Resurgent Housing Sector to Lead 2014 Economic Recovery

Mortgage giant Freddie Mac is expecting a good 2014 for housing. Economists predict a much stronger economic recovery will take hold next year, “led by a resurgent housing sector,” according to Freddie Mac’s November U.S. Economic & Housing Market Outlook report. 

Despite rising interesting rates and home values, Freddie Mac economists believe “housing will remain generally affordable in most parts of the country.” 

“Even if rates were to go to 5 percent next year, housing in most of the country would remain affordable,” Frank Nothaft, Freddie Mac’s chief economist, notes in the report. “Large metro areas along the Atlantic and Pacific coasts are already expensive for the typical family, so rising rates will have a bigger effect there. But in most of the country, incomes and home prices are such that rising rates by themselves will not be enough to end the recovery. What we need is some better income growth.” 

Economic growth is expected to be in the 2.5 percent to 3 percent range, more than half a percentage point better than what is expected for this year. Economic growth will help spur more jobs, and Freddie economists predict that the unemployment rate will fall below 7 percent by mid-2014. 

Freddie predicts that in 2014 single-family home sales and housing starts will reach their highest levels since 2007. 

Buyers will likely face increasing borrowing costs, with mortgage rates expected to continue to rise in 2014, Freddie predicts. Mortgage rates have climbed about a full percentage point since early May. 

“We look for fixed-rate mortgage rates to creep higher in 2014, gradually moving up throughout the year and ending at close to 5 percent,” Nothaft notes. “However, expect some volatility in the short-term from renewed concerns about the debt ceiling or other fiscal policy.” 

Read more about housing predictions for 2014 from the National Association of REALTORS®’ Chief Economist Lawrence Yun. 

Source: Freddie Mac November 2013 U.S. Economic & Housing Market Outlook

Freddie: 2014 Holds Big Shift For Housing

Freddie Mac forecasts that 2014 will mark the conclusion of the refinance boom and the beginning of a market dominated by purchase money lending — the first such market in 14 years. 

"With mortgage rates rising, we're going to see the home-sales gains as well as the impressive house price growth begin to moderate to more sustainable levels," says Frank Nothaft, Freddie's chief economist. 

Interest rates are expected to climb gradually throughout 2014, possibly reaching 5 percent by year's end. Most areas are expected to remain affordable, though, helping to sustain the national market. Housing construction is projected to rise 20 percent to 25 percent in 2014, with housing starts growing to a pace of 1.15 million. Home values climbed nearly 14 percent this year, and next year, Freddie Mac expects the increase to be in the range of 5 percent to 6 percent. 

Finally, Freddie expects a "continued renaissance" in multifamily housing investments as they become increasingly attractive, Nothaft says.

Source: "Report: Big Shift in US Housing Market in 2014," World Property Channel (Nov. 20, 2013)

Home Buyers Plan to Make a Move This Winter

Home buyers who weren’t successful this summer at finding a home due to limited inventories and competition from all-cash offers are looking to retry their luck in the winter, according to realtor.com®’sWinter Home Buyer Report. 

“This summer and spring, home-buying season was particularly challenging for buyers, especially first-time home buyers trying to compete with all-cash offers and bidding wars because of reduced inventory,” says Alison Schwartz, vice president of corporate communications at realtor.com®. “In fact, a quarter of the winter home buyers revealed they are in the market now because they were unable to find a home during this last home-buying season.”

But winter home buyers know they’ll face some challenges. Forty-five percent of those surveyed say they believe they will be up against inventory challenges again, with few homes for sale within the price range they desire. Twenty-nine percent also say that winter weather makes house-hunting unpleasant. 

But they believe that the winter can be a good time to buy a home. Twenty-six percent say winter is a good time to buy because they feel sellers will be more motivated and willing to negotiate. Twenty-four percent also say they think home prices will be better.

Of those looking to buy this winter, 23 percent are planning to make a down payment of 10 to 20 percent, according to the realtor.com® survey. Twenty-two percent are planning to put down 21 to 99 percent in cash; 19 percent plan to put down 100 percent cash; and 13 percent are planning to make a down payment of 3.5 percent to qualify for a Federal Housing Administration loan. 

Source: “Survey: Tight Inventory Tops Winter Home Buyers’ Challenges,” realtor.com (Nov. 20, 2013)

Fed Signals Tapering Could Start Soon

The economy is strengthening and a tapering of the Federal Reserve’s stimulus program is still on the horizon, Fed Chairman Ben Bernanke said this week in a speech for the National Economics Club. 

Bernanke said that even as the Fed begins to retreat from its $85 billion-per-month bond-purchasing program — which has been helping to keep mortgage rates low — it would likely maintain the bulk of the campaign for several years to come. Bernanke again refused to directly address a timetable for the Fed’s tapering to begin, but some reports say that, based on other recent remarks by Fed officials, the tapering could come as soon as December. 

The Federal Open Market Committee, which sets policy, “still expects that labor market conditions will continue to improve and that inflation will move toward the 2 percent objective over the medium term,” Bernanke said during the speech. “If these views are supported by incoming information, the F.O.M.C. will likely begin to moderate the pace of purchases.”

The minutes of the Federal Reserve’s policy meeting last month also hinted that a tapering of the Fed’s economic stimulus is coming soon, despite experts noting that “the housing sector slowed somewhat in recent months, and [budget cuts and tax increases] were restraining economic growth."

