The Weekly Real Estate Report

Why Are Rates Not Going Up?

After a good hike in long-term rates during the second half of 2013, just about every analyst in the country seemed to be sure that this was just the first phase of rate increases to come. After all, rates were the lowest in a generation and the increase we witnessed last year still put rates in very, very attractive territory. Jobs growth started accelerating during the second half of the year and the systems were ready to fire on all cylinders while the recovery finally got into full gear. Then came the long, cold and hard winter. So we understand that factor. Once again, the recovery halted and rates came down.
But this factor has passed. Job growth has heated up again and the stock market is at all time highs. The Federal Reserve has been slowing their purchases of treasury bonds and home loans in an effort to slow down fiscal stimulus and they are meeting this week with most observers feeling that rate hikes will be coming in early 2015. The question remains, why aren't rates going up in response to all of these factors? We could take the easy way out by saying that predictions of the future are futile and while this is true, we believe there are other factors at work.

Certainly one factor encompasses the political tensions around the world. Ukraine, Syria, Libya, Iraq and Gaza are all spots of conflict right now. The tragedy of a passenger jet being shot down just demonstrates how dangerous these situations are. When the world erupts, while our economy has not been as stable as we would like -- it is still a haven of safety compared to the rest of the world. When there is unrest, Treasuries are still a choice for those who are looking for safety in a world of conflict. While this factor does not completely explain why rates are not rising right now, there is no doubt that this factor is important and it also explains why predictions are futile. Next week, in addition to the analysis of the Fed meeting and the employment data, we will talk about one other factor contributing to low rates. 

Sixty-seven percent of consumers say they're planning a home renovation within the next six months, according to realtor.com®'s Home Improvement Survey of more than 1,500 home owners. They're planning to spend more money on their renovations than last year, the survey found. The most common budget range for home improvements was between $2,001 and $5,000. Eighteen percent of respondents who say they plan to renovate before the end of the year are budgeting $10,000 to $20,000 on their renovation. Respondents indicated that these are the most popular areas of the home to renovate: the kitchen (61%), bathrooms (59%), backyards or patios (33%), and the exterior of the home (32%).  "With 32% of consumers planning to spend money on improving the look and feel of their homes, home buyers should think about purchasing homes that require renovations," says Barbara O'Connor, chief marketing officer for Move Inc., the operator of realtor.com®. "By considering these kinds of homes, buyers open themselves up to more affordable options and the ability to renovate their homes to fit their specific needs and tastes." Source: Move, Inc.

Want to know exactly what employees relocating to a new housing market for a job are looking for in their next home? Cartus, a provider of domestic and global relocation services, recently surveyed 267 brokers who specialize in working with relocating employees to find out the most important home characteristics for those clients. These were the top three items transferees identified as most important to have in their next home: A larger home than their former residence (70%); new construction (64%); and single story (37%). Meanwhile, transferees identified the following amenities as the most important in their next home:

·         Upgraded kitchen: 91%

·         Master bedroom on first floor: 60%

·         Finished basement: 44%

·         Pool/spa: 23%

·         Outdoor kitchen: 11%

·         Smart-home technology (such as control via phone/tablet for heat, electricity, electronics, media, security, etc.): 10%

·         Media room/home theater: 7%

·         Fitness room: 4%

When it comes to relocation, transferees ranked location near a specific school district and less than a 30 minute commute to work as two key items of importance. “A job transfer is a major life change for employees and their families, and finding a home that fulfills their needs is important and enables the employee to transition to the new job efficiently and with little disruption to family lifestyles and routines,” says Gerry Pearce, executive vice president, broker and affinity services for Cartus. Source: RISMedia

