2016 – Real Estate Trends for Coastal Georgia and South Carolina

Here it is folks!  Your real estate road map for 2016 for coastal Georgia and the the southern coast of South Carolina:

Before we get to some predictions, lets take a look at the real estate industry and factors that that will influence the coming year.

It’s an election year.  In most election years, real estate sales slow down a little.  People get distracted with the election process and some sit on the sidelines until the election is over.  In Savannah, GA, the lean months are October through March, and in Hilton Head, SC, monthly sales are stable all year round.  How the election times with local market cycles will determine its effect, and how buyers and sellers personally perceives the results come into play as well.

The Fed is raising interest rates.  Although short term rates do not have an immediate impact on long term mortgage rates, these short term rate increases will eventually affect long term rates.  Paradoxically, the most recent Fed rate increase actually caused mortgage rates to go DOWN – but that will be short-lived for sure.  Expect long term rates to rise over the year.  They could get as high as 5%.  (if you have been in the business a while, that statement alone is kinda funny!)  Remember, interest rates are a matter of perception – if the public perceives them to be high, then they are high no matter what history says.

Flood Insurance…still!  Flood insurance remains a thorn in the side of coastal real estate markets.  Homes in flood prone areas have additional insurance needs for flood risks on top of general hazard insurance, and the National Flood Insurance Program (NFIP) has been in a state of flux for two years now.  Congress made attempts to stabilize the program in 2014, but uncertainty remains.  However, one certainty does exist – flood insurance rates will rise.

Borrowing / Lending money is more complex.  October 3rd, TRID was implemented.  What does TRID stand for???  “Truth in Lending Act, Real Estate Settlement Procedures Act, Integrated Disclosure”.  Only in government will you get an acronym of acronyms!  The Dodd / Frank Act of 2010 has culminated (at least for consumer lending) with TRID implementation.  This is the “age of the consumer” and TRID is designed to make the lending process easier and protect the consumer more effectively.  In short, it is more complex than before, it favors larger lending institutions, banks fear regulators so much they will say “no” to loans they would have previously approved, mandated cooling off periods create havoc on closing and possession timelines, and…and…and.  The industry will get better at following the new rules and closings will become more streamlined, but it will take a while…

Healthcare  I know… “How does healthcare effect real estate?”.  A personal perspective will help you understand.  First – 70% of our population gets healthcare from their employer (44.5%) or from a government plan (25.6%) (Gallup-2015).  11.3% are considered uninsured, while 16% get their insurance by purchasing it on the open market.  The ACA, aka Obamacare, does not effect large employers until 2016.  That means only 16% of the population have been impacted thus far, with a whopping 44.5% getting ready to go into sticker shock.  This will reduce the available money to purchase homes for sure.

Healthcare Sticker Shock!  2 years ago, my family of 6 spent $10,200 in PRE-tax dollars on premiums, with a $1,000 deductible and a family deductible of $2,500.  So, our total healthcare insurance exposure was $12,700 per year plus some change for office visits and prescriptions.  Compare that with my family’s costs after the “Affordable Care Act”…  We now spend $19,200 in AFTER tax dollars on premiums, with $2,500 deductibles and a family deductible of $9,000.  That makes our annual health care exposure $28,200 plus more change for office visits and prescriptions.  Our health care costs have gone up 125% in just 2 years.  125%!!!!  44.5% of the population is getting ready to experience these staggering costs.  At least my wife and I, neither of which have a uterus, have prenatal care and obstetrics coverage!

Nontraditional Workers Unite!  Entrepreneurial spirit is on the rise.  The 30 year factory position with a pension is like a purple unicorn.  My children see it.  Their peers see it.  They now feel the pressure of making their own way.  This is a great thing!

College Graduates saddled with enormous debt.   College is outrageously expensive.  I have 2 children in college.  I am experiencing these costs.  18 year old kids are suckered into huge student loan debt while pursuing their degrees in Psychology, Epistemology of the Spoken Word, or Gender Studies, only to find at the end of the rainbow no one is hiring in their areas of expertise!  So, they get a job flipping burgers to pay their $750/month Sallie Mae bill, move back in with Mom and Dad, and don’t contemplate purchasing a home for 10-15 years.  Couple that with a feeble economy and first time home buyers are facing some headwinds.

And now for some predictions…

Single Family Residential:  We’ve come a long way from the “Great Abyss” of 2008-2012.  Monthly number of homes sold just surpassed those of 2007 in the Savannah MSA.  Although this is not adjusted for population growth, it is a sign we have come a long way and there is still room to grow.  Homes sold will continue to grow at a modest 3% year over year pace.

Mortgage Rates:  Mortgage rates remain at historically low levels.  They will remain relatively low, and should not go above 5%.  How the public perceives this is the bigger question.  If the public thinks they are high, then they are high and they will keep their hands in their pockets.  If the Fed raises rates again, this may cause many to get off the fence while the “gettin is good” and we will see a short lived bump in home sales.

Regulatory Environment:  Due to the complexities of the new settlement procedures, the Consumer Finance Protection Bureau (CFPB.gov) will begin to relax some of their rules.  They may go as far as returning the responsibility of the the Closing Disclosure formulation, now uncomfortably in the hands of the Lenders, back to the attorneys.  This will relieve pressure on closing and possession timelines.

