Consumer watchdog tightens mortgage lending rules on banks

January 10, 2013 By Leave a Comment

In

Elise Amendola / AP

In this Thursday, Dec. 20, 2012, photo, a sign hangs in North Andover, Mass. The Consumer Financial Protection Bureau will force banks to verify a borrower’s ability to repay loans to ward off the kind of loose lending that helped push the U.S. economy into recession.

More than five years after the housing market collapsed, the U.S. government’s newly created consumer watchdog said Thursday it will force banks to verify a borrower’s ability to repay loans to ward off the kind of loose lending that helped push the U.S. economy into recession.

The Consumer Financial Protection Bureau said its new guidelines would also protect borrowers from irresponsible mortgage lending by providing some legal shields for lenders who issue safer, lower-priced loan products.

Lenders and consumer groups have anxiously awaited the new rules, which are among the most controversial the government watchdog is required to issue by the 2010 Dodd-Frank financial reform law.

“When consumers sit down at the closing table, they shouldn’t be set up to fail with mortgages they can’t afford,” Richard Cordray, the bureau’s director, said in a statement.

The new rules are intended to combat lending abuses that contributed to the U.S. housing bubble, when shoddy mortgage standards led American households to take on billions of dollars in debt they could not afford.

The U.S. economy is still feeling the after-effects of the bubble, which sparked a global credit crisis after it burst in 2006. As the housing market imploded, banks sharply tightened the screws on lending.

Regulators said the new rules would head off future crises by preventing irresponsible lending, without forcing banks to restrict credit further. Lenders will have to verify a potential borrower’s income, the amount of debt they have and their job status before issuing a mortgage.

And because lenders are likely to want the heightened legal protection that comes with offering certain “plain vanilla” loans, the rules could go a long way in determining who gets a loan and who can access low-cost borrowing rates.

Safe harbor for lenders
Dodd-Frank directed regulators to designate a category of “qualified mortgages” that would automatically be considered compliant with the ability-to-repay requirement. The rule was first set in motion by the Federal Reserve and then handed off to the consumer bureau in July 2011.

The consumer protection bureau said on Thursday that it would define “qualified mortgages” as those that have no risky loan features – such as interest-only payments or balloon payments – and with fees that add up to no more than 3 percent of the loan amount.

In addition, these loans must go to borrowers whose debt does not exceed 43 percent of their income.

These loans would carry extra legal protection for lenders under a two-tiered system that appears to create a compromise between the housing industry and consumer advocates.

Bank groups had lobbied the bureau to extend a full “safe harbor” to all qualified loans, preventing consumers from claiming in lawsuits that they did not have the ability to repay them. But consumer advocates wanted a lower form of protection that would allow borrowers greater latitude to sue.

Under the rules announced on Thursday, the highest level of protection would go to lower-priced qualified mortgages. Such prime loans generally will go to less-risky consumers with sound credit histories, the bureau said.

Higher priced loans would receive less protection. Lenders would be presumed to have verified the ability to repay the loan, but borrowers could sue if they could show that they did not have sufficient income to pay the mortgage and cover other living expenses.

Credit availability
Some lawmakers and mortgage lenders had warned against a draconian rule that could exacerbate the current credit crunch and set back a housing market that has become a bright spot in an otherwise tepid economic recovery.

Consumer bureau officials said they were sensitive to concerns about credit tightening, and they baked into the rules several provisions meant to keep credit flowing and to smooth the transition to the new regime.

The new rules establish an additional category of loans that would be temporarily treated as qualified. These mortgages could exceed the 43 percent debt-to-income ratio as long as they met the underwriting standards required by Fannie Mae, Freddie Mac or other U.S. government housing agencies.

The provision would phase out in seven years, or sooner if housing agencies issue their own qualified mortgage rules or if the government ends its support of Fannie Mae and Freddie Mac, the two housing finance giants it rescued in 2008.

Regulators also proposed creating a qualified mortgage category that would apply to community banks and credit unions.

Banks will have until January 2014 to comply with the new rules, the consumer bureau said.

 

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Fannie, Freddie short sales hit record high

January 8, 2013 By Leave a Comment

REO inventories down 36 percent from 2010 peak

BY INMAN NEWS, MONDAY, JANUARY 7, 2013.

Inman News®

<a href="http://www.shutterstock.com/pic.mhtml?id=50051371" target="_blank">Short sale sign</a> image via Shutterstock.
Short sale sign image via Shutterstock.

Loan servicers working on behalf of Fannie Mae and Freddie Mac signed off on a record number of short sales in the third quarter of 2012, according to a report from the mortgage giants’ regulator, the Federal Housing Finance Agency (FHFA).

Short sales and deeds-in-lieu of foreclosure totaled 37,966 for the three months ending Sept. 30, 2012, up 4 percent from the previous quarter and 23 percent from a year ago. Fannie and Freddie implemented accelerated timelines in June 2012 for reviewing and approving short-sale transactions.

Fannie and Freddie short sales and deeds-in-lieu


Right-click graph to enlarge. Source: Federal Housing Finance Agency.

