Author: bkoska

Sellers profited about $54,000 on average at the end of 2017, according to Attom Data Solutions. That’s a 10-year high and means sellers were bringing in an average return on investment of nearly 30%.

But selling a home in this market is the easy part. Finding a home to move into? Not so much.

A dismally low supply of homes on the market has made house hunting difficult in many cities. The lack of available homes has driven up prices, leading to bidding wars and homes selling for well above asking prices. While that’s good news for sellers, it’s bad news when they become buyers.

“It is fun and exciting to see a huge appreciation in your home,” said Allie Howard, a Redfin real estate agent in Seattle. “But what scares sellers is not wanting to be stuck in a rental scenario when homes continue to appreciate and they get concerned they will be priced out.”

West Coast home sellers have seen the largest gains, with those in San Jose, California, experiencing a 91% return on investment at the end of 2017. San Francisco home sellers saw a 73% return.

Owners are staying in their homes for a little more than eight years, on average. From 2000-2008, the average tenure was four years.

And new homes just aren’t being built fast enough to keep up with demand. Only around one million new homes are currently hitting the market — that’s well below the historic norm of 1.5 million.

Not having a home to move into means more people are staying put, and that has ripple effects throughout the housing market.

“The longer home ownership tenure is a central piece to why the housing market is behaving as it is where home prices are rising fast and there is an inventory logjam,” said Daren Blomquist, ‎senior vice president, communications at Attom.

Historically, buyers in starter homes tend to trade up after a few years to a bigger house — frequently after starting a family. But if they can’t find a home to move into, they will stay in the starter home longer. The lack of buyers trading up makes it particularly tough for first-time buyers to break into the market.

“It is a bit of a chicken and egg situation. If builders built more homes, homeowners might move up, but because homeowners aren’t moving up, the builders aren’t seeing as much demand for new homes,” said Blomquist.

Buyers may also be facing higher borrowing costs this year since interest rates are expected to rise.

The average rate on a 30-year fixed mortgage has been below 4.5% since January 2014. Higher mortgage rates could also keep homeowners in their homes longer if they purchased when rates were at historic lows.

“It impacts the affordability equation,” said Cheryl Young, senior economist at Trulia.

 

The real estate market is soaring.

But Millennials shouldn’t feel pressure to get in on the action, according to financial experts. They’re the largest group of homebuyers in the market today.

Buying a home is one of the most — if not the most — significant purchases of your adult life. So, you’ll want to make sure you’re really ready.

Here are three steps that’ll help you do that:

 

Sort your money out

First and foremost, get your finances in order before skipping off to find your dream home. This means understanding your total income and what it can buy.

While there are lots of online calculators out there to give you some quick numbers, approach with caution.

“Calculators online can be deceiving in that they don’t consider all expenses,” says Brett Spencer, a financial planner with D3 Financial Counselors.

The general rule according to experts is to spend no more than 30 to 38% of your monthly (pre-tax) income on housing costs. This includes all costs involved in homeownership — from monthly loan payments to insurance. Next you’ll need to figure out exactly how much you should have saved.

Sure, you’ll need enough to afford a down payment on the house — typically about 10% of the purchase price. In some cases you might be able to put down significantly less, though you’ll probably be required to pay mortgage insurance as well.

Budgeting is a big part of the process, so allocate what money you’ll need by setting up a savings account toward getting your future house.

 

Get Preapproved

Since a home is a pretty big purchase, you’re probably going to need a loan. But there are a wide variety of mortgage options to choose from. Work with a professional mortgage provider before house shopping to go over the options and figure out what you qualify for.

The best lender you can go with is known as a broker. This means they work with multiple banks instead of working with just one. This is a benefit because that means they can shop rates as well as conditions that will favor your buying process.

The most common mortgage is a fixed interest rate over a number of years usually either 15 or 30. The main benefit of a fixed rate is consistency, meaning steady payments over the life of the loan. While 15 years of payments will save you money on interest and allow you to pay off your loan sooner, spreading the loan out over 30 years might make the monthly payments more affordable for you.

The mortgage qualification process is called pre-approval. If you get pre-approved for a mortgage of a certain amount, the lender will give you a letter that you can present to sellers to show you have access to the money for the home you’re bidding on.

