HSBC and NatWest cut mortgage rates again as rivals tipped to follow
Decision will ease some pressure on UK homebuyers and people seeking remortgage deals
HSBC and NatWest have announced a fresh round of mortgage rate cuts and Britain’s remaining large lenders are expected to follow suit in a move that will ease some of the pressure on hard-pressed Britons.
HSBC said it was cutting rates across many of its new fixed products – including some of its first-time buyer, home mover and remortgage deals – with effect fromTuesday, when full details of the reductions will be published.
Fellow high street lender NatWest said it would also be cutting rates from Tuesday.
The latest reductions will improve conditions for homebuyers and those looking to remortgage on to a new deal.
NatWest announced reductions of up to 0.35 percentage points on selected fixed deals. A five-year fixed rate deal aimed at homebuyers with a 5% deposit that is currently priced at 6.39% will result in its rate being cut to 6.04% at the bank.
Mortgage costs had been rising relentlessly for months but UK lenders have been reducing their rates since the second half of July after it emerged that UK inflation fell further than expected in June, prompting speculation that the Bank of England would not raise interest rates by as much as previously expected. The Bank’s base rate is 5.25% after an increase from 5% in August.
Nicholas Mendes, a mortgage technical manager at the broker John Charcol, said HSBC had “laid down the gauntlet and shown they mean business … This is their second rate reduction in a week, along with criteria changes which extend terms to 40 years.”
Accord Mortgages, part of Yorkshire Building Society, also said that all of its fixed rates were being cut by 0.20 percentage points from Tuesday.
Last week, Nationwide Building Society reduced some of its fixed and tracker rates by up to 0.15 percentage points.
Stephen Perkins, the managing director of the broker firm Yellow Brick Mortgages, said: “All these rate reductions are starting to feel like an avalanche … No doubt there will be more of these reductions over the week, as all lenders follow in a conga line.”
Lewis Shaw, the owner of the broker Shaw Financial Services, said that with NatWest following hot on the heels of HSBC, “There’s every chance we could see the remaining big four [Lloyds Banking Group, Barclays, Nationwide and Santander] come to the party this week, too.
“It would appear that lenders are struggling to get new business, and the rate tap is the only tool they can turn to.”
Past Ginnie Mae president Ted Tozer has argued that the FHA should lower or completely eliminate its current 3.5% down payment requirement.
He discussed the controversial take during a Community Home Lenders of America Roundtable in Washington, D.C. earlier this week, per Inside Mortgage Finance.
This isn’t the first time he’s floated the idea of turning the FHA home loan program into a zero-down-payment program.
In the past while arguing this same position, he noted that the Bush administration even proposed such a change all the way back in 2004.
The question is does this invite more risk at a time when home prices and mortgage rates are already out of reach for most?
Most FHA Loan Borrowers Need a Minimum 3.5% Down Payment
At the moment, FHA loan borrowers need to scrounge up 3.5% of the purchase price when buying a home, assuming they have a 580 FICO score.
Those with scores between 500 and 579 need at least a 10% down payment.
While this is seemingly a pretty low bar, it still acts as a roadblock for many prospective home buyers, especially low-income borrowers with little savings.
According to a semi-recent Federal Reserve study, the average American household had about $42,000 in savings.
But if you break it down by age, those under 35 only had $11,250 and those 35 to 44 only about $28,000.
A home purchase, even with a small down payment, could easily wipe out these accrued savings. And remember that these numbers are an average.
Many households have much less, which is why they’re probably still renting if their desire is to own.
Tozer has argued that after accounting for rent, taxes, food, utilities, and other necessities, prospective first-time home buyers have little left to save for a down payment.
The FHA Minimum Down Payment Was Increased in 2009
If you recall, the FHA Modernization Act of 2008 resulted in the FHA minimum down payment rising from 3% to 3.5%.
It also banned seller-funded down payment assistance, which correlated with much higher default rates on FHA loans.
Ironically, these types of loans resulted in a near-$5 billion loss for the FHA and put the entire program at risk.
Around that time, some lawmakers argued for even higher down payment requirements, such as a minimum of 5% down. That didn’t happen.
Back then, the big argument was about having skin in the game, as those with little invested had no problem walking away from an underwater mortgage.
That’s why the timing of this idea is a bit of a head-scratcher, with home prices at/near all-time highs and mortgage rates more than double their early 2022 levels.
While it isn’t quite 2006 all over again, there has been a lot of speculation in the housing market and prices are certainly not cheap.
The saving grace is that most homeowners hold boring old 30-year fixed-rate mortgages at ultra-low rates this time around.
And zero down loans are generally few and far between, other than homebuyer assistance offered by some state housing finance agencies (HFAs).
What’s the Argument for a 0% FHA Loan Today?
At the moment, you need a minimum 3.5% down payment to obtain an FHA loan, slightly more than the minimum 3% required on conventional loans.
