Weekly Mortgage and Real Estate Report – Week of December 26, 2016

Where We Stand

In our 30 years of writing this economic commentary, the one constant we can say about the economy is change. And there is no doubt that the rate of change has accelerated over the years. We had a huge housing boom just over 10 years ago, followed by a severe recession and a slow, steady and long recovery which has lasted almost eight years. This recovery started excruciatingly slow and was buoyed by record low interest rates. But the length of the recovery has resulted in great progress over the long-run — witness an unemployment rate that has moved from over 10% to just over 4.5%, plus close to 15 million jobs created and record stock prices.

That does not mean we are all the way back. With close to 10 million jobs lost during the recession, when you average the amount of jobs added since the start of the recession, we still have a long way to go. So where do we stand as we enter the new year? The one thing we can guarantee is that there will continue to be change. Even before the new President has taken office, we have seen a solid stock market rally and higher interest rates. So that means that the markets are anticipating change as well. The reaction says that the markets are anticipating a stronger economy and that would translate into higher interest rates.

But what we must remember is that this reaction is based upon anticipation, not reality. For example, the markets are also anticipating fewer regulations and major changes in legislation. Assuming this anticipation comes to fruition–we still don’t know the final format of these changes in laws and rules. For example, will there be tax reform and will this affect the deduction for mortgage interest? It is way too early to tell. We can conclude that we presently stand a lot stronger than we were eight years ago, and we are moving in the right direction. We will see additional change shortly, but it will be some time until we know what this change will look like and how it will affect the economy. If only we could predict the future.

  There’s still a lot of equity-building potential for home owners. Freddie Mac’s Multi-Indicator Market Index stands at 86, which the residential lending giant says is on the “outer edge of its historic benchmark range of housing activity.” The index has climbed 45 percent since its all-time low set in 2010. It continues to trail way below its historic benchmark of 100 and far away from its high of 121.7. “The purchase applications indicator is up nearly 19 percent from last year, indicating strong housing demand and a market that’s poised to close out the best year in home sales in a decade,” says Len Kiefer, Freddie Mac’s deputy chief economist. “National home prices have surpassed their pre-recession nominal peak with about half of states still below their pre-recession peak. Factoring in low mortgage rates and modest income gains, house prices still have some room to run, as indicated by the MiMi payment-to-income benchmark which is nearly 33 percent below its historic benchmark. Though we’ve come far, housing still has significant room for improvement in many markets across the country, as indicated by the fact that 24 out of the top 100 metros are still more than 20 percent below their historic benchmark, as measured by MiMi,” Kiefer added. Source: ReutersHomes within walking distance to jobs, schools, shopping, parks, and other amenities are commanding a premium at resale. But buyers will have a tough time locating such properties. Fewer than two percent of all active listings are considered a “walker’s paradise,” having a walk score of 90 or above, according to a new study released by Redfin’s research team. Yet, 56 percent of millennials and 46 percent of baby boomers say they prefer walkable communities that mix housing, local businesses, and public services. Redfin’s research team estimated just how much walkability is worth when buying or selling a home. They looked at the sales prices and Walk Score ratings of more than 1 million homes sold between January 2014 and April 2016 across 14 major metro areas. From there, the team determined the average price of one Walk Score point. Researchers say that one Walk Score point translates into an increase to a home price by an average of $3,250 – or 0.9 percent of the cost. Source: The Wall Street Journal

The Department of Veterans Affairs has announced new loan limits for 2017. The maximum amount for the VA Home Loan Guaranty Program for next year will be $424,100 in most counties. In higher-cost counties, the loan limits will range from $425,500 to $721,050 in the highest cost areas. Veterans eligible for VA home loans can borrow amounts higher than the loan limits, but lenders typically require them to make a 25% down payment for the amount borrowed above these limits. The VA calculates loan limits using counties’ median home values which are published by the federal government. Some county limits will increase in 2017, while others will remain the same and a few decreased. Source: Military.com


Weekly Mortgage and Real Estate Report – Week of December 19, 2017

The Deed is DoneThe Federal Reserve Board has spoken. The increase of .25% in short-term interest rates surprised absolutely nobody. However, the markets did not like the statement accompanying the increase which alluded to as much as three rate hikes in 2017. Of course, last year they talked about the same thing and we had only one due to several factors. Of course, this year we also have had the “election effect” on the bond market, which means that rates were already moving higher before the move.

