First Time Home-Buyers


Rising rents are forcing renters to outspend home owners on housing costs, according to a new study.

Since 2005, home owners’ housing expenses have climbed from 31.9 percent of their household budget to 33.2 percent. On the other hand, in that same time period, renters’ expenses have jumped from 35.6 percent to 38.4 percent, according to the October CoreLogic U.S. Housing and Mortgage Trends.

In the last 26 years, home owners have increased the amount they spend on household expenses by 12 percent while renters have increased it by 22 percent, according to the study.

Earlier this month, Capital Economics economists noted that for the first time in 30 years the median monthly mortgage payment is about the same — or less — than the median rental payment.

Yet, with the bleak job market, home ownership rates continue to fall in many parts of the country, particularly among younger generations. CoreLogic found in its report that the home ownership rate for the 25-to-34 age group dropped from 51.6 percent in 1980 to 42 percent in 2010. For the 35-to-44 age group, home ownership rates fell from 71.2 percent to 62.3 percent over that period.

Source: “Renters Outspend Owners on Housing,” RISMedia (Oct. 25, 2011) and Capital Economics

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Bargains Abound: What Are Buyers Waiting for?

Forget the toasters and champagne flutes: More engaged couples are doing a different type of wedding registry that allows them to collect cash for a down payment on a home, according to a recent article in The Washington Times.

Dana Ostomel, founder of Deposit a Gift in New York City, says that about 15 percent of their registries are to raise down-payment funds for a home and another 15 percent are for home-improvement funds to pay for upgrades like a new roof or furniture.

“Given that 75 percent of today’s engaged couples already live together and are older, very often they are already established with the household basics that you find on a traditional registry,” Ostomel said. “What they want is the gift of big-ticket items and longer term goals, like the gift of home ownership.”

The FHA permits gifts from a wedding to be used as a down payment, but lenders are required to document that the funds are gifts. About 27 percent of first-time home buyers use gift money from relatives and friends for a down payment, according to a 2010 National Association of REALTORS® Profile of Home Buyers and Sellers survey.

Source: “Registries Raise Cash Gifts, Avoid Etiquette No-No,” The Washington Times (Oct. 20, 2011)

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Down Payment Remains Obstacle to Home Ownership

Loan Applications Rise for Refinancing, Home Purchases

Daily Real Estate News | Wednesday, September 28, 2011

 

Mortgage applications increased last week, with both refinancing and home purchase demand increasing, the Mortgage Bankers Association says in its weekly report.

Applications for U.S. home mortgages increased 9.3 percent for the week ending Sept. 23, according to MBA’s seasonally adjusted index.

Refinancing applications made up the biggest part of that increase, rising 11.2 percent last week. Loan requests for home purchases increased 2.6 percent.

Meanwhile, mortgage rates continue to hover near record lows, luring home owners and buyers who can qualify for the low rates.

“Mortgage rates declined last week, at least partially in response to the Fed’s announcement that they would shift their portfolio toward longer-term Treasury securities, and that they would resume buying mortgage-backed securities,” Mike Fratantoni, MBA’s vice president of research and cconomics, said in a statement.

Source: “Mortgage Applications Rose Last Week: MBA,” Reuters (Sept. 28, 2011)

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Fed’s Latest Move May Send Rates Lower

Mortgage Rates Remain at Record Lows

Mortgage lending at lowest level since 1997

Despite near-record-low mortgage rates, a combination of factors is depressing the industry. Many people have simply decided homeownership isn’t for them.

 

  • Despite the confluence of lower home prices and rates, new mortgages are down by a third compared with 2010. Lenders will write about $1 trillion in home loans this year, the smallest total since 1997, according to the Mortgage Bankers Assn., which projects home lending will fall even lower in 2012.
Despite the confluence of lower home prices and rates, new mortgages are… (Seth Perlman, Associated Press)

 

August 06, 2011|By E. Scott Reckard, Los Angeles Times
Despite near-record-low mortgage rates and the cheapest housing prices in eight years, home lending has slipped this year to the lowest level since 1997.The laggard loan market can be explained in part by the slow economy, numerous foreclosures and the proliferation of “underwater” loans, those that exceed the value of the properties they secure.

