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Odd Lots: Failure to Launch

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | November 27th, 2020

Despite lifelines thrown their way by Congress, the Urban Institute counts roughly 400,000 homeowners who are delinquent on their mortgages, but who have failed to take advantage of any payment forbearance programs.

Perhaps they fear being forced to make up their missed payments in one lump sum when they start paying again. Or maybe they don’t understand the options available to them under the Coronavirus Aid, Relief and Economic Security Act. A poll by Fannie Mae found that 1 in 5 aren’t even aware that help is available.

Whatever the reason, these people need to know their options. Sure, they can continue failing to make their house payments and eventually lose their homes. That’s their choice.

But if they have a mind to, they can save their homes by asking their lenders -- or the servicing companies that collect their payments and pay their property taxes and insurance -- for some relief. Practically all you have to do is ask.

Under the law, borrowers who can testify that they have a financial hardship related to COVID-19 are eligible for help if their loans were purchased by Fannie Mae, Freddie Mac or Ginnie Mae. If you qualify, you can defer your payments for six months to start, and extend that another six months if you still need some time to get your financial act together.

And contrary to what nearly 70% of the people questioned by the National Housing Resource Center believe, you don’t have to make up the missed payments all at once. Indeed, lump-sum repayment is just one option. You can stretch out the missed payments over time, add them to your loan balance or pay them when you sell or pay off your mortgage.

Meanwhile, the Urban Institute also reports that some 205,000 homeowners have not extended their forbearance after their terms ended in June or July -- and are now delinquent on their loans.

Prior to the election earlier this month, numerous Americans swore they’d be escaping to Canada if their candidate didn’t win. But a good number of our wealthier citizens have already hightailed it to the U.K. instead.

According to figures from Enness Global Mortgages, buyers from the States have accounted for 14% of high-end home sales in Britain so far this year. They trail only those from United Arab Emirates, who represented 35% of England’s international buyers so far this year.

Enness doesn’t say what constitutes “high-end,” or whether these were permanent or vacation homes, but the average price paid by Americans was more than $4.7 million. (Impressive, but people from Malaysia paid more: just over $6.6 million, on average.)

Another interesting stat: The typical American down payment was a substantial 51%. Buyers from Nigeria didn’t spend as much in total, but they put 72% down.

Meanwhile, foreign investment in U.S. housing is down 5% from a year ago, the National Association of Realtors reports. It was the second straight year for declining foreign investment. But even at that, foreigners still plunked down $74 billion to buy existing houses here over the last 12 months.

Chinese and Canadians were the most active foreign buyers, followed by Mexicans, Indians and Colombians.

Foreclosure isn’t the instant process many people think it is. It takes time. How much time? That depends on the state.

If you can’t pay your mortgage in Hawaii, it will take an average of 1,741 days -- nearly five years! -- before your lender can actually repossess your property, according to ATTOM Data Solutions.

It takes almost as long in New Jersey and New York: 1,527 days and 1,423 days, respectively. In Florida, it takes 1,230 days. No wonder some people who can make their house payments don’t do so -- you can live for practically nothing in these states for four years or more.

Even in Virginia, the state with the shortest foreclosure timeline, it takes a full six months to remove a nonpaying borrower.

If you’re worried about the climate where you’re looking for a new house, there’s now an app for that. Just plug in the address and ClimateCheck.com will produce a extensive report telling you, among other things, the risk for storms, higher temperatures, drought, flood and fire. It will also give you an overall risk score.

According to the 34-page report I received, the overall risk score on my house is just 28. But my place is at a very high risk for storms -- a small EF-1 tornado recently touched down about 500 feet away -- and high risk for rising temperatures. The report is free, at least for now. (Full disclosure: ClimateCheck is headed by Cal Inman, who I’ve known for years; he’s the son of Brad Inman, who operates a real estate-centric news service for which I wrote until recently.)

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A Tale of Two Markets

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | November 20th, 2020

Two relatively small housing submarkets are starting to show signs of strengthening. One of those markets: renters looking for more space, both inside and out. The other: people looking to get away from it all, if only for a few weeks.

