Deutsche Bank released a very interesting study this week showing that renting a home costs US households more than paying a mortgage for the first time in at least two decades. The rent-buy ratio, or rent as a percentage of after-tax mortgage payments, is based on figures that Deutsche Bank compiled from NAR and the REIS information service. Rent amounted to 100.2% of home-loan costs in last year’s fourth quarter, the highest level since calculations began in 1991.
So dissecting this: renting is now more costly than buying, rates have come back down this week ….it is a great day to buy OR SELL a house!
Last week, Fannie Mae released their National Housing Survey for 4Q10. This comprehensive report and survey showed that the majority of Americans surveyed were upbeat and optimistic about the housing sector as compared to where we were 12 to 24 months ago.
The survey showed that Americans are more confident about the stability of home prices than they were at the beginning of 2010, even though there are some lingering concerns about the acceleration of the economy. If fact, over three-quarters of the respondents (78 percent) believe housing prices will hold steady or increase over the next twelve months.
Younger Americans are generally more positive about owning a home than the general population. 59 percent of Generation Y (ages 18-34) believes buying a home has a lot of potential as an investment.
As stated above, 26% of the general population thinks housing prices will increase over the next 12 months, with an additional 52% thinking that housing prices will remain about the same.
On average, members of the survey anticipate home prices to increase 0.4% over the next 12 months, while the same subset expects rental prices to increase 2.8% over the same time period. The expectation that rental increases will far outpace home price increases was prevalent with surveyors over the next five years, in fact.
One in four Americans said they would probably buy a home in the next three years (both current homeowners and non-homeowners), and one in three Hispanics and African Americans were of this thought process.
One interesting (and probably obvious) fact: poor credit is the number one stumbling block keeping potential borrowers from owning a home.
FHA appraisals do not differ from conventional appraisals in a large way; however, there are a few differences.
One main difference is that there can be more required repairs. A big one is the roof. These are the appraisal guidelines for FHA appraisers:
Roofs and Attics:
The roof must prevent moisture from entering the home and provide reasonable future utility, durability and economy of maintenance. The roof should have a remaining physical life of two years. If the roof has less than two years remaining life, the appraiser must call for re-roofing or repair.FHA will accept a maximum of three layers of existing roofing. If more than two layers exist and repair is necessary, all of the old roofing must be removed as part of the re-roofing.Roofing on slopes of 2.5/12 pitch or less must be installed by a licensed roofer using built-up roofing that meets the Uniform Building Code.
These conditions are not listed to scare you, but to help you understand and erase any worries you may have.The purpose of a repair is to correct deficiencies which may affect the health and safety of the occupants or the continued marketability of the property. If possible, we suggest that you make any repairs to your home prior to the appraisal. This will improve the marketability and help the sale or refinance of your home go smoothly.
1. If the home was built prior to 1978, chipping, peeling paint must be scraped and painted. This includes interior, exterior, garages, sheds, fences, etc.
2. Any useful components (appliances, floor covering, etc.) of the home, especially the roof, should have 2 years of useful life remaining. A roof should have no more than 3 layers of shingles.
3. Broken windows and doors should be replaced.
4. The cause of negative drainage must be cured (i.e., improve drainage away from house, gutters, french drains, etc.).
5. Health and safety hazards (i.e. electric garage door opener won’t reverse with resistance; burglar bars). GFIC outlets are not an FHA requirement.
6. Abandoned inoperable wells must be capped and sealed by a licensed well sealing contractor.
7. Safety handrails should be installed in open stairwells of three or more stairs.
8. Infestation of any kind should be exterminated (i.e., insects, mice, bats, etc.).
9. Damaged or inoperable plumbing, electric and heating systems should be repaired. The appraiser will check these areas.
10. Structural or foundation problems must be repaired.
11. Flammable storage tanks must be removed and filler cap sealed from the inside (i.e., buried oil tank).
12. If there is a crawl space, it will be the homeowner’s responsibility to make this area accessible so that it can be thoroughly inspected
All of the information in this post was taken word for word from: http://www.fhainfo.com/fhaappraisals4.htm
This is meant to be helpful in the determining the right home for you if obtaining an FHA loan or accepting the right offer if you are a seller considering an offer with an FHA loan. Always discuss this information with your Realtor and lender to get more specifics.
