February 26,02014 Real Estate Report

Oil Hits $100
Another effect of a long and cold winter is invariably the rising cost of energy. Energy bills get hit with a double whammy in a cold winter. First, homes use more energy for heating purposes because of the cold and because we are home more often and secondly the cost of the energy we use goes up because of higher demand. Thus after a nice respite with lower energy costs which helped the economy last year, we start this year with oil prices hitting a benchmark of $100 per barrel in the middle of February with natural gas prices rising as well. The next question is--will this hurt the economy?
When consumers spend more on energy costs, this leaves less discretionary income to spend elsewhere. So it is not surprising that we saw a weak report on retail sales released recently. We should also point out that more energy used by homes also increases economic output and this will factor in the first quarter numbers as well. However, it is the cold spurring higher energy prices--not stronger economic growth. The cold winter will end soon. This means that higher energy prices could be a temporary phenomenon.
Or, if the economy is bolstered by latent demand after the long and cold winter, these levels could be the new normal. Energy costs affect more than consumer spending -- they affect consumer trends as well. For example, higher energy costs spur housing sales closer to the center of cities versus the far out suburbs. This is part of a trend that has been occurring over the past decade. Thus, the cost of oil and gas bears watching even when we are not at the pump enjoying the better weather ahead. Meanwhile we will see economic reports this week covering consumer confidence, personal income and spending, as well as pending and new home sales as we approach another wave of jobs data next week.

Even though new federal rules for home loans kicked in this year, and lenders’ standards remain high, Americans are increasingly likely to think it’s “easy” to get a home loan, according to a report released recently. Last month 52% of respondents to a survey from federally controlled mortgage buyer Fannie Mae said they thought it would be “easy” to get a home loan today. That share was a record-high for the series, which goes back to mid-2010. Fannie’s survey polls 1,000 American adults each month. January’s result should be good news for housing-market observers who have been concerned about the impact of new rules, along with rising rates, on demand. It seems that at least some would-be borrowers aren’t letting an evolving marketplace get them too down. Indeed, 70% of Fannie’s respondents said in January that they would buy a home if they were to move, matching a series high hit in October. While Fannie’s results may be a bit surprising, recent data from the Federal Reserve signaled that some large banks are easing standards for prime home mortgages. Source: Market Watch
The housing market is heating up, yet many house hunters are not prepared to take on the biggest purchases of their lives. When it comes to home loans, homebuyers answered basic questions about terms, how to choose a lender and financing wrong nearly one-third of the time, according to an April survey of more than 1,000 current and prospective homeowners by real estate website Zillow. Among the survey's findings, 31% of buyers don't think it's possible to get a home loan for less than 5% down; 34% don't know what the term "annual percentage rate" (APR) means and one in four believe you must close with the lender that pre-approves your home loan. And 24% of buyers believe the best deals are available through the banks where they currently have their savings and checking accounts, but often competing lenders can undercut those banks by large margins. "If a homebuyer can lower their interest rate by even half a percentage point, they can not only increase their purchasing power, but save thousands of dollars over the life of the loan," said Lantz. Many house hunters go shopping with financing in place because it enables them to act more quickly if they see a home they want. But 26% of buyers believe that once they're pre-approved, they're obligated to close the deal with those loans, according to the survey. In reality, there's no obligation. If buyers see better terms available they should take them. Existing homeowners can also be guilty of ignorance. Some 20% of homeowners surveyed didn't know that underwater loans -- those in which borrowers owe more than their homes are worth -- can be refinanced into lower rate loans. Finally, the survey found that nearly a third of homeowners are unaware that if they go through a foreclosure or short sale, they may not have to wait the full seven years it takes for their credit score to recover and they can buy a home again. In reality, some homeowners who do short sales can obtain financing to buy another home in as little as two years. Source: CNN/Money

Builders are expected to increase new-home production in 2014, but the sector continues to grapple with several challenges that could hinder its progress, economists said at the National Association of Home Builders International Builders’ Show this week in Las Vegas. "Consumers are back, pent-up demand is emerging, there is a growing need for new construction, distressed sales are diminishing, and builders see it,” says David Crowe, NAHB’s chief economist. However, builders continue to face rising costs for building materials, difficulties in obtaining appraisals that reflect builders’ prices, and limited availability in labor and developed lots, Crowe says. Borrowing costs will likely inch higher this year since rates are expected to climb as the Fed begins to taper its $85 billion per month bond-buying stimulus program. Still, "regarding rates, we've gone from dirt cheap to cheap, and I think we will see a gradual rise of about a half a percentage point to 5 percent in 2014," says Frank Nothaft, Freddie Mac’s chief economist. Even then, he adds, "most markets will remain quite affordable." New-home sales are averaging 8.7 percent of total home sales – just barely half the historical average of 16.1 percent, according to NAHB. Crowe projects 1.15 million total housing starts in 2014, up nearly 25 percent from the 2013 total of 928,000 units. Single-family production is expected to increase 32 percent in 2014 to 822,000 units, and then rise an additional 41 percent to 1.16 million units in 2015. Source: NAHB

