residential real estate

Apache is functioning normally

By David Piscatelli

Fed’s inflation fight tightens the U.S. housing supply and makes home buying even more difficult

Conventional wisdom dictates that U.S. inflation will continue to decline as the Federal Reserve keeps interest rates high. This action, which makes loans more expensive for businesses and consumers, should lead to less spending, less consumption and higher unemployment.

Or at least that’s Econ 101. Yet both consumers and investors have acclimated to the current market environment. Moreover the key driver of inflation — housing — cannot be adequately contained through the Federal Reserve’s usual tactics.

In fact, the Fed’s policies have created a Catch-22 in the housing market by creating “golden handcuffs.” Instead of easing consumer demand, the Fed’s actions unintentionally restricted U.S. housing supply, resulting in a stalemate between home buyers and sellers. Homeowners who locked into historically low mortgage rates before and during the pandemic are now reluctant to sell, which in turn is increasing the likelihood of persistent higher inflation.

The case for this condition to persist , which the market is mostly failing to consider, continues to grow stronger as the odds of a recession fade. This should be an alarm bell and a potential opportunity for investors to redeploy at least part of their capital into hard assets to serve as a hedge against inflation risk.

The recession that never was

Many economists have predicted that a recession would hit the U.S. Their reasoning was sound: aggressive monetary action by the Federal Reserve, investor dissatisfaction with inflation, loss of consumer confidence and reductions in home asking prices — all points that were hard to argue against.

Yet most of the key ingredients needed for a recession have not materialized. Investors have acclimated to inflation, consumer confidence is growing and the housing market has, by and large, entered a period of stalemate where prices remain high due to lack of supply.

In fact, the only relevant argument in the recession camp that remains is the Fed continuing its aggressive posture against inflation — now considered the fastest monetary policy tightening cycle in more than 40 years. Such action continues to lead many to speculate that recession is imminent, and the only questions left to answer are “when,” and “how deep it will be?”

Housing prices obey the laws of supply and demand

Housing is perhaps the most consequential category that makes up the Consumer Price Index (CPI), which markets track every month as a core measure of inflation.

The undersupply of housing in the U.S. is grounded in years of underbuilding and is not the result of a single federal policy, war, or external event. If anything, the power to create more housing supply rests with state and local governments, which often require working through a patchwork quilt of differing zoning and land-use regulations.

The high estimate of the country’s current housing shortage is pegged at about 7.3 million units, while the most conservative estimate shows it to be about 1.7 million. While the true shortage is most likely somewhere inbetween, the bottom line is that the United States faces a textbook housing shortage that cannot be solved overnight. Worse, the Fed’s current policies are making the prospect of home ownership even more difficult.

Nobody wants to move and reset their loans at much higher rates.

Central bank measures designed to clamp down on inflation by making borrowing more expensive (which theoretically should drive down the costs of homes), are having the opposite effect. This is because homeowners, who locked in historically low mortgage rates before and during the pandemic, are now reluctant to sell their home.

Simply put, nobody wants to move and reset their loans at much higher rates. Would-be sellers are therefore sitting on the sidelines, which has unintentionally created an even greater shortage in supply. Meanwhile, potential buyers, who cannot afford higher mortgage rates, are incentivized to rent instead.

To end this stalemate, the Fed would need to start cutting interest rates, which it has stated is unlikely this year. But if inflation is being driven by the cost of housing, as demonstrated in the Consumer Price Index, more attempts to tame inflation via rate hikes suggests homeowners will only become more entrenched as supply dwindles further As the labor market continues to prove surprisingly resilient, homeowners, and by extension everyday consumers, don’t seem to mind waiting it out.

Read: Nouriel Roubini says a return to 2% inflation is ‘mission impossible’

Also: Most long-term investors can ignore the Federal Reserve’s latest move

The case for hard assets

Seasoned investors know that during times of rising interest rates, restrictive credit and prolonged inflation, more investments flow into “hard” asset classes such as real estate. This hedging strategy is used almost like an insurance policy by investors to preserve capital from the depreciating effects of inflation. And according to research, it works. For example, a Stanford University study found that residential real estate is historically an investment haven during inflationary periods. Even during the inflation of the 1970s, home prices increased relative to the size of the economy. This is because housing is typically tied to consumer prices and rises with inflation.

