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24December

Oh Come, All Ye Taper

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The long awaited final Federal Reserve meeting of the year and concluding meeting for Bernanke’s term has arrived. Thursday the Federal Reserve released the news that it would finally begin to taper quantitative easing, albeit a slight taper, signaling the Federal Reserve is seeing signs of growth and strength in the job market. Federal Reserve officials stated they would taper bond purchases from $85 billion a month to $75 billion. How will this affect you and the housing market?

TaperBonds As the Federal Reserve slows its printing press in light of the taper, rates are likely to increase, meaning homebuyers will pay more for home loans in the form of mortgage rates and business loans will cost more as well. Current 30-year fixed rates are hovering around 4.57 percent and will probably head higher. Ellen Haberle, an economist at the online real-estate brokerage Redfin commented, “Homebuyers aren’t going to be happy. In the weeks ahead, mortgage rates are likely to reach or exceed 5 percent.” It is important to note these rates are still at historic lows even though they are starting to climb. Analysts believe this is not enough to halt the housing market recovery. “It’s a better economy that gets people to buy houses,” said senior financial analyst at Bankrate.com, Greg McBride.

In most recent housing data the fear of a taper seems to have vanished. Housing starts soared to a six-year high, jumping 22.7 percent in November according to the Commerce Department. This was the biggest increase since January 1990 and the highest level of starts since February 2008. Starts for multi-family homes jumped 26.8 percent and have risen strongly during the recovery as demand for rentals remains high for those unemployed or unable to qualify for a home loan.

Homebuilder confidence this month was positive and builders were optimistic regarding current sales conditions, forward looking sales and potential homebuyers. The National Association of Home Builders monthly sentiment index (HMI) increased 4 points, its highest level since August. “This is definitely an encouraging sign as we move into 2014. This indicates that an increasing number of builders have a positive view on where the industry is going,” says NAHB Chairman Rick Judson, a homebuilder from Charlotte, N.C.

Now that there is more certainty in the housing market and the economy, businesses and consumers can make more educated decisions concerning hiring, taking out loans and making large purchases. Craig Strent, CEO of Apex Home Loans in Rockville, MD, stated, “Mortgage interest rates generally hate the idea of uncertainty, so this definitely brings some certainty in terms of the Fed showing their cards as far as the direction of rates.”

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17December

The New Year Brings New Changes in FHA Loans

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House prices continued to grow during 2013 and it appears the housing market is on the road to recovery. While more than one-third of the housing market is still being supported by cash investors, home sales and mortgage numbers increased during the first half of the year. Foreclosures are also down due to fewer homes being foreclosed on by the banks. As homebuyers gain more confidence in the market by a show in rising home prices, interest rates have also accelerated (30-year fixed rate was 4.48% last week) making home affordability harder to find. With all these changes, the Federal Housing Administration (FHA) is rolling out some new plans of their own.

Starting January 1, 2014, FHA is lowering its lending limits across the board. FHA Commissioner, Carol Galante, said in a release, “As the housing market continues its recovery, it is important for FHA to evaluate the role we need to play. Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market and enables FHA to concentrate on those borrowers that are still underserved.” The new limit on less expensive loans is being lowered by over $75,000 to $271,050. More expensive loans are being reduced by more than $100,000 to $625,000. This is expected to affect approximately 650 counties in the U.S.

FHA also announced it would further increase the fees they charge to lenders starting in March of the coming year. Earlier this year FHA raised premiums and fees. Unfortunately, the increased costs will end up being passed along to the borrowers in the form of higher interest rates. “The new pricing continues the gradual progression towards more market-based prices, closer to the pricing one might expect to see if mortgage credit risk was borne solely by private capital. These changes should encourage further return of private capital to the mortgage market,” noted the FHFA’s acting director, Ed DeMarco, in a release.

The economy and job market are still struggling to really make big leaps and the new FHA regulations could make it harder for first time homebuyers to purchase. FHA has had financial struggles of its own, and increasing fees and lowering their risk is the prudent thing for them to do. As home prices continue to rise and mortgage rates increase, purchasing power will lessen and those looking for an FHA loan might have to consider private financial resources.

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6November

Bridging the Down Payment Cash Gap | 10 Evolving Resources

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While most Americans see homeownership as a good financial choice, many find that buying is easier said than done. Recent surveys indicate that 31% of Boomers and 31% of Gen Y respondents consider 20% down payments a major obstacle.

Improving Real Estate Markets

Creative down payment options are emerging and so is the debate about whether low down payments lead to default. The benefits of a sizeable down payment are well documented. As home price appreciation outpaces wage growth however, prospective buyers worry that while waiting to save a 20% down payment; home price appreciation and rising interest rates will price them out of the market.

