Housing Market Shows Mixed Picture

Most housing markets remain weak due to a low number of home purchase mortgage applications, even at a time of falling mortgage delinquencies, improving local employment, home price gains, and competitive mortgage rates, according to the latest reading on Freddie Mac’s Multi-Indicator Market Index or MiMi.

The index measures the stability of the nation’s housing market and identifies how each single-family housing market is doing relative to its long-term stable range, measured via home purchase applications, payment-to-income ratios, proportion of on-time mortgage payments, and the local employment market.

The latest national MiMi value stands at -3.01 points, which indicates a weak housing market overall (the nation’s all-time MiMi low was -4.49 in November 2010). However, on a year-over-year basis, the housing market has improved by 0.65 points.

“With the latest release of MiMi we’re seeing very slow improvement on the housing front with most markets still trying to move beyond stall speed,” says Freddie Mac’s Chief Economist Frank Nothaft. “The MiMi indicators that are improving across the board show the local jobs picture getting better and seriously delinquent rates continuing to come down. Both indicators are critical to decreasing distress in local markets, but that’s also putting more pressure on markets with thinning inventory, especially where short sales have fallen off dramatically. However, as you look at each of the individual markets MiMi tracks, they have their own unique dynamics and show housing markets recovering at different paces.”

At a state-level, 10 of the 50 states plus the District of Columbia are considered in their “stable” range:

1. North Dakota
2. Wyoming
3. Washington, D.C.
4. Louisiana
5. Alaska
6. Montana
7. Texas
8. Hawaii
9. Vermont
10. West Virginia
11. South Dakota

At the metro-level, four cities are labeled in “stable” range:

1. San Antonio
2. Houston
3. Austin
4. New Orleans

“Texas is clearly a standout with three of its metros claiming the top five MiMi spots,” says Len Kiefer, Freddie Mac’s deputy chief economist. “However, states like South Carolina, Rhode Island, and Ohio have showed marked improvement since just the beginning of the year. In fact, those metro areas that are closest to joining the handful of markets that have already achieved their stable range of housing activity are Pittsburgh and Oklahoma City, as is the state of Oklahoma. And solid jobs gains, attractive mortgage rates and good affordability will help this trend spread to even more markets. However, income growth and greater inventory is just as important if we’re going to sustain any type of meaningful housing recovery.”

The following five states have shown the most improvement in the past year, according to the MiMi:

1. Florida
2. Nevada
3. Texas
4. South Carolina
5. California

The five most improving metros year-over-year are:

1. Miami
2. Orlando
3. Las Vegas
4. Tampa
5. Riverside, Calif.

Source: RealtorMag / June 27, 2014
Link to article.

Has the next housing recession started?

Q: Given that sales have fallen on a year-over-year basis for eight consecutive months, has San Diego County’s next housing recession already begun?

Murtaza Baxamusa— Gerald McClard / Union-Tribune staff

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Murtaza Baxamusa — Gerald McClard / Union-Tribune staff

•Murtaza Baxamusa, directs planning and development for the Family Housing Corporation, of the San Diego Building Trades in Mission Valley:

No. Summer should tell which way the market is headed in San Diego. Unfortunately, projections of a spring recovery in home sales, including my own, were too bullish. The deadwood of distressed inventory took longer to burn off, the domestic market demand was not as strong as anticipated, and growth in sales tempered by an expected increase in mortgage rates. Nevertheless, the economic winds of consumer confidence, new construction and labor-force employment, are gently blowing in the right direction. There continues to be a healthy uptick in home prices and active inventory. So I remain optimistic about a continued recovery.

Michael Lea— Peggy Peattie / Union-Tribune staff

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Michael Lea — Peggy Peattie / Union-Tribune staff

•Michael Lea, real estate professor at the Corky McMillin Center for Real Estate at San Diego State University:

The decline in housing sales reflects two underlying trends. The volume of distressed sales has fallen sharply. As distressed sales are replaced by normal transactions the health of the housing market improves. However this replacement is relatively weak due to significant portion of homeowners with low or negative equity. These homeowners are reluctant to sell either because they don’t want to take a loss or that they cannot qualify for a mortgage on a replacement dwelling. As house prices gradually increase and the lending environment improves, sales volume should return to normal levels.

