Friday, November 22, 2013
New regulatory hurdles could temporarily restrict lending to some buyers, but their effects will likely even out over time.
The Qualified Mortgage (QM) or ability-to-repay rule becomes effective in January and contains a number of underwriting standards that will constrict mortgage availability and deny credit to some first-time homebuyers. The QM rule requires significant documentation from consumers to justify lenders’ underwriting decisions, and lenders face strict penalties if a loan is made outside the specific criteria.
Among the new rules:
Borrowers can still get a private loan, as long as the loan does not have risky features and the borrower’s total debt to income (DTI) isn’t over 43%. This means that a borrower’s total debt expense (including total mortgage payment) does not exceed 43% of their gross income (before taxes are withheld). The lower DTI, however, means some buyers will be offered less mortgage money than they were this year.
Origination fees can’t exceed 3% of the loan, and affiliate fees and points count towards the 3% cap. This could create a problem for lower-income homeowners, however, since many closing costs are fixed: 3% of $50,000 is significantly less than 3% of $300,000.
Some of the riskier loans offered before the housing slowdown won’t be allowed, such as interest-only, negative amortization and balloon house loans.
Kevin Watters, CEO of JPMorgan Chase, said that lower- and moderate-income buyers, as well as some self-employed buyers, might have a tougher time in the new lending environment. “We need to work together to help first-time buyers into affordable housing options,” he said.
“It’s important for Realtors to be educated about the new documentation requirements so they can work with buyers and meet lender expectations,” added Matt Vernon, home loan sales executive for Bank of America.
NAR CEO Dale Stinton asked the lenders whether they fear the risk of mortgage security “putbacks” and if that fear impacts underwriting. A putback occurs when a bank misrepresents the creditworthiness of a borrower to the entity that buys the loan – such as Fannie Mae and Freddie Mac – and the bank is forced to buy back the mortgage.
Watters said fears over putbacks are real and Mike Heid, president of Wells Fargo Home Mortgage, agreed.
“The putback fear is still there, and we’re working to put it to rest,” said Heid. “The time is right for that. If the government-sponsored enterprises (Fannie Mae and Freddie Mac) weren’t in conservatorship, the issue of putbacks wouldn’t be there. We need a world where everything is more of a natural market, and we need competition with Fannie Mae and Freddie Mac. The conservatorship should end.”
Thomas followed up by asking whether immediate steps should be taken to reduce the government’s role in the housing finance market. Emerson said that the security offered by their federal guarantees needs to stay, but not the actual government entities.
“I think if we want the 30-year fixed-rate mortgage, you need the government guarantee,” said Watters. “The 30-year fixed-rate mortgage needs the government guarantee because not all banks can soak up the size of the market.”
When asked whether private investors are ready to take a bigger role in the secondary mortgage market as the government’s footprint shrinks, the executives provided varied responses. Heid said that more certainty is needed before taking action.
“We’ve already started to do some private label securities,” said Watters. “People are getting back into the marketplace, which is a good thing. We might not be ready to take it all on, but we are headed in the right direction.”
The lending leaders unanimously agreed that consumers will see a healthy increase in the market next year, keeping pace with gains made in 2013. Mortgage originations will dominate the 2014 housing market as interest rates creep up and refinancing trends downward.
Heid said that while home values will continue to increase as the market continues to heal, the economy is the wild card and another downturn would be a game changer.
“In spite of the economic crisis, Americans still want to be homeowners. That hasn’t changed one bit,” he said. “Homeownership is at the heart of what we do, and that is worth preserving.”
© 2013 Florida Realtors®
Example: Single Family Home - 4 Bedroom - 2 Bath - 2 car garage - HOA community
Note: The above is a representation for example purposes only. As in any investment, there are risks for return on investment and resale value depending on ever changing market conditions. Investors assume these risks with no guarantee of success.
Wednesday, November 20, 2013
“Florida’s economy continues to improve, and that’s good news for the housing market,” said 2013 Florida Realtors President Dean Asher, broker-owner with Don Asher & Associates Inc. in Orlando. “October marks 23 months in a row that statewide median sales prices rose year-over-year for both single-family homes and for townhouse-condo properties. Last month, the median days on market (the midpoint of the number of days it took for a property to sell) was 46 days for single-family homes and 48 days for townhouses and condos. That means 50 percent of homes on the market in Florida sell in less than two months.
“On average, sellers received about 94 percent of their asking price in October. Interested home sellers are paying attention to this positive trend and entering the market, which in turn is helping to stabilize inventory levels.”
Statewide closed sales of existing single-family homes totaled 18,728 in October, up 6.5 percent compared to the year-ago figure, according to data from Florida Realtors Industry Data and Analysis department in partnership with local Realtor boards/associations. Closed sales typically occur 30 to 90 days after sales contracts are written.