Laura Glass with Landmark Bank Mortgage

Weekly Real Estate Report

Do You Remember Inflation?
While some may consider this a sarcastic question...we have not had really high inflation in the United States for some time. For example, in the past twenty years the retail inflation rate has averaged approximately 2.25% with an even lower number for the past decade. Two points about this. First, even low inflation rates can cause increases in the cost of living. For example, a 2.25% inflation rate over 20 years will increase the cost of living over 50%. Secondly, though low inflation rates can create issues in the long run, those who are older remember a U.S. inflation rate of near 10% per year from the period of 1973 to 1982. That was real "old fashion" inflation.
So if raging inflation has not been a problem for ten years, why bring it up now? Because the real reason we have had really, really low interest rates for the past ten years is the lack of inflation we have experienced. And if we really want to know when rates are going to go up significantly, we need to watch the data on inflation more closely. The reason rates trend up when we get good economic news is the fact that the markets feel that the Federal Reserve Board will raise short-term rates in response to the threat of inflation.

There are actually two stages here. The Fed has kept short-term rates near zero in response to our deep financial crisis and lackluster recovery. So the first move is to move rates to a low inflation normal. The second move is the one we should worry about in the long-term. That is a move to head off inflationary expectations if the economy heats up. We expect the first move and should worry about the second move. For right now the sale on money to finance cars, houses and investments continues. If we keep creating jobs, we should keep a wary eye on the inflation number because we know the Fed is doing just that when they meet next week.

While you may or may not be interested in refinancing or even entering home ownership, tips to improve one’s credit score are helpful across the board. An improved credit score does offer more leverage in any type of lending and is important for other aspects of living such as insurance, renting and even finding a job. But do not despair if your credit is low, there are ways to repair your credit and improve your score. Here are three very important ones...

·         Check Your Credit Report Annually. Your credit report contains the data used to calculate your score and it may contain errors. In particular, check to make sure that there are no late payments incorrectly listed for any of your accounts and that the amounts owed for each of your open accounts is correct. If there are errors, you can dispute them with the credit bureau.

·         Set up Payment Reminders. Making your credit payments on time is one of the biggest contributing factors to your credit score. If you don't use an automated payment method, many banks offer payment reminders through their online banking portals that can send you an email or text message reminding you when a payment is due.

·         Reduce the Amount of Debt You Owe. This is easier said than done, but reducing the amount that you owe is going to be a far more satisfying achievement than improving your credit score. The first thing you need to do is stop using your credit cards. You'll never qualify for a home loan if you can't manage short term credit cards. Sources: HousingWire, Fair Isaac & Freddie Mac

The housing market is still far from bubble territory, according to a new report that finds home prices are still undervalued by 3 percent nationally. For the second quarter, Trulia’s Bubble Watch factors in home price values by comparing prices today with historical prices, incomes, and rents. In the first quarter of 2014, home prices were about 5 percent undervalued, and they were 8 percent undervalued about a year ago. At the current pace, home prices are expected to be in line with long-term fundamentals—neither over- nor undervalued—by the last quarter of 2014 or the first quarter of 2015, according to the study. Three-fourths of the 100 largest metros analyzed are still considered undervalued. Source: Forbes.com 

Good news for apartment renters: Rent hikes are finally starting to slow, a huge relief for those who have put up with annual increases over recent years. A big reason for the slowdown is the increased supply of new apartment units on the market, said Hans Nordby, managing director of CoStar Group, a provider of information and analytic services for the commercial real-estate industry. “The first quarter of this year, 54,000 new apartment homes were delivered to the market [nationally] and demand was about 27,000 apartments,” Nordby said. “That causes vacancies to pick up a bit.” Increased vacancies mean that landlords can’t be as aggressive in raising rents, if they want to keep their units filled. It’s important to remember that all markets are different. In some areas with short supply, rents could continue to rise sharply. There’s another factor playing into landlord decisions too. “Some rents have gotten so egregiously expensive, it puts an artificial ceiling on rent growth,” said Ryan Severino, senior economist and associate director of research for Reis, Inc., also a provider of commercial real-estate information. When rents are rising faster than incomes, at a certain point, tenants can’t stomach meaningful rent increases, Severino said. And when enough of them push back to their landlords, apartment companies may begin scaling back their rent hikes, he added. Make no mistake, most landlords are still hiking rents, Severino said. They just may not be able to increase them quite as steeply as they were able to previously, he added. Rising rents are also causing people to make different choices about the neighborhoods in which they’re willing to live. Instead of searching for a home exclusively in the city, young people are much more likely to consider rentals in suburban areas. Already, some suburban markets getting hotter. Source: Market Watch 

