Tuesday, June 25, 2013

The Downsides of Cash Purchase Offers

Source: The Wall Street Journal 
June 14. 2013
All-cash offers usually trump all others because the seller can be sure that the lender won’t kill the deal by not approving the buyer’s financing or appraisal. Since cash buyers can close quickly, sellers who are ready to move on with another home purchase find that a plus, too. So cash buyers often can buy a house for less money than someone who must get a mortgage. However, there is a downside. Without a bank as a backstop, one can easily make a mistake, and the consequences will be the buyer’s responsibly alone.
  • Most buyers find getting a mortgage to be a nail-biting hassle because they have to go through various levels of approvals. They must make a down payment, meet loan-to-value ratios, and pay for independent  appraisals, title insurance, and homeowner’s insurance. These precautions are done for the bank’s protection and not the buyer’s. But they have the ancillary effect of protecting buyers who may be swept away by emotion after finding their dream home and making a purchase they shouldn’t.
  • Consider appraisals: Lenders always require them, but cash buyers rarely get them. Instead, cash buyers rely solely on comparable sales supplied by their agents, or plucked from websites such as Trulia or Zillow, to give them an idea of what to pay for a house.
  • In some cases, cash buyers don’t carefully compare the square footage, number of rooms, quality of construction, and other factors that appraisers do when they rule on a house’s worth. So the possibility that cash buyers could pay more than market value for a home is very real.
  • Ironically, there is a possibility that a cash buyer could lose a house in a bidding war because they bid too low, assuming that sellers will automatically choose cash over a mortgage. That is not always the case, especially if the buyers are prequalified and the sellers don’t need a quick closing.
  • In rapidly heating markets, some cash buyers may forego inspections to make their offers irresistible. That is one of the worst mistakes any buyer can make, since serious flaws can be hard to detect for untrained eyes.
  • Cash buyers also may be tempted to forgo getting title insurance, which protects them from claims made by previous owners, and even homeowner's insurance, which could have devastating consequences should the home be involved in a fire or other disaster.
So remember: Cash may be king, but it also may make you careless. Think like a bank, and protect yourself.

Wednesday, June 12, 2013

Home Builders Building Homes that Young Buyers Want

Source: NAHB - National Association of Home Builders

Home Builders Building Homes that Young Buyers Want, Says NAHB
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June 3, 2013 - During National Homeownership Month in June, the National Association of Home Builders (NAHB) is telling young people that the time is right to buy a home, and the nation’s builders are building the homes they want.
“As the economy recovers and young people who had to live at home with their parents move forward with their lives and achieve their dreams of homeownership, home builders are delivering homes that cater to the floor plans, features and affordability that this generation desires,” said NAHB Chairman Rick Judson, a home builder and developer from Charlotte, N.C.
More than 80 percent of Generation Y home buyers—people born in 1977 or later—said in NAHB’s 2012 consumer preference survey they prefer a highly energy efficient home that results in lower utility bills during the home’s lifetime over a lower-priced home without energy efficient features. Today’s new homes feature ENERGY STAR-rated appliances; windows, doors and insulation that better control the home’s interior climate; and other modern components such as tankless water heaters and HVAC systems that save costs on utility bills.
And cost-conscious young buyers will be happy to hear that a new home actually costs less to maintain than an older home. An NAHB study found that homes built before 1960 have average maintenance costs of $564 a year, while a home built after 2008 averages $241. Plus, mortgage rates are still very low, bolstering affordability for home buyers.
Generation Y buyers favor media and game rooms more than any other specialty rooms for their next home. New homes today not only contain these spaces, they are outfitted with the state-of-the-art electronic and wiring components that can accommodate high-definition televisions, full-house sound systems, hard-wired fire and security alarms and more.  
Young buyers can check out many of the outstanding designs and features being included in homes built by NAHB members at our social media communities facebook.com/homebuildrspinterest.com/nahbhome and google.com/+nahb. They can also access home buying and home building information and resources on NAHB’s website at nahb.org/forconsumers.

