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Updated: 8 hours 35 min ago

Unemployment Insurance Claims Drop to Lowest Since 2000

Thu, 04/10/2014 - 09:00
  • Initial claims for unemployment insurance[1] filed in the week ended April 5 dropped to their lowest level in years to 300,000. The last time the weekly number of claims filed hit around this level was in 2000. The Department of Labor noted in its report that “there were no special factors impacting this week’s initial claims.” One might read that the drop may be due to just the regular volatility in the data. Still, it is hard to dispute that claims have been trending down and have normalized to levels prior to the Great Recession.
  • The pace of job cuts is down. Now, let’s hope the pace of job creations accelerates. Today, only 58% of adult population is working compared to 62% to 64% prior to the recession.
  • The largest decreases in initial claims for the week ending March 29 were in Pennsylvania   (-2,007), Texas (-1,821), Missouri (-889), and New Jersey (-774). However, claims rose in California (+17,626), Oregon (+1,851), Ohio (+1,200), Kentucky (+1,119), and Illinois (+941).
  • What this Means for REALTORS®: Fewer claims filed means fewer workers lost their jobs during the week and indicates greater job stability.

[1] Claims filed under the regular state programs, seasonally adjusted

When the Sting of FHA’s Fees Becomes a Bite

Thu, 04/10/2014 - 08:05

The FHA has more than doubled its mortgage insurance premiums since 2010 and most recently eliminated the phase out of mortgage insurance on certain products. As a result, the private mortgage insurance industry has been able to recover and to expand in the conventional space. However, buyers that cannot shift to the conventional space bear the brunt of these higher costs at a time when growth in both mortgage rates and home prices have cut into homebuyers’ affordability.

Highlights:

  • FHA’s annual mortgage insurance is currently 1.35%, 0.8% higher than in early 2010 and for its most popular products the insurance must now be paid for the life of the loan.
  • The higher rates have priced out numerous potential homeowners, shifting many buyers to the private sector
  • However, conventional financing cannot serve many of the borrowers FHA is intended to serve, leaving those priced-out, potential homeowners in the cold.

Rates Climb

In late 2010, the FHA initiated a series of changes to the pricing of its mortgage insurance program. These changes included both the upfront portion (UFMIP) as well as the annual premium structure (MIP). The initial increase in the annual insurance premium was just 5 basis points between 2008 and 2010, but the changes accumulated to 85 basis points by 2013. Simultaneously, the upfront mortgage insurance premium, which is often financed adding only modestly to monthly payments, increased and fell before being set in 2013 roughly where it had been five years earlier. The net effect though is significantly higher costs for the consumer. As depicted below, holding the mortgage rate and home price constant, the monthly payment of principle, interest, annual MIP and financed UFMIP rose 13% from $834 in 2008 to $942 in 2013 by which time the FHA’s fees accounted for roughly 20% of the monthly payment.

These changes were intended to shore up the agency’s books while promoting growth of the private finance sector. Private mortgage insurers have indeed benefited from the higher rates but also the recapitalization of their industry and new entrants as discussed in an earlier post.1 Their rates are risk based and often cheaper than FHA mortgage insurance, particularly for borrowers with larger down payments and higher credit scores. However, these rates rise significantly as credit scores decline and down payments shrink and at least one of the larger private mortgage insurers does not offers insurance for borrowers with less than a 620 credit score. Herein has historically been the purview of the FHA.

The Impact

Year

Change in MIP vs 10/3/2010

Renters Impacted

10/4/2010

35

550,000 to 750,000

4/18/2011

60

1,000,000 to 1,250,000

4/9/2012

70

1,200,000 to 1,400,000

6/11/2012

70

1,250,000 to 1,450,000

4/1/2013

80

1,450,000 to 1,650,000

Source: FHA, Census, NAR

 

The increase in mortgage insurance rates at the FHA has had an impact on affordability for renters or potential first-time homeowners.   Based on income data from the American Community Survey and estimating a renter’s front-end debt-to-income level relative to historical standards for sustainable lending (28% to 31%), the number of renters adversely impacted by the increase in the annual mortgage insurance premium has increased in lock-step with the rise in the FHA’s MIP.  By 2013, the MIP was 80 bp higher than the rate of 55 bp from 2010.  These additional 80 basis points pushed an estimated 1.45 million to 1.65 million renters over a sustainable front-end debt to income ratio for purchase of a median priced home in 2013.  Adjusting for FHA market share and taking repeat buyers into account, these changes may have priced out as many as 125,000 to 375,000 home buyers.

