Good News; Bad News for Real Estate

Finally some good news: The housing market is recovering faster than expected and according to all the “experts” the economy likely won’t fall off the much discussed “fiscal cliff.”  44 economists recently surveyed see GDP (gross domestic product – the value of all goods and services produced in the United States) rising just 1.9 percent in 2012 before reaching a 3 percent pace by the fourth quarter of 2013.

Followed by some unhappy news:  Employment growth is forecast to weaken. The panel predicts that the unemployment rate will rise to 8.1 percent by the end of the year. Remember the unemployment rate? It’s the most-watched measure of the country’s economic health, and has been a prime issue in the presidential election campaign. It fell to 7.8 percent in September. But before that report, the rate was 8 percent or higher for 43 months. September’s lowish rate is likely to be restated over the next few weeks.

The economists, who were surveyed Sept. 14-26, revised upward their previous estimate for single-family housing starts and now expect them to increase 23 percent to 750,000 units in 2012. Continued improvement is seen in 2013 with a 13 percent rise to 850,000 units. Home prices are now projected to rise by 1.5 percent in 2012 and 2.8 percent in 2013, more than the economists expected in their May forecast.

A widespread concern about the economy has been the combination of about $1.2 trillion in spending cuts and tax increases that will kick in starting next year, risking a giant fiscal shock if Republicans and Democrats don’t reach a deal on a budget. But a majority of the economists are confident that won’t occur.

"We think the recovery is for real this time around," said Rick Palacios, senior analyst with John Burns Real Estate Consulting. "If you look across the U.S. economy right now, there are only a handful of industries looking at 20-30% growth over the next 4-5 years, and housing is one of those."

Home builder stocks are up 162% in the last 12 months, led by a 250% jump at Pulte Group (PHM). Other leading builders including DR Horton (DHI), Toll Brothers (TOL), KB Home (KBH) and Lennar (LEN) have all seen their stocks more than double over that time. New orders at publicly-traded builders are up 30% since January, according to Kim Barclays Capital put out a report recently forecasting that home prices, which fell by more than a third after the housing bubble burst in 2007, could be back to peak levels as soon as 2015.

"In our view, the housing market had undergone a dramatic over-correction during the prior five years, resulting in pent-up demand for housing purchases that would spark a rapid rise in housing starts," said Stephen Kim, an analyst with Barclays, in a note to clients. In addition to what Kim sees as a big rebound in building, he's bullish on home prices, expecting rises of 5% to 7.5% a year.

Construction is expected to be even stronger, with numerous experts forecasting home construction to grow by at least 20% a year for each of the next two years. Some believe building could be back near the pre-bubble average of about 1.5 million new homes a year by 2016, about double the 750,000 homes expected this year.

The experts forecast:

• Inflation will remain low next year. The Federal Reserve’s preferred measure is seen rising 1.9 percent in 2013 while the core Consumer Price Index, which includes spending on everything except food and energy, is projected to increase 2.2 percent.

• Consumer spending will be weak. The panel revised its forecast for growth in consumer spending downward to 1.9 percent in 2012 and 2 percent in 2013, reflecting slow personal income growth and limited job gains.

• Longer-term interest rates should rise. The yield on the 10-year Treasury note, now 1.66 percent, is forecast to climb steadily to 2.3 percent during the fourth quarter of 2013 as the Fed draws nearer to reversing its policy of extraordinarily low short-term rates.

• Stocks will rise modestly. The Standard & Poor’s 500 index is predicted to be 1,450 at year-end and 1,520, or 5 percent higher at the end of 2013. The key market barometer is currently 1,429.

• Corporate profit growth will show moderate but less-than-average increases. After-tax corporate profits are projected to rise 7 percent this year and 5 percent next year, below the 10.2 percent average of the last 20 years.

Dane Hahn is a real estate professional practicing in Charlotte and Sarasota counties. You can reach him at dane.hahn@gmail.com or by phone at 941-681-0312.  See him on the web at www.danesellsflorida.com.

Credit Score Primer

Alex Trebeck: “Its a three-digit number that carries a lot of influence over your future. It can dictate whether or not you'll qualify for a home, car, or business loan. It can also be the deciding factor in whether or not you qualify for a low interest rate, or no loan at all.”

Informed Contestant: “What is a credit score, Alex?”

