‘Bank of Mom and Dad’ for Loans?

Parents and grandparents are increasingly helping their adult children buy their first home. A new study suggests that if families were considered a financial institution, the “Bank of Mom and Dad” would be the seventh largest mortgage lender in the country.

One in five of buyers received gifts or interest-free loans from family members, the study shows. The average amount buyers received from them was $39,000. The Pacific region saw the greatest share of young adults receiving financial help in buying.   Source: Legal & General Group

“For many, perhaps most,young adults, buying a house without help is an increasingly unattainable goal,” says Nigel Wilson, chief executive at Legal & General Group.

The Bank of Mom and Dad “reflects, first and foremost, a housing market where significant problems remain in matching the supply and demand of different types of housing, most notably starter homes and affordable housing of all kinds,” Wilson says.

‘Built-to-Rent Homes’ Come Down Off Highs

The market for single-family homes that are built to be rentals is showing signs of declining from its post-recession highs, according to the National Association of Home Builders.

The market share for built-to-rent single-family homes stood at 3.3 percent in the first quarter of 2014. That remains higher than historical averages of 2.8 percent but has dropped from its 5.8 percent share a year ago, NAHB’s analysis shows.

During the recession, the share of built-to-rent homes soared while the foreclosure and financial crises forced more Americans to become renters.

But “it appears the market is returning to historical averages after recent peaks in this form of construction,” according to NAHB’s Eye on Housing blog.

About 20,000 built-to-rent homes were started nationwide in the last four quarters.

Source: “Single-Family Built for Rent Market Remains Off Recent Market Highs,” National Association of Home Builders’ Eye on Housing Blog (May 26, 2014)

Building Owners Call for Standard in Measuring Square Footage

Building owners throughout the world use different systems for measuring square footage or square meters of office spaces that tenants want to lease. The measurements also could differ by up to 24 percent from one another, reports The Wall Street Journal.

As such, an international coalition of real estate organizations has banded together to create a single measurement system for the global office market. The International Property Measurement Standards Coalition plans to announce its new standard measurement in June.

“The current situation on measuring standards is totally unacceptable,” Ken Creighton, chair of the coalition’s board of trustees, told The Wall Street Journal.

But once the new standard is released, building owners will have the choice of whether to adopt or ignore it. The coalition lacks the authority to require owners to follow the standards, so adoption will be voluntary. But some officials say there may be pressure from government organizations and tenants to adopt the standards.

Source: “Building Owners Brace for Tall Order: One Way to Measure Space,” The Wall Street Journal (May 27, 2014)

Credit Counseling to Lower FHA Borrowers’ Payments

Federal Housing Administration borrowers may be able to lower their mortgage insurance premiums if they agree to undergo housing counseling.

FHA announced a new program – Homeowners Armed with Knowledge (HAWK) – earlier this month that would allow FHA borrowers who complete counseling before closing to receive a 0.5 percentage point reduction in their upfront insurance premium. They will also see an annual premium drop by 0.1 percentage points.

Borrowers may also qualify for more savings too. Borrowers who take part in post-closing counseling and show a record of on-time payments for two years can receive an additional 0.15 percentage point reduction.

On an FHA loan with an average loan balance of $180,000, borrowers who go through counseling would be able to decrease their payments by nearly $325 a year in insurance costs – or $9,800 over the life of a 30-year loan, according to FHA.

To be eligible for the reduced rates, FHA borrowers must undergo a Department of Housing and Urban Development-approved counseling class. The changes are expected to roll out this fall as part of a four-year pilot program.

Source: “FHA Loans Get Better with Credit Counseling,” The New York Times (May 22, 2014)


Mortgage Rates Drop Slightly This Week

Mortgage rates have been seesawing in recent weeks. Overall rates inched down this week with the 30-year fixed-rate mortgage, the most popular choice among homebuyers, averaging 4.29 percent, Freddie Mac reports in its weekly mortgage market survey.

Freddie Mac reports the following national averages for the week ending May 1:

  • 30-year fixed-rate mortgages averaged 4.29 percent, with an average 0.7 point, dropping from last week’s 4.33 percent average. Last year at this time, 30-year rates averaged 3.35 percent.
  • 15-year fixed-rate mortgages averaged 3.38 percent, with an average 0.6 point, falling from last week’s 3.39 percent average. A year ago, 15-year rates averaged 2.56 percent.
  • 5-year hybrid adjustable-rate mortgages averaged 3.05 percent, with an average 0.4 point, rising from last week’s 3.03 percent average. Last year at this time, 5-year ARMs averaged 2.56 percent.
  • 1-year ARMs averaged 2.45 percent, with an average 0.5 point, rising from last week’s 2.44 percent average. A year ago, 1-year ARMs averaged 2.56 percent.

Source: Freddie Mac

Are Buyers Too Afraid of Mortgage Rejection?

Fifty-six percent of all potential home buyers—those who want to buy a home within the next 24 months—say they’re waiting to purchase because they fear being rejected by lenders. What’s more, 30 percent of current home owners say they don’t think they could qualify for another loan, according to a national consumer survey of more than 1,000 Americans by the firm OmniTel.

