Pending home sales slip on constrained inventory.

                   

WASHINGTON – March 27, 2013 – February pending home sales flattened with limited buyer choices, but remained at the second highest level in nearly three years, according to the National Association of Realtors^® (NAR). 

The Pending Home Sales Index, a forward-looking indicator based on contract signings, slipped 0.4 percent to 104.8 in February from a downwardly revised 105.2 in January, but is 8.4 percent higher than February 2012 when it was 96.6. Contract activity has been above year-ago levels for the past 22 months; the data reflect contracts but not closings.

Before January, the last time the index showed a higher reading was in April 2010 when it was 110.9, shortly before the deadline for the homebuyer tax credit. 

NAR Chief Economist Lawrence Yun said limited inventory is holding back the market in many areas.

“Only new home construction can genuinely help relieve the inventory shortage and housing starts need to rise at least 50 percent from current levels,” he said. “Most local home builders are small businesses and simply don’t have access to capital on Wall Street. Clearer regulatory rules, applied to construction loans for smaller community banks and credit unions, could bring many small-sized builders back into the market.”

The PHSI in the Northeast declined 2.5 percent to 82.8 in February but is 6.8 percent above February 2012. In the Midwest the index rose 0.4 percent to 103.6 in February and is 13.2 percent higher than a year ago. Pending home sales in the South slipped 0.3 percent to an index of 118.8 in February but are 12.1 percent above February 2012. In the West the index increased 0.1 percent in February to 101.4 but is 0.8 percent below a year ago.

Yun projects existing-home sales to rise about 7 percent in 2013 to approximately 5 million sales, which is near the current level of activity.

“The volume of home sales appears to be leveling off with the constrained inventory conditions, and the leveling of the index means little change is likely in the pace of sales over the next couple months,” he said.

The national median existing-home price is forecast to rise nearly 7 percent this year, while mortgage interest rates should remain historically low but trend up slowly and reach 4 percent in the fourth quarter. 

© 2013 Florida Realtors®

Move up Buyers Shouldn't wait!

                       

SEATTLE – March 22, 2013 – Although waiting a few years to sell a home will likely mean a higher sales price, the cost of a bigger new home will increase as well, according to an analysis by Redfin. Financially, it makes more sense to capture today’s relatively low prices on the more expensive home.

Additionally, interest rates are still near record lows, but they’ll almost certainly rise over time, which means a higher monthly mortgage payment. In the next 12 months, the Mortgage Bankers Association expects rates to rise to 4.4 percent. Over a longer period, they are likely to be even higher, considering a 20-year U.S. average mortgage rate of about 6.5 percent.

The rationale for moving up now is fairly simple. A $100,000 home that appreciates 10 percent in one year would net a home seller an additional $10,000. But if that owner hopes to move into a home worth $200,000, the increased cost of the home one year from now, at the same 10 percent, would be $20,000 more.

© 2013 Florida Realtors®

Keeping you updated on the Market. For the week of March 25, 2013.

MARKET RECAP Home Builders Take a Holiday The holiday we refer to is from optimism. Over the past 18 months, builder optimism has moved meaningfully higher to a recent high of 47 from a low of 9, according to the NAHB's sentiment index. This month, though, sentiment dropped to 44. Demand for new homes remains robust, but supply issues – in labor and building-material – are hampering construction. Home builders are equally frustrated by restrictive appraisals and tight lending standards. As for lending standards, we concur. Underwriting standards remain too restrictive. For this, we can blame uncertainty and tighter regulations. We were encouraged to hear Federal Reserve Chairman Ben Bernanke agree with our assessment. In a press conference earlier this week, Bernanke told reporters the Fed is seeing "much higher credit-quality requirements" from potential borrowers. Bernanke cited the rule where mortgages could be put back to banks as being particularly detrimental to risk taking. There are no free lunches. When the uncertainty and cost of doing business rise, businesses – including mortgage lenders – take action to mitigate uncertainty and to recover costs. Yes, the Fed gives on the one hand by continuing to buy mortgage-backed securities at the rate of $40 billion a month. On the other hand, the pool of potential borrowers is reduced by higher lender costs and the increased risk of doing business. So we can understand why home builders might feel down from time to time. But we did say the builders were taking a “holiday” from optimism. Given strong demand for new homes and rising construction, we don't expect them to remain down for long. The good news is that home builders continue to break new ground at an expanding rate. Housing starts increased 0.8% in February, pushing starts up to an annualized rate of 917,000 units. The trend in permits portend increased activity heading into spring. Permits rose 4.6% to an annual pace of 946,000 units in February. When viewed from a longer-term perspective, you can see home builders have made significant progress and have room to accommodate more progress this year. Rising prices will continue to move the housing recovery along. Zillow reports that home values rose for a 16th-consecutive month in February. Zillow's home price index shows the average home value at $158,100. Of course, within the context of an entire country that doesn't mean much. What's meaningful is that monthly and annual price appreciation was recorded in 30 of the largest markets Zillow follows. Rising prices, in turn, reduce negative equity. CoreLogic's research shows that 200,000 homes were lifted into positive equity during the fourth quarter of 2012. This brings the total number of homes that moved to positive from negative to 1.7 million in 2012. Time plays a role as well: amortization and rising prices are working together to hurry the process along. In other words, time really does heal all wounds, though it hardly feels that way at the beginning of the process.   Economic Indicator Release Date and Time Consensus Estimate Analysis New Home Sales (February) Tues., March 26, 10:00 am, ET 435,000 Units (Annualized) Important. Low inventory and tight credit is hampering sales growth. Mortgage Applications Wed., March 27, 7:00 am, ET None Important. Higher lending rates have slowed applications, but the recent rate drop should rekindle activity. Pending Home Sales Index (February) Wed., March 27, 10:00 am, ET 2% (Increase) Important. Existing-home inventory is showing signs of expanding, which bodes well for sales growth. Gross Domestic Product (4th Quarter 2012) Thurs., March 28, 8:30 am, ET 0.6% (Annualized) Important. This revised version of GDP points to an uptick in economic activity, which could lead to an uptick in interest rates.   It Really is a Small World After All Mortgage rates were down significantly this past week. In some instances, they were down over 10 basis points. For this, we can thank (blame?) the tiny country of Cyprus. It seems odd that a tiny Mediterranean-sea country of 1.1 million inhabitants would influence interest rates in a country – the United States – with a population of 313 million. So what's going? Today's financial institutions are closely intertwined – though lending, borrowing, trading, and market-making relationships. This raises the contagion risk, where something bad in one country can quickly spread. We saw that occur in 2008 when many of the world's largest financial institutions were at risk of collapse. In Cyprus' case, a banking panic was initiated when the European Union insisted Cyprus implement a 6.75% tax on bank deposits less than 100,000 euros and a 9.9% tax on larger deposits. In exchange, Cyprus banks would receive a ten-billion euro bailout. The fear is that other European countries ( Italy in particular) could be forced to impose the same tax, thus resulting in a mass run on those banks. In short, fear and uncertainty again sent investors to the haven investments of U.S. Treasury and U.S. mortgage-backed securities; hence the lower mortgage lending rates, which we don't expect to last. Fear passes quickly these days, so we suggest borrowers act quickly.