An Alternative for Some

Could these potential homeowners migrate to private mortgage insurance?  Private mortgage insurance2 for a borrower with a down payment below 5% and a FICO score of 720 or higher is currently 1.1% annually, but that rate rises to 1.31% if the FICO falls between 680 and 719 and increases further to 1.48% if the FICO is below 680.  Combined with the higher funding cost of roughly 37.5 basis points for a conventional mortgage (e.g. the difference in base 30-year fixed rates, roughly 4.5% vs 4.125% for a prime borrower) as well as loan level pricing adjustments (LLPAs) and the adverse market delivery fee (AMDC), only borrowers with the highest credit could afford to migrate to GSE financing. For example, the difference in the monthly payment between a conventional loan for a median priced home with a down payment of less than 5% and a FICO score of 670 compared with the same loan financed through the FHA with annual MIP and financed UFMIP is approximately an additional $92 a month.  Likewise, for a larger down payment of 5 to 10 percent with a FICO score of 670, the cost of PMI falls to 1.15%, but the payment is still $58 per month more expensive than FHA when all costs are included. The higher pricing of conventional financing for borrowers with lower down payments and low credit scores suggests that many priced out of the FHA program would not have a private alternative.

The FHA has undertaken several important changes in recent years; expanding to support the housing market as the private finance sector pulled back and then adopting best practices to prevent adverse selection and softening books. However, there is a price paid for the higher costs placed on consumers, the impact of which will be amplified in an environment of rising mortgage rates and home prices.

 

1 http://economistsoutlook.blogs.realtor.org/2013/08/09/lending-shifting-but-still-tight/ 2 http://mortgageinsurance.genworth.com/RatesAndGuidelines/RateFinder.aspx  

Latest Mortgage Applications Data

Wed, 04/09/2014 - 09:32
  • Seasonally adjusted applications to purchase homes rose 2.7% for the week ending April 4th, the 4th consecutive increase. The purchase index is 13.9% lower than the same time in 2013. Purchase applications appear to have bottomed relative to last year and are clawing their way back if only modestly.
  • The average rate for a 30-year fixed rate mortgage as reported by the Mortgage Bankers Association was unchanged from the prior week at 4.56%. The average rate a year ago this week was 3.68%.
  • A strong increase in applications for government financing, up 3.6% relative to last week, led the improvement, though applications for conventional financing rose for the 3rd consecutive week with an increase of 2.3%. The cost of FHA insurance remains high by recent standards, but it is the only option for most borrowers with low down payments and credit scores less than 700. The high cost of FHA mortgage insurance combined with the general rise in rates since last year is crimping affordability on this portion of the market…particularly first-time borrowers and some minority groups.
  • This week’s reading suggests a very modest thaw in the weak year-over-year trend for purchase applications. The index improved for the 4th consecutive weak but remains anemic relative to last year’s strength which was driven by sub-3.5% rates. Strong price growth and higher rates since last spring impacted affordability. However, the strong trend last spring also muted the normal seasonal pattern, suggesting that part of the trend this spring is a restoration of the normal seasonal pattern. Sales and applications will continue to pick up as we move towards summer in the typical seasonal pattern, but may remain muted relative to last summer until credit overlays ease and mortgage insurance pricing improves.

Median Income: Family vs. Household

Tue, 04/08/2014 - 13:24

Did you know: “Typical” income for a household or family varies based on the type of family you’re interested in describing.

Typical income can be measured in a variety of ways. Analysts often use median household income to indicate what is typical. In 2012, data showed median household income was $51,371 in the US. For families, median income in the US in 2012 was $62,527 [1].

