Why expect a pipeline to flow if one end is purposely closed up?

Posted on December 29, 2013 by grim

From the Press of Atlantic City:

New Jersey foreclosure pipeline remains clogged

The number of homes entering foreclosure across the nation is at its lowest level in years, but a persistent backlog has left New Jersey stuck at year’s end with the nation’s second-largest percentage of homes in some stage of foreclosure.

Nearly 7 percent of New Jersey homes are in the foreclosure pipeline, behind only Florida at 7.1 percent, according to real estate data provider CoreLogic.

New Jersey also has the country’s second-highest number of homes — 10.6 percent — that are at least 90 days behind on mortgage payments.

For the most part, the high foreclosure numbers stem from a drawn-out foreclosure process and a severely backlogged pipeline of cases.

“The rest of the country, about 75 percent of the U.S., will have cleared out their foreclosure backlog by summer 2014,” said Jeffrey Otteau, of the Otteau Valuation Group, an East Brunswick, N.J.-based real estate consulting group. “New Jersey will probably be digesting, working and chopping through all of this until spring 2015.”

New Jersey’s foreclosure process typically takes a long time — 200 to 400 days on average, according to a study by Legal Services of New Jersey. But the process is now taking an average of about 1,000 days in part because of a past freeze on foreclosures and a subsequent logjam.

“You had a slow drip in the bathtub, but it had nowhere to go,” said Sam Khater, deputy chief economist for CoreLogic. “After a while it builds up, and that’s what happened in Jersey.”

The state’s well-off suburbs close to New York City have fared relatively well, Otteau said. But the state’s urban centers, including Newark and Trenton and its rural and exurban areas, including Sussex County in the north and Cumberland County in the south, have been hardest-hit by foreclosures.

Foreclosures due to damage from Superstorm Sandy, which devastated parts of Ocean and Monmouth counties in 2012, have also contributed to the uptick, Otteau said.
…
“Nobody’s paid any attention at all to New Jersey until recently,” said Robert C. Hockett, a professor of law at Cornell University.

Posted in Foreclosures, New Jersey Real Estate | 20 Comments

Will the housing recovery fizzle out in 2014?

Posted on December 27, 2013 by grim

From Reuters:

U.S. housing recovery could run out of steam

The U.S. housing recovery could run out of steam in 2014. Banks are likely to tighten lending standards once new rules come into place. Rising interest rates may drive down home loan volume, too. Cash purchases by investors could set a floor for house prices, but they may not be enough to prevent a major slowdown.

Of late, the market has been on a tear. American home prices in the third quarter of 2013 rose 11 percent compared with the same period a year earlier, the S&P/Case-Shiller index shows. That’s the strongest jump since the bubble popped six years ago. Foreclosure activity, meanwhile, has fallen to 2005 levels, according to online marketplace RealtyTrac. And existing home sales have been the best since 2007, with over 5 million on an annualized basis since May, reports the National Association of Realtors (NAR).

But Washington appears poised to throw cold water on the fiery recovery. In January, the so-called Qualified Mortgage rule goes live. It piles strict new standards on lenders who want to avoid borrower lawsuits. That could shrink home loan credit from the current level that is already lower than before the boom.

Congress may even make some reforms to mortgage finance next year, possibly laying out the funeral plan for guarantors Fannie Mae and Freddie Mac. Both lawmaking chambers are pondering bills, and outgoing Senate Banking Committee Chairman Tim Johnson needs some legacy legislation.

Meanwhile, demand for mortgages is likely to shrink, too. That’s because long-term interest rates are on the verge of rising after years of the U.S. Federal Reserve holding them artificially low. Not only will that lead to a slump in borrowers refinancing their existing home loans – a business that already dropped in 2013. It will also dissuade some from buying a new home.

It’s not looking totally bleak. Since mid-2010 all-cash purchases, mostly by investors like Blackstone, have made up 30 percent of all existing home sales, according to the NAR. That’s more than three times its historical norm. That may prevent house prices plummeting, but it’s of little comfort to the average buyer.

