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Friday, 31 July 2009
Daily Real Estate News | July 27, 2009
Economists Optimistic That Market Is Upward Bound
Economic recovery is still a few months away, say economists surveyed by USA Today, but two-thirds of them think existing-home sales have bottomed out.
Both housing and automotive markets “have the potential to generate some quite large percentage increases,” says Bill Cheney, chief economist at MFC Global Investment.
Overall, economists say unemployment won’t peak until the first half of next year and credit markets will remain tight.
"I think (the recovery) is going to be anemic," says Allen Sinai, chief economist at Decision Economics. "I don't think consumers have the wherewithal to buy a lot of cars and a lot of houses."
Source: USA Today, Paul Davidson; Barbara Hansen (07/27/2009)
Thursday, 23 July 2009
Daily Real Estate News | July 20, 2009
Housing Experts: Now Is a Perfect Time to Buy
Don’t forget to remind potential buyers of something that is obvious to real estate professionals: Now is the time to buy, but that opportunity may be slipping away.
For people who have a job and money, a dream house is within reach, writes Marc Roth, founder of Home Warranty of America and a columnist for BusinessWeek.
He points out that mortgage rates remain low, prices are still at historic lows, and the government is offering incentives for first-time homebuyers.
He also adds that the inventory of homes to buy is still large, but it is shrinking. According to the NATIONAL ASSOCIATION OF REALTORS®, the housing inventory peaked in November 2008 at an 11-month supply. At the end of May 2009, it had fallen to a 9.6-month supply.
Roth says anyone who dallies will miss a good opportunity to buy a first home at a terrific price or go shopping for a move-up property that is a great buy.
Source: BusinessWeek.com, Marc Roth (07/17/2009)
Tuesday, 21 July 2009
In Focus: Jumbo Loans
By Arun Barman, Research Economist
Mortgage rates continue at 50-year lows. Such low rates are contributing to record housing affordability levels. Indeed, in April of this year, NAR’s housing affordability index registered a reading of 178.8 – the highest index figure since NAR began tracking the index in 1970.
However, the historically low mortgage rates only apply to Federal Housing Administration (FHA) and GSE (the Government Sponsored Enterprises, Fannie Mae and Freddie Mac) loans, not to jumbo loans above the applicable loan limits for the geographic areas of the country. Although legislation last year increased the conforming loan limit to as much as $729,750 in high-cost areas, the mortgage market now has three primary types of loans.
- Loans up to $417,000 are considered “conforming”
- Loans between $417,000 and $729,500 are “conforming jumbo”
- Loans over $729,500 are “super-jumbo.”
So, while those conforming mortgage rates are at historic lows, jumbo loans in general continue to remain at higher rates and are more difficult to obtain.
NAR recently conducted a study on developments in the jumbo loan market.* The research reveals that limited availability and higher interest rates in the jumbo loan market are adversely affecting the rest of the housing market and holding back a genuine housing recovery.
The Jumbo Loan Market
As recently as 2007, jumbo mortgages comprised 10 percent of all mortgages for home purchases and 30 percent of mortgage originations in dollar volume. But the ongoing credit crunch in the jumbo mortgage market has stalled home sales of high-priced homes, despite some recovery taking place in some mid- and low-priced home markets. The national share of home sales above $750,000 has fallen from 4.4 percent in 2007 to approximately 2.3 percent in 2009, and the months’ supply of inventory has risen from 18.7 months to 41.1 months during that same period. The market share of jumbo loan originations has fallen to 6 percent from the typical 15 percent.
Jumbo loans are of significant importance in high cost areas and states, such as California, New York, and Florida. In California 39.2 percent of homes were priced above $500,000 (above the $417,000 national cap for GSE loans in effect before the high cost area loan limits were adopted). Furthermore, four additional states had more than 20 percent of the housing stock with prices exceeding $500,000. States that have the highest percentage of jumbo mortgages include Hawaii (43 percent of all loans are above $417,000), California (41 percent), the District of Columbia (30 percent) and New York (22 percent). In eight more states, jumbo mortgages comprise 10 percent or more of all loans in those states (New Jersey, Maryland, Massachusetts, Virginia, Connecticut, Washington, Nevada and Florida).
