Is There a New Real Estate Bubble?

A recent survey of mortgage lenders found fears that a new real estate bubble may be inflating in various U.S. real estate markets. Given the untold economic destruction the last bubble caused, is it possible that we could be so careless again?

Predictive analytics firm FICO (producer of the famous FICO Score), said it had North American bank risk managers interviewed by the Professional Risk Managers’ International Association, and got some disturbing feedback.

In the survey, 56% of respondents expressed concern that “an unsustainable real estate bubble is inflating,” FICO said. These professionals were directly involved in mortgage lending.

But what is a real estate bubble, and how do we know when one is dangerously inflating? Historically, the prices of homes are directly related to the wages made by the people expected to buy them. One classic formula used by economists who track these things is “3-to-4-times-income” – meaning that the median price of a home in a given market should be around three to four times the median annual family income in that market area.

So, when the median family income is $50,000 in an area, and the median price for a home is between $150,000 and $200,000, no one is alarmed. However, when it gets much higher than 4X, economists start to get concerned.

Mortgage professionals usually get more specific, using a measure comparing disposable income to loan payments required. These pros look at the total amount of debt someone has taken on – including the mortgage being applied for – then look at the income that family has available to service this debt.

If someone has racked up a lot of auto and credit card debt, it would count against their total, and make it less likely they would be approved for a mortgage.

This more precise gauge of housing affordability would also take into account fluctuations in interest rates – which can seriously impact the monthly payment on a given mortgage.

In any case, there are “red lights” that signal when a market has become expensive by historical standards, or when consumers are spending more of their income paying off debt than is considered prudent.

Apparently, there are a lot of mortgage pros who feel we’ve now reached this danger zone.

According to FICO, 59% of bankers surveyed cited “high debt-to-income ratio” as their top concern when approving loans. Coming in second and third were “multiple recent applications for credit” (13%) and “low FICO Score” (10%).

Andrew Jennings, FICO’s chief analytics officer, called attention to the strange situation present in the U.S. in which home prices are soaring in major cities – and homeowner equity is at its highest level since late 2007 — while six million homeowners remain “underwater” on their mortgages (or owning more than their homes are worth). 

“That doesn’t feel like a healthy, sustainable growth situation. No wonder many lenders in both Canada and the U.S. are concerned about the risk in residential mortgages,” Jennings said, describing the home loan environment as “bifurcated.”

While this survey sounds some alarms, we’ll still have to see some compelling new data on the current relationship between home prices and incomes before getting too freaked out.

There are certainly signs that some markets, (particularly in California), have become distinctly bubbly again, but it would be a surprise if the data revealed this to be a national phenomenon.

Still, the possibility that new real estate bubbles may be inflating should send shivers up the spine of every American. These mortgage professionals are on the front lines of real estate lending, so their concerns should be taken very seriously indeed.


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Some Homebuyers Choose Fancy Kitchens Over Good Schools

According to some new research, the perfect kitchen or bedroom often mean more to homebuyers than such practicalities as good schools and access to public transportation.
The latest Home Index Survey (PGHI) from homebuilder PulteGroup finds that 29% of Americans polled consider the kitchen to be the most important consideration when choosing a new home. The second most vital room in the house was the master bedroom, according to 22% of respondents.
Surprisingly, the living room was only #3, at 18%.
But are these home features more important than location? For many, they are:
Pulte said that 44% of respondents would give up a location near public transportation in exchange for having the most desirable features in a home.
Thirty five percent would give up better schools for their favorite amenities, while 34% would trade proximity to entertainment and shopping for that perfect kitchen or bedroom layout.
Looking at some of these poll results, it’s easy to see why people often choose to buy homes that are farther away from major shopping, employment or cultural centers (exurban) in order to get more interior space, or nicer amenities.
Home is where the heart is – but only if it comes with an island kitchen.

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Foreclosures Still Too High

A new report from CoreLogic shows that foreclosures were down in May from a year before, up from the month before, and still at twice the rates seen before the recession.
According to CoreLogic’s May National Foreclosure Report, there were 47,000 completed foreclosures nationally during May. That’s down 9.4% from May 2013, when there were 52,000, but 3.8% higher than the roughly 45,000 recorded in April 2014.
The term “completed foreclosures” refers to a process that has resulted in a homeowner actually losing a home. Many homes are at some stage of foreclosure in a given month, but homeowners often pull their homes out of foreclosure by catching up on their mortgage payments, or getting their lenders to agree to a short sale, among other things. Only when the homeowner loses the home can the foreclosure process be recorded as completed.
While foreclosures are certainly down from their worst post-recession levels, they are still far more common than during the pre-housing market collapse years. For instance, from 2000 and 2006 there was an average of 21,000 completed foreclosures nationwide each month.
These statistics show that, while housing markets across the country had a robust recovery last year, there is still a way to go before we declare housing and real estate as being “back to normal.”