Leslie Kilpatrick, 2014 president of the San Diego Association of Realtors— Courtesy

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Leslie Kilpatrick, 2014 president of the San Diego Association of Realtors / Courtesy

•Leslie Kilpatrick, president of the Greater San Diego Association of Realtors:

No. The market remains fundamentally strong with recent price gains, shortened market times and low interest rates. The number of active listings recently surpassed 7,000 for the first time in two years yet that only represents 3 months of inventory. Resale homes are on the market an average of a brief 40 days. The median price point of single family homes reached $500,000 in May for the first time in seven years. Underneath all that, we are facing a long term housing shortage and rising rents in a recovering economy. The time to invest in San Diego is now.

Bill Davidson, CEO of Davidson Communities— Courtesy

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Bill Davidson, CEO of Davidson Communities / Courtesy

•Bill Davidson, president of Davidson Communities:

Absolutely not. The outlook for the San Diego housing market continues to be positive with moderately increasing prices and a strengthening economy. The economy has recovered all of the jobs lost during the Great Recession and strong underlying fundamentals include rising employment, increases in tourism, rising home construction, and a declining volume of distressed homes. Although the housing market started the spring home buying season somewhat slow due to limited inventory, higher prices, and lower investor sales, the forecast for 2014 continues to be solid as relatively low interest rates and job growth contribute to an improving market.

Robert Vallera— Gerald McClard / Union-Tribune staff

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Robert Vallera — Gerald McClard / Union-Tribune staff

•Robert Vallera, senior vice president of Voit Real Estate Services in San Diego:

Declining year-over-year sales are observed at the beginning of almost every recession, but a market slowdown does not necessarily signal a recession. My initial suspicion was that the extremely low interest rates of the past few years accelerated transactions in 2012-13, effectively cannibalizing buyer demand from 2014. However, the revised GDP figures released this week suggest that this slowdown extends beyond the residential real estate market. Employment trends have a broader impact on the overall economy than home sales. California’s civilian labor force expanded by 1 percent in the past 12 months. While positive, this is hardly robust.

Kurt Wannebo— Gerald McClard / Union-Tribune staff

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Kurt Wannebo — Gerald McClard / Union-Tribune staff

•Kurt Wannebo, real estate broker and CEO of San Diego Real Estate and Investments:

I would not characterize this as a real estate recession yet. I would call it a “cooling” of the market at this point. We are at a normal point in time where inventory increases seasonally, and thus, prices have stabilized and softened. But we had seen prices doing well, even though sales were down this past year. I anticipate when the inventory recedes later in the year, that prices will stay even. Many of the sales from years prior were investor purchases, and with them leaving the market we are moving more towards a normalized, traditional market that we saw in prior years.

Source: Jonathan Horn / UT San Diego / June 27, 2014
Link to article.

Surprise! Bank-Owned Properties Actually Sell For More!

RealtyTrac recently analyzed residential sales over the year that ended in March to determine what drives discounts in the market value or premiums in the sales price for distressed properties.  They looked at four factors, foreclosure status, occupancy, equity, and property age, using them to construct 24 different distressed property profiles. Each profile was compared to a control group of properties not in foreclosure that sold in the same time frame.

As might be expected, the properties that sold at the largest discounts, an average of 28 percent, were vacant, had negative equity, and were older (but not the oldest), built between 1950 and 1990.   What is surprising is that some property profiles sold at a premium.

Bank-owned properties overall went for an average of 3 percent above market value while bank-owned properties that were built prior to 1950 brought 6 percent more than the control group.  The largest premium was paid for properties that had negative equity but were neither in foreclosure or foreclosed.  Those properties sold at a 19 percent premium. (Note: in the chart below, negative numbers indicate above-market-value sales prices).