Laura Glass

Weekly Real Estate Report

Still Work To Be Done
As the euphoria wears off in the aftermath of our stellar June employment release, we realize that there is still work to be done in order to fully recover from the financial crisis and deep recession. The recovery has been going on for five long-years, but it is still not fully mature. For example, while we have recovered all jobs lost during the recession, we have not added enough jobs to accommodate the population growth that has occurred during and since the recession. Even at today's increased pace of job growth, this void will not be filled for two years or longer.
Furthermore, while the unemployment rate has dropped to 6.1% -- which was the lowest in almost six years, the "underemployment" rate still stands at 12.1%. The underemployment rate includes those who are working part-time because they can't find full time jobs. The labor participation rate stands at 62.8% which is a 36-year low. It is true that the baby boomer generation is reaching retirement age and this contributes to the labor participation statistic. On the other hand, it is not merely how many jobs are created -- it is also what type of jobs are created. America needs more high paying full-time jobs.

So before we celebrate the end of bad times, we must understand that there is truly more work to accomplish. The fact that we have more room to grow is actually good news for right now because this gives the Federal Reserve Board latitude to keep interest rates lower for a longer period of time and not worry about the economy overheating. The markets will cause rates to rise as we witness the start of the cycle of better times. If this surge in job hiring spreads to the real estate markets, we will start making up ground in a hurry instead of the snail's pace of the past five years. If that happens, expect the Fed to act much more quickly.

Many consumers are overestimating the down payment they need in order to purchase a home, according to Christina Boyle, vice president and head of single-family sales at Freddie Mac. Consumers believe they need 11 percent to 15 percent in order for lenders to approve them for a loan, according to a survey of renters and non-home-owners conducted by Zelman & Associates in New York. Thirty-nine percent say they need at least 15 percent of the purchase price in order to qualify for financing. Only 28 percent of respondents say they would even qualify for a home loan. But in reality, home buyers often can qualify for a conforming, conventional home loan with a down payment of as little as 5 percent — and sometimes even 3 percent — Boyle writes. Between 2009 and 2013, Freddie Mac’s purchases of home loans with down payments of less than 10 percent more than quadrupled. So far in 2014, more than one in five borrowers who took out conforming, conventional loans put down 10 percent or less. “Letting more consumers know how down payments are determined could bring more qualified borrowers off the sidelines,” Boyle writes. “Depending on their credit history and other factors, many borrowers can expect to make a down payment of about 5 percent or 10 percent.” However, Boyle notes that any borrower who puts down less than 20 percent will be required to buy mortgage insurance. Boyle says that buyers should also be encouraged by the abundant down-payment assistance programs that exist to help break into home ownership. Source: Freddie Mac
Access to high-speed Internet, nearby grocery stores, and hospital/medical centers were the top three community features desired by Baby Boomers in a recent survey. Philips and the Global Social Enterprise Initiative (GSEI) at Georgetown University’s McDonough School of Business asked 1,000 consumers age 50-80 about the use of technology to stay independent as they age. In addition to high-speed Internet, 58 percent of respondents said they would be interested in stovetops or ovens that automatically shut off to help them live at home as they get older. Respondents also said they’re interested in a single remote control to manage everything in the home (46 percent), and driverless cars (41 percent). When it comes to home design, 58 percent said they’re want a low-maintenance exterior, 54 percent desire master bedrooms and baths on the first floor, and 54 percent also said they want effective lighting throughout the house. “The long-term, intergenerational benefits to universal design and early technology adoption extend beyond the aging population. For example, structural and technological updates can help injured individuals of all ages move with ease,” said Bill Novelli, GSEI founder and Georgetown McDonough professor. Overwhelmingly, 91 percent of survey participants said they plan to live in their own home or apartment, and 96 percent said it's important to be as independent as possible as they age. Source: Georgetown University’s McDonough School of Business

