Sunday, October 4, 2015


A lot of people are certainly nervous these days...And yet, still, there is optimism.  Who to believe?  The sky is falling or the sky is the bluest it's ever been!  How about the truth lying between these two extremes.  Certainly our economy continues to do well, our stock market volatile because of world markets, namely China.  Positive: growth is steady as the economy adds 215,000 jobs in July.  Negative: China seems to be slipping.  Positive: instead of seeing this as bad for housing, because of all the cash buyers from China in the last year could evaporate, think positive of all the money in China that will be looking for a safe harbor; exiting their markets and searching for places to park their cash.  Positive:  Housing is the number one need on the horizon, meaning we need to build, a lot.  Negative: trying to find enough workers.  Positive: If you already have a home and you wish to sell it, there is probably a ready and willing buyer or two or three, who would like a chance to buy.  Negative: August just finished the worst month for the stock market in years.  Positive: the Feds may now be unwilling to raise interest rates, which was a certainty two weeks ago.  If you want a sure bet, there is a savings account available with .05% interest available.  The real estate and stock markets may not be for you.  One of those markets just lost 3 trillion in one week on paper, and the other is up 5.3% year over year for the latest month available. (July 2015)  But let's remember some practicalities: 1) You have to live somewhere  2) Interest is deductible  3) there is a homeowner's tax deduction of $7,000 4) every time you make a mortgage payment you build equity  5)no one can make you move but you.  6) decorate any way you wish.  But perhaps the most interesting comment that can be made is that if you own your own home you will undoubtedly retire sooner and in better financial shape.  


They explain, "Homeownership long has been central to Americans' ability to amass wealth; even with the substantial decline in wealth after the housing bust, the net worth of homeowners over time has significantly outpaced that of renters, who tend as a group to accumulate little if any wealth." The Federal  Reserve chimed in with results from their own, "Survey of Consumer Finance." The Federal Reserve found that the average net worth of homeowners the last 2 years was $194,500 which was 36 times greater than the renters net worth of $5,400.  Indeed, the homeowner net worth is expected to climb this year to $218,000 and the renters to rise to $5,500.  The main reason cited for the discrepancy in net worth is the forced savings created by the month mortgage payment and that a portion goes to equity every single month.  That coupled with the tax savings of the monthly interest deduction, presents a compelling reason to buy a home if building wealth is one of your financial objectives.

BMO Harris Bank Home Buying Report issued the following statistics:  52% of Americans are likely to buy in the next 5 years.  Of those looking to buy, here is what they found: 1) 74% will use a Realtor - it's not finding a home that is the issue, it is navigating the contracts and disclosures and price negotiations.  2) 59% will look online  3) 37% will seek recommendations from family and friends  4) 78% plan to get preapproved for their mortgage first.  This is wise since that is one of the primary reasons one offer will win over the other is that financing is already obtained or fully approved over another buyer who has not done their due financing diligence, even if their offer is the better offer.  The Report also gave insight into those who had already bought a property:  1) 75% set a budge and 16% spent less and 13% spent more  2) 63% spent less than 6 months looking for their home  3) 8% bought without a plan to do so because a particular property caught their eye.


For the month ending in July, the last complete month, according to CoreLogic, the median price rose to $615,000.  However, appreciation is off the red hot double digit growth of 2013 and 2014 and is a much more sustainable and healthy 5.3%.  The number of homes listed for sale as of August 13th was 7,167 and that was up from a month ago of 6,935. (MLS)  The median price per square footage also rose to $377.67, up $9.67 from July 2014.  Rents rose 3.6% and was the 59th consecutive month of year-over-year increases.  This is the key to buying and why it makes profound sense.  You buy a home now and get a 30 year fixed rate loan at 3.85% and in 20 years, in that same home, your payment is exactly the same.  No inflation!!  But if you had been renting all those 20 years at approximately 3% inflation... do the math, what you would be paying would be astronomical compared to what you're paying today.  It just doesn't make sense. Referring your family and friends, to help them buy a home is one of the best and truest acts of financial friendship.


When you are buying a home remember that the seller is paying commission to that broker.  The buyer traditionally and customarily does not pay commissions.  So it doesn't make sense to buy a home without representation.  Secondly, be prepared for closing costs, such as an entire year of homeowners insurance as a lender requirement.  Make sure you know how much money you will need in addition to your down payment.  Make sure you know all the lender guidelines on gift money.  Finally, make sure you get and pay for a home inspection so you have full disclosure from a third party on any prospective home.  Sellers' need also remember to get outside opinions on what needs to be done to a home before it hits the market.  Do too much and you give buyers free upgrades on improvements that can't be fully recouped at sale.  Don't do enough and you leave money on the table.  Next month we will discuss staging and why you do it.  

