Pending home sales at a 10-year high

May 27, 2016

WASHINGTON – May 26, 2016 – Pending home sales rose for the third consecutive month in April and reached their highest level in over a decade, according to the National Association of Realtors® (NAR).

All major regions saw gains in contract activity last month except for the Midwest, which saw a meager decline.

The Pending Home Sales Index – a forward-looking indicator based on contract signings for homes that have not yet sold – hiked 5.1 percent higher to 116.3 in April from an upwardly revised 110.7 in March. Year-to-year, it’s 4.6 percent above April 2015 (111.2).

After last month’s gain, the index has now increased year-over-year for 20 consecutive months. Vast gains in the South and West propelled April’s pending sales in April to its highest level since February 2006 (117.4), says Lawrence Yun, NAR chief economist.

“The ability to sign a contract on a home is slightly exceeding expectations this spring, even with the affordability stresses and inventory squeezes affecting buyers in a number of markets,” Yun says. “The building momentum from the over 14 million jobs created since 2010 and the prospect of facing higher rents and mortgage rates down the road appear to be bringing more interested buyers into the market.”

Mortgage rates have remained below 4 percent in 16 of the past 17 months, but Yun says it remains to be seen how long they will stay this low. Along with rent growth, rising gas prices – and the fading effects of last year’s cheap oil on consumer prices – could edge up inflation and push rates higher. For now, Yun foresees mortgage rates continuing to hover around 4 percent in coming months, but inflation could potentially surprise the market and cause rates to increase suddenly.

“Even if rates rise soon, sales have legs for further expansion this summer if housing supply increases enough to give buyers an adequate number of affordable choices during their search,” adds. Yun.

Following the housing market’s best first quarter of existing-sales since 2007 (5.66 million) and a decent increase (1.7 percent) in April, Yun expects sales this year to climb above earlier estimates and be around 5.41 million – a 3.0 percent boost from 2015. After accelerating to 6.8 percent a year ago, national median existing-home price growth is forecast to slightly moderate to between 4 and 5 percent.

Pending sales in the Northeast climbed 1.2 percent to 98.2 in April, and are now 10.1 percent above a year ago. In the Midwest, the index declined slightly (0.6 percent) to 112.9 in April, but it’s still 2.0 percent above April 2015.

Pending home sales in the South jumped 6.8 percent to an index of 133.9 in April – 5.1 percent higher than last April. The index in the West soared 11.4 percent in April to 106.2, and it’s now 2.8 percent above a year ago.

© 2016 Florida Realtors®


FHA may be reopening doors to condo financing

May 24, 2016

WASHINGTON – May 23, 2016 – Could the Federal Housing Administration (FHA) finally be opening its doors again to financing more condominium units? If so, that could be excellent news for young, first-time buyers and for seniors who own condo units and need a reverse mortgage to supplement their post-retirement incomes.

Here’s why: FHA financing offers not only 3.5 percent minimum downpayments but is far more lenient than other options on crucial issues such as credit scores and debt-to-income ratios. Plus FHA is the dominant source of insured reverse mortgages – the only game in town for the vast majority of seniors.

But if a condo building is not certified as eligible for financing by FHA, all the individual units in the project are ineligible for mortgage financing as well. Young families can’t buy using FHA loans, sellers can’t sell and seniors can’t tap their equity through a reverse mortgage. It used to be different – for years FHA allowed so-called “spot” loans on individual units – but no more.

But maybe things are about to change. In a speech last week to the National Association of Realtors, Housing and Urban Development secretary Julian Castro said revisions to controversial FHA rules on condos have been completed and only await final Obama administration approval. The changes would simplify controversial certification procedures for condo buildings and amend other rules that have knocked thousands of condominium buildings out of eligibility.

Since adopting highly restrictive qualification rules early in the current administration, FHA – once a major player in the condo field and the go-to source of financing for moderate-income purchasers – has steadily seen its market share shrink. FHA once financed 80,000 to 90,000 condo units a year, but last year volume fell below 23,000. Many condo homeowner associations began losing their eligibility several years ago, and because of what they consider onerous recertification requirements, have never sought to reapply.

