2015: Year of the First-Time Home Buyer

2015: Year of the First-Time Home Buyer. Image courtesy of digitalart / FreeDigitalPhotos.net

First-time home buyers are expected to re-emerge in the new year after mostly staying out of the market in the aftermath of the housing crisis. That’s one of realtor.com®’s five top housing predictions for 2015.

“The residual financial effects of recession-driven job losses and subsequent unemployment have impeded Millennials’ entry into the home-owning market,” says Jonathan Smoke, chief economist for realtor.com®. “In 2015, increases in employment opportunities will empower younger buyers to return to the market and fuel the continued housing recovery. If access to credit improves, we could see substantially larger numbers of young buyers in the market. However, given a high dependency on financial qualifications, this activity will be skewed to geographic areas with higher affordability, such as the Midwest and South.”

1. Millennials to drive household formation. Households headed by Millennials are expected to see significant growth in 2015, particularly as the economy continues to make gains. Millennials are expected to drive two-thirds of household formations over the next five years, according to realtor.com®’s report. The forecasted addition of 2.5 million jobs next year, as well as an increase in household formation, are the two factors that realtor.com® points to in driving more first-time home buyers to the housing market.
2. Existing-home sales on the rise. Existing-home sales are projected to rise 8 percent year-over-year in 2015, as more buyers enter the market. Distressed properties will make up a smaller share of that growth, unlike in 2012, when a similar increase in existing-home sales was mostly driven by distressed properties.
3. Home prices will rise. Home prices are expected to continue to edge up in 2015, with realtor.com® forecasters predicting a 4.5 percent gain. “While first-time home buyers have many economic factors working in their favor, increasing home prices will make it more difficult to get into high-priced markets such as San Francisco and San Jose, Calif.,” realtor.com® notes in its report. “As a result, first-time home buyer activity is expected to concentrate in markets with strong employment and affordability, such as Des Moines, Iowa; Atlanta; and Houston.”
4. Mortgage rates to inch up to 5 percent. In the middle of 2015, mortgage rates are expected to increase as the Federal Reserve increases its target rate by at least 50 basis points before the end of the year. That will likely bring the 30-year fixed-rate mortgage to an average of 5 percent by the end of 2015. (It’s currently averaging 3.89 percent, according to Freddie Mac.) The 1-year adjustable-rate mortgage, on the other hand, is expected to rise more minimally. “Lower ARM interest rates will influence an uptick in buyer interest for adjustable and hybrid mortgages,” realtor.com® notes. “While still at historic lows, rate increases will affect housing affordability for first-timers trying to break into the housing market and will be another factor pushing them to less-expensive locales.”
5. Housing affordability will decline. Affordability for homes, based on home-price appreciation and rising mortgage interest rates, will likely fall by 5 to 10 percent in 2015. However, the decline in affordability likely will be offset by an increase in salaries next year for many households. “When considering historical norms, housing affordability will continue to remain strong next year,” realtor.com® notes.

Source: realtor.com®

Did Mortgages Just Get Easier to Obtain?

Did Mortgages Just Get Easier to Obtain? Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Fannie Mae and Freddie Mac’s new lending guidelines went into effect Monday, which are expected to help loosen up the tight credit standards that home buyers and refinancers have faced in recent years.

The guidelines clarify when lenders will be penalized for making mistakes on mortgages they sell to the mortgage financing giants. Following the financial crisis, Fannie and Freddie forced banks to repurchase tens of billions of dollars in loans that they say did not meet their standards. It caused many lenders to tighten their lending, except to the most creditworthy borrowers with the highest credit scores. Lenders have blamed the lack of clarity from Fannie and Freddie on the tight credit conditions that have made it difficult for home buyers to qualify for a mortgage.

Fannie and Freddie’s latest lender guidance is “going to be big, but it’s going to take time” to see the full impact of the changes, Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute, told The Wall Street Journal. Earlier this year, the Urban Institute estimated that up to 1.2 million additional home loans would be made annually if mortgage availability was at “normal” levels.

Lending giants such as Wells Fargo and SunTrust Banks Inc. have said borrowers will likely see faster turnaround times on mortgage applications in the next few weeks. Some lenders also say they expect to broaden the range of borrowers they’ll accept by reducing credit-score requirements and making exceptions for consumers who faced a one-time financial event, such as a job loss or large medical bill.

“It’s providing greater certainty for all the parties so that you can lend more confidently and make the whole judgment process much easier and more clear cut,” Mike Heid, president of Wells Fargo Home Mortgage, told the Journal.

