NO BUBBLE, says Freddie mac

Freddie Mac November 2017 Insight

MCLEAN, VA–(Marketwired – Nov 9, 2017) – Freddie Mac (OTCQB: FMCC) released its November Insight, which explores the warning signs that lead to the collapse of last decade’s house price bubble and the concern of a possible new bubble. Despite the substantial house price increases in recent years and the evidence that house prices are unusually high in a growing number of metro areas, the Insight concludes that there is not currently a house price bubble.

The evidence against a bubble

  • The most important fundamental in today’s housing market is a lack of houses for sale, which affects virtually all the largest metros in the country.
  • Residential construction is falling roughly 500,000 homes short of demand every year. The shortage of houses for sale is strong evidence against a house price bubble. And the difficulty of increasing residential construction quickly suggests that any price adjustment will be gradual.
  • Contrary to a decade ago, easy credit is not fueling housing demand. Credit standards today are not looser than they were at the beginning of this century, a period that many analysts use as a reference for a “normal” mortgage market.
  • There is speculation that a sharp increase in house flipping — buying a house and fixing it up for quick resale — may have contributed to last decade’s house price bubble. However, today’s volume of flipping doesn’t appear to be pointing to a house price bubble.
  • Finally, homeowners are not increasing their mortgage leverage. The sharp growth in house prices is generating an almost dollar-for-dollar growth in homeowners’ equity with only negligible changes in mortgage debt outstanding.

Quote: Attributed to Sean Becketti, Chief Economist, Freddie Mac.
“The evidence indicates there currently is no house price bubble in the U.S., despite the rapid increase of house prices over the last five years. However, the housing sector is significantly out of balance. The incomplete recovery in residential construction following the crisis of the last decade has created several years of pent-up demand for household formation. What we can’t predict is how this imbalance will eventually be resolved. Will there be a gradual restoration of a normal balance between supply and demand? Alternatively, will the rate of home building remain stubbornly low, exacerbating the income and wealth inequality that followed the Great Recession? Another bubble appears to be a less probable scenario, but not an impossible one.”

Freddie Mac makes home possible for millions of families and individuals by providing mortgage capital to lenders. Since our creation by Congress in 1970, we’ve made housing more accessible and affordable for homebuyers and renters in communities nationwide. We are building a better housing finance system for homebuyers, renters, lenders and taxpayers. Learn more at FreddieMac.com, Twitter @FreddieMac and Freddie Mac’s blog FreddieMac.com/blog.

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Flipping returns as investors push into resurging market

NEW YORK – Oct. 23, 2017 – Real estate observers say that house flipping, which declined after the financial crisis in 2008, is on the rise again, thanks to low interest rates and rising home prices.

Last year, 5.7 percent of all home sales were flips, the highest level since 2006, according to Attom Data Solutions.

The trend is attracting the interest of Wall Street: Last week, Goldman Sachs bought Genesis Capital, a leading lender to house flippers. The strategy requires fast access to money from developers who are willing to pay higher interest rates to get it. The loans are backed by the property typically run for a year or less.

For the lenders, the loaned funds to flippers offer reliable returns of about 8 percent from borrowers who must meet minimum investments, generally $100,000. The loans come with risks, however, including developers unable to pay them back and a drop in real estate prices that could make properties hard to sell or even rent.

Investors say hard-money loans are more stable than a bank mortgage because they’re secured by properties at a lower loan-to-value ratio, a risk assessment used by lenders. Hard-money lenders boast of the speed in which they finance loans, typically in less than a week, compared with several months for a traditional bank.

For the smaller builders and house flippers who rely on these loans to do business, the speed with which these lenders can have the money ready trumps the high interest rates they charge.

Source: New York Times (10/21/17) Sullivan, Paul

© Copyright 2017 INFORMATION INC., Bethesda, MD (301) 215-4688

Irma victims: The scammers are out there

TALLAHASSEE, Fla. – Sept. 13, 2017 – As communities across Florida begin the recovery process from Hurricane Irma, the Property Casualty Insurers Association of America (PCI) issued a warning for Floridians to be aware of unlicensed vendors that try to take advantage of storm victims.

“As Florida homeowners seek help with cleaning up and repairing storm damage from Hurricane Irma, PCI warns them to be cautious about the vendors they hire,” says Logan McFaddin, PCI Florida regional manager. “Unfortunately, there are a lot of unscrupulous, unlicensed vendors who try to take advantage of storm victims.”

Assignment of benefits (AOB) abuse can sometimes be a cover for fraud. Under AOB, lawyers and local unlicensed vendors work together to encourage homeowners to sign away their insurance rights by promising to take care of all details. AOB abuse was a growing problem in Florida before Hurricane Irma and has contributed to insurance premium increases.

“To avoid AOB fraud, PCI encourages Floridians to make sure they have use a preferred, licensed vendor to perform their home, business or auto repair,” says McFaddin.

PCI tips for selecting a repair vendor

·Check credentials. Take time to research the background of any businesses you’re considering hiring to make repairs. Check references and their status with the Better Business Bureau. Make an inquiry to the Florida attorney general’s office to see if the firms have any outstanding complaints.