The bond-purchasing program has been helping to keep long-term interest rates low for borrowers in recent years. But interest rates have already started moving up since the Fed announced months ago that it was eyeing a timeframe to being tapering. Since this summer, 30-year fixed-rate mortgages have moved up almost a full percentage point, from around 3.5 percent to 4.35 percent, Freddie Mac reports. 

Bernanke is expected to step down from his role as Fed chairman at the end of January. The Senate Banking Committee will be voting Thursday on the nomination of Janet L. Yellen, the current Fed vice chair, as Bernanke's replacement. 

Source: “Citing Fed’s Efforts, Bernanke Says U.S. Economy Is Growing Stronger,” The New York Times (Nov. 19, 2013) and “Fed minutes point to tapering 'in coming months,’” USA Today (Nov. 20, 2013)

Simplified Mortgage Forms Coming in 2015

The Consumer Financial Protection Bureau has announced that new forms simplifying the paperwork that borrowers receive when applying for loans will go into effect in August 2015. The forms are to make it easier for consumers to shop for a mortgage as well as clearly lay out the terms and costs of loans for home buyers so they know the risks and their financial obligations to repay the loan at the forefront.

Currently, under federal law, mortgage applicants receive two disclosure forms and then two additional forms when closing on the loan. Starting Aug. 1, 2015, a new document will be given to mortgage applicants called the “Loan Estimate” form, which will help borrowers understand the risks and key features of a mortgage. They then will be given the “Closing Disclosure” form at closing, which will clearly explain the costs of the transaction. 

This “is an important step toward the consumer having greater control over the mortgage loan process," says CFPB Director Richard Cordray. "Taking out a mortgage is one of the biggest financial decisions a consumer will ever make."

CFPB, in an initiative called “Know Before You Owe,” has conducted more than two years of tests to create simplified disclosure forms.

Source: “U.S. consumer watchdog to simplify home loan paperwork,” Reuters (Nov. 20, 2013)

Fannie Targeted for Pitfalls in Short-Sale

The Office of Inspector General is recommending more oversight of Fannie Mae’s short-sale approvals after discovering flaws in the mortgage giant's process.

OIG says in a report that after a review of 41 Fannie Mae short-sale transactions, it found that five servicers were failing to collect all of the required documents before determining if an applicant was eligible for a short sale. In turn, the servicers were also failing to provide the required documentation to Fannie Mae.

During 2012, Fannie Mae and its lenders approved more than 73,000 short sales, and the servicers identified in the OIG report were responsible for 34 percent of them, the report says. 

OIG also says the servicers did not always conduct adequate reviews of the documents that were supplied by borrowers and failed to identify what necessary documents were missing — but still approved the short sales. 

The Federal Housing Finance Agency, which oversees Fannie, agreed with OIG's recommendations of stricter oversight from its audit of the mortgage giant’s short-sales processes.

OIG raised questions over Fannie Mae’s Low FICO Program, which allows servicers to approve short sales without collecting or reviewing any information or documentation for borrowers that have a FICO score below 620 and are at least 90 days late on their mortgage. OIG urged FHFA to review Fannie’s program and determine whether it should apply to borrowers who have non-owner occupants in their properties.

Source: “OIG Recommends Tighter Oversight of Fannie Mae Short Sales,” Mortgage News Daily (Nov. 19, 2013)

With Tight Inventory, Prices Only Going Up From Here

A low number of homes for sale is pushing home prices up to double-digit gains year-over-year, the National Association of REALTORS® reports in its latest existing-homes report. 

“Low inventory is holding back sales while at the same time pushing up home prices in most of the country,” says Lawrence Yun, NAR’s chief economist. “More new-home construction is needed to help relieve the inventory pressure and moderate price gains.” 

In October, the national median existing-home price was $199,500 — a 12.8 percent surge above what it was a year ago. It also marks the 11th consecutive month of double-digit year-over-year increases, NAR reports. 

Meanwhile, housing inventories are falling, dropping 1.8 percent in October to 2.13 million existing homes for sale. That represents a 5-month supply at the current sales pace. 

The median time on the market for all home types was 54 days in October, up from 50 days in September. In October 2012, the median time on the market was 71 days. 

Realtor.com® reports that the tightest inventory conditions were in the following metros in October:

• Oakland, Calif.: median age of inventory of 30 days
• San Francisco: 48 days
• San Jose, Calif.: 48 days
• Denver: 48 days
• Stockton-Lodi, Calif.: 48 days

Modest Growth Seen in Commercial Real Estate Markets

Commercial real estate leasing patterns are showing steady but modest growth, according to the National Association of REALTORS® quarterly commercial real estate forecast.

Lawrence Yun, NAR chief economist, projects only modest changes in the coming year. “Jobs are the key driver for commercial real estate, and the accumulation of 7 million net new jobs from the low point a few years ago is steadily showing up as demand for leasing and purchases of properties,” he said. “But the difficulty of accessing loans remains a hindrance to a faster recovery.”

The gross domestic product rose from 2.5 percent in the second quarter to 2.9 percent in the third quarter. NAR’s recent Commercial Real Estate Quarterly Market Surveyshows leasing activity rose 2 percent in the third quarter from the second quarter, and higher sales levels than a year ago.

Yun said there have been some shifts in commercial purchases. “Investors have been looking for better yields, and have found good potential in smaller commercial properties, notably in secondary and tertiary markets,” he said. “Sales of commercial properties costing less than $2.5 million in the third quarter were 11 percent above a year ago, while prices for smaller properties were 4 percent above the third quarter of 2012.”