However, some banks still are treading cautiously and aren’t ready to relax their underwriting rules quite yet.

“You won’t see us start to expand our criteria much past what we’ve done,” says Brian Moynihan, Bank of America chief executive. (Read more: Bank of America: We’re Not Easing Up)

U.S. Bank CEO Richard Davis says his bank also isn’t prepared to make any changes yet.

“Unless we are convinced that the rules are going to be permanent and there is not going to be a look back or a reach back in future times … we are simply going to stay on the sidelines in the concerns of both compliance risks and other uncertainties,” Davis told the Journal.

Source: “Mortgage Lenders Set to Relax Standards,” The Wall Street Journal (Nov. 28, 2014)

Home Sales Inch Up From Year Ago

Home Sales Inch Up From Year Ago. Image courtesy of hywards / FreeDigitalPhotos.net

For the second consecutive month, pending home sales were above year-ago levels–rising 2.2 percent over October 2013, according to the National Association of REALTORS®’ latest Pending Home Sales Index. Contract signings have remained at a healthy pace for six straight months, says Lawrence Yun, NAR’s chief economist.

The year-over-year rise came despite a 1.1 percent month-over-month decrease in October in pending home sales. In October, the Pending Home Sales Index reached 104.1.

“In addition to low interest rates, buyers entering the market this autumn are being lured by the increase in homes for sale and less competition from investors paying cash,” Yun says. “Demand is holding steady but would be more robust if it weren’t for lagging wage growth and tight credit conditions that continue to hamper those individuals looking for relief from rising rents.”

In October, the median existing-home price was $208,300 for all housing types – 5.5 percent higher than October 2013. According to NAR, monthly median price growth has averaged 5.8 percent in 2014. Last year, price growth averaged 11.5 percent.

“The increase in median prices for existing-homes has leveled off, representing a healthier pace that has kept affordability in-check for buyers in many parts of the country while giving more previously stuck home owners with little or no equity the ability to sell,” says Yun.

Breakdown by Region

Here’s a look at pending home sales in October across the country:

• Northeast: pending home sales rose 0.5 percent to 87.9, now 3.4 percent higher than a year ago.
• Midwest: home sale contracts fell 0.6 percent in October to 100.6, and are 3 percent below year-ago levels.
• South: pending home sales dropped 1 percent to 118.3 in October, but remain 3.9 percent higher than October 2013 levels.
• West: pending home sales decreased 3.2 percent to 98.1 in October, but are 4.1 percent higher than a year ago.

Source: National Association of REALTORS®

5 Reasons Housing Markets Are Thankful

5 Reasons Housing Markets Are Thankful. Image courtesy of Serge Bertasius Photography / FreeDigitalPhotos.net

The housing market has seen plenty of challenges the last few years, but could brighter days be ahead? Based on recent housing reports, some markets are reporting a rosier picture now than for the first half of the year — and growing optimism heading into next year for a lasting turnaround.

Here are five market gauges that many in the real estate industry are thankful for this holiday season:

1. Mortgage rates are still low.

Home buyers can take advantage of borrowing costs that remain near historical lows. Last week, the 30-year fixed-rate mortgage averaged 3.99 percent nationwide, marking the sixth consecutive week of averages near 4 percent. In October, the 30-year fixed-rate mortgage reached its lowest average of the year at 3.97 percent.

“If you are planning to buy a home in the next year, it’s better to do it sooner rather than later,” Frank Nothaft, Freddie Mac’s chief economist, said in a recent video commentary.

Still, many economists aren’t expecting the rate surge in the new year to be quite as drastic as previously seen. Fannie Mae recently revised its forecast for 2015, expecting low mortgage rates to stick around longer into the year. Fannie Mae now projects rates will average 4.3 percent next year, a drop of about two-tenths of percentage points from its forecast earlier in the year.

2. Home sales have been inching up. 

In many markets, more sales are being reported. Existing-home sales in October were above year-over-year levels for the first time in 12 months, according to the National Association of REALTORS®’ latest report. Sales are at their highest annual pace since September 2013.

The job market may be a big contributor behind that increase, says Lawrence Yun, NAR’s chief economist. “This bodes well for solid demand to close out the year and the likelihood of additional months of year-over-year sales increases,” Yun said in a recent statement.

3. Buyers are getting more choices. 

Home buyers are finally getting more selection in homes for-sale. Unsold inventory is 5.2 percent higher than a year ago, representing a 5.1 month supply at the current sales pace.

