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Economics, Home Prices, Housing, Housing Trends, Investment Real Estate, Minneapolis / St. Paul Housing, Real Estate Brokerage, Real Estate Trends, Residential Real Estate, Technology, Twin Cities Real Estate

iBuyers are Changing The Landscape of the Housing Market

April 2019

University of St Thomas Twin Cities Housing Market Update

What is an iBuyer?

An iBuyer is a company, in many cases an institutional investor, that will make an offer on your home within hours (or days) based on a proprietary valuation model. If you choose to accept the offer, you can close the sale in as little as a couple of days. The recent big news in the Twin Cities market is that last Monday Zillow began offering its Zillow Offers service to home sellers in the Twin Cities. The Twin Cities is the 10th metro area in the nation where they are offering this service. In addition to Zillow there are a number of local and national iBuyers here already with a number of new companies on the way.

How is the iBuying process different?

Traditionally, home values are calculated by using recent comparable sales of similar homes in the nearby area. The issue is that no two homes are identical and adjustments need to be made to account for the differences. Some of these adjustments are hard to calculate and can be somewhat subjective. Many of the newer, well capitalized iBuyers use “automated valuation models” or algorithms using computers to process massive amounts of home sales data to arrive at a value. Based on that value and information that home sellers upload about their homes they can close a sale in as little as a few days. There are some iBuyers may require a visual inspection by a local real estate partner.

Is iBuying the apocalypse for traditional agents and brokers?

The short answer is No. Nationally, in 2018, iBuyers accounted for 0.2 percent market share. At this point, even in markets where iBuyers has been operating longer they are only accounting for 3 – 6% of the sales volume. As more home sellers become more familiar and comfortable with the iBuying process that percentage will undoubtably increase. While a few iBuyers work directly with home sellers many of the iBuyer’s business models include working with and paying commissions to local real estate partners. Additionally, local Realtors do have the advantage of local market knowledge and are able to spot emerging neighborhood trends. As an example, look at what happened to the travel industry when technology made travel booking information directly available to individuals. At the time some were saying that it would be the end of travel agents. In reality travel agents have survived, however the industry has consolidated, become more sophisticated and has changed the way it does business.

Should I use an iBuyer?, What is the cost?, What is the Value Proposition?

Sellers are looking for a faster, simpler, less stressful way to sell their home. They want the process to be more efficient. Not all iBuyers offer the same services, some are full service, they want to be able to offer a one stop experience. Their process works like buying a car where you can buy a car, trade in your car, obtain financing and insurance all in one place. Since the larger iBuyers are buying and selling homes all the time, their business model works well taking trade ins. There others in the market who offer varying levels of service including those at the other end of the service spectrum who will only buy your home.

Average commissions using an iBuyer are about 7%, additionally their offer is discounted below fair market value. They expect to make necessary repairs and make a profit when they sell the home. In contrast commissions are about 5% – 6% for traditional sale listings. Sellers need to consider the trade off between convenience and maximum offer price.

The following are situations where a seller may consider using an iBuyer;

  • If the purchase of your next home requires the sale of your current home, you may need access to the equity tied up in your current home. Many Americans can’t quality for two mortgages at the same time meaning they have to sell their current home before they buy the next one. In today’s tight housing market contingent on sale offers are rarely successful.
  • If you can’t or don’t want to do the work to repair or upgrade your property before you sell.
  • If you’re moving to a new city and need to be on the job ASAP, you may not have time to wait for your home to sell
  • You’ve inherited a home you don’t want to own or manage

iBuying can provide a quick cash option but this speed and convenience comes at a price. In many cases a local agent may be able to get you a higher price for your home if you have the time available. Is it worth it? That depends on your priorities and circumstances.

There is more to come

Look for more large iBuying companies to come to town. Much of recent iBuying activity is being driven by multi-billion dollar organizations. In addition to Opendoor, who entered the Twin Cities market last fall, there will be other new arrivals such as Knock, OfferPad and Redfin. With technology advancing at such a rapid rate there will be more concepts and companies entering the market like Ribbon and Eave that work on the other side of the transaction helping buyers compete with cash offers.

Economics, Home Prices, Housing, Housing Trends, Industry News, Minneapolis / St. Paul Housing, Real Estate Trends, Residential Real Estate, Residential Real Estate Index, Twin Cities Real Estate

St. Thomas Real Estate Analysis: Demand for Moderately Priced Homes in Twin Cities Outstrips Supply

Market ReportThe university found the number of homes on the market reached a 10-year
low at the end of 2015. It’s good for sellers but more challenging for buyers.

