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Wednesday, October 24, 2012

Mortgage Rates Will Rise, But Slowly

CHICAGO (MarketWatch)—After reaching record lows in 2012, mortgage rates are expected to creep up slowly in the year ahead, the Mortgage Bankers Association predicted on Tuesday.

Rates on the 30-year fixed-rate mortgage are expected to average 3.8% in the fourth quarter of 2012, rising to 3.9% in the first quarter of 2013 and eventually rising to an average 4.4% by the fourth quarter of next year, the MBA said. The mortgage is expected to average 4.1% for all of 2013.

Granted, in these times, mortgage rates are increasingly difficult to predict. So take this forecast with a grain of salt.

Last year, the MBA rate forecast was way off. It predicted the 30-year fixed-rate mortgage would average 4.4% for 2012. Instead, rates plunged and hit an estimated annual average of 3.8%, spurring a flurry of refinance activity.

Underlying factors that economists would normally look at as those driving interest rates, including inflation, aren’t driving rates now, said Jay Brinkmann, MBA’s chief economist, during a Tuesday briefing with reporters at the association’s annual Convention & Expo in Chicago. Instead, it was uncertainty in European economies and actions taken by the Federal Reserve that moved rates so low this year.

In fact, continuing purchases of mortgage-backed securities through the Federal Reserve’s QE3 program will likely keep the 30-year fixed-rate mortgage below 4% through the middle of 2013, he said.

“The Fed has committed to buying $40 billion of agency mortgage-backed securities per month until the labor market shows significant signs of improvement,” he said. “Based on MBA’s originations estimate, the Fed will be buying 36% of all mortgages originated in 2013, and a much higher percentage of those swapped into agency mortgage-backed securities.”

Despite the Fed commitment to an open-ended purchase program, the MBA forecast assumes the program will last 12 to 18 months, said Mike Fratantoni, MBA’s vice president of research and economics. The “aggressiveness, open-endedness and focus on the mortgage market” that came with QE3 led to the highest refinance volume in four years, he said.

In the meantime, high refinance activity will likely carry over into next year.

“Applications that come in November we aren’t going to see close until sometime after the first of the year,” Brinkmann said. The “long tail of refis” will extend through the middle of the year then drop off, he said.

Indeed, things are looking at least somewhat better for the industry.

Mortgages to finance a home purchase are expected to rise by 16% in 2013, compared with 2012, as the economy grows modestly and more owner-occupied home sales occur, as opposed to cash purchases by investors, Brinkmann said.

Also helpful to driving home purchases are the 1.5 to 1.8 million private-sector jobs expected to be created next year, though the growth is below what would be needed for a “robust” home-sales market, he said.

Single-family housing starts are expected to reach 586,000 in 2013, up from 527,000 in 2012, according to the forecast. The median existing-home price is expected to rise to $186,000 next year, from $179,400.

While the improvement may be slow, it’s also worth pointing out that the country has added 4.8 million renter households since the end of 2006, while losing 1.7 million owner households, according to the MBA. And that net household growth could spell home-buying demand in the future.

“People with jobs are moving on their own some place,” Brinkmann said. And while some of them might be renters now, “eventually we would expect some of that household formation to go into homeownership.”  

11:08 am cdt 

Wednesday, October 17, 2012

Lack of Inventory Frustrates Buyers; Lifts Seller Prices

From today's Wall Street Journal:

Housing inventory continues to move in one direction: down.

The number of homes for sale in September dropped by 2.2% from August, by 17.8% from last year, and by 34.3% from two years ago, according to data from Realtor.com, a listings website.

Slightly more than 1.8 million homes were listed for sale in September, the third lowest level of the year, behind January and February, which are traditionally the slowest months of the year for home sales.

Inventories have been falling amid stronger demand from home buyers, which is helping to firm up prices. Median asking prices rose by 0.8% in September from August. Inventories are also low because many would-be sellers don’t have enough equity in their homes or aren’t willing to sell at prices that are still down by nearly 30% from their peak six years ago.

Compared with August, listings fell by one third in Sacramento, Calif., and Stockton, Calif., to levels that were more than 60% below those of one year ago. Those two cities witnessed some of the most severe housing booms and busts.

Inventory was below year-earlier levels by 57% in Oakland, 43% in Southern California’s Inland Empire, and 42% in San Jose, Calif. Listings were down by double digits in 115 of the 146 markets tracked by Realtor.com.

The decline in inventory has frustrated home buyers who often find themselves in bidding wars, but it is helping sellers move their homes quickly. More than half of all homeowners in San Jose and Ventura, Calif., who listed their home for sale in September were under contract in less than two weeks, according to real-estate brokerage Redfin.

Median prices were up from one year ago in 86 of the 146 markets tracked by Realtor.com, and they were up or unchanged from August in 97 of those markets. Median asking prices posted a 6.6% month-over-month gain in Sacramento. They were up from August by 6.3% in Washington, D.C., and by 3.5% in San Francisco.

