Category: Real Estate

Will These Lower Rates Entice Buyers? | Realtor Magazine

Fixed-rate mortgages continued to drop this week, lowering borrowing costs for home buyers.

“Following a mild decline last week, the 10-year Treasury yield rose 1 basis point this week,” says Sean Becketti, Freddie Mac’s chief economist. “The 30-year mortgage rate similarly remained relatively flat, falling just 1 basis point to 3.89 percent. Mortgage rates are continuing to hold at low levels amidst ongoing economic uncertainty.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Aug. 17:

• 30-year fixed rate mortgages: averaged 3.89 percent, with an average 0.4 point, dropping from last week’s 3.90 percent average. Last year at this time, 30-year rates averaged 3.43 percent.
• 15-year fixed-rate mortgages: averaged 3.16 percent, with an average 0.5 point, falling from last week’s 3.18 percent average. A year ago, 15-year rates averaged 2.74 percent.
• 5-year hybrid adjustable-rate mortgages: averaged 3.16 percent, with an average 0.4 point, rising from last week’s 3.14 percent average. A year ago, 5-year ARMs averaged 2.76 percent.

Agents Sell Homes For More Than FSBOS: Study

Contradicting previous research, new study finds FSBOs sell at discount

Key Takeaways

• Agents tend to achieve higher sales prices for properties than comparable FSBO listings, enough to offset their commission fee, according to a recent analysis.

Academic research has often cast doubt on the value of real estate agents, but a new study will come as music to their ears.

It suggests that homeowners will net roughly the same proceeds whether they sell through a real estate agent or take the FSBO (for-sale-by-owner) route.

That’s because agents tend to achieve higher sales prices for properties than comparable FSBO listings — enough to offset their commission fee, according to an analysis released by automated valuation model (AVM) provider Collateral Analytics.

This makes a strong case for hiring an agent, considering that agents allow homeowners to reduce the work, risk, and time of selling a home, said Dr. Michael Sklarz, the CEO of Collateral Analytics and a co-author of the study.

“Overall it is clear that FSBOs have a low probability of selling, and if they do they will likely net the same or less after closing issues, plus they are more likely to screw up on disclosures which may lead to lawsuits after the fact, when buyers discover material facts not disclosed,” added Norman Miller, who produced the study with Sklarz and is a real estate professor at the University of San Diego.

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The study looked at more than 200,000 FSBO sales and one million MLS sales that took place across hundreds of markets in 2016 and 2017.

To control for property attributes, such as home size and location, the authors took what they said was an original approach: they compared sales of MLS listings and sales of FSBO listings to automated valuations of those properties.

They found that on average, FSBO listings sold for about 5.5 percent less than comparable properties sold through the MLS, with FSBO listings tending to sell for a little less than their automated valuations and MLS listings tending to sell for a little more. The valuations were generated by Collateral Analytics’ software.

When they controlled for property characteristics in two other ways, the authors uncovered a similar price differential.

The 5.5 percent differential “is remarkably close to average commission rates,” the authors noted.

The study offered several potential reasons why agents can produce a price premium.

For one, they possess marketing expertise, including knowledge of how to stage a home and the best repairs to make, the study points out.

Second, in contrast to FSBO listings, MLS listings are generally syndicated to broker websites, exposing the home to a “much larger buyer population.”

Lastly, MLS listings may attract more showings (and bids) because they offer compensation to buyer’s brokers for bringing a buyer to a sale — whereas FSBO listings often do not.

“It appears that many sellers [FSBO sellers] are avoiding commissions while netting home prices less than they would with an agent-represented MLS sale,” the authors wrote. “They are avoiding commissions at any price, even one that exceeds the commission rate.”

The possibility that “buyers do make low-ball offers to FSBO sellers deducting the entire commission, not just the seller’s portion” from their offers would explain the study’s results, they added.

Sklarz elaborated on this last point by email.

