From Realty Times of March 23, 2009
Washington Report: Federal Reserve
by Kenneth R. Harney
By far the biggest news for housing out of Washington last week had nothing to do with the Obama administration, nothing to do with Congress. Instead it was these very carefully chosen words from the Federal Reserve Board's open markets committee: We "will employ all available tools," the board said, to turn the economy around, and our number one focus will be the housing and mortgage markets.
In this case, the "all available tools" included the equivalent of a massive shot of adrenaline for home real estate: The Fed pledged to essentially flood the mortgage market with so much new capital that loan rates will drop to unprecedented levels - possibly into the mid four percent range for 30 year fixed rate mortgages. Maybe even lower.
How will that happen? The Fed intends to buy $750 billion in new mortgage-backed securities from Fannie Mae and Freddie Mac . That's on top of the $500 billion it previously committed to buy.
Those mortgage securities will then sit on the Fed's balance sheet, providing long-term returns to the central bank.
More importantly, by providing a guaranteed outlet for conventional mortgages, the Fed will encourage lenders across the country to extend loan commitments to home buyers and refinancers immediately.
It should also throw a lifeline to large numbers of current home owners who are on the brink of not being able to make their monthly mortgage payments, and who simply need lower interest rates through refinancings to afford to keep their houses.
Lower mortgage rates through the new program will almost certainly pull buyers off the sidelines this spring and summer, and even put a floor on home prices in the hardest-hit markets.
Everywhere else, rates in the mid-four percent range or lower could even put upward pressure on selling prices. That's because when you lower the monthly cost of borrowing to buy a house, you make it more affordable, even at a slightly higher price.
Is there any downside to all this stimulation of the housing sector? Probably the biggest worry over the long-term is that inexpensive capital may contribute to higher inflationary pressures in the coming years.
But the Fed seems to be saying: Hey, let's tackle one problem at a time. Right now we're trying to help housing out its anemic state. If that eventually spikes inflation's ugly head, we'll deal with that when it comes up.
Copyright © 2009 Realty Times. All Rights Reserved.
Monday, March 23, 2009
Tuesday, March 17, 2009
Where Housing is Headed
From Realty Times of March 17, 2009
Real Estate Outlook: Where Housing is Headed
by Kenneth R. Harney
We received an important indicator of where housing is headed last week, when new mortgage applications for home purchases and refinances suddenly surged as they hadn't in months.
Applications for FHA loans to buy houses were up by 10.4 percent. And overall home purchase applications jumped by 7.1 percent.
Meanwhile mortgage interest rates dropped to their second lowest level in nearly two decades, according to the Mortgage Bankers Association. Thirty year fixed rates averaged 4.96 percent and fifteen year rated dropped to just 4.5 percent.
Why's this important? New financing applications to buy homes obviously point to rising purchase contracts and closed sales in the months ahead. They also suggest that prices have hit a level in many markets that is attracting once-hesitant buyers off the sidelines.
There's still another factor that's likely at work here as well: Congress's recent improvements to the home purchase tax credit -- pushing it to $8,000 from $7,500 and making it non-repayable. George Ratiu, research economist for the National Association of Realtors, says the big jump in loan applications could be tied to the improved credit in the stimulus package signed into law last month.
"Consumers may be responding to the stimulation" effect of the better credit for 2009, he said.
But let's be clear here: A rise in home purchase applications does NOT suggest we've turned the corner in the cycle or have solved the multiple challenges facing markets around the country -- high foreclosure levels, continuing domination in some areas of REO and short sales, and continuing increases in the unemployment rate.
Even amid these problems, however, there are some hints of possible improvements ahead. For example, a new study by research firm Realty Trac and USA Today found that despite the constant headlines about record levels of foreclosures, the more closely you look, the more you find that those numbers are highly concentrated in a relatively small number of counties.
More than half of the nation's foreclosures in 2008, researchers found, were concentrated in just 35 counties in 12 states. You can guess where: California, Las Vegas, Phoenix and Florida.
But the really eye-opening finding: In more than 650 other counties, representing one fifth of all markets in the U.S., foreclosure numbers have actually declined since 2006.
Foreclosures are horrible no matter where they occur. But the fact is: Huge portions of the United States have NOT been seeing record foreclosures, short sales or even serious property value declines. They're doing better.
