Thursday, August 28, 2014

More Households Optimistic About Home Prices, Finances

DAILY REAL ESTATE NEWS | THURSDAY, AUGUST 28, 2014
The majority of households believe home prices will rise within the next 12 months, according to the Federal Reserve’s newly released Report on the Economic Well-Being of U.S. Households. The survey is based on more than 4,000 American responses from 2013 about their household finances, including housing.
Public Perceptions:
“The outlook for the housing market among home owners appeared generally positive, as many home owners expected house prices in their neighborhoods to increase,” the report notes.
Twenty-six percent of home owner respondents say they expect an increase in their home value by 5 percent or less, and 14 percent expect an increase in values of greater than 5 percent. Less than 10 percent of home owners expect home prices in their neighborhoods to decline over the 12 months, according to the survey.
Many home owners are still banking on home prices. After all, 46 percent of households believe the value of their home is lower than the value in 2008, according to the report. On the other hand, 27 percent of households felt their home’s value is higher than in 2008; 20 percent say their home’s value is likely about the same; and 7 percent say they weren’t sure.
Overall, the survey found that while many households are faring well financially, a great deal are still showing signs of financial stress. More than 60 percent of respondents said that their families were either “doing OK” or “living comfortably” financially, while one-fourth of respondents said they were “just getting by” financially and 13 percent said they were struggling. The Great Recession is still being felt by many: 34 percent reported they were somewhat worse off or much worse off financially than they had been five years earlier in 2008.
Many renters expressed an interest in home ownership, but said they are facing several barriers, such as saving for a down payment and the inability to qualify for a mortgage.
For example, 49 percent of renters in the 18-to-29 age group say the biggest reason why they rent rather than own a home is because they cannot afford the down payment; it was the age group that was most likely to report down payment woes. Meanwhile, 45 to 59 year old renters were the largest share of renters to say they could not qualify for a mortgage and that’s why they are renting. 
Source: Federal Reserve


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Wednesday, August 27, 2014

Commercial Sectors Surge on Improved Economy

DAILY REAL ESTATE NEWS | WEDNESDAY, AUGUST 27, 2014
After several false starts, the economy is finally gaining ground, and stronger growth is boosting the outlook for all of the major commercial real estate sectors, according to the National Association of REALTORS®’ quarterly commercial real estate forecast.
A Bright Spot for Commercial
“The job market has been the bright spot of the economy this year, as employers are feeling more confident about their growth prospects and adding to their payrolls,” says Lawrence Yun, NAR’s chief economist. “This gradual turnaround from being overly cautious to more optimistic should slightly boost the demand for leasing and purchase activity as well as new-construction projects in the upcoming year. … The economy can handle the inevitable rise in interest rates as long as commercial rents steadily rise to generate investor returns.”
Here’s an overview of the four major commercial real estate sectors from NAR’s latest quarterly Commercial Real Estate outlook.

Office Markets

Vacancy rates for the office market is expected to remain unchanged at 15.7 percent in the third quarter of 2015. Office rents are forecasted to rise 2.6 percent this year and 3.2 percent next year.
Markets with the lowest office vacancy rates (third quarter 2014): Washington, D.C. (9.3%); New York City (9.6%); Little Rock, Ark. (11.5%); San Francisco (12.4%); and New Orleans (12.7%).

Industrial Markets

The industrial vacancy rate is projected to drop from 8.9 percent in the third quarter of this year to 8.5 percent in the third quarter of 2015. Annual rents are expected to rise 2.4 percent this year and 2.8 percent next year.
Markets with lowest industrial vacancy rates: Orange County, Calif. (3.5%); Los Angeles (3.8%); Seattle (5.9%); Miami (6.1%); and Palm Beach, Fla. (6.6%). 

Retail Markets

The retail vacancy rate is forecasted to fall from 9.8 percent currently to 9.6 percent in the third quarter of 2015. Retail rents are projected to increase 2 percent this year and another 2.4 percent next year.
Markets with the lowest retail vacancy rates: San Francisco (3.5%); Fairfield County, Conn. (3.9%); San Jose, Calif. (4.6%); Long Island, N.Y. (5.2%); and Orange County, Calif. (5.3%).

