On Target

The Fulton Research Blog


January 17th, 2011

Reuters provides this interesting foreclosure-for-dummies graphic which explains the risk in purchasing foreclosed homes.  Want to avoid that risk?  Buy new.

2011 is the Year of Recovery

December 28th, 2010

The pieces of the housing-recovery puzzle are in place – low interest rates, job growth (albeit limited), increasing consumer confidence, population growth, pent-up demand. Next year will be the year of recovery for the U.S. housing market.  As reported in Bloomberg News, an improving construction industry will add the job growth necessary to create the momentum for greater economic expansion and housing demand.

QE2 is bad for housing in the long run

November 11th, 2010

The Fed recently announced the second round of quantitative easing (QE2), with plan to purchase U.S. Treasuries to put downward pressure on interest rates. While likely unintended, the consequence of this action is that it will prolong the struggling housing market just when it should start to improve – when the job market recovers. At that point, the Fed will likely raise interest rates to counter inflationary pressures.

For short-term loans, like a car loan, the low rates are a fantastic incentive to purchase. However, with a 30-year mortgage, this stimulus measure will have a long-term negative impact on the housing industry. Why? Because home owners normally do not pay off their mortgage. The home owners who secure a sub-5% mortgage will be locked into their low-rate mortgage with little motivation to move and take on a higher mortgage rate.

The optional buyer will become largely an affluent consumer who can absorb a higher rate. The less affluent homeowners have to answer the question, “Can I afford to leave my low-rate mortgage?”

As rates rise, the need-based buyer will become the core home buying segment. What creates the need-based buyer? Marriages, divorces, new babies, relocations and aging come to mind. For those home builders planning your company’s five-year business plan, these are your core target markets.

As a consumer, enjoy today’s low rates, buy a car and take part in growing this economy. As a housing professional – now is the time to plan for the future.

Healthcare and housing in the DC region

April 14th, 2010

Health Care Reform approved by Congress and signed into law by President Obama is a historical moment. Politics aside, what does this mean to the housing market in the Washington and Baltimore metropolitan areas? Job growth. As reported by The Washington Business Journal, expansion of the Department of Health and Human Services and Internal Revenue Services will be necessary to manage the programs. Additionally, creation of the Health Choices Administration provides oversight of the larger health care industry. Secondly, Student Loan Reform (which is how the legislation covers the cost of expanded health coverage) will expand the Department of Education, although it is at the expense of the commercial banking industry, such as Sallie Mae with headquarters in Reston, VA. Finally, with 30 million more people having access to health care, there will be a need for more hospitals, drugs, nurses, doctors and new technology. The local Life Sciences industry will enjoy growth as a result.

New Home Sales at Record Lows

February 24th, 2010

The Associated Press is reporting that new home sales for the month of January are at record lows.  This information is consistent with the local resale market data as reported in the Fulton Research Residential Market Trends report.   Can we blame this on: the weather?  Seasonality?  Or just a jittery consumer?  I sense its the latter and that $6,5oo to $8,000 many not be enough for a household to jump into a home purchase.   Jobs, jobs, and more jobs are what’s needed to spur this economy.

However, the Conference Board reports that 0.7 percent of households plan to move and buy a new home in the next six months.  This marks a 700 percent imrovement from February 2009 when only 0.1 percent were in the market for a new home and is slightly higher than the previous 12-month average of 0.4 percent.   This positive indicator suggests the housing industry may see strong activity in the spring months.

Generation Jones

February 16th, 2010

Are you treating all Baby Boomers the same way?  Maybe you shouldn’t.  The people born during last half of the Baby Boom have adopted a separate identity – Generation Jones.  This powerful generation includes people born in 1954 to 1965 and they’re running the White House, the Federal Reserve and much of corporate America.  They’re surely not yet Active Adults.  Check out more at their website.

