MONEY home prices

What to Expect From the Housing Market in 2015

aerial view of subdivision
David Sucsy

Consumers think 2015 will be a better year than 2014, especially for selling a home. But the recovery faces an uphill climb.

What does 2015 have in store for the housing market? Nine years after the housing bubble peaked and three years after home prices bottomed, the boom and bust still cast a long shadow. None of the five measures we track in our Housing Barometer is back to normal yet, though three are getting close. The rebound effect drove the recovery after the bust but is now fading. Prices are no longer significantly undervalued and investor demand is falling. Ideally, strong economic and demographic fundamentals like job growth and household formation would take up the slack. But the virtuous cycle of gains in jobs and housing is relatively weak, and that will slow the recovery in 2015. All the same, consumers are optimistic, according to our survey of 2,008 American adults conducted November 6-10, 2014.

Consumers Expect 2015 to Be Better, Especially for Selling a Home

Consumers are as optimistic about the housing market as at any point since the recovery started. Nearly three-quarters — 74% — of respondents agreed that home ownership was part of achieving their personal American Dream, the same level as in our 2013 Q4 survey and slightly above the levels of the three previous years. For young adults, the dream has revived: 78% of 18-34 year-olds answered yes to our American Dream question, up from 73% in 2013 Q4 and a low of 65% in 2011 Q3.

AmericanDream

 

Furthermore, 93% of young renters plan to buy a home someday. That’s unchanged from 2012 Q4 despite rising home prices and worsening affordability.

Which real estate activities do consumers think will improve in 2015? All of them – but especially selling. Fully 36% said 2015 will be much or a little better than 2014 for selling a home. Just 16% said 2015 will be much or a little worse, a difference of 20 percentage points. The rest of the respondents said 2015 would be neither better nor worse, or weren’t sure. More consumers said 2015 will be better than 2014 for buying too. But the margin over those who said 2015 will be worse was not as wide.

BetterorWorse

 

Despite this optimism, barriers remain to homeownership. Saving for a down payment is still the highest hurdle, as it was last year, followed by poor credit and qualifying for a mortgage. Not having a stable job has become considerably less of an obstacle, dropping to 24% this year compared with 36% last year thanks to the recovering job market. But affordability has become a bigger obstacle. Some 32% of respondents cited rising home prices, compared with 22% last year.

BiggestObstacle

 

Housing Recovery in 2015: Rebound Effect to Fade Before Fundamentals Can Take Over

Different engines power each stage of the housing recovery. During the early years—roughly 2012 to 2014 – the rebound effect drove the recovery. Investors and other buyers scooped up undervalued homes and took advantage of foreclosures and short sales, boosting overall sales volumes. Local markets hit hardest in the housing bust posted the largest price rebounds. Now, though, the rebound effect is fading. Price levels and price changes are both approaching normal, foreclosure inventories are dwindling, and investors are pulling back. This is inevitable as the market improves and therefore shifts to slower, more sustainable price increases and a healthier mix of home sales.

So what replaces the rebound effect in the next stage of the housing recovery? The market increasingly depends on fundamentals such as job growth, rising incomes, and more household formation. But here’s the hitch: These fundamental drivers of supply and demand haven’t returned to full strength. They aren’t able to fully take the reins from the rebound effect. Importantly, the share of young adults with jobs is still less than halfway back to normal, many young adults are still living with their parents, and income growth is sluggish. This points to a tricky handoff, and means housing activity in 2015 might disappoint by some measures, though the rental market will remain vigorous.

