Is Now the Time to Buy Your First House? .
May 14, 2012
We are asked “Is now the time to buy” by clients daily. The Wall Street Journal took a look at this question and answered it both ways; yes and no. What do you think?
“It’s been a scary few years for the housing market. But at some point, the nightmare has to end (please?). Is now the time? Should first-time home buyers consider jumping into the market?
After all, home prices have fallen 34% from their 2006 peak and mortgage rates are hovering at or near record lows.
On one side are those who argue that homes are more affordable than they have been in decades, based on how much monthly income a mortgage consumes and whether owning is less costly than renting.
An uptick in home buying by investors already is under way, they say—an indication that those who wait may miss out on a good buying opportunity.
On the other side, pessimists insist that the housing slump is far from over, and that prices will continue falling—perhaps as much as 20% or more.
Excess inventories, they say, are the problem, and some estimate it could be four years before the market absorbs all of that extra supply.
Eric Lascelles, the chief economist at money-management firm RBC Global Asset Management Inc., says this is a remarkable time to be a first-time home buyer. A. Gary Shilling, president of A. Gary Shilling & Co., an economic consulting firm in Springfield, N.J., says buying now is a terrible idea.
Yes: It’s a Rare Opportunity
By Eric Lascelles
This could be the best time in a generation to be a first-time home buyer.
Cheery views such as this are out of vogue and easy enough to dismiss as the ravings of a serial optimist. And yet this opinion isn’t based on any heroic economic assumptions. To the contrary, it is constructed upon a more curmudgeonly foundation: In my estimation, the stock market probably underestimates Europe’s woes, U.S. economic growth may fall short of expectations, and—of greatest relevance—the overall housing market is likely still several years from normality.
Nevertheless, this is still a remarkable time to be a first-time home buyer. Affordability is the best it has been in 30 years, thanks to the combination of a 34% decline in prices since the 2006 peak and a historically low 4% average rate for a 30-year, fixed-rate mortgage.
The two affordability metrics that truly matter are how much monthly income a mortgage consumes, and whether this is less costly than renting. On the first count, I calculate that home prices are now an astonishing one-third cheaper than the historical norm. On the second, real-estate website Trulia figures that buying is cheaper than renting in 98 out of America’s 100 major markets. That is practically a clean sweep.
Rock-Bottom Rates
Investors get this. While households dither, investors ramped up their home buying by 64% across 2011. They understand that this is the mother of all buyer’s markets, and won’t last forever. The prospect of making a profit by flipping these properties is still rather distant, so they lay in wait for an eventual rebound and in the meantime make money by renting out their properties for more than the monthly mortgage payment.
Yet most people are sitting on their hands, frozen not by the fundamentals but by psychology. For those able to overcome their phobias, a blazing contrarian opportunity exists.
Here’s a dirty little secret about recessions: They aren’t bad for everyone. They can even be downright beneficial if played right. Roughly one in 30 Americans is unemployed as a result of the financial crisis. The rest have sidestepped this blow, and what’s more have been given the gift of extraordinarily low interest rates.
The long arc of history reveals no other sustained period of real interest rates this low. It is mind-bending that American home buyers can now borrow for 30 years at a cheaper rate than either General Electric Co. or the Australian government. And unlike their counterparts in most other countries, Americans can lock in today’s borrowing costs for the full life of their mortgage, enjoying perfect certainty about future payments.
The finances of most households have had a rough go over the past several years. Many were ravaged by financial markets. Others are trapped beneath an illiquid and possibly underwater home.
However, the situation for first-time home buyers is different. They largely skated through the past few years. They weren’t yet in the housing market, and so escaped that devastating hit. And with an average age of 30, they hadn’t yet accumulated sufficient assets to truly suffer when markets fell.
A significant part of this cohort’s savings has been generated in just the past five years, and while markets have been enormously volatile over that period, a monthly savings plan would have generated a 26% return in equities and 22% in bonds. First-time home buyers may not be so hard up for their down payment after all.
