The Nation's Housing
Reporting and analysis of tax laws, mortgages and markets make for indispensable real estate coverage. Once a week.
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THE NATION'S HOUSING COLUMN

(Advance for Friday, Nov. 16, 2018, and thereafter. Web release Thursday, Nov. 15, 2018, at 8 p.m. Eastern time.)

(For Harney clients only)

By KENNETH R. HARNEY

WASHINGTON -- Don't call it a "buyer's market." Don't call it a "correction." But the fact is that a sobering change is taking shape in the housing market -- an unmistakable cooling trend that defies an economy that is showing impressive growth, has the lowest unemployment rate in years and the highest home-equity levels on record.

Anyone thinking of selling or buying a home shouldn't ignore it. Doing so could cost you money, time and maybe a great opportunity.

Call it a re-balancing. For years since the end of the financial crisis, prices in most markets have increased steadily -- by single digits annually in most places, double digits in cities like Seattle, San Francisco, Denver and others that have vibrant employment growth plus persistent and deep shortages of homes for sale. Sellers were in the saddle.

That was then. This is now:

-- Sales of existing and new homes have been sagging for half a year. According to data from the National Association of Realtors, resales have been dropping since the spring compared with year-earlier levels. At the end of the third quarter, resales were 2.4 percent below their level at the end of the same quarter in 2017. That's despite growing inventories of homes available for sale in some areas, reversing the boom-time pattern of bidding wars that pushed prices to record levels and drove buyers batty.

-- Mortgage rates hit their highest level in nearly eight years in early November -- 5.15 percent for a conventional 30-year fixed-rate loan -- according to the Mortgage Bankers Association. Lending Tree, an online network that pairs mortgage applicants with lenders, reported last week that the average annual percentage rate quoted to shoppers was 5.27 percent. Buyers with good scores between 680 and 719 were quoted 5.42 percent.

Though rates in the 5's may sound reasonable to people who purchased or refinanced a home a decade ago, they are disturbingly high to millennials and other young buyers and magnify the affordability challenges they already face. Higher rates are also daunting to the millions of owners who have mortgages with rates in the mid-3-percent to 4-percent range. Rather than pursuing a move-up or downsizing purchase -- requiring a new mortgage at today's rates -- many of them prefer to hunker down on the sidelines, further reducing sales activity.

-- Sellers are cutting their list prices. According to research by realty brokerage Redfin, 28.7 percent of prices of homes listed for sale in major markets during the month ending October 14 saw reductions. That's the highest share of homes with price drops recorded since Redfin began tracking this metric in 2010. One of the key reasons for the cuts: Demand by shoppers is down by more than 10 percent compared with a year earlier. Consumer psychology is shifting as well: A national survey by Fannie Mae released last week found that the net share of Americans who believe it's a good time to buy has fallen to just 21 percent, while the net share who say it's a good time to sell is 35 percent.

There are other signs of cooling underway that could be cited, but you get the point. The cycle has moved from seller-advantage to at least mildly purchaser-advantage in many parts of the U.S. Bear in mind, of course, that the cooling trend nationwide may not mean the same things are happening in your neighborhood. In fact, some cities with moderate housing costs are seeing price increases, homes selling above list, and tightening inventories. According to Redfin, nearly 40 percent of homes in Buffalo, New York, are selling above list at median prices 8.5 percent higher than last year's. In Richmond, Virginia, 29 percent of homes are selling above list; in Akron, Ohio, 22 percent are selling for more than the original asking price, as are 23.2 percent in Greensboro, North Carolina.

So what does this mean to you as a potential seller or buyer? Top of the list: Speak to multiple realty professionals to get a good handle on where your local market is relative to the national cool-down. If you're a seller, the key to your transaction will be getting your list pricing right. If you're a buyer, take your time but keep in mind: If you shop diligently, this fall could be a smart time to catch a deal -- a marked-down price on the house you really want.

Ken Harney's email address is Harneycolumn@gmail.com.

(c) 2018, Washington Post Writers Group

THE NATION'S HOUSING COLUMN

(Advance for Friday, Nov. 9, 2018, and thereafter. Web release Thursday, Nov. 8, 2018, at 8 p.m. Eastern time.)

(For Harney clients only)

By KENNETH R. HARNEY

WASHINGTON -- What's been happening to that good old-fashioned American way to sell your home -- doing it yourself, with minimal or no commission costs?

