In my last quarterly update, I welcomed the lazy hazy days of summer. In a blink, those days have been replaced by back-to-school nights and shorter days. In the real estate business cycle, the traditional “busy season” begins to cool off and the “winter market” closes in.
As we prepare for the inevitable climate and foliage change that fall and winter bring, we also focus on a presidential election. Looking forward requires looking back and in that regard, the summer of 2016 has returned another positive report for the national real estate market.
The cautious optimist in me is still asking some of the same questions from past quarters. How long will the positive trend last? When will the Fed raise interest rates? Will the election be the catalyst to spur less favorable conditions? How long will the Greater Houston markets show price growth despite the volatile oils markets?
For now, we’ll have to wait to see how things play out. In the meantime, let’s look at some trends and developments of interest to mobile employees (and the companies that move them), as referenced in NAR Research’s September/October 2016 Market Pulse: Continue Reading →
A quote from Frank Nothaft, Chief Economist at Corelogic, accurately sums up the current “mood” relative to US Real Estate: “The overall economy has provided mixed signals on its performance so far this year, but one thing is clear: Home sales are off to a brisk start through April. We expect house prices in our national index to be up about 5 percent in the next 12 months, and mortgage rates are likely to move higher over the next year.”
To bolster that claim, Corelogic reported the following on June 9, 2015: “The National foreclosure inventory fell by 24.9 percent year over year in April 2015 to approximately 521,000 homes, or 1.4 percent of all homes with a mortgage. This marks 42 months of consecutive year-over-year declines.”
Additionally and supportive of positive market conditions, CoreLogic also reported (June 8) that distressed sales—real estate-owned (REO) and short sales—accounted for 12.1 percent of total home sales nationally in March 2015, a 3.2 percentage point drop from March 2014 and a 1.9 percentage point decrease from February 2015. At their peak, distressed sales totaled 32.4 percent of all sales in January 2009, with REO sales representing 27.9 percent of that share.
The leading indicators weigh heavy on the positive side as summer ends and the (normal) seasonal slowdown commences. Unemployment is improved at 6.1%, 30-year fixed mortgage rates are up but still reasonable at around 4.1%, gasoline prices are at a four-year low, consumer confidence and consumer spending is up slightly and in September, the Federal Reserve committed to keeping the short-term interest rate untouched in the near term.
For employers, this indicates a generally favorable landscape for relocating homeowners and renters and the business climate in the coming months.
More good news was heard when it was reported that FHA would eliminate a prepayment penalty — the interest rate charge — starting next year. For FHA borrowers who pay off their mortgage before the end of the month, the lender is allowed to charge to the borrower the interest rate costs on the loan from the day the loan is retired until the last day of the month. So, if a borrower paid off the loan on Sept. 10, the penalty would be 20 days of interest payments. That can be hundreds of dollars. Once the change takes effect, on Jan. 21, 2015, lenders will no longer be able to apply that interest charge to the borrower. Given the track record of financing challenges presented post-recession, employers should be aware of this positive news for home buyers.
More qualified home buyers are being left on the sidelines simply due to their credit scores. That was the big takeaway from the recent Mortgage Bankers Association (MBA) Expo and Conference, where David H. Stevens, President & CEO of the MBA, warned that the secondary market is negatively impacting mortgage affordability and availability, increasing costs for borrowers and even preventing many from obtaining homes, and stifling a full-blown market recovery.
The current average credit score in America today is about 700, while the average credit score of a borrower with a loan backed by Fannie Mae in Q1 2014 is 741. On top of these strict credit criteria, there are loan level price adjusters, overlays and ever-increasing guarantee fees. In this system, according to Stevens, only those with the most pristine credit can afford a home. This clearly indicates that while credit availability for mortgages may have improved since the recession, homebuyers still face “credit challenges.”
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In terms of US Real Estate recovery, 2013 will end on cautious but optimistic note. It’s hard not to be optimistic considering the numerous marked improvements that signify that the housing market is gaining strength. While wage growth and significant job creation were absent to solidify the perfect recovery, nonetheless 2013 could be called the “seller’s comeback.”
Among the recent highlights:
— According to the Commerce Department, residential building permits issued in October surpassed 1 million for the first time in five years and 13.9% above October of 2012.
Joe Palumbo, our Vice President of Real Estate Valuation and member of the New Jersey Board of Appraisers, just returned from Mexico City, where he taught two classes for local appraisers.
