Weekly Mortgage and Real Estate Report – Week of March 26, 2018

ECONOMIC COMMENTARY
The Aftermath 

Like the first two months of the year, March has been a very interesting month. From an economic perspective, the two “headline” events included a very strong employment report and the Federal Reserve Board announcing that they were raising rates for the fifth time in just over two years. And while these are very important events shaping the economic landscape, we have to remind ourselves that there are many other factors in play right now.

For example, while we witnessed the effect of the tax changes on the stock market even before the plan was enacted, the economic effects of the tax plan are just starting to hit. While the vast majority of the changes in the economy will be positive, we have already pointed out that the price to pay for stronger economic growth will be higher interest rates. These rates will affect consumers such as homebuyers, but also the government’s budget. For example, in February, the federal government racked up the largest deficit in six years because of lower tax receipts and increased spending — which included a higher bill for interest on the government’s massive debt.

Even the immigration debate and implementation of tariffs will influence the economy. One of the greatest needs today is more inventory for our nation’s homebuyers and builders are complaining about the lack of skilled labor to build our homes. Tariffs on lumber and steel will also have a negative effect upon the cost of building our homes, though it is hopeful that our domestic production can step-up and create more jobs while they fill in the gaps. Thus, there is no free lunch. Every change brings positives, but also costs. The good news is that the economy is stronger, and jobs are being created — plus homebuyers are waiting to purchase your home if you are willing to sell it!

REAL ESTATE NEWS
 Self-employed workers have a hard time demonstrating to residential lenders that they meet income requirements, according to The Wall Street Journal. Since self-employed workers don’t receive a W-2, lenders have to consult tax returns to verify the applicant’s income. The WSJ reports — That’s a challenge for lenders, because on one hand, self-employed applicants need to show enough income to qualify for a home loan. On the other hand, they want to lower their taxable income by taking deductions and write-offs that they’re legally entitled to. Self-employed business owners will often write-off personal and business expenses, such as office equipment and car leases. For this reason, net income reported on a tax return may not be an accurate reflection of business earnings, the report continues. WSJ offers tips for self-employed applicants: find a good accountant who can explain business cash flow to a potential lender and find a lender with enough experience to understand a self-employed applicant’s tax return. Source: Builder — Are you self-employed and considering purchasing? We have the experience to assist you.Seventy-two percent of renters “prefer” or “strongly prefer” to own a home rather than rent one, according to a SCE Housing Survey conducted by the Federal Reserve Bank of New York. Nearly 56 percent of renters view homeownership as a “good investment,” the survey finds. The majority of renters favor homeownership, despite expressing concerns about their ability to one day afford a home. However, they do believe it’s getting easier to qualify for a home loan. Sixty-five percent of renters say qualifying for a loan is “somewhat difficult” or “very difficult,” but that is gradually declining. Twenty percent of renters view qualifying for a home loan as “somewhat easy” or “very easy,” which is up from 15 percent in 2015. Renters also believe home prices will continue to increase one year from now as well as five years from now. They anticipate a 5.1 percent increase in prices over the next year. Source: Federal Reserve Bank of NY

Home buyers locked in heated bidding wars are increasingly turning to escalation clauses to keep their offers in play, The Wall Street Journal reports. Escalation clauses are addendums to real estate contracts in which a prospective buyer is able to submit an offer but then raise his or her offer in increments to a maximum amount if others submit competing offers. In competitive real estate markets where homes are fetching multiple bids, real estate professionals are finding escalation clauses a useful tool to eliminate the back and forth of offers and counteroffers. It also helps buyers avoid getting caught in a frenzy where they may end up paying more than what they intended. “A buyer can think of an escalation clause as a ‘have your cake and eat it too’ clause,” David Reiss, a Brooklyn Law School professor who specializes in real estate, told The Wall Street Journal. “But in real estate, as with cake, it is hard to have it all.” Reiss says a concern of escalation clauses is that buyers may be giving an advantage to sellers. With these clauses, buyers are indicating the maximum amount they are willing to pay for the house and revealing to the seller how much higher they are willing to go. Housing experts say that before using an escalation clause, buyers should see if it could affect the type of home loan available to them in the event the appraisal does not match the escalated price. Buyers also will want to be specific about the type of documentation the seller must provide before the escalation clause kicks in. Source: The Wall Street Journal

