Real Estate Trends

Boomerang Buyers | The Next Big Wave?

ID-10076536Are “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 15thFHA 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 4th, Fannie Mae issued a major “Desktop Underwriter” upgrade announcement which will take effect November 16th. 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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Yellen and the Future of the Housing Market

The United States Federal ReserveLast week was a quiet week for reported economic data due to the government shutdown.  Leaders on Capitol Hill are still in negations to hopefully pass a bill both sides can agree to before the looming date of October 17th (the date the U.S. would default on some of its obligations).  President Barak Obama announced last Wednesday his nomination of Janet Yellen as the next chairman of the Federal Reserve.  If confirmed by the Senate, she will replace Bernanke on February 1st of next year.  Bernanke has been known for his low interest rates and easy money policies.  How will the housing market respond to Yellen as the next chairman?

A Yellen-led Fed would remain very dovish on monetary policy. Dovish advisors, like Bernanke, prefer low interest rates in hopes of spurring consumer spending and borrowing; thus, leading to economic growth (in theory).  The effects of inflation resulting from this type of policy are believed to have very little impact in theory (in theory).  Increased borrowing in terms of home loans would help to boost the housing market as homebuyers could lock in lower rates.

The housing market has responded very positively to the low interest rates which began when QE1 was initiated.  Yellen would likely keep rates low for some time.  She has articulated the case for upholding a highly accommodative monetary policy, as far out as late 2015.  “She’s even more of a dove than Bernanke is, but there’s nobody who can say she’s not credentialed because of the range of experience she’s got,” said J. Alfred Broaddus, a former president of the Federal Reserve Bank of Richmond.

While many people don’t support the dovish philosophy, in the short term housing and housing stocks are in a position to benefit from it.  According to recent housing statistics, it appears the growth in housing has been slowing and Yellen might be able to get it moving in the right direction again if she utilizes a robust QE-program.  Having this foresight about the future of the Fed has helped stocks to bounce back as they assume status-quo will continue during the transition of chairmen and beyond.

Several economists believe the long term effects of this policy will not go unnoticed, but housing and the stock markets aren’t concerned with long term repercussions at the moment.  Instead they continue to drink the Kool-Aid and enjoy the gains.  If tapering is far out in the future under Yellen’s direction, demand for housing would likely increase due to prolonged low rates.  An increased supply of construction jobs and building supplies would be necessary to meet demand for home building.  If the market’s supply can’t keep pace with demand as recently experienced, home prices could continue to climb.

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Jumbo Mortgage Rates, Not So Jumbo

JumboRateNotOnce 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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Mixed Signals in the Housing Market?

Growing home sales graphic  designThe economy and the housing market seem to be at a cross roads right now with some economic indicators showing signs of growth and others showing signs of stalling or a slight retraction.  It seems as though everyone is holding their breath to see if the Fed will decide to begin tapering this next month or continue its rounds of bond buying.

For the month of June, U.S. single-family home prices rose at a slightly slower pace than in previous months.  The S&P/Case Shiller composite index which is comprised of 20 metro areas around the U.S. rose .9% on a seasonally adjusted basis.  May’s number was a 1% increase.  If you compare home prices year-over-year in June they jumped 12.1%.  This is down slightly from May’s year over year jump of 12.2%.  Could this be a signal the housing market is cooling?

On CNBC’s “Squawk on the Street”, Robert Shiller, Case-Shiller Index co-founder & Yale University professor of economics said on Tuesday, “Obviously we’re in a housing recovery, at least for the short term…Housing is a market with momentum and right now, the momentum is up…In the single family realm, I think that there is a chance that there is a weakening and there is all this fear about the tapering… The housing market has gotten very speculative and it goes through big cycles…It’s a roller-coaster, that’s what these markets have become.”

