March 2016

Average Mortgage Rates Rise But Remain Low

According to the Mortgage Bankers Association’s Weekly Applications Survey, average mortgage rates increased last week from the week before. In fact, rates were up across all loan categories including 30-year fixed-rate mortgages with both conforming and jumbo balances, loans backed by the Federal Housing Administration, and 15-year fixed-rate loans. Though still low by historical standards, mortgage rates have moved upward two consecutive weeks and the increases have led to a slowing of refinance activity. Last week, refinance demand fell 6 percent. Lynn Fisher, MBA’s vice president of research and economics, told CNBC rates have returned to levels last reached at the beginning of the year. “Financial market volatility subsided last week, allowing rates to increase to levels last seen in January,” Fisher said. “Even though mortgage rates have remained below 4 percent, the appetite to refinance has consistently declined over the last month. Relatively low rates should continue to assist the purchase market.” Purchase demand, however, was flat from the week before, rising just 0.3 percent. Still, demand for loans to buy homes is now 33 percent higher than it was at the same time one year ago. The MBA’s weekly applications survey has been conducted since 1990 and covers 75 percent of all retail residential mortgage applications. More here.

Builder Confidence Holds Firm In March

The National Association of Home Builders’ Housing Market Index measures builders’ confidence in the market for newly-built single-family homes on a scale where any number above 50 indicates that more builders view conditions as good than poor. In March, the index was unchanged from the month before but remained at a high level, holding firm at 58. David Crowe, NAHB’s chief economist, said the March reading is in line with the group’s forecast for 2016. “While builder sentiment has been relatively flat for the last few months, the March HMI reading correlates with the NAHB’s forecast of a steady firming of the single-family sector in 2016,” Crowe said. “Solid job growth, low mortgage rates and improving mortgage availability will help keep the housing market on a gradual upward trajectory in the coming months.” Of the three index components gauging buyer traffic, sales expectations for the next six months and current sales conditions, only current buyer traffic saw an increase, rising four points from the month before. Also in the release, three-month moving averages show the Midwest gaining a point, the South flat, and the West and Northeast declining from the month before. However, every region but the Northeast remains above 50, with the West leading all other regions with a March reading of 69. More here.

True Value: How A Home’s Worth Is Determined

When a home is appraised, the appraiser sizes up the property’s features and, based on similar houses that have recently sold in the area, determines the current value of that particular property. Because they are professionals who are evaluating properties every day, appraisers are among the first to recognize price fluctuations in the local real-estate market. This may account for the gap commonly found between a home’s appraised value and the current homeowner’s expectation of what their home is worth. Naturally a homeowner who is looking to sell or refinance their home will hope their appraisal comes in as high as possible and, because of this, homeowners will often overestimate the value of their property. In fact, according to a recently released survey, homeowners overestimate their homes’ value by an average of 2 percent. It isn’t always bad news, however. According to the survey, homeowners in some cities actually underestimate the value of their home. Denver, San Francisco, Dallas, Portland, Boston, Los Angeles, Miami, and Las Vegas were among the cities where appraised values exceeded homeowner expectations. More here.

Home Equity Continues To Improve

When homeownership is discussed as a way to build wealth, what is really being talked about is equity. Equity refers to the value of a property minus the amount still owed on the mortgage. A homeowner will gain equity when home prices increase and also as they pay off their mortgage. In other words, equity is the part of a property’s value that belongs to the owner. If they sell that house, that money is their’s. Naturally, increasing equity is a good thing for current homeowners and among the main motivating arguments for homeownership. After all, when you pay rent, that money’s gone forever. In recent years, rebounding home prices have led to significant gains in home equity. For example, CoreLogic’s Q4 2015 Equity Report found home equity up 11.5 percent over the same period the year before. It was the 13th consecutive quarter of double-digit improvement. Anand Nallathambi, CoreLogic’s president and CEO, said the number of homeowners with more than 20 percent equity is rising rapidly. “Higher prices driven largely by tight supply are certainly a big reason for the rise, but continued population growth, household formation, and ultra-low interest rates are also factors,” Nallathambi said. “Looking ahead in 2016, we expect home equity levels to continue to build, which is a good thing for the long-term health of the U.S. economy.” More here.

Millennials Eager To Become Homeowners

More than any other age group, Americans between the ages of 18 and 34 feel homeownership is an important part of achieving the American Dream, according to the results of a recently conducted survey. The survey found overall confidence in the housing market is down slightly from last year but aspirations for homeownership are at their highest level in two years. That is largely driven by young Americans who, in addition to expressing a desire to become homeowners, were also more optimistic about home price growth and, among current renters, whether or not they’d someday be able to afford their own home. Millennials are often portrayed as having less interest in homeownership than their parents or grandparents mostly because they’ve been slower than previous generations to enter the housing market. The survey results are encouraging because they show the reverse to be true. It is also good news for the overall housing market, as the number of first-time buyers has lagged behind historical norms over the past few years. More millennial home buyers would boost growth and provide further stability for the housing market. Conducted by Pulsenomics, the survey adds to growing evidence that residential real estate continues to be resilient despite recent economic uncertainty and volatility in the financial markets. More here.

