December 17, 2015
Homebuyer’s Guide to Rate Hike
Fed Chair Yellen
U.S. News & World Report quoted me in A Consumer’s Guide to the Fed Interest Rate Hike. It opens,
The era of cheap money isn’t exactly over, but on Wednesday, after seven years of having near zero interest rates, the Federal Reserve voted to raise the central bank’s benchmark interest rate from a range of 0 percent to 0.25 percent to a range of 0.25 percent to 0.5 percent. Economists have largely seen this as a positive development – it means the American economy is considered strong enough to handle higher interest rates – but, of course, the all-important question on everyone’s minds is likely: What does this mean for me?
It depends, of course, on where you’re putting your money these days.
Homebuying. While it’s expected that the minor interest rate hike will result in it being more costly to borrow money to buy a home, that isn’t necessarily the case. Numerous factors influence mortgage rates, from where in the country your home is located to the state of the global economy to whether inflation is believed to be around the corner. Still, there’s a pretty fair chance that the interest rate hike will lead to higher borrowing costs.
But it’s worth remembering that even if the rates go up, it’s still cheap to buy a house compared to the recent past. According to Freddie Mac’s website, the average 30-year fixed-rate mortgage currently stands at 3.94 percent. If you bought a house, say, 15 years ago, the annual average rate in 2000 was 8.05 percent.
David Reiss, a law professor at Brooklyn Law School who specializes in real estate, says he wouldn’t rush out to buy a home based on the Fed’s announcement.
“I would caution strongly against letting the Fed’s actions on the interest rate influence the home-buying decision all that much, no matter what market you live in,” Reiss says. “First of all, the mortgage market has taken the Fed’s likely actions into account already, so interest rates … incorporate some of the rise in rate already.”
Bottom line, he says: “Generally, people should be buying a home when it makes sense for their lifestyle. Expect to stay put for a while? Maybe you should buy a home. Expecting kids? Maybe you should buy a home. Retiring to a warmer clime? Maybe you should buy a home.”
Again, the interest rate climbed 0.25 percent, and while the Fed has indicated that rates may continue to rise, Federal Reserve Chair Janet Yellen has stressed that any future hikes will be gradual.
“Small changes in interest rates do not generally make that much of a dollars-and-cents difference in the decision to buy,” Reiss says.
December 17, 2015 | Permalink | No Comments
Thursday’s Advocacy & Think Tank Round-Up
- The Center for American Progress (CAP) has released An Opportunity Agenda for Renters in which it laments its finding that where one lives determines such things as income, mobility and education. In order to address these stubborn patterns CAP recommends a two pronged approach, promoting residential mobility and investment in racially segregated neighborhoods.
December 17, 2015 | Permalink | No Comments
December 16, 2015
America’s Rental Housing
Harvard Kennedy School Littauer Building
The Joint Center for Housing Studies of Harvard University has issued America’s Rental Housing: Expanding Options for Diverse and Growing Demand. The report concludes,
The need for rental housing that low- and moderate-income households can afford is already great and growing. Although multifamily construction is booming, most new rentals are targeted to the high end of the market. And with the huge millennial population poised to enter the housing market, the pressure on rents will only increase.
The strained political climate and caps on nondefense discretionary spending have held down appropriations for federal rental assistance programs. Recognizing these limitations, the federal government has made new efforts to integrate affordable housing, healthcare, and supportive services for the most vulnerable households, including the working poor and older adults with chronic health conditions and disabilities.
There is broad recognition that neighborhood quality directly shapes the economic opportunities available to low-income renters. Indeed, increasing the access to communities with good-quality schools, low crime rates, and proximity to employment and transit can result in better economic outcomes for both parents and children. Improvements to existing rental assistance programs would help more low-income households find homes in a broader range of neighborhoods. At the same time, however, developing new rental housing in disadvantaged communities can be an important means for fostering neighborhood revitalization.