This may have you wondering, “What’s the difference?” The Census Bureau provides these two data points and has a concise explanation on the FAQ page for one of their surveys [2]: “A family consists of two or more people (one of whom is the householder) related by birth, marriage, or adoption residing in the same housing unit. A household consists of all people who occupy a housing unit regardless of relationship. A household may consist of a person living alone or multiple unrelated individuals or families living together.”

A couple more interesting breakdowns:

Impact of Age:
While the median household income is $51,371 in the US, this varies by age. Households with heads under 25 years old have a median income of $24,476 compared to $55,821 for those with heads aged 25 to 44 years old. Households headed by those aged 45 to 64 have the highest median incomes of $62,049, but those 65 and over have a median income of $36,743.

Impact of HH Size/Family Size:
For both households and families, there is a notable difference in typical income by size. While it is reasonable, to expect some causal relationship between age and income, the trend by size is likely a reflection of other causal patterns that happen to coincide with size.

For households, the impact is most seen between 1 and 2-person households. Median income for a one-person household is $27,237 while typical income for a two-person household is $58,121. Median income rises as household size increases, peaking at 4-person households with a median income of $75,343. For 5 or more person households, median income ranges from $64,747 to $69.691. In families, we see a similar pattern except that, by definition, there are no 1-person families. Median income for a two-person family is $56,646 and rises, peaking at $76,049 for 4-person families. From that point, median income declines to between $64,478 and $70,403 for larger families.

For more even more on this topic, visit our interactive infographic

[1] American Community Survey 2012 (1-year estimate). All subsequent data in this article is from the same source.
[2] https://www.census.gov/hhes/www/income/about/faqs.html

REALTORS® Confidence in Current Conditions versus Future Outlook

Mon, 04/07/2014 - 11:44
  • The market assessment of current conditions and expectations for the future have been falling from the summer of last year.  Generally, the two metrics move roughly together, albeit with the outlook views usually getting a tad higher mark.
  • The two data interestingly began to diverge with outlook brightening from November while current conditions remained stagnant.  Will REALTORS® be sorely disappointed in their outlook or are they seeing subtle intangible trends not picked in the market place?  Knowing that sellers who already committed to list their home and buy a new one but will only do so once the snow clears is an example of special info that only the REALTORS® would possess without any hard data in the MLS to show for it.
  • The job creation of over 2 million in the past year and nearly 8 million in the past 5 years suggests that there is an underlying logic to the potential demand for home buying.  Falling affordability (from higher prices and higher mortgage rates) has been a damper, however.
  • REALTORS®’s assessment of the housing market outlook differs sharply with the general public’s view of economic conditions.  Consumers have been giving a better score on current job/economic conditions with each passing month.  However, views of future economic conditions have remained stuck with no change.  A worried consumer, even if the current conditions are improving, is less likely to spend on a major expenditure.  It’s worth a careful watch as to how the future develops given the two divergent views about the future.
  • NAR’s forecast is for home sales to be lower by 5 percent in the first half of this year versus the same period a year ago.  But the sales are projected to be 2 to 3 percent higher in the second half of the year.  Home prices, because of the inventory shortage, will keep marching higher to 5 to 6 percent for the year.

 

