Discussing the economy, if rent to own is a scam, homes selling faster than ever, housing starts and building permits, the dire need for more homes, Zillow becoming a flipper, a super easy way to save thousands on your mortgage, first mortgage defaults, home prices and much more
US Economy Snapshot
Selected snippets from the latest NY Fed US Economy in a Snapshot:
Real consumer spending growth remained weak in February.
Housing indicators generally point to continued gradual improvement in this sector. Tight housing supply and a strong labor market have the potential to provide continuing support to the housing sector.
Payroll growth was moderate in March following a strong increase in February, in part reflecting weather conditions. The unemployment rate and the employment-to-population ratio were unchanged, while the labor force participation rate declined slightly in the month. The latest readings of various measures of labor compensation continued to indicate modest firming.
Core PCE inflation continued to run below the FOMC’s longer-run objective, but near-term momentum has firmed.
Not bad and a reflection on the reality of the economy at this time.
Is Rent to Own Bad?
I am really not a fan of rent to own or lease options because of the few bad characters that have taken what could be a win win and turned it into a scam to prey on less informed consumers. I do not and will not work with this type of transaction because of the liability for all involved and the negative attitude of the local court system towards anyone involved in rent to owns.
That being said, it appears that NY state is investigating if rent to own is legitimate or a predatory scam:
Financial Services Superintendent Maria T. Vullo today announced that the Department of Financial Services (DFS) has issued a consumer alert warning New Yorkers about the pitfalls of rent-to-own or land installment contracts, factors to consider before signing a contract, and how to get legal help if needed. The consumer alert was prompted by a current DFS investigation into whether alternative home purchase agreements, such as rent-to-own, lease-to-own or land installment contracts, being offered in New York constitute unlicensed, predatory mortgage lending.
NY Financial Services Superintendent Maria T. Vullo said:
Alternative home purchase agreements often are being marketed to financially distressed consumers, promising a path to homeownership, but putting consumers at risk without the protections of a mortgage. As the state regulator of financial institutions in New York, DFS takes very seriously its obligation to protect consumers from predatory lenders. This alert is being issued to create awareness among consumers and to let them know that lease-to-own, rent-to-own and land installment contracts must be carefully considered under New York laws and regulations.
While this is New York and NOT happening in South Carolina, the warnings are the same here. While not every rent to own transaction is a scam, anyone considering entering into one MUST be aware of the negatives.
I am NOT an attorney and strongly suggest anyone thinking about buying or selling real estate via one of these types of transaction obtain legal representation from an experienced attorney. Or accept that you may get screwed and lose thousands of dollars!
Zillow Becoming a Flipper?
From Notorious Rob:
Zillow Group, Inc. (NASDAQ:Z) (NASDAQ:ZG), which houses a portfolio of the largest and most vibrant real estate and home-related brands on mobile and the web, will expand Zillow Instant Offers™ to Phoenix this month. With this expansion, Zillow® plans to participate in the marketplace, buying and selling homes with Premier Agent® partners in the Phoenix and Las Vegas markets.
This is NOT happening here yet. Interesting must read for Realtors and Rob does raise some interesting points about this change to Zillow’s business model.
It may be just a limited experiment or this could turn into a game changer for some investors and Realtors. Zillow has very deep pockets and could cause some radical changes to the markets they are acting as a buyer/seller.
Homes Sold Faster Than Ever in 2017
As demand has outpaced supply in the housing market over the past three years, buying a home has become an exercise in speed and agility. The median valued home flew off the market in just 81 days last year, which was nine days faster than the year before.
Tight inventory accounts for much of the crunch. The number of homes for sale has fallen on a year-over-year basis for 37 consecutive months, leaving fewer options for buyers – which contributes to higher prices. In 2017, nearly a quarter of all homes sold above their list prices.
Interesting BUT this is Zillow talking about their data for the entire US and not the accurate market information that a local Realtor will use to assist buyers and sellers make informed decisions.
Housing Starts and Permits March 2018
Privately owned housing units authorized by building permits in March were at a seasonally adjusted annual rate of 1,354,000. This is 2.5 percent (±1.4 percent) above the revised February rate of 1,321,000, but is 7.5 percent (±1.4 percent) above the March 2017 rate of 1,260,000. Single-family authorizations in March were at a rate of 840,000; this is 5.5 percent (±1.5 percent)* below the revised February figure of 889,000. Authorizations of units in buildings with five units or more were at a rate of 473,000 in March.
Privately owned housing starts in March were at a seasonally adjusted annual rate of 1,319,000. This is 1.9 percent (±12.4 percent)* above the revised February estimate of 1,295,000 and is 10.9 percent (±10.0 percent)* above the March 2017 rate of 1,189,000. Single-family housing starts in March were at a rate of 867,000; this is 3.7 percent (±11.8 percent)* below the revised February figure of 900,000. The March rate for units in buildings with five units or more was 439,000.
