When it comes to new homes, bigger is again better. The median size of new homes built for sale peaked in 2007 at 2,295 square feet, then fell to 2,159 two years later, after the housing crisis hit. But the appetite for ever-larger homes has returned: In 2012, new homes reached a new peak of 2,384 square feet and, according to the National Association of Home Builders, some 41 percent of new homes had four or more bedrooms, up from 34 percent in 2009.
“The housing market is being driven by the move-up buyer, the luxury buyer,” said Brad Hunter, chief economist and director of consulting atMetrostudy. “And those who have strong incomes, secure jobs, their stock portfolio is doing well — they are able to buy whatever they want. And what they are buying is larger houses.”
Affluent buyers have been flocking to real estate, according to the Mortgage Bankers Association, with applications for home loans of $625,000 to $729,000 up 56.7 percent from August 2012 to August 2013. Mortgageapplications for more than $729,000 were up 41 percent.
For the full article, click here:
http://www.nytimes.com/2014/01/26/business/in-housing-big-is-back-not-counting-the-extras.html?_r=0
Monday, February 3, 2014
Wednesday, January 22, 2014
Restarting Mortgage Finance: Step 1 - by Ken Fears, Manager, Regional Economics and Housing Finance Policy
Restarting Mortgage Finance: Step 1
Recently the Consumer Financial Protection Bureau (CFPB) released a much anticipated rule that finally gets the ball rolling on reform of the mortgage finance industry. Investors fled the market following the housing bust, reducing the flow of financing to borrowers. Likewise, many homebuyers were sold mortgage products that were untenable, resulting in damaged credit and lost savings. Transparency, verification and documentation are keys to restoring confidence from investors and homebuyers. The majority of the market will benefit from the new QM rule, but a subset of the market will likely face higher prices or lose access to financing all together.
The Qualified Mortgage rule, or QM, lays out basic requirements for lender underwriting. In short, the originator of the loan must verify all sources of income and assets and verify that the borrower has the ability to repay the mortgage (ATR). A number of loan types are prohibited from receiving the QM statu,s including those with negative amortization (balloon payments), interest-only features, as well as those with durations greater than 30-years. Finally, there is a cap on fees that lenders can charge of 3% (with an exception for loans under $100,000) and the back-end debt to income ratio (DTI) must be less than or equal to 43%.
Mortgages that qualify as a QM will be further bisected by those that have a rate 1.5% above the prime borrowing rate and those that do not. Loans below the 1.5% will receive special legal status known as a safe harbor, where the borrower in default must first prove that their loan was not affordable when originated in order to sue the lender. If the loan is QM and above the 1.5% rate threshold, then there is a rebuttable presumption where the lender must prove that the borrower had the ability to repay. Under the rebuttable presumption, even if the lender can prove the loan met the ATR, the lender incurs legal costs making the case of $70,000 to $110,000 [1] according to some industry analysts, while others analysts argue that the incidence of claims would be extremely low [2]. However, if the lender cannot demonstrate that the borrower had the ability to repay, then the lender faces new enhanced legal fees. Furthermore, the borrower’s ability to fight the foreclosure applies for the life of the loan, which would extend foreclosure timelines, increasing costs to banks. Lending outside of either definition of a QM may be sparse as the lender would have to raise rates further to compensate for litigation risk since these would fall outside either definition of a QM loan; these higher rates might then reach HOEPA limits.
So, who will fall outside the QM?
- Jumbo loan users with DTIs greater than 43%, which is estimated to be roughly 0.5% to 1.0% [3]of the entire market.
- Mortgages where fees are greater than the 3% cap – this is difficult to quantify, but it could be a large portion of the market. Still, lenders can “pay for” some costs by including them in a higher rate, so long as it is under the 1.5% cap, thereby ameliorating the impact to the market.
- Borrowers who use interest-only or negative amortization loans. Some estimates have this portion of the market in the range of 15%. However, this type of financing is commonly used by wealthier individuals with large reserves who can shift to different financing options.
- Borrowers with interest rates 1.5% or more above the average prime borrowing rate are roughly 4.9% [4] of the purchase market and just 0.04% [5] of the jumbo segment. Some borrowers in the conforming space may be able to shift to FHA, which is seeking an exemption to this point, but more borrowers may be pushed into this space if banks finance origination costs to comply with the 3% cap.