 

But other factors are compounding the problem, including so-called refi burnout — how many times, after all, can one refinance a home? — and a wave of people who have simply decided that homeownership isn’t what it was cracked up to be.

Weary of a noisy tenant on the other side of a common wall, Bruce and Deborah Dennis sold their Arcadia duplex in April, banked a $600,000 profit and went looking for a quieter place to spend their 60s.

Bruce’s boss, a property manager, urged them to buy another home, saying they’d never again see prices and mortgage rates so low at the same time. The couple searched seriously for two months, even bidding on a home. In the end, they opted to rent a house, leery of tying up capital and taking on the headaches of ownership with the housing market so shaky.

“We thought, ‘Is buying really what we want to do?’ I have no confidence that home prices are going back up any time soon,” Bruce Dennis said.

Opt-outs like the Dennises are one reason the mortgage business, which led the way into the Great Recession, is taking so long to come out of it.

Another factor is the slowing of the refinance market. Mortgage costs are near historical lows, with lenders offering 30-year fixed-rate loans at about 4.2% to Californians seeking $400,000 mortgages, online home-loan specialist Lending Tree said Thursday.

But most of the lucky homeowners who still have equity and solid finances have already refinanced once or more and have long since locked in annual rates of less than 5%.

In 2003, as the housing boom took hold and 30-year fixed mortgage rates fell below 6%, refinancings propelled home lending to four times the current volume. And as the rate tumbled toward 5% and then smashed that barrier in 2009 for the first time since 1956, there was twice as much mortgage lending as now.

“There is a burnout phenomenon,” said Mortgage Bankers Assn. economist Michael Fratantoni. In addition, many would-be refinancers have been stopped by the declines in home prices, now back at 2003 levels, which has left them owing far more than their homes are worth.

“Borrowers who couldn’t qualify for 4.5% mortgages last year for the most part still can’t qualify this year,” Fratantoni said.

And getting the purchase market up and running again would require “significant job growth,” he said, something that has failed to materialize in the sluggish recovery that is threatening to fall back into recession.

 

 

The result of all this: Despite the confluence of lower home prices and rates, new mortgages are down by a third compared with 2010. Lenders will write about $1 trillion in home loans this year, the smallest total since 1997, according to the Mortgage Bankers Assn., which projects that home lending will fall even lower in 2012.Some say the combination of falling home prices, tight credit in the aftermath of the financial crisis and the flood of foreclosure sales has undermined the traditional view of homeownership as the engine of financial success.

“The previous assumptions that housing is a good investment, or that home prices can only go up, or that all Americans should be able to buy a home, are being seriously challenged,” Morgan Stanley housing analysts wrote last month in a study titled “A Rentership Society.”

In the middle of the last decade, when the term “ownership society” was coined, the homeownership rate was nearly 70%, the report noted. If delinquent borrowers were excluded, it said, the current rate of 66.4% today would instead be 59.7%.

For those willing to take out mortgages despite all the grim news, the prospects are improving slightly. Lenders have eased certain terms for the first time since the mortgage meltdown took hold, and some on the front lines say banks are abandoning the scrutiny bordering on suspicion with which they had come to regard potential borrowers.

“All those granular issues we were beating people up about over the last three years seem to be going away,” Laguna Niguel mortgage broker Jeff Lazerson said. “The hassles over old credit inquiries. Having to explain every entry on a bank statement.”

Spokesmen for Wells Fargo & Co. and Bank of America Corp., the largest mortgage companies, said they recently eased standards slightly for loans backed by the Federal Housing Administration, which are attractive to first-time buyers because they require relatively small down payments.

