Are we creating a Bubble?
Low Down: The year of 2015 first quarter saw the first time home buyer come back to the market with low down payment loans. A low down payment loan is 3% of the purchase price or less.
27% of all national purchases have been with a low down payment loan. The national average down payment was 14.8% of the purchase price.
The FHA loan is the loan of choice with low down payment loans. The FHA loan will close with a 54% debt to earnings ratio and also includes help from the sellers upon a successful closing.
Foreclosure fillings are up on a national level. Yet this is typically called a (Clean Up Phase) left behind from the recession of 2008. Here on Maui I estimate another 1200 homes that had not finished the process of foreclosing.
If trouble home owners react upon: Death, Divorce, Unemployment or illness among many other reasons and situations, then they most likely they will stop making their payments on their low down payment purchase.
Historically it is still TOUGH to qualify for a loan and today in 2015 we are still presented with historically Low Interest Rates. While the inventory is low and prices are rising, 8% on a national level and 20% in the county on Maui. If you can buy then you should get in as soon as possible.
Flipping: Flipping is described as purchasers who buys and sells within a 12 month period.
Are flippers pumping air in an already outrageous dangerous bubble about to burst?
Investors are at a 36% increase in the market. With 25% of those investors purchasing with all cash on a National level, 40% of all purchases on Maui are Cash deals. Big institutional investors are now backing out leaving room for Mom & Pop investors in this already tight market.
The Economy is sluggish at best and inflation is at ZERO. 30 year mortgage rates will eventually rise. Yet will they rise enough to make a difference in the overall picture?
Zombie Foreclosures: are foreclosure units that have been vacated by the owners. 1 out of 4 foreclosures are a Zombie Foreclosure. 6% of those are because of a death or a deceased owner. These Zombie Foreclosures effect the quality of our life and our neighborhoods. Mostly affecting the value of neighbors who are underwater and want to refi or modify their home.
If the cash buyers refinance and stretch their cash flow to a mortgaged property there could be some repercussions from this action. Over extended investors often file for bankruptcy or default on multiple loans at once. 20% of all foreclosures are rental properties. If the tenants become non rent producing tenants then this will affect the investor’s ability to stay afloat.
Distress Home Sales continue to decline at a drop off with a 3.2% ratio nationwide.
70% of all new trial modifications have been through one or more retention actions. Proving that nearly three quarters of all mods will have a payment failure of some type in the future. = Future Bubble?
952,000 Home Owners are delinquent on their mortgage yet not in the foreclosure process. = Future bubble?
Four Million American home owners owe 20% more than their home is worth, this current underwater situation = Future Bubble?
In the first quarter of 2015 10% of the nation’s 537000 completed foreclosures were in Tampa FL, Atlanta GA, Orlando FL, and Houston TX.
In the first quarter of 2015 five states: Florida, Michigan, Texas, Ohio and Georgia account for 45% of those completed foreclosures.
In the first quarter of 2015 3.6% of the American home owners are 90 days behind on their mortgage payments.
The good news is that foreclosure inventory amassing from the recession has declined over the last 48 months. Currently the highest delinquent mortgage rates are in the states of New Jersey at 5.1%, New York at 3.8%, Florida at 3.1%, Hawaii at 2.6% and Washington DC at 2.5%
HELOCS
3.3 million HELOCS will reset within the next four years. These are 2nds = HELOCS with interest only payments that have a balloon payment on the end of its loan obligations. In 2016 1 million HELOCS will reset at the cost of 1.58 Billion dollars. In 2016 62% of HELOCS are seriously underwater. The Peak year is 2017 an estimated 44.3 Billion dollars worth of HELOCS will reset. 55% of HELOCS are seriously under water. Payment shock will be most evident in the year of 2018.
Interest Rates Climbing.
- Federal forecast distributions for year – end fed funds target rates and averages.
- 2015 +.56%
- 2016 + 1.75%
- 2017 + 3.00%
- 2018 +3.65%
Boomerang buyers (buyers whom have finished their distressed property & are ready to purchase again) are back, yet are they priced out in this pre bubble equity growth?
Banks are holding shadow inventory from 7 and 8 years ago.
On Maui Median home prices are up 3% from a year ago. Up 10% from 2010 (Central & South Maui Median home Prices are up 20%)
Sales are up 8% from a year ago.
Distressed Home sales on Maui = 12.7% of sales.
40% of all sales are cash this 1st quarter on Maui.
Over View:
- 2005 -2006 |2015 Expectations
- Loose Credit No Down |Tight Credit Cash Buyers
- Low Down No Down | Low Down No Down
- Moderately low interest rates 4%-6% | Historically Low interest rates 2.5% to 4%
- Flipping as short as 3 months | Flipping in 45 Days
- Healthy Real Estate Market | Distressed Properties Zombie Foreclosures
- Historic High Equities | 20% of Home Owners Underwater
- Healthy 2nd loan Market | 1 Million HELOCS resetting 2016
- Low Inventory | Shadow Inventory
- No Doc Loans | Boomerang Buyers
- Maui Median Prices $595K | Maui Median Prices $578K
- CASH Buyers 6% | CASH Buyers 40%Type your paragraph here.