonne and AT&T called ClimRR, C-L-I-M-R-R, which is a cool tool that basically shows your future climate risk, mid to late century. So you can look not only what’s your risk today, but you can look like, okay, what’s this area going to look like in 20 years, 15 years? And those I think are important tools because especially when it comes to someone who’s looking to build property or build a new home, you’re not going to want to move to a place that could very well be underwater in 20 years. So these are some tools. As far as FEMA’s concerned, we are going to continue to provide flood insurance to communities that are participating in the National Flood Insurance Program, whether or not there might be private insurers there.

Dave:
Got it. All right, that makes sense. Thank you. Thank you for explaining that. And then one last question about the insurance thing. I guess maybe it’s not insurance. I read something about the 50% rule and that FEMA basically will only provide funds to help rebuild if the repair cost is less than 50% of the appraised value. Is that correct?

Jeremy:
Not exactly. Basically has to do with what local and state ordinances are saying. So basically a state and local government, you can’t basically rebuild if your home is seen to be substantially damaged. So if the home is substantially damaged, they’re not going to let you rebuild there unless you take certain actions to alleviate the risk in the future. So whether that means elevating a home, moving it out of a flood plane for example, but that is more of a state thing. And I’d actually love to get you some more information on that because we have some more detailed information that I could share as well.

Dave:
Great. Yeah, that would be awesome. I obviously don’t know that much about it when I was reading about it, when I was researching the show. And so if you do have any additional information about that, we can make sure to put it in the show notes for anyone listening, they can go and download that resource there.
So I’d love to get back to something you mentioned, which is the housing mission, which is something I think our listeners will be particularly interested in. You mentioned it provides temporary housing for people affected by these hazards and natural disasters. Can you tell us a little bit more about how that works?

Jeremy:
Yeah. So there’s two things that are going on. On the one hand, we’ll offer things like rental assistance to people if they need help with that. We also have the Transitional Sheltering Assistance and that’s like our hotel and motel program. And then we have our Direct Housing Mission. So we have that currently authorized for four counties in Florida. And basically, what that is, we determine that rental assistance is going to be insufficient to meet the needs of folks living in those counties. So there’s a few things that we might provide. One is multi-family lease and repair where FEMA will enter into a lease agreement with the owner of a multi-family property and make repairs to provide housing for those applicants.
There’s also basically they FEMA trailers. The technical name is a transportable temporary housing unit. That’s where we’ll basically bring an actual trailer to the property or adjacent property that’s in a safer area and folks will basically live in there while they’re either rebuilding or doing repairs for their homes. And that mission usually lasts about 18 months. And the only thing I would emphasize there is that these are temporary options. There’s not meant to be long term solutions. There’s other folks who are working in the space, like our friends over at Housing and Urban Development, who kind of have longer term housing solutions should you need housing beyond those 18 months. But that’s, that short term to medium term solution while folks are trying to get their lives back together basically.

Dave:
Got it. Okay. So it sounds like your first priority is to provide rental assistance rather than housing. So what does that mean? They could get vouchers to lease an apartment while their home’s being repaired?

Jeremy:
Yeah, basically. We’ll basically provide them with some sort of funding to basically, let’s say they can’t save at their house, they need to go do some short term lease somewhere else, we’ll provide rental assistance to them that way. The other way is the transitional sheltering assistance that I mentioned, which is they just go to a hotel that’s participating. I believe we have them in Florida, Alabama, and Georgia, where they can go to basically stay in a hotel and we’ll just pay the hotel directly for their stay there. And then if it looks like their road to recovery is going to be longer than that, that’s when that Direct Housing Mission comes in where it’s like, okay, the rental assistance or those transitional sheltering assistance is just insufficient to help this person, their needs are going to be a little bit longer. So then that’s when the direct housing comes into play.

Dave:
And does that apply to both homeowners and renters?

Jeremy:
Yes, this all applies to both, besides rental assistance of course. But with homeowners there’s also, like I mentioned, those SBA loans. But the direct housing transitional, it’s really just about whether you’re a renter or homeowner, is your home currently habitable? No? Then, these are where these programs come in.

Dave:
Okay, got it. If there are people listening to this, we have a lot of landlords on the show, people who own multi-family properties who want to offer this service or interested in working with FEMA on there, is that something they can do?

