Real Estate Outlook: Mixed Messages

The housing market may be reverting back to its old pattern of sending mixed messages at least that's the way it looks from the latest numbers.

On the one hand, last week was outstanding for home builders.

Nationwide new home starts, which are a key indicator not only of where real estate is headed but of builder confidence levels, increased by 10.2 percent to hit their highest total since August of 2008.

On a regional basis, starts were even more impressive in some areas. The Northeast saw a huge jump of 24 percent for the month. The Midwestern states were up 17 percent, the South by 7 percent.

Only the Western region saw starts fall -- by 13 percent.

Some analysts attributed the sudden burst in building activity to rising sales of new homes by purchasers seeking to qualify for federal tax credits.

Those sales burned off unsold inventory, according to David Crowe, chief economist of the National Association of Home Builders, and allowed builders to get back to what they do best -- building more houses.

But there was a complication here: Permits for new single family homes dropped sharply in April, by nearly 11 percent.

How do you figure that? Well, probably the best explanation is that builders are playing it safe on pulling new permits for future starts. With unemployment still close to 10 percent, builders aren't totally sure about the strength and duration of the national economic recovery. They don't want to be stuck with excess production next year.

Meanwhile, there were some other sobering numbers indicating that the housing rebound is not going to simply go straight up, but is likely to move in fits and starts.

New applications for mortgages to purchase homes plunged by 27 percent last week, according to the Mortgage Bankers Association.

Part of that can be explained by the fact that purchase applications ran high in the weeks leading up to the April 30th contract deadline for tax credit home purchases.

There were predictions that loan applications might take a tumble when the credits disappeared - and that's what we're seeing.

And finally, just to add to the mixed message theme, new national research from real estate data company CoreLogic found that home prices are rising in most markets, after nearly 3 years of negatives.

Nationwide, according to the CoreLogic Home Price Index, prices rose in the latest month by nearly two percent on average over year-earlier levels.

Prices in a handful of local markets, San Jose, Buffalo, Denver and San Diego among others, gained by more than double that rate.

Source: Kenneth R. Harney: May 24, 2010

Mortgage Rates Hold Steady This Week

Mortgage interest for the week held fairly close to the previous week's rates, reports Freddie Mac.

Average interest on 30-year fixed loans slipped a notch to 4.98 percent from 4.99 percent and was down from 5.10 percent a year ago.

Here's how other rates fared for the week:
15-year fixed loans dropped down to 4.39 percent from 4.40 percent.
Five-year adjustable-rate mortgages dipped to 4.25 percent from 4.27 percent.
One-year ARMs came down to 4.29 percent from 4.32 percent.

While still higher than the historic lower of 4.71 percent established in early December, long-term mortgage rates have hovered around a very favorable 5 percent thanks to the Federal Reserve's mortgage-backed securities program meant to keep rates low and make home buying more affordable.

The central bank's policymaking committee confirmed on Jan. 27 that it will keep rates near those record lows in order to prop up the economy; but it still plans to terminate the program at the end of March.

Low rates also trigger more refinancing activity, according to Freddie Mac. In the 2009 fourth quarter, it said, about a third of borrowers who refinanced a home loan -- the highest share since at least 1985 -- opted to slash their principal balance rather than tap into their equity.

As a result, only around $11 billion in home equity -- the smallest quarterly volume in about nine years -- was tapped by consumers who refinanced a conventional, prime mortgage.

Source: Memphis Daily News (01/29/10)

Rebound in 2010?

RISMEDIA, January 21, 2010—(MCT)—According to David Crowe, chief economist of the National Association of Home Builders, home builders, mired in their deepest slump since the Great Depression, are likely to see a rebound in sales in 2010 as stabilizing home prices and record-high affordability conditions draw buyers into the market.

“The stage is set for the consumer to return,” said Crowe. “It won’t be a strong recovery, but it will be a recovery.” Crowe predicts that housing starts will rise more than 25% in 2010, to 700,000 units, from 550,000 in 2009. Low interest rates will continue to help the housing industry: Even though they are expected to rise, the 30-year mortgage—now just above 5%—will stay below 6% through the year, predicted Frank Nothaft, chief economist for mortgage agency Freddie Mac.

