Move-up home buyers still absent

move-up home buyers
Home sale prices July 2017 (Infographic from NAR.Realtor)

Could it be that the housing market is still recovering from the great recession?  Maybe, considering that the housing market has not fully returned to a stable cycle.  Consider the inconsistency of annual home sales that seem to surge every three years, the steep home price increases over the last four years, and the lack of move-up home buyers in the market.

Summer is typically the strongest time of year for the market.  However, the National Association of Realtors reported that existing home sales decreased during June and July of this year (a decrease of 1.8 percent and 1.3 percent respectively).  And July’s Pending Home Sale Index (projecting future sales) decreased 0.8 percent (nar.realtor).

Of course, the NAR’s take on this bump in the road is provided by their Chief Economist Lawrence Yun.  Yun described the discrepancy of wage growth to home price gains as a reason for this summer’s home sale slide.  He explained that the median home sale price increased 38 percent in the last five years, while hourly earnings only increase 12 percent.  He points out the obvious, that sharply increasing home prices are creating an affordability gap, which is pricing many home buyers out of the market.

Yet, according to the NAR, “Home buyer” traffic continues to grow, while the housing inventory continues to shrink (the national home sale inventory during July decreased 9.0 percent from the same time last year).

Yun stated:

The reality, therefore, is that sales in coming months will not break out unless supply miraculously improves. This seems unlikely given the inadequate pace of housing starts in recent months and the lack of interest from real estate investors looking to sell.

Home sale inventory has been an issue for the housing market since its slow recovery began four years ago.  Although many will explain away the dearth of homes for sale as a result of strong demand and quick home sales.  However, they do not take into consideration that currently for every three homes that sell, there is one that does not.  The 1 in 3 fallout is the expectation in a typical market, while there is only a 1 in 10 fallout in a market with strong demand (such as in 2005), so home buyer demand is not exceedingly strong.

Of course, the main reason for the low housing inventory is that home owners are staying in their homes much longer than in the past.

According to the NAR, between 1987 to 2008 home owners stayed in their home an average of six years before buying their next home.  However, since 2010, the average time grew to fifteen years!  The result is a lower number of move-up home buyers in the market, and a reduced number of homes to sell.

One of missing pieces to a stable housing market has been the move-up home buyer.  The move-up home buyer is the buyer who will sell their current house to move into another home.  The necessity of move-up home buyers was acknowledged as part of a healthy housing market way back in 1985, when the economy was recovering from the deepest modern recession at that time (Move-up Buyer Provides The Base For A Recovering Housing Market. chicagotribune.com. August 17, 1985). Part of the housing recovery of 1985 was the increased participation of the move-up home buyer. As move-up home buyers “upgraded” to larger home, more affordable modest homes become available to first time home buyers.

Low housing inventory combined with elevated first time home buyer activity has fueled home prices over the last four years.  Until move-up home buyers are fully participating in the market, we will continue to see continued lack of inventory, steeper home sale price increases, and unpredictable market cycles.

Copyright© Dan Krell
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3D printed homes

3D printed homes
3D printed home building

Imagine a time when you can print a new door knob, a sink trap, a cabinet, or any other house component right in your home.  That time is rapidly approaching, thanks to 3D printing technology.  3D printed homes may be your house of the future.

When Sean Mashian recently wrote about the potential of 3D printing technology (The impact of 3D printing on real estate; Cornell Real Estate Review; 2017. 15, p64-65.), he was correct to say that the technology has the potential to change the home construction industry.  3D printing may also be the ultimate affordable housing solution, printing on demand homes and apartments at a fraction of stick-built homes.

Mashian stated:

Currently, 3D printing is most often used in the real estate industry as a way of creating scale models for new developments. As the technology grows and becomes more commonplace, there may be huge changes coming to real estate from this emerging technology…Right now, 3D printing is expensive and still in rudimentary stages. As we learned from the explosion of e-commerce just a decade ago however, a rapidly growing trend can quickly become a way of life. If 3D printing continues its swift rise to prominence, real estate will change and well positioned assets stand to benefit.

