Buyers Waiting for Prices to Come Down Will Be Disappointed

“Some buyers were waiting for the next recession, thinking home prices would fall again – but recessions aren’t created equal. The latest downturn exposed those myths.”- FloridaRealtors.org
 By: Russ Wiles

NEW YORK – The current economic downtown has been odd in so many ways. Why shouldn’t it expose some economic myths and misconceptions as unreliable, if not outright untrue?

When it comes to understanding the relationships involving home prices, bank deposits, interest rates and unemployment, many disconnects arise. Here are a few:

High unemployment and home prices

You might think that as the nation’s unemployment rate has spiked during this social-distancing recession, that would put pressure on home prices, forcing some owners to miss payments and discouraging buyers.

So far, that hasn’t been apparent. Home prices were up 2.5% on average this year through April, according to S&P CoreLogic Case-Shiller.

Low interest rates, which make homes more affordable, are one factor supporting prices. Also, stimulus and other government payments have enabled millions of Americans to meet their obligations. Plus, the economic slump has lasted only about four months so far, so the full impact may not have been felt yet. If the economy recovers strongly from here, negative housing fallout might not materialize in a big way.

Still, it does seem like the other shoe could drop. Fitch Ratings, the credit-rating agency, currently sees home prices nationally as 6.1% overvalued based on recent price increases, heightened unemployment and the possibility of lower incomes and rents. Values are most frothy in Nevada, Idaho, North Dakota, Texas and Arizona, Fitch said.

The degree to which housing might become more overvalued depends on the future path of unemployment and personal incomes, said Suzanne Mistretta, a Fitch senior director.

The company sees the U.S. unemployment rate easing to 7.8% next year from an average 10.3% in 2020. Though not approaching overvaluation levels of 20%-plus from 2005 to 2007, housing still could reach its highest level of overvaluation in a decade, Fitch warned.

Federal deficits and interest rates

Many people used to assume widening federal deficits would exert a crowding-out effect, pushing interest rates higher as the supply of debt mushroomed and private savings were siphoned from other investments. Few people seem to be focused on this connection anymore, given that interest rates keep dropping while Washington’s borrowing needs continue unabated.

One explanation for why the link doesn’t seem to work is the lack of inflation, as inflation and long-term interest rates tend to move together.

Another is the preference among investors for owning government bonds, which carry high credit ratings, during periods of heightened uncertainty. When things get tough, investors get nervous. They snap up government bonds with preservation of capital, not yield, as the primary goal.

As the Tax Foundation noted in a 2016 report, some economists had been suggesting that budget deficits reduce economic growth by boosting interest rates and diverting private saving toward the purchase of government debt. But in practice, “It has been hard to find an empirical link between deficits and increased interest rates or reduced investment,” the group concluded.

Rates are even lower, and deficits higher, today.

Low yields and deposit accounts

You would think that with bank deposit accounts, money-market mutual funds and other risk-averse instruments yielding next to nothing, investors would be ready to move their money elsewhere. But so far, millions of people are willing to accept virtually no yield so long as their assets remain safe.

Bank deposits spiked by $1.2 trillion in the first quarter, the most recent figure tracked by the Federal Deposit Insurance Corp. That was nearly four times the size of any other quarterly deposit gain over the past decade. Americans also have been flocking to money-market funds and other risk-averse instruments. Money-fund assets are up more than $1 trillion so far this year, reports Money Fund Intelligence newsletter.

It’s not like risky stock-market investments have been faring all that poorly. The broad market was up roughly 43% from its recent low in late March through July 9. But for a lot of people, safety reigns supreme – and they’re willing to pay a price for it, in low returns.

College graduates and layoffs

Before the recession, the vast majority of people with bachelor’s degrees who wanted jobs could get them. As recently as March, the national unemployment rate for college graduates was 2.5%. That was well below comparable figures for less-educated Americans, such as the 4.4% rate for people with only a high school diploma.

College graduates also typically earn more – $1,248 a week on average for holders of bachelor’s degrees only, compared with $746 for those with a high school diploma only, according to a May update by the Bureau of Labor Statistics.

However, that picture has changed a bit amid this coronavirus-induced economic slump. The unemployment rate for college grads more than tripled overnight to 8.4% in April and 7.4% in May before easing to 6.9% in June, according to the Department of Labor.

That’s still well below comparable rates for less-educated groups, such as the 12.1% June unemployment rate for high-school graduates. (The department also tracks workers based on whether they have some high school attainment and some college.)

Still, it lays to rest, at least temporarily, the notion that college graduates are immune from layoffs or other career bumps, especially amid an economic backdrop as strange as this one has been.

Saving money during recessions

You might think now would be a tough time to save money. During recessions and other periods of high unemployment, more people are financially stressed, the reasoning goes. It would be the time for many individuals to lean on their savings to help make ends meet.

