Aug. 19, 2019

Housing Markets Aren’t Usually Hurt During a Recession

Excluding the Great Recession, a study of 1,039 state-level recessions since 1997 found that home values appreciated at the same rate they did in other times.

NEW YORK – Other than the housing-led Great Recession of the late 2000s, home values have typically continued to grow through national and statewide recessions over the past quarter-century, according to a new analysis.

The U.S. reached its longest-ever economic expansion this summer, though growth is slowing. A recent survey sponsored by Zillow and conducted by Pulsenomics LLC found that a panel of housing experts and economists most often expect the next recession to begin in Q3 2020. Demand for homes is expected to cool during the next recession, but few believe a housing slowdown will be a significant factor in causing it.

Analysis of past recessions

As some market observers predict a recession on the horizon, an analysis of recessions from the recent past shows that they often have a limited effect on the housing market. In the past 23 years, there have been two national recessions – the dot-com crash from March to November 2001 and the Great Recession from December 2007 to June 2009 – and several statewide or regional recessions.

Home values broadly fell across the country during the Great Recession, but in most other cases annual home value growth remained positive.

Excluding the Great Recession, there have been 1,039 instances since 1997 of states being in a recession during a given month. Annual home value appreciation was positive 81% of the time in these months – an identical rate to months in which states were in economic expansion. Appreciation averaged 4.6% during economic growth and 4% during recessions. This indicates that while recessions do have an impact on the housing market, the widespread collapse of home values during the Great Recession is an outlier.

“The housing crash during the Great Recession left a lasting impression on our collective memory,” said Zillow Economist Jeff Tucker. “But as we look ahead to the next recession, it’s important to recognize how unusual the conditions were that caused the last one, and what’s different about the housing market today. Rather than abundant homes, we have a shortage of new home supply. Rather than risky borrowers taking on adjustable-rate mortgages, we have buyers with sterling credit scores taking out predictable 30-year fixed-rate mortgages. The housing market is simply much less risky than it was 15 years ago, and our experience in recent localized recessions shows how home prices can weather normal economic headwinds.”

As an example, several states with large energy sectors – Alaska, Louisiana, North Dakota, Oklahoma and Wyoming – experienced local recessions starting in 2015 when oil prices fell dramatically. Home value growth was positive year-over-year across all five states and only Alaska turned negative month-over-month during this time period – the largest monthly loss in value for the median home in Alaska was $700.

Nationwide, annual home value growth averaged 4.3% during these recession months compared to 5.2% average growth during months of economic expansion in 2015 and 2016.

Aug. 15, 2019

New Rule Will Approve More FHA Loans for Condos

WASHINGTON – On Oct. 15, the Fla. condo market could open up for first-time buyers after Oct. 15, 2019, after the Federal Housing Administration (FHA) issued new mortgage rules that will qualify more condo complexes and units for FHA loans.

The new FHA condominium approval regulation – and a new Condominium Project Approval section of the Single Family Housing Policy Handbook – are a comprehensive revision to FHA condominium project approval policy.

The policy released by the U.S. Department of Housing and Urban Development (HUD), which oversees FHA programs, will be published in the Federal Register on Thursday, Aug. 16, and become official 60 days after publication.

Of special interest in Florida, which has a preponderance of condo units, is a new policy that will make some individual condominium units eligible for FHA mortgage insurance even if the condominium project isn’t FHA approved.

“It goes without saying that condominiums are often the most affordable option for first-time homebuyers, small families and those in urban areas,” says National Association of Realtors® (NAR) President John Smaby. “This ruling, which culminates years of collaboration between HUD and NAR, will help reverse recent declines in condo sales and ensure the FHA is fulfilling its primary mission to the American people.”

The new rule, once effective:

  • Introduces a new single-unit approval process to make it easier for individual condominium units to be eligible for FHA-insured financing
  • Extends the recertification requirement for approved condominium projects from two to three years
  • Allows more mixed-use projects to be eligible for FHA insurance

The majority (84%) of FHA-insured condo buyers have never owned a home before. While there are more than 150,000 condominium projects in the U.S., but only 6.5% are approved to participate in FHA’s mortgage insurance programs. Under the new policy, FHA estimates that 20,000 to 60,000 condominium units could become eligible for FHA-insured financing annually.

