“The loudest and most influential voice you hear is your own inner voice, your self critic. It can work for you or against you, depending on the messages you allow.” -Keith Harrell: Was a motivational speaker, trainer, and coach
5 REAL ESTATE HEADLINES YOU’LL SEE IN THE NEXT SIX MONTHS
Making predictions can be the ‘kiss-of-death’ for a blog. Even if we get four out of five correct (80%), there are those in the industry who will kill us on the one we got wrong. We believe strongly that when making a real estate decision for you and your family you must look forward and take into consideration how the housing market may change.
For this reason, we are willing to take on the possible wrath of our counterparts by sticking out our necks and predicting these will be the major real estate news stories from now until the end of the year.
Interest Rates Rise
Many, including us, have been surprised that rates have not risen already. However, the next several months are going to see three distinct changes that will propel rates upward.
- As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate.
- In many higher priced markets, rolling back Conforming Loan Limits means that rates for the mortgages on these properties will resort back to the rates on private jumbo loans. The FHFA informed us that last year, the difference between mortgage rates for jumbo loans and jumbo-conforming mortgages has varied between about ½ and ¾ of a percentage point.
- As the economy gets better (and we believe it will), the pressure to keep rates low to stimulate growth will abate.
Some Loan Requirements Tighten but More Can Now Get a Loan
Lending institutions have already started to introduce stricter mortgage guidelines. Whether the Quality Residential Mortgage (QRM) requirements are instituted as originally proposed or eased somewhat, there is no doubt that guidelines will continue to tighten as we work through the year. However, we believe the private sector will again start introducing alternative mortgage financing but at a greater expense to the consumer. You WILL be able to get a mortgage. It will just cost you more.
Housing Sales Increase
Contracted sales have shown consistent improvement over the last six months and we feel this will continue and actually begin gaining even greater momentum. We believe there is a ‘pent-up’ buying demand caused by the volatility of the market over the last several years. When interest rates start to move upward and alternative financing becomes more available, these buyers will start to jump off the fence. We believe there will be a major upswing in sales over the next six months.
Distressed Properties Increase Markedly
More people are paying their mortgage on time and that is great news for housing in the long term. However, the numbers of distressed properties currently in the foreclosure process is still very swollen. These properties will begin coming to the market in the second half of the year as short sales and foreclosures. The numbers will be staggering in some areas.
Prices Continue to Soften in Most Markets
The current housing inventory for sale and the distressed properties about to come on the market will vastly outnumber the increased supply of purchasers we will see over the next six months. There will be more houses for sale then there will be buyers purchasing them. That oversupply will continue to put downward pressure on prices through the rest of this year and into 2012.
DOWN PAYMENT PLAN MAY PRICE BUYERS OUT OF MARKET
How much a home buyer should have a for a down payment on a home has been up for dispute among policymakers. Some recent federal regulators and lawmakers calling for a 20 percent or 10 percent down payment in order for mortgages to be considered a “qualified residential mortgage” and not subjected to extra fees.
However, such stringent down payment requirements could price many home owners out of the housing market, argues a growing number of consumer housing advocates. (Read more about the National Association of REALTORS®’ stance).
In fact, for many creditworthy home buyers in occupations that don’t boast high median salaries, they might have to wait a decade or even longer to meet the down payment rule.
The Center for Responsible Lending, which has argued that 10 percent or 20 percent down payment requirements are too high, has a chart on its Web site boasting the length of time it would take borrowers of different occupations to save enough for a 10 percent down payment on a 2010 median-priced $172,900 home.
▪U.S. Army Staff Sergeant: 16 years (median salary: $30,176)
▪Public school teacher: Nearly 15 years (median salary: $33,530)
▪Firefighter: 10 years (median salary: $47,730)
▪Police officer: Nearly 9 years (median salary: $55,620)
“We’re not advocating for zero percent down,” Kathleen Day, spokesperson for the Center for Responsible Lending, told The New York Times. “We think down payments are good. But we think the market should set them, based on the underwriting.” (That is, based on the borrower’s credit history and income and debt levels.)
The down payment proposal comes as part of new rules for mortgage lenders in the Dodd-Frank law. Federal agencies are trying to set criteria for what should be considered a reasonably safe mortgage or QRM. Lenders issuing a QRM will be able to sell the loan to an investor and avoid retaining any of the risk. However, lenders will consider non-QRMs more risky since they’ll have to retain a 5 percent ownership. (Loans insured by the Federal Housing Agency would be exempt.) For borrowers who are unable to meet QRM, they would have to pay more for their loans because lenders would have to boost interest rates on their loans to cover the extra costs.
What You Can Do
Lawmakers have extended the public comment on the new down payment rules to Aug. 1. The REALTOR® Action Center has issued a call for real estate professionals to help ensure their clients have access to affordable mortgages. To send a letter to your state lawmakers, visit REALTOR.org
NATIONAL RENTAL PRICES CLIMB IN JUNE
Rental listing prices nationwide rose 6.7 percent year-over-year in June, according to a report from real estate search site HotPads.
The report was based on the median listing prices of 500,000 rentals on HotPads.com across major U.S. metro areas between June 2010 and June 2011.
When broken down by number of bedrooms, the data showed studios and five-bedroom homes experienced the biggest rental price hikes. Monthly rent prices for studios rose 14.3 percent, to a median $833. For five-bedroom homes, rents rose 12.1 percent to a median $2,727.
“This is a telling trend (that) may indicate a growing demand for rental housing among first-time renters and larger families,” the report said.
Monthly rents for one-bedroom homes rose a more modest 2.3 percent to a median $851. Rents for two-bedroom homes rose 2 percent to $1,020; for three-bedroom homes, up 4.2 percent to $1,295; and for four-bedroom homes, up 5.3 percent to $1,832.
As in a previous report, HotPads said “built-up demand for low-risk housing may be due to financial uncertainty and a growing national sentiment questioning the future value of a home purchase.”
CAN A NEW HUD PROGRAM SAVE HOME OWNERS?
In June, the Department of Housing and Urban Development launched a new grant program to help home owners who have fallen behind on their mortgage payments due to unemployment or unexpected medical bills.
The program offers eligible home owners $50,000 in interest-free loans for up to two years.
HUD has until the end of the government’s fiscal year, Sept. 30, to spend all of its $1 billion for the Emergency Homeowners’ Loan Program (or EHLP), which will provide 27 states with aid for the program. Home owners in eligible states have until July 22 to complete their applications.
HUD hopes that 30,000 home owners can be helped through the program.
However, while some are seeing the program as a last chance to help unemployed home owners stay in their homes, others aren’t as convinced the program will do much good in ultimately lessening foreclosures in the country.
“The best foreclosure mitigation program in America is a job,” argues Rep. Jeb Hensarling, R-Texas. “It’s not a government check, it’s a paycheck.” Earlier this year, Hensarling sponsored a bill to end EHLP, which was supported by the House. The Senate has yet to take up the bill, however.
For a full list of states and eligibility requirements for EHLP, visit the HUD Web site.