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Posts Tagged ‘mortgage rates’

Mortgage Applications Rise as Rates Settle at Relatively Low Level

Mortgage ApplicationIn a recent article on CNBC by Diane Olick, it is reported that weekly mortgage applications have risen by 5.3%. It is quite likely driven by the low rates, which may now last longer than previously expected. In general, purchase demand is weakening in the more expensive markets due to affordability issues.

Interest rates

Homeowners’ interest rates on mortgages are now about 4.65%. Investors always have higher rates, but can still get rates in the relatively low 5’s, which historically (for investors) is one of the lowest rates in the past few decades (only higher than the mid 4’s from about a year and a half ago, but much lower than most historical rates over the past few decades).

For us, as investors in new single-family rental homes in the Sun Belt states, demand for mortgages is up, and so is the demand for housing. Yet price increases over the past year have not been sharp. This makes some large metro areas in the Sun Belt affordable and sensible to the investor.

I have said countless time how special it is to get a 30-year fixed-rate mortgage which never keeps up with the cost of living (neither the PI monthly payment nor the remaining mortgage balance). Thus, inflation constantly erodes the real value of our loan, while the tenant’s rent is paying it off. To be able to get such 30-year fixed-rate loans at today’s rate is an extra special gift (for reference, when I started buying homes in the 1980’s, rates on investor mortgages were about 14%).

Investors should buy in the Sun Belt

Investors will be well served to buy new, good homes in good metro areas in the Sun Belt, getting a 30-year fixed-rate loan if they can (FNMA only allows 10 per person or 20 for a couple where both spouses can independently qualify). Many of our investors have exceeded that threshold. However, those of you that still can get these great loans, would be wise to use them.

Reach out to our office to schedule a time with me if you would like to discuss this further at (415) 927-7504 or email info@icgre.com.

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Financing Now Available for Foreigners And Americans with Over 10 Properties

There are lenders seizing an opportunity by operating outside of the restrictive FNMA guidelines. In the past year we have seen loans improving for foreigners. It started with 50% LTV (loan-to-value) loans and now loans are up to 65% LTV for foreigners. The minimum loan amount is $100,000. Interest rates are not far off from the excellent rates American investors can get – mostly in the five percentile. Sometimes with a long fixed rate period, perhaps just passing the six percentile.

Loans can be fixed for 5, 7 or 10 years (the latter ones touch a bit over 6% but the two former ones are well within 5%+). Americans can now also get 65% LTV loans with similar terms for properties between 10 and 20 (!). As we know, FNMA caps the number at 10, a restrictive barrier not enabling markets to fully engage investors. Will Bill Gates also be limited at 10 residential loans? Apparently yes, according to the FNMA guidelines.

In any case, having the ability to borrow at 65% LTV can enable a good contingent of veteran experienced investors, to continue investing and take advantage of the great rates prevailing in today’s markets. As someone who has seen rates be well in the teens, I can appreciate what it means to borrow on property number 16 at a rate that is a bit above 5%.

I am impressed with these advances. As a result I have invited the lender to speak at our quarterly ICG 1-Day Expo on Saturday May 30th. There will also be solid conventional lenders and loans featured prominently at the event.

In addition there will be experts to teach us critical issues for investors: Scott Gerlis Founder and CEO of SAG Credit Consultants will speak about  credit repair and enhancement and how to maximize everyone’s credit and avoid the pitfalls.  Lucian Ioja, Financial Designer with Integrity Wealth Management, a respected financial planner, will teach us the overall way to look at arranging and optimizing our finances, not just via real estate, to secure a powerful retirement and other goal accomplishment. Joyce Feldman, Founder and CEO of Joyce Feldman Insurance Company (Farmers Insurance) will teach us about how to use insurance correctly as the first and possibly the most important line in protecting our assets, common mistakes and how to avoid them, and a comprehensive look at our protection.

