Do We Move Closer or Further Away?

A View from the Beach

ECONOMIC COMMENTARY
December 5, 2017 –

 

This week we will see the release of the November employment numbers. The key question we will be watching is whether we will be moving closer to a rate increase or further away with respect to the Federal Reserve Board’s meeting next week. According to the minutes of the last meeting, the Fed’s members had a healthy debate about the threat of inflation. Inflation “hawks” were worried that the tight labor market carries a risk that rising wages will quickly increase inflationary pressures.

On the other hand, the “doves” feel that the absence of large wage increases could mean that if the Fed raised short-term interest rates, it could cause inflation to stay too far below the Fed’s target of 2.0% for a prolonged period of time. Thus, we will not only be looking at the number of jobs created, but also looking for any sign that wage inflation is starting to take off. Judging by the economic reports we have seen in the past month, market analysts are still counting on a rate increase.

Speaking of higher costs, the Federal Housing Agency raised the limits for conforming mortgage loans for 2018. This affects the size of loans allowed under Fannie Mae and Freddie Mac mortgage programs. The new limits are $453,100 for 1-unit properties, with a maximum of $679,650 in high cost areas. While we have talked about higher housing prices making purchasing less affordable, the higher loan limits are one of the benefits of higher housing prices. Owners of homes gain more equity when prices go up. And these higher conforming limits will allow first time home buyers to purchase more home with a smaller down payment.

 WEEKLY INTEREST RATE OVERVIEW

The Markets. Rates were down slightly for the second straight week, but trended upward as the survey was being released. For the week ending November 30, Freddie Mac announced that 30-year fixed rates fell to 3.90% from 3.92% the week before. The average for 15-year loans decreased to 3.30%. The average for five-year adjustables increased to 3.32%. A year ago, 30-year fixed rates averaged 4.08%, higher than today. Attributed to Sean Becketti, chief economist, Freddie Mac — “Rates on 30-year fixed loans fell two basis points to 3.9 percent in this week’s survey, but we closed our survey prior to a surge in long-term interest rates following an upward revision to third quarter economic growth and comments by Federal Reserve Chair Yellen touting a broad-based economic expansion.” Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
December 1, 2017

Daily Value Monthly Value
Nov 30 October
6-month Treasury Security  1.44%  1.25%
1-year Treasury Security  1.62%  1.40%
3-year Treasury Security  1.90%  1.68%
5-year Treasury Security  2.14%  1.98%
10-year Treasury Security  2.42%  2.36%
12-month LIBOR  1.856% (Oct)
12-month MTA  1.063% (Oct)
11th District Cost of Funds  0.729% (Sep)
Prime Rate  4.25% (June)

REAL ESTATE NEWS
 The Federal Housing Finance Agency (FHFA) announced the maximum conforming loan limits for home loans to be acquired by Fannie Mae and Freddie Mac in 2018. In most of the U.S., the 2018 maximum conforming loan limit for one-unit properties will be $453,100, an increase from $424,100 in 2017. The Housing and Economic Recovery Act (HERA) requires that the baseline conforming loan limit be adjusted each year for Fannie Mae and Freddie Mac to reflect the change in the average U.S. home price. According to FHFA’s seasonally adjusted, expanded-data HPI, house prices increased 6.8 percent, on average, between the third quarters of 2016 and 2017. Therefore, the baseline maximum conforming loan limit in 2018 will increase by the same percentage. In addition, the new maximum loan limit for one-unit properties in high-cost areas will be $679,650 — or 150 percent of $453,100. Areas which exist between the base limits and maximum high-cost areas may have increased as well. For a list of the 2018 maximum loan limits for all counties and county-equivalent areas in the U.S. click here. It is expected that FHA and VA will follow suit with increased loan limits. Source: FHFA