Interestingly, you used to need 5% down to get a conventional loan before they introduced 97% LTV offerings in 2014.
This 3.5% is also significantly higher than what’s required for other government-backed home loans.
Tozer pointed out that both VA loans and USDA loans don’t require a down payment (100% financing OK!).
The thing is those loans are reserved for members of the military or those buying in rural areas, respectively. Conversely, FHA loans are much more widely available.
Regardless, he argues that underwriting should focus on a borrower’s credit history as opposed to the down payment.
But if we recall from the prior mortgage crisis, credit scores got a big share of the blame for the sharp rise in defaults.
So relying on credit score alone might not be the best policy either. While defaults certainly rise as credit scores fall, a holistic approach is best when formulating underwriting standards.
This means looking at layered risk, such as credit score, down payment, DTI ratio, employment history, and more.
The Skin in the Game Is the Cost to Relocate
As for skin in the game at zero down payment, Tozer said the skin is the cost to move.
In other words, once low- and moderate-income homeowners move in, it would cost them way too much to relocate.
And this is apparently what would keep them there. While that might be true, would they continue making payments?
Tozer’s proposal is unlikely to materialize as it would require Congress to act at a time when housing supply is already dismal and affordability historically low.
However, there is other proposed legislation that would offer 100% financing to first responders who need a mortgage, via the HELPER Act of 2023.
In the meantime, other options already exist to get an FHA loan with zero down.
As noted, many state HFAs have programs that offer deferred-payment junior loans that cover the down payment and even the closing costs.
There are also private lenders that offer FHA with zero down, such as the Movement Boost from Movement Mortgage, which relies on a repayable second mortgage.
So options already exist without the need for an across-the-board elimination of the FHA’s down payment requirement.
Yesterday, President Obama gave a speech on homeownership at Desert Vista High School in Phoenix, Arizona, one of the hardest hit cities in the nation.
While it was mostly fluff many of us have heard before, there were some nice little takeaways. I’ve listed what I feel are the top 10 quotes, based on their impact, candor, and humor, in the order in which they were said.
1. I think about my grandparents’ generation…in that earlier generation, houses weren’t for flipping around, they weren’t for speculation — houses were to live in, and to build a life with.
Housing needs to be perceived as shelter again, not solely as an investment, according to the President.
2. We cracked down on the bad practices that led to the crisis in the first place. I mean, you had some loans back there in the bubble that were called “liar’s loan.” Now, something that’s called a liar’s loan is probably a bad idea.
Obama knows stated income loans are bad news, though it’s unclear if he knows they’ve already begun to resurface.
3. Congress should pass a good, bipartisan idea to allow every homeowner the chance to save thousands of dollars a year by refinancing their mortgage at today’s rates. We need to get that done. We’ve been talking about it for a year and a half, two years, three years. There’s no reason not to do it.
He continues to push for HARP3 or MyRefi, though such a program looks dead in the water because he’s asking Congress to get it done. And rates have risen substantially.
4. Housing prices generally don’t just keep on going up forever at the kind of pace it was going up. It was crazy. So what we want to do is something stable and steady. And that’s why I want to lay a rock-solid foundation to make sure the kind of crisis we went through never happens again. We’ve got to make sure it doesn’t happen again.
Here comes major housing reform…
5. …one of the key things to make sure it doesn’t happen again is to wind down these companies that are not really government, but not really private sector — they’re known as Freddie Mac and Fannie Mae. For too long, these companies were allowed to make huge profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag. It was “heads we win, tails you lose.” And it was wrong.
Yes, Fannie Mae and Freddie Mac were responsible for the housing crisis, though many other organizations were as well. To be frank, the entire system is broken.
6. …private capital should take a bigger role in the mortgage market. I know that sounds confusing to folks who call me a socialist — I think I saw some posters there on the way in.
A little bit of humor mixed in with a very serious point about the housing market being far too reliant on the government, with pretty much every loan backed by Fannie, Freddie, or the FHA these days.
7. …we should preserve access to safe and simple mortgage products like the 30-year, fixed-rate mortgage. That’s something families should be able to rely on when they’re making the most important purchase of their lives.
The good news is the 30-year mortgage isn’t going anywhere, regardless of the reform that takes place, or is it?
8. They’re designing a new, simple mortgage form that will be in plain English, so you can actually read it without a lawyer — although, you may still want a lawyer obviously. I’m not saying you don’t. I’m just saying you’ll be able to read it. There won’t be a lot of fine print.
This pretty much sums up the ongoing cluster that is the mortgage industry. Perhaps the concept of mortgage reform is more elusive than we think.
9. So I want to be honest with you. No program or policy is going to solve all the problems in a multi-trillion dollar housing market. The housing bubble went up so high, the heights it reached before it burst were so unsustainable, that we knew it was going to take some time for us to fully recover.
