2 Major Reasons Why Inventory Is So Low

Inventory of available homes on the market is the lowest it’s been in two decades, but the reasons may surprise you. Two of the likely culprits are baby boomers and homeowners who are simply satisfied with their home, according to realtor.com®’s Housing Shortage Study. 

Baby boomers are showing a desire to age in place in their current homes, and their refusal to sell is creating a clog in the market, according to the study. Eighty-five percent of baby boomers surveyed say they are not planning to sell their home in the next year. That means 33 million properties—many of which are urban condos or suburban single-family homes—will stay off the market. Many of those properties would be popular choices for millennials, a generation still largely waiting in the wings to break into home ownership. 

“Boomers, indeed, hold the key to those homes the market desperately needs, both in the urban condo and the detached suburban home segment,” says realtor.com® chief economist Danielle Hale. “But with a strong economy and rising home prices, there’s really no reason for established homeowners to sell in the short term. Although downsizing might be on the minds of boomers, they face the same inventory shortages and price increases plaguing millennials.”

Furthermore, 63 percent of respondents to the survey indicate that their current home meets the needs of their family. They cite low interest rates (16 percent), recently purchasing their home (15 percent), and needing to make home improvements and low property taxes (each at 13 percent) as reasons not to sell. “Life events drive real estate transactions,” Hale says. “When the majority of homeowners feel their family’s needs are being met by their current home, there is nothing compelling to them to put their home on the market.”

There may be hope that more starter homes will hit the market soon. Possibly offsetting the low supply of starter homes, which is down 17 percent year over year, 60 percent of respondents to realtor.com®’s survey who did say they plan to sell in the next year are millennials who want to move to a larger home or one with nicer features.

“The housing shortage forced many first-time home buyers to consider smaller homes and condos as a way to literally get their foot in the door,” says Hale. “Our survey data reveals that we may see more of these homes hitting the market in the next year, but whether these owners actually list will depend on whether they can find another home.”

SOURCE: DAILY REAL ESTATE NEWS

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Walkable Areas Are Getting More Competition

Older Americans are placing a higher value on living in walkable urban centers, according to a new survey of 1,000 respondents nationwide about their living preferences

A majority of respondents surveyed by A Place for Mom, a national referral service, said it was “very important” or “somewhat important” to live in a walkable neighborhood. They also sought neighborhoods with low crime and those that are close to family.

“It’s time to abandon the idea that only millennials and Generation X care about walkability and the services available in dense urban neighborhoods,” says Charlie Severn, head of marketing at A Place for Mom. “These results show a growing set of senior housing consumers also find these neighborhoods desirable. It’s a trend that should be top of mind among developers.”

The survey authors say it’s important for developers to consider creating multigenerational communities in suburban centers that place an emphasis on walkability. Walkability ranked high regardless of income level in the survey. Walkability ranked highest for those under 70 years old who were seeking senior apartments.

The message needs to change, says Bill Pettit, president of R.D. Merrill Co., a parent company of Merrill Gardens, which develops senior living centers. He says many developers had assumed that seniors preferred a more rural or suburban location.

“We were creating these islands of old age where you’re surrounded by your peers and you lose that intergenerational connectivity,” Pettit says. “We found we were spending a disproportionate period of time busing our seniors to other places to generate that intergenerational connectivity.”

Pettit says his company is changing its strategy. It is now focusing on developing senior living centers in urban areas with high walkability scores.

“When you can walk to shopping, or cross the street to a park, and that park is filled with children and families, I think it gives you a kind of lift that sitting and playing bingo during the day doesn’t give you,” he says. 

SOURCE: DAILY REAL ESTATE NEWS

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Underwater Homeowners Are Drying Up

As home prices rise, fewer homeowners are underwater, or owing more on their mortgage than their home is currently worth. In the first quarter of 2017, 350,000 borrowers regained equity, which dropped the total number of underwater owners to 1.8 million, according to the latest Mortgage Monitor Report from Black Knight Financial Services, a real estate data firm.

