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Was the Stock Market Correction Two Weeks Ago A Gift? Real Estate Experts Claim to Think So. Here Are The Facts:
According to John Smoke, chief economist for Realtor.com, the official site of the National Association of REALTORS, the stock market correction has been a gift for the housing market due to low interest rates and the window of time before rates move up again. We wonder - how will the housing market be affected when the stock market is no longer in correction mode?
The GDP grew at a rate of 3.7 percent in the second Q2 estimate, way above forecasts, and most housing metrics have been positive as of late. . .how are housing and the economy going to work together for the remainder of 2015 and 2016 to buoy each other up?
Housing and the economy are finally in a supportive, virtuous cycle again. The economic growth we’ve seen over the last two years has provided the context for the healthy growth in home sales and the recovery of prices we have experienced this year. Higher prices are a result of surging demand with tight supply, which is finally resulting in more growth in single-family construction. Historically, new construction and housing services contribute 18 percent of the US economy. That contribution has been lower while new construction was depressed and while the housing sector worked through the distress brought on by the foreclosure crisis. Housing’s contribution is on the rise again, just in time to offset the drag from lower oil production and lower exports caused by the strong dollar.
More job creation, higher consumer confidence, and an increasing pace of household formation all lead to more demand for housing, keeping that virtuous cycle going.
Before Greece and then China rattled global stock markets, mortgage rates were already on the move. The 30-year fixed conforming rate has seen more than 50 basis points of movement in 2015, touching 4.2 percent briefly in June. The upward moves followed clear data that the US economy was strong and growing in the second quarter. But China’s weakness, and the easing of monetary policies in China and by other Asian countries strengthened the dollar and drove demand for US treasuries, driving yields down and mortgage rates with them. The selloff in stocks had the same effect—producing more demand for treasuries and lowering yields and mortgage rates.
At the beginning of this year, forecasters expected mortgage rates to be higher than they are now, so rates now in September remaining at such low levels is truly a gift for every buyer. The number one issue holding back would-be buyers this year has been tight supply. Now that school has started, frustrated buyers who haven’t been able to purchase have the most choices they’ve had all year and they haven’t missed the opportunity to lock in rates near their lows. I expect that will produce a much stronger fall as a result.
"The various mortgage metrics today suggest that today’s investor is looking for every reason not to make a loan."
As economic data continue to confirm that the U.S. economy is seeing solid and consistent growth, rates should resume their ascension. I wouldn’t be surprised in we challenge the June peak before the year is over.
The stock market doesn’t always move in reflection of the underlying strength of the U.S. economy, and the recent selloff is one of those corrections historically that are mostly about bringing down stock valuations. When the market is on consistent positive footing again, mortgage rates will likely move up.
What will be the short and long term effects on the mortgage industry if the Fed chooses not to raise interest rates in September?
Mortgage rates have already been ignoring the Fed. Despite the official target remaining at zero, we’ve already seen mortgage rates move up. I don’t really think the September decision—either way—will have much of an effect. The August employment data will likely cause more movement in mortgage rates than the official September policy announcement.
The Fed tried to increase mortgage rates in 2005 and 2006 to cool off the housing market. Over those two years, the target Federal Funds Rate was increased 300 basis points, from 2.25 to 5.25. Those moves only produced about 100 basis points of movement in mortgage rates, and that’s looking at the highest average monthly rate compared to the lowest average monthly rate. Overall the average 30 year conforming mortgage rates was under 6.2 percent in December 2006 even though the Federal Funds Target range was 5.25-5.25. The 30-year fixed rate in January 2005 averaged 5.7 percent.
Mortgage rates reflect global demand for U.S. bonds, and market volatility and global economic concerns make those bonds all the more attractive to a wider audience than just our Fed.
That said, I do think moderately higher rates are inevitable due to continued economic expansion and a tightening U.S. labor market. In housing, we’ve witnessed firsthand what happens when excess supply turns into limited supply—prices appreciate well above normal historical experience. The Fed seems intent on making sure inflation won’t flare up, and managing short term rates is their primary tool for controlling inflation.
I believe that modestly higher interest rates will help rather than hurt housing and the mortgage industry. Higher rates will provide banks and investors with more profit incentive to grow purchase mortgages, leading to more competition and wider credit access than we have today.