It’s going to take a while folks…be patient.
10. More Americans will know the joy of scratching the child’s height on the door of their new home — with pencil, of course.
Translation: The American Dream is still alive and well.
Okay, not really. But there is some reason to believe Pokémon GO—the mobile app game that is currently taking the world by storm—could potentially influence home prices.
For the uninitiated, Pokémon GO is an augmented reality game that you play on your smartphone. It uses your phone’s time tracking, camera, and location functionalities to create a pokémon world that you can travel through in real life. Just like the originals, you can try to catch em’ all, or you can train your Pokémon and battle at local gyms.
Where do home prices come in?
On your path toward becoming a Pokémon master, there are a few key locations that you have to visit: Poké Stops and gyms.
Poké Stops
Poké Stops are where Pokémon trainers check in to gather items that will help evolve their Pokémon. These blue circular signs are tied to real world locations like stores and landmarks.
They don’t just pop up everywhere, though. Some rural areas are entirely lacking Poké Stops, while other places are teeming with them. Because they are integral to growing your Pokémon, users have been flocking to areas that are densely populated by Poké Stops. The demand has caused some in the real estate industry to speculate that homes located in close proximity to a swath of Poké Stops might be a new selling point to prospective buyers. If the demand reaches a high enough volume, it’s possible home prices could go up.
Gyms
Pokémon gyms are the best place to train and level up your Pokémon. Like Poké Stops, they are also pinned to real world locations. As the premier destination for trainers, not having to travel far to reach one is ideal.
A location surrounded by Poké Stops is one thing, but if you live right next to a gym—or your house is a gym—you have the best shot at making some green off the pokémadness.
Boon Sheridan and his wife, who live in a restored church in Massachusetts, have had the good fortune of their home being labeled a gym. Many churches have been designated as gyms and it seems that the developers of the game failed to check if any of them were occupied. Users have to stay within a certain distance of the gym (Boon’s home) to be granted access, and therefore hang around outside his house at seemingly all hours of the day.
At present, Boon seems to be the only person with a house as a Pokémon gym, but there are no doubt countless residences that are located adjacent to, or very close to, a gym. Video games are famous for their eccentric fans, and it’s not unfathomable to think that some would long to live in a home right next to their favorite Pokémon gym.
Demographics and Number of Users
Clearly, there is a demand by some to be near Poké Stops and Pokémon gyms, but what are the actual numbers? According to recent data from research firm SensorTower, Pokémon GO has topped 21 million daily active users. That’s more than any other mobile game and it’s only been out for one week! It even has more daily active users than Twitter. As for engagement, Pokémon GO outperforms the seemingly unsurpassable Facebook.
Granted, in a nation of over 300 million people, 21 million is a fairly small percentage. There has also been some speculation that most users aren’t of a home-buying age, and therefore home prices wouldn’t rise since the Pokémon benefits would no longer be marketable.
While we don’t have any hard numbers on age demographics yet, anecdotal evidence and deductive reasoning, lead to the conclusion that many users are in fact of a home buying age.
A quick walk down to the local beach (a popular Pokémon hunting ground) after work revealed that the majority of users were roughly 18-30 years old. The lower end of that spectrum might not be ready for homeownership, but the upper end certainly is.
It makes sense when you consider that the most popular Pokémon series (red/blue/yellow) came out in 1996. The majority of kids who dove headfirst into the Pokémon world (millennials) are now in their twenties, and will be prospective homebuyers soon enough if they aren’t already.
The bottom line
Will the hype last? No one knows. It’s a game, albeit a wildly popular right now. It could burn out, but it could also be here to stay, and as augmented reality technology gets more and more sophisticated, we could be dealing with other games that could potentially affect real estate markets. All I can say is that I wouldn’t sell my home right now if it was a Pokémon gym, but I also wouldn’t invest in any Pokémon hyped property.
Carter Wessman
Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.
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.
Over the past few years, mortgage rates have reached new all-time lows and haven’t strayed too far from such levels, despite some upticks here and there.
As a result, everyone and their mother grandmother has refinanced to take advantage of the situation. In fact, many have been able to reduce their already-low interest rates several percentage points.
At the same time, the push to shorten mortgage terms has proven successful. During the third quarter, a whopping 37% of borrowers shortened their loan term while refinancing, according to the latest quarterly refinance report from Freddie Mac released today.
That’s up from 32% in the quarter prior and the highest level since 1992.
So just to great this straight, borrowers are snagging interest rates at levels never seen before, and they’re opting to pay off their mortgages in half the time with 15-year fixed mortgages.
Heck, mortgage lenders are even touting 10-year fixed mortgages on TV these days (because the rate is lower and seemingly more attractive).
Not only that, but everyone is going with a fixed-rate mortgage as opposed to an ARM, with more than 95% of refinancing borrowers choosing a FRM during the third quarter.
