Canadian snowbirds encouraged to buy a Florida home

MONTREAL, Canada – Oct. 14, 2014 – As Canadian snowbirds prepare to head south, the Annual Snowbird outlook from BMO Bank of Montreal is telling Canadians that "U.S. housing affordability remains healthy, and prices are expected to increase in Florida, Arizona and other popular areas."

The bank offers only two warnings to Canadians considering a southern move: The border crossing rules are more strict, and a strengthening U.S. dollar could make purchases in Florida and elsewhere more expensive.

"Overall, U.S. house prices have soared 20 percent in the past two years, but are only about half way back to their peak in 2006," and "Traditional destinations for Canadian Snowbirds remain affordable," the bank says. "Compared to their peaks, prices in Tampa are down 34 percent, Phoenix down 30 percent, Las Vegas off 43 percent, and Miami down a whopping 52 percent."

"Now, with the American economy and employment gaining strength, home sales should gather some momentum," advises Sal Guatieri, senior economist, BMO Capital Markets. "We expect prices to rise over time alongside growing family incomes."

Guatieri also says BMO expects "capital gains appreciation for Canadians who purchase U.S. property."

Florida a hotspot

Florida continues to be a hotspot with Canadians representing the largest foreign buyers of Florida housing, BMO says. More than 500,000 Canadians currently own real estate in Florida.

"Florida properties are a bargain compared to real estate in Canada. The median priced home in Florida is nearly half that in Canada," says Jack Ablin, chief investment officer, BMO Harris Private Bank. "Popular areas include Sarasota-Bradenton-Venice, Orlando-Kissimmee, Miami-Ft. Lauderdale-Palm Beach, Cape Coral-Ft. Myers, Tampa-St. Petersburg and Naples-Marco Island.

"We project retirement state housing prices to outpace the national average, due to increasing numbers of retirees, and abundance of capital from abroad and lower interest rates. Foreign buyers are interested in U.S. real estate because it's relatively cheap when gauged against incomes, and it's situated in a stable/safe haven economy," added Mr. Ablin.

Could 15-year mortgage product change lending?

NEW YORK – Oct. 13, 2014 – Two mortgage executives hope to overhaul the 15-year mortgage, and make it more available to low and moderate-income people. They say it helps borrowers build equity at a much faster pace compared to a standard loan.

Edward Pinto, a resident fellow at the American Enterprise Institute, and Bruce Marks, who heads the Neighborhood Assistance Corp. of America (NACA), have created a new product called the Wealth Building Home Loan, which has generated buzz since its September introduction at a mortgage conference in North Carolina.

The loan will initially be available through NACA's 37 offices, with plans to pilot it at other institutions in the coming months. NACA acts as mortgage originator for Bank of America.

The Wealth Building Home Loan is a 15-year mortgage with a fixed interest rate that requires little or no downpayment and no additional fees. In originating the loans, underwriters pay more attention to a borrower's income than credit score. They ensure that borrowers have enough money left over after the mortgage payment to cover other monthly expenses, reducing the risk of foreclosure in case of financial setbacks.

Typically, the monthly payment on a 15-year loan is higher than a 30-year loan, since the loan amortizes faster. In order to make the monthly payments more affordable, however, the Wealth Building Home Loan offers a rate about three-quarters of a percentage point below the 30-year FHA rate.

Borrowers can bring the rate down even further by increasing the downpayment. For example, for every 1 percent of the loan amount the borrower has as a downpayment, the interest rate will be lowered by half a percentage point, with the possibility of bringing it to zero.

The Los Angeles Times cites an example: A $6,000 downpayment on a $100,000 mortgage at 3 percent would bring the rate to zero. That means all of the borrower's monthly payment would go toward the principal – not interest.

Pinto and Marks say the goal was to create a product that would allow low and moderate-income borrowers to build wealth, and get them away from high-risk loans.

"This is an opportunity to spend a little more each month but build wealth much more rapidly," Pinto says. "But even better, there is only a small probability of going into foreclosure. If house prices should go down, you're covered because you have some equity to fall back on."

