Weekly Mortgage and Real Estate Report – Week of May 30, 2016

The Times They Are a ChangingAn economic commentary that starts out with a quote from Bob Dylan? Basically, it is not enough to say that we have another jobs report coming up and it is very important. True, any jobs report which comes out just before a meeting of the Federal Reserve Board’s Open Market Committee is going be seen as important. On the other hand, with at least this report, two factors have changed which give us a different perspective regarding this particular jobs data. What are these factors?

First, the minutes of the last meeting of the Open Market Committee were recently released, and the participants indicated that a rate increase was possible at the next meeting which takes place in two weeks. Many had predicted the Fed would hold off on raising rates for now. Secondly, we had an uptick in consumer inflation. One thing keeping rates low was the threat of deflation and the plunge in oil prices witnessed late last year became the focus of these concerns. Now oil prices are firming and, while inflation is not raging ahead, the fear of deflation is fading.

This brings a new perspective to the jobs numbers. While there are some temporary factors in play, such as a major strike, a strong jobs report could certainly make a June rate increase more certain. On the other hand, keep in mind that the Fed controls short-term rates directly, and longer-term rates do not necessarily move in tandem with shorter-term rates. We witnessed this phenomenon when the Fed raised rates late last year and rates on home loans actually fell. Though, we should not expect rates to stay this low if the Fed is actually worried about inflation starting to heat up. As we said, the times they are a changing.

 A major credit reporting agency says it will soon take into account homeowner association fees. Home owners who are late on payments may soon see the effect on their credit score. Sperlonga, a credit data aggregator, is the first company to provide HOA payment and account status data to Equifax, which is one of the three major credit-reporting agencies. A full rollout of the new HOA reporting to Equifax will go live in October. Homeowner associations and property management companies collect about $70 billion in HOA payments yearly among at least 333,000 community associations, according to the Community Association Institute. “Until now, HOA payments have gone largely unreported to the national credit-reporting agencies,” says Matt Martin, chairman and founder of Sperlonga. “Our service will help elevate association payments to the same level of importance as the consumer’s other financial obligations like home loans, auto loans, and credit card payments. Property owners that pay HOA fees on time should begin to see the similar impact [on] their credit reports as they would with other payment obligations traditionally found in a credit report.” For property owners who are late or delinquent on their HOA payments, they will likely see a negative effect on their credit score, just as if they had missed a loan payment. “Introducing new sources of data beyond what has traditionally been found on credit files can provide additional insight into a consumer’s financial behavior and help deliver expanded credit access,” says Mike Gardner, senior vice president at Equifax. Source: Credit.comWith some homeowners flush again with equity–and more homeowners regaining previously lost equity–key indicators of remodeling activity suggest strongly accelerating growth through the end of 2016 and into 2017. The Joint Center for Housing Studies of Harvard University, Cambridge, Mass., said its Leading Indicator of Remodeling Activity projects that home remodeling spending will increase by 8.6 percent by the end of 2016 and then further accelerate to 9.7 percent by the first quarter of next year. Chris Herbert, managing director of the Joint Center, said annual spending for remodeling and repairs is expected to reach nearly $325 billion nationally by early next year. “Ongoing gains in home prices and sales are encouraging more homeowners to pursue larger-scale improvement projects this year, compared to last, with permitted projects climbing at a good pace,” he said. Meanwhile, the National Association of Home Builders said its survey of home remodelers suggests whole house remodels and additions are regaining market share. The survey by NAHB Remodelers said whole house remodels increased by 10 percent in 2015 from two years ago; room additions increased by 12 percent; finished basements increased by 8 percent; and bathroom additions increased by 7 percent. “While bathroom and kitchen remodels remain the most common renovations, basements, whole house remodels and both large and small scale additions are returning to levels not seen since prior to the downturn,” said 2016 NAHB Remodelers Chair Tim Shigley. “Clients want to add more space.” Source: The Mortgage Bankers Association

New quarterly numbers from the National Association of Realtors (NAR) show the median existing single-family home price increased in 87 percent of the metro markets analyzed by the trade group. NAR found 154 out of 178 metro areas recorded gains based on closed sales in the first quarter, compared with the first quarter of 2015, while 24 areas (13 percent) recorded lower median prices from a year earlier. Among the markets experiencing gains, 28 metro areas recorded double-digit increases. However, this is below the 30 metro areas recording such gains in the fourth quarter of 2015, and it is far below the 51 metro areas experiencing double-digit increases in the first quarter of last year. “The solid run of sustained job creation and attractive interest rates below four percent spurred steady demand for home purchases in many local markets,” said NAR Chief Economist Lawrence Yun. “Unfortunately, sales were somewhat subdued by supply and demand imbalances and broadly rising prices above wage growth.” The national median existing single-family home price in the first quarter was $217,600, up 6.3 percent from the first quarter of 2015 ($204,700), according to NAR, while the median price during the fourth quarter of 2015 increased 6.7 percent from the fourth quarter of 2014. Source: NAR


Weekly Mortgage and Real Estate Report – Week of May 23, 2016

Is War the New Normal?


