|Home Buying Easier for Millennials, First-Timers as Credit Scores Hit New Highs
The largest lenders are finally loosening their standards to make housing more accessible for millennials and first-time buyers, more than a decade after the housing crash.
Fannie Mae, the largest source of mortgages, is making it a little easier for people with all kinds of existing debt — including student loans — to qualify for mortgages. The change will come on July 29 when the debt-to-income ratio (DTI), a measure of a borrower’s capacity to make payments, rises to 50 percent from the current 45 percent.
To understand what the updated standard would look like, let’s say a household earns $5,000 a month and makes monthly debt payments totaling $2,250. The household DTI, debt payments divided by income, would be 45 percent. That’s right at the current ceiling, and a lower DTI is preferred by lenders.
It comes at the same time that FICO scores have reached all-time highs. For the first time, the average national credit score has reached 700, according to FICO, the developer of one of the most commonly used scores by lenders. FICO scores range from 300 to 850. Average credit scores most recently bottomed out at 686, during the housing crisis when there was a sharp increase in foreclosures. They have steadily ticked higher since then; now, average scores are higher than ever.
“Unfortunately, the credit models that the government uses to gauge creditworthiness are very outdated and don’t do a satisfactory job of identifying qualified borrowers who don’t bank or use credit the way previous generations have in the past,” Collingwood Group Chairman Tim Rood told Fox Business’ Maria Bartiromo. “There’s a big disconnect. It’s kind of like the government is using Atari consoles while millennials are using Pokemon Go and Instagram applications. As a result, there are 50 million of these people who are ‘unscorable’ and completely invisible to the current mortgage system.”
According to the Make Lemonade web site, student loans are the largest source of debt in the US apart from mortgages. And so, this eased requirement could benefit millennials who are looking to buy their first homes. Amid tight housing inventories, income and wage stagnation, and escalating home prices, the homeownership rate for Americans under 35 — and the rest of the population, in fact — is at its lowest level in five decades.
Concludes Collingwood Group’s Rood, “This will certainly give the mortgage business, housing and the economy a needed shot in the arm.”
What The Real Estate Industry Must Learn from Sears and Amazon
Rest on your laurels and become a dinosaur, but continue to innovate and your business will grow — clear lessons for the Commercial Real Estate Industry from Sears and Amazon.
Sears just announced it is closing eight more of its namesake department stores and 35 Kmart locations to cut costs and square footage in an effort to return to profitability. The store closings are in addition to the 150 the company announced in January. Once the largest U.S. retailer, Sears has struggled with years of losses and declining sales as shoppers have shifted from the mall to the web. The company said in February that it would cut costs this year by at least $1 billion.
“Many of us saw Sears’ problems coming for a very long time,” says Situs CEO Steve Powel. “Sears pioneered the catalog business, and for our grandparents it was much like Amazon is to us. However, Sears encountered problems when it failed to progress with the times and develop a better e-commerce strategy.”
On the flip side is Amazon, which continues to innovate. Its Prime Day sale on Tuesday was a huge success, kind of a “Christmas in July.” The e-commerce giant launched the discounting event on July 15, 2015, to commemorate its 20th anniversary and to advertise its $99 annual Prime loyalty program. Last year, Amazon reported record sales on Prime Day.
“The CRE Industry must learn to think like Amazon,” says Situs’ Powel. “Amazon is continuing to dominate the retail space by using technology in new and ever-evolving ways. Clearly, the CRE industry is ripe for tech disruption — unless we innovate, the industry risks following the fate of many failing retailers who didn’t.”
The shift to digital retail will also have a long-term effect on malls as retail bankruptcies continue to rise. The most recent bankruptcies come from The Limited, True Religion, Wet Seal, hhgregg, RadioShack, rue21 and Payless.
Situs’ Powel says here is the good news: “About 3,000 store closures have been announced, but there have also been announcements of about 2,000 store openings. I am optimistic about the future of the retail industry, and of the Commercial Real Estate Industry as well.”
Can Washington Fix the New Housing Crisis?
Donald Trump campaigned on restoring the “American dream,” a 1931 metaphor for economic success that has become political shorthand for homeownership. But as president, Trump faces a unique challenge delivering on that promise: The country is in the grip of a new kind of housing crisis that Washington has virtually no power to solve.
The crisis is a shortage of houses. Nationally, the inventory of homes for sale has been shrinking for 24 straight months, stoking bidding wars for even the lowliest fixer-uppers. In January, a measure of supply hit its lowest in history, according to the National Association of Realtors. That scarcity has helped push the homeownership rate to a near 50-year low. As 83 million millennials approach home-buying age, the shortage is expected to get only worse.
The president claims to have the problem well in hand. “Homebuilders are starting to build again,” he told a cheering crowd in Iowa last month. But that’s wrong: Construction is at an eight-month low and builder optimism is waning. There were so few houses for sale in May that buyers pushed prices to a new record high. The scarcity has helped push homeownership among young adults to its lowest in at least a generation, according to Bank of America. Today’s millennials are less likely to be homeowners than their parents or grandparents were at their age.
But Washington, which has a centurylong track record of goosing the market to encourage buyers, has almost no leverage when those buyers have nothing to buy. The Trump administration has offered few plans for tackling the problem beyond rolling back a clean-water regulation that raised builders’ cost of doing business. Housing and Urban Development Secretary Ben Carson has said building codes need to be updated to pave the way for inexpensive modular homes and other construction innovations, although he hasn’t gotten more specific.
The problem they’re facing is that American housing policy has always pointed one direction: encouraging people to own their own houses. Subsidized mortgages, tax breaks and, lately, crazy-low interest rates are all designed to boost the market for housing. And the market has usually cooperated: With the government juicing demand, builders swooped in and a steady supply of new houses typically followed.
read more: Politico
Americans Who Can’t Afford Their Homes Up 146 Percent
Over 38 million American households can’t afford their housing, an increase of 146 percent in the past 16 years, according to a Harvard housing report.