One thing is certain; buyers at both ends of the price spectrum are now exploring ways to conserve cash while pursuing the home of their dreams. Today’s segment spotlights four of ten financing options qualified buyers are exploring to help bridge the down payment cash gap.

Shared Appreciation Mortgages—In the luxury home market, shared appreciation mortgages are emerging as a way to own without exhausting cash reserves for hefty down payments. Bloomberg BusinessWeek showcased buyer Jeff Uter, a business consultant purchasing a $780,000 property in Orange County, CA. Instead of investing the $156,000 down payment from personal assets, Uter funded half the down payment and accepted the remaining $78,000 from San Francisco –based investor FirstRex. The investor agreed to a 40 percent share of proceeds from the future sale of the property. This approach is limited to high-dollar properties primarily in California, Washington, Oregon, Massachusetts and Connecticut. A number of luxury home lenders now allow such participation.

Navy Federal—Located in Vienna, VA, Navy Federal is reportedly the nation’s largest credit union. Members include the military, plus many but not all civilian employees of the military and Defense Department members and family. Loans do not require private mortgage insurance (PMI). Spokesperson Dana DeSarno reported that their “Homebuyer’s Choice Program” provides 100% financing, for members not eligible for VA loans. Many of their borrowers are first-time homebuyers.

FHA Loans— FHA’s $100 Down Payment Program is still available in designated states. (Alabama, Florida, Georgia, Kentucky, Illinois, Indiana, Mississippi, North Carolina, South Carolina, Tennessee, Puerto Rico, and Virgin Islands). The program is available to qualified owner-occupant buyers, only on HUD properties which meet condition requirements for FHA financing.

In other states, qualified buyers can purchase HUD homes for 3.5% down with an FHA loan. Mortgage insurance is required.

In the next segment we will review six additional funding options plus an online resource containing more than 1,500 down payment programs from over 1,000 providers.

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29October

Equity Crowdfunding | Finally Small Investors May Get a Piece of the Action

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“Crowdfunding is rapidly changing the real-estate investment market, offering developers new ways to finance projects, small investors a way in, and the socially conscious an avenue to support their local communities.” – Forbes

On Wednesday, October 23^rd a unanimous vote of the five-member Securities and Exchange Commission (SEC) made headline news. The vote advanced a proposal which could re-define who gets to invest in “ground-floor” business opportunities. It could radically change how start-ups raise capital. The proposal has the potential to unlock billions of investment capital allowing investors to consolidate revenue to fund real estate portfolios or new products and ideas.

The proposed rules were introduced to support the implementation of Title III of the Jumpstart Our Business Startup (JOBS) Act. The intent of the legislation and proposed structure is to allow smaller companies to gather capital from a broader spectrum of investors, avoiding the need for high cost Initial Public Offerings (IPOs), or the pursuit of millionaire private investors.

Imagine a virtual Shark Tank, but with a lot more sharks. Instead of being limited to small panels of mega-millionaires, entrepreneurs could appeal to a virtual audience of mainstream backers, each investing blocks of capital in exchange for equity.

For the first time since the 1933 Securities Act, the proposal (if finalized) would open equity investment opportunities allowing small investors to purchase a stake in promising start-ups. Currently such equity shares are reserved for “accredited investors” with a verifiable net worth of $1 million or earnings of $200,000/year for the most recent three years.

The SEC proposal created a structure (funding portals) for the new brand of financing and established limits for crowdfunding investors. Funding portals, will act as intermediaries linking business owners with investors online.

A company would be allowed raise a maximum of $1 million via crowdfunding per year. Within a 12 month period investors would be bound by the following limits:

If annual income is less than $100,000 the limit is the greater of $2000 or 5% of annual income or net worth.
If annual income equals or exceeds $100,000 the limit is the greater of 10% of income or net worth. Securities purchased via crowdfunding would be capped at $100,000/year.

A major SEC concern is the potential for fraud. Many are worried that non-accredited investors may be less sophisticated and more vulnerable to deceptive offerings by scam artists.

The SEC has implemented a 90 day comment period to field questions and feedback on the proposed structure. Afterward, the Commission will review input and make a decision regarding implementation. Click here to register a comment with the SEC.

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21October

Government Re-opens But Builder Confidence Drops

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After days of meetings, discussions and negotiating, the government finally came to a short-term resolution to allow the government shut-down to conclude and ensure default would not ensue. But this “my way or the highway” mentality on both sides of the political isle has damaged Washington’s credibility and confidence ratings among Americans. The lack of leadership in Washington and the “kicking the can down the road” ideology has affected several parts of the economy; both macro and micro in scope.

