Some industry pundits are saying that the housing market may be heading for a slowdown. One of the data points they use is the falling numbers of the Housing Affordability Index, as reported by the National Association of Realtors (NAR).
Here is how NAR defines the index:
“The Housing Affordability Index measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national level based on the most recent price and income data.”
Basically, a value of 100 means a family earning the median income earns enough to qualify for a mortgage on a median priced home, based on the price and mortgage interest rates at the time. Anything above 100 means the family has more than enough to qualify.
The higher the index the easier it is to afford a home.
Why the concern?
The index has been declining over the last several years as home values increased. Some are concerned that too many buyers could be priced out of the market. Here is a snapshot of the index since 2009:
But, wait a minute…
Though the index has decreased over the last four years, we must realize that at that time there was an overabundance of housing inventory and as many as one out of three listings was a distressed property (foreclosure or short sale). All prices dropped dramatically and distressed properties sold at major discounts. Then, mortgage rates fell like a rock.
The market is recovering and values are coming back nicely. That has caused the index to fall.
However, let’s remove the crisis years and look at the current index as compared to the index from 1990 – 2008. We can see that, even though prices have increased, historically low mortgage rates have put the index in a better position than every year for the nineteen years prior to the crash.
The Housing Affordability Index is in great shape and should not be seen as a challenge to the real estate market’s continued recovery.
Many experts have been calling upon home builders to ramp up construction to help with the lack of existing inventory for sale. For the past two months, new home sales have surged, with July’s total coming in at the highest since October 2007.
The latest estimates from the US Census Bureau and Department of Housing and Urban Development show that sales in July were 31.3% higher than this time last year, and 12.4% higher than last month, at a seasonally adjusted annual rate of 654,000.
Zillow’s Chief Economist, Svenja Gudell, echoed the reaction of some as she commented:
“July(‘s) new home sales data was a surprise, but a welcome one. For years, the market has been practically begging builders to both ramp up their efforts overall and to put more focus on serving the less expensive end of the market. Today’s data confirms both are happening in earnest.”
The National Association of Home Builder’s (NAHB) Chairman, Ed Brady, didn’t seem as surprised:
“This rise in new home sales is consistent with our builders’ reports that market conditions have been improving. As existing home inventory remains flat, we should see more consumers turning to new construction.”
NAHB’s Chief Economist, Robert Dietz, believes this is just the start for new home sales if market conditions continue:
“July’s positive report shows there is a need for new single-family homes, buoyed by increased household formation, job gains and attractive mortgage rates. This uptick in demand should translate into increased housing production throughout 2016 and into next year.”
The existing home sales numbers for July will be released today and will shed more light on the overall health of the housing market.
New home sales hit their highest mark in over 9 years. Buyers are out in force to find a home that fits their needs. Many are turning to new construction, as the inventory of existing homes has not been able to keep up with demand.
Here’s a piece of incoming information that crossed my screen, an item that related to the
possible direction in which Central MA home loan interest rates might be heading.
The first came from a big national listing aggregator. It seems that once this outfit gets the idea that you are interested in homes, they conclude that it’s your wish to establish an ongoing relationship. They then display all the energy and persistence a large corporation can muster to share their thoughts about this and that. They will continue to email you with regularity until you call, “halt”.
Along with other communications, they sometimes send attention-grabbing questions to everybody on their list, then share the answers from the “community” (that is, everyone who hasn’t begged off yet). Here’s an example question: “Is it better to buy a house right now or wait until 2017?” Since Worcester County’s current home loan interest rates are one of the prime reasons today’s market is so affordable, the posted responses would surely be relevant.
Some were confused (“When interest rates rise, this puts pressure on affordability, which then slows rising house prices…then is the best time to buy”). This commenter apparently hadn’t taken into account the fact that higher home loan interest rates mean higher mortgage payments; definitely not a more attractive time to buy.
A crank in Upstate New York complained that houses around those parts were too spooky and expensive (“housing and all these old, some hunted houses costs easily over 500K”).