With housing assets so closely tied to inflation, as well as to the laws of supply and demand, investments in this hard asset class deserve due consideration. Strong economic growth, coupled with the one-two punch of resilient consumer spending and near record-low unemployment, is good news. It also means the Fed won’t be lowering rates soon. Housing will remain a key driver of inflation, and future rate-hikes will further entrench homeowners and push more would-be buyers into renting.

To achieve a return to 2% inflation, U.S. policymakers would be wise to work with state and local governments to incentivize development, which would drive down the greatest expense for most Americans. But even with decisive action, fixing the fundamental housing shortage that is responsible for sustaining stubbornly persistent inflation will be a longer process than most investors realize.

David Piscatelli focuses on research, economic analysis and strategy at Avenue One, a property technology service platform and marketplace for institutional owners, buyers and sellers of residential homes. Views of the writer do not necessarily reflect the views of Avenue One.

More: Meet the brave Americans buying and selling their homes, despite stubbornly high interest rates

Plus: 9 ways home buyers can stretch their dollars even though mortgage rates are high

-David Piscatelli

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-23-23 0837ET

Copyright (c) 2023 Dow Jones & Company, Inc.

Source: morningstar.com

Apache is functioning normally

Apache is functioning normally

Dark Matter Technologies, formerly Black Knight Origination Technologies, is focused on mainly two things: the smooth transition to new owners, and lowering the cost to originate loans for lenders.

Executives from Dark Matter Technologies, under the Constellation Software umbrella, said that a down market is the best time to make investments in technology and prepare for the next cycle.

With lenders focused on bringing origination costs down in a tough origination environment, the firm saw up to a 300% year-over-year growth in new user numbers for the past couple of years.

“We actually do well in any kind of market,” Rich Gagliano, CEO of Dark Matter Technologies and former president of Black Knight, said in an interview with HousingWire on Friday.

“Now we’re in a down cycle, they need to do it with fewer people and they need to be more efficient to get the cost down. So it’s really the same story, just different markets,” Gagliano said.

Dark Matter Technologies, which completed the acquisition of Black Knight’s Empower and Optimal Blue last week, will be working towards a smooth transition over to Constellation Software with its 1,300-plus employees for the remainder of the year.

The company doesn’t plan to raise pricing for Empower and is focused on services and products that will drive down the cost of origination and employee borrower retention, executives said. 

Gagliano, Sean Dugan, CRO of Dark Matter Technologies and Tom George, co-president of Romulus, part of the Perseus Group of Constellation Software, participated in the interview.

Read on to learn more about Dark Matter Technologies’ plan for mortgage.

This interview has been condensed and lightly edited for clarity.

Connie Kim: Constellation’s Perseus Group has a pretty big real estate portfolio. What were the reasons for buying Black Knight’s Empower and Optimal Blue? What opportunities did the firm see?

Tom George: The way Constellation operates is that we focus on acquiring vertical market software companies and portfolios of vertical market software companies with the intent to stay in these industries forever. 

We started almost 20 years ago and Perseus in the homebuilding industry, we built a significant player in homebuilding software, that led us to an adjacency residential real estate where we bought over 20 companies. More recently, we started acquiring businesses in the mortgage tech space. 

We plan to be in the mortgage tech space forever. And we plan to continue to acquire there. 

Kim: What other mortgage tech companies has Constellation Software acquired?

George: We’ve acquired three other businesses in the mortgage space. We bought Mortgage Builder Software from Altisource Portfolio Solutions in 2019. There have been two additional acquisitions – ReverseVision, which is a leader in the reverse mortgage LOS space, and then a document storage product called Back Support.

Kim: Are you expecting any layoffs during the transition? Will the same management from Black Knight’s Empower and Optimal Blue be in place? 

Rich Gagliano: We’re not expecting any changes. [About] 1300 [employees] are going to move over with us and it’s business as usual.

Kim: It’s a tough mortgage origination market right now. How does the company expect to manage profit amid industry consolidation, bankruptcies and attrition?

Gagliano: We’ve seen a strong pipeline. Even though the markets are down, what we encourage and talk to clients about is when you’re slow, that’s the best time to make technology changes. Now is the time for that change, and get yourself ready for the next cycle.

We actually do well in any kind of market. But honestly, when the market is crazy, lenders are looking for efficiencies because they can’t find and hire enough staff. Now we’re in a down cycle, they need to do it with fewer people and they need to be more efficient to get the cost down. So it’s really the same story, just different markets.

