Congress Restores FHA Loan Limits

Real-Estate-PuzzleThe U.S. House and Senate yesterday restored FHA loan limits to the level they were at before they were allowed to expire at the end of September. As a result, the limits will rise to 125 percent of the area median home price from 115 percent, up to a  maximum $729,750 from $625,500. NAR estimates that several hundred counties where FHA loan limits fell at the end of September will now rise back up to the previous level.

“The reinstated loan limits will help provide much needed liquidity and stability to communities nationwide as tight credit restrictions continue to prevent some qualified buyers from becoming home owners and the housing market recovery remains fragile,” said NAR President Moe Veissi in a statement released last night.

President Obama is expected to sign the legislation shortly. The restored loan limits are in a broad-based bill that includes funding for a wide variety of federal operations and programs.

The maximum conforming loan limits for secondary mortgage market companies Fannie Mae and Freddie Mac also expired at the end of September, but lawmakers did not include a restoration of those limits in the bill. As a result, conforming loan limits will remain at 115 percent of the area median home price, up to $625,500.

Once President Obama signs the bill, the limits will go into effect.  FHA will release a mortgagee letter to its approved lenders thereafter, containing a list that’s been updated to reflect the new limits. NAR analysts say it will take the agency a short period to update its database and release the mortgagee letter, maybe a couple of weeks.

The funding bill also extends the National Flood Insurance Program (NFIP) until Dec. 16 to allow lawmakers time to consider long-term authorization of that program, which is an NAR priority.

Goldman Reveals What You're Getting For Christmas

hockey-santa___Despite bleak consumer confidence, 51% of consumers expect to spend the same amount on gifts this holiday season compared to last year.  11% expect to spend more.  This is according to 1000 consumers polled by Goldman Sachs.

63% of respondents plan on giving gift cards, while 56% plan on giving clothing. Gift cards and jewelry are expected to gain significant "gift wallet share", which is the percentage of total gift spending.

The "gift wallet share" for consumer electronics is up only 30 bp this year. Meanwhile, after declining 60 bp last year, the share of clothing is up 20 bp this year.

Based on the survey results, Goldman analysts Michelle Tan, Matthew J. Fassler, Adrianne Shapira and Michael Kelter believe that the TJX Companies, which include retail chains like T.J. Maxx and Marshalls, and American Eagle Outfitters are poised to do well in the holidays.  Goldman has buy ratings on both stocks.

TJX Companies is expected to benefit from shoppers looking for a bargain and the slight recovery in clothing gift share. Meanwhile, American Eagle is expected to be a key destination for consumers who intend on focusing less on themselves and more on gifts for the family.

Now here’s a chart from the Goldman report that shows this Holiday’s "gift wallet share":

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Proof That Fannie And Freddie Didn't Cause The Housing Bubble

The role of government agencies in causing the housing bubble continues to be debated endlessly.

As such, it’s always a good idea to have this chart — posted today by Hale Stewart — of various housing bubbles around the world.

If you really think it was all Fannie and Freddie’s fault, then you have to explain why the U.S. just happened to have the same (roughly) arc of a housing boom as basically every other industrialized country all around the world at the same time.

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Your thoughts?

Visualizing A Trillion Dollars

How Much Has the Recession Impacted Credit Scores?

What you’re looking at is a visualization of the changes in FICO scores for the 200 million U.S. consumers with FICO scores over 3 unique periods of time: 2008 to 2009, 2009 to 2010 and 2010 to 2011. The following are some things to consider as you’re reviewing these figures:

2008-2009 Timeframe:

48.1 million consumers saw their FICO scores drop at least 21 points, representing over 24% of the “scoreable” U.S. population. Scores dropping this much is likely because of negative information appearing on a credit report or the consumer taking on new credit card debt (or a combination of both).During the same time period 45.3 million consumers saw their FICO scores increase by at least 21 points.The increase in scores can be attributed to a reduction in credit card debt and negative information aging off of credit reports. 64 million consumers saw their FICO scores remain in a 20 point window, drifting plus or minus 10 points.This is healthy score movement and is a result of consistent credit management practices.

2009-2010 Timeframe:

The damage to consumer’s FICO scores isn’t as dramatic during this time period (vs.2008-2009), as 40.1 million consumers experience a FICO score drop of at least 21 points. 49.8 million have improved their scores by at least 21 points, which indicates more consumers were paying down credit card balances and avoiding negative credit information. 68.8 million see their scores remain within a 20 point window.