Here’s what we expect:

  • Price gains slow, but affordability worsens. Price gains slowed in 2014 and we’ll see more of the same in 2015. In October 2014, prices increased4% year-over-year, down from 10.6% in October 2013. The slowdown has been especially sharp in metros that had a severe housing bust followed by a big rebound. Now, prices nationwide are just 3% undervalued relative to fundamentals. That leaves fewer bargains and scant room for prices to rise without becoming overvalued. What’s more, with consumers expecting 2015 to be a better year to sell than 2014, more homes should come onto the market, cooling prices further. Nevertheless, despite slowing price gains,home-buying affordability will worsen in 2015 for two reasons. First, even these smaller price increases will almost surely outpace income growth. In 2013, incomes rose just 1.8% year-over-year in nominal terms, and a negligible 0.3% after adjusting for inflation. Second, the strengthening economy and the Fed’s response should push up mortgage rates.
  • The rental market will keep burning bright. Next year will see strong rental demand and lots of new supply. The demand will come from young people leaving homes belonging to parents or roommates and renting their own places. Until now, they’ve been slow to leave the nest. But the 2014 job gains for 25-34 year-olds should lead to the rise in household formation we’ve been waiting years for. At the same time, the 2014 apartment construction boom will mean more supply in 2015 since multi-unit buildings take about a year to build. Will rent gains slow? Probably – provided that this new supply keeps up with formation of renter households. This surge of renters will probably cause the homeownership rate to fall. To be sure, the ranks of homeowners will probably rise. But an even larger number of young adults will enter the housing market as renters.
  • Single-family starts and new home sales could disappoint. While apartment construction is breaking records, single-family housing starts and new home sales are still not much better than half of normal levels. They’ll improve in 2015, but not as much as we’d like. Our consumer survey suggests more people will try to sell existing homes. That would add to the supply on the market and possibly reduce demand for new homes. Also, the strongest source of housing demand will be young people getting jobs and forming households. But they’ll be moving into rentals and saving for a down payment rather than buying homes right away. Finally, the vacancy rate for single-family homes is still near its recession high, which discourages new construction. The apartment construction boom shows that where there’s demand, builders will build. But buyer demand for single-family homes simply hasn’t recovered enough to support near-normal levels of single-family starts or new home sales.

If these predictions for 2015 sound similar to our predictions for 2014, you’re right. As the rebound effect fades and fundamentals take over, the recovery gets slower and the market starts to look more similar from one year to the next. But there’s good news here. Even though the recovery remains unfinished, the housing market is becoming more stable and more certain for buyers, sellers, and renters.

Markets to Watch in 2015

As the rebound effect fades, our 10 markets to watch have strong fundamentals for housing activity. These include solid job growth, which fuels housing demand, and a low vacancy rate, which spurs construction. We gave a few extra points to markets with a higher share of millennials. These young adults are getting back to work and that will drive household formation and rental demand. We didn’t include markets where prices looked at least 5% overvalued in our latest Bubble Watch report. Here are our markets to watch, in alphabetical order:

  1. Boston, MA
  2. Dallas, TX
  3. Fresno, CA
  4. Middlesex County, MA
  5. Nashville, TN
  6. New York, NY-NJ
  7. Raleigh, NC
  8. Salt Lake City, UT
  9. San Diego, CA
  10. Seattle, WA

MarketstoWatch1

 

These markets are spread across the country: Boston, Middlesex County (just west of Boston), and New York in the Northeast; Dallas, Nashville, and Raleigh in the South (the Census considers Texas part of the South); and Fresno, Salt Lake City, San Diego, and Seattle in the West. No Midwestern metros make the list because they generally have slower job growth and higher vacancy rates than other markets, even though many are quite affordable and prices are rebounding.

In 2015, more markets will settle back into their long-term housing patterns. Fast-growing markets that boomed last decade, collapsed in the bust, and then rebounded are now leveling off. Even the markets that have been slowest to recover and have struggled longest are seeing foreclosure inventories decline and the sales mix moving back toward normal.

At the same time, first-time homeownership, single-family starts, and new home sales won’t come close to fully recovering in 2015. But if 2015 brings strong job growth, big income gains, and the long-awaited jump in household formation, then 2016 could be the year when we see a major turnaround in homeownership and single-family construction.

MONEY 401(k)s

Here’s a Good Reason Not to Fund Your 401(k)

141226_RET_FUND401K
Getty Images/Tetra images

Don't get too caught up in the amount of money you're saving for retirement. Focus instead on the income you'll have.

