Interesting February Facts....

Laura Glass

January 29, 2014 Real Estate Report

Will Congress Play Ball?
For several years we have been recovering from a financial disaster. The bad news is that the recovery has been so weak that many have felt we were not recovering. The good news is that the recovery has continued slowly but surely. During the way we have had several speed bumps thrown in our way. Some of these were not avoidable -- such as tsunamis and super storms. Others were man-made such as the threat of a government shutdown or a fiscal cliff. Today, many are more optimistic about what is on the horizon.

The most important sector of the economy -- real estate -- is recovering. The fact that interest rates have risen over the past year is not a symptom of weakness, but a symptom of a stronger recovery and many analysts are optimistic that the soon-to-be-released advanced reading of the economy for the last quarter will continue this evidence. Despite the optimism, there is still the possibility of man-made roadblocks. For example, early next month Congress must vote on the extension of the debt ceiling. The good news is that before the end of last year, we actually had a bi-partisan agreement to keep the government open. This gives us optimism that Congress might again resolve a potentially sticky issue. 
We do know historically that this Congress will act at the last second (or afterwards) and there will be a lot of saber rattling. In the past when deadlines approached, the media coverage affected consumer confidence. At this point, it may be that confidence will not be affected as much by these negotiations because we have become anaesthetized by it all. We are just used to it at this point. Early next month we have a jobs report and a Congressional issue. Let's hope neither puts another speed bump in the way of our continuing recovery.  On the other hand, we don't want the Federal Reserve Board thinking that things are going too well when they meet this week so that they become inclined to make an announcement that will reverse the recent trend towards lower rates.

Borrowers may be having an easier time applying for a home loan compared to a year ago. The average credit score for approved loans dropped to 727 in December, down from 748 one year prior, according to Ellie Mae, a mortgage technology firm. FICO credit scores run on a scale from 300 to 850. Forty-six percent of home loans that closed in December had credit scores above 750. One year earlier, 57 percent of home loans posted credit scores that high. In December, about 31 percent of loans had credit scores below 700. One year earlier, that percentage stood at 21 percent, according to Ellie Mae. Debt-to-income ratios are growing. The average total monthly debt for borrowers of closed loans in December stood at 39 percent of their incomes. That’s up from 35 percent in June. “Rising interest rates and home prices could account for some of the increase in debt-to-income ratios,” MSN Real Estate reports. More lenders may be getting comfortable easing standards since home prices have been rising over the past year. Also, lenders are facing a big drop in refinance business, which may prompt them to get more competitive in trying to nab more borrowers for home purchases, housing experts say. However, the effect of new residential finance regulations implemented by the Consumer Financial Protection Bureau have yet to be seen. Source: MSN Real Estate

The recession set off a new wave of multigenerational households, which began to increase in late 2007. Fewer new households were created as more people doubled up to ride through economic hard times. College grads moved back home, and aging parents moved in with family. But as the economy has improved, researchers are taking note that many of the households are not breaking up. “While many families came together because of the economy, they stayed together by choice,” says Donna Butts, the executive director of Generations United, which published a report called “Family Matters: Multigenerational Families in a Volatile Economy.” Of the multigenerational households examined by the study, 66 percent cited economic problems as the cause for originally doubling up. These multigenerational households have been called “shrinking households” or “missing households” by economists. But social scientists say it may be a lasting trend: these living arrangements are common among many ethnic groups, and it was typically how families lived decades ago. Homes are being reconfigured to make room for more people living under one roof. For example, some builders are debuting floor plans that include semi-independent suites with separate entrances, bathrooms, and kitchens to reflect the growth in multigenerational households. More buyers are also saying that they’d pay extra for a home with an in-law suite, according to the 2013 Home Features Survey by the National Association of Realtors®. Source: The New York Times

Congress will delay flood insurance hikes for thousands of homes along the Gulf Coast and other areas that are facing steep premium increases. A $1.012 trillion spending bill enacted to fund the government includes a measure that would temporarily continue flood-insurance subsidies for some properties located in flood zones. The 2012 Biggert-Waters law sets out to gradually phase out flood insurance subsidies. The subsidies are being phased out due to the national flood insurance program being $24 billion in debt. That means home owners who have long received discounts to pay for flood insurance are now being faced with large increases — anywhere from a few thousand dollars to tens of thousands of dollars extra a year. Home owners affected say the increases will hurt their home values and make their homes more difficult to sell. The provision included in the spending bill would mostly apply to newer homes built in coastal areas, such as in Florida, Texas, and Louisiana. Homes in flood-prone areas in Northeastern states, such as New York and New Jersey, would not be covered by the measure. Steve Brown, president of the National Association of Realtors®, says the bill “does not go far enough to support the millions who are impacted by the exponential price increases.” Sen. Mary Landrieu, D-La., is pressing for separate broader flood-insurance legislation in the Senate that would delay price increases for more home owners nationwide for up to four years. Source: The Wall Street Journal