Jeremy:
I would suggest that anyone who has questions like that, call 1-800-621-3362. 1-800-621-3362. That is our basically individual assistance line that’s in. That’ll put you in touch with recovery folks. Frankly, I’m not entirely sure what there might be for homeowners who want to help out on the rental side of things. But at the very least, if you’re looking for that type of assistance, that’s your best way to get it. Phone lines are open, got a bunch of people waiting. I’ve been told that call times have decreased significantly since the beginning of this disaster. And then there’s also disasterassistance.gov, which is somewhere we would encourage folks to check out.

Dave:
Thank you very much. That’s super helpful. And is anyone eligible for these types of programs or just FEMA assistance in general? Is it just like anyone who needs it or are there criteria for who can get assistance?

Jeremy:
Yeah, so the primary criteria is are you living in an impacted county? So going back to your first question about what does FEMA do, how does this process kind of work, when there’s a major disaster declaration, we will, at the request of the state, identify the counties that are impacted. So in Florida, I believe we’re at 26 counties right now. That means anybody living in those counties is technically eligible for individual assistance. Now, the major caveats are legally we cannot duplicate benefits. So that means if you have an insurance claim and the insurance is going to pay to fix your home, you’ll likely not qualify for individual assistance unless, this is a hypothetical, but let’s say your insurance only covered for wind damage or something, you actually don’t have flood insurance. Then the individual assistance might come in to fill some of those gaps.
And then the other part of it is through our policies, we’re required also then to do home inspections. So if you’re like, “Hey, my basement got badly flooded, it’s causing some structural damage here, mold,” et cetera, we will then, once you’re in the process, send out a home inspector. Usually at your convenience, they kind of work that process out and they’ll come in to basically just assess the damage. And that’s all part of how we determine the amount of assistance that person’s going to receive. So the short answer is yes, if you’re in a eligible county, you are eligible for assistance. But then there’s just those little caveats that I mentioned.

Dave:
Thank you for helping with that. This has been very helpful, understanding how you all react to disasters and hazards. You mentioned at the beginning of the show that part of FEMA’s mission is also to help with prevention or with awareness. Can you tell us a little bit more about that?

Jeremy:
Yeah. There’s basically a bunch of grants that we give out through our resilience directorate, which are basically to help communities harden themselves to extreme weather events. So our big pool of money is what’s called hazard mitigation, our Hazard Mitigation grant program. And basically what that does is when there is a major disaster declaration, those communities are then eligible for hazard mitigation grants moving forward. So basically, it’s like you get hit by a hurricane, now you can start applying through that disaster to get these hazard mitigation. So the next time you might be hit by a hurricane, it’ll be lessened.
Two other areas that we have are flood mitigation assistance grants, which basically provide similar type of funding to make communities more resilient. And then we have the Building Resilient Infrastructure and Communities program, or what we like to call it around here, BRIC. And that is a program that has been a received increased funding from the president’s bipartisan infrastructure law. That does the same thing. It’s basically communities who want to build up resilience, apply for grant funding, we review their applications, and then we will basically provide them with funding depending on what they need to help just build up resilience there.
And what I really love about those two programs in particular is we’ve have implemented new initiatives to basically get more money to underserved communities. So historically, communities that have been historically underserved, disadvantaged, vulnerable, have had a harder time accessing this type of money. And then ironically, or even maybe even expectedly in some ways, it’s those communities who end up suffering the most when there are disasters. So this is kind of a way for us to say, okay, we want to make sure that everyone’s able to have access to this money. So it’s just making those programs more accessible.

Dave:
Got it. And you’re saying the communities. Does that mean that it’s state or local governments who are applying for these or do individual homeowners or renters have any option to access some of these funds?

Jeremy:
Depends on the program. So a lot of these though, are usually state and local communities are applying for the grants and then determining where that money is going to be spent. For example, there’s a program that we have, which is effectively a flood buyout program. So if your home has been impacted basically repeatedly by a flooding event, the local community can basically determine what properties that they’re just going to want to buy out. They’ll just buy your home from you. And then FEMA will provide that money to the local and state community to carry out that program. And that instance, it’s like the community slash the local government or the state government is the one driving the program, but it is to basically help individual households out.

Dave:
Okay, great. So if you are a homeowner or investor in these areas, sounds like the best that you could check with FEMA, but also check what your state and local governments are doing to build resilience and allocate some of these funds.

Jeremy:
Exactly.

Dave:
All right, great. Well, Jeremy, thank you so much for being here. Is there anything else you think our listeners should know about FEMA’s mission or how they can build resilience against these types of hazards and disasters?