Posted in Economics, Housing Recovery, National Real Estate | 90 Comments

10 Predictions for the New Year

Posted on December 24, 2013 by grim

From Forbes:

Housing Outlook 2014: 10 Predictions From The Experts

1. More homes will be available
Short supply drove rapid price increases at the beginning of 2013, but watch for that to change next year. Realtor.com notes that the inventory (homes available for purchase) shortage began to soften in February. New construction and rising prices should bring more homes, both new and old, on to the market in 2014, helping inventory return to traditional levels.
…
2. Mortgage rates will rise
Zillow predicts rates will hit 5% by the end of 2014–well up from the 4′s and 3′s of late, but still well within normal levels. New Fed Reserve chief Janet Yellen is expected to continue Ben Bernanke’s policy of keeping mortgage rates low by buying blocks of mortgage-backed securities, but the Fed’s bond-buying taper could push rates higher.
…
3. Mortgages will be easier to get
“The silver lining to rising interest rates is that getting a loan will be easier,” says Lantz. “Rising rates means lenders’ refinance business will dwindle, forcing them to compete for buyers by potentially loosening their lending standards.”
…
4. Home prices will rise 3%
Redfin and Zillow are predicting that home prices will rise between 3% and 5% in 2014. For comparison’s sake, 2013 saw jumps of 5% nationally, with increases of more than 20% in some hot spots. “These gains, while beneficial in many ways, were also unsustainable and well above historic norms for healthy, balanced markets,” says Dr. Stan Humphries, Zillow’s chief economist.
…
5. Fewer homeowners will be underwater
Rising prices helped 2.5 million homeowners with underwater mortgages regain positive equity status during the second quarter of 2013, according to Realtor.com. By Q3, a CoreLogic report found that about 6.4 million homes were still in negative equity at the end of Q3. Watch for that number to shrink in 2014.
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6. Affordability will decline
Despite the slower pace of price increases, home affordability will decline as mortgage rates rise. The real culprit is income levels, which aren’t keeping pace with the increases in housing costs. In 2013, the National Association of Realtors’ Home Affordability Index dropped to a five-year low. Experts predict the trend will continue in 2014.
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7. Ownership will decline
In 2014, Zillow predicts, homeownership rates will fall below 65 percent for the first time since 1995. “The housing bubble was fueled by easy lending standards and irrational expectations of home value appreciation, but it put a historically high number of American households – seven out of ten – in a home, if only temporarily,” says Humphries. “That homeownership level proved unsustainable and during the housing recession and recovery the homeownership rate has floated back down to a more normal level, and we expect it to break 65% for the first time since the mid-1990s.”
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8. Americans will move
Rising prices, a reversal of underwater mortgages, and easier credit will free Americans up to move. But next time they’ll choose smaller homes in more affordable locations. Redfin is predicting that new lending regulations–which make it harder to borrow more–will send Americans to less expensive hubs like Portland, Denver, Austin, Richmond, Dallas, Houston, San Antonio, Atlanta, and Raleigh.
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9. Foreclosures will fade
The once booming foreclosure market has slowed, with September 2013 the 36th straight month of year-over-year decreases in foreclosure activity, nearly 33% down from the end of 2012. The declines should continue with the overall housing recovery.
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10. Home buying process less crazed
During the bust, investors bought as many as one out of every five homes in America, according to Redfin. The perfect storm of increased inventory, higher prices, and fewer foreclosures means that investors are stepping out of the buying market, giving way for regular folks. Add to that the loosening credit rules, and the housing buy market begins to look more normal.

Posted in Economics, Employment | 101 Comments

Loveshack baby loveshack!

Posted on December 23, 2013 by grim

From the Record:

Suit: Real estate agents used Wayne home for sex

A former president of the Passaic County Board of Realtors is accused in a lawsuit of steering potential buyers away from a couple’s vacant Wayne home so he could use it for “sexual escapades,” which were captured on hidden cameras.

Richard and Sandra Weiner of Denville have filed suit in state Superior Court in Passaic County alleging breach of trust and fiduciary duties against Coldwell Banker of Madison and Wayne residents, and Coldwell agents, Robert Lindsay and Jeannemarie Phelan. The Weiners are seeking compensatory damages for invasion of privacy, infliction of emotional distress, breach of contract, trespass of land and other civil counts.

“Defendants Coldwell and Lindsay were engaged by the Weiners to market and sell their home in Wayne, New Jersey. Instead, Lindsay and Phelan, through Lindsay’s illegal and dishonest acts, used the Weiners’ home as their play pad to have sexual relations in the Weiners’ bedroom, among other places in the home,” the suit states.