**Regardless of the type of loan being used to purchase your home, it is always a good idea to fix anything broken and do all of the maintenance items you were putting off. This will not only make any appraisal process go more smoothly, but will make a better showing to potential buyers as well.
HUD has released Mortgagee Letter 2011-10 announcing an increase in the current Annual Mortgage Insurance Premiums (MIP or known to many as PMI) by 25 Basis Points (BPS)–which is a percentage measure equal to 0.01%– for all FHA Loans (a federally insured loan allowing people to put as low as 3.5% down to purchase a home). Upfront MIP will not be changed.
The upfront premium will remain at100 BPS and will be charged for all amortization terms.
For FHA purchases and refinances, the annual premium has been increased. The Annual MIP shown in basis points below is to be remitted on a monthly basis and will be charged based on the initial loan-to-value ratio and length of the mortgage according to the following schedule:
>15 Year Loan-Annual MIP
<=15 Year Loan – Annual MIP
110 BPS (currently 85 BPS)
25 BPS (currently zero)
115 BPS (currently 90 BPS)
50 BPS (currently 25 BPS
Effective Date: This increase in Annual Mortgage Insurance Premiums will be effective for all FHA case numbers assigned on or after April 18, 2011.
I am not a lender, so please check with your lender for particulars on any loan programs.
Did you know that for every home that is sold $60,000 is pumped into the economy… and, that the real estate industry represents 20 percent of the national economy — and has for the past 50 years?
Real Estate is not only a good investment for long-term wealth, but buying and selling homes affects our economy as a whole for the better. Not only is money changed hands during the settlement process, but most people when they buy a home, do things like: go to home depot and buy paint, new appliances, general necessities…they go to furniture stores and purchase new furniture …they potentially do some renovation and hire contractors and purchase building materials. This is all good for local businesses and the economy as a whole.
At the same time owning a home, while also providing a significant tax deduction, allows people to feel a sense of pride of ownership. They can make changes to their home and personalize it. They can plant roots in neighborhood and are more compelled to get involved in their local community. Home ownership has many other non-financial implications that positively affect society.
The national media tries to paint the doom and gloom picture of the housing market and tries to scare people from buying and selling. The fact of the matter is that even in areas where the inventory is high and there are a still a lot of foreclosures, investing in a home is still a good bet.
During the housing boom between 2004-2006/early 2007, people began to look at homes as a way to make a quick buck and now people expect to make $100,000 or more after owning their home for just a few years. That was the problem and one of the reasons that the market had to adjust. Owning a home is a long-term investment that gives you benefits along the way. It shouldn’t be about “how much can I make on this home”, but how much you can enjoy living there and also take advantage of the tax benefits and the fact that you have a stable monthly payment (unlike renting where you can potentially see a 3% increase every year). The goal is also that if you stay in the home long enough, you should also walk away with more than you put into it. What other investment allows you to enjoy it while the money is invested and still get a return? Don’t be fooled, when you rent, you are paying for someone else to have the advantage of selling for a profit some day…you have paid their mortgage and when you leave, you get nothing.
That being said, borrowing money isn’t going to get any easier. Lending institutions want to make up for the past few years which means higher interest rates and more difficult qualifying criteria. I never want to “scare” people into buying a home, but if you are on the fence, now is the time…there is a cost to waiting and for some that cost may be that they have to continue renting or that they can purchase much less house than before because their buying power has been significantly reduced.
First, on affordability, that was the housing tagline from Moody’s earlier this week. Moody’s came out with an analysis that spoke to the fact that home affordability returned to pre- bubble levels in a growing number of U.S. markets over the past year.
Data provided by Moody’s Analytics tracks the ratio of median home prices to annual household incomes in 74 markets. By that measure, housing affordability at the end of September 2010 had returned to or surpassed the average reached between 1989-2003 in 47 of those markets (64% – most economists believe the housing boom took off in 2003).
