Thursday, August 22, 2013

Mortgage rates hit two-year high

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Mortgage rates have jumped to a 2 year high! It is must likely due to an improving housing market and the Fed's tapering back of buying government bonds. With home prices still rising there are concerns of a housing bubble as with rising mortgage rates housing affordability declines for those that need a loan.

  @AaronSmithCNN August 22, 2013: 11:39 AM ET

30 year mortgage rates 082213 

The average weekly rate for a 30-year fixed-rate mortgage jumped to a two-year high, Freddie Mac said on Thursday.

The rate is now 4.58%, up from 4.4% the prior week.

hat is the highest level for the 30-year in more than two years, since it hit 4.6% on July 7, 2011, according to Freddie Mac spokesman Chad Wandler.

Wandler attributed the increase to an improving housing market. He also cited investor concerns about when the Federal Reserve will taper its government bond-buying program, which could affect interest rates.

Rising rates could also affect the housing market going forward. A recent survey by real estate company Trulia found that an increase in mortgage rates was the prime concerns among 41% consumers, who worried about that more than price increases.

The 30-year rate hit an all-time low of 3.31% on Nov. 21, 2012. Since then, the 30-year has bounced around, sinking back down to 3.35% on May 2, 2013. The runup to the current two-year high has all occurred in the last three months.

Home prices have also been rising.

According to the most recent figures available, the S&P/Case-Shiller home price index was up 12.2% in May compared to a year ago. That was the biggest such jump since March 2006, close to the peak of the real estate bubble.

The recent increase in housing prices have also given rise to concerns of a new housing bubble.


Friday, August 16, 2013

Tapping your equity to buy a second home

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Another option to keep in mind as a source of funds when contemplating purchasing a second home is the home equity in your primary residence. Home equity is the difference between what a person owes on their mortgage and their home's current market value. With rising home prices, the value of your home's equity rises in sync. This sort of home equity line of credit is called a cash-out refinance. It is considered less risky to the lenders but may be more risky for the borrower thus loan costs are lower to obtain this type of loan. Just some food for thought.

Tapping your equity to buy a second home

  @CNNMoney August 16, 2013: 6:15 AM ET


Should I use my home's equity to purchase another property? -- Anonymous

With housing markets heating up and interest rates still low, it can be a great time to invest in real estate. But if you don't have a lot of extra cash on hand, how do you pay for it?

There are the usual methods, like financing the purchase with a mortgage or selling some stocks and bonds, and the usually bad ideas, like taking money out of your IRA or a loan from your 401(k), but some second home buyers have another option: the equity they've built up in their home. 

Home equity is the difference between what a person owes on their mortgage and their home's market value. For example, someone who owes $200,000 on a home that is worth $300,000 has $100,000 in home equity.

As home prices rise nationwide, so too does the value of your home's equity. That value can be monetized through a home equity loan, home equity line of credit or what is called a cash-out refinance. (That's when you take out a new loan with a higher balance that pays off your existing mortgage and then you can use the remaining balance toward other things, like a second home.)

Unlocking some of your home's value to pay for a second home has its advantages -- but it has some big drawbacks too, says Greg McBride, a senior financial analyst for
Lenders tend to give more favorable terms to those who tap their home's equity to pay for a second home because they have more skin in the game.

Buyers who take out a separate mortgage on a second home are more likely to stop making payments if they run into financial trouble and default. To offset the increased risk, banks charge higher rates and require larger downpayments of these borrowers. But those who use their primary home's equity will work harder to pay off the loan and are much less prone to miss payments, said McBride.

The costs of borrowing, especially on home equity loans, can be lower as well, since these loans don't involve paying for title searches or insurance and other transactional costs of new mortgages.
But there are some negatives. By tapping your home's equity you'll be increasing your monthly mortgage payments and increasing the risk of losing your primary home to foreclosure.

Also, by buying another home you're tying up a lot of your money into one type of asset, said McBride. "You're putting a lot of eggs in the real estate basket. wise portfolio management says that's not prudent," he said. To top of page 



Friday, August 9, 2013

Should Home Sellers Overprice or Underprice Real-Estate Listings?

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Price "anchoring" is the mental strategy behavioral technique used when listing a home for sale. It has to do with setting the asking price of a home. Some agents overrpice the property in hopes of drawing higher initial offers especially when inventory is low.  While others underprice a home with hopes of starting a bidding war as buyers always looking for a bargain and selling price may end up 10% higher as so much pent up demand out there. Either way seems to work.

 Should Home Sellers Overprice or Underprice Real-Estate Listings?

New research explores the power of price "anchoring" when buyers look at real estate.

Wall Street Journal Worksheet: August 8, 2013, 9:15 p.m. ET
By Sanette Tanaka



PRICED HIGH: An Upper East Side Manhattan apartment was listed for $1.35 million, about 4.5% above comparable properties nearby. It sold for $1.32 million this week.

