Weekly Mortgage and Real Estate Report Week of July 25, 2016

ECONOMIC COMMENTARY
The Best of Both Worlds ReduxLast week we spoke of record highs for the stock markets and historic lows for interest rates — again. This week we go deeper with the main question–can these conditions continue into the future? Generally, stocks increase because of a stronger economy and a stronger economy typically will raise interest rates because of the increased threat of inflation. For example, it is not unusual for rates to rise on the same day that stocks are rallying and we have already seen rates rising from their lows set just about two weeks ago. But we must remember that we are citing normal trends and it has been a long time since we have witnessed anything normal in our economy.

As we look back, we can see that our stock market has recovered dramatically since the depths of the recession. And one of the conditions present during this long recovery period has been record low rates. Certainly, these low rates have presented favorable conditions for investing in the stock market, since there were virtually no returns for leaving money sitting in a bank. Over time, the stock market’s recovery was dramatic, but the economy’s recovery was anything but dramatic. The economy’s recovery could be best described “as slow and steady.”

This slow and steady recovery kept rates low for a very long time. It was expected that this was the year that rates started back up and the Federal Reserve Board’s move to raise short term rates in December of last year increased those expectations. The stock market’s progress was thus halted, at least partially because of this expectation of higher rates. However, as the year came to a close, the economy slowed to a crawl and negative foreign news dominated the headlines during the first part of 2016. Thus, when the Fed meets this week, few are expecting another hike in short-term rates. Will rates continue to stay low while stocks shine? The markets will be watching the Fed’s statement — especially for any inkling regarding a strengthening economy on the way.

REAL ESTATE NEWS
  According to MGIC Connects’ infographic — Look Who’s Buying Her First Home! — single women are the next largest home buying group after married couples. Whereas married couples hold the largest home buying position with 54%, single women come in second with 18%, followed by unmarried couples with 15%, single men with 11% and other with 2%. And the statistics are showing that it only goes up from there, according to MGIC. About 45% of Millennial women ages 18 to 24 are enrolled in college, compared to 38% of men in that same category, according to data from Pew Research Center. Also, about 38% of Millennial women ages 25 to 32 have a bachelor’s degree, compared to 31% of men in that category. That being said, about 36% of single women live at home with their parents or relatives, according to Pew Research Center. That is at its highest level since 1940. The median age of single women homebuyers is 32 years old, according to the National Association of Realtors’ 2015 Profile Buyers & Sellers. The median income for single women first-time homebuyers is $49,000. Whereas single women may be a growing force, homes owned by single men have a 10% greater value, and appreciate 16% more than homes owned by single women, according to an analysis released by RealtyTrac, a source for comprehensive housing data. Source: HousingWireBritain’s vote to exit the European Union will likely have a long-term impact on the world economy, but in the short-term, U.S. real estate could be flooded with investors flocking to the U.S. as a safe haven, pushing up the dollar and sending down interest rates. “Demand for U.S. real estate could rise,” says NAR Chief Economist Lawrence Yun. On the commercial side, global corporations could show additional interest in U.S. real estate as they come to see the U.K. as a less certain place to set up or maintain their businesses. Yun adds, “especially in London, as it becomes a less attractive place to conduct global business.” While a rise in the dollar could hurt U.S. exports, it’s also expected to put downward pressure on interest rates for home loans. In the long run, though, the uncertainty stemming from the vote could cause broad global weakening, which would hurt jobs, income, and consumer confidence. That would be a net-negative for U.S. real estate, even if it sees gains in the short-term. Source: Realtor® Magazine

Now outnumbered by Millennials, Baby Boomers and others aged 55 and older nonetheless may be competing with their younger counterparts for the same pool of rental housing. Freddie Mac’s first-ever survey of housing plans among those born before 1961 reveals an inclination toward renting over owning. Freddie’s 55+ Survey shows an estimated six million homeowners, and nearly as many renters, prefer to move again and rent at some point. Of those that expect to move again, over five million indicate they are likely to rent by 2020. More to the point, they expect to do so economically. Seventy-nine percent of 55-plus renters, and 83% of 55-plus homeowners who expect to rent their next home, believe their next home will cost the same as or less than their current one. That belief may clash with reality sooner or later. “When a population this large expects to move into less expensive rental housing, we have to expect it will create significant new pressure on both the supply and cost of existing affordable rental housing,” says David Brickman, EVP with Freddie Mac Multifamily. Source: The GlobeSt

Weekly Mortgage and Real Estate Report – Week of July 18, 2016

ECONOMIC COMMENTARY
Brexit? Smexit! Stocks Hit RecordsJust over two weeks removed from the Brexit vote, our stock market reached record highs. The S&P rallied to a record on Monday of last week and the Dow followed by hitting its record on Tuesday. Even more importantly, this dramatic bounce back from the lows recorded after the Brexit vote has come with rates not rising much from the lows they hit post-Brexit. In other words, we are back to the “best of both worlds” scenario with record low rates and record high stock prices.