Meanwhile, pending sales – contracts that are signed but not yet completed or closed – for existing single-family homes last month rose 3.4 percent over the previous October, and new listings increased 16.4 percent. The statewide median sales price for single-family existing homes last month was $169,000, up 16.6 percent from the previous year. The median is the midpoint; half the homes sold for more, half for less.
According to the National Association of Realtors® (NAR), thenational median sales price for existing single-family homes in September 2013 was $199,300, up 11.4 percent from the previous year.In California, the statewide median sales price for single-family existing homes in September was $428,810; in Massachusetts, it was $325,000; in Maryland, it was $256,672; and in New York, it was $230,000.
Looking at Florida’s year-to-year comparison for sales of townhouse-condos, a total of 8,598 units sold statewide last month, up 3.1 percent from October 2012. Meanwhile, pending sales for townhouse-condos last month eased slightly, down 3.6 percent compared to the year-ago figure, but new listings rose 9.8 percent. The statewide median price for townhouse-condo properties in October was $130,000, up 22.1 percent over the previous year. NAR reported that the national median existing condo price in September 2013 was $198,600.
Inventory was at a 5.5-months’ supply in October for single-family homes and at a 5.6-months’ supply for townhouse-condo properties, according to Florida Realtors.
“The housing numbers continue to hold up, bolstered by strong employment growth and population in-migration,” said Florida Realtors Chief Economist Dr. John Tuccillo. “We are, however, noticing that there has been a steady decline in the share of cash sales in the market, suggesting that investment activity in Florida real estate may be waning. This takes an important element of demand out of the equation.
“Equally important is the slight rise in inventories we have seen in the past few months. Both factors are linked, but both are happening gradually and the market should be able to adjust to the changes.”
According to Freddie Mac, the interest rate for a 30-year fixed-rate mortgage averaged 4.19 percent in October 2013, up from the 3.38 percent average recorded during the same month a year earlier.
Monday, November 18, 2013
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Tuesday, November 12, 2013
They've introduced legislation that would delay rate increases for up to four years and make changes in the law that forced up the cost of federal flood insurance - The Biggert-Waters Flood Insurance Reform Act.
Flood damage typically isn't covered by homeowners insurance.
The National Flood Insurance Program (NFIP), run by the Federal Emergency Management Agency (FEMA) is generally the only flood insurance available to homeowners, even though flooding is the most common natural disaster and occurs in all 50 states.
The original flood reform bill's namesake, Rep. Maxine Waters, recently introduced The Homeowner Flood Insurance Affordability Act (H.R. 3370) to correct flood insurance problems. Senators Robert Menendez (D-NJ) and Johnny Isakson (R-GA) introduced a companion bill in the Senate.
"FEMA's poor implementation, inaccurate mapping and incomplete data has led to unreasonable and unimaginable increases in premiums," Waters said.
"This legislation would ensure that FEMA undertakes program changes in a way that will not cause harm, by delaying implementation until it provides Congress the facts on how rate increases will affect homeowners. It will also give us the information we need to go through the program piece-by-piece and fix any outstanding affordability issues."
Other lawmakers are tackling the flood insurance issue, too:
Florida Republican Congressman Gus M. Bilirakis' Homeowners Flood Insurance Relief Act (H.R. 3312) would cap premiums and phase in rate increases over 10 years. Homeowners would get to pay premiums monthly instead of annually.
Massachusetts Attorney General Martha Coakley's proposal would cap premiums and limit the amount of flood insurance your mortgage lender could make you purchase. Under her proposal, your mortgage lender couldn't forced you to buy a flood policy covering more than the outstanding amount of your loan or to cover the contents of your home.
Florida Insurance Commissioner Kevin McCarty plans to make it easier and more appealing for insurance companies to offer private flood insurance in his state.
Monday, November 11, 2013
Scott Muldavin, president of The Muldavin Company Inc., a consulting firm in San Rafael, Calif., shared his insights into the top issues that could potentially impact homeowners, real estate markets and the industry in the coming years.
According to Muldavin, historically low interest rates have driven the economy and real estate markets in recent years; but as rates start to rise, it could raise capitalization rates – the ratio between the income produced by an asset and its cost – which could create anxiety among real estate investors.
“Interest rates are going to rise significantly, so my advice is to be careful about your investments today and lock in those low rates if you can,” said Muldavin.
Healthcare is also an important issue with real estate implications. As the U.S. population ages, demand for senior housing with go up. That will change the configuration and size of available housing, and it will increase the need for medical care, which will create a demand for expansion among medical facilities.
Muldavin said there’s been a capital market resurgence, which is good news for residential and commercial real estate. In commercial markets, transaction volume is up, credit is available, underwriting has loosened and a full range of debt options has returned. For residential markets, underwriting remains tougher, but rates are near historic lows currently and affordability remains high.
