Weekly Mortgage and Real Estate Report – Week of October 24, 2016

ECONOMIC COMMENTARY
Are Americans Addicted to Low Rates?You can’t read or watch the news and not view a story about some type of addiction in America — whether it is common substances such as caffeine, legal prescription drugs such as pain killers, or illicit drugs such as heroin. But today, we ask a question about addictions and our economy. Are we hooked on low interest rates? Perhaps we are using too strong a word to describe the situation, but it seems like we have gotten pretty used to historically low rates during our economy recovery.

Why do we think that we are getting too used to low rates? For one, every time there is talk of the Federal Reserve Board raising rates from these ridiculously low levels, the markets react significantly. Keep in mind that we are talking about raising rates slightly from close to zero. Of course, most Americans don’t really recognize the Fed’s Federal Funds Rate. But if you look at something they are familiar with, such as rates on home loans, we can see the issue more clearly. Rates on home loans averaged over 7.5% for a generation from 1980 until 2010, a period of 30 years. Now rates have averaged around 4.0% for the past few years.

What happens if rates move up in the future? Will people stop buying homes? If someone is paying 4.0% on their home loan, higher rates would make them more reticent to sell their home in the future unless there is a major life change such as marriage, relocation or retirement. And certainly, they would be more reticent to refinance as well. Thus, if rates are going to rise from these unbelievably low levels, they would have to rise gradually such as not to have a significant affect upon the economy. The Federal Reserve Board will have to be very cognizant of these possibilities as they consider their future moves.

REAL ESTATE NEWS
  Sellers may feel hesitant to reveal any minor problems with their home because they are afraid they’ll scare off buyers. But here’s a warning for sellers: They may land in legal trouble if they fail to disclose. “Most sellers think it is in their best interest to disclose as little as possible,” Rick Davis, a real estate attorney in Kansas, told realtor.com®. “I completely disagree with this sentiment. In the vast majority of cases, disclosing the additional information (especially if it is something that was previously repaired), will not cause a buyer to back out or ask for a price reduction.” Disclosure laws vary from state to state, and sometimes even on a local level. “In general, sellers should disclose any known facts about the physical condition of the property, existence of dangerous materials or conditions, lawsuits or pending matters that may affect the value of the property, and any other factors that may influence a buyer’s decision,” according to a recent article at realtor.com®. This includes disclosing issues that have been previously repaired, Davis says. Also, disclose any inspection reports. “It is much better to lose a buyer by clearly disclosing all known issues than it is to spend two years and tens of thousands of dollars in litigation,” says Adam Buck, a certified real estate specialist with the Frutkin Law Firm in Arizona. Rest assured, sellers won’t be put on the hook for failing to disclose issues that they didn’t know about. They should be careful not to make any guesses when prompted, particularly when it comes to the measurements of the home — one common problem area for disclosures. Source: Realtor.comOn average, Americans have about $150,506 of equity in their home, according to a new report by the Urban Institute, “How Much House Do Americans Really Own?” This amount is what’s left over after the debt of the home loan is subtracted from the home’s value. The Urban Institute notes that this number reflects the majority of Americans’ net worth, financial security, and economic future. Not surprisingly, older adults have the most wealth, since they’ve been typically paying longer on their home loans longer. Americans over the age of 60 hold 52 percent of all home equity in the country; those under 50 hold 23 percent; and owners under 40 owned 17 percent. “Home ownership is important to building wealth,” says Laurie Goodman, the report’s author. “This can be seen by the fact that housing wealth, while inequitably distributed, is still more equitably distributed than other types of wealth.” Home owners can borrow on the equity of their homes as home equity lines of credit, cash-out loans and reverse mortgages, the Urban Institute notes. The study also indicated that, of the 73 million owner-occupied housing units in the U.S., nearly 27 million households had the home completely paid off. Source: Credit.com

Developers are finding that buyers have a passion for higher ceilings, and they’re taking them beyond the standard eight-feet in luxury residences. More builders are now promoting ceiling heights of 11, 12, and even 20 feet. They’re finding that buyers are willing to pay a premium for the extra height too. Just how much? Realtor.com®’s research team found that raising ceiling height to 10 or 11 feet from the standard height of eight to nine feet led to an average 50 percent jump in average listing price per square foot. The highest premium was for ceilings between 12 and 15 feet, which saw an average 76 percent boost per square foot than units with standard heights. On the other hand, taller ceilings – higher than 15 feet – saw the smallest premium at 28 percent higher than standard ceilings. “The smaller the apartment, the [smaller] the impact of tall ceilings,” says Jonathan Miller, an appraiser in New York. But too tall can make apartments feel claustrophobic, he adds. Source: The Wall Street Journal

