Americans Are 40% Poorer Today

Americans Are 40% Poorer Today. Image courtesy of Stuart Miles / FreeDigitalPhotos.net

The net worth of American families has plunged 40 percent since 2007, right before the financial crisis struck, dipping to an average of $81,400 per household, according to a new report from the Pew Research Center. That’s down from $135,700 in 2007. Pew measures net worth as the difference between the values of a household’s assets, including homes, investments, and liabilities.

“The Great Recession, fueled by the crises in the housing and financial markets, was universally hard on the net worth of American families,” the report says.

The average weekly wage has mostly stayed stagnant in recent years: $853 last month compared to $833 in November 2013, according to the Bureau of Labor Statistics.

The drop in net worth is particularly acute along racial lines. The gap between blacks and whites has reached its highest point since 1989, with the wealth of white households 13 times greater than that of black households in 2013, according to Pew research. The median net worth of white households was $141,900 in 2013, dropping 26 percent since 2007; for Hispanic households, net worth in that time fell by 42 percent to $13,700, and for African-American households, it dropped 43 percent to $11,000.

The Pew report partially attributes the wealth gap among the races to the fact that white households are more likely to own stocks directly or indirectly through retirement accounts. Financial assets such as stocks have recovered value more quickly than housing since the recession ended, according to Pew.

However, the housing picture has improved and may help lift many household’s finances. Fewer borrowers are underwater, which means they no longer owe more on their mortgage than their home is worth. Eight percent of borrowers, or 4 million, were underwater in October compared to the peak of 35 percent, or 18 million homes, in February 2011, according to data from Black Knight Financial Services, which tracks mortgage performance.

Source: “Wealth Inequality has Widened Along Racial, Ethnic Lines Since End of Great Recession,” Pew Research Center (Dec. 12, 2014) and “Americans Are 40% Poorer Than Before the Recession,” MarketWatch (Dec. 13, 2014)

Stage Set to Revive First-Time Buyer Market

Stage Set to Revive First-Time Buyer Market. Image courtesy of stockimages / FreeDigitalPhotos.net

The move by Fannie Mae and Freddie Mac this week to offer 3 percent down payment loans may reignite the first-time home buyer market.

Prior to this week’s announcement, Fannie Mae and Freddie Mac issued loans with a minimum of a 5 percent down payment—however, the standard down payment for mortgages insured through Freddie Mac and Fannie Mae was 20 percent, the Associated Press reports.

That meant a first-time buyer would need about $41,600 in cash to buy a median-priced home of $208,300, according to National Association of REALTORS® housing data. With a 3 percent down payment, buyers would need a fraction of that – about $6,200 to close on a loan.

That may make home ownership more feasible for first-time buyers. A recent study by RealtyTrac showed that it can take on average 12.5 years for first-time buyers to save up a 20 percent down payment based on a current personal savings rate at 5.6 percent. The figure also takes into account current median home prices.

In October, only 29 percent of home purchases were from first-time buyers – way below the historic average of 40 percent, NAR reported. NAR issued a report last month that showed despite an improving job market and low interest rates, the share of first-time buyers had fallen to its lowest point in nearly three decades.

The new loans announced by Fannie Mae and Freddie Mac will be fixed-rate mortgages for up to 30 years, available only on a primary residence. Fannie plans to begin issuing the 3 percent loans before the end of the year. Mortgage insurance payments will be required, and qualified buyers will need to complete a financial counseling program.

Freddie Mac plans to start issuing its 3 percent loans to low- and moderate-income borrowers in March 2015. Eligible borrowers will be required to earn less than an area’s median income and will also have to pay mortgage insurance and undergo financial counseling to participate. Monthly payments also will have to fall under 43 percent of the borrower’s income.

Source: “More Americans to Buy Homes with 3 Percent Down,” The Associated Press (Dec. 11, 2014)

Owners, Appraisers Getting on the Same Page

Owners, Appraisers Getting on the Same Page. Image courtesy of David Castillo Dominici / FreeDigitalPhotos.net

The discrepancy between appraisers’ and home owners’ opinions of home values is narrowing. In November, appraisers valued homes 1.56 percent higher than home owners, according to Quicken Loans’ Home Price Perception Index.

