Home Buyers Interested in Down Payment More Than Rates

lower down payment Changes in down payment requirements have more influence over home buyers’ willingness to buy than changes in mortgage rates, according to a new study published by economists at the New York Federal Reserve.

Federal Reserve Bank of New York’s Survey of Consumer Expectations found evidence that buyers and renters impact of interest rates is highly overrated compared to the impact of even small changes in down payment requirements. The study found that decreasing the required down payment from 20% to 5% increases the willingness to purchase on the average about 15% among all buyers and 40% among renters.  Decreasing interest rate on a 30-year fixed rate mortgage, though it would save the buyer much more than the lower down payment, raised the willingness to purchase a home by only 5% on average.

A key takeaway is that the effect of a change in down payment requirements on housing demand strongly depends on households’ financial situation. For instance, a loosening of down payment requirements will have little effect on the willingness to purchase for a new home of current owners with substantial equity, or of renters with substantial liquid savings.  The results also imply that macroprudential measures such as a loan-to-value (LTV) cap may predominantly affect the lower end of the housing market, and that the effect on house prices will depend on the state of the economy and other asset markets,” said economists Andreas Fuster and Basit Zafar of the New York Federal Reserve.

Wealthy Chinese Flood Market With Special Federal Program

chinese real estate investorsThe Chinese are coming here with their money, and, often, with their families. Rather than seeing China as the land of opportunity, more Chinese have been establishing homes in America, particularly in California, where they account for roughly one-third of foreign homebuyers, with upward of 70 percent paying cash. Overall Chinese investment in U.S. real estate has grown from $50 million in 2000 to $14 billion in 2013, surpassing all other foreign investors.

Chinese are buying U.S. homes and investing in U.S. mega-developments. Chinese home shoppers spent $28.6 billion on U.S. homes in the year ending in March, double the amount two years earlier, the National Association of Realtors reported. At least $10 billion of that went to buying homes in California.

In addition, Chinese citizens seeking green cards are a growing source of cash for housing and commercial developments under a federal program known as EB-5. The program allows foreign investors to get permanent U.S. residency for themselves, their spouse and children under 21 if they invest enough to create at least 10 jobs here. EB-5 investors in 2014 claimed the full 10,000-visa allotment by August. This year’s allotment was gone by May. More than 80 percent of the visas are going to Chinese citizens.

Since most foreign investors don’t have the ability to create their own businesses, designated organizations pool cash from multiple investors, funneling the money into job-creating development projects. Minimum investments range from $500,000 to $1 million. The most recent data available shows EB-5 investments totaled almost $2 billion in 2013, of which $317 million was spent in residential and commercial real estate development, according to Invest in the USA, an industry trade group.

EB-5 spending in the county, totaled $25.1 million in 2013, up from $2.1 million, Invest in the USA reported. “It’s very hard to get residency here. EB-5 is a foolproof way,” Fieldstone said. EB-5 money also is helping to finance the Hunters Point Shipyard and Treasure Island projects, two San Francisco housing developments managed by Orange County-based FivePoint Communities, he said.

Is Another Housing Bubble Forming

Housing_Bubble_articleA lot of forces came together in the early 2000s to fuel the US housing boom while putting it at risk of its ultimate crash.  Two trends related to loose lending standards stand out: 1) lots of new homebuyers were able to get mortgages, and 2) many of those new borrowers were able to do so by putting very little money up front. Combining these two forces, you got a massively leveraged housing market.

After the housing market bust we experienced  in 2008, many experts have been quick to warn that a new bubble may be forming in some areas of the country. There’s not yet a bubble, despite factors reminiscent of the last housing bubble, including low interest rates and somewhat lax rules on down payments for first time buyers. But this is no longer the case. And this lower leverage may be the most important difference between the housing market today and the housing bubble because it reduces the risk of a major downturn.

The biggest challenge facing the housing market right now is the lack of inventory available for sale. Prices are determined by supply and demand. If prices continue to outpace inflation and income in these areas, that can eventually become a problem. Right now buyer demand is out-pacing seller supply, across many price ranges, driving prices up.Current homeowners list their home to either trade up or downsize, opening up inventory for first-time buyers to come in. One can’t happen without the other. But current homeowners aren’t flooding the market with “For Sale” signs. Some are worried they won’t be able to find a new house or they’re still waiting to recoup their home’s value lost in the crash.

If you are a homeowner debating listing your home for sale this, now is the time, meet with a local real estate professional who can guide you through the process.

Asian Ultra Rich Buying Trophy Properties

super-rich-asianThe ranks of the super-rich are swelling, but nowhere faster than in Asia. Ultra-high-net-worth individuals, classified as having a net worth of more than $30-million (U.S.) each, are snapping up properties all over the world.