Multifamily Markets

The apartment rental market is expected to see vacancy rates decline from 4.1 percent today to 4 percent in the third quarter of 2015. (Vacancy rates below 5 percent are considered a landlord’s market, and the high demand often justifies the higher rents.) Average apartment rents are forecasted to increase 4 percent this year as well as in 2015.
“New construction for multifamily housing has picked up in recent months and looks to be alleviating the short supply,” says Yun. “However, the demand for rental housing continues to show strength. As a result, rent growth will outpace broad consumer inflation in upcoming years.”
Markets with lowest multifamily vacancy rates: Orange County, Calif. (2.2%); Providence, R.I. (2.2%); Sacramento, Calif. (2.2%); New Haven, Conn. (2.5%); and Hartford, Conn. (2.5%). 


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Friday, August 22, 2014

Strengthening Job Market, Rising Inventories Lift Home Sales

DAILY REAL ESTATE NEWS | FRIDAY, AUGUST 22, 2014
Existing-home sales were on the rise in July, with sales moving to the highest pace of this year, the National Association of REALTORS® reports in its latest housing data release. It also marked the fourth consecutive month of gains in sales. NAR’s chief economist expects the growing momentum in home sales to continue for the rest of the year.
“The number of houses for sale is higher than a year ago and tamer price increases are giving perspective buyers less hesitation about entering the market,” says Lawrence Yun, NAR’s chief economist. “More people are buying homes compared to earlier in the year, and this trend should continue with interest rates remaining low and apartment rents on the rise.”
New-Home Construction Also Rebounds:
Total existing-home sales – which reflect completed transactions for single-family homes, townhomes, condominiums, and co-ops – rose 2.4 percent to a seasonally adjusted annual rate of 5.15 million in July. However, sales remain 4.3 percent below last July, the peak for 2013.
Housing inventories at the end of July rose by 3.5 percent to 2.37 million existing homes for-sale – which represents a 5.5 month supply at the current sale pace, NAR reports.
Fading Affordability
Yun cautions that housing affordability is likely to decline in the upcoming years. “Although interest rates have fallen in recent months, median family incomes are still lagging behind price gains, and mortgage rates will inevitably rise with the upcoming changes in monetary policy,” Yun notes.
The median existing home price for all housing types in July was $229,900 – 4.9 percent higher than July 2013. It marks the 29th consecutive month of year-over-year price gains, NAR reports.
Distressed Sales Hit Important Milestone
Distressed homes – which include foreclosures and short sales – made up 9 percent of July sales, down from 15 percent a year ago. It was the first time that distressed sales fell to single-digits since NAR began tracking the category in October 2008 – an important milestone, NAR notes.
In July, 6 percent of sales were foreclosures (selling for an average discount of 20 percent below market value) and 3 percent were short sales (discounted, on average, 14 percent), NAR reports.  
“To put it in perspective, distressed sales represented an average of 36 percent of sales during all of 2009,” Yun says. “Fast-forward to today and rising home values are helping owners recover equity and strong job creation are assisting those who may have fallen behind on their mortgage due to unemployment or underemployment.” 
Regional Snapshot
Across the country, here’s a look at how existing-home sales performed in July:
  • Midwest: Existing-home sales rose 1.7 percent in July to an annual 1.22 million level, but remain 4.7 percent lower than July 2013 numbers; median price: $175,200, up 4.1 percent from a year ago.
  • Northeast: Existing-home sales held flat in July at an annual rate of 640,000 for the second consecutive month, remaining 9.9 percent below year ago levels; median price: $273,600, a 2.4 percent increase year-over-year
  • South: Existing-home sales increased 3.4 percent to an annual rate of 2.12 million, and are up slightly by 0.5 percent year-over-year; median price: $192,000, up 5.0 percent from a year ago.
  • West: Existing-home sales rose 2.6 percent to an annual rate of 1.17 million, but are 8.6 percent below year ago levels; median price: $304,100 -- 6.3 percent higher year-over-year.
Source: National Association of REALTORS®


