Thursday, November 29, 2012

Young Adults Forming New Households

 Back in August, we identified young adults between 25-34 years old still living at home with their parents as a group that was about to enter the housing market. A recent Wall Street Journal article proves our thinking was correct. We have re-posted our original blog post and an update. – The KCM Crew 


In a recent Wall Street Journal article, it was revealed that household formations dramatically increased the last 12 months:

  • Average Annual Formations during boom years – 1.25 million
  • Average Annual Formations 2008-2011 – 650,000
  • New Household Formations in last year – 1.15 million
As the article states:

 “Americans are setting up house at the fastest rate in more than six years, an indication that recession anxiety, which prompted adult children to move in with their parents and single people to postpone marriage, is starting to ease… Rising household formation, which is tied to employment growth, means more students are finding jobs when they leave college, more adult children are leaving their parents’ homes and more couples feel confident enough about the future to tie the knot.”

Continue reading this article at the link posted below.
 Young Adults Forming New Households

Monday, November 26, 2012

FHA Upcoming Policy Changes

The FHA plans to accelerate its recovery

In the same report, issued by the Housing Administration last week, that showed a negative economic value for its capital reserve fund for the first time in its history last week, the FHA outlined an “Action Plan” to strengthen the fund and speed its economic recovery in the next few years.

The FHA projects that, if no policy changes or other operating changes were to be made, its fund will be positive in 2014 and reach the mandated ratio of 2.0 percent by 2017. With new policies and programs in place, the FHA is expecting the fund will be positive within the year and reach the mandated capital reserve ration by 2014.

Upcoming policy changes outlined by the FHA

  • Strengthen assistance programs for delinquent homeowners — the FHA is aiming for payment reductions of at least 20% for FHA-HAMP modifications
  • Streamline FHA short-sale process — and reduce the number of traditional FHA REO foreclosures, which are significantly more costly
  • Change the FHA premium cancellation policy — premiums will be required to be paid for the life of the loan, a change from the current policy which allows homeowners to let the policy lapse after the home had achieved 22% equity
  • Increase the mortgage insurance premium by 0.1 percent
  • Accelerate asset disposal programs to sell up to 10,000 distressed mortgages each quarter
  • Revise the HECM (reverse mortgage) program to lessen its negative impact on the fund — projected changes include reducing the initial amount borrowers are allowed to draw at loan orgination and reducing the maximum amount of funds available to the borrower throughout the program

Read the FHA’s full report here.

Thursday, November 22, 2012

Why Waiting Until Spring to Sell May NOT Make Sense

  We have been happy to report that house prices have increased over the last several months. However, we have also warned that month-over-month prices since 2009 have softened in the fall and winter. We are beginning to see that situation repeat itself in 2012.

CoreLogic, in their latest House Price Index revealed that prices increased by 5% over last year. Yet, prices actually dropped .3% month-over-month (m-o-m). Analytics firm FNC, in their latest Residential Price Index, reported that prices increased 2.3% over the last year but prices remained unchanged m-o-m.

What Does This Mean for Sellers?

Sellers should be excited about the headlines showing price appreciation across the country for the first time in a long time. However, if you want to sell your home in the next 6-8 months realize that there is a better chance that prices will soften than appreciate during that time span. Waiting until the spring for a better price probably makes little sense. 

Monday, November 19, 2012

FHAs Annual Report Is In

Reserve Fund Is Low — Will the Treasury Need To Help?

Negative capital reserve does NOT indicate operating deficit

The U.S. Department of Housing issued its Annual Report to Congress on the financial status of the Federal Housing Administration’s Mutual Mortgage Insurance (MMI) Fund for the fiscal year 2012 last week. Most notably, the report reveals that the fund currently has a negative economic value of $16.3 billion. 

It is important to note that the fund’s negative value does not mean that the FHA is unable to pay insurance claims or is running a current operating budget.

FHA unlikely to petition Treasury support

Although the FHA could petition for a Treasury draw, the decision as to whether that’s necessary doesn’t rest on the projections outlined in the report, but on the President’s budget proposal, which will be released in February — even then, the final determination won’t be made until September of next year. The report’s estimate of this year’s deficit also does not include $11 billion of expected capital accumulation from the FHA’s current “book of business.” 

The FHA, which was created in 1934 to revive the country’s housing market after the Great Depression, has never had to call upon the Treasury for financial support.

Capital reserve fund down from 2011

The Congress mandates that the FHA’s capital reserve fund be no less than 2 percent of the FHA’s “insurance-in-force” — with $1.13 trillion of insurance-in-force for FY 2012, the current capital reserve fund ratio is about -1.44 percent, down from 0.24 percent in 2011 (when the fund had an economic value of $2.6 billion).

Fund predicted to be in the black within 2 years or less

The FHA predicts that — without any policy changes or other operating changes that might impact the FHA’s recovery — the fund will be positive in 2014 and reach the mandated ratio of 2.2 percent by 2017.


