All posts in "Real Estate"

“Mortgage Rates Hit New 2017 Lows”

by paulbr75 from Pixabay

“Mortgage Rates Hit New 2017 Lows”

by Bill McBride on 4/11/2017 10:19:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Hit New 2017 Lows

Mortgage rates moved lower today–significantly in some cases–with the average lender making it back to 2017’s lows for the first time since January.  Rates came close to 2017’s lows in late February and again last week before officially crossing the line today.

Lenders are now fairly evenly split between 4.0% and 4.125% in terms of the most prevalent conventional 30yr fixed quote on top tier scenarios.  A few of the most aggressive lenders are now quoting rates in the high 3’s (emphasis on “few”), and there are still more than a few lenders up at 4.25%.
emphasis added

Here is a table from Mortgage News Daily:

Published at Wed, 12 Apr 2017 02:19:00 +0000

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Fannie Mae: Mortgage Serious Delinquency rate declined in February, Lowest since March 2008


Fannie Mae: Mortgage Serious Delinquency rate declined in February, Lowest since March 2008

by Bill McBride on 3/31/2017 02:02:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate declined to 1.19% in February, from 1.20% in January. The serious delinquency rate is down from 1.52% in February 2016.

This is the lowest serious delinquency rate since March 2008.

These are mortgage loans that are “three monthly payments or more past due or in foreclosure”.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

Although the rate is declining, the “normal” serious delinquency rate is under 1%.

The Fannie Mae serious delinquency rate has fallen 0.33 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will not be below 1% until later this year.

Note: Freddie Mac reported earlier.

Published at Fri, 31 Mar 2017 18:02:00 +0000

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Fannie, Freddie may write down $21 billion due to U.S. tax cut: BMO


Fannie, Freddie may write down $21 billion due to U.S. tax cut: BMO

U.S. mortgage finance giants Fannie Mae (FNMA.PK) and Freddie Mac (FMCC.PK) may write down $21 billion of tax-related assets if there is a deep cut in the federal corporate tax rate as promised by President Donald Trump, according to an analyst at BMO Capital Markets on Friday.

These assets, known as deferred tax assets, are items such as tax credits that may be used to reduce a company’s taxes.

If the rate cut is lowered to 20 percent from 35 percent, the value of Fannie and Freddie’s deferred tax assets is worth less and it would be recognized against their capital.

The two agencies, which guarantee home loans and mortgage-backed securities, are holding little capital since they are not allowed to retain their earnings after they have been under conservatorship or government guardianship due to heavy losses from the housing market collapse more than eight years ago.

Fannie drew $116.1 billion and Freddie $71.3 billion from the U.S. Treasury Department to cover those losses. They have remitted all their profits, which are more than their draw, to the Treasury under the conservatorship arrangement.

In absence of much capital cushion, the government-sponsored enterprises (GSEs) would need borrow nearly a total of $17 billion from Treasury, BMO’s head of fixed-income strategy, Margaret Kerins, wrote in a research note.

Such a move, however, would not hurt the value of their bonds or disrupt mortgage market, she said.

“However, the potential for renewed draws is likely to be politically unpopular and may spark preemptive Treasury action

and Congress to prioritize GSE reform in addition to headline risk,” Kerins wrote.

(Reporting by Richard Leong; Editing by Jonathan Oatis and Marguerita Choy
Published at Fri, 31 Mar 2017 19:44:34 +0000

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Freddie Mac: Mortgage Serious Delinquency rate declines in February, Lowest since June 2008


Freddie Mac: Mortgage Serious Delinquency rate declines in February, Lowest since June 2008

by Bill McBride on 3/27/2017 12:42:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate in February was at 0.98%, down from 0.99% in January.  Freddie’s rate is down from 1.26% in February 2016.

Freddie’s serious delinquency rate peaked in February 2010 at 4.20%.

This is the lowest serious delinquency rate since June 2008.

These are mortgage loans that are “three monthly payments or more past due or in foreclosure”.

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

Although the rate is still declining, the rate of decline has slowed.

Maybe the rate will decline another 0.25 percentage points or so to a cycle bottom, but this is pretty close to normal.

Note: Fannie Mae will report soon.

Published at Mon, 27 Mar 2017 16:42:00 +0000

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Fannie Mae: Mortgage Serious Delinquency rate unchanged in January


Fannie Mae: Mortgage Serious Delinquency rate unchanged in January

by Bill McBride on 3/02/2017 06:31:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate was unchanged at 1.20% in January, from 1.20% in December. The serious delinquency rate is down from 1.55% in January 2016.

This ties last month as the lowest serious delinquency rate since March 2008.

These are mortgage loans that are “three monthly payments or more past due or in foreclosure”.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

Although the rate is declining, the “normal” serious delinquency rate is under 1%.

The Fannie Mae serious delinquency rate has fallen 0.35 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will not be below 1% until later this year.

Note: Freddie Mac reported earlier.

Published at Thu, 02 Mar 2017 23:31:00 +0000

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What are the Differences Among a Real Estate Agent, a Broker and a Realtor?



Many people unfamiliar with the real estate industry use the terms real estate agent, broker and realtor interchangeably. There are differences between the three titles. However, the most important being the services each real estate professional offers to those in need of real estate services.

A real estate agent is a real estate professional who has taken and passed all required real estate classes and passed the real estate licensing exam in the state in which he or she intends to work. It is the most encompassing of the titles since it is the starting point for most real estate professionals. Agents are also referred to as real estate associates.

A realtor is a real estate agent who is a member of the National Association of Realtors. To become a member, a real estate agent has to agree to abide by the association’s standards and uphold the code of ethics.

A real estate broker has continued his or her education past the real estate agent level and passed the real estate broker license. Real estate brokers can work as independent real estate agents or have other agents working for them.

The biggest distinction between the three is that a broker can work on his or her own, while an agent or associate has to work under a licensed broker. A hybrid position, referred to as a real estate associate broker, is an agent who is working toward achieving a broker’s license. Associate brokers have to work under a licensed broker but many share in the brokerage profits above and beyond the typical agent commission.

Published at Sat, 11 Feb 2017 15:30:00 +0000

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Lawler on Household Projections

Lawler on Household Projections

by Bill McBride on 2/08/2017 10:51:00 AM

From housing economist Tom Lawler: Household Projections: New Population Estimates + New Administration = Time for an Update
When the Census Bureau released its estimates for the U.S. population in December, most press coverage focused on which states saw the fastest population growth last year. What many missed, however, was that the Census Bureau significantly reduced its population estimates for each of the past several years, with the major reason for the downward revisions stemming from reduced estimates of net international migration. The latter reductions were the result up an updated methodology used to estimate foreign-born emigration, as discussed in the following excerpt from the 2016 vintage “release notes.”

“The Vintage 2016 net international migration estimates reflect the following changes to the methodology since the release of the Vintage 2015 estimates:

“We updated the foreign-born emigration subcomponent in two ways: 1) we modified the emigrant group definitions used to calculate estimates of foreign-born emigration; 2) we applied averaged rates from multiple 5-year ACS files for non-recent arrivals (Mexican born who arrived more than 10 years ago, Asian born who arrived more than five years ago, and Non-Mexican born who arrived more than 10 years ago). These changes resolve negative rates produced by the previous residual method, which had resulted in zero emigration for certain emigrant groups. Consequently, foreign-born emigration will be higher and net international migration will be lower than the previous vintage.”

Here are some summary statistics on “Vintage 2016” population estimates (resident population” compared to “Vintage 2015” population estimates. I’m including Census projections for 2016 that had been based on Vintage 2015 estimates (used for CPS-based data for 2016) as well as a December 1, 2016 estimate based on Vintage 2016.