However, among younger buyers, “there’s not much feeling that they need to buy right away,” Fratantoni said. “I expect that may change over the next couple of years, but certainly for the first-time buyer there’s less near-term demand.”

Older people can be ownership-averse as well, like the Dennises, who intend to work five more years before they retire.

“To buy another house, we were going to have to come up with a chunk of change for a down payment,” Bruce Dennis said. “Then there were property taxes, and of course maintenance — that gets expensive in a hurry.

“The glories of homeownership we no longer have to face.”

scott.reckard@latimes.com

Will the S&P Downgrade Affect Interest Rates?

Daily Real Estate News | Monday, August 08, 2011

 

Standard & Poor downgraded the U.S.’s credit rating on Friday, despite Congress reaching a deal in the final hours on the debt ceiling crisis last week. And now many of your customers may be asking: What does this mean for interest rates?“The impact on your wallet of the Standard & Poor’s downgrade of the nation’s credit rating is similar to what would happen if your own credit score declined: The cost of borrowing money is likely to go up,” the Washington Post explained in the aftermath of S&P’s decision.

S&P downgraded the U.S.’s top-notch AAA credit rating for the first time in history, moving it down one notch to AA+; the rating reflects a downgrade in S&P’s confidence in the U.S. government’s ability to repay its debts over time. It’s not clear, however, whether S&P’s downgrade will instantly effect rates, analysts say.

The 10-year Treasury note is considered the basis for all other interest rates. And “the downgrade could increase the yields on those bonds, forcing the government to spend more to borrow the same amount of money,” the Washington Post article notes. “Many consumer loans, such as mortgages, are linked to the yield on Treasurys and therefore would also rise.”

Watch this video with NAR Chief Economist Lawrence Yun for more information.

While consumers who have fixed interest rate mortgages will be immune to any changes in borrowing costs, home buyers shopping for a loan or those with mortgages that fluctuate may see a rise in rates later on, some analysts say.

Mark Vitner, senior economist at Wells Fargo Securities, told the Associated Press that he doesn’t expect the downgrade to drive up interest rates instantly since the economy is still weak and borrowers aren’t competing for money and driving rates higher. However, he expects in three to five years, loan demand will be much higher and then the downgraded credit rating might cause rates to rise.

Analysts are still waiting to see if the other rating agencies, Moody’s and Fitch, follows S&P’s lead in its downgrade of the U.S. credit rating. If so, the aftermath could be much worse, analysts say.

The debt deal reached by Congress last week was expected to save the U.S. from any credit rating downgrade. However, S&P said lawmakers fell short in its deal. Congress’ deal called for $2 trillion in U.S. deficit reduction over the next 10 years; S&P had called for $4 trillion.

Source: “5 Ways the Downgrade in the U.S. Credit Rating Affects You,” The Washington Post (Aug. 8, 2011); Questions and Answers on Standard & Poor’s Downgrading of U.S. Federal Debt,” Associated Press (Aug. 6, 2011); and S&P Downgrade Will Shake Consumer and Business Confidence at a Fragile Time, Economists Say,” Associated Press (Aug. 6, 2011)

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Real Estate OK in Debt Deal But Risks Remain

Mortgage Rates Hit Record Lows Amid Signs of Weakening Economy

MCLEAN, Va., Aug. 4, 2011 /PRNewswire/ — Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), showing mortgage rates dropping sharply amid falling bond yields and signs of a weaker than expected economy. The 30-year fixed averaged 4.39 percent, its lowest level for 2011. The 15-year fixed and 5-year ARM set new historical record lows averaging 3.54 percent and 3.18 percent, respectively.

News Facts

  • 30-year fixed-rate mortgage (FRM) averaged 4.39 percent with an average 0.8 point for the week ending August 4, 2011, down from last week when it averaged 4.55 percent. Last year at this time, the 30-year FRM averaged 4.49 percent.
  • 15-year FRM this week averaged 3.54 percent with an average 0.7 point, down from last week when it also averaged 3.66 percent. A year ago at this time, the 15-year FRM averaged 3.95 percent.
  • 1-year Treasury-indexed ARM averaged 3.02 percent this week with an average 0.5 point, up from last week when it averaged 2.95 percent. At this time last year, the 1-year ARM averaged 3.55 percent.

