Rampant Refis Ignited Housing Crisis

Rampant Refis Ignited Housing Crisis

Mortgage refinance activity may have been the true hidden culprit behind the housing crisis, according to a new report by the Urban Institute written by Laurie Goodman, codirector of UI’s Housing Finance Policy Center.

Mortgage refinances were more likely to default than mortgages taken out to purchase a home “mostly because many people were treating their homes as ATMs through cash-out refinances,” Goodman notes.

Eighty-four percent of government-sponsored enterprise refinances in 2006 and 2007 were cash-out refinances. These types of refinances at that time tended to have “sloppier underwriting” and thus tended to default more than purchase loans, Goodman notes.

The analysis notes that between 1999 and 2015, 4.48 percent of refis and 3.3 percent of purchase loans were more than 180 days delinquent. In 2007, the peak year, 15.78 percent of refis and 9.95 percent of purchase loans were more than 180 days delinquent.

“Conventional wisdom suggests that refis should be less risky than purchase loans and default less because the borrowers have a known history of payment,” Goodman says. “So these results are surprising, especially given the stronger credit characteristics of refis, such as lower loan-to-value and debt-to-income ratios.”

Many housing experts blamed government policies aimed at increasing first-time home buyers for spawning the housing crisis. But the new report shows that “although there is a lot of blame to go around for the poor quality of loans before the housing crisis, the data reaffirms that purchase borrowers were not the primary culprits,” Goodman writes.

Source: “Using Homes as ATMs, Not Homebuying Fervor, Was More to Blame for the Housing Crisis,” Urban Institute (May 11, 2017)

Will the Starter Home Return?

Will the Starter Home Return?

Home builders say they’re struggling to deliver on the demand of lower-priced entry-level homes that cater to the growing number of willing millennial buyers, arguing that more entry-level homes will hurt their bottom lines.

“Since the recovery has really been at the middle end of the market, home prices have gone up and land prices have followed,” Megan McGrath, managing director at MKM Partners, told CNBC. “So it is very, very hard to make a good profit at a lower price point these days.”

Few starter homes are available on the market today through existing homes too. During the Great Recession, investors purchased hundreds of thousands of foreclosed properties—low-priced starter homes—and converted them into rentals. They’ve been holding on to these properties, which has spawned an even bigger deficit for lower priced homes on the market.

“I don’t think anyone’s doing jumping jacks in terms of that lower end of the market, but I do think you’re also seeing … a little slowdown at the middle end, because that’s where the bulk of the recovery has been so far,” says McGrath.

The median price of a new home built in March was $315,000. The median price of an existing home was $236,400.

Builders are gradually introducing new lines at lower price points.

“People are doing more town homes in good locations, and they’re also stripping stuff out of the house to get the price cheaper,” says John Burns, CEO of John Burns Real Estate Consulting.

Some builders are introducing lower-cost lines of homes, but while they’re lower-cost, they aren’t considered starter homes, CNBC reports.

The cost of building a starter home isn’t lucrative enough for builders, industry insiders say.

“It’s always a tug of war in builders between order growth and gross margins,” McGrath says. “Those are the two things that investors pay the most attention to. That really tends to be what drives the stocks.”

Demand is clearly growing among young buyers, however. New-owner households are now outpacing renter households, according to the latest Census data.

Source: “Home builders Are Targeting Millennials — But it Will Hit Their Margins,” CNBC (May 16, 2017)

Home Prices Will Only Get Higher

Home Prices Will Only Get Higher

Home sales reached their highest pace in a decade in the first quarter of 2017 as property prices continue to escalate, according to the National Association of REALTORS®’ latest quarterly report.

The median price of an existing single-family home nationally was $232,100 in the first quarter, up 6.9 percent from the same time period a year ago. Home prices rose year over year in 85 percent of the 178 metro areas analyzed.

The continued inventory shortages prompted home-price appreciation to quicken its pace in the first quarter, says NAR chief economist Lawrence Yun.

“Prospective buyers poured into the market to start the year, and while the increased presence led to a boost in sales, new listings failed to keep up and hovered around record lows all quarter,” Yun says. “Those able to successfully buy most likely had to outbid others—especially for those in the starter-home market—which in turn quickened price growth to the fastest quarterly pace in almost two years.”

Thirty metros saw double-digit price increases in the first quarter, NAR’s report shows. “Several metro areas with the healthiest job gains in recent years continue to see a large upswing in buyer demand but lack the commensurate ramp in new-home construction,” Yun says. “This is why many of these areas—in particular several parts of the South and West—are seeing unhealthy price appreciation that far exceeds incomes.”

The Commerce Department also reported Tuesday that overall home construction fell from March to April, with housing starts declining 2.6 percent month-over-month. This could have a broader impact on the economy, Yun adds. “With housing starts declining in April, inventory shortages will continue for a longer period of time. The intensifying housing shortage will push up home prices and rents, and easily above wage growth and the broad consumer price inflation. This continued, slow pace of construction of new homes is a major bottleneck to a faster economic and housing recovery.”

Affordability weakened slightly nationwide in the first quarter, despite a rise in the national family median income to $71,201. Higher mortgage rates and home prices softened affordability compared to a year ago, NAR reports. To buy at the national median price, a buyer making a 5 percent down payment would need an income of $52,251; a buyer with a 10 percent down payment would need to earn $49,501; and a buyer with a 20 percent down payment would need to earn $44,001, according to NAR.