Jeremy:
Yeah, the one thing I would just like to say is preparedness, which I don’t think we talked a bunch about, but it’s, I think, arguably the most important thing that you can do when it comes to these disasters is just take steps to make sure you’re prepared beforehand. We have a ton of resources available, low cost and no cost options to prepare. I want to tell your listeners to check out ready.gov or listo.gov, which is our Spanish version of the same website, that kind of has preparedness tips. We also recently relaunched our FEMA app, we revamped it’s more accessible and it’s got a couple cool tools that folks can use. And it’s just as simple as plugging it in on your iPhone or your smartphone. And that will tell you not only local emergency alerts, but it will tell you where shelters might be located. It will tell you how to apply for disaster assistance if you’re impacted. And it also has a lot of those preparedness resources.
And just on that note, coming off the pandemic, which a lot of people are moving to areas that they’ve never lived before. We have a lot of people moving across the country, living in environments that they’re not used to. So that’s what really where the preparedness comes in. There’s people living in places, they might have never gone through a hurricane. They might not have any experience with wildfires, which is where this preparedness stuff comes in. And the final thing I’ll say on the preparedness piece is, don’t get complacent. Just because, you didn’t get hit… Folks in Tampa, this hurricane was originally supposed to hit Tampa. At the last minute, kind of shifted down, but it very well easily could have gone there.
Maybe next year they get hit. Maybe next year Miami’s on it, or we see with things like Hurricane Ida, you’re not even in the path of the storm and then you’re suffering other things from the system, tornadoes and things like that. There’s few places in the country where you’re not going to have to deal with some sort of possible natural disaster. I used to say Upstate New York was the safest place to live, but then we just gave Buffalo a major disaster declaration for all the snowfall that they just got. So really, just don’t take it for granted and do everything you can to prepare. Even if it does seem a little silly sometimes, you’ll just like never know when you might actually need those skills and those resources.

Dave:
All right. Great. Well, thank you so much for joining us, Jeremy. We really appreciate you being here for this episode of On the Market.

Jeremy:
Thank you. I appreciate you having me.

Dave:
All right. Big thanks to Jeremy for joining us from FEMA. That was a really interesting interview. I am embarrassed to admit that I did not know very much about what FEMA does or how they provide help to communities and homeowners and investors previously, but learned a lot about that. We did pull together some stats just so you can understand of the scope of what’s going on in Florida and what FEMA does. FEMA has, to date, provided $603 million to households and 322 million to the state of Florida for emergency responses and to help survivors jumpstart their recovery. It has made individual assistance available to 26 counties in Florida. And as of October 22nd, FEMA’s National Flood Insurance Program has received more than 42,000 flood insurance claims. Wow, 42,000 claims. And paid more than 147 million to policy holders, including 103 million in advanced payments. So that’s really interesting and good to hear.
And I think there are some main takeaways that I sort of wanted to just recap from the interview with Jeremy. First and foremost, as he said, part of their mission is to provide housing assistance, either in temporary housing or rental assistance or putting people up. So one, if you are personally affected, hopefully you’re not, but if you are, you should seek out those assistance programs. But if you have a tenant, for example, or someone who is seeking housing, you should encourage them to seek out the state and government assistance. And if you have vacancies or open multi-families like they were talking about, perhaps you can come in and provide a service to the people who are affected and sounds like FEMA and the federal government will foot the bill there. So that could be a great win-win situation.
The other thing that I think that Jeremy hit on that I wanted to talk about was just preparedness and buying good insurance. So flood insurance, counter to what people often think, is not included in standard homeowner policy. And I really like what he said that anywhere could flood. So I mostly invest in Colorado, it’s where I was living prior to moving to Amsterdam. And my home was actually in a flood plain. And if you know anything about Denver, it never rains there. But it’s almost like because it never rains, when it does rain a lot, these huge flash floods come around and it could be really detrimental.
And so I really encourage you to look at the flood plains, flood information for your neighborhood and make sure that you are properly insured for anything that could happen. Because like you said, it’s like one of those things, insurance, you never want it, but when the time comes and your number gets called and that happens, unfortunately, you’re going to want the best insurance. So I’m a big believer in buying good, high quality insurance and recommend that if you are an investor, homeowner of any type, you reevaluate your policy.
I also loved what he said, or I didn’t love it, but whatever, I think it was a really important point, is that people are moving to new places where they don’t have experience. Florida, for example, has seen this huge increase in population over the last couple years. And so there probably are a lot of people, maybe even if you owned a home in a different state or in a different city, are moving to a new place where you don’t know, maybe you haven’t lived through a hurricane and need to take some new consideration, make some new considerations about your insurance. So if you have moved to a new place, whether it’s Florida, or like Jeremy said, Buffalo, New York, you should reevaluate some of the risks that exist in your area and make sure that your insurance policy has you adequately covered.
All right, well thank you all so much for joining me for this episode. This has been really interesting. I learned a lot from Jeremy. Hopefully this has helped you understand how housing markets and how insurance markets react to these types of disasters. Thank you so much for listening. We’ll see you for next time for On The Market.
On the Market is created by me, Dave Meyer and Kailyn Bennett, produced by Kailyn Bennett, editing by Joel Esparza and Onyx Media, research by Pooja Jindal and a big thanks to the entire BiggerPockets team.
The content on the show, On the Market, are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

