Mortgage giant Freddie Mac is predicting it will be a good year for housing in 2014. Economists are also expecting a much stronger economic recovery will take hold next year, “led by a resurgent housing sector,” according to Freddie Mac’s November U.S. Economic & Housing Market Outlook report.
Despite rising interesting rates and home values, Freddie Mac economists believe “housing will remain generally affordable in most parts of the country.”
“Even if rates were to go to 5 percent next year, housing in most of the country would remain affordable,” Frank Nothaft, Freddie Mac’s chief economist, notes in the report. “Large metro areas along the Atlantic and Pacific coasts are already expensive for the typical family, so rising rates will have a bigger effect there.
“While it’s good news that housing costs will remain stable in most areas, it’s still not enough to end the recovery,” said Craig Barrett, co-founder of NBI Properties and NBI Residential in Fort Walton Beach, Florida. “What we really need is better income growth and the creation of more jobs.”
Economic growth is expected to be in the 2.5 percent to 3 percent range – more than half a percentage point better than what is expected for this year. Economic growth will help spur more jobs, and Freddie Mac’s economists predict that the unemployment rate will fall below 7 percent by mid-2014.
Freddie predicts that in 2014 single-family home sales and housing starts will reach their highest levels since 2007. Buyers will likely face increasing borrowing costs, with mortgage rates expected to continue to rise in 2014.
Not only is everyone in the real estate business relieved that builders are busy again now that the housing market is rebounding, but more importantly is the fact that buyers are buying! Sitting on the sidelines for years didn’t stop future homeowners from dreaming big, and now they are showing up prepared with a long list of bells and whistles on their wish lists.
Now that more buyers are no longer scared of the economy and finally spending money, they want everything to be exactly the way they desire. As a result, items and extras that were once rare expensive add-ons are now becoming more commonplace. When buyers demand certain features, builders are quick to deliver it and add it to the base price of a new home.
“We see a lot of this happening on the Emerald Coast where people are splurging on vacation homes or buying their dream home after retirement,” said Craig Barrett, co-founder of NBI Properties and NBI Residential in Fort Walton Beach. “People want to feel they are getting their money’s worth, and if a home doesn’t have everything they want, they will keep looking until they find one with all the extras.”
Luxury items include built-in movie screens, high-tech security systems, pools, and much more. Some condominiums are including concierge and maid services. First-time buyers and young professionals aren’t likely to find these amenities when shopping for new homes priced at $300,000 or less, but the extras are becoming more common for move-up buyers looking for properties below $1 million.
“Overall, we’re seeing more people who are able to afford these luxury purchases,’ said Barrett. “It’s been a big factor in helping the market rebound.”
Some builders are also are offering homes with separate living quarters to accommodate families with parents or adult children living with them. These “multigenerational” properties have a private entry, kitchenette, bedroom and bathroom. Instead of the spare bedroom or mother-in-law quarters, some buyers are designing entire levels of their home for visitors and guests.
“The bottom line is that people want more choices, depending on whether they have a large family or if they entertain a lot, have pets or whatever,’ said Barrett. “People are asking about customizing their homes more now than they ever did in the past.”
The Office of Inspector General (OIG) is currently recommending more oversight of Fannie Mae’s short-sale approvals after discovering flaws in the mortgage giant’s process.
In a recent report, OIG said that following a review of 41 Fannie Mae short-sale transactions, it found that five servicers were not collecting all of the required documents before determining if an applicant was eligible for a short sale. In addition, the servicers were also failing to provide the required documentation to Fannie Mae.
“Considering all the issues and problems with short sales in the past several years, this is a good step in the right direction,” noted Craig Barrett, co-founder of NBI Properties and NBI Residential in Fort Walton Beach, FL.
During 2012, Fannie Mae and its lenders approved more than 73,000 short sales and the servicers identified in the OIG report were responsible for 34 percent. The report also said the servicers did not always conduct adequate reviews of the documents that were supplied by borrowers and failed to identify what necessary documents were missing – but nevertheless approved the short sales.
