Friday, October 31, 2014
Wednesday, October 29, 2014
The Real Estate Report 10/29/2014
Happy Holidays
It must be the
holiday season with so many gifts coming in. What else could explain good
economic news combined with lower interest rates and lower oil prices? Even though
the stock market is retreating, keep in mind that the Dow was below 12,000
approximately three years ago. Three years ago the unemployment rate averaged
just over 8.0% and it is now just below 6.0%. Initial jobless claims were in
the vicinity of 400,000 per week and now they are consistently below 300,000.
We mentioned last
week that it is surprising that rates and oil prices would fall in the face of
relatively good economic news. As surprising as it is--we are going to advise
you not to look a proverbial gift horse in the mouth. We are going to advise
you to enjoy the lower rates and lower gasoline prices for as long as they
last. That might be a few days, a few weeks or a few months. Or the markets
might reverse themselves by the time you read this commentary.
We do believe this
week's meeting of the Federal Reserve Board's Federal Open Market Committee
will be very interesting. The Fed is going to be reading signs of economic
recovery with no inflationary pressures. They are also going to be feeling the
worldwide turmoil going on and speculating whether events overseas will affect
our recovery. Some are saying that they might extend their bond purchases to
keep rates low. We don't think that an announcement of such will be in the
cards, but the phrase "considerable time" when referring to future
interest rate increases may stay as part of their vernacular. Of course, our
speculation is just that -- speculation.
The nation's youngest adults will spend more than $2 trillion in
the next several years on rent and mortgage loans, according to a recent report
by The Demand Institute. The number of new millennial households formed from
the beginning of 2014 through the end of 2018 is expected to reach 8.3 million.
They are likely to spend $1.6 trillion on home purchases and $600 billion on
rent during that time period, or "more on a per-person basis than any
other generation," the report said. The total is expected to equal one in
every four dollars spent on housing over that period. "The Millennials and
Their Homes: Still Seeking the American Dream," is based on 18 months of
research including interviews with 10,000 U.S. consumers, of whom more than
1,000 were millennials, and an analysis of housing market data from 2,200 U.S.
cities and towns. It found that contrary to popular belief, most millennials--born
between the early 1980s and the early 2000s--nurture the traditional aspiration
of purchasing a home and living in the suburbs. "As more of these young
adults increasingly venture out on their own, most will rent," according
to the report. However, so far nearly all already have cars and the vast
majority plan to buy a home in the future, the report finds. This generation
faces "unique financial challenges of homeownership today resulting from
graduating into a weak job market with growing student loan debt," agrees
Jeremy Burbank, a vice president at The Demand Institute and Nielsen, which is
likely why many young adults see alternative housing finance options, such as
"single-family rentals and rent/own hybrid contracts such as lease-to-own"
as their path to homeownership. Source: Source Media
Despite the jump in
the latest median single-family home price — $220,600, up from around $160,000
just a few years ago, according to the National Association of Realtors® — the
large price gains are not denting affordability. Even with home prices
climbing, home ownership remains affordable because low interest rates have
helped to offset the price gains, writes Lawrence Yun, NAR’s chief economist,
at NAR’s Economists’ Outlook blog. Also, incomes have risen slightly as the
unemployment rate has fallen, which also has helped to improve the
affordability picture. A home buyer buying a median-priced home at the current
interest rate and having a 20 percent down payment would make a monthly payment
of about $867. That is 15.9 percent of monthly gross family income, compared to
an average of 21.3 percent over the past 30 years, Yun notes. Source:
National Association of Realtors®
There is a fair
amount of payment shock headed toward select groups of homeowners with mortgages.
The reckoning has already started for people who took out home equity lines of
credit a decade ago, when homes were appreciating handsomely. What started as
interest-only draw down periods are now ending, and borrowers must start paying
off the loan's principal and its interest. Five years after the modifications
were made, the interest rates gradually reset, by increases of 1.0% annually to
the level that average primary interest rates were at the time of the
modification. Eventually, rates of some borrowers who were among HAMP's
earliest participants will be pushed to just over the 5.0% mark, which is
higher than the current average interest rates on 30-year, fixed-rate loans.
The Office of the Special Inspector General for the Troubled Asset Relief Program,
a federal watchdog agency, has estimated that about 33,000 borrowers will see
their first resets this year. While the median monthly payment increase will be
$200 at the end of the process, some borrowers will see their payments jump by
more than $1,700 monthly, according to the agency. Source:
The Orlando Sentinel
Wednesday, October 15, 2014
The Real Estate Report 10/15/2014
If it is all about jobs, then...
For years we have
gone through a tepid recovery from a very deep recession. And all along we have
indicated that we don't recover from such an event if Americans are not
working. Year after year we waited and waited. Well, the wait is over. The
recovery in jobs is more than underway, it has arrived. The average of 220,000
jobs added each month thus far this year -- and the unemployment rate dropping
below 6.0% -- is just what the doctor ordered in this regard. This is not to
say that we are all the way back. Many of the jobs created have been lower
paying jobs, which has held back the pace of personal income growth. In
addition, the low labor participation rate tells us that if jobs keep getting
created, we will have to absorb many returning to the labor market.