Title defects have become a major cause for concern within the real estate market in recent years, “which some feel cause wrongful foreclosures and others feel contribute to stagnation of what would otherwise be a smooth transition of assets within the secondary market,” according to executives at Nationwide Title Clearing Inc. NTC says several title-related issues are jeopardizing transactions. For example, NTC notes problems such as simple issues with wording in the document that does not comply with real estate standards for the area and failure to include the signature of a party that is necessary to the transaction, such as a spouse. Other common problems surfacing are previous liens and other encumbrances that have not been removed; the title needs to be free of encumbrances to be marketable, according to NTC. “Property records hold the key to ensuring a clear title conveyance and reducing the risk of buyback or inability to foreclose,” according to NTC. To help combat potential title hang-ups, NTC says it’s added online ordering for property records to its website. The reports include tax status, current owner information, and assignment verification services. “Our property report services are based on research conducted from actual land records and are accessible for any residential property nationwide,” says NTC CEO John Hillman. Source: Nationwide Title Clearing

Laura Glass with Landmark Bank Mortgage

July 9, 2014 Real Estate Report

Mid-Year Employment Reading
We hope that everyone enjoyed the 4th of July Holiday. There were plenty of fireworks during the weekend but the day before the holiday started the government provided their own fireworks with the release of a strong jobs report for the month of June. Most analysts were expecting a decent gain in jobs at just over 200,000 and for the unemployment to remain steady at 6.3%. The numbers were stronger than expected, especially when considering the fact that the previous months of jobs gains were revised upwards.
In June the economy added 288,000 jobs which is robust by anyone's standards. The unemployment rate dipped to 6.1% and the decrease cannot be attributed to people leaving the workforce as the labor participation rate stayed steady. Though these numbers are subject to revision in later months, the fact that ADP released a similar number for private payroll growth the day before just confirmed the fact that the job market is indeed heating up. What does that mean?
This is just what the doctor ordered for the economy. More jobs should translate into higher levels of consumer spending and especially spending on big ticket items such as cars, furniture and houses. A stronger housing market and automobile industry should create more jobs and the virtuous cycle will be created. If job creation continues at this pace, we should expect a pickup in interest rates and the growth in home prices should continue. We know we have said this before -- the combination of low rates and low housing prices will not last forever. While the stock market has been strong, rates have remained low. However, this news might just be the beginning of the end of the nation's sale on money.

Millennials plan to make more of a move in the housing market, particularly within the next five years. Thirty-two percent of 18-34 year olds say they plan to buy a home in the next 12 months. What’s more, three quarters of Millennials plan to buy a home in the next five years, according to a survey of 2,500 adults released by BMO Harris Bank that compared the timelines for likely home purchases among age groups. For comparison, 62 percent of the 35 to 44 age group says they plan to move within the next five years; 35 percent of 45 to 54 age group; 31 percent of ages 55 to 64; and 19 percent of those older than 65. "We're seeing a fair amount of confidence in the housing market, which is encouraging news," says Kevin Christopher at BMO Harris Bank. "For many in the under 35 age range, this may be their first home.” But home ownership is still out of reach for some. About one-third of renters surveyed say they would like to buy a home but they’re unable to afford it. High student loan debt continues to be a big obstacle for Millennials in qualifying for a home loan to purchase a home. "While the housing market is on the upswing, the record level of student debt carried by young Americans does pose a challenge to many in their 20s and 30s hoping to purchase their first home," says Michael Gregory, head of U.S. Economics at BMO Capital Markets. "Student debt levels have more than doubled in the last seven years to $1.1 trillion. The financial burden means renters are delaying entering the purchasing market, which has a trickle-down effect on the overall housing recovery." Source: BMO Harris Bank
Staging may not be important and may not raise residential sales prices, according to researchers at the College of William & Mary. The study polled 820 home buyers who were shown a series of six virtual tours of a single property, each focusing either on wall color or furnishings. The tours showed the property without furniture, with "ugly" furniture, with "good" furniture, and with wall colors such as neutral beige and an "unattractive" shade of purple. The researchers determined that buyers would pay the same price for the home, no matter how it was staged. "These results stand in stark contrast to the conscious opinion of both buyers and real estate agents that staging conditions significantly impact willingness to pay for a home," the researchers concluded. Study co-author Michael Seiler, professor of real estate and finance at the College of William & Mary, speculates that today's buyers are savvy and recognize that staging involves cosmetic changes that are not expensive. However, because these buyers thought others would spend more on the property, Seiler says, "I am definitely not ready to say spending money on staging would be a waste." Source: Bankrate.com

