More Americans than ever say now is a bad time to buy a home

Fannie Mae home purchase sentiment index falls from all-time high


The number of Americans saying now is a bad time to buy a home reached an all-time high in July, pulling down the overall Home Purchase Sentiment Index released by Fannie Mae.

The HPSI decreased by 1.5 percentage points in July to 86.8, falling from June’s all-time high. This drop was due to decreases in three of the six HPSI components.

The share of Americans who reported now is a good time to buy a home fell seven percentage points in July to 23%, a new survey low. At the same time, the share of those who say it’s a bad time to buy reached a new survey high.

And despite rising home prices, confidence in the seller market is also diminishing as those who said it is a good time to sell a home decreased 11 percentage points to 28%, falling from June’s survey high.

Among consumers who believe now is a bad time to sell, the share citing economic conditions as a primary reason posted a sharp increase. Nearly half of consumers who say now is a bad time to buy cited rising prices as a primary concern — a survey high.

“It’s clear that high home prices are a growing challenge helping to send buying sentiment to a record low,” said Doug Duncan, Fannie Mae senior vice president and chief economist. “However, we find the notable decline in selling sentiment surprising.”

“If it persists, this month’s decrease in optimism regarding the direction of the economy, which appears to coincide with rising uncertainty regarding the outlook for pro-growth legislation this year, could weigh on overall housing sentiment in the second half of the year,” Duncan said.

However, Americans were more confident in their jobs in July, with the share saying they are not concerned about their job rising nine percentage points to 75%. But while they are confident they won’t lose their jobs, Americans who reported their wages are up significantly from last year fell one percentage point to 16% in July.

The share of Americans who think home prices will continue to rise increased one percentage point this month to 47%.

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Fannie, Freddie fail Dodd-Frank severe stress test

Would need nearly $100 billion bailout in economic adversity


The Federal Housing Finance Agency released the latest results of the Dodd-Frank Act stress test results for Fannie Mae and Freddie Mac.

Both of the GSEs failed the test, showing they would need a bailout in the event of a severe economic crisis, the stress test results showed.

The 2017 DFAST Severely Adverse scenario is based upon a severe global recession which is accompanied by a period of elevated stress in corporate financial and commercial real estate markets.

The stress test results showed the GSEs would require an additional combined $34.8 and $99.6 billion. While they would still need a bailout, this is an improvement from last year’s $125.8 billion.

Through the second quarter this year, Fannie Mae paid out a total $162.7 billion to the U.S. Treasury, while Freddie Mac paid out a total of $108.2 billion during that same time period.

An article from MarketWatch explains the scenario the stress tests creates:

Under the hypothetical scenario, a severe global recession with “elevated stress” in corporate financial and commercial real estate markets plays out over nine quarters from 2017 to early 2019. GDP would decline as much as 6.50%, unemployment would peak at 10%, and consumer price inflation would decline to about 1.25%.

Additionally, equity prices would decline about 50% even as volatility picks up. Home prices would fall by 25%, and commercial real estate prices by 35%.

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EXCLUSIVE: Anthem United buying big chunk of bankrupt Township Nine

Homebuilder Anthem United Homes has agreed to buy a big chunk of the bankrupt Sacramento infill project Township Nine.

The Canada-based company will buy 14 parcels within the 62.6-acre project site in the River District, on Richards Boulevard, it was disclosed in a Securities and Exchange Commission filing earlier this week.

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A view of Cannery Place Apartments at Township Nine. 

“We’re familiar with what’s happening here, and we’re excited about the Sacramento renaissance,” said Brendan Leonard, a director of land acquisition and entitlements with Anthem United. “It’s a personal and professional milestone for us to be here.”

Anthem United will pay $17.67 million for those 14 parcels, which are entitled for as many as 429 residential units. The parcels make up about a third of the entire property and are undeveloped lots west and south of Cannery Place Apartments, the only vertical construction in Township Nine so far.

The filing shows the bulk of the purchase, 11 parcels, is designated for 222 townhomes, with 25 of them designated “affordable.” The remaining three parcels are for three multifamily projects of 95, 56 and 55 units each, with some ground-floor retail space.