The Typical Vacation Home Buyer Has Changed

January 24th, 2010

We know the vacation home market has slowed considerably since the boom times, but more importantly, the composition of the buyers has changed signficantly.  Let’s drill down into the numbers using data found in the “2009 National Association of Realtors Investment and Vacation Home Buyer Survey” which reports on 2008 data.  A similar survey was prepared in 2006 (2005 data).  So what has changed?

While sales of primary homes dropped 26 percent since the peak, sales of vacation homes dropped 52 percent.  Vacation homes represent 9 percent of all home sales, down from 12 percent in 2005.

Interestingly, the household composition of the typical vacation home buyer has changed to become more family-oriented.  Buyers are now younger, with the median age dropping from 59 to 46 years old and nearly half of the households have children, compared to 25 percent in the boom times.  These statistics suggest seniors are no longer a dominant market for vacation homes which they would then use as their retirement home. 

Buyers are less affluent, earning 19 percent less than they did in the boom times and 17 percent more are apt to use a mortgage to finance their home. 

This transformation of the typical vacation home buyer is likely a return to the long-term trend.

FHA is Increasing Cost of Borrowing

January 23rd, 2010

The Federal Housing Administration, or FHA, is attemtpoing to improve their financial position by raising rates for borrowers.  As CNBC’s Diana Olick reports on her Realty Check blog, the FHA is now raising the rates for upfront mortgage insurance premium paid by borrowers from 1.75 to 2.25 percent. 

The FHA and The Fed are keeping the housing industry afloat by buying mortgages, although both offer shaky footing.  This story will unfold in the coming months as the housing market plans for a life after the stimulus package.   Will the FHA be able to sustain its current volume?  Will The Fed extend their program of purchasing mortgages?  The answers to these questions will shape the housing market recovery in 2010.

The Next Fannie Mae

January 3rd, 2010

In the euphoria of a strong housing market recovery, many people are looking past a ticking time bomb reminicent of Fannie/Freddie in 2005.   Ginnie Mae, the federal agency that packages, guarantees and sells the mortgage securities backed by FHA loans, has seen its volume skyrocket in recent years — from $410 billion in guaranteed loans sold in 2006, to $680 billion in the first 7 months of 2009 and a projected $1 trillion worth of loans in 2010.  What’s the problem?  Well, there are signs of increasing defaults and the potential implosion of this agency will leave taxpayers holding the bill for these loan obligations, ala Fannie/Freddie.  This recent Wall Street Journal article, “The Next Fannie Mae”, clearly identifies the red flags that will lead to this implosion.

What does this mean to us?  If Ginnie Mae goes belly-up, the FHA mortgage engine will slow significantly, causing rates to rise and qualifying criteria to become tighter.  This will affect mostly the first-time buyer market and the outer markets where FHA mortgages are most prevalent.

The Politics of Route 28

October 18th, 2009

Vocal members of the Loudoun County Board of Supervisors are overlooking the intent of the report we prepared for the “Economic Development Potential for Class A Office in the Route 28 Corridor”.      

Our objective was to evaluate the potential for Class A office space in the Route 28 corridor and offer a vision for the Board of Supervisors to consider during the Comprehensive Plan Amendment Process that is underway.  Residential, environmentally-friendly and walkable environments are recommended as supporting elements within the mixed-use environments that Class A office users want. 

The Route 28 Corridor has the potential to be a special place, with an identity as a world-class business location, anchored by Dulles Airport and within close proximity to a highly-educated workforce.  With the right environment, business will want to locate here.  Many stakeholders in the corridor also believe this, otherwise why would they tax themselves to build the interchanges that, when complete, will make Route 28 a six lane, stoplight-free, limited access divided highway?   Along with the planned Metrorail stops near Dulles Airport and the completion of several parallel roads, this corridor will have tremendous capacity to efficiently move vehicles and people.

The vision offered will make Loudoun County more competitive for jobs and industry with Fairfax County. 

Inaction will be an opportunity lost.