U.S. Resident Population, Vintage 2015 vs. Vintage 2016
Vintage 2015 Vintage 2016 Change
7/1/2010 309,346,863 309,348,193 1,330
7/1/2011 311,718,857 311,663,358 -55,499
7/1/2012 314,102,623 313,998,379 -104,244
7/1/2013 316,427,395 316,204,908 -222,487
7/1/2014 318,907,401 318,563,456 -343,945
7/1/2015 321,418,820 320,896,618 -522,202
7/1/2016 323,889,854 323,127,513 -762,341
12/1/2016 325,032,763 324,142,480 -890,283

The next table shows Census estimates of Net International Migration from the “Vintage 2015” population estimates compared to the most recent (“Vintage 2016”) estimates.

Net International Migration, July 1 – July 1, Vintage 2015 vs. Vintage 2016
Vintage 2015 Vintage 2016 Change
2011 910,951 854,172 -56,779
2012 948,321 899,576 -48,745
2013 992,215 873,972 -118,243
2014 1,133,261 977,801 -155,460
2015 1,150,528 1,036,826 -113,702
2016* 1,160,000 999,163 -160,837
*Estimate for Vintage 2015 projections

These downward population revisions were reflected in last Friday’s employment report, which showed the impact of updated population estimates on the 16+ year civilian non-institutional population assumptions used to produce employment and labor force estimates based on the “household” (CPS) survey.

16+ Civilian Non-Institutional Population, Household Employment Report, December 2016 (000’s)
Vintage 2015 Vintage 2016 Change
Total 254,742 253,911 -831
White 198,845 198,376 -469
Black 32,105 32,029 -76
Asian 15,433 15,175 -258
Other 8,359 8,331 -28
Hispanic or Latino Ethnicity* 41,190 40,838 -352
*Persons whose ethnicity is described as Hispanic or Latino may be of any race

While Census has not yet updated its estimates of age distribution of the population, data released as part of last Friday’s report allow one to estimate downward revisions in the 16+ civilian non-institutional population by age.

16+ Civilian Non-Institutional Population by Age Group Derived from* Household Employment Report, December 2016 (000’s)
Age Group Vintage 2015 Vintage 2017 Change
16-24 38,348 38,265 -83
25-34 43,839 43,692 -147
35-44 39,919 39,763 -156
45-54 42,212 42,103 -109
55-64 41,587 41,468 -119
65-74 28,913 28,794 -119
75+ 19,924 19,826 -98
Total 254,742 253,911 -831
*LEHC estimates

These new population estimates will, of course, be used by Census to produce household estimates based on the 2017 CPS/ASEC. However, Census typically does not revise previous-year estimates to reflect revisions in population estimates. As such, the change in the CPS/ASEC household estimate for March 2017 compared to the March 2017 estimate will probably be about 450,000 or so lower than it would have been without the recent methodological change used to estimate net international migration

These latest population revisions, including updated projections from Census for 2017, suggest that household projections based on the latest long-term population projections made by Census in December 2014 are woefully out of date. Here is a table comparing the population projections in that report for 2014, 2015, 2016, and 2017 compared to the most recent population estimates and projections (the latter of which only extend to 2017).

2015 Population Projections vs. Latest Estimates/Projections, U.S. Resident Population (000’s)
Projection from
December 2014
Latest Estimates/
7/1/2014 318,748 318,563 -185
7/1/2015 321,369 320,877 -492
7/1/2016 323,996 323,128 -868
7/1/2017 326,626 325,534 -1,092

As the table shows, the most recent projection of the US resident population for 2017 is almost 1.1 million lower than the projection from late 2014.
Census Population ChangeGiven (1) the improved methodology to estimate net international migration, and (2) the Trump administration’s potential policies on immigration, it seems extremely likely that an updated long-term population projection would produce hugely different population projections for years subsequent to 2017 than those shown in the “latest” Census projections from late 2014. E.g., here is a table showing the components of change from Census’ long-term population projections from late 2014.

While updated estimates suggest that net international migration averaged about 900,000 over the past 5 years, the late 2014 projections assumed an average of about 1.256 million from 2015 to 2020. Even without the “Trump win” that number would currently be considered way to high, and today such a projection seems, in the words of demographer Dr. Vizzini, “inconceivable.”

For folks wondering why I am comparing recent estimates to a Census projection from December 2014, the reason is that the December 2014 projection is that latest the Census has released, and those projections have been used by quite a few analysts/institutions/organizations/etc. to produce and publish long-term projections of the number of US households. Indeed, in an unluckily-timed report released just eight days before the Census released it “Vintage 2016” population numbers, the Joint Center for Housing Studies published new household projections based on Census population projections from December 2014! (There are other serious problems with the JCHS report, but I won’t dwell on those).

So … If one both incorporated the latest Census population projections (including its new methodology for measuring net international migration), AND used updated assumptions on births, deaths, and net international migration for the next several years, what would an updated population projection look like? E.g., how should one translate what Trump and Trump officials (as well as Congressional officials) have said about immigration into a projection of net international migration? Frankly, I don’t know.

But let’s just make an “educated guess” that net international migration would be at a level lower than it recently has been, and let’s arbitrarily pick an average of 750,000. Combed with reasonable projections for birth and dealt rates, that would produce a population projection of something like that shown in the table below. (I am not adjusting Census’ latest projection for 2017).

US Resident Population Estimates and Projections (000’s)
December 2014
“More Trumpian” Difference
7/1/2015 321,369 320,877 -492
7/1/2016 323,996 323,128 -868
7/1/2017 326,626 325,534 -1,092
7/1/2018 329,256 327,647 -1,609
7/1/2019 331,884 329,751 -2,133
7/1/2020 334,503 331,840 -2,663

If such a lower net international migration number were to occur, then a “more reasonable” projection of the US resident population in 2020 would be a whopping 2.663 million below the projection in Census’ December 2014 population forecast used by quite a few analysts to project US household growth. The vast bulk of this reduction would be (1) in the adult population, and (2) in the foreign-born population. I have not yet attempted to see how such a different population projection would translate into a household projection, but some might call it “YUGE” enough to warrant throwing out household projections based on the “latest official” Census population projections, and instead focus on an updated forecast based on more reasonable population projections.

Published at Wed, 08 Feb 2017 15:51:00 +0000

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40-Year Mortgages: Do They Exist?


40-Year Mortgages: Do They Exist?

By Jim Probasco | February 3, 2017 — 11:36 AM EST

Is there such a thing as a 40-year mortgage? Most people think of a home mortgage as a loan for 30 years or less. However, longer mortgages, although less common, do happen. In fact, mortgages lasting 40, 50 and even 60 years have been around for a number of years. If you are thinking about a mortgage with an extended amortization or payback period, you should consider both the pros and cons of such an arrangement.

Pros of a 40-Year Mortgage

There are a number of reasons why a 40-year mortgage might make sense.

  • Lower Payment A 40-year mortgage will give you 10 more years to pay off your loan, resulting in a lower payment. From a cash-flow perspective, this could be helpful.
  • Bail-Out Option – Many people move long before they have paid off their 30-year loan. If you expect to sell your home in less than 40 years, the lower payment may outweigh the disadvantage of paying interest over a longer period.
  • Qualifying for a Larger Mortgage – If high interest rates keep you from qualifying for a loan on the house you want, a longer mortgage may lower the payment and put you in the house of your dreams.
  • Tax Advantage – High earners may see a 40-year mortgage as a way to write off more interest over a longer time period. If mortgage interest remains tax deductible, this could prove to be a real advantage for some people.
  • Fixed Rate – For those who plan to stay put for a number of years, a fixed interest rate over decades may be a real hedge against interest fluctuation.
  • Flexibility You’ll have a lower payment when household income is low, but as your income rises you can switch to biweekly payments, an extra payment a year or even a total refinance for a shorter term of 30, 20 or even 15 years.


There are, of course, arguments against paying for borrowed money over an extended period.

