The “Debt to Income Ratio” for FHA and even conventional loans is about to get harder to reach and you need to know about this.

First, debt to income ratio is the ratio of debt you are allowed to take on (total debt) as a portion of your income. Your home loan is one part of this debt –also to include credit cards, other loans and car payments, etc.

If your overall household borrowing is at more than 43% when Friday, January 10th, 2014 comes, new lending rules established by the CFPB (Consumer Financial Protection Bureau) exactly one year prior (Jan. 10, 2013) will limit you from taking out a mortgage or refinancing an existing one.

This is HUGE.

How much harder will it be? About 14% harder for getting an FHA loan and about 2% harder for getting a conventional loan.

Right now, FHA borrowers can have a debt to income ratio of 57%. That will go to 43% in January.

Conventional borrowers can have a debt to income ratio of 45%. That will go to 43%, as well.

Let me say it again: This is a HUGE change.

Enter my good friend and frequent contributor to my quarterly Market Briefings, Jeannie Bolger, Sr. Loan Officer (Nova Home Loans, Phoenix):

“I would suggest homebuyers who are looking to enter the home buying market should get pre-approved NOW to see where they will fall in the qualifying ratio “Bucket”.  If their current qualifying ratios are 47% they are going to want to be pre-approved (not pre-qualified) prior to Jan. 10^th, 2014, otherwise they may be limiting the sales price of home they will qualify for.”

A Little Background
The Ability-to-Repay rule made it so that most new mortgages must comply with basic requirements that protect consumers from taking on loans they aren’t able to repay. Lenders are assumed to have complied with the Ability-to-Repay rule if they issue loans that meet certain requirements (including prohibitions or limitations on the risky features that harmed consumers in the recent mortgage crisis). Find the right lender, someone who knows what can and can’t be done with a given file, and you’ll give yourself a huge leg up.

Although the decision was made this past January, the adjustments to the rule weren’t known by the public until May 13th of this year, when it was first reported in a press release by CFPB. US News & World Report commented on the coming change on August 30th.

 

 

 

They say their information comes from MLS, so what’s wrong with using Zillow.com, Trulia.com, and Realtor.com?

The answer: LOTS!

True. Their data does come from MLS.

BUT…

(and that’s a big ‘ole ‘but’, indeed)

1) It’s delayed

2) Their search results is severely limited compared to MLS.

About that delay, delay, delay…

When you’re a realtor, you’re required to make changes in your listing within a 24-hour to 48-hour period after something has changed with your listing . Say the property goes from ‘active’ to ‘listing’, ‘listing’ to ‘closed’, or what was the final closing price?, and for all that kind of stuff, the realtor must update the MLS listing.

Here’s how it works for websites/companies like those listed above:

That information I just mentioned gets sent to all the companies who have subscribed to the MLS; companies like the three we’ve listed above. They pay all of the different local realtor associations around the country (for example, to the Phoenix Association of Realtors MLS) a subscription fee to get access to the MLS. BUT… it’s significantly delayed. You see, all of the MLS information that gets sent out from MLS goes through an “IDX Repeater”. That information goes out 24 to 48 hours after MLS has been updated.

You may not see that the house you think is ‘active’, is actually ‘pending’. This is the first way in which websites like Zillow, Realtor, and Trulia are inaccurate.

I’ve talked to agents who said that Zillo.com shows a house as ‘active’, when in fact, it hasn’t been active in six months. So when these companies  pay all this money to local MLS services to get this data for the roughly 6000 houses that close every month, the data is late. Way late. Later in effect than perhaps 24-48 hours sounds.

Realtors have a fiduciary responsibility to our clients.

Realtors can’t give up all of the information from the MLS to these other companies because  it could put our clients at risk in some cases. Some information pertains to gaining access to the home or information that could influence a price if known broadly. That’s why there has to be a delay. That’s the first reason the information coming from those kinds of websites is inaccurate.

Next week we’ll talk about the second reason the information is inaccurate: Search capabilities. I’ll give you specific examples of how your search results affect you as a buyer or seller. Like simply delaying information for a couple days, there’s much more to ‘search’ than what these sites are telling you.

If you want to buy or sell, and care about getting your information the second it’s a fact, please give me a call at 602-456-9388 or email me at ken@getyourphx.com.

Why does Phoenix still have such a shortage of properties?

As we learned from my previous posts on this series (part 1 and part 2) this inward migration from the east coast and midwest into Phoenix is one of the key reasons home prices will continue to rise for the foreseeable future. There’s a logical explanation for the shortage of properties.

