2015: Buy Now, Before the Fed’s Patience Ends

buyinghome

Realtor.com|January 30, 2015| Jonathan Smoke

By now you’ve probably heard that 2015 is expected to be a pretty good year for real estate. It’s a prediction that we chief economists are all fairly aligned on.

But what I can’t emphasize enough is why I’m so confident this is a defining year for the housing industry.

It comes down to three simple factors:

  1. Home sales will increase.
  2. Prices will increase.
  3. Mortgage rates will increase.

When combined, those three indicators point to an extremely strong real estate market. And potential home buyers should move fast if they want to spend less.

Buy before it’s too late

Buyers should act now––delayed purchases will only result in higher monthly mortgage payments as prices and rates rise. In fact, our forecast data show affordability may decline as much as 10% over the course of the year.

Plus, we won’t get another head fake on mortgage rates like we did in 2014. The economy is much stronger now, and the Federal Reserve continues to communicate loudly to the financial markets that it will raise the target for the federal funds rate this year.

Right now, the Fed is using the word “patient” to describe its approach to picking the time to raise the target rate.

However, when the Fed “loses patience,” rates will go up at least 20 to 40 basis points in anticipation of the target rate officially going up.

The last time the word “patient” disappeared from the Fed’s language, it raised the target two months later. And when “patient” disappeared from the Fed’s language, mortgage rates went up in anticipation of the official move.

So, buyers beware: The clock on these low mortgage rates may be ticking.

Job growth, global economy will boost housing

From a macro level, the economy and the housing market are in far better shape now than a year ago. We are creating jobs at a pace now that we haven’t seen in 15 years.

Friday’s initial report on fourth-quarter GDP came in at 2.6% growth. Underneath the number was mounting evidence that consumer spending is indeed strong and wage growth is finally accelerating.

Low prices at U.S. gas pumps have turbocharged consumer confidence and are enabling households to spend more and save more for big purchases—say, buying a home.

Besides global factors that bode well for buyers, the U.S. housing market is also in much healthier shape. Foreclosure inventories have fallen to nearly normal levels everywhere except for a few slow markets. As a result, distressed sales are no longer weighing on the market.

We’re back to a normal and upward trajectory for housing prices, and there’s little risk of prices declining because inventories are very low. I’m actually more worried about listings and new home construction not keeping up with the demand.

Market is primed for first-time buyers, sellers

I’ve said it before and I’ll say it again: 2015 is the year of the millennial when it comes to real estate. Millennials are at a critical demographic tipping point where their sheer numbers will naturally drive demand for more home sales. Most first-time buyers move into their first home when they’re between the ages of 25 to 34.

Sellers should also be encouraged—especially if they’re sitting in affordable homes waiting for a long-overdue upgrade. With recent clarification of mortgage standards, new low-down-payment programs, and lower FHA insurance premiums, access to credit should improve. That means those folks who’ve been sitting on equity in entry-level homes can finally upgrade to bigger homes and retirement homes.

What are the downsides?

There are some risks to keep in mind.

Supply must keep pace with demand, otherwise affordability declines more rapidly and would-be buyers can’t find the home of their dreams.

The U.S. economy could hiccup from global weakness.

Consumers could take the money they’re saving on gas and buy lottery tickets instead.

The probability of those risks completely reversing the recovery is slight, but it is strong enough to limit the potential. On the flip side, if the economy ends up growing more than expected and first-time buyers come roaring back, we could end up in an even stronger market. Here’s to a robust and strong 2015!

Jonathan Smoke is chief economist at realtor.com®.

2015: Year of the First-Time Home Buyer

RealtorMag| December 5, 2014| Link

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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.”

Realtor.com®’s top five housing predictions for 2015 are:

  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.

Silicon Valley Boasts Three of the Most Expensive Housing Markets

When the median home price is $4.6 million: Silicon Valley claims 3 of nation’s 10 most expensive housing markets

July 7, 2014| Lauren Hepler| Silicon Valley Business Journal| Link

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You thought your $2,000-a-month Silicon Valley rent was bad?

Try buying a home in one of the region’s most expensive neighborhoods, like Atherton, Palo Alto or Portola Valley. All three now rank among the top 10 priciest housing markets in the country.