Read the FHA’s full report here.


Friday, November 16, 2012

Is It Time to Buy A Rental Property?

Yesterday, we discussed rising rents and their impact on the long term housing expense of tenants. Today, we want to look at the opportunities that single-family rental units present for the small investor.
With house prices inching up and rents skyrocketing, this may be the perfect time to invest in single family residential real estate.
If you do, you won’t be alone. According to the National Association of Realtors’ (NAR) 2012 3rd Quarter Metro Area Report:
“Investors…accounted for 17 percent of all transactions in the third quarter.”
More than one out of every six houses sold are purchased by an investor. In the most recent MarketPulse Report by CoreLogic, their Principal Economist, Sam Khater, wrote on the subject in a story titled Roll Tide, or The Rise of the Single Family Rental Market. The major takeaways from the article are:
  • The single-family rental market remained very active in the late summer of 2012 with increases in demand, tightening inventory and rising rents.
  • Nationally, rental leasing volumes were up every month for two years. In August, they were up 7% over last year.
  • Supply was down 11% over the same period.
  • This tightness in supply has caused rents to increase.
  • Rent growth is expected to increase at a ‘strong clip’ late in 2012 and in 2013.
If a private investor is looking for a great hands-on opportunity, perhaps purchasing a single-family house to rent out makes sense. Check with your local real estate adviser to uncover the opportunities in your region.
Is It Time To Buy A Rental Property?

Monday, November 12, 2012

New Mortgage Applications Up, ReFi’s Down

Mortgage Rates Stay Fairly Steady (And Low)

Refi applications drop 4 weeks in a row

The last week in October saw a 6 percent drop in refi applications from the prior week, marking the fourth straight week of decreases. Interestingly, just a month earlier, in September, refinance applications reached their highest level in three years.

Mortgage rates continue to hover near all-time lows

Mortgage rates have been holding fairly steady at nearly record lows, which may partly explain the drop in applications for refinancing. As a senior economist at Wells Fargo Securities put it, “People who are not underwater have already refinanced. People who want to refinance but couldn’t are already underwater.”  (via Medill Reports)

Refinancing activity drop predicted to continue next year

At the Mortgage Bankers Association’s annual convention earlier this month, consensus seemed to be that mortgage originations would go up next year, but refinancing would drop in the second part of the year.

Thursday, November 8, 2012


A Conversation on Short Sales vs. Strategic Defaults

 Original Question:

I have heard that a short sale might be better than a strategic default. However, they are painfully slow and I’m really not sure they have any “different” effect on surrounding homeowners: it’s still a massive loss of value in the area.

Whether they short-sell or not, aren’t they going to be penalized by future lenders anyway? I’m not entirely sure there’s much of a different in the “outcome” at the end of the day – short sell or walk away, they are going to suffer in creditworthiness.

And don’t short sales actually harm the bank “more” than the borrower (perhaps) because it drags out the timeframe before the asset can be put on the market, where as a walk-away can put that home on the market right away – at TODAY’s possible sales price – rather than weeks more of declining value.

I can fully understand your overall point. However, as always, the devil is in the details.

1.) There are VERY HEFTY penalties to a strategic defaulter vs. a person who short sales (ex. Fannie Mae has decided that they will “lock out” any strategic defaulter from getting a mortgage for a minimum of seven years and will also charge them with EVERY expense incurred during the foreclosure process).

2.) The average short sale sells for 85.3% of full value. Foreclosures sell for an average of 66% of full value. Every time a house goes to foreclosure vs. a short sale the neighborhood loses that 19.3% equity difference when these homes are used as comps.
Again, I understand your overall point. I am just worried about future ramifications.

Click on the link posted here, A Conversation on Short Sales vs. Strategic Defaults , to continue reading.

Tuesday, November 6, 2012

New Home Sales Continue to Rise

Highest Sales Level In More Than 2 Years

Month to month improvement nearly 6%

The Census Bureau reports that sales of new single-family homes rose 5.7 percent from August 2012 to September. The seasonally adjusted annual rate in September was 389,000 — up from August’s 368,000. The new home sales rate in July of this year was 374,000 — a two-year high.

Annual increase more than 25%

September 2012 saw a 27.1 percent increase in new home sales over September of last year. The median sales price of a new home in September was $242,000 — up nearly 12 percent over the same time last year.

Housing market recovery seems solid

Bloomberg interviewed an economist with RBS Securities in Connecticut who said that

“All the things that were really holding back housing are finally starting to lift. It really is tough to find any bad signs here. Inventories are very, very lean. Assuming the economy remains on track, housing should continue to improve for the rest of the year and into 2013.”

Gathered from

·       Home Sales Rising to Two-Year High Spur U.S. Growth: Economy (Bloomberg)

·       New-home sales up 27 percent from a year ago (Inman News)

·       New home sales jump to two-year high (NBC Bottomline)