Author: Marlowe Clark

FHA Loans Are Losing Their Appeal

The FHA has its origins in the Great Depression, as a method for people down on their luck to secure a loan without much upfront cost. Given the current recession’s similar circumstances, it may be expected that FHA loans would increase in popularity around this time. That isn’t the case at all, because now there’s competition. FHFA loans — those backed by Fannie Mae or Freddie Mac — are currently a better deal.

The normally low upfront cost of FHA loans is countered by the fact that they have mortgage insurance premiums (MIPs), part of which is an upfront cost. This means that you are spending more over the life of the loan than with a conventional loan even with an equal interest rate. This MIP can be cancelled after 11 years if the down payment was at least 10%. However, the appeal of an FHA loan was the minimum down payment of only 3.5%, so this circumstance rarely came up.

But now, 3.5% isn’t even the lowest minimum down payment. FHFA loans have adopted a 3% minimum. What’s more, their upfront costs are actually lower, with no upfront mortgage premium. The MIP cancellation criteria are also different: The down payment amount and loan length don’t matter, and it can instead be cancelled whenever the home equity reaches 80%. Given that it’s rare for a house to be owned for 11 years, especially for first-time buyers who benefit the most from low down payment minimums, this flexibility is highly attractive.

Photo by Sophia Müller on Unsplash

More: https://journal.firsttuesday.us/are-fha-insured-mortgages-declining-in-popularity/77177/

Amending Your Tax Return This Year May Give You a Bigger Break

Under normal circumstances, unemployment benefits are considered taxable income. However, the current circumstances aren’t normal. The American Rescue Plan brought with it a provision that the first $10,200 — or $20,400 if married and filing jointly — of your unemployment payments will not be taxed for 2020. The estimated tax break is around $1000 to $2000.

While the IRS will automatically adjust your tax refund amount, it may be helpful to send in an amended return, because tax credits are not automatically adjusted. The Earned Income Tax Credit (EITC) is a frequently unclaimed tax credit that can net you up to $6600 in additional credits, based on filing status, income, and number of children. Because a large portion of your unemployment benefits can be dropped off your income amount, it may cause you to become eligible for EITC if you were not already. Given how frequently it’s unclaimed, it’s also entirely possible that you were already eligible and didn’t bother to claim it, and you can still do so in an amended return. However, be aware that filing an amended return can cost money, and may not actually benefit you depending on the amount of additional tax credits you are eligible for.

Photo by Kelly Sikkema on Unsplash

More: https://www.marketwatch.com/story/expecting-another-refund-after-the-irs-calculates-the-10-200-unemployment-tax-break-why-you-might-want-to-do-more-than-just-wait-11617794140

More Measures Needed to Protect Jobs During Eviction Moratorium

The eviction moratorium has received multiple extensions, buying tenants some time to gather necessary funds. Unfortunately, buying them time doesn’t actually aid them in getting funds, and all the while, landlords are also missing a portion of their income. There is no plan for loss mitigation. SB-91 may help somewhat — it allows landlords to acquire 80% of their rent payments via federal funds by waiving the remaining balance. However, this law exists only in California, and doesn’t apply to all rental situations.

Landlords do have another way to mitigate their losses, but it’s not a good option. Landlords who are close enough to do the job themselves could reduce their costs by laying off their property managers and maintenance staff. This doesn’t help anyone, though, and results in increased job losses. While landlords definitely do take a risk in getting a mortgage on a rental property, currently their best recourse to offload that risk is in ways that do nothing to aid a recovery and instead exacerbate job losses. It may be tempting to let risky investments fail, but at the same time, it could be worthwhile to also give landlords as well as tenants some breathing room to avoid worsening the issue.

Photo by HausPhotoMedia on Unsplash

More: https://journal.firsttuesday.us/the-eviction-moratorium-extension-a-band-aid-solution-for-a-gunshot-wound/77162/

US Death Rates Far Exceed European Averages

Death rate is a regularly documented figure within most countries in the world. Less common is calculating the excess death rate — the number of deaths in one country in excess of a control rate. An international study used the average rate in western Europe as a baseline and compared 18 individual countries to that rate. The US ranked among the worst for individuals under age 75.