The various mortgage metrics today suggest that today’s investor is looking for every reason not to make a loan. When the potential rewards finally outweigh the potential risks, we’ll have more purchase originations even though the costs to consumers will be marginally higher. Today’s historically low rates don’t matter much to the households who can’t—or perceive they can’t—qualify.
So You're really REALLY Ready to Purchase a House? Here Are Here are 9 Pros and Cons of Buying a Property
Weigh the pros and cons of buying a house before jumping into the real estate market. Tell me if you've heard the following internal/external dialogue as you determine whether you're ready...
Stop the one-sided, one-way conversation in your head and read these pros and cons of buying a house to decide what’s right for you.
Pro: You can customize
Don't like the cabinets in your kitchen? Dying to turn that counter-top into a solid piece of granite? As a renter, you have limited ability to customize your surroundings. As a homeowner, you can make your home your canvas. Paint the walls, knock down a wall, create your dream kitchen — no one can tell you what you can or cannot do to your home. No one but your homeowners’ association, that is. :-) (oh, that cheeky homeowner's association)
Pro: Freedom to live how you want
Want to foster dogs, have seven cats, and have tunnels to navigate through your rooms? Go for it. Want to host a cookout on your deck? Start up the grill.
As a renter, you’re subject to your landlord’s rules about pets, outdoor spaces, and other lifestyle choices. As an owner, you can do almost anything, as long as it’s legal and you don’t disturb the neighbors. :-)
Pro: Financial perks
Being a homeowner can help you build up equity. You can also write off mortgage interest at tax time, get tax credits for certain improvements (such as energy-efficient windows), and turn your unused rooms into rental units for extra income.
Pro: Fixed monthly payments
As long as you are on a fixed-rate mortgage, your mortgage payments will remain steady (although in certain cases, they could go up. But long term, as inflation kicks in, you’ll repay your mortgage in cheaper dollars over time.
If you’re a tenant, unless you live in a rent-controlled area, your landlord can increase your rent anytime your lease is up for renewal. And if your lease is month-to-month, your landlord could legally raise the rent every 30 days.
Con: Less flexibility
If your circumstances or preferences change, you no longer have the flexibility to move quickly. As a renter, if you lose your job, realize you hate your neighborhood, or decide to move in with your significant other, you can move as soon as your lease expires (or plunk down whatever cash is necessary for an early lease termination).
If you own a home, by contrast, you’ll have to endure extensive additional expenses, hassle, and stress to sell (or rent out) your home before you can move to your next spot.
Con: Limited access to amenities
When you move to a house, you may not be able to access to-quality amenities you were accustomed to as a renter. You may have to say goodbye to that gym, swimming pool or valet trash service.
Con: More responsibility
As soon as a home is in your name, the maintenance and repair hassles are now your responsibility. That leaky faucet will no longer be magically fixed while you're at work, and you'll have to start mowing the lawn in the summer and shovel snow in the winter.
Con: More financial pressure
Owning a home is a long-term financial responsibility. If you’re a renter and you’re hit with a financial hardship, you can move into a less-expensive rental. As a homeowner, you’re stuck with your mortgage (or you can try a refinance). If the idea of paying a mortgage for 15 to 30 years makes you hyperventilate, you’re probably not ready for home-ownership.
Con: Costly surprises
As a homeowner, you face a lot of potentially expensive surprises, such as a roof that suddenly starts leaking or a sump pump that fails and lets your basement flood. As a renter, your biggest potential surprise expense is a rent hike when your lease is up for renewal — and if you don’t like the proposed rent increase, you can negotiate or move.
- See more at: http://www.trulia.com/blog/rent-buy/?ecampaign=cnews&eurl=www.trulia.com%2Fblog%2Frent-buy%2F#sthash.x3KSM2Iz.dpuf
Do You Also Wonder if the Recent Stock Market Scare Will Kick Start Real Estate Buying Spree?
Having worked in banking before I started my real estate, property management and property flipping endeavors - I've been wondering lately : will recent stock market scares create a new surge in real estate investment?
In August 2015, the stock market proved just how volatile and uncertain it can be. In spite of warning signs, many kept using stocks as the ‘easy’ option to invest. Even though many company’s stocks trade for ridiculous sums, people kept buying in. In a single day, the stock market saw $1.4 trillion in wealth eliminated. That was a Friday. When markets opened the following Monday, the market lost another trillion dollars. A single investor lost close to $4 billion in those couple of days. What’s ironic is that stocks really haven’t been delivering any amazing returns in recent years. Most may average a 5% to 10% return over the long haul. People can sometimes find close to those returns on certificates of deposit, with less volatility. Then there is real estate, which can offer better growth and yields, with even less downside. Hopefully millions will heed the warning and adjust their investments accordingly.