We save for retirement so we can create income for ourselves when we stop receiving a paycheck. And as a financial planner, I am supposed to determine how much money clients need to sock away in order for them to generate enough income to sustain their lifestyle in retirement.

But if the income itself is the most important thing — not the amount of money you amass to create that income — why don’t we ever focus on building lifelong income streams outside of our investment portfolios?

A recent meeting with a client — I’ll call her Mary — sparked an interesting conversation on the subject.

The subject of the meeting was goal planning. We began by outlining SMART goals for the next year, five years, and beyond. Mary had a very specific goal for the next five years: She wanted to leave her current job and become a full-time real estate investor. Although quite interesting, this wasn’t necessarily a unique goal. Many people aspire to do this, yet they get caught up in concerns about retirement — and rightly so.

In order to truly go after this goal, Mary would have to cut back on her retirement savings. “Oh no,” says society. “How can she possibly reduce her 401(k) contributions? She’s in her early 30s and does not have anywhere near enough stowed away. Saving early and often is necessary to ensure that she can retire someday. Plus, tax deferral is too good to pass up!”

I disagree in this specific scenario. Mary happens to know a good deal about real estate. She may not be an expert investor yet, but she is working on it. It’s her dream to create a lifestyle funded by real estate activities, specifically rental income. Additionally, investment real estate can provide some great tax advantages.

However, in order for her to achieve this goal, she has to save for the next down payment on a second investment property (she currently has one such property). From the outside, this goal seems to stand in the way of saving for retirement. To achieve her five-year real estate investment goal at this stage in her life, she can’t fully fund her 401(k). She has to direct most of her savings toward future property purchases.

Let’s shift our point of view for a minute and look at this situation through a different lens. By buying rental properties, she is establishing a sustainable income stream — an alternate form of cash flow from which she can benefit now and in the future. As this rental income grows, her 401(k) and IRA balances become less relevant. The rent checks she receives monthly actually alleviate the burden of amassing a large amount of money for retirement. And she avoids the stress of watching stock market investments ride the economic roller coaster.

This approach is definitely not for most people, but it does raise an interesting question. What other income streams might we be able to establish that could supplement the income from our retirement portfolios? What can we create for ourselves that could take the place of pensions, Social Security, and even our 401(k) plans?

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Eric Roberge, CFP, is the founder of Beyond Your Hammock, where he works virtually with professionals in their 20s and 30s, helping them use money as a tool to live a life they love. Through personalized coaching, Eric helps clients organize their finances, set goals, and invest for the future.

Read next: 6 New Ideas That Could Help You Retire Better

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MONEY best of 2014

5 Trends That Changed the Face of Real Estate in 2014

Lightbulb in doorway
MONEY (photo illustration)

Cheaper solar power (finally), what millennials really want in a home, and a better shot at a mortgage (for some).

Every year, there are innovators who come up with fresh solutions to nagging problems. Companies roll out new products or services, or improve on old ones. Researchers propose better theories to explain the world. Or stuff that’s been flying under the radar finally captivates a wide audience. For MONEY’s annual Best New Ideas list, our writers searched the world of money for the most compelling products, strategies, and insights of 2014. To make the list, these ideas—which cover the world of investing, retirement, health care, tech, college, and more—have to be more than novel. They have to help you save money, make money, or improve the way you spend it, like these five real estate trends.

Best Trend for Energy Efficiency

Thanks to better manufacturing methods, the cost of residential solar panels has fallen about 7% per year since 2000, says the Department of Energy. And that’s not the only thing making solar look like a brighter choice.

Better financing options: Low-interest, no-­money-down solar loans are now offered by lenders such as Admiral Bank, credit unions, and through major solar-panel sellers like SolarCity. (Energysage.com/solar lists the options.) David Feldman, senior financial analyst for the National Renewable Energy Laboratory, ran the numbers to compare loans to leasing, long the most popular way of going solar. He says a typical system, which might lease for $168 a month over 20 years, would cost $136 or less per month with a loan.

