Did you know that 45% of recent buyers used open houses to find their home? NAR encourages REALTORS® to participate in the upcoming Nationwide Open House Weekend, April 20-21, when REALTORS® will hold open houses in neighborhoods coast to coast. President Gary Thomas shares more about the Nationwide Open House Weekend in the video below, and talks about the buyers who are most likely to use open houses in their search for home.
By NAR 2013 Vice President Bill Brown
“Whatever the cost of our libraries, the price is cheap compared to that of an ignorant nation.” That sentiment from Walter Cronkite is being tested as the cost of an education soars ever higher.
The College Board Advocacy & Policy Center’s Trends in College Pricing 2012 report found that overall the average cost of tuition and fees has risen for both public and private schools by over 4 percent, reaching up to $60,000 per year.
A college education helps people get better jobs and gives them a leg up in climbing the economic ladder. But with the high cost of a college education these days, many students have to take out loans to afford tuition.
The result is that students are piling up debt. The New York Federal Reserve reports that total U.S. student debt has almost tripled over the past eight years to reach a total of $966 billion.
The overall number of borrowers past due on their student loan payments has also grown, from less than 10 percent in 2004 to 17 percent in 2012.
The Consumer Financial Protection Bureau (CFPB) raised the issue of whether this debt will have a domino effect on the economy. Their concern is that young people are using a larger portion of their paycheck to pay off debt than for other purposes. This could keep them out of the economy, particularly the housing market.
While approximately 85 percent of student loans are backed by the federal government, the rest are held by private lenders. Now, there is an issue with these private loans. The Fed’s report says the growth in student debt is caused by a combination of more students attending college, more parents taking out loans for their children’s education and a lack of available options for discharging the debt.
While government student loans have options for modifying the loans, (i.e., deferment or making payments a percentage of income) private loans do not. According to the CFPB, they’ve heard from thousands of private student loan borrowers who are willing to make good on their debt, but are seeking a more affordable payment.
The CFPB has issued a “Request for Information” to gather feedback from borrowers, lenders, schools and everyone with a stake in the success of the lending market. As REALTORS®, you’re on the front lines of this issue and will be impacted by whatever the CFPB’s decides.
Please share your stories with us about how student loan debt is impacting sales in your area and, in particular, the impact on individuals. We want to hear from you.
by Ron Phipps, 2012 Immediate Past President, NAR
So if you are like me, you have been working in real estate for a long time. You think you have seen it all. Your body of work includes lots of transactions, and some amazing human stories, both happy and sad. In real estate we deal with the full range of life experiences.
Our collective experience right now of getting to closing is an obstacle course. Doesn’t it feel like the stars are conspiring to knock your transaction off track? Just closed one that ended up with 4 appraisals and weeks of heartache before we got to closing.
So what is happening behind the Wizard of Mortgage Oz’s curtain? Am I the only one who struggles to get my buyer to the closing table? The answer is absolutely not.
What we do know is that we have over corrected from the free-flow capital, no underwriting standards of 2004-2006. I repeat…over corrected. Prior to 2004, the average credit score for Fannie Mae and Freddie Mac mortgage was 720; today it is 760. This means that 15 percent of potential buyers cannot qualify.
In the past, pre-approval letters actually meant something. Now, they are a single yellow brick on the road to homeownership. The sad part is that they do not have a lot of value.
So what is going on? The problem is that the market for mortgage backed securities is very limited. The federal government continues to buy or insure most of them, upwards of 9 out of every 10 mortgages. In other words, the government provides the capital to keep the mortgage market, and, in turn, the real estate market alive.
As a result, the mortgage package needs to be perfect and complete. Three years of tax returns and back statements are not enough. Explanations of all deposits and expenses over $1,000 are now required.
You know all of the new requirements. You also know the reality of conditional commitments. Is the lender really committing to the buyer if the ‘commitment letter’ really isn’t a letter of intent? What does that mean for a seller? What does that mean for you? How can a commitment be rescinded two days before closing?
What you need to know is that strict underwriting standards are being applied precisely and aggressively. Some investors will penalize the origination loan company $30,000 if a mortgage defaults in the first year. Yes, that will make the processor obsessive.
We have not even talked about the appraisal process. In general you need direct, like kind sales within six months and within a few miles of the subject. If not, it will be a problem. What is also true is that the “appraisal review” is where the real problems occur. Someone in the process looks at the appraiser’s work as something to just pick apart.
All of this is part of the process of compliance…to make sure the package is “perfect and complete.”