Everything may fluctuate over time: the value of properties, the value of companies, and even the value of the dollars in your wallet are all subject to change. The difference is that some things are more volatile than others. Some fluctuations are more predictable than others. It’s pretty easy to forecast real estate changes, and they are slow to move. Stocks, on the other hand, can plunge unexpectedly in a matter of hours. They lack the safety of physical properties. It is interesting to note that even in the lows, real estate can keep on throwing off almost the same amount of cash flow.
It’s Time to Freak Out and Sell Stocks
As the smart money exited the stock market and numbers plunged into the red, the headlines said not to panic or sell. That clearly means it was time to panic and get out for many. Depending on when you are reading this the market may have clawed back a few points, or dipped further. It’s smart to remember that little uptick before the real dive, and that these declines can go a lot deeper and longer than anyone likes to believe. There is no question in any analysts’ minds that the stock market is headed for a massive ‘correction’.
- See more at: http://www.cthomesllc.com/2015/08/stock-market-scare-to-kick-start-real-estate-buying-spree/#sthash.senimPlF.dpuf
After you've stayed in a home for several years and faithfully made a mortgage payment each month, you may wonder if it is a good time to refinance your loan. If you proceed with this option, you'll want to start by checking how much equity you have built up in the property.
Refinancing has the potential to save you a good deal of money or make the loan more manageable. Ilona Bray, writing for the legal site Nolo, says you may be able to enjoy some long-term savings by bringing the interest rate to a lower level. You can also change the type of mortgage from an adjustable-rate loan to a fixed-rate one, or vice versa.
If you want to lower your monthly payments, you can refinance to extend the payment period. This gives you more time to pay off the outstanding amount on your loan, which will be diminished by the equity you've built up in the home. However, you'll end up paying more in interest over the length of the loan.
A lender will consider factors such as your debt-to-income ratio, credit score, and your home's value in negotiating a new loan. You may also have to pay some of the same costs you did to apply for the original home loan, such as title insurance and appraisal fees.
Having some equity in your home will increase your chances of getting approved for refinancing. Fraser Sherman, writing for SFGate, says you're more likely to be approved for refinancing if you have at least 20 percent equity in your home.
However, the equity requirements will also vary depending on the type of loan. Marcie Geffner, writing for the mortgage research site HSH, says you can refinance with as little as 5 percent equity if you have mortgage insurance. You might even be able to refinance with negative equity through the Home Affordable Refinance Program, although this program is set to expire at the end of 2016.
There are a couple of refinancing options available for loans offered through the Federal Housing Administration. Streamline finances are available for loans already insured by the FHA and allow a borrower to refinance even if they have negative equity. Geffner says that since all FHA loans require mortgage insurance, it may not make sense to refinance through the FHA if you have built up equity of 20 percent or more.
Streamline refinancing is also available through the Department of Veterans Affairs. If you use this option, you'll need to have an existing VA loan and refinance into a new VA loan.
In some cases, you may be able to get a cash-out refinance. Bray says this occurs when you take out a new loan for more than you owe on your current mortgage, giving you the difference in cash to use on home renovations or for other purposes. However, you likely won't be approved for a cash-out refinance unless you have a significant amount of equity in the home.
Your ability to get cash-out refinancing largely depends on the loan-to-value ratio, or how the outstanding balance compares to the home's value. Geffner says an 80 percent loan-to-value ratio—or 20 percent equity in the home—is usually needed for cash-out refinancing in conventional loans. She says a standard FHA refinance can cash out with an 85 percent loan-to-value ratio, but that cashing out is not an option for streamline refinancing.
You'll also need more equity if you include closing costs as part of your new loan. If you don't pay these costs up front, you'll need to take out a slightly larger loan or get a higher interest rate to pay for them.
Bray says if the closing costs are significant for the refinancing, you'll want to consider whether you will actually save money by taking this action. If you're lowering your interest rate, determine how long it will take these savings to offset the closing costs. If you don't think you'll stay in the home for that period of time, refinancing will cost more than it will save.
Before you get an appraisal, you can get an idea of how much equity you have in your home by determining how your home's value has changed. You can do so by checking property tax records, sales of comparable homes, and news reports on home sales and prices in your region.