That might be the case for a lot of people, but it certainly doesn’t tell the whole story. The nation’s savings rate often has climbed during recessions, and while real-time numbers aren’t available yet, that could be the case again.

Part of this might reflect a reluctance or lack of opportunity to spend money. Think how much you have saved in recent months by eating at home rather than at restaurants, not taking vacations and so on. Perhaps many people also are making a genuine effort to get their budgets under control by putting off various types of spending.

It’s not just individuals, either. A March survey of corporate finance officers conducted by the Association for Financial Professionals noted the largest increase in three years of businesses holding short-term investments at banks.

 

https://www.floridarealtors.org/news-media/news-articles/2020/07/buyers-waiting-prices-come-down-will-be-disappointed

April Market Report!

In our last market report, we shared that the effects of Covid 19 would be evident in the April results and as forecasted the drop was drastic. Closed statistics in Palm Beach County are down 30% year over year, new pending sales dropped 54.6% and new listings are down almost 40%.

However, Believe it or not, there IS good news.

As fast as we dropped, we are already in midst of a recovery – yes, that quickly. It is being referred to as a V-shaped Economic rebound – a quick drop and a quick rebound.

Over the past six weeks the market has been showing tremendous gains – Florida Realtors even reports that the activity and results are now back to early March levels which was a “hot” market. Listings (if priced right) are coming back on and selling as quickly as they come on due to low inventory. If you are even considering selling your home, now IS the time. Stage, Price it Right, Market it properly and get ready for activity – of course, as we have shared over the past few months – ensure that your photos allow clients to truly understand the home’s layout or include a 360 walk through.

So the market has quickly rebounded but does this mean things are all back to normal?

Frankly, it is simply too soon to know. The loss of jobs, the impact of borrowers ability to obtain loans as a result, tightening credit requirements, and the impact of forbearance agreements on future loans all may and most likely will impact the market – The recovery of the economy and the job market is critical to our country and to the real estate market.

A lot can happen over the next 30 days and as workers go back to work and communities open up we are optimistic and excited to see the May results in a few weeks!

– Amy & Noreen

Market Report Through 3/31/2020

    While we analyze the market monthly and provide a report, this one is different and it is so essential that we all understand what is happening to the real estate market, as a result of Covid-19, so that we,together, can make educated decisions.

   There is little doubt that Covid-19 and the shut down have impacted our Palm Beach County Real Estate but in what way and what to expect I believe will surprise most consumers.    

    The first quarter results are in and as many of you know, we were trending for a great year with year over year results showing improvements from last year – and March results showed the same improvement of Closed Sales, Median and Average Sales Prices up year over year. That may surprise many people but know that closed sales in March are a result of contracts from earlier in the year – Pre-Shutdown.   March closed sales while up from February are at a much lower rate of growth from earlier in the year – so while they were closing, there were a percentage that simply did not close due to the uncertainty surrounding Covid-19, the financial impact, etc. The months of inventory over $1,000,000 is down to 13 months and if you will recall was almost 19 months just a few months ago.  Did homes sell?  Certainly but also we saw homes come off the market.     $600,000 to $999,999 is a balanced market but 300,000 to $599,000 is now a sellers’ market.    We do expect, of course, the April numbers to really reflect the effects of all that has been happening in our world.  These numbers will be out in just two weeks.

    This brings me to an important point of this 1st Quarter analysis and what to expect, in my humble opinion, moving forward.  We have clients and prospects calling and asking is now the time to buy?  Is now the time to sell?  What drives the real estate market – two major factors are interest rates and inventory.    For now the federal reserve is doing a good job keeping the interest rates low – while they are bouncing a bit – they are still very attractive for a new loan.  Inventory overall is low – regardless of the price point and what happens when inventory is low?  You will find the listing and sales prices are higher –

     We are having to get creative in how we show property, we are capitalizing on all technological opportunities for listings from the photography to the 360 virtual tours – “showing” the home without having to physically show the home to every potential interested party.  We are all operating efficiently and effectively and as a result homes are selling.  In fact to homes that we listed in the past 30 days were under contract within days of being listed and at or close to list price!   

    So while we are living in these uncertain, scary times – it is essential that our economy recover – for all of our sakes and to be able to share with you all that homes are being listed, that home are selling and that our market is start to once again move is wonderful news that I am honored to share! 

Amy

 

Noreen’s Update With The City of Delray Beach!

 

Noreen Payne, Chairman of the Delray Beach Chamber of Commerce, discusses what the Chamber is doing to help local businesses and how residents can help support non-profit organizations during these challenging times. 

Utilizing Technology as Realtors in the Future! 360! Virtual Tours!

 

 

Amy speaks to friends,clients, and anyone looking for some answers as to how we can step up our game to make technology helpful and exciting. With Virtual tours and new technology anything is possible.