While the increase is great, we are still not seeing single family homes being built at a level that will meet demand/household formation. Permits for single family homes did increase 7.5% YoY so that is a good sign for the future.
The US Needs 7.3 Million More Homes
From Realtor Magazine:
Housing construction has not kept pace with population growth in the U.S. for more than a decade, and in order to stymie shortages across the nation, builders will need to construct 7.3 million more homes, according to a new report. The Up for Growth National Coalition, a group of real estate developers, owners, and builders of affordable housing, finds that since 2000, builders in about 22 states and the District of Columbia have not constructed enough homes to sustain population growth.
Like I said, there are not enough homes being built. Especially affordable homes and this will only cause home prices to increase more due to limited supply and strong demand.
How to Save on Your Mortgage
From Freddie Mac:
You drive by a busy corner, and you see that several gas stations all charge different prices for the same kind of gas. You’re in a rush, so it may not be worth your time to pull into the one with the cheapest gas just to save a few cents a gallon. But when it comes to mortgages, shopping around for a better rate could save you hundreds or thousands of dollars. Our research indicates that borrowers could save an average of $1,500 over the life of the loan by getting one additional rate quote and an average of about $3,000 for five quotes.
Yet nearly half of consumers don’t shop for better rates before taking out a mortgage to buy or refinance a home. Worse, many consumers do not seem to realize that the rates offered by lending institutions vary widely.
By shopping more than one mortgage lender—ideally, three or more—the consumer is much more likely to get a better interest rate and save money in both the short and long term. With lower monthly payments and lower fixed fees, the loan will be more affordable, and thus safer, and consumers will have hundreds or thousands of dollars more in their pockets. Not a bad return for a few phone calls or clicks on the internet.
Many home buyers do not realize how important it is to talk to several mortgage lenders BEFORE they start looking at homes. You need to already know your home buying budget and all the details of the mortgage you will be using to purchase a home BEFORE you start looking at homes.
The Laws of Economics Are Starting to Weigh Down Housing
From Real Trends:
Unit sales are down. Price increases are flattening out. The pending sales index is down. Each is a sign that the laws of economics are starting to weigh on the housing market.
When the supply of a product, service or, in this case, asset, declines relative to demand, then prices will rise. At some point, the price of the goods, services or assets becomes out of reach for consumers of those items. Then, sales will flatten, and prices will soften until the supply, and the prices come down to the point where purchases will increase once again. This is true in any market for any goods, services or assets.
We are in for a slowdown. No one we read or listen to thinks it will be dramatic. But, it now appears to be underway in most markets.
Another report that the way that home prices have been increasing will slow down. They are NOT saying that home prices will decrease but that how quickly home pries have been increasing will not be quite as fast.
In some areas/price ranges, we will not see as much of a slow down as in others. The strong demand for starter and affordable homes will cause this segment of the market to see home price growth remain robust.
Bank Card Defaults Rise But Mortgage Defaults Unchanged
S&P Dow Jones Indices and Experian released today data through March 2018 for the S&P/Experian Consumer Credit Default Indices. The indices represent a comprehensive measure of changes in consumer credit defaults and show that the composite rate was unchanged at 0.96%. The bank card default rate rose 14 basis points to 3.78%. The auto loan default rate fell four basis points from last month to 1.05%. The first mortgage default rate was unchanged at 0.72%.
This is the 4th consecutive month of rising bank card defaults BUT he good news is that first mortgage defaults continue to remain low.
US Home Prices Increase 9.1% YoY
From Attom Data Solutions:
Median home prices in 57 of 105 metropolitan statistical areas analyzed in the report (54 percent) were above their pre-recession home price peaks in the first quarter. Nationwide the median home price of $240,000 in Q1 2018 was less than 1 percent below its pre-recession peak of $241,500 in Q3 2005, but still up 9.1 percent from a year ago.
Daren Blomquist, senior vice president at ATTOM Data Solutions, said:
Rising interest rates and recently enacted tax reform that removed some tax incentives for homeownership were not enough to cool off red-hot home price appreciation in many parts of the country, with 30 of the 105 local markets analyzed posting double-digit gains in median home prices in the first quarter. Home prices are still below pre-recession peaks in 46 percent of local markets, but nearly one-third of even those markets posted double-digit home price appreciation in the first quarter.
Good news for home owners and anyone thinking about selling but not so good for home buyers. Remember this is a national report and does not reflect what is happening in every local real estate market.
The best way to find out what is happening locally is to work with an experienced local Realtor. For those interested in real estate in Anderson County SC, you can read the Market Reports or Contact Me!
That is it for today but be sure to check back ASAP or hit that subscribe form so you never miss another post!