Economy Heats Up

Affordability is expected to take a hit next year as home prices and interest rates continue to head up.

The upbeat real estate market news we received in 2013 presents some challenges for the year ahead. An influx of buyers last year helped strengthen housing appreciation, which in turn led to greatly improved consumer confidence. The result was 5.1 million home sales, the best year for real estate purchases since 2007.

But 2014 will be different, with sales volume gains expected to be small at best, because of rising interest rates and home prices, NAR Chief Economist Lawrence Yun says. But there's an upside, too: the continued growth in the economy, which, while modest, has stayed on track. The resulting addition of more than 2 million jobs each year should provide a boost to housing markets. On the commercial side, rising rent growth and declining vacancy rates bode well for the office, industrial, retail, and multifamily sectors.

Yun says lenders could promote stable markets next year as they look to purchase-money mortgage loans as their next big growth area to compensate for a shrinking body of business from refinances, which will drastically fall as interest rates rise.

Written by Robert Freedman @ Realtor Magazine

Home prices show signs of topping out

Home prices are showing signs of topping out: The S&P/Case-Shiller index posted its first month-over-month decline in 10 months on Tuesday.

The annual measure of home prices still increased 13.7% in November, but that was only narrowly better than the rise posted in October.

The housing recovery was one of the stronger aspects of the economy last year, boosting household wealth and home construction.

But with mortgage rates climbing steadily since hitting record lows in May, it's clear the housing recovery is starting to lose some steam.

"While housing will make further contributions to the economy in 2014, the pace of price gains is likely to slow during the year," said David Blitzer, chairman of the index committee at S&P Dow Jones Indices.

But housing experts say that more modest price increases are probably a good thing for the housing market. The rapid increases of the last year are not sustainable, they said.

"Sellers used to seeing huge price gains month after month may feel some whiplash as that slows down," said Stan Humphries, chief economist for sales tracker Zillow. But more modest price increases mean "the housing market is still a long way from normal, but it's getting there."

The Case-Shiller index chronicles prices across the nation's 20 largest metropolitan areas. Fourteen of those markets posted double-digit percentage gains over the last year, but only nine posted any month-over-month gain.

The improvement in housing was driven by pent-up demand for home purchases, combined with lower unemployment and a drop in foreclosures. Mortgage rates have been climbing steadily of late but remain low by historical standards, making housing prices far more affordable than they were at the height of the bubble last decade.

National prices are still nearly 20% below peak levels reached in mid-2006, according to Case-Shiller.

Written by Chris Isidore @CNNMoney

Finding ways to help young adults make their first home purchases

Tough new underwriting standards stand in the way of many potential buyers in their 20s and 30s, but growing numbers of friends and relatives are stepping in to help.

Parents, grandparents and young adults know the problem only too well: Heavy student-debt loads, persistent employment troubles stemming from the recession, plus newly toughened mortgage underwriting standards are all standing in the way of vast numbers of potential first-time home buyers in their 20s and 30s.

But are there effective techniques that family members, friends, even employers can use to bridge the generational gap by offering a helping hand - without hurting their own finances in the process? You bet.

First, some sobering numbers:

•Citing Census Bureau data on homeownership by age, demographer Chris Porter of John Burns Real Estate Consulting calculates that Americans who were 30 to 34 in 2012 - those born between 1978 and 1982 - had the lowest homeownership rate of any similarly aged group in recent decades, 47.9%. By contrast, Americans born between 1948 and 1957 had a 57.1% ownership rate by the time they hit the 30 to 34 bracket. This is despite record low mortgage rates and bumper crops of bargain-priced foreclosures and short sales.

•Debt-payment-to-income ratios increasingly are mortgage application killers for would-be first-timers. Adoption nationwide last month of a new federal 43% maximum debt-to-income ratio for "qualified mortgages" is particularly poorly timed for young buyers. Because of large student debts, which average $21,402 but sometimes balloon into six figures, they may not be able to meet the 43% standard for years.

Typically they're already paying out large amounts on credit cards, auto loans or leases and their student debt - about 30% of current monthly income for those ages 21 to 30 as of 2012, according to a new research report from research economist Gay Cororaton of the National Assn. of Realtors. Factoring in the monthly cost of a typical mortgage for an entry-level purchase, the debt-to-income ratio as of 2012 for these individuals exceeded 60%, Cororaton estimates. Even with a 5% increase in income per year, they will not be able to qualify under the 43% debt-to-income test until 2019.

