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Intero Insider: Why Home Buyers Need a Clue about the Mortgage Process

By Gino Blefari | May 14th, 2013 0 Comments

As demand continues to pick up from home buyers, the mortgage lending market can expect gains from purchase loans. There’s just one snag: a third of home buyers are ill-prepared for the mortgage process, and can’t answer basic questions about down payments, interest rates and lender rules.

A survey released by Zillow last week found that home buyers answered basic questions about mortgages wrong 32.5% of the time.

Some of the misinformation out there includes:

  • 34% of first-time buyers surveyed aren’t aware that it’s possible to get a mortgage with less than 5% down.
  • Home buyers also don’t understand how to secure the best possible interest rates and loan terms. 26% incorrectly believe they are obligated to close their loan with the lender that pre-approved them. 24% incorrectly believe that they’ll get the best rates and fees through the bank they currently do business with. And 34% of buyers believe all lenders are required by law to charge the same fees for credit reports and appraisals.
  • Further misinformation and beliefs exist in refinancings, with 25% saying it’s not possible for underwater borrowers to refinance. In fact, 2.2 million underwater borrowers have refinanced under the federal Home Affordable Refinance Program, which was recently extended through 2015. And almost half (47%) of current homeowners believe they must wait at least one year between refinancings.

Why is this story significant?

A number of reasons. For one, as the market picks up speed, we need more savvy buyers among our ranks to keep it moving. Understanding the mortgage process enables a borrower to navigate it better and more quickly, which we’re seeing is really important in markets where inventory moves fast.

In hot markets that have tight supply, buyers who’ve gone through pre-approval and/or better prepared themselves for the loan process will be the more attractive offer for sellers. They’re more likely to qualify for financing and close faster than their unprepared counterparts.

In addition, as we saw with the financial market collapse, recession and housing downturn five years ago, the unsavvy borrower is not only a danger to himself, but to our economy as a whole.

So, how do you educate yourself if you’re in the market to buy? You can read up on the basics at the Mortgage Professor, a site with great information from a non-interested third party (i.e., it’s not your bank giving you advice). You can engage in discussions with your Intero Real Estate agent, who can recommend local sources.

This is an important piece of the housing recovery that until now hasn’t received much attention. How can we expect a healthy purchase market if buyers don’t know how to navigate their loans? Maybe borrower education will (or should) be the next big area of innovation in our market.

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Intero Insider: Defaults Down and Flipping Returns

By Gino Blefari | May 7th, 2013 0 Comments

Here are two fun things to ponder this week:

Mortgage defaults are down – way down. First-time delinquent home loans fell to 0.84% of the 50.2 million mortgages in March, according to LPS.

It was monumental because it was the first month defaults fell below 1% since 2007, when the first defaults of the financial crisis reared their heads.

First-time delinquents are defined as loans that went from performing to at least 60 days delinquent when the report was created.

The days of problem loans aren’t fully behind us – there will be some amount of that in the market for a while. But the days of massive waves of these loans are safely tucked in the background, for now it seems.

Flip: Real estate’s four-letter word

Flipping made a media comeback this past week when RealtyTrac released a report highlighting the top 25 markets for flipping homes in 2012. The markets reflect those cities in which flipping produced the highest rate of return for flippers, i.e., gross profit.

Phoenix had the highest number of flips in 2012 with 10,589 property flips. Inland Empire, CA, Las Vegas, Miami, Denver and Detroit also topped the list by volume of flips.

The top five markets in terms of dollar amount profit in 2012 were San Jose ($103,241), San Diego ($85,714), San Francisco ($80,306), Las Vegas ($70,746), and Ventura County, CA ($70,426).

While flipping may conjure up bad memories of its TV glory days when everyone from waiters to hairdressers was a self-proclaimed real estate investment guru, it’s not a bad thing.

Flipping implies property improvements and increasing values – two important factors in pushing a healthy, widespread recovery.

Something tells me it’ll be less circus-like this time around. More seasoned investors and levelheaded borrowers. More lending restrictions. Less snap decisions and debt digging.