This weekend is Memorial Day and for many it is the start of the summer and vacation season. There will be many thousands of picnics and visits to the beach all across America. There will be reminders that the real meaning of Memorial Day is to recognize those who were killed serving our country in the many wars we have fought throughout our history.

Certainly as the world has evolved, so has the definition of war. In the past, wars had a defined start date and ending date. The impact on the economy was great as our defense spending went up significantly during war time and when wars ended, we had members of our armed services returning home and starting families. On the other hand, today, we seem to be in a state of war which is threatening to be perpetual. And these wars are not just by land, sea and air–but in the cyber world as well.

How does a perpetual war with no definitive start date or ending date affect us today? Certainly, it is no less costly with regard to defense spending. But there are psychological costs to a continuing war as well, especially one in which combatants change over time. This type of war requires innovation, patience and perseverance. It can also be taxing to our economy as resources are spread thin –resources that could be put to use for many more positive purposes. Our current period of economic stagnation may not only be a result of the recovery from the Great Recession, but affected by this new normal we face as well.

A recent Gallup survey has found that American renters are almost twice as likely to worry about not being able to pay their housing costs as homeowners. Overall 33 percent of Americans are very or moderately worried about paying their rent, home loan or other housing costs. However, renters are the ones most often awake at night, fretting over their finances. Sixty-three percent of renters earning an annual wage of less than $30,000 are very or moderately worried about paying for their accommodation compared to 47 percent of homeowners at the same income level. Renters worry more than homeowners at all income levels, even those in the upper-income brackets. Twenty-nine percent of those taking home $75,000 or more are also concerned about paying for the roof above their heads, compared to 15 percent of homeowners. Gallup explained that homeowners may be less worried than renters as they are likely to have more stable housing payments. They would only experience minor year-to-year increases in property taxes and insurance while renters would probably experience more significant increases. Additionally, rental payments generally reflect current real estate market conditions whereas a homeowner’s housing payments would reflect values of the time the home was purchased. Source: ForbesSteady job growth, low rates, and pent-up demand is prompting an increase in the demand for new single-family homes, and homebuilders say they’re ready to build them. That said, builders say they’re being met with plenty of headwinds that could subdue some construction, such as a shortage of lots and labor and tight access to construction and development loans. “Builders remain cautiously optimistic about market conditions,” says Robert Dietz, chief economist of the National Association of Home Builders, in a Spring Construction Forecast Webinar on Thursday. “2016 should be the first year since the Great Recession in which the growth rate for single-family production exceeds that of multifamily. And we see single-family growth accelerating in 2017 as the supply side chain mends and we can expand production.” NAHB forecasters predict that single-family production will see a 14 percent uptick this year to 812,000 units, and then rise another 19 percent to 964,000 units in 2017. Single-family starts will reach 64 percent of historically normal levels by the fourth quarter of this year and rise to 77 percent of normal by the end of 2017, NAHB reports. By the end of 2017, the top 20 percent of the largest states will reach at least 102 percent of normal single-family production levels, compared to the bottom 20 percent, which likely will still remain below 65 percent, NAHB reports. “Consumer surveys suggest the ultimate goal of millennials is to purchase a single-family home in the suburbs,” says Dietz. “We see growth for single-family looking ahead. The recovery continues and is dictated by demand side conditions and supply side headwinds.” Source: National Association of Home Builders