10 Things to Know about the Latest Employment Data

Fri, 04/04/2014 - 10:06
  • Jobs will be ever more critical to support home sales in a rising interest rate environment. Therefore, the latest addition of 192,000 jobs in March is a big plus. The total gain over the past 12 months is 2.2 million jobs.
  • From the worst of the recent recession a few years ago, nearly 8 million jobs have been added. Recall, however, during the recession that 8 million jobs were shed. Not yet a new employment peak, but getting very close to it.
  • In the construction sector 19,000 jobs were added in the month. Still, there are 2.5 million fewer construction workers now versus the peak in 2007. Also general contractor jobs now stand at 3.7 million compared to 5 million in 2006.
  • Employment in real estate, including sales and rental leasing, is on the rise.
  • Good news: each worker is working at bit longer, 34.5 hours per week on average compared to 34.3 hours in the prior month. That extra decimal point in hours worked multiplied by 138 million workers has a meaningful impact on the total work hours in America.
  • Bad news: the typical wage rate fell in March to $20.47 per hour from $20.49 for non-supervisory workers in the prior month. Wages are growing essentially at 2 percent a year, below the gains in apartment rents which are rising at 3 percent.
  • The unemployment rate did not change and remained at 6.7 percent. But due to ignoring who is in the labor force and who is not, a cleaner picture of job conditions can be measured by how much of the adult population has jobs. This “employment rate” unfortunately is barely improving.
  • Over the longer-term perspective, from 2000 to today, 34 million more people are living in America. But job additions have been only 6 million.
  • One reason for the mismatch between population and employment gains is due to the decline in the labor force participation rate. It inched a bit in the past month, but still remains well below the historical normal. Too many Americans, it seems, have given up.
  • The United States in declaring its independence from Britain spoke of the rights to life, liberty, and the pursuit of happiness. Note it did not say the right to happiness, but the pursuit of it. No one should automatically get happiness, because there is a great deal of satisfaction in overcoming trials and setbacks. In other words, the journey is often more important than the destination. That is why some people wake up smiling each day though not knowing what will happen that day.

Rent Trends

Thu, 04/03/2014 - 14:04
  • Rents continue to rise but may no longer be accelerating.  As measured by the Consumer Price Index component on the renters’ rent, the annual growth rate appears to have stabilized at near 3 percent after rapidly rising from 2010.
  • According to REIS, private sector data covering only the large metro markets, rents are rising by 3.2 percent, a bit faster than the government data.  With apartment vacancy rates falling to the lowest rate in over a decade, now at 4.0 percent vacancy rate from 4.4 percent a year ago, rents could easily start to accelerate again.
  • According to a survey of REALTORS®, nearly half reported rising rents while less than 10 percent reported falling rent.  But the sizable rent increases of 6 percent or higher are now less prevalent than several months ago.
  • Permits to build new apartments are rising.  Perhaps, this new supply will put the lid on rent growth.  But the recent increases in supply appear to be only of returning to normal and certainly not an oversupply.
  • Rents, therefore, are likely to rise by at least 3 percent this year on a nationwide basis, with 4 percent not out of the realm of possibility.  With wage growth barely scratching 2 percent growth, the renters are getting their life squeezed out.

 

REALTOR® Comments on Housing Market Issues in Latest RCI Survey

Thu, 04/03/2014 - 10:48

Every month REALTORS® provide a variety of comments on the state of the market when responding to the RCI survey. In general, REALTORS® noted in the February report that uncertainty about economic conditions, rising prices, weather, the limited inventories of available homes, and flood insurance were negatively impacting the home sales markets:

Lack of Inventory: The lack of available homes on the market seemed to be the most pressing problem mentioned by REALTORS®. In some cases potential sellers holding off from listing were mentioned as having unrealistic expectations. The lack of new construction and the inability of potential sellers to find a more suitable home in a time of limited supply were cited as contributing to the problem.

Uncertainties: A number of respondents essentially commented “people are waiting,” in reference to the overall state of the economy, concern about home affordability and rising prices, a lack of consumer confidence, etc. Put differently, a significant number of comments basically indicated that some people are in a stall mode. REALTORS® noted continued strong demand, but potential buyers were reported as being increasingly demanding in terms of expected home condition. The importance of realistic, accurate pricing was noted.

Weather: Continued difficult weather conditions were prominently mentioned by many REALTORS®. There seemed to be general agreement that there had been a significant negative impact on sales in many parts of the country.

Flood Insurance: The availability and cost of flood insurance were cited in a number of cases as having a negative impact on home sales.

Loan Availability: REALTORS® continued to cite problems for potential buyers in getting loans. There was a continued feeling that credit is unrealistically tight.