“Mortgage financing often hinges on whether the appraised value coincides with the home values agreed upon by the home buyer and seller in the case of a home purchase, and the home owner’s estimated value in the case of a refinance,” says Quicken Loans Chief Economist Bob Walters. “It is reassuring to see the gap between appraiser opinions and home owner opinions narrow, and if we had to choose a side of the fence, it makes for a much smoother mortgage process if appraisers are valuing homes above home owners’ estimates like we’re seeing, as compared to the opposite.”

Still, in three-quarters of the metro areas Quicken Loans analyzed, appraiser opinions were higher than home-owner estimates. The difference varies widely among those metro areas, too. For example, in San Jose, Calif., appraisers valued homes 6 percent higher than home owners on average, while in San Francisco, appraisers valued homes 4.35 percent higher. In Dallas, it was 4.22 percent.

On the other end of the spectrum, in Kansas City, Mo., appraisers’ opinions were found to be 2.53 percent lower than home owners’.

On a national scale, real estate professionals are reporting fewer appraisal issues as the cause of derailing deals. Appraisals were blamed for only 2 percent of failures to close a sale, according to the November REALTORS® Confidence Index survey of more than 3,700 REALTORS®. Instead, the top closing challenges cited by REALTORS® were difficulty obtaining credit and a lack of affordable homes. About 15 percent of REALTORS® report having clients who could not obtain financing, while about 13 percent say the buyer and seller couldn’t agree on the price. Eight percent report that the buyer lost out in a multiple-offer situation.

Source: Quicken Loans and November 2014 REALTORS® Confidence Index

Renters Want to Own But Can’t

Renters Want to Own But Can’t. Image courtesy of marcolm / FreeDigitalPhotos.net

Though renters say they dream of owning a home one day, most of them will need to keep renting for at least the next three years, according to a new survey of more than 2,000 adults conducted by Freddie Mac. The majority of renters say they are still struggling financially, but 91 percent say the financial crisis has not deterred their motivation to become home owners.

“It’s no secret that for the last several years, consumers have felt more strapped financially, particularly renters,” says David Brickman, executive vice president of Freddie Mac Multifamily. “Many renters are not buying homes because of a perceived lack of ability to afford the down payment or mortgage, as well as poor credit history. But there also is a segment of renters who simply do not want the responsibilities of owning a home.”

The majority of renters say they’re living paycheck to paycheck. Forty-five percent of renters say they have just enough money to get by, and 17 percent say they do not have enough money to pay for basics, such as food and housing, until their next payday. On the other hand, only 38 percent of home owners indicate similar financial struggles.

Still, nearly 40 percent of renters say they hope to purchase a home in the next three years, most of whom are ages 25 to 44, the survey found. Also, if a renter hasn’t owned a home by age 45, he or she will likely continue to rent throughout their lifetime, the survey noted.

For now, renters say the top three things about renting are: no responsibility for home maintenance; greater flexibility to move; and protection against any home-price declines, the survey found.

However, renters say the top three things pushing them toward home ownership are: owning something they’d be “proud” of; passing the home on to their children one day; and more flexibility to design the home the way they want it.

Source: “Freddie Mac Research Shows Many U.S. Renters Still Dream of Homeownership, but Some Prefer to Rent,” Freddie Mac (Dec. 8, 2014)

Getting a Mortgage Isn’t Impossible

Getting a Mortgage Isn’t Impossible. Image courtesy of Ambro / FreeDigitalPhotos.net

Many potential home buyers are so leery about qualifying for a mortgage that they say they’re not going to even try. Nearly 60 percent of potential home buyers say they want to purchase a home but they aren’t pursuing it because they believe their mortgage application would be rejected, according to a survey conducted by LoanDepot, a mortgage company. That fear has stalled many would-be buyers: Three quarters of them admit they haven’t even checked out current lender requirements, according to the survey.

