Home Sales Exceed Expectations

Sales of new and previously owned single-family homes is surpassing all previous expectations. The strong sales of newly built homes shows there’s plenty of demand in today’s marketplace, said David Wilson, president of the National Association of Home Builders. That demand will probably grow in coming weeks with mortgage interest rates lowering. At this writing it’s down to 5.78 percent for an average 30-year, fixed-rate loan, according to Freddie Mac’s Primary Mortgage Market Survey 5.33 percent for a 15-year fixed mortgage.

It may be that the prospects of higher mortgage rates are pushing fence-sitters to take action on purchasing a home. That often happens when rates gains are expected. The strength of this market continues to surprise most experts. Today’s new home sales figures were unexpected and unaccounted for by our own builder surveys and other market signals. Given the pace of today’s sales and the slimmer inventories of unsold homes, clearly the production side of this business remains exceptionally healthy, Wilson noted.

Looking to the future, it will be difficult to sustain the sales pace we’re now seeing. However, given the fact that long-term mortgage rates have actually fallen recently and inventories are in such good shape, it’s likely that new home sales for all of 2005 challenges last year’s record 1.2 million units.

Resale, previously owned homes are also selling at near-record levels, despite continuing home price increases in most areas. With mortgage interest rate remaining historically low, gains in the labor market and economic growth appear to have lifted the confidence of home buyers, said David Lereah, chief economist for the National Association of Realtors. There is no question that there’s strong demand for housing from a growing population.

Number of Refi Mortgage Applications Rising

With mortgage interest rates remaining at historic low levels, and even dipping lower from time to time, more people are taking advantage of that window of opportunity to refinance their home mortgage. In the most recent Weekly Mortgage Applications Survey from Mortgage Bankers Association, it was reported the number of refi applications was up by 9.8 percent over the previous week.

With that increase in the number of applications, refinance activity is at its highest level since March 11, said Michael Cevarr, director of MBA’s member surveys. The refinance share of mortgage activity increased to 39.3 percent of total applications from 38.0 percent the previous week. The adjustable-rate mortgage share of activity decreased to 34.7 percent of total applications from 35.4 percent the previous week.

Real Estate Deductions Up

The Internal Revenue Service (IRS) is dealing with a huge number of deductions and credits this year and most of them are real estate related. Topping the list of deductions is from interest paid on home mortgages, adding up to $76 billion. Also deductions related to capital-gains exemptions ($36 billion) and property tax breaks ($14 billion) contribute to the total.

It wasn’t until we really had the opportunity to listen to so many different people talk about so many different aspects of the tax code that it really sunk in about how much and how often the code is being used these days to either create incentives or disincentives for either investment or behavior, said former Senator Connie Mack, chairman of the Advisory Panel on Federal Tax Reform.

The vast number of reported deductions points up the substantial tax breaks enjoyed by today’s mortgage borrowers.

What Bubble?

What ever happened to those dire predictions about a bubble bursting in the real estate industry? Apparently it’s dissipating into the air. Real estate values are maintaining their strength and in most area are continuing to grow, but at a slower pace than experienced in recent years. In California, for example, the median price of homes during March increased 15.7 percent over the same month last year. And the number of sales increased by 7.5 percent.

Real estate values are still within rational norms despite the huge run-up over the past few years, it was noted by Lewis Feldman, a prominent real estate attorney and consultant. He accepts the prospect of sluggish economic growth in the months ahead, but firmly believes the real estate market will sustain itself, especially in coastal regions.

Real estate remains the number one asset in the U.S. with greater market capitalization than the aggregate of Wall Street equity markets, he said. The breadth and vitality of the market is stable in comparison with so many other investment classes, including equities, commodities and bonds. Feldman sites the continued strong investor interest in residential properties, along with the commercial and industrial sector.

Feldman also pointed to the growing number of Americans with multiple residences. It wasn’t long ago that second homes were a rare luxury for the rich. Today, many working professionals and early retirees have purchased additional residences for weekend getaways and, in many cases, simply for investment purposes. That includes fractional ownership in resort communities. It’s not at all uncommon for your neighbor in the suburbs to own a ski condo in Colorado or a second home at a lakeside or on the coast.

