FHA-Backed Loans: Majority of Non-Conventional Financing In 2017

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There are several forms of non-conventional financing including FHA (loans insured by the Federal Housing Administration), VA (loans guaranteed by the United States Department of Veterans Affairs), cash purchases, Rural Housing Service (loans and grants backed by the Single-Family Housing Program), Habitat for Humanity (nonprofit Christian organization funding affordable housing), loans from individuals, and state or local government mortgage-backed bonds.

The 2017 Census Bureau Survey of Construction (SOC) concluded that only 30.8% nationwide financing was non-conventional. The share of non-conventional financing varies across the United States. In the South Atlantic and West South-Central areas of the country non-conventional accounts for 35.4% and in the East North Central it only accounts for 15.5% of new single-family home starts.

FHA-backed loans make up 12.2% of non-conventional financing nationwide making the loans the majority of the non-conventional financing.  In the South Atlantic region FHA made up 19.6%, in the West South Central 13.6%, Pacific 12.8% and New England was the lowest at 0.6%.

Cash purchases made up 9.6% which was the second highest form of non-conventional loans. New England was the highest with 27.3%, Middle Atlantic 15%, East North Central 10.9%, West North Central 10.7%, East South Central 7.9% and South Atlantic only 5.7%. VA-backed loans only accounted for 1% nationwide with the Mountain region being the highest with 13%. Rural Housing Service, Habitat for Humanity, loans from individuals, state or local government mortgage-backed bonds were the highest in West South-Central area at 4.1% and the lowest in New England at 1%.

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Construction Job Openings Increase

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The Great Recession that began in 2007 hit the construction industry hard.  Many jobs were lost and countless construction workers had to change their line of work. Fortunately, since the end of the Great Recession, the amount of open construction jobs has increased.

Access to labor has been a challenge with the high demand for construction workers according to a survey done on the Construction Labor Market. The National Association of Home Builders (NAHB) predicts the sector net hiring to continue in 2018 as the single-family construction market booms.

The BLS Job Openings and Labor Turnover Survey (JOLTS) and NAHB report that the number of open jobs in the construction sector went from 202,000 in June of 2017 to 263,000 in July of this year. The open position rate which is defined as job openings as a percentage of total employment plus current job openings rose to 3.5% in June from post-recession of 3.1%.

Labor access will continue to be a challenge for 2018 however more jobs equals more opportunities.

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Smart Steps to Take When Buying Your First Home

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The first-time home buyer’s nightmare is to fall in love with a home, make an offer and find out that your dream home was every other first-time home buyer’s dream home.  After making numerous offers, it can seem like and impossible goal to reach. The dream can come true and here are some ways to put yourself ahead of the competition.

Using a Realtor is a must. Not only using a Realtor, but a good realtor who knows the area. A seasoned real estate agent is best to work with when buying your first home. In a competitive market, a good realtor with extensive experience and good industry relationships often know of homes that might not be listed yet and can negotiate an offer before they event hit the market.

If you have found a good agent, that agent will probably expect you to be preapproved. Many realtors will not even take a client that does not have a preapproval amount from a lender. This also can be an advantage for a first-time home buyer who is unfamiliar with the home buying search and process. A preapproval will prepare you for how much you can afford and let a seller know you are serious and good for the offer.  No one wants to fall in love with a house and discover that the house you have fallen in love with is out of your budget because you had no clue what your purchasing power was or lose out on it because another home buyer had a preapproval and you did not.

Sometimes taking a road less traveled can lead to your dream home. If you have a certain neighborhood or area you would like to purchase a home in try and locate rental homes. Get in touch with the landlords as some rental home owners may be interested in listing their home but just do not have it on the market yet.  Your realtor can locate these homes in the area and also contact the landlords regarding a potential sale of the home.

Many first-time home buyers want a move in ready home.  It is hard to see the potential in the ugly house for sale.  This can be an easier purchase because the home needs updating or is not staged so many will just pass it over.  Not only is a fixer-upper easier in the competition but also is eligible for certain home loans and money for repairs.  An FHA 203k loan is a loan where you are able to borrow money for both the purchase of the home and the home improvements. Sometimes it is even easier to get approved for a 203k because it is guaranteed by the FHA. Lenders have less of a risk when using a 203k.

