Morning! This is MF Lending - and May the 4th be with you. We’re the fool-proof way to serve up mortgage and real estate market knowledge without any of the guesswork. So you’ll look like the smartest agent in the room (and you are!)

Here’s what we’ve got for you today:

1. Solving the Inventory Problem 🧮

2. Nearly Half of Homebuyers Use Discount Points 💰

3. The Long-Term Rental Market: Deep Dive 🌊

FED raised rates by 25bps yesterday (5/3). If you want to read about the FED Meeting, Press Conference, & Impacts - see our FED Lunch & Learn Edition from yesterday!

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Solving the Inventory Problem 🧮

If you're in the market to buy a home, you may have heard about the current inventory shortage across the United States. While this can be frustrating for buyers, it's important to understand that this trend is expected to continue throughout 2023.

According to a Redfin study, half of the homes on the market are selling in 2 weeks.

Despite economic challenges like rising interest rates, low inventory is preventing home prices from falling even further.

Basic supply and demand pressures are at play, meaning that with fewer homes available, prices are staying strong. So, while it may be difficult to find the perfect home right away, your investment is likely to hold its value.

In March 2023, the median home price in the US reached a record high of $375,000, up 16% from the previous year.

Low inventory is particularly affecting entry-level and mid-range homes, with a shortage of available properties in these price ranges.

However, this doesn't mean that these homes don't exist. By working with a knowledgeable real estate agent and being open to different neighborhoods and property types, you may still be able to find the perfect home at your price point.

What is a potential way out of this?

Homebuilders are struggling to keep up with demand. They continue to have supply chain issues and delayed completions. I do not see the market being able to build out of this inventory problem.

Experts suggest that policymakers could help alleviate the inventory shortage by implementing policies that incentivize homeowners to sell, such as tax credits or other financial incentives.

If we offer advantages to people brave enough to enter the market as a seller, we could subdue some of the pent-up demand we know is in the market.

This has to happen if we want to keep the real estate market strong. If we can give investors and homeowners a reason to sell, they will take it.

Nearly Half of Homebuyers Use Discount Points 💰

As the real estate market becomes increasingly competitive, many homebuyers are turning to mortgage discount points as an effective strategy to reduce their monthly payments.

Zillow recently reported that more buyers are purchasing these points to ease their monthly costs.

Nearly 45% of conventional primary home borrowers opted to purchase discount points in 2022.

A mortgage discount point is “prepaid interest” that a borrower can buy at the time of closing.

One “point” costs 1% of the loan amount, and each point can lower your interest rate by .25%-.5% (see Nuwave’s rates above to get a good idea of today’s spread).

For example, if you have a $300,000 mortgage and purchase “one point” for $3,000.

The main advantage of purchasing discount points is the long-term savings on interest payments. While there is an upfront cost, the lower monthly mortgage payments can outweigh this initial investment over time, especially for borrowers who plan to stay in their homes for several years.

It's essential to calculate your break-even point—the number of months it will take to recover the cost of buying the points through lower monthly payments—before deciding if this option is right for you.

These breakeven points can sometimes be as high as 4-5 years to make your money back on points you purchased at closing. So, if you do not plan to on being in the home (or owning the home and renting it) for that long, the discount points may not be worth the added cost.

Working with a lender who is knowledgeable and trustworthy is crucial when considering discount points. A good lender will help you determine if purchasing points is the right move based on your financial situation and home-buying goals. They will also guide you through the process and explain the potential tax benefits, which can be an added incentive for some borrowers.

Discount points are considered prepaid mortgage interest and, as such, may be tax-deductible.

This means that, in addition to the long-term savings on interest payments, purchasing points could also offer immediate tax benefits. It's important to consult a tax professional to determine the specific tax implications for your individual circumstances.

Takeaway for Agents

If the monthly payment is what holds your client back from a specific home, it is worth looking at discount points as an option to reduce the burden on the monthly payments.

This strategy has become more common than ever for clients in the market and a great way to reduce monthly expenses.

Have your clients discuss this option with your loan officer to make sure they are comfortable with their payment.

The Long-Term Rental Market: Deep Dive 🌊

The long-term rental market has always been an attractive investment option for those seeking a stable income stream.

Recent survey results from the 2023 Long-Term Rental Market Survey indicate that this sector is not only growing, but it may also offer a more reliable and low-touch alternative to short-term rental investments.

Here are the things to know if you or your clients want to enter the long-term rental game.

75% of respondents predicted an increased demand for rental properties in the next 12 months. Why?

This is driven by some renters’ inability to enter the housing market. These clients lean towards renters because of down payment issues, home prices, and the added responsibility of homeownership.

Renters were happy overall about their renting terms. 2/3 US adults renewed their lease in 2022.

What do LTR Tenants Look For?

The number one amenity for renters was an in-unit washer/dryer. If a property you are looking at does not already have some of these amenities, it may be worth a couple thousand in renovations or improvements to increase the rent clients are willing to pay.

How to increase tenant retention?

• Ease of lease renewal

• Early communication of any changes

Tenants who received more than 30 days of notice when there was a rent increase, were 35% more likely to resign.

If you are currently a LTR owner, you can use Zillow Rental Manager. This is an amazing place to market the property, manage payments, sign and renew leases, and scheduling tours for potential renters.

If you see any other trends in your personal rentals - let us know in the comments. Happy hunting 🏡

The Cul-de-Sac

Thanks for reading - that is all we have for today 😎

Please forward this to your friends and colleagues if you found it valuable.

— Michael F DiLucchio