First-Time Buyers Show Interest; Face Tough Market

Source: DSNews Author: Colin Robins

More than 4 million first-time buyers want to enter the market, but they face some tough issues as market conditions aren’t exactly favorable to new buyers. This conclusion came from the Zillow Housing Confidence Index (ZHCI), a new calculation released by Zillow and Pulsenomics. The ZHCI is a measure of consumer sentiment; anything over 50 indicates a positive sentiment. The current national index is 63.7. Of the 20 metros surveyed, 11 had individual confidence levels above the national average.

In 19 of the 20 large metros surveyed, more than 5.0 percent indicated they wanted to buy a home in the next year. The report notes, "Among current renters, homeownership aspirations were particularly strong, with about 10 percent of all renters nationwide saying they would like to buy within the next 12 months." A vast majority of respondents said they were "confident or somewhat confident" they could afford a home in 2014. If every respondent who indicated they wanted to buy a home actually purchased one, first-time home sales would total more than 4.2 million for 2014, more than double the roughly 2.1 million first-time buyers in 2013.

 While this optimistic total from Zillow suggests interest is high, actually purchasing a home should prove to be a challenge in the upcoming year. Market conditions are mixed: inventory, up 11 percent from a year ago, is still well below optimal levels, and has fallen year-over-year in 8 of 20 metros measured by the ZHCI. Mortgage rates, once a record low 3.3 percent in 2013, have risen to 4.2 percent, according to the Zillow Mortgage Marketplace. A dearth of inventory coupled with rising mortgage rates could push homes out of a homebuyer's price range, particularly for first-time buyers. "For the housing market to continue its recovery, it is critical that homes are both available and remain affordable to meet the strong demand these survey results are predicting, particularly from first-time homebuyers," said Zillow Chief Economist, Dr. Stan Humphries. "Even after a wrenching housing recession, this data shows that the dream of homeownership remains very much alive and well, even in those areas that were hardest hit."

He added, "But these aspirations must also contend with the current reality, and in many areas, conditions remain difficult for buyers. The market is moving toward more balance between buyers and sellers, but it is a slow and uneven process." Areas indicated by the ZHCI with the highest interest in purchasing a new home come from metros that were hit hardest by the housing recession: Miami (67.5), Atlanta (62.9), and Las Vegas (64.1). Each were near or above the national index of 63.7 for "Overall Housing Confidence.

Why Education Will Keep Housing Crisis at Bay

Arming today’s youth with greater financial knowledge is the key to making sure there is no repeat of the housing and economic crisis, Richard Cordray, director of the Consumer Financial Protection Bureau, said at a meeting Monday of the President’s Advisory Council for Financial Capability for Young Americans. “Now more than ever, as we emerge from the deepest financial and economic crisis of our lifetimes, people need the know-how to manage the ways and means of their lives,” Cordray said. “The choices they face in the financial marketplace, with instruments like mortgages, credit cards, auto loans, student loans, credit reporting, and more, are increasingly complex.” Cordray said that childhood education is crucial to shaping housing’s future and should include: Financial education: Cordray said that financial education needs to begin at a young age, with the benefits of compound interest being taught in math classes; economic costs and risks in social studies classes; and overall curriculum involving how to use and protect money. Experimental learning: Cordray said that financial management should be practiced through experimental learning, whether that’s through simulating a banking experience or a computer game that teaches financial skills. Integration into standardized tests: Financial education concepts should be integrated into standardized tests, which would then make it more of an incentive for more teachers to teach such concepts, Cordray said. Parent involvement: “Parents help set expectations, and research has shown that if parents engage their children by establishing a savings account for them, these children are seven times more likely to attend college than those without a savings account,” Cordray said. Source: “5 Ways Children Hold the Key to Housing’s Future,” HousingWire (March 10, 2014

Net Worth of U.S. Households Sets Record:

Household net worth jumped nearly $3 trillion during last year's fourth quarter to $80.7 trillion. Stock and mutual fund portfolios gained nearly $1.7 trillion, or 9 percent, according to a Thursday report by the Federal Reserve. The value of Americans' homes rose just over $400 billion, a 2 percent gain. And checking account balances, pensions plan assets and retirement savings, such as 401(k)s, also increased. Strong wealth gains tend to trigger more consumer spending, a critical fuel for economic growth. Higher household net worth is one reason economists have forecast that the U.S. economy will accelerate later this year. Household wealth, or net worth, reflects the value of homes, stocks, bank accounts and other assets minus mortgages, credit cards and other debts. Rising home prices are helping people rebuild ownership stakes in their homes. The equity that Americans as a whole have in their homes has reached 51.7 percent, the highest point since before the recession began. That's up from a record low of 36.5 percent in the first three months of 2009.

For Some Borrowers, It's Now Easier to Get a Mortgage

DAILY REAL ESTATE NEWS | THURSDAY, JANUARY 16, 2014 Borrowers may be having an easier time applying for a mortgage compared to a year ago. The average credit score for approved mortgages dropped to 727 in December, down from 748 one year prior, according to Ellie Mae, a mortgage technology firm. FICO credit scores run on a scale from 300 to 850. Forty-six percent of mortgages that closed in December had credit scores above 750. One year earlier, 57 percent of mortgages posted credit scores that high. In December, about 31 percent of loans had credit scores below 700. One year earlier, that percentage stood at 21 percent, according to Ellie Mae. Debt-to-income ratios are growing. The average total monthly debt for borrowers of closed loans in December stood at 39 percent of their incomes. That’s up from 35 percent in June. “Rising interest rates and home prices could account for some of the increase in debt-to-income ratios,” MSN Real Estate reports. More lenders may be getting comfortable easing standards since home prices have been rising over the past year. Also, lenders are facing a big drop in refinance business, which may prompt them to get more competitive in trying to nab more borrowers for home purchases, housing experts say. However, the effect of new mortgage regulations, which took effect last week, have yet to be seen. Tighter credit standards may be making for better borrowers, according to a new report. Loans originated last year are performing better than any year since tracking began in 1997, according to a report by Black Knight Financial Services.