Thursday, July 9, 2015


The latest figures are in, through the month of May, and it all continues in a positive direction, as housing continues its recovery mode, and to be a bright spot in the U.S. economy.  At what point interest rates will be raised, and what impact that will cause, because it will have consequences, remains to be seen. The Fed has indicated later this year, although the recent job report and unemployment stats did disappoint in the area of wages, and the amount of people leaving the job search market.  That aside, the jobs that have been added and the wages that were predicted to increase last year and this, apparently have brought about the desired effect.  Overall, the U.S. gained in total sales volume from May of 2014, (all following figures based on the same time period for 2014), to rise 9.2% for May of 2015.  The Midwest led the charge with 12.4%, the Northeast was next with 11.3%, the West was next at 9% and the South straggled a bit behind at 6%.  Prices were up overall in the U.S. 7.9%.  This time, predictably, the West led at a rise of 10.2%, the Midwest with 9.4%, the South at 8.2% and the Northeast struggling at 4.8%.  (How much due to an abnormally long winter of snow and ice?)  Finally, the sales volume by price range probably addresses the health of income wage earners for the foreseeable future.  Since loans applicants are being properly vetted and there is no real stated income product out there, these purchase price quadrants warrant some belief that we have had a true recovery not just in real estate but in jobs, since real estate ultimately reflects job stability.  For the U.S. the increases in volume by price range are as follows (numbers are per $1,000): 1) 100-250=3.6%  2) 250-500=17.4%  3) 500-750=14.5%  4) 750-1 million=12.5%  5) 1 Million + =8%.  It is debatable whether we will continue to see a run up in both prices and volume as Americans anticipate the rise in interest rates.  Although the Fed has made it clear that any such rises will be gradual so as not to disrupt the economic revival.  Some economists feel the price increase has already been factored in as 30 year rates already rose the first week of July to their highest for the year, in the low 4 percentile range.  One thing is for sure, and that is that home ownership is alive and well, and as this column predicted months ago, the Millennium  Generation will continue to be a large part of the engine that drives it.


Realty-Trac, a  research firm that tracks national and regional data, has reported that fewer than 25% of single-family home and condominium purchases were all-cash for May, national figures,  the lowest level since November 2009, and down from a peak of 42% of purchases in February 2011. These figures drive home the point that the housing market is standing on its own, with traditional buyers, as investors back away from the "flip" market, of buying, rehabbing and quickly reselling properties for a profit.  This does not mean that there are not some "buy and hold" investors still trolling the market, but for now, the predominant purchaser appears to be the owner occupant, or single investors exchanging and building their investment portfolio.


A recent study by analyst firm IPSOS revealed that borrowers still have 2 strong misnomers in the area of loan qualification; how large a down payment in necessary, and what your FICO scores must be to qualify.  Happily, this column is happy to spread the truth.  More than 36% surveyed still believed a 20% down payment was necessary.  Nothing could be further from the truth.  Many people qualify at 10%, but in fact, March of this year saw 29% of all loan qualifications with a 3% down payment (FHA products mainly).  The survey on FICO scores revealed that 45% believed you must have a score over 780.  The truth about FICO scores, which can be a little like a black hole, is that FHA requires 688 and conventional, generally speaking, comes in at 757.  It always saves you time and headache to speak to a lender before you look for a home, ensuring that you are looking in your correct price range.  Another interesting note is that interest-only mortgages are making a slight comeback. United Wholesale Mortgage plans, according to an article in the OC Register,  "to expand access to the mortgages to borrowers beyond the wealthiest Americans who use so-called jumbo loans.  Interest-only mortgages carry higher risks because they can leave homeowners facing a jump in their bills down the road."  Additionally, these loans can leave homeowners upside down when there is an unexpected downshift in the market as witnessed by the Great Recession.  But the lender promises to properly vet the qualifiers for this type of mortgage.  It does have its attractions for homeowners who have liquidity in other areas of their finances.  On a $300,000 loan, the monthly output is $1,31 versus $1,326.  However, note that these loans can climb as much as 2% annually and 5% total--causing payments to jump to $1,838 after 10 years.  Clearly this is a product that may have use for a well qualified borrower who KNOWS they will be exiting the property in less than 3 years, for example, and who feels the market appreciation will be positive during that timeframe.

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