Tag Archives: home sales

Investing in Homes

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photo by Pictures of Money

TheStreet.com quoted me in Investing In Your Home Remains a Sound Financial Decision for 2018. It reads, in part,

Homeowners are still pouring money into their homes as renovations and upkeep are generating a large portion of sales for Home Depot as demand for purchasing homes rose in September and the three massive hurricanes in the U.S. boosted revenue.

Home Depot’s third-quarter sales surged in the aftermath of a robust hurricane season that spanned from Texas to Puerto Rico, increasing demand from homeowners who faced immense rebuilding as homes were destroyed by relentless floodwaters.

The Atlanta-based home improvement retailer reported an impressive 7.9% increase in comparable-store sales in the third quarter, which exceeded the Wall Street estimate of 5.8%. Home Depot also beat on earnings, reporting $1.84 a share, 2 cents ahead of forecasts. The company’s total revenue was $25.03 billion, up 8% from the same period last year.

 Home Depot’s third-quarter earnings rose 15% from a year ago and its comparable sales in the U.S. increased at a 7.7% clip.

“Though this quarter was marked by an unprecedented number of natural disasters,” said CEO Craig Menear in a statement, “the underlying health of our core business remains solid.

The company was able to raise its fiscal 2017 guidance due to its stellar earnings and now estimates comp sales growth of 6.5% and earnings per share of $7.36, which reflects its $8 billion buyback program this year.

Home Depot shares rose 2.7% to $168.06 on Nov. 14.

 Interest from first-time home buyers remains strong and home sales rose in September — new home sales increased to a seasonally adjusted rate of 667,000, which is up 18.9% month over month and 17% year over year.

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“When an individual buys a share of stock they can monitor the value of the investment on a minute-to-minute basis,” Johnson said. “People can see the fluctuation in value. With real estate, however, no one is quoting you a price instantaneously on your real estate purchase. Absent a market price, people tend not to worry about the value of their real estate purchase and assume that it is very stable in the short run.”

Millennials tend to be conservative with their investment choices and are “drawn to this seeming stability in the value of residential real estate,” he said.

Nevertheless, purchasing a home can often be a very poor financial decision and potential home buyers need to be aware of the additional costs and potential pitfalls.

“People fall prey to the stories of individuals realizing substantial gains by buying a home and selling it at a much higher price years down the road,” Johnson said.

Noble laureate economist and Yale University professor Robert Shiller had made a compelling case that real estate, especially residential homes, are a much inferior investment when compared to stocks. He found that on an inflation-adjusted basis, the average home price has increased only 0.6% annually over the past 100 years.

The stock market’s average return on a large stock index such as the S&P 500 has been about 10% while inflation has averaged around 3% from 1926 through 2016 while the inflation adjusted return of the stock market over the past 90 years has been approximately 7%.

The rate of homeownership still remains much lower than the 1998 rate of 9.5% and the rate has remained stable since the commencement of the financial crisis — hovering around 5% since 2008.

So should you own or rent?

Renting can be a better deal for many consumers, depending on the city and region, said David Reiss, a law professor at Brooklyn Law School in N.Y.

“This is a better question to ask yourself than whether owning is a sound investment choice because you are going to need to live somewhere no matter what,” he said. “It is not too helpful to look at national numbers to answer this question – you should look at the figures in the communities you are considering living in.”

How Are First-Time Homebuyers Doing?

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photo by designmilk

Genworth Mortgage Insurance Corporation released a a First-Time Home Market Report.  The big news from the report is that first-time homebuyers purchased fifteen percent more single-family homes in 2016 than in 2015.  The 2 million homes purchased in 2016 was the most since 2006, before the financial crisis. This is a positive sign for the housing market and for the homeownership rate which has fallen to long-time lows since the financial crisis. The Executive Summary reads,