Lessons learned indeed. But it’s something to keep an eye on. If we start to see insane rampant flipping by real estate hobbyists again, we may need to step back and reboot.

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Intero Insider: Pending Sales Show Continued Slow Growth Ahead

By Gino Blefari | April 30th, 2013 0 Comments

Constrained housing inventory continues to be a concern and the speed bump that’s slowing down what otherwise may have been an overwhelmingly busy spring home buying season in many markets.

Pending home sales – a closely watched housing indicator – increased in March and remained above levels from last year. But it showed only modest movement, which indicates that we’re in for another couple months of slower-than-we’d-hoped-for sales, according to the latest index released this week from the National Association of Realtors.

NAR’s Pending Home Sales Index increased 1.5% to 105.7 in March from 104.1 in February. It was 7% higher than March 2012 when it was 98.8. The data tracks contract signings, not closings, which makes it a good prognosticator of things to come.

Not surprisingly, the numbers show that a slower sales and contract pace is not due to a lack in demand, but rather a lack of supply – a problem we’ve talked about plenty here.

In related news, the home building industry has been hustling and bustling this year, enjoying rising revenues and even some IPOs.

However, CNBC points out that despite rising demand, some builders are slowing down production. That sounds counter-intuitive to what’s happening out there today.

Why not increase production at a time when the appetite for homes is strong and growing? It’s simple: building costs are also rising. Some builders will need to control their production to be sure that the rising costs of construction don’t sideline their growth and derail them.

How might this development potentially snag the market for resale homes? It just means that supply may continue to be tight until we reach our tipping point where more owners who are currently underwater either come above water or reach a point where they could afford to sell.

It could also mean values continue upward at a more rapid pace than we originally predicted. I don’t think builders are going to stop building, but this rise in costs is something they’ll each face as they look to build more.

I tend to think of these things not as snags but as blessings in disguise. If there’s one thing we learned from the last housing boom and the downturn that followed, it’s that the faster you climb the harder you fall.

Maybe a little reality check to stop and catch our breath is a good thing in the overall picture.

Happy house hunting!

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Intero Insider: Why Home Sales Slipped in March

By Gino Blefari | April 23rd, 2013 0 Comments

If you’ve been following housing market news this year, you may have been surprised by the latest home sales numbers to come out this week. Sales of existing homes stalled at 4.92 million, dropping 0.6% in March from February.

But what about this hot spring we’ve all been anticipating? What about the great recovery and growth period we’re supposed to see in 2013? What’s going on here?

The problem is lack of homes. There’s plenty of demand from buyers, but just not enough to choose from on the market.

Some areas are experiencing multiple bids, which can frustrate buyers after they’ve been outbid a handful of times and turn them away.

And in some cases, we see sellers being affected as well. For those in tight markets, they may not feel confident enough to list their homes until they know for sure they’ll be able to find a new one to move into.

Despite the decline in March sales from February, home sales were still 10.3% higher than the same month a year ago, marking the 21st consecutive month of year-over-year increases. That’s good news, and a good indicator of how the market is trending in the big picture.

Demand is still strong, according to the National Association of Realtors, which reported buyer traffic is 25% above a year ago. But the drop in available homes has put upward pressure on prices. And some buyers are getting frustrated and priced out.

The national median home price was $184,300 in March, 11.8% higher than a year ago. The increase was the highest gain since November 2005.

Total housing inventory was up 1.6% to 1.93% homes for sale, representing a 4.7-month supply at the current pace. For-sale inventory was 16.8% below what it was a year ago, showing how lack of supply is truly impacting the pace of sales and overall market activity.

What happens next?

At the rate things are going, we can likely expect more price increases, driven by continued tight markets with some increases in new home building to balance supply.

At some point, prices will reach a tipping point where more sellers are able to sell because values will meet their needs.

Until then, buyers need patience and the ability to act fast; sellers need motivation or the right price points to get out from an underwater mortgage. We have an interesting second half of the year ahead!