The Shenehon Center examines new trends and opportunities in multi-generational housing in the Twin Cities.

The supply of homes available to buy in the 13-county Twin Cities region dropped to a 10-year low in December, according to a monthly analysis conducted by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business. Each month the center tracks the median price for three types of sales: non-distressed or traditional; foreclosures; and short sales (when a home is sold for less than the outstanding mortgage balance). In addition, it looks for trends in the market and creates a monthly composite index score by tracking nine data elements for those three types of sales.

Herb Tousley, director of real estate programs at the university, said there has been a shortage of homes for sale all year, but in December that number dropped to the 10-year low of 10,301. The shortage is especially pronounced for the more moderately priced homes. For example, homes that cost less than $200,000 represented 30 percent of the homes on the market in 2015 but 42 percent of the sales. In that same category there were 1.86 homes available for each one sold. On the other end of the price range, there were 8.85 homes over $600,000 on the market last year for every one that sold.

“The bottom line is that there is way more demand than supply of homes that are priced at less than $400,000,” Tousley said. “The continuing shortage of homes for sale coupled with increased demand for houses in that price range will continue to keep an upward pressure on prices but will likely be a drag on the number of closed sales. “This is great if you are a seller but is much more challenging if you are a buyer,” he said.

Except for the low inventory, December marked the end of a year that has been a continuation of the steady recovery that the Twin Cities housing market has enjoyed for the past three and a half years. The sale price of a non-distressed (traditional sale) home was up 3.7 percent for the year; the price of a short-sale home was up 19.7 percent; and the sale price of foreclosed homes was unchanged. The combined increase for all three categories was 10 percent. Tousley expects the recovery to continue. “In the second half of 2016, increasing sale prices should start to bring out more sellers as homeowners’ equity positions begin to improve,” he said.

Multi-generational households – A rising trend?

According to John Burns Real Estate Consulting, 14 percent of U.S. households (that’s 16.5 million households) now live multi-generationally. The number is expected to increase for three reasons:

• Delaying marriage has increased the number of young adults who live with their parents.
• Surging retirement has increased the number of retirees living with their children.
• Significant immigration from countries where multigenerational living is the norm also has helped boost the numbers.

Tousley said that if the 14 percent number holds true for the Twin Cities, that would mean there are 189,381 multigenerational households in the 13-county region. He noted that according to a Consumer Insights survey of more than 20,000 shoppers for a new home, 44 percent they would like to accommodate their elderly parents in their next home. Also, another 42 percent plan on accommodating in their next home children who are 18 and older.

“Since most of the U.S. housing stock was not built for multigenerational living, this provides a tremendous opportunity for homebuilders,” Tousley said. “This trend is also increasing the number of secondary dwelling units, sometimes called in-law units. “These units can be set aside within a larger single-family home, such as a separate basement or attic apartment; attached to a primary residence, such as an apartment above an attached garage; or smaller separate units built on the same lot as single-family homes. “Over the next decade, look for these trends to change the makeup of the single-family housing stock in the Twin Cities.”

mortgagesThe St. Thomas indexes.

Here are the Shenehon Center’s monthly composite index scores for December 2015. The index, which tracks nine data elements for the three types of sales (traditional, short sales and foreclosures), started in January 2005. For that month, the center gave each of the three indexes a value of 1,000.

The December 2015 index score for traditional sales was 1,082, down .8 percent from November but up 5.2 percent for the year.

The December 2015 index score for short sales was 965, up 3.1 percent from November and up 6.4 percent for the year.

The December 2015 index score for foreclosures was 774, down 2.3 percent from November and up 3.3 percent for the year.

 

More information online

The Shenehon Center’s charts and report for December can be found at http://www.stthomas.edu/business/centers/shenehon/research/default.html.

The index is available free via email from Tousley at hwtousley1@stthomas.edu.

Economics, Home Prices, Housing, Housing Trends, Industry News, Minneapolis / St. Paul Housing, Multifamily, Real Estate Lending, Real Estate Trends, Residential Real Estate, Residential Real Estate Index, Twin Cities Real Estate

A Brief Summary of the 2015 Twin Cities Housing Market. This Year was a Good Year, What About 2016?