Kim: I definitely hear a lot of mortgage tech companies saying ‘this is the time to invest, especially when the market is down.’ You mentioned a strong pipeline, are we talking about new clients? 

Sean Dugan: We’ve had 200% to 300% growth year-over-year for the last couple of years. And we don’t see that backing up. Those are not financial metrics, that was just on the number of clients acquired. When we took the Empower LOS platform to the down- to mid-market clients and really focused on that, we saw the number of acquisitions per year grow in a really significant fashion. 

Kim: Empower has an estimated market share of around 10-15% after ICE’s Encompass which takes up about 40 to 45% of market share. How does Dark Matter plan to compete against Encompass?

Gagliano: We believe strongly in technology. We’re generally in most of the deals when we know about them. We believe that the automation, and the technology and the solution that we bring, and the ecosystem that we have, is best in the industry and really helps these lenders drive cost out of the system.

We compete with multiple product providers out there, including Encompass. But we like where we are positioned and I think our clients like the innovations that we’ve brought over the past over years.

Kim: When I talk to lenders, they say when using a company’s LOS, using the same company’s add-on products makes it more cost-efficient and seamless. What are some of the add-on products the company has already developed or is seeking to develop to win over lenders?

Gagliano: Just over the past couple of years, we’ve added Ava, which is our artificial intelligence capability. Ava has added a couple of additional products over the past two years. We’ve added an underwriting efficiency product, we’ve added a post-close product that’s going into production – so fairly new products.

We’re going to continue to use the products that we have in our bundle today and sell those so no changes there. But we are incrementally adding new technology, new innovations, that are going to help drive that cost down.

Dugan: We’ve also delivered digital portals for each one of our business channels within Empower, which would include retail, wholesale, correspondent, home equity and assumptions. We also have business intelligence as a component, and then a vendor aggregation platform, which was by the name of Exchange. Those are some of the components that make up the Dark Matter-owned bundle of services within Empower.

Kim: I know Ava has some kind of AI aspect to it. Right now, a lot of mortgage tech companies are focusing on AI. How they’re going to utilize AI to be that middleman between the customer and the loan originator. I’m curious how Dark Matter is going to integrate AI and machine learning (ML) to the LOS and other products.

Dugan: Regardless of what the technology solution is, clients are looking for flexibility, configurability – things that they can configure to meet their particular requirements. They’re looking for a really significant return on their investment, and they’re looking to drive the cost of origination as well as employee and borrower retention.

Kim: One of the concerns about the ICE-Black Knight merger was the fear that ICE would raise prices on the LOS products. Will there be any pricing changes for Dark Matter Technologies?

Gagliano: We don’t have anything planned at this point. Our Constellation partners haven’t asked us to come in and raise prices. That’s not part of their strategy, their strategy is to acquire quality companies and run the businesses.

Kim: Who does Dark Matter Technologies consider as competitors right now?

Dugan: It’s any origination technology provider. There are a number of providers that are delivering services specific to underwriting capabilities, so we would compete with them. So I think it’s a host of providers and vendors across the ecosystem of this particular vertical that we compete with on a day-by-day basis.

Kim: What are your prospects for the remainder of the year for mortgage origination? What are some of the larger goals for Dark Matter Technologies?

Gagliano: Through the end of the year, we’re going to be transitioning to Constellation moving off Black Knight Technologies. We’ve added some corporate-level capabilities already. So we feel good about where we are and stay focused on that through the end of the year.

Source: housingwire.com

Apache is functioning normally

Home prices slipped a record 15.4 percent in the second quarter of 2008 from the same period a year ago, according to the S&P/Case-Shiller U.S. National Home Price Index released today.

The record fall outpaced the 14.2 percent year-over-year decline reported during the first quarter of 2008, though the acceleration of decline seemed to moderate in June.

The 10-City and 20-City indexes also posted record declines, falling 17.0 percent and 15.9 percent annually.

“While there is no national turnaround in residential real estate prices, it is possible that we are seeing some regions struggling to come back, which has resulted in some moderation in price declines at the national level” said David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s, in a statement.

“Record year-over-year declines were reported in both the 10-City and 20-City Composites in June; however, they are very close to the values reported for May. The rate of home price decline may be slowing.”

“For the month, the 10-City Composite was down 0.6% and the 20-City Composite was down 0.5%. While still falling, these are far less than the 2-2.5% monthly drops seen earlier in 2008.”