If you have any questions, let me know.
Don’t you want to paint your walls without worrying about the landlord?
With the current mortgage interest rate at historical low–under 4 percent for qualified borrowers– and affordable home prices, these are favorable conditions for first-time home buyers. In Manchester Connecticut, there is a huge inventory of homes under $250,000.
Take a look at this mortgage payment options and think why buying a multi-family will help you pay your mortgage to own your home and become your own landlord.
Furthermore, Currently, there are 36 Multi-Family Homes for sale in Manchester. Average List Price for this homes is $ 208,478 with average square feet of 2,821. The median list price which separates the higher half from the lower half is $189,950 with median square feet of 2,473. The average days on the market is 182 days.
Five New Haven Teens Win Economic Development Competition to make Downtown Profitable
me sales across Connecticut surged in June — registering double-digit gains — but the flurry of springtime buying and selling wasn't enough to lift prices, a new report Tuesday shows.
Home sales of single-family houses statewide soared by nearly 20 percent, to 3,368, from 2,799 for the same month a year ago, according to a report from The Warren Group, which tracks real estate trends in New England.
It was the fifth straight month of year-over-year gains in sales and the most robust month this year, Warren said. But the median sale price — in which half the sales are above, half below — fell 4.4 percent, to $264,000 from $277,000 a year earlier.
Through the first six months of the year, sales climbed by 12 percent, to 12,254, from 10,993 for the same period a year ago. The median price slid 2 percent, to $245,000, compared with $250,000, Warren said.
The median price has fallen in every month this year, except January when it was flat and March when it gained 3 percent, according to Warren Group.
"The Connecticut housing market is relatively healthy, but it's not going gangbusters," said Donald L. Klepper-Smith, an economist at DataCore Partners Inc. in New Haven.
Klepper-Smith said sales are being driven by homeowners choosing to sell their homes for less, putting downward pressure on the median sale price.
Connecticut's soft labor market, compared with other states, the aging of the state's population and rising state and local taxes are having a longer-term affect on the housing market, Klepper-Smith said.
Klepper-Smith said he doesn't foresee any big gains in prices in the next year or so, but he also doesn't see any big dip downward, either.
"Prices are going to muddle along," Klepper-Smith said. "There is nothing to suggest that we are returning to the peak of 2005 anytime soon."
Connecticut is now in the fourth year of a housing recovery. ( Whoo Hoo!!!)
Timothy J. Warren Jr., Warren Group's chief executive, projects that sales will continue to rise through this year and into next. But significant increases in prices may not come until 2016, Warren said.
Sales of single-family houses in Connecticut logged double-digit, year-over-year increases in 2012 and 2013, with prices registering a gain in 2013. Sales were disappointingly flat in 2014 and prices again lost ground, compared with the previous year — a slow spring market and tepid job growth were largely to blame.
Real estate professionals — and home sellers — had pinned high hopes on this year's spring market, traditionally the strongest of the year.
This year's spring housing market was "much stronger spring than last year, and hopefully it continues through the next season," Warren Group said.
Single-family house sales in June rose in each of the state's counties, with the strongest gain in Tolland County. Median prices declined in all but Hartford and Windham counties.
In Hartford County, sales rose 19 percent, to 869, in June from 730 for the same month a year ago. The median price creeped up just under 1 percent, to $232,500, from $231,000 a year ago.
Housing Data Reveals: Millennials Flock to Markets With High Density & Walkability
A great case can be made for targeting markets that are designed with higher density in mind — and not just urban cores in major cities. High-density development is becoming popular in more smaller cities and suburbs and offers a great opportunity for investors in the coming years, especially as younger people move out of high price cities like New York and San Francisco seeking to escape rabid rental markets or start families. Density and walkability appeal to both Millennials and retiring Baby Boomers, who combine to create an incredible pocket of demand. From a wider market standpoint, density also fosters the type of buying and selling climate that appreciates quickly, drives demand, and even creates an economic culture that cultivates middle class mobility at a higher rate. More on that later, though.
What qualifies a metro or neighborhood as high density? For our purposes, it doesn’t just mean the number of people per square mile, though that obviously is a major factor. Density in our reading also involves infrastructure designed for a higher population, such as public transit, communal meeting spaces, and mixed land uses. A key metric tied to successful high-density spaces is walkability — the ability for residents to run errands, get coffee or lunch, and get to work with little or no need for an automobile. Walkability operates culturally as the opposite of sprawl, where reliance upon automobiles and non-dense development arguably distances residents from one another both physically and socially. Walkability requires that neighborhoods have minimal wasted space and close quarters between housing and commerce — two hallmarks that separate successful high density areas from unsuccessful ones.