Home prices are still up double digits from a year ago but home sales show a more mixed picture of the housing market.  Last week the new homes sales figure dropped 13.4% in July to its lowest level in 9 months.  This was well below economists’ expectations and could be attributed to the increase in mortgage rates over the last few months.  However, existing home sales for July were strong and jumped 6.5% from June according to Mortgage News Daily.  Pending home sales index showed signs of weakness; it fell 1.3% from June to July.  This could be a foreshadowing of weaker home sale closures in the next few months.

Chief economist of the National Association of Realtors (NAR), Lawrence Yun, commented on these recent housing market figures. “The modest decline in sales is not yet concerning, and contract activity remains elevated, with the South and Midwest showing no measurable slowdown.  However, higher mortgage interest rates and rising home prices are impacting monthly contract activity in the high-cost regions of the Northeast and the West.”

The month of September should give a clearer understanding of the direction of this current housing market.  Until these next figures are released, it seems that the housing market will try to decide whether it’s still in a bull market.

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Mortgage Rates and the Purchasing Power of a Dollar

Recent testimony by Fed Chairman, Ben Bernanke, has indicated a desire to begin tapering quantitative easing (QE) over the next few months but has stressed that interest rates will remain unchanged until certain economic indicators reflect an improving job market.  Interest rates have been held at record lows while the economy tries to get moving at full speed again.  Bernanke has stressed that he will continue to keep interest rates close to zero percent at least until 2015.

But mortgage rates have already started to climb as the housing sector grows legs.  The 30-year fixed-rate mortgage for this week is 4.56% and the 15-year fixed-rate mortgage is 3.62%.  While historically this is still low, these rates have increased by about 1% over the last 3 months.  Mortgage rates haven’t moved this much at such a quick pace since 2009.  So what does this mean if you are looking to purchase a home in the near future and why should you care about mortgage rates and monetary policy decisions by the Fed?

When mortgage rates rise, the purchasing power of the dollar diminishes in regards to home buying.  The degree to which it diminishes depends on how much mortgage rates fluctuate (inflation has a strong effect on purchasing power too, but that’s another conversation).  A home buyer is more concerned with the monthly cost and affordability of the house rather than just the sticker price of the house.  This is where mortgage rates can dictate how much home is actually affordable.


As Mortgage Rates Rise, Purchasing Power Falls

A 1% increase in mortgage rates will reduce purchasing power by 10.75%.  Likewise, if rates decrease by 1%, a homebuyer will gain a 10.75% increase in your buying power.  What does this look like?  A homebuyer originally decided they could afford to purchase a $600,000 house when rates were at 4.5% (assuming a 30 year loan).  If rates jumped to 5.5% they would now only be able to only afford a $535,000 house.

Even though mortgage rates are starting to creep up, they are still historically at all-time lows which translate into historically high purchasing power.  Comparing rates from early 2011 to late 2012, purchasing power grew more than 22% and has continued to grow as mortgage rates have continued to fall.

The longevity of this current mortgage rate environment will be affected in part by Bernanke’s actions to begin tapering QE and raising the Federal Funds Rate, which could lead to further gains in mortgage rates.  It will be interesting to see if the increase in mortgage rates recently have a negative effect on July’s Pending Home Sales from June’s Pending Home Sales number.

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Exiting the Nest: The Next Housing Movement

College graduates who bounced from college graduation to their childhood bedrooms are now on the move. Many rebounded and are now part of a growing 2013 market trend.

Demographic Size

Two million more 18–34-year-olds resided with parents last year than in the prior four years, reports Timothy Dunne, an economist with the Federal Reserve Bank of Cleveland.  They are now emerging as the next wave of upwardly and outwardly mobile employees, renters and buyers.

Will Move for Employment 


Adults 25-29 are spreading their wings and migrating to greener employment pastures as the economy recovers.

According to Brookings Institution demographer William Frey, in 2012, “the increase in the rate of people 25-to-29 moving was the highest in 13 years.”  The economic downturn reduced cross-state migration rates to post-World War II levels.  The tide has turned. Adults 25-29 are spreading their wings and migrating to greener employment pastures as the economy recovers.