Copyright © 2009 Realty Times. All Rights Reserved.
Arisona always seems to get a mention - we are No. 2 nationally in Foreclosures in January 2009. I hope most of those are the California Investers that ran our prices up out of reach to most buyers in 2004 and 2005.
.
Real Estate Outlook: Where Housing is Headed
by Kenneth R. Harney
We received an important indicator of where housing is headed last week, when new mortgage applications for home purchases and refinances suddenly surged as they hadn't in months.
Applications for FHA loans to buy houses were up by 10.4 percent. And overall home purchase applications jumped by 7.1 percent.
Meanwhile mortgage interest rates dropped to their second lowest level in nearly two decades, according to the Mortgage Bankers Association. Thirty year fixed rates averaged 4.96 percent and fifteen year rated dropped to just 4.5 percent.
Why's this important? New financing applications to buy homes obviously point to rising purchase contracts and closed sales in the months ahead. They also suggest that prices have hit a level in many markets that is attracting once-hesitant buyers off the sidelines.
There's still another factor that's likely at work here as well: Congress's recent improvements to the home purchase tax credit -- pushing it to $8,000 from $7,500 and making it non-repayable. George Ratiu, research economist for the National Association of Realtors, says the big jump in loan applications could be tied to the improved credit in the stimulus package signed into law last month.
"Consumers may be responding to the stimulation" effect of the better credit for 2009, he said.
But let's be clear here: A rise in home purchase applications does NOT suggest we've turned the corner in the cycle or have solved the multiple challenges facing markets around the country -- high foreclosure levels, continuing domination in some areas of REO and short sales, and continuing increases in the unemployment rate.
Even amid these problems, however, there are some hints of possible improvements ahead. For example, a new study by research firm Realty Trac and USA Today found that despite the constant headlines about record levels of foreclosures, the more closely you look, the more you find that those numbers are highly concentrated in a relatively small number of counties.
More than half of the nation's foreclosures in 2008, researchers found, were concentrated in just 35 counties in 12 states. You can guess where: California, Las Vegas, Phoenix and Florida.
But the really eye-opening finding: In more than 650 other counties, representing one fifth of all markets in the U.S., foreclosure numbers have actually declined since 2006.
Foreclosures are horrible no matter where they occur. But the fact is: Huge portions of the United States have NOT been seeing record foreclosures, short sales or even serious property value declines. They're doing better.
Copyright © 2009 Realty Times. All Rights Reserved.
Arisona always seems to get a mention - we are No. 2 nationally in Foreclosures in January 2009. I hope most of those are the California Investers that ran our prices up out of reach to most buyers in 2004 and 2005.
.
FICO SCORES
There are recent reports that FHA has raised it's FICO score requirement from 540 to 580. It is even suggested it could go to 600 or more.
If you are in that region of FICO scores, it is suggested you act soon while you have the opportunity and before the bar is raised too high for you to qualify.
If you are in that region of FICO scores, it is suggested you act soon while you have the opportunity and before the bar is raised too high for you to qualify.
Monday, March 16, 2009
Mark to Market
Here is an excellent piece that explains the Mortgage Crisis:
Courtesy of Mike Neill
American Alliance Mortgage Company
"The current economic crisis is the top news story for nearly every media outlet. But until recently, one of the most important factors that led to this challenging market has also been one of the least discussed. "
MARK TO MARKET
Yes, it is a little complicated, but every little bit of information helps us better understand.
Courtesy of Mike Neill
American Alliance Mortgage Company
"The current economic crisis is the top news story for nearly every media outlet. But until recently, one of the most important factors that led to this challenging market has also been one of the least discussed. "
Yes, it is a little complicated, but every little bit of information helps us better understand.
Friday, March 13, 2009
Rental & Second Home Refi's
From Realty Times of March 13, 2009
Investor Report: Refinancings by Kenneth R. Harney
Small-scale real estate investors got a pleasant surprise last week when Fannie Mae and Freddie Mac said they'd refinance potentially thousands of mortgages on rental and second homes as part of the Obama administration's massive housing relief effort.
The White House had announced last month that its refinancing effort would be for owner-occupied principal residences whose loans are either owned or have been guaranteed by Fannie or Freddie in mortgage-backed securities.
But when the two companies sent details of their upcoming programs to lenders last week, investor loans and mortgages on second homes WERE included among those eligible for refinancings.