  • Higher Interest Rate – Many people don’t realize it, but a 40-year mortgage for the same amount will likely carry a slightly higher (typically 0.25%) interest rate than one for 30 years. Over time, higher interest expenses add up. This is not always true, so research rates extra carefully.
  • Paying Out More in Interest If you live in the house until the end of your mortgage, you will have paid out 10 years more in interest. That also adds up.
  • Slow Equity Buildup – When you pay off a loan over 40 years versus 30, the balance owed goes down more slowly. This means that when you do sell, you will realize less home equity.
  • Danger of Overextending Using a 40-year loan to buy a more expensive house could mean you’re buying more home than you can afford to keep up. This could be a real problem in the event of a loss of income or major emergency.
  • Lack of Availability Just because you want a 40-year mortgage doesn’t mean one will be available. Not all lenders offer them, so it’s best to check well in advance before making an offer on a house that depends on a lengthy loan.
  • Infinite Payments If you take out a 40-year mortgage and stay in the house, there’s a good chance you’ll be making house payments for the rest of your life. It will be similar to renting but with a tax deduction, albeit one that fades over time.


Instead of a 40-year mortgage, ask about an interest-only loan. Depending on your long-term goals and credit score, an interest-only loan might be a better deal. (For more, see How Interest-Only Mortgages Work.) Remember, though, that after the interest-only period you will start paying back both interest and principal and your monthly payments will jump considerably. Of course, if you’re planning to resell the house quite soon and housing values hold up, this could work well for you.

You can also consider making a larger down payment and financing for a shorter term, or you could look for a less expensive house. If a 40-year loan you are contemplating stretches your budget too much, it is financially wiser to cut back at the beginning. (For more, see Top 6 Mortgage Mistakes.)

The Bottom Line

Whether a 40-year mortgage makes sense for you depends on a variety of factors, not just how much you will pay out over the life of the loan. It’s important to consider all factors, including your best estimate of how long you plan to stay in the house, before deciding to seek an extended mortgage. The negatives were strong enough to include them in Investopedia’s 5 Risky Mortgage Types to Avoid.

But if you do go ahead anyway, don’t assume the interest rate on a 40-year loan will be higher. While that is typical, local competition and your credit worthiness can make a difference. Finally, before signing on the dotted line, be sure to consider the above alternatives to make sure one of them isn’t a better fit for your situation.
Published at Fri, 03 Feb 2017 16:36:00 +0000

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Improve Your Chances of Being Approved for a Mortgage


Improve Your Chances of Being Approved for a Mortgage

By Lisa Goetz | Updated January 31, 2017 — 7:06 AM EST

There are few things more disappointing than finding a dream home, then applying for a mortgage and being turned down. Prospective homebuyers, especially those who have had their mortgage applications rejected in the past, and those with little to no credit, can benefit from thinking like lenders and putting their financial profiles under the microscope. These tips can improve your chances of getting a mortgage approved.

Know What Your Credit Report Says

Some mortgage applicants first learn their credit scores and the contents of their credit reports when they sit down with a loan officer to apply for a mortgage for the first time. Finding out about low credit scores and numerous negative entries on credit reports, such as late and missed payments and judgments, in front of a prospective lender, can be embarrassing and puts loan applicants on the fast track to rejection. At the first thought of buying a home, consumers should order copies of their credit reports from the three credit bureaus — Equifax, TransUnion and Experian 3 — and make a note of their credit scores. Lenders typically require credit scores higher than 680 for conventional mortgage approval — between 620 and 640 to approve government-insured mortgages such as FHA, VA and USDA loans — so people with credit scores lower than this range should contact the credit bureaus to correct errors and then make sure to pay their bills on time.

Pay Down Debt

Lenders want mortgage applicants to dedicate no more than between 36 and 43% of their gross monthly income to paying debts — such as car payments, installment loans and credit card bills; the lower percentage applies to conventional mortgages, and the higher percentage applies to government-insured mortgages. Individuals thinking about buying homes should first pay down as much debt as possible so that their total debt falls within these guidelines. Consumers don’t need to pay off their debts entirely — in fact, having some debt and paying it regularly shows financial responsibility — but consumers should aim to have as little debt as possible.

Have the Down Payment in Hand

The days of zero-down mortgages are over. Prospective homebuyers should have their down payments in their bank accounts well before they sit down with lenders to be taken seriously. Down payments for most home loan types can come from personal savings; many loan types also allow borrowers to use cash gifts for down payments, including FHA, VA, USDA and conventional loans, as long as the gifts are from approved sources per the loan type’s guidelines. Borrowers should, therefore, confirm their gift sources well in advance of applying for mortgages. Homebuyers planning to use funds from their retirement accounts, such as a 401(k), Roth IRA or traditional IRA, should confirm the procedure for borrowing money from the accounts, as well as the amount available to use for a housing purchase.

Stay Employed Throughout the Loan Process

A loan applicant’s job and the salary earned play a critical role in being approved for a mortgage. Even if applicants don’t like their job, he should keep it until the loan is approved. This is because the lender checks and rechecks the information loan applicants provide, and if an applicant is employed at the time of initial loan application and unemployed — or employed in a job paying less than the previous job — upon revaluation of the loan application, the lender won’t approve the mortgage.

Know How Much Home You Can Afford

The brand-new five-bedroom, three-bathroom house in the priciest subdivision in town might be the ideal home for many, but lenders only approve home loans for applicants can afford them. Before home shopping, prospective buyers should sit down with their loan officer of choice and get preapproved. Preapproval doesn’t guarantee final loan approval, but it gives homebuyers a price range in which to shop. Knowing this number makes for a less frustrating experience for homebuyers and the real estate agents helping them find homes. Most real estate agents won’t work with homebuyers unless they have been preapproved for a mortgage.
Published at Tue, 31 Jan 2017 12:06:00 +0000

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5 Ways an Open House Can Actually Hurt Your Home Sale


5 Ways an Open House Can Actually Hurt Your Home Sale

By Donna Fuscaldo | Updated January 29, 2017 — 1:32 PM EST

Anyone selling their home has been trained to believe an open house is a good way to find a buyer. If you open your home to the public all weekend you’re sure to draw some foot traffic that could translate into a sale. But that may no longer be the case. Lots of times an open house can do more harm than good. According to the National Association of Realtors, only 9% of buyers found the home they purchased at an open house in 2014. That’s a 16% decline from 2004. The number of buyers that include open houses in their search stood at 44% in 2014, down 51% from 2004. (For related reading, see: Selling Your House? Avoid These Mistakes.)

The Internet Kills the Open House

Thanks to the Internet, the days of driving around from one open house to the next are over. Buyers do most of their research online, narrowing down their options before they even contact a real estate agent. There are a ton of websites and mobile apps that give buyers a plethora of homes to search through. They can even be alerted when new homes go on the market, or if a house they are eyeing has a change in price or goes into contract. Many of today’s buyers end up hiring a broker, getting access to the home on their schedule rather than during an open house. As a result, open houses have become a less powerful selling tool. (For more, see: Top 8 House-Hunting Mistakes.)

It Costs You Extra Money

Time is money and the longer it takes to sell your home the more costs you will incur, including the cost to host open houses. There’s candles, cakes and drinks for starters. Those little things may not seem like a lot but it can quickly add up. The air conditioning or heat may have to be on longer which means a higher utility bill. Let’s also not forget the time and cost of keeping your house in show-ready condition. Not to mention getting the kids and the pets out of the house and the stress related to the entire affair. The amount of time and money it costs to prepare for and host an open house has to be weighed against the expected outcome. If it’s only a handful of buyers that will be coming through your house, it may not be the wisest choice. (For more, see also: Take the Pain Out of Selling Your House—Online.)