Weekly Mortgage and Real Estate Report – Week of October 17, 2016

ECONOMIC COMMENTARY
The Election’s Home StretchThere is now less than 30 days before the Presidential election. And as we predicted some time ago, the rhetoric has ratcheted up significantly. So much so, that many analysts are indicating that this is the most acrimonious race in history. No one should be surprised at all regarding these conclusions. And with the focus on ancillary issues, there is less focus upon the economy. For one, we are surprised about how little is being said about the economy–from housing issues to tax plans. Not to say that the candidates have not laid out plans, but they don’t seem to be the focal point of the election rhetoric.

Is this lack of focus affecting the markets? For one, the markets have been a bit more stable these past few months, as compared to the period from late 2015 through early 2016. There have been volatile days and weeks, but overall, the stock market has traded in a pretty tight range during this time. Are the markets looking past the election and will they just meander around until election day passes?

Not that all the markets have been stable. For one, oil prices have recovered well over 50% from their lows earlier in the year. It appears that some oil producing nations are serious about cutting production, and these agreements are fueling the increases, if you pardon the pun. Oil prices have risen before, only to come back down, and it remains to be seen where prices will go from here. Higher oil prices could be perceived by the Federal Reserve Board as an inflationary risk. Thus, the specter of higher oil prices could be one factor persuading the Fed to act on higher interest rates at their December meeting — again assuming that they will not act in November right before the election.

REAL ESTATE NEWS
  Consumers across all ages, income brackets, and education levels lack awareness about low-down-payment options, according to the National Association of Realtors®’ latest Housing Opportunities and Market Experience (HOME) survey of more than 2,700 Americans. Many are hesitant about buying a home right now, particularly young people, partially because they believe they must have a 20 percent down payment to purchase. However, the average median down payment for a first-time buyer has been 5 percent throughout the 35-year history of NAR’s Profile of Home Buyers and Sellers, the longest-running survey of national housing data. Yet fewer than 20 percent of consumers in the HOME survey believed a down payment of 10 percent or less would be enough to purchase. Respondents ages 65 and older (43 percent) as well as those younger than 35 (37 percent) were the most likely to believe they need more than 20 percent for a down payment. “It’s possible some of the hesitation about buying right now among young adults is from them not realizing there are financing options available that do not require a 20 percent down payment,” says NAR Chief Economist Lawrence Yun. Creditworthy prospective buyers should know that many lenders now offer safe, sustainable loans with as little as 3 percent down, and obtaining financing isn’t as difficult as it was in the immediate years after the downturn,” says NAR President Tom Salomone. Source: Realtor® Magazine Economic growth is poised to accelerate to 2.6 percent in the second half of the year, a rebound from the lackluster growth of 1.0 percent in the first half of 2016, according to Fannie Mae’s (FNMA/OTC) Economic & Strategic Research (ESR) Group’s September 2016 Economic and Housing Outlook. The ESR Group’s full-year 2016 forecast remains at 1.8 percent, consistent with their prior forecast. Consumer and government spending are expected to drive growth despite a cool down in consumer activity so far in the third quarter. At the same time, inventory investment and net exports are likely to drag on growth and nonresidential and residential investment are expected to be neutral for the year. “Consumers continue to carry the economy and the earnings slowdown in the August jobs report may be an aberration in the recently improving personal income growth trend,” said Fannie Mae Chief Economist Doug Duncan. “A bright spot for housing market activity is the strengthening of new home sales, which is significantly outperforming activity in recent years,” said Duncan, “The share of new home sales that are under construction or not started has climbed to nearly 70 percent, improving the outlook for single-family homebuilding.” Source: Fannie Mae

A trend that’s helped force U.S. home ownership to a 50-year low may finally be running out of steam. According to a new report from Zillow, a real estate and rental marketplace, incomes are now rising faster than home values for the first time since 2011. The data shows that home values have been growing at a 5 percent annual rate since the beginning of the year, outstripped by 2015’s income growth of 5.3 and 5.4 percent for family and non-family households respectively. “We’re finally seeing income growth that we haven’t had for quite some time,” said Svenja Gudell, Zillow’s chief economist. Yet, “it’s a combination of both,” she said, when asked in an interview about the effect on house prices themselves — “Even their present 5 percent growth rate is a slowdown from the early days of the recovery.” The Federal Reserve’s wage tracker has been ticking steadily higher in recent years, with some of America’s lowest paid workers enjoying a boost to their paychecks. Federal Reserve Chair Janet Yellen said in yesterday’s press conference that monetary policy makers expect wages to improve further in the months ahead, which could help to mend home ownership rates that recently hit their lowest levels since 1965. Source: Zillow

