Mortgage Rates Hover at Record Lows; Buying Is Cheaper than Renting

Mortgage rates are hovering at historic lows largely due to implementation of the third round of quantitative easing (QE3). This program, recently orchestrated by the Federal Open Market Committee (FOMC) involves purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.

In an additional effort to keep borrowing costs down and spur economic growth, the FOMC announced it would continue Operation Twist through the end of the year. The plan entails selling $400 billion in short-term Treasurys in exchange for the same amount of longer-term Treasurys.

The FOMC noted that “these actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative,” according to a statement.

This is timely news particularly for a housing market that’s healthier than many realize. According to Trulia, on average, buying a home is now 45% cheaper than renting in the100 largest metro areas in the nation (providing the homeowner plans to stay in the home for the national average time of seven years). That’s a savings of $771 every month!

At the same time, housing prices are now posting solid gains. According to the most recent CoreLogic data, year-over-year home prices have increased 4.6% since August 2011. And according to its most recent Housing Markets Insights report, investment bank Morgan Stanley anticipates a 2012 housing price increase of 7% to 9%.

from Prospect Mortgage Industry Insider

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Real estate ‘misery’ and the presidential race

Despite the approach of “Super Tuesday” elections on March 6, it is unlikely that candidates in the Republican presidential primary race will focus much on housing until June, according to real estate search and marketing site Trulia.

That’s because, of the four states hardest hit by the housing crisis, three — Nevada, Florida and Arizona — have already had their primaries. The fourth, California, has its primary June 5.

“If candidates want to talk about what voters want most, they should focus on housing issues where it’s clearly a pain point for voters. This means that … we probably won’t hear much about housing from the presidential candidates again until the summer,” said Jed Kolko, Trulia’s chief economist, in a blog post.

In order to figure out which states are suffering the most from the housing downturn, Trulia developed a Housing Misery Index that adds together the percentage change in home prices from their peak through fourth-quarter 2011, from the Federal Housing Finance Agency (FHFA), and the percent of mortgages either severely delinquent (by 90 days or more) or in foreclosure as of fourth-quarter 2011, from CoreLogic.

Trulia Housing Misery Index: Top 10 ‘most miserable’ states

State Housing Misery Index
Nevada 73
Florida 62
Arizona 55
California 54
Michigan 37
Idaho 35
Rhode Island 34
Georgia 34
Washington 33
Maryland 32

Source: Trulia

Foreclosure hotspots Nevada, Florida, Arizona and California were rated more “miserable” by far than other states, according to the index. Among the top 10 hardest-hit states, three — Washington, Georgia and Idaho — will have their primaries within the next week.

By Inman News, Wednesday, February 29, 2012.

Inman News®



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4 predictions about 2012 real estate market

With 2012 nearly upon us, many of us will be spending this week reviewing the events of 2011 and setting resolutions, goals or visions for what we’d like to accomplish next year.

It will come as no surprise that the most common New Year’s resolutions fall into the categories of getting organized and getting fit — physically and financially.

Financial fitness includes getting your real estate business in order. But you can’t set up your real estate plans for the year in a vacuum. They must be done in context of what’s going on in the market. Here are four predictions about what that market context will look like in the coming year:

1. Even more foreclosures

While I’d like to claim crystal-ball credit for this one, it doesn’t take heightened powers of prediction to foresee an uptick in the rate of home repossessions in 2012. Last fall’s robo-signing debacle and the ongoing legal fallout from it created a massive backlog in the foreclosure pipeline, meaning that banks are taking many months, even years, to actually foreclose on mortgages in default.

Earlier this year, the New York Times reported that the additional hurdles New York state courts are requiring banks to leap in the wake of the robo-signing revelations, like additional settlement meetings with the homeowner to see if a modification can be brokered, have created a backlog of foreclosures that it would take 62 years to clear, at the current rate of foreclosure.

It’s pretty clear that in 2012 and beyond, the banks will work through those backlogs. The inevitable result will be an increase in foreclosures.