Anyway, thanks to these very favorable conditions, just about everyone who could refinance did, and even those who historically could not (underwater borrowers) were able to take part thanks to HARP.
Make Hay While the Sun Shines?
You can’t really blame anyone. The environment has been ripe for refinancing. While this is great news for homeowners and the housing market in general, there has to be a loser, right? No, I’m not talking about the Fed’s balance sheet.
Sure, mortgage brokers and loan officers have probably made a killing over the past several years, but now banks and mortgage lenders are coming to terms with the slowdown and shedding jobs like crazy.
Put simply, the future doesn’t look very bright for those in the industry, and that’s not just speculation.
Freddie Mac noted in its refinance report that mortgage rates have remained below 5% for much of the past four years, meaning few borrowers who took out loans during this time will have an incentive to refinance in the future.
[The refinance rule of thumb.]
As a result, the median age of the original loan before refinance increased to 6.7 years during the third quarter, the oldest since analysis began back in 1985.
Most Homeowners Won’t Refinance Again
This chart won’t go any lower, so the next refinance boom is hard to imagine.
So today’s mortgages are practically unrefinancible. No, that’s not really a word, but it might be soon.
How is today’s homeowner with a 15-year fixed mortgage set at 2.75% going to do any better? Or the borrower with a 30-year fixed at 3.5%? These loans aren’t going to be refinanced unless someone really, really needs cash.
The only hope for an uptick in volume is via home equity lines (that don’t disrupt the first mortgage) or a return to subprime lending.
Sadly, this means the mortgage industry isn’t going to “knock the cover off the ball” anytime soon.
Yes, there’s talk of the purchase money mortgage market steadily improving as home prices rise and more borrowers list their homes. But it won’t be enough to stop the bleeding.
The MBA expects mortgage volume to sink 32% in 2014, with $1.2 trillion in total production. I wouldn’t be surprised if the numbers came in short.
To make matters even worse, a lot of individuals seem to be numb to the low rates still on offer. Just imagine how high a 6% mortgage rate will look to these people.
The good news is that those who refinanced during the third quarter will save approximately $6 billion in interest over the next 12 months.
For years, residents in Solano County heard about a mysterious group buying up thousands of acres of farmland and making millionaires out of property owners. The agricultural land had been owned by the same families for decades — some of it for more than a century.
But the company, Flannery Associates, did not say what its plans were for the land, dotted with towering wind turbines and sheep grazing on pastureland. It paid several times market value and made offers on properties that were not for sale, according to officials familiar with the land purchases.
Then, last week, a survey was sent to residents asking them what they thought about “a new city with tens of thousands of new homes, a large solar energy farm, orchards with over a million new trees, and over ten thousand acres of new parks and open space,” according to a screenshot of the survey shared with the Los Angeles Times.
Advertisement
That’s when it became clear that Flannery Associates had big plans for the rural landscape.
Over a five-year period, the company became the largest landowner in Solano County after purchasing more than 55,000 acres of undeveloped land. The company has paid more than $800 million since 2018, according to court records.
U.S. Rep. John Garamendi, who represents the region, said for years he and other officials were unable to determine who was behind the dizzying land grab. Flannery Associates has purchased land that was restricted to open space and agricultural purposes under a state conservation program.
The company seeks to rezone the land, which would require approval by multiple state and county agencies and wouldn’t be as simple as asking residents to vote on the issue, officials familiar with the process said. But the lack of residential zoning in the area does not seem to be a factor for Flannery Associates.
Since its buying jag began, the company has filed suit in federal court against a group of families the firm purchased property from, seeking $510 million. Flannery Associates claims the families conspired to inflate their property values in a scheme to get more money.
Garamendi (D-Walnut Grove) lambasted the company for how it has handled the purchases and for not working with local residents.
Advertisement
“Flannery Associates is using secrecy, bully and mobster tactics to force generational farm families to sell,” Garamendi said during an informational committee hearing on Tuesday that addressed the company’s actions.
For years, residents and politicians speculated that Flannery Associates was backed by foreign investors seeking to spy on Travis Air Force Base. Located in Solano County, the base is one of the busiest military facilities in the nation. Most of the land surrounding the base is now owned by Flannery Associates, according to county documents.
Some of the company’s financial backers were revealed in an article last week by the New York Times, and they include a cadre of tech entrepreneurs and venture capitalists.
On the eastern end of Solano County, the city of Rio Vista is now surrounded by Flannery Associates land. Mayor Ronald Kott said that, like many Solano County officials, he had not been approached by anyone from the company to discuss plans for the land.
Although he’s now aware of the company’s goals and some of the financial backers, he’s still unsure how his city of 10,000 residents found itself surrounded by land owned by a group of tech billionaires.