But 3D printing is already making an impact on housing design and construction, as Eric Schimelpfenig wrote in 2013 (Design and the 3D Printing Revolution; Kitchen & Bath Design News; 2013, p20).  He talked about one New York company that was already manufacturing personalized 3D printed bathroom fixtures.  Besides custom faucets, 3D printing tech will also bring us on-demand custom cabinets and other fixtures too.  Schimelpfenig said, “that future isn’t far away… and it’s going to be awesome.

Schimelpfenig’s future is unfolding before us as 3D printing technology is rapidly advancing.  The technology has come a long way since the first 3D printer was created by Charles Hull in 1983.  Originally, 3D printing was used for 3D modeling.  As the technology become cheaper and widely available, 3D printed modeling become a hit with hobbyists.  However, the potential in commercial applications didn’t really make strides until the turn of the century.

Although, 3D printing is not yet widely used in home construction, there are companies already 3D printing entire homes.  Apis Cor (apis-cor.com) not only builds 3D printed homes, but claims to be the first company to develop a mobile construction 3D printer capable of printing an entire building completely on site.

We are the first company to develop a mobile construction 3D printer which is capable of printing whole buildings completely on site.
Also we are people. Engineers, managers, builders and inventors sharing one common idea – to change the construction industry so that millions of people will have an opportunity to improve their living conditions.

Apis Cor 3D printed a home in Russia last December in 24 hours.  The one level home was rudimentary, and had 38 square meters (about 409 square feet) of living space.  But this was a demonstration of the flexibility of the 3D printing technology.  The endeavor not only showed how a home can be 3D printed on site, but that it can also be done in the cold of winter.  The company claims that 3D printed homes can be any shape, and designs are only restricted by the laws of physics.

Apis Cor states that 3D printed homes can also cost less because an onsite 3D printer “frees up resources.” Construction costs are lower because there is a cost reduction in labor, construction waste disposal, construction machinery rentals, tools, and finishings.  They claim that one 3D printer “can replace a whole team of construction workers, saving time without loss of quality.”

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Mortgage fraud is not victimless

mortgage fraud
Mortgage fraud (infographic from corelogic.com)

Since the foreclosure crisis, there have been many enhancements to the mortgage process to deter fraud.  Some of these changes include licensing of loan officers and indicating the license on government loans, choosing appraisers randomly, and limiting who can speak with appraisers.  Fraud detection before and after settlement has also been improved to thwart criminals.  But even with modern advancements, mortgage fraud has been trending upward.

Mortgage fraud schemes are increasingly sophisticated.  You may think that that those who are involved in mortgage fraud are career criminals operating in remote areas.  However, anyone can knowingly or unknowingly be involved, including real estate agents, attorneys, loan officers, appraisers, etc.  And it can happen anywhere, even in your neighborhood.  Where are is the most fraud trending? CoreLogic (corelogic.com) tracks fraud risk, and an interactive map can be found here.

Innocent consumers can get caught up in a mortgage fraud scheme too.  Historically, home flipping schemes were the traps where unwitting home buyers would get cheated.  However, since the foreclosure crises, distressed home owners have been a major target of mortgage modification scams.

The Federal Bureau of Investigation (fbi.gov) maintains that mortgage fraud is typically a material misstatement, misrepresentation, or omission in relation to getting a loan.  It is also considered fraud to lie to influence a bank’s decision to approve a loan and/or to get favorable loan terms.  The information you provide for your mortgage application should truthful.  Even indicating falsely that you will be occupying the property after settlement to get a better interest rate, when your intention is to use it as a rental property, is mortgage fraud.

After the mortgage crisis, the FBI (and other law enforcement agencies) broadened the scope of mortgage fraud to include frauds targeting distressed home owners.

A recent conviction of local fraudsters detailed such a scheme.  The co-conspirators claimed that they could help home owners modify mortgages and prevent foreclosure.  Evidence presented during their trial showed that the scammers charged their victims upfront and monthly fees that were to be used to pay down mortgages as part of a “principal reduction” plan.  Even though the victims received monthly invoices from the scammers showing their mortgage balances being paid down, there were no negotiations with lenders.  Many victims lost their homes.  The defendants will be sentenced later this year.