We examine some of the more important questions about the Twin Cities housing market in 2016 and offer some thoughts Houseforsaleabout where the market is headed.

An analysis of Twin Cities real estate data for 2015 through November shows that the housing market is continuing to recover along with the economy; home prices, the number of closed sales, pending sales, new listings, and the percentage of traditional sales (not foreclosures) are all on the upswing.Meanwhile, a historically low number of homes on the market is continues constrain the number closed sales. This has created an imbalance in the market where buyers outnumber sellers and leads to situations involving multiple offers and homes selling above asking price.

Will 2016 bring more of the same? In this month’s Residential Real Estate Report Herb Tousley, director of real estate programs at the university will examine some of the more important questions about expectations for 2016. These questions are;

  • What will happen with median home sale prices in 2016? How long will it take for them to approach pre-crash levels? Look for an increase of 6% – 8% in the median sale price of homes sold in the Twin Cities. **
  • What will happen to the number of homes sold during the year? Look for an increase of 4% – 6% in the number of closed sales in 2016. **
  • What will happen with the number of homes available for sale in 2016? We are expecting an increase in the inventory of homes for sale of 1% – 3% compared to the previous year’s levels. **
  • Will interest rates and mortgage rates continue to rise in 2016 and if so, what effect will it have on the housing market? In 2016 look for rates to drift from just under 4% to slightly over 4% by the end of the year. **
  • What will happen with new housing starts in 2016? Will home builders break out of the doldrums next year?   In 2016 I am expecting an increase in the number of permits issued of about 10%. **
  • What will happen with apartment development and rent levels? Will the market continue to be able to absorb the expected number of units in the pipeline?   Our expectation is that next year will be another good year for apartment developers with an additional 3,800 – 4,000 market rate units being added to the existing stock. We also we expect that the strong local economy and continued employment growth will sustain continued rent growth of 2% – 2.5% in 2016. **

 **For a more detailed explanation of the above answers you can download the complete November Residential Real Estate Report at: http://www.stthomas.edu/business/centers/shenehon/research/default.html.

Real-Estate-Supply-and-Demand-300x259The Residential Real Estate Report is a monthly analysis of the 13-county metro area prepared by the Shenehon Center for Real Estate at St. Thomas’ Opus College of Business. Each month the center tracks nine housing-market data elements, including the median price for three types of sales: nondistressed (traditional-type sales), foreclosures, and short sales (when a home is sold for less than the outstanding mortgage balance). More details about the market, including an analysis of distressed-property sales during the winter months, can be found on the Shenehon Center’s website: http://www.stthomas.edu/business/centers/shenehon/research/default.html.

Research for the monthly reports is conducted by Tousley. The index is available free via email from Tousley at hwtousley1@stthomas.edu.

 

 

Affordable Housing, Economics, Home Prices, Housing, Housing Trends, Industry News, Minneapolis / St. Paul Housing, Real Estate Trends, Residential Real Estate, Residential Real Estate Index, Twin Cities Real Estate

Would rising interest rates and home prices put the Twin Cities housing recovery in jeopardy?

 Researchers at the Shenehon Center for Real Estate think not, but they are keeping an eye on theMarket Report historically low inventory of homes for sale and what that could mean for asking prices.

Would a predicted increase in mortgage interest rates, coupled with a low-inventory-fueled jump in home prices, be enough to kill the housing recovery that has been under way in the Twin Cities for the last two years? That question is examined in the February Residential Real Estate Index, a monthly analysis of the 13-county metro area prepared by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business. Even with a potential increase in both interest rates and the asking price of homes, “the housing market may slow down but the recovery will not be derailed since home ownership will remain affordable for most households,” according to Herb Tousley, director of real estate programs at the university.

What might happen to mortgage rates?

According to many sources, interest rates and mortgage rates are expected to increase moderately during the course of 2014. “Mortgage rates have been extremely low for the last several years and at some point they are going to have to return to more historically normal levels,” Tousley said.  A chart showing the change in mortgage rates since 1980 can be found on the Shenehon Center’s website at http://www.stthomas.edu/business/centers/shenehon/research/default.html.

What might happen to home prices?

The number of homes for sale continues to remain at a historic low level with just 12,131 properties for sale in the 13-county metro area. “We will be keeping a close eye on the inventory because the number of homes for sale will have a direct impact on the percentage of increase in median sales prices during 2014,” Tousley said.  “We have been expecting an increase in inventory of homes for sale in the 15 percent to 20 percent range as we move into the spring and summer selling seasons due to a healthy increase in sale prices over the past year and generally improved economic conditions in the region. “If inventory levels remain stubbornly low throughout the year, the lack of supply will cause prices to increase more aggressively.”