  • Shop around. Get written estimates and compare bids. Ask for recommendations from friends and neighbors.
  • Use your insurer as a resource. Insurers are committed to helping the claims process go smoothly and often can recommend a reputable vendor.
  • Be suspicious. Vendors who try to rush you, especially on non-emergency or temporary repairs, often aren’t trustworthy. Be wary of anyone knocking on your door offering unsolicited repairs. Don’t sign any documents regarding insurance benefits without first talking to your insurer. Also, don’t believe a vendor who says they’re supported by the government. The Federal Emergency Management Agency (FEMA) does not endorse individual vendors.
  • Insist on a contract. Make sure you get a copy of a written, detailed contract that clearly states the scope of work, prices for labor and materials and estimated start and finish dates. Never sign a contract with blank spaces, which a crooked vendor can alter after you’ve signed it.
  • Don’t pay upfront. Always inspect the work and make sure you’re satisfied before you pay. Most vendors will require a reasonable downpayment on work, but you shouldn’t provide that until you have a written contract. Also, pay with a check or credit card instead of cash so that you have a record of your payments to the vendor.

© 2017 Florida Realtors

Study: FSBOs net ‘significantly’ lower profits

NEW YORK – Aug. 21, 2017 – For-sale-by-owners (FSBOs) tend to sell their homes for lower prices than homes sold through traditional agents via the MLS, and in many cases below the average differential represented by the prevailing commission rate, according to a new study by Collateral Analytics. The study examined the price differences between homes sold through traditional agents versus those sold by FSBOs from 2016 to the first half of 2017.

Some homeowners attempting to avoid commission costs attempt to sell their home on their own – but that can backfire and turn into a much lower sales price, the study found.

Even successful FSBO sellers achieve prices “significantly below” those from similar properties sold more traditionally via Realtors®, the study found. A FSBO sale, on average, nets nearly a 6 percent lower price than an MLS sale for a similar property, the study found.

Overall, the authors found that the differential in selling prices between FSBOs and MLS sales is “remarkably close to average commission rates.”

“Assuming that both buyers and sellers pay the commission, one might have expected something less than this average,” the researchers note. “It appears that many sellers are avoiding commissions while netting home prices less than they would with an agent-represented MLS sale.”

Source: “Saving Real Estate Commissions at Any Price,” Collateral Analytics Research (Aug. 16, 2017)

© Copyright 2017 INFORMATION INC., Bethesda, MD (301) 215-4688

Do investors need landlord insurance?

CHICAGO – April 24, 2017 – Renting out property can always be a gamble, with the risk of a bad tenant who could, for example, smash a hole in the wall or bail on paying rent. In either case, the landlord is left financially liable.

But could landlord insurance help investors better protect their property investments?

“Landlord insurance is a vital add-on for anyone planning to rent some or all of a property to another party,” says James J. Whittle, assistant general counsel and chief claims counsel for the American Insurance Association.

Landlord insurance coverage varies based on location; but, in general, it will protect the house, apartment or condo being rented out against “covered perils.” Those “covered perils” usually consists of severe weather, natural disasters and vandalism. It also might cover the owner if someone is injured at the property, like if the tenant trips on the entry stairs and then tries to sue the landlord.

Some landlord insurance policies also provide income coverage protection. For instance, if the property becomes unlivable due to an event like a fire, the landlord would be paid the fair market value for rent while the house is being repaired.

Some policies also offer rent default coverage. If a tenant doesn’t pay the rent on time, the landlord would receive out-of-pocket money and assistance with legal fees.

Homeowner insurance policies don’t always cover renting property, particularly if the property is being rented on an ongoing basis. “Your home insurer has chosen to insure you, but they don’t know anything about that third party,” says Whittle.

Landlord insurance costs about 25 percent more than homeowners insurance for a basic policy, though rates vary drastically depending on location and coverage limits. For an investor, however, landlord insurance can be deducted on a tax return as a business expense.

Source: “What Is Landlord Insurance? Property Owners Need This Now,” realtor.com® (April 20, 2017)

© Copyright 2017 INFORMATION, INC. Bethesda, MD (301) 215-4688

Fla. home sales up 9.3% year-to-year in March

ORLANDO, Fla. – April 21, 2017 – Florida’s housing market reported more closed sales, higher median prices and increased pending sales in March, according to the latest housing data released by Florida Realtors. Sales of single-family homes statewide totaled 25,921 last month, up 9.3 percent compared to March 2016.

“March’s strong sales likely were influenced by buyers ready to take action before interest rates could move higher,” says 2017 Florida Realtors President Maria Wells, broker-owner with Lifestyle Realty Group in Stuart. “Higher demand, coupled with a shortage of available homes for sale, continues to put pressure on prices – so buyers are eager to make an offer when they find the right property.

“That means it’s a good time for sellers to list their homes since they continue to receive a higher sales price as inventory remains scarce,” Wells adds. “In March, sellers of existing single-family homes received 96.1 percent (median percentage) of their original listing price, while those selling townhouse-condo properties received 94.7 percent – an indication that the listed price is extremely close to market value.

