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Archive for June, 2017

The housing market crash, which started in 2007 and kicked off the Great Recession, blighted both the financial and real estate industries. Among the many participants whose reputations were ruined, few took more damage than the mortgage brokers who sold adjustable-rate mortgages. Known as ARMs, they became a four-letter word within the industry.

But nine years after their fall from grace into near oblivion, ARMs are making a slow, but steady, comeback. They’re getting a boost from rising interest rates, which make them more attractive, better government regulations and, perhaps, more restraint from the mortgage brokers who sell them and are looking for redemption.

“ARMs carry the stigma of being the villains of the housing crash,” said CEO Mat Ishbia of United Wholesale Mortgage, a national lending institution. “But they’re still around and could be the right product for a lot of borrowers.”

Prospective homebuyers, who can’t afford to pay cash, have two basic mortgage options. The first is a fixed-rate loan, usually with a 30-year payback term to spread out the interest and principal payments. The other is an ARM, which comes in many different forms.

A simple ARM allows the buyer to obtain a fixed-rate loan for an initial set number of years, say, five or seven. Then over the rest of the loan term, the mortgage rate is adjusted, say, yearly or every three years, to the prevailing rate — plus a margin — that the mortgage lender pays to borrow the money it then lends out as a mortgage.

The adjusted rate for an ARM could be higher or lower than the original rate, depending on whether interest rates have risen or fallen. For example, if rates rise four percentage points, the ARM would also increase by that much.

That means you need to keep a close eye mortgage rates if you buy a home with an ARM. Otherwise you can wind up paying twice as much for your monthly mortgage bill if the ARM is repeatedly adjusted upward.

ARMs were immensely popular in the early 2000s, but fell into obscurity due to their connection with the subprime market crash (subprime loans are those made to borrowers whose credit rating isn’t so good). Buyers who wanted to turn a quick profit on a home purchase used them as a way to “flip” houses and cash in on the soaring real estate market.

Banks and mortgage lenders expanded the types of ARMs they offered to the market during the housing boom to include “nontraditional options,” said Chief Economist Mark Fleming of First American Financial, which provides title insurance and settlement services for the real estate market.

Tactics included “teaser rates” to lure buyers into special ARMs, which would reset every year or two, often without their owners realizing it. And “negative amortization,” whereby you paid less than the minimum interest each month so the amount owed on the total mortgage increased rather than declined.

Subprime borrowers were given ARMs with no or limited documentation, meaning they didn’t have to prove what their income was or even if they held a job (also known as “liar loans”).

But many buyers still saw them as a good deal. In the greater Los Angeles area, a house hunter could buy a $400,000 home with just $10,000 down. ARMs represented more than 50 percent of the mortgage market in 2005. But when the recession came and foreclosure filings began to inch toward almost 4 million a year, ARM originations dropped close to zero.

It has taken a long time for ARMs to rebound, but that’s the situation today. “They’re about 5 percent of the market right now,” said United Wholesale’s Ishbia, “and we expect it to grow to 17 percent in two years.” That would still be only third of its former size, according to Black Knight Financial Services, which provides data and analytics to the real estate industry.

The market also appears to be healthier this go around. Federal government-sponsored agencies such as Fannie Mae (the Federal National Mortgage Association), Freddie Mac (the Federal Home Loan Mortgage Corp.) and Ginnie Mae (the Government National Mortgage Association) are now offering ARMs. Also, the U.S. Consumer Financial Protection Bureau is placing tighter restrictions on the ARM market and is educating consumers on how best to use these loans.

According to a study by the Federal Reserve, ARMs are a play on rising interest rates. When rates are low, as they have been for many years, homebuyers prefer a fixed-rate 30-year mortgage. But the Fed is gradually raising interest rates due to an improving U.S. economy.

When mortgage rates head toward 5 percent, some borrowers may move to ARMs, which usually carry an interest rate more than half a percentage point lower than the 30-year fixed rate. During the life of an average mortgage, which is around nine years (because so many people sell before paying off their mortgage), the borrower of a $300,000 ARM could save more than $8,000, according to lenders.

And that’s particularly true for first-time buyers, who are millennials these days. “Why borrow with a higher interest rate and pay a mortgage for 30 years, when the odds that you’ll actually reside that long in the first house you buy are slim to none,” said First American’s Fleming.

But most prospective buyers still remember the homeowners who lost their houses because they gambled on ARMs in an overheated market. Even advocates of ARMs admit they’re more complicated than fixed-rate loans and that you can’t just shop online or go to your local bank and demand the best rate.