The Federal Housing Finance Agency, which oversees Fannie Mae, agreed with OIG’s recommendations of stricter oversight from its audit of the mortgage giant’s short-sales processes.
OIG raised questions over Fannie Mae’s Low FICO Program, which allows servicers to approve short sales without collecting or reviewing any information or documentation for borrowers that have a FICO score below 620 and are at least 90 days late on their mortgage. OIG urged FHFA to review Fannie’s program and determine whether it should apply to borrowers who have non-owner occupants in their properties.
There’s more good news for Florida’s housing market, which continued its upswing in October with more closed sales, higher median prices, more new listings and a stabilizing supply of homes for sale.
According to the latest housing data released by Florida Realtors®, the state’s economy continues to improve, which is always good news for the housing market.
“For almost two years in a row, we’ve seen sales prices rise for single-famly homes and for condos, townhouses, duplexes, and mixed-use properties,” said Jayme Nabors, co-owner of NBI Properties and NBI Residential. “The majority of homes in Florida are selling now in less than two months, and that’s definitely also the case here on the Emerald Coast.”
Housing data also revealed that sellers are receiving about 94 percent of their asking price. Interested home sellers are paying attention to this positive trend and entering the market, which is helping to stabilize inventory levels.
Statewide closed sales of existing single-family homes totaled 18,728 in October, up 6.5 percent compared to the year-ago figure, according to data from Florida Realtors Industry Data and Analysis department in partnership with local Realtor boards/associations. Closed sales typically occur 30 to 90 days after sales contracts are written.
Meanwhile, pending sales – contracts that are signed but not yet completed or closed – for existing single-family homes last month rose 3.4 percent over the previous October, and new listings increased 16.4 percent. The statewide median sales price for single-family existing homes last month was $169,000, up 16.6 percent from the previous year. The median is the midpoint; half the homes sold for more, half for less.
“People have always been excited about purchasing a home or a vacation home in Florida, but right now there’s a lot of interest because median prices for townhouses or condos are well below the national average,” said Nabors. “For instance, right now the median price for a townhouse or a condo in Florida averages $130,000 while nationally the median sales price is $198,600.”
According to Freddie Mac, the interest rate for a 30-year fixed-rate mortgage averaged 4.19 percent in October 2013, up from the 3.38 percent average recorded during the same month a year earlier.
Some families on the Emerald Coast are worried that sequestration could mean a $20 billion loss of defense funding for fiscal 2014 and possibly include a reduction in the allowance military families receive to help them pay for shelter. According to Craig Barrett, co-founder of NBI Properties and NBI Residential, many local military families have expressed concern about how the adjusted housing allowance may affect them.
“There have always been a large number of military families in our area who depend on their housing allowance in order to buy or rent homes,” he said. “A few months ago we started hearing more and more about how some housing allowances would be reduced.”
Most military households apply their housing allowance to home buying or renting. The amount of an allowance varies according to factors such as geographic location, military ranking, and other factors; and it is adjusted annually to keep up with local housing costs.
“Basically, families have been hearing that their housing allowances will eventually be lowered and they will be expected to pay more out of their own pocket for housing costs,” Barrett added.
Even though no major housing allowance changes are confirmed for fiscal year 2014, industry representatives are bracing themselves for the change and asking enlisted families to do the same. Barrett said it’s tough to know how to advise families since realtors have not received any definitive information.
“All these military families can really do is hope the government keeps them informed about any changes so there won’t be any sudden surprises,” he said. “People naturally get uneasy when they have to worry about whether they will be able to pay their mortgage in the future.”
Florida is second in the nation in single family home flips, according to a recent study by Realty Trac. Flipping is defined as a home that is purchased and typically sold again for a profit within six months. A Q3 2013 Home Flipping Report revealed that Florida’s 4,706 home flips came in second after California, which had 8,592 flips.