2010-2011 Timeframe:

The damage to consumer’s FICO scores continues to soften from the previous timeframe, with 38.4 million seeing their FICO scores drop by at least 21 points.Interestingly, all three timeframes saw score improvements outpace score decreases, suggesting that more consumers were able to defend their scores from the financial crisis than might be expected.The significant score decreases (those of 51 points or more) are likely caused by a variety of factors including the increase in negative mortgage related credit reporting (foreclosures, settlements, forfeitures of deed, and loan modifications) and the persistence of unemployment and underemployment, which likely resulted in fewer people being able to make payments on their liabilities including student loans, adjusting mortgages, and increasingly higher credit card payments. Further, the filling of income gaps with credit cards likely played a significant role in all score decrease scenarios.

Five Great Things about Homeownership

home ownershipIf you’ve been on the fence about homeownership, now may be the time to take the step. Don’t let the negative press deter you from one of life’s greatest joys.

Let’s take a look at five short and sweet reasons that homeownership could be a good fit for you and your family.

1. Equity. When you pay rent, you never see that money again. It is lining the landlord’s pocket. Yes, buying a home may come with some hefty initial costs (downpayment, closing costs, inspections), but you will make that money back over time in equity built in the home. Historically, homes appreciate by about 4 to 6 percent a year. Some areas are still experiencing normal appreciation rates. For the areas that have seen harder times since the recession, experts feel that the housing market will recover. Homeownership is about building long-term wealth. A home bought for $10,000 in 1960 is most likely worth 10 times that in today’s market.

2. Relationships: Renters tend to see their neighbors come and go. Some people sign one year leases, while others are in the community for much shorter terms. Apartment complexes also tend to have less common shared space for people to meet, greet, and socialize. Homeowners, however, have yards, walking trails, or community pools and clubhouses where they can get to know each other. Neighbors stay put much longer (at least three to five years if they hope to recoup their closing costs). This means more time to develop relationships. Research has shown that people with healthy relationships have more happiness and less stress.

3. Predictability: Well, as long as you have a fixed-rate term on your mortgage it’s predictable. Most people buying homes today know that a fixed-rate is the way to go. This means your payment amount is fixed for the life of the term. If your mortgage payment is $500 today, then it will still be $500 a month in 10 years. This allows for people to budget and make solid financial plans. The sub-prime crisis meant some homeowners with adjustable rate mortgages saw their monthly payments rise and then rise some more. Homeownership, though, generally comes with a predictable table of expenditures. Even the big purchases are predictable. You know most roofs last just 15 years (or so). You know that each year you’ll need to pay for the gutters to be cleaned, and so on.

4. Ownership: Okay, this is a given. Homeownership means you "own" your home. That comes with some incredible perks, though! You can renovate, update, paint, and decorate to your heart’s desire. You can plant trees, install a pool, expand the patio, or do holiday decorating that would rival the Kranks. The bottom line is this is your home and you can personalize it to your taste. Most renters are stuck with the same beige walls and beige carpet that has been standard apartment decor for 20 years. Now is your chance to let your home speak!

5. Great Deals: It’s a great time to buy. Interest rates are at historic lows. We’re talking 4.0 percent instead of 6.0 or higher. This means big savings for today’s buyers. Home prices have also taken a dip since the recession, which means homes are more affordable than ever. If you have steady income and cash for a downpayment, then let’s talk about what homes in your area could be a fit for you.

Homeownership can be a real joy. Let me know how I can help: 206-713-3244 or email me.

20% Downpayments Don’t Always Make Cents

down_paymentDespite the “doom and gloom” in today’s headlines, in the current economic climate, homeownership is more affordable than ever, thanks to low interest rates and lower home values. For those buyers who manage to have a 20% (or more) downpayment, they believe this will get them the lowest monthly mortgage payment. However, simply because buyers can afford to put down this amount does not necessarily mean they should.

Those buyers who have saved enough to put 20%—or more—down on the purchase of a home may want to consider another approach—preserving some of their cash for savings, investing or other purposes. It may sound counterintuitive, but with today’s interest rates and the competitive pricing of private mortgage insurance (MI), borrowers can retain some of their money by putting less money down on a home—say only 10%—and still get a low monthly payment.

Real estate professionals have a responsibility to all home buyers to help them evaluate their purchasing power based on existing assets as well as future need. The right counsel can help home buyers leverage their current assets while keeping sufficient reserve for any immediate or future financial needs, not to mention all the trips to the local big box hardware store that seem to come standard for any new homeowner.

As a real estate professional, I guide my home buyers throughout the transaction process. At the very beginning, it is imperative to look at the borrower’s overall financial picture—taking into consideration current cash flow, debt and all future financial obligations.

leveraging-SmallIt is important to think beyond just interest rates and downpayment, as these are not the only keys to securing the lowest possible mortgage payment. By having a general understanding of the current financing options, you can better understand what a buyer can responsibly afford, which, in some instances may be more than they think.

While I am not a financial advisor, by asking these types of questions, I help make sure my buyers better frame conversations with their loan officer.