 

Two profiles tied for the second largest discount, 26 percent.  One profile was properties that were in default with positive equity; the other was properties in default with negative equity, vacant, and built before 1950.  Discounts of 25 percent were the average for two other profiles; vacant properties with negative equity that were scheduled for foreclosure auction and vacant properties scheduled for foreclosure auction.

While REO has a whole sold at a premium some sub-categories of bank-owned homes were discounted.  Those that were confirmed vacant – without the former homeowner or tenant still living there – sold at an 18 percent discount below the non-distressed control, and bank-owned properties that sold after 1990 and between 1950 and 1990 also sold at slight discounts.

The analysis also found the property profiles with the biggest discounts – and the discounts available – varied significantly by state. For example in California the largest discounts were for properties scheduled for auction that had positive equity – 17 percent discount, while in Florida it was also houses scheduled for auction but with negative equity, vacant, and built between 1950 and 1990.  Those had an average discount of 29 percent.   Properties in default, vacant, with negative equity, and built between 1950 and 1990 that received the largest discount in Ohio, 34 percent, while that same discount in Michigan went to properties that were merely in default and vacant.

While we don’t have access to the raw data that formed this analysis it would seem that vacancy was the most prominent common denominator among properties that received the largest discounts prior to foreclosure.  Foreclosure status appears to be the driver post foreclosure as REO properties on the whole sold at a small premium and those properties tend to be vacant.

Source: Jann Swanson / Mortgage Daily News / June 26, 2014
Link to article.

World Cup – Round of 16

C.A.R. 2014 Survey of California Home Buyers findings

More home buyers turning to social media in home-buying process, REALTOR® survey finds

LOS ANGELES (June 26) – Reflecting the proliferating use of social media in today’s society, more home buyers are turning to social media in the home-buying process than ever, according to the CALIFORNIA ASSOCIATION OF REALTORS®’ (C.A.R.) “2014 Survey of California Home Buyers.”

More than three-fourths of home buyers used social media in their home search, up from 52 percent who used it in 2011.  Buyers said they primarily used social media to obtain buying tips and suggestions from friends (44 percent), neighborhood information (44 percent), and to view their agents’ Facebook pages (42 percent).

Mobile technology and the Internet continued to be important tools in the home-buying process, with 91 percent saying they used a mobile device to access the Internet during the course of their home purchase.  Buyers used their mobile devices to look for comparable home prices (78 percent), search for homes (45 percent), and take photos of neighborhoods, homes, and amenities (43 percent).   Conversely, with the increased use of social media, fewer buyers “Googled” their agent (50 percent in 2014, down from 68 percent in 2013), turning to agents’ Facebook pages instead.

In another sign of recent market competitiveness, more than nine in 10 buyers (91 percent) made one or more other offer, with an average of 3.6 offers in 2014, up from three offers in 2013.  Additionally, buyers viewed a median of 20 homes in 2014, up from 10 last year.  Given the limited supply of homes available for sale, fewer buyers were satisfied with their home purchase than last year.  Only about half of the buyers were satisfied with their purchase in 2014, down from two-thirds (66 percent) in 2013.  Nearly half (46 percent) of buyers felt they “settled” on their home purchase in 2014, up from 34 percent.

Additional findings from C.A.R.’s “2014 Survey of California Home Buyers” include:

• Buyers cited price decreases (54 percent), receiving a promotion or raise (34 percent), low interest rates (29 percent), and favorable prices/financing (17 percent) as the top reasons for purchasing a home.

• Echoing a recovering housing market over recent years, buyer optimism of home prices also continued to improve, with the vast majority of buyers (81 percent) believing that home prices will rise in five years and 60 percent believing that prices will rise in one year.  This is an improvement since 2009, when only 35 percent of buyers believed that prices would rise in five years, and only 8 percent who believed prices would rise in one year.

