Year 2004 will be a robust year for the housing and mortgage market. Home sales might even surpass the activity records set in 2003, according to leading analysts. The nation’s homebuilders are particularly enthusiastic about the growing demand for homes and apartments. They are positioning themselves for another record year of activity and sales.
Based on our expectations for mortgage rates, house-price performance, household formations and overall economic conditions, we’re very optimistic that demand for new homes and apartments will settle at a slightly lower, but still-robust level in the new year, said Kent Conine, president of the National Association of Home Builders.
With most, but not all, of the data in for 2003, it’s obvious that 2003 was a record-breaking year for the single-family market and for homeownership generally. Not only will newly constructed home sales break the million-unit mark for the first time on record, but it’s now apparent that total production of new single-family homes (including homes built on the owners lots) will hit its highest level in history in 2003, at about 1.5 million housing units.
He also noted that the evolving market fundamentals, including a modestly higher mortgage interest rate projection, stronger job and income growth, and maintenance of strong demographic foundation, will keep single-family market activity at an elevated level throughout 2004.
Sales of new single-family homes is expected to once again eclipse one million units in 2004. On the production side, construction starts of single-family units should recede by only about 3.5 percent. In the multifamily sector, a strong condo component and solid production of federally subsidized low-income rental housing will continue to provide essential support to the market, while better job growth will help combat high vacancies in rental housing.
One analyst expressed this opinion: For the new year, an anticipated rise in interest rates eventually could impact the demand for homes most likely during the last six months of the year. Still, experts are not expecting a crash. Indeed, employment gains could help offset some of the expected losses, making 2004 a solid year if not a remarkable one like 2003.
Remodeling of existing housing primarily improvements to owner-occupied homes and applications for mortgages to finance those projects will be a major factor in terms of housing activities this year, according to NAHB. We’re projecting about $182 billion of residential remodeling activity in 2003, and $192 billion in 2004, said David Seiders, NAHB’s chief economist.
Overall, housing production should proceed at a strong and relatively stable pace in 2004, providing firm support to the economy continues. We expect the nonresidential business sector to assume a stronger role in the evolving economic expansion, Seiders noted.
A central factor in the housing outlook is a favorable financing climate, which will continue to buoy home sales, remodeling activity and apartment building. The average rate on long-term home mortgage will remain under 7 percent throughout 2004, NAHB predicts. The cost of adjustable-rate home loans should stay historically low, largely reflecting maintenance of a 1 percent federal funds rate by the Federal Reserve for most of the year.
* * *
Mortgage recommendation trends
A survey was recently concluded regarding the types of mortgage plans most often recommended by real estate brokers and their agents. Increasingly, they favor guaranteed mortgage packages (GMPs). This offers a bundled group of closing services for one price.
Many real estate professionals feel the GMP approach is best for consumers, because the bundled services for one price offers an attractive alternative to the current good faith estimate used in most cases. This response resulted despite the fact that most real estate brokers and agents had only recently learned about GMPs. The survey also indicates that most of the recommended mortgage lenders or brokers are based in the local area, or at least have strong representation in the local market.
Other information revealed in the survey: When asked about the single most important factor in recommending a mortgage provider, the most common response was best rate and terms for the homebuyer. The second most common response was good personal relationship with the loan officer or broker. The survey was sponsored by Inside Mortgage Finance. About 2,000 real estate brokers and agents participated.
* * *
Minorities Build Wealth with Equity
For minority households, obtaining a mortgage and purchasing a home plays a much more important role in their lives than just becoming homeowners. It has a significant impact on their total financial health, and their ability to accumulate wealth. Well over half of the personal wealth held by minority homeowning families is in the equity they have accumulated in their home. And their wealth is far greater than that of comparable non-homeowning families.
That was revealed in a recent study and report by the Consumer Federation of America. Paying off the mortgage on a home has been, and will continue to be, the best and easiest way for minority households to build personal wealth, said Stephen Brobeck, CFA’s executive director. The new report on homeownership is based on data collected by the Federal Reserve Board’s Survey of Consumer Finances.
According to the Fed data, almost all homeowners (97 percent) held at least some home equity, and the typical homeowner (median) had accumulated $70,000. For all homeowners, their equity represents 42 percent of their net wealth, the CFA study revealed. But for lower-income and minority households, this percentage was much higher. In fact, for lower-income families, home equity represents four-fifths (80 percent) of their net wealth. For Hispanic households, home equity represents more than half of their net wealth.
One of the problems faced by minorities was revealed in a study by ACORN (Association of Community Organizations for Reform Now), an advocacy organization for low- and moderate-income families. Latinos are rejected 1.63 more times than whites when applying for a mortgage loan, the ACORN study showed. This unwarranted difference in the acceptance rate of mortgage applications has been improving a bit in recent weeks, but is still too great. Lenders need to do better, and regulators and legislators need to demand more, said Maud Hurd, ACORN president.
An increasing number of mortgage lenders and brokers are now making a special effort to provide needed mortgages for minority persons, helping them enter the coveted, wealth-building world of homeownership. This cooperative effort ties in with the administrations current program to make homeownership available to more minorities. The gap between white and minority homeowners is between 25 and 30 percentage points, according to a report from the University of Southern California at Los Angeles. However, minorities are expected to be among the strongest home buying segment in coming years.
* * *
Mortgage interest deductions
Now that we’re venturing into a new year, it’s time to take a serious look at maximizing your income tax deductions. And for many families, the interest on their home mortgage loan is a major deduction.
A couple of things to keep in mind about that deduction: First, you can deduct mortgage interest from taxes if they are itemized. And you can deduct interest for only two properties one of which must be your principal residence. All interest can be deducted provided the mortgage balances are less than $1 million. Homeowners also can deduct interest on home-equity loans, but only if the principal is less than $100,000.
However, mortgage interest deductions may be limited based on the homeowner’s income. Things are never as simple as they might seem on the surface. Be sure to work out all details about your personal tax situation with your accountant or professional tax form preparer. For informational materials, at no cost, contact your local Internal Revenue Service (IRS) office, or visit their Web site at: www.irs.gov. Or phone 800-829-3676.
* * *
New downpayment assistance act
The American Dream Downpayment Act has finally been signed into law. It provides downpayment and other upfront closing cost assistance to low-income families. We are taking action to bring many thousands of Americans closer to the great goal of owning a home, said a government spokesman.
These funds will help many families achieve their goals, strengthen our communities and our entire nation. Not only will this law allow families to unlock the door to homeownership, it will also help close the gap that separates minority households from the rest of the country when it comes to owning a home.
The Act will be administered under HUD’s Home Investment Partnerships Program. This program has played a key role in addressing the shortages of affordable rental housing and homeownership in recent years.
_____________________
Jim Woodard writes a nationally syndicated newspaper column on real estate news and trends, carried in about 230 U.S. newspapers along with freelance features. Reproduction of this report, in part or entirety, is prohibited without the express permission of the author.