Landmark Bank Jennifer Odom

The Real Estate Report

The Bright Side

It is hard to look at the bright side of a very cold winter which seems to have interrupted the economic recovery and kept most of the nation indoors for much of the winter. Cold winters also increase the price we pay for energy and this winter has been no exception. So where is the bright side? The bright side will be found within the real estate sector. For years the nation's real estate has been on sale with ridiculously low interest rates and low home prices.
Last year, the sale waned a bit as demand picked up. Homes were still affordable in most areas of the country -- especially as compared to renting. However, rates did rise for most of last year and home prices escalated as well. Well, severe winter weather also slows down the pace of home sales. Who wants to go look for a new home when it is covered in snow? Even potential sellers are less likely to list their homes in frigid weather. The tough winter weather has slowed down the increase in home prices and given us a respite from rising rates. At least temporarily.
We emphasize the word temporarily. Winters don't last forever and when the snow melts there will likely be latent demand. We are not saying that real estate will get smoking hot --- but we do know that there will be many who will take advantage of the opportunity that this winter has presented. We can't make predictions but we do know that the winter will end and people who are suffering from cabin fever will come out and typically look at homes and neighborhoods. If the rush becomes really strong, then the temporary respite in rates and prices will not last long. If it is a more orderly return to normal, the effect may be mitigated somewhat.

The National Association of Home Builders’ Remodeling Market Index shows remodeling activity at its highest reading since the first quarter of 2004. The index was at 57 in the fourth quarter of 2013. Any reading above 50 indicates more remodelers report market activity is higher than those who report lower. The index’s future market conditions rose to 58, the highest reading since recording of that measure began in 2005. "Steady existing home sales, historically favorable interest rates for home buyers and rising home equity have combined to release some of the pent-up demand for home remodeling from the past few years," says NAHB Chief Economist David Crowe. "This quarter's RMI reading shows that the slow but steady improvement in the remodeling market will continue in 2014." The National Association of the Remodeling Industry’s fourth quarter Remodeling Business Pulse data also showed an uptick in remodeling activity. The biggest reasons cited for an increase in home remodeling were home owners needing to do projects they had postponed and improving home prices. Source: Realtor Daily News
Those who have undergone a previous short sale need to pay careful attention to their credit report to make sure it was reported accurately by the lender, especially if they want to apply for a new home loan anytime soon. The short sale may erroneously appear on their credit report as a foreclosure, a blemish that could haunt them much longer and prevent them from obtaining a new loan because it’s a red flag to a lender. Typically, when lenders report on a short sale, they’ll say, “settled for less than full balance.” That’s a key indicator for a buyer's new lender to see because it shows that the previous property was a short sale, not a foreclosure, according to Credit.com. Lenders have the responsibility to report accurately to the credit bureaus. Credit.com says these credit report codes will also hamper a borrowers’ ability to qualify for a home loan any time soon: Chapter 5, 8, or 9 – which are often synonymous with a foreclosure. A short sale borrower is eligible for conventional loan financing 24 months after a short sale at 80 percent loan-to-value or lower. If it’s a foreclosure, however, they may have to wait up to seven years to qualify for a conventional loan, or four years if they can prove it was a one-time economic hardship situation that caused the foreclosure. Borrowers who have the short sale inaccurately noted in their credit report will need to contact the creditor and likely supply a final settlement statement showing the previous property was a short sale, as well as a copy of the grant deed transferring the property from them to the buyer. Source: Credit.com

Investors are flipping houses again, a trend that had become popular during the housing boom but fell off after home prices started dropping. Now, with home prices back on the rise again, many markets are seeing flips on the upswing. Homes that were purchased and then resold within six months accounted for 4.6 percent of all U.S. single-family home sales during 2013, according to RealtyTrac's fourth-quarter 2013 Home Flipping Report. House flipping was up 16 percent from 2012 and up 114 percent from 2011, the report shows. Rising home prices have helped investors see profits again. The average gross profit on flips was $62,761 in the fourth quarter of 2013, up from $52,746 a year earlier. “Strong home price appreciation in many markets boosted profits for flippers in 2013, despite a shrinking inventory of lower-priced foreclosure homes to purchase,” says Daren Blomquist, vice president at RealtyTrac. In 2013, 21 percent of all homes flipped were purchased out of foreclosure, down from 27 percent in 2012 and 32 percent in 2011, the report shows. But investors are still finding homes to buy at an average discount of 13 percent below market value, the same average discount as 2012, “indicating that investors are finding discounted buying opportunities outside of the public foreclosure process — particularly in those markets with the biggest increases in flipping for the year,” Blomquist says. Source: RealtyTrac  

Jennifer Odom

Happy Valentine's Day!