The role of jumbo loans in some of these states is even more apparent when one looks at the dollar volume share of jumbo loans. In 2007 (the latest complete data available), jumbo loans accounted for 65 percent of the total dollar share of mortgage loans in Hawaii and 63 percent in California. Both these states boast metro areas with some of the highest median home prices in the country. It should not then be surprising that they also garner the largest share of jumbo loans, both in terms percentage of the mortgage market and share in dollar volume.
Economic Impact
Jumbo loans play a significant role in the overall housing market, and consequently the current lack of jumbo loan financing is measurably and negatively impacting economic activity. NAR estimates that each home sale at the median contributes $67,811 to the economy. This is based on income to real estate industries, spending on furniture and home furnishings, a multiplier effect on this spending, and the construction of new homes traditionally associated with existing home sales. As recently as 2007, jumbo mortgage market activity and associated home sales resulted in $78 billion in economic activity.
Because of credit market problems and much weaker activity in the jumbo loan market, NAR estimates a decline of $42 billion in economic activity.
Refinancing
Problems in the jumbo loan market also affect those current homeowners who want to refinance. Indeed, the inability of homeowners to refinance their jumbo loans is holding back potential consumer spending for the overall economy. If these homeowners had the opportunity to refinance into historically lower mortgage rates, many current jumbo mortgage holders could save $6,000 to $15,000 in annual interest costs.
Impact on Housing Activity
There continue to be significant problems in the jumbo loan market. Interest rates on jumbo mortgages remain elevated above those available for conforming loans. That has put a dent in home sales activity in many markets. The inventory of homes available for sale remains elevated. NAR estimates that there was a 9.6 months supply at the end of May. While that is an improvement, generally a 6-month supply is considered a balanced market. The continued high inventory puts downward pressure on home prices. The months’ supply of high-priced homes for sale (i.e., those for which jumbo loans would be originated) generally is higher than lower priced homes. However, the inventory situation has dramatically worsened in the high-end market with months’ supply in 2009 at 41 months compared to 18 months in 2007. In addition, defaults and foreclosures of both conforming and jumbo loans have been rising – the ongoing fallout from the subprime mortgage crisis and the current economic recession.
The Realtors® “Take”
As part of its study on jumbo loans, NAR surveyed its members for their input on the jumbo loan situation. The majority of Realtors® responding to the survey indicated that higher downpayment requirements and higher loan rates (relative to conforming loans) were significant problems. Nearly a third of Realtors® report that there are fewer jumbo loan providers. And more than four out of ten Realtors® reported that buyers who wanted to purchase a high-end home but could not get a jumbo loan (or want to pay the higher jumbo loan rates) have virtually dropped out of the market.
Conclusion
Although the upward revision of the conforming loan limit is a positive development, overall the jumbo loan market has experienced problems of limited loan availability and higher than usual interest rates in recent months. Increased credit standards required of borrowers coupled with the increasing reluctance of financial institutions to make jumbo loans have posed major problems at the higher end of the market. In addition, the interest rate spread between ten-year treasuries and jumbo loans has substantially increased—making jumbo loans much more costly than has previously been the case and significantly affecting the upper end of the housing market.
The jumbo loan market plays a significant role in the overall housing market. The availability of jumbo loans is particularly important in high cost areas. NAR is working with policymakers to insure that these mortgage loans continue to be available, and so help stabilize the housing market and help lead to a quicker broad economic recovery.
Monday, 13 July 2009
As written by the RE/MAX International Chairman and Co-Founder.....
Generations: 74 Million
Young Adults Will Help Create
The Next Housing Boom
As we've noted consistently in the past six months of Profit Lines, it's vital to understand that recovery from this terrible market won't happen overnight. We expect another foreclosure bubble when Alt-A loans and Option ARMs reset in 2010 and 2011, and with unemployment rates still rising, we don't foresee significant recovery in the next three years.
After that, however, we're anticipating a sustained, healthy stretch of increasing sales, values and homeownership rates. What's more, the upswing won't be built on questionable lending practices, overextended buyers or insane debt-to-income ratios. Instead, it will be based on a combination of pent-up demand and demographics. And the youngest group of adults, Generation Y, will provide much of the spark.