Look first at the motivation for out-of-state companies to come here in the first place:

It started when California changed their tax code and started to tax the Internet retailers. So when those Internet retailers started coming into Phoenix, they began by taking up our warehouse spaces. At the same time the Arizona legislature restructured our tax codes so that we were more competitive with states like California, Texas, and New Mexico. ~ Tina Timboer, Cromford Report

Notice our standard of living here compared to other major cities. Those companies coming here don’t have to pay their employees as much money. Why pay them a six figure salary, when they can get the same middle class life out here, but for much less? You can get a 2,400 sq ft, four-bedroom, two bath home out here for very affordable prices. Compare us against New York, San Francisco, even Texas. Plus, GPEC (Greater Phoenix Economic Council) has just done a great job to attract those out of state businesses, too.

We’ve noticed a serious slow-down in buying and selling in the last three weeks.  The exuberance of the first and second quarter has given way to tightened inventory in the third quarter, while interest rates climb.

The problem is that the rise in interest rates has scared a lot of people, even though rates are still really low.

I want to share these three graphs with you. The first is the movement in the 30-yr fixed interest rate. See that shift upward over this year? Its really only one percentage point.
 You can see more here:

http://www.freddiemac.com/pmms/pmms30.htm
http://research.stlouisfed.org/fred2/graph/?g=lHz

So, why the shock? Its like the effect that a dollar increase in gas has on driving: it makes people pause and think about their future plans.

Check out the other two graphs from the Cromford Report, below. They are of the 3-month and 12-month moving averages for homes in the CenPho area, which make up the majority of the sales ($100k to $600k). See how the price per square foot continues to rise in CenPho?

By the way, the higher interest rates I believe mean less chance of a bubble, which was slim anyway.

So, here’s the challenge and the opportunity:

1) If you want to be located in the central valley, you are in competition with people for a small supply of homes. The interest rates will cause a pause, but people will realize that 5% is still really low and they will continue to buy.

2) The opportunity comes in those homes where the sellers listed too high thinking they could make take advantage of that exuberance (which they don’t realize is gone). 

3) If you are thinking to sell, keep an eye on interest rates, but don’t get wedded to them. The tight inventory will have more of an affect on sales success, but if they continue to rise, it could dampen the market.

Please let me know if you have other questions.  I can help you buy or sell your home. Please give me a call at 602-456-9388.

I heard last year that 2011 was the first year since the 1940s that more people moved in to urban cores than moved out. Well, I was wrong. It was the 1880s!

Check out this article from the Daily Mail about the book called The End of the Suburbs: Where the American Dream is Moving, which maintains this point.

I’ve seen this anecdotally for a while now, as I help people who want to live more centrally. They are tired of the commute, the empty neighborhoods and “lack of cultural amenities.”

It is difficult to prove that this is represented in the housing market in Phoenix, but we agents see it. Below is a little bit of information that sheds some light on what it means to live in an urban core now. Notice that two major central Phoenix zip codes lost less of their value than most other zip codes in the study.

I stand by my position that density equals security and prosperity –at least for a couple generations, I hope!

To learn more about specific neighborhoods, please give me a call at 602-456-9388.

The summer is turning out to be a good time to buy. Unlike the late spring, sellers are a little more realistic about prices. However, we expect activity to pick up in September, as people come back from vacation and begin listing their homes in larger numbers.

I’m going to shamelessly lift some comments now from Mike Orr of the Cromford Report about Listing Success Rates, because its a good way to think about what is selling out there right now:

“One of the statistics listing agents like use to set seller expectations is the Days on Market for sold listings.  They use it as a guide to show a homeowner how long they should expect to wait for their property to sell.  The downfall of this measurement is that a property could come on the market at the beginning of a seasonal slowdown (like July or August) and all of the sold DOMs would be recorded during the busy Spring and early Summer months.  Obviously during those months the DOM may be shorter due to the heightened buyer activity that occurs every year at that time, so DOM is not necessarily a good indicator for future marketing times in this instance.  Conversely, if a property is being listed in January, all of the DOM measurements would be for the slow Fall and Winter.  So therefore, not a good indicator for future marketing times during the busy Spring season. 

An alternative measurement to consider is the Listing Success Rate.    This measures the number of properties that sell during the month vs. cancel or expire.  It can be measured by city, price range, dwelling type and transaction type.  The chart below tells us that in the month of July, of all the properties that came off of Active status 79% closed escrow while 21% cancelled or expired.  This is a high success rate, in a normal market it falls between 60%-70%.  It is also a significant improvement from May of 2011 where 36% of all properties that came off the market cancelled or expired vs. selling.”

In short, if you are listing over the summer, expect to be on the market longer, but know that your success rate is still, in historic terms, probably going to be relatively high. See below

If you are starting to look or list, call me at 602-456-9388 if you want more insight and information.