Commercial investment in properties costing more than $2.5 million rose 26 percent from a year ago, while prices for large properties were 9 percent above the third quarter of 2012.

National vacancy rates over the coming year are forecast to decline 0.2 percentage point in the office market, 0.6 point in industrial, and 0.5 point for retail real estate. The average multifamily vacancy rate will edge up 0.1 percent, but that sector continues to see the tightest availability and biggest rent increases.

NAR’s latest Commercial Real Estate Outlook offers overall projections on four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data for metro areas were provided by REIS, Inc., a source of commercial real estate performance information.

Office Markets

Vacancy rates in the office sector are expected to decline from a projected 15.6 percent in the fourth quarter to 15.4 percent in the fourth quarter of 2014.

The markets with the lowest office vacancy rates presently (in the fourth quarter) are New York City, with a vacancy rate of 9.8 percent; Washington, D.C., at 9.9 percent; Little Rock, Ark., 12.0 percent; and Nashville, Tenn., 12.9 percent.

Office rents should increase 2.4 percent this year and 2.5 percent in 2014. Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is seen at 32.2 million square feet this year and 46.1 million in 2014.

Industrial Markets 

Industrial vacancy rates are likely to fall from 9.2 percent in the fourth quarter of this year to 8.6 percent in the fourth quarter of 2014.

The areas with the lowest industrial vacancy rates currently are Orange County, Calif., with a vacancy rate of 3.9 percent; Los Angeles, 4.0 percent; Miami, 6.0 percent; and Seattle at 6.3 percent.

Annual industrial rents are expected to rise 2.3 percent this year and 2.5 percent in 2014. Net absorption of industrial space nationally is anticipated at 97.0 million square feet in 2013 and 104.9 million next year.

Retail Markets

Retail vacancy rates are forecast to decline from 10.4 percent in the fourth quarter of this year to 9.9 percent in the fourth quarter of 2014.

Presently, markets with the lowest retail vacancy rates include Fairfield County, Conn., at 3.9 percent; San Francisco, 4.0 percent; Long Island, N.Y., 5.2 percent; and Northern New Jersey at 5.3 percent.

Average retail rents should increase 1.4 percent in 2013 and 2.2 percent next year. Net absorption of retail space is projected at 11.0 million square feet in 2013 and 18.1 million next year.

Multifamily Markets

The apartment rental market – multifamily housing – is likely to see vacancy rates edge up 0.1 percentage point from 3.9 percent in the fourth quarter to 4.0 percent in the fourth quarter of 2014, with new construction helping to meet higher demand. As a rule, vacancy rates below 5 percent are considered a landlord’s market, with demand justifying higher rent.

Areas with the lowest multifamily vacancy rates currently are New Haven, Conn., at 1.9 percent; Syracuse, N.Y., 2.0 percent; Minneapolis and San Diego, at 2.1 percent each; and New York City, 2.2 percent.

Average apartment rents are forecast to rise 4.0 percent this year and 4.3 percent in 2014. Multifamily net absorption is projected to total 239,400 units in 2013 and 211,300 next year.

Source: NAR

Read More

Rebound in Market for Suburban Office Space

30 Year Mortgage Average 4.22% This Week

Fixed-rate mortgages dropped this week due to weaker economic data, particularly a decline in manufacturing growth and overall inflation rates, says Frank Nothaft, Freddie Mac’s chief economist.

Freddie Mac reports the following national averages in mortgage rates for the week ending Nov. 21: 

• 30-year fixed-rate mortgages: averaged 4.22 percent, with an average 0.7 point, dropping from last week’s 4.35 percent average. Last year at this time, 30-year rates averaged 3.31 percent. 
• 15-year fixed-rate mortgages: averaged 3.27 percent, with an average 0.7 point, dropping from last week’s 3.35 percent average. A year ago, 15-year rates averaged 2.63 percent. 
• 5-year hybrid adjustable-rate mortgages: averaged 2.95 percent, with an average 0.5 point, dropping from last week’s 3.01 percent average. Last year at this time, 5-year ARMs averaged 2.74 percent. 
• 1-year ARMs: averaged 2.61 percent, with an average 0.4 point, holding steady from last week. A year ago, 1-year ARMs averaged 2.56 percent. 

Source: Freddie Mac

Fears Brew Over Mortgage Fraud In Jumbo Loans

The growing popularity of jumbo loans is increasing the potential for mortgage fraud with these high-priced loans, according to Interthinx in its latest mortgage fraud risk report. 

In recent months, jumbo rates, in some cases, have been lower than conforming rates, leading to them grow in popularity. 

"With the rise in popularity of jumbo loans, lenders must be aware of both the credit risk and fraud risk those loans carry," says Ashley Woodworth, Interthinx vice president of business development and corporate strategy.

"While the most significant fraud risk gap occurred in the area of employment/income, it certainly wasn’t the only area where risk was present. Occupancy fraud risk for jumbos, for example, was extremely high — more than 200 by our index versus 150 for non-jumbo loans. The risk is out there, and lenders need to be aware.”

Interthinx notes that the states most at risk for mortgage fraud are: California, Washington, D.C., Delaware, Montana, Hawaii, Florida, Alaska, Utah, Connecticut, and Nevada. 