“If [buyers] assume the [FSBO] list price is fair compared to other homes in the market that are listed primarily on the MLS, then they might also feel that the seller is netting the same thing as they would if they had listed it at the same price with a broker,” he said.

“I’ve heard this logic directly from buyers who took the full commission and deducted it feeling that what the seller really needed was a sale and that the net offer some 6% or so below the asking price was a way to provide the same net.”

The analysis stands apart from related academic research in that it essentially offers a ringing endorsement of agents.

Past studies generally have shown that MLS listings sold more often and sold faster than FSBO listings. But they found virtually no difference between the sales prices of comparable FSBO and MLS listings, undercutting the common claim by agents to sell homes for more.

What could account for the contradiction between the Collateral Analytics study and past research?

The authors said that previous studies often focused on one metro area and used much smaller data samples. They also implied that data from past studies reflected abnormal market conditions.

“[We] think the reason is that they used crude comparison techniques,” Sklarz said by email. “That is, they mostly did aggregate comparisons while here we do a micro level individual property control study, the most detailed ever undertaking.”

“Maybe the academics were trying to show that broker’s were not earning their keep?” he added. “We don’t know, but we had no apriori expectation of a result and it just happened that our results show the opposite.”

The study comes with at least two caveats.

First, the company that produced the study, Collateral Analytics, is a provider of AVM software to real estate brokers, among other customers. That would seem to create a conflict of interest.

Second, the study defines a FSBO listing as a non-MLS listing.

However, many FSBO services now allow homesellers to purchase an MLS listing. (They list the properties as licensed brokers or through third-party brokers and provide limited or no additional service.)

It’s possible that FSBO properties listed in the MLS might sell for higher prices than comparable FSBO listings not in the MLS, Sklarz acknowledged, which would complicate the study’s findings.

Foreign Buyers Spend 30% More on Homes | Realtor Magazine

Foreign buyers continue to outspend domestic buyers in the U.S.

From April 2016 to March 2017, properties purchased by foreign buyers had a median price of $302,290. That is 30 percent more than the median purchase price of $235,792 for all existing homes sold in the U.S. during that period, according to the National Association of REALTORS®’ 2017 Profile of International Activity in U.S. Residential Real Estate.

In a further examination of averages, the average price among foreign buyers is actually closer to $536,900—or double the average price of domestic buyers at $277,700, according to NAR.

Chinese buyers typically buy the priciest properties. They also tend to gravitate toward central cities and suburban areas that tend to have higher property prices, such as in California, New Jersey, and New York.

Foreign buyers are also more likely to pay in cash than use financing for their home purchase. Foreign buyers from Canada and China are the most likely to make all-cash purchases.

More Buyers Putting Down Less on a Home | Realtor Magazine

A 20 percent down payment is no longer the norm. In the past year, 1.5 million borrowers purchased their homes with down payments of less than 10 percent, according to Black Knight Financial Services. That marks a seven-year high.

A growing number of home shoppers are financing more than 90 percent of their home purchase.

“The increase is primarily a function of the overall growth in purchase lending, but, after nearly four consecutive years of declines, low down payment loans have ticked upward in market share over the past 18 months as well,” says Ben Graboske, executive vice president at Black Knight Data & Analytics. “In fact, they now account for nearly 40 percent of all purchase lending.”

The study showed that the segment with the largest growth in low down payment levels has been from purchasers making a 5 to 9 percent down payment.

Also, Graboske notes that the low down payment loans of today are nothing like the ones that were blamed on causing the housing crash. Half of all low down payment loans at that time were second loans or called “piggyback loans.” Today’s mortgages are mostly single, first liens, Graboske notes. The loans of the past also were mostly adjustable-rate mortgages, which are virtually nonexistent among low down payment mortgages today, according to the Black Knight report.

Instead, most of the loans issued nowadays are fixed-rate. Borrowers’ credit scores are also about 50 points higher than those between 2004 and 2007, according to Black Knight.