Leonard said the purchase is contingent on approval from the trustee for Township Nine’s bankruptcy, which was filed in May in U.S. Bankruptcy Court for the Eastern District of California. With that approval, escrow could close within about four months. Anthem United would also need to submit or re-submit plans for those parcels for code updates, design changes and other details.

“We’re not just going to blindly inherit someone else’s project,” he said, though he added the project’s original developers, including Steve Goodwin and Nehemiah Corp., deserve credit for the work they did to get Township Nine as far along as it is already.

Construction of some townhomes in Township Nine could get underway as soon as spring or summer of next year, Leonard said.

The purchase also includes $3.8 million in fee credits for valuation purposes on the properties to be sold. But based on the Chapter 11 bankruptcy filing by the project’s owners, Township Nine Owners LLC and three associated limited liability corporations, the project’s debts are far from resolved.

According to the bankruptcy filing, the project had $45 million in debts, with $42 million of that stemming from the original project loan from a Bay Area firm, Copia Lending LLC. The project was also in arrears in Sacramento County property taxes, according to the filing.

An attorney representing Township Nine Owners LLC did not immediately return a call Friday about the pending transaction. Goodwin, a minority owner in the project, also did not immediately return a call for comment.

Anthem United’s purchase leaves out several other properties within Township Nine. Those include ones designated for hundreds of multifamily units on the northwestern corner of the project, closest to the American River. They also include three properties on the southern end, near Richards Boulevard and the existing light-rail station, designated for about 800,000 square feet of office space.

Leonard said his firm is also interested in the other residential parcels, but he believed other companies are as well. Anthem United is not planning to pursue the parcels slated for office use, he said. Township Nine is also slated for 100,000 square feet of retail space.

Though Anthem United isn’t known in the area for infill, urban projects, it’s had a long presence in the region. Leonard said the company is both the master plan developer and a homebuilder on the Natomas Meadows residential project in Natomas. The company, which has a Roseville office, also is involved in projects in Roseville and El Dorado Hills.

Acquiring the piece of Township Nine meant moving quickly, said Leonard, who joked that he’s sacrificed friendships and familial relationships in the last few weeks to see the deal through.

“We know there’s a lot of interest in this project,” he said. “So we’re happy to plant a flag here.”

Article and image provided by: Sacramento Business Journal

Report identifies Sacramento area’s toughest neighborhoods for building

Some of the nicest neighborhoods in the Sacramento area are also the toughest ZIP codes for new construction, according to one firm’s study.

The ZIP codes encompassing much of Land Park, East Sacramento and the Pocket neighborhoods in Sacramento make the list. Others include unincorporated residential neighborhoods in Sacramento County in Arden-Arcade and around the Del Paso Country Club, as well as much of Citrus Heights.

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The McKinley Village project, 

Issi Romem, chief economist for San Francisco-based construction database website BuildZoom, said nationwide, such neighborhoods tend to have some features in common.

Most are what he called “inner suburban” areas, residential neighborhoods built decades ago with largely single-family housing.

In those neighborhoods, home prices appreciated faster than elsewhere over the period BuildZoom studied, from 2000 to 2015. And those neighborhoods are largely built out, so available vacant land is scarce.

“In downtown, you can tear down an old building or parking garage and build as high as you can go,” he said. “Here, no one will let you tear down and go higher adjacent to single-family homes.”

That’s generally been true for the neighborhoods in the Sacramento area identified in the report. Residents in East Sacramento pushed back against not only a senior housing project in recent years, but also the McKinley Village development of denser but detached housing under construction on the neighborhood’s northern edge.

BuildZoom’s report compared the number of homes built from 2000 to 2015 in the 50 largest U.S. metropolitan areas, broken down by ZIP code and using federal census data. Honolulu was also included. The study identified ZIP codes that saw fewer homes built in that time frame relative to a rise in home prices as tougher to build.

Locally, the greatest change was in 95817, which encompasses the North Oak Park and Elmhurst neighborhoods in Sacramento.

