Real Estate Report 6/26/2014

The Student Loan "Crisis"

A recession is like an earthquake. There are many aftershocks and if the earthquake is really bad, some of the aftershocks can be strong earthquakes in themselves. We have been dealing with the aftershocks of the recession for many years because of the severity of this recession. Today we are dealing with another one in the form of student loans. The President this month moved to ease requirements for those buried in student loans. Congressional action is being considered. How did we get here? The recession.
During the recession, younger people could not find jobs, so more went to college. Of course, they borrowed money to do so and when they graduated they have been burdened with big student loan debts. Only getting jobs was still not so easy. While this generation struggles with the debt loads and finding their way, it has affected household formation which affects our real estate market as well as other sectors of the economy. Easing repayment requirements will help, but in the long run this is another obstacle that must be overcome over time. Time may not heal all wounds, but a better job market solves many of the foundational problems we have faced.
Speaking of the jobs market, next week we approach the July 4th Holiday on Friday. We have major economic releases to assess this week such as personal income and spending as well as consumer confidence. But next week we have the early release of the employment report because of the Holiday. We know this is a time of celebration of our Nation's birthday. However, the fireworks may be starting early as the report will be released at a time when many analysts and traders are leaving town. This could make for an interesting week for the markets.

New homes – those that are four years old or less – can be cheaper to maintain than older homes, according to data from the American Housing Survey. Twenty-six percent of home owners spend $100 or more a month on various routine maintenance expenses for their home. However, the study shows that 73 percent of new home owners spend less than $25 a month on routine maintenance costs. Home owners of new homes tend to spend less on energy costs too. Home owners on average spend 81 cents per square foot per year on electricity. In comparison, home owners of new homes tend to spend 68 cents per square foot per year. Utilities tend to be less expensive too. All home owners spend, on average, 28 cents per square foot per year on water bills. But on new homes, home owners tend to average 22 cents. The studies suggest that owners of new homes also tend to pay less on insurance too: The median cost of all home owners for property insurance is 39 cents per square foot compared to 31 cents per square foot for new homes. “These data highlight that a new home offers savings over the life of ownership due to reduced operating costs,” according to the National Association of Home Builders’ Eye on Housing blog. “These reduced expenditures represent one of the many reasons that the current system of appraisals needs updating to reflect the flow of benefits that comes from features in a new home.” Source: National Association of Home Builders

Finances are the biggest roadblock to home ownership for millennials, but a new survey shows they’d rather ask their parents to pony up a down payment than give up their cars. About half of millennials looking for homes have to go to their parents for help, according to a new study by Trulia. Debt, poor credit and a lack of savings were the chief reasons millennials were unable to come up with their own down payments, the survey reported. “Saving up for a down payment is a big obstacle and it can make the home buying process even more intimidating,” said Trulia real estate expert Michael Corbett. “Millennial home buyers need to know that if they are going to turn to bank of mom and dad for a down payment they should treat it like a loan. Write up a contract and determine what is best for monthly payments. This will and can avoid money woes among family members.” Among those for whom loans from parents aren’t an option, 37% plan to work a second job, while 22% said they would use state or federal programs to help them into home ownership. What many of them wouldn’t do, however, was give up certain luxury items in order to save for a down payment. Most millennials – 68% -- are looking for a home under $200,000, according to Trulia. But nearly half don’t know how much they would need for a down payment, and almost 2 out of 5 among those who do know would put down less than 10%. Source: MPA  Editors Note: Before following Mr. Corbett's advice regarding turning to parents for a loan, they should check with their lender and financial advisor as to the best way to fashion this help so that it fits within mortgage program and IRS guidelines. 