Real Estate Agents Benefit More

Open houses are supposed to draw buyers but often all they do is bring your real estate agent new clients. That’s because unrepresented buyers often go to open houses, which means potential new business for your agent. And even if they don’t like your home, they may like the other homes your agent is talking about during your open house. That creates an awkward and questionable situation which may sour your relationship with a broker. (For more, see: How to Find the Best Real Estate Agent.)

Curious Neighbors May Be Your Only Visitors

Let’s face it, opening your home to strangers over the weekend can be a big hassle, even if you have been advised that it would be in your best interest. You grudgingly agree to the open house, rework your entire weekend or weekends only to find it’s only curious neighbors checking out your home. Lots of people who aren’t in the market go to open houses out of curiosity or to get ideas for their homes. And while it may be a fun way to pass the time, for you it’s a big waste of time. It’s also important to remember that serious buyers don’t have to wait for an open house as they can contact your agent directly to get a showing.

Theft Risk

One of the risks of an open house is that your belongings may get stolen. It may not happen all the time, but even one incident is enough to spook sellers and rightfully so. Since anyone can go to an open house, it’s not impossible for thieves to attend one in hopes of stealing cash, jewelry, electronics or prescription drugs. They can also use it as a way to scope out the residence for a future break in. While there isn’t any hard data on the number of thefts that occur during open houses, some police departments around the country have issued warnings to homeowners and real estate agents about the risk of being robbed.

The Bottom Line

Rewind a couple of decades and open houses were one of the few ways buyers could see homes for sale. But the Internet changed all of that, making it easy for buyers to search and view homes online. As a result, the open house isn’t such a winning proposition anymore. Not only does it take time and some money, but it also means you are opening up your home to strangers which carry certain aforementioned risks. Add data that doesn’t bode well for the effectiveness of open houses to the mix and sellers may be better off focusing their efforts somewhere other than an open house.
Published at Sun, 29 Jan 2017 18:32:00 +0000

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Fed to stop mortgage reinvestments in 2018: Morgan Stanley


Speculation about the timing and framework on the U.S. central bank’s plan to pare its holdings of MBS and U.S. Treasury securities was rekindled after the Fed’s policy meeting on Dec. 13-14 at which they raised interest rates by a quarter point.

In the statement issued after that meeting, the Federal Open Market Committee, the Fed’s policy-setting group, said it will continue to reinvest principal payments from its MBS and Treasuries “until normalization of the level of the federal funds rate is well under way.”

Morgan Stanley analysts arrived at their call on the timing of the Fed ending its MBS reinvestments based on the Fed’s projected 3 percent longer-run equilibrium interest rate, together with their own forecast of two rate hikes in 2017 and three in 2018.

“Applying this informal guidance to our expectation for the rates path leads us to believe the Fed will halt its reinvestments of MBS in April 2018,” they said.


The Fed has maintained the size of its bond holdings at the current level through principal reinvestments since 2014 after its third round of large-scale bond purchases or quantitative easing ended.

“We believe the FOMC will halt its reinvestments of MBS in April 2018, preceded by a ramp-up in messaging and announcement in the March 2018 FOMC statement,” Morgan Stanley analysts wrote in a research note on Friday.


The Fed’s Treasuries and MBS holdings are about $2.46 trillion and $1.76 trillion, respectively. The Fed’s balance sheet size is equivalent to about 22 percent of gross domestic product, according to the analysts.

“Ending Treasury reinvestments is not necessary for a gradual normalization of the balance sheet; the economy should grow into the Fed’s Treasury portfolio within about a decade,” said Morgan Stanley economists and strategists.


While the Fed holds more Treasuries than MBS, the analysts said halting reinvestment of MBS is easier operationally though it may result in modestly higher mortgage rates for consumers.

It is also harder for the Fed to control the outcome if it stops reinvestments in Treasuries “namely that the impact on financial conditions and the economy would be out of the Fed’s hands,” they said.


(Reporting by Richard Leong; Editing by Chizu Nomiyama)
Published at Fri, 27 Jan 2017 19:34:16 +0000

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How Seasons Impact Real Estate Investments


How Seasons Impact Real Estate Investments

By Ryan Boykin | January 7, 2017 — 6:00 AM EST

Cooling weather can mean a cooling real estate market, depending on where you live. Whether you are purchasing or selling a property, the supply and demand of housing matters. One of the factors impacting housing supply and demand is the seasonality of your market. While you might not think the seasons of the year have an influence on the price you are paying or asking for your home, it makes a big difference – in some cases, as much as 10%. How’s that for a seasonal discount?

Know Your Real Estate Market

The seasonality of a market varies from location to location. Each market has its own nuance. For example, cities like Phoenix experience a snowbird effect, wherein winter months are popular due to an influx of people coming from different regions, like the Northeast, who are relocating or buying a second home. Alternatively, in cities like Denver, the cold weather climate plays a part in the seasonality of the market by slowing down the typically brisk pace of home sales. (For more, see: When is the Best Time to Sell a House?)

It’s important to be able to identify the factors that influence your region so you can understand the impact of seasonality trends on the housing market.

Key Factors in Seasonal Real Estate

While the weather is something that will differ in each market, there are some nationwide considerations that contribute to seasonal trends in real estate. The holiday season and school year both hugely influence the supply and demand of any given market.

Buyers and sellers with children typically do not want to uproot their family in the middle of the school year and will wait until its conclusion so they have more free time for moving and the chance for a fresh start once the next school year begins. In fact, studies have shown the busiest moving times of the year occur during the summer, with June being one of the busiest months and July 31 the single busiest day, meaning people are likely shopping the housing market at the end of the school year and as the summer draws to a close.

Additionally, you will likely find fewer people moving during the holidays, which essentially eliminates the period between November and January. During this time of year people do not want to add the logistics of moving to an already hectic holiday season filled with family obligations, end-of-year deadlines, unpredictable weather conditions and more. (For related reading, see: Strategies To Buy The Perfect Vacation Home.)

How Seasonality Works for Home Buyers

Due to the fluctuations in supply and demand, it’s during this identified “seasonal pattern” that you’ll find you don’t have as much competition from the average homebuyer. With summer being the busiest moving time of year, people buy more aggressively than in the winter, limiting the number of available houses and raising market prices. In the winter, though, since nobody wants to deal with the inconvenience of moving during this time, these low-demand periods are perfect for those who are looking for a good deal. Because sellers aren’t necessarily getting a lot of interest or offers from others, they’re more willing to negotiate and you’re able to obtain a substantial discount on pricing. (For related reading, see: 5 Mistakes Real Estate Investors Should Avoid.)

Approaching Seasonality As a Home Seller

If you’re a seller, it usually means you’re a buyer. For a lot of people, this means you do not have the luxury of selling when everyone else is buying and buying when everyone is selling, because you need a home to live in during that gap. Additionally, as a seller, you want to be able to sell in a peak market when everyone’s getting eyes on your property and demand and pricing is high. However, if you don’t immediately need the proceeds from selling your home to go into the purchase of your next, then buying in the winter, setting up a short-term living arrangement – whether that be leasing, temporarily moving in with others or something else – and then selling in the spring, is a great way to maximize the trade between what you’re selling and what you’re buying.

Make the Most of Your Seasonality

For homebuyers, one of the best ways to determine how the seasons impact your specific market is to talk to your broker or agent. They should be able to provide you with the market metrics for your area, allowing you to monitor the patterns and fluctuations of average sales price for each month in the city where you are considering buying your new home. By comparing different months and years, you’ll be able to identify where there are significant peaks and lows and determine when there are substantial discounts on housing prices in your market.

Once you’ve defined the seasonality of your market, don’t let the “inconvenience mentality” keep you sitting on the sidelines. By not buying when everyone else is buying, you can find the house of your dreams and save money. Not only will you face less competition for the homes you are interested in, but sellers will be more motivated and any offer you submit on a home will stand a better chance simply because there are fewer buyers, meaning it’s unlikely you’ll have to deal with the aspects of multiple offers or going above asking price.