Advertisements

Weekly Mortgage and Real Estate Report – Week of March 19, 2018

ECONOMIC COMMENTARY
The Fed Meets Today

 

The Federal Reserve Board’s Open Market Committee meets today and tomorrow. While the vast majority of the world will be going about their business, thousands of financial analysts will be on the edge of their seats trying to determine what the Fed’s direction will be. Like all Americans, they are concerned that the Fed will raise short-term rates. However, this action would not be unexpected, and thus it is not the top concern of these analysts. They are more concerned about what the Fed will say about the future.

The markets have already built-in two to four rate increases this year into their thinking. But there is a big difference between two increases and four. Market rates have already moved up in anticipation of these rate hikes. Any talk of accelerating inflation from the Fed and the markets could become amped up further. If the Fed indicates that they remain on a slow and steady path of rate increases, we might see the markets calm down a bit.

For the most part, the economic news leading up to the meeting does not seem to indicate an overheating economy — except for last month’s jobs report. Existing home sales are constrained due to tight inventories, personal spending increases have been moderate and so has manufacturing growth. A slow and steady expansion actually could be the best news for all concerned, as we would see continued job gains without rates moving up to a point in which the economy starts to be adversely affected. 

REAL ESTATE NEWS
 Housing finance debates have long raised these questions: What is the ideal US homeownership rate, and what should be the federal government’s role in encouraging homeownership? Offered answers have lacked detailed evidence on the costs of homeownership versus renting. In a recent study we show that homeownership remains highly beneficial for most families, offering both financial gains and a way to build wealth. Home owning is especially beneficial for those who expect to own their home for a long enough period to overcome the sizable transactions costs and the cyclical volatility of home prices. We begin by determining what a homeowner would have paid to rent a comparable property. From this amount, which the homeowner saves, we subtract all the costs of homeownership, including operating costs, maintenance costs, property taxes, homeowner’s insurance, capital expenditures, and loan payments, to get the property’s cash flow. We then consider the tax deduction value for borrowers who itemize. Finally, to calculate the property’s internal rate of return, we consider the gain or loss from the sale of the home, the property’s cash flow each year, and 7 percent transactions costs from the sale. For example, a homeowner who kept the home for 14 years, from 2002 to 2016, had an annualized return of 10 percent without the tax benefit and 14.3 percent with the tax benefit. There were individual years within this window in which renting would have been more advantageous, but homeownership was advantageous most of the time, as demonstrated by the high annualized rates of return. The returns varied by the geographic areas examined. For access to the numbers behind these findings, Click HereSource: The Urban InstituteIf rates keep rising to break the 5% barrier, most homebuyers will go right ahead with their purchase anyway. Just 6 in 100 prospective homebuyers surveyed by Redfin said they would halt their planned home purchase if rates were above 5%, although a further 27% would slow their search. A quarter of respondents said that a 5% rate would make no difference to their plans, 1 in 5 would speed up their search and a similar share would look to cheaper neighborhoods or a smaller property. Three quarters of respondents nationwide thought home prices would continue rising in 2018, and 25% said they thought the increases would be significant. “Tight credit, lack of inventory and high demand are the major factors that tell us there’s no housing bubble, despite rapid price increases,” said Redfin chief economist Nela Richardson. “There are still many more buyers than the current housing supply can support, with no major relief in sight. Strict lending regulations make it much harder to buy a house you can’t afford than during the housing boom a decade ago. Finally, still-low interest rates somewhat offset high prices for some buyers.” Source: Redfin