First-time homebuyers represent an important segment of the housing market, generating significant revenue to real estate agents, homebuilders, and the mortgage finance industry. In this report, we adopt the Department of Housing and Urban Development (HUD) definition of first-time homebuyers as homebuyers who did not own a home in any of the prior three years  . . . Compared to repeat homebuyers, first-time homebuyers play a more pivotal role in influencing housing inventory and home prices because they represent the shift of housing demand from rental to owner occupancy. Despite this well-recognized dynamic, there has been limited data available on the first-time homebuyer market, starting with market size. In this report, we estimate the size of the first-time homebuyer market going back to 1994 using a combination of government and mortgage industry data—20.1 million actual first-time homebuyers were identified. This data provides a historical perspective on the first-time homebuyer market as well as important recent trends. (2)

The report’s key findings include,

1. Between 1994 and 2016, first-time homebuyers purchased on average 1.8 million single-family homes each year, accounting for over one in three of all single-family homes sold, and 45 percent of the purchase mortgages originated.

2. First-time homebuyers have led the housing recovery, contributing over 60 percent of the sales growth in the housing market over the past five years and 85 percent of the growth in the past two years. The resurgence of the first-time homebuyer market has contributed to very tight housing supplies and accelerating home prices, especially at the “low” end of the housing market.

3. During the Housing Crisis, the number of single-family homes sold to first-time homebuyers saw a peak to trough decline of 900,000 units (43 percent) – reaching a trough of just 1.2 million units in 2011. Over the last 10 years, the housing market has seen 3 million fewer first-time homebuyers in aggregate compared to the historical average.

4. The first-time homebuyer market stagnated during the historic housing expansion of the 1990s and early 2000s, leading to a decline in first-time homebuyer mix. Instead, it was repeat homebuyers, including second-home buyers and investors, who led the surge in housing activity.

5. The expansion of government lending programs and the implementation of the first-time homebuyer tax credit provided temporary support to first-time homebuyers. Between 2008 and 2010, first-time homebuyers represented 35 percent of all single-family home sales, which is close to its historical average. However, the percentage of single-family home sales to first-time homebuyers declined once the tax credit expired, and stayed below 30 percent for these three years.

6. First-time homebuyers have always demonstrated a greater need for low down payment mortgage products. Between 1994 and 2016, 73 percent of first-time homebuyers chose such products compared to 30-50 percent for repeat homebuyers. Mortgage products with a lower down payment will likely have a higher first-time homebuyer mix.

7. Private mortgage insurance and FHA (government-backed mortgage insurance) are the two leading products for first-time homebuyers and have together accounted for close to 1 million first-time homebuyers a year since 1994. They have played a key role in reviving the first-time homebuyer market in the current recovery, accounting for approximately 80 percent of its growth in the past two years.

8. First-time homebuyers purchased 2 million single-family homes in 2016, 15 percent more than 2015 – and the most since 2006. During the first quarter of 2017, there were more first-time homebuyers than any other year since 2005. A total of 424,000 single-family homes were sold to first-time homebuyers, up 11 percent from a year ago, and accounting for 38 percent of all single-family home sales. (3)

Troubles with TRID

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"The Trouble with Tribbles" Stark Trek Episode

Law360 quoted me in Rule-Driven Home Sale Slump Could Be Temporary. It reads, in part,

A slump in existing home sales in November can be traced to the implementation of a new Consumer Financial Protection Bureau mortgage closing regime, although experts say that most of the closing delays could ease as the industry and consumers get more comfortable with the new rules.

The National Association of Realtors released a report Tuesday saying that while a continued lack of inventory of existing homes for sale and other factors helped drive down the number of completed home sales in November, the number of signed contracts for home purchases remained relatively constant. With that in mind, the Realtors pointed to the CFPB’s TILA-RESPA Integrated Disclosure rule, which combined two key mortgage disclosure forms and went into effect in October, as the reason for the slowdown.

That slowdown was anticipated because real estate agents and lenders had reported difficulties in complying with the rule, which combined closing forms required by the Truth In Lending Act and the Real Estate Settlement Procedures Act, prior to it coming into effect. However, experts say that the closing delays are likely to decrease as the industry understands the rule better and technology to comply with it improves.

“It’s like a python swallowing a boar … the boar has to work its way through the python,” said David Reiss, a professor at Brooklyn Law School.