Mortgage Rates Move Up, So Does Buyer Demand

According to the Mortgage Bankers Association’s Weekly Applications Survey, average mortgage rates moved up across all loan categories last week. Increases were seen on 30-year fixed-rate loans with both conforming and jumbo balances, as well as loans backed by the Federal Housing Administration and 15-year fixed-rate mortgages. Though rates remain low by historical standards, last week’s increase slowed refinance demand – which dropped 2 percent from the previous week. Lynn Fisher, MBA’s vice president of research and economics, told CNBC that falling refinance activity has affected average loan size due to the fact that even minor interest rate fluctuations can have a significant effect on larger loans. “Mortgage markets continued to retrench last week,” Fisher said. “Declining refinance activity was accompanied by falling average loan sizes for refinance applications, which have decreased for the third consecutive week after reaching their survey peak.” Purchase demand, on the other hand, was up from the week before. The 4 percent jump in prospective buyers requesting loan applications pushed purchase activity 30 percent above where it was at the same time last year. The MBA’s weekly survey has been conducted since 1990 and covers 75 percent of all retail residential mortgage applications. More here.

More Americans Say Now’s The Time To Buy

A rising number of Americans say now is a good time to buy a house, according to the results of Fannie Mae’s most recent Home Purchase Sentiment Index. The Index – which measures Americans’ perception of the economy and housing market, as well as their personal financial situation – found a 4 percent improvement in the number of respondents who felt it was the right time to buy. That gain could be due to the fact that Americans increasingly feel confident that they aren’t in danger of losing their jobs. It could also be attributed to a feeling that home price increases are beginning to slow. Doug Duncan, Fannie Mae’s senior vice president and chief economist, says slower price appreciation could bring some relief to buyers. “Our February results show the most modest consumer home price expectations since late 2012,” Duncan said. “For consumers who think it’s a bad time to buy a home, whose share has trended up from its recent low last November, high home prices have been an increasingly contributing factor. A slower pace of home price appreciation may provide some relief for potential homebuyers, especially first-time buyers who couldn’t reap the benefits of selling a home at high prices to buy another one.” This combination of increasing financial security and a positive perception of market conditions could help motivate more Americans to think about buying a house this year. More here.

Credit Availability Unchanged In February

Each month, the Mortgage Bankers Association releases a measure of mortgage credit availability in an effort to track whether lending standards are easing or tightening. The index looks at credit score, loan type, and loan-to-value ratio, as well as other factors that determine whether or not a borrower will be eligible for a loan. According to the most recent release, mortgage credit availability was unchanged in February, though the components gauging conforming and government loans both eased from the month before. Lynn Fisher, MBA’s vice president of research and economics, said the results were a mixed bag. “Credit availability was flat over the month. Slight declines in conventional programs aimed at low-to-moderate income borrowers were offset by increasing availability of government-backed programs,” Fisher said. “More than half of the investors in our credit availability data set are now offering some form of a conventional low down payment loan program which is targeted at lower income borrowers and first time home buyers and generally allows a down payment as low as 3 percent.” More here.

Majority Of Boomers Want House In Suburbs

The vast majority of baby boomer home buyers say they’d prefer a house in the suburbs, according to a recent study conducted by the National Association of Home Builders. The survey of recent and prospective home buyers – titled Housing Preferences of the Boomer Generation: How They Compare To Other Home Buyers – asked participants how location, design, size, and individual home features might influence their decision to buy a house. The results found two-thirds of respondents prefer a home in the suburbs, while just over a quarter said they’d like to move to a rural area. Among baby boomers, just seven percent said they’d like to live in a central city location. Also among the survey’s highlights, a large majority of buyers said they’d prefer a single-family detached home. Fewer buyers said they’d be willing to pay more for a house out of concern for the environment. In fact, just 14 percent of respondents agreed. With regard to home design, 37 percent of baby boomers said they’d be willing to buy a house that didn’t have a living room and 50 percent said they’d prefer a home with a full or partial basement. More here.

Why Buyers Need To Watch The New Home Market

Last year, home sales were stronger than they’ve been in a long time. After years of volatility and gradual gains, the buyer boom was a welcome relief. However, the return of buyer demand created a new concern for housing. As more prospective buyers entered the market, there were fewer homes available for them to choose from. This caused home prices to rise. Now – though the housing market remains strong at a time when global economic uncertainty has slowed the U.S. economy – analysts and industry experts are keeping an eye on housing affordability and what affect it may have on sales in 2016. Sean Becketti, Freddie Mac’s chief economist, says the issue isn’t going to be resolved quickly. “Housing was one of the few bright spots in the economy last year, and we expect continued improvement in 2016,” Becketti says. “The imbalance between demand for housing and the supply of both houses and apartments has supported rapid growth in both house prices and rents. The gap between demand and supply will not be closed any time soon, thus we project continued house price appreciation in 2016.” In short, how quickly that gap is closed will be determined by how quickly new homes are being built and put up for sale in any particular area. Though rising equity will lead to more homeowners putting their homes up for sale, new home construction is the real key to balancing the market and stopping affordability from becoming a bigger issue – which is why home buyers would be wise to keep an eye on the new home market. More here.