Builders Pick Up Pace to Meet Rising Demand

Builders Pick Up Pace to Meet Rising Demand. Image courtesy of stockimages / FreeDigitalPhotos.net

New-home construction is on the upswing: Housing starts climbed last month to the highest level in nearly seven and a half years, and building permits for future construction also reached a seven-year high, the Commerce Department reported Tuesday.

Nationwide housing starts rose 20.2 percent to a seasonally adjusted annual pace of 1.14 million units in April. That marks the highest level of housing production since November 2007 and the largest month-over-month increase since February 1991.

Housing starts for single-family homes — which make up the largest share of the market — rose to its highest level since January 2008, gaining nearly 17 percent month-over-month. Groundbreaking for the multifamily sector also had sizable gains, rising 27.2 percent last month. Housing permits, a sign of future home construction, rose to a near seven-year high at a 1.14 million unit rate.

Household formation is getting a boost as young adults find employment and move out on their own, housing analysts note.

“The strong rebound in housing starts confirmed expectations for housing to accelerate substantially in the second quarter and be a standout growth contributor amid otherwise sluggish indications for a pickup in GDP growth,” Ted Wieseman, an economist at Morgan Stanley in New York, told Reuters.

Regionally, groundbreaking for single-family homes and multifamily units rose by the most in the Northeast, increasing 85.9 percent month-over-month in April. The Midwest also gained 27.8 percent, and the West increased 39 percent. Housing starts dropped in the South by 1.8 percent, but building permits were up 9.9 percent there.

Overall, “the April gains make up for the production dips we saw in the past two months, but single-family housing is still only about halfway back to what could be considered a normal market,” says David Crowe, chief economist at the National Association of Home Builders. “With low interest rates and affordable home prices, we expect more upward momentum in the months ahead.”

Source: National Association of Home Builders and “Robust U.S. Housing Data Offers Hope for Second Quarter Growth,” Reuters (May 19, 2015)

It’s Becoming Easier to Get a Mortgage

It’s Becoming Easier to Get a Mortgage. Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Lenders are showing signs of loosening up when it comes to home buyers seeking a mortgage. The Mortgage Bankers Association’s Mortgage Credit Availability Index ticked up slight in April, following an increase the previous month too. Increases in the index are indicative of an overall loosening of credit.

MBA’s index shows that mortgage credit availability has increased consistently over the last several months, coinciding with recent announcements from the federal government of programs that have been designed to open the credit box. Fannie Mae and Freddie Mac’s move to back 3 percent down payment loans as well as the Federal Housing Administration’s action to reduce its mortgage insurance premiums have helped ease credit, MBA Chief Mike Fratantoni says.

Other government offerings also helped to ease credit even more in the latest report, reflecting April data, MBA notes.

“Mortgage credit availability increased on net in April,” Fratantoni says. “The increase was driven by new offerings of FHA’s 203K home improvement program, new VA offerings, and new jumbo products. The increase was partially offset by some investors tightening underwriting criteria on conventional cash out offerings.”

REALTORS® surveyed have pinpointed tight credit conditions, significant lender overlays, and loan processing delay as a major hurdle facing their buyers the past few years, but REALTORS® are also reporting gradual improvements, according to the latest REALTORS® Confidence Index, a survey of real estate professionals.

REALTORS® point to the trend of lenders showing more willingness to accept slightly lower FICO scores – moving from the high range of 740-plus to now the mid-range of 620-740. Also, REALTORS® note an increase in the number of their clients securing a loan while making zero to 6 percent down payments. FHA’s reduction in the mortgage insurance premium and the GSE-backed 3 percent down payment loans are helping buyers to come with less money to the table.

But while mortgage credit availability is showing definite signs of easing, credit continues to still be far less available than it was during the housing boom days, according to MBA.

Source: “MBA: It Keeps Getting Easier to Get a Mortgage,” HousingWire (May 12, 2015) and “REALTORS® Confidence Index,” National Association of REALTORS® (April 2015)

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)