The lawsuit alleges that along with making a duplicate key to the house, Lindsay “intentionally listed the house above market value to avoid Realtor traffic in the home while he and Phelan carried on their trysts.”

The suit filed Dec. 6 also states: “Worst yet, all of Lindsay and Phelan’s sexual escapades were recorded on security video cameras located in the Weiners’ home.”
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From Dec. 27, 2011, to Jan. 23, 2012, according to the suit, the security cameras captured Lindsay and Phelan making 10 additional visits to the home.

“All visits were for sexual encounters,” the suit states. “The last visit to the house by Lindsay and Phelan was on Jan. 23, 2012. Sandra Weiner happened to be checking the video cameras feed at the time and saw strange people in the house with what she thought were flashlights. The house was dark at the time. The Weiners called the local police, who then went to the house.”

“The police opened the door to the house and found Lindsay pulling up his pants,” the suit states. “Lindsay lied to police by telling them that he was there to prepare the house for an open house. … Instead, Lindsay and Phelan were at the house to have sex.”

Posted in Humor, New Jersey Real Estate | 69 Comments

November Surprise for Jersey Jobs

Posted on December 20, 2013 by grim

From the WSJ:

Outlook on New York City-Area Jobs Perks Up

The Greater New York job market showed continued but modest growth in November, state reports showed, with particularly good news for New Jersey, which had been adding jobs at a tepid pace.

New Jersey gained 14,100 private-sector jobs and 2,800 government jobs. The state’s unemployment rate fell 0.6 percentage points to 7.8%, the largest monthly drop on record, according to a report released Thursday by the New Jersey Department of Labor and Workforce Development.

The data were a vindication for Gov. Chris Christie. Earlier this week, the financial rating service Moody’s had downgraded the outlook on the state’s $32 billion in general-obligation bonds from stable to negative. In October, the state had lost 1,400 private-sector jobs.

Moody’s cited New Jersey’s “sluggish economic recovery,” among the challenges the state faces. Mr. Christie on Thursday called Moody’s analysis “half-baked,” as it didn’t take into account New Jersey’s latest job numbers. “These are all signs of a growing, robust economy and job market in this state,” Mr. Christie said during a news conference in Trenton.

Joseph J. Seneca, an economics professor at Rutgers University, called the November report an “early holiday present.”

“Over the last several months, New Jersey had been lagging the national economy in terms of jobs growth,” he said. “But the November numbers reassure us that New Jersey is participating in the job growth the nation is experiencing.”

Mr. Seneca also noted, however, that the decline in the number of people unemployed didn’t translate into more people employed, because they likely left the labor force.

Posted in Demographics, Economics, Housing Recovery, New Jersey Real Estate | 65 Comments

Home sales disappoint again

Posted on December 19, 2013 by grim

From Bloomberg:

Previously Owned Home Sales in U.S. Drop for Third Month

Previously owned U.S. home sales declined for the third consecutive month in November to the lowest level of the year as rising mortgage rates and a limited supply of properties discouraged buyers.

Purchases dropped 4.3 percent to a 4.9 million annual rate, the National Association of Realtors reported today in Washington. The median forecast of economists in a Bloomberg survey called for the pace to slow to 5.02 million. Still, the group projects 2013 will be the best year for the industry in seven years, with an estimated 5.1 million properties sold.

Rising prices and borrowing costs have put homes out of reach for many first-time buyers and a partial federal government shutdown in October may have delayed some purchase decisions. At the same time, builder confidence has picked up along with new construction, signaling gains in housing will be sustained.

“Part of the weakness was the government shutdown,” said Brian Jones, senior U.S. economist in New York at Societe Generale. “The vast majority of indicators we’ve gotten on housing are pretty solid.”

Estimates in the Bloomberg survey of 75 economists ranged from 4.9 million to 5.21 million.
…
Sales declined in all four regions, led by a slump in the West, where a lack of inventory restrained activity. Demand decreased 8.5 percent in the West, 4.1 percent in the Midwest, 3 percent in the Northeast and 2.4 percent in the South.

“It’s a clear loss of momentum,” NAR Chief Economist Lawrence Yun said at a news conference as the figures were released. “Even with the weakening, we expect home sales to be the best in seven years.”

