REFinBlog

Editor: David Reiss
Brooklyn Law School

November 23, 2016

Buyer’s or Seller’s Market?

By David Reiss

puppy-tug-of-war

GoodCall.com quoted me in Is This a Buyer’s, Seller’s, or Balanced Housing Market? It reads, in part,

When buying or selling a home, everyone wants the most advantageous situation. Both buyers and sellers want “the best price,” but this definition varies: Home buyers want to purchase the desired property at a good deal, while sellers want to receive their asking price. But how does the housing market determine who wins this tug of war? Is this a buyer’s housing market, a seller’s market, or a balanced market?

What are the signs of each housing market, and how does each affect buyers and sellers?

WHAT TYPE OF MARKET ARE WE CURRENTLY IN?

Eric D. Berman, director of communications at the Massachusetts Association of Realtors, tells GoodCall that the country is currently in a seller’s market. “We have near record-low inventory, which means the market benefits sellers,” Berman says.

Adam DeSanctis, economic issues media manager at the National Association of Realtors, agrees that most of the country is in a seller’s market. So what does this mean? “Given the imbalances in demand in relation to supply in most of the country, homes are selling quicker than a year ago and prices continue to rise,” DeSanctis explains.

While a balanced market would usually have a six-month supply, DeSanctis says the last time this happened was in June 2012. “Furthermore, total housing inventory has decreased year-over-year for 16 straight months.”

*     *     *

FACTORS INDEPENDENT OF THE MARKET

Whether it’s a buyer’s, seller’s or balanced market, experts agree that some decisions should be made independently of the housing supply. Berman warns that consumers should not take on more debt than can afford – the monthly payment should always be an amount they’re comfortable paying. “On the other hand, sellers should understand there price is not the only factor when it comes to selling a home, and the highest offer may not always be the best offer,” Berman says.

David Reiss, professor of law and academic program director at the Center for Urban Business Entrepreneurship at the Brooklyn Law School in New York, agrees that buying or selling a home is a personal decision.

“Does a new home work for you and your family in terms of its size, its cost, and the length of time you expect to live in it?  Does selling make sense in terms of changes in your family, your work expectations, your retirement plans?” Reiss says these are the types of questions that will produce the best answers. “But if you try to ride a wave in the market, you may set yourself up for a lot of disappointment.”

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November 23, 2016 | Permalink | No Comments

November 22, 2016

Beware of Contractor

By David Reiss

photo by Rogier Krens

Realtor.com quoted me in Beware of These 8 Red Flags When Hiring a Contractor. It opens,

Finding the right contractor for a major renovation is like finding a spouse. You have to have chemistry, you have to be on the same page, you have to trust each other, you have to love pugs, and you must share a passion for Korean barbecue (oh, scratch the latter two—it’s not totally like finding a spouse). And while there might be more than one Mr. Right, there are plenty of Mr. Wrongs who can transform your beloved renovation project into a nightmare (and give new meaning to the term “punch list”).

In 2011, the average U.S. homeowner spent $2,889 on home improvements—it’s a pretty penny, but a fraction of the cost of a big project like a major kitchen overhaul ($60,000) or bathroom renovation ($18,000). So a lot of cash is at stake here, along with your mental health! Here are some matador-worthy red flags to look for when researching a contractor, and strategies for finding one you’ll love.

1. They have lousy reviews

We live in a world saturated with social media, where it’s harder for bad contractors to hide. When you see a Yelp review that slams a contractor, your antennae should go up. Not that any one review is gospel; review sites often are battlegrounds for competitors who unfairly slam one another.

“Anyone can have one or two bad reviews from cranks or revenge seekers, but a pattern of problems or red flags should make you think twice,” says Sandy Edry, a real estate agent with Keller Williams in New York City.

2. They’re not responsive

As in any long-term relationship, communication is key. If you have trouble getting a contractor on the phone before you give him your business, imagine how hard it will be for him to return calls after he already has your security deposit. Give a prospective contractor 24 hours to return your introductory call—48 hours, tops—before you move on.

3. They insist on unlimited time and materials

The best way to wreck a budget is to sign a time and materials contract that puts no fence around expenditures. Make sure a contractor offers you a flat fee for a project and specifies how much change orders will cost. If he won’t, walk. Or run.

4. They lack a sense of humor

When it comes to home renovations, Murphy’s Law (anything that can go wrong, will) might be a bit exaggerated (although we know quite a few homeowners who’d beg to differ). No matter what, you should be prepared for at least one unexpected problem to arise. Look for a contractor who can keep his footing when things get rocky, and has the expertise to remain calm—and to help calm you down—while sorting out a solution.

5. They overpromise

Before you sign a contract with anyone, do your homework to get a rough idea of how long a project should take and cost. Remodeling’s Cost vs. Value annual report provides national averages for popular projects and is a great resource. Beware of contractors who offer you a much lower price and faster delivery. If it sounds too good to be true, it probably is.

6. They have outdated references

Good contractors have a constantly revolving list of new and satisfied customers. If they can’t provide a current reference, perhaps the quality of their work has dropped.

“You don’t want any old references,” says David Reiss, research director for the Center for Urban Business Entrepreneurship in Brooklyn, NY. “You want references for recent and current jobs, and for jobs that are similar to yours.”