Reports released this Wednesday from the National Association of Home Builders (NAHB) showed a weakening in home builder confidence. In the market for new single family homes, the NAHB/Wells Fargo Housing Market Index (HMI) reflected a two point drop from an already downward revised report in September. NAHB Chief Economist David Crowe noted, “A spike in mortgage interest rates along with the paralysis in Washington that led to the government shutdown and uncertainty regarding the nation’s debt limit have caused builders and consumers to take pause. However, interest rates remain near historic lows and we don’t expect the level of rates to have a major impact on sales and starts going forward. Once this government impasse is resolved, we expect builder and consumer optimism will bounce back.”

The NAHB describes the HMI as a an index that “gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.” Current sales, sales expectations and traffic of prospective buyers all experienced a two point drop showing confidence is waning.

It appears that home builders aren’t the only ones lacking confidence. Consumers are showing signs of caution in the midst of Washington’s uncertainty. Last week during the partial shut-down, mortgage applications for government mortgage products dropped to a six-year low according the Mortgage Bankers Association (MBA). Mortgage applications to purchase a home declined by 5%. “The government shutdown had a notable impact on the mortgage market last week. Purchase applications for government programs dropped by more than 7 percent over the week to their lowest level since December 2007, and the government share of purchase applications dropped to its lowest level in almost three years. FHA lenders with delegated authority have been able to continue, but those that rely on the regional homeownership centers have not. Additionally, HUD staff at headquarters are generally furloughed and not able to answer questions,” said Mike Fratantoni, MBA’s vice president of research and economics.

It will no doubt take time to re-instill confidence that the American people had in their government’s elected officials. The negative impact of these past few weeks might haunt the economy and consumers for some time.

For information on effective ways to manage institutional and individual portfolios nationwide, or to shop for real estate visit First Preston HT. Like us on Facebook. Follow us on Twitter.

Sources: http://www.nahb.org

http://www.mbaa.org/NewsandMedia/PressCenter/85948.htm

17October

Boomerang Buyers | The Next Big Wave?

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Are “boomerang buyers” the missing link needed to accelerate the housing recovery? How many are eligible to purchase sooner as a result of recent changes to FHA guidelines and are they even interested in owning a home again? Could this impact the profitability model of reo-to-rental investors?

If interest rates remain low, the stage may be set to see a new wave of homebuyers take center stage. It is estimated that new FHA guidelines made it possible for 2.5 million former homeowners to re-enter the market two years earlier than expected. Often referred to as boomerang buyers the 2.5 million new prospective shoppers are former home owners who experienced foreclosure, short sale, or deed-in-lieu agreements between September 2010 and August 2012.

The August 15^th, FHA Mortgagee Letter 2013-26, entitled, “Back to Work—Extenuating Circumstances,” made it possible to shorten the required waiting period for former FHA borrowers from 3 years to as little as 12 months, given certain circumstances.

On October 4^th, Fannie Mae issued a major “Desktop Underwriter” upgrade announcement which will take effect November 16^th. The change may allow short sale (“preforeclosure sale”) participants to re-enter the market after just two years instead of seven. Many borrowers who underwent preforeclosure sales discovered afterward that credit bureaus recorded both a preforeclosure and a foreclosure sale; imposing a seven-year penalty (standard for foreclosures) instead of appropriately applying a 2 year wait. This correction alone may create an additional wave of eligible buyers sooner than expected. During the housing crisis, 4.8 million home-owners forfeited homes due to foreclosure and 2.2 million opted for short sales, as reported by RealtyTrac and cited by CNN Money.

Many of the 7 million former owners who underwent foreclosure, short sale or deeds-in-lieu early in the housing crisis, have already rebuilt their credit and their finances and are eligible to re-enter the market even under the former guidelines.

The question is will boomerang buyers re-enter the market or remain renters? So far this year one in ten homebuyers is a boomerang buyer. And that was prior to FHA and Fannie Mae announcements. According to research firm John Burns Real Estate Consulting, the pace has doubled since last year. According to the 2013 National Association of Realtors (NAR) National Housing Pulse Survey 51% of renters say that “eventually owning a home is one of their highest personal priorities.” Eighty percent of Americans believe that buying is a sound decision.

Boise, Idaho Broker Mike Edgar coaches boomerang buyers back to eligibility. He consulted with more than a dozen such buyers in 2012 and expects twofold growth this year.