Craig Barrett, co-owner of NBI Properties and NBI Residential in Fort Walton Beach, said flipping is still popular on the Emerald Coast, although not nearly as prevalent as it was eight or nine years ago at the height of the home flipping craze.
“We work with a lot of investors seeking advice on the best residential areas to flip homes,” Barrett said. “There’s always a lot of interest in Fort Walton Beach, Destin, Santa Rosa Beach, Grayton Beach and others areas along the coast where properties are desirable for year-around residences or vacation homes. But there’s also a demand for homes in good neighborhoods in areas such as Crestview, where we have a branch office to work with all the investors there.”
According to RealtyTrac, real estate investors made an average gross profit of $54,927 on single-family home flips in the third quarter – a 12 percent higher average gross return compared to the third quarter of 2012. Flips on homes priced between $1 million and $2 million increased 42 percent year over year, while flips on homes priced between $2 million and $5 million increased 350 percent year over year.
Barrett said the average home flipper looking to make $50,000 or more on a home differs greatly from high-end investors who can afford to hold onto properties longer and take more risks.
“You have some people who are good with repairs, and their goal is usually to spend less than $10,000 to spruce up a home and sell it quickly,” he said. “But the significant rise in high-end flipping shows there is still a lot of money to be made for investors willing to take on the risk of buying and remodeling more expensive homes.”
Overall, the number of single family homes flipped in the third quarter decreased from the previous quarter and a year ago nationally, but flipping numbers were still up from a year ago in some markets such as Los Angeles (11 percent increase), New York (14 percent), Detroit (13 percent), Atlanta (32 percent), Las Vegas (9 percent) Chicago (28 percent) and Seattle (23 percent).
In some cities, the number of home flips decreased significantly since the second quarter, including two Florida cities, Tampa (47 percent decrease) and Orlando (28 percent decrease).
As it gets closer to Halloween, it’s apparent that most prospective home buyers haven’t seen Paranormal Activity or any other ghostly movies lately. According to a survey by the National Association of Realtors®, (NAR) consumers are not easily spooked when looking at homes and 62 percent say they’d consider buying a “haunted house.” The survey also revealed consumers would expect a discount if a home was rumored to be haunted.
Survey respondents said if they discovered that “strange incidents” occurred Ina home, only 12 percent would pay full market value while 34 percent would purchase if discounted 1 to 30 percent. Another 22 percent would purchase if discounted 31 to 50 percent and 19 percent said they would would expect a discount of 51 percent or more.
“We haven’t had to offer any haunted house discounts lately,” joked Jayme Nabors, co-owner of NBI Properties and NBI Residential. “But it just goes to show the competition for homes is fierce right now if people are not concerned about ghosts or evil spirits.”
Respondents noted that warning signs of a possible haunted house included a cemetery on the property, homes more than 100 years old, quick turnover of property owners, unexplained low prices, and homes located close to a battlefield. Before deciding on a property, 25 percent of survey respondents said they would research a home’s history to see if any unusual events had occurred. Deal breakers mentioned included levitating objects, room temperature changes, flickering lights, ghost sightings, and seeing objects move from one place to another.
Even some commercial properties and businesses are not exempt from ghosts. Nabors, whose family has lived on the Emerald Coast for four generations, said the most famous haunted spot in the area is probably the Gibson Inn in Apalachicola.
“Supposedly there’s a ghost of an old sea captain who died there, and people say he likes to move shoes and things around,” said Nabors. “From all reports, it’s a friendly ghost.”
A recent study by the American Express OPEN Small Business Monitor suggests that small business owners have abandoned their “wait and see” approach, with a third (32%) of entrepreneurs making growth a top priority. In addition, more small business owners are making capital investments (54%, up from 49%) and hiring plans are up (35%, up from 29%) year-over-year.
