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7.3 Million Boomerang Buyers Poised to Recover Homeownership in Next Eight Years

In 2015, the first wave of 7.3 million homeowners who lost their home to foreclosure or short sale during the foreclosure crisis will pass the seven-year window they conservatively need to repair their credit and qualify to buy a home. More waves of these potential boomerang buyers will be moving past that seven-year window over the next eight years corresponding to the eight years of above historically normal foreclosure activity from 2007 to 2014, according to an analysis by RealtyTrac.

While millennials have gotten a lot of attention lately as the generation whose below-normal homeownership rates are changing the landscape of the U.S. real estate market, the boomerang buyers — who are primarily Generation Xers or Baby Boomers — represent a massive wave of potential pent-up demand that could shape the housing market in the short term even more dramatically.

U.S. Census data shows homeownership rates for those ages 35 to 44 — roughly Generation X — were 11 percent below historical averages in the third quarter of 2014, while home ownership rates for the below age 35 cohort — roughly the Millennial generation — were 10 percent below historical averages.

RealtyTrac analyzed foreclosure, affordability, and demographic data to provide predictions of when and where these boomerang buyers are most likely to materialize. Nearly 7.3 million potential boomerang buyers nationwide will be in a position to buy again from a credit repair perspective over the next eight years.
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Housing Recovery Expected to Press On Despite Recent Volatility in Consumer Attitudes

Americans’ outlook on housing and the economy has fluctuated somewhat during the past few months, but the trend for most indicators remains positive overall, according to Fannie Mae’s February 2014 National Housing Survey results.

Highlights from the survey include:

  • The average 12-month home price change expectation increased from last month, to 3.2 percent.
  • The share of people who say home prices will go up in the next 12 months increased 7 percentage points to 50 percent, while the share who say home prices will stay the same decreased by seven percentage points to 38 percent.
  • The share of respondents who say mortgage rates will go up in the next 12 months increased 1 percentage point, to 56 percent.
  • Those who say it is a good time to buy a house increased from last month, up 3 percentage points to 68 percent.
  • The average 12-month rental price change expectation increased from last month to 4.3 percent.
  • Fifty-one percent of those surveyed said home rental prices will go up in the next 12 months, an increase of 3 percentage points from last month.
  • Forty-five percent of respondents thought it would be easy for them to get a home mortgage today, a 7 percentage point decrease from last month.
  •  The share who say they would buy if they were going to move fell 4 percentage points to 66 percent, and those who say they would rent increased to 30 percent.

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Sellers Losing Their Grip on Housing Market

A survey by Redfin found that 72 percent of its agents described current market conditions as “a good time to sell,” down from 86 percent from the second quarter. Meanwhile, 55 percent said it is “a good time to buy,” up from 46 percent in the first quarter.

The survey also revealed that limited inventory (87 percent) and bidding wars (79 percent) remain the biggest challenges for buyers. The agents also reported that sellers also are facing challenges, with 62 percent reporting that sellers have unrealistic expectations about the value of their homes and 30 percent saying that sellers are having difficulties getting their home to appraise for the contract purchase amount.

Nearly 70 percent of the agents surveyed believe home prices will rise in the coming months, versus 97 percent in the first quarter. Only five percent expect home prices to “rise a lot,” down from 44 percent in the first quarter.

More than half believe the market has become less competitive over the last three months, and only 22 percent believe it has become more competitive.
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Why you missed the boat on record-low mortgage rates

Source: CNNMoney/AOL Real EstateBorrowers who didn’t take advantage of the historically low interest rates likely have missed the opportunity to purchase or refinance using an ultra-low mortgage rate. In the past month, rates have been on the rise and are expected to continue to climb. Fannie Mae’s chief economist doesn’t believe mortgage rates will ever be that low again.

