Wednesday, February 26, 2014

New home sales hit five-and-a-half year high in January

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The surge of home sales has eased concerns of a sharp slowdown in the housing market. While new home inventories remain low the pace of home price increases has slowed a bit. Higher borrowing costs and higher home prices has made it less affordable for many. Housing supply is still considered low as new home inventory remains lean which supports a healthy housing recovery.

New home sales hit five-and-a-half year high in January

February 26, 2014 10:33 AM ET   By Lucia Mutikani

WASHINGTON (Reuters) - Sales of new U.S. single-family homes surged to a 5-1/2-year high in January, possibly easing concerns of a sharp slowdown in the housing market.

The Commerce Department said on Wednesday that sales jumped 9.6 percent to a seasonally adjusted annual rate of 468,000 units, the highest level since July 2008.

December's sales were revised up to a 427,000-unit pace from the previously reported 414,000-unit rate. Economists polled by Reuters had forecast new home sales, which are measured when contracts are signed, falling to a 400,000-unit pace in January.

Sales in the Northeast soared 73.7 percent to a seven-month high, while the South recorded a 10.4 percent rise in transactions to a more than five-year high.

These regions along with the Midwest have experienced unusually cold weather that has been blamed for holding back economic activity. Sales tumbled 17.2 percent in the Midwest last month, while rising 11 percent in the West.

New homes are a small segment of the housing market, which lost momentum in the second half of last year following a run-up in mortgage rates and a shortage of properties for sale.

Higher borrowing costs and home prices mean that properties are less affordable for many, especially as income growth remains tepid.

Yields on 10-year and 30-year Treasuries rose after the release of the housing data, while U.S. stocks were trading broadly higher.

A separate report on Wednesday showed applications for loans to purchase homes fell 4 percent last week from a week earlier, hitting their lowest level since 1995.

Sales of previously-owned homes tumbled to a 1-1/2 year low in January and housing starts recorded their biggest decline in nearly three years last month, according to data last week.

That raised concerns that the sector, which is key to the economy's recovery, was slowing down sharply.

New home sales rose 2.2 percent compared with January 2013. For all of 2013, sales were the highest since 2008.
Last month, the supply of new houses on the market was unchanged at 184,000 units.

New house inventories are likely to remain lean for a while as builders complain about a lack of lots, materials and skilled labor. With household formation falling sharply last year, housing activity could remain constrained for a while.

The median price of a new home last month rose 3.4 percent to $260,100 from January 2013. The pace of price increases, however, has slowed in recent months.

At January's sales pace it would take 4.7 months to clear the supply of houses on the market. That was the fewest months since June and was down from 5.2 months in December.

A supply of 6.0 months is normally considered a healthy balance between supply and demand.


Tuesday, February 25, 2014

Kiplinger Predicts More Modest Housing Gains in 2014

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The housing market is stabilizing and that's a good thing. A more realistic appreciation for this year of between 4 and 4.5 percent is expected compared to 11% last year which helps to quell fears of price spikes and another housing bubble. While affordability continues to decline, it is still within reason when compared with historical standards of a median home costing 20 percent of household income.

Kiplinger Predicts More Modest Housing Gains in 2014

The national average of appreciation in home values expected for this year is 4 percent to 4.5 percent compared with a gain of more than 11 percent in 2013, according to a recent Kiplinger Letter forecast. The slowdown in housing gains expected is due to rising mortgage rate expectations and fewer investors offering all-cash deals as bargain home prices fade away, the letter states.

"More moderate growth this year is not necessarily bad news, it signals a more sustainable, long-term growth trajectory that will help quell fears that another bubble is arising," says Gillian White, Kiplinger Letter's associate editor. "Rising rates will also be helpful in some cases, cooling overly hot markets, where cheap rates and high demand sparked outsized price spikes."

Kiplinger forecasters predict new housing starts will top just over 1 million in 2014 – the first time since 2007. Also, sales of new homes are expected to grow by 16 percent this year. What's more, the for-sale inventory of existing homes will rise as more home owners see equity again and show more willingness to sell.