But Crowe and other economists speaking at the International Builders show, being held this week in Las Vegas, cautioned that there are plenty of reasons to be cautious about the home building outlook for 2010. Even home builders themselves are reluctant to embrace the positive predictions.

Any optimism on home building should be tempered on a number of counts, said Ed Sullivan, chief economist for the Portland Cement Association, whose members provide concrete used in residential and commercial projects. “I’m much more cautious as to the magnitude and timing of when that optimism comes,” Sullivan said. “There are hurdles still facing this industry and the issues don’t start to abate until the second half of this year.” Single-family starts could rise 20% in 2010, but that is “from a desperately low level and pathetically mild in absolute numbers,” he said.

Sullivan laid out six items that work against any big recovery in housing in 2010:

-A slow labor market recovery. “Much hinges on the labor market and when that turns,” Sullivan said. But both the government’s payroll survey and the household survey show continuing, if moderating, job losses. “Employment is the No. 1 reason caution persists,” Crowe said. “We’re not going to add jobs for at least several more months.”

-Payback from the expiration of the home buyer tax credit. “The tax credit is pulling people forward who were in the market anyway. So the sales pace isn’t quite as vibrant as suggested by the raw data. There could be a payback that materializes in July when the current version expires,” Sullivan said.

-Rising foreclosures. Moratoriums on foreclosures and an unworkable backlog that paralyzed many lenders made it look as if the foreclosure situation was easing in the second half of 2009. Expect the pace to accelerate this year. “Serious-delinquency rates haven’t peaked yet,” said Nothaft. “That usually happens six to 12 months after the employment recovery begins.”

-Price pressures. A rise in bank repossessions of homes will undoubtedly create additional pressure on home prices, Sullivan said. “Home prices have stabilized, but is that permanent?” asked David Berson, chief economist for PMI Group, a mortgage-insurance firm. “You’ll see more price declines—part is seasonal because we always see declines in the winter, but we’ll see more delinquencies and foreclosures,” and that could add to inventory increases and price cuts. “It could be three years before we get back to the long-term trends of home price appreciation,” Berson said.

-Tight lending standards. Mortgage lenders are unlikely to ease underwriting standards with the labor market soft and home prices unstable. That will crimp housing demand, Sullivan said.

-The potential for interest-rate increases. Lenders may demand a bigger risk premium for home loans in this environment and with the Fed about to wind down its purchases of mortgage-backed securities, there is a potential that interest rates will rise this year.

The good news? “Once we get out of this, there is going to be a lot of pent-up demand that is going to be released in 2011, 2012 and 2013,” Sullivan said.

Though December 2009 was another slow month for housing, sales and traffic picked up immediately following Christmas and continue to show more strength into the New Year, according to John Burns Real Estate Consulting’s January survey of home builders. “Traffic improvements are more about quality than about sheer numbers,” said Jody Kahn, a vice president with the firm. “Still, this better end to the year buoyed builders’ perspectives for the next six months.”

Kahn said new home prices were mostly flat around the country, with four key regions—Southern California, Texas, Midwest and southern Florida—showing stable prices for the first time since the downturn began. That price stability, though, may have contributed to slowing sales in all but the southern Florida region.

According to the survey, many builders are starting the year with low inventories of homes for sale, following a strong fall for deliveries. But Kahn said a rise in inventory is expected through March as home builders anticipate a strong spring selling season, sparked in part by the April 30 deadline to qualify for the home buyer tax credit.

(c) 2010, MarketWatch.com Inc.

Distributed by McClatchy-Tribune Information Services.

Mortgage Modification Plan Falls Short

Only 65,000 people – about 7 percent of those who applied – have successfully navigated President Obama’s plan to help borrowers who are in trouble, the Treasury Department said last week.

About 49,000, or 5 percent, have dropped out of the program because they don’t qualify. Most of the remainder are still waiting.

Bank of America, the largest company in the program, has completed fewer than 2 percent of the modifications for 200,000 borrowers who signed up. The most successful lenders include Ocwen Financial Corp. and Carrington Mortgage Services, which have modified loans for 40 percent of their enrolled borrowers.

