MARKET RECAP
So what's up with home prices? That is, are home prices up? Over the past two months we've reported on a slew of data that show prices are down, but the data have been somewhat stale: much of them focused on the last quarter of 2011.
Where prices are going, not where they've been, matters. More contemporary data – the data most likely to portend the future – show prices on the rise.
RE/ MAX reports that home prices increased year-over-year in February for the first time in 18 months. RE/ MAX opines that the turnaround signifies “a very active selling season.”
We agree, because the price increases were much steeper in many local markets than we had anticipated. Miami posted a 20.5% year-over-year gain; Phoenix, a 12.5% gain; and Detroit, a 8.9% gain. Not so long ago, these three burgs were in full free-fall mode. (When Las Vegas shows a double-digit year-over-year percentage price increase, you can be sure the recovery has spread nationwide.)
The outlook is also looking rosier for new home sales. The home builder sentiment index has been rising for the past five months, and the rising optimism appears justified. Barclays Capital reports that initial data for the year are encouraging, noting that “the spring selling season has arrived strongly enough to kick-start a positive feedback loop in housing for the first time since 2005.” Barclays raised its rating on a number of home builder stocks.
Signs of a sustained rebound are also reflected in mortgage purchase applications, which have been rising over the past month. The MBA reports that purchase applications are nearly 12% higher than where they were just a month ago and are approaching the level when the federal home-buyer tax credit fueled the market two years ago.
More purchase activity is understandable: Affordability remains high and mortgage loan rates remain low. The prime 30-year fixed-rate loan still hovers around 4% (and when we say “around” we mean mostly above lately).
Rates have been on the rise, though, and this isn't a surprise. Over the past two weeks, the yield on the 10-year U.S. Treasury note is up 30 basis points. Long-term mortgage lending rates take their queue from the 10-year U.S. Treasury note, which guides the rates on long-term mortgage-backed securities. Where the yield on the 10-year Treasury goes, mortgage lending rates generally follow.
We've been saying since the beginning of the year that we couldn't see rates dropping materially lower. The corollary is the risk of rates moving higher is likely rising. The scuttlebutt we're hearing is that some lenders are already looking to 4.5% to 4.75% by June.
Rates are rising for a number of reasons. The economy is improving and investor confidence is rising, which means investors are becoming less risk averse. Money is flowing out of the bond market and into the stock market, thus pushing yields on bond investments higher and yields on stock investments lower.
It's impossible to know with certainty where mortgage lending rates will be in three months, but if the choice were between 3.5% and 4.5%, we'd give you dollars-to-donuts odds on the latter.
Economic Indicator, Release Date and Time, Consensus Estimate, Analysis:
Home Builders Index(March)
Mon, March 19,10:00 am , et
30 Index
Important. Rising optimism points to a rising new-home sales through the summer.
Housing Starts(February)
Tues, March 20,8:30 am , et
702,000 (Annualized)
Important. Starts continue to expand toward a more normalized rate.
Mortgage Applications
Wed., March 21,7:00 am , et
None
Important. Gains in purchase applications point to monthly strength in home sales.
Existing Home Sales(February)
Wed., March 21,10:00 am , et
460,000 (Annualized)
Important. Rising sales on firming prices reflect a strengthening housing market.
New Home Sales(February)
Fri., March 23,10:00 am , et
330,000 (Annualized)
Important. Sales finally appear to have developed a sustainable uptrend.
Time's a Wastin'
The economy continues to improve at an accelerating pace: Jobs are now being added at a minimum rate of 200,000 a month and unemployment has fallen in 45 states and the District of Columbia .
More people working and more economic growth means the overhang of REO and distressed properties will be be picked over sooner rather than later. It also means more pressure on interest rates to rise.
Yes, the Federal Reserve is doing everything in its power to hold interest rates low. It continues to reinvest principal payments from its holdings of Treasury notes and bonds and mortgage-backed securities into more mortgage-backed securities. The Fed's demand for these securities helps hold lending rates low. Problem is, the Fed lacks the power to stem market forces in perpetuity. If the market demands higher mortgage rates, it will eventually get it.
Given the surge in demand that will occur with HARP 2.0 and a continued rise in purchase applications, we think it is riskier than it has been in years to wait to refinance or purchase a home. In other words, we think the market will get its wish for higher lending rates sooner than many home buyers or refinancers think.
Article courtesy of Patti Wilson, Senior Loan Officer, Mutual of Omaha Bank.
Monday, March 19, 2012
Tuesday, March 13, 2012
NAR: Tax rumor keeps spreading
WASHINGTON – March 13, 2012 – Contrary to a viral email that seems to die out but then return with a vengeance, there is no across-the-board real estate tax starting in 2013.According to the National Association of Realtors® (NAR), there is a new real estate tax effective in 2013, but it will affect very few sellers – only people with a high annual income who turn a sizable profit on their home sale.
A 3.8 percent levy on certain investment income was included in healthcare legislation two years ago. Part of that investment income includes capital gains from home sales for individuals who make $200,000 per year or more, or married couples who earn at least $250,000. However, even these individuals won’t pay the tax unless the home sale earns them over $250,000 for an individual or $500,000 for married couples. And even if someone qualifies under these two conditions, a tax may still not be levied. Other tax details are considered before the 3.8 percent tax kicks in.
NAR recommends that Realtors become familiar with the tax, but they avoid coaching their clients because the tax details are complicated. The actual tax due will vary from individual to individual because the elements used to calculate “adjusted gross income” differ from taxpayer to taxpayer.