To move forward with the pre-approval process you’re going to need good credit, at least some money to spare, and a steady job.

 

Find a home

It’s finally time to shop for your dream home. When looking at a house, put the time in to get familiar with the place. And know that while you’re shopping around, just because you make an offer does not mean you’re committed to buying that home.

Pay attention to the layout and structure of the house. Hire a good home inspector, and ask lots of questions about the property. These are your first line defenses against a bad buy, according to experts.

Spending a little more money on help in finding the cracks can save you a lot down the road. Knowing the facts before signing a contract can also help you negotiate a lower price on the property or walk away from thousands of dollars in repairs.

If you find problems with your future house, let the seller know and ask for a discount. The last thing you want is a property with a lot of problems that you didn’t anticipate.

 

Real estate is crazy expensive. The median existing home price climbed to $252,800 in May, according to the National Association of Realtors, exceeding the peak hit in June 2016 of $247,600.

 

At this point, home prices have been rising every month for more than five years. While that’s good news for home sellers, buyers are having a tough time finding homes they can afford. Cities across the U.S. are facing major housing shortages, which means buyers have to compete for homes with bidding wars and offers well above asking price.

 

“Prices are moving up and properties are moving quickly,” said Danielle Hale, NAR’s managing director of housing research.

 

Builders aren’t building enough houses to keep up with demand and current homeowners are hesitant to list their properties because they’re worried they won’t be able to buy a new home.

“We have tremendous demand for housing, but there is nothing available to buy, said Keith Gumbinger, vice president of HSH.com.

 

Making matters worse, rents have also been on the rise, which means it’s harder for potential buyers to save up for a home in the first place. But there has been one saving grace for buyers: mortgage rates.

 

Even though the Federal Reserve has begun raising interest rates, mortgages have been hovering below 4% recently. Last week, the average rate of a 30-year fixed mortgage ticked down to 3.90%.

“Falling mortgage rates help to soften the blow of rising home prices,” said Gumbinger.

In the weeks after the presidential election, mortgage rates rose above 4% on enthusiasm for economic improvement. But as that optimism started to wane, rates fell again, Gumbinger said. They’ve remained below 4% for the last five weeks.

 

“After the elections, there was fantastic enthusiasm we would get fiscal policy changes and the economy was going to drive forward faster,” said Gumbinger. “Not a whole lot has been accomplished on that front … and that has confused the market and dampened enthusiasm.”

 

With the Fed raising rates, interest rates are expected to gradually rise over time, but should stay pretty low for the foreseeable future. Gumbinger expects rates to be a little more higher by the end of the year.

“We could have a ‘peak week’ of perhaps 4.5% between now and the end of the year, ” he said

 

Saving up a down payment to buy your first house can seem like a pretty daunting task. If you’ve never had more than a few thousand dollars in the bank at any given time, then setting aside five figures or more may seem impossible.

However, getting a down payment together is not as difficult as you may think, if you go about it the right way.

The first step in saving up your down payment is to pin down the amount you can responsibly spend on a house. Lenders will typically limit your mortgage amount so that your monthly housing payments (including property taxes and insurance) will not exceed 28% of your pre-tax monthly income.

You may feel you can pay more monthly, but keep in mind home ownership usually comes with additional expenses beyond that monthly housing payment: repairs, additional utility bills, homeowner’s association fees, and so on.

A home buying calculator can help you figure out just how much home you can afford,  but remember that no calculator can account for every aspect of your financial situation.

The second step is to set a savings plan. Once you know how much you need to save, the next step is to figure out how much you can set aside each month. That will also help you determine how long it will be before you’ll have the full down payment and can start house-shopping.

For example, if you plan to save $45,000 for a down payment, setting a time frame of five years to save $45,000 means you’ll need to save about $9,000 per year, or $750 per month, to make it happen. Squeezing an extra $750 per month from your monthly budget will likely mean some serious cutting of expenses and/or finding new sources of income.

However, you can definitely speed up the process. One way to make the saving process go faster is to get better returns on the money you’re saving by investing part of it in stocks. It’s a riskier course of action than sticking the money in a savings account, but if you have several years before you buy a home, then it could greatly accelerate your savings plan. It would also mean you don’t have to save quite as much to reach your goal, because your money would be earning more money for you.