Heck of a Deal
But is it wise to take the plunge in this era of economic uncertainty? While the economy remains very fragile, it has become less so since the fall. Still, say the worst happens—you buy a home and then immediately lose your job: The foreclosure backlog provides breathing room, and there is ample evidence that the newly unemployed are regarded preferentially by employers over the poor souls in long-term unemployment purgatory.
Do home prices still have room to fall? Or is now the time to buy?
Could home prices fall further? Yes they could. The home-inventory overhang is still quite large and credit availability remains poor. Home prices are unlikely to bloom in earnest for quite some time. But inventories are finally shrinking and mortgage availability has at least stabilized, and if you wind up buying a house on sale for one-third off its fair value instead of discounted by 40%, you still got one heck of a deal.
Arguably, the bigger risk is rising interest rates, which could erode affordability and snuff out this buying opportunity.
What if you are presently unemployed, or a grim-faced banker has rejected your mortgage application? Alas, your decision has been made for you. But for viable first-time home buyers—those with a stable job and a preapproved mortgage—this opportunity is ripe for the picking. Investors are already eating your lunch.
Mr. Lascelles is the chief economist at money-management firm RBC Global Asset Management Inc. He can be reached at reports@wsj.com.
No: The Fall Isn’t Over
By A. Gary Shilling
Don’t buy your first house now unless you’re willing to lose 20% of its market value in the next several years. Maybe more.
It will take a 22% drop to return median single-family house prices to the trend identified by Robert Shiller of Yale University that stretches back to the 1890s and prevailed until the housing bubble began. (It adjusts for inflation and the tendency of houses to get bigger over time.) And corrections usually overshoot on the downside just as bubbles do on the upside.
The problem is excess inventories. They are the mortal enemy of prices, and we’ve calculated an excess of two million housing units, over and above normal working levels of inventories of new and existing homes. That is huge, considering that before the housing market collapsed, about 1.5 million new homes were being built annually, a figure that shrank to 568,000 in February. At current rates of housing starts and household formation, it will take four years to work off the excess inventory, plenty of time for those surplus houses to drag down prices.
Excess inventories, of course, were spawned by the earlier housing boom, which was driven by a host of factors—including low interest rates, almost nonexistent lending standards and government attempts to put even those who couldn’t afford chicken coops into four-bedroom houses. But most of all, the housing bubble was driven by the conviction that home prices never fall—they hadn’t on a nationwide basis since the 1930s—so any bad purchase would eventually be reversed.
As such, the homeownership rate expanded to 69.3% by late 2004, from the earlier norm of 64%. But now, homeownership has retreated to 66% as foreclosures mount, lending standards stay tight and many worry about their jobs and/or the responsibilities of homeownership. Everyone knows that house prices can and do fall.
Pushing Up Inventories
The optimists will tell you that home inventories have stabilized, but their thinking is flawed.
Our estimate of two million excess homes takes into account those on the market as well as hidden inventories, such as foreclosed homes not yet listed for sale and those withdrawn from the market because owners couldn’t stomach the bids they received. A U.S. Census Bureau category that measures such hidden inventories has leapt by one million units since 2006.
Additionally, our inventory estimate doesn’t even include future foreclosures, some five million of which are waiting in the wings. The 49% drop in new foreclosures since the second quarter of 2009 is a mirage, and was partly due to the Obama administration pressuring mortgage lenders to try to modify troubled mortgages to keep people in their homes. (They were largely unsuccessful.) Then lenders refrained from foreclosing to avoid even more bad PR during the robo-signing flap that highlighted inadequate foreclosure procedures.
Now that mortgage servicers have reached a $25 billion settlement with Washington and state attorneys general, foreclosures are likely to roar back. That likely will trigger the additional price decline, since the National Association of Realtors says foreclosed houses sell at a 19% discount to other listings, and sizable sales of real estate owned by lenders drag down the entire market. The total peak-to-trough decline in single-family house prices then would be more than 50%.
