“Decisiveness is a characteristic of high-performing men and women. Almost any decision is better than no decision at all.”
– Brian Tracy: Author, speaker, and consultant
WHAT’S FIRST? THE HOUSE OR THE MORTGAGE?
Most people get it backwards. They shop for a home, THEN, they try to structure the financing for it. They make the emotional decision of buying the home of their dreams, THEN, try to apply logic in how they pay for it. Many even go “online” and play with what is affordable by underwriting standards without TRULY considering their future.
I am always fascinated by mortgage underwriting “standards” when they don’t even take into account some very large variables that affect an applicant’s cash flow, and thereby, their ability to repay the loan or maintain a lifestyle they want:
- Are you single or a family of six? Costs for food and clothing alone are very different.
- Do you live in a state that requires State Income Tax or not? Another significant part of the equation.
- How often do you like to eat out or vacation? Are you willing to sacrifice these things for a bigger or nicer home?
Falling in love with a home without considering the REAL impact on your lifestyle is a recipe for unhappiness…either in re-adjusting to a “lesser” home or disappointment over the lack of vacations or nights out.
My advice is to first work on your financing. Go the logic route. Find out what you can afford from a lender’s underwriting perspective, but then, spend some time considering the the cash flow realities of your choice. Work with your loan officer to make wise choices.
Additionally, your loan officer should be advising you on ways to properly represent and transfer your assets, how to explain and document your income, as well as, assisting you in methods to get your optimal credit score. This counsel can be invaluable in smoothing out some of the bumps in the mortgage process, besides giving you the best chance to get the most aggressive pricing available.
To me, the choice is crystal clear…the mortgage before the house!
ARE BANKS GETTING BETTER ON SHORT SALES?
Are short sales getting easier? Some home owners are reporting that banks are now not only more willing to consider a short sale, but are even offering incentives to complete a short sale. For example, a home owner in Chicago says his lender approved his short sale and then gave him a $20,000 check after the deal was finalized for selling the home as a short sale instead of letting it sink into foreclosure.
Lenders accepting a lower mortgage payoff from an underwater seller traditionally isn’t thought of an easy transaction to complete. Lenders weren’t so willing a few years ago. But as the number of Americans underwater on their mortgages grow, more lenders are reconsidering as they try to avoid extra costs incurred to their bottom-lines that a foreclosure can cause.
For 2011, short sales accounted for about 8 percent of total home sales, and rose 7 percent over 2010 totals, according to CoreLogic data. Short sales are up by 59 percent year-over-year in Illinois, 32 percent in Michigan, and 19 percent in Arizona alone, according to CoreLogic.
“We’re starting to see that servicers and lenders are viewing short sales as a better alternative than they had in the past,” says Daren Blomquist, spokesman for RealtyTrac. “Some of that relates to the fact that it’s getting harder to foreclose. There are additional requirements in terms of paperwork and requirements that states and judges are imposing.”
Short sales can still be complex and lengthy – they can take up to nine months to close and even after that, there’s no guarantee it’ll end successfully. “In general, it is a totally different type of transaction,” says Mike Cuevas, a real estate profesional at Exit Realty in Chicago. “You’re not only selling a house, you’re negotiating debt.”
BAY AREA RENTS ARE RISING
Rents are climbing sharply in the East Bay as people who were once homeowners look for places to rent after losing their homes to foreclosure or not being able to keep up with their mortgage payments.
Rents are rising even faster in Santa Clara and San Mateo counties as tech-driven employment continues to create increased demand for apartments, said a report to be released Thursday by RealFacts.com.
Both areas saw rents return to their pre-recession highs.
“In the Santa Clara and San Mateo area, given the importance of the technology industry, the rate is growing, there is more demand, and vacancy rates are especially low in Santa Clara County. … That creates pressure on the rental market,” said Jed Kolko, chief economist for San Francisco-based Trulia.com, a website for home sales and apartment rentals.
“But even in places where the economy isn’t doing as well, we are still seeing increases in rent because homeownership has gone down. And that means that more people are in the rental market,” he said.
The rankings are based on asking rents for all types of apartments ranging from studios to three-bedrooms in large complexes that have 50 or more apartments.
