March 2016

Mortgage Rates Rise As Spring Season Begins

According to the Mortgage Bankers Association’s Weekly Applications Survey, average mortgage rates moved up last week from the week before. Rates increased for 30-year fixed-rate loans with conforming balances, mortgages backed by the Federal Housing Administration, and 15-year fixed-rate loans. Interest rates for jumbo loans fell slightly. Despite higher interest rates, however, there is evidence that the spring buying season has begun. In fact, demand for purchase applications was up 2 percent from the week before and is now 21 percent higher than at the same time last year. The improvement was welcome news during a week when overall mortgage application demand was down 1 percent due to dropping refinance activity. But – though higher rates have contributed to fewer homeowners looking to refinance their loans – Lynn Fisher, MBA’s vice president of research and economics, told CNBC that recent comments from Federal Reserve Chair Janet Yellen indicate that the Fed likely won’t raise interest rates again any time in the near future. “As the market incorporates beliefs about a lower rate path in the wake of chairwoman Yellen’s comments, mortgage rates are likely to follow the 10-year Treasury yield downwards this week,” Fisher said. The MBA’s weekly survey has been conducted since 1990 and covers 75 percent of all retail residential mortgage applications. More here.

Buying Still Affordable In Majority Of Markets

RealtyTrac’s Q1 2016 Home Affordability Index looked at median home prices and average wage data in 456 counties across the country to determine how affordable buying a home was now compared to historic norms. According to the results, just 9 percent of counties were less affordable now than previously normal. But – though that means the vast majority of markets are more affordable than they normally are – the number of counties that are now less affordable climbed to 43 from 10 at the same time last year. Daren Blomquist, RealtyTrac’s senior vice president, says if home prices continue to rise faster than wages, that number will grow. “While the vast majority of housing markets are still affordable by their own historic standards, home prices are floating out of reach for average wage earners in a growing number of U.S. housing markets,” Blomquist said. “The recent drop in interest rates has helped to soften the blow of high-flying price appreciation in some markets, but the affordability equation could change quickly if interest rates trend higher and home prices continue to rise faster than wages.” By comparison, 99 percent of analyzed counties were less affordable than normal at the height of the housing bubble. When prices hit their low in 2012, only two of the 456 included counties exceeded historically normal affordability levels. More here.

Pending Home Sales Improve In February

Pending sales refer to the number of contracts to buy homes signed during the month. Because they track signings – and not closings – they are considered a good indicator of future existing home sales. In other words, any increase in pending sales will likely be reflected in upcoming home sales numbers, as those buyers complete the closing process. For this reason, the National Association of Realtors’ Pending Home Sales Index is closely watched by analysts and industry experts. In February, the index rose 3.5 percent and hit a seven-month high. According to Lawrence Yun, NAR’s chief economist, the results are a good indication that the real estate market is beginning to heat up. “After some volatility this winter, the latest data is encouraging in that a decent number of buyers signed contracts last month, lured by mortgage rates dipping to their lowest levels in nearly a year and a modest, seasonal uptick in inventory,” Yun said. “Looking ahead, the key for sustained momentum and more sales than last spring is a continuous stream of new listings quickly replacing what’s being scooped up by a growing pool of buyers. Without adequate supply, sales will likely plateau.” A look at regional results shows February’s improvement was driven primarily by an 11.4 percent gain in the Midwest. However, contract signings also rose in the South and West. The Northeast, on the other hand, was relatively flat, falling just 0.2 percent. More here.

Wages, Home Prices Key To Housing Growth

Last year, high hopes for the housing market looked bleak during what turned out to be a slow winter. Harsh weather stalled activity in some parts of the country and the experts and analysts began to question their optimistic outlook for the year. As spring rolled in, however, sales picked up and 2015 turned out to be a strong overall year for the residential real estate market. This year got off to a similarly slow start. But, according to Fannie Mae’s most recent Economic and Housing Outlook, financial market conditions now appear to be improving and, though challenges remain, strong consumer and business spending combined with a healthy labor market is expected to keep the economy stable. Doug Duncan, Fannie Mae’s chief economist, says that, while the economy has regained its footing, many Americans aren’t seeing similar gains in their income and – along with higher home prices – it’s beginning to cause concern. “A less optimistic outlook for future wage gains, especially among small business employees, coupled with continued strong home price appreciation boosted by lean inventory, is adding to the housing affordability challenge,” Duncan said. “Our latest Home Purchase Sentiment Index shows that high home prices are a top reason for consumers’ perception that it’s a bad time to buy a home. However, low mortgage rates should help support moderate housing expansion as we move through the year.” More here.

Spike In The West Boosts New Home Sales

Sales of new single-family homes rose 2 percent in February from the month before, according to the U.S. Census Bureau and the Department of Housing and Urban Development. The improvement, which follows a 9.2 percent drop in January, was welcome news – though sales still trail last year’s pace by 6.1 percent. Volatility is common when looking at month-to-month sales numbers but the recent ups-and-downs also reflect the nature of the housing recovery. The market has made continual progress but the improvement, at times, has been marked by dramatic swings. A look at regional results can help add clarity and context to the numbers, however. For example, sales surged 38.5 percent in the West. That sales spike pushed national numbers upward and reversed a 32.7 percent January drop in the western states. Elsewhere, winter weather was most likely the cause of double-digit declines in the Northeast and Midwest – which are the same areas that recently suffered slowing sales of previously owned homes. The South, on the other hand, remained relatively stable, slipping just 4.1 percent. Overall, there were an estimated 240,000 new homes for sale at the end of February, which represents a supply of 5.6-months at the current sales rate. More here.