Dubai, Hong Kong, London, Los Angeles, Miami, New York, Paris, San Francisco, Sydney, and Toronto were found to be the most desirable cities for the affluent home buyer last year, according to the recently released 2015 Luxury Defined report from Christie’s International Real Estate.

The average starting price for a luxury home around the globe is $2-million. Beverly Hills, where luxury begins at $8-million, has the highest price entry point.

Ultra-high-net-worth individuals are looking to diversify their portfolios into different asset groups, one of which is luxury real estate. They’re looking for a safe place to invest at a reasonable rate of return. Just as some ultra-rich buy masterpieces of art or exquisite jewels, an emerging trend in the luxury market is the “trophy home. The trophy home is becoming effectively a collectible asset class.  The ultra-high end of the real estate market established new benchmarks for price in 2014, with buyers buoyed by the global economic recovery and soaring stock market prices. Five properties around the world changed hands for more than $100-million. In the same way people may buy a Picasso, those same buyers are now buying some of those trophy properties. Trophy is the new buzzword in luxury real estate.

Asia had the highest growth rate in its super-rich population last year, increasing by 3.5 per cent compared with the global average of 3.1 per cent, according to the 2015 Wealth Report by Knight Frank, an international property consultancy. Real estate is increasingly seen as a mainstream investment class, accounting for 38 per cent of an investment portfolio on average among the ultra-wealthy in Asia.

Asia’s ultra-wealthy population will surpass that of North America in the next 10 years by 11 per cent. The especially affluent in Asia hold more in total wealth than those in North America, with net assets of $5.9-trillion and $5.5-trillion respectively. The super-rich in China and Hong Kong own the most number of homes, at 4.7 and 4.6 respectively, compared with the global average of three.

Ultra-high-net-worth property investors are becoming increasingly confident and are looking to diversify their property portfolios by exploring new asset classes and locations. They invest in these key cities as they’re deemed to be safe haven and have a historical trend of good capital appreciation.  And the Asian investors are flocking to the West Coast.

Trophy Property Where All The Rage Last Year

trophy propertyAs the global economy continues its recovery, record sale prices of luxury goods and luxury homes continue to capture headlines and intrigue the buying public around the world. What we are seeing in our current market is that $100 million is now the benchmark for this ultra-exclusive category, as more consumers move to collect “trophy” properties. More properties above $100 million were listed in 2014 than ever before.

As the number of wealthy individuals rises, inventory in coveted markets is dwindling and extravagance is spreading to new areas. A thriving real estate market tends to have a cascading effect across the luxury sector, with consumers turning to other categories after a property is secured. Location, lifestyle, and provenance, particularly at the top end of the luxury residential real estate market, are the hallmarks of value and often equally as important as price when high net worth individusals consider a property purchase.

The traditional luxury market has often been pegged at $1 million and higher, according to Christie’s. The ultra-affluent, however, regularly escalate the benchmark. London and Beverly Hills, CA have the highest entry-points with luxury homes starting at $6 and $8 million, respectively. High-value urban market sales rose 15 percent from the year-ago period, largely because of millennials growing up and baby boomers transitioning into new phases of life.,Cities are still performing strongly, not at the levels we saw in 2014, but we expect 2015 to see sustained, healthy growth from major economic hubs. Second home markets led the growth of high-value sales in 2014,

As the global affluent continue to thrive, markets everywhere will rejuvenate.

Don’t Pay Too Much Property Tax

PropertyTax_jpg_800x1000_q100When tax time rolls around, many homeowners are surprised at the amount of property tax they owe. If you disagree with the stated value of your property, it’s worth a closer look to see if your bill has increased fairly. Statistics vary by area, but experts estimate that between 30 and 60 percent of taxable property in the United States is over-assessed, and this leads to higher property tax bills. Yet typically fewer than 5 percent of taxpayers challenge their assessments, even though the majority who do so win at least a partial victory when properly prepared. Are your property taxes too high?

To be sure you’re not paying more than you should, check the following factors.

Basic errors

First, verify that there are no mistakes on your property card — a document that records information such as dimensions, acreage and value. Errors like these can — and do — occur, and they’re actually quite common. But you won’t know about discrepancies if you haven’t seen your home’s card and reviewed it carefully. Get a copy at the town hall, bringing any errors to the immediate attention of the assessor

Comps

After you pull your home’s property card, take a look at a few of your neighbors’ cards — specifically, neighbors who have homes that are similar to yours in terms of age, size, style, condition and location. How do their assessments line up with yours?