2. REOs and short sales will become the new normal

If you even know anyone who has house-hunted in the past couple of years, you’ve likely heard tales of the high-drama high jinks — super-long escrows, first-time buyers being bested by investors’ cash offers, banks resistant to negotiating for repairs — that take place in the course of a distressed property sale.

In the coming year, distressed home sales will continue to represent an increasing share of homes on the market. So, buyers will shift from considering whether to buy a short sale to understanding that they must be educated and prepared to do a deal with a seller, a bank (to buy an REO) or a hybrid of the two (to buy a short sale) to access the full selection of homes on the market.

This, in turn, will empower buyers to make smart decisions about what to offer and what to expect on any listing they like, as well as to set smart priorities and make realistic comparisons between listings based on their own personal priorities around timing, certainty and seller flexibility.

3.  So-called ‘smart cities‘ will do well 

This year, a number of housing markets saw double- or even triple-dips in home values. In others, pricing stayed relatively flat. However, in areas where technology powers the economy, home values prospered along with the industry. Silicon Valley real estate, for instance, saw fierce competition among buyers as the young employees of companies that went public like used their newly stocked bank accounts to buy their first homes.

I recently talked with Jed Kolko, chief economist for real estate search site Trulia, and his 2012 forecast was that so-called “smart cities” will continue to have hot real estate markets next year. But Kolko defined smart cities much more broadly than the California tech hubs. Other tech centers like Austin, Texas, and the Massachusetts suburbs of Cambridge, Newton and Framingham all made Kolko’s list, as did Rochester, N.Y. (a town known for its highly educated, highly skilled work force).

4. Consumers will get ‘hopeless’

I mean hopeless in the best of all possible ways. For years, buyers and sellers have been waiting for that singular event to occur that would cause a quick market recovery. But 2012 will mark the fifth or sixth year of the real estate recession, depending on who you talk to. I predict that those consumers who have not already done so will drop unrealistic hopes for a fast return to the heady real estate fortunes of the subprime era.  Instead, people will make their real estate plans based on:

  • today’s low home prices, rather than the fantasy of what could happen if the market miraculously came back;
  • assumptions of very low, or no, appreciation in home values for years to come; and
  • very conservative estimates of their own finances and how they will grow.

As a result, buyers won’t break their necks to hurry and buy before prices uptick; rather, they’ll save and plan to buy when it makes the most sense for their finances. Homeowners will do the same; they will either refi, remodel and be content where they are for the long haul, or decide their homes no longer fit their lifestyles and their finances, divest of them and move on. But the good news is, people will make these decisions based on what is or is not sustainable for their lives and their finances, and not based on inflated hopes about what the market will or will not do.

By Tara-Nicholle Nelson, Tuesday, December 27, 2011.

Inman News®

Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

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Buying real estate a better deal than renting in 74% of major US cities – Trulia: Most foreclosure hot spots see price-to-rent ratios drop

Buying real estate continues to be cheaper than renting in the vast majority of major U.S. cities, according to a quarterly rent vs. buy index from real estate search and marketing site Trulia.

The index compared the median list price and the median annualized rent on a two-bedroom apartment, condominium or townhouse in the country’s 50 most populous cities. According to the index, the cost of buying was less than renting in 37 of the 50 cities (74 percent) as of July 1, 2011. About the same share, 78 percent, favored buying over renting in Trulia’s last index report, released in April.

Trulia defines total costs of homeownership to include “mortgage principal and interest, property taxes, hazard insurance, closing costs at time of purchase and ongoing (homeowners association) dues and private mortgage insurance, where applicable. It also includes an offset for the tax advantages of homeownership, including mortgage interest, property tax and closing cost deductions.”

“Many aspiring homeowners are on the fence about renting and buying in today’s market. Should they take advantage of falling home prices and low borrowing costs, or should they continue to rent until the economy stabilizes?” said Ken Shuman, spokesman for Trulia, in a statement.

“Price alone should never be the sole factor in deciding to purchase a home. Instead, buyers should first ask themselves if they plan to live in the home for at least seven to 10 years, could make monthly payments on the house, and have enough cash in the bank for a down payment and an additional six to eight months worth of mortgage payments.

“If you can answer ‘yes’ to each of these questions, then the cost of buying a home definitely outweighs renting in most cities.”