The population of underwater homeowners has dropped by nearly 1 million borrowers since last year. This marks the first time the underwater population has dropped below 2 million since 2006.

“The steady upward trajectory of home prices continues to improve the equity positions of many homeowners,” says Ben Graboske, Black Knight Data & Analytics executive vice president. “This is plainly visible in the number of borrowers who are underwater on their mortgages. ... Over the past year, we’ve seen a 35 percent decline in the total underwater population, with a 16 percent decline in that population over the first three months of 2017 alone.”

Negative equity has become more concentrated among a particular class of homeowner, Graboske notes. Nearly half of the remaining underwater borrowers live in the lowest 20 percent of homes in their markets.

“While the nation as a whole now has a negative equity rate of just 3.6 percent, among owners in that lowest price tier, it’s over 8 percent,” Graboske says. “In fact, these lowest-price-tier properties are more than twice as likely to be underwater as those in the next price tier up, and 6.5 times more likely to be underwater than those living in the top 20 percent of the market. This is the highest differential we’ve seen between high and low price tiers since we began tracking in 2005.”

Overall, fewer underwater homeowners in the U.S. has made the number of owners with equity zoom to record highs. More than 40 million Americans have “tappable equity” available in their homes, the largest population on record, according to Black Knight. Tappable equity is considered to be borrowers with at least 20 percent of equity in their homes.

“This is the largest this population has ever been,” Graboske says. “If home prices continue to rise at or near their current rate of appreciation, tappable equity will likely hit record highs by this summer.”

Graboske notes that more than half of the nation’s tappable equity is centered in the 10 largest metro areas. California, for example, contains nearly 40 percent of available equity.

“While the growth in tappable equity is obviously good news for both homeowners and lenders alike, it does represent some risk as well,” Graboske notes. “Investors in mortgages and mortgage servicing rights—as well as others with a stake in the broader mortgage market—need to be prepared to account for a higher share of equity-driven prepayment risk, as well as an increased chance of borrowers adding on second liens that primary loan servicers and investors may not be aware of.”

SOURCE: DAILY REAL ESTATE NEWS

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Report: Owners Most at Risk of Home Improvement Scams

Home improvement projects present the biggest opportunity for scammers to take advantage of homeowners, according to the Better Business Bureau’s Risk Index. Victims of home improvement scams lost an average of $1,400 from shady contractors, painters, and other repairmen, according to the BBB’s analysis.

The analysis found that such scams pose the highest risk to homeowners based on three criteria: exposure (how likely consumers are to be exposed to the scam), susceptibility (how likely they are to lose money), and monetary loss (how much money they stand to lose). For example, victims may be conned out of money by receiving a lowball bid from a contractor who then later demands more money to finish the project. A contractor also may use someone else’s license to take money and leave without ever completing the project.

Realtor.com® offers the following tips to avoid becoming a victim of a home improvement scam: 

Verify the contractor’s license, insurance, and at least three references. “Don’t be afraid to ask for their license numbers upfront,” says Cedric Stewart, a real estate professional at Keller Williams Realty in Washington, D.C. “Some states have online databases where you can check the license status.”

Ensure the contractor is an active member of a reputable industry organization. Contractors affiliated with the National Association of the Remodeling Industry or the National Kitchen and Bath Association are more trustworthy professionals, suggests Jonathan Weinberg, CEO of Builder Prime, a software service for contractors. “This is another indication that the contractor you are hiring is reputable, as they will need to pass a level of scrutiny and pledge to observe a code of ethics in order to be a member of one of these organizations,” he says.

Check the contractor’s reputation online. “Do they have a good website and active social media? That’s a good sign,” says Sam Medicraft, a former general contractor. “Most scammers want to disappear, so they leave as few traces online as possible.”

SOURCE: DAILY REAL ESTATE NEWS

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Zero-Down Loans Making a Comeback

Your buyers may soon be able to bring less to closing. They were blamed for precipitating the housing crisis years ago, but major lenders are giving no- and low-down payment loans another shot.