When the markets are skittish, any hawkish statement by the Fed was likely to make the markets more volatile, which is exactly what happened. We actually believe that the markets could have reacted poorly if the Fed did not increase rates. This is because the economy has shown enough strength to convince the markets that keeping rates at artificially low levels was no longer necessary. We must remember that the Fed controls short-term rates directly and long-term rates only indirectly. If the markets feel the Fed is being soft against the threat of inflation, the markets will act on their own in this regard.

So, what is the bottom line, now that the deed has been done? The Fed’s announcement after the increase tells us that they are satisfied with the direction of the economy. When the Fed raises rates because the economy is getting stronger, this is certainly good news. The markets are showing further optimism based upon the possibility of new economic policies expected to be implemented by the new Administration. If this optimism turns out to be right, we will see more rate increases in the coming year, which coincides with Chairperson Yellen’s statement. Again, this represents good news for the average American and the housing markets, because more jobs will be created. That would be quite a feat since the economy added over 2 million jobs again this year.

  New homebuyers may be about to flood the US market for existing homes to lock in the lowest rates they can. In the past several weeks — since Donald Trump was elected president — rates on home loans jumped alongside other interest rates. This happened as investors raised their expectations for economic growth and inflation, placing their bets on Trump’s plans to spend heavily on infrastructure and cut taxes. “In the short-term, some prospective buyers may rush to lock in their rate and buy now, ” said Lawrence Yun, the chief economist at the National Association of Realtors. The NAR released its monthly report on existing-home sales, which showed that sales rose at the highest annualized pace in a decade during October. And if rates continue rising, existing-home sales — which record the most housing transactions — could increase to record levels. Additionally, a strong jobs market and higher wages could offset any drop-in demand that higher rates cause, according to David Berson, the chief economist at Nationwide. The housing market has been faced with an inventory crunch that drove up prices, especially in coastal metros. The median existing home price rose 6 percent year-on-year in October to $232,200 — the 56th straight rise. Ralph McLaughlin, the chief economist at Trulia, said Trump’s focus should be on policies that encourage existing owners to sell and build, not just those that boost demand. “Such policies could include a reduction in capital gains taxes for homes sold by investors to owner-occupiers, an increase in tax rates on rental income, or both,” he said in a note. Source: The Real DealThe number of custom-home building starts set a post-recession high in the third quarter, according to U.S. Census Bureau data. The bureau defines custom-home building as homes built on an owner’s land, with either the owner or a builder acting as the general contractor. In the third quarter, there were 49,000 total custom starts, compared to 47,000 in the third quarter of 2015. Over the last four quarters, there were 169,000 total custom single-family home starts, a nearly 8 percent increase over the prior four quarters, according to the National Association of Home Builders’ analysis of the data. The custom-home building market share now makes up 22 percent of single-family starts. That is still down from a peak of 31.5 percent set during the second quarter of 2009. “The market share for custom-home building will likely experience ups and downs in the quarters ahead as the overall single-family construction market expands,” according to NAHB’s Eye on Housing blog. “Recent declines in market share are due to an acceleration in overall single-family construction.” Source: NAMB

Older home owners who leverage the equity in their home may be better off in funding their retirement, according to a new study by the Urban Institute. However, the recession may have hampered many retirees’ abilities to do so. “Not only does a house meet the basic needs of shelter, but it’s an asset that typically can be used to build wealth as home owners pay down their home loans,” the study’s authors note. “In fact, many retirement security experts argue that the conventional three-legged stool of retirement resources—Social Security, pensions and savings—is incomplete because it ignores the home.” Before the recession, home owners aged 65 or older could have used their home’s equity to increase their retirement income by over 50 percent – up to $60,000 –either by borrowing a home equity line of credit, selling their home at a profit, or taking a cash-out refinance or second mortgage. However, the Urban Institute’s study notes that percentage fell to 50 percent – up to $49,000 – by 2012, even though retirees accumulated an average 10 percent more equity than in 1998. Home owner’s equity grew from $117,000 to $166,000 between 2000 and 2006 before falling to $129,000 by 2012. The study’s authors say that older home owners have more opportunity to unlock the wealth potential of their homes in retirement, particularly now with the recession over. Source: RIS Media

Weekly Mortgage and Real Estate Report – Week of December 12, 2016

The speculation will end. Almost. While most everybody is expecting an increase in short-term rates by the Federal Reserve Board’s Open Market Committee, there are two questions that remain. First, by how much will the Fed raise rates? If you have asked this question just a month ago, the prevalent answer would have been 0.25%. But with rates going up sharply since the election, the question should be asked whether the Fed will make a move of 0.5%. While the current evidence of inflation does not seem to warrant such an increase, the reaction of the markets to the election leaves the door open for a larger move without shocking the markets.