The National Association of Realtors reported that existing home sales slumped to 4.76 million nationwide in November from 5.32 million in October, a fall of 10.5 percent. That October figure was also revised down from an initial estimate of 5.36 million.

The November figure was also down from the 4.95 million existing sales figure from the same period last year, and put total existing home sales 3.8 percent behind the total from last year, the National Association of Realtors said.

While the real estate industry group cited the usual factors of tight supply and inflated prices in many regions of the country as a reason for the slowdown in existing home sales, it also cited the TRID rule’s implementation as a reason for the slump.

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Most lenders, real estate agents and other market participants had already begun to factor in the new TRID requirements in the closing process, adding 15 days to the usual 30-day closing process, said Richard J. Andreano, a partner at Ballard Spahr LLP.

“When I saw the November drop, I thought that was a natural consequence of correct planning,” he said.

Despite the slowdown, Yun said in the NAR release that because contracts were signed and the problems came down to issues with closing.

“As long as closing time frames don’t rise even further, it’s likely more sales will register to this month’s total, and November’s large dip will be more of an outlier,” he said.

The CFPB, Reiss and Andreano all agreed that at least some of the delays will work out of the system as the industry gets more accustomed to TRID’s changes.

“The ones that have adjusted have done it by adding a lot of staff, either reallocating or hiring and assigning them to the closing process to get it done,” Andreano said.

And the delays that remain may not be a bad thing, Reiss said.

“It really keeps consumers from being surprised at the closing table. This gives a little bit more time to the consumer where they’re not getting waylaid,” he said.

Thursday’s Advocacy & Think Tank Round-Up

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  • The Center for American Progress has released a report The Uneven Housing Recovery which includes an interactive map the report analyzes the problem of negative equity, which grew out of the financial crisis and concludes that the lack of recovery in some areas, mostly non-metropolitan and rural, creates a risk of foreclosure and threatens to exacerbate the rental affordability crisis.
  • Corelogic has released its latest Home Price Index it shows that there has been a 4.7% increase in home prices in September.
  • HOME Coalition has released a report Building HOME which highlights the success of the HOME Investment Partnership Program by analyzing its impact in all 50 states, it also includes over 100 success stories. Enterprise Community Partners is hosting webinars in their effort to #saveHOME.
  • MakeRoom’s November Living Room Concert was hosted in the home of Devin Hallford in Denver, Colorado, where rent has increased 50% since 2010.  Devin is an aspiring artist and restaurant worker struggling to find an affordable place to live and pay back student loans.  American Author’s performed a concert in Devin’s cramped living space to draw attention to the affordable housing crisis. MakeRoom has also released an interactive map which illustrated the rising trend of Millenials living with roommates later in life.

Friday’s Government Reports

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Thursday’s Advocacy & Think Tank Round-Up

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  • Enterprise Community Partners and the National Low Income Housing Coalition and 45 other affordable housing advocates signed a letter to the appropriations committees of the house and senate urging them to pride at least $1.2 billion for the HOME Investment Partnerships Program (HOME). a block grant that provides states and localities critical resources to help them respond to affordable housing challenges.
  • A recent study by the National Association of Realtors finds that formerly distressed homeowners with restored credit are re-entering the housing market, nearly a million of these former owners have likely already purchased a home again, and an additional 1.5 million are likely to become eligible and purchase over the next five years, representing an additional source of buyer demand for the housing market.
  • National Association of Realtors also released it’s March Realtor Confidence Index which finds gains in home sales and prices but noted concern over lender delays and tight inventory, especially for affordable units.

Thursday’s Advocacy & Think Tank Round-Up

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  • Harvard’s Joint Center for Houses Studies released its Leading Indicator of Remodeling Activity (LIRA) which predicts a deceleration in remodeling activity due to sluggish home sales, the LIRA also projects annual spending for home improvements will increase a more modest 2.9% in 2015.
  • National Association of Realtors’ testimony before the United States Senate Committee on Banking, Housing and Urban Affairs, Hearing titled Regulatory Burdens to Obtaining Mortgage Credit, argues that unnecessary burdens prevent qualified buyers from obtaining mortgages in today’s market.