Home Remodeling on the Rise

Mortgage interest rates have lowered in recent weeks, motivating more people to buy and finance a home now or refinance their existing mortgage before rates start climbing again. On July 1, the average mortgage rate is down to 5.53 percent for a 30-year, fixed-rate mortgage (per Freddie Mac). Last year at this time, the average rate was 6.25 percent. However, nearly all analysts agree that the future prognosis is for rising rates.

Mortgage rates have declined despite the steady boosts in short-term rates determined by the Federal Reserve. The Fed rate again increased by a quarter point on July 30 for the ninth straight time within a year — a year to the day after its first rate hike. It now stands at 3.25 percent.

Existing home sales are now at the second highest level ever recorded, suggesting the housing market still has a good head of steam, said Frank Nothaft, Freddie Mac vice president and chief economist. As a matter of fact, mortgage rates fueling the vibrant housing market are even lower now than they were a month ago. We fully expect the housing market will continue to thrive well into the foreseeable future.

Realizing this low rate trend can’t continue long, many consumers are taking action to buy a home or refinance their mortgage. Another motivating factor is the wide choice of mortgage plans that are now available to borrowers. It ranges from interest-only mortgages to hybrids and conventional 30- and 40-year term loans. Also, an increasing number of homeowners are now taking advantage of today’s low rates by launching a needed remodeling project and financing it with a home equity loan or line of credit. In some cases they refinance their existing mortgage for a new cash-out mortgage that will provide funds for remodeling while reducing their overall interest rate.


FHA No-Down Mortgage Plan Pushed
The Zero Downpayment Pilot Program Act of 2005 has been introduced and is now being debated in Congress. Real estate industry leaders strongly support this legislation. Here are a couple of quotes from leaders.

Michael Petrie, chairman of Mortgage Bankers Association: While our country currently enjoys record levels of homeownership, the downpayment hurdle is a major obstacle for low- and moderate-income and minority families who can afford the monthly mortgage payments but find it problematic to save for the downpayment. We believe in order to truly expand homeownership opportunities and improve housing affordability, we must overcome the downpayment challenge. This program is the appropriate tool for addressing the problem.

David Wilson, president of the National Association of Home Builders: This new legislation would help 50,000 families to achieve homeownership that would otherwise be denied the opportunity. It would continue the long tradition of innovation at the FHA by addressing a primary obstacle preventing many minority and low-income families from becoming home owners the lack of funds needed for a downpayment.

The new law would require borrowers to pay 2.25 percent mortgage insurance premium upfront, compared to the 1.5 percent required for an FHA single-family loan with a 3 percent downpayment, and an annual premium of 0.75 percent instead of 0.50 percent for the first five years of the loan, NAHB pointed out. Monthly payments would be slightly higher than for a standard FHA mortgage, and home buyer counseling would be mandatory for all buyers who participate in the program.

RESPA Reform Finally Progressing
Finally, definitive action is being taken to update and modernize the Real Estate Settlement Procedures Act (RESPA). This is a legal requirement to implement steps that will lead to more simple and understandable procedures for buying and financing a home. It’s being pushed by the Department of Housing and Urban Development (HUD).

Simplifying and improving the way consumers buy and refinance homes in this country will drive our campaign along this road to reform, said the HUD Secretary. There’s universal agreement that current regulations can and should be improved to allow even more families to share in the American dream of homeownership.

The next step in developing needed reforms is for HUD to host three roundtables with members of industry and consumer groups, to be held this summer. Participation in these sessions is by invitation only. Targeted participants are those individuals and groups that offered an analysis of HUD’s previous reform proposals. The purpose of these sessions is to stimulate a meaningful exchange of ideas among participants over the substance of the new RESPA reform proposals.

Misuse of Eminent Domain

The Supreme Court recently made a decision that could jeopardize the security of homeownership. Most homeowners enjoy the feeling that their own home will be theirs as long as they desire to own and reside within its walls. However, in several cases nationwide local governments decided to push for a higher and better use for certain property within their jurisdictions where houses have long been located. By taking over the land by eminent domain proceedings, government agencies turn the property over to developers who produce shopping centers, office buildings, convention centers or other ventures that result in more tax revenue for the area.

Eminent domain is a legal provision whereby a local government can take title to property, with monetary consideration to the owner, where they feel it is essentially needed for community benefit. Common uses are for new highways, public utility facilities, government buildings or schools.

To use this provision to take land from homeowners and turn it over to private developers in the interests of generating more tax revenue is a recent trend. This practice has been contested in several cases at the state supreme court level. Rulings have varied. But on June 23 the nation’s Supreme Court ruled in favor of such actions. The vote was close 5 to 4 and the state supreme courts were almost equally divided in their rulings.

Any property may now be taken for the benefit of another private party, but the fallout from this decision will not be random, said Justice O’Connor who voted against the approval. The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms.

Chip Mellor, president of the Institute for Justice, said this: The majority and the dissent both recognized that the action now turns to state supreme courts where the public use battle will be fought out under state constitutions. The decision by the federal Supreme Court in no way binds the state courts.

Susette Kelo, a homeowner who may soon lose her home due to one of these eminent domain take-overs, said, I was in this battle to save my home and, in the process, protect the rights of working class homeowners throughout the country. I’m very disappointed the Court sided with powerful government and business interests, but I’ll continue to fight to save my home. The case considered and ruled by the Supreme Court was Kelo vs. City of New London, Connecticut.