The mortgage giants’ inventories of “real estate owned” (REO) homes also continued to decline, as Fannie and Freddie got rid of homes faster than they acquired them through foreclosures.

During the first nine months of the year, Fannie and Freddie acquired 197,507 homes through foreclosure, and sold 218,321 REOs and foreclosed homes.

Fannie and Freddie REO inventories (thousands of homes)


Right-click graph to enlarge. Source: Federal Housing Finance Agency.

All told, Fannie and Freddie had 158,138 homes in their REO inventories as of Sept. 30, 2012, down 13 percent from a year ago and a drop of nearly 36 percent from a Sept. 30, 2010, peak of 241,684.

Fannie and Freddie were placed under government control, or conservatorship, in September 2008. Since then, loan servicers working on their behalf have approved 2.1 million home retention actions, including 1.26 million permanent loan modifications.

During the same period, Fannie and Freddie acquired more than 1.1 million homes through foreclosure, and signed off on 413,436 short sales and deeds-in-lieu of foreclosure.

There have been about 4 million completed foreclosures nationwide since September 2008, according to data aggregator CoreLogic.

Of the 62,561 loan modifications completed in the third quarter, about 45 percent of borrowers saw their monthly payments decrease by more than 30 percent. More than a third of loan mods included principal forbearance. Less than 15 percent of loans modified in fourth-quarter 2011 had missed two or more payments as of Sept. 30, 2012, nine months after modification, the report said.

Since the beginning of the Obama administration’s Home Affordable Modification Program (HAMP) in April 2009, just over 1 million borrowers have been offered a trial loan modification, and more than half had been granted a permanent modification. Of those, 21.2 percent had defaulted as of the third quarter. The vast majority of the remainder, 428,946 borrowers, were in active permanent modifications as of the third quarter.

Since October 2009, Fannie and Freddie have offered 564,822 non-HAMP permanent loan modifications. Non-HAMP modifications made up two-thirds of all permanent loan mods in the third quarter, the report said.

The share of mortgage loans 30-59 days delinquent rose slightly to 2.08 percent of all loans serviced in the third quarter, but the share of seriously delinquent loans fell slightly to 3.39 percent. Seriously delinquent loans are those that are 90 days or more delinquent or in the process of foreclosure. More than half of seriously delinquent borrowers had missed more than a year of mortgage payments as of the end of the third quarter, the report said.

Nearly 3 in 10 of these deeply delinquent borrowers are located in Florida.

 

Courtesy of your Arcadia Real Estate Agent

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Housing Issues to Watch in 2013

December 17, 2012 By Leave a Comment

By Nick Timiraos

Home prices finally hit a bottom in 2012, well ahead of many predictions that called for continued price drops this year.

Prices were up 6% from one year ago in October, according to CoreLogic CLGX -0.26%, putting them on track for their best year since 2005. Housing starts, which hit a bottom three years ago, ramped up to their highest level in four years. Sales of new homes are running around 20% of last year’s levels, while existing home sales are up around 10%. Continued declines in homes listed for sale—particularly foreclosures—explain much of the improving price picture.

So will 2013 be the year of recovery or relapse? Evidence points more strongly to a continued rebound, albeit one that still has considerable headwinds and that varies from one market to another. This week, we’ll offer five areas of focus for 2013.

1. Don’t fear the shadow. For years, housing analysts have warned that a glut of delinquent mortgages—a so-called “shadow” inventory of eventual foreclosures—would overwhelm housing markets. That hasn’t happened.

On a national basis, the shadow inventory is still there, but it is slowly getting smaller. The number of homes that were 90 days or more past due or in foreclosure fell to around 3 million in October, down by more than 430,000 this year and nearly 1.3 million from the peak in 2010, according to Barclays Capital. Normally, there’s a “shadow” of around 800,000, which means the excess shadow supply stands at around 2.2 million.

Banks have slowed down their foreclosure processes and while those could ramp up in 2013, they’re unlikely to lead to a deluge of supply. Also, big declines in new construction over the past few years have pushed the current housing demand, however muted, towards absorbing the excess supply of foreclosed homes.

The shadow inventory is often discussed as a national phenomenon, but it isn’t really national anymore. States where banks have struggled to meet court-administered foreclosure processes have a significantly higher share of unresolved bad debt: around 5.9% of mortgages are in foreclosure in those judicial states, compared with fewer than 2% in nonjudicial states, according to Lender Processing Services.

Many housing markets “will swallow what foreclosures come to the market whole because we’re seeing inventory shortages develop, acutely,” says Jeffrey Otteau, president of appraisal firm Otteau Valuation Group in East Brunswick, N.J.

 

In New Jersey, which has the second highest foreclosure rate in the country, the bigger problem is that many foreclosures are concentrated in certain communities, particularly inner-city and rural areas. “Those markets are going to take it on the chin,” he says.

 

 

 

 

Courtesy of your Arcadia Real Estate Agent

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Housing recovery hinges on mortgage supply

December 11, 2012 By Leave a Comment

Commentary: Outstanding mortgages now below $10 trillion for first time since 2005

BY LOU BARNES, FRIDAY, DECEMBER 7, 2012.