Chi Birmingham

Improved resale value: A study by Lawrence Berkeley National Laboratory found that homes with owned, not leased, solar panels could sell for almost $25,000 more than comparable non-solar homes.

Best Price Cut to Root For

Home prices rise, home prices fall, but the commission you pay to sell has barely budged from 5% or so. (That’s split between listing and buyer’s agents.) A few years ago it looked like new competitors might change the status quo, but the housing crash seemed to slow progress down. Now price-cutting may be picking up again: In October the brokerage Redfin cut its already low 1.5% fee to list a home to just 1% in the D.C. area. Let’s hope this move is a sign of more competition to come.

Best New Reason You May Finally Qualify for a Mortgage

That all-important three-digit score that determines how much you’ll pay to borrow money got an overhaul in 2014, which should mean a higher score for some consumers. Fair Isaac, which computes the most commonly used credit score, the FICO score, announced it would no longer ding borrowers who had a bill sent to collections if the balance was later paid or settled. Previously, even those paid accounts had remained a blemish for up to seven years.

The new formula will also give less weight to unpaid medical bills that end up in collections, in part because that can happen by accident when a patient believes the insurer covered the cost. More than one in five Americans will be contacted by a collection agency for medical bills this year, according to NerdWallet. If you have a single medical bill in collections, and no other blemishes, you can expect to see a 25-point jump in your score.

Best Tip for Advertising Your Home Sale

“One of the things younger buyers say is important to them is that the house has great cell coverage,” says Richard Davidson, CEO of Century 21 Real Estate.

Most Shocking True Confession

“I recently tried to refinance my mortgage, and I was unsuccessful in doing so … I’m not making that up,” said Ben Bernanke, former chair of the Federal Reserve, on how banks may be making it too hard to get a mortgage.

MONEY Debt

4 of the Weirdest Reasons People Have Gone Into Debt

Girl surrounded by stuffed animals
Maarten Wouters—Getty Images

These cautionary tales show how NOT to handle your finances.

For more than a decade, I’ve worked in the field of debt resolution, helping thousands of people overcome their debt issues. Most clients come to me in debt due to what I would call “typical” reasons for falling into debt. This includes loss of income or unexpected medical issues in the family, which become difficult to manage when there are bills to pay. However, sometimes we see some unusual situations that led to debt, which I call “doozies.” Here are some doozies that top the list.

1. The Child Spoiler Client

A few years ago, I had a client with a large amount of credit card debt. So as we usually do with clients, we discussed the reasons for the debt. He put his chin down, looked away and said, “Really, this is because of my child, she’s my only child and I just can’t say no.” These expenses included private school at 5 years old, and horseback riding lessons at almost $2,000 a month. The compulsiveness – or, really, obsession – with his only child had put him into debt. He was spending more money on her every month than his mortgage and car payments combined.

My Advice: Stop the horses! Overspending will put you in debt, whether for you or others. Learning to say no, instilling good spending habits and limits will keep you off that pony ride.

2. The Dream Wedding Client

A couple came to me shortly after their wedding. They said they had a lot of credit card debt, and had expected to be able to pay it off after the wedding. When they told me they had $75,000 of debt, I asked how the amount got to be so high. They said they felt that their wedding was important to them and they never budgeted the expenses and just assumed they would rely on gifts to pay off those expenses from the wedding. They told me that they didn’t expect some of their relatives to be so “cheap” with gifts and as a result they received less money than they expected. They then fell short on paying the bills.

Furthermore, falling behind on your payments will also hurt your credit score, which causes a number of issues, including making the cost of debt more expensive for you over time. (You can see how your debt is affecting your credit scores for free on Credit.com.)

My Advice: Take a tier off of the cake! Make a budget and stick to it. Never rely on future money to pay off bills.