Some first-time buyers are finding ways to cover the costs of homeownership by purchasing a multi-unit home that can accommodate a mother-in-law apartment or another rental unit. The added money can then help them cover their housing payment. “Renters like the privacy and homey feel of an accessory dwelling over renting a room in an apartment complex,” notes a recent article at RISMedia “Thanks to this demand, savvy buyers know they can rely on a steady stream of income from a rental unit. Many homeowners use this money source as a way to save for retirement or pay down their loan.” What’s more, at resale, buyers stand to net more for their multi-unit home. According to an article in the New York Times, 15 percent of buyers say they are willing to pay extra for a home with an accessory dwelling. These buyers say they want the extra space for a tenant, relative (multi-generational households are growing), or for a detached home office. Taxes can also work to the advantage of multi-unit home owners. For example, owners may be able to deduct expenses from their taxes like repairs, maintenance, insurance, supplies, and travel. Still, buyers of these properties likely will need to expect to pay more. Multi-unit homes tend to sell at a premium. Some fully permitted units fetch up to 60 percent more than single dwelling homes, according to some surveys. Also, buyers need to carefully consider whether they truly are ready to step into a landlord-type role and the responsibilities that can hold.Source: RISMedia 

Weekly Mortgage and Real Estate Blog – May 16, 2016

The New Conundrum

How can jobs flourish without the economy responding? For years after the Great Recession, we were told that if we added jobs, consumers will start to spend on homes, furniture and cars and the economy will start flourishing. Well, since the Great Recession, we have created around 10 million jobs, which erases the job losses caused during the recession. Yet, the economy is still muddling along at less than a 2% growth rate. How can that be?

For one thing, even though we have created more jobs than the economy lost during the recession, when you look at the net jobs created during the past decade, we have not created enough new jobs to accommodate population growth. The U.S. population has been growing at a rate of between 2 to 3 million per year. Also, the jobs created are not necessarily the highest paying jobs, which makes a certain portion of the population “under-employed.”

What does this mean? As good as the headline numbers sound, it means that from a labor perspective, we are not fully recovered from the recession. Like the real estate sector, the recovery has been uneven. We are much closer than we were, but not all the way there. The good news? Because we have some distance to go, interest rates remain low and this means we are still applying the stimulus. Low interest rates increase the possibility that our real estate and the job markets are more likely to continue their recovery.

 Nearly one in five consumers have a FICO credit score that is 800 or higher. The percentage has slightly risen from 19.9 percent currently from 19.6 percent six months earlier, according to the Fair Isaac Corp. As such, fewer consumers have credit scores below 550, a steady decline that has been appearing since late 2009. Since Fair Isaac Corp. started tracking in October 2005, the national FICO score is at an all-time high at 695. The improvement in credit scores does seem to be showing some signs of leveling off, however. FICO scores are one of three key metrics lenders use to evaluate prospective borrowers and determine rates on home loans. The rates borrowers get between the highest and lowest acceptable FICO scores can vary by more than 2.4 percent. Source: Real Estate Economy Watch  Note: Want more information on how to improve your credit score?  Contact us for free special report entitled — Increase Your Credit Score Now.New figures from the National Association of Realtors reveals that purchases of vacation homes in 2015 fell by 18.5 per cent. The drop to an estimated 920,000 followed the 2014 peak of 1.13 million and covered existing and new homes. Despite the drop, vacation home sales were still at their second highest level since 2006. “Baby boomers at or near retirement continue to propel the demand for second homes, although headwinds softened the overall volume of vacation sales last year,” said NAR chief economist Lawrence Yun. Meanwhile, investment home sales increased by 7 per cent to an estimated 1.09 million in 2015. Owner-occupied purchases jumped 15.9 per cent to 3.74 million last year, from 3.23 million in 2014. The median vacation home price was $192,000, up 28.0 per cent from $150,000 in 2014. The median investment-home sales price was $143,500, up 15.3 percent from $124,500 a year ago. Source: NAR

Studies are sounding the alarm on the greater need for more affordable housing for U.S. seniors. For example, a recent study by the rental advocacy group Make Room reports that the percentage of seniors who are in need of affordable housing is climbing faster than the increase in the nation’s elderly population. The study notes that between 2005 and 2014, the senior population – those aged 65 or older – rose 25 percent (from 22.5 million to 28.1 million). Also, the number of seniors who are paying more than half of their household income – before taxes – toward rent and utilities surged by 34 percent (from 1.4 million to 1.8 million), according to Make Room’s analysis. Many senior communities across the country are at capacity and are even maintaining lengthy wait lists of interested residents. “A lot more could be done,” says Daryl Carter, chairman and CEO of Avanath Capital Management, an investment firm. “We should be able to triple the $6.5 billion that we currently spend on the tax credit program. There’s just simply not enough assistance to address the affordable needs we have in this country.” Source: National Real Estate Investor

Weekly Mortgage and Real Estate Report – Week of May 9, 2016

Spotlight on Jobs


Just one week after the Federal Reserve Board decided not to raise rates for the first time in 2016, the all-important jobs report was released. The Fed’s statement regarding the industry was a mixed message. On the positive side of the coin, the statement indicated that international factors were not as grave a threat to the economy as feared earlier in the year. On the other hand, the Fed acknowledged that economic growth continues to be weak.