While in the past the adage was, “The more you borrow, the more you leverage,” in today’s financial times, the scenario is much different. Today, borrowers can leverage private MI to put as little as 5% down on a home and still have a competitive payment. And for those potential buyers who have stayed out of the market over worries of declining property values, they can still purchase a home without funneling all of their available cash into the downpayment. By utilizing this strategy, home buyers are able to leverage their current assets, while still keeping sufficient cash reserve.

So, while putting 20% down on a home doesn’t always make sense (or dollars), buying at a time of high affordability does. And by understanding the current financing options available to buyers, and helping them discuss what those options mean for their downpayment needs or monthly payments,I help point them in the right direction with their loan officer, overcome their investment fears and make the sale, all while helping them achieve their goals.

I’m here to help – 206-713-3244 or email me.

How Appraisals Are Derailing Home Sales

New requirements are resulting in more cancelled or delayed contracts.

appraisal2When the appraiser’s number is different than the selling price the buyer and seller had agreed to, and  unless the buyer agreed to put up more money, or the seller to lower the price, the deal is dead.

In the past, appraisals rarely disrupted a home sale. But new requirements and a difficult housing market are doing just that. Year-to-date through September, one third of realtors have said appraisals resulted in buyers and sellers delaying or canceling contracts or renegotiating to a lower sales price, according to the National Association of Realtors. That’s up from 29% in all of 2010 and up from less than 10% prior to 2009.

Indeed, lenders say they’re requiring more thorough home appraisals. Appraisers determine the value of a home largely by reviewing the prices at which similar homes nearby sold for in recent months. During the housing boom, appraisers could cite as few as three recently sold homes; today, lenders are often requiring two to three times that, says David Stevens, president and CEO of the Mortgage Bankers Association. To meet that quota, appraisers say they sometimes have to use homes that aren’t similar and may be foreclosures or short sales, though they are taking into account what this property would have sold for if it wasn’t a distressed sale, says a spokesman for the Appraisal Institute, an association of real estate appraisers. "Appraisers have become much more cautious," says Jack McCabe, an independent housing analyst in Deerfield Beach, Fla.

To be sure, a more thorough appraisal process does have its benefits. It lets a buyer know whether they’re offering too much to buy a particular home. "For buyers, the appraisal is a check and balance — it’s there to ensure the buyer isn’t overpaying and the lender isn’t over-lending," says McCabe.

It may also make houses cheaper for buyers — though not without more hassle. If the appraisal value comes in below the agreed buying price, the lender will typically offer a smaller mortgage. For example, on the house that Rogers sold, the buyer would have gotten a mortgage for $358,400, or 80% of $448,000. But when the appraisal value came in at $430,000, the lender adjusted the mortgage amount to 80% of the appraisal figure, or $344,000. The contract the buyer and the seller had signed, however, stated the higher buying price of $448,000, and the buyer (and potentially the seller) had the option to decide if they wanted to make up the $18,000 difference.

Typical solutions include having the buyer paying that difference out of pocket or the seller lowering his price — or both. And sellers often do lower their prices: For example, during the three months ending September, 13% of realtors reported contracts were renegotiated to a lower sales price, compared to 10% who said contracts were canceled and the 8% who said contracts were delayed, according to the NAR.

How sellers can prepare:

Before putting their home on the market, sellers should research what similar homes near them are selling for by looking at online listings, visiting open houses and speaking with realtors, says Rogers. "It’s always good to get more than one opinion," he says. They can also ask for their own home appraisal, which could give them a sense of how close (or far off) the figures are. The cost of an appraisal varies but typically ranges from $250 to $600.

How buyers can protect themselves:

When buyers make an offer, they should include statements in the contract guaranteeing they’ll receive their initial down payment (typically 3% to 5% of the agreed buying price of the home) back if full mortgage financing doesn’t come through for the agreed price or the appraisal value is below the offer that’s in the contract, says McCabe. Separately, the buyer (who’s required to pay for the home appraisal) should ask for the appraisal report and look at what properties the appraiser used as comparisons, says Rogers. It should, he says, include homes that are in the same neighborhood and the same style. In other words, a colonial home shouldn’t be compared to a ranch.

What to do if appraisal value comes in below the purchase price:

In this situation, experts say buyers have several options. If they’re no longer interested in the home, they can walk away. (However, without a contingency clause — see previous section — they risk losing their initial down payment.) But if they still intend to buy the house and they can prove the report excluded similar, nearby properties or had some other issue, they can appeal or ask their lender for a second appraisal.

If those strategies don’t work, the buyer and the seller can consider working out an agreement on their own. Lastly, to report a problem with an appraiser, consumers can contact their state’s appraisal board.

Have you experienced a low appraisal? How did you address that? Let me know how I can help – 206-713-3244 or email me.