The news from FHA and Fannie Mae could be the spark that millions of former owners hoped for and the lift the housing recovery needs.

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3October

Home Sales Starting to Level Out

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Recent housing data show that the market might be cooling off. Weak housing figures reported in July gave the Fed one reason to continue its asset purchases without tapering. August reports from the Commerce Department last week showed a 7.9 percent increase from July in new single-family home sales. This equates to 421,000 annualized sales vs. 390,000 annualized sales reported in July. While this news in isolation seems to be hopeful, this figure fell marginally below economists’ expectations and is still near the lowest levels reported this year. After some have labeled this market a bubble, it seems it might have lost its hot air. Economist Patrick Newport from HIS Global Insight commented, “New home sales were up in August, but this market has lost momentum.”

Pending Home Sales slowed in August according to The National Association of Realtors (NAR). The Pending Home Sales Index declined 1.6 percent to 107.7 from 109.4 in July. Lawrence Yun, NAR chief economist said, “Sharply rising mortgage interest rates in the spring motivated buyers to make purchase decisions, culminating in a six-and-a-half-year peak for sales that were finalized last month. Moving forward, we expect lower levels of existing-home sales, but tight inventory in many markets will continue to push up home prices in the months ahead.” Some economists expect 2014 to see less than a 1 percent jump in sales.

While new home sales data appears to be decelerating, so do home prices. The median new home price in August dropped to $254,600. According to reports, the median price has been in decline since the month of May. Data on existing home sales prices released from NAR mirrored that of new home sale price numbers. The median price range is at $212,000 in August which is down from a median sales price of $213,500 in July. This is good news for homebuyers who have been looking for declining house prices, whether new or existing. Some industry leaders are predicting only a 5-6 percent rise in median existing home sales in 2014 with some improvement in inventory levels.

Mortgage rates are starting to fall again. The 30-year fixed mortgage rate was 4.5% and last week’s 30-year rate was 4.32 percent, according to Freddie Mac. The Fed’s decision to delay tapering could help mortgage rates to continue on the decline if the Fed unwinds its balance sheet slowly. Then homes sales might start to pick back up.

For information on effective ways to manage institutional and individual portfolios nationwide, or to shop for real estate visit First Preston HT. Like us on Facebook. Follow us on Twitter.

Sources: http://www.freddiemac.com/pmms/
http://www.realtor.org/research-and-statistics/housing-statistics

30September

Federal Reserve Decision Benefits Homebuyers

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After the much anticipated announcement of the Federal Reserve’s decision and lots of market speculation that tapering would finally begin, Bernanke announced the continuation of its easy money policies (QE). The markets had already baked in the expectation of tapering along with several traders making bets on the Fed’s play, only they found out the punch bowl was still flowing and wouldn’t be taken away in the near term. Bernanke hasn’t yet seen the recovery in the economic data that he has been watching for.

Existing home sales reported a 6-1/2 year high in August showing strength in the housing market and strong demand. According to The National Association of Realtors (NAR), existing home sales increased 1.7 percent last month which was more than economists expected. This increase puts sales at an annual rate of 5.48 million units. Much of this recent rush to buy can be attributed to the expectation of rising mortgage rates and the increases in home prices. Homebuyers want in on the action before interest rates and home prices over heat. Bernanke’s latest announcement, however, should help to ease the 30-year fixed mortgage rate until the next Fed meeting.

The median home sales price last month rose to $212,100; a 14.7 percent year-over-year jump. Although inventories are still tight and as a result, prices continue to inch upward, homebuyers can still lock in a historically low mortgage rate giving them more purchasing power. While this scenario seems great for prospective homebuyers, at some point the punch will run out and the party will end. “Clearly the Fed has been spooked by the extent of the surge in long-term interest rates over the past couple of months and the impact that now appears to be having on the housing market. But there is a dangerous circularity here because the initial rise in long-term rates was largely a response to the Fed hinting that it would begin to reduce its asset purchases sometime in the second half of the year,” Paul Ashworth at Capital Economics commented.

Mortgage rates fell after the Fed made its announcement. They are still above the low of 3.35 percent seen in May but with the Fed continuing to print money, mortgage interest rates could stay around this range for a while longer, giving those who haven’t purchased yet, the opportunity to get in the game. If interest rates withdrawal to the lower rates seen earlier in the year, it’s quite possible that more mortgage refinancing would occur.

It will be interesting to see what the next few months of housing data bring from this recent news announcement. The housing market should experience some more positive gains if all plays out like the Fed has planned. Growth and demand can remain strong with low interest rates and this gives homebuyers time to still purchase as rates rescind, but the underlying cost of artificially inflating the housing market remains to be determined.