That's a long time to postpone a purchase. Yet consumer research consistently finds that the overwhelming majority of Americans in their 20s and 30s would like to own a home, once they're able to put together the financial pieces to make it feasible.

So what are some of the solutions available to help bridge the gap? The most popular is also the oldest: Growing numbers of relatives are stepping in with gift money to help defray the down payment and closing costs - 27% of first-time buyers last year, according to one industry estimate.

Down payment gifts do not address the crucial debt-to-income ratio problem, but for young buyers who can get close to the 43% mark for conventional loans (Fannie Mae and Freddie Mac) or slightly higher at the more flexible FHA or VA, they can be extremely important.

Rules on gifts vary among funding sources, but there are some shared basics: The money cannot be disguised as a gift if it is actually a loan; there needs to be a formal gift letter that spells out the purpose of the gift and the specific transaction for which it is to be used; and the source of the funds and the capacity of the gift giver to provide the money need to be documented. For down-payment help outside the family tree, check out http://www.downpaymentresource.com.

But an increasingly important and fast-growing resource is turning the gift concept on its head: Rather than simply handing over their cash with no repayment arrangements, family members are becoming mini-lenders themselves.

With a little professional assistance, they are providing either second mortgages or first mortgages that are custom-designed to deal with whatever financial hurdles - including paying off student loans to reduce debt-to-income ratios - their young relatives are confronting. Properly structured, these loans provide annual returns to family members well in excess of money-market funds or bank deposits, and open the door to homeownership for their kin.

The largest player in the field, National Family Mortgage (www.nationalfamilymortgage.com), has structured and serviced more than $155 million of intra-family transactions in the last two years and is on track, according to founder and Chief Executive Tim Burke, to do $150 million in volume during 2014.

"There is a lot going on" in this field that can help entry-level buyers strapped with student-loan debt, Burke says.

Written By Kenneth R. Harney

New mortgage lending rules that aim to put an end to the worst mortgage lending abuses of the past.

The new rules are designed to take a "back to basics" approach to mortgage lending and lower the risk of defaults and foreclosures among borrowers, according to the Consumer Financial Protection Bureau, which issued the new rules.

"No debt traps. No surprises. No runarounds. These are bedrock concepts backed by our new common-sense rules, which take effect today," said CFPB director Richard Cordray in remarks prepared for a hearing Friday.

Mortgage lenders are being asked to comply with two new requirements: The Ability to Repay rule and Qualified Mortgages. Here's how they will impact borrowers:

Ability to Repay

• Lenders must determine that a borrower has the income and assets to afford to make payments throughout the life of the loan. To do so, the lender may look at your debt-to-income ratio, which is how much you owe divided by how much you earn per month, including the highest mortgage payments you would be required to make under the terms of the loan. To calculate your debt-to-income ratio, add up all your monthly obligations -- including student loan, credit card and car payments, housing costs, utilities and other recurring expenses -- and divide it by your monthly gross income.
• In an effort to put an end to no- or low-doc loans, where lenders issue risky mortgages without the necessary financial information, lenders will be required to document and verify an applicant's income, assets, credit history and debt. For borrowers, that means more paperwork and longer processing times.
• Underwriters must also approve mortgages based on the maximum monthly charges you face, not just low "teaser rates" that last only a matter of months, or a year or two, before resetting higher.

Qualified Mortgages

• To make sure you aren't taking on more house than you can afford, your debt-to-income ratio generally must be below 43%. This rule is not absolute. Banks can still make loans to people with debt-to-income ratios that are greater than that if other factors, such as a high level of assets, justify the risk.
• Qualified mortgages cannot include risky features, such as terms longer than 30 years, interest-only payments or minimum payments that don't keep up with interest so your mortgage balance grows.
• Upfront fees and charges cannot add up to more than 3% of the mortgage balance. That includes title insurance, origination fees and points paid to lower mortgage interest rates.

The rules also restrict "steering," or practices that give financial incentives to loan officers or mortgage brokers for pushing people into higher-interest loans that they can't afford -- a practice that was all too common leading up to the housing bust, Cordray said.

"We think the new rules are balanced and well-drawn. They will offer consumers protection without limiting credit to qualified borrowers," said Gary Kalman, the policy director for the Center for Responsible Lending.