Average Mortgage Rates Decrease

According to the Mortgage Bankers Association’s Weekly Applications Survey, average mortgage rates fell across all loan categories last week, including 30-year fixed-rate loans with both conforming and jumbo balances, loans backed by the Federal Housing Administration, and 15-year fixed-rate mortgages. Despite lower rates, however, demand for loans also fell, dropping 3.3 percent compared to the week before. Most of the drop was due to declining refinance activity – compared with purchase demand, which only fell 1 percent. Lynn Fisher, MBA’s vice president of research and economics, says declining refinance demand is to be expected. “There are fewer borrowers remaining who are able to benefit from low rates,” Fisher told CNBC. “The decline in average refinance loan size is also a feature of a declining refinance market. Borrowers with larger loan balances tend to be more rate sensitive. As refinance applications surge, average loan size tends to go up. As we return to a more normal level of refinance applications, the mix of borrowers returns to normal and average loan size declines.” Demand for loans to buy homes, on the other hand, is 25 percent higher than last year at the same time and expected to spike as the spring season gets underway. The MBA’s weekly survey covers 75 percent of all retail residential mortgage applications and has been conducted since 1990. More here.

Existing Home Sales Fall In February

In January, sales of previously owned homes hit their highest level since 2007. Then, according to new numbers from the National Association of Realtors, February sales fell 7.1 percent. The drop was more than economists expected and a disappointment after a strong start to the year. Lawrence Yun, NAR’s chief economist, called it a step back. “Sales took a considerable step back in most of the country last month, and especially in the Northeast and Midwest,” Yun said. “The lull in contract signings in January from the large East Coast blizzard, along with the slump in the stock market, may have played a role in February’s lack of closings. However, the main issue continues to be a supply and affordability problem. Finding the right property at an affordable price is burdening many potential buyers.” A closer look at the data does reveal a regional difference in sales performance. For example, the Northeast saw a 17.1 percent drop in home sales, while the South only fell 1.8 percent. But, though winter weather may have played a significant role in hampering home sales, a lack of available homes to buy remains the issue to watch as buyers head into the spring and summer sales season. More here.

Gov’t Report Offers Housing Market Snapshot

The U.S. Department of Housing and Urban Development’s monthly Housing Scorecard collects key market data and the results of the federal government’s foreclosure mitigation programs in an effort to provide a monthly snapshot of how the housing market is doing. Home sales and prices, foreclosure starts and completions, prices, equity, and mortgage modification numbers are among the topics commonly covered in the report. Recently released, the February scorecard finds a number of encouraging signs. For example, sales of previously owned homes rose to their second highest pace since 2007 at the beginning of this year and were 11 percent higher than one year earlier in January. Home prices were also up to start the year. According to Federal Housing Finance Agency numbers, home prices have shown a 5.6 percent increase year-over-year for the past six months and are now nearly 30 percent higher than at their low point in 2011. New home sales, on the other hand, fell, dropping 9.2 percent in January from December’s figure. As always, the report cautions that – despite encouraging signs that the housing market has recovered – there is still work to be done to boost home sales, help homeowners who remain underwater, and continue to reduce mortgage delinquency rates. More here.

Misinformation Keeps First-Time Buyers Away

Before the housing crash, first-time home buyers typically accounted for 40 percent of home sales in any given year. Last year, that same group accounted for just 32 percent of buyers. And yet, the Harvard Joint Center for Housing Studies expects the country’s 86 million millennials – along with other first-time buyers – to form about 1.2 million new households per year for the next 10 years. Danny Gardner, Freddie Mac’s vice president, wrote recently that the gap between pent-up demand and actual home buyers can be explained, in part, by persistent misunderstandings about how the buying process works, what it takes to be approved for a loan, and how much is needed for a down payment. “Information is part of the answer,” Gardner wrote. “We have to drive a stake through a few stubborn myths that are draining life out of the market. These familiar myths lead potential buyers to overestimate the credit, income, and down payment savings they need for an affordable mortgage.” Among the mistaken beliefs that may be keeping young Americans out of the market, believing that they need a 20 percent down payment is a big one. In fact, new programs allow qualified buyers to purchase a home with as little as 3 percent down and 40 percent of buyers put down less than 10 percent. Other common buyer misconceptions include, feeling their credit score is inadequate, the process is too complicated, and a previous rejection will prevent them from being approved again. More here.

Single Family Housing Starts Hit 8-Year High

A spike in the number of single-family homes that broke ground in February pushed new home construction levels to their highest point in more than eight years. The 7.2 percent surge passed economists’ expectations and represents a significant rebound following a slow January. The estimates, from the U.S. Census Bureau and the Department of Housing and Urban Development, are good news for the housing market, as more new homes being built should help alleviate upward pressure on home prices by providing much needed for-sale inventory. Building permits, on the other hand – which are a good indication of how many new homes will be built in coming months – were relatively flat from the month before, rising just 0.4 percent over January’s figure. Still, with new-home construction reaching its highest point since November 2007 and a stronger job market leading to increasing household formation, the outlook is positive. Home prices have been rising over the past few years due, in part, to the fact that many markets are seeing heavy buyer demand but fewer homes for those buyers to choose from. In those markets, an increasing number of new homes should help moderate price increases and give buyers more options and negotiating power. Regionally, single-family housing starts surged in the West and Midwest, were flat in the South, and dropped 12.5 percent in the Northeast where harsh winter weather has been more of a factor. More here.