Weekly Mortgage and Real Estate Report – Week of November 28, 2016

Are Higher Rates Good News?The biggest news with regard to the markets since the election has been the spike in long-term interest rates. The stock market has been rising as well, but there seems to have been a greater reaction on the bond market side. First, before anyone pins these trends to the surprise results of the election, one can clearly see that the movement of these markets started before the election took place. The stock market rallied strongly the day before the election and rates started rising several weeks before the election. Thus, while these movements have accelerated since the election, it was certainly not a reversal of trends.

Yes, the election definitely is a factor. With a new President coming in, the markets look at all the promises made during the campaign and start adding up the costs of implementing these promises. For example, take a look at the stimulus package of President Obama, which was in reaction to the Great Recession taking place when he came into office. The difference today is, the markets can see that the same level of stimulus is not needed now, as compared to then. While the economy could be doing better, no one would argue with the fact that the we are in a hundred times better shape than we were eight years ago. Thus, while the markets may fear a huge spree to fulfil promises such as infrastructure spending, this spending does not have to come all at once, and it is not likely that Congress will be writing checks to bust a budget already in deficit.

The bottom line is that rates are increasing because the economy is doing better, and that is good news. The markets were already factoring in an increase in rates by the Federal Reserve Board before the election. That increase is still expected to come in December. As long as the Fed does not surprise the markets with a 0.5% increase, instead of the expected 0.25%, then calm might return to the markets. Remember that long-term rates do not necessarily rise in reaction to the Federal Reserve moving short-term rates upward. As a matter of fact, after the increase last December, rates on home loans decreased due to other factors. Even with the present increase, keep in mind that rates are still very low by historical standards — and that is the best news.

  Conforming base limits are rising from $417,000 to $424,100 and high-cost area limits are rising to $636,150. This is the first increase in loan limits since 2006. The Housing and Economic Recovery Act of 2008 (HERA) established the baseline loan limit of $417,000 and requires this limit to be adjusted each year to reflect the changes in the national average home price. However, after a period of declining home prices, HERA also made clear that the baseline loan limit could not rise again until the average U.S. home price returned to its pre-decline level. Until this year, the average U.S. home price remained below the level achieved in the third quarter of 2007 and thus the baseline loan limit had not been increased. Many areas between the base and high-cost limits have changed as well and the county-by-county limits can be found at this Link. The new limits are effective for loans delivered on or after January 1, 2017. Source: Federal Housing Finance Agency 

Housing giant Freddie Mac plans to dispense with traditional appraisals on some loan applications for home purchases, replacing them with an alternative valuation system that would be free of charge to both lenders and borrowers. The company confirmed that it could begin the no-appraisal concept as early as next spring. Instead of using professional appraisers, Freddie plans to tap into what it says is a vast trove of data it has assembled on millions of existing houses nationwide, supplement that with additional, unspecified information related to valuation, and use the results in its assessments of applications. For consumers, the company believes, this could not only eliminate appraisal expenses — which typically range from $350 to $600 or more — but could cut down on current closing delays attributable to appraisals. It also could relieve lenders of their current burdens of responsibility for the accuracy of appraisals — a major sore point with banks that sell loans to Freddie subject to potential “buy back” demands if significant errors are later found in appraisals. Source: The Nation’s Housing, Ken HarneyYounger buyers are likely to drive growth in residential markets in the years ahead as the economy stays on a positive track and interest rates stay relatively low, two top economists said at the 2016 Realtors® Conference & Expo in Orlando, Fla. Look for existing-home sales to end the year at a 5.4 million level, a small increase from last year, NAR Chief Economist Lawrence Yun told Realtors® at a residential economic forum. For 2017, he expects sales to grow modestly, to 5.5 million units and then to 5.7 million the year after that. Long-term interest rates are expected to tick up but stay low by historical standards for the foreseeable future. He forecasted rates to end the year at 3.6 percent, then rise to 4.1 percent in 2017 and then to 4.5 percent. Dennis Lockhart, president of the Federal Reserve Board of Atlanta, who also spoke at the forum, said interest rate increases are unlikely to be a roadblock to healthy home sales. “Realtors® shouldn’t interpret the prospect of rising rates as ominous,” he said. Both Yun and Lockhart said young households will drive home ownership gains in the years ahead. That’s because the U.S. economy is showing resiliency even as other major economies, like Japan and the European Union, struggle. In the U.S., jobs and wages are growing and are expected to continue growing, which will undergird home sales. “There is pent-up demand” from younger households, said Yun. Source: REALTOR® Magazine


