From Bloomberg View:
Income Inequality Hits the Housing Market
There’s been plenty of talk recently about signs of recovery in the housing market. Rather than think about housing as a single market, it might be helpful to look at housing as many markets based on everything from geography to price to new versus existing.
What I find intriguing is how things are shaping up based on price. It’s pretty clear that the fastest growth in new housing is at the high end, where sales are increasing the most. This might be a sign of economic recovery, but more likely it suggests that those in higher income brackets are doing better than average.
One of the features of today’s mortgage market is that, in spite of low rates, credit can be hard to obtain because of tough underwriting standards. That doesn’t affect high-end buyers as much as others because they tend to rely less on financing and have more cash as a result of gains from their financial-market investments.
According to the U.S. Census, the biggest gain in sales of new homes last year was for properties costing $500,000 and up, with a 17.3 percent increase, while sales of the least expensive houses tumbled 11.4 percent.
…
Perhaps this is like some law of physics in which what goes down a lot must have an opposite reaction. True, back in the dark days of the financial crisis in 2008, sales of houses in all price categories plunged. The high end was hurt much harder, though, perhaps because the crash in financial markets inflicted so much pain on the investments of the well-off.
…
What remains to be seen is whether sales of more expensive houses will continue outpacing the broader market. It seems as though all builders are trying to cash in on the same part of the market at the same time. This is keeping new lower-priced housing in short supply. We can only hope that better economic conditions will boost employment, raise incomes and ease credit conditions so that more moderate-priced housing is built and bought.
Good Morning New Jersey
Maybe Jonathan is talking about NYC only, but that is not what we’re seeing anywhere else. It was the low end that shot up the highest, the low end that fell the furthest, and the low end that’s recovered the best. Looking at it from a percentage basis, that is.
You think I’m making this up about property taxes?? Come on, Thomas.
“The pillaging of the poor through subtle and not-so-subtle forms of taxation in times of fiscal crisis is nothing new, nor an unforeseen consequence of the failure of “supply side” economics to generate high tax revenues through economic growth. Instead, one can say it has been, throughout the twentieth century, a driving force in the production of inequality (in particular, racial inequality), and one of the more revealing indicators of the high costs of being black in America. The “hidden” racial history of property taxation (and property tax assessments) offers an appropriate way to begin to contextualize Camp’s statement and the underlying notions of just taxation that informs modern conservatism.
The discriminatory over-assessment of property values (and the accompanying spike in property tax rates) on black homebuyers in white neighborhoods served as a crude method of residential segregation after previous strategies failed in Northern and Southern cities during the Great Migration. In neighborhoods not protected by racial covenants, county tax assessors routinely jacked up tax rates so as to force unwanted residents to sell and move. In Newark, for instance, an African American couple received a $3,000 spike in the property’s assessed value upon their arrival, a tactic one judge described as a blatant attempt to “force them out” of the home. In the midst of the black freedom movement of the 1960s, white-dominated Southern counties were known to wield property taxes as a form of intimidation. After African Americans in the town of Edwards, Mississippi, led a boycott of downtown merchants in the summer of 1966, 237 African American owners of lots in town received a grossly inflated property tax assessment the next spring. (In comparison, only thirty-four white-owned lots saw any increase in property tax assessment.) But while such one-time abuses of the power to assess and tax property were common and important in their own right, more significant was the routine over-assessment of property values in African American neighborhoods absent any consciously malicious intent—and the reasons given by public officials over such disparities. In 1931 alone, one study found, the total sum of taxes paid by African American property owners in the city of Norfolk, Virginia, increased by $241,000, while the sum total of taxes paid by whites decreased $1,634,730. For white slumlords, these high assessments were, of course, passed onto the renter. The irony of property taxes rising as neighborhoods transitioned from white to black was not lost of many commentators. Responding to the perception that blacks depressed property values upon their arrival, a writer for the Baltimore Afro American said, “Of course, we have known all along that this was absolutely untrue. Many a colored buyer has had the sad experience of having tax assessment upped, not lowered, when he moved in.””
– See more at: http://historynewsnetwork.org/article/135752#sthash.dwrrc7fz.dpuf
Thomas says:
March 4, 2015 at 9:44 pm
83. “…keeping ‘rift raft’ out.” Gotta love the pumpkin-bumpkin! But Pumps, increasing property taxes suppresses home prices. Wouldn’t increasing home prices do the same thing?
3- You can’t say property taxes/property values have not played a part in the segregation of nj. It has forced people into certain locations. I would think affordable housing came about in response to this.