The second question is–where does the Fed lead us from here? While a rate increase will not come as a shock, the Fed can still roil the markets with incendiary language attached to their post meeting announcement. Or they can calm the markets down with assuring verbiage instead. That calm statement could help rates ease a bit. As we have said many times, the words of the organization can be much more important than their actions, especially when the actions are expected.

Keep in mind that the Fed is reacting to economic numbers, not an election. As Janet Yellen reminded everyone after the election, though the chairperson is appointed by the President, she cannot be removed by the President and she is intending to serve out her full four-year term. Therefore, the jobs numbers released earlier this month should theoretically carry more weight than the rate spike since the election. One should remember that the rate spike is more a function of speculation as to what the new Administration will do, not what has already taken place. Of course, it is not unusual for markets to react to speculation.

  Never a generation to shy away from the norm, Baby Boomers are changing what it means to be an older homeowner in the U.S., according to a recent study. “Baby Boomers—like Peter Pan—refuse to grow older,” says a new Freddie Mac report titled Fun After Fifty. “Instead of moving to seniors-oriented communities, they ‘age-in-place’ or, even better, move into the heart of a walkable city.” The age 55 and older population represents a little over a quarter of the U.S. population, but they control roughly two-thirds of the equity in single-family homes, according to U.S. Census Bureau data. What this generation plans to do with their own housing, the impact of these decisions reverberates throughout the U.S. housing market and has an effect on younger homebuyers. “Their numbers and their housing wealth guarantee that the housing decisions of older homeowners will play an outsized role in shaping the housing opportunities available to the generations that follow them—Gen X and the massive Millennial generation,” states the Freddie Mac report. To gauge the influence of the 55+ population on U.S. housing, Freddie Mac commissioned market research firm GfK to survey a nationally-representative sample of the 55+ population in early 2016 on their attitudes towards their current and future housing options. One of the most common opinions expressed by adults aged 55 and older was that they want to age in place. When thinking about their preference to relocate, 63% said they want to remain stay in their current residence, while 37% said they would like to move at least one more time. Source: Reverse Mortgage DailyDid you know that you can actually live in your real estate investment property? Owning a rental property and living in it can be an excellent way to reduce your monthly payment outlay, while building home equity for your future. And, you can even do it as a first-time home buyer, if you plan ahead. The key is to purchase a home with 2-units, 3-units, or 4-units. Homes with 2-4 units can be financed as home loans, which means you get access to “regular” rates, as opposed to rental rates. You also may get access to larger loan sizes because loan limits for multi-unit homes are higher than for 1-unit properties. When you purchase a 2-unit, 3-unit, or 4-unit home, it’s your right as a homeowner to live in any of the home’s available units. For many homeowners, living in a multi-unit rental building is a way to defray, reduce, or eliminate the monthly cash outlay to their lender. Rents collected from the home’s other units offset the payment due on the primary one. Owning and living in a rental building is allowed by residential lenders and, according to lending guidelines, when you live in a building you rent out, the entire property can be classified as your primary residence, which gives access to lower rates and potentially larger monthly profits. In addition, renting out a building in which you live grants you access to a wider range of financing products as opposed to properties you don’t live in.Source: The Mortgage Reports

More renters claim they are concerned about high utility costs than about rising rent prices, according to a new survey from Freddie Mac. The only thing rising faster than home prices may just be rent prices. Home prices are rising across the nation to levels not seen since before the housing crisis and yet, it’s still cheaper to buy than rent, according to a study by online real estate listing service Trulia. This is the first time that Freddie Mac’s survey included questions about utility costs. The survey showed that 70% of renters are greatly to moderately concerned about higher utility costs, compared to 63% who are concerned about rent increases. Renters agreed that multifamily properties with green energy and water saving features would help reduce utility bills, and 84% of renters said these would be better places to live. In fact, renters are so concerned with their utilities that 47% said they would even pay more in rent in order to live in an environmentally-friendly rental, if it would help lower monthly costs. Source: HousingWire

Weekly Mortgage and Real Estate Report – Week of December 5, 2016

Last Big DataLast week we had the last big data releases before the Federal Reserve Board’s Open Market Committee meets next week. This data included the first revision of the 3rd Quarter economic growth and personal income and spending. These reports came in on the strong side, with the economic growth revised higher and personal income and spending solid as well. Personal spending for October is especially important, because November is the start of the holiday shopping season. The money made in October certainly affects Black Friday sales.

