This is a central topic in the lending business. Everyone involved in the process, including clients and industry professionals alike, appreciate a fast closing. Nobody likes dealing with the stress and uncertainty that arises when the transaction goes sideways (rather than forward).

Here’s a few thoughts to help keep things moving forward toward a successful closing.

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If you’re involved in the mortgage business, you may be feeling the recent industry concern regarding the fall in mortgage volume. While volume has made some small rebounds in September, the overall trend is toward a decline with a year-over-year drop in volume of 18%, and 39% for refinances.

Interestingly, according to MortgageOrb, the refinance share of the mortgage market increased to 32%, up from 29% in July. What does that say? We can only speculate that it might mean purchase mortgages may be declining in volume faster than refinance loans (contrary to the prior YoY figure) and/or the September bump in volume was enough to increase REFI marketshare.

Why has refinance volume and purchase mortgage activity declined? There’s no simpler explanation than rising interest rates and the resulting decline in demand due to rising financing costs. According to Freddie Mac, rates are anticipated to rise to over 5% by year end. Other factors include limited housing inventories and bearish investment due to the rising cost of capital and advancement in the market growth cycle.

According to CNBC, the majority of homeowners in the US have existing loans with rates below 4%. Considering this, we can hypothesize that the still limited need for refinance is even less due do the high refinance rates of the recent past that have already served/saturated the majority share of the refinancing market.

This situation is further complicated by the fact that rising rates are deterring homeowners from pursuing refinancing to take cash out or finance renovations. Borrowers are turning to second mortgages and home equity lines of credit to get the funds they need and to avoid refinancing into a higher interest rate on the full balance of their first loans.

So what does all this mean for the mortgage business and the future of REFIs? These cycles are typical and this time around, it’s not likely to be as severe due to consumer protection legislation, such as the Dodd-Frank Act, passed since the Great Recession. Additionally, many of the volatile market conditions such as the excesses in subprime lending and availability of credit aren’t present today to the extreme and detrimental degree as in the period leading up to 2007.

We’ll likely experience continuing rate increases, interspersed with brief periods of cessation where rates decrease slightly and REFI volume makes a short-term rebound. Once the economy cools in the next few years, the FED will cut interest rates and we’ll experience new growth in mortgage lending, especially refinances.

If you’d like to talk with the team and I about what’s happening with the economy and local market, please give us a call or hit the chat button to the right. Btw, that’s not a chat-bot, it’s actually us.

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What position do you want to be in when you exit your commercial real estate investments? If you put these 7 income and value boosting strategies to work, you’ll be on your way to a profitable project conclusion. The essential avenues to improve value include increasing demand, boosting income, lowering expenses, and reducing risk. The following approaches make sense in nearly any market and will improve the exit results of any commercial property investment.

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Adjusting for condition isn’t something that most appraisers love to do as it involves a significant amount of research to make an accurate estimate of the difference in value due to the condition of physical improvements.

The income approach to valuations is a relatively simple method that calculates the value of a property based on the net income it generates in the course of a year. An appraiser will use a multiplier called the capitalization rate to calculate the value. Valuations professionals like using this method whenever possible as the data regarding investor income and risk expectations is readily available by examining income and purchase price trends for a class of properties in a given market.

Often, less detail-oriented appraisers will focus too heavily on the income a property produces without giving adequate attention to the impact the property’s condition has on value, particularly in the long term. Even where a development’s income is relatively strong, savvy investors should consider how the condition of the property will influence ongoing maintenance and operational costs.

Older buildings, and those less well maintained, can suffer from a host of environmental and efficiency issues that potentially hinder the property’s exit value, contribute to liability concerns, lead to excessive energy and water expense, and limit tenant appeal, ultimately leading to losses and diminished returns.

In the case of single family residences, and those properties not intended for income generation, condition is a primary issue that appraisers must consider in the absence of financial data and comparisons. Adjustments for features are typically straight-forward using the paired sales analysis method; however, adjusting for condition requires more insight on how property condition influences appeal, functionality, and short-term/on-going repair expenses.

While a property’s value may be supported by the presence of comparables with very similar features, location, and functional utility, differences in condition can render a drastic disparity in value, especial within the minds of real estate consumers, personal and commercial alike.

The most professional and diligent appraisers and valuation firms place an emphasis on looking at the broader image when considering the property’s value. Equal weight must be given to economic, social, regulatory, and behavioral factors that influence the market value of a property. For those valuation professionals that really get into condition and understanding how the market reacts to property age, best use, and economic/functional obsolescence, they are able to deliver higher quality reports that perform more reliably in serving the sensitive needs of clients and borrowers.

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