As with your groceries or clothes, when you’re able to get a discount it doesn’t make sense to skip the discount and pay full price. With real estate seasonality, it’s the same. You can save anywhere between 5%-10%, or tens of thousands of dollars, and have a better equity position in your home. Seasonality is simple supply and demand – don’t try and buy when everyone else is. (For more, see: 6 Mistakes to Avoid When Buying a Home.)
Published at Sat, 07 Jan 2017 11:00:00 +0000

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Tips for Buying a House on a Single Income


Tips for Buying a House on a Single Income

By Daniel Kurt | January 7, 2017 — 6:00 AM EST

At a time when a lot of young adults are postponing marriage, the number of Americans buying a house on a single income is substantial. According to the mortgage software firm Ellie Mae, as many as 47% of Millennial home buyers last year were unmarried.

Buying a House on a Single Income Is Possible

Because single mortgage applicants rely on one salary and one credit profile in order to secure a loan, getting through the underwriting process can be a bit trickier. However, the more you understand about what the process entails, the better your odds will be of getting a lender to say “yes.” Here are four crucial things that can help.

Check Your Credit

When you apply for a mortgage on your own, lenders will be looking at just one credit profile: yours. Needless to say, it has to be in great shape.

It’s always a good idea to review your credit report beforehand, but that’s especially true of solo buyers. You can get a free copy once a year, from all three credit bureaus, at Make sure that it doesn’t contain any mistakes that will make you look like a bigger risk than you really are. If you see any, contact the credit reporting company right away, so it can investigate on your behalf. (For more, see Check Your Credit Report.)

You’ll also want to avoid doing anything that could hurt your credit, such as making big credit card purchase right before or after you apply for a home loan. And think twice before canceling any old credit cards. You might think you’re helping your cause, but you’re actually reducing the average age of your accounts and lowering your credit utilization ratio, two things that could hurt your application.

Look at Government Programs

A conventional mortgage typically requires a 20% down payment, something that can be hard to do if you’re drawing on only one person’s savings. But government-insured loans have a much smaller requirement – and sometimes none at all. For example, the popular Federal Housing Administration (FHA) mortgage program only mandates a 3.5% down payment. And if you’re a veteran or active member of the military, a Veteran’s Administration (VA) loan lets you finance the entire amount of the purchase, as long as it doesn’t exceed the appraisal amount.

There are some caveats, though. With an FHA mortgage, you’ll have to pay an upfront mortgage insurance payment (which can be financed) as well as a monthly premium. VA loans don’t carry an insurance fee, but they do assess a “funding fee” that can either be spread out over the course of the loan or paid in cash.

While low-down-payment requirements can help open the door to home ownership, they do carry risks. For example, paying 3.5% down doesn’t give you much of an equity buffer if the stock market takes a hit soon after you make the purchase. Putting down a little more, say 10% of the loan amount, will give you a little more peace of mind.

Protect Your Income

That first monthly mortgage payment can be startling for younger homeowners unaccustomed to such a big bill. As single home buyers rely on one source of income to pay the lender, it’s a good idea to take out some protection.

If your employer either doesn’t provide disability insurance or offers a bare-bones plan, you might consider looking into more-robust coverage on your own. That way you’ll get help paying your bills should you experience an illness or accident.

A specialized product known as mortgage protection life insurance can also help take care of your mortgage payments if you become unable to work. It’s only intended to help with home loan payments (some policies are a big more flexible), so it’s not a comprehensive financial solution. Still, because it typically has a looser underwriting process, it’s an option for those with riskier jobs or poor health, who consequently have trouble finding affordable disability coverage. (For more, see Why You Don’t Need Mortgage Protection Life Insurance)

Put Someone Else on the Loan

Having a co-borrower on the loan can sometimes help home buyers clear the underwriting hurdle, especially if you don’t have a long credit history. The lender will look at the co-borrower’s income, assets and credit history – not just yours – when assessing the application.

While he or she may be doing you a huge favor by joining you on the loan, make sure the co-borrower knows the consequences. In the event you have trouble making your loan payments, the bank can go after the co-borrower, too. If you don’t want to worry about that, you should wait until you can qualify for a loan by yourself.

The Bottom Line

Thanks to low-down-payment programs, you needn’t be well-heeled in order to get a mortgage on your own. However, it does require having a sparkling credit report and making sure that you have sufficient income protection. Government-insured loans and co-borrowers can also be of help. (For more, see Self Employed? 5 Steps to Scoring a Mortgage.)
Published at Sat, 07 Jan 2017 11:00:00 +0000

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Fannie Mae: Mortgage Serious Delinquency rate increased in November

Fannie Mae headquarters is seen in Washington November 7, 2013. REUTERS/Gary Cameron

Fannie Mae: Mortgage Serious Delinquency rate increased in November

by Bill McBride on 12/29/2016 04:49:00 PM

Fannie Mae reported today that the Single-Family Serious Delinquency rate increased to 1.23% in November, up from 1.21% in October. The serious delinquency rate is down from 1.58% in November 2015.

These are mortgage loans that are “three monthly payments or more past due or in foreclosure”.The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

Although the rate is generally declining, the “normal” serious delinquency rate is under 1%.

The Fannie Mae serious delinquency rate has fallen 0.35 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will not be below 1% for about 8 more months.

Note: Freddie Mac reported earlier.


by Bill McBride on 12/29/2016 04:49:00 PM
Published at Thu, 29 Dec 2016 21:49:00 +0000

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Question #10 for 2017: Will inventory increase or decrease in 2017?


Question #10 for 2017: Will inventory increase or decrease in 2017?

by Bill McBride on 12/26/2016 07:27:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2017. I’ll try to add some thoughts, and maybe some predictions for each question.
10) Housing Inventory: Housing inventory declined in 2015 and 2016. Will inventory increase or decrease in 2017?

Tracking housing inventory is very helpful in understanding the housing market.  The plunge in inventory in 2011 helped me call the bottom for house prices in early 2012 (The Housing Bottom is Here).  And the increase in inventory in late 2005 (see first graph below) helped me call the top for house prices in 2006.

This graph shows nationwide inventory for existing homes through November 2016.

Existing Home InventoryClick on graph for larger image.

According to the NAR, inventory decreased to 1.85 million in November 2016 from 2.04 million in November 2015.

This was the lowest level for the month of November since 2000.

Inventory is not seasonally adjusted, and usually inventory decreases from the seasonal high in mid-summer to the seasonal lows in December and January as sellers take their homes off the market for the holidays.

Year-over-year Inventory

The second graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 9.3% year-over-year in November compared to November 2015. (blue line).  Note that the blue line (year-over-year change) turned slightly positive in 2013, but has been negative since mid-2015.

Two of the key reasons inventory is low: 1) A large number of single family home and condos were converted to rental units. Last year, housing economist Tom Lawler estimated there were 17.5 million renter occupied single family homes in the U.S., up from 10.7 million in 2000. Many of these houses were purchased by investors, and rents have increased substantially, and the investors are not selling (even though prices have increased too). Most of these rental conversions were at the lower end, and that is limiting the supply for first time buyers. 2) Baby boomers are aging in place (people tend to downsize when they are 75 or 80, in another 10 to 20 years for the boomers). Instead we are seeing a surge in home improvement spending, and this is also limiting supply.

Of course low inventory keeps potential move-up buyers from selling too.  If someone looks around for another home, and inventory is lean, they may decide to just stay and upgrade.

I’ve heard reports of more inventory in some coastal areas of California, in New York city and for high rise condos in Miami.  But we haven’t seen a change in trend for inventory yet.