About 60 percent of first-time home buyers put down 6 percent or less on a home purchase in September. The median down payment has dropped from 6 percent to 5 percent for first-time buyers, according to the National Association of Realtors®’ 2017 Profile of Home Buyers and Sellers. But there are still many potential buyers who may be under the impression they need a bigger down payment before they can buy. NAR conducted a survey of non-homeowners earlier this year and found that most consumers believe you need a down payment of 10 percent or 20 percent to buy a home. “They may not be aware that these programs are available, and they may not be taking advantage of them,” Jessica Lautz, NAR’s managing director of survey research and communications, said in the latest Down Payment Report, published by the Down Payment Resource. Thirty-two percent of first-time buyers said they saved for more than two years in order to be able to have enough to buy a home. Student loan debt was the most often cited obstacle to saving. The second most cited barrier for saving was credit card debt. Source: The Down Payment Report

As more builders face labor shortages, they’re starting to look for new and faster ways to train more workers. For example, the Colorado Homebuilding Academy, a nonprofit organization, opened this year to offer a free eight-week “boot camp” to help increase the builder labor force. The course is founded and funded by Oakwood Homes, a homebuilder based in Denver that is owned by Berkshire Hathaway. “Every single year, the labor situation has basically gotten worse,” Patrick Hamill, CEO of Oakwood, told CNBC. “People retire, and there’s nobody to replace them, and as an industry, ultimately we’ve just done a lousy job marketing our opportunities to young people.” The construction labor shortage is worsening nationwide and it’s causing the new-home sector to be unable to keep up with buyer demand. Homebuilders blame growing costs and a shortage of labor as the two biggest challenges confronting them this year, according to surveys conducted by the National Association of Home Builders. During the housing crash, many builders left the industry and have never returned. Also, an aging workforce approaching retirement age and a lack of young people drawn to the building industry are making the situation worse, builders say. Only 3 percent of young adults ages 18 to 25 recently surveyed by NAHB said they wanted to go into the construction trades when they start their career. Source: CNBC

Canny Ways to Use Reverse Mortgage Money

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More than 1 million senior homeowners have now taken out reverse mortgages. There’s a good chance you might, too, once you reach age 62. But the question of how to use the money from the loan is just as important as the question of whether or not to get the loan in the first place.Canny Ways to Use Reverse Mortgage Money

A laundry list of celebrity spokespeople have tried to explain how these “backwards” loans work. Here’s how the most recent one — gravelly voiced actor Tom Selleck — explains it in a commercial for a reverse lender: “A reverse mortgage loan is a simple idea really — you turn your home’s equity into cash and you pay it back when you leave the house.”

Reverse mortgages are making a comeback from their hottest years in 2007, ‘08 and ’09, when more than 100,000 loans were made every year. According to the National Reverse Mortgage Lenders Association (NRMLA), 45,000 of these home equity conversion mortgages have been recorded so far in fiscal 2017, most of them through the Federal Housing Administration.

That tips the total to over 1 million since the first ones were originated back in 1990. There’s a good bit of equity to tap, too: NRMLA puts total equity for homeowners 62 and older at $6.3 trillion as of the first quarter of this year.

How much can you get with this type of loan? It depends on a number of factors, but it could be as much as 50 percent of the built-up equity in your home.

What to do with the money? You could always take it to Vegas and bet it all on red. But there are a lot of better ways to use the proceeds. NRMLA recently devoted an issue of its magazine, Reverse Mortgage, to the topic. They advertised 25 ways to use your home equity, with a few extra ideas thrown in for good measure.

NRMLA members were asked by the magazine how their clients put their money to use. Many of the answers are pretty obvious: Pay down debt, replace a salary, pay off a first mortgage, send a grandchild to college. But others are pretty clever.

One of the biggest fears about reverses is that they are just another way for the bank to repossess your house. Or as Selleck puts it, “Like you, I thought that reverse mortgages had to have some kind of catch — just a way for banks to get your house. Right?”

They’re not, as the commercial assures. But in fact, foreclosures are possible with reverse mortgages if the owner-borrower doesn’t maintain the property or pay the taxes and insurance. So one use for the money is to create a set-aside fund to pay the taxes and insurance.

“One of the heaviest burdens for older homeowners is paying property taxes and insurance,” notes Jon Maiolatesi, a loan officer with 1st Financial Reverse Mortgages in Michigan. He describes an older couple living on Social Security: “The monthly budget was tight, but they made it work from month to month. However, twice a year when the property tax and insurance bills arrived, there was often not enough in the checking account to cover them.”

