Investment
Negative equity still preventing the full recovery of the US housing market
Despite improvements in the negative equity rate, underwater mortgages are holding back the housing market in the United States from full recovery, especially in hard hit areas, a new report suggests. The rate of negative equity among home owners dropped a full percentage point in the third quarter of 2015, from 14.4% to 13.4%, and down 16.9% from a year ago, according to the latest research from real estate firm Zillow. It said that declining negative equity will allow almost a million newly freed home owners who have not yet refinanced or have been waiting to sell to do so before mortgage rates rise, which will likely happen in coming weeks. It also pointed out that negative equity affects not just the home owners who are underwater, but entire markets where high rates of negative equity are slowing recovery. Negative equity is one of the most persistent reminders of the housing market crash. Home owners who owe more on their mortgage than their homes are worth cannot sell, which holds back markets from recovering. So, some eight years after the housing crash, it remains a major barrier to a full recovery in certain markets. In Las Vegas, for example, 22% of home owners remain underwater, and another 19% are effectively underwater, meaning they have less than 20% equity in their home and therefore can't cover the cost of selling their home and buying another. Las Vegas has had the highest negative equity rate in the country for the past four and a half years, and Kansas City and Cleveland, with 16.6% and 16.8% negative equity respectively, are not far behind. San Francisco and San Jose are the only large markets where less than 5% of home owners are underwater. Almost a million home owners were freed from negative equity in the third quarter of 2015. The improving rate means those people may be able to sell or refinance their homes before mortgage interest rates rise, as they are expected to do in the coming weeks. ‘Negative equity has become almost an afterthought in a handful of the nation's hottest markets, but is holding back the recovery in dozens of large markets nationwide,’ said Zillow chief economist Svenja Gudell. ‘Despite steady declines in negative equity, many cities are still facing tight inventory, especially among entry level homes. Those homes that are available are often not in demand and stay on the market for a long time. This can be extremely frustrating for buyers and sellers alike, as they come face to face with the difficult side effects of negative equity,’ she explained. She also pointed out that negative equity affects individual home owners, but markets with high negative equity rates tend to have fewer homes for sale, especially lower priced homes favoured by first time home buyers. In markets with a lot of negative equity, homes generally take longer to sell than in other places. The top five large metros with the smallest share of underwater… Continue reading
New research reveals what UK residential tenants want
Nearly half of tenants in the UK would be prepared to travel for between 15 and 30 minutes, or between 30 and 45 minutes door to door to reach their office or place of work each morning, according to a new survey. In Wales, some 44% of tenants would prefer to commute for less than half an hour, while in the North East, the proportion is 37%. But in London the majority of tenants, 43%, are happy to travel for between 45 minutes and an hour to the office each day. The survey by YouGov for real estate firm Knight Frank also shows that the majority of tenants outside London commute by car, while in the capital 52% use the London underground for part or all of their journey. Two fifths of respondents said that the ability to store their bike in their rental property was important to them, although this rises to 46% of those aged 35 to 44 across the country. A third of respondents said they would be willing to pay extra in rent to keep a pet in their property as sometimes landlords charge more to cover the cost of the extra refurbishment needed after a tenant who has had a cat or dog vacates the property. Indeed, 4% of those in the private rented sector already pay extra to have their pet live with them, and this rises to 7% for those aged over 55. The results of the Tenant Survey also show that, for the majority of respondents, their ideal length of tenure is up to one year, and this is particularly true of younger tenants, highlighting a preference for increased flexibility in the sector. breakdown of the figures shows that 69%) of tenants aged between 18 and 24 said they would prefer a tenancy agreement of up to a year, with 61% of 25 to 34 year olds saying the same. Respondents said that their preferred timeframe for a break clause, which would allow tenant or landlord to end the lease early, is six months. Some 38% of tenants have lived in five or more rental properties. While the majority of respondents had moved within a mile of their previous property, 19% had moved more than 60 miles, indicating a relocation for work or study, highlighting the flexibility of the private rented sector a tenure. The survey also found that 24% of Londoners are prepared to pay 50% as a maximum amount of their gross annual income on rent, up from 22% last year. A quarter of tenants do not want to, or don’t know if they want to buy a home in the future. Of those that express a desire to eventually buy a home using a mortgage, less than half are currently saving towards a deposit. The research found that a quarter of those living in the private rented sector live alone, while 34% live as a couple without children. Some 43% of 18… Continue reading
Home lending in UK up by 8.5%, but some sectors seeing falls in recent months
Lending for home purchases in the UK increased by 8.5% year on year to £43.5 billion in the third quarter of 2015, according to the latest data from the Bank of England. However, the data also shows that the proportion of lending to first time buyers decreased in the quarter by 0.3% to 20.4% while the value of residential loans advanced to first time buyers increased by £0.6 billion from the third quarter of 2014 to £12.7 billion. The buy to let proportion of lending also decreased from 15.8% in the second quarter of 2015 to 15.6% in the third quarter of 2015 but increased by 1.3% from the third quarter of 2014. Advances, which include by to let remortgages, increased over the past year from £8 billion advanced in the third quarter of 2014 to £9.7 billion in the third quarter of 2015. This is the highest level of advances since the first quarter of 2009. Buy to let balances outstanding were £174 billion in the third quarter of 2015, which, at 14.5% of total residential balances is the highest proportion since the series began in 2007. The data also shows that the proportion of remortgages decreased from 26.2% in the second quarter of 2015 to 24.1% in the third quarter while the proportion of other new lending decreased from 3.6% to 3.4%. The proportion of gross advances at a loan to value (LTV) of over 90% decreased by 0.7% to 2.8% in the third quarter of 2015 while the proportion of gross advances to borrowers with a single income multiple of more than four time increased by 0.9% to 10.3%. According to Peter Rollings, chief executive officer of Marsh & Parsons, we can expect to see borrowing advance further after the Chancellor’s stimuli unveiled in the Autumn Statement. ‘With £15 billion of funding for housing measures taking prominence in his agenda, this will have given the green light to a queue of first time buyers, particularly in London, where there will be a designated Help to Buy scheme to reflect the accelerated house price growth in the capital, and the extra booster needed to help buyers onto the ladder,’ he said. ‘First time buyers have already been making tracks in the third quarter and in London we’ve seen this as part of wider demographic shift as domestic players and mortgage buyers become more prevalent in the housing market, while overseas investors take a temporary step back to digest the higher stamp duty payable on top-end purchases,’ he explained. ‘But proportionally, across the country, remortgaging activity has been taking up a larger chunk of the lending pie recently, as existing home owners try to build up their defences ahead of an expected interest rate rise in 2016. But the rankings may change in the run up to April’s stamp duty increase for second homes, and buy to let lending is likely to rev up quickly, as investors… Continue reading