But requirements over credit scores and down payments are showing signs of softening. Mortgage financing giants Fannie Mae and Freddie Mac, for example, recently announced changes that should allow lenders to feel more confident about the mortgages they approve, as they won’t be subjected to costly “buyback” demands if borrowers become delinquent on the loan. These buyback fears prompted many lenders in recent years to tighten underwriting requirements and add extra fees to compensate for potential losses on loans to borrowers who have below-average credit scores, small down payments, or minimal assets in reserve.

The new policy “should encourage lenders to serve a broader range of qualified borrowers,” says David Lowman, a Freddie Mac executive vice president. It also should prompt more lenders to make “mortgages available to more borrowers,” added Andrew Bon Salle, an executive at Fannie Mae.

Fannie Mae and Freddie Mac also plan to resume lending to buyers who can make 3 percent down payments (which is lower than their current minimum of 5 percent). The Federal Housing Administration allows 3.5 percent for a down payment, but hefty insurance premiums have made its loans more expensive than Fannie and Freddie’s, the Los Angeles Times reports.

Borrowers may find that lenders are softening credit score requirements too. In October, the average FICO score for all types of closed loans was 726 – lower than the widely assumed 750 to 760, according to Ellie Mae, a software firm. The average borrower at FHA had a FICO score of 683 during October.

“There are many people who can now afford to buy a home and qualify for a mortgage but simply don’t realize it,” Vance Edwards, marketing program manager for Mortgage Guaranty Insurance, told the Los Angeles Times.

Source: “Nation’s Housing: Qualifying for a Mortgage May Be Easier Than You Think,” The Los Angeles Times (Dec. 7, 2014).

70% Unaware of Down-Payment Assistance

70% Unaware of Down-Payment Assistance. Image courtesy of cooldesign / FreeDigitalPhotos.net

Seventy percent of adults in the U.S. say they’re unfamiliar with down-payment assistance programs for middle-income home buyers in their community, according to a NeighborWorks America survey of 1,000 people. But plenty of help is available.

NeighborWorks organizations provided 6,000 buyers with more than $100 million in down-payment assistance last year. NeighborWorks expects to increase its assistance this year, too. Many local and state organizations offer down-payment assistance as well, and there are specialized programs for military vets through the Veterans Affairs loan program, for first-time buyers through the Federal Housing Administration, and for rural home buyers through the U.S. Department of Agriculture.

“Down-payment assistance programs make home purchasing more accessible for first-time buyers,” says Marietta Rodriguez, vice president of Homeownership Programs and Lending at NeighborWorks America. “In addition, because many down-payment assistance programs require home-buyer education, these purchasers tend to be more successful in the long-term. Research has shown pre-purchase counseling helps reduce mortgage default and equips home owners with the information they need to budget for other expenses and maintain their property.”

Source: NeighborWorks America

2015: Year of the First-Time Home Buyer

2015: Year of the First-Time Home Buyer. Image courtesy of digitalart / FreeDigitalPhotos.net

First-time home buyers are expected to re-emerge in the new year after mostly staying out of the market in the aftermath of the housing crisis. That’s one of realtor.com®’s five top housing predictions for 2015.

“The residual financial effects of recession-driven job losses and subsequent unemployment have impeded Millennials’ entry into the home-owning market,” says Jonathan Smoke, chief economist for realtor.com®. “In 2015, increases in employment opportunities will empower younger buyers to return to the market and fuel the continued housing recovery. If access to credit improves, we could see substantially larger numbers of young buyers in the market. However, given a high dependency on financial qualifications, this activity will be skewed to geographic areas with higher affordability, such as the Midwest and South.”