Several major lenders are reportedly offering loans with just 1 percent down. Navy Federal, the nation’s largest credit union, offers its members zero-down mortgages in amounts up to $1 million. NASA Federal Credit Union markets zero-down mortgages as well. Quicken Loans, the third highest volume lender, offers 1 percent down payment options, as does United Wholesale Mortgage. And the Department of Veterans Affairs has offered zero-down loans to eligible borrowers for many years.

Also, Movement Mortgage, a large national lender, has introduced a financing option that provides eligible first-time buyers with a nonrepayable grant of up to 3 percent. As such, applicants can qualify for a 97 percent loan-to-value ratio conventional mortgage, which is basically zero from the buyers and 3 percent from Movement. For example, on a $300,000 home purchase, a borrower could invest zero personal funds with Movement providing $9,000 down. The loan also allows sellers to contribute toward the buyer’s closing costs.

So far, the delinquency rates on these low- to zero-down payment loans have been minimal, according to lenders. Quicken Loans says its 1 percent down loans have a delinquency rate of less than a one-quarter of 1 percent. United Wholesale Mortgages told The Washington Post that it has had zero delinquencies from the borrowers on its 1-percent down loan since debuting it last summer.

For Movement’s new loan product, the lender will originate the loans and then sell them to Fannie Mae, which remains under federal conservatorship. Fannie officials released the following a statement: “(We’re) committed to working with our customers to increase affordable, sustainable lending to creditworthy borrowers. We continue to work with a number of lenders to launch test-and-learn that require 97 percent loan-to-value ratio for all loans we acquire.” They add that there “is no commitment beyond the pilots," which are “focused on reaching more low- to-moderate income borrowers through responsible yet creative solutions.”

During the housing crisis, zero-down loans were among the biggest losses for lenders, investors, and borrowers. However, housing experts say the latest versions are different from years ago. Applicants must now demonstrate an ability to repay what’s owed. They also must have stellar credit histories and scores, and lenders require a lot more documentation to prove borrowers are in good standing. Also, many of the programs are charging higher interest rates. For example, Movement’s rate for its zero-down payment option in mid-June was 4.5 percent to 4.625 percent, compared with 4 percent for its standard fixed-rate mortgages.

Some critics say that the borrowers who really could benefit from such options aren’t able to qualify for them. Paul Skeens, president of Colonial Mortgage Corp. in Waldorf, Md., told The Washington Post that “it seems like people without excellent credit scores and three months of [bank] reserves don’t qualify.”

SOURCE: DAILY REAL ESTATE NEWS

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How Immigration Policies Can Make or Break Real Estate

The shifting ideology from globalism to nationalism in the U.S. and other countries may threaten the health of the international real estate market in the long run, experts said during the Global Alliances Forum at the REALTORS® Legislative Meetings & Trade Expo. But it may be a while before the effects are felt.

So far, not even President Donald Trump’s travel ban—a veritable crackdown on immigration into the U.S. from Muslim-majority countries in the Middle East, which was struck down in federal court—has appeared to tamp down foreign interest in U.S. real estate, said Lawrence Yun, chief economist of the National Association of REALTORS®. However, NAR is watching closely whether Trump’s overall immigration policies will have a negative impact on foreign investment in the future.

“There’s a focus on anti-globalism right now in country after country,” Yun said. “The Brexit vote can be partially explained by that phenomenon. But even though there’s this movement, we are still seeing a general rise in foreign purchases of U.S. real estate.” He teased NAR’s next Profile of International Home Buying Activity report, due out later this summer, by saying there was a “large jump” in recent immigrants and foreigners purchasing vacation and investment properties in the U.S. last year.

Trade is also a hot-button issue with potentially expansive ramifications for the foreign-buyer market. Trump has promised to renegotiate America’s trade deals with several major import countries, which could restrict foreign buyers’ investment power in the U.S. if there are too many restrictions, said Scott Tatlock, executive director for China and Mongolia at the Commerce Department. But Tatlock cited Trump’s recent deal to open avenues for meat imports, among other products, from China as promising sign. Keeping that  relationship  strong would continue to benefit foreign real estate investment in the U.S., he said.