Inman News®

<a href="http://www.shutterstock.com/pic.mhtml?id=97779053" target="_blank">Mortgaged home</a> image via Shutterstock.
Mortgaged home image via Shutterstock.

Markets are very quiet despite the usual first-week-of-month flood of new data. In the last week the 10-year T-note has not traded above 1.63 percent nor below 1.58 percent, and mortgages are holding just below 3.5 percent depending on borrower and property.

The November payroll survey estimate arrived with a 146,000-job gain. That’s better than forecast but garbled by Sandy, and we cannot know whether up or down. The unemployment rate fell to 7.7 percent, but may have been more distorted by Sandy than payrolls: The percent of unemployed fell because the surveyed workforce shrank.

“I’m calling from the Bureau of Labor Statistics. If you are not at work, do you still have a job but just can’t get to it? Have you quit looking for work because you’re demoralized, or because a tree fell on your car? Hello? Hello? You’re too cold to talk? You don’t seem to understand how important this call is to the nation. Hello? Is your phone out? Yes, I know that if it were we wouldn’t be talking. No need to be insulting.”

The Institute for Supply Management (“Purchasing Managers” in old days) takes two surveys at the end of each month. The manufacturing survey for November dumped two points from October to 49.5, the worst since 2009. The second one, for the service sector, rose to 54.7 from 52.3 in October. Tend to trust the manufacturing number: It has longer history, four decades versus one.

This morning the University of Michigan released its consumer confidence survey for December. It had been on a rising trend since late summer, up to 82.7 last month and was expected to stay there or higher, and instead tanked to 74.5. Economy rolling over? Republicans who just discovered who won in November? Nobody knows.


Without added mortgage supply, a genuine housing recovery lives only in the minds of the pollyannas.

Intermission for Fiscal Cliff. The election has brought order to Republicans, most of whom understand they could have had a better deal in 2011. House Speaker John Boehner fired two unruly Tea Pots from their committee posts, and South Carolina Republican Sen. Jim DeMint resigned altogether, headed for the Heritage Foundation, where he can screech in its phone booth undisturbed.

President Obama has less feel for his tax base and the economy than Mitt Romney for the people, but this time might not overreach his way out of a deal in plain sight. I think chances have reversed two bad weeks and improved now.

Back to reality. Each quarter the Fed releases Z-1, describing the movement and landing place of every buck in the financial system. Some new numbers are striking.

The net worth of U.S. households in the last 90 days rose by $1.7 trillion. Feel that?

Didn’t think so. A mere wobble in a base of $64 trillion. Which by the way is not a shabby net worth. Over the last year the wobbles have combined for genuine progress, a gain of $4.5 trillion.

The Fed estimates recovery of $1 trillion of the $7 trillion in home equity lost since 2006, a long way to go but moving. The other $3.5 trillion gained is in financial assets, most buried out of sight in pension funds, insurance company reserves, and retirement accounts, slow and quiet, but real.

Included in Z-1 are mortgage accounts. Yesterday’s release shows a pickup in post-Bubble plodding in some places, but a total stall in another. The overall figure contains both the good and the troublesome news: Aggregate U.S. residential mortgages have fallen by $88 billion in 90 days, $289 billion in the last year, and are now below $10 trillion for the first time since 2005 (from the $11.2 trillion peak in 2007).

Some of the overall decline is from overdue write-offs. Loans also disappear via sales and refis, but there is little of that in the worst stuff. The trash in private-label MBS is down to $936 billion from $2.2 trillion in 2007. Home equity loans (including seconds) from a same-year peak at $1.13 trillion have fallen to $790 billion.

The bad news: Without added mortgage supply, a genuine housing recovery lives only in the minds of the Pollyannas. The nation’s sole supply of new mortgages, Fannie-Freddie-FHA-VA, has been the same since 2009, about $5.8 trillion. All other sources, the “private” dreamland of government-haters, are just as inert as they have been since 2007.

When these mortgage aggregates begin to rise, then we’ll know that housing really is healing, and the economy with it.

Thanks to Bill McBride at www.calculatedriskblog.com, and his best-in-biz charts. He is more optimistic about today’s employment numbers, but I can’t see any of the “sustainable” progress here that the Fed is looking for, and expect them at their meeting next week to continue and even amplify QE3.


Graph via Calculated Risk Blog.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@pmglending.com.

 

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3 things to avoid when buying or sellin

December 10, 2012 By Leave a Comment

Mood of the Market

BY TARA-NICHOLLE NELSON, TUESDAY, DECEMBER 4, 2012.

Inman News®

Advice on what to do and how to do it is everywhere these days. Whether you want to know what to eat, how much money to save or how to learn a new language, it seems that the answers are a mere Google away.

And that has created its own set of problems, chief among them the issue of information overload. Sorting through the overwhelming inundation of information about how to proceed with any major life endeavor — including real estate matters like buying, selling or refinancing a home — has become a sort of pre-action step.