“As we predicted last quarter, the shift toward a purchase-driven mortgage market increases the risk of fraud,” says Jeff Moyer, president of Interthinx. “Our goal in issuing this report is to make lenders aware of the fraud risk trends we’ve observed in the market so that they can remain vigilant in preventing those trends from becoming widespread issues within their own organizations."

Source: “Mortgage fraud risk rises as jumbos attract more attention,” HousingWire (Nov. 20, 2013)

Read More

Jumbo Mortgages Get Cheaper Than Other Mortgages

New Insurance Protects From Falling Homes Values

A new type of insurance debuting next month protects home owners against negative equity. Underwater Mortgage Protection, offered by AmTrust Financial Services, is to launch in three states in December. It is then to roll out nationwide within the next year. 

"Our product fills a significant gap that was needed in the marketplace," says Matthew Kayton, vice president of the real estate insurance group at AmTrust. "We will be there to help consumers if they end up in a situation where life happens to them and they need to sell, and they might be in a down market."

While the recent rise in home prices has helped lift nearly 5 million home owners into positive equity again, 21 percent of all home owners with a mortgage still owe more on their loans than their homes are currently worth, CNBC reports. 

With this insurance from UMP, home owners will have an opportunity to pay an average monthly premium of $40 to $50 to get gap insurance on the value of their home. However, in order to apply for it, home owners must have at least 10 percent equity in their homes at the time. Also, home owners will be unable to refinance during the coverage period. 

If home owners decide to sell their homes and the value of the home is not worth the mortgage amount, UMP will assist home owners in selling  the property through its own agents and then will pay the lender the difference. 

Some critics of the program say that the insurance plays on home owners’ fears. 

"Consumers who have an extra $40 or $50 per month can 'self-insure' against house price declines by paying down their mortgage principal faster," Barry Zigas, director of housing for the Consumer Federation of America, told CNBC. "This generates further equity and is an investment, not an expense for insurance that may never be recouped."

Source: “Underwater insurance, as millions of homeowners emerge for air,” CNBC (Nov. 21, 2013)

How Does Your Property Taxe Burden Compare?

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, and nearly 64 percent of local own-source revenue, 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.  

New York and New Jersey tend to have the highest number of counties with the highest property tax burdens. Westchester, Nassau, and Bergen counties in New York had the three highest average tax burdens, all more than $8,500. This reflects higher home prices as well as a higher reliance on property taxes by the state and local governments there. 

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: “Role of Property Tax in Health of Housing Market,” Mortgage News Daily (Nov. 22, 2013)

5 Housing Bubbles to Watch

Housing bubbles can lead to economic disaster. Home prices that rise too rapidly can eventually pop, sending values down and putting home owners at risk.

Certain markets around the world are starting to look “bubbly and some fear they risk putting economies in jeopardy,” Fortune reports. The magazine listed the following five housing markets as ones to watch for possible bubbles: 

• Australia: In Sydney, the country’s most populated city, average home prices surged 13 percent this year to a record $718,122. The rapid rises have even prompted the country's central bank to urge lenders to stop making mortgages so easily available. 
• Brazil: Home prices in Brazil have doubled in five years. In the biggest cities of Sao Paulo and Rio de Janeiro, home prices have increased 188 percent and 230 percent, respectively, since January alone.  
• New Zealand: Prices in Auckland have increased 17 percent. Low borrowing costs have helped fuel the country’s housing market recovery after a near bubble back in the early 2000s, but they're also pushing home prices higher again. 
• China: Prices have jumped by the fastest pace there in nearly three years. In Beijing, prices increased 16 percent and Shenzhen by 20 percent in the past year. But while bubble fears are brewing, residential mortgage debt is relatively low in the country since the Chinese tend to big savers who put their money in real estate, Fortune notes. 
• United States: Some fear that a bubble is brewing again in the U.S. as home prices make a big recovery this year after a 2007 downfall, Fortune reports. Median prices for existing single-family homes have increased 12.5 percent during the third quarter from a year earlier to $207,300. “I’m beginning to see signs not just in my district but across the country that we are entering, once again, a housing bubble,” said Dallas Fed President Richard Fisher last month after a speech in New York. 

Source: “5 Housing Bubbles to Watch,” Fortune (Nov. 22, 2013)

Asking Price in 10 Cities

Median list prices are up 7.57 percent over the last year, according to a report from realtor.com, which reflects October data for 146 metro markets. 

“Monthly prices fell slightly in October (down 0.25 percent month-over-month), but remained resilient against the usual seasonal patterns of stabilizing inventory,” realtor.com noted in its report. 

Detroit has seen the largest year-over-year increase, with median asking prices rising 44 percent in the past year. Eighty-five percent of the 146 markets that realtor.com tracks reported year-over-year increases. The following metros recorded the highest list price increases in the past year (October 2012 compared to October 2013): 

1. Detroit: +44.33%
   • Median list price: $129,900
2. Stockton-Lodi, Calif.: +40.80%
   • Median list price: $245,000
3. Santa Barbara-Santa Maria-Lompoc, Calif.: +33.39%
   • Median list price: $799,000
4. Reno, Nev.: +29.29%
   • Median list price: $258,577
5. Melbourne-Titusville-Palm Bay, Fla.: +27.78%
   • Median list price: $165,990
6. Fresno, Calif.: +24.34%
   • Median list price: $229,900
7. Las Vegas, Nev.-Ariz.: +24.33%
   • Median list price: $164,999
8. Oakland, Calif.: +24.27%
   • Median list price: $475,000
9. Phoenix-Mesa, Ariz.: +22%
   • Median list price: $237,900
10. San Diego: +21.92%
    • Median list price: $449,900

Only 19 markets posted price declines, led by Akron, Ohio, which posted a 7.93 percent year-over-year loss, and South Bend, Ind., with a 7.79 percent decrease in median asking prices.