Will homes remain affordable?

“If mortgage rates do increase moderately as expected in 2014, home ownership will still remain affordable for Twin Cities residents,” Tousley said. “Home ownership in the Twin Cities has traditionally been very affordable compared to many other areas of the country,” he added. In Minneapolis-St. Paul the home-price-to-income ratio (the median sale price of a home compared to the area median household income) as of December 2013 was 2.97 compared to the national average of 3.86.A chart on the Shenehon web site illustrates the impact of potential increases in mortgage rates and asking prices. For an example, the chart assumes: a current mortgage rate of 4.5 percent increasing to 5.5 percent by year-end; a 5 percent increase in the median home sale price; a 2 percent increase in median household income for a buyer who puts 5 percent down. In this case, the median sale price in February 2014 of $213,250 would increase to $223,912 by December 2014. During that time, meanwhile, median household income would increase from $63,564 to $64,835.  When principal, interest, insurance and taxes are added to the mix, the monthly payment increases from $1,326 to $1,507. As a result, the debt-to-income ratio in this case increases from 25 percent in February to 28 percent in December. “Payments do increase,” Tousley said, “however they remain within most mortgage lenders’ guidelines that the total payment is at or less than 28 percent of household income. Under this scenario, homeownership will remain affordable for most households.”

 Traditional Home Median Sale Price

How the Twin Cities market looked in February.

February’s severe weather “continued to have an outsized dampening effect on the Twin Cities’ housing market,” Tousley said. Median sale prices were essentially flat and sales volume was down slightly. The percentage of distressed sales (foreclosures and short sales) ticked up slightly to 30 percent in February, but an improvement over the nearly 44 percent recorded in February 2013. “If all this sounds a lot like the report from December and January, there is a good reason for that,” Tousley said, “but look for things to improve in March as the spring selling season gets underway.”

The UST indexes

Each month the Shenehon Center tracks nine housing-market data elements, including the median price for three types of sales: nondistressed or traditional-type sales, foreclosures, and short sales (when a home is sold for less than the outstanding mortgage balance).

The St. Thomas Traditional Sale Composite Index continued to decrease, moving from 1005 in January to 995 in February. Despite the monthly decrease, the index remains 2.9 percent above the level recorded in the previous year.

The short sale index was 851 in February, down 10 points from January; however it was a 9.24 percent increase compared to one year ago.

The foreclosure index also decreased in February, moving from 726 in January to 721 in February, a decrease of .7 percent. The index is up 5.68 percent compared to January 2013.

 Feb-2014-Chart

More information online

The Shenehon Center’s charts and report for February can be found at http://www.stthomas.edu/business/centers/shenehon/research/default.html.

Research for the monthly reports is conducted by Tousley and Dr. Thomas Hamilton, associate professor of real estate at the university. The index is available free via email from Tousley at hwtousley1@stthomas.edu.

Economics, Home Prices, Housing, Housing Trends, Industry News, Minneapolis / St. Paul Housing, Real Estate Lending, Real Estate Trends, Residential Real Estate, Twin Cities Real Estate

Unrealistic Rate Expectations Threaten Housing Recovery

Interest RatesReposted from DSnews.com 

By: Krista Franks Brock

 Despite a reported rise in homebuyer confidence in the third quarter—the first this year—unrealistic mortgage rate expectations could lead the housing recovery astray as the Federal Reserve looks to ease its stimulus program, according to recent reports from Redfin, a national real estate broker and technology provider. Twenty-eight percent of homebuyers said now is a good time to buy a home, up 4 percentage points from last quarter, according to Redfin’s Real-Time Buyer Survey conducted in November. Another 58 percent of buyers said now is an “ok” time to purchase a home, down just 1 percentage point from last quarter’s 59 percent, according to Redfin.

Low inventory remained a top concern with 60 percent of survey respondents citing this concern. Rising prices was also a popular concern, cited among 52 percent of survey respondents. Rising mortgage rates popped up as a concern among 53 percent of survey respondents in last quarter’s survey and then dropped to 41 percent this quarter. However, Redfin finds consumer attitudes toward interest rates quite troublesome. A majority—83 percent—of buyers believe a “normal” interest rate for a fixed-rate, 30-year mortgage loan is less than 5 percent.