In Atherton’s 94027 ZIP code, the median home value is a whopping $4.59 million — or a staggering 26 times the value of the average $172,300 U.S. home — which makes the area the single most expensive market in the U.S. Palo Alto’s 94304, the country’s No. 4 most costly area, boasts a $3.3 million median home value. Nearby Portola Valley’s 94028 ZIP code is $2.8 million, good for the No. 8 priciest neighborhood in the nation.

That’s all according to a new analysis by The Atlantic CityLab of data from 20,000-plus U.S. ZIP codes collected by real estate site Zillow. See the charts at the bottom of this story for a full breakdown of the new home value numbers.

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Up, Up & Away!

Bay Area home prices rise 18 percent — how much higher can they go?

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Blanca Torres| June 25, 2014| San Francisco Business Times| Link

As housing prices inch toward or past pre-recession levels, we have to ask, how much higher can Bay Area home prices go?

Home prices in region pushed up 18.2 percent in April compared with the previous year, but have gone up a whopping 47 percent over two years from April 2012 to April 2014, according to the most recentS&P/Case-Shiller Home Price Index.

“In all recoveries, the market has regained peak values (of the previous cycle) within a year or two,” said Patrick Carlisle of Paragon Real Estate Group. “Once economic recovery begins, the market goes crazy. There’s so much pent-up demand.”

We may be past the crest of the crazy. Home price growth is slowing down — April was the first time in 13 months that the region’s housing market grew by less than 20 percent year-over-year. Still, prices are going up.

During the past two decades, Bay Area home prices have followed a similar pattern during economic cycles: They go up, then they go down and then they go up again, but each time they go up, they go up higher than before. And depending where you are looking, we may not be at that point yet.

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Have you had a real estate crush?

69% of home buyers reported they have had a house crush!

Having a list of “deal-breakers” is critical to finding the perfect house.  Top attributes for men and women is outdoor living space, followed by open floor plans for women and garages for men.

HowDoBuyersCrushes

Sellers are optimistic about home prices

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Seller’s think home prices will continue to rise over the coming years and are ready to move up!

Baths take award in 2013 for “Most Remodeled in the Home”

Baths Edge Kitchens for Most Common Remodeling Project in 2013

NAHB | link

May is National Home Remodeling Month. We lead off a series of posts in recognition of the occasion with results from NAHB’s quarterly Remodeling Market Index (RMI) survey showing that bathrooms remained the most common type of job performed by NAHB Remodelers in 2013.

Among remodelers responding to the 4th Quarter 2013 RMI survey, bathroom remodeling was cited as a common job during the year by 72 percent, followed closely by kitchen remodeling at 70 percent. Since the inception of the survey in 2001, bathrooms and kitchens have been jockeying for top spot on the most popular remodeling projects list. At first kitchen remodeling led the race by a few percentage points, but after 2009 bathroom remodeling edged into first place where it has remained through 2013.Remodeling Jobs in 2013Although other categories of remodeling trail kitchens and baths by a substantial margin, window and door replacements, whole house remodeling, and room additions are also relatively popular projects, cited as common jobs in 2013 by 35 to 40 percent of remodelers each. Repairing damage, handyman services and decks were cited as common by 25 to 29 percent.

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Want to see the most expensive house in US history?

A hedge fund manager just made the biggest home purchase in U.S. history

Megan Willett | Yahoo.com | May 5, 2014 | link

Hamptons property, 60 Further Lane
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A Hamptons property has just taken the title of “most expensive home ever sold in the U.S.”

The 18-acre expanse in East Hampton just sold for $147 million to hedge-fund manager Barry Rosenstein of Jana Partners, according to Curbed Hamptons.

Rosenstein’s new neighbors on exclusive Further Lane include Jerry Seinfeld, hedge-fund manager Jim Chanos, and art dealer Larry Gagosian.

The home was previously owned by the late Christopher H. Browne, the managing director of a New York investment firm who bought it in the late 1990s, according to a 2007 profile in The New York Times. Browne and his partner of 10 years, architect Andrew Gordon, spent much of their time renovating and landscaping the property.

