The Gorman Blog

Economy slowly improving along side housing and job markets

2012-01-31T21:12:00.000-08:00

No discussion of the prospects for our economy in 2012 would be complete without an examination of the housing sector. As daunting as the debt crisis in Europe is, there is no doubt that the real "x" factor is housing. This topic is so complex that it is hard to sort out. For example, we know that the housing sector will not rebound without employment strengthening.

But we also know that the housing sector is very important in creating employment. If that sounds like a catch-22, it is. And it is one of the main reasons our recovery has been tepid up to now. We also believe that it is no coincidence that the housing market seems to be improving now that the employment sector is also getting stronger.

Because Housing and Jobs are so closely related, it is important to watch for changing trends in the Unemployment level. The chart displays current levels of Unemployment by state from December 2011.

We do know employment growth was stronger in 2011 -- especially towards the end of the year. In January first time unemployment claims fell to their lowest levels since April of 2008. We also know that existing home sales and starts for single family homes also have increased in the last quarter of 2011. Again, no coincidence.

The National Association of Home Builders has indicated that every single family home built creates three jobs. To put it another way, just over 425,000 single family homes were built last year. That is over one million jobs. Sound impressive? It is still a few million jobs less than the sector produced during the real estate boom years. An increase of 100,000 houses this year would create 300,000 additional jobs and that does not include the apartment sector which is starting to boom and the commercial sector which has yet to awaken from its slumber. Conceivably, we could see close to 500,000 additional jobs created this year with modest growth in building. Even more importantly, those jobs create even more demand for housing.

Existing Home Sales is a measure of the selling rate of pre-owned single-family homes, collected by the National Association of Realtors from 650 realtor associations. It includes a geographical breakdown, as well as a measure of prices and house inventory, the number of months it would take to deplete the existing supply of pre-owned houses at the current sales pace.

Existing-home sales for December 2011 increased 5% from November. This is the third consecutive month of increases and the second highest reading of 2011. The December level was also 3.6% above December 2010, and as a whole, existing-home sales were up 1.7% from 2010. Total housing inventory dropped 9.2% for December, representing a 6.2-month supply, down from a 7.2-month supply in November.

A recovery that does not get too strong too fast will continue to translate into record low interest rates for a longer period of time. If it were not for Europe or the banks right now, the sale on our nation's real estate would be over much more quickly. On the other hand, looser credit standards will not come until banks dig out from their credit morass. We are not likely to have looser credit standards and record low rates at the same time as the two just don't go hand-in-hand.

Low interest rates contribute to record amount of home remodeling jobs

2012-01-28T12:38:00.000-08:00

As the winter weather continues it's grasp over most of the nation, remodeling activity continues to soar. Remodeling activity has reached a record high and rose over 40 percent in 2011. The BuildFax residential remodeling index which began in 2004, reveals continued month-over-month gains for most regions of the country. Consumers are investing in remodeling their homes in the face of an unemployment rate that stands at 8.9%.

“Rates on home loans continue to be near record lows, and as homeowners from coast to coast refinance, they are continuing to update their current home and invest in their properties,” vice president of research and development at BuildFax says. “The data from BuildFax show that homeowners are not only doing important ‘maintenance’ projects, such as fixing their roof, but also taking on projects that add to the ‘livability’ of their homes by adding decks, remodeling the bathrooms and updating their kitchens.

Are you interested in adding an extra room or finishing the basement for your home? Learn more about Home Equity Loans and Home Equity Lines of Credit (HELOC).

The BuildFax Residential Remodeling Index (BFRI) tracks remodeling activity via building permit activity filed with local building departments across the country.

"The economy is returning in respect to people investing in their own housing — not in terms of dollars, but in terms of individuals in the U.S.," Emison told HousingWire. "What we are seeing is that people who might have bought a new house before are no longer doing so because they can't, and that energy is being channeled into remodeling."

The top eight types of remodels classified by BuildFax are:

Roof (21.4%)
Deck (7.9%)
Bathroom (6.9%)
Garage (6.1%)
Kitchen (4.8%)
Basement (2.9%)
Office (1.7%)
Sunroom (0.7%)

Some couples using engagement gifts as down-payment for home purchase

2012-01-21T13:01:00.000-08:00

Forget the toasters and champagne flutes: More engaged couples are doing a different type of wedding registry that allows them to collect cash for a down payment on a home, according to a recent article in The Washington Times. Dana Ostomel, founder of Deposit a Gift in New York City, says that about 15 percent of their registries are to raise down-payment funds for a home and another 15 percent are for home-improvement funds to pay for upgrades like a new roof or furniture.

"Given that 75 percent of today’s engaged couples already live together and are older, very often they are already established with the household basics that you find on a traditional registry," Ostomel said. "What they want is the gift of big-ticket items and longer term goals, like the gift of home ownership.”

The FHA permits gifts from a wedding to be used as a down payment, but lenders are required to document that the funds are gifts. About 27 percent of first-time home buyers use gift money from relatives and friends for a down payment, according to a 2010 National Association of REALTORS® Profile of Home Buyers and Sellers survey.

While gift-giving a down payment has increased, those who receive such gifts need to make sure they follow IRS and banks’ gift-giving rules:

Home owners still need to come up with at least some of the down payment on their own.
You may need to document where the down payment money came from.
If you’ve had the gift for a long time, you likely won’t need to document it.