Cash transactions accounted for about 32 percent of all purchases, compared with 30 percent a year earlier, the report showed.

Sales of distressed property, including foreclosures, accounted for 14 percent of the total last month, unchanged from October.

Existing-home sales, which are tabulated when a purchase contract closes, are recovering from a 13-year low of 4.11 million in 2008 after reaching a record 7.08 million in 2005.

Posted in Economics, Housing Recovery, National Real Estate | 30 Comments

How does it feel to be rich?

Posted on December 18, 2013 by grim

From the Star Ledger:

N.J. has second highest median household income, according to Census

The median household income in New Jersey is the second highest in the country, according to new Census numbers released on Tuesday, Dec. 17.

New Jersey ranks number two with a median household income of $71,637, according to the latest 2008-2012 American Community Survey estimate.

Only Maryland ranks higher, with a median income of $72,999 with Alaska coming in third with $69,917.

Among the counties, Hunterdon County earns the highest median household income with $105,880. Somerset comes in second with $98,571 and Morris third with $97,979.

Posted in Demographics, Economics, New Jersey Real Estate | 153 Comments

Uh-oh, they just HAD to say it

Posted on December 17, 2013 by grim

From the St. Louis Fed:

The Recent Boom in House Prices: Why Is This Time Different?

The current housing boom is the first nationwide boom since the postwar era not driven by increased demand for owner-occupied housing.

House prices have been appreciating across U.S. cities since 2012. Traditionally, rapid appreciation has been localized in areas with rapid economic growth and/or migratory flows. This time, things appear to be different. According to the Zillow Home Value Index, house prices have risen in many areas with slow growth (i.e., Detroit or Memphis). This essay analyzes the recent housing boom and explains why this episode differs from previous ones.
A simple way to dissect the recent housing boom is to summarize the movements in house prices across representative U.S. cities or, more precisely, metropolitan statistical areas (MSAs). The first column in the first chart shows the appreciation of the composite index for the 2012:Q1–2013:Q1 period. The other columns show the appreciation across low, middle, and high market tiers. The median house price for each city is also listed.

The first chart highlights some important features of the housing boom. First, the boom was relatively uniform across the country. Second, most cities experienced significant appreciation, ranging from 5 percent to 25 percent. Interestingly, some cities with the largest house price declines during the 2007-09 financial crisis (e.g., Las Vegas, Los Angeles, Phoenix, and San Diego) appear to be leading the recovery. The argument could be made that the low house prices eventually made them attractive to buyers, but improvements in the local economy could be the major driver in some of these markets. Also of interest is that the greatest appreciation across all cities occurred in the low tier of homes. Traditionally, this is the niche market for “first-time buyers.”

The two largest housing booms in recent history (post-World War II and the 2000s) were fueled by price increases in the low-tier market segment. Both booms were partially driven by improved lending conditions that resulted in a boom in home prices and homeownership—not only in starter homes, but also in other submarkets. The underlying driver of the current boom seems to be different.
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The combination of the uniform decline in homeownership across most age groups—particularly first-time buyers—and increasing home prices across all tiers suggests private and institutional investors have been profiting from current mortgage market conditions. Since 2006, the national homeownership rate has declined from 69 percent to 65 percent. This shift from owner-occupied to tenant-occupied housing has increased rental prices across all cities. The increased rental prices and the expectation of future capital gains have encouraged investors to purchase single-family homes in the low and middle tiers and generated a new housing boom. These observations suggest the current housing boom is the first nationwide boom since the postwar era not driven by increased demand for owner-occupied housing. The current episode could solidify the idea that housing booms can be driven entirely by investors.

Posted in Economics, Housing Recovery, National Real Estate | 118 Comments

NY Metro among the healthiest housing markets

Posted on December 16, 2013 by grim

From CNBC:

The healthiest housing markets? It may surprise you

Following today’s housing recovery is like watching a bunch of sixth grade girls decide which boys are cool and which aren’t. Boy to boy, housing market to housing market, the winners and losers are constantly changing. Had one predicted just a year ago that five of the 10 healthiest housing markets would be in California, one might have been summarily dismissed.

But Zillow has found that the nation’s healthiest housing market is San Jose, followed by San Francisco, Los Angeles and San Diego, and just making it at No. 10, Sacramento.

