Weekly Real Estate Report

The Employment Report Disappoints
Just when we were starting to get used to strong jobs data we were reminded of an important adage -- never try to predict the future. While the analysts were predicting December job growth would be around 200,000, the number came in short of 100,000. This number disappointed the markets. In a strange twist, the unemployment rate fell from 7.0% to 6.7% when no decrease was expected, but this was not seen as a sign of strength as many left the workforce in December.
In all, the economy added just over two million jobs in 2013 which is pretty close to what occurred in 2012. This translates into approximately 170,000 jobs per month. All the while the unemployment rate has been dropping and we seriously doubt that such a precipitous drop in 2013 -- over 1.0% -- is due entirely to a smaller work force. We are now getting close to where we have replaced the over eight million jobs lost during the recession, but we are not quite there yet. Three important points about the jobs report.

First, these numbers are subject to future revisions. We would not be surprised to see the numbers revised upwards one month from now, especially considering the fact that the private payroll report showed over 200,000 jobs added for December. For example, in the same report November numbers were revised upward by 38,000. Secondly, weather issues in December could have depressed the numbers temporarily. Finally, rates fell initially in reaction to the report and the stock market did not show a negative reaction. Why? These numbers are not strong enough to prompt the Federal Reserve Board to abandon their stimulus program more quickly than planned. If revisions don't change the numbers, the halt to rate increases represents good news for consumers and business.

New lending rules went into effect that aim to put an end to the worst home loan lending abuses of the past. The new rules are designed to take a "back to basics" approach to residential lending and lower the risk of defaults and foreclosures among borrowers, according to the Consumer Financial Protection Bureau, which issued the new rules."No debt traps. No surprises. No runarounds. These are bedrock concepts backed by our new common-sense rules, which take effect today," said CFPB director Richard Cordray in remarks prepared for a hearing. Lenders are being asked to comply with two new requirements: The Ability to Repay rule and Qualified Mortgages. Here's how they will impact borrowers:

·         Ability to Repay. Lenders must determine that a borrower has the income and assets to afford to make payments throughout the life of the loan. To do so, the lender may look at your debt-to-income ratio, which is how much you owe divided by how much you earn per month, including the highest housing payments you would be required to make under the terms of the loan. To calculate your debt-to-income ratio, add up all your monthly obligations -- including student loan, credit card and car payments, housing costs, utilities and other recurring expenses -- and divide it by your monthly gross income.
In an effort to put an end to no- or low-doc loans, where lenders issue risky loans without the necessary financial information, lenders will be required to document and verify an applicant's income, assets, credit history and debt. Underwriters must also approve loans based on the maximum monthly charges you face, not just low "teaser rates" that last only a matter of months, or a year or two, before resetting higher.

·         Qualified Mortgages. To make sure you aren't taking on more house than you can afford, your debt-to-income ratio generally must be below 43%. This rule is not absolute. Banks can still make loans to people with debt-to-income ratios that are greater than that if other factors, such as a high level of assets, justify the risk. Qualified mortgages cannot include risky features, such as terms longer than 30 years, interest-only payments or minimum payments that don't keep up with interest so your mortgage balance grows. Upfront fees and charges cannot add up to more than 3% of the balance. That includes title insurance, origination fees and points paid to lower interest rates

Lenders don't seem to be too worried about the new rules, according to Keith Gumbinger of HSH.com, a mortgage information provider. "It's no surprise; everybody has been preparing for the change for months," he said. "Because there will be additional underwriting scrutiny, it could gum up the works initially and slow loan processing, but it's really just the codification of things that are already in place." A significant factor is what's not in the rules. There's no minimum down payment or credit score requirement. The lack of a credit score requirement will enable lenders to loosen currently tight underwriting standards in the future should conditions warrant, according to Gumbinger. Source: CNN/Money

Laura Glass

The Return of the Housing Market

The Return of the Housing Market Nov. 2012 The housing market is taking off again — finally! — around the country. This is great news for your sellers, but what about your buyers? What's the good news in a market where competition for prized properties will increase, home prices are rising and mortgage rates might too? More Choices, Better Living In the first place, a healthier housing market means more desirable locations to purchase property. Locations that had been suffering from a double whammy of high unemployment and a terrible housing market — often with numerous abandoned and vacant homes — are seeing a turnaround, providing homebuyers with more choices when it comes to finding a place they want to live. These areas can only improve as families move in and contribute to the local economies. In fact, according to the National Association of Home Builders/First American Improving Markets Index, at the beginning of October 103 markets across the country were considered to be improving. The index looks at employment, housing prices and single-family housing growth to determine these improving areas. They include metro areas in Florida, Texas, Indiana, Michigan and many more throughout the U.S. Resale Values In addition to more cities becoming desirable places to live, real estate is more obviously becoming a good investment. We say "more obviously" because despite the recent slump, in the long run real estate turns a profit in nearly every market. Period. Now your clients will be able to see that for themselves, as prices slowly creep up. Whether they are looking for a primary home, second home or investment property, now is a great time to get into the market. Buy low, sell high is a very old sales adage and one that should be taken advantage of in this market! You can instill a completely justified sense of urgency in your clients and encourage them to buy soon before prices rise any more, so they can maximize their profits when they choose to sell. Delays Can Hurt Purchasing Power Remember, too, to remind clients that while mortgage rates have been hovering at record lows, there is no guarantee they won't begin to climb — and keep going. Improvements in the economy, of which housing market improvements are an indication, will surely stimulate a rise in mortgage interest rates. As we've said before, even a rise of one percentage point lowers a buyer's purchasing power by about 10 percent. That's often the difference between affording a house in the $300,000 range versus the $200,000 range. Guiding your buyers through the wide range of home loans available to them, discussing qualifications and ensuring they are pre-approved for a home purchase loan are just some of the ways I can help them get an edge in a resurging housing market. Call me today to learn more about how I can assist your clients with purchasing their dream homes, and feel free to pass on my contact information to any buyers with questions. I am happy to assist you in closing more home sales!