Tag: mortgage-rates

Shadow Inventory


Uninhabited real estate. Vacant homes. Vacant lots. Distressed homes. Each, categorized as shadow inventory.

Properties in foreclosure. Bank REO’s. Properties which will soon be listed for sale…but have not yet been listed for sale. Shadow inventory. City-owned properties? These properties should be included in the same category – shadow inventory. But they’re not. 

Shadow inventory is all too often overlooked as a property category through which the provision of increased access to affordable homes can be expanded in neighborhoods where limited opportunities to find affordable housing now exists.

Distressed properties make up a significant portion of shadow inventory. Distressed properties sell at lower prices than do properties which are in good condition. Accordingly, sales of shadow inventory homes can contribute to lower area home values. Yet these lower shadow inventory sale prices create affordable housing opportunities. Through the lower sale prices. As such, the acquisition of a shadow inventory home could enable a buyer to gain access to affordable housing..

Properties in foreclosure. Bank REO’s. Shadow inventory. Once again, how about city-owned properties? 

City-owned properties would not necessarily be classified as “shadow inventory.” Classifications aside, one upside found in purchasing a foreclosed home – or a bank REO – can also be found in purchasing a city-owned property. This upside being, an opportunity to get into a home of your own. Affordably.

Benefits found in shadow inventory homes are not bestowed only upon those who are looking to find affordable housing opportunities. 

Acquiring shadow inventory – and city-owned properties – creates a nice opportunity for real estate developers. As developers are able to acquire shadow inventory and city-owned properties at less-than-market sale prices.

Then, as developers reposition shadow inventory and city-owned properties to “performing properties,” developers are able to put the now-performing properties on the market. Selling the properties they purchased at less-than-market prices at market prices. In a limited inventory market. A profitable exercise.

Affordable housing advocates…this is one good path to consider.

Real estate developers…this is one good path to consider. 

It’s rather ironic, yet factually accurate, that for-profit real estate developers are able to benefit by following along the same pathway that affordable housing advocates travel. Yet this is a unique situation we do have, within the space of identifying benefits attributed to purchasing shadow inventory and city-owned properties.

Is what we are talking about here a liberal real estate path? Or is this a conservative real estate path? Is this a real estate path for FOX viewers? Or is this a real estate path for MSNBC viewers. The answer is, All of the above. 

A Fed rate cut…and mortgage rates went up.


Mortgage rates are at their highest levels in two months. This, after the Federal Reserve cut the federal funds rate for the first time in four years.

The Federal Open Market Committee sets a target range for the federal funds rate. The federal funds rate? The federal funds rate is the interest rate banks pay on money they – as banks – borrow from other banks.

The Fed does not directly set mortgage rates.

The Fed influences mortgage rates. The Fed influences mortgage rates through the role the Fed plays in setting monetary policy. As such, the Fed indirectly affects the interest rates borrowers lock into at the consumer level, by way of how credit spreads evolve in the market as a result of the Fed’s actions. In relation to the issuance of debt instruments. 

Credit spreads consist of the purchases of – and then the simultaneous sales of – contracts within the same asset classes. Credit spreads are not always so easy to predict. Then too, mortgage rates are not necessarily – nor definitively – so easy to predict, short term, either. Although the general direction mortgage rates will end up heading can rather accurately be predicted through actions taken by the Fed.

Great for buyers…great for sellers: the 2-1 buydown

When mortgage rates are high – like they are today – you can use a 2-1 interest rate buydown to obtain a lower mortgage rate. And a lower mortgage payment.


The 2-1 interest rate buydown is a home loan feature whereby funds are set aside in an escrow account at the closing. These funds are set aside for the benefit of the buyer. The escrowed funds enable the buyer to “buy down” their interest rate for the first two years. In year one, the buyer’s interest rate will be 2% lower than the 30-year rate. In year two, the buyer’s interest rate will be 1% lower than the 30-year rate.


The 2-1 interest rate buydown is simple. It’s a 2% interest rate reduction in year one. It’s a 1% interest rate reduction in year two.


In years 3 through 30, the buyer’s interest rate remains the same. The buyer’s mortgage payment will remain the same as well. The buyer’s interest rate in years 3 through 30 – as well as the buyer’s mortgage payment in years 3 through 30 – is established when the buyer locks their rate.


The 2-1 interest rate buydown provides a buyer with an opportunity to qualify for a larger loan amount. This increases the number of homes the buyer can go out and look at.


By using the 2-1 interest rate buydown, a buyer can purchase a larger home. A buyer can purchase a more expensive home. A buyer can purchase a home with more “bells and whistles.” All are nice options. Possible, through the use of the 2-1 interest rate buydown.

What does a 2-1 interest rate buydown cost?

The cost of the 2-1 interest rate buydown is equal to the difference between principal and interest payments – based on the 30-year rate, which goes into effect in year 3 – and the principal and interest payments on the bought-down, lower rate in year 1 and year 2. Escrowed buydown funds are paid at the closing. Paid by the seller. Held in escrow. For the benefit of the buyer.

You are thinking about selling your home. How can the 2-1 interest rate buydown help you, as the seller? Let’s look at a few situations…

When the housing market is softening. When higher numbers of sellers are listing their homes for sale. When the housing market shifts from a seller’s market to a buyer’s market. When you see price reductions. When homes are sitting on the market – unsold – for longer periods of time. In each situation, the 2-1 interest rate buydown is an attractive tool that can be used by a seller to attract more buyers.


Over the past few years, mortgage rates have remained stubbornly high. When mortgage rates are high – like they are today – buyers who may be thinking about purchasing a home are also thinking about those higher mortgage rates. Higher mortgage rates = higher mortgage payments.

The 2-1 interest rate buydown lets a buyer get into the home they want today, with an interest rate during the first two years that will be closer to the lower mortgage rates buyers were used to seeing a few years ago. Lower mortgage rates buyers are eagerly waiting for. Mortgage rates…that are just not getting much lower.


Families hoping to purchase a home are taking notice of higher mortgage rates. Higher mortgage rates place pressure upon family budgets. This affects whether a buyer will decide to submit an offer to purchase a home. Which in turn, affects prices sellers get for homes they are selling. All being good reasons to consider using the 2-1 interest rate buydown. The 2-1 interest rate buydown benefits buyers. The 2-1 interest rate buydown benefits sellers.


Through the 2-1 interest rate buydown, as the seller, you offer your buyers the benefit of the lower mortgage rate. And the lower mortgage payment too. In year one. And in year two.

As the seller, by offering your buyers a lower mortgage rate for the first two years, you will attract more buyers to your home. Because your home is being sold with the 2-1 interest rate buydown. Because your home is being sold with a lower mortgage rate. Because your home is being sold with a lower mortgage payment. For two years. As the seller, this positions your home – which is being presented to buyers, with the 2-1 interest rate buydown – as an attractive option. Especially when compared to other homes on the market that buyers may be looking at. Because those homes don’t provide buyers with a lower mortgage rate in year 1 and year 2. Because those homes don’t provide buyers with a lower mortgage payment in year 1 and year 2. And yours does!

The 2-1 interest rate buydown. It’s great for sellers. The 2-1 interest rate buydown. It’s great for buyers.