If those foreclosed out of their abodes move to rentals, they’re occupying other housing units, so there is no change in overall inventories. But if they double up or move in with their parents—as statistics show they have been doing—even more excess inventory results.
A Disastrous Investment?
Sure, the always optimistic National Association of Realtors tells you that based on mortgage rates, incomes and house prices, single-family houses have never been more affordable. But according to their index, that was also true in December 2008, and prices have fallen 9.2% since then. Ugh! Home prices may have dropped 34% since the peak in early 2006, but that doesn’t make them cheap if prices continue to decline.
Many have realized that an abode and a great investment are no longer combined in a single-family house. Instead of straining to buy a house, young families should rent until their kids are old enough to really need a single-family home.
Yes, apartment rental rates are rising and vacancies are falling, but by past standards, house prices remain high relative to rents. But even if homeownership was cheaper than renting, as some claim, buying a house now would be a disastrous investment if prices fall another 20% or more.
The homeownership dream of an appreciating asset and huge ATM has been replaced by the nightmare of a liability that is expensive to own and falling in value. Act accordingly.
Mr. Shilling is president of A. Gary Shilling & Co., an economic consulting firm in Springfield, N.J. He can be reached at reports@wsj.com.”
Full article: http://online.wsj.com/article/SB10001424052702304299304577348083297932466.html#mjDropdown
FHA To Maintain Current HECM Limit
August 19, 2011
Good news for now! The U.S. Department of Housing and Urban Development just published Mortgagee Letter 2011-29, which maintains the current HECM loan limit of $625,500 through December 31, 2011! That means that borrowers who are planning on doing a HECM Reverse Mortgage in 2011 and have a home with a higher value will be able to use the full value (up to the $625,500). Towards the end of this year we should expect to see what 2012 has in store for us!
The $625,500 limit applies to all HECMs made in the continental United States, as well as high-cost areas, such as Hawaii, Alaska, Guam and the U.S. Virgin Islands.
To see the full Mortgage Letter Click HERE.
For more information about Reverse Mortgage please feel free to call or email one of our Reverse Mortgage Specialists Tracy Kline, Dennis Harter or Francie Forchini or check us out online!
Ken Ogden and Tracy Kline joined many other Sonoma County residence in support of the new senior center being built in Santa Rosa at the 2nd Annual Seniors, Inc. Chili-Fest on Sunday, July 17, 2011. There was wonderful Musical Entertainment; Information on Senior Services; Giveaways; Face Painting; and Sampling of the Best Chili in Santa Rosa!
To learn more about the Sequoia Pacific Mortgage Team check out our Website!
Tracy Kline and Ken Odgen Supporting the New Senior Center
More About the Senior Center:
The senior center is far exceeded by the energy and active contribution of the many individuals, young and old alike, who have taken what was a mere figment of a concept to the stage of an active and full-blown process that will result in a new facility geared to seniors. A place where they can meet and pass on their knowledge, experience and skills to help others, as well as themselves, continue to grow in all aspects of their lives.
During the spring 2002 a group of interested seniors approached the City of Santa Rosa to discuss mutually beneficial interests in replacing the current Santa Rosa Senior Center with a new facility that would provide adequate and modern facilities designed to meet the current and future needs of the senior population living within our geographical area.
Since our early beginnings the City has unanimously supported our Mission by modifying the General Plan to include a specific location at the Finley Center at the corner of Stony Point/Marlow Roads and College Avenue on which the new center will be built. Additionally, they have agreed to accept this new building, paid for by community donations, as a gift from Seniors, Inc. and to provide ongoing staffing and maintenance of the facility.
At this time, Seniors, Inc. is actively raising funds to complete the final phase (phase three) of the new Senior Wing at Finley Community Center in Santa Rosa. The required figure is $1.1 million to complete the interior of the 25,000-square-foot addition. Previous funding for Phase 1 & 2 came from private donations, park development fees, and corporate sponsors.
