What Mortgage Lenders Need to Know Now

The real estate industry is constantly in a state of flux due to a host of factors including economic cycles, government legislation, real estate trends and technological advancements. For busy lenders, finding the time to keep up with the latest news, trends and advancements can be challenging, if not impossible. To assist lenders in maintaining their competitive edge, we’ve conducted research and identified the top three priorities every lender should have on their radar for the remainder of 2015.

Cal Haupt, CEO of Southeast Mortgage

Cal Haupt, CEO of Southeast Mortgage

Make your Website Mobile Friendly

Google recently announced that it will begin significantly penalizing website pages that are not mobile optimized, meaning Google will not award a high page ranking to those pages lacking a friendly mobile browsing experience. Unfortunately, a recent study discovered that many mortgage sites are about to take a big hit. National Mortgage Professional Magazine discovered six out of the top 10 mortgage lending sites failed Google’s online mobile-friendly test, which allows anyone to input their web page URL to discover if it’s mobile friendly.

What can you do to avoid being penalized by Google and ensure that your customers are experiencing a friendly mobile experience? Start by inputting your web page URL into Google’s Mobile-Friendly Test. If you’re among the 60 percent of mortgage sites that fail the test, it’s time to work toward mobile optimization. Fortunately, Google isn’t punishing whole websites – just pages. If budget allowances are sparse, first focus on optimizing your most critical, high traffic pages.

A Look Back: The Anniversary of Dodd-Frank

It’s been five years since the significant Dodd-Frank law was brought into existence. The bill has its fair share of advocates, claiming it has created jobs and made borrowing from banks less risky, and critics, who feel the legislation has hurt smaller lenders and has cost the nation $24 billion. The legislation’s sponsors sat down with The Wall Street Journal last week and shared how the legislation has changed the banks’ mentality of “too big to fail” and the improved regulation that has stemmed from the law. Whether you’re a mortgage lender for a bank or nonbank, the effects of the “most sweeping financial legislation in a generation” are one to examine.

Share the News: Conditions are Ideal for Homebuyers

One of the brightest news updates for mortgage lenders this summer comes from RE/MAX’s National Housing Report. The report revealed that last month experienced the highest levels of home sales since the report’s inception in 2008. The report also found June marked the fifth consecutive month that sales have progressively increased. Don’t be hesitant to let borrowers know experts agree conditions are ideal for potential homebuyers in today’s real estate market.

“Despite a lingering low inventory and increasing prices, consumers still have the confidence to purchase a home,” said Dave Liniger, RE/MAX CEO, chairman and co-founder. “More and more people recognize the many opportunities in this market and the significant value of low interest rates. As job creation and wages continue to improve, many more first-time buyers are now making the decision to become homeowners.”

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Atlanta Real Estate Index Sailing Through Summer

Concurrent with the weather, the Atlanta residential real estate index is heating up – just not quite as quickly. Slight improvements in home prices, home sales and the U.S. economy, coupled with outstanding news regarding mortgage originations, caused the Cal-Culator to increase just 0.1 bringing the index to a 6.7, the fourth consecutive month that the index has shown improvement.

The June Cal-Culator

Mortgages

The best housing news that emerged during June was the dramatic increase in mortgages year over year. Mortgage originations increased nearly 75 percent from last year, according to Equifax’s National Consumer Credit Trends Report. Equifax attributes the mortgage increase to historically low rates, despite tight lending conditions.

“While rates have recently reversed that trend and are back up to about 4 percent, they remain extremely low historically. These rates, coupled with a housing market that is showing signs of vigor, should carry the mortgage business over the summer,” said Amy Crews Cutts, chief economist at Equifax.

Home Prices and Sales

S&P Dow Jones released two data points, home sales and home prices, that indicate continued strength in the housing recovery. According to Chairman of the Index Committee David Blitzer, existing home sales were up 5.1 percent to 5.35 million, the highest figure since 2009, and single family homes were up 5.6 percent from the previous month, according to the most recent data from S&P Dow Jones Indices.