“The growth in housing supply this year will likely prevent the drastic sales slowdown and coinciding spike in home prices we saw last winter due to low inventory,” Yun says. “However, more housing starts are needed to increase supply, meet current demand and keep price growth in check.”

New-home construction is gradually picking up in the latter half of the year, also bringing more inventory into many markets. Single-family housing starts rose 4.2 percent month-over-month in October to 696,000 units, reaching the highest level since November 2013, the U.S. Department of Housing and Urban Development and U.S. Census Bureau reported. What’s more, the future looks bright that the increase will stick around for the time-being: Building permits — a gauge for future building activity — increased 4.8 percent in October to an annual rate of 1.08 million units.

“The rise in single-family starts is more proof that the economy is firming and consumer confidence is growing,” says Kevin Kelly, chairman of the National Association of Home Builders. ‘We expect continued momentum into next year.”

4. Foreclosures are falling. 

In October, distressed home sales dropped into the single digits for the third month this year. Distressed sales, which include foreclosures and short sales, fell to 9 percent in October, compared to 14 percent a year ago, NAR reports. Foreclosures and short sales typically sell at a discount — 15 percent or 10 percent below market value, respectively — and can place downward pressure on overall home prices in an area. The decrease in foreclosures is helping more home values to stabilize in communities.

Still, while distressed sales are trending downward overall, several pockets across the country are still battling elevated levels, particularly in judicial states like Florida, Maryland, and New York, NAR President Chris Polychron recently said in a statement.

5. Home prices are stabilizing. 

The median existing-home price for all housing types in October was $208,300 — 5.5 percent above October 2013, according to NAR’s latest report. It marks the 32nd consecutive month of year-over-year price gains. The double-digit gains in prices from last year have mostly faded away.

“Many of the fastest-appreciating real estate markets last year have now settled into a more sustainable pattern of single-digit appreciation,” Daren Blomquist, vice president of RealtyTrac, a real estate data provider, said at the end of October.

Still, the gains in home prices over the past year have made home owners feel more optimistic about selling. Forty-four percent of about 1,000 home owners surveyed in Fannie Mae’s October 2014 National Housing Survey said now is a good time to sell, marking an all-time survey high.

Source: REALTOR® Magazine Daily News

Check How Mobile-Friendly Your Website Is

Check How Mobile-Friendly Your Website Is. Image courtesy of patrisyu / FreeDigitalPhotos.net

Google will soon be labeling websites “mobile-friendly” if they meet certain web-accessibility standards. The purpose of the new label is to help prevent frustration among mobile searchers, who are growing tired of visiting sites with too-small text, difficult-to-tap links, or sites that have to be scrolled sideways to view all the content.

Google started adding the “mobile-friendly” label to its mobile search results last week. To earn the label, Google says a site must meet the following criteria:

• Software that is not easily viewed on mobile devices (such as Flash) is avoided.
• The text is readable without the visitor having to zoom in.
• The site automatically sizes the content to fit the screen, so that visitors don’t have to scroll across or zoom to view the page’s contents.
• Links are far enough apart so visitors can tap them with ease.

To find out how mobile-friendly your site is, Google offers a Mobile-Friendly Test. You can plug in your URL and you’ll receive a report on how mobile-friendly the page is. This criteria could later be used to determine where your site falls in search results.

“We see these labels as a first step in helping mobile users to have a better mobile web experience,” Google writes in a statement announcing the new labels. “We are also experimenting with using the mobile-friendly criteria as a ranking signal.”

Source: Google

A More Efficient Home This Thanksgiving

A More Efficient Home This Thanksgiving. Image courtesy of Danilo Rizzuti / FreeDigitalPhotos.net

Consumer home ownership site HouseLogic has a whole list of ways you and your clients can avoid gobbling up more energy than necessary this Thanksgiving. They’ve mapped out ways to save on energy before Turkey day as well as during the cooking and cleanup processes. Keep these tips in mind, and consider sending them to homeowners and clients who are concerned about the high energy costs of entertaining.

Before:

• Install a dimmer switches. Every time you dim a bulb’s brightness by 10 percent, you’ll double its lifespan.
• Plan side dishes that can cook simultaneously with the turkey. If you cook dishes at the same temperature at the same time, you’ll reduce the amount of time the oven has to be running.

During cook-time:

• The oven will keep your home cozy, so you can lower your house thermostat a few degrees.
• If you use your oven’s convection feature, you’ll reduce the required temperature and cooking time and cut your energy use by about 20 percent.
• Use microwaves and slow cookers whenever possible, as they both use less energy than ovens overall.

