REOs and other distressed sales make up about a third of the market today on a national basis and NAR’s just-released Investment and Vacation Home Buyers Survey shows that distressed homes comprise about a quarter of the homes bought for non-primary use.
Against this backdrop, Fannie Mae about a month ago announced that agents working with households buying a Fannie Mae REO must submit the offer online through the company’s HomePath portal. It won’t accept offers any other way.
The good news is that offers can only be submitted by agents. So, households interested in making an offer on an REO property have to contact an agent and work with that person on the submission.
The other good news is that submission is quick and easy because of the all-online process. That means you fill out all the forms online, scan the supporting documents, save them as digital files, and include them in your submission.
Although the process is straight-forward, it’s inevitable that you’ll have a lot of questions. So, we’re hosting the Fannie Mae executives who are overseeing this process for a one-hour webinar on how the submission process works. They’ll walk you through the steps.
They’ll also talk about policy matters that you’ll need to know about, such as their 15-day “first-look” period, which restricts offers from investors on new REO listings. They’ll talk about financing matters, too.
It’s a free webinar and you’ll be directed to an online manual and other materials to make it as easy as possible to master working online. You can imagine that it won’t be too long into the future when many transactons will be done this way.
The webinar is Thursday, April 26, at 3 p.m., Eastern Time. Presenters are Jane Severn, director of new business initiatives for Fannie Mae, and Robin Still, senior strategic planning analyst with the company.
Go to the registration page for the free webinar. To register, you just need to provide a name and e-mail address: Go to the REGISTRATION PAGE now.
John Wolford is a broker with Long & Foster Real Estate in Springfield, Va., but on May 17 he’ll be just one real estate professional among many from different companies in his market and from around the country in front of the nation’s capitol to remind lawmakers that home ownership and commercial real estate are vital to the country.
“We’re looking forward to standing up for the American Dream, with REALTORS® from all across the country—California, Texas, Ohio, Northern Virginia, Maryland—regardless of company,” says Wolford.
Wolford is in a 3-minute video on why his association, the Northern Virginia Association of REALTORS®, is doing everything it can to make the May 17 Rally to Protect the American Dream a success.
The rally is being hosted by NAR to ensure the importance of real estate remains top of mind as lawmakers and policy makers in the years ahead look at legislation and regulations that could impact aspects of home ownership and commercial real estate.
NVAR’s chair, Pat Kline, says Congress and policy makers in Washington mustn’t do anything that would make it harder for households to build equity and stabilize their lives through home ownership. “In our country, it’s not about where you’re from but where you’re going,” she says.
“NAR has made it very simple for REALTORS® to get involved in the rally,” sys NVAR CEO Christine Todd. “They’re providing breakfast and lunch, backpacks and T-shirts, and buses for members to get to Washington. All we have to do is get members on the bus or, if they’re going to be at the 2012 NAR Midyear Legislative Meetings & Trade Expo, to make sure they register for the rally,” says Todd.
After the rally, which is in the morning, rally participants will take the subway or a bus to the NAR trade expo, where there will be activities and giveaways.
More about the Rally to Protect the American Dream.
Wall Street Journal pending sales coverage
Coverage in much of the media of NAR’s latest pending home sales index, whch was released on Monday, has focused on the improvement we’ve seen over last year.
The Wall Street Journal, for example, in its front-page “Vital Signs” info graph for today (March 27, 2012), features data from NAR’s pending home sales index and says “Americans are buying more homes this year than in 2011.”
Bloomberg Businessweek says, ”Pending sales of U.S. existing homes [are] at near two-year high.”
Focusing on the improvement over last year is positive, because month-to-month fluctuations can make it hard to see the big picture. In yesterday’s NAR release, the forward-looking indicator was actually down, although almost imperceptibly—0.5 percent—but, as the news coverage said, it was up a strong 9 percent from a year ago.
Even with the monthly dip, the index suggests markets are in an extended period of stabilization. On a national basis, sales have been at about the same level since 2009, sometimes moving up a bit and sometimes dropping back down, but always hovering in the same territory, roughly 4.2 million sales. But for the last two months they’ve been at about a 4.6 million pace, which, if that persists, would be the highest level in five years, according to Lawrence Yun, NAR’s chief economist.