Foreclosure Fall to 5 Year Low

National foreclosure pre-sale inventory is at its lowest point since 2008, Lender Processing Services reports. 

The inventory—which reflects the number of loans that are in some stage of foreclosure—represents 2.54 percent of all mortgaged homes in LPS' October data. That marks a 3.23 percent drop month-over-month, and a nearly 30 percent year-over-year drop. LPS’ data reflects about 70 percent of the mortgage market. 

The National Association of REALTORS® reported last week that distressed homes are making up fewer of the total existing-home sales recorded in the past year. Sales of distressed homes—which include foreclosures and short sales—made up 14 percent of October sales, down 25 percent year-over-year. 

Distressed sales tend to sell at a discount. NAR reported that foreclosures sold for an average discount of 17 percent below market value in October. Short sales were discounted 14 percent below market value. 

Source: “Foreclosure Inventory Falls to 5 year Low,” Mortgage News Daily (Nov. 22, 2013) andNational Association of REALTORS®

Principal Reductions Best Way to Avoid Foreclosure, Experts Say

When helping struggling home owners, principal reductions on mortgages tend to help them avoid foreclosure more than reducing the interest rates on the loans, according to analysts at Standard & Poor’s Rating Services. 

The likelihood of home owners redefaulting is more than 50 percent for interest rate reductions, but borrowers who get a write-down and equity gains generally have a better chance at staying current on their mortgages, the analysts note in a report, “How Principal and Interest Rate Modifications Affect U.S. RMBS.” 

However, lenders tend to prefer interest rate reductions when helping home owners. Only about 10 percent of loan modifications in the past four years involved principal write-downs on the mortgage. 

Write-downs can have more risk for investors. Borrowers who receive a write-down but then fail to pay will cause the home to become a higher loss for RMBS investors than if the home had just gone into foreclosure early on, S&P analysts noted.  

Source: “S&P: Principal reductions perform better than rate decreases,” HousingWire (Nov. 25, 2013)

Pending Sales Fall Again as Obstacles Build Up

Pending home sales fell in October — the fifth consecutive monthly decline — as home buyers find themselves up against several obstacles. 

The National Association of REALTORS®’ Pending Home Sales Index, which measures contract signings, dropped 0.6 percent in October from September and is 1.6 percent below year-ago levels. The index is at its lowest point since December 2012. 

“The government shutdown in the first half of last month sidelined some potential buyers,” says Lawrence Yun, NAR’s chief economist. Seventeen percent of real estate professionals reported closing delays in October, mostly attributing that to the IRS's incapability of verifying income for mortgage approvals during the shutdown, Yun says.

Limited inventories and falling housing affordability will likely impact the pending sales index in future months as well, Yun says. “Job creation and a slight dialing down from current stringent mortgage underwriting standards going into 2014 can help offset the headwind factors,” he says.

But the new year will bring new concerns for the housing recovery, too. “New mortgage rules in January could delay the approval process, and another government shutdown would harm both housing and the economy,” Yun says.

By region, the Pending Home Sales Index in October gained in the Northeast by 2.8 percent and is 8.1 percent above year-ago levels. Pending home sales also rose in the Midwest, increasing 1.2 percent in October, 3.2 percent higher than last year’s levels. In the South, they decreased 0.8 percent in October, 1.5 percent below year-ago levels. They fell the most in the West, dropping 4.1 percent in October, 12.1 percent lower than year-ago levels.

For Real Estate Predictions, Go West

Housing analysts are closely watching the Western region’s housing market for signs of what may be to come for the rest of the country. After all, the West was the first region to crash in the mid-2000s, and the first region to start recovering. 

Therefore, some in the industry are alarmed that sales of existing homes fell by the most in the West in October, dropping 7 percent. The West was the only region in the U.S. that saw year-over-year declines in home sales, according to data from the National Association of REALTORS®. 

Existing-home sales nationwide dropped 3.2 percent in October. But the drop in sales in the West was largely due to a shortage of homes for sale. 

"In the West region, there is a significant shortage of inventory, so you have buyers who are looking for the right home unable to find it and unwilling to commit," says Lawrence Yun, NAR’s chief economist. "But because of the inventory shortage, one is still seeing strong price increases in the West." 

The median price for a California home was $357,000 in October, up more than 25 percent from year-ago levels, according to DataQuick research. 

“The rest of the nation did not see the same dramatic swings as most Western markets, but the supply, demand, and pricing dynamics are similar,” CNBC reports. “Prices are up over 12 percent nationally, and inventories are down across the nation. For those predicting the national housing market over the next six months, watching the West is a good idea.” 

Source: “Watch Out! Worrisome Housing Signs Appear in West,” CNBC (Nov. 20, 2013)

Survey: Americans Still Thankful for Home Ownership

The recession hasn’t shaken Americans’ confidence in home ownership, according to a new survey of 1,000 adults nationwide by NeighborWorks America.

About two-thirds of survey respondents say their opinion on home ownership has not changed over the past five years. Eighty-eight percent say owning a home is an important element of their “American Dream.” 

