Housing Affordability Reaches Records
May 15, 2012 By Leave a Comment
Housing affordability conditions for all buyers reached a milestone in the first quarter, according to the National Association of REALTORS®.
NAR’s composite quarterly Housing Affordability Index rose to a record high of 205.9 in first quarter, based on the relationship between median home price, median family income and average mortgage interest rate. The higher the index, the greater the household purchasing power. This is the first time the quarterly index broke the 200 mark; recordkeeping began in 1970.
NAR President Moe Veissi said market conditions are optimal for home buyers. “For those with good credit, we’ve never seen better housing affordability conditions or market opportunities than we see at present,” he said. “Although home prices are stabilizing and sales are rising, some buyers still have to jump through a lot of hoops to convince a lender that they are creditworthy, even for a mortgage that would be well within their means. This is especially true for self-employed buyers.”
Veissi noted home sales would be much higher if lending standards would return to normal.
The index shows the median-income family, earning just under $61,000, could afford a home costing $325,500 in the first quarter, which is more than double the national median existing single-family home price of $158,100. The median monthly mortgage principal and interest payment for a median-priced home would take only 13.5 percent of gross income.
A companion index measuring the ability of first-time buyers to purchase a home also set a record, with the first-time buyer index reaching 135.8 in the first quarter.
Assumptions for the first-time buyer index include a lower income, at 65 percent of median family income, a starter home costing 85 percent of the median price, and a down payment of 10 percent. This index means the typical entry-level buyer could afford a home costing $182,500, which is well above the overall median price.
“It’s never been easy to buy a first home because of the cash required for downpayment and closing costs, but conditions for first-time buyers who are able to get a mortgage have never been better,” Veissi explained.
Most first-time buyers choose a loan with a lower down payment, often an FHA-insured loan with 3.5 percent down, and some use the VA program with no down payment.
Both home prices and mortgage interest rates are expected to edge up modestly as the year progresses, but housing affordability will remain very favorable with the median-income household well positioned to afford a median-priced home. For all of 2012 the index is projected to set an annual record, averaging 191 for the year.
Source: NAR
More Renters Are Finding It’s Cheaper to Buy
May 14, 2012 By Leave a Comment
With rising rents, more renters are being swayed into home ownership, even in pricey housing markets like New York.
For example, one New York renter said he started looking into owning a home when his landlord tried to increase his rent by 13 percent when his lease was up for renewal. He found that he could buy a home and get the same amount of space for cheaper than continuing to rent, plus he’d be building equity.
Other renters are starting to see that buying may be a better option for them, too.
Rents are increasing at about the same pace that home values are dropping, says Stan Humphries, Zillow’s chief economist, who says, according to their surveys, home prices have dropped 3.1 percent year-over-year whereas rents have increased 2.5 percent.
"Herein lie the seeds to eventually more interest in buying on the part of consumers, which will help put a floor under home prices," Humphries told Investors Business Daily. Recent housing surveys, including Zillow’s, are showing home prices are starting to rise in recent months.
Affordability in housing has been at record highs from the combination of falling home values and record-low mortgages. Humphries says that housing prices have rolled back to 2003 levels.
"That increased affordability in the face of rising rental prices will begin to get buyers off the fence this year,” Humphries says. "What’s been keeping buyers on the fence is a crisis of confidence. People who don’t have a job, or who are worried about losing their job, don’t buy homes. They also don’t want to buy an asset they think is rapidly depreciating.”
National Association of REALTORS®’ Chief Economist Lawrence Yun says the tighter restrictions from lenders are also preventing many potential buyers from securing financing in order to buy. But for those who are able to qualify, Yun says “it’s better to get in now” than wait.
Source: “Rising Rents Prompt Buys, May Help Housing Recover,” Investors Business Daily (May 10, 2012)
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3.8% Tax Starting in 2013: What Does It Mean?
May 9, 2012 By Leave a Comment
The health care legislation enacted in 2013 included a new tax that was designed to affect upper income taxpayers. Understand this tax will not be imposed exclusively on real estate transactions. The tax is NOT a transfer tax on real estate sales and similar transactions.
Rather, when the legislation becomes effective it may entail a 3.8% tax on some (but not all) income from interest, dividends, rents (less expenses) and capital gains (less capital losses). These items are all included in an individual’s adjusted gross income (AGI). The tax will fall only on individuals with an AGI above $200,000 and couples filing a joint return with more than $250,000 AGI
The new tax does NOT eliminate the benefits of the $250,000/$500,000 exclusion on the sale of a principal residence. Thus, ONLY that portion of a gain above those thresholds is included in AGI and could be subject to the tax.
Tax payers should familiarize themselves with the tax. The amount of tax will vary from individual to individual because the elements that comprise AGI differ from taxpayer to taxpayer. Contact me today for a referral to a licensed tax professional.
Home Prices to Rise 4% Per Year?
May 9, 2012 By Leave a Comment
Have home prices finally hit bottom? Many analysts think so. According to the latest forecast by Fiserv, the market watcher sees a big boost to home prices on the horizon, projecting that home prices will rise nearly 4 percent per year for the next five years.