Taxes are a huge detriment to home pricing upward push. Pump-i-kin you laffed at my $650k Top town musings. Well sir that is when you lost me a little pal. Just sayin.
Listening to the Cars Candy-O — probably not a better album recorded…IMHO
http://youtu.be/tTtJqaVnAe
OOOPs — working link full album TBT
https://www.youtube.com/watch?v=tTtJqaVnAeU
So you’ll maintain a low price if entry into communities with high taxs and that’ll encourage all kinds of weirdness. Person buys a house and cannot pay taxes. Other folks move in to help out. Etc. etc.
4 – Did you even read that article? It’s completely opposite of your point.
Have you actually seen the property taxes in places like East Orange? I would argue that the property taxes in East Orange are more prohibitive than in Alpine.
You have $100,000 properties in East Orange with $8,000 property tax bills. The property tax bill is bigger than the mortgage.
Punkin
“You can’t say property taxes/property values have not played a part in the segregation of nj. It has forced people into certain locations.”
Stop trying to argue over whether the sky is blue. Of course the above is true.
And don’t forget, your vaunted North Joisey pedigree wouldn’t even get you a doorman job on CPW. YOU are the riff raff they keep out there.
Please, any journalist reading this, please do some research into the number of foreclosures in NJ urban areas that have been driven by property tax increases.
Too much focus on subprime lending being one of the major causes in NJ. Sorry Charlie, but property tax increases from 2000-2015 in NJ’s urban areas created a payment shock significantly larger than the ARM resets and subprime EVER did.
Combine this with negative household income growth in the lowest income tiers in NJ, and you have a recipe for disaster as a significant component of discretionary spending was completely obliterated by property taxes.
12. Grim
I could actually see that. Would imagine during a good part of that era the taxable base of many urban areas contracted. To maintain the total top line the municipality had to increase the rates on those remaining (because what municipality on earth would actually cut some fat).
If you find a study, post it. Would be an interesting read.
Nobody would touch it with a ten foot pole. Why? Generally it’s the left leaning research organizations that would do this kind of study. They would be shooting themselves in the foot bringing this to light.
How does the logic work?
Let’s increase funding on social programs.
Increased funding results in increased taxes.
Increased property taxes disproportionately impact the lower income homeowners.
Lower income homeowners not seeing income growth necessary to cover the increase in taxes.
Lower income homeowners go into foreclosure.
Superb.
I would also argue this is largely hidden as lenders will pay property taxes, despite borrowers not making mortgage payments, in order to protect their interest. Likewise for mortgages with escrow, this is further confounded as this represents a single borrower payment.
Pumps, yesterday I had to chuckle with your spelling of riff raff. My point however was that if your objective is to keep the “rift raft” out by increasing propert taxes, you are also at the same time suppressing home prices. Alteratively, increasing home prices by LOWERING property taxes would also act as a barrier to “rift raft” entry.
Notice that punkin is subtly trying to shift his argument from high property taxes to high property values that keep riff raff out. He’s an idiot who can’t draw an inference if it’s in bold right in front of his face.
If you want to talk about keeping the raft out, how about we talk about high income towns buying off lower income towns to meet their affordable housing obligations for them (aka RCAs)? I’m not a fan of Mount Laurel/COAH, but if increasing socioeconomic diversity is the point, was an abject failure for this reason alone. Plenty of municipalities simply purchased homes for the rift raft in places like Trenton and Camden. Who gladly took the RCA fees, and did god knows what with. The other flip was using senior housing to meet affordable housing obligations. You should have seen the arguments towns made. Trying to use nursing homes and rehab center beds to meet obligations, claiming that student dorm rooms met obligations, etc etc.
We actively created and maintained the deteriorating urban core. I would argue by design, but this probably gives them too much credit. More likely the unintended consequence of trying to control a market that didn’t want to be controlled.
Some towns with significant industry or a mall needn’t hose the residential homeowner as badly, so in a sense, towns devoid of any viable businesses are the one that truly pay the price.
http://www.marketwatch.com/story/boomers-wont-budge-us-jobs-market-experiencing-massive-congestion-2015-03-05?dist=beforebell
so now it is older folks who wont give up their good jobs that are why younger workers are slackards.
Funny when I started work folks stayed a long time at a firm and you moved up via seniority and hard work. Now leveraged 35 year olds want 55 year olds who worked night and day for 20 plus years to get that job to walk way and give it to a work life balance person in a hoodie drinking a frapachino who never worked a day in their life.
BS they are hanging on to the jobs till 67!!!