Yun thinks the big-picture view is looking up after what’s been a tough several years, in large part because of what’s happening in the broader economy. Rental rates are rising, making home ownership more attractive, jobs are heading up, and the stock market has been strong, too. What’s more, the improved sales picture is broad-based. Unlike last year, when sales improved for a while because of strong activity in a few markets, like Las Vegas, this year improvement is happening in all parts of the country: Pittsburgh, Syracuse, Dallas, Kansas City, Minneapolis, Seattle, and so on.
Maybe most important of all, the improving economy might help unleash the pent-up housing demand we’ve been waiting for. Yun has been talking about this for several years now. The population has continued to grow (it’s around 310 million now, maybe a little more), but home sales have been stuck at levels we last saw 10 years ago, despite the country having more people.
Its not just that people are renting rather than buying; it’s that young people haven’t been moving out and forming new households or they’re moving out and doubling up with friends. Yun thinks people might have the confidence now to start forming households, setting the stage for improved housing conditions in the years ahead.
Jerry Giovaniello
Giovaniello has been NAR’s top lobbyist since November 2001 and has worked with the NAR leadership in that time on issues crucial to real estate, including ensuring Congress and policy makers protect the central place of home ownership in the American Dream.
For his recognition among the 2011 Top Lobbyists, The Hill cited NAR’s role in the 2010 national elections supporting members of Congress who have been strong advocates of real estate and home ownership. Of the thousands of association lobbyists in Washington, 65 were selected.
Francine McMahon, publisher and executive vice president of The Hill, says the publication selects top lobbyists based on conversations with members of Congress, key aides, and other lobbyists. The list, she says, “includes the select group of names that never fail to arise when talk turns to a given issue.”
Giovaniello was also recognized in 2010 by Inman News as among the 100 most influential real estate leaders.
The Hill Top Lobbyist list came out in October 2011. Letters to the lobbyists notifying them of their selection were sent out this week.
A rule that took effect March 1 could hit you if you recruit salespeople to join your brokerage. The key is what you offer your recruits as part of your offer.
The Federal Trade Commission’s Business Opportunity Rule is about making sure that companies that offer a business opportunity in exchange for a fee are offering something legitimate and not just trying to separate you from your money. The FTC has a separate rule for franchise opportunities.
The typical target of the rule isn’t a company like a real estate brokerage; it’s a company like one that offers work-at-home opportunities or vending machine routes. In these cases, the people being recruited are offered a business opportunity in exchange for a payment to the company. The vending machine company, for example, solicits people to place, service, and collect the income from vending machines in exchange for paying the company for the machines or a split of the income or both.
Overall, there’s a three-part test: 1) a solicitation by the company, 2) the offer of some type of business assistance, and 3) a required payment.
Although not the targets of the rule, real estate brokerages can get snagged in its disclosure requirements if the broker or recruiter reaches out to salespeople to join the brokerage, offers some type of assistance like a list of leads, and charges money. Because the rule’s language was not drafted in consideration of a real estate brokerages, NAR is seeking further clarification from the FTC on how this this will impact real estate brokerages.
The key part of the test for brokerages is the business assistance they provide. Assuming other parts of the rule apply, the rule is triggered when the solicitation promises “assistance” to the salesperson. What type of assistance? The type of assistance must be significant, and so might include offering a salesperson a list of customers or prospective home buyers, or otherwise promising to provide the salesperson all the “tools” needed to succeed in sales with the brokerage.
To be on the safe side, you want to be sensitive to the tangible assistance you offer to salespeople in your solicitations in exchange for joining the brokerage and a payment. The rule is intended to cover companies that offer all the tools necessary to enter the business. That’s not the typical real estate brokerage approach, since salespeople tend to develop their own tools to enter real estate. But since the brokerage recruitment could be interpreted to meet the rule’s requirements, you want to look at what you’re offering recruits so you can decide, with your lawyer, whether you need to disclose your practices.
NAR Legal Affairs has developed a summary of the rule and its potential impact on your business. Access the Business Opportunity Rule summary.
The FTC is hosting a workshop on the rule June 1.