Under federal guidelines, households that spend more than 30 percent of their income on housing costs are considered “cost burdened” and will have difficulty affording basic necessities like food, clothing, transportation and medical care.
But the number of Americans struggling with their housing costs has risen from almost 16 million in 2001 to 38 million in 2015, according to the Census data crunched in the report. That’s more than double.
And despite the overall economic recovery, it’s only a small improvement from 2014, going down by about 900,000 households.
When people can’t safely afford to pay their mortgages and rent, it isn’t just a problem for those with a lower income or people who bit off more house than they can chew.
Housing un-affordability also drags down GDP, slowing down overall economic growth for everyone, said Dan McCue, senior research associate at the Joint Center for Housing Studies at Harvard University, which publishes the annual State of the Nation’s Housing report.
“It forces them to constrict spending on other items, which would reduce spending on other parts of the economy. They would buy less, save less, reduce savings,” said McCue.
“It may make it more difficult to venture out and start a new company — or, living month to month, they’re much less likely to go back to school and get additional training; and may not be in the job that makes them the most productive member of the labor market,” McCue told NBC News.
A big factor has been how wages haven’t kept pace with rising housing costs.
“For lower income groups, it’s even worse than stagnation. It’s not keeping up with inflation,” said McCue.
Housing costs are being driven by a limited supply of move-in quality, entry-level housing, said Diane Swonk, CEO of DS Economics.
“In the wake of the financial crisis, so much capacity was taken offline,” Swonk told NBC News. “Much of the existing stock of housing is still underwater. Many of the entry level houses are in disrepair.”
And what building is happening is happening upmarket.
“Builders are less able to downscale and build smaller volumes of smaller homes,” said Swonk. “It’s restricting supply well below demand, so of course it shows up in price.”
read more: NBC News
Black Homeowners Struggle as Housing Market Soars
- The backdrop: “In 2004, the pinnacle of U.S. homeownership, three-quarters of whites and nearly half of blacks owned homes,” per Harvard’s Joint Center for Housing Studies.
- Stat du jour: “By 2016, the African-American homeowner rate had fallen to 42.2 percent and lagged 29.7 percentage points behind whites [72%], nearly a percentage point higher than in 2015. … The center said the disparity between whites and blacks is at its highest in 70-plus years of data.”
- Why it matters: “The lack of affordable housing and stricter lending is also making it harder for first-time buyers, including African Americans, to purchase what has traditionally been considered an essential part of the American dream and a way to build wealth.”
read more: Associated Press
How a Home Bargain Became a ‘Pain in the Butt,’ and Worse
James R. Williams thought he had found a great deal on a home. The monthly fee on the three-story fixer-upper in Cincinnati was cheaper than the rent on his last home. And the payments would go toward the $40,000 he needed to own the place.
But Mr. Williams will almost certainly never own the house. Instead, he was left with a grandson with lead poisoning from peeling paint in the 98-year-old home and he says around $10,000 in critical repairs to the plumbing system.
And as if that wasn’t enough, in the five years that Mr. Williams has been in the house, the ownership has changed three times, making it difficult for him to deal with an overdue water bill of several thousand dollars, keep current with the property taxes and figure out where to send the monthly checks under the 30-year contract he signed.
“It’s confusing,” said Mr. Williams, 61, a manufacturing parts assembler, who lives in the home with his wife, Mary Ann. “It’s a pain in the butt, and it’s aggravating as hell.’’
Across the country, people like Mr. Williams have found themselves in similar predicaments. Unable to obtain a traditional mortgage, they have signed a high-interest, seller-financed deal known as a contract for deed that works like an installment plan for housing. For many, these deals can quickly turn into money traps.
The deals also have added to neighborhood blight when the houses fall into further disrepair.
Contracts for deeds are difficult to track because the transactions are not recorded in many states. It can become difficult to determine who actually owns the property — and who is responsible for its upkeep and paying property taxes — often because the original contract is sold to several investors over time.
The financing has become such a problem in poor communities that it has prompted a range of responses. The Federal Reserve Bank of Atlanta recently issued a report calling for better recording of contracts for deed. The Uniform Law Commission, an organization that proposes model laws for states, is weighing whether there should be a uniform law governing the rights and responsibilities of buyers and sellers in contracts for deed. A commission committee looking into the matter conducted a survey that “found problems or abuses with contract for deed in 80 percent of the states.”
read more: NY Times
Facebook Moving into Building Houses
The shortage of housing in California’s Silicon Valley has gotten so severe that Facebook on Friday proposed taking homebuilding into its own hands for the first time with a plan to construct 1,500 units near its headquarters.
The growth of Facebook, Alphabet Inc’s Google and other tech companies has strained neighborhoods in the San Francisco Bay area that were not prepared for an influx of tens of thousands of workers during the past decade. Home prices and commute times have risen.
Tech companies have responded with measures such as internet-equipped buses for employees with long commutes. Facebook has offered at least $10,000 in incentives to workers who move closer to its offices.
Those steps, though, have not reduced complaints that tech companies are making communities unaffordable, and they have mostly failed to address the area’s housing shortage.
“The problem with Silicon Valley is you don’t have enough supply to keep up with the demand,” said Sam Khater, deputy chief economist at real estate research firm CoreLogic.
With Facebook’s construction plan, the company said it wanted to invest in Menlo Park, the city some 45 miles south of San Francisco where it moved in 2011.
The company said it wants to build a “village” that will also have 1.75 million square feet of office space and 125,000 square feet of retail space.
read more: NY Post
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