Market Recap end of August 2011

The woes of homebuilders and anyone dependent on home building continue. The July report on new home sales shows that the annual sales rate has fallen to 298,000 units, hitting a five-month low. The good news is that supply isn't expanding. In fact, only 165,000 homes are in inventory. This is a record low and a 6.6-month supply at the going sales pace.
Homebuilders face a cluster of problems: bargain-priced foreclosures; higher lending standards; and skittish buyers, many of whom have been further put off by the recent stock market sell-off. Mounting concerns of a double-dip recession and rising cancellation rates have only exacerbated homebuilder worries. The chief concern now is that builders could be forced to cut prices, something they've been fighting tooth-and-nail.
Despite the recent spat of bad news, home prices continue to hold their own, and in many instances are moving higher – at least month-over-month. The FHFA home price index for June increased 0.9 percent after posting 0.4 percent and 0.3 percent increases in May and April respectively.
However, does the slump in new and existing home sales portend falling home prices? We remain optimistic that prices will hold. People are understandably wary about big-ticket purchases, like a home, because of slow job growth and stagnating economic activity. But all have a reservation price (a price they will not sell below). Houses (that is, habitable houses) won't be given away, they'll be taken off market if the sales price doesn't exceed the reservation price.
Reservation prices could fall and the monthly price trend could reverse, of course. That said, we think most of the bad news is baked into the system, so we don't think there will be any heavy discounting. In short, we still think a home is a worthwhile investment in today's market.
Mortgages have also been holding a price trend. Bankrate reported that its weekly survey on rates posted another all-time low. It's worth noting, though, that after the survey was released, yields on the 10-year Treasury note spiked 10 basis points, which points to higher mortgage rates in the next survey.
A surfeit of negative news has kept mortgage rates low. This has lead many analysts to opine that ultra-low mortgage rates are the new norm. We think this is a dangerous way of thinking (which we'll explain below) and that it is still best to take advantage of rates unseen in over 50 years.


Economic Indicator
Release Date and Time
Consensus Estimate
Analysis
Personal Income & Outlays(July)
Mon., Aug. 29,8:30 am, et
Income: 0.3% (Increase)Outlays: 0.5% (Increase)
Moderately Important. Income and outlay growth are sluggish, but both categories continue to post gains.
Pending Home Sales Index(July)
Mon., Aug. 29,10:00 am, et
90 Index
Important. July should hold gains posted in June, but recent data suggest some regression in August.
S&P Case-Shiller Home Price Index(June)
Tues., Aug. 30,9:00 am, et
1.0% (Increase)
Moderately Important. Early summer sales prices have shown modest improvement.
Mortgage Applications
Wed., Aug. 31,7:00 am, et
None
Important. Purchase activity hit a 15-year low, which points to lower near-term home sales.
Factory Orders(July)
Wed., Aug. 31,8:30 am, et
0.8%(Increase)
Moderately Important. The yearlong trend in orders still suggests overall economic growth.
Productivity & Costs(2nd Quarter)
Thurs., Sept. 1,8:30 am, et
Productivity: 0.7% (Decrease)Costs: 2.6% (Increase)
Important. Falling productivity and rising costs are indicative of a sluggish labor market.
Construction Spending(July)
Thurs., Sept. 1,8:30 am, et
0.2% (Increase)
Important. Government and commercial spending are pacing any growth.
Employment Situation(August)
Fri., Sept. 2,8:30 am, et
Unemployment Rate: 9.1%Payrolls: 110,000 (Increase)
Very Important. Unexpected job strength (like in July) could move interest rates higher.

Is This the New Norm?
We've gone down the higher-inflation, higher-interest rate road many times in the past, only to find ourselves doubling back. There is an interesting trend occurring with banks, though, that could persuade us to go down it once again.
One of the more vocal criticisms of banks is that they haven't been lending as much as they should. There is some validity to the criticism; banks have been squirreling away a higher amount of reserves with the Federal Reserve, which has attenuated loan supply and, therefore, money supply, thus keeping inflation in check.
Data released by the Federal Reserve show this period of containment appears to be ending. In other words, excess bank reserves are leaking into the economy and money supply is growing. Because we operate in a fraction-reserve banking system, which means one dollar can be sufficiently leveraged to produce nine more, more reserves put to work can quickly raise inflation pressure.
This all might seem abstruse to the layperson unfamiliar with the intricacies of the Federal Reserve and fractional-reserving banking. All we are saying is that it is folly to write off price inflation and the possibility of higher mortgage rates, because there is no “normal” when it comes to financial markets.
Courtesy of Patti Wilson, Senior Loan Officer, Mutual of Omaha Bank
patti.wilson@mutualofomahabank.com