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Intero Insider: Two Largest Banks Still Optimistic on Housing, Despite Mortgage Declines

By Gino Blefari | April 16th, 2013 0 Comments

Despite all the obvious signs of a healthy housing recovery that’s underway this spring season, first-quarter earnings from mortgage banking dropped at two of the nation’s largest banks, Wells Fargo and JPMorgan Chase.

The news stories around the earnings have been mostly void of alarmist talk, though, pointing out that underlying strengths in housing demand are still enough to keep momentum going as expected this year.

Rather, the drop in mortgage revenue at the two top banks is more a natural progression away from the refinance loan volume each has enjoyed over the past year. According to Inside Mortgage Finance, the mortgage-banking operations of U.S. banks showed profits of $31.9 billion last year, about six times the amount in 2011.

Wells Fargo, which now makes nearly one-in-three new home loans in the U.S., made $16 billion fewer new home loans in the first quarter compared to the last three months of 2012. The bank said income from that business declined 2.7% in the first quarter.

Meanwhile, it’s a similar – if not more severe – story at JPMorgan Chase, which said mortgage profits fell 31% in the first quarter.

What is going on here? Is it time to sound the alarm for the end of the housing recovery?

Not at all.

Executives at each of the banks prior to earnings reports said that they expected mortgage originations to soften, so it wasn’t a big surprise. We all know that many markets are still suffering to bring their heads up from the harsh fall of the downturn. And we all know that many more are experiencing healthy price increases, propped up by increasing demand from buyers and a lack of inventory.

The home loan landscape has changed drastically since the height of the last housing boom. Many more regulations have gone into effect; banks are stricter about documentation and credit qualifications. But ultimately, these are good things. Even if it means lending may be slower in our recovery now and going forward.

And both of the top executives of the two banks championed an optimistic outlook for housing for the next few quarters. Wells Fargo CEO John Stumpf said the bank’s near-term outlook sees a steady gain in home sales.

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Intero Insider: Vacation Home Sales on the Rise

By Gino Blefari | April 9th, 2013 0 Comments

More Americans took advantage of housing market conditions in 2012 to snap up vacation homes – a good sign of confidence in both the market and the economy overall.

The vacation home market follows the same highs and lows as the residential home market. This segment faded out during the recession, but a new survey out from the National Association of Realtors shows strength once again in this sector.

Sales of vacation homes (both new and existing) climbed 10.1% to 553,000 last year from 502,000 in 2011. Meanwhile, investment home sales declined 2.1% to 1.21 million from 1.23 million the previous year. Vacation homes are purchased mainly for the owner’s use, whereas investment homes are used mainly as rentals.

Median prices of vacation homes also increased to $150,000 in 2012, up from $121,300 in 2011. The Realtor group attributed the increase to increased sales of more expensive properties.

I called upon a good friend of mine, Peter Sobrero, who has spent his entire career selling some of the most prestigious luxury homes throughout the Unites States and World to get his thoughts on the status of vacation homes.  Peter says, “We are seeing strong purchasing in the luxury destination markets within the U.S., and within close proximity.  I hear from many of clients that they are tired of waiting, the pricing is right, and they and their kids and grandkids are not getting younger.  This affluent sector has the cash stores and want what they want, it seems we are seeing the willingness now to take action.”

The vacation home market is interesting to watch because although it tends to follow the residential housing market as a whole, it’s driven by somewhat different factors. NAR points out that all-cash purchases remain common, with 46% of vacation home buyers purchasing this way. And of buyers who financed their purchase, large down payments (a median of 27%) remain common.

There’s no doubt that attractive prices were a big draw for many buyers of vacation homes in 2012.

In the investment home market, which is mostly rental driven, the median price was $115,000 in 2012, up 15% from $100,000 in 2011. Investment buyers for the most part bought a home that was relatively close to their primary residence, a median of 21 miles.

Property flipping increased modestly, though NAR said that flipping this time around is not the same as it was during the height of the housing boom. Rather, investors are making real improvements to their properties before reselling them. In fact, 6% of the homes purchased in 2012 by investment buyers have already been sold, and another 8% plan to sell in the next year.