This isn’t even about COVID — the study examines the years from 2000, 2010, and 2017, well before COVID was a thing. In 2017 alone, Americans between the ages of 30 and 34 were three times as likely to die as those in Europe. This is mostly attributed to drug overdoses and gun violence. The US has much laxer gun laws than many other countries, and drug abuse is usually not medically treated. Structural inequality is also a large factor, including in access to health care.

The category in which the US actually fared better than Europe was those over age 85. There were 97,788 fewer deaths than expected based on the control rate in 2017. The reason is not entirely known, but one suggestion is the fact that US medical care places higher emphasis on end-of-life care. Another possibility goes back to the inequality in access to health care. Access is higher for senior citizens; in addition, those with good health care are more likely to have reached age 85.

Photo by Adhy Savala on Unsplash

More: https://www.theguardian.com/us-news/2021/apr/12/us-death-rate-mortality-europe

Common Interest Developments Subject to Rental Laws

Common interest development (CID) is a broad term referring to condominiums, community apartments, planned developments, and stock cooperatives. CIDs often have a homeowner’s association (HOA), which has been the governing force for how units within the CID are rented out, as CIDs have not been subject to government rental laws. California changed this in January, requiring CIDs to allow at least 25% of the owners to rent out the units. They also may not prohibit rentals of accessory dwelling units (ADUs). CIDs can still prohibit short-term rentals.

The law came into effect on January 1st, 2021. CID documents may not immediately reflect this change, but they still must abide the new law and are required to amend their documents by December 31st, 2021. Violation can result in a fine of up to $1000.

Photo by Sigmund on Unsplash

Homestead Exemption Increased Earlier This Year

Assembly Bill 1885 went into effect January 1st of this year, increasing the debt exemption amount on a property when the owner’s spouse dies. Prior law set the amount at either $75,000, $100,000, or $175,000 depending on factors related to the residents. New law instead bases the amount on the countywide median sales price. The exemption amount is equal to this amount if the countywide median sales price is greater than $300,000, up to a maximum exemption of $600,000. Otherwise, the exemption amount is the minimum of $300,000.

Photo by Markus Spiske on Unsplash

Revocable Transfer on Death Extended for Further Review

Back in November 2019, the California Law Revision Commission (CLRC) recommended some changes to the laws surrounding the Revocable Transfer on Death Deed (RTDD). RTDD simplifies the process of transferring properties upon death. CLRC also suggested a 10 year extension, but noted that further study would be required. RTDD was set to expire on January 1, 2021, but the pandemic has made review difficult. To give more time for review, it has now been extended an additional year, to January 2022.

Photo by Markus Spiske on Unsplash

Pallet Shelters Expand into Wilmington

Several pallet shelters have been going up around Southern California to aid in housing the homeless, including in Riverside, the San Fernando Valley, and Redondo Beach. Wilmington is the newest addition, with 75 structures expected to be finished sometime this month.

Pallet shelters, while considered temporary housing, have several advantages over more permanent structures. Notably, it only costs $5000 to build a pallet shelter. It may seem inexpensive to convert existing buildings, but the truth is, it’s costly to modify buildings that aren’t meant as residences to accommodate living quarters. Pallet shelters are designed as residences from the get-go, meaning they’re more similar to traditional housing and feel more like a place to live, rather than a place to seek temporary shelter. They also offer more privacy than 100-resident shelters.

The Wilmington project is also designed to instill a sense of community. While the individual shelters are private, the area itself is public and includes communal areas for the residents to interact with each other and friends from outside. Food will be catered to the site. The site will be overseen by The Salvation Army and they will provide case workers and housing counselors.

Photo by Sigmund on Unsplash

More: https://www.dailynews.com/2021/03/19/temporary-pallet-shelters-coming-to-wilmington-adding-options-to-the-fight-against-homelessness/

Understanding Mortgage Payment Schedule

I’m sure you all know that when you take out a mortgage loan, you pay back the principal plus interest over the life of the loan, in monthly payments. But it’s important to understand that monthly payments are not simply the principal plus interest divided by the total length in months. Because the amortization schedule ensures that each monthly payment is the same amount, it may appear as though each payment is identical. However, this is not the case.

