Lennox's Real Estate Blog

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Archive for the ‘Homeownership’ Category

Transition to a Sustainable Housing Market

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The residential housing market in the United States has experienced a significant recovery after the housing bubble burst in 2006 – 2007. Leading the way to recovery were the Home Buyer Tax Credit, Residential Investors and Local Home Buyers taking advantage of the historical low interest rates, thanks to the Mortgage Bond Purchase Program by the U.S. Federal Reserve.

This now poses the question of how is the U.S. Housing Market is going to transition from the Recovery Phase to a Sustainable Housing Market. With higher prices and the Federal Reserve starting to back off of Mortgage Bond Purchase Program, (creating higher mortgage interest rates) what will it take to have a strong foundation for a healthy market?

There are many major indicators that make up the environment of a Healthy Housing Market.


Indicator Condition Sales Activity
Home Prices Appreciation has spiked the last two years, price increases will start to moderate next year Lower Sales Activity
Interest Rates May 2013 appears to be the low point. Interest Rates heading higher Lower Sales Activity
Job Growth #1 Factor to Healthy/Strong Market Healthy Sales Activity
Residential Investors Sales activity headed back down toward normal level Lower Sales Activity
Household Formations Returning back up to normal after 5 Low Years Healthy Sales Activity
Down Payment Requirements #1 Factor for many Home Buyers FHA-VA-USDA-GSE’s Healthy Sales Activity
Underwater Sellers Price Appreciation unlocking many Sellers. Additional Inventory and Sales Activity Healthy Sales Activity
Homeowners who Refinanced Have very low interest rate. Restriction of Housing Supply. Lower Sales Activity
New Construction Selling out of lots. Few new condominiums. Restriction of Housing Supply

The Most Important Factor that will help Transition to a Sustainable Housing Market:

Home Financing

1)    Down Payment Requirements for Credit Worthy Home Buyers

The housing bubble was caused by lax Mortgage Underwriting Standards, not by the amount of down payment. The problem was fixed six years ago in 2007. The new vintage of loan portfolios are performing according to plan.

2) Keep FHA – 3 ½ % Down Program for Credit Worthy Borrowers

This is the #1 item for a Healthy Housing Market.

3) Need credit score requirements to return back to normal

Once QM (Qualified Mortgage) rules are implemented, credit scores should return back to normal for QM Qualified Mortgages.

4) U.S. Government backing of GSE Loans

This is the reason why we have Low Home Mortgage Interest Rates and have the availability of 30 Year Fixed Rate Mortgages. Without this backing, interest rates would fluctuate wildly and put housing on Shorter Term Mortgages. This could cause more frequent boom/bust cycles, with deeper/longer recessions.

Written by Lennox

June 24, 2013 at 2:42 pm

Seattle is a Special Market for Residential Real Estate

A sellers’ market has returned in the areas close to the job centers of Seattle and Bellevue, up to the one million dollar price point.  We are also seeing the same situation in the more affordable price ranges in the surrounding market areas, caused by a shortage of inventory and healthy/strong sales activity. Price increases are muted by short sales and foreclosures that are causing low appraisal values.

Unique market conditions prevail: Both low inventory and low interest rates at the same time.

Major factors leading to the current healthy/strong sales activity are positive job growth, population growth, home buyers taking advantage of the low rates and lower adjusted home prices, elevated number of investors in the market and historic low interest rates, in the upper 3% range.

The lower number of new listings coming on the market is being caused by under-water sellers and sellers with equity holding off for higher prices and the lack of new construction/condominiums. The low number of new listings combined with the increase in sales activity is creating the shortage of homes for sale on the market in specific areas and price ranges.

As always, thanks for reading.


Written by Lennox

February 3, 2012 at 12:53 pm

New Solutions for America’s Housing Crisis

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I’ve recently had the honor of participating in the New Solutions for America’s Housing Crisis conference back in Washington, DC.  The conference was co-hosted by E21 and the Progressive Policy Institute, two economic policy organizations looking for resolutions to get America out of our current fiscal turmoil.   In attendance were strategic business leaders from the real estate and mortgage industries as well as key federal government policy makers.

The purpose of the conference was to discuss real solutions to the housing crisis and its effect on the economy.  Read the rest of this entry »

Written by Lennox

October 18, 2011 at 2:07 pm

Puget Sound Housing Report 2010/2011

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Let’s start by reviewing what took place in the 2010 Puget Sound residential real estate market. Last year experienced a “surge/unsurge” with sales surging in first quarter thanks to historically low-interest rates and the Federal Home Buyer Tax Credit. But when the tax credit expired on April 30th, 2010, home sales took a dramatic drop.

Sales remained sluggish, but as the year progressed, inventory levels began to lower. By the end of 2010 the three-county area of King, Snohomish, and Pierce reported Read the rest of this entry »

Written by Lennox

February 22, 2011 at 1:16 pm

Talking Real Estate With Seattle Rotary

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On October 13, I had the immense honor of addressing the Seattle Rotary Club as a part of their weekly luncheon program.  This club is the largest in the world with 675 members, as well as the fourth oldest, founded in 1909. The last time I spoke to this esteemed audience I discussed technology and its impact on the real estate business. This time, I was asked to address the state of the residential real estate market – past, present, and future. The club was kind enough to record my presentation – which I will post below (entire presentation is broken out into 3 parts). A special thanks to Phil Smart for his witty commentary at the end of the Q & A – leave it to Phil to end it all on a high (and humorous) note.