Living with a roommate isn’t a trend only among renters, nor is it limited to families living in multigenerational homes. The latest U.S. Census Bureau data reveals a growing number of adults who are living with other adults with whom they are not in romantic partnerships. The trend increased after the last recession, and “nearly a decade later, the prevalence of shared living has continued to grow,” according to a new analysis of census data by the Pew Research Center. It was initially driven by millennials who moved back in with their parents. But the longer-term increase has been driven by parents moving in with their adult children or friends and roommates moving in together to share the costs of housing. Nearly 79 million adults—or 32 percent of the U.S. population—lived in a shared household in 2017. A shared household is defined as a one with at least one extra adult who is not the head of household, a spouse or unmarried partner of the head, or an 18- to 24-year-old student. For comparison, in 1995, 55 million adults—or 29 percent of the population—lived in a shared household, according to Pew Research. However, millennials living with their parents is still a popular trend. A separate Pew report in 2016 found that for the first time in 130 years, American adults ages 18 to 34 were more likely to be living in their parents’ home than living with a spouse or partner. Pew says that dating back to 1880, the most common living partner was a romantic one. Source: MarketWatch

Weekly Mortgage and Real Estate Report – Week of March 12, 2018

ECONOMIC COMMENTARY
The Jobs Machine HumsThe wild year has continued with regard to volatility in the markets, political headlines and, sadly, national tragedies. Through it all, we have seen three patterns emerge. First, the volatility has been focused mostly in the stock and bond markets. Stock gains were some of the strongest in memory in January and the losses in February came close to wiping out those gains. The bond market has been weak, and this has led to higher long-term interest rates.

Secondly, we have seen an economy which has continued to strengthen, but not overheat. There is no longer talk of the lack of inflation being a threat to growth. But, on the other hand, inflation has not been a major issue either. Lastly, up until now, jobs growth has been rather steady. Other than a hiccup late last year due to the devastating storms we had during the hurricane season, our jobs growth has been holding at a strong enough level to keep unemployment low.

February’s job report saw this trend grow stronger with 313,000 jobs added. The unemployment rate remained at 4.1%. With regard to wages, the story there showed no acceleration of wage growth. Overall this report was viewed as good news. For those waiting and wondering what the Federal Reserve Board’s Open Market Committee will do with interest rates next week when they meet, the consensus is that this report will not change the odds much that the Fed will increase rates. Nothing is a certainty, but if you listened to the Congressional testimony of the new Chairman, Jerome Powell, a rate hike this month is definitely a strong possibility.

REAL ESTATE NEWS
 The national homeownership rate reached its highest level since the fourth quarter of 2014, increasing slightly in the last quarter of 2017, according to the Quarterly Residential Vacancies and Homeownership report from the U.S. Census Bureau. The homeownership rate rose to 64.2% in the fourth quarter. This is up from 63.7% the year before and 63.9% in the third quarter. “After bouncing around near 50-year lows for the past few years, the national homeownership rate finally seems to be gaining sustainable, meaningful upward momentum,” Zillow Senior Economist Aaron Terrazas said. “The fourth quarter of 2017 was unseasonably strong, driven by buyers determined to make a deal in a highly competitive market. And for would-be buyers struggling to save for a down payment or figuring out how to make the monthly payment math work out, changes in the tax code that potentially put more money in their pockets could be the push they need to move out of an apartment and into a first home,” Terrazas said. “What’s even more positive news for the housing market is that much of the increase in the homeownership rate over the past year has come from 18 to 44-yearolds,” Trulia Chief Economist Ralph McLaughlin said. Source: HousingWireIf rates keep rising to break the 5% barrier, most homebuyers will go right ahead with their purchase anyway. Just 6 in 100 prospective homebuyers surveyed by Redfin said they would halt their planned home purchase if rates were above 5%, although a further 27% would slow their search. A quarter of respondents said that a 5% rate would make no difference to their plans, 1 in 5 would speed up their search and a similar share would look to cheaper neighborhoods or a smaller property. Three quarters of respondents nationwide thought home prices would continue rising in 2018, and 25% said they thought the increases would be significant. “Tight credit, lack of inventory and high demand are the major factors that tell us there’s no housing bubble, despite rapid price increases,” said Redfin chief economist Nela Richardson. “There are still many more buyers than the current housing supply can support, with no major relief in sight. Strict lending regulations make it much harder to buy a house you can’t afford than during the housing boom a decade ago. Finally, still-low interest rates somewhat offset high prices for some buyers.” Source: Redfin

