With 78 million baby boomers entering or on the verge of retirement, a concerted national effort is required to adapt homes and communities for the 73 percent of seniors who prefer to age in place, according to a new report released yesterday by the Bipartisan Policy Center (BPC).
The preference to grow older in one’s own home and community stems from a desire among many seniors to remain close to family and friends and maintain the social connections that have enriched their lives. They appreciate the familiarity of their own homes as well as that of the local shopping center, the community library, and their place of worship. They want to remain close to doctors, nurses, social workers, and the other professional service providers upon whom they have come to rely, according to research by AARP
That’s bad news for the nation’s real estate and housing finance industries, who have been anticipating a flood of transactions from Boomers selling their long-time residences. But its good news for remodelers eager to retrofit family homes to make them senior-safe.
Source: Adapted from Harvard Joint Center for Housing Studies, Housing America’s Older Adults: Meeting the Needs of an Aging Population. JCHS tabulations of US Department of Housing and Urban Development, 2011
Many homes and communities are ill-equipped to accommodate this desire. Many of today’s homes were designed at an earlier time, before the demographic changes now transforming the country were even recognized. Most lack the necessary structural features that can make independent living into old age a viable, and communities so they are “senior friendly”. the BPC said.
Chinese cities where home prices rose exceeded those where they declined for the first time in 16 months in July, as authorities removed some property curbs and interest rates fell.
New-home prices rose in 31 cities of the 70 the government monitors, from 27 the previous month, according to data released by the National Bureau of Statistics on Tuesday. They dropped in 29 and were unchanged in 10.
Prices, led by some of the biggest Chinese cities, extended gains from the second quarter, spurred by the easing of mortgage policies at the end of March and four reductions in borrowing costs since November. The trend will continue this year as liquidity remains ample and expectations of rising prices further prompt more people to buy, overriding any potential impact from a devalued yuan and a stock-market selloff, according to Mizuho Securities Asia Ltd.
“The average price gains may accelerate in the second half as prices in the second- and third-tier cities are just starting to rise,” Alan Jin, a Hong Kong-based real estate analyst at Mizuho, said by phone. “The demand is still there.”
The average price of the 70 cities rose 0.17 percent from June, gaining for a third consecutive month, according to Bloomberg calculations of official data. Prices in Sanya, a tourist city on the southern Hainan island, climbed 0.2 percent, reversing declines since at least August last year.
Buying or selling a house is not something most of us do every day. You may do it once a decade, or even once in a lifetime. Despite the fact that most of us enter the world of real estate only rarely, we all think we know how it works, based on the experiences of friends and family members, stories we have heard and things we have read.
But for everything we believe we know about the industry, there are a number of myths that circulate about how real estate actually works. Buying into those can hurt your chances of buying or selling the right home at the right price.
In recent years, technology has radically changed the way homes are bought and sold, and yet some aspects of real estate are the same as they were when your parents bought their last home. If a long time has passed since your last transaction, you may be surprised at how much has changed.
The Internet has made much more information available to consumers, but not all the information is equal, or even accurate.
“A lot of people, for some reason, they believe what they read on the Internet,” says Gea Elika, principal broker of Elika Real Estate in New York and a regional director of the National Association of Exclusive Buyer Agents. “Read everything you see on the Internet with a grain of salt.”
The danger with believing everything you hear or read is real estate myths can cost you money when it’s time to buy or sell a home. Here are nine of the most common ones that can trip up buyers and sellers:
Set your home price higher than what you expect to get. Listing your home at too high a price may actually net you a lower price. That’s because shoppers and their real estate agents often don’t even look at homes that are priced above market value. It’s true you can always lower the price if the house doesn’t garner any offers in the first few weeks. But that comes with its own set of problems. “Buyers are highly suspicious of houses that have sat on the market for more than three weeks,” says Nela Richardson, chief economist for the brokerage Redfin. In areas such as San Francisco where multiple offers are common, sellers will actually price their homes for less than they expect to get, in the hopes of getting multiple offers above asking price. However, if you do this in a declining market, the danger is that all the offers will come in at the asking price or lower.
You can get a better deal as a buyer if you don’t use a real estate agent. “That’s a completely false premise,” Elika says. If the house is listed with a real estate agent, the total sales commission is built into the price. If the buyers don’t have an agent, the seller’s agent will receive the entire commission.
You can save money selling your home yourself. Some people do successfully sell homes on their own, but they need the skills to get the home listed online, market the home to prospective buyers, negotiate the contract and then deal with any issues that arise during the inspection or loan application phases. It’s not impossible to sell a home on your own, but you’ll find that buyers expect a substantial discount when you do, so what you save on a real estate commission may end up meaning a lower price. It’s not impossible to sell your home on your own for the same price you’d get with an agent, but it’s not easy.
