Posts Tagged ‘mortgage rates’

New Housing Market Showing Some Strength

Tuesday, January 3rd, 2012

Confidence in American homebuilders rose in December for the third consecutive month, a sign that the housing market is finally stabilizing.  The National Association of Home Builders/Wells Fargo (NAHB) Housing Market Index (HMI) of builder confidence climbed to 21 — the highest level since May 2010 — from a revised 19 in November.   Economists had projected an index of 20, according to a Bloomberg News survey.  Readings below 50 mean the majority of respondents believe that conditions are poor.

Mortgage rates near record lows are attracting prospective homebuyers.  At the same time, a new wave of foreclosures means a sustained housing recovery could take years.  “We’re just seeing some incremental improvement,” John Herrmann, a senior fixed-income strategist at State Street Global Markets LLC in Boston, said.  “It’s too early to say that the worst is over.  It’s too early to say that we’re pulling ourselves out of the morass of housing.”

Builders in the South had the biggest increase, with the index jumping four points to 25 this month.  The West reported a gain to 16 from 15, while the Midwest held steady at 24.  Confidence in the Northeast fell to 15 from 16.

“This is the first time that builder confidence has improved for three consecutive months since mid-2009, which signifies a legitimate though slowly emerging upward trend,” NAHB Chief Economist David Crowe said.  “While large inventories of foreclosed properties continue to plague the most distressed markets and consumer worries about job security and the challenges of selling an existing home remain significant factors, builders are reporting more inquiries and more interest among potential buyers than they have seen in previous months.”

Low-ball appraisals are spoiling some deals, even after contracts have been signed.  As a result, some buyers are waiting to buy a new house because they can’t sell their home.  Those positioned to purchase are benefiting from lower prices and rates.  30-year fixed mortgages are 3.94 percent — a record low.  So far, those factors have not boosted new home sales.

The seasonally adjusted index, which parallels closely with single-family housing starts, is designed so that readings over 50 are considered “good.”  This hasn’t been the case since April 2006.

According to NAHB Chairman Bob Nielsen, “While builder confidence remains low, the consistent gains registered over the past several months are an indication that pockets of recovery are slowly starting to emerge in scattered housing markets.”

Each of the HMI’s three component indexes registered a third consecutive month of improvement in December.  The component gauging current sales conditions rose two points in the latest month to 22, while the component gauging sales expectations in the next six months edged up one point to 26.  The component gauging traffic of prospective buyers gained three points and is now at 18, which is its highest level since May of 2008.

Contract Cancellations Sour Home Sales

Wednesday, August 24th, 2011

A new phenomenon has emerged that is depressing the sales of existing homes. Contract cancellations are surging, dashing hopes that the distressed housing market is showing signs of improvement.  According to the National Association of Realtors (NAR), sales fell 0.8 percent in June compared with May to an annual rate of just 4.77 million units, the lowest since November, and falling for the third consecutive month.  Economists had expected sales to climb to a 4.90 million-unit yearly pace.  “Buyers and sellers are increasingly running up against conservative appraisals, which often cause deals to fall through or be delayed,” said Mark Vitner, senior economist at Wells Fargo Securities.  In fact, the market is unlikely to improve in the near term, said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

“A variety of issues are weighing on the market including an unusual spike in contract cancellations in the past month,” NAR chief economist Lawrence Yun said.  Fully 16 percent of NAR members reported a sales contract was cancelled in June, up from four percent in May.  “The underlying reason for elevated cancellations is unclear,” Yun said, suggesting possible problems like tight credit for buyers and low home appraisals.