By Brian Summerfield, Online Editor, REALTOR® Magazine
How did the real estate market change from 2005 to the present day? What were the differences between real estate in 2005 and 1995? How about 1995 and 1985? When you consider how much the business shifted in those respective time spans, it makes you realize how much potential change the next decade holds for real estate. Tom Gillett, real estate broker and president of The Tom Gillett Company Inc., offered the following six “survival” tips in his session yesterday afternoon at the 2012 Association Executives Institute event in Louisville, Ky.
1. Be skeptical: Don’t overreact to every new fad. “Quit chasing the rabbit” of ever-changing media-manufactured trends, Gillett said.
2. Don’t fight the riptide: Rip currents in the ocean are more dangerous for people who try to fight them, because they wear themselves out trying to swim against them instead of going with it. Similarly, if there’s an important new development in the business or your local market (e.g., mobile technology or distressed sales) that you resist, you’ll exhaust yourself. “This market is the same thing,” Gillett said. “If you fight this market, you’ll die.”
3. Show your value proposition: A decade ago, consumers didn’t care as much about what their real estate agents brought to the table. Now, they really want to understand why you’re worth the commission you’re charging, Gillett said. “The market has shifted. We have to be bringing real value,” he added. Continue reading »
By Brian Summerfield, Online Editor, REALTOR® Magazine
Companies such as Apple, Google, and Leo Burnett have a well-deserved reputation for creativity and innovation. From the outside looking in, it may seem like these institutions are creative because they hire creative people. That may be true to some extent, but they’ve also built it into their culture and processes.
Real estate associations — not to mention companies — of all kinds are just as capable of being creative, said Allison Linney, president of organizational development consultancy Allison Partners, who spoke yesterday morning at the Association Executives Institute event in Louisville, Ky.
Many organizations dismiss the notion of increasing creativity because they believe it’s limited mostly to young people and a select few talented, older professionals. Not so, Linney said. To be sure, young people do have a “beginner’s mind” that makes them more open to new experiences and ideas, and much less afraid to fall on their faces, figuratively and literally. But most people have some level of innate creativity — it’s just a matter of finding ways to tap that. A big part of bringing that out of your employees is making it clear that it’s OK to make mistakes and fail along the way.
Some other companies might be hesitant to devote significant amounts time and energy to ideation because it seems impractical when there are so many more immediate tasks to take on. Linney had two arguments to counter this. The first is that time spent in creative reflection will produce better, more innovative solutions for problems and processes, and ultimately save time and effort in the future. The second is that involving employees in creative exercises will increase their engagement and motivation.
Linney identified the following four steps for creative problem-solving: Continue reading »
Between now and 2050, the U.S. is expected to grow to about 403 million people. It’s about 310 million today. That’s almost 100 million more people and they have to live somewhere, and looking at today’s total inventory of homes, we’ll need 43 million more units.
These are sales and rental lease-ups that are forecast to happen regardless of the ups and downs of the U.S. economy, and that helps to put in perspective what your business opportunities are in the years ahead.
The forecast is part of a report, called “Demographic Challenges and Opportunities for U.S. Housing Markets,” that just came out from a group called the Bipartisan Policy Center, which was started in 2007 by four former U.S. Senate leaders from both parties who are commissioning substantive research to find objective policy solutions to pressing issues.
NAR researcher Selma Hepp was part of the research team that prepared the study, She joined researchers from the University of Southern California and the Urban Institute.
Among their important findings is how the composition of the sales market is changing with the aging of the baby boomers and the arrival of the echo boomers. The baby boomers over the next two decades will be downsizing in a big way, in many cases getting out of the housing market altogether.
The result is expected to be the addition of some 11 million for-sale homes in markets from aging boomers between 2010 and 2020 and another 15 million between 2020 and 2030.
Who will buy all those units? The echo boomers, who are expected absorb 75-80 percent of them.
Lost ground. (Click to enlarge.)
Echo boomers are the children of baby boomers. They were born between 1981 and 1995, and they’re far more diverse than previous generations. That means disparities in home ownership rates between white households, African Americans, and Hispanics could close, assuming poorly thought-out mortgage financing rules don’t get in the way.
Right now, times are not good for minorities from a home ownership perspective. They were hit disproportionately hard by the housing crisis (see the nearby graph), and as the report shows, their home ownership rates have gone down the most in the last several years, widening the ownership gap with white households. So, until markets turn around, the country is losing, not gaining, ground in that respect.