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November 22, 2016 | Permalink | No Comments

Tuesday’s Regulatory & Legislative Roundup

By Jamila Moore

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November 22, 2016 | Permalink | No Comments

November 21, 2016

The Trump Effect on Mortgage Rates

By David Reiss

photo by Sergiu Bacioiu

The Christian Science Monitor quoted me in What Does President Trump Really Mean for Mortgage Rates? It opens,

In the week following the election, mortgage rates soared nearly half a percentage point. Average weekly 30-year fixed home loan rates are back above 4% for the first time since July 2015.

Here’s a three-minute read on the Trump Effect — past, present and future — on mortgage rates.

What happened to mortgage rates right after the election

Investors sold bonds on President-elect Donald Trump’s stated goals to lower taxes, boost deregulation and make massive infrastructure investments. A growing economy fueled by government spending could trigger higher inflation, which is a concern for the bond market.

As bond prices fell from the sell-off, yields rose. Higher bond yields equal higher mortgage rates. is happening with mortgage rates now

What is happening with mortgage rates now

Rates are already taking a breath. After a quick run-up following the election,  30-year mortgage rates are generally holding steady, near 4%.

What will happen to mortgage rates in 2017

The Federal Reserve this week reaffirmed its intention to begin raising short-term interest rates, most likely beginning in December. Following that hike, if it happens, the U.S. central bank’s policy-setting Federal Open Market Committee is looking to manage a slow climb in rates.

“The FOMC continues to expect that the evolution of the economy will warrant only gradual increases in the federal funds rate over time to achieve and maintain maximum employment and price stability,” Fed Chair Janet Yellen told Congress on Nov. 17. Those moves will influence longer-term rates such as on mortgages to rise as well.

And there’s another potential trigger for mortgage rates to move higher.

While Trump hasn’t taken a stance yet, Republican party leaders have been vocal about getting the government out of the mortgage business. That could mean redefining the role of the Federal Housing Administration and moving Fannie Mae and Freddie Mac to the private sector.

David Reiss, a professor at Brooklyn Law School, concentrates on real estate finance and community development. He sees the Republican agenda to “reduce the government’s footprint in the mortgage market” as a possible catalyst to higher mortgage rates in the future.

“You put the government’s stamp of approval on companies like Fannie and Freddie, and it lowers interest rates because they can borrow at a lower rate — but then the taxpayers are on the hook if things go south, and that was the case in 2008,” Reiss tells NerdWallet. “If you reduce the federal government’s role in the housing markets, you’re going to reduce the likelihood of future bailouts by taxpayers. That’s the trade-off.”

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November 21, 2016 | Permalink | No Comments

Monday’s Adjudication Roundup

By Jamila Moore

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November 21, 2016 | Permalink | No Comments

November 18, 2016

Low Down Payment Mortgages, Going Forward

By David Reiss

photo by TheGrayLion

TheStreet.com quoted me in Home Loan Down Payments Are in Decline: Will Uncle Sam Ride to the Rescue? It opens,

President-elect Donald Trump has enough problems on his hands as his administration takes shape, with the economy, health care, geopolitical strife and a divided country all on his plate.

 Chances are, dealing with a weakening real estate market, especially related to lower down payments, hasn’t entered his mind.
According to the November Down Payment Report, from Down Payment Resource, median down payments from first-time home buyers fell to just 4% of the home’s value, down from 6% in 2015. At the same time, home down payments for FHA-backed loans are also at 4%, signaling that homebuyers aren’t saving enough for home down payments, and thus face higher monthly mortgage payments.
There’s one school of thought that says homebuyers aren’t putting serious money down on a purchase, because they don’t have to.

“U.S. homebuyers are putting less down to purchase homes due to the wide availability of low- and no-down payment loans such as FHA loans, Fannie Mae’s HomeReady program, a resurgence of ‘piggy-back mortgages’ and other programs,” says Erin Sheckler, president of NexTitle, a full-service title and escrow company located in Belleview, Wash. “Meanwhile, USDA and VA loans also do not require any down payment whatsoever.”

Sheckler also notes that lending requirements have begun to ease nationwide, thus giving homebuyers more wiggle room with home down payments. “According to Ellie Mae’s Origination Insight Report, in August, home buyer down payments varied by loan program but, in nearly all cases, down-payments were near minimums,” says Sheckler.

Sheckler also doesn’t expect the low down payment trend to end anytime soon.

“How much money a person decides to put down on the purchase of a new home is a combination of risk and personal tolerance as well as the loan programs available to them,” she says. “As long as mortgage guidelines remain relaxed and with first-time homebuyers being an increasing segment of the market, we will likely see down-payments hover around the minimums into the near-term future.”

The risk with lower home down payments is real, however. “No one wants to find themselves house-poor,” Sheckler adds. “Being house-poor means that the majority of your wealth and monthly income is tied up in your residence. This can be a catastrophic situation if you find yourself suddenly faced with a loss of income or unexpected expenses.”

Homebuyers looking for more help from Uncle Sam, though, may come away disappointed in the next four years. “While Trump has been pretty silent on the housing market, (vice president-elect Mike) Pence and the Republican party platform have made it clear that they want to reduce the federal government’s footprint in the housing market,” says David Reiss, professor of law at Brooklyn Law School. “This is likely to mean fewer low down payment loan options being offered by Fannie Mae, Freddie Mac and the FHA.”

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November 18, 2016 | Permalink | No Comments