NAR has published a brochure on how the tax works, which is now available online. Download the 3.8% tax brochure (PDF).
© 2012 Florida Realtors®
Monday, March 12, 2012
Keeping you updated on the Market
March 12 , 2012
MARKET RECAP
Home prices continue to garner front-page attention. CoreLogic reports that prices declined for the sixth-straight month in January, dipping 1% from December. Year-over-year prices are down 3.1%. In short, CoreLogic says that prices are about where they were 10 years ago.
CoreLogic offers one set of data on home prices, Clear Capital offers another, less ominous set. According to Clear Capital, national home prices declined only 1.9% year-over-year. What's more, its data show short-term prices being more stable, with prices falling only 0.6% from the third quarter to the fourth quarter of 2011.
Everyone is keeping a close eye on distressed properties. Now that last year's “robo-signing” foreclosure imbroglio is behind us does that mean we will see a surge in foreclosed and REO properties? And if so, how will they impact inventory and prices?
Pertinent questions, to be sure, and ones we don't have a ready answer for. We do know that the inventory of existing homes for sale declined 21%, or by 600,000 units, in 2011. At the most recently reported sales pace, that means we are looking at 6.1 months of supply – the lowest inventory level since April 2006. Lower supply supports higher prices.
Today's low inventory is attributed to falling foreclosure volume. But now that banks are free to foreclose, two million more homes are expected to hit the market over the next two years. If that's the case, then distressed inventory will rise sharply. Returning to economics: higher supply leads to lower prices.
There are a few extenuating factors though. The economy is improving, and continues to add jobs at an increasing rate. The private sector added 216,000 jobs last month, according to the latest national employment report from Automatic Data Processing. That's a significant increase over the 173,000 jobs added in January. More people working means more people who can afford a home.
The rise in REO properties could be offset by a decrease in other market segments. For instance, there was a significant increase in short sales in the fourth quarter of 2011, which pushed the number up to nearly 910,000 units nationwide. That said, the long-term trend for short sales is down; fewer short sales could be a counterweight to rising REO units.
Housing formation is another attenuating factor. After 2007, household formation plu mm eted to 300,000 per year from its historical rate of 1.25 million. We see a lot of pent up demand. The population continues to grow, the economy continues to improve, home affordability is at a multi-decade high. The market is ripe for a spike in new household formation.
In short, we don't expect new REO properties to upset the housing recovery like the more dire pundits are predicting.
Economic Indicator, Release Date and Time, Consensus Estimate, Analysis.
Retail Sales(February)
Tues, March 13,8:30 am , et
1.1% (Increase)
Important. Sales remain robust on improving consumer confidence.
Federal Reserve FOMC Meeting
Tues, March 13,2:15 pm , et
Federal Funds Rate: 0% to 0.25%
Important. The Fed will hold short-term rates low and monitor agency debt in order to hold long-term rates low too.
Mortgage Applications
Wed., March 14,7:00 am , et
None
Important. The rise in purchase applications points to an encouraging start to the spring buying season.
Producer Price Index(February)
Thurs., March 15,8:30 am , et
All Goods: 0.4% (Increase)Core: 0.2% (Increase)
Moderately Important. Producer prices are heating up, but credit markets remain unfazed.
Consumer Price Index(February)
Fri., March 16,8:30 am , et
All Goods: 0.5% (Increase)Core: 0.2% (Increase)
Important. Deflation is no longer a concern, though rising consumer inflation could cause some Fed members to rethink the Fed's low-rate policies.
Ready, Set, Refinance
We expect to see a surge in mortgage applications in coming months. Couple low rates with HARP 2.0, the federal mortgage program that will enable millions of underwater homeowners to tap the mortgage market, and mortgage loan demand is sure to grow.
The combination of low rates and HARP 2.0 alone is enough to send business through the roof. Now we get word the Obama administration wants to allow more homeowners to refinance by dropping fees on federally insured mortgages. The administration's plan has the FHA dropping upfront insurance premiums on streamline refinances from 1% to 0.01%. The FHA would also drop annual premiums from 1.15% of the loan balance to 0.55%.
There is one catch: the lower fees only apply to borrowers who took out loans before June 1, 2009 . Still, lower-fee FHA loans are expected to help two to three million borrowers refinance.
The prospect of rising mortgage demand is worth keeping in mind as we head into the spring and summer selling season. Lenders will be busy, and sometimes very busy. Our advice, which we've offered in the past, is not to wait. For buyers, home affordability has never been better; for refinancers, rates have never been lower.
Given the present market dynamics, we think the risk of waiting to refinance or to buy a home far outweighs the possible reward of a lower home price or a lower interest rate.
Article courtesy of Patti Wilson, Senior Loan Officer, Mutual of Omaha Bank.
MARKET RECAP
Home prices continue to garner front-page attention. CoreLogic reports that prices declined for the sixth-straight month in January, dipping 1% from December. Year-over-year prices are down 3.1%. In short, CoreLogic says that prices are about where they were 10 years ago.
CoreLogic offers one set of data on home prices, Clear Capital offers another, less ominous set. According to Clear Capital, national home prices declined only 1.9% year-over-year. What's more, its data show short-term prices being more stable, with prices falling only 0.6% from the third quarter to the fourth quarter of 2011.
Everyone is keeping a close eye on distressed properties. Now that last year's “robo-signing” foreclosure imbroglio is behind us does that mean we will see a surge in foreclosed and REO properties? And if so, how will they impact inventory and prices?