According to Page Six, when Browne died of a heart attack in 2009 in Florida, he left his entire estate to Gordon. However, legal disputes between Gordon’s and Browne’s families raged on until 2012, when Gordon — then dying of cancer — was allowed via a secret settlement to live out the rest of his life in the home he had shared with Browne.

When Gordon passed away this past fall, Browne’s family began quietly shopping around the mansion, according to Page Six. Ultimately, they sold the estate without using a broker, avoiding some serious fees and commissions (which is also why there are no listing photos of the property).

Sources told The New York Post that brokers in the area were “crestfallen” and “furious” that no broker was hired, with one broker saying that the Browne family “closed ranks. It was all very hush-hush.”

The sale easily beat out Connecticut’s 50-acre Copper Beach farm, which sold a month ago for $120 million, and the $132.5 million working Montana Ranch bought by Rams owner Stan Kroenke in 2012.

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Rent-to-Own just got a little easier…

Rent-to-Own: New Mortgage Rules Can Make This More Appealing

U.S. News  | Jan 23rd 2014 | link

 

House for sale | House for rent

danielmoyle/Flickr

By Susan Johnston

New mortgage underwriting criteria went into effect Jan. 10 requiring a debt-to-income ratio of less than 43 percent for most qualified mortgages. Even if you don’t qualify for a mortgage under the current lending regulations, renting may not be your only option. Alternatives such as rent-to-own and contract-for-deed transactions make homeownership possible for those who may not meet mortgage-underwriting standards.

These transactions have some variations depending on state rules and the contents of the legal agreement, but a rent-to-own (or lease-purchase) transaction often means the buyer rents from the owner for a set period of time, after which the buyer agrees to purchase the property. In some cases, the tenant might pay extra money each month toward equity in the home. A lease-option agreement gives the lessee the option (and not the obligation as with lease-purchase) to later buy the property.

“It could be a house in a neighborhood that you really want to settle in but for whatever reason you can’t qualify to buy a home,” says Barry Zigas, director of housing policy at the Consumer Federation of America. “Instead, you can qualify to rent one that you’d like to be able to buy in the future.” Zigas says rent-to-own especially appeals to former homeowners who want to get back into ownership.

In contract-for-deed agreements (also called bond for deed or installment land contracts), the purchase is often financed by the seller rather than a third-party mortgage company. One benefit to the seller is that the process is typically faster than a traditional mortgage, according to Richard Ernsberger, attorney at the Pittsburgh-based law firm Behrend & Ernsberger. In real estate markets that are still recovering from the recession, it could also give sellers an alternative to staying put or leaving the property on the market indefinitely.

For the buyer, perhaps one who doesn’t currently qualify for a mortgage, it could buy time to improve his or her credit score. “It gives you the chance to live in a place before completing the sale,” Ernsberger says. “You can structure the agreement so that the person you’re purchasing the house from will report [your payments] to the credit bureaus. Maybe after two to three years, you could qualify for a traditional mortgage.”

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How much home can you afford this year?

How Far Will Your 2014 Housing Dollar Stretch?

Vera Gibbons | Zillow | January 20, 2014 | link

money-house-300x215.jpgWhile we’re just a few weeks into the New Year, you’ve likely seen headlines showcasing what will cost more this year. You’ll have to dig even deeper into your pocket to pay for everything from food to stamps to college education, travel, healthcare and more. In fact, even your biggest expense — housing — is getting pricier in 2014:

Home Values

Zillow Projections: +3% nationally in 2014 While 2013′s double-digit gains in home appreciation were certainly economically beneficial (home prices are back at their peak levels in some areas), let’s be realistic: they’re not sustainable.This year, expect home values to continue to rise but at a more modest, balanced pace of about 3 percent, nationwide.

Home Loans

Zillow Projections: 5% As the Fed tapers its bond-buying programs and the economy continues to improve, expect mortgage rates to rise from a current level of about 4.6 percent to 5 percent by the end of 2014, making homes more expensive to finance. For example, the monthly payment on a $200,000 loan will rise by about $160. But there’s a silver lining for potential home buyers: it should be easier to get a mortgage this year because higher rates have slashed refinancing activity, prompting some banks to ramp up their purchase lending. Additionally, there will be more inventory on the market, and less competition from investors, as the home-buying process becomes less frenzied.

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