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Vacancy Rates Drop to Lowest Since 2006
The national vacancy rate among single-family non-rental homes fell to 2.3 percent in the fourth quarter of 2011, according to data released Tuesday by the U.S. Census Bureau.
That’s down from 2.7 percent at the beginning of last year, and the lowest homeowner vacancy rate since early 2006.
Undoubtedly, the decline in vacancies is an offshoot of fewer foreclosures in 2011 combined with a slight uptick in home sales for the year.
RealtyTrac reports foreclosure starts were down 39 percent from 2010. And while new home sales had their worst showing in recorded history, the National Association of Realtors tracked a 1.7 percent annual increase in existing-home sales.
Paul Diggle, property economist with Capital Economics, says it’s another sign that excess inventory – at least the visible inventory – is slowly but surely being cleared. It
“leaves the visible inventory at a level consistent with house prices bottoming out later in the year,” according to Diggle.
The Census Bureau also reported that the nation’s homeownership rate dropped to 66.0 percent – its lowest level in nearly 14 years – as the housing downturn has eaten away at the share of Americans who are willing and able to own their own home.
The fourth-quarter homeownership rate gave up almost all of the previous quarter’s gain, Diggle noted.
“What’s more, despite median mortgage costs being more affordable than ever and early signs that mortgage credit is becoming more available…the seven-year downturn in homeownership may still have further to run,” he warns.
The flipside, Diggles says, is there are more households in the rented sector and fewer properties lacking tenants, which is helping to drive rents, and therefore landlords’ returns, higher.
He expects rental value growth is to hit 3 percent this year and average rental yields to rise to around 5.5 percent.
With house prices still falling for now, Diggles says it will be a while yet before homeownership is once again seen as an essential part of the American Dream, and that’s despite the fact that owning now seems to make greater financial sense than renting.
The drop in the homeownership rate pushed the share of households in rented accommodations up, from 33.6 percent at the beginning of 2011 to 34.0 percent in the fourth quarter. The ratio of homes in the rental sector that were vacant also fell, to 9.4 percent.
(Homeownership and Vacancy Rates Drop article courtesy of DSNews.com)
Assets and Your Mortgage Application
When lenders evaluate mortgage borrowers, we look at four things: income (the ability to repay), credit (the willingness to repay), collateral (appraised value and property condition) and assets (cash in the deal and cash reserves after closing, mostly). Of the “four legs of the table”, assets are the least discussed, and yet may be the most important.
What do we mean when we talk about assets?
- Monies needed for the down payment (the difference between the purchase price and the loan amount which may or may not be the same as the money deposit at contract signing)
- Monies needed for closing costs (fees to the lender and third parties for things like appraisals, title insurance, settlement services, and so on)
- Monies needed for Pre-Paids (homeowners insurance, flood insurance, real estate taxes, etc.) and establishing escrow accounts for future payments
- Monies for Reserves- the money you still have left after closing. Monies that would be available, if a problem were to arise
Why do we care about assets?
- Assets may be the truest reflection of a borrower’s fiscal strength. Their ability to save and properly budget could be a significant indicator to their future paying habits
- The source of the assets is important. Savings? Gift or inheritance? Lottery victory? Insurance settlement? Sale of a baseball card collection? Each reflects differently on the borrower.
- Many people don’t show all their income on their tax returns (it’s just a fact). Undocumented income can’t be used to qualify; however, often assets become a truer representation of a borrower ability to pay than their 1040s.
- Reserves are an issue. A client with $50 in the bank after closing is riskier than one with $50,000. Also, clients who have money in the bank but have some sporadic lates on their credit are looked at differently than those who didn’t have the money to make the payments.
Common Asset Issues in Mortgage Packages:
- Large deposits (defined as those which are excessive for the income level) raise an underwriter’s eyebrows. Where did the money come from? Maybe the borrower took a loan that doesn’t yet show up on their credit report.
- Cash deposits are another red flag. In this day and age, people keep their money in the bank, not under their mattress. Where did the cash come from?
- Gift monies and seller’s concessions, while considered as borrowers assets when doing calculations, will give an underwriter pause when assessing the borrower’s real ability to replay.
Guidelines have tightened. When borrowers are paying off credit cards to get their ratios in line, lenders are asking where that money came from now. That act has nothing to do with the home purchase, but may be a sign of something fragile in the borrower’s financial make up.
The best advice is to consult a loan professional to discuss the proper way to position your assets and the timing of it that will put you in the most favorable light.
4 Financial Reasons to Buy a Home Now
As Dean Hartman said last week, the purchase of a home is a personal decision. However, we want to give everyone four great financial reasons why you should not wait before taking the plunge into homeownership.4 Reasons to Buy a Home Now
Interest Rates Are Increasing
Interest rates have increased almost 3/4 of a point in the last six months. Most experts expect rates to continue to increase through the year. Interest rates along with price determine the overall cost of a home. Even with prices softening, if interest rates rise, it may be less expensive to buy now rather than wait.
The 30-Year Mortgage May Disappear
There has been much debate regarding government’s role in providing support for homeownership. There are several experts who believe If Fannie Mae and Freddie Mac’s roles are eliminated, or even limited, it may be the end to the 30-year mortgage. This concern is addressed in MSN Real Estate’s Is it curtains for the 30-year mortgage?
QRM Requirements Could Be Much More Stringent
Here are proposed changes to the requirements for a ‘qualified residential mortgage’:
- Certain mortgage types would be eliminated
- You would need to put a minimum of 20% down
- You would need a minimum 690 FICO score
- The ratios of income to both the mortgage payment and overall debt would become much more conservative (28% and 36%)
There would be loans available to purchasers who don’t qualify under the new rules. However, they will probably be more expensive to the buyer (both in rate and costs).
Rents Are Expected to Increase
The supply of available rentals is decreasing and the demand is increasing. That will lead to an increase in rental costs throughout the year. The Wall Street Journal this week quoted a report by Reis, Inc:
“Expect vacancies to continue declining, and rents rising through the rest of 2011 at an even faster pace.”
Bottom Line
You may be waiting on the sidelines to see if prices will continue to depreciate before you purchase a home. The mortgage expense is a major piece in the overall financial picture of homeownership. Make sure you consider it when timing your decision. Hopefully these four financial reasons to buy a home can help you make a decision.