Source: "Loan Gives Low-Income Borrowers a Chance to Build Equity Fast," The Los Angeles Times (Oct. 5, 2014)

Industry trends to watch this fall

NEW YORK – Oct. 13, 2014 – The housing market is expected to heat up this fall, but buyers no longer see ownership as a sure path to economic independence.

Bankrate.com recently highlighted some trends to watch this fall in the nation's real estate market:

1. An overall pick up in housing activity. Some less-than-stellar sales numbers in certain areas of the U.S. this summer were blamed on low inventories of homes for sale. However, the number of listings is increasing, which could unleash some pent-up demand among buyers.

At the end of August, housing inventory was at 2.31 million existing homes available for sale, which represents a 5.5-month supply of homes, according to the National Association of Realtors®. That's 4.5 percent higher than a year ago.

When buyers have greater options in their home shopping, they may be more likely to finally jump off the sidelines, says Jonathan Corr, president and chief operating officer for Ellie Mae. "The housing market is going to be a function of the economy. I think we are going to see steady growth in the coming months."

2. Buyers are more cautious. In what most housing experts still describe as a "seller's market," buyers seem to be getting more conservative with their spending. "They are sticking to their budgets," says Pava Leyrer, director of training for Northern Mortgage Services in Grandville, Mich.

The past housing crisis has prompted buyers – particularly the younger generation – to be more cautious, because they've learned that home prices don't always appreciate. Because of that, the younger generation views a house as a place to live, and not the great investment that their parents did, says Daren Blomquist, vice president at RealtyTrac.

Forty percent of the millennial generation believes buying a home is a safe investment with great potential, compared to about 50 percent of boomers, according to a survey by Fannie Mae National Housing Survey.

3. Mortgage rates will climb – really. Housing experts said mortgage rates would rise this year, but those forecasts have largely been wrong – so far.

However, the Mortgage Bankers Association expects the 30-year fixed-rate mortgage to start its climb to 4.5 percent by the fourth quarter, and continue to gradually climb and reach 5 percent by mid-2015. That's prompted some lenders and real estate professionals to urge their buyers to lock in a mortgage rate now while they're still at yearly lows.

Source: "5 Housing Trends for Fall 2014," Bankrate.com (October 2014)

Mortgage rates will rise – but when?

WASHINGTON – Oct. 13, 2014 – Mortgage rates have hovered around yearly lows for weeks. But with rate-hike forecasts looming, can buyers count on borrowing costs to stay low?

Many economists now predict that the average 30-year fixed-rate mortgage will reach 5 percent by the middle of the next year, according to a New York Times report. On Friday, Freddie Mac reported the 30-year fixed-rate mortgage averaged 4.12 percent.

A hike in rates will come, in part, from the Federal Reserve's plan to stop buying mortgage-backed securities.

Economists note that a 5 percent mortgage rate is low by historical standards, but that type of increase will still reduce buying power in a home purchase. For example: A 1 percent increase in interest rates can raise a monthly mortgage payment on a typical home by more than $700 in pricier parts of the country. However, the increase would likely be much more modest in other, less expensive markets.

But even in the case of rate hikes up to 7 percent, the analysis found that homes still remain affordable overall. From 1985 to 2000, homeowners' housing costs – including the principal and interest on a median-priced home – accounted for 22 percent of a homeowners' median household income. However, today's households spend about 15 percent of their median income on a median-priced home.

Source: "When Mortgage Rates Rise," The New York Times (Sept. 25, 2014)

Scott, Crist split on approach to property insurance

TALLAHASSEE, Fla. – Oct. 9, 2014 – The cost of property insurance is a major issue to many Florida homeowners and Realtors. A hurricane hasn't hit the state in nearly nine years, but that hasn't dampened property insurance rates.

The two candidates for governor facing a November election, Republican Rick Scott and Democrat Charlie Crist, approach the property insurance problem differently. The state has historically tried to keep property insurance rates low while simultaneously bringing more private insurers into the Florida market to reduce overall risk. Historically, a move to achieve one goal has had a negative impact on the other goal.