Pertinent questions, to be sure, and ones we don't have a ready answer for. We do know that the inventory of existing homes for sale declined 21%, or by 600,000 units, in 2011. At the most recently reported sales pace, that means we are looking at 6.1 months of supply – the lowest inventory level since April 2006. Lower supply supports higher prices.
Today's low inventory is attributed to falling foreclosure volume. But now that banks are free to foreclose, two million more homes are expected to hit the market over the next two years. If that's the case, then distressed inventory will rise sharply. Returning to economics: higher supply leads to lower prices.
There are a few extenuating factors though. The economy is improving, and continues to add jobs at an increasing rate. The private sector added 216,000 jobs last month, according to the latest national employment report from Automatic Data Processing. That's a significant increase over the 173,000 jobs added in January. More people working means more people who can afford a home.
The rise in REO properties could be offset by a decrease in other market segments. For instance, there was a significant increase in short sales in the fourth quarter of 2011, which pushed the number up to nearly 910,000 units nationwide. That said, the long-term trend for short sales is down; fewer short sales could be a counterweight to rising REO units.
Housing formation is another attenuating factor. After 2007, household formation plu mm eted to 300,000 per year from its historical rate of 1.25 million. We see a lot of pent up demand. The population continues to grow, the economy continues to improve, home affordability is at a multi-decade high. The market is ripe for a spike in new household formation.
In short, we don't expect new REO properties to upset the housing recovery like the more dire pundits are predicting.
Economic Indicator, Release Date and Time, Consensus Estimate, Analysis.
Retail Sales(February)
Tues, March 13,8:30 am , et
1.1% (Increase)
Important. Sales remain robust on improving consumer confidence.
Federal Reserve FOMC Meeting
Tues, March 13,2:15 pm , et
Federal Funds Rate: 0% to 0.25%
Important. The Fed will hold short-term rates low and monitor agency debt in order to hold long-term rates low too.
Mortgage Applications
Wed., March 14,7:00 am , et
None
Important. The rise in purchase applications points to an encouraging start to the spring buying season.
Producer Price Index(February)
Thurs., March 15,8:30 am , et
All Goods: 0.4% (Increase)Core: 0.2% (Increase)
Moderately Important. Producer prices are heating up, but credit markets remain unfazed.
Consumer Price Index(February)
Fri., March 16,8:30 am , et
All Goods: 0.5% (Increase)Core: 0.2% (Increase)
Important. Deflation is no longer a concern, though rising consumer inflation could cause some Fed members to rethink the Fed's low-rate policies.
Ready, Set, Refinance
We expect to see a surge in mortgage applications in coming months. Couple low rates with HARP 2.0, the federal mortgage program that will enable millions of underwater homeowners to tap the mortgage market, and mortgage loan demand is sure to grow.
The combination of low rates and HARP 2.0 alone is enough to send business through the roof. Now we get word the Obama administration wants to allow more homeowners to refinance by dropping fees on federally insured mortgages. The administration's plan has the FHA dropping upfront insurance premiums on streamline refinances from 1% to 0.01%. The FHA would also drop annual premiums from 1.15% of the loan balance to 0.55%.
There is one catch: the lower fees only apply to borrowers who took out loans before June 1, 2009 . Still, lower-fee FHA loans are expected to help two to three million borrowers refinance.
The prospect of rising mortgage demand is worth keeping in mind as we head into the spring and summer selling season. Lenders will be busy, and sometimes very busy. Our advice, which we've offered in the past, is not to wait. For buyers, home affordability has never been better; for refinancers, rates have never been lower.
Given the present market dynamics, we think the risk of waiting to refinance or to buy a home far outweighs the possible reward of a lower home price or a lower interest rate.
Article courtesy of Patti Wilson, Senior Loan Officer, Mutual of Omaha Bank.
Sunday, March 4, 2012
Keeping you updated on the market. For the week of March 5, 2012.
MARKET RECAP
Home sales have developed a positive up trend in the past six months, and it appears that trend will be sustained at least into the near future.
The pending home sales index rose 2.0 percent in January to hit 97, the highest reading in nearly two years. New contract signings were particularly strong in the South, which posted an impressive 10.5-percent gain. The good is that the rest of the country isn't lagging far behind: national year-over-year contracts are up 8.0 percent.
Lower prices are an obvious factor in driving sales volume. While lower prices drive demand, they also reduce supply. Home supply has been dropping nationally for some time now, though concrete numbers are tough to gauge given the uncertainty over the hidden inventory of foreclosed properties. The estimates we've seen on these shadow homes range between two million to four million nationally.
Whatever the actual numbers are on distressed properties, it appears many markets have already reached peak saturation, which means levels should begin falling. According to analysts at Clear Capital, Atlanta and Tuscon, Ariz. are two regions likely to see a drop in REO properties during the year. We wouldn't be surprised to see similar prognostications forthcoming for Las Vegas, Phoenix, and Central California.
The fact markets are reaching an REO saturation point is one sign that housing is reaching a tipping point. Affordability is another. In many parts of the country, affordability is at a multi-decade high.
We've been preaching over the past year that residential real estate is the investment for the next decade. We stand by our exhortations. Unfortunately, many potential buyers still feel otherwise. They are weary of catching a falling knife; that is, buying a property that will continue to depreciate.
Falling knives were a very real concern three years ago; that's not the case today. Yes, home prices nationally could continue to fall, but you always have to look past national numbers to the local market – many of which are rebounding.
Mortgage rates are another reason we like real estate. Rates continue to skim along a 60-year low. But the economy is improving – GDP posted a better-than-expected annual 3.0-percent growth rate for the fourth quarter of 2011. What's more, job growth has accelerated and unemployment has dropped. In other words, rates are unlikely to go much lower.