Chinese buyers, who are particularly driving the international market, are continuing to find U.S. real estate to be a safe investment, Yun noted. “In China, the government can take over a property at any time, so people feel more secure in the U.S.” Yun added that NAR’s upcoming report will show a greater geographical spread of home purchases by foreigners than in the past.  He singled out Tampa, Fla., and college towns in Indiana as hot up-and-coming markets.

Still, Trump’s stance on immigration is making policy watchers nervous about the future of some programs aimed at boosting foreign investment, said Russell Riggs, senior regulatory representative for NAR. For example, the EB-5 Immigrant Investor Program, which offers a path to citizenship for foreign investors, recently was reauthorized through Sept. 30—but its future beyond that is unclear, Riggs said. Since 2003, the program has helped add $3.1 billion in foreign cash to the U.S. economy, he noted. “We have a lot of work to do to secure this program’s future,” he said. “We don’t want to see it go away.”

SOURCE: DAILY REAL ESTATE NEWS

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Vacant Listings Can Be Vandal Magnets

A vacant home can easily become the target of thieves or vandals, and the damage they leave behind can be big and expensive.

Denise Supplee of SnapLandlord.com recalls an incident when she was helping a client sell a vacant home and the property was ransacked by thieves who wanted the copper tubing on the pipes.

“They ripped it all out and then there was water damage,” Supplee says. “And because no one really visited that home, the water damage became a mold issue. You know how we knew there was an issue? Because I paid the bills for this property, and I noticed a ridiculously high water bill.”

An alarm system and weekly checks of the property may be crucial to help avoid such disasters or break-ins.

"Owners of vacant homes have more affordable options today than they did 10 years ago, with the advent of smart-home security systems," says Brian Davis, a real estate expert and cofounder of SparkRental.com. "Smart cameras can be triggered by motion or sound detectors, and alert the owner. Smart-home security systems often now also detect air quality changes and other potential threats to property."

Installing timed lighting around a property at night can also help deter burglars.

Many aspects can make vacant homes be tempting targets for burglars, Davis says. “The copper in the pipes alone is valuable, and then [in luxury homes] there are the top-of-the-line appliances that many high-end homes boast. And those are just the fixtures that burglars can be reasonably certain are present. Who knows what other juicy targets of opportunity they’ll discover?

SOURCE: DAILY REAL ESTATE NEWS

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Will Tax Changes Benefit Homeowners and Investors?

As the White House shifts its focus to tax reform, analysts are examining who will benefit from the proposal announced Wednesday afternoon. The New York Times reported yesterday that this week’s stock market surge could be attributed to President Donald Trump’s call to cut the corporate tax rate to 15 percent, from 35 percent. However, the article goes on to note that optimism on Wall Street doesn’t always translate to growth on Main Street.

“We have to distinguish between pro-profit and pro-growth policies,” Diane Swonk, an independent economist in Chicago, told The New York Times. “A pro-profit approach increases the share of the pie going to corporate earnings and shareholders. Pro-growth policies increase the size of the pie.”

Treasury Secretary Steven Mnuchin told reporters today the plan will eliminate all personal tax deductions other than the mortgage interest deduction and those that encourage charitable giving. However, by increasing the standard deduction the plan will effectively nullify the benefits of the MID for the vast majority of filers, something strongly opposed by the National Association of REALTORS®.

That’s why NAR will be following the progress of tax reform as it becomes more concrete in the hands of Congress, with a specific concentration on how it may impact homeowners, property investors, and real estate practitioners. “REALTORS® support tax reform, and it’s encouraging to see leaders in Washington doing their part to get there,” says NAR President William E. Brown, adding that “as with all things, the devil is in the details.”

While the association appreciates the benefits American taxpayers could reap under sound reform and a simpler tax code, Brown says anything that includes damage to the economic benefits of housing and real estate investment is a nonstarter. He notes that while housing accounts for more than 16 percent of the gross domestic product and more than $3 trillion in investment, American homeowners already pay between 80 and 90 percent of U.S. federal income taxes. Brown added that the MID and state and local tax deductions make homeownership more affordable, while 1031 like-kind exchanges help investors keep inventory on the market and money flowing to local communities.