While the S&P/Case-Shiller Home Price Index shows that the double-digit growth in home prices was indeed unsustainable, the prices “may be leveling off with annual increase of about 4 percent,” according to Blitzer.Four percent is still more than double the rate of inflation, thus a positive sign for the housing industry.

The U.S. Economy

S&P Dow Jones Indices also released a “State of the Union” type economic roundup that shows the economy is rebounding “fairly well from its contract in the first quarter of the year, giving financial-market participants … reason to be somewhat optimistic.” Job gains have accelerated, wages are rising, housing activity has strengthened, consumer spending is on the rise, manufacturing is up and more businesses are optimistic about economic conditions, though the U.S. GDP is down 0.1% in June from May.

The next Cal-Culator will be released August 11. Check back to see if the Atlanta housing market has continued to “level off” or if the summer housing market continues to sizzle.

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Millennials as Homebuyers – One Year Later

One year ago, we published a Thought Leadership post, “Who are Millennial Homebuyers.” The post examined what millennials want in a home, why millennials that do purchase a home choose to do so and why so many millennials are holding off on purchasing a home compared to previous generations. First-time homebuyers are an extremely important component of a robust housing market. Without them, full recovery may be compromised. One year later, with the housing market on the rebound and a stronger economy – how has the relationship between home ownership and millennials changed and what does the future look like for this rocky relationship?

Kathy Gyselinck is Executive Vice President for Southeast Mortgage

Kathy Gyselinck is Executive Vice President for Southeast Mortgage

The Current State of Affairs

Unfortunately, first time homebuyer levels haven’t improved, according to data from Standard & Poor’s. This year, new entrants to the housing market accounted for 28 percent of all home purchases – the same share they claimed in June 2014, which is well below the historical average of 40 percent. Roughly half of millennials indicate that they are “extremely” or “very” likely to buy a home in the next year, according to Forbes, which is the same percentage reported in 2014.

Why the Delay in Homeownership

Last year, the National Association of Realtors’ Home Buyer and Seller Generational Trends Report found that the majority of respondents cited student loan debt as the biggest obstacle millennials face toward homeownership. This year, Standard & Poor cited a lack of a sizeable down payment, followed by failing to qualify for a home mortgage as the most frequently cited reason why renters choose to rent.

This year’s report, unsurprisingly, also cited tighter bank lending restrictions, low credit scores and student debt as reasons. One of the more surprising statistics indicated that many young adults are living with their parents, as opposed to purchasing a house of their own. Today, a 30 year old is just as likely to live with their parents as they are to own a home. In sharp contrast, a young adult in 2003 was more than twice as likely to own a home than live with their parents.

What’s Ahead

Though the year hasn’t shown much improvement for first time homebuyers, economists remain positive that millennials will increasingly settle into homeownership. Redfin found that 38 percent of millennials would even delay a wedding or honeymoon in order to purchase a home. While the want is there, many millennials are just waiting for the right conditions to plunge into homeownership.

“The slowly healing jobs market, coupled with more reasonable home-price appreciation trends and chances of higher interest rates, may mean first-time buyers could be about to enter the property market at greater rates,” according to Standard & Poor.

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Housing Industry on the Fast Track with No Signs of Slowing

New data on housing starts, home sales, builder permits and builder confidence reveal that the housing industry is continuing its drastic year of recovery. For the third straight month, the Atlanta residential real estate index, the Cal-Culator, has continued to climb. The index increased 0.1 to a 6.6 – a record high since the index’s inception in September 2013.

The May CalCulatorRE/MAX

RE/MAX’s National Housing Report found that home sales in April were greater than in any other April since the company began the report in 2008. Completed transactions were 7 percent higher than in March and 6.5 percent year-over-year.

“The spring selling season has gotten off to a very strong start … With an improving economy and continuing low interest rates, potential buyers are motivated to enter the market,” said RE/MAX CEO Dave Liniger.

Although the report also found that inventory increased 2.3 percent in April, marking the first month-over-month increase since June, inventory is still 11.4 percent below last year, and the months supply of inventory is at an extremely low level of 3.6.