Needless to say, teams from the best markets in the United States will be there to update us on their marketplace, interact with us, and tell us about special deals in their markets. We have been holding these events for about 25 years now and I keep learning a lot during each and every event. Mention this blog post and you can attend free – just email us at info@icgre.com or call 415-927-7504.
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Home Price Appreciation Creating Attractive Rentals For Investors

In yesterdays Wall Street Journal there was an article (below) by Nick Timiraos regarding the effects of home price appreciation on affordability. As the article states, rising interest rates, a dearth of housing stock in many market, still-tight lending criteria and a slow builder’s resurgence, create a real difficulty for many people  to buy their first home. Needless to say, investors reap a certain benefit from this situation by enjoying an expanding demand for rentals. Since many investors have the means and sophistication to buy homes, the expanding rental pool actually improves the investment situation.

Here is the article as it appeared yesterday: 
 

Surging Home Prices Are a Double-Edged Sword

Affordability Troubles Grow, Especially for First-Time Buyers

 
March 9, 2014 4:35 p.m. ET

The U.S. housing market faces a challenge at the start of the spring sales season: higher prices.
It is hard to overstate the benefits of rising prices to the economy broadly and to homeowners, banks and home builders specifically after years of declines. Price gains have pulled more Americans from the brink of foreclosure and given home buyers more confidence that they won’t get stuck with an asset whose value will decline.

But those gains have a painful edge, too, especially because prices have bounced back so strongly. The increases have rekindled concerns about affordability, particularly for first-time buyers, and could damp the gains of a housing rebound still in its early stages. The U.S. housing market faces an unexpected challenge at the start of the spring sales season: home prices are on a tear. Price gains have pulled more Americans from the brink of foreclosure and boosted demand from consumers no longer afraid to buy.
“Prices ran up so fast in 2013, it hurt first-timers’ ability to become homeowners,” said John Burns, chief executive of a home-building consulting firm in Irvine, Calif. “It’s going to be a slower recovery than people had hoped because a number of people have been priced out of the market.” Home values nationwide are up 11% over the past two years, according to real-estate information service Zillow Inc. and 14% below their 2007 peak. Mortgage rates, which jumped a full percentage point to about 4.5% in the past year, have sharpened worries over housing affordability.

Even as prices have increased, housing still appears affordable by one traditional gauge. Since 1990, American homeowners have spent about 24% of monthly income on their mortgage payments, according to data from Morgan Stanley. Today, that payment-to-income ratio stands at around 20%, below the long-run average. The problem with that view of affordability: It assumes borrowers have great credit and large down payments. The ratio isn’t favorable for first-time buyers and others with lower incomes and smaller down payments, which increases their monthly financing costs. The payment ratio for first-time buyers was around 24% at the end of last year, in line with its long-run average, according to the Morgan Stanley analysis.
This pinch on first-timers is troubling because, so far, the housing recovery has depended to an unusual degree on cash buyers and investors. The relatively weak position of entry-level buyers could further suppress the homeownership rate—now off more than four percentage points from its 2004 peak—as more of them rent, said Vishwanath Tirupattur, a managing director at Morgan Stanley. Making matters worse, home prices are going up fastest in markets that are already expensive, such as San Francisco and Los Angeles. Just 32% of California households at the end of last year could afford the monthly payments on a median-priced home in the state of $431,510, assuming a 20% down payment, according to the California Association of Realtors. That was down from 56% of households that could afford the payments on a $276,040 median-priced home in early 2012.

Rising prices are only part of the problem for first-time buyers. Inventory shortages and tougher mortgage-qualification standards benefit buyers who can make large down payments and those who can forgo a mortgage altogether. Because many markets have low supplies of homes for sale, all-cash buyers have routinely beat out first-time buyers by guaranteeing a quick, worry-free closing for sellers.

Meanwhile, federal officials have repeatedly increased insurance premiums on loans backed by the Federal Housing Administration, which serves many first-time buyers because it requires down payments of just 3.5%. While mortgage rates at the end of 2013 reached their highest levels in more than two years, the all-in cost of an FHA-backed loan—due to insurance-premium increases—was closer to a five-year high.
Rising prices are less of a problem for current homeowners seeking to trade up because they can tap growing home equity to make their next home purchase. An index tracking housing affordability from data firm CoreLogic Inc. shows that homes were 17% less affordable for first-time buyers at the end of last year compared with the year before, while the index was down just 6% for existing homeowners.