A Freddie Mac spokesman, Brad German, explained that investors loans were included because refinancings can “help reduce renter evictions by putting landlords in a (more affordable) refi that improves their chance of success.”
That's excellent news for some investors, but it won't help out everybody.
Here's a quick overview of who's eligible and how to apply:
First, your investment property or second home loan must be owned or guaranteed by either Fannie or Freddie. Ask your loan servicer. Or you can go to websites set up by the companies to speed the process - Fannie Mae or FreddieMac.
If your mortgage is in some other institution's portfolio ... or in a private mortgage security, this program isn't for you.
Next, make a rough estimate of your current loan to value ratio on the property. If your mortgage balance does not exceed your property value by more than five percent, you're eligible.
Say you bought a rental duplex a few years back for $500,000 with a first mortgage of $400,000 at seven and a half percent that was acquired by Fannie Mae. You'd love to refinance that to today's much lower rates in the fives or sixes to increase your cash flow.
Because of local property value declines, say your duplex is now worth about the amount of your loan balance. That precludes you from refinancing from most sources, but under Fannie's special program, you'll be eligible … PROVIDED your loan balance does not exceed the property value by five percent.
There's another hoop to jump through: Your payment history on the mortgage needs to be just about flawless -- no thirty day late payments during the past 12 months -- or you won't get a refi.
Two additional, positive details to be aware of: Your credit score WON'T be a problem because Fannie and Freddie have agreed to waive their usual minimums, and you WON'T have to pay for new mortgage insurance.
Copyright © 2009 Realty Times. All Rights Reserved.
Investor Report: Refinancings by Kenneth R. Harney
Small-scale real estate investors got a pleasant surprise last week when Fannie Mae and Freddie Mac said they'd refinance potentially thousands of mortgages on rental and second homes as part of the Obama administration's massive housing relief effort.
The White House had announced last month that its refinancing effort would be for owner-occupied principal residences whose loans are either owned or have been guaranteed by Fannie or Freddie in mortgage-backed securities.
But when the two companies sent details of their upcoming programs to lenders last week, investor loans and mortgages on second homes WERE included among those eligible for refinancings.
A Freddie Mac spokesman, Brad German, explained that investors loans were included because refinancings can “help reduce renter evictions by putting landlords in a (more affordable) refi that improves their chance of success.”
That's excellent news for some investors, but it won't help out everybody.
Here's a quick overview of who's eligible and how to apply:
First, your investment property or second home loan must be owned or guaranteed by either Fannie or Freddie. Ask your loan servicer. Or you can go to websites set up by the companies to speed the process - Fannie Mae or FreddieMac.
If your mortgage is in some other institution's portfolio ... or in a private mortgage security, this program isn't for you.
Next, make a rough estimate of your current loan to value ratio on the property. If your mortgage balance does not exceed your property value by more than five percent, you're eligible.
Say you bought a rental duplex a few years back for $500,000 with a first mortgage of $400,000 at seven and a half percent that was acquired by Fannie Mae. You'd love to refinance that to today's much lower rates in the fives or sixes to increase your cash flow.
Because of local property value declines, say your duplex is now worth about the amount of your loan balance. That precludes you from refinancing from most sources, but under Fannie's special program, you'll be eligible … PROVIDED your loan balance does not exceed the property value by five percent.
There's another hoop to jump through: Your payment history on the mortgage needs to be just about flawless -- no thirty day late payments during the past 12 months -- or you won't get a refi.
Two additional, positive details to be aware of: Your credit score WON'T be a problem because Fannie and Freddie have agreed to waive their usual minimums, and you WON'T have to pay for new mortgage insurance.
Copyright © 2009 Realty Times. All Rights Reserved.
Thursday, March 12, 2009
Mortgages That Survived The Credit Crunch
From Realty Times of March 12, 2009
Mortgages That Survived The Credit Crunch
by Broderick Perkins
You'll probably have to go to homeownership school.
You'll have to prove you can really afford a mortgage.
You may have to reconsider your location.
And you'll have to run a gauntlet of scrutiny.
Today's mortgages are a far cry from boom time home loans, but they do exist and some lenders have money to burn.
"People used to qualify with stated income. Now there is more documentation. And they aren't just documenting your income, but looking for assets in addition to your income and low debt-to-income ratios and low loan-to-value ratios," said Asmaa Egal, mortgage broker, Loan Republic Financial in San Francisco.