Many young people in this hardscrabble economy also face trouble getting a mortgage approved because they have the wrong kind of income. For many baby boomers pondering what gift to get their kid who's all grown up, houses have become a popular option. What better time than when the wedding bells are ringing?

Real Estate Report: Home builders see improvement

2012-01-19T06:33:00.000-08:00

In all of our assessments regarding the future of our economy, there always should be a warning attached which goes something like this... "unless the European debt crisis explodes."

Nonetheless, we have some good news regarding the economy with the National Association of Home Builders (HAHB) Housing Market Index (HMI) rising in January to a reading of 25. This is up 4 points from the previous December reading of 21 and marks the 4th consecutive month of increases. The last time the HMI had a reading of 25 or more was in June of 2007. Though moving in an encouraging direction, readings over 50 are considered positive, a level last reached in April of 2006.

The NAHB Housing Market Index is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next 6 months as well as the traffic of prospective buyers of new homes.

Last week there were not many economic releases to focus upon, so it enabled the markets to refocus upon events in Europe and it is reassuring that, at least for the moment, the crisis does not seem to be boiling over. The news from Europe seems to be positive one day and negative the next. What we need is our economic recovery to be as strong as possible right now to help lift Europe out of its malaise but also withstand weakness coming from Europe.

Meanwhile, though oil prices closed the week lower, the stronger economic news has coincided with a general rise in the price of oil. Much of this movement has been disguised because seasonal factors have kept gasoline prices low. Eventually gas prices will start rising if oil continues to settle northward of $100 per barrel. This would be one of the costs of a "better news" economy.

“This is not another false dawn; it’s the real deal," says Ian Shepherdson, economist, High Frequency Economics. "Mortgages are much easier to obtain now, with average down payments about 23% compared to nearly 28% at their high. Interest rates have dropped sharply in recent months, too, and with layoffs down and payrolls improving, people clearly are more willing to take the plunge into housing.”

Next housing crisis: Shortage of new homes for sale?

2012-01-15T06:23:00.000-08:00

With new homes sales beginning to perk up from multi-decade lows, demand could quickly outstrip supply. According to Warren Hatch with Business Insider, the next housing crisis could be a shortage of new homes, at least in parts of the country. The stock of new homes for sale typically ebbs and flows with the broader business cycle. When the economy begins to slow, home sales drop off and the supply of houses begins to increase. The supply of new homes in months indicates how long it would take for all the new houses on the market to clear at the current pace of sales.

Historically, that ratio has averaged about 6 months. At the height of the boom in the mid-2000s, demand vastly outstripped supply even as home builders added to the supply at a furious pace. When demand collapsed a few years later, homebuilders were slow to react, resulting in a huge supply overhang. As the crisis worsened, the inventory ratio eventually reached an all-time high of 12.4 months in 2009. Today, the housing market is showing tentative signs of healing with the supply of new homes again approaching 6 months. Existing home sales have stabilized, house prices have bottomed, the homeownership rate has ticked up, and the threat of a massive shadow inventory is fading.

Economic growth is firming in parts of the country that missed the worst of the bubble and new workers will need places to live. Rental markets are getting tighter and new housing construction could soon follow, perhaps reflected in the recent improvement in home builder sentiment. With the supply of new homes at such low levels, even a modest pick-up in the pace of sales could have a dramatic impact. When the housing recovery gains real traction, the current supply of new homes could run out within a few months, leading to higher house prices, a boom in residential construction and an unexpectedly powerful lift to the US economy.

A big piece of an improving housing market is improvement in consumer confidence. Predictions for U.S. home prices moved into positive territory for the first time in six months, according to a monthly survey from Fannie Mae. For its most recent reading, Fannie Mae said respondents now expect home prices to edge up 0.2% over the next year. Still, concerns about the direction of the U.S. economy remain, Fannie Mae said. Fully 75% of respondents in the survey said they believe the U.S. economy is on the wrong track, easily out sizing the 16% of respondents who said the economy is heading in a positive direction.

FHA offering great deals on homes for sale

2012-01-12T11:38:00.000-08:00

In several states, the U.S. Department of Housing and Urban Development is offering home buyers foreclosed homes with only a $100 down payment, in trying to unload some of its inventory. The incentive runs until October 2012. To qualify, purchasers must be an “owner-occupant,” intending to live in the property and not rent it out. They also will have to qualify for Federal Housing Administration financing, and have to offer the full list price for the home. Some additional eligibility requirements:

The home purchased must be a HUD home. Visit the HUD Homes For Sale Web site for a list of homes.
Buyers must use a HUD-registered real estate broker or agent in order to get the incentive.
The property must be purchased “as-is.”

Home buyers must request the offer and it needs to be written in the contract in order to get it.

Green house features drawing more attention from appraisers

2012-01-08T12:53:00.000-08:00

The Appraisal Institute recently released a form to help appraisers factor in energy-efficient home features when valuing homes. The forms can also be used by real estate agents in describing “green” properties on the MLS, the Appraisal Institute notes.

Everything from a home owners’ energy efficient appliances to solar panels may now get more attention from appraisals with the added form. The new form allows appraisers to identify and describe a home’s green features. It will serve as an optional addendum to Fannie Mae Form 1004, which is the appraisal industry’s most commonly used form for home loan purposes, used by Fannie Mae, Freddie Mac, and the Federal Housing Administration.

