A Cruel Season for Home Buyers

Typically, the housing market starts to slow in late summer, and prices drop slightly. But so far this year that hasn’t been the case.

“Homes are not selling faster than last July, but faster than last year’s peak months,” says Javier Vivas, manager of economic research at realtor.com®. “However, quick sales don’t necessarily mean more sales, particularly when there isn’t enough inventory, as is the current case. Home prices also remain stubbornly high, failing to show hints of the usual seasonal cool down. Low and moderately priced homes are being snatched up especially quickly, keeping many would-be buyers from being able to get into the market.”

“In this market, home buyers have to move fast, yet high prices and low inventory are slowing down even the most earnest of house hunters,” Nela Richardson, Redfin’s chief economist, told CNBC. “Faced with a low supply of homes for sale and extremely competitive conditions, many home buyers are struggling to make it to the offer stage.”

Source: “Housing Demand Strengthens Through Summer, But Here’s Why Some Buyers Are Giving Up,” CNBC (Aug. 2, 2017)

Is Calif.’s Housing Crisis Spinning Out of Control?

California has a severe lack of affordable homes and apartments for middle-class families, The New York Times reports. Their median cost of a home has surged to $500,000—double the national cost.

“The extreme rise in housing costs has emerged as a threat to the state’s future economy and its quality of life,” The New York Times reports. “It has pushed the debate over housing to the center of state and local politics, fueling a resurgent rent control movement and the growth of neighborhood ‘Yes in My Back Yard’ organizations, battling long-established neighborhood groups and local elected officials as they demand an end to strict zoning and planning regulations.”

The state has introduced 130 housing measures this year. Among one of the most recent actions, the Senate approved a bill to crack down on communities that have delayed or derailed housing construction proposals. The bill would restrict the ability to use zoning, environmental, and procedural laws to kill projects that may be considered “out of character” with the neighborhood. The bill is expected to be voted on again later this summer.

Source: “The Cost of a Hot Economy: A Severe Housing Crisis,” The New York Times (July 17, 2017)

The Real Costs of Tiny Homes

The tiny home movement—homes that often fall within the 100- to 400-square-foot range—is becoming more trendy as owners are drawn to the homes’ minimalism and sliced costs. But buyers may not want to count on cutting their savings by purchasing a tiny home.

A tiny home usually has more costs up front. If you build it yourself, the average cost is about $23,000, according to The Tiny Life. This usually doesn’t include the land price, so buyers will need to pay more to purchase a plot of land or lease land for the home. Additionally, about 68 percent of tiny home owners don’t have a mortgage at all, compared to just 29.3 percent of buyers of traditional homes.

Tiny-home living promotes less spending on utilities as an added perk, but buyers will need to watch those upfront payments as well. Tiny homes often use alternate forms of energy, such as propane, solar energy, or composting. Even for a tiny house, a solar-power system can cost about $8,000, according to The Financial Times.

Source: “Tiny House Living: How Much Money Can You Really Save?” CheatSheet.com (July 11, 2017)

Renters Admit They Favor Home Ownership

Seventy-two percent of renters “prefer” or “strongly prefer” to own a home rather than rent one, according to the latest SCE Housing Survey conducted by the Federal Reserve Bank of New York.

Nearly 56 percent of renters view homeownership as a “good investment,” the survey finds.

The majority of renters favor homeownership, despite expressing concerns about their ability to one day afford a home. However, they do believe it’s getting easier to qualify for a mortgage. Sixty-five percent of renters say qualifying for a mortgage is “somewhat difficult” or “very difficult,” but that is gradually declining. Twenty percent of renters view qualifying for a mortgage as “somewhat easy” or “very easy,” which is up from 15 percent in 2015.

Source: “Home Price Growth Expectations to Increase: Renters Perceive Easier Access to Mortgage Credit,” Federal Reserve Bank of New York (May 11, 2017)

Owners: Be Smart When Financing Renovations

The number of homeowners who are planning to take on home improvement projects or repairs this year is expected to increase 6.7 percent, according to the Joint Center for Housing Studies at Harvard University. As more owners look to remodel, they should be weighing how to fund their renovations.

Homeowners may be using credit cards, even though they intend to pay for the balance as soon as it’s due, because they want the benefits of getting airline miles or other rewards from using the credit card, says Todd Nelson LightStream’s business development officer. But for those who don’t intend to pay the credit card off right away should realize the interest rates are usually in double digits and is not tax-deductable.

An option is a home equity line of credit, the interest may be tax-deductible and there are few upfront frees. Another consideration may be a cash-out refinance is another option, where borrowers refinance for more than what they owe on the property and then take the difference out in cash. However, processing fees and closing costs are involved.

