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February 2014

January 2014

Hy-Lo-Mo-So: Real estate’s catch phrase for 2014?

Burlingame Properties

What in the world is Hy-Lo-Mo-So?  I’d propose it has a slightly different meaning in real estate than it does where you most commonly encounter it – in retail product sales.  Nonetheless, it will be what creates some of the buzz in real estate in 2014, especially in the luxury home segment.

Before we delve into this strange phrase and in order to have some context for the discussion, let’s start by defining today’s “Affluent” consumer and then take a moment to look at the technology in the pockets, bags, and briefcases of these well-off individuals, as revealed by the Ipsos Affluent Survey for 2013.

 Affluents are defined as those over age 18 with household incomes (HHI) of $100,000 or more.  There are now about 62.5 million U. S. Affluents, according to Ipsos.  On average, these folks have $200,200 in annual income, and just a bit more than $1million in net worth.  The average value of their principal residence is $408,000.  If we only consider those with $500,000+ in household income, the average home value jumps to $1,080,000. 

When it comes to a generational breakdown of U. S. Affluents, Ipsos says boomers dominate slightly:

Age                        Generation                        % of Affluents

18-31                     Millennials                                          20%

32-48                     Gen Xers                                             34%

49-67                     Boomers                                              39%

68+                         Seniors                                                  7% 

Smart phones and tablets are the mobile tools of these Affluents – 63% have smart phones and 41% have tablets.  In fact, tablet ownership is up a staggering 57.6% over 2012.

All this brings us back to Hy-Lo-Mo-So.  This translates to Hyper-Local, Mobile, Social. 

Hyper-Local:  When targeting and working with the upper -tier, recognize that they are looking for what’s relevant to them.  Community averages won’t cut it anymore.  These buyers and sellers want detailed local information and they want you to drill down to the individual neighborhoods and the specific price ranges that are meaningful to them.  Local has moved from MLS averages to what’s happening in their price range in the individual neighborhoods which are meaningful to them.  Local information isn’t as useful as hyper-local information.  It’s time to review the market update information you are providing to be sure it’s hyper-local.  Providing the level of detail the consumer is looking for will differentiate you in the market.  For an example of an agent who has gone hyper-local with his marketing, take a look at Institute member, Raziel Ungar’s  website.

Mobile:  Affluents are online an average of 41.6 hours a week.  Those making $500,000+ annually use the internet 52.7 hours each week.  You can bet that not all those hours are in front of a computer.  These folks are on the go, but want information immediately.  That means your website (you do have a website, right?) should be mobile friendly.  If someone has to work too hard to use your website and equivalent information is available somewhere else, they will most likely move on.  

Social:  Real estate professionals are still largely wrestling with how to make social networking pay off.  While we know that the affluent use social sites like Facebook (66%), and You Tube (62%).  The question is how luxury agents can use social networking effectively and appropriately to capture luxury business.  Instead, our ILHM members who are using social networking to capture business are generally targeting luxury agents in other markets -- in other words, they are using social networks to prospect for agent referrals.  For a great example of this, if you are a member, tune into the hour long December webinar, “A Social Media & Web Playbook for Luxury Realtors.”  Log in to the ILHM website and find the webinar in the members’ only section.  Webinar presenter, Jim Walberg with the Bay Area Team, Pacific Union in San Francisco’s East Bay area, has great ideas about how to use social networking to capture referrals from other luxury agents.  It’s a great way to add the social piece to a Hy-Lo-Mo-So marketing strategy. 

As you do your planning for this year, ask yourself how you can put a Hy-Lo-Mo-So strategy to work for you.

New mortgage lending rules go into effect this month

Beginning in January, new mortgage rules from the federal Consumer Financial Protection Bureau (CFPB) will go into effect.  The rule changes are designed to prevent the kind of mortgage loan excesses that led to millions of homeowners facing foreclosure during the recent downturn.  In addition, the new rules set the FHA guarantee cap at $625,500.

The CFPB’s rules make stricter lending practices official; however, most lenders have already tightened home loan practices to reflect what a borrower is actually qualified to borrow, therefore, the rules may not change the day-to-day lending practices which are already common.

The rules, which come from CFPB, will go into effect Jan. 10 and include these provisions:

  • Lenders must base their lending decisions on borrowers’ ability to repay their mortgages.
  • Lenders can't write mortgages if the borrowers' monthly debt payments (including the mortgage, car loans and other debt) exceed 43% of their income.
  • Mortgage fees cannot exceed 3% of the loan amount.  And loans can't include high risk characteristics such as payments that cover only the interest on a loan.
  • Mortgage brokers can't receive higher fees for recommending loans that cost the consumer more.
  • Mortgage servicers cannot begin the foreclosure process until a borrower is more than 120 days delinquent.  If the homeowner is working with the lender to modify a loan to make it more affordable, the foreclosure process can’t start.

In addition to these rules, the Federal Housing Administration will no longer guarantee loans for more than $625,500.  This is down from the previous $729,750.  This change has the highest impact on higher-cost areas.  Fannie Mae and Freddie Mac, the large mortgage finance companies, have already dropped their loan guarantee ceilings to $625,500.

The FHA change means that buyers of homes that cost more than $625,500 will not be able to get FHA loans, which provide for down payments as low as 3.5%.  Instead, borrowers have to apply for jumbo loans, which usually require down payments of at least 20%.  Since few buyers of expensive homes choose FHA loans, the new FHA guidelines may have less effect on the luxury home market than on average properties.  Nonetheless, you should be aware of the impact these changes may have on the luxury market segment.