Highlights: 2014 Investment and Vacation Home Buyers Survey

Thu, 04/03/2014 - 09:55

On Wednesday, NAR released its annual Investment and Vacation Home Buyers Survey, covering existing- and new-home transactions in 2013. The press release can be found here, with highlights and select charts from the report below:

  • Vacation home sales rose strongly in 2013, while investment purchases fell below the elevated levels seen in the previous two years.
  • Vacation-home sales jumped 29.7 percent to an estimated 717,000 last year from 553,000 in 2012.
  • Investment-home sales fell 8.5 percent to an estimated 1.10 million in 2013 from 1.21 million in 2012.
  • Owner-occupied purchases rose 13.1 percent to 3.70 million last year from 3.27 million in 2012.
  • The sales estimates are based on responses from households and exclude institutional investment activity.
  • Vacation-home sales accounted for 13 percent of all transactions last year, their highest market share since 2006, while the portion of investment sales fell to 20 percent in 2013 from 24 percent in 2012.
  • The median investment-home price was $130,000 in 2013, up 13.0 percent from $115,000 in 2012, while the median vacation-home price was $168,700, up 12.5 percent from $150,000 in 2012.
  • All-cash purchases remained fairly common in the investment- and vacation-home market: 46 percent of investment buyers paid cash in 2013, as did 38 percent of vacation-home buyers.

Latest Mortgage Applications Data

Wed, 04/02/2014 - 10:39

  • Seasonally adjusted applications to purchase homes ticked upward 0.9% for the week ending March 28th, the 3rd consecutive increase. The purchase index is 17.3% lower than the same time in 2013. Purchase applications appear to have hit or are nearing a plateau in terms of decline from last year.
  • The average rate for a 30-year fixed rate mortgage as reported by the Mortgage Bankers Association was unchanged from the prior week at 4.56%. The average rate a year ago this week was 3.76%.
  • The bulk of the improvement came in the conventional space which rose 1.7% following a 4.0% increase in the prior week. Applications for government financing eased 1.1% following a modest 0.1% increase in the prior week. Recent announcements by some lenders suggest that credit overlays on the FHA program should ease, but that trend has not developed in the data, yet. Furthermore, the cost of FHA insurance remains high relative to private financing, but for those borrowers with high LTVs and credit scores less than 680. The high cost of FHA MI combined with the rise in rates is crimping affordability on this portion of the market…particularly first-time borrowers and some minority groups.
  • Purchase applications continue to stabilize, but remain well off of last year’s pace. Affordability has suffered over the last twelve months due to rising rates and prices. Sales and applications will pick up as we move towards summer in the typical seasonal pattern, but may remain muted relative to last summer until credit overlays ease and pricing improves.

Lenders Reserved on Some QM Lending

Tue, 04/01/2014 - 11:32

The qualified mortgage (QM) rule was implemented in January of 2014. It is the first of two rules that came from the Dodd–Frank Wall Street Reform and Consumer Protection Act that will impact the housing market. This law is intended to protect consumers by strengthening underwriting standards, but some have argued that the rules will raise costs and reduce access for consumers. To gain insight on the impact of the new law, NAR Research surveyed a sample of lenders with questions about the impact of the lending on their business and how the rule could in turn impact consumers.

With respect to the maximum back-end debt-to-income ratio of 43%, 68.4% of respondents indicated that they would not have a buffer in advance of that restriction to protect themselves. However, 15.8% indicated that they would impose a modest buffer at 42.5%, while an additional 10.6% of respondents indicated that they would impose buffers of 41% or 42%.

What does this change mean for REALTORS and consumers? Consumers should expect to have to document their income, employment and resources. If your client has a high debt-to-income ratio, the FHA as well as Fannie Mae and Freddie Mac will be more lenient than private financers, but lenders might impose buffers on both. Your client could work to pay down debts or if your client falls into this or other aspects of the non-QM space or even the rebuttable presumption portion of the QM space (e.g. high fees, subprime, interest only, etc.) your client might require help finding a specialty lender. Consider finding a few lenders who specialize in financing these special cases at affordable rates so that you can meet your client’s needs if the time comes. For the full survey, click here.