The growth of low down payment loans has mostly been triggered by new programs offered by mortgage financing giants Fannie Mae and Freddie Mac, which brought back 3 percent down payment loans in 2014. They require borrowers to pay mortgage insurance, just like the FHA does.

So far, defaults on recent low down payment loans have been modest, Black Knight reports. But economists note that’s mostly because home prices are rising fast and borrowers have been gaining equity quickly.

Owners Tap Equity to Start Businesses | Realtor Magazine

Home owners are turning to home equity not just for home renovations but also to launch new businesses. Equity was used as a source of capital to launch 284,618 U.S. businesses—7.3 percent of all businesses, according to a newly released analysis by the U.S. Census Bureau that culls 2014 data.

According to the study, the industries that use home equity at some of the highest rates are accommodation and food services, other services, retail trade, and manufacturing. These industries tend to average $50,000 to $99,999 of funding for startup capital.

The analysis found that businesses owned by women are more likely than men to use home equity as a source of startup capital. Also, Asians, American Indian and Alaskan Natives, and Pacific Islanders or Hawaiians tend to leverage home equity at a higher rate than whites or blacks.

Still, even though African Americans statistically tend to have lower rates of homeownership compared to others, those who do own have a slightly above-average use of tapping home equity loans to start businesses, the analysis found.

“Equity in homes not only plays a significant role in providing capital to start U.S. businesses in general, it is especially important in helping women and racial minorities in the U.S. start new businesses,” the National Association of REALTORS® wrote about the study on its blog Eye on Housing.

Pre-approved vs. Pre-qualified for a Home Loan | Zillow

When you want to make an offer on a house, chances are the seller will want to know whether you’re pre-approved or pre-qualified for a loan. What difference does it make? It depends on you who ask. We’ll explain.

What’s the difference?

Many say that pre-qualification is the preliminary step in the mortgage process, where a lender runs your credit and talks to you about your goals, and pre-approval takes it one step further by requiring verification of your pay stubs and tax returns. But in reality, these two terms are often used interchangeably. According to the Consumer Finance Protection Bureau, there is often not much difference between pre-approval and pre-qualification. Sometimes, different lenders may even have different definitions for each. Confusing, right?

So which one do you need?

The end goal is the same: to give sellers the confidence to accept your offer. So make sure you understand what you’re getting, and find out exactly how your lender defines “pre-approval” or “pre-qualification.” Talk to your real estate agent to determine which is more credible in your market.

Regardless of what your lender calls it, you’ll receive a letter that states they are willing to let you borrow a specific amount of money. But remember, neither pre-approval nor pre-qualification (we’ll stick with “pre-approval” from here on out to make it simple) is a guarantee that you’ll get a home loan. Neither is an offer to lend, a commitment to make a loan or a guarantee of specific rates or terms. The lender may want additional documentation and will need to do an appraisal of your new home before actually extending a loan.

That means even though you have the pre-approval letter in your hands, this is NOT the time to go buy a new car, quit your job or run up credit card debt. Any big changes to your finances or debt load are likely to be picked up once you actually apply for a mortgage loan. Lenders aren’t committed. But on the flip side, neither are you. A lot of buyers think once they’ve got a pre-approval letter they have to use that lender. You don’t.

Why you should seek pre-approval

At this point, you may be thinking that the right time to get pre-approved is right when you find the home you want to buy. But getting a pre-approval letter at the beginning of your home search has many advantages.

First, you’ll know upfront what kind of loan you will be approved for. That can help set your price range. You can also get pre-approval from multiple lenders. Remember, just as the lenders haven’t fully committed to give you a loan, you don’t have to fully commit to getting your loan from them. Even if you use the letter as part of an offer, you are still free to get your loan elsewhere if you find a better deal. Use the pre-approval process to compare rates and lenders. And don’t worry about multiple credit pulls damaging your credit score. Within a two-week period, all mortgage inquiries only count as a single pull.

Second, you’ll be able to move fast. Pre-approval letters are good for a specific period of time, usually 60 to 90 days. Getting pre-approved early can help you be ready to send in an offer ASAP because you won’t have to wait a couple of days for the lender to issue you a pre-approval letter.

Pre-approval also signals to everyone else, from real estate agents to sellers, that you are serious. In a competitive market this is particularly important. Let’s say you find a home you love and put in an offer saying you’re a pre-qualified. Someone else makes an offer on the same home but they are pre-approved. Guess which offer is likely to be accepted? In a very hot market, sellers may not even want to bother looking at your offer until you are pre-approved. If you’re looking at bank-owned homes, they require that you submit a pre-approval letter before accepting your offer.

So once you are serious about this whole house-buying thing, how do you get a pre-approval? Start with Zillow’s pre-approval tool. Fill it out online to find a local lender in minutes who can help you get pre-approved. The lender will conduct a preliminary review to determine your loan qualifications based on their guidelines.

What you’ll need

To get pre-approved you will likely need to provide the following documentation:

• Your W-2 from the past two years
• Your pay stubs for the past three months
• Your tax returns from the past two years
• Your checking or savings bank statements for the past three months (this will likely show your down payment funds as well)
• Statements for all your other assets (stocks, bonds, retirement accounts) for the last two months
• The name and phone number of your landlord (if you are renting) or your current mortgage documents
• Your divorce decree, if applicable
• If you are self-employed: Your business tax returns for the past two years in addition to your year-to-date profit-and-loss statement and year-to-date balance sheet
• Your Social Security number and permission to pull a credit report. (Many lenders will pass on a $30 fee to pull your credit.)

You don’t need to wait to gather all of that before checking out the tool. In fact, depending on your circumstances and if your credit score is especially stellar, you may not need some of the documentation at this stage, but it’s good to have an idea of what you’ll need. Once you’ve provided the required documentation, a pre-approval letter should be in your hands within 24 to 48 hours.

Gulp. What if you can’t get pre-approved?

Work to improve your credit score, pay down debt and make sure you pay your bills on time. Check your credit score for any errors and correct them. Ask your lender what the roadblock was and work to remove it for next time.

2 Major Reasons Why Inventory Is So Low | Realtor Magazine

Inventory of available homes on the market is the lowest it’s been in two decades, but the reasons may surprise you. Two of the likely culprits are baby boomers and homeowners who are simply satisfied with their home, according to realtor.com®’s Housing Shortage Study. 

Baby boomers are showing a desire to age in place in their current homes, and their refusal to sell is creating a clog in the market, according to the study. Eighty-five percent of baby boomers surveyed say they are not planning to sell their home in the next year. That means 33 million properties—many of which are urban condos or suburban single-family homes—will stay off the market. Many of those properties would be popular choices for millennials, a generation still largely waiting in the wings to break into homeownership. 

“Boomers, indeed, hold the key to those homes the market desperately needs, both in the urban condo and the detached suburban home segment,” says realtor.com® chief economist Danielle Hale. “But with a strong economy and rising home prices, there’s really no reason for established homeowners to sell in the short term. Although downsizing might be on the minds of boomers, they face the same inventory shortages and price increases plaguing millennials.”

Furthermore, 63 percent of respondents to the survey indicate that their current home meets the needs of their family. They cite low interest rates (16 percent), recently purchasing their home (15 percent), and needing to make home improvements and low property taxes (each at 13 percent) as reasons not to sell. “Life events drive real estate transactions,” Hale says. “When the majority of homeowners feel their family’s needs are being met by their current home, there is nothing compelling to them to put their home on the market.”

There may be hope that more starter homes will hit the market soon. Possibly offsetting the low supply of starter homes, which is down 17 percent year over year, 60 percent of respondents to realtor.com®’s survey who did say they plan to sell in the next year are millennials who want to move to a larger home or one with nicer features.