Also, while affordability is declining, it will still be better than historical standards of a median-price home costing 20 percent of household income, the Kiplinger letter notes. In 2013, it took 15 percent of income to buy an equivalent home. With mortgage rates expected to rise to 5 percent this year, Kiplinger forecasters predict it will cost the average household 17 percent of their income in 2014 to purchase a median-price home.


Tuesday, February 18, 2014

Finding ways to help young adults make their first home purchases

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Think outside the box... with home ownership at its lowest rates for those aged 30 to 34 than in recent decades there may still be options out there. The most popular solution is still the oldest with relatives stepping with gift money to help defray down payments and closing costs. Another fast growing resource is family members becoming mini-lenders using a little professional assistance as when loans are structured correctly can be a win-win for all involved.

Finding ways to help young adults make their first home purchases

Tough new underwriting standards stand in the way of many potential buyers in their 20s and 30s, but growing numbers of friends and relatives are stepping in to help.

  February 16, 2014, 5:00 a.m
WASHINGTON — Parents, grandparents and young adults know the problem only too well: Heavy student-debt loads, persistent employment troubles stemming from the recession, plus newly toughened mortgage underwriting standards are all standing in the way of vast numbers of potential first-time home buyers in their 20s and 30s.

But are there effective techniques that family members, friends, even employers can use to bridge the generational gap by offering a helping hand — without hurting their own finances in the process? You bet.

First, some sobering numbers:

•Citing Census Bureau data on homeownership by age, demographer Chris Porter of John Burns Real Estate Consulting calculates that Americans who were 30 to 34 in 2012 — those born between 1978 and 1982 — had the lowest homeownership rate of any similarly aged group in recent decades, 47.9%. By contrast, Americans born between 1948 and 1957 had a 57.1% ownership rate by the time they hit the 30 to 34 bracket. This is despite record low mortgage rates and bumper crops of bargain-priced foreclosures and short sales.

•Debt-payment-to-income ratios increasingly are mortgage application killers for would-be first-timers. Adoption nationwide last month of a new federal 43% maximum debt-to-income ratio for "qualified mortgages" is particularly poorly timed for young buyers. Because of large student debts, which average $21,402 but sometimes balloon into six figures, they may not be able to meet the 43% standard for years.

Typically they're already paying out large amounts on credit cards, auto loans or leases and their student debt — about 30% of current monthly income for those ages 21 to 30 as of 2012, according to a new research report from research economist Gay Cororaton of the National Assn. of Realtors.

Factoring in the monthly cost of a typical mortgage for an entry-level purchase, the debt-to-income ratio as of 2012 for these individuals exceeded 60%, Cororaton estimates. Even with a 5% increase in income per year, they will not be able to qualify under the 43% debt-to-income test until 2019.

That's a long time to postpone a purchase. Yet consumer research consistently finds that the overwhelming majority of Americans in their 20s and 30s would like to own a home, once they're able to put together the financial pieces to make it feasible.

So what are some of the solutions available to help bridge the gap? The most popular is also the oldest: Growing numbers of relatives are stepping in with gift money to help defray the down payment and closing costs — 27% of first-time buyers last year, according to one industry estimate.

Down payment gifts do not address the crucial debt-to-income ratio problem, but for young buyers who can get close to the 43% mark for conventional loans (Fannie Mae and Freddie Mac) or slightly higher at the more flexible FHA or VA, they can be extremely important.

Rules on gifts vary among funding sources, but there are some shared basics: The money cannot be disguised as a gift if it is actually a loan; there needs to be a formal gift letter that spells out the purpose of the gift and the specific transaction for which it is to be used; and the source of the funds and the capacity of the gift giver to provide the money need to be documented. For down-payment help outside the family tree, check out

But an increasingly important and fast-growing resource is turning the gift concept on its head: Rather than simply handing over their cash with no repayment arrangements, family members are becoming mini-lenders themselves.

