Many housing experts have predicted a slowdown in investor activity this year, but investors don’t appear to be fading away from the market.
They might just be shifting their focus to different types of properties, as distressed inventories dry up in many markets “There has been a clear rebound in investor participation in the housing market,” says Thomas Popik, research director for the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, which showed strong activity among investors in December 2013.
“The statistics for the housing market, particularly the non-distressed segment, remain generally strong, but investors still are increasing their activity.”
The aging of the nation’s Baby Boomer population could reshape the United States’ residential real estate market and economy in the coming years. As members of this demographic get older, many will move out of the houses where they raised families and downsize into smaller, cozier apartments, condominiums, and townhouses.
This is a normal transition for people of such age, but it represents a potentially massive shift in the nation’s housing demand. Based on demographic trends, the nation should see a stronger rebound in multifamily construction than in single-family construction in the years to come.
Kansas City Fed senior economist Jordan Rappaport writes: “By the end of the decade, multifamily construction is likely to peak at a level nearly two-thirds higher than its highest annual level during the 1990s and 2000s.”
At the same time, the shift from single-family dwellings to multifamily housing will almost certainly have implications for fiscal policy, monetary-policy analysis, and possibly even local zoning codes. Rappaport comments, “Suburbs seeking to retain aging households may need to re-create a range of these urban amenities and enact some rezoning to encourage multifamily construction.” He adds that the projected shift from single-family homes to apartment, condo, and townhome living will likely put downward pressure on single-family prices.
New mortgage rules take effect Friday that set out to protect borrowers against risky lending practices. One of the biggest changes is that borrowers will likely need to show more proof that they can actually afford the mortgage they’re applying for.
Here are two main terms to know from the new rules:
“Ability-to-repay” rule: Mortgage lenders must ensure borrowers can actually afford their loans over the long term. Applicants’ income, assets, savings, and debt against their monthly house payments will be more closely scrutinized. Borrowers likely will need to produce “even more tax records, pay stubs, and bank and investment account information,” USA Today reports.
Qualified Mortgage: Borrowers who meet the ability-to-repay requirements will likely be eligible for a QM. QM loans must meet at least some of the following guidelines: They cannot contain risky features, such as terms that exceed 30 years or interest-only payments; carry more than 3 percent in upfront points and fees for loans above $100,000; or push a borrowers’ total debt above 43 percent of their monthly income unless the loan qualifies to be backed by Fannie Mae, Freddie Mac, the FHA, or a small lender.
Lenders can still issue loans outside of the QM guidelines, but lenders will have to do so realizing they’ll have less protections against future lawsuits. The Consumer Financial Protection Bureau estimates that about 92 percent of mortgages currently meet QM requirements.
American cities claimed four of the top five spots in the world for foreign property investors. However, London claimed this year’s top pick as the best city in the world for foreign property investors, according to a survey conducted by the Association of Foreign Investors in Real Estate.
Several major property deals in London last year helped it nab this year’s top spot. Last year’s top pick, New York, came in second in this year’s survey.
The top five spots for foreign buyers worldwide, according to the survey, are:
1. London -2. New York – 3. San Francisco – 4. Houston – 5. Los Angeles
The U.S. kept its position as the most “stable and secure” country overall for foreign investors with property, according to the association. The U.S. was more than 50 percentage points ahead of Germany, which came in second place as most “stable and secure.”
“Foreign investors’ continued interest in the U.S. real estate markets reflects fully functioning capital markets that provide access to a broad range of investment opportunities,” says Steve Hason, chairman of the Association of Foreign Investors in Real Estate’s chairman.
New mortgage rules that took effect last week could further hamper small lenders’ ability to issue loans, The Wall Street Journal reports.
Under the new rules, lenders must ensure that borrowers can pay back their loans. Loans that meet “qualified mortgage” standards will provide a safe harbor to lenders from future lawsuits, while loans issued outside of QM standards will carry more legal risk.
The Consumer Financial Protection Bureau defines “qualified mortgages” as loans that meet the ability-to-repay rule and in which borrowers spend no more than 43 percent of their income on debt. Furthermore, fees and other charges may make up no more than 3 percent of the loan.
Small lenders reportedly will tread cautiously in the new lending environment because they are worried about the legal risk of making loans that don’t meet new standards, according to The Wall Street Journal.
“We’re going to be very conservative just to make sure that we’re in compliance and don’t get into trouble,” says Mark Walker, chief executive of Michigan Mutual Inc., a lender with 300 employees based in Port Huron, Mich. “There are going to be loans that we did in 2013 that we are not going to be able to do in 2014.”
The Consumer Financial Protection Bureau (CFPB) is asking for feedback on the most stressful, confusing, and problematic areas for consumers when it comes to the closing process in a home purchase. The agency is hoping to identify the main consumer “pain points” at closings as part of its “Know Before You Owe” initiative, which is aimed at improving the mortgage process for consumers.
In addition to collecting general information, the CFPB is looking for answers to 17 specific questions about closings and consumer preparation, common errors, the role of other parties in the process, and about consumers’ comfort with the overall closing process. The public is encouraged to comment on the common problems consumers face at closing; where consumers turn for advice during closing; and what documents and terms are the most confusing during the process.
The CFPB is collecting comments not just from consumers but also real estate professionals, settlement agents, mortgage lenders, housing counselors, real estate attorneys, and others with a stake in the closing process.
Private jumbo-mortgage originations are on pace to reach the highest level since 2007, as lenders are offering low down-payment requirements to lure more borrowers, The Wall Street Journal reports.