4 Keys Identified for a Full Housing Recovery

DAILY REAL ESTATE NEWS | FRIDAY, JANUARY 17, 2014 In order to have a fully recovered housing market and economic recovery, economists point to the need for four positive indicators: 1. A healthy job market with low stable unemployment; 2. Mortgage delinquencies that have returned to historical averages; 3. Home prices consistent with an affordable mortgage payment–to–income ratio; and 4. Home sales that are in the range of historical norms. So, is the housing market inching closer? Freddie Mac’s U.S. Economic and Housing Market Outlook for January takes a look at how the housing market is performing among these four indicators. Economists note that the unemployment rate -- while inching down -- still remains high at 6.7 percent. Meanwhile, mortgage delinquencies have fallen to 5.88 percent -- nearly half of their peak rate but still higher than the national average of about 2 percent, Freddie notes. Home prices still have some room to grow without outpacing income growth, economists say. “From 1999–2006, mortgage payments on a hypothetical 30-year fixed-rate mortgage would have increased by 50 percent more than income growth,” Freddie Mac notes in the report. “Currently, payment-to-income ratios are only 60 percent of the level we had in 1999, suggesting room for continued housing growth.” Finally, home sales have risen over the past two years but remain below levels from a nearly a decade ago. Home sales, historically, average a rate of about 6 percent of the housing stock every year. They dropped to 4 percent during the housing crisis. Economists are predicting a 5.7 percent pace in 2014. "As we start 2014, the housing recovery continues its steady pace,” Frank Nothaft, Freddie Mac’s chief economist. “House-price gains will likely moderate from last year's pace but rise about 5 percent in national indexes. Home sales, as well as other key indicators, continue to trend in the right direction, although in some markets we are seeing the sales recovery strengthen while many others remain weak.

Small Lenders Hesitate Over New Rules DAILY REAL ESTATE NEWS | MONDAY, JANUARY 13, 2014 New mortgage rules that took effect last week could further hamper small lenders’ ability to issue loans, The Wall Street Journal reports. Under the new rules, lenders must ensure that borrowers can pay back their loans. Loans that meet “qualified mortgage” standards will provide a safe harbor to lenders from future lawsuits, while loans issued outside of QM standards will carry more legal risk. The Consumer Financial Protection Bureau defines “qualified mortgages” as loans that meet the ability-to-repay rule and in which borrowers spend no more than 43 percent of their income on debt. Furthermore, fees and other charges may make up no more than 3 percent of the loan. Small lenders reportedly will tread cautiously in the new lending environment because they are worried about the legal risk of making loans that don’t meet new standards, according to The Wall Street Journal. “We’re going to be very conservative just to make sure that we’re in compliance and don’t get into trouble,” says Mark Walker, chief executive of Michigan Mutual Inc., a lender with 300 employees based in Port Huron, Mich. “There are going to be loans that we did in 2013 that we are not going to be able to do in 2014.” Any lender who falls outside of the new rules may be unable to sell the loan to investors such as Fannie Mae and Freddie Mac. Large lenders—such as Wells Fargo and Bank of America—already have said they plan to continue issuing loans outside of CFPB’s Qualified Mortgage standards and will hold those loans on their own books. But smaller lenders will likely think twice. Non-bank lenders will be particularly cautious since they often don’t use their own investment portfolios to hold the loans on their books, The Wall Street Journal reports. For example, Linda Sweet, president and CEO of Big Valley Federal Credit Union in Sacramento, Calif., says her credit union will mostly stop making mortgage loans in 2014. Her credit union made about 30 mortgage loans in 2013. “The burden of trying to comply with the regulation is just overwhelmingly costly for a small financial institution,” Sweet says. CFPB announced it is monitoring the new rule’s impact closely on loan availability to see if any tweaks need to be made. “I think we got the rule right,” says Peter Carroll, CFPB’s assistant director for mortgage markets. But he adds that “we don’t want to see credit get unduly cut for people, where there are responsible loans being made.”

Banks Aim to Clear Foreclosure Backlogs

DAILY REAL ESTATE NEWS | MONDAY, JANUARY 06, 2014 Banks are trying to capitalize on rising home prices by selling seized homes more quickly. States with some of the largest backlogs of foreclosures are seeing an upswing in properties that are moving to auction for quicker sales since last July, according to RealtyTrac. “Lenders know there’s now a much better chance they can get those properties sold, so they’re moving to do that,” says Daren Blomquist, vice president at RealtyTrac. The number of new foreclosures entering the pipeline is slowing. However, the number of foreclosures going to auction is seeing an uptick in 19 states, particularly in Oregon, Massachusetts, Utah, Connecticut, Delaware, and New York. In New York, the average foreclosure can take 1,037 days to process, and in Florida, the process averages 929 days. Back when buyers were on the sidelines and prices were still falling, lenders' had little incentive to speed up the foreclosure process. Doing so would only add to the large amount of empty houses that needed to be maintained. But now that prices are rising in most markets, the backlog of bank-owned homes is being trimmed quickly. With tight inventories of homes for-sale in many cities, banks are seeing opportunity in getting repossessed homes back on the market faster for a quick sale, analysts say.