Other answers were more philosophical (“it is ALWAYS a personal matter whenever a large purchase is contemplated”). Some claimed dubious expertise (“BUY NOW>>>NEXT YEAR THE PRICE WILL BE GOING EVEN HIRE”). Others were observant (“You should go to grammar school and get some spelling lessons. Seriously”).
All in all, most did subscribe to the majority view that low home loan interest rates make the current environment genuinely inviting. One writer was defiantly emphatic (“Buy now; waiting costs you more for interest rate and purchase price”).
Answers like that (there were lots of them) made the second source of home loan interest rate news all the more relevant. It came from a source that should supply the most reliable clues to the future direction of rates: the financial press. Unfortunately, after reading many different takes on the breaking news, clearness was in even shorter supply.
Anyway, continued low home loan interest rates could mean smooth sailing for the Central MA’s residential market. And another good reason to give me a call. Come to think of it, if the opposite happens, it’s also a good reason!…..Realty Ace, LLC
Much of the financial press has been sounding a recurrent theme for a while:
the complaint that the interest rate slump has left growth-oriented investors with few choices other than a Wall Street gamble. Worcester County investors may find that some degree of risk is tolerable when you have a lifetime of earning ahead of you, but it’s a lot less tempting when the savings from that lifetime of hard work is already in the bank; barely keeping pace with the real inflation rate.
Happily, one of those “few choices” is in our own backyard. A residential real estate investment in Central MA brings with it the built-in peace of mind that comes with an investment that is right here, where you can keep an eye on it. And it also has the additional appeal of offering flexibility in the degree of involvement and control you decide to exercise. With a single- or multiple-family rental property as your Bay State real estate investment, you can either decide to be a property’s hands-on landlord, or choose to play a more passive role by letting one of our home-grown reliable property management companies handle the operational details.
If that is your choice, you can sit back and let the professionals do their job. All you need do is a bit of top-down managing of the managers. Every property has its own unique characteristics, but you will be able to rely on the best property managers to diligently accomplish these “Top 5” performance bench marks:
- Keeping in touch. Beyond simply answering your requests and questions, the best property managers report to you on a monthly basis.
- Finding quality tenants. Filling any vacancy in short order (and with good tenants) is one key way professional property managers make it financially worthwhile to employ them. Good tenants are valuable!
- Tenant-handling. You should not have to be involved directly with tenant concerns or complaints. An important part of your property manager’s responsibility is addressing repairs or problems rapidly and efficiently.
- A stitch in time saves nine is especially apt when it comes to keeping your real estate investment in top shape. That translates into regular inspections, at least once a year, inside; more frequently, outside.
- The optimal result of a great Central MA real estate investment is both growth in its underlying value at the same time that positive cash flow is generated. Bottom line: the cost of property management should leave you smiling at the end of the year.
When your real estate investment is handled properly, each of the Top 5 performance bench marks will be met without fail. Of course, what makes it all possible is the sound investment that underlies the whole enterprise which starts with a call to my office!…..Realty Ace, LLC
Fannie Mae’s “What do consumers know about the Mortgage Qualification Criteria?” Study revealed that Americans are misinformed about what is required to qualify for a mortgage when purchasing a home.
Myth #1: “I Need a 20% Down Payment”
Fannie Mae’s survey revealed that consumers overestimate the down payment funds needed to qualify for a home loan. According to the report, 76% of Americans either don’t know (40%) or are misinformed (36%) about the minimum down payment required.
Many believe that they need at least 20% down to buy their dream home. New programs actually let buyers put down as little as 3%.
Below are the results of a Digital Risk survey of Millennials who recently purchased a home.
As you can see, 64.2% were able to purchase their home by putting down less than 20%, with 43.8% putting down less than 10%!
Myth #2: “I need a 780 FICO Score or Higher to Buy”
The survey revealed that 59% of Americans either don’t know (54%) or are misinformed (5%) about what FICO score is necessary to qualify.
Many Americans believe a ‘good’ credit score is 780 or higher.
