Down Payments for Lower-Priced Homes Double

Down Payments for Lower-Priced Homes Double. Image courtesy of cooldesign / FreeDigitalPhotos.net

Buyers looking at lower-priced homes are not only facing major inventory hurdles, they’re also finding that they have to bring more money to the closing table.

The median down payment for the cheapest 25 percent of homes was 7.5 percent of the sales price last year, up from a low of 3.1 percent in 2006. That also compares to an average of 4.2 percent from 2001 through 2007, according to research by the real estate brokerage Redfin Corp., which analyzed the 25 largest metros.

Many younger home buyers, who often seek to break into the housing market by purchasing lower-priced homes, are among those affected by the higher down payments. The median down payment for the cheapest 25 percent of properties sold in 2013 was $9,480, according to Redfin’s analysis.

“The numbers tell the story of why we have millions of potential home owners who are renters or living with their parents,” Susan Wachter, a professor of real estate and finance at the University of Pennsylvania’s Wharton School in Philadelphia, told Bloomberg. “What has changed is the ability to become an owner. And that’s changed through a down payment that’s more than doubled.”

Part of the reason for the increase in down payments among lower-priced properties could be due to the smaller number of first-time home buyers applying for loans backed by the Federal Housing Administration, which requires small down payments of usually 3.5 percent. FHA increased its mortgage-insurance premiums this year, which has raised FHA borrowing costs and tightened underwriting standards. It’s part of FHA’s effort to boost cash reserves lost in the aftermath of the housing crisis.

As such, some borrowers who may have applied for an FHA loan are instead using private lenders, who may be demanding higher down payments. In 2013, 39 percent of first-time buyers used FHA loans compared with 56 percent in 2010, according to the National Association of REALTORS®.

“If higher down payments persist, we will have a millennial generation that’s missing in action in home ownership,” says Wachter.

Source: “More Money Down Adds to U.S. First-Time Buyer Blues: Economy,” Bloomberg News (Aug. 14, 2014)

Mortgage Rates Roll Back

Mortgage Rates Roll Back. Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Mortgage rates continue on a low streak this week, with the 30-year fixed-rate mortgage averaging its low for the year, 4.12 percent. It’s the same low the 30-year rate mortgage reached in May as well as during a week in July, Freddie Mac reports in its weekly mortgage market survey.

Fixed-rate mortgage started the year at 4.5 percent, and have countered many forecasters expectations so far by not rising, but instead dropping.

Freddie Mac reports the following national averages with mortgage rates for the week ending Aug. 14:

• 30-year fixed-rate mortgages: averaged 4.12 percent, with an average 0.6 point, dropping from last week’s 4.14 percent average. Last year at this time, 30-year rates averaged 4.40 percent.
• 15-year fixed-rate mortgages: averaged 3.24 percent, with an average 0.6 point, falling from last week’s 3.27 percent average. A year ago, 15-year rates averaged 3.44 percent.
• 5-year hybrid adjustable-rate mortgages: averaged 2.97 percent, with an average 0.5 point, falling from last week’s 2.98 percent average. Last year at this time, 5-year ARMs averaged 3.23 percent.
• 1-year ARMs: averaged 2.36 percent, with an average 0.5 point, rising from last week’s 2.35 percent average. A year ago, 1-year ARMs averaged 2.67 percent.

Source: Freddie Mac and “Mortgage Rates at Low for Year; 30-Year Averages 4.12%,” Los Angeles Times (Aug. 14, 2014)

Ways to Get an Offer Accepted

4 Ways to Get an Offer Accepted. Image courtesy of stockimages / FreeDigitalPhotos.net

There are four rules home buyers should follow if they want sellers to accept their offer.

1. Be nice: While money is important, buyers should also be likable and avoid making negative comments about the house or discussing their renovation plans in front of the seller, keeping in mind that sellers have an emotional connection to the property. “Don’t tell someone how bad, ugly, stupid, their house is and then try to buy it. That doesn’t work,” notes Marc Takacs of Atlanta-based Keller Williams Realty.
2. Be amiable: Buyers also should avoid making unreasonable demands, such as super-quick closing dates, and they should avoid low-ball offers that could be perceived as an insult or offers that are too high and difficult for them to afford.
3. Be calm: Visiting the listing too often and for long periods of time also will annoy sellers.
4. Be rational: Buyers should avoid waiving the home inspection or appraisal contingency simply to get their offer approved, as they will regret such a move later on if a leaky roof or mold is discovered or they learn that they overpaid for the house.

