Happy Easter Weekend

Laura Glass at Landmark Bank

Real Estate Report 4/16/2014

 It is Finally Happening

For years the slow recovery was hampered by the existence of tighter credit. A vicious cycle was created when the recession caused consumer credit to worsen and at the same time banks tightened up on lending standards. For some time we have been predicting that lending standards in the real estate sector would not loosen up until two factors emerged. Factor one was the stability or recovery of real estate values. It makes sense that lenders would be shy about lending in a real estate sector in which the underlying asset was unstable.
Yet, the real estate markets recovered over the past few years without a significant improvement in lending standards. Why? Some blamed it on new legislation aimed at making lenders more responsible with regard to their lending. But most aspects of the legislation were not implemented until recently. In reality, there was a second aspect we cited over the past few years which has now come to fruition. For the past three years lenders were inundated with refinances because of record low rates. Now with rates still really low but a bit higher than they were, the refinance craze has abated.
It makes sense that lenders would not lower standards while they were overwhelmed with demand. Today, lending standards are loosening because lenders are hungrier. Many national sources for real estate loans have lowered their minimum credit score requirements. And we think that this will flow into other areas of lending such as cars and business loans. This is all part of building a virtuous cycle. Keep in mind that we are not looking for a return to the subprime era or anything close to that. The new legislation we cited makes sure lenders will be more careful. Underwriters are still scouring loans with a fine-tooth comb. But it is interesting that while lenders are implementing the new legislative standards, their requirements are getting somewhat less restrictive.

The Senate Finance Committee has passed a two-year retroactive extension of tax relief for households who’ve had home finance debt forgiven by a lender as part of a short sale or loan modification. “We applaud the Senate Finance Committee for approving a bipartisan compromise bill,” NAR President Steve Brown says. The legislation still needs to be passed by the full Senate and also by the House. The issue has been one of NAR’s top legislative priorities since 2007, when the association worked with lawmakers to enact the relief into law and also later to encourage them to extend the relief in 2008 and 2012. The relief expired at the end of last year, and unless the full Senate and House approve the extension, households will face the prospect that when they file their returns next year, they’ll pay tax on so-called phantom income, which is the amount of debt forgiven. Absent the provision, the tax law provides that such forgiven debt is income. “This is, at its core, an issue that’s all about fairness,” Brown says. “It is unfair to ask homeowners who are underwater on their home loan and who make the prudent decision to do a short sale instead of allowing their home to go into foreclosure to pay tax on the forgiven amount of the loan.” Brown says the tax hit encourages owners to walk away rather than sell their house, which hurts neighborhoods and the communities they’re in. The tax relief provided in the past has been one of Congress’ bipartisan success stories, and there’s a good chance an extension will pass Congress this year, too, analysts say. Some 350,000 households could be affected by the tax if relief isn’t extended, because that’s the number of households who sold their house last year as a short sale. “And we expect a large number of short sales this year,” says Brown. Source: Realtor.com

Vacation home sales rose strongly in 2013, while investment purchases fell below the elevated levels seen in the previous two years, according to the National Association of Realtors®. NAR’s 2014 Investment and Vacation Home Buyers Survey, covering existing- and new-home transactions in 2013, shows vacation-home sales jumped 29.7 percent to an estimated 717,000 last year from 553,000 in 2012. Investment-home sales fell 8.5 percent to an estimated 1.1 million in 2013 from 1.21 million in 2012. Owner-occupied purchases rose 13.1 percent to 3.7 million last year from 3.27 million in 2012. The sales estimates are based on responses from households and exclude institutional investment activity. NAR Chief Economist Lawrence Yun expected an improvement in the vacation home market. “Growth in the equity markets has greatly benefited high-net-worth households, thereby providing the wherewithal and confidence to purchase recreational property,” he said. “However, vacation-home sales are still about one-third below the peak activity seen in 2006.” Vacation-home sales accounted for 13 percent of all transactions last year, their highest market share since 2006, while the portion of investment sales fell to 20 percent in 2013 from 24 percent in 2012. Yun said the pullback in investment activity is understandable. “Investment buyers slowed their purchasing in 2013 because prices were rising quickly along with a declining availability of discounted foreclosures over the course of the year,” he said. "With a return to more normal market conditions, investors now have to evaluate their purchases more carefully and do their homework,” Yun added. The median investment-home price was $130,000 in 2013, up 13 percent from $115,000 in 2012, while the median vacation-home price was $168,700, up 12.5 percent from $150,000 in 2012. All-cash purchases remained fairly common in the investment- and vacation-home market: 46 percent of investment buyers paid cash in 2013, as did 38 percent of vacation-home buyers. Source: NAR

