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
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