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.

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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.

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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.

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Will Tax Changes Benefit Homeowners and Investors?

As the White House shifts its focus to tax reform, analysts are examining who will benefit from the proposal announced last week. The New York Times recently reported that the week’s stock market surge could be attributed to President Donald Trump’s call to cut the corporate tax rate to 15 percent, from 35 percent. However, the article goes on to note that optimism on Wall Street doesn’t always translate to growth on Main Street.

“We have to distinguish between pro-profit and pro-growth policies,” Diane Swonk, an independent economist in Chicago, told The New York Times. “A pro-profit approach increases the share of the pie going to corporate earnings and shareholders. Pro-growth policies increase the size of the pie.”

Treasury Secretary Steven Mnuchin told reporters the plan will eliminate all personal tax deductions other than the mortgage interest deduction and those that encourage charitable giving. However, by increasing the standard deduction the plan will effectively nullify the benefits of the MID for the vast majority of filers, something strongly opposed by the National Association of REALTORS®.

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FHA Mortgage Insurance Premium Reduction

Family

Lower costs are coming for homebuyers seeking a Federal Housing Administration -insured mortgage.

FHA recently announced that they are cutting annual premiums for mortgage insurance from 0.85 percent to 0.60 percent, a move the National Association of Realtors® said breathes new life into the program.

“FHA mortgage products exist to serve an important mission: providing homeownership opportunities to creditworthy borrowers who are overlooked by conventional lenders,” said NAR President William E. Brown, a Realtor® from Alamo, California and founder of Investment Properties. “The high cost of mortgage insurance has unfortunately put those opportunities out of reach for many young, first-time- and lower-income borrowers. Now, we have a real opportunity to get back on track.”

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Fed Hikes Rates: The Mortgage Impact

Time to Buy

The Federal Reserve hiked short-term interest rates recently, in a move largely predicted by economists. So, what does this mean for mortgage rates and buyers?

First off, the Fed does not set mortgage rates. Short-term rates are different from long-term rates. Mortgage rates typically follow long-term bond rates, such as the 10-year U.S. Treasury note. Longer-term rates typically adjust before the Fed makes a move.

Indeed, mortgage rates have risen near to 60 basis points since the presidential election. More than twice the quarter-point increase that the Fed voted on Wednesday.

The Fed announced that it expects to raise short-term rates three times next year by a total of 75 basis points.

“That means rates like we’ve seen for most of the past five years are indeed history,” writes Jonathan Smoke, realtor.com®’s chief economist, in his latest column. Mortgage rates in the 3 percent range are gone.

“Mortgage rates will move higher before the Fed acts again, so if the Fed carries out its three planned hikes in 2017, we could come close to 5 percent on 30-year conforming rates before the end of next year,” Smoke notes.

On Wednesday, the average 30-year conforming rate was just under 4.2 percent.

Smoke believes that rates are more likely to move in the month ahead of each key Fed policy meeting. As such, the important meetings to note are in March, June, September, and December 2017.

How big of an impact could rising rates have in the coming months? A median-priced home would be $978 per month payment at Wednesday’s rate of 4.2 percent (and assuming a 20 percent down payment), realtor.com® notes. Take that rate to 5 percent, the monthly payment jumps up to $1,074, nearly $100 more.

“If you intend to buy next year and finance the purchase with a mortgage, acting sooner rather than later will cost you less,” Smoke says is the message to home buyers.

Source: RealtorMag

Baby Boomers Heading Back to the City

Planning

Unlike previous generations, many baby boomers aren’t planning their retirement in sunny southern locales. Instead, more are choosing to move back to metro areas they had left when they started raising a family in the suburbs.

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