If you’re in the market for a vacation or investment home or have clients who are thinking about this, the survey is an interesting gauge. But it’s also useful as we assess the overall health of the housing recovery across the U.S.

The Realtor group offers the full survey for sale at this link if you’re curious to learn more.

Enjoy!

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Intero Insider: Delinquent Borrowers Get a Lifeline

By Gino Blefari | April 2nd, 2013 0 Comments

Here’s some news from the past week that could potentially impact thousands of homeowners:

Fannie Mae and Freddie Mac’s regulator last week said they would begin offering lower payments to borrowers without having to prove hardship – an obstacle that previously kept a lot of borrowers from modifying their loans.

Starting in July, borrowers who are 90 days or more past due on mortgages backed by Fannie Mae and Freddie Mac may be eligible to reduce their monthly payments by about 30% on average. Eligible borrowers would receive an explanation of the offer and then enter a trial modification period in which they make three monthly payments under the new loan terms before they become permanent.

The news here is that borrowers would be able to do this without having to document their financial situations. It gives delinquent borrowers a means to avoid foreclosure.

And although the new program doesn’t call for documentation, officials said they would still encourage borrowers to submit paperwork as it could help get them even better modification terms.

The question begs: Will this encourage and lead to an increase in strategic defaults – the decision to intentionally fall behind on payments when the mortgage is underwater and the borrower can still afford the payments?

Freddie and Fannie’s regulator, the Federal Housing Finance Agency, says no. In announcing the program, officials said that they have screening mechanisms in place to detect strategic defaulters, but failed to give much detail beyond that.

State of foreclosures

Speaking of foreclosures, we got a fresh look at what’s happening with this portion of the market this past week too. Close to 1.2 million properties were in some stage of foreclosure in February, according to data firm CoreLogic. That was 21% lower than the same time last year.

RealtyTrac also released foreclosure numbers last week showing a higher number (1.5 million), but noting that their number includes homes that have already been repossessed by banks.

In addition, Inman News points out an interesting nugget of info from RealtyTrac’s report: When broken down by listed and unlisted status, the number of homes in foreclosure or bank-owned that were listed for sale has fallen 43% this quarter compared to a year ago.

That of course suggests that there may be some shadow inventory coming down the pike. Shadow inventory – homes that have started the foreclosure process but have not been listed for sale – may be just what inventory-starved markets need. In some cases, the buyers are there but the homes are not.

CoreLogic estimates that about 2.2 million distressed and bank-owned properties will hit the market this year.

This will get interesting. In some markets, you may even feel a kick into high gear.

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Intero Insider: Housing Supply Is the Thorn in the Market

By Gino Blefari | March 26th, 2013 0 Comments

The latest highly watched report on housing from the National Association of Realtors showed a healthy 10% increase in home sales in February from a year ago, and an 11.6% rise in prices during the same period.

This is all good news, of course. Upon hearing the news, many media outlets immediately started talking about how the market clearly has turned for the better, recovery is in full swing and things generally should be improving.

There’s just one small detail that we need to take a look at: inventory.

According to NAR, the supply of homes for sale in February increased 9.6% from January to 1.94 million homes, representing a 4.7-month supply. However, the listed inventory was 19.2% below what it was a year ago when there was a 6.4-month supply.

A 19.2% drop in inventory from a year ago at a time when interest rates are at the their lowest and buyers are ready and willing to purchase is definitely not good news. In fact, this is a serious situation.

Forget rising rates, lending restrictions, lack of jobs and a slow economy. The real threat to housing this year is a lack of homes for sale.

When you have qualified buyers ready to make a move who have nothing to buy, this is a problem. While the lack of supply would seem to be a good thing for home sellers who benefit from the bidding competition, it’s not good for the overall market.

The good bit of news for supply, however, is that housing starts are on the rise. The Commerce Department said last week that starts for single-family units in February edged up 0.5% to their highest level since June 2008.

Also, permits for future home construction rose to a 946,000-unit rate, the quickest since June 2008. And home building added to national economic growth last year for the first time since 2005.

Home building is what we’ll need to watch closely this year. Increased activity and growth in this sector could help counter the problems with inventory in some markets.