If you believe new data from the National Association of Realtors' Buyer/Seller survey, for-sale-by-owner transactions -- popularly known as FSBOs ("Fizzbos") -- appear to be on the same trendline as buggy whips: They've just hit their all-time low of 7 percent as a share of total home-sale transactions. They were 8 percent the previous year. Both numbers are down from 15 percent in 1981 and continue a slow but steady decline.

So FSBOs are fizzling. But is that the full story? Or is something else happening that's a bit more complicated?

Traditionally, doing a FSBO meant that you, the homeowner, took on all or most of the tasks of selling your home. You paid for advertising, put up for-sale signs, held open houses and private showings, negotiated with prospective buyers, filled out contract forms, shepherded the deal to closing and pocketed the sale proceeds.

Though the NAR survey's 7 percent figure gives no hint, FSBOs mainly don't fit this traditional pattern anymore. Owners who previously would have done a pre-internet, old-model FSBO to save money now opt for a multitude of approaches, most of them involving some form of reduced commission paid to a licensed real-estate agent or broker.

For example, owners can go online and sign up with a deep-discount or flat-fee service that will get them listed on their local Multiple Listing Service (MLS) at a modest cost. Getting on the MLS is crucial to most home sales of all types today; it opens the door for the property to be seen on giant marketing sites like Zillow, Realtor.com, Trulia and Redfin, among others. Since almost all home shoppers start their searches on the internet to check out what's available, getting listed on the local MLS is essential.

Flat-fee MLS sites such as FSBO.com, ByOwnerFlatMLS.com and others charge anywhere from $399.95 to $95 -- sometimes even less -- for connecting sellers to the wide audiences that are only possible via an MLS listing. Sellers can also choose among hundreds of discount-commission real-estate brokerages online to market their house. Some offer what they call "full service" representation for low, flat fees of anywhere from $2,000 to $3,000, or discount listing fees expressed as a percentage of the home price. For example, Redfin charges a 1 percent listing fee in many major markets (1.5 percent in others) and offers refunds of portions of the 2 percent to 3 percent commissions that listing contracts typically give agents who bring in buyers. Other limited-service brokerages charge flat fees or allow clients to pick the services they want -- a la carte -- and charge accordingly.

But here's what's really happening today: For a variety of reasons, homeowners and buyers continue to make heavy use of real-estate agents -- NAR says 87 percent of purchasers depended on agents last year. But they're paying them lower and lower commission rates. Steve Murray, whose Colorado-based company Real Trends is considered the gold-standard source on commission rates and realty brokerage finances, told me last week that average commissions are dropping below 5 percent. That means that in an evenly split arrangement of fees between the listing agent and the selling agent in a market where 6 percent is the "standard" fee, the average commission is already at or slightly below 2.5 percent for each side -- and slipping downward.

A study of 2,200 recent sellers and buyers in 2016 by Redfin found that fully 60 percent of sellers reported that they got a discount off the standard listing commission and that the average discount amounted to 41 percent. The same study found that 46 percent of buyers were offered either a rebate or refund by their agents, averaging about $3,700.

Bottom line: FSBOs may be fading, but so are average commission rates. That makes sense given today's high home prices compared with years earlier. Back in 1981, when average commission rates were near 7 percent, the median home price in the U.S. was around $70,000; today it's more than $265,000.

Keep in mind, though, that there are important exceptions: If your house has unique features, a poor location or is challenging to sell in a market increasingly favoring buyers, top buyer agents will still demand -- and get -- full commissions.

Ken Harney's email address is Harneycolumn@gmail.com.

(c) 2018, Washington Post Writers Group

THE NATION'S HOUSING COLUMN

(Advance for Friday, Nov. 2, 2018, and thereafter. Web release Thursday, Nov. 1, 2018, at 8 p.m. Eastern time.)

(For Harney clients only)

2ND WRITETHRU: Fixing spelling of "Jim Planey" in grafs 3, 4 and 6. 1ST WRITETHRU: Last graf, 1st sentence: "ask loan officers" sted "ask lenders"

By KENNETH R. HARNEY

WASHINGTON -- It's a common problem for retirees seeking to refinance or get a new mortgage: After their regular employment earnings stop flowing, their monthly incomes drop. They might have hundreds of thousands of dollars stored away in IRAs or 401(k) plans and other investments, but for mortgage purposes, they don't have enough monthly income to qualify for the loan they want. They look asset rich, income poor.