One of the most common tactics in mortgage fraud schemes is the use of a “straw buyer.”  A straw buyer is often used by con artists as part of their mortgage fraud scheme to make the transaction appear legitimate.  Although a straw buyer often knowingly consents to the use of their information to go along with the scheme, they are also sometimes the victim.  A Baltimore real estate agent was sentenced earlier this year to twenty-seven months in prison, ordered to pay $735,363.47 restitution, as well as forfeit $962,274.95 for his part of a mortgage fraud scheme.  The scheme used naïve and financially limited straw buyers to purchase renovated distressed properties at inflated prices, which the scammers profited.  To facilitate the loan process, the conspirators gave false information to loan officers including the intent of buyers to use the property as their primary residence.

Mortgage fraud is not a victimless crime.  Besides defrauding banks and their shareholders, mortgage fraud affects the neighborhood and community.  Unwitting consumers who have been caught in scams are usually left holding the bag and are foreclosed.  Residents of neighborhoods where mortgage fraud has occurred are affected by decreased home values and other effects of vacant and foreclosed homes.

Common mortgage fraud schemes listed by the FBI:

Foreclosure rescue schemes: The perpetrators identify homeowners who are in foreclosure or at risk of defaulting on their mortgage loan and then mislead them into believing they can save their homes by transferring the deed or putting the property in the name of an investor. The perpetrators profit by selling the property to an investor or straw borrower, creating equity using a fraudulent appraisal, and stealing the seller proceeds or fees paid by the homeowners. The homeowners are sometimes told they can pay rent for at least a year and repurchase the property once their credit has been reestablished. However, the perpetrators fail to make the mortgage payments and usually the property goes into foreclosure.

Loan modification schemes: Similar to foreclosure rescue scams, these schemes involve perpetrators purporting to assist homeowners who are delinquent in their mortgage payments and are on the verge of losing their home by offering to renegotiate the terms of the homeowners’ loan with the lender. The scammers, however, demand large fees up front and often negotiate unfavorable terms for the clients, or do not negotiate at all. Usually, the homeowners ultimately lose their homes.

Illegal property flipping: Property is purchased, falsely appraised at a higher value, and then quickly sold. What makes property flipping illegal is the fraudulent appraisal information or false information provided during the transactions. The schemes typically involve one or more of the following: fraudulent appraisals; falsified loan documentation; inflated buyer income; or kickbacks to buyers, investors, property/loan brokers, appraisers, and title company employees.

Builder bailout/condo conversion: Builders facing rising inventory and declining demand for newly constructed homes employ bailout schemes to offset losses. Builders find buyers who obtain loans for the properties but who then allow the properties to go into foreclosure. In a condo conversion scheme, apartment complexes purchased by developers during a housing boom are converted into condos, and in a declining real estate market, developers often have excess inventory of units. So developers recruit straw buyers with cash-back incentives and inflate the value of the condos to obtain a larger sales price at closing. In addition to failing to disclose the cash-back incentives to the lender, the straw buyers’ income and asset information are often inflated in order for them to qualify for properties that they otherwise would be ineligible or unqualified to purchase.

Equity skimming: An investor may use a straw buyer, false income documents, and false credit reports to obtain a mortgage loan in the straw buyer’s name. Subsequent to closing, the straw buyer signs the property over to the investor in a quit claim deed, which relinquishes all rights to the property and provides no guaranty to title. The investor does not make any mortgage payments and rents the property until foreclosure takes place several months later.

Silent second: The buyer of a property borrows the down payment from the seller through the issuance of a non-disclosed second mortgage. The primary lender believes the borrower has invested his own money in the down payment, when in fact, it is borrowed. The second mortgage may not be recorded to further conceal its status from the primary lender.

Home equity conversion mortgage (HECM): A HECM is a reverse mortgage loan product insured by the Federal Housing Administration to borrowers who are 62 years or older, own their own property (or have a small mortgage balance), occupy the property as their primary residence, and participate in HECM counseling. It provides homeowners access to equity in their homes, usually in a lump sum payment. Perpetrators taking advantage of the HECM program recruit seniors through local churches, investment seminars, and television, radio, billboard, and mailer advertisements. The scammers then obtain a HECM in the name of the recruited homeowner to convert equity in the homes into cash. The scammers keep the cash and pay a fee to the senior citizen or take the full amount unbeknownst to the senior citizen. No loan payment or repayment is required until the borrower no longer uses the house as a primary residence. In the scheme, the appraisals on the home are vastly inflated and the lender does not detect the fraud until the homeowner dies and the true value of the property is discovered.