The real estate markets expected to see the biggest increases in home prices will likely be those hardest hit the last few years by foreclosures, such as in Phoenix and Las Vegas, and areas where prices have fallen the most, according to Fiserv’s forecast.
Housings rising affordability mixed with falling inventories of for-sale homes are the main factors driving the expected price increases, according to Fiserv.
Initially, investors are expected to help drive most of this price increase, and then followed by first-time and trade-up buyers as they re-emerge in bigger numbers to the market.
If this prediction is correct. A home on the Eastside (Bellevue, Redmond, Kirkland et al) would go from $512,000.00 to $532,480.00, then to $553,779.00 by the year 2014. Not inconsequential numbers to be sure.
Source: “U.S. Home Prices Could Rise 4% a Year, Forecast Says,” USA Today (May 8. 2012)
A Home Buying Gets Another Boost in Affordability
May 4, 2012 By Leave a Comment
For home buyers or refinancers, borrowing costs for home ownership just got a little cheaper as mortgage rates took another dip to new all-time record lows this week, Freddie Mac reports in its weekly mortgage market survey.
"Signs of slowing economic growth and inflation remaining subdued allowed yields on Treasury bonds to ease somewhat and brought most mortgage rates to new all-time record lows this week,” says Frank Nothaft, Freddie Mac’s chief economist.
Here’s a closer look at average rates for the week ending May 3:
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30-year fixed-rate mortgages: averaged 3.84 percent, with an average 0.8 point, reaching a new historical low. The previous record for 30-year rates was 3.87 percent, which was set on Feb. 9 of this year. A year ago at this time, rates averaged 4.71 percent.
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15-year fixed-rate mortgages: averaged 3.07 percent, with an average 0.7 point, another historical low. The previous record for 15-year rates was 3.11 percent set on April 12 this year. A year ago at this time, 15-year rates had averaged 3.89 percent.
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5-year adjustable-rate mortgages: averaged 2.85 percent, with an average 0.7 point, holding the same as last week. Last year at this time, 5-year ARMs averaged 3.47 percent.
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1-year ARMs: averaged 2.70 percent this week, with an average 0.6 point, also registering at a new all-time low. Last year at this time, 1-year ARMs averaged 3.14 percent.
Source: Freddie Mac
Another Housing Bear Turns Bull
May 2, 2012 By Leave a Comment
Every day there seems to be more positive news about the real estate recovery. We attempt to give you two things in this blog:
- The actual data that indicates where the housing market is headed
- Quotes from analysts who have scrutinized this data
Today, we want to give you a quote by Ivy Zelman which appeared last week in a Wall Street Journal article Stunned Home Buyers Find the Bidding Wars Are Back.
“We very much believe we’ve hit bottom.”
Why is the quote from Zelman important? She is an industry expert consistently recognized by Institutional Investor, Greenwich Associates, StarMine and The Wall Street Journal as an industry-leading analyst. She has been nicknamed ‘Poison Ivy’ for her harsh positions on housing over the last several years. Now, Zelman is calling a bottom and projecting prices to moderately increase in the next twelve months.
Again, another expert on housing is calling a bottom; another bear turns bull.
by THE KCM CREW
Renters Qualified to Purchase a Home: 2011 vs. 2005
May 1, 2012 By Leave a Comment
Did you know that nearly 10 million more renter households had the income to qualify to buy a home in 2011 versus 2005?
Many factors have increased the number of renter households qualified to purchase a home in 2011 versus 2000 and 2005: 1) incomes have increased, 2) population has grown, 3) mortgage rates are lower, and 4) prices have fallen since 2005.
The tables below show the data underlying the change in required income. Because of lower home prices and mortgage rates, qualifying income required to purchase a median priced home has fallen from $56,600 in 2005 and $40,300 in 2000 to $33,100 in 2011.
Finally, based on all of these factors, we see that while 33 percent of renters qualified to buy the median priced home in 2000 and 24 percent of renters qualified to buy the median priced home in 2005, 47 percent of renters would qualify in 2011[1]. Translating these numbers into households, 7.7 million renters qualified to purchase the median priced home in 2005 while in 2010, 15 million renter households qualify.
These calculations assume that potential buyers meet credit qualifications and have sufficient cash on hand to close a transaction. Lending standards, credit quality, and access to funds will affect the number of households who will be able to buy a home.
[1] This calculation assumes that income distribution in 2011 is the same as it was in 2010.
Further Proof the Real Estate Market Is Coming Back
April 30, 2012 By Leave a Comment
Last week, the National Association of Realtors (NAR) released their Pending Sales Report which showed that contracted sales were 12.8% higher than the same month last year and higher than any time since sales were impacted by the Homebuyers’ Credit back in April of 2010. The index stood at 101.4 which represents a level that is “historically healthy” (see methodology below).
Here is a graph showing pending sales over the last twelve months:
METHODOLOGY (as per NAR)
The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.
An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales; it coincides with a level that is historically healthy.
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