Caps

There is often a cap on the maximum amount that property taxes on primary residences may be increased — but it’s up to you to make sure you’re being protected by it. For example, California’s constitution mandates that property taxes on primary residences cannot exceed 1% of the property’s market value and that the assessed taxable value of a property cannot go up by more than 2% a year unless the property is sold — regardless of how much the property may increase in value in market terms.

Exemptions

Are you taking advantage of special exemptions? Some states offer tax reductions for veterans, the disabled, and senior citizens. Some also provide reductions for historic buildings and special energy-efficient systems. Ask about these — and other incentives for tax reductions — that you may be eligible for. It’s worth a shot.

Is Owner Financing a Good Idea for Home Sellers?

buyers-sellers street signIn this current market, with home prices trending up, but access to financing is more difficult post housing bubble. So, if you want to sell your home, is it a good idea to offer seller financing?

What does seller-financing mean?

An alternative form of financing seen during a seller’s real estate market is owner or seller financing or owner carryback. This means the owner participates in financing the buyer’s purchase of the property, either in whole or in part.

Unlike a traditional bank mortgage where a lump sum is given to the buyer to purchase the home, seller financing means that the seller allows the buyer to make payments directly back to the seller. Most often, the homebuyer signs a promissory note with the seller that outlines the selling price, the interest rate, repayment schedule and even the consequences if the buyer defaults.

In most cases, a seller-financed note is short-term. Since most sellers don’t want to carry a note for 15 to 30 years, the typical note is for around five years with a balloon payment at the end where the buyer secures a standard loan for the remaining balance.

Unless the seller and buyer have an experienced real estate broker assisting him or her in an owner finance, the chances for serious problems arising from the transaction can be significant to both the seller and the buyer.

Is it good for the seller?

Sellers may choose to offer financing for any number of reasons, but some include:

Being able to sell “as is.” If your home requires costly repairs, selling through owner financing may allow you to pass those costs on to the buyer instead.

Potential investment income. Buyers looking for owner financing may be willing to pay a higher interest rate to you than you would receive through any other type of investment. Typically, you must own the home free and clear, and the buyer takes on taxes, insurance and any association dues so all income from the payments goes to the seller.

Opening up the purchase to additional buyers. Potential homeowners that were hit with difficulty during the housing bubble may not be able to get traditional financing even though they are now able to make mortgage payments. Self-employed or contractor may not be able to get favorable loans due to tighter underwriting requirements and may desire purchasing through seller financing.

Some possible pitfalls include what happens if the buyer defaults. If the promissory note is executed correctly, the seller gets the home back along with all of the monies paid to date. At that time the seller is free to sell the home again, but the “buyers” may leave behind damage and the need for costly repairs.

Some things to consider

If you are new to owner financing, make sure to work with a real estate attorney and a professional real estate agent to make sure the sales contract and promissory note fully protect you. There may be tax ramifications to seller financing, so be sure to contact your CPA or tax professional.

The most common problem arising out of an owner finance of a sale to the buyer is when the seller’s loan comes due for payment. Many times the buyer makes a claim that there are problems with the home that were not disclosed by the seller before close of escrow in an attempt to reduce the balance owed on the loan.

Since it is in your interest for your buyer to be able to refinance at the end of the note, offer to report the payments to credit reporting agencies to help build your buyer’s credit score. While individuals typically cannot report directly to these agencies—they have strict lender guidelines—services like Virgin Money can manage and report payments for you to alternative credit reporting companies such as PRBC, that many mainstream lenders now refer to for information on potential mortgagees.

On its face, an owner financing situation seems like a good idea. However, if the transaction is not properly supervised by an experienced real estate brokerfor both the seller and the buyer, many hidden traps may emerge.

If you’re considering selling your home, and wonder about seller financing, talk to us. We can help connect you with professionals to guide you through the process while we market your home.

Tight Inventory Challenges Propel Home Prices

spring home salesA fourth national market report has added to the evidence that winter inventories are extraordinarily—even dangerously—low.  Realtor.com has joined RE/MAX, NAR and Zillow in reporting levels significantly below last year.

The dramatic drop in listings tracked by REMAX echoed findings by NAR, Realtor.com and Zillow that supplies are tighter than they were last year and even two years ago when lack of supply sparked double digit prices increases and bubbles in several California markets

The realtor.com January National Housing Trend Report shows that inventory has decreased 6.7 percent month over month and 8.7 percent year over year.

Sales were also down dramatically from December. the number of home sales decreased 32.1 percent from a robust December and were nearly 5 percent below sales in January 2014, according to the National Association of Realtors. Typically, January closings are lower than those in December. Higher prices, coupled with weak supply, caused an unexpectedly large drop in January home sales.

