Posts Tagged median income
As of October 1, 2011, HUD has reduced the FHA loan limits throughout the U.S., but of course we’re mainly concerned with what affect it will have on Utahns buying homes. According the HUD, based on the amount of FHA loans only about 3% of the loans made in 2010 under the old, higher limits would not be made today. I think this is a true case scenario. I certainly haven’t seen a lot of $729,750 loans. In fact I haven’t seen even one. That might be because it would take an income of $14,530 a month to qualify for a FHA loan that large, and there are not a lot of Utahns that make that kind of money. Only 6.5% of Utah households make more than $150,000 a year. The average annual household income in Utah as of the last census was $69,686 with the median being $55,642. In other words, 50% of Utah households qualify for less than a $245,000 FHA loan. With the lowest loan limit in Utah being $271,050, you can see that the lower loan limits will not keep many from buying homes using a FHA loan.
Here are the new loan limits for the state of Utah, county-by-county.
I hope everyone had a great holiday season and are adjusting well to returning to real life and work again. I’ve returned to work with incredible news for the new year. The Federal Government has started it’s $500 Billion purchase of Mortgage Backed Securities (MBS) which has spurred interest by investors in Mortgage Bonds and has driven the rates even lower than last week (which were pretty dang good). Analysts are saying that we could see some record low rates over the next three months.
In other news, the Board of Realtors has released November’s data for home sales in Utah. Sales overall in November were lower than November of 2007 and 74% of homes sold in Salt Lake City and surrounding areas were below $300,000. I feel this goes back to my theory that since there is no more stated income loans and borrowers must be able to document income and assets, that is all the majority of Utah borrowers can qualify for.
For instance, according to the Census Bureau’s income data (which is collected from the IRS) the median household income (the amount that 1/2 of people make less than and half make more than) is Utah is about $62,000 a year. This would qualify half of Utahan’s for a home of $243,000 or less.
This number is probably skewed a bit too, since those that sign the front of checks don’t report their income the same way as those who sign the back. Many business owners do not W-2 themselves, but rather file a Schedule C or K in which they work hard to minimize their taxable income by writing-off as much as they can, so their true take-home income from being a business owner is usually way understated. In reality they can afford a $500,000 home (or more), but they can only on paper prove they qualify for a home in the $300,000 price range or less.
So until HUD (who oversees lending guidelines for FHA, Fannie Mae and Freddie Mac) changes their guidelines for calculating self-employment income, I think we are going to see much of the same, with homes under $300,000 selling quickly and those over $300,000 staying on the market for longer periods of time.
If you are looking to refinance a home or purchase a new home, right now is the time, though. Rates are truly as low as they’ve been in over five years, and definitely the lowest they’ll be for a while. So don’t delay. Call me for a no-charge review of your current mortgage and if refinancing will benefit you. Also, if you are looking at a home, call me for a mortgage quote or to get you pre-approved for the loan.
For Salt Lake City, UT today’s average mortgage rates are as follows:
30-year fixed: 4.75%
15-year fixed: 4.625%
Conforming Jumbo 30-year fixed: 5.125%
FHA 30-year fixed: 5.00%
Interest rates up. Home prices down. What’s it all mean?
Where is Salt Lake City headed in the real estate market now? What are interest rates for Utah borrowers going to do? Is my house in Sandy losing value?
All good questions and ones I get asked often when someone finds-out I am a mortgage broker. So here’s my predictions for why Salt Lake City in particular, and Utah in general are going to be better-off than the rest of the country when it comes to real estate and mortgages.
- Utah is a growing state. Whether that growth is coming from outside the state or from within, we are growing. Utah culture is good for real estate. The underlying idea in Utah is get married, buy a house and start a family. And that family usually consists of four or more children. Utah leads the nation in the number of children per household. All those kids are going to need homes to raise more kids. So unless something drastic happens and Utahns stop having kids at the rate they are, there will always be demand for homes.
- People are moving into Utah. Utah is attractive to those fleeing bigger cities. Salt Lake City is not too big, but also not too small. For someone from a large city it’s just right. Also, Utah is a non-union state, so it is very attractive to companies who wish to set-up shop here for cheaper labor than in other parts of the nation. Utah also has a very tech-savvy population, so high tech companies have a huge employment pool here. These companies also bring-in their own employees, thus creating a need for homes, and hiring Utahns allows them to afford homes.