“Rapid home value appreciation in the West, particularly California, is currently having a very positive effect on a number of other factors, including negative equity, foreclosure activity and the overall financial health of local homeowners. But that same rapid appreciation may cause affordability issues in the future in these markets, leading to potentially unhealthy conditions,” Zillow Chief Economist Stan Humphries said.
Rounding out Zillow’s top 10 were Denver, Boston, Pittsburgh, Portland, Ore., and New York City, ranking five through nine.
…
While one can deem a certain housing market “healthy” today, due to rising home prices, if those prices rise to far too fast, that health could be in jeopardy. It is therefore important to keep an eye on markets where investors are now setting their sights, such as Atlanta and Charlotte. With investors able to sway markets so quickly, the usual rules of supply and demand don’t apply.

Posted in Economics, Housing Recovery, National Real Estate | 142 Comments

Looking into Trulia’s crystal ball

Posted on December 13, 2013 by grim

From HuffPo:

Trulia: 2014 Will Be The Year Of Repeat Home Buyer

The housing market continued its uneven recovery in 2013 and will enter 2014 closer to normal than it was a year earlier. Consumer optimism is climbing back: in Trulia’s latest survey, 74% of Americans said that homeownership was part of achieving their personal American Dream – the highest level since January 2010. Even among young adults (18-34 year olds), many of whom struggled through the recession and are still living with their parents, 73% said homeownership was part of achieving their personal American Dream, up from 65% in August 2011. Rising prices over the past two years have been great news for homeowners, especially for those who had been underwater, and the real estate industry has benefited from both higher prices and more sales volume.
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Barring any economic crises, the housing market should continue to normalize. Here are 5 ways that the 2014 housing market will be different from 2013:

1. Housing Affordability Worsens. Buying a home will be more expensive in 2014 than in 2013. Although home-price increases should slow from this year’s unsustainably fast pace (see #4, below), prices will still rise faster than both incomes and rents. Also, mortgage rates will be higher in 2014 than in 2013, thanks both to the strengthening economy (rates tend to rise in recoveries) and to Fed tapering, whenever it comes. The rising cost of homeownership will add insult to injury in America’s least affordable markets: in October 2013, for instance, 25% or less of the homes listed for sale in San Francisco, Orange County, Los Angeles, and New York were affordable to middle class households. Nonetheless, buying will remain cheaper than renting.
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2. The Home-Buying Process Gets Less Frenzied. Home buyers in 2014 might kick themselves for not buying in 2013 or 2012, when mortgage rates and prices were lower, but they’ll take some comfort in the fact that the process won’t be as frenzied.
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3. Repeat Buyers Take Center Stage. 2013 was the year of the investor, but 2014 will be the year of the repeat home buyer. Investors buy less as prices rise: higher prices mean that the return on investment falls, and there’s less room for future price appreciation. Who will fill the gap? Not first-time buyers: saving for a down payment and having a stable job remain significant burdens, and declining affordability is also a big hurdle for first-timers. Who’s left? Repeat buyers: they’re less discouraged by rising prices than either investors or first-time buyers because the home they already own has also risen in value.
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4. How Much Prices Slow Matters Less Than Why And Where. Prices won’t rise as much in 2014 as in 2013. The latest Trulia Price Monitor showed us that asking home prices rose year-over-year 12.1% nationally and more than 20% in 10 of the 100 largest metros. But it also revealed that these price gains are already slowing sharply in the hottest metros. How much prices slow matters less than why.
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5. Rental Action Swings Back Toward Urban Apartments. Throughout the recession and recovery, investors bought homes and rented them out, sometimes to people who lost another (or the same!) home to foreclosure. In fact, the number of rented single-family homes leapt by 32% during this period. Going into 2014, though, investors are buying fewer single-family homes; loosening credit standards might allow more single-family renters to become owners again; and fewer owners are losing homes to foreclosures to begin with – all of which mean that the single-family rental market should cool.

Posted in Economics, Housing Recovery, National Real Estate | 110 Comments

NJ’s inability to foreclose costs everyone

Posted on December 12, 2013 by grim

From HousingWire:

Four states face sticker shock from g-fees, adverse market fees

Four states failed to make the exclusive list of 46 states that no longer have to provide the upfront 25-basis point adverse market fee: New York, New Jersey, Connecticut and Florida.

