Buyers Face Barriers in HOA Neighborhoods

Buyers Face Barriers in HOA Neighborhoods. Image courtesy of cooldesign / FreeDigitalPhotos.net

Home buyers may soon face more stringent underwriting standards and even higher interest rates when applying for a mortgage to purchase a home that falls within a homeowner association, the lending industry warns.

The threat comes from mortgage industry officials who are warning areas with state laws that give community associations “super-priority liens” on homes in which owners have failed to pay their assessments. Super-priority liens grants a homeowner association the right to initiate foreclosures as well as get the proceeds from the sale of the delinquent home ahead of the first-lien position, which is typically held by a mortgage lender. Twenty-two states, plus the District of Columbia, have authority for super liens, The Los Angeles Times reports.

David Stevens, president of the Mortgage Bankers Association, warned that in states with super liens where lender and investor interests can be erased, buyers may start to face higher loan fees, more stringent downpayment requirements, as well as time-consuming reviews of the homeowner association’s finances. Some lenders also have said that they will reconsider whether to do business in communities that have super liens.

Homeowner associations argue for “super-priority liens,” however, saying that the assessments or dues they collect are essential to maintain a community and when owners fail to make payments, the shortfall then must be made up by the rest of the owners via often higher assessments. The situation has played out in states like Nevada, Florida, and other states that in the aftermath of the housing crisis saw large numbers of defaulting home owners on their assessments and led to communities with tight finances.

Community association leaders say that they’ve been left with no other choice to initiate their own foreclosures on home owners because in some cases the lenders who owned the mortgages on the defaulted homes would not pay the assessments once the owners had moved out. Lenders “dragged their feet on foreclosures for years, delaying the process that would give them legal and financial responsibility” to pay assessments on properties they basically owned, according to the Community Association Institute, which represents 33,000 member associations and managers nationwide.

More state legislatures are granting homeowner associations the right to initiate foreclosures after providing notice to lenders and loan servicers.

However, mortgage lenders say that it comes at the price of their own collateral interests in the homes. For example, the Nevada Supreme Court ruled last fall that the lender’s lien can be erased when homeowner associations foreclosure on delinquent units after providing notice and giving lenders the opportunity to pay the delinquent assessments.

Nearly 67 million Americans live in communities governed by homeowner associations.

Source: “Homeowner Association Liens Pose Perils for Condo Buyers,” The Los Angeles Times (May 17, 2015)

Multifamily Boom Can’t Last Forever

Multifamily Boom Can’t Last Forever. Image courtesy of photostock / FreeDigitalPhotos.net

At a forum on economic trends in commercial real estate at the 2015 REALTORS® Legislative Meetings & Expo, two prominent housing economists explained why investors should be wary about unbridled optimism about the apartment market.

Sam Chandan—author, professor, and founder of Chandan Economics—said that, just in the way that investors were fooled into thinking that the housing market couldn’t fail in the run-up to the most recent recession, so too should today’s investors avoid the temptation to believe wholesale the glowing reports about rising rents and low vacancy levels in multifamily buildings.

“Investors will tell you we’re fundamentally a nation of renters now… that narrative ignores that there’s a cyclical component,” Chandan said. “As house prices begin to improve… there will be a significant subset of renters in the U.S. who will say now is the right time to be a homeowner.”

Chandan said part of the problem is thanks to the media, which is more apt to write about billion-dollar apartment acquisitions, making it easier for readers to see the multifamily market as ever expanding in terms of record-setting deals. He also noted that the belief is enticing due to the dominant—but misleading—narrative about the largest generational segment of the population.

“Millennials will always be millennials. They will not always be in their 20s,” Chandan said. “You can ask any 22-year-old throughout modern history, ‘Do you want to own a minivan?’ And they will say no. But one day they will.”

At the same forum, National Association of REALTORS® Chief Economist Lawrence Yun addressed the issue by looking at the data. He said that under normal circumstances population growth tracks very closely with household formation, but currently the latter is lagging behind the former. He said that situation should be good news for all housing segments.

“There is a pent-up demand for household formation which can support home sales as well as an increase in the rental rate,” Yun said, noting that the supply in multifamily new construction is still insufficient to meet market needs. “If you are an apartment owner and you are concerned that people will start buying homes, you don’t need to worry too much.”

Yun noted that a growing employment rate might do the same thing for the office market, which is still well behind multifamily in terms of recovery: “They have squeezed the workers so much into these spaces… which means vacancy rates will likely decrease.”

Ultimately, Yun advised investors not to pull back, but to proceed with caution. “We do anticipate some growth activity,” he said. “You may need to be more selective, discriminating.”

Chandan agreed: “It’s not just the ability to find good deals. It’s about having the discipline to be able to walk away from deals when they don’t make sense.”