Housing Wealth Recovery

Tue, 04/01/2014 - 08:01
  1. In just a short two years, the nation’s property owners have accumulated nearly $4 trillion in housing wealth.  During the harsh downturn, $7 trillion was wiped out.  As a result, the housing market is still in recovery mode and not an expansion mode.  There are still underwater homeowners, but those who bought from 2009 and onwards are enjoying positive net worth.
  2. While property values have been rising, the overall mortgage debt outstanding has been falling.  At the end of 2013, there was $9.3 trillion in mortgage debt.  Several years ago, the total mortgage debt was $10.5 trillion.
  3. Higher real estate values combined with falling mortgage debt has raised the overall equity portion in real estate to 52 percent of the total real estate value, a substantial increase from the 36 percent of a few years ago.
  4. Given that the total number of renters has been rising while that of homeowners has not over these periods, one may say that the housing wealth train has already left the station without young first-time homebuyers.  Has Washington’s fiddling over new federal mortgage rules, which has confused many small lenders, and major lawsuits against big banks to some degree unwittingly backfired?

Fewer First-time Buyers Obtaining Mortgages With Low Down Payment

Mon, 03/31/2014 - 13:59

NAR’s REALTORS® Confidence Index Survey data shows that fewer first-time buyers are obtaining mortgages with down payment of 6 percent or less [1]. In 2009, among REALTORS® who reported a sale to a first-time home buyer, 74 percent of these buyers put down 6 percent or less as down payment [2]. As of February 2014, this has fallen to 61 percent.

Along with the re-emergence of private mortgage insurance since 2011, REALTORS® have reported several factors driving this trend: tight competition for available properties, stricter underwriting standards, the higher cost of mortgage insurance at the FHA, as well as a reduction in the high-cost loan limits at which FHA can finance. With demand still stronger than supply across many states, a higher down payment enhances the likelihood of winning the bid and of obtaining a loan from the bank.

For buyers who can put down a higher down payment, doing so lowers the monthly mortgage insurance premium. For example, a house valued at the median price of $189,000 financed with an FHA-insured 30-year fixed mortgage at 3.5 percent down payment will require an upfront mortgage premium (UPMIP) of $3,191 and a monthly mortgage insurance premium (MIP) starting at $209 dollars [3]. A higher down payment of 22 percent will lower the UPMIP to $2,580 and the monthly MIP to $163. For conventional GSE-eligible loans, borrowers don’t typically pay mortgage insurance once the LTV reaches 80 percent. Combined with the lower monthly mortgage payments, the monthly savings from putting down a 20 percent D/P is about $226.

[1] This blog benefited from the comments of Dr. Jed Smith, Managing Director for Quantitative Research, and Ken Fears, Director of Regional Economics and Housing Finance Policy.
[2] NAR’s REALTOR® Confidence Index Survey asks respondents about the characteristics of the last sale for the month. The sample of last sales is assumed to be representative of the sales for the month.
[3] Assuming the UPMIP is also borrowed. FHA’s upfront mortgage insurance premium is 1.75% of the loan amount. For mortgages availed after April 1, 2013, the monthly insurance premium is 1.35% for a 30-year loan with loan-to-value of over 95 percent. http://portal.hud.gov/hudportal/documents/huddoc?id=13-04ml.pdf

