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New Construction Starts Highest Since October 2008
Housing starts rose to 699,000 in January 2012 which is the highest level since October 2008. Prior to the announcement, Econoday was predicting 657,000 – 675,000 housing starts for January. This is a great sign for the real estate market showing builders are regaining confidence.
In fact, homebuilder confidence in the single-family homes market increased for the fifth consecutive month in February, reaching a four-year high. “This is the longest period of sustained improvement we have seen in the HMI since 2007, which is encouraging,” said NAHB Chief Economist David Crowe in the National Association of Home Builders/Wells Fargo press release.
“Builder confidence has doubled since September as measured by the HMI,” said NAHB Chairman Barry Rutenberg, a home builder from Gainesville, Fla. “Given the recent improvements in new home starts and the increasing number of markets included in the NAHB/First American Improving Markets Index, this consistency suggests that the housing market is moving toward more sustainable growth.”
HousingWire is also reporting construction of multifamily housing increased by 14% to an annualized rate of 175,000 in January and building permits inched up 0.7% to an adjusted rate of 676,000.
Two Things You May Have Missed
Before the end of the year, Congress and the President agreed to extend the payroll tax cut. In that bill, there were two items of interest for those involved in real estate.
1.) The hike in the Guarantee Fees charged by the GSEs Fannie Mae and Freddie Mac.
The 10 basis point increase in the fees has translated to a .375% to .5% increase in mortgage rates for conventional loans. Many customers who started their loans a couple of months ago are being “surprised” with higher than expected rates. Heck, everything you read in the papers says rates are at historic lows and will likely stay there through 2014. Many consumers feel as if their lender is being unscrupulous. However, your lender has fallen victim to the increase in Guarantee Fees and how the secondary market is passing on the cost. What looks like possible lender greed is just a passing on of the increased expense imposed by the government. Sadly, the increased revenue isn’t even being used to help aid an ailing Fannie Mae or Freddie Mac. It is being turned over to the US Treasury to cover the temporary extension of the payroll tax cut.
2.) Permission for HUD to increase the insurance premiums they charge on FHA loans.
If you remember, HUD charges two insurance premiums – a monthly one and an up-front one that is usually added into the loan. Most recently, they reduced the up-front mortgage insurance premium (UFMIP) and dramatically raised the monthly fee (MMIP). It is widely anticipated that, maybe as soon as April, we will see a hike in the UFMIP with no adjustment to the MMIP. While this will help shore up the reserves in the insurance fund, it will simultaneously make buying a home more expensive. No one knows the effective date or amount of the increase. Buyers should look to buy before the increase in fees.
We always hear how our government officials tuck away things in their bills. In this case, while the headlines during the holidays praised Washington for preserving the payroll tax cut, they may have hurt us more in the long run.
Thinking About Investing in Rental Real Estate?
It’s easy to get thrown off by the appearance of a property, your emotions, or what the media is saying. Here are four ways to avoid making that mistake if you are thinking about investing in rental real estate:
Reality Check One: Who is Your Target Market?
If the property is a good fit for your target market, it doesn’t matter if you wouldn’t live there. A renter may enjoy the property.
Reality Check Two: Are You Emotionally Involved?
Emotions shouldn’t be involved in buying a rental property, but it’s something to be wary of. If, at any point in the negotiations, you feel you can’t walk away from the deal, you need to take a step back and review everything! When your emotions are involved, you can’t make rational decisions. It is also a good idea to have a trusted adviser to bounce ideas off and receive confirmation when the property is good.
Reality Check Three: Are the Numbers Really What They Say They Are?
The numbers might look good on paper, but will the rent cover all the expenses? Make sure the numbers are what the sellers say they are. Get copies of any leases to verify rents. Check market rental rates for the area to make sure the current tenants aren’t under or overpaying. And make sure you obtain copies of the bills you’ll be responsible for (taxes, utilities, insurance, etc.).
Reality Check Four: Are You Judging the Book by Its Cover?
Many opportunities are missed because a property makes a negative first impression. The best deals are often those that look rough but can be easily rehabbed. Some properties may need a major face-lift to maximize its potential – but don’t judge a property strictly on its looks or you may miss out on a deal that could pay off big in the long run.