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Which Cities Have More Pet-Friendly Rentals?

Online real estate firm said it has tallied user data from its mobile application for rentals, and discovered some interesting things about where its users are searching most, and which cities have the most pet-friendly rental listings.
The company said that Chicago is the big winner in both categories. The Windy City ranked #1 in terms of user searches, #2 in total inventory (3,544) and a big #1 in its percentage of pet-friendly rental listings (49%).
Las Vegas beat Chicago in total inventory (4,497) but only a scant 4% of rental listings from that city were deemed pet-friendly.
Other cities in the top 10 included Atlanta, Dallas, Orlando, Los Angele, Houston, Miami, Charlotte and Jacksonville. No one came close to Chicago’s pet-friendliness, with the #2 city in that category (Dallas) boasting only 28% pet-friendly listings. said that its rental app is available for iOS and Android, and makes a handy tool for finding rentals in a number of cities.
It’s a good thing that the app finds pet-friendly listings, since this is an aspect of renting that can be very frustrating, expensive (or both) for renters. If you are looking to rent, don’t take it as a given that your potential landlord will be OK with you having a pet. Some will, some won’t and some will simply charge you more as security deposit.
So, make sure you get that detail sorted out before you sign any lease, or plan any moves.

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Pet Friendly Rentals, Rental Apps

Fed, European Central Bank Keep Mortgage Rates in Check

It looks like mortgage rates will stay reasonable for the time being, as Fed caution and European stimulus help to keep a lid on big moves.

Bankrate, in its weekly survey, found that average mortgage rates largely unchanged last week, versus the week before. The benchmark 30-year fixed mortgage rate dropped from 4.34% to 4.33%, while the 15 year fixed inched up to 3.44%, from 3.43%.

Most experts were looking for higher rates this year, as the Fed continued its “tapering” of bond purchases. Bankrate points out, however, that the slow economy of early 2014 helped put the brakes on mortgage rate rises, despite the taper.

And while the Fed is tapering, the European Central Bank has moved into stimulus mode. Bankrate said that ECB policy has kept interest rates down in Europe, which has helped to make U.S. Treasuries more attractive to overseas investors.

With mortgage rates tied closely to government bonds, the overall effect of these moves is to keep mortgages affordable for U.S. customers.

So, between the Fed’s cautious approach to raising rates, and the effects of the ECB’s stimulus, we have some powerful forces working to keep mortgage rates pretty much where they are.

This doesn’t mean that rates will never rise above 5%, (as experts were predicting they would during 2014), it just means that things are calm for now.

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Consumer Jitters Slow Home Sales

A new survey from mortgage funder Fannie Mae shows that concerns about the economy and household income are causing many Americans to hold off on the purchase of a home.

Fannie Mae said that, in its May 2014 National Housing Survey, the share of respondents who still believe the economy is headed in the wrong direction remained at 57% last month.

A smaller percentage of Americans reported that their household income is significantly higher than it was at the same time last year, (at 21%, down 4%). 

These factors have caused many to feel reluctant to enter the home buying or selling market, causing market activity to fall below typical seasonal trends.

Many people feel that the frenzied price increases of last year have stabilized. For instance, fewer people responding to Fannie Mae’s latest survey (versus last year’s survey) felt that prices would rise in the next 12 months, and a bigger percentage felt they would fall.

Also, a smaller percentage than last year felt that mortgage rates would rise.

With these results, it’s clear that people are feeling less pressured to buy homes, even as they have increasing concerns about their own financial situations. Call it a “double whammy” of sentiments causing many Americans to shun housing markets this spring.


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Foreclosures Drop, Again

There were 46,000 completed foreclosures across the U.S. during April, according to a new CoreLogic report. That’s down 18% from the 56,000 recorded in April 2013.

Foreclosures were also down a bit month-to-month, falling from March 47,000 in March.

