While many indicators suggest the housing market is on the road to recovery, some fear another bubble is already forming. Country Financial, a financial services company based in Bloomington, Illinois, found in a recent survey that 48 percent of Americans say the market could reach "bubble" status within the next two years. The Country Financial survey also found varying financial obstacles across the generations of Americans in the housing market. While nearly half of Americans say we may be headed toward another bubble, only 6 percent say the housing market is their top economic concern at the moment, according to Country Financial. The housing market ranks in the top three economic concerns for about 25 percent of Americans, according to Country Financial. "Perhaps the government shutdown and debt ceiling are eclipsing just how concerned Americans are about the housing market right now, but with home prices up 12.4 percent in the last year alone, concerns for an 'echo bubble' of the housing market collapse certainly make sense," said Troy Frerichs, director of investments and wealth management at Country Financial. Meanwhile, Zillow this week dismissed bubble fears, finding home value appreciation fell off over the past three months. Bubble or no bubble, many Americans continue to suffer financial burdens that impede them from homeownership, and according to Country Financial, "the obstacle that tops the list for each generation is different." Generation Y and those headed for retirement-between the ages of 50 and 64-in the next few years tend to lack the cash for a down payment. Those ages 40 to 49 cite job security as their greatest obstacle to owning a home. Lastly, debt is the biggest barrier for those in their 30s, according to the Country Financial survey. About 41 percent of Americans think a middle-income family can afford a home in today's market. Of those who do own a home, about 27 percent say they will not have their mortgage paid off when they retire. The rate is even higher-37 percent-among those nearing retirement age-50 to 64, according to the survey.
Commentary: Investors Still Flooding the National Housing Market
Investors remain a crucial factor in the U.S. housing market. Both large institutional and smaller "mom and pop" investors have been very active purchasing homes at a steep discount, primarily in housing-bust markets that have seen dramatic decreases in prices over the past several years. RealtyTrac recently released its September Residential and Foreclosure Sales Report, reporting that nearly half of the home sales in September were all-cash transactions, signaling significant investor presence. This proportion is up significantly from 40 percent in August and 30 percent in September 2012. While all-cash purchases and institutional investors usually go hand-in-hand, RealtyTrac reports that institutional investors (defined by the firm as purchasing 10 or more properties in the last 12 months) accounted for 14 percent of sales in September, the highest percentage since the company's data tracking began in January 2011. While RealtyTrac's definition of institutional investors certainly captures the larger institutions purchasing houses in bulk, we consider the all-cash share of purchases a better gauge for non-occupier home purchase activity, since smaller investors that purchase one home at a time, repair and remodel it, offer it for re-sale, and then repeat the process will generally not fall into the 10-plus purchases per year category but often purchase all-cash. Investors have started to pull back in higher-priced markets such as New York, San Francisco, and Seattle and are also sensitive to price increases that alter their return prospects. As the pricing landscape shifts, investors shift toward markets where home prices are still below $200,000, in places like Jacksonville, Atlanta, and St. Louis. RealtyTrac reports Atlanta saw the highest percentage of institutional investor purchases at 29 percent, with Las Vegas coming in second at 27 percent. Along the same lines, both Atlanta and Las Vegas were among the top large metro areas with the highest percentage of all-cash sales, with both markets coming in at 62 percent. Miami saw the highest proportion of all-cash sales at 69 percent as both domestic and international investors continue to pour into the tropical destination where median home prices have just crossed the $200,000 mark. While RealtyTrac claims that nearly half of September's home sales were investor purchases, the National Association of Realtors reports that proportion to be somewhat smaller at 33 percent. Either way, these figures are extremely elevated and so far do not seem to be slowing. This has important implications for the housing recovery. As mortgage rates rise along with home prices, it decreases affordability and edges owner-occupier buyers who are at the cusp out of the market. However, the rise in home prices engendered by investor demand pushes up household wealth of homeowners and creates a positive backdrop for people considering purchasing a home who previously feared seeing their investment lose value in a declining market environment. For now, whether one-third or nearly one-half of the purchase market, investors are the key force driving home prices, which could signal volatility ahead in coming quarters as the interest rate and pricing landscapes shift.
Investors Still Finding Ample Opportunities in Distressed Market
Residential properties sold at a faster pace in September according to a recent report from RealtyTrac. Single-family homes, condominiums, and townhomes sold at an annualized pace of 5,673,249 in September, up 2 percent from August and up 14 percent year-over-year, indicating that the market is still ripe for investors with deep pockets looking to make an imprint on regional markets. “The housing market continues to skew in favor of investors, particularly deep-pocketed institutional investors, and other buyers paying with cash,” said Daren Blomquist, vice president at RealtyTrac. “While the institutional investors are pulling back their purchases in many of the higher-priced markets-places like San Francisco, Washington, D.C., New York, Seattle and Sacramento-they are continuing to ramp up purchases in markets where median prices are still below $200,000-places like Jacksonville, Atlanta, Charlotte, St. Louis and Dallas,” Blomquist said. “The availability of distressed inventory also makes a difference. For example, institutional investor purchases have rebounded in Las Vegas corresponding to a recent rebound in foreclosure activity there,” he continued. In September, the median price of a distressed residential property-in foreclosure or bank-owned-was $112,000, 41 percent below the median price of $189,000 for a non-distressed residential property. Distressed sales continued to account for a portion of all sales, climbing to 25 percent, up from 18 percent of all sales a year ago. “Distressed sales remain persistently high, particularly short sales,” Blomquist added. “Markets with the biggest increases in short sales tend to be those where either foreclosure starts or scheduled foreclosure auctions have rebounded in the last 18 months – translating into more motivated short sellers – or those with a still-high percentage of underwater homeowners with negative equity.” Institutional investors, those purchasing 10 or more properties in the last 12 months, comprised 14 percent of all sales in September. This figure is up 9 percent since September 2012. Investors flocked to big cities for investment, with Atlanta, Georgia being the biggest big city (defined as a metro area with more than 1 million people) with 29 percent of purchases by institutional investors. The report shows that home price appreciation showed signed of plateauing in these top six appreciating markets. In all six markets, the annual increase in home prices was down compared to previous months this year.