In 2012, for adults aged 25-34 the jobless rate fell from 9 percent to 7.9 percent. Many pursued career opportunities in distant cities and are in the market for housing.

Renters or Buyers?

Most relocate to urban centers and are initially drawn to the flexibility of renting. Escalating rents, the weak supply of rental options and low interest rates, make buying a competitive option.


Builders, real estate professionals, asset management companies, and rental property investors who provide viable housing options and value-added resources to this emerging group should experience growth in 2013 and beyond.


  1. Los Angeles Times. Young Adults Are Leaving the Nest. Don Lee. December 9, 2012.
  2. Timothy Dunne, Economist with the Federal Reserve Bank of Cleveland.
  3. Brookings Institution demographer, William Frey.

Is Now the Time to Buy? 6 Reasons Worth Reviewing

Is now the time to buyThe National Association of Realtors’ Affordability Index indicates homes are more affordable now than at any time in recorded history. Yet many prospective buyers remain on the sideline with fears and concerns about national and global economic uncertainty.

“It’s understandable for people to be skeptical about housing after the economic uncertainty of the past few years,” stated Quicken Loans Chief Economist, Bob Walters. “But history teaches us that the best time to buy is when we are most afraid and pessimistic.” As Warren Buffett puts it, “Be fearful when others are greedy and be greedy when others are fearful.”

Six key variables for qualified buyers to consider are:

  1.  Irrational Fears – It’s important for qualified buyers to rationally seek financial and real estate advice from a professional and examine the true basis for their reluctance to enter the market.
  2. Historic Low Interest Rates—Today’s rates magnify buying power and future asset appreciation potential. FHA loans are typically assumable, creating a possible selling advantage when market rates increase.
  3. Buyer’s Market—Buyers have maximum leverage in a buyer’s market. In some recovering markets with lower housing inventories buyers are already competing in multiple-offer transactions.
  4. Low Cost Mortgages—Otherwise-qualified buyers who cannot afford high down payments have the option of FHA insured financing with lower down payment requirements.
  5. Rising Rents—Home prices have decreased by 50 percent in some markets– making a house payment more affordable than escalating rents.
  6. Ease of Access to Information—Mobile apps now mean that while driving the neighborhood, prospects can access prices and get a real-time quote of estimated monthly mortgage payments to purchase their dream home.

Qualified buyers in most markets have a major advantage at the closing table now, which makes this a strategically important time to evaluate future housing options.

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Improving Housing Market: 73% Believe Now is the Time to Buy

improving housing marketWill this spring and summer selling season be the turning point? Consumers have noticed that rents are rising and home prices and interest rates are at enticing levels. They also expect interest rates to rise over the next year.  “Sixty-six percent of survey participants say they would buy their next home if they were going to move.” Only 30% state that they would opt to rent instead.

A RISMedia article, posted May 6 spotlights encouraging results from Fannie Mae’s 2012 Consumer Attitudinal National Housing Survey. The survey found Americans expect rental rates and home prices to increase over the next twelve months. Specifically, 48% of those surveyed expect rental prices will increase by 4.1% and 39% anticipate mortgage interest rates will increase over the next year.  This combination of factors “may be providing Americans with an increased sense of urgency to buy as 73% of Americans now believe it is a good time to buy a home …, ” concluded Doug Duncan, Vice President and Chief Economist of Fannie Mae.

Check out the RisMedia article to read more about the survey’s conclusion that today’s economic conditions are  encouraging home purchases.

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Top 10 Real Estate Investment Cities

top ten real estate investment recently publicized the 10 hottest cities for investors. Analysts looked for “areas where inventory has fallen although demand hasn’t risen steeply yet, and where the job market is on the upswing,” stated Steve Berkowitz, Chief Executive Officer. The timeframe is February 2011-February 2012.