CoreLogic

CoreLogic’s May MarketPulse revealed that eight out of the 10 fastest growing new home sales markets are located in the South. In perhaps the most promising news of the month, Atlanta is now the third fastest growing market in the nation with sales up 10 percent from last year.

“Atlanta’s new home market strength is particularly remarkable given that distressed sales still account for 16 percent of all sales – by far the highest of the three markets,” said CoreLogic Deputy Chief Economist Sam Khater. “As distressed sales continue to fall in Atlanta, that will give additional marginal lift to new sales.”

S&P Dow Jones Indices

S&P Dow Jones’s Weekly Economic Roundup, published by U.S. Deputy Chief Economist Beth Ann Bovino, found that housing starts reached a seven year-high after growing to an annual rate of 1.135 million in April. The U.S. Leading Economic Indicators grew 0.7 percent, the Consumer Price Index rose by 0.1 percent, permits for new home construction were up 10 percent and, for the first time since 2009, the real dollar volumes of construction and land development began to rise year over year.

The next Saporta Report column will be released July 14. If S&P holds true in its prediction that we will see “pent-up demand, rising incomes and solid underlying fundamentals supporting a gradual housing recovery this year,” the next index should have more positive news to announce next month.

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What Brokers and Agents Want From Lenders

“The real estate and mortgage industries need each other more than ever” according to real estate news website Inman and real estate branding agency 1000watt. The site conducted a study to uncover what real estate brokers and agents are looking for from lenders. The findings will come as a sigh of relief for lenders as agents and brokers are more eager than ever to work with nonbank lenders, banks and mortgage brokers, despite new regulations.

J.D. Crowe, President of Southeast Mortgage

J.D. Crowe, President of Southeast Mortgage

About the Survey

Nearly three quarters of the respondents were real estate agents while 26 percent of the respondents identified as brokers. Sixty percent of respondents are independent and unaffiliated with a real estate franchise, while the remaining 40 percent are affiliated with firms such as Keller Williams, RE/MAX and Coldwell Banker. There were also phone interviews completed with real estate brokerage executives who run companies with over 500 agents each.

Key Findings

The report, “What real estate brokers and agents want from lenders,” revealed ongoing trends in the mortgage industry including:

  • When selecting a mortgage partner, cultural fit and the ability for a partner to forge strong relationships is the most important trait for real estate brokers when considering an individual.
  • Real estate agents rank speed as the most important factor that determines if they will recommend a lender to a client.
  • An overwhelming majority – 77 percent – of respondents say they only have one lender to which they refer clients.
  • The report emphasized the need for lenders to have a physical office presence. The executive who reported the highest capture rate for his company’s mortgage partner – nearly 50 percent – has a loan office set up physically inside the brokerage.
  • More brokers than in the past indicated that consumer behavior is changing and nearly half of buyers already have a lender in place when they speak to a real estate agent. Additionally, more buyers than in the past are looking to get prequalified.

The report ended with this strong statement: The old days of brokers treating the mortgage relationship as a “tack on” business are soon over. Now, brokers need to rethink how and where in the home search process their affiliated mortgage business sits with consumers. Lenders seeking strong real estate partnerships will need to be more attuned to their brokerage partners’ businesses – and their local market dynamics – than ever before.”

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As Spring Moves Forward, So Does Atlanta Residential Real Estate

The strongest monthly home price growth since last July, the highest seasonally adjusted rate since September 2013 and the fourth consecutive quarter of builder confidence above 50 are all factors that have the Atlanta residential real estate index to continue climbing for the second month in a row. The April Cal-Culator has risen 0.2 to 6.6 after a fantastic month of positive trajectory toward recovery.

April 2015Cal-Culator.grey

Home Prices

Home prices have risen over the past year, indicated by the S&P Dow Jones Indices’ latest report. The 10-City and 20-City Composites saw both year-over-year increases – marking 34 consecutive months with positive year-over-year gains – and month-over-month increases in February, according to the April 28 report. The 20-City Composite, where Atlanta resides, experienced 5 percent yearly and 0.5 percent monthly growth – the largest increase since July 2014.