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12September

Jumbo Mortgage Rates, Not So Jumbo

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Once in a blue moon economic theories and trends break from conventional rationale. Over the past two weeks this “blue moon” appeared in the mortgage loan market concerning conventional and jumbo mortgage rates. For the first time that lending executives can remember, the interest rate on the jumbo 30-year fixed-rate mortgage (4.71%) dropped slightly below the conventional 30-year fixed rate of 4.73%, according to the Mortgage Bankers Association. “In my 30-year career, I’ve never seen non-conforming loans priced below conforming loans,” said Brad Blackwell, executive vice president of Wells Fargo Home Mortgage. Typically jumbo mortgage rates are at least .25% above conventional mortgage rates.

Jumbo mortgages exceed the $417,000 limit set on conventional loans (in most areas) and are not backed by government-sponsored enterprises (GSEs). Conventional mortgage loans fall below $417,000 and are backed by GSEs (Freddie and Fannie). So what is causing this anomaly?

Conventional mortgage loans have become more expensive due to higher guarantee fees charged by GSEs to the companies that sell their loans. These fees have increased by more than .25% over the last three years. The higher guarantee fees result in higher mortgage interest rates. Conventional mortgage rates are also closely tied to how mortgage backed securities (backed by GSEs) trade; and therefore, follow the increase in mortgage backed interest rates.

Jumbo mortgage loans are a bit different in nature. They are not as securitized as conventional mortgage loans, tend to be carried on the bank’s balance sheet, and are tied to the bank’s cost of capital, which has not increased in this environment. Lou Barnes, a mortgage banker in Colorado commented on this situation, “Commercial banks are just desperate to book an asset that will pay something.”

Wealthy Americans are taking advance of this rare occurrence and going on a shopping spree. According to recent data from Realty Trac, the percentage of people buying houses in the price range of $1-$2 million with a jumbo mortgage increased to 63% in July, up from 49% a year over year. Properties priced at $2-$5 million increased to 46% from 27%. This could be correlated to still historically low interest rates and the opportunity to buy property before prices appreciate further. For these wealthy Americans who are still sitting on lots of cash, this is more of an investment and financial decision rather than needing a roof over their heads. Some believe this trend could continue if the cost of capital for banks remains stable while demand for mortgage loans continues to grow at a steady pace.

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Sources: http://www.mortgagebankers.org/NewsandMedia/PressCenter/85594.htm http://www.realtytrac.com/

9September

Mortgage Applications and Home Prices Look Up

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As the markets continue to ride the proverbial roller coaster, housing data has managed to avoid such large swings and appears to be steadily chugging onward and upward; showing a clearer picture than the last few weeks. The Mortgage Bankers Association’s mortgage application activity index reflects refinancing and home purchase demand. It reported a 1.3% increase during the last week of August which comes off the heels of a 2.5% drop the week prior. Last week’s refinance index increased 2% from the week before.

This increase in mortgage applications could be due in part to the 30-year mortgage rate which dropped to 4.73% from its high earlier this year of 4.80%. The slight drop in interest rates has also encouraged current homeowners to refinance before rates go any higher, even though they are still very low. Some economists expect that as the fed begins to taper bond purchases, the housing recovery may in the long term slow and lose its momentum, meaning mortgage applications and home prices could top out. For now, it could encourage potential home buyers to get off the sidelines and get in the game before rates rise even more and before home prices tick even higher.

The monthly CoreLogic report indicates that home prices, including distressed homes, jumped 12.4% higher in July from a year ago (1.8% up from a month ago). This is the 17^th month in a row for home prices to increase. “Looking ahead to the second half of the year, price growth is expected to slow as seasonal demand wanes and higher mortgage rates have a marginal impact on home purchase demand,” said Mark Fleming, chief economist for CoreLogic. This high number is also in part due to fewer distressed homes for sale. Home prices were up 11.4% excluding distressed home sales over the last year.

The current supply of properties for sale is tight, which is also helping to push home prices higher. Recently, home builders have slowed their pace of construction, not keeping pace with the demand for new homes, leading to lower inventory numbers. Demand for housing is supported by the recently reported mortgage application numbers. Some believe this situation won’t change much over the course of this next year. Recalling from Econ 101, tight supply and strong demand will push home prices up whether they are new builds or existing homes. The biggest threat to this bullish story in housing continues to be interest rates and how quickly they move up.

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Souces: http://www.corelogic.com/about-us/researchtrends/home-price-index-report.aspx

http://www.mbaa.org/NewsandMedia/PressCenter/85594.htm