A Mistake Home Owners May Regret

A Mistake Home Owners May Regret. Image courtesy of stockimages / FreeDigitalPhotos.net

An analysis of 1 million fixed-rate mortgages in the United States shows that millions of Americans failed to refinance when mortgage rates were at historical lows, which could have amounted to savings for the median home owner of more than $45,000 in payments over the life of their loan.

In December 2010, 20 percent of American households with fixed-rate mortgages could have refinanced but failed to do so, according to the study by the National Bureau of Economic Research. At the time, the average interest rate was around 4.3 percent.

The upfront cost of refinancing — which usually is a few thousand dollars, depending on the value of the loan — may have deterred some home owners. But even when taking into account such factors, researchers estimated that around 41 percent of these home owners still would have benefited from refinancing in December 2010.

Some home owners may have been concerned about qualifying. Lenders look at various factors when refinancing, such as the home’s value, payment history, credit scores, among other financial data. But even when the researchers decreased their study’s sample to those with just excellent credit histories who had never missed a payment, they still found that an estimated 20 percent of home owners stood to gain from refinancing and would have qualified for one too.

As such, the researchers partnered with Neighborhood Housing Services of Chicago, a lending nonprofit, to identify those who would qualify for and benefit from refinancing and mailed letters to offer to help with refinancing. Only about 17 percent of the home owners who received the letters ended up refinancing after the letters were sent, and the majority of home owners who received the letters never replied.

The researchers followed up with those who were sent letters, and a quarter of the home owners said they never opened the letter while another quarter said they did open the letter and meant to follow up but never got around to it.

The median savings for households in 2013 of those who did not respond to the offer was $26,400 over the lifetime of the loan, or about $94 a month, according to the study.

Other studies have shown home owners leery about refinancing as well. In 2013, a study by Fannie Mae had asked eligible borrowers why they chose not to refinance under the government’s HARP program, and 22 percent said it was because they did not trust the lender who contacted them, and 18 percent said they didn’t know they qualified.

In general, the researchers in the NBER study concluded that the results are “consistent with both behavioral explanations such as procrastination and inattention, as well as lack of information as possible reasons why households fail to respond to offers that appear to be in their financial best interest.”

Source: “Why Did Millions of Americans Just Not Bother to Refinance Their Mortgage?

Real Estate Industry’s Technology ‘Blind Spot’

Real Estate Industry’s Technology ‘Blind Spot’. Image courtesy of Stuart Miles / FreeDigitalPhotos.net

More real estate professionals are adopting technology to better assist buyers and sellers, and practitioners’ clients are eagerly incorporating technology into their purchasing behaviors. But technology can only drive a relationship so far in a real estate transaction, a new survey suggests.

Two distinct phases of a home purchase process are emerging: shopping and buying, according to a new survey by ERA Real Estate of about 1,000 consumers and more than 1,800 real estate professionals.

“While our survey reveals that real estate professionals have expanded their communication channels and adopted an ‘always on’ mentality to meet the changing consumer demands growing out of a technology-enabled shopping landscape, once consumers enter the buying phase of the transaction, they realize the benefit of the personal, face-to-face service a sales professional can provide to ensure a smooth transaction process,” says Charlie Young, president and CEO of ERA Real Estate.

Consumers say they don’t just value technology-enabled communication, but also flexible scheduling and informal meetings and personal advise and counsel, the ERA survey found.

Consumers reported the highest level of confidence at the onset of home buying or selling, at 84 percent. But once their search was underway, 43 percent of respondents say they struggled with a lack of market knowledge and not understanding the process. Ninety-one percent say their relationship with their sales professional was important to them.

“This technology ‘blind spot’ is perpetuated by the ‘swipe-and-go’ coffee experience, but as we all know, buying a home is far more involved,” Young says. “The good news is that today’s home buyers and sellers can access a wealth of information from a variety of platforms, whether that be desktop, mobile, or tablet. In this technology-assisted environment, well-informed consumers are collaborating with experienced sales associates to work together in achieving the dream of home ownership.”

Source: ERA Real Estate

Reviews Guide Remodeling Choices

Reviews Guide Remodeling Choices. Image courtesy of Carlos Porto / FreeDigitalPhotos.net

The commercial real estate market is finding that negative online reviews can serve as blueprints for remodeling projects. Hotels in particular are finding the gripes posted from travelers on review websites such as TripAdvisor and Yelp are a way to guide their next round of renovations, The New York Times reports.

For example, Omni Hotels and Resorts executives say they used review sites to decide on installing more electrical outlets and upgrading bathrooms. New York’s St. Regis hotel added a central master light switch in guest rooms after reading numerous complaints online about the number of lights and switches guests had to turn off. For the Loews Regency in New York, executives said they are renovating bathroom lighting after several complaints.

“Sometimes designers design our bathrooms to look good but not necessarily be totally functional,” says Paul Whetsell, president and chief executive of Loews Hotels. “Lighting is something that’s mentioned on social quite often.”

The sites are a welcome resource, especially as U.S. hotels are increasing their spending on renovations lately in an effort to edge out their competitors.

“It’s become a widely understood source of input for capital expenditures,” says Bjorn Hanson, a professor at New York University’s Preston Robert Tisch Center for Hospitality, Tourism and Sports Management. “Rates have gone up, so guests are expecting to see that reflected in the quality.”

