If you were looking to buy property or refinance a property this week, you’re timing couldn’t be better!
Even though London is an ocean away, here in the U.S. we’re feeling the after-shock of the UK’s decision to “brexit” – or exit the European Union.
The decision has been devastating to European banks and stocks, but it is driving lots of banking activity here in the U.S.
When the UK decided to “brexit”, fearful investors flocked once again to U.S. Treasuries. Demand drove yields on the 10-Year down to record lows. The yield is at 1.36% as I speak. If you were thinking of seeking safety in U.S. Treasuries, maybe think again…that’s a pretty pathetic return.
When there’s lots of demand for the 10-Year Treasury, prices increase and yields decrease.
The 10-Year yield is loosely tied to mortgage rates because investors who like the 10-Year also like Mortgage Back Securities. High demand also drives mortgage rates down, which is exactly what happened.
As a result, mortgage rates hit all time lows again this week, which naturally fueled strong demand for mortgages. Applications for mortgages surged 14% this week from the previous week, according to the Mortgage Bankers Association (MBA). Applications for mortgages are now 66% higher than one year ago.
The number of people who want to refinance their home loans jumped 21%, which is 113.5% higher than one year ago, when rates were about 3/4 of a percentage point higher.
A big difference this year is a drop in rates for larger, jumbo loans (loans over $417,000), and that’s getting a lot of activity. Many of these refinances are cash-out, as borrowers take advantage of higher home values and more equity.
There was a small boost in mortgage applications for purchases. Purchase volume rose 4% for the week and was 23% higher than last year at this time.
The average rate for 30-year fixed-rate mortgages with conforming loans ($417,000 or less) decreased to its lowest level since May 2013, to 3.66%.
The average rate for 30-year fixed jumbo loans (greater than $417,000) decreased to its lowest level since January 2011, to 3.67%.
Some lenders were even quoting 3.25% on the 30-year fixed for high quality borrowers, according to Mortgage News Daily.
For investors, when rates are this low, you can dramatically increase your cash flow through refinancing. And if you’re purchasing, deals are going to look even sweeter this week.
If you’re new to the real estate loan business, it’s important to know you can lock in today’s rate for 30 days. If you think you might buy or refinance, talk to a lender today. There is no fee to apply, usually.
If you’ve paid cash for some homes, you may want to consider refinancing and taking cash out – now that borrowing money is so cheap. This could potentially allow you to buy more homes which could substantially increase your cash flow.
Two homes financed with today’s low interest rates can increase your cash flow by 5% or even more than a home you own free and clear.
If you can’t qualify for a loan today, don’t give up. If you have bad credit, you can hire a credit repair company. If you have high debt, start paying it down as banks look at debt to income ratios. Talk to a lender now to find out what you need to do to get qualified. You might be surprised that you can!
And if that doesn’t work, well…maybe you could talk to a Chinese lender.
Reportedly, some Chinese university students have been able to get loans with a different kind of collateral than real estate. They are using nude pictures as IOUs on some online lending platforms.
But just sending a naked photo isn’t enough. Borrowers have to be holding their ID card in that photo. They also have to report their family information, including addresses and cell phone numbers.
According to the Nandu Daily, a student can get up to 15,000 yuan ($2,277) credit once a clear photo of a naked borrower holding his or her ID card is uploaded to the lenders.
Baby boomers spending habits have driven the economy for 6 decades. And even though they are at, or nearing retirement age and slowing down on spending, they are still influencing the economy… in unexpected ways.
Landlords at a recent conference for rental housing say there’s a “surprising surge” in the number of older people choosing the life of a tenant over homeowner.
Real Estate Consultant, Jeff Kottmeier says there was a big buzz about older renters at the recent National Multifamily Housing Conference. He heard from a number of landlords who say many applicants are older people who have sold their homes and want to rent a luxury apartment that’s within walking distance of shops, restaurants and entertainment.
Realtor.com’s chief economist, Jonathan Smoke says walkable urban centers and college towns are seeing some of the highest growth from baby boomers moving in.
They tend to like condos near restaurants and shops, cultural venues, and places where they can take classes and stay active.