Since home prices peaked in the summer of 2006, the 10-City index has fallen 20.3 percent and the 20-City index is off 18.8 percent.

Over the last year, Las Vegas has been the weakest performer, with home prices down 28.6 percent, followed by Miami (-28.3%) and Phoenix (27.9%).

The metro areas of Charlotte, Dallas, Denver, and Boston have been some of the recent winners, seeing positive returns over the last quarter.

OFHEO Says Home Price Declines Slow in Second Quarter

Meanwhile, the OFHEO said the rate of home price declines slowed in the second quarter, as its purchase mortgage-only house price index fell 1.4 percent on a seasonally-adjusted basis from the first quarter.

That compares to a 1.7 percent decline seen in the prior quarter, though prices are still off 4.8 percent year-over-year.

The all-transactions home price index, which includes refinancing, fell 1.4 percent during the second quarter and was off 1.7 percent year-over-year.

The OFHEO noted that the larger home price declines seen in the S&P/Case-Shiller indexes could be attributed to weakness related to a lack of Enterprise financing and a reliance on higher-risk options.

Source: thetruthaboutmortgage.com

Apache is functioning normally

While mortgages often pave the way to homeownership, a new report from Goldman Sachs Group revealed that cash has truly been king over the past year and change.

In fact, the investment bank’s economists revealed that more than half of all homes that sold in the United States last year were purchased with cold, hard cash.

The same goes for all the homes sold so far in 2013 – more than 50% are apparently being scooped up sans mortgage, which explains why prospective buyers are having so much trouble getting their hands on their dream home.

The researchers gathered their data from four different sources, including home sales figures from the Census Bureau and National Association of Realtors, along with mortgage origination data from the MBA and Lender Processing Services.

Who Is Forgoing the Mortgage?

While it’s not entirely clear who is using cash, most speculate that it is the hedge funds and other groups who have been buying bundles of single-family homes on the cheap, following Buffett’s advice to invest in residential real estate.

For the record, the Oracle of Omaha also recommended that Americans get a low rate, long-term fixed mortgage.

There is also the wealthy, who have forgone mortgages to beat out bidders who must qualify for a mortgage to close the deal. Sellers are much more willing to take an all-cash offer, seeing that lenders have become a lot more particular in recent years.

And finally, there are foreign investors, who are trading in their piles of cash for residential real estate, thanks to bargain basement prices relative to where they stood several years earlier.

20% of Home Sales All Cash Before the Crash

Before the housing boom turned to housing crisis, the cash-share was a lot lower, closer to 20%, per the economists.

By dollar volume, around 30% of purchases were furnished with cash, a number that has since doubled.

Looked at another way, only about 44 cents of every $1 of homes being sold is currently financed with a mortgage, compared to 67 cents before the crisis took hold.

There are a number of reasons why financing numbers are down. For one, home sales have been a lot lower since the crisis. While things are beginning to pick up, they’re nowhere close to where they once were.

For example, purchase-money loan originations hit about $1.5 trillion during the peak in 2005, but have since fallen closer to $500 billion over the past couple years.

While that’s part of the story, Goldman estimates that 40% of the decline is the result of less financing per home.

There’s also the idea that buyers are coming in with larger down payments, with zero down financing largely a thing of the past.

The upside is that purchase mortgages seemed to have bottomed. The economists see purchase-loan volume increasing about 50% to $750 billion in 2014, and to $1.1 trillion by 2016.

So there is hope for the purchase market, it just might take a while, which is bad news for brokers and loan officers trying to make a living, especially with refinance business expected to tank.

Read more: When Qualifying for a Mortgage Isn’t Enough

Source: thetruthaboutmortgage.com

Apache is functioning normally

Are you an agent because you want to achieve financial freedom? Real estate can be a great way to do it—if you learn to leverage your commissions. Today’s guest, Michael Banovac, built an impressive net worth by putting his commissions back into his personal real estate portfolio. Listen and learn about the best ways to leverage your real estate knowledge, earnings, and brand to build your net worth fast. Michael also covers ways to win luxury listings, where to focus your time, and who to partner with when developing real estate.