When Dorothy was lost in the Land of Oz and wanted to get back home, she just clicked her heels three times. I wish it were that easy for REALTORS® and consumers to get back to a place where closings would make it to the table.
In the meantime, what can we as REALTORS® do? Here are a few recommendations:
1. Understand the process, particularly underwriting criteria.
2. Educate the buyers (and sellers) to process and requirements.
3. Be realistic in timelines.
4. Manage buyer and seller expectations.
5. Help buyers identify the lenders that are most likely to provide them the loan.
6. Be proactive in real time with the process.
7. Be active in NAR with Calls to Action and RPAC to improve the situation.
We will get through this…sooner rather than later. See you at closing.
So if you are like me, you have been working in real estate for a long time. You think you have seen it all. Your body of work includes lots of transactions, and some amazing human stories, both happy and sad. In real estate we deal with the full range of life experiences.
Our collective experience right now of getting to closing is an obstacle course.
Doesn’t if feel like the stars are conspiring to knock your transaction off track?
Just closed one that ended up with 4 appraisals and weeks of heart ache before we got to closing.
So what is happening behind the Wizard of Mortgage Oz’s curtain? Am I the only one who struggles to get my buyer to the closing table? The answer is absolutely not.
What we do know is that we have over corrected from the free-flow capital, no underwriting standards of 2004-2006. I repeat…over corrected. Prior to 2004, the average credit score for Fannie Mae and Freddy Mac mortgage was 720; today it is
760. This means that 15 percent of potential buyers cannot qualify.
In the past pre-approval letters actually meant something. Now, they are a single yellow brick on the road to homeownership. The sad part is that they do not have a lot of value.
So what is going on? The problem is that the market for mortgage backed securities is very limited. The Federal Government continues to buy or insure most of them, upwards of 9 out of every 10 mortgages. In other words, the Government provides the capital to keep the mortgage market, and, in turn, the real estate market alive.
As a result, the mortgage package needs to be perfect and complete. Three years of tax returns and back statements are not enough. Explanations of all deposits and expenses over $1,000 are now required.
You know all of the new requirements. You also know the reality of conditional commitments. Is the lender really committing to the buyer is the ‘commitment letter’ really isn’t a letter of intent? What does that mean for a seller? What does that mean for you? How can a commitment be rescinded two days before closing?
What you need to know is that strict underwriting standards are being applied precisely and aggressively. Some investors will penalize the origination loan company $30,000 if a mortgage defaults in the first year. Yes, that will make the processor obsessive.
We have not even talked about the appraisal process. In general you need direct, like kind sales within six months and with a few miles of the subject. If not it will be a problem. What is also true is that the ‘appraisal review’ is where the real problems occur. Someone in the process looks at the appraiser’s work as something to just pick apart.
All of this is part of the process of compliance….to make sure the package is ‘perfect and complete.’
When Dorothy was lost in the Land of Oz and wanted to get back home she just clicked her heels three times. I wish it were that easy for REALTORS® and consumers to get back to place where closings would make it to the table.
In the meantime, what can we as REALTORS® do? Here are a few recommendations:
By Ron Phipps, 2012 NAR Immediate Past President
E Pluribus Unum. Out of many, one.
For many years, this has been the motto of the United States. Today, it seems to be more important than ever. As a country, we need to come together in order to thrive in the next century, rather than simply survive. You hear a lot about the changing role of the United States in the world. While that is important, we need to come together to take care of families, whether home owners or renters, in this country.
As an organization, we need to do the same. Out of many we need to be one.
The Rally to Protect the American Dream, in Washington, D.C., on May 17, is a tangible example, a true witness to the agenda.
E Pluribus Unum. Fifteen thousand of our members will represent the 1,000,000 members who represent the 75,000,000 home owners and the 320 million Americans who need shelter.
Another way of looking at it is thousands of voices coming together for a single message, in a single voice — the voice for home ownership. Out of many, one.
It is also true that this country is “of the people, by the people, and for the people.” We as an organization are exactly that:
- We are OF our membership, leadership and REALTOR® on the street;
- We are participants in our industry and our country (BY the people);
- And we work FOR ourselves, our customers and clients, and our country.
We truly are OF the people, BY the people and FOR the people.
We are gathering in Washington, D.C., to personally and collectively deliver our message to our representatives and our government. They both need to be of, by, and for the citizens of this nation.