We hope you enjoy this special day

with the special people in your life.

Jennifer Odom

February 13, 20014 Real Estate Report

Is It The Weather?

For the past three quarters, the economy has grown at an annual rate of just under 3.5% based upon the preliminary numbers released in late January for the 4th quarter. This growth rate is even more impressive when you consider the fact that we endured a government shutdown for part of the last quarter of 2013. It is estimated that this shutdown knocked approximately 1% off the growth rate for the 4th quarter. A 3.5% growth rate, while not smoking hot, is strong enough to bring down unemployment while not igniting fears of inflation. A pretty good balance.
And this balanced growth is a good indication as to why the stock markets rallied strongly in 2013 while long-term interest rates rose. Now we ask whether this growth rate is sustainable for 2014. We had several weak reports released in January, including the December jobs report and a slowing housing sector. Some have hypothesized that the severe winter weather in December and even worse weather in January is the culprit. If this is the case, the numbers should bounce back--including the stock market and rates, both of which fell in January.
Keep in mind that storms actually can boost some sectors of the economy such as the use of energy. Our heating bills are telling us that. Last week's release of January's jobs report was another mixed bag with the unemployment rate unexpectedly moving down slightly to 6.6% but the total jobs created below forecast at 113,000. It is interesting to see both the number for January and also the revision of the previous months' numbers as there was very little adjustment to the disappointing December release but upwards adjustments in previous months. Weather related slowdown? With regard to jobs creation we certainly hope this is the case. We think everyone is hoping for a warmer February, though it has not started out that way. 

More than three-quarters of Americans who fall within Generations X and Y believe they have become increasingly knowledgeable about home ownership due to the greater media coverage on the real estate market the past six years, according to a Better Homes and Gardens Real Estate survey of about 1,000 18-35 year olds. These two generations say that before buying they’d do their homework first, researching interest rates, home prices in a desired neighborhood, and the ability to secure a loan. Despite the past housing crisis, these generations say they are not deterred from home buying, and 75% say that home ownership is a key indicator of success. Generations X and Y, which boast 103 million of the population, are viewed as major drivers of the economy for the next 30 years. Among some of the survey’s findings about Generation X and Y’s perceptions on home ownership is: 

·         71% of Gen X and Gen Y surveyed say that home ownership is not something they deserve but rater something you must earn, and they say they’re willing to sacrifice in order to be able to buy a home one day. Sixty-two percent say they would save by eating out less, 40 percent are willing to take a second job, and 23 percent would move back home with their parents. 

·         75% say owning a nice home is an indicator of success over taking fancy vacations, owning an expensive car, or owning designer clothing. Source: Better Homes and Gardens Real Estate

Professionally photographed homes tend to sell for more money and sell faster than homes listed with point-and-shoot cameras, according to a new study by the real estate brokerage Redfin. The study found that homes priced between $200,000 and $1 million sold for an average of $3,400 to $11,200 more than their list prices when professionally photographed than homes with amateur photos. For homes priced between $400,000 and $499,999, the study found that homes professionally photographed sold for $11,200 more. In an analysis of 22 markets, the Redfin study evaluated the sales success of homes shot professionally with a digital single-lens reflex camera versus homes shot with amateur, point-and-shoot cameras. The study evaluated homes priced between $200,000 and $1 million. The study also found that homes that were professionally photographed also tended to sell faster. For instance, homes in the $400,000 range that were professionally photographed sold 21 days faster than those photographed with point-and-shoot cameras. Source: Redfin

Could this be the year to check out hybrid mortgages, which haven't been popular lately? Maybe. You can count on interest rates going higher because the Federal Reserve intends to continue reducing its monthly purchases of mortgage bonds and Treasury securities, which will have the side effect of raising rates and the national economy finally appears to be picking up steam, based on the latest quarterly data. Higher growth rates in turn will increase demand for available credit and probably nudge rates higher. So what does this mean for you if you're thinking about buying a house or refinancing and you want to nail down the most favorable interest rate and terms? Should you shop primarily for a traditional home loan that guarantees you a specific rate for 15 to 30 years? Or should you check out what's also on the shelf in the way of hybrids — loans that provide a guaranteed fixed rate for a pre-defined period of time, say five, seven or 10 years — then convert to a rate that can change annually? The case for sticking with a traditional fixed-rate loan is straightforward. Though 30-year rates are more than a percentage point higher this month than they were a year earlier, they are still not far off multi-decade lows. On the other hand, loans that provide a guaranteed fixed rate for a pre-defined period of time, then convert to a variable rate, are usually less expensive than traditional 30-year fixed loans. Source: Ken Harney, The Nation's Housing  Want to check out current rates on hybrid adjustables?  Just contact me and I will give you up-to-date quotes. 