• Higher down payments are still the norm in this market, with buyers putting an average of 28 percent down on their purchases.  The average down payment has been higher than the traditional 20 percent since 2009.

• More than nine in 10 buyers (92 percent) obtained a fixed-rate loan, a 23 percent increase from 2009, when only 69 percent obtained a fixed-rate loan, reflecting low rates and the desire for certainty as the market gets back to basics.

• Nearly all surveyed buyers (88 percent) used a real estate agent in 2014, down slightly from 91 percent in 2013. Reflecting a growing use of the Internet, nearly two-thirds (65 percent) of those who used an agent found their agent online, compared to only 38 percent who found their agent online in 2003.

Survey of California Home Buyers Slides (click links to open):

• Buyers’ use of social media
• Increase in number of offers made
• Higher down payments
• Fixed-rate loans still popular
• How buyers found their agent

The 2014 Survey of California Home Buyers was conducted by telephone to 1,400 people statewide to measure their perceptions of the home-buying process.  All eligible respondents closed escrow on their homes within the six months prior to February 2014.  Access the full report on the survey findings here: http://www.car.org/marketdata/surveys/buyer/ and view the webinar presentation here: http://www.car.org/marketdata/videos.

Source: California Association of Realtors / June 26, 2014
Link to article.

Mortgage apps continue slide after last week’s free fall

Purchase, refi activity decline continues amid falling rates, prices

Mortgage applications continued their decline after last week’s 9.2% free fall, dropping another 1% for the week ending June 20, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey.

This comes despite mortgage rates continuing their decline, and a serious slowdown in home price appreciation.

The Market Composite Index, a measure of mortgage loan application volume, decreased 1% on a seasonally adjusted basis from one week earlier to the lowest level since April 2014.  On an unadjusted basis, the Index decreased 2% compared with the previous week.

The Refinance Index decreased 1% from the previous week to the lowest level since May 2014.

“Another dip in mortgage applications is particularly disappointing after the welcome news of increased home sales earlier this week,” said Quicken Loans vice president Bill Banfield. “While we have seen many of the indicators regain the footing they lost in the recession, housing cannot reach its stride until the employment picture attains stability.”

The seasonally adjusted Purchase Index decreased 1% from one week earlier to the lowest level since May 2014.  The unadjusted Purchase Index decreased 2% compared with the previous week and was 18% lower than the same week one year ago.

The refinance share of mortgage activity remained unchanged at 52% of total applications from the previous week.  The adjustable-rate mortgage share of activity remained unchanged at 8% of total applications.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.33% from 4.36%, with points decreasing to 0.18 from  0.24 (including the origination fee) for 80% loan-to-value ratio loans.  The effective rate decreased from last week.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) decreased to 4.28% from 4.32%, with points increasing to 0.12 from 0.09 (including the origination fee) for 80% LTV loans.  The effective rate decreased from last week.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 4.03% from 4.07%, with points increasing to -0.38 from -0.39 (including the origination fee) for 80% LTV loans.  The effective rate decreased from last week.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.47% from 3.50%, with points increasing to 0.19 from 0.16 (including the origination fee) for 80% LTV loans.  The effective rate decreased from last week.

The average contract interest rate for 5/1 ARMs increased to 3.23% from 3.20%, with points remaining unchanged from 0.27 (including the origination fee) for 80% LTV loans.  The effective rate increased from last week.

Source: Trey Garrison / HousingWire.com / June 25, 2014
Link to article.

New-Home Sales Up 18.6 Percent in May

Sales of newly built, single-family homes rose 18.6 percent to a seasonally adjusted annual rate of 504,000 units in May, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. This is the highest rate since May 2008.

“These numbers are in line with our recent builder surveys, which indicate that more consumers are getting off the fence and coming back into the marketplace,” said Kevin Kelly, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Wilmington, Del.