Pending home sales slip in July but up strongly from 2010

WASHINGTON – Aug. 29, 2011 – Pending home sales declined in July but remain well above year-ago levels, according to the National Association of Realtors® (NAR). All regions show monthly declines except for the West, which continues to show the highest level of sales contract activity.
The Pending Home Sales Index (PHSI), a forward-looking indicator based on contract signings, slipped 1.3 percent to 89.7 in July from 90.9 in June; but it’s 14.4 percent above the 78.4 index in July 2010. The data reflects contracts but not closings.
“The market can easily move into a healthy expansion if mortgage underwriting standards return to normalcy,” says Lawrence Yun, NAR chief economist. “We also need to be mindful that not all sales contracts are leading to closed existing-home sales. Other market frictions need to be addressed, such as assuring that proper comparables are used in appraisal valuations and streamlining the short sales process.”
The PHSI in the Northeast declined 2.0 percent to 67.5 in July but is 9.7 percent above July 2010. In the Midwest the index slipped 0.8 percent to 79.1 in July but is 18.8 percent above a year ago. Pending home sales in the South fell 4.8 percent to an index of 94.4 but are 9.5 percent higher than July 2010. In the West, the index rose 3.6 percent to 110.8 in July and is 20.6 percent above a year ago.
“Looking at pending home sales over a longer span, contract activity over the past three months is fairly comparable to the first three months of the year – and well above the low seen in April,” Yun says. “The underlying factors for improving sales are developing, such as rising rents, record high affordability conditions and investors buying real estate as a future inflation hedge. It is now a question of lending standards and consumers having the necessary confidence to enter the market.”
© 2011 Florida Realtors®

The Basic Steps of Foreclosure -easy to follow

WASHINGTON – Aug. 24, 2011 – In recent news, Fannie Mae has publicly assured homeowners going through foreclosure that they will be protected from losing their homes while applying for a federally funded loan modification. Homeowners can apply for a modification at any point before or during the foreclosure process.
If a modification is approved, homeowners can keep their homes if they make their adjusted payments. Absent that, here are the stages of a typical foreclosure:
1) In default: A loan is in default when a mortgage payment is 30 days late.
2) Warning: When a loan is 60 days past due, the bank, credit union or mortgage company warns that foreclosure is the next step.
3) Proceedings begin: After 90 days, the lender refers the loan to its foreclosure department, and hires a local lawyer to begin foreclosure proceedings.
4) Sale advertised: The lender's lawyer advertises the property for sale for four consecutive weeks in a local newspaper. The sheriff's sale date is listed in the advertisement.
5) Sale held: The sale is held on the published date. A sheriff's employee conducts a courthouse auction and the highest bidder wins, usually the bank that owned or serviced the mortgage.
6) Sheriff's deed: The winning bidder gets a sheriff's deed that lists the last date the homeowner can redeem, or take back, the property, usually six months from the date of the sheriff's sale. During this redemption period, the homeowner can live in the property or try to sell it.
7) Redemption period: To redeem a property, the homeowner must pay off the mortgage and all interest and late fees, court and attorney fees, title and appraisal fees, taxes and insurance. Otherwise, they will be evicted from the home.
Copyright © 2011, Detroit Free Press. Distributed by McClatchy-Tribune Information Services.

LESS THAN ONE IN FIVE HOMES HAVE FLOOD INSURANCE!