The new brand of home loan has been customized with tighter controls and fewer defects to replace old mortgage models that crashed and burned when the economy hit the skids.
"You have to qualify. You have to prove your income. They have make-sense underwriting," said, Quincy Virgilio, 2009 president of the Santa Clara County Association of Realtors and broker-owner Realty World CA Property Network in San Jose, CA.
FHA-insured mortgages
The new darling of the homebuyer set, Federal Housing Administration-insured mortgage programs, have been available for decades. especially for low- to moderate-income families who may not meet requirements for conventional loans.
But with new loan limits as high as $625,500, they've become especially attractive in high cost areas. FHA loans are expected to account for 25 percent of the mortgages signed in 2009, according to the National Association of Realtors. Because of previously lower loan limits, FHA loans amounted to less than 4 percent of homes sold from 2003 and 2006.
The new FHA model also comes with low down payments and eased credit requirements.
"They are much more lenient (compared to conforming Fannie Mae and Freddie Mac mortgages) on how they look at credit scores. The score can be in the 600s vs. 700s, said Cheryl O'Connor, a finance expert with O'Connor Consulting in Danville, CA.
FHA features include:
• As little as 3 percent down.
• Financed closing costs.
• A 1 percent (of the mortgage) ceiling on the amount lenders can charge for closing costs.
• No prepayment penalties.
• Relaxed debt-to-income requirements.
• FHA-approved lenders only.
• FHA-approved appraisals only.
Virgilio says buyers who don't have 20 percent or more down will pay an upfront mortgage insurance fee amounting to as much as 1.75 percent (of the loan) and a monthly mortgage insurance premium that effectively tacks on another 0.5 percent to the interest rate.
"But you can structure your loan with participation from the seller paying closing costs. Not down payment assistance, but closing costs, but in this marketplace the seller is going for that," said Virgilio.
The best rates (typically fixed, rather than adjustable) go to those who have financial reserves, savings or investments amounting to at least two months worth of a PITI (principle, interest, taxes and insurance) mortgage payment.
Likewise, the best deals go to buyers with a 30 to 33 percent debt-to-income ratio when the debt includes housing and all other monthly debt payments.
In addition to FHA home-buying loans, the "Housing and Economic Recovery Act of 2008" created "Hope For Homeowners" which allows troubled mortgage holders to avoid foreclosure by refinancing into a more affordable, FHASecure mortgage, provided Uncle Sam gets a piece of the equity-growth action and provided the existing lender approves.
Members only
Credit unions largely survived the credit crunch because, as non-profits, the fundamentals apply. They take in deposits. They make loans based on sound underwriting principles. They charge more on those loans than they pay on deposits.
Without the profit motive, there was no incentive to get involved in the subprime racket, no reason to sell and repackage loans as investments and no need to otherwise venture into untried and untrue investment schemes.
Along with fixed-rate 30-year mortgages at rates often lower than banks they also offer conventional adjustable rate mortgages (ARM) and hybrids all with rates typically lower than conventional lenders (From CreditUnion.coop/ search "rates," then see "Ratedex").
"Credit unions have a tendency to be more lenient if you have a bank account with a credit union," O'Connor said.
Credit union originations rose a whopping 10.1 percent during the first half of 2008, according to the industry's federal regulator, the National Credit Union Administration (NCUA). Conventional mortgage lender loan originations took a nose dive, falling 17 percent during the same period.
Rural home loans
Don't get your knickers in a knot over the term "rural."
Loans backed by the United States Department of Agriculture's (USDA) Rural Development Housing and Community Facilities Programs are limited, but you don't have to grow corn or raise chickens.
The loans are for:
• People living in designated rural areas where the population is less than 20,000.
• People with incomes under 115 percent of household median income for the area. In most areas, the upper income limit for borrowers will be $60,000 to $70,000 per year.
• People buying homes, not refinancing or taking out equity loans.
USDA Programs include no-money down loans (imagine that), home improvement and rehabilitation loans and grants, construction loans, loans for minorities and true to the work-ethic of rural life, sweat-equity loans that require buyers to help build their own homes.
Local, state agencies
O'Connor says don't overlook local -- city, county and state -- housing assistance programs that often cater to first-time and or low- to moderate-income home buyers as well as government and service workers including teachers, police officers and fire fighters.