“This increase is a welcome sign after a slow start to 2014,” said NAHB Chief Economist David Crowe. “As job creation continues, we can expect further release of pent-up demand and continued gradual growth in the housing recovery.”

Regionally, new-home sales were up across the board. Sales rose 54.5 percent in the Northeast, 34 percent in the West, 14.2 percent in the South and 1.4 percent in the Midwest.

The inventory of new homes for sale held steady at 189,000 units in May. This is a 4.5-month supply at the current sales pace.

Source: National Association of Home Builders / June 24, 2014
Link to article.

Housing bubble 2.0? Not likely this time, new study says

Southern California remains home to the most overpriced housing markets in the country, but any fears of a new bubble look increasingly unfounded.

That’s according to a new report out Tuesday from real estate website Trulia, which monitors bubble conditions by tracking home prices relative to household incomes and long-term norms in markets nationwide.

After surging last year, prices here have cooled off this spring, giving the job market time to catch up. While Trulia says three of the four most “overvalued” housing markets in the nation are in Southern California — Orange County, Los Angeles County and the Inland Empire — those markets are far less overvalued than they were in the mid-2000s, when risky lending pushed prices far beyond what household incomes would bear. This time, price gains are slowing down as would-be buyers pull back and lending standards remain high.

“We’d be at greater risk of heading toward a bubble if price gains were still accelerating, but they’re not. Furthermore, the market is neither overbuilding nor overlending,” Kolko wrote. “On all these measures, the housing market today looks little like the bubble last decade.”

Still, if there’s a place where home prices are out of whack with incomes, the Southland is it. Prices in Orange County were 17% overvalued in the second quarter, by Kolko’s estimate. In Los Angeles they were 15% overvalued and in the Inland Empire, 13%. That’s compared with 71%, 79% and 92%, respectively, for those markets at the peak of the housing bubble in early 2006.

Nationwide, Trulia said, homes are undervalued by 3%, though Kolko expects prices will return to long-term averages by the end of this year or early 2015.

Source: Tim Logan / LA Times / June 24, 2014
Link to article.

Rise in Home Prices Is Slowing, and That’s a Good Thing

The latest readings on United States home prices are the latest confirmation of a slowdown in that area: Prices are still rising in most cities, but much more slowly than they were a few months ago. And that’s news we should cheer.

The S&P/Case-Shiller index of home prices in 20 major cities rose 0.2 percent in April, down from 1.2 percent in March and well below the 0.8 percent that analysts forecast. Over the last year, prices have risen 10.8 percent, compared with a 13.7 percent gain in the year ended in November, the recent peak. A second report on home prices out Tuesday, from the Federal Housing Finance Agency, showed the same pattern.

Just two years ago, buying a home looked to be a screaming bargain across most of the country. But the gains in home prices since then have made it a much closer call, as we reported last month. Jed Kolko, the chief economist of Trulia, writes Tuesday that national home prices are only 3 percent undervalued relative to long-term fundamentals, and that a handful of markets, particularly in Southern California, are now significantly overvalued.

This doesn’t mean that a bubble on the order of 2006 has returned, only that buyers in some of those higher-priced markets should be wary and consider renting a home instead if they are on the fence. “Orange County, today’s frothiest market,” writes Mr. Kolko, “is just 17 percent overvalued now versus being 71 percent overvalued” at the start of 2006.

Home Prices Are Still Rising, but More Slowly
Year-over-year change in S&P/Case-Shiller 20-city home price index

But that moderate potential overvaluation could easily become a major one if double-digit price increases rise too much longer. In a world where inflation is low and wages are flat, continued steep home prices increases would rapidly move the housing market from broadly balanced to unaffordable and primed for a correction in just a few months.

That’s what makes this housing recovery seem healthier and more sustainable than the bubble of the early 2000s. Then, even as home prices soared beyond any traditional level relative to income, home buyers responded by taking on more risk and buying anyway, speculating on further home price gains. This time, they seem to be looking at high valuations and not getting caught up in the excitement, instead drawing the line and paying no more than they can afford.