Look at broadening your search area. Sometimes looking just outside your target neighborhood can maximize your chances of owning your first home. Young families are often in search of a home in a good school district and often find a neighborhood that want to be in. Instead of focusing on the one neighborhood in that district that you love, broaden your search to include neighborhoods that are close and still are in the same school district.

Transitioning neighborhoods are areas that were in the decline but home buyers and businesses are coming in and revamping the area. This is a good option to go with because many first-time home buyers are skeptical of the current state of the neighborhood. The homes in the transitioning neighborhoods are more affordable.  You get more home for the money and once the neighborhood is transitioned the home will be worth a lot more.  A home in a transitioning neighborhood is a good idea, but depend on a realtor to help you buy a home that they know is going to appreciate.

Searching for and purchasing a home is an exciting step for a first-time home buyer.  The market is competitive and with these tips you are sure to land your dream home.

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New Construction Homes Are High in Demand

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The National Home Builders Association reported that the number of owner households has been rising since the third quarter of 2016. New construction homes are rising in demand.

This demand comes from the slow gain of new residential construction over the past decade. This can be seen in the change of the median age of owner-occupied homes.  The latest data released in the 2016 American Community Survey reports the median age is 37 years compared to a median age of 31 years in 2005.

The decrease in new construction stemmed from many factors.  The remodeling market was encouraged over the purchase of new homes in the past.  One of the reasons was rising home prices that encouraged homeowners to remodel their current home. More than half of owner-occupied homes were built before 1980 in the 2016 report.  New Construction accounted for only 4 % of owner-occupied housing in 2016.

The future for new construction homes is bright. This can be seen in the households living in different ages of house stock. Out of the homes built after 2010 70% are owned by Generation X(age 35 – 54) and Millennials (age 18 – 34). Within this age range, homeowners who are between 35-44 make up 26%, age 45-54 make up 19% and under 35 makeup 25%.

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Conventional Loan Shares Are On The Rise

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In 2008 conventional loans made up three-quarters of new home sales and steadily fell to only 57.3% in 2010.  Fortunately reports show a steady increase since 2010 and shares in conventional mortgages have been above 71% over the past two years.

In the first quarter of 2018 they accounted for 74.2% of new home sales and the highest share in ten years according to the U.S. Census Bureau’s Quarterly Sales by Price and Financing. There was a 0.4%-point increase during the first quarter of 2018.

The chart illustrating the New Home Sale by Financing Source shows FHA loans financed 11% of new homes (down from 13.5% in 2017), cash purchases were 5.2% (13,000 new home purchases with a decline of 1.6%) and VA fell 1.8 percentage points to 7.1%. VA loans market share has fallen 40% since the 2008 Great Recession and on average during the housing boom accounted for only 2.4% of new home purchases. Most of the cash purchases were on existing homes as seen in the reported 22% of all cash on existing-home transactions in June 2018.

The decline in sales that were financed by FHA loans and cash is due to the rise in  the conventional mortgage market share. Conventional loans seem to be the route most new home buyers are taking with it comes to financing a home.

 

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Renting vs. Buying…

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The Great Recession that began in 2007 caused a major housing crisis.  Many are not to blame when they shy away from owning a home. There are many benefits to owning a home that outweigh the negative.

Long-term security and a sense of community. When you buy home, you are able to plant your roots. You can personalize your home without anyone’s permission. Liking your community and the neighborhood you live in improves your quality of life.

Owning a home gives you financial maturity. Home ownership forces you to keep your finances in check. Setting aside money for monthly bills and your mortgage is a must, but there are also unforeseen incidents that occur when owning a home that will need to be paid for.

Homeowners get a huge tax advantage. You will be able to deduct your mortgage interest from your federal income taxes. Renters are not able to claim any of their monthly rental payments.

Your fixed mortgage payments will stay the same. A fixed payment plan takes a good amount of stress off of a homeowner. When you rent you are at your landlord’s mercy and the landlord may choose to increase rent.

Long-term savings are a great benefit.  Once your mortgage is paid off you still have a home to live in. It is reported that home buying is 45% cheaper in the long-term. A house increases in value over time which is a great investment.

Renting a home comes with many rules and regulations.  Some rentals do not allow pets and you are not able to make changes to the property.  The do’s and don’ts when it comes to renting can be a hindrance.

Owning a home is a great investment for you and your family. Once you own a home a landlord cannot sell the house out from under you, leaving you stranded. Home-ownership gives you freedom and financial stability.

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