Weekly Mortgage and Real Estate Report – Week of November 21, 2016


Thanksgiving arrives this week. Every year, this is the day we reserve for giving thanks. Certainly, in our country we have much to be thankful for. We are one of the richest countries of the world when you measure by per-capita income, and perhaps the richest when you measure per-capita income against the size of our population. But it is not all about riches. It is also about our freedom and democracy. Yes, the recent political campaign turned a lot of people off, but how many would opt for the alternative of not having the right to vote?On the other hand, it is easy to look at the aggregate numbers and forget that these averages can hide the millions who are not as fortunate residing right in our own country. And certainly, Thanksgiving is the time that our focus upon charity is also renewed. What makes our country great is not only our riches, but also that we are a leader with regard to charitable giving as well. Thus, we hope everyone will take some time to share, donate or volunteer during Thanksgiving week.

As important as Thanksgiving is, the economy marches on in the wake of the election and with an important meeting of the Federal Reserve Board’s Open Market Committee meeting coming in December. The recent spike in long-term interest rates has been concerning for many market watchers, especially since this spike is accompanied by concern that inflation will be on the rise. The question is whether this rise in rates is an overreaction to the surprise result of the election, or are their more fundamental long-term changes coming our way? This will be a topic we will analyze during the coming weeks.

  Between now and 2018, up to 43% of US homeowners will be affected by a home equity line of credit reset — but according to a study by TD Bank, many are unprepared. “Many HELOCs allow borrowers to draw for 10 years and make interest-only payments,” said Mike Kinane, senior vice president of home equity at TD Bank. “When this draw period ends, borrowers are required to pay principal and interest, which may increase their monthly payments. It’s important that HELOC borrowers plan ahead and review their contract to determine the best course of action based on their current and future financial situations.” Many homeowners used HELOCs during the housing boom to finance large expenses like home renovations and college tuition. With home values rising, HELOCs were a good way to consolidate debt. But now, with the 10-year interest-only period drawing to a close, many of these homeowners are going to see their payments spike. And a good many of them are unprepared, according to TD Bank. The bank’s study found that 23% of surveyed homeowners didn’t have financial plans in place to handle the end of their draw periods. Many were unaware of the reset date described in their HELOC contracts, and just 19% understood that a HELOC reset would increase their monthly payments. Thirty-four percent thought a reset would actually reduce their monthly payments. Perhaps more worrying, 60% of respondents who said they had no plan for their HELOC resets also said they had no plan to seek guidance from a lending professional. Source: MPA — Want to go over alternatives if you have experienced a reset or see one coming?  Contact us. The Urban Institute’s Housing Finance Policy Center released a new study proving what we already know to be true: women are better at paying their loans than men. In order to drive the point home, the Urban Institute conducted a study using public data filed under the Home Mortgage Disclosure Act, the federal law that requires all but the smallest lenders to report annually, and CoreLogic, a provider of consumer, financial and property information, analytics and services. From 2011 to 2014, female-only borrowers carried a FICO score of 741, versus male-only FICOs around 739. This is true even though women earn an annual income of $70,160 and men earn an annual income of $97,670. So, while men make much more money each year on average, women were still better able to keep up with their credit scores. Source: HousingWire

Builders are creating housing developments that offer a small-town feel — which they believe many buyers are seeking in a community nowadays. A growing number of traditional neighborhood developments are looking to recreate village life, offering up old-style communities with “leafy streets of historic-looking homes with porches and sidewalks, shared green spaces and shops.” This marks a shift away from posh, gated golf-course communities. Instead, builders say they want to give home owners a stronger sense of home and a community that fosters greater mingling with neighbors and community, with neighborhood coffee shops and the town dentist all within walking distance of residences — “Picture Andy Griffith’s Mayberry with high-speed Internet.” Source: The Wall Street Journal

Weekly Mortgage and Real Estate Report – Week of November 14, 2016

It is OverWhether your candidate won or lost the election, we think we can speak for most by saying that we are glad the election is finally over with. It seems like the election season went on for years, instead of months. Now it is time for us to move beyond the many levels of rhetoric and to come together. Politically, that has not happened for several years, but hopefully, with a new President and several new members of Congress, an air of cooperation will return. Ever the optimists we are.