Furthermore, a significant portion of homebuyers—42 percent—say they “would be unable or unwilling to buy a home if rates rose further.” In contrast to what today’s consumers view as “normal,” the average mortgage rate since 1990 is 6.7 percent, according to Redfin. In fact, rates did not fall below 5 percent until March 2009. However, only 5 percent of homebuyers view a mortgage rate above 6 percent as “normal,” according to Redfin’s survey results. “Even more surprising, both seasoned and first-time buyers think a rate below 5 percent is normal,” Redfin said. One in three first-time buyers view a rate below 4 percent as normal, while one in four seasoned buyers view a rate below 4 percent as normal.

While the market awaits news on when the Fed will taper its stimulus program, thus allowing mortgage rates to rise, Redfin says this summer’s activity is a good preview of what may come. “Two weeks after mortgage rates spiked about 1 percentage point in June, the number of Redfin customers taking tours and signing offers dropped 14 percent and 12 percent, respectively,” Redfin said. Redfin argues the time to taper the stimulus and allow rates to begin to rise is now, during the slow homebuying season. Doing so would allow consumers to adjust to the new rates and prepare before the market enters the spring buying season. By the time spring comes, the hope is that buyers will have adjusted their expectations and may be ready to purchase

Affordable Housing, Economics, Home Prices, Housing, Housing Trends, Industry News, Minneapolis / St. Paul Housing, Residential Real Estate, Residential Real Estate Index, Twin Cities Real Estate

St. Thomas’ Real Estate Report Says Twin Cities Housing Market is Set for a Good 2014

Market ReportResearchers from the Shenehon Center for Real Estate say the metro area is one of the most-affordable housing markets in the nation.

 All signs are pointing in the right direction for a good year in the Twin Cities housing market in 2014, according to the Residential Real Estate Price Report Index, a monthly analysis of the 13-county metro area prepared by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business. Each month the Shenehon Center tracks nine housing-market data elements, including the median price for three types of sales: nondistressed or traditional-type sales, foreclosures, and short sales (when a home is sold for less than the outstanding mortgage balance).

 Herb Tousley, director of real estate programs at the university, said that in the Twin Cities: job creation is up, household formation is up, interest rates are expected to remain relatively low, the percentage of distressed sales (foreclosures and short sales) continues to decline, the existing inventory of homes for sale will improve, and home prices will continue their recovery.

 “The bottom line is that all of these things indicate that 2014 will be a definite step toward the full recovery of the Twin Cities housing market,” he said.

This month’s housing report also noted that home ownership is and will continue to be very affordable in the state and that the Minneapolis and St. Paul area is one of the most-affordable housing markets in the nation. According to the real estate website Trulia, it is 46 percent cheaper to buy than rent in the Twin Cities, compared to the national average of 35 percent. The owning vs. renting comparison is calculated for an average family that will not move for seven years and makes a 20 percent down payment. It factors in all of the costs for both options at current market conditions. Tousley said the economic fundamentals that are important to the housing market are these:

 Low unemployment: Minnesota’s unemployment rate of 4.8 percent is the lowest since December 2007. The Twin Cities rate of 4.1 percent, meanwhile, is the lowest rate observed in the 50 largest metropolitan areas in the nation.

 Job creation: This is improving; from October 2012 to October 2013, slightly more than 50,000 new jobs were created in Minnesota and about 34,000 of those were created in the Twin Cities area.

 Household formation: More new jobs and higher employment rates lead to increased household formation, an important driver of the need for more new homes.  Household formation increased in 2013 and will accelerate in 2014.

 Interest rates: These are expected to remain relatively low in 2014, remaining at about 4.5 percent for a 30-year mortgage. They might move up toward 5 percent during the second half of the year. Also expect to see some improvement in the process of obtaining a mortgage and credit availability.

 Median sale prices: These will continue to increase in 2014. Prices increased 13 percent in the past year, the second-consecutive year of double-digit increases. A low supply of homes for sale, low interest rates and improving economic conditions will continue to put upward pressure on median home-sale prices. Look for more moderate price increases of 4 percent to 6 percent. This rate of growth is healthy and sustainable as the metro area housing market continues to recover.

