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Monthly Archives: April 2016

How credit-challenged buyers can afford a home

For years after the collapse of the housing market, many buyers were reluctant to seek opportunities for homeownership. Yet a significant percentage of those pushed out of the market were those that may have already been homeowners whose properties were foreclosed upon.

Foreclosure and other adverse events can have a big impact on your credit score — which in turn affects your eligibility for home financing. For those with bad credit, or no credit at all, reticence is to be expected.

"There are two roadblocks that most would-be buyers think they face," says Malcolm Hollensteiner, director of retail lending for TD Bank in McLean, speaking to the Washington Post. "The first obstacle is down payment accumulation. The second is purely psychological: the fear that they cannot qualify for a loan. There are fantastic opportunities that people are not aware of to reduce your need for cash and to obtain a loan approval."

How credit-challenged buyers can afford a home

For years after the collapse of the housing market, many buyers were reluctant to seek opportunities for homeownership. Yet a significant percentage of those pushed out of the market were those that may have already been homeowners whose properties were foreclosed upon.

"For those with bad credit, or no credit at all, reticence is to be expected."

Foreclosure and other adverse events can have a big impact on your credit score — which in turn affects your eligibility for home financing. For those with bad credit, or no credit at all, reticence is to be expected.

"There are two roadblocks that most would-be buyers think they face," says Malcolm Hollensteiner, director of retail lending for TD Bank in McLean, speaking to the Washington Post. "The first obstacle is down payment accumulation. The second is purely psychological: the fear that they cannot qualify for a loan. There are fantastic opportunities that people are not aware of to reduce your need for cash and to obtain a loan approval."

According to Credit.com, when evaluating a credit score, it breaks down categorically as:

  • Excellent: 750+
  • Good: 700-749
  • Fair: 650-699
  • Poor: 600-649
  • Bad: below 600

For these credit-challenged buyers, many lenders offer a variety of options that can help them overcome the barriers to entry. Here are just a few of the ways that the credit-challenged can afford homes:

Millennials are Discouraged by the Homeownership Process, but There is No Need to Hide.

On April 18, 2016, Business Insider reported that rental prices in major markets, including San Francisco, had finally begun to drop. But let’s face it—the sub $1,000 one-bedroom apartment in major markets is now merely a story for millennials to tell their grandkids.

For those thinking about becoming a first-time homeowner, the long-term benefits of home ownership make more sense on paper than renting. However, to a renter who already has a full-time job to worry about, the idea of mailing a check once each month can sound far less stressful than worrying about a down payment, private mortgage insurance, and closing costs, among many, many other things.

One constant formula used in the housing industry states that the less daunting home ownership feels, the more likely renters will become homeowners. Even amid increased regulation, private lenders have been working for years to make home ownership comprehensible, simplifying the process with state-by-state training and testing requirements that ensure loan officers are able to handle a wide index of scenarios. With top lenders, it is even common for borrowers to have their loan officer’s cell phone number.

Although borrowers who take advantage of these highly skilled loan officers are never alone in the home buying process, it is critical for first-time homeowners to go into this process with an understanding of some of the unique aspects and costs that go into a mortgage. Here are the most important ones:

Lack of housing supply causing market to heat up

As part of the aftershocks of the housing crisis, many potential homeowners became more financially conservative and held off on purchasing homes. This created a domino effect where homebuilding fell sharply when faced with limited demand. 

"Falling percentages for construction of new homes have left supply greatly diminished."

Since the recovery of the market, financing has become much more readily available and buyers have once again been been looking to settle down and purchase homes of their own. Yet following their return, many have encountered slim prospects: Falling double-digit percentages for construction of new homes as late as October 2015 have left supply greatly diminished. 

Market Preview: All Quiet on the Mortgage Front

Rates held steady last week. This means we are still regularly seeing the same low quotes on the 30-year fixed-rate loan that we’ve been seeing. Rates continue to hold near a three-year low. 

The rate drop that occurred last month continues to spur demand. The Mortgage Bankers Association reports refinances rose 11% last week compared to the previous week. Purchase applications were up 8% week over week. This was the second-most active week since May 2010.

Such high activity may be in response to pressure building for rates to rise. Commodity prices are again trending higher.  Oil, the most valued commodity of them all, is up 17% so far in April. Gold continues to hover near a 52-week high. Rising commodities prices could be a sign of accelerating consumer-price inflation. 

Rising oil prices are also impacting stock prices. The S&P 500 Stock Market Index is up 3% over the past 30 days. The index is approaching its all-time high.  Oil stocks, which comprise roughly 9% of the S&P’s value, could propel the index even higher. If stocks and commodities continue to rise, and if economic activity continues to generate 200,000 new jobs each month, talk of Federal Reserve interest-rate hikes will also rise. Then you can be sure interest rates will rise too.

Why are homeowners not refinancing right now?

For homeowners wondering when to refinance, the current combination of low interest rates and unparalleled access to financing means that that the time is now. Nearly 7 million American homeowners could be eligible for a refinance in 2016, with a collective $20 billion annually on the line in potential savings — an average of $3,000 per year, per home.

"The push to refinance has become much more pressing."

This push to refinance has become much more pressing. A recent Fannie Mae's National Housing Survey reveals that the majority of homeowners believe that interest rates have gone as low as they can and are poised to rise: 55 percent believe mortgage rates will be higher 12 months from now, while 40 percent think rates will remain roughly the same.

With this sentiment, it's all the more baffling that the growing population of homeowners who could be saving money on their mortgages have not taken the steps to do so. Some, like Ben Graboske, Black Knight Data & Analytics senior vice president, attribute this to the perceived difficulty of refinancing, apprehension over closing costs or simply being unaware of the possible savings.