“I have more questions than answers,” Kott said. “Our destiny is going to be determined by whatever they’re going to do.”
Flannery Associates has said little since it was formed as a limited liability company in the state of Delaware in 2018. The company’s actions were first reported by ABC7’s San Francisco Bay Area news station, KGO, which said a mysterious company was purchasing large amounts of land.
Flannery Associates is led by Jan Sramek, a former Goldman Sachs investor who found fame and fortune by the time he was 22, according to a 2010 Business Insider article. Sramek previously worked out of Goldman’s offices in London, but his LinkedIn profile now lists Fairfield, Calif., in Solano County as his primary location.
In a self-help book he co-wrote, Sramek says if given the chance to give his younger self a bit of advice, he would quote Ayn Rand: “The question isn’t who is going to let me; it’s who is going to stop me.”
He did not immediately respond to requests for comment.
For years, Garamendi and U.S. Rep Mike Thompson (D-St. Helena) tried to pierce through the opaque veil that surrounded Flannery Associates. Then, in the last week, representatives of the company attempted to arrange sit-down meetings with the Congress members and the survey was sent out to residents.
The survey said that the issue of a new city might be on next year’s ballot, which was news to Garamendi and Thompson. There have been no efforts made by any groups to get a new measure on the ballot for this project, according to officials. The survey also said the developers would replace the county’s existing aqueduct — calling it “one of the most polluted in California” — generate tax revenue for schools and be entirely funded by private sector money.
Thompson said the company’s actions had raised food and national security concerns. He’s asked the U.S. Air Force, the Treasury Department, the Defense Department and the FBI to investigate the land purchases. Thompson met with representatives from the company, including Sramek, according to KGO.
“And I don’t think they had a clear understanding of the significance of livestock in Solano County,” Thompson said. “And it was my impression that they kind of pooh-poohed the agricultural value of the land.”
Garamendi plans to meet with representatives from Flannery Associates at a later time, according to his office.
Solano County Supervisor Monica Brown is not familiar with Silicon Valley and spent most of her professional career as a schoolteacher. She heard from friends who received the survey and wondered if the company had the best interests of the county’s current residents in mind.
“We’re growing food and helping people. Why would you stop economic growth like that?” she told the Los Angeles Times. “Why would they spend $800 million and not be transparent about it?”
Flannery Associates has purchased more than 140 parcels of land, according to court records and county assessor data. That number is growing every day, officials say.
But in its lawsuit, the company claims that it overpaid and is seeking to claw back some of its money.
Attorneys for Flannery Associates have referenced personal relationships and text messages among neighbors in court documents — neighbors who could be influenced, they argue, by a scheme to drive up asking prices for the land.
The lawsuit has had a chilling effect on some landowners in the Montezuma Hills and Jebson Prairie area of the county. Multiple residents in the area declined to comment about the company for fear of being named in a lawsuit.
Others who spoke on condition of anonymity to avoid retaliation by the company say they feel as though Flannery Associates will target anyone who speaks out about the company’s aggressive tactics to buy land.
Garamendi called the lawsuit a “heavy-handed, despicable intimidation tactic.” He said that the company managed to purchase all the land without any of the current governmental safeguards in place to flag the issue. He said that, in the future, information about large land sales, and who is buying and selling, would be vital for lawmakers and residents.
Thompson introduced a bill that was inspired by the Flannery Associates land purchases that would provide more effective tools for state agencies to investigate large land sales.
Through a spokesperson, Flannery Associates said members of the company “care deeply about the future of Solano County and California and believe their best days are ahead.”
The company said the project aims to bring “good-paying jobs, affordable housing, clean energy, sustainable infrastructure, open space, and a healthy environment” to Solano County.
“We are excited to start working with residents and elected officials, as well as with Travis Air Force Base, on making that happen,” spokesperson Brian Brokaw said.
The company says it resorted to secrecy while purchasing the land to avoid rampant real estate speculation. But it has not disclosed specific details about the scope of its project. Representatives for Flannery Associates are meeting with community leaders to present their vision, according to Brokaw.
Michael Moritz, venture capitalist and longtime San Francisco resident, is one of the financial backers behind the company. In a 2017 email viewed by the New York Times, Moritz described an opportunity to invest in a new California city. He explained how investors could transform farmland into a bustling metropolis.
Sequoia Heritage, the $15-billion wealth management firm Moritz founded in 2010, did not immediately respond to requests for comment.
But in a February New York Times opinion piece, Moritz described some of his frustration with San Francisco and how the city had become “a prize example of how we Democrats have become our own worst enemy.”
He described legislators who deceived voters with tweaks and rule changes to the city’s charter so they could stay in power and drive seismic shifts in the local government.
“The core of the issue, in San Francisco and other cities, is that government is more malleable at the city level than at higher levels of government,” Moritz wrote. “If the U.S. Constitution requires decades and a chisel and hammer to change, San Francisco’s City Charter is like a live Google doc controlled by manipulative copy editors.”