3. The “Don’t Tell My Spouse I Have Debt” Client

I was a bit surprised when one client came to me and said, “My husband doesn’t know about this debt so you cannot call my house or send any paperwork there.” This scenario really isn’t that uncommon. One partner has debt and the other has no idea about the debt or if they do know, they don’t know how much is really owed. These clients have even given me lists of times we can call and alternate addresses to send paperwork to. For these clients, the trend to keep secret debt often starts early on in the relationship where one has a credit card outside the relationship and begins to spend and not tell the other. This infidelity continues until the one partner simply doesn’t have the funds anymore to pay the bills and they are forced to come to us to resolve it for them secretly.

My Advice: Avoid financial infidelity at all costs. Communication is a key element in any good relationship, and talking to your partner openly and honestly about finances is no exception and can actually keep you out of debt.

4. The House Flipper Client

A few years ago I had a steady stream of clients who came to me after they lost money in attempts to flip houses in places like Florida and Vegas. They told me that their friends made money doing this so they thought they’d try it, too. My flippers believed that they could purchase a cheap house in a short sale and invest in improvements and then sell the property for a profit. While this is a great idea if you’ve budgeted for time post-construction if the house doesn’t sell, it can jam you financially if you don’t have the money to pay the bills until the house is sold. Which is exactly what happened to them when the market fell out. They couldn’t sell the house in a short time and they were left with a house they couldn’t afford and mounting debt.

My Advice: There are lots of good ideas to make money, but before making any attempts, make sure you’ve done your homework and are prepared to handle the worst-case scenario.

Remember, maintaining good financial health can come down to good old-fashioned common sense. So many of these “doozies” could have been avoided had many of these people simply taken the time to stop, think about what they were doing, and focus on the reality of spending and budgeting.

More from Credit.com

This article originally appeared on Credit.com.

MONEY Investing

6 Ways Newbie Landlords Can Protect Against Bad Tenants

Hoarder apartment
Alamy

Skip the hassle of dealing with deadbeat renters by adding these steps to your screening process.

One of the main components of being a successful real estate investor is finding good, qualified renters for your properties. There are few things more frustrating and cash flow draining than a renter who is always late on paying their bills or worse, a renter who never makes their payments.

Here are six easy tips for you to follow to protect yourself against deadbeat renters.

1. Before you rent your property, come up with a “perfect renter” profile.

To do this, first list the main selling points of your house from a renter’s point of view. What does the perfect renter do for a living? Do they have children? What would be the renter’s interests? Once you have your avatar built, then you can actively start marketing your property to the perfect client.

For example, if the main selling point of your house its school district, then you might want to let the local PTA group of the grade school, middle school, and high school know that your house is on the rental market. You might also want to put up flyers of your house on the school’s community board.

2. Perform background checks.

This might seem like a very logical thing to do, but you would be surprised at how many landlords never ask the prospective tenant for a background check. The one I use is Tenant Background Search. This service provides me with an eviction report, FICA score, and nationwide criminal background report — and the best part is that it costs around $25 per report.

3. Have a real estate attorney provide you with all legal documents.

Don’t be cheap and buy your rental agreements off the internet at one of these do it yourself websites. Many of these agreements have loopholes that allow the renter too much wiggle room. As my father always told me, “Prepare for the worst, and hope for the best.”

Related: 6 Reasons Landlords Should Thank Their Tenants This Holiday Season

To prepare for the worse, you should go into the agreement with the understanding that you might have to take legal action against the renter — so wouldn’t you feel more at ease knowing that your attorney provided the legal agreement?

4. Be upfront and honest with the renters before they rent.

I have one rental property here in Orlando that has joust windows. Now, these windows give the house a lot of character, and it does give the house a lot of appeal; however, these windows are not air tight, and the electricity bill can be quite expensive, especially in the summer months. I have always been very upfront with all the renters, and I even put this warning in the contractual agreement.

What is interesting is that I have had only one person who decided not to rent the house because of this language, and not one renter in the past 8 years has tried to get out of the rental agreement early due to the high monthly upkeep. On the flip side, the house next door has the same joust windows, and that house always seems to have a “for rent” sign in the yard. As a landlord it is always the best practice to be fair and upfront when dealing with your tenants.