Another option would be to borrow from your 401(k). If you have a well-funded 401(k) account, you can borrow up to half the money (to a maximum of $50,000) and use that money as part or all of your down payment. Depending on the provider they will either put you on a payment plan to pay that money back, or they will put money into your account to cover that loan instead of adding to your account.

Lastly, if you are a first time home buyer or haven’t owned a home in the last 3 years you can see if your eligible for down payment assistance. This program provides a deferred-payment junior loan – up to 3.5% of the purchase price, or appraised value, whichever is less, to be used for their down payment and/or closing costs.

The traditional 20% down payment is still the best option. For one thing, it lets you skip private mortgage insurance, an annoying expense that can put more strain on your budget. But if 20% down is not in the realm of possibility, there are programs that can get you into a house with a much smaller sum. For example, FHA programs let you pick up a mortgage with as little as 3-1/2% down if your credit score is at least 580.

 

To find out how much you would need to save for a down payment click here.

 

Buying a home is likely the biggest purchase you’ll ever make, and it’s not always an easy one. Low inventory has pushed home prices up in cities throughout the country, giving sellers an advantage. Homes sell fast, bidding wars break out and offers above the asking price are common.

All of this means that buyers need to be on their game and have their finances in order before entering the market.

Here’s what experts said first-time buyers need to know:

1. What you can actually afford

Before buyers start their house hunt, it’s important they know how much they can afford to spend.

“Start with a plan,” said Chantel Bonneau, a financial adviser at Northwestern Mutual. “Don’t let your imagination take over and don’t let what you see from friends’ houses drive your budget.”

Buyers should list out all of their monthly expenses. Don’t forget to include items like groceries, transportation, and discretionary spending, like gym memberships and nights out.

Spending too much on monthly housing payments can leave homeowners house poor, and unable to afford other expenses — like saving for retirement.

In competitive markets, it’s great for buyers to first get pre-approved for financing to get a leg up. But experts said that just because a bank approves you for a certain amount, it doesn’t mean that’s what you should spend. Stick to a price limit you’re comfortable with.

2. You need a buffer

While it may be tempting to throw everything you’ve got at your offer to stay competitive, experts recommended having at least some money left over after you close on a home.

Experts advised having at least three to six months in savings the day you become homeowners. One reason is that you’ll need emergency savings now more than ever.

“You don’t want a flat tire or a deductible on a medical plan to throw you into financial turmoil,” said Bonneau. “When you are a homeowner, you have a lot more things that can go wrong.”

If a home purchase leaves you with no liquidity, it might be worth considering waiting to increase your savings or lowering your price point, advised Neil Krishnaswamy, a certified financial planner with Exencial Wealth Advisors.

3. The true cost of owning a home

The down payment tends to be the biggest financial hurdle to owning a home, but there are many other costs that pop up along the way: appraisal, home inspection, credit report and notary fees can all add up.

And the costs don’t stop just when the keys are handed over. There’s the move, new furniture and costs like lawn care and utility payments that former renters might not be used to paying.

“I don’t know if anyone truly understands the total cost of owning a home,” said Krishnaswamy. “Things just continually come up that you want to do, either buy something to fill a room or fix or improve something. Most people underestimate the cost.”

4. Renovations are not as seen on TV

Buying a fixer-up might allow you to snag a bigger home or afford one in a more desirable area, but experts warned there are huge risks.

“Know that it is always more expensive than what you are imagining or what you see on TV,” said Bonneau.

If a home needs renovations, factor that into the total cost of buying, recommended Krishnaswamy.

A private loan is an option to finance the project, but can be difficult to secure, especially after just taking out a mortgage.

If your home appraises for more than you purchased it for, you could have the option of tapping your equity to help pay for renovations.

There are some mortgage options that include renovation expenses. For instance, 203k FHA loan allows home buyers to finance the sale and rehabilitation on a single mortgage.

Another option is asking a friend or family member for a loan.

“If you are trying to secure the best low-rate loan, look at those closest to you, but be mindful of your relationship status if you can’t pay back the loan,” said Krishnaswamy.

 

To see how much you qualify for Click Here. 

It’s good to be a home seller right now … really good. That’s because it’s the most profitable time to sell a home in almost 10 years.