Low rates and soaring rents have convinced a growing number of homeowners to hang onto their former homes and become landlords instead. "Clients tell us all the time, 'We're never going to sell our home, even after we buy a new one,'" said Glenn Kelman, CEO of the brokerage, Redfin. The math works in most landlords' favor these days. Rents have risen by about 20% nationwide since mid-2006, the housing bubble peak, while home prices are still about 21% below what they were at that time. For people who are still underwater on their loans and unable to profit from a sale, renting helps soften the blow. The surge in landlords is working out well for most owners, but it is taking a toll on the housing market, according to Kelman. Every home converted into a rental property is one less that goes on the market. And in hot real estate markets these days, very few homes are up for sale. "It's a major reason we have low inventory and limited sales growth," said Kelman. Source: CNN/Money 

Laura Glass with Landmark Bank

Real Estate Report 7/2/2014

The Oil Dilemma

If you read the analyst's projections, you get the impression that the price of oil should be falling because there is excess supply on the horizon. Demand is slowing in developed countries such as ours and new technology is helping us find oil where we have never gone before. "Tightening fuel efficiency standards for automobiles and changing consumer preferences look set to send U.S. gasoline demand back on the declining course on which it embarked in 2007," the Paris-based International Energy Agency said in its latest forecast published recently. Of course, this report can't predict political and other turmoil that occurs around the world.
The conflict in Iraq has contributed to a spike in oil prices and because it heated up as the summer driving season was getting underway, there is a concern that gas prices will also spike. Gas price increases can affect consumer spending and with the economy recovering from the winter slowdown, the timing for price increases is not great. Although we are not sure that there is ever a good time for higher energy prices. Any data which could lead to a long-term increase in inflationary expectations can affect interest rates as well. In this case, the "long-term" projections from the International Energy Agency represent good news. In the short run we will always have to deal with interruptions in supply. Some of these may be caused by natural disasters which are never predictable. Remember, we are about to enter hurricane season.
This week we will get a reading which will tell us how well we are recovering from the cold winter. The employment report is released early because of the 4th of July Holiday. We have some momentum in the employment sector and most are expecting this good news to continue at least moderately. Any surprise to the upside or downside could affect the stock and bond markets and thus the economy. What is interesting is the fact that this report will be released right before the holiday weekend. The markets are typically quiet during this summer holiday period but this week could be an exception.