- The subprime market will be more restricted. The FHA will likely be the only option for borrowers with a FICO less than 620 and DTI over 43% as the FHA recently rescinded the ability to process these loans through automated underwriting.
The Impact on Today’s Market
Lenders can use the automated underwriting models of the GSEs and FHA to vet mortgages that are not financed by the government since there is currently no automated underwriting for a QM loan. However, jumbo loans will have to be manually underwritten as there is no automated underwriting for jumbos. As a result, these may take more time or cost slightly more to compensate originators for the underwriting costs and risk of writing to the QM definition.
In time, though, the FHA, USDA, and VA will derive their own QM definitions and the GSEs could come out of conservatorship. When this happens, loans not meeting the new QM definitions established by the government agencies will need to meet the narrower QM definition. By that time, it is hoped that lenders will have more confidence in making non-QM loans. In the near term, this final rule should help to stimulate some bank and investor demand for non-government backed QM mortgages as it clarifies and boosts protections for lenders and who make loans and hold them in portfolio or shelve them for securitization.
An interesting outcome of the new QM rule is that it will raise the importance of the high-cost loan limits that delineate the maximum limits at which the GSEs and FHA can lend. In high cost areas like California, New York City or Washington, DC, many borrowers may not be able to use the government programs or their automated underwriting programs. As a result down payment may rise as buyers with DTIs greater than 43% seek to reduce mortgages below conforming limits in order to avoid the more strict 43% limit on QM loans in the jumbo space. First-time buyers in these areas may be the biggest casualty, as this group may not have the resources to increase down payment. As a result, the loan limits will play an increasingly important role as home prices rise over the next decade. Worse yet, if loan limits were to decline, a larger portion of the market would fall outside the QM.
In addition, for safety and expediency, lenders are likely to defer to the agency’s automated underwriting (AU) systems in the near term. This shift places more importance on how the AUs are defined by the agencies going forward.
After nearly two years of waiting, the final QM rule has been released. While some aspects of the rule will limit market activity, the long awaited clarity will likely help to stimulate demand. However, before investors come back in strength, the market will need additional clarity as to what mortgages will meet the qualified residential mortgage (QRM) rule, which dictates the type of mortgages that can be securitized and sold as MBS without risk retention, and how the Basel III rule will affect the treatment of loans and mortgage servicing rights on bank balance sheets. Still, the finish line is in sight for regulatory reform.
Monday, January 20, 2014
December Sales Statistics - Source: Realtors Association Maui
Residential sales held steady at 76 homes sold while Condominium sales increased to 116 units sold. Land sales came in at 22 lots sold.
The Residential home median price held steady at $512,500 while the Condo median price increased to $365,000. Land median price came in at$370,000.
Days on Market, Residential homes = 125, Condos = 109 DOM, Land = 108 DOM.
Year to Date:
Residential unit sales increased (980 homes sold / +42 units / +4% change YTD), average sold price =
$782,764 (+11%YTD), median price = $530,000 (+13%YTD) and total dollar volume sold = $767,108,838 (+16%YTD). Condo unit sales increased (1,334 units / +81 units / +6%YTD), average sold price = $571,380 (+22%YTD), median price = $374,500 (+5%YTD). Total Condo dollar volume sold = $762,220,783 (+30% YTD). Land lot sales increased (218 lots / +42 units / +24% YTD), average sold
price = $664,091 (+18%), median price = $399,500 (+14%), Total dollar volume = $144,771,747 (+46% YTD).
Total sales for immediate past 12 months: Residential = 980 (with 18.8% being REO or Short Sale), Condo = 1,334 (9.9% REO or SS), Land = 224 (9.4% REO or SS).
Current Absorption Rate base on this month’s Active/Pending-Continue to Show/Contingent
status inventory divided by December Sales is:
Residential = 8.7 months, Condo = 7.3 months, Land = 18 months of inventory.
Close of 2013 - Sales Unit numbers up, Inventory growing due to rising Prices ……
Year-to-Date prices are rising. Increased showings and sales, multiple offers on “well priced” listings,
hesitant buyers become onlookers…... Window of opportunity is quickly closing for first-time
homebuyers (see below). Well priced properties are attracting multiple offers making for a quick sale. Inventories in Residential and Condo classes are increasing somewhat as Sale Prices increase. REO (Foreclosures) and Short Sales are dwindling, with any “hidden inventory” (or overhang) backlog slowly trickling onto the market. Mortgage Interest Rates are inching up slightly which may help motivate would-be Buyers to go ahead and buy IF they can qualify.