Costs associated with mortgages could go higher, though. The buzz on the new HARP 2.0 is growing louder and attracting many underwater borrowers keen to refinance. The buzz will grow even louder over the next month as interest intensifies.
Rising loan demand tilts the table toward lenders, so we think its prudent for potential buyers to not wait and to take advantage of what remains a very low-cost mortgage financing market.
Economic Indicator
Release Date and Time
Consensus Estimate
Analysis
Factory Orders(January)
Mon., March 5,10:00 am , et
0.5% (Increase)
Moderately Important. Manufacturing continues to lead the economy's recovery.
Mortgage Applications
Wed., March 7,7:00 am , et
None
Important. The rising percentage of purchases to refinances reflects greater interest in leveraged real estate.
Consumer Credit(January)
Wed., March 7,3:00 pm , et
$10 Billion (Increase)
Important. The uptrend in credit use reflects rising consumer confidence and continued economic growth.
Employment Situation(February)
Fri., March 9,8:30 am , et
Unemployment Rate: 8.3%Payrolls: 208,000 (Increase)
Very Important. Continued strong job growth could force the Federal Reserve to rethink its low-interest rate policies
International Trade(January)
Fri., March 9,8:30 am , et
$48.8 Billion (Deficit)
Moderately Important. A depreciating dollar and higher oil prices have raised the deficit over the past two months.
The Foreclosures-to-Rental Solution
We tend to become more cautious when a theme grips the market. Residential rental property is the hottest theme these days. Even the great Warren Buffett is bullish on rentals, declaring that he would buy a couple hundred thousand single-family homes and rent them, if only he had a way to manage them.
Another prominent supporter of rentals, Lewis Ranieri, the co-inventor of the mortgage-backed security, lays out the case in a research paper for using federal entities to support converting foreclosed properties into rentals. According to Ranieri, his foreclosure-to-rental model can be developed in “most every market in the United States,” and thus help clear the distressed-housing overhang.
We see a few unintended consequences, though. When markets don't develop organically, there tends to be inefficiency – you get too much or too little of something. Just look at housing six years. The market was incentivized for more home ownership, and we got too much of it.
Single-family rental properties are fine, to be sure, but large swaths of single-family rentals might not be. Rents are rising, but they don't always rise. Rents impacted capitalization rates. If rents drop, so will capitalization rates and property values. In addition, renters don't care for properties as well as owners. Could a higher percentage of neglected properties translate into more downward price pressure for owners?
All we're saying is that before we ask for something we need to be sure we really want it; unintended consequences can be very costly in the long run.
Article courtesy of Patti Wilson, Senior Loan Officer, Mutual of Omaha Bank.
Home sales have developed a positive up trend in the past six months, and it appears that trend will be sustained at least into the near future.
The pending home sales index rose 2.0 percent in January to hit 97, the highest reading in nearly two years. New contract signings were particularly strong in the South, which posted an impressive 10.5-percent gain. The good is that the rest of the country isn't lagging far behind: national year-over-year contracts are up 8.0 percent.
Lower prices are an obvious factor in driving sales volume. While lower prices drive demand, they also reduce supply. Home supply has been dropping nationally for some time now, though concrete numbers are tough to gauge given the uncertainty over the hidden inventory of foreclosed properties. The estimates we've seen on these shadow homes range between two million to four million nationally.
Whatever the actual numbers are on distressed properties, it appears many markets have already reached peak saturation, which means levels should begin falling. According to analysts at Clear Capital, Atlanta and Tuscon, Ariz. are two regions likely to see a drop in REO properties during the year. We wouldn't be surprised to see similar prognostications forthcoming for Las Vegas, Phoenix, and Central California.
The fact markets are reaching an REO saturation point is one sign that housing is reaching a tipping point. Affordability is another. In many parts of the country, affordability is at a multi-decade high.
We've been preaching over the past year that residential real estate is the investment for the next decade. We stand by our exhortations. Unfortunately, many potential buyers still feel otherwise. They are weary of catching a falling knife; that is, buying a property that will continue to depreciate.
Falling knives were a very real concern three years ago; that's not the case today. Yes, home prices nationally could continue to fall, but you always have to look past national numbers to the local market – many of which are rebounding.
Mortgage rates are another reason we like real estate. Rates continue to skim along a 60-year low. But the economy is improving – GDP posted a better-than-expected annual 3.0-percent growth rate for the fourth quarter of 2011. What's more, job growth has accelerated and unemployment has dropped. In other words, rates are unlikely to go much lower.
Costs associated with mortgages could go higher, though. The buzz on the new HARP 2.0 is growing louder and attracting many underwater borrowers keen to refinance. The buzz will grow even louder over the next month as interest intensifies.
Rising loan demand tilts the table toward lenders, so we think its prudent for potential buyers to not wait and to take advantage of what remains a very low-cost mortgage financing market.
Economic Indicator
Release Date and Time
Consensus Estimate
Analysis
Factory Orders(January)
Mon., March 5,10:00 am , et
0.5% (Increase)
Moderately Important. Manufacturing continues to lead the economy's recovery.
Mortgage Applications
Wed., March 7,7:00 am , et
None
Important. The rising percentage of purchases to refinances reflects greater interest in leveraged real estate.
Consumer Credit(January)
Wed., March 7,3:00 pm , et
$10 Billion (Increase)
Important. The uptrend in credit use reflects rising consumer confidence and continued economic growth.