The market will only go up. In recent years, homebuyers and sellers have experienced a time of increasing home values, then a sharp decline during the economic downturn and now another period of increasing values. “They think that the market only goes up,” Elika says. “They don’t think about when a correction will come.” The recent recession should have reminded everyone that real estate prices can indeed fall, and fall a lot. Economist Robert Shiller created an inflation-adjusted index for home prices dating to 1890 and found that home prices have fallen a number of times over the years, including in the early 1990s, the early 1980s and the mid-1970s.
You should renovate your kitchen and bathroom before you sell. If your kitchen and baths work, a major remodel could backfire. Prospective buyers may not share your taste, but they don’t want to redo something that has just been renovated. “You’re better off adjusting your price accordingly,” says Kevin Brown Jr., president of Praedium Real Estate Services in Pittsburgh and a regional director of the NAEBA. “Most buyers want to put their own spin on things.”
“Come on, this is bullshit, this is for show, it can’t actually be real.”
When travel journalist Nick Watt was told that travelers to Havana’s Paseo del Prado could find not just snack vendors and tourists on the famous promenade, but a thriving, open-air real market where Cubans buy and sell homes, he was a bit incredulous. But as he discovered during filming of his Travel Channel Show Watt’s World, the promenade plays host to a key part of Cuba’s nascent real estate market, a recently unleashed aspect of capitalism in the socialist country that, as relations with the United States normalize, opens up a host of questions and possibilities.
“Consider real estate in the same way people look at classic cars on the street here,” he says. “People like me love Cuba, we think the cars held together with Band-Aids and the old colonial buildings are amazing. But once the money comes in, will Cubans want up-to-date buildings? In 20 years, will there be old, dilapidated buildings here?”
Footage of the open-air real estate market in Havana. Footage courtesy Travel Channel
Watt’s trip to the market provides just a small glimpse at a larger shift happening in Cuban real estate. In 2011, Raúl Castro allowed his countrymen to buy and sell real estate for the first time in decades, revolutionizing a socialist system that previously only allowed citizens to trade property, like for like. It set off a small boom in home renovations, as well as interest in acquiring and fixing up potential hotel properties that could house an influx of new tourists.
The prospect of a more open market, even incrementally so, raises the possibility of massive foreign investment in prime beachfront real estate and the country’s classic housing stock. Currently, Americans can invest by sending money to a Cuban relative or associate who acts as a frontman, but legally the deed remains in the name of the Cuban buyer, adding a degree of risk. A potentially bigger question around foreign investment may be the right-of-return issue; Fidel seized all foreign-owned property in 1962, and the U.S. government currently estimates that American citizens and corporations may have up to $8 billion in property claims to sort out as relations normalize
So far, Castro has held strong to his decision to limit real estate sales to Cubans only. Considering that a few years in, the market is still in a bit of an embryonic stage, that makes sense.
Photo courtesy Travel Channel
The sea change in property law has also encouraged entrepreneurial activity. Seizing the opportunity in Raul’s policy shift, Sandra Arias Betancourt decided to become a residential real estate agent in early 2013. Not surprisingly, she believes Cuba’s market is unlike any other. A lack of regular internet access means information sources American buyers and sellers use every day are non-existent, and only about half of sellers feel the need to involve an agent. Most just place handmade signs outside their property and negotiate themselves, Betancourt says. But still, she sees a booming market and increased opportunity.
“The market has exploded, especially since the beginning of this year,” she says. “We have a lot of people buying.”
Right now, transactions are 95% cash, she says, and she takes a standard five percent commission for any sales. To succeed, she says agents have to understand the people and what they really want. She sees a day coming soon when Americans will begin to buy more property.
“People have been sniffing around this for years,” says Watt. “I was being asked by my American friends 10 years ago to buy property. People have been trying to find ways for years.”
Tom Miller, author of Trading with the Enemy: A Yankee Travels through Castro’s Cubaand a writer who has made annual trips to Cuba since 1987, also believes that Cubans are just starting to get a sense of how the market functions. Its evident in new online property sites, such as EspacioCuba.com, which are still in their early days (founder Yosuan Crespo, a computer programmer, launched the site in 2012).
“There’s a certain amount of speculation,” says Miller, “but you need a certain amount of funds to do that, and Cuba’s not a country where people have the money for that kind of investment. What people are mostly talking about is foreign investment. You can buy things with a frontman, and Cuban-Americans are already doing it, but the whole phenomena hasn’t played out yet.”
Miller believes a few serious issues need to be resolved before Americans are snapping up homes. The mortgage system in Cuba is currently non-existent—it’s all “cash on the barrelhead”—and Cuba needs to push through planned reforms of its financial system (currently, prices are listed in CUC, the Cuban Convertible peso unit). Both legally and financially, it’s impossible for foreigners, he says
Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing an investor flight to safety for U.S. Treasuries is pushing average fixed mortgage rates lower and helping to keep buyer activity strong toward the close of the spring homebuying season.