 

Working With Buyers In A Covid-19 Environment

Working with Buyers in a Covid-19 Environment

By: Noreen Payne

     Sitting at my desk and pondering the path forward during this time of social distancing and virtual work during Covid-19, I wonder how things will be different in our personal residential real estate business once we make it through these challenging times. But, for now, the focus is on how we continue to serve our buyers who are not only wanting to buy a home but also have to. Like many of our colleagues, we’re also looking at ways to conduct our business virtually. When it comes to our buyers, for now the days of picking them up in our cars and face-to-face interaction are on hold. Those of you who know me know I’m missing those personal moments immensely! 

That said, I’m finding that using tools such as FaceTime, Zoom, App Files, Video and Virtual tours can also go a long way toward building a solid relationship. In fact, we’ve just closed on a new home purchase with a buyer who has never set foot in the home they just bought! Though this is the first time we’re weathering a pandemic, this isn’t the first time we’ve done this. Remote contact can be a common way for buyers to purchase, especially investors who trust us with their goals.

     In the case of our recent close, we started in the classic Residential Real Estate fashion, doing what we do best. The fact-finding process, once done in person, can be handled via conference call. During the call I asked a lot of questions and did even more listening. Then I created the usual searches and shared them over email—after which came the usual back and forth feedback, mostly done via virtual tours, photos and a few FaceTime calls.

    Working in this manner with our buyer, we actually found the perfect home in no time! I set the showing with the listing agent and luckily the home is vacant and on a SUPRA, therefore, no contact/no touch deemed necessary. Over FaceTime the buyers and I took our time going through every inch of the home, down to the street on which it’s located. We negotiated the deal and went under contract. At the time of inspection, I met the inspector, who we know very well. As a side note: It’s my firm belief that having trusted partners working with you at all times is a must! I unlocked the door for the inspector and reconvened with the client over FaceTime to give them the update.  Obviously, many more things can happen prior to closing. In this case, we met General Contractors, interior designers, landscapers, plumbers, electricians, and more. It was a great help having an agent on the listing side who was incredibly accommodating and a pleasure to work with. In these days of Covid-19, our spirit of teamwork is being put to the test. Now more than ever, we’re all pulling together in the best interest of our clients to ensure smooth closings like this one. 

    In this time of uncertainty, my initial reaction was to withdraw—even marketing didn’t feel right. But, I believe these days the reality is that our clients now need our support more than ever (of course at a safe six-foot distance).

About Noreen Payne

Noreen Payne is a partner in the All About Florida Homes team of Lang Realty. She and her co-partner, Amy Snook, provide concierge-level real estate service in South Florida. She is currently Chairman of the Board for the Delray Beach Chamber of Commerce and is on the Board of Directors for The Achievement Center for Children & Families, and is an active volunteer with The Caring Kitchen.

 

 

COVID-19 Personal Financial FAQ’s for Homebuyer’s

1. My company’s offices are closed, and I am having a hard time providing my final verification of employment within the 10 days prior to loan closing.

FHA and RHS are allowing verbal verification of employment. Specifically, your employer can provide this by phone. RHS is also allowing email verification. If you cannot get either of these, the lender will require higher reserves to cover risk. 

Fannie Mae and Freddie Mac will allow verbal verification when available and an email verification under certain conditions. They have also made other forms of temporary verification available in order to help with verification while social distancing

2.My lender indicated that the IRS has shut down and they cannot process loans without an income verification document that only the IRS can generate. Is this true?

Luckily, there is precedence for an IRS shutdown based on several recent government shutdowns. Some lenders may require this document, but Fannie Mae, Freddie Mac, and FHA do not so this is a lender overlay.

Fannie and Freddie both issued guidance in January 2019 following the previous government shutdown to note that they do not require the 4506T IRS tax transcripts at closing. Rather, they only require a request for the document be signed by the borrower. However, they do require the tax transcript be submitted as part of their post-closing review. NAR has asked both Fannie and Freddie to clarify and publish updated guidance given the unique challenges posed by COVID-19.

Furthermore, the IRS reopened this facility during the shutdown as it was deemed essential. We have reached out to the IRS on this point.

  1. I have heard that the FHA, Fannie Mae, and Freddie Mac have raised rates and fees on borrowers with lower credit scores or smaller down payments?

    These claims are not true. To date, neither the FHA nor Fannie Mae and Freddie Mac have made any changes to credit scoring or down payment requirements. The only change they have made for borrowers is to allow MORE flexibility in how a lender can verify employment.