“We hope lenders, home builders, real estate agents, and home owners will take advantage of this new tool,” Joseph C. Magdziarz, president of the Appraisal Institute, said in a statement. “Lenders who want to see energy features analyzed should request the green addendum to be included with Form 1004. We also encourage lenders to provide the green addendum to home owners so they can fill it out and provide it to their appraiser. If a new home is being appraised, home builders can use the addendum to provide data to appraisers. Real estate agents also can use the data to help populate the MLS.”
Download the new form as an Adobe Acrobat PDF here.

Is it getting easier to do a Short Sale?

2012-01-05T14:23:00.000-08:00

Some home owners are reporting that banks are now not only more willing to consider a short sale, but are even offering incentives to complete a short sale. For example, a home owner in Chicago says his lender approved his short sale and then gave him a $20,000 check after the deal was finalized for selling the home as a short sale instead of letting it sink into foreclosure.

Lenders accepting a lower loan payoff from an underwater seller traditionally isn’t thought of an easy transaction to complete. Lenders weren’t so willing a few years ago. But as the number of Americans underwater on their home loans grow, more lenders are reconsidering as they try to avoid extra costs a foreclosure can cause.

For 2011, short sales accounted for about 8 percent of total home sales, and rose 7 percent over 2010 totals, according to CoreLogic data. Short sales are up by 59 percent year-over-year in Illinois, 32 percent in Michigan, and 19 percent in Arizona alone, according to CoreLogic.

“We’re starting to see that servicers and lenders are viewing short sales as a better alternative than they had in the past,” says Daren Blomquist, spokesman for RealtyTrac. “Some of that relates to the fact that it’s getting harder to foreclose. There are additional requirements in terms of paperwork and requirements that states and judges are imposing.”

Short sales can still be complex and lengthy — they can take up to nine months to close and even after that, there’s no guarantee it’ll end successfully. “In general, it is a totally different type of transaction,” says Mike Cuevas, a real estate professional at Exit Realty in Chicago. “You’re not only selling a house, you’re negotiating debt.”

Need a good 2012 New Years Resolution? Ignore the media.

2012-01-01T02:02:00.000-08:00

With the European debt crisis hanging over the markets, our politicians continuing to act like children and now the markets worrying about the regime change in North Korea, there seems to be no end to the scary headlines. Even if the news is not scary, the media is pumping up bad news. For example, recently the National Association of Realtors adjusted home sales down for the past five years because they did not present accurate numbers. The headline for the week: Industry experts site housing sales over the last few years are still worse that the recently downward revised numbers.

The media seems to have lost the fact that existing home sales rose last month. New home starts were also surprisingly stronger, especially in the multi-family sector. Finally, real estate inventory is significantly lower than it was 12 months ago. Through all of these negative headlines, the economic news is actually brightening our horizon. We had previously mentioned the precipitous drop in first time unemployment claims which is stoking optimism regarding possible future employment gains.

Here is the point. The recovery is moving forward while worries overseas and in Washington are dampening our "public" enthusiasm. For example, the stock market has rallied significantly from the lows of October but despite this rally, interest rates are still at their historic lows and gas prices have not risen in the past several months. If the crisis in Europe were resolved and politicians were being cooperative, rates and gas prices would be going up based upon the positive economic news.

We don't really care what the media "headlines" say. We care that these economic reports prod businesses to use some of the cash they are sitting on to pick up the pace of hiring. This is what we need for our current economic situation to continue to get better into the first quarter of 2012. So if you are searching for a good resolution to start off the new year right, our suggestion is "keep your eyes on what is actually happening and don't listen to the media doomsday spin masters..."

How owning a home may lower your tax liability

2011-12-29T22:24:00.000-08:00

You have heard it before. Owning a home is a great tax deduction. It is one thing to make a general statement. It is another to understand the specifics of how owning a home may lower your tax liability. Below is a list of important points that every homeowner should know. Note that this is not a complete list of allowable deductions.

Itemizing deductions. In order to deduct your mortgage payment, you must itemize deductions rather than take the standard deduction. As a general example, if your allowable standard deduction is $5,000 and you only have $3,000 in itemized deductions, you will be better off taking the standard deduction. However, if the home gives you an “extra” $10,000 in itemized deductions, you are better off itemizing. Note that the “excess” $2,000 ($5,000 minus $3,000) will not garner any benefit because you are now itemizing.

The housing payment. The housing payment is generally comprised of four segments: Principal, interest, taxes and insurance (PITI). Generally, you can deduct two of these—mortgage interest and taxes. The good news is in most cases these two items comprise the greatest majority of the total payment. For example here are some fictitious numbers given to illustrate this point:

100 Principal
1,000 Interest
400 Taxes
50 Insurance
$1,550 Total Payment (PITI)

Of this example, $1,400 out of $1,550 is deductible, or approximately 90% of the payment.

Again, using fictitious numbers, if the homeowner in the example was in a 25% tax bracket, the home payment would actually be reduced by approximately $400 per month after taxes. There are a few exceptions or requirements with regard to this rule—

The deduction is only allowable for principal residences and second homes. Homes which are rented out (investor properties) have additional tax benefits.
You cannot deduct interest on any loan amount above $1 million.
You can only deduct interest on a mortgage which is taken out to purchase, build or improve a property.
You may be able to deduct a mortgage insurance payment under certain conditions.

