Yajnesh Rai

Report: U.S. Needs 7.3 Million More Homes | Realtor Magazine

Housing construction has not kept pace with population growth in the U.S. for more than a decade, and in order to stymie shortages across the nation, builders will need to construct 7.3 million more homes, according to a new report. The Up for Growth National Coalition, a group of real estate developers, owners, and builders of affordable housing, finds that since 2000, builders in about 22 states and the District of Columbia have not constructed enough homes to sustain population growth. 

California is the most in need of new housing, having built 3.4 million fewer homes than necessary to support its population during this time period, the report notes. Other states are also grappling with a shortage of buildable lots, labor, and materials. “As we dug into the numbers behind this, at a local market level, we’re seeing a pronounced affordability challenge in places like Arizona,” Mike Kingsella, executive director of the Up for Growth National Coalition, told The Wall Street Journal. While Arizona and Utah are facing housing shortages, the report credits the problem to strong buyer demand among retirees and other growing population groups rather than too few buildable lots. 

Home construction per household is near the lowest level in 60 years, John Rappaport, an economist at the Federal Reserve Bank of Kansas City, told the Journal. But some economists are cautious about the report’s findings, noting that most people who have trouble finding a home will work out different living arrangements, such as doubling up with family members or roommates. They also might decide to move to areas where homes are more abundant, prompting a population shift, the Journal reports. 

Debt-to-Income Ratios Rising Among Buyers | Realtor Magazine

About one in five conventional mortgage loans issued this winter went to borrowers who spent more than 45 percent of their monthly incomes on their mortgage payment and other debts. This is the highest proportion since the housing crisis, according to CoreLogic, a real estate data firm. Further, that is nearly triple the proportion of such loans issued in 2016 and the first half of 2017. 

Real estate professionals told WSJ that they are concerned a growing number of buyers are becoming priced out of the housing market. Besides rising home prices, the average 30-year fixed-rate mortgage has increased to 4.40 percent, compared to 3.95 percent at the beginning of the year, according to Freddie Mac. 

Rising mortgage rates “are working against affordability and that’s why you get the pressure to ease credit standards,” says Doug Duncan, Fannie Mae’s chief economist. That’s leading mortgage financing giants Fannie Mae and Freddie Mac to test programs aimed at making homeownership more affordable. For example, they’re experimenting with backing loans made by lenders who agree to help pay down a buyer’s student loan debt or programs that ease standards so that self-employed borrowers can get a mortgage more easily. Also, last summer, Fannie Mae and Freddie Mac started to back a greater number of loans from borrowers with debt-to-income ratios of up to 50 percent (45 percent was usually the typical limit prior). Fannie’s new policy has added 100,000 new mortgages that wouldn’t have otherwise been made last year and early this year, according to the Urban Institute. 

But housing analysts say that lenders need to be careful in opening the credit box too much, as such actions helped exacerbate the last housing crisis. Still, the share of new buyers with debt-to-income levels in the 46 percent to 50 percent range remains well below the peak of 37 percent in 2007. However, it is nearing the levels of 2004 to 2005, CoreLogic notes. Another differentiating factor is that borrowers today tend to have a better credit history and higher credit scores (700 or more), according to Inside Mortgage Finance. 

More Millennials Turn to Bank of Mom, Dad | Realtor Magazine

Rising home and rental costs are pressing millennials to expect more from their parents. About 17 percent of millennials—those born between 1981 and 1996—expect their parents to help them with their first down payment on a home, according to a report by Apartment List, based on about 13,000 responses. 

The Apartment List survey also showed about 8 percent of millennials who are not students get some form of financial help from their parents to cover monthly rent; one-third of those renters have their rent paid in full by their parents. 

Mike McCann, a real estate professional with Berkshire Hathaway HomeServices Fox & Roach in Philadelphia, says he’s seen an uptick in parental involvement when working with young adults on a home purchase. Often, he says the help is through a gift letter or a documented cash down payment gift that is part of a loan application. 

But research from the National Association of REALTORS® shows the number of young adults needing this type of assistance could be much higher. Nearly a quarter of buyers under the age of 38 used a gift from a friend or a relative to help with a down payment, according to the association’s generational trends study, released last month. 

Jessica Lautz, NAR’s director of survey research and communications, told Philly.com that one of the key indicators that more young people are relying on their parents for financial help is that one in five millennials move directly from their parents’ home into homeownership. That is the highest rate in the last 30 years, according to NAR. 

“Rents are very expensive in many areas of the country, so by skipping having to pay rent and being able to live at home, you’re able to save for a down payment faster,” Lautz says. 

Student loan debt is also an important factor. Eight in 10 student loan borrowers say they weren’t able to save for a down payment on a home purchase because of their loans, according to NAR research. More than half couldn’t qualify for a mortgage because their debt-to-income ratio is too high. 