Castro provided no details on what changes are coming. But real estate and condo industry sources say they could build upon reforms announced last November that appear to have had at least modest success in encouraging condo homeowner boards to get onboard again.

Two California-based consultants who help associations and community managers work through the certification hoops told me they have seen a jump in activity in recent weeks. Condo boards that had been resistant to the FHA rules “aren’t fighting them as much any more,” said Natalie Stewart, president of FHA Review. “People need to sell their homes, people need to buy” affordable condo units, so some associations grudgingly are returning to the FHA fold.

Jon Eberhardt, president of Condo Approvals, LLC, said “we certainly have seen an uptick” in FHA certification applications. “I wouldn’t call it monumental, simply a steady growth” in the wake of last November’s changes, he added.

Dawn Bauman, senior vice president for government affairs at the Community Associations Institute, a Virginia-based group that represents 33,000-plus condo and homeowner associations and managers, confirmed that she’s also detected “an increase in the number of applicants” for condo certification and that regional FHA offices have been “more flexible” in recent months in evaluating applications.

What will be crucial to continuing the positive trend, industry experts say, is for the upcoming guidelines to make changes beyond simply streamlining condo certifications.

On the list of needed reforms:

  • The return of spot loans. That alone would significantly expand opportunities for millennials, minorities and seniors.
  • An end to FHA’s blanket prohibitions against community-benefit homeowner transfer fees collected by some condo associations when units change hands. In California, this ban alone has led to the loss of thousands of units from FHA financing – a huge problem in areas where affordability is tough and condos are the lowest-cost alternative for many consumers.
  • Relaxation of strict limits on commercial space in residential condo properties. Revenues from commercial leases are important to the financial health of urban condominiums, but current FHA caps render many buildings ineligible.

Copyright © 2016 the Boston Herald, Distributed by Tribune Content Agency, LLC.


Calculating Your Debt-to-Income Ratio

May 13, 2016

Calculating Your Debt-to-Income Ratio in 2 Easy Steps

 

Have you ever sat down and calculated exactly how much money you spend each month on bills? If so, you are already halfway to calculating your DTI. In essence, your debt-to-income ratio is the amount of money you have left over after paying all your monthly expenses. But if you want a bank to fork over hundreds of thousands of dollars on loan to you, you have to get specific.

What Is Your DTI?   What the bank is trying to ascertain is whether you have enough money left over after paying all your debts each month to afford a mortgage payment; the lower your DTI ratio, the better your chances of getting a loan.   Your goal is to have a debt-to-income ratio that is lower than 35%. At 50%, most banks will turn you down because, for all intents and purposes, you are living paycheck to paycheck, and a mortgage payment would be too big of a financial risk to the bank. But at 35%, with debt taking up only around a third of your income, you have more than enough to cover the expense of a mortgage.   How to Calculate Your DTI   Debt is only half of the equation. The other half is how much income you bring in. That number is easy if you have only one source of income. You don’t count bonuses or gifts or any other irregular income.   1. Use all sources of regular income that you receive every month. That includes your salary, retirement income, Social Security, dividends, etc.   2. Next, divide your total monthly payments or debt by your monthly income. So what kinds of expenses or debts do you include? These debts will include amounts that you owe based on a contract, such as your rent, car payment, credit card payments and student loans.   You don’t, however, include expenses like electric, gas and other utilities that vary from month to month. You also don’t include taxes in your DTI calculation, either for your expenses or for your income. Use your total gross income before taxes.

Ways to Improve Your DTI   If you find out that you have a DTI that is 50% or higher, you will have to spend some time eliminating some of your debt and/or increasing your income before you are ready to buy a house. To improve your DTI, try:

  • Paying off debts.
  • Paying down credit cards (closing accounts can hurt your DTI).
  • Pay all bills on time for one year.
  • Refinance your debt (reduce your interest rate).

There are many websites that offer their own debt-to-income ratio calculators. Here are a few from Bankrate, Money Under 30 and Finance Solutions: