The World of Homeownership

Owning a home is a big responsibility that comes with great rewards. Budgeting is important, so plan for sudden expenses that may arise in addition to your regular monthly expenses.

+ Property taxes and special assessments

+ Home/hazard insurance

+ Property maintenance

But before you can consider the Big “B” (Buy), it will require another Big “B,” which stands for Budget.

So the day you decide that you want to buy a home is a big day in anyone’s life. It is a good decision, but one that will involve a degree of effort, risk, education and endurance in order to bring you to that dream home and then keep it.

Budget

+ What is your current budget?

+ What additional expenses will you be expected to pay on a monthly basis?

+ What about a budget for unexpected expenses?

+ The first step necessary to take after you figure out your present budget is to estimate what your mortgage payment will be. This is where you can take advantage of some of the resources available to you online, especially if you live in New Jersey.

Affordability Calculator

The affordability calculator will help you to determine how much house you can afford. The calculator tests your entries against mortgage industry standards to determine the highest priced house you can qualify for, along with the down and monthly payments you would need to make in order to sustain homeownership. http://www.njrealtor.com/consumers/affordability-calculator/

Know Your Credit History

It’s no secret. Your credit history is an important factor that affects your ability to obtain a mortgage for the purchase of your home. Lenders want to see how you borrowed and repaid money in the past. This is reflected in your FICO score. FICO scores range from 300 to 850, and lenders believe that borrowers with higher scores are more likely to repay their loan. Homebuyers should obtain a copy of their credit report by contacting www.annualcreditreport.com.

Answer these questions:

Am I better off renting?

How much home can I afford?

How much can I save in taxes?

What is my monthly spending plan?

Is it better to rent or buy?

MLK Camden Residence Preserved

According to an article in New Jersey Monthly, Martin Luther King Jr.’s Camden residence has been saved from demolition, thanks in large part to the efforts of local car salesman Patrick Duff, an amateur historian who documented the home’s historic significance.

King lived in the house from the end of 1948 to 1951, while attending Crozer Theological Seminary in Chester, Pennsylvania. His Camden residency had been all but forgotten until Duff, investigating a related matter, happened upon the legal complaint signed by King following a June 12, 1950, incident in nearby Maple Shade.

NJ DE and MD Top 2016 Foreclosure Rates

Foreclosures Fall Nationally

According to ATTOM Data Solutions, foreclosure filings on 933,045 fall 14% for U.S. properties for 2016 from 2015. This is the lowest level since 2006, when there were foreclosure filings on 717,522 U.S. properties.

The report found that that 0.70% of all U.S. housing units had at least one foreclosure filing in 2016, which is the lowest annual foreclosure rate nationwide since 2006, when that figure was 0.58% of housing units.

The new data for December 2016 show that there were 85,919 U.S. properties with foreclosure filings, which was down 1% from November 2016 and down 17% from 2015. December represented the 15th consecutive month with a year-over-year decrease in foreclosure activity.

A total of 379,437 U.S. properties were repossessed by lenders (REO) in 2016, down 16% from 2015 and down 64% from the peak of 1,050,500 in 2010 to the lowest level since 2006.

A total of 478,857 U.S. properties started the foreclosure process in 2016, down 16% from 2015 and down 78% from the peak of 2,139,005 foreclosure starts in 2009 to the lowest level since ATTOM began tracking foreclosure starts in 2006.

New Jersey, Delaware, Maryland post top state foreclosure rates in 2016

21 states and the District of Columbia posted a year-over-year increase in REOs in 2016, including Massachusetts +61%; Alabama +32%; New York 21%; Virginia +9%; and New Jersey +4%.

States with the highest foreclosure rates in 2016 were New Jersey 1.86% of housing units with a foreclosure filing); Delaware 1.51%; Maryland 1.37%; Florida 1.18%; and Illinois 1.10%.