Home builders and designers say demand is increasing for more flexible living spaces, giving rise once again to “bonus” or “multipurpose” rooms. Such rooms offer extra square footage for owners to create a space that fits their lifestyle. Baby boomers, for example, are showing interest in bonus rooms that could potentially serve as a first-floor master bedroom or suite. Out of the 20 top-selling floor plans on Houseplans.com, 13 include bonus rooms, according to the site. However, only 14 percent of all plans the site offers contain such rooms. They are usually located off the entry hallway near the main living space and a bathroom. The location makes it easy to transform the space into an extra bedroom, if needed. Bonus rooms also may be located above the garage. Homeowners use these extra spaces for anything from an in-law suite to a home theater. Some designers say real estate professionals shouldn’t label bonus rooms with a specific purpose when showing a home to their clients. Let buyers imagine for themselves how they’d use the room; this can also make the listing more appealing to them. “When you name it ‘dining room,’ they will always see it as a dining room; they will never get it out of their mind,” says Mark Mathis, co-owner of Hattiesburg, Miss.-based design firm House Plan Gallery. “We have found that labeling this type of area as ‘flex space’ on our floor plans best allows home buyers to decide how a particular space can be used to fit their specific family’s needs.” Source: The Wall Street Journal

Weekly Mortgage and Real Estate Report – Week of March 5, 2018

ECONOMIC COMMENTARY
The Fed Will Be WatchingThe minutes of the Federal Reserve’s January meeting were released the week before last. These minutes indicated that the Fed is comfortable that an expansion with “substantial underlying economic momentum” could sustain additional increases in interest rates this year. This statement was of no surprise to the markets, as rates have been increasing for several weeks now in anticipation of action by the Fed due to a strong economy.

With the next meeting of the Fed just two weeks away, obviously this statement heightens the possibility of a rate increase announcement at the March meeting. A rate increase at this meeting is not a certainty, but it definitely could happen. What could keep the Fed from holding off at this late juncture? The volatility of the stock market could be a factor, especially if additional drops become precipitous. Additionally, late economic data showing the economy is not as “hot” as expected would be taken into consideration.

The most important data is to be released this week. The jobs report is the first reading of data for February and is watched closely by the Fed. The Fed will be watching both the amount of jobs created, but also will be looking for any signs of stronger wage inflation. We may actually need a disappointing jobs report with no acceleration of inflation to convince the Central Bank from holding off at this point.