“The time has never been better for young people to become home owners, whether it be a new home or existing,” said Judson. “There are outstanding opportunities in the current market, with near record low interest rates, competitive prices and new homes being built that include open layouts, energy efficient components and other features that cater to young buyers.”

Housing Market Summer 2013

Source: The Los Angeles Times

Better times for home buyers will take a few years, experts say...
Low inventory and rising home prices are frustrating to many buyers, but unfortunately would-be buyers may have to wait a few more years for relief, according to experts.

Making sense of the story
  • Institutional investors, who have been driving the market with their all-cash purchases and buying houses for rental income, need to be in and out in two to three years, according to one real estate analyst. Otherwise they cannot make a profit.
  • For housing to normalize, individuals will need to come back to the marketplace and that will be driven by employment.
  • Among the signs that investors are buying up swaths of homes in a specific area are the lack of bank-owned properties coming on the market despite high foreclosure rates.
  • Consumer understanding has been a step behind what’s happening in the housing market. When the prices started going down, sellers were the last ones that got the memo. Today’s buyers may have to be willing to look in different locations, while prices continue to appreciate.    

Tuesday, June 4, 2013

Home Prices in California - March 2013

Home prices in U.S. cities post big increase in March
Source: Los Angeles Times

Tight housing supply and strong demand continued to fuel a robust market recovery in March, with the Standard & Poor’s/Case-Shiller index of 20 U.S. cities recording a 10.9 percent year-over-year increase.
Talking Points
  • Distressed home sales continued to decline in April, as previously underwater homes rose in value, and the share of REO sales registered in the single-digits for the first time in more than five years, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) reported
  • The combined share of all distressed property sales registered its lowest level since February 2008, dropping to 24.4 percent in April, down from 27.9 percent in March and down from 45.8 percent in April 2012. The share of all distressed sales in most counties also declined significantly from the previous year, with Alameda, Contra Costa, Marin, Orange, San Diego, San Mateo, and Santa Clara registering in the single- or low double-digits in April.
  • The share of equity sales – or non-distressed property sales – now make up more than three-fourths of total sales, the highest share since February 2008. The share of equity sales in April increased to 75.6 percent, up from 72.1 percent in March.  Equity sales made up more than half (54.2 percent) of all sales in April 2012.
  • The available supply of homes was relatively unchanged from March but remained tight. In April, the Unsold Inventory Index for REOs dipped from 1.8 months in March to 1.7 months in April.  At 2.7 months, the supply of short sales remained unchanged in April.  The April Unsold Inventory Index for equity sales was 2.9 months, down from 3 months in March.

How Much Mortgage Loan You Can Qualify?

Fixed-rate jumbo mortgages make a comeback
Source: The Wall Street Journal

Just a year ago, 30-year, fixed-rate jumbo mortgages were hard to find in some high-price markets. Now, many lenders are offering fixed jumbos – with very competitive rates.
Making sense of the story
  • A jumbo mortgage is a home loan with an amount that exceeds conforming loan limits imposed by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that buy mortgages from lenders. The conforming loan limit is $417,000 in most parts of the United States, but is $625,500 in the highest-cost areas, which includes California.
  • During the mortgage crisis, the vast majority of jumbos were adjustable-rate mortgages and hybrid adjustable-rate mortgages, which started at low fixed rates and switched to adjustable interest rates at the end of a set time period – typically of five, seven, or 10 years.
  • With the renewal of the secondary market for jumbo mortgages, more lenders today are willing to offer fixed-rates. Packaging the loans into mortgage-backed securities that are sold to investors can lessen the risk to lenders.
  • While interest rates for jumbo mortgages are significantly lower than a year ago, hybrid ARMs remain attractive to borrowers with other financial priorities.
  • The general wisdom when deciding between an ARM and a fixed jumbo is the same as with any mortgage. Borrowers should consider the length of time they plan to live in the house. If the length of time is near or less than the length of the ARM, then borrowers will save money with the ARM.
  • Still, borrowers should keep in mind that some lenders will push hybrid ARMs because the lender stands to reap a higher return on investment. Additionally, lower ARM interest rates and monthly payments can free up cash to purchase stocks and other assets.