Real Estate Ranks Tops Among Investments

Real estate is Americans' top investment choice, according to a new Bankrate survey. The survey asks Americans what kind of investments made the most sense and 27 percent said they'd invest in property if they had a pool of spare cash.

CDs and other cash investments – previously the top answer in Bankrate's 2013 and 2014 surveys – came in second at 23 percent. Only 17 percent of survey respondents said they’d purchase stocks; 14 percent said gold and other precious metals; and 5 percent said bonds.

"We're not seeing the bunker mentality from individual investors to the same extent of the past few years," says Greg McBride, CFA, Bankrate's chief financial analyst. "But the preference for real estate over, say, the stock market, does beg the question of whether or not Americans are again viewing residential housing as a golden ticket."

Geographically, Americans living in the West or in urban areas showed the biggest preference toward real estate investments at 35 percent and 31 percent, respectively. Americans living in the South also showed a strong preference for real estate and cash investments, while those living in the Midwest said they preferred cash and stocks over real estate.

Source: "Survey Reveals Americans’ Top Investment Choice: Real Estate," Bankrate.com (July 2015) 

Builders Get Ready to Ramp Up Production

Building permits for single-family and multifamily construction surged to an eight-year high in June, signaling a pick up in homebuilding is on the horizon, the Commerce Department reports.

Permits for future home construction rose 7.4 percent to a 1.34 million unit pace in June, the highest level since June 2007. All four regions of the U.S. – Northeast, Midwest, South, and West – reported gains in housing permits.

Multifamily permits posted the largest increase at 15.3 percent in June, while permits for buildings with five units or more increased to the highest level since January 1990. Permits for single-family homebuilding also rose, increasing 0.9 percent last month.

Economists point to a rise in household formation and an improving labor market that is prompting more young adults to leave their parents' homes and spark a rise in demand for housing, notably apartments.

A rise in multifamily production helped push housing starts 9.8 percent higher in June month-over-month, reaching a seasonally adjusted annual rate of 1.17 million units, according to the Commerce Department. Multifamily production surged 29.4 percent last month, reaching a seasonally adjusted annual rate of 489,000 units, while single-family housing starts dropped 0.9 percent to 685,000 units.

"The multifamily gains this month are encouraging and show that the millennial generation continues to be drawn to the rental market," says Tom Woods, chairman at the National Association of Home Builders.

Combined single- and multifamily starts rose by the largest amount in the Northeast, increasing 35.5 percent month-over-month, and by 13.5 percent in the South. The West posted a 6 percent decrease in housing starts and the Midwest a 0.7 percent loss.

Source: "Multifamily Surge Pushes Housing Starts Up 9.8 Percent in June," National Association of Home Builders (July 17, 2015) and "Strong U.S. Groundbreaking, Building Permits Boost Housing Outlook," Reuters (July 17, 2015)

FHA loans to boost affordable housing development

WASHINGTON – July 17, 2015 – The Federal Housing Administration (FHA) published guidance on its new Small Buildings Risk Sharing (SBRS) Initiative.

Under SBRS, new private-sector lenders can partner with FHA to provide long-term fixed-rate lending products to multifamily property owners. It applies to mortgages of $3 million, and up to $5 million in high-cost areas.

SBRS builds on the Department of Housing and Urban Development's (HUD) existing risk sharing programs with state and local housing finance agencies, as well as Fannie Mae and Freddie Mac.

"Communities across the nation are seeking ways to support affordable housing production and preservation," says Ed Golding, principal deputy assistant secretary for HUD's Office of Housing. The initiative "allows us to target our products to an important and underserved part of the rental market by partnering with CDFIs (Community Development Financial Institutions) and other lenders who have on-the-ground relationships with small building owners in their communities."

Small buildings make up 34 percent of the 17.5 million multifamily rental units in the U.S., according to HUD. They house nearly 6 million households and, on average, offer lower rents than larger properties.

Nearly 60 percent of small rental property owners are individuals, households and estates, and they often have trouble securing financing thanks to credit standards than are more stringent than those offered to larger property owners.

If successful, SBRS will encourage lenders to enter this smaller-investor market and provide long-term, fixed rate capital.

How the SBRS program works

In return for assuming 50 percent of the risk, approved lenders will underwrite and service the loans subject to minimum standards that reduce processing times relative to traditional FHA mortgage insurance programs.

FHA's willingness to assume half the risk can free up lenders' balance sheets and allow them to increase their lending activities without an additional federal subsidy or new regulations.

Given the challenges of accessing long-term fixed rate capital even with an FHA guaranty, the Administration has asked Congress for statutory relief to allow SBRS lenders to access funding through Ginnie Mae; in the interim, lenders will be eligible to access capital from the United States Treasury's Federal Financing Bank at prevailing Ginnie Mae rates.

Lending will be limited to properties that are willing to ensure that at least 20 percent of the units rent for no more than 50 percent of an area's median income, or 40 percent of the units rent for 60 percent of the area's median income.

HUD says rural communities, specifically, have a high share of small multifamily properties that could benefit from this program.

© 2015 Florida Realtors®

Fewer Foreclosures May Bring Bigger Deals

Banks may be showing greater motivation to price at a discount some foreclosed homes they’ve had on their books for a long time, unlocking potential bigger discounts for investors, says Daren Blomquist, vice president at RealtyTrac.

As foreclosure timelines swell, some banks are taking possession of homes that have stood vacant for three years or even more, in some cases.

“Many of the properties that are in foreclosure in 2015 have been in the [foreclosure] process for years and many are likely to be in poor condition … Investors may be able to get a bigger discount because banks may be more highly motivated to sell,” Blomquist says.  