Walkability Scores and PriceSeveral recent studies have shown that walkability is closely tied to the value of homes. A 2009 survey from CEOs for Cities found a strong positive correlation between walkability and housing prices in which a one point increase in Walk Score — a popular metric for assessing walkability — was associated with “between a $700 and $3000 increase in home values” for 13 of 15 metros studied. Across these metros, houses with above-average walkability command a premium of about $4000 to $34,000 over houses with just average levels. These home prices reflect the type of resident each metro attracts.
Another 2014 study by George Washington University’s School of Business found a strong connection between walkability scores and both education and metro GDP per capita, suggesting a stronger business climate. The authors note, “The GDP per capita of the three highest-ranked walkable urban metros ($60,500) is 52 percent higher than the GDP per capita of the lowest three walkable urban metros ($39,700).” From an office and retail space perspective, rentals in walk ups achieve a 74 percent premium over drivable suburban office rents in the 30 largest metros ($35.33 per square foot vs. $20.32 per square foot). Higher prices and higher growth, of course, are signals of high demand and will appreciate at steeper rates than less desirable properties and spend less time on the market.
Upward Mobility and Middle Class DemandDensity not only affects the demand for people moving into cities and neighborhoods, but may dictate opportunities and outcomes for lower income residents. A fascinating study from Smart Growth America on sprawl found that higher compactness in urban metros greatly influenced the ability of children born in the lowest income quintile to reach the top income quintile. Cities with higher sprawl had much lower rates of working class advancement than cities with higher density. Using an index that measures density along with other factors like land use and street connectivity, researchers found that “for every 10 percent increase in index score, there is a 4.1 percent increase in the probability that a child born to a family in the bottom quintile of the national income distribution reaches the top quintile by age 30.”
Several reasons may factor into this number, from physical proximity to jobs to access to affordable public transit and beyond, as noted by the New York Times. This same study also found that people “spend less of their household income on the combined cost of housing and transportation” in higher density areas, meaning a higher percentage of income for lower-and-middle-lower income individuals on the rise is theoretically opened up for developing savings and investments — two of the true hallmarks of middle class advancement.
How does this relate to real estate? Well, a healthy middle class is key to a consistent level of housing demand. As is illustrated by the Great Gatsby Curve theory, rates of inequality and wealth concentration are tied to upward mobility around the world. People on the bottom end of the income spectrum in the United States are usually locked in the rental class. Those renters who move into the middle and upper class make up a new class of home consumers. More upward mobility in a metro means more people moving into homes, and supporting the type of development that advances people is in the interest of putting more people into homes they own.
Millennial Preferences and SuburbsWhile the numbers still show the majority of Americans moving away from more dense areasto cities and suburbs with less density, what consumers are looking for in a neighborhood has begun to change. A recent survey of Emerging Trends in Real Estate for 2015 collected by PwC and the Urban Land Institute suggests a considerable push by multiple demographics towards smaller cities and suburbs that emulate density like a big city: in walkability, infrastructure, transit, and more.
Both Millennials — who will be the next great real estate push over the course of the next several years — and their parents the Boomers are expected to gravitate towards the urban cores of smaller “18 hour” cities or choose inner-ring suburbs that have access to adjacent metros. Emerging Trends predictions suggest the ’90s and ’00s push toward the exurbs in search of more space and bigger homes is very much on the ropes.
What to look for: Small blocks. Mixed use zoning laws. Public transit. Small business development. Green space and community parks.
In the coming years, the roles real estate professionals take on will be further transformed by technology. As consumers have more access to information before they meet with real estate professionals, their focus on specific neighborhoods and attributes will be more self directed, changing what makes the realtor a necessary partner in the final sale. Knowing the neighborhoods and the underlying factors that will drive demand allows realtors to focus on selling in desirable areas despite high competition.
If current trends and predictions hold true, certain undesirable markets in sprawl-centric suburbs and exurbs may languish longer on the market in the future than they have traditionally. As consumer demands and trends shift, realtors and developers will need to stay informed on the types of properties that will garner high demand and have access to them in order to stay competitive.
Since 2005 people have been trusting us with there most important asset, their home.