Jennifer Odom Landmark Bank

Real Estate Report February 5, 2014

Just a Reminder
We have just started a new year and that means just about every economist has made their predictions for the year. One consensus of predictions for 2014 has been for higher interest rates. It makes sense--as the economy recovers interest rates will continue rising from record lows. Keep in mind that even as rates rise they are still at bargain lows. However, when one looks at rates for the first month of the year, they are trending moderately lower. There are many reasons one can give for these lower rates, starting with the weak December jobs report released in early January. Today we will not assess the factors causing rates to ease. Today we will make a few points about the significance of these lower rates.
For one, it is just a reminder that no one can predict the future. As a matter of fact, when everyone seems to predict the same thing, often the opposite happens. Secondly, one month of lower rates does not mean that rates will be lower all year and the original prediction is moot. What we have here is an opportunity for those who were thinking about purchasing or refinancing their homes. Rates do not go up in a straight line. There are always dips and these dips provide opportunities. Again, we can't predict if the trend will continue. Which leaves us to one last question -- What would make rates start heading back up?
Well, a good starting point would be the January jobs report which will be released on Friday. If the report reinforces the news from December, rates could stabilize at this level or go lower. Or if the report is strong, they could turn around in a blink of an eye. Typically the markets start speculating before the numbers are released so this week we could see volatility. Last week the Federal Reserve Board's Open Market Committee met and its decision to progress with its tapering of asset purchases seemed to be consistent with further optimism regarding the economy. Does that give us a hint? Unlike all these economists, we are not going to predict the future.

New mortgage underwriting criteria went into effect Jan. 10 requiring a debt-to-income ratio of less than 43 percent for most qualified mortgages. Even if you don't qualify for a home loan under the current lending regulations, renting may not be your only option. An alternative such as rent-to-own makes homeownership possible for those who may not meet underwriting standards. These transactions have some variations depending on state rules and the contents of the legal agreement, but a rent-to-own (or lease-purchase) transaction often means the buyer rents from the owner for a set period of time, after which the buyer agrees to purchase the property. In some cases, the tenant might pay extra money each month toward equity in the home. A lease-option agreement gives the lessee the option (and not the obligation as with lease-purchase) to later buy the property. "It could be a house in a neighborhood that you really want to settle in but for whatever reason you can't qualify to buy a home," says Barry Zigas, director of housing policy at the Consumer Federation of America. "Instead, you can qualify to rent one that you'd like to be able to buy in the future." Zigas says rent-to-own especially appeals to former homeowners who want to get back into ownership. Source: AOL Real Estate
Homeowners sold 5 million homes in 2013, a rebound year for the industry that marked the highest level of sales since the housing boom year of 2006. The report from the National Association of Realtors showed that there were 5.1 million previously owned homes sold in the year, up 9.2% from 2012 and up nearly 20% from 2011. December sales were up slightly from November, the first month-over-month rise in the reading since July. The Realtor group attributed the full-year gain to rising prices, lower unemployment, a drop in foreclosures and pent-up demand, as well as rates that are still low by historical standards, even with the steady increases most of the year. The median price of a home sold in the year was $197,100, up 11.4% from the previous year. Rising prices have reduced the number of homeowners who owe more on their financing than their home is worth, helping to bring more buyers into the market. Tight supplies of homes for sale are keeping prices high, as the report showed less than a 5-month supply at the end of the year. Source: CNN/Money

Markets in 56 out of the approximately 350 metro areas nationwide returned to or exceeded their last normal levels of economic and housing activity, according to the National Association of Home Builders/First American Leading Markets Index (LMI). This represents a net gain of two from the previous month. The index's nationwide score of .86 indicates that, based on current permits, prices and employment data, the nationwide average is running at 86 percent of normal economic and housing activity. "More markets are slowly returning to normal levels and we expect this upward trend to continue as an improving economy and pent-up demand brings more home buyers back into the marketplace," said NAHB Chairman Rick Judson, a home builder from Charlotte, N.C. "Policymakers must be careful to avoid actions that would harm consumer confidence and impede the ongoing recovery." "Forty-five percent of metro areas are recovering at a faster pace than the nation as a whole, with smaller markets leading the way," said NAHB Chief Economist David Crowe. "Of the 56 markets that are at or above normal levels, 48 of them have populations that are less than 500,000, and many of these local metros are fueled by a strong energy sector, which is producing solid job and economic growth." "More than 35 percent of all the markets on this month's LMI are operating at a capacity of 90 percent or better of previous norms, which is a good sign that the housing recovery will continue to pick up steam in 2014," said Kurt Pfotenhauer, vice chairman of First American Title Insurance Co., which co-sponsors the LMI report. Source: NMP Daily

Jennifer Odom

Interesting February Facts....