The next question is–how long can this euphoria last? While there are many indicators which could supply us with evidence with regard to the stock market, one of the most important indicators is occurring right now. Companies are now reporting profits for the second quarter. One reason the stock market has stagnated in the past year is the fact that corporate profit growth has slowed down. Thus, the market analysts will be watching these profit releases even more carefully than usual.

With regard to our record low interest rates, it will be interesting to see if the good rate news will continue if the stock market continues the rally. Certainly, these low rates can boost stocks, but if stocks keep rising, this could put upward pressure on rates — a process which has already started. If the economy keeps humming along in spite of the situation overseas, we could also see the Federal Reserve considering another rate increase. All in all, it could be a very interesting summer as consumers rush to take advantage of the most recent sale on the cost of money.

REAL ESTATE NEWS
  Many renters would be better off buying a home than continuing to pay steep rental costs, finds a new study. The monthly payment on a median priced home is more affordable than the monthly fair market rent on a three-bedroom property in 76 percent of the U.S. counties, according to RealtyTrac’s Residential Rental Property Analysis, which encompassed 461 counties nationwide with populations of at least 100,000. Overall, Researchers found that fair market rents represented 28 percent of the estimated median household income, while monthly house payments on a median-priced home – which included a 10 percent down payment and property taxes, home insurance, and mortgage insurance – represented 24 percent of the estimated median income. “From a purely affordability standpoint, renters who have saved enough to make a 10% down payment are better off buying in the majority of markets across the country,” said Daren Blomquist, vice president at RealtyTrac. Of the 461 counties analyzed, 351 had house payments on a median-priced home in the first quarter of this year that was lower than fair market rents on a three-bedroom home. Source: RealtyTrac Note: This study did not necessarily take into account the fact that a portion of the mortgage payment goes to reduce the principal on the loan, building equity for the homeowner–while the entire rent payment goes to the landlord. Want to see how principal reduction, tax benefits and inflation affects the comparison? Contact us for an example–and a free individual analysis.Using a drone to capture listing photos and videos or inspect properties is about to become significantly easier now that the federal government has finalized its long-awaited regulations over the commercial use of unmanned aerial vehicles. The final rule issued by the Federal Aviation Administration paves the way for people who obtain a remote pilot certificate to operate UAVs that weigh less than 55 pounds, as long as the aircraft remains within visual line-of-sight. Earning the certificate will involve passing a test of aeronautical knowledge at an FAA-approved testing center — but it will not require applicants to have formal flight training. The FAA has, until now, required people wishing to operate drones commercially to obtain a so-called Section 333 waiver, and the agency has limited those waivers to people with a pilot’s license. That constraint has stood in the way of real estate professionals and others wishing to use drones in their businesses, despite the growing availability and decreasing cost of lightweight, remote-controlled aircraft equipped with cameras.Source: Realtor® Magazine

White Americans no longer account for the majority in hundreds of counties across the U.S., a trend transforming America’s social and political landscape as Latinos, Asians and blacks outpace white population growth, according to new census figures. The new figures point to a widening racial generation gap. While three-quarters of Americans age 55 and older are white, just 56% of those 18 to 34 are white, and only slightly more than half of minors are white, according to William Frey, a Brookings Institution demographer. These shifts will shape who wins this year’s elections, because in several battleground states, including Florida, Nevada and New Mexico, the racial generation gap is even wider than in the rest of the country. As of July 2015, the Asian population had grown 3.4% over the prior year while the Hispanic population rose 2.2% and the black population increased 1.3%. The non-Hispanic white population grew 0.1% during that time. Source: The Wall Street Journal

Weekly Mortgage and Real Estate Report – Week of July 11, 2016

ECONOMIC COMMENTARY
Stocks, Rates and Jobs DataBrexit? No problem for our Teflon stock market. It took only a few days for our stock market to recover from the Brexit shock. We talked previously as to how resilient our markets have been. The next question: Will the markets use the momentum from this recovery to move past the levels we have seen for over a year?