Points. A point is a cost charged by a mortgage company for originating a mortgage and/or buying the rate down on that mortgage. Generally points are deductable in the year that they are paid when they are used to purchase a primary residence. If the purpose of the mortgage loan is to refinance an existing loan, then the points may still be deductable, but must be spread out over the life of the loan, unless the refinance was to improve the present home. There are additional restrictions regarding the deducting of points which are not delineated herein.

Investor properties. Those who own properties for the purpose of generating income can deduct the cost of expenses of carrying the property against the income of that property. Allowable expenses would include interest, insurance, taxes, maintenance, depreciation and more. Again using a fictitious example…

$1,000 Rental Income—monthly
-800 Interest, taxes and insurance
-50 Maintenance
-100 Depreciation
$50 monthly “net” income
or $600 for the year.

Sale of the home. Another major tax benefit is achieved when someone sells their home. The profits of the sale of a principal residence are excluded from income up to a maximum of $500,000 for joint filers, including married couples, and $250,000 for individuals. You must have owned the home at least two years and used it as your primary residence at least two out of the past five years.

The tax benefits of owning a home are “great” as advertised. The source of this article is the Book of Home Finance. You are advised to get with your tax advisor for greater clarification with regard to these general rules...

As year comes to a close, many reasons for optimism for the New Year

2011-12-27T07:26:00.000-08:00

As we all take a deep breath over the Holidays, we can reflect upon the events over the past year. It was certainly an eventful year--from global natural disasters to revolutions in many countries to the European debt crisis. Any one of many events could have brought our economy back into recession, yet we go into the New Year with renewed financial vigor.

The recovery from our recession has been so painfully slow that it is hard to see the progress, but it is there. For example, during the height of the crisis, first time claims for unemployment peaked at 650,000. Last week, the number was below 370,000, not far from where it stood at certain points in 2005 and the lowest since 2008. We were also losing close to 800,000 jobs per month during the height of the recession and now we are adding over 100,000 jobs per month.

Because Housing and Jobs are so closely related, it is important to watch for changing trends in the Unemployment level. This chart displays current levels of Unemployment by state.

Does this mean we are out of the woods? Absolutely not. The unemployment rate was a stubbornly high 8.6% last month and it was approximately 4.5% before the recession hit. On the other hand, we were at 10% just a few months ago, so again we are moving in the right direction.

Will real estate recover? Here is a number that we keep reminding about. We added almost 30 million people in the United States during the past ten years. Even those who are foreclosed upon will need housing. Right now we are not building enough housing to accommodate this growth. During the past five years, we have survived by "doubling up."

But as the economy recovers our children will be moving out and household formulation will accelerate. This all amounts to pent up demand. The statistics in real estate are starting to turn with sales of existing homes came increasing in November to a seasonally adjusted, annualized rate of 4.42 million. That's up 4% from the revised level of 4.25 million in October and 12.2% higher than a year earlier.

Yes, there is still a large "shadow" inventory of homes hanging over the market, but actually we could see a major increase in homes sold next year as banks realize that the homes they are holding will sell and they could start releasing their inventory more quickly. This scenario may not bode well for home prices in the next few months, but clearing out this inventory is essential for the market to turn around and many banks are now fixing up properties before they sell them so that their REO inventory does not prove to be as much of a drag upon prices.

The Housing Starts report measures the number of residential units on which construction is begun each month. Changes in the rate of housing starts tell us a lot about demand for homes and construction outlook.

Another positive sign for the real estate market is that housing starts for November rose 9.3% to 685,000. The highest annual rate since April 2010. Leading the way was multi-family units, rising 32.2%. Single-family units saw an increase of 2.3%. Over the last year, housing starts are up 24.3%. A start in construction is defined as the beginning of excavation of the foundation for the building and is comprised primarily of residential housing. Each time a new home is started, construction employment rises, revenues for the home builder and a myriad of other producers also increase; the economic "ripple effect" can be substantial.

The bottom line is that early 2012 might well be the last great opportunity to purchase our real estate on sale and at such low rates.

Homeowner tax credits and deductions deadline approaching

2011-12-21T06:31:00.000-08:00

There are several tax credits and deductions set to expire at the end of the year, and given the federal deficit problem, there's a good chance they won't be extended. If you want to take advantage of them, you need to act before Jan. 1, 2012. Here are a few that affect homeowners...

Mortgage insurance premium deduction. If you itemize deductions, you may deduct the premiums you pay for mortgage insurance, just like you do mortgage interest. However, this deduction is phased out if your income exceeds certain levels. To qualify for the full deduction, a couple or a single taxpayer must have an adjusted gross income of $100,000 or less. The deduction is phased out completely if AGI exceeds $109,000. This deduction, which was first enacted for 2007, is scheduled to expire at the end of 2011. Thus, your payments are deductible only if you pay them during 2011; a payment after 2011 is not deductible.

Home energy credit. First, any homeowner may qualify for an energy credit of up to $500. You can qualify for the credit if you purchase during 2011 solar panels to generate electricity or for water heating, or install wind energy equipment, a geothermal heat pump, or certain types of fuel cells to generate electricity. Installing new doors, windows, insulation, and more also will qualify for the credit, which is up to 30 percent of the amount you spend, up to the $500 limit. This credit is not available for purchases in 2012.