President Obama announced an expansion of a program that helps student loan borrowers manage their debt which will expand the criteria for an alternative repayment program capping monthly payments for certain federal student loans at 10% of a borrower's discretionary income. The changes would allow an additional 5 million borrowers to qualify and will be available beginning in December 2015. The alternative payment programs are designed to help borrowers struggling under the weight of student loans. They include forgiveness programs for on-time payments and public-sector employees. Teachers can have their balance canceled after ten years, for example. Low-income borrowers can have their balance canceled after 20 or 25 years of on-time payments. Borrowers who don't qualify for forgiveness but use a repayment program find their monthly payments reduced but spread out over a longer period of time. That means they will pay more over the lifetime of the loan, as there is additional time for interest to accrue. Income-based repayment and Pay As You Earn aren't available for borrowers who turn to private institutions rather than the government. Obama also supports a proposal on Capitol Hill that would allow borrowers to refinance their student loans. The proposal by Sen. Elizabeth Warren would extend current rates for new borrowers to those with outstanding loans at higher rates. "While Congress decides what it's going to do, I will keep doing whatever I can without Congress to help responsible young people pay off their loans," Obama stated. Source: CNN/Money 

Laura Glass with Landmark Bank Mortgage

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The Real Estate Report 6/18/2014

Beyond The Numbers

We have received some good news over the past few months regarding employment growth. The creation of jobs is the most important function of the economy. When people can find jobs, this creates confidence. When people are secure in their jobs they tend to spend more. This includes large purchases such as houses and cars. Of course, the real estate sector is another huge factor within our economy. So, the next question is--how good are the job numbers? Here is the good news, May represented the fourth consecutive month of jobs gains over 200,000 and that is the first time that has happened since 1999.
On the negative side, the labor participation rate was 62.8%, which was unchanged from April. This is the lowest rate in decades. We do understand that this number is affected by the number of people retiring and with baby boomers aging there are record numbers retiring. But it is also affected by the fact that the population has been growing. A few weeks ago, we pointed out that the population growth of our country may be poised to present us with a housing shortage in the future. Well, it also means that we must create more jobs than ever before and that has not happened yet.

We lost 8.7 million jobs during the recession. Again, the good news is as of May these jobs have been recovered over the past four years. That is a rate of approximately 180,000 jobs per month. We are now creating jobs at over 200,000 per month. If we can create jobs at a rate of 200,000 to 250,000 per month this would appear to help us catch up with population growth in a few years and lower the unemployment rate further. We believe as more people obtain gainful employment, they will spend more money and this will spur housing and other sectors of the economy which will create more jobs. That is what a virtuous cycle is all about and that is why this "200,000" number is so important. When the Fed meets starting today, you can be sure that these employment numbers will get a lot of attention from the members of the Federal Open Market Committee. 

Declines in home values experienced during the recession have already been, or are close to being, erased in almost 20 percent of metro housing markets nationwide as values continue to rise, according to the first quarter Zillow Real Estate Market Reports. U.S. home values climbed 5.7 percent year-over year in the first quarter, to a Zillow Home Value Index of $169,800. Home values nationwide rose 0.5 percent from the fourth quarter of 2013, the ninth straight quarter of increasing home values. U.S. home values are expected to rise another 3.3 percent through the first quarter of 2015, according to the Zillow Home Value Forecast. Nationally, home values remain 13.5 percent below their 2007 peak, after falling 22.6 percent during the recession before bottoming in 2011. But the housing recession is almost entirely in the rearview mirror in 1,080 of the more than 8,700 cities and towns covered by Zillow, with home values already at or expected to reach pre-recession levels in the next year, including in many hard-hit areas. Among 6,781 cities and towns that experienced home value declines of 10 percent or more during the recession, values in 527 have either fully recovered or are expected to recover fully by the first quarter of 2015. "The lows of the housing recession are becoming an increasingly distant memory as home values reach new highs and homes become more expensive than ever in many areas. This is a remarkable milestone coming only two and a half years after the end of the worst housing recession since the Great Depression, and is a testament to just how robust this housing recovery has been," said Zillow Chief Economist Dr. Stan Humphries. "So far, this steady appreciation has not created affordability issues in the majority of places. But there are a handful of markets where affordability is again a challenge, even with interest rates incredibly low." Source: Zillow