Often, the most helpful action-sorting, order-creating, overwhelm-abolishing advice turns out not to be advice about what to do, but advice about what not to do. To that end, here are my top three real estate don’ts:

1. Buy too soon. As I see it, the drive to buy a home before your finances, your family and even your personal development are truly ready (and the complicity of lenders who were all too happy to make loans to borrowers, prematurely) is to blame for much of the real estate mayhem we saw in the recent real estate recession.

If you have no money to put down, no cash cushion, poor spending, saving and debting habits, or uncertainty about how stable you and your household will be in the next five or so years, geographically and otherwise, buying a home is a move that is highly likely to end in a tale of woe.

As strongly as I believe in the power of homeownership, I have seen time and time again that it is better deferred until you are truly ready than rushed into and regretted.

2. Take it personally. Whatever it is. Buyers who get overly attached to a property, emotionally speaking, put themselves behind the eight ball when it comes to negotiations, and are also likely to panic and make bad decisions when it comes to responding to inspection reports and borrowing mortgage money.

Know that there are literally hundreds, possibly thousands, of prospective homes in your area that might fit your needs, so beware of allowing any single one to get you too worked up, before you have it in contract, have your inspection reports in hand, and have made it through appraisal and underwriting phases.

For sellers, the potential to take things personally is exponentially greater, given that your home is both your largest asset and the place that has been good enough for you and your family to live in for, perhaps, years. It’s very easy to get offended by everything from the real estate agent’s estimation of what your home is worth, staging and property preparation advice (which can feel like your taste and lifestyle are under attack), lowball offers, appraisals — you name it.

The very best practice is to find and work with professionals you trust, six months or even a year in advance of when you want to make your move, then be open and attentive to their advice, even if it hurts. Do not allow your emotional attachment to your home to get in the way of the financial and personal progress you seek from trying to sell it.

3. Avoid discomfort. As a general rule, many of the best things in life require us to go through some discomfort or small, recurring pain to get them. To get fit, you have to get up and exercise when you might feel like curling up and snoozing. To get ahead in your career, you have to exercise discipline in your work habits, putting in hours and ideas even when the going gets tough.

It is no different with real estate; in fact, the nature of the real estate game is so foreign to what most of us consider our zones of comfort and competence that making a series of informed, smart real estate decisions can actually require a series of uncomfortable commitments, several months or even years of agreement to endure little pains to reach your goal.

Whether your personal discomfort zone is triggered by one or all of the following:

  • staunching your spending hemorrhage.
  • saving money when you’d rather take a trip.
  • working through your financial maths repeatedly.
  • negotiating.
  • asking hard questions (and continuing to ask them until you are satisfied).
  • thoroughly reading literally hundreds of pages of disclosure, inspection, and homeowners association (HOA) and loan documents.

My last “don’t” is this: Don’t avoid any of these uncomfortable processes, practices and moments. They are each an essential element of the process of buying or selling or mortgaging a home with wisdom and long-term sustainability.

Tara-Nicholle Nelson is a real estate broker, attorney and the author of two critically acclaimed books on real estate. Tara also speaks and writes on the art and science of life transformation at RETHINK7.com.

Courtesy of you Pasadena Real Estate Agent

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Housing gains boost Fed’s money easing as rally spurs growth

December 6, 2012 By Leave a Comment
In this Feb. 8 photo, two workers carry a window for a home under construction in a new subdivision by Toll Brothers in Yardley, Pa. A revival in the U.S. housing market is amplifying the impact of the Federal Reserve's efforts to spur the world's largest economy.

In this Feb. 8 photo, two workers carry a window for a home under construction in a new subdivision by Toll Brothers in Yardley, Pa. A revival in the U.S. housing market is amplifying the impact of the Federal Reserve’s efforts to spur the world’s largest economy. / ALEX BRANDON/AP
Written by
Jeff Kearns and Shobhana Chandra
Bloomberg News

A revival in the U.S. housing market is amplifying the impact of the Federal Reserve’s efforts to spur the world’s largest economy.

Home values boosted by record-low mortgage rates are helping improve the finances of both households and banks. That’s easing the flow of credit, providing a further boost to the housing market and the economy, say economists at Bank of America Corp. and Deutsche Bank AG.

“We’re in the very early stages of a reinforcing cycle,” said Michelle Meyer, a New York-based senior economist at Bank of America, the second-biggest U.S. lender by assets. “The Fed has been quite impactful.”

Meyer predicts monthly housing starts could exceed 1 million at an annual rate by the end of 2013, compared with 894,000 in October.Residential construction may add to economic growth this year for the first time since 2005, boosting gross domestic product by 0.3 percentage point, said Deutsche Bank’s Joseph LaVorgna. That contribution may double next year and reach 1 percentage point when related industries such as furnishings and remodeling are added, he said.

“The one thing missing from this economic recovery was a healthy contribution from housing, and we might finally be on the cusp of that,” said LaVorgna, chief U.S. economist for Deutsche Bank in New York, who predicts GDP may grow about 2.5 percent in 2013. “Housing is going to be integral to the economy. We’re assuming it continues to do some of the heavy lifting.”