 

 

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



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With only three weeks until 2023 arrives, housing industry executives are adjusting their operations to face what is expected to be another challenging year. 

The Federal Reserve will continue its fight to tame inflation — with its seventh consecutive interest rate hike expected from its December 13 and 14 meeting — despite looming concerns of a prolonged recession.

The U.S. GDP is projected to decline 1.3% in 2023 with an inflation under 3% on a year-over-year basis by year-end and federal funds rate of 3.50%-3.75%, after a 4.50% peak in early 2023, according to a Wells Fargo Investment Institute report published Friday. 

What does it mean for mortgage companies?

“Profitability is likely to remain very constrained well into 2023, until excess origination capacity in the industry declines materially,” Moody’s analysts said in a recent report on nonbank mortgage finance companies. 

With still-high interest rates depressing both refinance and purchase originations due to challenged housing affordability and increased economic uncertainty, origination volumes will likely continue to decline moderately in 2023, Moody’s explained. 

Against the backdrop of this challenging economic and housing environment, companies in the housing industry continued to restructure and cut workforce to better position themselves.

CoStar sheds jobs after resi reorg 

CoStar Group, a provider of online real estate marketplaces, information and analytics in the commercial and residential property markets, cut approximately 100 positions as it announced the integration of Homesnap with its Homes.com brands late last month. 

CoStar bought Homesnap — an online and mobile software platform that aims to provide user-friendly applications to optimize residential real estate agent workflow – in 2020 and a year later bought Homes.com, a platform that offers real estate professionals advertising and marketing services for residential properties. 

Given that Homes.com is “the more agent friendly real estate portal alternative,” it took steps to combine and streamline the operations and functionality of Homes.com and Homesnap, the firm said in a statement on Nov. 30.

“Over the course of the next 12 months, CoStar Group expects to increase the net number of employees building Homes.com by 700 after today’s reorganization and headcount reduction of approximately 100 duplicative roles.”

On the day CoStar announced the integration, the Virginia-based firm submitted a Worker Adjustment and Retraining Notification (WARN) notice to California’s Employment Development Department (EDD).

The company, a giant in the housing industry with a market cap of $32.8 billion as of Friday, decided to “permanently reorganize and eliminate its residential customer services, sales and product trainer operations in San Diego,” according to the WARN notice reviewed by HousingWire.

A total of 14 employees — seven customer services, six sales and one product trainer positions — will be terminated, which is expected to occur on or about January 30, 2023. 

A 25% cut at UpEquity

Austin-based mortgage tech platform UpEquity had a new round of layoffs this week affecting 25% of the total employees across all job functions.

“We made the difficult decision to reduce our workforce in order to ensure we have the ability to accomplish our mission of creating more equal access to the American Dream, regardless of external market forces,” co-founder Tim Herman wrote in an email to HousingWire. 

Over the last two years, UpEquity raised over $70 million from investors, including $50 million in a Series B funding round led by the venture capital firm S3 Ventures

To manage its cash position amid a shrinking mortgage market, the company laid off nine of its 93 employees in June. This week, the company cut additional staffers, including several high-level positions. 

This week’s layoffs, which affected 25% of staff, included Ricky Puente, former mortgage operations lead, and Dani Hernandez, its former vice president of mortgage.

UpEquity is offering former employees tenure-based severance packages of four to six weeks, according to Herman. 

Co-founded in 2019 by Herman and Louis Wilson, the lender and “power buyer” allows homebuyers to make all-cash offers to compete with institutional investors. 

The company then receives monthly payments with interest from the homebuyers, who can avoid going through a bank to get a mortgage. UpEquity claims it takes 17 days, on average, to close a deal, while the average in the industry is closer to 50 days. 