Another massive wave
Born between 1980 and 1995, the members of Generation Y -- also known as the millennials or echo boomers -- are like a pig in a python. Aged 14 to 29 now, they comprise a block of 74 million potential buyers, nearly as many as the 80 million baby boomers born from 1946 to 1964. When you think about the influence the boomers have had on virtually every aspect of society over the past 40 years, including the housing industry, it's fascinating to anticipate the impact of another wave that's just as massive.
The oldest millennials, now in their late 20s, are nearing the average age of first-time homebuyers -- the National Association of Home Builders puts it at 33 -- and many of them are already taking advantage of attractive buying conditions. They're moving through the household formation years of 25-44 and will soon replace Generation X (the 48 million people born between 1965 and 1979) as the primary first-timer group between 29 and 33. They will do so in much greater number.
Interesting look at birthrates
One reason for optimism in 2013 and beyond is the U.S. birthrate through the late 1970s and into the 1980s. Sue Rossi, a RE/MAX Broker/Owner in Crete, Illinois, has been studying the correlation between birthrates and housing stats for several years. Her well-constructed theory, which she has shared in her region as well as with National Association of Realtors leaders, boils down to this: A drop in births triggers a drop in sales 33 years (or whatever the average age of first-time buyers) later.
Although the connection doesn't hold up every year -- a variety of factors can push sales up or down -- it's interesting to see how shifts in births often do match shifts in home sales three decades later. Consider that the four lowest birthrate years since World War II occurred in 1973, 1974, 1975 and 1976 (see chart below). Add 33 to those years and you have 2006, 2007, 2008 and 2009. We all know how sales went in that time frame. Many things contributed to the plunge, of course, but the mid-'70s birthrates of less than 3.2 million -- sandwiched between the 4 million-plus years of baby boom and Gen Y -- certainly didn't help. This baby bust created a 25% reduction in available "average aged" first-time buyers each year, with the cumulative effect even greater.
No one should underestimate the power of first-timers. In addition to their own purchases, these buyers start vital chain reactions by enabling their sellers to move up themselves, buying from another family who's now free to move, and so on. Without them, the push at each level is missing. Millennials will begin to turn 33 in 2013, and with birthrate levels throughout the 1980s climbing steadily back toward baby boom heights, there will simply be more young adults ready to enter the housing market.
An extremely confident bunch
Millennials are an interesting generation. The children of boomers, they're on the verge of becoming the major consumer force. As a group, they're less well off than their parents were at the same age, but they don't seem to mind. Despite being burdened by steep college loans, higher prices for everyday goods and an uncertain job market, they're also extremely confident, mobile and positive about their futures. Many are marrying earlier, without large nest eggs. Others see moving back home as a prudent way to save some money and wait out the economic turbulence.
Those who've entered the housing market -- drawn by the perfect storm of historically low interest rates, attractive prices and the $8,000 tax credit -- expect much from their Realtors. They want access. They want answers. And they want ongoing communication through text messaging. As a RE/MAX Associate in Denver told us the other day, "Our older clients make appointments with us. The younger ones are liable to show up at any time, wanting us to take them to a house they just saw online. They just want to know, 'How fast can I get the information?' and 'How available are you?'"
Their expectations in housing are different too. Their lifestyles are active, urban and social, so they generally favor smaller homes near recreation, restaurants and friends. Many would just as soon live in a townhouse or condo as in a large single-family home -- mowing the yard is not what they want to be doing on a Saturday afternoon. And though some embrace the charm of older homes, most prefer newer buildings filled with the technology and modern amenities they grew up with.
As the millennials continue to age, their choices will have a major impact on the housing inventory and the direction of new construction. Already, urban and new-urban developments are sprouting up around the country. Eventually, some housing types not fitting their needs, in both urban and suburban settings, may become obsolete.
Boomers in waiting mode
The oldest baby boomers, meanwhile, are now in their early 60s. Many have put their retirement and relocation plans on hold because they've lost 40% of their 401(k)s and a large portion of their home equity. Some are scared to death because their plans to retire and live on savings and profits from their home sale have been sidetracked. Many can't afford to leave the workplace, and instead are paying off credit cards, saving money and finding ways to extend their careers.