Source: “More Homeowners Pay for Repairs With Credit Cards,” realtor.com® (April 26, 2017)

Study: Millennials Hold Off on Big Life Choices

Baby boomers and millennials have different attitudes when it comes to marriage, children, and home ownership. Researchers with the National Center for Family and Marriage Research at Bowling Green State University compared adults who were 25 to 34 years old in the 1980’s with those who are in that age group today. One difference they found is that millennials are getting married later in life. In 1980, two-thirds of 25- to 34-year-old’s were married; in 2015, just two in five were married.

Because baby boomers were more likely to get married younger, they generally left their parents’ home much earlier than millennials. Americans in their late 20s and early 30s who live with their parents or grandparents have more than doubled since 1980, notes researcher Lydia Anderson. In 1980, only 9 percent of 25- to 34-year-olds were living with parents or grandparents compared to 22 percent in 2015.

Millennials are also putting off having children and buying a home. Plus, lag behind baby boomers when it comes to marriage, children, and home ownership, they are more likely to obtain a college degree, the study notes.

Source: “Young Americans Are Killing Marriage,” Bloomberg (April 4, 2017)

Home Prices Blamed for Student Loan Defaults

The housing crisis may also have sparked the increase in student loan default rates, according to a working paper by the National Bureau of Economic Research.

The study says the drop in home prices during the Great Recession also coincided with a 24 to 32 percent rise in student loan default rates. Researchers looked at administrative student loan data along with ZIP code home price data for about 300,000 student loan borrowers in repayment.

Last year, more than 1 million federal student loan borrowers defaulted on their debt.

“The huge rise in student loan defaults is on everybody’s minds and the question is what’s the cause of this rise?” says Holger Mueller, one of the authors of the paper and a professor of finance at New York University’s Stern School of Business. “What we want to do is point to another very important source of default risk and that’s just the labor market.”

Source: “Why Lower Prices Lead to Higher Student Loan Default Rates,” MarketWatch (April 1, 2017)

Homeowners Don’t Want Cookie-Cutter Lawns

Homeowners are focused on making changes to their front yards so they’re markedly different from their neighbors’ yards and easier to maintain, finds the 2017 U.S. Houzz Landscaping Trends Survey.

Homeowners want their yards to look distinct. Only 6 percent of homeowners reported front yards that were nearly identical to those in the neighborhood after their outdoor project, compared to more than a third before the update (36 percent), the Houzz survey shows. Two in five owners say they wanted to make a statement with a new front yard that was “very” or “extremely” different from others in the neighborhood following their update.

More homeowners are turning to low-maintenance plants to enhance their front yards, along with native plants and those that attract insects and birds. More than half of those who updated their front yard say that beds or borders, shrubs, and perennials were the most important to improving curb appeal.

Source: “2017 U.S. Houzz Landscaping Trends Survey,” Houzz (March 29, 2017)

This Could Boost Millions of Credit Scores

Equifax, Experian, and TransUnion announced they will soon remove tax lien and civil judgment data from some consumer credit records. The reason for this change is that many liens and most judgments fail to include vital pieces of information. Beginning on July 1, the public records data the firms use must include these data points: the consumer’s name, address, and either a social security number or a date of birth. Existing reports that fail to comply will be struck from the consumer’s credit record and new data that does not have that information will not be added.

Credit scores are weighed carefully by lenders in making decisions about loan terms and how much consumers can borrow, and can be very important in securing a sustainable mortgage. FICO estimates the changes will cause an improvement to about 12 million consumer scores; however the boost will be modest, likely less than 20 points.

In recent months, several lawsuits brought by states have been pushing credit reporting companies to remove some categories of negative data from credit score reports, such as information related to library fines or gym memberships. But some experts fear removing negative public record information could pose a greater risk to lenders.

Source: “Reporting Change Could Raise Credit Scores, Risk,” Mortgage News Daily (March 14, 2017)

Home Buyers: Watch Out for Deed Restrictions

Deed restrictions can bring nasty surprises to homeowners looking to remodel or even when buying a home. These restrictions can limit a number of property features, such as the number of bedrooms in your home, the building height, the type of vehicles in your driveway, the fencing permitted, the type and number of trees that can be removed from a property, and even the style and color of construction materials used in a renovation (which often is intended to limit architectural variations).

During the escrow process or before making an offer, make sure you are aware of any deed restrictions—often called “restrictive covenants” — before buying to avoid problems later on. The property does not have to be part of a homeowners association to be limited by a developer rule included in a deed.

“Deed restrictions turn up during title searches and a careful reading of the current deed,” a realtor.com® article notes. Anyone who buys the property must abide by the restrictions, even if they were put in place on the land a century ago. Deed restrictions are known for being difficult to change and often take a judicial ruling to invalidate them.

Source: “Building, Buying, or Beefing Up a Home? Watch Out for Annoying Deed Restrictions,” realtor.com® (3/01/17)