—Source REALTOR® Magazine

12 Markets with the Highest Mortgage Demand

12 Markets with the Highest Mortgage Demand. Image courtesy of hywards / FreeDigitalPhotos.net

Nearly 1.6 million of loans were originated on single-family homes and condos in the first quarter, up 17 percent from a year ago, according to RealtyTrac’s the first quarter 2015 U.S. Residential Loan Origination Report. Of those nearly 1.6 million loan originations, almost 472,000 were purchase loan originations, up less than 1 percent from a year ago. The rest of the loans were from refinance applications.

“A dip in interest rates early in the year combined with lowered mortgage insurance premiums for FHA loans breathed some life back into the refinancing market in the first quarter,” says Daren Blomquist, vice president at RealtyTrac. “Meanwhile the purchase loan market remained largely missing in action despite tepid growth from a year ago. The prime buying season still remains ahead, providing some hope that first-time home buyers and other traditional buyers relying on traditional financing will come out in the woodwork in greater numbers in the coming months.”

The following metro areas (with populations of at least 500,000) saw the largest increases in purchase loan originations from a year ago:

1. Palm Bay-Melbourne-Titusville, Fla.: up 72%
2. Dayton, Ohio: up 62%
3. Toledo, Ohio: up 36%
4. Tampa, Fla.: up 32%
5. Kansas City, Mo.: up 32%
6. Salt Lake City: up 18%
7. Orlando, Fla.: up 17%
8. Atlanta: up 15%
9. Jacksonville, Fla.: up 14%
10. St. Louis, Mo.: up 13%
11. Miami: up 13%
12. Phoenix: up 13%

Source: RealtyTrac

Housing’s Under supply Raises Concerns

Housing’s Undersupply Raises Concerns. Image courtesy of phanlop88 / FreeDigitalPhotos.net

About 1.5 million new housing units are needed each year to accommodate the rising population, writes Lawrence Yun, the chief economist of the National Association of REALTORS® at the Economists’ Outlook blog. Yet, housing starts have averaged about 766,000 per year for the past seven years.

“These multiple years of under supply compared to what is needed is the reason why much of the country is experiencing a housing shortage with few inventory of homes for sale and falling apartment vacancy rates,” Yun notes. “Consequently, rents and home prices are rising by at least twice as fast as wage growth.”

Yun says that builders need to ramp up construction soon or the housing shortage will worsen. “Housing affordability will take a hit as a result,” he says.

The U.S. has about 4 million births each year and about 2 million deaths each year – which means an annual population gain of about 2 million. Also, immigration is making up another half million to one million each year, which brings the U.S. population up by about 3 million each year.

Source: “Births and Housing Demand,” National Association of REALTORS® Economists’ Outlook blog (May 11, 2015)

Cash Sales Are Weakening

Cash Sales Are Weakening. Image courtesy of satit_srihin / FreeDigitalPhotos.net

The number of real estate transactions involving all-cash is slipping, according to the March 2015 REALTORS® Confidence Index Survey. Cash sales accounted for 24 percent of total existing home sales in March, down considerably from 33 percent one year ago.

The drop in cash sales is mostly related to a drop in buying activity among investors, who are lessening their buying sprees as distressed properties for-sale decrease and home prices rise. Individual investors purchased 14 percent of homes in March, down from 17 percent one year prior. Seventy percent of investors paid cash in March.

Meanwhile, distressed sales accounted for 10 percent of sales in March, down from 14 percent a year ago.

“The declining share of sales for investment purposes and cash sales indicates that long-term home owners, rather than investors, are increasingly driving the recovery,” researchers note at the National Association of REALTORS® Economists’ Outlook blog.

Source: “Cash Sales on the Downtrend,” National Association of REALTORS® Economists’ Outlook blog (May 5, 2015) and “Existing-Home Sales Spike in March,” National Association of REALTORS® (April 22, 2015)

Home Ownership Linked to Happiness

Home Ownership Linked to Happiness. Image courtesy of iosphere / FreeDigitalPhotos.net

Home ownership can lead to higher levels of well-being, according to data from the OECD Better Life Index, which gauges the quality of life worldwide by factoring in such things like housing, jobs, civic engagement, health and safety.

The heightened sense of happiness that comes from home ownership may be more than just getting a new home but more closely tied to the basic need for shelter, says Aida Caldera Sanchez and Caroline Tassot, authors of an analysis about the index. Also, home ownership can lead to status and independence – qualities that often are linked to happiness, their analysis shows.

On the well-being index, housing outperformed all the all other indicators monitored – like education, safety, and environment – by the highest amount in the Midwest, with 75 percent of the states ranking housing as most important to happiness. In the South, housing tops all other indicators in 70.6 percent of the states, and in the West housing was tops in only 15 percent of the states compared to the other indicators.

View how housing stacks up in your area at the OCED Regional Well-being website.

Source: OCED Regional Well-being and “Homeownership Linked to Happiness,” RISMedia (May 7, 2015)