The Fed in September announced it would buy $40 billion a month in mortgage-backed securities in its third round of so- called quantitative easing.

The central bank’s purchases of housing debt have helped drive borrowing costs to all-time lows. The average fixed rate on a 30-year mortgage was 3.32 percent last week, close to the prior’s week’s 3.31 percent that was the lowest on record, according to Freddie Mac.

U.S. home prices jumped 6.3 percent in October from a year earlier, the biggest increase since June 2006, data provider CoreLogic Inc. said today.

Combined sales of new and existing dwellings climbed to a 5.16 million annual pace in October, up 40 percent from July 2010, which was the lowest since comparable data began in 1999. The S&P/Case-Shiller index of home prices in 20 cities climbed 3 percent in September from a year earlier, the biggest gain since July 2010.

‘An Accelerator’

“Monetary policy is working,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas SA in New York. “What we’ve seen is a very robust housing recovery this year, particularly in prices. It’s kind of an accelerator for other sectors of the economy, consumption in particular.”

Stronger demand is boosting sales at builders such as Toll Brothers Inc., the largest U.S. luxury-home builder, which today said revenue jumped 48 percent to $632.8 million in the three months ended Oct. 31, while net contracts signed surged 75 percent.

The Standard & Poor’s Supercomposite Homebuilding Index, which includes Toll Brothers and PulteGroup Inc. among its 11 members, has climbed 77 percent this year, compared with a 12 percent increase for the broader S&P 500 Index. PulteGroup, up 171 percent this year, is the biggest gainer in the S&P 500.

The benchmark gauge of U.S. equities slumped 0.1 percent to 1,407.84 as of 3 p.m. in New York. The yield on the 10-year Treasury note retreated 0.01 percentage point to 1.61 percent

“If we can get ourselves into a positive, virtuous circle here with rising house prices, rising construction, improving employment, I think that part of that process will be easing of mortgage-lending conditions,” Fed Chairman Ben S. Bernanke said Nov. 20 in response to audience questions after a speech in New York.

The central bank’s efforts “are having the desired effects” by reducing mortgage rates, San Francisco Fed President John Williams said in a Nov. 14 speech, and the housing rebound “should be a key driver of economic growth.”

To be sure, housing is “far from being out of the woods,” in Bernanke’s words. Sales and prices are below pre-crisis levels, and about 20 percent of borrowers owe more than their homes are worth, Bernanke said in Nov. 15 speech in Atlanta. Residential investment now accounts for 2.5 percent of nominal GDP, down from a peak of 6.3 percent in 2005.

Hurdles Remain

Builders sold fewer new homes than forecast in October and purchases were revised down for the prior month, showing the industry still faces hurdles such as an unemployment rate that’s stuck around 8 percent three years into the economic recovery.

Williams last month said the central bank will probably start buying $45 billion a month of Treasuries next year in addition to the current $40 billion of debt purchases. The policy-setting Federal Open Market Committee meets Dec. 11-12.

“The unemployment rate remains unacceptably high,” New York Fed President William C. Dudley said in a speech yesterday.

Still, for those with jobs, low interest rates are a boon. Among them are Danny and Pat Yorkovich, who decided to buy a bigger house after 18 years in their current residence. They signed a contract on a new, three-bedroom ranch-style home in Charlotte, North Carolina, in November.

“The interest rates were good,” said Danny Yorkovich, 44, who works as an office manager. “We didn’t owe anything on the home we had, and had been saving up and waiting for the right time to purchase.”

New-home sales ripple through the economy as buyers spend an average of $8,000 on household items, including furniture, appliances and landscaping, according to David Crowe, chief economist for the Washington-based National Association of Home Builders.

That’s benefiting companies like Atlanta-based Home Depot Inc., the largest U.S. home-improvement retailer, and Lowe’s Cos., the second-biggest, which both reported higher third- quarter profit as sales rose. Shares of Home Depot have climbed 53 percent this year, while Mooresville, North Carolina-based Lowe’s is up 40 percent.

Even those who aren’t moving are spending more on furnishing and remodeling, according to Robert Niblock, chief executive officer of Lowe’s.

“The bottoming of home values gives that homeowner psychological permission to spend on their homes again,” Niblock said in a Nov. 19 telephone interview.

Cutting Debt

Household finances are improving, putting consumer demand on a stronger footing. Americans have cut debt by $1.37 trillion from the peak in 2008, according to Federal Reserve Bank of New York data. Household indebtedness shrank by $74 billion to $11.31 trillion during the third quarter.

Lending tied to real estate is reviving. After six years of declines, home equity lines of credit will rise 30 percent to $79.6 billion in 2012, the highest level since the start of the financial crisis in 2008, according to Moody’s Corp.

The Fed’s record easing policy is “a very big part” of why banks are becoming more inclined to make home loans, Bernanke said Nov. 20.

The benefits of lower borrowing costs and the housing industry’s improvement are starting to accrue for both the broader economy and the Fed’s monetary policy, according to Guy Berger, a Stamford, Connecticut-based U.S. economist at RBS Securities Inc., one of the 21 primary dealers authorized to trade directly with the Fed.

