February 5, 2014 Real Estate Report

Just a Reminder

We have just started a new year and that means just about every economist has made their predictions for the year. One consensus of predictions for 2014 has been for higher interest rates. It makes sense--as the economy recovers interest rates will continue rising from record lows. Keep in mind that even as rates rise they are still at bargain lows. However, when one looks at rates for the first month of the year, they are trending moderately lower. There are many reasons one can give for these lower rates, starting with the weak December jobs report released in early January. Today we will not assess the factors causing rates to ease. Today we will make a few points about the significance of these lower rates.
For one, it is just a reminder that no one can predict the future. As a matter of fact, when everyone seems to predict the same thing, often the opposite happens. Secondly, one month of lower rates does not mean that rates will be lower all year and the original prediction is moot. What we have here is an opportunity for those who were thinking about purchasing or refinancing their homes. Rates do not go up in a straight line. There are always dips and these dips provide opportunities. Again, we can't predict if the trend will continue. Which leaves us to one last question -- What would make rates start heading back up?
Well, a good starting point would be the January jobs report which will be released on Friday. If the report reinforces the news from December, rates could stabilize at this level or go lower. Or if the report is strong, they could turn around in a blink of an eye. Typically the markets start speculating before the numbers are released so this week we could see volatility. Last week the Federal Reserve Board's Open Market Committee met and its decision to progress with its tapering of asset purchases seemed to be consistent with further optimism regarding the economy. Does that give us a hint? Unlike all these economists, we are not going to predict the future.

New mortgage underwriting criteria went into effect Jan. 10 requiring a debt-to-income ratio of less than 43 percent for most qualified mortgages. Even if you don't qualify for a home loan under the current lending regulations, renting may not be your only option. An alternative such as rent-to-own makes homeownership possible for those who may not meet underwriting standards. These transactions have some variations depending on state rules and the contents of the legal agreement, but a rent-to-own (or lease-purchase) transaction often means the buyer rents from the owner for a set period of time, after which the buyer agrees to purchase the property. In some cases, the tenant might pay extra money each month toward equity in the home. A lease-option agreement gives the lessee the option (and not the obligation as with lease-purchase) to later buy the property. "It could be a house in a neighborhood that you really want to settle in but for whatever reason you can't qualify to buy a home," says Barry Zigas, director of housing policy at the Consumer Federation of America. "Instead, you can qualify to rent one that you'd like to be able to buy in the future." Zigas says rent-to-own especially appeals to former homeowners who want to get back into ownership. Source: AOL Real Estate
Homeowners sold 5 million homes in 2013, a rebound year for the industry that marked the highest level of sales since the housing boom year of 2006. The report from the National Association of Realtors showed that there were 5.1 million previously owned homes sold in the year, up 9.2% from 2012 and up nearly 20% from 2011. December sales were up slightly from November, the first month-over-month rise in the reading since July. The Realtor group attributed the full-year gain to rising prices, lower unemployment, a drop in foreclosures and pent-up demand, as well as rates that are still low by historical standards, even with the steady increases most of the year. The median price of a home sold in the year was $197,100, up 11.4% from the previous year. Rising prices have reduced the number of homeowners who owe more on their financing than their home is worth, helping to bring more buyers into the market. Tight supplies of homes for sale are keeping prices high, as the report showed less than a 5-month supply at the end of the year. Source: CNN/Money

Markets in 56 out of the approximately 350 metro areas nationwide returned to or exceeded their last normal levels of economic and housing activity, according to the National Association of Home Builders/First American Leading Markets Index (LMI). This represents a net gain of two from the previous month. The index's nationwide score of .86 indicates that, based on current permits, prices and employment data, the nationwide average is running at 86 percent of normal economic and housing activity. "More markets are slowly returning to normal levels and we expect this upward trend to continue as an improving economy and pent-up demand brings more home buyers back into the marketplace," said NAHB Chairman Rick Judson, a home builder from Charlotte, N.C. "Policymakers must be careful to avoid actions that would harm consumer confidence and impede the ongoing recovery." "Forty-five percent of metro areas are recovering at a faster pace than the nation as a whole, with smaller markets leading the way," said NAHB Chief Economist David Crowe. "Of the 56 markets that are at or above normal levels, 48 of them have populations that are less than 500,000, and many of these local metros are fueled by a strong energy sector, which is producing solid job and economic growth." "More than 35 percent of all the markets on this month's LMI are operating at a capacity of 90 percent or better of previous norms, which is a good sign that the housing recovery will continue to pick up steam in 2014," said Kurt Pfotenhauer, vice chairman of First American Title Insurance Co., which co-sponsors the LMI report. Source: NMP Daily

Laura Glass