REAL ESTATE NEWS
 A clarification has been issued by the Internal Revenue Service about the deductibility of interest that is paid on home-equity and junior-lien products. The Tax Cuts and Jobs Act of 2017 was approved by Congress and signed into law last year by President Donald Trump and enacted on Dec. 22. Under the law, joint taxpayers can deduct interest on home loans up to $750,000. Married taxpayers filing separately can each deduct interest on loans up to $375,000. Among the provisions of the legislation is a suspension of the interest deduction for home-equity loans, home-equity lines of credit and second mortgages from 2018 until 2026. But an exception exists, according to IR-2018-32 issued by the agency. The clarification comes in response to many questions submitted to the IRS by taxpayers and tax professionals. When HELs & HELOCs are utilized to buy, build or substantially improve the residential properties used as security for the loans, the interest is deductible. An example of a deductible expense is when the proceeds from the loan are used to build an addition to an existing home. But if the proceeds are utilized to pay off personal expenses like credit cards, no deduction is allowed. As was the case under the prior law, the loan must be secured by a primary residence or second home, not exceed the cost of the home and meet other requirements. The IRS clarification was applauded in a written statement from the National Association of Home Builders. “This is a major victory for remodelers and for home owners who want to invest in their homes,” NAHB Chairman Randy Noel said in the statement. “NAHB has been pushing hard for this outcome since December.” Source: Mortgage DailyHome-building activity blew by expectations in January, with housing starts up 9.7 percent to a rate of 1,326,000, according to the latest data from the U.S. Census Bureau and the Department of Housing and Urban Development (HUD). Single-family housing starts increased 3.7 percent to 846,000. Starts for units in buildings with five units or more came in at 431,000. Additionally, permits increased 7.4 percent from December to 1,396,000, according to the data. Single-family permits were down 1.7 percent, however, to 866,000, while permits for units in buildings with five units or more came in at 479,000. Completions totaled 1,166,000 in January, falling 1.9 percent. Single-family completions increased 2.2 percent to 850,000, while completions for units in buildings with five units or more came in at 305,000. “Terrific news on housing starts in January with a solid 10 percent gain,” said Lawrence Yun, chief economist of the National Association of REALTORS® (NAR), in a statement. “This rise in single-family housing construction will help tame home price growth, and the increase in multi-family units should continue to help slow rent growth. The large gain in housing starts in the West (10.7 percent) is especially welcomed, as that region has been facing acute housing shortages. Ultimately, there is still large room for improvement given the fact overall housing inventory is currently near historic lows.” According to Yun, the ascent could cause the Federal Reserve to hit pause on rates. It will announce its decision to hold or raise them in March. “This boost in housing supply not only helps the economy but may also help the Federal Reserve temper the pace of future short-term rate hikes,” Yun said. “That’s because the slow upward creep in the broad consumer price inflation is principally being driven by rising housing costs. Simply put, more housing supply means a lower inflation rate, and potentially a slower pace of interest rate increases by the Fed.” Source: RIS Media

Optimism for homebuying increased to record highs to start the year. Fannie Mae’s Home Purchase Sentiment Index was up 3.7 points to 89.5 in January, reversing the decline in December. The net share of those who thought now is a good time to buy rose 3 percentage points and those who thought now was a good time to sell was up 4 percentage points. The net share of optimistic sellers was 23 percentage points higher than January 2017. There was an increase in the net shares of those expecting home prices to rise in the next 12 months (52%), those who are not concerned about losing their job (73%), and lower interest rates (minus 50%). “HPSI rebounded from last month’s dip to a new survey high in January, in large part due to the spike in consumers’ net expectations that home prices will increase over the next year,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “Results may continue to fluctuate over the coming months as consumers sort out the implications of the newly passed tax legislation on their household finances.” Source: Fannie Mae

Weekly Mortgage and Real Estate Report – Week of February 26, 2018

ECONOMIC COMMENTARY
Assessing ReturnsThere are many questions which have arisen because of the movements in the stock market and interest rates. For example, how high will interest rates need to go in order for investors to start thinking that they can achieve better returns than the stock market? That seems far-fetched because the stock market has done so well since the great recession, with the S&P gaining an average of over 10% per year. But, keep in mind that these gains have included a rebound from sharp losses during the recession and were fueled by record low interest rates.

And where would one go to achieve these better returns? One possible place would be real estate. One reason rates are rising is because recently, inflation has become a factor. Well, inflation has affected rents being paid and home prices for some time. If someone purchased a house five years ago, chances are they have done very well — whether they are living in the home or it is an investment property.