Average commitment rates should be reported along with average fees and points to reflect the total cost of obtaining the mortgage. Visit the following links for Regional and National Mortgage Rate Details and Definitions.

Quotes

Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.

  • “Treasury bond yields fell markedly after signs the economy was weaker than what markets had previously thought allowing fixed mortgage rates to follow this week with the 15-year fixed and 5-year ARM setting new historical lows. The economy grew 1.3 percent in the second quarter, which was below the market consensus forecast, and first quarter growth was cut to less than a quarter of what was originally reported. In fact, the first half of this year was the worst six-month period since the economic recovery began in June 2009. Moreover, consumer spending fell 0.2 percent in June, representing the first decline since September 2009.
  • “On a positive note, there were indications that the housing market is firming. Real residential fixed investments added growth to the economy in the second quarter after subtracting from growth over the first three months of the year. The CoreLogic® National House Price Index rose for the third straight month in June (not seasonally adjusted) and was the first three-month gain since June 2010. Finally, pending existing home sales rose for a second consecutive month in June and was up nearly 20 percent from June 2010 when the housing tax credits expired.”

Get the latest information from Freddie Mac’s Office of the Chief Economist on Twitter: @FreddieMac

Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation’s residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.

SOURCE Freddie Mac

 

Home Listings Fall but Woes Persist

Sharp Drop in Houses for Sale, Usually a Plus for Market, May Reflect Foreclosure Logjam Rather Than More

 

By NICK TIMIRAOS

The number of unsold homes listed for sale declined sharply in a number of U.S. cities during the second quarter, offering glimmers of hope that some housing markets could be entering a recovery phase. Nick Timiraos has details.

The number of homes listed for sale declined sharply in a number of U.S. cities during the second quarter, offering glimmers of hope that some housing markets are starting to recover.

At the end of June, nearly 2.34 million homes were listed for sale on multiple-listing services in more than 900 metro areas, the lowest level for that time of year since at least 2007, according to Realtor.com. In some cases, inventory levels are at their lowest levels since the housing downturn began five years ago.

Shrinking inventory often is seen as a positive sign for housing because it usually means demand is rising, which often leads to higher prices. But in the current environment, the decline in inventory may instead reflect how the market remains anything but healthy. While sales are picking up in some cities, analysts say the sharp decline in inventory also reflects the slow pace at which banks are processing foreclosures.

The Wall Street Journal’s latest quarterly survey of housing-market conditions in 28 major metropolitan markets found inventory levels were down in all but three markets and were down by double digits in 16 markets in the second quarter, compared with a year ago. Listings in Miami were down 43% from a year ago and were off 30% in Washington, D.C. Several cities, including Charlotte, N.C.; Seattle; and San Francisco, saw declines greater than 20%, according to figures compiled by John Burns Real Estate Consulting.

Associated PressA decline in the number of homes for sale has raised hopes the market is improving. Above, a house coming off the market in Bath, Maine.

HOUSINGQ

HOUSINGQ

In markets such as Sacramento, Calif., and Phoenix, where home values are down nearly 50% from the peak in 2006, it would take just four months to sell the supply of homes listed for sale at the current sales pace.

“We’re in a shortage situation,” said Brett Barry, a real-estate agent in Phoenix. “It’s a very artificial, ‘Twilight Zone’ kind of feeling, because we know there’s a lot of homes out there.”

The bottleneck in bank foreclosures has contributed to that situation. In the past year, banks have been accused by federal and state officials of circumventing legal procedures when foreclosing on homeowners. To correct those problems, banks are moving more cautiously when repossessing a home.