After the meal:

• Scrape plates instead of rinsing. Then, use your dishwasher (on the air-dry setting) on whatever dishes you can, as it saves both energy and water.
• Compost your non-meat food waste.

HouseLogic doesn’t just dole out energy tips; they also have a separate piece all about how to clean up after Thanksgiving in half the time. Cheers!

Source: “9 Ways to Avoid Gobbling Up Energy on Thanksgiving,” HouseLogic (Nov. 12, 2012)

Smaller Homes Mean More First-Time Buyers

Smaller Homes Mean More First-Time Buyers. Image courtesy of Ambro / FreeDigitalPhotos.net

The size of the typical home is shrinking, which may be a sign that a wider array of buyers, including first-timers, are returning to the market. The median size of a single-family home has decreased for the past two consecutive quarters, and it will likely continue to go down as more first-time buyers look to purchase, according to the National Association of Home Builders.

The median size of a single-family home dropped 2.3 percent in the third quarter over the previous quarter, falling from 2,472 square feet to 2,414. That marks the smallest size since the fourth quarter of 2012.

Home sizes were on the rise coming out of the recession, mostly due to a surge in the luxury market, NAHB notes.

“Typical home size falls prior to and during a recession as some home buyers cut back, and then sizes rise as high-end home buyers — who face fewer credit constraints — return to the housing market in relatively greater proportions,” NAHB notes on its blog, Eye on Housing. “This pattern has been exacerbated in the last two years due to market weakness among first-time home buyers.”

But the decline in square footage now indicates that entry-level buyers are on their way back.

The latest drop in the median home size “doesn’t reflect changes in preferences, necessarily. It reflects who’s buying new single-family homes,” Robert Dietz, an economist with NAHB, told The Wall Street Journal.

Indeed, building giant D.R. Horton Inc. posted a 38 percent surge in sales orders in the fourth quarter, attributing most of those gains to its new Express brand homes that are priced at $200,000 or less.

“I do know that bigger houses are not as in-demand as smaller houses unless you’re in a community where you’ve tapped into a niche,” notes Brian Johnston, COO of Mattamy Homes, a Canadian builder that operates in four U.S. states. “We would definitely be seeing more affordable product as the trend line.”

Source: “Single-Family Home Size Leveling Off as Market Recovers,” National Association of Home Builders’ Eye on Housing Blog (Nov. 19, 2014) and “Could the Decline in Median New-Home Size Herald Return of Entry-Level Buyers?” The Wall Street Journal (Nov. 19, 2014)

Mom, Dad Are Moving in …

Mom, Dad Are Moving in … Image courtesy of stockimages / FreeDigitalPhotos.net

Many reports have centered on the upswing in adult millennial children moving in with their parents. But as these young professionals finally move out and form their own households, they may find that their baby boomer parents may soon coming knocking with moving bags in hand.

The American Institute of Architects found that dedicated guest rooms, including in-law suites, have been surging in popularity over the last few years. In 2014, 39 percent of the AIA’s more than 500 residential architects surveyed said they were seeing more demand for in-law suites, which might include a second master bedroom suite with a bathroom or an attached apartment-like structure. By comparison, in 2012, the percentage stood at only 10 percent.

“As many households become caretakers for aging relatives, separate living suites have become popular options for accommodations,” says Kermit Baker, chief economist for the AIA.

The AIA also says that home features accommodating multiple generations and age-in-place features are growing in demand.

Six percent of U.S.-born seniors live with relatives, and the trend is even more popular among immigrants. Twenty-five percent of foreign-born seniors live with relatives, according to a survey conducted by the real estate site Trulia.

Source: “More Parents Move in with Their Kids,” MarketWatch (Nov. 18, 2014)

5 Real Estate Predictions for 2015

5 Real Estate Predictions for 2015. Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Expect the home-purchase market to strengthen along with the economy in 2015, according to Freddie Mac’s U.S. Economic and Housing Market Outlook for November.

“The good news for 2015 is that the U.S. economy appears well-poised to sustain about a 3 percent growth rate in 2015 — only the second year in the past decade with growth at that pace or better,” says Frank Nothaft, Freddie Mac’s chief economist. “Governmental fiscal drag has turned into fiscal stimulus; lower energy costs support consumer spending and business investment; further easing of credit conditions for business and real estate lending support commerce and development; and consumers are more upbeat and businesses are more confident, all of which portend faster economic growth in 2015. And with that, the economy will produce more and better-paying jobs, providing the financial wherewithal to support household formations and housing activity.”