This weakness was confirmed the last week in April, as the first estimate for economic growth for the initial quarter of 2016 came in below consensus estimates at 0.5%. Even though this number will likely be revised upward in the coming months, it is clear that the economy is as weak as the Fed has indicated. Thus far this year, the greatest areas of strength the economy has been displaying is within the areas of the creation of jobs and the real estate sector.

Which brings us back to the employment report. On Friday, the Labor Department indicated that the economy had produced 160,000 jobs in April, less than expected. However, the average hours worked was higher and so were wages. The unemployment rate came in unchanged at 5.0%. What does this mean? The economy has produced approximately 800,000 jobs in the first four months of 2016, which is pretty impressive. The best chance for a revival of economic growth is continued growth in consumer spending and to do that, we need to create jobs. Thus far this year, we are doing just that; however, we will want to make sure that the slower economy will not filter down to employment growth.


Deciding what to do with the house can be a major quandary for couples getting a divorce, particularly when they share a home loan. When there is equity in the home, each spouse typically wants to take a share as part of the settlement agreement. But if one person wants to remain in the home, rather than sell it and split any profit, then that spouse will likely have to qualify for a home loan on his or her own. Spouses who choose to stay may have to refinance their loan in order to cash out enough equity to pay off an ex. But even a spouse who has the financial resources for a buyout without drawing on home equity will still probably have to get a loan in his or her name. “The person walking away wants their share of the equity, but also wants their name off the loan as soon as possible,” said Kathleen B. Connell, a family law lawyer and lecturer in Atlanta. The obligation can tie up that person’s credit, and “if there’s a default,” Ms. Connell added, “the lender is going to sue them both, regardless of what the divorce agreement says.” One of the first questions to be answered, then, is whether a spouse who wants to keep the house or apartment can qualify for a home loan independently. And if so, would that spouse be able to afford all the other expenses associated with living in that home? “The really important thing for both parties is to flesh out all of their expenses — how much it really costs,” said Cynthia Thompson, the founder of Divorce Planning Solutions, a financial planning firm in White Plains, N.Y. Ideally, this preparation should happen early on in the divorce process — too often, Ms. Thompson said, people are “arguing, litigating, fighting, having no idea of the whole picture.” Ms. Thompson frequently advises her clients to find out how much loan they can qualify for while divorce negotiations are ongoing. This information can be key: If they discover, for example, that cashing out equity will raise the loan to an unaffordable level, they might instead seek to divide some other asset differently to compensate for the equity share. “The important point to be made is that working with a qualified mortgage professional during the settlement process can help identify many of the hurdles,” she said. Source: The New York Times Contact us for a free article that explains  what the options are for homes which are part of a divorce. Purchasing a leisure residence is no longer just for the rich and famous. According to the National Association of Realtors®, vacation home sales topped out at 920,000 in 2015. As the economy improves, incomes are increasing and so are real estate values. Buying a second home is again viewed as a solid investment for the average family. Some buyers pay cash, but others finance their new vacation spot with a new loan, either on the new home or a home they already own. Today’s marketplace offers a number of different loans and strategies to purchase that vacation, weekend, or otherwise part-time home. The good news is — a second home is often within reach for the average homeowner. Source: The Mortgage Reports

Insurance firm Travelers has revealed the most common and costliest claims made by homeowners. The report, based on US home insurance claims from 2009-2015, shows that exterior wind damage is the most frequent cause of a claim (25 per cent) followed by non-weather related water damage (19 per cent), hail (15 per cent), weather-related water damage (11 per cent) and theft (6 per cent). “Any number of things can go wrong with a home, and it’s impossible to predict them all,” said Pat Gee, Senior Vice President, Personal Insurance Claim, Travelers. “But if consumers focus on these particularly common risks and take preventive steps and perform routine maintenance, it may help lessen the likelihood of damage.” Fire causes the most expensive claims and were often caused by appliances being misused or failing, electrical problems or cooking. Source: Mortgage Professional America

Weekly Mortgage and Real Estate Report – Week of May 2, 2016

The Teflon Market Revisited


The Teflon market has struck again. No matter how deep the correction, the stock market has bounced back from adversity again and again. Consider this–in February of 2009 the Dow was below 8,000, a drop of around 50% during the financial crisis. In October of 2013, it was near 16,000, higher than it was before the crisis started. The recent rebound may not have been as impressive, but the Dow did drop from just over 18,300 in February of last year to just over 16,000 later in the year and back down to near 16,000 early this year.