Listen to today’s show and learn:

  • About Michael Banovac [0:47]
  • Michael’s start in real estate [3:17]
  • Buying and renting your first property [7:49]
  • How to get approved for a home loan as a new real estate agent [11:16]
  • Tracking your net worth [14:31]
  • Financial freedom [16:51]
  • Creating higher margins for less work in real estate [17:54]
  • Shelby Johnson’s first year in real estate [21:08]
  • How to get started with luxury listings and real estate development [21:41]
  • Location, location, location [24:29]
  • The best way to work the best real estate locations [25:31]
  • Grant Cardone’s best piece of advice for real estate agents [27:18]
  • Layers of legitimacy and cultivating your personal brand [28:46]
  • How to put yourself in the same room as successful people [33:25]
  • A big benefit to running a podcast [36:10]
  • Who to partner with when developing luxury properties [37:31]
  • The riches are in the niches [40:37]
  • Being selfish to become selfless [42:28]
  • Changing your mind to change your circumstances [45:38]
  • Where to find and follow Michael Banovac [46:29]
  • Michael’s final piece of advice for listeners [48:07]

Michael Banovac

Michael’s expertise encompasses Real Estate, Marketing, and Internet Entrepreneurship. He currently holds an Arizona Real Estate License with The Agency at EXP Realty and is partners with Tarek El Moussa (the star of HGTV’s Flip or Flop & Flipping 101).

He prides himself as the agent of choice for any professional seeking to buy or sell residential real estate in Arizona. In 2007, he was awarded the President’s Volunteer Service Award from President George W. Bush.

Related Links and Resources:

It might go without saying, but I’m going to say it anyway: We really value listeners like you. We’re constantly working to improve the show, so why not leave us a review? If you love the content and can’t stand the thought of missing the nuggets our Rockstar guests share every week, please subscribe; it’ll get you instant access to our latest episodes and is the best way to support your favorite real estate podcast. Have questions? Suggestions? Want to say hi? Shoot me a message via Twitter, Instagram, Facebook, or Email.

-Aaron Amuchastegui

Source: realestaterockstarsnetwork.com

Apache is functioning normally

The Federal Deposit Insurance Corp. said Tuesday that it was marketing $33 billion in commercial real estate loans it acquired during the receivership of Signature Bank earlier this year. The loans include significant investments in rent stabilized or rent controlled multifamily housing units in the New York metropolitan area.

Bloomberg News

WASHINGTON — The Federal Deposit Insurance Corp. announced Tuesday it would begin marketing $33 billion of commercial real estate loans that once belonged to Signature Bank in New York, which failed during the banking crisis this spring. 

The agency said it is setting up joint ventures to market about $15 billion of credits in the portfolio that are secured by rent-stabilized or rent-controlled units to fulfill its obligation to protect low-income housing availability.

“The FDIC will place the rent-stabilized or rent-controlled loans in one or more joint ventures (JV), with the FDIC retaining a majority equity interest in the JV,” the agency said in a news release. “The JV operating agreement will provide certain requirements that facilitate the financial and physical preservation of these loans and underlying collateral.”

Under the Federal Deposit Insurance Act, the FDIC has a statutory obligation to safeguard the affordability and availability of residential real estate for low- and moderate-income individuals. The agency said the $33 billion of loans — which the FDIC retained in receivership following the failure of the New York-based bank in March — are made up primarily of apartments in the New York metropolitan area. The FDIC previously announced it was considering various means of marketing the portfolio in a way that safeguarded the roughly $15 billion of low-income housing secured loans represented in the portfolio.

FDIC said while it will take on a majority equity interest in the joint ventures, ultimately the winning bidders on the loans will be responsible for maintaining the loan portfolio on their terms. 

“The winning bidders, or partners, will act as the managing member of the joint venture and will be responsible for the management, servicing and ultimate disposition of the loans,” the FDIC said in a statement. “The JV partner will be required to manage the portfolio in accordance with the JV operating agreement and be subject to stringent monitoring.”

The FDIC tapped Newmark & Company Real Estate to assist in advising on the sale. 

The FDIC will be accepting bids for Signature Bank’s former commercial real estate loans over the next three months. The agency indicated that it expects the sales to be finalized by the end of the year. The FDIC said its marketing strategy took into account input from relevant New York municipal and state agencies as well as community groups.

Signature Bank was shuttered by New York State regulators amid mounting withdrawal requests that decimated the bank’s available funds. Signature’s failure, along with that of Silicon Valley Bank, spurred banking regulators to invoke the systemic risk exception that would allow the FDIC to cover uninsured deposits. 

Following Signature’s failure, New York Community Bancorp’s Flagstar Bank acquired most of Signature’s deposits and some of its loans from the FDIC. The deal left out $4 billion of deposits related to Signature’s digital banking business, and a $60 billion loan portfolio.

