News Column

Home sales up, but tighter lending creates obstacles for some buyers

May 20, 2014

By Ed Waters Jr., The Frederick News-Post, Md.

May 20--Despite better weather and a good inventory of homes, mortgage loan officer Hugh Gordon said he still feels like the Maytag repairman.

In advertisements for the appliance maker, the repairman spends his boring days waiting for a service call that never comes.

"Several Realtors I have spoken to indicate that there are fewer buyers," said Gordon, of Fitzgerald Financial. "My gut tells me we are seeing fallout from the Quality Mortgage regulations that went into effect in January."

Those regulations set tighter qualifying rules for borrowers. In many cases, borrowers must have a specific percentage of a home's cost up front.

Buzz Mackintosh, who operates Mackintosh Inc. Realtors with his brothers, said his office is seeing a lot of activity, but buyers are being cautious. Mackintosh repeated Gordon's comments that many mortgages require minimum upfront costs.

"Therefore, many buyers are asking for a seller to contribute toward the closing costs to make the sale happen," Mackintosh said.

"Unless a property is in a high-demand area or aggressively priced, in today's marketplace, a seller should be open to helping out a buyer who is short on cash to close," Mackintosh said.

Michael Kurtainyk, president of the Frederick County Association of Realtors, agreed.

"If a house has been on the market more than 78 days, it's overpriced," Kurtainyk said. "We have sellers who believe it is a seller's market; however, there are fewer buyers out there. I would chalk it up to tighter regulations on lending requirements."

There were 260 homes sold in Frederick County in April, according to Realestate Business Intelligence. That's up from 222 in March and 244 in April 2013.

New versus existing homes

A majority of respondents to a survey by the National Association of Realtors said they prefer a new home, but the cost difference can be an obstacle. The same survey, on the NAR website, shows respondents not willing to pay an extra 20 percent or more for a new home over an existing comparable house.

Features such as bigger closets, a kitchen island, open floor plan, walls pre-wired for electronics and radiant floor heating topped the list for why they would want a new home, according to the survey, as well as less maintenance and repair than an existing house.

The National Association of Home Builders said housing affordability is improving. On its website, NAHB said 65.5 percent of homes sold nationally in the first quarter of 2014 at the national median price of $195,000 were purchased by families making $63,900 or more. That affordability level is up from 64.7 percent in the fourth quarter of 2013.

Home construction is a major factor in economic recovery, Robert Dietz, NAHB economist, said on the association's website. Home construction and remodeling have generated 274,000 jobs nationally during the past two-and-a-half years, Dietz said.

Residential building permits are doing well. From January through April, 389 permits were purchased for construction in Frederick city, and 167 in the county, according to Lynn Shanton, president of Strategic Marketing Group.

The monthly National Association of Home Builders/Wells Fargo index that monitors new home builder confidence fell to 46 in May, down from 47 in April. The index, a survey of new home builders nationwide posted on the NAHB website, reflects confidence among builders for a six-month outlook for sales and contracts. Any number below 50 is considered negative.

While remodeling was down in the first quarter of 2014, according to the National Association of Home Builders, that part of the construction industry remains confident with the arrival of spring and homeowners needing maintenance, repair and upgrades. Small projects will show strength, the NAHB said.

The National Association of the Remodeling Industry agrees. On its website, the organization notes a decline in the first quarter of this year, but blames it on harsh weather. The group expects a surge in much-needed home maintenance but slower growth in large home improvement projects.

"Economic news is still not great," said Gordon, the loan officer. "Jobs and income reports don't help confidence levels."

Foreclosures and short sales

There were 117 foreclosures in Frederick County in April, according to RealtyTrac, which monitors distressed properties nationwide. RealtyTrac includes properties from initial delinquent payments to those already put back on the market by lenders after repossession.

"The rise in bank repossessions in many states is a sign that those markets are working through the final remnants of foreclosures left over from the recent housing crisis," said Daren Blomquist, vice president at RealtyTrac, in a prepared statement.

"Many of these bank-owned homes are bottom-of-the-barrel properties in terms of location or condition, but they will provide some much-wanted inventory of homes for sale in some markets in the coming months," Blomquist said. "Investors and other buyers willing to do more extensive rehab will likely be best-suited for these."

Gordon said he is happy to see the foreclosure numbers take a slight dip. "It would be nice to see a declining trend develop, but if I were to guess, we will see that number stay consistent within a tight range through 2014," he said.

Patrick McLister, an attorney whose firm handles a lot of short sales, said reduced foreclosure numbers seem to be the result of the popularity of short sales. "When sellers have no other choice but to sell their house or lose it through the foreclosure process, many are choosing to sell their house as a short sale, in which the lender will agree to take less than what is actually owed by the sellers on their mortgage balance," he said.

A short sale may help a seller by not reducing their credit score as much as a foreclosure would. If the seller obtains a waiver of deficiency in the short sale, they aren't subject to any more collection action, which they could be with a foreclosure deficiency judgment.

Many distressed sellers are working with experienced short sale Realtors who have a law firm negotiate the terms of the short sale with the seller's bank, McLister said.

Maryland has the second-highest rate of foreclosures in the nation, according to RealtyTrac. With 3,812 foreclosures in April, Maryland was second only to Florida. One in every 624 homes in Maryland is in some level of distress. Maryland's April number is 16 percent less than March, but up more than 4 percent from April 2013.


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