Buyers Annoyed With New Homes

As reported to Daily Real Estate News in Realtor Mag on Tuesday, July 29, 2014

An increasing labor shortage among homebuilders reportedly is causing more new homes to be delivered late, and buyers say they're getting frustrated that builders don't come back to fix common issues such as sticky doors and loose floor tiles after they move in.

"Builder tardiness" is a growing problem because the economic downturn drove hundreds of thousands of craftsmen and laborers away from housing and into other industries — and they've yet to return to construction, the Los Angeles Times reports. The labor shortage has become "substantially more widespread" since last year, according to the National Association of Home Builders.

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"The incidence of reported shortages is now surprisingly high relative to the current state of new-home construction," NAHB economist Paul Emrath noted in a recent report. About two out of every three builders report paying higher wages due to the labor shortage. What's more, nearly as many say they've had to raise home prices, too. Builders report that their direct labor or employee costs have risen 2.9 percent over the last six months, while subcontractor costs have increased 3.8 percent, according to NAHB.

On average, single-family builders employ about 25 trades when constructing a residential house, and more than half of builders subcontract at least 75 percent of the construction work, according to NAHB. Builders report the greatest shortages in carpenters and framing contractors.

The shortage means that new-home buyers may have to be more patient, housing experts say. Some builders may require subcontractors who did the original work to follow up on any callbacks from buyers for requested repairs. Large builders often send their own maintenance crews to handle callbacks and may be able to respond more quickly to such requests. But for builders seeing an increase in construction and facing a labor shortage, they're response may be delayed and new-home buyers may find they'll have to be patient and follow up frequently.

Source: “Housing Labor Shortage Turning More Severe, Boosting Home Prices,” Los Angeles Times (July 26, 2014)

Interest Rates May Rise Sooner Than Expected

As reported to Daily Real Estate News in Realtor Mag on Wednesday, July 16, 2014

Federal Reserve Chairwoman Janet Yellen said that the Fed may need to raise interest rates sooner than expected, but it all will hinge on the labor market.

“If the labor market continues to improve more quickly than anticipated by the Federal Open Market Committee, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned,” Yellen testified to the Senate Banking Committee on Tuesday. On the other hand, “if economic performance is disappointing, then the future path of interest rates likely would be more accommodative than currently anticipated.”

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Currently, the majority of Fed officials expect the central bank to begin raising interest rates about a year from now. The Fed’s benchmark short-term rate has stayed near zero since December 2008, which has helped to keep interest rates near historical lows.
Recently, the unemployment rate has fallen rapidly, reaching 6.1 percent in June. But wage growth has remained weak, Yellen noted.

Also, Yellen said, the housing market remains sluggish, which she said could slow the economic recovery.

"The housing sector has shown little recent progress,” Yellen testified to the Senate. “While this sector has recovered notably from its earlier trough, housing activity leveled off in the wake of last year's increase in mortgage rates, and readings this year have, overall, continued to be disappointing. The recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery.”

Source: “Yellen: Economy Uncertain, Housing Disappoints, and Rate Hikes Are Coming,” HousingWire (July 15, 2014) and “Yellen: Fed May Move Sooner if Labor Market Keeps Surprising,” The Wall Street Journal (July 15, 2014)

Afraid of Mortgage Rejection? Don't Be!

 As reported to Daily Real Estate News in Realtor Mag on Monday, April 28, 2014

Fifty-six percent of all potential home buyers—those who want to buy a home within the next 24 months—say they’re waiting to purchase because they fear being rejected by lenders. What’s more, 30 percent of current home owners say they don’t think they could qualify for another loan, according to a national consumer survey of more than 1,000 Americans by the firm OmniTel.

The survey also found that 74 percent of potential buyers who need a mortgage say they have not taken the steps to qualify or investigated the mortgage process yet. The survey showed that many potential buyers believe they need nearly perfect credit scores to qualify for a mortgage today. Eighteen percent say they believe borrowers need a minimum FICO score of 770 or higher to qualify. Also, about a third of potential buyers say they believe their debt-to-income ratios are too high to qualify.

But these fears may be overblown. Ellie Mae, which provides a loan origination and tracking software for the mortgage industry, says that 33 percent of all new loans in March had borrower FICO scores below 700. The percentage has been growing, too—a year ago it was 27 percent. The Federal Housing Administration insured loans with average FICO scores of 684 in March. For conventional mortgages, the average remains higher at 755, but is down from 759 a year ago.

Debt-to-income ratios aren’t as strict as most potential buyers believe either. FHA’s average ratio in March for purchase loans was 28 percent; Fannie Mae- and Freddie Mac-backed loans averaged 22 percent, according to Ellie Mae data.

Source: “Mortgages Are Easier to Obtain Than Many Prospective Home Buyers Might Expect,” The Washington Post (April 25, 2014)