Foreign Buyers Recognize Value of Homeownership in the U.S.

Foreign buyers are capitalizing on the slump in the U.S. housing market by purchasing homes here in large numbers. The U.S. has been the top destination for foreign buyers for a long time. The increase in foreign real estate investment by $16 billion indicates that the U.S. still continues to be the most attractive destination for foreign buyers.

Here are some hard facts to validate this. According to the National Association of Realtors’ (NAR) 2011 Profile of International Home Buying Activity, the total residential international sales in the U.S. for the past year ending March 2011 equaled $82 billion, up from $66 billion in 2010. But more importantly, the average amount paid by foreign buyers was $315,000, whereas the domestic average was $218,000. However, 45 percent of international purchases were under $200,000.

Here are some reasons why international buyers prefer to purchase homes in the U.S. The U.S. is generally considered a safe and stable environment for investments. Properties here are a lot cheaper than most markets in Europe. Unlike many other countries, real estate investments in the U.S. have historically achieved a higher long-term appreciation. Since many international students come to U.S. universities for undergraduate and higher education, many parents believe it makes practical sense to buy rather than rent homes for their kids. Many temporary foreign workers in the high-tech field also find it more economical to buy a home rather than leasing apartments.

International buyers are very picky when it comes to their buying preferences. The buying decisions were primarily influenced by four factors: proximity to their home country; convenience of air transportation; climate and location. Florida, California, Texas and Arizona have been the darlings of international buyers for the past five years, mostly because of their balmy winters. 31 percent of foreigners prefer to by homes in Florida, which is the top destination. California comes in second with 12 percent, followed by Texas with 9 percent, and Arizona with 6 percent. There is a distinct pattern of buying preference among various ethnic groups. Florida is preferred by Canadians, Europeans and South Americans. Asians have historically chosen the West Coast and most Europeans prefer the East Coast. Mexican buyers seem to prefer the Southwestern region.

People from 70 countries purchased homes in the U.S. this year, which are 17 more than the year before. Canadians dominated the foreign buyers with 23 percent. China came in second with 9 percent. India, the U.K. and Mexico were tied for the third place. These five countries accounted for 53 percent of foreign transaction in 2011.

As far as statistics are concerned, 28 percent of Realtors reported working with a foreign buyer in 2011. 55 percent served at least one international client. Eight percent of Realtors obtained 50 percent or more of their transactions from foreign buyers. 61 percent of foreign buyers bought a single-family home while 36 percent purchased a condo, apartment or townhouse. 62 percent of international transactions were made by paying cash. The biggest hurdle for foreign buyers continues to be the availability of financing, with 32 percent reporting this as their primary reason for not buying a home. In addition to financing, foreign buyers cited legal, tax and immigration as other factors that prevented their real estate purchase.

Mortgage Rates at Lows for Year

Amidst the continued weak economy, mortgage rates have dropped for four weeks in a row to their lowest point this year, according to Freddie Mac’s Primary Mortgage Market Survey that was released on June 2, 2011.

Rates on 30-year fixed-rate mortgages averaged 4.55 percent with an average 0.6 point for the week ending June 2, down from 4.71 percent last week and 5 percent a year ago.

The 30-year fixed-rate mortgage hit an all-time low in Freddie Mac records dating to 1971 of 4.17 percent during the week ending Nov. 11, 2010, and so far this year has ranged from 4.71 percent in early January to a high of 5.05 percent in February.

Rates on 15-year fixed-rate mortgages averaged 3.74 percent with an average 0.7 point, down from 3.89 percent last week and 4.36 percent a year ago. This is a new low for 2011, but it is well above the all-time low in records dating back to 1991 of 3.57 percent, set in November.

Rates on 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loans averaged 3.41 percent with an average 0.6 point, down from 3.47 percent last week and 3.97 percent a year ago. The 5-year ARM hit a low in records dating to 2005 of 3.25 percent in November.

Rates on the 1-year ARM loans averaged 3.13 percent with an average 0.6 point, down from 3.14 percent last week and 4.07 percent a year ago.

Some analysts are anticipating an upward movement in mortgage rates. Mortgage applications have been rising, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey. Also, the number of borrowers looking to refinance is currently at its highest level since the second week of December. Mirroring the steady decline in rates, refinancing activities have increased 35 percent over the past seven weeks. However, refinancing is only at 50 percent the level it reached during the fall of 2010, when mortgage rates fell to their record lows.