In December of 2004, Santa Rosa’s City Council Resolution Number 26146 passed and Seniors, Inc. signed an agreement with Simons & Brecht to act as the design and construction management firm for the new senior wing project. Prior to the passage of the Resolution, Mr. Larry Simons, a well known local architect, committed to donate $500,000 from the Larry & Gudrun Simons Fund to Seniors, Inc. to fund the creation needed to complete the senior wing addition to the Finley Center and to fund the retention of a construction management firm. |
To show your support for the new senior center contact Seniors Inc.
This years event was a great success! 70 people joined us for a fun filled night of great food, wine and fantastic entertainment! A big thank you to all who showed up and supported this great cause. Thanks to the young people who gave us such great entertainment, Thank you also to those generous people and businesses who donated to our silent auction, and a final BIG Thanks You to the volunteers who made the entire event happen!
This event could not have even gotten off the ground without those people who went over and beyond to donate their time and energy. The SRGC Staff, The Optional Gymnastic Team, The Interact Club and a few hard working Rotarians including Tracy Kline, Kris Lepore, Darcie Fellow and Casey Williams…plus the many rotarians that came out in support of this great event! You ALL were amazing and I am forever thankful for your generosity in time, sweat and contributions! The event successes and credit goes to you!
One more big round of thank you’s to our entertainment…….
SRGC Optional Team, Montgomery Cheer and Dance Team, SREC Rec. Cheer Team, Alina Goodrum, Leigh McAllister, Irene Gomez, Luke Woodruf and Jenna Bates!!!
These young adults were absolutely amazing! The amount of talent inside each one of them is mind blowing! We are very thankful to them for sharing it with us! The night was truly about “Showcasing The Youth In Our Community.”
The final number, of the amount of money raised is roughly $4,500! What a great event for some amazing kids!
Learn more about the Sequoia Pacific Mortgage Team check out our Website!
The SKIRT Ladies Come to Sequoia Pacific Mortgage!
July 15, 2011
Francie Forchini one of our talented Loan officers here at Sequoia Pacific Mortgage had a great meeting last night with her SKIRT group. SKIRT stands for Sharing Knowledge, Information & Resources Together. The focus of the group is to support each other at a local level in business!
She had a larger than expected turn out also – three new members, one of which is the past president of the Geyserville Chamber, the other a former agent with Barkela-Bozzano (and now has a store in Healdsburg)and the other the editor of Healdsburg Patch (that’s a facebookpage.)
Her talk was full of great information and was well received – Antionette (who supplied the flowers) is our client who purchased a home last year with a reverse. It was great to have her speak a little bit about that and how it helped her and also to have Nancy and Beth talk about what it’s like to work with Francie! Everyone thought our office was great and liked the location.
For more information about Francie Forchini or any of our Team check us out at Sequoiapacificmortgage.com
Francie Presenting to the SKIRT ladies!
THe SKIRT ladies enjoying each others company!
Here is a some good news for home prices!
CoreLogic® Home Price Index Shows Second
Consecutive Month-Over-Month Increase
Home Prices Down 7.4 Percent
Home prices in the U.S. increased by 0.8 percent in May 2011 compared to April 2011, the second consecutive month-over-month increase. On a year-over-year basis, home prices declined by 7.4 percent in May 2011 compared to May 2010 after declining by 6.7 percent* in April 2011 compared to April 2010. Excluding distressed sales, year-over-year prices declined by 0.4 percent in May 2011 compared to May 2010 and by 0.8* percent in April 2011 compared to April 2010. Distressed sales include short sales and real estate owned (REO) transactions.
Highlights as of May 2011
- Including distressed sales, the five states with the highest appreciation were: New York (+4.4 percent), Vermont (+3.9 percent), North Dakota (+3.8 percent), Hawaii (+2.5 percent) and the District of Columbia (+0.5 percent).