Atlantic City, Trenton, Rockford post top metro foreclosure rates in 2016

Among 216 metropolitan statistical areas with a population of at least 200,000, those with the highest foreclosure rate in 2016 were Atlantic City, New Jersey 3.39% of housing units with a foreclosure filing; Trenton, New Jersey 2.16%; Rockford, Illinois 1.54%; Philadelphia 1.53%; and Lakeland-Winter Haven, Florida 1.46%.

Average time to foreclose jumps to new record high

+ U.S. properties foreclosed in the fourth quarter of 2016 had been in the foreclosure process an average of 803 days, a 29% jump from the previous quarter and a 27% increase from 2015 to the longest since ATTOM began tracking average foreclosure timelines in Q1 2007.

There were eight states where the average time to foreclose in the fourth quarter was more than 1,000 days: Utah (1,403); New Jersey (1,383); New York (1,283); Hawaii (1,220); Florida (1,186); Indiana (1,033); Illinois (1,024); and Pennsylvania (1,010).

Foreclosure activity increases in 12 states, 25 %of metro areas

12 states and the District of Columbia posted an increase in overall foreclosure activity in 2016 compared to 2015, including Delaware + 45%; Rhode Island +29%; Massachusetts +21%; Connecticut +21%; and Hawaii +20%.

Foreclosure starts increase in 15 states

15 states and the District of Columbia posted a year-over-year increase in foreclosure starts in 2016, including Delaware +37%; Connecticut +35%; Maine +30%; Rhode Island +26%; Arizona +15%; and Massachusetts +12%.

Howeowners Add $837 Billion in Total Equity

The real estate market has been gradually demonstrating that owning a home can be a smart way of creating significant wealth. Since 2011, home prices have been erasing many of the homes that have been under water due to the housing crisis of 2008-9.

According to Fanny Mae, during the first three quarters of 2016, howeowners across the nation saw a cumulative gain $837 billion in total equity.

This positive trend cuts two ways: firstly, homes are becoming more expensive, secondly, as interest rates creep higher from their historic lows, salaries and wages have not kept pace.

This is forcing Millennials to wait longer to make their first home purchase.

Certain states such as Nevada, Missouri and New Jersey are still finding it difficult to work-through all the homes that have negative equity or are in some stage of foreclosure.

Still, this is January, and we are three months from the threshold of the 2017 buying season. A lot could happen, but inventory remains very tight.

But there are still signs of optimism:

A survey released by the Associated General Contractors of America showed that 3 out of 4 U.S. construction firms expect to increase head count this year.

This means that new jobs are going to be created, and wages are expected to increase.

New Home Construction Eases

Home builders aren’t exactly closing out the year with more enthusiasm, despite a shortage of homes on the market.

According to the U.S. Commerce Department’s new residential sales report, permits to put up new residences fell in November. Permits issued were down 10.4% from October to November and fell approximately 0.9% from permits issued for November 2015.

In light of the blight of inventory available for sale, builder’s permits are considered an important component of calculating the kind of market the industry can expect in the months ahead. The Commerce Department’s report may forecast that first-time homebuyers especially will not receive a reprieve from the construction industry, at least for the time being. New construction has been at a flat line for some time now, most of which is the trepidation that many builders still remember from the crash of 2008.

The impact remains: not enough homes for sale and not enough homes for rent.

Still, industry professionals are not dour about future prospects, knowing that the health of the market requires the economic tensions such as shortages and higher mortgage rates, to provide fiscal stability.

It also makes sense that the construction industry normally slows down during the colder months, December–March.

New construction fell 28.4% from October 2016 and nearly 7.9% from November 2016. Not all the metrics within the report were negative: permits for single-family homes in November increased by 11.6% from 2015, but were down 9.4% from October 2016. The number of new homes that were completed in November also increased by 4.1% from October 2016 and 24.2% as compared with November 2015.

For some within the industry, this will translate into greater pent-up demand for spring 2017.

Scarcity is always a positive factor when selling into a market. Many within the industry are believing that the arrival of the new administration will also reduce the number of regulations, thus reducing overall costs of doing business.

