Commercial Mortgage Apps Up

The number of commercial and multifamily mortgage applications increased 17.3 percent during the second quarter of this year compared to the same period last year, according to the Mortgage Bankers Association.

“Origination activity remains strong and, while the Federal Reserve has been raising short term rates, long term rates have actually been falling recently,” said Doug Duncan, MBA's chief economist. “Our forecast calls for some moderation in economic growth with interest rates stable through the rest of this year. Continued low intermediate and long term rates as well as ample supply of available capital provide a good backdrop for continued strength.”

Credit is Better for Mortgage Holders

An interesting recent study showed a substantial difference in credit histories between persons with and without mortgages. It showed that consumers with mortgages have an average credit score that is 55 points higher than consumers without a mortgage.

Also, the study showed that consumers with second mortgages have an average credit score 81 points higher than consumers without a mortgage. The study was conducted by Experian Consumer Direct, a provider of online direct-to-consumer credit reports, scores and monitoring.

The study further showed that the percentage of consumers with open second mortgages has increased 63 percent from 2001 to this year. The average second mortgage balance in 2001 was $13,994 compared with $21,265 this year – an increase of nearly 52 percent. National and statewide results for the study are available on Experian's Web site at: www.NationalScoreIndex.com.

A Strong Third-best Year for Home Sales

Some consumers seem to think the home selling market is in a nose dive. Far from it. This will probably be the third highest level for home sales on record, according to the chief economist for Freddie Mac. It's true that single-family home construction and existing home sales has declined from last year's record level, but sales and mortgage originations are still very strong. However, rising interest rates this year have put upward pressure on mortgage financing costs. And that, coupled with high home prices, has reduced affordability and has lowered housing demand.

Even though home sales are down, Mortgage activity is particularly strong as a means of consolidating a homeowner's debts. “Borrowers are consolidating home equity loans into new first-lien mortgages to reduce their mortgage payments,” a Freddie Mac report stated. “Borrowers with adjustable-rate mortgages are also refinancing in response to upcoming interest rate adjustments. We estimate that $500 billion in first-lien mortgages and $650 billion in second-liens are scheduled to adjust this year.

“We also estimate that $81 billion was cashed out of home equity through first-lien refinancing during the second quarter of this year – up from $74 billion in the first quarter. Home equity wealth gains have been key to supporting consumer spending. As home price appreciation slows, this mechanism for sustaining consumer spending will diminish, leaving homeowners with less wiggle room to balance higher interest rates with slower income growth.”

Affluent Home Buyers Still Active

More people who make over $75,000 per year are buying homes than ever before. A key reason for that trend is that Baby Boomers have reached the point in life when they are making larger incomes. In many cases, their offspring are also enjoying more income.

This was revealed in a recent study by Coldwell Banker Real Estate Corporation. It was also revealed that 66 percent of survey respondents aged 61 and up, and Baby Boomers aged 42 to 60, have owned between two and five homes. And nearly half of Generation X'ers (aged 32-41 – children of Baby Boomers) have owned between two and five homes.

It was also noted that about half of all respondents have owned more homes than their parents did when their parents were at a comparable age. “These findings suggest that this trend will continue as the younger, upper income generations age,” said Jim Gillespie, president of Coldwell Banker. “Baby Boomers have already equaled the home ownership pace of those 61 and older, and they remain in their prime home buying years. The fact that Generation X homeowners are indicating they have owned multiple homes already shows that they understand the value of buying and owning real estate.”

The study was executed online by Harris Interactive, surveying about 2,500 homeowners aged 25 and over who currently own a home or condo and have a minimum household income of $75,000. The project was implemented to gain a deeper understanding into the behavior patterns of upper income homeowners, it was reported. “Interestingly, these home buyers do not appear to be collecting houses as a means to expand their financial portfolios by constantly moving to bigger and more expensive homes,” Gillespie said. “Instead, the survey respondents indicate they move according to lifestyle needs.”

Home Sales Up in Country and Small Town Markets

Another niche in the current real estate market that continues to be robust is the sale of homes in rural areas and small towns. Some revealing information was provided by United Country Real Estate, a broker franchise system specializing in residential, farm and ranch, commercial and recreational properties located in rural areas and small towns.

Their studies show that the sales volume during the second quarter of this year was up 40 percent, and average sales prices increased 19 percent over the same quarter of last year. United Country is a rapidly growing franchise. It added 29 new franchise offices during this year's second quarter, bringing the total to 565 franchises in 36 states.

Residential Rental Demand Up

The demand for rental housing units is growing. The average vacancy rate for apartment rentals is expected to dip to about 5.7 percent during the last quarter of this year, according to projections from the National Association of Realtors. That's down from 6.2 percent during the same period last year.

One reason for the increased demand is the large number of individuals and families who are in a wait-and-see mode about buying a home. They want to see if prices will come down in the near future. Another reason is the increasing number of consumers who simply can't afford to purchase a home at today's prices – and those prices continue to slowly rise. Consumers who are in a position to buy but are waiting to purchase a home may find that to be an expensive decision. The increasing demand for rental units will inevitably result in higher rents. NAR expects rents will rise an average of 4.1 percent this year, compared to a 2.9 percent increase last year. And of course those mortgage interest rates are expected to slowly rise at least through this year.