Laura Glass

January 22, 2014 Real Estate Report

Jobs--The Key Ingredient

Last week we reported on a disappointing jobs report. We also indicated that we should not jump to a conclusion as to the importance of this one report. One report can be very misleading and is subject to significant revisions in the next two reports. In this case we had inclement weather which could have temporarily affected the numbers as well -- especially within the construction industry. In addition, if you look at the trends in first time unemployment claims, you can see a reason to be optimistic about better numbers ahead.
But the next question we must ask is--why is the employment report so important? Every month the employment release is under more scrutiny than any other report. The answer to this question is much easier than predicting the future of jobs growth. A healthy economy produces more jobs. More than that, the jobs created by a healthily economy causes more jobs to be created. This is what we call a "virtuous cycle." One good thing leads to another which comes back and supports the first good thing. During the recession and during our painfully slow recovery, we climbed out of a vicious cycle, but never quite reached a virtuous cycle.

Adding over 200,000 jobs per month puts us in reach of the virtuous cycle. We were starting to see these numbers late last year until the last report. Now we must ask if the December report was just an aberration of numbers, or was it the start of a new trend. Thus far the economic reports are certainly strong enough to support decent job growth. All we can do is wait a few weeks for more numbers. But for those who are looking to purchase big ticket items such as homes and cars--the reaction of the markets to the jobs report gave us moderately lower rates and that is a good thing. However, it is likely to be temporary at best if the employment picture gets stronger with the next report or first time claims of unemployment continue to trend downward.

Real estate agents have been somewhat absent in the whole debate over the qualified mortgage lending and ability-to-repay rules, but they are not immune from the consequences. With the lending guidelines taking effect, it’s definitely time for the consumer-side of the real estate business to get knowledgeable enough to help homeowners who may find themselves facing new outcomes when they apply for a home loan. Realtors are definitely impacted by new lending rules. How, you ask? After all, Realtors have never handled the loan approval process; and it’s not up to them whether a client gets a loan or not. At most, they are a referral service when it comes to the lending side of the equation. But the reality is they are impacted. If they don’t want to waste your time or your client’s, it’s crucial for a Realtor to know how the lending process is changing. A lender – may advise Realtors to skip the conditional pre-qualification process (which is quicker and easier) and move directly to a pre-approval before taking a client out to look for houses. Source: HousingWire Note:  The new era of regulatory changes definitely make obtaining pre-approvals more important for a prospective home buyer.  Contact us if you would like more information regarding procuring a pre-approval or have a client in need of this service.

Year-over-year gains in Americans’ attitudes toward homeownership demonstrate that the housing recovery continues to move forward on firm footing, according to Fannie Mae’s December National Housing Survey results. Forty-nine percent of consumers surveyed believe home prices will go up over the next 12 months, compared to 43 percent in December 2012. Consumers’ average 12-month home prices expectations moved to 3.2 percent, up from 2.6 percent last year. Those who say it’s a good time to sell a home rose significantly to 33 percent from 21 percent in December 2012. And, despite a higher interest rate environment, consumers are more optimistic about their access to residential finance credit than they were a year ago, with those who say that it would be easy to get a home loan today rising to 50 percent, compared to 45 percent last year. "The marked improvement in housing market sentiment over the course of 2013 bore out our view going into the year that the housing recovery was on a firm footing. Year-over-year gains in home price expectations and attitudes about the current selling environment were particularly notable,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. Source: Fannie Mae

With bidding wars easing in many markets, buyers may face less competition in their attempts to snag a home this winter. That's according to the latest Bidding War Report by the real estate brokerage Redfin. According to the report, competition for homes hit its lowest point since 2011 last month. About 51 percent of Redfin agents nationwide reported facing bidding wars in November, down from 63.6 percent a year earlier. The home-buying competition rate has dropped for eight straight months, after peaking in March at 75.3 percent. Still, the brokerage’s report does show demand growing stronger than expected at the end of the year. “Home buyers who failed to get an offer accepted early in the year have been stockpiling down payment money all year long,” says Amber Hancock, manager of Redfin’s San Francisco East Bay market. “They’re jumping back in this time as better qualified, more confident competitors, taking advantage of the easing late-fall market.” Buyers are still using competitive strategies to get the house they want—with the use of all-cash offers, waived financing and inspection contingencies, and personal cover letters becoming more common in November. The two markets that saw the largest month-over-month decreases in competition were Seattle and Orange County, Calif. Meanwhile, bidding wars heated up in November in Washington, D.C., San Diego, Baltimore, and Los Angeles. Source: Redfin