The report also listed the Bay Area, which RealFacts defines as Alameda, Contra Costa, Marin, San Francisco and San Mateo counties, as showing the biggest quarter-to-quarter gains in rents among 47
metro area nationwide. The region’s average rent of $1,697 was up 3.3 percent from the second quarter and 9.7 percent higher than a year ago.
But while the Bay Area tops the list on a quarter-to-quarter basis, Santa Clara is the leader on a year-to-year basis.
“The Bay Area definitely outperforms all other markets, and if you look at Santa Clara County year-over-year it’s approaching 13 percent, which is unprecedented growth for what’s happening overall in our economy,” said Sarah Bridge, owner of RealFacts.
In Santa Clara County, the average rent for an apartment in the three-month period ending in September was $1,792, up 1.8 percent from the previous quarter and 12.9 percent higher than a year ago. San Mateo County had an average rent of $1,866, up 2.8 percent from the previous quarter and 10.7 percent higher from a year ago.
In Alameda County, the average rent was $1,490, up 1.8 percent from the previous quarter and 8.7 percent higher than a year ago. In Contra Costa County, the average rent was $1,342, up 2.8 percent from the previous quarter and 7 percent higher from a year.
In all four counties, rents were higher than they were in 2007. The recession arrived in December that year and officially ended in June 2009.
Many cities in the Bay Area showed double-digit rent increases compared with a year ago, the report said.
The highest year-to-year percentage increase in the region was in Cupertino, where rents rose 17.9 percent to $2,249, followed by Mountain View, where rents climbed 16.3 percent to $1,876. Rents rose 13.8 percent to $1,979 in San Mateo, and 12.4 percent to $2,083 in Foster City.
In the East Bay, the city that had the biggest year-to-year percentage increase was Newark, where the average rent increased 13.7 percent to $1,547, followed by Pleasanton, where rents rose 13.3 percent to $1,748. Rents climbed 11.3 percent to $1,415 in Pleasant Hill, followed by Walnut Creek, where rents rose 11.1 percent to $1,551.
CENSUS: HOUSING BUST WORST SINCE GREAT DEPRESSION
The American dream of homeownership has felt its biggest drop since the Great Depression, according to new 2010 census figures released Thursday.
The analysis by the Census Bureau found the homeownership rate fell to 65.1 percent last year. While that level remains the second highest decennial rate, analysts say the U.S. may never return to its mid-decade housing boom peak in which nearly 70 percent of occupied households were owned by their residents.
The reason: a longer-term economic reality of tighter credit, prolonged job losses and reduced government involvement.
Unemployed young adults are least likely to own, delaying first-time home purchases to live with Mom and Dad. Middle-aged adults 35-64, mostly homeowners who were hit with mortgage foreclosures or bankruptcy after the housing bust in 2006, are at their lowest levels of ownership in decades.
“The changes now taking place are mind-boggling: the housing market has completely crashed and attitudes toward housing are shifting from owning to renting,” said Patrick Newport, economist with IHS Global Insight. “While 10 years ago owning a home was the American Dream, I’m not sure a lot of people still think that way.”
He noted the now-diminished roles of mortgage buyers Fannie Mae and Freddie Mac, which for decades at the urging of government helped enable loans to borrowers with poor credit, many of them minorities. In a shift, the Obama administration earlier this year said it would move from a longtime government focus on promoting homeownership for all and instead steer people with low incomes toward renting where appropriate.
Congress has been considering whether to eliminate the federal tax deduction for home-mortgage interest, a popular incentive to home-buying that’s been in place since the early 20th century.
Given depressed housing values that could continue for at least another four to five years, it now makes more sense in most cases to rent than own, Newport said.
Nationwide, the homeownership rate fell to 65.1 percent – or 76 million occupied housing units that were owned by their residents – from 66.2 percent in 2000. That drop-off of 1.1 percentage points is the largest since 1940, when homeownership plummeted 4.2 percentage points during the Great Depression to a low of 43.6 percent.
The U.S. housing crisis is far worse than the experience in most Western industrialized nations, which, unlike the U.S., did not foster markets of subprime lending to promote homeownership. The U.S. continues to maintain a relatively high rate of homeownership, surpassed only by countries such as Spain, Ireland, Australia and England.