“Housing is gumming up the economy and financial markets less than it was,” Berger said. “The housing market’s improvement does give a little bit more bang to the buck.”

 

Courtesy of you Pasadena Real Estate Agent

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Is Buying a New Home Like Buying a New Car?

December 5, 2012 By Leave a Comment

DATE:DECEMBER 3, 2012 | AUTHOR:BRENDON DESIMONE

When you drive a new car off the lot, it immediately loses some of its value. Does the same apply to real estate? And if so, should you care?

For years, the new construction and development market has been sluggish. But now, banks are lending again for new construction, and developers are ready to build in full force. In major cities such as New Yorkand San Francisco dozens of new projects are in some phase of planning, construction, development and sale. In the suburbs and country, national home builders with large parcels of land are ready to develop communities of new homes.

Buyers in any market are faced with the decision to buy a “used” home vs. a new one, of course. But it’s becoming a little more likely today that buyers will find brand-new homes from which to choose as well as pre-existing ones. Here are some things to consider when you face that choice.

Real estate generally appreciates

Any chart will show you that real estate values typically rise over a long period of time. So if you’re in it for the long haul and can commit to at least five or 10 years, don’t be overly concerned with your home’s resale value. On the other hand, in today’s highly mobile world, it might be more difficult to realize an increase in your home’s value if you sell too soon. If you’re not sure you can commit to a home, new or used, for at least five years, you might be better off renting.

Does the new car theory ever apply?

If you’re selling a home that’s five to 10 years old, you might think such a property is still “new,” and you shouldn’t have a problem selling. However, a buyer choosing between a brand-new home and a “used” one may go for the newer one if they can afford it. So, given two homes with similar floor plans and locations, the newer one should sell for more. The owner of the older home, then, might believe the new car rule — that the purchase depreciates in value over time — does in fact apply to real estate.

The reality is, you just can’t compare your home’s value to that of a newer home; it’s not an apples-to-apples comparison. Though your home’s value may be less than what a nearby new property sells for, it’s important to consider your original purchase price. At the time you bought your home, that price was based on the fact it was new, as well as the values associated with a new home vs. an older home. The bottom line: Though your home may not be worth as much as a brand-new, comparable home, it has most likely appreciated from the time you bought it, along with the larger market.

Maintenance of a new vs. an existing home

A new home comes with warranties not only on the appliances and systems but often from the developer as well. A good developer will stand by his work for at least one year. That means if there is a leaky window or a broken tile or floorboard, the developer would likely remedy the situation at no cost to you. Though a home warranty is always available through a third party, a buyer of a home that’s five years old likely won’t benefit from the original manufacturer’s warranties in place at the time the home was built.

Many buyers don’t want the headaches associated with a 50- or 100-year-old home. However, there’s some truth to the old saying that “they just don’t make homes like they used to anymore.” For example, it would be nearly impossible, let alone financially unfeasible, for a builder today to construct an Italian Stick Victorian home or a Frank Lloyd Wright-style house. And so, there’s inherent value in owning a historic home. There are fewer of them, and their uniqueness will set them apart. When the buyer goes to sell, she’s likely to find the home is worth more than other comparable, newer properties. Conversely, if you’re selling a 2-bedroom, 2-bath standard floor plan home, you’ll probably be competing with other homes built with similar materials and within the same time period. You’ll need to do something to make your home stand out and be more attractive to buyers.

Home first, investment second

Obviously, the fact that a brand-new car loses some value the moment it’s driven off the lot doesn’t stop people from buying new cars. Nor should it. There’s something to be said for that new-car smell, for the extended warranty it comes with, for being the first to own it. Many people spend a lot of time in their cars. They see it as a necessity, something they should enjoy and be comfortable in.

The same is true for a home. While it’s important to understand its value and your investment over time, don’t obsess over it. If the home is right for you given your situation and your timing, that’s the home you should buy, whether it’s new or old. You’ll be spending a lot of time and making many memories there. It’s where you’ll lay your head at night after a hectic workday or long business trip. It’s your home first and an investment second.

Courtesy of you Pasadena Real Estate Agent

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What’s Really Driving The Housing Recovery?

November 29, 2012 By Leave a Comment

Lance Roberts, Street Talk Live | Nov. 28, 2012, 7:44 PM | 2,773 | 1
As of late there has been a flood of commentary written about the housing recovery pointing to the bottom in housing and how the revival in housing will drive economic growth in the years ahead.  Just recently USA Today wrote:

“Six years since the start of the greatest housing collapse since the Great Depression, one doesn’t have to look very far to see signs of a recovery. Nationally, home prices are rising after more than a 30% drop since mid-2006. More good news arrived Tuesday, as the Standard & Poor’s/Case-Shiller home price index reported third quarter prices were up 3.6% from a year ago and September’s 20-city index reached its highest level in two years. Foreclosures have slowed in most of the country after having decimated hundreds of U.S. cities. Rather than being a drag on the U.S. economy, housing is now seen as a contributor to growth.“

It is true that the revival in the housing market is a positive thing and is certainly something that everyone wants.  However, the hype surrounding the nascent recovery to date may be a bit premature.  The chart below shows the Total Housing Activity Index which is a composite index of new and existing home sales, permits and starts.  The blue dashed box represents encompasses the much ballyhooed recovery since the recessionary lows.