Or how about we talk about exclusionary zoning as a barrier to entry? Look at the Highlands Act in this light and the long-term outlook on socioeconomic diversity in the region changes dramatically. Or just tick back through time and look at the minimum lot sizes for the highest income towns. You aren’t going to put high density low income housing in an area with significant zoning restrictions and huge minimum lot sizes.
Don’t be silly and pretend like property taxes are an easy way to segregate, there are far easier ways, and those are much easier to disguise.
the act seems to have a true environmental aim
“The Highlands Water Protection and Planning Act is a 2004 New Jersey law aimed at protecting the Highlands region of northwest New Jersey by regulating development within the region under the supervision of the New Jersey Department of Environmental Protection. The Highland region covers 859,000 acres (3,480 km2), nearly one-ninth of the state,[1] and is home to 880,000 residents.[2] The area is primarily in Warren, Morris, Hunterdon, Passaic, and Sussex counties. The act is intended to preserve both large volumes of New Jersey’s fresh water sources for 5.4 million residents and the biodiversity in the area, in the face of increasing development in the exurbs of New York City.[3] The act was signed into law on August 10, 2004, by Governor of New Jersey James McGreevey.[2]”
And if you think you are simply going to mandate it, towns will easily shut their doors to new businesses and new residential development. Closed for business, go away. Tell me how this is any better?
the 35 yr old doesn’t want to clean up the shi t of the 55 yr old
the 55 yr old approved the work in Iraq. the 35 yr old says, not my problem, leaving early to get a frapachino
JJ says:
March 5, 2015 at 8:25 am
http://www.marketwatch.com/story/boomers-wont-budge-us-jobs-market-experiencing-massive-congestion-2015-03-05?dist=beforebell
so now it is older folks who wont give up their good jobs that are why younger workers are slackards.
Funny when I started work folks stayed a long time at a firm and you moved up via seniority and hard work. Now leveraged 35 year olds want 55 year olds who worked night and day for 20 plus years to get that job to walk way and give it to a work life balance person in a hoodie drinking a frapachino who never worked a day in their life.
BS they are hanging on to the jobs till 67!!!
war
SX
“Some towns with significant industry or a mall needn’t hose the residential homeowner as badly, so in a sense, towns devoid of any viable businesses are the one that truly pay the price.”
Schools, again. Look at the tax difference between Harding and surrounding towns. Harding only has a small K-8, no HS. They ship the HSers out (the ‘rift raft’ that can’t get into Delby at least) on a per pupil cost basis to the receiving school.
IIRC there was some legislation a while back to grab revenue by claiming towns devoid of their own District were somehow fleecing the rest of the State even although they paid another District for their kids to attend. Think it was around a tiny shore town, Lake Como possibly?
Too busy to google it, likely someone on here knows more and what happened to the bill.
Kids are expensive. For everyone.
Maybe they are still trying to slowly push the poor out of state. That’s one way to reduce govt costs, raise cost of living and push them out. European countries basically practice this philosophy.
grim says:
March 5, 2015 at 7:39 am
4 – Did you even read that article? It’s completely opposite of your point.
Have you actually seen the property taxes in places like East Orange? I would argue that the property taxes in East Orange are more prohibitive than in Alpine.
Kids are expensive. For everyone.
So how do we deal with the coming school cost impact of building the nearly 55,000 affordable housing units statewide that COAH says is mandatory in the next 10 years? I don’t want to sound evil here, but let’s be realistic. These are folks that will contribute less to the tax rolls on an annual basis, meaning the gap will need to be made up by even higher property taxes across everyone else.
Re: Job Market Congestion
My first real employment out of college: Had a nearly year long analyst training program before touching the ground in my first employer. Upon completion of the program I was assigned to my first permanent position in a group in the organization.
They mixed up the ‘leave by’ date of the 45ish year old VP that, unbeknownst to me, I was replacing.
I walk in real early on Monday morn (have to make a good impression), my boxes are already there and stacked high, and there’s this disheveled guy scrambling to fold packing boxes and clean his personal stuff out of the desk. Apologizing all over the place. They had obviously woken him up to get in and get out. What the heck do you say? What does a 23 year old know to say? Certainly didn’t teach me that in the year long analyst program.
I was probably one tenth the cost of the guy and after a year in training and another six months on the ground the org probably figured I would do/retain at least 80% of the volume.
I still remember the guy’s name, I can still picture him bent over the open drawers just chucking stuff in the boxes. I told him I was sorry, to slow down so he wouldn’t bust his pictures, and that I was going to get a coffee.
Learned more that morning than the four years of college that got me there taught me. And I vowed I would never ever put myself in a position to be exposed that way.