Commercial real estate loans: Owners of distressed commercial real estate (or those acting on their behalf) obtain financing by manipulating the property’s appraised value. Bogus leases may be created to exaggerate the building’s profitability, thus inflating the value as determined using the ‘income method’ for property valuation. Fraudulent appraisals trick lenders into extending loans to the owner. As cash flows are lower than stated, the borrower struggles to maintain the property and repairs are neglected. By the time the commercial loans are in default, the lender is often left with dilapidated or difficult-to-rent commercial property. Many of the methods of committing mortgage fraud that are found in residential real estate are also present in commercial loan fraud.

Air loans: This is a nonexistent property loan where there is usually no collateral. Air loans involve brokers who invent borrowers and properties, establish accounts for payments, and maintain custodial accounts for escrows. They may establish an office with a bank of telephones, each one used as the fake employer, appraiser, credit agency, etc., to fraudulently deceive creditors who attempt to verify information on loan applications.

Copyright© Dan Krell
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Attract home buyers – Zillow listing

attract home buyers
Attract home buyers (infographic from blogs.realtor.org)

If you’re selling your home, check your Zillow listing.  You may find that the information may not be complete.  Or worse, the information posted is from a previous sale.  But don’t worry, Zillow now gives you the tools to take control, attract home buyers, and improve your sale.

Most of the information you see on your Zillow listing is syndicated from the MLS.  This means that your listing agent uploads information to the MLS and the MLS sends it to other websites.  If you’re not happy with the listing, your agent can change some information via the MLS, and/or log into the Zillow listing to make changes.  However, if your listing agent is too busy to service your listing or does not know about logging into your Zillow listing, you can now take control and attract home buyers.

Zillow offers home owners the opportunity to “claim” their home to access features to personalize information to help home buyers (and Zillow) to get a better picture about their home.  The “Personalized Owner Dashboard” gives you control of your listing (zillowgroup.com/news/personalized-owner-dashboard).

Of the many available tools, online metrics is useful to see how much attention your home is getting from home buyers.  You can view your home listing’s online activity, including how many times the listing has been viewed compared to your competition.

Improve on the house description by adding “What I love about the home.”  This feature conveys to home buyers what attracted you to your home.  Elicit the home buyer’s emotions to visit it and attract home buyers by adding your story.

The MLS limits the number of pictures on your listing.  So, solely relying on the MLS feed can also limit your Zillow listing.  Increasing the number of pictures and adding video can make your home listing more robust, and attention getting.  Zillow allows you (and your agent) to upload additional pictures.  You can upload, arrange, and describe additional photos to help give home buyers the best view of your home.  Zillow even lets you upload a video that you record from your smartphone!  Besides including a link to the MLS virtual tour, Zillow added the “walk through” video feature last year.

Not happy with your Zestimate?  You’re not alone.  Zillow’s Zestimate tool has received mixed reviews since its inception.  Many home buyers and sellers have used the tool as a guide in to help their buying and selling by looking at house and neighborhood trends.  However, there has been criticism from home owners and real estate agents saying that home valuation tool is not inaccurate and does not correctly portray their homes and listings.  As a response, Zillow has changed the algorithm over the years.  And this year, Zillow announced a $1,000,000 prize for the best model to improve the Zestimate tool (zillow.com/promo/zillow-prize).  But that hasn’t stopped a class action suit that complains that the Zestimate is “misleading” home buyers (Rachel Koning Beals; Do Zillow ‘Zestimates’ mislead home buyers? Lawsuit claims yes; marketwatch.com; May 23, 2017).

Improve your Zestimate.  Yes, you can improve your Zestimate.  The dashboard allows you to update the facts about your home.  Updating your home’s information will give home buyers a better description, and it can possibly improve the Zestimate.  Since the Zestimate is based on public records, all your home’s information may not be current or complete.  Telling Zillow about the extras, such as bathrooms, a finished basement, a deck, etc. can be a plus and attract home buyers.