Craig Barrett, co-founder of NBI Properties in Fort Walton Beach, said the Emerald Coast is experiencing a flurry of activity from small business owners as well.
“We’re very busy working with small business owners and investors right now,” confirmed Barrett. “Most of them are not as worried about the economy as they were a few years ago, and they are moving ahead with plans to grow their businesses.”
The survey found that fewer business owners believe the economy is in recession (25%, down from 36% last fall). When asked about their six-month outlook, more than half (56%) expressed a positive expectation about business prospects and more than four-in-ten (43%) believe their revenues would increase. Currently, nearly four-in-ten (38%, up from 27%) reported that revenues are greater than a year ago, and 16% said they have more employees than they did last year.
“Everyone we are talking to is in growth mode right now,” said Barrett. “We put more than $12 million in commercial space under contract just last week and it doesn’t appear to be slowing down.”
Entrepreneurs are focused on building customer demand and using everything from loyalty programs to social media to drive sales. The report found that social media has become an extremely large part of a company’s overall online marketing. It helps companies reveal the individuals behind the brand, humanize it and build influence. Barrett said that NBI Properties primarily uses Twitter, Facebook and a blog to interact with customers.
“I think we attract more new clients on Twitter while Facebook is for our friends and clients who have known us for years,” he said. “Social media has really replaced the Yellow Pages, phone books, and other traditional ways that people used before to find businesses. If you don’t have social media now, you are dead in the water.”
According to a recent Builder Application Survey (BAS) by the Mortgage Bankers Association, (MBA) mortgage applications for new home purchases in the U.S. decreased by 1 percent relative to the previous month, though the numbers were not adjusted to compensate for seasonal variations. However, in Florida, new home applications rose both month-to-month and year-to-year.
Craig Barrett, co-founder of NBI Properties and NBI Residential in Fort Walton Beach, said the numbers reflect the same situation on the Emerald Coast.
“Competition for homes is fierce right now because there’s not a lot of new construction going on in some areas,” he said. “We’re seeing a lot more applications now at our office in Fort Walton as well as our residential division in Crestview.”
Overall, by product type, conventional loans composed 68.4 percent of U.S. loan applications, FHA loans made up 16.6 percent, RHS/USDA loans composed 1.1 percent and VA loans made up 13.9 percent.
The average loan size of new homes increased slightly from $284,392 in August to $289,650 in September.
MBA estimates that sales of new single-family homes were running at a seasonally adjusted annual rate of 459,000 in September 2013. On an unadjusted basis, the MBA estimates that there were 36,000 new home sales in September 2013. Even though the mortgage rate declined nationally, the percentage of all-cash home sales led to the increased estimate.
“Cash buyers and investors are driving the surge in applications and sales right now,” Barrett added. “Prospective homeowners are finding out they have to move quickly on properties before they are snapped up by investors.”
NBI Properties continues to stay informed about the latest efforts to delay implementation of the Biggert-Waters Act of 2012, which will trigger crippling flood insurance rate increases for thousands of Florida property owners.
Late last Friday, Florida Congressman Rich Nugent introduced legislation to delay increases in flood insurance premium rates until an affordability study required under the act is completed.
Craig Barrett, co-owner of NBI Properties and NBI Residential in Fort Walton Beach, said higher flood insurance rates would be detrimental to both homeowners and the overall economy.
“All realtors and homeowners are concerned about this, because skyrocketing flood insurance rates would not be affordable for many people,” Barrett said. “We’re voicing our concerns through the proper channels.”
If the study finds the new rates are not affordable, the Florida Emergency Management Association must make recommendations about what changes Congress should make. Congress would then be required to vote up-or-down on the recommendations. If either chamber rejects the changes, the new flood insurance rates will be delayed for at least six months.
“It’s really a lot like the present Obamacare situation,” noted Barrett. “Any decisions on raising flood insurance rates should be delayed until studies indicate exactly whether homeowners will be able to afford it or not, and how it will affect the economy if it is implemented.”