The survey also found that 74 percent of potential buyers who need a mortgage say they have not taken the steps to qualify or investigated the mortgage process yet. The survey showed that many potential buyers believe they need nearly perfect credit scores to qualify for a mortgage today. Eighteen percent say they believe borrowers need a minimum FICO score of 770 or higher to qualify. Also, about a third of potential buyers say they believe their debt-to-income ratios are too high to qualify.

But these fears may be overblown. Ellie Mae, which provides a loan origination and tracking software for the mortgage industry, says that 33 percent of all new loans in March had borrower FICO scores below 700. The percentage has been growing, too—a year ago it was 27 percent. The Federal Housing Administration insured loans with average FICO scores of 684 in March. For conventional mortgages, the average remains higher at 755, but is down from 759 a year ago.

Debt-to-income ratios aren’t as strict as most potential buyers believe either. FHA’s average ratio in March for purchase loans was 28 percent; Fannie Mae- and Freddie Mac-backed loans averaged 22 percent, according to Ellie Mae data.

Source: “Mortgages Are Easier to Obtain Than Many Prospective Home Buyers Might Expect,” The Washington Post (April 25, 2014)

Mortgage Rates Rise Across the Board

Fixed-rate mortgages rose this week across the board, increasing borrowing costs for home buyers, Freddie Mac reports in its weekly mortgage market survey.

The mortgage giant reports the following national averages with mortgage rates for the past week:

  • 30-year fixed-rate mortgages: averaged 4.33 percent, with an average 0.6 point, rising from last week’s 4.27 percent average. Last year at this time, 30-year rates averaged 3.40 percent.
  • 15-year fixed-rate mortgages: averaged 3.39 percent, with an average 0.6 point, increasing from last week’s 3.33 percent average. A year ago at this time, 15-year rates averaged 2.61 percent.
  • 5-year hybrid adjustable-rate mortgages: averaged 3.03 percent, with an average 0.5 point, holding the same average as last week. A year ago, 5-year ARMs averaged 2.58 percent.
  • 1-year ARMs: averaged 2.44 percent, with an average 0.5 point, holding the same as last week. A year ago, 1-year ARMs averaged 2.62 percent.

Source: Freddie Mac

Lot Shortages Make Building Costs Higher

Homebuilders who did not buy up land during the housing downturn are facing much higher costs today — and that may get passed on to home buyers.

“Builders waited so long to buy land that, when the recovery happened, it was very strong and they got caught short,” Tobias Welo, a portfolio manager at Fidelity Investments.

The cost of land is nearly 22 percent of the final sales price of a new home, and 100 percent of that cost usually gets passed down to the buyer, the National Association of Home Builders has said in the past.

Some builders used the housing downturn as a time to snatch up land at lower costs. For example, Lennar, the nation’s third-largest builder, and Toll Brothers, the largest luxury builder, ramped up their land banks with several low-cost land acquisitions during the 2008-10 economic downturn, Reuters reports. Toll Brothers has one of the largest land banks — has enough to last more than 12 years compared to the 7.4-year average among the top five U.S. homebuilders, according to data from Tri Pointe Homes Inc.

Due to the land shortage, builders have been raising prices. D.R. Horton saw its average sales price increase 10 percent to $275,600 during the three-month period ending Dec. 31. PulteGroup’s revenue jumped 13 percent because of a rise in its average sales price, despite the builder slowing the pace of construction, Reuters reports.

“The run-up in land prices has been huge. What someone paid for land last year may not even work today,” says Scott Laurie, chief executive of privately owned California-based builder Olson Homes. Laurie says his company plans to spend at least 25 percent more on land purchases this year compared to last year.

Some big builders are responding by buying smaller, privately owned builders who may own more land but have limited access to finance construction. Ryland Group Inc. plans to purchase other homebuilders to ramp up its land bank. Tri Pointe and Toll Brothers have been acquiring smaller builders to gain more developed lots in California.

Source: “Scarce Land Could Blunt Recovery for U.S. Homebuilders,” Reuters (April 15, 2014)

Consumer Confidence in Housing Hot This Spring

Consumer attitudes are reflecting greater optimism in the housing market heading into real estate’s traditionally strong spring selling season, according to Fannie Mae’s March 2014 National Housing Survey.

In the poll of 1,000 people, 38 percent say it’s a good time to sell a home, up from 26 percent a year ago. The poll also shows that 69 percent of those surveyed say it’s a good time to buy, and 52 percent say it’s easier today to get financing for a home.

Americans feel more confident about their personal finances: An all-time survey high of 40 percent say their personal financial situation has improved during the past year.

“The housing recovery continues to proceed in fits and starts,” says Doug Duncan, Fannie Mae’s chief economist. “Rising mortgage rates and a lack of supply have dampened housing market momentum. However, we see several positive signs going into this year’s spring home-buying season, compared with last year. For example, consumers are less pessimistic about their personal finances and more optimistic about the current selling environment and their ability to get a mortgage. Still, those who are pessimistic about buying or selling a home today tend to point to economic conditions as the primary issue, and most consumers continue to say the economy is on the wrong track. Looking forward, we expect to see a pickup in economic growth later in the year, and this may boost the confidence of prospective buyers and sellers.”

Source: Fannie Mae