Learn about tax benefits for 2011, including a Sales Tax Deduction, Adoption Credit, and Education Expense Deduction from an article posted by Stephen Fishman at Inman News.

This could be the BEST time of the year to sell a home

2011-12-17T15:14:00.000-08:00

Traditionally, the time from Thanksgiving to New Year’s Day can be some of the slowest time of the year for home buying due to the holidays and the often less-than-perfect weather. But that doesn’t mean sellers can’t sell during the winter months. In fact, with decreased inventories, sellers may have a better chance to standout and face a buyer pool with more urgency to settle down. Dave Carpenter from the USA Today offers some of the following tips for selling a home in the winter:

Stage it. Stagers can arrange furniture so that selling-points in a home don’t get overlooked, paint rooms inviting colors, and have the know-how to give a home a cozy winter feel. Display photos of the home that also show it in warmer summer months. And don’t forget to turn up the thermostat in the home so buyers are comfortable from the moment they step through the door."If you have a vacant house in winter with the heat turned down to 50, chances are someone will make a very low offer," Loren Keim, a real estate broker, told the Associated Press.
Price it right. "If it’s priced properly, it will sell any day of the year," Katie Severance, a broker for RE/MAX in Upper Montclair, N.J., told the Associated Press.
Show the way. Keep sidewalks and driveways clear of snow, ice, and leaves–giving potential buyers a clear path to your listing’s front door.
Light it up. There’s less daylight in the winter months so it’s even more important to keep all the lights on as well as open blinds and drapes for natural light. Keep the home well-lit even when you’re not there so the home still looks inviting to passersby who drive by in the evenings after work.
Cultivate a festive look: Appropriate decorations help give a home a cheerful look during the dreary winter months. “Holiday decorations can help homes sell, but don’t go to excess,” suggests Starr Zook of RE/MAX On Track in Aledo, Ill.
Don’t give up: Despite the special challenges of marketing a home during winter, there also are benefits, notes Laura Ortoleva, a spokesperson for the RE/MAX Northern Illinois real estate network. “Buyers out looking at homes in December or January are, as a group, quite serious about buying,” she says.

Check out more "selling during the holiday tips" from this Wall Street Journal article.

Bad news in Europe continues to fare well for Interest Rates

2011-12-14T10:01:00.000-08:00

We can't go a day without viewing headlines concerning the debt crisis in Europe. While this causes day-to-day anxiety in the markets, it is actually good news for us because it allows us the time to focus upon someone else's troubles and the adverse consequences they could have upon our economy.
The Federal Reserve has characterized the U.S. economy as expanding moderately despite an apparent slowing in global growth, though it added that unemployment remains elevated and housing activity depressed. Fed officials are divided among those who think high unemployment and sluggish growth demand more action and those who view the central bank's already-aggressive efforts as bordering dangerously on an invitation to inflation.

Inflation is the arch enemy of interest rates. That's because many investors would want to take advantage of riskier and more profitable investments and would pull money out of safer investments such as U.S. Treasury bonds. When the demand for bonds falls, yields rise. Mortgage rates often -- but not always -- follow bond yields.

The abject failure of the Congressional "Super-Committee" has done nothing to dispel the notion that we are indeed just as grid-locked as Europe. There are many factors which have caused this debt issue, start with very costly wars and the aging of America which has put strains on the Social Security System. Mix in a horrendous recession which caused a precipitous drop in revenues and then prompted the government to implement tax rebates and stimulus spending programs.

There are many causal factors, but the real question is--can anything be done about the problem and if so, is our government willing to do anything about it? The answer is yes, and we believe that the failure of the "Super Committee" will be only one step in the battle.

The bottom line is that we need to start addressing our own debt situation just as badly as Europe needs to address theirs. While our economy is healing, we don't move into long-term recovery mode without the confidence of the public and the markets in place with regard to our ability to address long-term economic needs. In the meantime, it appears interest rates are unlikely to head much higher as long as the U.S. economy remains stagnant and Europe remains, well, Europe.

Optimism Creeps Into The Market

2011-12-12T06:13:00.000-08:00

It is quite striking when you compare one week to the next in the financial markets. The 10 days before Thanksgiving were brutal. Stocks were diving, Europe was tipping into chaos and it looked like we were surely heading into another slowdown next quarter. We come back from the Thanksgiving Holiday and we are all brimming with optimism.

What happened? Well, first there were very strong Black Friday and Cyber Monday sales reported. Next, the world's central banks and leaders decided to step up and provide more support for Europe, making it easier for cash-strapped nations to raise capital. Finally, we had some positive economic reports released. This past week reports were released on consumer confidence, construction spending and manufacturing and all of these reports exceeded expectations.

The comsumer sentiment reading increased for December coming in at 67.7, up from the November reading of 64.1. This is the highest reading since June and the 4th consecutive month of gains since the 2011 low of 55.7 in August. This survey measures the attitudes and expectations concerning both present and future economic conditions of 500 consumers. Just like Consumer Confidence, the level of consumer sentiment is directly related to the strength of consumer spending

On top of these reports, the all-important employment releases were also positive. Though many will discount the significant drop in the unemployment rate from 9.0% to 8.6% on temporary factors, there is no doubt about the fact that the number is moving in the right direction from a peak of over 10.0% and the numbers added to payrolls last month were not spectacular, but solid.