According to University of South Florida political-science professor Susan MacManus, voters' opinions about the property insurance challenge could be a deciding factor in the election, in part because observers expect a lower voter turnout in a non-presidential election. A recently released Sunshine State Survey, conducted by the University of South Florida and the A.C. Nielsen Company, found that property insurance is one of the top six "stressors" for homeowners in Florida, along with food and maintenance costs, health care, utility bills and the potential of no longer being employed. MacManus said the survey found that concerns about property insurance have risen since a prior survey in 2012.

Property insurance under Gov. Scott

During his four years serving as Florida's governor, Scott has maintained a free market approach to the industry. That approach includes efforts to attract more private insurers to Florida, push thousands of policyholders out of state-owned Citizens Property Insurance Corp. and reduce the items it covers.

The average annual premium for homeowners' policies has grown from $1,544 to $1,933 under Scott. Meanwhile, Citizens coverage has been reduced for many customers to just main buildings, leaving unprotected awnings, gazebos, Tiki huts, and most carports and screened-in pool enclosures, which are more vulnerable to damage in a hurricane.

"Homeowners are very attuned to that, and homeowners tend to vote," MacManus says.

The shift of policies from state-owned Citizens has accelerated in the past two years through large "take-outs," in which thousands of Citizens policies are offered to private carriers. Also, a new electronic clearinghouse forces first-time policies and renewals to go with a private firm if the rates are somewhat comparable. Through Aug. 30, 124,995 policies have exchanged hands through the "takeout" process this year. In 2013, 386,787 policies were shifted from Citizens to private insurers.

Property insurance under Crist

If elected, former governor Crist has said he will act to reverse the rate increases that have occurred under Scott's free-market watch.

While governor, Crist, then a Republican, backed a temporary freeze on Citizens rates and later a 10 percent cap on annual rate increases. Both were intended to help homeowners after a spate of hurricanes in 2004 and 2005 and during the recession. But they also helped lead to a shift of the state-backed insurer from being a refuge for those who couldn't find coverage into being the state's largest property-insurance company.

"The choice could not be more clear," Crist told reporters while announcing his insurance plan last month. "A governor who took on the insurance industry and lowered rates so families had more in their checking accounts and at the end of the month? Or a governor who let insurance companies raise rates – over 25 percent so the companies and his campaign have more in the bank?"

Insurance risk

Scott spokesman Matt Moon says Crist's effort to hold down rates on Citizens also increased the liability risk for all homeowners. "Florida taxpayers were left on the hook for billions and homeowners were left with fewer options to protect their property," Moon said in a prepared statement. "Under Gov. Scott, Florida has done the exact opposite, reforming and shrinking Citizens Insurance while giving consumers more choice and competition to protect their home."

The insurance industry generally backs Scott, and their backing has translated into more dollars for Scott's reelection campaign. Since the start of 2013, Scott has received roughly $2 million in contributions from the property- and auto-insurance industry through his campaign. Over the same timeframe, Crist and a closely aligned political committee, Charlie Crist for Florida, have received about $75,000 from those with ties to the insurance industry.

Lynne McChristian with the Insurance Information Institute labeled the Scott model as "pay now," and Crist's model as "pay later."

"The pay-later model is the riskiest," McChristian says. "We can't change Florida's hurricane history, and no one believes this nine-year reprieve means a permanent end to major storms. … Forcing private insurers to roll rates back to where they may be actuarially unsound is definitely unfriendly to consumers. It gives consumers fewer choices because it can cause insurers to restrict how much risk they can take on."

A middle approach

Jay Neal, president and CEO of the Florida Association for Insurance Reform, said a non-political middle ground is needed between Crist simply rolling back rates and Scott wanting to further deregulate the industry.

"I think we'd be better off, overall, if the extremes were not the policy – if we found a way to lower rates, but do it in a way that is actually paid for, actually responsible," Neal said.

Neal contends rates could be lowered about 7 percent by reforming the reinsurance industry, which is heavily based offshore.

