'Nesting is investing' as home improvement spending set to hit $321 billion

Home equity is back, and headed for the bathroom — or the kitchen or the garage or wherever today's homeowners see the greatest returns.

Higher home prices have given people cash back and they are putting that cash to work in more — and bigger — remodeling projects.

Growth in home improvement and repair expenditures will reach 8 percent by the start of 2017, according to a new report from Harvard's Joint Center for Housing. That is far beyond its 4.9 percent historical average.

"By the middle of next year, the national remodeling market should be very close to a full recovery from its worst downturn on record," said Abbe Will, research analyst in the remodeling futures program at the Joint Center. "Annual spending is set to reach $321 billion by then, which after adjusting for inflation is just shy of the previous peak set in 2006 before the housing crash."

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A couple works on home renovations.

Increased home equity is certainly playing a large role, as are near-record low mortgage rates, which are enticing owners to refinance and potentially pull cash out. In the first quarter of this year alone, homeowners gained a collective $260 billion in additional home equity, thanks to higher home values, and with that increase, 38 million borrowers now have at least 20 percent equity in their homes, according to Black Knight Financial Services.

Confidence is also key. When people feel better about their home's value, they are more apt to invest in it.

"I call it 'nesting is investing.' People are saying I want to do something that adds to the value of my house, and I'm just going to fortify the castle," said Brad Hunter, chief economist with HomeAdvisor, an online home services marketplace.

And what fortifies the castle best? Kitchen and bath remodels are always popular, but Hunter points to less sexy insulation, as yielding the largest returns. He also said service requests on HomeAdvisor for multiroom remodels are up 67 percent from a year ago.

"We could see percentage growth rates in the remodeling and home- improvement sector that exceed those for new home construction in the next few years," Hunter said.

At least one-quarter of remodeling firms across all sectors report seeing more clients taking on multiple projects at the same time, according to another report from Houzz, also an online remodeling services firm.

Nesting is not the only thing driving home remodeling. As home sales pick up, they fuel fresh finishings as well.

"As more homeowners are enticed to list their properties, we can expect increased remodeling and repair in preparation for sales, coupled with spending by the new owners who are looking to customize their homes to fit their needs," said Chris Herbert, managing director of Harvard's Joint Center.

No matter the reason, growth in remodeling is a boon to retailers likeHome Depot, Lowes, Sherwin Williams and Masco — and of course their stocks. Consumers are not only doing more renovations, they're spending more on them. With homebuilders still producing far fewer homes than are necessary to meet demand, owners of existing homes are trying to make them new again.

Courtesy of:  http://www.cnbc.com/2016/07/21/nesting-is-investing-as-home-improvement-spending-set-to-hit-321-billion.html  Diana Olick | @DianaOlick

Thursday, 21 Jul 2016 | 9:19 AM ETCNBC.com

Foreign buyers flood US real estate, but buy cheaper homes

The appetite for U.S. real estate continues to flourish, but international buyers are shifting their sights from luxury to less-pricey properties. This may be due to overall higher home prices, along with a stronger U.S. dollar, which both cost foreign buyers more at the negotiating table. There are also fewer nonresident foreigners investing in the market.

"Weaker economic growth throughout the world, devalued foreign currencies and financial market turbulence combined to present significant challenges for foreign buyers over the past year," said Lawrence Yun, chief economist of the National Association of Realtors (NAR). "While these obstacles led to a cool down in sales from nonresident foreign buyers, the purchases by recent immigrant foreigners rose, resulting in the overall sales dollar volume still being the second highest since 2009."

Zhang Peng | LightRocket | Getty Images

Chinese investors negotiate at the US-China Real Estate summit & trade fair in Beijing. (File photo).

Foreign buyers purchased $102.6 billion of residential property in the U.S. between April 2015 and March 2016, according to NAR's annual report on international activity in U.S. real estate. That is a 1.3 percent decline in dollar volume from the previous survey. The number of properties purchased, however, rose 2.8 percent to 214,885. The value of homes bought by foreigners was typically higher than the median price of all U.S. homes.

"The slight drop in dollar volume can probably be accounted for based on the types of properties purchased, and the locations of many of those properties. We've seen at least some evidence that foreign buyers — both investors and people just looking for a home — have begun looking beyond expensive markets like San Francisco, New York City and Washington D.C., and buying properties in smaller, less-expensive cities in the Southeast and Midwest," said Rick Sharga, executive vice president at Ten-X (formerly Auction.com), an online real estate marketplace .

Another major shift was in the makeup of international buyers. Chinese purchasers continued to outpace all others, with their dollar volume exceeding the total of the next four ranked countries combined. Their dollar volume of sales, at $27.3 billion, was a slight decrease from last year's survey but was still three times as much as Canadian buyers, who were ranked second. Chinese buyers also bought the most expensive homes at a median price of $542,084. 