Lenders don't seem to be too worried about the new rules, according to Keith Gumbinger of HSH.com, a mortgage information provider. "It's no surprise; everybody has been preparing for the change for months," he said. "Because there will be additional underwriting scrutiny, it could gum up the works initially and slow loan processing, but it's really just the codification of things that are already in place."

A significant factor is what's not in the rules. There's no minimum down payment or credit score requirement.

"[The qualifed mortgage] is not taking a one-size-fits-all approach. It ensures that first time homebuyers can still come to the table," said Kalman.

If the rules required a minimum down payment of, say 10% or 20%, it would eliminate many first time buyers who would have a difficult time raising that much cash.

The lack of a credit score requirement will enable lenders to loosen currently tight underwriting standards in the future should conditions warrant, according to Gumbinger. For the moment, most loans will still have to be backed by Fannie Mae and Freddie Mac, and, with a few exceptions, they won't approve applicants with scores below 620.

Written by Les Christie @ CNNMoney

Ways to discourage home break-ins

The idea of a home break-in can be unsettling. Here are some preventative measures that may spare your home an uninvited guest.

1. Get an alarm system. In order for home security systems to actually work, they must be turned on! If you are unable to afford an alarm system, consider home alarm stickers for your windows and signs for your yard.
2. Lock your windows and doors. This may be obvious, but it is important to secure your home by utilizing locks. Also, don't leave your garage door open.
3. Don't advertise you're not at home. Arrange for mail to be held at the post office and cancel your paper delivery.
4. Install motion sensors. Lights that are triggered by movement may deter an intruder who is lurking around outside.
5. Get to know your neighbors. Alert neighbors to be vigilant when you're out of town.
6. Set your timers. Lights should be on a timer, so your home is well lit even if you're not there.
7. Trim shrubs and trees around your home. Any overgrown brush provides a place for an intruder to hide.
8. Don't have valuables in plain sight. A purse on a kitchen counter or a nice watch on the coffee table can be very tempting to an intruder.

Southern California home prices soar but sales tumble in December

Southern California home prices posted a sizable pop in December, bucking a months-long cooling trend.

The median sales price across the six-county region reached $395,000 last month, a 2.6% gain from November and 22.3% over the year, DataQuick said Tuesday. It was the first significant month-over-month increase since June, a rise the research firm attributed to fewer distressed sales and demand that has outstripped supply.

Sales tumbled 9.2% over the year and rose less than normal from November, evidence of the constrained inventory available for home seekers. Buyers scooped up 18,415 new and resale houses and condos last month, the lowest level in six years.
 

"Sales have fallen short of the same period a year earlier for three consecutive months now, and the pitifully low inventory is the main culprit," DataQuick President John Walsh said in a statement. "The jump in home values over the last year suggests we'll eventually see a lot more people interested in selling their homes, which would help ease the inventory crunch."

The December data cap a whirlwind year for Southern California real estate.  Home prices rose swiftly though the first half of the year, as investors and families battled over a meager supply of homes for sale. Bidding wars proliferated amid record-low mortgage rates and some experts raised concerns a bubble could form.

The market cooled through the summer and beyond, a slowdown caused by waning demand amid affordability constraints and a typical seasonal pullback, experts said. Home listings also expanded in the summer in many markets, although inventory remained tight.

It's unclear if December's strong price gains foreshadow a renewed price surge and the spring home buying season will provide a better look into the market's health. Most experts predict tamer price appreciation this year than last, in part because of higher mortgages rates.
 

Investor activity continued to fall in December, although it remains elevated. Absentee buyers, mostly investors, purchased 26.2% of all homes sold last month - the lowest level since November 2011.

More homes also sold in mid-to-high cost neighborhoods, driving the median price up, DataQuick said. The median is influenced not only by a rise in values but also a change in the mix of homes selling at any moment; it is the point at which half the homes sold for more and half for less.

Last month, the number of homes that sold for $500,000 or more rose 11.9% from a year earlier. Sales of lower cost homes went the other direction, plunging as inventory in those neighborhoods remains tight.
 

Many homeowners there owe more on their mortgage than their house is worth, limiting their ability to sell. Furthermore, investors have scooped up many homes in relatively affordable communities to flip or rent out.
 

Written by Andrew Khouri LA Times

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