Ideally, higher prices would stimulate more home construction, which would ease inventory crunches that are partly responsible for price increases while boosting job growth. But builders have been slow to ramp up production, skittish after being caught with too much inventory when the 2008 downturn hit. Last year, many focused instead on higher-end houses, while entry-level construction was subdued. Sales of new homes last year rose by 14% from 2012, but the number of homes sold for less than $150,000 fell by 28%. Sales above $500,000 grew by 36%.

The worry is “a situation develops where construction remains low and prices continue to outpace incomes before first-time buyers can get in, and the next thing you know, you have to” bypass standard mortgage-qualification rules “to get people into homes,” said Thomas Lawler, an independent housing economist in Leesburg, Va.

Others fret that low interest rates have allowed prices to rise too fast relative to incomes, which have stagnated. While homes are still affordable on a monthly payment basis because of cheap financing, homes no longer look like a bargain when comparing prices to incomes. For the past few years, policy makers have focused on breaking a vicious downdraft in home prices. Now, it wouldn’t hurt housing to see price gains flatten out, especially if income growth remains tepid. If not, the housing market’s roller-coaster ride will continue.

Write to Nick Timiraos at nick.timiraos@wsj.com.
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5 Things to Watch in Housing in 2014

In an article in the Wall Street Journal by Nick Timiraos on January 7, 2014 an attempt at predicting various scenarios for housing at large in the U.S. for the year is made. Of course, the 5 points are general. I personally believe (and am actually seeing) that markets that are still reflecting post-recession pricing (like Florida) and where houses can easily be bought under bare construction costs AND the future demographics are promising – should show a far more bullish trend this year versus other markets. Here is what
Mr. Timiraos says:

“For housing, it was a tale of two halves in 2013. During the first half, unusually low supplies of homes and low rates spurred bidding wars, pushing prices up sharply. During the second half, the frenzy cooled amid a sudden spike in interest rates. While more markets are now reporting increases in inventory, the number of homes for sale remains quite low.”

The bull case for 2014 goes something like this: those low inventories will support rising prices. Below-average levels of household formation, the argument goes, must ultimately pick up, boosting construction. Mortgage rates, while higher, are still historically low. Credit standards will stop getting tighter, and might loosen as home prices rise. Finally, mortgage delinquencies are dropping. While some states still have elevated foreclosure inventories, the worst of the distressed-housing problem is in the rear-view mirror.

The bear case, meanwhile, says that the recovery is a mirage built on the back of the Federal Reserve’s stimulus that has done little more than inflate asset values, including home prices. Record low interest rates, the argument goes, unleashed demand from both borrowers and all-cash investors seeking returns on something—anything—with a decent return. These investors built large rental-home companies that remain untested at scale. How can first-time buyers take the baton from investors at a time when prices are up almost 20% in two years and when interest rates are rising? 

Other problems loom: Mortgage rates could jump, choking off housing demand and curbing new construction that remains mired at 50-year lows. Investors could unload their homes if the rental-home thing doesn’t pan out. And don’t look for much help from mortgage lenders that face a cocktail of new regulations, which could keep credit standards stiff.

So which view will carry the year? Here are five wild cards to watch this year:

(WSJ: 7 Jan 2014 By Nick Timiraos)
1.  WILL INVENTORY RISE?

Prices have risen largely because of shortages of homes for sale. While there is growing evidence that inventories hit bottom last year and that some markets are moving back in favor of buyers, the number of homes for sale remains relatively tight still. Foreclosure-related listings have plunged, and traditional buyers haven’t flocked to list homes—at least not yet. New construction, meanwhile, won’t be back to normal historical levels for years. The consensus view is that price growth continues at a somewhat slower pace, but that consensus view could be wrong—for the third year in a row—if there aren’t more homes for sale.