Despite an uptick in refinance activities, the low mortgage rates haven’t been good enough to nudge the weak housing market. According to the National Association of Realtors, fewer people bought previously occupied homes in April. Sales fell to a seasonally adjusted annual rate of 5.05 million units, which is far below the 6 million homes a year that economists consider a healthy housing market.

Despite the lackluster housing news, Freddie Mac’s Vice President and Chief Economist Frank Nothaft highlighted one positive observation.   "Households have been strengthening their balance sheets over the past year," he said. "The New York Federal Reserve Bank reported that the serious delinquency rate (90 or more days delinquent plus foreclosures) on first mortgages and closed-end home equity loans balances fell to 7.46% in the first quarter from a peak of 8.89% the same period last year. This suggests there may be fewer distressed sales later this year." Distressed houses have accounted for a much higher than normal share of all homes on the market for the last year, and a reduction in their number would help stabilize home prices, which have been falling since last summer.

10 Markets with Fastest Rising Real Estate Prices

According to monthly data released by Realtor.com, the south dominated a list of 10 markets with the highest year-over-year increases in median list price in April. Out of the 146 metro areas considered nationwide, southern metros dominated the top ten.

The highest jumps were seen in two Florida markets. The median list price in Fort Myers-cape Coral rose 25.7 percent to $225,000, and it rose 8.5 percent to $239,000 in Miami. These two markets were the only metros in the top 10 to move properties at a rate slower than the national median of 95 days. The median age of inventory for each of these markets was 116 and 129 days respectively. Fort Myers-Cape Coral and Miami also saw the biggest year-over-year drops in inventory: -25.3 percent and -29.9 percent, respectively.

Shreveport-Bossier City, La., had an 8.1 percent increase, to $173,000. In the U.S. overall, the median list price fell 4 percent year-over-year in April, to $191,900.The three other Southern metros to make the list were Charleston, W.V.; Tyler, Texas; and the Virginia segment of the Washington, D.C. metro area. The Washington, D.C., metro was the fastest-moving among the 10 markets with a median inventory age of 57 days.

Two Midwestern metros (Columbia, MO, and Peoria-Pekin, IL) and two Western metros (Fort Collins-Loveland, CO; and Anchorage, Alaska) made the list. No market in the Northeast was among the top 10.

Year-over-year, eight of the 10 metros saw their inventory decline last month, six of them by double-digit percentages. Only Anchorage and Tyler saw their total listings rise to 15.7 percent and 3.6 percent, respectively. Nationally, total listings fell 8.3 percent.

Western metro areas had the fastest-dropping median list prices among the top 10 markets. Two of the top 10 are in the South and two are in the Midwest. All 10 witnessed double-digit declines compared to April 2010. There were no Northeastern markets in the top 10 list.

The biggest price decline was seen in Santa Barbara-Santa Maria-Lompoc, CA. It was down 26.2 percent to $498,250. This market was also one of two to see its inventory rise year-over-year, by 6 percent. The other was Reno, NV, with a 9.5 percent increase.

Inventory declined by double digits in six of the remaining eight markets. Savannah, GA, experienced the sharpest decline: -48.3 percent. Savannah was also one of three markets with a median age of inventory above the national median. The market's median inventory age was 198 days in April, though that represents an 11.2 percent decline from April 2010.

To obtain the median age of inventory for each market, Realtor.com subtracted a property’s listed date from whichever was earlier, its end listing date or the end of the time period, and took the median of all the resulting individual days on the website.

Ackley Realty Captures Region Sales Honors

We were honored by this amazing article in the June 9^th Osceola News Gazette front page (cover) and front page on the real estate section of the HomeFinder. 

I would like to let each and every one of you know how proud I am of your contribution to us getting this prestigious award.

Feel free to send this article to your clients with a note from you.

Coldwell Banker Ackley is truly grateful to have you as part of our team.

You all rock!!

Have a fabulous day!

Rajia

What happens to mortgage rates after QE2 ends in June?

As far as federal agencies are concerned, none of them have a bigger clout than the Federal Reserve. It is said when the Feds sneeze, the world economy gets hiccups. Their policies affect everything from the milk we buy at the grocery store to the interest rates of a 30-year mortgage.

It is no wonder that Quantitative Easing 2 or QE2 is one of the hotly debated topics these days? So what in the world in QE2? Simply put, it is an attempt by the Feds to jump-start the sluggish economy by pumping billions of dollars into the financial markets.