“Although the housing market took one of the largest hits ever, with home prices falling nationally and foreclosures rising to more than one million homes annually, home ownership remains a goal many want to achieve,” says Eileen Fitzgerald, CEO of NeighborWorks America. “But it’s important to also note that the poll also underscores that we need to have quality and affordable rental homes available for those people who simply prefer to rent.”

The majority of renters and home owners surveyed say they believe the home buying process is complicated. They attribute the major obstacles to personal finance issues, such as lack of job security or not having enough money for a down payment. One in four surveyed say they have no familiarity with the mortgage products available. 

Still, about half of those surveyed say they feel more prepared today than five years ago to buy a home. Forty percent, though, say they are less prepared. 

“These results tell us that most consumers believe that they know when the time is right for them to buy a home — and feel strongly that home ownership is important — but that their personal situation may have been affected in the past five years and is holding them back from pursuing home ownership,” Fitzgerald says.

Source: “Consumers’ View on Homeownership Remains Optimistic,” National Mortgage News (Nov. 22, 2013)

Lenders Add Green Tints to Mortgages

The Senate is considering bipartisan legislation that would require Fannie Mae, Freddie Mac, the FHA, and other federal mortgage entities to revamp their rules to reward energy savings.

Supporters of energy efficiency want lenders to take the net savings from energy improvements into consideration when they underwrite and impose mortgage fees, and they also want appraisers to take into account the value of these retrofits.

More than 125 multiple listing services nationwide provide "green fields" in online listing information displays so that energy improvements and certifications for Energy Star–qualified appliances, solar power, and other features can be described. Moreover, the Appraisal Institute is offering green valuation training for appraisers and has established a comprehensive "green addendum" that could result in higher property valuations.

On top of all this, Genworth Mortgage Insurance plans to offer green rewards to U.S. borrowers like it already does in Canada -- where borrowers receive a 10 percent refund on mortgage insurance premiums, online discounts for common household items, and even a break on their debt-to-income ratio for underwriting purposes if the home meets national or provincial energy efficiency guidelines.

Meanwhile, a study of 71,000 home loans by University of North Carolina researchers reveals that mortgages on energy-efficient properties are 32 percent less likely to default -- even after controlling for the borrower's income, credit scores, home values, and local utility costs.

Source: "The Nation's Housing: Seeing Green Over Mortgages," New London Day (CT) (11/22/13)

Chinese Buyers Are Coming to America

Chinese buyers are increasingly looking to U.S. real estate -- and California in particular -- as they pay all cash for homes and plan to use their homes as a “safe haven for their wealth,” CNBC reports.

Some are buying multiple homes as investments, while others are finding homes to move their families to the United States. 

"They see the market here still has room for appreciation," says Kinney Yong with RE/MAX Premier Realty in Irvine, Calif. "What's driving them over here is that they have this cash, and they want to park it somewhere or invest somewhere."

Education is a big attraction for Chinese buyers eyeing American real estate too, real estate professionals say. 

"We are seeing a lot of Asians who are buying as an investment, but their kids are going to school here, so kids live in the home. They are looking at it more as an investment in education," says Emile Haddad, CEO of Fivepoint Communities, developer of the Great Park Neighborhood.

Chinese and Canadian buyers are the fastest-growing sources of foreign buyers of U.S. properties in recent years, according to the National Association of REALTORS®’ 2013 Profile of International Home Buying Activity. Chinese buyers tend to purchase property in the upper price ranges, with a median price of $425,000, and typically in California, according to the report. 

Builders are taking notice of the large influx of Asian buyers and are tailoring new homes to the demand of Asian buyers, such as incorporating multigenerational floor plans and designs that incorporate the philosophies of feng shui. 

Source: “Chinese buying up California housing,” HousingWire (Nov. 25, 2013)

Loan Demand Slips in Latest Week

Mortgage applications fell for the fourth consecutive week as mortgage rates edged up slightly, the Mortgage Bankers Association reported Wednesday. 

Mortgage application activity, which includes both refinancings and home purchase loans, dropped 0.3 percent in the week ending Nov. 22, according to the MBA’s index. That marks a 7 percent drop in mortgage applications in the past four months. 

Refinancing applications, which make up the biggest bulk of applications, ticked up slightly at 0.1 percent. Purchase applications, viewed as a leading indicator of future home sales, dropped 0.2 percent. 

The MBA reports that the 30-year fixed-rate mortgage rose 2 basis points and averaged 4.48 percent in the latest week. 

The MBA’s index reflects more than 75 percent of U.S. mortgage applications.

New-Home Market Posts Big Gains as Permits Surge

Housing permits for home construction reached a five-and-a-half-year high in October, signaling a strong uprise in new-home construction, the Census Bureau reports. 

Led by a big jump in multifamily permits, overall building permits surged 6.2 percent in October to a seasonally adjusted annual rate of 1.03 million units. That marks the highest level since June 2008. Permits typically lead housing starts by at least a month. 

Housing permits are up 13.9 percent from year ago levels. 

Permits for multifamily homes -- buildings with five units or more -- posted a double-digit increase in October of 15.3 percent in October,  following a 20.1 percent increase in September too. 

Single-family home permits -- which make up the largest part of the market -- rose 0.8 percent, following a 1.9 percent drop in September. 

Housing permits in the West and South posted some of the strongest gains with permits rising to the highest levels in those regions since January 2008. Permits fell in the Midwest and stayed flat in the Northeast.