In order to gauge a correct ‘supply and demand’ temperature for today’s Phoenix, it’s important to understand how far we’ve come.  (If you missed last week’s post, be sure to read part 1 of this series to catch up on the new definition of ‘supply and demand’).

Our market is a lot more complicated that it was in 2004/2005. Today, you do need a job to get a loan. It’s far more important than it was in 2005 when loans were as easy to get as raising your hand in class.

The nation’s unemployment rate had soared to over 10%. Maricopa County’s employment rate this past January? 7.1%. It then went down to 6.5%, then 6.6% and now we’re at 6.5%. Tucson is just a touch behind us at 6.7% unemployment.

Our biggest areas of growth are leisure and hospitality.

Because most of our losses were in leisure and hospitality, this is a good thing. A lot of the losses were in the construction and tourism industry when we went through our unemployment. Those industries are now in the top three and haven’t been since 2011.  ~ Tina Timboer, The Cromford Report.

Education and health services were one of our top growths in 2011 and 2012. So now construction is starting to pick up, as is professional business services.

We’re one of the fastest-growing cities in the nation for bioscience (“Arizona bioscience sector adding jobs at four times the national rate“) and high technology. The average income in these sectors is $85,000 a year, an increase of 15% since 2011. As you see we have a lot of good things happening here.

We’ve had 30 companies either relocate or significantly expand their business out here – and 10 within just the last year; big ones like State Farm, Union Bank. ~ Tina Timboer, The Cromford Report.

These things we’re talking about are a big part of the macro view on the issue of supply and demand here in Maricopa County. It’s the why we know that home prices will continue to go up in the foreseeable future. How is this happening? What winds shifted (or are shifting) that is drawing businesses to expand or migrate here? How do we account for those 30 companies migrating here in the first place? And because they are coming here, why do we still have such a shortage of properties?

That’s right. Next week!

To buy or sell with the our city’s macro view in mind, please call or email me at 602-456-9388 or ken@getyourphx.com

[‘now and then’ photo by Melody Ayres-Griffiths]

The average website visitor reads from a screen at 180 words/minute. I’ve already used 15, so I better get to the point of the matter. Which is this:

The only thing that really affects our supply and demand of homes in Maricopa County is people going out of, and people coming in to, our County. ~ Tina Timboer, The Cromford Report

That’s right, folks. Migration.

There used to be other things that affected supply and demand (and we’ll get to those in part 2 of this market analysis) but not any more. Some of you are looking to buy. Some are looking to sell. After you hear what I have to share with you, you may want to rethink your plans. Or, you may find your plans are confirmed by what you learn.

Some of you may want evidence that what I’m about to tell you is certifiable and trustworthy. I’ll tell you. It’s because it comes from The Cromford Report. For those who’ve not been following my blog posts for long, you don’t know how much I admire this report. If The Cromford Report were touring like The Grateful Dead or Phish, I’d follow them around. If Ben & Jerry’s were looking for a new flavor, I’d suggest they call it ‘Cromford’. Don’t just take my word for it. Listen to what Tina Timboer, the absolute Guru of all things Cromford, has to say:

Prices will continue to go up in Maricopa County for the foreseeable future.

How do we know this? Because Michael Orr, the founder of The Cromford Report is an Oxford educated mathematician. Because he is the Director for the Real Estate Theory and Practice of ASU. Because he personally cleans up all the public record data for ASU’s Real Estate department. Because The Cromford Report does not buy/sell property, but is solely an analytical firm. Michael Orr puts together all the data at The Cromford Report. Nobody knows the real estate market better than Orr.

Let’s get back to supply and demand. You’ve been hearing a lot about interest rates and you want to know what the long-term trend will be? How will interest rates affect buying/selling homes? Next week, I’ll share what Tina had to say about the macro view on the issue of supply and demand here in Maricopa County and how we know that prices will continue to go up in the foreseeable future. Yes, because Michael Orr said so, but more importantly, it’s why he says so.

Trust me, you’ll nod your head and think, “That makes perfect sense. I should look at the macro view more frequently before I hear the news tell me the Case–Shiller Home Price Index says homes are selling for X amount nationwide. Which is just like saying the average temperature in the country is 76 degrees, but golly it’s 110 degrees in Phoenix!”

Exactly. Come back next week to hear what the supply and demand “temperature” really is in Phoenix and why.

To buy or sell, informed and with confidence, give me a call or email me at 602-456-9388 or email me at ken@getyourphx.com

  [migration photo:  Billtacular]  

I’ve been seeing properties dropping in price because sellers listed too high recently, watching an upward-trending market. But, watch for prices to level in CenPho over the summer, followed by a push upward again in September. To be clear: this is not a price drop, it is a plateau. So, you won’t be able to offer 20% less to a seller and be taken seriously.

The graph, below shows how those prices have started to plateau a little, going in to the summer.