I would also argue that retail commercial is also a tax driver and does not provide relief. Retail requires a lot of extra police/roads/traffic lights/etc. that actually push taxes higher. The towns in morris county with a lot of retail tend to have the highest tax rates.
Office buildings and industrial commercial might be different but towns that encourage a lot of retail will see higher taxes in the long run.
No doubt. Some towns like alpine are able to keep the rift raft out on price alone. They have lower taxes but the homes are millions. Towns located next to the patersons of nj have no choice but to raise the taxes to keep the rift raft out. Their property values can’t justify prices of 1.5 million or more, so they must raise taxes.
I’ll give some examples. Clifton for example is sandwiched between Paterson and Passaic. No coincidence that their taxes are high. If they were not, Clifton would become an extension of Paterson and passaic. All across Passaic county and Essex county you see this. All have high taxes as a result to keep the rift raft out and protect their home values from becoming worth less due to rift raft moving in. Any coincidence that a lot of the highest taxed towns are pretty close to the ghetto? That’s life in north jersey, a bunch of towns trying to keep the ghetto from creeping in. Doesn’t this apply across the country, any place that there is a wealthy neighborhood will have high property taxes?
Thomas says:
March 5, 2015 at 8:10 am
Pumps, yesterday I had to chuckle with your spelling of riff raff. My point however was that if your objective is to keep the “rift raft” out by increasing propert taxes, you are also at the same time suppressing home prices. Alteratively, increasing home prices by LOWERING property taxes would also act as a barrier to “rift raft” entry.
Punkin
“Maybe they are still trying to slowly push the poor out of state. That’s one way to reduce govt costs, raise cost of living and push them out. European countries basically practice this philosophy.”
Have you ever left your basement? I mean every single one of your observations on life out of your neighborhood are wrong.
It is almost statistically impossible to have a run like that.
Have any stock recommendations? I could become a bazillionaire taking the other side of your trades.
Good point. Legal bribery right there. Paying off govt to rid you of something you do not want living near you.
grim says:
March 5, 2015 at 8:13 am
If you want to talk about keeping the raft out, how about we talk about high income towns buying off lower income towns to meet their affordable housing obligations for them (aka RCAs)? I’m not a fan of Mount Laurel/COAH, but if increasing socioeconomic diversity is the point, was an abject failure for this reason alone. Plenty of municipalities simply purchased homes for the rift raft in places like Trenton and Camden. Who gladly took the RCA fees, and did god knows what with. The other flip was using senior housing to meet affordable housing obligations. You should have seen the arguments towns made. Trying to use nursing homes and rehab center beds to meet obligations, claiming that student dorm rooms met obligations, etc etc.
We actively created and maintained the deteriorating urban core. I would argue by design, but this probably gives them too much credit. More likely the unintended consequence of trying to control a market that didn’t want to be controlled.
I would go around the office to find a 35 year old to ask their opinion but they are all home in bed telecommuting while the under 30 and over 50 crowd are at work.
Mama boys the kids who graduated college 2008-2014 have work ethic. Folks who graduated college in the boom times are brats. You need a good recssion to humble you.
anon (the good one) says:
March 5, 2015 at 8:41 am
the 35 yr old doesn’t want to clean up the shi t of the 55 yr old
the 55 yr old approved the work in Iraq. the 35 yr old says, not my problem, leaving early to get a frapachino
JJ says:
Yes, but those were for newer developed towns. Established towns like Clifton and west orange couldn’t go that route, they had to go the tax route.
grim says:
March 5, 2015 at 8:26 am
Or how about we talk about exclusionary zoning as a barrier to entry? Look at the Highlands Act in this light and the long-term outlook on socioeconomic diversity in the region changes dramatically. Or just tick back through time and look at the minimum lot sizes for the highest income towns. You aren’t going to put high density low income housing in an area with significant zoning restrictions and huge minimum lot sizes.
Don’t be silly and pretend like property taxes are an easy way to segregate, there are far easier ways, and those are much easier to disguise.
I’m saying “maybe” for discussion. I stand by my point that some European nations are using cost of living to keep people out.
leftwing says:
March 5, 2015 at 9:09 am
Punkin
“Maybe they are still trying to slowly push the poor out of state. That’s one way to reduce govt costs, raise cost of living and push them out. European countries basically practice this philosophy.”
Have you ever left your basement? I mean every single one of your observations on life out of your neighborhood are wrong.
It is almost statistically impossible to have a run like that.
Have any stock recommendations? I could become a bazillionaire taking the other side of your trades.
Not sure I’ve seen recent figures, but by the mid 2000s, more than 10,000 units were shifted to lower income areas through RCAs.