I am excited to be joining fellow REALTORS® in Washington D.C., to do my part for families across this country. E Pluribus Unum.
by Steve Brown, First Vice President, National Association of REALTORS®
Recently, President Obama proposed several programs to revive the housing market. One such proposal calls for the bulk sale of real estate owned (REO) properties. In areas where property values have plummeted and there is a backlog of inventory, units would be bundled together and sold to investors, creating additional single-family rental properties, thus helping to stabilize housing value market.
According to a letter sent to Congress by Federal Reserve Chairman Bernanke, increasing rentals may reduce losses by lenders on foreclosed and surrendered properties and stem declines in home prices.
While NAR supports the goals of the program, we urge the Federal Housing Finance Agency (FHFA) to proceed cautiously with its REO Initiative pilot program to sell homes repossessed by government agencies to private investors to convert into rental units. While it may help to quickly reduce high REO inventories, the plan would obviously decrease the overall number of property owners and require taxpayers to perhaps accept more risk and larger losses than are necessary if the market were able to react to these properties individually.
NAR supports small pilot programs in those areas that would potentially benefit from this type of market approach, and we will closely monitor the impact of such. At the same time, we believe the government needs to also follow through on separate efforts to loosen tight credit markets, modify existing loans to keep people in their homes and remove bureaucratic burdens associated with short sales.
Individual sales should be incentivized over bulk sales, except in small geographic areas. Selling in bulk to large national investors puts a large section of the housing market into the hands of fewer property owners, which then puts individual home buyers and sellers at a great disadvantage.
We must watch closely the increased risk to taxpayers from loans that involve large deals and foreclosed and abandoned properties, backed by Fannie Mae and Freddie Mac.
That said, this program could very well benefit some areas of the country. In Florida, the foreclosure inventory is at 14.27 percent, and many REALTORS® believe this would help move the market. Yet, other areas may not need it. In California, the inventory has already been reduced to 3.45 percent. Instead of helping California’s market, bulk sales would take more transactions out of the market, thus hurting the consumer’s access to the housing market in such a high cost area.
One well learned principle of real estate must be applied to Federal policy—all real estate is local. Federal programs will succeed only if this underlying principle is observed.
By President-Elect Gary Thomas, National Association of REALTORS®
There is a persistent truth about home ownership.
No matter how difficult the last few years have been, and no matter how much of a battering the housing industry takes, Americans still want to be homeowners.
A New York Times/CBS News poll earlier this year said that 89 percent of all Americans continue to see home ownership as an important part of the American Dream.
That’s in large part because our homes are the place where we settle down, raise our children, relax and live out our lives.
And it’s still hard to beat a house as a long-term investment. Home ownership is a contributing factor in building long-term wealth. Historically, a home owner’s net worth has ranged from 31 to 46 times that of a renter.
There are also numerous social benefits to home ownership. People who own homes are more involved in their communities. They vote more, volunteer more and contribute more to their neighborhoods. Even better, their children do better in school, stay in school longer and are more likely to participate in organized activities. As a result, they spend less time in front of the television.
Home ownership even contributes to a better quality of life. Research shows that home owners are happier and healthier. They enjoy more freedom in redecorating and renovating their house to meet their needs. Housing costs are more stable for home owners than for renters, and they can usually deduct mortgage interest and property taxes on their federal individual income tax return—an issue that will come up very soon as tax day draws near.
All in all, Home Ownership Matters! Truer words were never spoken.
By Bill Armstrong, Treasurer, National Association of REALTORS®
Last week, NAR participated in a positive meeting with Fannie Mae, Freddie Mac, and the Federal Housing Finance Administration (FHFA) —the federal agency in charge of housing finance oversight. We talked about additional ways to improve the short sales process for mortgages backed by Freddie Mac or Fannie Mae. I was pleased to participate and to represent NAR along with Scott Louser, 2012 Vice President and Liaison to Government Affairs.
All in all it was a great meeting, made even more so by the fact that we brought a number of REALTORS® with us so that officials at FHFA could hear directly from those in the trenches, about the difficulties they experience during a short sale. And bringing together the individuals facing those challenges day in and day out – REALTORS® – with those in charge of oversight, is the most effective way to convey the reality of the situation and the need for a solution.
Now, fortunately there has been some progress recently, such as the amendment Freddie Mac made to its policy on short sales affidavits, at the request of NAR and the American Land Title Association. We continue to push lenders to implement the updated policy.
But as we all know, short sales continue to be an issue for many REALTORS®. That’s why NAR is working hard with both the GSEs and regulators to find real, workable solutions that will simplify the process, and we won’t rest until that happens. FHFA has been open to discussion and were very interested in hearing directly from REALTORS®. So I am optimistic that changes will be made that will benefit REALTORS® during a short sale…and rest assured that we here at NAR will continue to push for them to happen.