Other financial backers with Flannery Associates include LinkedIn co-founder Reid Hoffman; Andreessen Horowitz venture capital firm investors Marc Andreessen and Chris Dixon; payments company Stripe co-founders Patrick and John Collison; Emerson Collective founder Laurene Powell Jobs; and entrepreneurs turned investors Nat Friedman and Daniel Gross, a Flannery Associates spokesperson confirmed.
Although those names were not repeated at an agricultural committee hearing on Tuesday, lawmakers were thinking of the financial backers’ actions.
Flannery Associates’ land buys threaten the makeup of eastern Solano County, mainly the land under the California Land Conservation Act, which sets aside properties for agricultural purposes and open space. The penalty for not obeying that policy does not seem to dissuade Flannery Associates, former West Sacramento Mayor Christopher Cabaldon said during the committee hearing.
The act, also known as the Williamson Act, can include a fee for the incompatible structures built on the land. For billionaire property owners, that could just be seen as the price of doing business.
“In some sense,” he said, the conservation program has “been like a flag that says, ‘Buy here.’”
The Flannery Associates project illustrates just how weak current tools are for dealing with a project of this size. Secrecy further hampers state regulators unaware of a buyer’s intent for the land, Cabaldon said.
Brokaw, the Flannery Associates spokesperson, said the company wouldn’t comment on specific issues brought up during the committee hearing but was meeting with county and state leaders to address their concerns.
Officials and landowners worry that much of the infrastructure needed to build a new city is just not present in eastern Solano County. And an influx of development would almost certainly drive out any farmers from the region.
But another scenario that could present itself is Flannery Associates moving ahead with its project only to have it fall apart years later.
“Even if the project is rejected locally … you can’t reset the clock,” Cabaldon said. “You cannot turn it back and say, ‘OK, no harm, no foul. Let’s just return to the way that this community was two years ago.’ Because the owners will be gone, the family farmers will have left.”
Times staff writers Jessica Garrison and Ryan Fonseca contributed to this report.
Since last weekend’s New York Times exposé of alleged sexual harassment and a “culture of fear” at the National Association of Realtors (NAR), speculation about what happens next at the trade association has been in overdrive.
HousingWire has heard from several sources that NAR, which serves more than 1.5 million real estate professionals, has planned an emergency leadership team meeting for Thursday, which may result in resignations.
This meeting would come at a great inflection point for NAR, as Kenny Parcell, who had served as NAR president since November 2022, resigned on Monday, after being called out for alleged sexual harassment by 16 of the more than two dozen current and former NAR employees interviewed by the Times.
NAR president-elect, Tracy Kasper, who was set to take office in November, began her term on Monday after Parcell’s resignation. Bob Goldberg, NAR’s long-time CEO, is set to retire at the end of 2024, closing out his 30-year career at the trade group.
Parcell has defended himself over the allegations in the NYT story. “I am deeply troubled by those looking to tarnish my character and mischaracterize my well-intended actions,” Parcell wrote in a letter to NAR’s Executive Committee and Board of Directors, first published by RISMedia. “This resignation signifies that I will put the organization’s needs first to move forward above my own personal needs to stay in this position.”
Parcell also wrote that the allegations were false, and claimed he was the victim of character assassination.
In the Times investigation, three women described a pattern of inappropriate behavior by Parcell, who runs the Kenny Parcell Team at Equity Realty in Spanish Forks, Utah.
One woman reported that Parcell placed his hands down his pants in front of her, while another woman said that she received unsolicited lewd photos and texts from him, including a picture of his crotch. Parcell denied that he had done anything inappropriate, saying the picture in question was of a promotional belt buckle and he was asking for input on the design.
A third woman, Janelle Brevard, who filed a lawsuit in the summer, disclosed a consensual relationship with Parcell that lasted months and ended with the NAR president allegedly retaliating against her.
Brevard settled a lawsuit with NAR that included a $107,000 severance payment and a nondisclosure agreement, the Times reported. According to Bruce Fox, a lawyer who began representing Brevard in August, his client decided to settle the case after “feeling intimidated by such a powerful adversary.”
Another woman, Amy Swida, a director of business meetings and events at the organization, filed an internal complaint of sexual harassment or gender discrimination by Parcell. Swida alleged that he was cruel and condescending to her after she became pregnant. She worried about being cut off from future opportunities.
“I’m scared every day coming to work,” she told the Times. NAR said Swida’s complaint was documented, and she was promoted several months later. Parcell also denied any wrongdoing.
“There is the sexual harassment, and then woven into it, this culture of fear,” Stephanie Quinn, the organization’s former director of business meetings and events told the Times. “His behavior is predatory.”