Single Family Policy Handbook guidance

To complement the FHA condo change, a new Single Family Handbook section provides the additional requirements lenders need to implement FHA’s new policy, including requirements for single-unit approvals, minimum owner occupancy requirements, and commercial/non-residential space limits.

Single-unit approvals

After Oct. 15, FHA will insure mortgages for selected condominium units in projects that aren’t approved under current rules. An individual unit may be eligible for Single-Unit Approval under the following conditions:

  • The individual condominium unit is located in a completed project that is not approved
  • For condominium projects with 10 or more units, no more than 10% of individual condo units can be FHA-insured, and projects with fewer than 10 units may have no more than two FHA-insured units

Minimum owner-occupancy requirements

FHA will require that approved condominium projects have a minimum of 50% of the units occupied by owners for most projects.

FHA insurance concentration in condominium projects

FHA will only insure up to 50% of the total number of units in an approved condominium project.

Commercial/nonresidential space limits

FHA will require that the commercial/non-residential space within an approved condominium project not exceed 35% of the project’s total floor area.

NAR’s latest existing-home sales report recorded condo sales at a seasonally adjusted annual rate of 580,000 units – a decline of 3.3% from May and a 6.5% drop from the same time last year. Out of more than 8.7 million condo units nationwide, only 17,792 FHA condo loans have been originated in the past year.

“Condos are typically more affordable than a detached single-family home, but only a small fraction of condos are FHA-certified,” NAR Chief Economist Lawrence Yun said last month.

© 2019 Florida Realtors®

Aug. 15, 2019

HUD to Announce Long-Awaited FHA Condo Rules

The U.S. Department of Housing and Urban Development is expected to release updated guidance tomorrow on FHA-insured condominium financing. The new rules should benefit your real estate clients and customers by allowing more buyers to obtain low down-payment mortgages on affordable housing options.
 

Specifically, the new rules will:
 

  • Extend FHA certifications on condo developments from two years to three years, reducing the compliance burden on condo boards.

  • Allow for single-unit mortgage approvals—often known as spot approvals—which will enable FHA insurance of individual condo units, even if the property does not have FHA approval.

  • Secure additional flexibility in the ratio of investors to owner-occupants allowed for FHA financing in a condo building.
     

The full guidance will go into effect in mid-October, 60 days from publication.
 

“Condominiums are often the most affordable option for first time home buyers, small families, and those in urban areas,” said NAR President John Smaby, in a statement issued to the media Wednesday morning. “We are thrilled that (HUD) Secretary (Ben) Carson has taken this much-needed step to put the American dream within reach for thousands of additional families.”
 

Since 2008, NAR has championed policy changes in condo lending. NAR has sought rules that would allow the owner-occupancy level to be determined on a case-by-case basis and that would extend the approval period for project certification to five years.
 

NAR’s existing-home sales report for June showed condominium and co-op sales at a seasonally adjusted annual rate of 580,000 units, a decline of 3.3% from May and 6.5% from June 2018. With more than 8.7 million condo units nationwide, only 17,792 FHA condo loans have been originated in the past year.
 

“This ruling, which culminates years of collaboration between HUD and NAR, will help reverse recent declines in condo sales and ensure the FHA is fulfilling its primary mission to the American people,” Smaby said.
 

The full rule for single-family condo financing is scheduled to be published in the Federal Register on Aug. 15, 2019, and available online at https://federalregister.gov/d/2019-17213, and on govinfo.gov.

Aug. 14, 2019

What Does ‘Give It a Fresh Coat of Paint’ Really Mean?

“Paint before listing” sounds like a simple instruction – but it’s not. Color is important, and not all walls need painted if sellers are on a tight budget.

NEWARK, N.J. – Carole Goeas hoped her Alexandria, Virginia, condo would command a high price when she put it on the market in March. But when her real estate agent suggested she could boost the property’s appeal by sprucing it up with “Burnished Clay” paint, she balked.