By Steve Brown, First Vice President, National Association of REALTORS®
Winston Churchill once said, “All the great things are simple, and many can be expressed in a single word: freedom, justice, honor, duty, mercy, hope.”
I’d like to add another word to that list—home.
Throughout the ages, though the shape and fashion of home has taken many forms, it is a place all of humankind can relate to. In fact, the ever present hope of home has inspired us as a country and civilization since the founding of our nation. But the idea of home is not just an American value. The importance of home has driven nations throughout the centuries to both defend their lands and to liberate other lands so all could find a place to live securely.
Practically speaking, home provides one of the basic needs of all living beings, that is, it is a place of shelter. Still few would argue that it is far more than just a shelter. It is the stage, the set if you would, for each person to play out their life and all that comes with life, both the joys and the sadness. Truly the walls of home become a sacred place.
And so the Christmas story comes to mind, two soon to be parents seeking shelter find their home for a time in a stable that they shared with the animals. And then there was a star above them providing perhaps both hope and light.
Well, today we too need to look up a bit to see some of the stars—to see a few glimmers of light regarding homes in today’s fragile economy.
Existing-home sales rose 1.4 percent in October. They are 13.5 percent above the level of where we were last year.
In November, unemployment sunk to its lowest rate in nearly three years—8.6 percent. The decline was better than the experts predicted.
On the Friday after Thanksgiving—known as Black Friday and almost always the biggest shopping day of the year—a record 226 million shoppers flocked to stores and to the Internet, spending 6.6 percent more than last year.
And this month, spending on Christmas trees is projected to rise 3.1 percent this year. According to one research firm, Americans will spend $3.4 billion on Christmas trees alone. This would be the highest number since before the recession.
There are some real indications that the economy and home sales may indeed improve this coming year. Positive economic “lights” lead to a more stable residential market and an increase in home sales.
As Realtors, never let us forget how important our job is in helping others find their home. And as we face the year ahead, let us do so not with hype, but with genuine hope.
Happy Holidays to you all.
By Gary Thomas, 2012 President-Elect, National Association of REALTORS®
There was so much helpful and interesting information presented at Annual. Sometimes it can be a little overwhelming! Only now, a few weeks later, am I catching up on all of the excellent information. One item that is particularly valuable and worth taking a closer look at is the results of our recent survey, The 2011 National Association of REALTORS® Profile of Home Buyers and Sellers. It’s a useful picture of the latest trends in real estate.
What stood out to me was that home buyers are:
- Older
- Have higher incomes
- Are more likely to be married
Naturally, those who can afford to spend more are generally older and have higher incomes. In fact, the median age for overall home buyers rose from 39 to 43. The number of married couples buying homes rose 6 percent, while purchases by singles and unmarried couples were slightly down.
Most troubling though, is the fact that the market share for first-time home buyers fell to 37 percent in the past year—down from a record high of 50 percent in 2010. Although the high was in part due to a boost in sales from the home buyer tax credit, that’s still a decrease larger than what we’d expect, based on the average. Over the past year, repeat buyers made modestly higher down payments than the previous year, but their incomes were a full 11 percent greater.
We can conclude that there are still buyers out there, but qualifying for a loan is harder. This is due to an overly restrictive mortgage credit environment, in spite of plenty of affordable housing.
The survey tells us just how tight the credit market remains
It underscores concerns that the American Dream of home ownership may soon be out of reach for younger Americans. Tighter credit rules, along with legislative proposals to reduce or eliminate the Mortgage Interest Deduction and narrow the definition of the Qualified Residential Mortgage (QRM), threaten the housing industry during a fragile stage of its recovery.
The effect of QRM regulation would be to raise down payments to 20 percent to meet the requirements of a qualified residential mortgage. This would disproportionately affect first-time and minority borrowers.
But the impact of QRM regulation would go far beyond these two groups. Higher rates will slow home sales and lower home prices for all buyers at the very worst time.
With Social Security facing fewer contributing workers in the future, a house remains an important equity investment for young people. Now is not the time to raise new barriers to home ownership.
I was heartened to see that most buyers believe in the long-term value of home ownership. Seventy-eight percent of recent home buyers said their home is a good investment, and 45 percent believe it’s better than stocks.
After hearing the stories from members, as well as my own clients, it was so stark to see the impact of such tight lending standard quantified in the numbers. This means that we should keep our heads down, work hard, and know that there are still plenty of buyers looking for the right home.