Freddie Mac economists have made the following projections in housing for the new year:

1. Mortgage rates: Interest rates will likely be on the rise next year. In recent weeks, the 30-year fixed-rate mortgage has dipped below 4 percent. But by next year, Freddie projects mortgage rates to average 4.6 percent and inch up to 5 percent by the end of the year.
2. Home prices: By the time 2014 wraps up, home appreciation will likely have slowed to 4.5 percent this year from 9.3 percent last year. Appreciation is expected to drop further to an average 3 percent in 2015. “Continued house-price appreciation and rising mortgage rates will dampen affordability for home buyers,” according to Freddie economists. “Historically speaking, that’s moving from ‘very high’ levels of affordability to ‘high’ levels of affordability.”
3. Housing starts: Homebuilding is expected to ramp up in the new year, projected to rise by 20 percent from this year. That will likely help total home sales to climb by about 5 percent, reaching the best sales pace in eight years.
4. Single-family originations: Mortgage originations of single-family homes will likely slip by an additional 8 percent, which can be attributed to a steep drop in refinancing volume. Refinancings are expected to make up only 23 percent of originations in 2015; they had been making up more than half in recent years.
5. Multi-family mortgage originations: Mortgage originations for the multi-family sector have surged about 60 percent between 2011 and 2014. Increases are expected to continue in 2015, projected to rise about 14 percent.

Source: Freddie Mac

Credit Unions Step in to Fill Lending Void

Credit Unions Step in to Fill Lending Void. Image courtesy of Stuart Miles / FreeDigitalPhotos.net

The number of mortgage originations issued from credit unions in the first half of 2014 has climbed 10 percent year-over-year. This has elevated credit unions to having more than 8 percent share of the home loan market—about triple their share prior to the recession—making them a growing option for home buyers looking for financing, according to data from the Credit Union National Association.

In June, the nation’s 6,557 credit unions surpassed 100 million members (you still have to be a member of one to get a loan, but many credit unions are tied to employment, trades, religious groups, or specific communities). Nearly two-thirds of credit unions offer mortgages.

“We’ve seen a very strong increase in originations over the course of the last several years,” Mike Schenk, vice president of economics and research at CUNA, told the Los Angeles Times.

Mortgages comprise about 41 percent of all credit union loans compared to 25 percent in 2000. The average loan amount at a credit union is $130,000, and 70 percent of the loans offered are for 30-year fixed-rate mortgages. But many credit unions do offer different financing options for members. For example, Pentagon Federal, with 1.3 million members nationwide, introduced a 15/15 adjustable mortgage, where rates reset only once at the midterm mark to reflect the current market rate. Also, the National Institutes of Health Federal CU offers the five-year fixed-rate mortgage, dubbed the “see ya” loan, which allows home owners to refinance and coordinate it to a time of a special event, such as retirement or when the children go to college, in order to end their mortgage payments by that time.

Credit unions don’t typically charge cheaper interest rates, but they “tend not to tack on a bunch of superfluous fees that other lenders seem to love,” the Los Angeles Times notes in a recent article. “And because they are local and member-controlled, they are more likely to consider applicants with a story to tell than some underwriter five states over who is forced to stick to standard guidelines.”

Source: “Shopping for a Loan? Credit Unions Can be Consumer-Friendly Option,” Los Angeles Times (Nov. 9, 2014)

Mortgage Rates Still Near Yearly Lows

Mortgage Rates Still Near Yearly Lows. Image courtesy of cooldesign / FreeDigitalPhotos.net

The 30-year fixed-rate mortgage is hovering around 4 percent. This has been keeping borrowing costs low for refinances and home buyers for the last few weeks, Freddie Mac reports in its weekly mortgage market survey.

Freddie Mac reported the following national averages for mortgage rates for the week ending Nov. 13:

• 30-year fixed-rate mortgages averaged 4.01 percent, with an average 0.5 point, dropping from last week’s 4.02 percent. A year ago, 30-year rates averaged 4.35 percent.
• 15-year fixed-rate mortgages averaged 3.2 percent, with an average 0.5 point, dropping from last week’s 3.21 percent average. Last year at this time, 15-year rates averaged 3.35 percent.
• 5-year hybrid adjustable-rate mortgages averaged 3.02 percent, with an average 0.5. point, rising from last week’s 2.97 percent average. A year ago, 5-year ARMs averaged 3.01 percent.
• 1-year ARMs averaged 2.43 percent, with an average 0.4 point, dropping from last week’s 2.45 percent average. Last year at this time, 1-year ARMs averaged 2.61 percent.

Source: Freddie Mac