Bottom line, the markets liked what they saw and the stock market rebounded strongly. This will also help boost confidence and confidence is exactly what we need right now. Of course, it would be nice if we had at least a few months of this good news instead of the wild swings back and forth. Fixed mortgage rates in the U.S. again held near record lows over the past week, according to Freddie Mac's weekly survey of mortgage rates. The question will be -- how long will these record low rates hold if the good news continues?

Buyers shouldn't give up if they are rejected for a home loan

2011-12-08T10:13:00.000-08:00

With the tightening of credit standards, more home buyers are finding themselves rejected when they go to apply for a loan. But after just one rejection, lending experts say buyers shouldn’t give up — they may still be able to qualify for a home loan if they keep trying.

But buyers shouldn’t give it another try until they take a close evaluation of why the original application was turned down in the first place, and find ways to address those issues in their second or even third attempt, Marisol Torruella, a loan originator told The New York Times.

Applicants can, by law, find out why they were rejected for a loan application. The Equal Credit Opportunities Act requires lenders within 30 days to give applicants, in writing, the specific reasons why they weren’t given a loan. For some rejected borrowers, they may need to save up for a larger down payment or take steps to improve their credit score.

Some applicants may find shopping around for other lenders can help, as well as discussing additional alternatives with their lender. Applicants might also find a better option is a loan from the Federal Housing Administration, which have less stringent requirements, but some surveys show that most borrowers aren’t aware of FHA loans.

Are you planning on purchasing a home or refinancing?

2011-12-05T19:06:00.000-08:00

Here are the triggers that may cause the most lender scrutiny of loan applications, according to a recent article at The New York Times:

Large deposits of money. Lenders are required to account for any cash gifts for down payments, such as from relatives. So if a borrower earns $5,000 a month and suddenly deposits an extra $10,000 beyond that, lenders may question where the money came from when applying for a loan.
The home’s new address. Buyers who are purchasing a primary home three hours from where they work may also draw increased scrutiny from lenders, according to The New York Times article. Borrowers may even need a letter from their employer stating that they work from home a few times a week. That’s because lenders may want to ensure the borrower plans to be an owner-occupant and not buying the property to rent or flip, which must be disclosed.
Signing up for new credit cards. Borrowers should avoid taking on extra debt when applying for a loan — so they may want to wait to buy all the new furniture. Extra debt can be a red flag to a lender and could even jeopardize closing on a new home if the debt pushes the borrower’s total debt levels beyond lender-accepted limits.

Today is the best day to put a home for sale on market?

2011-12-02T09:06:00.000-08:00

List a home on Friday and you’ll have a greater chance of success when selling it, according to Redfin, which analyzed 1.2 million listings in 16 markets over 21 months to determine the best day of the week for selling a home. In every market analyzed, Redfin found that homes listed on Friday were 12 percent more likely to sell within 90 days.

What’s more, the company found that homes listed on a Thursday or Friday sold for slightly closer to the list price: 94.4 percent compared with 93.9 percent for homes listed on a Sunday or Monday. Homes listed on Friday were viewed 19 percent more by buyers than homes listed on any other day of the week, according to Redfin’s study.

"Our theory is that since home buyers tend to tour homes on the weekends (Saturday and Sunday have 2.5 times more tours per day than weekdays), homes listed on Fridays are the freshest in buyers’ minds when they’re making their weekend plans,” the brokerage said in a blog post about the findings.

“It also seems likely that many home buyers sort their weekend ‘must see’ lists by date listed, going to see the freshest homes first so they have the best chance of getting in on a potential good deal before other buyers. These factors put homes listed on Friday in front of more touring buyers on the weekend. More tours leads to more offers, and more offers leads to a better price and a better chance of selling.”

Housing market improving slowly but surely...

2011-11-30T14:57:00.000-08:00

The National Association of Realtors reported today that Pending Home sales for October surged 10.4%, above the 0.1% rise expected and much better than the previous reading of -4.60%. This is the the highest level of 2011 and also represents a 9.2% increase over October of last year. Pending home sales is a forward looking indicator that measures housing contract activity. It is based on signed real estate contracts for existing single-family homes, condos and co-ops. A signed contract is not counted as a sale until the transaction closes.

Additionally, homebuyers scooped up more previously owned homes in October, slowly putting a dent in the huge inventory on the market, according to the National Association of Realtors. Sales of existing homes rose 1.4% last month to an annual rate of 4.97 million homes, up from a downwardly revised 4.90 million homes in September. That was higher than expected.

New construction housing is also seeing a boost as the Census Bureau reported an increase in the annual rate for new-home sales up 1.3% from September. Compared to new home sales a year ago, October sales were up 8.9%.

Good news is also circulating for the lending industry, as global central banks announced today a coordinated effort to add liquidity into the world's banking system to try and help to relieve some of the debt stress that the system has been been trying to climb out of for the past year. These promising developments have, for now, helped steer some attention away from the shaky details on how European finance ministers plan to bolster the European rescue fund.