More information is available about state housing efforts from the HUD site.
Local contacts are available through the National Association of Housing and Redevelopment Officials.
Copyright © 2009 Realty Times. All Rights Reserved.
Mortgages That Survived The Credit Crunch
by Broderick Perkins
You'll probably have to go to homeownership school.
You'll have to prove you can really afford a mortgage.
You may have to reconsider your location.
And you'll have to run a gauntlet of scrutiny.
Today's mortgages are a far cry from boom time home loans, but they do exist and some lenders have money to burn.
"People used to qualify with stated income. Now there is more documentation. And they aren't just documenting your income, but looking for assets in addition to your income and low debt-to-income ratios and low loan-to-value ratios," said Asmaa Egal, mortgage broker, Loan Republic Financial in San Francisco.
The new brand of home loan has been customized with tighter controls and fewer defects to replace old mortgage models that crashed and burned when the economy hit the skids.
"You have to qualify. You have to prove your income. They have make-sense underwriting," said, Quincy Virgilio, 2009 president of the Santa Clara County Association of Realtors and broker-owner Realty World CA Property Network in San Jose, CA.
FHA-insured mortgages
The new darling of the homebuyer set, Federal Housing Administration-insured mortgage programs, have been available for decades. especially for low- to moderate-income families who may not meet requirements for conventional loans.
But with new loan limits as high as $625,500, they've become especially attractive in high cost areas. FHA loans are expected to account for 25 percent of the mortgages signed in 2009, according to the National Association of Realtors. Because of previously lower loan limits, FHA loans amounted to less than 4 percent of homes sold from 2003 and 2006.
The new FHA model also comes with low down payments and eased credit requirements.
"They are much more lenient (compared to conforming Fannie Mae and Freddie Mac mortgages) on how they look at credit scores. The score can be in the 600s vs. 700s, said Cheryl O'Connor, a finance expert with O'Connor Consulting in Danville, CA.
FHA features include:
• As little as 3 percent down.
• Financed closing costs.
• A 1 percent (of the mortgage) ceiling on the amount lenders can charge for closing costs.
• No prepayment penalties.
• Relaxed debt-to-income requirements.
• FHA-approved lenders only.
• FHA-approved appraisals only.
Virgilio says buyers who don't have 20 percent or more down will pay an upfront mortgage insurance fee amounting to as much as 1.75 percent (of the loan) and a monthly mortgage insurance premium that effectively tacks on another 0.5 percent to the interest rate.
"But you can structure your loan with participation from the seller paying closing costs. Not down payment assistance, but closing costs, but in this marketplace the seller is going for that," said Virgilio.
The best rates (typically fixed, rather than adjustable) go to those who have financial reserves, savings or investments amounting to at least two months worth of a PITI (principle, interest, taxes and insurance) mortgage payment.
Likewise, the best deals go to buyers with a 30 to 33 percent debt-to-income ratio when the debt includes housing and all other monthly debt payments.
In addition to FHA home-buying loans, the "Housing and Economic Recovery Act of 2008" created "Hope For Homeowners" which allows troubled mortgage holders to avoid foreclosure by refinancing into a more affordable, FHASecure mortgage, provided Uncle Sam gets a piece of the equity-growth action and provided the existing lender approves.
Members only
Credit unions largely survived the credit crunch because, as non-profits, the fundamentals apply. They take in deposits. They make loans based on sound underwriting principles. They charge more on those loans than they pay on deposits.
Without the profit motive, there was no incentive to get involved in the subprime racket, no reason to sell and repackage loans as investments and no need to otherwise venture into untried and untrue investment schemes.
Along with fixed-rate 30-year mortgages at rates often lower than banks they also offer conventional adjustable rate mortgages (ARM) and hybrids all with rates typically lower than conventional lenders (From CreditUnion.coop/ search "rates," then see "Ratedex").
"Credit unions have a tendency to be more lenient if you have a bank account with a credit union," O'Connor said.
Credit union originations rose a whopping 10.1 percent during the first half of 2008, according to the industry's federal regulator, the National Credit Union Administration (NCUA). Conventional mortgage lender loan originations took a nose dive, falling 17 percent during the same period.
Rural home loans
Don't get your knickers in a knot over the term "rural."