Judging by the reaction, the financial markets were happy the election was coming to an end, with a major stock rally starting from the beginning of the week. And even though the markets don’t like surprises and the results were definitely within the surprise category, the rally continued the day after the election in a very volatile day. And the volatility was not limited to the equity markets, as long-term interest rates spiked sharply. By the end of the week, the Dow was in record territory. Compared to the Brexit surprise vote, after which stocks plummeted and interest rates fell, it was a very different reaction we experienced this time around.

The question is–where do the markets go from here? The calendar does not change. We still have another employment report to be released in early December and a meeting of the Federal Reserve Board’s Open Market Committee afterwards. It is expected by the markets that the Fed will raise its benchmark interest rate by 0.25% in December. Any larger move would be a surprise, which could rile the markets. But a 0.25% increase should be expected and probably will not provide much mayhem in this regard. This is especially true if the recent rise in long-term rates holds. In this case, we would definitely think that the market would have priced an increase by the Fed into the markets.

  Many have long bemoaned an apparent hesitancy on the part of millennials to enter the housing market. But a new study indicates that millennial first-time homebuyers may be a bigger part of the market than anyone suspected. According to a study released by Zillow, half of US homebuyers are under 36, and 47% of those buying and 63% of those selling a home are doing so for the first time. “We knew the millennial generation was playing an increasingly large role in the housing market,” said Zillow Chief Economist Dr. Svenja Gudell. “But this consumer research allows us to get a fascinating, behind-the-scenes look at how their expectations and approach are playing out in the housing market. These young adults came of age during a recession, but they are buying their first homes in a high-priced and fast-paced market. They’re using every available resource, including online research and real estate professionals, and taking on the challenge with gusto.” “Young home buyers and sellers share their grandparents’ romantic notions about homeownership, and we’re finally seeing their home buying dreams come true in the data,” said Jeremy Wacksman, Zillow Group chief marketing officer. “These savvy consumers are doing things differently: they juggle shopping for homes to buy and rent at the same time, and they bring deep research and their vast social networks to the process.” The report did find that first-time buyers are renting for longer than previous generations. But when they do buy, they generally spend as much as baby boomers, and buy homes only slightly smaller than those purchased by repeat buyers, Zillow reported. Source: Mortgage Professional AmericaMore buyers are house-hunting with garages in mind. Twenty-four percent of homes built in 2015 came with space for three or more cars in the garage – the highest share since the Census Bureau started tracking large garages in 1992. In fact, home builders are now constructing more three-car garages than one-bedroom apartments, according to the National Association of Home Builders. Home buyers care about garage space. One in three buyers say they prefer a three-car garage, according to a survey conducted by John Burns Real Estate Consulting. Fifty-one percent say they want a two-car garage and 10 percent said a one-car garage would suffice. That doesn’t mean they want the extra space to store another car necessarily. The share of households who own three or more cars has stayed mainly flat. In 2013, 19.7 percent of home owners had three cars in 2013 compared to 17.3 percent in 1990, according to the Bureau of Transportation Statistics. Instead, they’re using garages to store extra items, as workspaces, or even transforming them into in-law apartments. The trend of desiring extra garage space does appear to be mixed, however. “We’re seeing more multi-generational housing, where the kids are taking care of elderly parents or you have the new grad moving home after college, and now you have four cars where it might have been two before,” Pete Reeb, a principal at the consultancy, said. Source: Bloomberg

There has been a 12 percent rise in the number of ‘fixer-upper’ homes in the last five years with the largest rise in expensive homes in hot markets. Zillow’s analysis shows that those homes priced in the top third of their markets saw a sharper rise with inventory up almost 35 percent; in the lower third there was a 3 percent rise. “Across the country, homes are selling fast and for high prices,” says Svenja Gudell, Zillow’s chief economist. “Sellers are in the driver’s seat, with the freedom to list their home for sale ‘as-is’ without worrying about price cuts or the home sitting on the market.” The age of those homes requiring some TLC has almost doubled in just 9 years with the median age at the end of 2015 at 28 years compared to 15 years in 2006.Source: Zillow

Weekly Mortgage and Real Estate Report – Week of November 7, 2016

The “Shew” ContinuesLast week we spoke of “the really big shew” and today is the headline performance — The Presidential Election. First, let’s do a review of the preliminary acts. On Monday of last week, we had a release of the personal income and spending numbers. While they were in line with expectations, the personal spending numbers were especially strong. Taken together with a stronger than expected data on the growth of the economy for the third quarter, the numbers increase the probability of the Federal Reserve Board raising rates in December.

