Weekly Mortgage and Real Estate Report – Week of April 24, 2017

ECONOMIC COMMENTARY
They Are BackCongress is back in session. Not that we are 100% sure that anyone missed them, but certainly there is some unfinished business on the table. For the past few weeks, international news has dominated the markets. Syria, Afghanistan, North Korea and Russia have led this domination, and certainly these world conflicts have influenced the markets — including stocks, bonds, energy prices and the price of gold.

This is not to say that domestic issues have fallen off the map, but when Congress is not in town, there will not be news of legislative progress or failures in the headlines. Now that Congress is back, there will be issues that need to be addressed on the domestic side, in addition to Congressional activity on international issues. One domestic issue hits this very week. This Friday, the stopgap funding bill for the operation of the Federal Government expires. Could we see a government shutdown?

Most political analysts predict that a shutdown will not take place. However, it is normal for the agreement to come at the last possible hour. And international issues may complicate the agreement with budget requests in place to increase defense spending with a lack of immediate corresponding cuts in domestic programs. While these issues are usually resolved before the government is shut down for anything but a minimal length of time, there is the potential for fireworks and saber-rattling. And if the government does shut down for a few days, could next week’s meeting of the Federal Reserve Board’s Open Market Committee be delayed? Always an interesting time in Washington.

REAL ESTATE NEWS
  When is your “credit score” irrelevant in buying a house or refinancing a home loan? A new federal legal settlement with a major credit bureau has the answer: The only score that matters is the one your lender uses to evaluate you, not some random score you got on a website. All the others you might buy or see — there are dozens of them hawked on the Internet — may be interesting, but they won’t affect the interest rates you’re quoted, the fees you’re charged or whether your application gets approved or rejected. The new legal settlement from the Consumer Financial Protection Bureau alleges that Experian, one of the big three credit reporting bureaus, “deceptively marketed credit scores to consumers by misrepresenting” them as “the same” as what their lender would use in determining whether and on what terms to offer them a loan. Experian’s promotions appeared on third-party websites, banner and display ads, direct mailings and sites such as AnnualCreditReport.com. Which brings us back to home loans. If you’re like many home buyers and owners, you’ve seen online pitches and ordered your scores, often free. They may have come with tie-ins to credit card offers or credit monitoring and identity theft protection services. One site may have said your score is 788, ranking you as “excellent” on their scale. Then you apply to a lender for a preapproval and get the sobering news: Your middle FICO score — lenders usually pull scores from all three bureaus — is a 716, and that’s what we’ve got to use to price your loan. The score is okay, but it’s 85 points below where you thought you were, and below the cutoff point for the best interest rates and terms. The FICO score your lender pulls for your application may not be the same as the score your credit card company might be sending you every month online. Or, perplexingly, it might even be different from the FICO score you get on MyFICO.com. That’s because FICO has introduced multiple models over the years, each with what the company describes as consumer-friendly improvements. The latest is FICO 9. The most widely used is FICO 8. The bottom line? Never depend on generic scores available online as part of your home financing planning process. Source: Ken Harney, The Nation’s HousingSingle women are re-emerging in real estate, with numbers growing in proportion to the rest of the market. The number of single female buyers has been on the rise since 1981, increasing from 11 percent to 22 percent during the market’s peak in 2006, according to data from the National Association of Realtors®. Seventeen percent of home buyers today are single women. That number is expected to grow in the coming years. “They don’t fear buying a home and are not waiting to be in a relationship to qualify for a home loan,” says Elizabeth Weintraub, broker-associate at Lyon Real Estate in Sacramento, Calif. Single men, on the other hand, are purchasing homes at far lower rates, even with their higher earnings. Single men have accounted for about 7 percent of home buyers in 2016, according to NAR data. Single female home buyers tend to be older than both single men and married couples who are buying homes, surveys show. Single female buyers, on average, are typically looking for a 1,500-square-foot home with three bedrooms and two bathrooms, says Jessica Lautz, NAR’s manager of member and consumer reach. About half are looking to buy in urban centers, while the remainder want to buy in rural areas or small towns. The median age for a single female buyer is 50 (single male buyers’ median age is 47 and the median age for a married couple buyer is 44). The decline in the U.S. marriage rate is expected to result in an increase in single female and single male home buyers in the coming years. (The marriage rate has fallen from 8.2 per 1,000 people in 2000 to 6.9 per 1,000 people in 2014.) “I expect single women buyers to continue to be a force in the market,” Lautz says. Source: Realtor® Magazine Online