Loans backed by the United States Department of Agriculture's (USDA) Rural Development Housing and Community Facilities Programs are limited, but you don't have to grow corn or raise chickens.
The loans are for:
• People living in designated rural areas where the population is less than 20,000.
• People with incomes under 115 percent of household median income for the area. In most areas, the upper income limit for borrowers will be $60,000 to $70,000 per year.
• People buying homes, not refinancing or taking out equity loans.
USDA Programs include no-money down loans (imagine that), home improvement and rehabilitation loans and grants, construction loans, loans for minorities and true to the work-ethic of rural life, sweat-equity loans that require buyers to help build their own homes.
Local, state agencies
O'Connor says don't overlook local -- city, county and state -- housing assistance programs that often cater to first-time and or low- to moderate-income home buyers as well as government and service workers including teachers, police officers and fire fighters.
More information is available about state housing efforts from the HUD site.
Local contacts are available through the National Association of Housing and Redevelopment Officials.
Copyright © 2009 Realty Times. All Rights Reserved.
Tuesday, March 3, 2009
First-time Buyers - Rescue Housing Market
From Realty Times March 3, 2009
First-time Buyers Must Rescue Housing Market
by Jim Adair
First-time buyers drove Canada's decade-long housing boom and they will lead the market out of the current downturn, says Phil Soper, president and CEO of Brookfield Real Estate Services. Brookfield owns the Royal LePage and La Capitale brands in Canada, and it recently acquired GMAC Real Estate, which has almost 17,000 sales reps in Canada and the United States.
Speaking at a recent Scotiabank forum, Soper said first-time buyers represented almost 70 per cent of the market when it peaked in 2007. Now they account for about 40 per cent of all transactions.
"Like stalled credit, the cycle of buyers and sellers grinds to a halt when first-time buyers disengage," said Soper. "It's like sand in the gears of the real estate market." He said young new buyers allow entry-level homeowners to move up to larger homes as children arrive, and in turn that helps mid-price owners aspire to more luxurious homes. "But without mover-uppers, they are stuck," said Soper.
He said it's going to take lower home prices and "transactional risk mitigation" to make first-timers start buying again. That is already being helped by dropping prices and historically low mortgage interest rates. Government incentives such as those announced in the recent federal budget will also help, he said.
The risk mitigation is helped by the return of conditional offers. During the boom, potential buyers often found themselves in bidding wars for desirable properties, and had to submit "clean" offers without any strings attached. With the softer market, now offers are being accepted with conditions on such things as successfully obtaining financing and home inspections.
Soper says the real estate industry is also seeing a shift away from the traditional "listing side" of the transaction and more to a focus on buyers. Buyer agency is growing, and brokerages are holding events such as first-time buyer seminars to help educate those entering the market. He says seller-driven contractual offers are also increasing to try and seal a deal.
Noting that housing markets have traditionally rebounded well after a recession, Soper predicted the current downturn would last about seven quarters, the same as the market correction in 1989/90. That would mean the market would flatten in the third quarter of this year and start its recovery in the fourth quarter.
Soper's forecast is more optimistic than that of his Scotiabank hosts.
Addressing the overall economy, chief economist Warren Jestin said, "The worst of the bad news will be in the first six months of this year, and next year the good news will outweigh the bad news." But he said it will be a long recovery that "may linger beyond 2010."
Senior economist Adrienne Warren said, "Another 15 to 20 per cent decline in the volume of resales is likely this year, with a further 10 per cent drop in average prices. Centres with the largest supply-demand imbalance, including Vancouver, Sudbury (Ont.) and Calgary, have relatively greater downside risk."
But she repeated what most observers have been saying about the Canadian housing market all along – that as bad as it gets in Canada, the situation is better here than in the U.S. There were far fewer subprime mortgages issued in Canada than the U.S., and the number of mortgage defaults in Canada still lingers near a record low, at about one-third of one per cent. Canadians also have more equity in their homes than their U.S. counterparts – almost 70 per cent, compared to about 45 per cent in the U.S. – reducing the risk of foreclosure.
Despite the introduction of a tax credit in the federal budget to promote renovation activity, Warren says the outlook for the renovation industry is "somewhat mixed." Spending on home improvements and alterations in Canada was close to $40 billion last year, about the same as was spent on new construction.