Of the 16.4 million active-duty service members and military veterans with home loans, less than 12% have a loan guaranteed by the Department of Veterans Affairs. Some blame this low participation rate on a lack of promotion for the VA home loan program, which was created in 1944. Many loan officers don't even ask potential clients if they are veterans. And many veterans don’t know enough about the program to ask for a VA loan. Others blame lenders and real estate agents who have preferred the loan products guaranteed or purchased by Fannie Mae, Freddie Mac and the Federal Housing Administration. But things are looking up for VA lending as specialists in the product redouble their efforts to get the word out and other low-down-payment products grow more expensive. A sharp increase in Federal Housing Administration insurance premiums is making VA more competitive, according to Megan Booth, senior policy representative at the National Association of Realtors. "There is not a Realtor alive today that thinks FHA is a better deal" for veterans, Booth said. "That is helping the VA grow and it will continue to help the VA grow." VA lenders originated a record 629,300 single-family loans in fiscal 2013, which ended Sept. 30. So far, VA endorsements have held up well this fiscal year and 63% of VA loans are going to homebuyers rather than for refinancing, according to agency officials. The Veterans Association of Real Estate Professionals, a trade group launched in 2011 to promote the VA program, held its first Washington conference recently. "There are a lot of misconceptions about the VA home loan program among real estate, lending and housing professionals," says Son Nguyen, the group's co-founder and president. "We want to change that through education and outreach." VA officials told the conference they will be issuing a proposal soon that will clarify the agency's rules on negotiating fees with sellers. VA rules currently limit the amount veterans can be charged for closing costs and fees for termite and other inspections. Real estate agents have been pressing VA for a clarification because veterans are often disadvantaged when competing with non-veterans to buy a house, particularly when there are multiple bidders. Source: National Mortgage News  Note: We are dedicated to making sure that veterans are aware of their VA loan benefits.

Home owners are remodeling their homes to increase the value, but they also are showing more desire to stay and enjoy their remodels before they move on. Fifty-three percent of U.S. home owners say they are remodeling to increase the resale value of their home, but they have no plans to move in the next five years, according to a new Houzz & Home survey of more than 135,000 respondents. Sixteen percent of remodelers say they plan to sell their home in the next two years. One in five — or 22 percent — of the remodelers surveyed say they feel home prices are rising too quickly to consider moving yet. Twenty-four percent of respondents say they would prefer to move, but remodeling their home makes more economic sense. The Millennial generation of home owners seem to be the most apt to move within the next five years, according to the survey. Thirty-six percent of them say they are remodeling to increase their home’s value with the intent to move to their next home soon. Overall, the most popular renovation projects are bathroom remodels or additions and kitchen remodels. Home owners continue to devote the highest share of dollars to kitchen remodels, spending an average of $26,172. That can vary drastically by region, however. Home owners in the Northeast and West tend to spend the most on their renovation projects at an average of $32,155 and $29,411, respectively, on their kitchens (compared to $23,946 in the Midwest and $21,894 in the South), according to the survey. The most popular replacement projects are flooring/paneling/ceiling, followed by windows/doors and roofing. Source: Houzz

After a sluggish start to 2014, new-home sales posted a strong rebound in May. Sales of newly built single-family homes soared to the highest rate since May 2008, jumping 18.6 percent last month, according to data released June 24 by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau." This increase is a welcome sign after a slow start to 2014," says David Crowe, chief economist of the National Association of Home Builders. "As job creation continues, we can expect further release of pent-up demand and continued gradual growth in the housing recovery. Across the country, regions posted big gains in new-home sales, with the Northeast leading the pack. Sales of new-homes jumped 54.5 percent in the Northeast, 34 percent in the West, 14.2 percent in the South, and 1.4 percent in the Midwest. Inventory levels mostly stayed flat, as builders continue to be cautious about overbuilding. The inventory of new homes for sale held steady at 189,000 units in May, representing a 4.5-month supply at the current sales pace. Source: National Association of Home Builders

Laura Glass with Landmark Bank Mortgage

Interesting July Facts...

INTERESTING FACTS...  •  "Named by the Roman Senate in honor of the Roman general, Julius Caesar, it being the month of his birth. Prior to that, it was called Quintilis."  •  July is National Bike Month and National Hamburger Month.  •  The Apollo 11 Lunar Landing Mission began on July 16, 1969 at 9:37 A.M.  •  July Birthstone: Ruby.  •  July Flower of the month: Larkspur, Water Lily.  •  Zodiac Signs: Cancer, Leo

ALSO IN JULY...  •  July 2 — World UFO Day  •  July 4 — Independence Day  •  July 6 — Dad & Daughter Take a Walk Day  •  July 10 — Piña Colada Day  •  July 14 — Bastille Day

Here's to a month of celebrating Freedom and Family. Laura Glass