OK, sorry for the TV drama, but I'm out of town this week, doing a little drift fishing in Montana and Idaho. And I thought a little primer on credit scores might be appropriate. Credit scores are created by witch doctors using complicated algorithms and there are a whole flock of factors that can contribute to its number.

To keep this column short and sweet I will assume you already know that a credit score is a number from 200 to 800 that reflects your payment and borrowing history. Your credit score will be modified down if you are a big spender, and up if you make payments faithfully and on time. These are some of the things that lenders use to decide a number of factors, including whether or not to lend any money at all to you.

There are three main reporting agencies: TransUnion, Experian, and Equifax. They claim to have different ways to assess your credit and assign credit scores to each and every American—but oddly their scores for any one of us are usually pretty close.

Can a credit score from these agencies be biased? The simple answer is no. Your credit score is a true and honest reflection of your debt and payment history. This means that neither a lender nor credit agency can "have it in for you." You are the only person responsible for your score. This is their way of saying if your score is low, it's your fault.

Here are some of the factors that contribute to your score:

Lenders want to see that you have a history of multiple types of credit. This can include credit cards, installment loans, and mortgages. You will have a higher score if you can demonstrate that over time you have managed credit and made timely payments.

The more debt you have the riskier you appear to a lender. This means paying down or off debt is a great way to make yourself more desirable for a home loan. But before you scream, discuss your own credit history with a lender. You may find that you can raise your credit score by canceling a few old cards (maybe even ones you forgot you even had), and by moving some debt from smaller cards to one main card with a lower (even an introductory) rate. Lenders who see that you have five credit cards, each with a ceiling of $10,000, will assume that at some point you might owe $50,000. That will cause them to think twice about lending you a mortgage.

You want to be on time with every bill. This includes everything from cable and phone to credit card payments. Late payments may be reported to the credit reporting agencies and will negatively affect your score. Even small amounts need to be paid—I once had an auto insurance policy that was billed to me monthly, I paid them in advance every three months because it was easier, but it showed up that I wasn't making timely payments. So be careful...

Do NOT under any circumstances open any new lines of credit, no matter how small, before you start looking for a home, nor even if you have found a home but not closed yet. Any new lines of credit will dock your score and may indicate to a lender that you are on a spending spree. Folks who arrive at the closing table in a newly financed car, may find they no longer qualify for their mortgage.

Younger borrowers are always at a slight disadvantage because they have a shorter credit history. A longer credit history gives lenders a better picture of what kind of borrower you really are.

Be sure to check out your credit report three times a year at annualcreditreport.com. It's free, easy, and secure. You'll have to pay a nominal fee in order to see your score, but checking out your report can help you assess areas that need improvement or areas that have errors which need corrected.
Dane Hahn is a real estate professional practicing in Englewood and Sarasota. He can be reached at dane.hahn@gmail.com. You can see him on the web at www.danesellsflorida.com.

Street Names

What’s in a name?  Ever wonder if the homes on “avenues” are typically more expensive than the homes on “streets”? Using the database of homes for sale on Trulia their analysts analyzed the median price per square foot for different types of address suffixes. In this analysis, the questions were run against the names of recently sold homes. Here’s what they found:
Top 3 Priciest Address Suffixes

1. ”Boulevard” owners can head straight to the bank.

2. “Place” residents are more likely to turn a profit.

3. “Road” homeowners are living richer.

As it turns out, homes on a street whose suffix was “boulevard” are the most expensive coming in at ($117 per square foot) while the cheapest are those with the name “street” ($86 per square foot) – that’s a 36% price difference! Although saying you live on “Whatchamacallit Road” may not sound that fancy, at $109 per square foot, homes located there are actually the third most expensive of any suffix type. In fact, the median home on a “road” is respectively 8% and 9% more expensive than those located on seemingly more upscale-sounding “court” and “circle.”

Why is “boulevard” the most expensive address suffix? Well, while the word does have a sophisticated French origin, it actually might have more to do with the mix of the homes located there. Approximately, 37% of homes on “boulevards” are in multi-unit buildings, such as apartments and condos. In contrast, these types of homes make up no more than 16% of homes on every other address suffix. A greater concentration of multi-unit buildings could drive up costs, as they are often located in denser, urban areas where space is at a premium.