The recent increase in interest rates might impact inventory.  Looking back at the “taper tantrum” in May and June 2013 suggests we might see more inventory in the coming months.  In May 2013, inventory was down 13% year-over-year, but by September 2013, inventory was unchanged year-over-year.    However that change in year-over-year inventory was part of an ongoing trend (look at 2013 in the second graph above), and the “taper tantrum” might not have been the cause.

I was wrong on inventory last year, but right now my guess is active inventory will increase in 2017 (inventory will decline seasonally in December and January, but I expect to see inventory up again year-over-year in December 2017).   My reasons for expecting more inventory are 1) inventory is historically low (lowest for November since 2000), 2) and the recent increase in interest rates.

If correct, this will keep house price increases down in  2017 (probably lower than the 5% or so gains in 2014, 2015 and 2016).


by Bill McBride on 12/26/2016 07:27:00 PM
Published at Tue, 27 Dec 2016 00:27:00 +0000

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“Rates Stay Near Highs Despite Market Improvement”

By wendybkoon from Pixabay

“Rates Stay Near Highs Despite Market Improvement”

by Bill McBride on 12/19/2016 05:48:00 PM

From Matthew Graham at Mortgage News Daily: Rates Stay Near Highs Despite Market Improvement

Mortgage rates stayed close to the highest levels in more than 2 years today, even though underlying bond markets left plenty of room for improvement.  Typically, when bond markets improve as much as they did today, rates would be noticeably lower.  The inconsistency has to do with more conservative lender pricing strategies surrounding the holiday season.

All this having been said, a few lenders did update rates this afternoon, offering slight improvements.  The average effective rate (which adjusts for closing costs) fell just slightly, but the average contract rate for a conventional 30yr fixed loan remained at 4.375% for a top tier scenario, with several lenders still up at 4.5%
emphasis added

CR Note: We should see a further drop in refinance activity, and I expect some slowdown in housing (still thinking about this).

Here is a table from Mortgage News Daily:

Averages Current Previous Change
Mortgage News Daily updated daily
30 Yr Fixed 4.37 4.38 -0.01
15 Yr Fixed 3.56 3.57 -0.01
FHA 30 Yr 4.05 4.10 -0.05
Jumbo 30 Yr 4.40 4.40
5/1 Yr ARM 3.23 3.25 -0.02
Freddie Mac updated weekly
30 Yr Fixed 4.16 4.13 +0.03
15 Yr Fixed 3.37 3.36 +0.01
1 Yr ARM 2.68 2.67 +0.01
5/1 Yr ARM 3.19 3.17 +0.02
FHFA updated monthly
15 Yr Fixed 3.05 3.08 -0.03
30 Yr Fixed 3.74 3.80 -0.06
30 Year Fixed


About These Rates Get This Widget


by Bill McBride on 12/19/2016 05:48:00 PM

My Trading Journal: 30 Day Trading Journal

Published at Mon, 19 Dec 2016 22:48:00 +0000

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4 Real Estate Trends for 2017 Investors Should Know


4 Real Estate Trends for 2017 Investors Should Know

By Rebecca Lake | Updated December 17, 2016 — 6:00 AM EST

Real estate investing carries a certain degree of risk, but it also has the potential to be very rewarding. One factor that may contribute to your success as a property investor is the ability to adapt when necessary. Staying abreast of the latest developments and trends in the commercial and residential markets is important if you want to stay ahead of the curve. As 2017 looms on the horizon, here are the most significant trends that may impact real estate investors in the near future.

1. Drone Technology Takes Off

Earlier this year the Federal Aviation Administration (FAA) approved the use of drones in commercial activity. For real estate agents, that opens the door to new possibilities in terms of how they show available properties. That also expands the scope of how investors are able to vet homes, office buildings or other potential investments.

A drone video feed could allow you to view a property from every possible angle without having to see it in person. You can check for any possible defects in the structure that are visible to the naked eye before moving on to a more in-depth inspection. That could save you time and money in the long run if the drone video exposes a serious flaw. (For more, see Delivery by Drone: New Rules for Flights.)

2. Global Economic Growth May Be Muted

In terms of the worldwide economic forecast, the global economy is expected to grow by 3.4% in 2017, according to the International Monetary Fund (IMF). While that’s an increase over the 3.1% growth rate for 2016, it still represents a slight downgrade of the IMF’s original forecast. That was triggered by a dampening of the economic outlook in the wake of the U.K. Brexit​ and a U.S. economy that didn’t grow as quickly as initially expected. (For more, see Brexit’s Effect on the Market.)

While global markets were shaken after the recent presidential election, they’ve more or less rebounded. However, now that the Federal Reserve has raised interest rates by 0.25%, the second increase in a decade, there may be a dampening effect on stocks. Taken together, those factors could work to quell the real estate market to a degree, as well. Investors may need to consider how foreign markets may be affected by a global slowdown and what that could mean for U.S. real estate.

3. New Home Construction Will Regain Steam

After a period of slowdown, 2017 looks like it may be the year that housing starts begin to climb once again. Kiplinger’s predicts that single-family-housing starts will rise 11% in 2017, up from the 9% increase estimated for 2016. With inventory 4.3% lower than it was a year ago and home prices continuing to rise, there’s an opportunity for builders to fill the gap in demand.

Commercial construction is also expected to see some positive growth in the new year. According to Dodge Data & Analytics, U.S. construction starts will grow by 5% for 2017, totaling $713 billion. That’s an improvement over the 1% increase in commercial construction reported for 2016, although it falls short of the 11% gain reported in 2015. While the increases on both the residential and commercial sides are modest, they’re still a positive for investors whose focus is on ground-up properties.

4. Optionality Will Reshape the Way Properties Are Used

The sharing economy has had an impact on the way people work, vacation or simply catch a cab, and it’s also leaving its imprint on the real estate market. According to the Urban Land Institute (ULI), optionality is adding a new dimension to the way that property investors – and their tenants – define the use for a particular space.

Co-living is perhaps the most visible example of this phenomenon. Companies such as Common, WeLive and Commonspace are putting a new spin on apartment living by offering units that combine private living space with communal areas for cooking, dining and socializing. A 2017 forecast for the U.S. and Canada done by ULI and PWC features optionality front and center as developers seek to identify the best use for investment properties. (For more, see Is Cohousing Right for You?)

The Bottom Line

These are just some of the things set to influence commercial and residential real estate in 2017, and they may afffect some investors more than others. As the new year gets underway, reviewing your property investments while analyzing your goals for the next 12 months is a wise move. Understanding what trends are poised to take off can make it easier to spot potentially valuable investment opportunities going forward.

My Trading Journal: 30 Day Trading Journal

Published at Sat, 17 Dec 2016 11:00:00 +0000

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The Reverse Mortgage: Lifesaver or Albatross?


The Reverse Mortgage: Lifesaver or Albatross?

By Pam Krueger | December 13, 2016 — 2:27 PM EST

[Pam Krueger is the founder of WealthRamp” and co-host of “MoneyTrack” on PBS. The national spokesperson for The Institute for the Fiduciary Standard, she is a featured columnist for Investopedia. The views expressed by columnists are those of the author and do not necessarily reflect the views of Investopedia.]

Millions of retirees are wondering whether they’ll have enough money to last them through life. Many are looking for some way to generate an additional safe stream of income. One likely source is the biggest piggy bank they have: their homes. Home equity is the biggest asset for the vast majority of families in the U.S., many of whom reach retirement house-rich but cash-poor. So it’s no wonder they show interest when someone mentions a reverse mortgage.

The mere thought of a reverse mortgage may conjure up mental images of sketchy late-night TV ads featuring aging actors pitching seniors the dream of remaining in their own home with complete financial security forever. That “forever” should be taken literally: It’s far easier to get into a reverse mortgage than it is to get out of one. The only way out – unless you suddenly come into money – is to sell your home and pay off the balance, including all the fees and interest. This is such an expensive proposition in most cases that people who investigate the option generally find that they will be left with nothing if they try to get out by selling their home.