Meanwhile while house sales are rebounding and interest rates stay low, home prices continue to struggle. The Case/Shiller Home Price data released yesterday showed a 0.6% drop from August to September for the 20-city index. Of the 20 cities included in the index, only New York, Portland and Washington DC saw increases from August. The fall is due to a glut of supply from distressed homes, tighter lending standards and high unemployment.

Top features that homebuyers are looking for

2011-11-25T09:32:00.000-08:00

Buyers have a long list of what they want when home shopping, but one of their biggest desires: A good deal. "And no matter where a seller prices their property, they’re looking to negotiate," says Patricia Szot, president of the MetroTex Association of Realtors®. But that’s not all they want. Bankrate.com recently asked real estate professionals to chime in on the top desires of their buyers when home shopping. Here are four things that made the list of top home buyer preferences:

Homes that are in good condition. "There’s not a lot of flexibility in that," says Ron Phipps, president of the National Association of REALTORS®. Many buyers now take the attitude: "I’d rather spend the money getting into the house" and not have to spend more money later, Phipps says. One of the major reasons is that "buyers have limited amounts of cash," he adds. "Even if they want to do a fixer-upper, they don’t have the money to do it."
A bargain with incentives. Buyers are looking for a good deal, even when considering bank-owned properties, says Joan Pratt, real estate broker with RE/MAX Professionals in Castle Pines, Colo. "They want the short sales and the foreclosures and they want them to look like they’re owner-occupied," she says. "They don’t want to paint. They don’t want to put carpet in. They don’t want to clean." And they aren’t only asking for a low price but they also want incentives to buy too. As such, sellers are offering everything from gift cards for new furniture to paint to financial assistance at closing.
Outdoor living areas. Homes with screen porches, outdoor kitchens, two-way fireplaces are becoming increasingly competitive in the marketplace as more buyers say they want more outdoor living space.
Open kitchens. "The wall between the kitchen and the family room is evaporating," Phipps says. "The kitchen is becoming part of the gathering space.”

Thankful for encouraging news regarding the U.S. economy...

2011-11-23T09:42:00.000-08:00

Every year we give thanks and it is very important. Yes, we have been subject to a severe recession and a depressing recovery. But we are recovering and despite what the prognosticators say, America will be stronger than ever in the future.

Every day we hear about the bad news coming from Europe and worry about how a meltdown there could pull us back into recession. To us, it only serves to remind us now much better off we are here as compared to the rest of the world. You don't see Americans leaving in droves. All the while the depressing news from Europe is just drowning out the news of our own recovery.

In the past two weeks just about every economic report released regarding the U.S. economy has been positive. This week it was retail sales, industrial production, existing home sales and new home sales. Ultra-low interest rates mixed with stabilizing home prices continue to push housing affordability near its highest levels in more than two decades.

Existing home sales for October rose to 4.97 million, a 1.4% increase from September, and a 13.5% increase from October 2010. An additional positive sign is the decline in the number of homes on the market. Total inventory for October fell 2.2% from September. This represents an 8.0 month supply at the current sales pace, down from 8.3 months in September.

Additionally, continuing unemployment claims are now at the lowest level since 2008. Because the congressional spending super committee failed to meet its budget deadline this week, the stock market has tanked. But a bit of good news resulting from the committee's failure is the major credit agencies have not lowered the credit rating for U.S. bonds for now. That is additionally good news for the mortgage and housing markets because a strong bond market dictates lower interest rates on home loans.

Yes, there are risks. Right now we see two: Europe and the prospects of a budget stalemate. You could add the "shadow inventory" of foreclosures, but we think increased foreclosures coming through the pipeline will only boost existing home sales next year. Freddie Mac, FHA and a major bank all indicated in the past week that REO sales are picking up.

Do we sound too optimistic? Perhaps we are just trying to get in the spirit of the Holidays. It is time for Americans to shop for gifts and that will be a very important economic indicator. Bring on Black Friday!

Common mistakes when writing a contract to purchase a home

2011-11-20T10:24:00.000-08:00

Writing a home purchase contract is crucial. Otherwise, it can easily derail a deal. Here are some common contract mistakes:

Buyers don’t secure financing by deadline. Many contracts are contingent upon the buyer securing financing by a particular date. However, in today’s tight lending environment, you’ll want to ensure you allow extra time for buyers to get home loan approval. Otherwise, sellers may terminate the contract altogether and even keep the earnest money deposit if a buyer doesn’t meet the deadline in getting financing.
Be realistic about your closing date and don’t try to close too quickly, Patti Lawton, a broker with Welcome Home Realty in Brunswick, Maine, told Bankrate.com. "There are a lot of things that need to be done properly, and you must give lenders, title companies, and others time," Lawton says.
Not being clear on what stays with the house. Clearly state in the contract what stays with the home. You don’t want buyers to walk into their new home after closing to unexpectedly find the chandeliers missing.
Missing signatures. "Sometimes the home is owned by both spouses, other owners or an entity such as corporation," says lawyer Jeff Marks, a partner with Ryan and Marks Attorneys LLP in Jacksonville, Fla. "Make sure all of the parties sign the contract. If a party to the transaction fails to sign, they’re not bound to perform the contract."

Buyers looking for homes in neighborhoods that hold value

2011-11-17T07:51:00.000-08:00

With home prices falling, buyers are looking for a neighborhood that has a greater likelihood of holding its value over the long term. But how do you know what neighborhood is doomed and which will appreciate over time? A recent article by Claes Bell at Bankrate.com says judging a neighborhood’s worth over the long haul comes down to two main factors: access to jobs and access to amenities.