Stock recommendations? I’ve had some on here, people laughed me off, but I made money. Recommended a penny stock in solar last summer (sltd). They just uplisted to the Nasdaq this week. I’m banking on solar becoming the best investment for the next 15 years. Like first solar as a big player and sltd as a growth story. Short them since I’m recommending them. Glty!!
A little angst towards the guy replacing you?
JJ says:
March 5, 2015 at 9:13 am
I would go around the office to find a 35 year old to ask their opinion but they are all home in bed telecommuting while the under 30 and over 50 crowd are at work.
My town put the kabash on business development after they met their initial Mt. Laurel obligations back in the 90s. They also allowed 1 major development back then to include low-income units and gave some money to a rift-raft town. I think it was either Bound Brook or Perth Amboy.
Now, they upped the minimum lot size in most of the town to 8 acres. They also try to discourage employee intensive businesses from moving in. Why shouldn’t they? If the state mandates that for every 4 new jobs created in town, the town must set aside 1 low income housing unit for construction. And how many kids are going to be pumped through the education system for each of those housing units? Who pays for those taxes? It’s a vicious game. That’s why the town keeps buying up farmland and preserves it permanently. It’s cheaper to do it that that then to pay for cops, teachers, etc.
BTW, as a comparison, I have a multi in a nearby town here in Hunterdon. Most of that town is now minimum 15 acre zoning. Keeping out the rift-raft, of course. Had a chance 10 years ago to buy a 29 acre lot there that had some old single family rentals on it. Even if the town allowed me to knock them down, I could put up only one house on it. I guess you Northern Jersey boys can’t fathom that.
JJ is obsolete and clinging to his political ploys to ride it out for a while. Once his supervisor is gone, he will follow.
Pumpkin you have it all wrong about the property taxes. There are a few things that make certain areas magnets for the poor. Density is one, public transit is another, poor quality cheap housing stock is key. Section 8 and subsidies of that ilk keep the poor segregated into certain places. NJ has tons of urban land ripe for redevelopment, with attributes that would make it attractive for various uses. The problem lies with the fact that landlords are making a decent buck renting crap apartments effectively to HUD, it is holding our cities down. In middle class towns property taxes just put downward pressure on prices. The real cause is that in middle class towns they are concerned at least somewhat about school systems and have smaller, cheaper homes, and apartments which push up the tax rate because weather it’s short hills or maywood it still costs 18k to send a kid to one year of high school.
Regulation and counter-regulation. That’s what NJ has come to? Very dysfunctional.
Touching story of a guy wanting to celebrate his heritage in Flemington.
http://thelibertarianrepublic.com/celebrate-white-history-sign-causes-uproar/
Supervisor? Wow now that is a job title I last heard in the 90s.
Sad part is at a certain level they recruit from the outside. No one who works for me wants me gone. I am a cool boss and fun to work for. Once I am gone the board or HR or whoever does exec recruiting and the person they hire I guarantee will be a much bigger pain than me and much younger looking to shake stuff up. Even better may want to bring in some of his own folk to make a mark and the old folk he may never consider part of his inner circle.
nwnj says:
March 5, 2015 at 9:42 am
JJ is obsolete and clinging to his political ploys to ride it out for a while. Once his supervisor is gone, he will follow.
I see the section 8 thing in Jersey City, there are neighborhoods where market rate rentals would be sustainable but the subsidized housing keeps crap shack buildings because the 3 bedroom 650sqft crap apartments are getting $1500 from the federal government. Where as they could build new buildings and rent 600 sqft 1 bedroom shoeboxes to hipsters for $1700 per month, right now the economics are in favor of the government subsidized housing which of course is preventing the resurgence of these neighborhoods until they can sell condos for 600k.
JJ is totally that creepy manager that hits on/sleeps with the college interns.
“Regulation and counter-regulation. That’s what NJ has come to? Very dysfunctional.”
The 2008 election was a game changer. Open borders and the DOJ push for integration in high income neighborhoods may overcome all of the efforts to keep out the “riff-raff.”
44.
“I have a dream that my four little children will one day live in a nation where *they will not be judged by the color of their skin, but by the content of their character*.”
Actually read the words. Not what people say they represent. Not the iconic image put forth by race baiters on the left. Read the words. Emphasis mine.
Back down the rabbit hole. Need to make some cash. Punkin, looked at your stocks, was going to buy some puts. SLTD (STD?) stock is an option, with no volume. Can’t do anything there. FSLR mark it at 61 and change. I’ll hop into some LT puts, even though spreads are wide and volumes non-existent. See you on the other side.
Go home, Winter… you’re drunk!
