What the Fed’s Rate Cut Means for Buyers

The Federal Reserve recently cut interest rates for the first time since the Great Recession took hold in 2008, though the move is not likely to deliver significant juice to an already favorable borrowing environment for home buyers. The federal funds rate, which is what banks charge one another for short-term borrowing, will now hover between 2% and 2.25%, according to news reports.

The Fed says its decision to lower interest rates, which comes after months of pressure from President Donald Trump, is designed to stave off the threat of an economic downturn. But it’s unlikely to translate into additional mortgage savings for many buyers. With the interest rate for a 30-year loan already hovering below 4%, the Fed’s move may be more meaningful for buyers with other types of financing, says Lawrence Yun, chief economist for the National Association of REALTORS®. “Many borrowers will benefit, especially those with adjustable-rate mortgages and commercial real estate loans,” Yun says. “The longer-term 30-year fixed-rate mortgages will see little change in the near future because they had already declined in anticipation of this latest move by the Fed.

“These low interest rates will partly help with housing affordability over the short-term. Both rents and home prices have been consistently outpacing income growth. The only way to mitigate housing-cost challenges as a long-term solution is to bring more supply of both multifamily and single-family homes to the market,” adds Yun.

Still, lower borrowing costs are helping buyers manage rising home prices. For example, buyers who spend $1,500 on monthly mortgage payments can afford to purchase a $402,500 home this year compared to $367,500 last year, when mortgage rates averaged 4.57%, according to realtor.com®. “Last year, buyers would have needed an additional $145 a month on top of the $1,500 to afford a $402,500 home,” says Danielle Hale, realtor.com®’s chief economist.

In some locales, buyers’ money can stretch even further. “An extra $35,000 in purchasing power, depending on where you are in the country, can really make a difference to buyers today,” Hale says. “It still counts, even with home prices up 6% nationally. That increase in purchase power is greater than the national price increase.”

Source: REALTOR® Magazine

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Washington REALTORS® Win in the 2019 Legislative Session

The 2019 Legislative Session ended April 28 and Washington REALTORS® had some big wins. We got REALTORS® exempted from a 20% B&O tax increase, killed an effort to undermine “in-house” transactions and passed much of our “Unlock the Door” campaign’s affordable housing agenda, including condo liability reform.

Protecting Our Members

Our trade association’s primary purpose is to protect our members. With that in mind, we were successful in fighting off a direct tax increase on your bottom line. Although the Legislature passed a 20% B&O tax increase that hit most service businesses, REALTORS® were not included. We reminded the Legislature that the B&O Small Business Tax Credit does not apply to REALTORS® because commissions are pooled, and they agreed that exempting REALTORS® was both fair and a reasonable policy decision.

Additionally, we protected the foundation of the industry’s business model. When a bill was introduced that would have changed many independent contractors to employees, we made sure REALTORS® were exempted.

Protecting Your Clients

From the first days of the Legislative Session, we knew that the Legislature was committed to a Tiered Real Estate Excise Tax, based on the idea that higher priced properties would pay more in REET. Although we did not support this proposal, the Legislature listened to us when we spoke and made significant changes, with the result that approximately 90% of transactions will pay the same or less Real Estate Excise Tax. All Transactions up to $500,000 will get approximately a 15% cut in REET. In fact, due to the marginal nature of the new tiered tax (a REALTOR® suggestion), all transactions up to about $1.75M should not be impacted. While this tax impacts commercial real estate and multifamily, it is hoped that the marginal nature of the tax structure will limit that impact. These new rates will not take effect until January 1, 2020.

Protecting the Transaction

Very early in the session, a bill was introduced in both the House and Senate to require all parties in an “in-house” transaction to have an attorney sign off at every step in the transaction. Obviously, this bill would make real estate more expensive for consumers and greatly impede transactions. Washington REALTORS® jumped in and made sure this proposal did not even make it out of Committee in either the House or the Senate.