In the meantime, if you’re in a market with tight supply, you just have to hang in there and move fast. Be prepared with your down payment and loan qualification and work with a Realtor who knows the local market inside out and you’ll get the home you’ve been waiting for. It just may take a bit more patience.

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Intero Insider: Why Higher Interest Rates Aren’t Scary

By Gino Blefari | March 20th, 2013 0 Comments

To be clear: no one is advocating for higher interest rates. But we’re about to venture down a path of thinking about what the world looks like with rates that will be higher than the lows we’ve come to expect these past few years.

In today’s market, borrowers with 5% interest rates are running to refinance – and saving thousands of dollars in the process. When put in historical context, this is astonishing. Many of us have worked through markets with double-digit rates in decades past. 3.75% on a long-term mortgage did not exist.

But experience shows us markets are cyclical. There is a bottom. We all know it’s coming. And although the Fed hasn’t indicated it will sharply raise the key short-term rates that are tied to mortgages any time soon, it will raise those rates at some point as the economy improves.

Maybe that’s not such a scary thing.

An article in CNNMoney this week argues why higher mortgage rates will help the housing market rather than hurt it.

I think it depends on the market you’re talking about – as with all things real estate, generalizations are rarely unflappable.

But mortgage rates indeed have been rising – the latest average on the 30-year fixed was 3.63%, the highest its been since the week of August 23, according to Freddie Mac. Let’s think about what that means for current markets.

In many markets, recovery over the last year has turned to growth mode. In Silicon Valley, many of our local markets are already back at peak pre-recession levels. What’s driving it? Job growth and demand.

Sure, low rates have been great. But they’re not the sole driver.

In our markets and others including Washington, D.C. and several other California markets, the bigger obstacle would be in supply. There just aren’t enough homes on the market to serve new buyers or spur move-up activity from existing owners.

Upward movement in interest rates may actually incite even more demand in these markets as buyers start to feel pressure to move quickly. In these cases, higher rates may actually be an incentive that fuels market activity and growth.

We’ll find out soon enough how higher rates will impact our markets. In the meantime, if your credit is good it’s still incredibly cheap to borrow money for housing. If you want to take advantage, it’s time to get moving.

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Intero Insider: The Return of Boomerang Buyers

By Gino Blefari | March 13th, 2013 0 Comments

Another page is turning in the real estate market this year – “boomerang” buyers are returning to the market with gusto.

A boomerang buyer is the name given to a homeowner who’s gone through foreclosure or short sale and re-enters the market through a new purchase. When you think about the massive effect of the 4.8 million borrowers who lost their homes to foreclosure since the market collapse, you begin to see the magnitude of impact boomerang buyers could have on sales.

How do we know they’re returning? While there’s no official research showing hard statistics on the number of boomerang buyers, CNN published a story this week with plenty of examples. One broker they spoke with said he worked with 12 boomerang buyers last year and expects that number to double in 2013.

Some may say this doesn’t make sense. How do borrowers who foreclosed just a few years ago qualify for another home loan? How has their credit score recovered so quickly?

Some of the buyers interviewed in the CNN story had foreclosed as recently as 2010, but others in the market today may have foreclosed a few years prior to that. Experts say it takes an average three to seven years for a score to recover from foreclosure or short sale. A secret to fast-track success is to pay all other bills on time and continue the habit after foreclosure as this alone can speed up recovery.

During the downturn, a lot of owners made a calculated decision to “strategically default” or walk away. These are families that looked at the big-picture housing situation and their underwater mortgages and decided it made more financial sense to get out.

Because of this, it’s not surprising to see more of this type of defaulter getting back in the market. After all, these were owners at heart. These were people who wanted to own their home and probably planned the whole time to buy again.

Boomerang buyers are yet another interesting element to the current state of the market. It’s nice to see terms like this and “positive equity,” “multiple bids” and “IPOs” coming back to the vernacular in real estate reporting.

There are some great triumphs happening. Just as we watched the horrible details of the market fallout unfold, let’s highlight these stories as wins along the way back up.

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