Employment Situation(February)
Fri., March 9,8:30 am , et
Unemployment Rate: 8.3%Payrolls: 208,000 (Increase)
Very Important. Continued strong job growth could force the Federal Reserve to rethink its low-interest rate policies
International Trade(January)
Fri., March 9,8:30 am , et
$48.8 Billion (Deficit)
Moderately Important. A depreciating dollar and higher oil prices have raised the deficit over the past two months.
The Foreclosures-to-Rental Solution
We tend to become more cautious when a theme grips the market. Residential rental property is the hottest theme these days. Even the great Warren Buffett is bullish on rentals, declaring that he would buy a couple hundred thousand single-family homes and rent them, if only he had a way to manage them.
Another prominent supporter of rentals, Lewis Ranieri, the co-inventor of the mortgage-backed security, lays out the case in a research paper for using federal entities to support converting foreclosed properties into rentals. According to Ranieri, his foreclosure-to-rental model can be developed in “most every market in the United States,” and thus help clear the distressed-housing overhang.
We see a few unintended consequences, though. When markets don't develop organically, there tends to be inefficiency – you get too much or too little of something. Just look at housing six years. The market was incentivized for more home ownership, and we got too much of it.
Single-family rental properties are fine, to be sure, but large swaths of single-family rentals might not be. Rents are rising, but they don't always rise. Rents impacted capitalization rates. If rents drop, so will capitalization rates and property values. In addition, renters don't care for properties as well as owners. Could a higher percentage of neglected properties translate into more downward price pressure for owners?
All we're saying is that before we ask for something we need to be sure we really want it; unintended consequences can be very costly in the long run.
Article courtesy of Patti Wilson, Senior Loan Officer, Mutual of Omaha Bank.
Thursday, February 23, 2012
Housing Crisis to End Soon!
Capital Economics expects the housing crisis to end this year, according to a report released Tuesday. One of the reasons: loosening credit.
The analytics firm notes the average credit score required to attain a mortgage loan is 700. While this is higher than scores required prior to the crisis, it is constant with requirements one year ago.
Additionally, a Fed Senior Loan Officer Survey found credit requirements in the fourth quarter were consistent with the past three quarters.
However, other market indicators point not just to a stabilization of mortgage lending standards, but also a loosening of credit availability.
Banks are now lending amounts up to 3.5 times borrower earnings. This is up from a low during the crisis of 3.2 times borrower earnings.
Banks are also loosening loan-to-value ratios (LTV), which Capital Economics denotes “the clearest sign yet of an improvement in mortgage credit conditions.”
In contrast to a low of 74 percent reached in mid-2010, banks are now lending at 82 percent LTV.
While credit conditions may have loosened slightly, some potential homebuyers are still struggling with credit requirements. In fact, Capital Economics points out that in November 8 percent of contract cancellations were the result of a potential buyer not qualifying for a loan.
Additionally, Capital Economics says “any improvement in credit conditions won’t be significant enough to generation actual house price gains,” and potential ramifications from the euro-zone pose a threat to future credit availability.
Additionally, a Fed Senior Loan Officer Survey found credit requirements in the fourth quarter were consistent with the past three quarters.
However, other market indicators point not just to a stabilization of mortgage lending standards, but also a loosening of credit availability.
Banks are now lending amounts up to 3.5 times borrower earnings. This is up from a low during the crisis of 3.2 times borrower earnings.
Banks are also loosening loan-to-value ratios (LTV), which Capital Economics denotes “the clearest sign yet of an improvement in mortgage credit conditions.”
In contrast to a low of 74 percent reached in mid-2010, banks are now lending at 82 percent LTV.
While credit conditions may have loosened slightly, some potential homebuyers are still struggling with credit requirements. In fact, Capital Economics points out that in November 8 percent of contract cancellations were the result of a potential buyer not qualifying for a loan.
Additionally, Capital Economics says “any improvement in credit conditions won’t be significant enough to generation actual house price gains,” and potential ramifications from the euro-zone pose a threat to future credit availability.
Tuesday, February 7, 2012
Keeping you updated on the market! For the week of February 6
MARKET RECAP
Some weeks we feel like Sisyphus: We push the boulder up the hill only to have it roll back down again.
This is one of those weeks. Home prices, which were pushed higher through the first nine months of 2011, began rolling back in the fourth quarter of 2011. Unfortunately, it appears they are not finished rolling.
The latest price data from CoreLogic certainly isn't encouraging on that front. CoreLogic's home price index shows that home prices fell 4.7 percent in 2011, thus marking the fifth-consecutive yearly drop. The positive takeaway is that when distressed properties are excluded, home prices only dropped 0.9 percent. The unfortunate takeaway is that CoreLogic sees distressed properties exerting their negative influence through 2012.
S&P/Case-Shiller's home price data was equally frustrating. According to Case-Shiller, home prices were down 3.7 percent year-over-year in November, with 18 of the 20 markets its follows posting loses. We can take some solace in knowing that the aggregate data were skewed by an 11.8 percent drop in Atlanta and a 9.1 percent drop in Las Vegas. Remove Atlanta and Las Vegas, and the data suggest a more price-stable market.
It's easy to get discouraged when you think markets have turned for the better, only to discover they continue to back track. We refused to get discouraged, though, because there is always good news to found.
Consider homebuilders. Their sentiment and activity have improved palpably over the past few months. Residential construction spending, in particular, has been on the mend. In fact, the latest data from the Census Bureau show spending increased a robust 3.8 percent month-over-month in December, which helped lift the year-over-year rate into positive territory at 0.7 percent.