Weekly Mortgage and Real Estate Report – Week of October 10, 2016

ECONOMIC COMMENTARY
Employment Report AnalysisThe fact that the Federal Reserve Board did not raise interest rates at their last meeting made this week’s release of the job numbers for September very interesting. A weak, or even moderate report would have affirmed the Fed’s position. A very strong report makes the markets think that the Fed should have acted. One must remember that it is not the Fed that causes long-term interest rates to rise, but the market’s reaction to what the Fed is doing. If the markets feel the Fed is not reacting strongly enough regarding inflationary risks, then rates could rise even before the Fed acts.

When the numbers were released showing that 156,000 jobs were created in September, roughly in line with expectations, one might have surmised that this was the best case scenario. The report showed that there is still a significant number of jobs being created, but it was not strong enough to require the Fed to act, especially right before the election. Even the uptick in the unemployment rate from 4.9% to 5.0% was seen as moderate news, because the increase was caused by a rise in labor force participation. This means that more Americans are re-entering the job market.

Now that this report has been released, expect that the markets will be focusing more and more upon the coming Presidential election. Thus far the campaign certainly has provided much entertainment, but with the home stretch upon us, the markets’ focus will be on assessing each candidate with regard to their positions on a wide range of issues that might affect the economy. For example, the consensus from the industry is that neither candidate has made housing issues a focus, despite calls from the housing industry leaders to address several pressing problems within the sector. Eight years ago, housing was front-and-center during the campaign. Another sign of the changing times.

REAL ESTATE NEWS
  Set the asking price just below a round number – that’s the best technique for pricing a home for sale, according to new research published in the Journal of Housing Research. Researchers found that buyers are more drawn to a house priced “just below” at, say, $199,000 than to a house priced at a rounded number like $200,000. “Our study suggests that by using the just below pricing strategy sellers can price their home slightly higher without driving away potential buyers,” says Eli Beracha, one of the study’s authors. “As a result, they end up selling their house for more.” Indeed, researchers found that such a “just below” pricing strategy yields a selling price that is about 2.5 to 3 percent higher – or $5,000 to $6,000 more – on a $200,000 house compared with a rounded pricing listing strategy. Still, rounded priced homes usually have a shorter time on the market and a lower discount relative to listing price, researchers found. Yet, “sellers’ ability to set higher listing prices for properties using a ‘just below’ pricing strategy, outweighs the lower discount and shorter time on the market associated with similar rounded priced strategy homes,” researchers found. Source: BUILDEROwning a home is still very much part of the American Dream with 4 out of 5 respondents telling the National Association of Home Builders that it’s a priority. “The survey shows that most Americans believe that owning a home remains an integral part of the American Dream and that policymakers need to take active steps to encourage and protect homeownership,” said NAHB Chairman Ed Brady, a home builder and developer from Bloomington, Ill. A home was rated a good or excellent investment by 82 per cent of respondents and young Americans still consider home ownership to be important with 81 per cent wanting to buy a home. More than a third of respondents want to buy within 3 years and 46 per cent say now is a good time to buy, twice the number who say it is not. Source: NAMB

A number of factors can determine how many days a home stays on the market, such as the listing price, housing characteristics, and amenities. CoreLogic Director of Analysis Matt Cannon, found that public listing comments can affect how many days a home stays on the market after controlling for list price, geographic variations, and housing characteristics. “After all, public comments that listing agents provide contain additional information about the property amenities, property architecture and neighborhood information, among other things.” In the analysis, geographic area variations were controlled to better understand the specific impact of words from listing comments, with days on market and distressed sales excluded. The study found that properties with features such as “fenced backyard,” “open concept,” “natural light,” and “updated kitchen,” tended to sell quickly while word pairs such as “golf course,” “gourmet kitchen,” “ceramic tile,” and “granite countertop” attached to properties tended to increase the number of days a property stays on the market. The word “fence” appeared frequently among the top word pairs, indicating it is a top priority for buyers; meanwhile, homes listed as “single story” tended to sell more quickly, while “two story” had a tendency to increase the number of days a property stayed on the market. “It is not easy to figure out why properties with ‘gourmet kitchen’ stay on the market longer, but one possibility is that this luxury feature would lead to a higher property value,” he said. “Homes that have higher prices relative to their neighbors may have less demand than lower-priced, more affordable homes, and hence it takes a longer time to sell.” Source: The MReport

Weekly Mortgage and Real Estate Report – Week of October 3, 2016

ECONOMIC COMMENTARY
From Event to EventIf you were looking for a respite in the markets after the meeting of the Federal Reserve’s Open Market Committee, you would be disappointed. This week the jobs report for September is being released, the first big news of the last quarter of the year — though it is based upon third quarter numbers. Because the Federal Reserve lowered expectations of growth for the fourth quarter, these jobs numbers will be watched closely.