The most important data was released on Friday, which was November’s jobs report. Nothing affects the economy more than the growth of jobs. Thus far this year, we have had strong, but not explosive jobs growth. Friday’s numbers came in at 178,000 jobs added, and a drop in the unemployment rate to 4.6% from 4.9%. While the headline number was much stronger than expected, the number of jobs created came in near expectations and the previous month was revised down by 20,000 jobs. This means that the lower unemployment rate was at least partially due to a shrinking labor force.

Just as important, wage growth came in at below expectations on a month-to-month basis, but slightly higher than expectations on a yearly basis, which was a mixed bag. Why is wage growth so important? The Fed is looking for any evidence of inflation to buttress their decision on rates. Right now, it is expected that the Fed will raise rates next week, but we don’t know by how much and what might be coming afterwards. This jobs report, taken together with the additional data released this week, certainly gives the Fed enough ammunition to support an increase. However, it is not clear that they have a mandate for anything above the expected 0.25%.

  The Federal Housing Administration (FHA) announced the agency’s new schedule of loan limits, and due to an increase in housing prices, most areas in the country will see an increase in loan limits in 2017. These loan limits are effective for new applications made on or after January 1, 2017, and will remain in effect through the end of the year. In high-cost areas, the FHA national loan limit “ceiling” for one-unit properties will increase to $636,150 from $625,500. FHA will also increase its “floor” to $275,665 from $271,050. Additionally, the maximum claim amount for FHA-insured Home Equity Conversion Mortgages (HECMs), or reverse mortgages, will increase to $636,150. This amount is 150 percent of the national conforming limit of $424,100. Due to changes in housing prices and the resulting change to FHA’s “floor” and “ceiling” limits, the maximum loan limits for forward mortgages increased in 2,948 counties. There were no areas with a decrease in the maximum loan limits for forward mortgages, though they remain unchanged in 286 counties. FHA’s minimum national loan limit “floor” is set at 65 percent of the national conforming loan limit of $424,100. The floor applies to those areas where 115 percent of the median home price is less than 65 percent of the national conforming loan limit. Source: FHA — If you would like to know where the limits moved to in your area, please contact us

For the second consecutive month, existing-home sales were on the rise, ascending above June’s cyclical sales peak to become the highest annualized pace in nearly a decade, the National Association of Realtors® reported. All major regions across the country saw an increase in October. Total existing-home sales – which are completed transactions that include single-family homes, townhomes, condos, and co-ops – increased 2 percent to a seasonally adjusted annual rate of 5.60 million in October. The pace of existing-home sales is 5.9 percent higher than a year ago (5.29 million), rising above June’s pace of 5.57 million. It was the highest sales pace since February 2007. Lawrence Yun, NAR’s chief economist, is calling the sales increase an “autumn revival” for the housing market. “October’s strong sales gain was widespread throughout the country and can be attributed to the release of the unrealized pent-up demand that held back many would-be buyers over the summer because of tight supply,” Yun says. “Buyers are having more success lately despite low inventory and prices that continue to swiftly rise above incomes.”Source: NARYour listing photos are designed to spotlight the house in its very best light. But in some cases, your images may do little to be carving out a good impression among home shoppers. Realtor.com® recently rounded up several of the worst real estate listing photo mistakes. Make sure you’re not making any of these faux pas–

  • Photographing corners. Taking a picture of one corner of the room shows nothing. Instead, photograph “at least two corners of a room” in your shot to help give a sense of space and the design of the area, says Hannah Walker, vice president of IMOTO Real Estate Photography.
  • Odd close-ups. From close-up pictures of ceiling fans to appliances, make sure you’re not abusing the use of the zoom feature. Instead of offering close-ups of the hot water heater and breaker panels, for example, let buyers assess their condition in person or allow their home inspector to. Aim to “photograph the look and flow of the property” rather than zooming in on something, Walker says.
  • Darkness. Avoid photographing a home with the drapes closed. Natural light will show the home in its best light. “Open all blinds and curtains to let that natural light into the room,” Walker says.
  • Bad bathroom angles. Bathrooms are usually one of the smallest rooms in a home and, therefore, can be one of the most challenging to photograph. Test out shooting from different angles. “Professional equipment, including a wide-angle lens and tripod, will help you capture the small bathroom shots,” Walker says. “Also, if you or the camera get caught by the mirror, edit it out.” Source: Realtor.com®