The Federal Housing Administration recently announced the expected rise in guaranteed fees, but in addition to the new hike, the FHA eliminated the adverse market fee in a majority of the U.S. states.

“From the actual number standpoint there are three things we have to consider: the 10 basis point g-fee increase, the 25 bp adverse market fee elimination and the four states that don’t receive the elimination,” Quicken Loans Chief Economist Bob Walters said.

Due to varying state laws and practices that govern the foreclosure process, there are significant discrepancies in the average length of time it takes a state to complete the foreclosure process.

Fannie Mae and Freddie Mac, being the largest mortgage investors, have incurred significantly greater total carrying costs due to the lengthening of foreclosure timelines in recent years, the FHA said.

To combat this issue, the FHA said they would focus most on the extreme outlier states in terms of high carrying costs.

From these calculations, New York, New Jersey, Connecticut and Florida were left out since they maintain ‘expected carrying costs’ that are more than two standard deviations above the national average.

Posted in Foreclosures, Mortgages, Politics | 114 Comments

Are you feeling any wealthier?

Posted on December 11, 2013 by grim

From Reuters:

U.S. household net worth hits record high in Q3

U.S. household net worth hit a record high in the third quarter as home prices marched up and the value of stocks and mutual funds surged, a hopeful sign for the economic recovery.

The Federal Reserve said on Monday household wealth increased $1.9 trillion to $77.3 trillion in the third quarter, the highest level since records started in 1945. It was the ninth straight quarter of increases.

Though the surge in net worth was encouraging, economists cautioned against reading too much into the rise as it would have benefited only the portion of the population with access to equities and those who owned homes.

“From a consumption perspective, it is actually going to be limited to folks who hold equities that are feeling the biggest share of the increase in net worth,” said Jacob Oubina, senior economist at RBC Capital Markets in New York. “Americans still have a long way to go to get to full financial health.”

The value of residential real estate rose by $428 billion between July and September, and corporate equities and mutual funds were up by $917 billion over the period, the Fed said.

The U.S. central bank has aggressively used ultra-easy monetary policy to foster a recovery in the nation’s housing market following a severe 2007-09 recession. That effort has helped propel U.S. stocks to record highs.
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Household debt increased at an annualized 3.0 percent rate in the third quarter to $13.1 trillion. It was the sharpest run up since the first quarter of 2008.

“The deleveraging process looks to be slowing down,” said Michael Feroli, an economist at JPMorgan in New York.

Mortgage debt increased at a 0.9 percent rate to $9.4 trillion in the third quarter. The last time it rose was in the first three months of 2009, when it edged up at a 0.1 percent pace.

“It’s interesting that household mortgage deleveraging paused in the third quarter,” said Dana Saporta, an economist at Credit Suisse in New York. “It seems like the mortgage market might be starting to come out of the persistent deleveraging, maybe starting to normalize a bit.”

Posted in Demographics, Economics, Employment, National Real Estate | 86 Comments

NJ’s foreclosure constipation

Posted on December 10, 2013 by grim

From the Star Ledger:

New Jersey foreclosures continue, but number of homes in the pipeline falls

The number of New Jersey homes in the foreclosure pipeline continues to shrink, but slowly.

According to CoreLogic, more than 4,500 homes completed the foreclosure process between October 2012 and October 2013. From 2011 to 2012, 3,078 homes were foreclosed.

A completed foreclosure occurs when a property is auctioned and results in the purchase of the home at auction by a buyer or the bank.

The increased number of completed foreclosures reduced the number of New Jersey homes in the pipeline, but the Garden State still ranks second to Florida in the percentage of homes in foreclosure at 6.7 percent, a full percentage point below the October 2012 level.

New Jersey also ranks second in the number of homes that are behind at least 90 days in their mortgage payments at 10.6 percent.

On the national level, CoreLogic reported a year-over-year decrease of 30 percent in the number of foreclosed homes. The percentage of homes that were foreclosed was 2.2 percent, CoreLogic found.

Since the financial crisis began in September 2008, there have been approximately 4.6 million completed foreclosures across the country.