And sketchy is not necessarily the wrong impression. The Consumer Financial Protection Bureau (CFPB) just took action against three reverse mortgage lenders – American Advisors Group, Reverse Mortgage Solutions, and Aegean Financial – for deceptive advertising, including “claiming that consumers could not lose their homes.” Collectively, the three were assessed fines of $790,000. For more on what can happen, see Beware of These Reverse Mortgage Scams.

Still the prospect of financing retirement by drawing on the equity in your home is tempting. And for some people, it works.

Here’s What a Reverse Mortgage Can Do

A reverse mortgage is exactly that: a mortgage that works in reverse. You borrow money against the value of your home (the “mortgage” part), but in this case you don’t make monthly payments to gradually shrink the loan balance. Instead, the mortgage balance grows as interest is added onto the money you borrowed (the “reverse” part). The lender is paid back by selling your home after you’ve passed away.

All homeowners age 62 or over whose home is either paid off or “paid down a considerable amount” (in the words of the U.S. Department of Housing and Urban Development website) can consider a reverse mortgage if the home is their principal residence.

Who Sells Reverse Mortgages?

You may not be familiar with the companies that offer reverse mortgages; they tend to be finance companies and small banks that specialize in mortgage lending. Some of the country’s biggest banks, including Wells Fargo, are now out of the reverse mortgage business, and names like Quicken Loans, American Advisors Group and Home Point Financial (although I am not advocating for any of these options) are the go-to firms.

And it’s no wonder a reverse mortgage sounds like the ideal answer to any retiree’s cash flow issues. Imagine: You get to stay in your own home and live out your life on your own terms. Plus, unlike a Home Equity Line of Credit, a reverse mortgage can’t be reduced, canceled or frozen.

There are more government protections in place now for reverse mortgages than there were just a few years ago. Most are FHA-insured under the Home Equity Conversion Mortgage (HECM) program, but not all are. FHA-insured loans carry one key benefit: If the balance left on the loan is more than what your home sells for, you or your heirs don’t owe the difference. This is vital because if you’re leaving your children a reverse mortgage to deal with, the last thing you want to do is saddle them with debt.

To ensure that you get the safest contract possible, only do business with an FHA-approved lender under the HECM program. The HECM program also enables you to buy a primary residence if you have enough cash on hand to pay the difference between the proceeds of the loan and the sales price, plus the closing costs. You can search the FHA’s database here to find approved lenders.

Here Comes the Bad News…

Maybe this is starting to sound like the solution to your financial problems in retirement, but here’s the big question: How large a legacy do you want to leave for your heirs? A reverse mortgage will take your home out of your estate unless you children can redeem it from the bank.

Also be aware that taking out a reverse mortgage is not free. One of the violations the CFPB cited the lenders for was saying that borrowers would have “no payments.” Borrowers may be getting money, but these mortgages definitely also require payments. For example:

  • Mortgage insurance premium of 0.5% or 2.5%, depending on how much money you borrow, plus 1.25% of the outstanding balance each year
  • Third-party charges such as appraisal, title search, survey, inspection, recording, and credit check fees, mortgage taxes, and insurance
  • Origination fee to process the loan, which can be the greater of $2,500 or 2% of the first $200,000 of the home’s value, plus 1% of anything over $200,000, but no more than $6,000
  • Monthly servicing fee. For loans with a fixed interest rate or with an interest rate that adjusts annually, the fee can be up to $30, and loans that adjust monthly can run $35 per month.
  • Interest, which varies depending on the interest rate you get on the loan
  • Property taxes, home maintenance and property insurance: To keep your reverse mortgage, you are responsible for paying these.

Pay special attention to this last point: If you can’t afford to pay the taxes and insurance on your home and keep it in good repair, a reverse mortgage gives the lender the right to take it away from you.

Another big pitfall is when the person living with you is not a co-signer on the loan, such as your spouse, partner or child. The reverse mortgage must be paid off in full when the mortgage holder (or holders) vacate the home, whether it’s because you pass away or because you must move to a nursing home for more than 12 months, which is considered a permanent move.

If the person living with you isn’t on the reverse mortgage, he or she will either have to move if you move (or die) – or pay off the loan using funds from another source. Reverse Mortgage: Could Your Widow(er) Lose the House? explains the details.

Five Scenarios When a Reverse Mortgage Could Work for You

The amount you may borrow depends on the age of the youngest person on the loan, the current interest rate and the lesser of either your home’s appraised value, the HECM FHA mortgage limit of $625,500 or the sale price of the home.

This means that if your home is worth more than $625,500, you’re better off downsizing. You won’t get more than that out of your home and you still have to pay the property taxes and insurance every year. The higher the value of the home, the higher the taxes and insurance will be.

All these conditions make a reverse mortgage a bad fit for many people, but here are five situations where that’s not the case:

  1. You didn’t save enough for retirement, need to supplement your income and have no other way to get by.
  1. You have no children – or your children are financially well-off and don’t need to inherit your home.
  1. You are in good health now and are willing to gamble you’ll stay that way.
  1. You’re sure you will live in the home for the rest of your life.
  1. You’ve gone through a divorce and need cash to divide the marital housing asset. The spouse remaining in the home could take a reverse mortgage to buy out the other spouse. Another possibility is to sell the marital home: Each ex-spouse can then use some of the proceeds from their half of the home sale, put enough equity into a new home and get a reverse mortgage on it.

Which Type of Reverse Mortgage?

Reverse mortgages come in various forms, with various types of payment plans. How to Choose a Reverse Mortgage Payment Plan explains the options. Be sure you get the type that fits your life situation the best.

The Bottom Line

Before you do anything, sit down with a fee-only fiduciary advisor and do some modeling using powerful what-if software such as MoneyGuidePro. If the numbers make sense, the next step is to meet with an HECM counselor, which the FHA requires of everyone who is considering a reverse mortgage – another sign of how complicated the process is. You can search the database here to find one in your area.  That counselor will review the options and help you decide if any of them is a good decision for you.
Published at Tue, 13 Dec 2016 19:27:00 +0000

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2017 Housing Forecasts


2017 Housing Forecasts

by Bill McBride on 12/05/2016 12:59:00 PM

Towards the end of each year I collect some housing forecasts for the following year.  It looks like analysts are optimistic on New Home sales for 2017.

First a review of the previous four years …

Here is a summary of forecasts for 2016. In 2016, new home sales will probably be around 565 thousand, and total housing starts will be around 1.175 million.  Fannie Mae and Merrill Lynch were very close on New Home sales, and MetroStudy was close on starts.

Here is a summary of forecasts for 2015. In 2015, new home sales were 501 thousand, and total housing starts were 1.112 million.  Zillow, CoreLogic, and the MBA were right on with New Home sales, and CoreLogic, MetroStudy, MBA and Zillow were all correct on starts.

Here is a summary of forecasts for 2014. In 2014, new home sales were 437 thousand, and total housing starts were 1.003 million. No one was close on New Home sales (all way too optimistic), and Michelle Meyer (Merrill Lynch) and Fannie Mae were the closest on housing starts (about 10% too high). In 2014, many analysts underestimated the impact of higher mortgage rates and higher new home prices on new home sales and starts.

Here is a summary of forecasts for 2013. In 2013, new home sales were 429 thousand, and total housing starts were 925 thousand.  Barclays was the closest on New Home sales followed by David Crowe (NAHB).  Fannie Mae and the NAHB were the closest on housing starts.

The table below shows several forecasts for 2017:

From Fannie Mae: Housing Forecast: November 2016

From Freddie Mac: Interest Rates Headed Higher. What that Means for Housing

From NAHB: NAHB’s housing and economic forecast

From Wells Fargo: Monthly Economic Outlook

From NAR: U.S. Economic Outlook: November 2016

Note: For comparison, new home sales in 2016 will probably be around 565 thousand, and total housing starts around 1.175 million.