“I hated the name of the paint and never would have picked it,” Goeas says. But her agent, Chris Fischer of McEnearney Associates, was right. The repainted condo sold in just 10 days at the listing price of $600,000.

The color, from Behr, “made the condo look twice as big, especially with the contrast of crisp white trim,” says Goeas, a political fundraising consultant.

Painting your home before putting it up for sale can be critical to selling it faster and for a better price, says Dan DiClerico, a smart home expert for HomeAdvisor, a home improvement platform, in New York City.

“While it varies a lot, we estimate that fresh paint adds 1% to 3% to a home’s final sale price,” he says. “On a $300,000 home, that means you could be getting $3,000 to as much as $9,000 more.”

Given the relatively inexpensive cost of painting, DiClerico suggests it’s a good investment even if it just helps you sell faster. However, sellers make two common mistakes: either they don’t paint at all or they paint every single inch, which may be unnecessary, he says.

Low-cost, high-impact improvement

A recent “Hidden Cost of Selling” report by Zillow, an online real estate database, found that sellers spend an average of $2,400 for exterior painting and $1,245 for interior painting. The amount varies according to the size of the property, how much preparation is required and whether you do it yourself or hire professional painters.

In Virginia, Goeas spent $4,900 on professionals who painted the ceiling, walls, trim and built-in bookcases in her two-bedroom, two-bath condo.

“The combination of professional painters and professional photos made all the difference in getting my condo sold fast,” she says.

While painting a 2,300-square-foot house can cost between $4,000 and $11,000, says DiClerico, there’s no need to go all-in.

“Sellers should focus on high-traffic and first-impression areas such as the kitchen, the bathrooms and the foyer,” he says.

HomeAdvisor estimates that exterior painting ranges from $3,000 to $6,000 or more.

“If you’re on a budget, pick your battles,” said Kerrie Kelly, owner of Kerrie Kelly Design Lab in Sacramento, California, and interior design spokesperson for Zillow. “At a minimum, I’d paint the front door, the main living space, and the kitchen. You could paint the bathrooms, too, but you might be better off just giving the grout a good cleaning.”

Glossy front, neutral interior

To appeal to the broadest range of buyers, choosing the right color is essential.

“The most popular photos of the exterior of houses this year include lots of white paint,” says Mitchell Parker, an editor for Houzz, a website for sharing information about architecture, design and decorating, in Palo Alto, California. “That’s a shift in recent years and includes crisp white contemporary houses, solid white farmhouses and creamy Mediterranean and Spanish-style houses. We’re even seeing brick houses painted white.”

Kelly recommends adding a darker or brighter front door for curb appeal. She suggests a semi-gloss or even high-gloss black or navy-blue front door to add excitement to a white house.

Inside, though, “Neutral plays well,” Kelly says. “You don’t want bright yellow or red walls because you want people to visualize themselves and their furniture in the house.”

According to Houzz, the most popular color for walls in the kitchen and bathrooms is gray, followed by white and beige.

“In an open floor plan, white unifies the space so your eyes aren’t distracted by a lot of color,” Parker says. “Then buyers can add a little color if they want with their furniture or window treatments.”

For bedrooms, soothing colors such as a very light blue or very light gray are best, he says. Sometimes a darker yet neutral gray or blue can work in a private space such as a home office or media room where the doors are typically closed, Parker suggests.

Forgiving flaws

Painting your walls with eggshell or satin finish paint, which are easy to clean and more forgiving of flaws in the walls, is especially important in rooms that get a lot of use, such as the kitchen or bathroom, says Kelly.

Your taste may lean brighter, but when selling your home, Kelly advises that you stick to a neutral, unified palette of white, light gray and maybe a touch of light blue, throughout the space.

Aug. 12, 2019

Survey: Americans Never Felt Better About Buying a House

WASHINGTON – Fannie Mae’s latest Home Purchase Sentiment Index (HPSI) shows that sentiment climbed 2.2 points in July to 93, which is a 7.2-point gain from last year and a new survey high.