Amortization schedules determine what percentage of each monthly payment is principal and what percentage is interest. When you first get a loan, nearly the entirety of your monthly payments are used to pay off interest, with scarcely any reduction in the principal. As you pay off more of your interest over the life of the loan, a greater percentage goes towards the principal. When you sell a home that still has a mortgage, the amount of money you receive due to equity depends on how much of the principal amount is paid off. If it’s still very early in the loan’s lifetime, you haven’t paid much of the principal, so your equity will be quite low.

Photo by Mika Baumeister on Unsplash

More: http://blog.mattgoeglein.com/real-estate/an-overview-of-amortization-it-plays-a-role-in-monthly-mortgage-payments/

Should I Buy Now or Wait?

Well, as with most things, that depends. Sooner rather than later is certainly the correct time to buy, since mortgage interest rates are going back up and prices are still going up. However, it’s also very difficult to buy right now, because high demand and low supply makes for cutthroat competition. The pandemic certainly played a role in this, but the principal factor in the low availability is lack of construction that has been going on for decades, particularly of multi-family residences. So, the question is really, “Can I buy now?”

Houses are not staying on the market very long, and only the best offers are being accepted. Hesitation is sure to lead to a failed attempt. If you think you can provide the best offer, just send it in; don’t wait. If you attempt to wait out the competition, you’ll be waiting quite a while to get the best deals. It’s likely that inventory is going up in the near future, but that’s not going to instantly impact prices — prices are unlikely to go down at all until interest rates are higher. If you can’t provide the best offer, your chances may be low now, but they will be even lower in the future in the short term. Either act now, or play the long game.

Photo by Simone Secci on Unsplash

More: https://www.cnn.com/2021/03/29/success/when-will-housing-market-cool-off-feseries/index.html

Single-Source Financing May Be Key to Affordable Housing

The nonprofit company Restore Neighborhoods LA (RNLA) has just built a small homeless housing development in the Vermont Knolls neighborhood of LA. The cost per unit to build was a mere $225,000, less than half of the $500,000 average for homeless housing in LA. With only eight units, it does little to solve homelessness on its own, but RNLA hopes its financing strategy can be used by others to build more affordable housing faster.

How many builders get money is called the “lasagna of financing” — acquiring funding from several sources, including city, county, state, federal, and private sources. Going through this process takes time, as each different source requires a different application and approval process, and things could change between getting approval from one source and being rejected by another. It could also incur additional costs, such as application fees and hiring financial and legal experts. RNLA instead avoided this bureaucracy by opting for mostly single-source financing. They received the entirety of their $920,000 loan from a single private company called Genesis LA, and the rest of their financial support came from LA county grants and crowdfunding.

Unfortunately, it’s not likely that many builders will be able to acquire funding in this way for larger projects. Single sources simply don’t have the money, or don’t want to risk it, for a large project. The lasagna system has the benefit that no single source is incurring much risk, since they are each able to finance a smaller portion of the costs.

Photo by Pepi Stojanovski on Unsplash

More: https://www.kcrw.com/news/shows/greater-la/affordable-housing-oscars-oc/restore-neighborhoods-la-homeless-housing

California Cities Push for More Medium-Density Zoning

Populous cities are generally considered to be higher density areas, but in some of the largest cities in California, about 75% of the land is zoned for single-family residences. The history of the overabundance of SFRs can be traced back to segregation. It was a tool designed to price out lower-income Black people from predominantly white neighborhoods, something which cities hope to rectify with new zoning laws.

Though many people aren’t aware of the racist roots, and rezoning isn’t going to completely eliminate racism, SFRs are outdated in more ways than one. California desperately needs more affordable housing, but building large apartment complexes is expensive for construction companies. The middle ground is medium-density housing, such as triplexes and fourplexes. To that end, San Francisco has drafted plans to allow fourplexes in every district considered a residential district. A few other Bay Area cities are considering similar plans.

Photo by Sigmund on Unsplash

More: https://www.npr.org/2021/03/13/973770308/facing-housing-crunch-california-cities-rethink-single-family-neighborhoods

3D-Printed Housing Gathering Steam

The first 3D-printed house was put on the market last month, and already multiple other companies are following suit in other states. SQ4D is the company that started it all in New York, and Texas was the first to get on the bandwagon, with ICON completing four 3D-printed homes in East Austin. 3Strands followed suit in Kansas City, and Mighty Buildings in California is also working on a project.