You know winter is dragging on when the kids no longer want to go sledding. My son asked me this morning when we are opening the pool!
Let’s increase funding on social programs.
Increased funding results in increased taxes.
Increased property taxes disproportionately impact the lower income homeowners.
Lower income homeowners not seeing income growth necessary to cover the increase in taxes.
Lower income homeowners go into foreclosure.
I’ll take Liberal compassion for $200, Alex.
Gee, imagine that! The concept of uncoupled, runaway property taxes has an affect on house prices. Don’t mention that to a house agent or seller, they’ll get insulted.
Clifton for example is sandwiched between Paterson and Passaic. No coincidence that their taxes are high. If they were not, Clifton would become an extension of Paterson and passaic.
It already is.
what right wing old farts want, right wing old farts get
election after election Young people, and poor people don’t vote
Fast Eddie says:
March 5, 2015 at 10:54 am
Let’s increase funding on social programs.
Increased funding results in increased taxes.
Increased property taxes disproportionately impact the lower income homeowners.
Lower income homeowners not seeing income growth necessary to cover the increase in taxes.
Lower income homeowners go into foreclosure.
I’ll take Liberal compassion for $200, Alex.
On the secret to happiness
“To live in accordance with how one thinks. Be yourself and don’t try to impose your criteria on the rest. I don’t expect others to live like me. I want to respect people’s freedom, but I defend my freedom. And that comes with the courage to say what you think, even if sometimes others don’t share those views.”
http://mic.com/articles/92369/15-powerful-quotes-from-the-world-s-most-humble-president
I disagree. When they are openly selling drugs in the streets of Clifton then I can agree with you.
Fast Eddie says:
March 5, 2015 at 10:57 am
Clifton for example is sandwiched between Paterson and Passaic. No coincidence that their taxes are high. If they were not, Clifton would become an extension of Paterson and passaic.
It already is.
NYC air could kill you: doctors
http://nypost.com/2015/03/05/nyc-air-could-kill-you-doctors/
A little presentation on Millenniums by the guys over at GS.
http://www.goldmansachs.com/our-thinking/outlook/millennials/index.html?cid=tw-or-mil-3
Why Mortgage Credit Is Tightest for Most Affordable Homes
Mortgage credit has loosened, but mainly for wealthier borrowers, despite government and industry initiatives to expand access to loans for the broader population.
Credit availability for buyers of larger or more expensive homes priced above the parameters for Fannie Mae, Freddie Mac and Ginnie Mae programs has loosened since 2009, according to the Mortgage Bankers Association. But credit access for smaller loans to buy lower-priced homes hasn’t been expanding as much.
“Most of the action in terms of loosening has been on the jumbo side,” said Michael Fratantoni, the MBA’s chief economist and senior vice president of research and industry technology, during an Urban Institute Housing Finance Policy Center webcast this year.
Weaker appreciation at the low end of the housing market, combined with higher costs to originate mortgages tied to new regulatory compliance obligations, such as the Dodd-Frank Act’s ability-to-repay rule, make low-end mortgages less attractive for lenders.
“The balance is smaller and they tend to pay off sooner,” said Teresa Blake, practice manager at Wipro Gallagher Solutions and a former mortgage operations executive at Bank of America.
The profit margin on a small-balance mortgage varies by lender and geographic market, said Brian Koss, executive vice president at nonbank lender Mortgage Network, which makes jumbo loans in high-priced markets like Boston, but also does very small loans in low-priced markets like rural Maine.
“I think a reason you would have a loosening on the upper end and not the lower end would be ability-to-repay compliance,” Koss said. “When you get down to the lower-balance loan, these people are struggling to make qualifications. You’re at risk of putting somebody out of the house. It’s really not about the profit.”
Monthly purchase-loans applications generally peaked in mid- to late-2012 when they were up as much as 100% for loans north of $729,000, but they largely declined thereafter. They did pick up a little last year, when requests for loans in the midprice $317,000 to $417,000 range did best, but even these loan apps were up less than 20%.
“The purchase market has been a bit of dismal story for 2014,” said Lynn Fisher, vice president of research and economics at the MBA, at the group’s recent mortgage servicing conference. Purchase applications have been recovering, but gains for the smallest loan sizes remain smaller than those for larger loans, she said.
Low-end homes at an annualized appreciation rate of 9.6% began appreciating faster than high-end homes at 7.7% in the last three months of 2014, according to a January report by Zillow senior economist Krishna Rao. However, over the longer term the appreciation rate has been more favorable for top-tier homes. These have recovered almost 54% of their value lost during the last housing downturn, while the lowest tier has recovered 44%, Zillow found.