As we have said, this year’s wild ride has made it even tougher than normal to make predictions. It is possible that these gyrations could start affecting economic growth, despite the stimulus of the tax legislation. Investor and consumer confidence are really important factors — and neither likes to witness the uncertainty that volatility brings. The best news would be for the markets, rates and inflation all to calm down a bit as spring approaches. Next week’s jobs report could go a long way to convince the masses that everything is on-track and not overheating — if we don’t get a surprise on the low or high side.

REAL ESTATE NEWS
 Homeowners should find their homes adding value through the rest of this decade; but that means more pressure on affordability for buyers. A new report from independent mortgage insurer Arch MI calls for prices to rise 2-6% in each of the next two years. “With interest rates and home prices both on the rise, first-time homebuyers – largely Millennials – may want to consider making the jump from renting to owning sooner rather than later,” said Dr. Ralph G. DeFranco, Global Chief Economist, Mortgage Services, Arch Capital Services Inc. Despite the affordability challenges and the impact of the tax changes, DeFranco is not forecasting a bubble. “Our research shows few signs of a housing bubble because the typical warning signs aren’t present. Overall, the shortage of housing paired with a robust job market should keep the housing market strong and growing, short of an unexpected event and despite the contrary pressures that may be created by the tax bill,” he concluded. Source: Mortgage Professional AmericaHome sellers realized an average home price gain of $54,000 in the fourth quarter, the highest profit since before the Great Recession, said ATTOM Data Solutions, Irvine, Calif. The Company’s Year-End and 4Q 2017 U.S. Home Sales Report said average home price gains rose from $53,732 in the third quarter and from $47,133 a year ago to the highest since Q3 2007. That $54,000 average home seller profit represented an average 29.7 percent return on investment compared to the original purchase price, up from 28.8 percent in the previous quarter and up from 26.8 percent a year ago to the highest average home seller ROI since Q3 2007. At the same time, ATTOM reported homeowners who sold in the fourth quarter had owned their homes an average of 8.18 years, up from 8.12 years in the previous quarter and up from 7.78 years a year ago to the longest average home seller tenure as far back as data is available, Q1 2000. “It’s the most profitable time to sell a home in more than 10 years yet homeowners are staying put longer than we’ve ever seen,” said Daren Blomquist, senior vice president with ATTOM Data Solutions. ATTOM reported the U.S. median home price in 2017 at $235,000, up 8.3 percent from 2016 to a new high. Annual home price appreciation in 2017 slowed slightly compared to the 8.5 percent in 2016. Source: The Mortgage Bankers Association

Home shoppers without children are a growing segment in the housing market, and they tend to desire smaller houses than previous generations. The fertility rate among women 15 to 44 years old is at its lowest level since the CDC began recording such rates 108 years ago. As more couples delay having kids or opt to have fewer children, their needs in the housing market are very different than previous generations who tended to have bigger families. Fewer than eight in 10 childless buyers purchased a detached single-family home between July 2015 and June 2016, according to the National Association of Realtors®. Condos and townhomes are becoming a popular option among those who do not have children. In general, detached homes have been known to appreciate faster and hold their value longer than attached homes, according to Tamara Dorris, adjunct real estate professor at American River College in Sacramento, Calif. But that could change. “We’re seeing more and more people not having children by choice or purchasing homes as singles,” Dorris says. “These people tend to live in urban areas and have homes with less maintenance—such as attached homes.” Source: The Mortgage Reports

Weekly Mortgage and Real Estate Report – Week of February 12, 2018

ECONOMIC COMMENTARY
Rate Predictions and Perspective 

It is amazing how it seems every year we have predictions that interest rates will go up. And each year interest rates do go up. And then, they go back down. The yield of the 10-year Treasuries have gone up over 0.5% over the past few months. But they also went up just about the same amount during the winter of 2016-17. Similar rises were witnessed in 2015 and 2014, though the patterns were slightly different. Each time, rates came back down.

