WHO AM I?
I am the basis of all wealth, the heritage of the wise, the thrifty and prudent.
I am the poor person’s joy and comfort, the rich person’s prize, the right hand of capital, the silent partner of thousands of successful people.
I am the solace of the widow, the comfort of old age, the cornerstone of security against misfortune and want. I am handed down through generations, as a possession of great value.
I am quietly growing in value through countless days. Though, I might seem dormant, my worth increases, never failing, never ceasing. Time is my aid and the ever increasing population adds to my gain. I defy fire and the elements, for they cannot destroy me.
My possessors learn to believe in me and invariably they become envied by those that have passed me by. While all other things wither and decay, I alone survive. The centuries find me younger, always increasing in strength. All oil and minerals come from me. I am the producer of food, building materials and the home to every living thing. I serve as the foundation for homes, factories, banks and stores.
I have not been produced for thousands of years, yet, I am so common that thousands, unthinkingly and unknowingly, pass me by.
Who am I? “I AM LAND.”
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The housing market is slowing down, with home values seeing the first negative monthly change since the market began its recovery nearly four years ago, according to the Zillow July Real Estate Market Reports.
Nationally, home value appreciation is leveling off after its rapid pace in the early years of the recovery. Homes lost 0.1% of their value in July, falling to a Zillow Home Value Index of $179,900.
Homes appreciated 3% on an annual basis, down from 3.4 percent in June.
“This slight dip in home values is a sign of the times. Many people didn’t think it was happening, but it is: we’re going negative,” said Zillow Chief Economist Svenja Gudell. “We’ve been expecting to see a monthly decline as markets return to normal. However, this is not like the bubble bust. We’re not going to see 10 percent declines. The market is leveling off, and it’s good news, particularly for buyers, because it will ease some of the competitive pressure.”
Of the 517 metros covered by Zillow, 204 saw a slowdown, including major metros like Washington, DC and Cincinnati, where home values declined month-over-month in July. The slowing appreciation is a sign that the market is returning to normal; economists have expected to see growth flattening out as the recovery continues.
“Nationally, 63% of homes listed for sale on June 17 were still on the market on August 17, which is up a bit from 61% for the same period last year,” says Ralph McLaughlin, Housing Economist for Trulia. “And it turns out homes across all price tiers have slowed about the same.
“Home sales in all three tiers slowed 2-3 percentage points compared with a year ago. The share of low-price and mid-priced homes still on the market after two months increased 2 percentage points, compared with a 3-point increase for high-tier homes. As always though, the national trend hides big differences from one local market to another. In many metros, the sales pace is quickening, while slowing in others,” McLaughlin said.
McLaughlin said affordability may be starting to play a role in the priciest markets. Of the 50 most expensive housing markets, those with fewer homes for sale that are affordable to the middle class in 2014 tended to experience a slowdown.
“In other words, home buyers, no matter how competitive the market is, have a limit. When the stock of cheaper homes dries up, not every buyer is able to up their budget and put offers on homes in a higher price tier,” he said. “So some may delay buying a home, which leads to existing homes sitting on the market a tad longer. Still, homes in these expensive markets are moving faster than other less expensive metros.”
Slowing home values could provide more opportunities for hopeful buyers who have been waiting on the sidelines for the market to cool off. More homes may be coming online as homeowners who have been watching strong home value growth decide to list their houses as appreciation slows and smaller gains are expected. This could help ease the constrained inventory the market has been facing for the past several months.
Meanwhile, rents continue to grow at a rapid pace, up 4.2% from last July to a Zillow Rent Index of $1,376. With no sign of rents slowing down and the potential for more homes for sale, conditions may be right for buyers to enter the market.
By Trey Garrison, reprinted from Housingwire.com
ASK THE PIG – “How Do You Value Diseconomies?”
A diseconomy in real estate is a condition unrelated to the property itself that can negatively affect its value. An example of this might be an area that was recently flooded (even if the subject property was not), a home that backs up to a cemetery or trailer park, or a property that is situated near a power transformer.