A record number of Americans are living in multigenerational households according to new analysis by Pew Research Center. Based on 2014 figures, the data shows that 60.6 million people (19 per cent of the US population) live in households with at least two adult generations, or one that includes grandparents and grandchildren. The number of multigenerational households is increasing among all age groups, men and women, and nearly all racial groups. This kind of living was at its lowest in 1980 (12 per cent of the population) but is now nearing its record high of the 1950’s (21 per cent). Pew says that some of the growth in these households can be explained by growing racial and ethnic diversity where multigenerational living is more common. Source: MPA

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Weekly Mortgage and Real Estate Report – Week of April 17, 2017

ECONOMIC COMMENTARY
A Stark ReminderActually, we have had a few stark reminders recently. The most recent was the escalation of our engagement in Syria and another, a show of force near the Korean peninsula. Since the election, much of America’s attention has been focused upon domestic issues such as the health care bill, a nomination to the Supreme Court, budgets and more. But now we are reminded that the world is connected. Connected not only in our fight against terrorism, but also the economics. From Brexit, to a devastating tsunami on the other side of the world, we have been constantly reminded as to how events in one part of the world can affect our part of the world — both good and bad.

Some of these reminders reside on our domestic side as well. Not long after the first attempt at “re-reforming health care reform,” we now face a late April showdown which could result in a shutdown of the Federal government. While we are not predicting that this necessarily will happen, it is a reminder of the way Washington works — contentiously and slowly. This is especially true when major changes are proposed.

How does this affect us? We have talked about the surge of confidence that America has experienced in the past several months. It would be natural for this confidence to wane somewhat, as the processes move forward slowly. While this may slow down economic growth a tad, it also gives us the benefit of slowing down the rise in interest rates that market analysts have been predicting. Lower rates would help boost the economy and hopefully offset the cooling off of enthusiasm. While we can’t predict the path of rates or the economy, it does not hurt to gain some perspective as to the possibilities, especially when we get hit with news of world and domestic events.

REAL ESTATE NEWS
  J.D. Power has found that 21 percent of homebuyers regret their choice of a lender. That in itself is regrettable. But this significant minority might have been able to avoid many of their issues if they had been more careful in picking who they worked with for financing in the first place. Whether dealing with a loan officer who works for a lender that actually funds its own loans, or a broker who works for himself and deals with more than one lender, you should expect him to be responsive, according to the Consumer Financial Protection Bureau, the federal watchdog agency that grew out of the recent financial crisis. Being responsive is a key trait. But according to a recent survey of some 800 companies by Insellerate, a provider of support services for the marketing and sale of home loans, it took an average of 12 hours for loan officers to answer a client’s query. But that’s just among those who responded. A whopping 57 percent never responded at all, the survey found. And 60 percent of those who did respond failed to follow up with a second call. You also should be provided with a clear analysis of the different loan options that are available, along with an understanding of how they impact you financially, both initially and over time. Even more importantly, you should expect that the choices be explained in a way you can understand. Choosing a home loan is possibly the biggest financial decision you will ever make, so if you ask for a simple explanation and you don’t get it, ask again and again until you are certain you understand. It’s also wise to make sure what you choose is suitable to your lifestyle and financial picture. Many loan officers qualify people for the biggest loan they can afford. But while there’s nothing wrong with that, you may not be comfortable forking over that amount every month. On the flip side, if you fail to send a piece of requested information, you should expect the officer to hound you for it, or at least be persistent in asking for exactly what the underwriters need to approve your loan. Source: The Housing Scene, Lou Sichelman Note: These findings emphasize the importance of working with an expert mortgage advisor and a reputable company to help you with one of the most important financial decisions you will be making.All the latest data indicates that the United States is very likely to experience another housing boom in the near future. Fortunately, some analysts think this will not be a boom in prices as was witnessed a decade ago. The next boom is most likely going to be a beneficial uptick in homebuilding, which would invigorate the economy, stimulate the construction industry, and lead to other positive effects. According to data from the National Association of Realtors, existing home sales rose more than expected in November, increasing by 0.7% at a seasonally adjusted annual rate of 5.61 million. Sales increased 18.2% before seasonal adjustment from November 2015, when changes in existing regulations delayed closings. It’s now clear that the sales of extant housing are back up to pre-real estate crash levels, which in turn is putting pressure on prices. While rates have been clearly on the rise post-election, we’re also seeing decent rises in wages and employment is robust. There’s been a noticeable increase in consumer and business optimism. Source: MPA