During the boom, lax lending and speculation pushed house price inflation far beyond the modest rise in household income. Nationally, the ratio of home prices to annual household income reached a peak of 2.3 in late 2005. But by last September 2010, it had fallen to 1.6, matching the lowest level in the 35 years the data have been collected and well below the historical average of 1.9 between 1989 and 2003.
“Based on income, this is as affordable as it gets,” said Mark Zandi, chief economist at Moody’s Analytics. “If you can get a loan, these are pretty good times to buy.”
Regarding “Housing Reform”, the Treasury Department released its well anticipated “Reforming America’s Mortgage Finance Market” report to Congress earlier today. The report touches on the future of housing finance and outlines three options with various levels of Government support. However, the final plan will take years to develop, and the outcome will shape the future of the mortgage markets, including liquidity and home affordability.
Come visit the Weichert, Alexandria/Old Town office tomorrow (Sat. Jan 29) at 10:30 am for a Real Estate Forum. We will be discussing the state of the market in the Northern Virginia and DC areas: Interest Rates, Mortgage Availability, Price trends, Inventory and more…
Address is: 121 N. Pitt Street, Alexandria, VA 22314
Feel free to call or email me for more information! Hope to see you there!
There was a web based discussion a couple of weeks back; the talking points which were shared with me by trading partners on the street, which was entitled “Is Real Estate Finally a Good Investment”? Essentially, the moderators of the discussion pointed to three underlying reasons why Real Estate Investment, in certain scenarios, makes feasible sense right now (taking a traders mindset into account):
Hatred of the “Asset”: Hatred of an asset is often the precursor to contrarian interest, and being contrarian is at the heart of many investment strategies. To paraphrase Warren Buffett, “be fearful when others are greedy and greedy when others are fearful”. Mr. Buffett backed that idea when he invested in the stock market in the teeth of the financial crisis in late 2008 and early 2009. Remember, Gold was hated for years (termed as “dead money”) before it recently became an attractive asset class once again and skyrocketed in value.
Smart Money is Buying: John Paulson, the hedge fund manager who made $20 billion betting against the housing bubble in 2007-2010, stated in a speech late last year: “If you don’t own a home buy one. If you own one home, buy another one, and if you own two homes buy a third and lend your relatives the money to buy a home.” Why is Mr. Paulson so adamant? Because he believes long term interest rates are not going to get much lower. They have, in fact, risen since he gave that speech, but they remain remarkably low by historic standards. Low rates and the expectation that home prices will rise is his basis of this sound argument
Demand is Coming Back: Supply isn’t as out of whack as it was at the height of the crisis. At the end of Nov, home builders reported 197K new homes on the market, the lowest level since 1968, according to Yardeni Research. The National Association of Realtors reports that the inventory of existing homes for sale fell 4% to 3.71M homes, which represents a 9.5 month supply at the current sales pace, down from a 10.5 month supply in October. And that timeline appears to be falling.
Albeit, no one will really know when the “best” point in time is/was to buy or invest until it has already come and gone. But with “value” inventory and low interest rates, more and more observers think the time is now.
Interesting Insight from Weichert Financial’s “Market Monitor”
“We continue to witness the uptick in mortgage rates, as foreign investors divest from their holdings in mortgage backed securities, and banks/institutional players sell their holdings to book the gains from these purchases in the 2010 calendar year. We saw a very similar scenario take place at year end 2009, with global investors capitalizing on profits. In the first/second quarter of 2010, those very same sellers became buyers again, driving rates back downward for the remainder of the year. Many traders are wondering if we will see the very same phenomenon happen again in 2011.
The wild card will be the economy. With a growing/strong economy, investors will be more willing to invest in Equities as an alternative investment choice to Fixed Income. If the economy continues to remain stagnant, not so much, and Fixed Income will once again be attractive. We will continue to monitor through year end, but with 30 yrs in the 4’s, 15 yrs in the 3’s, and a 5/1 ARM at 2.99%, these are still very attractive levels. It not too late to capitalize.”