Builders and developers are licking their chops in anticipation of the growing market for residential rental properties. A new study conducted by the National Association of Home Builders indicates there will be substantially rising occupancy rates, rising rents, and increased traffic at all classes of rental apartments over the next six months. “Thousands of rental units have been converted to for-sale units to meet what seemed an insatiable appetite for condos,” said David Seiders, NAHB chief economist. As a result, the supply of rental units is very tight at a time when the demand pendulum is swinging back to rentals.”

Both luxury apartments and lower-priced units reached their highest levels of demand on record during the second quarter of this year, according to a NAHB report. At the same time, the supply of available units is declining, and this trend will probably continue until an increased number of new units reach the market. Also, rents reached a record high level during the second quarter.

Condo Prices and Sales Drop

Between mid-2005 and mid-2006, sales of condos decreased by nearly 15 percent, and the number of units on the market increased by almost two-thirds, according to a report posted by Kiplinger.com. During that one-year period, the West's condo market showed the biggest strain, with a 21 percent decrease in sales and an 11 percent drop in prices.

The national median price for a condo is now about $226,900, the report noted. That's lower than the median single-family home price of $231,500. About a third of all U.S. condo owners are investors.

Home Building Educational Program a Success

An innovative educational program for computer-savvy young people was launched nearly four years ago by the National Association of Home Builders. It's titled “Building Homes of our Own,” and is based on special software used as an interactive classroom teaching tool. It's been increasingly popular at schools, particularly in recent months.

About 42,000 copies of the program have been distributed to date, reaching an estimated audience of more than 3 million students, teachers and parents. It allows middle and high school students to experience each step of the home building process, from selecting a location and obtaining permits through construction and material selection to reviewing credit histories of potential buyers. The program's technology course applies to real-world context, offering core lessons in math, science, civics, language arts, and personal financial responsibility.

“As a father of two, I understand the significant role a good education plays in the futures of young people,” said David Pressly, NAHB president. “The `Building Homes of our Own' program makes a meaningful contribution to learning and I'm proud that our industry is investing so much in helping to educate students by developing such a teaching program.”

The program was recently nominated for the Family Learning Software Program of the Year Award by a panel of leading software experts. The program comes in a CD-ROM and includes a printable lesson plan guide. For more information, visit the program's Web site: www.HomesofOurOwn.org/ .

International Real Estate Transactions are Up

The increasing number of international real estate transactions is resulting in some major changes in the industry. For example, the National Association of Realtors in the United States recently announced the formation of a joint venture for exchange of business standards with their counterpart in Mexico – the Mexican real estate association, formally known as the Association Mexicana de Profesionales Immobiliarios.

The relationship is expected to provide greater uniformity of standards of practice in real estate between the two countries. The agreement – NAR's first-ever international joint venture – will result in all members of the Mexican association becoming dues-paying international members of NAR, allowing them usage of the Realtor logo, registration mark and limited international membership benefits.

As part of the new venture, a four-hour course titled “Doing Business in Mexico ” will be launched at the NAR annual conference coming up in November. The course will later be made available to state and local real estate associations. An online version of the course is planned next year. The basic objective of the course is to teach Realtors in the United States about business opportunities in Mexico.

New, Creative Features for Luxury Homes

Fancy master bedrooms, complete with a bedroom kitchen and sitting room, is a popular home amenity with today's affluent home buyers, according to a report in the current issue of Unique Homes magazine. The publication lists 35 of the most sought-after amenities in today's luxury homes. Decorative glass tiles are in, as are special features made from unique and exotic woods, it was noted. And, of course, a private spa has almost become a basic feature in upper-end homes. Showers must have all the bells and whistles, including multiple sprays and shower heads and even waterfall fixtures that mimic rainfall.

Upscale kitchens often include a butler's pantry, along with state-of-the-art upgrades in standard features such as a drawer refrigerator and drawer dishwasher. High-tech home offices is also becoming a standard feature. In fact, some new homes now feature dual “his and her” home offices. Exercise rooms and special “meditation spaces” are included in many of today's luxury homes. Home theaters are becoming more popular and common. Smart-house technologies are an integral part of many new homes. Garages have undergone some of the most dramatic changes. They've become huge, accommodating many vehicles (or a lot of toys). They now include cabinet systems, artistic flooring and even appliances.

Outside, in addition to lush landscaping some homes include putting greens or a private golf course. Some have a stocked fishing pond, while a waterfront home may have its own deep-water dock. The objective of all these luxury features is to enhance the owner's living experience and enrich their lives. That works well for those who can afford it. For the rest of us, there are other ways to enrich our lives.

Jim Woodard writes a nationally syndicated newspaper column on real estate news and trends, carried in about 230 U.S. newspapers – along with freelance features.  Reproduction of this report, in part or entirety, is prohibited without the express permission of the author. E-mail: storyjim@aol.com.