- Utah has one of the lowest unemployment rates in the nation. The number one reason for foreclosures is not sub-prime lending. It is not option arms. It is loss of some or all of a family’s income. Check the statistics. The highest foreclosure rates in the U.S. coincide with the highest unemployment rates in the U.S. (California and Nevada being the exception since much of that is “investors” that screwed-up the markets there). Utah has a low unemployment rate and one of the lowest foreclosure rates in the U.S.
- While other areas in the U.S. are seeing sometimes double-digit drops in home values, property values in Utah has actually increased 2.5% over the first six months of 2008
All that said though, what is going to effect us is this:
The days of Stated Income loans is not gone, but what is left is highly unattractive to buyers and very demanding of them.
Why does this make a difference? Because a house is worth whatever someone will pay for it. Stated Income loans, in my opinion, were a huge contributor to unrealistically driving-up home values. It artificially created a sellers-market. A seller could list their home for whatever they pleased, and if an interested buyer couldn’t qualify for the home via the full income documentation (Full Doc) route because they just didn’t make enough, they could go Stated Income and not have to show the loan officer or the lender any of their proof of income. Therefore they could now qualify to buy a home they otherwise would not have been approved for. And once that home home sold for an inflated amount, it created a comparative (comp) for someone else in the neighborhood to base the value of their home on, and so on, and so on, and so on.
It’s for this reason most of all that I feel we are going to see a drop in home values in Utah. Not for lack of demand, but for lack of qualified buyers for homes in their current price range. This is why this is:
According to the Utah Association of Realtors, the average price of a single family residence in Salt Lake County in the first quarter of 2008 was $286,321.
According to the Bureau of Labor Statistics the median household income in Salt Lake County in 2007 was $60,589 (remember back to math class, median is the exact middle of a set of numbers). So half of Salt Lake City and County residents have a household income of less than $60,000 a year and half have more. $60,000 a year qualifies a home buyer for a $195,000 loan.
So half of Salt Lake County households won’t qualify for the average home in Salt Lake City or County since they have to prove they have the capacity to pay for that home. Income hasn’t gone down in Utah over the past 10 years, but homes have skyrocketed in price because buyers could stretch the truth a bit about their capacity to repay and get that bigger home they so badly wanted.
Well, those days are over. Under the current loan underwriting guidelines the industry has gone back to the “Three C’s” of lending: Proof of Credit, Capacity to repay and collateral.
Credit. Credit standards have gotten much stricter. Even FHA now has a minimum FICO score requirement, where six months ago they didn’t. Someone with a 560 FICO used to be able to buy a house. Now, the minimum most lenders are underwriting is 620 (although some will still go down to 580 on an FHA, but they are few and far between).
Capacity to repay. Full income documentation rules right now. A borrower has to be able to prove they have the income available to afford the home they are buying. Many self-employed borrowers can’t prove they make as much as they do, and the lending industry defines a self-employed person anyone who derives more than 25% of their income from commissions or bonuses. Stated Income loans were designed to address this borrower’s needs, but the programs were abused terribley by those that could prove their income but wouldn’t because they wouldn’t qualify for the house they wanted.
Collateral. Appraisal fraud was a huge issue in Salt Lake City, Draper, Sandy and Utah overall. Nowdays, appraisals are undergoing “desk reviews” at the lenders and are being heavily scrutinized. Many a deal has been killed because an appraisal would not hold-up to close examination. This is why a good and honest appraiser is worth their weight in gold. An honest value means an honest sale price means a loan that will close and a buyer will be able to move into their new home.
So I feel that the big contributor to home prices declining in Salt Lake City and County, and Utah in general will be for the simple reason that in order to find qualified buyers home sellers will have to discount their home into the realistic price range that the majority of Utahns can qualify for. For this to not happen, lenders are going to have to get creative on ways to qualify the top 50% of Utah earners who are the small businesspeople that write-off most of their income to minimize their income tax burden. There are lots of people in Utah that can honestly afford a $400,000 plus home, they just can’t prove on paper that they can… for now.
So there you have it. The thoughts rolling around my head this week. Take care, and happy house hunting.