UpEquity earns a commission from brokering or selling the mortgage buyers take out to buy their homes. In states where purchase contracts can’t be assigned, UpEquity buys the home upfront and writes the mortgage after closing the deal.



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Mortgage rates continued the downward trend this week amid signs that the U.S. economy is cooling down due to the tightening monetary policy. The recent declines, however, have not been enough to convince borrowers to take out a home loan. 

“This week, labor cost data provided a ray of hope as it showed that hourly compensation was lower than previously reported in the second and third quarters for all sectors except manufacturing,” Danielle Hale, Realtor.com’s chief economist, said in a statement.

Hale added, “Anyone paying attention to the price at the pump would also have noted a decline. Next week’s Consumer Price Index data will confirm whether these trends are pervasive across the variety of goods and services consumers buy.” 

All eyes on the Fed 

Inflation and labor market are slowing down, which means that the Federal Reserve does not need to increase the federal funds rate as aggressively as it did with the 75 basis point hikes from the last four meetings. Most investors expect that in its meeting next week, the Fed will hike rates by 50 bps instead. 

That’s why the average 30-year fixed-rate mortgage rate decreased to 6.33% this week, down 16 basis points compared to the previous week, according to the latest Freddie Mac survey. The same loan rates averaged 3.10% one year ago.  

At Mortgage News Daily, rates were even lower, at 6.29% on Thursday afternoon. 

“Mortgage rates decreased for the fourth consecutive week due to increasing concerns over lackluster economic growth,” said Sam Khater, Freddie Mac’s chief executive, in a statement. 

“Over the last four weeks, mortgage rates have declined three-quarters of a point, the largest decline since 2008. While the decline in rates has been large, homebuyer sentiment remains low, with no major positive reaction in purchase demand to these lower rates.” 

According to Hale, the reason is crystal clear. Recent declines in rates have brought the cost of purchasing a home down by an average of $185 per month, relative to the recent peak in rates. Still, borrowers are paying $880 per month more on average than last year. The analysis considers a buyer of a median-price home for sale today making a 10% down payment. 

Hale said that setting a home purchase budget has been “incredibly difficult for home shoppers who have watched their purchasing power swing up and down as rates fluctuate.”  

Flat and falling home prices

According to data from the Mortgage Bankers Association (MBA), mortgage applications fell 1.9% this week compared to the Thanksgiving holiday-adjusted results from the previous week. 

“Prospective homebuyers continue to delay decisions to purchase homes, even as home prices flatten or fall,” said Bob Broeksmit, MBA’s president and CEO, in a statement. “The average loan size for a purchase application last week was at its lowest level in nearly two years, another indication that home prices are cooling.”

However, some analysts see some limitations to home price correction. The credit analysis agency Moody’s expects home prices to decline 12.2% in 2022, but by a 4.1% drop in 2023. 

“The market maintains fundamental strengths, including favorable demographic trends, supply constraints after a decade of underbuilding, and generally solid mortgage underwriting and structures, in the form of mainly 30-year fixed loans,” Moody’s analysts wrote in a report. 

They added that the risks vary across metropolitan areas and different market segments, with potential house price declines of 15%-25% or more in some areas. Still, home values in these areas generally will remain well above pre-pandemic levels, Moody’s analysts said. 

“The extent of recent booms, current construction levels, and changes in migration patterns (e.g., as remote work and environmental issues evolve) will drive local prices,” the analysts wrote. 



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Lending standards tightened for the eight consecutive months ending in October as mortgage rates remained elevated and the housing market outlook worsened, the Mortgage Bankers Association (MBA) said on Thursday.

The mortgage credit availability index (MCAI) fell by 0.5% to 102 in October, declining to its lowest level since March 2013. A decline in the MCAI – benchmarked to 100 – indicates that lending standards are tightening, while increases in the index are indicative of loosening credit.

“Lenders continue to reduce their capacity and are eliminating some loan offerings, including certain types of refinance loan products and others that require less than full borrower documentation,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement. 

But while credit tightening was notable for conventional loans, credit loosened for the jumbo segment.

The Conventional MCAI decreased 1.5%, in October while the Government MCAI increased by 0.4%. Of the component indices of the Conventional MCAI, the Jumbo MCAI decreased by 2.5% and the Conforming MCAI remained unchanged.

On the homebuyers’ side, demand for mortgages slowed in October as rates surpassed 7% levels, resulting in weaker home purchase units. 

Rates have been volatile following the Federal Reserve’s efforts to curb inflation. After peaking at 7.16% in October, rates have been on a declining trend, falling to 6.33% this week, according to Freddie Mac.