Meanwhile, Neal added that in a state where "there isn't a long-term approach," there is a need to keep regulations in place on the industry to ward off lobbyist attempts to give insurers unfair advantages over policyholders.

"There is a price that the industry pays for having anti-trust protection, and one (of those) is to have a state regulator ensure they're treating policyholders fairly," Neal says. "If we can help build sort of a middle approach, we'll have some stability. If you're out of balance, sooner or later someone is going to tug it back in the other direction, and that's where we have the pendulum effect. It never really stops, it just goes up the other end of the spectrum."

Survey: Builders say lending standards too tight

WASHINGTON – Oct. 9. 2014 – Tight mortgage lending standards continue to affect single-family builder sales, according to a survey released by the National Association of Home Builders (NAHB).

According to "well over half of the single-family builders surveyed," lending standards were "tight" or "very tight." Only 11 percent indicated that standards were "somewhat easy," and no builders described them as "very easy."

"While housing has seen some positive growth throughout the year, there is no denying that tight credit conditions are hindering a full, healthy housing recovery," says NAHB Chief Economist David Crowe. "These persistently tight mortgage credit standards continue to limit the number of creditworthy borrowers – particularly younger families and first-time home buyers – from entering the housing market."

The survey also asked builders if they had lost any sales over the past six months because potential buyers couldn't qualify for a mortgage, and 83 percent answered "yes." Of that 83 percent, the average number of lost sales was 9.7 percent.

NAHB estimates that the 9.7 percent translates into about 18,700 lost new-home sales because buyers couldn't qualify for a mortgage.

"NAHB advocates for prudent lending standards, but we've seen banks and regulators swing the pendulum too far and create an environment where lending standards are too restrictive," says NAHB Chairman Kevin Kelly. "We want a return to reasonable lending standards where qualified borrowers are able to obtain a mortgage and create the American dream for themselves."

Americans’ attitudes on housing are positive again

WASHINGTON – Oct. 8. 2014 – After August's dip in consumer housing optimism, the indicators rebounded in September to the modestly positive trend seen throughout 2014, according to Fannie Mae's September 2014 National Housing Survey.

In September, the share of consumers who say it's a good time to buy a home is back up to 68 percent, a four-percentage-point increase from August. The share saying they'd prefer to buy a home on their next move ticked back up to 66 percent after a three-point drop.

The results also show a notable jump in consumers' views toward the economy, with 40 percent of those surveyed saying it is now on the right track – a five percentage point increase from last month.

"The September National Housing Survey shows a slight recovery in consumer housing sentiment after a two-month setback, bringing us back to the modestly positive trend we've seen over the last year," says Doug Duncan, senior vice president and chief economist at Fannie Mae. "It might be too late to save this year's home sales from posting the first decline in five years. However, the return to an upward trend in housing sentiment, combined with this month's positive news on the jobs front, suggests that a broad-based, albeit measured, housing recovery is on track to resume in 2015."

Duncan still expects "bumps on the housing recovery path."

Homeownership and renting

The average 12-month home price change expectation rose to 2.2 percent.

Respondents who say home prices will go up in the next 12 months rose to 45 percent; those that say home prices will go down decreased to 8 percent.

Respondents who say mortgage rates will go up in the next 12 months fell by five percentage points to 45 percent.

Those who say it's a good time to buy a house rose to 68 percent. Those who say it is a good time to sell also increased – to 39 percent.

The average 12-month rental price change expectation fell to 3.2 percent.

The percentage who expect home rental prices to go up in the next 12 months increased to 55 percent.

The share of respondents who think it would be difficult to get a home mortgage today decreased by one percentage point.

The share that say they would buy if they were going to move rose to 66 percent, while the share who would rent decreased to 28 percent.

The economy and household finances

The share who say the economy is on the right track jumped by five percentage points from last month to 40 percent.

The percentage who expect their personal financial situation to get better over the next 12 months fell to 41 percent.

The share of respondents who say their household income is significantly higher than it was 12 months ago increased by two percentage points to 25 percent.

The share of respondents who say their household expenses are significantly higher than they were 12 months ago increased slightly to 37 percent.