Jennifer Odom

The Real Estate Report January 29, 2014

Will Congress Play Ball?
For several years we have been recovering from a financial disaster. The bad news is that the recovery has been so weak that many have felt we were not recovering. The good news is that the recovery has continued slowly but surely. During the way we have had several speed bumps thrown in our way. Some of these were not avoidable -- such as tsunamis and super storms. Others were man-made such as the threat of a government shutdown or a fiscal cliff. Today, many are more optimistic about what is on the horizon.

The most important sector of the economy -- real estate -- is recovering. The fact that interest rates have risen over the past year is not a symptom of weakness, but a symptom of a stronger recovery and many analysts are optimistic that the soon-to-be-released advanced reading of the economy for the last quarter will continue this evidence. Despite the optimism, there is still the possibility of man-made roadblocks. For example, early next month Congress must vote on the extension of the debt ceiling. The good news is that before the end of last year, we actually had a bi-partisan agreement to keep the government open. This gives us optimism that Congress might again resolve a potentially sticky issue. 
We do know historically that this Congress will act at the last second (or afterwards) and there will be a lot of saber rattling. In the past when deadlines approached, the media coverage affected consumer confidence. At this point, it may be that confidence will not be affected as much by these negotiations because we have become anaesthetized by it all. We are just used to it at this point. Early next month we have a jobs report and a Congressional issue. Let's hope neither puts another speed bump in the way of our continuing recovery.  On the other hand, we don't want the Federal Reserve Board thinking that things are going too well when they meet this week so that they become inclined to make an announcement that will reverse the recent trend towards lower rates.

Borrowers may be having an easier time applying for a home loan compared to a year ago. The average credit score for approved loans dropped to 727 in December, down from 748 one year prior, according to Ellie Mae, a mortgage technology firm. FICO credit scores run on a scale from 300 to 850. Forty-six percent of home loans that closed in December had credit scores above 750. One year earlier, 57 percent of home loans posted credit scores that high. In December, about 31 percent of loans had credit scores below 700. One year earlier, that percentage stood at 21 percent, according to Ellie Mae. Debt-to-income ratios are growing. The average total monthly debt for borrowers of closed loans in December stood at 39 percent of their incomes. That’s up from 35 percent in June. “Rising interest rates and home prices could account for some of the increase in debt-to-income ratios,” MSN Real Estate reports. More lenders may be getting comfortable easing standards since home prices have been rising over the past year. Also, lenders are facing a big drop in refinance business, which may prompt them to get more competitive in trying to nab more borrowers for home purchases, housing experts say. However, the effect of new residential finance regulations implemented by the Consumer Financial Protection Bureau have yet to be seen. Source: MSN Real Estate

The recession set off a new wave of multigenerational households, which began to increase in late 2007. Fewer new households were created as more people doubled up to ride through economic hard times. College grads moved back home, and aging parents moved in with family. But as the economy has improved, researchers are taking note that many of the households are not breaking up. “While many families came together because of the economy, they stayed together by choice,” says Donna Butts, the executive director of Generations United, which published a report called “Family Matters: Multigenerational Families in a Volatile Economy.” Of the multigenerational households examined by the study, 66 percent cited economic problems as the cause for originally doubling up. These multigenerational households have been called “shrinking households” or “missing households” by economists. But social scientists say it may be a lasting trend: these living arrangements are common among many ethnic groups, and it was typically how families lived decades ago. Homes are being reconfigured to make room for more people living under one roof. For example, some builders are debuting floor plans that include semi-independent suites with separate entrances, bathrooms, and kitchens to reflect the growth in multigenerational households. More buyers are also saying that they’d pay extra for a home with an in-law suite, according to the 2013 Home Features Survey by the National Association of Realtors®. Source: The New York Times
Congress will delay flood insurance hikes for thousands of homes along the Gulf Coast and other areas that are facing steep premium increases. A $1.012 trillion spending bill enacted to fund the government includes a measure that would temporarily continue flood-insurance subsidies for some properties located in flood zones. The 2012 Biggert-Waters law sets out to gradually phase out flood insurance subsidies. The subsidies are being phased out due to the national flood insurance program being $24 billion in debt. That means home owners who have long received discounts to pay for flood insurance are now being faced with large increases — anywhere from a few thousand dollars to tens of thousands of dollars extra a year. Home owners affected say the increases will hurt their home values and make their homes more difficult to sell. The provision included in the spending bill would mostly apply to newer homes built in coastal areas, such as in Florida, Texas, and Louisiana. Homes in flood-prone areas in Northeastern states, such as New York and New Jersey, would not be covered by the measure. Steve Brown, president of the National Association of Realtors®, says the bill “does not go far enough to support the millions who are impacted by the exponential price increases.” Sen. Mary Landrieu, D-La., is pressing for separate broader flood-insurance legislation in the Senate that would delay price increases for more home owners nationwide for up to four years. Source: The Wall Street Journal