Another bit of good news for housing, and for all businesses for that matter, is that the economy continues to produce jobs. Automated Data Processing estimates that 170,000 new jobs were created in January. Over the past few months, payrolls have been growing at a monthly six-digit clip. More people earning a paycheck means more people spending and investing.
More people earning a paycheck also means more people who can qualify for a mortgage. And mortgages have never been cheaper. Rates fell again this past week after the Federal Reserve announced it will hold interest rates low through 2014. If you consider rates on an after-tax basis, you're looking at effective rates as low as 2.75% on a 30-year, fixed-rate loan. That's less than the rate of inflation.
We would argue that for most people it's more remunerative to finance a home at these low rates and then invest the money elsewhere than it is to use the cash to buy a home outright. Even though home prices have eased in the past couple months, we still think leveraging real estate is a smart move for buyers and investors with a long-term outlook.
Economic Indicator
Release Date and Time
Consensus Estimate
Analysis
Consumer Credit(December)
Tues., Feb. 7,3:00 pm , et
$10 Billion (Increase)
Important. Consumer willingness to take on more debt points to improved confidence and greater spending.
Mortgage Applications
Wed., Feb. 8,7:00 am , et
None
Important. Extended HARP will likely produce a surge in refinance activity in coming months.
Wholesale Trade(December)
Thurs., Feb. 9,8:30 am , et
No Change
Moderately Important. A rising sales-to-inventory ratio points to improving 1 st-quarter economic growth.
International Trade(December)
Fri., Feb. 10,8:30 am , et
$48.7 Billion (Deficit)
Moderately Important. The deficit has been rising on a stronger dollar.
Time for a New Game Plan
The latest news on falling home prices is frustrating because it appears to be a self-fulling prophesy that is difficult to escape: Falling prices generally spur demand, unless more potential buyers expect that prices will continue to fall, then prices keep falling. Unfortunately, more people believe home prices will continue to fall these days.
Falling mortgage prices, specifically rates, are also a negative, in our opinion. First, the prospect of even lower rates impedes potential borrowers and buyers from acting. If there is a good prospect of getting a better rate tomorrow, why act today? Rising rates, or at least the prospect of rising rates, as we've often argued, would get people moving again.
Ultra-low mortgage rates have also homologated the market, meaning everything fits a specific template because most everything is sold to Fannie Mae and Freddie Mac. Private investors simply can't compete with the government-subsidized loans that dominate the market today. This limits the amount of tailoring that can be done to make each mortgage product best fit the borrower's need.
We understand that mortgage rates are an important variable in home affordability, but affordability isn't as important as clarity on the outlook of the economy. If you are secure in you outlook, half a percentage point won't make much of a difference in your buying or financing decision.
Article courtesy of Patti Wilson, Senior Loan officer, Mutual of Omaha Bank.
Some weeks we feel like Sisyphus: We push the boulder up the hill only to have it roll back down again.
This is one of those weeks. Home prices, which were pushed higher through the first nine months of 2011, began rolling back in the fourth quarter of 2011. Unfortunately, it appears they are not finished rolling.
The latest price data from CoreLogic certainly isn't encouraging on that front. CoreLogic's home price index shows that home prices fell 4.7 percent in 2011, thus marking the fifth-consecutive yearly drop. The positive takeaway is that when distressed properties are excluded, home prices only dropped 0.9 percent. The unfortunate takeaway is that CoreLogic sees distressed properties exerting their negative influence through 2012.
S&P/Case-Shiller's home price data was equally frustrating. According to Case-Shiller, home prices were down 3.7 percent year-over-year in November, with 18 of the 20 markets its follows posting loses. We can take some solace in knowing that the aggregate data were skewed by an 11.8 percent drop in Atlanta and a 9.1 percent drop in Las Vegas. Remove Atlanta and Las Vegas, and the data suggest a more price-stable market.
It's easy to get discouraged when you think markets have turned for the better, only to discover they continue to back track. We refused to get discouraged, though, because there is always good news to found.
Consider homebuilders. Their sentiment and activity have improved palpably over the past few months. Residential construction spending, in particular, has been on the mend. In fact, the latest data from the Census Bureau show spending increased a robust 3.8 percent month-over-month in December, which helped lift the year-over-year rate into positive territory at 0.7 percent.
Another bit of good news for housing, and for all businesses for that matter, is that the economy continues to produce jobs. Automated Data Processing estimates that 170,000 new jobs were created in January. Over the past few months, payrolls have been growing at a monthly six-digit clip. More people earning a paycheck means more people spending and investing.
More people earning a paycheck also means more people who can qualify for a mortgage. And mortgages have never been cheaper. Rates fell again this past week after the Federal Reserve announced it will hold interest rates low through 2014. If you consider rates on an after-tax basis, you're looking at effective rates as low as 2.75% on a 30-year, fixed-rate loan. That's less than the rate of inflation.
We would argue that for most people it's more remunerative to finance a home at these low rates and then invest the money elsewhere than it is to use the cash to buy a home outright. Even though home prices have eased in the past couple months, we still think leveraging real estate is a smart move for buyers and investors with a long-term outlook.
Economic Indicator
Release Date and Time
Consensus Estimate
Analysis
Consumer Credit(December)
Tues., Feb. 7,3:00 pm , et
$10 Billion (Increase)
Important. Consumer willingness to take on more debt points to improved confidence and greater spending.
Mortgage Applications
Wed., Feb. 8,7:00 am , et
None
Important. Extended HARP will likely produce a surge in refinance activity in coming months.