 Housing bubble?: Will the increases in home prices lead to a housing bubble? The short answer is no. According the Trulia’s “Bubble Watch,” the Minneapolis-St. Paul housing market is 12 percent undervalued relative to underlying fundamentals. This percentage is arrived at by comparing today’s prices with historical prices, rents and incomes.

mortgages Specifically for the month of November, the Shenehon Center found that market indicators took an expected seasonal downturn from October, but that indicators for November 2013 were running ahead of November 2012. One especially bright spot in the data is that the percentage of distressed sales (foreclosures and short sales) stood at 21.9 percent, well below percentages in the mid-30s seen last fall and winter.

 The median price of a traditional (nondistressed) metro area home in November was $217,000, down from $218,750 in October but 2.8 percent higher than the $211,075 median price recorded in November 2012. Tousley said this is consistent with earlier predictions that the annual rate of increase in the price of a traditional home will moderate from the double-digit gains seen earlier this year and last, and remain in the 3 percent to 5 percent range for the rest of 2013 and the first quarter of 2014.

The inventory of metro-area homes for sale remains very low; the 14,165 homes listed in November was 5.5 percent lower than the 14,990 available during the same month a year ago.  The Shenehon Center predicts this will improve in the second half of 2014 as rising prices reduce the number of homeowners who are “under water” with their mortgages.

 The 5,240 new homes under construction during the third quarter of 2013 is 46 percent ahead of last year’s pace. “Look for new-home construction to make additional major gains in 2014 as conditions will be very favorable for new single-family-home construction,” Tousley said.

 The St. Thomas Indexes

 The St. Thomas Traditional Sale Composite Index, the one that tracks nine data elements, stands at 1035 for November. It took a 22-point seasonal downturn from October but is 3.9 percent above November 2012.  Likewise, the November index for short sales is 11 percent higher than a year ago and for foreclosures, the index is 6.9 percent higher.

 More information online

 The Shenehon Center’s report for November (found at http://www.stthomas.edu/business/centers/shenehon/research/default.html) includes charts showing the median sale price of homes, the number of homes for sale, and indexes for the traditional, foreclosure and short-sale markets.

 Research for the monthly reports is conducted by Tousley and Dr. Thomas Hamilton, associate professor of real estate at the university. The index is available free via email from Tousley at hwtousley1@stthomas.edu

Affordable Housing, Economics, Home Prices, Housing, Housing Trends, Minneapolis / St. Paul Housing, Real Estate Lending, Real Estate Trends, Residential Real Estate

Exploring a New Method of Financing for Homeownership

Houseforsale

 The following is reposted from The M Report

12/09/2013 By: Sandra Lane

Perhaps you’ve known someone who raised money for a documentary or civic project by making an appeal through crowd funding on the Internet. Now, the concept of pooled resources is being used as an investment vehicle offering equities in homeownership to investors and loan assistance to selected prospective homeowners. One of the first companies to offer such a program is PRIMARQ, a San Francisco, California-based capital market company that uses equity shares to enable a person to be the major equity owner in a property that otherwise would have been difficult or impossible for that person to obtain. In addition, investors are able to purchase partial equities in the property. The creative mind behind this movement is Steve Cinelli, founder and CEO of PRIMARQ. “I had an ‘aha moment’ one day when thinking about the housing finance base established 90 years ago by the Federal Home Loan Bank back in the 1930s,” Cinelli explained. “I realized that other asset classes have both equity capital available to the users as well as well as debt capital, and I wondered why there wasn’t an equity capital market for housing. I also wondered why there isn’t financing tied to the asset price movement, namely equity,” he explained. Subsequently, PRIMARQ was created to bring equity capital into the mortgage and housing market.

Some may doubt the need for such a plan in the current market with interest rates being so low and doubt that prospective homeowners would choose to invest in equity rather than take on debt in such a low interest rate environment. Cinelli explained that lenders have become more restrictive in terms of their underwriting, and in January there will be increased standards that make credit availability very tight.
“You’ve got to have exceedingly high FICO scores, and banks require additional liquidity over and above the down payment,” he said. He also explained that during the past 18 months, nearly a trillion dollars in mortgage applications have been denied to people whose credit scores were over 700. “The reason for denial is that the debt to income ratio was too high and/or there was insufficient down payment. In other words, the deficiency of equity causes the problem.”

Cinelli believes that through the homeownership and investment plan offered by his company, many people who find it difficult to be approved for a loan will find a solution.
“Although there are [Federal Housing Administration] programs that allow for lower down payments, there are other costs to consider which jeopardize the ability of an individual to qualify for a mortgage,” he said. “If the prospective homeowner doesn’t have enough capital, then let’s bring in private capital to supplement that and allow those investors to benefit from the price movement of the property.”

