How a Rate Hike Would Affect Boston Area Housing

The Boston area housing market has been anticipating a possible interest rate hike by the Federal Reserve Bank. Analysts say a small interest rate hike will have little effect on housing activity. In fact, there are other components that are more telling that could impact Boston area housing.

What to Look for in the Boston Area Housing Market

Some industry insiders say the only potential threat that may exist as a result of a rate hike would be the effect it has on credit standards for buyers trying to qualify for a mortgage loan.

First time home buyers could potentially see loan qualifications tighten as those credit standards change. The tighter credit policies have typically been implemented to guard against a repeat of the housing crisis from less than a decade ago.

In the years preceding the last housing crisis, the Boston area housing market included borrowers that had bought beyond their abilities to repay. When the economy weakened and unemployment rose the market quickly saw how home values were artificially inflated.

There is concern among some analysts that three factors continue to plague the housing industry — despite activity and sales being the highest in the previous eight years.

1. The recent psychological shift among Millenials to become more urban, city dwellers instead of suburban homeowners.

2. The fear that Fannie Mae, Freddie Mac and the FHA are returning to their old ways with low down payment requirements that may lead to higher loan-to-value (LTV) ratios. Still, other real estate analysts say as the younger Millenials have children the trend seems to be changing as they seek better schools and other attractive features of suburban living.

3. The unemployment rate. Jobs are more of a Boston area housing market indicator that other factors. Housing is strong where there is lower unemployment. The rule of thumb is a high employment rate, the slower the housing market.

Lastly, the main reason there seems to be little fear that a rate hike may affect Boston area housing is in dollars and cents. A 1/4 point rate increase on a $250,000 mortgage only increases the monthly payment by roughly $35. Experts say it usually takes an increase of a full percentage point to make a noticeable affect on consumers.

For more articles pertaining to Boston area housing, check out the Boston Real Estate section of our site to your right below Boston Real Estate Categories.

Remember, we also post tips daily on Twitter and Facebook. Check us out there too.

Boston Area Housing Market Could See Big Surge

Recent research from the National Association of Realtors (NAR) shows that distressed buyers are slowly but surely making their way back to the Boston area housing market.

According NAR’s report, nearly 1 million borrowers who were foreclosed on, short sold their home or received a deed in lieu of foreclosure over the last eight years have already purchased a new home. Another 1.5 million are expected to do so over the next five years, as they once again become eligible for financing.

The Boston area housing market could see a surge of so-called “boomerang buyers,” those who lost their homes to these foreclosures, but are ready to buy again. Jill Schlesinger explains what this means in a recent CBS news report.

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In a report earlier this year, RealtyTrac noted that Generation X and Baby Boomer “boomerang buyers” could “represent a massive wave of potential pent-up demand that could shape the Boston area housing market in the short term even more dramatically” than the millennials’ entrance into home ownership.
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“The markets most likely to see the boomerang buyers materialize are those where there are a high percentage of housing units lost to foreclosure but where current home prices are still affordable for median income earners and where the population of Gen Xers and Baby Boomers … have held stead or increased during the Great Recession,” RealtyTrac noted in its report.
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We have more news concerning the Boston area housing market in our Boston Real Estate News section under Boston Real Estate Categories to your right.
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And don’t forget, we also post tips daily on Twitter and Facebook, sometimes pertaining directly to the Boston area housing market. Find us there as well.
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Boston Area Real Estate News – May 2015

Boston Area Real Estate News - May 2015

In our Boston Area Real Estate News for May 2015:

Pending Boston Area Home Sales Up

Pending Boston Area home sales were up in March, even though the low supply of available homes for sale is still a concern.

The National Association of Realtors said this week that its seasonally adjusted pending home sales index rose 1.1 percent to 108.6 last month. The index has climbed 11.1 percent over the past 12 months after having dipped in 2014.

Pending Boston Area home sales were up in March 2015 with inventory of homes for sale still down

Overall, figures suggest strengthening demand from would-be buyers, even though there are relatively few new listings on the market and sales prices are rising at a faster rate than wages.