Laura Glass Landmark Bank

Weekly Real Estate Report

The Employment Report Disappoints
Just when we were starting to get used to strong jobs data we were reminded of an important adage -- never try to predict the future. While the analysts were predicting December job growth would be around 200,000, the number came in short of 100,000. This number disappointed the markets. In a strange twist, the unemployment rate fell from 7.0% to 6.7% when no decrease was expected, but this was not seen as a sign of strength as many left the workforce in December.
In all, the economy added just over two million jobs in 2013 which is pretty close to what occurred in 2012. This translates into approximately 170,000 jobs per month. All the while the unemployment rate has been dropping and we seriously doubt that such a precipitous drop in 2013 -- over 1.0% -- is due entirely to a smaller work force. We are now getting close to where we have replaced the over eight million jobs lost during the recession, but we are not quite there yet. Three important points about the jobs report.

First, these numbers are subject to future revisions. We would not be surprised to see the numbers revised upwards one month from now, especially considering the fact that the private payroll report showed over 200,000 jobs added for December. For example, in the same report November numbers were revised upward by 38,000. Secondly, weather issues in December could have depressed the numbers temporarily. Finally, rates fell initially in reaction to the report and the stock market did not show a negative reaction. Why? These numbers are not strong enough to prompt the Federal Reserve Board to abandon their stimulus program more quickly than planned. If revisions don't change the numbers, the halt to rate increases represents good news for consumers and business.

New lending rules went into effect that aim to put an end to the worst home loan lending abuses of the past. The new rules are designed to take a "back to basics" approach to residential lending and lower the risk of defaults and foreclosures among borrowers, according to the Consumer Financial Protection Bureau, which issued the new rules."No debt traps. No surprises. No runarounds. These are bedrock concepts backed by our new common-sense rules, which take effect today," said CFPB director Richard Cordray in remarks prepared for a hearing. Lenders are being asked to comply with two new requirements: The Ability to Repay rule and Qualified Mortgages. Here's how they will impact borrowers:

·         Ability to Repay. Lenders must determine that a borrower has the income and assets to afford to make payments throughout the life of the loan. To do so, the lender may look at your debt-to-income ratio, which is how much you owe divided by how much you earn per month, including the highest housing payments you would be required to make under the terms of the loan. To calculate your debt-to-income ratio, add up all your monthly obligations -- including student loan, credit card and car payments, housing costs, utilities and other recurring expenses -- and divide it by your monthly gross income.
In an effort to put an end to no- or low-doc loans, where lenders issue risky loans without the necessary financial information, lenders will be required to document and verify an applicant's income, assets, credit history and debt. Underwriters must also approve loans based on the maximum monthly charges you face, not just low "teaser rates" that last only a matter of months, or a year or two, before resetting higher.

·         Qualified Mortgages. To make sure you aren't taking on more house than you can afford, your debt-to-income ratio generally must be below 43%. This rule is not absolute. Banks can still make loans to people with debt-to-income ratios that are greater than that if other factors, such as a high level of assets, justify the risk. Qualified mortgages cannot include risky features, such as terms longer than 30 years, interest-only payments or minimum payments that don't keep up with interest so your mortgage balance grows. Upfront fees and charges cannot add up to more than 3% of the balance. That includes title insurance, origination fees and points paid to lower interest rates

Lenders don't seem to be too worried about the new rules, according to Keith Gumbinger of HSH.com, a mortgage information provider. "It's no surprise; everybody has been preparing for the change for months," he said. "Because there will be additional underwriting scrutiny, it could gum up the works initially and slow loan processing, but it's really just the codification of things that are already in place." A significant factor is what's not in the rules. There's no minimum down payment or credit score requirement. The lack of a credit score requirement will enable lenders to loosen currently tight underwriting standards in the future should conditions warrant, according to Gumbinger. Source: CNN/Money

Laura Glass

Real Estate Report 1/3/2014

New Year -- New Hope

It has been five years since the depth of the recession was upon us. For five years we have been recovering. The recovery has been painful and slow with many starts and stops. Yet, as we approach 2014 there seems to be more optimism regarding the status of the economy recovery and our future. Some of this optimism is rooted in facts and some of this optimism comes from sentiment.