Metro and Regional Price Data

Fri, 03/28/2014 - 08:31
  • Earlier this week, we looked at the FHFA and Case-Shiller release focusing on national data trends. Today, we’ll dig a bit deeper to look at more local data at the regional and city or MSA level.
  • Monthly FHFA releases data at the Census division level and quarterly it releases state and metro area data. Case-Shiller offers data on 20-cities monthly. Both of these sources confirm the trend seen in NAR measures.
  • At the regional level: the most robust home price gains from a year ago were in the West. NAR reported price change of 14.1% in January and 18.0% in February. According to FHFA year over year prices in January 2014 rose 14.0 percent in the Pacific division which includes Hawaii, Alaska, Washington, Oregon, and California and 11.0 percent in the Mountain division which includes Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, and New Mexico.
  • Likewise, NAR data showed the smallest price gains from a year ago in the Northeast (6.6% for the year ending in January and 1.5% for the year ending in February), and FHFA showed a similar pattern. Prices rose 3.7 percent in New England (Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut) and 3.2 percent in the Middle Atlantic states (New York, New Jersey, Pennsylvania) from January one year ago.
  • Among cities, Case-Shiller reported the biggest year over year gains in Las Vegas and San Francisco. Each had more than 20% year over year gains. They were followed closely by San Diego and Las Angeles, metro areas with more than 18% year over year gains. The smallest gains in Case Shiller’s cities were Cleveland at 4.0 percent and New York at 6.7 percent.

New Home Sales

Wed, 03/26/2014 - 12:33
  • Contracts for new home sales slipped 3.3% from January to February to a seasonally adjusted annualized rate of 440,000. This decline reverses last month’s improvement, but new home sales remain in a relatively strong level by recent standards. A decline in affordability nationally and weather in the Northeast and parts of the Southeast have had an impact.
  • Inventories improved steadily throughout 2013 and were 24.3% from a year ago in February and increased a modest 0.5% between January and February. However, the months supply is still 5.2 suggesting an imbalance that favors price growth.
  • Low inventories combined with low mortgage rates pressed up on the median sale price in 2013. The median price for a new home under contract eased a modest 1.1% over the 12-month period ending in February to $261,800. The median existing home price was 38.4% lower at $189,200, more than three times the historical average spread of a 12.3%, suggesting that existing homes are a bargain by historical standards.
  • Mortgage rate and price increases in 2013 had a strong impact on affordability. However, new home sales remain roughly where they were last spring when mortgage rates were a full percentage point lower and prices were lower by 10% or more. Weather has constrained new production to an extent, but that will abate resulting in more inventory coming on line in six to nine months. Rates will continue to rise through the year, so a sustainable increase in inventory that resulted in a moderate waning in price growth would provide a welcome relief.

A deeper look at the latest Existing Home Sales data

Wed, 03/26/2014 - 08:56
  • Last week, NAR released a summary of existing home sales data showing that existing home sales declined again for the sixth time in seven months. February showed a decrease in sales of 0.4% from last month and 7.1% from a year ago.
  • The national median existing-home price for all housing types was $189,000 in February, up 9.1% percent from February 2013.
  • All regions showed growth in prices, but the West had the biggest gain at 18% from a year ago. The Northeast had the smallest price gain at 1.5% from a year ago.
  • February’s inventory figures increased by 5.3% from a year ago and it will take 5.2 months to move the current level of inventory. It marks the highest inventory level since April 2013. As the charting of months’ supply below shows, the condominium market tends to be undergoing larger swings than the single-family market.
  • With sales down this month, February has the slowest sales pace since July 2012. Change in seasons and a boost in inventory will help change the current sales trend even with rates on the rise. A boost in household formation will help improve the housing market. See the full NAR Existing Home Sales press release here and data tables here.
  • Find a full graphical summary of the data here.