“Those tax incentives are at risk in the tax plan released today. Current homeowners could very well see their home’s value plummet and their equity evaporate, while prospective home buyers will see that dream pushed further out of reach," Brown says. "While we appreciate the administration’s stated commitment to protecting homeownership, this plan does anything but.”

SOURCE: DAILY REAL ESTATE NEWS

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Why Mortgage Rates Are Dropping

After the Federal Reserve raised its key interest rate about a month ago, mortgage rates were expected to increase as well. Instead, they've been dropping in recent weeks. The 30-year fixed-rate mortgage averaged 4.08 percent last week, its lowest point so far in 2017 and its fourth consecutive week for declines, Freddie Mac reported.

When the Fed raises its federal funds rate, it becomes pricier for banks to borrow money, which generally leads to higher borrowing rates for consumers. Mortgage rates, on the other hand, tend to coincide more with the 10-year Treasury note. Lately, investors have been buying them up, and the higher demand has been sending mortgage rates lower, CNNMoney reports. The 10-year Treasury yield is about 2.23 percent; a month ago, it was about 2.62 percent. Mortgage rates have moved lower as the 10-year Treasury has inched lower.

"We will probably see rates higher at the end of the year—around 4.5 percent," says Len Kiefer, Freddie Mac's deputy chief economist. The lower mortgage rates may have come as a welcome surprise to home shoppers this spring, particularly as many markets' inventory woes are pressing home prices higher overall.

"We know that with every move higher with mortgage rates, it adds to the cost, but that is only going to limit purchases on the margin," Mark Hamrick, senior economic analyst at Bankrate.com, told CNNMoney.

SOURCE: DAILY REAL ESTATE NEWS

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Self-made millionaire: Not buying a home is the single biggest millennial mistake

While opponents of homeownership claim it's "the American nightmare," self-made millionaire David Bach is doubling down on his faith in real estate. 

He thinks that not prioritizing homeownership is "the single biggest mistake millennials are making."

Buying a home is "an escalator to wealth," he tells CNBC.

Young adults in particular aren't hopping on this escalator, and it's a costly mistake, Bach warns: "If millennials don't buy a home, their chances of actually having any wealth in this country are little to none. The average homeowner to this day is 38 times wealthier than a renter."
 
The self-made millionaire is quick to say that the smartest investments he's ever made have been the three homes he's purchased. He tells CNBC: "I first bought a home in San Francisco. It skyrocketed in price. I moved to New York and bought another home. It skyrocketed in price. My net worth has gone up millions and millions of dollars, simply because I've lived."

Bach argues that you have to live somewhere for the rest of your life, so you might as well invest in a home that you could own permanently.

As he writes in "The Automatic Millionaire," "As a renter, you can easily spend half a million dollars or more on rent over the years ($1,500 a month for 30 years comes to $540,000), and in the end wind up just where you started — owning nothing. Or you can buy a house and spend the same amount paying down a mortgage, and in the end wind up owning your own home free and clear!"

If you want to get in the game of homeownership, start by crunching the numbers, Bach says: "Actually do the math. Look and see what things costs, starting with the smallest options. This way, you're really clear on your goals and you won't just say to yourself, 'I'll never afford this.'"

A good rule of thumb is to make sure your total monthly housing payment doesn't consume more than 30 percent of your take-home pay. He also recommends having a down payment of at least 10 percent, though more is always better. Finally, recognize that "oftentimes, buying your first home means you're not buying your dream home," Bach tells CNBC. "You're just getting into the market."

A lucrative market, that is. "The fact is, you aren't really in the game of building wealth until you own some real estate," Bach writes.

SOURCE: CBNC 
By: Kathleen Elkins

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Generation X Flexes Its Purchasing Muscles

Millennials and baby boomers often steal the spotlight in real estate. But Generation X says it’s time for the housing market to pay more attention to them instead. Gen Xers are the only generation to purchase more homes last year than they did the previous one, according to the National Association of REALTORS® Home Buyer and Seller Generational Trends survey.