          Homeowners who sold in the first three months of this year saw an average price gain of $44,000 from purchase, according to a report from Attom Data Solutions released Thursday. That’s the highest gain since 2007.

“I am guessing we will see it get even better before it gets worse,” said Daren Blomquist, senior vice president at Attom. “If you are considering moving this spring, it could be a really good time to sell.”

          Cities with robust local economies have seen strong price growth during the housing market’s recovery. Low housing supply has helped push up prices to create competitive markets where bidding wars and above-asking price sales are common.

          Nationwide, the median home price was $225,000 during the first quarter of 2017, the report stated, up 13% from a year ago.

          Homes in more expensive markets have seen the highest average price gains so far this year, the report found. Sellers in San Jose, California, saw an average price gain of $356,500, followed by those in San Francisco with a gain of $276,750.

          Even in a seller’s market, homeowners aren’t necessarily in a hurry to list their homes. Sellers in the first quarter of this year had lived in their home for an average of almost eight years. From 2000-2007, the average homeownership tenure was around 4.26 years.

          After the housing crisis, many homeowners were underwater and had to stay put until they could rebuild their equity. Now, tight inventory levels have made some owners hesitant to sell because they fear they won’t be able to find a home to move into.

          Other homeowners are simply relishing the home price appreciation and expect it to keep going.

“I’ve talked to agents and brokers in the Bay Area, and one of the mantras there is actually ‘never sell,’” said Blomquist. The idea is to leverage the wealth to purchase additional properties or pass the home along to future generations. In fact, San Francisco has a nearly 10-year homeownership tenure, which is among the longest in the country.

          While strong price gains are good news for homeowners, it means buyers really have to step up their game in order to compete.

          Not only are home prices rising, they’re moving fast. On a national level, homes sat on the market for an average of 45 days in the first quarter, down from 84 during the same time period in 2011, according to data from Clear Capital.

          In the five fastest-moving markets, homes are on the market for less than 21 days.

Donald Trump was most famous for being a real estate developer before he became a reality TV star and then became Leader of the Free World.  So it may not be a huge shock to find out that home builders have been on fire since he was inaugurated.

Even though mortgage rates could climb if the economy continues to pick up steam and as the Federal Reserve hikes short-term interest rates, builders are confident more people will be buying homes.

Stuart Miller, the CEO of Lennar, said in the company’s earnings release this week that there was an “improving macroeconomic environment following last year’s election.”

He pointed to “renewed optimism, wage and job growth, and consumer confidence.” Miller added that “as a result, our home building operations have gone from slow and steady to a faster than expected sales pace throughout our first quarter.”

The hope is that the economy, which already had started to pick up some steam in the past year before Trump’s victory, will continue to gain momentum.

If that happens, prospective home buyers may not be scared off by higher rates because their wages are also going up.

And so far, that appears to be the case. New home sales surged more than 6% in February, to their highest levels in seven months. This could be just the beginning of an upturn.

“Taking into account a wide variety of indicators, the housing market continues its march higher. We expect further gains this year,” said Barclays economist Rob Martin in a report about the new home sales figures Thursday.

Pablo Vegas, executive vice president with the Indiana-based natural gas and electric utility NiSource said in an analyst day presentation earlier this month, that the company was benefiting from a solid housing market that shows no signs of overheating.

“We’re not at the peaks of 2007, we’re not at the lows of 2010, we’re actually on an upswing. And the current economic conditions as they look, we think there’s a lot of good opportunity to continue to take advantage of the new construction market,” Vegas said.

Still, not everyone in the housing market will benefit from the recovery. There are legitimate concerns that an uptrend in housing will only benefit wealthier and upper middle class homeowners and prospective buyers.

Trump is proposing to cut the budget of the Department of Housing and Urban Development, which is now run by Trump’s one-time GOP presidential rival Ben Carson.

What’s more, Trump’s plans to lower corporate taxes could make the current low-income housing tax credit less of an incentive for builders and developers. The low-income housing tax credit helps entice people to invest in affordable housing.  But for the time being though, investors clearly think the broader housing market will remain in an upswing.