As the housing market and hiring continue to recover, consumers are making their home loan payments a priority again. A growing number of borrowers are paying off their home loans before their credit card debts, reversing a trend first seen in September 2008, according to a TransUnion study that examined the delinquency rates of borrowers with mortgages, auto loans and credit card debt. The delinquency rate for home loans fell to 1.71% in December, down from 3.32% in September 2008. Meanwhile, the rate of credit card delinquencies was 1.83% in December, down from 3.29% in 2008. After the housing bubble burst, many borrowers owed more on their homes than they were worth and stopped making home loan payments a priority. "As unemployment rose and home prices cratered, many borrowers chose to value their credit card relationships above their home loans," said Ezra Becker, vice president of research and consulting for TransUnion. "When people lose jobs they need credit cards as a source of liquidity." Yet, last September the delinquency rates began to shift to pre-recession norms -- home loan delinquencies fell to 1.79%, while credit card delinquencies came in at 1.86%, TransUnion found. One debt borrowers continue to prioritize over everything else is auto loans, mainly because they rely on their cars to get to work. In December, the delinquency rate on auto loans was 0.87%, compared with 1.65% in September 2008. Source: CNN/Money

Laura Glass at Landmark Bank

Free Shredding at Landmark Bank Mortgage

The Real Estate Report 4/9/2014

The Report We Have Been Waiting For

Friday's employment report has given us three things we have been waiting for. First, this jobs report was relatively good after a string of disappointments over the winter. It tells us that at least part of the slowdown was definitely due to the weather -- a question everyone has been asking. Secondly, the report contains another upward revision to the previous two months' of data. There were actually 37,000 more jobs created in January and February when compared to last month's release. That is a revision which we speculated could be coming. Finally, the economy has now recovered all of the millions of private sector jobs lost during the recession. 

That is a lot of jobs to recover and represents a very significant milestone. The problem is, it took the economy four years "post recession" to regain the jobs lost. During the recession and afterwards, the population has been growing. As reported by CNN/Money, Heidi Shierholz, a labor economist at the Economic Policy Institute, estimates that we need an additional five thousand jobs to reach a healthy pre-recession labor market. That is a long way to go and Federal Reserve Chairwoman Yellen said as much in testimony to Congress just a few weeks ago. What this means is that the economy is indeed recovering, but still painfully slow. We need a few more years of this level of growth to become healthy or we need for the recovery to accelerate. There is another piece of good news here. The better jobs report did not cause another increase in interest rates -- at least initially. Again, this is evidence that the markets believe we need even more good news.

More couples these days are purchasing homes together before they marry, and some do not intend to marry at all. Unwed twosomes need to determine how to hold the title: whether the home will transfer to the surviving partner if the other dies, as joint tenants with the right of survivorship; or whether a percentage of ownership will pass to the beneficiary named in the will through a tenants-in-common arrangement. They also need to consider whether both or just one partner will sign the promissory note. If both sign it, they both could be pursued by the bank in the event of foreclosure; but if only one partner signs it because he or she has a job, better credit, and contributes more to the down payment and home loan, then he or she will be on the hook alone — regardless of how they hold the title. Taxes must be discussed as well, mainly with regard to whether the partners will divide the mortgage interest and property tax write-offs equally if the payments are not equally divided between the two of them. They also must consider what would happen if they break up after the home purchase. "I try to remind them that this is 100 percent business," says Nanci Lieneck of Weichert Realtors in Ridgewood, N.J. "They are joint owners. Married or not, they will own a property, and you have to think of that in a business perspective." Source: NorthJersey.com

Once at rock bottom, interest rates have ticked up slightly in recent months. Still, the prospect of refinancing a home loan remains attractive. Homeowners should analyze their situation to see if a refinance can improve their overall financial picture,” says Mike Fratantoni, vice president of research and economics at the Mortgage Bankers Association. Here are some reasons why you should refinance:

·         Pay off your loan early. Moving from a 30-year term to a 15-year term without a big jump in monthly payments could save you thousands in interest and build equity in your home faster.

·         Create more cash flow. Lower interest rates can create lower monthly payments, freeing up money to pay down debt or just to provide more wiggle room in the budget for other things.

·         Access home equity. On a cash-out refinance, you borrow more money than you owe on your current loan, and use the funds for purposes such as reducing other debt, remodeling your home or just recovering from a financial setback. As home values start to rise, there is some pent-up demand for a cash-out refinance to access the equity in the home for other purposes. Source: MBA

The condo market is on an upswing, but sales are still more than 30 percent short from its peak. From 2009 to 2013, condo sales increased more than 55 percent, while total existing home sales rose by 29 percent during that time period, according to National Association of Realtors® data. In comparison, during the boom years between 2001 and 2005, condo sales rose more than 50 percent and existing-home sales increased by 37 percent. While the share of condo sales to total existing-home sales is nearing pre-recession levels, the number of sales is still not at its peak, the CoStar Group notes. “Today’s condo market does not involve the irrational speculation of the mid-2000s, when renters fled apartments to get a share of the expanding home price pie,” CoStar Group reports. “A portion of the current sales are often to foreign investors in condo-rich markets like South Florida and to current home owners looking to downsize.” Source: CoStar Group