Gen Xers, aged 37 to 51, made up 26 percent of home buyers in 2015, but grew that percentage to 28 percent in 2016.

“That group suffered the most” in the last recession, says Jonathan Smoke, chief economist of realtor.com®. “They were entering homeownership at the peak of the housing bubble and were also the ones most likely to suffer job losses.” During the crisis, many in the generation saw their homes go underwater as they owed more than their home was worth.

But things are finally turning around for Gen Xers. The economy is stronger, housing values are up, and the job market is strengthening. Their incomes are up as well. Buyers earned a median of $106,600 a year, according to NAR’s survey. (Younger baby boomers, aged 52 to 61, earned $93,800 and millennials, aged 36 and younger, earned $82,000.)

“Now, they’re actually in their prime earning years,” Smoke says. “And they’re also far more likely to have families. It makes complete sense that they’re coming back.”

Generation X is the largest generation that has kids still living at home. As such, they’re moving for a better school district or finding a home that has enough bedrooms to accommodate their children, says Jessica Lautz, NAR’s managing director of survey research.

Still, Gen Xers may be buying more than they have in the past, but they aren’t the generation who is buying the most homes today. Millennials purchased about 34 percent of the homes on the market in 2016, according to NAR’s survey. They purchased the lowest-cost homes compared to the other generations—millennials home purchases had a median of $205,000, while Gen Xers spent the most on their home purchases at $261,000.

SOURCE: DAILY REAL ESTATE NEWS

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The Big Down Payment Myth

Having the spare capital to put 20 percent down on a home purchase is great, but it's certainly not the norm. Still, many people think it is and that belief may be holding some would-be home buyers back, particularly young adults.

Indeed, 39 percent of non-owners say they believe they need more than 20 percent for a down payment on a home purchase. Twenty-six percent believe they need to put down 15 to 20 percent, and 22 percent say they need a down payment of 10 percent to 14 percent to buy, according to the National Association of REALTORS®’ 2017 Aspiring Home Buyers Profile report. 

But now for the reality: The average down payment on a purchase mortgage was just 11 percent in 2016. And that's just the average; often times down payments are much lower. For borrowers under the age of 35, the average down payment was just under 8 percent, according to NAR's survey.

As such, “aspiring first-time buyers think it takes twice as much to buy a home than it really does,” writes Jonathan Smoke, realtor.com®’s chief economist, in his latest column.

How much a person truly needs for a down payment depends on their situation. Their financial circumstances, home location, and the price of the home are important factors.

But there are many mortgage options that offer the opportunity to make low or even no down payments. For example, the Department of Veterans Affairs and the U.S. Department of Agriculture offer no-money down loans to those who are eligible. In 2016, 16 percent of buyers under the age of 35 put no money down on their home purchase.

Further, the largest share of loans for buyers under age 35 last year were for people putting down less than 5 percent on a home purchase (or about $3,500). The 3 percent down payment programs backed by Fannie Mae and Freddie Mac, and the 3.5 percent FHA mortgage that primarily targets first-time buyers, are both helpful programs to consider. These loan programs don’t require unblemished credit either. The average FICO score was 713, but realtor.com® notes borrowers with a 639 were still getting approved.

As such, Smoke says the millennial dreaming about homeownership needs to get this message: They need a FICO score of at least 639 and enough for a 5 percent down payment (that is, if they don’t qualify for the other programs with lower payment options). In that case, they'll need to save about $3,500 to buy in the typical American town.

SOURCE: DAILY REAL ESTATE NEWS

Any questions or comments, feel free to contact James Y. Kuang at (626) 371-5662 or by email: james.kuang@coldwellbanker.com      

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Limited Time VIP Buyer Bonuses:

BONUS#1: One year home warranty policy ($497 value)

BONUS#2: Lifetime notary service (in office)

BONUS#3: Financial Impact Analysis

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