Real Estate News

A Lot Has Happened

August 4, 2015
ECONOMIC COMMENTARY
This week is employment data week, which is a very important week for the markets. Since last month’s report a lot has happened. A lot of the focus has been on the international side with the default crisis in Greece, nuclear talks with Iran and the stock market fallback in China. These international events are very important, especially in light of the fact that the markets are anticipating an increase in rates from the Federal Reserve Board, possibly as soon as next month.

If the jobs report is strong, the speculation regarding a rate increase will grow. However, all these intervening variables are being watched by the Fed. We also had an avalanche of earnings reports last month and if the stock market is under pressure because of lower earnings, this is another economic issue the Fed needs to factor into a decision as higher rates can also make stocks less attractive. The preliminary number for economic growth in the second quarter came in at 2.3%, which is a solid but not spectacular number that will be factored into the Fed’s decision. This number will be revised before the Fed meets again in September.

Real estate seems to be the one area of the economy that appears to be weathering the international news and upward pressure on rates. Last month we saw another month of rising existing home sales, though new home sales were weaker. Even these numbers can be affected by rates as consumers rush to beat future rate increases. For now, the real estate sector is contributing positively to the economy which is why the Fed is watching the real estate markets very closely as well.

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Realtor Advice

New Loan Limits for 2015 – Tax Exemption for Short Sales Extended

Just a quick note about some recent regulatory changes affecting the real estate business.

The Federal Housing Finance Agency has announced the maximum conforming loan limits for home loans to be acquired by Fannie Mae and Freddie Mac in 2015. For much of the country, the conforming loan limit for a one-unit property will remain at $417,000 for 2015 with the limit at $625,500 in the highest cost areas. In 46 counties the limit will rise because those counties experienced increases in local home values. Both FHA and VA also announced their loan limits for 2015 and these agencies generally follow the conforming limits. However, under the Veterans Benefit Improvement Act of 2008, VA had allowed higher loan limits in some high cost areas. Because the Act expired in 2014, these limits must now be the same as conforming limits as well, unless Congress extends the law. VA will honor the higher loan limit after January 1, 2015 only if the sales contract and loan application are completely ratified before that date.

Meanwhile, Congress has acted on the expired Mortgage Debt Forgiveness Act, extending the tax exemption for short sales, as well as the deduction for mortgage insurance.

Contact me with any questions about these items.  Here are the links with more detail on these actions:

Federal Housing Finance Agency – 2015 Loan Limits

FHA – 2015 Loan Limits

VA – 2015 Loan Limit

Senate Pass Tax Bill including Mortgage Debt Forgiveness Extension

Mortgage Business

The Best of All Worlds?

20140309-080351.jpgThe past several years have been anything but ideal with regard to the economy and lifestyle of Americans. We started with a deep recession which included a collapse of home values which were increasing at an unsustainable pace. The way out of the recession was anything but painless. It was slow and tedious at best as the recovery has felt like we were running in slow motion. However, as slow as the recovery has been, it has proceeded over all obstacles and there were plenty of obstacles from natural disasters to political issues and world conflicts. Steadily the recovery plowed ahead.

The two bright spots of the recovery have been stocks and interest rates. We have experienced record low rates for years while the stock market has continued to advance from the depths of the recession. One reason for the success of stocks has been the existence of low rates. For many investors, the returns of leaving money in cash made little sense since there was little or no rate of return with rates so low. Meanwhile, it was assumed that rates, as well as oil prices, would increase as the recovery started “heating up.” Thus far, this has not happened. Rates and oil prices have not risen in 2014 even as we have recovered from our latest natural event — the harsh winter of earlier this year. Continue reading

Mortgage Business

No More Excuses

20140309-080351.jpgOver five years ago we suffered the worst recession since the great depression almost 100 years ago. Since then our economic recovery has been the weakest of all recoveries as well. There are many reasons for the weak recoveries. The fact that our real estate market was devastated and needed years to recover was certainly a main factor. But there were other reasons for the stops and starts which were external. We had domestic and world-wide natural disasters from hurricanes and super storms to tsunamis. We will not get into a debate as to whether global warming is causing these extreme weather events but we will acknowledge that they were very, very extreme and caused major damage to populations and property.

There were events that were not weather related, of course. There was the fiscal crisis in Europe and political crises at home. We had wars being fought and terrorist events. Many of these events prolonged the recovery and made us wonder whether we would suffer a double dip recession, which never came. 2014 has certainly not been smooth sailing with our famously cold winter and the crisis in Ukraine. However, we believe our economy has recovered to the point that we no longer talk about slipping back in recession. The drop in the economic growth in the first quarter is a testament to that confidence. Economists shrugged off the down quarter almost universally. So what comes next? Continue reading

Golf

Listing Shortage: Just The Beginning?

20140309-080351.jpgLast week we wrote about a shortage of listings which has characterized the real estate markets for the last several months. From an economic perspective with bank owned properties still being put on the market, it seems that this shortage is surprising. Yet, it is not. Some three years ago, we reported that several analysts had concluded that we were not building enough houses to meet the demands of population growth. Here is a quote from one article published in Alpha in 2011 … housing starts are going to have to increase by leaps and bounds over the next several years, if only just to catch up to the demands of a growing population… Continue reading

Mortgage Business

Anyone Have a Spare Listing?