From 2000 to 2015, the neighborhood saw price appreciation of nearly 120 percent, but less than 1 percent new housing. A handful of housing projects, some of them dense, have emerged in that ZIP code more recently, such as Indie Capital’s Oak Park Creatives and Evergreen Co.’s mixed-use project at Stockton Boulevard and T Street.

Romem said identifying these ZIP codes is critical for cities. While cities typically grow outward, that’s becoming less desirable as workers want to be closer to jobs concentrated in urban areas, he said. And home prices have soared out of reach for many in those urban areas, especially coastal cities, he said.

“What this means is who in this country can afford to live where is a real issue,” he said.

To solve it, he said, there a couple of options. One, which politically has little chance of happening, would be to virtually ban single-family housing and encourage builders to go vertical, he said.

The other is to loosen up restrictions on second units in the tough-to-build ZIP codes, Romem said. That could mean either splitting a larger older house into two different living spaces, or building a smaller home on the same lot as an existing home.

“It’s not an easy thing to do politically, but it’s easier than some other options,” Romem said.

Article and image provided by: Sacramento Business Journal

Mortgage Monday: Mortgage Rates Unchanged vs Last Week


Mortgage rates were generally unchanged today, compared to Friday afternoon’s latest levels.  Only a handful of lenders responded to strength in bond markets this afternoon by offering rate sheet improvements.  That’s a mixed blessing as it leaves other lenders with more to work with tomorrow.  In other words, we’ll be heading into the day with a small comparative advantage.  That means if bond markets (which dictate rates) haven’t moved much by tomorrow morning, most lenders should be able to offer improved rates.

A caveat for all of the above is that we’re talking about extremely small movement in the bigger picture.  The overall range has been exceptionally narrow, and most clients aren’t likely to have seen any changes to their quoted interest rate in more than a week.  Instead, changes would be seen in the upfront costs, which allow for smaller fine-tuning adjustments to overall financing costs.
Loan Originator Perspective

If you are seeing improved rate sheets this morning, i would go ahead and lock up today if within 30 days of funding.   The benchmark 10 year note has been unable to break our floor around 2.22%.  Until that breaks, i think locking the lows of the range is the way to go.  –Victor Burek, Churchill Mortgage
Today’s Most Prevalent Rates

  • 30YR FIXED – 4.00%
  • FHA/VA – 3.75%
  • 15 YEAR FIXED – 3.375%
  • 5 YEAR ARMS –  2.75 – 3.25% depending on the lender

Ongoing Lock/Float Considerations

  • Investors were relatively convinced that the decades-long trend toward lower rates had been permanently reversed after Trump became president, but such a conclusion would require YEARS to truly confirm
  • Instead of continuing higher in 2017, rates instead formed a narrow, sideways range, and held inside until April.  Investor perceptions are shifting such that fiscal reforms and other policy developments will need to live up to expectations in order to push rates higher.  Geopolitical risks would also need to avoid flaring up (more than they already have)
  • For the first time since the election, we’re in a rate environment where you wouldn’t be crazy not to lock at every little opportunity/improvement.  Until/unless it’s broken, the highest rates of early-2017 mark the ceiling, and we’re now waiting to see how much lower we can go from here.
  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders.  The rates generally assume little-to-no origination or discount except as noted when applicable.  Rates appearing on this page are “effective rates” that take day-to-day changes in upfront costs into consideration.
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Chimney Liners: Does Your Home Have One – Do You Even Need One?


You rely on your chimney being safe. Whether you use your fireplace for wood-burning fires, you have a furnace that vents through your chimney, you utilize a wood stove or gas insert, your chimney needs to be able to handle heat and sparks without allowing damage to your home. Stone or brick chimneys can be made safer with a flue lining that helps to move heat and gases up and out of your home.

Chimney liners are a protective barrier usually made of metal or ceramic. Liners insulate heat moving through the chimney, protecting flammable areas of your home’s structure. They also protect flue masonry from cracks or crumbling mortar due to repeated heating and cooling.