With a little professional assistance, they are providing either second mortgages or first mortgages that are custom-designed to deal with whatever financial hurdles — including paying off student loans to reduce debt-to-income ratios — their young relatives are confronting. Properly structured, these loans provide annual returns to family members well in excess of money-market funds or bank deposits, and open the door to homeownership for their kin.

The largest player in the field, National Family Mortgage (, has structured and serviced more than $155 million of intra-family transactions in the last two years and is on track, according to founder and Chief Executive Tim Burke, to do $150 million in volume during 2014.

"There is a lot going on" in this field that can help entry-level buyers strapped with student-loan debt, Burke says.

Check it out.


Tuesday, February 11, 2014

Mortgage Rates Slide Again, Putting Pressure on Buyers

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Buying a house now rather than waiting a year may be a good idea. Mortgage rates have been falling again and as low as they are now mortgage rate industry analysts predict rates may increase to 6% by years end. With every percent increase the would be sitting on the fence buyers may regret it.

Mortgage Rates Slide Again, Putting Pressure on Buyers

BY Brian O'Connell | 02/11/14 - 11:00 AM EST

NEW YORK (TheStreet) -- Mortgage rates are falling fast again, and would-be buyers have to start thinking: Can I afford to wait six month to buy a home with interest rates this low?

And low they are, as evidenced by a slew of mortgage rate data out early this week.

First up is the BankingMyWay Weekly Mortgage Rate tracker, which shows 30-year fixed mortgage rates sliding from 4.40% last week to 4.21% this week.

One-, three- and five-year adjustable-rate mortgages are also in full retreat this week, with the benchmark three-year ARM rate falling from 3.46% to 2.85%.

The BMW rate tracker also shows 15-year fixed-rate mortgages falling, from 3.58% to 3.43%.
Freddie Mac is out with new mortgage rates as well, and they pretty much mirror the BMW figures. Freddie Mac has current 30-year fixed mortgage rates at 4.23% and 15-year fixed loan rates at 3.33%.

While rates are well above where they were last year at this time (at 3.53% for the 30-year rate), mortgage interest costs have dropped significantly in recent weeks.

"Mortgage rates fell further this week following the release of weaker housing data," says Frank Nothaft, vice president and chief economist, at Freddie Mac.

He notes the U.S. pending home sales index declined by 8.7% in December, to its lowest level since October 2011. "Fixed residential investment negatively contributed to GDP in the fourth quarter for the first time since the third quarter of 2010," he says. "Also, the Institute for Supply Management reported a significant slowing in growth in the manufacturing industry in December than the market consensus forecast."

Most real estate industry observers say mortgage rates will rise significantly in 2014, to roughly 5% for 30-year fixed-rate mortgages. But others say rates will go higher, with analysts at the real estate website seeing rates climbing to 6% by year-end.

If that happens and fence-sitting buyers remain out of the market, they could regret it.
Here's one way to look at a $200,000 mortgage stretched over 30 years: At 4.2%, the monthly payment is $978 and total interest is $152,094. At 6%, the monthly payment is $1,199.10 and total interest is $231,677.

That's about $80,000 in extra interest loan payments over the course of the loan, and it's 80,000 reasons why buying a house now, rather than waiting a year, may be a great idea.



Thursday, February 6, 2014

Millionaires See Real Estate as Top Investment for 2014

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Real Estate is still the top alternative -asset investment of choice for millionaires for 2014. Wealthy investors buying real estate or investing in real estate investment trusts. Foreign buyers are also putting their money in top notch high end real estate locations for safety as the dollar is still the world's reserve currency. With appreciation and income on real estate's side seems like a good solid choice.

Millionaires See Real Estate as Top Investment for 2014 

Feb 6, 2014 1:45 PM PT

U.S. millionaires see real estate as the top alternative-asset class to own this year, according to Morgan Stanley. (MS)
About 77 percent of investors with at least $1 million in assets own real estate, according to a survey released today by the New York-based investment bank’s wealth-management unit. Direct ownership of residential and commercial properties was the No. 1 alternative-investment pick for 2014, with a third of millionaires surveyed saying they plan to buy this year. Twenty-three percent said they expect to invest in real estate investment trusts, the second-most popular choice.