When the couple pursued a reverse mortgage, they found they could arrange for a Life Expectancy Set-Aside (LESA) to pay the taxes and insurance. Funding the LESA does reduce the balance of funds available to you immediately, but it also prevents foreclosure.

Here’s another smart idea: People who take out reverse mortgages generally want to stay in the house a long time, since they have to repay the loan once they move out (or once the home is no longer their principal residence). So why not use the proceeds to redesign your living space to make it responsive to your needs as you age?

Pete Mendenhall, a sales director at Liberty Home Equity Solutions in Coppell, Texas, tells of a widow whose home needed a lot of repairs, even before it could be retrofitted for things like grab-bars and wider doorways.

“Universal design updates allowed (the client) to live more comfortably, with increased wheelchair mobility, and to age in place with dignity. Universal design and other types of upgrades would also help with resale value when the time comes.”

Proceeds can also be used to build living space for an aging parent or a caretaker. You can even use the money to buy a new home.

Dennis Loxton, a sales manager with Liberty in Fort Wayne, Indiana, says one of his borrowers used her equity to do what’s called a “HECM for Purchase.” The borrower used a Home Equity Conversion Mortgage (HECM) on the new home to provide 50 percent of its purchase price. The balance was paid in cash from the proceeds of the sale of her existing house plus other assets, so there were “no monthly repayments thereafter,” said Loxton.

Source: Lou Sichelman, The Housing Scene

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Busy December on Tap

A View from the Beach

ECONOMIC COMMENTARY
November 28, 2017 –

 

As we approach December, we can see that we are in for a busy month with regard to the economy. With the recovery continuing from the Hurricanes, the Federal Reserve Board’s Open Market Committee will also be meeting with the consensus pointing to another increase in short-term interest rates. Outside of major shocks, the only factor which seems like it has the potential to change the Fed’s mind would be a very weak employment report. This report is due out in early December.

Meanwhile, all eyes will be on Congress as they continue to hash out details of the tax reform proposals. There is an overwhelming amount of media stories streaming from this effort and for good reason. This effort to enact such a radical change will have a profound affect upon businesses and consumers. No industry seems to be more in the cross-hairs than real estate — one of the last remaining tax havens.

Just to make things more interesting, the markets will be watching reports from on-line and bricks and mortar retailers. Traditionally, Black Friday kicks off the buying frenzy for the holiday season. Sales made during this season will tell us much about the state of the economy moving into 2018. From there we will see speculation about how many times the Fed intends to raise rates in the coming year. They keep using the word “gradual,” but that word is too nebulous and won’t keep market analysts from speculating.

WEEKLY INTEREST RATE OVERVIEW

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Happy Thanksgiving

A View from the Beach

ECONOMIC COMMENTARY
November 21, 2017 – 

 

Every year it seems like the months go by more quickly than before. Here we are wishing everyone a happy Thanksgiving already. Where did the summer go? Though the year passed quickly, there is plenty for us to give thanks for. This has been another year of economic growth and another year of positive stock growth. We have witnessed over eight years without a recession, and even though growth has not been robust, the total results of economic, stock price and house price growth has been impressive.

Speaking of which, many are starting to ask this question — how long can housing prices keep rising before they become unaffordable? One factor propping up house prices for the past eight years has been incredibly low interest rates. But these rates can’t last forever — or might they? Five years ago, the median home price in the U.S. was around $210,000. Now median prices are closer to $250,000. At what point does this increase affect housing demand?

Besides interest rates, affordability is influenced by increased growth in wages. If wages double, then everyone can afford more. Though wage growth is a positive factor for workers, a large increase in salaries would contribute to inflationary pressure and this would put upward pressure on interest rates. The last jobs report showed tame wage growth and therefore, until wage growth accelerates, the pressure for higher interest rates has not appeared. The best of all worlds would be a very gradual increase in home prices, wage growth and interest rates. That is a future we would be thankful for.