Jennifer Odom

Weekly Real Estate Report

Jobs--The Key Ingredient
Last week we reported on a disappointing jobs report. We also indicated that we should not jump to a conclusion as to the importance of this one report. One report can be very misleading and is subject to significant revisions in the next two reports. In this case we had inclement weather which could have temporarily affected the numbers as well -- especially within the construction industry. In addition, if you look at the trends in first time unemployment claims, you can see a reason to be optimistic about better numbers ahead.
But the next question we must ask is--why is the employment report so important? Every month the employment release is under more scrutiny than any other report. The answer to this question is much easier than predicting the future of jobs growth. A healthy economy produces more jobs. More than that, the jobs created by a healthily economy causes more jobs to be created. This is what we call a "virtuous cycle." One good thing leads to another which comes back and supports the first good thing. During the recession and during our painfully slow recovery, we climbed out of a vicious cycle, but never quite reached a virtuous cycle.
Adding over 200,000 jobs per month puts us in reach of the virtuous cycle. We were starting to see these numbers late last year until the last report. Now we must ask if the December report was just an aberration of numbers, or was it the start of a new trend. Thus far the economic reports are certainly strong enough to support decent job growth. All we can do is wait a few weeks for more numbers. But for those who are looking to purchase big ticket items such as homes and cars--the reaction of the markets to the jobs report gave us moderately lower rates and that is a good thing. However, it is likely to be temporary at best if the employment picture gets stronger with the next report or first time claims of unemployment continue to trend downward.

Real estate agents have been somewhat absent in the whole debate over the qualified mortgage lending and ability-to-repay rules, but they are not immune from the consequences. With the lending guidelines taking effect, it’s definitely time for the consumer-side of the real estate business to get knowledgeable enough to help homeowners who may find themselves facing new outcomes when they apply for a home loan. Realtors are definitely impacted by new lending rules. How, you ask? After all, Realtors have never handled the loan approval process; and it’s not up to them whether a client gets a loan or not. At most, they are a referral service when it comes to the lending side of the equation. But the reality is they are impacted. If they don’t want to waste your time or your client’s, it’s crucial for a Realtor to know how the lending process is changing. A lender – may advise Realtors to skip the conditional pre-qualification process (which is quicker and easier) and move directly to a pre-approval before taking a client out to look for houses. Source: HousingWire Note:  The new era of regulatory changes definitely make obtaining pre-approvals more important for a prospective home buyer.  Contact us if you would like more information regarding procuring a pre-approval or have a client in need of this service.

Year-over-year gains in Americans’ attitudes toward homeownership demonstrate that the housing recovery continues to move forward on firm footing, according to Fannie Mae’s December National Housing Survey results. Forty-nine percent of consumers surveyed believe home prices will go up over the next 12 months, compared to 43 percent in December 2012. Consumers’ average 12-month home prices expectations moved to 3.2 percent, up from 2.6 percent last year. Those who say it’s a good time to sell a home rose significantly to 33 percent from 21 percent in December 2012. And, despite a higher interest rate environment, consumers are more optimistic about their access to residential finance credit than they were a year ago, with those who say that it would be easy to get a home loan today rising to 50 percent, compared to 45 percent last year. "The marked improvement in housing market sentiment over the course of 2013 bore out our view going into the year that the housing recovery was on a firm footing. Year-over-year gains in home price expectations and attitudes about the current selling environment were particularly notable,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. Source: Fannie Mae

With bidding wars easing in many markets, buyers may face less competition in their attempts to snag a home this winter. That's according to the latest Bidding War Report by the real estate brokerage Redfin. According to the report, competition for homes hit its lowest point since 2011 last month. About 51 percent of Redfin agents nationwide reported facing bidding wars in November, down from 63.6 percent a year earlier. The home-buying competition rate has dropped for eight straight months, after peaking in March at 75.3 percent. Still, the brokerage’s report does show demand growing stronger than expected at the end of the year. “Home buyers who failed to get an offer accepted early in the year have been stockpiling down payment money all year long,” says Amber Hancock, manager of Redfin’s San Francisco East Bay market. “They’re jumping back in this time as better qualified, more confident competitors, taking advantage of the easing late-fall market.” Buyers are still using competitive strategies to get the house they want—with the use of all-cash offers, waived financing and inspection contingencies, and personal cover letters becoming more common in November. The two markets that saw the largest month-over-month decreases in competition were Seattle and Orange County, Calif. Meanwhile, bidding wars heated up in November in Washington, D.C., San Diego, Baltimore, and Los Angeles. Source: Redfin