NAR says new home construction needs to increase and more existing homes need to come to market. Traditional buyers continue to replace investors paying cash. The association says that indicates this year’s activity is being driven by more long-term homeowners.

Pending Boston Area home sales are a barometer of future purchases. A one- to two-month lag usually exists between a contract and a completed sale, meaning that the gains should appear in April and May sales numbers.

With pending Boston Area home sales up, greater buying activity has yet to bring more sellers into the market, with a mere 4.6 month supply of homes on the market. Economists consider a standard market to have at least a 6 month supply of homes for sale.

Right now, new homes are coming onto the market at about half of historic norms, creating a supply-and-demand mismatch that keeps younger households on the sidelines.

Building more new homes would help boost supply, but home construction has been weak. Developers are focused increasingly on building apartments and more expensive homes for wealthier buyers.

One factor pushing up prices is a steady decline in so-called "distressed" sales, which include foreclosures and short sales. Short sales occur when the seller owes more on a home mortgage than the house is worth. Both usually sell at steep discounts to traditional Boston Area home sales.

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Lowest Home Ownership Rate in 20+ Years

While Boston Area home sales continue to rise, the home ownership rate in the U.S. has fallen below 64 percent for the first time in over 20 years.

The U.S. Census Bureau announced that the seasonally adjusted 63.8 percent rate in the first quarter of 2015 is far below the 69 percent rate just 10 years ago – a time when homebuying may have been the easiest for Americans.

As investors continue to buy single-family homes to feed rental demand, and first-time buyers remain unable to afford rising prices, U.S. homeownership is taking a big hit.

Rentership has increased dramatically since the financial crisis and Great Recession, and continues to do so as the economy improves and more young people move out of their parents' homes into rental apartments. Many of them straddle jobs while managing student loan debt or other expenses, finding it impossible or extremely challenging to come up with a down payment in the current seller's market.

With millions of properties still underwater — those homes worth less than owners owe for their mortgage — there is still a stigma attached to owning a home in the wake of the 2007-2008 housing market meltdown and foreclosure crisis.

However, longer-term trends seem to be pushing homeownership rates back to "normal" levels, according to Sam Khater, deputy chief economist at CoreLogic.

In the mid-1990s pro-homeownership policies led to an expansion in mortgage credit and the homeownership rate peaked in 2004 at 69 percent. Homeownership rates are back to roughly their long-term trend between the 1960s and 1990s.

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Boston Area Housing Market Could Face Problems

With pending Boston Area home sales up and not a lot of new inventory coming on the market to help slow that down, and the home ownership rate now at it's lowest level in over 20 years, could there be trouble brewing in the housing industry?

The future of the Boston Area housing market depends on jobs, and people earning enough to buy houses. But experts at a recent forum are predicting problems due to income levels. Until incomes improve across the board and hurdles to credit access are eased, it is expected that the Boston Area housing market will continue to perform below capacity.

Some of the nation's top economists meeting at a forum at the National Association of REALTORS®' Washington, D.C., office last week all echoed the same sentiment.

Households could be trying to save more because of the "unique uncertainty" in people today. There's a general tendency now for people to want to save more, because they're afraid. They're afraid for their jobs. What do you do? You don't spend money lavishly; you try to accumulate some. But they don't succeed.

Economists at the forum said today's Boston Area housing market represents just a partial recovery from the severe downturn that hit the country about seven years ago, but they differed on how much of a role overly tight credit is playing in the slow return to a full recovery.

The problem today doesn't seem to be a credit issue. It's more of a demand issue. Borrowers have less money now after millions went into foreclosure. We're facing a whole new ball game in the Boston Area housing market, and it's anyone's guess if the lower income problem will be overcome soon enough to save the industry.

New Roadblocks Could Affect Boston Area Housing Market

There’s a potential new roadblock on the horizon that could wreck havoc with the Boston area housing market, just when it’s pulling out of its worst downturn in decades.