"Permits are often a harbinger of future housing activity and the strong showing in the multifamily sector along with stable numbers on the single-family side bode well for a continuing, gradual upturn in housing over the coming months," says Robert Denk, a senior economist with the National Association of Home Builders. "But consumer and builder confidence could be seriously undermined unless policymakers make progress over looming budget, tax and economic policy issues in the weeks and months ahead."

Short Sales Lose Favor With Lenders

As home prices rise, lenders are showing less willingness to grant short sales, RealtyTrac reports. 

The number of short sales has been gradually dropping the last few months. Short sales represented 5.3 percent of all sales in October, down from 6.3 percent the previous month and down from 11.2 percent last October, according to RealtyTrac data.

The National Association of REALTORS® recently reported in its October existing-home sales report that short sales tend to sell at an average discount of 14 percent below market value.

“After a surge in short sales in late 2011 and early 2012, the favored disposition method for distressed properties is shifting back toward the more traditional foreclosure auction sales and bank-owned sales,” says Daren Blomquist,vice president at RealtyTrac. “The combination of rapidly rising home prices — along with strong demand from institutional investors and other cash buyers able to buy at the public foreclosure auction or an as-is REO home — means short sales are becoming less favorable for lenders.”

Foreclosure auction sales to third parties accounted for 2.5 percent of all sales, nearly double what it was a year ago when at 1.3 percent, RealtyTrac reports. Sales of REO homes repossessed by banks made up 9.6 percent of sales in October, about the same percentage from a year ago. 

In some states, short sales still remain a high proportion of sales. RealtyTrac notes that the states with the highest percentages of short sales in October were: Nevada (14.2%); Florida (13.6%); Maryland (8.2%); Michigan (6.7%) and Illinois (6.2%). 

Foreclosed Owners Get Second Chance Sooner

Those who lost their home due to financial hardships may get another shot at being home owners again soon. The Federal Housing Administration recently announced that they would shorten the waiting period for qualified borrowers who’ve had a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale who want to buy a home again. Under the FHA's Back-to-Work program, home owners must show that they have their finances back in order and they must receive counseling from a HUD-approved agency. Those who meet the requirements can apply to buy a property in as little as a year.

“The Back to Work program is a great opportunity for us to help those impacted by the recent housing crisis,” Heather Shanahan, a representative with a HUD-approved housing counseling agency called Springboard, told HousingWire. "Our goal in our counseling sessions is to enable the borrower to better understand their loan options and the obligations.”

Counselors provide borrowers with a customized action plan that reflects household budgets and shows borrowers how they can meet their financial obligations to prevent default again in the future.

The Back-to-Work program is also helping borrowers purchase their first homes, in some cases.

Advice for First-Time Home Buyers

Movoto Real Estate, an online real estate brokerage based in San Mateo, Calif., asked its agents for advice that they would give clients looking to purchase a home for the first time. These tips can help guide your clients through every step of the process.

Starting the Search

There is no such thing as the perfect home, but there is a home that is perfect for you.
—Sheena Weatherly

Take the time to search for a home that suits you and meets your personal/financial needs.
—Carlos Armas

The market is shifting, so you have to be aggressive with your home search because properties are selling quicker with multiple offers.
—Alice Green

Money Matters

Figure out your personal budget to determine how much you can truly afford, then get pre-qualified and compare the amounts. Use the lowest of the two.
—Jorge Fernandez

When considering your price point, start with the amount of rent you are paying now, not necessarily what the bank/mortgage company says they will loan you.
—Debra Grog

Do not look for a home for the amount you are qualified to buy with your mortgage agent. Ask him to tell you how much you can buy based on the mortgage amount you are comfortable paying every month.
—Charles Miltenberger

Working With a REALTOR®

Choose an agent based on their knowledge, experience, and work ethic. Then allow them to guide you.
—Nick Boland

Make sure that whoever you are working with is someone you can trust and that will put your interests in front of their own. If they care enough, they will ask you lots of questions!
—Steven Pagano

Markets vary from one another and a good agent can give you local information based on experience.
—Fredy Gonzalez

Trouble Ahead on Home Equity Loans?

Mortgage delinquencies are on the rise for home equity lines of credit that were taken out during the housing bubble, as well as others that are reaching the 10-year mark, Equifax data shows.

In most cases, after these loans hit the 10-year mark, borrowers must start paying not only the interest but also the principal on these loans. For many, that could mean their monthly payments could more than triple. For example, a consumer with a $30,000 home equity line of credit with a 3.25 percent initial interest rate could see their monthly payments go from $81.25 to $293.16, according to Fitch Ratings analysts. 

The number of home owners missing their payments is growing, Equifax reports. Amy Crews Cutts, the chief economist of Equifax, has called the pending increase in payments on home equity lines as a “wave of disaster.”

“More than $221 billion of these loans at the largest banks will hit this mark over the next four years, about 40 percent of the home equity lines of credit now outstanding,” Reuters reports. The delinquencies will mean banks stand to lose 90 cents on the dollar for every loan that goes bad.

Analysts say that home owners who are facing a big jump in their payments may be able to refinance their main mortgage and home equity lines of credit into a new, single fixed-rate loan. Or some borrowers may find that selling their home and taking advantage of rising home prices is another way to repay their loan, analysts note. 

Home Ownership is Key for Returning Troops

For 75 percent of military families, owning a home is one of the most important things to accomplish upon returning from service, according to a Century 21 survey. Harris Interactive conducted the study of more than 400 responses of military members or spouses.