A price-to-rent ratio of 1 to 15 means that it’s much cheaper to buy than to rent in a particular city. Las Vegas, Detroit, and Mesa, Ariz., most favored buying among major cities.

A ratio between 16 and 20 means that it’s more expensive to rent than to buy, but buying may be better than renting “depending on personal circumstances, such as one’s tax bracket,” Trulia said. Any ratio above 20 indicates that owning is much more costly than renting in a city.

According to the index, renting was much cheaper than buying in six cities: New York; Fort Worth, Texas; Omaha, Neb.; Seattle; San Francisco; and Kansas City.

By Inman News, Tuesday, August 16, 2011.

Inman News™

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Buying trumps renting in most U.S. metros

Home prices were down nearly 34 percent at the end of March from their pre-recession peak in 2006, according to the latest Standard & Poor’s/Case-Shiller National Home Price Index. Still, more than 80 percent of adults say that buying a home is the best investment a person can make.

Two recent nationwide studies — one by the Pew Research Center and another by real estate website Trulia — revealed that not only do consumers prefer to buy than rent, but buying is more affordable than renting in 78 percent of the nation’s cities.

The Pew Research Center surveyed 2,142 adults between March 15 and March 29, 2011. The survey sample included 57 percent of respondents who own a home and 30 percent who are renters. The remainder has other arrangements, such as living with family members.

The study found that 37 percent “strongly agreed” and 44 percent “somewhat agree” that homeownership is the best investment a person can make. When this same question was asked two decades ago in a CBS News/New York Times survey, 49 percent” strongly agreed” and 35 percent “somewhat agreed,” the Pew study revealed.

Other key findings:

  • Homeowners are not blind to what has happened to home prices, nor are they expecting a speedy recovery. About half (47 percent) say their home is worth less now than before the recession began, and 31 percent say its value has stayed the same. Just 17 percent say their home is worth more.
  • Of those who say their home has lost value, 86 percent say they expect it to take at least three years for values to recover to pre-recession levels; 42 percent say it will take at least six years; and 10 percent say it will take more than 10 years.
  • Most renters are drawn to the allure of homeownership, even in the face of the five-year decline in prices. Asked if they rent out of choice or because they cannot afford to buy a home, just 24 percent of renters say they rent out of choice. And, when renters are asked if they would like to continue to rent or if they would prefer one day to buy a home, 81 percent say they would like to buy.
  • Homeowners who were hardest hit by the burst housing bubble are also among the least optimistic about their short-term financial prospects. Among those who say their home is worth a lot less now than it was before the recession, 31 percent expect their household financial situation to get worse over the next year. This compares with only 21 percent of those who say the value of their home increased or stayed the same over the course of the recession.

According to Trulia’s Rent vs. Buy Index, it’s cheaper to buy a home rather than rent in 78 percent of America‘s largest cities, but Seattle is not one of them.

Folks who would like to buy in some neighborhoods in Seattle, Boston, San Francisco, Portland, Los Angeles and Oakland, Calif., face a bigger challenge when it comes to deciding between renting and buying a home. The cost of homeownership in these coastal cities continues to be more expensive than renting. However, it may make more financial sense to buy “depending on the situation,” the Trulia survey suggested.

While the cost of renting in downtown Seattle rose significantly in the past quarter, the cost of buying in most in-city neighborhoods gave renting a financial edge.

The index compares the cost of buying and renting a two-bedroom apartment, condominium or townhouse in the 50 largest U.S. cities. Since last quarter, buying a home has become more affordable than renting in nearly four out of five major cities.

Calculations for the total cost of homeownership include mortgage principal and interest, property taxes, insurance, closing costs, association dues, and private mortgage insurance. Also included are tax advantages from mortgage interest, property tax and closing-cost deductions.

Calculations for total rental cost include rent and renters insurance.

So, in most areas of the country, homeownership is not only desirable but also a prudent financial move to make. There are also the intangibles that cannot be quantified, including the memories of raising a family in your own home. Perhaps that’s part of the definition of “best investment a person can make.”

By Tom Kelly, Wednesday, June 1, 2011.

Inman News™

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