Archive for October, 2015

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By JOSH BOAK and CHRISTOPHER S. RUGABER

U.S. housing appears to be insulated so far from the cooling global economy.

Home values and rental prices are steadily rising, fueled by strong demand and a tight supply of available properties, a pair of reports Tuesday showed. The solid demand drove sales growth early this year and spurred additional construction.

The Standard & Poor’s/Case-Shiller 20-city home price index climbed 5.1 percent in the 12 months that ended in August — a level many economists view as more sustainable than the sharp double-digit gains at the start of 2014.

And in September, median rents nationwide rose a seasonally adjusted 3.7 percent from a year ago; according to real estate data firm Zillow. As with home prices, the pace of rent increases appears more stable than the sharper increases earlier this year.

Still, while three years of solid hiring and low mortgage rates have bolstered real estate, further gains will likely require better pay for workers. Increases in home values continue to exceed average annual earnings, which have risen just 2.2 percent from a year ago.

For now, homes in tech hubs with a high concentration of good-paying jobs appear to be the main beneficiaries of rising prices. S&P reported that San Francisco and Denver both enjoyed a 10.7 percent year-over-year jump in home values, the largest of any city. Portland, Oregon’s annual gain of 9.4 percent was the third largest.

“Prices are rising the fastest in markets where job growth and net migration are the strongest and inventories are the tightest,” said Mark Vitner, an economist at Wells Fargo Securities. “Portland is an excellent example.”

Those same metro areas were among the leaders in the rental increases tracked by Zillow. At the same time, those high rental prices sparked some new construction, which has created more apartments and tempered the rental-price appreciation in recent months.

The median rent in San Francisco was $3,348 last month, a yearly increase of 13.3 percent. The year-over-year increase in August was even higher — 14.2 percent.

The housing market’s overall gains are defying the impact of a sluggish global economy. Falling commodity prices, weakened growth in China, a struggling Europe and tumult in emerging economies such as Brazil have hampered a world that is still battling its way out of the 2008 financial crisis.

Not every area of the United States is benefiting. Rental price growth has slowed in areas at the epicenter of the oil and natural gas industry, according to Zillow. Average oil prices have nearly halved in the past year to $44 a barrel. Houston’s rental costs are up 5.8 percent over the past 12 months, down from annual growth above 6 percent. Price appreciation has also slipped in Dallas and Tulsa.

But the S&P index shows that home values have advanced a solid 8.9 percent in Dallas over the past year, a sign of resilience in the heart of Texas.

Overall in the United States, the housing sector has expanded for much of 2015. Sales of existing homes jumped 4.7 percent in September to a seasonally adjusted annual rate of 5.55 million, the National Association of Realtors said last week.

The pace of home construction rose in September and is up 12 percent so far this year compared with 2014. But the bulk of the growth has been fueled by condominiums and apartment buildings. Single-family-home construction — the heart of the housing market — was flat in September.

That reflects a greater preference for renting rather than home-buying since the Great Recession, which has reduced the percentage of Americans who own homes to nearly a 48-year low of 63.7 percent.

Home values are rising largely because few properties are being listed for sale. The number of existing homes for sale has fallen 3.1 percent in the past 12 months. In September, the number of available homes was equal to just 4.8 months’ of sales, below the six months’ supply that is typical of a balanced market.

Low mortgage rates are helping would-be buyers. The average rate on a 30-year fixed mortgage fell to 3.79 percent last week, its 13th straight week below 4 percent.

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By Pat Wechsler

Many Americans, intent on building their fortune, think of heading to New York or San Francisco. But it turns out neither are the best U.S. city to live in for the majority of Americans looking to build wealth over time.

The best city for Americans looking to save money and accumulate wealth is Houston, according to a new study by Bankrate.com. The web site calculated the rankings based on the metropolis’ affordability, the ability to buy a home and have its value appreciate, and several other key factors that enable people to accumulate wealth. The Texas oil capital is closely followed by Washington D.C., Cleveland and Detroit.

New York ranks fifth, while San Francisco doesn’t even finish in the top 10.

“When we talk about building wealth, we’re not talking about becoming the next Warren Buffett or Mark Zuckerberg,” said Claes Bell, a banking analyst at Bankrate and the study’s author. “We’re talking about the ability of most people to buy homes, put aside money for their children’s education or save a nest egg for retirement.

“In a city like New York or San Francisco, you may be making six figures, but you’re spending that, too,” Bell explained.

Bell focused on the 18 biggest cities in the U.S. for which the Bureau of Labor Statistics’ Consumer Expenditures Survey publishes figures—numbers critical to the Bankrate.com study. To calculate rankings, Bell looked at average net incomes after taxes and took out average annual expenditures for each city. The difference became the money a person might be able to save. Then, he factored in such variables as average debt burdens; the five-year appreciation of each city’s real estate values; access to affordable financial services and higher education; and the strength of local job markets.

“People tend to look only at their gross incomes when they think about saving, but it’s really more about net incomes,” Bell said. “It’s like if you only focused on the revenue side of a business. The expense side is just as important in determining whether you’ll have profits.”

Why Detroit made the list.

Home ownership is a key element in the wealth most Americans are able to accumulate over a lifetime, Bell explained, and cities with high percentages of home ownership tended to fare better in the study.