Why Sellers Should List Their Homes Now

Selling a home isn’t much different than playing the stock market. There is big money to make—and big money to miss out on. Right now, tax returns are coming in, inventory is low, home prices are high, and while nothing is guaranteed, the risk seems to be just right for homeowners to make their move and sell.

Here’s why:

Home Prices Home prices keep climbing, and American homeowners’ level of equity is at an all-time high. According to CoreLogic, 89 percent of homes with a mortgage ended 2014 with positive equity. Homeowners with positive equity don’t just make great sellers, they also make even better buyers: Homeowners who can place a 20 percent down payment keep PMI low. However, prices have been outpacing wage growth for many years. Buyers can only stomach so much more until prices flatten out. According to CoreLogic, home prices rose 6.9 percent year over year in 2015. They are projected to increase by 5.5 percent in 2016 and by less in 2017.

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Inventory It is human nature to wonder how far one can drive with the meter on E, and many homeowners are similarly riding the wave of price increases as long as they can, freezing inventory in the meantime. This mindset is especially prevalent in booming markets such as San Francisco, Denver, and Seattle. It’s also common in desirable neighborhoods of moderate-growth cities, including Philadelphia, Chicago, and Baltimore, where bidding wars have become common. Homeowners are also freezing inventory in areas that were especially rocked by the recession, such as Las Vegas and Phoenix, where prices haven’t returned and may never return to pre-recession levels. So why is there a dearth of sellers? This is where mortgage rates come into play. Millions of homeowners are locked into some of the lowest rates in history. That isn’t compelling anyone to sell. Then there is the simple fact that in a time of low inventory, homeowners know they may have to buy as high as they sell.

Single-Family Rental Homes Why are there not enough homes on the market? Here is one reason that often remains overlooked. There are 90 million single-family homes in the United States, and the stock of rentals for such houses jumped 33 percent to 12 million in 2013 from 9 million in 2006, according to the US Census Bureau. Hedge funds and specialty real estate investment trusts bought up distressed properties in the wake of the foreclosure crisis. Many of these investors continue to buy up property today, depleting supply. “It is the reason the housing market is tight, and these properties are likely to remain rentals for a long time,” said Frank Nothaft, chief economist at CoreLogic.

 Construction Loans Why can’t builders solve the inventory problem? This seems like economics 101, but builders are still having trouble getting construction loans.“Builders that rely on community banks for financing are still having difficulty getting construction loans,” says Lawrence Yun, chief economist of the National Association of Realtors. “And builders that can obtain financing are having a hard time finding skilled construction workers.” Home builder economists are predicting single-family housing starts will jump to 875,000 in 2016, up 22 percent from 2015.

Selling a home is no easy decision. Will mortgage rates rise and stifle demand? Will builders fail to increase supply, driving prices up further? Will the economy take a surprise tumble, taking home prices down with it? Although there are many unknowns in the real estate market today, it’s clear that now is an excellent time to sell.

Home flipping hits (and exceeds) 10-year peak 

Study reveals majority of homeowners underestimate their home equity

 

 

Home flipping hits (and exceeds) 10-year peak

With home prices rising and lenders less tentative about offering attractive financing options and home improvement loans, home flipping — buying, renovating and reselling a home within 12 months— has taken off. According to RealtyTrac, 2015 saw nearly 180,000 homes and condos flipped, increasing in nearly two-thirds of U.S. markets. This exceeds peaks set in 2005, from before the recession and housing crisis.  

"Not only did the number of homes flipped increase, but the amount made on flips went up as well."

"As confidence in the housing recovery spreads, more real estate investors and would-be real estate investors are hopping on the home flipping bandwagon," said Daren Blomquist, senior vice president at RealtyTrac, speaking to CNBC. "Not only is the share of home flips on the rise again, but we also see the flipping trend trickling down to smaller investors who are completing fewer flips per year." 

Study reveals majority of homeowners underestimate their home equity

According to a recent loanDepot study, most homeowners are unaware of the equity held in their home, with the vast majority underestimating what their property is really worth. With diminished expectations and the sting left from the housing crash, nearly 80 percent of homeowners underestimate how much their home value has increased since the economic recovery began. 

"Nearly 80 percent of homeowners underestimate how much their home value has increased."

"Homeowners who bought during the housing boom are regaining equity many thought was lost forever, yet too many are not aware of the equity they have gained or they are unclear about how to determine changes in their equity," said Bryan Sullivan, chief financial officer at loanDepot. "People who bought after the housing boom when prices were low are realizing homeownership can be a great investment and an asset that they can now leverage through equity to realize many dreams."

Market Preview: A Strange Market Indeed

Last week, the Federal Reserve Bank of Atlanta cut its gross domestic product (GDP) growth estimate. The Atlanta Fed had expected the economy to grow 1.4% (when annualized) for the first-quarter 2016.  Now, on second thought, the Atlanta Fed believes 0.6% growth is more like it. 

Despite payrolls being up 215,000 in March, Janet Yellen has called a time-out on further fed funds rate increases. The yield on the 10-year U.S. Treasury note has dropped to 1.75% from 1.95% two weeks earlier. 

The yield on the 10-year Treasury note is indicative of the direction of long-term rates. The yield on the 10-year note is down, and so is the rate quoted on the 30-year fixed-rate mortgage.  Mortgage rates are at a six-week low, which is close to a three-year low.

The good news is that we continue to see decent loan demand, particularly from first-time buyers.  The bad news is that prices on the homes first-time buyers demand continue to appreciate at an out-of-reach pace. That’s economics in a nutshell: For good or bad, low supply plus high demand nearly always equals higher prices.