30-year fixed-rate mortgage (FRM) averaged 4.04 percent with an average 0.6 point for the week ending July 9, 2015, down from last week when it averaged 4.08 percent. A year ago at this time, the 30-year FRM averaged 4.15 percent.
15-year FRM this week averaged 3.20 percent with an average 0.5 point, down from last week when it averaged 3.24 percent. A year ago at this time, the 15-year FRM averaged 3.24 percent.
1-year Treasury-indexed ARM averaged 2.50 percent this week with an average 0.3 point, down from last week when it averaged 2.52 percent. At this time last year, the 1-year ARM averaged 2.40 percent.
Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following links for theRegional and National Mortgage Rate Details and Definitions. Borrowers may still pay closing costs which are not included in the survey.
Quote Attributed to Sean Becketti, chief economist, Freddie Mac.
“Yields on Treasury securities declined this week in response to investor concerns about events in Greece and China. Mortgage rates fell as well, although not by as much as government bond yields. The rate on 30-year fixed-rate mortgages fell 4 basis points to 4.04 percent.”
“Overseas volatility is likely to persist for some time, providing some restraint on potential U.S. rate increases. In addition, the minutes of the June meeting of the Federal Open Market Committee suggest the Federal Reserve will proceed cautiously — monitoring events both overseas and in the U.S. to ascertain the appropriate moment to begin raising short-term interest rates. As a result, mortgage rates may remain in the neighborhood of 4 percent for a while.”
There’s been a dramatic change in the assistance offered to struggling homeowners.
In February, 49% of borrowers with a loan backed by federally controlled housing-finance giants Fannie Mae and Freddie Mac received modifications that only extended the length of their mortgage. That share was up 20 percentage points from a year earlier, according to a report from the Federal Housing Finance Agency, which regulates the government sponsored enterprises. Over that same time period, the share of borrowers receiving a modification that combined an extended term with other actions, such as a rate reduction and principal forbearance, fell by 19 percentage points.
Similar trends are seen in quarterly data from the Office of the Comptroller of the Currency, which publishes a snapshot of the U.S. mortgage market. According to the OCC, the chance that a modification included a term extension rose by 10% in 2014. Meanwhile, the likelihood dropped 15% for a rate reduction and 66% for a principal deferral. The reason? The big rise in home prices since 2012.
“As the market improves, the number of borrowers who are in deep distress goes down, so the average modification tends to get lighter because they don’t need to provide as much relief,” said Jim Parrott, a former housing-policy adviser for the White House’s National Economic Council and a senior fellow at the Urban Institute, a Washington think tank.
Also, as time has passed, the pool of borrowers who are eligible for the most rigorous modifications has narrowed.
Officials have tweaked mortgage-help programs since the bubble burst, including an important change in 2014 to enable borrowers with loan-to-value ratios under 80% to receive a GSE modification that will generally only extend the term of a mortgage. Thanks to rising home prices — they bottomed out in early 2012 and are now about 9% down from a bubble peak — owners have become increasingly likely to have equity.
“The practice of providing a modification to somebody with significant equity is fairly new,” said Julia Gordon, senior director for housing and consumer finance at the Center for American Progress, a left-leaning think tank in Washington. “The assumption in the past, pre-crisis, was if you get into terrible trouble with your mortgage, your solution was to downsize.”
If I had to depend on Wall Street or Washington for an explanation of what ails the U.S. financial economy, I’d probably pick neither one. My choice would be John Griffin, a cowboy boots-wearing University of Texas financial professor, who has been on something of a roll.
Six years before Standard & Poor’s agreed to pay $1.4 billion to settle state and federal government lawsuits alleging it inflated credit ratings on securitized mortgage debt, Griffin revealed—with mathematical precision—how S&P degraded its own analytical model to issue puffed-up grades.
Seven months before J.P. Morgan Chase agreed to pay $13 billion to resolve state and federal claims that it misled investors on toxic mortgage securities—the largest financial settlement with a single entity in U.S. history—Griffin showed how the bank had originated a disproportionate share of securitized mortgages flawed by undisclosed second liens (among other reporting problems).
Today, Griffin is advancing a new argument: that housing prices were more inflated—and the crash even more violent—in markets where lenders who misreported mortgages held concentrated market shares. He concludes that big banks with bad practices drove the credit bubble, and the misreporting deepened it.
“I just want to know the truth,” says Griffin, 45, who grew up playing high school football in Texas and today delivers some of his hardest hits on Wall Street.
In his latest forensic work, Griffin and co-author Gonzalo Maturana, an assistant professor of finance at Emory University in Atlanta, combed through 3.1 million mortgages originated between 2002 and the end of 2007. More than one-quarter of these loans subsequently defaulted.