“Detroit’s high ranking may be a surprise because of that city’s high foreclosure rate,” Bell said. But “in a place like Detroit, 75% of the people own their own homes. That’s because homes are more affordable.”

In New York City, only 49.4% own homes and in San Francisco, only 52.5%, he noted. The massive wealth that permeates a financial mecca like New York or a tech center like San Francisco actually works against the ability of average people to purchase real estate by pushing up prices—an impact that lowered those cities’ rankings.

Obstacles to wealth.

Higher taxes—income, property or sales—also represent another impediment to building wealth and cities that impose them ranked lower, Bell pointed out.

Besides mortgages, student loans composed a large segment of average citizens’ debt burden, even in top-ranked cities. Yet, that debt proved less of a drag on cities like Washington, where many professionals shoulder leftover debt from undergraduate and graduate school, because of its lower interest rates and monthly costs.

Additionally, Bell considered whether residents of certain cities had access to employer-sponsored retirement plans, which he described as a pivotal tool for the average person to build wealth. Higher productivity rates in certain cities also tended to allow employers to provide higher wages.

“This isn’t to say if you move to Houston, you’ll suddenly be saving lots of money,” Bell noted. “Much depends on which industry you work in and what the market in that city looks like.

“Of course, everything is predicated on whether a person makes the individual decision to save in the first place, but you can’t even begin to worry about that without excess disposable income,” Bell concluded.

The top 10 cities are:

  • Houston
  • Washington, D.C.
  • Cleveland
  • Detroit
  • New York City
  • Dallas-Fort Worth
  • Baltimore
  • Miami
  • Minneapolis-St. Paul
  • Chicago

The cities that didn’t make the top 10 are Boston (11), Seattle (12), San Francisco (13), Atlanta (14), Philadelphia (15), Los Angeles (16), Phoenix (17), and San Diego (18).

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By Bob Sullivan

The process of buying a home changes dramatically on Oct. 3. Here’s what you need to know about Know Before You Owe.

What Is Know Before You Owe?

That’s the name the Consumer Financial Protection Bureau has given to changes in the procedure for buying a home, and specifically, in obtaining a mortgage. Federal financial reform legislation, known as the Dodd-Frank Act, directed the CFPB to improve the procedures for buying a home in the wake of the 2008 housing crisis. Know Before You Owe has been a focus of the agency since its creation.

How Does It Affect Me?

There are many elements of Know Before You Owe that concern people who work in home sales, but to buyers, the most critical changes involve loan estimates and closing documents — the paperwork you receive at the beginning and the end of the mortgage application process.

When Do the Changes Take Effect?

They’ll impact consumers who apply for a loan on or after Oct. 3. Mortgages that are already being processed before that date are regulated by the old rules.

How Are the Closing Documents Different?

Before the change, homebuyers received the poorly-named “HUD-1 Settlement Statement” — short for the U.S. Department of Housing and Urban Development — at closing, when they were already busy signing dozens of forms and unlikely to spot errors. (Note: It was always possible to ask for a preliminary HUD-1 several days before closing and some mortgage lenders did provide advance copies.) The HUD-1 looks a bit like an accountant’s ledger or an IRS tax form. Borrowers were also presented with a separate Truth In Lending Act (TILA) disclosure.

Both the HUD-1 and the TILA disclosure are being replaced by a single “Closing Disclosure” form. This form is still several pages long, but designed to be easier to read. The cover page includes clear representations of monthly payments, total payments, closing costs, prepayment penalties, balloon payments and potential interest rate changes during the life of the loan. Everything on page one of the document is a direct response to complaints about many practices that tripped up consumers during the housing bubble.

The rest of the document bears similarity to the old HUD-1, with borrowers’ details on one side and sellers’ details on the other. Late fees and other terms follow.

When Will I Get a Closing Disclosure?

That might be the most significant change. Banks, title companies or anyone else preparing for a closing will now be required to provide documents to consumers 72 hours before closing, giving them ample time for review. Real estate professionals have been very concerned about this requirement because real estate transactions have many moving parts, and this new rule requires that transaction details be finalized earlier in the process.

As is the case with all transactions, however, the more time buyers have to review paperwork, the better. Consumers should also review their credit report and credit score before starting the mortgage application process.

What Other Documents Are Changing?

At the beginning of the loan shopping process, consumers traditionally receive a “Good Faith Estimate.” That form is being replaced by the simply named “Loan Estimate.” The new form includes a few more details than the old one, and it should help consumers trying to shop around for the best deal.

Critically, the final page of the “Loan Estimate” includes a section called “Comparisons”, which clearly lists the interest, principal and loan costs paid after five years, and a new concept called “Total Interest Percentage”, which outlines the total interest paid during the life of the loan as a percentage of the amount borrowed. An interactive tool to see the “Loan Estimate” form is on the CFPB site.

Meanwhile, consumers will also receive a “Your Home Loan Toolkit” booklet when they close, which offers some additional tips about protecting the value of their investment. The CFPB has also published its “Owning a Home” guidebook online, which contains similar advice.

How Will Know Before You Know Affect the Mortgage Process?

Anyone buying a home during the next few weeks, or even months, should expect a little confusion as everyone gets used to the new process. Firms that generate closing documents must retool a lot of software to comply with the rule — that’s why it was delayed from August to October. You can expect some nervous loan officers and mortgage brokers for awhile.