A strong employment sector has the potential to increase momentum for economic growth in the fourth quarter and would make an increase in interest rates by the Fed a virtual certainty in December. We continue to note that the Fed meeting in November is less likely to produce changes because of its proximity to the election. Speaking of the election, starting from the end of this week, we have two jobs reports, another meeting of the Fed and a Presidential Election scheduled within approximately 30 days.

Thus, the potential for volatility in all the markets, from equities to interest rates, is exceedingly high for the near future. And a strong jobs report this week will increase that potential, because of the specter of a rate increase to follow all of these events. Where these things will lead, is anyone’s guess. We suggest you hold on for the ride. If you have already purchased a home, you are likely enjoying your low rates and payments. For those who wait, again, we don’t know what the future will bring.

REAL ESTATE NEWS
  Wider credit opportunities are in store for home shoppers as Fannie Mae released 10.0, the 31st version of its automated credit decision engine named Desktop Underwriter or DU. The first enhancement is a newly automated credit decision process for borrowers with no-credit-scores, for which Fannie’s term is non-traditional credit. The second is trended credit data being added to your residential credit report, giving more consideration to borrowers who pay their credit card balances off each month. In the past, if mortgage applicants did not have enough traditional credit to generate credit scores, lenders could still manually underwrite and decide on those would-be borrowers. As a practical matter, few lenders do any manual underwriting for fear of missing something that the automated process detects and having to buy the loan back later from Fannie Mae for not meeting underwriting standards. “You needed at least one score for a traditional Fannie Mae DU approval,” said Mindy Armstrong, Fannie Mae’s DU product manager. For the new no-score automated approval, only your down payment or equity in the event of a refinance, debt-to-income ratios, cash reserves and loan-to-value are considered in the loan decision, according to Armstrong. You will need two sources of non-traditional credit history. “One must be housing related – a 12-month history,” said Kristi Waters, a Fannie Mae credit risk analyst. The other type could be utility bills, child care payments, tuition payments, also on a regular 12-month basis. Source: The Orange County RegisterMillennials may be drawn from pricey city centers to the less expensive suburbs, but nonetheless say they want a suburb that still has the look and feel of a big city in some ways. Some suburbs are finding means to cater to that desire and promoting the amenities they can offer to attract more younger people. For example, some are touting their specialty shops, dining options, and the plentiful sidewalks, bike lanes, and trails. The bike lanes and trails may be one of the biggest lures. Homes near walkable — and bikeable — trails get a premium boost of 5 percent to 10 percent, according to a study by Headwaters Economics, a research group focused on land management and community development. “What’s happening is, a little bit of the city is following people into the suburbs,” says Ed McMahon, senior resident fellow at the Urban Land Institute. “Almost all the successful suburbs are building walkable, mixed-use [i.e., a housing and shopping combo] centers.” Also possibly getting more millennials relocating to the suburbs, more companies are either moving or expanding to suburban areas to lower their operating costs. “What millennials want are places that have a vibrancy, where you … can shop, go out to bars, walk, and bike,” says Lynn Richards, president and CEO of the Congress for the New Urbanism. Source: realtor.com®

Counties with the lowest levels of natural hazard risk saw home sales rise 4.2 percent in the first six months of the year. That’s more than twice the 1.9 percent increase among counties with the highest level of natural hazard risk, according to the ATTOM Data Solutions 2016 U.S. Natural Hazard Housing Risk Index. Researchers measured the hazard risk of more than 3,000 U.S. counties. Risks factored in included earthquakes, floods, hail, hurricane storm surge, tornadoes, and wildfires. They also analyzed home sales and price trends within the counties. “While price and affordability, along with access to jobs, are the primary drivers in local markets with strong increases in home sales activity in 2016, it’s evident from this data that natural hazard risk does make a difference to home buyers and investors who are active in this housing market,” says Daren Blomquist, senior vice president at ATTOM Data Solutions. “Even among the subset of counties where the median price is below the national median, as well as among the subset of counties where home prices are still affordable for average wage earners, there is a consistent trend of stronger increases in home sales volume compared to a year ago in the lowest-risk markets for natural hazards compared to the highest-risk markets.” Source: RealtyTrac