As a result, the number of newly initiated foreclosures has dropped to a three-year low. But the number of homes in foreclosure—a backlog of 2.1 million—is near a high, according to LPS Applied Analytics.

If supply remains constrained, prices could stabilize. “We’re not at the end of the housing nightmare, but we seem to be getting closer,” said Jeffrey Otteau, president of Otteau Valuation Group, an East Brunswick, N.J., appraisal firm. But if banks accelerate foreclosures, inventories will swell again. Mr. Otteau says it is too soon to celebrate because “we are all expecting that foreclosure ‘tidal wave’ to begin sometime soon.”

Home values, meanwhile, fell at a slower pace during the second quarter, with 19 markets reporting quarterly gains, according to data from Zillow.com. Values were still below year-earlier levels in every market.

For the quarter, the biggest gains in home values were reported in Nashville, Detroit, Dallas and Raleigh, N.C. Markets that have struggled with a glut of foreclosed properties posted the biggest quarterly declines, with values down by more than 2% in Phoenix, Las Vegas and Sacramento.

Another factor behind falling inventory levels is shifting behavior on the part of sellers, who in recent months have started to yank homes off the market because they couldn’t get a high enough offer. “Sellers think they’ll get a better price if they wait and sell it next year, and I just didn’t hear that from sellers two years ago,” said Glenn Kelman, chief executive of Redfin Corp., a Seattle-based real-estate brokerage that does business in 13 states.

Consider the case of attorney Natasha Gonzalez Rojas. After landing a job in Dallas last summer, Ms. Gonzalez Rojas tried unsuccessfully to sell a three-bedroom condo in Philadelphia for $499,000. She and her husband rented it out and in June discussed renewing their tenants’ lease for another year. They lose about $1,000 every month but don’t want to sell for less than what they owe. “We’re not willing to pay somebody to buy our house,” Ms. Gonzalez Rojas said. Until they sell their Philadelphia home, they are also unlikely to buy a home in Dallas. “We don’t want to have two mortgages, and I doubt we’d even qualify,” she said.

Rising rent is another factor pulling some potential homeowners off the fence. During the housing boom, landlords lowered rents to hold on to tenants who were leaving apartments to become homeowners. Now that trend has reversed, sending rent levels soaring.

Shannon Keyes Woodward, 29, and her husband are ready to move out of a “ludicrously priced” rental apartment in Alexandria, Va., but have been outbid on every property on which they have made an offer. “It’s devastating, not being able to find anything,” said Ms. Keyes Woodward.

She expresses a common frustration for entry-level buyers in markets, such as Northern Virginia, that are seeing more activity. Nearly all the homes in their low-$300,000 price range either need renovations or are scooped up within days of hitting the market, often by investors making all-cash transactions.

Nearly 68% of homes sold in Miami last quarter were all-cash sales, up from 56% a year ago, according to Miller Samuel Inc., a real-estate appraisal firm.

Out-of-state buyers and foreigners are seeking bargains on vacation properties. Meanwhile, mom-and-pop investors and private-equity-backed buyers of distressed real estate are snapping up foreclosures at courthouse auctions with plans to fix them up and resell them for a profit. In some cases, prices are so low that investors are holding on to the properties and renting them.

Allen Chan paid $121,500 for a three-bedroom townhouse in Montgomery Village, Md., last August that he now rents for $1,525 a month, more than enough to cover the $850 monthly mortgage, property-tax and insurance costs.

The biggest challenge for Mr. Chan, a 26-year-old investor in Silver Spring, Md., is competition. He bought four homes last year, reselling one and renting the other three. Since December, he has been outbid on every property he has offered to purchase.

Despite the possible downsides of emergency repairs, careless tenants or periods of vacancy, “with the returns as high as they are, there’s a lot of room for error,” Mr. Chan said. “Any way you look at it, it’s just an incredible deal.”

—S. Mitra Kalita contributed to this article.

Write to Nick Timiraos at nick.timiraos@wsj.com

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