- Including distressed sales, the five states with the greatest depreciation were: Idaho (-16.4 percent), Michigan (-12.9 percent), Arizona (-12.1 percent), Illinois (-11.8 percent) and Nevada (-11.6 percent).
- Excluding distressed sales, the five states with the highest appreciation were: West Virginia (+10.1 percent), Hawaii (+9.0 percent), North Dakota (+8.6 percent), Vermont (+6.3 percent) and New York (+6.1 percent).
- Excluding distressed sales, the five states with the greatest depreciation were: Nevada (-9.8 percent), Idaho (-7.9 percent), Arizona (-7.0 percent), South Dakota (-6.1 percent) and Minnesota (-5.0 percent).
- Including distressed transactions, the peak-to-current change in the national HPI (from April 2006 to May 2011) was -32.7 percent. Excluding distressed transactions, the peak-to-current change in the HPI for the same period was -21.2 percent.
- Of the top 100 Core Based Statistical Areas (CBSAs) measured by population, 91* are showing year-over-year declines in May, unchanged from April.
“Two consecutive months of month-over-month growth and continued relative strength in the non-distressed market segment are positive seasonal signs in the housing market. Slowly declining shadow inventory and stabilized negative equity levels are also positive signs.” said Mark Fleming, chief economist with CoreLogic. “Nonetheless, the fragile economic recovery is still critical to the long-term recovery in the housing market.”
*April data was revised. Revisions with public records data are standard, and to ensure accuracy, CoreLogic incorporates the newly released public data to provide updated results.
New visitors: Register here to download the full May HPI data report.
Returning visitors: Click here to download the full May HPI data report.
Most Current, Most Comprehensive HPI Data
CoreLogic HPI monthly updates offer the quickest HPI collateral valuation information in the industry—complete HPI datasets five weeks after month’s end—and leverage the full authority of CoreLogic’s industry-leading real estate databases, covering 6,521 Zip codes, 609 Core Based Statistical Areas (CBSAs), and 1,126 counties in all 50 states and the District of Columbia.
| CoreLogic HPI covers 6,521 ZIP codes, 609 Core Based Statistical Areas (CBSA) and 1,126 counties in all 50 states and the District of Columbia. |
HPI for the Country’s Largest Core Based Statistical Areas (CBSAs):
|
May 2011 |
||
|
Change by CBSA |
||
| CBSA |
Single |
Single Family |
| Chicago-Joliet-Naperville IL |
-12.8% |
-3.8% |
| Phoenix-Mesa-Glendale, AZ |
-11.4% |
-7.3% |
| Atlanta-Sandy Springs-Marietta, GA |
-6.8% |
-0.7% |
| Los Angeles-Long Beach-Glendale, CA |
-5.3% |
2.7% |
| Riverside-San Bernardino-Ontario, CA |
-5.1% |
-2.2% |
| Houston-Sugar Land-Baytown, TX |
-3.5% |
5.3% |
| Philadelphia PA |
-3.3% |
-1.2% |
| Washington-Arlington-Alexandria, DC-VA-MD-WV |
-1.5% |
3.9% |
| Dallas-Plano-Irving, TX |
-0.6% |
5.8% |
| New York-White Plains-Wayne, NY-NJ |
3.0% |
4.6% |
Source: CoreLogic
For more information please feel free to call one of our loan officers here at Sequoia Pacific Mortgage Company 707-575-3220
Annual Outlook for Local Contruction Sector
May 16, 2011
Here is another new annual outlook for the local construction sector, prepared by Moody’s Analytics for the Economic Development Board.
- This forecast indicates that the construction industry inSonomaCountyis beginning to show some indicators of recovery, including increasing employment, and will help lead the county economy out of the recession.
- Improving demographic trends will bode well for housing demand. The population has been increasing and is expected to continue to increase. The population of those aged 25 to 39, the prime home buying years, is stable for the first time in decades.