Americans have renewed confidence in real estate as a great investment. In fact, Americans believe real estate is the “best” long-term investment, followed by gold, stocks, mutual funds, savings accounts/CDs, and bonds, according to a new Gallup Poll of about 1,000 adults who were asked to choose the best option for long-term investments. Bonds were the least favorite investment among the options Gallup surveyed. In 2011, Americans surveyed said the most popular long-term investment was gold. That also marked a time when gold was at its highest price and real estate and stock values were lower than today, Gallup notes. “With housing prices improving across the country, Americans are regaining faith that real estate is the best choice for long-term investments,” according to Gallup. “Home ownership is also associated with views of real estate as an attractive investment opportunity.” Americans with higher incomes are the most likely to say real estate and stocks are the best investments – “possibly because of their experience with these type of investments,” according to the Gallup poll. Higher income Americans are most likely to say they own their home (at 87 percent), followed by middle-income earners (at 66 percent) and lower-income earners (36 percent) Home owners are slightly more likely than renters to say real estate is the best choice for long-term investments – 33 percent versus 24 percent, respectively, according to the Gallup poll. Source: The Gallup Organization

There was a time during the Great Recession when it looked like Americans were rethinking our mega-homes, reining in our budgets and ambitions and love of the three-car garage. Clearly, that moment has passed. Census data released recently on the characteristics of new single-family housing construction confirms that the median size of a new pad in America is bigger than it's ever been. In 2013, the median size of a new single-family home completed in the United States was 2,384 square feet. That median is above the pre-crash peak of 2,277 square feet in 2007, and it dwarfs the size of homes we were building back in 1973 (median size then: 1,525 square feet). Historically, this trend actually runs counter to another demographic pattern: Our homes have been getting larger as our households have actually been shrinking. So the long-running American appetite for ever bigger homes can't be explained by the need to fit more people into them. What, then, do we want all of this room for? What's particularly striking in the Census Bureau's historic data on new housing characteristics is the growth of what would be luxuries for many households: fourth bedrooms, third bathrooms, three-car garages. Notably, demand for all three dipped during the recession in parallel to the trend line above. These numbers are not a reflection of all U.S. housing stock. Rather, they reflect only trends in new construction, and only new construction among single-family homes. Right now, high-end homes are driving new single-family construction. And so perhaps these numbers will scale back some as the housing market continues to recover for families who can only offer smaller down payments and have dreams of more modest homes. Source: The Washington Post

Landmark Bank Laura Glass

The Real Estate Report June 11, 2014

No More Excuses

Over five years ago we suffered the worst recession since the great depression almost 100 years ago. Since then our economic recovery has been the weakest of all recoveries as well. There are many reasons for the weak recoveries. The fact that our real estate market was devastated and needed years to recover was certainly a main factor. But there were other reasons for the stops and starts which were external. We had domestic and world-wide natural disasters from hurricanes and super storms to tsunamis. We will not get into a debate as to whether global warming is causing these extreme weather events but we will acknowledge that they were very, very extreme and caused major damage to populations and property.

There were events that were not weather related, of course. There was the fiscal crisis in Europe and political crises at home. We had wars being fought and terrorist events. Many of these events prolonged the recovery and made us wonder whether we would suffer a double dip recession, which never came. 2014 has certainly not been smooth sailing with our famously cold winter and the crisis in Ukraine. However, we believe our economy has recovered to the point that we no longer talk about slipping back in recession. The drop in the economic growth in the first quarter is a testament to that confidence. Economists shrugged off the down quarter almost universally. So what comes next?

The sun is shining and there is no more cold winter. We are running out of excuses for the economy being so lackluster during a recovery period. The employment report released on Friday showed continued progress in that regard. The last two months has seen a significant pickup in hiring but the employment report also shows how far we need to go. We have recovered all the jobs lost during the recession, but accounting for population growth during the past six years, we have seven million jobs to go. Economists surveyed by CNN/Money indicate that it would take two years or more at this pace for the unemployment rate to reach 5.5% and wage growth is still anemic. The good news? A slow recovery continues to support low interest rates and hopefully the Federal Reserve Board agrees with that assessment when they meet shortly. 