The Federal Reserve has made two swift rate hikes in just four months and vows of more to come. But there’s a way to slow the pace of interest-rate hikes: Build more homes, Lawrence Yun, the chief economist for the National Association of Realtors®, writes in his new column at Forbes.com. Building more apartments and single-family homes would help slow down inflation, Yun says. The nation has typically added 1.5 million new housing units each year to meet demand. After all, about 1 million to 1.2 million new households are formed nationally each year and about 300,000 to 400,000 homes are demolished or newly uninhabitable each year. As such, about 1.5 million new units are required. However, over the past decade from 2007 to 2016, average housing starts were 900,000 per year. “That is grossly inadequate,” Yun notes. “That is why there is a housing shortage across the country.” The inventory supply of homes available for sale is near all-time lows. Rental and vacancy rates have dropped to below 7 percent, the lowest since the mid-1980s, he notes. “The faster the homebuilding recovery, the slower the housing inflation,” Yun says. “Consequently, the broader consumer price index will also slow and thereby allow more breathing room for the Fed to temper the pace of rate hikes.” Source: CNBC

Weekly Mortgage and Real Estate Report – Week of April 10, 2017

ECONOMIC COMMENTARY
Interesting Jobs DataEvery month the jobs numbers are of major interest to analysts who are looking for direction with regard to the economy. In essence, there is no up-to-date economic statistic which is more important, as job growth is the spark which can spur on economic growth, as well as inflationary concerns. In addition, there are certain employment reports that seem to attract even more interest because of other events occurring before, or as the data are being released.

March’s jobs numbers were no exception in this regard. This month, the numbers took on more importance because of these additional circumstances. For one, the report followed a pretty strong jobs report released last month. Two strong months of jobs growth could have provided a signal to the Federal Reserve Board, whose members will be considering when to raise rates again. To make the timing more interesting, the minutes from the last Fed meeting were released two days before the jobs report. These minutes give us a feel as to how the Fed is likely to react to the numbers, not only with regard to increasing rates, but also regarding paring off their portfolio of bonds and mortgages.

The report was also released after the stock market rally hit a pause in the second half of March, which enabled long-term interest rates to ease back down. A strong report had the potential to refuel the stock market rise and higher rates quite quickly. Thus, when the numbers were released on Friday, the increase of less than 100,000 jobs and the downward revision in the previous months’ gains, as well as stable wage growth, all seemed to have signaled that the economy is not running too hot — despite the drop in the unemployment rate. Weather factors may have affected the extreme variations from month-to-month and, thus, one should not be coming to any conclusions regarding one month of weak employment growth. Additionally, it will be hard to measure the immediate reaction to the news with the escalation of the Syrian conflict going on at the same time as the report was issued.