    However, some individual lenders are adding their own, higher standards on these products. The rational is that the cost of servicing these loans has surged due to the widespread forbearance that is taxing servicers’ resources. Under forbearance, the servicer must continue to pay PITI to the investor, but the sheer volume of forbearance to deal with the COVID-19 response is unprecedented. Since lower-credit borrowers are more likely to take forbearance and servicing is harder to get, lenders are less willing to extend this credit regardless of the FHA or GSEs’ standards.

    NAR sent a letter to the Treasury, Federal Reserve, and the Federal Housing Finance Agency requesting help for servicers dealing with the unprecedented demands on funds due to broad forbearance requests. Improving servicing is one key to improving the flow of funds to borrowers and homeowners.

    Ginnie Mae has announced the creation of a new program, that should help alleviate lender concerns and improve access to mortgage financing. The program will provide cover for lenders by advancing them the money so they can make the required pass- through payments to investors during the forbearance period.

30-Year Mortgage Rate Drops Again, Down to 3.33%

“Rates dropped for the second week in a row due to “improvements in market liquidity and sentiment,” says Freddie Mac economist.” – FloridaRealtors.org

MCLEAN, Va. – Freddie Mac’s Primary Mortgage Market Survey for this week found declines for the second week in a row.

This week, the 30-year fixed-rate mortgage (FRM) averaged 3.33%, which is down from last week’s 3.5%. It averaged a 0.7 point for this week; a year ago, the 30-year FRM averaged 4.08%.

“Mortgage rates have drifted down for two weeks in a row and that drop reflects improvements in market liquidity and sentiment,” says Sam Khater, Freddie Mac’s chief economist.

Khater says the “market has stabilized relative to prior weeks (and) homebuyer demand has declined in response to current economic conditions. The good news is that the pending economic stimulus is on the way and will provide support for both consumers and businesses.”

The 15-year fixed-rate mortgage averaged 2.82% with an average 0.6 point, down from last week when it averaged 2.92%. A year ago at this time, the 15-year FRM averaged 3.56%.

Adjustable-rate mortgages (5-year Treasury-indexed hybrid ARM)) averaged 3.40% with an average 0.3 point, up from last week when it averaged 3.34%. A year ago at this time, the 5-year ARM averaged 3.66 percent.

© 2020 Florida Realtors® (All Credit to FloridaRealtors.org for this article)

 

How We Can Work with Clients During this Challenging Time!

  It is hard to say what our future will look like in real estate or for that matter anything in our world, post this pandemic. While there is a lot of “bad” to focus on, I am really trying to focus on any positives that may come out of this time.   I am certain for many of us, the time at home with our children, has provided us with opportunities that we most definitely did not prioritize in the past. Realtors are constantly “on” – responding to clients, conducting searches, showing property, coordinating towards closings, educating ourselves, sharing information with our clients and prospects and so on.    So, to “have” to slow down has been actually wonderful.

I am spending time doing things with my son that I just hadn’t found the time – we played checkers, twister and even taught him how to cook (even though it is most definitely not my forte).

As for business – when I slow my mind down and really pay attention to the calls we are receiving – I realize that our clients, friends, prospects DO rely on us for real estate guidance.   I think this has always been there, but I just didn’t slow down to realize it.

Today a prospect called and asked us to list one of his homes for rent.  He had been listed as for sale by owner and hadn’t received calls – the truth is for this one, I analyzed how he was marketing the home and his price point and gave him guidance rather than taking the listing.  Why? Because his margins are very tight and I felt that I could help him without his having to pay an agent for this rental – so he reduced to the number I suggested based upon comps and I had him reorder his photos, remove some photos, alter his write up and voila – the phone started ringing. 

We are here to help – give guidance, be supportive, educate and be a resource for all.  As a thank you for helping him with his rental listing…. And unbeknownst to me…he has another property that he wants us to put up for sale.

For my fellow Realtors, be a trusted resource, offer guidance, continue your education so you can continue to be an expert.  Now is the time when you can create some blogs, record videos, etc. and work to share your knowledge.

By: Amy Snook

Fed Slashes Interest Rates Near Zero, Eases Lending Rules- Florida Realtors

“In addition to a full-percent interest rate cut, the Fed will take other stimulus steps, saying COVID-19 “weighs on economic activity and poses (economic) risks.” The move should benefit adjustable rate mortgages, credit cards and other short-term loans.”

“The Federal Reserve took emergency action Sunday and slashed its benchmark interest rate by a full percentage point to nearly zero (0% to 1/4%) and announced it would purchase more Treasury securities to encourage lending to try to offset the impact of the coronavirus outbreak. The central bank said the effects of the outbreak will weigh on economic activity in the near term and pose risks to the economic outlook. The central bank said it will keep rates at nearly zero until it feels confident the economy has weathered recent events.

The Fed also said it will purchase $500 billion of Treasury securities and $200 billion of mortgage-backed securities to smooth over market disruptions that have made it hard for banks and large investors to sell Treasuries.”

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