“The housing shortage forced many first-time home buyers to consider smaller homes and condos as a way to literally get their foot in the door,” says Hale. “Our survey data reveals that we may see more of these homes hitting the market in the next year, but whether these owners actually list will depend on whether they can find another home.”

Mortgage Rates at Lowest Point in 6 Weeks | Realtor Magazine

The 30-year fixed-rate mortgage reversed course this week, averaging 3.90 percent. 

“After holding relatively flat last week, the 10-year Treasury yield fell 4 basis points this week,” says Sean Becketti, Freddie Mac’s chief economist. “The 30-year mortgage rate moved in tandem with Treasury yields.”

Freddie Mac reports the following national averages for the week ending Aug. 10: 

• 30-year fixed-rate mortgages: averaged 3.90 percent, with an average 0.5 point, dropping from last week’s 3.93 percent average. Last year at this time, 30-year rates averaged 3.45 percent. 
• 15-year fixed-rate mortgages: averaged 3.18 percent, with an average 0.5 point, the same average as last week. A year ago, 15-year rates averaged 2.76 percent. 
• 5-year hybrid adjustable-rate mortgages: averaged 3.14 percent, with an average 0.5 point, falling from last week’s 3.15 percent average. A year ago, 5-year ARMs averaged 2.74 percent.

Luxury Home Prices Soar Even More | Realtor Magazine

Sale prices of luxury homes in the second quarter of the year surged 7.5 percent compared to a year ago. It’s the first time the luxury market’s gains outpaced the rest of the market since 2014, according to data by the real estate brokerage Redfin. Redfin defines the luxury markets as the top 5 percent of the priciest homes sold in each city.

But one of the main reasons behind the luxury market’s strong performance may be because sellers have gotten more realistic about their list prices, CNBC reports. Luxury sellers are asking a little less for their homes, which has spiked more interest among buyers, and in turn, is helping to boost prices once again too. 

“There have been several years of a large disconnect between luxury sellers and market conditions, and what we’ve noted in all our research is that sellers are now much more willing to travel farther to meet the buyers,” Jonathan Miller, president and CEO of Miller Samuel, a real estate appraisal and consulting firm, told CNBC.

Miller cites a recent example: A home in Brooklyn, N.Y., recently sold for $15 million, which was a 40 percent discount of its original price. 

Sales of homes priced above $1 million surged 19 percent in June compared to a year ago, according to the National Association of REALTORS®. That marks a bigger sales gain than the lower price points. 

The spike in sales has caused a lower supply of luxury homes for sale. Listings at or above $1 million dropped 9.4 percent compared to a year ago, according to Redfin’s data. 

“The housing shortage is now affecting the top of the housing market,” says Nela Richardson, Redfin’s chief economist. “Yet despite the strong uptick in prices, the luxury market is not nearly as competitive as the rest of the market. Only 1 in 50 luxury homes sold above list price in the second quarter, compared to more than 1 in 4 homes in the bottom 95 percent.”

Loan Demand Gets a Lift From Rate Drop | Realtor Magazine

Interest rates dropped last week, giving homeowners and home buyers more incentive to lock in a lower rate as they apply for a mortgage. Total mortgage application activity for home buying and refinancing rose 3 percent on a seasonally adjusted basis compared to the previous week, the Mortgage Bankers Association reported Wednesday. Applications, however, are still down by 25 percent from a year ago. 

Refinance applications saw the most activity last week, increasing 5 percent week over week. Still, refinance applications are down 44 percent from a year ago when mortgage rates were lower. 

“Mortgage rates decreased last week, which led to the highest volume of refinance applications since mid-June,” says MBA chief economist Mike Fratantoni. 

The 30-year fixed-rate mortgage averaged 4.14 percent last week, down from 4.17 percent the week prior, the MBA reports. 

Meanwhile, mortgage applications for purchasing a home saw a 1 percent increase compared to the previous week. 

“With rates trading in a narrow range, the purchase market continues to show strength, with application volume running about 7 percent ahead of last year,” Fratantoni says.