 

housing

 

There is no argument that housing has improved from the depths of the housing crash in 2010.  However, while the housing market remains at very recessionary levels, recent analysis assumes that this has been a natural, and organic, recovery.  Nothing could be further from the truth as analysts have somehow forgotten the trillions of dollars, and regulatory support, infused to generate that recovery.

I recently penned an article showing the $30 trillion, and counting, that has been thrown at the economy, and financial system, to keep it afloat over the last 4 years.  Of that, trillions of dollars have been directly focused at the housing markets including HAMP, HARP, mortgage write downs, delayed foreclosures, government backed settlements of “fraud closure” issues, debt forgiveness and direct buying of mortgage bonds by the Fed to drive refinancing and purchase rates lower.  Of course, the Fed has also maintained its ZIRP (zero interest rate policy) during this same period with a pledge to keep it there until at least 2015.

The point here is that while the housing market has recovered – the media should be asking “Is that all the recovery there is?”  More importantly, why are economists, and analysts, not asking the question of “What happens to the housing market when the various support programs end?”   With 30-year mortgage rates below 4% we should be in the middle of the next housing bubble – not crawling along a bottoming process.

But it is in this nascent recovery that we should be recognizing the true state of the average American family.  Without such massive intervention it is unlikely the housing market would be showing much of a recovery considering the decline in real wages, and household incomes, over the last four years.  Furthermore, while there has been much written about the deleveraging of the household balance sheet - the latest quarterly report shows that the only real decline in debt occurred in the mortgage segment.  What wasn’t discussed by the Fed is HOW the deleveraging was accomplished which was done though serial refinancing (I am a prime example of 4 times in the last 3 years), foreclosures, short sells, and write downs.  Not exactly a bullish commentary of the strength of the average American household.

Lastly, while residential construction only makes up slightly more than 2% of GDP, there is a limit to how much further the current recovery will go.  The decline in housing reached extreme levels during the crisis and was due for a bounce back to normal activity levels.  We are rapidly approaching an equilibrium of current supply and demand in the market.  According to David Rosenberg:

“We estimate that the builders have caught up about 90% of the way with the recent improvement we have seen in the underlying demographic demand.  There may be more upside in terms of pricing ahead.  But it is going to be limited and we are not far off seeing some plateau until we start to see the demand indicators improve more forcefully, especially from the first-time buyer, who has been quite dormant during this nascent turnaround in the housing sector.”

That may also explain where there has been no increase in the number of residential construction workers during this entire recovery.  While home builders sentiment may be ebullient – their actions tell a different story.

 

housing

 

Much of the current buying in the housing market has come from speculators and investors turning housing into rentals.  This, however, has a finite life and rising home prices will speed up its inevitable end as rental profitability is reduced.  Furthermore, the majority of home building has come in multifamily units, versus single family homes, and that segment has been growing faster than underlying demand.

It is important to understand that housing will recover – eventually.  However, the reality of that recovery could be far different than what the current media and analysts predict.  In an economy that is expected, according to the Federal Reserve, to have a long term economic growth trend of 2.6% – a recovery to historic norms, much less the pre-crises peak, is highly unlikely.  However, for now, the housing market is recovering and that is a good thing – just remember what is really driving it.

Read more: http://www.streettalklive.com/daily-x-change/1351-housing-what-has-been-forgotten.html#ixzz2De2Jy3UL

COURTESY OF YOUR NUMBER ONE ARCADIA REAL ESTATE AGENT

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Could Housing Be the Antidote to the ‘Fiscal Cliff’?

November 15, 2012 By Leave a Comment

By: Jeff Cox
CNBC.com Senior Writer

CHICAGO — At a time when most investment professionals are preoccupied with the fiscal peril in Washington, Liz Ann Sonders envisions an economic recovery that will be built, literally, with four walls.

Martin Poole | Stockbyte | Getty Images

Just as it helped trigger the Great Recession, housing also is serving as the lynchpin to growth ahead, said Sonders, chief investment strategist at Charles Schwab.

“People are still underestimating the impact that this is going to have,” she said at the Schwab Impact 2012 conference, where thousands of investment professionals are gathering to chart an uncertain future in financial markets. “What people are underestimating is the ripple effect of confidence.”

While its growth has been far from parabolic, housing has survived what Sonders described as “the third consecutive growth scare” this summer that centered not only on the European debt crisis but also on the slew of fiscal issues facing the U.S. (Read More: Housing Still Precarious in Obama’s Second Term)

The country is wallowing through another year of budget deficits in excess of $1 trillion and national debt that has exceeded the $16 trillion mark.

What’s more, if Congress and President Barack Obama fail to reach deficit-reduction targets, the nation faces going over what Federal Reserve Chairman Ben Bernanke has labeled the “fiscal cliff.”