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Tuesday, August 12, 2014

FICO Scoring Changes May Help More Qualify for Mortgages

DAILY REAL ESTATE NEWS | MONDAY, AUGUST 11, 2014
FICO, the nation’s most popular credit-scoring system, announced it is tweaking some of the criteria used in coming up with consumers’ scores, which could help consumers save more money in qualifying for mortgages and other types of loans.
FICO recently told lenders their high credit score "cutoffs" were stricter than necessary, and urged lenders to consider lowering minimum score requirements.
The changes include reducing the toll that overdue medical bills can take on credit scores, as well as removing other past penalties from consumers who have paid off debts that had been assigned to collection agencies. A consumer whose only major delinquency comes from an unpaid medical bill could see their credit score rise by 25 points due to the changes.
The changes come after a recent Consumer Financial Protection Bureau study, which found that both paid and unpaid medical debts were unfairly penalizing consumers’ credit ratings. An estimated 64 million Americans have a medical collection item on their credit reports, according to Nick Clements of Magnify Money, a personal finance site.
The FICO changes will go into effect this fall, but borrowers may have to wait a year or more until they see the impact of the changes in their scores, lenders say.
The changes may help consumers with blemished past credit histories or high medical debts qualify for mortgages more easily. Consumers with higher scores also might qualify for a lower rate, housing experts say.
"In recent years the [credit score requirement] has been dialed so tightly that only fairly upper-tier consumers were able to qualify for a loan," says Lawrence Yun, National Association of REALTORS®’ chief economist. "We're looking at people who are currently being denied potentially being offered a mortgage because of this."
In June, the average FICO score for a closed mortgage was 728, a drop from 742 a year prior, according to data from Ellie Mae, a company that processes mortgage applications for lenders. FICO scores range from 300 to 850.
Borrowers with higher FICO scores can usually expect to pay less in interest on a loan. A borrower with a FICO score of 675 may nab a 4.75 percent interest rate on a 30-year fixed-rate mortgage, which would be about  $2,086 a month in payments on a $400,000 loan, according to Informa Research Services. In comparison, a borrower with a 700 FICO score may qualify for a rate of 4.212 percent, which could drop the monthly payment to $1,959 and bring a $127 savings.
The credit scoring changes will not remove any unpaid debts from a credit report, so some lenders may still be able to factor that information into their lending decision.
“This move will ultimately make a real difference in the lives of millions of Americans, who have been shut out of the housing market or forced to pay higher mortgage interest rates because of flawed credit scores,” Steve Brown, NAR’s president, said in a statement. “Since the housing crash, overly restrictive lending has been the greatest obstacle to home ownership. NAR will continue to support efforts to broaden access to credit for qualified homebuyers.”
In other news, two of the big national credit bureaus Experian and TransUnion recently reported they’ve  added verified rental payment data into credit files, which will be used to compute a consumers’ score when applying for a mortgage. A recent TransUnion study showed that the inclusion of rental data could raise some consumers’ scores. For example, nearly 20 percent of renters’ scores rose by 10 points or more after just one month.
Source: “New FICO Criteria Could Help Borrowers,” Los Angeles Times (Aug. 8. 2014) and “Experian, TransUnion Start Adding Rent Payment Data to Credit Profiles,” Los Angeles Times (Aug. 10, 2014)


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Friday, August 8, 2014

Wells Fargo Relaxes Standards for Jumbo Loans

DAILY REAL ESTATE NEWS | THURSDAY, AUGUST 07, 2014
Wells Fargo & Co., the nation's largest mortgage lender, is easing some of its lending standards for the high-priced "jumbo mortgages" that it acquires from other banks too large to receive guarantees from government-backed mortgage companies, like Fannie Mae and Freddie Mac, Reuters reports.
Are Banks Loosening Up?
"The purchase market is softer than we thought that it would be," John Shrewsberry, Wells Fargo's chief financial officer, told analysts on a July conference call. "We're not seeing breakout returns to pre-crisis levels of enthusiasm around home ownership."
To make up for the industry-wide drop in mortgage volumes, Wells Fargo began to lower the minimum credit score on fixed-rate jumbo mortgages from 720 to 700 in late July. Wells Fargo also says it's more willing to purchase jumbo loans from other lenders that go toward the purchase of a second home.
On the refinancing front, Wells Fargo officials say they will purchase mortgages where the balance exceeds the size of the borrower's previous loans, also known as "cash-out refinancing," Reuters reports.
The latest loosening of credit comes a few months after the bank announced it would begin to issue home loans to borrowers with credit scores as low as 600 who were eligible for insurance with the Federal Housing Administration. Previously, the bank required a minimum credit score of 640 on FHA-insured loans.
Source: “Wells Fargo Loosens Standards for Jumbo Mortgages,” Reuters (Aug. 6, 2014)