Renters should soon see more opportunities to lease brand-new houses specifically built as rentals, while buyers of vacation homes are already flexing their purchasing-power muscles.

The built-to-rent market is, indeed, small. Currently, only about 6% of all single-family houses are purposefully built as rentals, working out to about 70,000 houses a year. But that’s not enough to keep up with demand, according to RCLCO, a Maryland-based advisory firm that says built-to-rent housing represents a big opportunity for its clients.

Other consulting firms have been saying the same. One, Meyers Research, has suggested that big master-planned communities should contain entire neighborhoods of rental houses. And the National Rental Home Council expects demand to surge.

“For many Americans, the pandemic has brought a new urgency to the search for housing, and many are discovering the benefits associated with renting a single-family home,” said Executive Director David Howard of NRHC. “Suddenly, living in a small apartment in an urban high-rise isn’t as appealing for families navigating the realities of working and schooling from home.”

If builders get the message, the trend will be just another step in the evolution of rentals as they break away from the traditional multifamily mold.

Originally, small-time investors with one or two houses dominated the sector -- and still do, for the most part. But since the recovery from the Great Recession, large institutional investors have acquired portfolios of unsold houses scattered across the landscape and turned them into rentals.

Some 12 million families currently live in detached one-unit rentals -- nearly as many as the 14.5 million who reside in buildings of 10 or more apartments. Now, Tricon Residential, one of the early investors in the space, is buying up single-family lots and partnering with local builders to deliver rental properties. American Homes 4 Rent, another large institutional owner, is doing much the same. And NexMetro has now closed on its 30th Avilla property, which are communities of one-, two- and three-bedroom homes.

RCLCO’s Gregg Logan and Todd LaRue say the demand is being driven by demographic shifts in which more households are in a stage of life where a house suits their needs best. But while these families would ordinarily be buyers, they are hampered by affordability issues that are not likely to dissipate anytime soon.

Afforability is just one factor, though. Renting offers much more flexibility than owning. Not only do renters not have to tie up their nest egg in real estate, they also can move from place to place without having to sell the old homestead. And they can sometimes find affordable rentals closer to city centers than they could find affordable, comparable homes for sale.

Meanwhile, second-home markets, especially those within a four-hour drive of major metro regions, are booming, according to John Burns Real Estate Consulting.

The sector is benefiting, Burns researchers say, from a rise in what they call the “YOLO” mindset -- You Only Live Once -- as people try to get away and enjoy life as safely as possible during the pandemic.

“Households who may have otherwise waited have decided now is the time to buy, often using funds that would otherwise be allocated to more traditional vacation travel,” they explained in a recent bulletin to clients. “Today’s buyers are showing more interest in lifestyle and use than rental potential and future appreciation.”

To prove their point, the researchers pointed to some remarkable sales figures from across the country. In July, the Sierra-Tahoe Multiple Listing Service logged its highest residential dollar volume in history, up more than 200% year-over-year. Sales at Long Cove, an upscale lakeside community south of Dallas, reached an all-time high in June -- then bested that in July. Pending home sales in Bend, Oregon, rose 150% year-over-year in July. Sales in Rehoboth Beach, Delaware, doubled compared to the same time last year, fueled by demand from New York and New Jersey. And in Worcester County, Maryland, sales were up 104% above last July.

The key to most of these numbers seems to be proximity. Most buyers of second homes, particularly those with school-age children, prefer to drive less than four hours to get there. They desire a getaway house to “invest in family,” and to provide a place of refuge for the future.

In some cases, since many parents can work remotely and children can learn online, the vacation spot actually switches places with the main residence. This flips the traditional “weekend home” model on its head, with families staying at their vacation home most of the time and occasionally traveling back to their primary residence.

Elements such as high-speed internet, home offices and learning spaces for children have become just as important in second homes as in primary ones, now that some owners measure second-home stays in weeks and months, rather than days.

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High Prices Offset Gains From Low Rates

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | November 13th, 2020

Housing prices are rising so fast -- “too fast,” as the chief economist at the National Association of Realtors said recently -- that they are all but obliterating any gains buyers are seeing from record-low interest rates.

