Younger consumers more pessimistic about future finances and affordable homes.
Consumer confidence has fallen to its lowest level in 18 months amid affordability constraints, supply shortages and job concerns, according to Fannie Mae’s latest Home Purchase Sentiment Index (HPSI). The HPSI, which tracks consumers’ housing-related intentions and perceptions, fell 2.4 points in January, highlighting worries - particularly among younger consumers – about home-buying and home-selling conditions. In total, four of the index’s six components decreased compared to the previous month after polling a nationally representative sample of 1,006 households. The index revealed that 70% of respondents felt it was a bad time to buy a home, while only 25% - “a record low”, according to Fannie Mae - felt that it was a good time to buy. Although it represents a relatively small 5% drop compared with the previous month, it is a whopping 60% down year over year. Respondents were also distinctly gloomy about the mortgage rate outlook, with 58% saying they expected rates to increase, versus 4% who believe they’ll go down, resulting in a net reduction of 18 percentage points year over year, and a more modest 2% compared with last month. At the time the survey was conducted, the average rate on a 30-year fixed mortgage was reportedly more than 50 basis points higher than it was the previous month, and a staggering 83 basis points up compared to a year ago. Year over year, the full index has nose-dived 5.9 points, representing the lowest level since May 2020. On the flip side, 69% of consumers reported that it was a good time to sell, representing a 23-percentage point increase year-over-year, but a 12% drop compared with December 2021. Regarding employment, 78% of respondents said they did not fear losing their jobs over the coming year compared with 17% who did, representing a 5% net month-over-month decrease. However, it also reflected a 10% improvement when compared to the mood a year ago. In addition, the net share of those who say their household income is significantly higher than it was 12 months ago increased six percentage points compared with December, underscoring the belief that borrowers have substantial equity available since the COVID pandemic. A larger percentage of Americans – 4% compared with December - also expected home prices to rise in the coming months. According to Doug Duncan, Fannie Mae’s senior vice president and chief economist, younger consumers were more pessimistic about their financial outlook and their prospects for buying a home this month. He said: “Younger consumers – more so than other groups – expect home prices to rise even further, and they also reported a greater sense of macroeconomic pessimism. “Additionally, while the younger respondents are typically the most optimistic about their future finances, this month their sense of optimism around their personal financial situation declined. All of this points back to the current lack of affordable housing stock, as younger generations appear to be feeling it particularly acutely and, absent an uptick in supply, may have their homeownership aspirations delayed. “On the whole, the latest HPSI results are consistent with our forecast of slowing housing activity in the coming year.” Patrick Stoy, owner-broker of Wilmington-based, MC Mortgage Group, was asked whether the survey’s findings reflected his own experience with customers. He said he felt some clients were taking on too much debt, given their financial constraints. Speaking to MPA, he said: “I’ve had people in my office that went and got under contract for properties and they’re obligating themselves to a $250,000 loan, even though the payment’s cheaper than what they’re paying in rent. “It’s still a lot of a lot of debt to obligate themselves to, based on their current income being a single income household. It’s really almost impossible to buy a property these days, unless you’ve got multiple sources of income coming into a house.” Fannie Mae’s latest survey results also confirm the views of Dr. Robert Dietz, chief economist and senior vice president for economics and housing policy for the National Association of Home Builders (NAHB), who recently warned that a tightening monetary policy and higher interest rates would take a toll on housing affordability and price out younger families from the market. “At the turn of the millennium, it was about 10% of young adults aged 25 to 34 who lived with their parents. Today that rate is higher than 20% and has doubled in the last two decades,” he told MPA, suggesting a lack of housing inventory as one of the reasons.