Source: “4 Rules to Live By When Making an Offer on a House,” U.S. News & World Report (Aug. 5, 2014) & .realtor.org

Applications Boost Loan Demand

Applications Boost Loan Demand. Image courtesy of Stuart Miles / FreeDigitalPhotos.net

As mortgage rates hover nearly yearly lows, more home owners are viewing it as the last opportunity to take advantage by refinancing and lowering their borrowing costs.

An increase in applications for refinancing last week helped overall mortgage applications reverse course and post a rise for the week ending Aug. 1, according to the Mortgage Bankers Association’s weekly mortgage activity index, which reflects 75 percent of the U.S. retail residential mortgage application market.

Overall, the MBA’s seasonally adjusted index, which reflects mortgage demand for refinancing and home purchases, ticked up 1.6 percent last week, following a 2.2 percent fall the week prior.

Broken out, refinancing applications increased 3.8 percent during the week while applications for home purchases, viewed as a leading gauge of future home sales, fell 1.3 percent.

The 30-year fixed-rate mortgage remained near yearly lows during the week, averaging 4.35 percent, up 2 basis points from 4.33 percent the week prior, the MBA reports.

Source: “U.S. Mortgage Applications Rise in Latest Week: MBA,” Reuters (Aug. 6, 2014)

For Every $1K Price Hike You Sideline 200K Buyers

For Every $1K Price Hike You Sideline 200K Buyers. Image courtesy of Sujin Jetkasettakorn / FreeDigitalPhotos.net

For every $1,000 increase in the cost of median-priced new homes, an estimated 206,269 households are pushed out of the market, according to a new study by the National Association of Home Builders.

The study finds that government regulations imposed on the construction industry — for example, raising the price of impact fees or construction permits — translates to a hike in new-home prices. And for every $833 incurred in building fees, there is a $1,000 increase in house prices, which disqualifies more households from obtaining mortgages.

“This study highlights the real effects that building regulations have on housing affordability,” says NAHB Chairman Kevin Kelly. “Local, state and federal government officials need to know that higher regulatory costs have real consequences for working American families. Oftentimes, these government regulations end up pushing the price of housing beyond the means of many teachers, police officers, firefighters, and other middle class workers.”

The number of households affected can vary considerably by state and city, depending on income distribution and local new-home prices. The biggest impact is in Texas, where more than 18,000 households could be sidelined if median new-home prices increase by $1,000. On the other hand, Wyoming has the lowest impact: The same price rise would disqualify only 313 buyers, the study shows.

On the metro level, those where a $1,000 increase could possibly price out the most potential buyers are the New York-Northern New Jersey-Long Island, N.Y.-N.J.-Pa. area; Houston-Sugar Land-Baytown, Texas; Atlanta-Sandy Springs-Marietta, Ga.; and Las Vegas-Paradise, Nev.

Source: “NAHB Releases New ‘Priced Out’ Numbers,” National Association of Home Builders’ Eye on Housing blog (Aug. 1, 2014)

Housing Slowdown Could Be Good for Buyers

Housing Slowdown Could Be Good for Buyers. Image courtesy of Ambro / FreeDigitalPhotos.net

The growing signs of a slowdown in the housing market might be good news for home buyers. Slowing home prices—after the double-digit increases last year—mixed with still-low interest rates are making homes more affordable. Also, the supply of homes for sale today represents 5.8 months of demand, the most since October 2011, giving buyers more choices than they have had in the recent past, as inventory shortages have plagued many markets.

“From an individual perspective, the best investment you can make is to buy a primary residence,” John Paulson, who runs the hedge fund Paulson & Co., said in a statement recently. “Today, financing costs are extraordinarily low. You can get a 30-year mortgage somewhere around 4.5 percent.”

But despite low interest rates and slowing home prices, first-time home buyers have mostly been absent from the housing recovery so far. They made up 28 percent of existing-home sales in June, but typically take up 40 percent of the market, according to the National Association of REALTORS®.

“The first-time home buyer is just not the factor that it once was,” says Peter Boockvar, chief market analyst at the Lindsey Group, a D.C.-based economic advisory firm. “Without the first-time home buyer, and now with the reduction in the pace of investor purchases, the recovery will remain lumpy.”

While first-time home buyers’ numbers remain low and home prices and mortgage applications have fallen in recent months, not all analysts are predicting that housing prices will fall. Barclays analysts, for example, expect housing prices to rise about 7 percent this year.

Last year’s “double-digit home price gains were unsustainable” because income growth has been about 2 percent, says Boockvar. “We should be cheering slower home price gains, not fearing them, because it is the main factor that will entice the newly created household to consider buying instead of renting.”

Source: “Real Estate’s Epic Rebound Starts to Cool,” The Wall Street Journal (Aug. 2, 2014)