3D printing buildings didn’t just start out, though. ICON actually built several a year ago. They just never went on the market, because they were built as homeless housing, not for-sale properties. ICON has the most experience, but they are no longer without competition. Their biggest competition currently is thought to be Mighty Buildings, which actually started back in 2017 but has taken the time to develop what they hope to be more cost-effective and energy-efficient building materials.

Photo by Ryan Ancill on Unsplash

More: https://www.cnbc.com/2021/03/12/3d-printed-housing-developments-suddenly-take-off-heres-what-they-look-like.html

Proposed Tax Credit Could Jumpstart Renter Homeownership

President Biden has proposed a $15,000 tax credit for first-time homebuyers, perhaps aimed at allowing renters who were getting ready to make the jump to homeownership before the pandemic to realize their plans. Not all renters have homeownership in the near future, but it’s possible that the tax credit could help quite a few people. Assuming a down payment of 3.5% for a 30-year loan at 3% interest rate, it could be a boon to renters in 40 of the 50 largest US metros.

Since it’s a flat amount and not a percentage, the tax credit would be especially useful in less expensive metro areas. Areas like Pittsburgh, Cincinnati, Cleveland, and St. Louis could see somewhere around 40% of renters being able to afford a mortgage on the median property with the tax credit. More expensive regions, such as California, aren’t going to benefit as much. It’s more likely that the number of people aided would be only in the thousands. However, these are all probably high estimates, since they are based on the minimum down payment of 3.5% for an FHA loan, which is not ideal.

The proposal does have one major flaw. Currently, demand is quite high and supply is incredibly low. The supply of available properties is already struggling to support the number of prospective buyers. If first-time homebuyers start trying to take advantage of their tax credit, it’s probable they’ll be entirely out of luck. Competition is fierce with multiple offers per property, and those attempting to use tax credits to scrape together money to buy aren’t likely to be providing the best offer.

Photo by Cytonn Photography on Unsplash

More: https://www.housingwire.com/articles/renters-and-bidens-15000-homebuyer-tax-credit/

Median Age and Education Trending Up in California

It shouldn’t be surprising that rates of education are trending upwards, but what you may not be aware of is that the median age is also going up. In 2000, the median age was roughly around 30-34 in most major areas of California, with a statewide median of 33. Our most recent statistics are from 2019, which show that the median age is now above 34 in all but two of these same major areas. The statewide median is up to 37.

This is relevant for the real estate industry, as it portends that there may be fewer first-time buyers. First-time buyers tend to be younger, primarily in the 25-34 age range. The real estate market has generally been able to count first-time homebuyers as a reliable source of market stability, even in uncertain times. Granted, it is true that Millennials — who make up the largest segment of homebuyers currently — are trending towards making their first purchase later in life, which may mean that the effect of an increasing statewide median age is going to be less apparent to the real estate market.

The increasing rate of education, while not necessarily surprising, also could have an impact on the real estate market. More educated people statistically have a tendency to live in large urban centers and are wealthier. This is consistent with the upwards trend in total home value sold despite fewer homes being sold. It is not, however, consistent with the fact that more people are moving away from urban industrial centers as a result of being able to work from home, so the effect is still rather nebulous.

Photo by Jane Duursma on Unsplash

More: https://journal.firsttuesday.us/age-and-education-in-the-golden-state/10328/

The Four Keys to Fixing the Housing Shortage

During the 2000s, California’s population increased by 2 per new housing unit constructed. With an average varying between 2 and 3 people per household, this was a fairly sustainable rate of construction. Unfortunately, construction has slowed at the same time that population is still increasing. The ratio is now an increase of 4 per new housing unit constructed. The state has passed laws to combat the housing shortage, but it’s not enough.

UC Berkeley’s Terner Center may have cracked the code. They’ve done a case study of one San Francisco project that was completed 30% faster and 25% cheaper than similar projects, and identified the key factors that led to its success. According to the Terner Center, they are 1. an upfront commitment to low costs and a quick construction, 2. flexible funding, 3. streamlining the approval process, and 4. taking advantage of modular construction, so that some parts of the construction can be done in parallel with others. This is going to require the aid of local governments to make flexible funding more available and modify the approval process.