Future housing demand from echo boomers, the 80 million Americans born between 1982 and 1995, will also impact real estate markets.
“We are the only developed country that has had an echo boom, and that’s a positive thing if the country can react and respond to it,” said Muldavin.
Echo boomers often prefer a more flexible and active urban lifestyle. They rely heavily on mass transit, and are often willing to trade home size for location. However, Muldavin said that the suburbs are fighting back with better mass transit, new bike paths and repurposed properties to attract more future buyers.
Climate change and more extreme weather patterns will also have an impact on coastal homes and many other properties across the country. Muldavin cited the impact of recent storms like Hurricanes Katrina and Sandy, and how property owners in these markets are now dealing with changes in code and zoning standards, and they’re paying significantly higher insurance premiums.
As always, unknown events can also impact the real estate market, and they can sometimes do it quickly – like major global events, such as acts of terrorism, war, global debt crisis and financial and economic downturns. “The risk of future events is high, and while it’s always hard to anticipate these risks, they need to be considered because their impact is often great,” said Muldavin.
Increased natural gas and oil production in the U.S., which has an impact on the economy and environment, is another issue with real estate implications. Muldavin said there’s been an increase in fracking and oil and natural gas production in recent years, and while this is creating greater employment opportunities and reducing U.S. dependence on foreign oil, it’s also contributing to climate change, environmental degradation and contamination.
Muldavin also cited globalization as a trend to watch. While that benefits many U.S. markets, it also puts real estate at risk for foreign investment losses since the real estate market becomes more tied to the economies of other countries.
Another issue to watch: how new technology will impact office spaces. Muldavin said many corporations are already creating work-from-home policies and other mobility solutions that allow individuals to work when and where they want. That change could significantly reduce office space requirements.
“Many people are replacing physical items with electronics and free or virtual products, such as e-books and smartphones enabled with cameras, GPS and flashlights,” he said. “This means businesses will continue to require less retail space, so I believe the trend in the future will be for fewer and smaller stores.”
For real estate, Muldavin said the impact of the Internet on bricks-and-mortar retail stores is a growing issue. He said retail demand is down across the country due to an increase in Internet sales, which are expected to rise from the current 6.5 percent to nearly 15 percent by 2020.
© 2013 Florida Realtors®
Wednesday, November 6, 2013
“Data from the third quarter of 2013 shows that Florida’s housing market continues to grow and gain strength,” said 2013 Florida Realtors President Dean Asher, broker-owner with Don Asher & Associates Inc. in Orlando. “The housing sector is vital to the state’s economy, and Realtors across the state are reporting increased activity in their markets.
“At 7.0 percent, Florida currently has a lower unemployment rate than the nation, according to the August unemployment figures (the latest state data available.) More jobs will provide more stability for future growth in the state’s housing market and overall economy.”
Statewide closed sales of existing single-family homes totaled 60,661 in 3Q 2013, up 17.3 percent compared to the year-ago figure, according to data from Florida Realtors Industry Data and Analysis department in partnership with local Realtor boards/associations. Closed sales typically occur 30 to 90 days after sales contracts are written.
Meanwhile, pending sales – contracts signed but not yet completed or closed – for existing single-family homes rose 17.9 percent in the third quarter compared to the same period last year. The statewide median sales price for single-family existing homes in 3Q 2013 was $175,000, up 18.6 percent from the same quarter a year ago. The median is the midpoint; half the homes sold for more, half for less.
Looking at Florida’s year-to-year comparison for sales of townhouse-condos, a total of 27,200 units sold statewide in the third quarter, up 11.3 percent from the same three-month period in 2012. Pending sales for townhouse-condos in 3Q 2013 increased 12.4 percent compared to a year ago, while the statewide median for townhouse-condo properties was $130,000, up 23.8 percent over the same quarter last year.
In 3Q 2013, the median days on market (the midpoint of the number of days it took for a property to sell that month) was 48 days for single-family homes and 54 days for townhouse-condo properties.
“What’s remarkable for the third quarter data is that all metro areas in Florida show year-over-year increases in both prices and sales for single-family homes, and year-over-year increases in sales for condo-townhome properties,” says Florida Realtors Chief Economist Dr. John Tuccillo. “Inventories have begun to pick up a little bit, which may be consistent with cash sales declining as a percentage of overall sales. We’re alert to the fact that it may signal a trend, which could be good for the long-term stabilization and health of Florida’s housing market.”
The inventory for both single-family homes and for townhouse-condo properties stood at a 5.3 months’ supply for the third quarter, according to Florida Realtors.
According to Freddie Mac, the interest rate for a 30-year fixed-rate mortgage averaged 4.44 percent for 3Q 2013, up from the previous year’s average of 3.54 percent, according to Freddie Mac.
To see the full statewide housing activity reports, go to the Research & Statistics section of floridarealtors.org.
© 2013 Florida Realtors®