Feldman is managing partner of the Century City (Los Angeles) office of Pillsbury Winthrop Shaw Pittman.

Condo sales are Sizzling

Residential condominiums are a hot product nationwide with growing sales. They typically don’t receive as much attention as detached homes, but their recent sales activity is just as much or more impressive, particularly during the past year.

The condo market segment appeals more to a slightly different customer base compared with the detached home market, with single-person households accounting for 44 percent of all condo buyers, compared with 24 percent of all detached homebuyers, said Jim Hamilton, president of the California Association of Realtors. While married households account for 64 percent of all detached home purchases, they account for just 42 percent of all condo purchases. Condos are especially appealing to first-time home buyers, who comprise 37 percent of all condo buyers last year. That compares to 26 percent of all detached homebuyers. Condos are also very popular as vacation or second homes. That accounts for 9 percent of all condo sales.

Office Condos Growing in Popularity

When most people think of condominiums they relate it to multifamily housing developments. But the office condominium is becoming a major segment of the current real estate marketplace. In most cases, business tenants lease their space. They might prefer owning their building but don’t have a large enough business to justify purchasing a building. Enter the office condo.

Here they can own their space, along with other business owners who are similarly motivated. They can enjoy all the advantages of ownership, even with their limited operational needs. This is not a revolutionary new concept. It’s been around for decades. But it’s now experiencing a wave of new popularity. Many new office condo buildings are being constructed in markets nationwide. Others are being converted from buildings that previously leased space.

Office condos are often purchased and financed by attorneys, accountants, consultants and other professionals who buy them because they want to be able to work on weekends and at night come and go as they please. They don’t want to have to deal with a big building, the landlord, and all the issues that come with that.
More Families Paying Over Half Their Income on Housing
In just over half a decade the number of America’s working families paying more than 50 percent of their income for housing has grown 76 percent, according to a new study released by the Center for Housing Policy, the research affiliate of the National Housing Conference (NHC). Specifically, in 1997 2.4 million working families spent more than half their income on housing, but by 2003 this number had grown dramatically to 4.2 million.
This comprehensive study also compares immigrant working families to their native-born counterparts and reveals that immigrant working families are 75 percent more likely to pay more than half their income for housing. Working families are defined as low- to moderate-income families that work the equivalent of a full-time job and earn from the minimum wage of $10,700 and up to 120 percent of the median income in their area. Freddie Mac, one of the nation’s largest investors in residential mortgages, funded the study.
Where are Delinquencies Most Prevalent?

You might assume that local markets with the highest home prices and mortgage payments would also have the largest rate of mortgage payment delinquencies and foreclosures. But that’s not the case. In California, where they have some of the highest priced homes in the nation and where prices have been appreciating by double-digit rates for five years, mortgage borrowers were behind in their payments in only 2.04 percent of cases during the final quarter of last year, according to a report from the Mortgage Bankers Association.

The national average during the same period was 4.6 percent. In Massachusetts, also known for high home prices, only 3.2 percent of mortgage borrowers were delinquent in their payments. And so it goes.

New Help for Hispanic Home Buyers

A new Spanish-language educational program has been launched by the Department of Housing and Urban Development (HUD). It will use the Hispanic Radio Network to communicate information about home renting, buying and financing opportunities. The primary goal of the new campaign is to make tenants and their landlords, as well as homebuyers, Realtors, borrowers and lenders, aware of federal law that prohibits discrimination in housing based on race, color, religion, sec, national origin or disabilities.

Our latest Housing Discrimination Study found that Hispanics experience discrimination one in four times they attempt to rent or buy a home, said HUD’s assistant secretary for Fair Housing and Equal Opportunity. As a result of those findings, we have placed additional emphasis on education and outreach to the Hispanic community.

In the past two years, HUD awarded $850,000 to organizations with established ties to the Hispanic community to provide bilingual fair housing materials and services, it was reported by HUD. Last year, it allocated $1.7 million to address discrimination against Hispanics in six states where the Hispanic population is large and rapidly growing.

Home Remodeling Increasing

The higher home prices rise, the greater the appeal of remodeling an existing home to make it more comfortable and livable for its resident family. Those high prices make it increasingly difficult for families to find a new home they can afford at this time one that will satisfy their current needs and desires. The rising value of their own home makes the financing of a home remodeling project exceptionally feasible.