Under normal circumstances, if the central bank wants to stimulate economic growth, it simply lowers interest rates, which in turn increases the money supply and infuses cash into the real economy. The domino effect occurs when people borrow this increased amount of available cash and banks lend it, which eventually sputters the economy back to normal growth patterns. However, this only happens in normal market conditions. But the market situation in the U.S. is far from normal these days.

Back in 2008 the feds lowered the short-term interest rate target to near 0%, but the economy continued to be sluggish and has not gained any traction since. So, when the central bank exhausts all its options to influence interest rate movements, it engages in a process known as quantitative easing. The goal of quantitative easing is to increase the money supply by purchasing Treasury securities. This increase in money supply is meant to ease the financial burden on banks. As pressure is alleviated from banks, they will be encouraged to lend money to people seeking small business loans, mortgages, auto loans, etc.

Between November 2010 and Junes 2011, the central bank will invest $600 billion in long-term bonds. The bond/treasury purchases are aimed at stimulating the economy. By buying Treasuries, the Fed intends to soak up supply and push their prices up. Because interest rates move inversely to bond prices, interest rates move down. Mortgage rates, corporate bond rates and other interest rates will go down, or at least be lower than they otherwise would be.

But now that the central bank's bond-buying spree is drawing to a close, even some of the Fed's toughest critics are nervous. QE2 was designed to keep bond prices high and interest rates low. It is credited with propping up the economy a bit and, in turn, boosting the stock market. Technically, the Fed is in the midst of its second round of bond buying—hence the 2 in QE2 —since the financial crisis struck in 2008. When the first round ended in spring 2010, both stocks and bonds tumbled.

Now that QE2 is scheduled to cease at the end of June, financial analysts are predicting that the demand for bonds and mortgage-backed securities will fall, which could result in higher rates. This is because there won’t be any bulk buyers of bonds after the Feds stop buying them. Others are speculating that if the prices of oil, gasoline and food continue to remain high, the economy may slow down even further, which may cause the mortgage rates to decline even further. While there are no clear answers, the best thing to do is stay tuned.

The Fed proposes Mortgage Standards Rule

The Federal Reserve Board has proposed a rule that would require banks to determine a borrower’s ability to repay a mortgage before making the loan.

Although this rule seems obvious, it is now required by the Dodd-Frank act, which also establishes minimum mortgage underwriting standards. This means borrowers can sue lenders if appropriate efforts are not taken to ensure they can repay the loan.

The proposed rule is in response to a spate of so-called “liar loans” that lenders offered to borrowers in the years leading up to the housing market crash. In many cases, lenders did not verify the income stated by borrowers, which meant no due diligence was made to determine the borrower’s ability to repay. Many of these liar loans ended up on foreclosures, which contributed further to the nation’s financial crisis. Some of the criteria that will be used to determine a borrower’s credit worthiness and ability to repay a mortgage loan include a person's income, employment status, the monthly mortgage payment, any other current debt obligations and a consumer's credit history.

The revisions to mortgage regulation, which implements the Truth in Lending Act (TILA), are being made following the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposal would apply to all consumer mortgages except home equity lines of credit, timeshare plans, reverse mortgages, or temporary loans.

The proposed rule would provide four options for complying with the ability-to-repay requirement.

·         First, a lender can meet the general ability-to-repay standard by considering and verifying specified underwriting factors, such as the borrower’s income or assets.

·         Second, a lender can make a "qualified mortgage," which provides the creditor with special protection from liability provided the loan does not have certain features, such as negative amortization; the fees are within specified limits; and the creditor underwrites the mortgage payment using the maximum interest rate in the first five years.

·         Third, a lender operating primarily in rural or underserved areas can make a balloon-payment qualified mortgage. This option is meant to preserve access to credit for consumers located in rural or underserved areas where banks originate balloon loans to hedge against interest rate risk for loans held in portfolio.

·         Finally, a lender can refinance a "non-standard mortgage" with risky features into a more stable "standard mortgage" with a lower monthly payment. This option is meant to preserve access to refinancing.

The proposal would also implement the Dodd-Frank Act's limits on prepayment penalties. The Fed is seeking comments on the proposed rule until July 22, 2011. The process of writing rules based on the Fed’s proposal is scheduled to transfer to the soon-to-be-effective Consumer Financial Protection Bureau (CFPB).

The Dodd-Frank Act requires the creation of this bureau, which will write rules for mortgages and other consumer credit products. The CFPB will take over enforcement of consumer protection laws on July 21.