In some cases, that impression can create serious problems -- even rejections of applications by loan officers who don't know how to work with pre-retiree and retired applicants.

Take the case of Jim Planey. He's a retired industrial real estate broker, lives in a home valued around $1 million in Glenview, Illinois, near Chicago, and has accumulated substantial retirement funds after a 40-year career. He and his wife have stellar credit scores in the 800s and decided to refinance their existing mortgage, an adjustable-rate loan that was about to shift to a higher interest rate.

Planey assumed that his application would be a slam dunk. Not only did he have significant home equity as well as a flawless history of on-time payments to his bank, he even planned to reduce the principal balance on his mortgage from around $600,000 to $400,000.

What he ran into shocked him. The bank's loan personnel "didn't know anything" about handling mortgage applications from retirees, he told me last week, and they questioned whether his post-retirement income would support a new mortgage at today's interest rates. His application contained detailed documentation on his substantial financial assets, but the loan officers at his bank were clueless about what to do with them.

Most importantly, they were in the dark about program options offered by investors Freddie Mac and Fannie Mae and some private lenders for retirees and pre-retirees. The options essentially recharacterize retirement assets into qualified income for mortgage purposes, sometimes without requiring actual withdrawals of funds. Had the bank personnel been better trained and had more experience, Planey could have been approved in a matter of days rather than the eight weeks it ultimately took him to get a run-of-the-mill refi.

The programs generally take two forms: One treats ongoing distributions from IRAs, 401(k) accounts and similar funds as income that's acceptable for home-mortgage applications, provided the withdrawals plus other income are adequate to amortize the loan and are likely to continue for at least the next three years. The second option is designed for people who have retirement funds that haven't been tapped yet. Loan officers can use retirement-account balances as the basis for what functions essentially as imputed income -- money that is or will be available to the borrower to supplement regular monthly income when needed to make repayments on the loan.

Steve Stamets, a senior loan officer at The Mortgage Link, LLC, in Rockville, Maryland, has used these options periodically, and considers them "a great alternative" when clients have assets but don't quite fit the traditional rules that define eligible income. He offered a simplified example of how it works: A client had $2 million in mutual funds but not enough regular income to qualify for the size mortgage he sought. The client didn't want to withdraw money or be forced to liquidate securities. Using Fannie Mae's program option, he was able to produce qualifying income for mortgage purposes of $3,889 per month using a formula that discounts the fund balances by 30 percent to protect against market fluctuations that might devalue them. This amount was then added to other income the client had to total the amount he needed to support the mortgage application.

John Meussner, a loan officer for Mason-McDuffie Mortgage Corp. in San Ramon, California, says that although Fannie's and Freddie's options can be helpful, they come with their own complications as well. One of the biggest: The assets in some seniors' investment or retirement accounts may not qualify if they're derived from ineligible non-employment-related earnings. Another issue: Loan terms for seniors may be just 10 or 15 years. Monthly payments on such mortgages are higher than those with standard 30-year terms. Not all clients can afford them.

Bottom line: If your assets are tied up in retirement and investment funds, and you're seeking a mortgage based on your post-retirement income, ask loan officers about the Fannie and Freddie options as well as alternatives offered by some private lenders. If the loan officer pleads ignorance, you'll know it's amateur hour. Shop elsewhere.

Ken Harney's email address is Harneycolumn@gmail.com.

(c) 2018, Washington Post Writers Group

About
Newspaper readers have a trusted friend in Kenneth Harney's award-winning real estate column, "The Nation's Housing." That's because week after week he focuses on the real issues faced by today's record number of homeowners -- complicated tax problems, the settlement fee thicket, credit scores and credit files – and guides readers to smart solutions.
Millions of readers have saved – and will save – money because of Harney's undeviating attention to the American housing consumer's best interests.
Over the years, Harney's columns have contributed to key pieces of housing reform on Capitol Hill and in federal agencies, including cancellation of private mortgage insurance premiums, better disclosures on refinancings, restrictions on private transfer fees, and prohibitions against loan transfer abuses and predatory mortgage servicing practices.
Personal
Harney lives in Chevy Chase, Maryland, with his wife Andrea. The couple has four grown children who live in Shanghai, San Francisco, New York, and Silver Spring, Maryland.
Professional Experience
Member of the Federal Reserve Board's Consumer Advisory Council
Member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination
President and chairman of the board of the National Association of Real Estate Editors
Continues to be a member of NAREE's board of directors