Commercial real estate loans have been viewed with increasing anxiety by banks and regulators amid growing concerns about the disastrous effects delinquencies on such loans could have on the economy. 

Source: nationalmortgagenews.com

Apache is functioning normally

In our latest real estate tech entrepreneur interview, we’re speaking with Georges Benoliel from NestApple.

Who are you, and what do you do?

My name is Georges Benoliel, Franco-American, happily married to a Costa Rican Wife and proud father of 2-year-old tri-national Lily. I am the co-founder of New York-based next generation real estate technology and brokerage firm NestApple. My firm is offering (i) home buyers the opportunity to earn a 2% rebate check off the sale price and (ii) home sellers the option to list an apartment with full-service brokerage services for only 1%. Technology has changed the way business is done in ways that were unimaginable a decade ago. Residential real estate practices should adapt and evolve now that buyers and sellers have unlimited access to property listings and other information that was once hard to get. Twenty years ago, brokers were receiving apartment listings over fax, had access to information not available to the general public and were considered to have an insight into the business. Brokers are still useful and play a significant role in real estate transactions. However, their role has changed and should, therefore, be reflected in the commissions they receive.

What problem does your product/service solve?

This is simple: real estate broker commissions are too high: they are 2 to 3 times higher than in the rest of developed countries. I believe buyers can look up properties themselves. All the information is available online. All clients need is a guiding hand and experienced agent to assist them in pricing and negotiating. The role of brokers has changed, and so should the commission they receive. Our goal is to bring sellers and buyers together in a more efficient way, and pass the savings onto our clients.

What are you most excited about right now?

I am motivated by what is ahead of us: a large pipeline of deals, placing several new offers every day and all the closings to come. Nothing makes us happier than handing a cashback check at closing. We take a picture of each of them and post it on our Instagram “Wall of Fame.”

What’s next for you?

My goal for 2020 is to close 200 transactions in the five boroughs of New York – our core market. We are already active in Long Island, Westchester, the Catskills, and upstate New York. I want to grow NestApple to other states. We expanded this year in Connecticut and the goal I to build on the East Coast first.

What’s a cause you’re passionate about and why?

My wife and I believe in corporate responsibility of entrepreneurs and that businesses should play a role in social innovation and engage the local community. Before we created NestApple, my wife (and co-founder) has always been working in non-for-profits and international organizations. Every time NestApple closes a deal, the company donates on behalf of the client to a local charity (chosen by the client). If the client has no preference, NestApple gives by default to the South Bronx Educational Foundation. This organization fosters the development of young kids in the Bronx, and each check we send finances a mentoring program for a kid. Our partnership with SBEF allows us to give back and create a sense of community in our company nod our lives.

Thanks to Georges for sharing his story. If you’d like to connect, find him on LinkedIn here.

We’re constantly looking for great real estate tech entrepreneurs to feature. If that’s you, please read this post — then drop me a line (drew @ geekestatelabs dot com).

Source: geekestateblog.com

Apache is functioning normally

In many resort markets, vacation rental rates are up again this year. However, interest rates are still low and real estate is once again appreciating. Is this the year to stop renting and buy a vacation home?

You’re not alone if you are thinking about shopping for a second home.  Baby boomers at or near retirement continue to propel the demand for second homes, creating an expanding pool of buyers.

In recent years, vacation sales exploded, to the point where they accounted for 21 percent of all home sales in 2014. Last year a dwindling number of bargain-priced properties led to tighter supply and fewer sales, and caused the price of vacation homes to rise. Still, vacation home sales accounted for 16 percent of all home sales in 2015, according to the National Association of Realtors.

Second homes have their quirks

Buying a vacation home differs from buying a primary residence in a lot of ways. Inventories and prices vary more on a seasonal basis. Tax policies and lenders’ underwriting standards treat second homes differently, especially if you plan to rent out your property when you’re not using it. Owning and maintaining a vacation home in a resort areas can incur costs you might not anticipate.

Here’s a summary of important differences to keep in mind when buying a vacation home.

Vacation home mortgages

Second-home loans generally require more money down and a better credit score than owner-occupied home loans, which is the reason that about half of vacation-home buyers pay in cash. However, you can use equity in your primary home to take out a home equity line of credit and use it to make the down payment on a vacation home.