“Home ownership is a top priority for many, but is especially significant to those returning from a tour of duty,” says Rick Davidson, president and CEO of Century 21 Real Estate.

Eighty-eight percent of veterans said that owning a home makes them feel safer. Vets also say they have a strong desire for home ownership because they want to own their own residence (73 percent), establish a household (43 percent), and have financial security (36 percent). 

However, only 33 percent of military families say they look for a home within a year of returning from active duty. The biggest obstacles reported were the price of homes, the inability to come up with a down payment, and personal savings.  

For those who do a begin a home search, vets and their families report space—in terms of number of bedrooms and bathrooms—is more important than other specific features in finding the perfect home. Storage space, amount of square footage, outdoor space, and an updated kitchen were cited as the most important amenities. 

Some real estate professionals have made a niche out of helping to meet the relocation needs of military members and their families. The Center for Specialized REALTOR® Education recently launched a Military Relocation Professional certification, a one-day program for NAR members to gain the knowledge and skills to better serve military members and their families in relocations. 

Falling New-Home Sales Spark Worry

Dropping sales volumes in new-home construction has home builders worried about a possibly dismal spring looming in 2014. 

“There’s some nervousness about the spring selling season,” says Jody Kahn, a senior vice president at John Burns Real Estate Consulting. “That’s partly because they’re worried [that] the lack of urgency from their prospects will continue.”

A survey of builders by John Burns Real Estate Consulting showed the second consecutive month in year-over-year declines in sales volumes for new home construction, the first decreases reported since early 2011. In October, sales of new homes fell by 8 percent year-over-year and posted a 6 percent drop in September year-over-year. 

Earlier this year, the new-home market saw a rapid run-up in prices. But now, the percentage of homebuilders who are raising prices is declining, falling to 28 percent in October compared to 32 percent in September. In July, 64 percent of homebuilders had said they were raising prices. 

“October was basically a crummy month for a lot of builders,” Kahn says. “Their frustration is about the government shutdown and how it probably trumped any seasonal [sales] lift that builders were hoping to see. Most did not have very good sales.”

While new-home purchases tend to drop in the fourth quarter, builders are worried that lawmakers’ indecisiveness over the federal budget and debt, as well as the fragile economy, will hamper the spring selling season early next year. 

Markets where home-price appreciation is outpacing job growth and income gains are the most worrisome, analysts note. Some builders are already responding. For example, The Olson Co., a builder based in Seal Beach, Calif., has shifted the company to building less expensive housing, such as townhomes. 

“I think this [slowdown] is a good wakeup call for the industry,” says Scott Laurie, chief executive of The Olson Co. “You can’t just raise prices 2 percent a month. That doesn’t work. What works is affordability.”

Report: Singles and First-Timers Squeezed Out

The latest research on home buyers from the National Association of REALTORS® shows the effects of tight mortgage lending standards on the market. The association says that these conditions are keeping qualified buyers, especially singles and first-time buyers, from reaching their dreams.

The NAR's 2013 Profile of Home Buyers and Sellers is the latest release in a long-running series that dates back to 1981. Results are representative of owner-occupants and do not include investors or vacation homes. The overall market share of single buyers declined from 32 percent in 2010 to 25 percent in both 2012 and 2013. First-time home buyers slipped to a 38 percent market share in the past year from 39 percent in the 2012 study.

“Single home buyers have been suppressed for the past three years by restrictive mortgage lending standards, which favor dual-income households who are more likely to have higher credit scores,” says Lawrence Yun, NAR chief economist. He added that “historically, first-time buyers are instrumental in housing recoveries because they help existing home owners sell and make a trade.”

While many potential buyers were still absent, the report did reveal some bright spots for those emerging from housing crises.

“Interestingly, 6 percent of all buyers had previously sold a foreclosure or short sale, showing that sellers of distressed property are beginning to recover financially,” Yun said.

NAR mailed a 122-question survey in July 2013 to a national sample of 148,011 home buyers and sellers who purchased their homes between July 2012 and June 2013, using a random sample of county records. Sixty-six percent of respondents were married couples, 16 percent were single women, 9 percent single men, and 7 percent unmarried couples. Fourteen percent of all survey respondents were multi-generational households, including adult children, parents and/or grandparents. The full report can be ordered online or by calling 800-874-6500.

Source: NAR

College Grads Face Home Ownership Delays

The home ownership rate among college graduates is less than non-grads for the first time on record, according to the New York Federal Reserve. 

College graduates are facing increasing obstacles to home ownership, mostly due to high debt levels and weak job prospects. The delay in Millennials entering into home ownership could be a drag on the housing industry for years to come, CNNMoney reports. 

The average student loan debt has climbed to $27,500, according to data from the Project on Student Debt. Lenders factor in debt—including student loan debt—when calculating how much mortgage they’ll give a person to buy a home. What’s more, if young professionals miss a payment on their student loans, that can damage their credit scores and further hamper their chances for qualifying for a mortgage. 

However, renting a domicile is also an important stepping stone to home ownership. Thirty-six percent of young graduates are living with their parents, according to a Pew survey. That has prevented them from building credit histories, which they also need to get a mortgage. 

Some of the effect has already been seen in the shrinking number of first-time home buyers. The National Association of REALTORS®  reported in their September housing numbers that first-time buyers accounted for 28 percent of existing-home purchases, down from 32 percent in September 2012. 

Source: “Young and Smart, but Millennials Face Homebuying Hurdles,” CNNMoney (Oct. 31, 2013)