Determining the after repair value of a home with a diseconomy comes back down to the basics of comparable sales data, however not in the way that it’s traditionally used. Because there may not be sales on similar homes in the area with the exact same diseconomy, it may take a little more research and a few more calculations to get to an educated guess on your subject property’s value.
For example, I recently had a PIG member contact me for a deal review/ARV on a home that backed up to a cemetery. On this particular road, there were only about 10-12 homes that also backed up to the cemetery, and so finding a comparable sale in the last 6-12 months for a traditional CMA was going to be difficult. So, to determine the after repair value on your subject property, you would need to calculate the percentage difference that a home historically sells for compared to a home that’s not against the cemetery.
To make this calculation, you would take the 2 most recent sales, whenever they took place…let’s say 2005 & 2009. Most investors know that these 2 years will produce drastically different SALES PRICES due to the market boom in 2005, however the effect of the cemetery can still be accurately calculated. For the 2005 sale, you would find 3 other similar homes in the neighborhood that SOLD IN 2005, and compare their sales price to the one backed up to the cemetery. Then you would do the same for the home in 2009, and typically these numbers will be similar. You would then run comps in the neighborhood in the past 6-12 months, and deduct the percentage historically associated with the homes near the cemetery.
However, if at any time you don’t feel like you can get a good comfort level on how the diseconomy will affect the value, I would strongly recommend you PASS on the deal. There are plenty of investment opportunities out there, and so there’s no reason to take a gamble and lose money when it’s not necessary. This is especially true for those of you who are beginners, as you will most likely have less of a safety net, and need your 1st few deals to be home runs.
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Lending product HomeReady expands to include refis
Thanks to new research and lender input, Fannie Mae announced its new HomeReady mortgage that will replace MyCommunityMortgage, Fannie’s previous affordable lending product.
The latest product is designed to help creditworthy borrowers with lower and moderate incomes access an affordable, sustainable mortgage.
“HomeReady will help qualified borrowers access the benefits of homeownership with competitive pricing and sustainable monthly payments,” said Jonathan Lawless, vice president for underwriting and pricing analytics at Fannie Mae.
“We are also confident this mortgage option will create business opportunities for lenders serving the changing demographics and borrower needs seen in today’s market.
Back at the end of last year, Fannie expanded its MyCommunityMortgage product to include an option for qualified first-time homebuyers that would allow for a down payment as low as 3%.
At the time, the 3% down payment option was only allowed if at least one co-borrower was a first-time buyer. However, with the new update, first-time and repeat homebuyers can purchase a home using HomeReady with a down payment of as little as 3%.
Lenders can now also reach a wider audience due to a new functionality through Desktop Underwriter that will automatically flag potentially eligible loans.
While this will still be a small percentage of Fannie’s portfolio overall, this update will still help lenders find borrowers who are getting skipped over.
Also, in more good news for lenders, Fannie Mae’s pricing is more favorable and simplified for lender use, and eliminates or caps standard loan level price adjustments.
This is welcomed news after Tuesday’s announcement from the Mortgage Bankers Association that total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – decreased to $6,984 per loan in the second quarter of 2015, from $7,195 in the first quarter of 2015.
As for borrowers, they will be required to complete an online education course to prepare them for the homebuying process and provide post-purchase support for sustainable homeownership.
The education course, called Framework, is provided by the Housing Partnership Network and the Minnesota Homeownership Center, and is based on the requirements of the HUD Housing Counseling Program and the National Industry Standards for Homeownership Education and Counseling.
Additionally, the lending requirements borrowers simplified.
Under the update, income from a non-borrower household member can be considered to determine an applicable debt-to-income ratio for the loan, helping multi-generational and extended households qualify for an affordable mortgage. According Fannie Mae’s research, these extended households tend to have incomes that are as stable or more stable than other households at similar income levels, positioning them well for homeownership.
Other HomeReady flexibilities include allowing income from non-occupant borrowers, such as parents, and rental payments, such as from a basement apartment, to augment the borrower’s qualifying income.