Meanwhile, we ended last week’s commentary by referring to the hope that “rates stay low.” When we look back at that statement, it is almost laughable. Rates were low before they came down even further in response to Brexit. In perspective, from 1971 to 2008, a period of 37 years, the Freddie Mac rate survey never showed 30-year fixed rates below 5.0%, with the average closer to 7.0%. Today’s rates are close to half of this average rate. So we perhaps should say, “if rates stay ridiculously low.”

This week we had economic news which finally took some attention away from Brexit. June’s job numbers came in well above expectations, with 280,000 jobs added for the month. Ordinarily this strong jobs report would cause rates to surge higher, but when you look at the numbers in perspective, they were not quite as strong as they appear because it was a bounce back from virtually no job growth the previous month and the unemployment rate ticked up a bit to 4.9%. A higher unemployment rate at the same time that we had major jobs growth means that more Americans have reentered the job market, which is actually a good long-term sign. The bottom line? For now, the job market remains strong, but the long-term effects of Brexit have not been felt. Thus the markets are still expecting no action with regard to the Federal Reserve raising rates when they meet in a few weeks.

REAL ESTATE NEWS
 In a seller’s market, home buyers need to be willing and able to act fast to snag the home they want. This summer, areas across the country are facing a limited number of homes for sale. Realtor.com® offers up a cheat sheet for surviving a seller’s market.

  • Be on call. “If you’re only looking now and then when it’s convenient, you’re probably wasting your time,” says James Malmberg, a real estate professional in Sherman Oaks, Calif. He suggests treating house hunting like job hunting. If someone calls with a lead, follow up promptly to gauge whether it could be a good fit and don’t linger.
  • Bring the paperwork. To be taken seriously, buyers would be wise to get a mortgage pre-approval letter as well as a “proof of funds” form from their bank to show they have enough to cover a down payment. They’ll be able to act quicker when they do find the right house.
  • Limit the contingencies. In a seller’s market, buyers may need to drop some of the contingencies to score the house. Sellers prefer the fewest number of hurdles to closing as possible. If your buyers come in with several contingencies — such as “if” they secure financing — the sellers are more inclined to bypass their offer and take another with less hassle. Also, “don’t waste your time lowballing a seller,” advises Sean Kelley, a real estate professional with Howard Hannah in Pittsburgh, Pa. “Always put in an aggressive offer.”
  • Cast a wide net. Search for homes outside prime locations if faced with limited or high-priced choices. Buyers need to carefully consider what they’re willing to compromise on. “Sometimes properties sit, even in a seller’s market, because of a problem that is scaring other buyers away,” such as some renovation work that may need to be done, Malmberg says. Those “flaws,” however, might not be a big deal to your buyers. “Finding a house this way can also cut down on the amount of competition you will face,” Malmberg adds. Source: realtor.com

Millennial home ownership levels may still be low for now, but that is expected to change in three years. Fifty-three percent of nearly 6,000 millennial renters, age 18 to 34, say they expect to buy a home, but plan to wait until after 2018, according to Apartment List’s Apartment List Renter Confidence Survey. Only 25 percent of those surveyed say they expect to buy a home in the next two years. Age and marital status will play a big role on when they jump into home ownership, the survey found. Older millennials, those age 25 to 34, say they plan to buy sooner than younger millennials, age 18 to 24: 54 percent of older millennials plan to buy within the next three years compared to only 37 percent of younger millennials. What’s more, 52 percent of married millennials plan to buy within the next three years compared to 41 percent of unmarried millennials. Millennials earning between $30,000 and $60,000 plan to buy at a 15 percent higher rate than those making less than $30,000, and those making over $60,000 have a 25 percent higher rate, the survey shows. “Millennials are projected to be larger than the boomer generation this year, and currently only 34.6 percent of Americans under age 35 are home owners,” says Andrew Woo, data scientist at Apartment List. “While millennial home ownership rates are low today, our study found that nearly 3 out of 4 millennial renters (74%) plan to buy a home in the future. … The future housing decisions of millennials will have a major impact on the economy.” Source: Apartment List

Weekly Mortgage and Real Estate Report – Week of July 4, 2016

ECONOMIC COMMENTARY
Brexit Reverberations
The United Kingdom’s vote was certainly felt by the markets. Stock markets around the world plummeted, oil prices moved lower and interest rates fell to record low territory. These low rates are spurring another round of refinancing across the land and these rates are expected to spur home sales as well. Meanwhile, as we mentioned previously, there is much that will have to play out before we see what the real long-term effects will be with regard to the move of the UK out of the European Union. Our stock market seems to have realized this fact as it has already recovered the ground lost.For example, now there is a Regrexit movement which calls for a “do over” referendum. If that happens, the markets may breathe a sigh of relief, but there still will be an air of uncertainty. For example, if Regrexit moves forward, would Prime Minister Cameron withdraw or delay his resignation? Will the Brexit vote stir other countries to act? The timing and format of the exit is certainly up in the air. From our point of view, the biggest question market watchers are asking is — how will the issues in Europe affect our economy?