Average Home Price:  The median sales price will continue to rise nationally.  There are some hot spots like Miami, Las Vegas, and Los Angeles.  But for coastal GA and SC, expect a modest rise in median sales prices, no more than 3% overall.

Short Sales and Foreclosures:  With the correction of the housing market well underway, short sales and foreclosures sales are already in a sharp decline.  I expect that trend to continue.  Banks are being scrutinized by regulators and short sales are becoming even more difficult.  Additionally, with rising prices, banks will be able to wait out the market and reduce the amounts that must be forgiven when sellers must sell short.  Institutional buyers in large metropolitan areas like Atlanta who purchased huge amounts of foreclosures in blocks during the Great Abyss will begin to unload their inventory.

Overall impression for 2016:  Relatively flat growth with modest gains, a few bumps along the way, but a pretty good year on the horizon!

 

TRID: Triumph or Tragedy?

The Truth in Lending and RESPA integrated disclosure, affectionately abbreviated as TRID, is now the official “Rule of the Land”.  Effective October 3rd (actually TODAY because October 3rd was a Saturday), new rules come into effect that will change the way consumers apply for a loan and get financing for a home.  Depending on the fence you stand on will determine whether you see this as triumph or tragedy.

A brief history:  In 2010, the congress passed the Wall Street Reform Act, more frequently referred to as Dodd/Frank, so named after is main sponsors Senators Chris Dodd (D) and Barney Frank (D).  This law created a wholly separate branch of government called the Consumer Financial Protection Bureau a.k.a. the CFPB (www.CFPB.gov).  I say new branch because the CFPB functions independently without congressional oversight, budgetary restraints, or judicial review.  They need only desire money and simply invoice the taxpayers, who then must pay the bill.

Dodd/Frank was a response to the financial crisis of 2008.  Some say the law was draconian while others say it did not go far enough.  The gist of the law and subsequent rules is consumer centrism.  We have entered the age of the consumer, and the consumer is the indisputable king.  The law creates a host of new rules enumerated by the CFPB.  Among these new rules are the Qualified Mortgage, the “Ability to repay”, and now finally TRID.  For a more complete roundup of changes, please see  my previous blog posts, or visit CFPB.gov.

With the implementation of TRID, several forms go away.  The Good Faith Estimate or GFE is now replaced with the Loan Estimate, and the ubiquitous HUD-1 is replaced by the Closing Disclosure.  Furthermore, the closing date is no longer called as such, but rather referred to as “consummation day”.  An easily overlooked, but dramatically important wrinkle is the addition of a 3 day review of the Closing Disclosure prior to closing.  This 3 day review cannot be waived.  Again, it CANNOT be waived.  The closing disclosure must be IN THE HANDS of the consumer 3 business days prior to closing.

The triumphs many see in this law are consumer protections against predatory lending practices, and the liability lenders expose themselves to if they do not comply with CFPB rules.  That said, lenders fearing liability may decline an otherwise suitable borrower for fear of being sued down the road should the borrower fail to pay the money back (known as “Loan Default”).

With TRID, the consumer (read “borrower”) will be offered the opportunity to shop rates on things such as title insurance and homeowners insurance.  In reality, consumers have always been able to shop these items.  It is now a front and center disclosure that they may shop these rates.  One problem is shopping title insurance.  Most do not understand what it is, let alone what it SHOULD cost, and where to begin to shop for rates.  In reality, there are only 2 major insurers to choose from for title insurance.

In many states, title companies run the closing show.  In GA, attorneys run the show.  States where attorneys run the show will see the most changes to the closing (read “consummation”) process.  In GA, the attorney was responsible for the HUD.  With TRID, the responsibility of the HUD (read “Closing Disclosure”) is the responsibility of the lenders.  In fact, on a nationwide scale, the LENDER is now responsible for the creation of the final HUD/Closing Disclosure.  Add the new mandated 3 day review period to the final HUD/Closing disclosure with the LENDERS new responsibilities, and you begin to see some of the tragedies that may befall the real estate industry.

There are several trigger points that will require new HUD/Closing Disclosures to be resent to the borrower.  If one of these triggers are pulled, a lender must re-issue the HUD/Closing Disclosure and a new 3 day period must be observed.  If you are the borrower, this could create problems for you and if you are the seller, this could create problems as well.

Here is a scenario:  Buyer receives a final Closing Disclosure on the home they are purchasing, yet the home they are selling has been delayed.  The delay causes the buyer to lose their loan rate lock, causing a change in the loan rates.  In this case, the lender would have to re-issue a NEW closing disclosure, mandating a new 3 day waiting period and delaying their new home purchase.   This creates a domino effect.  The seller, who was planning on using the proceeds to buy a home, now has their closing delayed, and so on, and so on…

Kudos to the consumer, who is now the center point of the lending process.  Kudos to the lenders, who have moved mountains to get to comply with the new processes.  Kudos to the attorneys, who have moved mountains to accommodate these new changes.  Pitty the poor sellers of the homes these buyers are buying and lenders are lending for.  It is the seller who is in the dark, and considered an after thought, until they become a consumer of money for the purchase of their new home.

An attorney friend of mine who has been a real estate closing attorney since before RESPA was implemented in 1980 said “RESPA took 2 years to settle down once implemented”.  2 years from now, we will know for sure if TRID was a triumph or tragedy.  Until then…hold on as the ride may get a little bumpy!

Hat tip The Professional Wingman for the pix – click HERE to visit.