“Go to a broker,” urged Ishbia. “It sounds counterintuitive to use a middleman, but they will shop for you and get you the best deal.”

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The Fannie Mae Home Purchase Sentiment Index® (HPSI) decreased 0.5 percentage points in May to 86.2. The slight decrease can be attributed to decreases in three of the six HPSI components being larger on net than the three increases. The net share of Americans who reported that now is a good time to buy a home reached a record low after falling 8 percentage points, while the net share who reported that now is a good time to sell a home reached a record high, increasing 6 percentage points.

This is only the second time in the survey’s history that the net share of those saying it’s a good time to sell surpassed the net share of those saying it’s a good time to buy. Americans also expressed greater belief that mortgage rates will go down over the next 12 months, with that component increasing 5 percentage points. Finally, the net share of consumers who think home prices will go up fell by 5 percentage points this month.

“High home prices have led many consumers to give us the first clear indication we’ve seen in the National Housing Survey’s seven-year history that they think it’s now a seller’s market,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “However, we continue to see a lack of housing supply as many potential sellers are unwilling or unable to put their homes on the market, perhaps due in part to concerns over finding an affordable replacement home. Prospective homebuyers are likely to face continued home price increases as long as housing supply remains tight.”

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Source: Associated Press

Saving up for a down payment is the biggest hurdle for many would-be homebuyers, particularly those looking to make the leap from renting to owning.

More than two-thirds of renters consider setting aside money for a down payment the No. 1 obstacle to buying a home, according to a recent survey by real estate data provider Zillow. That edged out other concerns, including job security and a thin supply of homes on the market.

While there are home loans that require as little as 3 percent down, rising home prices, especially in expensive coastal states, keep driving up the amount of money buyers need to come up with for a down payment.

Start saving now. Renters may want to calculate what their extra monthly costs would be as a homeowner and then set aside that amount, minus rent and utilities. This accomplishes two goals: Saving money for a down payment and getting you accustomed to the financial constraints of living with the costs of homeownership.

The type of home loan you get may determine how much of a down payment you need. For many years, buyers sought to put down 20 percent of the purchase price. That would lower their monthly mortgage payment and allow them to avoid having to pay for private mortgage insurance, or PMI. But as home prices have risen, that trend has waned. Loans that require as little as 3 percent up front have become more common. As a result, the median U.S. down payment has declined to 10 percent the past four years, according to the National Association of REALTORS®.

Borrowers with low or moderate income, and teachers, firefighters or other public service job holders may also qualify for down payment assistance through thousands of federal, state or local programs aimed at helping homebuyers.
There are more than 2,100 funded programs, many of which help cover the down payment and closing costs through loans that can sometimes be forgiven over time, or paid back only once the buyer sells the home, according to Down Payment Resource, a tracker of homebuyer assistance programs.

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Source: NBC News

Millennials were the largest group of home buyers (34 percent) for the fourth consecutive year, according to NAR’s 2017 Home Buyer and Seller Generational Trends study. By comparison, baby boomers were 30 percent of buyers.

“Millennials have been fairly slow to get into the market, but we are seeing an uptick in millennial buyers this year — which is a good sign, because as home values rise, we want a wider number of people to participate in this housing recovery,” said Lawrence Yun, chief economist at the NAR. “There’s a pent-up demand and as the economy continues to improve, we expect to see more people in their early thirties, adults who are still living with their parents — clearly not their idea of the American dream — begin to look for their own housing units.”

Research done by the National Association of Homebuilders found that more than 90 percent of millennials say they eventually want to buy a house.

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The reason why you should not overprice a home is simple. It won’t sell! In addition to not selling when you overprice your property the odds are stacked against you that it will sell for what it should if priced properly from day one!

The process of selling a home can be an emotional roller coaster, one that many people are not adequately prepared for. What your home means to you, and what you imagine it to be, must come to terms with the real world of the current real estate market. And nowhere does this clash become more apparent than in pricing your home.

You are putting your home on the market to sell it. This may seem like a given, but you would be surprised how many people miss this important fact when they begin working on listing their home. Everything you do in the listing and selling process is meant to accomplish this goal. It may be one of your most prized possessions, but the price the market will bear is the most important factor in the sale of your home.

Trying to price your home too high – because you paid a certain amount for it, or because it means so much to you – is a sure way to stall the successful sale of your property. Buyers don’t care that you need X amount of dollars from your home because you are buying something elsewhere. All a buyer cares about is paying the fair market value. There is nothing that will blow up in your face quicker than an overpriced property. In fact overpricing a home is right at the top of the list for reasons why a home does not sell.