Why worry about your chimney liner?

Cracks or damage can lessen the effectiveness of the liner, which make burning anything in your fireplace or wood stove risky. Plus, if your liner is damaged, you may have a hard time passing a home inspection and selling your house until it’s repaired or replaced.

In the “olden days,” chimneys were completely unlined or only lined with clay tiles, which could crack or break relatively easily. Especially if you have an older home, an excellent first step is to have a masonry or chimney expert examine your chimney and assess its integrity.

Do you burn wood in your fireplace regularly? You should definitely have your chimney liner inspected as part of an overall maintenance plan performed at least once a year. Cleaning is a good idea as well: The products of burning wood, called creosote, can build up in your unlined or improperly lined chimney, and may eventually cause a fire. Cleaning and inspection from a chimney professional, sometimes called a chimney sweep, averages $298 in the US, according to HomeAdvisor’s surveys of homeowners.

How do you know if your liner needs to be repaired or replaced?

Because it’s hard to see into your chimney, you may be uncomfortable determining whether your chimney professional is accurately assessing your needs. There are two options for confirming a diagnosis of damaged chimney liner:

1. See for yourself. From inside the house, open the flue and look up as far as you can. Next, check the chimney from the roof by removing the cap and doing a visual inspection. Any signs of cracks or rough edges can signify an issue and confirm your chimney professional’s assessment.

2. Hire a chimney professional with a camera. Most modern chimney companies run a scope with camera down the length of the chimney as part of their inspection. Upon request, they’ll likely be willing to record the video and share it with you, detailing the issues they see.

What if you don’t have a chimney liner at all?

If your home is older and you’ve determined that your home only has the stone or brick of the outer chimney, you need to decide whether a liner is necessary. First, check your city’s fire code. This may mandate that you install a liner if you’re making any changes to or installing a wood-burning stove or fireplace. If you burn wood in your fireplace or in a wood-burning stove, it’s recommended that you have a stainless-steel liner to prevent overheating your chimney and risking a fire. In some locations, your city’s fire code may mandate that you install such a liner if you’re making any changes to or installing a wood-burning stove or fireplace.

However, if you’re not using your fireplace and your chimney acts solely as a vent for your furnace or water heater, you may not need to have a liner installed. Cracked masonry should be addressed from an energy-savings perspective — a lot of air could be escaping from your home, depending on where the damage to the chimney is located — but it’s not likely to be a fire hazard.

Homeowners with gas or electric inserts most likely do not need a new liner because those types of fuel don’t produce enough heat to damage a masonry chimney.

Do you have questions about your chimney and whether it needs a new liner? A chimney professional can answer your questions and schedule an inspection for your home.


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Tax Free Exchange: A Valuable Alternative To A Home Sale


Congress is currently talking tax reform. Two very important real estate benefits are on the so-called “chopping block”, either to be completely eliminated or significantly curtailed.

It is doubtful that the home owner exclusion of up to $500,000 (or $250,000 if you file a single tax return) of profit will be impacted; there are too many homeowner voters who will forcefully object. But investors do not have the same strong lobbyist who can make the case for preserving the “like kind” exchange. So if you have an investment property, now might be the time to consider doing an exchange.

Residential homeowners have a number of tax benefits, the most important of which is the exclusion of up to $500,000 (or $250,000 if you file a single tax return) profit made on the sale of your principal residence. But real estate investors — large and small — still have to pay capital gains tax when they sell their investments. And since most investors depreciated their properties over a number of years, the capital gains tax can be quite large.

There is a way of deferring payment of this tax, and it is known as a Like-Kind Exchange under Section 1031 of the Internal Revenue Code. In my opinion, these exchange provisions are still an important tool for any real estate investor.

The exchange process is not a “tax free” device, although people refer to it as a “tax-free exchange.” It is also called a “Starker exchange” or a “deferred exchange.” It will not relieve you from the ultimate obligation to pay the capital gains tax. It will, however, allow you to defer paying that tax until you sell your last investment property — or you die.

The rules are complex, but here is a general overview of the process.