“Boulevard” may be the most expensive suffix but with only a 2% share of total listings, it’s certainly not the most prevalent one. In contrast, 22% of listings are located on a “drive.” That’s even more popular than “street” (19%), “road” (16%), and “avenue” (15%).

The snowbirds are returning, and this time they are bringing furniture.  That’s the good news.  Moving vans—remember them?—are moving through our neighborhoods as we speak and bringing year ‘rounders back into town.  I am pleased to see new restaurants opening, advertising in the newspapers picking up and the phone at the real estate office is ringing.

Dane Hahn is a real estate professional practicing in Englewood and Sarasota.  You can reach him at dane.hahn@gmail.com or by phone at 941-681-0312.  Or see him on the web at www.danesellsflorida.com.

3rd Quarter Look at Real Estate

Last year, across the nation, investors purchased 1.23 million homes, a 64.5 percent increase over 749,000 in 2010. About 7 million Americans – consider themselves to be real estate investors. An additional 9 percent of all Americans own investment property today but have no current plans to buy more. Thus, one out of eight – 28.1 million Americans – either consider themselves to be residential real estate investors or own residential investment properties today.

At a median expenditure of $7,500 to update and repair these investments—per property—investors are spending a total of $9.2 billion per year just to repair the damage caused by foreclosures and rehabilitate the nation’s housing. Investors are driving their local economies by spending billions with local electricians, plumbers, roofing companies and laborers. Not to mention home improvement stores, appliance and carpet stores and—drum roll please—Realtors.

A friend in the mid-West wrote that in her area, probably only 15% of the “For Sale” signs are still left from a couple of months ago.  The For Sale signs have been replaced by remodeling signs.  So either the houses sold and the new owner is fixing-up, or folks took their homes off the market to make some updates that will help sell the place.

In Wisconsin, where she lives, she says home prices are still anemic and backlogs of unsold homes are still at unprecedented levels after several years.  I personally believe that we have seen the bottom of this slump, but I am now told that The National Association of Realtors revised the number of homes sold between 2007 and 2010 down by 14%! That’s huge.

Back then we knew we were in the dumper, but we all thought things were on the upswing, obviously it was worse that we were being told—as a result, just this week more than 32,000 Florida real estate licensees were not renewed by the Sept. 30, deadline.

We knew it was bad back then, we just didn’t know how bad it was.  The numbers for last month (August) show Florida’s housing market having more closed sales, more pending sales, higher median prices and a reduced inventory of homes.  Statewide closed sales of existing single-family homes totaled 18,669 in August, up 10.8 percent compared to the year-ago figure.  Closed sales typically occur 30 to 90 days after sales contracts are written.  That’s all positive—now all we need are more jobs.

Buyers who have been waiting on the sidelines should see this as a sign to jump in before the market escapes them again. Sellers who have been hesitant to sell should consider putting their homes on the market now. Chances are they will entertain multiple offers and be able to take advantage of historically low interest rates to buy their next home.

Dane Hahn is a real estate professional practicing in Englewood.  You can reach him at 941-681-0312, or by email at dane.hahn@gmail.com.  See him on the web at www.danesellsflorida.com

Reverse Mortgages Can Go Horribly Wrong

A good friend called asking about reverse mortgages, and the caller was very specific with his question.  I try to stay on top of these forms of credit because they allow folks who have no source of funds to tap into the value of their principal residence and take out cash that (theoretically) never needs to be repaid. But as with anything else that sounds too good to be true, there are some downsides.

Reverse mortgage loans are designed for people ages 62 years and older. This product enables seniors to convert untapped home equity into cash through a lump sum disbursement or through a series of payments from the lender to the borrower, without any periodic repayment of principal or interest. The arrangement is attractive for some seniors who are living on limited, fixed incomes but want to remain in their homes.
These loans can enable some people to continue living in their homes, which may not have been feasible without this additional source of cash. However, this loan product is not for everyone, and potential borrowers should carefully assess the pros and cons before taking on a reverse mortgage.

Repayment is required when there is a “maturity event” that is, when the borrower dies, sells the house, or no longer occupies it as a principal residence.

We are seeing that there are still some wrinkles in the concept. Recently a suit was brought against some lenders who were following the letter of one of HUD’s rules, they were requiring newly widowed people--whose names were not on the mortgage of the home they shared with their diseased spouse but who want to stay in their homes--to pay off the balance of their loans quickly, even if it is much more than the value of the home. And if they can’t (or won’t), the lenders are foreclosing.  