"The main factors behind the boom in renovations in recent years – record existing home sales, rising home prices and equity, high new home prices, record homeownership rates, an aged housing stock, and strong job and income growth – are no longer supportive," says Warren. "Renovation expenditures are typically highly cyclical, as are other areas of big-ticket discretionary spending. Job worries and a tendency for households to boost savings in today's uncertain economic and financial climate will likely trump the desire to undertake a significant new home renovation."
Copyright © 2009 Realty Times. All Rights Reserved.
First-time Buyers Must Rescue Housing Market
by Jim Adair
First-time buyers drove Canada's decade-long housing boom and they will lead the market out of the current downturn, says Phil Soper, president and CEO of Brookfield Real Estate Services. Brookfield owns the Royal LePage and La Capitale brands in Canada, and it recently acquired GMAC Real Estate, which has almost 17,000 sales reps in Canada and the United States.
Speaking at a recent Scotiabank forum, Soper said first-time buyers represented almost 70 per cent of the market when it peaked in 2007. Now they account for about 40 per cent of all transactions.
"Like stalled credit, the cycle of buyers and sellers grinds to a halt when first-time buyers disengage," said Soper. "It's like sand in the gears of the real estate market." He said young new buyers allow entry-level homeowners to move up to larger homes as children arrive, and in turn that helps mid-price owners aspire to more luxurious homes. "But without mover-uppers, they are stuck," said Soper.
He said it's going to take lower home prices and "transactional risk mitigation" to make first-timers start buying again. That is already being helped by dropping prices and historically low mortgage interest rates. Government incentives such as those announced in the recent federal budget will also help, he said.
The risk mitigation is helped by the return of conditional offers. During the boom, potential buyers often found themselves in bidding wars for desirable properties, and had to submit "clean" offers without any strings attached. With the softer market, now offers are being accepted with conditions on such things as successfully obtaining financing and home inspections.
Soper says the real estate industry is also seeing a shift away from the traditional "listing side" of the transaction and more to a focus on buyers. Buyer agency is growing, and brokerages are holding events such as first-time buyer seminars to help educate those entering the market. He says seller-driven contractual offers are also increasing to try and seal a deal.
Noting that housing markets have traditionally rebounded well after a recession, Soper predicted the current downturn would last about seven quarters, the same as the market correction in 1989/90. That would mean the market would flatten in the third quarter of this year and start its recovery in the fourth quarter.
Soper's forecast is more optimistic than that of his Scotiabank hosts.
Addressing the overall economy, chief economist Warren Jestin said, "The worst of the bad news will be in the first six months of this year, and next year the good news will outweigh the bad news." But he said it will be a long recovery that "may linger beyond 2010."
Senior economist Adrienne Warren said, "Another 15 to 20 per cent decline in the volume of resales is likely this year, with a further 10 per cent drop in average prices. Centres with the largest supply-demand imbalance, including Vancouver, Sudbury (Ont.) and Calgary, have relatively greater downside risk."
But she repeated what most observers have been saying about the Canadian housing market all along – that as bad as it gets in Canada, the situation is better here than in the U.S. There were far fewer subprime mortgages issued in Canada than the U.S., and the number of mortgage defaults in Canada still lingers near a record low, at about one-third of one per cent. Canadians also have more equity in their homes than their U.S. counterparts – almost 70 per cent, compared to about 45 per cent in the U.S. – reducing the risk of foreclosure.
Despite the introduction of a tax credit in the federal budget to promote renovation activity, Warren says the outlook for the renovation industry is "somewhat mixed." Spending on home improvements and alterations in Canada was close to $40 billion last year, about the same as was spent on new construction.
"The main factors behind the boom in renovations in recent years – record existing home sales, rising home prices and equity, high new home prices, record homeownership rates, an aged housing stock, and strong job and income growth – are no longer supportive," says Warren. "Renovation expenditures are typically highly cyclical, as are other areas of big-ticket discretionary spending. Job worries and a tendency for households to boost savings in today's uncertain economic and financial climate will likely trump the desire to undertake a significant new home renovation."
Copyright © 2009 Realty Times. All Rights Reserved.
Housing Positioned For Growth
From Realty Times on March 3, 2009
Real Estate Outlook: Housing Positioned For Growth
by Kenneth R. Harney
No economist has more information at his or her disposal than Federal Reserve chairman Ben Bernanke, and what he told Congress last week should be encouraging news for anyone interested in real estate: The recession that has gripped the country painfully for 18 months will "end" later this year - moving us into positive economic growth.