Laura Glass

The Real Estate Report April 2, 2014

We had a very robust last half of 2013. The economy expanded and the job creation machine heated up. The Federal Reserve Board predicted even stronger growth this year. So what happened? We saw the economy take a step back, especially with regard to the creation of jobs. Even the real estate market seems to have quieted down since roaring back in 2013.
This has given us a lot of fuel for speculation. We have speculated about the weather and political situations such as Ukraine having at least a temporary effect. Yet we go into April wondering whether late last year was a mirage or did we just decide to all stay inside during the cold weather. This speculation makes the jobs report to be released on Friday very important. We had some improvement in job creation in February after weak reports for December and January. Yet we are still far below the levels of the second half of 2013.
Most market watchers are not expecting the employment numbers to bounce right back. But they are expecting continued improvement, especially in light of the fact that first time claims for unemployment fell significantly during the middle part of March. There were still plenty of winter storms in March but with the days getting longer and temperatures rising, the stage is set for some level of progress. At this point a very poor or a very strong jobs report would be a surprise. In March we set the clocks forward one hour. Today we have April Fools' Day. Hopefully spring is really here to stay.

Younger home buyers tend to view their home as a strong investment, more so than older buyers who tend to view their homes as a match to their lifestyle, according to the 2014 NAR Home Buyer and Seller Generational Trends study, based on a survey of more than 8,700 responses from buyers and sellers. The survey provided an in-depth look at the generational differences of recent home buyers and sellers. The largest group of recent buyers is millennials, those under the age of 34, who comprised 31 percent of recent home purchases, according to the NAR survey. Generation X buyers, born between 1965 and 1979, accounted for 30 percent of recent purchases, and younger boomers, born between 1955 and 1964, accounted for 16 percent. “Given that millennials are the largest generation in history after the baby boomers, it means there is a potential for strong underlying demand,” says Lawrence Yun, NAR’s chief economist. “Moreover, their aspiration and the long-term investment aspect to owning a home remain solid among young people. The median age of millennial home buyers is 29 and the median income is $73,600, according to the NAR study. They typically purchased an 1,800-square-foot home costing about $180,000. In comparison, gen X buyers' median age is 40 and median income is $98,200, and they tend to purchase a 2,130-square-foot home costing $250,000. Among some of the study's other findings, 87 percent of buyers age 33 and younger consider their home purchase a good financial investment compared to 74 percent of buyers 68 and older and millennials were more likely to buy in an urban or central city area than older boomers. Source NAR 
According to a poll of 140,000 LoanSafe.org members, boomerang buyers – who were ousted from the housing market due to foreclosures or short sales, spent years renting to rebuild their credit, and have saved enough to buy again – are now expected to help turn the real estate market around. These buyers could flock to the market at the same time that investors and retirees pull back, as new government programs aim to help consumers with bankruptcies or loan defaults become homeowners again, sooner than they would have otherwise. Jon Maddux, LoanSafe.org co-founder, says boomerang buyers in markets across the nation are showing interest in getting back into homeownership, with almost 80 percent of poll respondents who lost homes during the crisis interested in buying again. Moreover, 41 percent of respondents interested in re-entering homeownership have higher incomes than during their first purchase; 63 percent have lower debt obligations; 46 percent plan to purchase in a lower price range; and 50 percent expect to make at least a 10 percent down payment. Source: Sarasota Herald-Tribune

Inventories of homes for sale have increased 10 percent year-over-year, signaling growing seller optimism and a strong, early start to the spring home-buying season, according to realtor.com®’s latest National Housing Trend Report, which tracks 146 markets. The median list price edged up 7.6 percent higher in February compared to year-ago levels. The nationwide median list price is $199,000, realtor.com® reports. The median age of inventory also rose 6.5 percent year-over-year to 114 days. “Overall, these figures indicate a continued reinforcement of steady gains and market stabilization that we’ve been watching since late last summer,” says Steve Berkowitz, CEO of Move Inc. “Seller confidence is the factor to watch as we head into the spring home-buying season, and these are very encouraging indicators—not only are more homes coming onto the market, but typically we don’t see a rise in asking prices this early into the year. This is the market these sellers have been waiting for.” Still, realtor.com® notes that inventories are still low by historical standards. About 99 of the 146 markets that realtor.com® tracks saw year-over-year gains in inventory levels. Sixty-three of those markets saw levels rise by 10 percent or more. Source: Realtor.com

Landmark Bank Laura Glass

Interesting April Facts...

Laura Glass