Writing for the Wall Street Pit, Dirk van Dijk says that “Regionally sales were down on the month in two of the four Census regions.  All four regions were down year over year.  The Northeast fared the worst, with sales down 5.2 percent for the month and down 17.0 percent from a year ago.  The West had a month to month decrease, with sales falling 1.7 percent, down 2.6 percent from a year ago.  In the Midwest, sales rose one percent for the month but are down 14.0 percent year over year.  The South, the largest of the four regions, saw a 0.5percent rise on the month, but a 5.6 percent year-over-year decline.  After all, it is better to simply sell the house and get something for it, rather than let the bank take it and get nothing for it.  The more people under water, and the deeper they are, the higher foreclosures and strategic defaults are going to be.  A strategic default is when someone has the cash flow available to continue to make his mortgage payment, but simply decides not to, since paying is a just plain stupid thing to do from a financial perspective.  If you have a house that could only sell for $150,000 in the current environment, and you owe $200,000 on the mortgage, in effect you have the option of ‘selling’ the house to the bank for $200,000 simply by not writing the checks.  Of course that will be a hit to your credit rating, but $50,000 is probably worth a bit of a tarnish on your Fico score.  If the difference is only $5000, then the hit to your credit score makes less sense, and there are lots of non economic factors (a house is after all a home, not just an investment) that come into play.”

Despite the disappointing existing house data, homebuilders appear to have more confidence than buyers, because May housing starts climbed to a five-month high, according to the Department of Commerce.  The month was the first time in five years that more homes were started than completed.  A majority of the buyers were investors, with 29 percent of the transactions being all cash.

Writing for The Hill, Vicki Needham says that “Distressed homes — foreclosures and short sales generally sold at deep discounts — accounted for 30 percent of sales in June, compared with 31 percent in May and 32 percent in June 2010.  Foreclosures have flooded the market, providing good deals for some potential homebuyers but hindering new construction.  Mortgage rates for a 30-year, conventional, fixed-rate mortgage were 4.51 percent in June, down from 4.64 percent in May.  The rate was 4.74 percent in June 2010, according to Freddie Mac.”

“With record high housing affordability conditions thus far in 2011, we’d normally expect to see stronger home sales,” said NAR President Ron Phipps.  “Even with job creation below expectations, excessively tight loan standards are keeping many buyers from completing deals.  Although proposals being considered in Washington could effectively put more restrictions on lending, some banking executives have hinted that credit may return to more normal, safe standards in the not-too-distant future, but the tardiness of this process is holding back the recovery.

Phipps noted that lower mortgage loan limits, which are scheduled to go into effect October 1, already are having an effect.  “Some lenders are placing lower loan limits on current contracts in anticipation they may not close before the end of September,” he said.  “As a result, some contracts may be getting canceled because certain buyers are unwilling or unable to obtain a more costly jumbo mortgage.”

Foreclosed Homes Total a Three-Year Supply

Tuesday, June 14th, 2011

The current national inventory of foreclosed homes represents a three-year supply, according to RealtyTrac.  Not surprisingly, that is depressing home prices.  “This is very bad for the economy,” said Rick Sharga, a RealtyTrac spokesman.

In Las Vegas, the foreclosure situation is so dire that more than half of all homes sold in Nevada are foreclosures.  In California and Arizona, 45 percent of sales are foreclosures; that totals 28 percent of all existing home sales during the 1st quarter of 2011.

Additionally, the nation’s stock of foreclosed homes are selling at deep discounts, particularly REOS, which are bank-owned homes.  The typical REO sold for about 35 percent less than comparable properties, according to RealtyTrac.  In some areas, the discounts were ever steeper: In New York, the discount for REOs was 53 percent during the 1st quarter and almost 50 percent in Illinois, Ohio, and Wisconsin.

“Short sales,” homes where the selling price is less than what is owed by the borrowers, are also dragging down the market.  These sell for an average nine percent discount.  When you consider both REOs and short sales, Ohio had the biggest discount of any state, at 41 percent.

During the 1st quarter, there were 158,000 sales involving distressed properties nationally, less than half the nearly 350,000 during the same period of 2009.  With the slower pace of sales, it will take three years to sell off the inventory of 1.9 million distressed properties, according to Sharga.  “Even if you look at REOs alone, it will take 24 months to clear them and that’s without any new foreclosures at all coming into the system,” he said.

RealtyTrac found that the average sales price of properties in some stage of foreclosure, scheduled for auction or bank-owned — was $168,321, down 1.89 percent from the 4th quarter of 2010.