The average price of a distressed or foreclosed property in May was 40 percent below the average price of a non-distressed property, Blomquist says, noting that is the largest price disparity that RealtyTrac has ever noted in its surveys.

Many of the homes have sat vacant for years. Foreclosures completed in the second quarter of 2015, on average, were in foreclosure a record amount of 629 days. That marks the longest average time to foreclose since RealtyTrac began tracking in the first quarter of 2007.

The states with the longest foreclosure timelines in May were:

1. New Jersey: 1,206 days
2. Hawaii: 1,060 days
3. Montana: 1,028 days
4. New York: 1,000 days
5. Florida: 989 days

Source: “Why Fewer Foreclosures Means Better Foreclosure Deals,” RealtyTrac (July 15, 2015)

Builders Feel Like It's 2005

Homebuilders are feeling upbeat about where the new-home market stands currently as well as where it’s heading. Builder confidence in the newly built single-family home market surged in July, reaching the highest level since November 2005.

The National Association of Home Builders/Wells Fargo Housing Market Index reached a level of 60 in July. Levels over 50 indicate more builders are optimistic about sales expectations and buyer traffic.

“The fact that builder confidence has returned to levels not seen since 2005 shows that housing continues to improve at a steady pace,” says NAHB Chairman Tom Woods. “As we head into the second half of 2015, we should expect a continued recovery of the housing market.”

The increase in optimism coincides with recent data showing a pick-up in new and existing-home sales, as well as strong job growth, says NAHB Chief Economist David Crowe. However, Crowe notes, builders still face several headwinds, including shortages of lots and labor.

The NAHB/Wells Fargo Housing Market Index gauges builder sentiment over current single-family home sales and sales expectations for the next six months as well as builders’ view on buyer traffic. The components measuring current sales conditions increased one point in July to 66, while the index measuring sales expectations in the next six months increased two points to 71. The component measuring buyer traffic, on the other hand, slipped by a single point to 43.

Builders are most optimistic in the South, which had an HMI score at 61, followed by the West at 60; Midwest at 55; and Northeast at 47.

Source: National Association of Home Builders

Study: Student loans don’t hinder mortgages

NEW YORK – May 19, 2015 – Young buyers aren't being held back from obtaining a mortgage due to their student loan debt, according to a new report released from TransUnion.

Consumers between the ages of 18 and 29 with a student loan in repayment are "generally able" to qualify for new loans. Not only that, the study finds that those loans tend to perform as well or better than new loans to similarly aged consumers without student loans.

For its analysis, TransUnion researchers studied borrowers with student loans who entered repayment from three different timeframes: the fourth quarter of 2005, fourth quarter of 2009 and fourth quarter of 2012.

The report finds that student loan consumers in their 20s pass similarly aged consumers without a student loan after making payments for only three to six years. Student loans often have decades-long payoff periods. The study included mortgage loans but also auto loans and credit cards.

"Going to school impacts young consumers' access to credit; while in school, students may be less likely to have a job and generate the income necessary for loan approval," says Steve Chaouki, executive vice president and head of TransUnion's financial services business unit. "However, most catch up once they leave school – and their ability to catch up has not changed over the past decade. Our study demonstrates that consumers in their 20s with student loans in repayment – that is, once they finish school – are in fact able to access credit at levels similar to or better than their peers who do not have student loans."

The study found that the changing economy between 2005 and 2012 impacted young consumers' access to credit, and the percentage of consumers aged 18-29 with mortgages, credit cards or auto loans dropped significantly. But the study showed that the drop impacted consumers without student loans, as well as those with student loans.

"This is an especially important finding, because it shows the dramatic rise in student loan balances has not materially impacted young consumers in gaining access to mortgages, auto loans or credit cards, or in their ability to successfully manage their new credit obligations," says Charlie Wise, co-author of the study and vice president in TransUnion's Innovative Solutions Group.

Source: "TransUnion: Student Loans Do Not Impact Housing," HousingWire (May 13, 2015)

NAR: Pending home sales at 17-month high

WASHINGTON – April 29, 2015 – Pending home sales in March continued their recent momentum, rising for the third straight month and remaining at their highest level since June 2013, according to the National Association of Realtors® (NAR).

The Pending Home Sales Index (PHSI), a forward-looking indicator based on contract signings, climbed 1.1 percent to 108.6 in March from an upward revision of 107.4 in February. It's now 11.1 percent above March 2014 (97.7).

The index has increased year-over-year for seven consecutive months and is at its highest level since June 2013 (109.4).

"Demand appears to be stronger in several parts of the country, especially in metro areas that have seen solid job gains and firmer economic growth over the past year," says Lawrence Yun, NAR chief economist. "While (it's) certainly good news, the increased number of traditional buyers who appear to be replacing investors paying in cash is even better news. It indicates this year's activity is being driven by more long-term homeowners."

Yun expects a gradual improvement in home sales in the coming months, but he says insufficient supply and accelerating prices could be a speed bump.

"Demand in many markets is far exceeding supply, and properties in March sold at a faster rate than any month since last summer," Yun says. "This in turn has pushed home prices to unhealthy levels – nearly four or more times above the pace of wage growth in some parts of the country.

"Simply put, housing inventory for new and existing homes needs to improve measurably to improve affordability," Yun adds.

The PHSI in the Northeast fell (1.5 percent) for the fourth straight month to 80.2 in March, but it's 0.6 percent above a year ago. In the Midwest, the index declined 2.5 percent to 107.5 in March, but it's 11.3 percent above March 2014.

Pending home sales in the South increased 4.0 percent to an index of 126.5 in March and they're 12.4 percent above last March. The index in the West rose 1.7 percent in March to 103.7, and it's now 15.6 percent above a year ago.

Source: Florida Realtors®