REAL ESTATE NEWS
  Homeowners are opening their favorite piggy bank again — their homes. As home values rise faster than expected, that increased homeowner wealth suddenly seems more enticing. It’s showing up in big remodeling growth. Ever since the financial crisis at the end of the last decade, homeowners have been extremely conservative with their home equity. Even those who had money in their homes kept it there. Now, as millions of borrowers come up from underwater on their home loans and many more see their home values jump sizably on paper, borrowing more is back in favor. Home equity lines of credit, known as HELOCs and often serving as second loans, allow homeowners to pull cash out of their homes when they need it. HELOC volume is now up 21 percent in the past two years, to the highest level since 2008, according to Moody’s. It is still nowhere near its housing boom level, when many people treated their homes like ATMs, but the trajectory is definitely pointing higher. Borrowers are also putting smaller down payments on home loans now, starting with less home equity either to save cash or because they can’t afford anything more. To put it in perspective, before the last housing boom, the median down payment was just over 7 percent. It then dropped to 3 percent during the height of the boom, as lenders offered all kinds of “creative” loan products that required little to no down payment. After the crash, down payments rose back above 7 percent again during the recovery. At the end of 2016, the median down payment had fallen to 6 percent, according to ATTOM Data Solutions, and it appears to be headed lower, as lenders offer more low down-payment products. Homeowners are clearly leaning toward more leverage, but they are doing so in a far different environment than in 2006. Underwriting is stricter, especially for home equity loans, and borrowers must prove their ability to repay loans, including all financial documentation. Home equity continues to rise steadily, according to the Federal Reserve Board, and it is still rising faster than borrowers are withdrawing it. Source: CNBC Interested in using your equity to remodel, payoff debt or for investment purposes? Contact Us. The 65-plus population is expected to surge from 48 million to 79 million in the next 20 years. Yet, the availability and affordability of housing to meet this blooming population is inadequate, according to a recent Harvard Joint Center for Housing Studies report. The report shows that only 3.5 percent of today’s housing contains the following three key elements of “universal design”: zero-step entrances, single-floor living, and wide halls and doorways. Further, nearly 6.4 million low-income renters will likely need to devote more than 30 percent of their income to housing by 2035, the report notes. Housing experts say builders are not growing the supply enough to meet future demands from older adults and instead are continuing to put most of their focus on higher-end construction. “The Harvard study was a scary forecast,” says Lukas Krause, CEO of Real Property Management, the largest property management franchise in the nation. “The senior sector will be one of the hardest hit for affordability. The most important thing we can do is find affordable housing for older Americans and contemplate layout and design to accommodate the older population.” More homes will need to be tailored to older adults. For example, homes likely will need to be retrofitted as single-floor living with a master suite, wider doorways to accommodate wheelchairs, and walk-in showers with grab bars. Also, expect some changes in the way people live as the older population grows. For example, cohabitation and shared housing may grow in popularity as affordability concerns brew. And, expect a growth in mother-in-law suites in single-family residences as well as grandparents living with their families like previous generations once did, Krause says. Source: Forbes.com

Just how large a house really is may depend on whom you ask, The Wall Street Journal reports. That’s because appraisers, developers, builders, real estate professionals, tax assessors, and architects all measure spaces differently. No universal standard exists for calculating a home’s square footage. Further, it can also vary regionally. For example, some calculate space on only the interior dimensions of finished living spaces. Some industry insiders may count the garage or finished basement in the square footage; others may not. Whether to count the square footage of balconies, basements, garages, or even wall thickness can vary too. Fifty-eight percent of 400 consumers recently surveyed by Houzz.com said estimates of their home’s square footage varied among real estate professionals. Square footage is an important number when it comes to buying real estate, however. Buyers may even narrow their home search online and compare homes based on price per square foot. “People want more space and have become very sensitive to that number,” says Robert Edelstein, a real estate and business professor at the University of California, Berkeley. Real estate professionals, however, are not required to verify the square footage cited in the listings database, says Quincy Virgilio, chairman of the board of directors at MLS Listings. Real estate pros often draw from several sources, such as county records, developer floor plans, and previous sale listings. Buyers who want to know more about the home’s true size need to ask more about how the size was computed. For example, they should ask the source of the measurements and what is included in that number, such as private outdoor terraces, the garage, basement, utility closets, or even staircases. Source: The Wall Street Journal

Weekly Mortgage and Real Estate Report – Week of March 3, 2017

ECONOMIC COMMENTARY
Anticipation Meets RealityWe have used some rather broad terms regarding describing the mood of the markets over the past few months. Words such as “confidence” and “uncertainty.” Today we would like to use another word — “anticipation.” One reason for the markets’ confidence in the past several months has been the anticipation of changes that would spur the economy. Logically, the markets knew these changes would take time, but when you have a rush of adrenaline, markets tend to get ahead of themselves.