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It is a first-of-its-kind
Change Company, a community mortgage lender based in California, has packaged residential home loans made to people of color and low-income borrowers into a first-of-its kind bond and is planning a second round. The firm sold a $297 million mortgage bond deal last week. Change Company is a lender known as a community development financial institution, which were created in 1994 to provide loans mainly in neighborhoods and areas that might not otherwise have access to credit. They are eligible to receive grants and low-cost funding from the US Treasury. Change Company is the first such institution to sell mortgage bonds backed entirely by loans it made. Among the more than 20 buyers of the bonds were managers of funds that aim to be socially responsible. The loans have some similarities to “Alt-A” mortgages, which proliferated about 15 years ago and helped inflate the housing bubble: As with Alt-A debt, Change Company often hasn’t verified a borrower’s income. But there are key differences between the two loans. For Change Company’s mortgages, credit scores averaged 737, according to ratings firm DBRS, a level viewed as prime. Change Company’s loans were generally made to borrowers with relatively large amounts of equity in their homes, giving the homeowner an incentive to keep paying if times got tough. On average, the loans are equal to about 70% of the value of the homes. And borrowers generally had enough cash reserves to cover their payments for four years. Borrowers don’t have to submit the same kind of documentation for income that they would for a conventional mortgage, because the loans are generally designed for people who may not be able to provide that verification, according to a spokesman. But the lender does verify elements of the application, including liquid reserves and previous housing payments. The largest and least-risky of the securities, around $240 million of bonds, were priced at 1.75 percentage points more than benchmark swaps. Cantor Fitzgerald and Performance Trust led the financing. Change Company is already planning its second deal, expecting to sell $350 million of its own loans in February or March. “We will be a programmatic issuer,” Jesse Elhai, head of capital markets at Change Company, said in a phone interview. Community development financial institutions had more than $150 billion of assets as of the end of their fiscal 2020 years, according to a report from the Community Development Financial Institutions Fund. Change Company is based in Irvine, California, but is moving to Anaheim. This is not your grandfather's transaction
Luxembourg-based Altisource Portfolio Solutions SA recently struck an agreement with a cryptocurrency payment and conversion service to facilitate the purchase of homes with digital currency. Michael Jansta (pictured), chief marketing officer for Altisource, said the agreement with ForumPay makes it easier to buy real estate with cryptocurrency, despite the currency’s volatility. “It’s kind of like buying gold from a dealer during the day while it’s fluctuating. They lock the exchange rate for a couple of minutes, and you put in your credit card or your bank transfer information and you can buy gold. ForumPay does the same thing with cryptocurrency.” He expounded: “So if you want to buy a house and your title company sends you a total that you’re supposed to tender – whether that’s your down payment amount on a finance deal or you’re paying in full as a cash buyer – there is a specific dollar amount that you need in funds to close escrow. ForumPay enables you to pay using bitcoin or another cryptocurrency. You press the button when you’re ready to pay and they lock what your exchange rate is going to be.” Given the notorious volatility of cryptocurrency, that exchange rate locked-in period is typically between two to five minutes. ForumPay creates a digital wallet, “and you transfer from the wallet the amount that escrow is requiring, ForumPay converts it to US dollars and wires it into your escrow account.” To the uninitiated, the audience for this sort of transaction might be seen as somewhat limited given its relatively nascent origins. Bitcoin was the first decentralized currency, introduced in 2009. Since then, thousands of other options have been introduced with futuristic-sounding names like Cardano, Ethereum, Solana, Terra, Tether and more. But no. The audience is rather huge. It’s estimated some 106 million worldwide now use cryptocurrency exchanges, according to 2021 data from Crypto.com. Additionally, more than 4,500 Bitcoin digital wallets are holding value in excess of $10 million, data from The Block Research shows. But back to that volatility. The market capitalization for bitcoin just days ago was nearly $720 billion. An impressive number but less than the $1.2 trillion or so that it had been just 3 months ago in November of 2021. Jansta noted one big advantage to using cryptocurrency with ForumPay is that the funds are wired the same day, or no later than the next business day, versus the five to seven days it would takes to reach escrow accounts if you were to convert your crypto to dollars yourself, wait for the funds to clear and then wire from your bank. Altisource is all in on the cryptocurrency push. Late last year, the company announced that buyers who select its affiliate, PremiumTitle, as their title and escrow provider, will be given an option to purchase property using cryptocurrency. After that, ForumPay comes into play to convert at a fixed rate for funds to be wired directly to PremiumTitle or the closing attorney.. To that end, holders of cryptocurrency can buy any property on or off the MLS, Equator.com or Hubzu.com by selecting PremiumTitle as their title and escrow company and sending their Bitcoin, Litecoin, Dash, Ethereum or Bitcoin Cash to a ForumPay wallet for conversion. “This is a game-changing functionality at the cutting edge of crypto adoption,” Jansta said at the time of the announcement. “When the value of cryptocurrencies surge to the upside, there are many investors who look to diversify some of those gains into other asset classes. We are very excited that Equator.com and Hubzu.com are the first marketplaces where homebuyers and real estate investors of all types can use their converted crypto to buy homes and investment properties.”. Jansta remains palpably enthusiastic: “We’re the first company that we know of that has marketed the ability to use your cryptocurrency as part of your real estate transactions,” he told MPA. Yet even while championing the use of the digital currency for such transactions, Jansta still urges use of the traditional title process. He gave an example scenario where someone offers to sell a home in exchange for Bitcoin and then finds a buyer willing to give him 20 Bitcoins for the home before the two parties sign a document proving the new ownership. “It’s still a real estate purchase, you kind of want to go through the title process,” he said. Sometimes, old school ways are still the best. For most people, buying a home is the largest financial decision they’ll make in their lifetimes. It’s not a deal easily undone once the final papers are signed, so it makes sense to understand the ins and outs of mortgages before taking the leap into homeownership. Here are six mortgage mistakes to avoid (and what to do instead).