Even if rates continue to fall -- and Mark Fleming, chief economist at title insurance company First American, thinks it’s possible they could dip as low as 2% -- house prices are poised to continue rising so quickly that any savings could be minimal, if not wiped out altogether.

Loan rates had remained below 3% for 12 straight weeks as of the end of October, according to mortgage investor Freddie Mac. And as the month came to a close, the average was at 2.81%, nearly 1 full percentage point lower than the same time last year.

But according to Realtor.com’s latest report, median listing prices in September were 12.9% higher than a year ago. For 21 consecutive weeks now, prices have been accelerating, says Chief Economist Danielle Hale, adding that 2020 is way beyond the ordinary.

“During a normal year,” Hale reports, “asking prices begin to dip going into the fall as the types of homes for sale shift and sellers have to do more to attract a buyer from a smaller pool of shoppers. But 2020 is not following this usual seasonal trend, and the typical September asking price remained at $350,000 -- on par with peak summer home prices.”

Brokerage chain Redfin pegs the late-September median selling price in 434 metropolitan areas at $319,769. That’s the highest median cost for homes ever, and a 14% jump from a year ago. It’s also the largest spike in median home sale price since August 2013, the company reports.

And with new listings down 7% and inventory falling by 38%, according to Realtor.com, prices are bound to rise ever higher. Indeed, Veros Real Estate Solutions, a collateral valuation service, anticipates that home-price appreciation will increase sharply during the next 12 months in the 100 most-populated markets.

A look at mortgage rates shows why homebuyers are coming out of the woodwork. In January, the average for a 30-year fixed-rate loan was 3.708%. But by September, it had slipped to 2.75%. That’s not a record low, but it’s still awfully attractive.

Now for the rudimentary math: In January, the median price of an existing house nationally was $268,600, according to NAR. And at 3.708%, the monthly cost for principal and interest was $1,238. But by September, the median had jumped to $316,200. And at 2.75%, the monthly charge was $1,291.

As a result, buyers of median-priced homes paid $53 a month more -- $636 a year -- even though rates had fallen by almost a full percentage point.

Of course, your monthly payment is based on what you borrow, not the price of the house. And the amount you borrow depends on the size of your down payment. The more you put down, the less you need to borrow and the lower your payment. The larger the down payment, the lower the monthly payment.

That said, here’s a little deeper way of looking at the math above:

According to Ellie Mae, whose loan origination technology is used by thousands of lenders, the average 30-year purchase loan amount in January, when the typical mortgage rate was 3.95%, was $262,629. The result was a payment of $1,258.

By September, the rate had fallen to 2.95%. But the average loan was for $292,475, yielding a payment of $1,234. So, because of larger loan amounts as a result of higher prices, the total savings from a full percentage point drop in rates was just $24 a month.

The savings for people who refinanced were a bit larger -- $101 a month for those who didn’t take any cash at closing and $86 for those who did -- again, because in each case, the amount financed was larger. And when all loans, including those with 15-year terms, were lumped together, the savings netted because of lower rates was just $28.

These numbers, says Ellie Mae’s Erica Bigley, are “very generalized” and do not take into account borrowers’ credit profiles or location. And none of the figures used here include mortgage insurance, property taxes and homeowner’s insurance, all of which are likely to be a tad higher because of higher house prices.

They also don’t take into account the “points” that may or may not be paid at closing by borrowers to secure a low mortgage rate. (A point is 1% of the loan amount. So if a borrower paid 1 point on a $262,000 loan, he or she would pay $2,620 in cash at settlement.)

And finally, these are median loan amounts. Borrow more than the median, and whatever savings you enjoy from lower rates are likely to be totally exhausted.

The bottom line: Lower rates have not turned out to be the blessing most people believe them to be. While they have indeed sparked demand, that demand has cut deeply into supply. And the lack of supply has driven up prices.

“If there was an oversupply of houses for sale, the impact of lower rates would be much greater,” Fleming told me. “The market always finds equilibrium.”

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