You are free to list your home for any price you choose. However, any exceptional real estate agent will tell you that overpricing a home can lead to serious problems. Some of these include:

Attracting Unscrupulous Real Estate Agents
The initial asking price of your home may lead unscrupulous real estate agents to your door; people you may not realize are bad news until too late. Real estate agents are in the business of selling houses, and they want to work with clients who hold realistic expectations.

The problems of trying to sell a house priced too high are numerous, and many agents will want to avoid getting into a listing that is doomed to fail.

Good agents will tell you honestly that you want more for your home than you can reasonably expect. However, there are also agents out there who will tell you exactly what you want to hear. Overpricing a home is part of their game plan. They will encourage your high expectations to get your listing, only to tell you later – after the ideal time frame for selling is past – that your price must go down to sell.

You might be thinking why in the world would a Real Estate agent want to take a listing they have no chance of selling? A Realtor who purposely tells a seller their home is worth more than the true market value does so for a couple of Reasons.

The first is using your home as an advertising vehicle to pick up buyer clients.
The second is a strategy designed to get you to sign a listing contract with them because they can’t beat out a good Real Estate agent otherwise.
There are some Realtors who could care less about selling your home because they want to have their sign in your yard for the next 3-6 months. They want to be able to advertise your home online all the while picking up buyer clients that they can “spin” elsewhere because God knows these prospects won’t grossly overpay for yours.

After getting plenty of buyer clients in the passing months some agents will finally get around to telling you “boy am I sorry the price I gave you for your home doesn’t seem to be working out.” You should drop your price now by $25k Mr. & Mrs. Seller. Sorry the jokes on you! One of the top mistakes home sellers make when choosing a Real Estate agent is picking one based on the suggested list price they give you for your property. Don’t be suckered into the oldest trick in the book! Overpricing homes are part of a lousy agents game plan. There are lot of great real estate agents who don’t have overpricing a home as part of their game plan. It is your job to find one!

Scare Off Buyers
If you are not careful, you can scare off the best buyers before you ever get a chance to show them your home. Buyers are often working with real estate agents, and a good agent can spot an overpriced home from a mile away. These agents will tell their clients to steer clear of your home.

Even if buyers are not using an agent, they will often still avoid a home that seems far pricier than others in the surrounding area. People want a deal, and positioning your home at a premium will drive off anyone that falls into this category. Listen carefully to what the market will bear. Look at the comparable real estate sales data through the eyes of a buyer not as an emotional seller.

One of the things that is common with home sellers who overprice their homes is the belief that every home improvement they have made over the years translates into a one for one increase in value. Unfortunately that is not how things work in real estate valuation. There are some things that cost money that have very little return when selling a home.

Take Too Much Time To Sell
Overpricing a home causes the days on market to become bloated! Some sellers are more motivated to sell quickly than others. Not all are aware of how much time matters in selling a property, though. There is an ideal time frame to sell a home in, and it usually falls within the first few months that the home is on the market. Take much longer, and you risk having your listing expire – a stain that is hard to erase from a property.

You also risk the market changing on you, and not in your favor. If you price your home competitively in the first place, you are likely to sell it within a month – taking advantage of whatever the current market happens to be. However, if you take too long, the market could go south on you. Your home started off too high, so when the market turns sour, you are going to have to drop far lower than you would have initially to move the property.

One of the things that Realtors often hear from home sellers is “I can wait for a great offer.” “I am no rush.” “I have plenty of time to sell and can wait for my price.” “I can always reduce my price later.” What many sellers fail to understand is that in Real Estate time is your enemy!

The number one question that every buyer asks their agent when becoming serious about a property is “how long has this home been on the market?” When you first list your home for sale as a seller you are in the drivers seat. A buyer is not. They know they need to be realistic if they want to purchase the home. At a certain point in time, depending on the market, the pendulum will swing the other way and the buyer will feel like they have the upper hand. This is because the days on the market heavily influences what a buyer will be willing to offer.

When the days on market become higher than the norm buyers will start to ask themselves what is wrong with this home? Why has someone else not made an offer? Buyers will feel like they can negotiate with someone who’s home has been on the market for months far more than someone who just listed. This is just human nature and a very common thought process.

Contrary to what many home sellers think, overpricing a home does not lead to a higher sale price. It is the exact opposite.

Failing To Show Up In Search Results
Overpricing a home leads to few showings. Real estate agents and buyers search for homes nowadays in the same way everyone else does – through search engines and consumer multiple listing sites.