This is happening only to a small number of survivors who did not have their names on the reverse mortgage for a variety of reasons. Some spouses did not put their names on the applications in order to qualify for a bigger loan, without necessarily realizing that they were putting themselves in jeopardy.

Reverse mortgages were not supposed to work like this. Instead, the big idea was to let people who were cash-poor but relatively rich in home equity draw on some (but not all) of that stored value. They’d get a lump sum, a line of credit or a monthly check for either a fixed period or for as long as they stayed in the home. And nearly everyone thought the rules were clear: homeowners or their heirs would never, even decades later, owe a cent beyond the value of the property.

Now to my friend’s question: he asked about an elderly gentleman with a reverse mortgage who has been living in a long-term care hospital. As it turns out, the old fellow is getting better, and is looking now toward going into a rehab hospital and then back to his home.  But he has been out of his house for more than a year, documented by all the medical forms and receipts.  Remember, one of the “maturity events” that trigger a repayment is when the borrower no longer occupies the home as a principal residence--and is out of the house for a year.

The question is, since a year has passed that he has been out of his principal residence, will he have to sell the house now and pay off the mortgage? Or maybe he will have to surrender the house to the lender?  Or would his principal residence continue to be the house he has not lived in over the last 12 months?

I’m not a lawyer, and the State of Florida frowns on Realtors practicing law, but I believe a good lawyer could make a case for a principal residence to continue under these circumstances. After all, if you go on a year-long world cruise, your principal residence remains the house you left and plan to return to.  But a note to my readers:  if you’re even remotely considering a reverse mortgage or have a parent or friend who is, there are things that can go horribly wrong if you’re not paying close attention during the application process.

HUD sets the rules for these loans and insures them as well. For years, most borrowers and lenders read HUD’s rules to mean that a borrower or the heirs would never owe more than the loan balance or the value of the property, whichever was less. This is all well and good for couples that are both on the mortgage. Even if one of them dies, the other can stay in the home and keep drawing on any remaining money from the reverse mortgage until he or she no longer lives there.

HUD requires anyone who is applying for a reverse mortgage to talk to a counselor. I’d urge you to talk to two counselors, preferably two who work for different organizations. This may all seem a bit extreme. But my guess is that we’ll see a lot more people (or those who are lucky enough to have any home equity, at least) turning to these products in the next couple of decades if HUD doesn’t tighten its rules too much more.

By the time people need to tap their home equity in this way, it will probably be the biggest asset by far that they have left. At that point, it’s simply not possible to be too careful.  Dane Hahn is a real estate professional (not a lawyer) practicing in Florida and New Hampshire.  He can be reached at 941-681-0312 or at dane.hahn@gmail.com. You can reach him on the web at www.danesellsflorida.com.

Inflation Busters

Inflation got very little coverage in last week’s political conventions.  It occurs to me that most Americans have never experienced inflation and probably don't even know what it is.

In a nutshell, inflation occurs when the dollar loses value—buys less. Usually this is demonstrated by the cost of the stuff we buy every week, going up. When inflation hits a currency people all-of-a-sudden realize that their money is losing value.  When that happens they begin to buy things, and save less—because if money will only get cheaper over time, it makes sense to spend it quickly.

That’s why I view the auto sales numbers—up 20% in August over 2011, as maybe good for the auto industry, but an indication that inflation is upon us.

It's hard to come to grips with the value of our dollar changing.   I mean a dollar is a dollar.  After all, our dollar has been so steady that other countries even use it as a constant currency.  But when our administration simply prints money and puts it into circulation, our dollar is losing value and is in fact getting cheaper, and prices will continue to grow due to the administration’s acts.

Just watch, you’ll see costs of goods go up and up and up. Take for example, gasoline which is going up every day.  Ditto with food—bread and eggs and orange juice have doubled, while other foods like cereal and beef and cheese have just gotten more expensive.

If you could hold a currency value steady, (no inflation and no deflation) the costs of the market basket of items you buy would never change. Think for a moment that a gallon of gasoline in 1962 could be bought for a quarter. Back then a quarter was made of silver. A 1960 silver quarter today is worth about $4, and would still buy a gallon of gas. That's because the silver held its value, but the dollar has inflated.