Home price numbers tend to move in more steady, gradual waves than other economic data. They also come out with long delays; the April Case-Shiller numbers are actually based on transactions that closed from February through April — and those home sales generally went under contract a month or two before they closed.

So the latest home price readings are very much a look in the rearview mirror, and it’s a look that suggests a deceleration is underway. The question is where it will ultimately settle. If prices were rising 13 percent in the year ended in November and 11 percent in April, what will, or should, the level be later in 2014?

The healthiest thing for the housing market would be home price rises that thread the needle: high enough that homeowners are building equity and homebuilders have incentive to start new construction, but low enough that they don’t significantly outpace wage growth and result in unaffordable housing and a painful correction. The April home price numbers suggest we may be heading there.

Source: Neil Irwin / New York Times / June 24, 2014
Link to article.

 

The housing market’s failure to launch in 2014

4 housing indicators holding back growth

Although the housing market is starting to pick up speed after a slow start to the year, little hope remains for it to come close to the major housing numbers seen in 2013, according to Fannie Mae’s most recent housing report.

“We remain confident that the first-quarter drop in activity will reverse, and we are seeing some positive signs in the current quarter, but economic growth likely will be playing catch-up for the rest of the year,” said Fannie Mae Chief Economist Doug Duncan.

Between disruptive weather, a rare drop in real exports and the reversal of an unsustainable buildup in inventory investment that subtracted 1.6 percentage points from GDP in the first quarter, the housing economy took a hit at the start of 2014.

Fannie Mae predicts that all of 2014 will witness an economic growth of 2.1%, one half of a percentage point below the 2013 pace.

“Although incoming data show a pickup in activity heading into the current quarter, any strength during the remainder of the year is not expected to be enough to overcome the weakness in the first quarter,” Duncan said.

These four housing indicators explain why.

1. The labor market

“Consumers should get a boost going forward due to continued rising household net worth, which is improving rapidly but remains well below the 2006 peak, as well as firming labor market conditions, which have showed steady albeit unspectacular gains,” Duncan said.

As HousingWire previously reported, job creation didn’t come to a standstill in the first quarter despite the fact that the economy shrank by 1%, but the Automatic Data Processing Inc. forecast for May job creation is troubling on the face of it and indicative of just how weak the economy really is.

ADP estimates that private-sector employers created 179,000 jobs for the month, the lowest figure in four months and second-lowest in the past twelve months.

2. Home prices

“Home price improvements have contributed to consumers’ household wealth, but overall growth in the housing market pulled back in the first quarter, with major housing indicators coming in lower year over year compared to the first quarter of 2013,” said Duncan.

According to the Federal Housing Finance Administration’s home price index released on Tuesday, home prices were unchanged in April, following a gain of 0.7% the prior month.

3. Mortgage rates

“More recent housing indicators were mixed, with only moderate improvement despite the decline in long-term interest rates,” Duncan said.

A week after unexpectedly jumping 10.3% last week, mortgage applications returned to their declining trend despite near year-low interest rates, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending June 13, 2014.

“While the recent uptick in rates may have a little to do with a drop in mortgage application volume, purchase activity in many areas nationwide continues to suffer from a lack of inventory and confidence,” Quicken Loans Vice President Bill Banfield said. “Many consumers are very content with keeping their homes off the market, especially during the summer.”

4. New and existing home sales

Duncan explained that they expect total home sales in 2014 to be about 2% lower than in 2013, with new home sales advancing somewhere in the 12-15% range and existing home sales declining year over year.

The April National Association of Realtors existing home sales report showed sales rising for the first time in 2014, albeit a modest 1.3% rise, but it still led to positive reports.

Meanwhile the new home sales report showed that sales increased18.6% to a 504,000 annual rate, surpassing expectations, according to the Census Bureau.

Source: Brena Swanson / HousingWire.com / June 24, 2014
Link to article.