LATEST MONTHLY EHS INFOGRAPHIC

FHFA, S&P/Case-Shiller Home Price Measures

Tue, 03/25/2014 - 12:00
  • Last week NAR released existing home sales and median home price information that showed gains of 9.1 percent in prices in February 2014 compared to February 2013, notably slower than trends in early summer/fall 2013 when price growth topped a double-digit pace.
  • Today, both the FHFA and S&P/Case-Shiller released their housing price index data. Both data series showed continued gains in home prices with some deceleration, suggesting that the pace of home price increase should fall back into a more normal range in the next few months.
  • Case-Shiller reported gains of 13.5 and 13.2 percent for the 10- and 20-city indexes in the year ending January 2014, while FHFA reported home price gains of 7.4 percent.
  • NAR reports the median price of all homes that have sold while FHFA and Case-Shiller report the results of a weighted repeat-sales index. Because home sales among higher priced properties have been growing more than among lower price tiers, the NAR median price had risen by more than the weighted repeat sales index—which computes price change based on repeat sales of the same property.
  • Case-Shiller’s reported price growth currently exceeds NAR’s, likely as a result of the data lag. Case Shiller uses public records data which has a reporting lag. To deal with the lag, Case Shiller data is based on a 3 month moving average, so reported January prices include information from repeat transactions closed in November, December, and January. For this reason, the changes in the NAR median price tend to lead Case Shiller. In the graph below, it is quite clear that NAR first showed rising prices. As NAR shows deceleration in prices, expect Case Shiller data to follow suit.
  • FHFA sources data primarily from Fannie and Freddie mortgages, transactions using prime conventional financing, and misses out on cash transactions as well as jumbo, subprime, and government-backed transactions such as those using VA or FHA financing.

REALTORS® Generally Expect Prices to Increase Modestly in the Next 12 Months

Mon, 03/24/2014 - 14:50

REALTORS® generally expect prices to increase over the next 12 months at a modest pace with the median expected price increase at 3.9 percent, according to the latest REALTORS® Confidence Index. Demand has slowed somewhat because of the increase in home values and the cost of borrowing from higher mortgage rates and mortgage insurance premiums for FHA loans. The modest pace of economic growth has also kept the lid on price growth.

The states with the most upbeat expected price change of 5 to 7 percent are California, Florida, and Hawaii, where tight inventory has boosted home values (red). In states with booming economies like Washington, North Dakota, Texas, Michigan, and the DC-Metro Area, the expected price increase is about 3 to 5 percent (orange). In the rest of the states, the expected price growth is less than 3 percent (blue).

REALTORS® Confidence Index Shows Unchanged Market Conditions

Sun, 03/23/2014 - 11:42

Residential sales market conditions were essentially the same in February as in January 2014, according to the latest REALTORS® Confidence Index.

Demand has been dampened by the erosion in home affordability due to price increases and higher interest rates which have kept first–time homebuyers out of the market.  However, inventory is also generally tight across many states–the Western region (CA, NV, WA, OR, AZ), the Midwest (MO, IL, WI, MN, ID), the Northeast (NJ, MA, ME, PA) and the Southern states (MD, VA, SC, and TN).

Lenders Leary of non-QM Lending

Thu, 03/20/2014 - 11:17

The qualified mortgage (QM) rule was implemented in January of 2014. It is the first of two rules that came from the Dodd–Frank Wall Street Reform and Consumer Protection Act that will impact the housing market. This law is intended to protect consumers by strengthening underwriting standards, but some have argued that the rules will raise costs and reduce access for consumers. To gain insight on the impact of the new law, NAR Research surveyed a sample of lenders with questions about the impact of the lending on their business and how the rule could in turn impact consumers.

When asked about their willingness to lend to particular borrower types, the majority of originators indicated that they would be “much less likely” to make loans with non-QM product features as compared to 2013. Similar to results shown earlier, originators indicated that they would be much less likely to lend to borrowers with lower credit scores in the non-QM space and this reticence increased as credit quality diminished. Finally, more than half of originators indicated that they were either “less likely” or “much less likely” to originate QM loans that fell under the rebuttable presumption definition of compliance with either the QM standard or the FHA’s QM standard. In contrast, 85% and 95% of originators indicated that they would be “as likely” or more likely to originate mortgages that met the safe harbor definition of the standard QM rule and the FHA’s QM definition, respectively.

What does this change mean for REALTORS and consumers? Consumers should expect to have to document their income, employment and resources. If your client has a high debt-to-income ratio, the FHA as well as Fannie Mae and Freddie Mac will be more lenient than private financers. However, if your client falls into the other aspects of the non-QM space or even the rebuttable presumption portion of the QM space (e.g. high fees, subprime, interest only, etc.) your client might require help finding a specialty lender. Consider finding a few lenders who specialize in financing these special cases at affordable rates so that you can meet your client’s needs if the time comes. For the full survey, click here.

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