More Mortgages for Remodeling

Homeowners are on a remodeling kick, and an increasing number of mortgage loan applications this year will be to generate funds for remodeling projects.

Last year owners spent more money on remodeling projects than ever before, despite a slowdown period following September 11. Remodeling activity is now again on the upswing. Consumers spent about $161 billion on home remodeling during the year – a record for that segment of the construction industry, according to a report from the National Association of Home Builders. That reflects a 5 percent increase over the previous year.

“It isn’t really surprising that remodeling activity eased up after September 11,” said Bill Owens, chairman of NAHB’s Remodelers Council. We expected a slowdown in remodeling in the second half of last year due to the sluggish economy and rising unemployment.

“Things are now starting to look up as the economy begins to gain momentum and more homeowners, buoyed by the continuing appreciation in real estate values, move back into the remodeling market.”

NAHB recently completed a survey of remodelers nationwide, asking a variety of key questions. One question asked about changes in the type of remodeling jobs their companies experienced following the September 11 tragedy. About 35 percent of remodelers indicated there were no notable changes. But 28 percent reported their clients were choosing smaller or scaled-back projects, yet 10 percent of remodelers said they were working on larger projects. In other words, a greater variety of remodeling projects are now in the works.

When remodelers were asked to name the most significant issues that will shape the industry during the next five years, the top issue was the availability of skilled labor, or lack of same. Also, the aging population will be a issue, they indicated. This will have a major impact on the number and type of remodeling projects in future years.

Remodelers in the U.S. might take note of trend-changing developments in Canada, where more senior homeowners accepting lifestyle changes that embrace older family members into their household. In a recent survey, 61 percent of Canadians would now consider adding an in-law apartment to their home.

“The reality of caring for an aging population is trickling down the family tree for Canadians who report they are likely to consider letting an older family member live with them,” the survey report stated.

Other findings from the survey show that Canadians feel a strong emotional attachment to their home. It’s become more important to them because of recent events in the U.S. and elsewhere in the world, the report noted.

More family togetherness in a single home is undoubtedly triggered, to a great extent, by the rising costs of homes. Young and old family members are particularly vulnerable to this problem. They just can’t afford a home of their own at this point, so they move in with other family members.

This often involves a remodeling job to provide special accommodations for the moving-in family members. Thus, the remodeling industry, and mortgage financing for same, continues to grow.
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Builders of new apartments, using FHA mortgage loan financing, will get a break this year. The Department of Housing and Urban Development (HUD) will roll back mortgage insurance premiums on new apartments by 23 basis points.

The roll-back, to take effect on October 1, is included in President Bush’s proposed FY 2003 budget. This will undoubtedly result in increased production of new apartment developments.
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The battle between major banks and the real estate brokerage industry continues to grow. But many brokerage firms are now siding with the banking industry.

The dispute centers on banking interests seeking permission to sell and manage real estate through proposed regulation now before the Federal Reserve Board and Treasury Department. Many Realtors feel the proposed rule is contrary to what Congress intended when it passed financial services modernization legislation in 1999,

The National Association of Realtors recently launched a multi-million dollar advertising campaign to encourage members of Congress to cosponsor the Community Choice in Real Estate Act. This would prevent large banking conglomerates from taking over locally owned and operated real estate companies, according to a report from NAR.

The multi-media campaign opened with a series of newspaper ads. The ads read, in part, H.R. 3424 will keep the personalized service consumers now receive from their local neighborhood real estate professionals. We need the support of strong leaders so that consumers and local communities will win.

“Congressional support for keeping big banks out of real estate is growing even faster than we had anticipated, said Martin Edwards Jr., NAR president. It’s clear that large numbers of members of Congress understand that if the biggest banks in the nation are allowed into the real estate business, the market will soon be dominated by a handful of large banking conglomerates whose primary goal is to cross-sell various financial products. That will not help people who are trying to achieve the American dream of homeownership.

“If big banks are allowed to gobble up local real estate firms, the result will be fewer choices for consumers, higher costs and less competition. Consumers would also lose the personalized customer service they now receive from brokers who live and work in the same community as their customers.”

On the other hand, The Realty Alliance – an organization comprised of some of the largest residential brokerage firms in the nation – disagrees with NAR’s position on the subject. They favor and support a fair and free-market environment unbound by legislative restriction. They say it’s hypocritical and fundamentally wrong to ask national bank subsidiaries to be barred from real estate brokerage activity.

“We believe that consumers would benefit from the influx of capital that may result from nationally chartered banks entering this arena,” Richard Christopher, chairman of The Realty Alliance, wrote in a letter to the NAR president. We also believe increased competition from companies of size would benefit consumers by making all of us sharpen our skills and improve the services we provide.

In our view, the role of government is not to limit competition, as your (NAR’s) legislation would do, but rather to foster a business environment in which consumers benefit from competition.
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BridgeSpan, Inc., best known for its online real estate settlement service program, recently launched a mortgage platform that enables lenders to process home loans from start to finish totally online. This saves lenders hundreds of dollars per loan and adding new layers of convenience for consumers, according to BridgeSpan execs.

In development and testing for nearly a year and a half, the eMortgageAxis automated mortgage platform already has been embraced by some of the nation’s top mortgage lenders. Among them is CitiMortgage, which has used eMortgageAxis for both electronic and paper mortgages. Using eMortgageAxis’ innovative online technology, CitiMortgage created e-mortgages then sold them to Fannie Mae.

While the mortgage industry has for years envisioned such a comprehensive e-mortgage platform, BridgeSpan’s new eMortgageAxis brings together all the diverse elements of the mortgage process. eMortgageAxis integrates with existing lender systems — such as their loan origination software — to automate the loan process from origination through processing to closing, to investor delivery.
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The pace of new home construction is finally simmering down, after a record-high volume during the last quarter of last year.

“We’re seeing things slow down from what had been an extraordinary sales pace last year,” said Gary Garczynski, president of the National Association of Home Builders. “Even so, there’s no indication of fundamental weakness in the market, and higher numbers last month could substantially offset this latest decline.”

Our latest surveys indicated some retrenchment in homebuilder expectations following the rebound our industry experienced from the effects of September 11. Things are likely to smooth out in the year ahead, however, and we’re forecasting that total new home sales this year will about equal last year’s record-setting pace of 906,000 units.
Jim Woodard writes a nationally syndicated newspaper column on real estate news and trends, carried in about 230 U.S. newspapers. He also writes freelance features.

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