WEEKLY INTEREST RATE OVERVIEW

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Long Road to Travel

A View from the Beach

ECONOMIC COMMENTARY
November 14, 2017 – 

 

The tax reform proposal is now in print. For a year we have been hearing about the concept of tax reform. But now that there is ink on paper — Can we still use that expression today? — the stark reality has hit. When talking about changing the tax system, it is not a zero-sum game. There will be winners and losers in the end. And if you look at the reaction of industry groups such as the National Associations of Realtors® and Home Builders, as well as the Mortgage Bankers Association, they certainly feel that the initial proposals will make real estate less attractive.

Certainly, further limiting the mortgage interest and state/local tax deductions, as well as increasing the standard deduction, are proposals in the package which have these industry associations concerned. And as always, we are not here to predict the future with regard to what final impact these proposals would have upon homeownership in the United States. Our purpose today is to say that the process still has a long distance to travel still.  Adding the Senate alternatives to the mix is just one extra step.

Right now, these associations and thousands of additional lobbyists have descended upon Washington, and they will represent their special interests. The proposal is likely to undergo several reiterations before it is finished. The finished product may or may not resemble what is being proposed initially. And even after these changes are made, the final proposal may or may not pass. Thus, while we don’t like trying to predict the future, we are certain about one result — the lobbyists in Washington will be making a lot of money this holiday season.

WEEKLY INTEREST RATE OVERVIEW

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Nine Extraordinary Uses for Ordinary Household Items

In a recent issue of Real Simple Magazine, they published a list of ordinary items that you probably have in your home right now—and shared how they can serve double-duty. Here is a list of the items and alternative ways to use them.

Ice-cube tray – Organize desk supplies like paperclips and rubber bands. Use them to store buttons and beads. Use them as an organizer for jewelry.

Uncooked spaghetti – When you don’t have a match long enough to light a candle sitting in a deep candle holder, use a piece of uncooked spaghetti. They easily catch on fire and stay lit for a long time.

Colander – Keep flies away from food by inverting the colander over the plate during your outside cookout.

Baby oil – Easily remove latex paint from your skin by squirting baby oil on a cotton ball or rag and wipe away.

Dental floss – Use unwaxed, unflavored dental floss to easily cut a cheese cake or layer cake. You won’t have the crumbs and mess of using a knife.

Antacid tablets – Drop a tablet in a little water to remove stains from the bottom of vases. Just let sit for several minutes and wipe clean.

Cotton swabs – Touch up paint chips on walls, cabinets or furniture by using a cotton swab instead of breaking out the paint brush.

Pillow case – Make lettuce last longer by placing it in a pillow case. Then put the lettuce and pillow case in a plastic bag in the fridge. The cotton will absorb the moisture and it will last longer than in just plastic.

Laundry basket – Line a laundry basket with a trash bag and fill with ice if you need an extra cooler for your party.

So, how do you use some of your ordinary household items in a unique and different way?

Easy Ways to Keep Your Home “Ready to Show” when Listing Your Home for Sale.

So, you’ve listed your home for sale — or maybe you’re thinking about it.

I’m sure one of the questions that you may be asking yourself is…

“How do I keep my home clean and ready to show to buyers—while we are still living here?” 

Here are a couple of tips from the pros…

  • Ask all family members to participate.
  • Create a checklist of what needs to be put away in their rooms every morning.
  • Lightly clean your home every day.
    • Vacuum or sweep
    • Clear all counter tops in kitchen and bathrooms
    • Wash dishes daily
    • Empty trash cans
    • Put baking soda in your garbage disposal
    • Hide laundry in washing machine or dryer
  • Purchase boxes and store seasonal clothing to make the closets look roomier.
  • Purchase plastic bins and store additional stuff under the beds.
  • Lock away your personal and financial papers (or move them to another location).
  • Sweep outside patios and entryways.
  • Water plants/shrubs.
  • Cut the lawn more frequently.

When a potential buyer wants to view a home, they usually want to do so right away — and not 2 days from now!

Having it “show-ready and show-quickly,” with a list of things to do every day during the listing period, will help relieve the franticness of having to clean at the last minute.

What other things would you like to share about how to keep your home show-ready?