If we look at this pattern, we can conclude that rates are likely to come back down again, right? Not so fast. There is one intervening variable that occurred this year, as opposed to previous years. That variable is the tax legislation. Tax reform is designed to stimulate economic growth. In previous years, rates came back down because our economic growth never became too strong to ignite inflation. Nor did rates move high enough to scare the stock market into a correction, as has happened in the past week — not that stocks were not due for a correction after so many years of increases.

Some say that the Federal Reserve Board raising short-term interest rates makes higher long-term rates a certainty. But, we must remember, the Fed raised rates in 2015 and 2016, albeit not as quickly as 2017. In 2015 and 2016, the Fed was “normalizing” rates because the economy had stabilized. Now the economy is growing, and we have added a major stimulus. Rates are not rising because the Fed is raising rates, rates are rising because the markets and the Fed expect further economic growth. That being said, it is still impossible to predict the future of economic growth or rates. On the other hand, if you feel this is the last opportunity to take advantage of historically low rates, you may want to act accordingly.

REAL ESTATE NEWS
 The housing market could be on the verge of a shake-up, as well-established credit scoring requirements are being reevaluated by the Federal Housing Finance Agency (FHFA), potentially opening up the mortgage market to a greater number of aspiring homeowners. The FHFA is contemplating whether to change a longstanding requirement for lenders to assess potential buyers using FICO scores, which some believe limit the pool of applicants because they are dated and conservative. The agency announced on Dec. 20 that it was seeking feedback from industry stakeholders regarding competition and operational concerns related to the scoring process. The National Association of Realtors (NAR) said altering the model could help Americans that have traditionally struggled with homeownership prospects. “The National Association of Realtors is a strong supporter of utilizing newer, more predictive and inclusive scoring models, which we believe will responsibly expand access to housing credit and homeownership opportunities to more hardworking Americans, especially first-time borrowers and those who lack access to traditional forms of credit because of ‘thin’ credit files,” NAR President Elizabeth Mendenhall said in a statement to FOX Business. The FICO model was adopted many years ago, but now the FHFA is asking lenders whether it would be advantageous to open the playing field to other, potentially more modern scoring models. The scores the FHFA is currently assessing include Classic FICO (current model), FICO 9 and VantageScore 3.0. Jeff Richardson, the vice president of marketing and communications at VantageScore, says that VantageScore can score more people than FICO. Of the 7.6 million consumers with credit scores at or above 620 who would be eligible for a home loan, Richardson explained that some have been credit inactive for a while by choice, which could render them un-scoreable by FICO. “We score those people. We look deeper into their credit file,” Richardson said. VantageScore has said it can score about 30 million more people than FICO. Source: Fox BusinessBuyers paid more than the asking price in 24 percent of U.S. home sales in 2017, netting sellers an additional $7,000 each on average. Five years ago, 17.8 percent of final sale prices were higher than the asking price, according to the Zillow analysis. “Over the past year the American housing market has been struck by the combination of strong demand and limited supply,” the report said. “Young adult renters are increasingly feeling confident enough to buy, but they are entering a market with very few homes for sale, as inventory has been steadily declining for almost three years. Low interest rates have buoyed buyers’ budgets, raising the limits on what they can afford–and may be willing–to pay.” The report said homes sell quickly in such a competitive market, with the typical U.S. home selling in 80 days, including the time it takes to close on the sale. “Fierce competition means buyers may not win a home on their first offer. The typical buyer spends more than four months home shopping and has to make multiple offers before an offer is accepted,” according to the 2017 Zillow Group Consumer Housing Trends Report. Source: ZillowSpending on residential remodels will continue to grow at a modest pace in the next two years, said industry experts at a press conference hosted by NAHB Remodelers at the International Builders’ Show in Orlando. NAHB predicts that remodeling spending for owner-occupied single-family homes will increase 4.9% in 2018 and another 0.6% in 2019. Remodeler confidence has stabilized at a positive level, as remodeling spending topped $152 billion in 2017,” said 2017 NAHB Remodelers Chair Dan Bawden, CAPS, CGP, CGR, GMB, a remodeler from Houston. “There is steady demand around the country, but the cost of labor and materials is challenging remodelers’ ability to meet that demand.” Economists at NAHB elaborated on several reasons behind the projected growth. “NAHB estimates that real spending on home improvements will grow by nearly 5% in 2018, as below-normal rates of home building are creating an aging housing stock,” said Paul Emrath, NAHB’s vice president for survey and housing policy research. “Factors inhibiting stronger growth include the ongoing labor shortage and rising material prices.” Source: National Association of Home Builders