"Although China's currency modestly weakened versus the U.S. dollar in the past year, it's much stronger than it was five to 10 years ago, thereby making U.S. properties still appear reasonably affordable over a longer time span," wrote Yun in the report. 

Given today's volatility in global financial markets, real estate is one of the safest investments available. U.S. real estate in particular is relatively inexpensive compared to properties in Asia. 

"The explosive growth of the Chinese economy created a very large number of very wealthy people. As that country's economy has slowed down, those individuals are looking for better investment alternatives, and many have concluded that U.S. real estate is a smart bet," added Sharga.

London had been a favorite of foreign investors, but the impact of the Brexit vote is already hitting the housing market there. Buyers from the United Kingdom were the fourth-largest consumer of U.S. real estate in the data that was gathered before the Brexit vote.

"Sales activity from U.K. buyers could very well subside over the next year depending on how severe the economic fallout is from Britain's decision to leave the European Union," added Yun. "However, with economic instability and political turmoil outside of the U.S. likely to persist, the world view of American real estate as a safe investment should keep demand firm even as pressures from a stronger dollar continue to weigh down on affordability." 

As for U.S. destinations, five states accounted for half of foreign buyer purchases: Florida, (22 percent), California (15 percent), Texas (10 percent), Arizona and New York (each at 4 percent). Latin Americans, Europeans and Canadians, who historically favor warmer climates, were most prevalent in Florida and Arizona. Asian buyers flocked to California and New York. Texas was more a mix of buyers from Latin American, the Caribbean and Asia. Texas may be more of an investment play, as demand for single-family rentals there remains strong.

Sales to nonresident foreign buyers fell to the lowest dollar volume since 2013. Shares to foreign residents increased. The shares had been evenly split, but higher home prices and the depreciating value of foreign currencies likely played into that dynamic.

"Led by Venezuela (45 percent) and Brazil (24 percent), at least eight countries, including China and Canada, saw double-digit percent increases in the median sales price of a U.S. existing home when measured in their country's currency," added Yun.

Courtesy of Diana Olick, CSNBC: http://www.cnbc.com/real-estate/

Mortgage rates sink to three-year low, thanks largely to Brexit

The stock market’s plunge following the Brexit vote was bad for most people’s retirement accounts but good for those looking to refinance their mortgage. Even as the market has started to recover its losses and the flight to bonds’ safety has eased, home loan rates remain down.

Despite the low rates, growing pessimism over the direction of the economy is spilling over into home-purchase sentiment. Pending home sales – those deals that are under contract but have not closed – declined in May, marking their first annual drop in nearly two years. Rates may be low, but not many people are rushing out to make a big purchase such as a home with so much economic uncertainty. The group most likely to benefit from low rates are homeowners seeking to refinance.

Bankrate.com, which puts out a weekly mortgage rate trend index, found that almost half of the experts it surveyed believe rates will remain relatively unchanged in the coming week while a third believe they will fall further.

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According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average plunged to 3.48 percent with an average 0.5 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 3.56 percent a week ago and 4.08 percent a year ago. Since the beginning of the year, the 30-year fixed rate has plummeted nearly 50 basis points. (A basis point is 0.01 percentage point.) It has fallen 18 basis points in the past month alone.

The 15-year fixed-rate average sank to 2.78 percent with an average 0.4 point. It was 2.83 percent a week ago and 3.24 percent a year ago.

The five-year adjustable rate average dropped to 2.70 percent with an average 0.5 point. It was 2.74 percent a week ago and 2.99 percent a year ago.

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“In the wake of the Brexit vote, the yield on the 10-year U.S. Treasury bond plummeted 24 basis points,” Sean Becketti, Freddie Mac chief economist, said in a statement. “This week’s survey rate is the lowest since May 2013 and only 17 basis points above the all-time low recorded in November 2012. This extremely low mortgage rate should support solid home sales and refinancing volume this summer.”  Meanwhile, mortgage applications declined this week, according to the latest data from the Mortgage Bankers Association.

The market composite index — a measure of total loan application volume — fell 2.6 percent from the previous week. The refinance index slipped 2 percent, while the purchase index dropped 3 percent.

The refinance share of mortgage activity accounted for 58.1 percent of all applications.

“In light of the Brexit vote and other recent economic news, MBA now predicts that the Fed will hike only once this year, likely in December,” said Lynn Fisher, Mortgage Bankers Association vice president of research and economics. “If the financial market disruption from Brexit persists, the likelihood of even a December hike would be reduced.”

By Kathy Orton

The Washington Post: https://www.washingtonpost.com/news/where-we-live/wp/2016/06/30/mortgage-rates-havent-been-this-low-in-three-years-2/