Wholesale Trade(December)
Thurs., Feb. 9,8:30 am , et
No Change
Moderately Important. A rising sales-to-inventory ratio points to improving 1 st-quarter economic growth.
International Trade(December)
Fri., Feb. 10,8:30 am , et
$48.7 Billion (Deficit)
Moderately Important. The deficit has been rising on a stronger dollar.
Time for a New Game Plan
The latest news on falling home prices is frustrating because it appears to be a self-fulling prophesy that is difficult to escape: Falling prices generally spur demand, unless more potential buyers expect that prices will continue to fall, then prices keep falling. Unfortunately, more people believe home prices will continue to fall these days.
Falling mortgage prices, specifically rates, are also a negative, in our opinion. First, the prospect of even lower rates impedes potential borrowers and buyers from acting. If there is a good prospect of getting a better rate tomorrow, why act today? Rising rates, or at least the prospect of rising rates, as we've often argued, would get people moving again.
Ultra-low mortgage rates have also homologated the market, meaning everything fits a specific template because most everything is sold to Fannie Mae and Freddie Mac. Private investors simply can't compete with the government-subsidized loans that dominate the market today. This limits the amount of tailoring that can be done to make each mortgage product best fit the borrower's need.
We understand that mortgage rates are an important variable in home affordability, but affordability isn't as important as clarity on the outlook of the economy. If you are secure in you outlook, half a percentage point won't make much of a difference in your buying or financing decision.
Article courtesy of Patti Wilson, Senior Loan officer, Mutual of Omaha Bank.
Sunday, January 29, 2012
Market Recap for the week of January 30, 2012
MARKET RECAP
The data on housing were mixed this past week, but we would say that, for the most part, they listed more positively than negatively.
Last Friday, the NAR reported sales of existing homes rose 5 percent to an annual rate of 4.61 units in December. This marked the third-consecutive month of sales growth. This latest increase helped reduce inventory to 2.38 million units, the equivalent of a 6.2-month supply at December's sales pace.
Pricing was the one bugaboo in the NAR's data. The median price for an existing home was $166,100 for 2011, a 2.5 percent drop from 2010 and the lowest median price since 2002. This is a disappointment, but hardly a disaster. We’ve said many times that national numbers usually lack a meaningful connection to local markets.
The news on distressed properties was a little more encouraging. RealtyTrac reports that homes in some stage of foreclosure dropped 11 percent in the third quarter of 2011 compared to the previous quarter. Of course, part of the improvement is due to the ongoing matter of banks working through last year's auto-signing imbroglio. That said, our own anecdotal evidence suggests an improving distressed-property market.
The new-home market is also improving, just not so obviously. New home sales eased 2.2 percent to an annual rate of 307,000 units in December, which pushed inventory up to a 6.1-month supply. Like existing-home prices, new-home prices were also pressured for the month, with the national median price dropping to $210,300.
Recent new-home data suggest that December's numbers might just be a hiccup: Homebuilder sentiment has improved markedly in recent months, as has the longer-term sales trend.
Speaking of trends, the trend in mortgage rates is expected to hold for the long term. On Wednesday, the Federal Reserve stated that interest rates will remain low until at least through 2014, pushing back a previous date of mid-2013. According to Federal Reserve data, the economy simply isn't growing at the pace it had expected.
The impact of the Fed's revised policy was both immediate and palpable. Before the announcement, the 10-year Treasury note yield had been creeping higher and was yielding 2.06 percent just before Fed Chairman Ben Bernanke stepped up to the mike. After he had stepped down, the yield had dropped to 1.96 percent.
So it appears low base mortgage rates are with us for the long term, but that doesn't mean low-cost mortgages are. A r ecent increase in fees Fannie Mae and Freddie Mac charge lenders will push costs higher. Expect the fee increase to raise borrowing costs a quarter percentage point.
It's worth pointing out that we said “appears” in connection with low mortgage rates. Nothing is certain where the economy and investor behavior is concerned. To be sure, if we were forced to place a bet, we’d likely bet on January 2013 mortgage rates matching January 2012 rates. We suspect most everyone else would place that same bet. That fact, in and of itself, is a contrarian indicator that rates aren't necessarily destined to stay at today's levels.
Economic Indicator
Release Date and Time
Consensus Estimate
Analysis
S&P Case/Shiller Home Price Index(November)
Tues., Jan. 31,9:00 am, et
0.1% (Increase)
Moderately Important. Prices weakened in the fourth quarter, but are showing signs of stabilizing in January.
Consumer Confidence(January)
Tues., Jan. 31,10:00 am, et
68 Index
Important. Improving confidence will help home sales heading into the spring-buying season.
Mortgage Applications
Wed., Feb.1,7 :00 am, et
None
Important. Activity dropped in the past week, but the four-week trend remains positive.
Construction Spending(December)
Wed., Feb. 1,10:00 am, et
0.2% (Increase)
Important. Spending on residential real estate construction continues to build momentum.
Productivity & Costs(4th Quarter 2011)
Thurs., Feb. 2,8:30 am , et
Productivity: 0.2% (Decrease)Costs: 0.1% (Decrease)
Moderately Important. The drop in productivity and costs reflects slower fourth-quarter economic growth.
Employment Situation(January)
Fri., Feb. 3,8:30 am , et
Unemployment Rate: 8.5%Payrolls: 105,000 (Increase)
Very Important. Falling job growth will further anchor low interest rates.
Buy Low, Be Happy
HomeGain.com, an online real estate marketing firm, recently released a study on homeowner satisfaction. HomeGain found that homeowners with the lowest cost basis were the happiest. Specifically, HomeGain found homeowners who acquired their properties for less than $75,000 were the most satisfied.