Rates on home loans have dropped so much this year – falling about one-third of a percentage point — that the low levels could “stimulate” the housing market, Nobel Prize-winning economist and home-price expert Robert Shiller said. “These declines matter,” Shiller said in a CNBC interview. “People are watching interest rates.” Shiller’s remarks echo comments earlier this year from Federal Reserve Chairwoman Janet Yellen, who said that low rates “should serve as a stimulus to people coming back into the housing market.” Buyers faced a double whammy to affordability over the past year. Rates started rising in May 2013 as the market speculated about when the Federal Reserve would start pulling back on its massive asset-purchase program that exerted downward pressure on long-term rates. At the same time, builders and home owners cranked up asking prices, enabled by a low number of homes on the market. As a result, recent home-sale readings are trailing year-earlier results. But sales conditions are improving. Rates dropped this year on a string of weak economic reports. A combination of lower rates, slower price growth and an improving economy may lead to faster home sales this year. Source: Market Watch

Consumers are more committed to buying or selling this year, according to Prudential Real Estate's Consumer Outlook Survey. Of the 2,500 consumers surveyed, 78 percent held a favorable view of real estate, a five-point jump from the previous quarter and 15 points higher than at the end of 2012. Sixty-three percent said they were more committed to buying and selling in 2014. One generation in particular has a favorable perception of real estate right now: Millennials. The generation peaked at 87 percent with a favorable perception of real estate in the latest survey. “Consumers understand that the U.S. economy and residential real estate continue moving in positive directions,” says Earl Lee, CEO of HSF Affiliates LLC. “Accordingly, they’re feeling much better about their personal situations and want to take advantage of attractive home prices in many markets and interest rates that remain low by historical standards.” While they’re optimistic, consumers are also realistic, believing that the rate of appreciation of U.S. home values will slow after a strong run in 2013. They say their No. 1 concern about the housing market is “decreasing home values,” followed by “saving enough for a down payment.” Respondents to the survey also say that tight housing inventories would likely impact their home-buying decisions this year, and 67 percent expect to face more buyer competition. “Normalcy is returning to residential real estate,” says Lee. “People are seeking homes for all the right reasons: to gain shelter and security, raise a family, and generate long-term wealth.” Source: Realtor Magazine

Americans are much less mobile than we think. Almost 70 percent of us who were born in the U.S. still live in the state of our birth, as only 1.5 percent of population moves across state borders, a rate lower even than that of our parents. When we do move, it is most often in search of a new job, less expensive housing or a warmer climate -- and not, as is often suggested, to find a state with lower or no income taxes. What is the primary driver? One force, especially for older people, is the sun. Over the past two decades, cold-weather states such as Ohio, Pennsylvania, New Jersey and Michigan have lost a significant share of population to sun-belt states. A second motivator is housing; people who move from cities in California or New York to those in Texas or North Carolina typically benefit from substantially lower housing costs. The biggest draw of all for someone of working age, though, is a job. Nearly a third of Americans who relocate across state lines say they are moving for a “new job or job transfer.” Source: Bloomberg 

Laura Glass at Landmark Bank Mortgage

The Real Estate Report 6/4/2014

The Relationship Between Stocks and Rates
There is an obvious relationship between the movement of stocks and interest rates. When the economy is doing better, stocks should also improve. This same stronger economy increases inflationary pressures which causes interest rates to rise. In addition, when stocks are doing well, more investors put their money in the stock market as opposed to bonds. So, on days that stocks are doing well, interest rates are increasing which means that bonds are not doing so well.
Seems simple, right? Look over the past five years and it is not so simple. For the past five years stocks have done very well as rates have stayed low. What was the cause? The precipitous drop in the stock market during the recession was a factor as much of this bull market is a rebound. Rates have stayed so low during the tepid recovery because the recovery has not been strong enough and there have been no inflationary pressures. In other words, day-to-day you are likely to see stocks rise and an increase in rates, but sometimes long-term trends paint another picture.
Why is this important? Long-term trends don't last forever. If the economic recovery heats up from here, we could see rates rise and perhaps stocks will get stronger or perhaps they will fall because investors believe higher rates will stall the recovery. Many think that the pop in rates we had late last year was a partial cause of a slower economy this year, especially with regard to real estate. So if you want to know what rates are doing, stocks are not the only factor. Watch economic reports such as the jobs data we have coming out this week. Full employment would translate into inflationary pressures. However, we are a long, long way away from full employment.