Keep in mind that “completed foreclosures” refers to homes that are actually lost in foreclosure. A far bigger number of homes are in some stage of foreclosure each month. CoreLogic said that around 5 million homes have been lost to foreclosure since the financial crisis began in September 2008.

As for homes that are in some stage of foreclosure process – otherwise known as “foreclosure inventory” – CoreLogic said that number was 694,000 as of April 2014. This is way down from the 1.1 million that were on the books in April 2013.

Foreclosure inventory has now been dropping for 30 straight months, the company said. This is good, since it means that housing markets have stabilized a good bit in recent years.

However, this drop in foreclosures has also contributed to upward pressure on home prices, since the number of distressed or foreclosed homes for sale has dropped.


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Foreclosed Homes, Foreclosures April

Mortgage Rates Rise


Mortgage rates ticked up last week following several weeks of declines. The change isn’t that dramatic, but it reminds us that the experts have been predicting higher rates this year, and things could get more expensive for homebuyers.

According to Bankrate’s weekly survey of U.S. mortgage rates, the benchmark 30-year fixed mortgage rate moved up, from 4.25% to 4.32% last week. The 15-year fixed also rose, from 3.35% to 3.41%, while the 5/1 ARM came in at 3.31%, up from 3.24% the week before.

What caused the leap? Market participants see the economy is picking up steam as we head into the summer months. Normally, this might move rates higher, since a strong economy creates a greater competition for credit (and mortgage bond buyers).

But conditions this year are also being greatly influenced by Fed, which has signaled that it intends to end its “easy money” policies of recent years.

With the Fed tapering off on its purchase of mortgage-related bonds – and signaling that it may call for higher interest rates this year – there is a “hair trigger” quality to mortgage rates, with changes happening fast on signs of economic change.

Economists had called for 30-year fixed mortgage rates in the 5-5.50% range to happen this year. Then, the economy got off to a sluggish start in early 2014. Rates stagnated, and then dropped a bit.  But the rising economy seen over the last two months has many economists renewing their predictions for higher mortgage rates.

All of this may result in more expensive mortgages at a time when house price increases have been rather dramatic, in many markets, over the past year.


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Real Estate Site Adds Home Plans to Mobile App

Online real estate service said it has added new home plans to its applications for iOS and Android, for home buyers who are interested in looking at new construction options.

The company said that around 50% of home shoppers consider new construction when they’re evaluating their options.

April data from finds that most of new home plans on the market are listed between $250,000 and $325,000, with a national median listing price of $291,981. The average new home plan is a two-story home of a bit more than 2,500 square feet, with four bedrooms, two bathrooms and a two-car garage.

Users of’s mobile app will now have 60,000 new home plans from approximately 7,500 new home communities to browse.

Interestingly, the highest concentration of new home plans currently on the market can be found in Texas. The Lone Star State is followed by North Carolina, Ohio and South Carolina in terms of available building plans and sites, according to the company.

Building from plans can be a fun and rewarding experience – so long as you add up all the costs. Some of these include the costs of running utilities to your new home, and installing sewerage that’s in compliance with new-build regulations. Make sure you hire a competent contractor – particularly if that contractor is you.


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Homeowners Stay Put as Financial Uncertainties Bite

Home sales have gotten off to a rocky start this year, despite momentum coming out of 2013 and the lowest mortgage interest rates in 11 months. What’s causing this stagnation?

According to a new study from RateWatch, around a quarter of potential homebuyers simply do not feel financially stable enough to commit to a home purchase.

For instance, 81% of current homeowners responding to a recent RateWatch survey said they had no plans to purchase a different home any time soon.

Among non-homeowners, financial instability was the #1 reason for not buying a home. And this anxiety was seen across income brackets, according to RateWatch.

In the survey, 32% of non-home owning respondents with an annual household income between $25,000 and $49,999 said that money worries were keeping them from considering a home purchase.  This isn’t particularly surprising, considering that Americans in this income bracket have suffered from years of financial uncertainty, poor access to credit and rising prices.

However, RateWatch said that an even bigger percentage (38%) of non-homeowners with an annual HHI between $100,000 and $149,999 also felt too financially uneasy to consider a home purchase.

Additionally, a full 24% of non-homeowners with an annual household income of more than $150,000 felt this way.

Clearly, there’s a high level of financial anxiety at weighing on Americans this year, and it’s having an effect on current home sales. Perhaps the improving economy seen in the 1st quarter data – particularly on jobs and consumer confidence — will help to ease that anxiety, and spur some additional home buying this summer.


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