In the meantime, housing may be better positioned than other major industries. That's because there appears to be significant interest in the improved $8.000, nonrepayable home buyer tax credit plus a historically-favorable combination of low interest rates and rolled-back home prices.
In a new research report, the National Association of Home Builders found that affordability of houses is now at its best level in years. The association's "Housing Opportunity Index" -- which measures the percentage of homes sold in local markets around the country that are affordable to families earning area median incomes -- hit a near-record 62.4 percent in the most recent quarter for which data is available.
By contrast a year earlier, the index was at 47, meaning that less than half of households could afford to buy a median priced home. During the boom years it was even worse.
Although rising unemployment is a sobering counter-trend, the improvement in affordability may be setting the stage for a real estate rebound -- even if monthly ebbs and flows in sales look gloomy in the first quarter of the year .
Mortgage rates continue to hover in the mid-5 percent range for 30-year fixed rate loans. Fifteen year rates are at 4.7 percent.
While average prices of homes continue to decline on a national basis, according to the Federal Housing Finance Agency, dozens of local markets -- most of them ignored by widely-publicized surveys such as Standard & Poor's Case-Shiller Index -- continue to show net positive selling price performance.
According to the agency's latest quarterly survey, local markets in much of Texas registered higher prices year-to-year, along with parts of the Carolinas, the Northeast, and the Gulf states.
For example, houses selling in Austin, Texas, were up 4.4 percent over last year. In Boulder, Colorado, the average gain was 3 percent. In Houston 3.7 percent; Decatur, Alabama 6.6 percent; Kingsport-Bristol Tennessee 6.3 percent; and Syracuse, New York 3 percent.
You don't hear about these positives because these areas were lower profile during the boom, never experienced a bust, and are just not on the New York radar screens.
But they're for real, and their moderate, sensible growth patterns may be where we're headed in real estate this year.
Copyright © 2009 Realty Times. All Rights Reserved.
Real Estate Outlook: Housing Positioned For Growth
by Kenneth R. Harney
No economist has more information at his or her disposal than Federal Reserve chairman Ben Bernanke, and what he told Congress last week should be encouraging news for anyone interested in real estate: The recession that has gripped the country painfully for 18 months will "end" later this year - moving us into positive economic growth.
In the meantime, housing may be better positioned than other major industries. That's because there appears to be significant interest in the improved $8.000, nonrepayable home buyer tax credit plus a historically-favorable combination of low interest rates and rolled-back home prices.
In a new research report, the National Association of Home Builders found that affordability of houses is now at its best level in years. The association's "Housing Opportunity Index" -- which measures the percentage of homes sold in local markets around the country that are affordable to families earning area median incomes -- hit a near-record 62.4 percent in the most recent quarter for which data is available.
By contrast a year earlier, the index was at 47, meaning that less than half of households could afford to buy a median priced home. During the boom years it was even worse.
Although rising unemployment is a sobering counter-trend, the improvement in affordability may be setting the stage for a real estate rebound -- even if monthly ebbs and flows in sales look gloomy in the first quarter of the year .
Mortgage rates continue to hover in the mid-5 percent range for 30-year fixed rate loans. Fifteen year rates are at 4.7 percent.
While average prices of homes continue to decline on a national basis, according to the Federal Housing Finance Agency, dozens of local markets -- most of them ignored by widely-publicized surveys such as Standard & Poor's Case-Shiller Index -- continue to show net positive selling price performance.
According to the agency's latest quarterly survey, local markets in much of Texas registered higher prices year-to-year, along with parts of the Carolinas, the Northeast, and the Gulf states.
For example, houses selling in Austin, Texas, were up 4.4 percent over last year. In Boulder, Colorado, the average gain was 3 percent. In Houston 3.7 percent; Decatur, Alabama 6.6 percent; Kingsport-Bristol Tennessee 6.3 percent; and Syracuse, New York 3 percent.
You don't hear about these positives because these areas were lower profile during the boom, never experienced a bust, and are just not on the New York radar screens.
But they're for real, and their moderate, sensible growth patterns may be where we're headed in real estate this year.
Copyright © 2009 Realty Times. All Rights Reserved.
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