Here are excerpts from the report as summarized by The Wall Street Journal- Market Watch column which combined the two part report:

1. Tucson, AZ

  • Tucson experienced home price deflation of 31% during the course of the market correction.
  • Median list price of $170,000 in February, an increase of 3.03% year over year.
  • Tucson is a college town. The climate and scenic beauty make it a vacation destination.

2. Austin, TX

  • “Austin has been a little of a clone of Silicon Valley in terms of tech [businesses],” stated Berkowitz.
  • Strong job market with low unemployment rate of 6.3%.
  • February median price of $229,500.
  • University Town.  Seven lakes provide scenic beauty. Luxury resort destination. Music and arts contribute to a rich entertainment culture.

3. Kansas City, MO

  • “Prices are recovering in Kansas City and interested investors may want to consider acting soon,” according to
  • Median list price of $134,000 in February, showed a year over year improvement of nearly 4%.
  • Housing inventory has been reduced by 21% since last year.

4. Baltimore, MD

  • “Investors should consider buying now for maximum gains on properties in this area,” indicated
  • February median list price of $239,500 was up 3% for the year, indicating market stabilization.

5. Fort Worth, TX

  • “Homes there are selling 20 times faster than last year.”¹
  • Median list price is $160,000 which has jumped 8% since last year.
  • Fort Worth sits on the The Barnett Shale, a natural gas field covering 20 north Texas counties. Experts project that wells could produce through 2080 if not longer. This promotes a strong employment and infrastructure.2

6. Salt Lake City, UT

  • A popular tourist destination, this city is attractive to investors preferring vacation rentals.
  • February median list price of $195,000 was up 5.46% over the prior year.
  • Inventories of for sale properties decreased 30% as compared to last year.

7. San Jose, CA

  • “It becomes a very good investment market because they get the potential price appreciation and get the rental opportunity,” Berkowitz asserted.
  • San Jose has a housing shortage due to job growth.
  • The February median list price of $468,888 corroborates the market dynamic.
  • The high median list price fuels the need for rental housing.

8. Raleigh, NC

  • Apartment complexes are 95% occupied and the unemployment rate is low.
  • February’s median list price of $215,000 increased 7.5% during the preceding year.
  • Single family residential inventory dropped nearly 24% versus prior year.
  • Raleigh doubles as a college town and a vacation destination; presenting a wealth of opportunities for investors.

9. Milwaukee, WI

  • Low unemployment rate at 6.9%
  • Median list price of $175,000
  • Residential housing inventory down 21% compared to former year.

10. St. Louis, MO

  • Home prices are decreasing.
  • Median list price is $159,000.
  • recommends the market for long-term investment.

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Real Estate Trends: Are You Ready for the Rental Boom?

The single-family rental market “is a large, deep $3 trillion market that accounts for 21 million rental units or 52 percent of the residential rental market.”

This is the conclusion of CoreLogic economist, Sam Khater in his recently released report “What Markets Offer the Best Return for Single-Family Rental Investors?” According to Federal Reserve research, “The majority of recently foreclosed borrowers move to single-family rentals.” Perhaps for this reason, the single-family segment of the rental market has different performance patterns. Single family rents increased during the recession while multifamily rents decreased, reported Khater who estimates “The potential size of the rental market for REOs this year is over $100 billion dollars annually.”

The capitalization rates (cap rates) on rental purchases in many metros are over eight percent, which substantially out-performs other major investment options.

The report confirmed for investors that of the 26 metropolitan areas reviewed, “The best opportunities for single-family REO-to-rental investors are in Florida and the Midwest, which boast high cap rates and a large stock of REO properties.” Record affordability presents extraordinary opportunities for qualified home buyers and investors. Check for thousands of residential properties not only in Florida and the Midwest but also across the country.

Top 5 Cap Rate Cities Among 26 Metros Reviewed:

  1.  West Palm Beach, FL –  (12.4 percent )
  2. Cleveland, OH – (12.3 percent)
  3. Fort Lauderdale, FL – (12 percent)
  4. Chicago, IL – (11.6 percent)
  5. Las Vegas, NV – (11.4 percent)

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