We have important economic data coming out this week. As important as the job report is-we must keep in mind that the data covers a period which is mostly before the Brexit vote. Nevertheless, it is an important report, especially considering how weak last month’s employment report was. Analysts will be looking at whether the numbers bounce back and if May’s jobs numbers are revised upward. In light of the initial reaction to the Brexit vote, any spark of good news will be helpful. Our stock market has already experienced a great post-Brexit rally and moderate-to-strong employment growth could continue to bolster stocks as long as rates stay low.

REAL ESTATE NEWS
 Brexit happened. And one of the biggest, and most immediate effects on everyday Americans is how it will change interest rates on home loans. Greg McBride, Chief Financial Analyst at Bankrate, said rates could sink to record lows in the coming weeks. “If you’re a borrower, don’t wait to lock your rate,” he said, “as this opportunity may not last long.” They’ve already hit rock bottom this year. In the past month alone, 30-year fixed-rates on home loans have hovered around 3.7 percent, nearly a three-year low. Britain’s vote to leave the European Union is expected to drive rates even lower. Rates have been about 17 percent lower than the median of this decade. However, McBride said his long-term outlook does not change with the Brexit vote. He still estimates a rebound from ultra-low rates by year’s end. Mortgage Bankers Association Chief Economist Michael Fratantoni forecast a rate of 4.8 percent by December 2017. That would be the highest rate since 2009, and a 30 percent boost from current levels. By the end of 2016, Fratantoni expects rates to reach 4 percent. He noted that he’s turned his estimates more conservative in recent months, but predicts an increase nevertheless. That could change with the Brexit referendum passing, however. He noted that Treasury rates had already dropped about 20 basis points the morning after the vote. “At this point, it is unclear whether this will just be a short term disruption, or whether it will have a longer-term impact,” Fratantoni said. “Our best guess at this point is that the impact on the residential real estate sector will be to keep rates on home loans lower for longer, likely leading to another pickup in refinance activity.” Source: The Washington PostAmericans ranked real estate as the best long-term investment, even over stocks and gold, according to a recent Gallup Poll of about 1,000 U.S. adults. Real estate has been the top investment choice for the past two years, and its lead is increasing over four other popular investment choices. Thirty-five percent of Americans selected real estate as their top investment choice compared to 22 percent for stocks and mutual funds; 17 percent for gold; 15 percent for savings accounts/CDs; and 7 percent for bonds. By comparison, 34 percent of Americans said gold was their top long-term investment choice in 2011 while 19 percent said real estate.  “As the average sale price of new homes in the U.S. increased from $259,300 in August 2011 to $348,900 in February of this year, the percentage of Americans picking real estate as the best long-term investment almost doubled,” according to Gallup. Furthermore, renters (32%) and home owners (34%) are about equally as likely to choose real estate as their top long-term investment choice. Source: Gallup.comFreddie Mac, McLean, Va., said three out of four homeowners born before 1961 are confident they will have a financially comfortable retirement. The company’s 55+ Survey of housing perceptions and preferences of Americans over the age of 55 also found that the majority of homeowners in this age group were very satisfied with their homes, their communities and their quality of life. Consistent majorities also said homeownership makes financial sense at almost every stage of adult life, whether or not a person is married or has children. “Homeownership works,” said Dave Lowman, executive vice president of Single-Family Business with Freddie Mac. “The American Dream delivered greater financial stability and satisfaction to the homeowners who lived through every recession since the 1970s, including the housing crisis of 2008.” The survey also noted while many over age 55 would prefer to age in their current home, nearly 40 percent said they would prefer to move at least one more time and 70 percent of those said they are likely to purchase their next home. Lowman said this willingness to purchase homes could create “significant opportunities and challenges” for the industry in years to come. “The decisions the nation’s Baby Boomers and other older homeowners make will have an enormous impact on the demand for housing and new credit for the foreseeable future,” Lowman said. Source: Mortgage Bankers Association