How to Triumph in a Bidding War | Realtor Magazine

With a record low number of listings this spring, more buyers may be finding themselves in a bidding war for the home they want. CNBC recently highlighted a few tips on how buyers can be successful in a bidding war, including: 

Set the maximum price from the start. Home shoppers should factor in the monthly mortgage payment, property taxes, homeowners insurance, and any homeowner association or condo fees. They’ll want to arrive at a general estimate of maintenance for the home, too, such as lawn care and repairs. When the bidding gets too high, buyers need to be prepared to walk away. 

Pay with cash. An all-cash offer is an advantage in a bidding war. Buyers who come with cash double their chances of winning at a bidding war, according to the real estate brokerage Redfin. Some buyers will even pay all cash to win the home and then take out a mortgage after the deal closes. 

Waive the financing contingency. Buyers who waive a contingency on their loan having to be approved by a lender first may better their chances. But this can be a gamble. Home buyers need to be careful that they don’t end up having to pay in cash if the loan doesn’t go through. Buyers should get a fully underwritten loan preapproved from a lender prior to submitting an offer. They’ll stand to possibly up their chances of winning a bidding war by 58 percent with a preapproval, according to Redfin’s analysis. 

Write a personal letter to the seller. Buyers can try to appeal to sellers’ emotions and let them know that they intend to take good care of their home. Young families may write about how they intend to raise their children in the home and the life they envision there. CNBC suggested not writing about how you intend to remodel the home or do a complete makeover. Read more: This Bidding War Was Won With a Music Video

Another Week of Mostly Flat Mortgage Rates | Realtor Magazine

 

Borrowing costs haven’t budged much in recent weeks, offering some relief from the weekly rate increases that had almost become routine at the start of 2018.

“Mortgage rates have been holding steady over the past two months,” says Len Kiefer, Freddie Mac’s deputy chief economist. “Rates have bounced around 4.4 percent since mid-February. Rates could break out and head higher if inflation continues to firm. … If inflation continues to trend higher, we may see two or three more rate hikes from the Fed this year, and mortgage rates could follow. For now, mortgage rates are still quite low by historical standards, helping to support homebuyer affordability as the spring home buying season ramps up.”

Freddie Mac reports the following national averages with mortgage rates for the week ending April 12:

• 30-year fixed-rate mortgages averaged 4.42 percent, with an average 0.4 point, up from last week’s 4.40 percent average. Last year at this time, 30-year rates averaged 4.08 percent. 
• 15-year fixed-rate mortgages averaged 3.87 percent, with an average 0.4 point, holding the same average as last week. A year ago, 15-year rates averaged 3.34 percent. 
• 5-year hybrid adjustable-rate mortgages averaged 3.61 percent, with an average 0.3 point, dropping from last week’s 3.62 percent average. A year ago, 5-year ARMs averaged 3.18 percent. 

Chinese Investors Unfazed—For Now | Realtor Magazine

President Donald Trump has threatened to impose a tax on steel and aluminum from China and other countries. Both sides have threatened to impose tariffs on multiple products. In reaction, the stock market has been volatile. But will the trade disputes leave Chinese buyers skittish about U.S. real estate? 

“At this point, most Chinese buyers are cautiously optimistic,” Carrie Law, CEO of Juwai.com, a Chinese international real estate website, told RISMedia. “From all sides, you hear that this trade war is not likely to escalate to the point where it is a serious threat to international trade and relations. At this stage, most property investors seem to feel the trade war will amount to no more than a noisy argument between two friends who later will hug and make up.” 

Learn more about working with Chinese buyers.

However, Law acknowledges that a persistent trade dispute between the two sides may cast doubts in consumers’ minds that could then reduce demand for U.S. properties. “The long-term fear is counterbalanced for now by a short-term incentive to purchase before Sino-U.S. relations possibly get worse,” she says. 

Indeed, Law says Chinese buyer demand for U.S. real estate was up 26.2 percent in March month over month, based on buyer inquiries made through Juwai.com. 

In 2017, Chinese buyers made up $31.7 billion of U.S. real estate purchases made by international buyers, up from $12 billion in 2012, according to the National Association of REALTORS®’ Profile of International Activity in U.S. Residential Real Estate. 

Desperate Buyers Snag Homes Sight Unseen | Realtor Magazine

Some home shoppers are feeling hopeless this spring and making competitive moves in order to get a home. They’re reportedly rushing to making offers without seeing homes first, bidding well above the asking price, or waiving inspections entirely to get sellers to find their offer the most alluring. 

“For home buyers, this is shaping up to be one of the most difficult years in recent memory,” says Ralph McLaughlin, chief economist of Veritas Urbis Economics, a firm that researches the housing market. 

Record low supplies of homes for sale are driving up prices across the country.