Government-Backed Rehab Financing
The Federal Housing Administration's 203(k) program is the government's answer to the problem of the aging housing supply. Owner-occupant buyers can take advantage of the 203(k) program to finance the purchase, rehab, and upgrade of an older home, while homeowners can also take advantage of the program to roll rehab costs into a refinance. Older homes are likely to be in need of major work if that work has not been completed recently by the previous owner. Many older homes haven't been upgraded to include the latest technologies for energy efficiency and natural disaster preparedness, or to include layouts and floor plans preferred by many homeowners today. "Many consumers may not realize the FHA 203(k) program allows them to roll in the cost of both minor and major rehab into the purchase financing or a refinancing," said Dennis Walsh, CEO of REBuildUSA, which connects buyers and homeowners with lenders specializing in 203(k) loans. "This means the entire layout of these older homes can be changed to fit more with modern tastes and sensibilities." Walsh noted that homeowners can expect normal wearing out of certain things around the house, as they reach the end of their expected life. The NAHB's 2007 report "Study of Life Expectancy of Home Components" provides life expectancies for a number of these items based on the age of the home: As new as 10 years - Washing Machine, Dishwasher, Carpet, and Duct work; 10 to 25 years - Decks, Asphalt Roof, Linoleum or Laminate flooring, Water Heater, Sprinklers, Faucets and Toilets, Air Conditioner, Furnace, Aluminum Windows, Paint, Aluminum and Steel Gutters, Other Appliances; 25 to 50 years - Kitchen Cabinets, Wood Roofs, Wood Windows, Electric Heating, Trim Lumber, Kitchen Cabinets. "We find folks also adding rooms, knocking down walls and other changes that enlarge, modernize or open up a floor plan," Walsh said. "Older homes often do not have a separate master bath, or the existing master bath is just too small and outdated." Long-time homeowners who live in older homes can use the 203(k) program to refinance at a lower rate. Eight states have more than 100,000 homeowners who are estimated to be up to 10 percent underwater on their mortgages, Adger noted. With modest increases in home values these homeowners should be able to refinance. These homeowners may not be aware that they can refinance with a 203(k) loan even if their home needs major upgrades, as long as they have 5 percent equity and are not in default.
Obama Lied About Insurance Cancellations?
President Obama repeatedly assured Americans that after the Affordable Care Act became law, people who liked their health insurance would be able to keep it. But millions of Americans are getting or are about to get cancellation letters for their health insurance under Obamacare, say experts, and the Obama administration has known that for at least three years. Four sources deeply involved in the Affordable Care Act tell NBC News that 50 to 75% of the 14 million consumers who buy their insurance individually can expect to receive a "cancellation" letter or the equivalent over the next year because their existing policies don't meet the standards mandated by the new health care law. One expert predicts that number could reach as high as 80%. And all say that many of those forced to buy pricier new policies will experience "sticker shock." None of this should come as a shock to the Obama administration. The law states that policies in effect as of March 23,2010 will be "grandfathered," meaning consumers can keep those policies even though they don't meet requirements of the new health care law. But the Department of Health and Human Services then wrote regulations that narrowed that provision, by saying that if any part of a policy was significantly changed since that date the deductible, co-pay, or benefits, for example the policy would not be grandfathered. Buried in Obamacare regulations from July 2010 is an estimate that because of normal turnover in the individual insurance market, "40 to 67%" of customers will not be able to keep their policy. And because many policies will have been changed since the key date, "the percentage of individual market policies losing grandfather status in a given year exceeds the 40 to 67% range." That means the administration knew that more than 40 to 67% of those in the individual market would not be able to keep their plans, even if they liked them. Yet President Obama, who had promised in 2009, "if you like your health plan, you will be able to keep your health plan," was still saying in 2012, "If [you] already have health insurance, you will keep your health insurance." "This says that when they made the promise, they knew half the people in this market outright couldn't keep what they had and then they wrote the rules so that others couldn't make it either," said Robert Laszewski, of Health Policy and Strategy Associates, a consultant who works for health industry firms. Laszewski estimates that 80% of those in the individual market will not be able to keep their current policies and will have to buy insurance that meets requirements of the new law. Other experts said that most consumers in the individual market will not be able to keep their policies. Nancy Thompson, senior vice president of CBIZ Benefits, which helps companies manage their employee benefits, says numbers in this market are hard to pin down, but that data from states and carriers suggests "anywhere from 50 to 75%" of individual policy holders will get cancellation letters. Kansas Insurance Commissioner Sandy Praeger, who chairs the health committee of the National Association of Insurance Commissioners, says that estimate is "probably about right." She added that a few states are asking insurance companies to cancel and replace policies, rather than just amend them, to avoid confusion. A spokesman for America's Health Plans says there are no precise numbers on how many will receive cancellations letters or get notices that their current policies don't meet ACA standards. In both cases, consumers will not be able to keep their current coverage.