In this week’s report, the number of homes sold in the Rancho Cucamonga market slid to 110 over the past 30 days. Within the same time frame, San Bernardino had 141 sales, the most of all cities in the area. The median sales price dropped to $440,000 over the latest reporting period for Rancho Cucamonga, down from $444,900. Despite the slip in sales, a relatively low three months of inventory indicates that Rancho Cucamonga can still be a seller’s market.

Want to take advantage of these low prices and get a big tax right off for 2018? Click here to see what you qualify for.

Friday, the Trump administration suspended a pending rate cut to FHA mortgage insurance that the outgoing Obama administration announced just a week earlier.
The decision to indefinitely suspend the planned cut was one of the new administration’s first acts. As a result, a decision over insurance premiums for home loans backed by the federal government received outsized attention from both the media and politicians.
Confused? I’ll try to help sort it out.

What is the FHA?
The Federal Housing Administration is a government agency that insures home loans and collects fees from borrowers to reimburse lenders in the case of default.
It is part of the Department of Housing and Urban Development, and the loans FHA insures are aimed at first-time homebuyers and those with poor to fair credit.
Borrowers can qualify for an FHA-backed mortgage with down payments as small as 3.5%, even with a credit score as low as 580, which could signal a past bankruptcy or debts sent to collection.
The average credit score of an FHA borrower in the third quarter of last year was 679, a credit worthiness considered to be fair.
There are limits on the price of a home loan the FHA will back.

What did the Trump administration do?
The administration on Friday stopped a rate cut that the Obama administration had announced just a week earlier.
The rate cut was supposed to take effect Jan. 27, and thus no one received a loan with the new, lower insurance rates.

What does this mean for me?
If you are shopping for a home and planned to use an FHA-backed loan, it means you will be paying the same premium rate for required mortgage insurance that you would have since January 2015.
For most borrowers getting an FHA-backed loan that means that after paying an upfront insurance fee, you will pay 0.85% of your loan amount for premiums each year. The Obama administration had planned to drop that rate to 0.60%. In 2014, the rate was 1.35%, after several increases to shore up FHA finances after the housing crash.
If the recent cut had gone into effect as expected Jan. 27, the California Assn. of Realtors estimates borrowers in the state using FHA loans would have saved an average of $860 a year.

How many people use FHA-backed loans?
During the federal government’s 2016 fiscal year, the FHA insured 1.26 million purchase loans and refinances for single-family homes. Nearly 880,000 of those were purchases, worth more than $171 billion.
In the second quarter of 2016, FHA-backed loans accounted for 16.6% of single-family home loans, according to HUD.

Why did the Obama administration cut rates?
It argued that FHA could easily withstand a cut to premiums, saying the agency’s finances had vastly improved since it received its first-ever bailout in 2013.
The $1.7-billion bailout from the U.S. Treasury was given to cover potential losses on the huge volume of low-down-payment mortgages FHA insured from 2007 to 2009 after the collapse of the subprime industry.
The administration also noted that FHA’s Mutual Mortgage Insurance Fund’s capital reserve ratio exceeded requirements for two consecutive years.
“With sufficient reserves on hand to meet future claims, it’s time for FHA to pass along some modest savings to working families,” former HUD Secretary Julian Castro said at the time.

Why did the Trump administration suspend the rate cut?
Some Republicans had expressed concern that the rate cut could cost taxpayers if the loans started to go sour and the Federal Housing Administration was unable to cover the losses with less money coming in from premiums.
In a letter to those in the real estate industry shortly after Trump was sworn in, HUD said that more analysis and research was needed to assess any future changes in mortgage insurance premiums.
“FHA is committed to ensuring its mortgage insurance programs remains viable and effective in the long term for all parties involved, especially our taxpayers,” the letter said.

Could the Trump administration change its mind?
The administration said the rate cut was being suspended indefinitely.
In his confirmation hearing to be Trump’s HUD Secretary, Ben Carson said the rate cut announced by the Obama administration had surprised him. If confirmed, Carson pledged to work with the “FHA administrator and other financial experts to really examine that policy.”

      If economic indicators are any guide, Orange County’s housing market is heading for a fifth straight year of rising home prices, increased sales, more rent hikes and booming home construction.

      But this year’s housing indicators don’t take one major wild card into account: President-elect Donald Trump.