Housing Forecasts for 2017
New Home Sales (000s) Single Family Starts (000s) Total Starts (000s) House Prices1
Bloomberg 1,250
Blue Chip 1,260
CoreLogic 4.7%
Fannie Mae 671 883 1,308 4.8%2
Freddie Mac 1,260 4.7%2
Goldman Sachs 648 893 1,333 3.7%
HomeAdvisor5 614 893 1,236 3.5%
Merrill Lynch 625 825 1,225 3.2%
MBA 860 1,268
NAHB 647 873 1,258
NAR 623 838 1,221 4.2%3
Wells Fargo 600 830 1,170 4.4%
Zillow 3.6%4
1Case-Shiller unless indicated otherwise
2FHFA Purchase-Only Index
3NAR Median Prices
4Zillow Home Prices
5Brad Hunter, chief economist, formerly of MetroStudy


by Bill McBride on 12/05/2016 12:59:00 PM

My Trading Journal: 30 Day Trading Journal

My Trading Journal: 30 Day Trading Journal

Published at Mon, 05 Dec 2016 17:59:00 +0000

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Public and Private Sector Payroll Jobs: Carter, Reagan, Bush, Clinton, Bush, Obama

People wait in line to enter the Nassau County Mega Job Fair at Nassau Veterans Memorial Coliseum in Uniondale, New York, U.S. October 7, 2014. REUTERS/Shannon Stapleton/File Photo

People wait in line to enter the Nassau County Mega Job Fair at Nassau Veterans Memorial Coliseum in Uniondale, New York, U.S. October 7, 2014. REUTERS/Shannon Stapleton/File Photo

Public and Private Sector Payroll Jobs: Carter, Reagan, Bush, Clinton, Bush, Obama

by Bill McBride on 12/02/2016 01:00:00 PM

 By request, here is another update of an earlier post through the November 2016 employment report including all revisions.  And, yes, I will post these graphs during the next Presidential term.
NOTE: Several readers have asked if I could add a lag to these graphs (obviously a new President has zero impact on employment for the month they are elected). But that would open a debate on the proper length of the lag, so I’ll just stick to the beginning of each term.

Note: We frequently use Presidential terms as time markers – we could use Speaker of the House, or any other marker.

Important: There are many differences between these periods. Overall employment was smaller in the ’80s, however the participation rate was increasing in the ’80s (younger population and women joining the labor force), and the participation rate is generally declining now.  But these graphs give an overview of employment changes.

First, here is a table for private sector jobs. The top two private sector terms were both under President Clinton.

The third best growth for the private sector is Obama’s 2nd term.

Reagan’s 2nd term saw about the same job growth as during Carter’s term.  Note: There was a severe recession at the beginning of Reagan’s first term (when Volcker raised rates to slow inflation) and a recession near the end of Carter’s term (gas prices increased sharply and there was an oil embargo).

Term Private Sector
Jobs Added (000s)
Carter 9,041
Reagan 1 5,360
Reagan 2 9,357
GHW Bush 1,510
Clinton 1 10,884
Clinton 2 10,082
GW Bush 1 -811
GW Bush 2 415
Obama 1 1,921
Obama 2 9,4881
146 months into 2nd term: 9,901 pace.

The first graph shows the change in private sector payroll jobs from when each president took office until the end of their term(s). Presidents Carter and George H.W. Bush only served one term, and President Obama is in the final months of his second term.

Mr. G.W. Bush (red) took office following the bursting of the stock market bubble, and left during the bursting of the housing bubble. Mr. Obama (blue) took office during the financial crisis and great recession. There was also a significant recession in the early ’80s right after Mr. Reagan (yellow) took office.

There was a recession towards the end of President G.H.W. Bush (purple) term, and Mr Clinton (light blue) served for eight years without a recession.

Private Sector PayrollsClick on graph for larger image.

The first graph is for private employment only.

The employment recovery during Mr. G.W. Bush’s (red) first term was sluggish, and private employment was down 811,000 jobs at the end of his first term.   At the end of Mr. Bush’s second term, private employment was collapsing, and there were net 396,000 private sector jobs lost during Mr. Bush’s two terms.

Private sector employment increased slightly under President G.H.W. Bush (purple), with 1,510,000 private sector jobs added.

Private sector employment increased by 20,966,000 under President Clinton (light blue), by 14,717,000 under President Reagan (yellow), and 9,041,000 under President Carter (dashed green).

There were only 1,921,000 more private sector jobs at the end of Mr. Obama’s first term.  Forty six months into Mr. Obama’s second term, there are now 11,409,000 more private sector jobs than when he initially took office.

Public Sector Payrolls A big difference between the presidencies has been public sector employment.  Note the bumps in public sector employment due to the decennial Census in 1980, 1990, 2000, and 2010.

The public sector grew during Mr. Carter’s term (up 1,304,000), during Mr. Reagan’s terms (up 1,414,000), during Mr. G.H.W. Bush’s term (up 1,127,000), during Mr. Clinton’s terms (up 1,934,000), and during Mr. G.W. Bush’s terms (up 1,744,000 jobs).

However the public sector has declined significantly since Mr. Obama took office (down 334,000 jobs). This has been a significant drag on overall employment.

And a table for public sector jobs. Public sector jobs declined the most during Obama’s first term, and increased the most during Reagan’s 2nd term.

Term Public Sector
Jobs Added (000s)
Carter 1,304
Reagan 1 -24
Reagan 2 1,438
GHW Bush 1,127
Clinton 1 692
Clinton 2 1,242
GW Bush 1 900
GW Bush 2 844
Obama 1 -708
Obama 2 3741
146 months into 2nd term, 390 pace

Looking forward, I expect the economy to continue to expand through the two months of Mr. Obama’s presidency, so I don’t expect a sharp decline in private employment as happened at the end of Mr. Bush’s 2nd term (In 2005 and 2006 I was warning of a coming down turn due to the bursting of the housing bubble – and I predicted a recession in 2007).

For the public sector, the cutbacks are over.  Right now I’m expecting some further increase in public employment during the last months of Obama’s 2nd term, but obviously nothing like what happened during Reagan’s second term.

Below is a table of the top four presidential terms for total non-farm job creation.

Currently Obama’s 2nd term is on pace to be the 3rd best ever for private job creation.  However, with very few public sector jobs added, Obama’s 2nd term is only on pace to be the fifth best for total job creation.

Note: Only 374 thousand public sector jobs have been added during the forty six months of Obama’s 2nd term (following a record loss of 708 thousand public sector jobs during Obama’s 1st term).  This is about 25% of the public sector jobs added during Reagan’s 2nd term!

Top Employment Gains per Presidential Terms (000s)
Rank Term Private Public Total Non-Farm
1 Clinton 1 10,884 692 11,576
2 Clinton 2 10,082 1,242 11,312
3 Reagan 2 9,357 1,438 10,795
4 Carter 9,041 1,304 10,345
5 Obama 21 9,488 374 9,862
Pace2 9,901 390 10,291
146 Months into 2nd Term
2Current Pace for Obama’s 2nd Term

The last table shows the jobs needed per month for Obama’s 2nd term to be in the top four presidential terms. Right now it looks like Obama’s 2nd term will be the 3rd best for private employment (behind Clinton’s two terms, and ahead of Reagan) and probably 5th for total employment.

Average Jobs needed per month (000s)
for remainder of Obama’s 2nd Term
to Rank Private Total
#1 698 857
#2 297 731
#3 -66 467
#4 -224 242


by Bill McBride on 12/02/2016 01:00:00 PM

My Trading Journal: 30 Day Trading Journal

My Trading Journal: 30 Day Trading Journal

Published at Fri, 02 Dec 2016 18:00:00 +0000

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