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Creative Real Estate Investing News – June 2017

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IN THIS EPISODE – 1.) The Beginning of the End for Dodd-Frank, 2.) Home Equity Hits a New High, & 3.) Home Ownership at a 50 Year Low.

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The Beginning of the End for Dodd-Frank?

Real estate investors who are actively involved with owner financing properties (also known as seller carry-back financing), selling on contract for deed, or even lease options have probably been paying close attention to the effort to make significant changes to Dodd-Frank.  However, those who simply flip houses or buy, hold, and rent should also be aware of the possible changes as they have the potential to drastically affect the overall mortgage market which will impact us all in one way or another.

The House of Representatives passed HR10, also known as the Financial choice act of 2017, on June 8th with a vote of 233-186.  The vote for the bill was almost entirely along party lines, with every Republican but one voting in favor of the bill, and every Democrat voting against it.  One of the main goals of the measure is to severely weaken the power of the CFPB by limiting the areas in which it can appropriate funds within its budget.

Home Equity Hits a New High

Recent data released revealed the American homeowners experienced a 766 billion dollar increase in their equity from the 1st quarter of 2016 to the 1st quarter of 2017.  That’s an average of approximately $14,000 per home, which could have a significant impact on how consumers respond in the marketplace, possibly deciding to sell, refinance, or take out a home equity loan for home improvements or other purchases.

For investors, this could also be some positive news as well, and could also steer some of your marketing dollars in a different direction.  For years, many investors avoided sending direct mail to homes purchased right before the nationwide housing market collapse, due to the assumption that many of those homes were in a negative equity situation, making it more difficult to negotiate an attractive deal.  However, with the rapid increase in values, along with 10-12 years of monthly payments and principal reduction, these homes may now be a great target for your next marketing campaign.

Home Ownership at a 50 Year Low 

While the increase in home equity could be a great thing for existing homeowners, the number of people who are experiencing the benefits of home ownership is at a 50-year low in the United States.  The National Association of Realtors recently commissioned a study to try and find out the problem, and the report found the following 5 reasons to be the biggest impediments to potential buyers entering the housing market:

1.) Post-Foreclosure Disorder – Many of the millennial buyers who now have jobs and have the financial ability to purchase a home are reluctant to do so, because as teenagers they witnessed their parents lose their home to foreclosure during the financial crisis.  They know associate homeownership with pain and potential loss, and so many have decided its in their best interests to rent.

2.) Higher Credit Standards – During the real estate boom of 2005-2007, the only thing needed to qualify for a mortgage was the ability to fog up a mirror with your breath.  No income, no asset, no job loans made a mockery of the mortgage qualification process, and in 2008 the pendulum swung way back in the other direction.  While it’s not nearly as difficult to qualify for a mortgage as it was immediately following the great recession and housing debacle, it’s still not as easy as it once was.

3.) Student Loan Debt – College tuition costs have been increasing faster than inflation, average household incomes, and just about any other metric you could possibly compare it to.  College students are graduating with more debt hanging around their neck than any previous generation, making it extremely difficult to qualify, let alone AFFORD a home of their own.

4.) Housing Affordability – Numerous factors have led to houses becoming even less affordable for the average homebuyer, including lack of inventory (see #5), rapidly increasing home prices, as well as the difficulty in saving for the down payment for younger borrowers (see #3).  Recent studies show that 5 million less people will be able to afford a median-priced home in their area by 2019.

5.) Lack of Inventory – Home building came to a screeching halt after the financial crisis of 2008/2009 and has yet to catch up.  Lot prices and construction costs have gone up, and the availability of skilled labor has gone down, making it increasingly difficult for builders to keep up with the massive demand for new homes across the country.

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