First the facts. For the first time in five years, the real estate market participated and is contributing in the recovery. When homeowners feel wealthier because of rising home values, the entire economy benefits. It is no coincidence that the economy grew at stronger pace in each of the past four quarters--including a robust 4.1% growth rate in the third quarter. Employment growth has picked up and this job growth is picking up within a variety of sectors--including state and local governments -- which is a sector that was laying off tens of thousands just a few years ago.

About those feelings. For a long time we have been saying that this was a crisis of confidence. Confidence is a feeling. In general, we can see that consumer confidence is rising as the year draws to a close. There is even hope that Congress is starting to show stronger levels of bi-partisanship -- which is a good thing with the debt limit issue about to hit in the first quarter of 2014. Confidence allows people to make important decisions such as getting married and starting a family. Here is to a great New Year for all--and hoping the growth in good feelings continue for all of 2014!

 

Homebuilders are ramping up new-home construction at the fastest pace in more than five years, the Commerce Department reported. Construction of single-family homes and apartments in November rose to a seasonally adjusted annual rate of 1.09 million, a 23 percent increase over October’s pace. It marks the fastest pace since February 2008. Broken out, housing starts on single-family homes surged nearly 21 percent in November, the fastest rate since December 2007. Apartment construction jumped 26 percent. "Single-family and multifamily starts are at five-year highs, providing additional evidence that the recovery is here to stay," says David Crowe, chief economist for the National Association of Home Builders. "We hit a soft spot this fall when interest rates jumped and the government closed down, but rates still remain very affordable and pent-up demand is helping to boost the housing market. We expect a continued steady, gradual growth in starts and home sales in 2014." Meanwhile, overall permits — a gauge for future building activity — dropped 3 percent in November, mostly attributed to the volatility in apartment construction, the Commerce Department reports. Permits for single-family homes rose 2.1 percent. Source: NAMB

For one of the least productive congressional sessions in modern history, the final word about tax overhaul was entirely in character: Nothing's happening. But is that good or bad news for homeowners, buyers and small-scale real estate investors? A bit of both. When House Ways and Means Committee Chairman Dave Camp (R-Mich.) recently announced that not only will he not reveal the details of his long-awaited comprehensive tax overhaul bill this year but he also will not seek passage of a so-called extenders bill for expiring tax code benefits, it was a sweet and sour mix for real estate interests. Camp's big bill, which would attempt to lower individual and corporate income tax rates to a maximum of 25%, is expected to call for significant cutbacks in or elimination of prized real estate deductions for home loan interest, local property taxes and other write-offs to pay for lower marginal rates. With debate on major changes like these now pushed back well into 2014 — in the middle of a reelection year for Congress — homeownership advocates are at least moderately relieved. But there's a key negative here as well: The failure of tax writers to put together an extenders bill means that important expiring Internal Revenue Code provisions affecting large numbers of homeowners will lapse Dec. 31. Of special concern are relief from taxation on housing debt forgiveness by lenders in most states, plus current deductions for mortgage insurance premiums and energy-saving home improvements. On the plus side---the certain Senate proposals would also be put aside with the delay. Senate tax writers' proposals for real estate should be unsettling for anyone owning residential investment property, such as rental houses. The Senate proposal would terminate one of the oldest financial planning techniques used by real estate investors — tax-deferred exchanges under Section 1031 of the code. In a 1031 exchange, property owners can defer taxes indefinitely when they swap "like kind" investment real estate within specified time periods following IRS regulations. It also would sharply increase the depreciation period for residential investment real estate from the current 27.5 years to 43 years. Stretching out the depreciation schedule means investors would be able to write off less per year on their properties than at present. Source: Ken Harney, The Nations' Housing

Property taxes are an important source of revenue for city governments, but rates can vary substantially across the country. Property taxes make up about one quarter of home ownership costs over the median duration of ownership, according to a study by two researchers with the Urban-Brookings Tax Policy Center. The study’s authors—Benjamin H. Harris, policy director of the Hamilton Project, and Brian David Moore, a research assistant at the Urban-Brookings Tax Policy Center—note that several counties and states have tried to decrease the burden through homestead exemptions and other laws. But property taxes tend to make up a big part of local revenues. Indeed, property taxes comprise 34.6 percent of total local revenues the researchers note. Nationwide, 60 percent of counties in the country had an average tax burden between $500 and $1,500 per home owner. Home owners in about 13 percent of counties paid less on average, and 27 percent paid more. Only 3 percent of counties had average bills that were more than $4,000. Higher rates of property taxes are mostly found in the Northeast and parts of the Midwest, according to the researchers. On the other hand, 24 counties had average taxes below $250, with the majority of those counties located in Alabama or Louisiana. Source: Mortgage Daily News

Laura Glass at Landmark Bank

Wishing you a wonderful start to a New Year!

 

Laura Glass