One sign that rising prices could be luring more sellers: inventory rose in Phoenix by 2.7% from August, the largest monthly rise of any of the 146 markets, though levels were still down by one quarter from last year. Inventory also rose by more than 2% in San Francisco and Santa Barbara, Calif., which has seen some of the sharpest increases in median asking prices.

The Realtor.com figures include sale listings from more than 900 multiple-listing services across the country. They don’t encompass all homes for sale, such as those that are “for sale by owner” and other properties that aren’t marketed through multiple-listing services.

1:25 pm cdt 

Tuesday, October 9, 2012

Consider Trading Homes with Your Parents?

This was printed today in Reuters:

 Ed Zwirner and his wife, Alison Loeppert, recently bought an historic house in the Chicago suburbs without brokers' fees, tight moving deadlines, undetected defects or other stresses that accompany one of life's biggest purchases. At the same time, Loeppert's parents made a similar move.

The secret? The two couples exchanged homes: the teachers and their two young sons gained more square footage and a big yard on a residential street. The empty-nesters traded unneeded extra space for the easy maintenance of condominium living within short walking distance of an attractive downtown and lakefront.

"It was the perfect solution for them and us," said Loeppert's mother, Alice Loeppert. "Our intention was always to have that house available to our own children."

According to the National Association of Realtors, there are no firm numbers on how many homeowners are swapping homes with older or younger relatives, but experts say it's a trend that could take off as the baby boomer generation moves progressively into smaller homes as they retire.

"It's (age) 65-plus where you really see downsizing occur," said Walter Molony, an NAR spokesman, citing statistics from a 2011 study. One of four sellers, he said, is seeking a smaller property.

A swap can benefit both parties, saving hefty realtors' commissions and other fees, and assuring both sides the comfort of familiar turf. Still, it could quickly become a minefield without careful financial planning and consideration of the impact on other family members.


Realizing they needed more space but dreading wasted weekends at open houses, Zwirner and Loeppert last fall proposed buying the roomy stucco bungalow that Loeppert's parents had lived in for more than 20 years. In many ways, it was the ideal solution and holds promise for other families looking to make a similar move. Here's how they did it.

In one day, they sold their vintage, three-bedroom, two-bath condo for $300,000 and purchased the house for $419,000. The deal hinged on two individual sales, with the younger couple financing the difference with a mortgage. That allowed Loeppert's father, who was entering retirement, to take as much money away from the transaction as possible.

"(The condo) had lost so much money that it was in the price range of condos my in-laws were looking for," Zwirner said. "They were able to cash out of the house the way they needed. And the loss for us was cushioned on the way out."


Though they avoided brokers' fees, they still paid for appraisals and attorneys' costs at closing. And Zwirner conceded there was more paperwork than he and his wife had ever imagined.

The Internal Revenue Service tends to scrutinize inter-family real estate transactions extra closely because of the potential for fraud, making it essential to carefully document everything and get fair market appraisals of each property prior to the sale, said Michael Eisenberg, a Los Angeles-based certified public accountant and personal financial specialist. That's especially important if either side plans to offer the other a break on price, a common occurrence in these types of deals.

"Verify that if you are going to sell at a slight discount that the discount is reasonable in the eyes of the IRS," he said. "Make sure you deal with your professionals - your CPA, your financial adviser, your attorney."

Under federal law, each party will still be able to take profit tax free from the sale of their primary residence up to $250,000 for an individual and $500,000 for a married couple, said Barbara Weltman, a Millwood, New York-based tax attorney.

"It doesn't seem there is any downside," she said.

But she stipulated that tax considerations vary widely from state to state and recommended that interested families confer with local tax experts to plot the best course of action.


Even so, adjustments to these arrangements aren't always easy. Besides the financial changes that come with a different size home, such as landscaping costs for upsizing families and condo fees for some who trade down, these transactions can have long-lasting emotional ramifications, said Eisenberg.

For instance, how will each side handle seeing their décor abandoned to suit different tastes? Will other siblings harbor jealousy over the sale of the family home to a brother or sister?

"This assumes you get along with the people you're swapping with," said Bryan Gillette, a human resources consultant in Pleasanton, California, who did a home exchange deal with his parents in 2008.

He and his wife traded their 1,700 square-foot house for a much larger one his father had custom built with the help of Gillette's older brother.

They bypassed selling the properties, instead opting for a method known as parent-to-child transfer. Despite the name, the transfer applies as a child-to-parent transfer as well.

The younger couple paid the difference on the value of the larger home, roughly $250,000, with cash and a mortgage. Because of California tax provisions, this route allowed them to maintain a low tax base on the properties. Homeowners in other states wishing to use a parent-to-child transfer should check with their tax advisers on whether their state allows the deal, and possible tax consequences.

"There were no regrets at all," said Gillette, adding that early access to the bigger house allowed his family to move in stages as well as begin painting and making other modifications.

For Alison Loeppert, the emotional benefits of such a transaction are priceless. She regularly views a makeshift chart on the molding in the dining room of her former condo. That's where she and her husband marked their sons' progress in height.

"I don't think my parents would ever paint over this," she said.

1:37 pm cdt 

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