Doug Duncan, Fannie Mae’s senior vice president and chief economist, attributed the increase in the HPSI amid ongoing housing supply and affordability challenges to strong job confidence and favorable mortgage rate expectations.

“Consumers appear to have shaken off a winter slump in sentiment amid strong income gains,” he says. “Therefore, sentiment is positioned to take advantage of any supply that comes to market, particularly in the affordable category.”

The index shows a 3 percentage point increase in the “Good Time to Buy” component and a 1 percentage point jump in the “Good Time to Sell” component.

The report also indicates that more consumers said they now expect mortgage interest rates to fall within the next 12 months, with that component rising 1 percentage point in July.

Aug. 8, 2019

Florida Housing Market: Median Prices, Inventory Up in 2Q

ORLANDO, Fla. – The State's population grows by about 906 new residents daily, which helps the economy and housing market, says Florida Realtors President Eric Sain.

Continuing a trend from the first three months of the year, Florida’s housing market reported higher median prices and rising inventory in 2Q 2019, according to the latest housing data released by Florida Realtors®. Closed sales of single-family homes statewide totaled 85,017 in 2Q 2019, up 4.6% from the 2Q 2018 level.

“Median sales prices for both existing single-family homes and for condo-townhouse properties rose in Florida during the second quarter – and that’s a trend we’ve been experiencing for quite some time,” says 2019 Florida Realtors President Eric Sain, a Realtor and district sales manager with Illustrated Properties in Palm Beach.

“Florida continues to attract new residents and businesses. In fact, our population is growing by about 906 new residents every day, or more than 300,000 people a year – that’s like adding a city about the size of Orlando every year, according to a recent report from state economists. This population growth, a current unemployment rate of 3.4% and a favorable jobs outlook continue to keep Florida’s economy strong.”

The statewide median sales price for single-family existing homes in 2Q 2019 was $265,000, up 3.3% from the same time a year ago, according to data from Florida Realtors Research department in partnership with local Realtor boards/associations. The statewide median price for condo-townhouse properties during the quarter was $195,000, up 2.9% over the year-ago figure. The median is the midpoint; half the homes sold for more, half for less.

Looking at Florida’s condo-townhouse market, statewide closed sales totaled 34,128 during 2Q 2019, down 1.4% compared to 2Q 2018. Closed sales typically occur 30 to 90 days after sales contracts are written.

“Low mortgage rates drove a major improvement in sales in the second quarter, which was more than enough to compensate for the rocky start we had at the beginning of the year,” says Florida Realtors Chief Economist Dr. Brad O’Connor. “So, right now, we are on pace with our initial forecasts for 2019. Prices will continue to rise at a more traditional pace, and we will need to keep an eye on single-family inventory levels, as they are reverting to their lows of last year.”

In 2Q 2019, the median time to a contract (the midpoint of the number of days it took for a property to receive a sales contract during that time) was 41 days for single-family homes and 52 days for condo-townhouse properties.

Inventory was at a 3.9-months’ supply in the second quarter for single-family homes and at a 5.7-months’ supply for condo-townhouse properties, according to Florida Realtors.

According to Freddie Mac, the interest rate for a 30-year fixed-rate mortgage averaged 4.0 percent for 2Q 2019, down from the 4.54 percent average recorded during the same quarter a year earlier.

 

Aug. 7, 2019

Real Estate Is Americans’ Preferred Long-Term Investment

When asked about the best investment for 10-plus years, 31% picked real estate with millennials the top pro-real estate generation. Only 20% preferred stocks.

NEW YORK – When it comes to how Americans prefer to invest long-term, real estate is still the most favored investment option – 31% said it’s their preferred way to invest money they wouldn’t need for more than 10 years, according to a poll by Bankrate.com.

While real estate has been among the top choices in each of the seven years of Bankrate polling, 31% is the highest percentage to date. The stock market was a distant second, at 20%, while cash investments such as savings accounts or CDs was a close third at 19%. Of the rest, 11% pointed to gold or other precious metals, 7% to bonds, and 4% to Bitcoin or other cryptocurrency.