The drop, however, hasn’t been enough to spur activity among homebuyers. Mortgage applications fell 1.9% this week compared to the Thanksgiving holiday-adjusted results from the previous week.

While mortgage rates are expected to drop lower in 2023, the forecast for the housing market is expected to get gloomier next year.

The mortgage market is projected to slip to $1.74 trillion in 2023 from the expected $2.34 trillion this year, according to Fannie Mae forecasts. The agency expects single-family home sales to plummet to 4.42 million next year after posting 5.67 million in 2022. 



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After returning from the Thanksgiving holiday, the roughly 575 staffers at Reverse Mortgage Funding assembled nervously on two separate Microsoft Teams meetings. On the first virtual meeting, 472 employees received the bad news that many expected: they were being terminated. The hundred or so workers on the other Teams meeting were given marching orders: keep the company’s operations functioning during bankruptcy proceedings.

HW Media reporters Bill Conroy and Chris Clow spoke to over a dozen company employees, executives at rival reverse lenders, independent analysts in the space, and pored over hundreds of pages of bankruptcy proceedings and bond documents.

Our story, published Thursday morning on Reverse Mortgage Daily, is in effect a post-mortem. It examines what went wrong, the attempts to save the company, what finally triggered the collapse, and ultimately, the level of risk RMF’s competitors still face.

In many respects, RMF, the nation’s fifth-largest reverse lender, was caught in the perfect storm of financial calamity, one that was precipitated by fast-rising interest rates, tightening Federal Reserve monetary policy, and unforgiving regulations and credit markets. 

The market volatility pushed RMF and its parent, Reverse Mortgage Investment Trust Inc., into a death-spiral liquidity crisis and devastated the lender’s primary revenue-generating channels as well as its credit facilities.

The resulting sea of red ink forced the company to seek protection from the storm through a Chapter 11 bankruptcy reorganization filed in federal court in Delaware.

Read the story of RMF’s downfall here.



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The Consumer Financial Protection Bureau stated on Tuesday that it will be lenient when enforcing changes made in the 2020 Home Mortgage Disclosure Act Final Rule on the closed-end loan reporting threshold. 

On September 23, 2020, the U.S. District Court for the District of Columbia issued an order vacating the 2020 HMDA Final Rule, changing the reporting data on closed-end mortgage loans to 25 from 100 in each of the two preceding years going back to the threshold set in 2015.

The 2015 HMDA Rule required the financial institutions that originated no fewer than 25 closed-end mortgage loans in each of the two preceding calendar years and meet other reporting criteria, such as asset and location tests, to report their closed-end mortgage activities. 

“The CFPB recognizes that financial institutions affected by this change may need time to implement or adjust policies, procedures, systems, and operations to come into compliance with their reporting obligations,” the agency said in a statement.

The agency added it “does not intend to initiate enforcement actions or cite HMDA violations for failures to report closed-end mortgage loan data collected in 2020, 2021, or 2022 for institutions subject to the CFPB’s enforcement” as it “does not view action regarding these institutions’ HMDA data as a priority.”

A report released by the CFPB in 2021 found that in general, lenders that are newly exempted under the 2020 HMDA Rule – with annual origination volumes that exceed the 25-loan threshold but fall below the 100-loan threshold – didn’t appear to be more likely to lend to Black and non-White Hispanic borrowers than larger volume lenders, the agency said.

Lenders below the 100-loan threshold appear to make more investment purpose loans to higher income borrowers, trusts, partnerships, and corporations, as well as more loans secured by properties in low-to-moderate income census tracts, according to the report. 

“These findings are consistent with a possible explanation that lenders below the 2020 rule’s 100-loan closed-end threshold are making more loans to investors buying up property in low-to-moderate income census tracts for rental or resale,” the agency said in the report.

The HMDA, enacted by Congress in 1975 following the public’s concerns of the lack of mortgages often in minority neighborhoods, is a data collection, reporting, and disclosure statute that requires certain financial institutions to publicly disclose information about home mortgages. 



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Since the weaker CPI data was released in November, bond yields and mortgage rates have been heading lower. The question then was: What would lower mortgage rates do to this data? Now, with five weeks of data in front of us, we can say they have stabilized the market.

Purchase application data came out on Wednesday and the week-to-week data was down 3%, breaking the streak of four straight weeks of growth. The year-over-year data declined 40%, the smallest year-over-year decline since Oct. 19.