Jennifer Odom Landmark Bank

The Real Estate Report 1/17/2014

The Employment Report Disappoints
Just when we were starting to get used to strong jobs data we were reminded of an important adage -- never try to predict the future. While the analysts were predicting December job growth would be around 200,000, the number came in short of 100,000. This number disappointed the markets. In a strange twist, the unemployment rate fell from 7.0% to 6.7% when no decrease was expected, but this was not seen as a sign of strength as many left the workforce in December.
In all, the economy added just over two million jobs in 2013 which is pretty close to what occurred in 2012. This translates into approximately 170,000 jobs per month. All the while the unemployment rate has been dropping and we seriously doubt that such a precipitous drop in 2013 -- over 1.0% -- is due entirely to a smaller work force. We are now getting close to where we have replaced the over eight million jobs lost during the recession, but we are not quite there yet. Three important points about the jobs report.

First, these numbers are subject to future revisions. We would not be surprised to see the numbers revised upwards one month from now, especially considering the fact that the private payroll report showed over 200,000 jobs added for December. For example, in the same report November numbers were revised upward by 38,000. Secondly, weather issues in December could have depressed the numbers temporarily. Finally, rates fell initially in reaction to the report and the stock market did not show a negative reaction. Why? These numbers are not strong enough to prompt the Federal Reserve Board to abandon their stimulus program more quickly than planned. If revisions don't change the numbers, the halt to rate increases represents good news for consumers and business.

New lending rules went into effect that aim to put an end to the worst home loan lending abuses of the past. The new rules are designed to take a "back to basics" approach to residential lending and lower the risk of defaults and foreclosures among borrowers, according to the Consumer Financial Protection Bureau, which issued the new rules."No debt traps. No surprises. No runarounds. These are bedrock concepts backed by our new common-sense rules, which take effect today," said CFPB director Richard Cordray in remarks prepared for a hearing. Lenders are being asked to comply with two new requirements: The Ability to Repay rule and Qualified Mortgages. Here's how they will impact borrowers:

·         Ability to Repay. Lenders must determine that a borrower has the income and assets to afford to make payments throughout the life of the loan. To do so, the lender may look at your debt-to-income ratio, which is how much you owe divided by how much you earn per month, including the highest housing payments you would be required to make under the terms of the loan. To calculate your debt-to-income ratio, add up all your monthly obligations -- including student loan, credit card and car payments, housing costs, utilities and other recurring expenses -- and divide it by your monthly gross income.
In an effort to put an end to no- or low-doc loans, where lenders issue risky loans without the necessary financial information, lenders will be required to document and verify an applicant's income, assets, credit history and debt. Underwriters must also approve loans based on the maximum monthly charges you face, not just low "teaser rates" that last only a matter of months, or a year or two, before resetting higher.

·         Qualified Mortgages. To make sure you aren't taking on more house than you can afford, your debt-to-income ratio generally must be below 43%. This rule is not absolute. Banks can still make loans to people with debt-to-income ratios that are greater than that if other factors, such as a high level of assets, justify the risk. Qualified mortgages cannot include risky features, such as terms longer than 30 years, interest-only payments or minimum payments that don't keep up with interest so your mortgage balance grows. Upfront fees and charges cannot add up to more than 3% of the balance. That includes title insurance, origination fees and points paid to lower interest rates

Lenders don't seem to be too worried about the new rules, according to Keith Gumbinger of HSH.com, a mortgage information provider. "It's no surprise; everybody has been preparing for the change for months," he said. "Because there will be additional underwriting scrutiny, it could gum up the works initially and slow loan processing, but it's really just the codification of things that are already in place." A significant factor is what's not in the rules. There's no minimum down payment or credit score requirement. The lack of a credit score requirement will enable lenders to loosen currently tight underwriting standards in the future should conditions warrant, according to Gumbinger. Source: CNN/Money

Jennifer Odom

Weekly Real Estate Report

New Year -- New Hope

It has been five years since the depth of the recession was upon us. For five years we have been recovering. The recovery has been painful and slow with many starts and stops. Yet, as we approach 2014 there seems to be more optimism regarding the status of the economy recovery and our future. Some of this optimism is rooted in facts and some of this optimism comes from sentiment.

