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Economists See Strong Housing Recovery Going Forward

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The recovery in the housing market will continue to strengthen this year and next year, according to a group of bank economists.

They are forecasting that new home sales will be up 25% this year compared to 2012 and home prices will rise 5% to 6% in 2013 and 2014 based on the Federal Housing Finance Agency house price index.

The consensus forecast of the American Bankers Association economic advisory committee sees 15% growth in residential construction this year and in 2014.

“This strong growth demonstrates that the housing market has finally caught up with the broader economic recovery,” said Scott Anderson, chief economist at the Bank of the West.

The economists see the rate on the 30-year fixed-rate mortgage rising to 4.3% by the end of this year and 4.6% in the second quarter of 2014.

However, the mortgage market is still dependent on the Federal Reserve purchasing MBS and keeping interest rates relatively low. “A premature exit from accommodative policy by the Federal Reserve could hurt the housing recovery and the broader economy,” Anderson warned.  This is the biggest issue related to rates and the over all economic recovery, because the market is being supported by artificial stimuli, (IE: Quantitative Easing).  Once the market has to stand on it’s own two feet, will it stall or continue to grow.  In my opinion, since this is not front page news anymore, it should not effect consumer confidence, which is the primary driver.  If QE is eased gradually, we should see sustained growth.  This would in effect be the same as the fed gradually letting their foot off the gas.  If the QE stimuli stays in place we run the risk of the economy becoming over heated and going off the cliff like we saw in 2007.  We don’t need that again!

The consensus forecast calls for continued slow economic growth through the third quarter of this year due to budget cuts and fiscal drag combined with slow global growth.

But the bank economists expect economic growth will accelerate later this year to 2.8% in first half of 2014 due to the recovering housing market, resilient consumer spending as well as less fiscal drag and a pickup in the global economy.

Meanwhile, new hiring will accelerate later this year and jobs growth will hit the 200,000 per month in 2014.

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Builder Confidence Report

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Housing Market Index Shows Builders Continue To Have A Positive Outlook

For Immediate Release

Atlanta, GA

As you may have heard, SunTrust will layoff 800 people in their mortgage division as they adjust to the ebbs and flows of the industry.  This may obviously impact service levels and will certainly impact morale. But I’m still here competing with them and here for you.

However one piece of good news remains. The National Association of Homebuilders/Housing Market Index dropped two points to 55 from September’s revised reading of 57. Builder concerns over labor costs and availability and economic uncertainty related to the federal government shutdown were noted as factors contributing to the lower reading for October.

Key Points Noted In October‘s HMI included:

  • Builder confidence remains above 50, which indicates that more builders have a positive outlook on housing market conditions than those with negative sentiment.
  • The October HMI cites pent-up buyer demand in markets throughout the US as a positive influence on October’s reading.
  • A spike in mortgage rates lowered builder confidence, but the Federal Reserve’s decision not to change its quantitative easing program eased fears about rapidly rising mortgage rates.
  • The federal government shutdown, along with builder and consumer concerns about the national debt ceiling also contributed to a dip in homebuilder confidence.
  • National HMI results are comprised of homebuilder ratings of three factors. Homebuilders rated current market conditions at 58, which was two points lower than September’s reading.
  • Builder outlook for market conditions over the next six months fell by two points to October’s reading of 62. The lowest reading came in at 44 for buyer foot traffic. This reading was also two points lower than the September reading.

Regional HMI Results Mixed

Readings for regional homebuilder confidence varied for October:

Northeast: The reading for October fell three points to 38. Concerns over the government shutdown were felt here.

Midwest: Up by one point for October at 64, the Midwestern region posted the only gain for October.

South: The October reading for the Southern region was unchanged at 56.

West: The West lost one point on its HMI for October. Lack of available homes and developed land for building likely contributed to this reading.

NAHB Projects Single And Multi–Family Housing Starts

The NAHB estimated that starts for single and multi-family housing units for September will fall between 875,000 and 900,000 on a seasonally-adjusted annual basis. Single-family housing starts are expected to range between 620,000 and 630,000 for September.

NAHB produced this estimate in lieu of the US Department of Commerce report on housing starts that was delayed due to the federal government shutdown. NAHB also reported continued volatility in multi-family housing construction.   What this all mean is the builders are not looking to slow down in putting more inventory into the system.

A continuation of the government shutdown would have almost certainly create ongoing consequences for housing and mortgage lending.  Now that its over, its time to get back to business.

– Joel Miller

Mortgage Tips

What You Need To Know About Mortgage Insurance

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What You Need to Know About Private Mortgage InsuranceIf you are on the verge of buying real estate, you’ve probably heard the term Private Mortgage Insurance. Mortgage professionals talk about it a great deal, but you may be asking, “What is it exactly? And why should I care?”

Private Mortgage Insurance Defined

PMI is required by lenders if the down payment of a purchase is less than 20 percent of the home’s value. It protects the lender if the borrower defaults on the loan.

It also makes the lender more apt to loan, even if the down payment is as low as 3%, because in the long run, the lender’s investment is protected.

You Pay For It

Unlike other types of insurance which you pay to protect your interest in an asset, you pay Private Mortgage Insurance to the mortgage company to protect its interest in your new real estate. (Note that PMI is not usually tax deductible. Check with a tax professional for details.)

Make It Go Away: PMI Can Be Terminated Once You’ve Paid Down Your Loan

Once you pay down your mortgage to the point where it hits the magical 80% of the original purchase price or appraised value, whichever is less, you can request cancellation of PMI. The Homeowners Protection Act requires that loans made after 1999 include notifications to the borrower when you arrive at this point in your payments.

Your PMI payments must be automatically canceled once you pay down your loan to 78%. At closing, and on a yearly basis, you should receive information from your lender about when you can request cancellation.

Whether you’re ready to buy real estate or need more information before taking the plunge, I can help. Contact your trusted real estate professional today.

Mortgage Tips

How Does An Interest-Only Mortgage Work?

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How Does An Interest-Only Mortgage Work?When you have been researching your different options for a mortgage on your home, you might have heard of an “Interest-Only Mortgage”. What exactly does this type of mortgage mean and how does it work?

Usually when you take out a loan, you must pay back the capital debt (the amount you borrowed) and the interest on that debt. An interest-only mortgage offers a cheaper option for purchasing a property, because you will only be making payments on the interest and not the capital.

Compared to a repayment style mortgage where you are paying down the principle of the loan, an interest-only mortgage will have much lower monthly payments.

However, when you reach the end of the mortgage term with an interest-only mortgage, you will not have paid off any of the original principle of the loan. This means that you will still not be any closer to owning the home than when you started, whereas with a repayment mortgage you would be in full possession of the property.

You will reach the end of the loan term, still owing the lender $250,000 or whatever the value of the house was. Also, if you do not pay off that lump sum at that point, the lender will charge you interest on the entire loan for the full time.

From the description of how it works, it seems like there would never be a good situation for taking out an interest-only mortgage. However, if you are stretched financially and you are desperate to get onto the property ladder it might be a viable option. Some people take on an interest-only mortgage so that they can buy their first home, then when their income goes up they switch to a repayment mortgage.

These types of mortgages are often used by buy-to-let investors, who are able to claim their tax back against the mortgage interest. If this is your goal, you might find this strategy advantageous.

To find out more about mortgages and determine the best option for your needs when buying a home, contact your trusted mortgage professional.