Making sense of the story

  • According to the economist, the Fed is going to stop bolstering the housing market, which has kept rates at rock-bottom levels by buying up to $85 billion a month of Treasury bonds and mortgage-backed securities. That has enabled lenders to sell mortgage loans at low interest rates and recoup their money immediately – plus profits.
  • If the Fed stops purchasing the securities, private investors will have to pick up the slack. For investors to do that, the loans will have to offer a better payoff, and that would mean raising rates for borrowers.
  • Low mortgage rates generally are a result of an economy in distress. But now, the market believes the economy is getting stronger. Job gains have picked up, and the fact that that hiring is advancing rather than retreating is good news for the economy. Any positive future reports are expected to push rates higher.
  • Today’s rates are unprecedented. The ever-popular 30-year, fixed-rate mortgage hit a 37-year low in 2003 at 5.23 percent. It is likely that any return to normal conditions will be accompanied by higher mortgage rates.
  • Borrowers should keep in mind that even if rates go up a percentage point or two, mortgages will still be relatively low. Historically, 30-year loans are usually 5.5 percent or higher. For clues in the direction of mortgage rates, experts recommend borrowers look at the daily movements in 10-year Treasury bond yields. Mortgage rates track Treasury yields with the difference between them holding fairly constant.

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Talking Points

  • Real estate agents marketing a property for which they have obtained a listing generally will place that listing on the Multiple Listing Service (MLS). At times, however, listings are not placed into the MLS. These listings are commonly referred to as off-MLS or pocket listings.
  • While not a new concept, pocket listings are growing in number – as many as 10 percent to 15 percent of homes offered for sale today are “off-MLS” listings, according to one MLS.
  • Sellers should strongly urge their agent to place their home on the MLS. A property that is listed on the MLS has the advantage of being marketed to every real estate agent who belongs to the MLS and, through those agents, to their vast network of potential buyers.
  • Active marketing on the MLS usually includes open houses, broker tours, and inclusion of the seller’s property in the MLS’ download to various real estate Internet sites commonly used by the public to search for properties.
  • A pocket listing generally is marketed by a single agent to one or a select few potential buyers. The marketing pool can be so small that in some cases, other agents within the same brokerage or brokerage office may not even be aware that a fellow agent has the listing.
  • While pocket listings sometimes are requested by sellers who wish to maintain their privacy, the downsides to off-MLS listings outweigh the advantages. Primarily, the pool of real estate agents and potential home buyers who will know the property is for sale and make an offer to purchase may be limited. With fewer offers, sellers may not receive the best possible price for their home.

Home Buyers More Concerned about Affordability than Lack of Homes for Sale

For the first time since early 2012, home buyers said that affordability is a bigger concern for them than a lack of homes for sale, according to the most-recent Redfin Real-Time Buyer Survey. Although inventory was down 1.5 percent in November from last year, 32.6 percent of home buyers who responded to survey indicated that “affordability in the area I want to buy” was the biggest obstacle to a home purchase. Just 11.3 percent said the biggest obstacle was “not enough homes for sale.”

The good news for home buyers is that the supply of homes under $300,000 is likely to increase next year as more homeowners have enough equity to sell. This year, prices for homes in the low to mid-range (generally below $310,000) increased by 12 percent, double the price increases for more expensive homes. Those increases have helped homeowners: Redfin estimates that, in 2015, 90 percent of homeowners will owe less than 80 percent of their mortgage, which makes listing much more attractive and could result in a 5 to 7 percent increase in affordable homes for sale.

Redfin predicts that home prices will slowly rise in 2015, increasing 3 percent throughout the year. The majority of respondents agreed; 58.9 percent of buyers said that home prices will “rise a little” in 2015.
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Obama offers help for younger, first-time home buyers

President Barack Obama has announced plans to cut mortgage-insurance premiums charged by the Federal Housing Administration (FHA) in order to expand homeownership among lower-income buyers. “We do not see first-time buyers getting into the marketplace. They don’t have a chance to get onto that first rung of housing,” said Chris Kutzkey, president of the CALIFORNIA ASSOCIATION OF REALTORS®.