5. Include routine maintenance in the monthly rental amount.

I had to learn this the hard way by having to re-sod the front yard to one of my houses because the tenants never cut the grass, and the yard was overrun with weeds. There is nothing that will hurt the value of a house more than poor curb appeal.

Related: Rent Payment Plans Can Benefit Both Tenant & Landlord: Here’s Why

To protect your investment, include the upkeep of the yard, spraying of weeds, trash removal service, etc. in the monthly amount. This way, you can pay to have someone other than the renter provide these services, and you can make sure they are done properly.

6. Make sure the renters provide their own insurance.

It is always a good idea to put in the agreement that the renters must provide their own renter’s insurance. This way, if something unfortunate happens, it does not back up on you. I also think it is a good idea to have the rental property or properties set up in an LLC; this way, your personal assets are protected should something happen unexpectedly at your rental property. If your accountant tells you an LLC is not advantageous for you, then I would get a million or two million dollar umbrella policy for extra protection.

Being a landlord is really not that hard — just be careful and treat people fairly. Word of mouth is the best marketing, and people want to rent from good landlords.

Read more from The Bigger Pockets Blog:
-7 Smart Tips for Getting the Most Out of a Property Inspection
-Offering Rent Specials to Tenants Can Be a Costly Mistake: Here’s Why
-11 Things Landlords Should Be Doing Every Year…But Probably Aren’t

TIME Startups

This Startup Wants to Make Your Next Move Less of a Nightmare

Moving
Alistair Berg—Getty Images Man moving boxes

Updater helps you manage all those address changes and utility switches

Moving to a new home can fill homebuyers with excitement—and dread.

The laundry list of companies that a person needs to inform about a move can feel daunting. Forgetting just a couple can mean your magazine subscriptions are lost in the mail, your bank statements wind up in a stranger’s mailbox or your lights won’t turn on the day you arrive in the new house. A new startup is aiming to help avoid these headaches by streamlining the entire process.

Updater, based in New York, allows people to quickly inform magazines, charities, alumni associations and other types of businesses of their change of address all at once from a single Web interface. Users can quickly see what utility companies offer services in their new neighborhood. The website can also help people find moving companies to make the physical move easier. Overall, the company claims it can save users five hours worth of paperwork during the moving process.

Company founder David Greenberg got the idea for Updater, unsurprisingly, when he was moving within Manhattan. “The process was just incredibly inefficient,” says Greenberg, who was a merger-and-acquisition lawyer before becoming a CEO. “I was literally making a list of the 20 businesses I need to reach out to.”

Founded in 2011, the company initially marketed its services to individual movers, but failed to gain much traction. But Greenberg had a breakthrough in 2013 when he instead decided to sell the service to real estate brokerages, which could in turn get their agents to offer it to all of their customers whenever they moved.

Updater partnered with the National Association of Realtors, which placed the startup in its tech incubator and eventually participated in an $8 million funding round as well. Courting realtors has proven to be a winning strategy: Updater is now being used at 150 real estate brokerages across the country by more than 15,000 real estate agents. In total, about 50,000 moves are now being aided with Updater each month, which the company says comprises about 5% of the total moves in the United States.

The company is still unprofitable, but Greenberg says he expects to close another funding round in the first half of 2015 and double the company’s market share by the end of the year.

Updater is one of a growing number of tech startups aimed at bringing more efficiency to the world of real estate, which can seem oddly archaic to young homebuyers used to used to making all kinds of purchases via the Internet.

“The new homebuyers who are young are really expecting a great client experience and they’re expecting great technology to help them through the transaction,” Greenberg says.

For now, the range of businesses that can be used through Updater is limited. You can’t transfer your power bill with Con Edison, for instance, or change the address on your American Express card. The startup also doesn’t handle especially sensitive info, like bank account numbers or social security numbers, which means some updates still have to be made the old-fashioned way. But the company has 10,000 businesses on board so far and expects to lure in more big fish as its user base grows. It’s also beginning to work with property managers so apartment renters can start having more seamless moves as well.