“Home prices continue to rise and outpace both inflation and wage gains,” said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “All 20 cities have shown year-over-year gains every month since the end of 2012.”

Home Sales

The latest data by the National Association of Realtors found that existing-home sales jumped to their highest level in 18 months after all major regions experienced strong, positive growth. Sales increased 6.1 percent month-over-month to a seasonally adjusted rate of 5.19 million in March – the highest rate since September 2013.

“After a quiet start to the year, sales activity picked up greatly throughout the country in March,” NAR Chief Economist Lawrence Yun. “The combination of low interest rates and the ongoing stability in the job market is improving buyer confidence and finally releasing some of the sizable pent-up demand that accumulated in recent years.”

Atlanta posted a 0.1 percent increase in home sales in February from January and a very respectable 5.6 percent increase from 2014. Atlanta also saw a staggering 16 percent increase year-over-year in luxury sales ($1 million and up), as reported by the Atlanta Business Chronicle.

Builder Confidence

The National Association of Home Builders released their Housing Market Index on April 30, which found that builder confidence in the single-family 55+ housing market continues to remain positive, though the index is down one point to 58. This is the fourth consecutive quarter that the index is above 50, meaning more builders view conditions as good rather than poor. A more obscure index, the NAHB Remodeling Market Index, posted a reading of 57 in the first quarter of 2015, which is above the key break-even point of 50, and remodelers reported a higher level of activity compared to the previous quarter.

The next Cal-Culator will be released June 9 and I anticipate it will continue to again show positive growth in the Atlanta housing industry.

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The Age Old Debate: Rent vs. Buy

The “rent vs. buying” debate is one of the longest standing, critically analyzed topics of discussion in finance circles and potentially THE most popular discussion in real estate. Though professionals in the housing industry will typically argue that buying a home is one of the best financial investments you can make no matter the state of the economy, on the other side of the fence lie the die-hard renters who appreciate not having to pay taxes or high repair costs and the stability of a fixed lease agreement.

J.D. Crowe, President of Southeast Mortgage

J.D. Crowe, President of Southeast Mortgage

If you’re among those who favor renting, consider this: According to the U.S. Census Bureau, the homeownership rate in the U.S. is 64 percent. Additionally, the economy has never been better for Americans to realize the dream of homeownership, especially in Atlanta.

One of the main indicators on which economists base their decisions if renting or buying is more lucrative at a given time is the state of rental markets. Across the U.S., the average rent payment rose an astounding 12 percent from January 2013 to December 2014, while home prices increased only 5.8 percent, according to MainStreet. Nationally, RealtyTrac found the monthly home payment on a median-price home is more affordable than the monthly fair market rent in 76 percent of U.S. counties.

RealtyTrac, who analyzed data provided by the U.S. Department for Housing and Urban Development, found that Atlanta is among the top 25 cities with the least affordable fair market rent in the U.S. The interactive Trulia Rent or Buy map shows that buying is an astounding 55 percent cheaper than renting if standard target monthly rent, home price and other factors are used.

As The Washington Post highlighted this week, mortgage rates are hovering near all-time lows. The 30-year fixed rate has remained below 4 percent since November, hasn’t been above 5 percent for more than four years and hasn’t reached 6 percent in a decade. According to the latest data, the 30-year fixed rate average is 3.65 percent and the average 15-year fixed rate average is 2.94 percent. Buyers are taking notice of the lucrative time to buy as mortgage applications are at the highest level since June 2013

While it’s important to take into consideration the current state of the economy before making any major financial decisions, many of the benefits of buying a home will never fluctuate. Clearly identified as one of the best financial investments you can make, buying a home beats tossing away money every month on rent and has proven to be a good diversification of assets. Homeownership has also been linked to greater pride in your community and lasting, positive effects on children.

Homeownership is almost always the clear winner, but in this economy, you can’t afford not to invest in a home.