As for sellers, they may find some big profits when they do sell. “It’s going to have the feel of a hot market” with multiple offers and bidding wars, says Lawrence Yun, the chief economist for the National Association of REALTORS®. 

Still, Yun expects sales to be flat compared to a year ago due to the shortage of homes for sale as well as reduced affordability for many house hunters. 

There was a 3.4-month supply of existing homes nationwide in February—the lowest on record for a February, NAR reports. The median home price, meanwhile, was up 5.9 percent from a year earlier to $241,700, according to NAR. Yet, average yearly income growth has held at about 2.5 percent. 

San Francisco Prices Surged $100k in 3 Months | Realtor Magazine

San Francisco homeowners and buyers are seeing some of the biggest price jumps in recent months. The median price for a single-family home in the city increased $100,000. Prices have reached an all-time high of $1.6 million, according to the Paragon Real Estate Group in San Francisco. For comparison, the median home price nationwide was $279,900 on March 1, according to realtor.com®.

Home prices in San Francisco increased nearly 24 percent in the first quarter of this year compared to a year ago. 

“We didn’t see this coming,” says Patrick Carlisle, Paragon’s chief marketing analyst. “I don’t think I’ve ever seen this kind of jump.” 

Housing analysts say the big jump in San Francisco prices is due to the limited number of homes for sale. Plus, the city is on a peninsula, so builders don’t have much more room to build on to add inventory. Existing homeowners are showing some reluctance to sell. 

“There’s just a trickle of new listings coming on the market, and they’re snapped up almost immediately,” Carlisle says. “We’ve had situations where there are 10 to 20 offers on a new listing, sometimes even more. Multiple offers are the norm, and sometimes there are frenzied bidding wars.”

And for $1.6 million, buyers need to keep their expectations in check. In San Francisco, the median price for a single-family home will buy you a moderately sized home with a few bedrooms and two bathrooms—nothing too prestigious, housing analysts say. 

Home Buyers Are Blowing Their Budgets | Realtor Magazine

A recent survey found that buyers are spending more on their home purchase than they intended. A third of homeowners recently surveyed say that they blew through the upper limit of their home purchase budget by an average of $16,510, according to a new survey released by Owners.com of 1,214 Americans who purchased a home in the last four years. 

A big part of the problem is the increasing costs of buying, particularly for starter homes. “Clearly, we’re in an environment of rising prices,” Daniel Maloney, national head of sales for real estate brokerage Owners.com, told USA Today.

Millennials are the most likely to overspend on their home purchase. Maloney says that is because they tend to be first-time home buyers and the least knowledgeable about setting a realistic price target that they can meet. Here’s how much the different age groups tended to overspend on their home purchases:

• 40% of millennials went over budget by an average of $24,545;
• 34% of Generation X members went over budget by an average of $13,996;
• 19% of baby boomers went over budget by an average of $8,024

The Owners.com survey also found that Generation X members tend to be the most self-directed when purchasing a home, while millennials tend to be the most reliant on their real estate agents for direction. Nearly one in five of millennials—or 19 percent of those surveyed—admitted they can be indecisive at times and rely on their agent to tell them what they should be considering and touring. 

Are Prepaid Property Taxes Deductible? | Realtor Magazine

April 17 is the tax deadline, and tax advisers still can’t agree on whether prepaid 2018 property taxes can be deducted in full. Congress passed a tax reform bill late last year, capping write-offs for state and local taxes at $10,000 per return for single filers and married couples. 

The move set off a rush of homeowners at the end of the year to prepay their property taxes for 2018 ahead of the tax bill taking effect this year. 

The overhaul “barred deductions for many prepayments of 2018 state and local income taxes, but it was silent on deductions of prepaid property taxes,” The Wall Street Journal reports. 

On Dec. 27, the IRS had warned prepaying owners that not all prepayments of 2018 property taxes would be deductible on 2017 returns. To be eligible for a write-off, the owners must have known their tax liability at the time of payment, the IRS stated. 

But some tax specialists disagreed with the IRS’ assessment that you can only deduct the portion that was known or determined at the time. Others argued you could still make the prepaid deductions as long as they were based on reasonable estimates. They assert that prior tax rulings and regulations support this argument too. 

“If the amount is a reasonable estimate made in good faith, it’s deductible,” asserts Stephen Baxley, who heads tax planning for Bessemer Trust, a multifamily office.

But other tax officials say they’re closely following the IRS’ guidance. “We think the amount due must be determined for a prepayment to be deductible,” says Brian Lovett, a certified public accountant with WithumSmith+Brown in New Jersey. 

Some accountants say they’re doing both. David Lifson, a CPA with Crowe Horwath, says he recommends clients deduct prepayments of known amounts. But he will allow a deduction of an estimate “if I feel the client understands the risk that the IRS will disagree.”