Indeed, when the Fed met and released their announcement on Wednesday, they indicated that they would not be raising rates this month as expected, just a few days before the election. However, the statement clearly indicated that a possible increase was on the table for December. Of course, the most important data was released on Friday after the Fed meeting. The jobs report showed an increase of 161,000 jobs in October. The report also indicated that the September numbers were revised upward by 35,000 jobs and the unemployment rate slipped down to 4.9%. Finally, wages grew at a faster pace, something the Fed is looking closely at.

Taken together with the earlier data we cited, this means that a December rate increase is definitely in the cards. While we are not expecting the results of the election to affect the chances of a rate increase in December, we are pretty certain that the election being over does increase the chances. This is especially true with the Presidential inauguration being just before the first meeting of the Fed next year. Theoretically, a new President in office should not affect the actions of the Fed, but certainly that sort of welcome would be ill-timed.

  We can expect a hot year for home sales in 2017, according to recent forecasts from the National Association of Realtors®, the Mortgage Bankers’ Association, Freddie Mac and Fannie Mae, and more. NAR is predicting existing-home sales to reach 6 million in 2017, higher than its 5.8 million forecast for this year. But other entities are even more bullish. MBA is predicting home sales to eclipse 6.5 million next year, while Fannie Mae and Freddie Mac are both predicting 6.2 million. A huge wave of Generation Yers, who have delayed home buying, are emerging into their key buying years. They are predicted to keep home sales and condo sales strong well into 2020, according to economists. Meanwhile, new-home construction starts likely will tick up to about 1.5 million per year to 2024, predicts Forisk Research. Home builders likely will continue to be more subdued, despite calls for more inventory. “Home builders’ behavior likely is a continuing echo of their experience during the crash,” Pantheon Macro Chief Economist Ian Shepherdson told MarketWatch. “No one wants to be caught with excess inventory during a sudden downshift in demand. In this cycle, the pursuit of market share and volumes is less important than profitability and balance sheet resistance.”Source: MarketWatchIn the pursuit of the American dream, immigrant households are gaining ground on native-born Americans in terms of homeownership rates, according to a new report issued by Trulia. In its report titled “Immigration Nation: Homeownership and Foreign-Born Residents,” Trulia noted that the 1994 homeownership rate of those born in the U.S. was 66 percent while that of the foreign born was 48.1 percent, a 17.8 percentage point difference. That disparity grew to a 20.7 percentage point difference by 2001, but in 2015 the disparity shrank to 15.4 percentage points. During that period, Trulia found the homeownership rate of native-born Americans remained mostly unchanged, with the immigrant rate fueling the gap closure. Mark Uh, a data scientist at Trulia, noted that immigrants who lived in the U.S. less than five years had a much lower homeownership rate than immigrants residing in this country for 10 or more years. “This is likely due to the fact that immigrants who lived in the U.S. less than five years do not have adequate credit history in the U.S. to obtain a home loan, which forces them to rent rather than own,” Uh said. Source: National Mortgage Professional

You may soon be selling a home inside of a mall. It’s becoming more common, as enclosed malls across the country look to reinvent themselves. What’s more, some communities are finding that living in a mall could be a boon for property values. Those massive, enclosed malls once popular in the ‘70s, ‘80s, and ‘90s are dying off. More shoppers are buying online, instead of heading to walk the mall. Foot traffic among the largest malls in the country is plummeting. Stores are closing and some entire malls are going dark. “About 200 malls have closed down in the past two years across the country,” says Ellen Dunham-Jones, an urban design professor at the Georgia Institute of Technology in Atlanta. “About 1,100 enclosed malls are left in the country,” she says. But what does a community do when it has up to 1.2 million square feet of vacant retail space in a prime area of town? “Nearly 300 former malls have – or are in the process of becoming – mixed-use developments, and 50 or so are adding in housing”, Dunham-Jones says. Closed malls are being transformed into public parks, medical complexes, and even hockey rinks. They’re being reimagined as walkable “urban developments in the suburbs,” outfitted with boutiques, restaurants, fitness centers, entertainment, and housing. Developers are eyeing shopping malls as prime real estate, particularly at a time when land has gotten scarce and pricier for new construction. At 50 to 100 acres, including parking lots, a closed mall could be a bargain, and it’s already about the size of a planned community or subdivision.Source: realtor.com®

Weekly Mortgage and Real Estate Report – Week of October 31, 2016

A Really, Really Big “Shew” For those of you who are old enough, you might remember Ed Sullivan starting his weekly broadcast with “We have a really big shew tonight.” Well, when he said it, show did sound like “shew.” Ed Sullivan was the venue that featured Elvis Presley, the Beatles and countless other acts for a generation. Well, this week we have a really, really big week — one that has the potential to significantly affect the markets. We start out with important data, personal income and spending. We then move into a two-day meeting of the Federal Reserve Board’s Open Market Committee.