Photo by Sam Clarke on Unsplash

More: https://journal.firsttuesday.us/local-governments-address-californias-housing-shortage/76808/

Many Homeowners May Be Unaware of Forbearance Options

Currently, there are approximately 2.7 million homeowners protected under forbearance programs. When the foreclosure moratorium expires, which it is slated to do June 30, 2021, these homeowners will have a respite as long as they are in good standing with their forbearance program. This is important, because 2.1 million of those are delinquent in their payments and would otherwise be subject to potential foreclosure immediately after June 30th. This is a fate likely to befall 1.1 million more US homeowners, who are delinquent and aren’t protected under a forbearance program.

Why aren’t they protected? Well, the answer is probably that they don’t know what their options are. Some may not know that forbearance programs even exist, but they certainly do and are still available. They may think they aren’t eligible for whatever reason, even though the only eligibility requirement is financial hardship due to COVID-19. It’s possible they don’t think they will be able to make a lump sum payment after their forbearance period. This is a real concern for a few people; however, most mortgages are backed by Fannie Mae or Freddie Mac, who will allow you to continue to make payments throughout the life of the loan, rather than immediately as soon as forbearance ends.

Photo by vu anh on Unsplash

More: https://journal.firsttuesday.us/delinquent-borrowers-have-not-taken-advantage-of-forbearance-programs/76823/

Former Long Beach Hotel Reopens as Homeless Housing

Project Homekey, a cooperative effort between the State of California, LA County, and Long Beach to convert hotels into homeless housing, has reached a new milestone in its progress. One week ago, on March 15th, one of the transitional housing developments finally opened its doors. Previously a Best Western hotel in Long Beach, it’s now a 102 unit development that’s bringing in homeless residents.

Unfortunately, 102 units can’t support the entire homeless population of Long Beach. They’re currently only looking at accepting at-risk residents — those with medical conditions or who are 65 or older. Homeless residents who are in the process of obtaining permanent housing are also able to apply while they wait to obtain their permanent home.

Photo by Tony Yakovlenko on Unsplash

More: https://lbpost.com/news/residents-to-begin-moving-into-former-hotel-converted-to-transitional-housing-on-monday

Applications Now Accepted for CA Rent Relief

If you’re in need of rental assistance, now is the time. California opened the window for COVID-19 rent relief applications a few days ago, on March 15th, 2021. There are state, county, and city programs — be sure to look at all the possibilities, because they do have some differences. Also be aware of the application windows. Some close as early as March 31st.

Information about the California state program is available at  www.housing.ca.gov, and you can get a personalized report from https://ucilaw.neotalogic.com/a/Cal-Covid-Info-App-for-Tenants-and-Landlords. If you are a landlord, you can also participate in the state program by waiving 20% of the rent in order to get reimbursed for 80% of the unpaid rent. Tenants whose landlords don’t wish to participate are given 25% of their unpaid rent. The state program also pays 25% of prospective rent and provides assistance with utility payments.

Single Women Purchased More Homes in Q4 2020

Statistically, single women purchase fewer homes than couples or single men, as a result of both economic and societal factors. The gap between single women and single men is only roughly 3-4%, but it’s still not negligible. Fortunately, it’s slowly shrinking, as women are beginning to have a larger share of home purchases. The percent of homes purchased by single women increased by 8.7% in Q4 2020 as compared to Q4 2019. The same statistic for single men is 4.6%. For couples, who may have dual incomes and/or better access to loans, the increase was 11.5%.

This doesn’t mean everything is great for women, though. The pandemic did disproportionately affect women, especially women of color. The industries hit the hardest were restaurants, retail, and healthcare, all of which statistically employ more women than men. What this actually demonstrates is the disparity between economic classes. Those single women who were able to buy in 2019 but held off were likely also able to buy in 2020, and simply had more incentive to purchase because of low interest rates. In some cases, these women were saving up with the intention of buying in the future, and took the opportunity to buy something less expensive to take advantage of interest rates. But those women that were struggling in 2019 definitely had no chance in 2020.

More: https://www.redfin.com/news/single-women-home-purchases-increase-2020/