Now, HomeGain's survey might seem like an exercise in belaboring the obvious, but it's proof that price really does matter. Despite what has occurred in housing over the past four years, if you purchased a $75,000 home a few years ago, you're likely ahead on your purchase (which is why you're satisfied).
Though it might be obvious, HomeGain's point is, nevertheless, worth driving home to our clients. Price matters, and it matters a lot. Buying at a sufficiently low price can offset many sins.
Low prices are found mostly in depressed markets, which is the housing market today. Depressed markets are ephemeral, so if we want to maximize our clients' happiness in 2020, it behooves us to impress upon them the importance of buying today.
Article Courtesy of Patti Wilson, Senior Loan Officer Mutual Bank of Omaha.
The data on housing were mixed this past week, but we would say that, for the most part, they listed more positively than negatively.
Last Friday, the NAR reported sales of existing homes rose 5 percent to an annual rate of 4.61 units in December. This marked the third-consecutive month of sales growth. This latest increase helped reduce inventory to 2.38 million units, the equivalent of a 6.2-month supply at December's sales pace.
Pricing was the one bugaboo in the NAR's data. The median price for an existing home was $166,100 for 2011, a 2.5 percent drop from 2010 and the lowest median price since 2002. This is a disappointment, but hardly a disaster. We’ve said many times that national numbers usually lack a meaningful connection to local markets.
The news on distressed properties was a little more encouraging. RealtyTrac reports that homes in some stage of foreclosure dropped 11 percent in the third quarter of 2011 compared to the previous quarter. Of course, part of the improvement is due to the ongoing matter of banks working through last year's auto-signing imbroglio. That said, our own anecdotal evidence suggests an improving distressed-property market.
The new-home market is also improving, just not so obviously. New home sales eased 2.2 percent to an annual rate of 307,000 units in December, which pushed inventory up to a 6.1-month supply. Like existing-home prices, new-home prices were also pressured for the month, with the national median price dropping to $210,300.
Recent new-home data suggest that December's numbers might just be a hiccup: Homebuilder sentiment has improved markedly in recent months, as has the longer-term sales trend.
Speaking of trends, the trend in mortgage rates is expected to hold for the long term. On Wednesday, the Federal Reserve stated that interest rates will remain low until at least through 2014, pushing back a previous date of mid-2013. According to Federal Reserve data, the economy simply isn't growing at the pace it had expected.
The impact of the Fed's revised policy was both immediate and palpable. Before the announcement, the 10-year Treasury note yield had been creeping higher and was yielding 2.06 percent just before Fed Chairman Ben Bernanke stepped up to the mike. After he had stepped down, the yield had dropped to 1.96 percent.
So it appears low base mortgage rates are with us for the long term, but that doesn't mean low-cost mortgages are. A r ecent increase in fees Fannie Mae and Freddie Mac charge lenders will push costs higher. Expect the fee increase to raise borrowing costs a quarter percentage point.
It's worth pointing out that we said “appears” in connection with low mortgage rates. Nothing is certain where the economy and investor behavior is concerned. To be sure, if we were forced to place a bet, we’d likely bet on January 2013 mortgage rates matching January 2012 rates. We suspect most everyone else would place that same bet. That fact, in and of itself, is a contrarian indicator that rates aren't necessarily destined to stay at today's levels.
Economic Indicator
Release Date and Time
Consensus Estimate
Analysis
S&P Case/Shiller Home Price Index(November)
Tues., Jan. 31,9:00 am, et
0.1% (Increase)
Moderately Important. Prices weakened in the fourth quarter, but are showing signs of stabilizing in January.
Consumer Confidence(January)
Tues., Jan. 31,10:00 am, et
68 Index
Important. Improving confidence will help home sales heading into the spring-buying season.
Mortgage Applications
Wed., Feb.1,7 :00 am, et
None
Important. Activity dropped in the past week, but the four-week trend remains positive.
Construction Spending(December)
Wed., Feb. 1,10:00 am, et
0.2% (Increase)
Important. Spending on residential real estate construction continues to build momentum.
Productivity & Costs(4th Quarter 2011)
Thurs., Feb. 2,8:30 am , et
Productivity: 0.2% (Decrease)Costs: 0.1% (Decrease)
Moderately Important. The drop in productivity and costs reflects slower fourth-quarter economic growth.
Employment Situation(January)
Fri., Feb. 3,8:30 am , et
Unemployment Rate: 8.5%Payrolls: 105,000 (Increase)
Very Important. Falling job growth will further anchor low interest rates.
Buy Low, Be Happy
HomeGain.com, an online real estate marketing firm, recently released a study on homeowner satisfaction. HomeGain found that homeowners with the lowest cost basis were the happiest. Specifically, HomeGain found homeowners who acquired their properties for less than $75,000 were the most satisfied.
Now, HomeGain's survey might seem like an exercise in belaboring the obvious, but it's proof that price really does matter. Despite what has occurred in housing over the past four years, if you purchased a $75,000 home a few years ago, you're likely ahead on your purchase (which is why you're satisfied).
Though it might be obvious, HomeGain's point is, nevertheless, worth driving home to our clients. Price matters, and it matters a lot. Buying at a sufficiently low price can offset many sins.
Low prices are found mostly in depressed markets, which is the housing market today. Depressed markets are ephemeral, so if we want to maximize our clients' happiness in 2020, it behooves us to impress upon them the importance of buying today.
Article Courtesy of Patti Wilson, Senior Loan Officer Mutual Bank of Omaha.
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