Economy Alters How Americans Are Moving

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The continuing economic downturn has drastically altered the internal migration habits of Americans, turning the flood of migrants into the Sun Belt and out of states like New York, Massachusetts and California into a relative trickle, an analysis of recent federal data confirms.

Essentially, millions of Americans have become frozen in place, researchers say, unable to sell their homes and unsure they would find jobs elsewhere anyway.

An analysis of new data from the Census Bureau and the Internal Revenue Service by the Carsey Institute at the University of New Hampshire confirms earlier census assessments of a migration slowdown, but also offers a deeper, state-by-state look at the impact of this shift, which upends, however temporarily, a migration over decades from the snowy North to the sunny South.

The institute’s study compared three years’ worth of data from the Census Bureau’s American Community Survey, which was released early Thursday and covered 2008-10, with the data from 2005-7. Since the survey’s findings are released in three-year increments, this was the first time that researchers had a set of data that included only years since the financial collapse began, allowing them to make a direct comparison to a similar period before the collapse.

Using this and other data from the I.R.S. that many researchers consider even more comprehensive, they found that migration into formerly booming states like Arizona, Florida and Nevada began to slow as soon as the recession hit and continued to shrink even into 2010, when many demographers expected it to level off. At the same time, Massachusetts, New York and California, which had been hemorrhaging people for years, and continued to do so in the three years before the financial collapse, suddenly saw the domestic migration loss shrink by as much as 90 percent.

Mobility always tends to slow in times of economic hardship, and there has been a gradual decline in American mobility for decades. But census numbers released earlier this year showed that domestic migration in 2010 had plummeted substantially since the recession began and reached the lowest level since the government began tracking it in the 1940s.

“When times get really hard it gets really hard for people to up and move,” said Kenneth M. Johnson, the senior demographer at the Carsey Institute, who conducted the analysis. “People who might have left New York for North Carolina are staying put. But that is a very recent change, so that places that had been growing rapidly suddenly aren’t, and the outflow has really slowed down.”

Mr. Johnson said that the same phenomenon could be seen within states, as the growth began to slow in once rapidly growing suburbs, and shrinking cities like Los Angeles and Chicago began to stabilize.

In the last three years, Florida saw its first net migration loss since the 1940s, according to the analysis. According to I.R.S. data, the state had a net migration gain of 209,000 in 2005 but a loss of 30,000 in 2009.

Nevada’s strong migration gains flipped to a net loss of 4,000. Arizona scraped by, ending the decade with a 5,000 net gain, down from 90,000 five years earlier. Maricopa County in Arizona, home to Phoenix, and Clark County in Nevada, home to Las Vegas, two areas that had exploded with growth at the start of the decade, began to see more people move out than move in.

On the other hand, New York had a net loss of 71,000 migrants in 2009, substantially fewer than the 170,000 migrants it lost in 2005. California saw its loss of migrants shrink to 71,000 in 2009, down from 201,000 in 2005.

The I.R.S. data covered the period through the 2009 tax year, but offered a detailed picture of the country in April 2010, when many returns were filed.

The internal migration data does not include those who came to states from other countries or the natural increase of the population through births. Those changes are major drivers for overall population growth and continued to make the Sun Belt and Western states the biggest population gainers of the decade. And young people, who have long been the most reliable group of new migrants to cities, also appear to be less willing to move to the cities in the Sun Belt.

In an analysis of the American Community Survey data made public on Thursday, William Frey, a senior demographer at the Brookings Institution, found that large metropolitan areas with once-flourishing economies, like Atlanta, Phoenix and Riverside, Calif., are no longer magnets for Americans ages 25 to 34.

“These places that were getting real new interest amid the bubble are not seeing that anymore, and in a way it is making people give another place a second look,” Mr. Frey said. “The dynamics of high housing costs on the coasts and relatively affordable inland is starting to change so, in effect, that shuts off the merry-go-round.”

“If nobody can buy or sell their homes, there’s going to be a stagnancy,” he added.

Atlanta, which ranked third as a destination for young people in that age group from 2005 through 2007, sank to No. 23 in the period from 2008 through 2010, according to Mr. Frey’s analysis. Phoenix dropped to No. 17 from second place, and Las Vegas plummeted to No. 35 from 10th place.

The winners were cities like Washington, which skyrocketed to sixth from 44th, Denver, which jumped to first from 12th, and Boston, which is now No. 26, up from No. 45.

Mr. Frey said that, in many ways, young people were staying in the more established cities with a kind of wait-and-see approach to the economy. He said he expected the relocation rates to pick up as soon as there were new housing and job opportunities for young adults.

“They are trying to bide their time in a hip place they know,” he said. “But there is going to be a pent-up demand for migration, because right now people are just putting their lives on hold.”

Jennifer Medina reported from Los Angeles, and Sabrina Tavernise from Washington.