“Consumers who work closely with a local Realtor have an expert guide to help them navigate the often-complex process of buying or selling a home.”

The statewide median sales price for single-family existing homes last month was $231,900, up 10.4 percent from the previous year, according to data from Florida Realtors research department in partnership with local Realtor boards/associations. The statewide median price for townhouse-condo properties in March was $171,000, up 9.4 percent over the year-ago figure.

March marked the 64th consecutive month that statewide median prices for both sectors rose year-over-year. The median is the midpoint; half the homes sold for more, half for less.

According to the National Association of Realtors (NAR), the national median sales price for existing single-family homes in February 2017 was $229,900, up 7.6 percent from the previous year; the national median existing condo price was $216,100. In California, the statewide median sales price for single-family existing homes in February was $478,790; in Massachusetts, it was $330,000; in Maryland, it was $251,816; and in New York, it was $242,000.

Looking at Florida’s townhouse-condo market, statewide closed sales totaled 11,193 last month, up 11.4 percent compared to March 2016.

Closed sales data reflected fewer short sales and cash-only sales last month: Short sales for townhouse-condo properties declined 29.7 percent while short sales for single-family homes also dropped 33 percent. Closed sales may occur from 30- to 90-plus days after sales contracts are written.

“March turned out to be one of the strongest months we’ve seen in a long time for sales of existing homes in the Sunshine State,” said Florida Realtors Chief Economist Dr. Brad O’Connor. “Sales for both single-family homes and for townhouse-condo units in March marked the fourth-highest monthly total for any single month over the past decade.

“The data shows that inventory levels in the more affordable price tiers continue to fall, especially in the case of single-family homes. The number of active single-family home listings was down almost 5 percent year-over-year at the end of March. As a result, the single-family sector remained a seller’s market, though the inventory situation in the townhouse-condo market appears more balanced.”

In a continuing trend, inventory remained at a tight 4.1-months’ supply in March for single-family homes and at a 6.3-months’ supply for townhouse-condo properties.

According to Freddie Mac, the interest rate for a 30-year fixed-rate mortgage averaged 4.20 percent in March 2017, up significantly from the 3.69 percent average recorded during the same month a year earlier.

To see the full statewide housing activity reports, go to Florida Realtors Media Center and look under Latest Releases, or download the March 2017 data report PDFs under Market Data.

© 2017 Florida Realtors

Florida Real Estate number 1 improvement

Quote attributable to Freddie Mac Deputy Chief Economist Len Kiefer:

“Nationally, all MiMi indicators are heading in the right direction for the second consecutive month and improving more than 6 percent from the same time last year. Florida has some of the most improving housing markets in the country, largely a reflection of more borrowers becoming current on their mortgage payments as the local employment picture improves and house prices rebound. The one area of the country that has been slow to respond has been the Northeast. However, we’ve started to see these housing markets turn around, especially in Pennsylvania, Connecticut, New Hampshire, Vermont and Maine. While many of the locals markets in the Northeast are still weak, they’re steadily trending in the right direction and their pace of improvement is accelerating. Overall, the West remains especially strong, with many markets posting double-digit growth in their MiMi purchase applications indicator compared to a year ago and helping to keep the country on pace for the best year of home sales since 2007.”

Latest News from freddie mac

MCLEAN, VA–(Marketwired – Aug 26, 2015) – Freddie Mac (OTCQB: FMCC) today released its updated Multi-Indicator Market Index® (MiMi®) showing the U.S. housing market continuing to slowly stabilize with two additional states, Arkansas and Tennessee, and four additional metro areas entering their outer range of stable housing activity: Omaha, Nebraska; Scranton, Pennsylvania; Chattanooga, Tennessee and Madison, Wisconsin. 

The national Multi-Indicator Market Index value stands at 80.3, indicating a housing market that is on its outer stable range, while showing an improvement of +1.33% from May to June and a three-month improvement of +2.26%. On a year-over-year basis, the national MiMi value has improved +5.41%. Since its all-time low in October 2010, the national MiMi has rebounded 35 percent, but remains significantly off from its high of 121.7

Quote attributable to Freddie Mac Deputy Chief Economist Len Kiefer:

“Housing markets are the strongest they’ve been in years with the National MiMi above 80 for the first time since 2008. Nationally, all MiMi indicators are heading in the right direction. Robust homebuyer demand has put total home sales on pace for the best year since 2007 and look for that trend to continue as the MiMi purchase applications indicator remains on the upswing. The West has been especially strong, with many markets posting double-digit growth in their MiMi purchase applications indicator compared to a year ago.”

“While home prices are still 7 percent below peak values nationally, price indices in many markets are at all-time highs and current low interest rates are helping to support homebuyer affordability. Mortgage delinquencies are coming down rapidly, but are still high in many markets. Those markets hardest hit by the Great Recession, including many in Florida, are rebounding but they still need to improve to get delinquencies back in line with their benchmark historic averages. The key driver of all this recovery has been solid job growth, with 96 out of 100 metros and all states within range of their benchmark historic average unemployment rate.”