Instead of retiring and moving to Arizona or Florida, many boomers will likely downsize locally and stay closer to their children, grandchildren and friends. Trouble is, with the jumbo mortgage market as tight as it is now -- though it is showing signs of improvement -- other people aren't positioned to buy their homes. And with the ongoing drop in prices, many boomers don't want to sell now anyway because they know what their home was worth four years ago and are reluctant to sell at the price they might get today.
Boomers, with more urgency than the younger groups, are focused on saving as they try to rebuild their financial lives. The vast majority, though, have been spenders and consumers their whole lives, and although perhaps 10% will hold on to their new-found frugality, the other 90% will return to old habits once the storm has passed, the recovery is in full swing and their confidence has returned. That's not a bad thing at all; the economy needs people to spend money, as does the housing industry. As calm returns, the boomers will start to retire in massive numbers, opening workplace opportunities for younger people to advance and earn more.
Growing demand
Despite the current lack of buyer interest, a reservoir of pent-up demand is building in every age group: Gen Y couples who are content with renting or living with parents until their careers get going and their incomes cover their lifestyle expenses with something left over; Gen X families who have outgrown their homes but are delaying moves because of employment concerns and the tough economic times; boomers who no longer need five bedrooms but are hunkered down and postponing their downsizing or relocation plans. Eventually -- we think it will be in four years or so -- they'll all feel secure enough to take the next step. Sales will rise and our industry will return to normal, although it will be a new, different normal than before.
Of course, many other factors -- the rise of immigrant and minority buyers, the continuing struggle with foreclosures, the increase of women as single homeowners, the health of the overall economy, the state of homebuilding, and much more -- will also help define the new landscape. We'll cover more of these in upcoming Profit Lines, as well as at the Summer Conference in August.
Ultimately, although the styles and traits of each of these three generational groups are radically different, the course of life in America remains fairly predictable. And as always, the flow of home sales depends on sizable groups of people following patterns we've seen for a century: People in their 20s get married, buy homes and start families; people in their 30s and 40s outgrow their houses and move up; people in their 50s, 60s and 70s sell their houses and buy something smaller or move into retirement units. The current recession, for all the damage it's done and continues to do, won't change that basic equation.
We still face many challenges before the millennials fully flex their buying muscles and help put housing back on track. But in addition to working with distressed properties, cutting expenses, considering mergers and doing the other "right now" things that will help you succeed in today's difficult environment, take time to look around your community for signs of this growing economic force. And then start thinking about how you can connect with it. The key, as with most things, is to be ready before it arrives.
Coming Up
In the next Profit Lines, we'll look at how immigration and minority buyers will impact the housing industry in the coming years. We'll share our own thoughts as well as some key insights from the latest "State of the Nation's Housing" report by the Joint Center for Housing Studies of Harvard University. Some of the forecasts and strategies might surprise you.
Final Thought
We can't say it enough -- so we won't stop saying it: You ought to be joining your fellow Broker/Owners and Managers at the upcoming Summer Conference, Aug. 16-18 in Chicago. The seminars will be great, we'll all have some fun, and the ideas you'll pick up in formal sessions and informal conversations will directly impact your business. It's not too late to register.
Download a PDF version of this email, or past editions of Profit Lines, via RE/MAX Mainstreet.
Thursday, 02 July 2009
Daily Real Estate News | June 30, 2009
5 Ways to Expedite a Sale
Selling a home quickly remains a challenge in many markets across the country. Heidi Cole, an associate with the Corcoran Group in Palm Beach, Fla., offers this advice for anyone who wants to expedite a sale:
- Cut the asking price to 10 percent to 15 percent below what comparable properties in the neighborhood are selling for.
- Spruce up the outside. Update the landscaping. Power-wash the exterior and paint the door.
- Appeal to first-time buyers. Advertise on younger consumers' favorite Web sites, such as Facebook and Twitter. Hire a photographer to shoot the house with a wide-angle lens so the rooms look bigger in online photos.
- Price the house in the lower end of the range. A $299,000 house is in the high end of the $250,000 to $300,000 range but a $301,000 home is in the low-end of the $300,000 to $400,000 range.
- Do what you can to make the deal close quickly. Be ready to move, offer to pay part of the closing costs, and/or throw in a year’s worth of association fees.
Source: Money Magazine, Beth Braverman (06/30/2009)
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