2017: Strong Year for Commercial Real Estate

Strengthening demand from smaller markets will help the commercial sector see stable growth and offer “decent” returns for investors in 2017, according to the National Association of REALTORS®’ quarterly commercial real estate forecast.

NAR predicts that the national office vacancy rate will drop 1.1 percentage points to 12.1 percent this year. Job growth in the business and professional services sector is expected to increase the need for office space in 2017. The apartment sector is expected to remain the top performer.

Further, the vacancy rate in the industrial space is predicted to drop 1.3 percentage points to 7.1 percent, while retail space availability will likely drop slightly by 0.7 percentage points to 11.2 percent. The multifamily sector will likely have little change to its vacancy rate over the next year as apartment completions stay at 6.5 percent, NAR reports.

Source: National Association of REALTORS®

Profile of Underwater Properties

According to RealtyTrac, here are some characteristics of seriously underwater properties as of the end of 2015:

  • 41% were non-owner occupied; 59% were owner-occupied;
  • 57% had been owned 10 years or less; 43% had been owned more than 10 years;
  • 63% had a loan originated in 2008 or earlier; 37% had a loan originated in 2009 or later;
  • 33% of all properties valued $100,000 or less were seriously underwater; 8.7% of properties valued more than $100,000 were seriously underwater.

Source: RealtyTrac

2016 Home Loan Rates to Stay Near Record Lows

Mortgage rates edged slightly higher for the second consecutive week.

“We take the Fed at its word that monetary tightening in 2016 will be gradual, and we expect only a modest increase in longer-term rates. Mortgage rates will tick higher but remain at historically low levels in 2016,” says Sean Becketti, Freddie Mac’s economist.

Freddie Mac reports the following mortgage rates for the week ending Dec. 17:

  • 30-year fixed-rate mortgages: averaged 3.97 percent, with an average 0.6 point, rising from last week’s 3.95 percent average. A year ago, 30-year rates averaged 3.80 percent.
  • 15-year fixed-rate mortgages: averaged 3.22 percent, with an average 0.5 point, increasing from last week’s 3.19 percent average. Last year at this time, 15-year rates averaged 3.09 percent.
  • 5-year hybrid adjustable-rate mortgages: averaged 3.03 percent, with an average 0.4 point, holding the same average as last week. A year ago, 5-year ARMs averaged 2.95 percent.

Source: Freddie Mac

30-Year Mortgage Rates Rise to 2-Month High

For the third consecutive week, mortgage rates continue to inch up, with the 30-year fixed-rate mortgage nearing its highest level for 2015 at 3.85 percent this week, Freddie Mac reports in its weekly mortgage market survey.

Freddie reports the following national averages for the week ending May 14:

  • 30-year fixed-rate mortgages: averaged 3.85 percent, with an average 0.6 point, rising from last week’s 3.80 percent average. Last year at this time, 30-year rates averaged 4.20 percent.
  • 15-year fixed-rate mortgages: averaged 3.07 percent, with an average 0.6 point, rising from last week’s 3.02 percent average. A year ago, 15-year rates averaged 3.29 percent.
  • 5-year hybrid adjustable-rate mortgages: averaged 2.89 percent, with an average 0.5 point, dropping from last week’s 2.90 percent average. A year ago, 5-year ARMs averaged 3.01 percent.

Source: Freddie Mac

Economy Will Lift More Housing Markets Soon

Many housing markets remain weak overall, but those with stronger economies and favorable demographics are improving at a much stronger pace, per Freddie Mac’s latest Multi-Indicator Market Index. The so-called MiMi monitors the stability of the nation’s single-family housing market by looking at home purchase applications, payment-to-income ratios, on-time mortgage payments, and the local employment picture.

Overall, the index indicates a weak housing market (at 73.7) in June, the latest month measured, with only slight improvement month-over-month. Since reaching its lowest value of 59.8 in September 2011, the housing market has made a 23.3 percent rebound.

“As we see the economy slowly normalizing we’re starting to see its effects in the housing market as well, albeit very slowly,” says Frank Nothaft, Freddie Mac’s chief economist. “The good news is the big housing markets, of which some were also the hardest hit, continue to improve.”

For example, compared to the same time last year, California is up 12 percent and every market the MiMi tracks in the state is improving, Nothaft notes. Also, Florida is up nearly 15 percent, and Illinois is up nearly 13 percent over the past year.

“Likewise, the stalwarts of the recovery continue to be those states in the North Central section of the country, places like North Dakota, Montana, Wyoming, and then south to Texas and Louisiana,” Nothaft says. “In these areas not only are markets producing jobs, but better paying jobs that translate into workers taking out applications to purchase a home and income growth that keeps homebuyer affordability strong.”

Source: Freddie Mac

What Consumers Want Smart Homes to Do

When it comes to smart homes, consumers are more interested in their security features than the gadgets that control the homes’ appliances. New research by Icontrol Networks, a home technology company, shows that 90 percent of 932 respondents recently surveyed say that security is one of the most important reasons for using a smart-home system. In fact, 67 percent rank it the No.1 reason, and the majority of consumers say security is a must-have in any home automation, according to Icontrol’s 2014 State of the Smart Home Report.

Fire and carbon monoxide alarms, as well as gas leak alarms, were listed as top security features, according to the survey.