The bottom line is, what’s decided in Congress and in the administration over the next several years to change the mortgage finance market will be crucial to the options available to echo boomers and others in deciding whether to rent or buy, and therefore whether wealth accumulation through owning will be in the cards for them.
As the researchers conclude in their report, “Whether for newly forming households or long-established ones . . . housing policies that emerge by the end of this decade have the potential to affect significantly the wealth portfolios of tens of millions of American families.”
Household formation down. (Click to enlarge.)
Any way you slice it, pent-up demand for home ownership is building: people are doubling up rather than starting their own households, and the rents they’re paying are increasing even while affordability on the ownership side is better than ever. So, the question is, when will this demand go from being pent-up to unleashed?
High affordability. (Click to enlarge.)
NAR Chief Economist Lawrence Yun has said existing-home sales are on track to see a modest improvement over last year. Sales could go above 4.6 million units, maybe get close to 4.7 million units, if current sales rates continue. Last year we saw 4.3 million existing-home sales.
The key to doing even better than that is confidence. If consumers are confident in the stability of the jobs picture and in the health of the housing market—that is, if they think prices have stabilized and will start seeing improvement in more markets soon—then they might start getting off the fence in larger numbers. That’s especially the case with rental rates rising briskly, making ownership more attractive than renting from a strictly economic sense.
Rental rates rise. (Click to enlarge.)
In recent research from academics looking at the “hurdle rate,” which is the point at which it makes more financial sense to buy than rent—researchers said now is a good time to buy because of a favorable hurdle rate in markets throughout the country. (Watch 3-minute video on this.)
But buyers need to have a healthy mortgage market, otherwise household demand can’t get translated into closed transactions. And on this point, things could be better.
Cheaper to buy than to rent. (Click to enlarge.)
Without a doubt lenders are lending but obtaining financing remains too high a hurdle for many households.
One reason is the continuing tough credit standards we’re seeing among banks, and to an important extent these stringent standards stem from the so-called buyback risk that banks face from Fannie Mae, Freddie Mac, and FHA. These loan buyback requirements have long been a policy option of the secondary market companies, but they rarely exercised the option in the past. That changed, though, after the mortgage crisis; companies started taking a close look at banks’ underwriting practices and if they thought shaky loans were being made, then the banks could be on the hook for those loans.
As a result of the stepped-up use of that policy, banks have put in place the credit overlays that sit on top of Fannie, Freddie, and FHA underwriting standards. These credit overlays, in effect, put loans out of reach of some households whose credit profile would otherwise fit okay under the secondary market standards. Yun has said home sales could be 15 percent higher if these strict requirements were replaced with more normal standards.
This credit overlay issue is something the banks have to work out in tandem with Fannie and Freddie, and in fact Bank of America about a month ago took an attention-grabbing step by saying it would stop selling loans to Fannie Mae out of concern with its buyback policies. How that will work out is unclear, but it suggests at least one bank wants this buyback issue behind it.
But there’s another mortgage issue that’s rearing its head, and for this one there’s not much the banks or the secondary market companies can do: that’s the rise in fees the government is imposing on the mortgage market.
In another month, the fees that banks pay to Fannie and Freddie to guarantee the mortgages they buy are going up by 10 basis points. That fee, known as the g-fee (for guarantee fee) is invisible to borrowers, but lenders can be expected to build the increase into the interest rate they charge borrowers, so the cost of loans will go up.
Congress mandated the fee increase to help it extend the payroll tax cut at the end of 2011, so you have the unusual situation in which funds generated by the housing industry are being plowed into a non-housing use. That sets a bad precedent, NAR has said, and in fact there’s talk on Capitol Hill of using future g-fee increases to pay for other things.
Meanwhile, FHA has increased its mortgage insurance premiums, both the upfront and the annual, to help it shore up its finances. In addition to improving its financial condition, federal officials have said the increases will help the agency reduce its market share, something the Administration’s been wanting to do for a while to encourage lenders to get back into the market on their own.
Looking at all these developments, what you have is a home-sale market that’s poised to improve because of pent-up demand and high affordability but that remains hobbled by a still-shaky mortgage market.
On a positive note, though, as Yun has pointed out, home sales are picking up slowly despite the mortgage market challenges, and that says something about the strong pull home ownership has to people who are ready to buy.
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