Not So Fast...
All along the
Federal Reserve Board has maintained their line of keeping rates low for a few
more years. They recognize that the economy is looking brighter, but there are
still many headwinds. For example, as we have seen in the last two weeks, the
bad news from Europe may have died down but the endemic European debt problems
are not behind us. When the stock markets pulled back a few weeks ago because
it seemed the Fed was abandoning hope of further stimulus efforts, Chairman
Bernanke reminded Congress of the dangers that lie ahead. What we are left with
is a brighter economic picture, no further stimulus from the Fed but low rates
as far as the eyes can see. Some may call that mixed signals, but the Fed has
always had to perform a balancing act. Today's balancing act is much easier
than the juggling act they had to perform a few years ago in the midst of the
financial crisis. At that time, there were too many balls and too few hands.
The economic news
that has been released for the past three weeks has been decent but not robust.
We understand that the markets initially reacted most severely to the
disappointing jobs report released less than two weeks ago. But before we lose
our heads over this, we must remember that the monthly data can be quite
volatile and are subject to future revisions. If one looks at the weekly first
time unemployment claims, the monthly ADP payroll numbers and data concerning
planned layoffs -- all released the same week as the employment report -- there
was no indication that the job market is losing momentum. Some analysts are
"blaming" the good weather this winter which resulted in more hires
in January and February and subtracted from the March numbers. Regardless of
the explanation, while 120,000 jobs added for the month was certainly lower
than the previous three months, just the fact that we consider over 100,000
more jobs "disappointing" can be considered progress in itself. If
120,000 jobs becomes the new norm, that would be something to worry about. But
a one-month stat should not be overblown.
Capital Economics expects the
housing crisis to end this year. One of the reasons: loosening credit. The
analytics firm notes the average credit score required to attain a home loan is
700. While this is higher than scores required prior to the crisis, it is
constant with requirements one year ago. Additionally, a Fed Senior Loan
Officer Survey found credit requirements in the fourth quarter were consistent
with the past three quarters. However, other market indicators point not just
to a stabilization of home loan lending standards, but also a loosening of
credit availability. Banks are now lending amounts up to 3.5 times borrower
earnings. This is up from a low during the crisis of 3.2 times borrower
earnings. Banks are also loosening loan-to-value ratios (LTV), which Capital
Economics denotes “the clearest sign yet of an improvement in credit conditions
for home loans.” In contrast to a low of 74 percent reached in mid-2010, banks
are now lending at 82 percent LTV. Source: DSNNews
While bank-owned
homes are plentiful in many markets, they aren’t always easy for a buyer to
get. Foreclosures sell at bargain prices — sometimes at 35 percent discounts
when compared to non-foreclosures. These ultra-low prices are attracting
investors and all-cash offers, which makes it difficult for other buyers' bids
to win out. So how can buyers beat the competition to get a foreclosure?
·
Get the first look. Fannie Mae and
Freddie Mac’s First-Look Program offers first-time home buyers and others who
need financing and are looking for a primary residence the first opportunity to
see bank-owned homes before investors. Buyers have a 15-day window to submit
offers before investors have the opportunity to start bidding.
·
Submit a competitive offer. Homes priced at
heavy discounts can be in high demand and attract multiple bids. Lowball offers
won’t likely get far. Some housing experts suggest starting with your best
offer. "My advice is to offer the most you feel you would ever pay for the
property," said one recent buyer of a foreclosure.
·
Make a large deposit. If a buyer wants to
get the banks attention, they could offer a larger than typical good-faith
deposit. But if the buyer has to back out of the deal for some reason, he or
she may be at risk of losing the deposit.
Even if you buyers
really want the property, don’t cave in to unreasonable demands, like waiving a
home inspection. Otherwise, it may be a decision you'll quickly regret if the
home is later found to be ripe with problems. Source: Sun Sentinel
Rising demand and a
tightening supply is force both commercial and residential rents upward, and
signs point to an increase in prices continuing over the next few years. For
one, office construction starts have been at their lowest level in more than 50
years, and on record. The lower starts means that there will be fewer spaces
for businesses to rent, which will likely give landlords the upper hand in
pushing rents even higher. Residential renters can also expect an increase.
Nationwide, rents in December 2011 increased 2.5 percent compared to December
2010, the Consumer Price Index shows. Rising rents have led to rents to reach
their highest levels in 2011 since 2007, Reis Inc. reports. “The supply side is
so constrained because nobody has been building for years” due to the economy
and the struggle developers face in getting loans, Mark Stapp, professor of
real estate practice at Arizona State University, told MSNBC.com. While rents
have risen, the cost of home ownership has dropped. In fact, in 74 percent of
major U.S. cities, renting may be more expensive than owning a home, a Trulia.com
study has found. Source: MSNBC.com
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