First the facts. For the first time in five years, the real estate market participated and is contributing in the recovery. When homeowners feel wealthier because of rising home values, the entire economy benefits. It is no coincidence that the economy grew at stronger pace in each of the past four quarters--including a robust 4.1% growth rate in the third quarter. Employment growth has picked up and this job growth is picking up within a variety of sectors--including state and local governments -- which is a sector that was laying off tens of thousands just a few years ago.

About those feelings. For a long time we have been saying that this was a crisis of confidence. Confidence is a feeling. In general, we can see that consumer confidence is rising as the year draws to a close. There is even hope that Congress is starting to show stronger levels of bi-partisanship -- which is a good thing with the debt limit issue about to hit in the first quarter of 2014. Confidence allows people to make important decisions such as getting married and starting a family. Here is to a great New Year for all--and hoping the growth in good feelings continue for all of 2014!

 

Homebuilders are ramping up new-home construction at the fastest pace in more than five years, the Commerce Department reported. Construction of single-family homes and apartments in November rose to a seasonally adjusted annual rate of 1.09 million, a 23 percent increase over October’s pace. It marks the fastest pace since February 2008. Broken out, housing starts on single-family homes surged nearly 21 percent in November, the fastest rate since December 2007. Apartment construction jumped 26 percent. "Single-family and multifamily starts are at five-year highs, providing additional evidence that the recovery is here to stay," says David Crowe, chief economist for the National Association of Home Builders. "We hit a soft spot this fall when interest rates jumped and the government closed down, but rates still remain very affordable and pent-up demand is helping to boost the housing market. We expect a continued steady, gradual growth in starts and home sales in 2014." Meanwhile, overall permits — a gauge for future building activity — dropped 3 percent in November, mostly attributed to the volatility in apartment construction, the Commerce Department reports. Permits for single-family homes rose 2.1 percent. Source: NAMB

For one of the least productive congressional sessions in modern history, the final word about tax overhaul was entirely in character: Nothing's happening. But is that good or bad news for homeowners, buyers and small-scale real estate investors? A bit of both. When House Ways and Means Committee Chairman Dave Camp (R-Mich.) recently announced that not only will he not reveal the details of his long-awaited comprehensive tax overhaul bill this year but he also will not seek passage of a so-called extenders bill for expiring tax code benefits, it was a sweet and sour mix for real estate interests. Camp's big bill, which would attempt to lower individual and corporate income tax rates to a maximum of 25%, is expected to call for significant cutbacks in or elimination of prized real estate deductions for home loan interest, local property taxes and other write-offs to pay for lower marginal rates. With debate on major changes like these now pushed back well into 2014 — in the middle of a reelection year for Congress — homeownership advocates are at least moderately relieved. But there's a key negative here as well: The failure of tax writers to put together an extenders bill means that important expiring Internal Revenue Code provisions affecting large numbers of homeowners will lapse Dec. 31. Of special concern are relief from taxation on housing debt forgiveness by lenders in most states, plus current deductions for mortgage insurance premiums and energy-saving home improvements. On the plus side---the certain Senate proposals would also be put aside with the delay. Senate tax writers' proposals for real estate should be unsettling for anyone owning residential investment property, such as rental houses. The Senate proposal would terminate one of the oldest financial planning techniques used by real estate investors — tax-deferred exchanges under Section 1031 of the code. In a 1031 exchange, property owners can defer taxes indefinitely when they swap "like kind" investment real estate within specified time periods following IRS regulations. It also would sharply increase the depreciation period for residential investment real estate from the current 27.5 years to 43 years. Stretching out the depreciation schedule means investors would be able to write off less per year on their properties than at present. Source: Ken Harney, The Nations' Housing

Property taxes are an important source of revenue for city governments, but rates can vary substantially across the country. Property taxes make up about one quarter of home ownership costs over the median duration of ownership, according to a study by two researchers with the Urban-Brookings Tax Policy Center. The study’s authors—Benjamin H. Harris, policy director of the Hamilton Project, and Brian David Moore, a research assistant at the Urban-Brookings Tax Policy Center—note that several counties and states have tried to decrease the burden through homestead exemptions and other laws. But property taxes tend to make up a big part of local revenues. Indeed, property taxes comprise 34.6 percent of total local revenues the researchers note. Nationwide, 60 percent of counties in the country had an average tax burden between $500 and $1,500 per home owner. Home owners in about 13 percent of counties paid less on average, and 27 percent paid more. Only 3 percent of counties had average bills that were more than $4,000. Higher rates of property taxes are mostly found in the Northeast and parts of the Midwest, according to the researchers. On the other hand, 24 counties had average taxes below $250, with the majority of those counties located in Alabama or Louisiana. Source: Mortgage Daily News

Jennifer Odom at Landmark Bank

Wishing you a wonderful start to a New Year!

 

Jennifer Odom