A total of 158,434 bank-owned homes and those in some stage of foreclosure were purchased during the 1st quarter, a 16 percent decline from the 4th quarter of last year and down 36 percent from the 1st quarter 2010 total.  Bank-owned properties that sold in the 1st quarter had been repossessed an average of 176 days before the sale, while properties that sold in earlier stages of foreclosure in the 1st quarter were in foreclosure an average of 228 days before they were sold.  According to James J. Saccacio, chief executive officer of RealtyTrac, “While this is probably helping to keep home prices relatively stable, it is also delaying the housing recovery.  At the first quarter foreclosure sales pace, it would take exactly three years to clear the current inventory of 1.9 million properties already on the banks’ books, or in foreclosure.”

Foreclosures are particularly attractive to all-cash buyers who demand discounts,  pushing down the value of all properties.  More than 75 percent of American cities experienced price declines in the 1st quarter.  Bank-owned homes totaled 107,143 sales in the 1st quarter, down 11 percent from the 4th quarter and almost 30 percent from 2010.  Sales of homes in default or scheduled for auction totaled 51,291, a 26 percent decline, according to RealtyTrac.  That was less than half the peak of 348,629 distressed deals in the 1st quarter of 2009.

Writing on the website 24/7wallstreet.com,  Douglas A. McIntyer offers an interesting perspective.  “Any economist will say that when some homes are sold at 27 percent below the normal market, all home prices will be pulled lower.  That may be the key to the home market recovery.  Foreclosure inventory will continue to rise as banks put more backlogged homes onto the market.  The glut will probably push down the average of all homes by several percent. This may be a reason home prices are predicted to fall another 10 percent this year.  Buyers will not come back to the housing market until they believe that prices are too good to resist.  That may mean homes that sold for $500,000 in 2005 will have to sell for $300,000 next year.  Prices will not be driven down quickly without the reduction in inventory of foreclosed homes.  There has to be a bottom to prices.  The sooner it is found the better.  The housing market is more than half dead.  The only tonic is a belief by buyers that prices are so remarkably low that new buyers will make money on a house and not lose it.  If the housing market is to continue to drop, the drop needs to be swift.  Mortgage rates are near all-time lows.  Inflation and concerns about the value of Treasuries due to the U.S. national deficit could change that.  Home prices that are viewed as affordable need to be married with low mortgage rates for the market to catch fire.”

Mortgage Applications Spike 16 Percent as Investors Take Over the Residential Market

Tuesday, March 29th, 2011

Although analysts are sounding a cautionary note, the number of Americans applying for mortgages rose by 16.1 percent in the first week of March – the largest monthly increase since June of 2009. The activity could be due to investors with money to spend, and not the first-time homebuyers who will play a vital role in the housing market’s recovery.  The refinance index increased 17.2 percent and the purchase index increased 12.5 percent, to the highest level this year.  The refinance share of activity increased to 65.5 percent of all applications from 64.9 percent the last week of February.  That’s the good news.  That bad news is that mortgage applications are likely to decline over the next several months because homeowners are unable to sell their current homes and trade up.  At present, cash buyers and investors — lured by low prices and soaring rents — represent the majority of sales, said Paul Ashworth, chief U.S. economist with Capital Economics.  Also, rates are low.  According to Zillow.com, the average 30-year fixed-rate mortgage is now 4.73 percent.

During January, first-time homebuyers fell to 29 percent of the market, the lowest percentage in almost two years.  Foreclosures made up 37 percent of sales and all-cash transactions were 32 percent of sales — twice the rate when compared two years ago when the National Association of Realtors began tracking these deals.  New-home sales fell to a seasonally adjusted rate of 284,000 in January. That is significantly less than the 700,000-to-800,000 pace considered healthy by a number of economists.