As always, thanks for reading,



Written by Lennox

October 17, 2010 at 10:39 pm

Shop Talk With U.S. Housing Sec. Shaun Donovan

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Last week I had the great honor of being invited to meet with U.S. Department of Housing and Urban Development (HUD) Secretary Shaun Donovan and Assistant Secretary for Housing and Commissioner of the Federal Housing Administration (FHA) David Stevens. The meeting took place on September 23 at the HUD offices in Washington D.C.

The meeting was arranged by Sen. Patty Murray’s office for the purpose of discussing the systemic problems facing the housing market and ideas to stimulate recovery. The meeting was also attended by Travis Lumpkin, Sen. Murray’s legislative assistant on housing issues. We discussed the concept of an urban down payment assistance program similar to the USDA’s program which currently helps households purchase homes in rural areas with no required down payment (more details about the program can be found in this previous blog).

Secretary Donovan and Commissioner Stevens acknowledged that one of the biggest challenges facing qualified first time buyers is not affordability, but rather having the down payment. We also discussed the importance of State Housing Finance Agencies and the need to renew high balance loan limits – which Secretary Donovan stated HUD has just come out in support of. The maximum $729,750 loan limit for Fannie Mae, Freddie Mac, and Federal Housing Administration-backed loans in high-cost areas will expire at yearend unless policymakers act.

Without an extension, the maximum loan limit would drop back to $625,500 on Jan. 1, which would cause a significant drag on the fragile market. According to NAR’s deputy chief lobbyist Jamie Gregory, Sen. Murray, chair of the Housing and Urban Development Appropriations subcommittee, has inserted language into a HUD appropriations bill to extend the current limits.

This meeting could not have happened without the direct support of Sen. Murray and her staff and I am very thankful to them for providing me with this unique opportunity. Sen. Murray continues to be an advocate for housing and she is one of the few in Congress that understands housing issues. It is my opinion that losing her presence in the Senate would be a huge loss to our industry.

On the flight back to Seattle I reflected on the significance of this meeting and any results that may come from it. Then I decided that the ultimate outcome would be if President Obama turned to Secretary Donovan during a Cabinet meeting and asked him what his plan is for re-establishing a healthy housing market, and Secretary Donovan responds with “down payment assistance for urban markets”.

As always, thanks for reading.


Written by Lennox

September 30, 2010 at 10:53 am

The Homebuyer Myth of “Skin in the Game”

with 6 comments

Last week, I posted a link to a proposal about a national first time homebuyer down payment assistance program. I’ve received many responses – including those who originally questioned it, but have since taken a further look and acknowledged its merits. And there are others who are still undecided. Ultimately, my goal is to stimulate conversation about ways that housing can support the U.S. economy while giving people the opportunity to realize the dream of homeownership.

Homeownership is historically an instrumental part of the U.S. economic engine, so it’s critical that we take measures to ensure that the housing market has a strong foundation for sustainability. What I would like to address today is some of the feedback that I’ve received from those who question the national down payment assistance program and suggest that it will put us right back where we were with the mortgage crisis.

There is a misconception that first time buyers who have “skin in the game”, meaning cash for a down payment, are less likely to default on a home loan than those without. The truth of the matter is that for decades the USDA has offered programs with 100% financing and the default rate on those loans is only 1.7%. The VA has a similar zero-down program and their default rate is 2.5%. FHA loans require a 3.5% down payment and their default rate is under 4%. According to the National Association of REALTORS, conventional loans, which require a 20% down payment, have between a 2% and 5% default rate depending on the specific loan type. The foreclosure rates tied to the subprime meltdown are nearly 15%.

Some first time homebuyers have saved the money needed for a down payment; others are fortunate enough to have family that is willing to gift them the funds. In both cases, most buyers are left with little savings following their home purchase; thus the emphasis on ensuring that buyers are well qualified. First time buyers that need down payment assistance are no different with the exception that over a 15 year period they will repay the DPA along with their mortgage. As such, those using down payment assistance typically purchase slightly less home than their counterparts in order to compensate for the DPA effect on financial ratios. The moral of the story is that we need to focus on the qualifications of first time homebuyers, not the source of their down payment.

The moral of the story is that we need to focus on the qualifications of first time homebuyers, not the source of their down payment.

One of the main arguments that I have heard in opposition to a national down payment assistance program is that it will lead to higher foreclosures because it does not require “skin in the game,” as mentioned earlier. I think that the USDA program alone proves that even with 100% financing, responsible, qualified homebuyers who use down payment assistance are no more likely to default on their mortgage than those who use conventional loan products. In fact, according to national statistics, in some cases they are less likely to do so.

It’s important for people to enter into homeownership with a clear understanding of the financial responsibilities that accompany this kind of purchase. Unlike the time of subprime mortgages, buyers need to be responsible, have stable employment, good credit, and a healthy debt-to-income ratio. Foreclosure rates go down even more if first time homebuyers have taken a course that educates them about the responsibilities of home ownership.

As I’ve said before, my proposal for a national down payment assistance program is not about getting people into homeownership at any cost. It’s about providing opportunities and educating people about the possibilities that exist for those who are qualified and considering buying a home for the first time.

As always, thanks for reading,


Written by Lennox

July 8, 2010 at 2:21 pm

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