Increasing Transactions

Thanks to great work from our Washington REALTORS® Condominium Work Group and some passionate members across the state, Washington REALTORS® was able to help pass condominium liability reform that continues to protect the consumer but adds a fairer standard that should encourage developers to start building condominiums again. After looking at the more balanced bill, one developer told us that once developers got comfortable with the new regulations, we should expect a “mini condo boom” in Washington. Additionally, while working with a number of stakeholders, we passed a bill that encourages cities to adopt growth policies that allow for additional density in a responsible way, including Accessory Dwelling Units, allowing duplexes and triplexes in single family zoning and cluster zoning or lot size averaging allowances.

Homeowners Putting the Brakes on Remodeling

As the housing market slows, homeowners are halting their plans to upgrade their home. The booming housing market had been making homeowners feel like investing their growing equity into sprucing up their homes. Remodeling activity climbed to a decade high of 7.7 percent this year, according to a new report from Harvard University’s Joint Center of Housing Studies. But it predicts a slowdown over the coming months as the overall housing market eases.

“Low for-sale inventories are presenting a headwind because home sales tend to spur investments in remodeling and repair both before a sale and in the years following,” says Chris Herbert, the Joint Center’s director. Herbert also points to rising interest rates that are making buying a home more challenging for many Americans. This increase in rates also has an impact on the cost of tapping into home equity lines when funding big remodeling projects.

Credit Suisse downgraded shares of home remodeler retailers’ stocks due to the slower growth in home prices and projections of a slowing remodeling business. “Home prices have been a key driver of big-ticket projects, supporting strong average ticket growth,” Credit Suisse analysts write.

Source: REALTOR® Magazine

Fewer Americans Are Willing to Move for a Job

Fewer Americans are willing to uproot their lives to move for new job opportunities, suggests new census data.

About 3.5 million Americans relocated for a new job last year, a 10 percent drop from 3.8 million in 2015. The number has been trending lower, despite the overall population increasing 20 percent over that time, The Wall Street Journal reports.

Why are more people staying put? Experts told WSJ that some blame may rest on rebounding real estate values. Housing costs have soared higher in some regions where jobs may be more plentiful, like East and West Coast cities, but it may be pricing out some who may have otherwise been willing to relocate.

Read the full article on REALTORmagazine

Top 10 Threats to Real Estate in 2019

Rising interest rates and the economy are the top two current issues to watch in real estate, according to the Counselors of Real Estate’s Top Ten Issues Affecting Real Estate 2018-2019, a list of the biggest threats to the housing market. For the first time, CRE broke its annual list down into current and longer-term issues to watch during the industry’s next year.

Read the article on REALTORmagazine

The Tax Cuts and Jobs Act – What it Means for Homeowners and Real Estate Professionals

The National Association of REALTORS® (NAR) worked throughout the tax reform process to preserve the existing tax benefits of homeownership and real estate investment, as well to ensure as many real estate professionals as possible would benefit from proposed tax cuts. Many of the changes reflected in the final bill were the result of the engagement of NAR and its members, not only in the last three months, but over several years.

While NAR remains concerned that the overall structure of the final bill diminishes the tax benefits of homeownership and will cause adverse impacts in some markets, the advocacy of NAR members, as well as consumers, helped NAR to gain some important improvements throughout the legislative process. The final legislation will benefit many homeowners, homebuyers, real estate investors, and NAR members as a result.

Read the National Association of Realtors article…

Fannie Mae to Loosen Mortgage Requirements

Government-sponsored financing giant Fannie Mae will ease its requirements this month, raising its debt-to-income ceiling from 45 percent to 50 percent on July 29. The move could pave the way for a larger number of new buyers to qualify for a mortgage, particularly millennials who may be saddled with student loan debt.

The debt-to-income ratio compares a person’s gross monthly income with his or her monthly payment on all debt accounts, including auto loans, credit cards, and student loans. It also factors in the projected payments on the new mortgage. Lenders see applicants with lower debt-to-income ratios as less at risk of defaulting.

Fannie Mae, Freddie Mac, and the Federal Housing Administration have exemptions that allow them to buy or insure loans with higher ratios than the federal rules, which are set at a maximum of 43 percent. The FHA allows debt-to-income ratios of more than 50 percent in some cases.

In a recent study, Fannie Mae researchers looked at more than a decade and a half of data from borrowers with debt-to-income ratios in the 45 percent to 50 percent range. They found that a significant number of these borrowers had good credit and were not prone to default.

Read more…