First-time home buyers have been a sluggish segment of the housing market in recent years, but Barclays equity researcher Stephen Kim is betting on their return. Kim recently released a report, “The Return of the First-Time Buyer,” which outlines three reasons why he believes first-timers will soon be back. In fact, he’s betting that entry-level buying will be a key theme in homebuilding industry this year. Kim says that job growth is reaching an important threshold for improved household formation. “The cumulative number of jobs created over the past several years has now reached the point where each new job will drive greater household growth,” Kim writes. Also, Kim points to the loosening of credit, with more lenders showing willingness to lend to borrowers in the 600-700 FICO range. Kim also notes that buying a home is still about 20 percent cheaper than renting, and the affordability of housing will be an attraction for first-timers to enter sooner rather than later before rates and home prices rise more. However, Kim mentions there is one big hurdle first-time buyers will continue to face: Student loan debt. Source: Barclays and HousingWire

Properties sold faster in March — at a median of 55 days — due to low inventories of homes for sale nationwide, according to the latest Realtors® Confidence Index. The index is based on a survey of more than 3,800 Realtors® about their transactions in March. Short sales were on the market for the longest period of time -- 112 days in March compared to 98 days in February. Foreclosed homes were on the market for 55 days. About 37 percent of real estate professionals report that properties sold in March had been on the market for less than a month. In February, 34 percent of practitioners reported the same. Buyer traffic was also up in March, although demand was softer than a year ago, according to the report. Still, Realtor® confidence about current market conditions ticked up in March, reflecting a typical seasonal increase. Their confidence about the outlook for the next six months also improved but is lower than what it was a year ago. The biggest concerns among Realtors® remain low levels of inventories, tight credit conditions, and uncertainty about flood insurance regulation, according to the Realtors ® Confidence Index. Realtors® continue to be confident that prices will increase over the next 12 months but at a “modest pace.” They expect prices to increase at a median of about 4 percent over the next 12 months. Source: NAR

After buyers move in to their new home, they should be prepared for some home fixes to present themselves each season, says Rich Escallier, a handyman in Chicago. "If you can go six months without finding something that raises your blood pressure, you're lucky,” Escallier says. CBS MoneyWatch recently released a checklist of routine maintenance and small home repairs that home buyers should expect to do their first year to help avoid more costly problems from surfacing later on: 

·         During move-in week: Turn on all major appliances and run them for a complete cycle. Even if the buyer already completed a home inspection, they should test again, experts say. After all, “if you have a minor leak under the dishwasher, that water leaks into the subfloor and you can't see it," says Daniel Cipriani with Kade Homes & Renovations in the Atlanta area. "But you'll start to notice the hardwood floor buckling." 

·         45 days after move-in: Change the HVAC system filter and vacuum out the air intake vents. “Capturing dirt and dust with the right filter can go a long way toward preserving the new home appeal for a few years,” CBC MoneyWatch notes. 

·         Six months after move-in: Inspect the exterior of your home in both the summer and fall to ensure rainwater is draining away from the home properly. Also, clean out clogged gutters and downspouts. "Landscaping should be negatively graded away from the house," Cipriani says. "People don't think it's a big problem, but otherwise water pools against the foundation and doesn't have anywhere to go."

·         Every year: Inspect the home’s roof for any missing shingles and gaps around the chimneys. Also, check the ceilings inside the home for any water spots and indications of potential leaks. 

·         Every two years: Hire a professional HVAC contractor to inspect their furnace, air conditioner, and hot water heater. A ruptured reservoir could potentially spill 40 gallons of water in a mere few hours so experts recommend home owners install a water alarm with sensors in the collection pan underneath the hot water heater. The sensors cost about $25 and can help save home owners from costly water damage. Source: CBS MoneyWatch

Laura Glass

Interesting June Facts...

Laura Glass