In a statement on Tuesday, Kasper said that it was important to NAR that they “take this moment to learn and focus on building a culture of camaraderie where we can do the good work we are all so passionate about.”
“This is a really hard time for our association. But I know this is an opportunity to really listen and grow together,” Kasper added. “As your president, I take the responsibility of rebuilding very seriously. Know I’m here for you, as is the entire leadership team, and we will get through this together.”
After much speculation and fear mongering, the FHFA finally announced this morning that the conforming loan limit for mortgages acquired by Fannie Mae and Freddie Mac would stay put at $417,000 in 2014.
There was some panic the FHFA would lower the loan limits now that we’re mostly out of the woods housing crisis-wise, but interested parties like the National Association of Realtors fought tooth and nail to keep the existing limits in place.
The $417,000 loan limit applies to one-unit properties in the contiguous United States, sans the “freak states,” otherwise known as Alaska and Hawaii.
In those states, along with Guam and the U.S. Virgin Islands, the conforming loan limit is 50% higher and will remain at $625,500.
There Are Two Loan Limits In Effect
Since 2008, there are actually two sets of mortgage loan limits, including the “general” and “high-cost.”
The general, or traditional conforming loan limit, hasn’t changed since 2006, before rising about fourfold since 1980.
Yes, it stood at just $93,750 back in 1980, and was even as low as $252,700 in the year 2000 before rising like crazy along with home prices.
However, the high-cost loan limit has gone on a wild ride thanks to all types of housing crisis legislation, including the Economic Stimulus Act of 2008 and the Housing and Economic Recovery Act of 2008 (HERA).
The high-costs limits were as high as $729,750 from mid-2008 until late 2011, but have since fallen to a maximum of $625,500, which is 50% higher than the general conforming limit.
What About a Loan Limit Increase?
Well, HERA requires that prior home price declines be “fully offset” before an increase can take place.
Yes, home prices have skyrocketed over the past year and change, but they aren’t quite back to where they were.
So until national home prices rise back to pre-crisis levels and beyond, don’t expect an increase to the conforming loan limit.
For the record, many states in our great nation don’t even have a need for the high-cost limits. It’s only relevant in places like California, Colorado, Florida, DC, and parts of the Northeast.
In fact, most metropolitan areas have general conforming loan limits that are too high based on their median home price.
And heck, mortgage rates on jumbo loans are cheaper than conforming loans nowadays, so why even fret?
2014 High-Cost Loan Limits Higher in 18 Counties
But wait, there’s more. The high-cost loan limits actually increased in several counties nationwide, though the FHFA didn’t bother to tell us which ones.
However, we’re fortunate enough to have Holden Lewis of Bankrate do the dirty work for us.
The following metros saw increases either because home prices increased in the areas, or thanks to new metropolitan area boundaries established by the Office of Management and Budget (OMB).
In other words, some counties joined existing metropolitan or “micropolitan” areas where median home values were higher. And they use the highest-cost county median home value to set the entire area.
Here are the lucky winners:
Garfield, Colorado – $625,500 limit, up from $417,000 Kalawao, Hawaii – $657,800 limit, up from $626,750 Maui, Hawaii – $657,800 limit, up from $626,750 Camas, Idaho – $625,500 limit, up from $417,000 Lincoln, Idaho – $625,500 limit, up from $417,000 Essex, Massachusetts – $470,350 limit, up from $465,750 Middlesex, Massachusetts – $470,350 limit, up from $465,750 Norfolk, Massachusetts – $470,350 limit, up from $465,750 Plymouth, Massachusetts – $470,350 limit, up from $465,750 Suffolk, Massachusetts – $470,350 limit, up from $465,750 Rockingham, New Hampshire – $470,350 limit, up from $465,750 Strafford, New Hampshire – $470,350 limit, up from $465,750 Dutchess, New York – $625,500 limit, up from $417,000 Orange, New York – $625,500 limit, up from $417,000 Gates, North Carolina – $458,850 limit, up from $417,000 Buckingham, Virginia – $437,000 limit, up from $417,000 Culpepper, Virginia – $625,500 limit, up from $417,000 Rappahannock, Virginia – $625,500 limit, up from $417,000
By the way, the FHFA noted that the new boundaries resulted in lower loan limits in certain areas, though I don’t know which those are, or if it’s even important.
It didn’t always feel like it, but 2016 was a pretty good year for the housing market. From Brexit to Trump, there were several surprises, but ultimately, we’re heading into 2017 with a solid footing underneath us.
No one knows exactly what will happen in the new year, and with a new administration taking office in January, it’s not easy to make detailed predictions. However, there are several data points that we can use to point us in the right direction.
So what’s in store for the housing in market in 2017? Here are 5 things to watch out for.
