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Monthly Archives: September 2016

What the Presidential Election Means for Housing, Historically and Today

From now until November, the one topic on everyone's mind nationwide is the impending presidential election. This election in particular remains extremely divisive, with seemingly unprecedented amounts of animosity and rhetoric being bandied about on both sides of the aisles. But does this political contest have an impact on real estate? What do presidential elections have to say about the housing market? The answer, as it turns out, is that the election for the highest office in the land has a greater impact than you might think in several distinct ways.

Pessimism hurting real estate
As previously mentioned, this election cycle has been already significantly contentious, creating political rifts in families over differing ideology. This feeling of negativity and antipathy can be seen manifesting in the result of a recent Redfin survey showing that
27 percent of homebuyers believe the election will hurt real estate, up from 15 percent in February. This is a dramatic increase, particularly when taking into account that the election would have little or no direct impact on the housing market in the short term.

"Does this political contest have an impact on real estate?"

"While homeowner anxiety over the election is clearly mounting, the likelihood of an immediate shock to the market is slim," Redfin chief economist Nela Richardson told Forbes. "It will take considerable time for our next commander-in-chief to implement policies that have any impact on housing."

Home Builder Sentiment Keeps Rising, Hits Multi Year High

Based on home-builder sentiment reported by the National Association of Home Builders (NAHB), new-home starts and new-home sales should end the year with a bang. 

The NAHB’s home builder sentiment index surged six points to a 65 reading for September. This is the highest reading since last October. Optimism, in short, is at a multi-year high. 

What’s more, the good vibes home builders are feeling were broadly dispersed. The present sales component of the index also rose 6 points to 71, which also ties the multi-year high set last October.  The future-sales component rose 5 points to also post at 71. This is the best reading since October 2005. The reading for traffic was up 4 points to 48, which matched the most recent high posted last November. The high before that? October 2005.

As for existing-home sales, it’s more of the same.  They declined a second-consecutive month in August. This time, they declined 0.9% to 5.33 million on an annualized rate. Inventory, or rather the lack thereof, remains the scourge. Inventory was down again compared to this time last year.  Low supply frequently leads to higher prices. The median price of an existing-home home posted at $240,000 for the month, 5.1% higher than last year. 

How to Emerge Victorious from a Home Bidding War

With limited housing supply in many highly sought-after areas, bidding wars between buyers have started springing up. For home sellers, this can be a good thing, driving the price of a house up significantly. However, it can also bust buyers' budgets, potentially putting the home of their dreams out of reach.  

Avoiding a bidding war is crucial because most buyers are pre-approved only up to a certain amount. If the home cost rises above what you've been pre-approved for, it could require another approval - which is unlikely given that it may necessitate another credit inquiry.

To make sure you secure the home you want, here a few tips for avoiding - and, if unavoidable, winning - a bidding war:

"Avoiding a bidding war is crucial."

Offer a good price early on
While not always advisable, often a bidding war can be avoided if you submit your best - and final - offer up front. Do some research to determine relative home values in the area and keep this research as evidence to back up your offer. If the asking price seems reasonable - or even low - agree to the asking price or offer more to expedite the buying process.

Disclose proof of funding
A buyer with cash in hand, or the equivalent, is always preferable for a seller. Along with your offer, try submitting your letter of preapproval and bank statements to show you can make a sizeable down payment. Showing that you have underwriting already in place and that all that needs to happen is the drafting a contract can go a long way. 

Get pre-approved for more than your offer
If you do find yourself in a bidding war, having flexibility in terms of what you can afford to bid can be the difference between losing the house you want and getting a contract signed. You'd rather have more than you need available, just in case. 

Avoid contingencies
If the home is a bit of a fixer-upper, waiving some of the optional things that often fall to the seller to fix (cosmetic changes or smaller repairs) can make your bid seem the simplest to take. Do not, however, waive the home inspection, since this can uncover more significant issues that could have a dramatic impact on the home value.

Offer a flexible closing date
Closings can take time and be a hassle, especially if your seller has a specific timeframe in mind for when they want to transfer ownership. Showing flexibility and accommodation in the realm of closing can make your offer more attractive. For instance, if the seller can't move out until a certain date, offer to buy the home then rent it for a set period of time to the seller, giving them ample opportunity to get their affairs in order. 

The mortgage experts at New Penn Financial want to make sure you secure the home you want. Call us today to get started. 

Market Preview: Is Perception or Reality Moving Markets?

Today we ask; is the Fed really set to raise the range on the federal funds rate – the base rate for most market rates – soon?  

The more we scope the landscape, the less convinced we are that the Fed will raise rates.  From our Fed to the European Central Bank, to the Bank of England, to the Bank of Japan, no one has displayed nostalgia for the good-ole days; that is, nostalgia for the monetary and interest-rate policies that existed before the 2008-2009 recession.

