The ‘Missing Link’ in Housing

The ‘Missing Link’ in Housing

For years, first-time home buyers have made up around 40 percent of all buyers. However, since the recession, this percentage has been shrinking. In 2015, they made up just under 30 percent of the market share, according to the National Association of REALTORS®.

The decrease of first-time home buyers will have broad economic implications, housing analysts say. Without first-time home buyers, an entire cycle of home ownership is stalled. Current home owners are usually unable to sell their homes and move up. And without move-up transactions, many older people can’t sell and downsize for retirement.

“In terms of the real-estate recovery, the missing link is first-time home buyers,” says Rob Chrane, founder and CEO of Down Payment Resource. “They’ve been at record lows. Part of it is legitimate reasons. Part of it is just ignorance.”

It’s not that millennials don’t show an interest in home ownership: according to a survey conducted by Fannie Mae, 56 percent of respondents between the ages of 18 and 34 plan to buy a home next time they move.

But housing analysts say that the real estate industry has an important part in bringing them into home ownership by driving home the financial benefits and teaching them about ways to make home ownership possible.

“Ignorance about the process, concern about the economic outlook, and some skepticism about ownership are all hobbling the return of first-timers,” according to a recent article by MarketWatch.

Only 23 percent from Fannie Mae’s survey said they were familiar with low-down payment programs, such as those offered by the Federal Housing Administration. Consumers believed on average that they need 16 percent for a down payment in order to qualify for a mortgage, according to the survey. Lower-educated and lower-income consumers, renters, African-Americans, and seniors were more likely to assume they needed a higher down payment to qualify for a mortgage.

But in reality, homes can be purchased with as little as a 3 percent down payment. Rules enacted in 2015 that decreased the amount of mortgage insurance borrowers must pay on FHA loans and Fannie Mae and Freddie Mac lowering down payment minimums may have boosted first-time participation slightly, say housing analysts.

Chrane urges the real estate industry to educate would-be buyers on the possibilities to home ownership.

“There are more options out there than they realize, and they really need to look into them before they give up,” says Chrane.

Source: “Why First-Time Home Buyers Are Staying on the Sidelines,” MarketWatch (Dec. 31, 2015)

CFPB Moves to Calm Fears Over Minor Closing Errors

CFPB Moves to Calm Fears Over Minor Closing Errors

Just before the close of 2015, the Consumer Financial Protection Bureau told bankers that they won’t be held liable for most minor errors in loan processing and paperwork under new mortgage disclosure rules, known as the “Know Before You Owe” rule or TRID.

The new rule took effect Oct. 3, 2015, and it has been blamed for causing longer closings due to concerns over minor clerical errors in Closing Disclosures. The rule requires lenders to provide borrowers with a new combined Closing Disclosure that lists all the charges, fees, and line items three days prior to closing.

Richard Cordray, CFPB’s director, issued a letter to the Mortgage Bankers Association on Dec. 29 that said small paperwork errors and typos in key sections of the new disclosure rules would not likely lead to lender lawsuits or regulatory punishments from federal agencies that buy the loans.

“We believe that the risk of private liability to investors is negligible for good-faith formatting errors and the like,” Cordray wrote to MBA. “We recognize that a certain level of minor errors in the early days of implementation is to be expected.”

Average closing times on loans have grown since TRID took effect, by as many as five days. The delay in closings has also led some borrowers having to pay more in loan lock fees to hold interest rates until closings.

The National Association of REALTORS® recently reported that sales of existing homes dipped significantly by more than 10 percent in November – the slowest in 19 months – due mostly to the new regulations that have been lengthening closing times. The average closing time rose to 41 days in November, up from 36 days. NAR’s REALTOR® Confidence Index showed that 47 percent of real estate professionals reported in November that they were seeing longer closing times from a year ago

The new clarification from CFPB may prompt lenders to proceed more confidently.

“Needless to say, we think this is a very positive development,” Pete Mills, a senior vice president at the MBA, said about CFPB’s recent clarification to lenders.

Source: “CFPB Gives Mortgage Lenders a Christmas Present,” MarketWatch (Dec. 31, 2015)

REALTORS®’ Top Concerns Heading into 2016

REALTORS®’ Top Concerns Heading into 2016

An improving job market, still-low interest rates, and recent measures to make credit more accessible are all offering help to the housing market’s recovery, but several challenges prompting closing delays remain.

The latest REALTORS® Confidence Index conducted in November reveals some of the top concerns on real estate professionals’ minds. The survey is based on more than 2,500 responses from members about local market conditions.

Here are some of the most common concerns that REALTORS® raised in the latest survey:

1. New mortgage disclosure rules: The implementation of the TILA/RESPA Integrated Disclosure (TRID) regulations on Oct. 3 has been delaying closings and having an impact on sales, according to members. About 47 percent of respondents reported longer closing times compared to a year ago, up from 37 percent in the October 2015 survey.  It typically took another 40 days to close a sale, up from 35 days in July 2015.

2. Condo financing: REALTORS® continued to report difficulty in obtaining financing for condominium unit purchases because many condominiums are not FHA or GSE eligible.

3. Tight inventories: A smaller number of homes for sale across the country are limiting choices for buyers and pushing prices up, decreasing housing affordability. REALTORS® particularly reported low inventory of properties in the lower price range and for those that are move-in ready.

4. Tight credit: Stringent credit standards continue to affect sales, particularly for first-time home buyers who are still struggling to qualify for financing, according to the REALTORS® surveyed. “Credit profiles that fail to meet tighter underwriting standards are conditions that continue to work against first-time home buyers,” according to the report.