Agents say the tool is useful for keeping homebuyers happy even after signing on the dotted line, which can help boost referrals.

“Buying a home is so exciting, but once the reality sets in that you have to move all your stuff, it completely kills the joy,” says Anne Marie Gianutsos, the digital director for the real estate brokerage Houlihan Lawrence, which uses Updater to help movers in the suburbs north of New York City. “It’s stressful. Anything that’s going to make life easier for our clients, we are thrilled to offer to them.”

MONEY mortgages

Here Come Cheap Mortgages for Millennials. Should We Worry?

young couple admiring their new home
Justin Horrocks—Getty Images

The federal agencies that guarantee most mortgages are launching new loan programs that require only 3% down payments for first-time buyers. Is this the start of financial crisis redux?  

According to new research from Trulia, in metro areas teeming with millennials, such as Austin, Honolulu, New York, and San Diego, more than two-thirds of the homes for sale are out of reach for the typical millennial household.

That goes a long way to explaining why first-time homebuyers have recently accounted for about one-third of homes sales, according to the National Association of Realtors, down from a historic norm of about 40%. And it should concern you even if you’re not a millennial or related to one: A shortage of first-time buyers makes it harder for households that want to trade up to find potential buyers; and spending by homeowners for homes and housing-related services accounts for about 15% of GDP.

Now the federal government appears intent on reversing the trend — or at least on easing the pain of the still-sluggish housing industry.

Trulia’s dire analysis assumes that buyers need to make a 20% down payment — a high hurdle for anyone, let along a younger adult. But Fannie Mae and Freddie Mac, the government agencies that guarantee the vast majority of mortgages, this week launched new loan options that will require down payments of as little as 3% for first-time buyers (and, in limited instances, refinancers as well). Fannie’s program will be live next week; Freddie’s, which will be available to repeat buyers as well, will launch in early spring.

Before you get all “Isn’t that the sort of lax standard that fueled the financial crisis!?”, it’s important to realize significant differences between now and then.

The only deals that will qualify for the 3%-down programs are plain-vanilla 30-year fixed-rate loans. No adjustable-rate deals, no teaser-rate come-ons, and, lordy, no interest-only payment options. And flippers are not welcome; the home must be the borrower’s principal residence.

Both Fannie Mae’s MyCommunityMortgage and Freddie Mac’s Home Possible Mortgage program are aimed at moderate-income households. For example, to qualify for Fannie Mae’s program, household income must typically be below the area median. Income limits are relaxed a bit in some high cost areas, such as the State of California (up to 140% of the local median) and pricey counties in New York (165% of the median).

That said, lenders will be allowed to extend these loans to borrowers with credit scores as low as 620. That’s even lower than the average 661 FICO credit score for Federal Housing Administration-insured loan applications that were turned down in October, according to mortgage data firm Ellie Mae. (The average FICO credit score for FHA approved loans was 683.)

Like FHA-insured loans, the new 3% mortgages offered by Fannie and Freddie will require home buyers have private mortgage insurance (PMI). That can add significantly to mortgage costs.

For example, a $300,000 home purchased with a 3.5% fixed rate loan and a 3% down payment would have monthly principal and interest charges of about $1,300 a month. The PMI adds another $240 or so to the monthly cost; that’s nearly 20% of the base monthly mortgage amount. (You can estimate the bite of PMI using Zillow’s Mortgage Calculator.)

But one significant advantage the new Fannie/Freddie loan programs have over the FHA program is that they will allow homeowners to cancel their PMI once their home equity reaches at least 20%. Beginning in 2013, the annual insurance charge on FHA-insured loans, currently 1.35% of the loan balance, can never be cancelled regardless of whether the borrower has more than 20% equity.