Real Estate Market Steadies as Rates Increase

This is clearly a trend: higher rates. As rates for home-purchase loans rose for the ninth straight week, the industry continues to believe that the market is still strong enough to weather the increased costs.

According to mortgage finance provider Freddie Mac, the 30-year fixed-rate mortgage averaged 4.32% in the latest reporting week, which is up two basis points from the prior week.

It is only since November that rates have surged 85 basis points. The 15-year fixed-rate mortgage averaged 3.55% in the latest reporting period, which is up from 3.52%. These higher rates are also reflected in the increase of affordability, which is sure to impact first-time buyers.

With the present mortgage rate hikes, buyers will clearly look for ways to make a purchase work for them. Trying to time the purchase of a home based upon rates may not be the best strategy to employ, considering that a 20-basis-point jump in rates on a $200,000 home would add just $18 to the monthly mortgage cost.

More bad news for homebuyers comes in the form of a slowdown in new construction from builders recently. This will be covered in part two of this article.

In some cases, first-time homebuyers may reconsider where they want to buy that first piece of real estate. There are also other scenarios in which the buyers may look to purchase a two-family home in order to help with the mortgage payments.

Still higher trends in mortgages, affordability and home prices give the sense that the real estate market is rising a wave instead of sitting on a bubble, as many experienced back in 2006-08.

Flippers Finding Ways to Make It Work

The stability of the housing market continues to offer opportunity to house-flippers, according to an article posted by Fox Business. And accordingly, 2016-17 may continue to foster an environment conducive to house-flipping.

For the first three quarters of 2016, the number of investors who flipped a house reached the highest level since 2007. Of those purchases, approximately one-third of the deals were financed with debt.

Even banks are now venturing into providing financing vehicles for house-flippers, who buy and sell homes in a matter of months. The amount of capital designated to house-flipping is expected to grow. Banks, including Wells Fargo, Goldman Sachs and J.P. Morgan Chase, have begun extending credit lines to companies that specialize in lending to home-flippers.

The market for house-flipping loans is expected to reach about $48 billion in total sales volume this year, the highest since 2006, according to ATTOM.

The average profit is calculated to be about $61,000 on each flip. For comparative purposes, this is up from about $19,000 at the bottom of the market in 2009.

This trend appears to be, in part, fueled by rising home prices and strong buyer demand across the country. In addition, the shortage of inventory is also seen as contributing to this trend.

Loans to house-flippers are typically for shorter terms — usually around seven months — and bring with them interest rates between 7% and 12%. A house-flipper usually places up to two-thirds of the value of the property down since these type loans are designated as being higher risk. But the higher down-payments are well worth the investment, when some flippers walk-away with profits of up to $200,000 a year. Yet, the inventory shortage along with higher lending rates is starting to squeeze the flippers’ bottom-line. Early in this particular cycle of the real estate market, a house-flipper would purchase a property at a 30% discount to the market. Now such flippers are willing to risk purchasing a property that is 10% to 15% below market value.

“One of the most incredible statistics is, for 18 years middle class people haven’t had a real wage increase, and in some cases now they’re working two jobs and they’re making less money than they used to make.”

National Association of Realtors Avg Home Listing Up

National Association of Realtors Avg Home Listing – $422K

2016 Facts and Stats

+ The average home in 2016 had 3.287 bedrooms and 2.568 bathrooms and was listed for $412,222.94.

+ The average price is higher than the median price of $250,000, which is the usual metric cited to characterize the condition of the real estate market economic climate.

+ The average price is the sum of all home prices divided by the number of homes.

+ The median is the exact middle if all homes’ prices are listed in ascending (or descending) order.

+ Consequently, the average price reflects the upper reach of the market.

+ The average price in 2016 is 11% higher than in 2015.

+ The average home is sold seven days faster than in 2015 – in just 109 days.

+ The average home is getting both bigger and taller, and with more bedrooms and bathrooms.