EXISTING-HOME SALES OFF IN SEPTEMBER
Existing-home sales were down in September on the heels of a strong gain in August, but remain well above a year ago, according to the National Association of REALTORS®.
Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, declined 3.0 percent to a seasonally adjusted annual rate of 4.91 million in September from an upwardly revised 5.06 million in August, but are 11.3 percent above the 4.41 million unit pace in September 2010.
Lawrence Yun, NAR chief economist, said the market has been stable although at low levels, and there is plenty of room for improvement. “Existing-home sales have bounced around this year, staying relatively close to the current level in most months,” he said. “The irony is affordability conditions have improved to historic highs and more creditworthy borrowers are trying to purchase homes, but the share of contract failures is double the level of September 2010. Even so, the volume of successful buyers is higher than a year ago and is remaining fairly stable – this speaks to an unfulfilled demand.”
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.11 percent in September, down from 4.27 percent in August; the rate was 4.35 percent in September 2010.
Contract failures were reported by 18 percent of NAR members in September, unchanged from August; they were 9 percent in September 2010. Contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including home inspections and employment losses.
NAR President Ron Phipps said access to credit is unbalanced. “All year we’ve been discussing the fact that many creditworthy home buyers are being denied mortgages,” he said. “On top of that, loan limits have been lowered, which means buyers of higher priced homes, including many in more expensive housing markets, now have to pay a higher interest rate for a jumbo mortgage than buyers who can qualify for a conventional loan. We need to remove the roadblocks to a housing recovery – not place more obstacles in the way of financially qualified buyers.”
Who’s Buying? What’s Selling?
All-cash sales accounted for 30 percent of purchase activity in September, up from 29 percent in August and 29 percent also in September 2010; investors make up the bulk of cash purchases.
Investors purchased 19 percent of homes in August, down from 22 percent in August; they were 18 percent in September 2010. First-time buyers accounted for 32 percent of transactions in September, unchanged from August; they were also 32 percent in September 2010.
The national median existing-home price for all housing types was $165,400 in September, down 3.5 percent from September 2010. Distressed homes – foreclosures and short sales typically sold at deep discounts – accounted for 30 percent of sales in September (18 percent were foreclosures and 12 percent were short sales), down from 31 percent in August and 35 percent in September 2010.
Total housing inventory at the end of September declined 2.0 percent to 3.48 million existing homes available for sale, which represents an 8.5-month supply at the current sales pace, compared with an 8.4-month supply in August.
Single-family home sales fell 3.6 percent to a seasonally adjusted annual rate of 4.33 million in September from 4.49 million in August, but are 12.2 percent above the 3.86 million-unit level in September 2010. The median existing single-family home price was $165,600 in September, down 3.9 percent from a year ago.
Existing condominium and co-op sales rose 1.8 percent a seasonally adjusted annual rate of 580,000 in September from 570,000 in August, and are 5.6 percent above the 549,000-unit pace one year ago. The median existing condo price was $163,800 inSeptember, which is 1.0 percent below September 2010.
Around the U.S.
Regionally, existing-home sales in the Northeast rose 2.6 percent to an annual level of 790,000 in September and are 6.8 percent above a year ago. The median price in the Northeast was $229,400, down 3.3 percent from September 2010.
Existing-home sales in the Midwest slipped 0.9 percent in September to a pace of 1.09 million but are 17.2 percent higher than September 2010. The median price in the Midwest was $137,400, which is 1.4 percent below a year ago.
In the South, existing-home sales declined 2.6 percent to an annual level of 1.89 million in September but are 10.5 percent above a year ago. The median price in the South was $144,400, down 3.0 percent from September 2010.
Existing-home sales in the West fell 8.8 percent to an annual pace of 1.14 million in September but are 10.7 percent higher than September 2010. The median price in the West was $207,400, which is 4.5 percent below a year ago.
“The falloff in Western sales from a surge in August was expected because many lenders had lowered mortgage loan limits over concerns that sales wouldn’t close before the higher loan limits expired at the end of the September,” Yun said. “Given the concentration of higher cost housing in the West, particularly in California, many buyers were motivated to close in the months leading up to the changeover while they could still get low interest rates on conventional mortgages. Unless Congress reinstates the higher limits, the overall housing market recovery will be slower than it otherwise could be, and will hold back the broader economic recovery.”