NEW YORK – Aug. 19, 2011 – Less than a fifth of U.S. homeowners have a flood insurance policy that protects their property and personal belongings, even though more than four out of every five natural disasters nationwide involve flooding, according to the Insurance Information Institute (I.I.I.).
Coverage for flood damage resulting from surface water, including storm surge caused by hurricanes, is excluded under standard homeowners and renters insurance policies. Flood coverage is available from the National Flood Insurance Program (NFIP) and from a few private insurance companies.
During the first six months of 2011, the federal government declared 28 major flood disasters. This put the U.S. well ahead of the pace set in 2010 when 50 federally declared major flood disasters occurred during the entire year.
“People tend to underestimate the risk of flooding,” says Jeanne M. Salvatore, senior vice president and consumer spokesperson for the I.I.I. “But, in fact, 90 percent of all natural disasters in this country involve flooding. It is important to note that there is a 30-day waiting period for flood insurance to go into effect, so don’t delay purchasing this important financial protection.
”The percentage of homeowners with flood insurance was highest in the South, at 19 percent. Thirteen percent of Midwestern homeowners had a flood insurance policy in 2011, along with 12 percent of homeowners in the West and 5 percent in the Northeast.
Consumers can find out their risk of flood and the cost of a policy by going to the NFIP’s website: FloodSmart.gov.
NFIP provides coverage for up to $250,000 for the structure of a home and $100,000 for personal possessions. It provides replacement cost coverage for the structure of a home but only actual cash value coverage for possessions. Replacement cost coverage pays to rebuild a home as it was before the damage. Actual cash value is replacement cost coverage minus depreciation. Flood insurance is also readily available for renters.
There is a 30-day waiting period after applying for flood coverage and paying the premium before the policy goes into effect.
The only exceptions are:
• If a homeowner purchases flood insurance in connection with making, increasing, extending or renewing a loan.
• If a lender determines that a loan on a property that does not have flood insurance should be protected by flood insurance, there is no waiting period as long as the premium is presented at the completion of a loan application.
• There is a one-day waiting period if a homeowner purchases flood insurance during the 13-month waiting period following the effective date of a revised community flood map issued by FEMA, the agency with oversight over NFIP.
“Flood insurance is also easy to buy. It can be purchased from the same agent or company representative who sold you your home or renters insurance policy,” said Salvatore. “So to file a flood insurance claim, you can simply get in touch with your insurance company.”
© 2011 Florida Realtors®

MARKET RECAP

Keeping you updated on the market! For the week of August 8, 2011
MARKET RECAP
Over the past couple weeks we've featured good news on home prices. This week, the good news continues... sort of. Clear Capital reports that home prices improved by 4.1 percent nationally in the second quarter of 2011 compared to the same year-ago quarter. On the flip-side, Clear Capital also says it expects home prices to decline 2.4 percent in the second half of 2011.
We're not quite ready to put any money on Clear Capital's price prediction, because its own data show that all four U.S. regions posted quarterly gains, led by a 6.3 percent gain in the Midwest – the first widespread, non-tax-credit-induced gain in five years.
Reduced inventory levels have helped support prices in recent months. We've noted in past editions that inventory levels have been falling, thanks in large part to a dearth of new-home construction and fewer homes listed for sale.
Normally, shrinking inventory is a positive, because it means demand is rising, which leads to higher home prices. Of course, times aren't normal. In today's environment, an inventory decline also reflects the slow pace at which banks are processing foreclosures, thus pushing the number of newly initiated foreclosures to a three-year low. Concurrently, the backlog of homes in foreclosure has been pushed up to 2.1 million.
The principal concern is that if these homes hit the market in a flood, the price trend could reverse course. Then again, if they hit in a trickle, the up trend could continue unabated. At this point, we think a trickle is more likely than a flood.
Mortgage rates are a more difficult call. After slightly rising the past few weeks, rates tumbled over the past few days, and are the lowest they've been in eight months. There are a number of contributing factors to the mortgage-rate drop: U.S. Treasury securities are again viewed as the ultimate haven. The yield on the 10-year Treasury note has fallen 100 basis points over the past six months and now yields a mere 2.5 percent. (The 30-year fixed rate mortgage tends to be two percentage points higher than the 10-year note.)
The fact is that risk of default was never a concern for U.S. debt investors, or yields would have been rising instead of falling. Investors are more concerned with a slowing economy, and with good reason: gross domestic product grew only 1.3 percent in the second quarter. This puts the annual growth rate far below the Federal Reserve's expectation for 2.7-to-2.9 percent GDP growth this year.
The prospect of a slowing economy, in turn, has pulled a lot of money out of stocks and directed it toward bonds. Stocks have been on their longest losing streak since the financial crisis of 2008; the S&P 500 has lost over 1,000 points over the past 10 trading days.
Fortunately, the economy hasn't ground to a halt. ADP's latest employment report shows that private-sector payrolls grew by 114,000 jobs in July. It's not great, and more job growth is needed to sustain a recovery, but it does show that parts of the economy continue to thrive and grow. That said, the 30-year fixed-rate mortgage is unlikely to clear 5 percent in the near future.