Making sense of the story

  • The annual fees the Federal Housing Administration charges to guarantee mortgages will be cut by 0.5 percentage point, to 0.85 percent of the loan balance.
  • Under the new premium structure, FHA estimates that 2 million borrowers will be able to save an average of $900 annually over the next three years.
  • In response, Julian Castro, secretary of the Department of Housing and Urban Development, commented, “We believe this is striking a very good balance between being fiscally responsible and also enhancing homeownership opportunities.”
  • The FHA has been increasing premiums since 2011 to offset losses caused by defaults on mortgages it backed after the housing bubble burst. Critics say such increases are detrimental to middle income Americans.
  • The FHA estimates that 250,000 first-time homebuyers will enter the market after the premium reductions.
  • Democrats and housing groups say reducing FHA fees will the agency’s bottom line because it will boost the volume of lending, which declined when home buyers had to pay more to obtain loans.
  • In addition to its annual premiums, the FHA also charges borrowers an upfront fee, which is currently set at 1.75 percent of the loan balance and is not slated to change.

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Source: Sacramento Bee

Talking Points …

  • As the wealthiest generation and the first to drive the housing market, baby boomers will continue to be a pillar of the housing market, according to a 2014 CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) survey of California baby boomers (born between 1946 and 1964).
  • While nearly half (46 percent) of baby boomer renters who previously owned a home sold it primarily due to financial reasons, the vast majority still have a strong desire to purchase a home. The survey found that 63 percent of boomer renters would be motivated to buy a home if they saw an improvement in their finances, affordable home prices, or other reasons.
  • Also, 22 percent said they expect to buy a home in the next five years. Baby boomer renters who previously owned a home are also in a better financial position to purchase a home, having a higher average annual household income ($78,570) than those boomers who have never owned a home ($39,825).

Why millennials aren’t rushing to buy homes

As the economy continues to recover, the millennial generation is still feeling the longer-term effects of the recession due to underemployment and low salaries combined with high student debt and uncertainty about the future. These factors have affected the housing market, and the renter status of this generation was examined in a new survey by LendingTree.

Making sense of the story

  • Only 43.4 percent of college-educated millennials ages 24 to 35 own a home. When asked “What would allow you to consider purchasing your first home?” 67.4 percent said they’d need more income.
  • Roughly a third want to move somewhere they like better before buying, 28.7 percent want to pay off student loans before becoming homeowners, and 25.7 percent want to put off owning a home until they’ve traveled or invested.
  • However, only 4.4 percent of non-homeowner millennials have no interest in ever owning a home, thereby showing that homeownership remains an aspiration.
  • Many millennials are ignoring financial issues. For example, 21.2 percent of millennials said they do not know their current credit score, and another 11 percent said they have never even checked it.
  • The survey found that 4.8 percent of millennials have less than $5,000 in savings, short of the three to six months of living expenses that financial institutions advise.
  • Roughly 9.5 percent of millennials cited said they do not have or maintain a savings account, which perhaps reflects their distrust of banks following the recession.
  • Median household income in the U.S. hit roughly $52,000 last year, according to the Census Bureau, which is well below the $56,400 those households were making in pre-recession 2007 and similarly distant from the all-time high of $57,000 last seen in 1997.

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Source: CBS Money Watch

Finding ways to help young adults make their first home purchases

Stricter mortgage underwriting standards, higher unemployment, and heavy student debt are among the key factors that stand in the way of many potential buyers in their 20s and 30s. But first-time home buyers in this age group may be able to turn to effective techniques that family members, friends, and even employers can use to bridge the generational gap by offering a helping hand.

Making sense of the story

  • Americans who were 30 to 34 in 2012 had the lowest homeownership rate of any similarly aged group in recent decades at 47.9 percent.
  • In comparison, Americans born between 1948 and 1957 had a 57.1 percent ownership rate by the time they hit the 30-to-34 bracket. This is despite record low mortgage rates and bargain-priced foreclosures and short sales.
  • A new federal rule imposing a 43 percent maximum debt-to-income ratio for “qualified mortgages” is particularly difficult for younger buyers with high student debt. Student debts average $21,402 but can balloon as high as six figures.
  • According to one industry estimate, 27 percent of first-time buyers last year received gift money from relatives to help defray the down payment and closing costs.
  • With professional help, some family members are providing either second mortgages or first mortgages, and properly structured, these loans provide annual returns to family members well in excess of money-market funds or bank deposits.
  • Money provided as a loan cannot be disguised as a loan. If the money is a gift, there needs to be a formal letter making the purpose of the gift explicit and the specific transaction for which it is to be used. Documentation is also needed to attribute the source of the funds and the capacity of the gift giver to provide the money.