To help debunk this myth, let’s take a look at the latest Ellie Mae Origination Insight Report, which focuses on recently closed (approved) loans. As you can see below, 54.1% of approved mortgages had a credit score of 600-749.
Whether buying your first home or moving up to your dream home, knowing your options will definitely make the mortgage process easier. Your dream home may already be within your reach.
There are some people that have not purchased a home because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize that, unless you are living with your parents rent free, you are paying a mortgage – either yours or your landlord’s.
As The Joint Center for Housing Studies at Harvard University explains:
“Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return.
That’s yet another reason owning often does—as Americans intuit—end up making more financial sense than renting.”
Christina Boyle, a Senior Vice President, Head of Single-Family Sales & Relationship Management at Freddie Mac, explains another benefit of securing a mortgage vs. paying rent:
“With a 30-year fixed rate mortgage, you’ll have the certainty & stability of knowing what your mortgage payment will be for the next 30 years – unlike rents which will continue to rise over the next three decades.”
As an owner, your mortgage payment is a form of ‘forced savings’ which allows you to have equity in your home that you can tap into later in life. As a renter, you guarantee the landlord is the person with that equity.
Interest rates are still at historic lows, making it one of the best times to secure a mortgage and make a move into your dream home. Freddie Mac’s latest report shows that rates across the country were 3.43% last week.
Whether you are looking for a primary residence for the first time or are considering a vacation home on the shore, now may be the time to buy.
One good way my clients get a head start from the word “go!” is the amount of attention
their Central MA listing receives. Since that listing is by far the most prominent display piece their property will be presenting to the world of potential buyers, it has to be first-rate and give people a true impression of the home. The details must be presented in clear and unambiguous language, laid out with the information buyers consider important right at the top. Most important of all is how the data is shown. If there is ever a place where photography will pay off, this is it!
That’s why it’s astonishing when you come across Worcester County listings where the shots appear to have been taken with casual abandon. You seldom see those when a property is represented by a licensed agent. When you do, it’s probably the result of a client’s sudden need to sell quickly, in which case the offending samplings are usually swiftly replaced by professional substitutes.
What are the most common amateur photography slip-ups that can’t help but harm a property’s impact? Here are five that seem to lead the pack:
1. Flash. Even most smartphone cameras have flash capability for dark scenes. The problems with that kind of flash is that, since the light provided is right next to the lens, everything that’s illuminated looks flat, it erases the depth that shadows provide. Also, things that are closest to the camera are bright, those distant are darker making for all the appeal of a crime scene photo. As if that weren’t enough, reflective objects like mirrors and glass reflect the glare of the flash.
2. Illumination. Most home-grown listings are more inviting when they serve to emphasize a property’s open, spacious qualities. There are exceptions, but most of the time that means bright and light. Rooms look their best when their natural light is only subtly augmented by additional photo lighting. Photo lights introduce unnatural shadows unless they are skillfully placed…but when that’s accomplished, the result is a bright, clean, color-balanced shot.
3. Selection. When a listing photo portrays an area that isn’t obvious. When a shot doesn’t “explain itself” the result is confusion for the viewer. More than one or two close-ups of architectural details without a clear indication of where they are found doesn’t help
tell the listing’s “story.”
4. Focal length. Most “normal” lenses aren’t well suited for listing photography. Wide angle shots are almost always more appropriate. They provide more information by showing a greater area—which also conveys a more spacious feeling.
5. Clutter. Experienced listing photographers know how the viewer’s eye is attracted
to details which are out of place. The personal bric-a-brac that’s part of daily living can be a show-stopper in listing photography. Amateurs leave clutter in; professionals seek to remove it before every shot!
6. Glamor Shots (by some professionals). Think of your listing photos like you’re submitting them to a dating service. If the pictures don’t accurately depict the listing there won’t be a second date!
A superb Central MA listing is one that features photos that tell a story beautifully and accurately. It’s really the opening act of a presentation which, hopefully ends with a deed conveyed and front door key presented. I hope you’ll call me when it’s time to get your show on the road!…..Realty Ace, LLC