While most are expecting no action by the Fed, the announcement on Wednesday will be studied carefully for any indication regarding a potential rate increase at their December meeting. Of course, the Fed will not have had the benefit of seeing the most important data released. On Friday we will see a jobs report which will let us know about the all-important employment situation. The Fed will actually have the benefit of seeing two jobs reports before their meeting in December.

And just for good measure, after what seems to have been years of campaigning and an endless number of debates and stories in the press, we will finally have a Presidential election. No matter who wins the election, we think it is safe to say that most Americans will be glad that the ordeal is over. And no matter who you favor, don’t forget that exercising your right to vote is an important duty and responsibility as a citizen of our great country. So, please get out and exercise that right by voting, both for your national candidate and your state and local candidates as well.

  The U.S. Department of Housing and Urban Development released a letter setting out requirements for when a buyer of a condominium unit can get FHA-insured financing in a development that has an owner-occupancy ratio as low as 35 percent. The letter stipulates that the development must show it has “higher reserves, a low percentage of association dues in arrears, and evidence of long-term financial stability” for the lower standard to be achieved. The 35 percent ratio was enacted into law this summer in NAR-backed legislation called “The Housing Opportunity Through Modernization Act,” H.R. 3700. The law says the 35 percent ratio would become law automatically unless HUD released a different figure by Oct 28. In its release, one day before that deadline, HUD says it will approve the 35 percent ratio, as long as the stricter conditions are met to ensure loans can be made without putting the FHA insurance fund at undue risk. “HUD believes that it would be possible to protect the fund while allowing a lower owner-occupancy percentage if certain adjustments are made to enhance other requirements that affect the financial stability of the project,” the agency said. NAR President Tom Salomone said in a statement that the letter is a step in the right direction, but the lower ratio should be available to all FHA-approved developments. “NAR has been fighting for changes to FHA’s condominium rules for years, and the guideline announced will bring some much-needed relief to the market,” Salomone said. “This is a big win for NAR, and while we believe all condominiums should have the rules applied to them equally, we believe FHA has heard the concerns of Realtors® and is moving in the right direction.” Source: REALTOR® Magazine Online
As renters face escalating housing costs, you should be concerned that it’s getting harder for them to save for a home purchase. Is there anything you can tell them to do to help their chances of being financially prepared to transition to home ownership? Actually, there is — and it’s pretty basic advice: Get a roommate. A new study shows that renters could potentially save anywhere between $25,000 and $100,000 over the long haul by sharing space with a roomie. Savings like that can help them break into ownership much faster. A record-high 11 million renters are spending at least half of their incomes on housing — an amount financial experts say is too much — and an additional 21 million are paying 30 percent or more, according to the annual State of the Nation’s Housing Report from Harvard University’s Joint Center for Housing Studies. The high rents are making it difficult for renters to save enough for a down payment on a home, according to a 2015 study by the National Association of Realtors®. But a renter who lives with a roommate in a two-bedroom apartment and splits the rent 50-50 could potentially save an average of $420.70 a month versus a renter who lives in a one-bedroom apartment alone, according to financial website SmartAsset.com. In just five years, that could amount to a savings of $25,242. In high-priced markets, the savings could be more than double. Source: MarketWatch

The National Association of Home Builders is touting growing job opportunities in residential construction for millennials. The building industry continues to face a shortage of skilled workers, which has been blamed on prompting delays in completing projects on time and, in turn, then making projects costlier to complete. The number of available construction jobs has grown since the end of the recession. There are about 214,000 construction sector jobs available, the second highest monthly count of unfilled jobs since May 2007. “Residential construction offers a number of fulfilling career opportunities, from architects and engineers to carpenters, plumbers, electricians, painters and landscapers,” says NAHB Chairman Ed Brady. “Yet, our builders are telling us that access to skilled labor remains a top challenge.” Many workers in the home building industry left the field during the Great Recession for other employment sectors. Not enough have returned since then, builders say. “As the housing industry continues to recover, we are focused on training more workers and leaders to fill these important roles,” Brady says. Source: National Association of Home Builders