Mortgage Business

Jobs and Real Estate

20140309-080351.jpgMost have been disappointed with regard to the slow pace of real estate sales in 2014. Coming into the year, it looked like there was a lot of momentum in the real estate market, but that momentum waned in a very harsh winter and improvements came throughout the year in slow increments. We take another view with regard to the performance of real estate in the past year. A few years back, distressed sales were as high as 30 percent of the total market. And the purchases of distressed properties were dominated by investors, many of whom were purchasing in bulk. During the latter stages of this year, distressed sales fell to under 10 percent of the overall market.

The drop in distressed sales represents a market that is getting healthier. Yes, twenty percent of the sales went away. But the fact that total real estate sales stayed approximately level with the previous year means that over twenty percent of the sales were replaced largely by homeowners. What this represents is a normalization of the market. In 2015 we will not have to replace the same level of distressed sales, though the numbers of distressed sales are still predicted to fall. In our mind, real estate sales will continue to rise from today’s levels. How fast? Well, that depends upon several factors, not the least of which is the employment situation.

Almost two weeks ago, we learned that over 300,000 jobs were added in one month. This put us on a trajectory to add almost three million jobs in one year, the most since 1999. Yes, the slow recovery has meant that it took us a long time to get here from our very deep recession. Yet today, with the level of distressed sales normalizing, it is expected that this increased job creation will lead to further strengthening of the real estate markets. With rents still rising, it is expected that many more will purchase their first home in 2015, especially if interest rates don’t rise too quickly. The easing of credit standards are also expected to contribute positively to the market for first time buyers. Meanwhile, you can be sure that the Federal Reserve has taken note of the positive news on jobs and that news will be a top topic of discussion when they meet today and tomorrow.


The Markets. Fixed rates on home loans rose slightly in the past week after decreasing for the previous month. Freddie Mac announced that for the week ending December 11, 30-year fixed rates rose to 3.93% from 3.89% the week before. The average for 15-year loans increased to 3.20%. Adjustables were mixed, with the average for one-year adjustables decreasing to 2.40% and five-year adjustables rising to 2.98%. A year ago, 30-year fixed rates were at 4.42%, which is approximately 0.5% higher than today’s levels. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac — “Fixed rates on home loans rebounded slightly this week with the 30-year fixed mortgage rate increasing to 3.93 percent after declining for four weeks in a row. The rate movement comes on the heels of an uplifting jobs report showing nonfarm payrolls adding 321,000 new jobs in November — 91,000 more jobs than expected. The unemployment rate remained unchanged at 5.8 percent.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Current Indices For Adjustable Rate Mortgages
Updated December 12, 2014

Daily Value Monthly Value
Dec 11 November
6-month Treasury Security 0.09%  0.07%
1-year Treasury Security 0.21%  0.13%
3-year Treasury Security 1.05%  0.96%
5-year Treasury Security 1.62%  1.62%
10-year Treasury Security 2.19%  2.33%
12-month LIBOR  0.562% (Nov)
12-month MTA  0.114% (Nov)
11th District Cost of Funds  0.671% (Oct)
Prime Rate  3.25%

  Getting a home loan is about to get easier. That’s because Fannie Mae and Freddie Mac, the two government-backed residential finance giants that backstop a majority of all home loans, have put new lending guidelines in place that should make it easier for borrowers to secure loans. Not only are the two agencies lowering downpayment requirements, but more importantly, they have clarified when lenders will be on the hook if borrowers default. In the past, Fannie and Freddie have been able to force lenders to buy back loans that have defaulted soon after it was issued, if any mistakes were made in the paperwork or if there was borrower fraud. Mel Watt, the head of the Federal Housing Finance Agency, acknowledged that the previous policy made it hard for lenders to understand exactly when Fannie Mae or Freddie Mac would require the banks to repurchase loans. Under the new rules, any loans with no missed payments for 36 consecutive months after they were first issued will be backed by Freddie or Fannie should they default. The agencies will also allow two missed payments in the first 36 months without forcing borrowers into foreclosure. And if private mortgage insurance, which is required for all low downpayment loans, is rescinded, say due to errors made in the underwriting process, lenders will not automatically be required to repurchase the loans. According to Lawrence Yun, chief economist for the National Association of Realtors, the buyback issue has been “the number one hindrance to residential lending lately. If it disappears, it would be a big boost to residential lending.” Freddie and Fannie have also said they will start backing 3% down loans. Borrowers can currently get 3.5% down loans from the FHA, although they require borrowers to pay expensive mortgage insurance premiums for the life of their loans. The new low down payment loans should help boost homebuying among low-income and first-time homebuyers, who have been conspicuously absent from the housing market over the past year. Lenders already seem to be loosening up a bit. Mark Palim, who oversees economic and strategic research at Fannie Mae, said average credit scores for approved loan applications have dropped slightly over the past few months and lenders are doling out loans with lower downpayments as well. Source: CNN/Money  Note: We expect to release more details about the Fannie Mae and Freddie Mac 3.0% down programs as they become available.

For most of this year, the economic news relating to Millennials has been discouraging, ranging from an absurdly high student loan debt burden to a painfully low prospect of decent-paying employment opportunities to a conspicuous lack of aggressive participation in the housing market. However, Zillow is boldly predicting a significant turnaround for the 18-to-35-year-old demographic, with a statement that Millennials will overtake Generation X (the 35-to-50-year-olds) as the largest group of homebuyers in 2015. “Roughly 42 percent of Millennials say they want to buy a home in the next one to five years, compared to just 31 percent of Generation X, and by the end of 2015 Millennials will become the largest home-buying age group,” said Dr. Stan Humphries, Zillow chief economist. “The lack of home-buying activity from Millennials thus far is decidedly not because this generation isn’t interested in homeownership, but instead because younger Americans have been delaying getting married and having children, two key drivers in the decision to buy that first home. As this generation matures, they will become a home-buying force to be reckoned with.” Zillow’s Dr. Humphries also predicted that rising rents in 2015 will also play a role in reconfiguring the housing market’s demographic blocs. “Home value appreciation will continue to cool down, from roughly 6.0 percent now to around 2.5 percent by the end of 2015,” he said. “But rents will see no such slowdown, and will continue to grow around 3.5 percent annually throughout 2015. As renters’ costs keep going up, I expect the allure of fixed home loan payments and a more stable housing market will entice many more otherwise content renters into the housing market.” Source: National Mortgage Professional Daily

Builders are looking for ways to make it easier and cheaper for home owners to generate their own electricity and lower their utility costs, and they’re increasingly turning to solar panels as the answer. Residential solar installations are on the rise, at a time when costs for installation have moved lower and government incentives further improve the affordability. Solar-power systems can be even cheaper to install during a home’s construction than adding them afterward. Some builders are offering a cheaper option to lease a system than to buy one (which can run from $10,000 to $20,000). “Up to this point, retrofits have been by far the largest portion” of homes with solar power, Rhone Resch, chief executive of the trade group Solar Energy Industries Association, told The Wall Street Journal. But as more builders step in to offer solar options, that could change, she says. Lennar, the nation’s second-largest home builder, is adding solar panels to many of its homes in several of its developments in California, Colorado, and Nevada. “We aren’t offering homes with solar as an option — it’s a standard feature” in certain communities, says David Kaiserman, president of Lennar Ventures, which oversees the builder’s solar project. Company officials say they plan to soon offer solar options to more states, particularly ones that have programs that encourage renewable energy. Source: The Wall Street Journal

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