By: Joseph E. Seagle, Esq. President of PCS Title
December 27, 2021
We hope you had a great Chanukah, Christmas, and Kwanzaa, and an uneventful return to work after a long weekend. Here’s to ending 2021 on a high note and starting out 2022 strong with some valuable information.
1411 words…8 mins. 8 secs.
1 Big Thing: Year-End Refinance Boom Ahead of Rising Rates
We have closed more residential and commercial mortgage refinance closings in the past month than we did in the past year.
State of Play: As discussed in previous newsletters, it has been forecasted that average 30-year fixed mortgage interest rates would rise to between 3.5% and 4% by the end of next year. Since those prognostications were published, the Fed finally saw the reality of inflation and stopped using the word “transitory” when talking about the subject.
- The Fed has also apparently realized that the employment data they’ve been relying upon is woefully undercounting the number of new jobs being created each month as the past three months jobs numbers have been subsequently revised ridiculously higher than originally estimated.
- Since the Fed has finally realized that the U.S. is closer to full employment than initially thought, it has turned to its second raison d’etre (besides maintaining full employment) and is focusing on bringing inflation under control.
- So what does that mean? To control inflation and to avoid a recession, the Fed is tapping the brakes (not a hard stop, which would cause a recession) a little harder than originally intended. This means that it will back off its policy of bond repurchases twice as fast as planned. It will also need to start raising its Fed lending rates as well. This ultimately will translate into higher mortgage interest rates that may exceed the 4% cap that most economists were expecting by the end of next year.
Where we’re headed: To get ahead of those rates that will only go up from here, many homeowners and commercial property owners are refinancing now to lock in the lowest rates that we’re going to see for the foreseeable future and potentially our lifetimes. The higher rates will cool borrowing and expansion not only in real estate, but in every sector of the economy, which should help bring inflation back down from a 6%+/- rise each year to its usual 3% or less as demand likewise decreases. This means housing price increases will not be as great as in 2021, but rents could continue to increase as landlords need more rent to cover higher interest payments on variable rate mortgages.
But but but…Mortgage lenders are getting ahead of the predicted refinancing bust by laying off thousands of loan officers which will reduce lenders’ capacity to originate not only refinances but also purchases. So, be prepared for more loan origination and processing delays coupled with higher interest rates for purchases as we move through 2022.
2: Florida at top of 2022 housing lists
State of Play: Florida has historically been one of the top destinations for retirees, foreign buyers, and now it’s the place where nomadic remote workers want to live at least part of the year. For this reason, price increases in Florida are projected to be some of the highest we’ll see as demand exceeds supply.
- Foreign Buyers/Investors are expected to pick up again in the latter part of 2022 as international travel restrictions are lifted after COVID’s Omicron variant peaks out and drops in the early spring and into summer. Florida already draws 22% of the US total foreign real estate investment with Miami and Orlando leading the state for such foreign investments. (Orlando Sentinel – Paywall).
- Eight of the top 10 hottest US housing markets will be in the Southwest Florida area around Sarasota and Fort Myers.
- Tampa-St Pete-Clearwater projected to be #10 housing market positioned for growth.
- Florida should still see double-digit value increases of 10.7%, putting it at the top of that list as well.
The take-away: One silver lining of inflation is that it makes real estate a good place for investors to park their money. Florida is a welcoming parking lot. As long as demand continues to outpace supply, values will continue to increase. With labor and supply shortages for new construction continuing through at least 2022, expect Florida’s real estate values to increase at one of the highest rates in the country until supply can catch up to the demand. For those who believe that foreclosures will ease the supply crunch and lower prices, don’t hold your breath.
A Word from TRSTE – Sponsor’s Message
Land trusts are a fast and cost-effective way to separate your real estate holdings away from each other and away from your other assets. Using a third-party trustee also ensures that your ownership of the property is not published in the Official Records or on the county tax appraiser’s website.
You, your company, or even your retirement account can be the beneficiary of the land trust, directing the trustee in what to do with the property whether it is to sign a lease, a construction permit application, a deed, or other legal document to lease, sell, encumber, or convey the trust’s property.
Land trusts are not “testamentary” trusts, in that they are not used to pass property directly to beneficiaries outside of a court-supervised probate action. But can still help probate move along faster than if the court is dealing directly with the real estate rather than the trust interest only.
3: Virtual real estate appreciates too
- Facebook is trying to move us into the metaverse, but for those of us who are already in other realms online, the price of real estate in those virtual worlds is scarce and increasing in value as much as real-world real estate. (WSJ)
- A recent sale of $4.3 million for land in the virtual world “Sandbox” is the largest virtual real-estate sale ever published.
- The sales are paid for with cryptocurrency and evidenced by non-fungible tokens (NFT’s).
- The properties are built/developed and then rented out to other virtual world inhabitants with rents being paid in crypto- or hard currencies through virtual property managers who also handle tenant complaints and transfers … for a fee.
- Crypto can be used for real world investing too “The world’s first Bitcoin-backed mortgage will provide Bitcoin holders with an important use-case for their diamond stashes, but without having to resort to a BTC selloff.”
- But, but, but…in Florida, most title underwriters currently will not insure properties that are purchased with anything other than US Dollars. So consult your real estate attorney before thinking you can use that crypto account directly to buy real real-world property and get title insurance.
4: FinCEN wants to expand GTO to all cash purchases
State of Play: The US Financial Crimes Enforcement Network is a database collection of pretty much all financial transactions that occur as they run through the US banking and financial systems. This includes real estate transactions that are also tracked in an effort to discover and thwart money laundering, terrorists’ and other criminals’ financial schemes, and other nefarious activities.
- Since 2016, FinCEN has had a Geographic Targeting Order in place, requiring banks, title and escrow agents, or others involved in real property closings to report certain cash purchases of real estate to the FinCEN database, depending on the purchase price, property’s location, and type of entity used to purchase the property.
- This GTO has been limited to 12 metropolitan counties where foreign and domestic crooks have been known to park their ill-gotten gains (i.e. political bribes) in real estate holdings through cash purchases to “clean” the dirty funds via a subsequent sale of the property.
- Apparently the system has worked so well that FinCEN is seeking public comment on rolling it out nationwide. For title agents, closing attorneys, and escrow companies, it is a heavy burden to 1) spot transactions based on where the property is geographically located, so they may 2) act as the information gatherer to obtain all the beneficial ownership information of the purchasing entity to then 3) report that information on a FinCEN online form. At least if it rolls out nationwide, the first burden of geography would disappear. But – based on the number of closings we have each year that would qualify for the reporting requirement (assuming it will apply to any entity’s cash purchase for $1 million or more) – it’s likely that we would be reporting information to the database at least several times a month.
However, currently land trusts are not reportable “entities” under the existing order. It will be interesting to see if they’re added to a future iteration of the rules.
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