“For now, safety and security are driving initial mass market adoption,” says Jim Johnson, executive vice president of Icontrol Networks. “But the convenience associated with a connected home will likely play a greater role as consumers realize how much easier automation makes their lives.”

Seventy-eight percent of respondents also ranked energy management as one of the top features that matter most to them in a smart home. HVAC heating and cooling management was cited as the most important feature in helping to reduce utility bills. Nearly 43 percent of respondents say they’d be interested in replacing their thermostat with a “smart thermostat,” one that automatically adjusts when the home is occupied.

Would home owners be willing to pay for extra costs in making homes smarter and more connected? The survey found that 51 percent of respondents would be willing to pay up to $500 for a fully equipped smart home; 32 percent say they’d pay $500 to $3,000.

Source: “What Consumers Want in Home Automation,” Builder (July 17, 2014)

The Return of the First-Time Home Buyer?

Young people are starting to leave their parent’s home and move out on their own. The Current Population Survey for 2013 showed a drop in the percentage of 20-somethings living with parents, marking the first decline since 2005.

As of now, the percentage drop appears minimal: Those aged 18 to 24 living with parents or a related subgroup dropped from 56 percent to 55 percent in one year. However, Brad Hunter, chief economist at Metrostudy, notes in a Builder online article that the one-percentage-point decline represents 300,000 people who are now looking for a household of their own that who were previously living with their parents.

A recent report by Harvard University’s Joint Center for Housing Studies predicts that 2.7 million more households will form among people in their 30s over the next decade.

First-time buyers usually make up about 40 percent of home buyers. However, lately, the share has been in the 35 percent to 38 percent range, Hunter says. For existing-home sales, first-time buyers’ share is less than one-third of all buyers, at 27 percent in May, according to the National Association of REALTORS®.

The delay in millennials branching out on their own has greatly reduced household formation in recent years. Household formation rates usually average 1.4 million per year. Lately, the rate has been a fraction of that, about 500,000 to 700,000 a year.

“We are seeing some evidence that young people who had moved in with their parents or relatives are now finding the means and the motivation to move out and get their own place,” Hunter notes. “While most of these newly-emerging twenty-somethings will be going into rentals, the movement out of the parental home is nonetheless expected to support a series of positive steps from rentals to entry-level re-sales to entry-level new homes, and on up the ladder.”

Source: “First-Time Buyers and New-Home Demand: Reverting to Normal,” Builder (July 10, 2014)

Take a Class, Save on Your FHA Loan

The Federal Housing Administration will be ending its public comment period  in mid-August on a proposed program that would allow first-time home buyers to get a discounted mortgage if they enroll in housing counseling classes.

The program, called Homeowners Armed with Knowledge (HAWK), was announced last month by the FHA as way to curtail home buyers’ mortgage insurance premium costs. FHA is operating under the assumption that the more borrowers understand about home ownership, the less likely they are to default on their loans, thereby decreasing their lending risk.

To be eligible for the discount, borrowers must take several courses before and after closing. FHA says consumers could save an average of $325 a year or nearly $10,000 over the life of the loan.

The courses will be taught by agencies approved by the U.S. Department of Housing and Urban Development. FHA hopes that borrowers will be able to apply for the program by the end of the year.

Source: “FHA Offers First-Time Homebuyers Discounted Loans for Taking Class,” RISMedia (June 14, 2014)

New Social Network Focuses on the “Happy Moments”

Will real estate have a presence on the latest social network that focuses on the happy things in life — say, a new home buyer showing off their new home or a home owner posting about their latest home improvement?

Happier is a new start-up social network that sets out to celebrate the happy moments in life. Users can post photos and status updates about anything that makes them happy.

The one rule: No negativity allowed.

Happier launched in February. It’s available on the Web and also has an iPhone app (no Android app as of yet). So far, a million happy moments have been posted to the site. The site has more than 100,000 users. Happy moments can be viewed by all users at the site, and a new version of the iPhone app, out in August, will default to making all posts public. Users can opt to restrict access, if they choose.

“Seeing what makes other people happier is as valuable, or maybe more valuable” than sharing your own happiness, says Nataly Kogan, co-founder and chief executive of the company.

Source: “A Social Network Dedicated to Happy Moments,” The New York Times (July 23, 2013)

The Recession Changes Americans’ Moving Patterns

Moves across county and state lines are falling, with the 2007-2009 recession blamed for changing Americans’ moving patterns, according to an analysis of census data through 2010. The Great Recession caused more Americans to move because they could no longer afford to remain where they were. That’s a big change in what traditionally motivates Americans to move — a bigger home or higher paying job, USA Today reports about the analysis.

Nine percent of Americans stayed local with their moves during 2007-2009 period — the highest in a decade. 

“Typically, over the last couple of decades, when Americans moved, they moved to improve their lives,” says Michael Stoll, author of the research and chairman of UCLA’s public policy department. “This is the shock: For the first time, Americans are moving for downward economic mobility. Either they lost their house or can’t afford where they’re renting currently or needed to save money.”

More than 23 percent moved for more affordable housing during the recession. Prior to the recession, that percentage stood at 20.8 percent. 

Also, prior to the recession, 41.3 percent of Americans moved in order to own a home or settle into a better neighborhood. However, during the recession, that percentage dropped to 30.4 percent. 

Source: “Americans on the Move Start Moving Down, Not Up; Setback in Upward Mobility Hits Blacks, Sun Belt Spots Hardest,” USA Today (Feb. 20, 2013)