 

MONEY home prices

Brooklyn Is Now the Least Affordable Housing Market in the Country

Brooklyn brownstones
Jay Lazarin—Getty Images

Big surprise.

GENTRIFICATION, noun.

The process of renewal and rebuilding accompanying the influx of middle-class or affluent people into deteriorating areas that often displaces poorer residents

- Merriam-Webster

Poor hipsters. In the process of turning Brooklyn into a hive of artisanal mustache boutiques and fixie-bike shops, they may have priced themselves out of the neighborhood. According to a recent study by RealtyTrac, which analyzed the affordability of 475 counties through October 2014, Kings County—also known as Brooklyn—was the least affordable in the nation.

The study gauges affordability by measuring the percentage of the locality’s median monthly household income that is required to make monthly payments on a median-priced home in the area.

When RealtyTrac ran the nation-wide numbers in October, payments on a median-priced home required 26% of the average household income. In Brooklyn, by contrast, where the median home costs $615,000 and the median household brings in only $46,960, home payments take up about 98% of a regular family’s wages. That’s less affordable than Manhattan — and even than San Francisco, where half of all homes sell for $1 million or more.

In fact, the typical homebuyer has been priced out of the borough’s real estate for longer than you might have thought. RealtyTrac’s report also measures affordability between January 2000 and October 2014. Over that 14-year period, home payments on a median-priced house still would have cost the typical family 95% of their income. Earlier this year, RealtyTrac found Brooklyn was also one of the most expensive places for young people looking to rent.

Why has BKLN gotten so expensive? The answer is probably a mixture of stagnant wages, investor interest, and an influx of more affluent residents. “Incomes have not grown nearly as fast as home prices” in the regions where affordability declined, said Daren Blomquist, vice president at RealtyTrac, in an interview with Bloomberg. “That disconnected home-price growth has been driven by investors and other cash buyers who aren’t as constrained by income.”

MONEY real estate

103-Year-Old Texas Woman Fights to Keep Her House

Man in suit holding foreclosure signs
Pamela Moore—Getty Images

An elderly woman is battling a bank that's trying to foreclosure on her.

A 103-year-old Texas woman is fighting to keep her home after she let her insurance lapse, a CBS affiliate in the Dallas/Fort Worth area reports. Myrtle Lewis told CBS she accidentally let her insurance expire and renewed it after noticing the mistake, but the gap in coverage apparently violated the loan agreement for her reverse mortgage. Now, OneWest Bank, which holds the loan, is attempting to foreclose on Lewis.

It’s unclear if it was mortgage or homeowner’s insurance, and when contacted by Credit.com, a public relations representative for OneWest said the bank declined to comment on Lewis’s case. One thing is clear: Lewis is worried about losing her home. In the interview with CBS, she said it “would break my heart.”

Lewis took out a reverse mortgage on the home in 2003, when she was 92. Reverse mortgages are a type of loan for homeowners ages 62 and older, allowing senior citizens to use the equity they’ve built in their properties without making monthly payments. Repayment is deferred until the borrower dies, moves or sells the home, but the homeowner is still responsible for paying taxes, insurance and any other fees associated with maintaining their home. A 2012 report from the Consumer Financial Protection Bureau said 10% of reverse mortgage borrowers face foreclosure because they fail to pay taxes or insurance.

Missing insurance payments may not seem like a huge deal, especially if you correct the mistake, but it is. It’s not unheard of for homeowners to face foreclosure because of something seemingly small, like unpaid homeowners’ association fees, but there are serious consequences for not upholding your end of a loan agreement. Foreclosure will also negatively affect your credit for years.

A focal point of the CFPB’s 2012 reverse mortgage report is that these loans need to be better explained to and understood by borrowers, and it found that many lenders were deceptively marketing reverse mortgages to senior citizens. Lewis’s case may be in the process of unfolding, but no matter what happens, her story is a good reminder to consumers that there’s often not room for error with large loans. It’s crucial to understand your responsibilities before putting your financial future and well-being on the line.

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This article originally appeared on Credit.com.

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