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Atlanta Residential Real Estate Springing Forward

After a month of stagnation, the Cal-Culator, Atlanta’s residential real estate index, rose slightly in March by 0.1 to bring the index to 6.4. Incredible home price growth along with an increase in home sales and an uptick in consumer optimism fueled the March index’s rise, though the inventory crunch is still negatively affecting the housing market.

March Cal-Culator

Pending Home Sales

The Pending Homes Sales Index, a forward-looking indicator, rose 3.1 percent month-over-month and a staggering 12 percent year-over-year, according to the National Association of Realtors. Pending home sales are now at their highest level since June 2012 and have increased year-over-year for six months.

“Pending sales showed solid gains last month, driven by a steadily improving labor market, mortgage rates hovering around 4 percent and the likelihood of more renters looking to hedge against increasing rents,” said Lawrence Yun, NAR chief economist.

Home Prices

According to the latest data released by S&P/Case-Shiller Home Price Indices, home prices across the nation have been on the rise in the past year, with Atlanta posting stronger price growth than both the 20-city and 10-city indices. Home prices climbed 4.9 percent in metro Atlanta from the previous year, but cooled down 0.2 percent from the previous month.

“The combination of low interest rates and strong consumer confidence based on solid job growth, cheap oil and low inflation continue to support further increases in home prices,” said David M. Blitzer, managing director and chairman of the index committee for S&P Dow Jones Indices.

Consumer Confidence

Zillow recently found that homeowners are more confident in the housing market than renters and consumer optimism has risen 3.7 percent year-over-year among homeowners. The Zillow Housing Confidence Index also found an increase in the number of all Atlanta renters who say they expect to buy a home in the next 12 months. There was also an increase in young-adult renters, a vital demographic needed to spur housing recovery, in Atlanta who said they are expecting to buy a home within the year. The largest year-over-year increases for young adult renters looking to buy a home were in Phoenix, San Francisco and Atlanta.

Obstacles

The nation’s housing market still has to overcome some large hurdles to even begin to come close to approaching pre-2008 housing numbers. Two of the largest inhibiting factors that have been consistently negatively affecting the industry are the decrease in first-time homebuyers and low inventory levels. However, the share of first-time homebuyers rose for the first time in February since November 2014, according to the NAR’s REALTORS confidence index. Had more inventory been available, experts believe that first-time homebuyers would be more likely to move on properties.

“Several markets remain highly competitive due to supply pressures, and Realtors are reporting severe shortages of move-in ready and available properties in lower price ranges,” adds Yun. “The return of first-time buyers this year will depend on how quickly inventory shows up in the market.”

The April Cal-Culator will be released April 12 and will hopefully reflect continued home price and sales growth, in addition to increases in inventory levels and the share of first-time homebuyers.

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Homeowners Associations in Georgia

This week, we are reviving one of our most popular columns.

Though homeowners associations often have a reputation for having seemingly strict rules about aesthetic upkeep and expensive dues, HOAs can add significant property value and curb appeal to a neighborhood. This week, we review Georgia’s HOA laws as well as the advantages and disadvantages of living in a neighborhood with an HOA.

J.D. Crowe, President of Southeast Mortgage

J.D. Crowe, President of Southeast Mortgage

The Georgia Property Owners’ Association Act

Each state has its own legislation for governing HOAs. The Georgia Property Owners’ Association Act gives powers and protections to Georgia’s associations. Some of the provisions include that associations must register with the state, an elected board will be assigned to oversee the HOA and that residents of the home must be allowed access to their home even if the association is imposing penalties on the owner. Some HOAs are voluntary, though non-due paying members generally cannot use amenities such as gyms, pools or conference rooms, while other HOAs require all neighbors to be a member.

For more information on Georgia and other states’ HOA legislation, visit the U.S. Department of Housing and Urban Development’s website.

The Pros

Many homeowners prefer living in neighborhoods with an HOA.  Generally, homeowner’s associations protect and often boost home values and they give the neighborhood a sense of uniformity because everyone is governed by a certain set of rules that require members to maintain the appearance of their home and property.  These neighborhoods are less likely to have overgrown landscaping or peeling paint, which not only ensures that the neighborhood is well maintained, it also adds value to your home when you’re looking to sell.