If you’re making monthly mortgage payments on a primary residence, lenders look carefully at your debt to income ratio to be sure that you are financially capable of paying two mortgages. Your total debt payments, including all mortgages, can’t exceed 36 percent of your gross income, but if you plan to rent the place, you can count some of that assumed rent as income when calculating the ratio. The lender will tell you what’s an acceptable assumption.

If you have an FHA loan on your primary residence, FHA will not finance a second home unless it is necessary for employment and is not a vacation home. Also, FHA loans are generally intended for owner occupants and the agency frowns on borrowers who use rent out FHA-financed homes. VA loans cannot be used to buy vacation homes.

Tax treatment

If you use the place as a second home—rather than renting it out as a business property—interest on the mortgage is deductible just as interest on the mortgage on your first home is. You can write off 100% of the interest you pay on up to $1.1 million of debt secured by your first and second homes that was used to acquire or improve the properties.

However, when you sell a second home you do not qualify for the exclusion from capital gains that allows home owners to take up to $500,000 of profit tax-free when they sell their principal residence.

If you plan to rent out your vacation home, very different tax rules apply depending on the breakdown between personal and rental use. If you rent the place out for 14 or fewer days during the year, or if you use it for more than 10% of the number of days the home is rented out, you can pocket the rental income tax-free. The house is considered a personal residence, so you deduct mortgage interest and property taxes just as you do for your principal home.

If you rent it out for more than 14 days, you must report all rental income on your tax return. You can deduct rental expenses, but you must allocate costs between the time the property is used for personal purposes and the time it is rented.

If you rent the house half the time, for instance, half of your mortgage interest, property taxes, utilities, insurance costs, and repair expenses are deductible against rental income. The other half of your interest and property taxes would still be deductible against your other income because it’s a second home.

Costs you may not anticipate

Renting your vacation home increases your maintenance costs considerably. Most vacation home buyers last year lived 200 miles away from their new purchases.

If you fit that pattern and live far from your vacation home, you’ll have to hire a property manager. Maintenance costs for repairs, upkeep, and yard work increase when tenants are involved.  Marketing vacation rentals can also be costly. You are competing with other owners who can count on repeat business. To get established, you’ll need to spend time and money on listing sites.

Many vacation spots are prone to natural disasters like hurricanes, floods, forest fires and earthquakes. Don’t be surprised if your insurance premiums are higher than your primary residence. Electricity and other utilities may be higher in rural or semi-rural areas.

Tips on buying a vacation home

  • Take a few weekend trips to make sure it’s the right spot for you. Pay close attention to travel times and restaurant and recreation accessibility to properties you are considering. Make sure to choose a knowledgeable local real estate agent who will know the local comps and any area idiosyncrasies.
  • Keep emotions out of any decision-making. Don’t fall in love with a property until you have done your due diligence, even if that cute place on the beach looks perfect. Once you are burdened with property taxes, insurance, and other fixed and sometimes unrelenting costs, you can’t change your mind without the potential of considerable loss.
  • Before you decide to buy, know how much you’ll use it. Will you be able to visit your vacation home monthly? Quarterly? Annually? If you’re not confident that you’ll be able to make the time to take advantage of a vacation home, you need to evaluate whether it’s the right decision to buy one or not.
  • Think long term. While vacation homes can gain value over time, short-term speculation on residential real estate is risky business, and most buyers settle on a property they’ll enjoy for many years to come. Planning for long-term enjoyment can mean buying a place that’s big enough for a growing family, or choosing an area with a range of recreational opportunities to accommodate evolving interests.

Source: totalmortgage.com

Apache is functioning normally

It wasn’t long ago that real estate was deemed toxic, untouchable, whatever bad thing you want to call it.

But times have changed, thanks to low interest rates and massive price cuts. And one group seems to be taking advantage, namely, the Millennials.

If you’re not familiar, they are a group of youngsters born between 1980 and 1995, who also go by the name “Generation Y” and “Generation Next.”

Interestingly, it is this group that purchased the most real estate between July 2012 and June 2013, according to the 2014 NAR Home Buyer and Seller Generational Trends study released today.

Gen Y = Largest Share of Recent Home Buyers

Millennials don’t just text, play around on Twitter, and create cool Tumblr blogs. They also make money and buy things.

In fact, the group accounted for 31% of recent residential real estate purchases, leading all other generational groups.

At the same time, Generation Next had the smallest share of home sellers at just 12%, which makes sense given the young age.