Generations

Contrary to the stereotype about millennials and their propensity to not buy homes, adults age 23-38 prefer real estate more than any other generation (36%), and the age group with the highest preference for cash has shifted to baby boomers.

Overall, however, real estate was the top choice of all generations, including Gen X (ages 39-54 at 31%), baby boomers (ages 55-73 at 30%) and the Silent Generation (ages 74+ at 23%).

“Millennials are higher on real estate than any other age group, have cooled a bit on cash, and still aren’t keen on the stock market when investing for more than 10 years,” says Greg McBride, CFA, chief financial analyst for Bankrate.com. “Millennials in particular should be turning to the stock market for long-term investing, such as retirement.”

Income groups

The preference for real estate was virtually the same among all income groups, while households with income of $50,000 per year or more were more than twice as likely to cite the stock market than households with income below $50,000 per year. Lower income households (below $50,000 per year), do have a higher preference for cash investments and gold or other precious metals than households.

Before Federal Reserve Chairman Jerome Powell announced a cut in interest rates last month, Bankrate asked whether that would change behaviors. A majority said that lower interest rates will not make them more likely to invest in the stock market, borrow money, or put money into savings accounts or CDs: 40% said they would be more likely to put money in savings accounts or CDs as a result of declining interest rates. Only 33% said they would be more likely to invest in the stock market. Just 26% said they would be more likely to borrow money.

“A Fed interest rate cut is unlikely to influence how consumers manage their finances. Only a minority of Americans say they would save more, invest more, or borrow more as a result,” added McBride. “A rate cut or two is certainly not a reason for consumers to panic. The Fed raised rates nine times in a three- year period. If they walk back one or two of those, savers are still far ahead of where they were for much of the past decade.”

© 2019 Florida Realtors®

Aug. 7, 2019

1/3 of Buyers Could Save $2K by Mortgage Shopping

Study: In 2018, 34% of first-time buyers went with the first lender they contacted; 41% of repeat buyers did the same. But shopping around could save them money.

WASHINGTON – According to a study by Fannie Mae, 34% of first-time homebuyers in 2018 did not shop around before choosing a lender – and 41% of repeat buyers did the same.

Nearly two-thirds of borrowers who only reviewed one quote before obtaining a mortgage said they chose not to compare competing offers because they were either comfortable with the lender who provided the initial quote or were satisfied with the quote itself. Another 10% said it was too much hassle to shop around.

Since buyers don’t realize how much money they might have saved, however, most reported that they were happy with their mortgage – 76% who obtained only one quote said they didn’t have regrets.

Fannie Mae chief economist Doug Duncan noted that most buyers in the study “still reported trying to negotiate mortgage terms with somewhat less success than those who did shop around.”

Fannie Mae says that more than a third of buyers who obtained multiple quotes successfully negotiated a lower interest rate, and many also secured lower costs associated with mortgage insurance, origination fees and appraisal fees.

Meanwhile, a May study from LendingTree found that mortgage borrowers who received five or more offers saw a spread of $2,045 between the highest and lowest fees proposed to them.

Source: MarketWatch (08/05/19) Passy, Jacob

Aug. 2, 2019

Federal Reserve Cuts Interest Rates: Will It Help Buyers?

The small cut isn’t expected to have a big impact on real estate, but it could trigger a slight rate decrease in adjustable rate loans and maybe fixed-rate loans.

The Federal Reserve on Wednesday cut interest rates for the first time since the Great Recession took hold in 2008, though the move is not likely to deliver significant juice to an already favorable borrowing environment for homebuyers.

The federal funds rate – what banks charge one another for short-term borrowing – will now hover between 2% and 2.25%, according to news reports.

The Fed says its decision to lower interest rates is designed to stave off the threat of an economic downturn – but it’s unlikely to translate into additional mortgage savings for many buyers. With the interest rate for a 30-year loan already hovering below 4%, the Fed’s move may be more meaningful for buyers with other types of financing, says Lawrence Yun, chief economist for the National Association of Realtors®.

“Many borrowers will benefit, especially those with adjustable-rate mortgages and commercial real estate loans,” Yun says, but “the longer-term 30-year fixed-rate mortgages will see little change in the near future because they had already declined in anticipation of this latest move by the Fed.