Savvy Investors are buying with Cash. While general U.S. economic news looks cautiously hopeful, current
World and US events will have ripple effects on cost of living, consumer confidence, Financial and Real Estate Markets.
Rising Sales prices cause some “Owners” to become “Sellers,” putting their homes on the market.
FOR SELLERS: Sharpen your pencil, talk to your CPA and your Realtor® to explore the hidden benefits
or consequences. Make no assumptions that will sting later. To be successful, Sellers need to beat competing properties with better property condition, REALISTIC pricing, good marketing, and flexible, creative terms (Seller Second Loan, Agreement of Sale, Lease-with-option-to-buy, and Sale-with-lease-back to seller). Days on Market figures show that properties priced right will sell in a reasonable timeframe, often with multiple offers. “Priced Right” is still the determining factor. BEST Deals are selling, while significantly over-priced listings remain un-sold. Pro-Active Sellers are getting their properties appraised, inspected and surveyed in advance to encourage realistic offers from knowledgeable Buyers. This can prevent unanticipated escrow fallout or Buyers whittling your price down during the transaction when previously unknown facts come to light.
FOR BUYERS: Low interest rates prevail; however have started to nudge up. Buyers should get Pre-
Approved so they can shop in confidence (fewer last minute disappointments due to non-funding loans).
"Short-sales" and foreclosures are still in the marketplace, yet they can be less of a bargain than they seem, requiring more hurdles to leap and more time (often 4-6-12 months) to close, if at all.
Be prepared, but BE REALISTIC. Lenders are much more stringent on requirements now for loan approval,
compared to 2004-2008. First-Time Home Buyers – Many programs are available….. Attend a First-Time Home Buyers workshop, get familiar with the process, get qualified/approved, do your homework to get your own home. Many current owners never thought they would be able to own until they attended a workshop, discovered they could own a home, and are glad they did.
The low point in the market has passed, so check it out carefully NOW, don’t delay. The opportunity is
fading quickly.
Wednesday, January 15, 2014
Friday, January 10, 2014
7 Really, Really Good Reasons To Move To Hawaii
1. First off, this is considered a "chilly" winter day in Hawaii:
Not convinced? We thought it might take a bit more than that. We can hear your protestations now, and we have a response to each and every one of them.
2. "It's so far from my family and friends," you say.
Trust us; when you live in Hawaii, your friends and family come to you.
3. "'Polar vortex' aside, I think I might actually miss wintertime."
You're in luck. Just when you start to miss wintertime, the rest of America is in desperate need of sunshine. Put your home or apartment on VRBO during Hawaii's peak travel season (December-March) and your Colorado ski vacation will basically pay for itself, plus some extra pocket cash.
4. "I hear it's expensive in Hawaii."
It is. The cost of living in Hawaii is on par with New York City or San Francisco. But Hawaii has one, major advantage over those cities: life is lived more simply here. Your house doesn't need to be your everything because your life is lived outdoors; your car doesn't need to be a second home because you never drive for very long (they're islands, after all); you'll never need another pair of expensive shoes since slippers (aka, flip-flops) are acceptable everywhere; and all of your entertainment is practically free (hikes, snorkeling, camping, surfing, etc).
5. "I would never be able to find a job there."
Tourism is the biggest industry in the state, but it's definitely not the only gig in town. Hawaii's unique environment and location make it an epicenter for scientific and marine research, environmental technologyand sustainable living entrepreneurship, and government and security affairs. The state is bursting with interesting opportunities. After all, how else could people afford to live here?
6. "What about 'island fever'?"
It's real, and it probably will happen to you, just as it does on the island of Manhattan or whatever bubble you currently find yourself in. Thankfully, there are other islands within Hawaii (six major, inhabited ones), each with its own personality and unique set of activities. Getting friends together for a weekend inter-island trip is easy, cheap, and solves intermittent bouts of island fever. Longer trips to aforementioned winter wonderlands as well as Asia/Australia (you're halfway there already!) cure the more serious fevers.
PS - The Big Island alone has black sand beaches, an active volcano, and even snow!
7. "I'm not relaxed enough to live in Hawaii."
All we can say to this is don't knock it until you try it. People in Hawaiilive life to its fullest, taking advantage of the outdoors and challenging themselves to try new things. This active lifestyle is one of the main reasons it's the least stressed and most happy state in the country.
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