In the next four months, watch for fewer properties to come on the market and for it to take longer to find the right house. But don’t give up!

If you are starting to look, call me at 602-456-9388 if you want more insight and information.

“Whipeeeeeeee!”

              or

“Whoaaaaaaaa!”

Every square in this rainbow slide (not the one on the left, though that does look like fun. I mean every square in the image below) represents a month—January, February, March—all going up.

This covers central phoenix and downtown zip codes, historic and older neighborhoods. One vertical stack of those boxes adds up to one year. See how we’ve dropped quite precipitously:  from 7,500 (in 2010) to 5,800 (March, 2013). In 2008 to 2010 a lot of those were short sales and foreclosures. You can shrink inventory, but the demand is still there and what happens? The price goes up.

Same three-month moving average

In this next slide is the average of all three months going back in time. In this way you keep from getting a bunch of blips that aren’t really accurate. See in those downtown zip codes how we’ve gone from $117 in September 2012 to now at $144 per square foot. Let’s look at year to year. March 2012: $105 to $144. That’s a big jump. Now the three month moving average is going to be more extreme than 12-months, because we’re averaging prices today and 12 months ago. The line is smoother and more conservative.

See from March 2012 it went from $96 to $149 per square foot. This $123 represents the average price for this day and the three months before. So you’re seeing that upward trend. Now, in downtown Scottsdale, we’re starting at higher prices.

Follow me on this:

In March 2004—in the recent comparisons slide, below—the monthly average price per square foot was $115. By the end of 2004 it was $131, a 16% increase. In March 2013, it was at $114, with very similar conditions. We started in January 2013 at $108.

Do we think the price can get to a similar 16% increase point by the end of 2013? This increase from $108 to $114/$116 is a very similar line. So for 2013, yes, I think we’re anywhere in a 16% – 20% price increase, just like 2004. I think we could very easily see average prices by the end of this year, somewhere between $125 and $130.

Now let’s take that same 15% – 20% increase—seen here in this next slide of this more-conservative 12-month moving average price per square foot—and apply it county wide to only Phoenix and Scottsdale, keeping in mind the trend-line I talked about in this post.

Phoenix was on a 12-month moving average in March of this year, sitting at $129 price per square foot (for those same zip codes). If you apply that same 15% – 20% increase, you’re looking at $140 – $146 by the end of this year. Apply that same 15% – 20% increase to the Scottsdale area, starting at $156 for the 12-month moving average, you’re looking at $170 to $175 by year’s end.

I think it’s very reasonable to say that we’re going to be there by the end of 2013.

Let’s compare visually

This here, in this next slide/image is for the whole county and is just by way of an illustration. 2004 (the blue line) and 2012 (the purple line) looked a lot the same in terms of path upward. At the end of March, we were about to surpass the same place we were in 2004.

Attention. Attention. Here ye the Town Criers.

Every few weeks, it seems, we hear a lot in the news about how they’re breaking new ground and there is all these new developments. Each one of those dots in the chart represents a month. In the month of Jan, Feb 2007 we built 4,000 houses. Over the course of over 2006, we built something like 60,000 homes. It was insane. They were crappy, throw-‘em-up houses. And now the news loves to proclaim:

Look! We’re building again!

But the number is tiny. It’s about 250 – 300 homes.

This is important to Central Phoenix for a couple reasons: These new builds are out in the fringes of Phoenix, so you’re not adding to central Phoenix inventory. Also, they’d have to build a lot more of these homes on the fringes for it to have any impact on prices in central Phoenix.

I don’t want to list ‘cause it’s going to be worth so much more a year from now.

But what happens if everyone holds off from selling? People will stop looking and prices go up.

Urban Density: Take away

• Investors –If you want to invest in something, get your mind around the fact that you’re more likely to hold it than flip it and get a better price for it; because the margin’s not there or you’re not going to get cash flow because you paid so much for that thing to begin with and nobody’s going to pay that much rent.

• Sellers –Watch for possible price plateau during the summer. With these price increases, don’t just think I’m gonna hold a year to sell and get this higher price, that’s not necessarily so. Also, with these price increases, people who are thinking this, don’t be so certain, because either people stop buying, or people are prices out of the market, or a lot more people say, “Look the prices are there, go, go, go!” I don’t think you can be that confident for a year or even 9 months from now.

• Urban Cores – are in need of urban infill. Detached residential and condos are coming in the burbs, but we need more rooftops centrally.

• Prices – They’re not necessarily a result of heavy demand, because there’s no inventory coming up the way we thought it would.

Be ye Investor, Seller, Buyer, or Town Crier, give me a call at 602-456-9388 or email me at ken@getyourphx.com. I’ll get it done.

[slide image: Trish_Gee88]