“Taking into account typical seasonal patterns, purchase applications rose to their highest level of the year last week.  On an unadjusted basis, purchase application activity is the highest since last May,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “An improving job market is beginning to pave the way for an improving housing market.  Additionally, mortgage interest rates remained below five percent for a second week, maintaining affordability for buyers and leading to an increase in refinance applications.”  The four week average for the seasonally adjusted Market Index rose percent.  The four week average rose 1.2 percent for the seasonally adjusted Purchase Index, while this average is up 3.6 percent for the Refinance Index.  The refinance share of mortgage activity increased to 65.5 percent of total applications from 64.9 percent the previous week.  Adjustable-rate mortgages (ARM) rose to 6.0 percent from 5.5 percent of total applications from the previous week.

“The housing market in the U.S. still has a lot of challenges ahead of it,” said Michael Gregory, a senior economist at BMO Capital Markets in Toronto.  “Ultimately it’s all about how many homes still are going to hit the market. People don’t want to buy homes because they feel prices could fall further.”

Uninsured Americans Rose 9.4 Percent of the Population in 2009

Tuesday, October 26th, 2010

Interest rate on a 30-year fixed mortgage at record low 4.27 percent. Mortgage rates have hit a record low.  According to Freddie Mac, rates for 30-year mortgages fell to 4.27 percent from 4.32 percent in just one week.  At the same time, safe-haven government debt is more appealing to investors than ever, according to a Freddie Mac survey. The low rates may be a sign that housing sales will pick up since they slumped after the first-time homebuyer tax credit expired last spring.  Rates for 15-year fixed mortgages averaged 3.72 percent, the lowest level since Freddie Mac began tracking these loans in 1971.  In another bit of news, home prices rose 3.2 percent in July from the previous month, the smallest gain since March, according to a report from S&P/Case-Shiller.

“The 12-month growth rate in the core price index for personal consumption, which the Federal Reserve closely tracks, has been drifting lower over the past six months ending in August and suggests inflation is running at a tepid pace at best,” Frank Nothaft, Freddie Mac vice president and chief economist, said.  “This allowed mortgage rates to ease to new or near record lows this week,” he said.

Michelle Meyer, senior U.S. economist at Bank of America Merrill Lynch, believes that potential homebuyers are staying on the sidelines despite enhanced affordability resulting from record low mortgage rates.  “The missing link is confidence — consumers are still worried about future income prospects given high unemployment rates and many believe home prices will fall further,” she said.  “In addition, credit conditions remain tight, making it difficult to get financing.  Mortgage rates are only one input into the decision to purchase a home, and seemingly subordinate to current and expected income.”

Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, FL, offers another perspective.  “You’re going to get some people enticed to buy new homes,” he said.  “But people are still a bit shell-shocked by the downturn in prices and they’re going to be a lot more careful than they were before.”

It’s a Renter’s Market

Tuesday, January 26th, 2010

Apartment vacancies in the United States hit a 30-year high during the fourth quarter of 2009 as many would-be renters moved in with family or roommates to save money.  According to Reis, Inc., a New York research firm that tracks vacancies and rents in 79 markets across the country, the apartment vacancy rate was eight percent at year’s end.Apartment vacancies at a 30-year high as failed condominiums glut the market.

Rents declined by three percent in 2009, even as landlords upped the ante to attract creditworthy renters.  In New York City, effective rents – which include concessions such as one month free rent – fell 5.6 percent last year, the worst performance since Reis first tracked data in 1990.  Asking rents fell 2.3 percent from 2008 to an average of $1,026. Effective rents, what tenants actually paid, decreased three percent to $964.

“We’ll shampoo their carpets.  We’ll paint accent walls.  We’ll add Starbucks cards,” said Richard Campo, chief executive of Camden Property Trust, a Houston-based REIT that owns 63,000 apartments.  Complicating the situation is competition from 120,000 new rental units that came on the market last year.  These include some failed condominium projects that were converted to rentals.  A hefty percentage of these developments had secured loans before the credit markets froze.  With new development at a virtual standstill, apartment completions are expected to decline 50 percent in 2011.  For apartment owners, the limited new supply means they can increase rents as soon as job growth returns.

“If you are renting a place, now might be a good time to renegotiate that lease,” advises Victor Calanog, Reis’ director of research, who predicts that the apartment sector could recover in the second half of 2010 if jobs start returning or people think the economy is improving.