That entails a round of tax hikes and spending cuts that automatically goes into effect in 2013 and, if not averted, likely would send the U.S. back intorecession.

Sonders said it’s vital to avoid the cliff, particularly at a time when housing is improving and as the U.S. can’t rely on developing economies for its growth. (Read More: ‘Fiscal Cliff’ Mess Is a ‘Grand Canyon’: Bill Gross)

 

 

“We are the cleanest shirt in a pile of dirty laundry,” she said in describing the state of the U.S. economy. “It’s not stellar growth, but certainly the trajectory has improved relative to the rest of the world.”

Sonders points to a slew of indicators — builder confidence, home prices and household formation among them — to show that the real estate market is showing steady progress, albeit gradual.

The Census Bureau recently reported that 1.12 million new households were formed over the past year, a turnaround from the post-recession years though not yet fast enough to make up for the households lost during the downturn.

Household formation fell during the recession as many young adults moved back in with their parents, a trend that has begun to turn.

As for builder confidence, a popular index measuring sentiment is still at levels indicating a weak market, but on the other hand is at its highest level in more than six years.

“Just about every metric in housing is starting to turn here,” she said. “We’re finally having a surge in household formation. We have the right kind of supply and demand balance.”

Still, Sonders knows the economy faces a number of other challenges — the fiscal cliff and all the rest.

“I still see some concerns in the long term,” she said. “We have a lot of traction we have to get in the near term.”

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NAR: Housing to Rebound Through 2014

November 13, 2012 By Leave a Comment

Fri, 2012-11-09 16:14 — NationalMortgag…

For Sale/Credit: Stockbyte

The housing market recovery should continue through the coming years, assuming there are no further limitations on the availability of mortgage credit or a “fiscal cliff,” according to the National Association of Realtors (NAR).

“Existing-home sales, new-home sales and housing starts are all recording notable gains this year in contrast with suppressed activity in the previous four years, and all of the major home price measures are showing sustained increases,” said Lawrence Yun, chief economist for NAR. “Disruption from Sandy likely will be temporary, notably in New Jersey and New York, but the market is likely to pick up speed within a few months with the need to build new homes in damaged areas.”

Yun sees no threatening signs for inflation in 2013, but projects it to be in the range of four to six ercent by 2015.

“The huge federal budget deficit is likely to push up borrowing costs and raise inflation well above two percent,” said Yun.

Rising rents, qualitative easing (the printing of money), federal spending outpacing revenue, and a national debt equal to roughly 10 percent of Gross Domestic Product are all raising inflationary pressures. Mortgage interest rates are forecast to gradually rise and to average four percent next year, and 4.6 percent in 2014 from the inflationary pressure.

With rising demand and an ongoing decline in housing inventory, Yun expects meaningfully higher home prices. The national median existing-home price should rise 6.0 percent to $176,100 for all of 2012, and increase another 5.1 percent next year to $185,200; comparable gains are seen in 2014.

“Real estate will be a hedge against inflation, with values rising 15 percent cumulatively over the next three years, also meaning there will be fewer upside-down home owners,” Yun said. “Today is a perfect opportunity for moderate-income renters to become successful home owners, but stringent mortgage credit conditions are holding them back.”

Existing-home sales this year are forecast to rise nine percent to 4.64 million, followed by an 8.7 percent increase to 5.05 million in 2013; a total of about 5.3 million are seen in 2014. New-home sales are expected to increase to 368,000 this year from a record low 301,000 in 2011, and grow strongly to 575,000 in 2013. Housing starts are forecast to rise to 776,000 in 2012 from 612,000 last year, and reach 1.13 million next year.

“The growth in new construction sounds very impressive, and it does mark a genuine recovery, but it must be kept in mind that the anticipated volume remains below long-term underlying demand,” Yun said. “Unless building activity returns to normal levels in the next couple years, housing shortages could cause home prices to accelerate, and the movement of home prices will be closely tied to the level of housing starts. Home sales and construction activity depend on steady job growth, which we are seeing, but thus far we’ve only regained half of the jobs lost during the recession.”

Yun projects growth in Gross Domestic Product to be 2.1 percent this year and 2.5 percent in 2013. The unemployment rate is showing slow, steady progress and is expected to decline to about 7.6 percent around the end of 2013.

“Of course these projections assume Congress will largely avoid the ‘fiscal cliff’ scenario,” Yun said. “While we’re hopeful that something can be accomplished, the alternative would be a likely recession, so automatic spending cuts and tax increases need to be addressed quickly. People who purchased homes at low prices in the past couple years, including many investors, can expect healthy growth in home equity over the next four years, while renters who were unable to get into the market will be in a weaker position because they are unable to accumulate wealth.  Not only will renters miss out on the price gains, but they’ll also face rents rising at faster rates.”

Yun projects the market share of distressed sales will decline from about 25 percent in 2012 to eight percent in 2014.

 COURTESY OF YOUR NUMBER ONE ARCADIA REAL ESTATE AGENT
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