20140309-080351.jpgIt really could not be predicted. For years during and after the financial crisis analysts warned that the real estate market would be weighed down by an avalanche of bank-owned properties and short-sales. And these analysts were right, at least for awhile. But quicker than most everyone expected we turned from a buyers’ market to a sellers’ market in many areas of the country. How can it be that buyers can’t find homes for sale when there are still so many foreclosures to deal with?

One reason is that investors have bought every bargain in sight. Those with the money recognize good buys and investor money poured into the real estate sector. Another reason is that home building slowed down to a snail’s pace during the recession and we were not building enough properties to keep up with our muted household growth, let alone older homes which had to be replaced. Finally, the most recent long, cold winter put a lid on new listings. This effect we have hypothesized to be temporary and already we are seeing numbers that support this hypothesis.

But there is another reason and this reason is psychological. Most who list their home are “moving up” to a bigger and better home or if they are closer to retirement, they are trading down. However, if they don’t believe they can find the home they want, they will obviously be reticent to list. So the dearth of listings is actually causing some not to list. Is this temporary? We believe so. As more homes become available, more will list their homes. We are not looking for a flood, but more of a balanced market. Meanwhile, if you are thinking about selling–this may very well be an opportune time. Continue reading

Mortgage Business

It Sure Seems Like Spring

20140309-080351.jpgEven though there has been snow in some parts of the country very recently, it feels like springtime with regard to the economy. We continue to have some fairly positive economic news released. The releases have included a stronger than expected retail sales report and leading economic indicators for March. Any good news regarding consumer spending is good news for the economy as a whole. The news from the real estate sector we received last week was much less promising and again we wonder how much this news was affected by the weather.

This week is a very important week and will go a long way to let us know whether the cold winter slowdown is behind us. We start out with pending home sales then follow with consumer confidence and a meeting of the Federal Reserve and then towards the end of the week personal income and spending numbers are released. And that is just the warm up. After the private payroll data is release by ADP on Wednesday, the jobs report closes out the week.

Lately there has been no report more important than the release of the employment numbers for the month. With the Federal Reserve making their post-meeting announcement on Wednesday, personal spending data on Thursday and the employment report release on Friday, it could be a week with plenty of fireworks. Any one release could give us a surprise that could shake up the markets. At this point, the markets believe that the economy is waking up. We just might see if the economy awakens groggily or with plenty of vigor. Continue reading

Mortgage Business

It is Finally Happening

20140309-080538.jpgFor years the slow recovery was hampered by the existence of tighter credit. A vicious cycle was created when the recession caused consumer credit to worsen and at the same time banks tightened up on lending standards. For some time we have been predicting that lending standards in the real estate sector would not loosen up until two factors emerged. Factor one was the stability or recovery of real estate values. It makes sense that lenders would be shy about lending in a real estate sector in which the underlying asset was unstable.

Yet, the real estate markets recovered over the past few years without a significant improvement in lending standards. Why? Some blamed it on new legislation aimed at making lenders more responsible with regard to their lending. But most aspects of the legislation were not implemented until recently. In reality, there was a second aspect we cited over the past few years which has now come to fruition. For the past three years lenders were inundated with refinances because of record low rates. Now with rates still really low but a bit higher than they were, the refinance craze has abated. Continue reading

Mortgage Business

The Report We Have Been Waiting For

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Friday’s employment report has given us three things we have been waiting for. First, this jobs report was relatively good after a string of disappointments over the winter. It tells us that at least part of the slowdown was definitely due to the weather — a question everyone has been asking. Secondly, the report contains another upward revision to the previous two months’ of data. There were actually 37,000 more jobs created in January and February when compared to last month’s release. That is a revision which we speculated could be coming. Finally, the economy has now recovered all of the millions of private sector jobs lost during the recession.

That is a lot of jobs to recover and represents a very significant milestone. The problem is, it took the economy four years “post recession” to regain the jobs lost. During the recession and afterwards, the population has been growing. As reported by CNN/Money, Heidi Shierholz, a labor economist at the Economic Policy Institute, estimates that we need an additional five thousand jobs to reach a healthy pre-recession labor market. That is a long way to go and Federal Reserve Chairwoman Yellen said as much in testimony to Congress just a few weeks ago. What this means is that the economy is indeed recovering, but still painfully slow. We need a few more years of this level of growth to become healthy or we need for the recovery to accelerate. There is another piece of good news here. The better jobs report did not cause another increase in interest rates — at least initially. Again, this is evidence that the markets believe we need even more good news.

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Golf

A Bunch of Bull

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With the economy still undergoing a very slow recovery, it is hard not to question why the stock market seems to be doing so well. The bull market for stocks is about to turn five years old with a gain of approximately 150% in the Dow over that time. Those are pretty impressive numbers, however when you look at the numbers more carefully, it depends upon the perspective. Measure from the peak in October of 2007 before the financial crisis hit and one will see that the Dow increased less than 20% total over the past 6.5 years. Measure from 1995 and the Dow increased over 300% in the past 19 years, showing that the long-term numbers are indeed pretty impressive.

The real question is–why has the stock market fully recovered from the financial crisis while other areas of the economy still lag? Real estate is on the way back but has a ways to go to reach its peak just before the crisis. Many companies are still struggling and paring staff while employment has not recovered. Certainly the Federal Reserve Board has helped with record low rates. Companies have been reticent to hire in uncertain economic times, keeping staffing levels low while building up cash reserves and boasting profits. Some of this cash is making its way into the real estate sector as investors have purchased a record number of homes for cash. Continue reading