I recall a gas station in Rindge New Hampshire that had the price they charged for gas painted in huge numerals of their roof.  It said 29.9 cents.  And for all the years I lived there, (1964-1968) that’s how much they charged for a gallon of regular.  Nobody would even consider painting a price on their roof today as the prices are so flexible.

Quantitative Easing, which is something the Fed likes, is the process where the government drizzles money into the economy by purchasing Federal Bonds—basically “on the cuff”.  They buy the bonds with essentially counterfeit bills.  And so as more fake money—with nothing to back it—is fed into the economy, the dollar is being inflated.

What can you do to protect yourself from this erosion of your savings and buying power?  The best way to fight inflation is to exchange your dollars for something real that you need or will grow in value.  Obviously I like real estate, and when dollars get cheap, houses get expensive. 

In severe inflation a house you may have bought for $100,000 will soon have a value of $125,000 or $150,000.  The problem with houses is they are not liquid.  Meaning you cannot exchange them for the higher dollar amount at your will, you will need to find a buyer who may need a mortgage and sometimes there are other costs, taxes and so forth. This can take a year or more as we've recently seen.

But not everyone can buy a house to fight inflation.  If a house is not in your future, you can buy things before the costs go sky high.  That’s why cars are selling so well.  Buying items you might have been putting off-- like home improvements--makes sense. If you need a new air conditioner, now is a great time.

Being invested in something other than dollars is another good way to shield your savings. This is why gold, silver and other metals are thought to be an excellent means of protecting the value of an estate.  Investments in Swiss Francs might be a bit risky, but conform to these thoughts

If you look back 70 years at the “portable assets” that Europeans coveted, these metals and other assets like diamonds were good inflation fighters and offer the advantage of portability, meaning that $100,000 in diamonds might weigh only an ounce, while $100,000 in silver would weigh 3,000 ounces—so to carry your savings with you, diamonds seem to make the most sense.

Nonetheless, if you can buy a house right now; all the variables are in your favor.  Rates are low, asking prices are low, inflation is about to kick in. Jump now if you can.

Dane Hahn is a real estate professional practicing in Florida. You can reach him at dane.hahn@gmail.com, call him at 941-681-0312, or see him on the web at www.DaneSellsFlorida.com

Bargains in Florida Real Estate

The real estate news from the front seems to be improving.  According to Case-Shiller, the indexes of home prices increased again (when compared either to the previous month or the previous year). This is the fifth straight month for steady increases in the indexes.

The general feeling from the National Association of Home Builders is that the regions that feel the most—in the real estate collapse—will have the strongest recovery, and conversely, where there was little change during the collapse (like in Charlotte North Carolina) there will not be much of an up tick as the rest of the country’s real estate markets grow.

Charlotte had one of the smallest total falls at 26 percent from August 2007 to February 2012 while the most recent year-over-year change was 0.8 percent, the smallest of the positive annual increases.

While millions of people continue to battle unemployment, the households with stable jobs and housing have begun to increase and nationally we are moving in the right direction.  But, the cities which continue to have the most financially distressed Americans were Orlando; Tampa-St. Petersburg, Fla.; Riverside-San Bernardino, Calif.; Las Vegas; and Miami-Fort Lauderdale.

Outside of Florida, Americans are feeling the best they have about their financial situation in nearly four years.  Improvements in the national housing market have lessened the stress on Americans’ wallets, according to the report, which analyzed the financial condition of U.S. households in the second quarter. It takes into account factors like employment, housing, credit, family budgets and net worth.

Americans’ improving finances are mostly being driven by homeowners who have been able to cut their housing costs by refinancing into ultra-low mortgage rates, and a big decrease in the number of homeowners who are late on their mortgage payments.

Consumers have worked to repair their finances during the past four years by paying down debt and better managing their credit, and are more in control of their household budgets, increasing their savings even as gasoline prices have risen and the drought has started to affect food prices.

As economic curing continues across a broader segment of the country and the inventory of both existing and new homes dwindles, NAHB expects modest home prices increases to continue with some stronger improvement in the places that had the largest declines.

The buyers who continue to be interested in Florida real estate today remain the Canadians and Europeans along with the retirees from colder northern areas, and those investors who have discovered the bargains available in nearly every town.

Dane Hahn is a real estate professional practicing in Florida and New Hampshire.  He can be contacted at dane.hahn@gmail.com or by phone at 941-681-0312.   See him on the web at www.danesellsflorida.com