For months I have been saying we were going to have challenging comps from October to January because last year at this time mortgage volume was rising — a rare event this late in the year.

Because of that, we should all expect declines of 35%-45% year over year during this period. If things were getting weaker, 53%-57% negative year-over-year declines would be in play. However, mortgage rates have fallen more than 1% since the recent highs, so it’s time to look at the data to explain how to interpret it.

The bleeding has stopped

First and foremost, the bleeding has stopped in this data line, but the context is critical here. We had a waterfall dive in this data line and adjusting to the population, we hit an all-time low, so let’s put the bounce from the lows in context. This isn’t like the COVID-19 recovery where the data was getting noticeably better on a year-over-year metric; the purchase application data just stopped going down.

For now, just think of it as stabilization and we need to see more of this to make a valid premise that the worst is behind us.

As you can see from the chart above, the last several years have not had the FOMO (fear of missing out) housing credit boom we saw from 2002-2005. Accordingly, we also haven’t had a credit bust in the data line.

What I mean by a credit bust is that after the housing bubble burst in 2005 into 2006, we saw a massive increase in supply. These were forced credit sellers, which means these sellers don’t sell to buy a home like a traditional seller does. Since they were distressed forced sellers, inventory skyrocketed in 2006 and stayed very elevated in 2007 and 2008.

As we can see below, none of that is happening today because the seller isn’t stressed.

Total inventory levels

NAR: Total Inventory levels 1.22 million
Historically inventory levels range between 2 million and 2.5 million, the equilibrium balance between a buyer and seller marketplace that has been here for four decades. Only from 2006-2011 did we see this break due to forced sellers who couldn’t buy homes.

Using Altos Research, which tracks up-to-date weekly data, we can see that inventory is having its traditional seasonal decline now. Remember that inventory is always seasonal; it rises in the spring and summer and fades in the fall and winter.

One issue that has created a waterfall dive in purchase application data and sales is that new listing data is declining faster than usual. That’s a double whammy on demand and a reason for the waterfall in existing home sales data.

Traditionally, when mortgage rates rise post-2012, home sales trend below 5 million. This time the hit on demand is much more challenging as we are working from a savagely unhealthy rise in home prices since 2000, and mortgage rates have skyrocketed in the most prominent fashion in modern history.

Mortgage rates went from a low of 2.5% to a high of 7.37% — purely savage. Naturally, with those two variables in place, demand will collapse.

Since the summer of 2020, I have believed the housing market could change in terms of cooling down, but it would require the 10-year yield to break over 1.94%. This was something that wouldn’t happen in 2020 and 2021, based on my forecast.

However, 2022 was going to be the first year this could happen if global yields rose. Well, not only did that happen, but with the Fed’s aggressive pivot, the Russian invasion, and the stronger dollar, the 10-year yield and mortgage rates have had a historical ride this year.

Also, I believed the risk to the housing market was if home prices grew more than 23% over the five years of 2020-2024. Well, that happened in just two years, so my affordability models are off the charts. Since 2013 I have said that mortgage rates over 5.875% would be problematic to housing. Rate above 7% made things even worse.

With that said, bond yields and mortgage rates have been falling noticeably since the weaker inflation data. We are on the verge of mortgage rates getting below 6% soon.

So what to make from all this data? Think of it as a stabilizing impact; for now, it doesn’t represent a rebound in demand or anything in that light.

If mortgage rates can get toward 5% and stay there for a while, that would be the best thing to try to get the housing market out of a recession. We have to remember that purchase application data looks out to 30-90 days, so the recent stabilizing data line most likely won’t show up in the reports until January or February, which really means the months of February and March since the data is backward looking.

Also, we need significant context with this survey data line; it just got hit with a massive demand destruction wave that impacted first-time homebuyers and sellers, who would typically buy homes as well.

All we have done here in the data is stop the bleeding. The peak year-over-year decline was 46% on Nov. 16, and now we are showing a drop of 40%, so even the better year-over-year data needs context.

We will know when housing is getting better when the year-over-year declines get less and less, and then at some point, we will show positive growth since the bar is so low. However, we aren’t at that stage yet. For now, as long as mortgage rates head lower, that is a positive move for the housing market.



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The San Diego metropolitan area features a robust housing market—with some of the highest historical rent and price appreciation in the United States. Anchored by a growing economy, low unemployment, and a significant military presence, the San Diego real estate market offers investors a stable base with strong long-term growth prospects.