Rising of Home Values Predicted

The sharp rise in home prices will continue at least into next year, according to Douglas Duncan, chief economist for the Mortgage Bankers Association. We’re forecasting that 2006 will be a trend growth year for the economy with an increase of about 3.5 percent in the GDP, he said. Home ownership will further expand over the next two years and the number of home sold next year will set a record for the fifth consecutive year. Helping drive this trend is the baby-boom generation, only 70 percent of which currently owns homes, he noted.

Abuses in Title Insurance Industry

Last month, this newsletter reported on the title insurance industry noting the recent rash of title insurance-related abuses that have surfaced. These abuses are allegedly costing home buyers substantial amounts of unwarranted expenses in home sale transaction closing costs, according to regulators.

I reported that there was only one state in this country that does not allow title insurance company offices with their borders Iowa. This state established a Title Guaranty Division to provide needed title protection that is more effective and less costly than the more familiar title insurance, according to reports from Iowa.

In response to that to that report, I received an interesting letter from James Carney, an Iowa lawyer who represents the Iowa State Bar Association. He provided new insights on the current situation. Here, in part, is what he said:

One of the issues I have worked on during my entire career is the opposition of legalizing title insurance in Iowa. To say the recent surge of investigations nationwide is a vindication would be an understatement, Carney said. We’ve been telling people for years about the illegal activities, scams, rebates, kickbacks, inflated premium, large commissions paid, and on and on. This industry collected $15.6 billion dollars in premiums from U.S. citizens last year. They paid out about $600 million in claims. There is no other insurance product like it in the United States. Thank God it’s illegal in Iowa, and if there’s one thing I’m proud of in my legal career it’s that we have successfully fought the legalization of title insurance for thirty years.

Carney enclosed a 14-page booklet produced by the State Bar Association titled Title Insurance: A Fleecing of America. It quotes Senator Phil Gramm, (R) Texas, as saying: I know how we can cut the initial, up-front cost of buying a house by between a quarter and a third. The way to do it is to do something about title insurance. We could probably do more to promote home ownership by fixing this problem than by any increase in appropriations for housing, Senator Gramm said.

Baby Boomers Plan for Retirement

Half of today’s Baby Boomers plan to buy a new home when they retire, according to a new study by Del Webb Corporation, a developer of retirement communities. There are now about 76 million Baby Boomers, and they are the wealthiest generation in American history, the study report noted.

The grandkids are the secret weapon for today’s active adult communities, and those developments are increasingly being built in locations nationwide, said Dave Schreiner, vice president for active adult development for Del Webb. Nearly half of all respondents to our survey said staying within three hours of family is an important consideration when deciding where to live.

About half of boomers expect to move to another state at retirement, and that doesn’t necessarily mean a move south or to other sun-belt areas. There has been a move to build active adult communities in the north. However, 66 percent of older boomers indicate they would move for a better community lifestyle, and 54 percent would seek a warmer climate. Increasingly, retirees are forgoing golf and travel for a briefcase and computer. While 64 percent of all respondents to the survey said they will retire completely from their current line of work, many will continue to work for a variety of reasons. About 49 percent of younger boomers and 37 percent of older boomers plan to continue working because they need the money. A third of pre-boomers (age 60-69) say they will continue to work because they enjoy it, and 22 percent say they work because it keeps them active and healthy.

In another study, this one by the RELO relocation referral group, it was revealed that many young boomers and soon-to-be-boomers are buying second homes with the plan to use them as a vacation home now and move into them permanently at retirement time.

How Homeowners Use Rising Equities

Rising home values have produced huge increases in equities for homeowners, and many of them are using the cash in creative ways. The amount of home equity extracted by property owners rose to $705 billion last year from $266 billion in 1999. Most of that money was used for purchasing another home, repaying credit-card debt, and funding home improvement projects. An increasing number of homeowners are using the cash to purchase investment properties 2.2 million last year compared to 1 million in 1994, according to a report from SRI Consulting Business Intelligence.

Use of Home Equity by Seniors

Seniors often satisfy special financial needs by tapping the equity in their home. But recent publicity about the few predatory lenders targeting the elderly has made them skidish about borrowing against their home. Bob Armbruster, president of the National Association of Mortgage Brokers (NAMB) recently listed some key tips to these seniors.

For starters, always be sure to understand the type of loan your getting, he said. There are many kinds of home equity loans fixed-rate, adjustable-rate, lump sum, line of credit, etc. Each has advantages and disadvantages, depending on your personal financial situation. It’s important to borrow only as much as you can afford, he added. Make sure the monthly payments on your loan fit within your budget. If you can’t make the payments, you could lose your home, he warned. Getting a second opinion is always a good idea. Talk about the loan you are considering with a relative, friend or lawyer. They might notice something you missed or neglected to consider.

Home Remodeling on the Rise

The home remodeling market continues to grow. This activity showed strong growth in the first quarter of this year, showing a healthy rebound from activity during some very bad weather periods during the past winter. As we move into the summer season, remodeling projects are continuing to increase of numbers.

We saw solid growth in the first quarter of this year and continued positive momentum for the remainder of the year, said Dave Seiders, chief economist for the National Association of Home Builders. Calls for bids, amounts of work committed and backlogs of remodeling jobs are all up, leading us to expect continued healthy growth in remodeling activity for the rest of 2005.

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. E-mail: storyjim@aol.com. Web site: www.jimwoodard.net/.

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