Given the anemic growth outlook for most developed economies, central banks around the world are more likely to cut interest rates than to raise them. To wit, the Bank of England cut its official bank rate (the equivalent of our fed funds rate) to 0.25% from 0.50% only a few weeks ago. Back home, we don’t see a rate increase before December.

Of course, some futures traders would disagree, and as rates creep upwards, the question is, to lock or float? Here is our suggestion: Keep an eye on the stock market. If we see some big-drop days, like we saw last Tuesday, it might be worthwhile to float, because the odds of a Fed interest-rate increase will only drop.    

Is Social Media Influencing People's Homebuying Habits?

Social media has become a part of our lives in a way that touches nearly everything. So it shouldn't come as a surprise that the way we interact with each other on social media platforms like Facebook is having an impact on our home buying habits.

New research from economists at New York University, Harvard and Facebook has found that Facebook users who see their friends' home values rise 5 percent or more were statistically more likely to buy a home themselves in the next two years. Additionally, the homes they bought were larger and more expensive than average, and the buyers paid larger down payments. 

"The homes they bought were larger than average."

"We were relatively certain that we'd see some effect," Johannes Stroebel, a professor at NYU's Stern School of Business, told CNBC. "What we didn't know was how large that effect would be."

Market Preview: 4.8% Unemployment Sounds Great On Paper, but Participation Remains an Issue

It appears that rates will be staying put for a while.

The 4.9% unemployment rate is more impressive on paper than in reality.  This is because the workforce participation rate remains an issue, particularly for men in their prime working years. President Obama’s Council of Economic Advisers reports 83% of men age 25-to-54 who are not in the labor force have not worked in the previous year. In other words, roughly 10 million men in their prime working years aren’t working and aren’t seeking work. 

The fact is that we’re still recovering from the 2008-2009 recession, which is why we’ve always been skeptical about any impending interest-rate hike from the Federal Reserve. 

Trader enthusiasm for a rate increase has also subsided. Today, traders are betting a 15% chance the Federal Reserve will move to raise rates on September 21. They’re still betting there’s a 47% chance we could see a rate increase by mid-December, but those odds have been falling. 

All in all, the recovery has been good for housing and lending. For many of us, it’s business as usual.  That said, it’s still not business as usual for many people. Other sectors of the economy still struggle through a recovery phase. For that reason, we don’t expect a rate increase until 2017. 

Balancing Your Expenses: What a Debt-to-Income Ratio Means for a Mortgage

One important consideration that a lender takes into account when deciding whether to approve a borrower for a mortgage or a mortgage refinance is their debt-to-income ratio. This small ratio, buried among all the other percentages and numbers in an application, is often a key deciding factor - even more so than credit scores and savings. Yet more than half of consumers say they do not understand what DTI is and how it effects their chances at being approved for home financing.

"DTI is a calculation that weighs personal debt against your monthly income."

What is DTI?
DTI is a calculation that weighs the payments you make toward your personal debt against your monthly income. Lenders considering a loan applicant will add up the expected expenses that a borrower has to pay on a monthly basis and then compare it to this estimated income. 

This calculation is broken down into two distinct parts. Front-end DTI involves adding together living expenses and housing costs related to the mortgage. Back-end DTI consists of expenses related to credit cards, auto loans and other bills like cable and telephone.

Market Preview: Setup for a Strong Push Into Fall

Home sales are retaining momentum as we push into fall.

The NAR’s Pending Home Sales Index posted at a respectable 111.3 for July, a 1.3% increase over June’s reading of 109.9. The index posted at its highest level since February 2006 and was second only to the 115 posting this past April. What’s more, NAR data show the increase as broad-based, with only the Midwest failing to improve on its June numbers.

A recent uptick in mortgage purchase applications also leads us to believe that we should see decent sales numbers. Purchase activity has been flat for most of August, but we have seen an uptick in activity over the past two weeks. Confirming our anecdotal evidence, the MBA reported purchase activity increased 1% last week. 

We’re further encouraged by the fact that we’re seeing an uptick in mortgage availability. The MBA’s Mortgage Credit Availability Index increased 1% in July to post at 165.3. This is near the highs set earlier this year.

Even more encouraging, the overall health of credit servicing among consumers continues to improve. Fannie Mae reports that the single-family serious delinquency rate continues to decline. Mortgage loans of three monthly payments or more past due or in foreclosure dropped to 1.3% in July from 1.32% in June.  This is the lowest level since May 2008. Over the past year, the level has fallen by nearly 25%. 

Housing and mortgage lending continue to serve as lead engines of economic growth. We expect that both will continue to serve in their respective capacity deep into 2017.