2.  WHERE IS THE HOME-CONSTRUCTION RECOVERY?
While home prices have recovered strongly, new construction activity hasn’t. Part of this may have to do with the fact that home prices are still too low to justify construction, particularly given land, labor, and materials costs. For smaller builders, credit may also be harder to come by. Some economists say new-home demand could remain muted because many move-up buyers don’t have enough equity to “trade up” to that new home. Key issues to watch here: What happens to household formation, and do builders begin to throttle back price gains in favor of selling more homes in 2014?













3.  WHAT HAPPENS TO MORTGAGE CREDIT?
Lenders could begin to ease certain “overlays”—or additional credit and documentation checks—that have been imposed over the past few years. Mortgage insurance companies are getting more comfortable insuring loans with down payments of just 5%. So don’t be surprised if, at the margins, it gets a little easier to get a mortgage—especially if you have lots of money in the bank.

Even if it gets easier to get a loan—by no means a given—borrowing costs and fees could rise. Banks also face new mortgage regulations that could keep most of them cautious. Borrowers with more volatile or harder-to-document incomes, including the self-employed or those who make a lot of money on commissions, bonuses, or tips, could continue to face tough sledding.


Bloomberg News

4. WHAT WILL INVESTORS DO WITH THEIR HOMES?
A handful of institutional investors have purchased tens of thousands of homes that are being rented out. These homes tend to be concentrated in a few of the regions that have been hardest-hit by foreclosures over the past five years. Investor purchases played key roles in stabilizing prices, especially because investors were wolfing up homes at a time when supplies were already dwindling. A key question now is what happens after the initial rush to invest subsides. More lenders and investors are extending debt financing to some of these property owners, which should help boost returns. Can owners perfect the expense management associated with maintaining and leasing tens of thousands of individual homes?
Can owners perfect the expense management associated with maintaining and leasing tens of thousands of individual homes?

5.  WHEN DOES HOUSING HIT A TIPPING POINT ON AFFORDABILITY?
Rising home prices are a double-edged sword, especially in pricier coastal markets such as San Francisco and Los Angeles. On the one hand, rising prices are giving many homeowners equity in their homes again—an extremely positive development to the extent it means these borrowers are less at risk of foreclosure.

But price inflation is making housing less affordable. This will be a bigger problem if cash buyers retreat from the market in 2014 and/or if interest rates rise in a meaningful way. Consider: In Los Angeles, prices have jumped by nearly 30% in the past two years, to a median of $448,900 in the third quarter. Assuming a 20% down payment, the monthly payment of principal and interest on the median priced home has jumped from $1,255 in the third quarter of 2011 to $1,823 in 2013—a 45% increase.

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Mortgage Rules Set to Ease

An article in the Wall Street Journal dated May 14, 2014 – right on the front page, is an article by Nick Timiraos and Deborah Solomon. The article is about how, after a few years of tight mortgage lending, the U.S. government is set to ease the criteria to get home loans. Needless to say this is music to our ears.As more buyers can enter the marketplace, demand is likely to increase and so are prices.

The housing sector will get a much-needed shot in the arm and for investors, there will be many more potential buyers upon liquidation. Will easing bring us closer to another mortgage meltdown? Possibly, but I think lessons have been learned during the recession which will prevent a wholesale catastrophe as we have seen before.My opinion is that for us as real estate investors this is an excellent bit of news. And remember – get your own 30-year fixed rate mortgage as soon as you can at these rates, which likely will increase in coming years. We will discuss this and much more at our quarterly 1-Day Real Estate Expo Saturday June 14th near SFO. Please see more details and to register, click here.Looking forward to seeing you!

U.S. Backs Off Tight Mortgage Rules

In Reversal, Administration and Fannie, Freddie Regulator Push to Make More Credit Available to Boost Housing Recovery

By Nick Timiraos and Deborah Solomon

The Obama administration and federal regulators are reversing course on some of the biggest post-crisis efforts to tighten mortgage-lending standards amid concern they could snuff out the fledgling housing rebound and dent the economic recovery. Nick Timiraos reports.

WASHINGTON—The Obama administration and federal regulators are reversing course on some of the biggest post crisis efforts to tighten mortgage-lending standards amid concern they could snuff out the fledgling housing rebound and dent the economic recovery.

Click here for the rest of the article.

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