The Boston area housing market may be faced with a potential new roadblock starting August 1st

Changes to Forms Could Affect the Boston Area Housing Market

On August 1st, the new TRID (TILA-RESPA Integrated Disclosure) forms replace the HUD-1 Settlement and Good Faith Estimate. The Consumer Financial Protection Bureau’s mission is to rebuild the mortgage banking landscape so the industry will avoid the type of conditions that led to the Great Recession. The CFPB replaces the Department of Housing and Urban Development for oversight because HUD did not provide specific consumer protection.

The new rules will require a new three-day waiting period when there are any changes in the TRID forms. The recommendation is to allow an extra 15 days to close a transaction. In other words, 30-day contracts will now require 45 days, and 60-day contracts will require 75 days.

Clients, agents and attorneys are accustomed to routinely making changes at the closing table and still closing the sale on the same day. The new three-day waiting period will severely limit this practice for items covered in the TRID documents.

So who will be affected the most when it comes to the Boston area housing market? Maybe the moving companies.

When transactions don’t close on time, it’s quite common for one or more of the principals to be stuck with furniture on a moving van and nowhere to go. Anyone who has experienced this situation knows how nasty this situation can get.

If there are multiple properties involved, any delay on one home’s closing could delay others from closing as well. Now imagine how much more complicated this could become if there is an error that retriggers the three-day TRID waiting period. Everyone will be scrambling to handle late closings — not just for one day, but for at least three days or more.

Other potentially costly issues that could affect the Boston area housing market include situations where one of the principals must close by a certain date to take advantage of the tax breaks on the sale of their primary residence — or situations where one of the principals is involved in a 1031 tax-deferred exchange. The lost tax-benefit costs of a late closing could run into hundreds of thousands of dollars.

It doesn’t take a rocket scientist to also figure how rate locks on mortgages could be severely affected. A buyer locks in an interest rate for 60 days. There is an increase in interest rates. This means the lender can no longer sell the buyer’s loan on the secondary market. As a result, the lender demands additional documentation. The documents are submitted in a timely matter, but the underwriting department takes days to get to the changes. In the meantime, the buyers’ interest rate lock expires, and the property doesn’t close on time. At this point, the lender requires a higher interest rate in order to close the transaction.

Beginning to get the picture on the ripple affect all this could have on the Boston area housing market?

As we creep closer and closer to the August 1st changeover date, there will be unexpected delays in obtaining loan approval, potential changes in the documentation during the transaction, and a host of problems we probably can’t even begin to imagine. Stay tuned, we’ll update you again as the time draws closer.

Get more information as it pertains to the Boston area housing market in our section on Boston area Real Estate to your right under Boston Real Estate Categories.

Remember, we post tips daily to Twitter, and also on our Facebook Page. We’d love you to check us out there too.

Boston Area Real Estate News – April 2015

Boston Area Real Estate News - April 2015

In our Boston Area Real Estate News for April 2015:

Renters Squeezed By Higher Boston Area Housing Costs

Renters are being squeezed in the Boston Area housing market by a disproportionate growth in rental costs on one side and stagnant income on the other.

New research finds that rent growth is far exceeding wages, according to the National Association of Realtors.

The NAR reviewed data on income growth, housing costs and changes in the share of renter and owner-occupied households over the past five years across the country. Lawrence Yun, NAR chief economist, says the disparity between rent and income growth has widened to unhealthy levels and is making it harder for renters to become homeowners.

Income Not Keeping Up With Boston Area Housing Costs

The Boston Area housing market is seeing a disproportionate growth in rental costs and stagnant income

In the past five years, typical rent rose 15 percent while the income of renters grew by only 11 percent. The gap has worsened in many areas as rents continue to climb and the accelerated pace of hiring has yet to give workers a meaningful bump in pay.

The share of renter households has been increasing and homeownership in the Boston Area housing market is falling. Those financially able to buy a home in recent years were insulated from rising Boston Area housing costs since most take out 30-year fixed-rate mortgages with established monthly payments.

Moreover, a typical homeowners’ net worth climbs because of upticks in home values and declining mortgage balances. The result has been an unequal distribution of wealth as renters continue to feel the pinch of increasing Boston Area housing costs every year.

