May 23, 2017 –
Our economic growth is very cyclical. And the last few cycles we have experienced have been some of the most severe we have seen in history. In the early 2000’s we had a very strong economic boom fueled by an explosion in real estate values. From late 2007 to the middle of 2009, we were subjected to a very severe recession, led by the collapse of the financial and real estate markets. Our latest cycle has been much less severe, as we have witnessed a very gradual recovery. But the length of the recovery has been extraordinary and is now approaching the longest recoveries in history, which have ranged from 80 to 120 months.
There are other types of cycles that typically occur concurrently with these economic cycles. For example, during the real estate boom, just about anyone could qualify to purchase a home. During the recession, credit standards tightened tremendously, and at that time only those with pristine credit could qualify for a home loan. Now, during the recovery, we have seen a gradual swing of the credit pendulum on the other side. No, we are not approaching the days in which anyone who breathed could get a loan.
However, if you look at many aspects of qualification, we have come a long way over time, just as the economy has. For example, FICO score minimums have come down. There are also more programs which require lower down payments. Though verification of income is almost universally required, there is more flexibility with regard to income qualification. As rates have moved up, lenders have become more adventurous regarding qualifying more prospects. Again, we don’t believe we are moving back to the cowboy days of the real estate boom. But we do believe that many who don’t believe they could qualify to purchase a home, now might very well be able to do so.
The Markets. Rates were down slightly last week, but the survey data did not include a drop in rates on Wednesday of last week. For the week ending May 18, Freddie Mac announced that 30-year fixed rates fell to 4.02% from 4.05% the week before. The average for 15-year loans decreased slightly to 3.27%, and the average for five-year adjustables moved down one tick to 3.13%. A year ago, 30-year fixed rates averaged 3.58%. Attributed to Sean Becketti, chief economist, Freddie Mac — “The rate on 30-year fixed loans fell 3 basis points this week to 4.02 percent. However, this week’s survey closed prior to Wednesday’s flight to quality. The delayed impact of the associated decline in Treasury yields may push rates lower in next week’s survey.” Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Updated May 19, 2017
|Daily Value||Monthly Value|
|6-month Treasury Security||1.02%||0.95%|
|1-year Treasury Security||1.09%||1.04%|
|3-year Treasury Security||1.44%||1.44%|
|5-year Treasury Security||1.78%||1.82%|
|10-year Treasury Security||2.23%||2.30%|
|12-month LIBOR||1.780% (Apr)|
|12-month MTA||0.732% (Apr)|
|11th District Cost of Funds||0.583% (Mar)|
|Prime Rate||4.00% (Apr)|
Fifty-six percent of consumers recently surveyed believe that a standard homeowner’s policy covers flood damage. But they’re mistaken, and their assumption could be a costly mistake. The survey by insuranceQuotes of about 1,000 consumers shows a lot of misunderstandings when it comes to home insurance and what’s covered and what’s not. “Being misinformed about your home policy can be an extremely expensive mistake—especially when a few inches of water in a 1,000 square-foot home can easily cost over $10,000 in repairs,” says Laura Adams, senior insurance analyst at insuranceQuotes. “There are a number of widespread myths ranging from coverage for dog bites to items stolen from your car that frequently trip up policyholders.” Consumers tend to overestimate the amount of coverage they have when it comes to flooding protection, according to the study. Further, 81 percent of survey respondents knew that valuables stolen from their home were covered under most standard homeowner’s policies, yet only 28 percent knew that renter’s insurance would cover valuables stolen from their cars. “It’s critical for consumers to thoroughly explore their options and really understand the protections that are included or excluded with a standard renter’s or home insurance policy,” says Adams. “Don’t wait until right before a big storm is headed your way to get coverage because there may be a waiting period.” Source: REALTOR® Magazine
New homes are getting larger, but their lot sizes are getting smaller. The median size of a new home increased from 1,938 square feet in 1990 to 2,300 square feet in 2016, but lot sizes during this same period decreased from 8,250 square feet to 6,970 square feet. That amounts to about a 16 percent decrease. However, the trend hasn’t been consistent: Between 2006 and 2011, home buyers were showing demand for larger homes and larger lots. As home prices dropped during the housing crisis, greater affordability gave buyers opportunities to seek larger outdoor spaces. Today’s pullback in lot sizes come as builders look to cut costs. “When home prices appreciate at a fast pace, the land value rises even faster, which, in turn, drives the cost of homes higher,” according to CoreLogic’s Insights blog. “In order to mitigate the high cost of the land value, home builders reduce the size of the lots to bring the cost of the new home down so they can price these homes at a reasonable level.” Indeed, the data shows that sizable price gains on large homes between 2014 and 2016 put pressure on builders in the cost of acquiring and developing land. More builders responded by building larger homes but on smaller lots. Source: CoreLogic Insights
Millennials may often get all the attention, but members of Generation X are really the ones who have been driving the housing market lately. Gen Xers, who are between the ages of 37 and 51, make up the second largest share of home buyers, comprising 28 percent in 2016, according to data from the National Association of Realtors®. They also are buying the largest, most expensive homes compared to any other generation. The median price of homes purchased by Gen X buyers is $261,000, and the median size of the homes is 2,100 square feet, according to the NAR. Further, Gen Xers boast a median household income of $106,600, higher than any other generation. Some Gen Xers are drawn to previously owned homes for their charm and character, while others prefer new homes in order to customize design features, NAR data shows. Gen X buyers are also the most likely to purchase a home in neighborhoods that are convenient to schools. But they’re willing to compromise: 21 percent of Gen Xers indicate a willingness to make concessions on the condition of a home, more than any other generation. Source: NAR