Section 1031 permits a delay (non-recognition) of gain only if the following conditions are met:

First, the property transferred (called by the IRS the “relinquished property”) and the exchange property (“replacement property”) must be “property held for productive use in trade, in business or for investment.” Neither property in this exchange can be your principal residence, unless you have abandoned it as your personal house.

Second, there must be an exchange; the IRS wants to ensure that a transaction called an exchange is not really a sale and a subsequent purchase.

Third, the replacement property must be of “like kind.” The courts have given a very broad definition to this concept. As a general rule, all real estate is considered “like kind” with all other real estate. Thus, a condominium unit can be swapped for an office building, a single family home for raw land, or a farm for commercial or industrial property.

Once you meet these tests, it is important that you determine the tax consequences. If you do a like-kind exchange, your profit will be deferred until you sell the replacement property. However, it must be noted that the cost basis of the new property in most cases will be the basis of the old property. Discuss this with your accountant to determine whether the savings by using the like-kind exchange will make up for the lower cost basis on your new property. And discuss also whether you might be better off selling the property, biting the bullet and paying the tax, but not have to be a landlord again.

The traditional, classic exchange (A and B swap properties) rarely works. Not everyone is able to find replacement property before they sell their own property. In a case involving a man named Mr. Starker, the court held that the exchange does not have to be simultaneous.

Congress did not like this open-ended interpretation, and in 1984, two major limitations were imposed on the Starker (non-simultaneous) exchange.

First, the replacement property must be identified before the 45th day after the day on which the original (relinquished) property is transferred.

Second, the replacement property must be purchased no later than 180 days after the taxpayer transfers his original property, or the due date (with any extension) of the taxpayer’s return of the tax imposed for the year in which the transfer is made. These are very important time limitations, which should be noted on your calendar when you first enter into a 1031 exchange.

In 1989, Congress added two additional technical restrictions. First, property in the United States cannot be exchanged for property outside the United States.

Second, if property received in a like-kind exchange between related persons is disposed of within two years after the date of the last transfer, the original exchange will not qualify for non-recognition of gain.

In May of 1991, the Internal Revenue Service adopted final regulations which clarified many of the issues.

This column cannot analyze all of these regulations. The following, however, will highlight some of the major issues:

1. Identification of the replacement property within 45 days. According to the IRS, the taxpayer may identify more than one property as replacement property. However, the maximum number of replacement properties that the taxpayer may identify is either three properties of any fair market value, or any larger number as long as their aggregate fair market value does not exceed 200% of the aggregate fair market value of all of the relinquished properties.

Furthermore, the replacement property or properties must be unambiguously described in a written document. According to the IRS, real property must be described by a legal description, street address or distinguishable name (e.g., The Camelot Apartment Building).”

2. Who is the neutral party? Conceptually, the relinquished property is sold, and the sales proceeds are held in escrow by a neutral party, until the replacement property is obtained. Generally, an intermediary or escrow agent is involved in the transaction. In order to make absolutely sure the taxpayer does not have control or access to these funds during this interim period, the IRS requires that this agent cannot be the taxpayer or a related party. The holder of the escrow account can be an attorney or a broker engaged primarily to facilitate the exchange.

3. Interest on the exchange proceeds. One of the underlying concepts of a successful 1031 exchange is the absolute requirement that not one penny of the sales proceeds be available to the seller of the relinquished property under any circumstances unless the transactions do not take place.

Generally, the sales proceeds are placed in escrow with a neutral third party. Since these proceeds may not be used for the purchase of the replacement property for up to 180 days, the amount of interest earned can be significant — or at least it used to be until banks starting paying pennies on our savings accounts.

Surprisingly, the Internal Revenue Service permitted the taxpayer to earn interest — referred to as “growth factor” — on these escrowed funds. Any such interest to the taxpayer has to be reported as earned income. Once the replacement property is obtained by the exchanger, the interest can either be used for the purchase of that property, or paid directly to the exchanger.

The rules are quite complex, and you must seek both legal and tax accounting advice before you enter into any like-kind exchange transaction.

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