“The interesting trend is that the places where many young people want to live are the same places where many retirees want to live,” Smoke says.
As a result, builders are constructing more downtown living style condos specifically for seniors, according to Isabell Kerins, a director of product and business development at John Burns Real Estate Consulting.
Developers are also creating more “urban suburbs” to appeal to boomers who want the urban lifestyle but don’t want to move into the city core. For example, some builders are looking to create walkable areas in suburbs with condos near restaurants and retail stores to appeal to baby boomers’ urban desires.
Chief Demographer, Chris Porter at the John Burns Real Estate Consulting firm says that 80% of early, or older, baby boomers still own their own homes. But he says an analysis of homeownership trends indicate that even among older baby boomers, a percentage of them will transition from owning to renting.
The U.S. Census Bureau says there are 8 million people ages 55 to 74, who are currently heading their households. So even a small percentage of that number transitioning into rentals, could have a substantial impact on the rental market.
Some researchers say that most seniors would probably “prefer” to stay in their homes but are having a tough time holding on to them. According to Rolf Pendall of the Urban Institute, he’s noticed a decline in the number of senior homeowners since about 1990 with a big drop during the financial crisis.
He says seniors who own their homes will continue to outnumber seniors who rent, but the number of older renters will likely accelerate over the next 15 years. He and his colleagues are anticipating a growth of senior homeownership from about 20 million in 2010 to 33.7 million in 2030.
For senior renters, they predict a rise from 5.8 million in 2010 to 12.2 million in 2030 – that’s double the number of senior renters today.
This data is very important for builders and real estate investors. If their prediction is correct, the nation will need 6.4 million rental units to accommodate this rental demand among aging seniors.
Why would a senior choose renting over owning?
Tight credit standards and mortgage underwriting are a few of the issues that could prevent Baby Boomers from buying property. Rising rents and stagnant wages are a few more possibilities. And for seniors on a fixed income, keeping up with a hot housing market may be next to impossible.
Plus, if a 60 year old Baby Boomer buys a home on a 30 year fixed rate mortgage, he or she would own the home free and clear by age 90. The only benefit at that point is being able to provide a home in inheritance.
That’s not quite as enticing as buying a home at age 32 – the typical age for buying one’s first home. That home would be owned free & clear by age 62 – just in time for retirement.
So the only real reasons for a senior to buy a home with a mortgage would be to offer a home as inheritance. So maybe Baby Boomer children should be the ones to encourage their parents to own, rather than rent, and maybe even help out with the costs.
The Bureau of Labor Statistics reports nearly 20% of Americans 65 or older are currently working, the highest level since the 1960’s. However, are they doing this because they need the money or they just want to be busy?
Research by the EBRI on retirement, found that of the retirees who work, 82% said they wanted to stay active and involved, 57% said they wanted money for extra things, and 51% said they need money to make ends meet. 43% say it was due to a decrease in the value of their savings or investments.
My family is actually experiencing this exact situation. My mother – who’s 83 now – had built up quite a lot of equity in her home by age 73, but like many seniors, found herself cash poor after my father passed away and the Great Recession cleaned out their retirement accounts.
It made more sense for her to sell her home, invest the equity and rent instead. I personally believe it would have been wiser for her to own rather than throw money at rent, but my family disagreed. As a renter, she does not have to worry about any other home repairs or expenses.
Had I been more outspoken in the situation, I would have helped her get a loan or maybe I would have purchased the house for her. This is still a possibility as I believe she’ll live well into her 100’s. But would she be living in a single family home then or would she want to be in a condo, walking distance to all the things she’d like to do in her 90’s?
I know many of our listeners are facing the same dilemma – wondering how to care for their aging parents, and whether owning or renting is the right decision.
Either way, no matter which view you subscribe to – whether you believe seniors will choose to rent or are forced to rent – the rise in senior renters will likely continue. And, foresight is needed to make sure the rental capacity is there. Developers need to plan ahead for this aging population, and investors should consider rental communities in locations that attract and cater to baby boomers.
That would certainly include areas with great medical facilities, low taxes and an affordable lifestyle. Climate may play a factor as well.