The five states with the highest foreclosure inventory as a percentage of all mortgaged homes were Florida (7.1 percent), New Jersey (6.7 percent), New York (4.9 percent), Maine (3.8 percent) and Connecticut (3.7 percent), according to CoreLogic.

Posted in Foreclosures, New Jersey Real Estate | 37 Comments

Not all rainbows and butterflies in Rentville

Posted on December 9, 2013 by grim

From the Boston Globe:

Do renters have it tougher?

Home buyers and owners have certainly faced their share of misery over the past decade.

And the return of escalating home prices is fast undoing any minor increase in affordability created after the real estate market – and the world economy – tanked back in 2008.

But all is not well in Renter Nation either.

No, it’s not the happy land of footloose and fancy free Millennial types we have all been hearing about, who are choosing to rent because it fits their evolving, earth friendly lifestyles.

What hogwash.

Rather, renters across the country are increasingly finding themselves cash strapped, having to devote ever greater amounts of shrinking or stagnant paychecks just to keep a roof over their heads.

So says the Harvard Joint Center on Housing Studies in a new report just out this morning.

Adjusted for inflation, rents nationally have risen by 6 percent over the past decade. Meanwhile, renters have seen their incomes plunge during the same period by an ugly 13 percent, the Harvard study finds.

“The gravity of the situation for the large proportion of renters spending so much of their incomes on housing is plain,” said Eric Belsky,

managing director of the Joint Center for Housing Studies at Harvard, in a press statement. “We are losing ground rapidly against a chronic problem that forces households to cut essential spending.”

More than half of all renters across the country now shell out more than 30 percent of their income to their landlords, thrusting them into the land of the so-called “rent burdened.”

Posted in Demographics, Economics, National Real Estate | 146 Comments

Thinking FHA? You may be overpaying for your loan.

Posted on December 7, 2013 by grim

From the NYT:

The Downside to F.H.A. Loans

Mortgages insured by the Federal Housing Administration are the go-to product for borrowers who don’t have much cash for a down payment. But the required mortgage insurance premiums have become so costly that some critics argue that the agency is taking advantage of borrowers who have few other options.

One of the most vocal critics is Edward J. Pinto, a resident fellow of the American Enterprise Institute, who calls the terms “predatory” and “abusive.” He argues that the majority of F.H.A. loans are at high risk for default should the economy tip back into recession, but that borrowers have no way of knowing how safe their loans are, because the agency prices all loans the same.

Low-risk borrowers, he said, are overcharged to subsidize those at higher risk. “The consumer who has the very-low-risk loan doesn’t even know he might be better off going through the private sector,” Mr. Pinto said. “They may assume that the government is protecting their interests.”

F.H.A.-backed loans cater to first-time buyers because they require as little as 3.5 percent down. Conventional loans backed by Fannie Mae require a minimum of 5 percent down, as well as private mortgage insurance.

The difference in premiums, depending on the loan type, is considerable. Mark Yecies, an owner of SunQuest Funding, offered an example: On a $300,000 loan with 5 percent down, the F.H.A. would charge an upfront insurance premium of 1.74 percent, or $5,250 financed into the loan. The premium would also add $325 a month; if the borrower put down only 3.5 percent, the premium would be $337.50. In contrast, the same loan with 5 percent down and private mortgage insurance would not charge an upfront fee; the monthly premium would be $175.

Mr. Yecies says that if home buyers have decent credit but are short the 5 percent, he often suggests they ask the seller to pay their closing costs as part of their purchase offer. That way, they can bring more money to the table for a down payment. But “less sophisticated” lenders may automatically usher such borrowers into more costly F.H.A. loans, he said.

David Stevens, the president of the Mortgage Bankers Association, agrees that borrowers are better off with a Fannie Mae-backed loan if they can put at least 5 percent down and have a minimum FICO score of 740. And F.H.A.’s market share has in fact dropped as its insurance premiums have risen. But Mr. Stevens, who served as F.H.A. commissioner from 2009 to 2011, says Mr. Pinto’s argument that the F.H.A. is preying on the poor simply doesn’t hold up. He acknowledged that its underwriting standards were too lax during the years after the mortgage market collapse, when lenders shifted their volume to F.H.A. loans, drawing borrowers with the worst credit and ending up with high delinquency rates.

Posted in Economics, Mortgages, National Real Estate, Property Taxes | 62 Comments