+ 2016 has seen fewer first-time buyers due to high competition and low inventory.

Rising Interest Rates Slowing Sales But Not Jersey

According to The National Association of Realtors’ chief economist, Lawrence Yun, rising interest rates is having an impact on the slowing sales rates (but this doesn’t seem to be the case in New Jersey).

That being said, along with shrinking inventory, sales are projected to slow down a bit.

In addition to the rise in mortgage rates and inventory shortage, there doesn’t seem to be too much of an impact being felt on home prices, which are, at some regions, at 15-year highs.

According to the National Association of Realtors’ report, pending home sales fell in November to their lowest level in almost a year. The Pending Home Sales Index, a forward-looking indicator based on contract signings, fell 2.5% to 107.3 in November from 110 in October. With the November decrease, the index is now 0.4% below November 2015 (107.7) and at its lowest reading since January 2016 (105.4).

According to The National Association of Realtors’ data, the Northeast saw monthly and annual pending sales gains in November, which climbed again 0.6% to 97.5 in November, and is now 5.7% above a 2015.

The Midwest’s index fell 2.5% to 103.5 in November, and is now 2.4% lower than November 2015.

The South’s index fell 1.2% to an index of 118.7 in November, and now is 1.3% lower than 2015.

The West’s index fell 6.7% in November to 101, and is now 1% lower than the same time in 2015.

At this point, the National Association of Realtors is projecting “only a small gain in home sales” for 2017.

The National Association of Realtors’ outlook for 2017 expects the housing market will be stabilized by the stronger wage growth as a result of the 2 million net new job additions that are expected next year. Still, the inventory shortage is expected to continue to have an impact on choices available to buyers.

NY-NJ Metro Predicted to Be Hot in 2017

The New York metropolitan area is predicted to be among the hottest 25 real estate markets in 2017 — No. 23, to be exact — according to realtor.com.

The forecast for sales in the New York metropolitan area is expected to increase 6.5%, as compared to 2.6% nationally, according to National Association of Realtors’ chief economist.

The forecast targets a 4% price growth in the New York metropolitan area, and nationwide, home prices are forecast to trend up 3.9% growth year-over-year.

Realtor.com uses information from home sale and price trends as well as population changes, new construction, unemployment and job creation to make the predictions for the market.

NJ Purchase Contracts Rise Again

Purchase contracts reported for September 2016 mark the strongest since 2005.
According to the Otteau Group, September contract purchases by homebuyers exceeded the same month in the prior year for the 25th consecutive month.
The month reflects a 12% increase over September 2015, which compounds the 15% increase recorded for September of 2015, raising home sales in New Jersey by 28% over the past 2 years, the highest number of purchase contracts recorded in the month of September of the past 11 years.
The year-to-date figures for home purchases in 2016 have jumped 14%.
According to the Otteau report, the increase has been largely concentrated in the lower-priced home category, representing signs that the first-time ‘Millennial’ buyers are transitioning from renting to homeownership.
The higher-end homes in New Jersey (home sales priced at $2,500,000 and above) have fallen by 4% in 2016.
The report attributes these trends to:
The greater number of younger-age first home buyers
Trade-down purchases by older-age empty-nesters
Relaxed mortgage lending standards
Other Facts and Stats
The supply of homes available for sale continues to fall – by nearly 6,000 (-11%)
Low inventory limits options available to home buyers
On a comparative basis, 2016 has 25,000 (-34%) fewer homes on the market compared to the cyclical high in 2011
Unsold inventory equates to 5.4 months of sales, lower than one year ago when it was 6.7 months
The majority (81%) of New Jersey’s 21 counties have less than 8.0 months of supply
Hudson County has the strongest market condition with just 3.2 months of supply, followed by Union, Essex, Morris, Middlesex and Somerset Counties, which all have fewer than 4.5 months of supply
Unsold inventory is concentrated in the southern portion of the state: Cape May (9.2 months), Salem (10.1 months), Cumberland (10.3 months) and Atlantic (10.5 months)

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