Economic Overview

San Diego, located in Southern California, is the eighth largest metropolitan area in the United States, with a population of about 3.3M people. From 2010-2022, San Diego County grew nearly 7%, but recent estimates show a 0.4% decline in population from 2020-2021. For context, the state of California overall had an estimated decline of 0.8% during the same period.

san diego population
San Diego Population (1971-2022) – St. Louis Federal Reserve

Wages in San Diego are very high, with the median household income coming in at just above $82,000, compared to a national average of $65,000. Poverty rates are relatively low at 9.5% compared to the national average of 11.6%. These strong economic indicators are partially driven by a highly educated workforce, with nearly 40% of citizens holding a bachelor’s degree or higher. 

One of San Diego’s greatest strengths is its labor market. Unemployment rates remained solidly below the national average for many years pre-pandemic and have returned to very low lows in 2022.

san diego unemployment rate
Unemployment Rate in San Diego Compared to National Unemployment Rate (2012-2022) – St. Louis Federal Reserve

An important economic factor for real estate investors is the diversification of employment in a target market. When an area is highly dependent on one industry, it makes the market more susceptible to economic cycles. San Diego, however, has a well-diversified economy with a strong representation in education, hospitality, trade, professional services, and government.

san diego jobs
Breakdown of Employment in San Diego

Housing Prices

San Diego has a strong track record of property appreciation, growing a staggering 270% from the lows of the great recession in 2009 to current day, according to the S&P/Case-Shiller Index. As a result, San Diego has a relatively high entry point with a median sale price of almost $828,000 as of October 2022.

As with many markets, the San Diego market is showing signs of changing course. Since June, inventory (as measured by months of supply) has increased from pandemic lows and has started to level off near pre-pandemic averages.

san diego real estate market months of supply
San Diego Months of Supply – Redfin

This shift presents both opportunity and risk for real estate investors. With high-priced markets that appreciated rapidly during the pandemic, the risk of price corrections is considerable. It’s likely that prices will come down in San Diego in 2023. 

However, increasing inventory and price declines mean that the San Diego market has shifted from a seller’s to a buyer’s market. When buyers have pricing power, they should focus on buying properties below asking price to insulate themselves against potential future price declines. 

Rent Trends 

For investors, one of the most attractive reasons to invest in San Diego is the strong rent growth. The median rent in San Diego is above $3,100 and has grown 10% in just the last year alone. While rent growth is starting to slow down, San Diego still has one of the country’s highest year-over-year rental growth rates. It’s a highly desirable place to live, and the demand for rental units is strong.

Find a San Diego Agent in Minutes

Connect with market expert David Greene and other investor-friendly agents who can help you find, analyze, and close your next deal:

  • Search “San Diego”
  • Enter your investment criteria
  • Select David Greene or other agents you want to contact

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Cash Flow Prospects

With potentially falling home values combined with high rents, cash flow prospects in San Diego are likely to increase in the coming months. That said, cash flow is relatively hard to come by as measured by the rent-to-price ratio (RTP). 

Generally speaking, the higher the RTP, the better. Anything with an RTP close to 1% is considered an excellent area for cash flow, but it’s not a hard and fast rule. But that doesn’t mean cash flow cannot be found. There are good strategies for real estate investors to employ to generate excellent returns in San Diego.

Winning Strategies 

According to David Greene, a local market expert, short-term rentals, medium-term rentals, and house hacking are all excellent ways to find cash flow in this market. Traditional buy-and-hold investing can still work but will likely require some value-add work to make the numbers pencil out.

If you can generate a good cash-on-cash return with some of the strategies mentioned above, San Diego could be a winning market for investors, given its reputation for great appreciation. Appreciation might slow down or reverse in 2023, but the long-term prospects remain very strong. 

Getting Started: Invest in San Diego 

To learn about investing in San Diego, partner with a local investor-friendly real estate agent like David Greene, who can help you find, analyze, and close the right deal. 

Here’s how to contact David on Agent Finder. It’s easy:

  • Search “San Diego” 
  • Enter your investment criteria
  • Select David Greene or other agents you want to contact

David is a nationally recognized authority on real estate—he’s an agent, lender, investor, author, and co-host of the BiggerPockets Real Estate Podcast. He’s been featured on CNN, Forbes, HGTV, and more. David is the first to know which strategies work, when the market shifts, and the best areas for investing that will meet your goals.

Find an Agent in Minutes

Match with an investor-friendly real estate agent who can help you find, analyze, and close your next deal.

  • Streamline your search.
  • Tap into a trusted network.
  • Leverage market and strategy expertise.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



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