Interest rates are still very low, and a tax-deductible home equity line of credit (HELOC) can be obtained that will more than cover the cost of most remodeling projects. Other homeowners are taking advantage of the continuing low rates by refinancing their mortgage with enough cash-out to finance the remodel. The remodeling usually results in a substantial increase in the home’s market value. Spring and summer are the most active seasons for those home improvement projects or at least the planning and beginning of projects.

Our future expectations for remodeling projects is that they will continue to grow in number at record levels, said David Seiders, chief economist for the National Association of Home Builders. Calls for bids and appointments for proposals are coming in at a rapid clip. We expect this phase of construction activity will be very healthy in 2005.

Mortgage Professionals Reach Out to Russia

Mortgage professionals in the United States have formalized an arrangement to help foster development of an affordable housing market in Russia. An agreement to cooperate in this effort has been signed by the Mortgage Banking Association in the U.S. and NMA, a Russian organization dedicated to developing common principles of mortgage activities and coordinating those activities.

The new agreement calls for providing guidance on developing standards for mortgage financing and implementing new programs and projects in Russia. It also offers counsel on successful legislative and regulatory systems that will support a healthy national mortgage system. And it explores jointly hosting international conferences dedicated to housing finance and construction. The agreement also includes plans for delegations of American mortgage experts to visit Russian and host a Russian delegation to the U.S.

The real estate finance system in the U.S. is very efficient and greatly contributes to the strength of this country’s economy, said Jonathan Kempner, president and CEO of MBA. We hope to share with the NMA those best practices and strategies that will help enhance their mortgage system, thus creating the same homeownership opportunities for Russian citizens that Americans enjoy today. The agreement was signed as part of a day-long summit on the Russian banking system hosted by the U.S.-Russia Business Council, the Association of Russian Banks and the Embassy of the Russian Federation.

Farmland Values Rising

A farmland bull-market is slowly surfacing. However, it’s modest compared with boom markets in the past. In some areas, farmland prices increased by 18 to 20 percent last year.

Forces propelling land demand and higher prices today are not a replay of the 1973-81 farmland price boom, it was noted in a newsletter produced by Illinois-based Martin, Goodrich & Waddell, a major farmland brokerage firm. The 1970s farmland buying bubble was inflated with high expectations of rapid inflation, soaring agriculture exports, rising commodity prices and accelerating farm income. Contract sellers and optimistic lenders floated land prices higher on a tide of debt. Today, the consumer inflation rate is relatively modest 3 to 5 percent or about half the average rate of the 1973-81 land price boom, the newsletter reported.

Lunar Land For Sale

You Can Buy Land on the Moon the bold type states. According to one report, over a million people have responded to that pitch and now own about 300 million acres of lunar land. It’s reminiscent of past promotion of land sites on beautiful, lush locales on the Florida peninsula that were offered to buyers nationwide. They turned out to be on swampy land, unusable for any development.

The current pitch for lunar land is billed as a perfect investment for the future. The sale of lunar property has been ongoing by the only company in the world to possess a legal basis and copyright for the sale of lunar, and other extraterrestrial property within the confines of our solar system, it was stated by the entity now promoting and selling the sites.

The UN Space Treaty of 1967 stipulated that no government could own extraterrestrial property. However, it neglected to mention individuals and corporation. Therefore, under laws dating back from early U.S. settlers, it was possible to stake a claim for land and register it with the U.S. Government Office of Claim Registries, a Planetary Investments report stated.

Coming down to the real world, we suggest a much better investment is the purchase of real properties right here on Planet Earth.
War Declared on Fraud Schemes

The Mortgage Bankers Association is waging war against those who target lenders when practicing mortgage fraud activities. MBA has launched the Mortgage Fraud Against Lenders Resource Center. This online resource is designed to be a one-stop shop for the industry to gather information and tools needed to combat this growing problem. The Website address is: http://mbafightsfraud.mortgagebankers.org.

It’s MBA’s goal that this resource center becomes a virtual meeting place for lenders to share information and resources to protect their companies and borrowers from being victimized by mortgage fraud cases, said Jonathan Kempner, MBA president.

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