Many small lenders, such as community banks and credit unions, say they are willing to cover jumbo loans with 5 percent to 10 percent down payments now, according to the Journal.
As home values rise, banks are experimenting with loosening up lending standards by targeting private jumbo loans as a way to increase their business share. In most parts of the country, jumbo loans are those that are $417,000 and higher; in some of the most expensive markets, jumbo loans are $625,500 or more.
But with low down-payment requirements for jumbo loans entering the arena, that means a comeback for the private mortgage insurance industry. The insurance, which protects lenders in case a borrower defaults, is charged to borrowers who usually make less than a 20 percent down payment. Private mortgage insurers are reportedly lowering their costs and increasing the size of mortgages they’ll cover to accommodate jumbo borrowers.
Mortgage Guaranty Insurance Corp. raised the maximum mortgage it will insure from $750,000 to $850,000 last month; Genworth Mortgage Insurance raised its maximum level from $625,500 to $850,000; United Guaranty recently started offering a limited program for loans up to $1 million.
The move by private lenders to increase low-down-payment jumbo loans comes as the Federal Housing Administration started reducing the amount of high-cost mortgages that it will insure in about 650 counties. As of Jan. 1, FHA loans in high-cost areas have been capped at $625,500, reduced from $729,750.
As Jan.1 rolled around, Congress failed to extend a 6-year-old federal law that allowed homeowners to avoid liability for federal income tax on debt forgiven in a short sale or through a principal reduction.
But bipartisan support and backing from major real estate industry players, including the National Association of Realtors and the Mortgage Bankers Association, and dozens of consumer groups and housing advocates, means that Congress will likely extend the tax break through 2015 and apply it retroactively to Jan. 1, the Los Angeles Times reported.
While in some states, such as California, state law means that mortgage debt forgiven as part of a lender-approved short sale is not taxable income at either the state or federal level, that exemption does not apply to mortgages modified when lenders forgive part of the principal owed.
A middle-income homeowner with a principal reduction of $20,000 would face a $5,600 tax bill if the law is not extended, the Times said, citing figures from the Congressional Research Service.
“It makes absolutely no sense. It is, frankly, outrageous,” said Sen. Debbie Stabenow, D-Mich. “This is not just about fairness for homeowners. This is about keeping the housing recovery alive.”
Warren Buffett’s new real estate franchise, Berkshire Hathaway HomeServices, has created a council of millennial real estate professionals that will educate others in the business about how to better reach and serve 20- and 30-something buyer and sellers.
The franchise has selected 10 real estate professionals who are 35 years old or younger – also based on professional achievements – to serve on its REthink Council. The council is to advise the franchise’s leadership on how to better connect with millennial customers.
On a national scale, only 11 percent of REALTORS® are under the age of 40, according to the National Association of REALTORS® 2013 Member Profile. That percentage has fallen from 20 percent in 2003. The median age for a REALTOR® has climbed to 57.
“The REthink Council is an opportunity to harness the ingenuity of these young professionals and turn that power to the advantage of the network and the industry,” says Earl Lee, CEO of HSF Affiliates LLC. “It’s a new era in real estate, and this council will better connect us with a large and emerging generation of home buyers and sellers.”
The council runs a Facebook page for sharing best business practices among younger real estate professionals, and it also plans to distribute an occasional newsletter about improving relationships with millennial customers.
“Millennials are very independent,” Margaux Pelegrin, 32, with Berkshire Hathaway HomeServices Fox & Roach in Philadelphia, who is one of the council’s members, told Inman News. “If they knew more about the benefits of being in real estate, they would be more interested. We have a need for innovative, smart young professionals. Real estate is a missed opportunity for them.”
The U.S. Department of Housing and Urban Development released its final ruling on the definition of “Qualified Mortgage,” which includes new requirements that mortgages must meet starting Jan. 10, 2014, in order to be insured, guaranteed, or administered by HUD or the Federal Housing Administration.
HUD’s rule is similar to the existing qualified mortgage rule that was issued by the Consumer Financial Protection Bureau earlier this year.
According to HUD’s rule, “qualified mortgage” loans will have to meet the following criteria in the new year:
• Require periodic payments without risky features;
• Have terms that do not exceed 30 years;
• Limit upfront points and fees to no more than 3 percent with adjustments to facilitate smaller loans
(there are a few exceptions, such as for manufactured housing);
• Be insured or guaranteed by FHA or HUD.
HUD says the first two elements of the rule — periodic payments without risky features and terms that don’t exceed 30 years — are already part of its current underwriting processes. The requirement that limits upfront points and fees is not, but it’s consistent with private-sector and conventional mortgages guaranteed by Fannie Mae and Freddie Mac, HUD notes.
HUD’s rule also establishes two types of qualified mortgages: Rebuttable Presumption QM and Safe Harbor QM. The Rebuttable Presumption QM will contain annual percentage rates that are greater than the rate for the average borrower receiving a conventional mortgage. The Safe Harbor QM, which offers lenders the greatest legal certainty, will have a smaller APR. Both types of qualified mortgages hold different protections for consumers and consequences for lenders.
The Dodd-Frank Wall Street Reform and Consumer Protection Act requires HUD to have a “qualified mortgage” definition that meets the ability-to-repay criteria, requiring borrowers to have the finances to be able to one day repay the loan.
The qualified mortgage rule will have a major effect on determining the underwriting standards that most lenders will use to qualify borrowers, the National Association of REALTORS® has said. NAR has actively worked with lawmakers in shaping the qualified mortgage rule issued by the Consumer Financial Protection Bureau.