It is just a few months later and the Dow crossed the 18,000 barrier again in mid-April. The rebound was not only sharp, but it was quick. We are not saying that the gains of stocks are miraculous, but certainly the resiliency of the markets is impressive. One reason for this impressive performance? Low interest rates. It is no coincidence that stocks did not perform well earlier this year when many thought rates were going up. Rates are now lower than expected and thus stocks are doing fine.

A coincidence or correlation? We may never know. However, we do know that the Federal Reserve Board is watching the economy carefully, and the number one economic indicator is right around the corner. This week we have the employment report. Large job gains could prompt the Fed to raise rates in June and, if that happens, stocks might lose some of their momentum. Only time will tell with regard to this scenario. For now, the Teflon market lives on with low interest rates leading the way.


Speakers at a recent meeting of lenders in Atlantic City, N.J., said they expected hundreds of thousands of first-time buyers to enter the housing market in the coming years, and talked about what lenders are doing to try to satisfy the coming demand for home loans. David Stevens, a former federal housing official who now leads the trade group, the Mortgage Bankers Association, said household formations will increase to about 1.6 million a year between 2015 and 2024, compared with the increase of 1.2 million a year between 2010 and 2014. Millennials and minorities will drive this demographic boom, with two-thirds of new household formations coming from minority groups, Stevens said at the conference. People form new households either by marriage or by moving out of Mom’s house (or both). These new households either rent apartments or houses or buy places of their own. The popular wisdom suggests they will become renters first. But Stevens believes ownership may soon come first, especially for those not saddled with student loans. If ownership doesn’t come first, then at least it will follow soon after an initial rental period, he predicts. “The homeownership rate will go up again,” he told the conference. “Younger renters want a home.” The ownership rate has plunged since the crisis of 2008. But in tandem, the rental sector has become tight and less affordable. Which means owning a home rather than leasing one is now a better option, in many places. Source: The Chicago TribuneWhen you and a spouse or partner apply together for a home loan, could you be leaving money on the table by paying too high an interest rate? New research from the Federal Reserve suggests the answer could be a costly yes when one individual has a much lower FICO credit score than the other. That’s because lenders generally are required to price loan applications based on the lower FICO score, not the higher. If you’ve got a 780 score — sterling credit on FICO’s 300 to 850 scale — but your partner has a sub-par 630 score, the lender will likely charge an interest rate keyed to your partner’s lower score. The so-called “minimum FICO” rule is followed by lenders and major investors such as Fannie Mae and Freddie Mac. The net result of this risk-based-pricing practice, according to researchers, is that large numbers of joint borrowers have essentially paid more than necessary for their loan during the past decade. Examining an unusually large and detailed database of nearly 604,000 conventional home loans from 2003 through 2015, economists found that “nearly 10 percent of prime borrowers who applied for their loans jointly could have lowered their interest rate at least one-eighth of one percentage point if the loan was applied for by the applicant with a higher credit score and an income high enough to qualify for the loan.” To avoid the minimum FICO rule, one of the partners must have sufficient income to qualify for the entire loan amount alone. Why would both apply if one could qualify for a lower rate? According to industry experts, many married and unmarried couples may feel a strong psychological need to have both names on the note, even though both could be on the legal title to the house without both being on the loans. Also if one partner has a low FICO, he or she would likely see an increase in the score as the couple makes regular monthly payments.Source: Ken Harney, The Nation’s Housing

Having a playroom for kids is becoming an increasingly important factor in young families’ home buying decisions, even more so than other traditional features, some real estate professionals say. Buyers today — especially millennial buyers — want everyone to have a private space of their own to decompress under one roof, and the bonus room/playroom outweighs a large yard in their buying decision,” Patty Blackwelder, a buyer’s agent with Twins Selling Real Estate in Northern Virginia, told MarketWatch. “The first item that seems to fall off the list is the large yard.” For listings that don’t have a playroom, buyers may be looking for where they could add one. For example, formal living rooms could be repurposed as a playroom. If buyers sacrifice yard size for such an amenity, they may turn to their agent to ask where the closest playground is. “What’s interesting is, given the choice of a large backyard or space inside for everyone, they will take the smaller backyard and space for everyone,” Blackwelder says. “Even if the house is on a main road, they will take that — as long as a playground is nearby.” Source: MarketWatch