"The Price Is Right" isn't just a game show. It is a mental strategy real-estate agents use to get the most money when listing a home.

When setting an asking price, there are two schools of thought: In one, agents overprice properties in the belief that a higher asking price will draw higher initial offers from potential buyers.

Wendy Jodel, associate broker with Town Residential in New York City, says overpricing works when inventory is low. Ms. Jodel recently listed a two-bedroom apartment on Manhattan's Upper East Side for $1.35 million—4.5% above the price of similar apartments nearby. "I had no competition," she says, adding that few comparable apartments are available in the area. The apartment closed this week with multiple offers for $1.32 million.


PRICED LOW: A contemporary-style home in Vail, Colo. is currently listed for $2.495 million, about 10% below comparable properties nearby, in hopes of sparking a bidding war.

Other real-estate agents take the opposite approach, pricing homes below nearby properties in hopes of starting a bidding war. Chris McDonnell, senior associate broker with Coldwell Banker Distinctive Properties in Vail, Colo., says he prefers to underprice homes by 5% to 10%. Now, even in a heated market, buyers are looking for a bargain, he says. If sellers start low, they could potentially add 10% to 15% to the sale price. "There's so much pent-up demand out there right now. Money is just waiting on the sidelines," he says.

This strategy, however, poses a challenge: "It's really hard to get your seller to agree to that," Mr. McDonnell says.

New research tackles this dilemma. A study published in the Journal of Economic Behavior & Organization in May found that homeowners who set the initial asking price 10% to 20% higher than similar houses in the neighborhood see a slight increase of $117 to $163, on average, in their sale price. Pricing a home 20% or more than similar houses leads to an impact three to four times as big.
Pricing a home 10% to 20% lower than homes in the neighborhood leads to a decrease of $117 to $187, on average, in the home's sale price.

The research explores a behavioral trait called "anchoring." That is a common tendency to rely on the first piece of information offered (the "anchor") when making decisions. Once buyers have an anchor, they typically interpret other information involved in the sale around it.

"Every house is different, and so those qualitative things really matter. Buyers will turn to the good attributes that justify the high price," says Grace Bucchianeri, former assistant professor at the Wharton School of the University of Pennsylvania.

Prof. Bucchianeri and co-author Julia Minson, a lecturer at the University of Pennsylvania at the time, analyzed 14,616 real-estate transactions in Delaware, New Jersey and Pennsylvania between January 2005 and April 2009 with an average sale price of $234,000.

The study, "A homeowner's dilemma: Anchoring in residential real estate transactions" found that "overwhelmingly anchoring is a good strategy," Prof. Bucchianeri says.

In the same study, researchers found that while agents privately believe that overpricing leads to a higher final sale, they publicly advocate underpricing. In this study, 35 agents were shown 10 sample properties between March 28, 2011, and May 2, 2011, and asked to recommend a listing price. In 70.4% of the properties viewed, agents recommended underpricing.

They had a "strong belief that listing low was the only way to go," Prof. Bucchianeri says. "'If you list it too high, you would never sell your house,' they thought."

Pricing low may speed up the sale, which can save the real-estate agent both time and money spent marketing the property. In the end, agents may get a lower commission, but the difference is usually negligible. "It's intuitive if you think about it," she says. "It looks like the realtors are doing what's best for them, and as homeowners, we need to understand that relationship."



Monday, August 5, 2013

Housing market has buyers willing to use 'aggressive tactics'

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It's a seller market, some buyers are willing to do whatever it takes to close a deal on their dream home. Up to a third of younger adults would be willing to pay the seller's closing costs and bid above the asking price to seal the deal.

Housing market has buyers willing to use 'aggressive tactics'

Home buyers willing to be aggressive 

The frenzied market in real estate has prospective home buyers ready to gamble, according to a study.

Two-thirds of would-be homeowners would resort to “aggressive tactics” -- such as paying the seller’s closing costs, bidding above the asking price or borrowing money from loved ones for a down payment -- to get the home of their dreams, according to the survey by real estate website Trulia.

“Consumers are worried that mortgage rates and prices will keep rising before they buy, and many are willing to fight over the limited number of homes for sale,” Jed Kolko, Trulia's chief economist, said in a statement.

According to the survey, 25% of respondents would bid 1% to 5% over a home’s asking price, and the same percentage would offer to cover the seller’s closing costs.

Trulia said young adults -- ages 18 to 34 -- are more willing to resort to tactics the firm labels aggressive, with 30% of those respondents willing to pay the seller’s closing costs and 31% willing to bid 1% to 5% over asking price.

Home prices in major U.S. cities rose 12.1% in April from a year earlier, according to Standard & Poor's/Case-Shiller index of 20 large U.S. cities. Since the beginning of May, the average rate for a 30-year fixed mortgage has risen roughly one percentage point.