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Lenders Blame QM Rule for Fewer Home Loans

DAILY REAL ESTATE NEWS | WEDNESDAY, AUGUST 06, 2014
New mortgage rules enacted this year are prompting banks to issue fewer home loans, according to a Federal Reserve Board report released this week. The survey asked large U.S. banks and foreign banks about the effect of the new qualified mortgage rules, also known as the ability-to-pay rules, and their impact on approval rates for home purchase loans.
Read NAR Chief Economist Lawrence Yun's take on how the abilty-to-repay rule could especially affect first-time buyers.
Of the 36 large U.S. banks who responded, 19 percent of the banks said the approval rate on prime residential mortgages was lower than it would have been otherwise. Seventy-eight percent said the approval rate was about the same.
More than half of the banks surveyed said that the rules had reduced approval rates on loan applications for prime jumbo home-purchase loans, with banks citing a 43 percent cap on debt-to-income ratios (as part of the definition of QM and a provision of rules) as a major reason for the lower approval rates.
The new rules by the Consumer Financial Protection Bureau took effect in January and require lenders to verify that a borrower can afford to repay a loan before approving it. The QM rule has been blamed for adding extra wait times to the mortgage approval process as well as increasing the costs to home buyers.  
"Among those banks that reported the rule had no effect on their approval rates, roughly half said that lending policies would have been tighter without the safe harbor for mortgages that pass the GSEs' automated underwriting models," according to the Fed's survey.
Source: “Banks Making Fewer Mortgages Because of New CFPB Rules, Fed Says,” American Banker (Aug. 4, 2014)


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13 States Soar to New Home-Price Highs

DAILY REAL ESTATE NEWS | WEDNESDAY, AUGUST 06, 2014
More than a dozen states saw home prices accelerate in June to record-level highs, according toCoreLogic’s latest Home Price Index, which dates back to January 1976.
Are Price Gains Sustainable?
Those states are:
  • Alaska
  • Colorado
  • District of Columbia
  • Iowa
  • Louisiana
  • Nebraska
  • North Dakota
  • Oklahoma
  • South Dakota
  • Tennessee
  • Texas
  • Vermont
  • Wyoming
Year-over-year home prices were up in every state, except Arkansas, which posted a 0.4 percent decrease in home prices in June, CoreLogic reports. But excluding distressed sales, all states experienced year-over-year rises in prices, according to the report.
Michigan led the nation with the highest home appreciation year-over-year at 11.5 percent, followed by California with an 11.3 percent rise and Nevada at 11.1 percent.
“Home prices are continuing to rise fueled by ongoing tight supply, low rates, and aggressive investor buying on the East and West Coasts,” says Anand Nallathambi, president and CEO of CoreLogic. “The expected surge in the number of homes for sale has not materialized to date as many home owners are staying put and waiting for better economic times and higher prices in the future.”
Overall, CoreLogic’s index shows that nationwide home prices rose 7.5 percent year-over-year in June, marking the 28th consecutive month for year-over-year increases. Still, including distressed sales, nationwide home prices remain 12.9 percent below the peak reached in April 2006. On a month-over-month basis, home prices nationwide ticked up modestly at 1 percent in June.
“Home price appreciation continued moderating in June with its slight month-over-month increase,” says Mark Fleming, chief economist for CoreLogic. “This reversion to normality that we are finally experiencing is expected to continue across the country and should further alleviate concern over diminishing affordability and the risk of another asset bubble.”
Source: CoreLogic


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