Another significant pro to having an HOA is that they maintain neighborhood common areas such as pools, tennis courts and recreation areas. Due-paying members often receive amenities and services such as lawn care that aren’t available to non-due paying members.  In addition, HOAs act as third-party mediators in the event of a dispute between neighbors which can serve to mitigate problems among residents.   The benefits of services, conflict resolution and the assurance of maintaining property values offer many Georgia residents the peace of mind they need to turn to HOAs.

The Cons

When people commit to an HOA, they often sacrifice an element of residential freedom. Though most HOAs have the neighborhood’s best interests in mind, some HOAs place a host of extreme restrictions on residents including outdoor Christmas decorations, types of vehicles in driveways, mailbox color, if school buses can enter a neighborhood and even pets’ size and weight.  Additionally, the yearly dues of an HOA will add costs to your monthly payment, the fees typically aren’t tax deductible and HOAs can raise fees at any time.  And, if you choose not to pay your dues, an HOA can put a lien on your property.

Because HOA restrictions vary from neighborhood to neighborhood, it’s important to read all of the HOA regulations before you purchase a home.  You may find some deal breakers in the contract, such as restrictions on running a business out of your home or renting your home. “Most associations work reasonably well most of the time, but there are tons of examples of really troubling rules,” says Evan McKenzie, associate professor of political science at the University of Illinois at Chicago and author of the book “Privatopia: Homeowner Associations and the Rise of Residential Private Government.”

More often than not, the benefits of having an HOA outweigh the negatives, however, if you’re on the fence about living in a neighborhood with an HOA, talk directly with the HOA and the residents of the neighborhood for an inside look into the HOA rules and the environment in the neighborhood.

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Leveraging Your Home During Tax Season

The financial benefits of owning your own home are plentiful, including the resounding advantage of building equity over time and offering far greater long-term benefits over renting. However, at tax time, the financial benefits become even more apparent with homeowners given substantial tax breaks from the time you purchase it until the time you decide to sell.

J.D. Crowe, President of Southeast Mortgage

J.D. Crowe, President of Southeast Mortgage

Whether you are still in the process of filing your taxes or need one more reason to visit with a mortgage lender, you should be well aware of these housing tax breaks.

The following can be eligible for tax deductions:

  • Property taxes, state and local.
  • Mortgage interest on your home as well as if you own a second home, boat or RV – “as long as it has cooking, sleeping and bathroom facilities,” according to Bankrate. For most homeowners, a large portion of their monthly mortgage payment goes toward interest, which is deductible, thus this is usually homeowner’s most lucrative tax break.
  • The interest borrowed for a home equity loan – up to $100,000.
  • Home improvements that were required for medical care.
  • According to Fox, millions of people every year claim a home office deduction, meaning they regularly and exclusively dedicate a portion of their home to meet with clients or conduct work. The deduction is $5 per-square-foot of space and is good up to 300 square feet.
  • Energy efficient home improvements, up to 30 percent of the cost, for new and existing homes. Rentals do not apply. Possible energy efficient upgrades that qualify for tax credits include installing geothermal heat pumps, small residential wind turbines, solar energy systems and fuel cells. Federal tax credits in regard to energy efficient improvements expire every year until Congress approves a new set of standards, so these same tax credits may not apply next year. Visit Energy Star’s website to learn more.
  • If you sold your home and made a sales gain. If you lived in a recently sold home for at least two of the last five years before the sale, you can avoid paying tax on the sales gain from the sale of the residence – up to $250,000 if you’re filing single and $500,000 if you’re filing jointly. If you don’t meet the resident requirements, you will owe tax on the profit unless you can prove that you were forced to sell before you could live in the property for two years due to “unforeseen circumstances” such as death, job loss, divorce or multiple births from a single pregnancy.

According to Turbo Tax, you cannot deduct the insurance on your home, appraisal fees or dues to a homeowners association.

We always advise you to speak with a professional tax consultant before submitting your taxes to ensure you’re legally and financially correct.

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