Follow this link to read the rest of the article:  http://www.themreport.com/articles/new-method-of-financing-for-home-ownership-2013-12-10

 

Economics, Government Policy, Industry News, Real Estate Trends, Residential Real Estate

Economists in Survey Oppose Strategic Default, Principal Forgiveness

The article below is by Esther Cho at DSNews.com.  It points out that most economists surveyed would continue to make their mortgage payments even if their property was underwater.  Strategic default is the practice of walking away from a property that is underwater even though the borrower has the financial ability to continue making the payments. I find it interesting that in the commercial real estate, in many cases companies will use a strategic default as a business tactic with little stigma attached. For individuals, however, the situation is much different, the stigma associated from voluntarily walking away from a debt obligation is a major detriment.

Nearly three-quarters of economists surveyed said they would continue making their mortgage payments even if they were deeply underwater, Zillow reported Thursday.

Strategic default, which is when homeowners decide to stop paying their mortgage even though they can afford it, is oftentimes motivated by negative equity.

In Zillow’s Home Price Expectation survey for June, 71 percent of economists said they would not choose strategic default, even if they owed at least 40 percent more on their mortgage compared to the home’s current value.

The survey, which was conducted by Pulsenomics, included 114 responses from economists, real estate experts, and investment and market strategists.

The industry experts were also questioned on their position concerning a government-sponsored program to forgive principal for underwater homeowners.

Coming close to the percentage of those who said they would not strategically default, 72 percent said they opposed a principal reduction program, while 28 percent were in favor of one.

Read the entire article:  http://www.dsnews.com/articles/zillow-three-fourths-of-economists-surveyed-oppose-strategic-default-principal-reduction-2012-07-26

 

Commercial Lending, Commercial Real Estate, Industry News, Residential Real Estate, Uncategorized

The End of GSE’s: How will mortgage markets be affected?

Finance & Commerce reported on Friday that S&P will downgrade Fannie Mae and Freddie Mac credit if no agreementgse is reached to raise the borrowing limit for the US government.  With Fannie and Freddie owning or guaranteeing nearly half of all mortgages, and taxpayers having spent $150 billion to bail out these government-sponsored enterprises, it’s critical that proper steps are taken to minimize the impact on the economy and housing market when these agencies are eventually phased out.

Opinions vary greatly among those in real estate as to whether privatization of the secondary mortgage market is a realistic goal.  Eduardo Padilla, CEO of Northmarq Capital, cautions:

“The private sector does not have the capacity to replace the $324 billion portfolio of fixed-rate mortgage capital for multi-family rental properties held or sponsored by the GSEs and related agencies.”

Padilla emphasizes that while many are focused of the effect of these changes on single-family home buyers, multi-family property investors rely on the stability of the financing products offered by GSE’s, especially when the market is turbulent.  “A critical component of every apartment investment is consistently available fixed-rate mortgages.”  Padilla attributes Fannie & Freddie’s less than 1 percent multi-family rental delinquency rate (compared to a 15.7% delinquency rate in the CMBS market for the same property type) to the standards and management of the professionals who run the GSE’s, many of whom have recently stepped down.

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Student Profile: Aileen Halligan

aileenhalliganAcademic researchers who study social, behavioral, and organizational psychology have spent the previous decade studying how people make judgement about people they meet. Some of these researchers believe that your brain, specifically the emotional centers, work incredibly fast to make snap judgements about people, a trait that was crucial in our species history, when ascertaining friend from foe was often a life threatening decision. The common phrases for these experiences are “gut feeling” and “a hunch”, and contradictory to the general belief that these emotions are irrational, scientists are increasingly discovering that they are actually the product of an incredibly complex system of sensory analysis, memory, and a syntax that follows a precise logical argument. This insight becomes all the more powerful when one begins to realize just how accurate that gut feeling is when the situation is appropriate.

Considering the opening paragraph of this interview, it is without surprise that Ms. Halligan makes a significant first impression, worthy of the pretense. Very confident, driven, intelligent, well spoken, and conscientious  are the gut feeling(s) I experienced when Ms. Halligan began answering my questions. Aileen’s career, education, and goals are all reflective of these traits, and it would appear a solid bet that her future holds plenty of successes.

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