Lenders that are more confident in their compliance regimen have an easier time making smaller loans, Koss said.
“I don’t think compliance has to be as unforgiving as it has become, but to keep the program healthy I think you have to have the compliance,” said Koss, noting that he has found recent easing in government programs helpful.
“Just having that FHA change was huge for us,” he said, referring to the Federal Housing Administration’s recent move to lower mortgage insurance premiums.
Fannie Mae and Freddie Mac’s decisions to allow 3% down payment lending also have been helpful in terms of creating a ripple effect that promotes other low down payment programs in the private market to consumers, Koss said.
“It’s letting [consumers] know down payment is not the issue on repayment; it’s the ability to cover your cost that matters,” he said.
Some depository lenders now willing to make small mortgages aren’t necessarily originating through the compliance-heavy government programs that encouraged the activity in the first place, added Blake.
“Maybe in 2009 and 2010, they would have turned those folks away,” she said. “We’d all love to see more affordable housing out there. In the $120,000 to $150,000 range, we see a lot of transactions, but it’s not nearly where we’d like it to be.”
Small and mid-sized banks with room on their balance sheets are holding these loans in portfolio because it’s a faster and easier option than selling the loans in the secondary market. Upfront, the mortgage may not be as profitable as larger loans, but bank lenders pursue the business as a way to build customer relationships and cross-sell additional financial products.
“I was surprised to see lenders come out with their own products at the 97% loan-to-value ratio level that go to much smaller loan amounts,” said Blake.
“It’s because of the extra steps that have to be done, say, with an FHA loan. People say originating an FHA loan is like originating a house. Cycle time matters,” she said, noting an FHA loan can take as long as 45 to 60 days to originate, while a portfolio loan may take only 30.
Banks have some requirements for affordable lending due to the Community Reinvestment Act, but they generally still far prefer jumbo loans to higher-income individuals as more attractive from a cross-selling perspective, said Koss, whose company sells loans to banks.
“If done correctly, the pull-through is fine” on affordable FHA loans, said Koss. “The hardest part is just getting involved early with the customer and getting them ready to own a home.”
.
“A gentleman farmer is a wealthy landowner who oversees a small farm purely for the pleasure of it—and, perhaps, for the pleasure of the tax breaks it generates. And in this age of artisanal everything, the notion of tending to your acreage as a hobby is suddenly terribly chic.
People who own as little as three acres and engage in agricultural practices such as hay harvesting, bee keeping, chicken raising, and designating land for grazing animals may find themselves rewarded by localities with an enormous discount of up to 95% on property taxes.
This tax break — available in all states except Michigan — has made for some surprising members of the nation’s farming community.
Consider Malcolm S. Forbes Jr., Jon Bon Jovi, and former New Jersey Gov. Christie Whitman, among many other famous business folk, celebrities, and politicians with a sideline in farming.”
59- This article states my premise for why I was advocating to buy now to fast Eddie if he wants to make money. Also why I believe wage inflation will occur. The main factor is demographics. Now that Goldman is advocating this, it confirms that I will be right in time. In 2025, you are going to be telling yourself that you should have bought in 2015 when rates were low and prices were low. You have limited competition for buying real estate right now. When this group starts buying towards the end of the decade, you will see the next uptick in the real estate cycle take place. They will all compete for houses. This will set off a chain reaction in the housing market. Happened many times before, will happen again, the cycle always holds true. I even argue that this recession has more to do with demographics than the housing crash. The housing crash has a lot to do with baby boomers in their biggest spending years and then the cut back in spending that comes as they get closer to retirement. Yes, cheap rates and lack of standards put the bubble on steroids, but this housing bubble was coming no matter what due to the spending patterns of a very large generation.
“One of the largest generations in history is about to move into its prime spending years. Millennials are poised to reshape the economy; their unique experiences will change the ways we buy and sell, forcing companies to examine how they do business for decades to come.”
62-
“HOUSING
As Millennials enter their peak home-buying years, their reluctance to enter the housing market could change. The cohort’s sheer size, plus its desire to settle down in the future, could lead to a surge in home sales.”
This article states my premise for why I was advocating to buy now to fast Eddie if he wants to make money.
I don’t want to buy to make money. I want much inventory so I could but what I want, not what I’m told to buy.
Always a fun landing at LaGuardia.
http://www.nydailynews.com/new-york/plane-landing-laguardia-airport-skids-runway-article-1.2138523
better pics, plane almost for a swim.
http://www.nydailynews.com/new-york/plane-landing-laguardia-airport-skids-runway-article-1.2138523
55.