Economic Indicator
Release Date and Time
Consensus Estimate
Analysis
Productivity & Costs(2nd Quarter 2011)
Tues., Aug. 9,8:30 am, et
Productivity: 0.8% (Decrease)Costs: 1.6% (Increase)
Important. Productivity appears to have reached a temporary high, which could lead to a hiring spurt if the economy improves.
Federal Reserve FOMC Meeting Announcement
Tues., Aug. 9,2:15 pm, et
Federal Funds Rate: 0.0% to 0.25%
Important. Short-term rates remain near zero, but talk of more monetary easing could roil credit markets.
Mortgage Applications
Wed., Aug. 10,7:00 am, et
None
Important. Refinance and purchase activity spike on a drop in mortgage rates.
International Trade(June)
Thurs., Aug. 11,8:30 am, et
$47.9 Billion(Deficit)
Moderately Important. The deficit has widened on a weakening dollar.
Retail Sales(July)
Fri., Aug. 12,8:30 am, et
0.5% (Increase)
Moderately Important. Sales have slowed along with economic growth.
Another Contrarian Indicator
We like to keep our eyes open for novel indicators that a market might have reached a saturation point and is ready to turn. We think the Wall Street Journal has provided us with one: Reality television shows are jumping into the foreclosure-deal market, the WSJ reports.
If you think back five years, shows featuring buying and flipping homes were all the rage. Their peak popularity coincided with a peak in the housing market. (As an aside, anyone interested in collectibles should note the surfeit of shows – pawn shops, pickers, storage-unit hunters, and antique auctions – that are the rage today.)
We view the rising popularity of foreclosure shows positively: For one, it raises interest (and prices) on foreclosed homes, which will help clear the market sooner. More important, these shows suggest a market saturation point, and a possible turning point toward fewer foreclosures and higher-priced foreclosures.
Of course, this “reality-show” indicator is far from scientific, but than again, the past frequently is prologue, and these shows have frequently pointed to market tops and bottoms.


Email to: patti.wilson@mutualofomahabank.com
If you wish to unsubscribe, click on the following link and send the email: Click Here To Unsubscribe
EQUAL HOUSING OPPORTUNITY
This Newsletter is for informational purposes only. The information contained herein may not be applicable to every situation or jurisdiction and we urge you to consult your professional advisor prior to acting on information contained herein. The content, accuracy and opinions expressed herein are not verified or endorsed by the sponsor hereof.

National Association of Realtors - Pending Home Sales Rise in June

NAR: Pending home sales rise in June
WASHINGTON – July 28, 2011 – Pending home sales increased in June following a wide swing down in April and then up in May, according to the National Association of Realtors® (NAR). Month-to-month activity increased in the West and South but declined in the Midwest and Northeast. However, all regions show strong double-digit gains from a year earlier.The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 2.4 percent to 90.9 in June from 88.8 in May, and is 19.8 percent above the 75.9 reading in June 2010, which was the low point immediately following expiration of the homebuyer tax credit. The data reflects contracts but not closings.
Lawrence Yun, NAR chief economist, said there may be some increase in closed existing-home sales.“For the majority of transactions, the lag time between pending contacts to actual closings is one to two months. Therefore, the two consecutive months of rising activity should lead to overall improvement in closed sales in upcoming months,” he said. “Though a higher than normal cancellation rate can hold back final closing figures, it could well be that some past cancellations are nothing more than delayed buying decisions rather than outright cancellations.”Yun said tight credit and economic uncertainty have been constricting the market. “The best way to ensure a more solid recovery in housing is to simply return to normal, sound credit standards so more creditworthy homebuyers can get a mortgage,” he said.
“Washington also should not rock the boat with policy changes that would negatively impact affordable credit or otherwise increase the cost of buying or owning a home,” Yun added.
The PHSI in the Northeast slipped 0.4 percent to 68.9 in June but is 19.4 percent higher than June 2010. In the Midwest the index fell 3.7 percent to 79.7 in June but is 26.4 percent above a year ago. Pending home sales in the South increased 4.4 percent to an index of 99.2 and are 19.1 percent higher than June 2010. In the West the index rose 6.4 percent to 107.0 in June and is 16.4 percent above a year ago.
Existing-home sales this year are expected to total 5.0 million, slightly higher than 2010. Similarly, little change is forecast for aggregate home prices with several indicators, including NAR’s median prices, showing recent signs of stabilization.
© 2011 Florida Realtors®