Each of these policy issues deserves attention and debate. While specific solutions vary across markets, the ultimate goal must be to ensure that the nation’s rental housing stock meets the needs of the diverse renter population and that America’s communities are inclusive of all households. (36)
These conclusions are most certainly correct, although they may not be giving the process of filtering its full due. If there were to be a dramatic increase in the total supply of housing, it would lower its average cost, all other things being equal.
I must conclude this post with my constant refrain about the Joint Center’s publications: they fail to adequately disclose their funders. Readers would want to know that the funders for this publication include lots of companies that stand to benefit from an increase in production in multifamily housing, such as builders, construction supply companies and financial institutions.
December 16, 2015 | Permalink | No Comments
Wednesday’s Academic Roundup
- The Liquidity Crisis, Investor Sentiment, and REIT Returns and Volatility, Daniel Huerta, Journal of Real Estate Portfolio Management, Forthcoming.
- Counting Casualties in Communities Hit Hardest by the Foreclosure Crisis, Matthew J. Rossman, Utah Law Review (2016 Forthcoming).
- Climate Change and Long-Run Discount Rates: Evidence from Real Estate, Stefano W. Giglio, Matteo Maggiori, Johannes Stroebel & Andreas Weber, CEPR Discussion Paper No. DP10958 (Paid Access).
- Commercial Bank Failures During the Great Recession: The Real (Estate) Story, Adonis Antoniades, BIS Working Paper No. 530.
December 16, 2015 | Permalink | No Comments
December 15, 2015
Won’t You Be My Neighbor?
Realtor.com quoted me in Are Neighborhood Watch Signs Killing Home Sales? I reads, in part,
Neighborhood watch programs proclaim that a community’s members have one another’s backs, a collective way of saying, “Hey, we got you covered.” So home shoppers who see neighborhood watch signs plastered on telephone poles and in parks should feel confident about settling down in that community, right?
Not necessarily.
A debate is brewing, most recently in Longboat Key, FL, over whether neighborhood watch signs are good or bad for property values. While some think these safety-first signs raise home prices, former Mayor George Spoll is arguing the opposite: that they make an area look crime-ridden, sinking home prices and scaring off potential buyers in the process.
* * *
“It would be hard to say that a watch sign on its own is a good or bad thing, but in particular contexts it could make a difference,” says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. After all, he points out, “If home buyers have heard that crime is an issue there, neighborhood watch signs may give comfort that the neighborhood is doing something about it. On the other hand, if it’s a neighborhood that is not facing major crime issues, signs may be a confusing signal.”
Bottom line: If you’re a home buyer and see these signs, do your homework and research crime in the area. Go ahead and ask your seller and Realtor about crime in the area; call local law enforcement or search online on sites such as Crimemapping.com or Neighborhoodscout.com.
December 15, 2015 | Permalink | No Comments
Tuesday’s Regulatory & Legislative Round-Up
- The Consumer Financial Protection Bureau (CFPB) has released a tool to measure financial well being, it is a scale of ten questions which financial educators can use to gauge financial well being more precisely and it builds off of the definition of financial well being which the CFPB released in January 2015.
December 15, 2015 | Permalink | No Comments
December 14, 2015
Down Payment Help
The Dallas Morning News quoted me in Asking for Help with Down Payment Can Often Be Difficult. It reads, in part,
How do you ask a question when no one wants to talk about the subject?
Often, it’s quite clumsily, without much effort at sparking an honest exchange.
* * *
Before asking, hopeful buyers should investigate options, said David Reiss, a real estate professor at The Brooklyn Law School.
“You would want to press your lenders to identify all first-time homebuyer programs you might be eligible for,” Reiss suggested.
The Federal Housing Administration offers loans with low down payments, and many state housing finance agencies offer low or no-down loans to eligible buyers, he noted.
In any case, said Reiss, “It would be helpful to know your options when speaking with family members about a gift.
“They might be willing to give a smaller gift for an FHA mortgage, or they might be willing to make a larger gift if they see that it would result in lower monthly payments for your,” Reiss said.
“And the mere fact you did this type of research is evidence that you are a financially responsible adult,” he concluded.
December 14, 2015 | Permalink | No Comments