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Improving home buyer credit scores

home buyer credit scores
Credit scores (infographic from visual.ly)

There’s been a lot of anticipation about the new credit scoring model by VantageScore (vantagescore.com).  It’s supposed to increase the availability of credit to many consumers.  Launching this fall, VantageScore 4.0 is touted to be a more accurate scoring system that uses trending data instead of “snapshots.”  This credit scoring system is also supposed to help those with limited credit, and incorporates the improved credit reporting standards included in the National Consumer Assistance Plan.  This and other new scoring systems have a lot of promise, but will improving home buyer credit scores help the mortgage process?

Let’s take a step back to see how home buyer credit scores reporting has evolved in recent years.  The National Consumer Assistance Plan (nationalconsumerassistanceplan.com) was launched in 2015 as a result of an agreement between the credit reporting agencies (Equifax, Experian, and TransUnion) and New York Attorney General Eric Schneiderman.  The agreement stemmed from Schneiderman’s investigation into the credit reporting agencies’ practices including (but not limited to) the accuracy of collected data, the practices in handling consumer disputes, and the reporting of medical debt.

The National Consumer Assistance Plan’s focus is to improve the consumer’s experience as well as increase data quality and accuracy.  Consumers will have increased information related to credit report disputes, including instructions on what to do if they’re dissatisfied with the result of their dispute.   Additionally, there is an “enhanced dispute resolution process” for fraud victims.

Among the many changes made by the National Consumer Assistance Plan to increase accuracy and quality of data includes: issuing consistent standards for those who report data to the credit agencies; medical debt won’t be reported during a 180-day waiting period so as to allow for insurance payments to catch up with billing; and the elimination of reporting of debts that were not contractual (such as parking tickets).

From The National Consumer Assistance Plan:

Consumers visiting www.annualcreditreport.com, the website that allows consumers to obtain a free credit report once a year will see expanded educational material.

Consumers who obtain their free annual credit report and dispute information resulting in modification of the disputed item will be able to obtain another free annual report without waiting a year.

Consumers who dispute items on their credit reports will receive additional information from the credit reporting agencies along with the results of their dispute, including a description of what they can do if they are not satisfied with the outcome of their dispute.

The credit reporting agencies (CRAs) are focusing on an enhanced dispute resolution process for victims of identity theft and fraud, as well as those who may have credit information belonging to another consumer on their file, commonly called a “mixed file.”

Medical debts won’t be reported until after a 180-day “waiting period” to allow insurance payments to be applied. The CRAs will also remove from credit reports previously reported medical collections that have been or are being paid by insurance.

Consistent standards will be reinforced by the credit bureaus to lenders and others that submit data for inclusion in a credit report (data furnishers).

Data furnishers will be prohibited from reporting authorized users without a date of birth and the CRAs will reject data that does not comply with this requirement.

The CRAs will eliminate the reporting of debts that did not arise from a contract or agreement by the consumer to pay, such as traffic tickets or fines.

A multi-company working group of the nationwide consumer credit reporting companies has been formed to regularly review and help ensure consistency and uniformity in the data submitted by data furnishers for inclusion in a consumer’s credit report.

Recent credit reporting changes are sure to make an impact for home buyer credit scores.  But, you may still have impaired credit that would make it difficult for you to buy a home.  So how can you improve your home buying process?  Be proactive!

A credit report contains a lot of information about you.  It reveals your personal information, including where you’ve lived and worked.  It indicates the credit cards and other loans you have, and how you pay on them.  It may also include any collection activity against you, as well as bankruptcies, liens or judgements.  Know what’s being reported about you by obtaining your free annual credit report (annualcreditreport.com) and dispute discrepancies.  Successful disputes should improve your credit score.

However, if your home buyer credit scores are impaired as the result of poor habits, don’t despair.  You can improve your credit report and score on your own by creating “good” credit habits.  First: make sure you pay your bills on time.  Planning specific times each month to pay bills will make it hard to miss a payment.  Second: reducing credit card balances may improve your credit score.  And third: be mindful of how many credit cards you maintain.  Having too many credit cards could lower your credit score.  Also, be careful to not apply for too much credit at any given time, as these “inquiries” could lower your score as well.

To learn more how a credit report functions, affects you, and how improve your home buyer credit scores, visit the Consumer Financial Protection Bureau (consumerfinance.gov), the Federal Trade Commission (ftc.gov), and the Federal Deposit Insurance Corporation (FDIC.gov).

Copyright© Dan Krell
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