Downtown Chicago Rental Apartments Thriving

Monday, August 31st, 2009

Downtown Chicago apartment buildings – especially Class A properties – are seeing a resurgence in occupancy and rental rates as residents apprehensive about the condominium market choose to rent rather than buy.  The average effective rent of downtown apartment buildings climbed to $2.17 PSF in the second quarter, a 2.4 percent increase over the first quarter, according to a report by Appraisal Research Counselors, a real estate consulting firm.  During the same time frame, average Class A occupancy rose to 93.4 percent, as compared with 90.9 percent in the first quarter and 91.6 percent a year ago.chicagoskyline1

The statistics would be even better if there weren’t so many new downtown apartment buildings.  More than 2,098 new units have been built downtown since 2008.  Add to that the shadow rental market – condominium owners who rent their units when they cannot sell.  Many potential buyers are renting for the time being because they are concerned about falling property values and the possibility that they will be unable to obtain a mortgage in a tight credit market.

These numbers show the inherent strength of Chicago’s CBD rental apartment market — proof that downtowns continue to thrive because of the number of highly educated knowledge workers who want to live in the city.  As a result, places like River North and the Loop remain highly sought after locations for businesses looking to recruit talent.

Home Sales, Values on the Rise; Consumer Confidence Down

Monday, August 10th, 2009

Sales of new and existing homes rose in June for the third straight month, due primarily to low prices and attractive mortgage rates.  Home sales also rose 11 percent over the previous month. The federal tax credit for first-time homebuyers helped to drive the uptick.  Additionally, home prices rose for the first time in three years in May, a sign that the market might be stabilizing.

nhsaprilAccording to the Standard & Poor’s/Case-Shiller index, home prices have fallen more than 32 percent from their 2006 peaks.  The pace of the decline slowed in May for the fourth consecutive month.  “This could be an indication that home price declines are finally stabilizing” after plunging to levels last seen six years ago in 2003, noted David M. Blitzer, chairman of the S&P index committee.

On the downside, the weakening job market battered consumer confidence in July, possibly delaying a quick economic recovery.  The U.S. Conference Board’s consumer confidence index fell to 46.6 in July from 49.3 in June.  A recent Reuters survey had forecast that the June reading would be 49.  This erosion in confidence is in tune with the rising percentage of Americans who say jobs are hard to find.  Unemployment has hit a 26-year high, with several states reporting double-digit numbers.

“People are getting a bit discouraged.  Jobs are not coming as quickly as expected,” according to John Silvia, chief economist with Wells Fargo.  “This won’t be a V-shaped recovery for either the economy or the jobs market.”

Want Affordable Housing? Here’s Where to Find It

Tuesday, July 8th, 2008

Despite all the doom-and-gloom reports on the residential real estate market, there are some bright spots.  In several markets, housing has become surprisingly affordable to families earning a median household income of $61,500.  And there’s more good news.  Mortgage rates are again nearing the record lows of a few years ago; and family incomes jumped an average of a $2,500 between 2007 and 2008.

What are some of the markets most strongly impacted by this trend?

Indianapolis, IN – The largest affordable cities – Indianapolis, for example — tend to be in the Midwest.  More than 90 percent of all Indianapolis households have sufficient incomes to buy a median-priced $125,000 home.  During the first quarter of 2008, Indy ranked as the most affordable major U.S. housing market for the 11th consecutive quarter.

Stockton, CA: — The average single-family home price fell 35 percent to $230,800 in the first quarter of 2008, compared with $357,800 just two years previously.

Kokomo, IN: — Among smaller metro markets, Kokomo ranked well in terms of housing affordability during 2008’s first quarter.  A median-priced home in Kokomo is about $147,000.

Grand Rapids, MI: — Approximately 88.7 percent of homes sold were affordable, a 4.2 percent change from 2007.  A median-priced house in Grand Rapids is currently $132,100.

Youngstown, OH: — In this small city with a population of 82,000, the median sales price dropped 13.5 percent to $67,700 in just one year.