“what right wing old farts want, right wing old farts get
election after election Young people, and poor people don’t vote”
Has nothing to do with age or politics.
Democracy is mob rule.
Early on the States had it correct. No land or no income – no vote.
Give a bunch of dependents the ability to take from providers as needed and at will…….
Expropriation. Extortion. Confiscation. Democratically enacted taxes.
Good day! I could have sworn I’ve visited this website before but after looking
at many of the articles I realized it’s new to me. Anyhow, I’m definitely delighted I stumbled upon it and
I’ll be book-marking it and checking back often!
EU heading down the toilet.
“Eurozone on road to deflation, and bonds remain [an] attractive asset because high demand meets scarce supply ECB will reduce interest for cash deposits to minus 3% and the dollar [will] appreciate by 20%, reaching parity with euro in 2015.”
what a moron
JJ says:
March 5, 2015 at 9:57 am
Supervisor? Wow now that is a job title I last heard in the 90s.
Are you going to actually claim you believe in these sentiments?
Fabius Maximus says:
March 5, 2015 at 11:13 am
“To live in accordance with how one thinks. Be yourself and don’t try to impose your criteria on the rest. I don’t expect others to live like me. I want to respect people’s freedom, but I defend my freedom. And that comes with the courage to say what you think, even if sometimes others don’t share those views.”
Wow nice landing, flew in the other night into the snow and ice and thought I was going to end up the same way.
What no Pumpkincomment on today’s productivity and wage numbers? I’d think it would be cause for celebration.
Pot… meet kettle:
Governor whom Christie helped elect says N.J. is ‘going down the drain’
…In a speech to the Illinois farm bureau last week newly-elected Illinois Gov. Bruce Rauner noted that his state has the highest property taxes in America “other than New Jersey. I don’t want to compete with New Jersey on anything, especially that. That’s a disaster,” according to a report in the Springfield, Ill., State Journal-Register.
“New Jersey is lost,” Rauner said. “They’re going down the drain, and they ain’t turning it around.”
http://www.nj.com/politics/index.ssf/2015/03/illinois_governor_christie_helped_elect_declares_n.html
how many delta skymiles points do you get for an aborted flight?
$250 voucher and a bag of nuts.
the bag of nuts refers to the gay flight attendants or actual nuts?
grim says:
March 5, 2015 at 1:53 pm
$250 voucher and a bag of nuts.
Joyce (70)-
Only thing dicktard knows about Uruguay is that Gooners couldn’t get Suarez.
…or Cavani.
Music Video (jj Edition):
https://www.youtube.com/watch?v=UX5j2GaORrM
The lyrics are genius….at least the one that are in English….
Too big, too small?
Size does matter, after all!
Zu groß, zu klein?
Er könnte etwas großer sein!
Mercedes-Benz und Autobahn!
Alleine, in das Ausland fahren!
Reise, reise! Fahrvergnügen!
Ich will nur Spaß, mich nicht verlieben!
Just a little bit…
Just a little b!tch!
You’ve got a pu55y
I have a dick
So what’s the problem?
Let’s do it quick!
So take me now
before it’s too late!
Life’s too short, I can’t wait!
Take me now! Oh, don’t you see?
I can’t get laid in Germany…
Think also about what money is. It is not the economy. There is zero connection between the amount of money and economic activity. Beyond allocation of resources. If we had the Great Depression tomorrow and defaulted on 90% of our debt no one is dead, no factories disappear, etc.
We would simply stop working for those with the political power to create money (borrow) and we’d start working for each other. In other words the inequality caused by money creation would dissappear overnight. This is a temporary economic disruption as people have to shift jobs. But the fact that disruption is going to occur with deflation means we’ve misallocated capital in the West just as badly as any communist country centrally controlling the economy.
Joyce (81)-
Post of the year. So far.
Think about what wealth is. Then, think about how fewer and fewer people understand it, much less discuss it.
#81 Joyce
Wow, you just won the Billy Madison award!
https://www.youtube.com/watch?v=C3JzbWVDzac
“This is a temporary economic disruption as people have to shift jobs”
So when you close your restaurant, for lack of customers, where are you shifting your Job?
#70 Joyce
Yes, Henry Ford nailed this!
“Businesses just want to increase their profits; it’s up to the government to make sure they distribute enough of those profits so workers have the money to buy the goods they produce,” Mujica told businessmen at the U.S. Chamber of Commerce. “It’s no mystery — the less poverty, the more commerce. The most important investment we can make is in human resources.”
Clot,
Couldn’t hold on even in Fergie Time?
#83
And fewer and fewer have it.