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Monthly Archives: May 2016

The Market Preview: April new home sales obliterate projections

HOUSING: THE NEW GROWTH MARKET

Things are shaping up nicely as we head into summer.

Sales of existing homes once again ratcheted a notch higher. For April, sales rose 1.7% to 5.45 million units on an annualized rate. The sales trend shows that monthly sales are occurring at the highs that were posted last fall.

We’re seeing more sales, but we’re not seeing more discounting. To the contrary, the median price of an existing home rose 5% to $232,500 for April. Year over year, the median price is up 6.3%. The fact that we are seeing more sales while prices hold firm bodes well for sales as we head into summer.

As for new-home sale numbers, our initial response was ‘WOW.’ April new-home sales posted at 619,000 units on an annualized rate. That’s a 16.6% monthly increase – the highest monthly increase in 24 years. April’s numbers blew out all other monthly numbers since the housing recovery took hold a few years ago.

This latest round of housing and lending data support a contention that we’ve had all along. Entering January, we predicted that 2016 could be the strongest year for home sales and lending that we’ve seen in over decade. Our prediction is looking more likely to come to fruition.

The rise of tiny homes

With limited supply and home prices steadily climbing, across the country there is a small yet growing movement: tiny homes. These living spaces have, on average, a footprint of less than 200 square foot - nearly a tenth of the size of a standard home. And while social media would have you believe that these miniature houses are all cute design and efficient living, the truth is that tiny homes come with their fair share of challenges in addition to the benefits. 

"Tiny homes come with their fair share of challenges." 

 

Perks and drawbacks
One of the elements that makes tiny homes so appealing is their price. These homes are significantly more affordable than a standard property, often costing as little as a down payment on a traditional home. Starting at under $10,000, they can be ordered from builders and basically arrive pre-assembled on your doorstep. 

"A lot of people come to the tiny house movement because of finances," Ryan Mitchell, planner of a tiny home-themed conference in Asheville, NC, told CNBC's "On the Money" in an interview. "They are looking to get out of the rat race, to get out of debt, things like that and it seems like a lot of people stay because of the lifestyle."

Since the houses are constructed on trailer platforms, they can essentially be considered mobile homes, often circumventing some of the more limiting building codes in a particular municipality. Yet for the perceived affordably and convenience, the homes do offer some serious drawbacks.

Home sellers turning to smart tech to attract buyers

While limited home supply has helped drive up interest in homebuying, the truth is that some homes are more desirable than others. To help their listings rise to the top, some home sellers are converting their properties into smart homes via the judicious application of technology. 

"Simple technological additions create a distinct and appealing listing." 

 

Smart homes represent the harmonious collaboration of high tech gadgets with unobtrusive design, all creating a thoroughly modern living experience. According to a Coldwell Banker Harris Poll, nearly half of Americans either already use smart technology in their home, or plan to do so in the next year. Most interestingly, the technology is largely seen as a foregone conclusion: The same study showed that 36 percent of those using smart tech do not consider themselves to be early-adopters.

Simple technological additions can turn a slow moving, antiquated listing into something distinct and appealing. And buyers - particularly millennial buyers looking for their first homes - are taking notice. 

Market Preview: Housing Holds Steady

HOUSING HOLDS STEADY

We’ve seen a jump on the prime selling season. Existing home sales were up strongly in March and the momentum is expected to hold in April.

As for new homes, sales growth has been respectable, but not spectacular. Home builder optimism, has plateaued at 58 percent for May. This is the fourth-consecutive month the index has posted at 58. This isn’t bad, but builders aren’t quite as optimistic as they were six months ago. Buyer traffic remains an issue; builders don’t see enough of it. The dearth of first-time buyers remains a drag on overall traffic growth.

Despite sentiment plateauing, home builders are still willing to move ahead. Housing starts and permits trended higher in April. Starts rose 6.6% to 1.172 million units on an annualized rate. Permits rose 3.6% to 1.116 million units. Year over year, though, starts and permits are both down, with starts falling 1.7% and permits falling 7.2%.

Keep in mind that starts have historically averaged 1.5 million units annually.

Job growth – particularly in the private sector – is the greater concern, though. Last month, new jobs posted well under 200,000. A couple more months of sub-200,000 job growth and we might have to ratchet down our expectations for home sales and purchase mortgage lending.

When an FHA loan can be stronger than a conventional loan

Following the housing crisis and the clampdown on subprime lending, many prospective buyers found themselves wondering how they might ever afford a home. Even with a rapidly rebounding economy, those with weak credit scores and limited funds to put toward a down payment may have felt underserved or hopeless.

For many, relief came in the form of an FHA loan. These government-insured mortgage programs offer relaxed standards and faster turnaround times for buyers. But the question remains: Even if you can qualify for a conventional loan, when does it make sense to opt for an FHA mortgage? Here are a few situational incentives that might make an FHA loan right for you:

"When does it make sense to opt for an FHA loan?"