Total existing-home sales in the first quarter, including single-family homes and condos, rose 1.4 percent to a seasonally adjusted annual rate of 5.62 million. That is the highest since the first quarter of 2007, when it stood at 5.66 million sales.

“Last quarter’s robust pace of sales was especially impressive considering the affordability sting buyers experienced from higher prices and mortgage rates,” Yun says. “High demand is poised to continue heading into the summer as long as job gains continue. However, many metro areas need to see a significant rise in new and existing inventory to meet this demand and cool down price growth.”

At the end of the first quarter, 1.83 million existing homes were available for sale—6.6 percent below inventory levels of a year ago. The average supply during the first quarter was 3.7 months, NAR reports.

Source: National Association of REALTORS®

Does Your Content Pass the ‘Strawberry Test’?

Does Your Content Pass the ‘Strawberry Test’?

With any content marketing you do online, says Forbes guest columnist William Arruda, founder of CareerBlast, it’s important to follow the “strawberry test”: making your content inviting, bite-sized, and healthful.

After all, the competition for eyes online is steep. There are 130,000 new long-form posts published each week on LinkedIn alone, more than 500 million tweets a day, and 300 hours of video uploaded to YouTube per minute, according to Expanded Ramblings. How are you going to attract people to your content?

Arruda breaks down how to make sure your content passes the “strawberry test”:

Inviting: Your message needs to be immediately compelling, he notes. “With so much content vying for our attention, we are only going to consider the truly enticing ones,” Arruda notes. “In a split second, we will decide whether to keep reading.”

Bite-sized: The average attention span in 2000 was 12 seconds, according to the Statistics Brain Institute. In 2015, it was even less: 8.25 seconds. So your content can’t take a huge amount of time to read and digest. It needs to be short and scannable.

Healthful: “People will only invest in your content if they believe they’ll get something from it,” Arruda writes. “Perhaps they want to learn and grow, solve a problem, laugh. This is the ‘nourishment’ element.” He notes the more valuable your content can be, the greater the likelihood it will garner social actions such as liking, commenting, and sharing.

“Ticking at least two of [these] three boxes is essential, but ticking all three will have a lot more impact on your brand,” Arruda writes. “Yet most content I see only ticks one of the three measures.”

He also notes that your content can be “dipped in chocolate” to further entice readers. “That is typically achieved with the headline or title and first few sentences (or seconds of a video) and/or the associated image—drawing in the viewer the same way the chocolate-covered strawberry calls to you from the plate,” Arruda writes.

Source: “Does Your Content Pass the Strawberry Test?” Forbes.com (May 7, 2017)

Dos and Don’ts for Estate Sales

Dos and Don’ts for Estate Sales

Some sellers have a house full of belongings that they need to dispose of before putting their home on the market. In these cases, an estate sale may be necessary to get rid of the items quickly while also putting some extra cash in your client’s pocket.

Here are a few tips you can pass along to sellers to make their experience working with an estate sale company smooth and profitable.

Don’t…

• Throw anything away. Likewise, don’t casually give items to friends and family, thinking they’re not really worth much. Let the estate sale pro review your assets before you decide to dispose of something.
• Cancel your utilities or home insurance policy before the sale. In many cases, local officials won’t allow a sale to be held at a home with no running water or electricity. Also, you will be held legally responsible for any accidents that occur during the sale, so you want your homeowner’s insurance to still be in effect.
• Remove items after the estate sale company’s walkthrough. Doing so will likely breach your contract and may result in cancelation of your sale. Removing items after they’ve been advertised for sale is unethical and could even result in legal action.
• Participate in pricing items or conducting the sale. The estate sale company, whose fee is usually a percentage of the total proceeds of the sale, has in-depth knowledge of current values and will price accordingly. Some companies may allow you to set a minimum price for a few special items. Also, family members should not be present during the sale, as they may reminisce with neighbors and other attendees—which can negatively impact sales.
• Expect to be paid immediately after the sale. The estate sale company will need time to make sure all check and credit card sales clear and there are no disputes about any items purchased. This may take extra time if you elect to sell some items online. After the sale, the company should send you a check—any fees will be deducted—typically within 30 days.

Do…

• Choose the right kind of sale. A reputable estate sale company will help you decide whether an auction or garage sale is the best forum for your types of belongings. An estate sale ideally consists of an entire household of items, from special antiques or collectibles to useful household goods, and services will include organizing and staging, photography, advertising and signage, and post-sale disposal of remaining items.
• Make sure to get a written contract.  A contract spells out the responsibilities and obligations of both the seller and estate sale company. Don’t go with a company that doesn’t offer a contract. Before you sign, make sure that all heirs and interested parties are in agreement with the sale plans.
• Schedule the sale as far in advance as possible. Many companies are booked months ahead of time. If the first company you call is not available in your time frame, check with another company. To have the best possible sale, the company must have sufficient time to advertise it properly.
• Remove family heirlooms and items you want to keep before the walkthrough. The company bases its acceptance of your sale on the value assessed at the walkthrough. If you remove items after the walkthrough, you may be charged commission on those items.
• Negotiate access to the home. Ask the estate sale company to commit to a certain time frame when they will need to be in your home because you’ll want to make it available for buyer showings as soon as possible. Have a set of house keys ready to give to the company, as they’ll need frequent access to set up. Most will ask that you not give out any other sets of keys at this point because they are accepting responsibility for the items.

—By G.Williamson, owner of LoveVintageStuff Estate Sale Services