1. Millennials to drive household formation. Households headed by Millennials are expected to see significant growth in 2015, particularly as the economy continues to make gains. Millennials are expected to drive two-thirds of household formations over the next five years, according to realtor.com®’s report. The forecasted addition of 2.5 million jobs next year, as well as an increase in household formation, are the two factors that realtor.com® points to in driving more first-time home buyers to the housing market.
2. Existing-home sales on the rise. Existing-home sales are projected to rise 8 percent year-over-year in 2015, as more buyers enter the market. Distressed properties will make up a smaller share of that growth, unlike in 2012, when a similar increase in existing-home sales was mostly driven by distressed properties.
3. Home prices will rise. Home prices are expected to continue to edge up in 2015, with realtor.com® forecasters predicting a 4.5 percent gain. “While first-time home buyers have many economic factors working in their favor, increasing home prices will make it more difficult to get into high-priced markets such as San Francisco and San Jose, Calif.,” realtor.com® notes in its report. “As a result, first-time home buyer activity is expected to concentrate in markets with strong employment and affordability, such as Des Moines, Iowa; Atlanta; and Houston.”
4. Mortgage rates to inch up to 5 percent. In the middle of 2015, mortgage rates are expected to increase as the Federal Reserve increases its target rate by at least 50 basis points before the end of the year. That will likely bring the 30-year fixed-rate mortgage to an average of 5 percent by the end of 2015. (It’s currently averaging 3.89 percent, according to Freddie Mac.) The 1-year adjustable-rate mortgage, on the other hand, is expected to rise more minimally. “Lower ARM interest rates will influence an uptick in buyer interest for adjustable and hybrid mortgages,” realtor.com® notes. “While still at historic lows, rate increases will affect housing affordability for first-timers trying to break into the housing market and will be another factor pushing them to less-expensive locales.”
5. Housing affordability will decline. Affordability for homes, based on home-price appreciation and rising mortgage interest rates, will likely fall by 5 to 10 percent in 2015. However, the decline in affordability likely will be offset by an increase in salaries next year for many households. “When considering historical norms, housing affordability will continue to remain strong next year,” realtor.com® notes.

Source: realtor.com®

Did Mortgages Just Get Easier to Obtain?

Did Mortgages Just Get Easier to Obtain? Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Fannie Mae and Freddie Mac’s new lending guidelines went into effect Monday, which are expected to help loosen up the tight credit standards that home buyers and refinancers have faced in recent years.

The guidelines clarify when lenders will be penalized for making mistakes on mortgages they sell to the mortgage financing giants. Following the financial crisis, Fannie and Freddie forced banks to repurchase tens of billions of dollars in loans that they say did not meet their standards. It caused many lenders to tighten their lending, except to the most creditworthy borrowers with the highest credit scores. Lenders have blamed the lack of clarity from Fannie and Freddie on the tight credit conditions that have made it difficult for home buyers to qualify for a mortgage.

Fannie and Freddie’s latest lender guidance is “going to be big, but it’s going to take time” to see the full impact of the changes, Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute, told The Wall Street Journal. Earlier this year, the Urban Institute estimated that up to 1.2 million additional home loans would be made annually if mortgage availability was at “normal” levels.

Lending giants such as Wells Fargo and SunTrust Banks Inc. have said borrowers will likely see faster turnaround times on mortgage applications in the next few weeks. Some lenders also say they expect to broaden the range of borrowers they’ll accept by reducing credit-score requirements and making exceptions for consumers who faced a one-time financial event, such as a job loss or large medical bill.

“It’s providing greater certainty for all the parties so that you can lend more confidently and make the whole judgment process much easier and more clear cut,” Mike Heid, president of Wells Fargo Home Mortgage, told the Journal.

However, some banks still are treading cautiously and aren’t ready to relax their underwriting rules quite yet.

“You won’t see us start to expand our criteria much past what we’ve done,” says Brian Moynihan, Bank of America chief executive. (Read more: Bank of America: We’re Not Easing Up)

U.S. Bank CEO Richard Davis says his bank also isn’t prepared to make any changes yet.

“Unless we are convinced that the rules are going to be permanent and there is not going to be a look back or a reach back in future times … we are simply going to stay on the sidelines in the concerns of both compliance risks and other uncertainties,” Davis told the Journal.

Source: “Mortgage Lenders Set to Relax Standards,” The Wall Street Journal (Nov. 28, 2014)