Most markets are struggling to achieve the proper balance of homes for sale and qualified buyers, said realtor.com.  Low inventory has become a national challenge as homeowners opt to stay put longer—a record 10 years—rather than move up and move on. Most housing markets are appreciating in value as homes sell faster. In fact, prices increased 8.8% in January over 2014, according to the report.

On a year-over-year basis, the Median Sales Price has now risen for 36 consecutive months. Price appreciation is the result of pressure from year-over-year inventory losses. Inventory has dropped by roughly 10 percent for the last three months. There is strong demand, but it is hitting a roadblock in supply. Potential buyers are saying they can’t find a home that meets their needs and/or budget.

We are not seeing enough growth in inventory to support recovering demand Prices will therefore continue to rise in a market when demand outstrips supply. Home prices are beginning to grow at a faster pace again, which is not good for the spring market. Sticker shock was behind weak sales in 2014, but as price gains began to ease, buyers came back. Now prices are heating up again due to severely weak supply.

3 Things You Don’t Want to Hear From Your Realtor

bad realtorYou’ve decided to sell your house. You begin to interview potential real estate agents to help you through the process. You need someone you trust enough to:

Set the market value on possibly the largest asset your family owns (your home)

Set the time schedule for the successful liquidation of that asset

Set the fee for the services required to liquidate that asset

An agent must be concerned first and foremost about you and your family in order to garner that degree of trust. Make sure this is the case.  Be careful if the agent you are interviewing begins the interview by:

  1. Bragging about their success
  2. Bragging about their company’s success

    An agent’s success and the success of their company can be important considerations when deciding on the right real estate professional to represent you in the sale of the house. However, you first need to know they care about what you need and what you expect from the sale. If the agent is not interested in first establishing your needs, how successful they may seem is much less important.Look for someone with the ‘heart of a teacher’ who comes in prepared well enough to explain the current real estate market and patient enough to take the time to show how it may impact the sale of your home. Not someone only interested in trying to sell you on how great they are.

  3. “You Know, As it Happens, I’m Also a Mortgage Broker”Some real estate professionals believe it is necessary to supplement their income by wearing a variety of different hats. As anybody who has been through getting a mortgage loan can tell you, it can’t be that much work to print out 99 pages of documents to sign. The trouble is it’s not as simple as it looks, and to be a loan specialist requires a ton of training, experience and knowledge. To avoid a conflict of interest, I advise hiring separate real estate professionals who specialize in their line of work, and do not allow your real estate agent to package your mortgage financing or vice versa.

    You have many agents from which to choose. Pick someone who truly cares.

Chinese Spending Billions on California Real Estate

california real estate marketWealthy Chinese with a few million yuan to burn will spend billions on U.S. real estate in the years ahead, according to a report released Wednesday by CB Richard Ellis, a large global real estate firm.

The United States is the country of choice for China buyers.  Canada and Australia come in next at No. 2 and No. 3 respectively. That rich Chinese individuals and savvy corporations are buying up real estate in world class cities is no surprise at this point.

News of new Chinese real estate deals are popping up every quarter.  Similar moves happened with the Japanese back in the 1980s. Now it’s China’s turn. And by most estimates, they are snatching up high end real estate in Los Angeles, San Francisco and New York, in particular. In California, China is the third largest foreign buyer of real estate, following Mexico and people from the Philippines, according to Realtor.org.  Across the country, however, Chinese purchasers bought over $10 billion of U.S. real estate in 2011 and account for 9% of foreign U.S. house buyers, second only to Canadians, according to Juwai.com, a Chinese real estate website geared towards international home shoppers.

By comparison, and across the 50 states, the Chinese buy more U.S. homes than Indians, Mexicans or the British. While Mexicans are big in California and all across the south, China still ranks within the top five foreign nationalities buying real estate in 44 states.  China, for instance, is ahead of Mexican buyers throughout the more costly Northeast. They already are the number one foreign buyer group in states like West Virginia and Massachusetts. They are number two in New York, Maine, Indiana, Missouri, Colorado, Wyoming and Hawaii.

Companies are starting to cater to this niche globe trotter looking for their dream home. The Chinese are interested in real estate as both investment opportunities and also second homes outside of China. The properties they purchase as their own personal homes tend to be in the $1 million to $5 million range whereas as investment purchases range from $500,000 to $2 million, according to Affinity China.

Residential properties are as hot as commercial ones right now. Home prices in the U.S., coupled with economic uncertainties and tight regulations designed to curb a housing bubble in China, are driving record Chinese investments in the U.S. residential and commercial real estate markets, according to the Asia Society, a multinational think tank with offices throughout the U.S. and Asia Pacific.