They may be specifically designed for real estate, but they still function in essentially the same way as every other search engine. You enter in the parameters you desire, and the search delivers results that fall into those specifications.

If you set your home price at $420,000, everyone searching for homes up to $400,000 will fail to see your home in their search results. For example lets say you have met with a Realtor and they have pinned the market value of your home somewhere between $385,000 – $390,000. The agent recommends that the proper list price is $400,000 figuring there may be a little bit of negotiation involved. The agent realizes that pricing over the 400k price barrier could price your home out of the market.

Instead you decide you want your home priced at $420,000 because you are under the belief that a higher list price leads to a higher sale price. You may imagine pulling in buyers willing to haggle with you, but the reality is that many buyers will miss your property altogether because they are only searching up to $400,000.

Pricing within the range of comparable sales data, on the other hand, will make certain that your home is seen by everyone looking for a place to buy in your neighborhood.

Home Price Appraisal Issues
Say you are lucky enough to pull in a buyer that is willing to pay what you are asking. He or she happens to think your place is perfect, and is willing to pay your asking price for the home. There is only one problem: They need to get money from the bank to pay for it.

All banks demand an appraisal of any property they loan out money for, and yours will be no exception. Your local appraiser does not care how perfect you think your home is, nor how perfect a fit it is for this particular buyer. The market rules the appraiser, and he or she will appraise your property accordingly.

When the appraiser comes back with a market value that is noticeably lower than the price the buyer is offering, the bank is likely to balk on giving the buyer a mortgage. This can take you from a sure sale to a botched mortgage application, leaving you looking for further buyers.

Stay Realistic on Home Pricing
Seek out a good real estate agent, and listen to his or her advice for pricing your home. Many will advise you that it is better to list a little lower, and encourage a bidding war, than risk all of the problems that listing too high brings. Stay realistic in your pricing, and accomplish your ultimate goal of selling your home.

Over the years I have seen and heard it all from some home sellers who set unrealistic expectations when it comes to the value of their property. The will forget about the evaluation that the Real Estate agent provided them and instead will come up with every excuse under the sun why their home is not selling. In two decades of selling property I have heard some of the craziest requests from sellers when their property fails to sell.

Instead of being objective about the obvious fact their home is overpriced, the finger will get pointed at the Realtor. Here is a humorous look at what happens with realty pricing issues. While this is a comical look inside the world of Real Estate pricing and may seem a little far fetched, believe it or not some of these things are actually spot on! Overpricing a home creates one certainty – stress for all who are involved.

If you take away anything from reading this remember this one thing: 75% of Real Estate marketing is the price that is set for your home. All of the marketing and advertising in the world will not sell an overpriced home. If you don’t price your home correctly all of the rest of the marketing will be pointless.

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In the first quarter of 2017, nearly half of refinance borrowers took cash out, up from 44 percent in the fourth quarter of 2016, according to Freddie Mac. This is the highest share since the fourth quarter of 2008, but still below the peak of 89 percent in the third quarter of 2006.

Rising home prices have helped increase the number of homeowners who now have equity in their homes. As such, more owners are finding they can refinance to get a lower mortgage rate and also take out some cash for other uses. In hot markets like Denver and Dallas, in which home prices have surged by some of the highest amounts in the country, more than half of refinancers opted to refinance for cash last year, according to Freddie Mac.

“Despite weak economic growth, housing got off to a good start in 2017 because low mortgage rates have given the spring homebuying season a pleasant surprise. Mortgage rates started March just above four percent and have mostly drifted lower since then, even falling below 4 percent. With home sales, housing starts and home values up, 2017 is shaping up to be the best year for housing in over a decade,” said Sean Becketti, Freddie Mac’s chief economist.

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Source: Dow Jones

Credit scores among U.S. consumers surged to a record high this spring. Further, the share of borrowers considered among the riskiest borrowers hit a record low. The higher credit scores could be a boon for the mortgage market: A good credit score can help borrowers snag a better mortgage rate and better their chances of qualifying for financing.

In April, the average credit score nationwide reached 700, which is up one point from last fall, according to the Fair Isaac Corp. That is the highest average since FICO began tracking such data in 2005.

The share of consumers considered to be the riskiest — with scores below 600 — hit a record low of about 40 million, or 20 percent of U.S. consumers who have FICO scores, according to Fair Isaac. That is down from a 25.5 percent peak in 2010.

Rising credit scores will likely prompt banks to make more credit available to consumers and at a cheaper cost, finance experts say.

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