5. Appraisal issues: “Late” and “low” appraisal valuations was also cited by REALTORS® as being problematic in transactions.

Source: National Association of REALTORS®

More Homes Come With ‘Pet Suites’

More Homes Come With ‘Pet Suites’

More spaces are being carved out for pets today, and the trend is even inspiring new home designs.

More than half of U.S. households now own a pet, according to a survey of more than 20,000 home shoppers by John Burns Real Estate Consulting. Forty-five percent of those surveyed say they treat their pets like royalty, while 44 percent say they’d like to have a dog park within walking distance of their home.

“Pet suites” are a new feature more home builders are starting to offer in new homes. The suites are outfitted with dog wash areas, a bed, storage, and some even have a camera so that owners can check in on their pet when they’re away from home. The pet suites range in prices from $1,500 to $16,000 and come either as an upgrade or added square footage within a floor plan. Pet suites are most likely to be located in an enlarged laundry room.

Standard Pacific Homes in Sacramento, Calif., has a model that includes a pet suite within the laundry area but sectioned off by a high table. It includes a pet shower and cabinetry. Some builders are tucking the pet spaces under the stairs or other small nooks within a home.

Source: “Increased Pet Ownership Inspires New Design Trends,” John  Burns Real Estate Consulting (December 2015)

Biggest Winter Home Risks

Biggest Winter Home Risks

The winter season is a prime time for house fires. Half of all destructive fires tend to occur in December, January, and February, according to the National Fire Protection Association.

But most home fires are preventable. Here are some leading culprits to watch for:

Space heaters. These devices are the leading cause of house fires in the winter. Make sure the heater is at least three feet away from anything flammable. Plug it directly into the outlet, not an extension cord.  And do not go to bed with the spacer heater still on, experts warn. “Most space heater accidents happen while everyone is sleeping,” says Peter Duncanson, director of disaster restoration training for ServiceMaster.

Cooking. The leading cause of house fires year-round is stovetop cooking. Interestingly, the majority of these fires occur within the first 15 minutes of cooking. Never leave the house when the oven or stove is on. Keep oven mitts, dish towels, and other flammable items at least three feet away from the stovetop.

Electrical cords. Overloaded or damaged circuits cause 3,300 fires annually. The laptop, iPhone charger, toaster, and other electrical appliances all squeezed onto the same power outlet with extension cords and adapters can be dangerous. Feel your cords to make sure they’re not warm (if they are, it’s a sure sign they’re overloaded and you need to unplug some). Also, never run extension cords under rugs or in walls, and don’t connect several in a row.

Fireplaces and wood stoves. Make sure you keep any flammable objects at least five feet away. And don’t think vigilance only during active burning is enough; embers can smolder for up to two weeks and still ignite if given the opportunity. Empty ashes into a metal container and keep them away from anything flammable for at least two weeks, experts advise. Sabine Schoenberg, home improvement expert and host of ThisNewHouse, advises that home owners be sure to clean fireplaces and flues at least weekly.

Source: “The Biggest Risk to Your House This Winter,” realtor.com® (Dec. 23, 2015)

Common Building Blunders

Common Building Blunders

Building inspectors and energy raters shared with BUILDER online the top complaints about common “construction sins,” from improperly installed ductwork to leaky windows. Here are a few blunders that made its list.

1. Attic ductwork: Inspectors – particularly those in hot, humid southern states – say they’re always taken aback when they see HVAC pros installing ductwork in the attic. For the new home, ducts in the attic rather than inside a conditioned space can increase cooling costs for a home owner by an estimated 15 percent. Temperatures in the attic can reach up to 150 degrees F on some summer days and the inspectors say they can’t understand why HVAC pros would want to run cool, conditioned air through that part of the house. Building scientists at the DOE’s National Renewable Energy Laboratory agreed in their report, “Ducts in the Attic? What Were They Thinking?”

2. Wrong-sized HVAC equipment: Another blunder builders in hot climate often make is allowing HVAC contractors to install oversized air conditioning units. “Air conditioners that are too large for a home don’t run long enough to provide dehumidification, which can lead to a damp and moldy house,” according to an article by Energy Vanguard. The more insulated the home, the bigger the problem, too; those homes don’t require as much cooling.

3. Little or no air sealing: Inspectors also said they were often disappointed when checking the air sealing on new homes. They say they often find not enough sealant at the top of windows, fiberglass insulation used as an air sealant, or no seal around key areas like doors, band joists, top and bottom plates, and ceiling penetrations. “Having proper air sealing is critical for performance,” says Steven Armstrong, a North Carolina–based home energy rater. New energy codes that are more stringent may soon force builders in more states to pay attention to air sealing in homes, according to the BUILDER article.

4. Conventional crawlspaces: Traditional crawl spaces can expose a home to moisture and mold problems that can wind up creating costly repairs for home owners. The solution, according to inspectors: a sealed, conditioned crawl space with a vapor barrier protecting the under-floor space from ground moisture and with the insulated thermal boundary moved from the framed floor to the wall perimeter. These can provide better humidity control, reduce heating and cooling costs, protect hardwood floors above from warping, and also provide clients extra clean storage space, says Todd Usher, a builder in South Carolina. The Home Innovation Research Labs, along with the Southern Forest Products Association, offers educational materials about the ways to improve existing closed crawl space design.

Source: “Building Inspectors’ Top Nine Construction Snafus,” BUILDER (Aug. 11, 2015)