Wealthy investors are turning to a rebounding real estate market as fixed-income yields remain historically low and equities surge. U.S. commercial-property values rose 8 percent in the 12 months ended Jan. 31, and have jumped 71 percent since hitting their post-recession bottom in 2009, research firm Green Street Advisors Inc. reported today. The S&P/Case-Shiller index of home prices in 20 cities is up 24 percent from its 2012 low.

“After a year where the Standard & Poor’s Index rose 30 percent, some millionaires are moving money out of traditional, long-only strategies to find outperformance, and turning toward alternatives such as real estate and private equity,” said Gary Kaminsky, a vice chairman at Morgan Stanley Wealth Management in New York. “Sophisticated, high-net-worth investors are much more concerned about losses.”

Collectibles ranked as the third-most-popular alternative-investment choice this year, with 20 percent of millionaires saying they planned to buy, followed by private equity at 19 percent and precious metals at 16 percent.

Interest Rates

Wealthy investors see stocks getting expensive and interest rates staying stable or even declining over the next couple of years, Kaminsky said in an interview at a conference for Tiger 21 investors last week in Scottsdale, Arizona. That’s why they are looking more closely at alternatives including real estate for returns and income, he said.

Tiger 21 members, who have at least $10 million in investable assets, increased their average allocation to real estate last year to 21 percent as of the fourth quarter from 19 percent in the first three months of 2013, according to a separate study released by the New York-based group last month.

Will Ade, a Tiger 21 member, said real estate is a particularly attractive investment as stocks show vulnerability in 2014. The S&P 500 has fallen more than 4 percent this year, while developing-country stocks have tumbled on concern that the outlook for economies is worsening.

Lame Bull 

“We had a great bull run last year,” Ade, a 60-year-old geologist, said in an interview today. “I don’t know if the bull is dead, but it certainly is lame right now.”

This year may be the tail-end of attractive investments in property before interest rates rise, said Ade, who has made his money finding oil companies and private investors to fund the drilling of wells. He said he is trying to purchase residential real estate in Miami right now.

“The really good real estate deals are getting harder and harder to find,” Ade said. “Once interest rates start to go up, whether it’s farmland or single-family dwellings there’s going to be huge downward pressure on real estate.

Foreign Buyers

The Manhattan high-rise condominium buildings One57 and 432 Park Ave., where units have gone under contract for more than $90 million, are evidence of the faith that the very wealthy have in real estate, said Mitchell Roschelle, real estate advisory leader at PricewaterhouseCoopers LLP. Such properties have also attracted international buyers.

Wealthy foreigners have bought high-end U.S. properties for their safety and because they’re denominated in dollars, the world’s reserve currency, he said. This helps domestic millionaires maintain the value of their property investments.

“It creates competition, which drives the price up for everybody,” he said. “The sellers have multiple channels to sell into. That gives you more liquidity.”

Self-storage properties are among commercial real estate investments wealthy individuals are buying, Kaminsky of Morgan Stanley said. Retail shopping centers are seen as less attractive as more consumers shop online through companies such as Inc., he said.

Chilean Fund

Morgan Stanley Wealth Management surveyed 1,004 U.S. investors ages 25 to 75, with least $100,000 in assets, during the fourth quarter of last year. A third of them had more than $1 million.
BigSur Partners, a Miami-based wealth-management firm, has been helping some of its wealthy clients, who usually have at least $50 million, work with institutional investors such a Chilean pension fund to invest in commercial real estate, said Chief Executive Officer Ignacio Pakciarz. Deals include an office building in Princeton, New Jersey, he said.

“We don’t feel there’s a lot of value in emerging-market bonds, high-yield bonds and highly rated fixed income,” Pakciarz said.

Owning the real estate is attractive because of the expected appreciation of property value and stream of rental income, as well as better control and supervision over the investments, he said. The firm has also bought office properties in Pittsburgh and Boston, multifamily residences in Texas and some industrial buildings for clients, and is looking for more opportunities this year in real estate purchases or lending, he said.