While looking for inconsistencies in appraisal values and owner-occupancy status, the most interesting part of the investigation exposes how some mortgage securities were riddled with undisclosed second liens. These hidden debts reduced the borrowers’ incentive to repay their obligations. Griffin and Maturana found the gaps by comparing bank securities documents to county courthouse records.
No fewer than 10.2% of the securitized mortgages in their sample contained an undisclosed second lien. Some lenders, such as Barclays and J.P. Morgan Chase, produced nearly double the overall number of missing debts. This is startling for two reasons: first, loans with an unreported lien were 97% more likely to become seriously delinquent than were correctly reported loans; and second, the same lender originated both liens more than two-thirds of the time.
Barclays and J.P. Morgan not only had the highest levels of misreported second liens, but also the highest aggregated misreporting across all categories analyzed, according to Griffin and Maturana’s research. They also discovered owner-occupancy inconsistencies are based on county tax records mailed to a non-business address other than the purchased residence. And they tracked aberrations in appraisal value based on human appraisals that were 20% higher than a standard model-based valuation. This is a conservative measure, four times higher than a statistically significant 5% deviation.
Of the 18 largest players in the securitized market, the highest misreporting was Barclays at 41.5% and J.P. Morgan at 41%, the research finds. J.P. Morgan and Barclays both declined to comment.
Adding to the skepticism, loans with unreported second liens typically bore higher interest rates than correctly reported loans, meaning that lenders “were seemingly aware of and accounted for the second-lien risk,” according to the research, titled “Who Facilitated Misreporting in Securitized Loans?”
These undisclosed second liens spiked “significantly” around benchmark credit thresholds, meaning the omitted debts might have helped borrowers obtain the loans, on the one hand, and helped lenders to securitize them on another.
“This type of misreporting derives from the originator’s incentives to securitize,” Griffin and Maturana conclude in their paper, which is slated for publication in the peer-reviewed Journal of Finance.
Such analysis cuts closer than conventional blame-shifting that would hold faceless borrowers, and expansionary government credit policies, accountable.
And that takes us to Griffin’s latest research, which seeks to answer the question of whether lenders that misreported important mortgage information, played a calculable role in driving up home prices—and deepening the crash.
In this new study, titled “Did Dubious Mortgage Origination Practices Distort House Prices?” Griffin and Maturana looked at a universe of about 5,000 ZIP codes across the country. They drilled down to individual streets, where 15% or more of the home mortgages were originated by the same suspect lenders identified in the earlier study. They compared this to similar houses sold in other ZIP codes where the lenders originated less than 5% of the purchase transactions.
Unsurprisingly—based on the compounding effect of such bad practices—Griffin and Maturana found that home prices rose 63% in 858 ZIP codes with high concentrations of lenders they believe misreported mortgage information from 2003 to 2006. This contrasts with a 36% price increase in 4,318 ZIP codes with a lower presence of such originators. On the downside, from 2007 to 2012, prices decreased 40% in ZIP Codes with the higher concentrations of bad originating practices, almost double the 21% decline elsewhere.
A sharp jump in mortgage rates last Friday took its toll on home lending, leaving mostly high-end home buyers on the playing field.
Total mortgage application volume fell 1.3 percent week-to-week on a seasonally adjusted basis for the week ending March 6th, according to the Mortgage Bankers Association (MBA). The fall was driven by a 3 percent drop in applications to refinance. Refinance volume is now at its lowest level since January and accounts for just 60 percent of all applications. Refinances had seen as much as an 80 percent share of all applications in recent years, as rates dipped and home buying stalled.
Mortgage applications to purchase a home rose two percent for the week and are two percent higher than a year ago. The slight increase, however, was largely due to higher-end home buyers. The average purchase loan size last week soared to $294,900, the highest level ever recorded on the MBA survey. The median price of a U.S. home sold in January was $199,600, according to the National Association of Realtors.
“The record high average loan size indicates that the strength of the market remains at the high end. We have not yet seen an influx of first-time homebuyers,” noted Michael Fratantoni, chief economist for the MBA.
A stronger-than-expected February employment report last Friday pushed interest rates higher, as investors now expect the Federal Reserve to increase its lending rate by mid-year. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.01 percent, the highest level since the week ending January 2, 2015, from 3.96 percent, with points increasing to 0.39 from 0.30 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, according to the MBA.
Interest rates edged back a bit Tuesday, as the stock market sold off, but 4 percent may be the new normal now for 30-year fixed rate loans, with the expectation that they would move higher later this year. While these moves may seem small, they can take away significant purchasing power, especially for lower income borrowers using small down payments. With home price gains accelerating, and still tight supply of homes for sale, home buyers are especially sensitive to every potential penny lost or gained.