Rents not easing despite rise in rates; owners are benefiting

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Basic econ 101: The trend is clear: The increase in demand of rentals means an increase in rents regardless of what is happening on the buying side. Also with fewer vacancies, and continued more demand than supply this also puts pressure to increase rents further. Even with more construction of new apartments those are usually more pricey properties so does not help ease prices. This trends seems to have no end in the near future.

Los Angeles Times - July 26, 2013|By Lew Sichelman

There is currently an “unprecedented strength of rental demand,” according to a Harvard University study. Above, a rental home in Canoga Park.

The number of renters in the U.S. rose more than 1.1 million in 2011-12, and with demand came higher rents.With interest rates slowly on the rise, that means bad news for home buyers and good news for renters, right? After all, aren't the single-family and multifamily markets counter cyclical?

In the words of the old song, it ain't necessarily so. Here's why: The number of renters increased more than 1.1 million during 2011-12. That marked the eighth straight year of expansion, according to a Harvard University study, which finds that there is currently an "unprecedented strength of rental demand."

For those of you who took Economics 101, the trend is clear: An increase in demand means an increase in prices — or in this case, rents — no matter what is happening on the buying side.

According to the Census Bureau's Housing Vacancy Study, the median asking rent for vacant units last year was at a record high $720 a month. And MPF Research found similar strength in the country's metropolitan statistical areas, or MSAs.

If you are a renter in Las Vegas, Albuquerque, Tucson or Greensboro, N.C., your rent went down last year. But if you rent in any of the other 89 MSAs tracked by MPF Research, your rent went up — in some places, significantly.

Living the good life in Honolulu cost renters a hefty 8.5% more last year. And Bay Area cities such as San Francisco (up 8%) and San Jose (an increase of 7.7%) weren't far behind.

Vacancies have come down sharply the last couple of years, according to the Harvard Joint Center for Housing Studies' latest "State of the Nation's Housing" report. Last year's vacancy rate was 8.7%, down from 10.6% in 2009. Econ 101 applies here as well: fewer vacancies, more demand, higher rents.

Larger apartment properties showed the biggest drop in vacancy, to just 4.9% in 2012 for professionally managed buildings with five or more units, according to the report.

Someone must be benefiting from this current rental market, and if it's not renters, a good guess is owners. The report cites a study by the National Council of Real Estate Investment Fiduciaries that shows institutional owners saw a nice 6.1% increase in revenue for 2012.

That's below the 10.4% increase in 2011 but "still above the historical average and marking a significant improvement from the losses in 2009-10," the report said.

Delinquency rates are also down for apartment loans made by banks and thrifts, those held by Fannie Mae and Freddie Mac, and those packaged into commercial mortgage-backed securities.

The annual Harvard report notes that last year was a very strong year for multifamily loans. The number of loans to builders, owners and investors was up 36%, according to the Mortgage Bankers Assn.

The fourth quarter was even better, with an increase of 49%. The total amount of multifamily debt also grew, but much more modestly, at 2%.

The so-called mortgage secondary market agencies — Fannie Mae, Freddie Mac and Ginnie Mae, which help increase the amount of lending money by buying mortgages from primary lenders — remain the big players in the multifamily lending market. Their outstanding debt went up $24 billion last year.

"Still, other institutional sources of financing began to step up, with banks and thrifts increasing their multifamily loans by $11 billion," the report notes, with insurers and pension funds also stepping up their holdings.

The Federal Housing Administration is becoming a multifamily powerhouse as well, the report details. The FHA, the originations arm of the loans that Ginnie Mae purchases, "moved from an annual level of new commitments of just over $2 billion in fiscal 2008 to $14.6 billion in fiscal 2012. In terms of the number of rental units financed, this jump translates into an increase from 48,000 in 2008 to more than 200,000 in 2012."

With lenders emptying their pocketbooks for apartment developers, new construction added some 186,000 rental units to the mix. But that brings with it another layer of affordability issues, because the vast majority of new properties are in the higher-priced categories.

"The typical new unsubsidized apartment completed in the third quarter of 2012 had an asking rent of $1,185," Harvard points out. "To afford such a unit at the '30% of income' standard, a potential renter would need an annual income of more than $47,000."

At the same time, though, low- and moderate-income renters benefit: If higher-income renters move up into newer units, their former apartments open up.

An especially important facet of new apartment construction is the Low Income Housing Tax Credit. A federal program administered by state housing finance agencies, the program provides tax credits to investors that provide equity in multifamily properties.

Another important supply-side factor is the "REO to rental" movement, in which formerly owner-occupied single-family units are converted into rentals. Renters now occupy 1 in 6 single-family homes, the Harvard report says.

Despite all the new activity, the report is not optimistic that rents will recede in the coming years.

"Vacancy rates continue to edge down and rental rates are moving up," it says, "providing no suggestion that supply has begun to outstrip demand."