Hotels work with technology providers, often using algorithmic software, to scan thousands of reviews to determine the biggest areas of customer gripes. The most common complaints often center around water pressure in the showers, slow Wi-Fi, uncomfortable beds, dated TVs, and location, according to The New York Times.

Source: “Hotels Use Online Reviews as Blueprint for Renovations,” The New York Times (Sept. 22, 2014)

1 Million Homes Regain Equity

1 Million Homes Regain Equity. Image courtesy of phanlop88 / FreeDigitalPhotos.net

Nearly 950,000 homes returned to positive equity in the second quarter, now bringing the total number of residential homes with equity nationwide to more than 44 million, according to CoreLogic’s Equity Report.

“The increase in borrower equity of $1 trillion from a year earlier is evidence that things are moving solidly in the right direction,” says Sam Khater, deputy chief economist for CoreLogic. “Borrower equity is important because home equity constitutes borrowers’ largest investment segment and, as a result, is driving forward the rise in wealth for the typical home owner.”

Still, home price rises are needed to help more home owners feel more confident in their equity position. Of the 44 million properties with positive equity, about 9 million – or 19 percent – have less than 20 percent equity (labeled “under-equitied”), and 1.3 million have less than 5 percent (considered “near-negative equity”), according to CoreLogic.

About 5.3 million homes – or 10.7 percent of all residential properties with a mortgage – remained in negative equity as of the second quarter. The number is falling. A year ago, 7.2 million homes – or 14.9 percent –were in negative equity. Negative equity is when borrowers owe more on their mortgages than their homes are currently worth.

“Borrowers who are ‘under-equitied’ may have a more difficult time refinancing their existing homes or obtaining new financing to sell and buy another home due to underwriting constraints,” according to CoreLogic’s report.

If home prices rise by just 5 percent, an additional 1 million home owners currently in negative equity could regain equity, according to CoreLogic’s analysis.

“Many home owners across the country are seeing the equity value in their homes grow, which lifts the economy as a whole,” says Anand Nallathambi, president and CEO of CoreLogic. “With more and more borrowers regaining equity, we expect home ownership to become an increasingly attractive option for many who have remained on the sidelines in the aftermath of the Great Recession. This should provide more opportunities for people to sell their homes, purchase a different home or refinance an existing mortgage.”

State Breakdown

The states with the highest percentage of properties with a mortgage in negative equity as of the second quarter were:

• Nevada: 26.3%
• Florida: 24.3%
• Arizona: 19%
• Illinois: 15.4%
• Rhode Island: 14.8%

On a metro level, Tampa-St. Petersburg-Clearwater, Fla., had the highest percentage of mortgaged properties in negative equity at 26.2 percent, followed by Phoenix-Mesa-Scottsdale, Ariz., at 19.5 percent.

On the other hand, the following states had the highest percentage of properties with a mortgage that were in an equity position:

• Texas: 97.3%
• Alaska: 96.5%
• Montana: 96.4%
• North Dakota: 96%
• Hawaii: 96%

On a metro level, Houston-The Woodlands-Sugar Land, Texas, boasted the highest percentage of properties with a mortgage in an equity position at 97.5 percent, followed by Dallas-Plano-Irving, Texas, at 97 percent.

Source: CoreLogic

Bank of Mom and Dad for Housing Purchases

Bank of Mom and Dad for Home Purchases. Image courtesy of Ambro / FreeDigitalPhotos.net

First-time buyers are increasingly turning to their parents to help fund their home purchases.

Twenty-seven percent of first-time home buyers last year received a cash gift from relatives or friends for a down payment, according to the National Association of REALTORS®. That’s up from 24 percent in 2014, and it also marks the highest share since NAR began tracking such data in 2009.

Young professionals are facing high student-loan debt, a constrained job market, and stricter mortgage lending rules that are requiring higher down payments. Meanwhile, baby boomer parents are seeing rising stock and property values that may make them more inclined to help their children break into home ownership, particularly while mortgage rates are hovering near record lows, The Boston Globe reports.

“Without them, the [housing] recovery’s not sustainable,” says Anika Khan, a senior economist at Wells Fargo Securities. Parents’ financial assistance will help “move the housing recovery along.”

Deborah Baisden, a real estate professional with Prudential Towne Realty in Virginia Beach, Va., says she’s finding that more and more parents are gifting money.

“Because of student debt and because of kids having a tough time finding jobs, it’s becoming increasingly difficult for them to be able to buy homes,” Baisden told The Boston Globe. “We’re turning into a country of renters.”

Indeed, the struggle to come up with a down payment has been the top reason young professionals cite for why they’re renting rather than buying, according to a Federal Reserve report on the economic well-being of households.

Parental purse strings are opening at the right time, housing analysts say, with mortgage rates still low and investors retreating from the market, which may provide a greater opening to first-time buyers. Investors tend to snatch up lower-priced properties with all-cash offers.

“With the investors stepping away, for some first-time buyers and Millennial buyers, they have less competition,” says Lawrence Yun, NAR’s chief economist. “So it would be an opportune time to enter the market.”

Source: “Without Parents Help, Many Could Not Buy Their First Home,” BostonGlobe.com (Sept. 22, 2014)