If you have a lower credit score
One of the biggest advantages of an FHA loan is that the credit requirements are more flexible. Conventional loans have a traditional credit score requirement cutoff of around 620, while an FHA loan has a cutoff of around 580.

Fannie Mae predicts positive 2016 outcome, only one rate hike

In a revised take on its projections for 2016, Fannie Mae is now predicting a much sunnier outcome than previously hoped. Economists at the mortgage giant had originally expected three Fed rate hikes in 2016, but this has been modified to only anticipate one hike. 

"Economists had originally expected three Fed rate hikes, but now only predict one."

While Fed rate hikes do not have a direct impact on mortgage interest, higher rates set by the Federal Reserve filter down in a variety of ways that ultimate impact the affordability of home loans. 

"We expect a healthy labor market, the solid hiring trend seen during the last few months, and stronger household incomes to boost consumer spending over the rest of the year despite weak economic activity in the first quarter," Fannie Mae Chief Economist Doug Duncan told 24/7 Wall Street. This comes in spite of the fact that mortgage originations are down from what was expected in the first quarter of the year. Fannie Mae claims this will soon be rectified by the burgeoning economic recovery, which in turn Fannie economists speculate eliminates the need for the additional hikes.

The Closing Gift: How Loan Officers Can Be Revered or Reviled

Imagine. It’s the Christmas season. The extended family is gathered in the living room. Uncle Jim hands you a sleek looking package in penguin themed wrapping paper, you eagerly tear it open, and . . . it’s a wall clock with his mortgage company’s logo in the middle. “Now whenever you check the time, you’ll remember where to call if you ever need a home loan,” Uncle Jim says.

“Yes, yes I will,” you reply, feeling uncomfortable.

People don’t buy each other gifts disguised as product placement tools. Closing gifts shouldn’t be any different. Here are some closing gift ideas that make loan officers stand out long after closing, without turning their client’s new home into an advertisement.

Recent Jumbo Loans rule changes

Interested in buying a home with a market value over $417,000? Jumbo loans might be just what you need. These loan programs are designed to help buyers afford higher-value homes that exceed the financing limits for government sponsored enterprises like Fannie Mae and Freddie Mac. While they have traditionally been seen as expensive and largely the purview of the very rich, these loans have increasingly been made available to average, median-income buyers - offering very reasonable rates, even to first time homeowners. 

"Changes have been slowly coming to jumbo loans."

"In some markets, the first-time buyer is looking at a jumbo loan," Bob Walters, Quicken Loans' chief economist, told Realtor.com. Walters refers to the fact that many markets have higher real estate values in addition to standards of living, making jumbo loans a necessity. In areas like San Francisco or New York City, where median home prices hover around $1 million, even middle-class buyers may need a jumbo loan to afford property near where they want to live and work.

Market Preview: Rates approach historic lows once again

Down Again, Naturally

Mortgage rates have drifted lower once again. We can’t say that we’re surprised.

First, there’s weak gross domestic product (GDP) growth, with the economy growing at a 0.5% annual clip. In addition, businesses and government (mostly businesses) added 160,000 new employees to their payrolls last month. The consensus estimate was for 200,000-or-more new jobs.

Mortgage rates immediately moved lower on the disappointing employment numbers. In fact, earlier this week, we again saw rates hovering near three-year lows. We also mentioned a Wall Street Journal survey of economists last week. Specifically, 75% of economists the Journal surveyed said they expected the Federal Reserve to raise the federal funds rate in June. It’s likely many of the 75% have changed their mind. Traders in federal funds rate futures contracts are betting there’s less than a 10% chance the Fed will raise rates next month.

Fundamentally, there is something wrong with the economy when interest rates have to hang so low for so long. This is poignantly true when you consider how much new money the Fed has injected into the banking system via quantitative easing and by holding the fed funds rate near zero for so long. We might hold the minority opinion, but there are valid reasons to hope for higher interest rates.

What compensating factors help get buyers qualified outside of FICO scores?

Your FICO credit score is an important element of qualifying for a mortgage - but maybe less important than you think. While lenders traditionally look to a high credit score as in indicator of a responsible borrower, this has started changing in recent years. There are other factors that may qualify a person for a home loan.

The reason many lenders are turning away from credit scores as a primary qualifier has much to do with changing consumer behaviors. Credit usage is down, particularly among groups like millennials. Over a third of people under the age of 30 do not have a credit card, according to a survey by CreditCards.com. This means that their scores may be lower than average, even nonexistent.

"Lack of a credit score doesn't always mean the person isn't creditworthy."

No score? No problem
But lack of a credit score due to not using credit doesn't always mean the person isn't creditworthy. The fact that many younger people have taken lessons from the economic ups and downs of the past few years and avoided using credit may show a savviness that could translate into good borrowing habits.