“The issue here isn’t the trends. The trends are positive,” said Christopher Thornberg, a former UCLA professor and founding partner of Beacon Economics. “On the other hand, you’ve got this new administration coming in, and we’re not sure (what policies) they’re going to pursue.”

Tax cuts and increased infrastructure spending would stimulate economic growth, Thornberg said. That’s good for housing.

But a trade war with China and an ideological confrontation with California “could really hurt our economy, and all bets are off,” he said.

“The fundamentals are there for another year of rising prices, another year of rising rents. But that could be tipped over by Trump and company.”

With that in mind, here are six predictions for 2017.

1. Home Prices Rising

Highlight: Orange County home prices are projected to rise 2 percent to 6 percent this year.

Home prices in the county have been rising steadily since the housing market turned around in the spring of 2012. According to CoreLogic, prices have been up year over year for 54 straight months, rising $216,000, or 50 percent, from May 2012 to this past May.

The median price for all homes combined – or the price at the midpoint of all sales – shattered the all-time high in May and June this year, driven mainly by record prices for new homes. If the forecasts are accurate, the median for existing homes also will set new records this year.

The reason: Continued improvement in the employment market, solid income gains and more people moving into homes of their own, said Anil Puri, director of CSUF’s Woods Center for Economic Analysis and Forecasting. Competition for a limited number of homes also is pushing prices higher. “Those are big drivers in the housing market,” Puri said.

2. More Home Sales

Highlight: Southern California home sales will increase slightly from last year.

A total of 31,641 Orange County homes changed hands through October, CoreLogic figures show. That’s up 2.3 percent from 2015 to the highest level since the recession but still is 10 percent below the average for the past 29 years.

The reason: Again, more jobs, higher incomes and more people looking for housing.

“Sales are going to start showing a greater rate of increase (in 2017),” said Raymond Sfeir, director of Chapman’s Anderson Center for Economic Research.

3. Builders Busier

Highlight: Construction will increase in Orange County for a seventh straight year, increasing by 3 percent to 13 percent.

Chapman predicts builders will pull permits for 11,602 new housing units this year, up from an estimated 11,262 last year. CSUF predicts developers will build 14,000 units.

Chapman and CSUF also predict that construction jobs will increase 3.5 percent to 6 percent, rising to at least 106,000 workers.

“Things are looking positive for the construction market,” Puri said.

4. Mortgage Rates Up

Highlight: Interest rates for a fixed, 30-year mortgage will be 1 percentage point or more above the 2016 average of 3.6 percent.

California Realtors forecast in October that mortgage rates would be around 4 percent throughout 2017 but now are revising that estimate, said Jordan Levine, a Realtor economist. He predicts rates could be in the 4.5 percent range this year and possibly as high as 5 percent. Other forecasters had the same prediction.

Higher rates translate into higher homebuying costs.

For example, if rates hit 4.5 percent, monthly mortgage payments for a median-price home will go up about $300 – an increase of nearly $4,000 annually, Thomas calculated.

If rates hit 5 percent, monthly mortgage payments will rise close to $6,000 annually.

Most economists said higher rates will dampen but not halt this year’s expected increase in home prices and sales.

“There’s a lot of pent-up demand,” Sfeir said.

5. Affordability Down

Highlight: By year end, Orange County’s median family income will pay only 60 percent of the amount needed to buy a median-priced home, Chapman reported.

Chapman also predicts that median home prices this year will be 8.6 times the median income, compared with 6.1 times the median price statewide.

“Housing affordability in the county hasn’t been that low since the beginning of the Great Recession,” the Chapman forecast said. “The only affordable way for many lower-income families to find housing in the county is through rental housing.”

6. Smaller Rent Hikes

Highlight: Asking rents for an Orange County apartment will increase 2.7 percent to 4 percent this year.

Apartment trackers reported that 2016 rent hikes ranged from 3 percent to 5 percent.

Rents here have been rising steadily for 6½ years, up 20 percent since 2010, according to Reis Inc.

Orange County had the eighth-highest apartment rent among 79 large U.S. metro areas in the third quarter of 2016.

If the forecasts are accurate, the county’s average asking rent will range from $1,826 to $1,849 a month.

The question is how long can landlords continue to push up rents.

“I guess as long as tenants keep paying,” he said.