Since the peak reached at the beginning of March, stocks have moved sideways and then turned decidedly negative in the second half of the month. Now, we do know that the market can’t go up every month and certainly stocks were due for a pause or correction. So, the question is–are stocks taking a breather, or are the markets getting antsy because of the realization that this is Washington and changes do not come quickly in Washington? Certainly, the fight over the heath care bill is an example of how difficult change can be.

Stocks could roar right back — even before this commentary is published. But if stocks continue to correct or just tread water from here, it may be that the markets want to see real news of economic growth before they rise again — as opposed to the anticipation of news. Some of that news may come in the form of the jobs report to be released this week. Meanwhile, the good news about this pause is that interest rates have also fallen with the stock market. This is happening despite the fact that the Federal Reserve Board raised short-term rates this month. What we are seeing is more proof that the Fed can’t control long-term rates. Having rates fall a bit just as the Spring real estate season starts is certainly not bad news.

REAL ESTATE NEWS
  Adjustable-rate loans are more popular now than at any time in more than two years as interest rates start climbing. According to Mortgage Bankers Association data, the share of home loan applications taken by ARMs was the largest since October 2014. As nearly three decades of MBA data show, adjustable-rates get a lot more popular when the threat of rising rates looms. According to the MBA, the average 5/1 ARM rate was nearly a full percentage point lower that fixed rates, at 3.48%. ARMs like the 5/1 are loans with starter rates which can increase after a set period — in this case five years. The ARM would represent savings of $93 a month for homes at the national median of $228,900, according to Zillow’s online mortgage market calculator. ARMs made up a whopping 36.6% of total applications in March 2005, arguably the height of the housing frenzy, when rates were higher and the assumption was that any home loan represented a way into a home, with a refinance to follow later. That share was a more manageable 7.7% last week, and the 27-year history has the ARM share at 13.9%. Source: MarketWatch Note: Today’s adjustables are safer than those offered in the past. If you would like to learn more about today’s adjustable choices, contact us.Millennials and baby boomers often steal the spotlight in real estate. But Generation X says it’s time for the housing market to pay more attention to them instead. Gen Xers are the only generation to purchase more homes last year than they did the previous one, according to the National Association of Realtors® Home Buyer and Seller Generational Trends survey. Gen Xers, aged 37 to 51, made up 26 percent of home buyers in 2015, but grew that percentage to 28 percent in 2016. “That group suffered the most” in the last recession, says Jonathan Smoke, chief economist of realtor.com®. “They were entering homeownership at the peak of the housing bubble and were also the ones most likely to suffer job losses.” During the crisis, many in the generation saw their homes go underwater as they owed more than their home was worth. But things are finally turning around for Gen Xers. The economy is stronger, housing values are up, and the job market is strengthening. Their incomes are up as well. Buyers earned a median of $106,600 a year, according to NAR’s survey. (Younger baby boomers, aged 52 to 61, earned $93,800 and millennials, aged 36 and younger, earned $82,000.) “Now, they’re actually in their prime earning years,” Smoke says. “And they’re also far more likely to have families. It makes complete sense that they’re coming back.” Generation X is the largest generation that has kids still living at home. As such, they’re moving for a better school district or finding a home that has enough bedrooms to accommodate their children, says Jessica Lautz, NAR’s managing director of survey research. Source: NAR

About 63 percent of all homeowners saw their equity increase last year. “Average home equity rose by $13,700 for U.S. homeowners during 2016,” says Frank Nothaft, chief economist for CoreLogic. “The equity build-up has been supported by home price growth and pay down of principal. Further, about one-fourth of all outstanding home loans have a term of 20 years or less, which amortize more quickly than 30-year loans and contribute to faster equity accumulation.” “Home equity gains were strongest in faster-appreciating and higher-priced home markets,” says Frank Martell, president and CEO of CoreLogic. Source: CoreLogic