- SonomaCountystill has a large share of homes in the foreclosure processes, and distress sales and bank auctions will challenge pricing. Existing-home prices are expected to begin rising in 2012 and at a faster pace than that of the nation.
Here’s the link:
Local Economy Update
May 12, 2011
Here’s the new forecast for the local economy, provided by Moody’s to the Economic Development Board.
It’s the most optimistic in literally years, with technology, construction, and tourism slated to lead the economy out of the recession. Wine will be growing, too.
It’s a good read; here’s the link:
Reverse Mortgage Tax Deduction
May 9, 2011
This was a very informative article we thought we would share!
Tax tips: Reverse mortgage deductions
Q. I recently (in 2010) went through a reverse mortgage. There were a lot of closing costs including a new home appraisal. I know I cannot take a deduction for interest, but can I deduct any of these various closing costs off my income taxes?
A. A reverse mortgage is, in essence, a loan advance and not income, so the amount you receive from it is not taxable. Also you are correct with the interest deduction. However, IRS Publication 936, Home Mortgage Interest Deduction says, “Any interest (including original issue discount) accrued on a reverse mortgage is not deducible until you actually pay it, which is usually when you pay off the loan in full.”
As for your question, closing costs are generally not deductible. You are normally allowed to deduct home mortgage interest and (sometimes/often) points from a qualified home loan. For more on that, see Page 10 in IRS Publication 530, Tax Information for Homeowners. Read the section under “Items not added to basis and not deductible” on Page 10 for specifics on the various costs involved .
According to a recent Bankrate.com national survey, 20% of Ameicans polled who have retirement accounts with money in the accounts are dipping into their retirement accounts in order to make ends meet. 17% of those who are dipping into their retirement accounts are currently working full-time.
Moreover, a new Gallup Poll shows that more than half (53%) of Americans who were polled recently who are not currently retired do not believe that they can afford to retire in their so-called golden years. This 53% number is up from 20% in 2002, just nine years ago.
Furthermore, those who say that they will retire before Age 65 has dropped from 47% of those polled in 1995 to 28% of those polled this year. Do you see a confirmed trend here?
On the political front, our government told the Iraqi government last week that if Iraq wants U.S. troops to remain in Iraq beyond the Dec 31, 2011 pull-out deadline, as is clearly stipulated by the current Status of Forces Agreement between the United States and Iraqi governments, then Baghdad must inform the U.S. quickly to ask for an extension. What is actually going on, according to George Friedman of the Stratfor Intelligence Report, is that the U.S. government is urging the Iraqi government to change its mind right now and allow U.S. troops to continue to be deployed in Iraq past our announced pull-out date. The U.S. government is concerned that completing the withdrawal of U.S. troops this December would increase instability in the Middle East, with the Shiite uprising in Bahrain and the Saudi Sunni intervention along with events in Yemen and Libya. The U.S. government has made a pledge to the American People to withdraw forces from Iraq, but the conditions that were expected to be in place after 8 years of American military fighting presence are not in place. A coherent Iraqi government and a coherent Iraqi military has yet to occur.
The unintended consequence of American foreign policies in the Middle East under President G.W. Bush and under President Obama has been to strengthen Iran’s religious ruling party’s influence and Iran’s military power in the region. Neither Iraq nor Saudi Arabia could stand up to Iran at this time. Israel is the only power in the Middle East that could.
And why is the price of oil surging? One reason could be because of rising geopolitical risk in the oil-producing regions of The Middle East should Sunni religious fervents control more oil producing fields. Another reason is because of relatively unrestricted capitalistic greed in free markets around the globe in the form of oil speculation. These short-term traders are pushing up the price to make a quick buck or pound or euro or ruble or peso or rupee or yuan. Do no harm is not their motto.
This article was written by Robert Fields. If you have questions for Robert or would like to comment further contact him at Robert@sequoiapacificmortgage.com or 707-575-3220 ext. 205