These classes, presented by Fecoval, the only Mexican appraisal association, were conducted to give members the opportunity to earn a professional designation from The Appraisal Institute, which has become an increasingly global entity over the past decade.
This was Joe’s second trip overseas to share his knowledge and skill set with aspiring appraisers. In 2010, he taught similar courses in China, part of his ongoing commitment to the betterment of the art of appraising and the workforce mobility industry.
The current improvement in a majority of nationwide real estate markets has some corporations asking, “Is it okay to disregard best practices concerning real estate disposition now that market conditions are more favorable?”
The specific best practice inferred here is providing list price guidelines. And the answer is a resounding “no.” Establishing a reasonable asking price is a vital first step in the home disposition process.
No matter the market conditions, best practices should always be your guiding principle when it comes to listing employee homes. In a buyer’s market, best practice is for your employees to list no higher than 103% of the Broker’s Market Analysis (BMA) upon initial (pre-marketing) listing and then adjusting the asking price to no greater than 103% of the Guaranteed Buyout Offer (GBO) once the offer is delivered to the transferee. In a balanced market, which is what some areas are currently experiencing, the guideline should be 105%.
Spurred by reports of “inventory shortages” in some regions, your employees may want to test the waters and list higher. In a seller’s market, there may be a temptation to expand best practice guideline to 110%, but until favorable market conditions become constant, following the 105% best practice makes sense for several reasons:
According to the National Association of Realtors (NAR), total existing home sales declined 5.4% to a seasonally adjusted annual rate of 4.37 million in June from 4.62 million the month before. Existing sales in June were 4.5% higher than the 4.18 million units sold a year earlier. The month of June was somewhat of a challenge for first-time homebuyers looking to jump back into the market, pushing existing home prices higher. These same buyers created a strange dichotomy in the market, with many of them finding it difficult to locate affordable homes in the property inventory. This lack of viable options stymied overall home sales growth in June; at the same time, pent-up demand and lower levels of inventory buoyed prices. “Despite the frictions related to obtaining mortgages, buyer interest remains solid,” said Lawrence Yun, chief economist for NAR. “But inventory continues to shrink and that is limiting buying opportunities. This, in turn, is pushing up home prices in many markets. The price improvement also results from fewer distressed homes in the sales mix.” Distressed homes accounted for 25% of all June sales, unchanged from May but 30% below June 2011 levels. The median existing single-family home price hit $190,000 in June, an increase of 8% from a year earlier. The median price on condos alone hit $182,200 in June, up 6.9% from June 2011. Total housing inventory at the end June fell another 3.2 percent to 2.39 million existing homes available for sale, which represents a 6.6-month supply at the current sales pace, up from a 6.4-month supply in May. Listed inventory is 24.4 percent below a year ago when there was a 9.1-month supply.
Companies that relocate employees hear a lot about pre-purchase appraisals, but there are many questions as to what they are, when they should be used, and how they can best serve both the employee and employer.
In this informative, seven-minute podcast, Joe Palumbo, WRRI’s Director of Appraisals and Valuation and member of the New Jersey Board of Appraisers, gives us his perspectives and shares some best practices.
Listen by clicking the player below, or download the Mp3 file here.
There’s been a lot of buzz over the use of distressed or REO properties as comparable sales in appraisals. Some states even went to far as to propose legislature to prevent appraisers from using them. Our Director of Valuation, Joe Palumbo, recently wrote on the subject for Live Valuation magazine:
“It is the appraiser’s job to interpret what the market is, not to make the market. The appraisal process involves analysis of large amounts of data, some relevant and some not. In the end there may be several sales that are not used for many reasons. To exclude these sales exclusively based on the reason they are being sold or listed is nothing more than adverse selection. Especially since distressed sales, foreclosures and short sales account for 34 percent of total market sales.
Appraisers are required to comply with the Uniform Standards of Professional Appraisal Practice (USPAP) in federally related transactions. USPAP Standard Rule 1-4(a) mandates that appraisers “must analyze such comparables sales as are available.” If these bills were enacted into law, appraisers would be put in the difficult position of having to choose whether to violate USPAP or to violate the law prohibiting the consideration of distressed sales as comparables.”
With relocating employees increasingly concerned about the consideration of REO and distressed homes in the appraisal of their properties, it’s a subject that will continue to reverberate through our industry. To read Joe’s complete article, click here.