Source: Associated Press, Alan Zibel (01/15/2010)

Downpayment, Closing Costs Biggest Obstacles

Most Americans still consider having enough money for downpayment and closing costs to be the biggest obstacles to buying a home, according to the 2009 National Housing Pulse Survey, an annual survey released Thursday by the NATIONAL ASSOCIATION OF REALTORS®.

The survey, which measures how affordable housing issues affect consumers, also found job security concerns to be the highest in seven years of sampling. Two-thirds of Americans think job layoffs and unemployment are a big problem; eight in 10 cite these issues as a barrier to homeownership.

“Homeownership is an investment in your future; however, saving for a downpayment and closing costs is still too great of an obstacle for 82 percent of house hunters looking to take advantage of the current market,” says NAR President Charles McMillan. “Monetizing the $8,000 first-time buyer tax credit for downpayment or closing costs on FHA-insured mortgages is a positive first step. Our hope is that the tax credit will be extended and expanded to all home buyers and will help bring stability to the housing market and enable more Americans to achieve the dream of homeownership."

Survey: Consumers Still Believe in Homeownership

Despite the challenges with the economy and housing market, 83 percent of Americans still believe buying a home is a good financial decision.

Three-fourths of those surveyed also believe now is a good time to buy a home, a number that has increased steadily the past two years. In fact, one-third of renters are thinking more about buying home than they were a year ago.

While Americans are seeing more stability in the real estate market, uncertainty persists. The number of those who feel buying and selling activity has stabilized or stayed nearly the same has grown significantly, from 18 percent last year to 26 percent this year. However the majority (58 percent) report that activity in their market has slowed.

Regarding home sales, nearly eight in 10 say it’s harder to sell a home in their area today than it was a year ago, despite the fact that nearly three-fourths of respondents say home prices are less expensive. Large home inventories could be to blame; 44 percent cite concerns about the high number of homes and condos for sale in their area.

While nearly three-fourths of Americans are concerned about the local drop in home values, respondents expect to see more stability in the near future. Nearly seven in 10 expect local home prices to remain about the same in the next three months; only 18 percent expect prices to further decrease. The drop in prices has improved affordability, and consequently, concerns about the lack of affordable housing are the lowest they’ve been in seven years of polling – 34 percent say it’s one of their biggest worries, down from 41 percent two years ago.

Foreclosures Among Top Concerns

Foreclosures remain a real concern among survey respondents. Slightly more than half (51 percent) say foreclosures are a big to moderate problem in their area. However, the rate of foreclosures is generally seen as stabilizing; 41 percent say the rate of foreclosures in their area is about the same as last year.

Ninety-two percent of respondents said neither they nor members of their immediate family have experienced a foreclosure in the past year, yet it is still a personal concern for many. One in five respondents said they are very or fairly worried that they will have difficulty making their mortgage payments over the next year. Thirty-two percent say it’s a big or moderate worry that they, or a member of their family, may have their home repossessed or foreclosed because they are unable to pay rising monthly mortgage payments.

In 2008, more than half of respondents (54 percent) were open to the federal government taking a more active role in overseeing mortgage and lending practices – the number dropped this year to 47 percent. This could be because 42 percent of Americans believe the country is back on the right track, more than double the number last year (16 percent).

Obtaining Financing Another Obstacle

Regarding financing, seven in 10 Americans cite a lack of confidence in their ability to be approved for a home loan as an obstacle to homeownership. The same number also say that banks are making it too hard to qualify for a loan (71 percent) and that fewer mortgage options offered by banks have made it harder for them to buy a home (71 percent). The perception of qualifying for a loan as a huge obstacle is especially high among minorities.

“Home buyers need protection from risky lending products but also need access to mortgages at a reasonable cost. While there has been some easing of credit in the mortgage market, the availability of credit continues to be an issue for many qualified home buyers,” says McMillan.

The 2009 National Housing Pulse Survey is conducted by American Strategies and Myers Research & Strategic Services for NAR’s Housing Opportunity Program. The telephone survey was among 1,250 adults living in the 25 most populous metropolitan statistical areas.

Source: NAR