Weekly Mortgage and Real Estate Report – Week of February 5, 2018

ECONOMIC COMMENTARY
Jobs Numbers Released Post Fed 

And so, the Double Feature played out this week. First, we had a decision by the Federal Reserve Board not to raise the benchmark short-term rate at the present time. The markets were expecting this because the Fed had raised rates in December. However, all eyes were on the Fed statement and certainly this statement held out the possibility that they could raise short-term rates at their next meeting in March.

What data will the Fed be looking at in order to make a decision? Actually, the first report was released just two days later. Last week’s jobs report indicated that the economy had added 200,000 jobs in January. The number of jobs added for the previous month was revised upward as well. The unemployment rate came in at 4.1%, which was unchanged. Finally, the focus was upon the wage data, which showed that wages were up 0.3% month-to-month and 2.9% year-to year. The yearly wage increase was higher than expectations.

Why is the wage data important? With the economy humming and the stock market soaring, the Fed is now most concerned with the threat of inflation. And certainly, any increase in the growth of wages is a big component of inflation. The Fed will get to see another jobs report, as well as a revision of the first estimate of growth for the fourth quarter, before they meet again in March. If the numbers are strong, we could see another hike in short-term rates.

REAL ESTATE NEWS
 When touring open houses, watch for signs of larger issues with the property. Jenna Dougherty and Greta Eoff of the DeMasi Group at Keller Williams Realty in Davis, Calif., shared items that should raise alarms for potential buyers.

  • Overpowering scent. Don’t be too heavy-handed with scented candles or other fragrances, it could be a signal to buyers that you are trying to cover up the source of more serious odors, such as a musty smell from mold, pets, or something else.
  • Poor tiling. If there are gaps in the tiles or if the tiles are slightly uneven, it may indicate a poor DIY remodeling project that doesn’t meet professional standards.
  • Major cracks. Most homes have a few hairline cracks, but watch out for large cracks. Check for doors and windows that stick or cracks above window frames, which may indicate a larger foundation issue.
  • Mold. Open the cabinets around bathroom and kitchen sinks and look around the drains for any mold. Even small black or gray spots may indicate a more serious issue. Mold can signal water damage or improper ventilation in the home. Source: realtor.com®

Despite the impact on homebuyers of the tax reforms, economists are confident it will benefit the housing market. That’s because they predict that the positive impact for businesses will mean a boost for the economy and for jobs, handing the housing market new entrants and confident consumers. “We expect that tax reform will boost GDP growth to 2.6% in 2018, and this added economic activity will also bode well for housing, although there will be some transition effects in high-tax jurisdictions,” said NAHB Chief Economist Robert Dietz. “Ongoing job creation, expected wage increases and tight existing home inventory will also boost the housing market in the year ahead.” Not that it will be an easy time ahead for builders with shortages of labor and lots still challenging their ability to meet demand. The panel at a NAMB conference forecast that there will be 1.21 million housing starts with production up 2.7% year-over-year to 1.25 million units. Single-family starts will gain 5% this year and in 2019 to 893,000 and 940,000 respectively. Multifamily starts will decline 1.6% to 354,000 this year (from 360,000 projected for 2017). “Rates on home loans are expected to rise from 4 percent to 4.5 percent by the end of year,” said David Berson, senior vice president and chief economist at Nationwide Insurance “However, housing demand remains strong and wages are solid, and this will more than offset the negative effects from rising rates.” Source: The NAMB