The median age of a Millennial home buyer was 29 and median income was $73,600. An overwhelming 75% were first-home home buyers.

They were most likely to buy a property in an urban or central city area and stay in their homes for 10 years.

Interestingly, they purchase homes primarily for the “desire to own” a home, not to get rich.

In the home buying department, they were followed very closely by Gen X, which includes individuals born between 1965 and 1979.

For the record, I am part of Gen X, though just barely seeing that I was born in the summer of 1979.  My group accounted for 30% of recent home purchases and the largest share of home sellers at 29%.

I’m assuming there was a lot of buying and selling in my generation because there were those that bought early and are now unloading, perhaps because of newly gained home equity.

Though 19% indicated that they had to pump the brakes on a home sale because of equity constraints.

Then there are those that did not buy during the boom, and wanted in after prices and rates tumbled. Fortunately for this latter group, they probably have good jobs, plenty of assets, and decent credit.

Gen X buyers plan to stay in their current homes for 15 years, and are most likely to think their home is a good financial investment (87%).

Boomers Aren’t Booming Anymore

The other generations in the study included Younger Boomers (1955-1964), Older Boomers (1946-54), and the so-called Silent Generation, those born between 1925 and 1945.

All three groups were relatively quiet on the home buying front, with 16% of recent home purchases coming from Younger Boomers, 14% from Older Boomers, and just nine percent from the Silent Generation.

This all makes sense, given the fact that most from these generations are already established and in homes they purchased years ago.

Most from these groups, along with Gen Xers, bought homes in suburban areas, as opposed to the city.

And roughly a quarter of both sets of Boomers own more than one home, including an investment property and/or vacation home.

Almost nine out of 10 buyers used a mortgage to purchase their home, and the all-cash share increased with age, as expected.

(photo: Jhaymesisviphotography)

Source: thetruthaboutmortgage.com

Apache is functioning normally

Let’s face it; the Internet has led to the demise of many long-standing brick-and-mortar businesses, like the yellow pages, or travel agents, to name just two that come to mind.

And now it appears as if another popular profession is at risk, real estate agents.

Yep, Google finally made a major move in the real estate realm today, announcing a $50 million investment in Auction.com, a well-established website for buying and selling real estate online.

Last year, Auction.com sold over $7 billion in real estate via more than 35,000 auctions. And since 2010, the company has reportedly sold nearly $20 billion in so-called real estate assets.

Google Capital, which was formed just last year, made the investment, giving them a roughly four percent stake in Auction.com based on its $1.2 billion valuation.

As part of the investment, Google Capital will gain a seat on the board of Auction.com, along with a board observer position.

As for what Google plans to do with the investment, partner David Lawee noted in the press release that they think Auction.com can “fundamentally change” how real estate is bought and sold by leveling the playing field for smaller investors.

Lawee also seemed particularly interested in commercial real estate, meaning residential real estate agents probably don’t need to worry, yet.

At the moment, Auction.com is focused primarily on distressed real estate, such as bank-owned homes, foreclosures, notes, land, and commercial property.

So it’s not as if an everyday Joe is going to use Auction.com instead of their neighbor who also happens to be a real estate agent.

Google Real Estate Coming Soon?

At the moment, there isn’t a “Google Real Estate” division at Google, at least not publicly. In fact, some random guy seems to own the domain name GoogleRealEstate.com.

There is a Google Real Estate team, but I believe they focus on Google’s own properties, keeping the Zen for employees by creating beautiful campuses.

And if anything, Google took a step back from real estate in recent years. In 2011, the company pulled real estate listings from Google Maps, citing low usage as a reason, along with other “excellent property-search tools” that were readily available.

So is this another experiment for Google, or the beginning of a major foray into real estate?

After all, companies like Zillow, Redfin, and Trulia are making big money, with two of the three publicly traded and Redfin soon to be.

Could we soon see local real estate listings in Google’s search results, or back on maps? Or something even more robust? Only time will tell, but either way, I don’t see the real estate agent going away anytime soon.

At the end of the day, you need a physical human to help navigate the oft-confusing process, at least for now.

Sure, buyers are doing a lot more of the legwork nowadays thanks to those real estate listings websites, but someone still needs to negotiate and handle the paperwork.

However, major players in the field should be on notice now that Google has pledged a decent chunk of change toward real estate.

Source: thetruthaboutmortgage.com