October 28th, 2019 12:08 PM by Richard Sardella MLO.100007700/NMLS 233568
Accessory dwelling units are being used for fun, family and profit
Casitas. Granny flats. Tiny homes. Back yard in-laws units. She-sheds. Man caves. Call them what you will, but across the country they are now being used not only for fun, but for profit as well.
According to a recent article by CNBC, the latest housing trend in backyards around America is the emergence of the accessory dwelling unit (ADU), cropping up in back and side yards across America, acting as either rental units or additional space for aging parents and still-nested adult children.
Writer Diana Olick says, “Growth in the sector has been fueled by changes to local and state zoning rules. Some municipalities are struggling with a lack of affordable housing and see these additional units as one remedy.” She goes on to describe how in 2010 Portland, Oregon waived impact fees for ADUs, making them significantly less expensive. As a result, the number of ADU permits jumped from 86 in 2010 to 660 in 2018. Same thing happened in California when a 2017 state law forced cities to relax ADU regulations, where permits jumped even more dramatically.
This means huge growth for ADU builders, who are eager to expand the market and drive the number of ADU installations up dramatically. Financing for ADUs is still looking for a home, however. “ADU is still really for the most part an affluent homeowner product, meaning you have to have cash on hand to take this on,” says one ADU builder. “Financing is a concern for the larger homeowner universe.”
As for he purposes these tiny dwellings are serving, ADU builders are reporting that interest is evenly split between those looking to address housing for family members and those seeking rental income. Pricing depends on the size of the unit, of course, but the most popular model, with the most common size is running just under 300 sq. ft. and cost around $105,000 to install.
Whether it’s housing family or renting out their units on AirBnb, many ADU owners look for their units to provide an even bigger financial return in retirement. One couple in the article lived in their ADU for nearly a year while renovating their main dwelling. Their plan? Someday they want to live in (visit?) their ADU and rake in the cash by renting out their house, traveling and doing whatever they please.
Local zoning regulations remain as one of the greatest roadblocks for ADU builders. While it is definitely becoming easier to build ADUs in some local areas, Olick reports that there are still battles big and small, from zoning to neighborhood opposition. “Some don’t want to see their neighborhoods crowded with renters, pushing density and services beyond capacity.”
Before considering adding an ADU to your property, experts recommend you not only check with your neighborhood’s rules and regulations. Talk to your neighbors as well, because especially in many upscale neighborhoods NIMBY (not in my backyard) is alive and well.
Source: CNBC, TBWS
How Rates Move:
Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Neutral
Mortgage rates are trending sideways this morning. Last week the MBS market worsened by -2 bps. This caused rates to remain unchanged for the week. We saw low rate volatility through the week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week. 1) Central Bank, 2) Jobs and 3) Domestic.
1) Central Bank: Our own Federal Reserve will start two days of meetings on Wednesday, which will conclude with their interest rate decision and policy statement. We will also get a live press conference with Fed Chair Powell, but we will not get updated economic projections (dot plot) at this meeting. The market has priced in a rate cut of 25 basis points. We also hear from the Bank of Canada and the Bank of Japan; both are expected to keep its key policies at current levels.
2) Domestic: We have a lot going on this week. The biggest release (other than Friday's Jobs deluge) is Wednesday's first release of the 3rd QTR GDP. The market is expecting a range of 1.7% to 1.8%. Any reading at or above 2% would be negative for your rates. We also get the Fed's key inflation index (PCE) on Thursday and two key readings on Manufacturing (Chicago PMI and ISM Manufacturing). Both have been trending below 50, which is contractionary.
3) Jobs: We get a deluge of jobs and income-related data this week with ADP Private Payrolls, Challenger Job Cuts, Initial Weekly Jobless Claims, and Personal Income. But Friday's BLS Jobs report will get the most attention but likely to get a "pass" as both the Non-Farm Payrolls and the Unemployment Rate are expected to soften due to the GM Strike. Average Hourly Earnings will continue to be the primary focus of bond traders.
This Week's Potential Volatility: High
What a week for data. We have a lot going on this week that can move rates. The economic data denoted above, trade and of course the Fed.
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.
Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.