For example, Andrew Schiller, creator of Neighborhood Scout, says signs of long-term opportunities for jobs in an area would be low unemployment, high household income, large or prominent colleges and universities, and seats of federal or state government. He says the Bureau of Labor Statistics is a good resource, particularly its Local Area Unemployment Statistics map, which provides unemployment information by metro area and county, as well as its Current Employment Statistics, which tells you how many people are employed in different sectors of the economy in a certain area.

As for judging a neighborhood's amenities that can generate long-term value, Schiller cites characteristics like a neighborhood that offers a variety of nearby retail stores, low crime rates, parks, distinctive architecture, and good public schools.

Doing a drive-through of a prospective neighborhood is a good way to get a gut feeling for where a neighborhood is now and where it's headed, says Ken Shuman, a spokesman for real estate information website Trulia.com. "This is a big mistake a lot of people make, because they see it on a sunny Sunday afternoon and they think it's a gorgeous area. But you don't know what it looks like on a Sunday night or a Wednesday night," Shuman says.

This year, we get both "Turkey Day" and "Budget Day."

2011-11-15T19:11:00.000-08:00

During November we have Veterans Day and Thanksgiving, or "Turkey Day." This year we get an extra event. November 23 is the day that Congress is supposed to agree upon the numbers to cut future federal government deficits. Maybe it should be declared "Budget Day."

Will they raise taxes? Will they cut entitlement programs? Will they phase out the mortgage-interest deduction? We do know that this is Congress and that means that the negotiations are likely to go to the last minute and beyond and there will be public bickering involved. There is one wild card here. Apparently, the last agreement to extend the debt ceiling set this date for an agreement and if the agreement does not happen significant automatic cuts will take place. This "hammer" might well help Congressional participants get serious a bit more quickly.

It will be interesting to see how the U.S. government will deal with its spending problems and how these moves will affect Interest Rates. The Mortgage Bond Market will react in accordance to what programs, benefits and deductions are cut as well as what the tax ramifications are for individuals and businesses. Ironically, even if a deal is reached, there is no way to predict how the financial markets will respond to it. Rates could rise because investors may believe not strong enough measures were taken.
What do we want? We want some type of agreement as quickly as possible so that the markets are not focusing upon possible automatic Draconian cuts that would cause the economy to get worse. Instead we would like the markets to focus upon our economic progress. We believe the economy continues to heal.

For example, in the past week first time claims for unemployment dropped to a level not seen for seven months. According to the Job Openings and Labor Turnover report (JOLTS), the number of job openings are still below the pre-recession reading of 4.4 million in December 2007, but there has been significant improvement since the low in 2009.

This chart shows the job opening readings for the past two years, starting in October 2009 and going through the most recent reading for September 2011. This is the progress we need to see and the markets need to be focusing upon.

Additionally, retail sales increased in October. It marks the second straight month of strong sales and continues an upward trend in consumer spending. The increase in October brings the 2011 level 7.2% above that of October 2010. The chart above shows monthly retail sales since May 2011 in millions.

This past week the headlines were all about Europe as now Italy is the focus of the debt crisis. German leader Angela Merkel says Europe can be living through its toughest hour since WWII as new leaders in Italy and Greece rushed to form governments and limit the damage from the euro zone debt crisis. Now France and Spain now are feared as the next European economies to get pulled into the debt crisis.
Again and again we have indicated that this fiscal crisis is one of confidence. With the Holiday Shopping Season upon us we need the consumer to be confident. If the consumer is confident, businesses will be confident enough to hire.

Let's hope our representatives make Americans confident by having a successful "Budget Day."

Some home sellers offer interesting incentives to buy their house

2011-11-10T21:11:00.000-08:00

Real estate professionals say incentives to sweeten a real estate deal are certainly good ways to generate buzz about a property, but the asking price is the real key to getting a home sold. Incentives to get home buyers’ attention have gotten lavish.

Recent examples include a new BMW, season tickets to football games, a boat for waterfront properties, $3,000 gift cards at interior design studios, and even the home owners’ pet. "We’re in a price war and a beauty contest," Tony Vehon, broker and owner of Weichert Realtors Lake Realty in Gold Canyon, Ariz. "Every home has to be priced right and look perfect."

After that, a special incentive might drive traffic, especially if you offer something that grabs attention, something a little beyond the norm." Martha Thorn, a real estate pro with The Thorn Collection at Coldwell Banker Residential Brokerage in Tampa, Fla., told Fox Business News that one of her sellers for a home priced less than $200,000 tried to lure home buyers by offering up season tickets to the Tampa Bay Buccaneers’ football games. "The buyers were thrilled with the tickets, but that certainly wasn’t the reason they bought the house," Thorn told Fox. "The most important thing is always the price."

Price is still key, agrees Linda O’Koniewski, broker-owner of RE/MAX Heritage in Melrose, Mass. "An offer to pay condo fees for a year or so will definitely create some buzz, and at least get a buyer to take a second look at a property," O’Koniewski says. But she says sellers must realize that "no amount of marketing will make a dent if the price is not right. If you are not competitive on the price, you cannot sell your house."