Meanwhile, current renters seeking relief and looking to buy are facing the same dilemma: home prices are rising much faster than their incomes. With rents taking up a larger chunk of household incomes, it's difficult for first-time buyers – especially in high-cost areas – to save for an adequate downpayment.

NAR's research analyzed changes in the share of renters and homeowners, mortgage payments, median home prices, median household income for renters and the rental costs in 70 metro areas. Even with the tax benefits of owning versus renting, affordability is still the major stumbling block for many who would like to enter the Boston Area housing market as an owner rather than a renter.

Speaking of taxes and the benefits of owning versus renting, we're devoting the rest of this month's newsletter to the subject of taxes…

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Some Last Minute Moves for Taxes

Here we are, time to do taxes, and this is no April fools joke.

Taxes are due April 15th. Here are some tips for you last minute filers

With just two weeks left of tax-season 2015, here are a few actions worth taking to save you money on your 2014 taxes, jumpstart savings for you or a relative, or possibly get a tax break on health coverage for 2015.

  • Contribute to an IRA. You have until April 15th to contribute to a 2014 traditional IRA, potentially reducing your taxable income. The maximum deductible contribution is $5,500 for those under age 50 and $6,500 for those age 50 and older. Your deduction will be limited based on income and whether you or your spouse has a retirement plan at work. Do you own a small business? Then you might be eligible for higher income and contributions limits through a simplified employee pension (SEP) IRA. Go to irs.gov and search for IRS Publication 590, “Individual Retirement Arrangements,” for details on contributions and income limits.
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  • Contribute to the IRA of a young relative or someone else starting out. Lower-income workers of all ages will benefit in three ways: more savings, less taxable income, and, if they're not medically insured through your plan or one at work, a larger insurance premium tax credit.
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  • Apply for health-insurance coverage. Taxpayers in states with state-run health-insurance Marketplaces who didn't realize they would owe a penalty for lack of coverage in 2014 can take advantage of extended sign-up periods for 2015 coverage, through April 17th or even later. They may find themselves eligible for income-based tax credits to use toward premiums.

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Don't Let Tax Identity Theft Happen to You

While we're on the subject of taxes, let's look at a growing problem and hopefully help you avoid calamity.

Tax-related identity theft can turn your life upside down and take years to resolve. You may know of someone who has had this happen to them. Someone submits an electronic tax return containing personal information about the person along with a bogus return address. The mess takes piles of paperwork, a tax advocate, and can take years to resolve.

Fortunately, consumers are more aware of the problem, and the IRS has made strides to educate the public, help victims, and prevent a recurrence. Here's some advice to flag potential problems:

I.D. Protection Tips

Protecting sensitive information in the first place and following up quickly to minimize the damage are paramount. Healthy skepticism can go a long way. For instance:

Ignore e-mails and social media purportedly from the IRS. The IRS will NEVER contact taxpayers by e-mail, text message, Facebook, Twitter, or other social media. Nor does it send e-mails stating that you're being audited or getting a refund. That's a "phishing" scam, which you should report at phishing@irs.gov.

Confirm the authenticity of letters from the IRS. Check the agency's official contact page.

Check the URL of "IRS" tax information pages. The agency's website begins with www.irs.gov. Others are fakes.

If You Become a Victim

Hundreds of thousands of people have been victimized by identity thieves. To help those taxpayers, the IRS is:

  • Assigning victims a unique personal identification number. It must be included on their tax returns. This has given a lot of people peace of mind. It means faster processing and a speedier refund.
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  • Speeding up victim case resolution. Because resolving I.D. theft cases can take up to six months, the IRS has assigned more employees to sort through the details and streamline the process.
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  • Lending an ear. The IRS now has a dedicated section on its website devoted to the problem. In addition, it has implemented a special phone number for victims. The IRS Identity Protection Specialized Unit is available at 1-800-908-4490.

If you haven't already filed your taxes, good luck over the next two weeks. And remember, filing an extension for your taxes doesn't mean an extension to pay. You still must submit what you think you'll owe whenever you get around to filing or face penalites and interest from April 15th to the day you finally pay up.