Fannie will provide more details to lenders in the coming weeks through a Selling Guide announcement, with HomeReady guidelines anticipated for Desktop Underwriter inclusion in late 2015. Fannie Mae anticipates accepting loan deliveries under the HomeReady guidelines in late 2015 as well.
HomeReady will be available to borrowers at any income level for properties in designated low-income census tracts, and to borrowers at or below 100% of area median income for properties in high-minority census tracts or designated natural disaster areas.
For properties in remaining census tracts, HomeReady borrowers must have an income at or below 80% of AMI. Approximately half of census tracts will be subject to the 100% AMI limit or have no income limit.
By: Brena Swanson, Housingwire.com
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A new report from Clear Capital suggests that REOs and short sales may be on the rise again.
“With stocks plummeting last week and the global economic impact on our domestic economy and housing markets still unknown, distressed sales continue to be a critical market indicator,” the report says. “Just like in the fashion industry’s iconic September issue, learn to be a trendsetter—from stateside to Puerto Rico—by letting distressed market measures give you full perspective of the market.”
Nationwide, quarterly distressed saturation (or the percentage of REOs and short sales to all sales) increased by 0.7% in August 2015, from 15.4% to 16.1%. While we are closer to historic, pre-2008 rates of distressed saturation which hovered around 4% of all sales, increases in distressed activity leading into winter could shift momentum towards peak distressed saturation levels of 40%.
Notably, the West’s and Midwest’s distressed saturation rates have exceeded that of the nation, increasing by 0.9% and 1.2%, respectively, while the largest gains in distressed saturation came in the South, with a 1.5% increase from 18.6% to 20.1%. The Northeast was the only region to experience a decrease in distressed saturation, where rates dipped 0.3% from 14.3% to 14.0%.
“Distressed saturation continues to be a challenge we face in today’s housing market,” says Alex Villacorta, vice president of research and analytics at Clear Capital. “In fact, today’s ‘traditional’ housing market continues to be defined by distressed saturation levels. In Act One, at the start of the downturn, distressed properties were an albatross around housing’s neck. In Act Two, between 2011 and 2013, investors stepped in, buying, rehabbing and selling or renting distressed properties, which gave way to higher demand and rising prices.
“While the overall effect of higher rates of distressed saturation in Act Three of the recovery is unknown, one thing is clear; when it comes to housing, REOs and short sales are not a passing fad,” Villacorta said.
For the past three years, distressed saturation in the San Juan MSA has been steadily increasing, having grown eight percentage points, from a reading of 9% in 2013 to 17% today. This trend is unusual in the current housing environment. Over the same three year period, nearly all of the major metro markets have experienced steady declines in distressed saturation. In terms of pricing, this near doubling of the saturation rate has corresponded with a rapid change in price declines from a yearly loss of 1.5% in 2013 to a yearly rate of decline of 10.2% today.
The Midwest is the only region to see quarterly gains in price appreciation, nearly doubling from 0.4% to 0.7%. The region still lags behind the West, which experienced declining gains of 0.1 percentage points, yet still continues to report highest quarterly growth at 1.2%. The South and Northeast appreciation rates remained stagnant, reporting 0.8% and 0.2% growth over the quarter. (Chart 1)
Regional performance is echoed at the MSA-level. The San Jose, CA and Detroit, MI MSAs both report healthy growth rates of 2.1%.
While the South did not see accelerated price gains, continued growth through August could be a sign that this region is on firm footing moving forward. Seven of the 15 top performing markets are located in the South, while four of the lowest performing MSAs are in the Northeast.
Villacorta said that last week’s crash leaves the economy and housing tenuous at best, especially as we move from the promise of the summer buying season. The last third of the year will reveal whether the housing recovery can withstand broader global volatility.
“If investors pull out, oversupply of distressed inventory could bring us back to Act One,” he said. “Or, a renewed source of distressed inventory could revive demand from investors and traditional homebuyers, alike, in an inventory-starved market. The driving factor will be whether traditional consumers will be willing, and more importantly, be able to participate. As the global and domestic economic outlook unravels, we will continue reporting on its effect on housing.”
By Trey Garrison
Reprinted from Housingwire.com
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