1. Mortgage rates will move higher
The 2016 housing market was fueled by extremely low mortgage rates. We saw rates bottom out last year at near record levels (around 3.5%) after the Brexit vote. Post-election, they’ve skyrocketed over seventy basis points (one basis point = 0.1%), mostly due to expectations that the Donald Trump administration will boost the economy with its infrastructure spending plan. While the quickness with which rates rise might soften somewhat, it’s widely expected for mortgage rates to continue on their ascent next year.
The Federal Reserve’s Federal Open Market Committee (FOMC) just recently raised the benchmark interest rate by a quarter-point for the second time in a decade.
The FOMC will meet at least eight times in 2017, and fed officials have stated that they believe it will be appropriate to raise the federal funds rate around three times throughout the year. It’s true that the FOMC does not directly control the direction of mortgage rates, but it can play a large role in influencing which way rates are headed.
So how high will mortgage rates rise?
It’s not unfathomable to suggest that mortgage rates could be somewhere between 4.75%-5.0% in the fourth quarter of 2017. Long-term interest rate speculation should always be taken with a grain of salt though. Many, many things could happen between now and then.
Click here to get today’s latest mortgage rates.
2. Millennials will buy more homes
In 2016, Millenials (ages currently 18-34) surpassed Baby Boomers as the largest living generation in the United States. While rising mortgage rates might price some of them out of the market, they are still poised to be one of biggest demographics of home buyers (some estimates are saying they will account for up to 33% of home buyers).
Marriage and children are no doubt on the way for many of them, and those are two key life events that often precede the motivation to purchase a home.
One other interesting trend for millennials in 2017 is the decision to settle in the Midwest. Apparently, the affordability and the proximity to big universities is enough of a draw in to keep millennials from heading to the coast.
3. Home price growth will soften
In 2016, home prices rose around an estimated 5%, putting them back to where they were before the housing bubble burst in 2008. While that may be great news for home owners, it’s not something every prospective home buyer is crazy about.
Nevertheless, home prices are expected to continue to rise over the course of the new year, albeit by a slightly lower margin. Zillow’s Chief Economist Svenja Goodell is predicting home prices will increase by 3.6% next year. That’s right about where other economists are predicting, give or take a few basis points.
Of course, in a nation as large and varied as the United States, not every housing market is created equal. Some markets will continue to march forward with strong growth while others will slow down and falter. For instance, cities in the western United States are predicted to outperform their eastern counterparts (just as they did in 2016) next year. As you can see below, five of the top ten cities in the graphic below are located out west.
Taken as a whole, though, home price growth will moderate somewhat compared to 2016.
4. New home construction gets more expensive
The construction industry struggled to find workers in 2016, and that trend is expected to continue. According to the National Association of Homebuilders, there are an estimated 200,000 vacant positions in the construction industry right now.
It’s not just confined to one position either. Employers are finding it extremely difficult to find both entry level and experienced workers alike. With less laborers competing for jobs, companies are forced to raise wages in order to attract talent.
Those extra costs will inevitably get passed on to customers, resulting in an increased cost for new construction. Not only that, this shortage of labor means that fewer houses are being produced.
Wild Cards
Fed overplaying their hand
Not everyone is so optimistic about the housing market and the economy in general. A recent report from the Financial Times shows that many economists are extremely doubtful that the Federal Reserve will wind up proceeding with multiple rate hikes in 2017. Instead, they believe that the Fed will raise rates once at their June meeting.
It’s definitely reasonable to be fairly skeptical of fed rate hike predictions, seeing how some fed officials were touting up to four rate hikes this year and in the end they barely pulled one off.
Doubts about Trump stimulus
While the stock markets surged after Donald Trump came out and stated that he has plans for substantial fiscal stimulus, some experts believe the path ahead won’t be so smooth. Euro Pacific Capital CEO Peter Schiff has come out recently as one of the few economists to question the efficacy of Trump’s plan. Here it is in his own words:
“The Federal Reserve is going to have to step up to the plate big league if Donald Trump is going to want to move forward with the tax cuts and spending increases that he has promised the electorate. That’s where the markets have it wrong. They somehow think that fiscal stimulus is a substitute for monetary stimulus. It’s not. If we’re going to have larger deficits, it’s impossible to finance them unless the Federal Reserve does it. That means they’re going to have to be launching another round of quantitative easing that is much larger than the ones we’ve had in the past. Rather than being dollar positive, this is a negative for the dollar … If currency traders actually understood what was happening, higher inflation is very bad for the dollar because the Fed cannot fight it.”
Bottom Line
Trying to predict the future is often more a mental exercise than it is an actionable guideline. There are just too many unknowns to hang your hat on anything more than several months out. It’s still important to go through the data and try to gain a better understanding of things to come. While there’s no guarantee that any of these predictions will come true, borrowers, investors, and onlookers that are aware of the expectations are better suited to adapt to whatever unfolds in the 2017 housing market.
Data for the graphic via Realtor.com
Carter Wessman
Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.