On the other hand,
the progress we have made will cause a ripple effect throughout the economy. We
are on pace to add almost 3 million jobs this year and this will increase
consumer spending which will create more jobs. And some of this spending will make
the real estate market stronger -- whether it is the purchase of new homes or
major renovation projects for existing homes. Already we are seeing the
strength in car sales and home improvement projects. But the one area we have
not seen strength in this year is within the real estate sector.
More recently, we
have seen renewed confidence by builders as new home sales have been ramping
up. The bottom line is that we can't have a recovery without the creation of
jobs and it is the creation of jobs that will bring us a complete real estate
recovery. Yes, we still have a long way to go, but if we keep creating jobs at
this rate, the road will become a lot shorter. From there, the only question
won't be if interest rates will rise -- but when will they rise and how fast.
Right now we have the best of both worlds: more hiring and very attractive
interest rates.
Now that the worst of the
foreclosure crisis is in the rearview mirror, former home owners who lost their
homes to a short sale or foreclosure are re-entering the housing market.
They've spent the last few years rebuilding their credit — and they're ready to
buy again. "We're about three years past the peak of the
foreclosures, and that's about the time when most people would qualify for
another loan," says Daren Blomquist, spokesman for RealtyTrac. "The
market really needs boomerang buyers to maintain the current recovery."
Some boomerang buyers heading back to the housing market may find they have to
make down payments of at least 20 percent to qualify for a loan, but others are
finding opportunities to put down as little as 3.5 percent or 5
percent. The wait times for qualifying for a loan can vary depending on
the former home owners' circumstances. Typically, the wait times following a short
sale or foreclosure are as follows:
·
Seven-year wait for home owners with a previous foreclosure before
they can qualify for a new loan through mortgage giants Fannie Mae and Freddie
Mac. If the foreclosure was included in a bankruptcy, the borrower has to wait
only four years.
·
Two-year wait for home owners who underwent a short sale before
they're eligible for another Freddie Mac and Fannie Mae loan.
·
Three-year wait for home owners seeking a Federal Housing
Administration loan after a foreclosure or short sale. Some home owners who
underwent a foreclosure because of at least a 20 percent cut in their pay may
be able to qualify for a new loan after just a year through FHA's Back to Work
program. Source: Sun Sentinel
Note: Every situation is different in this regard and certain
lenders may follow different guidelines depending upon the type of transaction.
It is always best to check with a lender and get pre-approved before you
submit an offer to purchase a home.
Builder confidence in the
new-home market rose to its highest reading in nearly 9 years, according to the
latest reading from the National Association of Home Builders/Wells Fargo
Housing Market Index. September marked the fourth consecutive month that
builder confidence has been on the rise. "Since early summer, builders in
many markets across the nation have been reporting that buyer interest and
traffic have picked up, which is a positive sign that the housing market is
moving in the right direction," says NAHB Chairman Kevin Kelly. For the
new-home market, builder confidence rose to a level of 59 in September,
according to the index. Any reading above 50 indicates that more builders view
conditions as "good" than "poor." The seasonally adjusted
index measures builder perceptions of the single-family new-home market on home
sales and sales expectations for the next six months, as well as builders'
perceptions of buyer traffic. All three of the index components in September
posted gains, with current sales conditions and traffic of prospective buyers
rising to 63 and 47, respectively. Expectations for future sales also rose two
points to 67. Source: National Association of Home Builders
Some home buyers are making
an unusual request: They’re asking to spend the night at a home before they
make an offer on it. HGTV’s “Sleep On It,” which follows potential buyers as
they stay overnight in two homes with the sellers’ approval before deciding
which one to buy, hasn’t seemed to spark a national trend. But it has prompted
such proposals to surface more often, real estate professionals say. The
sleep-overs can help buyers gain a better perspective on what it actually would
feel like to live at the home, whether the kitchen is the right size, the noisy
neighbors are too distracting, or the water pressure just isn’t right. Corlie
Ohl, a real estate professional at Citi Habitats in New York City, recalls a
client who requested to take a shower in an $865,000 apartment he was
considering purchasing. He wanted to make sure the place had adequate water
pressure. "It's the strangest request I've ever experienced in my life for
someone who wanted to purchase an apartment," Ohl says. “The seller said,
‘Yeah, I guess, as long as he brings his own towel." Contracts are a good
idea for any buyer sleep-overs to protect both parties from liabilities, such
as loss of personal belongings, say real estate professionals. A couple in
Boulder, Colo., were staying at a condo when they decided to check out the
condo’s parking area at night. But, “as they exited the elevator, they were
abruptly confronted by two police officers, weapons drawn,” says real estate
professional Bob Gordon. The neighbors had thought they were burglars. But the
incident prompted the couple to put in an offer immediately on the home,
“knowing the neighbors would be concerned enough to call police," Gordon
says. Source: US News and World Report
Wednesday, October 1, 2014
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