Source: LA Times

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Talking Points …

  • Between the years 2007 and 2011, 42,000 new residents moved from Los Angeles County to San Bernardino County, which represents the largest migration into a region in the United States, according to the U.S. Census Bureau’s migration report. Affordability of housing is attributed as the number one reason for the migration.
  • The median home price in the San Bernardino County is hundreds of thousands of dollars cheaper in comparison to Los Angeles County and Orange County. The huge savings have led to the greater inland migration, and the Inland Empire has a greater share of undeveloped property.
  • According to the report, the second largest area of migration was from Los Angeles County to Orange County, with 40,000 people. The third largest is from Asia, with 35,000 people from Asia moving into Los Angeles County.

Selling Your Home? Know the Perils of a Pocket Listing

As the California real estate market changes, so does the vocabulary of real estate. Once common phrases from the real estate recession such as distressed property, short sale, and shadow inventory are fast being replaced as the real estate market improves by new phrases, such as equity sale, multiple offers, and “off-MLS” or “pocket” listings.

While not a new concept, pocket listings are growing in number; as many as 10-15 percent of homes offered for sale today are “off-MLS” listings, according to one Multiple Listing Service (MLS).

Simply stated, a pocket listing is a property that is marketed without the benefit of being listed for sale on the MLS (i.e., “hidden” in an agent’s pocket). A property that is listed on the MLS has the advantage of being actively marketed to every real estate agent who belongs to that MLS and, through those agents, to their vast network of potential buyers looking to make an offer to purchase the property. Active marketing on the MLS usually includes open houses, broker tours and inclusion of seller’s property in the MLS’s download to various real estate Internet sites commonly used to search for properties.

On the other hand, as the term implies, a pocket listing generally is marketed by a single agent to one or a select few potential buyers. The marketing pool can be so small that in some cases, other agents within the same brokerage or brokerage office may not even be aware that a fellow agent has a pocket listing.

Pocket listings are not illegal if the listing agent fully discloses the pros and cons to the home seller and follows rules that are designed to protect consumers. Nevertheless, many real estate professionals believe that off-MLS listings may not be in the best interest of the seller – particularly if a client does not know about the benefits of marketing his or her property through the MLS. To keep a listing off the MLS, a listing agent who is a participant of an MLS is required, under the rules of most California MLSs, to obtain a signed certification from the seller that he or she does not wish to sell the property via the MLS.

If a property is exposed to fewer potential buyers with a pocket listing, why would a home seller agree to one? Pocket listings sometimes are requested by celebrities, judges, prosecutors, or others who wish to maintain their privacy.
The downsides to pocket listings may outweigh the advantages of pocket listings though. Primarily, the pool of agents and potential home buyers who will know the property is for sale and make an offer to purchase may be limited. That could significantly reduce the potential for multiple offers above the asking price, which is a frequent occurrence in today’s competitive market. With fewer offers, sellers may not be getting the best possible price for their home.

How can consumers protect their interests if their listing agent suggests an off-MLS listing?

  • Home sellers should ask their agent about the pros and cons of selling their home off-MLS. The pros are that the listing remains private if sellers wish to maintain privacy. The cons are that their home is unlikely to be exposed to the full population of potential buyers, which likely may decrease the chance a seller will obtain the highest and best price for his or her property.
  • A listing agent may ask his or her seller to sign a standard seller exclusion form (Seller Instruction to Exclude Listing from the MLS or C.A.R.’s SEL form). Sellers should be sure they fully understand what they are signing and the possible adverse consequences outlined in the form of not listing their property on the MLS.
  • Sellers should ask their agent to show their home and present all offers from both inside and outside his or her network. That may increase the chances of obtaining a more accurate selling price and could help avoid any potential for violations of fair housing laws.

Finally, working with a knowledgeable REALTOR® is always a good idea anytime you are considering buying or selling a home. So is being an informed real estate consumer. 

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