Keeping you updated on the market!

Keeping you updated on the market!
For the week of

March 18, 2013

MARKET RECAP We've been warning over the past few months that accelerating job growth would lead to higher mortgage rates. That's exactly what's occurred. Last Friday, the Commerce Department released its employment report, which showed 236,000 new jobs were created, topping most economists' estimates. The surge in job creation dropped the unemployment rate to 7.7% from 7.9%. The rate of job growth frequently reflects the rate of economic growth. When economic growth accelerates, so does the demand for loanable funds. Interest rates, in turn, rise. But they rise not only because of increased demand, they rise also because economic growth stimulates inflation – a key component in interest rates. We weren't surprised, then, to see the spike in mortgage rates – particularly in the 30-year fixed-rate loan – that occurred this past week after the release of the employment data. Many lenders are concerned that rising rates will take the steam out of the housing recovery. We are more sanguine. As long as rising interest rates are accompanied by rising job growth, the impact will be minimal. Low rates have done their job, and employment and economic growth are the most important factors to maintaining the housing recovery at this point. Rising rates will slow refinances, but we expect purchase activity to pick up the slack. More people working, and more people working at better-paying jobs, means more people will qualify for a loan. Just as important, they'll qualify for a higher-rate loan that they can still comfortably service. In short, we don't see rising rates as an impending disaster. The robust interest by investors in single-family homes will also help keep the housing market moving on a northeast trajectory. Low purchase prices and the potential for capital gains have pulled many real estate-minded investors into the market. We've mentioned in the past how large institutional investors have acquired large swaths of single-family homes. That said, most people still prefer to own than to rent. Surveys compiled by the National Association of Home Builders (as well as other groups) find that most people overwhelming want to own a home. This shouldn't come as a surprise; neighborhoods of owners tend to be more stable and better-maintained than neighborhoods of renters. We're not disparaging investors (or renters). In fact, they are doing the market a service. But over time, we expect more of these rental properties to transition to owner-occupied properties – and that's a good thing.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Home Builder Index (March)	Mon., March 18, 10:00 am, ET	47 Index	Important. Improved job prospects should raise builder confidence.
Housing Starts (February)	Tues., March 19, 8:30 am, ET	910,000 Units (Annualized)	Important. Rising starts reflect builder optimism. Rising starts are also a key component in economic growth.
Mortgage Applications	Wed., March 20, 7:00 am, ET	None	Important. Applications fell on rising rates, but rates should level out this week.
Federal Reserve FOMC Meeting	Wed., March 20, 2:00 pm, ET	Federal Funds Rates: 0.0% to 0.25%	Important. There will be no change in the Fed's low-rate bias, but their could be hints of a potential change in bias.
Existing Home Sales (February)	Thurs., March 21, 10:00 am, ET	5 Million Units (Annualized)	Important. Volume is picking up but remains restrained by low inventory.

Focus on Affordability At 2.07 million units, housing inventory is at its sixth-lowest level in 30 years, according to Capital Economics. Low inventory has helped with rising home prices. And even though prices have been rising, affordability remains high. The NAR's Housing Affordability Index measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home based on the most recent monthly price and income data. We've read many predictions that high affordability will persist indefinitely. LPS Applied Analytics, for one, believes home values could rise an additional 35% before affordability becomes an issue. We're a little more circumspect. Bank of America recently revised its expectations for home prices, expecting prices at the national level to rise 8% in 2013. A few months ago, Bank of America was forecasting a 4.7% increase. Given rising interest in single-family homes, we don't think Bank of America's expectations are unreasonable. Home prices could very well rise 8%, but it's highly unlikely personal income will rise at the same rate. At the same time, mortgage rates will also rise with more job creation, which will make mortgages more expensive. The point we want to emphasis is that, yes, homes are still very affordable, but there is no guarantee they will remain so. In fact, it's financially risky to expect the market that exists today – in both houses and mortgages – to exist tomorrow.