Yun thinks the rate cut will “partly help with housing affordability over the short-term. Both rents and home prices have been consistently outpacing income growth, (but) the only way to mitigate housing-cost challenges as a long-term solution is to bring more supply of both multifamily and single-family homes to the market,” Yun says.

Still, lower borrowing costs are helping buyers manage rising home prices. Buyers able to spend $1,500 on monthly mortgage payments can afford to purchase a $402,500 home this year compared to $367,500 last year, for example, when mortgage rates averaged 4.57%, according to realtor.com.

“Last year, buyers would have needed an additional $145 a month on top of the $1,500 to afford a $402,500 home,” says Danielle Hale, realtor.com’s chief economist.

In some locales, buyers’ money can stretch even further.

“An extra $35,000 in purchasing power, depending on where you are in the country, can really make a difference to buyers today,” Hale says. “It still counts, even with home prices up 6% nationally. That increase in purchase power is greater than the national price increase.”

Source: “Realtor.com® Reports How Much More Home Buying Power There Is Today Thanks to Lower Mortgage Rates,” Forbes.com (July 30, 2019); “The Fed Just Cut Interest Rates. Here’s What That Means for You,” The New York Times (July 31, 2019); National Association of Realtors®

© Copyright 2019 INFORMATION INC., Bethesda, MD (301) 215-4688

Aug. 1, 2019

Happy Floridians: July Consumer Sentiment Up 3.7 Points

Consumers felt better in both the short- and long-term measurements, suggesting optimism for the future and content in the present.

GAINESVILLE, Fla. – As the U.S. entered its longest economic expansion in its history, consumer sentiment among Floridians increased 3.7 points in July to 100.2 – an increase from June’s revised figure of 96.5.

All five components that make up the index increased.

Current conditions
Floridians’ opinions of their personal financial situation now compared with a year ago increased 3.6 points from 93.2 to 96.8, though opinions varied greatly by demographics; male respondents and those under age 60 reported less-favorable opinions. Similarly, opinions as to whether now is a good time to buy a major household item like an appliance increased 3.2 points from 100.3 to 103.5, though men reported less-favorable opinions.

“Overall, these two components showed that views regarding current economic conditions improved among Floridians in July,” says Hector H. Sandoval, director of the Economic Analysis Program at UF’s Bureau of Economic and Business Research.

Future expectations
The three components corresponding to Floridians’ expectations about future economic conditions also improved. Expectations of personal financial situations a year from now increased 4.5 points from 103.5 to 108.

The outlook of U.S. economic conditions over the next year showed the greatest increase in this month’s reading, up 5.1 points from 92.6 to 97.7.

Finally, expectations of U.S. economic conditions over the next five years increased 2.2 points from 92.7 to 94.9. These expectations are shared by almost all Floridians; however, men again reported less-favorable expectations.

“Despite the divided views by gender, Floridians are overall more optimistic in July,” says Sandoval. “The gain in July’s reading comes from consumers’ expectations about the national economy in the short run.”

Economic indicators have remained positive. July is the 121st consecutive month of gross domestic product growth since the Great Recession, breaking the record of 120 months of economic growth between March 1991 and March 2001. Starting in June 2009, the current growth trend is now the longest economic expansion in U.S. modern history.

In Florida, unemployment peaked at 11.3% in January 2010 as a result of the Great Recession, but Florida’s labor market strengthened with solid job gains statewide and has led to an unemployment rate of 3.4% in June 2019. Compared with a year ago, the number of jobs increased by 218,800 in June, an increase of 2.5%.

Among all industries, education and health services gained the most jobs, followed by professional and business services, leisure and hospitality, and construction. The information industry was the only sector losing jobs. Moreover, according to the U.S. Bureau of Economic Analysis, in the first quarter of 2019, Florida’s gross state domestic product increased 2.9%.

“Looking ahead, in view of the labor market conditions and current economic outlook, we expect consumer sentiment in Florida to remain high in the coming months, continuing the economic expansion,” Sandoval said.

© 2019 Florida Realtors®