1. Draining Cash Reserves for a Down Payment Home buyers typically put down 20% of a home’s purchase price to eliminate mortgage insurance and keep monthly payments low. But draining every bit of cash from your savings is a big mistake, especially when there are additional home-buying costs, including:
What To Do Instead Add all of the expected costs of buying a home, then calculate the down payment percentage you can afford. Don’t forget to account for major purchases, such as furniture or appliances, you might need to make immediately. You can always make an extra mortgage payment or add to the principal each month, but starting out with no cash on hand is a major mortgage mistake. 2. Not Getting Pre-ApprovedPicture this: You find the home of your dreams, and it’s within your budget. Turns out, it’s also the home of someone else’s dreams. In a tight market, making an offer loaded with contingencies, such as mortgage approval, isn’t likely to make you successful. What To Do Instead Get pre-approved for a mortgage. This makes you more competitive when you’re up against another buyer. If you’re a veteran, look to the Veterans Affairs office for pre-approval too. Its rates may save you money in closing costs and help you get more home for your money. 3. Choosing the First Bank That Approves You In a rush to get pre-approved, you might decide to go with the first bank that says yes. But the rate could be higher than other banks or mortgage providers. Credit unions, smaller banks, and online mortgage lenders can have dramatically different rates and fees. What To Do Instead Shop around to get the best mortgage rate. It could save you hundreds of dollars a month and thousands in closing costs. Make sure you understand your mortgage, including the type of loan you’re approved for, the length of the loan, and its rate. 4. Buying Too Much House It can be exciting to see how much you’re approved for, but one of the biggest mortgage mistakes is shopping for a house that hits the top of your budget. Many new home buyers don’t realize that what they pay toward principal and interest is just half of their monthly mortgage payment. They fail to recognize that property taxes, homeowners insurance, and, sometimes, mortgage insurance are also included. Unexpected expenses can be hard to meet when you borrow up to your limit. What To Do Instead Your total mortgage payment shouldn’t be more than 28% of your monthly pre-tax income. If you make $100,000 a year before taxes — just over $8,000 a month — your mortgage payment should be roughly $2,300. Ask your mortgage lender about the best budget for you. 5. Paying Full Price for Commission Another mortgage mistake is paying full-price commission to a real estate agent. The average commission rate is about 5.49% of the sale price, which can deduct thousands from your potential profits. But commission rates aren’t standardized or set in stone. You can negotiate for lower rates. What To Do Instead Work with a low-commission real estate company that negotiates with agents to procure a full range of services for a fraction of the traditional price. You’ll still get an opportunity to ask your Realtor questions and choose the one who’s best for you. The only difference is you’ll pay less for their services in the end. 6. Accepting Added Fees If you look closely at the closing paperwork, you’ll notice several additional costs. These might include:
Talk to your Realtor or mortgage lender to see if these fees are negotiable or truly necessary. Bottom line? Take a close look at the closing documents before you sign. Affordability issues make younger households more pessimistic
US housing sentiment sank even lower in January as affordability and supply constraints continued to limit home purchase opportunities, particularly among younger households. Fannie Mae reported Monday that its Home Purchase Sentiment Index (HPSI) fell 2.4% month over month and 5.9% year over year to 71.8 in January – its lowest level since May 2020. During the month, a record-low 25% of respondents said it’s a good time to purchase a home, compared to the 69% of consumers who believed that it’s a good time to sell. Concerns about job stability and mortgage rates also weighed on consumers’ minds. “Younger consumers – more so than other groups – expect home prices to rise even further, and they also reported a greater sense of macroeconomic pessimism,” said Fannie Mae chief economist Doug Duncan. “Additionally, while the younger respondents are typically the most optimistic about their future finances, this month their sense of optimism around their personal financial situation declined.” Four of the six HPSI components decreased month over month in January. Component highlights include:
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